SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Mark One
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarter Ended May 5, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-5400
FARAH INCORPORATED
(Exact name of registrant as specified in its charter)
Texas 74-1061146
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8889 Gateway West, El Paso, Texas 79925
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (915) 593-4444
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
As of June 7, 1996 there were outstanding 10,167,811 shares of the
registrant's common stock, no par value, which is the only class of common or
voting stock of the registrant.
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<TABLE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
FARAH INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Quarter and Six Months Ended May 5, 1996 and May 5, 1995
- -------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Quarter Ended Six Months Ended
---------------------------------- --------------------------------
May 5, May 5, May 5, May 5,
1996 1995 1996 1995
--------------- --------------- --------------- --------------
(Thousands of dollars except per share data)
<S> <C> <C> <C> <C>
Net sales $ 64,058 56,782 115,568 106,731
Cost of sales 47,924 44,408 85,637 81,546
--------------- --------------- --------------- --------------
Gross profit 16,134 12,374 29,931 25,185
Selling, general and administrative expenses 15,792 17,618 29,581 32,052
--------------- --------------- --------------- --------------
Operating income (loss) 342 (5,244) 350 (6,867)
--------------- --------------- --------------- --------------
Other income (expense):
Interest expense (1,268) (1,121) (2,633) (1,812)
Interest income 194 311 430 508
Foreign currency transaction gains 26 168 93 343
Other, net 754 28 964 42
--------------- --------------- --------------- --------------
(294) (614) (1,146) (919)
Income (loss) before provision (benefit)
for income taxes 48 (5,858) (796) (7,786)
Provision (benefit) for income taxes 224 (2,026) 369 (2,699)
--------------- --------------- --------------- --------------
Net loss (176) (3,832) (1,165) (5,087)
Retained earnings:
Beginning 571 13,246 1,560 14,501
--------------- --------------- --------------- --------------
Ending $ 395 9,414 395 9,414
=============== =============== =============== ==============
Net loss per share $ (0.02) (0.38) (0.11) (0.50)
=============== =============== =============== ==============
Weighted average shares of common stock
outstanding 10,161,647 10,125,186 10,155,290 10,110,649
=============== =============== =============== ==============
See accompanying notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
FARAH INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MAY 5, 1996 AND NOVEMBER 3, 1995
- ----------------------------------------------------------------------------------------------------------------
(Unaudited)
May 5, November 3,
1996 1995
---------------- -----------------
(Thousands of dollars)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 3,701 3,657
Trade receivables, net 36,496 39,824
Inventories:
Raw materials 9,757 13,391
Work in process 11,816 14,429
Finished goods 37,806 44,943
---------------- -----------------
59,379 72,763
Other current assets 10,567 11,667
---------------- -----------------
Total current assets 110,143 127,911
Note receivable 5,433 5,600
Property, plant and equipment, net 32,028 33,363
Other non-current assets 7,160 6,953
---------------- -----------------
$ 154,764 173,827
================ =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 30,695 44,779
Current installments of long-term debt 2,330 2,407
Trade payables 17,671 17,644
Other current liabilities 11,519 14,073
---------------- -----------------
Total current liabilities 62,215 78,903
Long-term debt, excluding current installments 12,136 12,568
Other non-current liabilities 3,181 3,136
Deferred gain on sale of building 4,234 5,250
Shareholders' equity:
Common stock, no par value, $.01 stated value,
authorized 20,000,000 shares; issued 10,200,586
in 1996 and 10,181,601 in 1995 46,024 46,024
Additional paid-in capital 29,836 29,425
Cumulative foreign currency
translation adjustment (1,513) (1,295)
Minimum pension liability adjustment (1,635) (1,635)
Retained earnings 395 1,560
---------------- -----------------
73,107 74,079
Less: Treasury stock, 36,275 shares in
1996 and 1995, at cost 109 109
---------------- -----------------
Total shareholders' equity 72,998 73,970
---------------- -----------------
$ 154,764 173,827
================ =================
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
FARAH INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended May 5, 1996 and May 5, 1995
- ------------------------------------------------------------------------------------------------------------
(Unaudited)
1996 1995
---------------- -----------------
(Thousands of dollars)
<S> <C> <C>
Cash flows from (used in) operating activities:
Net loss $ (1,165) (5,087)
Adjustments to reconcile net loss to net cash from
(used in) operating activities:
Depreciation and amortization 2,699 1,789
Amortization of deferred gain on building sale (1,016) (1,016)
Deferred income taxes - (2,805)
Gain on sale of assets (643) (10)
Decrease (increase) in:
Trade receivables 3,328 7,232
Inventories 13,384 (6,338)
Other current assets 1,090 (2,970)
Increase (decrease) in:
Trade payables 27 (5,398)
Other current liabilities (2,143) (2,563)
---------------- -----------------
Net cash from (used in) operating activities 15,561 (17,166)
---------------- -----------------
Cash flows from (used in) investing activities:
Purchases of property, plant and equipment (1,023) (7,069)
Proceeds from sale of property, plant and equipment 1,059 88
---------------- -----------------
Net cash from (used in) investing activities 36 (6,981)
---------------- -----------------
Cash flows from (used in) financing activities:
Net change in revolving credit facility (14,084) 16,875
Proceeds from issuance of debt 7 7,357
Repayment of long-term debt (1,065) (858)
Proceeds from sale of common stock - 807
Other (193) (112)
---------------- -----------------
Net cash from (used in) financing activities (15,335) 24,069
---------------- -----------------
Foreign currency translation adjustment (218) (256)
---------------- -----------------
Net increase (decrease) in cash 44 (334)
Cash, beginning of period 3,657 2,372
---------------- -----------------
Cash, end of period $ 3,701 2,038
================ =================
Supplemental cash flow disclosures:
Interest paid $ 2,526 1,605
Income taxes paid 329 1,683
Assets acquired through direct financing
loans or capital leases 716 1,530
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The attached condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. As a result, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The Company believes that
the disclosures made are adequate to make the information presented not
misleading. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes
included in the Company's 1995 Annual Report on Form 10-K.
