<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 15, 1999
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
THE PIETRAFESA CORPORATION
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 2310 22-3607757
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
7400 MORGAN ROAD
LIVERPOOL, NY 13090
(315) 453-4300
ATTN: Mr. Richard C. Pietrafesa, Jr.
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
IT IS REQUESTED THAT COPIES OF COMMUNICATIONS BE SENT TO:
L. KEVIN SHERIDAN, JR., ESQ. STEPHEN T. BURDUMY, ESQ.
ROBERTS, SHERIDAN & KOTEL KLEHR, HARRISON,
A PROFESSIONAL CORPORATION HARVEY, BRANZBURG & ELLERS LLP
12 EAST 49TH STREET, 30TH FLOOR 1401 WALNUT STREET
NEW YORK, NEW YORK 10017 PHILADELPHIA, PENNSYLVANIA 19102-3163
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If any of the Securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933,
check the following box: [_]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Proposed
Amount Proposed Maximum Maximum
Title of each Class of to be Offering Aggregate Amount of
Securities to be Registered Registered (1) Price Per Share (2) Offering Price Registration Fee
- --------------------------------- ------------------- ------------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Class A Common Stock $50,000,000 $13,900
</TABLE>
- -----------------------
(1) Includes up to ____ shares that may be purchased from the Company at the
option of the underwriters solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MARCH , 1999
Shares
Class A Common Stock
[LOGO]
$ per share
We, The Pietrafesa Corporation, are offering shares of our Class A
Common Stock. This is our initial public offering. We expect that the initial
public offering price to the public will be between $ and $ per share. The
market price of the shares after the offering may be higher or lower than the
offering price.
The Class A Common Stock is one of two classes of Common Stock of The
Pietrafesa Corporation and has limited voting rights. Holders of shares of Class
A Common Stock will elect 25% of the directors. Holders of shares of Class B
Common Stock will elect 75% of the directors and will have the power to decide
substantially all other matters submitted to stockholders. The Class B Common
Stock is not being offered to the public and is currently held by a private
limited partnership. Holders of shares of Class A Common Stock will have limited
voting rights until all shares of Class B Common Stock are converted into Class
A Common Stock.
An application has been filed with the Nasdaq National Market to have the
Class A Common Stock listed under the symbol "BRND."
Investing in the Class A Common Stock involves risks. See "Risk Factors"
beginning on page 11.
Per Share Total
--------- -----
Price to the public........................... $ $
Underwriting discounts and commissions........ $ $
Proceeds to The Pietrafesa Corporation........ $ $
The Pietrafesa Corporation has granted the underwriters an option to
purchase up to an additional shares to cover over-allotments within 30 days
following the date of this prospectus. The underwriters expect to deliver the
shares to purchasers on , 1999.
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
JANNEY MONTGOMERY SCOTT INC.
EVEREN SECURITIES, INC.
FIRST SECURITY VAN KASPER
MORGAN SCHIFF & CO., INC.
, 1999
<PAGE>
[Artwork]
Our logo and name are trademarks of the Company. Each trade name, trademark
or service mark of any other company appearing in this prospectus is the
property of its holder.
<PAGE>
TABLE OF CONTENTS
PAGE
----
Prospectus Summary......................................................
Forward Looking Statements..............................................
Risk Factors............................................................
Use of Proceeds.........................................................
Capitalization..........................................................
Dividend Policy.........................................................
Dilution................................................................
Selected Historical Consolidated Financial Data.........................
Pro Forma Combined Financial Data.......................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................
Business................................................................
Management..............................................................
Certain Relationships and Related Transactions..........................
Principal Stockholders..................................................
Description of Capital Stock............................................
Shares Eligible for Future Sale.........................................
Underwriting............................................................
Legal Matters...........................................................
Experts.................................................................
Additional Information..................................................
Index to Financial Statements...........................................
--------------------
You should rely only on the information contained in this prospectus. No dealer,
salesperson or other person is authorized to give information that is not
contained in this prospectus. This prospectus is not an offer to sell nor is it
seeking an offer to buy these securities in any jurisdiction where the offer or
sale is not permitted. The information contained in this prospectus is correct
only as of the date of this prospectus, regardless of the time of the delivery
of this prospectus or any sale of these securities.
Dealer Prospectus Delivery Obligation: Until ____________, ____, all dealers
that effect transactions in these securities, whether or not participating in
this Offering, may be required to deliver a prospectus. This is in addition to
the dealers' obligation to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
<PAGE>
[This page intentionally left blank]
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. You
should read the entire prospectus carefully, especially the "Risk Factors"
section, the financial statements and the notes to those statements, before
making your investment decision. This prospectus contains market data, for the
most recent periods for which such data is generally available, that we obtained
from industry trade groups and from industry publications and other publicly
available information. Although we believe that these sources contain accurate
information, the publications do not guarantee the accuracy and completeness of
such information. We have not independently verified such market data.
The Pietrafesa Corporation was incorporated in 1998 and is the successor to a
business founded in 1922. In October 1998, MS Pietrafesa, L.P. (the
"Partnership"), our predecessor operating partnership and sole shareholder,
transferred all of its assets and liabilities to The Pietrafesa Corporation. In
March, 1999, we acquired the business of two independent merchandising/sourcing
businesses, Diversified Apparel Group ("DAG") and Global Sourcing Network, Ltd
("Global"). On the day we close this offering of the Class A Common Stock (the
"Offering"), we will apply $5.9 million of the net proceeds of the Offering to
pay the $4.7 million up-front purchase price for one other
merchandising/sourcing business, Components by John McCoy ("Components"), and to
repay $1.2 million under notes issued to the sellers of DAG and Global. These
three businesses are referred to in this prospectus as the "Acquired
Businesses," and the acquisition of the Acquired Businesses is referred to as
the "Acquisitions." All references in this prospectus to "The Pietrafesa
Corporation," the "Company," "we," "us" and "ours" refer to The Pietrafesa
Corporation and the Acquired Businesses on a combined basis. All references in
this prospectus to "Pietrafesa" refer to our historical financial and operating
results without giving effect to the Acquisitions. Unless otherwise indicated or
the context otherwise requires, all share, per share and financial information
contained in this prospectus:
o gives effect to our acquisition of the Acquired Businesses and our
acquisition of all assets and liabilities of the Partnership;
o assumes that no shares of Class A Common Stock will be issued as part of
the consideration paid in the Acquisitions;
o assumes no exercise of the Underwriters' over-allotment option; and
o gives effect to the issuance to the Partnership of a total of shares
of Class B Common Stock prior to the consummation of the Offering.
<PAGE>
THE COMPANY
General. We believe that we are the only major apparel business focused
primarily on offering major retailers and brand licensing companies a "total
solution" for dress apparel products for men. By providing comprehensive
merchandising, sourcing and other value-added services, we act as "The Brand
behind the Brand" for dress apparel programs that include suits, sport jackets,
dress shirts, woven sport shirts, casual pants, knitwear, neckwear and topcoats,
at a wide range of price points. Our strategy is to offer integrated apparel
programs that cover everything a man might wear to the office Monday through
Friday and on formal occasions.
We are an important proprietary brand source to a variety of well-known
retailers, including:
Bergdorf Goodman Nordstrom
Bijan S & K Famous Brands
Brooks Brothers Saks Fifth Avenue
Filene's Basement Sulka
Jos.A.Bank The Men's Wearhouse
Neiman Marcus Today's Man
Industry. Retail sales of men's apparel in the United States in 1998 were
approximately $54 billion, an increase of 6.8% over the prior year, as compared
to increases of 3.7% in women's apparel and 4.7% in all apparel. We believe that
the following important trends in the apparel industry have redefined the manner
in which our business must be conducted and have improved our competitive
position.
o Consumers are Buying More Proprietary Brand Apparel. Sales of proprietary
brand apparel represented 41.0% of total sales of men's apparel in 1996, up
from 39.3% in 1995 and 37.0% in 1994. Based upon our 1998 sales and the
announced store opening plans of our customers, we believe that this trend
continued in 1998.
5
<PAGE>
o Retailers are Demanding Vendor Relationships that Facilitate the
Development of Proprietary Brands. Proprietary brands produce higher
maintained margins than traditional brands because they generally have
lower production and selling costs, and do not have the added expense of
license fees. Despite the economic and other benefits offered by
proprietary brands, retailers often find developing and purchasing
proprietary collections highly inefficient and cumbersome as compared to
purchasing branded products because of the need to source product from a
variety of specialized vendors.
o Retailers are Requiring More Sophisticated Systems and Financial Stability
from their Vendors. As they concentrate more business with fewer and larger
vendors, retailers are requiring higher levels of service, such as
operating through an EDI system for orders and payments, maintaining strict
quality control procedures, creating a replenishment pipeline for certain
programs, as well as product ticketing and direct-to-store shipping.
o Specialty Chains are Achieving Strong Sales Growth. In 1998, specialty
chains reported dollar increases in sales of men's clothing of 6.5% and
captured 10.5% of all dollars spent on men's clothing. This growth is
evidenced by the growth of men's apparel retailers such as The Men's
Wearhouse and Today's Man and the publicly announced national store opening
plans of Brooks Brothers and Jos.A.Bank.
Business, Growth and Acquisition Strategies. During our over 75 years in the
apparel industry, we have developed expertise that allows us to offer retailers
proprietary brand programs that serve to define and enhance brand image. We seek
to be the most efficient source of men's dress apparel programs by offering
major retailers:
o the ability to develop integrated collections of men's apparel programs
that are customized to each retailer's needs. The collections we develop
span styles ranging from the traditional tailored look of Savile Row to
FUBU's urban contemporary look, at a full range of price points;
o the lowest available cost for each product line, by sourcing production
globally to satisfy the specifications, country of origin and delivery
requirements of each customer. Unlike traditional clothing manufacturers,
this strategy permits us to seek the best manufacturer worldwide for a
specific product at the lowest marginal cost, and minimizes investments in
plant and equipment;
o value-added services, including design, raw material procurement,
merchandising, statistical quality control, personalized customer service
and complete product management, which permits major retailers to achieve
greater efficiency by outsourcing many aspects of their proprietary brand
programs;
o technological innovations, such as interactive sales software and
integrated real-time inventory management, that enable us to compress
delivery schedules and better manage product selection for our customers;
and
o the scale and financial stability to support long-term programs.
<PAGE>
We believe that our business strategy will create numerous growth opportunities.
The principal components of our growth strategy are:
o to achieve greater penetration among our existing customers, such as Brooks
Brothers, Jos.A.Bank, Nordstrom, Today's Man and S&K Famous Brands;
o to develop new customer relationships, such as those developed as a result
of the Acquisitions;
o to grow revenues through selective acquisitions that are consistent with
our business strategy;
o to expand our product offerings in order to continue to enhance our ability
to offer integrated apparel programs;
o to acquire, develop and license brands, such as FUBU, in order to leverage
our merchandising and sourcing capabilities; and
o to expand internationally by offering our merchandising/sourcing services
to foreign retailers.
In an effort to increase the range of products, price points and sourcing
options available to our customers and to add new customers, we intend to
identify and acquire leading merchandising/sourcing companies that specialize in
certain menswear products, price segments or distribution channels. The major
elements of our acquisition strategy are:
o whenever possible, to include significant purchase price deferral
arrangements and other performance incentives for the sellers of each
business;
o to operate each newly-acquired business as an independent unit and to
hold it accountable for its utilization of capital and overhead; and
o to improve and standardize financial controls, quality control practices
and back-office functions of each acquired business.
The Pietrafesa Corporation is a Delaware corporation. Our principal executive
offices are located at 7400 Morgan Road, Liverpool, New York 13090 and our
telephone number is (315) 453-4300.
6
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock offered............... shares of Class A Common Stock
Common Stock to be
outstanding after the
Offering......................... shares of Class A Common Stock (1)
shares of Class B Common Stock (2)
Use of proceeds..................... To repay indebtedness, to fund the Company's business
expansion plans, including the Acquisitions, and for working
capital and other general corporate purposes.
Voting rights....................... Holders of Class A Common Stock, voting as a class, are
entitled to elect 25% of the members of the Company's Board
of Directors. Other than such right to elect directors,
holders of Class A Common Stock will have very limited voting
rights until all of the shares of Class B Common Stock are
converted into shares of Class A Common Stock or otherwise
cease to be issued and outstanding. See "Description of
Capital Stock."
Nasdaq National
Market symbol................... BRND
</TABLE>
- ----------------
(1) Excludes shares of Class A Common Stock reserved for issuance upon
the exercise of options which may be issued from time to time under our
Stock Option Plan, up to shares of Class A Common Stock that may
be issued as deferred purchase price in lieu of cash pursuant to the
Acquisitions and up to shares available for purchase by the
underwriters under their over-allotment option. See "Management,"
"Principal Stockholders" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Significant Acquisitions."
(2) Gives effect to the issuance to the Partnership of a total of shares
of Class B Common Stock prior to the consummation of the Offering. Holders
of Class B Common Stock may convert their shares at any time on a one-for-
one basis into shares of Class A Common Stock.
7
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED AND PRO FORMA COMBINED FINANCIAL DATA
The following table presents summary historical consolidated financial data for
Pietrafesa and pro forma combined and pro forma combined, as adjusted financial
data for The Pietrafesa Corporation for the year ended December 31, 1998. You
should read this financial information in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements, and the notes to those statements, all of which are
included elsewhere in this prospectus.
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
Pro Forma
Pro Forma Combined,
Combined As Adjusted
--------------------------------------------------- ----------- -------------
1994 1995 1996 1997 1998 1998(1) 1998(2)
---------- --------- --------- --------- ---------- ----------- -------------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues.......................... $ 57,665 $ 40,009 $ 44,000 $ 37,582 $ 56,763 $ 97,451 $ 97,451
Cost of sales......................... 47,600 32,171 34,769 29,218 47,062 80,427 80,427
---------- --------- --------- --------- ---------- ----------- -------------
Gross profit.......................... 10,065 7,838 9,231 8,364 9,701 17,024 17,024
Operating expenses:
Selling, general and administrative
expenses.......................... 8,196 9,329 7,518 6,118 5,536 9,177(3) 9,508(3)
Depreciation and amortization
expenses.......................... 183 102 165 151 222 807(4) 807(4)
---------- --------- --------- --------- ---------- ----------- -------------
8,379 9,431 7,683 6,269 5,758 9,984 10,315
---------- --------- --------- --------- ---------- ----------- -------------
Operating income (loss)............... 1,686 (1,593) 1,548 2,095 3,943 7,040 6,709
Interest expense...................... 1,627 1,693 1,720 1,446 1,209 1,503 66(5)
Public offering costs(12)............. -- -- -- -- 823 -- --
---------- --------- --------- --------- ---------- ----------- -------------
Income (loss) from continuing
operations before income taxes...... 59 (3,286) (172) 649 1,911 5,537 6,643
Provision for income taxes............ -- -- -- -- 514(7) 2,215(6) 2,657(6)
---------- --------- --------- --------- ---------- ----------- -------------
Income (loss) from continuing
operations.......................... 59 (3,286) (172) 649 1,397 3,322 3,986
Loss from discontinued operations(8).. -- (6,236) (321) (93) -- -- --
---------- --------- --------- --------- ---------- ----------- -------------
Income (loss) before extraordinary
item................................ 59 (9,522) (493) 556 1,397 3,322 3,986
Extraordinary item(9)................. -- -- 3,350 -- -- -- --
---------- --------- --------- --------- ---------- ----------- -------------
Net income (loss)..................... $ 59 $ (9,522) $ 2,857 $ 556 $1,397 $3,322 $3,986
========== ========= ========= ========= ========== =========== =============
Basic and diluted net income (loss)
per common share.................... $ $
Weighted average number of common
shares outstanding (basic and
diluted)(10)........................
Other Data:
EBITDA(11)............................ $ 2,658 $ (396) $ 2,494 $ 2,897 $ 4,731 $8,413 $8,082
Capital expenditures.................. 1,103 368 105 59 592 790 790
Operating cash flows.................. (3,022) 3,779 2,445 3,056 (1,395) (293) (380)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
As of December 31, 1998
----------------------------------------------------------------
Pro Forma Combined
Actual Pro Forma Combined(1) As Adjusted(2)
------------------- ---------------------- ---------------------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Working capital............................... $ 9,239 $ 11,094 $ 37,117
Total assets.................................. 29,375 46,452 68,287
Total long-term debt, net of current
maturities.................................. 12,561 20,103 462
Total partners' capital and stockholders'
equity...................................... 2,383(13) 3,223 48,887
</TABLE>
8
<PAGE>
- ---------------------
(1) The 1998 pro forma combined financial data includes statement of operations
data of Pietrafesa after giving effect to the Acquisitions as if they
occurred on January 1, 1998, and, in the case of balance sheet data, as if
the Acquisitions had occurred on December 31, 1998, and reflects certain
other pro forma adjustments described below. We recently acquired two of
the Acquired Businesses in separate transactions and will acquire the third
Acquired Business upon consummation of the Offering. In addition, we will
assume some existing liabilities of the Acquired Businesses consisting of
approximately $1.3 million in connection with the acquisition of DAG,
approximately $1.3 million in connection with the acquisition of Global and
approximately $5.0 million in connection with the acquisition of
Components, in each case as of December 31, 1998. The pro forma combined
financial data are based upon preliminary estimates, available information
and certain assumptions that management deems appropriate, but are not
necessarily indicative of the results that would have been obtained had
such events occurred at the beginning of the period, as assumed, or our
future results. For more information see our Pro Forma Combined Financial
Statements included elsewhere in this prospectus.
(2) The 1998 pro forma combined, as adjusted financial data of Pietrafesa after
giving effect to the Acquisitions as if they occurred on January 1, 1998
includes statement of operations data and balance sheet data of Pietrafesa
after giving effect to the Acquisitions as if they occurred on December 31,
1998, and reflects pro forma adjustments described in Note (1) above and
the application of the proceeds of this Offering as described under "Use of
Proceeds." See the Pro Forma Combined Financial Statements and "Use of
Proceeds" included elsewhere in this prospectus.
(3) Reflects the elimination of certain royalty and commission obligations of
Global ($1.1 million) and a reduction in salaries payable to the founders
of DAG and Components ($0.5 million in the aggregate). In addition to these
adjustments, the pro forma combined, as adjusted expenses include
additional costs in the amount of $0.3 million to reflect the costs
associated with being a public company.
(4) Includes $0.577 million of goodwill amortization in connection with the
Acquisitions.
(5) Reflects the reduction of interest expense as a result of the reduced level
of borrowings due to the application of the net proceeds of the Offering as
described under "Use of Proceeds."
(6) Reflects the income tax expense associated with the pro forma adjustments
described above assuming a 40% tax rate.
<PAGE>
(7) The Partnership was not subject to state or federal income taxes during the
period from 1994 through and including 1997. Pietrafesa became subject to
federal and state income tax as of October 1, 1998 when the net assets of
the Partnership were transferred to a C-corporation.
(8) During 1995, Pietrafesa discontinued manufacturing of a low price point
tailored clothing line. The loss from disposal and from operations of this
segment is shown as discontinued operations.
(9) In 1996, the Partnership recorded an extraordinary gain related to the
forgiveness of all outstanding subordinated debt of the Partnership and
related interest.
(10) Consists of the shares of Class A Common Stock to be issued in the Offering
and the shares of Class B Common Stock currently issued and outstanding.
The number of shares of Class B Common Stock outstanding gives effect to
the issuance to the Partnership of a total of shares of Class B Common
Stock prior to the consummation of the Offering.
(11) EBITDA represents income (loss) from continuing operations before provision
(benefit) for income taxes plus depreciation and amortization (including
depreciation and amortization included in cost of sales) plus interest
expense and public offering costs. EBITDA is not intended to represent cash
flows from operations and should not be considered as an alternative to net
income as an indicator of our operating performance or to cash flows as a
measure of liquidity. We believe that EBITDA is a standard measure commonly
reported and widely used by analysts, investors and other interested
parties in the apparel industry. Accordingly, it has been disclosed in this
prospectus to permit a more complete comparative analysis of our
performance relative to other companies in the apparel industry. Our
definition of EBITDA may not be identical to similarly titled measures of
other companies and, therefore, may not necessarily be an accurate basis of
comparison.
(12) Relates to a public offering that was delayed due to adverse market
conditions.
9
<PAGE>
(13) Gives effect to the Partnership's transfer to us of all of its assets and
liabilities, including a $1.5 million obligation relating to certain tax
distribution obligations of the Partnership to its partners, and to the
impact of the recording of $0.5 million of tax expense as a C-corporation
reflected in our 1998 statement of operations. See "Certain Relationships
and Related Transactions."
10
<PAGE>
FORWARD-LOOKING STATEMENTS
An investment in the Class A Common Stock offered hereby is speculative in
nature and involves a high degree of risk. Certain statements made in this
prospectus under the captions "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus are forward-looking
statements. Forward-looking statements are identified by use of terms such as
"may," "will," "expect," "anticipate," "believe," "estimate," "intend," "plan"
and similar expressions, although some forward-looking statements are expressed
differently. Although we believe these statements are reasonable, there are
important risks and uncertainties, including those discussed in the "Risk
Factors" section below, that could cause actual results to differ materially
from those expressed or implied by such forward-looking statements, including
changes in general economic and business conditions, actions of competitors,
changes in our business strategies and the factors set forth below and under the
captions "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business."
RISK FACTORS
You should consider carefully the risks described below and other information in
this prospectus before deciding to invest in shares of Class A Common Stock.
Risks Associated With Our Business
We Generate a Significant Percentage of our Revenue from a Limited Number
of Customers
Our five most significant customers accounted for 61% and 69% of our net
revenues in 1997 and 1998, respectively. The following table summarizes the
percentage of net revenue attributable to our most significant customers in 1997
and 1998, respectively.
1997 1998
------------ -------------
S&K Famous Brands 26% 19%
Brooks Brothers 11 18
Jos.A.Bank 0 15
Polo Retail (1) 12 11
Nordstrom 12 6
------------ -------------
Total 61% 69%
- -------------------
(1) Excludes net revenues from sales to the Polo Factory Outlet, which
accounted for 3.6% of net revenues in 1997 and 2.9% of net revenues in
1998. Sales to the Polo Factory Outlet are expected to continue after the
termination, as described below, of our license with Polo Corporation in
June 1999.
<PAGE>
In June 1999, our license arrangement with Polo Corporation will expire and
sales to Polo Retail under this agreement will terminate after the spring 1999
season. A failure to replace such lost business, the loss of or decrease in
business from any other significant customer or the replacement of lost business
with business that produces lower margins could have a material adverse effect
on our business, results of operations and financial condition. Various factors,
including a deterioration in the business or financial condition of one or more
of our major customers or in our relationship with any of these customers, may
cause their level of business with us to decrease.
We are Subject to Certain Risks Relating to our Foreign Sourcing of
Products
A significant portion of the products we sell are produced by independent
foreign manufacturers. Products from Italy, the Dominican Republic, Mexico,
Eastern Europe and the Far East accounted for 40% of our 1998 revenues. Foreign
sourcing exposes us to numerous risks, including work stoppages, natural
disasters, transportation delays and interruptions, political instability,
economic disruptions and the imposition of increased tariffs and more stringent
import and export restrictions. If any of these events were to occur, it could
cause us to lose material revenues, customer orders and customer goodwill and
could have a material adverse effect on our business, results of operations and
financial condition.
Bilateral textile agreements between the United States and a number of other
countries contain provisions that impose quotas on the amount and type of goods
that can be imported into the United States from those countries. These
agreements allow the United States to impose restraints at any time on the
importation of certain categories of merchandise.
11
<PAGE>
Substantially all of the countries from which we import products are subject to
these agreements. In addition, the United States government imposes customs
duties on our imported products. The United States may impose additional tariffs
on products that are found to have been manufactured by convict, forced or
indentured labor and may withdraw the "most favored nation" status of certain
countries, which could result in the imposition of reduced quotas and/or higher
tariffs on products imported from these countries. Any adverse change to (or
imposition of new) quotas, duties, tariffs or import restrictions could
materially and adversely affect our business, results of operations and
financial condition. See "Business--Imports and Import Regulations."
We are Subject to Certain Risks Relating to International Expansion
We currently source production and raw materials outside the United States. As a
result, we are exposed to various risks, including:
o currency exchange rate fluctuations to the extent that our agreements are
denominated in currencies other than U.S. dollars;
o foreign legal and regulatory requirements;
o the stability of foreign governments and their trading relationships with
the United States;
o difficulties in staffing and managing foreign operations;
o variances in financial reporting standards; and
o differences in the manner in which different cultures do business.
Although we have historically agreed to pay for most of our products in U.S.
dollars or have purchased foreign currencies when our obligations in such
currencies are incurred, reductions in the value of the U.S. dollar could result
in currency transaction losses. Generally, we are not able to pass on these
losses to our customers.
We may be Unable to Compete Successfully in the Highly Competitive Apparel
Industry
The men's tailored clothing and apparel businesses are intensely competitive. We
have experienced and will continue to experience competition from domestic and
international sources, including brand name and private label producers. We also
consider retailers' in-house product development and sourcing capabilities to be
a source of competition. Some of our competitors and potential competitors have
greater financial, manufacturing and distribution resources than us.
<PAGE>
Although factors may differ by product line, we believe that we compete
primarily on the basis of quality of design and workmanship, pricing and
customer service. We believe that our success depends in large part upon our
ability to anticipate, gauge and respond to our customers' changing needs in a
timely manner. If we fail to identify and respond appropriately to their
changing needs, or to otherwise compete successfully, it could cause us to lose
market share or require us to reduce our prices or increase our expenditures,
any of which could have a material adverse effect on our business, results of
operations and financial condition.
Cyclical Trends and Changes in the Apparel Industry may Adversely Affect
our Business
The apparel industry has historically been highly cyclical and dependent on
general economic conditions and other factors, including consumer spending and
preferences. An economic recession or a deterioration in consumer confidence
could have a material adverse effect on our business, results of operations and
financial condition. In addition, apparel retailers (including some of our major
customers) have experienced significant changes and difficulties over the past
several years, including consolidation of ownership, increased centralization of
buying decisions, restructurings, bankruptcies and liquidations. These
developments have increased our risk of extending credit to our customers. If
any of our customers were to suffer financial problems, it could cause us to
reduce or discontinue business with that customer or require us to assume more
credit risk relating to their receivables, either of which could have a material
adverse effect on our business, results of operations and financial condition.
In addition, consolidations, restructurings and reorganizations involving our
customers could decrease the number of stores that carry our products. Any
increase in the ownership concentration within the retail industry could have a
material adverse effect on our business, results of operations and financial
condition. See "Business -- Industry Overview."
Our Operating Results are Seasonal
Some of our principal products are organized into seasonal lines in response to
the marketing strategies of our customers. As a result, our net revenue and net
income have fluctuated and may continue to fluctuate on a seasonal basis. A
12
<PAGE>
disproportionate amount of our net revenue and a majority of our net income are
typically realized during the third quarter of our year. Historically, this
seasonality has resulted in reductions in working capital during the first and
third quarters. Our business, results of operations and financial condition will
be materially and adversely impacted if we are unable to finance our seasonal
cash requirements. Moreover, if our net revenues decrease substantially in the
third quarter as a result of this seasonality, it could have a material adverse
effect on our liquidity and on our profitability for the entire year.
We are Subject to the Risk of Unsold Inventory
Although we presently source only against firm purchase orders, we may at times
be exposed to inventory risk due to the inventory requirements that may arise
for some of our apparel programs. In the future, we may offer in-stock services
to attract new customers or capture market share in particular products, which
will expose us to more inventory risk. In addition, in certain circumstances our
customers have the right to cancel or modify a purchase order after we have made
purchasing commitments related to that order. This could occur due to various
factors, including our failure to fulfill the order on a timely basis for
reasons beyond our control. If any of these events were to occur, it could
materially and adversely affect our relationships with our customers and, in the
case of a large purchase order, it could also materially and adversely affect
our business, results of operations and financial condition.
Failure to Respond to Rapid Growth may Adversely Affect our Business
In 1998, we experienced rapid sales growth, expansion of our product and service
offerings and an increase in our customer base. Our continued growth will depend
on our ability to successfully develop new product lines, distribution channels
and merchandise categories. The integration of the Acquired Businesses, as well
as our future growth objectives (including future acquisitions), will require
increasing amounts of working capital and financing and may place a significant
strain on our management and information processing systems. If we fail to
respond effectively to the demands associated with our business expansion, it
could have a material and adverse effect on our business, results of operations
and financial condition. For a further discussion of our growth strategy, see
"Business -- Growth Strategy."
<PAGE>
Variations in our Historical Financial Performance may Continue
We have experienced inconsistent financial results in recent years. For example,
during the years 1995 through 1998, excluding the financial results of the
Acquired Business, our net revenues fluctuated between $37.6 million and $56.8
million, income (loss) from continuing operations fluctuated between $(3.3)
million and $1.9 million, EBITDA fluctuated between $(0.4) million and $4.7
million and net income (loss) fluctuated between $(9.5) million and $2.9
million. See "Summary Historical and Pro Forma Combined Financial Data." Our
future financial performance depends on various factors, including successfully
implementing our business plan, expanding our existing and acquired businesses
and developing new sources of revenues. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
We Depend on our Key Management Personnel
We believe that our ability to successfully implement our business strategy and
operate profitably depends on the continued employment of our senior management
team led by Richard C. Pietrafesa, Jr. Our management group has only recently
been assembled and management controls are still in their formative stages. We
cannot assure you that this new team will perform well together. Any failure by
this management team could have a material adverse effect on our business,
results of operations and financial condition. It is our policy not to have
employment or non-compete agreements with our executives, other than new
executives who manage newly established units. In connection with the
Acquisitions, we have entered into or will enter into multi-year employment and
non-competition agreements with the founders of each of the Acquired Businesses.
See "Management." If Mr. Pietrafesa or other principal members of the management
team or the founders of the Acquired Businesses become unable or unwilling to
continue in their present positions and qualified replacements are not found,
our integration of the Acquired Businesses and our business, results of
operations and financial condition could be materially and adversely affected.
In addition, some of the purchase agreements under which the Acquisitions were
and are to be consummated contain provisions that may result in an acceleration
of some of our deferred purchase price obligations if Mr. Pietrafesa ceases to
be our Chief Executive Officer. Likewise, certain license agreements to which we
are a party may be terminated by the licensor if Mr. Pietrafesa ceases to be our
Chief Executive Officer.
13
<PAGE>
While we generally do not maintain key person life insurance covering our
executive officers or other employees, we intend to purchase key person life
insurance in the amount of $10 million covering Mr. Pietrafesa prior to the
consummation of the Offering. In addition, we intend to purchase key person life
insurance for the founder of Components and DAG in an amount equal to the
up-front portion of the purchase price for such Acquired Business. We cannot
assure you that the proceeds of such policies would adequately compensate us for
the loss of any of the services of these people.
Fluctuations in Price and Availability of Raw Materials could have a
Material Adverse Effect
We principally source wool, camel hair, cashmere, silk, linens, cotton and
blended fabrics for our products. The prices and availability of these fabrics,
as well as related trim and linings, are largely dependent on the market prices
for the raw materials used to produce them. The price and availability of the
fabrics used in our apparel may fluctuate significantly in relation to worldwide
demand for such raw materials and for other reasons. While we attempt to fix the
cost of our raw materials at the time that we establish product pricing, we are
not always able to do so. If we fail to fix our raw material costs in this
manner, our margins will be affected by subsequent changes in raw material
costs.
We purchase fabric from numerous suppliers, but rely heavily on strategically
important fabrics supplied by Burlington Industries and Loro Piana. In 1998, we
purchased 62% (by dollar volume) of our total fabric requirements directly from
these two suppliers. While we believe we have had good relations with each of
these two suppliers for over 10 years, we do not have long-term formal supply
contracts with them. If our relationship with any significant supplier is
interrupted, we likely will have to purchase fabric from alternate suppliers.
These alternate suppliers might not provide us with fabrics at comparable
prices, comparable quality or on a timely basis. If the price, availability or
quality of fabrics or other raw materials used by us fluctuate significantly, it
could have a material adverse effect on our cost of sales or our ability to meet
our customers' demands and, as a result, could have a material adverse effect on
our business, results of operations and financial condition. See
"Business--Product Sourcing, Raw Materials Sourcing and Manufacturing."
<PAGE>
We may be Adversely Affected if Third Party Manufacturers Fail to Perform
As of December 31, 1998, we sourced approximately 50% of total product orders
with independent manufacturers. We intend for this percentage to increase. If
these independent manufacturers fail to finance production adequately, maintain
production capacity or otherwise produce finished goods on schedule, it will
adversely affect our ability to deliver products to our customers in a timely
fashion. Alternative manufacturers, if available, may not be able to provide us
with products or services of comparable quality at an acceptable price to us or
on a timely basis. Therefore, a failure by our independent manufacturers to
perform their obligations could have a material adverse effect on our business,
results of operations and financial condition. See "Business--Product Sourcing,
Raw Materials Sourcing, and Manufacturing."
We may be Adversely Affected if our Year 2000 Compliance Efforts are not
Successful
Many institutions are reviewing and modifying their computer systems to ensure
that they are Year 2000 compliant. The issue, in general terms, is that many
existing computer systems and microprocessors with data functions use only two
digits to identify a year in the date field with the assumption that the first
two digits are always "19". Consequently, on January 1, 2000, any computers that
are not Year 2000 compliant may read the year as 1900. The failure to correct
any computers that calculate, compare or sort using the incorrect date could
result in system failures or malfunctions causing disruptions of our operations,
including a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
We are working to resolve the potential impact of the Year 2000 on the ability
of our computerized financial information systems to accurately process
date-sensitive information. We engaged Arthur Andersen & Co. to conduct an
analysis of our financial information processing systems to determine whether we
are Year 2000 compliant. Based on their study it was determined that we will
have to upgrade, modify or replace portions of our financial systems to make
them Year 2000 compliant. All related software has been installed and testing
and training are expected to commence shortly. We plan to complete the
modifications and replacements necessary to correct those systems prior to
September 30, 1999. In the event that we fail to correct our computerized
financial information systems prior to December 31, 1999, we will out-source
appropriate aspects of our financial systems and execute manually any functions
we retain. We will implement standardized financial controls and back-office
functions of the Acquired Businesses and hope to resolve all Year 2000 issues
with regard to the Acquired Businesses at the same time we resolve our own
issues. We believe that completing the program within the time-frame we have set
will avoid any adverse impact on our operating systems. We currently estimate
that the total cost of implementing our Year 2000 program will be approximately
$200,000. We believe, however, that such Year 2000 compliance costs, including
the possible costs relating to outsourcing appropriate aspects of our financial
14
<PAGE>
systems, will not have a material adverse effect on our business, results of
operations or financial condition. See "Management's Discussion and Analysis of
Financial Condition and Result of Operations."
During 1997, Pietrafesa initiated formal communications with its customers to
determine the business risk to it related to customer Year 2000 compliance
issues. Communications with other third parties, such as suppliers, commenced in
1998. Prior to the closing of the Offering, the Acquired Businesses intend to
initiate formal communications with their customers and other third parties to
determine their business risks related to Year 2000 compliance issues. If we
fail, or third parties with which we do business or upon which we rely fail, to
address any Year 2000 compliance issue in a timely manner, it could have a
material adverse effect on our business, results of operations and financial
condition.
The Adoption of the Euro may Adversely Affect our European Suppliers
On January 1, 1999, 11 European countries established the Economic and Monetary
Union and replaced their local currencies with a single currency, the Euro.
During a three-year transition period, the national currencies will continue to
circulate but only as fixed denominations of the Euro. Commencing on January 1,
1999, the Euro became the predominant currency to settle wholesale (non-cash)
transactions previously denominated in the participating national currencies.
The adoption of the Euro may be disruptive to the operations of some of our
European suppliers and may have an adverse impact on the financial results of
such suppliers or their ability to meet their manufacturing obligations.
Material delays in manufacturing by some of our significant European suppliers
could have a material adverse effect on our business, results of operations and
financial condition. See "--Reliance on Third Parties to Perform Manufacturing
Function."
Risks Relating to our Acquisition Strategy and Future Acquisitions
Our Combined Operating History may not be Indicative of Future Operating
Results
We recently acquired DAG and Global and will acquire Components simultaneously
with the consummation of the Offering. Accordingly, we have just begun to
integrate our operations. Our pro forma results of operations and the Acquired
Businesses' historical results cover periods when Pietrafesa and the Acquired
Businesses were not under common control or management and may not be indicative
of our future financial or operating results or the results that would have been
achieved if Pietrafesa and the Acquired Businesses had been operating on a
consolidated basis for the periods presented.
<PAGE>
Our management will be burdened by the integration and supervision of our
combined operations and the implementation of our operating and growth
strategies. We cannot assure you that the managers of the Acquired Businesses
will work effectively with our senior management or as part of a larger entity.
Our inability to successfully integrate and supervise the operations, services,
technologies and personnel of the Acquired Businesses, or implement our
operating or growth strategies, could have a material adverse effect on our
business, results of operations and financial condition.
Our Focus on Growth Strategy may Divert Management's Attention from Other
Ongoing Business Concerns
Our growth strategy depends heavily on the identification, acquisition and
successful management of new businesses. Pursuit of this growth strategy will
divert our management's attention from other ongoing business concerns. It is
also possible that neither our management nor management of any of the Acquired
Businesses will have the skills necessary to manage an aggressive acquisition
program. Although we may recruit additional managers to supplement the existing
management of any acquired business, we may not have the ability to recruit
additional managers with the skills necessary to enhance the management of such
businesses. Any or all of these factors could have a material adverse effect on
our business, results of operations and financial condition.
We may be Adversely Affected by Unforeseen Liabilities in connection with
the Operation of the Acquired Businesses
Unforeseen liabilities may arise in connection with the ownership and operation
of the Acquired Businesses or any future acquired business. Contractual purchase
price adjustments, as well as other contractual rights or other remedies
available to us, may not be sufficient to compensate us in the event that
unforeseen liabilities arise. The occurrence of any such liability could have a
material adverse effect on our business, results of operations and financial
condition.
15
<PAGE>
Future Performance of the Acquired Businesses may not be Commensurate with
the Purchase Prices
Valuations of the Acquired Businesses were not established by independent
appraisals, but were determined through negotiations between Pietrafesa and
representatives of the Acquired Businesses. The consideration paid for each
Acquired Business was based exclusively on these negotiations. A variety of
factors played a role in these negotiations, including the financial performance
of the Acquired Business, its markets and its management. The consideration paid
does not necessarily bear any relationship to the net book value of the acquired
assets or to any other recognized measure of value. For example, valuations of
the Acquired Businesses determined solely by appraisals of the acquired assets
would be less than the consideration being paid by us for the Acquired
Businesses. The future performance of the Acquired Businesses may not be
commensurate with the consideration paid to acquire the Acquired Businesses. See
"--Reduction in Net Income Caused by the Amortization of Goodwill may Adversely
Affect the Market Price of our Common Stock."
Reduction in Net Income Caused by the Amortization of Goodwill may
Adversely Affect the Market Price of our Common Stock
Approximately $6.3 million, or 13.5%, of our total assets (including the
Acquired Businesses) as of December 31, 1998 consists of goodwill arising from
the Acquisitions. Goodwill is an intangible asset that represents the difference
between the aggregate purchase price (including deferred purchase price actually
paid) for the assets acquired and the amount of such purchase price allocated to
the identified assets for purposes of our as-adjusted balance sheet. We are
required to amortize the goodwill from the Acquisitions (including deferral
purchase price actually paid) over a period of time, with the amount amortized
in a particular period constituting an expense that reduces our net income for
that period. The amount amortized, which will not be less than $577,000 per year
for 10 years, will not give rise to a corresponding tax benefit. In addition, we
will be required to amortize the goodwill, if any, from any future acquisitions.
A reduction in net income resulting from the amortization of goodwill may
adversely affect the market price of our Common Stock. We plan to amortize
goodwill associated with the acquisitions of the Acquired Businesses (including
goodwill relating to deferred purchase price) over a period of 15 years for
Global and Components and 10 years for DAG, in each case beginning at the
closing of each Acquisition. We plan to evaluate continually whether events or
circumstances have occurred that could result in an acceleration of the amount
to be written off.
<PAGE>
Substantial Proceeds of Offering Payable to Sellers of Acquired Businesses
Approximately $4.7 million of the $ million net proceeds of the Offering will be
used to pay the cash portion of the purchase price for Components. This payment
will be made to the current owner of Components, who will become our employee
after the acquisition closes. An additional $1.2 million of such proceeds will
be used to repay promissory notes issued to DAG and the founders of Global. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Significant Acquisitions."
We may be Unable to Successfully Implement or Realize Cost Savings
Opportunities Created by the Combination with the Acquired Businesses
We believe that integration of the Acquired Businesses will result in cost
savings, including a reduction in operating expenses as a result of the
elimination of duplicative administrative functions and personnel. Significant
uncertainties, however, accompany any business combination, and we cannot assure
you that we will be able to achieve our anticipated operating efficiencies or
otherwise realize cost savings from the Acquisitions or future acquisitions. The
inability to achieve anticipated operating efficiencies or cost savings could
have a material adverse effect on our business, results of operations and
financial condition.
16
<PAGE>
Risks Associated With Our Capital Structure
The Interests of our Controlling Shareholder may Conflict with our
Interests; Anti-Takeover Impact of Concentration of Voting Power
Following the Offering, the Partnership, which is controlled by Phillip Ean
Cohen, will continue to own all of the outstanding shares of Class B Common
Stock. Holders of Class B Common Stock will elect 75% of the directors and,
except in very limited circumstances, will have the power to decide all other
matters submitted to our stockholders. Holders of Class A Common Stock will have
no voting rights except the right to elect 25% of our directors, until all
shares of Class B Common Stock are converted into shares of Class A Common
Stock. As a result, Mr.Cohen will control the outcome of substantially all
matters submitted to a vote of our stockholders. See "Description of Capital
Stock."
The interests of the Partnership or Mr. Cohen may conflict with the interests of
holders of Class A Common Stock. The concentration of voting power described
above may make us an unattractive takeover target and may discourage acquisition
proposals, even if favored by holders of Class A Common Stock. In addition, as
long as any Class B Common Stock is outstanding, the Partnership will be able to
transfer voting control to a third party at a premium that will not be enjoyed
by holders of the Class A Common Stock. Voting power will, in all likelihood,
continue to be concentrated following conversion of all of the outstanding
shares of Class B Common Stock, since, after the Offering, the Partnership would
own approximately % of the outstanding shares of Class A Common Stock following
the full conversion.
We are Subject to Certain Risks Relating to Potential Significant
Indebtedness and Covenant Restrictions
We may incur substantial indebtedness to fund our growth strategy. Incurring
substantial additional indebtedness would reduce our financial flexibility and
expose us to additional risks, including greater vulnerability to economic
downturns and competitive pressures.
<PAGE>
Agreements entered into by Pietrafesa with current lenders contain, and
agreements covering future indebtedness will likely contain, operating and
financial restrictions. Our current credit agreements and other loan documents
contain certain restrictive covenants, including restrictions on incurrence of
debt, dividend payments, certain asset sales, transactions with affiliates,
liens and investments. If we fail to comply with existing or future debt
covenants, we could default under these agreements. If a default were to occur,
the lender under such agreement could accelerate our repayment of the
indebtedness evidenced by that agreement. Acceleration of our repayment would
also be permitted under any other instruments then in effect containing
cross-acceleration or cross-default provisions, which could have a material
adverse effect on our business, results of operations and financial condition.
The Market Price of our Class A Common Stock could be Adversely Affected by
Future Sales of Substantial Amounts of Shares in the Public Market
There will be an aggregate of shares of Class A Common Stock outstanding
immediately after the Offering. Of these shares, the shares of Class A
Common Stock sold in this Offering will be freely tradable under the Securities
Act of 1933 (the "Securities Act"). The up to shares of Class A Common
Stock to be issued upon conversion of the outstanding shares of Class B
Common Stock will be "restricted securities" and under certain circumstances
may, in the future, be sold in compliance with Rule 144 under the Securities
Act. In addition, commencing days after the closing of the Offering (or
sooner with the consent of the underwriters), such shares of Class A Common
Stock may be sold without registration under the Securities Act to the extent
permitted by Rule 144. See "Shares Eligible for Future Sale."
The sale or availability for sale of a large number of shares in the market
after the Offering could cause a decline in the market price of the Class A
Common Stock. This could make it more difficult for us to raise funds through
future offerings of our stock.
Absence of Current Public Market Class A Common Stock; Market Price
Fluctuations; Determination of Public Offering Price
There has not been a public market for the Class A Common Stock. We have applied
for listing of the Class A Common Stock on the Nasdaq National Market. We do not
know the extent to which investor interest in us will cause an active trading
market to be developed or sustained, or how liquid that market might be. The
market price for the Class A Common Stock could also fluctuate in response to
various factors and events, including liquidity of the market for our shares,
quarter-to-quarter variations in our results of operations and significant
developments of ours and other industry
17
<PAGE>
participants, pricing and competition in our industry, broad market fluctuations
and economic and political conditions not directly related to our business. The
initial public offering price of the Class A Common Stock will be determined by
negotiation between us and representatives of the underwriters. Investors may
not be able to resell their shares at or above the initial public offering
price. See "Underwriting."
Substantial and Immediate Dilution and Future Dilution of Class A Common
Stock
Based upon our pro forma net tangible book value deficit as of December 31,
1998, purchasers of Class A Common Stock will experience an immediate dilution
of $ in the pro forma net tangible book value per share of Class A Common
Stock from the initial public offering price of $ per share. Moreover,
additional issuances of Class A Common Stock from the exercise of stock options,
warrants or as payment for deferred purchase price from the Acquisitions could
cause further dilution in the net tangible book value of the Common Stock. See
"Dilution."
18
<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of ________ shares of Class A Common Stock in
this Offering after payment of expenses of this Offering are estimated to be
approximately $____ million ($ ___ million if the Underwriters' over-allotment
option is exercised in full), assuming an initial public offering price of
$_____ per share, the midpoint of the range set forth on the cover page of this
prospectus. We intend to apply a portion of the net proceeds to repay the
following indebtedness:
Outstanding Principal Amount
Company as of , 1999 Interest Rate Maturity
- ------------ ------------------------------- --------------- ----------
Pietrafesa $9.4 million (1) 9.0% June 2001
$2.8 million 9.0% June 2005
DAG $150,000 9.0% Current
Components $2.5 million 10.0% Current
- ------------------
(1) Includes borrowings to fund the $2.2 million up-front cash portion of the
purchase price payable for the DAG and Global Acquisitions and the payment of a
$1.5 million distribution to fund certain obligations of the Partnership in
respect of the tax obligations of its partners. See "Certain Relationships and
Related Transactions."
In addition, we intend to apply approximately $5.9 million of the net proceeds
to fund the $4.7 million upfront cash portion of the purchase price of
Components and to repay $1.2 million in notes issued to the sellers of DAG and
Global. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." We will apply an additional $ of the proceeds to pay
expenses incurred in connection with the Acquisitions. We intend to use the
remaining net proceeds for the implementation of our growth strategy, including
the cost of acquisitions, and for working capital and other general corporate
purposes. Pending such uses, we intend to invest the net proceeds in an
institutional money market fund investing in short-term, investment grade debt
securities and other money market instruments. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
19
<PAGE>
CAPITALIZATION
The following table sets forth as of , 1999: (1) our actual
capitalization; (2) our pro forma combined capitalization as adjusted to give
effect to the Acquisitions; and (3) our pro forma combined capitalization, as
adjusted to give effect to the Acquisitions, issuance to the Partnership of a
total of _____ shares of Class B Common Stock prior to the consummation of the
Offering, our sale of shares of Class A Common Stock pursuant to the Offering,
assuming an initial public offering price of $ per share (the midpoint of the
range set forth on the cover page of this prospectus), and the application of
the net proceeds of the Offering as described under "Use of Proceeds." This
table should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Pro Forma Combined Financial
Data" and the audited financial statements and the notes thereto included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of , 1999
-----------------------------------------------------
Pro Forma
Pro Forma Combined,
Actual Combined As Adjusted(1)
-------------- -------------------- -----------------
(in thousands, except share and per share data)
<S> <C> <C> <C>
Long term debt, net of current maturities.............. $ 12,561 $ 20,103 $ 462
Stockholders' equity:
Class A Common Stock, par value $.001 per share;
5,000,000 shares authorized, shares issued and
outstanding; and shares issued and outstanding
pro forma as adjusted..................
Class B Common Stock, par value $.001 per share;
10,000,000 shares authorized, shares issued and
outstanding; and shares issued and outstanding
pro forma as adjusted.......
Additional paid-in capital.............................. 2,941
Retained earnings (deficit)............................. (558)
-------- --------- --------
Total stockholders' equity.......................... 2,383
======== ========= ========
Total capitalization.................................... $ 14,944
======== ========= ========
</TABLE>
- -----------------------
(1) Excludes shares of Class A Common Stock which may be issued as deferred
purchase price under the terms of the Acquisitions.
20
<PAGE>
DIVIDEND POLICY
We have not declared or paid any cash or other dividends on our capital stock
and we do not expect to pay dividends for the foreseeable future. We anticipate
that all of our earnings in the foreseeable future will be used for the
operation of our business, to support our growth strategy and reduce
indebtedness. Any future determination to pay dividends will be at the
discretion of the Board of Directors and will depend upon, among other factors,
our results of operations, financial condition and capital requirements. Our
existing Credit Facility and other loan agreements contain, and any successor
facility will likely contain, prohibitions on our ability to pay dividends.
Please refer to the "Certain Relationships and Related Transactions" section of
this prospectus, however, for a description of certain tax-related distributions
made by the Partnership. See also "Management's Discussion and Analysis of
Financial Condition and Results of Operations-- Liquidity and Capital
Resources."
DILUTION
Our net tangible book value as of , 1998 was $ million, or $ per
share of Common Stock. Net tangible book value per share is determined by
dividing our tangible net worth (total assets less intangible assets and total
liabilities) by the aggregate number of shares of Common Stock outstanding.
After giving effect to the Acquisitions, our net tangible book value as of
would have been $ million or $ per share. After giving effect
to the sale of shares of Class A Common Stock offered hereby (at an assumed
initial public offering price of $ per share, the midpoint of the range set
forth on the cover page of this prospectus), and the application of the net
proceeds therefrom, our pro forma net tangible book value as of
, 1998 would have been approximately $ million, or $ per share.
This represents an immediate increase in net tangible book value of $ per
share to the holder of our Class B Common Stock and an immediate dilution in net
tangible book value of $ per share to purchasers of Class A Common Stock
in the Offering. The following table illustrates this per share dilution.
<TABLE>
<CAPTION>
<S> <C>
Assumed initial public offering price per share............................................ $
------
Net tangible book value per share of Common Stock as of, 1998..................... $
Reduction in net tangible book value per share of Common Stock attributable to the
Acquisitions........................................................................
-------
Pro forma net tangible book value per share of Common Stock after the Acquisitions and
prior to the Offering...............................................................
Increase in pro forma net tangible book value per share of Common Stock as a result of the
Offering............................................................................
-------
Pro forma net tangible book value per share of Common Stock after the Acquisitions and the
Offering...............................................................................
------
Dilution per share of Common Stock to new investors........................................ $
======
</TABLE>
21
<PAGE>
The following table sets forth, on the pro forma basis described above, as of
, 1998, the difference between the number of shares purchased,
the total consideration paid (or to be paid) and the average price per share
paid (or to be paid) by the existing stockholders and the purchasers of Class A
Common Stock in the Offering, at an assumed initial public offering price of
$ per share (the midpoint of the range set forth on the cover page of this
prospectus), before deducting the estimated offering expenses and underwriting
discounts and commissions:
Shares Total
Purchased Consideration Average Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- -------------
Existing stockholders(1) $ % $
New investors.........
Total.................
100% $ 100%
======= ====== ====== ===== =========
- -----------------------
(1) Excludes shares of Class A Common Stock reserved for issuance upon the
exercise of options which may in the future be granted under our stock
option plan. See "Management--Stock Option Plan."
22
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected historical statement of operations and historical balance sheet
data for each of the five years in the period ended December 31, 1998 are
derived from the consolidated financial statements of Pietrafesa, which have
been audited by Ernst & Young LLP. The selected historical financial data set
forth below should be read in conjunction with the financial statements and
notes thereto of Pietrafesa included elsewhere in this prospectus, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
other financial data included herein.
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------------------------------------------
1994 1995 1996 1997 1998
------------ ------------- ------------ ------------ -------------
(in thousands, except share and per share data)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Net revenues............................. $ 57,665 $ 40,009 $ 44,000 $ 37,582 $ 56,763
Cost of sales............................ 47,600 32,171 34,769 29,218 47,062
------------ ------------- ------------ ------------ -------------
Gross profit............................. 10,065 7,838 9,231 8,364 9,701
Operating expenses:
Selling, general and administrative 8,196 9,329 7,518 6,118 5,536
expenses...............................
Depreciation and amortization expenses. 183 102 165 151 222
------------ ------------- ------------ ------------ -------------
8,379 9,431 7,683 6,269 5,758
------------ ------------- ------------ ------------ -------------
Operating income (loss).................. 1,686 (1,593) 1,548 2,095 3,943
Interest expense......................... 1,627 1,693 1,720 1,446 1,209
Public offering costs(7)................. -- -- -- -- 823
------------ ------------- ------------ ------------ -------------
Income (loss) from continuing operations
before income taxes.................... 59 (3,286) (172) 649 1,911
Provision for income taxes(1)............ -- -- -- -- 514
------------ ------------- ------------ ------------ -------------
Income (loss) from continuing operations. 59 (3,286) (172) 649 1,397
Loss from discontinued operations(2)..... -- (6,236) (321) (93) --
------------ ------------- ------------ ------------ -------------
Income (loss) before extraordinary item.. 59 (9,522) (493) 556 1,397
Extraordinary item(3).................... -- -- 3,350 -- --
------------ ------------- ------------ ------------ -------------
Net income (loss)........................ $ 59 $ (9,522) $2,857 $ 556 $1,397
============ ============= ============ ============ =============
Basic and diluted net income (loss) per
common share...........................
Weighted average number of common shares
outstanding (basic and diluted)(4).....
Other Data:
EBITDA(5)................................ $ 2,658 $ (396) $ 2,494 $ 2,897 $ 4,731
Capital expenditures..................... 1,103 368 105 59 592
Operating cash flows..................... (3,022) 3,779 2,445 3,056 (1,395)
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
As of Year Ended December 31,
1994 1995 1996 1997 1998
------------ ------------- ------------ ------------ -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficiency)............. $4,713 $(3,287) $(2,412) $4,642 $9,239
Total assets............................. 40,035 27,116 23,627 19,673 29,375
Total long-term debt, net of current
maturities............................... 7,429 3,746 3,036 8,663 12,561
Total partners' capital.................. 8,818 (704) 2,153 2,709 2,383(6)
</TABLE>
- ---------------------
(1) The Partnership was not subject to state or federal income taxes during the
period from 1994 through and including 1997. Pietrafesa became subject to
federal and state income tax as of October 1, 1998 when the net assets of
the Partnership were transferred to a C-corporation.
(2) During 1995, Pietrafesa discontinued manufacturing of a low price point
tailored clothing line. The loss from disposal and from operations of this
segment is shown as discontinued operations.
(3) In 1996, the Partnership recorded an extraordinary gain related to the
forgiveness of all outstanding subordinated debt of the Partnership and
related interest.
(4) Consists of shares of Class A Common Stock to be issued in the Offering and
the shares of Class B Common Stock currently issued and outstanding. The
number of shares of Class B Common Stock outstanding gives effect to the
issuance to the Partnership of a total of shares of Class B Common
Stock prior to the consummation of the Offering.
(5) EBITDA represents income (loss) from continuing operations before provision
(benefit) for income taxes plus depreciation and amortization (including
depreciation and amortization included in cost of sales) plus interest
expense. EBITDA is not intended to represent cash flows from operations and
should not be considered as an alternative to net income as an indicator of
our operating performance or to cash flows as a measure of liquidity. We
believe that EBITDA is a standard measure commonly reported and widely used
by analysts, investors and other interested parties in the apparel
industry. Accordingly, it has been disclosed in this prospectus to permit a
more complete comparative analysis of our performance relative to other
companies in the apparel industry. Our definition of EBITDA may not be
identical to similarly titled measures of other companies and, therefore,
may not necessarily be an accurate basis of comparison.
(6) Gives effect to the Partnership's transfer to us of all of its assets and
liabilities, including a $1.5 million obligation relating to certain tax
distribution obligations of the Partnership to its partners, and to the
impact of the recording of $0.5 million of tax expense as a C-corporation
reflected in our 1998 statement of operations. See "Certain Relationships
and Related Transactions."
(7) Relates to a public offering that was delayed due to adverse market
conditions.
24
<PAGE>
PRO FORMA COMBINED FINANCIAL DATA
The following pro forma combined financial statements give effect to The
Pietrafesa Corporation's acquisition of the Acquired Businesses. The pro forma
combined, as adjusted financial statements also give effect to the Offering and
application of the net proceeds as described under "Use of Proceeds." The pro
forma combined financial statements are based on the historical financial
statements of Pietrafesa and the Acquired Businesses and certain assumptions set
forth below and in the notes to the pro forma combined financial statements.
Because the closing of the Offering is conditioned on the simultaneous or prior
closing of the acquisition of all of the Acquired Businesses, the pro forma
combined financial statements do not include separate pro forma financial
statements for us and each Acquired Business.
The pro forma combined, as adjusted balance sheets give effect to the
combination of Pietrafesa with the Acquired Businesses and the Offering as if
they had occurred on December 31, 1998. The pro forma combined, as adjusted
statements of operations for the year ended December 31, 1998 give effect to the
combination of Pietrafesa with the Acquired Businesses as if all such
acquisitions and this Offering had occurred on January 1, 1998.
The pro forma combined financial data for the year ended December 31, 1998
includes the audited financial information of Pietrafesa, DAG, Global and
Components for the year ended December 31, 1998.
Pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions that management deems appropriate. The pro
forma financial data presented herein are not necessarily indicative of the
results we would have obtained had such events occurred at the beginning of the
period, as assumed, or of our future results. The pro forma combined financial
statements should be read in conjunction with the other financial statements and
notes thereto included elsewhere in this prospectus.
25
<PAGE>
Pro Forma Combined Statement of Operations
<TABLE>
<CAPTION>
Year Ended December 31, 1998
-------------------------------------------------------------------------
Total
Pietrafesa Components Global DAG Combined
------------- ---------------- ------------- -------------- -------------
STATEMENT OF OPERATIONS DATA: (in thousands)
<S> <C> <C> <C> <C> <C>
Total revenues............................... $ 56,763 $ 19,993 $ 18,062 $ 2,633 $ 97,451
Cost of sales................................ 47,062 15,007 16,768 1,590 80,427
------------- -------------- -------------- -------------- --------------
Gross profit................................. 9,701 4,986 1,294 1,043 17,024
Operating expenses:
Selling, general and administrative expenses 5,536 3,107 1,390 765 10,798
Depreciation and amortization expenses..... 222 1 4 3 230
------------- -------------- -------------- -------------- --------------
5,758 3,108 1,394 768 11,028
------------- -------------- -------------- -------------- --------------
Operating income (loss)...................... 3,943 1,878 (100) 275 5,996
Interest expense............................. 1,209 293 -- 1 1,503
Public offering costs........................ 823 -- -- -- 823
------------- -------------- -------------- -------------- --------------
Income (loss) before income taxes............ 1,911 1,585 (100) 274 3,670
Provision for income taxes................... 514 158 (46) 24 650
------------- -------------- -------------- -------------- --------------
Net income (loss)............................ $1,397 $1,427 $(54) $250 $3,020
============= ============== ============== ============== ==============
Year Ended December 31, 1998
----------------------------------------------------------------------------
Company Pro Acquisition Pro Forma
Forma Pro Forma Pro Forma Offering Combined,
Adjustments Adjustments Combined Adjustments As Adjusted
-------------- ---------------- ------------- -------------- ---------------
STATEMENT OF OPERATIONS DATA: (in thousands)
Total revenues............................... $ -- $ -- $ 97,451 $ -- $ 97,451
Cost of sales................................ -- -- 80,427 -- 80,427
----------- ------------- ---------- ----------- ---------
Gross profit................................. 0 0 17,024 0 17,024
Operating expenses:
Selling, general and administrative expenses -- (1,621)(1) 9,177 331(5) 9,508
Depreciation and amortization expenses..... -- 577(2) 807 -- 807
----------- ------------- ---------- ----------- ---------
0 (1,044) 9,984 331 10,315
----------- ------------- ---------- ----------- ---------
Operating income (loss)...................... 0 1,044 7,040 (331) 6,709
Interest expense............................. -- -- 1,503 (1,437)(6) 66
Public offering costs........................ (823)(3) -- -- -- --
----------- ------------- ---------- ----------- ---------
Income (loss) before income taxes............ (823) 1,044 5,537 1,106 6,643
Provision for income taxes................... 580(4) 985(4) 2,215 442(4) 2,657
----------- ------------- ---------- ----------- ---------
Net income (loss)............................ $243 $59 $3,322 $664 $3,986
=========== ============= ========== =========== =========
</TABLE>
26
<PAGE>
- -----------------
(1) Reflects (1) the elimination of $1.1 million of royalty and commissions
expenses of Global, which expenses will not continue under the terms of the
Global acquisition agreement, and (2) the reduction of $0.5 million of
excess compensation incurred in 1998 over the maximum amount for the two
former owners of DAG and Components under their respective acquisition
agreements.
(2) Gives effect to the amortization of goodwill that results from the
acquisition of Components, Global and DAG as if the acquisitions occurred
on January 1, 1998.
(3) In 1998, we incurred costs related to a public offering that was delayed
due to adverse market conditions. These costs have been charged off due to
the extended delay of such offering. The pro forma adjustment assumes that
these costs were not charged off.
(4) We expect to incur federal and state income taxes at a combined effective
rate of 40%. A pro forma adjustment was made to reflect this effective rate
as the income of the combining companies was not all taxable in 1998 but
would have been taxable had the transaction been consummated on January 1,
1998.
(5) Gives effect to additional expenses we will incur as a public company. Also
includes a fee for unused availability under our Credit Facility that will
result from the repayment of the Credit Facility with the proceeds from
this Offering.
(6) Reduction of interest expense resulting from repayment of debt with the
proceeds from the Offering.
27
<PAGE>
Pro Forma Combined Balance Sheets
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------------------------------------------------
Pietrafesa Components Global DAG Total Combined
------------ ---------- ------- ------ ------------------
Balance Sheet Data: (in thousands)
<S> <C> <C> <C> <C> <C>
Assets
Current assets
Cash $ 14 $ 45 $ 154 $ 211 $ 424
Accounts receivable 7,967 4,463 19 252 12,701
Inventories 13,117 2,311 908 1,047 17,383
Prepaid expenses and other assets 1,131 -- 57 204 1,392
-------- ------- ------- ------ --------
Total current assets 22,229 6,819 1,138 1,714 31,900
Property, plant and equipment, net 6,586 181 10 13 6,790
Goodwill -- -- -- -- --
Other assets 560 28 -- 9 597
-------- ------- ------- ------ --------
Total assets 29,375 7,028 1,148 1,736 39,287
======== ======= ======= ====== ========
Liabilities and stockholders' equity
Current liabilities
Credit facility -- 2,462 -- 150 2,612
Account payable 7,893 2,459 1,026 1,049 12,427
Other current liabilities 3,054 49 229 71 3,403
Tax distribution payable to partner 1,516 -- -- -- 1,516
Current maturities of long-term debt 527 -- -- -- 527
-------- ------- ------- ------ --------
Total current liabilities 12,990 4,970 1,255 1,270 20,485
Deferred tax liability 1,441 -- -- -- 1,441
Long-term debt, net of current maturities 12,561 -- -- -- 12,561
Stockholders' equity
Common stock -- 300 1 -- 301
Additional paid in capital 2,941 -- -- -- 2,941
Retained earnings (558) 1,758 (108) 466 1,558
-------- ------- ------- ------ --------
Total stockholders' equity 2,383 2,058 (107) 466 4,800
-------- ------- ------- ------ --------
Total liabilities and stockholders equity $ 29,375 $ 7,028 $ 1,148 $ 1,736 $ 39,287
======== ======= ======= ====== ========
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------------------------------------------------------
Company Pro Acquisition Pro Forma
Forma Pro Forma Pro Forma Offering Combined,
Adjustments Adjustments Combined Adjustments As Adjusted
------------ ----------- -------- ----------- -----------
Balance Sheet Data: (in thousands)
<S> <C> <C> <C> <C> <C>
Assets
Current assets
Cash $ 243(1) $ 636(1) $1,303 $ 21,835(4) $23,138
Accounts receivable -- -- 12,701 -- 12,701
Inventories -- -- 17,383 -- 17,383
Prepaid expenses and other assets -- -- 1,392 -- 1,392
-------- ---------- ------ ----------- -------
Total current assets 243 0 32,779 21,835 54,614
Property, plant and equipment, net -- -- 6,790 -- 6,790
Goodwill -- 6,286(2) 6,286 -- 6,286
Other assets -- -- 597 -- 596
-------- ---------- ------ ----------- -------
Total assets 243 6,922 46,452 21,835 68,287
======== ========== ======== =========== =======
Liabilities and stockholders' equity
Current liabilities
Credit facility -- -- 2,612 (2,612)(5) --
Account payable -- -- 12,427 -- 12,427
Other current liabilities -- 1,200(2) 4,603 (1,200)(5) 3,403
Tax distribution payable to partner -- -- 1,516 -- 1,516
Current maturities of long-term debt -- -- 527 (376)(5) 151
-------- ---------- ------ ----------- -------
Total current liabilities 0 1,200 21,685 (4,188) 17,497
Deferred tax liability -- -- 1,441 -- 1,441
Long-term debt, net of current maturities -- 7,542(6) 20,103 (19,641)(5) 462
Stockholders' equity
Common stock -- (301)(3) -- -- --
Additional paid in capital -- -- 2,941 45,000(4) 47,941
Retained earnings 243(1) (1,519)(3) 283 664(1) 947
-------- ---------- ------ ----------- -------
Total stockholders' equity 243 (1,820) 3,223 45,664 48,887
-------- ---------- ------ ----------- -------
Total liabilities and stockholders equity $ 243 $ 6,922 $ 46,452 $ 21,835 $68,287
======== ========== ======== =========== =======
</TABLE>
<PAGE>
- -----------------------
(1) Gives effect to the impact of the pro forma adjustments on net income.
(2) Reflects the purchase price associated with the Acquisitions. For purposes
of the Pro Forma Statement of Operations, the Acquisitions are assumed to
occur as of January 1, 1998. For purposes of the Pro Forma Balance Sheets,
the Acquisitions are assumed to occur as of December 31, 1998. The portion
of the consideration assigned to goodwill in each transaction represents
the excess of the cost over the estimated fair value of the net assets
acquired. We will amortize goodwill over a period of 10 years in the case
of DAG and 15 years in the case of Components and Global. The
recoverability of the unamortized goodwill will be assessed on an ongoing
basis by comparing anticipated undiscounted future cash flows from
operations to net book value.
(3) Reflects the elimination of equity of the Acquired Businesses.
(4) Reflects the assumed net proceeds of approximately $45 million from the
Offering of approximately million shares of Class A Common Stock
at an assumed initial public offering price of $ per share.
(5) Reflects our use of the proceeds from the Offering. See "Use of Proceeds."
(6) Gives effect to long-term debt incurred in order to fund the cash portion
of the acquisition costs incurred prior to the consummation of the
Offering.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Historical and Pro Forma Combined Financial Data and the Combined Financial
Statements and Notes thereto included in this prospectus.
OVERVIEW
Pietrafesa was founded in 1922 as a contract manufacturer of branded tailored
clothing, and in the 1970's started producing directly for large retailers. In
1990, an investment group led by Richard C. Pietrafesa, Jr. and Joseph J.
Pietrafesa II, acquired the Pietrafesa business in a management buyout from
their father and uncle. In the early 1990s, Pietrafesa formalized its growth
strategy of focusing on developing proprietary brand programs for major
retailers. Pietrafesa's initial strategy was to support these programs by
increasing production capacity to serve a broader range of price points and to
develop state-of-the-art manufacturing capabilities at its Liverpool, New York
facility. Pietrafesa's proprietary brand strategy produced significant revenue
growth.
Despite material revenue growth from 1993 to 1994, profitability suffered, with
operating income increasing only $0.84 million during this period. Pietrafesa's
profitability was adversely impacted during this period by the costs of
expanding operations and manufacturing facilities to support planned growth and
meet customers' expanding production needs, as well as by competition from
products supplied by foreign sources. See "Risk Factors--Cyclical Trends and
Changes in the Apparel Industry may Adversely Affect our Business."
During the period from 1995 through 1997, Pietrafesa divested all of its
manufacturing assets other than the Liverpool facility, refinanced its secured
lending arrangements and negotiated the forgiveness of its indebtedness.
Beginning in 1997, Pietrafesa developed a new business strategy designed to
leverage its reputation as a developer of innovative dress apparel programs for
retailers. This strategy was far less reliant on our own manufacturing assets,
and emphasized our expertise in garment design and production management through
sourcing arrangements with third-party manufacturers. As part of this new
strategy, in 1998 Pietrafesa commenced discussions with various independent
merchandising and sourcing companies. See "Risk Factors--We may be Adversely
Affected if Third Party Manufacturers Fail to Perform", "Business--Business
Strategy" and "Business--Acquisition Strategy."
<PAGE>
SIGNIFICANT ACQUISITIONS
Terms of the Acquisitions. In addition to the measures described above and taken
during 1995 through 1997, we will have completed, upon the closing of this
Offering, the acquisition of all the Acquired Businesses. We believe that the
terms of each acquisition satisfies all elements of our acquisition strategy.
See "Business--Reorganization, Acquisitions and Operating Unit Structure." The
terms are as follows:
On , 1999, we purchased certain tangible and intangible assets of
DAG and its former owner. Under the terms of the DAG acquisition agreement, we
paid $0.8 million in cash and issued a promissory note in the principal amount
of $0.4 million. In addition, we assumed certain existing liabilities of DAG,
consisting of approximately $1.3 million of trade payables as of December 31,
1998, as well as third party indebtedness that will be repaid from the proceeds
of this Offering. See "Use of Proceeds." DAG merchandises and sources apparel,
including lower to mid-priced suits and dress shirts, to value-priced apparel
retailers. The purchase price also includes a potential five-year earn-out of
$0.775 million payable in cash or, in limited circumstances, shares of Class A
Common Stock at our option, based on DAG's achievement of certain annual pre-tax
earnings targets. These targets require aggregate growth of 46% in pre-tax
earnings over the five-year period from 1999 through 2003. These targets are
measured annually and, if an annual target is missed, the earn-out payment for
such year will be deferred or forfeited, depending on the extent to which actual
performance falls short of the target.
On , 1999, we purchased all of the issued and outstanding capital
stock of Global. Under the terms of the Global acquisition agreement, the
initial consideration paid by Pietrafesa consisted of $1.4 million in cash and
the issuance of a promissory note payable to Global in the principal amount of
$0.8 million. In addition, we assumed certain existing liabilities of Global,
consisting of approximately $1.3 million of trade payables as of December 31,
1998. Global sources men's suits for S&K Famous Brands. The purchase price also
includes a potential five-year earn-out of $2.2 million payable in cash based on
Global's achievement of certain annual pre-tax earnings targets. These targets
require aggregate growth of 31% in pre-tax earnings over the five-year period
from 1999 through 2003. These targets are measured annually and, if an annual
target is missed, the earn-out payment for such year will be deferred or
forfeited, depending on the extent to which actual performance falls short of
the target.
30
<PAGE>
Concurrent with the closing of this Offering, we will acquire certain tangible
and intangible assets of Components. The purchase price will consist of $4.7
million in cash. In addition, we will assume certain existing liabilities of
Components, consisting of approximately $5.0 million of trade payables and
factor advances as of December 31, 1998, as well as third party indebtedness
that will be repaid from the proceeds of this Offering. See "Use of Proceeds."
Components merchandises and sources St. Andrews tailored clothing, as well as
sportswear, dress shirts, neckwear, topcoats and casual slacks in Italy. The
purchase price also includes a potential six-year earn-out of $4.7 million
payable in cash or, in limited circumstances, shares of Class A Common Stock at
our option, based on Components' achievement of certain annual pre-tax earnings
targets. These targets require aggregate growth of 76.5% in pre-tax earnings
over the six-year period from 1999 through 2004. These targets are measured
annually and, if an annual target is missed, the earn-out payment for such year
will be deferred or forfeited, depending on the extent to which actual
performance falls short of the target.
Possible Impact of Acquisitions on Results of Operations. The consummation of
the DAG, Global and Components acquisitions is expected to affect our results of
operations in certain significant respects. Our depreciation and amortization
will be significantly higher than the corresponding amounts from prior to the
Acquisitions and will never be less than $0.6 million per year over the next 10
years. See "Risk Factors-- Reduction in Net Income Caused by the Amortization of
Goodwill may Adversely Affect the Market Price of our Common Stock."
RESULTS OF OPERATIONS
As an aid to understanding Pietrafesa's and the Acquired Businesses' results of
operations on a comparative basis, we have prepared the following discussion
setting forth items within Pietrafesa's, Components' and Global's statements of
income as a percentage of net revenues for the periods indicated. Financial
information for DAG has not been included because the historical results of
operations are not material as compared to the results of operations of such
other companies.
<PAGE>
The information presented is based on each company's year end. The entirety of
the following discussion of the results of operations and financial position
should be read in conjunction with "Selected Historical Consolidated Financial
Data" and the Financial Statements, including the Notes thereto, appearing
elsewhere in this prospectus.
-- PIETRAFESA
The following table sets forth certain financial data as a percentage of net
revenues for Pietrafesa. This information may not be indicative of our future
results. See Financial Statements, including the Notes thereto, appearing
elsewhere in this prospectus.
<TABLE>
<CAPTION>
For the Year Ended
December 31,
---------------------------------
1996 1997 1998
------------ ----------- --------
<S> <C> <C> <C>
Net revenues....................................... 100.0% 100.0% 100.0%
Cost of sales...................................... 79.0 77.7 82.9
---------- ------ ------
Gross profit....................................... 21.0 22.3 17.1
Selling, general and administrative................ 17.1 16.3 9.8
Depreciation and amortization...................... 0.4 0.4 0.4
---------- ------ ------
Operating income................................... 3.5 5.6 6.9
Interest expense................................... 3.9 3.8 2.1
Public offering costs.............................. -- -- 1.4
---------- ------ ------
Income (loss) from continuing operations before
taxes............................................ (0.4) 1.7 3.4
Provision for income taxes......................... -- -- 0.9
---------- ------ ------
Income (loss) from continuing operations........... (0.4) 1.7 2.5
Discontinued operations............................ (0.7) (0.2) --
---------- ------ ------
Net income (loss) before extraordinary item........ (1.1) 1.5 2.5
Extraordinary item................................. 7.6 -- --
---------- ------ ------
Net income (loss).................................. 6.5% 1.5% 2.5%
========== ====== ======
</TABLE>
31
<PAGE>
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
Net revenues. Net revenues for 1998 increased by 51.1% to $56.8 million from
$37.6 million for 1997. The increase in net revenues was due principally to the
commencement of sales to Jos.A.Bank under a long term arrangement. This increase
represented approximately 74% of the increase in net revenues. The balance of
growth in net revenues was due to increased sales to existing customers.
Cost of sales. Cost of sales for 1998 increased by 61.3% to $47.1 million from
$29.2 million for 1997 due to increased net revenues. Cost of sales as a
percentage of net revenue increased in 1998 to 82.9% from 77.7% for 1997, due
primarily to the new cost-plus sourcing/manufacturing services arrangement with
Jos.A.Bank. Under this long-term arrangement, Jos.A.Bank receives a cost-plus
pricing structure in consideration for minimum annual purchase commitments.
Gross margin on such sales is less than gross margin earned on seasonal
business. However, this lower gross margin did not reduce the operating income
that we realized from such revenues because our sales to Jos.A.Bank do not
require us to make capital investment or overhead expenditures.
Selling, general and administrative expense. Selling, general and administrative
expense for 1998 decreased by 9.8% to $5.5 million from $6.1 million for 1997,
and were disproportionate to the increase in net revenues for 1998 due to the
cost-plus nature of the Jos.A.Bank arrangement and the elimination of
advertising and licensing expenses incurred in 1997 under an agreement with Polo
Corporation which expires in June 1999. This decline in selling, general and
administrative expenses was partially offset by certain costs associated with
establishing new customer relationships. Despite this decline, we anticipate
that such expenses will continue to increase in the future to support growth in
revenues.
Operating income. Operating income for 1998 increased by 85.7% to $3.9 million
from $2.1 million for 1997, due primarily to improved gross profit associated
with increased revenue and the elimination of advertising and license expenses
to Polo Corporation.
<PAGE>
Interest expense. Interest expense for 1998 decreased by 14.3% to $1.2 million
from $1.4 million for 1997, due primarily to lower outstanding principal
balances, a result of improved operating cash flow.
Public offering costs. In 1998, Pietrafesa incurred $0.8 million of public
offering costs. Such costs related to a public offering that was delayed due to
adverse market conditions.
Provision for income taxes. Provision for income taxes for 1998 was $0.5 million
as compared to $0 for 1997, due to the reorganization of Pietrafesa as a
C-corporation in October 1998.
Net income (loss). Net income (loss) for 1998 increased by 133.3% to $1.4
million from $0.6 million for 1997, due primarily to the increases in net
revenues and gross profit and the decrease in selling, general and
administrative expenses as discussed above.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Net revenues. Net revenues for 1997 decreased by 14.8% to $37.5 million from
$44.0 million for 1996, due principally to discontinuance of Polo Corporation's
"Ralph Lauren" labeled products and a decline in sales to Brooks Brothers. In
1996 our net revenues from sales to Brooks Brothers were unusually high because
of the launch of, and initial product deliveries for, the new "Brooksease"
product program. In 1997 our net revenues from sales to Brooks Brothers for such
program, although lower, were consistent with our past experiences involving the
production of replenishment inventory for existing programs.
Cost of sales. Cost of sales for 1997 decreased by 16.1% to $29.2 million from
$34.8 million for 1996, predominantly due to overall lower sales. As a
percentage of total net revenues, cost of sales declined to 77.7% in 1997 from
79.0% in 1996 due to lower overhead costs and a shift in the business away from
general manufacturing to the sourcing of a greater percentage of total product.
32
<PAGE>
Selling, general and administrative expense. Selling, general and administrative
expense for 1997 decreased by 18.7% to $6.1 million from $7.5 million for 1996,
due primarily to the impact of reductions in management personnel implemented in
late 1996. Selling, general and administrative expense as a percentage of net
revenues decreased to 16.3% in 1997 from 17.1% in 1996.
Interest expense. Interest expense for 1997 decreased by 17.6% to $1.4 million
from $1.7 million for 1996, due primarily to lower outstanding principal
balances resulting from improved operating cash flow.
Income (loss) from continuing operations. Income (loss) from continuing
operations for 1997 increased to $0.7 million from $(0.2) million for 1996, due
to lower cost of sales and decreases in selling, general and administrative
expenses.
Discontinued operations. The loss on discontinued operations for 1997 decreased
by 66.6% to $0.1 million from $0.3 million for 1996, due primarily to reduced
interest expense under certain indebtedness relating to such discontinued
operations. In 1995, Pietrafesa decided to discontinue the domestic manufacture
of low price point tailored clothing and closed a manufacturing facility in
Georgia. Pietrafesa continued to realize a loss on disposal of such discontinued
operations through 1997.
Extraordinary item. There was no extraordinary item for 1997 as compared to an
extraordinary item of $3.4 million for 1996. This item resulted from an
agreement between the owners of a predecessor company of Pietrafesa to discharge
certain subordinated indebtedness owed by Pietrafesa in exchange for an indirect
equity interest in the Partnership.
Net income. Net income for 1997 decreased 79.3% to $0.6 million from $2.9
million for 1996, due primarily to the impact of an extraordinary item in 1996
of $3.4 million, offset by the lower cost of sales and selling, general and
administrative expenses in 1997 as described above.
-- COMPONENTS
The following table sets forth certain financial data as a percentage of net
revenues for Components. This information may not be indicative of our future
results. See Financial Statements, including the Notes thereto, appearing
elsewhere in this prospectus.
<PAGE>
For the Year Ended
December 31,
-------------------------------
1996 1997 1998
--------- ------------ --------
Net revenues................................. 100.0% 100.0% 100.0%
Cost of sales................................ 82.8 78.8 75.1
--------- ------------ --------
Gross profit................................. 17.2 21.2 24.9
Selling, general and administrative.......... 14.5 14.1 15.5
--------- ------------ --------
Operating income............................. 2.7 7.1 9.4
Interest expense............................. 1.5 1.6 1.5
--------- ------------ --------
Income before income taxes................... 1.2 5.5 7.9
Provision for income taxes................... 0.0 0.5 0.8
========= ============ ========
Net income................................... 1.2% 4.9% 7.1%
========= ============ ========
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
Net revenues. Net revenues for 1998 increased by 34.2% to $20.0 million from
$14.9 million for 1997, due principally to increased sales to Brooks Brothers
and Tommy Hilfiger.
Cost of sales. Cost of sales for 1998 increased by 27.1% to $15.0 million from
$11.8 million for 1997. Cost of sales for 1998 as a percentage of net revenue
decreased to 75.1% as compared to 78.8% for 1997, due primarily to cost
efficiencies in sourcing larger quantities of products.
33
<PAGE>
Selling, general and administrative expense. Selling, general and administrative
expense for 1998 increased 47.6% to $3.1 million from $2.1 million for 1997, due
primarily to a $0.4 million increase in salary payable to the business owner, as
well as bad debt expense and advertising expense. Historically, such owner's
salary has varied considerably because, as an S-corporation, all year-end net
cash balances were paid as salary. Selling, general and administrative expense
as a percentage of net revenues increased to 15.5% in 1998 from 14.1% in 1997.
Operating income. Operating income for 1998 increased by 72.7% to $1.9 million
from $1.1 million for 1997. The increase was due to increases in net revenue and
gross profit.
Net income. Net income for 1998 increased by 100% to $1.4 million from $0.7
million for 1997, due primarily to the increase in net revenues described above.
--GLOBAL
The following table sets forth certain financial data as a percentage of net
revenues for Global. This information may not be indicative of our future
results. See Financial Statements, including the Notes thereto, appearing
elsewhere in this prospectus.
For the Year Ended
December 31,
------------------
1997 1998
-------- ------
Net revenues..................................... 100.0% 100.0%
Cost of sales.................................... 93.4 92.8
-------- ------
Gross profit..................................... 6.6 7.2
Selling, general and administrative.............. 1.5 1.7
-------- ------
Operating income before royalties and commissions 5.1 5.5
Royalties and commissions........................ 5.2 6.1
-------- ------
Operating income (loss).......................... (0.1) (0.6)
Provision for income taxes....................... 0.0 (0.3)
-------- ------
Net income (loss)................................ (0.1)% (0.3)%
======== ======
<PAGE>
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
Net revenues. Net revenues for 1998 decreased by 4.7% to $18.1 million from
$19.0 million for 1997, due principally to a decline in sales to Global's
primary customer, S&K Famous Brands.
Cost of sales. Cost of sales for 1998 decreased by 5.6% to $16.8 million from
$17.8 million for 1997. Cost of sales as a percentage of net revenue decreased
to 92.8% for 1998 from 93.4% as compared to 1997. The reduction in cost of sales
was due to reduced revenue.
Selling, general and administrative expense. Selling, general and administrative
expense for 1998 remained constant at $0.3 million.
Operating income before royalties and commissions. Historically, Global has paid
significant royalties and commissions on its total net sales. All such royalties
and commission costs will be eliminated in connection with the Acquisition, with
no anticipated adverse effect on the generation of sales. Operating income
before royalties and commissions increased by 3.1% to $1.0 million for 1998. The
improvement in operating income before royalties and commissions was due to the
reduced cost of sales as a percentage of net revenues.
Royalties and commissions. Royalties and commissions increased by 11.2% to $1.1
million for 1998. Royalties and commissions increased due to an increase in
commission rate.
34
<PAGE>
Net income (loss). Net loss for 1998 increased to $(0.05) million from a loss of
$(0.01) million for 1997, due to increases in royalties and commissions.
LIQUIDITY AND CAPITAL RESOURCES
The following discussion of liquidity and capital resources is presented on a
pro forma combined basis for Pietrafesa and the Acquired Businesses, but does
not include third party borrowing arrangements of the Acquired Business, as such
arrangements will be repaid and terminated upon the consummation of this
Offering. See "Use of Proceeds."
Our primary capital requirements are the funding of operations and capital
expenditures. Pietrafesa has historically financed its growth in sales and the
resulting increase in inventory and receivables through a combination of
operating cash flow and borrowings under its current and past working capital
facilities.
During the year ended December 31, 1998, we generated negative cash from
operations of $0.3 million. This was primarily the result of net income of $3.3
million and a $7.0 million increase in other current liabilities offset by a
$4.3 million increase in accounts receivable and a $8.5 million increase in
inventories. The increase in accounts receivable was primarily the result of a
25.6% increase in net revenues for the year ended December 31, 1998 as compared
to the year ended December 31, 1997. The increases in other current liabilities
and inventories were due primarily to the sourcing of product for Jos.A.Bank and
other customers at manufacturing facilities managed by an affiliate.
In June 1998, Pietrafesa entered into the senior secured Credit Facility with
the National Bank of Canada ("NBC"). See "Business-- Sourcing and
Manufacturing." The Credit Facility consists of (1) a $12.5 million revolving
credit line (the "Working Capital Facility"), (2) a $2.0 million term note (the
"Term Note Facility") and (3) a $850,000 equipment loan facility (the "Equipment
Loan Facility"). The amount available for borrowing under the Working Capital
Facility at any given time is determined pursuant to a formula based upon the
levels of qualifying accounts receivable and eligible inventory, subject to the
$12.5 million maximum ($1.0 million of which can be utilized for the issuance of
letters of credit). As of December 31, 1998, $9.4 million, $1.8 million and
$950,000 were outstanding under the Working Capital Facility, the Term Note
Facility and the Equipment Loan Facility, respectively. Amounts outstanding
under the Credit Facility are secured by a senior lien on substantially all of
our assets. Borrowings under the Working Capital Facility bear interest, at our
option, at either 0.5% per annum above the prime rate or at a fixed rate of
2.75% above LIBOR for an interest period specified by us of one, three or six
months. Amounts outstanding under (a) the Term Note Facility bears interest at
the rate of 1% above the prime rate and (b) the Equipment Loan Facility bear
interest at the rate of 0.75% above the prime rate. The Credit Facility includes
significant financial and operating covenants, including requirements that we
maintain minimum net worth and pre-tax income levels and certain financial
ratios, prohibitions on our ability to incur certain additional indebtedness or
to pay dividends and restrictions on our ability to make capital expenditures
and acquisitions. We are currently in compliance with all covenants under the
Credit Facility.
<PAGE>
In November 1995, Pietrafesa entered into a Loan Agreement (the "UDC Loan
Agreement") with New York State Urban Development Corporation ("UDC"), pursuant
to which Pietrafesa borrowed $1.0 million (the "UDC Loan") to finance the
purchase of certain machinery and equipment. As of December 31, 1998, $0.6
million of the UDC Loan was outstanding. The UDC Loan matures January 2003,
bears interest at 1.0% and is secured by a senior lien on certain assets and a
subordinate mortgage on the Liverpool Facility. The UDC Loan Agreement contains
restrictive covenants similar to those contained in the NBC Credit Facility and
requires Pietrafesa to maintain a minimum tangible net worth of $1.2 million,
which is lower than the corresponding amount required to be maintained under the
Credit Facility. We are currently in compliance with all covenants under the UDC
Loan Agreement.
Our capital expenditures were $0.8 million for 1998. We expect capital
expenditures to be approximately $0.7 million during 1999. We anticipate that
operating income and the amounts available under the Credit Facility will be
sufficient to fund our capital expenditures in 1999.
We had working capital of $11.1 million and $4.8 million at December 31, 1998
and at December 31, 1997, respectively. The increase in working capital was due
primarily to a $4.3 million increase in accounts receivable. In addition,
inventories increased by $8.5 million, which was offset by a $7.0 million
increase in accounts payable. In part, the new sourcing/manufacturing services
arrangement with Jos.A.Bank accounted for the changes in accounts receivable,
inventories and other current liabilities. We expect that our working capital
needs will continue to fluctuate based on seasonal increases in sales and
accounts receivable and seasonal decreases in trade accounts payable.
35
<PAGE>
Management believes that the combination of existing working capital, funds
anticipated to be generated from operating activities, the borrowing
availability under the current and anticipated credit agreements and the
anticipated net proceeds of the Offering will be sufficient to fund both our
short-term and long-term capital and our liquidity needs, other than in respect
of future acquisitions. As part of our growth strategy, we intend to seek out
and acquire merchandising/sourcing businesses. These acquisitions may require
additional capital in the form of equity, debt or a combination thereof. We
cannot assure you that additional capital will be available to us if and when
required, or that such additional capital will be available on terms acceptable
to us.
MARKET RISK
Our earnings are affected by changes in short-term interest rates as a result of
our variable rate debt instruments. If market interest rates for similar debt
obligations averaged 10% more in 1998, our interest expense would increase, and
income before taxes would decrease by $103,803. This analysis does not consider
the effects of the reduced level of borrowings that could exist in such an
environment if management took actions to mitigate our exposure to the change.
However, due to the uncertainty of the specific actions that would be taken and
their possible effects, this sensitivity analysis assumes no change in our debt
structure.
BACKLOG
Our backlog of orders is affected by a number of factors, including revisions in
the scheduling of manufacturing and shipment of the product which, in some
instances, depends on the demands of the retail consumer. Accordingly, a
comparison of unfilled orders from period to period is not necessarily
meaningful, and the level of unfilled orders at any given time may not be
indicative of actual shipments.
<PAGE>
SEASONALITY
Some of our principal products are organized into seasonal lines in response to
the seasonal marketing of such products by our customers. As a result, our net
revenue and net income may fluctuate on a seasonal basis. A disproportionate
amount of our net revenue and a majority of our net income are typically
realized during the third quarter. Given that orders are usually placed six to
nine months in advance of shipping, net revenue and net income are generally
weakest during the second and fourth quarters, the two peak retail seasons of
our customers. Our greatest cash requirements occur in the later part of the
first and third quarters to support production and sales costs and a buildup in
customer receivables, resulting in reductions in working capital in each of
those quarters. Our business, results of operations and financial condition will
be materially and adversely impacted if we are unable to finance our seasonal
cash requirements. Moreover, if there are significant seasonal fluctuations in
our revenues, any substantial decrease in third quarter net revenues could have
a material adverse effect on our liquidity and on our profitability for the
entire year. See "Risk Factor--Our Operating Results are Seasonal."
EFFECTS OF INFLATION AND FOREIGN CURRENCY FLUCTUATIONS
We believe that inflation has not had a material impact on our results of
operations for the periods discussed herein. Although a significant portion of
our purchases of raw materials are denominated in U.S. dollars, to date we have
not been materially adversely affected by foreign currency fluctuations. See
"Risk Factors--We are Subject to Certain Risks Relating to our Foreign Sourcing
of Products" and "--We are Subject to Certain Risks Relating to International
Expansion."
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The statement amends the accounting for
derivatives and hedging activities effective for fiscal years beginning after
June 15, 1999. We have not historically engaged in hedging activities to
mitigate foreign currency risk. In the event that we engage in hedging
activities in the future, SFAS No. 133 may have an impact on the accounting
treatment of these hedging activities.
36
<PAGE>
IMPACT OF THE YEAR 2000 ISSUE
With the new millenium approaching, many institutions around the world are
reviewing and modifying their computer systems to ensure that they are Year 2000
compliant. The issue, in general terms, is that many existing computer systems
and microprocessors with data functions use only two digits to identify a year
in the date field with the assumption that the first two digits are always "19".
Consequently, on January 1, 2000, any computers that are not Year 2000 compliant
may read the year as 1900. The failure to correct any computers that calculate,
compare or sort using the incorrect date could result in system failures or
malfunctions causing disruptions of our operations, including a temporary
inability to process transactions, send invoices or engage in similar normal
business activities.
Our production and sourcing computerized systems are not reliant on
date-sensitive information. We are working to resolve the potential impact of
the Year 2000 on the ability of our computerized financial information systems
to accurately process date-sensitive information. We engaged Arthur Andersen &
Co. to conduct an analysis of our financial information processing systems to
determine whether we are Year 2000 compliant. Based on their study it was
determined that we will have to upgrade, modify or replace portions of our
financial systems to make them Year 2000 compliant. All related software has
been installed and testing and training are expected to commence shortly. We
plan to complete the modifications and replacements necessary to correct those
systems prior to September 30, 1999. In the event that we fail to correct our
computerized financial information systems prior to December 31, 1999, we will
out-source appropriate aspects of our financial systems and manually execute any
functions we retain. We will implement standardized financial controls and
back-office functions of the Acquired Businesses and hope to resolve all Year
2000 issues with regard to the Acquired Businesses at the same time we resolve
our own issues. We believe that completing the program within the time-frame we
have set will avoid any adverse impact on our operating systems. We currently
estimate that the total cost of implementing our Year 2000 program will be
approximately $200,000. We believe, however, that such Year 2000 compliance
costs, including the possible costs relating to outsourcing appropriate aspects
of our financial systems, will not have a material adverse impact on our
financial condition.
During 1997, Pietrafesa initiated formal communications with its customers to
determine the business risk to it related to customer Year 2000 compliance
issues. Communications with other third parties, such as suppliers, commenced in
1998. The Acquired Businesses have initiated formal communications with their
customers and other third parties to determine their business risks related to
Year 2000 compliance issues. Our failure, or the failure of third parties with
which we do business or upon which we rely, to address Year 2000 compliance
issues in a timely manner could have a material adverse effect on our business,
results of operations and financial condition.
37
<PAGE>
BUSINESS
GENERAL
The Pietrafesa Corporation develops and manages men's dress apparel programs for
proprietary and third party brands. Our brand development and management
programs include comprehensive merchandising and sourcing services for apparel
covering a broad range of price points and products, including suits, sport
jackets, dress shirts, woven sport shirts, casual pants, knitwear, neckwear and
topcoats.
We have been a contract manufacturer for branded tailored clothing since 1922
and started producing directly for large retailers after entering into a
contract with Brooks Brothers in the 1970s. As a result of this experience, we
have identified and responded to significant apparel industry trends, including:
o growing consumer acceptance of proprietary brand apparel programs;
o increasing availability of low cost manufacturing sources throughout the
world; and
o increasing retailer demand for vendor consolidation and value-added
services.
By capitalizing on these trends, we believe that we are positioned to best
address the men's dress apparel needs of national retailers and to increase our
market share across all price points and distribution channels
INDUSTRY OVERVIEW
Retail sales of men's apparel in the United States in 1998 were approximately
$54 billion in sales, an increase of 6.8% over the prior year, as compared to
increases of 3.7% of sales in women's apparel and 4.7% in sales of all apparel.
The following important trends in the apparel industry have redefined the manner
in which our business must be conducted:
Consumers are Buying More Proprietary Brand Apparel. We believe that there is an
increased consumer acceptance of and demand for high quality, proprietary brand
apparel such as that sold by Brooks Brothers and Jos.A.Bank. Proprietary brand
apparel bears the retailer's own name or a brand name exclusive to the retailer.
Sales of private brand apparel represented 41.0% of total sales of men's apparel
in 1996, up from 39.3% in 1995 and 37.0% in 1994. Based upon our 1998 sales and
the announced store opening plans of our customers, we believe that this trend
continued in 1998.
<PAGE>
Retailers are Demanding Vendor Relationships that Facilitate the Development of
Proprietary Brands. Proprietary brands produce higher maintained margins than
traditional brands because they generally have lower production and selling
costs, and do not have the added expense of license fees. Despite the economic
and other benefits offered by proprietary brands, retailers often find
developing and purchasing proprietary collections highly inefficient and
cumbersome as compared to purchasing branded products. These difficulties are
largely due to the highly fragmented nature of the sourcing industry, which
often limits retailers' sourcing relationships to firms that offer only a
limited number of products and often lack advanced inventory systems expertise.
Retailers are Requiring More Sophisticated Systems and Financial Stability from
their Vendors. Many larger retailers are concentrating more business with fewer
and larger vendors to achieve greater efficiency in distribution and quality
control, to reduce the retailers' merchandising costs and to ensure that their
most important requirements are sourced with reliable and financially stable
organizations. Retailers are also requiring higher levels of service from all
vendors, such as operating through an EDI system for orders and payments,
maintaining strict quality control procedures, creating a replenishment pipeline
for certain programs, as well as product ticketing and direct-to-store shipping.
We believe that many merchandising/sourcing businesses, however, lack the
systems, capital or scale to comply with the increasingly strict program demands
of larger retailers.
Specialty Chains are Achieving Strong Sales Growth. Over the last five years,
sales of clothing by chain retailers and high-end specialty chains, many of
which sell proprietary brands primarily or exclusively, have grown significantly
due to both new store openings and comparable store sales increases. In 1998,
specialty chains reported dollar increases in sales of men's clothing of 6.5%
and captured 10.5% of all dollars spent on men's clothing. This growth is
evidenced by the growth of men's apparel retailers such as The Men's Wearhouse
and Today's Man and the publicly announced national store opening plans of
Brooks Brothers and Jos.A.Bank.
38
<PAGE>
BUSINESS STRATEGY
Our business strategy is to become the global leader in developing and managing
men's apparel programs for proprietary and third party brands. As a result, we
have refocused our business strategy away from dependence on owned manufacturing
assets, to one that offers retailers and the owners of brands:
o the ability to develop integrated collections of men's apparel programs
that are customized to each retailer's needs. The collections we develop
span styles ranging from the traditional tailored look of Savile Row to
FUBU's urban contemporary look, at a full range of price points;
o the lowest available cost for each product line, by sourcing production
globally to satisfy the specifications, country of origin and delivery
requirements of each customer. Unlike traditional clothing manufacturers,
this strategy permits us to seek the best manufacturer worldwide for a
specific product at the lowest marginal cost, and minimizes investments
in plant and equipment;
o value-added services, including design, raw material procurement,
merchandising, statistical quality control, personalized customer service
and complete product management, which permits major retailers to achieve
greater efficiency by outsourcing many aspects of their proprietary brand
programs;
o technological innovations, such as interactive sales software and
integrated real-time inventory management, that enable us to compress
delivery schedules and better manage product selection for our customers;
and
o the scale and financial stability to support long-term programs.
We believe that our business strategy is unique in its focus on the constantly
changing merchandising and sourcing needs of retailers. By contrast, our
traditional competitors continue to emphasize product lines and sourcing options
that are tied to the capabilities of their owned manufacturing facilities.
<PAGE>
GROWTH STRATEGY
We believe that our business strategy will create numerous growth opportunities.
The principal components of our growth strategy are to:
o achieve greater penetration among our existing customers. In particular,
we believe that our ability to develop a broad range of product lines, as
well as our value-added services, scale and financial stability, will
result in increased sales to our existing customers;
o develop new customer relationships by aggressively marketing our
capabilities. We believe that our development of such new relationships
will be enhanced by our acquisition of the Acquired Businesses, each of
which have unique customer relationships;
o grow revenues through selective acquisitions. Our acquisition strategy is
to identify and acquire leading merchandising/sourcing companies that
specialize in certain menswear products and specific quality or price
segments. In addition to increasing revenues, these acquisitions will
increase the range of products, price points and sourcing options
available to our customers and add new customers. We believe this will
lead to significant cross-selling and cross-sourcing opportunities;
o expand our product offerings in order to benefit from retailers' demands
for vendor consolidation. We have achieved this through acquisitions, as
well as through the development of new sourcing relationships;
o acquire, develop and license brands to leverage our existing sourcing and
merchandising capabilities. We believe that licensed or acquired brands
such as FUBU(TM) have significant growth potential and will complement
our proprietary brand programs; and
o expand internationally to capitalize on certain fundamental dynamics of
the menswear market in Europe that are similar to those in the U.S.
market. We believe that our strong global sourcing relationships, along
with our merchandising and production expertise, position us to
capitalize on these similarities both through securing foreign retailers
as customers in Europe and through participation in global distribution
arrangements involving merchandise supplied to our customers.
39
<PAGE>
ACQUISITION STRATEGY
We believe that the merchandising and sourcing industry is highly fragmented.
Our growth strategy includes selective strategic acquisitions within this
industry that expand and complement our product lines and sourcing and
distribution capabilities. Major elements of our acquisition strategy include:
o identifying and acquiring leading merchandising and sourcing companies
that specialize in certain menswear products and specific quality or
price segments, in order to increase the range of products, price points
and sourcing options available to our customers and to add new customers;
o including in each acquisition, when possible, significant purchase price
deferral arrangements and other performance incentives for the sellers of
each acquired business that are realized only if the acquired business
meets or exceeds growth and profitability targets subsequent to the
closing of the acquisition;
o allowing newly acquired businesses to operate as an independent operating
unit, while holding each accountable for its profitability, utilization
of capital and overhead; and
o improving and standardizing financial controls, quality control practices
and back-office functions of each acquired business. We will eliminate
duplicative operational facilities, such as leased office and warehouse
space and personnel, whenever possible.
We believe that many of our acquisition candidates are unable to fully serve the
needs of their customers or effectively cross-sell across retailers and product
lines. We believe that these limitations are often due to their narrow product
offerings, limited systems expertise, capital constraints and lack of an
industry-wide reputation. Our acquisition strategy is intended to address these
limitations and to provide acquisition candidates with a compelling opportunity
to leverage their existing customer base and to build new customer
relationships. Our acquisition strategy offers each candidate:
o the opportunity to be a part of a diversified apparel products company,
thereby enhancing the candidate's competitive position in its particular
product segment through an expansion of distribution channels and
improved production and distribution capacities;
o greater purchasing power of raw materials and other supplies and
services, and other economies of scale;
o enhanced financial strength and visibility as part of a public company;
o the opportunity for its management to remain involved in, and to profit
from, future operations; and
o an opportunity for liquidity through the receipt of cash or securities of
the Company.
See "Risk Factors--Risks Relating to our Acquisition Strategy and Future
Acquisitions" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Significant Acquisitions."
40
<PAGE>
PRODUCTS
We produce a core line of high quality men's tailored clothing, trousers,
outerwear, sportswear and accessories across a variety of fashion directions,
price points and distribution channels. Most of our dress apparel programs focus
on developing a style that is distinctive to the relevant brand, yet not
susceptible to fashion obsolescence. Key fabrics include 100% wool, camel hair,
cashmere, silk, cotton and linen. Key fabric constructions include 100%
mechanical stretch, 4-ply worsteds, storm proof wovens and worsted camel hair.
The table below (which presents information for Pietrafesa and the Acquired
Businesses on a combined basis) sets forth sales by product category, expressed
as a percentage of net revenue.
For the year ended
December 31,
1997 1998
-------- -------
Men's suits 47.3% 42.5%
Men's sport jackets 19.0 23.1
Suit separates (trousers) 11.2 13.1
Suit separates (jackets) 6.2 8.0
Sport shirts 4.3 4.3
Women's tailored 4.9 3.6
Topcoats 1.9 1.9
Dress shirts 1.8 1.9
Other 3.4 1.6
======== =======
100.0% 100.0%
======== =======
Our design staff examines domestic and international trends in the apparel
industry to determine trends in styling, color, consumer preferences and
lifestyle. Virtually all of our products are designed by our in-house staff,
utilizing CAD technology. We can quickly generate samples in response to
customer input. The use of CAD technology minimizes the time and costs
associated with producing sewn samples prior to production and allows us to
create custom designed products meeting the specific needs of each customer.
<PAGE>
DISTRIBUTION CHANNELS, CUSTOMERS AND SALES AND MARKETING
Distribution Channels and Customers. We market our products across all major
apparel retail channels. Because we market proprietary branded products designed
specifically for each of our customers, our sales are not constrained by
competition among our customers.
We supply product to seven national chains, seven high-end specialty chains, six
value-priced retailers and two department stores. Our five largest customers are
S & K Famous Brands, Brooks Brothers, Jos.A.Bank, Polo Retail and Nordstrom.
Combined sales to these five customers represented approximately 64.8% and 69.9%
of net revenue during 1997 and 1998, respectively. See "Risk Factors--We
Generate a Significant Percentage of Our Revenue from a Limited Number of
Customers."
We derived our net revenues from the following distribution channels:
For the year ended
December 31,
1997 1998
-------- -------
National chain 35.5% 51.4%
Value-priced retailer 29.4 24.7
High-end specialty chain (1) 19.2 15.4
Liquidation 3.4 3.1
Department store 2.2 1.0
Other 10.3 4.4
======== =======
100.0% 100.0%
======== =======
- ----------------------------
(1) Includes net revenues from single location high-end specialty stores of
10.6% and 7.5% for 1997 and 1998, respectively.
42
<PAGE>
Sales and Marketing. In contrast to traditional apparel companies, who attempt
primarily to sell customers product that they manufacture, we apply our sourcing
network and systems resources to solve customer problems and/or create new
retail opportunities for our customers. We believe that this consultative
approach to sales and marketing results in long-term relationships with
successful retailers.
Our flexibility in sourcing products does not restrict us to offering solutions
that are dependent on our manufacturing capabilities. Our consultative approach
to sales and marketing has evolved over the last decade, and involves providing
both products and services. For example, in 1991 we analyzed a manufacturing
facility owned by a major national retailer, and we concluded that there were
structural barriers that precluded that facility from ever becoming an efficient
manufacturing source. We proposed closing the facility and moving the relevant
production to our Liverpool Facility, where production lines were established
specifically for that product. In 1994, Pietrafesa performed a similar analysis
for a major brand, resulting in the closure of the brand's manufacturing
facility and the sourcing of its product between the Liverpool Facility and two
other contractors. Most recently, Pietrafesa assisted a national chain in
phasing out its manufacturing division and its exclusive reliance on its
in-house merchandisers.
Our major customers are assigned their own sales teams -- which include design,
specification, quality control and sales administration personnel -- focused on
the needs and requirements of a particular customer. In order to maintain
exclusivity for each customer, all products remain unique to their respective
sales team. On a seasonal basis, merchandising concepts, including exclusive or
special fabrics, model enhancements and marketing ideas, are presented to
customers. When a customer adopts one of our merchandising strategies, that
strategy is executed exclusively for that customer unless otherwise agreed.
MERCHANDISING TECHNOLOGY
Systems Expertise. We continually develop new systems, services and production
methods that make buying from us more attractive to retailers. We generally use
CAD systems to develop products and program fabric cutting for all products to
ensure color consistency and maximize material yield. We employ a proprietary
specification system to insure standard output regardless of the production
facility. In addition, our EDI system significantly enhances customer order
execution and point-of-sale merchandise tracking. All such systems are intended
to enhance customer profitability and loyalty. In addition, our sales
forecasting, production planning and logistics and inventory management are
performed on proprietary systems.
<PAGE>
Proprietary Made-to-Measure Software. In November 1998 we launched a proprietary
point-of-sale made-to-measure system at two retail stores and will introduce the
system to 5 Brooks Brothers stores in the first quarter of 1999. This system
offers retailers the opportunity simultaneously to electronically capture a
customer profile and a made-to-measure suit order, automatically alter a
standard CAD pattern based on the customer's measurements, and is intended to
deliver a custom suit to the customer in less than four weeks.
PRODUCT SOURCING, RAW MATERIALS SOURCING AND MANUFACTURING
Product Sourcing. During 1998, approximately 50% (by dollar volume) of our
products were outsourced worldwide to over 40 independent manufacturers
(excluding an affiliate of ours). Further, 34% (by dollar volume) of our
products were produced outside the United States in 1998, principally in Italy
and Asia. No manufacturer accounted for more than 10% of our total production in
1998. We monitor our selection of independent factories to attempt to minimize
the instances in which one manufacturer or country is the source of a
disproportionate amount of our merchandise. These manufacturers are selected,
monitored and coordinated by our employees located in regional offices to assure
conformity to strict quality standards. We believe the use of dedicated sourcing
personnel rather than independent agents reduces our sourcing costs and cycle
times. Personnel who are focused narrowly on our interests are more responsive
to our needs than independent agents would be, and are more likely to build
long-term relationships with key vendors. We believe that the use of these
independent manufacturers increases our production capacity and delivery
flexibility, reduces our costs and allows us to match each of these criteria to
specific customer needs. See "Risk Factors--We are Subject to Certain Risks
Relating to our Foreign Sourcing of Products."
We have long-standing relationships with our most important independent
manufacturers. In a number of cases, we are the largest customer of our
independent manufacturers, providing as much as 50% of such manufacturers'
annual order volume (by unit). As a result, we are able to pass through to our
customers the benefits of the significant leverage we have with such
manufacturers and the resulting production, delivery and cost flexibility. For
many of our lower price point products, we have established numerous alternative
manufacturing sources. As a result, production of such products can be placed on
the most competitive delivery and price terms on a season-by-season basis, and
significant dependence on single manufacturers of such products is minimized. We
believe that our sourcing relationships enable us to offer our customers
comprehensive brand management programs without placing too much emphasis on one
product source.
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<PAGE>
Raw Materials Sourcing. We obtain our raw materials, which include fabric,
linings, thread, buttons and labels, from domestic and foreign sources based on
quality, pricing, customer requirements and availability. Our principal raw
material is fabric, including woolens, cashmere, camel hair, silks, linen,
cotton and blends of wool with other fibers, as well as thread, trim and
labeling and packaging materials. Whenever practicable, fabric is procured by
our contract manufacturers directly but in accordance with our specifications,
thus reducing capital employed by us in work-in-process inventory. For some of
our product offerings, we select fabric suppliers to jointly develop fabric for
our exclusive use. In order to assure quality control, we send samples of all
new fabrics to laboratories in order to test the sewing characteristics of raw
materials. For a significant portion of the products we sell, the customer or
manufacturer purchases the raw materials. A substantial portion of these
purchases were denominated in U.S. dollars. We purchased 62% (by dollar value)
of our total fabric requirements in 1998 from two suppliers. No other supplier
accounted for more than 10% of such requirements. As is customary in our
industry, we do not have long-term contracts with our suppliers. We believe that
there are alternative sources of supply available to satisfy our raw material
requirements. See "Risk Factors--Fluctuations in Pricing, Availability and
Quality of Raw Materials could cause a Material Adverse Effect."
Manufacturing. We have over 75 years of experience as a leading domestic
manufacturer of premium tailored clothing. As a result, unlike many of our
small, entrepreneurial competitors, we have the expertise to offer retailers
proprietary brand programs that include styling developments, quick
replenishment, statistical quality control, delivery reliability and systems
integration that are competitive with the largest domestic manufacturers. In
addition, we believe that we can improve retailer margins by leveraging our
experience in advanced systems software. In particular, we believe that our
fabric utilization technology, our "singles-in-series" production flow, and
"just-in-time" inventory and distribution management systems will lower raw
material and inventory costs, and result in better customer order fulfillment.
In 1998, approximately 50% of our products (by dollar volume) were produced at
our only manufacturing facility, located in Liverpool, New York (the "Liverpool
Facility"), and at two facilities in Baltimore, Maryland (the "Baltimore
Facilities"). The Baltimore Facilities are operated by SourceOne, L.L.C.
("SourceOne"), a subsidiary of the general partner of the Partnership. See
"Certain Relationships and Related Transactions." Our business and growth
strategies focus on growth through worldwide sourcing and diminished reliance on
manufacturing facilities owned and operated by us. See "Risk Factors--We are
Subject to Certain Risks Relating to our Foreign Sourcing of Products."
<PAGE>
Our affiliate, SourceOne, took over operation of the Baltimore Facilities in
April 1998. We are not financially liable, or otherwise obligated, for any
overhead or other operating expenses or liabilities of the Baltimore Facilities.
We source approximately one-third of our production for Jos.A.Bank with
SourceOne pursuant to a subcontractor agreement. Under that agreement, SourceOne
is paid based on the production costs of the agreement, without mark-up. None of
our employees receive additional compensation from SourceOne. The Baltimore
Facilities were formerly operated by Jos.A.Bank. As part of its announced plan
to phase out its domestic manufacturing operations and focus on a publicly
announced national five-year store opening plan, Jos.A.Bank sought our
assistance in executing this plan. SourceOne was established to ensure an
orderly continuation of the operations of the Baltimore Facilities, without
exposing us to any associated overhead or other operating liabilities. SourceOne
is obligated to operate the Baltimore Facilities through February 2000. In
addition, SourceOne's obligations are contingent on Jos.A.Bank satisfying its
minimum order commitments to us for the corresponding period.
Quality Control. As of March 1, 1999 we had eight quality control personnel in
three foreign centers, as well as four additional inspectors for the U.S. and
Caribbean based manufacturing contractors. In addition, as of such date we had
nine people in our headquarters facility overseeing and coordinating global
quality control standards and efforts. We believe our quality control program is
an important component of our apparel programs.
Our quality control program is designed to ensure that our products meet high
quality standards. This program is based on the "green seal/black seal" process
to ensure that all garments we source or produce meet our or our customers'
specifications and original expectations for the production of such garments.
Before a new product order is placed, an exact sample garment is sent to the
customer. Upon customer approval, a "green seal" tag is placed on the garment to
indicate acceptance by both us and the customer and to provide a standard for
future reference. Prior to shipping the first production unit of the green
sealed product, a size run from the order is shipped to the customer for "black
seal" approval. If the items sufficiently match the "green seal" garment, "black
seal" approval is given, and the balance of the order is completed and
distributed.
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<PAGE>
We also monitor the quality of fabrics and inspect each roll before production
runs are commenced. We perform in-line inspections during and after production
before garments leave the factory. Our quality control personnel visit most of
our independent manufacturers' facilities at least once every two weeks.
Delivery and Customer Orders. In most cases, our independent manufacturers are
at risk for the quality and timely delivery of the products. Our international
production requirements have been financed with letters of credit or under open
credit terms. Whenever possible, we push related financing requirements down to
our contractors, matching payment terms to the contractor with payment terms
from the customers. This minimizes inventory financing and keeps the contractors
vested in the process.
We transact business on an order-by-order basis and do not maintain any
long-term or exclusive commitments or arrangements to purchase from any vendor
other than SourceOne in respect of certain minimum product quantities for
Jos.A.Bank. We receive most of our customers' orders prior to placing our
manufacturing orders, except for manufacturing orders for replenishment
programs, which require customers to continue to purchase specific amounts of
products.
OPERATING UNITS
Upon the consummation of the Offering, our operations will be divided into five
business units: the Pietrafesa for Men Unit, Components, DAG, Global and the
Pietrafesa for Women Unit. Each of these business units operates, and it is
intended that each new business unit will operate, as a separate unit
accountable for its own profitability, utilization of capital and overhead. Each
business unit's operations will conform to our standardized financial controls,
quality practices and back-office functions.
The Pietrafesa for Men Unit, our oldest unit, merchandises, sources and
manufactures tailored clothing, including suits, suit separates, sport coats,
dress trousers and formal wear. The Men's Unit accounted for approximately 54.6%
of our net revenues in 1998. The Men's Unit is headed by Joseph J. Pietrafesa
II, the brother of our Chief Executive Officer. Mr. Pietrafesa joined the
predecessor of Pietrafesa in 1979 as Director of Sales, becoming Vice President
of Sales and Merchandising when the Partnership was formed in 1990. From 1993
through 1996 Mr. Pietrafesa served as President of our Polo Clothing Unit.
<PAGE>
The DAG Unit merchandises and sources apparel, including lower to mid-priced
suits and dress shirts, to value-priced apparel retailers. The DAG Unit
accounted for approximately 2.7% of our 1998 net revenues. This unit will be
headed by Jarrod Nadel with whom we have entered into a five year employment
contract. Using manufacturers in the United States, Italy, the Dominican
Republic and Korea, DAG merchandises a specific product around a customer's need
and executes the production and delivery, typically on a commission basis
without owning inventory. Customers of DAG include The Men's Wearhouse, Riggins,
S & K Famous Brands, K & G Men's Center, Bachrach and Filene's Basement. Typical
retail price points are $195 to $495 for men's suits and $29.95 to $39.95 in
dress shirts. Mr. Nadel founded DAG in 1994 as a full service sourcing,
merchandising and design company with offices in New York City and in Italy.
Prior to 1994, Mr. Nadel spent two years as Director of Sourcing for After Six
Ltd. From 1988 to 1992, Mr. Nadel served as Vice President of Sales and
Merchandising for the Pierre Balmain Division of Capital Fashions Corporation.
See "Management's Discussion and Analysis of Financial Conditions and Results of
Operations--Significant Acquisitions."
The Global Unit designs and imports men's suits. The Global Unit accounted for
approximately 18.5% of our 1998 net revenues. This unit will be headed by Peter
Lister with whom we have entered into a five year employment contract. Using
manufacturers in Slovakia, the Czech Republic, Bulgaria, Moldova, Indonesia, the
Philippines, India and China, Global contracts for the production and delivery
of products specified by their retail customers. In all cases, Global takes
ownership of products while in transit, but ships directly to customers against
firm orders. Global's largest customer is S & K Famous Brands. Typical retail
price points are $99 to $295 for men's suits. See "Management's Discussion and
Analysis of Financial Conditions and Results of Operations--Significant
Acquisitions."
The Components Unit merchandises and sources St. Andrews tailored clothing, as
well as sportswear, dress shirts, neckwear, topcoats and casual slacks in Italy.
The Components Unit accounted for approximately 20.5% of 1998 net revenues. This
unit will be headed by John McCoy with whom we have entered into a six year
employment contract. Customers of Components are the highest tier retailers
including Bergdorf Goodman, Saks Fifth Avenue, Brooks Brothers and Sulka, at
retail price points from $695 to $3,000 for men's suits, $125 to $400 for dress
shirts and $65 to $95 for silk neckwear. Mr. McCoy founded Components in 1985
after spending three years as an independent sales representative for a variety
of imported apparel lines. Mr. McCoy served as President of Fitzgerald, Inc., a
men's clothing unit of Warren Sewell, from 1977 through 1979, and a unit of the
Palm Beach Company from 1979 through 1982. See "Management's Discussion and
Analysis of Financial Conditions and Results of Operations--Significant
Acquisitions."
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<PAGE>
The Pietrafesa for Women Unit was started in 1991 principally to complement the
Men's Unit by providing classic women's tailored clothing primarily to customers
of the Men's Unit. The Women's Unit accounted for approximately 3.7% of our 1998
net revenues. The Women's Unit is headed by Alisa Rothstein, who joined our
predecessor in October 1991 as President of the Women's Unit. Ms. Rothstein is
responsible for product design, merchandising, and marketing of all products
promoted by this Unit. Prior to joining Pietrafesa, Ms. Rothstein spent eight
years as President of Pincus Brothers-Maxwell's women's unit.
IMPORTS AND IMPORT REGULATIONS
We presently import garments under four separate scenarios having distinct
customs consequences: (1) import of finished goods (mostly from the Pacific Rim
and the Middle East); (2) imports from the Caribbean Basin and Central America;
(3) imports from Mexico and Canada; and (4) imports from Europe.
For direct importations (mostly from the Pacific Rim and the Middle East),
imported garments are normally assessed with customs duties at most favored
nation ("MFN") tariff rates. The tariffs for most of the countries from which we
currently import or intend to import have been set by international negotiations
under the auspices of the World Trade Organization ("WTO") and implemented into
U.S. law. These tariffs generally range between 17% and 35%, depending upon the
nature of the garment (e.g., shirt, pants), its construction and its chief
weight by fiber. Currently, the only countries not enjoying MFN treatment are
Afghanistan, Cuba, Laos, North Korea, and Vietnam.
In addition to tariffs, merchandise from virtually all of the countries from
which we import is also subject to bilateral quota restraints, pursuant to U.S.
domestic law or the Multi-Lateral Agreement on Textile and Clothing, which
exists under the auspices of the WTO. Most bilateral quotas are negotiated on a
calendar year basis. After the United States and a particular country agree to a
particular level of exports in a particular quota category (for instance, wool
men's suits), the country that receives the quota has the right to determine the
method by which such quota is assigned to its manufacturers. Some jurisdictions,
such as Hong Kong, have a free market under which quotas are bought and sold.
Most countries, however, assign it to the factories that actually produce the
garments. Shipments which are exported to the United States must, in addition to
the usual commercial documentation, have appropriate and official textile visas,
in either an electronic or paper format, which confirm their quota status. This
documentation must be filed prior to the admission and clearance of the
merchandise into the United States. Accordingly, we usually demand that this
paperwork be submitted prior to payment.
<PAGE>
We also import garments from countries in the Caribbean Basin and Central
America, most notably the Dominican Republic and Costa Rica. Although
merchandise imported from these jurisdictions is potentially subject to tariffs
and quotas of the kind described for Far Eastern importations, there are special
programs which provide for reduced tariffs for some merchandise sourced from the
Caribbean Basin and Central America. The principal program is the so-called
"807" program. Under this program, merchandise described by tariff subheading
9802.00.80, Harmonized Tariff Schedule ("HTS"), is admitted into the United
States with a substantial tariff reduction when the standards of subheading
9802.00.80 are met. Specifically, in qualifying circumstances, the provision
exempts from collection that duty which would be based on the value of exported
U.S. components assembled into a product in a foreign jurisdiction which is
subsequently re-imported into the United States. In essence, the duty reduction
is equal to the duty that would otherwise be assessed on the value of the
components incorporated into these assembled goods plus southbound international
freight and insurance. For apparel products, such U.S. components normally
consist of cut-to-shape U.S. fabric parts, finishing and trim (buttons, thread,
etc.).
In addition, if the fabric which is cut to create the cut component parts is
also knitted, woven or formed in the United States, there is a special program
which provides for more liberalized access to the U.S. marketplace. This program
is applicable only to certain Caribbean Basin, Central American and northern
Latin American countries which have signed special agreements with the United
States known as Guaranteed Access Level Agreements ("GALS"). Under these
agreements, qualifying products (known in the trade as "807A" or "Super 807" or
"Guaranteed Access Level" products), are eligible to enter the United States
free of any quota restraints. Accordingly, a country such as the Dominican
Republic would have the normal advantages of the "807" process, as well as the
advantages of the GALS program if the GALS standards are met. We produce a
significant amount of garments that qualify for one or both of these particular
programs. In circumstances where garments qualify for both preferences, i.e.,
"807" (9802.00.80) and "807A," the merchandise is accorded both substantial and
significant quota and tariff advantage over Pacific Rim, Middle Eastern or
non-qualifying Western hemisphere goods.
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<PAGE>
We also import finished goods from Mexico and Canada under the North American
Free Trade Agreement, commonly known as NAFTA. Under NAFTA, merchandise which
qualifies, is accorded reduced or duty-free access, depending upon the type of
merchandise involved. For many (if not most) garments, the key requirement for
NAFTA qualification is that the yarn, cloth, cut, sew and finish of the garments
all take place within North America. This is commonly known as the "yarn-forward
rule," which is a general guideline, not a legal rule. Merchandise qualifying
under NAFTA enters the United States at a preferential or at a zero rate and is
not subject to any quota.
In addition to our imports eligible for entry under the NAFTA program, certain
imports made by us are also subject to a tariff preference which was created and
enacted as part of the NAFTA-enabling legislation. This tariff provision,
subheading 9802.00.90, HTS, provides for immediate duty-free entry into the
United States from Mexico of garments made from components which are cut to
shape in the United States from U.S. knit, woven or formed cloth. Such articles
enter quota-free. This duty-free, quota-free entry would be available for
articles produced in Mexico from U.S. components cut from U.S. knitted/woven
fabric. This merchandise, therefore, has an even more favorable treatment than
merchandise being imported from the Caribbean Basin. We currently import a
limited amount of such merchandise from Mexico.
Finally, non-NAFTA qualifying goods may be imported from Mexico. As noted, such
merchandise could be imported with reduced duties under the 807 program, as well
as under special tariff rate quotas called "TPLs." Otherwise, it is subject to
full MFN duty. Such merchandise may also be subject to Mexican quotas which are
effective for some products until 2004.
COMPETITION
The apparel industry in the United States is highly competitive and
characterized by a relatively small number of multi-line manufacturers and a
larger number of specialty manufacturers, including brand name and private label
producers. We have the ability to compete with internal product development and
sourcing capabilities of retailers. Our products also compete with a substantial
number of designer and non-designer product lines. Some of our competitors and
potential competitors have greater financial, manufacturing and distribution
resources than our resources. We believe that we compete favorably based on the
quality and value of our programs and products, price, the production
flexibility resulting from of our cutting and sourcing network, and the
long-term customer relationships we have developed. See "Risk Factors--We may be
Unable to Compete in the Highly Competitive Apparel Industry."
<PAGE>
INTELLECTUAL PROPERTY
Although we have applied for a number of registered U.S. trademarks, including
our name, such trademarks do not represent a material asset of ours. In
addition, we own the software used in our point-of-sale made-to-measure
programs. We have the exclusive right to use the Polo trademark on tailored
clothing subject to a license agreement. We are not required to pay any
royalties under this license agreement, which will expire in June 1999.
PROPERTIES
We own our corporate headquarters, principal manufacturing facility and
warehouse facility, all of which are located in Liverpool, New York. Such
facilities are the subject of a lease and lease-back transaction with the
Onondaga County Industrial Development Authority, pursuant to which we received
a Payment In Lieu Of Taxes agreement which significantly reduced real estate
taxes on the facility, and fixed the assessment for a period of 18 years. Our
Liverpool facility is also subject to mortgages held by NBC and the UDC securing
indebtedness owed to such parties. See "Management's Discussion and Analysis of
Results of Operations--Liquidity and Capital Resources." During 1998, our
Liverpool facility operated at approximately 62.5% of space capacity and 75% of
current machine capacity. We also lease one retail store in Syracuse, New York,
at which we operate under the name Learbury Clothes. This store has been in
continuous operation since 1941. The Learbury lease expires in 2007. Pietrafesa
also maintains an office in New York City.
The lease on this space commenced in 1994 and expires in August 2000.
DAG, Global and Components each lease office space in New York City to conduct
administrative and sales operations. None of the Acquired Businesses own any
real property.
We believe that our existing facilities are adequate to meet our current and
foreseeable needs. We also believe our existing facilities are well maintained
and in good operating condition.
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<PAGE>
EMPLOYEES
At March 1, 1999, Pietrafesa and the Acquired Businesses had 524 employees. Of
the total, approximately 37 hold executive and administrative positions,
approximately five are engaged in design and merchandising, approximately 412
are engaged in production (e.g., marking, cutting and labeling), approximately
31 are engaged in sales, approximately 18 are engaged in distribution and
approximately 21 are engaged in quality control. Approximately 70% of our work
force is covered under collective bargaining agreements, which expire in 2002.
We have not experienced work stoppages in the past and believe that our
relations with our employees are satisfactory.
LEGAL PROCEEDINGS
From time to time, we are a party to litigation arising in the ordinary course
of our business. We are not currently a party to any litigation that, if
determined adversely to The Pietrefesa Corporation, we believe would have a
material adverse effect on The Pietrafesa Corporation.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information as of December 31, 1998 with
respect to the persons who are members of our Board of Directors ("Board"), our
executive officers:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Richard C. Pietrafesa, Jr. (1)... 42 President & Chief Executive Officer, Director
Sterling B. Brinkley, Jr. (1).... 46 Chairman of the Board
Thomas A. Minkstein (1).......... 51 Chief Operating Officer, Director
Eugene R. Sunderhaft............. 51 Vice President - Finance, Chief Financial Officer,
Secretary, Treasurer
David McDonough.................. 35 Vice President - Business Development
Mark C. Pickup (2)............... 47 Director
Robert J. Bennett (2)(3)......... 57 Director
David J. Hare (2)(3)............. 54 Director
</TABLE>
- ------------------
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
Richard C. Pietrafesa, Jr. -- has served as our President, Chief Executive
Officer and Director since June 1990. Mr. Pietrafesa is also a member of our
Executive Committee. Mr. Pietrafesa joined our predecessor in 1979 and became
Director of Operations in 1981. Over his 20 years in the men's apparel industry,
Mr. Pietrafesa and we have been awarded the U.S. Senate Medal for Productivity
in 1984, the Apparel Industry Magazine All Star Award in 1985 and again in 1991,
the Bobbin Magazine C.E.O. of the Year Award in 1994, and, along with his
brother Joseph J. Pietrafesa II (President of the Pietrafesa Men's Unit), the
Sales and Marketing Association Award for Innovation in 1997. Mr. Pietrafesa
earned an honors degree in Economics and Government from Harvard College.
<PAGE>
STERLING B. BRINKLEY, JR. -- serves as our Chairman of the Board of Directors
and as Chairman of our Executive Committee. Mr. Brinkley was a Managing Director
of Morgan Schiff & Co., Inc., one of the underwriters of this Offering, from
1986 to 1990. Since 1990, Mr. Brinkley has been a consultant to Morgan Schiff.
Prior to 1986, Mr. Brinkley was a Managing Director in the Corporate Finance
Department of Shearson Lehman Brothers, Inc. Mr. Brinkley is also Chairman of
the Board of Directors of EZCORP, Inc., a publicly-traded pawnshop chain, and
Friedman's Inc., a publicly-traded retail jewelry chain, and Chairman of the
Executive Committee of the Board of Directors of The Farm Journal Corporation, a
publisher of agricultural information. All three companies are affiliates of
ours and Morgan Schiff. Mr. Brinkley also serves on the boards of directors of
various privately held companies that are affiliates of ours and Morgan Schiff.
Mr. Brinkley received a B.A. from Yale University and an M.B.A. from the
Stanford Graduate School of Business.
THOMAS A. MINKSTEIN -- joined us in August 1998 as Chief Operating Officer and
Director. Prior to joining us, Mr. Minkstein served for 10 years as Chief
Operating Officer of Empire Vision, a division of Highmark, Inc., and the
thirteenth largest optical retailer in the United States. In this position, Mr.
Minkstein was responsible for the operation of over 4,000 distribution points
and six manufacturing facilities throughout the United States, and managed that
division's rapid growth and earnings expansion through acquisitions and the
operations of large managed care programs. From 1973 through 1988, Mr. Minkstein
held various management positions with Frank's Nursery & Craft, a division of
General Host, a publicly-traded company.
EUGENE R. SUNDERHAFT -- joined us in August 1998 as Vice President - Finance,
Chief Financial Officer, Secretary, Treasurer. Prior to joining us, Mr.
Sunderhaft served for four years as Senior Vice President-Finance, Chief
Financial Officer and Secretary of The Penn Traffic Company, a publicly-traded
$3.2 billion retail, wholesale and manufacturing company, where he was
responsible for all accounting activities, treasury functions, strategic and
tactical planning, SEC compliance, investor relations and information
technology. From 1972 through 1993, Mr. Sunderhaft served P&C Foods, a
subsidiary of Penn Traffic, in a variety of management positions including
controller from 1982 through 1989, and Chief Financial Officer from 1989 through
1993. Prior to joining P&C, Mr. Sunderhaft was employed by Ernst & Ernst, the
predecessor of Ernst & Young LLP. Mr. Sunderhaft is a graduate of the University
of Dayton.
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<PAGE>
DAVID McDONOUGH -- currently serves as our Vice President - Business
Development. In this position, Mr. McDonough is responsible for financial and
structural analysis of all acquisitions, and implementation of consolidation
efficiencies and back office integration efforts. Mr. McDonough joined us in
January 1995 as Controller, and became Chief Financial Officer in 1996, a
position held until August of 1998. Prior to joining Pietrafesa, Mr. McDonough
was Vice President-Finance of Ferris Industries, a $14 million equipment
manufacturer for two years. Prior to that, Mr. McDonough was Corporate Finance
Manager at CIS Corporation, a publicly-traded company, where he worked for six
years. Mr. McDonough holds a B.S. in Economics from Cornell University.
MARK C. PICKUP -- serves as a Director and Chairman of our Audit Committee. Mr.
Pickup is also a director of EZCORP, Inc., Friedman's Inc. and The Farm Journal
Corporation, each an affiliate of ours and Morgan Schiff. Since 1995, he has
served as an independent business consultant with a variety of companies. Mr.
Pickup served as Vice Chairman of Crescent Jewelers, a privately-held retail
jewelry chain which is an affiliate of ours and Morgan Schiff, from December
1994 until February 1995, and served as President and Chief Executive Officer of
Crescent Jewelers from August 1993 to December 1994. From October 1992 until
August 1993, Mr. Pickup served as the Senior Vice President and Chief Financial
Officer for Crescent Jewelers. For more than five years prior to October 1992,
Mr. Pickup held various positions with the predecessors of Ernst & Young LLP,
leaving as a partner in its San Francisco, California office in October 1992.
Mr. Pickup received a B.S. in mathematics from Brigham Young University.
ROBERT J. BENNETT -- serves as a Director and as a member of our Audit Committee
and as Chairman of our Compensation Committee. Mr. Bennett is also a director
(and where indicated Chairman of the Board) of the following public
corporations: M&T Bank Corporation (Chairman), Manufacturers and Traders Trust
Company (Vice-Chairman), and Farmers & Traders Mutual Life Insurance Co. He also
serves as Director for the Syracuse University School of Management, Crouse
Hospital, the Federal Home Loan Bank of New York, the Metropolitan Development
Association of Syracuse and Central NY, the Pan African Business Association and
the New York Bankers Association. Mr. Bennett was also the Chairman, President
and CEO of ONBANCorp, Inc. from 1987 until April 1998 when it merged with M&T
Bank Corporation. Mr. Bennett received his B.S. from Babson College and his
M.B.A. from the University of Massachusetts, Amherst, and holds a graduate
degree from the Harvard Business School Advanced Management Program.
<PAGE>
DAVID J. HARE -- serves as a Director and as a member of our Audit Committee and
Compensation Committee. Mr. Hare is currently President and Chief Operating
Officer of TGL - the parent company of Trafalgar and Ghurka, and the licensee
for Tommy Hilfiger men's belts and small leather accessories. From 1993 to 1997,
as a joint venture partner with Polo Ralph Lauren Corp., Mr. Hare served as
President and Chief Executive Officer of Polo Retail Corp. In April 1997, he
sold his interest in Polo Retail Corp. to Polo Ralph Lauren Corp. and became an
executive officer of Polo Ralph Lauren Corp. and a Group President in charge of
Polo Retail stores. Prior to 1993, Mr. Hare had been President and Chief
Executive Officer of Perkins Shearer, Inc. since 1969. Mr. Hare is a graduate of
Georgetown University.
Our directors are currently elected annually, 25% by the holders of the Class A
Common Stock and 75% by the holders of the Class B Common Stock, to serve during
the ensuing year or until their respective successors are duly elected and
qualified. Officers serve at the discretion of the Board. For a description of
class voting rights see "Description of Capital Stock."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board currently has three committees: (1) an Audit Committee; (2) an
Executive Committee; and (3) a Compensation Committee.
The Audit Committee is comprised of Messrs. Pickup, Bennett and Hare, with Mr.
Pickup as Chairman. The Audit Committee recommends the independent accountants
appointed by the Board to audit our financial statements which includes an
inspection of our books and accounts. The Audit Committee reviews with such
accountants the scope of their audit and their report thereon, including any
questions and recommendations that may arise relating to such audit and report
or our internal accounting and auditing procedures.
The Executive Committee is comprised of Messrs. R. Pietrafesa, Minkstein and
Brinkley, with Mr. Brinkley as Chairman. The Executive Committee exercises the
authority of the Board, to the extent permitted by law, in the management of our
business between meetings of the Board. The Executive Committee of the Board
also serves as the nominating committee in connection with annual meetings of
stockholders.
50
<PAGE>
The Compensation Committee is comprised of Messrs. Bennett and Hare, with Mr.
Bennett as Chairman. The function of the Compensation Committee is to review and
approve the compensation of executive officers and establish targets and
incentive awards under our incentive compensation plans. The Compensation
Committee reports to the Board.
COMPENSATION OF THE BOARD OF DIRECTORS
Sterling Brinkley, the Chairman of the Board and Chairman of our Executive
Committee, will receive fees of $100,000 per year. All other Directors who are
not our current employees will receive an annual retainer of $10,000 paid
quarterly, plus an additional fee of $1,500 per meeting, and will be eligible to
receive stock option grants under our 1999 Stock Option Plan. See
"--Options/Stock Appreciation Rights." Committee Chairman (other than Mr.
Brinkley) who are not our current employees will receive an additional fee of
$500 for each meeting attended. In addition, our Directors may be eligible to
participate in other incentive arrangements from time to time.
We will reimburse directors for travel and other out-of-pocket expenses incurred
in connection with their services as directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
To date, executive compensation has been determined by our Chief Executive
Officer. Upon completion of this Offering, the Compensation Committee will make
all compensation decisions. No interlocking relationship exists between the
Board of Directors or Compensation Committee and the board of directors or
compensation committee of any other company.
COMPENSATION OF EXECUTIVE OFFICERS
The following table presents certain summary information concerning compensation
that we paid or accrued for services rendered in all capacities during the last
three years for our Chief Executive Officer, our other most highly compensated
executive officer and one additional individual who served as one of our
executive officers for a portion of the last completed year (collectively, the
"Named Executive Officers"). With respect to the persons and periods covered in
the following table, we made no restricted stock awards and had no long-term
incentive plan pay-outs.
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-------------------
All Other
Name and Principal Position Year Salary Bonus(2) Compensation(3)
- ---------------------------------------- ---- -------- --------- ---------------
<S> <C> <C> <C> <C>
Richard C. Pietrafesa, Jr............... 1998 $100,000 $255,600 $38,729(4)
President, Chief Executive Officer 1997 $100,000 $100,000 $33,650(4)
and Director 1996 $100,000 $40,000 $34,602(4)
David McDonough......................... 1998 $91,698 $30,000 $1,698
Vice President of Business Development 1997 $91,683 $20,000 $1,683
1996 $65,000 $5,000 $1,050
Ross W. Stefano(1)...................... 1998 $51,536 $155,000 $1,689
Chief Operating Officer and Director 1997 $100,865 $100,000 $1,171
1996 $101,240 $100,000 $1,546
</TABLE>
- --------------------------
(1) Mr. Stefano ceased to be an employee and director on June 22, 1998.
(2) Includes for 1998 certain amounts related to prior years' performance.
(3) Includes employer's contributions to our 401(k) Retirement Plan.
(4) Includes cost of life insurance premium paid.
STOCK OPTION PLAN
We have established our 1999 Stock Option Plan (the "Stock Option Plan") for key
employees and directors. Under the Stock Option Plan, awards of options
("Options") to purchase shares of Class A Common Stock may be made to our key
employees and directors, including employees who are also our officers or
directors. A total of ______ shares of Class A Common Stock have been reserved
for issuance under the Stock Option Plan. Options awarded under the Stock Option
Plan may be either "incentive stock options," as that term is defined in Section
422 of the Internal Revenue Code of 1986, as amended, or nonqualified stock
options.
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<PAGE>
The Stock Option Plan will be administered by our Compensation Committee. The
Compensation Committee may establish the terms and conditions of the Options in
any manner not inconsistent with the terms of the Stock Option Plan, adopt any
rules it considers appropriate for the administration of the Stock Option Plan,
make interpretations of the Stock Option Plan that it deems consistent with its
provisions, and take any other action it considers appropriate in connection
with the Stock Option Plan. Each Option granted under the Stock Option Plan will
be evidenced by an agreement between The Pietrafesa Corporation and the employee
and/or director to whom the Option is granted.
Prior to the adoption of the Stock Option Plan, we had made no provision for the
grant of options to purchase equity interests in The Pietrafesa Corporation and
no Named Executive Officer holds or has ever exercised any stock appreciation
rights.
At the time of the Offering, no Options will have been granted to our executive
officers, employees or directors under the Stock Option Plan.
RETIREMENT PLANS
Our 401(k) Retirement Plan, as restated and amended (the "Retirement Plan"), is
a qualified retirement plan available to Named Executive Officers and all of our
other eligible employees (together, the "Participants").
Annual contributions to employees ("Employee Contributions"), if any, are
declared by the Board at the end of each year. Pursuant to the Retirement Plan,
employees may also make non-matching contributions. The contribution amounts for
the Named Executive Officers are included in the Summary Compensation Table
under "Salary."
<PAGE>
Contributions to the Retirement Plan are made to a trust where the funds are
invested in available investment options selected by the Participant and managed
by the trustee. The trust may be invested and reinvested in common or preferred
stocks, bonds, mortgages, leases, notes, debentures, mutual funds, guaranteed
investment contracts and other contracts and funds of insurance companies, other
securities and other real or personal property. The account balances grow until
finally distributed. Employee contributions to the Retirement Plan are 100%
vested upon contribution, and employer contributions to the Retirement Plan vest
over five years. Upon the occurrence of a distributive event, a Participant may
elect to receive funds according to the respective plans' provisions. Pursuant
to these provisions, a Participant is also entitled to rollover eligible
distribution amounts into another eligible retirement plan.
We may amend the Retirement Plan and our associated trusts, retroactively or
prospectively, in our sole discretion, except where prohibited by the Internal
Revenue Code of 1986, as amended (the "Code"), or the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and so long as such amendment does
not exclude a Participant, reduce a Participant's account, reduce a
Participant's vested percentage or modify the vesting schedule for a Participant
eligible under the Retirement Plan prior to the effective date of the amendment.
The Retirement Plan may be merged or consolidated, or its assets and liabilities
may be transferred, in whole or in part, to another qualified retirement plan.
We also reserve the right to terminate the Retirement Plan and our associated
trusts, or to cease or suspend further contributions, upon which occurrence
accounts of Participants shall become nonforfeitable. The Retirement Plan is a
qualified retirement plan and trust under Section 401 of the Code, ERISA and all
regulations issued thereunder.
52
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October 1998, the Partnership transferred all of its assets and liabilities
to us in exchange for 100 shares of Class B Common Stock. To establish our
initial capital structure as a public company, immediately prior to the
consummation of the Offering, we will issue an additional shares of Class B
Common Stock to the Partnership in exchange for nominal consideration.
We are controlled by Phillip Ean Cohen through his sole ownership of MS
Pietrafesa Acquisition Corporation, the General Partner of the Partnership (the
"General Partner"). See "Risk Factors-- The Interests of our Controlling
Shareholder may Conflict with our Interests; Anti-Takeover Impact of
Concentration of Voting Power." Morgan Schiff, which is owned by Mr. Cohen, is
one of the managing underwriters of the Offering. Pietrafesa reimbursed the
Partnership and the General Partner for out-of-pocket expenses, principally
legal and accounting fees, in connection with our formation and will continue to
reimburse the Partnership and the General Partner for ongoing administrative
expenses, principally legal and accounting services rendered to Pietrafesa. In
the future, we may engage Morgan Schiff for business and financial advisory
services. Mr. Brinkley, a consultant to Morgan Schiff, is our Chairman of the
Board.
Mr. Brinkley, Richard C. Pietrafesa, Jr., Mr. Minkstein and Joseph J.
Pietrafesa, II own indirect limited partnership interests in the Partnership
through their ownership of limited partnership interests in MSJP, L.P., a
limited partner of the Partnership. See "Principal Stockholders." In addition,
Messrs. Pietrafesa own indirect limited partnership interests in the Partnership
through their ownership of limited partnership interests in RJP Investment
Assoc., L.P. ("RJP"), a limited partner of the Partnership. See "Principal
Stockholders." In the event that the limited partners of the Partnership receive
a specified minimum investment return, RJP, and, as a result Messrs.
Pietrafesa, will be allocated by the Partnership certain shares of Class B
Common Stock and/or other property that would otherwise be allocated to the
other limited partners. The agreement of limited partnership of the Partnership
contains similar provisions in favor of the General Partner, which is owned by
Mr. Cohen. None of the foregoing provisions require that we issue additional
shares of Class A or Class B Common Stock or other securities of any kind.
We lease a retail store facility in Syracuse, New York from Robert D. Pietrafesa
and Richard C. Pietrafesa, uncle and father, respectively, of our President and
Chief Executive Officer, under a 10-year lease expiring in 2007 requiring rental
payments totaling $145,000 per year. A portion of this retail store facility is
subleased to a third party. The sublease will expire in 2000 and provides
minimum rental income of $30,000 per year.
<PAGE>
We source certain customer orders (including a substantial volume of the
aggregate orders for Jos.A.Bank) with an affiliate, SourceOne. SourceOne is
owned by the General Partner. SourceOne operates two manufacturing facilities in
Baltimore, Maryland of 54,000 and 125,000 square feet. SourceOne leases
(directly and through a sublease) these facilities from Jos.A.Bank. All
production performed for us by SourceOne is performed on a "cost" basis, without
mark-up. None of our employees receive compensation from SourceOne.
Morgan Schiff, an affiliate of the General Partner, provides financial advisory
and strategic consulting under an agreement requiring monthly retainer payments
of $25,000. The agreement also requires us to pay certain fees to Morgan Schiff
when we consummate various acquisition, capital raising and financing
transactions. The agreement may be terminated annually by either party upon 30
days notice. Morgan Schiff has waived all retainer payments otherwise payable to
it for financial advisory services for 1996, 1997 and 1998, as well as all fees
associated with the Acquisitions.
In April 1998, the Partnership made a distribution of $207,000 to its partners
in accordance with the Partnership's Agreement of Limited Partnership dated
January 1, 1996, for the payment of income taxes incurred by such partners on
the portion of Partnership income attributable to their respective interests
during 1997. In April 1999, we will make a distribution of $1.5 million to the
Partnership in order to cover the tax distribution to be made by the Partnership
to its partners in accordance with such partnership agreement for the payment of
income taxes incurred by such partners on the portion of Partnership income
attributable to their respective interests during the period from January 1,
1998 through September 30, 1998. The distribution described above will not be
paid from the proceeds of the Offering.
We reimburse on a per-flight basis certain operating expenses of an aircraft
owned by Twins, Inc., a corporation owned by our President and Chief Executive
Officer. We use this aircraft on a regularly scheduled, weekly basis to fly
staff to production meetings in New York City, as well as for customer and
contractor visits. Such reimbursements amounted to $225,000, $223,000 and
$454,000 for the years ended December 31, 1996, 1997 and 1998, respectively.
We believe that each of the affiliate transactions described above are on terms
no less favorable than would be generally available to us from unaffiliated
third parties. After the closing of the Offering, all related party transactions
will be approved by our independent, disinterested directors.
See also "Management," "Principal Stockholders" and "Underwriting."
53
<PAGE>
PRINCIPAL STOCKHOLDERS
The table below sets forth certain information as of ____________, 1999
regarding the beneficial ownership of Class A Common Stock and Class B Common
Stock as well as the percentage ownership of all our capital stock (Class A
Common Stock and Class B Common Stock). Information is provided as to each of
our Directors, the Named Executive Officers, each person we know to own
beneficially more than 5% of the outstanding shares of Class A Common Stock or
Class B Common Stock and all of our Directors and executive officers as a group.
Except as noted below, the persons named in the table have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
<TABLE>
<CAPTION>
Shares of Class A Shares of Class B Percentage of Class
Common Stock Common Stock(1) A and
Name and Address --------------------------- ---------------------- Class B Common
of Beneficial Owner Number Percentage Number Percentage Stock(2)
- ----------------------------------- ------------ ------------- -------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
MS Pietrafesa, L.P.(3)(4) ......... 100%
MSJP, L.P..........................
MS Pietrafesa Acquisition
Corporation........................ 100%
Phillip Ean Cohen.................. 100%
350 Park Avenue, 8th Floor
New York, NY 10022
Richard C. Pietrafesa, Jr.(5)(6)...
Joseph J. Pietrafesa II............
RJP Investments Assoc., L.P........
7400 Morgan Road
Liverpool, NY 13090
Sterling B. Brinkley, Jr. (6) .....
350 Park Avenue, 8th Floor
New York, NY 10022
Mark C. Pickup.....................
6734 Corte Segunda
Martinez, CA 94553
Robert J. Bennett..................
M&T Bank Corp.
101 South Salina Street
Syracuse, NY 13202
David J. Hare, Sr..................
Ghurka International
300 Wilson Avenue
Norwalk, CT 06854
Ross W. Stefano....................
30 The Orchard
Fayetteville, NY 13066
All executive officers and
directors as a group (eight
persons)(7)........................
</TABLE>
54
<PAGE>
- -------------------------
(1) Shares of Class B Common Stock are convertible into an equal number of
shares of Class A Common Stock. See "Description of Capital Stock" and
"Shares Eligible for Future Sale."
(2) Based upon shares of Class A Common Stock outstanding immediately
following the Offering and shares of Class B Common Stock
outstanding prior to and immediately following the Offering.
(3) MSJP, L.P., a limited partner of the Partnership, indirectly owns shares of
Class B Common Stock through its ownership of a limited partnership
interest in the Partnership. MSJP, L.P. has no right to vote or to direct
the disposition of these shares.
(4) MS Pietrafesa Acquisition Corporation is the general partner of the
Partnership and has the sole right to vote the shares of Class B Common
Stock and to direct their disposition. Mr. Cohen is the sole stockholder of
MS Pietrafesa Acquisition Corporation. See "Risk Factors-- The Interests of
our Controlling Shareholder may Conflict with our Interests; Anti-Takeover
Impact of Concentration of Voting Power."
(5) RJP Investments Assoc., L.P., a limited partner of the Partnership ("RJP"),
indirectly owns shares of Class B Common Stock through its ownership of a
limited partnership interest in the Partnership. RJP Investments Assoc.,
L.P. has no right to vote or to direct the disposition of these shares.
Richard C. Pietrafesa, Jr. and Joseph J. Pietrafesa II are the limited
partners of RJP Investments Assoc., L.P. Excludes additional shares of
Class B Common Stock that RJP is entitled to receive in certain
circumstances under the agreement of limited partnership of the
Partnership. See "Certain Relationship and Related Transactions."
(6) Shares of Class B Common Stock indicated as beneficially owned by Mr.
Brinkley are owned indirectly through his ownership of limited partnership
interests in MSJP, L.P. In addition, some of the shares of Class B Common
Stock beneficially owned by Richard C. Pietrafesa, Jr., are beneficially
owned indirectly through the ownership of limited partnership interests in
MSJP, L.P. and RJP investments Assoc., L.P. Such individuals have no right
to vote or to direct the disposition of these shares.
(7) Includes shares of Class B Common Stock indicated as beneficially owned by
Richard C. Pietrafesa, Jr., Joseph J. Pietrafesa II and Mr. Brinkley and
Thomas A. Minkstein through indirect and direct ownership of limited
partnership interests in the Partnership and, in the case of Richard C.
Pietrafesa, Jr., and Joseph J. Pietrafesa II, also through RJP Investments
Assoc., L.P.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The following summary of certain provisions of our capital stock describes all
material provisions, but does not purport to be complete and is subject to, and
qualified in its entirety by, our Certificate of Incorporation (the "Certificate
of Incorporation") and By-laws (the "By-laws") that are included as exhibits to
the Registration Statement of which this prospectus is a part and by the
provisions of applicable law.
We have filed our Certificate of Incorporation to (1) authorize 5,000,000 shares
of Class A Common Stock, 10,000,000 shares of Class B Common Stock and 5,000,000
shares of Preferred Stock; and (2) set forth the rights and privileges of the
Class A Common Stock, Class B Common Stock and Preferred Stock as described
below. Upon completion of the Offering, shares of Class A Common Stock, shares
of Class B Common Stock and no shares of Preferred Stock will be issued and
outstanding. The discussion herein describes our capital stock, the Certificate
of Incorporation and the By-laws in effect upon effectiveness of the
Registration Statement of which this prospectus is a part.
CLASS A AND CLASS B COMMON STOCK
The holders of shares of Class A Common Stock and Class B Common Stock have
identical rights and privileges on a per share basis, except as set forth below.
The holders of shares of Common Stock have no preemptive rights to maintain
their respective percentage ownership interest in or other subscription rights
for our other securities. Shares of Common Stock are not redeemable or subject
to further calls or assessments. The shares of Common Stock to be outstanding
after the Offering, including the shares of Class A Common Stock to be issued
hereby, when paid for and issued, will be fully paid and non-assessable. Holders
of shares of Common Stock are entitled to share pro rata in dividends, if any,
as may be declared by the Board out of funds legally available therefor;
provided, however, that any dividend upon the Common Stock that is payable in
Common Stock shall be paid only in Class A Common Stock to the holders of Class
A Common Stock, but is payable in Class A or Class B Common Stock to the holders
of Class B Common Stock. Upon our liquidation, dissolution and winding up,
holders of shares of Common Stock are entitled to share ratably in the net
assets available for distribution to such holders. The consent of the holder or
holders of a majority of the Class B Common Stock is required to authorize the
issuance of additional Class B Common Stock.
<PAGE>
Limited Voting Rights. The holders of Class A Common Stock have the right as a
class to elect that minimum number of directors constituting 25% of the members
of the Board (rounding the number of such directors to the next highest whole
number if such percentage is not equal to a whole number of directors), which
presently represents two of the six directors. Directors elected by the holders
of Class A Common Stock will first be elected at the annual meeting of
stockholders to be held in 1999.
Except as stated above and as otherwise required by the laws of the State of
Delaware, holders of shares of Class A Common Stock have no voting rights;
provided, however, that from and after the time that all of the outstanding
shares of Class B Common Stock are converted into shares of Class A Common Stock
or are otherwise no longer outstanding, the holders of Class A Common Stock will
be entitled to vote on all matters submitted to a vote of the stockholders and
will be entitled to one vote per share held. Generally, the vote of the majority
of the shares represented at a meeting of the stockholders and entitled to vote
is sufficient for actions that require a vote of the stockholders. The
Certificate of Incorporation does not provide for cumulative voting. Because
sole voting power has been granted to the Class B Common Stock, except as stated
above and as otherwise required by the laws of the State of Delaware,
substantially all corporate actions can be taken without any vote by the holders
of the Class A Common Stock including, without limitation: amending the
Certificate of Incorporation or By-laws (including authorizing the issuance of
additional shares of Class A Common Stock); authorizing stock options,
restricted stock and other compensation plans for employees, executives and
directors; authorizing a merger or disposition or change in control; approving
indemnification of our directors, officers and employees (and related parties);
and approving conflict of interest transactions involving our affiliates which
are approved by our disinterested directors. The holders of the outstanding
shares of Class A Common Stock will be entitled, however, to vote as a class
upon any proposed amendment to the Certificate of Incorporation which would
increase or decrease the par value of the shares of Class A Common Stock, or
alter or change the powers, preferences or special rights of the shares of the
Class A Common Stock so as to affect them adversely. See "Risk Factors-- The
Interests of our Controlling Shareholder may Conflict with our Interests;
Anti-Takeover Impact of Concentration of Voting Power."
All of the shares of the Class B Common Stock are owned by the Partnership and
can be voted by the General Partner, which is wholly-owned by Mr. Cohen. See
"Principal Stockholders" and "Underwriting."
56
<PAGE>
Conversion Rights. At the option of any holder of shares of Class B Common
Stock, such holder may, at any time and from time to time, convert all or part
of such holder's shares of Class B Common Stock into an equal number of shares
of Class A Common Stock. The shares of Class B Common Stock are also subject to
mandatory conversion into an equal number of shares of Class A Common Stock, in
whole or in part, at any time and from time to time, at the option of the holder
or holders of a majority of the outstanding shares of Class B Common Stock. If,
and only if, all the outstanding shares of Class B Common Stock converted into
Class A Common Stock or are otherwise no longer outstanding, the holders of the
Class A Common Stock will have general voting power in the election of all
members of the Board and in all other matters upon which our stockholders are
entitled to vote. Holders of shares of Class A Common Stock have no right to
convert Class A Common Stock into any of our other securities.
PREFERRED STOCK
Our Certificate of Incorporation authorizes 5,000,000 shares of Preferred Stock.
Upon the affirmative vote or the written consent of the holders of a majority of
the outstanding shares of Class B Common Stock, shares of Preferred Stock may be
issued in one or more series. Each such series will have such distinctive
designation as stated in resolutions adopted by the Board. Authority is
expressly vested in the Board to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting any series of the designation of such series,
without further vote or action by the stockholders. The Preferred Stock may be
granted voting powers provided, however that (1) so long as any Class B Common
Stock is outstanding, the holders of the Class B Common Stock will always have
the absolute right to elect a majority of the Board and (2) if voting powers are
granted, the holders of shares of Preferred Stock will be entitled to vote
together with the holders of the Class A Common Stock as a class on all matters
on which holders of Class A Common Stock are entitled to vote. At present, we
have no plans to issue any shares of the Preferred Stock.
<PAGE>
INDEMNIFICATION AND LIMITATION OF LIABILITY
The Certificate of Incorporation limits the liability of directors to the
maximum extent permitted by Delaware law as currently or hereafter in effect.
Delaware law provides that directors of a corporation will not be personally
liable for monetary damages for breach of their fiduciary duty as a director,
except for liability (1) for breach of their duty of loyalty to the corporation
or its stockholders; (2) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (3) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the General Corporation Law of the State of Delaware (the
"DGCL"); or (4) for any transaction from which the director derives an improper
personal benefit.
The Certificate of Incorporation provides for the mandatory indemnification of,
and advancement of expenses to our directors and officers.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
We are subject to Section 203 of the DGCL, which prevents an "interested
stockholder" (defined in Section 203, generally, as a person owning 15% or more
of a corporation's outstanding voting stock) from engaging in a "business
combination" with a publicly-held Delaware corporation for three years following
the date such person became an interested stockholder, unless (1) before such
person became an interested stockholder, the board of directors of the
corporation approved the transaction in which the interested stockholder became
an interested stockholder or approved the business combination; (2) upon
consummation of the transaction that resulted in the interested stockholder's
becoming an interested stockholder, the interested stockholder owns at least 85%
of the voting stock of the corporation outstanding at the time the transaction
commenced (subject to certain exceptions); or (3) following the transaction in
which such person became an interested stockholder, the business combination is
approved by the board of directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of 66 2/3% of the
outstanding voting stock of the corporation not owned by the interested
stockholder. A "business combination" includes mergers, stock or asset sales and
other transactions resulting in a financial benefit to the interested
stockholder.
The disproportionate voting rights between the Class A Common Stock and the
Class B Common Stock and the provisions of Section 203 of the DGCL could have
the effect of delaying, deferring or preventing a change in control. See "Risk
Factors--The Interests of our Controlling Shareholder may Conflict with our
Interests; Anti-Takeover Impact of Concentration of Voting Power."
TRANSFER AGENT
The transfer agent and registrar for the Class A Common Stock is .
57
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, we will have a total of shares of Class A
Common Stock and shares of Class B Common Stock outstanding. All shares of Class
A Common Stock sold in the Offering will be freely tradable by persons other
than our "affiliates" without restriction under the Securities Act. All other
shares of Class A Common Stock and all shares of Class B Common Stock, and any
shares of Class A Common Stock issued upon conversion of shares of Class B
Common Stock, will be "restricted" securities within the meaning of Rule 144
under the Securities Act and may not be sold in the absence of registration
under the Securities Act unless an exemption from registration is available,
including the exemption provided by Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after the
date of this prospectus, a person (or persons whose shares are aggregated) who
has beneficially owned "restricted" shares for at least one year, including a
person who may be deemed our affiliate, is entitled to sell within any
three-month period a number of shares of Class A Common Stock that does not
exceed the greater of 1% of the then-outstanding shares of our Class A Common
Stock or the average weekly trading volume of the Class A Common Stock on the
Nasdaq National Market during the four calendar weeks preceding such sale. Sales
under Rule 144 are subject to certain restrictions relating to manner of sale,
notice and the availability of current public information about us. A person who
is not our affiliate and has not been such at any time during the 90 days
preceding a sale, and who has beneficially owned "restricted" shares for at
least two years, would be entitled to sell such shares immediately following the
Offering without regard to the volume limitations, manner of sale provisions or
notice or other requirements of Rule 144 of the Securities Act. However, the
transfer agent, , may require an opinion of counsel that a proposed sale of
"restricted" shares comes within the terms of Rule 144 of the Securities Act
prior to effecting a transfer of such shares. Such opinion would be provided by
and at the cost of the transferor.
Our officers and directors and certain other stockholders have agreed pursuant
to the underwriting agreement and other agreements that they will not sell any
shares of our capital stock, either publicly or privately, without the prior
consent of the representatives of the underwriters for a period of days
from the date of this prospectus (the "Lock-Up Period"). See "Underwriting."
<PAGE>
The Partnership has offered its limited partners the right to withdraw from the
Partnership under the Amended and Restated Agreement of Limited Partnership
dated as of January 1, 1996 (the "Limited Partnership Agreement") and receive a
distribution of Class A Common Stock (a "Withdrawal Election"). Such Withdrawal
Election may be made at any time between the consummation of the Offering and 14
days before the expiration of the Lock-Up Period. The Withdrawal Election will
be effective at the end of the month in which the Lock-Up Period expires. The
shares acquired through a limited partner's Withdrawal Election will be subject
to the resale limitations under Rule 144.
Limited partners making a Withdrawal Election will generally be deemed to have
held the shares of Class A Common Stock distributed to them from the date they
acquired their partnership interest. Accordingly, original investors in the
Partnership will be entitled to sell such shares pursuant to the volume and
other limitation of Rule 144 immediately upon distribution of such shares from
the Partnership.
Prior to the Offering, there has been no public market for either class of our
Common Stock and no predictions can be made of the effect, if any, that the sale
or availability for sale of additional shares of our Common Stock or our other
securities, or the development of a public trading market for the Class B Common
Stock, will have on the market price of the Class A Common Stock. Nevertheless,
sales of substantial amounts of shares of Class A Common Stock in the public
market, the perception that such sales could occur, the development of a public
trading market for the Class B Common Stock or the issuance of other securities,
could adversely affect the market price of the Class A Common Stock and could
impair our future ability to raise capital through an offering of our equity
securities.
58
<PAGE>
UNDERWRITING
Subject to the terms of an Underwriting Agreement among Janney Montgomery Scott
Inc., EVEREN Securities, Inc., First Security Van Kasper, Morgan Schiff & Co.,
Inc., as representatives of the underwriters (the "Representatives") and us, the
underwriters have each severally agreed to purchase from us and we have agreed
to sell to the underwriters the number of shares of Class A Common Stock set
forth opposite their respective names below. Under certain circumstances, the
commitments of non-defaulting underwriters may be increased.
Underwriter Number of Shares
- ----------- ----------------
Janney Montgomery Scott Inc. ...............................
EVEREN Securities, Inc. ....................................
First Security Van Kasper ..................................
Morgan Schiff & Co., Inc. ..................................
----------------
Total..............................................
================
The Underwriting Agreement provides that obligations of the underwriters to pay
for and accept delivery of the Class A Common Stock are subject to the approval
of certain conditions. The underwriters are obligated to take and pay for all of
the shares of the Class A Common Stock offered by this prospectus (other than
shares of Class A Common Stock covered by the over-allotment option described
below) if any shares are taken.
The underwriters propose to offer the shares of Class A Common Stock to the
public initially at the offering price per share shown on the cover page of this
prospectus and to certain dealers at such price, less a concession not in
excess of $ per share. The underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. After this Offering of the Class A Common Stock, the public offering
price and the concessions may be changed by the Representatives.
In addition to the discounts and commissions shown on the cover page of this
prospectus, we will pay to Janney Montgomery Scott Inc. a financial advisory fee
of $100,000 upon completion of the Offering.
We have granted to the underwriters an option for 30 days after the date of this
prospectus to purchase up to additional shares of Class A Common Stock, at the
same price per share as the public offering price, less the underwriting
discounts and commissions shown on the cover page of this prospectus. The
underwriters may exercise the option only to cover over-allotments in the sale
of the shares of Class A Common Stock offered by this prospectus. To the extent
the underwriters exercise this option, each of the underwriters has a firm
commitment, subject to certain conditions, to purchase a number of the
additional shares of Class A Common Stock proportionate to such underwriter's
initial commitment as indicated in the preceding table.
<PAGE>
In connection with this Offering and in compliance with applicable securities
laws, the underwriters may over-allot (i.e., sell more shares of Class A Common
Stock than is shown on the cover page of this prospectus) and may effect
transactions on the Nasdaq National Market which stabilize, maintain or
otherwise affect the market price of the Class A Common Stock at levels above
those which might otherwise prevail in the open market. Such transactions may
include placing bids for the Class A Common Stock or effecting purchases of the
Class A Common Stock for the purpose of pegging, fixing or maintaining the price
of the Class A Common Stock or for the purpose of reducing a short position
created in connection with the Offering. A short position may be covered by
exercise of the over-allotment option described above in place of or in addition
to open market purchases. The underwriters are not required to engage in any of
these activities and if the underwriters commence any of these activities, they
may discontinue them at any time.
We and the underwriters make no representation or prediction as to the direction
or magnitude of any effect that the transaction described above may have on the
price of the Class A Common Stock. In addition, we and the underwriters make no
representation that the underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
The underwriters do not intend to confirm sales of the Class A Common Stock to
any accounts over which they exercise discretionary authority.
Our directors, executive officers and certain indirect owners of the Class B
Common Stock have agreed that they will not, directly or indirectly, sell or
otherwise dispose of any Class A Common Stock or Class B Common Stock for a
period of days after the completion of this Offering, without Janney Montgomery
Scott Inc.'s prior written consent. Together, this group indirectly owns, prior
to the Offering, approximately % of the outstanding shares of the Class B
Common Stock.
We have agreed to indemnify the underwriters and persons who control the
underwriters against, or contribute to losses arising out of, certain
liabilities that may be incurred in connection with this Offering, including
liabilities under the Securities Act of 1933, as amended.
Morgan Schiff, one of the underwriters, is an affiliate of ours. Therefore, the
Offering is being conducted in accordance with the provisions of Rule 2720 of
the National Association of Securities Dealers, Inc. Conduct Rules. Rule 2720
requires that the initial public offering price of the shares be no higher than
the price recommended by a "qualified independent underwriter" meeting certain
standards. In accordance with this requirement, Janney Montgomery Scott Inc. is
assuming the responsibilities of acting as a qualified independent underwriter
in pricing the offering and conducting due diligence. The price of the shares
will be no higher than the price recommended by Janney Montgomery Scott Inc.
59
<PAGE>
There is no established trading market for the shares. The offering price for
the shares has been determined through negotiations between us and the
Representatives, based on the following factors:
o Prevailing market conditions.
o Our past and present operations.
o Market capitalizations and stages of development of other companies
which we and the Representatives believe to be comparable to us.
o An assessment of our management.
o The history of, and prospects for, our business and the industry in which it
competes.
o Our prospects for future earnings.
LEGAL MATTERS
The validity of the Class A Common Stock offered hereby will be passed upon by
Roberts, Sheridan & Kotel, a Professional Corporation, which firm provides legal
services from time-to-time for Morgan Schiff and its affiliates. Certain legal
matters will be passed upon for the underwriters by Klehr, Harrison, Harvey,
Branzburg & Ellers LLP.
EXPERTS
The Consolidated Financial Statements of Pietrafesa at December 31, 1997 and
1998, and for each of the three years in the period ended December 31, 1998,
appearing in this prospectus and the registration statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The Financial Statements of Components at December 31, 1997 and 1998, and for
each of the two years in the period ended December 31, 1998 included elsewhere
in this prospectus and the related financial statement schedules included
elsewhere in the Registration Statement have been audited by Lawrence B. Goodman
& Co. P.A., independent auditors, as stated in their reports appearing herein
and elsewhere in the Registration Statement, and are included in reliance upon
such report given upon their authority of such firm as experts in accounting and
auditing.
The Financial Statements of Global at December 31, 1997 and 1998, and for each
of the two years in the period ended December 31, 1998 included elsewhere in
this prospectus and the related financial statement schedules included elsewhere
in the Registration Statement have been audited by Pasquale & Bowers, LLP,
independent auditors, as stated in their reports appearing herein and elsewhere
in the Registration Statement, and are included in reliance upon the reports of
such firm, given upon their authority as experts in accounting and auditing.
<PAGE>
ADDITIONAL INFORMATION
We have filed with the Commission a Registration Statement on Form S-1 (the
"Registration Statement," which term shall encompass all amendments, exhibits,
annexes and schedules thereto) pursuant to the Securities Act, and the rules and
regulations promulgated thereunder, with respect to the Class A Common Stock
being offered in the Offering. This Prospectus does not contain all the
information set forth in the Registration Statement. For further information
with respect to The Pietrafesa Corporation and the securities offered hereby,
reference is made to the Registration Statement. Statements made in this
prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the document
or matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. The Registration Statement, may be inspected,
without charge, and copies may be obtained, at prescribed rates, at the public
reference facilities of the Commission maintained at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549. Copies of the Registration
Statement may also be inspected, without charge, at the Commission's regional
office at Seven World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. In addition,
copies of the Registration Statement may be obtained by mail at prescribed
rates, from the Commission's Public Reference Section at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
Commission maintains a Web site at www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
Upon completion of the Offering, we will become subject to the informational
requirements of the Exchange Act, and in accordance therewith will be required
to file periodic reports and other information with the Commission. Such
periodic reports, proxy statements and other information will be available for
inspection and copying at the public reference facilities, regional offices and
Web site referred to above.
We intend to furnish our stockholders with annual reports containing
consolidated financial statements audited by independent certified public
accountants.
60
<PAGE>
THE PIETRAFESA CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRO FORMA COMBINED FINANCIAL STATEMENTS
Introduction to Pro Forma Combined Financial Statements.......................................... F-2
Pro Forma Combined Financial Information as of and for the year ended December 31, 1998.......... F-3
Notes to Pro Forma Combined Financial Statements................................................. F-11
THE PIETRAFESA CORPORATION
Report of Independent Auditors................................................................... F-13
Consolidated Balance Sheets at December 31, 1997 and 1998........................................ F-14
Consolidated Statements of Operations for the years ended December 31, 1996, 1997 and 1998....... F-16
Consolidated Statements of Changes in Partners' Capital and
Shareholder's Equity for the years ended December 31, 1996, 1997 and 1998.................... F-18
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998....... F-19
Notes to Consolidated Financial Statements....................................................... F-20
COMPONENTS BY JOHN McCOY, INC.
Report of Independent Auditors................................................................... F-27
Balance Sheets at December 31, 1997 and 1998..................................................... F-28
Statements of Income and Retained Earnings for the years ended December 31, 1997 and 1998........ F-29
Statements of Cash Flows for the years ended December 31, 1997 and 1998.......................... F-30
Notes to Financial Statements.................................................................... F-31
GLOBAL SOURCING NETWORK, LTD.
Independent Auditors' Report..................................................................... F-34
Balance Sheets as of December 31, 1997 and 1998.................................................. F-35
Statements of Operations and Accumulated Deficit for the years ended December 31, 1997 and 1998.. F-36
Statements of Cash Flows for the years ended December 31, 1997 and 1998.......................... F-37
Notes to Financial Statements.................................................................... F-38
</TABLE>
F-1
<PAGE>
INTRODUCTION TO PRO FORMA COMBINED FINANCIAL STATEMENTS
The following pro forma combined financial statements give effect to The
Pietrafesa Corporation's acquisition of the Acquired Businesses. The pro forma
combined, as adjusted financial statements also give effect to the Offering and
application of the net proceeds as described under "Use of Proceeds." The pro
forma combined financial statements are based on the historical financial
statements of Pietrafesa and the Acquired Businesses and certain assumptions set
forth below and in the notes the pro forma combined financial statements.
Because the closing of the Offering is conditioned on the simultaneous or prior
closing of the acquisition of all of the Acquired Businesses, the pro forma
combined financial statements do not include separate pro forma financial
statements for the Company and each Acquired Business.
The pro forma combined, as adjusted balance sheets give effect to the
combination of Pietrafesa with the Acquired Businesses and the Offering as if
they had occurred on December 31, 1998. The pro forma combined, as adjusted
statements of operations for the year ended December 31, 1998 give effect to the
combination of Pietrafesa with the Acquired Businesses as if all such
acquisitions and the Offering had occurred on January 1, 1998.
The pro forma combined financial statements for the year ended December 31, 1998
includes the audited financial information of Pietrafesa, DAG, Global and
Components for the year ended December 31, 1998.
Pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions that management deems appropriate. The pro
forma financial data presented herein are not necessarily indicative of the
results we would have obtained had such events occurred at the beginning of the
period, as assumed, or of our future results. The pro forma combined financial
statements should be read in conjunction with the other financial statements and
notes thereto included elsewhere in this prospectus.
F-2
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
Pro Forma Statement of Operations Data
Year Ended December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Total
Pietrafesa Components Global DAG Combined
------------- --------------- --------------- --------- -------------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Total revenues $ 56,763 $19,993 $18,062 $2,633 $97,451
Cost of sales 47,062 15,007 16,768 1,590 80,427
-------- ------- ------- ------ -------
Gross profit 9,701 4,986 1,294 1,043 17,024
-------- ------- ------- ------ -------
Operating expenses:
Selling, general and administrative expenses
5,536 3,107 1,390 765 10,798
Depreciation and amortization expenses 222 1 4 3 230
-------- ------- ------- ------ -------
5,758 3,108 1,394 768 11,028
-------- ------- ------- ------ -------
Operating income (loss) 3,943 1,878 (100) 275 5,996
Interest expense 1,209 293 -- 1 1,503
Public offering costs 823 -- -- -- 823
-------- ------- ------- ------ -------
Income (loss) before income taxes 1,911 1,585 (100) 274 3,670
Provision for income taxes 514 158 (46) 24 650
-------- ------- ------- ------ -------
Net income (loss) $ 1,397 $ 1,427 $ (54) $ 250 $ 3,020
======= ======= ======== ====== =======
</TABLE>
F-3
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
Pro Forma Statement of Operations Data
Year Ended December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Company Pro Acquisition Pro Forma
Forma Pro Forma Pro Forma Offering Combined,
Adjustments Adjustments Combined Adjustments As Adjusted
----------- ----------- --------- ----------- -----------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Total revenues $ -- $ -- $97,451 $ -- $97,451
Cost of sales -- -- 80,427 -- 80,427
---- ------- ------- ------- -------
Gross profit 0 0 17,024 0 17,024
Operating expenses:
Selling, general and administrative expenses
-- (1,621)A 9,177 331 E 9,508
Depreciation and amortization expenses -- 577 B 807 -- 807
---- ------- ------- ------- -------
0 (1,044) 9,984 331 10,315
---- ------- ------- ------- -------
Operating income (loss) 0 1,044 7,040 (331) 6,709
Interest expense -- -- 1,503 (1,437)F 66
Public offering costs (823)C -- -- -- --
---- ------- ------- ------- -------
Income (loss) before income taxes (823) 1,044 5,537 1,106 6,643
Provision for income taxes 580 D 985 D 2,215 442 D 2,657
---- ------- ------- ------- -------
Net income (loss) $243 $ 59 $ 3,322 $ 664 $ 3,986
==== ======= ======= ======= =======
</TABLE>
F-4
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
Pro Forma Balance Sheet Data
December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Total
Pietrafesa Components Global DAG Combined
--------------- ---------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Assets
Current assets
Cash $ 14 $ 45 $ 154 $ 211 $ 424
Accounts receivable 7,967 4,463 19 252 12,701
Inventories 13,117 2,311 908 1,047 17,383
Prepaid expenses and other assets 1,131 -- 57 204 1,392
------- ------ ------ ------ -------
Total current assets 22,229 6,819 1,138 1,714 31,900
Property, plant and equipment, net 6,586 181 10 13 6,790
Goodwill -- -- -- -- --
Other assets 560 28 -- 9 597
------- ------ ------ ------ -------
Total assets 29,375 7,028 1,148 1,736 39,287
======= ====== ====== ====== =======
Liabilities and stockholders'
equity
Current liabilities
Credit facility -- 2,462 -- 150 2,612
Account payable 7,893 2,459 1,026 1,049 12,427
Other current liabilities 3,054 49 229 71 3,403
Tax distribution payable to partner 1,516 -- -- -- 1,516
Current maturities of long-term debt 527 -- -- -- 527
------- ------ ------ ------ -------
Total current liabilities 12,990 4,970 1,255 1,270 20,485
Deferred tax liability 1,441 -- -- -- 1,441
Long-term debt, net of current maturities 12,561 -- -- -- 12,561
Stockholders' equity
Common stock -- 300 1 -- 301
Additional paid in capital 2,941 -- -- -- 2,941
Retained earnings (558) 1,758 (108) 466 1,558
------- ------ ------ ------ -------
Total stockholders' equity 2,383 2,058 (107) 466 4,800
------- ------ ------ ------ -------
Total liabilities and
stockholders equity $29,375 $7,028 $1,148 $1,736 $39,287
======= ====== ====== ====== =======
</TABLE>
F-5
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
Pro Forma Balance Sheet Data
December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Company Pro Acquisition Pro Forma
Forma Pro Forma Pro Forma Offering Combined,
Adjustments Adjustments Combined Adjustments As Adjusted
----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Assets
Current assets
Cash $ 243G $ 636 G $ 1,303 $21,835 J $23,138
Accounts receivable -- -- 12,701 -- 12,701
Inventories -- -- 17,383 -- 17,383
Prepaid expenses and other assets -- -- 1,392 -- 1,392
----- ------ ------- ------- -------
Total current assets 243 __ 32,779 21,835 54,614
Property, plant and equipment, net -- -- 6,790 -- 6,790
Goodwill -- 6,286 H 6,286 -- 6,286
Other assets -- -- 597 -- 597
----- ------ ------- ------- -------
Total assets 243 6,922 46,452 21,835 68,287
===== ====== ======= ======= =======
Liabilities and stockholders'
equity
Current liabilities
Credit facility -- -- 2,612 (2,612)K --
Account payable -- -- 12,427 -- 12,427
Other current liabilities -- 1,200 H 4,603 (1,200)K 3,403
Tax distribution payable to partner -- -- 1,516 -- 1,516
Current maturities of long-term debt -- -- 527 (376)K 151
----- ------ ------- ------- -------
Total current liabilities 0 1,200 21,685 (4,188) 17,497
Deferred tax liability -- -- 1,441 -- 1,441
Long-term debt, net of current maturities -- 7,542 M 20,103 (19,641)K 462
Stockholders' equity
Common stock -- (301)I -- -- --
Additional paid in capital -- -- 2,941 45,000J 47,941
Retained earnings 243G (1,519)I 282 664G 946
----- ------ ------- ------- -------
Total stockholders' equity 243 (1,820) 3,223 45,664 48,887
----- ------ ------- ------- -------
Total liabilities and
stockholders equity $243 $6,922 $46,452 $21,835 $68,287
===== ====== ======= ======= =======
</TABLE>
F-6
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
Statements of Cash Flow Data
Year Ended December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Total
Pietrafesa Components Global DAG Combined
---------- ---------- ------ --- --------
<S> <C> <C> <C> <C> <C>
CASH FLOW Data:
Operating Activities
Net income (loss) $ 1,397 $1,428 $(54) $ 250 $ 3,021
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 788 1 4 3 796
Bad debts -- -- 149 -- 149
Provision for doubtful accounts 10 -- -- -- 10
Loss on fixed asset disposals 16 -- -- -- 16
Deferred income taxes 503 -- (47) -- 456
Offset of amounts due shareholder -- -- 116 -- 116
Changes in operating asset and liabilities
Accounts receivable (3,911) (751) 260 139 (4,263)
Inventories and prepaid expenses (4,847) (1,482) (902) (1,258) (8,489)
Accounts payable and accrued expenses 4,649 769 582 1,016 7,016
-------- ------ ---- ------- --------
Net cash provided by (used in) operating activities (1,395) (35) 108 150 (1,172)
Investing activities
Purchases of property, plant and equipment (592) (178) (4) (16) (790)
(Increase) decrease in intangible asset -- -- -- -- 0
Proceeds from disposal of fixed assets 29 -- -- -- 29
Acquisitions, net of cash acquired -- -- -- -- 0
Advances on note receivable -- -- (90) -- (90)
-------- ------ ---- ------- --------
Net cash provided by (used in ) investing activities (563) (178) (94) (16) (851)
Financing activities
Proceeds under credit facility 46,639 392 -- 150 47,181
Repayment of credit facility (43,348) -- -- -- (43,348)
Proceeds of long term debt 1,115 -- -- -- 1,115
Principal payments on long-term debt (596) -- -- -- (596)
Payment of debt issuance costs (77) -- -- -- (77)
Principal payments under capital lease obligations (41) -- -- -- (41)
Net proceeds from issuance of common stock -- -- -- -- 0
Proceeds from related party -- -- 55 -- 55
Payment to related party -- (143) -- -- (143)
Partners'/Shareholders' tax distributions paid (1,723) -- -- (82) (1,805)
-------- ------ ---- ------- --------
Net cash (used in) provided by financing activities 1,969 249 55 68 2,341
-------- ------ ---- ------- --------
(Decrease) increase in cash 11 36 69 202 318
Cash at beginning of period 3 9 85 9 106
======== ====== ==== ======= ========
Cash at end of period $ 14 $ 45 $154 $ 211 $ 424
======== ====== ==== ======= ========
</TABLE>
F-7
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
Statements of Cash Flow Data
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Acqui-
Company Pro Acquisition sition Pro Forma
Forma Pro Forma Pro Forma Adjust- Combined,
Adjustment Adjustments Combined Offering ments As Adjusted
---------- ----------- --------- -------- ------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOW Data (Cont.):
Operating Activities
Net income (loss) $243 $ 59 G $ 3,323 $ 664 G $ -- $ 3.987
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation and amortization -- 577 B 1,373 -- -- 1,373
Bad debts -- -- 149 -- -- 149
Provision for doubtful accounts -- -- 10 -- -- 10
Loss on fixed asset disposals -- -- 16 -- -- 16
Deferred income taxes -- -- 456 -- -- 456
Offset of amounts due shareholder -- -- 116 -- -- 116
Changes in operating asset and liabilities
Accounts receivable -- -- (4,263) -- (4,453)L (8,716)
Inventories and prepaid expenses -- -- (8,489) -- (889)L (9,378)
Accounts payable and accrued expenses -- -- 7,016 -- 4,591L 11,607
---- ------- -------- ------- ------ -------
Net cash provided by (used in) operating activities 243 636 (293) 664 (751) (380)
Investing activities
Purchases of property, plant and equipment -- -- (790) -- -- (790)
(Increase) decrease in intangible asset -- -- -- -- 751 L 751
Proceeds from disposal of fixed assets -- -- 29 -- -- 29
Acquisitions, net of cash acquired -- (9,082)H (9,082) -- -- (9,082)
Advances on note receivable -- -- (90) -- -- (90)
Repayment on note receivable -- -- -- -- -- --
---- ------- -------- ------- ------ -------
Net cash provided by (used in ) investing activities 0 (9,082) (9,933) 0 751 (9,182)
Financing activities
Proceeds under credit facility -- -- 47,181 -- -- 47,181
Repayment of credit facility -- -- (43,348) (2,612)K -- (45,960)
Proceeds of long term debt -- 9,082 H 10,197 -- -- 10,197
Principal payments on long-term debt -- -- (596) (21,217)K -- (21,813)
Payment of debt issuance costs -- -- (77) -- -- (77)
Principal payments under capital lease obligations -- -- (41) -- -- (41)
Net proceeds from issuance of common stock -- -- -- 45,000J -- 45,000
Proceeds from related party -- -- 55 -- -- 55
Payment to related party -- -- (143) -- -- (143)
Partners'/Shareholders' tax distributions paid -- -- (1,805) -- -- (1,805)
---- ------- -------- ------- ------ -------
Net cash (used in) provided by financing activities 0 9,082 11,423 21,171 -- 32,594
---- ------- -------- ------- ------ -------
(Decrease) increase in cash 243 636 1,197 21,835 0 23,032
Cash at beginning of period 0 -- 106 -- -- 106
---- ------- -------- ------- ------ -------
Cash at end of period $243 $ 636 $ 1,303 $21,835 $ 0 $23,138
==== ======= ======== ======= ====== =======
</TABLE>
F-8
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
Year Ended December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Total
Pietrafesa Components Global DAG Combined
---------- ---------- ------ --- --------
<S> <C> <C> <C> <C> <C>
OTHER Data:
EBITDA $ 4,731 $1,879 $ (96) $ 278 $ 6,792
Capital expenditures 592 178 4 16 790
Cash flow information:
Operating cash flows (1,395) (35) 108 150 (1,172)
Investing cash flows (563) (178) (94) (16) (851)
Financial cash flows 1,969 248 55 68 2,341
Balance Sheet Data:
Working capital 9,239 1,849 (117) 444 11,415
Total assets 29,375 7,028 1,148 1,736 39,287
Total long-term debt, net of current maturities 12,561 -- -- -- 12,561
Current maturities 527 2,462 -- 150 3,139
------- ====== ====== ====== =======
Total debt $13,088 $2,462 $ 0 $ 150 $15,700
======= ====== ====== ====== =======
</TABLE>
F-9
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
Year Ended December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Company Pro Acquisition Pro Forma
Forma Pro Forma Pro Forma Offering Acquisition Combined,
Adjustments Adjustments Combined Adjustments Adjustments As Adjusted
------------ ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
OTHER Data (Cont.):
EBITDA $ -- $1,621 $ 8,413 $ (331) $8,082
Capital expenditures -- -- 790 -- -- 790
Cash flow information:
Operating cash flows 243 636 (293) 664 (751) (380)
Investing cash flows -- (9,082) (9,933) -- 751 (9,182)
Financial cash flows -- 9,082 11,423 21,171 -- 32,594
Balance Sheet Data:
Working capital 243 (564) 11,094 26,023 37,117
Total assets 243 6,922 46,452 21,835 68,287
Total long-term debt, net of
current maturities -- 7,542 20,103 (19,641) 462
Current maturities -- -- 3,139 (2,988) 151
---- ------ ------- -------- ---- ------
Total debt $ 0 $7,542 $23,242 $(22,629) $ 613
==== ====== ======= ======== ==== ======
</TABLE>
F-10
<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
A. Reflects (1) the elimination of $1.1 million of royalty and commissions
expenses of Global, which expenses will not continue under the terms
of the Global acquisition agreement, and (2) the reduction of $0.5
million of excess compensation incurred in 1998 over the maximum amount
for the two former owners of DAG and Components under their respective
acquisition agreements.
B. Gives effect to the amortization of goodwill that results from the
acquisition of Components, Global and DAG as if the acquisitions
occurred on January 1, 1998.
C. In 1998 we incurred costs related to a public offering that was delayed
due to adverse market conditions. These costs have been charged off due
to the extended delay of such offering. The pro forma adjustment
assumes that these costs were not charged off.
D. We expect to incur federal and state income taxes at a combined
effective rate of 40%. A pro forma adjustment was made to reflect this
effective rate as the income of the combining companies was not all
taxable in 1998 but would have been taxable had the transaction been
consummated on January 1, 1998.
E. Gives effect to additional expenses we will incur as a public company.
Also includes a fee for unused availability under our Credit Facility
that will result from the repayment of the Credit Facility with the
proceeds from the Offering.
F. Reduction of interest expense resulting from repayment of debt with
the proceeds from the Offering.
G. Gives effect to the impact of the pro forma adjustments on net income.
H. Adjustments to reflect the purchase price associated with the
Acquisitions are noted below. For purposes of the Pro Forma Statement
of Operations, the Acquisitions are assumed to occur as of January 1,
1998. For purposes of the Pro Forma Balance Sheet, the Acquisitions are
assumed to occur as of December 31, 1998. The portion of the
consideration assigned to goodwill in each transaction represents the
excess of the cost over the estimated fair value of the net assets
acquired. The Company amortizes goodwill over periods ranging from 10
and 15 years.
F-11
<PAGE>
(In thousands)
<TABLE>
<CAPTION>
Acquisition
Pro Forma
Components Global DAG Adjustments
----------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Goodwill for
Statement of Operations:
Cash portion $ 4,695 $ 1,400 $ 800 $ 6,895
Sellers' notes 0 800 400 1,200
------- ------- ------- -------
Purchase price 4,695 2,200 1,200 8,095
Plus: Liabilities assumed as of
January 1, 1998 3,810 673 108 4,591
Less: Fair value of assets as of
January 1, 1998 4,585 619 428 5,632
Plus: Acquisition costs 350 350 350 1,050
Plus: Purchase price adjustments (10) (53) 0 (63)
------- ------- ------- -------
Goodwill acquired, as of January 1, 1998 $ 4,260 $ 2,551 $ 1,230 $ 8,041
======= ======= ======= =======
Pro forma amortization expense for 1998
$ 284 $ 170 $ 123 $ 577
======= ======= ======= =======
Goodwill for Balance Sheet:
Cash portion $ 4,695 $ 1,400 $ 800 $ 6,895
Sellers' notes 0 800 400 1,200
------- ------- ------- -------
Purchase price 4,695 2,200 1,200 8,095
Plus: Liabilities assumed as of
December 31, 1998 4,970 1,255 1,270 7,495
Less: Fair value of assets as of
December 31, 1998 7,067 1,148 1,736 9,951
Plus: Acquisition costs 350 350 350 1,050
Plus: Purchase price adjustments (85) (107) (211) (403)
======= ======= ======= =======
Goodwill acquired, as of
December 31, 1998 $ 2,863 $ 2,550 $ 873 $ 6,286
======= ======= ======= =======
</TABLE>
I. Reflects the elimination of equity of the Acquired Businesses.
J. Reflects the assumed net proceeds of approximately $45 million from the
Offering of approximately million shares of Class A Common
Stock at an assumed initial public offering price of $ per share.
K. Reflects our use of the proceeds from the Offering. See "Use of
Proceeds" in the Registration Statement.
L. Reflects the balances of assets and liabilities of the Acquired
Businesses as of January 1, 1998.
M. Gives effect to long-term debt incurred in order to fund the cash
portion of the acquisition costs incurred prior to the consummation of
the Offering.
F-12
<PAGE>
Report of Independent Auditors
Board of Directors
The Pietrafesa Corporation
We have audited the accompanying consolidated balance sheets of The Pietrafesa
Corporation (formerly MS Pietrafesa, L.P.) and subsidiary as of December 31,
1997 and 1998, and the related consolidated statements of operations, changes in
partners' capital and shareholder's equity and cash flows for each of the three
years in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Pietrafesa Corporation at December 31, 1997 and 1998, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Syracuse, New York
February 12, 1999, except as to Note 13
as to which the date is ____ __, 1999
The foregoing report is in the form that will be signed upon the completion of
the acquisition, offering and restatement of capital accounts described in Note
13 to the financial statements.
/s/ Ernst & Young LLP
Syracuse, New York
February 12, 1999
F-13
<PAGE>
THE PIETRAFESA CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
-----------------------------
1997 1998
-----------------------------
(In thousands)
<S> <C> <C>
Assets
Current assets:
Cash $3 $14
Accounts receivable, less allowance for doubtful accounts
of $185 in 1997 and $327 in 1998 4,066 7,967
Inventories:
Finished goods 3,510 4,273
Work-in-process 1,902 3,865
Raw materials 3,319 4,979
------- -------
8,731 13,117
Prepaid expenses 143 193
Deferred Taxes -- 938
------- -------
Total current assets 12,943 22,229
Property, plant, and equipment, at cost:
Land 297 297
Buildings and improvements 3,157 3,215
Machinery and equipment 6,199 6,485
Furniture and fixtures 699 708
Construction in progress -- 290
------- -------
10,352 10,995
Accumulated depreciation 3,806 4,409
------- -------
6,546 6,586
Other assets 184 560
------- -------
$19,673 $29,375
======= =======
</TABLE>
F-14
<PAGE>
THE PIETRAFESA CORPORATION
Consolidated Balance Sheets
December 31
---------------------
1997 1998
------- --------
(In thousands)
Liabilities, partners' capital and shareholder's equity
Current liabilities:
Accounts payable $ 6,610 $ 7,893
Other current liabilities 1,204 3,054
Tax distribution payable to partners -- 1,516
Current maturities of long-term debt 487 527
------- -------
Total current liabilities 8,301 12,990
Deferred tax liability -- 1,441
Long-term debt, net of current maturities 8,663 12,561
Partners' capital and shareholder's equity:
Partners' capital:
General partner 27 --
Limited partners 2,682 --
------- -------
Total partners' capital 2,709 --
Shareholder's equity:
Preferred stock, $.001 par value:
Authorized shares - 5,000
Issued shares - none
Common stock, $.001 par value:
Authorized shares - 5,000 Class A
- 10,000 Class B
Issued shares - .1 Class B -- --
Additional paid-in capital -- 2,941
Retained earnings (accumulated deficit) -- (558)
------- -------
Total shareholder's equity 2,383
------- -------
$19,673 $29,375
======= =======
See notes to consolidated financial statements.
F-15
<PAGE>
THE PIETRAFESA CORPORATION
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------
1996 1997 1998
------- ------- -------
(In thousands, except
per share data)
<S> <C> <C> <C>
Net revenues $44,000 $37,582 $56,763
Cost of sales 34,769 29,218 47,062
------- ------- -------
Gross profit 9,231 8,364 9,701
Operating expenses:
Selling, general, and administrative expenses 7,518 6,118 5,536
Depreciation and amortization expense 165 151 222
------- ------- -------
7,683 6,269 5,758
------- ------- -------
Operating income 1,548 2,095 3,943
Interest expense 1,720 1,446 1,209
Public offering costs -- -- 823
------- ------- -------
Income (loss) from continuing operations before income taxes (172) 649 1,911
Provision for income taxes -- -- 514
------- ------- -------
Income (loss) from continuing operations (172) 649 1,397
Loss on disposal of discontinued operations (321) (93) --
------- ------- -------
Income (loss) before extraordinary item (493) 556 1,397
Extraordinary item 3,350 -- --
------- ------- -------
Net income $ 2,857 $ 556 $ 1,397
======= ======= =======
Basic and diluted earnings per share:
Income (loss) from continuing operations $(1,720) $ 6,490 $13,970
Loss on discontinued operations (3,210) (930) --
Extraordinary item 33,500 -- --
------- ------- -------
Net income $28,570 $ 5,560 $13,970
======= ======= =======
Weighted average number of common shares outstanding 0.1 0.1 0.1
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-16
<PAGE>
THE PIETRAFESA CORPORATION
Consolidated Statements of Operations (continued)
<TABLE>
<CAPTION>
Year ended
December 31, 1998
------------------------
(In thousands,
except per share data)
<S> <C>
Pro forma net income data (Note 2):
Income (loss) from continuing operations before income
taxes, as reported above $1,911
Pro forma provision for income taxes 801
------
Pro forma income (loss) from continuing operations 1,110
Pro forma loss on disposal of discontinued operations
(net of income taxes) --
Pro forma extraordinary item (net of income taxes) --
------
Pro forma net income $1,110
======
Pro forma basic and diluted earnings per share (Notes 2 and 13):
Continuing operations
Discontinued operations
Extraordinary item
------
Net income
======
Proforma weighted average number of common shares
outstanding
======
</TABLE>
See notes to consolidated financial statements.
F-17
<PAGE>
THE PIETRAFESA CORPORATION
Consolidated Statements of Changes in Partners' Capital
and Shareholders' Equity
Years ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
Additional
General Limited Common Paid-in Retained
Partner Partners Stock Capital Earnings Total
-----------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ (6) $ (698) $ (704)
Year ended December 31, 1996
Net income 28 2,829 2,857
---- ------- ------
Balance at December 31, 1996 22 2,131 2,153
Year ended December 31, 1997
Net income 5 551 556
---- ------- ------
Balance at December 31, 1997 27 2,682 2,709
Year ended December 31, 1998
Net income (loss) 19 1,936 $(558) 1,397
Distributions to partners for income taxes (17) (1,706) (1,723)
Incorporation of the Company (29) (2,912) $2,941 --
---- ------- ----- ------ ----- -------
Balance at December 31, 1998 $ -- $ -- $ -- $2,941 $(558) $ 2,383
==== ======= ===== ====== ===== =======
</TABLE>
See notes to consolidated financial statements.
F-18
<PAGE>
THE PIETRAFESA CORPORATION
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------
1996 1997 1998
------- -------- --------
(In thousands)
<S> <C> <C> <C>
Operating activities
Net income $ 2,857 $ 556 $ 1,397
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Extraordinary item (3,350) -- --
Depreciation and amortization 946 802 788
Provision for doubtful accounts 19 - 10
Loss and impairment on fixed assets 194 149 16
Deferred taxes -- -- 503
Changes in operating assets and liabilities:
Accounts receivable (590) 1,549 (3,911)
Inventories, prepaid expenses and other assets 3,267 1,533 (4,847)
Accounts payable and accrued expenses (898) (1,533) 4,649
------- -------- --------
Net cash provided by (used in) operating activities 2,445 3,056 (1,395)
Investing activities
Purchases of property, plant, and equipment (105) (59) (592)
Proceeds from disposal of fixed assets 524 2,244 29
------- -------- --------
Net cash provided by (used in) investing activities 419 2,185 (563)
Financing activities
Borrowings under credit line 51,854 39,981 46,639
Repayments of credit line (52,419) $(42,516) (43,348)
Proceeds from long-term debt 2,530 -- 1,115
Principal payments on long-term debt (4,581) (2,666) (596)
Payment of debt issuance costs (250) (41) (77)
Principle payments under capital lease obligations -- -- (41)
Distributions payable to partners for income taxes -- -- (1,723)
------- -------- --------
Net cash (used in) provided by financing activities (2,866) (5,242) 1,969
------- -------- --------
(Decrease) increase in cash (2) (1) 11
Cash at beginning of period 6 4 3
------- -------- --------
Cash at end of period $ 4 $ 3 $ 14
======= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-19
<PAGE>
THE PIETRAFESA CORPORATION
Notes to Consolidated Financial Statements
Three years ended December 31, 1998
(In thousands)
1. The Company and Basis of Presentation
The Pietrafesa Corporation (the "Company") was formed on October 1, 1998 through
the issuance of .1 shares of Class B common stock in exchange for the net assets
of MS Pietrafesa, L.P. (the "Partnership"). The exchange was recorded at the
Partnership's historical cost basis as both entities were under common control.
The accompanying financial statements include the financial position and
operations of the Partnership for 1996 and 1997 and the Company and the
Partnership combined for 1998.
The Company operates principally in one business segment, the sourcing of
proprietary brands of men's and women's clothing for major domestic retailers.
Sourced products are manufactured by the Company and third parties.
Approximately 77% of the Company's work force is represented under collective
bargaining agreements. The Company also has one retail outlet whose operations
are not significant.
2. Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary. All significant intercompany transactions are
eliminated.
Revenue Recognition
Revenue is recognized when products are shipped or services have been provided
and is net of returns and allowances.
Cash
Cash consists of demand deposits at banks.
Inventories
Inventories are stated at the lower of standard costs (which approximate cost
determined on a first in, first out basis) or market.
Property, Plant, and Equipment
Depreciation is provided using the straight line method over the estimated
useful lives of the respective assets (buildings and improvements - 25 years;
machinery and equipment - 15 years; and furniture and fixtures - 10 years).
Other Assets
Other assets include debt issuance costs which are amortized over the terms of
the related debt using the interest method.
F-20
<PAGE>
THE PIETRAFESA CORPORATION
Notes to Consolidated Financial Statements
Three years ended December 31, 1998
(In thousands)
2. Summary of Significant Accounting Policies (Continued)
Income Taxes and Tax Distributions
Prior to October 1, 1998, the Company operated as a limited partnership and
income or loss of the Partnership was included in the taxable income of the
individual partners. The Company is required under the Partnership Agreement to
distribute cash to the partners which approximates the tax on taxable income
reported by the Partnership through September 30, 1998. The Company has accrued
a liability of $1,516 related to distributions for taxable income for the nine
month period ended September 30, 1998.
As of October 1, 1998, effective with the net asset transfer discussed in Note
1, the Company is subject to federal and state corporate income taxes. The
Company accounts for income taxes using the liability method in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Under this method, deferred tax assets and liabilities are determined
based on differences between the tax basis of assets and liabilities and are
measured using currently enacted tax laws and rates.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions. Those
estimates and assumptions affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates and such differences could be material.
Pro Forma Net Income and Earnings Per Share
Pro forma net income and earnings per share for 1998 reflect adjustments for
federal and state income taxes as if the Company were subject to these taxes for
the entire year.
Reclassifications
Certain prior year amounts have been reclassified to conform with the 1998
presentation.
F-21
<PAGE>
THE PIETRAFESA CORPORATION
Notes to Consolidated Financial Statements
Three years ended December 31, 1998
(In thousands)
3. Borrowing Arrangements
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31,
1997 1998
------ -------
<S> <C> <C>
Revolving credit agreements due June 30, 2001 $6,147 $ 9,439
Equipment notes with monthly principal and interest payments
ranging from $7 to $13 through December of 2002 762 612
Capital equipment leases with monthly principal and interest
payments ranging from $1 to $4 through July 2002 107 234
Term notes with monthly principal payments of $16 and $10
through June 2005 2,134 2,803
------ -------
9,150 13,088
Less current maturities 487 527
------ -------
$8,663 $12,561
====== =======
</TABLE>
Substantially all of the Company's debt bears interest at variable rates which
range between prime plus .5% and prime plus 1% (8.25% and 8.75% at December 31,
1998).
Under terms of a credit line with a bank, the Company may borrow up to $12,500,
limited by levels of accounts receivable and inventory. The unused credit line
totaled approximately $2,311 at December 31, 1998. Interest on the line is based
on prime plus .5% or LIBOR plus 2.75% (8.25% at December 31, 1998). The weighted
average borrowing rate on the credit lines was 9.91% and 9.26% at December 31,
1997 and 1998, respectively. During the year ended December 31, 1996, 1997 and
1998, the highest outstanding balance on the credit line was $12,283, $10,787
and $11,782, respectively, and the average outstanding balance was $10,344,
$8,338 and $8,701, respectively. The credit line is subject to renewal in 2001
and has been classified as long-term.
On June 19, 1998, the Company refinanced certain mortgage, equipment and term
loans with principal balances of $2,134 at December 31, 1997. The refinanced
loans are payable over 5 and 7 years with interest ranging from prime plus 1% to
prime plus .75%.
The Company's borrowing arrangements include certain restrictive covenants which
limit, among other things, additional indebtedness, capital expenditures,
dividends and require that the Company maintain specified levels of working
capital, tangible net worth, debt-to-equity, debt service coverage and net
income. Amounts outstanding under these arrangements, including the working
capital facility, are secured by substantially all of the Company's assets.
<PAGE>
Aggregate principal payments on long-term debt for each of the next five years
and thereafter are as follows as of December 31, 1998:
1999 $ 527
2000 539
2001 9,987
2002 497
2003 660
Thereafter 878
=======
$13,088
=======
F-22
<PAGE>
THE PIETRAFESA CORPORATION
Notes to Consolidated Financial Statements
Three years ended December 31, 1998
(In thousands)
3. Borrowing Arrangements (continued)
As further discussed in Note 10, certain subordinated indebtedness were forgiven
in June 1996.
Interest paid for the years ended December 31, 1996, 1997 and 1998 amounted to
$1,343, $1,126 and $1,156, respectively.
The Company acquired $109 and $169 in assets under capital lease obligations in
1997 and 1998, respectively.
4. Shareholder's Equity
The Company is authorized to issue two classes of common stock designated Class
A and Class B. The Class B elects 75% of the Board of Directors, has voting
rights on all corporate matters and is convertible, at any time, at the option
of the holder, into an equal number of Class A shares. The shares of Class B
common stock are also subject to mandatory conversion into an equal number of
Class A common stock at the option of the majority of the holder or holders of
Class B common stock. In connection with the incorporation of the Company, .1
Class B shares were issued to the Partnership. Except in limited instances,
Class A shares will be non-voting except as to the election of 25% of the Board
of Directors. No Class A shares have been issued.
The Company is also authorized to issue up to, in one or more series, 5,000
shares of preferred stock upon the consent of the holders of a majority of the
outstanding shares of Class B common stock. The Board is authorized to fix the
rights, preferences, privileges and restrictions of each series, without further
vote or action by the stockholders. The preferred stock may be granted voting
powers provided that the Class B common stock will always have the right to
elect a majority of the Board and the preferred stock will be entitled to vote
with the Class A common stock as a class on any matters on which holders of
Class A common stock are entitled to vote.
5. Retirement Plans
The Company sponsors contributory defined contribution plans for employees not
covered by multi-employer plans. Employer contributions to the plans range from
no contribution to 50% of each participant's elective deferral for the plan
year, subject to certain restrictions as defined in the Plan documents.
Contributions for the years ended December 31, 1996, 1997 and 1998 were $97,
$125 and $141, respectively. The Company also contributes to two multi-employer
pension funds which cover certain union employees under a collective bargaining
agreement. Contributions for the years ended December 31, 1996, 1997, and 1998
were approximately $323, $173 and $156, respectively. Provisions of the
Multi-Employer Pension Plan Amendments Act of 1980 require participating
employers to assume a proportionate share of a multi-employer plan's unfunded
vested benefit in the event of withdrawal from or termination of the Plan.
<PAGE>
6. Related Party Transactions
The Company leases a retail store facility from a related party under a ten-year
lease ending June 30, 2000 requiring rental payments totaling $146 per year. A
portion of this facility is subleased and provides minimum rental income of $30
per year.
Beginning in 1998, the Company sources certain customer orders through
SourceOne, L.L.C ("SourceOne"), an affiliate of the General Partner of the
Partnership. SourceOne has no significant assets or liabilities and neither the
Company nor its employees receive any compensation from SourceOne. The Company
purchased approximately $10,614 of services from SourceOne during 1998 and has a
net payable to SourceOne of $591 at December 31, 1998.
F-23
<PAGE>
THE PIETRAFESA CORPORATION
Notes to Consolidated Financial Statements
Three years ended December 31, 1998
(In thousands)
6. Related Party Transactions (continued)
An affiliate of the General Partner provides financial advisory and strategic
consulting under an agreement requiring monthly payments of $25. The agreement
may be terminated annually by either party upon 30 days notice. The affiliate
waived all payments due under this agreement for 1996, 1997 and 1998.
The Company reimburses on a per-flight basis certain operating expenses of an
aircraft owned by a corporation owned by the Company's President and Chief
Executive Officer. Payments amounted to $225, $223 and $454 for the years ended
December 31, 1996, 1997 and 1998, respectively.
7. Revenue and Supplier Concentrations
The Company grants credit without collateral to customers and performs periodic
credit evaluations of their financial condition. Three branded products comprise
approximately 67% and 73% of accounts receivable and revenues, respectively, as
of and for the year ended December 31, 1996, approximately 82% and 87% of
accounts receivable and revenues, respectively, as of and for the year ended
December 31, 1997 and approximately 62% and 88% of accounts receivable and
revenues, respectively, as of and for the year ended December 31, 1998.