2. The foregoing financial information reflects all adjustments (which
consist only of normal recurring adjustments) which are, in the opinion of
management, necessary to present a fair statement of the financial position and
the results of operations and cash flows for the interim periods.
3. On June 7, 1996, the Company sold its Piedras Negras, Mexico sewing and
finishing facility to Galey & Lord, Inc. for a purchase price of approximately
$21,900,000 in cash. The Company will report a non-recurring pre-tax gain in the
third quarter on the sale of the facility of approximately $10,000,000.
Proceeds from the sale were used to retire a long-term capital lease
obligation of approximately $7,224,000 plus other long-term obligations. The
balance of the proceeds of approximately $13,250,000 was applied to the
Company's Credit Agreement. As of the date of closing the sale, June 7, 1996,
availability under the Credit Agreement was approximately $24,500,000.
Concurrent with the sale, the Company extended the expiration of the Credit
Agreement one year to July 1, 1998.
In conjunction with this sale, the Company entered into a long term supply
agreement whereby Galey & Lord, Inc. will continue to produce garments for Farah
at the Piedras Negras facility. In addition to the long term supply agreement,
the Company expects to invest in joint ventures or other similar arrangements to
meet its future production requirements.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
<TABLE>
Results of Operations
The following table sets forth, for the periods indicated, certain
financial data as percentages of net sales:
Second Quarter Ended Six Months Ended
----------------------------------- ----------------------------------
1996 1995 1996 1995
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net Sales:
Farah U.S.A. 74.5 % 72.4 % 73.6 % 72.5 %
Farah International 19.3 22.0 19.4 20.5
Value Slacks 6.2 5.6 7.0 7.0
------------ ----------- ----------- ------------
Total net sales 100.0 100.0 100.0 100.0
Cost of sales 74.8 78.2 74.1 76.4
------------ ----------- ----------- ------------
Gross profit 25.2 21.8 25.9 23.6
Selling, general and
administrative expenses 24.7 31.0 25.6 30.0
------------ ----------- ----------- ------------
Operating income (loss) 0.5 -9.2 0.3 -6.4
Other expense, net 0.5 1.1 1.0 0.9
------------ ----------- ----------- ------------
Income (loss) before income taxes 0.0 -10.3 -0.7 -7.3
Income tax expense (benefit) 0.3 -3.6 0.3 -2.5
------------ ----------- ----------- ------------
Net loss -0.3 % -6.7 % -1.0 % -4.8 %
============ =========== =========== ============
</TABLE>
Consolidated sales for the second quarter of fiscal 1996 increased by
$7,276,000 (12.8%) compared to the second quarter of fiscal 1995. For the first
six months, sales increased $8,837,000 (8.3%) in 1996 compared to the same
period in 1995. Sales increased during both periods at Farah U.S.A. and Value
Slacks. At Farah International, sales increased during the first six months, but
were down during the second quarter.
Farah U.S.A. sales for the second quarter of fiscal 1996 were
$47,747,000 compared to $41,087,000 in the second quarter of 1995, a 16.2%
increase. Unit sales increased 20.5% while the average unit selling price
decreased 3.5%. In the first six months of 1996, Farah U.S.A. sales were
$85,133,000 compared to $77,421,000 in the same period of 1995. Units sales
increased 13.3% and the average unit selling price declined 2.9%.
During the second quarter and first six months of 1996, sales of Savane
product increased approximately 23% and 27% respectively. Sales of private label
product increased approximately 71% and 50% in 1996 compared to the second
quarter and first six months of 1995. These increases were partially offset by a
combined decrease in sales of Farah and John Henry products, of approximately
43% in the second quarter and 51% in the first six months. Improvements in the
retail market had a positive impact on Savane and private label sales. Sales of
Farah and John Henry product decreased during the second quarter and first six
months as the Company was completing a realignment of these labels in the market
place. Shipments under new programs for these products will begin in the third
and fourth quarters of fiscal 1996. The reduction in the overall average unit
sales price was a result of a higher proportion of private label sales, in both
the second quarter and first six months of 1996, which carry a lower average
unit sales price compared to the Company's branded product.
Sales in the second quarter of the prior year were also negatively
impacted by the inability of the Company's computer to process a large number of
Electronic Data Interchange (EDI) orders scheduled for shipment on the last day
of the quarter. This resulted in approximately $4,125,000 of sales which were
anticipated to be recorded in the second quarter of 1995 being delayed to the
third quarter.
Sales at Farah International were $12,388,000 in the second quarter of
1996 compared to $12,497,000 in the second quarter of 1995, a .9% decrease. In
the first six months of fiscal 1996, sales were $22,370,000 compared to
$21,817,000 in 1995, a 2.5% increase. Unit volume was down 1.2% in the second
quarter while the average selling price remained comparable. For the six month
period, the unit volume increased 3.3% while the average selling price declined
by .8%. Combined sales at Farah Australia and Farah New Zealand increased
slightly while sales at Farah UK were comparable to the same periods last year.
Farah UK sales in U.S. dollars were adversely affected by the strengthening of
the U.S. dollar compared to the British Pound Sterling. The increase in sales at
Farah Australia and Farah New Zealand continues to result from higher sales of
Savane no wrinkle product and increased private label business.
Value Slacks sales in the second quarter of 1996 were $3,923,000
compared to $3,198,000 in the second quarter of 1995, a 22.7% increase. For the
first six months of 1996 and 1995, sales were $8,065,000 and $7,493,000,
respectively, a 7.6% increase. The increase in sales can be mainly attributed to
an increase in the number of stores in operation at the end of the second
quarter of 1996 compared to 1995. In 1996 the Company was operating a total of
37 stores while in 1995 the total was 34 stores. In addition to greater unit
volume in 1996, the Company sold a lower mix of irregulars and closeout goods,
resulting in a higher average selling price.
As a percent of sales, gross profit was 25.2% in the second quarter of
1996 compared to 21.8% in the second quarter of 1995. For the six month period,
gross profit as a percent of sales was 25.9% in 1996 compared to 23.6% in the
same period of 1995.
Farah U.S.A. gross profit as a percent of sales was 21.4% in the second
quarter of 1996 compared to 16.1% in the second quarter of 1995. For the first
six months of 1996 and 1995, gross profit as a percent of sales was 21.9% and
18.0% respectively. The higher gross profit percent was attributable to
increased sales of Savane product, which generally carry a higher profit margin,
combined with overall lower costs resulting from Company wide cost reduction
efforts. Costs in 1996 were also favorably impacted by a 23% devaluation of the
Mexican peso compared to last year. In addition, gross profit in the second
quarter of 1995 was adversely affected by transition problems related to the
start up of new laundry, finishing and cutting facilities.
Farah International gross profit as a percent of sales was
approximately 33% in both the second quarter and first six months of 1996 and
was comparable to the same periods in 1995.
At Value Slacks, gross profit as a percent of sales decreased from
51.0% in the second quarter of 1995 to 46.1% in the second quarter of 1996. For
the six month period, gross profit decreased from 52.0% in 1995 to 47.8% in
1996. Higher promotional sales, combined with a lower mix of irregulars and
closeout goods contributed to the decline.
Selling, general and administrative expenses ("SG&A") as a percent of
sales decreased from 31.0% in the second quarter of 1995 to 24.7% in the second
quarter of 1996. For the six month period SG&A decreased from 30.0% in 1995 to
25.6% in 1996. The decrease is largely from reductions in costs at Farah USA,
where advertising expense decreased 49% for the quarter and 42% for the six
months. Other company wide cost reduction efforts, including reductions in
personnel, also had a favorable impact on expenses in both periods.
Other expense was lower in 1996 in both the second quarter and first
six months as compared to the same period in 1995. A pretax gain of
approximately $590,000 was recognized by Farah International in the second
quarter of 1996, as a result of the sale of one of the Company's manufacturing
facilities located in Galway, Ireland. Partially offsetting this gain was an
increase in net interest expense on higher debt levels.
Income tax expense was recorded in the second quarter and first six
months of 1996, principally as a result of the gain on sale of the facility in
Ireland, which compares to income tax benefits recorded in the same periods of
1995. The Company's effective tax rate varies with the mix of income or loss in
countries in which the Company conducts its business. In addition, in the first
half of 1995, deferred tax benefits were recognized associated with net
operating loss carryforwards, while no such tax benefits were recognized in the
first six months of 1996.
Financial Condition
The Company's primary Credit Agreement provides up to $50,000,000 of
credit through July 1, 1998 (see Part II, Item 5 below), for the Company's
United States and United Kingdom operations for either borrowings or letters
of credit. Availability under the Credit Agreement is limited by formulas
derived from accounts receivable and inventory. As of May 5, 1996, usage under
the Agreement was $31,442,000 and the excess credit line available was
$16,792,000. As of May 5, 1996, the Company was in compliance with all
covenants under the Credit Agreement.
The Company also maintained a capital lease which originated in 1995 to
acquire laundry, finishing, sewing and cutting equipment in Mexico, Costa Rica
and the United States. As of May 5, 1996, the outstanding balance was
$7,224,000. The lease contained certain financial covenants and as of May 5,
1996, the Company was in compliance with all such covenants (see Part II, Item 5
below).
Net cash from operations in the first six months of 1996 was
$15,550,000, primarily as a result of a decrease in inventories. Production
levels were decreased in the first six months of 1996 in an attempt to better
match inventory levels with current demand. At the same time, sales levels
increased as the Company's regular sales were accompanied by increased
promotional sales in the first quarter and early part of the second quarter, to
further reduce inventory levels. This decrease in inventory levels also resulted
in a decrease in short-term borrowings for the quarter.
Capital expenditures through May 5, 1996 approximated $1,739,000.
Expenditures were mainly for manufacturing equipment and information systems.
PART II. OTHER INFORMATION
Item 5. Other Information
On June 7, 1996, the Company sold its Piedras Negras, Mexico sewing and
finishing facility to Galey & Lord, Inc. for a purchase price of approximately
$21,900,000 in cash. The Company will report a non-recurring pre-tax gain in the
third quarter on the sale of the facility of approximately $10,000,000.
Proceeds from the sale were used to retire a long-term capital lease
obligation of approximately $7,224,000 plus other long-term obligations. The
balance of the proceeds of approximately $13,250,000 was applied to the
Company's Credit Agreement. As of the date of closing the sale, June 7, 1996,
availability under the Credit Agreement was approximately $24,500,000.
Concurrent with the sale, the Company extended the expiration of the Credit
Agreement one year to July 1, 1998.
In conjunction with this sale, the Company entered into a long term
supply agreement whereby Galey & Lord, Inc. will continue to produce garments
for Farah at the Piedras Negras facility. In addition to the long term supply
agreement, the Company expects to invest in joint ventures or other similar
arrangements to meet its future production requirements.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibit 10.55 Employment Agreement dated March 1, 1996.