In April 1998, the Company entered into a five-year sourcing agreement with a
domestic clothing retailer and became the retailer's primary source for tailored
clothing. The Company's affiliate, SourceOne, manages the retailer's
manufacturing operations. The Company will receive an annual management fee for
the first three years of the agreement and purchased certain inventory owned by
the retailer at market value ($2,140), payable in installments. The agreement
requires the retailer to purchase a minimum number of units during the 5-year
term of the agreement.
The Company purchases a significant volume of fabric from two suppliers. In
1998, 1997 and 1996, 62%, 54% and 51% of total
purchases were purchased from these two suppliers, respectively.
<PAGE>
8. Income Taxes
On October 1, 1998, the Company recorded deferred income taxes due to its
incorporation. The recording of the deferred tax liability at October 1, 1998
resulted in additional tax expense of $516 in 1998.
The provision for income taxes is as follows:
Year ended
December 31,
----------------------------
1996 1997 1998
------ ------ ----
Current
Federal $ -- $ -- $ 8
State -- -- 3
------ ------ ----
Total current -- -- 11
Deferred:
Federal -- -- 428
State -- -- 75
------ ------ ----
Total deferred -- -- 503
------ ------ ----
Total tax expense $ -- $ -- $514
====== ====== ====
F-24
<PAGE>
THE PIETRAFESA CORPORATION
Notes to Consolidated Financial Statements
Three years ended December 31, 1998
(In thousands)
8. Income Taxes (Continued)
The difference between the United States federal statutory income tax rate and
the Company's effective tax rate were as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1996 1997 1998
-------------------------------
<S> <C> <C> <C>
U.S. federal statutory rate 34.0% 34.0% 34.0%
Income attributed to period the Company was a partnership that is not
subject to federal or state corporate income tax (34.0%) (34.0%) (34.0%)
Deferred taxes related to the change to a taxable entity 27.0%
===== ==== ====
Effective tax rate 0.0% 0.0% 27.0%
===== ==== ====
</TABLE>
Deferred tax assets and liabilities are comprised of the following:
December 31,
1996 1997 1998
------ ------ ------
Deferred tax assets:
Bad debt and chargeback reserves $ -- $ -- $ 131
Inventory related reserves -- -- 292
Employee benefits -- -- 236
Other -- -- 279
------ ------ ------
Total deferred tax assets -- -- 938
Deferred tax liability:
Depreciation -- -- 1,441
------ ------ ------
Net deferred tax liability $ -- $ -- $ 503
====== ====== ======
F-25
<PAGE>
THE PIETRAFESA CORPORATION
Notes to Consolidated Financial Statements
Three years ended December 31, 1998
(In thousands)
9. Discontinued Operations
In 1995, the Company discontinued its low price point tailored clothing
manufacturing business.
All equipment related to this operation was either sold to third parties or
transferred to the Company's primary factory during 1996. In April 1997, the
Company concluded the sale of the remaining assets at their carrying value.
Interest expense included in the loss on disposal of discontinued operations was
$243, $61 and $-0- for 1996, 1997, and 1998, respectively, representing the
interest on building and equipment loans attributable to the discontinued
operations and a portion of the interest on the working capital facility
determined based upon average accounts receivable and average inventory
balances.
10. Forgiveness of Debt
In June 1996, the Company completed a transaction under which subordinated notes
with an outstanding principal and interest balance of $3,350 were forgiven in
exchange for a greater partnership interest in MSJP, L.P., a limited partner of
the Partnership.
11. Fair Value of Financial Instruments
The carrying amounts of the Company's short-term borrowings and variable rate
long-term debt approximate their fair value. The difference between carrying
value and fair value on fixed rate long-term debt is not material.
12. Public Offering Costs
In 1998 the Company incurred costs related to a public offering that was delayed
due to adverse market conditions. Costs amounting to $823 related to this
offering have been charged off due to the extended delay of the offering.
13. Acquisitions and Public Offering
On ________, 1999, the Company acquired the assets and assumed certain
liabilities of Diversified Apparel Group, Ltd. for $ ______ in a transaction to
be accounted for as a purchase. On __________, 1999, the Company acquired all of
the common stock of Global Sourcing Network, Ltd. for $ _______ in a transaction
to be accounted for as purchase. Concurrent with this public offering, the
Company will also acquire the assets and assume certain liabilities of
Components by John McCoy, Inc. for $_____ in a transaction to be accounted for
as a purchase.
In connection with this Offering, the Company's Class B common stock has been
adjusted through issuance of _______ additional shares of Class B common stock
for the consideration of the stock's par value. Shareholder's equity, earnings
per share and other share information has been restated to reflect the
additional shares of Class B common stock.
F-26
<PAGE>
To the Board of Directors of
Components by John McCoy, Inc.
6040 Boulevard East - Apt. 2G
West New York, New Jersey 07093
We have audited the accompanying balance sheets of Components by John McCoy,
Inc. (a New Jersey corporation) as of December 31, 1998 and 1997, and the
related statements of income, retained earnings, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Components by John McCoy, Inc.,
as of December 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ Lawrence B. Goodman & Co., P.A.
Certified Public Accountants
Fair Lawn, New Jersey
March 4, 1999
F-27
<PAGE>
COMPONENTS BY JOHN McCOY, INC.
Balance Sheets
December 31, 1998 and 1997
ASSETS
1998 1997
---------- ----------
Current Assets
Cash $ 45,358 $ 10,335
Accounts Receivable - net 4,462,931 3,711,586
Inventory 2,311,177 829,833
Employee Loan -- 1,600
---------- ----------
Total current assets 6,819,466 4,553,354
---------- ----------
Property & Equipment
Furniture and fixtures 3,616 3,616
Leasehold improvements 178,167 --
---------- ----------
181,783 3,616
Less: Accumulated depreciation (1,086) (362)
---------- ----------
Net property and equipment 180,697 3,254
---------- ----------
Other Assets
Security deposit 28,032 28,032
---------- ----------
Total Assets $7,028,195 $4,584,640
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1997
---------- ----------
Current Liabilities
Accounts payable and accrued expenses $2,459,127 $1,671,965
Loan payable 2,462,451 2,070,731
Taxes payable 48,868 66,890
---------- ----------
Total current liabilities 4,970,446 3,809,586
---------- ----------
Stockholders' Equity
Common Stock, no par value 300,000 300,000
(authorized 200 shares, issued
and outstanding 100 shares)
Retained earnings 1,757,749 475,054
---------- ----------
Total stockholders' equity 2,057,749 775,054
---------- ----------
Total Liabilities and Stockholders' Equity $7,028,195 $4,584,640
========== ==========
See notes to financial statements and auditor's report.
F-28
<PAGE>
COMPONENTS BY JOHN McCOY, INC.
Statements of Income and Retained Earnings
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revenues
Net Sales $19,993,484 $14,916,695
----------- -----------
Cost of Sales
Beginning inventory 829,833 740,408
Purchases 13,854,070 9,733,368
Freight-in 681,339 505,506
Customs charges 1,953,422 1,606,554
----------- -----------
17,318,664 12,585,836
Less: Ending inventory 2,311,177 829,833
----------- -----------
Total cost of sales 15,007,487 11,756,003
----------- -----------
Gross Profit 4,985,997 3,160,692
General and Administrative Expenses
Advertising 177,635 28,740
Bad debt expense 253,565 113,856
Commissions 588,879 675,204
Insurance 27,881 34,130
Interest 292,676 241,225
Professional services 66,404 24,729
Office supplies 166,449 155,159
Outside services 212,392 131,951
Payroll taxes 41,983 24,106
Postage 102,386 95,383
Profit sharing 45,030 38,517
Rent 166,951 110,792
Repairs and maintenance 521 11,615
Salaries -- Officer 606,154 180,000
Salaries and wages -- other 287,532 185,138
Storage 108,694 64,092
Telephone and utilities 50,674 43,077
Travel and entertainment 134,910 161,884
Miscellaneous 69,865 25,141
----------- -----------
Total general and administrative expenses 3,400,581 2,344,739
----------- -----------
Income from operations 1,585,416 815,953
Other Income and (Expenses)
State and local income taxes (157,711) (81,595)
----------- -----------
Net income 1,427,705 734,358
Retained earnings -- beginning 475,054 118,854
Distributions of undistributed taxable income (145,010) (378,158)
----------- -----------
Retained earnings -- ending $1,757,749 $475,054
=========== ===========
</TABLE>
See notes to financial statements and auditor's report.
F-29
<PAGE>
COMPONENTS BY JOHN McCOY, INC.
Statements of Cash Flows
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,427,705 $ 734,358
------------ -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 724 362
Changes in assets and liabilities:
Increase in accounts receivable (751,345) (1,264,338)
Increase in inventory (1,481,344) (89,425)
Increase in employee loan -- (1,600)
Increase in security deposit -- (28,032)
Increase in accounts payable 787,162 179,879
Increase/(Decrease) in taxes payable (18,022) 54,923
------------ -----------
Total adjustments (1,462,825) (1,148,231)
------------ -----------
Net cash used by operating activities (35,120) (413,873)
------------ -----------
Cash flows from investing activities:
Purchase of furniture and fixtures (178,167) (3,616)
------------ -----------
Cash flows from financing activities:
Borrowing on loan payable 19,494,135 10,120,000
Repayments on loan payable (19,102,415) (9,359,340)
Distributions to shareholder (143,410) (382,468)
------------ -----------
Net cash provided by financing activities 248,310 378,192
------------ -----------
Net increase (decrease) in cash 35,023 (39,297)
Cash -- beginning of year 10,335 49,632
------------ -----------
Cash -- end of year $ 45,358 $ 10,335
============ ===========
Supplemental information
Interest paid $ 292,676 $ 241,225
Taxes paid $ 176,133 $ 29,889
</TABLE>
See notes to financial statements and auditor's report.
F-30
<PAGE>
COMPONENTS BY JOHN McCOY, INC.
Notes to Financial Statements
December 31, 1998 and 1997
(In thousands)
DESCRIPTION OF BUSINESS
Components by John McCoy, Inc. is a distributor of men's clothing. The
Company was incorporated and commenced business on January 6, 1995. Its
principal place of business is located at 20 West 55th Street, New
York, New York.
Note 1: ACCOUNTING POLICIES
a) Accounts Receivable
In the normal course of business, the Company discounts or sells trade
accounts receivable without recourse to Heller Financial, Inc. At
December 31, 1998 and 1997, the amount of such receivables was
$3,239,184 and $3,162,716, respectively.
b) Uncollectible Accounts
Uncollectible accounts receivable are estimated to be 4% for 1998 and
10% for 1997 of non-factored receivables, based upon management's
evaluation of outstanding accounts receivable. At December 31, 1998 and
1997, uncollectible accounts are estimated to be $56,779 and $60,986,
respectively.
c) Inventory
Inventory is stated at the lower of cost determined by the first-in,
first-out method, or market.
d) Income Taxes
The shareholders have elected to be treated as a small business
corporation (Sub-Chapter "S" of the Internal Revenue Code) for Federal
income tax purposes as of January 6, 1995. Similarly, the shareholders
have elected to be treated as a small business corporation for New York
and New Jersey State income tax purposes. Accordingly, no provision has
been made for Federal income taxes, a provision has been made for the
State income taxes for New York and for New Jersey at the prevailing
rates for 1998. Income will be reported by the shareholder in his
individual income tax returns.
New York City does not recognize Sub-Chapter "S" status, therefore, a
tax provision has been made based upon the income tax rates in effect
for 1998.
There are no material differences in the calculation of net income for
book and income tax purposes, therefore, deferred income taxes have not
been recorded.
e) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
F-31
<PAGE>
COMPONENTS BY JOHN McCOY, INC.
Notes to Financial Statements
December 31, 1998 and 1997
(In thousands)
Note 2: LOAN PAYABLE
Loan payable represents amounts owed to Heller Financial, Inc. as
advances upon collections of factored accounts receivable. Interest on
these advances is computed daily at a rate of 2% over the current prime
rate and is paid monthly using the current prime rate as a base. Rates
in effect were as follows:
01/01/96 through 03/26/97 10.25%
03/27/97 through 01/01/98 10.25%
02/02/98 through 09/29/98 10.00%
09/30/98 through 10/16/98 9.75%
10/17/98 through 11/17/98 9.50%
11/18/98 through 12/31/98 9.25%
Average outstanding loan balances for the years ended December 31, 1998
and 1997 were approximately $2.6 million and $1.9 million,
respectively. The high outstanding balances for those years were $4.0
million and $3.2 million, respectively.
Note 3: STATE AND LOCAL INCOME TAXES
Taxes consist of the following:
1998 1997
--------- -------
New York State income taxes $ 15,841 $ 8,183
New Jersey State income taxes 3,182 2,735
New York City income taxes 138,688 70,677
-------- -------
$157,711 $81,595
======== =======
Note 4: NET SALES
Net sales consists of the following:
1998 1997
----------- -----------
Sales $20,340,045 $16,039,672
Less: Sales, returns and discounts 346,561 1,122,977
----------- -----------
$19,993,484 $14,916,695
=========== ===========
Note 5: INTEREST
Interest expense for 1998 and 1997 was $292,676 and $241,225,
respectively, all of which was charged to operations.
<PAGE>
Note 6: RENT
The Company leases office space under a five-year operating lease which
expires January 31, 2007. Future minimum rentals are as follows:
1999 $ 126,000
2000 126,000
2001 126,000
2002 132,417
2003 133,000
Thereafter 410,083
----------
$1,053,500
==========
Note 7: PROFIT SHARING PLAN
The Company has a defined contribution Profit-Sharing Plan beginning
January 1, 1997, covering substantially all of its employees. Employees
qualify based on age and hours of service. The amount of the
contribution is determined by the Board of Directors. The profit
sharing plan contributions for 1998 and 1997 were $45,030 and $38,517,
respectively.
F-32
<PAGE>
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS AND SHAREHOLDER
GLOBAL SOURCING NETWORK, LTD.
We have audited the accompanying balance sheets of GLOBAL SOURCING NETWORK, LTD.
as of December 31, 1998 and 1997, and the related statements of operations and
accumulated deficit, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GLOBAL SOURCING NETWORK, LTD.
as of December 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
/s/ Pasquale & Bowers, LLP
Syracuse, New York
February 2, 1999
F-33
<PAGE>
GLOBAL SOURCING NETWORK, LTD.
Balance Sheets
December 31, 1998 and 1997
1998 1997
---------- --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 153,598 $ 84,348
Accounts receivable 19,148 338,304
Note receivable, net of allowance of $90,000 0 0
Due from related party (Note 7) 0 55,000
Inventories 907,500 0
Deferred taxes (Note 5) 57,600 0
---------- --------
TOTAL CURRENT ASSETS 1,137,846 477,652
---------- --------
PROPERTY AND EQUIPMENT-NET (Note 3) 10,204 10,161
---------- --------
OTHER ASSETS
Due from shareholder (Note 7) 0 116,397
Deferred taxes (Note 5) 0 10,700
Other 0 5,142
---------- --------
0 132,239
---------- --------
$1,148,050 $620,052
========== ========
LIABILITIES AND SHAREHOLDER'S DEFICIT
CURRENT LIABILITIES
Accounts payable $1,026,265 $275,828
Royalty fees payable (Note 4) 229,085 397,215
---------- --------
TOTAL CURRENT LIABILITIES 1,255,350 673,043
--------- -------
SHAREHOLDER'S DEFICIT
Common stock
No par value
Authorized - 200 shares
Issued and outstanding - 50 shares 1,000 1,000
Accumulated deficit (108,300) (53,991)
---------- --------
(107,300) (52,991)
---------- --------
$1,148,050 $620,052
========== ========
See accompanying notes to the financial statements.
F-34
<PAGE>
GLOBAL SOURCING NETWORK, LTD.
Statements Of Operations and Accumulated Deficit
Years Ended December 31, 1998 and 1997
1998 1997
----------- -----------
SALES $18,062,322 $19,043,296
COST OF SALES 16,767,880 17,781,789
----------- -----------
GROSS PROFIT 1,294,442 1,261,507
GENERAL AND ADMINISTRATIVE EXPENSES 298,798 295,385
----------- -----------
OPERATING INCOME BEFORE ROYALTIES AND COMMISSIONS 995,644 966,122
ROYALTIES AND COMMISSIONS 1,095,873 985,975
----------- -----------
LOSS FROM OPERTIONS (100,229) (19,853)
PROVISION FOR INCOME TAXES (Note 5) (45,920) (8,019)
----------- -----------
NET LOSS (54,309) (11,834)
ACCUMULATED DEFICIT - BEGINNING OF YEAR (53,991) (42,157)
----------- -----------
ACCUMULATED DEFICIT - END OF YEAR $ (108,300) $ (53,991)
=========== ===========
See accompanying notes to the financial statements.
F-35
<PAGE>
GLOBAL SOURCING NETWORK, LTD.
Statement Of Cash Flows
Years Ended December 31, 1998 and 1997
Increase (Decrease) in Cash and Cash Equivalents
1998 1997
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (54,309) $ (11,834)
--------- ---------
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation 4,421 3,574
Bad debts 149,017 102,000
Deferred tax benefit (46,900) (10,700)
Offsets of amounts due from shareholder 116,397 0
Changes in assets and liabilities affecting
cash flows from operating activities:
Accounts receivable 260,139 (225,022)
Inventories (907,500) 0
Other assets 5,142 2,134
Accounts payable 750,437 267,909
Royalty fees payable (168,130) 5,772
Accrued expenses 0 (7,474)
--------- ---------
Total adjustments 163,023 138,193
--------- ---------
Net cash provided by operating activities 108,714 126,359
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (4,464) (6,004)
Advances on notes receivable (90,000) 0
Repayments on notes receivable 0 144,000
--------- ---------
Net cash provided by (used in)
investing activities (94,464) 137,996
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from related party 55,000 0
Payments to related party 0 (313,200)
--------- ---------
Net cash provided by (used in)
financing activities 55,000 (313,200)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 69,250 (48,845)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 84,348 133,193
--------- ---------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 153,598 $ 84,348
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid during the period for:
Income taxes: $ 680 $ 2,957
========= =========
See accompanying notes to the financial statements.
F-36
<PAGE>
GLOBAL SOURCING NETWORK, LTD.
Notes to Financial Statements
Year Ended December 31, 1998 and 1997
(In thousands)
1. Organization
Global Sourcing Network, Ltd. (the "Company") imports men's apparel for
distribution to retail apparel companies located principally throughout
the United States.
2. Summary of Significant Accounting Policies
Revenue Recognition
Revenue is recognized when products are received by the customer. The
Company estimates accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is recorded.
Inventories
Inventories are valued at the lower of cost, determined on the specific
identification method, or market.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is provided using
accelerated methods over the estimated useful lives of the related assets.
Income Taxes
Income taxes have been provided using the liability method in accordance
with SFAS No. 109, "Accounting for Income Taxes". Deferred tax assets are
the result primarily of net operating loss carryforwards the Company has
available to offset future taxable income and reserves for bad debts.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.
Business Concentrations
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and trade accounts receivable. At
times, balances may be in excess of the FDIC insurance limit.
Substantially all of the Company's sales are to one customer. Essentially
all accounts receivable at December 31, 1998 and 1997 are from this
customer.
F-37
<PAGE>
GLOBAL SOURCING NETWORK, LTD.
Notes to Financial Statements
Year Ended December 31, 1998 and 1997
(In thousands)
3. Property and Equipment
Property and equipment, net of accumulated depreciation as of December 31,
1998 and 1997, consists of the following:
1998 1997
------- -------
Office equipment $19,347 $16,641
Furniture and fixtures 7,496 5,738
------- -------
26,843 22,379
Less: Accumulated depreciation (16,639) (12,218)
------- -------
$10,204 $10,161
======= =======
4. Royalty Fees Payable
The Company has a license agreement with Emerald Rise Trading, Ltd. (ERT),
for technical knowledge and expertise in association with the sourcing,
production and delivery of apparel. The Company pays royalties equal to 3%
of gross sales. Royalty fees, included in general and administrative
expenses, for the years ended December 31, 1998 and 1997, were
approximately $542,000 and $571,000, respectively.
5. Provision For Income Taxes
Income taxes for the years ended December 31, 1998 and 1997 are summarized
as follows:
1998 1997
------- --------
Current:
State and city $ 980 $ 2,681
------- -------
Deferred:
Federal (39,900) (7,400)
State (7,000) (3,300)
------- -------
(46,900) (10,700)
------- -------
$(45,920) $(8,019)
======== =======
The Company has unused net operating loss carryforwards available to
offset against future taxable income of approximately $54,000 at December
31, 1998, which expire from 2010 through 2018.
<PAGE>
The components of the deferred tax asset as of December 31, 1998 and 1997
are as follows:
1998 1997
------- -------
Current deferred tax asset:
Net operating losses $21,600 $ 0
Allowance for bad debts 36,000 0
------- -------
$57,600 $ 0
======= =======
Noncurrent deferred tax asset:
Net operating losses $ 0 $10,700
======= =======
F-38
<PAGE>
GLOBAL SOURCING NETWORK, LTD.
Notes to Financial Statements
Year Ended December 31, 1998 and 1997
(In thousands)
5. Provision For Income Taxes (continued)
The reconciliation of the effective income tax rate is as follows:
1998 1997
------- -------
Federal income tax rate (34) (34)
State taxes, net of federal
income tax benefit (6) (6)
Adjustment to deferred tax rate (6) (0)
------- -------
(46) (40)
======= =======
6. Commitments
The Company leases office space under an agreement accounted for as an
operating lease expiring July 31, 1999. The Company sublet a portion of
its office to a related entity. Rent expense for the years ended December
31, 1998 and 1997, net of sublease income was approximately $22,000 and
$38,000, respectively.
7. Related Parties
Due from Related Party
The Company provides management services and subleases office space to
Global Sourcing International (GSI), which is related through family
attribution. Management fees, sublease income and amounts due to and from
GSI are summarized as follows:
1998 1997
------- -------
Management fees $36,000 $24,000
Sublease income $26,700 $ 4,700
Due from related party $ 0 $55,000
Due from Shareholder
The Company periodically makes advances to its president and sole
shareholder. Approximately $116,000 in advances outstanding at December
31, 1997 has been written off as commission expense in 1998. No interest
has been imputed on outstanding advances.
8. Financial Statement Presentation
Certain amounts in the 1997 financial statements have been reclassified to
conform to the 1998 presentation.
F-39
<PAGE>
[Back Cover Logo]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all estimated expenses incurred or expected
to be incurred by the Registrant in connection with the issuance and
distribution of the securities being registered hereby, other than underwriting
discounts and commissions.
Item Amount
SEC registration fee................................................. $13,900
NASD filing fee...................................................... 5,500
Nasdaq National Market listing fee................................... *
Blue sky fees and expenses........................................... *
Printing and engraving costs......................................... *
Transfer agent fees.................................................. *
Legal fees and expenses.............................................. *
Accounting fees and expenses......................................... *
Miscellaneous........................................................ *
------
Total................................................................ $*
======
*To be filed by amendment.
All amounts are estimated except for the SEC registration fee and the NASD
filing fee.
<PAGE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
We are incorporated under the laws of the State of Delaware. Section 145 of the
General Corporation Law of the State of Delaware ("Section 145") provides that a
Delaware corporation may indemnify any person who is, or is threatened to be
made, a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of such corporation), by reason of the fact that
such person was an officer, director, employee or agent of such corporation, or
is or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, provided such person acted in good faith and in
a manner he reasonably believed to be in or not opposed to the corporation's
best interests and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was illegal. A Delaware corporation
may indemnify any person who is, or is threatened to be made, a party to any
threatened, pending or completed action or suit by or in the right of the
corporation by reason of the fact that such person was a director, officer,
employee or agent of such corporation, or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit, provided such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the corporation's best interests except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director has actually and reasonably incurred.
Our Certificate of Incorporation provides for the indemnification of our
directors and officers to the fullest extent permitted by Section 145. In that
regard, our Certificate of Incorporation provides that we shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director or
officer of such corporation, or is or was serving at the request of such
corporation as a director, officer or member of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed
II-1
<PAGE>
to the best interests of such corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. Indemnification in connection with an action or suit by or in the
right of such corporation to procure a judgment in its favor is limited to
payment of settlement of such an action or suit except that no such
indemnification may be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable for negligence or misconduct
in the performance of his duty to the indemnifying corporation unless and only
to the extent that the Court of Chancery of Delaware or the court in which such
action or suit was brought shall determine that, despite the adjudication of
liability but in consideration of all the circumstances of the case, such person
is fairly and reasonably entitled to indemnity for such expenses which the court
shall deem proper.
In addition, our By-laws provide that we shall indemnify to the full extent
authorized by law any person made or threatened to be made a party to an action,
suit or proceeding, whether criminal, civil, administrative or investigative, by
reason of the fact that he, his testator or intestate is or was our director,
officer, employee or agent or is or was serving, at our request, as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
We have purchased an insurance policy effective upon consummation of the
Offering covering indemnification of directors and officers of the Registrant
against certain liabilities arising under the Securities Act that might be
incurred by them in such capacities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
We have issued the following securities:
<TABLE>
<CAPTION>
PURCHASER NO. DATE CLASS/TYPE PAR VALUE
--------- --- ---- ---------- ---------
<S> <C> <C> <C> <C>
MS Pietrafesa, L.P. 100 Shares September 21, 1998 Class B $.001 per share
Common Stock
Thomas M. Minkstein 2.5 Units January 27, 1999 Partnership Units of not applicable
MSJP, L.P.,
representing an
indirect 2.9%
beneficial interest
in the shares of
Class B Common Stock
owned by MS
Pietrafesa, L.P.
</TABLE>
Each of the issuances cited above were exempt from registration under the
Securities Act pursuant to Section 4(2) of the Securities Act.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
NUMBER DESCRIPTION
- ------ -----------
*1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of Registrant
3.2 By-Laws of Registrant
*4 Form of Common Stock Certificate
*5 Opinion of Roberts, Sheridan & Kotel, a Professional Corporation
10.1 Asset Purchase Agreement, among Registrant, John McCoy and Components
by John McCoy, Inc.
10.2 Asset Purchase Agreement, among Registrant, Jarrod Nadel and
Diversified Apparel Group, Ltd.
10.3 Stock Purchase Agreement, among Registrant, Peter Lister and Global
Sourcing Network, Ltd.
10.4 Credit Agreement dated June 19, 1998, between National Bank of Canada
and MS Pietrafesa, L.P.
10.5 Lease Agreement dated April 28, 1994, between MS Pietrafesa, L.P. and
Onondaga County Industrial Development Agency
10.6 Payment in Lieu of Tax Agreement dated as of October, 1, 1994 between
Onondaga County Industrial Development Agency and MS Pietrafesa, L.P.
10.7 Loan Agreement dated May 19, 1994, with New York State Urban
Development Corporation and MS Pietrafesa, L.P.
10.8 Transfer of Assets and Assignment and Assumption of Contracts and
Leases dated as of October 1, 1998, between MS Pietrafesa, L.P. and The
Pietrafesa Corporation.
*11 Statement regarding computation of per share earnings
21 List of Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP
23.2 Consent of Lawrence B. Goodman & Co., P.A.
23.3 Consent of Pasquale & Bowers, LLP
*23.4 Consent of Roberts, Sheridan & Kotel, a Professional Corporation
(included in its opinion filed as Exhibit 5 hereto)
24 Power of Attorney (included on signature pages hereto)
27 Financial Data Schedule
*To be filed by amendment.
(b) Financial Statement Schedules.
Schedule II--Valuation and Qualifying Accounts
All other schedules have been omitted as they are inapplicable, or the other
information is included in the financial statements.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide the Underwriters
at the Closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
that matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Syracuse, New York
on this 15 day of March, 1999.
THE PIETRAFESA CORPORATION
By: /s/ Richard C. Pietrafesa, Jr.
--------------------------------
Name: Richard C. Pietrafesa, Jr.
Title: Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Richard C. Pietrafesa, Jr. and Thomas A.
Minkstein and each or any of them, as his true and lawful attorney-in-fact and
agent, with full power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments or
post-effective amendments to this Registration Statement, and to file the same,
with all exhibits thereto, which amendments may make such changes in this
Registration Statement as such agent deems appropriate, and to file any new
registration statement (and any post-effective amendment thereto) which
registers additional securities of the same class and for the same offering as
this Registration Statement in accordance with Rule 462(b) under the Securities
Act (each, a "462(b) Registration Statement"), and the Registrant and each such
person hereby appoints each such Agent as attorney-in-fact to execute in the
name and on behalf of the Registrant and each such person, individually and in
each capacity stated below, any such amendments to this registration statement
and any such 462(b) Registration Statements, and other documents in connection
therewith, with the Commission.
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Richard C. Pietrafesa, Jr. President and Chief Executive Officer March 15, 1999
- -------------------------------------------- and Director
Richard C. Pietrafesa, Jr. (Principal Executive Officer)
/s/ Thomas A. Minkstein Chief Operating Officer March 15, 1999
- -------------------------------------------- and Director
Thomas A. Minkstein
/s/ Eugene R. Sunderhaft Vice President - Finance, Chief Financial March 15, 1999
- -------------------------------------------- Officer, Secretary, Treasurer
Eugene R. Sunderhaft (Principal Financial and Accounting Officer)
/s/ Sterling B. Brinkley, Jr. Chairman of the Board March 15, 1999
- --------------------------------------------
Sterling B. Brinkley, Jr.
/s/ Mark C. Pickup Director March 15, 1999
- --------------------------------------------
Mark C. Pickup
/s/ Robert J. Bennett Director March 15, 1999
- --------------------------------------------
Robert J. Bennett
Director March 15, 1999
- --------------------------------------------
David J. Hare
</TABLE>
II-5
<PAGE>
We have audited the Consolidated Financial Statements of Pietrafesa as of
December 31, 1997 and 1998, and for each of the three years in the period ended
December 31, 1998, and have issued our report thereon dated February 12, 1999
(except for Note 13 as to which the date is __, 1999); (included elsewhere
in this Registration Statement). Our audits also included the financial
statement schedule pertaining to Pietrafesa listed in Item 16(b) of this
Registration Statement. This schedule is the responsibility of Pietrafesa's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Syracuse, New York Ernst & Young LLP
The foregoing report is in the form that will be signed upon the completion of
the acquisition, public offering and restatement of capital accounts described
in Note 13 to the financial statements.
/s/ Ernst & Young LLP
---------------------
Syracuse, New York
February 12, 1999
S-1
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
The Pietrafesa Corporation
Years Ended December 31, 1996, 1997 and 1998
(in thousands)
<TABLE>
<CAPTION>
Col. B Col. C Col. E
Col. A Balance at Charged Col. D Balance at
Description Beginning of Year to Expense Deductions End of Year
----------- ----------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996:
Reserve for bad debts.................... $ 474 $ 770 $ 1,057(1) $ 187
Inventory reserve........................ 385 -- -- 385
Year Ended December 31, 1997:
Reserve for bad debts.................... $ 187 $ 22 $ 19(1) $ 190
Inventory reserve........................ 385 -- 100(2) 285
Year Ended December 31, 1998:
Reserve for bad debts.................... $ 190 $ -- $ 5(1) $ 185
Inventory reserve........................ 285 -- -- 285
</TABLE>
- ------------------------
(1) Write-off of accounts receivable.
(2) Reduction of reserve based on analysis of related assets.
S-2
<PAGE>
We have audited the Financial Statements of Components by John McCoy, Inc.
("Components") as of December 31, 1997 and 1998, and for the years then ended,
and have issued our report thereon dated March 4, 1999 (included elsewhere in
this Registration Statement). Our audits also included the financial statement
schedule pertaining to Components listed in Item 16(b) of this Registration
Statement. This schedule is the responsibility of Components management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Lawrence B. Goodman & Co., P.A.
------------------------------------
Certified Public Accountants
Fair Lawn, New Jersey
March 7, 1999
S-3
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
COMPONENTS BY JOHN McCOY, INC.
Years Ended December 31, 1997 and 1998
(in thousands)
<TABLE>
<CAPTION>
Col. B Col. C Col. E
Col. A Balance at Charged Col. D Balance at
Description Beginning of Year to Expense Deductions(1) End of Year
- ----------- ----------------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1997:
Reserve for bad debts.................... $ 62 $ 114 $ 115 $ 61
Year Ended December 31, 1998:
Reserve for bad debts.................... $ 61 $ 254 $ 258 $ 57
</TABLE>
- ----------------
(1) Represents write-offs of account receivables.
S-4
<PAGE>
We have audited the Financial Statements of Global Sourcing Network, Ltd.
("GSN") as of December 31, 1997 and 1998 and for the years then ended, and have
issued our report thereon dated February 2, 1999 (included elsewhere in this
Registration Statement). Our audits also included the financial statement
schedule pertaining to Global listed in Item 16(b) of this Registration
Statement. This schedule is the responsibility of GSN's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Pasquale & Bowers, LLP
----------------------------
Certified Public Accountants
Syracuse, New York
March 11, 1999
S-5
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
GLOBAL SOURCING NETWORK, LTD.
December 31, 1997 and 1998
(in thousands)
<TABLE>
<CAPTION>
Col. B Col. C Col. E
Col. A Balance at Charged Col. D Balance at
Description Beginning of Year to Expense Deductions End of Year
- --------------------------------------------- ------------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1997:
Reserve for bad debts.................... $ 0 $ 102,000 $ (102,000)(1) $ 0
Year Ended December 31, 1998:
Reserve for bad debts.................... $ 0 $ 149,017 $ (59,017)(1) $ 90,000
</TABLE>
- -------------
(1) Represents write-off of accounts receivable.
S-6
<PAGE>
EXHIBIT INDEX
NUMBER DESCRIPTION
-----------
*1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of Registrant
3.2 By-Laws of Registrant
*4 Form of Common Stock Certificate
*5 Opinion of Roberts, Sheridan & Kotel, a Professional Corporation
10.1 Asset Purchase Agreement, among Registrant, John McCoy and Components
by John McCoy, Inc.
10.2 Asset Purchase Agreement, among Registrant, Jarrod Nadel and
Diversified Apparel Group, Ltd.
10.3 Stock Purchase Agreement, among Registrant, Peter Lister and Global
Sourcing Network, Ltd.
10.4 Credit Agreement dated June 19, 1998, between National Bank of Canada
and MS Pietrafesa, L.P.
10.5 Lease Agreement dated April 28, 1994, between MS Pietrafesa, L.P. and
Onondaga County Industrial Development Agency
10.6 Payment in Lieu of Tax Agreement dated as of October, 1, 1994 between
Onondaga County Industrial Development Agency and MS Pietrafesa, L.P.
10.7 Loan Agreement dated May 19, 1994, with New York State Urban
Development Corporation and MS Pietrafesa, L.P.
10.8 Transfer of Assets and Assignment and Assumption of Contracts and
Leases dated as of October 1, 1998, between MS Pietrafesa, L.P. and The
Pietrafesa Corporation.
*11 Statement regarding computation of per share earnings
21 List of Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP
23.2 Consent of Lawrence B. Goodman & Co., P.A.
23.3 Consent of Pasquale & Bowers, LLP
*23.4 Consent of Roberts, Sheridan & Kotel, a Professional Corporation
(included in its opinion filed as Exhibit 5 hereto)
24 Power of Attorney (included on signature pages hereto)
27 Financial Data Schedule
*To be filed by amendment.
(b) Financial Statement Schedules.
Schedule II--Valuation and Qualifying Accounts
All other schedules have been omitted as they are inapplicable, or the other
information is included in the financial statements.
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
THE PIETRAFESA CORPORATION
FIRST: The name of the corporation is The Pietrafesa Corporation
(the "Company").
SECOND: The address of the registered office of the Company in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent of the
Company at such address is The Corporation Trust Company.
THIRD: The nature of the business of the Company and the objects and
purposes to be transacted, promoted or carried on by it are to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: (a) The total number of shares of all classes of stock which
the Company shall have authority to issue is 20,000,000, consisting of 5,000,000
shares of Class A Common Stock, par value $.001 per share (the "Class A Stock"),
10,000,000 shares of Class B Common Stock, par value $.001 per share (the "Class
B Stock," and together with the Class A Stock, the "Common Stock"), and
5,000,000 shares of Preferred Stock, par value $.001 per share (the "Preferred
Stock").
(b) The designations and preferences and relative
participating, optional and other special rights and qualifications, limitations
and restrictions thereof, of each class of stock of the Company which are fixed
by this Certificate of Incorporation, are as follows:
A. Preferred Stock
(1) Upon the affirmative vote or the written consent of the holders of
a majority of the outstanding shares of Class B Stock, shares of
Preferred Stock may be issued from time to time in one or more series,
each such series to have such distinctive designation as shall be
stated and expressed in the resolution or resolutions adopted by the
Board of Directors providing for the initial issuance of shares of such
series, and authority is expressly vested in the Board of Directors, by
such resolution or resolutions providing for the initial issuance of
shares of each series:
(a) To fix the distinctive designation of such series and the
number of shares which shall constitute such series, which
number may be increased or decreased (but not below the number
of shares thereof then outstanding) from time to time by
action of the Board of Directors;
<PAGE>
(b) To fix (i) the dividend rate of such series, (ii) any
limitations, restrictions or conditions on the payment of
dividends, including whether dividends shall be cumulative
and, if so, from which date or dates, (iii) the relative
rights of priority, if any, of payment of dividends on shares
of that series and (iv) the form of dividends, which shall be
payable either (A) in cash only, or (B) in stock only, or (C)
partly in cash and partly in stock, or (D) in stock or, at the
option of the holder, in cash (and in such case to prescribe
the terms and conditions of exercising such option), and to
make provision in case of dividends payable in stock for
adjustment of the dividend rate in such events as the Board of
Directors shall determine;
(c) To fix the price or prices at which, and the terms and
conditions on which, the shares of such series may be redeemed
by the Company;
(d) To fix the amount or amounts payable upon the shares of
such series in the event of any liquidation, dissolution or
winding up of the Company and the relative rights of priority,
if any, of payment upon shares of such series;
(e) To determine whether or not the shares of such series
shall be entitled to the benefit of a sinking fund to be
applied to the purchase or redemption of such series and, if
so entitled, the amount of such fund and the manner of its
application;
(f) To determine whether or not the shares of such series
shall be made convertible into, or exchangeable for, shares of
any other class or classes of stock of the Company or shares
of any other series of Preferred Stock, and, if made so
convertible or exchangeable, the conversion price or prices,
or the rate or rates of exchange, and the adjustments thereof,
if any, at which such conversion or exchange may be made, and
any other terms and conditions of such conversion or exchange;
(g) To determine whether or not the shares of such series
shall have any voting powers and, if voting powers are so
granted, the extent of such voting powers; provided, however,
that (i) so long as any Class B Stock shall be outstanding the
holders of the Class B Stock shall always have the absolute
right under all conditions and circumstances to elect a
majority of the directors; and (ii) if voting powers are so
granted, the holders of shares of Preferred Stock shall be
entitled to vote together with the holders of the Class A
Stock as a class on all matters upon which holders of shares
of Class A Stock are entitled to vote. Subject to the
foregoing and except as otherwise provided by statute, the
holders of shares of Preferred Stock, as such holders, shall
not have any right to vote in the election of directors or for
any other purpose; and such holders shall not be entitled to
notice of any meeting of stockholders at which they are not
entitled to vote;
(h) To determine whether or not the issue of any additional
shares of such series or of any other series in addition to
such series shall be subject to restrictions in addition to
the restrictions, if any, on the issue of additional shares
2
<PAGE>
imposed in the resolution or resolutions fixing the terms of
any outstanding series of Preferred Stock theretofore issued
pursuant to this Section A and, if subject to additional
restrictions, the extent of such additional restrictions; and
(i) Generally to fix the other rights, and any qualifications,
limitations or restrictions of such rights, of such series;
provided, however, that no such rights, qualifications,
limitations or restrictions shall be in conflict with this
Certificate of Incorporation or any amendment hereof.
(2) Before any dividends shall be declared or paid or any distribution
ordered or made upon the Common Stock (other than a dividend payable in
Common Stock), the Company shall comply with the dividend and sinking
fund provisions, if any, of any resolution or resolutions providing for
the issue of any series of Preferred Stock any shares of which shall at
the time be outstanding. Subject to the foregoing sentence, the holders
of Common Stock shall be entitled, to the exclusion of the holders of
Preferred Stock of any and all series, to receive such dividends as
from time to time may be declared by the Board of Directors.
(3) Upon any liquidation, dissolution or winding up of the Company, the
holders of Preferred Stock of each series shall be entitled to receive
the amounts to which such holders are entitled as fixed with respect to
such series, including all dividends accumulated to the date of final
distribution, before any payment or distribution of assets of the
Company shall be made to or set apart for the holders of Common Stock;
and after such payments shall have been made in full to the holders of
Preferred Stock, the holders of Common Stock shall be entitled to
receive any and all assets remaining to be paid or distributed to
stockholders and the holders of Preferred Stock shall not be entitled
to share therein. For the purposes of this paragraph, the voluntary
sale, conveyance, lease, exchange or transfer of all or substantially
all the property or assets of the Company or a consolidation or merger
of the Company with one or more other corporations (whether or not the
Company is the corporation surviving such consolidation or merger)
shall not be deemed to be a liquidation, dissolution or winding up,
voluntary or involuntary.
(4) Subject to such limitations (if any) as may be fixed by the Board
of Directors with respect to such series of Preferred Stock in
accordance with paragraph (1) of this Section A, Preferred Stock of
each series may be redeemed at any time in whole or from time to time
in part, at the option of the Company, by vote of the Board of
Directors, at the redemption price thereof fixed in accordance with
said paragraph (1). If less than all the outstanding shares of
Preferred Stock of such series are to be redeemed, the shares to be
redeemed shall be determined in such manner as the Board of Directors
shall prescribe. At such time or times prior to the date fixed for
redemption as the Board of Directors shall determine, written notice
shall be mailed to each holder of record of shares to be redeemed, in a
postage prepaid envelope addressed to such holder at his address as
shown by the records of the Company, notifying such holder of the
election of the Company to redeem such shares and stating the date
fixed for the redemption thereof and calling upon such holder to
surrender to the Company on or after said date, at a place designated
in such notice, his certificate or certificates representing the number
of shares specified in such notice of redemption. On and after the date
fixed in such notice of redemption, each holder of shares of Preferred
3
<PAGE>
Stock to be redeemed shall present and surrender his certificate or
certificates for such shares to the Company at the place designated in
such notice and thereupon the redemption price of such shares shall be
paid to or on the order of the person whose name appears on the records
of the Company as the holder of the shares designated for redemption.
In case less than all the shares represented by any such certificate
are redeemed a new certificate shall be issued representing the
unredeemed shares. From and after the date fixed in any such notice as
the date of redemption (unless default shall be made by the Company in
payment of the redemption price) all dividends on the shares of
Preferred Stock designated for redemption in such notice shall cease to
accrue and all rights of the holders thereof as stockholders of the
Company, other than to receive the redemption price, shall terminate
and such shares shall not thereafter be transferred (except with the
consent of the Company) on the books of the Company and such shares
shall not be deemed to be outstanding for any purpose whatsoever. At
any time after the mailing of any such notice of redemption the Company
may deposit the redemption price of the shares designated therein for
redemption with a bank or trust company in the Borough of Manhattan,
City and State of New York, or in the City of Atlanta, Georgia, having
capital and surplus of at least $25,000,000, in trust for the benefit
of the respective holders of the shares designated for redemption but
not yet redeemed. From and after the making of such deposit the sole
right of the holders of such shares shall be the right either to
receive the redemption price of such shares on and after such
redemption date, or, in the case of shares having conversion rights,
the right to convert the same at any time at or before the earlier of
the close of business on such redemption date or such prior date and
time at which the right to convert shall have expired; and except for
these rights, the shares of Preferred Stock so designated for
redemption shall not be deemed to be outstanding for any purpose
whatsoever.
(5) Shares of any series of Preferred Stock which have been redeemed
(whether through the operation of a sinking fund or otherwise) or
purchased by the Company, or which, if convertible, have been converted
into shares of stock of the Company of any other class or classes, may,
upon appropriate filing and recording to the extent required by law,
have the status of authorized and unissued shares of Preferred Stock
and may be reissued as a part of such series or of any other series of
Preferred Stock, subject to such limitations (if any) as may be fixed
by the Board of Directors with respect to such series of Preferred
Stock in accordance with paragraph (1) of this Section A.
B. Common Stock
(1) Except as otherwise provided by (a) the Board of Directors in
fixing the voting rights of any series of Preferred Stock in accordance
with Section A of this Article Fourth, (b) this Section B, or (c)
statute, voting power in the election of directors and for all other
purposes shall be vested exclusively in the holders of Class B Stock.
The number of authorized shares of Preferred Stock, Class A Stock,
Class B Stock or any other capital stock of the Company may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote or the written consent of the
4
<PAGE>
holders of a majority of the outstanding shares of Class B Stock. Any
director elected by the holders of Class B Stock (and any successor to
such director) shall be subject to removal without cause and to
replacement from time to time by the affirmative vote or written
consent of the holders of a majority of the outstanding shares of Class
B Stock. Every holder of stock of a class entitled to vote upon a
matter shall be entitled to one vote for each share of stock of such
class standing in his name upon the books of the Company. Except as
otherwise provided by this Section B and by Section C of this Article
Fourth, there shall be no distinction whatever between the rights
accorded to the holders of Class A Stock and Class B Stock.
(2) With regard to the election of directors, holders of Class A Stock
shall be entitled, voting separately as a class, to elect 25 percent of
the directors (rounding the number of such directors to the next
highest whole number if such percentage is not equal to a whole number
of directors) and no less, to remove any director elected by the
holders of Class A Stock (and any successor to such director) and, in
the manner provided in the Bylaws of the Company, to replace any
director so removed. If at any time there shall not be any Class B
Stock outstanding, the provisions of this Certificate of Incorporation
which provide limited and separate voting rights for the holders of the
Class A Stock shall cease to be of any effect, and such holders shall
thereafter have general voting power in the election of directors and
in all other matters upon which stockholders of the Company are
entitled to vote pursuant to this Certificate of Incorporation, the
Bylaws of the Company or statute. The holders of the outstanding shares
of Class A Common Stock will be entitled, however, to vote as a class
upon any proposed amendment to the Certificate of Incorporation which
would increase or decrease the par value of the shares of Class A
Stock, or alter or change the powers, preferences or special rights of
the shares of Class A Stock so as to affect them adversely.
(3) A holder of shares of Class B Stock shall be entitled at any time
and from time to time to convert any or all such shares held by him
into shares of Class A Stock in the ratio of one share of Class A Stock
for one share of Class B Stock. Each conversion of shares of Class B
Stock into shares of Class A Stock made pursuant to the provisions of
this paragraph (3) shall be effected by the surrender of the
certificate representing the shares to be converted at the office of
the Secretary of the Company (or at such additional place or places as
may from time to time be designated by the Secretary or any Assistant
Secretary of the Company) in such form and accompanied by all stock
transfer tax stamps, if any, as shall be requisite for such transfer,
and upon such surrender the holder of such shares shall be entitled to
become, and shall be registered on the books of the Company as, the
holder of the number of shares of Class A Stock issuable upon such
conversion, and each such share of Class B Stock shall be converted
into one share of Class A Stock, as the Class A Stock shall then be
constituted, and thereupon there shall be issued and delivered to such
holder or other named person, as the case may be, promptly at such
office or other designated place, a certificate or certificates for
such number of shares of Class A Stock.
(4) Upon the affirmative vote or the written consent of the holders of
a majority of the outstanding shares of Class B Stock, all or any part
of the entire class of outstanding Class B Stock shall be converted,
effective upon the date specified in such vote or consent, into shares
5
<PAGE>
of Class A Stock in the ratio of one share of Class A Stock for one
share of Class B Stock. Any conversion pursuant to this paragraph (4)
of less than all the outstanding shares of Class B Stock shall be
effected through the conversion of an equal percentage of such shares
held by each holder of Class B Stock (including any holder who shall
not have given his affirmative vote or written consent). Any fractional
share of Class B Stock resulting from the application of such
percentage shall not be eliminated and shall exist as a fractional
share of Class B Stock and the holder thereof shall be entitled to
exercise voting rights, to receive dividends thereon, to participate in
any of the assets of the Company in the event of liquidation and to all
other rights in respect of Class B Stock to the extent of such
fractional share; but any fractional share of Class A Stock shall be
eliminated and in lieu thereof the Company shall issue scrip or pay
cash as provided in paragraph (5) of this Section B. Upon the effective
date of any conversion pursuant to this paragraph (4), certificates
representing the shares of Class B Stock so converted shall thereafter
represent a like number of shares of Class A Stock, and each holder
thereof shall be registered on the books of the Company as the record
holder of such number of shares of Class A Stock. Upon presentation and
surrender of said certificates at the office of the Secretary of the
Company (or at such additional place or places as may from time to time
be designated by the Secretary or any Assistant Secretary of the
Company) the Company shall issue or cause to be issued certificates
representing the whole number of shares of Class A Stock resulting from
such conversion, and shall issue scrip or pay cash in lieu of any
fractional share eliminated upon such conversion, and shall issue or
cause to be issued certificates representing the number of whole shares
and any fractional shares of Class B Stock remaining after such
conversion.
(5) Fractional shares of Class B Stock shall be issued upon and in
connection with any conversion, split-up, merger, consolidation,
reclassification, stock dividend or other change in so far as the same
shall affect Class B Stock. A certificate for a fractional share of
Class B Stock so issued shall entitle the holder to exercise voting
rights, to receive dividends thereon, to participate in any of the
assets of the Company in the event of liquidation and to all other
rights in respect of Class B Stock to the extent of such fractional
share. No fractional share of stock of any other class of the Company
now or hereafter authorized shall be issuable upon or in connection
with any other conversion, split-up, merger, consolidation,
reclassification, stock dividend or change involving stock of such
other class; in lieu of any such fractional share, the person entitled
to an interest in respect of such a fractional share shall be entitled,
as determined from time to time by the Board of Directors, to either
(i) a scrip certificate for such fractional share with such terms and
conditions as the Board of Directors shall prescribe or (ii) the cash
equivalent of any such fractional share based upon the market value of
shares of such class at the date on which rights in respect of any such
fractional share shall accrue, as determined in good faith by the Board
of Directors.
(6) Subject to the prior rights of the holders of the Preferred Stock
contained in this Article Fourth, when and as dividends are declared,
whether payable in cash, in property or in shares of stock of the
Company (except as hereinafter provided in this paragraph (6)), the
holders of Class A Stock and the holders of Class B Stock shall be
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entitled to share equally, share for share, in such dividends. A
dividend payable in shares of Class A Stock to the holders of Class A
Stock and in shares of Class B Stock to the holders of Class B Stock
shall be deemed to be shared equally among both classes. No dividends
shall be declared or paid in shares of Class B Stock except to holders
of Class B Stock, but dividends may be declared and paid, as determined
by the Board of Directors, in shares of Class A Stock to all holders of
Common Stock.
(7) In the event of any liquidation, dissolution or winding up of the
Company, either voluntary or involuntary, after payment shall have been
made to the holders of the Preferred Stock of the full amount to which
they shall be entitled pursuant to paragraph (3) of Section A of this
Article Fourth, the holders of Common Stock shall be entitled, to the
exclusion of the holders of the Preferred Stock of any and all series,
to share, ratably according to the number of shares of Common Stock
held by them, in all remaining assets of the Company available for
distribution to its stockholders.
B. Issuance of Stock; Negation of Preemptive Rights
Without the affirmative vote or written consent of the holders of a
majority of the outstanding shares of Class B Stock, the Company shall
not issue or sell any shares of Class B Stock or any obligation or
security that shall be convertible into, or exchangeable for, or
entitle the holder thereof to subscribe for or purchase, any shares of
Class B Stock. Except as expressly provided in this Section C or as the
Board of Directors in its discretion may by resolution determine, no
holder of stock of the Company of any class shall have any right to
subscribe for or purchase any shares of stock of the Company of any
class now or hereafter authorized or any obligations or securities
which the Company may hereafter issue or sell that shall be convertible
into, or exchangeable for, or entitle the holders thereof to subscribe
for or purchase, any shares of any such class of stock of the Company.
C. Rights or Options
Subject to Section C of this Article Fourth, the Company shall have the
power to create and issue, whether or not in connection with the issue
and sale of any shares of stock or other securities of the Company,
rights or options entitling the holders thereof to purchase from the
Company any shares of its capital stock of any class or classes at the
time authorized, such rights or options to be evidenced by or in such
instrument or instruments as shall be approved by the Board of
Directors. The terms upon which, the time or times, which may be
limited or unlimited in duration, at or within which, and the price or
prices at which any such rights or options may be issued and any such
shares may be purchased from the Company upon the exercise of any such
right or option shall be such as shall be fixed and stated in a
resolution or resolutions adopted by the Board of Directors providing
for the creation and issue of such rights or options and, in every
case, set forth or incorporated by reference in the instrument or
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instruments evidencing such rights or options. In the absence of actual
fraud in the transaction, the judgment of the Board of Directors as to
the consideration for the issuance of such rights or options and the
sufficiency thereof shall be conclusive.
D. Unclaimed Dividends
Any and all right, title, interest and claim in or to any dividends
declared, or other distributions made, by the Company, whether in cash,
stock or otherwise, which are unclaimed by the stockholder entitled
thereto for a period of three years after the close of business on the
payment date, shall be and be deemed to be extinguished and abandoned;
and such unclaimed dividends or other distributions in the possession
of the Company, its transfer agents or other agents or depositaries
shall at such time become the absolute property of the Company, free
and clear of any and all claims of any persons or other entities
whatsoever.
FIFTH: The private property of the stockholders of the Company shall
not be subject to the payment of corporate debts to any extent whatsoever.
SIXTH: Whenever a compromise or arrangement is proposed between the
Company and its creditors or any class of them and/or between the Company and
its stockholders or any class of them, any court of equitable jurisdiction
within the State of Delaware may, on the application in a summary way of the
Company or of any creditor or stockholder of the Company or on the application
of any receiver or receivers appointed for the Company under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Company under the
provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the
creditors or class of creditors and/or of the stockholders or class of
stockholders of the Company, as the case may be, to be summoned in such manner
as the said court directs. If a majority in number representing three-fourths in
value of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of the Company, as the case may be, agree to any
compromise or arrangement and to any reorganization of the Company as a
consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the creditors or
class of creditors, and/or on all the stockholders or class of stockholders, of
the Company, as the case may be, and also on the Company.
SEVENTH: In furtherance and not in limitation of the powers conferred
by the laws of the State of Delaware, the Board of Directors, subject to the
provisions of this Certificate of Incorporation, is expressly authorized and
empowered:
(a) To make, alter, amend or repeal the Bylaws of the Company
in any manner not inconsistent with the laws of the State of Delaware or this
Certificate of Incorporation, subject to the power of the stockholders to amend,
alter or repeal the Bylaws made by the Board of Directors or to limit or
restrict the power of the Board of Directors so to make, alter, amend or repeal
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the Bylaws; provided, however, that so long as any Class B Stock shall remain
outstanding the minimum number of directors shall be the lowest number required
for the holders of Class B Stock to have the absolute power under all conditions
and circumstances to elect a majority of the directors.
(b) Subject to the applicable provisions of the Bylaws, to
determine from time to time, whether and to what extent and at what times and
places and under what conditions and regulations the accounts and books and
documents of the Company, or any of them, shall be open to the inspection of the
stockholders, and no stockholder shall have any right to inspect any account or
book or document of the Company, except as conferred by the laws of the State of
Delaware, unless and until authorized so to do by resolution adopted by the
Board of Directors or the stockholders of the Company entitled to vote in
respect thereof.
(c) Without the assent or vote of the stockholders, to
authorize and issue obligations of the Company, secured or unsecured, to include
therein such provisions as to redeemability, convertibility or otherwise, as the
Board of Directors in its sole discretion may determine, and to authorize the
mortgaging or pledging, as security therefor, of any property of the Company,
real or personal, including after-acquired property.
(d) To fix and determine, and to vary the amount of, the
working capital of the Company; to determine whether any, and if any, what part
of any, accumulated profits shall be declared in dividends and paid to the
stockholders; to determine the time or times for the declaration and payment of
dividends; to direct and to determine the use and disposition of any surplus or
net profits over and above the capital stock paid in; and in its discretion the
Board of Directors may use or apply any such surplus or accumulate profits in
the purchase or acquiring of bonds or other pecuniary obligations of the Company
to such extent, in such manner and upon such terms as the Board of Directors may
deem expedient.
(e) To sell, lease or otherwise dispose of, from time to time,
any part or parts of the properties of the Company and to cease to conduct the
business connected therewith or again to resume the same, as it may deem best.
In addition to the powers and authorities hereinbefore or by statute expressly
conferred upon it, the Board of Directors may exercise all such powers and do
all such acts and things as may be exercised or done by the Company, subject,
nevertheless, to the provisions of the laws of the State of Delaware, of this
Certificate of Incorporation and of the Bylaws of the Company.
EIGHTH: No contract or transaction between the Company and one or more
of its directors or officers, or between the Company and any other corporation,
partnership, association or other organization in which one or more of its
directors or officers are directors or officers or have a financial interest,
shall be void or voidable solely for such reason, or solely because such
director or officer is present at or participates in the meeting of the Board of
Directors or committee thereof which authorizes such contract or transaction, or
solely because such director is counted in determining the presence of a quorum
at such meeting and votes upon the authorization of such contract or
transaction, if (a) the material facts as to such director's or officer's
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or the committee in good faith authorizes the contract or transaction by the
affirmative vote of a majority of the disinterested members thereof, even though
such disinterested members be less than a quorum, or (b) the material facts as
to such director's or officer's relationship or interest and as to the contract
or transaction are disclosed or are known to the stockholders entitled to vote
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thereon, and the contract or transaction is specifically approved in good faith
by such stockholders, or (c) the contract or transaction is fair as to the
Company as of the time it is authorized, approved or ratified by the Board of
Directors, a committee thereof, or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
NINTH: Limitation of Liability; Indemnification
A. Limitation of Directors' Liability
To the fullest extent that the General Corporation Law of the
State of Delaware, as it exists on the date hereof or as it may
hereafter be amended, permits the limitation or elimination of the
liability of directors, no director of the Company shall be liable to
the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director. No amendment to or repeal of this Section
A of this Article shall apply to or have any effect on the liability or
alleged liability of any director of the Company for or with respect to
any acts or omissions of such director occurring prior to such
amendment or repeal.
B. Indemnification
1. Right to Indemnification. The Company shall to the fullest
extent permitted by applicable law as then in effect indemnify any
person (the "Indemnitee") who was or is involved in any manner
(including, without limitation, as a party or witness) or is threatened
to be made so involved in any threatened, pending or completed
investigation, claim, action, suit or proceeding, whether civil,
criminal, administrative or investigative (including, without
limitation, any action, suit or proceeding by or in the right of the
Company to procure a judgment in its favor) (a "Proceeding") by reason
of the fact that he is or was a director or officer of the Company, or
is or was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise (including, without limitation, any employee
benefit plan) against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such Proceeding. Such
indemnification shall be a contract right and shall include the right
to receive payment in advance of any expenses incurred by the
Indemnitee in connection with such Proceeding, consistent with the
provisions of applicable law as then in effect.
2. Insurance, Contracts and Funding. The Company may purchase
and maintain insurance to protect itself and any Indemnitee against any
expenses, judgments, fines and amounts paid in settlement as specified
in Section B-1 of this Article or incurred by any Indemnitee in
connection with any Proceeding referred to in Section B-1 of this
Article, to the fullest extent permitted by applicable law as then in
effect. The Company may enter into contracts with any director or
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officer of the Company in furtherance of the provisions of this Article
and may create a trust fund, grant a security interest or use other
means (including, without limitation, a letter of credit) to ensure the
payment of such amounts as may be necessary to effect indemnification
as provided in this Article.
3. Indemnification Not Exclusive Right. The right of
indemnification provided in this Article shall not be exclusive of any
other rights to which those seeking indemnification may otherwise be
entitled, and the provisions of this Article shall inure to the benefit
of the heirs and legal representatives of any person entitled to
indemnity under this Article and shall be applicable to proceedings
commenced or continuing after the adoption of this Article, whether
arising from acts or omissions occurring before or after such adoption.
4. Advancement of Expenses; Procedures; Presumptions and
Effects of Certain Proceedings; Remedies. In furtherance but not in
limitation of the foregoing provisions, the following procedures,
presumptions and remedies shall apply with respect to the advancement
of expenses and the right to indemnification under this Article:
(a) Advancement of Expenses. All reasonable expenses incurred
by or on behalf of an Indemnitee in connection with any
Proceeding shall be advanced to the Indemnitee by the Company
within 20 days after the receipt by the Company of a statement
or statements from the Indemnitee requesting such advance or
advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements
shall reasonably evidence the expenses incurred by the
Indemnitee and, if required by law at the time of such
advance, shall include or be accompanied by an undertaking by
or on behalf of the Indemnitee to repay the amounts advanced
if it should ultimately be determined that the Indemnitee is
not entitled to be indemnified against such expenses pursuant
to this Article.
(b) Procedure for Determination of Entitlement to
Indemnification. (i) To obtain indemnification under this
Article, an Indemnitee shall submit to the Secretary of the
Company a written request, including such documentation as is
reasonably available to the Indemnitee and reasonably
necessary to determine whether and to what extent the
Indemnitee is entitled to indemnification (the "Supporting
Documentation"). The determination of the Indemnitee's
entitlement to indemnification shall be made not later than 60
days after receipt by the Company of the written request for
indemnification together with the Supporting Documentation.
The Secretary of the Company shall, promptly upon receipt of
such a request for indemnification, advise the Board of
Directors in writing that the Indemnitee has requested
indemnification.
(ii) The Indemnitee's entitlement to indemnification under
this Article shall be determined in one of the
following ways: (A) by a majority vote of the
Disinterested Directors (as hereinafter defined), if
they constitute a quorum of the Board of Directors;
(B) by a written opinion of Independent Counsel (as
hereinafter defined) if a quorum of the Board of
Directors consisting of Disinterested Directors is
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not obtainable or, even if obtainable, a majority of
such Disinterested Directors so directs; (C) by the
stockholders of the Company entitled to vote; or (D)
as provided in Section B-4(c) of this Article.
(iii) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel
pursuant to Section B-4(b)(ii) of this Article, a
majority of the Disinterested Directors shall select
the Independent Counsel, but only an Independent
Counsel to which the Indemnitee does not reasonably
object.
(c) Presumptions and Effect of Certain Proceedings. Except as
otherwise expressly provided in this Article, the Indemnitee
shall be presumed to be entitled to indemnification under this
Article upon submission of a request for indemnification
together with the Supporting Documentation in accordance with
Section B-4(b)(i), and thereafter the Company shall have the
burden of proof to overcome that presumption in reaching a
contrary determination. In any event, if the person or persons
empowered under Section B-4(b) of this Article to determine
entitlement to indemnification shall not have been appointed
or shall not have made a determination within 60 days after
the receipt by the Company of the request therefor together
with the Supporting Documentation, the Indemnitee shall be
entitled to indemnification unless (A) the Indemnitee
misrepresented or failed to disclose a material fact in making
the request for indemnification or in the Supporting
Documentation or (B) such indemnification is prohibited by
law. The termination of any Proceeding described in Section
B-1, or of any claim, issue or matter therein, by judgment,
order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, adversely
affect the right of the Indemnitee to indemnification or
create a presumption that the Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Company or, with
respect to any criminal Proceeding, that the Indemnitee had
reasonable cause to believe that his conduct was unlawful.
(d) Remedies of Indemnitee. (i) In the event that a
determination is made pursuant to Section B-4(b) of this
Article that the Indemnitee is not entitled to indemnification
under this Article, (A) the Indemnitee shall be entitled to
seek an adjudication of his entitlement to such
indemnification either, at the Indemnitee's sole option, in
(x) an appropriate court of the State of Delaware or any other
court of competent jurisdiction or (y) an arbitration to be
conducted by a single arbitrator pursuant to the rules of the
American Arbitration Association; (B) any such judicial
proceeding or arbitration shall be de novo and the Indemnitee
shall not be prejudiced by reason of such adverse
determination; and (C) in any such judicial proceeding or
arbitration the Company shall have the burden of proving that
the Indemnitee is not entitled to indemnification under this
Article.
(ii) If a determination shall have been made or deemed to
have been made, pursuant to Section B-4(b) or (c),
that the Indemnitee is entitled to indemnification,
the Company shall be obligated to pay the amounts
constituting such indemnification within five days
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after such determination has been made or deemed to
have been made and shall be conclusively bound by
such determination unless (A) the Indemnitee
misrepresented or failed to disclose a material fact
in making the request for indemnification or in the
Supporting Documentation or (B) such indemnification
is prohibited by law. In the event that (C)
advancement of expenses is not timely made pursuant
to Section B-4(a) or (D) payment of indemnification
is not made within five days after a determination of
entitlement to indemnification has been made or
deemed to have been made pursuant to Section B-4(b)
or (c), the Indemnitee shall be entitled to seek
judicial enforcement of the Company's obligation to
pay to the Indemnitee such advancement of expenses or
indemnification. Notwithstanding the foregoing, the
Company may bring an action, in an appropriate court
of the State of Delaware or any other court of
competent jurisdiction, contesting the right of the
Indemnitee to receive indemnification hereunder due
to the occurrence of an event described in subclause
(A) or (B) of this clause (ii) (a "Disqualifying
Event"); provided, however, that in any such action
the Company shall have the burden of proving the
occurrence of such Disqualifying Event.
(iii) The Company shall be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant
to this Section B-4(d) that the procedures and
presumptions of this Article are not valid, binding
and enforceable and shall stipulate in any such court
or before any such arbitrator that the Company is
bound by all the provisions of this Article.
(iv) In the event that the Indemnitee, pursuant to this
Section B-4(d), seeks a judicial adjudication of or
an award in arbitration to enforce his rights under,
or to recover damages for breach of, this Article,
the Indemnitee shall be entitled to recover from the
Company, and shall be indemnified by the Company
against, any expenses actually and reasonably
incurred by him if the Indemnitee prevails in such
judicial adjudication. If it shall be determined in
such judicial adjudication or arbitration that the
Indemnitee is entitled to receive part but not all of
the indemnification or advancement of expenses
sought, the expenses incurred by the Indemnitee in
connection with such judicial adjudication or
arbitration shall be prorated accordingly.
(e) Definitions. For purposes of this Section B-4:
(i) "Disinterested Director" means a director of the
Company who is not or was not a party to the
Proceeding in respect of which indemnification is
sought by the Indemnitee.
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(ii) "Independent Counsel" means a law firm or a member of
a law firm that neither presently is, nor in the past
five years has been, retained to represent (A) the
Company or the Indemnitee in any matter material to
either such party or (B) any other party to the
Proceeding giving rise to a claim for indemnification
under this Article. Notwithstanding the foregoing,
the term "Independent Counsel" shall not include any
person who, under the applicable standards of
professional conduct then prevailing under the law of
the State of Delaware, would have a conflict of
interest in representing either the Company or the
Indemnitee in an action to determine the Indemnitee's
rights under this Article.
(5) Severability. If any provisions of this Article shall be held to be
invalid, illegal or unenforceable for any reason whatsoever: (a) the
validity, legality and enforceability of the remaining provisions of
this Article (including, without limitation, all portions of any
paragraph of this Article containing any such provision held to be
invalid, illegal or unenforceable that are not themselves invalid,
illegal or unenforceable) shall not in any way be affected or impaired
thereby; and (b) to the fullest extent possible, the provisions of this
Article (including, without limitation, all portions of any paragraph
of this Article containing any such provision held to be invalid,
illegal or unenforceable that are not themselves invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable.
TENTH: To the extent deemed necessary or appropriate by the Board of
Directors to enable the Company to engage in any business or activity directly
or indirectly conducted by it in compliance with the laws of the United States
of America as now in effect or as they may hereafter from time to time be
amended, the Company may adopt such Bylaws as may be necessary or advisable to
comply with the provisions and avoid the prohibitions of any such law.
ELEVENTH: Elections of directors need not be by written ballot unless
the Bylaws of the Company shall so provide.
TWELFTH: The Company reserves the right at any time and from time to
time to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation in the manner now or hereafter prescribed by law,
and all rights, preferences and privileges of whatsoever nature conferred upon
stockholders, directors, or any other persons whomsoever by and pursuant to this
Certificate of Incorporation in its present form or as hereinafter amended are
granted subject to the right reserved in this Article Twelfth.
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The name and mailing address of the Incorporator is Eli Curi,
Jr., 12 East 49th Street, 30th Floor, New York, NY 10017.
IN WITNESS WHEREOF, the undersigned being the sole
incorporator executes, signs and acknowledges this Certificate of Incorporation,
this 21st day of September, 1998 and affirms the statements contained herein as
true under penalty of perjury.
/s/
-----------------------------------
Eli Curi, Jr.
Sole Incorporator
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EXHIBIT 3.2
BY-LAWS
OF
THE PIETRAFESA CORPORATION
(a Delaware Corporation)
(adopted September 30, 1998)
ARTICLE I
Offices
SECTION 1. Registered Office. The registered office of the
Corporation in the State of Delaware shall be at such place in the State of
Delaware as shall be designated by the Board of Directors (hereinafter called
the "Board").
SECTION 2. Principal Office. The principal office for the
transaction of the business of the Corporation shall be at such location, within
or without the State of Delaware, as shall be designated by the Board.
SECTION 3. Other Offices. The Corporation may also have
offices at other places, either within or without the State of Delaware, as the
Board of Directors may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
Meetings of Stockholders
SECTION 1. Annual Meetings. The annual meeting of the
stockholders for the election of directors and for the transaction of such other
business as may properly come before the meeting shall be held at such time,
date and place as shall be designated in the notice thereof, except that no
annual meeting need be held if all actions, including the election of directors,
required by the General Corporation Law of Delaware to be taken at a
stockholders' annual meeting are taken by written consent in lieu of a meeting
pursuant to Section 9 of this Article II.
SECTION 2. Special Meetings. Special meetings of the
stockholders, for any purpose or purposes (unless otherwise prescribed by law),
may be called at any time by the Board or the Chairman of the Board or the Chief
<PAGE>
Executive Officer or the President, or by a committee of the Board which has
been duly designated by the Board and whose powers and authority as provided in
a resolution of the Board or in the bylaws, include the power to call such
meetings.
SECTION 3. Notice of Meetings. Except as otherwise expressly
required by law, notice of each meeting of the stockholders shall be given not
less than 10 or more than 60 calendar days before the date of the meeting to
each stockholder entitled to vote at such meeting by mailing such notice first
class, postage prepaid, directed to each stockholder at the address of such
stockholder as it appears on the records of the Corporation.
Every such notice shall state the place, date and hour of the
meeting and, in the case of a special meeting, the purpose or purposes for which
the meeting is called. Except as provided in the immediately succeeding sentence
or as otherwise expressly required by law, notice of any adjourned meeting of
the stockholders need not be given if the time and place thereof are announced
at the meeting at which the adjournment is taken. If the adjournment is for more
than 30 calendar days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder entitled to vote at such adjourned meeting.
A written waiver of notice, signed by a stockholder entitled
to notice, whether signed before, at or after the time set for a given meeting,
shall be deemed to satisfy the notice requirements set forth in the preceding
paragraph for such stockholder with respect to such meeting. Attendance of a
stockholder in person or by proxy at a stockholders' meeting shall constitute
the equivalent of a written waiver of notice by such stockholder for such
meeting, except when such stockholder attends the meeting for the express
purpose of objecting at the beginning of the meeting to the transaction of any
business because the meeting is not lawfully called or convened.
Whenever notice is required to be given to any stockholder to
whom notice of two consecutive annual meetings, and all notices of meetings or
of the taking of action by written consent without a meeting to such person
during the period between such two, payments (if sent by first class mail) of
dividends or interest on securities during a twelve month period, have been
mailed addressed to such person at his address as shown on the records of the
corporation and have been returned undeliverable, the giving of such notice to
such person shall not be required. Any action or meeting which shall have been
taken or held without notice had been taken or held without notice to such
person shall the same force and effect as if such notice had been duly given. If
any such person shall deliver to the corporation, a written notice setting forth
his then current address, the requirement that notice be given to such person
shall be reinstated.
No notice need be given to any person with whom communication
is unlawful, nor shall there be any duty to apply for any permit or license to
give notice to any such person.
SECTION 4. List of Stockholders. It shall be the duty of the
Secretary or other officer of the Corporation who shall have charge of its stock
ledger to prepare and make, at least 10 calendar days before every meeting of
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the stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 calendar days prior to the meeting either at a place specified in the notice
of the meeting within the city where the meeting is to be held, or, if not so
specified, at the place where the meeting is to be held. Such list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
SECTION 5. Quorum. At each meeting of the stockholders, except
as otherwise expressly required by law, stockholders holding a majority of the
shares of stock of the Corporation issued, outstanding and entitled to be voted
at the meeting shall be present in person or by proxy in order to constitute a
quorum for the transaction of business. In the absence of a quorum at any such
meeting or any adjournment or adjournments thereof, a majority in voting
interest of those present in person or by proxy and entitled to vote thereat,
or, in the absence therefrom of all the stockholders, any officer entitled to
preside at, or to act as secretary of, such meeting may adjourn such meeting
from time to time until stockholders holding the amount of stock requisite for a
quorum shall be present in person or by proxy. At any such adjourned meeting at
which a quorum may be present, any business may be transacted that might have
been transacted at the meeting as originally called.
SECTION 6. Organization. At each meeting of the stockholders,
one of the following shall act as chairman of the meeting and preside thereat,
in the following order of precedence:
(a) the Chairman of the Board;
(b) if there is no Chairman of the Board or if the Chairman of
the Board shall be absent from such meeting, the President;
(c) if the Chairman of the Board and the President shall be
absent from such meeting, any other officer or director of the
Corporation designated by the Board or the Executive Committee to act
as chairman of such meeting and to preside thereat; or
(d) a stockholder of record of the Corporation who shall be
chosen chairman of such meeting by a majority in voting interest of the
stockholders present in person or by proxy and entitled to vote
thereat.
The Secretary or, if the Secretary shall be presiding over the meeting in
accordance with the provisions of this Section or if he or she shall be absent
from such meeting, the person (who shall be an Assistant Secretary, if an
Assistant Secretary shall be present thereat) whom the chairman of such meeting
shall appoint, shall act as secretary of such meeting and keep the minutes
thereof.
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SECTION 7. Order of Business. The order of business at each
meeting of the stockholders shall be determined by the chairman of such meeting,
but such order of business may be changed by a majority in voting interest of
those present or by proxy at such meeting and entitled to vote thereat.
SECTION 8. Voting. Each holder of voting stock of the
Corporation shall, at each meeting of the stockholders, be entitled to one vote
in person or by proxy for each share of stock of the Corporation held by him or
her and registered in his or her name on the books of the Corporation
(a) on the date fixed pursuant to the provisions of Section 4
of Article VIII of these By-laws as the record date for the
determination of stockholders who shall be entitled to receive
notice of and to vote at such meeting.
(b) if no record date shall have been so fixed, then at the
close of business on the day next preceding the day on which
notice of the meeting shall be given or, if notice shall be
waived, at the close of business on the day next preceding the
day on which the meeting shall be held.
(c) Any such voting rights may be exercised by the stockholder
entitled thereto in person or by his proxy appointed by an
instrument in writing, subscribed by such stockholder or by
his attorney thereunto authorized and delivered to the
secretary of the meeting; provided, however, that no proxy
shall be voted or acted upon after three years from its date
unless said proxy shall provide for a longer period. The
attendance at any meeting of a stockholder who may theretofore
have given a proxy shall not have the effect of revoking the
same unless he shall in writing so notify the secretary of the
meeting prior to the voting of they proxy. At any meeting of
the stockholders all matters, except as otherwise provided in
the Certificate of Incorporation, in these By-Laws or by law,
shall be decided by the vote of a majority in voting interest
of the stockholders present in person or by proxy and entitled
to vote thereat and thereon. The stockholders present at a
duly called or held meeting at which a quorum is present may
continue to do business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
The vote at any meeting of the stockholders on any question
need not be by ballot, unless so directed by the chairman of
the meeting. On a vote by ballot, each ballot shall be signed
by the stockholder voting, or by his proxy if there be such
proxy, and it shall state the number of shares voted.
Shares of its own stock belonging to the Corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation is held by the Corporation,
shall neither be entitled to vote nor be counted for quorum purposes. Any vote
of stock of the Corporation may be given at any meeting of the stockholders by
the stockholders entitled to vote thereon either in person or by proxy appointed
by an instrument in writing delivered to the Secretary or an Assistant Secretary
of the Corporation or the secretary of the meeting. The attendance at any
meeting of a stockholder who may previously have given a proxy shall not have
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the effect of revoking the same unless he shall in writing so notify the
secretary of the meeting prior to the voting of the proxy. At all meetings of
the stockholders, all matters, except as otherwise provided by law or in these
By-laws, shall be decided by the vote of a majority of the votes cast by
stockholders present in person or by proxy and entitled to vote thereat, a
quorum being present. Except as otherwise expressly required by law, the vote at
any meeting of the stockholders on any question need not be by ballot, unless so
directed by the chairman of the meeting. On a vote by ballot, each ballot shall
be signed by the stockholder voting, or by his proxy, if there be such proxy,
and shall state the number of shares voted. Persons holding stock of the
Corporation in a fiduciary capacity shall be entitled to vote such stock.
Persons whose stock is pledged shall be entitled to vote, unless in the transfer
by the pledgor on the books of the corporation he shall have expressly empowered
the pledgee to vote thereon, in which case only the pledgee, or his proxy, may
represent such stock and vote thereon. Stock having voting power standing of
record in the names of two or more persons, whether fiduciaries, members of a
partnership, joint tenants, tenants in common, tenants by the entirety or
otherwise, or with respect to which two or more persons have the same fiduciary
relationship, shall be voted in accordance with the provisions of the General
Corporation Law of Delaware.
SECTION 9. Action by Written Consent. Except as otherwise
provided by law or by the Certificate of Incorporation, any action required or
permitted to be taken at any annual or special meeting of the stockholders may
be taken without a meeting, without prior notice and without a vote if a consent
or consents in writing, setting forth the action so taken, shall be signed by
the holders of all of the outstanding stock of the Corporation having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares of stock of the Corporation
entitled to vote thereon were present and voted, provided that prompt notice (in
the manner provided in Section 3 of this Article II) of the taking of the action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
Board of Directors
SECTION 1. General Powers. The property business and affairs
of the Corporation shall be managed by or under the direction of the Board of
Directors which may exercise all of the powers of the Corporation, except such
powers as are, by the Certificate of Incorporation, by these Bylaws or by law,
conferred upon or reserved to the stockholders.
SECTION 2. Number and Term of Office. The Board shall
initially consist of three members and may be increased or decreased from time
to time hereafter by resolution adopted by a majority of the whole Board. Each
of the directors of the Corporation shall hold office until his or her term
expires and until his or her successor is elected and qualified or until his or
her earlier death or until his or her earlier resignation or removal in the
manner hereinafter provided.
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SECTION 3. Election. At each meeting of the stockholders for
the election of directors at which a quorum is present, the person or persons
receiving the greatest number of votes, up to the number of directors to be
elected, shall be the directors.
SECTION 4. Resignation, Removal and Vacancies. Any director of
the Corporation may resign at any time by giving written notice of his or her
resignation to the Board, the President or the Secretary of the Corporation. Any
such resignation shall take effect after the giving of such notice at the time
specified therein, or, if the time when it shall become effective shall not be
specified therein, when accepted by action of the Board. Except as aforesaid,
the acceptance of such resignation shall not be necessary to make it effective.
A director may be removed, either with or without cause, at
any time by the written action of holders of not less than a majority in voting
interest of the stockholders or by the vote of stockholders at a meeting of
stockholders of the Corporation duly held.
Any vacancy occurring on the Board for any reason may be
filled by a majority of the directors then in office, though less than a quorum,
or by a sole remaining director. The director elected to fill such vacancy shall
hold office until his successor shall have been elected and shall qualify or
until he shall resign or shall have been removed. No reduction of the authorized
number of directors shall have the effect of removing any director prior to the
expiration of his term of office.
SECTION 5. Meetings. (a) Annual Meetings. As soon as
practicable after each annual election of directors, the Board shall meet for
the purpose of organization and the transaction of other business.
(b) Regular Meetings. Regular meetings of the Board shall be
held at such times and places as the Board shall from time to time by resolution
determine. If any day fixed for a meeting shall be a legal holiday at the place
where the meeting is to be held, then the meeting shall be held at the same hour
and place on the next succeeding business day which is not a legal holiday.
Except as provided by law, notice of regular meetings need not be given.
(c) Special Meetings. Special meetings of the Board shall be
held whenever called by the Chairman of the Board, the President or a majority
of the directors then in office. Any and all business may be transacted at a
special meeting that may be transacted at a regular meeting of the Board.
(d) Place of Meeting. The Board may hold its meetings at such
place or places within or without the State of Delaware as the Board may from
time to time by resolution determine or as shall be designated in the respective
notices or waivers of notice thereof.
(e) Notice of Meetings. Notices of regular meetings of the
Board or of any adjourned meeting need not be given.
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Notices of special meetings of the Board, or of any meeting of
any committee of the Board that has not been fixed in advance as to time and
place by such committee, shall be mailed by the Secretary or an Assistant
Secretary to each director or member of such committee, addressed to him at his
residence or usual place of business, so as to be received at least two calendar
days before the day on which such meeting is to be held, or shall be sent to him
by telegraph, cable or other form of recorded communication or be delivered
personally or by telephone not later than one calendar day before the day on
which such meeting is to be held. Such notice shall include the time and place
of such meeting. However, notice of any such meeting need not be given to any
director or member of any committee if such notice is waived by him in writing
or by telegraph, cable or other form of recorded communication, whether before,
at or after the time at which such meeting is held, or if he or she shall be
present at such meeting.
(f) Quorum and Action. Except as otherwise provided in these
By-laws or by law, a majority of the authorized number of directors shall be
present in person at any meeting of the Board in order to constitute a quorum
for the transaction of business at such meeting. In each case the vote of a
majority of those directors present at any such meeting at which a quorum is
present shall be necessary for the passage of any resolution or any act of the
Board, except as otherwise expressly required by law or these By-laws. Notice of
any adjourned meeting need not be given. The directors shall act only as a
Board, and the individual directors shall have no power as such.
(g) Action by Communication Equipment. The directors, or the
members of any committee of the Board, may participate in a meeting of the
Board, or of such committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence in
person at such meeting.
(h) Action by Consent. Any action required or permitted to be
taken at any meeting of the Board, or of any committee thereof, may be taken
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing and such writing is filed with the minutes of the
proceedings of the Board or such committee. Such action by written consent shall
have the same force and effect as the unanimous vote of such directors.
(i) Organization. At each meeting of the Board, one of the
following shall act as chairman of the meeting and preside thereat, in the
following order of precedence: (a) the Chairman of the Board; (b) the President;
or (c) any director chosen by a majority of the directors present thereat. The
Secretary or, in case of his or her absence, any person (who shall be an
Assistant Secretary, if an Assistant Secretary shall be present thereat) whom
the chairman shall appoint, shall act as secretary of such meeting and keep the
minutes thereof.
SECTION 6. Compensation. Directors, as such, shall not receive
any stated salary for their services, but by resolution of the Board may receive
a fixed sum and expenses incurred in performing the functions of director and
member of any committee of the Board. Nothing herein contained shall be
construed so as to preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor.
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ARTICLE IV
Committees
(a) The Board may, by resolution passed by a majority of the
whole Board, designate one or more committees, each such committee to consist of
two or more of the directors of the Corporation. The Board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of the committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in place of any such absent or disqualified
member. Any such committee, to the extent permitted by law and provided in the
resolution of the Board, shall have and may exercise all the powers and
authority of the Board in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it. Each committee shall keep minutes of its
proceedings and shall report such minutes to the Board when required. All such
proceedings shall be subject to revision or alteration by the Board; provided,
however, that third parties shall not be prejudiced by such revision or
alteration.
(b) Unless the Board otherwise provides, each committee
designated by the Board may make, alter and repeal rules for conducting its
business. In the absence of such rules each committee shall conduct its business
in the same manner as the Board conducts its business pursuant to these Bylaws.
ARTICLE V
Officers
SECTION 1. Election, Appointment and Term of Office. The
officers of the Corporation shall include a Chairman of the Board, a Chief
Executive Officer, a President, such number of Vice Presidents as the Board may
determine from time to time, a Secretary and a Treasurer. The Corporation may
also have at the discretion of the Board a Chairman of the Boards Vice
Presidents, a Corporate General Counsel and one or more Associate or Assistant
Corporate General Counsels, a Treasurer, Assistant Treasurers, a Controller,
Assistant Controllers and Assistant Secretaries. Officers shall be elected or
appointed as required from time to time by the Board or any Committee appointed
by the Board's and each such officer shall hold office until his or her
successor is elected or until his or her earlier death or until his or her
earlier resignation or removal in the manner hereinafter provided. Each such
officer shall have such authority and shall perform such duties as may be
provided herein or as the Board or any Committee appointed by the Board may
prescribe. Any two or more offices may be held by the same person except for the
office of President and Secretary. Officers need not be stockholders of the
Corporation or citizens or residents of the United States of America.
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SECTION 2. Resignation, Removal and Vacancies. Any officer may
resign at any time by giving written notice to the President or the Secretary of
the Corporation, and such resignation shall take effect after the giving of such
notice at the time specified therein or, if the time when it shall become
effective shall not be specified therein, when accepted by action of the Board
or any Committee appointed by the Board. Except as aforesaid, the acceptance of
such resignation shall not be necessary to make it effective.
All officers and agents elected or appointed by the Board or
any Committee appointed by the Board shall be subject to removal at any time by
the Board or any Committee appointed by the Board, as the case may be, with or
without cause.
A vacancy in any office may be filled for the unexpired
portion of the term in the same manner as provided for election or appointment
to such office.
SECTION 3. Duties and Functions. (a) Chairman of the Board.
The Chairman of the Board, if any, shall be a member of the Board and shall
preside at all meetings of the Board and of the stockholders at which he or she
shall be present, and shall perform such other duties and exercise such powers
as may from time to time be prescribed by the Board or any Committee appointed
by the Board.
(b) President. The President, subject to the control of the
Board, shall perform such duties and exercise such powers as are incident to the
office of the president and chief operating officer of the Corporation, and
shall perform such other duties and exercise such other powers as may from time
to time be prescribed by the Board or any Committee appointed by the Board. The
President shall perform the duties of the Chairman of the Board in the absence
of the Chairman of the Board.
(c) Vice President. The Vice President(s), if any, shall
exercise and perform such powers and duties with respect to the administration
of the business and affairs of the Corporation as from time to time may be
assigned to each of them by the President, by the Chairman of the Board, if any,
by the Board or as is prescribed by the Bylaws. In the absence or disability of
the President, the Vice Presidents, in order of their rank as fixed by the
Board, or if not ranked, the Vice President designated by the Board, shall
perform all of the duties of the President and when so acting shall have all of
the powers of and be subject to all the restrictions upon the President.
(d) Treasurer. The Treasurer, if any, shall have charge and
custody of, and be responsible for, all funds and securities of the Corporation
and shall deposit all such funds to the credit of the Corporation in such banks,
trust companies or other depositaries as shall be selected in accordance with
the provisions of these By-laws; he or she shall disburse the funds of the
Corporation as may be ordered by the Board or any Committee appointed by the
Board, making proper vouchers for such disbursements; and, in general, he or she
shall perform all the duties incident to the office of Treasurer and such other
duties as from time to time may be assigned to him or her by the Board, any
Committee or the President. The duties of the Treasurer may be performed by one
or more assistants, to be the Board or any Committee of the Board.
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(e) Secretary. The Secretary shall keep or cause to be kept,
the records of all meetings of the stockholders and of the Board and committees
of the Board. He or she shall affix the seal of the Corporation to all
instruments requiring the corporate seal when the same shall have been signed on
behalf of the Corporation by a duly authorized officer. The Secretary shall be
the custodian of all contracts, deeds, documents and all other indicia of title
to properties owned by the Corporation and of its other corporate records and in
general shall perform all duties and have all powers incident to the office of
Secretary and shall perform such other duties and exercise such other powers as
may from time to time be prescribed by the Board or any Committee of the Board.
The duties of the Secretary may be performed by one or more assistants, to be
appointed by the Board or any Committee appointed by the Board.
(f) Corporate General Counsel. The Corporate General Counsel,
if any, shall have supervision of such legal matters concerning the Corporation
and shall perform such duties as from time to time may be assigned to him or her
by the Board, any Committee appointed by the Board, the President or the
Secretary.
(g) Chief Executive Officer/Chief Operating Officer/Office of
the Chief Executive. In the event the Board of Directors elects a Chief
Executive Officer and/or a Chief Operating Officer, or establishes an Office of
the Chief Executive, the person or persons so elected or the members of such
office shall individually or jointly, as the case may be, have general and
active management of the property, business and affairs of the Corporation,
subject to the supervision and control of the Board. The Chief Executive
Officer, the Chief Operating Officer, or members of the Office of the Chief
Executive, as the case may be, also shall have such powers and perform such
other duties as prescribed from time to time by the Board of Directors.
(h) Assistant Secretaries. Except as may be otherwise provided
in these By-Laws, Assistant Secretaries, if there be any, shall perform such
duties and have such powers as from time to time may be assigned to them by the
Board of Directors, the President, any Vice President, if there be one, or the
Secretary, and in the absence of the Secretary, and when so acting, shall have
all the powers of and by subject to all the restrictions upon the Secretary.
(i) Assistant Treasurers. Assistant Treasurers, if there be
any, shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there be one, or the Treasurer, and in the absence of the Treasurer or in the
event of his disability or refusal to act, shall perform the duties of the
Treasurer, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Treasurer. If required by the Board of Directors,
an Assistant Treasurer shall give the Corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
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(j) Other Officers. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE VI
Contracts, Checks, Drafts,
Bank Accounts, Proxies, Etc.
SECTION 1. Execution of Documents. The President or any other
officer, employee or agent of the Corporation designated by the Board, or
designated in accordance with corporate policy as approved by the Board, shall
have power to execute and deliver deeds, leases, contracts, mortgages, bonds,
debentures, checks, drafts and other orders for the payment of money and other
documents for and in the name of the Corporation, and such power may be
delegated (including power to redelegate) by written instrument to other
officers, employees or agents of the Corporation.
SECTION 2. Deposits. All funds of the Corporation not
otherwise employed shall be deposited from time to time to the credit of the
Corporation or otherwise in accordance with corporate policy as approved by the
Board.
SECTION 3. Proxies in Respect of Stock or Other Securities of
Other Corporations. The President or any other officer of the Corporation
designated by the Board shall have the authority (a) to exercise or appoint from
time to time an agent or agents of the Corporation to exercise in the name and
on behalf of the Corporation the powers and rights which the Corporation may
have as the holder of stock or other securities in any other corporation, (b) to
vote or consent in respect of such stock or securities and (c) to execute or
cause to be executed in the name and on behalf of the Corporation and under its
corporate seal, or otherwise, such written proxies, powers of attorney or other
instruments as he or she may deem necessary or proper in order that the
Corporation may exercise such powers and rights. The President or any such
designated officer may instruct any person or persons appointed as aforesaid as
to the manner of exercising such powers and rights.
SECTION 4. General and Special Bank Accounts. The Board from
time to time may authorize the opening and keeping of general and special bank
accounts with such banks, trust companies or other depositories as the Board may
select or as may be selected by an officer or officers, assistant or assistants,
agent or agents, or attorney or attorneys of the corporation to whom such power
shall have been delegated by the Board. The Board may make such special rules
and regulations with respect to such bank accounts, not inconsistent with the
provisions of these Bylaws, as it may deem expedient.
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SECTION 5. Audit Accounts and Reports. The books of account of
the Corporation shall be audited at least once during each year by a firm of
independent certified accountants.
SECTION 6. Access. All books and records of the Corporation
shall be kept at the principal place of business of the Corporation. Each
shareholder may at its own expense, after giving written notice to the
Corporation, audit, investigate and familiarize itself with the operations of
the Corporation using its own employees or such certified public accounting
firm, qualified external auditor or other advisers at it may select. The
shareholders' rights under this Section, which shall including the right to make
copies of any relevant documents. shall be exercised such that the actions of
the shareholders or their respective agents do not interfere unreasonably with
the operation of the Corporation in its ordinary course of business.
SECTION 7. Fiscal Year. The fiscal year of the Corporation
shall end on the last day of each calendar year.
SECTION 8. Accounting Policy. The Corporation shall maintain
accounting records, accounts and related financial statements in accordance with
United States generally accepted accounting principles applied on a consistent
basis.
SECTION 9. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the capital
stock. Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
preparing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
ARTICLE VII
Books and Records
The books and records of the Corporation may be kept at such
places within or without the State of New York as the Board may from time to
time determine; provided, however, that the Corporation shall keep at its office
in the State of Delaware, or at the office of its transfer agent or registrar in
the State of Delaware, a record containing the names and addresses of all
stockholders of the Corporation, the number and class of shares held by each of
them and the dates when they respectively became owners of record of such
shares.
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ARTICLE VIII
Shares and Their Transfer; Fixing Record Date
SECTION 1. Stock Certificates. Every owner of stock of the
Corporation shall be entitled to have a certificate certifying the number of
shares owned by him or her in the Corporation and designating the class of stock
to which such shares belong, which shall otherwise be in such form as the Board
shall prescribe. Each such certificate shall be signed by, or in the name of the
Corporation by, the Chairman of the Board, the President or a Vice President and
by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary of the Corporation. In case any officer who has signed or whose
facsimile signature has been placed upon a certificate shall thereafter have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may nevertheless be issued by the Corporation with the same effect
as if he or she were such officer at the date of issue.
SECTION 2. Record; Restrictions on Transfer. A record shall be
kept of the name of the person, firm or corporation owning the stock represented
by each certificate for stock of the Corporation issued, the number of shares
represented by each such certificate and the date thereof, and, in the case of
cancellation, the date of cancellation. Except as otherwise expressly required
by law, the person in whose name shares of stock stand on the books of the
Corporation shall be deemed the owner thereof for all purposes as regards the
Corporation.
SECTION 3. Indemnification of Employees and Agents.
Notwithstanding any other provision or provisions of this Article VIII, the
Corporation may indemnify (including, without limitation, by direct payment) any
person (other than a director or officer of the Corporation) who is or was
involved in any manner (including, without limitation, as a party or a witness)
or is threatened to be made so involved in any Proceeding (as such term is
defined herein) by reason of the fact that such person is or was an employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise (including, without limitation, any
employee benefit plan) against any or all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement incurred in connection with such
Proceeding.
SECTION 4. Lost, Stolen, Destroyed or Mutilated Certificates.
The holder of any stock of the Corporation shall immediately notify the
Corporation of any loss, theft, destruction or mutilation of the certificate
therefor. The Corporation may issue a new certificate for stock in the place of
any certificate theretofore issued by it and alleged to have been lost, stolen,
destroyed or mutilated, and the Board or the President or the Secretary may, in
its or his or her discretion, require the owner of the lost, stolen, mutilated
or destroyed certificate or his or her legal representatives to give the
Corporation a bond in such sum, limited or unlimited, in such form and with such
surety or sureties as the Board or the President or the Secretary shall in its
or his or her discretion determine, to indemnify the Corporation against any
claim that may be made against it on account of the alleged loss, theft,
mutilation or destruction of any such certificate or the issuance of any such
new certificate.
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SECTION 5. Fixing Date for Determination of Stockholders of
Record. (a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board may fix a record date, which shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board, and which shall not be more than 60 nor less than 10 calendar days before
the date of such meeting. If no record date is fixed by the Board, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice of such meeting is given, or, if no notice is given, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board, in its discretion, may fix a new record date
for the adjourned meeting if it so elects to do so.
(b) In order that the Corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board and which date shall not be more than 10 calendar days after the date upon
which the resolution fixing the record date is adopted by the Board. If no
record date has been fixed by the Board, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board is otherwise required, shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation by delivery to its
registered office in the State of Delaware, its principal place of business, or
an officer or agent of the Corporation having custody of the book in which
proceedings of the meetings of stockholders are recorded. Delivery made to the
registered office of the Corporation shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board and prior action by the Board is required, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board adopts the resolution taking such prior action.
(c) In order that the Corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than 60 calendar days prior to
such action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board adopts the resolution relating thereto.
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ARTICLE IX
Seal
The Board shall provide a corporate seal, which shall be in
the form of a circle and shall bear the full name of the Corporation, the words
"Corporate Seal Delaware" and figures showing that the Corporation was
incorporated in the State of its Delaware and showing the year of incorporation.
ARTICLE X
Fiscal Year
The fiscal year of the Corporation shall end on December 31
each year, or on such other date as the Board of Directors shall determine.
ARTICLE XI
Indemnification
The Corporation shall have the right, to the fullest extent
permitted by the laws of the State of Delaware, to indemnify any and all persons
whom it shall have power to indemnify against any and all of the costs,
expenses, liabilities or other matters incurred by them by reason of having been
officers or directors of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise (including,
without limitation, any employee benefit plan).
ARTICLE XII
Amendments
These By-laws may be rescinded, altered, amended or repealed
(subject to the restrictions, if any, contained herein) and new By laws may be
made by the Board at any regular or special meeting thereof or by consent in
accordance with the provisions of Section 5(h) of Article III of these By-laws,
subject to the power of the holders of a majority of the outstanding stock of
the Corporation entitled to vote in respect thereof, by their vote given at an
annual meeting or at any special meeting, to amend or repeal any By-law.
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ARTICLE XIII
Miscellaneous
SECTION 1. Interested directors. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction so long as (i) the material facts as to
his or her relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or committee in good faith authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or (ii) the material
facts as to his or their relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the disinterested stockholders; or (iii) the contract or transaction
is fair as to the Corporation as of the time it is authorized, approved or
ratified, by the Board of Directors, a committee thereof or the stockholders.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee which authorizes
the contract or transaction.
SECTION 2. Ratification. Any transaction questioned in any
stockholders' derivative suit on the grounds of lack of authority, defective or
irregular execution, adverse interest of director, officer or stockholder,
nondisclosure, miscomputation or the application of improper principles or
practices of accounting, may be ratified before or after judgment, by the Board
of Directors or by the stockholders in case less than a quorum of directors are
qualified, and, if so ratified, shall have the same force and effect as if the
questioned transaction had been originally duly authorized, and said
ratification shall be binding upon the Corporation and its stockholders, and
shall constitute a bar to any claim or execution of any judgment in respect of
such questioned transaction.
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EXHIBIT 10.1
ASSET PURCHASE AGREEMENT dated as of March 11, 1999
by and between COMPONENTS ACQUISITION CORP., a Delaware
corporation (the "Purchaser") and COMPONENTS BY JOHN McCOY,
INC., a New Jersey corporation ("Seller").
WHEREAS, Seller desires to sell to Purchaser, and Purchaser wishes to
purchase all of the assets of Seller, upon the terms and subject to the
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the respective
agreements hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
Defined Terms
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1.01. Defined Terms. The following terms, not defined elsewhere in this
Agreement, shall have the following meanings:
"Affiliate" shall mean, as to the party specified, any Person which
directly or indirectly through ownership of stock or through any other
arrangement either controls, is controlled by or is under common control
with, such party. The term "control" shall mean the power to direct the
affairs of such Person by reason of ownership of equity interests, by
contract or otherwise.
"Applicable Accounting Principles" shall mean United States Generally
Accepted Accounting Principles, applied on a consistent basis throughout the
periods indicated except as disclosed in footnotes to the financial
statements.
"Business" shall mean the business presently conducted by Seller,
including, without limitation, the merchandising and sourcing of St. Andrews
tailored clothing, as well as sportswear, dress shirts, neckwear, topcoats
and casual slacks.
"Business Day" shall mean any day other than a Saturday, Sunday or
other day on which banks are authorized to be closed in New York City.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Contracts" shall mean the leases, rental agreements, insurance
policies, sales orders, collective bargaining agreements, union contracts,
licenses, agreements, permits, purchase orders, commitments and any and all
other contracts or binding arrangements (including, capital commitments),
whether written or oral, express or implied, of Seller or by which any of
its Assets are bound.
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"Dollars" and "$" shall mean, unless otherwise specified, United States
Dollars.
"Encumbrances" shall mean, to the extent applicable, all liens
(including liens for Taxes), mortgages, security interests, leases, options,
claims, charges, restrictions, rights of first refusal or first offer,
easements or other similar encumbrances.
"Historical Financial Statements" shall mean Seller's audited financial
statements (balance sheets, statements of income and statements of cash
flows) for the fiscal years ending December 31, 1996 and 1997, and Seller's
unaudited quarterly financial statements for the first and second quarters
of 1998, copies of which are included in Schedule 3.05.
"Income Taxes" shall mean all Taxes on or measured by net income, gross
profits or net profits, together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority,
domestic or foreign.
"Intellectual Property Rights" shall mean the name "Components, Inc."
and all Patents, Trademarks, Trade Names, copyrights, and confidential and
proprietary drawings, designs, inventions, trade secrets, and customer and
supplier lists of Seller.
"IPO" shall mean an initial public offering of the Pietrafesa Stock.
"McCoy" shall mean John McCoy, an individual.
"Patents" shall mean patents (including all reissues, divisions,
continuations, continuations in part and extensions thereof), patent
applications and patent disclosures docketed.
"Permitted Encumbrances" shall mean, to the extent applicable,
Encumbrances which (a) are liens for Taxes not yet due and payable, or (b)
are mechanics', carriers', materialmen's, landlords', workers' or other
similar liens incurred in the ordinary course of business.
"Person" shall mean any natural person, corporation, limited liability
company, unincorporated association, partnership, joint venture or other
entity.
"Pietrafesa Stock" shall mean the common stock of The Pietrafesa
Corporation issued pursuant to the IPO.
"Pre-Tax Income" shall mean the net income, including the gain or loss
on discontinued operations or extraordinary items, of the Purchaser for
financial reporting purposes prepared in accordance with Applicable
Accounting Principles before any provision for Federal and state income
taxes.
"Taxes" shall mean all taxes on, or measured by or referred to as,
income, gross receipts, sales, use, ad valorem, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property or windfall profits taxes, customs, duties or similar
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assessments or charges, together with any interest and any penalties,
additions to tax or additional similar amounts imposed by any taxing
authority, domestic or foreign, with respect thereto.
"Tax Returns" shall mean all material returns, reports and statements
relating to Taxes that are required to be filed with any appropriate
domestic or foreign taxing authority.
"Trade Names" shall mean trade names embodying goodwill of Seller,
whether or not registration has been obtained or an application for
registration is pending.
"Trademarks" shall mean trademarks, service marks, brand names, brand
marks, trade dress, logos and all other names and slogans associated with
products of Seller, whether or not registered, and all registrations thereof
and pending applications therefor.