Exhibit 10.56 Amendment dated December 6, 1995 to the
Farah Incorporated 1991 Stock Option and
Restricted Stock Plan dated October 15,
1991.
Exhibit 10.57 Asset Purchase Agreement between Farah
Incorporated, Farah U.S.A., Inc., Galey &
Lord, Inc., and Galey & Lord Industries,
Inc., dated May 20, 1996.
Exhibit 11 Statement regarding computation of net loss
per share.
Exhibit 27 Financial Data Schedule
b) Reports on Form 8-K
Form 8-K dated March 18, 1996, Change in Registrant's Certifying
Accountant
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FARAH INCORPORATED
Date: June 14, 1996
/s/ Russell G. Gibson
Russell G. Gibson
Executive Vice President
Principal Financial Officer
/s/ Polly H. Vaughn
Polly H. Vaughn
Principal Accounting Officer
<PAGE>
FARAH INCORPORATED AND SUBSIDIARIES
FORM 10-Q INDEX TO EXHIBITS
May 5, 1996
<TABLE>
Page
Description
Number
<S> <C> <C> <C>
Exhibit 10.55 Employment Agreement dated March 1, 1996. 12
Exhibit 10.56 Amendment dated December 6, 1995 to the Farah Incorporated 1991 Stock Option 17
and Restricted Stock Plan dated October 15, 1991.
Exhibit 10.57 Asset Purchase Agreement between Farah Incorporated, Farah U.S.A., Inc., 29
Galey & Lord, Inc., and Galey & Lord Industries, Inc., dated May 20, 1996.
Exhibit 11 Statement regarding computation of net loss per share. 74
Exhibit 27 Financial Data Schedule 75
</TABLE>
<PAGE>
EXHIBIT 10.55
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into by and between Farah
Incorporated (the "Company") and Russell G. Gibson (the "Executive").
In consideration of the following and mutual covenants and agreements
hereinafter set forth, the Company and the Executive do hereby agree as follows:
1. Employment.
(a) The Company hereby employs the Executive and the Executive hereby
agrees to serve as an employee of the Company or one or more of its subsidiaries
on the terms and conditions set forth herein.
(b) The employment term shall commence on the date hereof and shall end
on March 1, 1997, unless mutually extended in writing by both parties within
ninety (90) days prior to the expiration of such term or unless terminated under
the provisions of Section 4 hereunder.
(c) The Executive shall serve in such capacity as an officer of the
Company or its subsidiaries as the Board of the Company or its subsidiaries (the
"Boards") shall assign and shall perform such duties and responsibilities as may
from time to time be prescribed by the Boards, provided that such other duties
and responsibilities are consistent with the Executive's position. The Executive
shall perform and discharge faithfully, diligently and to the best of his
ability such duties and responsibilities and shall devote all of his working
time and efforts to the business and affairs of the Company and its
subsidiaries.
(d) In connection with his employment, the Executive shall be based at
the Company's El Paso office, or such other location as may be agreeable to both
the Company and the Executive.
2. Compensation.
(a) The Company and/or its subsidiaries shall pay to the Executive a
minimum annual salary as the Boards may approve from time to time (the "Base
Salary"), payable in monthly installments on the last day of each month
throughout the term of such employment, subject to Section 4 hereof. The Board,
upon review of the Executive's performance and/or the profitability of the
Company and its subsidiaries, may pay the Executive a bonus, as the Boards in
their sole discretion may determine to be appropriate.
(b) The Company and/or its subsidiaries shall pay to the Executive such
amounts as may be established under any cash or equity incentive plans approved
by the Boards, based upon profit performance or stock values.
(c) During the term of his employment hereunder, the Executive shall be
entitled to participate in or receive benefits under the Company's employee
benefit plans and arrangements which are available to senior executive officers
of the Company or its subsidiaries. Nothing paid to the Executive under any such
plans or arrangements shall be deemed to be in lieu of compensation to the
Executive hereunder.
3. Unauthorized Disclosure and Activity.
(a) While employed by the Company and for a period of three (3) years
after termination of employment, the Executive shall not, without a written
consent of the Board or a person duly authorized thereby, disclose to any
person, other than a person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by the Executive of his duties as
an executive officer of the Company or its subsidiaries, any material
confidential information obtained by him while in the employ of the Company or
its subsidiaries with respect to any of the products, improvements, license
agreements, formulas, designs, methods of manufacture, vendors or customers, the
disclosure of which he knows or in the exercise of reasonable care should know,
would be damaging to the Company or its subsidiaries; provided, however, that
confidential information shall not include any information known generally to
the public (other than as a result of unauthorized disclosure by the Executive)
or any information not otherwise considered by the Boards to be confidential.
The Executive shall not disclose any confidential information of the type
described above, except as may be required by law in connection with any
judicial or administrative proceeding or inquiry.
(b) In addition, the Executive shall not either during the term of this
Agreement or within one (1) year following termination of employment from any
cause, solicit any employee of the Company or its subsidiaries to terminate his
relationship with the Company or its subsidiaries or to influence an employee to
seek employment with any competitor of the Company or its subsidiaries.
In the event of violation of any of the foregoing, the Company or its
subsidiaries may seek such redress in law or in equity to which it may be
entitled; and Executive agrees that no bond shall be required to obtain any
injunctive relief; and shall pay and indemnify the Company or its subsidiaries
for any costs and/or reasonable attorney's fees if they are successful in such
action.
4. Termination.
(a) The Executive's employment hereunder shall terminate upon his death.