1.02. Other Definitions. The following terms are defined in the
sections indicated:
Term Section
"Acceptance Notice" 2.05(b)
"Assets" 2.01
"Benefit Plans" 3.12
"Claims" 8.04
"Closing" 2.08
"Closing Date" 2.08
"Closing Date Payment Amount" 2.04
"COBRA" 3.12
"Employment Agreement" 6.03
"ERISA" 3.12
"Excluded Assets" 2.02
"Liabilities" 2.03
"Improvements" 3.07
"Losses" 8.02
"Notice of Disagreement" 2.05(b) & 2.06(a)
"Parent" 2.06
"Partnership" 6.05
"Purchaser" Preamble
"Purchase Price" 2.04
"Real Property" 3.07
1.03. Accounting Terms. Any accounting terms used in this Agreement
shall, unless otherwise specifically provided, have the meanings given them in
accordance with, and all financial computations hereunder shall, unless
otherwise specifically provided, be computed in accordance with, the Applicable
Accounting Principles.
1.04. Other Rules of Construction. References in this Agreement to
sections, schedules and exhibits are to sections of, and schedules and exhibits
to, this Agreement unless otherwise indicated. Words in the singular include the
plural and in the plural include the singular. The word "or" is not exclusive.
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The words "including", "includes", "included" and "include", when used, are
deemed to be followed by the words "without limitation".
ARTICLE II
The Asset Purchase
------------------
2.01. Purchase and Sale of Assets. Upon the terms and subject to the
conditions set forth in this Agreement, on the Closing Date, Seller shall sell,
assign, transfer, convey and deliver to Purchaser, and Purchaser shall purchase
and accept from Seller, free and clear of all Encumbrances (except Permitted
Encumbrances), all right, title and interest in and to all of the following
assets owned by Seller on the Closing Date (such assets being hereinafter
referred to as the "Assets"):
(i) all quantities of non-obsolete inventory, including without
limitation finished goods (wherever located) and raw materials and
work-in-process used for the Business, except those listed on Schedule 2.02
(the "Inventory");
(ii) all net accounts receivable (trade account receivables) and notes
receivable of Seller arising out of the sale and delivery of goods and
services, either before or after the Closing Date (the "Accounts
Receivable");
(iii) all machinery, tools, equipment, fixtures, furnishings, office
supplies, motor vehicles, spare parts, and other tangible personal property
owned by Seller listed on Schedule 2.01 (the "Equipment");
(iv) all Contracts, agreements, leases, arrangements and/or commitments
to which Seller is a party or by which Seller or any of the Assets are
bound, except those listed on Schedule 2.02 (the "Assigned Contracts");
(v) all of Seller's customer and supplier lists, sales data, brochures,
catalogs, mailing lists, art work, photographs and advertising material,
accounting data, property records, manufacturing records and personnel
records, whether in electronic form or otherwise;
(vi) all right, title and interest in and to any Intellectual Property
Rights of Seller, and all files relating thereto;
(vii) all right, title and interest in and to the goodwill of Seller;
and
(viii) all prepaid expenses of, or for the benefit of, the Seller,
except those listed on Schedule 2.02.
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2.02. Assets Not Purchased. It is understood and agreed by the parties
that Seller is not selling, assigning, transferring or conveying to Purchaser
the following assets, rights and properties, which shall be specifically
excluded from the transactions contemplated by this Agreement and shall be
retained by Seller (the "Excluded Assets"):
(i) all right, title and interest of Seller in, and all rights and
obligations of, Seller under any Contracts, agreements, undertakings, and
commitments not listed on Schedule 2.02;
(ii) all machinery, tools, equipment, fixtures, furnishings, office
supplies, motor vehicles, spare parts, and other tangible personal property
owned by Seller not listed on Schedule 2.02;
(iii) all inventory of Seller listed on Schedule 2.02.
(iv) any insurance policies in respect of the Business or in respect of
the Assets or any employees, other than insurance policies used to fund or
finance any obligation with respect to an employee to the extent such
obligation is assumed by Purchaser; and
(v) all prepaid expenses of, or for the benefit of, the Seller listed
on Schedule 2.02.
2.03. Assumed Liabilities. Effective as of the Closing Date, Purchaser
shall, without any further responsibility or liability of or recourse to Seller,
its Affiliates, or their respective directors, shareholders, officers,
employees, agents, consultants, representatives, successors, transferees or
assignees, absolutely and irrevocably assume and shall be solely liable and
responsible for, any and all claims, liabilities and obligations of Seller: (i)
under any of the Assigned Contracts (provided, however, that Purchaser is not
assuming any liability of Seller under any of the Assigned Contracts to the
extent such liability arises from a breach of contract by Seller prior to the
Closing Date or a breach by Seller of any provision of this Agreement); (ii)
otherwise arising by reason of the conduct of the Business or sales made after
the Closing Date, except such claims, liabilities and obligations with respect
to which the Purchaser is entitled to indemnification pursuant to the terms of
the Agreement; and (iii) those accrued liabilities set forth on Schedule 2.03 as
they exist and are accrued as of the Closing Date (all of the items specified in
clauses (i) through (iii) of this Section 2.03 herein called collectively, the
"Assumed Liabilities").
2.04. Purchase Price. Subject to adjustment in accordance with Sections
2.05 and 2.06 below, in consideration of the sale and transfer to Purchaser of
the Assets on the Closing Date, Purchaser shall pay to Seller the following (the
"Purchase Price"): (i) $4,695,000 (which sum includes the $200,000 deposit (the
"Contract Deposit") paid to McCoy prior to the date hereof) in cash, payable to
Seller on the Closing Date by wire transfer of immediately available funds (the
"Closing Date Payment Amount"); and (ii) in accordance with the timetable set
forth in Section 2.06 below, the Deferred Purchase Price.
2.05. Purchase Price Adjustment. (a) As of the Closing Date, the books
of Seller shall be deemed "closed," and Seller shall engage its auditor,
Lawrence B. Goodman & Co., P.A. (the "Auditor") to conduct a physical inventory
and balance sheet audit of the Assets. When conducting such physical inventory
and balance sheet audit, the Auditor shall record the Excluded Assets at full
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value. Within sixty (60) days after the Closing Date, the Seller shall deliver
to Purchaser a balance sheet setting forth the value of the Assets (after making
appropriate adjustments for the exclusion of the Excluded Assets and for the
value of the Assumed Liabilities), prepared by the Auditor based on such audit
and in accordance with Applicable Accounting Principles (the "Closing Date
Balance Sheet"). Purchaser and Seller shall take such actions as are necessary
to cause the Auditor's audit to be performed, and Closing Date Balance Sheet to
be prepared, expeditiously. Ernst & Young, LLP or other representatives selected
by Purchaser ("Purchaser's Auditor") shall have the opportunity to observe the
taking of the inventory in connection with the preparation of the Closing Date
Balance Sheet, and to examine the work papers, schedules and other documents
prepared by Seller in connection with its preparation of the Closing Date
Balance Sheet. Seller shall use its best efforts to cause the Auditor to permit
Purchaser and Purchaser's Auditor to examine the Auditor's work papers used in
connection with its audit and preparation of the Closing Date Balance Sheet and
shall provide reasonable cooperation, and shall cause the Auditor to provide
reasonable cooperation, with their review thereof.
(b) Within forty-five days following the delivery of the Closing Date
Balance Sheet and the related report of the Auditor, Purchaser shall deliver to
Seller in accordance with the provisions of Section 10.07 hereof a written
notice of disagreement (a "Notice of Disagreement") or notice of acceptance (an
"Acceptance Notice") with respect to the Closing Date Balance Sheet and related
auditors report. If an Acceptance Notice is delivered to Seller of if no Notice
of Disagreement is delivered in a timely manner (as set forth in the preceding
sentence), then the Closing Date Balance Sheet shall be binding on the parties.
If a Notice of Disagreement is received by the Seller in a timely manner, then
the Closing Date Balance Sheet shall be binding on the parties on the date any
disputed matters are resolved in accordance with the provisions of Section 2.07
hereto. Any Notice of Disagreement delivered to the Seller shall specify in
reasonable detail the items on the Closing Date Balance Sheet disputed and shall
describe in reasonable detail the basis for the objection and all information in
the possession of Purchaser which forms the basis thereof, as well as the amount
in dispute.
(c) (i) If Purchaser delivers to Seller an Acceptance Notice or fails
to deliver an Notice of Disagreement within the forty-five (45) day period
required by Section 2.05(b) hereof, then in the event the net book value of the
Assets (after making appropriate adjustments for the Assumed Liabilities and the
Excluded Assets) as determined from the Closing Date Balance Sheet pursuant to
Section 2.05(a) hereof (the "Closing Net Book Value") is less than One Million
One Hundred Thousand Dollars ($1,100,000.00) (the "Target Book Value"), Seller
shall within four (4) business days after the delivery of such Acceptance Notice
or the expiration of forty-five (45) day period, as the case may be, pay
Purchaser the amount by which the Target Book Value exceeds the Closing Net Book
Value (such amount, if any, shall be the "Asset Adjustment Amount").
(ii) Alternatively, if Purchaser delivers to Seller a Notice of
Disagreement, then Seller shall pay the Asset Adjustment Amount in accordance
with the terms of Section 2.07 hereof.
2.06. Deferred Purchase Price. (a) Within ninety (90) days after the
end of each of Purchaser's 1999 through 2004 fiscal years (which shall be
calendar years) (or as soon thereafter as reasonably practicable), Purchaser
shall prepare and deliver to the Seller financial statements for the Purchaser
for such year, together with a statement (the "Statement") setting forth the
Pre-Tax Income for such year, prepared in accordance with Applicable Accounting
Principles. Such financial statements may consist of the financial statements of
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the Purchaser's parent corporation, The Pietrafesa Corporation, a Delaware
corporation (the "Parent"), including consolidating balance sheets and income
statements setting forth the various subsidiaries/divisions of the Parent. On
such financial statements, the Business shall be allocated overhead and other
expenses (including the cost of capital employed by the Business) in accordance
with the terms and procedures set forth in Schedule 2.06 (a) hereto and
otherwise in accordance with Applicable Accounting Principles. If requested,
Seller shall make reasonable efforts to assist Purchaser and its representatives
in the preparation of the Statement. During the forty-five (45) day period
following Seller's receipt of the Statement, Seller, at its sole expense, will
be permitted to review, or have its accountants, auditors or counsel review, all
relevant working papers and books and records of the Purchaser relating to the
Statement. Purchaser shall provide reasonable cooperation with this review. The
Statement shall become final and binding upon the parties on the forty-fifth day
following receipt thereof by Seller unless Seller delivers a written notice (a
"Notice of Disagreement") to the Purchaser on or prior to such date that Seller
disagrees with the Statement. In order to be valid, any Notice of Disagreement
delivered to the Purchaser shall specify in reasonable detail the amount in
dispute and the items on the Statement disputed, shall describe in reasonable
detail the basis for the objection and all information in the possession of
Purchaser which forms the basis thereof, and shall be accompanied by a
certificate of Seller's independent auditors that they concur with each of the
positions taken by Seller in the Notice of Disagreement. If a Notice of
Disagreement is received by the Purchaser in a timely manner, then the Statement
shall become final and binding upon the parties on the date any disputed matters
are resolved in accordance with the provisions set forth in Section 2.07 hereto.
(b) In the event the Statement reveals that the Business has achieved
certain Pre-Tax Income targets (each, a "Pre-Tax Income Target") for the years
1999 through 2004 as set forth below, then Purchaser shall pay to Seller
additional purchase consideration (the "Obligation") in the amounts set forth
below:
Pre-Tax Obligation
Income Target Payable
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1999 $ 1,824,000 $530,000
2000 $ 2,230,000 $600,000
2001 $ 2,375,000 $700,000
2002 $ 2,720,000 $850,000
2003 $ 2,812,000 $850,000
2004 $ 3,220,000 $1,000,000
provided, however, in the event that in year 2004 the Seller is due any (i)
Postponed Obligation, (ii) Delayed Obligation, (iii) an Obligation in respect of
year 2004 or (iv) any other monetary obligation from Purchaser under this
Agreement or any other related agreements (each a "Year 2004 Obligation"),
Purchaser's obligation of payment for the Year 2004 Obligations (individually or
collectively at the option of the Purchaser) shall be reduced by $165,000.
(c) The obligations for each year set forth in Section 2.06(b) above
shall be paid upon the following terms: In each year that the Purchaser has
Pre-Tax Income, as set forth in clause 2.06(b) above, in an amount equal to or
greater than the Pre-Tax Income Target for such year Seller will be paid 100% of
the obligation for such year. In the event that the Purchaser has Pre-Tax Income
in an amount equal to or greater than 80%, but less than 100%, of the Pre-tax
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Income Target for such year, Seller will be paid 50% of the obligation for such
year, with payment of the remaining 50% deferred for five (5) years ("Delayed
Obligation"). In the event that the Purchaser has Pre-Tax Income in an amount
less than 80% of the Pre-Tax Income Target, but not less than the greater of (x)
$1,100,000 or (y) 60% of the Pre-Tax Income Target for such year, then payment
of 100% of the unpaid installment for such year will be deferred for ten (10)
years ("Postponed Obligation") subject to the terms hereof. In any year where
Purchaser has Pre-Tax Income in an amount less than the greater of (x)
$1,100,000 or (y) 60% of the Pre-Tax Income Target for such year, Seller will
forfeit payment of 100% of the obligation for such year ("Forfeited
Obligation"). No portion of the Obligation shall be payable during or with
respect to any period in which McCoy is in breach of a noncompete obligation
contained in the Employment Agreement.
In any year that the Pre-Tax Income exceeds the relevant target set
forth above, Seller may elect to have all or a portion of such excess credited
to prior years (credited to the earliest year first) for which the Pre-Tax
Income Targets have not been satisfied in full (other than years in which the
Obligation was forfeited) rather than crediting such excess Pre-Tax Income to
the year in which it is actually earned (thereby reducing or eliminating the
bonus payable to McCoy in respect of such year under the Employment Agreement).
Any Delayed or Postponed Obligations which are no longer deferrable as a result
of the credit shall be paid at the time the credit is recognized. Forfeited
Obligations will not be recognized as earned as a result of any such credit.
(d) The Obligation in respect of any year shall be paid to Seller as
follows:
(i) If no Notice of Disagreement is timely filed (or Seller notifies
the Purchaser in writing that they accept the Statement),
Purchaser shall deliver the Obligation in the amount set forth
above in cash or at the option of the Parent, in the event of an
IPO, in shares of Pietrafesa Stock that are issued pursuant to an
effective registration statement and which are free from any
restrictions on resale. Such payment shall be delivered to Seller
as soon as practicable, but in no event later than sixty-days
following the delivery to Seller of the Statement;
(ii) If a Notice of Disagreement is timely filed, upon final
resolution of the matter, Purchaser shall deliver the Obligation
in the amount set forth above in cash or at the option of the
Parent, in the event of an IPO, in shares of Pietrafesa Stock
that are issued pursuant to an effective registration statement
and which are free from any restrictions on resale; and
(iii) Postponed Obligations and Delayed Obligations shall be paid at
their respective maturity (as determined in accordance with the
first paragraph of clause (c) of Section 2.06) in cash, or at the
option of the Parent, in the event of an IPO, in shares of
Pietrafesa Stock that are issued pursuant to an effective
registration statement and which are free from any restrictions
on resale;
provided, however, any amounts due to Seller from Purchaser pursuant to this
paragraph (d) and remain unpaid shall be subject to set off and deduction for
amounts due from Seller under this Agreement, including Sections 2.05 and
Article VIII hereof. With respect to payments made by Purchaser under this
paragraph (d) by the issuance (each such issuance, a "Stock Payment") of shares
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of Pietrafesa Stock in respect of all or any portion of an Obligation the
following provisions apply:
(i) the number of shares of Pietrafesa Stock issued to Seller in
respect of any Obligation shall not exceed the average trading
volume of shares of Pietrafesa Stock in the preceding five (5)
trading days, it being understood and agreed that if no shares of
Pietrafesa Stock are traded on any one or more of the preceding
five (5) trading days, the volume of shares traded for such
day(s), which is zero (0), will still be included for such day(s)
in calculating the average trading volume of shares of Pietrafesa
Stock for such five (5) trading day period;
(ii) all shares issued (except with respect to shares issued in
respect of an Additional Stock Payment, as defined below) shall
be valued at the average of the closing price for such shares for
the twenty (20) trading days preceding such payment;
(iii) in the event that Seller sells all of the shares comprising such
Stock Payment within five (5) business days after its receipt of
such shares and such sale of shares results in gross cash
proceeds to Seller that are less than the portion of the
Obligation paid by such Stock Payment (such difference, the
"Obligation Shortfall"), the Purchaser shall issue to Seller an
additional number of shares of Pietrafesa Stock (the "Additional
Stock Payment") equal to the quotient of the Obligation Shortfall
divided by the closing price of Pietrafesa Stock on the trading
day immediately preceding such sale of shares; and
(iv) if the sale by Seller of any shares of Pietrafesa Stock included
in a Stock Payment results in per share gross cash proceeds to
Seller in excess of the per share value of such shares used to
determine the number of shares of Pietrafesa Stock issued in such
Stock Payment (such excess the "Per Share Windfall Amount"), the
Seller shall pay to Purchaser, within five (5) business days of
such sale of shares, an amount equal to the Per Share Windfall
Amount multiplied by the number of shares of Pietrafesa Stock
included in such sale.
Notwithstanding the foregoing, in the event (i) the Parent is acquired
in a transaction in which the current holders of the Parent's equity securities,
as listed on Schedule 2.06(c) hereto, own less than 50% of the combined equity
interests of the post-acquisition entity, (ii) the Parent sells or otherwise
transfers all or substantially all of its assets to an unrelated third party,
(iii) Richard Pietrafesa ceases to hold an executive position with the Parent
(other than by reason of his death or disability) or (iv) the Purchaser shall
sell the Business to an unrelated third party, then all unpaid installments of
the purchase price (including all Delayed and Postponed Obligations but
excluding any Forfeited Obligations) will become immediately due and payable in
cash.
2.07. Arbitration of Accounting Disagreements. During the 20-day period
following the delivery of a Notice of Disagreement pursuant to Sections 2.05 and
2.06 above, Seller and Purchaser shall seek in good faith to resolve in writing
any differences which they may have with respect to any matter specified in a
Notice of Disagreement. At the end of such 20-day period, if Seller and the
Purchaser have not reached agreement on such matters, any portion of the Asset
Adjustment Amount or the Obligation, as the case may be, not in dispute shall be
payable to Seller or Purchaser not later than four (4) days after such date and
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otherwise in accordance with this Agreement, and the matters which remain in
dispute shall be submitted to an arbitrator (the "Arbitrator") for review and
resolution. The Arbitrator shall be one of the "big 5" independent public
accounting firms (other than the Purchaser's Auditor) as shall be agreed upon at
the appropriate time by the parties hereto in writing. The Arbitrator shall
render a decision resolving the matters in dispute within 20 days following
their submission to the Arbitrator unless, in the view of the Arbitrator the
dispute cannot be equitably resolved within such period, and then, upon written
notice to the parties, it shall be resolved as soon as practicable in the
discretion of the Arbitrator. All of the usual and customary fees and costs of
the Arbitrator, if disagreements are submitted to the Arbitrator pursuant to
this Section 2.07, shall be borne 50% by Purchaser and 50% by the Seller.
2.08. The Closing. Upon the terms and subject to the conditions set
forth in this Agreement, the acquisition by Purchaser of the Assets (herein
called the "Closing") shall take place at 10:00 a.m. at the offices of Roberts,
Sheridan & Kotel, P.C. on or prior to June 30, 1999, or such other time, date
and place as the parties shall agree upon, but in no event before the conditions
set forth in Articles VI and VII shall have been satisfied or waived (the date
of the Closing being herein referred to as the "Closing Date").
2.09. Allocation of Consideration. The consideration paid by Purchaser
shall be allocated among the Assets as set forth on Schedule 2.09. Any
adjustments to such consideration pursuant to Section 2.05 shall be allocated in
the manner provided by the independent public accountants appointed by the
Parent.
2.10. Further Assurances. From and after the Closing, upon written
request from the Purchaser, Seller shall execute, acknowledge and deliver all
such further acts, assurances, deeds, assignments, transfers, conveyances and
other instruments and papers as may be reasonably required to sell, assign,
transfer, convey and deliver the Assets to Purchaser.
ARTICLE III
Representations and Warranties of Seller
----------------------------------------
Seller represents and warrants to Purchaser that the statements made in
this Article III are true, correct and complete as of the date hereof, and will
continue to be true, correct and complete on the Closing Date:
3.01. Authority. The Seller has the requisite power and authority to
execute and deliver this Agreement and the other agreements and instruments to
be executed and delivered by Seller pursuant hereto and to consummate the
transactions contemplated hereby and thereby. This Agreement has been duly
executed and delivered by Seller and constitutes, and such other agreements and
instruments when duly executed and delivered by Seller will constitute, legal,
valid and binding obligations of Seller enforceable against Seller in accordance
with their respective terms. The execution and delivery by Seller of this
Agreement and such other agreements and instruments and the consummation by
Seller of the transactions contemplated hereby and thereby will not violate the
Corporation Law of the State of New Jersey, or conflict with, or result in any
breach of, the Certificate of Incorporation, Bylaws or other organizational
documents of Seller or any material indenture, mortgage, lease, agreement or
other instrument to which Seller is a party or by which Seller, or its
properties or assets, is bound. No material approval, authorization, consent or
other order or action of or filing with any court, administrative agency, other
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governmental body or any other Person is required for the execution and delivery
by Seller of this Agreement or such other agreements and instruments or the
consummation by Seller of the transactions contemplated hereby or thereby.
3.02. Ownership of the Assets. The Seller has good and valid title to
the Assets, free and clear of any Encumbrances, except Permitted Encumbrances,
which Assets represent all assets currently used by Seller in the conduct of the
Business. The Assets are not subject to any contract, agreement, arrangement,
commitment or understanding other than this Agreement.
3.03. Organization and Qualification of Seller. Seller is a corporation
duly organized and validly existing under the laws of the State of New Jersey.
The Seller has full power and authority and possesses all governmental
franchises, licenses, permits, authorizations and approvals necessary to enable
it to use its corporate name and to own, lease or otherwise hold its properties
and assets and to carry on its business as presently conducted. The Seller is in
good standing to do business in each jurisdiction in which the nature of its
business or the ownership, leasing or holding of its properties makes such
qualification necessary. The Seller has made available to Parent and Purchaser
true and complete copies of the Certificate of Incorporation, as amended to
date, and the By-laws, as in effect on the date hereof, of Seller.
3.04. Other Equity Interests. Except as set forth on Schedule 3.04,
Seller does not directly or indirectly own any capital stock of or other equity
interest in any Person.
3.05. Historical Financial Statements; No Undisclosed Liabilities. The
Historical Financial Statements, true and complete copies of which are included
in Schedule 3.05, were prepared in accordance with Applicable Accounting
Principles and constitute fair and reasonable presentations of the financial
position and results of operations of Seller, in all material respects, as of
the dates and for the periods set forth therein. The Seller does not have any
known contingent or undisclosed obligations or liabilities which would be
required in accordance with the Applicable Accounting Principles to be reflected
in a currently prepared balance sheet or notes thereto, other than obligations
or liabilities (i) that are reflected or disclosed in the Historical Financial
Statements, (ii) that are disclosed in this Agreement or the Schedules hereto or
(iii) that were incurred after June 30, 1998, in the ordinary course of
business.
3.06. Absence of Material Adverse Changes. Except as disclosed in
Schedule 3.04, and excluding any macroeconomic changes or conditions in national
or local economies affecting the Business or its customers or suppliers
generally, there have been no changes since December 31, 1997, which
individually or in the aggregate have had a material adverse effect on the
business, assets, financial condition or results of operations of Seller.
Without limiting the foregoing, except as disclosed in Schedule 3.06, since
December 31, 1997, Seller has not:
(i) redeemed or otherwise acquired any of its capital stock or
issued any capital stock or any option, warrant or right
relating thereto;
(ii) granted to any employee any increase in compensation except as
required under existing agreements or in the ordinary course of
business consistent with past practice;
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(iii) incurred any liabilities, obligations or indebtedness for
borrowed money or guaranteed any such liabilities, obligations
or indebtedness, other than in the ordinary course of business
consistent with past practice;
(iv) cancelled any material indebtedness owed to Seller, other than
in the ordinary course of business consistent with past
practice;
(v) made any material change in any method of accounting or
accounting practice or policy;
(vi) acquired by merging or consolidating with, or by purchasing
stock or a substantial portion of the assets of, or by any other
manner, any material operating business, corporation,
partnership, association or other business organization (or
division thereof);
(vii) sold, leased or otherwise disposed of any of its assets except
in the ordinary course of business consistent with past
practice;
(viii) entered into any material lease of real property;
(ix) modified, amended or terminated any lease of, or other material
agreement pertaining to, real property (except modifications or
amendments associated with renewals of leases in the ordinary
course of business);
(x) engaged in any transaction outside Seller's ordinary course of
business consistent with past practices;
(xi) suffered any event or occurrence which has had or could have a
material adverse effect on Seller; or
(xii) suffered any damage to any of its significant assets that has or
could have a material adverse effect.
Notwithstanding anything to the contrary contained in this Section 3.06,
Purchaser acknowledges that withdrawals from the Seller made by McCoy of
approximately $105,434 for (i) profits on which Federal income Taxes were
already paid and (ii) net income earned during fiscal year 1998, do not
constitute a material adverse change.
3.07. Real Property and Improvements. Schedule 3.07 contains a list of
all interests in real property leased by Seller (the "Real Property"). Seller
does not own any real property. The uses for which the buildings, facilities,
and other improvements located on the Real Property (the "Improvements") are
zoned do not materially restrict, or in any manner materially impair, the use of
the Improvements for purposes of the businesses of Seller as conducted on the
date of this Agreement. The Seller is the lessee of each of the leasehold
estates set forth in Schedule 3.07 as being leased by it, and except as set
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forth in Schedule 3.07, is in possession of each of the premises purported to be
so leased. Each such lease pursuant to which such leasehold estate is granted is
valid and without any material default thereunder by Seller, or, to the
knowledge of Seller, the landlord. Except as set forth in Schedule 3.07, there
are no pending or, to the knowledge of Seller, threatened, condemnation, eminent
domain or similar proceeding with respect to the Real Property or the
Improvements and no special taxes or assessments relating to any part of the
Real Property, and no public improvements that may result in a special tax or
assessment against any part of the Real Property, are proposed, in progress or
completed. To the knowledge of Seller, there are no structural defects in the
buildings and other improvements situated on the real property owned or leased
by Seller, and all such facilities are in all material respects in good
condition and working order (reasonable wear and tear excepted) and adequate for
the operation of Seller's business as currently conducted.
3.08. Personal Property. Except as disclosed in Schedule 3.08 and
except for obsolete assets and assets disposed of in the ordinary course of
business since December 31, 1997, Seller has good and valid title to the
machinery, equipment and other tangible personal property reflected in the
Historical Financial Statements as being owned by it or acquired by it after
December 31, 1997, free and clear of all Encumbrances, other than Permitted
Encumbrances; and Seller is the lessee of all the leasehold estates pertaining
to the machinery, equipment and other tangible personal property purported to be
granted by the capitalized leases reflected in the Historical Financial
Statements (if any). Each lease or licensing arrangement for personal property
used by Seller is valid and without any material default thereunder by Seller,
or, to the knowledge of Seller, the lessor.
3.09. Intellectual Property Rights. Schedule 3.09 lists all the
Patents, Trademarks and Trade Names owned or licensed by Seller which are used
in Seller's businesses. Except as otherwise disclosed in Schedule 3.09, Seller
validly owns, beneficially and of record, all the Patents, Trademarks and Trade
Names listed in Schedule 3.09, free and clear of all Encumbrances other than
Permitted Encumbrances. Except as disclosed in Schedule 3.09, no action, claim,
suit or proceeding has been brought against Seller or, to the knowledge of
Seller, has been threatened against Seller with respect to any Intellectual
Property Rights used in Seller's businesses that challenge Seller's right to use
any Intellectual Property Rights or that alleges that Seller infringes any
Intellectual Property Rights of any other Person. To the knowledge of Seller, no
other Person is infringing any of the Intellectual Property Rights.
3.10. Litigation. Except as disclosed in Schedule 3.10, there is no
action, suit arbitration, investigation, audit or proceeding pending or
threatened against Seller or any shareholder of Seller in any court, or before
any Federal, state, local or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, or before any arbitrator
of any kind. Neither Seller nor any shareholder of Seller is subject to any
judgment, order, writ, injunction or decree of any court or any Federal, state,
local or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or any arbitrator.
3.11. Contracts. Schedule 3.11 lists all Contracts by which any Assets
are bound and/or which are to be assigned to Purchaser pursuant hereto. Except
for the Contracts listed in Schedule 3.11, Seller is not a party to, nor are any
of its Assets subject to, any (i) material license or royalty agreement, (ii)
material distributor, dealer, sales agency or advertising contract, (iii)
contract or agreement granting to any Person a preferential right to purchase
any of its material assets, properties or rights or containing a covenant or
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other agreement not to compete and (iv) contract or agreement with respect to
the transportation, removal or storage of any material amount of effluent,
wastes, pollutants or other hazardous substances or materials. Except as
disclosed in Schedule 3.11, each of the Contracts listed in Schedule 3.11 is
valid and in full force and effect and, to the knowledge of Seller, Seller and
each other party to any such Contract has performed all material obligations
required to be performed by it thereunder.
3.12. Benefit Plans. The Seller has no "employee pension benefit plans"
(as defined in Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), "employee welfare benefit plans" (as defined in
Section 3(1) of ERISA), or any other employee fringe benefit plans maintained,
or contributed to, by Seller (all the foregoing being herein called "Benefit
Plans") except as set forth on Schedule 3.12.
3.13. Taxes. (a) With respect to the ownership of the Assets and the
conduct of the Business on and prior to the Closing Date, Seller has properly
completed and filed on a timely basis all returns, reports and declarations in
connection with any Taxes required to be filed. No request for an extension to
file any Tax return has been requested or granted. Seller has paid, or will pay,
as the case may be, all Taxes required to be paid by it, and with respect to the
Assets, through the Closing Date.
(b) None of the Assets is subject to any lien in favor of the United
States pursuant to Code Section 6321 or to any foreign national tax authority
for nonpayment of federal or foreign income taxes, or any lien in favor of any
state or locality pursuant to any comparable provision of state or local law,
under which transferee liability might be imposed upon the Purchaser as a
purchaser of such Assets pursuant to Code Section 6323 or any comparable
provision of foreign, state or local law.
3.14. Compliance With Laws. To the best of Seller's knowledge, Seller
has complied in all material respects with and is in material compliance with
all federal, state, local or foreign statutes, ordinances, codes, rules and
regulations, decrees, stipulations and awards entered by any governmental
authority, and all licenses, franchises, consents, approvals, permits or similar
rights granted under any of the foregoing, except for such violations that would
not individually or in the aggregate have a material adverse effect on the
Business. The Seller has been granted, has complied in all material respects
with and is in material compliance with, all licenses, permits, consents,
approvals, franchises and other authorizations necessary for the conduct of the
Business or the ownership or operations of the Assets, and has not received any
written notice that any of the foregoing will be revoked, canceled, rescinded or
not renewed in the ordinary course such that there may be an adverse effect on
the Business on the date hereof through the date of Closing.
3.15. Transactions with Affiliates. Since December 31, 1998, except as
disclosed in Schedule 3.15, Seller has not purchased, acquired, leased or
licensed any property or services from, or sold, transferred, leased or licensed
any property or services to, any Affiliate, or any officer or director of
Seller, other than on an arm's length basis in the ordinary course of business.
3.16. Insurance. All of the real and tangible personal property
included in the Assets are insured for the benefit of Seller in amounts and
against such risks as are customary for companies similarly situated under valid
and enforceable policies issued by financially sound and reputable insurers.
Schedule 3.16 contains a list and description of all material policies of
property, fire, liability, workers' compensation and all other types of
insurance maintained by Seller. As of the date hereof, all such policies are in
full force and effect and all premiums due thereon have been paid.
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3.17. Inventory. All inventory of the Seller was acquired by the Seller
in the ordinary course of business and is in good condition and is usable and
saleable in the ordinary course of such business. The Seller has good and valid
title to the inventory, free and clear of all Encumbrances, except Permitted
Encumbrances. The allowance for obsolete and slow moving inventory reflected in
the Historical Financial Statements and in the Closing Date Balance Sheet is and
will be properly determined in accordance with Applicable Accounting Principles.
3.18. Accounts Receivable. All accounts receivable of the Seller
included in the Assets, whether reflected in the Historical Financial Statements
or subsequently created ("Receivables"), have arisen from bona fide transactions
in the ordinary course of business. The allowance for doubtful accounts in
respect of Receivables reflected in the Historical Financial Statements and in
the Closing Date Balance Sheet is and will be properly determined in accordance
with the Applicable Accounting Principles.
3.19. Customers and Suppliers. Schedule 3.19 hereto lists the ten
largest suppliers and the twenty largest customers of Seller (calculated by
dollar amount) for each of 1996 and 1997, stating for each the dollar volume of
the purchases. Seller does not have any knowledge that any of the customers or
suppliers listed on Schedule 3.19 intends to cease purchasing from, selling to
or dealing with Seller, nor has any information been brought to the attention of
Seller that might reasonably lead it to believe any such customer or supplier
intends to materially alter the amount of such sales or purchases or the extent
of dealings with Seller.
3.20. Employees. Schedule 3.20 sets forth a complete and correct list
as of the date of this Agreement of the names, annual salaries and credited
years of service of all officers and employees of Seller. In the case of
officers or employees receiving bonus or similar payments at any time during the
past two years exceeding $25,000 during any 12 month period, such Schedule 3.20
also sets forth the amount of the bonus and other payments in excess of ordinary
wages received by such officers and employees during each of the past two years.
As of the date of this Agreement, there are no current or, to the knowledge of
Seller, threatened work stoppages by any of the employees.
3.21. Accuracy. To Seller's knowledge, the required disclosures made in
this Agreement and the schedules attached hereto are complete and accurate in
all material respects, and the scheduled disclosures do not contain any untrue
statement of a fact or omit to state any fact necessary to make the statements
or facts contained therein not misleading.
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ARTICLE IV
Representations and Warranties of the Purchaser and Parent
----------------------------------------------------------
Purchaser and Parent represent and warrant to Seller that the
statements made in this Article IV are true, correct and complete as of the date
hereof, and will continue to be true, correct and complete on the Closing Date:
4.01. Organization. Purchaser has been duly organized, is validly
existing and is in good standing under the laws of the State of Delaware.
4.02. Authority. Purchaser has the full power and authority to execute
and deliver this Agreement and the other agreements and instruments to be
executed and delivered by it pursuant hereto and to consummate the transactions
contemplated hereby and thereby. All corporate acts and other proceedings
required to be taken by or on the part of Purchaser to authorize such execution,
delivery and consummation have been duly and properly taken. This Agreement has
been duly executed and delivered by Purchaser and constitutes, and such other
agreements and instruments contemplated by this Agreement when duly executed and
delivered by Purchaser will constitute, legal, valid and binding obligations of
the Purchaser enforceable against it in accordance with their respective terms.
The execution and delivery by Purchaser of this Agreement and the execution and
delivery by Purchaser of such other agreements and instruments and the
consummation by Purchaser of the transactions contemplated hereby and thereby
will not violate any law, or (after obtaining necessary consents) conflict with,
result in any breach of, constitute a default under, or result in the creation
of a lien or encumbrance on any of the properties or assets of Purchaser
pursuant to, the certificate of incorporation of Purchaser or (after obtaining
necessary consents) any indenture, mortgage, lease, agreement or other
instrument to which Purchaser is a party or by which its properties or assets
are bound. No approval, authorization, consent or other order or action of or
filing with any court, administrative agency or other governmental body in the
United States of America is required for the execution and delivery by Purchaser
of this Agreement and the execution and delivery by Purchaser of such other
agreements and instruments or the consummation by Purchaser of the transactions
contemplated hereby or thereby.
4.03. No Legal Proceedings. There is no action, suit, order, judgment
or proceeding pending or, to the knowledge of Purchaser, threatened against or
affecting Purchaser that, individually or when aggregated with one or more other
actions, suits, orders, judgments or proceedings, has or might reasonably be
expected to have a material adverse effect on Purchaser's ability to perform any
of its obligations hereunder or under any of the other agreements and
instruments to be executed and delivered by Purchaser in connection herewith.
4.04 Financing. As of the Closing Date, Purchaser shall have all funds
necessary to pay the Closing Date Payment Amount and related fees and expenses,
and as of the Closing Date, will have the financial capacity to perform all of
its other obligation under this Agreement, and any additional agreements
executed and delivered in connection herewith.
4.05 The Business. Purchaser and Parent agree that the Purchaser shall,
for as long as John McCoy shall be an employee of Purchaser, not conduct any
business other than the Business without the prior written consent of John
McCoy.
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ARTICLE V
Further Covenants and Agreements
--------------------------------
5.01. Conduct of Business. (a) Except as otherwise expressly provided
herein, from and after the date of this Agreement and until the Closing, Seller
shall:
(i) operate its business only in the ordinary course consistent with
past practice in all material respects;
(ii) use its best efforts to preserve intact its business and to
maintain satisfactory relationships with its customers, suppliers,
distributors and any other person having business relations with it;
(iii) maintain its tangible assets in good order and repair, ordinary
wear and tear excepted;
(iv) perform punctually all obligations under each Contract, and keep
each Contract in full force and effect, free from any right of cancellation,
forfeiture or termination;
(v) retain the services of its key officers and employees; and
(vi) promptly notify the Purchaser of any material adverse change in
the business, assets, financial condition or results of operations of
Seller.
(b) From the date hereof to the Closing, Seller will not take any
action or engage in any transaction which would render the representations and
warranties of Seller inaccurate in any material respect as of the Closing Date.
In addition, except as expressly permitted by the terms of this Agreement,
Seller will not do any of the following without the prior written consent of the
Purchaser (such consent not to be unreasonably withheld):
(i) amend Seller's Certificate of Incorporation (except to change
Seller's corporate name);
(ii) redeem or otherwise acquire any of its capital stock or issue any
capital stock or any option, warrant or right relating thereto;
(iii) grant to any employee any increase in compensation, except as has
been previously disclosed to the Purchaser;
(iv) incur any liabilities, obligations or indebtedness for borrowed
money or guarantee any such liabilities, obligations or indebtedness in
excess of $10,000 or which requires performance over more than one year,
other than to an independent third party in the ordinary course of business
consistent with past practice;
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(v) cancel any material indebtedness owed to Seller, other than in the
ordinary course of business consistent with past practice;
(vi) make any material change in any method of accounting or accounting
practice or policy;
(vii) acquire or agree to acquire by merging or consolidating with, or
by purchasing stock or a substantial portion of the assets of, or by any
other manner, any material operating business, corporation, partnership,
association or other business organization (or division thereof);
(viii) sell, lease or otherwise dispose of, or agree to sell, lease or
otherwise dispose of, any of its assets with a value in excess of $10,000,
except in the ordinary course of business consistent with past practice;
(ix) enter into any lease of real property;
(x) modify, amend or terminate any lease of, or other material
agreement pertaining to, real property (except modifications or amendments
associated with renewals of leases in the ordinary course of business);
(xi) make capital expenditures or purchases in excess of $10,000 in the
aggregate; or
(xii) agree, whether in writing or otherwise, to do any of the
foregoing or to take any other action which would in any manner interfere
with, impedes, delays or make more costly the consummation of the
transaction completed hereby.
(c) Notwithstanding anything to the contrary contained in this Section
5.01, Purchaser acknowledges that withdrawals from the Seller made by McCoy of
approximately $105,434 for (i) profits on which Federal income Taxes were
already paid and (ii) net income earned during fiscal year 1998, will not
constitute extraordinary transactions, and do not require any the consent of
Purchaser.
5.02. Access; Information. From the date hereof to and including the
Closing Date, McCoy and Seller shall afford to the officers, employees,
attorneys, accountants and other authorized representatives of Purchaser
reasonable access to the offices, management, employees, plants, properties,
assets, contracts, books and records of Seller in order that the Purchaser may
have the full opportunity to make such legal, financial, accounting and other
reviews or investigations of Seller as they shall desire to make. McCoy and
Seller shall furnish promptly to the Purchaser such financial and operating
information as Purchaser may reasonably request, including copies of any
documents requested before or after the date hereof.
5.03. Consents. From the date hereof to and including the Closing Date,
Seller agrees (i) to obtain all consents, authorizations, orders, exemptions and
approvals of any third parties, including governmental bodies and landlord under
leases, required to be obtained by it in connection with any of the transactions
contemplated hereby, (ii) to take all reasonable actions necessary to comply
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promptly with all legal requirements which may be imposed on or applicable to it
with respect to the Closing and (iii) to promptly cooperate with and furnish
information to Purchaser in connection with any such legal requirements.
5.04. Notification of Certain Matters. Seller shall give prompt written
notice to the Purchaser, and the Purchaser shall give prompt written notice to
Seller, as the case may be, of the occurrence, or failure to occur, of any event
that would be likely to cause any representation or warranty by such notifying
party contained in this Agreement to be untrue or inaccurate in any material
respect at any time between or including the date of this Agreement and the
Closing Date.
5.05. Insurance. The Seller agrees to keep all insurance policies set
forth in Schedule 3.16, or replacements thereof, in full force and effect
through the close of business on the Closing Date.
5.06. Prohibition of Solicitation. From the date hereof through the
Closing or the earlier termination of this Agreement, Seller shall not, and
shall cause its respective directors, officers, shareholders, affiliates,
agents, advisers and other representatives (including investment bankers) not
to, directly or indirectly, enter into, solicit or initiate any discussions or
negotiations with, or encourage or respond to any inquiries or proposals by, or
participate in any negotiations with, or provide any information to, or
otherwise cooperate in any other way with, any Person, other than Purchaser and
its directors, officers, members, affiliates, agents, advisers and other
representatives, concerning any sale of all or a portion of Seller's assets, or
any merger, consolidation, liquidation, dissolution or similar transaction
involving Seller (each such transaction being referred to herein as a "Proposed
Acquisition Transaction"). Seller will immediately notify the Purchaser if any
discussions or negotiations are sought to be initiated, any inquiry or proposal
is made, or any information is requested with respect to any Proposed
Acquisition Transaction and notify the Purchaser of the terms of any proposal
which it may receive after the date hereof in respect of any such Proposed
Acquisition Transaction, including without limitation the identity of the
prospective purchaser or soliciting party.
5.07 Publicity. Prior to the Closing, or if this Agreement shall be
terminated, Purchaser and Seller shall consult with each other before issuing
any press release concerning the transactions contemplated by this Agreement
and, except as may be required by applicable law, will not issue a press release
prior to such consultation. If Purchaser or Seller or any of their respective
Affiliates is so required to issue a press release, it shall use its best
efforts to inform the other party hereto prior to issuing it.
5.08 Preservation of Records; Assistance. (a) Records. Purchaser
agrees, at its own expense, (x) to preserve and keep the records of the Business
for a period of five (5) years from the Closing Date, or for any longer periods
as may be required by any government agency or ongoing litigation, and (y) to
make such records available to Seller as may be reasonably required by Seller.
Seller agrees, at its own expense, (x) to preserve and keep the Tax Returns
relating to the Business for a period of five (5) years from the Closing Date,
or for any longer periods as may be required by any government agency or ongoing
litigation, and (y) to make such Tax Returns available to Purchaser as may be
reasonably required by Purchaser.
(b) Assistance. After the Closing, Purchaser shall make available to
Seller such of its employees and professional representatives, at such time or
times as Seller shall reasonably request without unduly interfering with the
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conduct of Purchaser's business, in order to assist Seller in the investigation
or evaluation of, or litigation with respect to, any claims, liabilities or
obligations of the Business prior to the Closing that are not assumed by
Purchaser pursuant to Section 2.03; provided, however, that Seller shall
reimburse Purchaser in respect of Purchaser's documented out-of-pocket expenses
incurred in compliance with this Section 5.08(ii).
5.09 Offers of Employment. Purchaser shall at Closing extend offers of
employment at will to each employee of Seller other than _________, and shall
for purposes of calculation of service credit in connection with the application
of Purchaser's employee welfare and benefit plans and employment policies and
practices treat each such employee of Seller as if he or she had been hired by
Purchaser on the date he or she was hired by Seller, except as restricted by the
Purchaser's various employee benefit plans.
ARTICLE VI
Conditions Precedent to Obligations of Purchaser
------------------------------------------------
All obligations of Purchaser to effect the Closing hereunder are, at
the option of the Purchaser, subject to the conditions precedent that, at the
Closing:
6.01. Bill of Sale. The Seller shall have executed and delivered to
Purchaser such bills of sale and other instruments as Purchaser may reasonably
request in order to give effect to, and appropriately evidence, the transfer to
Purchaser of all Seller's right, title and interest in and to the Assets.
6.02. Opinion of Counsel. The Purchaser shall have received the
favorable opinion of Pavia & Harcourt, counsel to Seller, addressed to the
Purchaser and dated the Closing Date, substantially in the form of Exhibit 6.02
(or otherwise in a form reasonably satisfactory to the Purchaser).
6.03. Employment Agreement. McCoy shall have executed and delivered to
Purchaser an employment agreement in the form of Exhibit 6.03 attached hereto
(the "Employment Agreement").
6.04. Consummation of the IPO. The Parent shall have consummated the
IPO or any Affiliate of Purchaser shall have closed an offering of not less than
$10,000,000 of such Affiliate's senior subordinated debt.
6.05. Consent of National Bank of Canada. The Purchaser shall have
obtained written consent to the transactions contemplated hereby from the
National Bank of Canada to the extent required by the Credit Agreement dated
June 19, 1998 between the National Bank of Canada and MS Pietrafesa, L.P., a
Delaware limited partnership, and an Affiliate of Purchaser (the "Partnership").
6.06. Due Diligence Review. Purchaser shall have received a copy of
Seller's audited financial statements for the year ended December 31, 1998, and
shall be reasonably satisfied with the financial condition and results of
operations of Seller and the Business set forth therein.
6.07. Liabilities. Seller shall not be in default under any
Liabilities, nor shall have caused an acceleration of any such Liabilities.
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6.08. Performance by Seller. All the terms, covenants, agreements and
conditions of this Agreement to be complied with and performed by Seller on or
before the Closing shall have been complied with and performed and, in addition,
Seller shall not have done any of the actions listed in Section 5.01(b) between
August 31, 1998 and the date of the Closing.
6.09. Representations and Warranties. The representations and
warranties made by Seller in this Agreement shall be true and correct with the
same force and effect as though all such representations and warranties had been
made as of the Closing.
6.10. No Law Suits. There shall not be pending or threatened any
lawsuit, claim or proceeding, in law or equity, which challenges or adversely
affects Seller or the Business.
6.11. Seller's Certificate. The Purchaser shall have received from
Seller, in form and substance reasonably satisfactory to the Purchaser and its
counsel, a certificate of Seller, dated the Closing Date, confirming the
satisfaction of the conditions set forth in Sections 6.08 and 6.09.
6.12. Secretary's Certificate. Purchaser shall have received from
Seller, in form and substance reasonably satisfactory to the Purchaser and its
counsel, a certificate, dated the Closing Date, of the Secretary or an Assistant
Secretary of Seller, (i) certifying the resolutions of the Board of Directors of
Seller and all other documents of Seller which authorize the transactions
contemplated hereby and the execution, delivery and performance by Seller of
this Agreement and the documents contemplated hereby, (ii) certifying the
Certificate of Incorporation and Bylaws of Seller, (iii) containing a
certificate of good standing from the Secretary of State of the state of
Seller's organization, and (iv) containing an incumbency certificate regarding
the officers of Seller authorized to sign this Agreement and the other documents
contemplated hereby.
6.13. No Material Adverse Changes. There shall have been no material
adverse change in the business, assets, operations, prospects or financial
condition of the Seller or the Business since the date of this Agreement.
6.14. McCoy Guaranty. The Purchaser shall have received from McCoy a
guaranty in the form of Exhibit 6.14 attached hereto (the "McCoy Guaranty").
ARTICLE VII
Conditions Precedent to Obligations of Seller
---------------------------------------------
All obligations of Seller to effect the Closing hereunder are, at the
option of Seller, subject to the conditions precedent that, at the Closing:
7.01. Performance by the Purchaser. All the terms, covenants,
agreements and conditions of this Agreement to be complied with and performed by
the Purchaser on or before the Closing shall have been complied with and
performed in all material respects.
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7.02. Representations and Warranties. The representations and
warranties made by the Purchaser in this Agreement shall have been true and
correct in all material respects at the date hereof and as of the Closing with
the same force and effect as though all such representations and warranties had
been made as of the Closing.
7.03. Gross Sales. Purchaser shall have delivered to Seller a statement
detailing the gross sales of the Partnership and the Parent for the period from
August 1 through the end of the month preceding the month of the Closing and the
gross sales indicated on such statement shall have been greater than or equal to
70% of the gross sales for such period indicated in the projections previously
delivered to Seller; provided, however, that this condition shall be deemed
waived unless Seller shall have delivered to Purchaser written notice of the
failure of this condition within five days of Seller receiving the gross sales
statement referred to above.
7.04. Parent Guarantee. The Seller shall have received from the Parent
a guaranty in the form of Exhibit 7.04 attached hereto.
7.05. No Injunctions. There shall not be in effect any injunction or
restraining order issued by a court of competent jurisdiction against the
consummation of the sale and purchase of the Assets pursuant to this Agreement.
7.06. Officer's Certificate. The Seller shall have received from
Purchaser, in form and substance reasonably satisfactory to Seller and its
counsel, a certificate, dated the Closing Date, of an officer of Purchaser,
certifying as to the satisfaction of the conditions set forth in Sections 7.01
and 7.02.
7.07 Secretary's Certificate. The Seller shall have received from
Purchaser, in form and substance reasonably satisfactory to Seller and its
counsel, a certificate, dated the Closing Date, of the Secretary or an Assistant
Secretary of Purchaser, (i) certifying all documents evidencing the actions of
Purchaser authorizing the transactions contemplated hereby and the execution,
delivery and performance by Purchaser of this Agreement and the documents
contemplated hereby, (ii) certifying the Certificate of Incorporation of
Purchaser and (iii) containing an incumbency certificate regarding the officers
of Purchaser authorized to sign this Agreement and the other documents
contemplated hereby.
ARTICLE VIII
Survival, Termination of Agreement Prior To Closing, and Indemnification
------------------------------------------------------------------------
8.01. Survival of Representations. Notwithstanding any investigation or
knowledge of Purchaser, the representations, warranties, covenants and
agreements contained in this Agreement, and in any agreements, certificates or
other instruments delivered pursuant to this Agreement, shall survive the
Closing and shall remain in full force and effect for three years after the
Closing Date (or, in the case of representations and warranties set forth in
Sections 3.12 (Taxes), until the expiration of the applicable statute of
limitations (with extensions)), but subject to all limitations and provisions
contained in this Agreement. Notwithstanding the preceding sentence, any
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representation, warranty, covenant or agreement in respect of which indemnity
may be sought under this Agreement shall survive the time at which it would
otherwise terminate pursuant to the preceding sentence if notice of the
inaccuracy or breach thereof giving rise to such right to indemnity shall have
been given prior to such time to the party against whom such indemnity may be
sought.
8.02. Indemnification by Seller. The Seller hereby agrees to indemnify
and hold Purchaser and its Affiliates, officers, directors, employees, agents
and representatives harmless from and against any and all claims, damages,
liabilities, liens, losses or other obligations whatsoever, together with costs
and expenses, including fees and disbursements of counsel and expenses of
investigation (collectively, "Losses"), arising out of, based upon or caused by
(i) the material inaccuracy of any representation or the breach of any warranty
of Seller contained in this Agreement or (ii) any material breach or
nonperformance by Seller of any of its covenants or agreements contained in this
Agreement or in any agreement, certificate or other instrument delivered by
Seller pursuant to this Agreement. Notwithstanding the foregoing or any other
provision of this Agreement, however, Seller shall have no liability to the
Purchaser and its Affiliates from Losses unless and until the amount of all
Losses covered by this Section 8.02 exceeds, in the aggregate, $25,000 (the
"Threshold Amount"), and upon the Threshold Amount being exceeded, Seller shall
be liable for the total amount of Losses. The Seller's obligation to indemnify
Purchaser pursuant to this Section 8.02 shall be limited to the total amount of
the Purchase Price actually paid to and retained by Seller from Purchaser;
provided, however, that any amounts due to Seller, from Purchaser pursuant to
this Agreement shall be subject to setoff and deduction to the full extent that
any Loss, in respect of which Purchaser is entitled to indemnification, exceeds
the Purchase Price previously paid to Seller.
8.03. Indemnification by Purchaser. The Purchaser hereby agrees to
indemnify and hold Seller and its Affiliates and their respective officers,
directors, employees, agents and representatives harmless, from and against any
and all Losses arising out of, based upon or caused by (i) the inaccuracy of any
representation or the breach of any warranty of Purchaser contained in this
Agreement or in any agreement, certificate or other instrument delivered by
Purchaser pursuant to this Agreement, or (ii) any breach or nonperformance by
Purchaser of any of its covenants or agreements contained in this Agreement or
in any agreement, certificate or other instrument delivered by Purchaser
pursuant to this Agreement.
8.04. Notice; Cooperation; Defense; Etc. The indemnified party agrees
to give the indemnifying party prompt written notice of any third-party action,
claim, demand, discovery of fact, proceeding or suit (collectively, "Claims")
for which such indemnified party intends to assert a right to indemnification
under this Agreement; provided, however, that failure to give such notification
after such notice is required shall not adversely affect the indemnified party's
entitlement to indemnification hereunder except to the extent that the
indemnifying party shall have been actually prejudiced as a result of such
failure. The indemnified party shall take all reasonable or necessary steps to
resolve, defend or cooperate in the defense of such Claims, including retaining
and providing to the indemnifying party all documents, records and other
information that may be relevant to such Claims and making employees available
to the extent reasonably requested to fully cooperate in the resolution or
defense of such Claims and provide any additional information (including
explanations and interpretations of any other materials or information provided)
that they are able to provide with respect thereto. The indemnifying party shall
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have the right to participate jointly with the indemnified party in the
indemnified party's defense, settlement or other disposition of any Claim and,
with respect to any Claim that is not likely to result in the indemnified
party's becoming subject solely to injunctive or other similar relief, the
indemnifying party shall have the sole right (but not the obligation) to defend,
settle or otherwise dispose of such Claim on such terms as the indemnifying
party, in its sole discretion, shall deem appropriate. The indemnifying party
shall obtain the written consent of the indemnified party, which shall not be
unreasonably withheld or delayed, prior to ceasing to defend any Claim if it has
theretofore elected to exercise its sole right to defend, settle or otherwise
dispose of such Claim. In calculating amounts payable to the indemnified party
under this Article VIII, (i) the indemnified party shall receive credit for any
insurance recoveries, and (ii) no amount shall be paid for the indemnified
party's special or consequential damages, but the same shall be indemnified if
the same shall be required to pay the amounts to any third party for special or
consequential damages of such third party in regard to a matter which is
otherwise indemnifiable hereunder.
8.05. Adjustment to Purchase Price. Amounts paid by Seller or Purchaser
under this Article VIII shall be treated for all tax purposes as adjustments to
Purchase Price.
ARTICLE IX
Taxes and Benefit Plans
-----------------------
9.01. Taxes. (a) Allocation of Responsibility. Seller shall pay (or
indemnify and hold Purchaser harmless with respect to) (without duplication) any
Taxes (excluding any penalties arising from any act by Purchaser) payable by
Seller with respect to Seller's income for all tax periods up to the Closing
Date. Any Taxes payable by Seller pursuant to this Section 9.01(a) shall be paid
by Seller when due, but in no event more than thirty days following the request
therefor from any Purchaser.
(b) Returns. The Seller shall prepare and file all required Federal,
state, local and foreign Tax Returns for Seller for all taxable periods ending
on or prior to the Closing Date and pay all Taxes due for such periods on such
Tax Returns. Any such Tax Returns shall, insofar as they relate to Seller, be on
a basis consistent with the last such Tax Returns that have been filed in
respect to Seller.
(c) Cooperation. The Purchaser and Seller mutually agree to cooperate
fully with each other with respect to the preparation of all Tax Returns, the
filing and prosecution of any Tax claims, the furnishing of any document, record
or other relevant information relating to any Tax liability or refund and all
other Tax matters, and to keep each other advised as to any issue relating to
Taxes which would have any bearing on the other party's responsibilities
pursuant to this Section 9.01.
9.02. Transfer Taxes. The Seller and Purchaser shall be responsible on
an equal basis for all transfer and similar Taxes assessed or payable in
connection with the Transfer of the Assets pursuant to this Agreement.
9.03. Expenses of Benefit Plans. The Seller shall pay (or indemnify the
Purchaser with respect to) that portion of the costs of the Benefit Plans
payable by Seller for the period up to but not including the Closing Date. Any
costs relating to the Benefit Plans by Seller pursuant to this Section 9.03
shall be paid by Seller when due, but in no event more than thirty days
following the request therefor from Purchaser.
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ARTICLE X
Miscellaneous
-------------
10.01. Brokers. Seller represents and warrants to the Purchaser and
Purchaser represents and warrants to McCoy and Seller, that no party hereto or
any party acting on behalf of any of the parties hereto have incurred any
liability, either express or implied, to any "broker", "finder", financial
adviser or similar Person in respect of any of the transactions contemplated
hereby. The Purchaser agrees to indemnify Seller against, and hold it harmless
from, Seller agrees to indemnify the Purchaser against, and hold it harmless
from, any liability, cost or expense (including, but not limited to, fees and
disbursements of counsel) resulting from any agreement, arrangement or
understanding made by such party with any third party for brokerage, finders' or
financial advisory fees or other commissions in connection with this Agreement
or the transactions contemplated hereby. The provisions of this Section shall
survive any termination of this Agreement.
10.02. Expenses. Except as otherwise specifically provided in this
Agreement, each party will pay its own expenses incident to this Agreement and
the transactions contemplated hereby, including legal, due diligence and
accounting fees and disbursements. The provisions of this Section shall survive
any termination of this Agreement.
10.03. Amendments and Waivers. The parties hereto may, by written
agreement signed by the parties, modify any of the covenants or agreements or
extend the time for the performance of any of the obligations contained in this
Agreement or in any document delivered pursuant to this Agreement. Any party
hereto may waive, by written instrument signed by such party, any inaccuracies
in the representations and warranties of another party or compliance by another
party with any of its obligations contained in this Agreement or in any document
delivered pursuant to this Agreement. This Agreement may be amended only by
written instrument signed by the parties hereto.
10.04 Transferability. The respective rights and obligations of each
party hereto shall not be assignable by any party without the written consent of
the other parties (and any purported assignment without such written consent
shall be void and of no effect). This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assignees.
10.05 Termination. Unless otherwise agreed between the parties, the
Purchaser and Seller may each terminate this Agreement if the Closing has not
occurred on or prior to June 30, 1999; provided, however, that any party that
has failed to perform any covenant hereunder, which failure has resulted in
delay of the closing because the conditions set forth in Articles VI and VII
have not been met, shall not be entitled to terminate this Agreement except with
the prior written consent of the other party hereto. In the event of the
termination of this Agreement pursuant to this Section 10.05, Seller shall
return to the Purchaser all deposits or other amounts paid to Seller prior to
the date of such termination, and thereafter, none of the parties shall have any
obligation or liability of any nature whatsoever to the other party hereto, and
all expenses incurred by any party hereto shall be for its own account;
provided, however, that (i) in the event that the Closing has not occurred prior
to June 30, 1999 due to the fault of Purchaser, the Seller may deduct from the
Contract Deposit reasonable attorney's and accountant's fees (including the cost
of a customary annual independent accountant's audit for the most recent fiscal
year) incurred in connection with the negotiation of this Asset Purchase
Agreement and related agreements not to exceed $110,000 and (ii) notwithstanding
any termination of this Agreement, no party hereto shall be deemed to have
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waived any rights it may have arising from the breach of this Agreement or any
provision contained herein by the other party hereto and such rights shall
specifically survive any such termination of this Agreement.
10.06 Bulk Transfer Laws. The Seller and Purchaser hereby waive
compliance with the provisions of any so-called "bulk transfer law" of any
jurisdiction in connection with the sale of the Assets. Seller shall indemnify
and hold harmless Purchaser against any and all claims which may be asserted by
third parties against the Assets as a result of non-compliance with any such
bulk transfer law or any similar law in any foreign jurisdiction, other than
claims arising out of or relating to Purchaser's failure to perform or satisfy
its duties or obligations with respect to this Agreement, including the
liabilities and obligations assumed by Purchaser hereunder.
10.07 Notices. Any notice, request or other document to be given
hereunder to a party hereto shall be effective when received and shall be given
in writing and delivered in person, by facsimile or sent by hand delivery or
overnight courier, as follows:
If to Purchaser:
MS Pietrafesa, L.P.
7400 Morgan Road
Liverpool, NY 13090
Attention: Richard C. Pietrafesa, Jr.
Telefax: (315) 451-5459
with a copy to:
Roberts, Sheridan & Kotel,
a Professional Corporation
12 East 49th Street
New York, NY 10017
Attention: L. Kevin Sheridan, Esq.
Telefax: (212) 299-8686
If to Seller:
John McCoy
Components, Inc.
20 West 55th Street
New York, NY 10019
Telefax: (212) 581-3980
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with a copy to:
George Pavia, Esq.
Pavia & Harcourt
600 Madison Avenue
New York, NY 10022
Telefax: (212) 980-3185
Any party hereto may change its address for receiving notices, requests and
other documents by giving written notice of such change to the other parties
hereto.
10.08 Governing Law; Choice of Forum. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York (without
regard to conflict of laws doctrines). The parties agree to submit, and consent
to the binding resolution of any dispute, claims or controversy under this
Agreement, to resolution by arbitration in accordance with the rules of the
American Arbitration Association in the City of New York Any such arbitration
shall be conducted by a panel of at least three arbitrators, an equal number of
whom shall be appointed by each party hereto and the balance of whom shall be
mutually agreed by the arbitrators so appointed. The parties agree to share
equally the costs of such arbitration, except that the prevailing party (as
determined by the arbitrators), to the extent permitted by law, shall also be
entitled to recover from the other party any reasonable legal fees and expenses
of its counsel incurred in connection with such arbitration.
10.09 Partial Invalidity. In the event that any provision of this
Agreement shall be held invalid or unenforceable by any court of competent
jurisdiction, such holding shall not invalidate or render unenforceable any
other provision hereof.
10.10 Section Headings. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
10.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
10.12 Entire Agreement. This Agreement, together with the schedules and
exhibits and the agreements, certificates and instruments delivered pursuant
hereto, contain the entire agreement among the parties hereto, and supersede all
prior agreements and undertakings (written and oral) between the parties hereto,
relating to the subject matter hereof.
10.13 Publicity. No party shall issue any press release or make any
other public announcement with respect to this Agreement or the transactions
contemplated hereby without obtaining the prior written approval of the other
parties (which will not be unreasonably withheld or delayed), except as may be
required by law or the regulations of any securities exchange.
10.14 Parties in Interest. Nothing in this Agreement, express or
implied, is intended to confer on any Person other than the parties and their
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respective successors and permitted assigns any rights or remedies under or by
virtue of this Agreement, and no Person shall assert any rights as a third party
beneficiary hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
COMPONENTS ACQUISITION CORP.
By: /s/ Richard C. Pietrafesa, Jr.
--------------------------------
Name: Richard C. Pietrafesa, Jr.
Title: CEO
COMPONENTS BY JOHN MCCOY,INC.
By: /s/ John McCoy
--------------------------------
Name: John McCoy
Title: President
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EXHIBIT 6.03
to Components Purchase Agreement
Employment Agreement, dated as of _________,
1998 (the "Effective Date"), by and between
COMPONENTS ACQUISITION CORP., a Delaware corporation
(the "Purchaser") and a wholly-owned subsidiary of
The Pietrafesa Corporation (the "Parent"), and JOHN
McCOY, an individual (the "Executive").
W I T N E S S E T H:
WHEREAS, pursuant to an Asset Purchase Agreement of even date
herewith (the "Asset Purchase Agreement"), the Purchaser is acquiring all the
assets of Components by John McCoy, Inc., a New Jersey corporation
("Components"), and from the date hereof will conduct the business of
Components;
WHEREAS, Executive through the date hereof was the president
and chief executive officer of Components and was responsible for the day-to-day
operating control of Components; and
WHEREAS, the Purchaser wishes to ensure the continuation of
the services of Executive following the effectiveness of the Asset Purchase
Agreement and for the period provided in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the
mutual promises and covenants herein contained, it is agreed as follows:
1. EMPLOYMENT; DUTIES
(a) The Purchaser hereby engages and employs the Executive, and the Executive
hereby accepts engagement and employment, as President and Chief Executive
Officer of the Purchaser or of such other entity which shall operate the
business of Components acquired by the Purchaser. The Executive shall be
responsible for the day-to-day operating control and management activities of
the Purchaser and shall be vested by the Board of Directors of the Purchaser
with authority to make such business decisions which, in his judgment, are
necessary and appropriate for the successful day-to-day operation and financial
performance of the business of the Purchaser; provided, however, that (i) all
activities of the Executive with respect to the control and management of the
Business shall be consistent with the then current business plan and budget for
the Purchaser, (ii) the Executive shall not obligate the Parent in any manner
without the prior written approval of the Parent, (iii) the Executive shall
comply with all financial and accounting controls generally applicable to the
Parent and its subsidiaries and (iv) the Executive shall not engage in any
action or enter into any contract or agreement which would, either directly or
indirectly, cause the Parent to breach any of its contractual obligations,
provided, however, that such contracts of Parent have been disclosed to the
Executive. The Executive shall also perform such duties as are required by the
Purchaser's Board of Directors.
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(b) The Executive shall devote such of his time and efforts as shall be
necessary to the proper discharge of his duties and responsibilities under this
Agreement.
2. TERM
The Executive's employment hereunder shall, unless earlier terminated
in accordance with Section 8, be for a term of six years commencing on the date
hereof (the "Term").
3. COMPENSATION
(a) As compensation for the performance of his duties on behalf of the
Purchaser, the Executive shall be entitled to receive during the Term the
following:
(i) A base salary paid in bi-weekly installments (subject
to modification consistent with the policies of the
Parent) (the "Base Salary") of not less than $220,000
per annum for the years 1999 through 2000 and
$250,000 per annum thereafter, subject to any upward
adjustments annually by the Parent's Board of
Directors; and
(ii) In the event the Pre-Tax Income (as defined in the
Asset Purchase Agreement) of the Purchaser for any
fiscal year exceeds the Pre-Tax Income Target (as
defined in the Asset Purchase Agreement) for such
year, the Parent shall, or shall cause the Purchaser
to, distribute to the Executive a bonus with respect
to such year equal to 20% of the excess. Any bonus
payable pursuant to this Section 3(a)(ii) shall be
paid in cash at the same time as any Obligation (as
defined in the Asset Purchase Agreement) is due
pursuant to the Asset Purchase Agreement, and shall
be charged to the Purchaser as an item of expense.
(b) The Purchaser shall withhold all applicable federal, state and
local taxes, social security and workers' compensation contributions and such
other amounts as may be required by law or agreed upon by the parties with
respect to the compensation payable to the Executive pursuant to Section 3(a) or
otherwise in connection with his employment by the Purchaser.
(c) The Purchaser shall reimburse the Executive for all normal, usual
and necessary expenses incurred by the Executive in furtherance of the business
and affairs of the Purchaser, including reasonable travel and entertainment,
against receipt by the Purchaser of appropriate vouchers or other proof of the
Executive's expenditures and otherwise in accordance with such expense
reimbursement policy as may from time to time be adopted by the Board of
Directors of the Parent.
(d) During the Term, the Executive shall be entitled to participate in
any group insurance plan or program of the Purchaser, now existing or
established hereafter, that are offered by Purchaser to employees of the
Purchaser to the extent that he is eligible under the general provisions
thereof.
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(e) During the Term, the Executive shall be subject to, and shall act
in accordance with, the Parent's policies, as amended from time to time.
(f) The Executive shall be entitled to twenty (20) work days paid
vacation each calendar year, at such times and for such periods as will not
interfere unduly with the operation of the Purchaser provided, however, that the
Executive provides two (2) weeks notice for vacation periods of five (5) or more
days in duration. Any vacation days not utilized in a given year shall be
forfeited and shall not be carried over to the succeeding year.
(g) During the Term hereof, the Purchaser shall continue to provide to
the Executive the leased automobile which was provided to the Executive by
Components immediately prior to the Executive's employment pursuant to the terms
hereof, through the end of the current term of such lease, and shall thereafter
provide for the Executive's use of a leased car comparable to the one currently
leased. In addition, the Purchaser shall reimburse the Executive for his fuel,
oil and parking expenses incurred in connection with his business use of such
automobile during the Term hereof, provided that the Executive presents to the
Purchaser valid receipts for such expenses.
(h) During the Term hereof, the Purchaser shall reimburse the Executive
for the monthly mortgage and maintenance payments in the amount of $2000 per
month for the premises known and designated as apartment 906, 150 West 51st
Street, New York, New York 10019, against receipt of proof of payment which is
satisfactory to Purchaser in its reasonable discretion; provided, however, that
in the event that (i) the Executive shall no longer be the owner of record of
such premises or (ii) Karen Tufte shall no longer occupy such premises as her
principal residence, this obligation of Purchaser to make such mortgage and
maintenance payments for such premises shall be terminated.
(i) The Executive agrees that he shall be responsible for payment of
any imputed federal or state income taxes in respect of any non-cash
compensation including, without limitation, the leased automobile provided to
the Executive by the Purchaser.
4. REPRESENTATIONS AND WARRANTIES
(a) The Executive hereby represents and warrants to the Purchaser as
follows:
(i) Neither the execution and delivery of this Agreement nor
the performance by the Executive of his duties and other obligations hereunder
violate or will violate any statute, law, determination or award, or conflict
with or constitute a default under (whether immediately, upon the giving of
notice or lapse of time or both) any prior employment agreement, contract, or
other instrument to which the Executive is a party or by which he is bound.
(ii) The Executive has the full right, power and legal
capacity to execute and deliver this Agreement and to perform his duties and
other obligations hereunder. This Agreement constitutes the legal, valid and
binding obligation of the Executive enforceable against him in accordance with
its terms. No approvals or consents of any persons or entities are required for
the Executive to execute and deliver this Agreement or perform his duties and
other obligations hereunder.
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(iii) The Executive agrees to maintain strict compliance with
all federal, state, local and foreign statutes, ordinances, codes, rules and
regulations.
(b) The Purchaser hereby represents and warrants to the Executive as
follows:
(i) The Purchaser is a corporation duly organized,
validly existing and in good standing under the laws
of the State of Delaware, with all requisite powers
and authority to own its properties and conduct its
business in the manner presently contemplated.
(ii) The Purchaser has full power and authority to enter
into this Agreement and to incur and perform its
obligations hereunder. This Agreement constitutes the
legal, valid and binding obligation of the Purchaser
enforceable against the Purchaser in accordance with
its terms. No approvals or consents of any persons or
entities are required for the Purchaser to execute
and deliver this Agreement or perform its duties and
other obligations hereunder.
(iii) The execution, delivery and performance by the
Purchaser of this Agreement does not conflict with or
result in a breach or violation of the Certificate of
Incorporation, by-laws or other organizational
documents of the Purchaser or result in a breach or
violation of or constitute a default (whether
immediately, upon the giving of notice or lapse of
time or both) under any agreement or instrument to
which the Purchaser is a party or by which the
Purchaser or any of its properties may be bound or
affected.
5. NON-COMPETITION
(a) The Executive understands and recognizes that his services to the Purchaser
are special and unique and agrees that, for a period of six years from the date
hereof (the "Term"), he shall not in any manner, directly or indirectly, on
behalf of himself or any person, firm, partnership, joint venture, corporation
or other business entity ("Person"), enter into or engage in any business which
is competitive with the Purchaser's business (including, without limitation,
businesses that relate to the manufacturing, merchandising, sourcing, marketing
or distribution of tailored clothing sportswear, shirts, neckwear, topcoats or
casual slacks), as it is currently or hereafter carried on or contemplated to be
carried on by Purchaser, either as an individual for his own account, or as a
partner, joint venturer, executive, agent, consultant, salesperson, officer,
director or shareholder of a Person operating or intending to operate within the
area that the Purchaser is conducting its business (collectively, "Restricted
Businesses"); provided, however, that nothing herein will preclude Executive
from holding one percent (1%) or less of the stock of any publicly traded
company.
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(b) In the event that Executive breaches any provisions of this Section
5 or there is a threatened breach, then, in addition to any other rights which
the Purchaser may have, the Purchaser shall be entitled, without the posting of
a bond or other security, to injunctive relief to enforce the restrictions
contained herein. In the event that a proceeding is brought in equity to enforce
the provisions of this Section 5, the Executive shall not urge as a defense that
there is an adequate remedy at law, nor shall the Purchaser be prevented from
seeking any other remedies which may be available.
(c) Nothwithstanding anything to the contrary contained in this Section
5, the Executive's obligations under this Section 5 shall terminate if Executive
resigns for Good Reason (as defined in Section 8(a)(iv)).
6. NON-SOLICITATION
(a) For a period of six years from the date hereof, Executive shall
not, directly or indirectly, without the prior written consent of the Purchaser
(i) solicit or induce any employee of the Purchaser or any subsidiary,
affiliate, successor or assign (collectively, the "Affiliates") to leave the
employ of the Purchaser or any Affiliate or (ii) hire for any purpose any person
who is at such time or has been within the preceding six months an employee of
the Parent or any Affiliate.
(b) For a period of six years from the date hereof, Executive shall
not, directly or indirectly, without the prior written consent of the Purchaser:
(i) solicit or accept employment or be retained by any
party who, at any time during the Term, was a
customer or supplier of the Purchaser or any
Affiliate where his position will be related to the
business of the Purchaser; or
(ii) solicit or accept the business of any customer or
supplier of the Purchaser or any Affiliate with
respect to products similar to those supplied by the
Purchaser.
(c) Nothwithstanding anything to the contrary contained in this Section
6, the Executive's obligations under this Section 6 shall terminate if Executive
resigns for Good Reason (as defined in Section 8(a)(iv))
7. CONFIDENTIAL INFORMATION
The Executive agrees that during the course of his employment and for a
period of three years after termination, he will not disclose or make accessible
to any other person any information relating to the Purchaser or any Affiliate
or any of its customers or any other information obtained by Executive during
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the course of his employment with the Purchaser or any Affiliate (the
"Confidential Information"), except for (i) information that is in the public
domain or subsequently enters the public domain by publication or otherwise
through no action or fault of the Executive, (ii) information that is known to
the Executive prior to the receipt thereof under this Agreement from his own
independent sources as evidenced by his written records, and which was not
acquired, directly or indirectly, from the Purchaser, (iii) information that the
Executive receives from any third party having a legal right to transmit such
information without any obligation to the Purchaser to keep such information
confidential or (iv) information that is independently developed by the
Executive at times other than during the Term without attribution in any manner
to the confidential information of the Purchaser. The Executive agrees (i) not
to use any such Confidential Information for himself or others during such
period and (ii) not to take any such material or reproductions thereof from the
Purchaser or any Affiliate's facilities at any time during his employment by the
Purchaser, except as required in the Executive's duties to the Purchaser. The
Executive agrees immediately to return all such material and reproductions
thereof in his possession to the Purchaser upon request and in any event upon
termination of employment.
8. TERMINATION
(a) The Executive's employment hereunder shall begin on the Effective
Date and shall continue for the period set forth in Section 2 hereof unless
sooner terminated upon the first to occur of the following events:
(i) The death of the Executive;
(ii) The Disability (as defined below) of the Executive,
provided, however, that such termination shall be
effective upon giving the Executive five (5) days
notice upon the expiration of either period
comprising his Disability (as defined in Section 8(b)
hereof);
(iii) Termination by the Board of Directors of the
Purchaser for just cause. Any of the following
actions by the Executive shall constitute "just
cause":
(A) Material breach by the Executive of Sections
5, 6 or 7 of this Agreement;
(B) Material breach by the Executive of any
provision of this Agreement other than
Sections 5, 6 and 7 which is not cured by
the Executive within thirty (30) days of
written notice thereof from the Purchaser;
(C) Any willful misconduct or grossly negligent
and material omission on the part of the
Executive intended to cause harm to the
Purchaser or any Affiliate;
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(D) Grossly negligent performance by the
Executive of his duties as President of the
Purchaser, as determined by the Board after
notice to the Executive and an opportunity
for the Executive to be heard by the Board;
or
(E) The conviction or plea of nolo contendere of
the Executive with respect to (I) any felony
or (II) any other crime involving moral
turpitude;
(iv) Termination by the Executive as a result of a
resignation for "Good Reason." Resignation by the
Executive for "Good Reason" shall mean a resignation
by the Executive in the event that the Purchaser
shall be in material breach of its obligations under
this Agreement or the Asset Purchase Agreement
(subject to any right of setoff in respect of such
obligations under the Asset Purchase Agreement) and
such material breach continues for thirty (30) or
more days after the Executive gives written notice of
such material breach to the Board of Directors of
Purchaser.
(b) For purposes hereof, a "Disability" of the Executive shall be
deemed to have occurred in the event (i) the Executive is absent from work or
otherwise substantially unable to assume his normal duties for a period of
forty-five (45) successive days or an aggregate of sixty (60) days during any
six-month period because of physical or mental disability, accident, illness or
other cause other than approved vacation or leave of absence or (ii) the
Executive is deemed by a licensed physician designated by the Purchaser and
reasonably acceptable to the Executive to have a permanent disability such that
Executive will be unable to perform his duties under this agreement. The
Purchaser shall have the right to have the Executive examined by a competent
physician for purposes of determining his physical or mental incapacity.
Notwithstanding the foregoing provision, if it is determined by the Purchaser
that the Executive has a "disability" as defined under the Americans with
Disabilities Act, the Executive's employment shall not be terminated on the
basis of such disability unless it is first determined by the Purchaser that
there is no reasonable accommodation which would permit the Executive to perform
the essential functions of his position without imposing an undue hardship on
the operation of the business of the Purchaser.
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9. NOTICES
Any notice or other communication under this Agreement shall be in
writing and shall be deemed to have been given: when delivered personally
against receipt therefor; one (1) day after being sent by Federal Express or
similar overnight delivery; or three (3) days after being mailed registered or
certified mail, postage prepaid, return receipt requested, to either party at
the address set forth below, or to such other address as such party shall give
by notice hereunder to the other party.
If to Purchaser:
The Pietrafesa Corporation
7400 Morgan Road
Liverpool, NY 13090-3900
Attn: Richard C. Pietrafesa, Jr.
with a copy to:
Roberts, Sheridan & Kotel,
a Professional Corporation
12 East 49th Street
New York, NY 10017
Attention: L. Kevin Sheridan, Esq.
If to Executive:
John McCoy
20 West 55th Street
Penthouse
New York, NY 10019
with a copy to:
George Pavia, Esq.
Pavia & Harcourt
600 Madison Avenue
New York, NY 10022
10. SEVERABILITY OF PROVISIONS
If any provision of this Agreement shall be declared by a court of
competent jurisdiction to be invalid, illegal or incapable of being enforced in
whole or in part, the remaining conditions and provisions or portions thereof
shall nevertheless remain in full force and effect and enforceable to the extent
they are valid, legal and enforceable, and no provision shall be deemed
dependent upon any other covenant or provision unless so expressed herein.
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11. ENTIRE AGREEMENT; MODIFICATION
This Agreement contains the entire agreement of the parties relating to
the subject matter hereof, and the parties hereto have made no agreements,
representations or warranties relating to the subject matter of this Agreement
which are not set forth herein. No modification of this Agreement shall be valid
unless made in writing and signed by the parties hereto.
12. BINDING EFFECT
The rights, benefits, duties and obligations under this Agreement shall
inure to, and be binding upon, the Purchaser, its successors and assigns, and
upon the Executive and his legal representatives. This Agreement constitutes a
personal service agreement, and the performance of the Executive's obligations
hereunder may not be transferred or assigned by the Executive.
13. NON-WAIVER
The failure of either party to insist upon the strict performance of
any of the terms, conditions and provisions of this Agreement shall not be
construed as a waiver or relinquishment of future compliance therewith, and said
terms, conditions and provisions shall remain in full force and effect. No
waiver of any term or condition of this Agreement on the part of either party
shall be effective for any purpose whatsoever unless such waiver is in writing
and signed by such party.
14. GOVERNING LAW
This Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of New York without regard to principles
of conflict of laws.
15. HEADINGS
The headings of paragraphs are inserted for convenience and shall not
affect any interpretation of this Agreement.
16. Counterparts.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all such counterparts shall together
constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
COMPANY:
COMPONENTS ACQUISITION CORP.
By:_______________________________
Name:
Title:
___________________________________
John McCoy, in his individual capacity
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EXHIBIT 6.14
to Components Purchase Agreement
GUARANTY
--------
GUARANTY, dated as of June 30, 1999 made by John McCoy, an individual
with offices an address at 20 West 55th Street, Penthouse, New York, New York
10019 (the "Guarantor") in favor of Components Acquisition Corp., a Delaware
corporation, with offices c/o The Pietrafesa Corporation, 7400 Morgan Road,
Liverpool, New York 13090 ("Purchaser")
WHEREAS, Purchaser and Components by John McCoy, Inc., a New Jersey
corporation (the "Company") are parties to a certain Asset Purchase Agreement
dated as of _____________,1999 (the "Asset Purchase Agreement") pursuant to
which the Company agreed to sell and transfer, and Purchaser agreed to purchase
and accept, of the assets of the Company (the "Assets");
WHEREAS, Guarantor is the sole shareholder of the Company;
WHEREAS, as a material inducement to Purchaser to enter into the Asset
Purchase Agreement, Guarantor has agreed to enter into this Guaranty for the
benefit of Purchaser;
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, Guarantor agrees with Purchaser as follows:
1 All capitalized terms used but not otherwise defined herein shall
have the respective meanings ascribed to them in the Asset Purchase Agreement.
2 Guarantor hereby unconditionally and absolutely guarantees to
Purchaser that if any of the following representations made in the Asset
Purchase Agreement are materially incorrect and Guarantor knew they were
incorrect on the date hereof, Guarantor shall be liable to Purchaser for the
actual amount of its damages incurred as a proximate result of such
misrepresentation, up to such portion of the Purchase Price as has actually been
paid to the Company:
(1) The Company has the requisite power and authority to execute and
deliver the Asset Purchase Agreement and to consummate the transactions
contemplated thereby. The execution and delivery by the Company of the Asset
Purchase Agreement will not violate the Corporation Law of the State of New
Jersey, or conflict with or result in a breach of the Certificate of
Incorporation, By-laws or other organizational documents of the Company, or any
material contract to which the Company is a party. No material approval or
consent or filing with any governmental body or other Person is required for the
execution and delivery of the Asset Purchase Agreement by the Company.
(2) The Company has good and valid title to the Assets, free and
clear of any Encumbrances, except Permitted Encumbrances, and the Assets
represent all assets current used by Seller in the conduct of the Business.
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(3) The Company is a corporation duly organized and validly existing
under the laws of the State of New Jersey. The Company has full power and
authority and possesses all governmental licenses, permits, authorizations and
approvals to enable it to conduct its business as currently conducted.
(4) The Company does not directly or indirectly own any capital stock
of or other equity interest in any Person.
(5) The Historical Financial Statements were prepared in accordance
with Applicable Accounting Principles and constitute fair and reasonable
presentations of the financial position and results of operations of Seller, in
all material respects as of the dates and for the periods set forth therein. The
Company does not have any known material contingent or undisclosed obligations
or liabilities which would be required in accordance with the Applicable
Accounting Principles to be reflected in a currently prepared balance sheet or
notes thereto, other than obligations or liabilities (i) that are reflected or
disclosed in the Historical Financial Statements, (ii) that are disclosed in the
Asset Purchase Agreement or the Schedules thereto, or (iii) that were incurred
after December 31, 1998 in the ordinary course of business.
(6) Except as disclosed on the Schedules to the Asset Purchase
Agreement, and excluding any macroeconomic changes or conditions in national or
local economies affecting the Business, its customers or suppliers generally,
there have been no changes since December 31, 1998 which, individually or in the
aggregate, have had a material adverse effect on the business, assets, financial
condition or results of operations of the Company.
(7) The Company does not own any Real Property. The uses for which
the Improvements are zoned do not materially restrict or materially impair the
use of the improvements for purposes of the Business of the Company as conducted
as of the date of the Asset Purchase Agreement. Each lease of Real Property
pursuant to which a leasehold estate is granted is valid and without any
material default thereunder by the Company.
(8) Except as disclosed on the Schedules to the Asset Purchase
Agreement, and except for obsolete assets and assets disposed of in the ordinary
course of business since December 31, 1997, the Company has good and valid title
to the machinery, equipment and other tangible personal property reflected in
the Historical Financial Statements as being owned by it or acquired by it after
December 31, 1997, free and clear of all Encumbrances, except Permitted
Encumbrances, and the Company is the lessee of all the leasehold estates
pertaining to the machinery, equipment, and other tangible personal property
purported to be granted by the capitalized leases reflected in the Historical
Financial Statements (if any).
(9) The Company owns, beneficially and of record, all the Patents,
Trademarks and Trade Names listed on Schedule 3.09 to the Asset Purchase
Agreement, free and clear of all Encumbrances, other than Permitted
Encumbrances.
(10) Except as disclosed on the Schedules to the Asset Purchase
Agreement, there are no actions, suits, arbitration, investigation, audit or
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proceeding pending or threatened against Seller in any court, or before any
Federal, state, local or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, or before any arbitrator
of any kind.
(11) Except for the Contracts listed on Schedule 3.11 to the Asset
Purchase Agreement, the Company is not a party to nor are any of its Assets
subject to, any other material contract or agreement, and except as disclosed on
such Schedule 3.11, each of the Contracts listed thereon is valid and in full
force and effect, and the Company has performed all material obligations
required to be performed by it thereunder.
(12) Except as disclosed in Schedule 3.12 to the Asset Purchase
Agreement, the Company has no "employee pension benefit plans" (as defined in
Section 3(2) of ERISA), "employee welfare benefit plans" (as defined in Section
3(1) of ERISA), or any other employee fringe benefit plans maintained, or
contributed to, by the Company.
(13) With respect to the ownership of the Assets and the conduct of
the Business on or prior to the Closing Date, the Company has properly completed
and filed on a timely basis all returns, reports, and declarations in connection
with any Taxes required to be filed. Non of the Assets is subject to any lien
with respect to Taxes.
(14) To the best of Guarantor's knowledge, the Company has complied
with and is in compliance with all federal, state, local or foreign statutes,
ordinances, codes, rules and regulations, decrees, stipulations and awards
entered by any governmental authority, and all licenses, franchises, consents,
approvals, permits or similar rights granted under any of the foregoing, and the
Company is in compliance with all licenses, permits, consents, approvals,
franchises and other authorizations necessary for the conduct of the Business or
the ownership or operations of the Assets.
(15) The Company has not purchased, acquired, leased or licensed any
property or services from, or sold, transferred, leased or licensed any property
or services to, any Affiliate, or any officer or director of Seller, other than
on an arm's length basis in the ordinary course of business.
(16) All inventory of the Company was acquired in the ordinary course
of business and is in good condition and is usable and saleable in the ordinary
course of business. The Company has good and valid title to the inventory, fee
and clear of all Encumbrances, except Permitted Encumbrances. The allowance for
obsolete and slow moving inventory reflected in the Historical Financial
Statements and in the Closing Date Balance Sheet is and will be properly
determined in accordance with Applicable Accounting Principles.
(17) All accounts receivable of the Company included in the Assets,
whether reflected in the Historical Financial Statements or subsequently created
have arisen from bona fide transactions in the ordinary course of business. The
allowance for doubtful accounts in respect of Receivables reflected in the
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Historical Financial Statements and in the Closing Date Balance Sheet is and
will be properly determined in accordance with Applicable Accounting Principles.
(18) The Company has no knowledge that any of its principal customers
or suppliers intends to cease purchasing from, selling to or dealing with the
Company, nor has any information been brought to the attention of the Company
that might reasonably lease it to believe that any such customer or supplier
intends to alter materially the amount of such sales or purchases or the extent
of dealings with the Company.
(19) As of the date of the Asset Purchase Agreement, there are no
current work stoppages by any of the employees.
3 It is the express intention of the Guarantor that this Guaranty be
absolute and unconditional in all respects and not dischargeable or affected by
any circumstance whatsoever which may constitute a legal or equitable discharge.
All payments made by the Guarantor hereunder shall be free and clear of any tax,
set-off, counterclaim or deduction of any kind whatsoever.
4 This Guaranty is one of payment and not of collection, and Purchaser
shall not be required to proceed in any manner first against (or make any
demands or give any notices to) the Company or any person, entity or collateral.
The Guarantor expressly waives notice of the acceptance of this Guaranty, and,
to the fullest extent permitted by applicable law, any and all other notices.
5 This Guaranty which shall continue and remain in full force and
effect and be binding upon the Guarantor, and his heirs, administrators, legal
representatives, estate, successors and assigns, and shall inure to the benefit
of Purchaser, its successors and assigns, until the full and complete
performance by the Company of its obligation to transfer the Assets to Purchaser
free and clear of any liens and encumbrances, and Guarantor shall not be
released of its obligation hereunder so long as any claim of Purchaser against
the Company arising out of the foregoing representations, and which is made no
later than three (3) years from the Closing Date is not settled or discharged in
full.
6 The Guarantor hereby represents and warrants to Purchaser that this
Guaranty is the Guarantor's legal, valid and binding obligation, enforceable
against the Guarantor in accordance with its terms.
7 No failure on the part of Purchaser to exercise, and no delay in
exercising any right, remedy or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise by Purchaser of any right,
remedy or power hereunder preclude any other or future exercise of any other
right, remedy or power.
8 In the event that any provision of this Guaranty is declared by a
court of competent jurisdiction, arbitration tribunal, governmental or
administrative body or other entity having jurisdiction to be invalid or
unenforceable, the validity and enforceability of the remaining provisions of
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this Guaranty shall remain in full force and effect to the extent feasible in
the absence of the void and unenforceable provision. The Guarantor furthermore
agrees to execute and deliver such amendatory provisions to accomplish lawfully
as nearly possible the goals and purposes of the provision so held to be void or
unenforceable.
9 The Guarantor agrees that any legal action or proceeding against the
Guarantor with respect to this Guaranty may be brought in the courts of the
State of New York or of the United States of America for the Southern District
of New York, as Purchaser may elect, and by execution and delivery of this
Guaranty, the Guarantor hereby accepts for himself and in respect to his
property, generally and unconditionally, the non-exclusive jurisdiction of the
aforesaid courts. The Guarantor further irrevocably consents to the service of
process out of any of the aforementioned courts or any other court in any such
action or proceeding my the mailing of copies thereof by registered or certified
mail, postage prepaid, to the Guarantor, at his address set forth in the first
paragraph of this Guaranty, such service to be deemed effective five (5) days
after such mailing. Nothing herein shall affect the right of Purchaser to serve
process in any other manner permitted by law or to commence any legal action or
proceeding against the Guarantor in any other jurisdiction. THE GUARANTOR HEREBY
IRREVOCABLY WAIVES TRIAL BY JURY AND ANY OBJECTION, INCLUDING WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS WHICH HE MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
ACTION OR PROCEEDING IN SUCH JURISDICTION.
10 This Guaranty and any dispute relating hereto shall be exclusively
governed by, and construed in accordance with, the internal law of the State of
New York without reference to any conflicts of law principles thereof.
______________
John McCoy
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EXHIBIT 7.04
to Components Purchase Agreement
GUARANTY
--------
GUARANTY, dated as of June 30, 1999 made by The Pietrafesa Corporation,
a Delaware corporation with offices at 7400 Morgan Road, Liverpool, New York
13090 (the "Guarantor"), in favor of Components by John McCoy, Inc., a New
Jersey corporation with offices at 20 West 55th Street, Penthouse, New York, New
York 10019 (the Company") and John McCoy, an individual with an address at 20
West 55th Street, Penthouse, New York, New York 10019 ("McCoy").
WHEREAS, Components Acquisition Corp., a Delaware company (the
"Purchaser") and the Company are parties to a certain Asset Purchase Agreement
dated as of ______________, 1999(the "Asset Purchase Agreement") pursuant to
which the Company agreed to sell and transfer, and Purchaser agreed to purchase
and accept, certain assets of the Company (the "Assets");
WHEREAS, Purchaser and McCoy are parties to a certain Employment
Agreement dated as of ___________, 1999 (the "Employment Agreement") pursuant to
which Purchaser agrees to employ McCoy as President and Chief Executive Officer
of Purchaser immediately following the consummation of the transactions
contemplated under the Asset Purchase Agreement and McCoy agrees to accept such
employment;
WHEREAS, pursuant to the Asset Purchase Agreement and the Employment
Agreement, Purchaser has certain obligations, including, but not limited to, the
payment of certain additional purchase consideration (the "Deferred Purchase
Price"), and the payment of employment compensation, bonuses and perquisites
(the "Employment Compensation"), respectively (the Employment Compensation and
the Deferred Purchase Price, collectively, the "Obligations");
WHEREAS, Guarantor is the sole shareholder of Purchaser;
WHEREAS, as a material inducement to the Company to enter into the
Asset Purchase Agreement and to McCoy to enter into the Employment Agreement,
Guarantor has agreed to enter into this Guaranty for the benefit of the Company
and McCoy;
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, Guarantor agrees with the Company and McCoy as follows:
1 All capitalized terms used but not otherwise defined herein shall
have the respective meanings ascribed to them in the Asset Purchase Agreement.
2 Guarantor hereby unconditionally and absolutely guarantees (as
primary obligor and not as a surety) to the Company and to McCoy, the prompt
payment and performance, when and as due of each and every Obligation (whether
at stated maturity, by acceleration or otherwise), at the time and place and
otherwise in accordance with the terms of the Asset Purchase Agreement and the
Employment Agreement, respectively, irrespective of the genuineness, validity or
enforceability of any Obligation or of the Asset Purchase Agreement or
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Employment Agreement, and without regard to any future amendment, modification,
or waiver of any term of the Obligations or of the Asset Purchase Agreement or
the Employment Agreement, notice of which is expressly waived.
3 Guarantor hereby further unconditionally and absolutely guarantees to
the Company and McCoy that if any of the following representations made in the
Asset Purchase Agreement is materially incorrect as a direct consequence of
fraud on the part of Guarantor, Guarantor shall be liable to the Company and/or
McCoy for the actual amount of its damages incurred as a proximate result of
such fraud, up to such portion of the Purchase Price as has actually been paid
to the Company:
(1) Purchaser has been duly organized, is validly existing and is in
good standing under the laws of the State of Delaware.
(2) Purchaser has the full corporate power and authority to execute
and deliver the Asset Purchase Agreement and the Employment Agreement and to
consummate the transactions contemplated thereby. All corporate acts and other
proceeding required to be taken by or on the part of Purchaser to authorize such
execution, delivery and consummation have been duly and properly taken. The
Asset Purchase Agreement and the Employment Agreement have been duly executed
and delivered by Purchaser and constitute legal, valid and binding obligations
of Purchaser, enforceable against it in accordance with their respective terms.
The execution and delivery by Purchaser of the Asset Purchase Agreement and the
Employment Agreement will not violate any law or conflict with or result in a
breach of, or default under, or result in the creation of a lien or encumbrance
on any of the properties or assets of Purchaser pursuant to, the Certificate of
Incorporation, By-laws or other organizational documents of the Company, or any
material contract to which the Purchaser is a party or pursuant to which its
properties are bound. No material approval or consent or filing with any
governmental body or other Person is required for the execution and delivery of
the Asset Purchase Agreement or the Employment Agreement by the Purchaser.
(3) There is no action, suit, order, judgment or proceeding pending
or, to the knowledge of Guarantor, threatened against or affecting Purchaser
that, individually or when aggregated with one or more other actions, suits,
orders, judgments or proceedings, has or might reasonably be expected to have a
material adverse effect on Purchaser's ability to perform any of its obligations
under the Asset Purchase Agreement or the Employment Agreement, or any of the
other agreements and instruments to be executed and delivered by Purchaser in
connection therewith.
(4) Purchaser has all funds necessary to pay the Closing Date Payment
Amount and related fees and expenses, and has the financial capacity to perform
all of its other obligations under the Asset Purchase Agreement, the Employment
Agreement and any additional agreements executed and delivered in connection
therewith.
(5) Purchaser and Parent agree that Purchaser shall, for as long as
McCoy shall be an employee of Purchaser, not conduct any business other than the
Business without the prior written consent of McCoy.
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4 It is the express intention of the Guarantor that this Guaranty be
absolute and unconditional in all respects and not dischargeable or affected by
any circumstance whatsoever which may constitute a legal or equitable discharge.
All payments made by the Guarantor hereunder shall be free and clear of any tax,
set-off, counterclaim or deduction of any kind whatsoever.
5 This Guaranty is one of payment and not of collection, and Purchaser
shall not be required to proceed in any manner first against (or make any
demands or give any notices to) the Company or any person, entity or collateral.
The Guarantor expressly waives notice of the acceptance of this Guaranty, and,
to the fullest extent permitted by applicable law, any and all other notices.
6 Guarantor hereby expressly waives, to the fullest extent permitted by
applicable law, diligence, presentment, demand (of payment or otherwise),
protest, notice of acceptance of this Guaranty, and any and all other notices of
any kind whatsoever in connection with this Guaranty, as well as any requirement
that the Company or McCoy or any other person proceed in any manner first
against, make any demands or give any notices to, exhaust any right, or take any
action, against the Purchaser or any other person.
7 If at any time any payment or property received by the Company and/or
McCoy on account of any Obligation is rescinded or must otherwise be restored or
returned or is deemed void or voidable, on account of the insolvency or
bankruptcy of the Purchaser, or for any other reason, then the Guarantor's
liability hereunder, with respect to such payment or property received, shall be
immediately reinstated and revived at such time as though such payment or
property had not been made or received. The Guarantor further agrees to
indemnify the Company and/or McCoy for any damages, losses, costs or expenses
(including, without limitation, reasonable attorneys' fees and disbursements),
incurred by the Company and/or McCoy in connection with the restoration or
return of any payment as set forth in this Section 7.
8 In addition to the Obligations herein guaranteed, the Guarantor
further agrees to indemnify the Company and McCoy for any costs or expenses
(including, without limitation, reasonable attorneys' fees and disbursement)
related to the enforcement of the Company's and McCoy's rights under the Asset
Purchase Agreement and the Employment Agreement, respectively (including all
costs of collection in connection therewith), or otherwise with respect to the
Obligations, provided, however, that the Company and/or McCoy has been
successful on the merits or otherwise in its prosecution of any action, suit, or
proceeding brought to enforce their respective rights under the Asset Purchase
Agreement and the Employment Agreement, respectively.
9 This is a continuing Guaranty, which shall continue and remain in
full force and effect and be binding upon the Guarantor, its successors and
assigns, and shall inure to the benefit of the Company and McCoy, and their
respective heirs, administrators, legal representatives, estate, successors and
assigns, until the full and complete performance by the Purchaser of its
obligations under the Asset Purchase Agreement and the Employment Agreement.
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10 The Guarantor hereby represents and warrants to the Company and
McCoy that this Guaranty is the Guarantor's legal, valid and binding obligation,
enforceable against the Guarantor in accordance with its terms.
11 No failure on the part of the Company or McCoy to exercise, and no
delay in exercising any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Company or McCoy
of any right, remedy or power hereunder preclude any other or future exercise of
any other right, remedy or power.
12 In the event that any provision of this Guaranty is declared by a
court of competent jurisdiction, arbitration tribunal, governmental or
administrative body or other entity having jurisdiction to be invalid or
unenforceable, the validity and enforceability of the remaining provisions of
this Guaranty shall remain in full force and effect to the extent feasible in
the absence of the void and unenforceable provision. The Guarantor furthermore
agrees to execute and deliver such amendatory provisions to accomplish lawfully
as nearly possible the goals and purposes of the provision so held to be void or
unenforceable.
13 The Guarantor agrees that any legal action or proceeding against the
Guarantor with respect to this Guaranty may be brought in the courts of the
State of New York or of the United States of America for the Southern District
of New York, as Purchaser may elect, and by execution and delivery of this
Guaranty, the Guarantor hereby accepts for himself and in respect to his
property, generally and unconditionally, the non-exclusive jurisdiction of the
aforesaid courts. The Guarantor further irrevocably consents to the service of
process out of any of the aforementioned courts or any other court in any such
action or proceeding my the mailing of copies thereof by registered or certified
mail, postage prepaid, to the Guarantor, at his address set forth in the first
paragraph of this Guaranty, such service to be deemed effective five (5) days
after such mailing. Nothing herein shall affect the right of the Company or
McCoy to serve process in any other manner permitted by law or to commence any
legal action or proceeding against the Guarantor in any other jurisdiction. THE
GUARANTOR HEREBY IRREVOCABLY WAIVES TRIAL BY JURY AND ANY OBJECTION, INCLUDING
WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS
OF FORUM NON CONVENIENS WHICH HE MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF
ANY ACTION OR PROCEEDING IN SUCH JURISDICTION.
14 This Guaranty and any dispute relating hereto shall be exclusively
governed by, and construed in accordance with, the internal law of the State of
New York without reference to any conflicts of law principles thereof.
THE PIETRAFESA CORP.
-----------------------
47
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EXHIBIT 10.2
ASSET PURCHASE AGREEMENT dated as of March 11 1999,
between DAG ACQUISITION CORP., a Delaware corporation (the
"Purchaser"), THE PIETRAFESA CORPORATION, a Delaware
corporation (the "Parent"), JARROD NADEL ("Nadel"), and
DIVERSIFIED APPAREL GROUP, LTD., a New York corporation ("DAG"
or the "Seller").
WHEREAS, Seller desires to sell to Purchaser, and Purchaser
wishes to purchase all of the assets of Seller, except as otherwise provided
herein, upon the terms and subject to the conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and the
respective agreements hereinafter set forth, the parties hereto agree as
follows:
ARTICLE I
Defined Terms
-------------
1.01. Defined Terms. The following terms, not defined
elsewhere in this Agreement, shall have the following meanings:
"Affiliate" shall mean, as to the party specified, any Person
which directly or indirectly through ownership of stock or through any
other arrangement either controls, is controlled by or is under common
control with, such party. The term "control" shall mean the power to
direct the affairs of such Person by reason of ownership of equity
interests, by contract or otherwise.
"Applicable Accounting Principles" shall mean United States
Generally Accepted Accounting Principles, applied on a consistent basis
throughout the periods indicated except as disclosed in footnotes to
the financial statements.
"Business" shall mean the business presently conducted by
Seller, including, without limitation, the merchandising and sourcing
of tailored clothing and dress shirts to value-priced apparel
retailers.
"Business Day" shall mean any day other than a Saturday,
Sunday or other day on which banks are authorized to be closed in New
York City.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
<PAGE>
"Contracts" shall mean the leases, rental agreements,
insurance policies, sales orders, collective bargaining agreements,
union contracts, licenses, agreements, permits, purchase orders,
commitments and any and all other contracts or binding arrangements
(including, capital commitments), whether written or oral, express or
implied, of Seller or by which any of its Assets are bound.
"Dollars" and "$" shall mean, unless otherwise specified,
United States Dollars.
"Encumbrances" shall mean, to the extent applicable, all liens
(including liens for Taxes), mortgages, security interests, leases,
options, claims, charges, restrictions, rights of first refusal or
first offer, easements or other similar encumbrances.
"Environmental Laws" shall mean all applicable Federal, state,
local and foreign laws, statutes, ordinances, codes, rules, standards
and regulations, and any applicable judicial or administrative
interpretation thereof, including any applicable judicial or
administrative order, consent decree or judgment, imposing liability or
standards of conduct for the protection, preservation or restoration of
the environment (including ambient air, surface water, groundwater,
drinking water, wetlands, land surface or subsurface strata, animal
life and vegetation) and human health and safety. Environmental Laws
include the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 (42 U.S.C. ss.ss. 9601 et seq.) ("CERCLA"); the
Hazardous Materials Transportation Authorization Act of 1994 (49 U.S.C.
ss.ss. 5101 et seq.); the Federal Insecticide, Fungicide, and
Rodenticide Act (7 U.S.C. ss.ss. 136 et seq.); the Solid Waste Disposal
Act (42 U.S.C. ss.ss. 6901 et seq.); the Toxic Substance Control Act
(15 U.S.C. ss.ss. 2601 et seq.); the Clean Air Act (42 U.S.C. ss.ss.
7401 et seq.); the Federal Water Pollution Control Act (33 U.S.C.
ss.ss. 1251 et seq.); the Occupational Safety and Health Act (29 U.S.C.
ss.ss. 651 et seq.); and the Safe Drinking Water Act (42 U.S.C. ss.ss.
300(f) et seq.), each as amended and in effect on the date hereof, and
any and all regulations promulgated thereunder, and all analogous
state, local and foreign counterparts or equivalents and any transfer
of ownership notification or approval statutes.
"Environmental Permits" shall mean all material permits,
licenses and authorizations of all governmental authorities required by
Seller for the conduct of its operations as currently conducted under
all applicable Environmental Laws.
"Hazardous Material" shall mean any substance, material or
waste which is regulated by or forms the basis of liability under any
Environmental Laws, including any material or substance which is (a)
defined as a "solid waste," "hazardous waste," "hazardous material,"
"hazardous substance," "extremely hazardous waste," "restricted
hazardous waste," "pollutant," "contaminant," "hazardous constituent,"
"special waste," "toxic substance" or other similar term or phrase
under any Environmental Law, (b) polychlorinated biphenyls (PCB's) or
(c) any radioactive substance.
2
<PAGE>
"Historical Financial Statements" shall mean Seller's audited
financial statements (balance sheets, statements of income and
statements of cash flows) for the fiscal year ending December 31, 1997
and December 31, 1998, and Seller's unaudited quarterly financial
statements for the third quarter of 1998, copies of which are included
in Schedule 3.05.
"Income Taxes" shall mean all Taxes on or measured by net
income, gross profits or net profits, together with any interest and
any penalties, additions to tax or additional amounts imposed by any
taxing authority, domestic or foreign.
"Intellectual Property Rights" shall mean the names
"Diversified Apparel Group Ltd." and all Patents, Trademarks, Trade
Names, copyrights, and confidential and proprietary drawings, designs,
inventions, trade secrets, and customer and supplier lists of Seller.
"IPO" shall mean an initial public offering of the Pietrafesa
Stock.
"Patents" shall mean patents (including all reissues,
divisions, continuations, continuations in part and extensions
thereof), patent applications and patent disclosures docketed.
"Permitted Encumbrances" shall mean, to the extent applicable,
Encumbrances which (a) are liens for Taxes not yet due and payable, or
(b) are mechanics', carriers', materialmen's, landlords', workers' or
other similar liens incurred in the ordinary course of business.
"Person" shall mean any natural person, corporation, limited
liability company, unincorporated association, partnership, joint
venture or other entity.
"Pietrafesa Stock" shall mean the common stock of the Parent
issued pursuant to the IPO.
"Pre-Tax Income" shall mean the net income, including the gain
or loss on discontinued operations or extraordinary items, of the
Business for financial reporting purposes prepared in accordance with
Applicable Accounting Principles before any provision for Federal and
state income taxes, excluding any good will amortization expense
related to this Agreement.
"Purchaser Parties" shall mean the Purchaser and the Parent.
3
<PAGE>
"Taxes" shall mean all taxes on, or measured by or referred to
as, income, gross receipts, sales, use, ad valorem, franchise, profits,
license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property or windfall profits taxes, customs,
duties or similar assessments or charges, together with any interest
and any penalties, additions to tax or additional similar amounts
imposed by any taxing authority, domestic or foreign, with respect
thereto.
"Tax Returns" shall mean all material returns, reports and
statements relating to Taxes that are required to be filed with any
appropriate domestic or foreign taxing authority.
"Trade Names" shall mean trade names embodying goodwill of
Seller, whether or not registration has been obtained or an application
for registration is pending.
"Trademarks" shall mean trademarks, service marks, brand
names, brand marks, trade dress, logos and all other names and slogans
associated with products of Seller, whether or not registered, and all
registrations thereof and pending applications therefor.
1.02. Other Definitions. The following terms are defined in
the sections indicated:
Term Section
---- -------
"Asset Adjustment Amount" 2.05(b)
"Assets" 2.01
"Benefit Plans" 3.12
"Claims" 8.04
"Closing" 2.08
"Closing Date" 2.08
"Closing Date Balance Sheet" 2.05
"Closing Date Payment Amount" 2.04
"COBRA" 3.12
"Deferred Purchase Price" 2.04
"Delayed Obligations" 2.06
"Employment Agreement" 6.03
"ERISA" 3.12
"Excluded Assets" 2.02
"Liabilities" 2.03
"Improvements" 3.07
"Losses" 8.02
"Notice of Disagreement" 2.06
"Obligation" 2.06
"Postponed Obligations" 2.06
"Pre-Tax Income Target" 2.06
"Purchase Price" 2.04
"Real Property" 3.07
"Statement" 2.06
4
<PAGE>
1.03. Accounting Terms. Any accounting terms used in this
Agreement shall, unless otherwise specifically provided, have the meanings given
them in accordance with, and all financial computations hereunder shall, unless
otherwise specifically provided, be computed in accordance with, the Applicable
Accounting Principles.
1.04. Other Rules of Construction. References in this
Agreement to sections, schedules and exhibits are to sections of, and schedules
and exhibits to, this Agreement unless otherwise indicated. Words in the
singular include the plural and in the plural include the singular. The word
"or" is not exclusive. The words "including", "includes", "included" and
"include", when used, are deemed to be followed by the words "without
limitation".
ARTICLE II
The Asset Purchase
------------------
2.01. Purchase and Sale of Assets. Upon the terms and subject
to the conditions set forth in this Agreement, on the Closing Date, Seller shall
sell, assign, transfer, convey and deliver to Purchaser, and Purchaser shall
purchase and accept from Seller, free and clear of all Encumbrances (except
Permitted Encumbrances), all right, title and interest in and to all of the
assets of Seller other than the Excluded Assets as hereinafter defined (such
assets being hereinafter referred to as the "Assets"), including, without
limitation, the following:
(i) all inventory, accounts receivable, machinery, equipment,
supplies and other personal property owned by Seller on the date
hereof;
(ii) all of Seller's books, records, reports, documents and
files, including without limitation, customer and supplier lists, sales
data, brochures, catalogs, mailing lists, art work, photographs and
advertising material, accounting data, property records, manufacturing
records and personnel records, whether in electronic form or otherwise.
In addition, upon request, Seller shall provide Purchaser with copies
of all of Seller's tax records and tax returns;
(iii) all right, title and interest in and to any Intellectual
Property Rights of Seller, and all files relating thereto;
(iv) all right, title and interest in and to the goodwill of
Seller;
(v) all prepaid expenses of, or for the benefit of, the
Seller;
(vi) all the real property of Seller, together with all
rights, titles, appurtenant interests, covenants, licenses, remainders,
reversions, privileges and benefits thereunto belonging, including all
right, title and interest in and to any easements, rights-of-way,
rights of ingress or egress or other interests in, on or under any
land, highway, street, road or avenue, open or proposed, in, on,
across, in front of, abutting or adjoining such real property; and
5
<PAGE>
(vii) all other assets of the Seller (including without
limitation all causes of action, contract rights and warranty and
product liability claims, whether or not in litigation on the date
hereof).
2.02. Assets Not Purchased. It is understood and agreed by the
parties that the Assets shall not include the assets listed on Schedule 2.02
(the "Excluded Assets").
2.03. Assumed Liabilities. Purchaser shall assume no
liabilities of Seller in connection with the transactions contemplated by this
Agreement, except (i) for liabilities relating to Contracts assumed by Purchaser
or acquired by Purchaser hereunder, and (ii) as otherwise specifically set forth
on Schedule 2.03 (collectively, the "Liabilities"). The Liabilities shall
include all current liabilities incurred in the ordinary course of business on
or prior to the Closing Date, whether or not reflected on the books of the
Seller at the Closing Date.
2.04. Purchase Price. Subject to adjustment in accordance with
Sections 2.05 and 2.06 below, in consideration of the sale and transfer to
Purchaser of the Assets on the Closing Date, Purchaser shall pay to Seller the
following (the "Purchase Price"): (i) $800,000 in cash, payable to Seller on the
Closing Date by wire transfer of immediately available funds (the "Closing Date
Payment Amount"); (ii) $400,000 in the form of a promissory note payable to
Seller (in the form of Exhibit 2.04 hereto, the "Note"), which Note shall bear
interest at a rate of 10% per annum; and (iii) in accordance with the timetable
set forth in Section 2.06 below, the "Deferred Purchase Price." Purchaser and
Seller acknowledge that the Note shall be an unsecured obligation of Purchaser
and that the Note shall be subordinated to all existing and future bank debt of
Purchaser and Parent. Seller agrees to execute all subordination agreements
necessary to effect the foregoing.
2.05. Purchase Price Adjustment. (a) Seller agrees that it
shall refund to Purchaser, pursuant to the terms of this Section 2.05, a portion
of the Closing Date Payment Amount equal to the Asset Adjustment Amount (as
defined below). As of the Closing Date, the books of Seller shall be deemed
"closed," a physical inventory shall be taken of the Assets, and within 60 days
(or such longer period as is required for an audit to be completed) of such date
the independent auditors selected by Purchaser shall have performed a balance
sheet audit of the Assets (at Purchaser's expense). Such auditors shall prepare
a balance sheet based on such physical inventory in accordance with Applicable
Accounting Principles (the "Closing Date Balance Sheet"). If requested, Seller
and Nadel shall make reasonable efforts to assist Purchaser and its
representatives in the preparation of the Closing Date Balance Sheet. The
Closing Date Balance Sheet shall be binding on the parties hereto and shall
constitute conclusive evidence of the net book value of the Assets.
(b) Promptly upon the Closing Date Balance Sheet being
delivered to Seller, but in no event more than 10 days following such date, the
Seller shall pay to Purchaser in immediately available funds the amount on a
dollar-for-dollar basis by which the value of the Working Capital as reflected
in the Closing Date Balance sheet is less than $[287,546]. For this purpose,
Working Capital shall equal current assets (exclusive of cash, accounts
receivable which have aged more than 100 days, and any amounts due from Nadel)
less current liabilities (the amount of such shortfall, if any, shall be the
"Asset Adjustment Amount").
6
<PAGE>
2.06. Deferred Purchase Price. (a) Within ninety (90) days
after the end of each of Purchaser's 1999 through 2003 fiscal years (or as soon
thereafter as reasonably practicable), Purchaser shall prepare and deliver to
the Seller financial statements for the Purchaser for such year, together with a
statement (the "Statement") setting forth the Purchaser's Pre-Tax Income for
such year, prepared in accordance with Applicable Accounting Principles. Such
financial statements may consist of the financial statements of the Parent,
including consolidating balance sheets and income statements setting forth the
various subsidiaries/divisions of the Parent. On such financial statements, the
Business shall be allocated overhead and other expenses (including the cost of
capital employed by the Business) in accordance with the terms and procedure set
forth in Schedule 2.06 (a) hereto and otherwise in accordance with Applicable
Accounting Principles. If requested, Seller and Nadel shall make reasonable
efforts to assist Purchaser and its representatives in the preparation of the
Statement. During the forty-five (45) day period following Seller's receipt of
the Statement, Seller, at its sole expense, will be permitted to review, or have
its accountants, auditors or counsel review, all relevant working papers and
books and records of the Purchaser relating to the Statement. Purchaser shall
provide reasonable cooperation with this review. The Statement shall become
final and binding upon the parties on the forty-fifth day following receipt
thereof by Seller unless Seller delivers a written notice (a "Notice of
Disagreement") to the Parent on or prior to such date that Seller disagrees with
the statement. In order to be valid, any Notice of Disagreement shall specify in
reasonable detail the nature of any disagreement so asserted and shall be
accompanied by a certificate of Seller's independent auditors that they concur
with each of the positions taken by Seller in the Notice of Disagreement. If a
Notice of Disagreement is received by the Parent in a timely manner, then the
Statement (as revised in accordance with clause (x) or (y) below) shall become
final and binding upon the parties on the earlier of (x) the date the parties
hereto resolve in writing any differences they have with respect to any matter
specified in the Notice of Disagreement or (y) the date any disputed matters are
finally resolved in writing by the Arbitrator in accordance with the arbitration
provision set forth in Section 2.07 hereto.
7
<PAGE>
(b) In the event the Statement reveals that the Purchaser has
achieved certain Pre-Tax Income targets (each, a "Pre-Tax Income Target") for
the years 1999 through 2003, then Purchaser shall pay to Seller additional
purchase consideration (the "Obligation") in the amounts set forth below:
Pre-Tax Obligation
Income Target Payable
------------- -------
1999 $521,000 $115,000
2000 $573,000 $135,000
2001 $630,000 $155,000
2002 $693,000 $175,000
2003 $762,000 $195,000
(c) Any annual portion of the Obligation in the amount of the
annual payment set forth in clause 2.06(b) above will be forfeited in any year
that the Purchaser does not achieve at least sixty percent (60%) of the Pre-Tax
Income Target for that year. Any annual portion of the Obligation will be
postponed by five (5) years (the "Postponed Obligations") in the amount set
forth above in any year that the Purchaser achieves pre-tax income less than
eighty-five percent (85%) of the Pre-Tax Income Target amount set forth above,
but more than sixty percent (60%) for that year. Fifty percent (50%) of the
Obligation will be deferred for five (5) years (the "Delayed Obligations") in
any year that the Purchaser achieves a pre-tax income of less than the Pre-Tax
Income Target but 85% or more of the Pre-Tax Income Target for that year. No
portion of the Obligation shall be payable during or with respect to any period
in which Nadel or Seller is in breach of a material contractual obligation to
the Purchaser, the Parent or any of their Affiliates.
In any year that the Purchaser's Pre-Tax Income exceeds the
relevant target set forth above, Seller may elect to have all or a portion of
such excess credited to prior years (in chronological order) for which the
Pre-Tax Income Targets have not been satisfied in full (other than years in
which the Obligation was forfeited) rather than crediting such excess Pre-Tax
Income to the year in which it is actually earned (thereby reducing or
eliminating the bonus payable to Nadel in respect of such year under the
Employment Agreement). Any Delayed or Postponed Obligations which are no longer
deferrable as a result of the credit shall be paid at the time the credit is
recognized. Forfeited Obligations will not be recognized as earned as a result
of any such credit.
(d) The Obligation in respect of any year shall be paid to
Seller as follows:
(i) If no Notice of Disagreement is timely filed (or
Seller notifies the Parent in writing that it accepts
the Statement), Purchaser shall deliver the
Obligation in the amount set forth above in cash or
at the option of the Parent, in the event of an IPO,
in shares of Pietrafesa Stock that are issued
pursuant to an effective registration statement and
which are free from any restrictions on resale. Such
payment shall be delivered to Seller as soon as
practicable, but in no event later than sixty-days
following the delivery to Seller of the Statement;
8
<PAGE>
(ii) If a Notice of Disagreement is timely filed, upon
final resolution of the matter, Purchaser shall
deliver the Obligation in the amount set forth above
in cash or at the option of the Parent, in the event
of an IPO, in shares of Pietrafesa Stock that are
issued pursuant to an effective registration
statement and which are free from any restrictions on
resale; and
(iii) Postponed Obligations and Delayed Obligations shall
be paid at their respective maturity (as determined
in accordance with the first paragraph of this clause
(c)) in cash, or at the option of the Parent, in the
event of an IPO, in shares of Pietrafesa Stock that
are issued pursuant to an effective registration
statement and which are free from any restrictions on
resale;
provided, however, (x) any amounts due to Seller from Purchaser pursuant to this
paragraph (d) and remain unpaid shall be subject to set off and deduction for
amounts due from Nadel or Seller under this Agreement, including Sections 2.05
and Article VIII hereof, or any other agreements between Nadel and the Purchaser
Parties, including the Employment Agreement and (y) any amounts due to Purchaser
from Seller pursuant to this paragraph (d) and remain unpaid shall be subject to
set off and deduction for amounts due from Purchaser under this Agreementor any
other agreements between Nadel and the Purchaser Parties, including the
Employment Agreement. In the event that a disagreement arises between Nadel and
Purchaser, with respect to any such setoff or deduction provided in (x) and (y)
of this proviso, Seller or Purchaser, as applicable in each case, shall be
entitled to deliver a Notice of Disagreement to the other within ten (10)
Business Days following such set off, and the Arbitration provisions of Section
2.07 hereof shall apply to such disagreement. With respect to any payment made
by Purchaser under this paragraph (d) in shares of Pietrafesa Stock, such shares
shall be valued at the average of the bid and ask price for such shares over the
twenty trading days immediately preceding such issuance for the purpose of
determining the number of shares to be issued to Seller. Any and all payments to
Seller provided for under this Agreement which are the responsibility of
Purchaser, and which are not paid when due, shall be the responsibility of, and
shall timely be paid by, the Parent.
2.07. Arbitration of Accounting Disagreements. During the
30-day period following the delivery of a Notice of Disagreement under Section
2.06 above, Seller and the Parent shall seek in good faith to resolve in writing
any differences which they may have with respect to any matter specified in the
Notice of Disagreement. At the end of such 30-day period, if Seller and the
Parent have not reached agreement on such matters, any portion of the Obligation
not in dispute shall be payable to Seller not later than ten days after such
date and otherwise in accordance with this Agreement, and the matters which
remain in dispute shall be submitted to an arbitrator (the "Arbitrator") for
review and resolution. The Arbitrator shall be an independent public accounting
firm or such other person or persons as shall be agreed upon by the parties
hereto in writing. The Arbitrator shall render a decision resolving the matters
in dispute within 30 days following their submission to the Arbitrator unless,
in the view of the Arbitrator, the dispute cannot be equitably resolved within
such period, and then, upon written notice to the parties, it shall be resolved
as soon as practicable in the discretion of the Arbitrator. All of the usual and
customary fees and costs of the Arbitrator, if disagreements are submitted to
the Arbitrator pursuant to this Section 2.07, shall be borne 50% by Purchaser
and 50% by the Seller.
9
<PAGE>
2.08. The Closing. Upon the terms and subject to the
conditions set forth in this Agreement, the acquisition by Purchaser of the
Assets (herein called the "Closing") shall take place at 10:00 a.m. at the
offices of Roberts, Sheridan and Kotel, P.C. on or about March 31, 1999, or such
other time, date and place as the parties shall agree upon, but in no event
before the conditions set forth in Articles VI and VII shall have been satisfied
or waived (the date of the Closing being herein referred to as the "Closing
Date").
2.09. Allocation of Consideration. The consideration paid by
Purchaser shall be allocated among the Assets as set forth on Schedule 2.09. Any
adjustments to such consideration pursuant to Section 2.05 shall be allocated in
the manner mutually agreed upon by Purchaser and Seller and set forth in
Schedule 2.09 hereof. Each of the parties must report this transaction for
federal tax purposes in accordance with this allocation of the Purchase Price.
2.10. Further Assurances. From and after the Closing, upon
written request from the Purchaser, Seller and Nadel shall execute, acknowledge
and deliver all such further acts, assurances, deeds, assignments, transfers,
conveyances and other instruments and papers as may be reasonably required to
sell, assign, transfer, convey and deliver the Assets to Purchaser.
ARTICLE III
Representations and Warranties of Seller
----------------------------------------
Seller and Nadel each represent and warrant to each of the
Purchaser Parties that the statements made in this Article III are true, correct
and complete as of the date hereof, and will continue to be true, correct and
complete on the Closing Date:
3.01. Authority. The Seller has the requisite power and
authority to execute and deliver this Agreement and the other agreements and
instruments to be executed and delivered by Seller pursuant hereto and to
consummate the transactions contemplated hereby and thereby. This Agreement has
been duly executed and delivered by Seller and constitutes, and such other
agreements and instruments when duly executed and delivered by Seller will
constitute, legal, valid and binding obligations of Seller enforceable against
Seller in accordance with their respective terms. The execution and delivery by
Seller of this Agreement and such other agreements and instruments and the
consummation by Seller of the transactions contemplated hereby and thereby will
not violate the Corporation Law of the State of New York, or conflict with, or
result in any breach of, the Certificate of Incorporation, Bylaws or other
organizational documents of Seller or any material indenture, mortgage, lease,
agreement or other instrument to which Seller are a party or by which Seller, or
its properties or assets, are bound. No material approval, authorization,
consent or other order or action of or filing with any court, administrative
agency, other governmental body or any other Person is required for the
execution and delivery by Seller of this Agreement or such other agreements and
instruments or the consummation by Seller of the transactions contemplated
hereby or thereby.
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<PAGE>
3.02. Ownership of the Assets. The Seller has good and valid
title to the Assets, free and clear of any Encumbrances, which Assets represent
all assets currently used by Seller in the conduct of the Business. The Assets
are not subject to any contract, agreement, arrangement, commitment or
understanding other than this Agreement.
3.03. Organization and Qualification of Seller. The Seller is
a corporation duly organized and validly existing under the laws of the State of
New York. The Seller has full power and authority and possesses all governmental
franchises, licenses, permits, authorizations and approvals necessary to enable
it to use its corporate name and to own, lease or otherwise hold its properties
and assets and to carry on its business as presently conducted. The Seller is in
good standing to do business in each jurisdiction in which the nature of its
business or the ownership, leasing or holding of its properties makes such
qualification necessary. The Seller has made available to the Purchaser true and
complete copies of the Certificate of Incorporation, as amended to date, and the
By-laws, as in effect on the date hereof, of Seller.
3.04. Other Equity Interests. Except as set forth on Schedule
3.04, Seller does not directly or indirectly own any capital stock of or other
equity interest in any Person.
3.05. Historical Financial Statements; No Undisclosed
Liabilities. The Historical Financial Statements, true and complete copies of
which are included in Schedule 3.05, were prepared in accordance with Applicable
Accounting Principles and constitute fair and reasonable presentations of the
financial position and results of operations of Seller, in all material
respects, as of the dates and for the periods set forth therein. The Seller does
not have any known, contingent or undisclosed obligations or liabilities which
would be required in accordance with the Applicable Accounting Principles to be
reflected in a currently prepared balance sheet or notes thereto, other than
obligations or liabilities (i) that are reflected or disclosed in the Historical
Financial Statements, (ii) that are disclosed in this Agreement or the Schedules
hereto or (iii) that were incurred after June 30, 1998, in the ordinary course
of business.
3.06. Absence of Material Adverse Changes. Except as disclosed
in Schedule 3.06, and excluding any macroeconomic changes or conditions in
national or local economies affecting the Business or its customers or suppliers
generally, there have been no changes since December 31, 1997, which
individually or in the aggregate have had a material adverse effect on the
business, assets, financial condition or results of operations of Seller.
Without limiting the foregoing, except as disclosed in Schedule 3.06, since
December 31, 1997, Seller has not:
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(i) redeemed or otherwise acquired any of its capital
stock or issued any capital stock or any option,
warrant or right relating thereto;
(ii) granted to any employee any increase in compensation
except as required under existing agreements or in
the ordinary course of business consistent with past
practice;
(iii) incurred any liabilities, obligations or
indebtedness for borrowed money or guaranteed any
such liabilities, obligations or indebtedness, other
than in the ordinary course of business consistent
with past practice;
(iv) cancelled any material indebtedness owed to Seller,
other than in the ordinary course of business
consistent with past practice;
(v) made any material change in any method of accounting
or accounting practice or policy;
(vi) acquired by merging or consolidating with, or by
purchasing stock or a substantial portion of the
assets of, or by any other manner, any material
operating business, corporation, partnership,
association or other business organization (or
division thereof);
(vii) sold, leased or otherwise disposed of any of its
assets except in the ordinary course of business
consistent with past practice;
(viii) entered into any material lease of real property;
(ix) modified, amended or terminated any lease of, or
other material agreement pertaining to, real
property (except modifications or amendments
associated with renewals of leases in the ordinary
course of business);
(x) engaged in any transaction outside Seller's ordinary
course of business consistent with past practice;
(xi) suffered any event or occurrence which has had or
could have a material adverse effect on Seller; or
(xii) suffered any damage to any of its significant assets
that has or could have a material adverse effect.
3.07. Real Property and Improvements. Schedule 3.07 contains a
list of all real property and interests in real property owned or leased by
Seller (the "Real Property"). Except as set forth in Schedule 3.07, Seller has
good and clear record and marketable title in fee simple to the Real Property
set forth in Schedule 3.07 as being owned by it, in each case free and clear of
all Encumbrances, other than Permitted Encumbrances and any Encumbrances
described in or incorporated by reference into Schedule 3.07. The uses for which
the buildings, facilities, and other improvements located on the Real Property
(the "Improvements") are zoned do not materially restrict, or in any manner
materially impair, the use of the Improvements for purposes of the businesses of
Seller as conducted on the date of this Agreement. The Seller are the lessee of
each of the leasehold estates set forth in Schedule 3.07 as being leased by it,
and except as set forth in Schedule 3.07, is in possession of each of the
premises purported to be so leased. Each such lease pursuant to which such
leasehold estate is granted is valid and without any material default thereunder
by Seller, or, to the knowledge of Seller, the landlord. Except as set forth in
Schedule 3.07, there are no pending or, to the knowledge of Seller, threatened,
condemnation, eminent domain or similar proceeding with respect to the Real
Property or the Improvements and no special taxes or assessments relating to any
part of the Real Property, and no public improvements that may result in a
special tax or assessment against any part of the Real Property, are proposed,
in progress or completed. To the knowledge of Seller, there are no structural
defects in the buildings and other improvements situated on the real property
owned or leased by Seller, and all such facilities are in all material respects
in good condition and working order (reasonable wear and tear excepted) and
adequate for the operation of Seller's business as currently conducted.
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3.08. Personal Property. Except as disclosed in Schedule 3.08
and except for obsolete assets and assets disposed of in the ordinary course of
business since December 31, 1997, Seller has good and valid title to the
machinery, equipment and other tangible personal property reflected in the
Historical Financial Statements as being owned by it or acquired by it after
December 31, 1997, free and clear of all Encumbrances, other than Permitted
Encumbrances; and Seller is the lessee of all the leasehold estates pertaining
to the machinery, equipment and other tangible personal property purported to be
granted by the capitalized leases reflected in the Historical Financial
Statements (if any). Each lease or licensing arrangement for personal property
used by Seller is valid and without any material default thereunder by Seller,
or, to the knowledge of Seller, the lessor.
3.09. Intellectual Property Rights. Schedule 3.09 lists all
the Patents, Trademarks and Trade Names owned or licensed by Seller which are
used in Seller's businesses. Except as otherwise disclosed in Schedule 3.09,
Seller validly owns, beneficially and of record, all the Patents, Trademarks and
Trade Names listed in Schedule 3.09, free and clear of all Encumbrances other
than Permitted Encumbrances. Except as disclosed in Schedule 3.09, no action,
claim, suit or proceeding has been brought against Seller or, to the knowledge
of Seller, has been threatened against Seller with respect to any Intellectual
Property Rights used in Seller's businesses that challenge Seller's right to use
any Intellectual Property Rights or that alleges that Seller infringes any
Intellectual Property Rights of any other Person. To the knowledge of Seller, no
other Person is infringing any of the Intellectual Property Rights.
3.10. Litigation. Except as disclosed in Schedule 3.10, there
are no actions, suit, arbitration, investigation, audit or proceeding pending or
threatened against Nadel or Seller in any court, or before any Federal, state,
local or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or before any arbitrator of any kind.
Neither Nadel nor Seller are subject to any judgment, order, writ, injunction or
decree of any court or any Federal, state, local or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, or any arbitrator.
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3.11. Contracts. Schedule 3.11 lists all contracts to which
Seller is party or by which Seller or any Assets are bound. Except for the
Contracts listed in Schedule 3.11, Seller is not a party to, nor are any of its
Assets subject to, any (i) contract or agreement for the employment of any
officer or employee or with any labor union or association; (ii) bonus, pension,
profit-sharing, retirement, deferred compensation, incentive or supplementary
compensation, percentage compensation, termination or severance pay, stock
purchase, stock option, hospitalization, insurance or other plan providing
employee benefits; (iii) contract or agreement in which any Person who is an
officer, director or member of Seller has a significant economic or other
interest; (iv) contract or agreement relating to the borrowing or lending of
money or the guarantee of any obligations for borrowed money, excluding
endorsements made for purposes of collection in the ordinary course of business;
(v) material license or royalty agreement; (vi) material distributor, dealer,
sales agency or advertising contract; (vii) material contract or agreement with
any government or agency or instrumentality thereof; (viii) contract or
agreement granting to any Person a preferential right to purchase any of its
material assets, properties or rights or containing a covenant or other
agreement not to compete; (ix) contract or agreement with respect to the
transportation, removal or storage of any material amount of effluent, wastes,
pollutants or other hazardous substances or materials; (x) any other material
contract or agreement not made in the ordinary course of business. Except as
disclosed in Schedule 3.11, each of the Contracts listed in Schedule 3.11 is
valid and in full force and effect and, to the knowledge of Seller, Seller and
each other party to any such Contract has performed all material obligations
required to be performed by it thereunder.
3.12. Benefit Plans. (a) Schedule 3.12 contains a list and
brief description of all "employee pension benefit plans" (as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), "employee welfare benefit plans" (as defined in Section 3(1) of
ERISA), and any other employee fringe benefit plans maintained, or contributed
to, by Seller (all the foregoing being herein called "Benefit Plans"). The
Seller has made available to the Purchaser true, complete and correct copies of
(1) each Benefit Plan (or, in the case of any unwritten Benefit Plans,
descriptions thereof), (2) the most recent annual report on Form 5500 filed with
the Internal Revenue Service with respect to any Benefit Plan (if any such
report was required) and (3) each trust agreement or other funding arrangement
relating to any Benefit Plan (if applicable). All required reports and
descriptions (including Form 5500 Annual Reports, summary annual reports,
PBGC-l's and summary plan descriptions) have been timely filed and distributed
appropriately with respect to each such Benefit Plan. The requirements of the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA")
have been met with respect to each such Employee Benefit Plan which is an
employee welfare benefit plan under Section 3(1) of ERISA.
(b) Each Benefit Plan has been administered in accordance with
its terms. All the Benefit Plans (and each related trust, insurance contract or
fund), and Seller with respect thereto, are in compliance, in form and in
operation, with the applicable provisions of ERISA, the Code and other
applicable laws. To Seller's knowledge, except as disclosed in Schedule 3.12,
there are no investigations by any governmental agency, termination proceedings
or other claims (except claims for benefits payable in the normal operation of
the Benefit Plans), suits or proceedings against or involving any Benefit Plan
that would result in material liability against Seller or any Benefit Plan.
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(c) Except as disclosed in Schedule 3.12, all the Benefit
Plans, as adopted or as they may have been amended, as, when and to the extent
required, comply with the applicable provisions of all applicable laws. Except
as disclosed in Schedule 3.12, the Benefit Plans that are pension benefit plans
have received determination letters from the Internal Revenue Service to the
effect that such Benefit Plans are qualified and exempt from Federal income
taxes under Sections 401(a) and 501(a), respectively, of the Code, and no such
determination letter has been revoked nor, to the knowledge of Seller, has
revocation been threatened nor are there any facts that could result in any such
revocation, nor has any such Benefit Plan been amended since the date of its
most recent determination letter or application therefor in any respect that
would adversely affect its qualification.
(d) No "prohibited transaction" (as defined in Section 4975 of
the Code or Section 406 of ERISA) has occurred which involves the assets of any
Benefit Plan and which could subject any employees of Seller, a trustee,
administrator or other fiduciary of any trusts created under any Benefit Plan to
the tax or penalty on prohibited transactions imposed by Section 4975 of the
Code or the sanctions imposed under Title I of ERISA. No fiduciary has any
liability for breach of fiduciary duty or any other failure to act or comply in
connection with the administration or investment of the assets of any Benefit
Plan. Except as disclosed in Schedule 3.12, none of the Benefit Plans has been
terminated nor have there been any "reportable events" (as defined in Section
4043 of ERISA and the regulations thereunder) with respect thereto.
(e) Each Benefit Plan subject to Title IV of ERISA has paid
all premiums when due to the Pension Benefit Guaranty Corporation ("PBGC"). The
Seller has not incurred, and none of the directors and officers (and employees
with responsibility for employee benefits matters) of the Seller has any reason
to expect that Seller will incur, any liability to the PBGC (other than PBGC
premium payments) or otherwise under Title IV of ERISA (including any withdrawal
liability as defined in Section 4201 of ERISA) or under the Code with respect to
any such Benefit Plan which is an employee pension benefit plan under Section
3(2) of ERISA. No Benefit Plan has applied for or received a waiver of the
minimum funding standards imposed by Section 412 of the Code, and no Benefit
Plan has an "accumulated funding deficiency" within the meaning of Section
412(a) of the Code as of the most recent plan year. The Seller has made
available to the Purchaser the most recent actuarial report or valuation with
respect to each Benefit Plan that is a "defined benefit plan" (as defined in
Section 3(35) of ERISA). The information supplied to the actuary for use in
preparing those reports or valuations was complete and accurate in all material
respects and Seller has no reason to believe that the conclusions expressed in
those reports or valuations are incorrect in any material respect.
(f) Except to the extent required under COBRA, Seller does not
maintain, contribute to, or have any liability or obligation to contribute to
any funded or unfunded medical, health or life insurance plan or similar
arrangement for present or future retirees, their spouses or dependents or
present or future terminated employees, their spouses or dependents.
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(g) Seller is not a member of a controlled group of
corporations, within the meaning of Section 414(b) of the Code, is not a member
of a group of trades or businesses under common control, within the meaning of
Section 414(c) of the Code, and is not a member of an affiliated service group,
within the meaning of Section 414(m) and (o) of the Code. The Seller does not
contribute to, never has contributed to, and never has been required to
contribute to any multiemployer plan (as defined in Section 3(37) of ERISA) and
Seller has no liability (including withdrawal liability as defined in Section
4201 of ERISA) under any multiemployer plan.
(h) The execution of this Agreement and the consummation of
the transaction contemplated hereby do not result in the acceleration or early
vesting of any payments or benefits under any Benefit Plan or in the payment of
any "excess parachute payments" within the meaning of Section 280G of the Code.
(i) All contributions or premium payments required to have
been made by Seller under any Benefit Plan under the terms of such Benefit Plan
or applicable law (including without limitation, ERISA and the Code) have been
made within the time prescribed by such Benefit Plan or law.
3.13. Taxes. The Seller has timely filed or caused to be filed
with the appropriate taxing authorities all Tax Returns required to be filed by
Seller through the date hereof and will timely file all Tax Returns required to
be filed on or prior to the Closing Date, in each case, subject to applicable
extensions. All such Tax Returns were correct and complete in all respects.
Seller has paid all Taxes due and payable (whether or not shown on any Tax
Return). The Seller has delivered to the Purchaser correct and complete copies
of all federal income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by the Seller since January 1, 1994.
Seller has withheld and paid all Taxes required to have been withheld and paid
in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party. No written claim has
ever been delivered to Seller by an authority in a jurisdiction where Seller
does not file Tax Returns that Seller is or may be subject to taxation by that
jurisdiction. There are no liens with respect to Taxes upon any of the
properties or assets of Seller other than customary liens for current Taxes not
yet due and payable. Except as disclosed in Schedule 3.13, there are no disputes
or claims concerning any Tax liability of Seller either claimed or raised by an
authority in writing or as to which Seller has knowledge. Schedule 3.13 lists
all federal, state, local and foreign income Tax Returns that have been audited
and that currently are the subject of audit. Except as disclosed on Schedule
3.13, there are no outstanding agreements or waivers extending the statutory
period of limitation applicable to any material Tax Returns required to be filed
by or with respect to Seller, and Seller has not requested any extension of time
within which to file any Tax Return that has not yet been filed. Except as
disclosed on Schedule 3.13, Seller is not a party to any agreement or
arrangement (written or oral) providing for the allocation or sharing of Taxes
or Tax benefits. The Seller (A) has never been a member of an affiliated group
filing a consolidated federal income Tax Return and (B) has no liability for
Taxes of any Person under Section 1502-6 of the Treasury Regulations promulgated
pursuant to the Code (or any similar provision of state, local, or foreign law),
as a transferee or successor, by contract, or otherwise.
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3.14. Environmental Matters. Except as set forth in Schedule
3.14, (i) Seller is in compliance with all Environmental Laws applicable to it
and its properties, (ii) Seller has obtained and is in compliance with all
Environmental Permits, and the sale of the Assets hereunder will not cause a
termination of any such Environmental Permits, (iii) Seller does not generate,
use, store, transport or dispose of any Hazardous Materials in the course of
conducting its business operations, except in each case in compliance with all
applicable Environmental Laws, (iv) Seller has not caused, had or suffered any
material spills, releases or threatened releases of Hazardous Materials at any
of its Real Properties or which affect any adjacent parcels of land, (v) all
garbage, wastes, refuse, byproducts and other potential contaminants produced by
Seller in the course of conducting its business operations are disposed of by
properly licensed waste removal companies, or other third parties or
governmental authorities, in compliance with all requirements applicable to
Seller under Environmental Laws regulating such activities, (vi) none of the
Real Properties (including the soil, subsoil and groundwater at or under such
sites) contains any Hazardous Materials in amounts which could require Seller to
incur any material clean-up or remediation expenses or liabilities not covered
by insurance or other third party indemnities, (vii) there are no unregistered
underground storage tanks located under any of the Real Properties that are
required to be registered under any applicable Environmental Laws, (viii) no
notice has been received by Seller identifying Seller as a "potentially
responsible party", or requesting information under CERCLA or any similar state
statutes, with respect to any current investigation, suit, proceeding or other
regulatory activity of any applicable Federal or state environmental agency
(whether with respect to Seller, the Real Properties or otherwise), (ix) there
are no investigations, suits, administrative actions, demands, claims, hearings
or proceedings against Seller alleging the violation of any Environmental Laws,
(x) there are no consent decrees, orders, judgments or agreements with any
Federal or state environmental agencies in effect that materially restrict
Seller's operations, or the use of the Real Properties in connection with
Seller's operations, as currently conducted and (xi) none of the Real Properties
are listed or proposed for listing on the National Priorities List or are listed
on the Comprehensive Environmental Response, Compensation, Liability Information
System List promulgated pursuant to CERCLA, except in each case for violations
of or exceptions to the foregoing which would not in the aggregate reasonably be
expected to cause a material adverse effect on the business, assets, financial
condition or results of operations of Seller.
3.15. Transactions with Affiliates. Since December 31, 1997,
except as disclosed in Schedule 3.15, Seller has not purchased, acquired, leased
or licensed any property or services from, or sold, transferred, leased or
licensed any property or services to, any Affiliate, or any officer or director
of Seller, other than on an arm's length basis in the ordinary course of
business.
3.16. Insurance. All of the real and tangible personal
property included in the Assets are insured for the benefit of Seller in amounts
and against such risks as are customary for companies similarly situated under
valid and enforceable policies issued by financially sound and reputable
insurers. Schedule 3.16 contains a list and description of all material policies
of property, fire, liability, workers' compensation and all other types of
insurance maintained by Seller. As of the date hereof, all such policies are in
full force and effect and all premiums due thereon have been paid.
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3.17. Inventory. All inventory of the Seller was acquired by
the Seller in the ordinary course of business and is in good condition and is
usable and saleable in the ordinary course of such business. The Seller has good
and valid title to the inventory, free and clear of all Encumbrances. The
allowance for obsolete and slow moving inventory reflected in the Historical
Financial Statements and in the Closing Date Balance Sheet is and will be
properly determined in accordance with Applicable Accounting Principles.
3.18. Accounts Receivable. All accounts receivable of the
Seller included in the Assets, whether reflected in the Historical Financial
Statements or subsequently created ("Receivables"), have arisen from bona fide
transactions in the ordinary course of business. The allowance for doubtful
accounts in respect of Receivables reflected in the Historical Financial
Statements and in the Closing Date Balance Sheet is and will be properly
determined in accordance with the Applicable Accounting Principles.
3.19. Customers and Suppliers. Schedule 3.19 hereto lists the
ten largest suppliers and the twenty largest customers of Seller (calculated by
dollar amount) for each of 1996 and 1997, stating for each the dollar volume of
the purchases. Seller and Nadel have no knowledge that might reasonably indicate
that any of the entities listed on Schedule 3.19 intends to cease purchasing
from, selling to or dealing with Seller, nor has any information been brought to
the attention of Seller or Nadel that might reasonably lead it to believe any
such customer or supplier intends to materially alter the amount of such sales
or purchases or the extent of dealings with Seller.
3.20. Employees. Schedule 3.20 sets forth a complete and
correct list as of the date of this Agreement of the names, annual salaries and
credited years of service of all officers and employees of Seller. In the case
of officers or employees receiving bonus or similar payments at any time during
the past two years exceeding $25,000 during any 12 month period, such Schedule
3.20 also sets forth the amount of the bonus and other similar payments received
by such officers and employees during each of the past two years. As of the date
of this Agreement, there are no current or, to the knowledge of Seller,
threatened work stoppages by any of the employees.
3.21. Accuracy. To Seller's knowledge, the required
disclosures made in this Agreement and the schedules attached hereto are
complete and accurate in all material respects, and the scheduled disclosures do
not contain any untrue statement of a fact or omit to state any fact necessary
to make the statements or facts contained therein not misleading.
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ARTICLE IV
Representations and Warranties of the Purchaser Parties
-------------------------------------------------------
Each Purchaser Party represents and warrants to Seller that
the statements made in this Article IV are true, correct and complete as of the
date hereof, and will continue to be true, correct and complete on the Closing
Date:
4.01. Organization. Each Purchaser Party has been duly
organized, is validly existing and is in good standing under the laws of the
jurisdiction of its organization.
4.02. Authority. Each Purchaser Party has the full power and
authority to execute and deliver this Agreement, the Note and the other
agreements and instruments to be executed and delivered by such Purchaser Party
pursuant hereto and to consummate the transactions contemplated hereby and
thereby. All corporate acts and other proceedings required to be taken by or on
the part of each Purchaser Party to authorize such execution, delivery and
consummation have been duly and properly taken. Each of this Agreement and the
Note has been duly executed and delivered by each Purchaser Party and
constitutes, and such other agreements and instruments contemplated by this
Agreement when duly executed and delivered by a Purchaser Party will constitute,
legal, valid and binding obligations of the relevant Purchaser Party enforceable
against it in accordance with their respective terms. The execution and delivery
by each Purchaser Party of this Agreement, the Note and the execution and
delivery by each Purchaser Party of such other agreements and instruments and
the consummation by each Purchaser Party of the transactions contemplated hereby
and thereby will not violate any law, or (after obtaining the consent of the
National Bank of Canada as provided in Section 6.05 hereof) conflict with,
result in any breach of, constitute a default under, or result in the creation
of a lien or encumbrance on any of the properties or assets of a Purchaser Party
pursuant to, the certificate of incorporation or partnership agreement of any
Purchaser Party or (after obtaining the consent of the National Bank of Canada
as provided in Section 6.05 hereof) any indenture, mortgage, lease, agreement or
other instrument to which any Purchaser Party is a party or by which its
properties or assets are bound. No approval, authorization, consent or other
order or action of or filing with any court, administrative agency or other
governmental body in the United States of America is required for the execution
and delivery by any Purchaser Party of this Agreement and the Note and the
execution and delivery by any Purchaser Party of such other agreements and
instruments or the consummation by any Purchaser Party of the transactions
contemplated hereby or thereby.
4.03. No Legal Proceedings. There is no action, suit, order,
judgment or proceeding pending or, to the knowledge of any Purchaser Party,
threatened against or affecting any Purchaser Party that, individually or when
aggregated with one or more other actions, suits, orders, judgments or
proceedings, has or might reasonably be expected to have a material adverse
effect on any Purchaser Party's ability to perform any of its obligations
hereunder or under any of the other agreements and instruments to be executed
and delivered by any Purchaser Party in connection herewith.
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ARTICLE V
Further Covenants and Agreements
--------------------------------
5.01. Conduct of Business. (a) Except as otherwise expressly
provided herein, from and after the date of this Agreement and until the
Closing, each Seller shall:
(i) operate the Business only in the ordinary course
consistent with past practice in all material respects;
(ii) use its best efforts to preserve intact the Business and
to maintain satisfactory relationships with its customers, suppliers,
distributors and any other person having business relations with it;
(iii) maintain its tangible assets in good order and repair,
ordinary wear and tear excepted;
(iv) perform punctually all obligations under each Contract,
and keep each Contract in full force and effect, free from any right of
cancellation, forfeiture or termination;
(v) retain the services of its key officers and employees; and
(vi) promptly notify the Parent of any material adverse change
in the business, assets, financial condition or results of operations of Seller.
(b) From the date hereof to the Closing, neither Nadel nor
Seller will take any action or engage in any transaction which would render the
representations and warranties of Seller inaccurate in any material respect as
of the Closing Date. In addition, except as expressly permitted by the terms of
this Agreement, neither Nadel nor Seller will do any of the following without
the prior written consent of Parent (such consent not to be unreasonably
withheld):
(i) amend DAG's Certificate of Incorporation;
(ii) redeem or otherwise acquire any of its capital stock or
issue any capital stock or any option, warrant or right relating
thereto;
(iii) grant to any employee any increase in compensation,
except as has been previously disclosed to the Parent;
(iv) incur any liabilities, obligations or indebtedness for
borrowed money or guarantee any such liabilities, obligations or
indebtedness in excess of $10,000, or which requires performance over
more than one year, other than to an independent third party in the
ordinary course of business consistent with past practice;
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(v) cancel any material indebtedness owed to Seller, other
than in the ordinary course of business consistent with past practice;
(vi) make any material change in any method of accounting or
accounting practice or policy;
(vii) acquire or agree to acquire by merging or consolidating
with, or by purchasing stock or a substantial portion of the assets of,
or by any other manner, any material operating business, corporation,
partnership, association or other business organization (or division
thereof);
(viii) sell, lease or otherwise dispose of, or agree to sell,
lease or otherwise dispose of, any of its assets with a value in excess
of $10,000, except in the ordinary course of business consistent with
past practice;
(ix) enter into any lease of real property;
(x) modify, amend or terminate any lease of, or other material
agreement pertaining to, real property (except modifications or
amendments associated with renewals of leases in the ordinary course of
business);
(xi) make capital expenditures or purchases in excess of
$10,000 in the aggregate; or
(xii) agree, whether in writing or otherwise, to do any of the
foregoing or to take any other action which would in any manner
interfere with, impede, delay or make more costly the consummation of
the transaction completed hereby.
(c) Notwithstanding anything in this Agreement to the
contrary, Seller shall have the right to retain as its own all cash assets of
Seller at the Closing; provided, however, that the retention of such cash by
Seller shall not in any way affect or reduce its obligation to make the payment,
if any, required by Section 2.05.
5.02. Access; Information. From the date hereof to and
including the Closing Date, Nadel and Seller shall afford to the officers,
employees, attorneys, accountants and other authorized representatives of each
Purchaser Party reasonable access to the offices, management, employees, plants,
properties, assets, contracts, books and records of Seller in order that the
Purchaser Parties may have the full opportunity to make such legal, financial,
accounting and other reviews or investigations of Seller as they shall desire to
make. Nadel and Seller shall furnish promptly to the Purchaser Parties such
financial and operating information as any Purchaser Party may reasonably
request, including copies of any documents requested before or after the date
hereof.
5.03. Consents. From the date hereof to and including the
Closing Date, each of Seller and Nadel agrees (i) to obtain all consents,
authorizations, orders, exemptions and approvals of any third parties, including
governmental bodies and landlords under leases, required to be obtained by it in
connection with any of the transactions contemplated hereby, (ii) to take all
reasonable actions necessary to comply promptly with all legal requirements
which may be imposed on or applicable to it with respect to the Closing and
(iii) to promptly cooperate with and furnish information to Purchaser in
connection with any such legal requirements.
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5.04. Notification of Certain Matters. Nadel and Seller shall
give prompt written notice to the Parent, and the Parent shall give prompt
written notice to Seller, as the case may be, of the occurrence, or failure to
occur, of any event that would be likely to cause any representation or warranty
by such notifying party contained in this Agreement to be untrue or inaccurate
in any material respect at any time between or including the date of this
Agreement and the Closing Date.
5.05. Insurance. The Seller agreess to keep all insurance
policies set forth in Schedule 3.16, or replacements thereof, in full force and
effect through the close of business on the Closing Date.
5.06. Prohibition of Solicitation. From the date hereof
through the Closing or the earlier termination of this Agreement, Seller and
Nadel shall not, and shall cause their respective directors, officers,
shareholders, affiliates, agents, advisers and other representatives (including
investment bankers) not to, directly or indirectly, enter into, solicit or
initiate any discussions or negotiations with, or encourage or respond to any
inquiries or proposals by, or participate in any negotiations with, or provide
any information to, or otherwise cooperate in any other way with, any Person,
other than the Purchaser Parties and their directors, officers, members,
affiliates, agents, advisers and other representatives, concerning any sale of
all or a portion of Seller's assets, or any merger, consolidation, liquidation,
dissolution or similar transaction involving Seller (each such transaction being
referred to herein as a "Proposed Acquisition Transaction"). Nadel and Seller
will immediately notify the Parent if any discussions or negotiations are sought
to be initiated, any inquiry or proposal is made, or any information is
requested with respect to any Proposed Acquisition Transaction and notify the
Parent of the terms of any proposal which it may receive after the date hereof
in respect of any such Proposed Acquisition Transaction, including without
limitation the identity of the prospective purchaser or soliciting party.
ARTICLE VI
Conditions Precedent to Obligations of the Purchaser Parties
------------------------------------------------------------
All obligations of the Purchaser Parties to effect the Closing
hereunder are, at the option of the Purchaser Parties, subject to the conditions
precedent that, at the Closing:
6.01. Bill of Sale. The Seller shall have executed and
delivered to Purchaser such bills of sale and other instruments as Purchaser may
reasonably request in order to give effect to, and appropriately evidence, the
transfer to Purchaser of all Seller's right, title and interest in and to the
Assets.
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6.02. Opinion of Counsel. The Purchaser Parties shall have
received the favorable opinion of J. Jason Kaplan, A.P.C., counsel to Seller,
addressed to the Purchaser Parties and dated the Closing Date, substantially in
the form of Exhibit 6.02 (or otherwise in a form reasonably satisfactory to the
Purchaser Parties).
6.03. Employment Agreement. Nadel shall have executed and
delivered to Purchaser an employment/noncompetition and proprietary information
agreement in the form of Exhibit 6.03 attached hereto (the "Employment
Agreement").
6.04. Consummation of the IPO. The Parent shall have
consummated the IPO or any Purchaser Party shall have closed an offering of not
less than $10,000,000 of such Purchaser Party's senior subordinated debt.
6.05. Consent of National Bank of Canada. The Purchaser
Parties shall have obtained written consent to the transactions contemplated
hereby from the National Bank of Canada to the extent required by the Credit
Agreement dated June 19, 1998 between the National Bank of Canada and the
Parent.
6.06. Due Diligence Review. After having the opportunity to
investigate all aspects of Seller, the Purchaser Parties shall have been
reasonably satisfied with the condition and operation of Seller and the
Business.
6.07. Liabilities. None of the Liabilities shall be in default
or otherwise subject to acceleration.
6.08. Performance by Seller. All the terms, covenants,
agreements and conditions of this Agreement to be complied with and performed by
Nadel and Seller on or before the Closing shall have been complied with and
performed and, in addition, neither Nadel nor Seller shall have done any of the
actions listed in Section 5.01(b) between March 31, 1998 and the date of the
Closing.
6.09. Representations and Warranties. The representations and
warranties made by Nadel and Seller in this Agreement shall be true and correct
with the same force and effect as though all such representations and warranties
had been made as of the Closing.
6.10. No Law Suits. There shall not be pending or threatened
any lawsuit, claim or proceeding, in law or equity, which challenges or
adversely affects Seller, Nadel or the Business.
6.11. Seller's Certificate. The Purchaser Parties shall have
received from Seller, in form and substance reasonably satisfactory to Purchaser
and its counsel, a certificate of Seller, dated the Closing Date, confirming the
satisfaction of the conditions set forth in Sections 6.08 and 6.09.
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6.12. Secretary's Certificate. The Purchaser Parties shall
have received from Seller, in form and substance reasonably satisfactory to the
Purchaser Parties and their counsel, a certificate, dated the Closing Date, of
the Secretary or an Assistant Secretary of Seller, (i) certifying the
resolutions of the Board of Directors of Seller and all other documents of
Seller which authorize the transactions contemplated hereby and the execution,
delivery and performance by Seller of this Agreement and the documents
contemplated hereby, (ii) certifying the Certificate of Incorporation and Bylaws
of Seller, (iii) containing a certificate of good standing from the Secretary of
State of the state of Seller's organization, and (iv) containing an incumbency
certificate regarding the officers of the Seller authorized to sign this
Agreement and the other documents contemplated hereby.
6.13. Release of Debt by Seller and Nadel. In consideration of
this Agreement, Seller and Nadel shall forgive all amounts that may be owed to
them by the Business.
6.14. No Material Adverse Changes. There shall have been no
material adverse change in the business, assets, operations, prospects or
financial condition of the Seller or the Business since the date of this
Agreement.
ARTICLE VII
Conditions Precedent to Obligations of Seller
---------------------------------------------
All obligations of Seller to effect the Closing hereunder are,
at the option of Seller, subject to the conditions precedent that, at the
Closing:
7.01. Performance by the Purchaser Parties. All the terms,
covenants, agreements and conditions of this Agreement to be complied with and
performed by the Purchaser Parties on or before the Closing shall have been
complied with and performed in all material respects.
7.02. Representations and Warranties. The representations and
warranties made by the Purchaser Parties in this Agreement shall have been true
and correct in all material respects at the date hereof and as of the Closing
with the same force and effect as though all such representations and warranties
had been made as of the Closing.
7.03. No Injunctions. There shall not be in effect any
injunction or restraining order issued by a court of competent jurisdiction
against the consummation of the sale and purchase of the Assets pursuant to this
Agreement.
7.04. Officer's Certificate. The Seller shall have received
from each Purchaser Party, in form and substance reasonably satisfactory to
Seller and its counsel, a certificate, dated the Closing Date, of an officer of
such Purchaser Party, certifying as to the satisfaction of the conditions set
forth in Sections 7.01 and 7.02.
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<PAGE>
7.05 Secretary's Certificate. The Seller shall have received
from each Purchaser Party, in form and substance reasonably satisfactory to
Seller and its counsel, a certificate, dated the Closing Date, of the Secretary
or an Assistant Secretary of such Purchaser Party, (i) certifying all documents
evidencing the actions of such Purchaser Party authorizing the transactions
contemplated hereby and the execution, delivery and performance by such
Purchaser Party of this Agreement and the documents contemplated hereby, (ii)
certifying the Certificate of Incorporation or other organizational document of
such Purchaser Party and (iii) containing an incumbency certificate regarding
the officers of such Purchaser Party authorized to sign this Agreement, the Note
and the other documents contemplated hereby.
7.06 Opinion of Counsel. The Seller shall have received the
favorable opinion of Roberts, Sheridan & Kotel, a professional corporation,
counsel to Purchaser Parties, addressed to the Seller and dated the Closing
Date, substantially in the form of Exhibit 7.06 (or otherwise in a form
reasonably satisfactory to the Seller).
ARTICLE VIII
Survival, Termination of Agreement Prior To Closing, and Indemnification
------------------------------------------------------------------------
8.01. Survival of Representations. Notwithstanding any
investigation or knowledge of any Purchaser Party, the representations,
warranties, covenants and agreements contained in this Agreement, and in any
agreements, certificates or other instruments delivered pursuant to this
Agreement, shall survive the Closing and shall remain in full force and effect
for three years after the Closing Date (or, in the case of representations and
warranties set forth in Sections 3.13 (Taxes) and 3.14 (Environmental Matters),
until the expiration of the applicable statute of limitations (with
extensions)), but subject to all limitations and provisions contained in this
Agreement. Notwithstanding the preceding sentence, any representation, warranty,
covenant or agreement in respect of which indemnity may be sought under this
Agreement shall survive the time at which it would otherwise terminate pursuant
to the preceding sentence if notice of the inaccuracy or breach thereof giving
rise to such right to indemnity shall have been given prior to such time to the
party against whom such indemnity may be sought.
8.02. Indemnification by Seller. Nadel and Seller each hereby
agree jointly and severally to indemnify and hold each Purchaser Party, and
their Affiliates, officers, directors, employees, agents and representatives
harmless from and against any and all claims, damages, liabilities, liens,
losses or other obligations whatsoever, together with costs and expenses,
including fees and disbursements of counsel and expenses of investigation
(collectively, "Losses"), arising out of, based upon or caused by (i) the
inaccuracy of any representation or the breach of any warranty of Seller or
Nadel contained in this Agreement or (ii) any breach or nonperformance by Seller
or Nadel of any of its covenants or agreements contained in this Agreement or in
any agreement, certificate or other instrument delivered by Seller or Nadel
pursuant to this Agreement.
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<PAGE>
8.03. Indemnification by Purchaser. The Purchaser hereby
agrees to indemnify and hold Seller and its Affiliates and its respective
officers, directors, employees, agents and representatives harmless, from and
against any and all Losses arising out of, based upon or caused by (i) the
inaccuracy of any representation or the breach of any warranty of any Purchaser
Party contained in this Agreement or in any agreement, certificate or other
instrument delivered by any Purchaser Party pursuant to this Agreement, or (ii)
any breach or nonperformance by any Purchaser Party of any of its covenants or
agreements contained in this Agreement or in any agreement, certificate or other
instrument delivered by the Purchaser Parties pursuant to this Agreement.
8.04. Notice; Cooperation; Defense; Etc. The indemnified party
agrees to give the indemnifying party prompt written notice of any third-party
action, claim, demand, discovery of fact, proceeding or suit (collectively,
"Claims") for which such indemnified party intends to assert a right to
indemnification under this Agreement; provided, however, that failure to give
such notification after such notice is required shall not adversely affect the
indemnified party's entitlement to indemnification hereunder except to the
extent that the indemnifying party shall have been actually prejudiced as a
result of such failure. The indemnified party shall take all reasonable or
necessary steps to resolve, defend or cooperate in the defense of such Claims,
including retaining and providing to the indemnifying party all documents,
records and other information that may be relevant to such Claims and making
employees available to the extent reasonably requested to fully cooperate in the
resolution or defense of such Claims and provide any additional information
(including explanations and interpretations of any other materials or
information provided) that it is able to provide with respect thereto. The
indemnifying party shall have the right to participate jointly with the
indemnified party in the indemnified party's defense, settlement or other
disposition of any Claim and, with respect to any Claim that is not likely to
result in the indemnified party becoming subject solely to injunctive or other
similar relief, the indemnifying party shall have the sole right (but not the
obligation) to defend, settle or otherwise dispose of such Claim on such terms
as the indemnifying party, in its sole discretion, shall deem appropriate. The
indemnifying party shall obtain the written consent of the indemnified party,
which shall not be unreasonably withheld or delayed, prior to ceasing to defend
any Claim if it has theretofore elected to exercise its sole right to defend,
settle or otherwise dispose of such Claim.
8.05. Adjustment to Purchase Price. Amounts paid by Seller or
any Purchaser Party under this Article VIII shall be treated for all tax
purposes as adjustments to Purchase Price.
ARTICLE IX
Taxes and Benefit Plans
-----------------------
9.01. Taxes. (a) Allocation of Responsibility. Nadel and
Seller shall pay (or indemnify and hold Seller and each Purchaser Party harmless
with respect to) (without duplication) any Taxes (excluding any penalties
arising from any act by any Purchaser Party) payable by Nadel or the Seller with
respect to Seller's income for all tax periods before and after the Closing
Date. Any Taxes payable by Nadel or Seller pursuant to this Section 9.01(a)
shall be paid by Nadel or Seller when due, but in no event more than thirty days
following the request therefor from any Purchaser Party.
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<PAGE>
(b) Returns. The Seller shall prepare and file all required
Federal, state, local and foreign Tax Returns for Seller for all taxable periods
ending on or prior to the Closing Date and pay all Taxes due for such periods on
such Tax Returns. Any such Tax Returns shall, insofar as they relate to Seller,
be on a basis consistent with the last such Tax Returns that have been filed in
respect to Seller.
(c) Cooperation. The Purchaser Parties, Seller and Nadel
mutually agree to cooperate fully with each other with respect to the
preparation of all Tax Returns, the filing and prosecution of any Tax claims,
the furnishing of any document, record or other relevant information relating to
any Tax liability or refund and all other Tax matters, and to keep each other
advised as to any issue relating to Taxes which would have any bearing on the
other party's responsibilities pursuant to this Section 9.01.
9.02. Transfer Taxes. The Seller shall be responsible for all
transfer and similar Taxes assessed or payable in connection with the Transfer
of the Assets pursuant to this Agreement.
9.03. Expenses of Benefit Plans. The Seller shall pay (or
indemnify the Purchaser Parties with respect to) the that portion of the costs
of the Benefit Plans payable by Seller for the period up to but not including
the Closing Date. Any costs relating to the Benefit Plans by Seller pursuant to
this Section 9.03 shall be paid by Seller when due, but in no event more than
thirty days following the request therefor from any Purchaser Party.
ARTICLE X
Miscellaneous
-------------
10.01. Brokers. Nadel and Seller each represents and warrants
to the Purchaser Parties, and the Purchaser Parties represent and warrant to
Nadel and Seller, that no party hereto or any party acting on behalf of any of
the parties hereto have incurred any liability, either express or implied, to
any "broker", "finder", financial adviser or similar Person in respect of any of
the transactions contemplated hereby. The Purchaser Parties agree to indemnify
Seller against, and hold it harmless from, and Nadel and Seller agree to
indemnify the Purchaser Parties against, and hold them harmless from, any
liability, cost or expense (including, but not limited to, fees and
disbursements of counsel) resulting from any agreement, arrangement or
understanding made by such party with any third party for brokerage, finders' or
financial advisory fees or other commissions in connection with this Agreement
or the transactions contemplated hereby. The provisions of this Section shall
survive any termination of this Agreement.
27
<PAGE>
10.02. Expenses. Except as otherwise specifically provided in
this Agreement, each party will pay its own expenses incident to this Agreement
and the transactions contemplated hereby, including legal, due diligence and
accounting fees and disbursements. Any sales, transfer, stamp or other Taxes or
fees applicable to the conveyance and transfer to Purchaser of the Assets (but
excluding any Income Taxes arising as a result of the transactions contemplated
by this Agreement), shall be borne and paid by Seller. The provisions of this
Section shall survive any termination of this Agreement.
10.03. Amendments and Waivers. The parties hereto may, by
written agreement signed by the parties, modify any of the covenants or
agreements or extend the time for the performance of any of the obligations
contained in this Agreement or in any document delivered pursuant to this
Agreement. Any party hereto may waive, by written instrument signed by such
party, any inaccuracies in the representations and warranties of another party
or compliance by another party with any of its obligations contained in this
Agreement or in any document delivered pursuant to this Agreement. This
Agreement may be amended only by written instrument signed by the parties
hereto.
10.04 Transferability. The respective rights and obligations
of each party hereto shall not be assignable by any party without the written
consent of the other parties (and any purported assignment without such written
consent shall be void and of no effect). This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assignees.
10.05 Termination. The Purchaser Parties or Seller may each
terminate this Agreement if the Closing has not occurred on or prior to April
30, 1999; provided, however, that any party that has failed to perform any
covenant hereunder, which failure has resulted in delay of the closing because
the conditions set forth in Articles VI and VII have not been met, shall not be
entitled to terminate this Agreement except with the prior written consent of
the other party hereto. In the event of the termination of this Agreement
pursuant to this Section 10.05, none of the parties shall have any obligation or
liability of any nature whatsoever to the other party hereto, and all expenses
incurred by any party hereto shall be for its own account; provided, however,
that notwithstanding any termination of this Agreement, no party hereto shall be
deemed to have waived any rights it may have arising from the breach of this
Agreement or any provision contained herein by the other party hereto and such
rights shall specifically survive any such termination of this Agreement.
10.06 Bulk Transfer Laws. The Purchaser hereby waives
compliance by Seller with the provisions of any so-called "bulk transfer law" of
any jurisdiction in connection with the sale of the Assets. The Seller agrees to
indemnify and hold Purchaser harmless, in cash payable upon demand, against any
and all liabilities, including costs and expenses, that may be asserted by third
parties against the Purchaser as a result of any non-compliance by Seller with
any such bulk transfer law.
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<PAGE>
10.07 Notices. Any notice, request or other document to be
given hereunder to a party hereto shall be effective when received and shall be
given in writing and delivered in person, by facsimile or sent by hand delivery
or overnight courier, as follows:
If to any Purchaser Party:
MS Pietrafesa, L.P.
7400 Morgan Road
Liverpool, NY 13090
Attention: Richard C. Pietrafesa, Jr.
with a copy to:
Roberts, Sheridan & Kotel,
a Professional Corporation
12 East 49th Street
New York, NY 10017
Attention: L. Kevin Sheridan, Esq.
If to Seller:
Jarrod Nadel
Diversified Apparel Group
101 West 55th Street, Suite 13H
New York, NY 10019
with a copy to:
J. Jason Kaplan, A.P.C.
225 Broadway, suite 1220
San Diego, CA 92101
Attention: J. Jason Kaplan, Esq.
Any party hereto may change its address for receiving notices, requests and
other documents by giving written notice of such change to the other parties
hereto.
10.08 Governing Law; Choice of Forum. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
(without regard to conflict of laws doctrines). The parties agree that the
exclusive place of jurisdiction for any action, suit or proceeding relating to
this Agreement shall be in the courts of the United States of America sitting in
the Borough of Manhattan in the City of New York or, if such courts shall not
have jurisdiction over the subject matter thereof, in the courts of the State of
New York sitting therein, and each such party hereby irrevocably and
unconditionally agrees to submit to the jurisdiction of such courts for purposes
of any such action, suit or proceeding. Each party irrevocably waives any
objection it may have to the venue of any action, suit or proceeding brought in
such courts or to the convenience of the forum. Final judgment in any such
action, suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment, a certified or true copy of which shall
be conclusive evidence of the fact and the amount of any indebtedness or
liability of any party therein described.
29
<PAGE>
10.09 Partial Invalidity. In the event that any provision of
this Agreement shall be held invalid or unenforceable by any court of competent
jurisdiction, such holding shall not invalidate or render unenforceable any
other provision hereof.
10.10 Section Headings. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
10.11 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
10.12 Entire Agreement. This Agreement, together with the
schedules and exhibits and the agreements, certificates and instruments
delivered pursuant hereto, contain the entire agreement among the parties
hereto, and supersede all prior agreements and undertakings (written and oral)
between the parties hereto, relating to the subject matter hereof.
10.13 Publicity. No party shall issue any press release or
make any other public announcement with respect to this Agreement or the
transactions contemplated hereby without obtaining the prior written approval of
the other parties (which will not be unreasonably withheld or delayed), except
as may be required by law or the regulations of any securities exchange.
10.14 Parties in Interest. Nothing in this Agreement, express
or implied, is intended to confer on any Person other than the parties and their
respective successors and permitted assigns any rights or remedies under or by
virtue of this Agreement, and no Person shall assert any rights as a third party
beneficiary hereunder.
10.15 Specific Performance. Nadel and Seller agrees that the
Purchaser Parties will be irreparably injured if this Agreement is not
specifically enforced. Therefore, notwithstanding anything to the contrary in
this Agreement, the Purchaser Parties shall have the right to enforce
specifically the performance by Nadel and Seller under this Agreement, and Nadel
and Seller agrees to waive the defense in any such suit that the Purchaser
Parties have an adequate remedy at law and to interpose no opposition, legal or
otherwise, as to the propriety of specific performance as a remedy. The specific
performance remedy described in this Section 10.15 shall be in addition to, and
not in lieu of, any other remedies at law or in equity that Purchaser may elect
to pursue.
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
DAG ACQUISITION CORP.
By: /s/ Richard C. Pietrafesa, Jr.
------------------------------------
Name: Richard C. Pietrafesa, Jr.
Title: CEO
THE PIETRAFESA CORPORATION
By: /s/ Richard C. Pietrafesa, Jr.
------------------------------------
Name: Richard C. Pietrafesa, Jr.
Title: CEO
DIVERSIFIED APPAREL GROUP, LTD.
By: /s/ Jarrod Nadel
------------------------------------
Name: Jarrod Nadel
Title: President
/s/ Jarrod Nadel
---------------------------------------
Jarrod Nadel, in his individual capacity
31
<PAGE>
EXHIBIT 2.04
to DAG Purchase Agreement
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAW. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
DAG ACQUISITON CORP.
Form of
PROMISSORY NOTE
New York, New York
$400,000 Principal Amount March ___, 1999
FOR VALUE RECEIVED, the undersigned, DAG ACQUISITION CORP., a
Delaware corporation (together with its successors and assigns, "DAG"), hereby
promises to pay to DIVERSIFIED APPAREL GROUP (the "Payee") at 101 West 55th
Street, Suite 13H, New York, NY 10019, the principal sum of Four Hundred
Thousand Dollars ($400,000) in lawful money of the United States of America in
immediately available funds, plus interest, payable in arrears, at the rate of
ten percent (10%) per annum on the outstanding principal amount until paid.
1. Conversion. In the event that The Pietrafesa Corporation, a
Delaware corporation, or any successor legal entity to Pietrafesa Corporation as
a result of a merger or sale of substantially all of the Issuer's assets
(collectively, the "Issuer"), conducts an underwritten initial public offering
("IPO") of its common stock within thirty-six months of the date hereof, then
this Note shall be automatically converted at the time of the IPO into that
number of shares of unrestricted and freely tradable common stock of the Issuer
determined by dividing the outstanding principal amount of this Note plus
accrued interest at the time of conversion by the price of each share of common
stock sold in the IPO.
2. Scheduled Repayment. DAG shall repay the outstanding
principal balance of this Note, plus accrued interest, based on the following
schedule (i) $100,000 shall be paid on the 12 month anniversary of this Note,
(ii) $100,000 shall be paid on the 24 month anniversary of this Note and (iii)
$200,000 shall be paid on the 36 month anniversary of this Note (except in event
of an IPO, in which case, the outstanding principal amount of this Note plus
accrued interest shall be converted into unrestricted and freely tradable common
stock of the Issuer in accordance with Section 1 hereof).
<PAGE>
3. Optional Prepayment. DAG shall have the right, at any time
(subject to the terms of the next succeeding paragraph) and without premium or
penalty, to repay all or any part of the principal amount of this Note, together
with any accrued but unpaid interest on the prepaid amount.
4. Allocation. All payments made hereunder (whether in
prepayment or otherwise) shall first be applied against any interest then due
hereunder and shall then be applied against principal.
5. Default. The following shall constitute Events of Default:
(a) Nonpayment. DAG's failure to pay when due any payment of
principal or interest under this Note, if such failure continues for twenty (20)
calendar days after the due date of such payment; or
(b) Insolvency. DAG's written admission of its inability to
pay its debts as they become due, an assignment by DAG for the benefit of
creditors, DAG's institution of proceedings under the Federal Bankruptcy Code or
any state law for debtor relief, the institution of insolvency proceedings
against DAG (unless these proceedings are dismissed within ninety (90) days of
filing), or seizure of substantially all of DAG's assets.
If an Event of Default occurs, Payee may, at its option,
declare the outstanding principal of, and all accrued but unpaid interest on,
this Note to be immediately due and payable without presentment, demand,
protest, or notice of any kind, all of which are expressly waived.
6. Waiver. No delay or omission of Payee in exercising any
right under this note shall impair or waive such right. Partial exercise of its
rights shall not preclude further exercise. No waiver is valid unless made in
writing and signed by Payee.
7. Notices. All communications under this Note shall be in
writing, addressed to the appropriate party as follows:
(i) If to DAG, to:
Richard C. Pietrafesa, Jr.
c/o The Pietrafesa Corporation
7400 Morgan Rd.
Liverpool, NY 13090
Facsimile: (315) 451-5459
2
<PAGE>
(ii) If to Payee, to:
Jarrod Nadel
Diversified Apparel Group
101 West 55th St., Suite 13H
New York, NY 10019
Facsimile: (212) 459-1354
or to such other address as may have been designated in prior notice. Notices
may be sent by (a) overnight courier, (b) facsimile transmission (with immediate
confirmation thereafter), or (c) registered or certified mail, postage prepaid,
return receipt requested; and shall be deemed given (i) in the case of overnight
courier, the next business day after the day sent, (ii) in the case of facsimile
transmissions, on the date sent, and (iii) in the case of mailing, three (3)
business days after being mailed, and otherwise notices shall be deemed to have
been given when received. If sent by registered or certified mail, such notice
shall be effective when mailed, otherwise it shall be effective upon delivery to
said address.
8. Transferability. DAG may transfer or assign not less than
all of its obligations hereunder to any legal entity which acquires (by sale,
merger or otherwise) substantially all the assets of DAG. The terms and
provisions of this Note shall be binding upon DAG and its successors and
assigns, and shall inure to the benefit of Payee and its successors and assigns,
and any subsequent holder of this Note.
9. Subordination. The payment of principal and interest on
this Note shall be subordinate to, and junior in right of payment to, all of
DAG's and/or the Issuer's existing and future bank debt, and the Payee, by
acceptance hereof, acknowledge and specifically agrees to such subordination.
Payee agrees to execute all subordination agreements (and any related documents)
to effect the foregoing with respect to DAG's and/or the Issuer's existing and
future bank debt.
10. Governing Law. This Note is made and delivered in New
York, New York, and shall be governed by and construed in accordance with the
laws of New York State, without regard for its conflicts of laws principles.
11. Headings. Section headings contained in this Note are
intended solely for convenience of reference, and do not themselves constitute a
part of this Note.
12. Severability. If any provision of this Note be invalid or
unenforceable, the remainder of this Note shall be enforced to the greatest
extent permitted by law.
13. Consent to Suit; Waiver of Jury Trial. DAG hereby
irrevocably authorizes and empowers any attorney-at-law to appear for DAG in any
action upon or in connection with this Note at any time after this Note becomes
due, as herein provided, in any court in or of the
3
<PAGE>
State of New York, and waives issuance and service of process with respect
thereto. DAG hereby waives the right to a trial by jury with respect to any
action in connection with this Note.
IN WITNESS WHEREOF, DAG Acquistion Corp has executed this Note
as of the date first above written.
DAG ACQUISITION CORP.
By: _________________________
Name:
Title:
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EXHIBIT 6.03
to DAG Purchase Agreement
EMPLOYMENT AGREEMENT, dated as of , 1999 (the "Effective
Date"), by and between DAG ACQUISITION CORP., a Delaware
corporation (the "Purchaser"), The PIETRAFESA CORPORATION, a
Delaware corporation (the "Parent") (and, together with the
Purchaser, collectively, the "Purchaser Parties") and JARROD
NADEL, an individual (the "Executive").
W I T N E S S E T H:
WHEREAS, pursuant to an Asset Purchase Agreement of even date
herewith (the "Asset Purchase Agreement"), the Purchaser is acquiring all the
assets of Diversified Apparel Group, Ltd., a New York corporation (the "Seller")
and from the date hereof will conduct the business of the Seller;
WHEREAS, Executive through the date hereof was the president
of the Seller and was responsible for the day-to-day operating control of the
Seller; and
WHEREAS, the Purchaser wishes to ensure the continuation of
the services of Executive following the effectiveness of the Asset Purchase
Agreement and for the period provided in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the
mutual promises and covenants herein contained, it is agreed as follows:
1. EMPLOYMENT; DUTIES
(a) The Purchaser engages and employs the Executive, and the Executive
hereby accepts engagement and employment, as President and Chairman of the Board
of Purchaser. The Executive shall be responsible for the day-to-day operating
control and management activities of the Purchaser and shall be a member of the
Special Operations Committee of the Parent. The Executive shall also perform
such duties as are required by the Purchaser's Board of Directors.
(b) The Executive shall devote such of his time and efforts as shall be
necessary to the proper discharge of his duties and responsibilities under this
Agreement.
2. TERM
The Executive's employment hereunder shall, unless earlier terminated
in accordance with Section 8, be for a term of five (5) years commencing on the
date hereof (the "Term").
<PAGE>
3. COMPENSATION
(a) As compensation for the performance of his duties on behalf of the
Purchaser, the Executive shall be entitled to receive during the Term the
following:
(i) A base salary paid in bi-weekly installments (subject to
modification consistent with the policies of the Parent) (the "Base
Salary") of $100,800 per annum for fiscal year 1999 and not less
than $225,000 per annum commencing in the fiscal year 2000, subject
to any upward adjustments annually by the Purchaser's Board of
Directors;
(ii) In the event the Pre-Tax Income (as defined in the Asset Purchase
Agreement) of the Purchaser for any fiscal year exceeds the Pre-Tax
Income Target (as defined in the Asset Purchase Agreement) for such
year, the Parent shall distribute to the Executive a bonus with
respect to such year equal to 20% of the excess. Any bonus payable
pursuant to this Section 3(a)(ii) may be paid in cash or, at the
option of Purchaser, in shares of the Parent's common stock
(provided such shares have been issued pursuant to an effective
registration statement and are free from any restrictions on resale)
and shall be paid at the same time as any Obligation (as defined in
the Asset Purchase Agreement) is due pursuant to the Asset Purchase
Agreement, and, if paid by parent, shall be charged to the
Purchaser; and
(iii) In fiscal year 1999 only, $115,000 (the "Advance"). The Advance
shall be paid to the Executive in equal monthly installments in
arrears. The Advance will be made pursuant to the terms and subject
to the conditions contained in a promissory note in the form of
Exhibit A attached hereto (the "Note") executed by the Executive.
(b) If the Executive's employment is terminated pursuant to Section
8(a)(iv) below the following shall apply: (i) if the Executive's employment is
terminated at any time prior to the second anniversary of the Effective Date,
the Purchaser shall continue to pay the Executive his Base Salary for a period
of three (3) years from the date of such termination at the same intervals and
amounts as paid prior to termination; and (ii) if the Executive's employment is
terminated at any time during the Term, the Purchaser shall continue to pay to
Purchaser any Obligations, Delayed Obligations and Postponed Obligations as
provided in Section 2.06 of the Agreement.
(c) The Purchaser shall withhold all applicable federal, state and local
taxes, social security and workers' compensation contributions and such other
amounts as may be required by law or agreed upon by the parties with respect to
the compensation payable to the Executive pursuant to Section 3(a) or otherwise
in connection with his employment by the Purchaser.
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(d) The Purchaser shall reimburse the Executive for all normal, usual and
necessary expenses incurred by the Executive in furtherance of the business and
affairs of the Purchaser, including reasonable travel and entertainment, against
receipt by the Purchaser of appropriate vouchers or other proof of the
Executive's expenditures and otherwise in accordance with such expense
reimbursement policy as may from time to time be adopted by the Board of
Directors of the Parent.
(e) During the Term, the Executive shall be entitled to participate in any
group insurance plan or program of the Purchaser now existing or established
hereafter that are offered by Purchaser to employees of Purchaser to the extent
that he is eligible under the general provisions thereof.
(f) During the Term, the Executive shall be entitled to participate in all
fringe benefit programs of the Purchaser or its Parent now existing or
established hereafter on a par with other similarly situated executives of the
Purchaser or its Parent; provided that the cost of such benefits shall be
charged against the Purchaser, regardless of whether such benefits are offered
by Purchaser or Parent.
(g) During the Term hereof, the Purchaser shall continue to provide to the
Executive the leased automobile which was provided to the Executive by
Diversified Apparel Group, Ltd. immediately prior to the Executive's employment
pursuant to the terms hereof, through the end of the current term of such lease,
and shall thereafter provide for the Executive's use of a leased car comparable
to the one currently leased. In addition, the Purchaser shall reimburse the
Executive for his fuel, oil, parking and insurance expenses incurred in
connection with his business use of such automobile during the Term hereof,
provided that the Executive presents to the Purchaser valid receipts for such
expenses.
(h) During the Term, the Executive shall be subject to, and shall act in
accordance with, the Parent's policies, as amended from time to time.
(i) Any and all payments provided for under this Agreement which are the
responsibility of Purchaser, and which are not paid when due, shall be the
responsibility of, and shall timely be paid by, the Parent.
(j) The Executive agrees that he shall be responsible for payment of any
imputed federal or state income taxes in respect of any non-cash compensation.
4. REPRESENTATIONS AND WARRANTIES
(a) The Executive hereby represents and warrants to the Purchaser Parties
as follows:
(i) Neither the execution and delivery of this Agreement nor
the performance by the Executive of his duties and other obligations
hereunder violate or will violate any statute, law, determination or
award, or conflict with or constitute a default under (whether
immediately, upon the giving of notice or lapse of time or both) any
prior employment agreement, contract, or other instrument to which
the Executive is a party or by which he is bound.
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<PAGE>
(ii) The Executive has the full right, power and legal
capacity to execute and deliver this Agreement and to perform his
duties and other obligations hereunder. This Agreement constitutes
the legal, valid and binding obligation of the Executive enforceable
against him in accordance with its terms. No approvals or consents
of any persons or entities are required for the Executive to execute
and deliver this Agreement or perform his duties and other
obligations hereunder.
(iii) The Executive agrees to maintain strict compliance with
all federal, state, local and foreign statutes, ordinances, codes,
rules and regulations.
(b) The Purchaser Parties hereby represent and warrant to the Executive as
follows:
(i) Each of the Purchaser Parties is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware, with all requisite powers and authority to own its
properties and conduct its business in the manner presently
contemplated.
(ii) Each of the Purchaser Parties has full power and authority to enter
into this Agreement and to incur and perform its obligations
hereunder. This Agreement constitutes the legal, valid and binding
obligation of the Purchaser Parties enforceable against the
Purchaser Parties in accordance with its terms.
(iii) The execution, delivery and performance by the Purchaser Parties of
this Agreement does not conflict with or result in a breach or
violation of or constitute a default (whether immediately, upon the
giving of notice or lapse of time or both) under any agreement or
instrument to which either of the Purchaser Parties is a party or by
which either of the Purchaser Parties or any of their properties may
be bound or affected.
5. NON-COMPETITION
(a) The Executive understands and recognizes that his services to the
Purchaser are special and unique and agrees that: (i) during the Term, (ii) for
a period of three (3) years following the termination of the Executive's
employment (if the Executive's employment terminates for any reason at any time
prior to or on the second anniversary of the Effective Date), or (iii) for a
period of two (2) years following the termination of the Executive's employment
(if his employment terminates after such anniversary), the Executive shall not
in any manner, directly or indirectly, on behalf of himself or any person, firm,
partnership, joint venture, corporation or other business entity ("Person"):
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(1) interfere with customer, licensor or supplier
relationships of the Parent or any subsidiary,
affiliate, successor or assign (collectively, the
"Affiliates"); or
(2) enter into or engage in any business that (x) is
competitive with the Parent's or its affiliates'
businesses and/or (y) relates to the merchandising,
sourcing, marketing or distribution of tailored
clothing, sportswear, shirts or casual slacks
("Restricted Businesses"), either as an individual for
his own account, or as a partner, joint venturer,
executive, agent, consultant, salesperson, officer,
director or shareholder of a Person operating or
intending to operate within the area that the Parent is
conducting its business; provided, however, that
nothing herein will preclude Executive from holding one
percent (1%) or less of the stock of any publicly
traded company.
(3) Notwithstanding anything contained herein, in the event
that the Executive is terminated without cause, the
Executive may enter into or engage in the Restricted
Businesses provided that the Restricted Businesses are
not in any way competitive with the business of
Purchaser.
(b) In the event that Executive breaches any provisions of this Section 5
or there is a threatened breach, then, in addition to any other rights which the
Purchaser may have, the Purchaser shall be entitled, without the posting of a
bond or other security, to injunctive relief to enforce the restrictions
contained herein. In the event that a proceeding is brought in equity to enforce
the provisions of this Section 5, the Executive shall not urge as a defense that
there is an adequate remedy at law, nor shall the Purchaser be prevented from
seeking any other remedies which may be available.
6. NON-SOLICITATION
(a) During the Term and (i) for a period of three (3) years following the
termination of the Executive's employment (if the Executive's employment
terminates for any reason at any time prior to or on the second anniversary of
the Effective Date) or (ii) for a period of two (2) year following the
termination of the Executive's employment (if his employment terminates after
such anniversary), the Executive shall not, directly or indirectly, without the
prior written consent of the Parent:
(1) solicit or induce any employee of the Parent or any
Affiliate to leave the employ of the Parent or any
Affiliate;
(2) hire for any purpose any person who is at such time or
has been within the preceding six months an employee of
the Parent or any Affiliate;
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(3) solicit or accept employment or maintain any business
relationship with any party who, at any time during the
Term, was a customer, supplier, licensor or licensee of
the Parent or any Affiliate; or
(4) solicit or accept the business of any customer,
supplier, licensor or licensee of the Parent or any
Affiliate with respect to products similar to those
supplied by the Parent or any of its Affiliates.
7. CONFIDENTIAL INFORMATION
The Executive agrees that during the course of his employment and for a
period of five years after termination, he will not disclose or make accessible
to any other person any information relating to the Parent or any Affiliate or
any of its customers or any other information obtained by Executive during the
course of his employment with the Parent or any Affiliate (the "Confidential
Information"), except to the extent the same have become generally known to the
public other than through a breach of this Section 7. The Executive agrees (i)
not to use any such Confidential Information for himself or others during such
period and (ii) not to take any such material or reproductions thereof from the
Parent or any Affiliate's facilities at any time during his employment by the
Parent, except as required in the Executive's duties to the Parent. The
Executive agrees immediately to return all such material and reproductions
thereof in his possession to the Parent upon request and in any event upon
termination of employment.
8. TERMINATION
(a) The Executive's employment hereunder shall begin on the Effective Date and
shall continue for the period set forth in Section 2 hereof unless sooner
terminated upon the first to occur of the following events:
(i) The death of the Executive;
(ii) The Disability (as defined below) of the Executive;
(iii) Termination by the Board of Directors of the Parent for
just cause.
Any of the following actions by the Executive shall
constitute "just cause":
(A) Material breach by the Executive of Sections 5, 6 or
7 of this Agreement;
(B) Material breach by the Executive of any provision of
this Agreement other than Sections 5, 6 and 7 which
is not cured by the Executive within 30 days of
written notice thereof from the Parent;
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<PAGE>
(C) Any misconduct or omission on the part of
the Executive intended to cause harm to the
Parent or any Affiliate;
(D) Negligent performance by the Executive of
his duties as President of the Purchaser, as
determined by the Board after notice to the
Executive and an opportunity for the
Executive to be heard by the Board; or
(E) The conviction of the Executive of (I) any
felony or (II) any other crime involving
moral turpitude;
(b) For purposes hereof, a "Disability" of the Executive shall be
deemed to have occurred in the event (i) the Executive is absent from work or
otherwise substantially unable to assume his normal duties for a period of
fifteen (15) successive days or an aggregate of thirty (30) days during any
six-month period because of physical or mental disability, accident, illness or
other cause other than approved vacation or leave of absence or (ii) the
Executive is deemed by a licensed physician designated by the Parent and
reasonably acceptable to the Executive to have a permanent disability such that
Executive will be unable to perform his duties under this agreement. The Parent
shall have the right to have the Executive examined by a competent physician for
purposes of determining his physical or mental incapacity.
(c) The termination of the Executive's employment hereunder shall not
effect the rights and obligations of the Executive, the Seller or the Purchaser
under the Asset Purchase Agreement.
9. NOTICES
Any notice or other communication under this Agreement shall be in
writing and shall be deemed to have been given: when delivered personally
against receipt therefor; one (1) day after being sent by Federal Express or
similar overnight delivery; or three (3) days after being mailed registered or
certified mail, postage prepaid, return receipt requested, to either party at
the address set forth below, or to such other address as such party shall give
by notice hereunder to the other party.
If to Purchaser:
DAG Acquisition Corp.
c/o The Pietrafesa Corporation
7400 Morgan Road
Liverpool, NY 13090-3900
Attn: Richard C. Pietrafesa, Jr.
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<PAGE>
with a copy to:
Roberts, Sheridan & Kotel,
a Professional Corporation
12 East 49th Street
New York, NY 10017
Attention: L. Kevin Sheridan, Esq.
If to Executive:
Jarrod Nadel
Diversified Apparel Group, Ltd.
101 West 55th Street, Suite 13H
New York, NY 10019
with a copy to:
J. Jason Kaplan, A.P.C.
225 Broadway, suite 1220
San Diego, CA 92101
Attention: J. Jason Kaplan, Esq.
10. SEVERABILITY OF PROVISIONS
If any provision of this Agreement shall be declared by a court of
competent jurisdiction to be invalid, illegal or incapable of being enforced in
whole or in part, the remaining conditions and provisions or portions thereof
shall nevertheless remain in full force and effect and enforceable to the extent
they are valid, legal and enforceable, and no provision shall be deemed
dependent upon any other covenant or provision unless so expressed herein.
11. ENTIRE AGREEMENT; MODIFICATION
(a) This Agreement contains the entire agreement of the parties
relating to the subject matter hereof, and the parties hereto have made no
agreements, representations or warranties relating to the subject matter of this
Agreement which are not set forth herein. No modification of this Agreement
shall be valid unless made in writing and signed by the parties hereto.
(b) The Executive acknowledges that any cash and non-cash compensation
received by him prior to the execution of this Agreement shall be applied to the
obligations of the Purchaser hereunder.
12. BINDING EFFECT
The rights, benefits, duties and obligations under this Agreement shall
inure to, and be binding upon, the Purchaser, its successors and assigns, and
upon the Executive and his legal representatives. This Agreement constitutes a
personal service agreement, and the performance of the Executive's obligations
hereunder may not be transferred or assigned by the Executive.
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13. NON-WAIVER
The failure of either party to insist upon the strict performance of
any of the terms, conditions and provisions of this Agreement shall not be
construed as a waiver or relinquishment of future compliance therewith, and said
terms, conditions and provisions shall remain in full force and effect. No
waiver of any term or condition of this Agreement on the part of either party
shall be effective for any purpose whatsoever unless such waiver is in writing
and signed by such party.
14. GOVERNING LAW
This Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of New York without regard to principles
of conflict of laws.
15. HEADINGS
The headings of paragraphs are inserted for convenience and shall not
affect any interpretation of this Agreement.
16. Counterparts.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all such counterparts shall together
constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
DAG ACQUISITION CORP.
By:_____________________________
Name:
Title:
THE PIETRAFESA CORPORATION
By:_____________________________
Name:
Title:
________________________________
Jarrod Nadel, in his individual capacity
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EXHIBIT A
to Nadel Employment Agreement
JARROD NADEL
PROMISSORY NOTE
New York, New York
$115,000 Principal Amount March ___, 1999
FOR VALUE RECEIVED, the adequacy of which is hereby
acknowledged, the undersigned, JARROD NADEL ("Nadel"), hereby promises to pay to
DAG ACQUISITION CORP., a Delaware corporation (the "Payee"), at 7400 Morgan
Road, Liverpool, NY 13090, the principal sum of One Hundred Fifteen Thousand
Dollars ($115,000) in lawful money of the United States of America and in
immediately available funds.
14. Repayment; Interest. (a) Nadel shall repay the full outstanding
principal amount of this Note on the earlier to occur of the following (the "Due
Date"): (i) the date that the "Obligation" in respect of fiscal year 1999
becomes payable under the Asset Purchase Agreement dated the date hereof,
between the Payee, Nadel and Diversified Apparel Group, Ltd. and (ii) May 1,
2000; provided, however, (x) in the event that Seller achieves less than the
Pre-Tax Income Target (as defined in the Agreement) but sixty percent (60%) or
more of the Pre-Tax Income Target (as defined in the Agreement) in calendar year
1999, the Due Date shall be deferred until the maturity of the related Delayed
Obligations (as defined in the Agreement) and (y) in the event that Seller does
not achieve at least sixty percent (60%) of the Pre-Tax Income Target (as
defined in the Agreement) for calendar year 1999, the principal of, and accrued
interest on, this Note shall be due and payable in twenty-four (24) monthly
installments with the first date of repayment commencing January 1, 2000;
provided further, however, that if Nadel's employment with Payee is terminated
for "just cause" (as defined in the Employment Agreement) or as a result of
Nadel's resignation, this Note shall become immediately due and payable.
(b) If any amount due under this Note is not paid within 5
days after it is due, or if there shall be any other Event of Default (as
defined below), the unpaid principal of this Note and any overdue interest shall
bear interest at the rate of 10% per annum until such overdue amount is paid in
full or the Event of Default is cured, as applicable.
15. Allocation. All payments made hereunder shall first be applied
against any interest then due hereunder and shall then be applied against
principal.
<PAGE>
16. Default. The following shall constitute Events of Default:
(c) Nonpayment. Nadel's failure to pay when due any payment of
principal or interest under this Note, if failure continues for twenty (20)
calendar days after the due date of such payment; or
(d) Insolvency. Nadel's written admission of his inability to
pay his debts as they become due, an assignment by Nadel for the benefit of
creditors, Nadel's institution of proceedings under the Federal Bankruptcy Code
or any state law for debtor relief, the institution of insolvency proceedings
against Nadel (unless these proceedings are dismissed within ninety (90) days of
filing), or seizure of substantially all of Nadel's assets.
If an Event of Default occurs, Payee may, at its option,
declare the outstanding principal of, and any accrued but unpaid interest on,
this Note to be immediately due and payable without presentment, demand,
protest, or notice of any kind, all of which are expressly waived.
17. Waiver. No delay or omission of Payee in exercising any right under
this Note shall impair or waive such right. Partial exercise of its rights shall
not preclude further exercise. No waiver is valid unless made in writing and
signed by Payee.
18. Notices. All communications under this Note shall be in writing,
addressed to the appropriate party as follows:
(i) If to Nadel, to:
Jarrod Nadel
Diversified Apparel Group
101 West 55th St., Suite 13H
New York, NY 10019
Facsimile: (212) 459-1354
(ii) If to Payee, to:
DAG Acquisition Corp.
c/o The Pietrafesa Corporation
7400 Morgan Rd.
Liverpool, NY 13090
Facsimile: (315) 451-5459
or to such other address as may have been designated in prior notice. Notices
may be sent by (a) overnight courier, (b) facsimile transmission (with immediate
confirmation thereafter), or (c) registered or certified mail, postage prepaid,
return receipt requested; and shall be deemed given (i) in the case of overnight
courier, the next business day after the day sent, (ii) in the case of facsimile
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transmissions, on the date sent, and (iii) in the case of mailing, three (3)
business days after being mailed, and otherwise notices shall be deemed to have
been given when received. If sent by registered or certified mail, such notice
shall be effective when mailed, otherwise it shall be effective upon delivery to
said address.
19. Transferability. Any attempt by Nadel to assign its rights or
delegate its duties under this Note without the prior written consent of Payee
will be void. Payee may assign and/or pledge this Note and any of Payee's rights
hereunder without Nadel's approval.
20. Governing Law. This Note is made and delivered in New York, New
York, and shall be governed by and construed in accordance with the laws of New
York State, without regard for its conflicts of laws principles.
21. Headings. Section headings contained in this Note are intended
solely for convenience of reference, and do not themselves constitute a part of
this Note.
22. Severability. If any provision of this Note be invalid or
unenforceable, the remainder of this Note shall be enforced to the greatest
extent permitted by law.
23. Consent to Suit; Waiver of Jury Trial. Nadel hereby irrevocably
authorizes and empowers any attorney-at-law to appear for Nadel in any action
upon or in connection with this Note at any time after this Note becomes due, as
herein provided, in any court in or of the State of New York, and waives
issuance and service of process with respect thereto. Nadel hereby waives the
right to a trial by jury with respect to any action in connection with this
Note.
IN WITNESS WHEREOF, Nadel has executed this Note as of the date first
above written.
----------------------------------------
Jarrod Nadel, in his individual capacity
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EXHIBIT 10.3
STOCK PURCHASE AGREEMENT
Dated March 11, 1999
by and among
Peter Lister
Global Source Network, Ltd.
and
The Pietrafesa Corporation
<PAGE>
TABLE OF CONTENTS
ARTICLE I - DEFINED TERMS
1.01 Defined Terms
1.02 Accounting Terms
1.03 Other Rules of Construction
ARTICLE II - THE TRANSACTION
2.01 Purchase and Sale of Shares
2.02 Purchase Price
2.03 Closing
2.04 [Reserved]
2.05 Post-Closing Purchase Price Adjustment
2.06 Payment
2.07 12-31-98 and Closing Balance Sheets
2.08 Set-Off
2.09 Contingent Purchase Price
2.10 Further Assurances
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF GSN AND SELLER
3.01 Organization
3.02 Authorization; Enforceability
3.03 Shares; Capitalization
3.04 Subsidiaries and Investments
3.05 Qualification
3.06 No Violation of Laws or Agreements; Consents
3.07 Financial Information
3.08 Undisclosed Liabilities
3.09 No Changes
3.10 Taxes
3.11 Inventory; Tangible Personal Property
3.12 Receivables
3.13 Condition of Assets; Title; Business
3.14 No Pending Litigation, Proceedings or Y2K Problems
3.15 Contracts; Compliance
3.16 Permits; Compliance With Law
3.17 Real Property
3.18 Transactions With Related Parties
3.19 Labor Relations
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3.20 Products Liability; Warranties
3.21 Insurance
3.22 Intellectual Property Rights
3.23 Employee Benefits
3.24 Environmental Matters
3.25 Compensation
3.26 Customer Relations
3.27 Absence of Certain Business Practices
3.28 Finders' Fees
3.29 Disclosure
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF PURCHASER
4.01 Organization
4.02 Authorization; Enforceability
4.03 No Violation of Laws; Consents
4.04 No Pending Litigation or Proceedings
4.05 Finders' Fee
4.06 Financial Ability
4.07 Disclosure
ARTICLE V - FURTHER COVENANTS AND AGREEMENTS
5.01 Conduct of Business
5.02 Access; Information
5.03 Consents
5.04 Notification of Certain Matters
5.05 Insurance
5.06 Prohibition of Solicitation
ARTICLE VI - CONDITIONS TO CLOSING: TERMINATION
6.01 Conditions Precedent to Obligation of Purchaser
6.02 Conditions Precedent to Obligation of Seller
6.03 Deliveries and Proceedings at Closing
6.04 Termination
ARTICLE VII - SURVIVAL AND INDEMNIFICATION
7.01 Survival of Representations
7.02 Indemnification by Seller
7.03 Indemnification of Purchaser
7.04 Notice of Claims
7.05 Third-Party Claims
7.06 Set-Off
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ARTICLE VIII - NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
8.01 Seller
8.02 Purchaser
8.03 Damages
ARTICLE IX - TAXES AND BENEFIT PLANS
9.01 Certain Tax Matters
9.02 Transfer Taxes
9.03 Expenses of Benefit Plans
ARTICLE X - MISCELLANEOUS
10.01 Costs and Expenses
10.02 Further Assurances
10.03 Notices
10.04 Offset; Assignment; Governing Law
10.05 Amendment and Waiver; Cumulative Effect
10.06 Entire Agreement; No Third-Party Beneficiaries
10.07 Severability
10.08 Counterparts
10.09 Bulk Transfer Laws
10.10 Choice of Forum
10.11 Headings
10.12 Publicity
10.13 Specific Performance
Schedules
2.01 Seller's Shares
2.09(a) Chart
2.09(a) Pre-Tax Profit and Target Statement
3.03 Shareholders
3.04 Equity Interests; Predecessors
3.05 Jurisdictions
3.06 Consents
3.08 Liabilities
3.10 Taxes
3.11 Tangible Personal Property
3.12 Receivables
3.14 Litigation or Proceedings
3.15 Contracts
3.16 Permits
3.17 Real Property
3.18 Related Party Transactions
3.20 Product Warranties
3.21 Insurance
3.22 Intellectual Property Rights
3.23 Employee Benefits
3.24 Environmental Matters
3.25 Compensation
6.01(g) Required Employment Agreements
Exhibits
A [RESERVED]
B [RESERVED]
3.07 Financial Statements
6.03(a)(vii) Legal Opinion of Mezan, Stolzberg & Schwartzman, P.C.
6.03(b)(vi) Legal Opinion of Scolaro, Shulman, Cohen,
Lawler & Burstein, P.C.
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STOCK PURCHASE AGREEMENT dated , 1999, by and among
THE PIETRAFESA CORPORATION, a Delaware corporation (the
"Parent" or the "Purchaser"), PETER LISTER ("PL" or "Seller")
with an office at 101 W. 55th Street, St. 13E, New York, New
York 10019 and GLOBAL SOURCE NETWORK, LTD., a New York
corporation with its principal office located at 101 West 55th
St., New York, New York 10019 ("GSN" or "Company").
WHEREAS, Purchaser, PL and Company have entered into a certain
binding Letter Agreement, dated December 11, 1998 (the "LOI"); and
WHEREAS, Pursuant to the LOI, the parties have prepared this
definitive agreement; and
WHEREAS, All of the issued and outstanding capital stock of
GSN is owned as follows: PL 50 shares
WHEREAS, Seller intends to sell to Purchaser, and Purchaser
intends to acquire from Seller all of the shares in the Company upon the terms
and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements contained herein, the
parties, each intending to be legally bound, hereby agree as follows:
ARTICLE I
DEFINED TERMS
1.01 Defined Terms. The following terms, not defined elsewhere in this
Agreement, shall have the following meanings:
"Accelerating Disposition" has the meaning given that term in
Section 2.09(e).
"Additional Stock Payment" has the meaning given that term in
Section 2.09(g).
"Adjusted Closing Balance Sheet" has the meaning given that
term in Section 2.07(a)(iii).
"Adjusted 12-31-98 Balance Sheet" has the meaning given that
term in Section 2.07(a)(iii).
"Affiliate" shall mean, as to the party specified, any Person
which directly or indirectly through ownership of stock or through any other
arrangement either controls, is controlled by or is under common control with,
such party. The term "control" shall mean the power to direct the affairs of
such Person by reason of ownership of equity interests, by contract or
otherwise.
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"Agreement" means this Stock Purchase Agreement, as it may be
amended from time to time.
"Applicable Accounting Principles" or "GAAP" shall mean United
States Generally Accepted Accounting Principles, applied on a
consistent basis throughout the periods indicated except as disclosed
in footnotes to the financial statements.
"Auditors" means the certified public accounting firm of
Pasquale and Bowers.
"Balance Sheet Date" means December 31, 1998.