(b) The Company may terminate the Executive's employment hereunder by
giving written Notice of Termination to the Executive in the event of the
Executive's incapacity due to physical or mental illness which prevents the
proper performance of his duties set forth herein or established pursuant hereto
for a substantial portion of any three (3) month period of the Executive's term
of employment hereunder.
(c) The Company may terminate the Executive's employment hereunder for
Cause by giving written Notice of Termination to the Executive. For the purpose
of this Agreement, the Company shall have "Cause" to terminate the Executive's
employment hereunder upon the Executive's (i) willful failure to materially
perform and discharge his duties and responsibilities hereunder or any breach by
the Executive of the provisions of Section 3 herein, or (ii) misconduct that is
materially injurious to the Company or its subsidiaries, or (iii) conviction of
a felony involving the personal dishonesty of the Executive or moral turpitude.
(d) Any termination by the Company pursuant to the subsections (b) or
(c) above shall be communicated by written Notice of Termination to the
Executive. For purposes of this Agreement, a "Notice of Termination" shall mean
a notice which shall indicate the specific termination provision of this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for such termination. The date of
termination specified in the Notice of Termination shall not be earlier than the
date such Notice is delivered or mailed to the Executive.
(e) If the Executive's employment shall be terminated by reason of
death, his estate shall be paid all sums otherwise payable to the Executive
through the end of the month in which his death occurred, and all bonus or other
incentive benefits accrued or accruable to the Executive through the end of the
month in which his death occurred and the Company and its subsidiaries shall
have no further obligations to the Executive under this Agreement. If the
Executive's employment is terminated by reason of incapacity, the Executive or
person charged with legal responsibility for the Executive's estate shall be
paid all sums otherwise payable to the Executive, including all bonus or other
benefits accrued or accruable to the Executive through the date of termination
specified in the Notice of Termination, together with an amount equal to the
annual base salary, to be payable in monthly installments for twelve (12)
months, and the Company or its subsidiaries shall have no further obligations to
the Executive under this Agreement. If the Executive's employment shall be
terminated for Cause, the Company or its subsidiaries shall pay the Executive
his Base Salary through the date of termination specified in the Notice of
Termination, and the Company and its subsidiaries shall have no further
obligations to the Executive under this Agreement.
(f) In the event of a change in control of the Company, the Executive
may terminate his employment during the term of this Agreement, for Good Reason,
by giving written notice to the Company which shall set forth in reasonable
detail the facts and circumstances constituting Good Reason. The date of
termination specified in the notice shall be no earlier than the date such
notice is delivered or mailed to the Company. For purposes of this Agreement:
(i) A "change in control" of the Company shall mean a change in
control of a nature that would be required to be reported (assuming each
such event has not been "previously reported") in response to Item 1(a)
of the current Report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
(the "Exchange Act"), provided that, without limitation, such a change
in control shall be deemed to have occurred at such time as (A) any
"person", as such term is used in Section 14(d) of the Exchange Act,
other than the Company, a wholly-owned subsidiary of the Company or any
employee benefit plan of the Company, or its subsidiaries, is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of 30% (the "Relevant Percentage") or more
of the combined voting power of the Company's common stock; provided,
however, the Relevant Percentage shall be 40% solely in respect of any
acquisitions of common stock by Marciano Investments, Inc., of any of
its affiliates, or (B) individuals who constitute the Board of Directors
of the Company on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided that any
person becoming a director subsequent to the date hereof whose election
or nomination for election by the Company's shareholders was approved by
a vote of at least three quarters of the directors comprising the
Incumbent Board (either by a specific vote or by approval of the proxy
statement of the Company in which such person is named as a nominee for
the director without objection to such nomination) shall be, for
purposes of this clause (i), considered as though such person were a
member of the Incumbent Board. Notwithstanding anything in the foregoing
to the contrary, no change in control shall be deemed to have occurred
for purposes of this Agreement by virtue of any transaction which
results in the Executive, or a group of persons which includes the
Executive, acquiring, directly or indirectly, 30% or more of the
combined voting power of the Company's common stock.
(ii)"Good Reason" shall mean (A) a substantial adverse change in the
Executive's status or position(s) as an executive officer of the Company
or its subsidiaries as in effect immediately prior to the change in
control, including, without limitation, any adverse change in the
Executive's status or position(s) as a result of a material diminution
in duties or responsibilities (other than, if applicable, any such
change directly attributable to the fact that the Company is no longer
publicly owned) or the assignment to the Executive of any duties or
responsibilities which, in the Executive's reasonable judgment, are
inconsistent with such status or position(s) or any removal of the
Executive from or any failure to reappoint or reelect the Executive to
such position(s) (except in connection with the termination of the
Executive's employment for Cause or incapability, as a result of
Executive's death, or by Executive other than for Good Reason); (B) a
reduction by the Company or its subsidiaries in the Executive's Base
Salary as in effect immediately prior to the change in control; or (C)
the Executive' s office is moved, without his mutual consent, from the
city where the Executive's office is located immediately prior to the
change in control, except for required travel on the Company's and it
subsidiaries' business to an extent substantially consistent with the
business travel obligations which the Executive undertook on behalf of
the Company or its subsidiaries prior to the change in control.