"Benefit Plan" has the meaning given that term in Section
3.23(a).
"Business" shall mean the business presently operated and
conducted by Seller through GSN, including, without limitation, the
merchandising and sourcing of tailored clothing and dress shirts to
value-priced apparel retailers.
"Business Day" shall mean any day other than a Saturday,
Sunday or other day on which banks are authorized to be closed in New
York City.
"Cash Purchase Price" has the meaning given that term in
Section 2.02(a).
"CERCLIS" means the Comprehensive Environmental Response
Compensation Liability Information System List pursuant to Superfund.
"Chart" has the meaning given that term in Schedule 2.09(a).
"Closing" has the meaning given that term in Section 2.03.
"Closing Date" has the meaning given that term in Section
2.03.
"Code" means the Internal Revenue Code of 1986, as amended and
the applicable rulings and regulations thereunder.
"Company Group" has the meaning given that term in Section
3.23(b).
"Company Plan" has the meaning given that term in Section
3.23(a).
"Contingent Purchase Price" has the meaning given that term in
Section 2.02(c).
"Contract" and "Contracts" have the respective meanings given
those terms in Section 3.15.
"Contracts" shall mean the leases; rental agreements;
insurance policies; royalty agreements; commission agreements;
collective bargaining agreements; union contracts; licenses;
agreements; permits; sales order and purchase orders which either
individually or in the aggregate total Twenty-Five Thousand Dollars
($25,000.00) or more; commitments; and any and all other contracts or
binding arrangements (including, capital commitments), whether written
or oral, express or implied, of the Business or by which GSN is bound.
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"Damages" has the meaning given that term in Section 7.04.
"Defined Benefit Plan" has the meaning given that term in
Section 3.23(e).
"Delayed Obligation" has the meaning given that term in
Section 2.09(c).
"Distributable Personal Property" shall mean the personal
property described on Exhibit B attached hereto.
"Dollars" and "$" shall mean, unless otherwise specified,
United States Dollars.
"Encumbrance" means any liability, debt, mortgage, deed of
trust, pledge, security interest, encumbrance, option, right of first refusal,
agreement of sale, adverse claim, easement, lien (including liens for Taxes),
charge, restriction, assessment, restrictive covenant, encroachment,
right-of-way, burden or charge of any kind or nature whatsoever or any item
similar or related to the foregoing.
"Environmental Laws" shall mean all applicable Federal, state,
local and foreign laws, statutes, ordinances, codes, rules, standards and
regulations, and any applicable judicial or administrative interpretation
thereof, including any applicable judicial or administrative order, consent
decree or judgment, imposing liability or standards of conduct for the
protection, preservation or restoration of the environment (including ambient
air, surface water, groundwater, drinking water, wetlands, land surface or
subsurface strata, animal life and vegetation) and human health and safety,
including common law, property damage and similar common law theories.
Environmental Laws include the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (42 U.S.C. ss.ss. 9601 et seq.)
("CERCLA"); the Hazardous Materials Transportation Authorization Act of 1994 (49
U.S.C. ss.ss. 5101 et seq.); the Federal Insecticide, Fungicide, and Rodenticide
Act (7 U.S.C. ss.ss. 136 et seq.); the Solid Waste Disposal Act (42 U.S.C.
ss.ss. 6901 et seq.); the Toxic Substance Control Act (15 U.S.C. ss.ss. 2601 et
seq.); the Clean Air Act (42 U.S.C. ss.ss. 7401 et seq.); the Federal Water
Pollution Control Act (33 U.S.C. ss.ss. 1251 et seq.); the Occupational Safety
and Health Act (29 U.S.C. ss.ss. 651 et seq.); and the Safe Drinking Water Act
(42 U.S.C. ss.ss. 300(f) et seq.), each as amended and in effect on the date
hereof, and any and all regulations promulgated thereunder, and all analogous
state, local and foreign counterparts or equivalents and any transfer of
ownership notification or approval statutes.
"Environmental Permits" shall mean all material permits,
licenses and authorizations of all governmental authorities required by GSN for
the conduct of the Business as currently conducted under all applicable
Environmental Laws.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the applicable rulings and regulations thereunder.
"Final Closing Balance Sheet" has the meaning given to that
term in Section 2.07(d).
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"Financial Statements" has the meaning given that term in
Section 3.07(b).
"Forfeited Obligation" has the meaning given that term in
Section 2.09(c).
"Governing Documents" means, with respect to any Person who is
not a natural Person, the certificate or articles of incorporation, bylaws, deed
of trust, formation or governing agreement and other charter documents or
organization or governing documents or instruments of such Person.
"Governmental Body" means any court, government (federal,
state, local or foreign), department commission, board, bureau, agency, official
or other regulatory, administrative or governmental authority or
instrumentality.
"Hazardous Material" shall mean any substance, material or
waste which is regulated by or forms the basis of liability under any
Environmental Laws, including any material or substance which is (a) defined as
a "solid waste," "hazardous waste," "hazardous material," "hazardous substance,"
"extremely hazardous waste," "restricted hazardous waste," "pollutant,"
"contaminant," "hazardous constituent," "special waste," "toxic substance" or
other similar term or phrase under any Environmental Law, (b) polychlorinated
biphenyls (PCB's) or (c) any radioactive substance.
"Income Taxes" shall mean all Taxes on or measured by net
income, gross profits or net profits, together with any interest and any
penalties, additions to tax or additional amounts imposed by any taxing
authority, domestic or foreign.
"Indemnified Party" has the meaning given that term in Section
7.05.
"Indemnifying Party" has the meaning given that term in
Section 7.05.
"Intellectual Property" has the meaning given that term in
Section 3.22.
"Intercompany Note" has the meaning given that term in
Schedule 2.09(a).
"IPO" shall mean an initial public offering of the Pietrafesa
Stock.
"Installment" has the meaning given that term in Section
2.09(b).
"IRS" means the Internal Revenue Service.
"Law" means any applicable federal, state, municipal, local or
foreign statute, law, ordinance, rule, regulation, judgment or order of any kind
or nature whatsoever including any public policy, judgment or order of any
Governmental Body or priniciple of common law.
"LOI" has the meaning given that term in the introductory
paragraphs to this Agreement.
"Litigation" has the meaning given that term in Section 3.14.
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"Multiemployer Plan has the meaning given that term in Section
3.23(f).
"Note" has the meaning given that term in Section 2.02(b).
"Notice of Disagreement" has the meaning given that term in
Section 2.09(a).
"Obligation Shortfall" had the meaning given that term in
Section 2.09(g).
"Other Agreement" means each other agreement or document
contemplated hereby to be executed and delivered in connection with the
transactions contemplated by this Agreement.
"Patents" shall mean patents (including all reissues,
divisions, continuations, continuations in part and extensions thereof), patent
applications and patent disclosures docketed.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permit" and "Permits" have the respective meanings given
those terms in Section 3.16.
"Permitted Encumbrances" shall mean, to the extent applicable,
Encumbrances which (a) are liens for Taxes not yet due and payable, or (b) are
mechanics', carriers', materialmen's, landlords', workers' or other similar
liens incurred in the ordinary course of business.
"Person" means and includes, without limitation, whether
foreign or domestic, a natural person, a corporation, an association, a
partnership, a limited liability company, a trust, a joint venture, an
unincorporated organization, a business, any other legal entity, and a
Governmental Body.
"Pietrafesa Stock" shall mean the common stock of the Parent
issued pursuant to the IPO.
"Post-Closing Purchase Price Adjustment" means the
post-closing adjustment to the Purchase Price pursuant to Section 2.05.
"Preliminary Closing Balance Sheet" has the meaning given that
term in Section 2.07(a).
"Prohibited Activity(ies) of the Company" means an activity
(or activities) described in Section 5.01(b).
"Pre-Tax Income" shall mean the net income of the Business for
financial reporting purposes prepared in accordance with Applicable Accounting
Principles before any provision for Federal and state income taxes, excluding
any goodwill amortization expense arising out of the purchase of stock pursuant
to this Agreement.
"Proposed Acquisition Transaction" has the meaning given that
term in Section 5.06.
"Purchase Price" has the meaning given that term in Section
2.02.
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"Purchaser Damages" has the meaning given that term in Section
7.02.
"Purchaser Indemnitees" has the meaning given that term in
Section 7.02.
"Purchaser Parties" shall mean the Partnership and the
Purchaser.
"Qualified Plan" has the meaning given that term in Section
3.23(d).
"Real Property" has the meaning given that term in Section
3.17.
"Receivables" has the meaning given that term in Section 3.12.
"Regulated Material" means any hazardous substances as defined
by any applicable Environmental Law and any other material regulated by any
applicable Environmental Law, including polychlorinated biphenyls, petroleum,
petroleum-related material, crude oil or any fraction thereof and other
hazardous materials.
"Related Party" means (i) Seller, (ii) any Affiliate of
Seller, (iii) any officer or director of any Person identified in clauses (i) or
(ii) preceding, and (iv) any spouse, sibling, ancestor or lineal descendent of
any natural Person identified in any one of the preceding clauses.
"Security Right" means, with respect to any security, any
option, warrant, subscription right, pre-emptive right, other right, proxy, put,
call, demand, plan, commitment, agreement, understanding or arrangement of any
kind relating to such security, whether issued or unissued, or any other
security convertible into or exchangeable for any such security. "Security
Right" includes any right relating to issuance, sale, assignment, transfer,
purchase, redemption, conversion, exchange, registration or voting and includes
rights conferred by statute, by the issuer's Governing Documents or by
agreement.
"Seller Damages" has the meaning given that term in Section
7.03.
"Seller Indemnitee" has the meaning given that term in Section
7.03.
"Selling Group" means and includes, without limitation, a
member, whether past or present, of Seller's affiliated group of corporations,
if any, within the meaning of Code Section 1504(a), or any Affiliate.
"Seller's Representative" shall mean Peter Lister.
"Shares" has the meaning given that term in Section 2.01.
"Stock Payment" has the meaning given that term in Section
2.09(g).
"Stockholders' Equity" means the excess of the assets of a
Company over the liabilities of such Company, as adjusted and calculated in
accordance with the applicable provisions of this Agreement.
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"Subsidiary" means any corporation, partnership, joint venture
or other entity in which the Company owns, directly or indirectly, more than 20%
of the outstanding voting securities or equity interests.
"Superfund" means the Comprehensive Environmental Response
Compensation and Liability Act of 1980, 42 U.S.C. Sections 6901 et seq., as
amended.
"Target" has the meaning given that term in Section 2.09(a).
"Target Statement" has the meaning given that term in Section
2.09(a).
"Tax or Taxes" shall mean all taxes on, or measured by or
referred to as, income, gross receipts, sales, use, ad valorem, franchise,
profits, license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property or windfall profits taxes, customs, duties or
similar assessments or charges, together with any interest and any penalties,
additions to tax or additional similar amounts imposed by any taxing authority,
domestic or foreign, with respect thereto.
"Tax Returns" shall mean any returns, declarations, claims for
refund, information returns, reports and statements relating to Taxes that are
required to be filed with any appropriate domestic or foreign taxing authority,
including any schedule or attachment thereto, and including any amendment
thereof.
"Terminating Distribution" has the meaning given that term in
Section 2.09(d).
"Trademarks" shall mean trademarks, service marks, brand
names, brand marks, trade dress, logos and all other names and slogans
associated with products of GSN, whether or not registered, and all
registrations thereof and pending applications therefor.
"Trade Names" shall mean trade names embodying goodwill of
GSN, whether or not registration has been obtained or an application for
registration is pending.
"12-31-98 Balance Sheet" has the meaning given that term in
Section 3.07(b).
1.02 Accounting Terms. Any accounting terms used in this Agreement
shall, unless otherwise specifically provided, have the meanings given them in
accordance with, and all financial computations hereunder shall, unless
otherwise specifically provided, be computed in accordance with, the Applicable
Accounting Principles.
1.03 Other Rules of Construction. References in this Agreement to
sections, schedules and exhibits are to sections of, and schedules and exhibits
to, this Agreement unless otherwise indicated. Words in the singular include the
plural and in the plural include the singular. The word "or" is not exclusive.
The words "including", "includes", "included" and "include", when used, are
deemed to be followed by the words "without limitation".
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ARTICLE II
THE TRANSACTION
2.01 Purchase and Sale of Shares. Upon the terms and subject to the
conditions of this Agreement, in consideration of the Purchase Price, Seller
shall sell, assign, transfer and deliver to Purchaser fifty (50) shares of GSN's
common voting stock (the "Shares"), which Shares shall, as of Closing, represent
100% of each and every class of GSN's issued and outstanding capital stock and
Purchaser shall purchase from Seller and take delivery of the Shares, at
Closing, free of all Encumbrances. The number of Shares to be sold by each
Seller is set forth on Schedule 2.01.
2.02 Purchase Price. The aggregate purchase price for the Shares shall
be Four Million Four Hundred Thousand Dollars ($4,400,000) ("Purchase Price"),
decreased, if at all, by the Closing Purchase Price Adjustment and the
Post-Closing Purchase Price Adjustment, and shall be payable as follows:
(a) by wire transfer of immediately available funds to a bank
account designated by Sellers, the amount of One Million Four Hundred Thousand
Dollars ($1,400,000.00) (the "Cash Purchase Price"); and
(b) the Purchaser shall deliver to Seller on the Closing Date, its
promissory note in the principal amount of Eight Hundred Thousand Dollars
($800,000.00) on the form attached hereto as Exhibit 2.02 (the "Note") subject
to the adjustments pursuant to Section 2.05 below . Seller acknowledges that the
Note shall be unsecured and subordinate to all existing and future debt of
Purchaser, except for trade debt incurred in the ordinary course, and Seller
agrees to execute and deliver without further consideration all subordination
agreements necessary to effect the foregoing; and
(c) by deferred payment of the unsecured contingent earn-out
portion of Two Million Two Hundred Thousand Dollars ($2,200,000.00) to be paid
upon the terms and subject to the conditions set forth in Section 2.09
("Contingent Purchase Price").
2.03 Closing. The consummation of the purchase and sale of the Shares
and the other transactions contemplated hereby (the "Closing") shall take place
at 10:00 a.m., local time, on June 30, 1999, at the offices of Seller's counsel
in New York, New York, or at such other time or place as the parties may agree.
2.04 [RESERVED]
2.05 Post-Closing Purchase Price Adjustment Based Upon Closing Date
Stockholders' Equity. If the Stockholders' Equity of the Company at the close of
business on the Closing Date, as reflected in the Final Closing Balance Sheet,
is less than zero ($0.00), then the Note portion of the Purchase Price shall be
reduced dollar-for-dollar by the amount of such deficiency. If the Stockholder's
Equity of the Company as reflected on the Final Closing Balance Sheet is greater
than zero ($0.00), the Purchase Price shall not be increased.
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2.06 Payment. Upon the terms and subject to the conditions of this
Agreement, (i) at Closing, Purchaser shall deliver the Cash Purchase Price to
Sellers by wire transfer of federal funds, and (ii) within five (5) Business
Days after the determination of the Post-Closing Purchase Price Adjustment is
made, Purchaser shall be entitled to an immediate credit against the principal
balance of and interest on the Note equal to the Post-Closing Purchase Price
Adjustment, if any. In the event of an IPO and acceleration of the Note in
accordance with the terms thereof, the amount of any Post-Closing Purchase Price
Adjustment shall be immediately refunded by the Seller.
2.07 12-31-98 and Closing Balance Sheets.
(a) Preliminary and Closing Balance Sheets. Promptly after the
Closing, Seller (in consultation with, and with such assistance as Seller shall
reasonably request of, Purchaser) shall prepare a balance sheet and related
notes of the Company as of the close of business on the Closing Date (the
"Preliminary Closing Balance Sheet"). The Preliminary Closing Balance Sheet
shall be prepared in accordance with GAAP applied on a basis consistent with the
12-31-98 Balance Sheet, except that (A) no item shall fail to be included
therein or excluded therefrom on the basis of materiality, individually or
collectively, (B) at Purchaser's option, the effect of any breaches of the
representations and warranties of Seller or the Company made herein and
discovered by Purchaser on or before the date that the Adjusted Closing Balance
Sheet is delivered by Purchaser to Seller shall be fully reserved therein, (C)
accruals shall be made, if necessary, to reflect the distribution of cash for
the payment of employee bonuses, and the distribution to the Seller of the
Distributable Personal Property, and (D) accounts relating to Related Parties
shall be eliminated so as to reflect accurately the Company's financial
condition on a stand-alone basis.
The Company shall provide all documentation necessary to establish the
true and complete amount of its inventory, if any, as of the close of business
on the Closing Date, which count may be verified by either or both the Auditors
and Seller's accountants. Purchaser shall engage the Auditors, at the expense of
Purchaser, to examine the Preliminary Closing Balance Sheet in accordance with
generally accepted auditing standards and, based upon such examination, make
such adjustments, if any, to the Preliminary Closing Balance Sheet as shall in
the Auditors' judgment be required to cause the Preliminary Closing Balance
Sheet to reflect fairly those items required to be reflected therein in
accordance with the accounting principles described above (after such
examination and any adjustment, the "Adjusted Closing Balance Sheet,"
respectively).
(b) Delivery of Adjusted Balance Sheets. As soon as practicable
following the Closing, but in no event later than September 30, 1999, the
Adjusted Closing Balance sheet shall be delivered by Purchaser to Seller,
together with a written statement setting forth the Prohibited Activities of the
Company, if any. Seller and its representatives shall be provided complete
access to all work papers and other information used by Purchaser in preparing
the Adjusted Closing Balance Sheet. The Adjusted Closing Balance Sheet and the
statement of Prohibited Activities of the Company, when delivered by Purchaser
to Seller, shall be deemed conclusive and binding on the parties for purposes of
determining the Post-Closing Purchase Price Adjustment, unless the Seller
notifies Purchaser in writing within thirty (30) Business days after receipt of
the Adjusted Closing Balance Sheet of its disagreement therewith, which notice
shall state with reasonable specificity the reasons for any disagreement and
identify the items and amounts in dispute.
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(c) Arbitration. If any disagreement concerning the Post-Closing
Purchase Price Adjustment is not resolved by Purchaser and Seller within thirty
(30) Business Days following the receipt by Seller of the Adjusted Closing
Balance Sheet with statement of Prohibited Activity of the Company, the
undisputed amount or credit shall be paid or taken in accordance with Section
2.06, and Purchaser and Seller shall promptly engage on standard terms and
conditions for a matter of such nature a nationally recognized firm of
independent accountants to resolve such dispute. The firm of independent
accountants shall be proposed in writing by Purchaser to Seller. In the absence
of prompt agreement (within five (5) Business Days) on the identity of the
independent accountants, the New York office of one of the "big five"
international certified public accounting firms, other than the accounting firm
of Ernst & Young, shall be engaged by the parties. The engagement agreement with
the independent accountants shall require the independent accountants to make
their determination with respect to the items in dispute within ninety (90)
Business Days following the receipt by Seller of the Adjusted Closing Balance
Sheet. Seller shall pay all of the cost of the fees and expenses of such
independent accountants at the time of payment of the Post-Closing Purchase
Price Adjustment unless the independent accountants determine that the aggregate
of all adjustments result in a change in favor of Seller that is greater than
ten percent (10%) of the difference between the stockholder equity of the
Company on the Preliminary Closing Balance Sheet and the Adjusted Closing
Balance Sheet. The resolution by the independent accountants of any dispute
concerning the Post-Closing Purchase Price Adjustment shall be final, binding
and conclusive upon the parties and shall be the parties' sole and exclusive
remedy regarding any dispute concerning the Post-Closing Purchase Price
Adjustment.
(d) Final Closing Balance Sheet. The Adjusted Closing Balance
Sheet, as modified by the parties' agreement and by any determination by the
independent accountants as described in this Section 2.07, shall be the "Final
Closing Balance Sheet".
2.08 Set-Off. Any amounts due to Purchaser from Seller pursuant to
Sections 2.05 and 2.06 of this Agreement may, after completion of all dispute
resolution procedures established in Section 2.07 of this Agreement, in the sole
and absolute discretion of Purchaser, be set off against and deducted from any
amounts due as Contingent Purchase Price or as otherwise provided herein.
2.09 Contingent Purchase Price.
(a) Within one hundred twenty (120) days after the end of each of
Purchaser's fiscal years, commencing with fiscal year 1999 and ending upon the
close of fiscal year 2003, Purchaser shall cause to be prepared and delivered to
the Seller a statement setting forth the Pre-Tax Profit (as defined below) of
the Company for such year, prepared by the Auditors in accordance with GAAP
("Target Statement"). Pre-Tax Profits and the Target Statements shall be
prepared in accordance with the terms and procedures set forth in Schedule 2.09
(a) hereto. If requested, Seller shall use his best efforts to assist Purchaser
and its representatives in the preparation of the Target Statements. During the
forty-five (45) Business Day period following Seller receipt of the Target
Statement, Seller, at his sole expense, shall be permitted to review, or have
his accountants or counsel review, all relevant working papers and books and
records of the Purchaser relating to the Target Statement. Purchaser shall
provide reasonable cooperation with this review. The Target Statement shall
become final and binding upon the parties on the forty-fifth (45th) Business Day
following receipt thereof by Seller's Representative unless before such date
Seller delivers written notice to the Purchaser ("Notice of Disagreement") which
sets forth in detail the basis for Seller's disagreement with the Target
Statement. If a Notice of Disagreement is received by the Parent in a timely
manner, then the Target Statement (as revised in accordance with clause (x) or
(y) below) shall become final and binding upon the parties on the earlier of (x)
the date the parties hereto resolve in writing any differences they have with
respect to any matter specified in the Notice of Disagreement, or (y) the date
any disputed matters are finally resolved in writing by the arbitrator in
accordance with the arbitration provision set forth in this Section 2.09(d)
hereto.
(b) Subject to Section 2.09(a) above, in the event that the Target
Statement reveals that the Company has achieved the Pre-Tax Profit targets
("Target") for any of the fiscal years 1999 through and including 2003, as set
forth below, then Purchaser shall pay to Seller, without interest, the
applicable additional Contingent Purchase Price attributable to such year (the
"Installment") as set forth below:
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Fiscal Year Target Installment
----------- ------ -----------
1999 $1,100,000 $400,000
2000 $1,180,000 $390,000
2001 $1,260,000 $440,000
2002 $1,350,000 $460,000
2003 $1,442,000 $510,000
(c) Pursuant to the table set forth above, in each year that the
Company, has Pre-Tax Profits (as defined below) in an amount equal to or greater
than the Target for such year Seller shall be paid 100% of the Installment for
such year. In the event that the Company has Pre-Tax Profits in an amount
greater than 80%, but less than 100%, of the Target for such year, Seller shall
be paid 50% of the Installment for such year, with payment of the remaining 50%
deferred for five (5) years from the date the Installment is paid in accordance
herewith ("Delayed Obligation") subject to the terms hereof. If in any year
where the Company has Pre-Tax Profits in an amount less than 80%, but greater
than or equal to 60% of the Target for such year, then 100% of the unpaid
Installment for such year shall be deferred for five (5) years from the date the
Installment would otherwise be paid in accordance herewith ("Deferred
Obligation") subject to the terms hereof. In any year where the Company has
Pre-Tax Profits in an amount less than 60% of the Target for such year, Seller
shall forfeit payment of 100% of the Installment for such year ("Forfeited
Obligation") subject to the terms hereof. In the event that the Companies have
Pre-Tax Profits in a year in excess of the Target for such year, then Seller may
elect to have the total amount of such excess carried back and applied to the
Target for either 1999, 2000, 2001 or 2002 in which there was a Delayed or
Deferred Obligation for the purpose of reapplying the percentage tests set forth
above, rather than crediting such excess to the year in which it is actually
earned. Any Delayed (or Deferred Obligation which is resurrected because of the
carry back election) shall be paid within ten (10) Business Days after the final
determination that such carry back is correct. All amounts or any portion
thereof to be paid to Seller shall be paid when due in immediately available
funds or at the option of Purchaser in freely tradable unrestricted shares of
Pietrafesa Stock in accordance with the terms and conditions set forth below. No
portion of any Installment due shall be payable during or with respect to any
period in which any Seller is in breach of a material contractual obligation to
the Purchaser, or any of its Affiliates; provided, further, that any amounts due
to Seller from Purchaser pursuant to this Section 2.09 or pursuant to this
Article II shall be subject to set-off and deduction for amounts due the Seller
under this Agreement, including Sections 2.04, 2.05, 2.06 and Article VII
hereof.
(d) If after the Closing Seller experiences two (2) consecutive
years of Forfeited Obligations, then Purchaser shall be entitled, at its sole
and absolute discretion, to, at any time, discontinue, reorganize, or otherwise
transfer or dispose of GSN, its assets and/or business ("Terminating
Disposition"), and all Delayed, Deferred and Forfeited Obligations which arose
on or prior to the closing of such Terminating Disposition, if any, and all
remaining unpaid Installments, if any, as set forth above shall expire and
terminate upon the closing of such Terminating Disposition without further
liability or obligation of Purchaser to Seller.
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(e) If prior to the occurrence of a Terminating Disposition as set
forth in "(d)" above, Purchaser sells or otherwise disposes of (i) its stock in
GSN, or (ii) substantially all of the assets and/or business of GSN, in each
case to an unrelated third party or other than in the ordinary course of
business ("Accelerating Disposition"), all Deferred Obligations that are more
than one (1) year old at the time of the final closing of the Accelerating
Disposition, if any, and all Delayed Obligations which arose prior to the final
closing of such Accelerating Disposition, if any, and all remaining unpaid
Installments, if any, shall become due and payable in full by Purchaser to
Seller upon the final closing of such Accelerating Disposition. All Deferred
Obligations that are one (1) year or less old and all Forfeited Obligations
shall expire and terminate upon the final closing of such Accelerating
Disposition without further liability or obligation of Purchaser to Seller.
(f) Arbitration. In the event any dispute set forth in a timely
and valid Notice of Disagreement is not resolved by Purchaser and Seller within
thirty (30) Business Days following the receipt by Purchaser of such notice,
Purchaser and Seller shall promptly engage on standard terms and conditions for
a matter of such nature a nationally recognized firm of independent accountants
to resolve such dispute. The firm of independent accountants shall be proposed
in writing by Purchaser to Seller. In the absence of prompt agreement (within
five (5) Business Days) on the identity of the independent accountants, the New
York office of one of the "big five" international certified public accounting
firms, other than the accounting firm of Ernst & Young, shall be engaged by the
parties. The engagement agreement with the independent accountants shall require
the independent accountants to make their determination with respect to the
items in dispute within ninety (90) Business Days following the receipt by
Seller of the disputed Target Statement. Sellers shall pay all of the cost of
the fees and expenses of such independent accountants unless the independent
accountants determine that the aggregate of all adjustments result in a change
in favor of Seller that is greater than ten percent (10%) of the difference
between the amount of Pre-Tax Profits set forth on the Purchaser's prepared
Target Statement and the amount of Pre-Tax Profits finally determined by the
arbitrator. The resolution by the independent accountants of any dispute set
forth in the Notice of Disagreement shall be final, binding and conclusive upon
the parties and shall be the parties' sole and exclusive remedy regarding any
dispute concerning the determination of Pre-Tax Profits and/or a Target
Statement.
(g) Subject to the terms and conditions hereof, any amounts due to
Seller under this Section 2.09 shall be paid to Seller as follows:
(i) Purchaser shall deliver the Installment in the amount set
forth above along with and at the same time as the Target Statement is
due; or
(ii) If a Notice of Disagreement is timely filed, any balance
remaining, if any, shall be due and payable upon final resolution of
the matter; and
(iii) One hundred twenty (120) days after the end of
Purchaser's 2008 fiscal year Purchaser shall, subject to the foregoing,
have paid to Seller the amount of any remaining Delayed Obligations;
provided, however, at the sole and absolute discretion of the Purchaser, any
amounts due to Seller from Purchaser pursuant to this Agreement shall be subject
to set off and deduction from any or all amounts due the Seller under this
Agreement, including Sections 2.05 and 2.06 and Article VII hereof; provided,
further, that with respect to payments made by Purchaser under this subparagraph
(c) by the issuance (each such issuance, a "Stock Payment") of shares of
Pietrafesa Stock in respect of all or any portion of an Installment, the
following provisions apply:
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(i) the number of shares of Pietrafesa Stock issued to Seller
in respect of any Installment shall not exceed the average trading
volume of shares of Pietrafesa Stock in the preceding five (5) trading
days, it being understood and agreed that if no shares of Pietrafesa
Stock are traded on any one or more of the preceding five (5) trading
days, the volume of shares traded for such day(s), which is zero (0),
will still be included for such day(s) in calculating the average
trading volume of shares of Pietrafesa Stock for such five (5) trading
day period;
(ii) all shares issued (except with respect to shares issued
in respect of an Additional Stock Payment, as defined below) shall be
valued at the average of the closing price for such shares for the
twenty (20) trading days preceding such payment;
(iii) in the event that Seller sells all of the shares
comprising such Stock Payment within five (5) business days after its
receipt of such shares and such sale of shares results in gross cash
proceeds, less reasonable brokerage fees, to Seller that are less than
the portion of the Installment paid by such Stock Payment (such
difference, the "Obligation Shortfall"), the Purchaser shall issue to
Seller an additional number of shares of Pietrafesa Stock (the
"Additional Stock Payment") equal to the quotient of the Obligation
Shortfall divided by the closing price of Pietrafesa Stock on the
trading day immediately preceding such sale of shares and if gross cash
proceeds, less reasonable brokerage fees, to Seller from the Additional
Stock Payment are less than the Obligation Shortfall, Purchaser shall
issue Seller additional shares for the difference;
(iv) in the event of a sale, in accordance with the time
period set forth in (iii) above of any shares included in a Stock
Payment results in per share gross cash proceeds to Seller in excess of
the per share value of such shares used to determine the number of
shares of Pietrafesa Stock issued in such Stock Payment (such excess
the "Per Share Windfall Amount"), the Seller shall pay to Purchaser,
within five (5) business days of such sale of shares, an amount equal
to the Per Share Windfall Amount multiplied by the number of shares of
Pietrafesa Stock included in such sale; and
(v) Purchaser represents and warrants that all shares issued
to Seller under this Section shall be freely tradeable and
unrestricted.
2.10 Further Assurances. From and after the Closing, upon written
request from the Purchaser, Seller shall without further consideration execute,
acknowledge and deliver all such further acts, assurances, deeds, assignments,
transfers, conveyances and other instruments and papers as may be reasonably
required to sell, assign, transfer, convey and deliver the Shares or Business to
Purchaser.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF GSN AND SELLER
As an inducement to Purchaser to enter into this Agreement and
consummate the transactions contemplated hereby, PL and the Company jointly and
severally represent and warrant to the Purchaser as follows:
3.01 Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York and has
the corporate power and authority and all authorizations, licenses and permits
necessary to own or lease its properties, carry on its business as now
conducted, enter into this Agreement and the Other Agreements to which it is or
is to become a party and perform its obligations hereunder and thereunder.
3.02 Authorization; Enforceability. This Agreement and each Other
Agreement to which Seller or the Company, or all of them, is a party have been
duly executed and delivered by and constitute the legal, valid and binding
obligations of such party, enforceable against it in accordance with their
respective terms. Each Other Agreement to which the Seller or the Company, or
all of them, is to become a party pursuant to the provisions hereof, when
executed and delivered by such party, will constitute the legal, valid and
binding obligation of such party, enforceable against such party in accordance
with the terms of such Other Agreement. All actions contemplated by this Section
have been duly and validly authorized by all necessary proceedings by Sellers
and the Companies.
3.03 Shares; Capitalization. The authorized capital stock of the GSN
consists solely of two hundred (200) shares of common stock, no ($0.00) par
value per share, of which fifty (50) shares are issued and outstanding and none
are held in its treasury. The Shares constitute all of the issued and
outstanding shares of capital stock of the Company. All of the Shares are owned
of record, legally, beneficially and exclusively by Seller. The Shares are free
and clear of any and all Encumbrances, and upon delivery of the Shares
hereunder, Purchaser will acquire good and valid legal and exclusive title
thereto, free and clear of any and all Encumbrances. There are no Security
Rights relating to any of the Shares. All rights and powers to vote the Shares
are held exclusively by the Seller. All of the Shares are validly issued, fully
paid and nonassessable, were not issued in violation of the terms of any
agreement or other understanding, and were issued in compliance with all
applicable federal, state and foreign securities or "blue sky" laws and
regulations. The holders of the Shares and the number of Shares owned by each
are set forth on Schedule 3.03 attached hereto.
3.04 Subsidiaries and Investments. The Company does not own nor has it
ever owned, any shares of capital stock of or other equity interest in any
Subsidiary. The Company has good, marketable and exclusive title to the shares
or other equity interests disclosed on Schedule 3.04 as being owned by it, free
and clear of all Encumbrances. All rights and powers to vote such shares or
other equity interests are held exclusively by the Company. Set forth in
Schedule 3.04 is a listing of all names of all predecessor companies of the
Company, including the names of any entities from whom the Company previously
acquired significant assets. Except as disclosed in Schedule 3.04, the Company
has never been a subsidiary or division of another corporation nor been a part
of an acquisition which was later rescinded.
3.05 Qualification. The Company is duly qualified and in good standing
as a foreign corporation and is duly authorized to transact business in each
jurisdiction wherein the character of the properties owned or leased by it or
the nature of the activities conducted by it makes such qualification and good
standing necessary; and all such jurisdictions are set forth on Schedule 3.05.
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3.06 No Violation of Laws or Agreements; Consents. Neither the
execution and delivery of this Agreement or any Other Agreement to which Seller
or the Company, or all of them, is or is to become a party, the consummation of
the transactions contemplated hereby or thereby nor the compliance with or
fulfillment of the terms, conditions or provisions hereof or thereof by Seller
or the Company, or any of them, will: (i) contravene any provision of the
Governing Documents of the Company, (ii) conflict with, result in a breach of,
constitute a default or an event of default (or an event that might, with the
passage of time or the giving of notice or both, constitute a default or event
of default) under any of the terms of, result in the termination of, result in
the loss of any right under, or give to any other Person the right to cause such
a termination of or loss under, any asset of the Company, including any Permit,
Intellectual Property, license, franchise, indenture, mortgage or any other
contract, agreement or instrument to which Seller or Company is a party or by
which any of their assets may be bound or affected, which individually or in the
aggregate would have an adverse effect on the Company, (iii) result in the
creation, maturation or acceleration of any liability or obligation of the
Company (or give to any other Person the right to cause such a creation,
maturation or acceleration), (iv) violate any Law or violate any judgment or
order of any Governmental Body to which Seller or the Company is subject or by
which any of their respective assets may be bound or affected, or (v) result in
the creation or imposition of any Encumbrance upon any of the Shares or any
asset of the Company or give to any other Person any interest or right therein.
Except as set forth on Schedule 3.06 attached hereto, no consent, approval or
authorization of, or registration or filing with, any Person is required in
connection with the execution or delivery by Seller or the Company, or all of
them, of this Agreement or any of the Other Agreements to which any or all of
them is or is to become a party pursuant to the provisions hereof or the
consummation by Seller or the Company, or all of them, of the transactions
contemplated hereby or thereby.
3.07 Financial Information.
(a) Records. The books of account and related records of the
Company reflect accurately and in detail its assets, liabilities, revenues,
expenses and other transactions.
(b) Financial Statements. Attached as Exhibit 3.07 are the audited
balance sheets, income statements and statements of cash flows for the Company
for the years ended December 31, 1997 and 1998 (collectively, the "Financial
Statements"). The Financial Statements (i) are accurate, correct and complete in
accordance with the books of account and records of each of the Company, (ii)
have been prepared in accordance with GAAP on a consistent basis throughout the
indicated periods, except that the interim financial statements contain no
footnotes or year-end adjustments, (iii) present fairly the consolidated
financial condition, assets and liabilities and results of operation of the
Company at the dates and for the relevant periods indicated in accordance with
GAAP, and (iv) conform in all respects to the requirements of the Security and
Exchange Commission's regulation S-X. The Closing Balance Sheet, when delivered,
shall be accurate, correct and complete in accordance with the books of account
and records of the Company as of the date of Closing in accordance with the
Applicable Accounting Principles, as modified in Section 2.07. All references in
this Agreement to the "12-31-98 Balance Sheet" mean the Company's balance sheet
dated 12-31-98 attached hereto as part of Exhibit 3.07.
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3.08 Undisclosed Liabilities.
(a) The Company has no debt, obligation or liability, absolute,
fixed, contingent or otherwise, of any nature whatsoever, whether due or to
become due, including any unasserted claim, whether incurred directly or by any
predecessor thereto, and whether arising out of any act, omission, transaction,
circumstance, sale of goods or services, state of facts or other condition,
except: (i) those reflected or reserved against on the Preliminary Closing
Balance Sheet in the amounts shown therein; (ii) those not required under GAAP
to be reflected or reserved against in the Preliminary Closing Balance Sheet
that are expressly quantified and set forth in the Contracts identified pursuant
to Section 3.15; (iii) those disclosed on Schedule 3.08; and (iv) those of the
same nature as those set forth on the Preliminary Closing Balance Sheet that
have arisen in the ordinary course of business of the Companies after the
Balance Sheet Date through the date hereof, all of which have been consistent in
amount and character with past practice and experience, and none of which,
individually or in the aggregate, has had or is expected to have an adverse
effect on the business, financial condition or prospects of the Company and none
of which is a liability for breach of contract or warranty or has arisen out of
tort, infringement of any intellectual property rights, or violation of Law or
is claimed in any pending or threatened legal proceeding. The liabilities and
obligations of the Company combined do not exceed [$ ], nor are they materially
different from such items set forth on the Preliminary Closing Balance Sheet.
(b) Schedule 3.08 will set forth at Closing, all liabilities or
obligations of the Company and any liabilities or obligations incurred after the
Balance Sheet Date up to and including Date of Closing in the ordinary course of
business and liabilities or obligations of any kind, character and description,
whether accrued, absolute, secured or unsecured, contingent or otherwise. For
each such liability or obligation for which the amount is not fixed or is
contested, Schedule 3.08 sets forth the following information:
(i) a summary description of the liability or obligation
together with the following:
(A) copies of all relevant documentation relating thereto;
(B) amounts claimed and any other action or relief sought;
and
(C) name of claimant, and all other parties to any claim,
suit or proceeding.
(ii) the name of each court or agency, if any, before which a
claim, suite or proceeding is pending;
(iii) the date such claim, suite or proceeding was instituted.
3.09 No Changes. Since the Balance Sheet Date, the Company has
conducted its business only in the ordinary course. Except as disclosed on
Schedule 3.18, without limiting the generality of the foregoing sentence, since
the Balance Sheet Date, there has not been any: (i) material adverse change in
the financial condition, assets, liabilities, net worth, earning power, business
or prospects of the Company; (ii) damage or destruction to any asset of the
Company, whether or not covered by insurance; (iii) strike or other labor
trouble at the Company; (iv) creation of any Encumbrance on any asset of the
Company; (v) declaration or payment of any dividend or other distribution on or
with respect to or redemption or purchase by the Company of any shares of
capital stock of the Company, including any of the Shares; (vi) increase in the
salary, wage or bonus of any employee of the Company, except for payments that
do not reduce the Company's Stockholder's Equity below zero; (vii) asset
acquisition or expenditure, including capital expenditure, in excess of $10,000
in the aggregate, other than the purchase of inventory in the ordinary course of
business or as permitted under Section 5.03 hereof; (viii) change in any Company
Plan; (ix) change in any method of accounting; (x) payment to or transaction
with any Related Party, which payment or transaction is not specifically
disclosed on Schedule 3.18, except for payments that do not reduce the Company's
Stockholder's Equity below zero; (xi) disposition of any asset (other than
inventory in the ordinary course of business) for more than $10,000 in the
aggregate or for less than fair market value, except as permitted under Section
5.03 hereof; (xii) payment, prepayment or discharge of any liability other than
in the ordinary course of business or any failure to pay any liability when due;
(xiii) write-offs or write-downs of any assets of the Company in excess of
$10,000 in the aggregate; (xiv) creation, termination or amendment of, or waiver
of any right under, any agreement of the Company; or (xv) agreement or
commitment to do any of the foregoing.
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3.10 Taxes.
(a) Tax Returns; Payment. The Company has filed or caused to be
filed on a timely basis, or will file or cause to be filed on a timely basis,
all Tax Returns that are required to be filed by it prior to or on the Closing
Date, pursuant to the law of each governmental authority with taxing power over
it. All such Tax Returns were or will be, as the case may be, correct and
complete. The Company has paid all Taxes that have become due as shown on such
Tax Returns or pursuant to any assessment received as an adjustment to such Tax
Returns, except (i) such Taxes, if any, as are being contested in good faith and
disclosed on Schedule 3.10, (ii) such Taxes that are fully reserved against on
the Financial Statement for the year ended 12-31-98, and (iii) Taxes accruing
after the Balance Sheet Date that are not yet due. The Company is currently not
the beneficiary of any extension of time within which to file any Tax Return. No
claim has been made by a taxing authority or of a jurisdiction where the Company
does not file Tax Returns that it is or may be subject to taxation in that
jurisdiction. Without limiting the foregoing, the Company has no liability for
any Tax except (x) Taxes disclosed on Schedule 3.10, (y) Taxes fully reserved on
the Financial Statement for the year ended 12-31-98, and (z) Taxes accrued after
the Balance Sheet Date and fully reserved on the Final Closing Balance Sheet.
(b) Withholding. Each Company has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, stockholder or other third
party.
(c) Assessments. There is no pending, or, to the knowledge of
Seller or the Company, threatened or anticipated, assessment of any additional
Tax against any member of the Selling Group for any taxable period during which
either Company or any predecessor company was a member of the Selling Group. No
member of the Selling Group has waived any statute of limitations in respect of
any Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency for any taxable period during which either of the Companies was a
member of the Selling Group. No Tax audit or examination is now pending or
currently in progress with respect to the Company or Seller or any Affiliate of
Seller.
(d) Other Matters. Except as disclosed on Schedule 3.10, Company
is not a party to any income Tax allocation or sharing agreement. Company has
not filed a consent under Code Section 341(f) concerning collapsible
corporations. Company has not made any payment, nor is it obligated to make any
payment, nor is it a party to any agreement that under certain circumstances
could obligate it to make any payment, that will not be deductible under Code
Sections 280G or 162(m). Company has not been (nor does it have any liability
for unpaid Taxes because it once was) a member of an affiliated group during any
part of any consolidated return year within any part of which consolidated
return year any other corporation was also a member of such group. The Company
is not nor has it been during the applicable period specified in Code Section
987(c)(1)(A)(ii) a United States real property holding corporation as defined in
Code Section 987(c)(2).
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3.11 Inventory; Tangible Personal Property.
(a) Inventory. All of the inventory owned by the Company, if any,
is valued on the books and records of such Company and in the Financial
Statements at lower of cost or market, the cost thereof being determined on a
first-in-first-out basis in accordance with GAAP. All of the finished goods
inventory of the Company are in good, merchantable and usable condition and are
saleable in the ordinary course of business within a reasonable time and at
normal profit margins, and all of the raw materials and work-in-process
inventory of the Company, if any, can reasonably be expected to be consumed in
the ordinary course of business within a reasonable period of time. None of the
Company's inventories is obsolete, slow-moving, has been consigned to others or
is on consignment from others.
(b) Tangible Personal Property. Schedule 3.11 attached hereto is a
true and complete list (including the location and address) of all machinery,
equipment, furniture, fixtures, office equipment and other tangible personal
property (other than inventory) owned by, leased by, in the possession of, or
used by of the Company ("Tangible Personal Property"). None of such Tangible
Personal Property owned by the Company is subject to mortgage, pledge, lien,
conditional sale agreement, security agreement, encumbrance or other charge
except as specifically disclosed in said Schedule 3.11. With respect to Tangible
Personal Property included in Schedule 3.11 which is not owned by the Company,
Schedule 3.11 indicates the owners and the circumstances under which the
property is used by the Company and whether the Company has the exclusive right
to use such Tangible Personal Property. All the Tangible Personal Property has
been maintained in all respects in accordance with the Company's normal
maintenance policies and procedures and is in good operation condition and
repair, ordinary wear and tear excepted, substantially complies with all
applicable laws and regulations and is sufficient to carry on the business of
the Company.
3.12 Receivables. Schedule 3.12 discloses all trade and other accounts
receivable of the Company ("Receivables") outstanding as of the date of Closing
presented on an aged basis and separately identifies the name of each account
debtor and the total amount of each related Receivable. All Receivables
disclosed on Schedule 3.12 arose from bona fide sale transactions of the
Company, and no portion of any Receivable is subject to counterclaim, defense or
set-off or is otherwise in dispute, except to the extent of the recorded reserve
for doubtful accounts specified on the Closing Balance Sheet, all of the
Receivables are collectible in the ordinary course of business and will be fully
collected within 120 days after having been created using commercially
reasonable efforts.
3.13 Condition of Assets; Title; Business. The Company is engaged in
the Business and no other business. The buildings, fixtures, improvements,
machinery, equipment, tools, furniture, improvements and tangible personal
property of the Company, if any, including those reflected on the Closing
Balance Sheet, are in good operating condition and repair and are suitable for
the purposes for which they are used in the Business. The Company has good,
marketable and exclusive title to all of its assets; all of such assets are
reflected on the Closing Balance Sheet or, under GAAP, are not required to be
reflected thereon; such assets (after of the Distributable Personal Property)
include all assets that are necessary for use in and operation of the Business;
and none of such assets are subject to any Encumbrance or impairment, whether
due to its condition, utility, collectibility or otherwise.
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3.14 No Pending Litigation, Proceedings or Y2K Problems. Except as set
forth on Schedule 3.14 attached hereto, no action, suit, investigation, claim or
proceeding of any nature or kind whatsoever, whether civil, criminal or
administrative, by or before any Governmental Body or arbitrator ("Litigation")
is pending or, to the knowledge of Seller and/or the Company, threatened against
or affecting the Seller, the Company, the Business, any of the Company's assets,
any of the Shares, or any of the transactions contemplated by this Agreement or
any other Agreement, and there is no basis for Litigation. Except as set forth
on Schedule 3.14 attached hereto, the Company has not been a party to any other
Litigation. There is presently no outstanding judgment, decree or order of any
Governmental Body against or affecting the Seller, the Company, the Business,
any assets of the Company, any of the Shares, or any of the transactions
contemplated by this Agreement or any Other Agreement. Except as set forth on
Schedule 3.14 attached hereto, the Company does not have pending any Litigation
against any third party. Except as set forth on Schedule 3.14 attached hereto,
the Company does not have any reason to believe it has a Year 2000 date-handling
problem relating to the Year 2000 date change that would cause a material
adverse effect on the Company.
3.15 Contracts; Compliance. Disclosed on Schedule 3.15, 3.21, 3.22 or
3.23 is a brief description of each contract, lease, indenture, mortgage,
instrument, commitment or other agreement, arrangement or understanding, oral or
written, formal or informal, to which the Company is a party or by which it or
its assets may be affected and that (i) is material to the Business of the
Company's assets or operations, individually or in the aggregate, (ii) involves
the purchase, sale or lease of any asset, materials, supplies, inventory or
services in excess of $10,000.00 per year, (iii) has an unexpired term of more
than six (6) months from the date hereof, taking into account the effect of any
renewal options; (iv) relates to the borrowing or lending of any money or
guarantee of any obligation, (v) limits the right of the Company to compete in
any line of business or otherwise restricts the right that the Company may have,
(vi) is an employment or consulting contract involving payment of compensation
and benefits in excess of $10,000.00 per year, (vii) was not entered into in the
ordinary course (each, a "Contract" and collectively, the "Contracts"). Each
Contract is a legal, valid and binding obligation of the Company and is in full
force and effect, except for an unconfirmed sales order or purchaser order. The
Company and each other party to each Contract has performed all obligations
required to be performed by it thereunder and is not in breach or default, and
is not alleged to be in breach or default, in any respect thereunder, and no
event has occurred and no condition or state of facts exists (or would exist
upon the giving of notice or the lapse of time or both) that would become or
cause a breach, default or event of default thereunder, would give to any Person
the right to cause such a termination or would cause an acceleration of any
obligation thereunder. The Company is not currently renegotiating any Contract
nor has the Company received any notice of non-renewal or price increase or
sales or production or import quota allocation with respect to any Contract.
Company shall terminate all commission and royalty agreements, if any, effective
as of the Closing Date.
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3.16 Permits; Compliance With Law. The Company holds all permits,
certificates, licenses, franchises, privileges, approvals, registrations and
authorizations required under any applicable Law or otherwise advisable in
connection with the operation of its assets and Business (each, a "Permit" and
collectively, "Permits"), which Permits are listed on Schedule 3.16 attached
hereto. Each Permit is valid, subsisting and in full force and effect. The
Company is in compliance with and has fulfilled and performed its obligations
under each Permit, and no event or condition or state of facts exists (or would
exist upon the giving of notice or lapse of time or both) that could constitute
a breach or default under any Permit. The Company has not been nor is it
currently in violation of any Law and has received no notice of any violation of
Law, and no event has occurred or condition or state of facts exists that could
give rise to any such violation. The Company has not received any notice of
non-renewal of any Permit.
3.17 Real Property. The Company does not own, use or lease or have any
interest in any real property (collectively, the "Real Property"), except as
disclosed and described on Schedule 3.17 attached hereto.
3.18 Transactions With Related Parties. No Related Party is or has been
a party to any transaction, agreement or understanding with the Company except
pursuant to arrangements disclosed on Schedule 3.18 and except for dividends
properly reflected as such in the Financial Statements. No Related Party uses
any assets of the Company except directly in connection with the Business, and
no Related Party owns any asset used in the Business. No Related Party has any
claim of any nature, including any inchoate claim, against the Company, and the
Company has no claim of any nature, including any inchoate claim, against any
Related Party. Except as disclosed on Schedule 3.18, as otherwise expressly
provided hereby or by any Other Agreement or as otherwise may be mutually agreed
after Closing, (i) no Related Party will at any time after Closing for any
reason, directly or indirectly, be or become entitled to receive any payment or
transfer of money or other property of any kind from the Company, and (ii) the
Company will not at any time after Closing for any reason, directly or
indirectly, be or become subject to any obligation to any Related Party.
3.19 Labor Relations. The relations of the Company with its employees
are good. No employee of the Company is represented by any union or other labor
organization. No representation election, arbitration proceeding, grievance,
labor strike, dispute, slowdown, stoppage or other labor trouble is pending or,
to the knowledge of Seller or the Company, threatened against, involving,
affecting or potentially affecting the Company. No complaint against the Company
is pending or, to the knowledge of Seller or the Company, threatened before the
National Labor Relations Board, the Equal Employment Opportunity Commission or
any similar state or local agency, by or on behalf of any employee of the
Company. The Company does not have any contingent liability for sick leave,
vacation time, severance pay or any similar item not fully reserved on the
Preliminary 12-31-98 Balance Sheet. The Company does not have any contingent
liability for any occupational disease of any of its employees, former employees
or others. Neither the execution and delivery of this Agreement, the performance
of the provisions hereof nor the consummation of the transactions contemplated
hereby will trigger any severance pay obligation under any contract or under any
Law.
3.20 Products Liability; Warranties. The Company shall not have any
liability after the Closing Date not fully covered by insurance relating to any
product manufactured, distributed or sold by the Company prior to the Closing
Date, whether or not such liability relates to products that are defective or
improperly designed or manufactured or in breach of any express or implied
product warranty, other than as fully reserved in the warranty reserve on the
Final Closing Balance Sheet. Schedule 3.20 discloses and describes the terms of
all express product warranties under which the Company may have liability after
the Closing Date.
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3.21 Insurance. Schedule 3.21 discloses all insurance policies with
respect to which the Company is the owner, insured or beneficiary. Such policies
are reasonable, in both scope and amount, in light of the risks attendant to the
Business and are reasonably comparable in coverage to policies customarily
maintained by others engaged in similar lines of business. The Company will not
have any liability after the Closing for retrospective or retroactive premium
adjustments, and no events have occurred that would give rise to any adjustment
in premiums paid. All insurance policies covering products liability and general
liability maintained by or for the benefit of a Company have been "occurrence"
policies and not "claims made" policies. Schedule 3.21 discloses the manner in
which the Company provides coverage for workers' compensation claims.
3.22 Intellectual Property Rights. Schedule 3.22 discloses all of the
trademark and service mark rights, applications and registrations, trade names,
fictitious names, service marks, logos and brand names, copyrights, copyright
applications, letters patent, patent applications, software and licenses of any
of the foregoing owned or used by the Company in or applicable to the Business.
The Company has the entire right, title and interest in and to, or has the
exclusive perpetual royalty-free right to use, the intellectual property rights
disclosed on Schedule 3.22 and all other processes, know-how, show-how,
formulae, trade secrets, inventions, discoveries, improvements, blueprints,
specifications, drawings, designs, patterns and other proprietary rights
necessary or applicable to or advisable for use in the Business ("Intellectual
Property"), free and clear of all Encumbrances. Schedule 3.22 separately
discloses all Intellectual Property under license. The Intellectual Property is
valid and not the subject of any interference, opposition, reexamination or
cancellation. To the knowledge of the Seller or the Company, no Person is
infringing upon nor has any Person misappropriated any Intellectual Property.
The Company is not infringing upon the Intellectual Property rights of any other
Person.
3.23 Employee Benefits.
(a) Benefit Plans; Company Plans. Schedule 3.23 discloses all
written and unwritten "employee benefit plans" within the meaning of Section
3(3) of ERISA, and any other written and unwritten profit sharing, pension,
savings, deferred compensation, fringe benefit, insurance, medical, medical
reimbursement, life, disability, accident, post-retirement health or welfare
benefit, stock option, stock purchase, sick pay, vacation, employment,
severance, termination or other plan, agreement, contract, policy, trust fund or
arrangement (each, a "Benefit Plan"), whether or not funded and whether or not
terminated, (i) maintained or sponsored by the Company, or (ii) with respect to
which the Company (or Seller with respect to the Company) has or may have
liability or is obligated to contribute, or (iii) that otherwise covers any of
the current or former employees of the Company or their beneficiaries, or (iv)
as to which any such current or former employees or their beneficiaries
participated or were entitled to participate or accrue or have accrued any
rights thereunder (each, a "Company Plan").
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(b) Company Group Matters; Funding. Neither the Company nor any
corporation that may be aggregated with the Company under Sections 414(b), (c),
(m) or (o) of the Code (the "Company Group") has any obligation to contribute to
or any direct or indirect liability under or with respect to any Benefit Plan of
the type described in Sections 4063 and 4064 of ERISA or Section 413(c) of the
Code. The Company does not have any liability, and after the Closing the Company
will not have any liability, with respect to any Benefit Plan of any other
member of the Company Group, whether as a result of delinquent contributions,
distress terminations, fraudulent transfers, failure to pay premiums to the
PBGC, withdrawal liability or otherwise. No accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Code) exists nor has any
funding waiver from the IRS been received or requested with respect to any
Company Plan or any Benefit Plan of any member of the Company Group and no
excise or other Tax is due or owing because of any failure to comply with the
minimum funding standards of the Code or ERISA with respect to any of such
plans.
(c) Compliance. Each of the Company Plans and all related trusts,
insurance contracts and funds have been created, maintained, funded and
administered in all respects in compliance with all applicable Laws and in
compliance with the plan document, trust agreement, insurance policy or other
writing creating the same or applicable thereto. No Company Plan is or is
proposed to be under audit or investigation, and no completed audit of any
Company Plan has resulted in the imposition of any Tax, fine or penalty.
(d) Qualified Plans. Schedule 3.23 discloses each Company Plan
that purports to be a qualified plan under Section 401(a) of the Code and exempt
from United States federal income tax under Section 501(a) of the Code (a
"Qualified Plan"). With respect to each Qualified Plan, a determination letter
(or opinion or notification letter, if applicable) has been received from the
IRS that such plan is qualified under Section 401(a) of the Code and exempt from
federal income tax under Section 501(a) of the Code. No Qualified Plan has been
amended since the date of the most recent such letter. No member of the Company
Group, nor any fiduciary of any Qualified Plan, nor any agent of any of the
foregoing, has done anything that would adversely affect the qualified status of
a Qualified Plan or the qualified status of any related trust.
(e) No Defined Benefit Plans. No Company Plan is a defined benefit
plan within the meaning of Section 3(35) of ERISA (a "Defined Benefit Plan"). No
Defined Benefit Plan sponsored or maintained by any member of the Company Group
has been terminated or partially terminated after September 1, 1974, except as
set forth on Schedule 3.23. Each Defined Benefit Plan identified as terminated
on Schedule 3.23 has met the requirement for standard termination of
single-employer plans contained in Section 4041(b) of ERISA. During the five
year period ending on the Closing Date, no member of the Company Group has
transferred a Defined Benefit Plan to a corporation that was not, at the time of
transfer, related to the transferor in any manner described in Sections 414(b),
(c), (m) or (o) of the Code.
(f) Multiemployer Plans. No Company Plan is a multiemployer plan
within the meaning of Section 3(37) or Section 4001(a)(3) of ERISA (a
"Multiemployer Plan"). No member of the Company Group has withdrawn from any
Multiemployer Plan or incurred any withdrawal liability to or under any
Multiemployer Plan. No Company Plan covers any employees of any member of the
Company Group in any foreign country or territory.
(g) Prohibited Transactions; Fiduciary Duties; Post-Retirement
Benefits. No prohibited transaction (within the meaning of Section 406 of ERISA
and Section 4975 of the Code) with respect to any Company Plan exists or has
occurred that could subject either Company to any liability or Tax under Part 5
of Title I of ERISA or Section 4975 of the Code. No member of the Company Group,
nor any administrator or fiduciary of any Company Plan, nor any agent of any of
the foregoing, has engaged in any transaction or acted or failed to act in a
manner that will subject either Company to any liability for a breach of
fiduciary or other duty under ERISA or any other applicable Law. With the
exception of the requirements of Section 4980B of the Code, no post-retirement
benefits are provided under any Company Plan that is a welfare benefit plan as
described in ERISA Section 3(1).
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3.24 Environmental Matters. Except as disclosed in Schedule 3.24:
(a) Compliance; No Liability. The Company has operated the
Business and each parcel of Real Property in compliance with all applicable
Environmental Laws. The Company is not subject to any liability, penalty or
expense (including legal fees) and will not hereafter suffer or incur any loss,
liability, penalty or expense (including legal fees) by virtue of any violation
of any Environmental Law occurring prior to the Closing, any environmental
activity conducted on or with respect to any property at or prior to the Closing
or any environmental condition existing on or with respect to any property at or
prior to the Closing, in each case whether or not the Company permitted or
participated in such act or omission.
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(b) Treatment; CERCLIS. The Company has not treated, stored,
recycled or disposed of any Regulated Material on any real property, and no
other Person has treated, stored, recycled or disposed of any Regulated Material
on any part of the Real Property. There has been no release of and there is not
present any Regulated Material at, on or under any Real Property. The Company
has not transported any Regulated Material or arranged for the transportation of
any Regulated Material to any location that is listed or proposed for listing on
the National Priorities List pursuant to Superfund, on CERCLIS or any other
location that is the subject of federal, state or local enforcement action or
other investigation that may lead to claims against the Company for cleanup
costs, remedial action, damages to natural resources, to other property or for
personal injury including claims under Superfund. None of the Real Property is
listed or, to the knowledge of Seller or the Company, proposed for listing on
the National Priorities List pursuant to Superfund, CERCLIS or any state or
local list of sites requiring investigation or cleanup.
(c) Notices; Existing Claims; Certain Regulated Materials; Storage
Tanks. The Company has not received any request for information, notice of
claim, demand or other notification that it is or may be potentially responsible
with respect to any investigation, abatement or cleanup of any threatened or
actual release of any Regulated Material. The Company is not required to place
any notice or restriction relating to the presence of any Regulated Material at
any Real Property or in any deed to any Real Property. The Company has provided
to Purchaser a list of all sites to which the Company has transported any
Regulated Material for recycling, treatment, disposal, other handling or
otherwise. There has been no past, and there is no pending or contemplated,
claim by a Company under any Environmental Law or Laws based on actions of
others that may have impacted on the Real Property, and the Company has not
entered into any agreement with any Person regarding any Environmental Law,
remedial action or other environmental liability or expense. All storage tanks
located on the Real Property, whether underground or aboveground, are disclosed
on Schedule 3.24, and all such tanks and associated piping are in sound
condition and are not leaking and have not leaked.
3.25 Compensation. Schedule 3.25 sets forth an accurate schedule
showing all officers, directors and key employees of the Company and the current
rate of compensation (and the portions thereof attributable to salary, bonus and
other compensation, respectively), the date of last increase in compensation and
the expected date of current increase in compensation, if any.
3.26 Customer Relations. There exists no condition or state of facts or
circumstances involving the Company's customers, suppliers, distributors or
sales representatives that the Company or Seller can reasonably foresee could
adversely affect the Business after the Closing Date.
3.27 Absence of Certain Business Practices. Neither GSN nor any
officer, employee, agent or shareholder of the Company, nor any other Person
acting on behalf of any of them, has, directly or indirectly, within the past
five (5) years given or agreed to give any gift or similar benefit to any
customer, supplier, governmental employee or other Person who is or may be in a
position to help or hinder the Business (or assist GSN and/or the Business in
connection with any actual or proposed transaction) with might subject the
Company or any of their officers, employees, agents or shareholders or any other
Person acting on their behalf, to any damage or penalty in any civil, criminal
or governmental litigation or proceeding.
3.28 Finders' Fees. Neither the Seller nor the Company nor any of its
respective officers, directors or employees has employed any broker or finder or
incurred any liability for any brokerage fee, commission or finders' fee in
connection with any of the transactions contemplated hereby or by any Other
Agreement.
3.29 Disclosure. Seller has disclosed all events, conditions and facts
adversely affecting the future operations, profits or business of the Company.
None of the representations or warranties of Sellers and a Company contained
herein and none of the information contained in any Schedules, Exhibit,
certificate or other instrument furnished to Purchaser under or in connection
with this Agreement is false or misleading in any respect or omits to state a
fact herein or therein necessary to make the statements herein or therein not
misleading in any respect.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
As an inducement to Seller to enter into this Agreement and consummate
the transactions contemplated hereby, Purchaser represents and warrants to
Seller as follows:
4.01 Organization. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York, and has
the corporate power and authority to own or lease its properties, carry on its
business, enter into this Agreement and the Other Agreements to which it is or
is to become a party and perform its obligations hereunder and thereunder.
4.02 Authorization; Enforceability. This Agreement and each Other
Agreement to which Purchaser is a party have been duly executed and delivered by
and constitute the legal, valid and binding obligations of Purchaser,
enforceable against it in accordance with their respective terms. Each Other
Agreement to which Purchaser is to become a party pursuant to the Provisions
hereof, when executed and delivered by Purchaser, will constitute the legal,
valid and binding obligation of Purchaser, enforceable against Purchaser in
accordance with the terms of such Other Agreement. All actions contemplated by
this Section have been duly and validly authorized by all necessary proceedings
by Purchaser.
4.03 No Violation of Laws; Consents. Neither the execution and delivery
of this Agreement or any Other Agreement to which Purchaser is or is to become a
party, the consummation of the transactions contemplated hereby or thereby nor
the compliance with or fulfillment of the terms, conditions or provisions hereof
or thereof by Purchaser will: (i) contravene any provision of the Governing
Documents of Purchaser, or (ii) violate any Law or any judgment or order of any
Governmental Body to which Purchaser is subject or by which any of its assets
may be bound or affected. No consent, approval or authorization of, or
registration of, or registration or filing with, any Person is required in
connection with the execution or delivery by Purchaser of this Agreement or any
of the other Agreements to which Purchaser is or is to become a party pursuant
to the provisions hereof or the consummation by Purchaser of the transactions
contemplated hereby or thereby.
4.04 No Pending Litigation or Proceedings. No Litigation is pending or,
to the knowledge of Purchaser, threatened against or affecting Purchaser in
connection with any of the transactions contemplated by this Agreement or any
other Agreement to which Purchaser is or is to become a party. There is
presently no outstanding judgment, decree or order of any Governmental Body
against or affecting Purchaser in connection with the transactions contemplated
by this Agreement or any other Agreement to which Purchaser is or is to become a
party.
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4.05 Finders' Fee. Neither Purchaser nor any of its officers, directors
or employee has employed any broker or finder or incurred any liability for any
brokerage fee, commission or finders' fee in connection with any of the
transactions contemplated hereby.
4.06 Financial Ability. Purchaser has, or as of the Closing will have,
sufficient cash as a result of financing (or other means) in immediately
available funds to pay the Cash Purchase Price and to consummate the
transactions contemplated by this Agreement.
4.07 Disclosure. Purchaser is not aware of any event, condition, fact,
occurrence, change or failure to act or omission, which is reasonably likely to
result in a material adverse affect on the operations, profits or business of
Purchaser. None of the representations or warranties of Purchaser contained
herein and none of the information contained in any other communication with
Seller under or in connection with this Agreement is false or misleading in any
respect or omits to state a fact herein or therein necessary to make such
statement not misleading in any respect.
ARTICLE V
FURTHER COVENANTS AND AGREEMENTS
5.01 Conduct of Business.
(a) Except as otherwise expressly provided herein, from and after
the date of this Agreement and until the Closing, Seller and the Company shall:
(i) operate the Business in substantially the same manner as
it has heretofore and not introduce any new method of management,
operation or accounting;
(ii) use their best efforts to maintain and preserve intact
the Business and to maintain satisfactory relationships with its
customers, suppliers, distributors and any other person having business
relations with it;
(iii) maintain its properties and facilities, including those
held under leases, in good working order and repair, ordinary wear and
tear excepted;
(iv) perform punctually all obligations under each Contract,
and keep each Contract in full force and effect, free from any right of
cancellation, forfeiture or termination;
(v) retain the services of its key officers and employees;
(vi) promptly notify the Parent of any material adverse change
in the business, assets, financial condition or results of operations
of Seller or Company;
(vii) maintain present debt and lease instruments and not
enter into new or amended debt or lease instruments; and
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(b) From the date hereof to the Closing, neither Seller nor the
Company will take any action or engage in any transaction which would render the
representations and warranties of Seller inaccurate in any material respect as
of the Closing Date. In addition, except as expressly permitted by the terms of
this Agreement, neither Seller nor the Company will do any of the following
("Prohibited Activity of the Company") without the prior written consent of
Parent (such consent not to be unreasonably withheld):
(i) amend GSN's Certificate of Incorporation;
(ii) redeem or otherwise acquire any of GSN's capital stock or
issue any capital stock or any call, commitment, option, warrant or
right relating thereto;
(iii) grant to any employee any increase in compensation,
except as has been previously disclosed to and approved in writing by
the Purchaser, except for payments that do not reduce the Stockholder's
Equity of the Company below zero;
(iv) incur any liabilities, obligations or indebtedness for
borrowed money or guarantee any such liabilities, obligations or
indebtedness in excess of $10,000 or which requires performance over
more than one year;
(v) cancel any material indebtedness owed to the Company,
other than in the ordinary course of business consistent with past
practice, except for payments that do not reduce the Stockholder's
Equity of the Company below zero;
(vi) make any material change in any method of accounting or
accounting practice or policy;
(vii) acquire or agree to acquire by merging or consolidating
with, or by purchasing stock or a substantial portion of the assets of,
or by any other manner, any material operating business, corporation,
partnership, association or other business organization (or division
thereof);
(viii) sell, lease or otherwise dispose of, or agree to sell,
lease or otherwise dispose of, any of its assets with a value in excess
of $10,000, except in the ordinary course of business consistent with
past practice;
(ix) enter into any lease of real property;
(x) modify, amend or terminate any lease of, or other material
agreement pertaining to, real property (except for non-material
modifications or amendments associated with renewals of leases in the
ordinary course of business);
(xi) make capital expenditures or purchases in excess of
$10,000 in the aggregate;
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(xii) agree, whether in writing or otherwise, to do any of the
foregoing or to take any other action which would in any manner
interfere with, impedes, delays or make more costly the consummation of
the transaction completed hereby;
(xiii) create, assume or permit to exist any mortgage, pledge
or other lien or encumbrance upon any assets or properties whether now
owned or hereafter acquired;
(xiv) sell, assign, lease or otherwise transfer or dispose of
any property or equipment except in the normal course of business
consistent with past practices;
(xv) negotiate for the acquisition of any business or the
start-up of any new business;
(xvi) merge or consolidate or agree to merge or consolidate
with or into any other corporation;
(xvii) waive any of its rights or claims;
(xviii) knowingly breach or permit a breach, amend or
terminate any Contract or Permit; or
(xix) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
5.02 Access; Information. From the date hereof to and including the
Closing Date, Seller and the Company shall afford to the officers, employees,
attorneys, accountants and other authorized representatives of Purchaser full
and free access to the offices, management, employees, plants, properties,
assets, customers, contracts, books and records of the Company in order that the
Purchaser may have the full opportunity to make such legal, financial,
accounting and other reviews or investigations of the Company and the Seller as
they shall desire to make. Seller and the Company shall furnish promptly to the
Purchaser such financial and operating information as Purchaser may reasonably
request, including copies of any documents requested before or after the date
hereof. Purchaser and/or its representatives shall not contact any third party
(e.g., customer, supplier, agent, etc.) without the express written consent of
the Seller which consent shall be unreasonably withheld or delayed.
5.03 Consents. From the date hereof to and including the Closing Date,
the Seller and the Company agree (i) to obtain all consents, authorizations,
orders, exemptions and approvals of any third parties, including governmental
bodies and landlord under leases, required to be obtained by it in connection
with any of the transactions contemplated hereby, (ii) to take all reasonable
actions necessary to comply promptly with all legal requirements which may be
imposed on or applicable to it with respect to the Closing and (iii) to promptly
cooperate with and furnish information to Purchaser in connection with any such
legal requirements.
5.04 Notification of Certain Matters. Seller and the Company shall give
prompt written notice to the Purchaser, and the Purchaser shall give prompt
written notice to Seller, as the case may be, of the occurrence, or failure to
occur, of any event that would be likely to cause any representation or warranty
by such notifying party contained in this Agreement to be untrue or inaccurate
in any material respect at any time between or including the date of this
Agreement and the Closing Date.
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5.05 Insurance. The Seller agrees to keep all insurance policies set
forth in Schedule 3.16, or replacements thereof, in full force and effect
through the close of business on the Closing Date.
5.06 Prohibition of Solicitation. From the date hereof through the
Closing or the earlier termination of this Agreement, Seller and the Company
shall not, and shall cause their respective directors, officers, shareholders,
affiliates, agents, advisers and other representatives (including investment
bankers) not to, directly or indirectly, enter into, solicit or initiate any
discussions or negotiations with, or encourage or respond to any inquiries or
proposals by, or participate in any negotiations with, or provide any
information to, or otherwise cooperate in any other way with, any Person, other
than the Purchaser and its directors, officers, members, affiliates, agents,
advisers and other representatives, concerning any sale of all or a portion of
the Company's shares or assets, or any merger, consolidation, liquidation,
dissolution or similar transaction involving Seller (each such transaction being
referred to herein as a "Proposed Acquisition Transaction"). Sellers and each
Company will immediately notify the Parent if any discussions or negotiations
are sought to be initiated, any inquiry or proposal is made, or any information
is requested with respect to any Proposed Acquisition Transaction and notify the
Parent of the terms of any proposal which it may receive after the date hereof
in respect of any such Proposed Acquisition Transaction, including without
limitation the identity of the prospective purchaser or soliciting party.
ARTICLE VI
CONDITIONS TO CLOSING: TERMINATION
6.01 Conditions Precedent to Obligation of Purchaser. The obligation of
Purchaser to proceed with the Closing under this Agreement is subject to the
fulfillment prior to or at Closing of the following conditions, any one or more
of which may be waived in whole or in part by Purchaser at Purchaser's sole
option:
(a) Bringdown of Representations and Warranties; Covenants. Each
of the representations and warranties of Seller and the Company contained in
this Agreement shall be true and correct in all respects on and as of the
Closing Date, with the same force and effect as though such representations and
warranties had been made on, as of and with reference to the Closing Date. The
Seller and the Company shall have performed in all respects all of the covenants
and complied with all of the provisions required by this Agreement to be
performed or complied with by him, it or them or before the Closing.
(b) Litigation. No statute, regulation or order of any
Governmental Body shall be in effect that restrains or prohibits the
transactions contemplated hereby or that would limit or adversely affect
Purchaser's ownership of the Shares or control or operation of the Company, and
there shall not have been threatened, nor shall there be pending, any action or
proceeding by or before any Governmental Body challenging the lawfulness of or
seeking to prevent or delay any of the transactions contemplated by this
Agreement or any of the Other Agreements or seeking monetary or other relief by
reason of the consummation of any of such transactions or that would adversely
affect the Business or the Seller.
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(c) No Adverse Change. Between the date hereof and the Closing
Date, there shall have been no adverse change, regardless of insurance coverage
therefor, in the business or any of the assets, results of operations,
liabilities, prospects or condition, financial or otherwise, of the Company.
(d) Closing Certificate. Seller shall have delivered a
certificate, dated the Closing Date, in such detail as Purchaser shall request,
certifying to the fulfillment of the conditions set forth in subparagraphs (a),
(b) and (c) of this Section 6.01. Such certificate shall constitute a
representation and warranty of Seller with regard to the matters therein for
purposes of this Agreement.
(e) Due Diligence Review. Prior to the Closing Date, Purchaser
shall have completed its review of the financial condition of the Company and
the Business and such review shall be reasonably satisfactory to Purchaser.
(f) Regulatory and Environmental Review. Purchaser, through its
authorized representatives, may, at its option, have completed to its reasonable
satisfaction a review of the regulatory practices and procedures of each
Company, including, but not limited to, compliance with federal, state and local
laws and regulations governing the operations of each Company with respect to
environmental, occupational safety and health and federal and state medical
reimbursement matters. Purchaser may, at its option, have environmental
assessments conducted on all Real Property owned, leased or used by a Company,
and may, at its option, secure current tank tests for all underground storage
tanks or have such tests conducted. If the assessments disclose that the leased
Real Property is contaminated or the tanks situated thereon leak, or is subject
to any Environmental Claim, violates any Environmental Law or requires any
Environmental Permit that the Seller or the Company does not have, Purchaser may
at is sole discretion terminate this Agreement as provided in Section 6.04.
(g) Employment Agreements. PL shall have executed and delivered
the Employment Agreement attached as Exhibit 6.01(g).
(h) Additional Liabilities and Obligations. Seller shall have
delivered to Purchaser a schedule, dated the Closing Date, setting forth all
liabilities and obligations of the Company known to the Seller and arising since
the date of Schedule 3.08.
(i) Additional Contracts. Sellers shall have delivered to
Purchaser a schedule, dated the Closing Date, showing all Contracts, together
with copies thereof, entered into by a Company known to the Sellers and arising
since the date of Schedule 3.15.
(j) Closing Documents. Purchaser shall have received the other
documents referred to in Section 6.03(a). All agreements, certificates, opinions
and other documents delivered by Seller or the Company to Purchaser hereunder
shall be in form and substance satisfactory to counsel for Purchaser in the
exercise of such counsel's reasonable professional judgment.
(k) Consents. The Company shall have received the consents,
approvals and actions of the Persons referred to in Section 3.06 and no other
such consents, approvals or actions by any other Person shall be required,
necessary or advisable.
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(l) Financing. Purchaser shall have successfully closed a loan to
fund the Cash Purchase Price.
(m) Defaults. None of GSN's liabilities or obligations shall be in
default or otherwise subject to acceleration.
(n) Approvals. All consents, authorizations or approvals of or by
any general partner and shareholder of Purchaser, by their respective Boards of
Directors, shall have been obtained.
(o) Drop Dead Date. Closing of the transactions set forth in this
Agreement shall not have occurred on or before June 30, 1999.
6.02 Conditions Precedent to Obligation of Seller. The obligation of
Seller to proceed with the Closing under this Agreement is subject to the
fulfillment prior to or at Closing of the following conditions, any one or more
of which may be waived in whole or in part by Seller at Seller's sole option:
(a) Bringdown of Representations and Warranties; Covenants. Each
of the representations and warranties of the Purchaser contained in this
Agreement shall be true and correct in all respects on and as of the Closing
Date, with the same force and effect as though such representations and
warranties had been made on, as of and with reference to the Closing Date.
Purchaser shall have performed all of the covenants and complied in all respects
with all of the provisions required by this Agreement to be performed or
complied with by it at or before the Closing.
(b) Litigation. No statute, regulation or order of any
Governmental Body shall be in effect that restrains or prohibits the
transactions contemplated hereby, and there shall not have been threatened, nor
shall there be pending, any action or proceeding by or before any Governmental
Body challenging the lawfulness of or seeking to prevent or delay any of the
transactions contemplated by this Agreement or the Other Agreements or seeking
monetary or other relief by reason of the consummations of such transactions.
(c) Closing Certificate. Purchaser shall have delivered a
certificate, dated the Closing Date, in such detail as Seller shall request,
certifying to the fulfillment of the conditions set forth in subparagraphs (a)
and (b) of this Section 6.02. Such certificate shall constitute a representation
and warranty of Purchaser with regard to the matters therein for purposes of
this Agreement.
(d) Closing Documents. Seller shall also have received the other
documents referred to in Section 6.03(b). All agreements, certificates, opinions
and other documents delivered by Purchaser to Seller hereunder shall be in form
and substance satisfactory to counsel for Seller, in the exercise of such
counsel's reasonable professional judgment.
(e) No Adverse Change. Between the date hereof and the Closing
Date, there shall have been no adverse change, regardless of insurance coverage
therefor, in the business or any of the assets, results of operations,
liabilities, prospects or condition, financial or otherwise, of the Purchaser.
(f) Drop Dead Date. Closing of the transactions set forth in this
Agreement shall not have occurred on or before June 30, 1999.
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6.03 Deliveries and Proceedings at Closing.
(a) Deliveries by Seller. Seller shall deliver or cause to be
delivered to Purchaser at Closing.
(i) Certificates representing the Shares duly endorsed in
negotiable form or accompanied by stock powers duly executed in blank
with all transfer taxes, if any, paid in full.
(ii) Certificates of the appropriate public officials to the
effect that the Company has a validly existing corporation in good
standing in its state of incorporation as of date not more than 30 days
prior to the Closing Date.
(iii) Incumbency and specimen signature certificates dated the
Closing Date, signed by the officers of the Company and certified by
the Company's Secretary.
(iv) True and correct copies of (A) the Governing Documents
(other than the bylaws) of the Company as of a date not more than 30
days prior to the Closing Date, certified by the Secretary of State of
its state of incorporation and (B) the bylaws of the Company as of the
Closing Date, certified by its Secretary.
(v) Certificate of the Secretary of the Company (A) setting
forth all resolutions of the Board of Directors of the Company and, if
necessary, the stockholders of the Company, as the case may be,
authorizing the execution and delivery of this Agreement and the
performance by the Company of the transactions contemplated hereby, and
(B) to the effect that the Governing Documents of such Company
delivered pursuant to Section 6.03(a)(iv) were in effect at the date of
adoption of such resolutions, the date of execution of this Agreement
and the Closing Date.
(vi) General releases by all officers and directors of the
Company and by the Seller, of all liability of the Company to them and
of any claim that they or any of them may have against the Company.
(vii) The minute books, stock ledgers and corporate seal of
the Company.
(viii) The opinion of Mezan, Stolzberg & Schwartzman, P.C.,
legal counsel to Seller and the Company, in substantially the form of
Exhibit 6.03(a)(vii).
(ix) Resignations of the officers and directors of the Company
effective at the Closing.
(x) Such other agreements and documents as Purchaser may
reasonably request.
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(b) Deliveries by Purchaser. Purchaser shall deliver or cause to
be delivered to Seller at the Closing:
(i) A wire transfer of federal funds in accordance with
Section 2.06 pursuant to complete wire transfer instructions delivered
by Seller to Purchaser in writing at least one (1) day prior to
Closing.
(ii) A certificate of the appropriate public official to the
effect that Purchaser is a validly existing corporation in its state of
incorporation as of a date not more than ten (10) days prior to the
Closing Date.
(iii) Incumbency and specimen signature certificates signed by
the officers of Purchaser and certified by the Secretary of Purchaser.
(iv) True and correct copies of (A) the Governing Documents
(other than the bylaws) of Purchaser as of a date not more than ten
(10) days prior to the Closing Date, certified by the Secretary of
State of the state of Purchaser's incorporation and (B) the bylaws of
Purchaser as of the Closing Date, certified by the Secretary of
Purchaser.
(v) A certificate of the Secretary of Purchaser (A) setting
forth all resolutions of the Board of Directors of Purchaser
authorizing the execution and delivery of this Agreement and the
performance by Purchaser of the transactions contemplated hereby,
certified by the Secretary of Purchaser and (B) to the effect that the
Governing Documents of Purchaser delivered pursuant to Section
6.03(b)(iv) were in effect at the date of adoption of such resolutions,
the date of execution of this Agreement and the Closing Date.
(vi) The opinion of Scolaro, Shulman, Cohen, Lawler &
Burstein, P.C., Purchaser's legal counsel, in substantially the form of
Exhibit 6.03(b)(vi).
(vii) Such other agreements and documents as Seller may
reasonably request.
6.04 Termination. This Agreement may be terminated at any time prior to
Closing by:
(a) Mutual written consent of Purchaser and Seller's
Representative.
(b) Purchaser, if any of the conditions specified in Section 6.01
hereof shall not have been fulfilled on or before June 30, 1999 and shall not
have been waived by Purchaser.
(c) Seller, if any of the conditions specified in Section 6.02
hereof shall not have been fulfilled on or before June 30, 1999 and shall not
have been waived by Seller.
ARTICLE VII
SURVIVAL AND INDEMNIFICATION
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7.01 Survival of Representations. Notwithstanding any investigation or
knowledge of any Purchaser, the representations, warranties and covenants
contained in this Agreement, and in any agreements, certificates or other
instruments delivered pursuant to this Agreement, shall generally survive the
Closing, the consummation of the transactions contemplated hereby and any
investigation or audit made by any party and shall remain in full force and
effect after the Closing Date for a period of three (3) years, except that any
representations, warranties and covenants pertaining or involving Taxes,
Environmental Laws or ERISA shall survive for the applicable statute of
limitations period.
7.02 Indemnification by Sellers. Seller, jointly and severally, and if
there shall be no Closing, jointly and severally with the Company, shall
indemnify, defend, save and hold Purchaser and its officers, directors,
employees, agents and affiliates (including, after the Closing, the Company;
collectively, "Purchaser Indemnitees") harmless from and against all demands,
claims, allegations, assertions, actions or causes of action, assessments,
losses, damages, deficiencies, liabilities, costs and expenses (including
reasonable legal fees, interest, penalties, and all reasonable amounts paid in
investigation, defense or settlement of any of the foregoing, whether or not any
such demands, claims, allegations, etc., of third parties are meritorious;
collectively "Purchaser Damages") asserted against, imposed upon, resulting to,
required to be paid by or incurred by any Purchaser Indemnitees, directly or
indirectly, in connection with, arising out of, which could result in, or which
would not have occurred but for (i) a breach of any representation or warranty
made by Seller or the Company in this Agreement, in any certificate or document
furnished pursuant hereto by Seller or the Company or any Other Agreement to
which Seller or the Company, or all of them, are to become a party, (ii) a
breach or nonfulfillment of any covenant or agreement made by Seller or the
Company in or pursuant to this Agreement or in any Other Agreement to which
Seller or the Company, or all of them, is or is to become a party , and (iii)
any and all liabilities of the Company of any nature whatsoever, whether due or
to become due, whether accrued, absolute, contingent or otherwise, existing on
the Closing Date or arising out of any transaction entered into, or any state of
facts existing prior to the Closing Date, including without limitation any
royalty or commission arrangement, except for liabilities fully reserved on the
Final Closing Balance Sheet, but only to the extent reserved for therein, and
those liabilities not required under GAAP to be reserved in the Final Closing
Balance Sheet that are expressly quantified and set forth in the Contracts;
provided, however, Purchaser shall not be entitled to be paid any indemnified
amount until the amount of such Purchaser Damages equals or exceeds Twenty-Five
Thousand Dollars ($25,000.00) and then Purchaser shall be fully indemnified for
any and all such Purchaser Damages.
7.03 Indemnification of Purchaser. Purchaser shall indemnify, defend,
save and hold Seller ("Seller Indemnitee") harmless from and against any and all
demands, claims, actions, assessments, losses, damages, deficiencies,
liabilities, costs and expenses (including reasonable legal fees, interest,
penalties, and all reasonable amounts paid in investigation, defense or
settlement of any of the foregoing, whether or not any such demands, claims,
allegations, etc., of third parties are meritorious, collectively, "Seller
Damages") asserted against, imposed upon, resulting to, required to be paid by
or incurred by any Seller Indemnitees, directly or indirectly, in connection
with, arising out of, which could result in , or which would not have occurred
but for, (i) breach of any representation or warranty made by Purchaser in this
Agreement or in any certificate or document furnished pursuant hereto by
Purchaser or any Other Agreement to which Purchaser is a party and (ii) a breach
or nonfulfillment of any covenant or agreement made by Purchaser in or pursuant
to this Agreement and in any Other Agreement to which Purchaser is a party;
provided, however, Seller shall not be entitled to be paid any indemnification
amount until the amount of Seller Damages equals or exceeds Twenty-Five Thousand
Dollars ($25,000.00) and then Seller shall be fully indemnified for any and all
such Seller Damages.
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7.04 Notice of Claims. If any Purchaser Indemnitee or Seller Indemnitee
(an "Indemnified Party") believes that it has suffered or incurred or will
suffer or incur any Purchaser Damages or Seller Damages, as the case may be
("Damages"), for which it is entitled to indemnification under this Article VII,
such Indemnified Party shall so notify the party or parties from whom
indemnification is being claimed (the "Indemnifying Party") with reasonable
promptness and reasonable particularity in light of the circumstances then
existing. If any action at law or suit in equity is instituted by or against a
third party with respect to which any Indemnified Party intends to claim any
Damages, such Indemnified Party shall promptly notify the Indemnifying Party of
such action or suit. The failure of an Indemnified Party shall promptly notify
the Indemnifying Party of such action or suit. The failure of an Indemnified
Party to give any notice required by this Section shall not affect any such
party's rights under this Article VII or otherwise except and to the extent that
such failure is actually prejudicial to the rights or obligations of the
Indemnified Party.
7.05 Third-Party Claims. The Indemnified Party shall have the right to
conduct and control, through counsel of its choosing, the defense of any
third-party claim, action or suit and the Indemnified Party may compromise or
settle the same, provided that the Indemnified Party shall give the Indemnifying
Party advance notice of any proposed compromise or settlement. The Indemnified
Party shall permit the Indemnifying Party to participate in the defense of any
such action or suit through counsel chosen by the Indemnifying Party, provided
that the fees and expenses of such counsel shall be borne by the Indemnifying
Party. If the Indemnified Party permits the Indemnifying Party to undertake,
conduct and control the conduct and settlement of such action or suit, (i) the
Indemnifying Party shall not thereby permit to exist any Encumbrance upon any
asset of the Indemnified Party; (ii) the Indemnifying Party shall not consent to
any settlement that does not include as an unconditional term thereof the giving
of a complete release from liability with respect to such action or suit to the
Indemnified Party; (iii) the Indemnifying Party shall permit the Indemnified
Party to participate in such conduct or settlement through counsel chosen by the
Indemnified Party; and (iv) the Indemnifying Party shall agree promptly to
reimburse the Indemnified Party fort he full amount of any Damages including
fees and expenses of counsel for the Indemnified Party incurred after giving the
foregoing notice to the Indemnifying Party and prior to the assumption of the
conduct and control of such action or suit by the Indemnifying Party.
7.06 Set-Off. Any amounts due to the Purchaser from a Seller pursuant
to the Sellers' indemnification obligations under this Article VII, may, in the
sole discretion of the Purchaser be set off against and deducted from amounts
due to Seller from the Purchaser under this Agreement.
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ARTICLE VIII
NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
8.01 Seller. Seller recognizes and acknowledges that they had in the
past, currently have, and in the future may possibly have, access to (i) certain
confidential information of Company, such as lists of customers, operational
policies, and pricing and cost policies that are valuable, special and unique
assets of the respective businesses and (ii) certain confidential information
about Purchaser and the companies it intends to acquire in connection with this
transaction. Seller agrees that he will not use such confidential information
for his own benefit or disclose it to any person, firm, corporation, association
or other entity for any purpose or reason whatsoever, unless such information
becomes known to the public generally through no fault of Seller or unless
Seller is required by law to disclose such information. If Seller is requested
to provide such information, he shall notify Purchaser as promptly as possible
and allow Purchaser the opportunity to oppose such a request. In the event of a
breach or threatened breach by Purchaser of the provisions of this Section,
Purchaser and Company shall be entitled to an injunction restraining Seller from
using or disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting Purchaser and Company from pursuing any
other available remedy for such breach or threatened breach, including the
recovery of damages. This provision shall not apply in the event Purchaser has
failed to make payments due to Seller hereunder (subject to any right of setoff
in this Agreement) and such non-payment continues for forty-five (45) Business
Days after Seller gives Purchaser written notice of such non-payment.
8.02 Purchaser. Purchaser recognizes and acknowledges that it and its
directors, officers, agents, accountants and advisors have in the past,
currently have, and prior to the Closing Date, will have access to certain
confidential information of the Company, such as lists of customers, operational
policies, pricing and cost policies that are valuable, special and unique assets
of the businesses of the Company. This confidential information has been
provided to Purchaser and its representatives for the purpose of evaluating the
transactions contemplated by this Agreement. Purchaser agrees that prior to the
Closing and following any termination it will not use such confidential
information other than for the purposes for which it has been provided and will
not disclose such confidential information to any person, firm, corporation,
association, or other entity for any purpose or reason whatsoever, unless such
information becomes known to the public generally through no fault of Purchaser
or unless Purchaser is required by law to disclose such information. If
Purchaser is requested to provide such information, it shall notify the Company
as promptly as possible and allow the Company the opportunity to oppose such
request. In the event of a breach or threatened breach by Purchaser of the
provisions of this Section, Seller shall be entitled to an injunction
restraining Purchaser from disclosing, in whole or in part, such confidential
information. Nothing contained herein shall be construed as prohibiting Seller
from pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
8.03 Damages. Because of the difficulty of measuring economic losses as
a result of the breach of the foregoing covenants, and because of the immediate
and irreparable damage that would be caused for which they would have no other
adequate remedy, Purchaser, the Company and the Seller agree that, in the event
of a breach by any of them of the foregoing covenant, the covenant may be
enforced against them by injunctions and restraining orders.
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ARTICLE IX
TAXES AND BENEFIT PLANS
9.01 Certain Tax Matters.
(a) Tax Returns and Payments of Taxes for Periods Through the
Closing Date. The income of the Company shall be apportioned for the period up
to and including the Closing Date and the period after the Closing Date by
closing the books of the Company as of the close of business on the Closing
Date. Seller shall indemnify and hold harmless Purchaser and the Company from
income and franchise Tax liabilities for all periods through the Closing Date,
but only to the extent the Company has not fully reserved cash sufficient to pay
liabilities in full.
(b) Carrybacks. If the Company is required to carry back any
item of loss, deduction or credit that arises in any taxable period ending after
the Closing Date to a Tax Return for any taxable period ending on or before the
Closing Date, Purchaser or the Company, as the case may be, shall be entitled to
claim the refund or credit of Taxes and all amounts realized as a result
thereof.
(c) Mutual Cooperation. Purchaser and Seller shall each
provide the other, and Purchaser shall cause the Company to provide Seller, with
such assistance as may reasonably be requested by any of them in connection with
the preparation of any Tax Return, any Tax audit, or any judicial or
administrative proceedings relating to any Tax, and each return will provide the
other with any records or information that may be relevant to such Tax Return,
Tax audit, proceeding or determination. The party requesting assistance
hereunder shall reimburse the other for direct expenses incurred in providing
such assistance.
9.02 Transfer Taxes. The Seller shall be responsible for all transfer
and similar Taxes assessed or payable in connection with the Transfer of the
Shares pursuant to this Agreement.
9.03 Expenses of Benefit Plans. The Seller shall pay (or indemnify the
Purchaser Parties with respect to) the that portion of the costs of the Benefit
Plans payable by Seller for the period up to but not including the Closing Date.
Any costs relating to the Benefit Plans by Seller pursuant to this Section 9.03
shall be paid by Seller when due, but in no event more than thirty (30) days
following the request therefor from any Purchaser Party.
ARTICLE X
MISCELLANEOUS
10.01 Costs and Expenses. Purchaser and Seller shall each pay their
respective expenses, brokers' fees and commissions, and Seller or the Company
may pay all of the reasonable pre-Closing expenses of the Company incurred in
connection with this Agreement and the transactions contemplated hereby,
including all reasonable accounting, legal, appraisal fees and settlement
charges. This provision shall survive any termination of this Agreement. Seller
acknowledges and agrees that all such amounts paid by the Company shall be fully
set forth in determining the Stockholder Equity of the Company.
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10.02 Further Assurances. Seller shall, at any time and from time to
time on and after the Closing Date, upon request by Purchaser and without
further consideration, take or cause to be taken such actions and execute ,
acknowledge and deliver, or cause to be executed, acknowledged and delivered,
such instruments, documents, transfers, conveyances and assurances as may be
required or desirable for the better conveying, transferring, assigning,
delivering, assuring and confirming the Shares to Purchaser or any of the assets
used in the Business to the Company.
10.03 Notices. All notices and other communications given or made
pursuant to this Agreement shall be in writing and shall be deemed to have been
duly given or made (i) the second business day after the date of mailing, if
delivered by registered or certified mail, postage prepaid, (ii) upon delivery,
if sent by hand delivery, (iii) upon delivery, if sent by prepaid courier, with
a record of receipt, or (iv) the next day after the date of dispatch, if sent by
cable, telegram, facsimile or telecopy (with a copy simultaneously sent by
registered or certified mail, postage prepaid, return receipt requested), to the
parties at the following addresses:
(a) if to Purchaser, to:
The Pietrafesa Corporation
7400 Morgan Road
Liverpool, New York 13090
Attn: Richard C. Pietrafesa, Jr.
Telephone: (315) 453-4332
Facsimile: (315) 451-5459
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with a copy to:
Scolaro, Shulman, Cohen, Lawler & Burstein, P.C.
90 Presidential Plaza
Syracuse, New York 13202
Attn: Todd S. Smith, Esq.
Telephone: (315) 471-8111 ext. 215
Facsimile: (315) 471-1355
(b) If to Company or Seller:
120 Springy Banks Road
East Hampton, NY 11937
Attn: Peter Lister
Telephone:
Facsimile:
with a copy to:
Mezan, Stolzberg & Schwartzman, P.C.
460 Park Avenue
New York, New York 10022
Attn: Maxwell Stolzberg, Esq.
Telephone: (212) 371-7771
Facsimile: (212) 836-4979
Notices to the Company shall be addressed in care of Seller before Closing and
in care of Purchaser after Closing. Any party hereto may change the address to
which notice to it, or copies thereof, shall be addressed, by giving notice
thereof to the other parties hereto in conformity with the foregoing.
10.04 Offset; Assignment; Governing Law. Purchaser shall be entitled to
offset or recoup from any amounts due to any Seller from Purchaser hereunder or
under any Other Agreement against any obligation of any Seller to Purchaser
hereunder or under any Other Agreement. This Agreement and all the rights and
powers granted hereby shall bind and inure to the benefit of the parties hereto
and their respective permitted successors and assigns. This Agreement and the
rights, interests and obligations hereunder may not be assigned by any party
hereto without the prior written consent of the other parties hereto, except
that Purchaser may make such assignments to any Affiliate of Purchaser provided
that Purchaser remains liable hereunder. This Agreement shall be governed and
construed in accordance with the laws of the State of New York without regard to
its conflict of law doctrines.
10.05 Amendment and Waiver; Cumulative Effect. To be effective, any
amendment or waiver under this Agreement must be in writing and be signed by the
party against whom enforcement of the same is sought. Neither the failure of any
party hereto to exercise any right, power or remedy provided under this
Agreement or to insist upon compliance by any other party with its obligations
hereunder, nor any custom or practice of the parties at variance with the terms
hereof shall constitute a waiver by such party of its right to exercise any such
right, power or remedy or to demand such compliance. The rights and remedies of
the parties hereto are cumulative and not exclusive of the rights and remedies
that they otherwise might have now or hereafter, at law, in equity, by statute
or otherwise.
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10.06 Entire Agreement; No Third-Party Beneficiaries. This Agreement
and the Schedules and Exhibits set forth all of the promises, covenants,
agreements, conditions and undertakings between the parties hereto with respect
to the subject matter hereof, and supersede all prior or contemporaneous
agreements and understandings, negotiations, inducements or conditions, express
or implied, oral or written, including the LOI. This Agreement is not intended
to confer upon any Person other than the parties hereto any rights or remedies
hereunder, except the provisions of Sections 7.02 and 7.03 relating to Purchaser
Indemnitees and Seller Indemnitee.
10.07 Severability. If any term or other provision of this Agreement is
held by a court of competent jurisdiction to be invalid, illegal or incapable of
being enforced under any rule of law in any particular respect or under any
particular circumstances, such term or provision shall nevertheless remain in
full force and effect in all other respects and under all other circumstances,
and all other terms, conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the fullest extent
possible.
10.08 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall be deemed to be one and the same instrument.
10.09 Bulk Transfer Laws. The Purchaser hereby waives compliance by
Seller with the provisions of any so-called "bulk transfer law" of any
jurisdiction in connection with the sale of the Shares. The Seller agrees to
indemnify and hold Purchaser harmless, in cash payable upon demand, against any
and all liabilities, including costs and expenses, that may be asserted by third
parties against the Purchaser as a result of any non-compliance by Seller with
any such bulk transfer law.
10.10 Choice of Forum. The parties agree that the exclusive place of
jurisdiction for any action, suit or proceeding relating to this Agreement shall
be in the courts of the United States of America sitting in the Borough of
Manhattan in the City of New York or, if such courts shall not have jurisdiction
over the subject matter thereof, in the courts of the State of New York sitting
therein, and each such party hereby irrevocably and unconditionally agrees to
submit to the jurisdiction of such courts for purposes of any such action, suit
or proceeding. Each party irrevocably waives any objection it may have to the
venue of any action, suit or proceeding brought in such courts or to the
convenience of the forum. Final judgment in any such action, suit or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment, a certified or true copy of which shall be conclusive evidence of the
fact and the amount of any indebtedness or liability of any party therein
described.
10.11 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. The singular shall include the plural and the
masculine shall include the feminine and neuter, as the context requires.
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10.12 Publicity. No party shall issue any press release or make any
other public announcement with respect to this Agreement or the transactions
contemplated hereby without obtaining the prior written approval of the other
parties (which will not be unreasonably withheld or delayed), except as may be
required by law or the regulations of any securities exchange.
10.13 Specific Performance. The parties agree that they will be
irreparably injured if this Agreement is not specifically enforced. Therefore,
notwithstanding anything to the contrary in this Agreement, the parties shall
have the right to enforce specifically the performance under this Agreement, and
agree to waive the defense in any such suit that a party has an adequate remedy
at law and to interpose no opposition, legal or otherwise, as to the propriety
of specific performance as a remedy. The specific performance remedy described
in this Section 10.13 shall be in addition to, and not in lieu of, any other
remedies at law or in equity that a party may elect to pursue.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
THE PIETRAFESA CORPORATION, Purchaser
By: /s/ Richard C. Pietrafesa, Jr.
---------------------------------
Richard C. Pietrafesa, Jr., CEO
GLOBAL SOURCE NETWORK, LTD., Company
By: /s/ Peter Lister
---------------------------------
Peter Lister, President
/s/ Peter Lister
-------------------------------------
Peter Lister, Seller
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EXHIBIT 6.01(g)
to Global Purchase Agreement
EMPLOYMENT AGREEMENT, dated as of , 1999 (the "Effective Date"), by and
between GLOBAL SOURCE NETWORK, LTD., a New York corporation ("GSN") and PETER
LISTER, an individual ("Executive").
W I T N E S S E T H:
WHEREAS, pursuant to a certain Stock Purchase Agreement of even date
herewith (the "Stock Purchase Agreement"), The Pietrafesa Corporation (the
"Purchaser" or "Parent") is acquiring all the capital stock of GSN; and
WHEREAS, Executive, through the date hereof, was the President and
Chief Executive Officer of GSN and was responsible for its day-to-day
operations; and
WHEREAS, GSN wishes to ensure the continuation of the services of
Executive following the effectiveness of the Stock Purchase Agreement and for
the period provided in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants herein contained, it is agreed as follows:
1. EMPLOYMENT; DUTIES
(a) GSN engages and employs the Executive, and the Executive
hereby accepts engagement and employment, as President of GSN. The Executive
shall be responsible for the day-to-day operating control and management
activities of GSN, subject to the direction and control of the Board of
Directors of GSN (the "Board").
(b) The Executive shall devote such of his time and efforts as
shall be necessary to the proper discharge of his duties and responsibilities
under this Agreement.
(c) During the Term of Executive's employment with GSN he
shall: (i) not permit or cause GSN at any time to carry on its business other
than in the usual, regular and ordinary course in substantially the same manner
as previously conducted or as otherwise directed; (ii) cause GSN to use all
reasonable efforts to preserve intact its business organization, keep available
the services of its officers and employees, preserve and promote its
relationships with customers, suppliers and others having business with GSN;
(iii) not permit or cause GSN to encumber any assets, incur any long-term
indebtedness, enter into, terminate or release any material commitment, contract
or transaction without the prior written consent of the Board; and (iv) not
permit or cause GSN to take any of the following actions without the prior
written consent of the Board: (1) incur an obligation in excess of Ten Thousand
Dollars ($10,000) or which requires performance over more than one year, except
for purchase orders incurred in the ordinary course of business and obligations
related thereto; (2) transfer or otherwise dispose of any assets with a value in
excess of Ten Thousand Dollars ($10,000), except for sales made in the ordinary
course of business; (3) increase the salary or compensation paid to any director
or employee; (4) make any distributions of any kind of its earnings, including
dividends or bonuses; or (5) take any action which would in any manner interfere
with, impede, delay, or make more costly the transition of business operations
and ownership of GSN to Purchaser.
<PAGE>
2
2. TERM
The Executive's employment hereunder shall, unless earlier
terminated in accordance with Section 8, be for a term of five (5) years
commencing on the date hereof (the "Term").
3. COMPENSATION
(a) During the Term, in consideration for Executive's
performance of services hereunder and in consideration of Executive's covenants
set forth in this Agreement, GSN shall pay to Executive the following:
(i) A base salary for 1999 (the "Base Salary") of not
less than Seventy-Two Thousand Six Hundred Dollars ($72,600) per annum,
subject to an annual increase, on January 1 of each year during the
initial term hereof, of an amount equal to the lesser of (x) Six
Thousand Dollars ($6,000), or (y) the positive difference, if any,
between the Executive's existing Base Salary and the old-age,
survivors, and disability insurance ("OASDI") wage base for the then
current calendar year. The Base Salary shall be paid in equal bi-weekly
payments in arrears. In the event Executive's employment is terminated
or expires midway through a bi-weekly period, the salary payable to
Executive for such period shall be a pro-rated portion of the amount
owing for that period based upon number of days actually worked by
Executive; and
(ii) In the event the Pre-Tax Profit (as defined in
the Stock Purchase Agreement) of GSN for any fiscal year exceeds the
Target (as defined in the Stock Purchase Agreement) for such year, GSN
shall distribute to the Executive a bonus with respect to such year
equal to twenty percent (20%) of the excess. Any bonus payable pursuant
to this Section 3(a)(ii) shall be paid in cash, and shall be paid at
the same time as any Installment (as defined in the Stock Purchase
Agreement) is due pursuant to the Stock Purchase Agreement, and, if
paid by Parent, shall be charged to GSN. This provision shall be
applicable only during the initial Term hereof and only during the
initial period set forth in the Stock Purchase Agreement for the
determination of the Contingent Purchase Price as defined therein.