(g) If the Executive's employment is terminated (i) by the Company other
than as specified in subsections 4(b) or 4(c) above (or other than by reason of
the Executive's death), or (ii) by the Executive as specified in subsection 4(f)
above, the Company and its subsidiaries shall continue to pay monthly, Base
Salary to Executive for 12 months from termination, and the Company and its
subsidiaries shall have no further obligations to the Executive under this
Agreement. In addition, if the Executive's employment is terminated after a
change in control (i) by the Company other than as specified in subsections 4(b)
or 4(c) above (or other than by reason of the Executive's death), or (ii) by the
Executive as specified in subsection 4(f) above, the Company shall maintain in
full force and effect for the Executive's benefit, for the same period for which
severance payments are being made after such termination, all health insurance,
long-term disability, life insurance and accidental death and disability
benefits (collectively, the "Benefits") in which the Executive was entitled to
participate immediately prior to such termination; provided that such continued
participation is possible under the general terms and provisions of such
programs, plans and arrangements providing for the Benefits; provided further
that if the Executive's participation in any such plan, program or arrangement
is barred, or any such plan, program or arrangement is discontinued or the
Benefits thereunder materially reduced, the Company and its subsidiaries shall
arrange to provide the Executive with Benefits substantially similar to those
which the Executive was entitled to receive under such plans, programs and
arrangements immediately prior to the date of the change in control. The Company
shall also make available to the Executive federal group health plan
continuation coverage for the period following the period in which Benefits are
provided during the severance period.
5. Stock Options Upon Termination. To the extent the Executive is an
Optionee (as defined under the Company's 1991 Stock Option and Restricted Stock
Plan (the "Plan")), if the Executive's employment is terminated without cause,
the Executive may elect to extend the period in which he may exercise his
options under the Plan to one (1) year after his termination; provided, however,
that if such options are exercised after a period of ninety (90) days after his
employment is terminated, such options will become Nonstatutory Options (as
defined in the Plan).
6. Notices. For the purpose of this Agreement, notices and all other
communications to either party hereunder provided for in the Agreement shall be
in writing and shall be deemed to have been duly given when delivered in person
or mailed by first-class mail or airmail, postage prepaid, addressed:
in the case of the Company, to:
Farah Incorporated
8889 Gateway West
El Paso, Texas 79925
Attention: Corporate Secretary
in the case of the Executive, to:
Russell G. Gibson
301 Crystal Drive
El Paso, TX 79912
or to such other address as either party shall designate by giving written
notice of such change to the other party.
7. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is approved by the
Board of Directors of the Company and agreed to in writing signed by the
Executive and such officer as may be specifically authorized by the Board of
Directors of the Company. No waiver by either party hereto of any breach of this
Agreement shall be deemed a waiver of similar or dissimilar provisions or
conditions of this Agreement. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
8. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
9. Survival. The provision of this Agreement shall not survive the
termination of the Executive's employment hereunder, except that the provisions
of Sections 3 and 4 hereof shall survive such termination and shall be binding
upon the Executive's personal or legal representative, executors,
administrators, successors, heirs, distributees, devisees and legatees and
except that the provisions of such Section 4 hereof relating to payments and
termination of the Executive's employment hereunder shall survive such
termination and shall be binding upon the Company and its subsidiaries.
10. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
11. Entire Agreement. This Agreement constitutes the full agreement and
understanding of the parties hereto regarding the employment of the Executive
with the Company and its subsidiaries and all prior agreements or understandings
are merged herein.
12. Arbitration and Attorneys' Fees. Any dispute arising in connection
with this Agreement shall be finally resolved by arbitration in El Paso, Texas,
conducted pursuant to and in accordance with the commercial rules of arbitration
of the American Arbitration Association. Any party may request arbitration by
sending written notice to the other party. In any such arbitration, the only
issues to be considered and determined by the arbitrators shall be issues
pertaining to rights and obligations of the parties under this Agreement, and
remedies appropriate thereto. The decision and award of the arbitrator(s) shall
be final and may be entered in any court having jurisdiction thereof, and
application may be made to such court for judicial acceptance and/or an order
enforcing such decision and/or award. In the event the arbitrator(s) determine
there is a prevailing party in the arbitration, the prevailing party shall
recover from the losing party all costs of arbitration, including, but not
limited to arbitrator's fees and reasonable attorneys' fees incurred by the
prevailing party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of this 1st day of March, 1996.
FARAH INCORPORATED
By: /s/ Richard C. Allender
Richard C. Allender,
Chairman of the Board,
Chief Executive Officer and President
/s/ Russell G. Gibson
Russell G. Gibson, Executive
<PAGE>
EXHIBIT 10.56
FARAH INCORPORATED
1991 STOCK OPTION AND RESTRICTED STOCK PLAN
Effective October 15, 1991
Amended December 6, 1995
SECTION 1
ESTABLISHMENT AND PURPOSE
This Plan is established (i) to offer selected Employees and Consultants
of the Company or its Subsidiaries an equity ownership interest in the financial
success of the Company, (ii) to provide the Company an opportunity to attract
and retain the best available personnel for positions of substantial
responsibility, and (iii) to encourage equity participation in the Company by
eligible Participants. This Plan provides for the grant by the Company of (i)
Options to purchase Shares, and (ii) shares of Restricted Stock. Options granted
under this Plan may include nonstatutory options as well as ISOs intended to
qualify under section 422 of the Code.
SECTION 2
DEFINITIONS
"Board of Directors" shall mean the board of directors of the Company, as
duly elected from time to time.
"Change in Control" shall mean to have occurred at such time as either
(i) any "person", as such term is used in section 14(d) of the Exchange Act,
other than the Company, a wholly-owned subsidiary of the Company or any employee
benefit plan of the Company, or its Subsidiaries, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act (or any successor rule),
directly or indirectly, of fifty percent (50%) or more of the combined voting
power of the Company's common stock, or (ii) individuals who constitute the
Board of the Directors on the effective date of this Plan (the "Incumbent
Board") cease for any reason to constitute at least a majority thereof, provided
that any person becoming a director subsequent to the date hereof whose election
or nomination for election by the Company's shareholders was approved by a vote
of at least three quarters of the directors comprising the Incumbent Board
(either by a specific vote or by approval of the proxy statement of the Company
in which such person is named as a nominee for the director without objection to
such nomination) shall be, for purposes of this clause (ii) considered as though
such person was a member of the Incumbent Board.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and as
interpreted by the regulations thereunder.