(b) GSN shall withhold all applicable federal, state and local
taxes, social security and workers' compensation contributions and such other
amounts as may be required by law or agreed upon by the parties with respect to
the compensation payable to the Executive pursuant to Section 3(a) or otherwise
in connection with his employment by GSN.
(c) During the Term, GSN shall reimburse the Executive no less
often than monthly for all normal, usual and necessary expenses incurred by the
Executive in furtherance of the business and affairs of GSN, including
reasonable travel and entertainment, against receipt by GSN of appropriate
vouchers or other proof of the Executive's expenditures and otherwise in
accordance with such expense reimbursement policy as may from time to time be
adopted by the Board.
<PAGE>
3
(d) During the Term, the Executive shall be entitled to
participate in any group insurance plan or program of GSN now existing or
established hereafter to the extent that he is eligible under the general
provisions thereof.
(e) During the Term, the Executive shall be subject to, and
shall act in accordance with the policies and procedures determined by the Board
from time to time.
4. REPRESENTATIONS AND WARRANTIES
(a) The Executive hereby represents and warrants to GSN as
follows:
(i) Neither the execution and delivery of this
Agreement nor the performance by the Executive of his duties and other
obligations hereunder violate or will violate any statute, law,
determination or award, or conflict with or constitute a default under
(whether immediately, upon the giving of notice or lapse of time or
both) any prior employment agreement, contract, or other instrument to
which the Executive is a party or by which he is bound.
(ii) The Executive has the full right, power and
legal capacity to execute and deliver this Agreement and to perform his
duties and other obligations hereunder. This Agreement constitutes the
legal, valid and binding obligation of the Executive enforceable
against him in accordance with its terms. No approvals or consents of
any persons or entities are required for the Executive to execute and
deliver this Agreement or perform his duties and other obligations
hereunder.
(c) GSN hereby represents and warrants to the Executive as
follows:
(i) GSN is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York,
with all requisite powers and authority to own its properties and
conduct its business in the manner presently contemplated.
(ii) GSN has full power and authority to enter into
this Agreement and to incur and perform its obligations hereunder. This
Agreement constitutes the legal, valid and binding obligation of GSN
enforceable against GSN in accordance with its terms.
(iii) The execution, delivery and performance by GSN
of this Agreement does not conflict with or result in a breach or
violation of or constitute a default (whether immediately, upon the
giving of notice or lapse of time or both) under any agreement or
instrument to which GSN is a party or by which GSN or any of its
properties may be bound or affected.
<PAGE>
4
5. NON-COMPETITION
(a) The Executive understands and recognizes that his services
to GSN are special and unique and agrees that during the five (5) year period
commencing on the Effective Date, the Executive shall not in any manner,
directly or indirectly, on behalf of himself or any person, firm, partnership,
joint venture, corporation or other business entity ("Person"):
(1) interfere with customer, licensor or supplier
relationships of GSN, Parent or any subsidiary, affiliate, successor or
assign thereof (collectively, the "Affiliates"); or
(2) enter into or engage in any business that: (A) is
competitive with GSN's or Parent's business; and/or (B) relates to the
merchandising, sourcing, marketing or distribution of tailored
clothing, sportswear, shirts or casual slacks, either as an individual
for his own account, or as a partner, joint venturer, executive, agent,
consultant, salesperson, officer, director or shareholder of a Person
operating or intending to operate within the area that GSN or Parent is
conducting business; provided, however, that nothing herein will
preclude Executive from holding one percent (1%) or less of the stock
of any publicly traded company.
(b) In the event that Executive breaches any provisions of
this Section 5 or there is a threatened breach, then, in addition to any other
rights which GSN may have, GSN shall be entitled, without the posting of a bond
or other security, to injunctive relief to enforce the restrictions contained
herein against Executive and any other person, firm or corporation involved. In
the event that a proceeding is brought in equity to enforce the provisions of
this Section 5, the Executive shall not urge as a defense that there is an
adequate remedy at law, nor shall GSN be prevented from seeking any other
remedies which may be available.
(c) The restrictions set forth in "(a)" above shall terminate
in the event that, after the closing of the Stock Purchase Agreement and during
the period the Contingent Purchase Price is to be determined (as set forth in
the Stock Purchase Agreement): (i) an order for relief with respect to GSN or
Parent is entered in a proceeding under the United States Bankruptcy Code; (ii)
GSN or Parent initiates, whether by filing a petition, beginning a proceeding or
in answer to a proceeding commenced by another person, any action for
liquidation, dissolution, receivership or other similar relief, or its
application for, or consent to the appointment of, a trustee, receiver or
custodian for its assets; or (iii) Executive resigns for Good Reason (as defined
in Section 8(a)(iv). For purposes of this provision, GSN's consent shall be
deemed to have been given if an order appointing a trustee, receiver or
custodian is entered by a court of competent jurisdiction and is not dismissed
within ninety (90) days after its entry.
6. NON-SOLICITATION
(a) During the five (5) year period commencing on the
Effective Date, the Executive shall not, directly or indirectly, without the
prior written consent of the Board:
(1) solicit or induce any employee of GSN, Parent or
any Affiliate to leave the employ of GSN, Parent or any Affiliate;
<PAGE>
5
(2) hire for any purpose any person who is at such
time or has been within the preceding one (1) year an employee of GSN,
Parent or any Affiliate;
(3) solicit or accept employment or maintain any
business relationship with any party who, at any time during the Term,
was a customer, supplier, licensor or licensee of GSN, Parent or any
Affiliate; or
(4) solicit or accept the business of any customer,
supplier, licensor or licensee of GSN, Parent or any Affiliate with
respect to products similar to those supplied by GSN, Parent or any of
its Affiliates.
(b) The restrictions set forth in "(a)" above shall terminate
in the event that, after the closing of the Stock Purchase Agreement and during
the period the Contingent Purchase Price is to be determined (as set forth in
the Stock Purchase Agreement): (i) an order for relief with respect to GSN or
Parent is entered in a proceeding under the United States Bankruptcy Code; (ii)
GSN or Parent initiates, whether by filing a petition, beginning a proceeding or
in answer to a proceeding commenced by another person, any action for
liquidation, dissolution, receivership or other similar relief, or its
application for, or consent to the appointment of, a trustee, receiver or
custodian for its assets; or (iii) Executive resigns for Good Reason (as defined
in Section 8(a)(iv). For purposes of this provision, GSN's consent shall be
deemed to have been given if an order appointing a trustee, receiver or
custodian is entered by a court of competent jurisdiction and is not dismissed
within ninety (90) days after its entry.
7. CONFIDENTIAL INFORMATION
The Executive agrees that during the course of his employment
and for a period of three (3) years after termination, he will not disclose or
make accessible to any other person any information relating to GSN, Parent or
any Affiliate or any of their customers or any other information obtained by
Executive during the course of his employment with GSN (the "Confidential
Information"), except to the extent the same have become generally known to the
public other than through a breach of this Section 7. The foregoing restrictions
set forth in this provision shall not apply in the event this Agreement is
terminated pursuant to Section 8(a)(iv) hereof. The Executive agrees not to take
any such material or reproductions thereof from GSN, Parent or any Affiliate's
facilities at any time during his employment by GSN, except as required in the
ordinary performance of Executive's services hereunder. The Executive agrees to
immediately return all such material and reproductions thereof in his possession
to GSN upon request and in any event upon termination of employment, and to not
retain any such Confidential Information.
8. TERMINATION
(a) The Executive's employment hereunder shall begin on the
Effective Date and shall continue for the period set forth in Section 2 hereof
unless sooner terminated upon the first to occur of the following events:
(i) The death of the Executive;
<PAGE>
6
(ii) The Disability (as defined below) of the
Executive;
(iii) Termination by the Board for just cause. Any of
the following actions by the Executive shall constitute "just cause":
(iv) Termination by the Executive as a result of a
resignation for "Good Reason." Resignation by the
Executive for "Good Reason" shall mean the written
resignation of Executive in the event that the GSN
fails to make payments due to Executive hereunder or
Parent fails to make payments due to Executive under
the Stock Purchase Agreement (subject to any right of
setoff in respect of such obligations under the Stock
Purchase Agreement) and such non-payment continues
for forty-five (45) days or more after Executive
gives written notice of such non-payment to GSN and
Parent.
(1) Material breach by the Executive of
Sections 5, 6 or 7 of this Agreement;
(2) Material breach by the Executive of any
provision of this Agreement other than Sections 5, 6 and 7 which is not cured by
the Executive within thirty (30) days of written notice thereof;
(3) Any misconduct or omission on the part
of the Executive which is intended to cause harm to GSN, Parent or any
Affiliate;
(4) Gross negligent performance by the
Executive of his duties as President of GSN, as determined by the Board after
notice to the Executive and an opportunity for the Executive to be heard by the
Board; or
(5) The conviction of the Executive of:
(A) any felony; or (B) any other crime involving moral turpitude.
(b) For purposes hereof, a "Disability" of the Executive shall
be deemed to have occurred in the event: (i) the Executive is absent from work
or otherwise substantially unable to assume his normal duties for a period of
forty-five (45) successive days or an aggregate of sixty (60) days during any
six (6) month period because of physical or mental disability, accident, illness
or other cause other than approved vacation or leave of absence; or (ii) the
Executive is deemed by a licensed physician designated by the Board and
reasonably acceptable to the Executive to have a permanent disability such that
Executive will be unable to perform his duties under this agreement. GSN shall
have the right to have the Executive examined by a competent physician for
purposes of determining his physical or mental incapacity.
(c) Executive's employment or termination of employment
hereunder shall not effect the rights and obligations of the Executive, GSN or
Purchaser under the Stock Purchase Agreement.
(d) Sections 5 and 6 hereof shall survive termination of this
Agreement.
<PAGE>
7
9. NOTICES
Any notice or other communication under this Agreement shall
be in writing and shall be deemed to have been given: (i) when delivered
personally against receipt therefor; (ii) one (1) day after being sent by
Federal Express or similar overnight delivery; or (iii) three (3) days after
being mailed registered or certified mail, postage prepaid, return receipt
requested, to either party at the address set forth below, or to such other
address as such party shall give by notice hereunder to the other party.
If to GSN:
Global Source Network, Ltd.
c/o The Pietrafesa Corporation
7400 Morgan Road
Liverpool, NY 13090-3900
Attn: Richard C. Pietrafesa, Jr.
with a copy to:
Scolaro, Shulman, Cohen, Lawler & Burstein, P.C.
90 Presidential Plaza
Syracuse, NY 13202
Attention: Todd S. Smith, Esq.
If to Executive:
Peter Lister
120 Springy Banks Road
East Hampton, NY 11937
with a copy to:
Mezan, Stolzberg & Schwartzman, P.C.
460 Park Avenue
New York, NY 10022
Attn: Maxwell Stolzberg, Esq.
10. SEVERABILITY OF PROVISIONS
If any provision of this Agreement shall be declared by a
court of competent jurisdiction to be invalid, illegal or incapable of being
enforced in whole or in part, the remaining conditions and provisions or
portions thereof shall nevertheless remain in full force and effect and
enforceable to the extent they are valid, legal and enforceable, and no
provision shall be deemed dependent upon any other covenant or provision unless
so expressed herein.
<PAGE>
8
11. ENTIRE AGREEMENT; MODIFICATION
(a) This Agreement contains the entire agreement of the
parties relating to the subject matter hereof, and the parties hereto have made
no agreements, representations or warranties relating to the subject matter of
this Agreement which are not set forth herein. No modification of this Agreement
shall be valid unless made in writing and signed by the parties hereto.
(b) The Executive acknowledges that any cash and non-cash
compensation received by him prior to the execution of this Agreement shall be
applied to the obligations of GSN hereunder.
12. BINDING EFFECT
The rights, benefits, duties and obligations under this
Agreement shall inure to, and be binding upon, GSN, its successors and assigns,
and upon the Executive and his legal representatives. This Agreement constitutes
a personal service agreement, and the performance of the Executive's obligations
hereunder may not be transferred or assigned by the Executive.
13. NON-WAIVER
The failure of either party to insist upon the strict
performance of any of the terms, conditions and provisions of this Agreement
shall not be construed as a waiver or relinquishment of future compliance
therewith, and said terms, conditions and provisions shall remain in full force
and effect. No waiver of any term or condition of this Agreement on the part of
either party shall be effective for any purpose whatsoever unless such waiver is
in writing and signed by such party.
14. GOVERNING LAW
This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York without regard
to principles of conflict of laws.
15. HEADINGS
The headings of paragraphs are inserted for convenience and
shall not affect any interpretation of this Agreement.
16. COUNTERPARTS
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all such counterparts shall
together constitute one and the same instrument.
<PAGE>
9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
GLOBAL SOURCE NETWORK, LTD.
By:
---------------------------------------
Richard C. Pietrafesa, Jr., Chairman
------------------------------------------
Peter Lister, Executive
<PAGE>
EXHIBIT 2.02
to Global Purchase Agreement
PROMISSORY NOTE
New York, New York
____________, 199_
FOR VALUE RECEIVED, The Pietrafesa Corporation ("Maker"), hereby
promises to pay Peter Lister (hereinafter referred to as the "Holder") at the
office of Maker in New York, New York, the initial principal sum of Eight
Hundred Thousand and 00/100 Dollars ($800,000.00), together with interest on the
outstanding balance at the fixed rate of ten percent (10%) per annum from the
date hereof, in the manner provided herein. Unless there is an initial public
offering ("IPO") of the common stock of Maker ("Pietrafesa Stock") on or before
the third anniversary date of this Note, the entire outstanding principal
balance of this Note together with all accrued interest thereon shall be due and
payable in full on the third anniversary date hereof. Interest only shall be
payable in arrears on a monthly basis commencing thirty (30) days after the date
hereof. In the event of an IPO on or before the third anniversary date of this
Note, upon the date of such IPO the entire outstanding principal balance of this
Note together with all accrued interest thereon shall immediately become due and
payable in full in immediately available funds.
1. Acceleration Upon Default. This Note shall become immediately due
and payable upon the occurrence of any of the following events of default:
(a) The failure of Maker to make payment when due under this
Note after ten (10) days prior written notice; or
(b) The insolvency of Maker, the appointment of a receiver of
its assets, or the institution of any involuntary proceeding under any
bankruptcy or insolvency law relating to the relief of a debtor for the
readjustment or relief of any indebtedness of Maker, whether as a
reorganization, composition, extension or otherwise, which involuntary
proceeding is not terminated, dismissed or concluded in a manner not adverse to
Maker within ninety (90) days of the commencement of such proceeding; or
(c) The filing by Maker of an application or an assignment for
the benefit of creditors or for taking advantage of the same or any bankruptcy
or insolvency law.
2. Prepayment. Maker shall have the right to prepay all or any portion
of the principal balance due under this Note at anytime without premium or
penalty provided interest to the date of prepayment is also tendered.
<PAGE>
3. Waiver. No delay or omission on the part of Holders in exercising
any right hereunder shall operate as a waiver of such right or of any other
right under this Note. A waiver on any one occasion shall not be construed as a
waiver of any right or remedy on any future occasion.
4. Attorneys' Fees and Cost of Collection. Maker agrees to pay all
reasonable costs, charges, and expenses, including reasonable attorney's fees
incurred by Holders in collecting this Note.
5. Notice. All notices, demands and requests given or required to be
given by any party hereto to the other party shall be in writing and shall be
deemed to have been properly given, made or served only if sent by registered or
certified mail, postage prepaid, addressed to the parties at their last known
address, or such other address as the parties shall give by prior notice.
6. Negotiability. This Note is non-negotiable and may not be assigned,
transferred or set over by Maker or Holder.
7. Reference. This Note is subject to the terms and conditions of a
certain Stock Purchase Agreement by and among The Pietrafesa Corporation, Peter
Lister, and Global Source Network, Ltd. ("the Stock Purchase Agreement").
Holders acknowledge and agree that Maker has the rights of reduction and of
offset under the Stock Purchase Agreement, which rights may result in the
reduction of the principal amount of this Note and/or offset against interest
due on this Note. Any reduction or offset resulting in the reduction of the
principal amount of this Note shall be treated as occurring as of the date of
this Note.
<PAGE>
8. Jurisdiction. This Note shall be deemed to have been made and shall
be governed by the laws of the State of New York in all respects, including
matters of construction, validity and performance and none of its terms or
provisions may be waived, altered, modified or amended except as Holders may
consent thereto in writing duly signed for and on his behalf.
MAKER:
THE PIETRAFESA CORPORATION
By:_______________________________
Name:
Title:
<PAGE>
EXHIBIT 10.4
MS PIETRAFESA, L.P., a Delaware limited partnership having its
principal place of business at 7400 Morgan Road, Liverpool, New York 13090
("Borrower") hereby agrees with NATIONAL BANK OF CANADA, a Canadian banking
corporation with a domestic branch at 125 West 55th Street, New York, New York
10019 ("Lender") as follows:
SECTION 1. DEFINITIONS.
1.1 Defined Terms. As used herein, the following terms have the following
meanings:
a. Account Debtor - means a person or entity obligated to pay a
Receivable.
b. Additional Collateral - means (a) all general intangibles of
Borrower of every kind and description, including without
limitation all patents, trademarks, copyrights, and licenses
and all federal, state and local tax refund claims of all
kinds, whether now existing or hereafter arising; (b) all of
Borrower's deposit accounts, whether now owned or hereafter
created, wherever located; (c) all monies, securities,
instruments, cash and other property of Borrower and the
proceeds thereof, now or hereafter held or received by, or in
transit to, Lender from or for Borrower; and (d) all books,
records, customer lists, ledger cards, computer programs,
computer tapes, disks, printouts and records, and other
property and general intangibles at any time evidencing or
relating to any of the foregoing, whether now in existence or
hereafter created; and all proceeds of the foregoing and all
proceeds of any insurance on the foregoing.
c. Borrower - means MS Pietrafesa, L.P.
d. Borrowing Base - the Borrowing Base for Line of Credit Loans
defined in Section 2.1(a).
e. Breakage Fee - means, in the case of a prepayment of the whole
or any portion of Line of Credit Loan principal bearing
interest based on the LIBOR Rate provided for in Section
2.7(a)(ii), a prepayment premium equal to such prepaid
principal, multiplied by a per annum interest rate equal to
the difference between the LIBOR Rate-based interest
applicable thereto, adjusted to an annual basis, and the
360-day equivalent interest yield (hereinafter called the
"Reinvestment Rate") on six-month United States Treasury Bills
in an aggregate amount comparable to such portion of the
prepaid principal, and with maturities comparable to the end
of the applicable Interest Period, calculated over a period of
time from the date of prepayment to and including the last day
of the applicable Interest Period. If the LIBOR Rate-based
interest applicable to such prepaid principal, adjusted to an
annual basis, is equal to or less than the Reinvestment Rate,
no prepayment premium shall be due.
<PAGE>
f. Business Day - means any day other than a Saturday, Sunday or
other day on which the banks in New York State are required or
authorized by law to close.
g. Collateral - means, collectively, (a) all Receivables,
Inventory, Equipment, Fixtures, Documents, Instruments and
Additional Collateral, and (b) the Premises secured by the
Mortgage.
h. Disposal - means the intentional or unintentional abandonment,
discharge, deposit, injection, dumping, spilling, leaking,
storing, burning, thermal destruction or placing of any
substance so that it or any of its constituents may enter the
Environment.
i. Documentary Letter of Credit - means Lender's Letter of Credit
issued for the benefit of Borrower and payable upon payee's
presentation of specified documents.
j. Eligible Inventory - means Borrower's Inventory, consisting of
first quality raw material and finished goods in which Lender
has a perfected security interest, which is held for
manufacture, sale or resale in the ordinary course of the
Borrower's business and which is acceptable to Lender, in
Lender's reasonable discretion, in all respects. General
criteria for Eligible Inventory may be established and revised
from time to time by Lender in Lender's reasonable discretion
which shall be exercised in a manner consistent with Lender's
agreements to lend set forth herein. In determining such
eligibility, Lender may, but need not, rely on reports and
schedules of Inventory furnished to Lender by Borrower, but
reliance thereon by Lender from time to time shall not be
deemed to limit Lender's right to revise standards for
eligibility at any time. In general, Eligible Inventory shall
include goods returned to Borrower in the ordinary course of
business and seconds and defective goods, with seconds and
defective goods discounted at a fixed cost which approximates
thirty-three percent (33%) of Borrower's first quality book
value. Except in Lender's reasonable discretion, Eligible
Inventory shall not include work in process, components which
are not parts of finished goods, spare parts, packaging and
shipping materials, or supplies used or consumed in Borrower's
business, and further, Eligible Inventory shall not include
Inventory subject to a security interest or lien in favor of
any third party, bill and hold goods, Inventory which is not
subject to Lender's perfected security interest, Inventory
which is not insured as required pursuant to the terms hereof,
Inventory which was not produced in accordance with the
Federal Fair Labor Standards Act of 1938, as amended, or
Inventory purchased or held on consignment.
2
<PAGE>
k. Eligible Receivables - means the net amount of those
Receivables which continually meet the following requirements:
(i) The account is due and payable not more than sixty
(60) days from the date of the invoice evidencing the
Receivable;
(ii) The Receivable arose from the performance of services
by Borrower, which have been fully and satisfactorily
performed, or from the sale or lease of goods by
Borrower, in which Borrower had the sole and complete
ownership, and the goods have been shipped or
delivered to the Account Debtor, as evidence of which
Borrower or Lender has the possession of shipping and
delivery receipts;
(iii) The Receivable is not subject to any assignment,
claim, lien or security interest other than that of
Lender, other than trade credits payable to Jos. A
Bank Clothiers, Inc., a Delaware corporation;
(iv) The Receivable is not subject to setoff,
counterclaim, defense, allowance or adjustment other
than discounts for prompt payment shown on the
invoice, or to dispute, objection or complaint by the
Account Debtor concerning its liability on the
Receivable; and the goods, the sale or lease of which
gave rise to the Receivable, have not been returned,
rejected, lost or damaged;
(v) The Receivable arose in the ordinary course of
business;
(vi) No petition in bankruptcy or other application for
relief under the Bankruptcy Code or other insolvency
law has been filed with respect to the Account
Debtor; and the Account Debtor has not made an
assignment for the benefit of creditors, become
insolvent, or suspended or terminated business; and
the Account Debtor is generally paying its debts as
they become due;
(vii) The Account Debtor is not an affiliate, subsidiary,
officer, shareholder or employee of Borrower, nor
owned or controlled by any such entity;
(viii) Either the Account Debtor maintains its chief
executive office in the United States of America and
is organized under the laws of the United States of
America or Canada or a state or province thereof, or
the Receivable is secured by a letter of credit or
credit insurance acceptable to Lender;
(ix) The full amount reflected on Borrower's books and on
any invoice delivered to Lender relating to any
Receivable is owing to Borrower, and no partial
prepayments have been made thereon, other than as
reflected on such books;
3
<PAGE>
(x) Perfection or enforcement of Lender's security
interest in the Receivable is not governed by any
state or federal statutory requirements other than
the Uniform Commercial Code, including, without
limitation, the Federal Assignment of Claims Acts of
1940, as amended;
(xi) The Receivable does not arise from a consignment or
other arrangement pursuant to which the subject
Inventory is returnable, if not sold or otherwise
disposed of by the Account Debtor; and
(xii) The Receivable is owed by an Account Debtor with
respect to which not more than fifty percent (50%) of
the outstanding dollar amount of all Receivables owed
by such Account Debtor has remained unpaid for more
than one hundred twenty (120) days from the invoice
date.
l. Environment - means any water including but not limited to
surface water and ground water or water vapor; land including
land surface or subsurface; stream sediments; air; fish,
wildlife, and plants; and all other natural resources or
environmental media.
m. Environmental Laws - means all federal, state and local
environmental, land use, zoning, health, chemical use, safety
and sanitation laws, statutes, ordinances, regulations, codes
and rules relating to the protection of the Environment and/or
governing the use, storage, treatment, generation,
transportation, processing, handling, production or disposal
of Hazardous Substances, and the policies, guidelines,
procedures, interpretations, decisions, orders and directives
of federal, state and local governmental agencies and
authorities with respect thereto.
n. Environmental Permits - means all licenses, permits,
approvals, authorizations, consents or registrations required
by any applicable Environmental Laws and all applicable
judicial and administrative orders in connection with the
ownership, lease, purchase, transfer, closure, use and/or
operation of Borrower's property and/or as may be required for
the storage, treatment, generation, transportation,
processing, handling, production or disposal of Hazardous
Substances.
o. Environmental Reports - means those documents, copies of which
have been provided to Lender, entitled Phase I Environmental
Assessment Update by Blasland, Bouck & Lee, Inc. dated March
16, 1995.
p. Equipment - means all machinery, equipment, furniture,
fixtures, tools, parts, supplies and motor vehicles, now owned
and hereafter acquired by Borrower of whatsoever name, nature,
kind or description, wherever located, and all additions and
accessions thereto and replacements or substitutions therefor,
and all proceeds thereof and all proceeds of any insurance
thereon.
4
<PAGE>
q. Event of Default - shall have the meaning assigned to it in
Section 7.1 of this Agreement.
r. Hazardous Substances - means, without limitation, any
explosives, radon, radioactive materials, asbestos, urea
formaldehyde foam insulation, polychlorinated biphenyls,
petroleum and petroleum products, methane, hazardous
materials, hazardous wastes, hazardous or toxic substances and
any other material defined as a hazardous substance in Section
101(14) of the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. Section
9601(14).
s. Interest Period - means the period commencing on the date a
Line of Credit Loan is made or converted as a loan bearing
interest based on the LIBOR Rate as provided for in Section
2.7(a)(ii), which period shall end one (1) month, three (3)
months, or six (6) months thereafter, as Borrower may elect.
t. Inventory - means all inventory, as defined in the New York
Uniform Commercial Code.
u. Letter of Credit - means an engagement by Lender under the
Line of Credit provided for in Sections 2.1 and 2.4, to honor
certain demands for payment against Borrower.
v. LIBOR Rate - means the London Interbank Offered Rate for
corresponding deposits of U.S. dollars for the corresponding
Interest Period, determined as of two (2) Business Days prior
to the start of the Interest Period. The determination by
Lender as to the applicable LIBOR Rate shall be determinative.
w. Line of Credit Loans - means, collectively, all advances or
loans made to Borrower under the Line of Credit.
x. Loans - means collectively, all Line of Credit Loans and all
Term Loans made to Borrower by Lender pursuant to this
Agreement.
y. Mortgage - means a first lien collateral mortgage on the
Premises in the amount of $1,950,000.
z. Obligations - means all loans, advances, debts, liabilities,
obligations and duties owing by Borrower to Lender of every
kind and description, direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter
arising, whether or not such obligations are related to the
transactions described in this Agreement, and whether such
obligations are from time to time reduced and thereafter
increased, or entirely extinguished and thereafter reincurred,
including without limitation, all interest, fees, charges,
expenses and attorneys' fees chargeable to Borrower or
incurred by Lender in connection with this Agreement or any
other agreement between Borrower and Lender.
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aa. Permitted Encumbrances - means liens, encumbrances, and
restrictions against the assets and property of Borrower,
identified in Schedule 1 to this Agreement.
bb. Premises - means the Premises located at 7400 Morgan Road,
Liverpool, Onondaga County, New York 13090.
cc. Prime Rate - means the prime rate for commercial loans
announced from time to time in the United States of America as
the National Bank of Canada prime rate, whether or not such
rate is the best, favored or lowest rate charged by Lender.
dd. Receivables - means (a) all of Borrower's now owned and
hereafter acquired accounts, chattel paper, documents and
instruments, and all proceeds of the foregoing and all
proceeds of any insurance on the foregoing; (b) all of
Borrower's rights, remedies, security and liens, in, to and in
respect of the accounts, including without limitation, rights
of stoppage in transit, replevin, repossession and reclamation
and other rights and remedies of an unpaid vendor, lienor or
secured party, guaranties or other contracts of suretyship
with respect to the accounts, deposits or other security for
the obligation of any debtor or obligor in any way obligated
on or in connection with any accounts and credit and other
insurance, and all proceeds of the foregoing and all proceeds
of any insurance on the foregoing; and (c) all of Borrower's
right, title and interest, present and future, in, to and in
respect of all goods relating to, or which by sale have
resulted in, accounts, including without limitation all goods
described in invoices or other documents or instruments with
respect to, or otherwise representing or evidencing any
accounts and all returned, reclaimed or repossessed goods, and
all proceeds of the foregoing and all proceeds of any
insurance on the foregoing.
ee. Release - means "Release" as defined in Section 101(22) of the
Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. Section 9601(22), and the
regulations promulgated thereunder.
ff. Standby Letter of Credit - means Lender's Letter of Credit
issued for the benefit of Borrower and payable upon the
occurrence or non-occurrence of certain specified conditions.
gg. Supplemental Agreements - means any and all agreements,
instruments, documents, security agreements, guaranties,
mortgages, financing statements, assignment agreements,
repurchase agreements and supplements thereto, granting or
intending to grant to Lender any lien, security interest,
pledge, assignment or indemnification to secure the
Obligations, or entered into between Borrower and Lender, at
any time, for any purpose.
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hh. Term Loans - means, collectively, Term Loan A and Term Loan B
made to Borrower, as defined in Section 2.5 of this Agreement.
ii. Title Policy - means Certificate for Title Insurance Number
5398-25149 issued to Lender by Ticor Title Insurance Company
with respect to the Premises.
1.2 UCC Definitions - The words "debtor", "secured party", "collateral",
"perfection", "authorization", "consent", "security agreement",
"proceeds", "financing statement", "assignee", "assignment", "action",
"creditor", "goods", "equipment", "inventory", "accounts", "documents",
"instruments", "chattel paper", and "general intangibles", and all
other terms used in this Agreement and in all documents referred to
herein shall have the meanings given such terms in the New York Uniform
Commercial Code.
1.3 Accounting Terms - All accounting terms used but not defined in this
Agreement shall be construed in accordance with generally accepted
accounting principles consistently applied.
SECTION 2. TERMS OF BORROWING.
2.1 Line of Credit. As long as Borrower is not in default of any of its
Obligations to Lender, Lender agrees to lend to Borrower, and Borrower
agrees to borrow from Lender, subject to the terms and conditions of
this Agreement, a maximum Line of Credit Loan, at any one time
outstanding not to exceed the amount of the Borrowing Base, as set
forth below ("Line of Credit"). The Line of Credit shall be evidenced
by a Revolving Note of Borrower ("Revolving Note") substantially in the
form of Exhibit A attached hereto and shall be payable as set forth in
Section 2.8(a) hereof.
a. Borrowing Base. The Borrowing Base shall equal the lesser of:
(1) The sum of:
(i) Eighty-five percent (85%) of Eligible
Receivables less than sixty (60) days past
due date but not more than one hundred
twenty (120) days from invoice date, plus
(ii) Fifty percent (50%) of that portion of
Eligible Inventory consisting of raw
materials on a lower of cost or market
basis, plus
(iii) Sixty percent (60%) of that portion of
Eligible Inventory consisting of finished
goods, increasing to seventy percent (70%)
during any two (2) periods in a calendar
year of two (2) consecutive months each, to
accommodate seasonal requirements, less
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(iv) One hundred percent (100%) of outstanding
Standby Letters of Credit, less
(v) Fifty percent (50%) of outstanding
Documentary Letters of Credit,
provided, however, that Lender shall not be required
to advance an amount in excess of Five Million
Dollars ($5,000,000) against Eligible Inventory
described in (ii) and (iii) above,
or
(2) Twelve Million Five Hundred Thousand Dollars
($12,500,000) .
2.2 [Intentionally omitted].
2.3 Borrowing Base Reports, Etc. For purposes of computing the Borrowing
Base, Borrower shall furnish to Lender information adequate to identify
Receivables and Inventory at times and in form and substance as may be
required by Lender. Borrower shall provide to Lender in form and
content satisfactory to Lender:
(1) At least weekly and on the last day of each month, or, upon
the occurrence and continuation of an Event of Default, more
frequently upon the request of Lender, a Borrowing Certificate
reporting all Receivables, in the form attached hereto as
Exhibit D;
(2) At least monthly or, upon the occurrence and continuation of
an Event of Default, more frequently upon the request of
Lender, a Borrowing Certificate reporting all Inventory, in
the form attached hereto as Exhibit D;
(3) Monthly, on or before the 25th day of each month, an Accounts
Receivable Aging in form satisfactory to Lender based on
invoice date, listed in sequence by number, and showing the
amounts due and owing on all Receivables;
(4) Monthly, on or before the 25th day of each month, an Inventory
Report in form satisfactory to Lender showing the total cost
value of Inventory and separating Inventory into raw
materials, work-in-process, finished goods; and
(5) Monthly, on or before the 25th day of each month, a
reconciliation report of Receivables and Inventory.
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From time to time, Borrower shall provide Lender with such other schedules and
information as Lender may reasonably request. Together with such schedules,
Borrower shall, upon request of Lender, furnish copies of customers' invoices or
the equivalent, and original shipping or delivery receipts for all merchandise
sold, and Borrower shall warrant the genuineness thereof. Borrower shall further
warrant that all Receivables are and will be bona fide existing obligations
created by the sale and delivery of merchandise or the rendition of services to
customers in the ordinary course of business, free of liens, encumbrances and
security interests, except as permitted hereunder, and unconditionally owed to
Borrower, as applicable, without defense, offset or counterclaim.
2.4 Line of Credit Loans.
a. All Line of Credit Loans pursuant to this Agreement (other
than Letters of Credit under subsection (f) below) shall be
disbursed by Lender as credits to the operating account
maintained by Borrower with Lender. Lender, within its
discretion, is irrevocably authorized by Borrower to construe
and interpret the presentation to Lender for payment of a
check drawn on any deposit account maintained by Borrower with
Lender, in an amount greater than the then available balance
in such account, as a request by Borrower for a Line of Credit
Loan bearing interest based on the Prime Rate on the date of
such presentation for the account of Borrower, to the extent
of the amount available at such date under the Borrowing Base.
b. Borrower by resolution, a certified copy of which is annexed
to this Agreement as Schedule 3 and which may be amended and
modified from time to time by Borrower upon written notice to
Lender, shall appoint one or more agents and attorneys-in-fact
("Borrower's Agents") for the purpose of requesting Loans and
otherwise dealing with Lender in all matters under or relating
to this Agreement, the Supplemental Agreements, the Loans, and
the Obligations. Borrower's Agents are authorized to act
jointly and severally, and their authority may only be revoked
by a writing delivered to Lender as provided in Section 8.2 of
this Agreement. Lender is authorized to make Loans upon
receipt of a written Notice of Borrowing executed by a
Borrower's Agent and setting forth Borrower's disbursement
instructions, together with a Borrowing Certificate also
executed by a Borrower's Agent and certifying the amount of
the Borrowing Base as of the date a Loan is requested. The
Notice of Borrowing with Borrowing Certificate shall be in the
form attached hereto as Exhibit D. The crediting of the
proceeds of any Loan to the account of Borrower shall evidence
the making of the Loan and constitute the acknowledgment of
Borrower of receipt of such Loan proceeds. Lender shall have
no liability for any action, error or mistake not involving
Lender's own gross negligence or willful misconduct, based
upon any request or instruction of a Borrower's Agent.
c. No Loan shall be made which, by itself or together with the
principal balance then outstanding of prior Loans, would cause
the total outstanding principal balance of the Line of Credit
Loans to exceed the Borrowing Base described in Section 2.1(a)
of this Agreement.
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<PAGE>
d. Requests for Loans.
(i) Except as otherwise provided under this Section 2.4,
whenever Borrower desires Lender to make a Loan under
this Agreement, Borrower's Agents shall give Lender
prior written notice (or telephonic notice promptly
confirmed in writing) of such request (a "Notice of
Borrowing"). Such Notice of Borrowing shall be given
by Borrower no later than 1:00 p.m. New York, New
York Time at the office of Lender on the business day
of the requested funding date of such borrowing in
the case of Loans bearing interest based on the Prime
Rate ("Prime Rate Loans") and upon two (2) business
days prior notice in the case of Loans bearing
interest based on the LIBOR Rate. Notices received
after 1:00 p.m. shall be deemed received on the next
business day. Each Notice of Borrowing (or telephonic
notice thereof) shall be irrevocable and shall
specify the principal amount of the borrowing and the
account of Borrower to which the proceeds of such
borrowing are to be disbursed.
(ii) Borrower's failure to pay, within fifteen (15) days
of the due date, any amount required to be paid under
this Agreement or any of the Supplemental Agreements
as principal, accrued interest, fees or other charges
shall be deemed irrevocably to be a request for a
Prime Rate Loan on the due date of, and in an
aggregate amount required to pay, such principal,
accrued interest, fees or other charges. The proceeds
of such Loans may be disbursed by way of direct
payment of the relevant Obligation.
(iii) As an accommodation to Borrower, Lender may permit
telephonic requests for Loans and electronic
transmittal of instructions, authorizations,
agreement or reports to Lender by Borrower's Agents.
Unless Borrower's Agents specifically direct Lender
in writing not to accept or act upon telephonic or
electronic communications from Borrower's Agents,
Lender shall have no liability to Borrower for any
loss or damage suffered by Borrower as a result of
Lender's honoring of any requests, execution of any
instructions, authorizations or agreements or
reliance on any reports (in each case believed in
good faith by Lender to be genuine) communicated to
it telephonically or electronically and purporting to
have been sent to Lender by Borrower's Agents and
Lender shall have no duty to verify the origin of any
such communication or the identity or authority of
the person sending it.
e. Subject to the required terms of payment set forth in Section
2.8 below, and the provisions relating to prepayment set forth
in Section 2.9, Borrower may make principal payments upon its
indebtedness for Line of Credit Loans in its discretion and
may reborrow subject to the limits set forth in this
Agreement.
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f. Letters of Credit. So long as the Borrowing Base of Section
2.1(a) will not be exceeded, a portion of the Line of Credit
shall be reserved for issuance by Lender to Borrower of
Documentary Letters of Credit and/or Standby Letters of
Credit, provided that such Letters of Credit (i) have an
aggregate undrawn amount of One Million Dollars ($1,000,000)
or less, and (ii) have expiration dates no longer than one (1)
year from the date of issuance or the date on which payment of
the outstanding principal of Line of Credit Loans is due under
Section 2.8, whichever is earlier. Except as otherwise
expressly provided herein, the procedure set forth in this
Section 2.4 shall similarly apply to requests by Borrower for
Line of Credit Loans negotiated by Lender's issuance of
Letters of Credit under this subsection.
2.5 Term Loans. On the date of this Agreement, and subject to all the terms
and conditions of this Agreement, Lender agrees to make the Term Loans
available to Borrower. Borrower agrees to borrow the amount of such
Term Loans from Lender. Term Loan A ("Term Loan A") shall be evidenced
by a term note ("Term Note A") substantially in the form of Exhibit B
attached hereto and shall be payable as set forth in Section 2.8(b)(1)
of this Agreement, and Term Loan B ("Term Loan B") shall be evidenced
by a term note ("Term Note B") substantially in the form of Exhibit C
attached hereto and shall be payable as set forth in Section 2.8(b)(2)
of this Agreement. The original principal amount of Term Note A shall
be One Million Nine Hundred Fifty Thousand Dollars ($1,950,000), which
is sixty-five percent (65%) of the fair market value of the Premises
according to an appraisal prepared by Summit Associates dated June 4,
1998. The original principal amount of Term Note B shall be Eight
Hundred Fifty Thousand Dollars ($850,000), which is less than eighty
percent (80%) of the forced liquidation or auction value of Borrower's
Equipment according to an appraisal prepared by Daley-Hodkin dated May
26, 1998.
2.6 [Intentionally omitted].
2.7 Interest.
a. Line of Credit Loans.
(i) Prime Rate. Borrower agrees to pay interest on the
outstanding principal balance of the Line of Credit
Loans at the rate of one-half of one percent (0.5%)
per annum above the Prime Rate, as it may change from
time to time based upon a 360-day year for the actual
number of days the Line of Credit Loans are
outstanding, which will result in a higher effective
annual rate. Interest based on the Prime Rate shall
be payable in arrears on the first day of the month.
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(ii) LIBOR Rate. In the alternative, subject to the
conditions and limitations set forth in this
Agreement, Lender shall, at the request of Borrower
upon advance written notice to Lender of not less
than two (2) Business Days, make advances of Line of
Credit Loans to Borrower, or convert any portion of
Borrower's Line of Credit Loan balances from a loan
bearing interest at a rate based on the Prime Rate as
provided for in (i) above to a loan bearing interest,
at a fixed rate equal to the LIBOR Rate plus two and
three-quarters percent (2.75%) for an Interest Period
specified by Borrower of one (1), three (3), or six
(6) months. LIBOR Rate-based interest shall be due
and payable at the end of each Interest Period for
one (1) and three (3) month Interest Periods, and at
the end of three (3) months and maturity for six (6)
month Interest Periods. Conversions from Prime
Rate-based interest shall be for a minimum of One
Million Dollars ($1,000,000) with increments of One
Hundred Thousand Dollars ($100,000). At no time shall
Borrower have more than three (3) separate LIBOR
Rate-based Interest Periods outstanding. Upon the
expiration of an Interest Period, interest shall
accrue at the rate based on the Prime Rate as
provided for in (i) above. All payments to Lender of
principal or of LIBOR Rate-based interest shall be
free and clear of any present or future tax imposed
by the United States of America, and without any
withholdings or deductions whatsoever. In addition,
Borrower shall reimburse Lender for any costs or
expenses related to or incurred by reason of any
Eurodollar reserve, special deposit or assessment, or
capital adequacy requirements related to LIBOR
Rate-based loans.
b. Term Loans. Borrower agrees to pay interest on the outstanding
principal balance of Term Loan A at the per annum rate of one
percent (l%) above the Prime Rate, and on the outstanding
principal balance of Term Note B at the per annum rate of
three-quarters of one percent (0.75%) above the Prime Rate, as
it may change from time to time based upon a 360-day year for
the actual number of days such Term Loan is outstanding, which
will result in a higher effective annual rate.
c. Changes in the Prime Rate. Any change in the Prime Rate shall,
without notice to Borrower, be effective hereunder commencing
at the same time such new rate becomes effective.
2.8 Payments.
a. Line of Credit Loans. Borrower agrees to pay the outstanding
principal of and accrued interest on the Line of Credit Loans
on June 30, 2001, or, upon the occurrence of an Event of
Default, at the time provided for in Section 7.2. In addition,
Borrower agrees to make, on demand, such principal payments as
are necessary so that the unpaid principal balance of the Line
of Credit Loans does not at any time exceed the Borrowing
Base. Without limiting the right of Lender to demand payment
as provided herein, Borrower shall pay accrued interest on the
first day of each month commencing the month following the
date of this Agreement and continuing until all of the
obligations under the Line of Credit Loans are paid in full.
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<PAGE>
b. Term Loans.
1. Term Loan A. Borrower agrees to pay the principal
balance of Term Loan A to Lender in eighty-three (83)
consecutive monthly installments commencing on July
1, 1998, and on the first day of each month
thereafter, the first eighty-three (83) of which
shall be in the principal amount of $16,250.00 and
the eighty-fourth (84th) and final of which shall be
in an amount equal to the then unpaid principal
balance of Term Loan A. Borrower agrees to pay
accrued interest on Term Loan A on the first day of
each month hereafter commencing the month following
the date of this Agreement and on the date Term Loan
A is paid in full.
2. Term Loan B. Borrower agrees to pay the principal
balance of Term Loan B to Lender in fifty-nine (59)
consecutive monthly installments commencing on July
1, 1998, and on the first day of each month
thereafter, the first fifty-nine (59) of which shall
be in the principal amount of $10,119.05 and the
sixtieth (60th) and final of which shall be in an
amount equal to the then unpaid principal balance of
Term Loan B. Borrower agrees to pay accrued interest
on Term Loan B on the first day of each month
hereafter commencing the month following the date of
this Agreement and on the date Term Loan B is paid in
full.
c. General Provisions.
(1) Each payment received by Lender shall be applied
first to expenses and interest accrued and billed and
the balance, if any, to principal, provided that if
there has occurred an event of default under Section
7.1 below, Lender may apply payments in Lender's
absolute discretion.
(2) Any non-cash payment of Line of Credit Loans shall be
deemed paid, for purposes of calculating the
principal amount available for borrowing under
Section 2.1 of this Agreement, on the date such
non-cash payments are received by Lender; however,
for the purpose of calculating interest pursuant to
Section 2.4(a) of this Agreement, such payments shall
be deemed to have been received one (1) day after
actual receipt of such payment by Lender.
Notwithstanding the foregoing, if any such non-cash
payment presented for collection by Lender is not
paid in full, Lender may, without prior notice to
Borrower, reverse the provisional credit which has
been given, and make appropriate adjustments to the
amount of principal and interest due, and the amount
of the Borrowing Base available to Borrower.
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<PAGE>
(3) If after the date hereof, Lender determines that (a)
the adoption of any applicable law, rule or
regulation regarding capital requirements for banks
or bank holding companies or their subsidiaries, (b)
any change in the interpretation or administration
thereof by any governmental authorities or agency
charged with the administration or interpretation, or
(c) compliance by Lender or, if applicable, its
holding company, with any requests or directive of
any such entity with respect to capital adequacy,
results in the reduction of Lender's return on its
capital to a level below that which Lender could have
achieved but for such adoption, change or compliance
as a result of Lender's commitment to make Loans
pursuant hereto, then Lender shall promptly notify
Borrower of such occurrence and within one hundred
eighty (180) days of receipt of such notice,
accompanied by a reasonably detailed summary and
explanation of the calculations and other data and
information utilized by Lender to formulate its
conclusions as to such occurrence, Borrower shall
either (i) pay to Lender an amount reasonably
determined by Lender to be the amount that will
compensate Lender for such reduction or (ii) prepay,
without premium, all outstanding indebtedness of
Borrower pursuant to the terms of this Agreement,
upon which this Agreement shall terminate.
(4) On the date that any principal or interest payable
under this Agreement is due, Borrower authorizes
Lender to debit any deposit account of Borrower on
such due date in an amount equal to such unpaid
principal, interest, facility fees or unused line
fees, as applicable.
(5) Notwithstanding anything to the contrary in this
Agreement, Lender consents to Borrower's (i)
maintaining one bank account with another financial
institution for petty cash and manual payroll
purposes, provided that such account shall not have a
cash balance greater than $25,000 at any time while
the Revolving Note shall remain outstanding, and (ii)
maintaining its ADP automated payroll account with
another financial institution.
2.9 Prepayment. Borrower shall have the right to prepay the outstanding
principal balance of the Loans in whole, or in part, at any time, from
time to time out of Borrower's operating cash flow or from proceeds
from the sale of Borrower, provided, however, that if Borrower prepays
all or substantially all of the outstanding Line of Credit Loans, or
all or substantially all of the Term Loans, with the proceeds of new
secured indebtedness borrowed by Borrower from a person other than
Lenders, then Borrower shall pay to Lender a premium in an amount equal
to the following percentages of the amounts so prepaid:
(a) from closing through June 30, 1999 - one and one-half
percent (1.5%);
(b) from July 1, 1999 through June 30, 2000 - one percent (1%);
(c) from July 1, 2000 through March 31, 2001 - one-half percent
(0.5%); and
(d) after March 31, 2001 - zero percent (0%).
Any partial prepayment of the Term Loans shall be applied to the
outstanding principal balance of the Term Loans in inverse order of
maturity.
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2.10 Fees and Expenses.
a. Closing Fee. Borrower shall pay to Lender upon execution of
this Agreement a fee of $50,000.00, against which shall be
credited a $10,000.00 good faith deposit and a $15,000.00
commitment fee previously paid to Lender by Borrower, net of
any audits fees or legal expenses, as provided for in a
revised commitment letter dated May 20, 1998 between Lender
and Borrower.
b. Annual Facility Fee. For so long as the Revolving Note remains
outstanding and owing to Lender, Borrower shall pay Lender a
fee of $12,500.00 on each anniversary of the execution and
delivery of this Agreement.
c. Unused Line Fee. For so long as the Revolving Note remains
outstanding and owing to Lender, Borrower shall pay Lender on
the first day of each month a fee equal to one-quarter of one
percent (0.25%) per annum of the daily average of the unused
portion of the Line of Credit for the preceding month.
d. Letter of Credit Fees. For so long as the Revolving Note
remains outstanding and owing to Lender, Borrower shall pay
Lender on the first day of each month a fee equal to one
percent (1%) per annum of all issued and outstanding Standby
Letters of Credit (as identified in Section 2.4(d)). Borrower
shall pay Lender a fee equal to one quarter of one percent
(0.25%) of the face amount of any Documentary Letter of Credit
issued by Lender, or a minimum of $75.00, upon issuance.
Borrower shall also pay to Lender its standard issuance costs
for Letters of Credit.
e. Breakage Fee. Upon prepayment of any Line of Credit Loan
principal bearing interest based on the LIBOR Rate provided
for in Section 2.7(a)(ii), Lender shall deliver to Borrower a
statement setting forth the amount and basis of determination
of any Breakage Fee which may be due, it being agreed that (a)
Lender shall not be obligated or required to have actually
reinvested the prepaid amount in any such U.S. Government
Treasury obligations as a condition precedent to receiving a
Breakage Fee calculated as provided herein, and (b) Borrower
shall not have the right to question the correctness of any
such statement or the method of calculation set forth therein
in the absence of manifest error. Borrower shall, upon receipt
of such statement and contemporaneously with any such
prepayment of principal, remit to Lender the Breakage Fee, if
any, due in connection therewith. Lender shall not be
obligated to accept any prepayment unless it is accompanied by
the Breakage Fee, if any, due in connection therewith.
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f. Audit Fees. Borrower shall pay to Lender on demand field
examination fees in the amount of $450 per day per examiner
for all audits or field examinations of Borrower and shall
reimburse Lender on demand for all reasonable airfare,
mileage, hotel accommodations and other out-of-pocket expenses
in connection with such audits or examinations. The sum of
$2,319.29 for audit fees and expenses related to the preloan
field exam provided for in the revised commitment letter dated
May 20, 1998, shall be paid to Lender at closing.
g. Expenses. Borrower shall reimburse Lender on demand for all
reasonable costs and expenses incurred in connection with the
preparation, negotiation, closing and administration of this
Agreement and the Supplemental Agreements, and any amendments
thereto, including, without limitation, attorneys' fees and
expenses. If the obligations are placed in the hands of any
attorneys employed by Lender for collection, Borrower agrees
to pay on demand, Lender's attorneys' fees, together with
costs and expenses, whether or not a legal proceeding or
action is commenced, including those incurred in a bankruptcy
or insolvency proceeding.
2.11 Purpose of Loans. Borrower agrees to use the proceeds of the Loans
solely as working capital, for general corporate purposes, to repay
existing indebtedness owed by Borrower to Rochester Regional Joint
Board, Unite, AFL-CIO and to Marine Midland Bank, and for other
purposes not prohibited by this Agreement.
2.12 Collection of Receivables. After the occurrence of an Event of Default
hereunder Lender or its designee may notify Account Debtors that
Receivables have been assigned to Lender or of Lender's security
interest therein and collect them directly and charge the reasonable
collection costs and expenses to Borrower's account; but, unless and
until Lender does so or gives Borrower other instructions, Borrower
shall make collection of all Receivables for Lender, receive all
payments thereon as Lender's trustee and immediately deliver them to
Lender in their original form. All such payments will be placed by
Lender into cash collateral accounts and, until credited to Borrower's
account as hereinafter set forth, shall be held by Lender as collateral
for payment and/or performance of Borrower's Obligations to Lender.
2.13 Returns, Credits, Etc. Any merchandise which is returned by an Account
Debtor or otherwise recovered shall, after the occurrence of an Event
of Default, be set aside, marked with Lender's name and held by
Borrower as Lender's trustee, and, before and after the occurrence of
an Event of Default, shall remain part of Lender's security. After the
occurrence of an Event of Default, on request, Borrower shall notify
Lender promptly of all returns and recoveries and deliver the
merchandise to Lender. Borrower shall also notify Lender promptly of
all disputes and claims exceeding $50,000 in the aggregate at any one
time and settle or adjust them at no expense to Lender, but no
discount, credit or allowance (other than in the ordinary course of
Borrower's business) shall be granted to any Account Debtor, and no
returns of merchandise (other than in the ordinary course of Borrower's
business) shall be accepted by Borrower without Lender's consent. After
the occurrence of an Event of Default hereunder Lender may settle or
adjust disputes and claims directly with Account Debtors for amounts
and upon terms which Lender considers advisable, and in all cases
Lender will credit Borrower's account with only the net amounts
received by Lender in payment of such Receivables.
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2.14 Further Assurance. Upon Lender's request, Borrower shall appropriately
mark Borrower's books of account to disclose Lender's security interest
in all Borrower's Receivables, and shall perform all other steps
reasonably requested by Lender to create and maintain in Lender's favor
a valid first priority security interest, or lien in or on all
Receivables and all other security held by or for Lender.
2.15 Power of Attorney. Borrower appoints Lender, or any person whom Lender
may designate as its attorney, with power of attorney to sign
Borrower's name on notices of assignment, financing statements and
other public records; and to endorse Borrower's name on any checks,
notes, acceptances, money orders, drafts or other forms of payment or
security that may come into Lender's possession; to sign Borrower's
name on any invoice or bill of lading relating to any Receivables, on
verifications of accounts and on notices to customers; to notify the
post office authorities to change the address for delivery of
Borrower's mail to an address designated by Lender; to send requests
for verification of Receivables to Account Debtors; and to do all
things necessary to carry out this Agreement. Borrower ratifies and
approves all acts of such attorney. Neither Lender nor the attorney
will be liable for any acts or omissions nor for any error of judgment
or mistake of fact or law. This power, being coupled with an interest,
is irrevocable so long as any Receivables in which Lender has a
security interest remain unpaid or until the Obligations have been
fully satisfied. Lender may file one or more financing statements
disclosing Lender's security interest without Borrower's signature
appearing thereon.
SECTION 3. COLLATERAL
3.1 Security Interest. As security for payment and performance of all
Obligations, Borrower hereby assigns and grants to Lender a continuing
mortgage or security interest in the Collateral. Lender shall retain
its security interest in all Collateral until all Obligations have been
finally and irrevocably satisfied, provided, however, that Lender shall
release all Collateral other than the Premises and the Equipment upon
the payment in full to Lender and cancellation or negotiation of the
Revolving Note.
3.2 Possession of Collateral. After the occurrence and during the
continuance of an Event of Default hereunder, Lender will at all times
have the right to take physical possession of the Collateral and to
maintain possession of the personal property constituting Collateral on
Borrower's premises or to remove the personal property constituting
Collateral or any part thereof to such other places as Lender may
desire. If Lender exercises its right to take possession of the
Collateral, Borrower shall, upon Lender's demand, assemble the personal
property constituting Collateral and make it available to Lender at a
place reasonably convenient to Lender.
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3.3 Location of Collateral. All Collateral is owned by Borrower free of all
other liens and encumbrances, except as set forth on Schedule 1 hereto,
and all personal property constituting Collateral shall be kept by
Borrower at the locations set forth in Schedule 2 hereto. Borrower will
not (without Lender's prior written approval) remove any material
personal property constituting Collateral therefrom, except for the
purposes of sale or lease in the regular course of Borrower's business.
3.4 Limitation on Disposition of Assets. Borrower will not sell, exchange
or otherwise dispose of the Collateral, or any material part thereof,
or any interest therein to any party or entity, including, without
limitation, any affiliate or subsidiary of Borrower, other than
Inventory in the ordinary course of business and other assets which
Borrower is specifically permitted to sell or transfer under Section
6.4 of this Agreement, without the express written authorization of
Lender. In the event of any other sale, exchange or other disposition
of the Collateral or any part thereof or any interest therein (and no
such sale, exchange or other disposition is hereby otherwise authorized
or consented to), the security interest of Lender shall nevertheless
continue in said Collateral (including all proceeds, cash and non-cash)
notwithstanding said sale, exchange or other disposition; all of said
proceeds shall remain Collateral hereunder and shall be transferred and
paid over to Lender immediately following said sale, exchange or other
disposition, and shall be applied at the option of Lender to the
payment of Obligations due hereunder; and the receipt by Lender of all
or any of said proceeds shall not be deemed or construed to be an
authorization or consent of Lender to such sale, exchange or other
disposition of said Collateral.
3.5 Further Assurances Regarding Inventory. Borrower shall perform any and
all steps reasonably requested by Lender to perfect Lender's security
interest in the Inventory, such as leasing warehouses to Lender or
Lender's designee, placing and maintaining signs, appointing
custodians, executing and filing financing or continuation statements
in form and substance satisfactory to Lender, maintaining stock records
and transferring Inventory to warehouses. If any Inventory is in the
possession or control of any of Borrower's agents or processors,
Borrower shall notify such agents or processors of Lender's security
interest therein, and, upon request, instruct them to hold all such
Inventory for Lender's account and subject to Lender's instructions. A
physical listing of all Inventory, wherever located, shall be taken by
Borrower at least annually and whenever reasonably requested by Lender,
and a copy of each such physical listing shall be supplied to Lender.
Lender may examine and inspect the Inventory at any time during
Borrower's regular business hours.
3.6 Compliance. Borrower will comply with the terms and conditions of any
leases covering the premises wherein the Collateral consisting of
personal property is located and any orders, ordinances, laws or
statutes of any city, state or other governmental department having
jurisdiction with respect to such premises or the conduct of business
thereon.
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3.7 Discharge of Liens. Lender may, at its option, discharge any taxes,
liens, security interests or other encumbrances at any time levied or
placed on the Collateral (other than indebtedness which is expressly
subordinate to the Loans), and Lender may pay insurance premiums or
procure insurance and otherwise pay for the maintenance and
preservation of the Collateral and Borrower will reimburse Lender on
demand for any payment made or expense incurred by Lender pursuant to
the foregoing authority, with interest at the rate provided in Section
2.7(a) of this Agreement.
3.8 Corporate Existence, Properties. Borrower will at all times maintain,
preserve and protect all franchises, patents, and trade names and
preserve all the remainder of its property used or useful in the
conduct of its business and keep the same in good condition and repair
(normal wear and tear and obsolescence excepted), and from time to time
make, or cause to be made, all needed and proper repairs, renewals,
replacements, betterments and improvements thereto, and will pay or
cause to be paid all rent due on premises where any property is held or
may be held, so that the business carried on in connection therewith
may be continuously conducted.
3.9 Insurance. Borrower will have and maintain insurance at all times with
respect to all Collateral against risks of fire (including so-called
extended coverage), theft and such risks as Lender may require
containing such terms, in such form, and for such periods, and written
by such companies as may be satisfactory to Lender, such insurance to
be payable to Lender and Borrower as their interests may appear; each
policy of insurance shall have a loss payee endorsement in form
satisfactory to Lender providing:
a. That loss or damage, if any under the policy, shall be payable
to Lender, as mortgagee or secured party, as its interests may
appear;
b. That the insurance as to the interest of Lender shall not be
invalidated by any act or neglect of the insured or owner of
the property described in said policy, nor by any foreclosure,
or other proceeding, nor by any change in the title of
ownership of said property, nor by the occupation of the
premises where the property is located for purposes more
hazardous than are permitted by said policy;
c. That, if the policy is canceled at any time by the insurance
carrier, in such case the policy shall continue in force for
the benefit of Lender for not less than thirty (30) days after
written notice of cancellation to Lender from the insurance
carrier; and
d. That the policy will not be reduced or canceled at the request
of the insured nor will said mortgagee or loss payee
endorsement be amended or deleted without thirty (30) days,
prior written notice to Lender from the insurance carrier.
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Borrower will furnish Lender with certificates or other evidence
satisfactory to Lender of compliance with the foregoing insurance
provisions, and Lender may act as attorney for Borrower in obtaining,
adjusting, settling, and canceling such insurance and receiving and
endorsing any drafts. Borrower hereby assigns to Lender any and all
monies which may become due and payable under any policy insuring the
Collateral covered by this Agreement, including return of unearned
premiums, and hereby directs any insurance company issuing any such
policy to make payment directly to Lender and authorizes Lender, at its
option: (i) to apply such monies in payment on account of any
Obligation hereunder, whether or not due, and remit any surplus to
Borrower; or (ii) to return said funds to Borrower for the purpose of
replacement of the Collateral. Borrower will also at all times maintain
necessary workers, compensation insurance and such other insurance as
may be required by law or as may be reasonably required in writing by
Lender.
SECTION 4. REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties. Borrower warrants and represents to
Lender that: (a) Borrower is a limited partnership duly organized and
existing in good standing under the laws of the state of its formation
and qualified and licensed to do business in any other state in which
its ownership of property or its conduct of business requires it to be
so qualified and/or licensed; (b) Borrower has the right and power and
is duly authorized to enter into this Agreement and the Supplemental
Agreements; (c) The execution by Borrower of this Agreement and the
Supplemental Agreements shall not constitute a breach of any provision
contained in Borrower's partnership agreement or certificate of limited
partnership or contained in any agreement to which Borrower is now or
hereafter becomes a party; (d) The performance by Borrower of all of
the terms and provisions contained in this Agreement and in the
Supplemental Agreements shall not constitute a default or an event of
default under any agreement to which Borrower is now or hereafter a
party; (e) Borrower has good and indefeasible title to the Collateral,
subject only to Permitted Encumbrances identified in Schedule 1 hereto;
(f) All financial statements and information relating to Borrower which
have been or may hereafter be delivered by Borrower to Lender are true
and correct in all material respects and have been prepared in
accordance with generally accepted accounting principles, and there has
been no material adverse change in the financial condition of Borrower
since the submission of any such financial information to Lender; (g)
There are no actions or proceedings which are pending or, to Borrowers,
knowledge, threatened against Borrower which might result in any
material adverse change in Borrower's financial condition or which
might in any material way affect any of the assets of Borrower; (h)
Borrower has duly filed all federal, state and other governmental tax
returns which it is required by law to file, and that all taxes and
other sums which may be due to the United States of America, any state
or other governmental authority have been fully paid and that Borrower
now has and shall hereafter maintain reserves adequate in amount to
fully pay all such tax liabilities which may hereafter accrue, and (i)
Borrower is solvent.
4.2 Environmental Matters.
a. No above ground or underground storage tanks containing
Hazardous Substances are or have been located on any property
owned, leased or operated by Borrower.
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b. No property owned, leased or operated by Borrower is or has
been used for the treatment, storage or Disposal of Hazardous
Substances in violation of Environmental Laws.
c. No Release of a Hazardous Substance in violation of
Environmental Laws has occurred or is threatened on, at, from
any property owned, leased or operated by Borrower.
d. Borrower has not received any notices of violations of
Environmental Laws that have not been resolved to the
satisfaction of the issuing authority or agency.
e. Borrower has not received any request for information under
any Environmental Law.
f. There are no existing, pending or threatened suits or claims
under any Environmental Law.
g. To the best of Borrower's knowledge, Borrower is in compliance
with all Environmental Laws.
SECTION 5. AFFIRMATIVE COVENANTS. Borrower agrees as follows:
5.1 Monthly Financial Reports. To furnish to Lender, within thirty (30)
days after the end of each month, internally prepared financial reports
of the operations of Borrower for such month and for the fiscal
year-to-date, certified by the Chief Financial Officer of Borrower.
5.2 Annual Statements. To furnish to Lender within one hundred twenty (120)
days after the end of each of Borrower's fiscal years, audited
financial statements of Borrower consisting of a balance sheet, income
statement and associated statements of cash flow and retained earnings
for such year prepared on a consolidated basis, in accordance with
generally accepted accounting principles, by a firm of independent
certified public accountants satisfactory to Lender and certified by
such accountants.
5.3 Forecasts. To furnish to Lender (a) on or before the date of this
Agreement a financial forecast for each of Borrower's fiscal years from
1998 through 2001 with fiscal 1998 projections being on a monthly basis
and fiscal year 1999, 2000, and 2001 being on an annual basis,
consisting of (a) annual projections of Borrower's balance sheet,
income statement and associated cash flows, and (b) on each annual
anniversary of the date of this Agreement, an updated forecast for the
next fiscal year on a monthly basis.
5.4 Management. To notify Lender days prior to any reasonably foreseeable
change in the senior management of Borrower.
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5.5 Taxes. To pay promptly all tax assessments and other governmental
charges, provided, however, that nothing herein contained shall be
interpreted to require the payment of any tax assessments and other
governmental charges so long as their validity is being contested in
good faith, by appropriate proceedings diligently pursued, provided
such contest does not impair the rights and security of Lender.
5.6 Maintenance of Property. To maintain and keep its real and personal
property in good condition and in compliance in all material respects,
with applicable federal, state and local laws, rules and regulations.
5.7 Litigation. To notify Lender of any litigation instituted against
Borrower and any judgment entered against Borrower in any court
involving more than $150,000 in the aggregate at any one time, which is
not covered by insurance or where the insurance coverage is questioned
by the carrier.
5.8 Limited Partnership Existence. To maintain Borrower's limited
partnership existence in good standing, provided, however, that Lender
acknowledges that Borrower is considering its reorganization as a "C"
corporation, which reorganization shall be permitted with the prior
written consent of Lender, which consent shall not be unreasonably
withheld.
5.9 Other Information. To furnish such other information and at such times
as may be reasonably requested by Lender including,
5.10 Audits. To permit Lender and its agents from time to time, to examine,
audit, and make extracts from, or copies of, any of Borrower's books,
ledgers, reports and other records and to otherwise verify all or any
Collateral in any reasonable manner Lender considers appropriate.
5.11 Environmental Compliance.
a. To comply with all Environmental Laws.
b. To promptly notify Lender in the event of the Disposal of any
Hazardous Substance in violation of Environmental Laws at any
property owned, leased or operated by Borrower, or in the
event of any Release, or threatened Release, of a Hazardous
Substance, from any such property in violation of
Environmental Laws.
c. To deliver promptly to Lender (i) copies of any documents
received from the United States Environmental Protection
Agency or any state, county or municipal environmental or
health agency concerning a violation by Borrower of any
Environmental Law or of a notice of the commencement of a suit
or claim pursuant to any Environmental Law; and (ii) copies of
any documents submitted by Borrower to the United States
Environmental Protection Agency or any state, county or
municipal environmental or health agency concerning a
violation by Borrower of any Environmental Law or of a notice
of the commencement of a suit or claim pursuant to any
Environmental Law.
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SECTION 6. NEGATIVE COVENANTS. Borrower will not, without the prior written
consent of Lender:
6.1 Capital Expenditures. Expend annually for fixed assets, or enter into
leases which must be capitalized under generally accepted accounting
principles, or make leasehold improvements during the following fiscal
years in an aggregate amount in excess of the following amounts:
Fiscal Year ending 12/31/98 and thereafter $500,000
6.2 Liens. Create or permit to exist against any of its property or assets,
real or personal, tangible or intangible, now owned or hereafter
acquired, any mortgage or other lien or encumbrance, except liens and
mortgages listed on Schedule 1 hereto.
6.3 Borrowed Money. Incur other secured indebtedness for borrowed money,
except (a) indebtedness related to the Permitted Encumbrances described
on Schedule 1 hereto and (b) indebtedness from the Lender.
6.4 Sell Fixed Assets. Sell or dispose of a substantial portion of
presently owned fixed assets, such as furniture, fixtures and
equipment.
6.5 Declare Dividends. Declare any dividends or make any other distribution
on any partnership interest or set apart any sum for the payment of any
such dividends or distributions, except that Borrower shall be
permitted to make distributions to its partners in amounts sufficient
to fund its partners' tax obligations based on the income of Borrower.
6.6 Purchase Partnership Interests. Purchase or redeem any of its
partnership interests.
6.7 Purchase Other Business. Purchase or acquire all or substantially all
of the property, assets, or business of any other person, firm or
corporation, except with notification to and the prior written consent
of Lender, which shall not be unreasonably withheld, provided, however,
that Lender's prior written consent shall not be required if (a) after
giving effect to such transaction, such person, firm or corporation
would be a consolidated subsidiary of Borrower, (b) Borrower notifies
Lender prior to the consummation of such transaction, and (c) prior to
the consummation of such transaction, Borrower delivers to Lender
projections demonstrating that, after giving effect to such
transaction, Borrower would be in compliance with Sections 6.16, 6.17,
6.18, 6.19 and 6.20 of this Agreement as of the end of the most recent
fiscal quarter or fiscal year, as applicable.
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6.8 Contingent Debt. Assume, guarantee, endorse, contingently agree to
purchase, or otherwise become liable upon the obligation of any person,
firm, or corporation, except (a) by the endorsement of negotiable
instruments for deposit or collection or similar transactions in the
ordinary course of business or (b) guarantees of any obligations owed
to Lender.
6.9 Purchase Stock; Merger or Consolidate. Enter into any merger or
consolidation, or purchase or acquire the obligations or stock of, or
any other interest in, any person, firm, corporation, or other
enterprise whatsoever, except the purchase of direct obligations of the
United States of America or of any state, county, or municipality, or
except with notification to and the prior written consent of Lender,
which shall not be unreasonably withheld, provided, however, that
Lender's prior written consent shall not be required if (a) after
giving effect to such transaction, such person, firm, corporation or
enterprise would be a consolidated subsidiary of Borrower, (b) Borrower
notifies Lender prior to the consummation of such transaction, and (c)
prior to the consummation of such transaction, Borrower delivers to
Lender projections demonstrating that, after giving effect to such
transaction, Borrower would be in compliance with Sections 6.16, 6.17,
6.18, 6.19 and 6.20 of this Agreement as of the end of the most recent
fiscal quarter or fiscal year, as applicable.
6.10 Sale-Leaseback. Directly or indirectly enter into any arrangement
whereby the Borrower shall sell or transfer all or any substantial part
of its fixed assets then owned by it and shall thereafter or thereupon
rent or lease such property or a substantial part thereof, except with
notification to and the prior written consent of Lender, which shall
not be unreasonably withheld.
6.11 Accounts Receivable. Sell, assign, transfer, or dispose of any of its
Receivables, except with Lender's prior written consent.
6.12 Loans. Make loans or advances to any person, firm, or corporation in
excess of $25,000, except in the ordinary course of Borrower's
business.
6.13 Lease of Real and Personal Property. Enter into any arrangements for
the lease of real or personal property where the annual lease payments
for all such leases would exceed in the aggregate $100,000 in any
fiscal year, other than renewals of leases in existence on the date
hereof.
6.14 Prepay Debt. Make any prepayment in regard to any indebtedness that is
subordinated in any respect to indebtedness owing to Lender, except for
the unsecured trade credit owed by Borrower to Jos. A. Bank Clothiers,
Inc., a Delaware corporation.
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6.15 ERISA Compliance.
a. Engage in any "prohibited transaction" (as such term is
defined in Section 406 or Section 2003(a) of the Employee
Retirement Income Security Act of 1974 and the regulations
thereunder, as now or hereafter in effect, ("ERISA"));
b. Incur any "accumulated funding deficiency" (as such term is
defined in Section 302 of ERISA) whether or not waived; or
c. Terminate any pension plan in a manner which could result in
the imposition of a lien on any property of the Borrower or
any affiliate pursuant to Section 4068 of ERISA.
6.16 Working Capital Ratio. Permit the ratio of Borrower's Current Assets to
Current Liabilities (including the Line of Credit Loans) to be less
than the following as of the following time periods:
Time Period Ratio
----------- -----
June 30, 1998 0.85:1
Sept. 30, 1998 0.85:1
Dec. 31, 1998 0.90:1
Mar. 31, 1999 0.90:1
June 30, 1999 0.95:1
Sept. 30, 1999 0.95:1
Dec. 31, 1999 1.00:1
Mar. 31, 2000 1.05:1
June 30, 2000 1.05:1
Sept. 30, 2000 1.10:1
Dec. 31, 2000 1.10:1
Mar. 31, 2001 1.10:1
June 30, 2001 1.10:1
6.17 Total Liabilities-to-Tangible Net Worth. Permit the ratio of Borrower's
Total Liabilities (less indebtedness subordinated to Lender) to
Tangible Net Worth (partners' equity plus indebtedness subordinated to
Lender) to be greater than the following during the following time
periods:
Time Period Ratio
----------- -----
June 30, 1998 7.70:1
Sept. 30, 1998 6.40:1
Dec. 31, 1998 5.50:1
Mar. 31, 1999 4.90:1
June 30, 1999 4.40:1
Sept. 30, 1999 4.00:1
Dec. 31, 1999 to June 30, 2001 4.00:1
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6.18 Minimum Tangible Net Worth. Permit the Borrower's Tangible Net Worth
(partner's equity plus indebtedness subordinated to Lender), less
Intangible Assets, to fall below the following as of any of the
following dates:
Time Period Amount
----------- ------
June 30, 1998 $2,500,000
Sept. 30, 1998 $2,900,000
Dec. 31, 1998 $3,200,000
Mar. 31, 1999 $3,400,000
June 30, 1999 $3,600,000
Sept. 30, 1999 $3,800,000
Dec. 31, 1999 $4,000,000
Mar. 31, 2000 $4,250,000
June 30, 2000 $4,500,000
Sept. 30, 2000 $4,750,000
Dec. 31, 2000 $5,000,000
Mar. 31, 2001 $5,250,000
June 30, 2001 $5,500,000
6.19 Debt Service Coverage. Permit the ratio of (a) Borrower's income before
payment or allowance for depreciation and amortization, interest or
taxes payable, plus proceeds of long-term debt to (b) the sum of
Borrower's interest expense plus the current maturities of Borrower's
long-term indebtedness, plus capital expenditures, on a fiscal year
basis to be less than:
Time Period Ratio
----------- -----
Fiscal Year End 1998 1.50:1
Fiscal Year End 1999 and thereafter 1.75:1
6.20 Pretax Income. Permit Borrower's Pretax Income, measured on a
cumulative year-to-date basis, tested quarterly and reset each year, to
be less than the following during the following time periods:
Time Period Ratio Period Covered
----------- ----- --------------
June 30, 1998 $ 250,000 two qtrs.
Sept. 30, 1998 $ 600,000 three qtrs.
Dec. 31, 1998 $1,000,000 four qtrs.
March 31, 1999 $ 250,000 one qtr.
June 30, 1999 $ 600,000 two qtrs.
Sept. 30, 1999 $1,000,000 three qtrs.
Dec. 31, 1999 $1,500,000 four qtrs.
Mar. 31, 2000 $ 250,000 one qtr.
June 30, 2000 $ 600,000 two qtrs.
Sept. 30, 2000 $1,000,000 three qtrs.
Dec. 31, 2000 $1,750,000 four qtrs.
Mar. 31, 2001 $ 250,000 one qtr.
June 30, 2001 $ 600,000 two qtrs.
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6.21 Disposal of Hazardous Substances. Suffer, cause or permit the Disposal
of Hazardous Substances in violation of Environmental Laws at any
property owned, leased or operated by it.
SECTION 7. DEFAULT.
7.1 Events of Default. The occurrence of any one or more of the following
events with respect to Borrower shall constitute an Event of Default
under this Agreement:
a. Failure by Borrower to pay any principal or interest or fees
within fifteen (15) days of the date when due and payable
pursuant to this Agreement, any note executed pursuant to this
Agreement, or any other document executed and delivered by
Borrower to Lender in connection with this Agreement, and upon
written notice of delinquency from Lender following such due
date.
b. Default shall be made in (a) the due observance and
performance of any term, covenant, or agreement contained in
this Agreement (other than Section 6 of this Agreement, but
including Sections 6.2, 6.8, and 6.15(a) or (b)) or in any
other present or future agreement, note, or instrument between
Borrower and Lender, including, without limitation, any
default under any Supplemental Agreements and, to the extent
such default is capable of being cured, such default shall
remain uncured for a period of thirty (30) days after the
occurrence of such default, or (b) the due observance and
performance of any term, covenant or agreement contained in
Section 6 (other than Sections 6.2, 6.8, and 6.15(a) or (b))
of this Agreement.
c. Any representation or warranty made in this Agreement or any
certificate or statement furnished pursuant to or in
connection with this Agreement shall prove to have been false
in any material respect at the date of which the facts therein
set forth were certified, or shall have omitted any material
contingent or unliquidated liability or claim against
Borrower, or if upon the date of the execution of this
Agreement there shall have been any material adverse change in
any of the facts disclosed on any such statement, which change
shall not have been disclosed to Lender in writing at or prior
to the time of such execution.
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d. The termination of existence or business of Borrower, or the
making of an assignment for the benefit of creditors by
Borrower.
e. The entry of any judgment or judgments against Borrower
aggregating as to any one of them at any one time in excess of
$150,000 which shall remain unsatisfied, undischarged, or
unsecured for a period of thirty (30) days or as to which a
stay of execution shall not have been obtained within ten (10)
days of the entry thereof.
f. If any governmental agency or department shall take control of
a substantial part of the property of Borrower.
g. If any tax lien is filed against the property of Borrower,
except for taxes or assessments or other governmental charges
not then due and payable or which are contested in good faith
by Borrower and for which Borrower has set aside adequate
reserves.
h. Failure by Borrower to generally pay its debts as such debts
become due, unless the delinquent payment of a particular debt
is consistent with Borrower's prior custom and practice and
does not otherwise result in or contribute to a covenant
violation or other Event of Default under this Agreement.
i. [Intentionally omitted].
j. If Borrower (i) shall file a petition or request for
liquidation, reorganization, arrangement, adjudication as a
bankrupt, relief as a debtor or other relief under the
bankruptcy, insolvency or similar laws of the United States of
America or any state or territory thereof or any foreign
jurisdiction, now or hereafter in effect; (ii) shall make a
general assignment for the benefit of creditors; (iii) shall
consent to the appointment of a receiver or trustee for
Borrower or any of its assets, including, without limitation,
the appointment of or taking possession by a "custodian" as
defined in the federal Bankruptcy Code; (iv) make any, or send
notice of any intended, bulk sale; or (v) shall execute a
consent to any other type of insolvency proceeding (under the
federal Bankruptcy Code or otherwise) or any formal or
informal proceeding for the dissolution or liquidation of, or
settlement of claims against or winding up of affairs of,
Borrower.
k. The appointment of a receiver, trustee, custodian or officer
performing similar functions for Borrower, including, without
limitation, the appointment of or taking possession by a
"custodian" as defined in the federal Bankruptcy Code; or the
filing against Borrower of a request or petition for
liquidation, reorganization, arrangement, adjudication as a
bankrupt or other relief under the bankruptcy, insolvency or
similar laws of the United States of America or any state or
territory thereof or any foreign jurisdiction, now or
hereafter in effect; or the institution against Borrower of
any other type of insolvency (under the federal Bankruptcy
Code or otherwise) or of any formal or informal proceeding for
the dissolution or liquidation of, settlement of claims
against or winding up of affairs of Borrower of payment of the
Obligations, and the failure to have such appointment vacated
or such petition or proceeding dismissed within thirty (30)
days after such appointment, filing or institution.
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1. If all, or a controlling interest of, the partnership
interests of the Borrower shall be sold, assigned, or
otherwise transferred, whether pursuant to a security
agreement or pledge agreement or otherwise.
7.2 Effects of an Event of Default.
a. Upon the happening of one or more Events of Default (except a
default under either Section 7.1(j) or 7.1(k) hereof), Lender
may declare any obligations it may have hereunder to be
canceled and the principal of Loans then outstanding to be
immediately due and payable, together with all interest
thereon and fees and expenses accruing under this Agreement.
Upon such declaration, any obligations Lender may have
hereunder shall be immediately canceled and Loans then
outstanding shall become immediately due and payable without
presentation, demand or further notice of any kind to
Borrower.
b. Upon the happening of one or more Events of Default under
Section 7.1(j) or 7.1(k) hereof, Lender's obligations
hereunder shall be canceled immediately, automatically and
without notice, and the Loans then outstanding shall become
immediately due and payable without presentation demand or
notice of any kind to Borrower.
7.3 Rights of Lender. Upon the occurrence of an Event of Default under
Section 7.1 hereof: (a) Lender shall have, in addition to all other
rights provided herein, the rights and remedies of a secured party
under the New York Uniform Commercial Code; and (b) Lender may sell and
deliver any or all Receivables and any or all other security and
Collateral held by Lender or for Lender at public or private sale, for
cash, upon credit or otherwise; and (c) in addition to all other sums
due Lender, Borrower will pay to Lender upon demand all costs and
expenses incurred by Lender, including attorneys' fees and expenses, to
obtain or enforce payment of Receivables or obligations, or in the
prosecution or defense of any action or proceeding either against
Lender or against Borrower concerning any matter arising out of or
connected with this Agreement or the Collateral or obligations and all
Supplemental Agreements, if any, or otherwise due pursuant to the terms
of this Agreement. Any requirement of reasonable notice shall be met if
such notice is mailed postage prepaid to Borrower at Borrower's address
as set forth herein at least five (5) days before the time of sale or
other disposition. Lender may be the purchaser at any such sale, if it
is public, and, in the event Lender is the purchaser, Lender shall have
all the rights of a good faith, bona fide purchaser for value from a
secured party after default. The proceeds of sale shall be applied
first to all costs and expenses of sale, including actual attorneys'
fees and expenses, and second to the payment (in whatever order Lender
elects) of all Obligations, and any remaining proceeds shall be applied
in accordance with the provisions of Part 5 of Article 9 of the New
York Uniform Commercial Code. Borrower shall remain liable to Lender
for any deficiency. Failure by Lender to exercise any right, remedy or
option under this Agreement or any present or future Supplemental
Agreement or in any other agreement between Borrower and Lender, or
delay by Lender in exercising the same will not operate as a waiver. No
waiver by Lender will be effective unless it is in writing and then
only to the extent specifically stated. Neither Lender nor any party
acting as Lender's attorney pursuant to Section 2.15 hereof shall be
liable for any good faith error of judgment or mistake of fact or law.
Lender's rights and remedies under this Agreement will be cumulative
and not exclusive of any other right or remedy which Lender may have.
29
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SECTION 8. OTHER PROVISIONS
8.1 Lease of Ledgers. For good and valuable consideration, Borrower hereby
leases to Lender and Lender hereby hires from Borrower, for a term
which shall last as long as there shall be any present or future
indebtedness or obligations of whatever nature owing from Borrower to
Lender, all of Borrower's books of account, ledgers and cabinets in
which there are reflected or maintained the Collateral, and all
supporting evidence and documents relating thereto in the form of
written applications, credit information, account cards, payment
records, correspondence, delivery and installation certificates,
invoice copies, delivery receipts, notes and other evidences of
indebtedness, insurance certificates and the like. Lender and its
representatives shall at all reasonable times during normal business
hours have and be entitled to free and undisturbed access to such books
of account, ledgers and cabinets and may examine and audit the contents
thereof and take excerpts therefrom. All additional books of account,
ledgers and cabinets in which there may hereafter be reflected or
maintained assigned Collateral and supporting evidence or documents
pertaining thereto shall also and without further act be subject to the
provisions of this paragraph.
8.2 Notices. All notices, requests and demands to or upon the respective
parties hereto to be effective shall be in writing and, unless
otherwise expressly provided herein, shall be deemed to have been duly
given or made when delivered by hand or, if sent by facsimile, upon
confirmed receipt thereof, or one (1) business day after being
delivered to a courier for overnight delivery, or five (5) business
days after being deposited in the mail, certified mail with return
receipt requested, addressed to the addresses set forth in the preamble
to this Agreement, or to such other address as may be hereafter
notified by the respective parties hereto.
8.3 Setoff. All sums at any time standing to Borrower's credit on Lender's
books and all of Borrower's property at any time in Lender's
possession, or upon or in which Lender has a lien or security interest
shall be security for all Obligations. In addition to and not in
limitation of the above, with respect to any deposits or property of
Borrower in Lender's possession or control, now or in the future,
Lender shall have the right after default and demand hereunder to
setoff all or any portion thereof, at any time, against any Obligations
hereunder, without prior notice or demand to Borrower.
30
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8.4 Counsel Fees and Expenses. Borrower agrees to pay all counsel fees and
expenses, including recording and filing fees, incurred by Lender in
connection with the financing evidenced by this Agreement as well as
any fees and expenses of counsel which Lender may hereafter incur in
protecting, enforcing, increasing or releasing any security held by
Lender.
8.5 Further Assurance. Borrower agrees that any time, or from time to time,
upon the written request of Lender, Borrower will execute and deliver
such further documents and do such other acts and things as Lender may
reasonably request in order to fully effect the purposes of this
Agreement and the Supplemental Agreements.
8.6 Construction. This Agreement and the Supplemental Agreements may not
be amended orally.
8.7 Successors. All rights of Lender hereunder shall inure to the benefit
of its successors and assigns, and all Obligations of Borrower shall
bind the successors and assigns of Borrower.
8.8 [Intentionally omitted].
8.9 Payments. The acceptance of any check, draft or money order rendered in
full or partial payment of any obligation hereunder is conditioned upon
and subject to the receipt of final payment in cash.
8.10 Exhibits and Schedules. All exhibits and schedules referred to herein
and annexed hereto are hereby incorporated into this Agreement and made
a part hereof.
8.11 Governing Law. This Agreement shall be governed and construed in
accordance with the internal laws of the State of New York, without
regard to principles of conflicts of law.
8.12 Environmental Indemnification. Borrower agrees to indemnify, defend,
and hold harmless Lender from and against any and all liabilities,
claims, damages, penalties, expenditures, losses, or charges,
including, but not limited to, all costs of investigation, monitoring,
legal representation, remedial response, removal, restoration or permit
acquisition, which may now or in the future be undertaken, suffered,
paid, awarded, assessed, or otherwise incurred by Lender or any other
person or entity as a result of the presence of, Release of or
threatened Release or Hazardous Substances on, in, under the property
owned or operated by Borrower. The liability of Borrower under the
covenants of this Section is not limited by any exculpatory provisions
in this Agreement or any other Supplemental Documents and shall survive
repayment of the Documents and shall survive repayment of the
obligations or any transfer or termination of this Agreement regardless
of the means of such transfer or termination.
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8.13 WAIVER OF RIGHT TO TRIAL BY JURY. BORROWER AND LENDER HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR
NATURE IN ANY COURT IN WHICH AN ACTION MAY BE COMMENCED ARISING OUT OF
THIS AGREEMENT, THE COLLATERAL AND SUPPLEMENTAL AGREEMENTS OR ANY
ASSIGNMENT THEREOF OR BY REASON OF ANY OTHER CAUSE OF DISPUTE BETWEEN
BORROWER AND LENDER.
8.14 CONSENT TO JURISDICTION. BORROWER AND LENDER AGREE THAT ANY ACTION OR
PROCEEDING TO ENFORCE, OR ARISING OUT OF, THIS AGREEMENT OR ANY
DOCUMENT EXECUTED IN CONNECTION HEREWITH, MAY BE COMMENCED IN NEW YORK
STATE IN ONONDAGA COUNTY, OR IN THE UNITED STATES DISTRICT COURT FOR
THE NORTHERN DISTRICT OF NEW YORK, AND BORROWER WAIVES PERSONAL SERVICE
OF PROCESS AND AGREES THAT A SUMMONS AND COMPLAINT COMMENCING AN ACTION
OR PROCEEDING IN ANY SUCH COURT SHALL BE PROPERLY SERVED AND SHALL
CONFER PERSONAL JURISDICTION IF SERVED BY REGISTERED OR CERTIFIED MAIL
TO BORROWER, OR AS OTHERWISE PROVIDED BY THE LAWS OF NEW YORK STATE OR
THE UNITED STATES.
32
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed and delivered by the proper and duly authorized officers as of
the 19th day of June, 1998.
MS PIETRAFESA, L.P.
By: MS Pietrafesa Acquisition Corporation,
its sole general partner
By: /s/ Ross Stefano
-----------------------
NATIONAL BANK OF CANADA
By: /s/ Robert G. Uhrig
-----------------------
and
By: /s/ Michael S. Woodard
------------------------
33
<PAGE>
SCHEDULE 1
PERMITTED ENCUMBRANCES
1. Memorandum of Lease Agreement made by and between MS Pietrafesa, L.P.,
"Company", and Onondaga County Industrial Development Agency, "Agency",
dated October 1, 1994, and recorded December 28, 1994, in the Onondaga
County Clerk's Office in Book 3974 of Deeds at page 320;
2. Memorandum of Lease Agreement made by and between Onondaga County
Industrial Development Agency, "Agency", and MS Pietrafesa, L.P.,
"Company", dated October 1, 1994, and recorded December 28, 1994, in
the Onondaga County Clerk's Office in Book 3974 of Deeds at page 324&c;
3. Direct Mortgage in the original principal amount of $520,000 by MS
Pietrafesa, L.P. to New York State Urban Development Corporation d/b/a
Empire State Development Corporation, dated as of November 22, 1995;
4. Liens for taxes or assessments or other governmental charges not yet
due and payable or which are being contested in good faith or for which
adequate reserves have been set aside;
5. Pledges or deposits of money securing obligations under workers'
compensation, unemployment insurance, social security, or public
liability laws or similar legislation (excluding liens under ERISA);
6. Leases of equipment, to the extent deemed financing instruments and not
true leases;
7. Banker's liens, rights of set-off, and similar liens incurred on
deposits made in the ordinary course of business;
8. Workers', mechanics' or similar liens arising in the ordinary course of
business;
9. Unperfected carriers', warehousemen's, suppliers' or other similar
possessory liens arising in the ordinary course of business;
10. Deposits securing, or in lieu of, surety, appeal or custom bonds in
proceedings to which Borrower is a party;
11. Any attachment or judgment lien not constituting an Event of Default;
A-1
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12. Zoning restrictions, utility access and other easements and rights of
way, licenses, or other restrictions on the use of any real property
interest or other insurable exceptions and minor defects and
irregularities in title (including leasehold title) thereto;
13. Presently existing or hereinafter created liens in favor of Lender.
A-2
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EXHIBIT 10.5
THIS LEASE AGREEMENT is dated as of October 1, 1994, by and between the
ONONDAGA COUNTY INDUSTRIAL DEVELOPMENT AGENCY, a public benefit corporation
established and existing under the laws of the State of New York having its
principal office at Onondaga County Civic Center, 14th floor, 421 Montgomery
Street, Syracuse, New York 13202 (the "Agency") and MS PIETRAFESA, L.P., a
Delaware limited partnership having offices at 7400 Morgan Road, Liverpool, New
York 13090 (the "Company").
RECITALS:
WHEREAS, the Agency is authorized and empowered under the Act (as
defined in Article I below) to promote, develop, encourage and assist in the
acquiring, constructing, renovating, reconstructing, improving, maintaining,
equipping and furnishing of industrial, manufacturing, warehousing, commercial,
research, civic and recreation facilities, for the purpose of promoting,
attracting, encouraging and developing economically sound commerce and industry
in order to advance the job opportunities, health, General prosperity and
economic welfare of the people of the State and to prevent unemployment and
economic deterioration; and
WHEREAS, the Agency, has determined to undertake a project (the
"Project") consisting of (A)(1) the Agency's leasing from the Company of two
parcels of land located at 7400 Morgan Road, Liverpool, New York as more
particularly described in Exhibit A (the "Land") together with an approximately
135,000 square foot manufacturing and distribution facility (the "Existing
Facility"), (2) the construction of an approximately 5,000 square foot addition
(the "Addition") to the Existing Facility, and (3) the acquisition of and
installation in the Existing Facility and the Addition of certain equipment (the
"Equipment") (the Land, the Existing Facility, the Addition., and the Equipment
are referrer to collectively as the "Project Facility") and (B) the sublease of
the Project Facility to the Company; and
WHEREAS, pursuant to SEQRA and the regulations promulgated thereunder,
the Agency has made a determination that the Project will not have a significant
impact on the environment and therefore does not require the preparation of an
environmental impact statement; and
WHEREAS, the Agency proposes to lease the Project Facility to the
Company and the Company desires to rent the Project Facility from the Agency
upon the terms and conditions set forth in this Lease Agreement.
NOW, THEREFORE, the parties, intending to be legally bound, hereby
agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. The following defined words and terms, as
indicated by the capitalization of the first letter of such terms, shall have
the following meanings unless the context or use clearly indicate another or
different meaning:
"Act" means Title 1 of Article 18-A of the General Municipal Law of the
State enacted into law as Chapter 1030 of the Laws of 1969 of the State, as
amended, together with Chapter 435 of the Laws of 1970 of the State, as amended.
"Addition" means the approximately 5,000 square foot addition to the
Existing Facility.
"Agency" means (i) Onondaga County Industrial Development Agency, a
public benefit corporation duly established and existing under the laws of the
State of New York, and its successors and assigns, and (ii) any public benefit
corporation or political subdivision resulting from or surviving any
consolidation or merger to which the Agency or its successors or assigns may be
a party.
"Authorized Representative" means: in the case of the Agency, its
Chairman, Vice Chairman or Secretary; in the case of the Company, its President,
any Vice President or Secretary; and, in the case of both, such additional
persons as, at the time, are designated to act on behalf of the Agency or the
Company, as the case may be, by written certificate containing the specimen
signature of each such person and signed on behalf of (i) the Agency by its
Chairman, Vice Chairman or Secretary, or (ii) the company by its President, any
Vice President or Secretary.
"Closing Date" means the date of the execution and delivery of this
Lease Agreement.
"Company" means MS Pietrafesa, L.P., a Delaware limited partnership.
"Condemnation" means the taking of title to, or the use of, Property
under the exercise of the power of eminent domain by any governmental entity or
other person acting under governmental authority.
"Event of Default" or "Default" means any of those events defined as
Events of Default by Section 10.1 of this Lease Agreement.
"Existing Facility" means the approximate 85,000 square foot
manufacturing and distribution facility located at 7400 Morgan Road, Liverpool,
New York.
"Facility" means the Existing Facility and the Addition.
2
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"Hazardous Materials" means, without limitation, any flammable
explosives, radon, radioactive materials, asbestos, urea formaldehyde foam
insulations, polychlorinated biphenyls, petroleum and petroleum products,
methane, hazardous materials, hazardous or toxic substances or related materials
defined in the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended (42 U.S.C. Sections 9601 et seq., the Hazardous
Materials Transportation Act, as amended (49 U.S.C. Sections 1801 et seq.), the
Resource Conservation and Recovery Act, amended (42 U.S.C. Sections 6901 et
seq.), the New York State Environmental Conservation Law or any other applicable
Environmental Law and in the regulations adopted pursuant thereto.
"Labor Law" means Section 220 of the Labor Law of the State, as amended
from time to time.
"Land" means the real estate leased pursuant to the Lease Agreement and
more particularly described on Exhibit A attached hereto.
"Lease" or "Lease Agreement" means this Lease Agreement, dated as or
June 1, 1994 by and between Agency and the Company, as the same may be amended
from time to time.
"Lease Term" means the term of the leasehold estate created by the
Lease Agreement as described in Section 5.2(b) thereof.
"Lender" means Fleet Bank, a New York bank and Trust company (as
successor to Norstar Bank, N.A.), and its successors and assigns.
"Lien" means any interest in Property securing an obligation owed to a
Person whether such interest is based on the common law, statute or contract,
and, including but not limited to, a security interest arising from a mortgage,
encumbrance, pledge, conditional sale or trust receipt or a lease, consignment
or bailment for security purposes. The term "Lien" includes reservations,
exceptions, encroachments, easements, right-of-way, covenants, conditions,
restrictions, leases and other similar title exceptions and encumbrance,
including, but not limited to, mechanics', materialmen's, warehousemen's,
carriers' and other similar encumbrances affecting real property. For the
purposes hereof, a Person shall deemed to be the owner any Property which it has
acquired or holds subject to the conditional sale agreement pursuant to which
title to the Property has been retained by or vested in some other Person for
security purposes.
"Net Proceeds" means so much of the gross proceeds with respect to
which that term is used as remain after payment of all expenses, costs and taxes
(including attorneys' fees) incurred in obtaining such gross proceeds.
"Permitted Encumbrances" means (1) the Lease Agreement and any Space
Lease, (ii) mechanics', materialmen's, warehousemen's, carriers' and other
similar Liens to the extent permitted by Section 8.10 of this Lease Agreement,
(iii) Liens for taxes at the time not delinquent, (iv) utility easements; and
(v) Liens held by the Lender.
"Person" means a government or agency or political subdivision thereof,
an individual, a partnership, a corporation, a trust or an unincorporated
organization.
3
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"Petition" means a petition in bankruptcy (or the commencement of a
proceeding under any other applicable insolvency, reorganization, bankruptcy or
similar law) filed by or against the Agency or the Company under any applicable
bankruptcy, insolvency or similar law now or hereafter in effect.
"PILOT Agreement" means the Payment in Lieu of Tax Agreement dated as
of June 1, 1994 between the Company and the Agency.
"Prime Lease" means that certain Lease dated as of August 1, 1994
between the Company, as Lessor, and the Agency, as Lessee.
"Project Facility" means the Land and the Facility.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"SEQRA" means the State Environmental Quality Review Act and the
regulation thereunder.
"State" means the State of New York.
"Unassigned Rights" means (a) the rights of the Agency granted pursuant
to Sections 2.2, 2.3, 2.4, 4.1, 5.2, 5.3, 6.1, 6.2, 6.3, 6.4, 6.5, 6.8, 7.1,
7.2, 8.1, 8.2, 8.3, 8.4, 8.5, 8.7, 8.8, 9.1. 11.1, 11.2, and 12.9 of the Lease,
(b) the moneys due and to become due to the Agency for its own account or the
members, officer, agents and employees of the Agency for their own account
pursuant to this Lease, and (d) the right to enforce the foregoing pursuant to
Article X of this Lease.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Covenants of the Agency. The Agency
makes the following representations and covenants as the basis for the
undertakings on its part herein contained:
(a) The Agency is duly established and validly existing under
the provisions of the Act, has the power and authority to enter into the
transactions contemplated by this Lease Agreement and to carry out its
obligations hereunder and has been duly authorized to execute and deliver this
Lease Agreement. Based upon the representations of the Company as to the
proposed utilization of the Facility, the Facility will be of a character
included in the definition of a "project" in the Act. By proper official action,
the Agency has been duly authorized to execute and deliver this Lease Agreement.
(b) The Agency owns, or will hold a leasehold interest in, the
Land, the Facility and the Equipment and will lease the Land, Facility and the
Equipment to the Company pursuant to this Lease Agreement, all for the public
purposes of the State.
4
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(c) Neither the execution and delivery of this Lease
Agreement, the consummation of the transactions contemplated hereby nor the
fulfillment of or compliance with the provisions of this Lease Agreement will
conflict with or result in a breach of any of the terms, conditions or
provisions of the Act, any other law or ordinance of the State or any political
subdivision thereof or of any corporate restriction or by-law of the Agency or
any agreement or instrument to which the Agency is a party or by which it is
bound, or will constitute a default under any of the foregoing, or result in the
creation or imposition of any Lien of any nature upon any of the property or
assets of the Agency under the terms of any such instrument or agreement, except
for this Lease Agreement.
(d) By resolution adopted on April 28, 1994 the Agency
determined that the acquisition, construction, and equipping of the Facility by
the Agency and the lease of the Project Facility to the Company would not have a
significant effect on the environment within the meaning of SEQRA.
Section 2.2 Representations or the Company. The Company makes the
following representations as the basis for the undertakings on its part herein
contained:
(a) The Company is a limited partnership duly formed under the
laws of the State of Delaware; has power to enter into this Lease Agreement; and
by proper action has been duly authorized to execute and deliver this Lease
Agreement which, when executed, will constitute a valid and binding obligation
of the Company enforceable in accordance with its terms.
(b) Neither the execution and delivery of this Lease
Agreement, the consummation of the transactions contemplated hereby nor the
fulfillment of or compliance with the provisions of this Lease Agreement will
conflict with or result in a breach of or constitute a default under any of the
terms, conditions or provisions of any restriction in the Company's Partnership
Agreement or any agreement or instrument to which the Company is a party or by
which the Company is bound or will constitute a default under any of the
foregoing, or result in the creation or imposition of any Lien of any rapture
upon any instrument or agreement. No consent or approval is required to be
obtained from, and no action needs to be taken by, or document filed with, any
Person or Governmental Body in connection with the execution, delivery and
performance of this Lease Agreement, or any agreement to which the Company is or
is to be a party, or, if any such action is required, the same has been duly
taken, is in full force and effect and constitutes valid and sufficient
authorization therefor.
(c) The providing of the Facility by the Agency and the
leasing thereof by the Agency to the Company (i) will increase employment
opportunities and promote the welfare of the inhabitants of the State, and (ii)
will not result in the removal of a plant, facility or other commercial activity
of the Company from one area of the State to another area of the State nor
result in the abandonment of one or more plants or facilities of the Company
located within the State.
5
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(d) There is no proceeding pending, or to the knowledge of the
Company threatened, against or affecting the Company in any court or before any
board which involves the possibility of adversely affecting the Facility or
condition (financial or otherwise) of the Company, or the ability of the Company
to execute, deliver or perform this Lease Agreement. The Company is not in
default with respect to any order of any court, governmental authority or
arbitration board or tribunal.
(e) The acquisition, construction and equipping of the
Facility will not have a significant effect on the "environment" (as that term
is defined in Article 8 of the Environmental Conservation Law of the State of
New York).
Section 2.3 Covenants of the Company. The Company makes the following
covenants as a basis for the undertaking on its part herein contained which
representations and covenants shall survive the termination of this Lease
Agreement:
(a) The Company will operate the Facility as a "project," as
such term is defined in the Act.
(b) The Company will operate the Facility in compliance with
all applicable zoning, planning, building and environmental laws and regulations
of governmental authorities having jurisdiction over the Facility. The Company
shall defend, indemnify and hold the Agency harmless from any liability or
expense resulting from any failure by the Company to comply with the provisions
of this subsection (b). Notwithstanding the provisions of this paragraph, the
Company may in good faith contest the validity or the applicability of any
requirement of the nature referred to in this paragraph; provided, however, the
Company shall have first notified the Agency of the contest; and provided
further, however, that, during such contest, enforcement of any contested item
is effectively stayed so that no part of the Facility is subject to loss or
forfeiture.
(c) This Lease Agreement constitutes a legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms.
(d) The Company shall perform or cause to be performed, for
and on behalf of the Agency, each and every obligation of the Agency under the
Ground Lease and shall defend, indemnify and hold harmless the Agency and its
members, officers, agents, servants and employees from and against every
expense, liability or claim arising out of the failure of the Company to fulfill
its obligations under the provisions of this subsection (d).
Section 2.4 Hazardous Wastes.
(a) The Company represents, warrants and covenants that the
Company has not used Hazardous Materials on, from, or affecting the Project
Facility in any manner which violates Federal, state or local laws, ordinances,
rules, regulations, or policies on governing the use, storage, treatment,
transportation, manufacture, refinement, handling, production or disposal of
Hazardous Materials, and that, to the best of the Company's knowledge, no prior
owner of the Project Facility or any tenant, subtenant, prior tenant or prior
subtenant has used Hazardous Materials on, from, or affecting the Project
Facility in any manner which violates Federal, state or local laws, ordinances,
rules, regulations, or policies governing the use, storage, treatment,
transportation, manufacture, refinement, handling, production or disposal of
Hazardous Materials.
6
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(b) The Company shall keep or cause the Project Facility to be
kept free of Hazardous Materials. Without limiting the foregoing, the Company
shall not cause or permit the Project Facility to be used to generate,
manufacture refine, transport, treat, store, handle, dispose, transfer, produce
or process Hazard Materials, except in compliance with all applicable Federal,
state and local laws or regulations, nor shall the Company cause or permit, as a
result of any intentional or unintentional act or omission on the part of the
Company, or any tenant or subtenant, a release of Hazardous Materials onto the
Project Facility or onto any other property.
(c) The Company shall comply with, and ensure compliance by
all tenants and subtenants with, all applicable Federal, state and local laws,
ordinances, rules and regulations regarding Hazardous Materials whenever and by
whomever triggered, and shall obtain and comply with, and ensure that all
tenants and subtenants obtain and comply with, any and all approvals,
registrations or permits required thereunder.
(d) The Company shall (1) conduct and complete all
investigations, studies, sampling and testing, and all remedial, removal and
other actions necessary to clean up and remove all Hazardous Materials, on, from
or affecting the Project Facility (i) in accordance with all applicable Federal,
state and local laws, ordinances, rules, regulations and policies, and (ii) in
accordance with the orders and directives of all Federal, state and local
governmental authorities and (2) defend, indemnify, and hold harmless the
Agency, its employees, agents, officers and members from and against any claims,
demands, penalties, fines, liabilities, settlements, damages, costs or expenses
of whatever kind or nature, known or unknown, contingent or otherwise, out of,
or in any way related to, (i) the presence, disposal, release or threatened
release of any Hazardous Materials which are on, from or affecting soil, water,
vegetation, buildings, personal property, persons, animals or otherwise, (ii)
any personal injury (including wrongful death) or property damage (real or
personal) arising out of or related to such Hazardous Materials, (iii) any
lawsuit brought or threatened, settlement reached, or any government order
relating to Hazardous Materials, and/or (iv) any violations of laws, order,
regulations, requirements or demands of government authorities which are based
upon or in any way related to Hazardous Materials, including without limitation,
attorney and consultant fees, investigation and laboratory fees, court Costs,
and litigation expenses.
ARTICLE III
TITLE TO FACILITY
Section 3.1 Agreement to Convey to Agency. The Company has conveyed, or
will cause to be conveyed, to the Agency, lien-free title to the Equipment and
will grant the Agency a leasehold interest in the Land and the Existing Facility
pursuant to the Prime Lease. The Company agrees that it will defend, indemnify
and hold the Agency harmless from any expenses incurred by the Agency in
defending any action respecting title to or a Lien affecting the Facility,
unless such Lien is consented to by the Agency.
Section 3.2 Use of Project Facility. Subsequent to the Closing Date,
the Company shall be entitled to use the Project Facility in any manner,
provided such use causes the Project Facility to qualify or continue to qualify
as a "project" under the Act and does not tend, in the reasonable judgment of
the Agency, to bring the Project Facility into disrepute as a public project.
7
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ARTICLE IV
CONSTRUCTION AND EQUIPPING OF PROJECT FACILITY
Section 4.1 Construction and Equipping of Project Facility.
(a) The Company agrees that, on behalf of the Agency, it will
construct and equip the Addition.
(b) Title to all materials, and other items of Property
intended to be incorporated in the Addition shall vest in the Agency immediately
upon acquisition by the Company. The Company shall execute, deliver and record
or file all instruments necessary or appropriate to vest title in the Agency and
shall take all action necessary or appropriate to protect the title against
claims of any third Persons.
(c) The Agency shall enter into, and accept the assignment of,
contracts as requested by the Company in order to effectuate the purposes of
this Section; provided, however, that the liability of the Agency thereunder
shall be limited in the manner set forth in Section 8.11 hereof.
(d) The Agency hereby reaffirms its appointment of the Company
as its true and lawful agent, and the Company hereby reaffirms that it accepts
such agency, to (i) construct and equip the Addition; (ii) make, execute,
acknowledge and deliver any contracts, orders, receipts, writings and
instructions with any other Persons and, in general, to do all things which may
be requisite or proper, all for completing the Project Facility with the same
powers and with the same validity as the Agency could do if acting on its own
behalf, (iii) pay all fees, costs and expenses incurred in connection with
construction and equipping of the Addition and (iv) ask, demand, sue for, levy,
recover and receive all sums or money, debts, dues and other demands whatsoever
which may be due, owing and payable to the Agency under the terms of any
contract, order, receipt or writing in connection with the Project Facility, and
enforce the provisions of any contract, agreement, obligation, bond or other
performance security relative thereto.
(e) The Company, as agent for the Agency, has complied with or
shall comply with all applicable provisions of the Labor Law with respect to the
acquisition, construction and equipping of the Facility. The Company will defend
and indemnify the Agency from every expense, including reasonable attorneys
fees, claim, judgment or liability suffered by the Agency arising out of any
claim of the failure of the Company to comply with the terms of this subsection,
whether or not any such claim is well-founded, provided, however, so long as no
Event of Default or Default shall have occurred and is continuing, the Agency
may not settle any claim without the written consent of the Company.
Section 4.2 Remedies to be Pursued Against Contractors and
Subcontractors and their Sureties. In the event of default of any contractor or
other Person or Subcontractor under any contract made by it in connection with
the Project Facility or in the event of a breach of warranty or other liability
with respect to any materials, workmanship or performance guaranty, the Company,
at its expense, either separately or in conjunction with others, may pursue any
and all remedies of the Company and the Agency, as appropriate, against the
contractor, subcontractor, manufacturer, supplier or other Person so in default
and against such surety for the performance of such contract. The Company, in
its own name or in the name of the Agency, upon prior written notice and with
such instructions as the Agency may impose, may prosecute or defend any action
or proceeding or take any other action involving any such contractor,
subcontractor, manufacturer, supplier, surety or other Person which the Company
deems reasonably necessary and, in such event, the Agency, at the Company's
expense, hereby agrees to cooperate fully with the Company, and to take all
action necessary to effect the substitution of the Company for the Agency in any
such action or proceeding.
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ARTICLE V
LEASE OF THE PROJECT FACILITY TO THE COMPANY
Section 5.1 Lease of Project Facility. The Agency hereby leases the
Project Facility to the Company, and the Company hereby hires and takes the
Project Facility from the Agency, upon the terms and conditions of this Lease
Agreement.
Section 5.2 Duration of the Lease Term; Quiet Enjoyment.
(a) The Agency shall deliver to the Company sole and exclusive
possession of the Project Facility on the Closing Date, and the Company shall
accept possession of the Project Facility on the Closing Date.
(b) The leasehold estate created hereby shall terminate
December 31, 2005, or on such earlier date as may be permitted by Section 11.1
hereof.
(c) The Agency convenants with the Company so long as the
Company observes and performs the terms and conditions on the Company's part to
be performed under this Lease Agreement, the Agency shall neither take nor
suffer or permit any action, other than pursuant to Article X of this Lease
Agreement, to prevent the Company from having quiet and peaceable possession and
enjoyment of the Project Facility during the Lease Term and will, at the request
of the Company and at the Company's cost, cooperate with the Company in order
that the Company may have quiet and peaceable possession and enjoyment of the
Project Facility as hereinabove provided.
Section 5.3 Rents and Other Amounts Payable.
(a) The Company shall pay basic rent to the Agency for the
Facility as follows: One Dollar ($1.00) per year during the course of the Lease
Term, payable on the Closing Date for the first year and on the anniversary of
the Closing Date in each year of the Lease Term thereafter.
(b) In addition to the payments of rent pursuant to Section
5.3(a) hereof, throughout the Lease Term, the Company shall pay to the Agency as
additional rent, within fifteen (15) days of the receipt by the Company of
written demand therefor from the Agency, an amount equal to the sum of the
reasonable expenses of the Agency and the members thereof incurred (i) by reason
of the Agency's leasing of or interest in the Project Facility and (ii) in
connection with the carrying out of the Agency's duties and obligations under
this Lease Agreement, the payment of which is not otherwise provided for under
this Lease Agreement. The Agency acknowledges that it will not charge any annual
or continuing administrative or management fee beyond the initial fee, which is
payable at Closing, charged by the Agency.
(c) The Company, under the provisions of subsections 5.3(a)
and (b) above, agrees to make the above mentioned payments in immediately
available funds and without any further notice in lawful money of the United
States of America as, at the time of payment, shall be legal tender for the
payment of public and private debts.
Section 5.4 Obligations of Company Hereunder Unconditional.
(a) The obligations of the Company to make the payments
required in Section 5.3 hereof and to perform and observe any and all of the
other covenants and agreements on its part contained in this Lease Agreement
shall be a general obligation of the Company, and shall be absolute and
unconditional irrespective of any defense or any rights of setoff, recoupment or
counterclaim it may otherwise have against the Agency.
(b) Subject to the foregoing provisions, nothing contained in
this Section 5.4 shall be construed to release the Agency from the performance
of any of the agreements on its part contained in this Lease Agreement or to
affect the right of the Company to seek reimbursement, and the Agency convenants
that it will not, subject to the provisions of Section 8.2, take, suffer or
permit any action which will adversely affect, or create any defect in its title
to, the Project Facility or which will otherwise adversely affect the rights or
estate of the Company hereunder, except upon written consent of the Company.
Section 5.5 Further Assurances and Corrective Instruments. The Agency
and the Company agree that they will, from time to time, execute, acknowledge
and deliver, or cause to be executed, acknowledged and delivered, such
supplements hereto and such further instruments as may be reasonably required
for carrying out the intention of or facilitating the performance of this Lease
Agreement.
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ARTICLE VI
MAINTENANCE, MODIFICATIONS, TAXES AND INSURANCE
Section 6.1 Maintenance and Modifications of Facility by Company .
(a) The Company agrees that, during the Lease Term, it will
(i) keep the Facility in a reasonably safe condition; (ii) make all necessary
repairs and replacements to the Facility (whether ordinary or extraordinary,
structural or nonstructural, foreseen or unforeseen); and (iii) indemnify and
hold the Agency harmless from any liability or expenses (including reasonable
attorneys' fees) from the failure by the Company to comply with (i) or (ii)
above.
(b) So long as title to the Facility shall be held by the
Agency, the Company may, with the prior written consent of the Agency, make
structural additions, modifications or improvements to the Facility or any part
thereof which it may deem desirable for its business purposes, provided such
actions do not affect the structural integrity of the Facility and do not change
the use of the Facility from that described in this Lease Agreement. The
Agency's consent with respect to any structural addition or improvement may be
subject to such reasonable conditions as the Agency may deem appropriate,
including, without limitation, requirements (i) that the provisions of SEQRA be
satisfied with respect to such addition or improvement, (ii) that the Agency be
furnished with an agreement by the Company satisfactory to the Agency requiring
the Company to make payments in lieu of taxes with respect to such addition or
improvement, and (iii) that the Facility shall remain a "project" under the Act.
All structural additions, modifications or improvements made by the Company
shall be done in reasonable and workmanlike manner and shall become part of the
Project Facility.
Section 6.2 Acquisition and Installation of Additional Land and
Equipment. The Company may, from time to time, acquire land and install
additional equipment or other personal property in the Project Facility (which
may be attached or affixed to the Project Facility), and such land, equipment or
other personal property shall not become a part of the Project Facility. The
Company may, from time to time, remove or permit the removal of any such land,
additional equipment and other personal property from the Project Facility and
may create or permit to be created any Lien on such land, additional equipment
or other personal property; provided, however, that any such removal of such
land, additional equipment or other personal property shall not adversely affect
the structural integrity of the Project Facility or impair the overall operating
efficiency of the Project Facility for the purposes of which it is intended.
Section 6.3 Taxes, Assessments, Utility Charges and Payments in Lieu of
Taxes.
(a) The Company agrees to pay, as the same respectively become
due, (i) all taxes and governmental charges of any kind whatsoever which may at
any time be lawfully assessed or levied against or with respect to the Project
Facility and any machinery, real property improvements or other Property
installed or brought by the Company therein or thereon, including, without
limiting the generality of the foregoing, sales or use taxes, if any, imposed
with respect to the Project Facility or any part or component thereof, or the
rental of the Project Facility or any part hereof and any taxes levied upon or
with respect to the income or revenues of the Agency from the Project Facility,
(ii) all utility and other charges, including "service charges," incurred or
imposed for or with respect to the operation, maintenance, use, occupancy,
upkeep and improvement of the Project Facility, and (iii) all assessments and
charges of any kind whatsoever lawfully made by any Governmental achy for public
improvements.
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(b) The Company hereby agrees that, as long as the Project
Facility is owned by the Agency, and unless the Company has entered into the
PILOT Agreement with the Agency, the Company will pay an amount equal to all
real property taxes, assessments and charges that would be lawfully levied upon
the Project Facility if title thereto were held by the Company rather than the
Agency. The Company shall pay, in full, such amounts within the grace period
afforded for payment of taxes, assessments or charges on such or similar
property subject to taxation. Absent an agreement with the taxing districts, the
Project Facility shall be valued and assessed in the same manner, and the
payments in lieu of real property tax thereon shall be computed at the same
rate, as if the Project Facility were owned by the Company and not the Agency.
The Company shall have all the rights and remedies of a taxpayer with respect to
protesting any tax, levy or special assessment and to apply for any exemption
accorded a private owner by the New York Real Property Tax Law, including
Section 485-b, as if the Project Facility were owned by the Company and not the
Agency. The Agency and the County of Onondaga have made no representations to
the Company that the Company is or in the future will be eligible for any
exemption from the provisions of the New York Real Property Tax Law, including
Section 485-b, that the Agency will use its efforts to obtain any such exemption
for the Company or that all of any part of the Project Facility will be exempt
from the imposition of real property taxes and assessments or sales taxes. In
the event the Company shall fail to make or cause to be made any such payments
in lieu of taxes, the Company shall pay a 5% late payment penalty for the first
month and 1% per month thereafter until paid in full. If the Company and the
Agency enter into the PILOT Agreement, the terms of the PILOT Agreement shall
govern the Company's obligation to make payments in lieu of taxes.
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(c) The Company may, in good faith, contest any such taxes,
assessments and other charges. In the event or any such contest, the Company may
permit the taxes, assessments or other charges so contested to remain unpaid
during the period of such contest and any appeal therefrom, provided that during
such period, enforcement of any contested item is effectively stayed so that no
part of the Project Facility is subject to loss or forfeiture.
(d) The Company shall defend, indemnify and cold the Agency
harmless from any liability or expense resulting from any failure by the Company
to comply with the provisions of subsection (a) of this Section 6.3.
Section 6 4 Insurance Required. At all times throughout the Lease Term,
the Company shall, at its sole expense, maintain insurance against such risks
and in such amounts as are customarily insured against by businesses of like
size and type paying, as the same become due and payable, all premiums in
respect thereto, including, but not necessarily limited to:
(a) Workers' compensation insurance, disability benefits
insurance, and each other form of insurance which the Agency or the Company is
required by law to provide, covering loss resulting from injury, sickness,
disability or death of employees of the Company who are located at or assigned
to the Project Facility.
(b) Insurance protecting the Company and the Agency against
loss or losses from liabilities imposed by law or assumed in any written
contract and arising from personal injury and death or damages to the Property
of others caused by any accident or occurrence, with limits of not less then
$1,000,000 per accident or occurrence on account of personal injury, including
death resulting therefrom, and $2,000,000 per accident or occurrence on account
of damage to the Property of others, excluding liability imposed upon the
Company by any applicable workers' compensation law and a blanket excess
liability policy in an amount not less than $5,000,000, protecting the Agency
and the Company against any loss or liability or damage for personal injury or
Property damage.
Section 6.5 Additional Provisions Respecting Insurance.
(a) All insurance required by Section 6.4 hereof shell be
procured from and maintained in financially-sound and generally-recognized,
responsible insurance companies authorized to write such insurance in the State.
Such insurance may be written with deductible amounts comparable to those on
similar policies carried by other companies engaged in businesses similar in
size, character and other respects to those in which the Company is engaged. All
policies evidencing such insurance required by Section 6.4(a) shall provide for
payment of the losses to the Company and for at least thirty (30) days' prior
written notice of the cancellation or modification thereof to the Agency. The
liability policies required by Section 6.4(c) shall also name the Agency as
named insured.
(b) All such policies of insurance, or a certificate or
certificates of the insurers that such insurance is in force and effect, shall
be deposited with the Agency on or before the Closing Date. Within twenty (20)
days after the expiration of any such policy, the Company shall furnish the
Agency with evidence that the policy has been renewed or replaced or is no
longer required by this Lease Agreement.
Section 6.6 Application of Net Proceeds of Insurance. The Net Proceeds
of the insurance carried pursuant to the provisions of Section 6.4 hereof shall
be applied as follows: the Net Proceeds of the insurance required by Section 6.4
shall be applied toward extinguishment or satisfaction of the liability with
respect to which such insurance proceeds may be paid.
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Section 6.7 Right of Agency to Pay Taxes, Insurance Premiums and Other
Charges. If the Company fails (i) to pay any tax, assessment or other
governmental charge or payment in lieu of taxes required to be paid by Section
6.3 hereof, or (ii) to maintain any insurance required to be maintained by
Section 6.4 hereof, the Agency may pay, or cause to be paid, such tax,
assessment or other governmental charge or the premium for such insurance. No
such payment shall be made by or on behalf of the Agency until at least thirty
(30) days shall have elapsed since notice of intention to make such payment
shall have been given by the Agency to the Company and, in the case or any tax,
assessment or governmental charge, no such payment shall be made in any event if
he Company is contesting the same in good faith to the extent and as permitted
by this Lease Agreement, unless an Event of Default hereunder shall have
occurred and be continuing. No such payment by or on behalf of the Agency shall
affect or impair any rights of the Agency hereunder arising in consequence of
such failure by the Company. The Company shall reimburse the Agency for any
amount so paid by or on behalf of the Agency pursuant to this Section 6.7,
together with interest thereon from the date of payment by or on behalf of the
Agency at the rate of eighteen percent (18%) per annum.
ARTICLE VII
DAMAGE, DESTRUCTION OR CONDEMNATION
Section 7.1 Damage, Destruction or Condemnation of the Project
Facility.
(a) If the Project Facility shall be damaged or destroyed (in
whole or in part) or if title to or the temporary use of the Facility shall be
taken or condemned by a competent authority for any public use or purpose at any
time during the Lease Term, then:
(i) The Agency shall have no obligation to replace,
repair, rebuild, restore or relocate the Facility;
(ii) There shall be no abatement or reduction in the
amounts payable by the Company under this Lease Agreement (whether or not the
Facility is replaced, repaired, rebuilt, restored or relocated); and
(iii) Except as otherwise provided in subsection (b)
of this Section 7.1, the Company shall replace, repair, restore or relocate the
Facility. If the Company elects to replace, repair, restore or relocate the
Facility, it shall promptly do so to substantially the same condition and value
as an operating entity as existed prior to such damage, destruction or taking,
with such charges, alterations and modifications as may be desired or approved
by the Company; provided, however, that such changes, alterations or
modifications do not so change the nature of the Facility that it does not
constitute a "project" as such term is defined in the Act.
(b) The Company shall not be obligated to replace, repair,
rebuild, restore or relocate the Project Facility if the Company shall exercise
its option to terminate this Lease Agreement pursuant to Section 11.1 hereof.
(c) The Company shall have the right to settle and adjust all
claims under any policies of insurance or awards in Condemnation on behalf of
the Agency and on its own behalf.
7.2 Damage, Destruction or Condemnation of Company-Owned Property. The
Company shall be entitled to the proceeds of any insurance or Condemnation award
or portion thereof made for damage to or taking of any of Property which, at the
time of such damage and taking, is not part of the Project Facility.
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ARTICLE VIII
SPECIAL COVENANTS
Section 8.1 No Warranty of Condition or Suitability by the Agency. THE
AGENCY MAKES NO WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO THE CONDITION, TITLE,
DESIGN, OPERATION, MERCHANTABILITY OR FITNESS OF THE FACILITY OR THE EQUIPMENT
OR THAT IT IS OR WILL BE SUITABLE FOR THE COMPANY'S PURPOSES OR NEEDS. UPON
RECONVEYANCE OF THE PROJECT FACILITY TO THE COMPANY, THE AGENCY SHALL MAKE NO
WARRANTIES AS TO THE FITNESS OF USE OF THE FACILITY, AND THE COMPANY SHALL
ACCEPT THE PROJECT FACILITY "AS IS."
Section 8.2 Hold Harmless Provisions.
(a) The Company hereby releases the Agency from, agrees that
the Agency shall not be liable for and agrees to defend, indemnify and hold the
Agency harmless from and against any and all (i) liability for loss or damage to
Property or injury to or death of any and all Persons that may be occasioned by,
directly or indirectly, any cause whatsoever pertaining to the Facility or
arising by reason of or in connection with the occupation or the use thereof or
the presence of any person or Property on, in or about the Project Facility, or
(ii) liability arising from or expense incurred by the Agency's construction,
reconstruction, renovation, equipping and leasing of the Project Facility,
including without limiting the generality of the foregoing, all claims arising
from the exercise by the Company of the authority conferred upon it pursuant to
Section 4.1 of this Lease Agreement and all causes of action and attorneys' fees
and any other expenses incurred in defending any suits or actions which may
arise as a result of any of the foregoing; provided, however, that any such
losses, damages, liabilities or expenses of the Agency are not incurred or do
not result from Agency or any of its members, agents (other than the Company) or
employees. The foregoing indemnities shall apply notwithstanding the fault or
negligence in part of the Agency, or any of its members, agents or employees and
irrespective of the breach of a statutory obligation or the application of any
rule of comparative or apportioned liability.
(b) Notwithstanding any other provisions of this Lease
Agreement, the obligations of the Company pursuant to this Lease Agreement, the
obligations of the Company pursuant to this Section 8.2 shall remain in full
force and effect after the termination of this Lease Agreement until the
expiration of the period stated in the applicable statute of limitations during
which a claim, cause of action or prosecution relating to the matters herein
described may be brought and the payment in full or the satisfaction of such
claim, cause of action or prosecution relating to the matters herein described
and the payment of all expenses and charges incurred by the Agency, or its
respective officers, members, agents and employees, relating to the enforcement
of the provisions herein specified. The misconduct or negligence of any party
indemnified hereunder shall not affect the indemnity of any other party so
indemnified.
(c) In the event of any claim against the Agency or its
officers, members, agents or employees by any employee of the Company or any
contractor of the Company or anyone directly or indirectly employed by any of
them or anyone for whose acts any of them may be liable, the obligations of the
Company hereunder shall not be limited in any way by any limitation on the
amount or type of damages, compensation, disability benefits or other employee
benefit laws.
(d) To effectuate the provisions of this Section 8.2, the
Company agrees to provide for and insure, in the liability insurance policies
required by Section 6.4(b) hereof, its liabilities assumed pursuant to this
Section 8.2.
Section 8.3 Right to Inspect the Facility. The Agency and its duly
authorized agents shall have the right at all reasonable times to inspect the
Project Facility.
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Section 8.4 Agreement to Provide Information. The Company agrees
whenever requested by the Agency to provide and certify, or cause to be provided
and certified, such information concerning the Company, its finances, and other
topics necessary to enable the Agency to make any report required by law,
governmental regulation or this Lease Agreement.
Section 8.5 Identification of Equipment. All Equipment which is, or
which may become, the property of the Agency pursuant to the provisions of this
Lease Agreement shall be properly identified by the Company by appropriate
records, including computerized records.
Section 8.6 Depreciation Deductions and Investment Tax Credit. The
parties agree that, as between them, the Company shall be entitled to all
depreciation deductions (if applicable) with respect to any depreciable property
in the Facility pursuant to Sections 167 and 168 of the Internal Revenue Code of
1986, as amended (or any similar successor legislation), and any regulations
promulgated thereunder, (the "Code"), and to any investment credit (if again
applicable) pursuant to Section 38 of the Code with respect to any portion of
the Facility which constitutes "Section 38 Property."
Section 8.7 Discharge of Liens and Encumbrances.
(a) The Company shall not permit or create any Lien, except
for Permitted Encumbrances, upon the Facility.
(b) Notwithstanding the provisions of subsection (a), the
Company may in good faith, and on notice to the Agency, contest any such Lien.
In that event, the Company may permit the items so contested to remain
undischarged and unsatisfied during the period of contest and any appeal, unless
the Agency shall notify the Company that by non-payment, the Project Facility
may be subject to loss or forfeiture, in which event the Company shall promptly
secure payment of all unpaid items by filing the requisite bonds, in form and
substance, reasonably satisfactory to the Agency, thereby causing the Lien to be
removed.
Section 8.8 No Recourse; Special Obligations.
(a) All covenants, stipulations, promises, agreements and
obligations of the Agency contained in this Lease Agreement shall be deemed to
be the covenants, stipulations, promises, agreements and obligations of the
Agency and not of any member, officer, servant or employee of the Agency in his
individual capacity, and no recourse under or upon any obligation, covenant or
agreement in this Lease Agreement, contained or otherwise based upon or in
respect to this Lease Agreement, or for any claim based thereon or otherwise in
respect thereof, shall be had against any past, present or future member,
officer, servant or employee, as such, of the Agency, or any successor public
benefit corporation or political subdivision or any person executing this Lease
Agreement, either directly or through Agency or any successor public benefit
corporation or political subdivison, it being, expressly understood that this
Lease Agreement is solely a corporate obligation, and that no such personal
liability whatever shall attach to, or is or shall be incurred by, any such
member, officer, servant, or employee of the Agency or of any successor public
benefit corporation or political subdivision, or under or by reason of the
obligations, covenants of agreements contained in this Lease Agreement, or
implied herefrom; and that any and all personal liability of, and any and all
such rights and claims against, every such member, officer, servant, agent or
employee because of the indebtedness hereby authorized, or under or by reason of
the obligations, covenants or agreements container in this Lease Agreement, or
implied herefrom are, to the extent permitted by law expressly waived and
released as a condition of, and as a consideration for, the execution of this
Lease Agreement. The obligations and agreements of the Agency contained herein
shall not constitute or give rise to an obligation of the State of New York or
Onondaga County, New York, and neither the State of New York nor Onondaga
County, New York shall be liable thereon, and such obligations of the Agency
shall be special obligations of the Agency payable solely from the revenues of
the Agency derived and to be derived from the Lease, sale or disposition of the
Facility.
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(b) Notwithstanding any provision of this Lease Agreement to
the contrary, the Agency shall not be obligated to take any action pursuant to
any provision hereof unless (i) the Agency shall have been requested to do so in
writing by the Company, and (ii) if compliance with such request is reasonably
expected to result in the incurrence by the Agency (or any member, officer,
agent, servant or employee of the Agency) in any liability, fees, expenses or
other costs, the Agency shall have received from the Company security or
indemnity satisfactory to the Agency for protection against all such liability,
however remote, and for the reimbursement of all such fees, expenses and other
costs.
ARTICLE IX
RELEASE OF CERTAIN PROPERTY; ASSIGNMENTS AND SUBLEASING;
PLEDGE OF INTERESTS
Section 9.1 Restrictions on Sale of Project Facility. Except as
otherwise specifically provided in this Lease Agreement, neither the Company nor
the Agency shall sell, convey, transfer, encumber or otherwise dispose of its
interest in the Project Facility, or any part thereof, or any of its rights
under this Lease Agreement.
Section 9.2 Removal of Equipment.
(a) The Agency shall not be under any obligation to remove,
repair or replace any inadequate, obsolete, worn out, unsuitable, undesirable or
unnecessary item of Equipment. In any instance where the Company determines that
any item of Equipment has become inadequate, obsolete, worn out, unsuitable,
undesirable or unnecessary, the Company may remove such item of Equipment from
the Facility and may sell, trade-in, exchange or otherwise dispose of the same,
as a whole or in part; provided, however, that such removal will not materially
impair the operation of the Project Facility for the purpose for which it is
intended or change the nature of the Project Facility so that it does not
constitute a "project" under the Act. In the event of a sale, trade-in, exchange
or other disposition of such item of Equipment, the Agency will execute any
necessary documents to effectuate the transaction.
(b) The Agency shall execute and deliver to the Company all
instruments necessary or appropriate to enable the Company to sell or otherwise
dispose of any such item of Equipment. The Company shall pay any costs
(including any reasonable attorneys' fees) incurred in transferring title to any
item of Equipment removed pursuant to this Section 9.2.
(c) The removal of any item pursuant to this Section 9.2 shall
not entitle the Company to any abatement of diminution or the rents payable by
it under Section 5.3 hereof.
Section 9.3 Assignment of Lease Agreement and Subleases.
(a) This Lease Agreement may be assigned or sublet at anytime,
subject to the Agency's and Lender's prior written consent and on the following
conditions:
(i) No assignment or subleasing shall relieve the
Company from primary liability for any of its obligations hereunder;
(ii) The assignee or subleasee shall assume the
obligations of the Company hereunder
to the extent of the interest assigned or subleased;
(iii) The Company shall, within ten (10) days after
the delivery thereof, furnish, or cause to be furnished to the Agency, a true
and complete copy of such assignment or sublease and the instrument of
assumption;
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(iv) The Facility shall continue to constitute a
"project" as such term is defined in
the Act
(v) The Company shall pay the reasonable fees of
Agency's counsel incurred in preparing or reviewing documentation which pertains
to the assignment or subletting.
The Agency shall not unreasonably withhold or delay its
consent to any proposed assignment or subleasing by the Company. Any change of
control of the Company shall be deemed an "assignment" for purposes of this
Section 9.3.
(b) If the Agency shall so request, as of the purported
effective date of any assignment pursuant to subsection (a) of this Section 9.3,
the Company, at its cost, shall furnish the Agency with an opinion or counsel
opining that the anticipated use of the Project Facility will continue to
qualify the Project Facility as a "project" as such term is defined in the Act.
(c) Notwithstanding the foregoing, the Company any shall be
entitled to assign this Lease Agreement, without obtaining the Agency's consent
but subject to the provisions of subsection (a) of this Section 9.3, to a
corporation which is formed to succeed to the assets and liabilities of the
Company.
Section 9.4 Merger of Agency.
(a) Nothing contained in this Lease Agreement shall prevent
the consolidation of the Agency with, or merger of the Agency into, or transfer
of title of the Project Facility as an. entirety to, any other local
governmental body or political subdivision which has the legal authority to own
and lease the Project Facility provided that upon any such consolidation, merger
or transfer, the due and punctual performance and observance of all the
agreements and conditions of this Lease Agreement to be kept and performed by
the Agency shall be expressly assumed in writing by the local governmental body
or political subdivision resulting from such consolidation or surviving such
merger or to which the Facility shall be transferred; and
(b) Within thirty (30) days after the consummation of any such
consolidation, merger or transfer of title, the Agency, at its sole expense,
shall give notice thereof in reasonable detail to the Company, and shall furnish
to the Company a favorable opinion of Independent Counsel as to compliance with
the provisions of Section 9.4(a) (i) hereof. The Agency promptly shall furnish
such additional information with respect to any such transaction as the
above-mentioned Persons may reasonably request.
16
<PAGE>
ARTICLE X
EVENTS OF DEFAULT AND REMEDIES
Section 10.1 Events of Default Defined.
The following shall be "Events of Default" under this Lease
Agreement and the terms "Event of Default" or "Default" shall mean, whenever
they are used in this Lease Agreement, any one or more of the following events:
(a) The failure by the Company to pay, or cause to be
paid, when due, the amount specified to be paid pursuant to Section 5.3 (A)
hereof;
(b) Any material representation or warranty of the
Company herein is false or misleading in any material respect when made;
(c) The failure by the Company to observe and perform
any material covenant, condition or agreement hereunder on its part to be
observed or performed (except obligations referred to in Sections 1O.1(G) for a
period of thirty (30) days after written notice given by the Agency to the
Company, specifying such failure and requesting that it be remedied, or, in the
case of a default which cannot be cured with due diligence within said thirty
(30) day period, the failure of the Company to proceed within said thirty (30)
days to cure the same and thereafter to prosecute the curing of such default
with due diligence, unless the Agency shall agree in writing to an extension of
such time prior to its expiration.
(d) The filing or commencement of an involuntary
Petition by or against the Company which is not dismissed or discharged within
sixty (60) days;
(e) The filing or commencement of a voluntary
Petition by the Company;
(f) If, at any time, any material representation or
warranty contained in this Lease Agreement or in any other certificate or
document delivered to the Agency is false or incorrect.
Section 10.2 Remedies on Default.
(a) Whenever any Event of Default shall have occurred and be
continuing, the Agency may:
(i) Declare, by written notice to the Company, to be
immediately due and payable, whereupon the same shall become immediately due and
payable (1) all unpaid installments of rent payable pursuant to Section 5.3(a)
hereof, and (2) all other payments due under this Lease Agreement.
(ii) Terminate, on at least thirty (30) days prior
written notice to the Company, the Lease Term and all rights of the Company
under this Lease Agreement and convey to the Company title to the Facility in
the same manner and condition as set forth in Section 11.4 hereof, God the
Company unconditionally agrees to accept such title pursuant to such conveyance.
(b) No action taken pursuant to this Section. 10.2 shall
relieve the Company from its obligations to make all payments required by
Section 5.3 hereof and provide, the indemnity under Sections 2.4, 4.1(e), 6.3
and 8.2 hereof.
Section 10.3 Remedies Cumulative. No remedies herein conferred upon or
reserved to the Agency is intended to be exclusive of any other available
remedy, but each and every such remedy shall be cumulative and in addition to
every other such remedy given under this Lease Agreement or now or hereafter
existing at law or in equity. No delay or omission to exercise any right or
power accruing upon any of default shall impair any such right or power or shall
be construed to be a waiver thereof, but any such right and power may be
exercised from time to time and as often as may be deemed expedient.
17
<PAGE>
Section 10.4 Agreement to Pay Attorneys' Fees and Expenses. In the
event the Company should default under any of the provisions of this Lease
Agreement and the Agency should employ attorneys or incur other expenses for the
collection of amounts payable hereunder or the enforcement of performance or
observance of any obligations or agreements on the part of the Company herein
contained, then the Company shall, on demand therefor by the Agency, pay to the
Agency the reasonable fees of such attorneys and such other expenses so
incurred.
Section 10.5 No Additional Waiver Implied by One Waiver. In the event
any agreement contained herein should be breached by any party and thereafter
waived by any other party, such waiver shall be limited to the particular breach
so waived and shall not be deemed to waive any other breach hereunder.
Section 10.6 Lease Subordinate to Mortgage. This Lease Agreement and
any and all modifications, amendments, renewals and extensions hereof is, shall
be and shall remain in all respects subject. and subordinate to any mortgage
held at any time by Lender (including without limitation a certain mortgage
dated and recorded on February 20, 1992 in the Onondaga County Clerk's Office in
Book 6161 of Mortgages, Page 984, and a certain Leasehold Mortgage with Fee
Joinder dated June 15, 1990 and recorded June 28, 1990 in the Onondaga County
Clerk's Office in Book 5564 of Mortgages, Page 317, as assigned to Lender
pursuant to an Assignment of Mortgage dated and recorded on February 20, 1991 in
the Onondaga County Clerks Office in Book 6161 of Mortgages, Page 82, each as
modified and consolidated pursuant to a Consolidation, Spreading, and
Modification Agreement and Release dated and recorded on February 20, 1992, and
recorded in the Onondaga County Clerk's Office in Book 6161 of Mortgages, Page
102), and all disbursements to be made under any building loan contract between
the Company and Lender, and to all modifications, amendments, consolidations,
extensions, renewals, and increases of such mortgages. The Company shall attorn
to any purchaser of the fee estate in and to the Project Facility pursuant to a
judicial sale in any action, suit or proceeding brought to foreclose any such
mortgage or by deed and/or assignment in lieu of foreclosure, including Lender,
recognize such purchaser as landlord for all purposes of this Lease and continue
to perform and observe all of its covenants and obligations as tenant hereunder
for the remainder of the team hereof, all upon the same terms and conditions and
with the same force and effect as if such purchaser were originally named as the
landlord herein.
18
<PAGE>
ARTICLE XI
EARLY TERMINATION OF THE LEASE AGREEMENT;
OPTION IN FAVOR OF COMPANY
Section 11.1 Early Termination of the Lease Agreement. The Company
shall have the option to terminate this Lease Agreement at any time upon filing
with the Agency a certificate signed by an Authorized Representative of the
Company stating the Company's intention to do so pursuant to this Section 11.1
and upon compliance with the requirements set forth in Section 11.2 hereof.
Section 11.2 Conditions to Early Termination of the Lease Agreement. In
the event the Company exercises its option to terminate this Lease Agreement in
accordance with the provisions of Section 11.1 hereof, the Company shall comply
with the requirements set forth in the following two subsections.
(a) The following payments shall be made:
(i) To the Agency: an amount certified by the Agency
sufficient to pay all unpaid fees and expenses of the Agency incurred under this
Lease Agreement.
(ii) To the appropriate Person(s): an amount
sufficient to pay all other fees, expenses or charges, if any, due and payable
or to become due and payable under this Lease Agreement and not otherwise paid
or provided for.
(b) The certificate required to be filed pursuant to Section
11.1 permitting early termination of this Lease Agreement shall also specify the
date upon which the payments pursuant to subdivision (a) of this Section 11.2
shall be made, which date shall be not less than three (3) nor more than ninety
(90) days from the date such certificate is filed with the Agency.
Section 11.3 Obligation to Purchase Project Facility. Upon termination
of the Lease Term or upon the expiration of the Lease Term in accordance with
Sections 5.2, 10.2 or 11.1 hereof, the Company shall have the obligation to
purchase the Project Facility from the Agency for the purchase price of One
Dollar ($1.00). The Company shall purchase the Project Facility by giving notice
to the Agency (which may be contained in the certificate referred to in Section
11.2(b) hereof) fixing the date of closing such purchase, which shall be on or
about the date on which this Lease Agreement is to be terminated.
Section 11.4 Conveyance on Purchase. At the closing of the purchase of
the Project Facility pursuant to Section 11.3 hereof, the Agency shall, upon
receipt of the purchase price, deliver to the Company all necessary documents
(a) to release and convey to the Company all of the Agency's right and interest
in and to any rights of action or any Net Proceeds of insurance or Condemnation
awards with respect to the Facility and (b) to transfer to the Company all of
the Agency's right, title and interest to the Equipment.
19
<PAGE>
ARTICLE XII
MISCELLANEOUS
Section 12.1 Notices. All notices, certificates and other
communications hereunder shall be in writing and shall be sufficiently given,
and shall be deemed given, when delivered personally or by mail and, if
delivered by mail, shall be sent by certified mail, postage prepaid, addressed
as follows:
To the Agency:
Onondaga County Industrial Development Agency
Onondaga County Civic Center, 14th Floor
421 Montgomery Street
Syracuse, New York 13202
Attention: Chairman
To the Company:
MS Pietrafesa, L.P.
7400 Morgan Road
Liverpool, New York 13090
Attention: Chief Financial Officer
Any of the Persons mentioned above to whom notice may be given may, by
notice given hereunder, designate any further or different address or addresses
to which subsequent notices, certificates or other communications shall be sent.
Section 12.2 Binding Effect. This Lease Agreement shall inure to the
benefit of and be binding upon the parties and their respective successors and
assigns.
Section 12.3 Severability. In the event any provision of this Lease
Agreement shall be held invalid or unenforceable by any court of competent
jurisdiction, such holding shall not invalidate or render unenforceable any
other provision hereof.
Section 12.4 Amendments, Changes and Modifications. This Lease
Agreement may not be amended, charged, modified, altered or terminated without
the written consent of the parties hereto.
20
<PAGE>
Section 12.5 Execution of Counterparts. This Lease Agreement may be
executed in several counterparts, each of which shall be an original and all of
which shall constitute one and the same instrument.
Section 12.6 Applicable Law. This Lease Agreement shall be exclusively
governed by and construed in accordance with the laws of the State.
Section 12.7 Recording. This Lease Agreement (or a memorandum thereof)
shall be recorded by the Agency in the Office of the Clerk of Onondaga County,
New York, or in such other office as may at the time be provided by law as the
proper place for the recordation thereof.
Section 12.8 Table Contents and Section Headings Not Controlling. The
Table of Contents and the headings of the several sections in this Lease
Agreement have been prepared for the convenience of reference only and shall not
control, affect the meaning of or be taken as an interpretation of any provision
of this Lease Agreement.
Section 12.9 Survival of Obligations. The obligations or the Company
under Sections 2.3(d), 2.4, 4.1(e), 5.3, 6.3, 6.4, 6.8 and 8.2 shall survive any
termination or expiration of this Lease Agreement.
IN WITNESS WHEREOF, the Agency and the Company have caused this Lease
Agreement to be executed by their Authorized Representatives, all as of the date
first written above.
ONONDAGA COUNTY INDUSTRIAL DEVELOPMENT AGENCY
By: /s/ James Schneider
--------------------------
Chairman
MS PIETRAFESA, L.P.
By: MS Pietrafesa Acquisition Corporation,
General Partner
By: /s/Donald. F.X. Keegan
--------------------------
Vice President
21
<PAGE>
EXHIBIT 10.6
PAYMENT IN LIEU OF TAX AGREEMENT
THIS PAYMENT IN LIEU OF TAX AGREEMENT dated as of October 1, 1994 by
and between ONONDAGA COUNTY INDUSTRIAL DEVELOPMENT AGENCY, public benefit
corporation having its office at 421 Montgomery Street, Syracuse, New York 13202
(the "Agency") and MS PIETRAFESA, L.P., a limited partnership organized and
existing under the laws of the State of Delaware, having an office at 7400
Morgan Road, Liverpool, New York 10390-3900 (the "Company").
W I T N E S S E T H:
WHEREAS, the New York State Industrial Development Agency Act, being
Title 1 of Article 18-A of the General Municipal Law, Chapter 24 of the
Consolidated Laws of the State, as amended (the '"Enabling Act"), authorizes the
creation of industrial development agencies for the benefit of the several
counties, cities, villages and towns in the State and empowers such agencies,
among other things, to acquire, construct, reconstruct, improve, maintain,
equip, and furnish real and personal property, whether or not now in existence
or under construction, which shall be suitable for, among other things,
industrial, manufacturing, warehousing, commercial, research, and recreational
purposes in order to advance the job opportunities, health, general prosperity,
and economic welfare of the people of the State and to improve their recreation
opportunities, prosperity, and standard of living; and
WHEREAS, the Enabling Act further authorizes each such agency to lease
or sell its projects, to charge and collect rent or the purchase price therefor,
to issue its bonds for the purpose of carrying out any of its corporate purposes
and, as security for the payment of the principal and redemption price of and
interest on any such bonds, to mortgage any or all of its facilities and to
pledge the revenues and receipts therefrom to the payment of such bonds; and
WHEREAS, pursuant to and in accordance with the provisions of the
Enabling Act, Chapter 435 of the 1970 Laws of the State, as amended by Chapter
676 or the 1975 Laws of the State, as amended (collectively with the Enabling
Act, the "Act"), created the Agency for the benefit of Onondaga County, New
York, and the inhabitants thereof; and
WHEREAS, the Project consists of (A)(1) the Agency's leasing from the
Company of two parcels of land located in the Town of Clay, County of Onondaga
as more particularly described on Exhibit A attached hereto (the "Land'")
together with an approximately 135,000 square foot manufacturing and
distribution facility (the "Existing Facility") located on the land and (2) the
construction of an approximately 5,000 square foot addition (the "Addition") to
the Existing Facility (the Land, the Existing Facility and the Addition are
referred to collectively as the "Project Facility") and (B) the sublease of the
Project Facility to the Company; and
<PAGE>
WHEREAS, the Agency will accept title to the then-existing portions of
the Project Facility and a leasehold interest in the Land and the Agency and the
Company will enter into a lease agreement (the "Project Agreement") specifying
the terms and conditions pursuant to which the Agency agrees to acquire,
construct, reconstruct, and install the Project Facility and to lease the
Project Facility to the Company; and
WHEREAS, under the current provisions of the Act and Section 412-a of
the Real Property Tax Law of the State, the Agency is required to pay no taxes
upon any of the property acquired by it or under its jurisdiction or supervision
or control; and
WHEREAS, in order to induce the Company to undertake the Project, the
Agency proposes to acquire, construct, and install the Project Facility and
retain title thereto during the term of this Payment in Lieu of Tax Agreement,
and the Company is willing to enter into this Payment in Lieu of Tax Agreement
in order to induce the Agency so to retain title to the Project Facility during
the term of this Payment in Lieu of Tax Agreement and to enter into this Payment
in Lieu of Tax Agreement.
NOW, THEREFORE, in consideration of the matters above recited, the
parties hereto formally covenant, agree, and bind themselves as follows, to wit:
SECTION 1. TAX-EXEMPT STATUS OF PROJECT FACILITY.
(A) Assessment of Project Facility: Pursuant to Section 874 of the
General Municipal Law of the State and Section 412-a of the Real Property Tax
Law, the parties hereto understand that, upon acquisition of the Project
Facility by the Agency, and for so long thereafter as the Agency shall own the
Project Facility, the Project Facility shall be assessed by the Town of Clay
(the "Town") and by the various other taxing entities having jurisdiction over
the Project Facility including, without limitation, Onondaga County (the
"County"), the Liverpool School District (the "School District") and any other
political unit or units wherein the Project Facility is located (the Town, the
County, the School District and such other taxing entities being sometimes
collectively referred to herein as the "Taxing Entities" and each of such Taxing
Entities being sometimes individually referred to as a "taxing Entity") as
exempt upon the assessment rolls of the respective Taxing Entities prepared
subsequent to the acquisition by the Agency and the Project Facility. The
parties hereto understand that the Project Facility shall not be entitled to
such exempt status on the tax rolls of any Taxing Entity until the first tax
year of such Taxing Entity following the first tax status date of such Taxing
Entity occurring subsequent to the date upon which the Agency becomes the owner
of the Project Facility. Pursuant to the provisions of the Project Agreement,
the Company will be required to pay all taxes and assessments lawfully levied
and/or assessed against the Project Facility, including taxes and assessments
levied for the current tax year and all subsequent tax years, until the Project
Facility shall be entitled to exempt status on the tax rolls of the respective
Taxing Entities. The Company confirms its obligations under the Project
Agreement and agrees to pay such lawfully levied and/or assessed taxes and
assessments. Subject to the terms and conditions of this Agreement, the Agency
will cooperate with the Company to preserve the tax-exempt status of the Project
Facility.
2
<PAGE>
(B) Special Assessments. The parties hereto understand that the tax
exemption extended to the Agency by Section 874 of the General Municipal Law and
Section 412-a of the Real Property Tax Law does not entitle the Agency to
exemption from special assessments and special ad valorem levies. Pursuant to
the Project Agreement, the Company will be required to pay all special
assessments and special ad valorem levies lawfully levied and/or assessed
against the Project Facility.
SECTION 2. PAYMENTS IN LIEU OF TAX.
(A) Agreement to Make Payments. The Company agrees that it will make
annual payments in lieu of taxes to the Agency in the amounts and on the terms
hereinafter provided.
(B) Amount of Payments in Lieu of Tax.
(I) On January 31, 1996 and on January 31 of each calendar
year thereafter through and including calendar year 2005, the Company agrees to
make annual payments in lieu of taxes ("Annual Payments") to the Agency, in the
amounts set forth below. The Agency shall pay to each Taxing Entity the amounts
set forth below out of each Annual Payment:
<TABLE>
<CAPTION>
Total Liverpool
Year Annual Payment School District Town of Clay Onondaga
- ---- -------------- --------------- ------------ --------
County
- ------
<S> <C> <C> <C> <C>
1996 $ 43,142 $43,142 $ 0 $ 0
1997 51,316 47,456 934 2,926
1998 59,493 51,771 1,869 5,853
1999 67,667 56,085 2,803 8,779
2000 75,843 60,399 3,738 11,706
2001 84,016 64,713 4,673 14,630
2002 92,913 69,027 5,607 17,559
2003 100,368 73,341 6,542 20,485
Total Liverpool
Year Annual Payment School District Town of Clay Onondaga
- ---- -------------- --------------- ------------ --------
County
- ------
2004 108,543 77,655 7,476 23,412
2005 116,719 81,969 8,411 26,339
-------
Total $799,300
</TABLE>
(C) Receipts for Payments. The Company shall be entitled to receive
receipts for all payments in lieu of taxes made hereunder.
3
<PAGE>
(D) Method of Payment. Each payment by the Company hereunder shall be
paid in lawful money of the United States of America.
SECTION 3. CREDIT FOR TAXES PAID.
(A) Credits. The parties hereto acknowledge and agree that the
obligation of the Company to make the payments provided in Section 2 hereof
shall be in addition to any and all other taxes and governmental charges of any
kind whatsoever which the Company may be required to pay under the Project
Agreement. It is understood and agreed, however, that should under any
subsequently adopted state or local law the Company pay in any tax year to any
general assessment, service charges or other general governmental charges of a
similar nature levied and/or assessed upon the Project Facility or the interest
therein of the Company of the occupancy thereof by the Company (but not
including, by way of example, (i) sales and use taxes, and (2) special
assessments of any nature, special ad valorem charges of any nature or
governmental charges in the nature of utility charges, including, but not
limited to, rates and charges), then the Company's obligation hereunder to make
payments in lieu of taxes in such tax year shall be reduced by the amounts which
the Company shall have so paid to such Taxing Entity in such tax year, but there
shall be no cumulative or retroactive credit as to any payment in lieu of taxes
due in any other tax year.
(B) Method of Claiming Credits. If the Company desires to claim a
credit against any particular payment in lieu of tax due hereunder, the Company
shall give the governing body of the affected Taxing Entity and the Agency prior
written notice of its intention to claim any credit pursuant to the provision of
this Section 3, said notice to be given by the Company at least ten days prior
to the final date on which such payment in lieu of tax is due pursuant to the
provision of Section 2 hereof.
SECTION 4. INTEREST AND PENALTIES. If the Company shall fail to make
any payment required by this Agreement when due, its obligation to make the
payment so in default shall continue as an obligation of the Company until such
payment in default shall have been made in full. Any payment required by Section
2(B) hereof shall be subject to a late payment penalty of 5% of the amount due
which shall be paid by the Company to the affected Taxing Entities. For each
month, or part thereof, that the payment in lieu of taxes required by Section
2(B) hereof is delinquent beyond the first month, interest shall accrue and be
paid to the affected Taxing Entities on the total amount due plus a late payment
penalty in the amount of 1% per month until the payment is made.
SECTION 5. RECAPTURE. In the event that (a) the Project Facility is
sold (except to a corporation formed for the purpose of succeeding to the assets
and liabilities of the Company) or closed or (b) the number of jobs at the
Project Facility is reduced below 75% of the number employed on the date of this
Agreement or below 75% of the employment projections provided by the Company to
the Agency except as a result of a Material Change of Circumstance (each, a
"Recapture Event"), the Company shall pay to the Agency, based on the formula
set forth below, a portion of the Aggregate Tax Savings which the Company
realized as a result of the Agency's participation in the Project. For purposes
of this Section: (x) "Material Change of Circumstance" shall mean (i) any event
4
<PAGE>
including, without limitation, damage or destruction to the Project Facility,
which materially interferes with the operation of the Project Facility; (ii) any
material change in the economy which requires the Company or its affiliates to
downsize or otherwise reduce the operations conducted at the Project Facility;
or (iii) any other change or circumstance which, in the agreement of the
parties, would warrant the reduction of employment at the Facility, and (y)
"Aggregate Tax Savings" shall mean (i) all sales, use or mortgage recording
taxes which the Company would have paid if the Agency had not participated in
the Project and (ii) the amount by which the real property taxes which the
Company would have paid absent Agency participation exceeds the payments in lieu
of taxes actually paid by the Company.
Percentage of Aggregate
Date of Recapture Event Tax Savings Recaptured
- ----------------------- -----------------------
Prior to July 1, 1996 75%
July 1, 1996 - June 31, 1997 60%
July 1, 1997 - June 31, 1998 40%
July 1, 1998 - June 31, 1999 20%
After July 1, 1999 0%
SECTION 6. TERM OF AGREEMENT. This Payment in Lieu of Tax Agreement
shall become effective and the obligations of the Company shall arise absolutely
and unconditionally upon the parties' execution and delivery of this Agreement.
This Payment in Lieu of Tax Agreement shall expire on December 31, 2005.
SECTION 7. AMENDMENT OF AGREEMENT. This Payment in Lieu of Tax
Agreement may not be amended, changed, modified, altered or terminated by either
party except pursuant to a written instrument executed by the Agency and the
Company.
SECTION 8. BINDING EFFECT. This Payment in Lieu of Tax Agreement shall
inure to the benefit of, and shall be binding upon, the Agency, the Company and
their respective successors and assigns; notwithstanding the foregoing, the
Company shall not assign its right or delegate its duties under this Agreement
without the prior written consent of the Agency except to a corporation formed
to succeed to the Company's assets and liabilities.
SECTION 9. DEFAULT. In the event any Annual Payment is not received by
the Agency when due, the Agency may, in addition to collecting the interest
provided for in Section 4 above, sue or take such other at law or in equity as
it deems appropriate to collect amounts due hereunder.
5
<PAGE>
SECTION 10. COSTS AND EXPENSES. In the event that the Company shall
fail to make any payment required hereunder when due and the Agency refers to an
attorney collection of such amounts due, the Company shall pay to the Agency all
costs and expenses, including reasonable attorneys' fees, incurred with respect
thereto. An affected Taxing Entity which has not received a payment due to it in
accordance with Section 2(B) hereof may commence legal action against the
Company if the Company has failed to make such payment to the Agency. In such
action, the Taxing Entity shall be entitled to recover the amount due, the late
payment penalty, interest, expenses, together with reasonable attorneys' fees
necessary to prosecute such action.
SECTION 11. NOTICES.
(A) All notices, certificates, and other communications hereunder shall
be in writing and shall be sufficiently deemed given when sent to the applicable
address stated below by registered or certified mail, return receipt requested,
or by such other method as shall provide the sender with documentary evidence of
such delivery. The addresses to which notices, certificates or other
communications hereunder shall be delivered are as follows:
If to the Company:
MS Pietrafesa, L.P.
7400 Morgan Road Liverpool, New York 13090-3900
Attn.: Chief Financial Officer
If to the Agency:
Onondaga County Industrial Development Agency
421 Montgomery Street
Syracuse, New York 13202
Attn.: Chairman
(B) Any person entitled to notice may, by notice given hereunder,
designate any different address to which subsequent notices, certificates, and
other communications shall be sent.
SECTION 12. SEVERABILITY. If any article, section, subdivision,
paragraph, sentence, clause, phrase, provision, or portion of this Payment in
Lieu of Tax Agreement shall for any reason be held or adjudged to be invalid or
illegal or unenforceable by any court of competent jurisdiction, such article,
section, subdivision, paragraph, sentence, clause, phrase, provision or portion
so adjudged invalid, illegal or unenforceable shall be deemed separate,
distinct, and independent, and the remainder of this Agreement shall be and
remain in full force and effect and shall not be invalidated or rendered illegal
or unenforceable or otherwise affected by such holding or adjudication.
6
<PAGE>
SECTION 13. COUNTERPARTS. This Payment in Lieu of Tax Agreement may be
simultaneously executed in several counterparts, each of which shall be an
original and all of which shall constitute but one and the same instrument.
SECTION 14. APPLICABLE LAW. This Payment in Lieu of Tax Agreement
shall be governed by and construed in accordance with the laws of the State of
New York.
SECTION 15. NO RECOURSE; SPECIAL OBLIGATION. The obligations and
agreements of the Agency contained herein shall be deemed the obligations and
agreements of the Agency, and not of any member, officer, agent (other than the
Company) or employee of the Agency in his individual capacity, and the members,
officers, agents (other than the Company) and employees of the Agency shall not
be liable personally hereon or be subject to any personal liability or
accountability based upon or in respect hereof or of any transaction
contemplated hereby. The obligations and agreements of the Agency contained
herein shall not constitute or give rise to an obligation of the State or of the
County of Onondaga, and neither the State nor the County of Onondaga shall be
liable hereon, and, further, such obligations and agreements shall not
constitute or give rise to a general obligation of the Agency, but rather shall
constitute limited obligations of the Agency, payable solely from the revenues
of the Agency derived and to be derived from the lease, sale or other
disposition of the Project Facility.
SECTION 16. THIRD PARTY BENEFICIARIES. The provisions of this
Agreement are intended to be for the benefit of the Agency and the respective
Taxing Entities.
SECTION 17. WAIVER OF RIGHT TO CONTEST. Notwithstanding anything to the
contrary contained herein, the Company hereby waives its right to contest
assessments of the Project Facility during the term of this PILOT Agreement.
IN WITNESS WHEREOF, the Agency and the Company have caused this Payment
in Lieu of Tax Agreement to be executed in their respective names by their
respective authorized officers, all as of the day and year first above written.
ONONDAGA COUNTY INDUSTRIAL
DEVELOPMENT AGENCY
By: /s/ James B. Schneider
-------------------------------
James B. Schneider
Chairman
7
<PAGE>
MS PIETRAFESA, L.P.
By: MS Pietrafesa Acquisition
Corporation,
General Partner
By: /s/ Donald F.X. Keegan
------------------------
Donald F.X. Keegan
Vice President
STATE OF NEW YORK )
) ss:
COUNTY OF ONONDAGA )
On this 1st day of December, 1994 before me personally came JAMES
SCHNEIDER, to me known, who, being by me duly sworn, did depose and say that he
resides in Baldwinsville, New York, that he is Chairman of Onondaga County
Industrial Development Agency, the public benefit corporation described in and
which executed the foregoing Agreement; and that he signed his name thereby by
authority of the members of said public benefit corporation
/s/ Bruce A. Smith
---------------------------------------
BRUCE A. SMITH
Notary Public, State of New York
Qualified in Onon. Co. No. 4961729
My Commission Expires February 6, 1996
<PAGE>
EXHIBIT 10.7
LOAN AGREEMENT
THIS AGREEMENT made this 22nd day of November, 1995, by and
between MS Pietrafesa, L.P., a limited partnership duly organized and existing
under the laws of the State of Delaware, having its principal office and place
of business at 7400 Morgan Road, Liverpool, New York 13090 ("Borrower"), and NEW
YORK STATE URBAN DEVELOPMENT CORPORATION d\b\a EMPIRE STATE DEVELOPMENT
CORPORATION, a corporate governmental agency of the State of New York,
constituting a political subdivision and public benefit corporation, having its
principal office and place of business at 633 Third Avenue New York, New York
10017 ("Lender").
ARTICLE 1. DEFINITIONS AND ACCOUNTING MATTERS.
Section 1.01. Certain Defined Terms. As used herein, the
following terms have the following meanings (terms defined in the singular shall
have the same meaning when used in the plural and vice versa):
"Affiliate" means any Person: (a) which is a director, officer
or employee of Borrower or is a Related Person to any of the foregoing; (b)
which directly or indirectly controls, or is controlled by, or is under common
control with, Borrower; (c) which directly or indirectly beneficially owns or
holds 5% or more of any class of voting stock of Borrower; or (d) 5% or more of
the voting stock of which is directly or indirectly beneficially owned or held
by Borrower. The term "Related Person" means any Person related by blood or
marriage to another Person. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract, or otherwise.
"Application" means the application submitted by Borrower to
ESDC in connection with the Loan as such application may have been amended or
supplemented.
"Capital Expenditures" means for any period, the Dollar amount
of gross expenditures (including obligations under Capital Leases) made for
fixed assets, real property, plant and equipment, and all renewals, improvements
and replacements thereto (but not repairs thereof) incurred during such period.
"Capital Lease" means any lease which has been or should be
capitalized on the books of the lessee in accordance with GAAP.
"Collateral" shall have the meaning assigned to such term in
the Security Agreement.
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"Current Assets" means all assets treated as current assets in
accordance with GAAP, excluding, however, from the determination of current
assets: prepaid expenses; assets located outside the U.S.; loans to insiders,
and amounts due from Subsidiaries and Affiliates.
"Current Liabilities" means all liabilities treated as current
liabilities in accordance with GAAP, including without limitation (a) all
obligations payable on demand or within one year after the date in which the
determination is made, and (b) installment and sinking fund payments required to
be made within one year after the date on which determination is made, but
excluding all such liabilities or obligations which are renewable or extendable
at the option of Borrower to a date more than one year from the date of
determination.
"Debt" means, with respect to any Person, all indebtedness of
such Person for borrowed money, whether fixed or contingent or secured or
unsecured, including, without limitation, indebtedness for the deferred purchase
price of property or services (including trade obligations), the face amount of
any outstanding letters of credit issued for the account of such Person, all
guaranties, endorsements (other than for collection in the ordinary course of
business) and other contingent obligations to purchase, to provide funds for
payment, to supply funds to invest in any Person, or otherwise to assure a
creditor against loss, any obligations secured by any Lien on property of such
Person, and all obligations of such Person as lessee under Capital Leases.
"Debt Service" means, with respect to any Person, the current
portion of long term debt plus interest expense.
"Default" means any event which with the giving of notice or
lapse of time. or both, would become an Event of Default.
"Default Rate" means a variable rate per annum of 6% above the
Prime Rate as in effect from time to time upon the occurrence of each event
which causes the Loan to bear interest at the Default Rate.
"Event of Default" has the meaning giving such term in
Section 7.01.
"Full-Time Permanent Employee" means either (a) an employee on
Borrower's payroll, who has worked at the Premises for a minimum of thirty-five
hours per week for not less than four consecutive weeks and who is entitled to
receive the usual and customary fringe benefits extended by Borrower to other
employees with comparable rank and duties; or (b) two employees on Borrower's
payroll, who have worked at the Premises for a combined minimum of thirty-five
hours per week for not less than four consecutive weeks and who are entitled to
receive the usual and customary fringe benefits extended by Borrower to other
employees with comparable rank and duties.
"Funded Debt" means, with respect to any Person, all
indebtedness for borrowed money.
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"GAAP" means generally accepted accounting principles in the
United States of America.
"Intangible Assets" means (1) all loans or advances to and
other Receivables owing from any officers, employees, Subsidiaries and other
affiliates (other than the Subordinated Debt), (2) all investments, whether in a
Subsidiary or otherwise, (3) goodwill, (4) any other assets deemed intangible
under GAAP, and (5) any other assets determined to be intangible by Lender in
its reasonable credit judgment.
"Intercreditor Agreement" means that certain agreement dated
as of the date of this Agreement between Fleet Bank and Lender.
"Lien" means any lien (statutory or otherwise), security
interest, mortgage, deed of trust, priority, pledge, charge, conditional sale,
title retention agreement, financing lease or other encumbrance or similar right
of others, or any agreement to give any of the foregoing.
"Loan" means the loan made by Lender to Borrower pursuant to
this Agreement and the Note.
"Loan Documents" means this Agreement, the Note and the
Security Agreement.
"Net Operating Income" means, with respect to any Person, net
operating income plus depreciation expenses.
"Note" shall have the meaning assigned to such term in Section
2 02 hereof.
"Person" means an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association, joint
venture, governmental authority or other entity of whatever nature.
"Premises" means the principal office of the Borrower located
at the address listed on page 1 of this Agreement.
"Prime Rate" means the prime rate of interest as published in
The Wall Street Journal from time to time.
"Project" shall have the meaning assigned to such term in
Section 2.03 hereof.
"Receivable" means the right to payment for goods sold or
leased or services rendered by Borrower, whether or not earned by performance,
and may, without limitation, in whole or in part be in the form of an account,
chattel paper, document or instrument.
"Reduction in Permanent Workforce" shall have the meaning
assigned to such term in Section 4.10 hereof.
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"Request for Disbursement" shall mean a request for a
disbursement of Loan proceeds substantially in the form of Exhibit C hereto.
"Security Agreement" means a security agreement dated the date
hereof, satisfactory to Lender in form and substance.
"Senior Debt" means Debt incurred by Borrower to other
Lenders, with Lender's prior consent, which is prior in right of payment to Debt
of Borrower hereunder and under the Note.
"Subordinated Debt" means Debt of Borrower to other lenders
which is subordinate in right of payment to Debt of Borrower hereunder and under
the Note pursuant to the Subordination Agreement.
"Subordination Agreement" means an agreement, satisfactory to
Lender in form and substance, by and among Lender, Borrower and a creditor of
Borrower providing for the subordination of Debt owing by Borrower to such
creditor to that owing by Borrower to Lender under the Loan Documents.
"Subsidiary" means any corporation by which at least 50% of
the voting stock is owned by Borrower directly or indirectly.
"Tangible Net Worth" means, the sum of partners capital, plus
the principal balance of all Subordinated Debt, which is subordinated in a
manner satisfactory to Lender, minus Intangible Assets, all otherwise determined
in accordance with GAAP.
"Third Party" means any party liable with respect to, or
otherwise granting support for the Loan, whether by guaranty, grant of security
or otherwise.
"Women-Owned Business Enterprise" means a business enterprise
certified as a Women-Owned Business Enterprise by the Governor's Office of
Minority and Women Business Development, or any successor agency thereof.
Section 1.02. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP, and all
financial data required to be compiled or delivered hereunder shall be prepared
in accordance with GAAP.
ARTICLE 2. THE CREDIT.
Section 2.01. The Loan. Subject to terms, covenants and
conditions of the Loan Documents, Lender has agreed to lend to Borrower the
aggregate sum of One Million Forty Thousand Dollars ($1,040,000) (the "Loan").
This Loan shall be superior in right of payment to those notes dated June 28,
1990 given by Borrower to: (i) Tonesons Partners in the amount of $200,000; (ii)
Learbury Clothes, Inc. in the amount of $783,000; and (iii) Jos. J. Pietrafesa
Co., Inc. in the amount of $2,017,000.
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The Loan shall be made in two disbursements. The first
disbursement of Nine Hundred Ten Thousand Dollars ($910,000.00) shall be made on
the date of November 22, 1995 in accordance with this Agreement and the Second
Disbursement shall not be made later than nine months from the date of this
Agreement (the "Disbursement Period"). At the end of the Disbursement Period,
Lender's commitment to make any portion of the Loan not then disbursed shall
terminate.
The obligation of the Lender to make the Second Disbursement
under the Loan shall be subject to the conditions precedent that on the date of
such disbursement:
(a) the following statements shall be true:
(i) the representations and warranties contained
in Article 3 of this Agreement are true and correct on
and as of the date of the Second Disbursement as though
made on and as of such date; and
(ii) no Default or Event of Default has occurred
or would result from the disbursement.
(b) Lender shall have received such approvals, opinions
or documents as Lender may reasonably request.
(c) Neither Borrower nor any Third Party shall have
suffered a material adverse change in its financial condition.
(d) Lender shall have received a Request for
Disbursement in the form set forth as Exhibit
C to this Agreement, together with such purchase orders, invoices, bills of
sale, canceled checks or such other documentation as Lender may require in
support of their purchase of One Hundred Thirty Thousand Dollars ($130,000.00)
of additional Collateral.
Section 2.02. The Note. The Loan shall be evidenced by a
promissory note of even date herewith duly completed and executed by Borrower in
substantially the form attached hereto as Exhibit A (the "Note"), the terms,
covenants, and conditions of which are by this reference incorporated herein.
Section 2.03. Purpose of Loan: Project. Borrower will use the
proceeds of the Loan for construction of a 5,000 s.f. addition to the Premises
and for acquisition of machinery and equipment in connection with start up costs
to manufacture Polo clothes by Ralph Lauren (the "Project").
Section 2.04. Prepayments. Borrower shall have the right to
prepay the Loan at any time or from time to time without penalty.
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Section 2.05. Interest. Interest shall accrue on the
outstanding and unpaid principal amount of the Loan and shall be calculated in
accordance with the Note.
Section 2.06. Payments. The Loan shall be payable in
accordance with the Note.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower hereby
represents and warrants as follows:
Section 3.01. Incorporation. Good Standing and Due
Qualification. Borrower is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of Delaware, has the
power and authority to own its assets and to transact the business in which it
is now engaged or proposed to be engaged and is duly qualified as a foreign
partnership and in good standing under the laws of each other jurisdiction in
which such qualification is required.
Section 3.02. Power and Authority: No Conflicts. The
execution, delivery and performance by Borrower of the Loan Documents have been
duly authorized by all necessary action and do not and will not: (a) require any
consent or approval of its partners; (b) contravene its charter or by-laws; (c)
violate any provision of, or require any filing, registration, consent or
approval under, any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award presently in effect having applicability to
Borrower or affiliates, (d) result in a breach of, or constitute a default or
require any consent, which consent has not been obtained, under any indenture or
loan or credit agreement or any other agreement, lease or instrument to which
Borrower is a party or by which it or its properties may be bound or affected;
(e) result in, or require, the creation or imposition of any Lien, upon or with
respect to any of the properties now owned or hereafter acquired by Borrower
except Liens securing the Loan; or (f) cause Borrower to be in default under any
law, rule, regulation, order, writ, judgment, injunction, decree, determination
or award or any such indenture, agreement, lease or instrument.
Section 3.03. Legally Enforceable Agreements. Each Loan
Document is, or when delivered under this Agreement will be, a legal, valid and
binding obligation of Borrower enforceable against Borrower in accordance with
its terms, except to the extent that such enforcement may be limited by
bankruptcy, insolvency and other similar laws affecting creditor's rights
generally.
Section 3.04. Litigation. There are no actions, suits or
proceedings pending or, to the knowledge of Borrower, threatened against, or
affecting Borrower before any court, governmental entity or arbitrator, which
may, in any one case or in the aggregate, materially adversely affect the
financial condition, operations, properties or business of Borrower, or the
ability of Borrower to perform its obligations under the Loan Documents.
Section 3.05. Financial Statements. The financial statements
of Borrower for the fiscal year of Borrower ended on December 31, 1994, together
with the opinion thereon, dated December 31, 1994, of Ernst & Young, independent
certified public accountants, and the interim compiled financial statements of
Borrower for the period ending September 30, 1995, copies of which have been
furnished to Lender, are complete and correct and fairly present the financial
condition of Borrower as at such dates and the results of the operations of
Borrower for the periods covered by such statements, all in accordance with GAAP
consistently applied (subject to year end adjustments in the case of the interim
financial statements). There are no liabilities of Borrower, fixed or
contingent, which are material but are not reflected in such financial
statements or in the notes thereto. Since the date of the financial statements
for the most recently concluded fiscal reporting period of Borrower referred to
above and submitted to Lender there has been no material adverse change in the
condition (financial or otherwise), business, operations or prospects of
Borrower.
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Section 3.06. Ownership and Liens. Borrower has title to, or
valid leasehold interests in, all of its properties and assets, real and
personal, including the properties and assets, and leasehold interests
identified in the Application or in any information report or exhibit submitted
in connection with the Application or reflected in the financial statements
referred to in Section 3.05 (other than any properties or assets disposed of in
the ordinary course of business), and none of the properties and assets owned by
Borrower and none of its leasehold interests is subject to any Lien, except as
disclosed in the Application or such information, exhibit, report or financial
statements or as may be permitted hereunder.
Section 3.07. Taxes. Borrower has filed all tax (federal,
state and local) returns required to be filed and has paid all taxes,
assessments and governmental charges and levies thereon to be due, including
interest and penalties. Borrower has no knowledge of any claims for taxes due
and unpaid which might become a Lien upon any of its assets.
Section 3.08. Operation of Business: Compliance with Laws.
Borrower possesses all licenses, permits, franchises, patents, copyrights,
trademarks and trade names, or rights thereto, to conduct its business
substantially as now conducted and as presently proposed to be conducted, and
Borrower is not in violation of any valid rights of others with respect to any
of the foregoing. Borrower is in compliance in all respects with all applicable
laws, rules, regulations and orders.
Section 3.09. Credit Arrangements. Except as has been
disclosed to Lender in writing, the financial statements of Borrower referred in
Section 3.05 identify all credit agreements, indentures, purchase agreements,
guaranties, Capital Leases and other investments, agreements and arrangements
presently in effect providing for or relating to extensions of credit (including
agreements and arrangements for the issuance of letters of credit) in respect of
which Borrower is in any manner directly or contingently obligated, which
individually or in the aggregate exceed $10,000; and the maximum principal or
face amounts of the credit in question outstanding and which can be outstanding
are correctly stated, and all Liens of any nature given as security therefor are
correctly described or indicated in such financial statements.
Section 3.10. No Default on Outstanding Judgments or Orders:
No Defaults on Other Agreements. Borrower has satisfied all judgments and
Borrower is not in default with respect to any judgment, writ, injunction,
decree, rule or regulation of any court, arbitrator or federal, state, municipal
or other governmental authority, commission, board, bureau, agency or
instrumentality, domestic or foreign. Except as otherwise disclosed to Lender,
Borrower is not a party to any indenture, loan or credit agreement or any lease
or other agreement or instrument or subject to any charter or corporate
restriction which could have a material adverse effect on the business,
properties, assets, operations or conditions, financial or otherwise, of
Borrower, or the ability of Borrower to carry out its obligations under the Loan
Documents. Borrower is not in default in any material respect in the
performance, observance of fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument material to its business to
which it is a party which could have a material adverse effect on the business,
properties, assets, operations or conditions, financial or otherwise, of
Borrower or the ability of Borrower to carry out its obligations under the Loan
Documents.
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Section 3.11. Labor Disputes and Acts of God. Neither the
business nor the properties of Borrower are affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance), materially and adversely affecting such
business or properties or the operation of Borrower.
Section 3.12. Financial Support. (a) Borrower has obtained
financial support or secured binding, written commitments to provide financial
support in the amount necessary to undertake the Project to completion. The
following Persons have provided Borrower with financial support or commitments
to provide financial support in amounts not less than those set forth opposite
their names: Bank Line of Credit ($16 million commitment of
which $12 million was available on January
11, 1994, $14 million will be available as
of January 1, 1995 and $16 million will be
available as of January 1, 1996)
(b) The amount contributed by Borrower in support of the
Project is $300,000.
Section 3.13. Application and Documents Submitted to Lender.
All information contained in the Application or submitted to Lender in
connection with the Loan is complete and correct and fairly presents the
condition, operations and prospects of Borrower as of the date hereof. Borrower
has not misstated, omitted or withheld any fact in connection with its
Application upon which Lender may have relied in its decision to make the Loan.
Each invoice, bill of sale, receipt, check or other document or instrument,
heretofore or hereafter submitted to Lender by Borrower in connection with the
Loan, upon submission was or shall be complete and genuine and accurately
reflect the transaction to which it relates.
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ARTICLE 4. AFFIRMATIVE COVENANTS. So long as the Note shall remain unpaid
Borrower agrees as follows:
Section 4.01. Maintenance of Existence. Borrower shall
preserve and maintain its existence and good standing in the jurisdiction of its
partnership, and qualify and remain qualified, as a foreign partnership in each
jurisdiction in which such qualification is required.
Section 4.02. Conduct of Business. Borrower shall continue to
engage in an efficient and economical manner in its business substantially as
conducted by it on the date of this Agreement.
Section 4.03. Maintenance of Properties. Borrower shall
maintain, keep and preserve, all of its properties (tangible and intangible)
necessary or useful in the proper conduct of its business in good working order
and condition, ordinary wear and tear excepted.
Section 4.04. Maintenance of Records. Borrower shall keep
adequate records and books of account, in which complete entries will be made in
accordance with GAAP, reflecting all financial transactions of Borrower and
retain such records and books for three years after payment in full of the Loan
at the address of Borrower set forth above.
Section 4.05. Maintenance of Insurance. Borrower shall
maintain in full force and effect insurance in such amounts and covering such
risks as Lender may require from time to time.
All insurance required hereby shall be provided by companies
satisfactory to Lender pursuant to policies satisfactory to Lender in forte and
substance. Upon request, Borrower shall provide Lender with certificates
evidencing the insurance required hereby or, at Lender's discretion, with the
original or copies, of the policies of such insurance.
Section 4.06. Compliance with Laws. Borrower shall comply in
all respects with all applicable federal, state and local laws, rules,
regulations and orders.
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Section 4.07. Taxes. Borrower shall file when due all tax
returns required to be filed by all applicable federal, state and local laws and
shall make timely payment of all taxes, assessments and governmental charges and
levies assessed, charged or imposed upon Borrower or any of its properties.
Borrower shall not permit any such tax, assessment, charge or levy to become
Lien upon any of its assets.
Section 4.08. Right of Inspection and Audit. At any reasonable
time and from time to time, Borrower shall permit Lender or any agent or
representative thereof, to examine and make copies and abstracts from the
records and books of account of, and visit the properties of, Borrower and to
discuss the affairs, finances and accounts of Borrower with any of its officers
and directors and Borrower's independent accountants. Lender's right of
inspection and audit pursuant to this Section shall survive the payment of the
Loan and remain in full force and effect for three years thereafter.
Section 4.09. Reporting Requirements. Borrower shall furnish
to Lender the following financial information:
(a) Annual Financial Statements. As soon as available
and in any event within 120 days after the end of each fiscal year of
Borrower financial statements of Borrower, reasonably detailed and
stating in comparative form the respective figures for the
corresponding date and period in the prior fiscal year and prepared
in accordance with GAAP and accompanied by an opinion thereon
satisfactory to Lender by an independent accountant acceptable to
Lender];
(b) Quarterly Financial Statements. As soon as
available and in any event within 45 days after the end of each of
the first three quarters of each fiscal year of Borrower financial
statements of Borrower as of the end of such quarter, reasonably
detailed and stating in comparative form the respective figures for
the corresponding date and period in the previous fiscal year and
prepared in accordance with GAAP and certified by the chief financial
officer of Borrower (subject to year-end adjustments).
(c) Management Letters. Promptly upon receipt
thereof, copies of any reports submitted to Borrower by independent
certified public accountants in connection with examination of the
financial statements of Borrower made by such accountants.
(d) Notice of Litigation. Promptly after the
commencement thereof, notice of all actions, suits, and proceedings
before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, affecting
Borrower which, if determined adversely to Borrower, could have a
material adverse effect on the financial condition, properties, or
operations of Borrower.
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(e) Notice of Defaults and Events of Default. As soon
as possible and in any event within 10 days after the occurrence of
each Default or Event of Default a written notice setting forth the
details of such Default or Event of Default and the action which is
proposed to be taken by Borrower with respect thereto.
(f) General Information. Such other information
respecting the condition or operations, financial or otherwise, of
Borrower as Lender may from time to time reasonably request.
Section 4.10. Employee Reporting Form. Borrower shall furnish
to Lender, not later than February 1 of each year, an Employee Reporting Form
substantially in the form attached hereto as Exhibit B stating the number of
Full-Time Permanent Employees as of the immediately preceding January 1. The
first Employee Reporting Form shall be submitted no later than February 1, 1996.
Section 4.11. Reduction in Permanent Workforce. Borrower shall
notify Lender in writing, not less than ninety (90) days prior to the effective
date of a Reduction in Permanent Workforce. For the purposes hereof, "Reduction
in Permanent Workforce" means a reduction in the number of Borrower's Full-time
Permanent Employees which, individually, or in the aggregate, results in a
reduction of the greater of (a) 50 Full-time Permanent Employees or (b) 50% or
more of the number of Full-time Permanent Employees on the date of the first
reduction.
Section 4.12. Non-Discrimination and Affirmative Action.
Borrower shall comply with all terms and conditions, as
outlined in Exhibit D attached hereto and incorporated herein.
Section 4. 13. Job Training Partnership Act.
Borrower shall first consider, in good faith, for all
employment opportunities created in connection with the Project, individuals
referred by the State of New York who are eligible to participate in the Federal
Job Training Partnership Act Program.
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ARTICLE 5. NEGATIVE COVENANTS. So long as the Note shall remain unpaid Borrower
agrees as follows:
Section 5.01. Reserved
Section 5.02. Guaranties, Etc. Borrower shall not assume,
guarantee, endorse or otherwise be or become directly or contingently
responsible or liable, for the obligations of any Person (including, but not
limited to, any agreement to purchase any obligation, stock, assets, goods or
services or to supply or advance any funds, assets, goods or services, or any
agreement to maintain or cause such Person to maintain a minimum working capital
or net worth or otherwise to assure the creditors of any such Person against
loss), except guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions the ordinary course of business.
Section 5.03. Extensions of Credit. Borrower shall not make
any loan or advance or extend any credit to any Person except in the ordinary
course of business. In addition, no debt service payments may be made on any
loan to an officer or employee of Borrower unless Borrower is current on all of
its obligations to ESDC.
Section 5.04. Dividends. Unless current on ESDC debt, Borrower
shall not declare or pay any dividends, purchase, redeem, retire or otherwise
acquire for value any of its capital stock now or hereafter outstanding, or make
any distribution of assets to its stockholders as such whether in cash, assets
or in obligations of Borrower, or allocate or otherwise set apart any sum for
the payment of any dividend or distribution on, or for the purchase, redemption
or retirement of any shares of its capital stock, or make any other distribution
by reduction of capital or otherwise in respect of any shares of its capital
stock except that: (a) Borrower may declare and deliver dividends and make
distributions payable solely in common stock of Borrower; (b) Borrower may
purchase or otherwise acquire shares of its capital stock by exchange for or out
of the proceeds received from a substantially concurrent issue of new shares of
its capital stock.
Section 5.05. Transactions with Affiliates. Subsequent to the
date hereof, (a) Borrower shall not enter into any transaction, including,
without limitation, the purchase, sale or exchange of property or the rendering
of any service, with any Affiliate, without limitation, the purchase, sale or
exchange of property or the rendering of any service with any Affiliate, except
in the ordinary course of and pursuant to the reasonable requirements of
Borrower's business and upon fair and reasonable terms no less favorable to
Borrower than would obtain in a comparable arm's length transaction with a
Person who is not an Affiliate.
(b) Borrower shall not incur or suffer to exist any
Debt to any Affiliate unless such Debt shall be subordinated to the Loan
pursuant to a Subordination Agreement, by and between Lender, Borrower and such
Affiliate.
Section 5.06. Sale of Assets, Mergers Etc. Borrower shall not
merge or consolidate with any Person, or sell, assign, lease or otherwise
dispose (whether in one transaction or in a series of transactions) of all or
substantially all of its assets (whether now owned or hereafter acquired) to any
Person, or acquire all or substantially all of the assets or the business of any
Person;
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Section 5.07. Location of Business. Borrower shall not remove
its business operations located at the Premises away from the State of New York,
or relocate its business operations from the Premises.
Section 5.08. Compensation. Borrower shall not pay any
compensation (whether by way of salary, emoluments, stock options, bonus or
otherwise) to any director, officer, employee or agent in excess to that which
is reasonable and customary for enterprises engaged in a similar business and
similarly situated.
ARTICLE 6. FINANCIAL COVENANTS. So long as the Note shall remain unpaid Borrower
agrees as follows:
Section 6.01. Minimum Tangible Net Worth. Borrower shall
maintain at all times a Tangible Net Worth of not less than $7.5 million.
Section 6.02. Intentionally Omitted
Section 6.03 Intentionally Omitted
ARTICLE 7. EVENTS OF DEFAULT.
Section 7.01. Events of Default. Any of the following events
shall be an "Event of Default":
(a) Borrower shall: (i) fail to pay the principal of the Note
within five (5) days after due and payable; (ii) fail to pay interest
on the Note or any fee or other amount due under the Loan Documents
within five (5) days after due and payable.
(b) Any representation or warranty made or deemed made by
Borrower or any Third Party in any Loan Document or which is contained
in any certificate, document, opinion, financial or other statement
furnished at any time under or in connection with any Loan Document
shall have been incorrect in any material respect on or as of the date
made or deemed made.
(c) Borrower or any Third Party shall fail to perform or
observe any term, covenant or agreement on its part to be performed or
observed (other than the obligations specifically referred to elsewhere
in this Section 7.01 and other than the voluntary undertakings
described in Section 4.11) in any Loan Document and such failure shall
continue for 20 consecutive days after notice.
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(d) Borrower or any Third Party shall: (i) fail to pay any of
its indebtedness, including but not limited to indebtedness for
borrowed money (other than the payment obligations described in (a)
above), or any interest or premium thereon, when due (whether by
scheduled maturity, required prepayment, acceleration, demand or
otherwise); or (ii) fail to perform or observe any term, covenant or
condition on its part to be performed or observed under any agreement
or instrument relating to any such indebtedness, when required to be
performed or observed, if the effect of such failure to perform or
observe is to accelerate, after the giving of notice or passage of
time, or both, the maturity of such indebtedness, or any such
indebtedness shall be declared to be due and payable, or required to be
prepaid (other than by a regularly scheduled required prepayment),
prior to the stated maturity thereof.
(e) Borrower or any Third Party: (i) shall generally not, or
be unable to, or shall admit in writing its inability to, pay its debts
as such debts become due; or (ii) shall make an assignment for the
benefit of creditors, petition or apply to any tribunal for the
appointment of a custodian, receiver or trustee for it or a substantial
part of its assets; or (iii) shall commence any proceeding under any
bankruptcy, reorganization, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, whether
now or hereafter in effect; or (iv) shall have had any such petition or
application filed or any such proceeding shall have been commenced
against it in which an adjudication or appointment is made or order for
relief is entered, or which petition, application or proceeding remains
undismissed for a period of 30 days or more; or (v) by any act or
omission shall indicate its consent to, approval of or acquiescence in
any such petition, application or proceeding or order for relief or the
appointment of a custodian, receiver or trustee for all or any
substantial part of its properties; or (vi) shall suffer any such
custodianship, receivership or trusteeship to continue undischarged for
a period of 45 days or more.
(f) One or more judgments, decrees or orders for the payment
of money which individually or in the aggregate shall result in a
material adverse change in the financial condition of Borrower or any
Third Party or any such judgments, decrees or orders shall continue
unsatisfied and in effect for a period of 30 consecutive days without
being vacated, discharged, satisfied or stayed or bonded pending
appeal.
(g) If Borrower or any Third Party shall dissolve or for any
reason cease to be in existence; or if Borrower or any Third Party is a
partnership, any general partner shall die, dissolve or for any reason
cease to be in existence or cease to be a partner.
(h) A transfer of 20% or more in the voting rights of Borrower
shall occur, whether in one or more transactions, without Lender's
prior written consent.
Section 7.02. Remedies. If any Event of Default shall occur,
Lender may, by notice to Borrower declare the outstanding principal of the Note,
all interest thereon and all other amounts payable under this Agreement and the
Note to be forthwith due and payable, whereupon the Note, all such interest and
all such amounts shall become and be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by Borrower; provided that, in the case of an Event of
Default referred to in Section 7.01 (e) above, the Note, all interest thereon
and all other amounts payable under this Agreement shall be immediately due and
payable without notice, presentment, demand, protest or other formalities of any
kind, all of which are hereby expressly waived by Borrower.
The remedies herein provided are cumulative and not exclusive
of any remedies provided by law.
14
<PAGE>
ARTICLE 8. MISCELLANEOUS.
Section 8.01. Amendments and Waivers. No amendment or waiver
of any provision of this Agreement nor consent to any departure by Borrower
therefrom shall in any event be effective unless the same shall be in writing
and signed by an authorized officer of Lender, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given. No failure on the part of Lender to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof or preclude
any other or further exercise thereof or the exercise of any other right.
Section 8.02. Usury. Anything herein to the contrary
notwithstanding, the obligations of Borrower under this Agreement and the Note
shall be subject to the limitation that payments of interest shall not be
required to the extent that receipt thereof would be contrary to provisions of
law applicable to Lender limiting rates of interest which may be charged or
collected by Lender.
Section 8.03. Expenses. Borrower shall reimburse Lender on
demand for all costs, expenses, and charges (including, without limitation,
reasonable fees and charges of external legal counsel for Lender) incurred by
Lender in connection with the preparation, performance, or enforcement of this
Agreement or the Note or the making of the Loan. The obligations of Borrower
under this Section shall survive the repayment of the Loan.
Section 8.04. Indemnification. Borrower agrees to indemnify
Lender and its directors, officers, employees and agents from, and hold each of
them harmless against, any and all losses, liabilities, claims, damages or
expenses incurred by any of them arising out of or by reason of any
investigation or litigation or other proceedings (including any threatened
investigation or litigation or other proceedings) relating to any actual or
proposed use by Borrower of the proceeds of the Loan, including without
limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation or litigation or other proceedings (but
excluding any such losses, liabilities, claims, damages or expenses incurred by
reason of the gross negligence or willful misconduct of Lender). The obligations
of Borrower under this Section shall survive repayment of the Loan.
Section 8.05. Assignment. This Agreement shall be binding
upon, and shall inure to the benefit of, Borrower, Lender and their respective
successors and assigns, except that Borrower may not assign or transfer its
rights or obligations hereunder. Lender may assign all or any part of the Loan
to a bank or other entity, in which event upon notice thereof by Lender to
Borrower, the assignee shall have, to the extent of such assignment (unless
otherwise provided therein), the same rights and benefits as it would have if it
were Lender hereunder. Lender may furnish any information concerning Borrower in
the possession of Lender from time to time to assignees and prospective
assignees.
15
<PAGE>
Section 8.06. Notices. Unless the party to be notified
otherwise notifies the other party in writing as provided in this Section, and
except as otherwise provided in this Agreement, notices shall be given to Lender
and to Borrower by hand or by certified mail, return receipt requested,
addressed to such party at its address set forth below. Notices shall be
effective: (a) if given by certified mail, 72 hours after deposit in the mails
with first class postage prepaid, addressed as aforesaid; and (b) if given by
hand, upon receipt; provided that notices to Lender shall be effective only upon
receipt:
Address for notices to Lender
Empire State Development Corporation
633 Third Avenue
New York, New York 10017
Attention: Senior Vice President
and General Counsel
Address for notices to Borrower
MS Pietrafesa, L.P.
7400 Morgan Road
Liverpool, New York 13090
Attention: Chief Financial Officer
Section 8.07. Jurisdiction: Immunities. (a) Borrower hereby
irrevocably submits to the jurisdiction of any New York State or United States
Federal court sitting in New York County or, at Lender's sole discretion, in the
county where the principal office of the Borrower is located over any action or
proceeding arising out of or relating to this Agreement or the Note, and
Borrower hereby irrevocably agrees that all claims in respect of such action or
proceeding may be heard and determined in such New York State or Federal court.
Borrower irrevocably consents to the service of any and all process in any such
action or proceeding by the mailing of copies of such process to Borrower at its
address set forth above. Borrower agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Borrower further waives any objection to venue in such county and any objection
to an action or proceeding in such county on the basis of forum non conveniens.
Borrower further agrees that any action or proceeding brought against Lender
shall be brought only in New York State or United States Federal court sitting
in New York County.
(b) Nothing in this Section shall affect the right of Lender
to serve legal process in any other manner permitted by law or affect the right
of Lender to bring any action or proceeding against Borrower or its property in
the courts of any other jurisdictions.
(c) To the extent that Borrower has or hereafter may acquire
any immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property,
Borrower hereby irrevocably waives such immunity in respect of its obligations
under this Agreement and the Note.
Section 8.08. Captions. The captions and headings hereunder
are for convenience only and shall not affect the interpretation or construction
of this Agreement.
16
<PAGE>
Section 8.09. Severability. The provisions of this Agreement
are intended to be severable. If for any reason any provision of this Agreement
shall be held invalid or unenforceable in whole or in part in any jurisdiction,
such provision shall, as to such jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without in any manner affecting the validity
or enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
Section 8.10. Counterparts. This Agreement may be executed in
any number of counterparts, all of which taken together shall constitute one and
the same instrument, and any party hereto may execute this Agreement by signing
any such counterpart.
Section 8.11. Governing Law. This Agreement shall be governed
by, and interpreted and construed in accordance with, the laws of the State of
New York.
Section 8.12. Joint and Several Obligations. As used herein
the term Borrower shall include all signatories hereto, if more than one. In
such event, the obligations, representations and warranties of Borrower
hereunder shall be joint and several.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed as of the day and year first above written.
MS PIETRAFESA, L.P.
By: MS PIETRAFESA ACQUISITION CORPORATION,
its GENERAL PARTNER
By: /s/ Richard C. Pietrafesa, Jr.
--------------------------------
NEW YORK STATE URBAN DEVELOPMENT CORPORATION
d\b\a EMPIRE STATE DEVELOPMENT CORPORATION
By: /s/ Carol Bachan
-------------------
18
<PAGE>
EXHIBIT 10.8
TRANSFER OF ASSETS
AND ASSIGNMENT AND ASSUMPTION OF CONTRACTS AND LEASES
-----------------------------------------------------
TRANSFER OF ASSETS AND ASSIGNMENT OF CONTRACTS AND LEASES
(this "Agreement") dated as of October 1, 1998, between MS
PIETRAFESA, L.P., a Delaware limited partnership ("Grantor"),
and THE PIETRAFESA CORPORATION, a Delaware corporation
("Grantee").
WHEREAS, Grantor is the sole shareholder of Grantee, which was
formed to own and manage Grantor's business. As part of its capital contribution
to Grantee, Grantor is transferring all of its assets and assigning all of its
rights under its contracts and leases to Grantee.
NOW, THEREFORE, in consideration of the issuance to Grantor of
all the issued and outstanding capital stock of Grantee, Grantor and Grantee
hereby agree as follows:
SECTION 1. Assignment. Effective at 12:01 a.m. on the date
hereof, Grantor hereby grants, conveys, transfers and assigns to Grantee, its
successors and assigns, and Grantee hereby accepts from Grantee:
(a) all of Grantor's rights, title and interest in and to all
assets (including all intangible assets) owned by Grantor or otherwise used by
Grantor or arising under or in connection with its business, including, without
limitation the following (the "Assets"):
(i) all inventory, accounts receivable, machinery, equipment,
supplies and other personal property owned by Grantor on the date
hereof;
(ii) all of Grantor's books, records, reports, documents and
files, including without limitation, customer and supplier lists, sales
data, brochures, catalogs, mailing lists, art work, photographs and
advertising material, accounting data, property records, manufacturing
records and personnel records, whether in electronic form or otherwise.
In addition, upon request, Grantor shall provide Grantee with copies of
all of Grantor's tax records and tax returns;
(iii) all right, title and interest in and to any intellectual
property rights of Grantor (including patents, trademarks, trade names,
copyrights, and confidential and proprietary drawings, designs,
inventions, trade secrets, royalty rights, work notes, market studies,
consultant's reports and similar property, tangible or intangible), and
all files relating thereto;
<PAGE>
(iv) all right, title and interest in and to the goodwill of
Grantor;
(v) all prepaid expenses of, or for the benefit of, the
Grantor;
(vi) all the real property of Grantor, together with all
rights, titles, appurtenant interests, covenants, licenses, remainders,
reversions, privileges and benefits thereunto belonging, including all
right, title and interest in and to any easements, rights-of-way,
rights of ingress or egress or other interests in, on or under any
land, highway, street, road or avenue, open or proposed, in, on,
across, in front of, abutting or adjoining such real property (the
"Real Property"); and
(vii) all other assets of the Grantor (including without
limitation all causes of action, contract rights and warranty and
product liability claims, whether or not in litigation on the date
hereof).
(b) all of its rights, interests and obligations in, to and
under the equipment leases, real estate leases, contracts, contract rights,
licenses, permits, plans, commitments, registrations, certificates, consents,
orders and approvals and other agreements, including, without limitation, those
identified on Schedule II attached hereto and made a part hereof (the
"Contracts"), together with all monies and other sums payable to or receivable
by Grantor under or in respect of the Contracts and all of Grantor's rights
under the Contracts, with full power and authority to enforce performance and
demand, sue for and collect damages in connection therewith.
SECTION 2. Assumption. Effective upon the date hereof, Grantee
does hereby irrevocably accept and assume from Grantor, and subsequently in due
course shall pay, honor and discharge, all of Grantor's liabilities and
obligations under the Contracts or in connection with the Assets accruing on or
after the date hereof, together with all current and long term liabilities of
Grantor arising on or before the date hereof.
SECTION 3. Further Assurances. From and after the date here
of, upon written request from Grantee, Grantor shall execute, acknowledge and
deliver all such further acts, assurances, deeds, assignments, transfers,
conveyances and other instruments and papers as may reasonably be required to
sell, assign, transfer, vest, convey and deliver full right, title and interest
in, and possession of, the Assets and Contracts to Grantee and to otherwise
consummate the transactions contemplated hereby.
SECTION 4. Representations. (a) By Both Parties. Each party to
this Agreement represents and warrants (i) that it is duly organized, validly
existing and in good standing under the laws of its organization, (ii) that it
has full power and authority to enter into this Agreement, (ii) that this
Agreement has been duly authorized by such party, (iii) that this Agreement is a
legal, valid and binding agreement of such party enforceable against such party
in accordance with its terms, and (iv) that it has obtained all consents and
approvals, and made all registrations, required to be made or obtained to
consummate the transactions contemplated hereby.
2
<PAGE>
(b) By Grantor.
(i) Valid Title. Grantor has good and valid title to all
Assets transferred pursuant to this Agreement. The Assets and Contracts
transferred hereby are not subject to any prior assignment, conveyance,
transfer or agreement to assign, convey, transfer or participate, in
whole or in part.
(ii) No Contravention. The execution, delivery and performance
of this Agreement does not violate (x) any law, rule, regulation,
order, writ, judgment, injunction, decree, or determination presently
in effect having applicability to the Grantor, (y) any contract,
indenture, mortgage, loan agreement, note, lease or other instrument to
which the Grantor may be bound or to which any of the assets of the
Grantor is subject, or (z) any provision of the Grantor's agreement of
limited partnership.
(iii) All Assets and Liabilities. The assigned Assets
constitute all assets of Grantor and the liabilities assumed by Grantor
constitute all liabilities of the Grantor.
SECTION 5. Bulk Transfer Laws. The Grantor hereby waives
compliance by the Grantee with the provisions of any so-called "bulk transfer
law" of any jurisdiction in connection with the tranferer of the Assets. The
Grantor agrees to indemnify and hold the Grantee harmless, in cash payable upon
demand, against any and all liabilities, including costs and expenses that may
be asserted by third parties against the Grantee as a result of any
non-compliance by the Grantor with any such bulk transfer law.
SECTION 6. Indemnification. (a) Grantee shall indemnify and
hold Grantor harmless from all claims arising from or relating to the Assets or
Contracts arising on or after the date hereof, including but not limited to all
costs, interest, penalties, and expenses (including reasonable legal, accounting
and expert fees) (collectively "Losses"), except solely those Losses resulting
from or alleged to result from defects in Grantor's right, title and interest
thereto as of the date hereof and from any actions or inactions of Grantor prior
to the date hereof.
(b) Grantor shall indemnify and hold harmless Grantee from all
claims arising from or relating to (i) any inaccuracy of any representation or
warranty of Grantor contained herein or (ii) the Assets or Contracts prior to
the date hereof, including but not limited to all Losses, except solely those
Losses resulting from or alleged to result from any actions or inactions of
Grantee on or after the date hereof.
THIS INSTRUMENT IS MADE WITHOUT WARRANTY OF ANY KIND BY
GRANTOR, WHETHER EXPRESS OR IMPLIED (OTHER THAN WARRANTIES OF TITLE AND OTHER
REPRESENTATIONS MADE BY GRANTOR HEREIN), INCLUDING WITHOUT LIMITATION ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. ALL PROPERTY IS
TRANSFERRED AS IS. Notwithstanding the foregoing, Grantor hereby transfers to
Grantee all manufacturers' warranties and other warranties of third parties made
in connection with the property transferred hereby.
3
<PAGE>
SECTION 7. Entire Agreement. This Agreement embodies the
entire agreement and understanding among the parties with respect to the subject
matter hereof and supersedes all prior agreements and understandings relating to
the subject matter hereof. This Agreement shall not be changed or amended
without the written agreement of all parties hereto.
SECTION 8. Parties in Interest. All the terms and provisions
of this Agreement shall inure to the benefit of and be binding upon and be
enforceable by the parties and their respective successors and assigns.
SECTION 9. Severability. In the event that any one or more of
the provisions contained in this Agreement shall, for any reason, be held
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement.
SECTION 10. Governing Law. This Agreement together with all of
the rights and obligations of the parties hereto, shall be construed, governed
and enforced in accordance with the laws of the State of New York without regard
to conflicts of law doctrines.
IN WITNESS WHEREOF, Grantor and Grantee have executed this
Agreement as of the date first above written.
MS PIETRAFESA, L.P.
By MS Pietrafesa Acquisition Corp.,
its general partner
By: /s/ Richard C. Pietrafesa, Jr.
------------------------------
Chief Executive Officer
THE PIETRAFESA CORPORATION
By: /s/ Richard C. Pietrafesa, Jr.
-------------------------------
Chief Executive Officer
4
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
1. DAG Acquisition Corp., a Delaware corporation
2. Components Acquisition Corp., a Delaware corporation
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Experts" and
"Selected Historical Consolidated Financial Data" and to the use of our report
dated February 12, 1999 (expect for Note 13, as to which the date is May __,
1999) for the Consolidated Financial Statements of Pietrafesa at December 31,
1997 and 1998, and for each of the three years in the period ended December 31,
1998, in the Registration Statement (Form S-1) and related Prospectus of The
Pietrafesa Corporation for the registration of shares of its common stock.
Ernst & Young LLP
Syracuse, New York
The foregoing report is in the form that will be signed upon the completion of
the acquisition, public offering and restatement of capital accounts described
in Note 13 to the financial statements.
/s/ Ernst & Young LLP
Syracuse, New York
March 11, 1999
<PAGE>
Consent of Independent Auditors
We consent to the references to our firm under the captions "Experts" and to the
use of our report dated March 4, 1999, with respect to the Financial Statements
and schedules of Components by John McCoy, Inc. included in the Registration
Statement (Form S-1) and related Prospectus of The Pietrafesa Corporation for
the registration of its Common Stock.
/s/ Lawrence B. Goodman & Co. P.A.
Fair Lawn, New Jersey
March 11, 1999
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 2, 1999, with respect to the financial
statements and schedules of Global Sourcing Network, Ltd. included in the
Registration Statement (Form S-1) and related Prospectus of The Pietrafesa
Corporation for the registration of its common stock.
/s/ Pasquale & Bowers, LLP
Syracuse, New York
March 11, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
PIETRAFESA CORPORATION'S FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,
1997 AND 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-1-1997 JAN-1-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 3 14
<SECURITIES> 0 0
<RECEIVABLES> 4,066 7,967
<ALLOWANCES> 185 327
<INVENTORY> 8,731 13,117
<CURRENT-ASSETS> 12,943 22,229
<PP&E> 10,352 10,995
<DEPRECIATION> 3,806 4,409
<TOTAL-ASSETS> 19,673 29,375
<CURRENT-LIABILITIES> 8,301 12,990
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 2,709 2,383
<TOTAL-LIABILITY-AND-EQUITY> 19,673 29,375
<SALES> 37,582 56,763
<TOTAL-REVENUES> 37,582 56,763
<CGS> 29,218 47,062
<TOTAL-COSTS> 29,218 47,062
<OTHER-EXPENSES> 6,269 5,758
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,446 1,209
<INCOME-PRETAX> 649 1,911
<INCOME-TAX> 0 514
<INCOME-CONTINUING> 649 1,397
<DISCONTINUED> 93 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 556 1,397
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