"Committee" shall mean the Stock Option and Compensation Committee of the
Company, or such other Committee as may be appointed by the Board of Directors
from time to time.
"Company" shall mean Farah Incorporated, a Texas corporation.
"Consultant" shall mean any individual that is expressly designated as a
consultant of the Company or its Subsidiaries by the Committee in its sole
discretion.
"Date of Grant" shall mean the date on which the Committee resolves to
grant an Option to an Optionee or grant Restricted Stock to a Participant, as
the case may be.
"Disinterested Director" shall mean a member of the Board of Directors
who is not, during the one year prior to service as an administrator under this
Plan (as described in Section 3 of this Plan) granted or awarded Stock pursuant
to the terms of this Plan (or any other plan of the Company or any of its
Subsidiaries) except (i) participation in a formula plan meeting the conditions
of Rule 16b-3(c)(2)(ii) under the Exchange Act, (ii) participation in an ongoing
securities acquisition plan meeting the conditions in Rule 16b-3(d)(2)(i) under
the Exchange Act, (iii) an election to receive an annual retainer fee in either
cash or an equivalent amount of securities of the Company, or partly in cash and
partly in securities, or (iv) that participation in this Plan shall not
disqualify a director for the purpose of administering another plan that does
not permit participation by the Board of Directors; provided, that the scope of
the exceptions in this paragraph shall automatically be reduced or expanded to
the extent that Rule 16b-3 under the Exchange Act is amended to reduce or expand
the scope of the exceptions thereunder.
"Employee" shall include every individual performing Services to the
Company or its Subsidiaries if the relationship between such individual and the
Company or its Subsidiaries is the legal relationship of employer and employee.
This definition of "Employee" is qualified in its entirety and is subject to the
definition set forth in section 3401(c) of the Code and the regulations
thereunder.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and as interpreted by the rules and regulations promulgated thereunder.
"Exercise Price" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Committee in the
applicable Stock Option Agreement, but in no event less than the par value per
Share.
"Fair Market Value" shall mean such amount as the Board of Directors, in
its sole discretion, shall determine; provided, however, that if there is a
public market for the securities, the Fair Market Value shall be the mean of the
bid and asked prices of the securities per share or unit, as the case may be, as
reported in the Wall Street Journal (or, if not so reported, as otherwise
reported by the National Association of Securities Dealers Automated Quotation
System) as of the date in question or, in the event the securities are listed on
a stock exchange, the Fair Market Value shall be the closing sales price of the
securities per share or unit, as the case may be, on such exchange, as reported
in the Wall Street Journal, as of the date in question.
"ISO" shall mean a stock option which is granted to an individual and
which meets the requirements of section 422(b) of the Code, pursuant to which
the Optionee has no tax consequences resulting from the grant or, subject to
certain holding period requirements, exercise of the option and the employer is
not entitled to a business expense deduction with respect thereto.
"Nonstatutory Option" shall mean any Option granted by the Committee that
does not meet the requirements of sections 421 through 424 of the Code, as
amended.
"Option" shall mean either an ISO or Nonstatutory Option, as the context
requires.
"Optionee" shall mean a Participant who holds an Option.
"Participants" shall mean those individuals described in Section 1 of
this Plan selected by the Committee who are eligible under Section 4 of this
Plan for grants of either Options or Restricted Stock under this Plan.
"Permanent and Total Disability" shall mean that an individual is unable
to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than twelve (12) months. An individual shall not be considered to
suffer from Permanent and Total Disability unless such individual furnishes
proof of the existence thereof in such form and manner, and at such times, as
the Committee may reasonably require. The scope of this definition shall
automatically be reduced or expanded to the extent that section 22(e)(3) of the
Code is amended to reduce or expand the scope of the definition of Permanent and
Total Disability thereunder.
"Plan" shall mean this Farah Incorporated 1991 Stock Option and
Restricted Stock Plan, as amended from time to time.
"Plan Award" shall mean the grant of either an Option or Restricted
stock, as the context requires.
"Restricted Stock" shall have that meaning set forth in Section 7(a) of
this Plan.
"Restricted Stock Account" shall have that meaning set forth in Section
7(a)(iii) of this Plan.
"Restricted Stock Criteria" shall have that meaning in Section 7(a)(v) of
this Plan.
"Restriction Period" shall have that meaning in Section 7(a)(iv) of this
Plan.
"Services" shall mean services rendered to the Company or any of its
Subsidiaries as an Employee or Consultant, as the context requires.
"Share" shall mean one share of Stock, as adjusted in accordance with
Section 9 of this Plan (if applicable).
"Stock" shall mean the common stock of the Company, par value $4.00 per
share.
"Stock Option Agreement" shall mean the agreement executed between the
Company and an Optionee that contains the terms, conditions and restrictions
pertaining to the granting of an Option.
"Subsidiary" shall mean any corporation as to which more than fifty (50%)
percent of the outstanding voting stock or shares shall now or hereafter be
owned or controlled, directly by a person, any Subsidiary of such person, or any
Subsidiary of such Subsidiary.
"Ten-Percent Shareholder" shall mean a person that owns more than ten
percent (10%) of the total combined voting power of all classes of outstanding
stock of the Company or any Subsidiary, taking into account the attribution
rules set forth in section 424 of the Code, as amended. For purposes of this
definition of "Ten Percent Shareholder" the term "outstanding stock" shall
include all stock actually issued and outstanding immediately after the grant of
an Option to an Optionee. "Outstanding stock" shall not include reacquired
shares or shares authorized for issuance under outstanding Options held by the
Optionee or by any other person.
"Vest Date" shall have that meaning in Section 7(a)(v) of this Plan.
<PAGE>
SECTION 3
ADMINISTRATION
(a) General Administration. This Plan shall be administered by the
Committee, which shall consist of at least two persons, each of whom shall be
Disinterested Directors. The members of the Committee shall be appointed by the
Board of Directors for such terms as the Board of Directors may determine. The
Board of Directors may from time to time remove members from, or add members to,
the Committee. Vacancies on the Committee, however caused, may be filled by the
Board of Directors.
(b) Committee Procedures. The Board of Directors shall designate one of
the members of the Committee as chairman. The Committee may hold meetings at
such times and places as it shall determine. The acts of a majority of the
Committee members present at meetings at which a quorum exists, or acts reduced
to or approved in writing by a majority of all Committee members, shall be valid
acts of the Committee. A majority of the Committee shall constitute a quorum.
(c) Authority of Committee. This Plan shall be administered by, or under
the direction of, the Committee constituted in such a manner as to comply at all
times with Rule 16b-3 (or any successor rule) under the Exchange Act. The
Committee shall administer this Plan so as to comply at all times with the
Exchange Act and, subject to the Code, shall otherwise have absolute and final
authority to interpret this Plan and to make all determinations specified in or
permitted by this Plan or deemed necessary or desirable for its administration
or for the conduct of the Committee's business including without limitation the
authority to take the following actions:
(i) To interpret this Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and
forms relating to this Plan;
(iii) To authorize any person to execute, on behalf of the
Company, any instrument required to carry out the purposes of this Plan;
(iv) To determine when Plan Awards are to be granted under
this Plan;
(v) To select the Optionees and Participants;
(vi) To determine the number of Shares to be made subject to
each Plan Award;
(vii) To prescribe the terms, conditions and restrictions of
each Plan Award, including without limitation the Exercise Price and the
determination whether an Option is to be classified as an ISO or a Nonstatutory
Option;
(viii) To amend any outstanding Stock Option Agreement or the
terms, conditions and restrictions of a grant of Restricted Stock, subject to
applicable legal restrictions and the consent of the Optionee or Participant, as
the case may be, who entered into such agreement;
(ix) To establish procedures so that an Optionee may obtain a
loan through a registered broker-dealer under the rules and regulations of the
Federal Reserve Board, for the purpose of exercising an Option;
(x) To establish procedures for an Optionee (1) to have withheld
from the total number of Shares to be acquired upon the exercise of an Option
that number of Shares having a Fair Market Value, which, together with such cash
as shall be paid in respect of fractional shares, shall equal the Exercise
Price, and (2) to exercise a portion of an Option by delivering that number of
Shares already owned by an Optionee having a Fair Market Value which shall equal
the partial Exercise Price and to deliver the Shares thus acquired by such
Optionee in payment of Shares to be received pursuant to the exercise of
additional portions of the Option, the effect of which shall be that an Optionee
can in sequence utilize such newly acquired shares in payment of the Exercise
Price of the entire Option, together with such cash as shall be paid in respect
of fractional shares;
(XI) To establish procedures whereby a number of Shares may be
withheld from the total number of Shares to be issued upon exercise of an
Option, to meet the obligation of withholding for federal and state income and
other taxes, if any, incurred by the Optionee upon such exercise; and
(ix) To take any other actions deemed necessary or advisable for
the administration of this Plan.
All interpretations and determinations of the Committee made with respect
to the granting of Plan Awards shall be final, conclusive, and binding on all
interested parties. The Committee may make grants of Plan Awards on an
individual or group basis. No member of the Committee shall be liable for any
action that is taken or is omitted to be taken if such action or omission is
taken in good faith with respect to this Plan or grant of any Plan Award.
(d) Holding Period. The Committee may in its sole discretion require as a
condition to the granting of any Plan Award, that a Participant agree not to
sell or otherwise dispose of a Plan Award, any Shares acquired pursuant to a
Plan Award or any other "derivative security" (as defined by Rule 16a-1(c) under
the Exchange Act) for a period of six (6) months following the later of (i) the
date of the grant of such Plan Award, or (ii) the date when the Exercise Price
of an Option is fixed if such Exercise Price is not fixed on the Date of Grant.
SECTION 4
ELIGIBILITY
(a) General Rule. Subject to the limitations set forth in subsection b
below, Participants shall be eligible to participate in this Plan; provided,
however, that any Disinterested Directors who are serving as administrators of
this Plan shall not be eligible for any Plan Awards nor shall any other person
be eligible for any Plan Awards if the granting of a Plan Award to such person
would destroy the satisfaction by this Plan of the general exemptive conditions
of Rule 16b-3 under the Exchange Act.
(b) Non-Employee Ineligible for ISOs. In no event shall an ISO be granted
to any individual who is not an Employee on the Date of Grant.
SECTION 5
SHARES SUBJECT TO PLAN
(a) Basic Limitation. Shares offered under this Plan may be authorized
but unissued Shares or Shares that have been reacquired by the Company. The
aggregate number of Shares that are available for issuance under this Plan shall
not exceed three hundred thousand (300,000) Shares, subject to adjustment
pursuant to Section 9 of this Plan. The Committee shall not issue more Shares
than are available for issuance under this Plan. The number of Shares that are
subject to unexercised Options at any time under this Plan shall not exceed the
number of Shares that remain available for issuance under this Plan. The
Company, during the term of this Plan, shall at all times reserve and keep
available sufficient Shares to satisfy the requirements of this Plan.
(b) Additional Shares. In the event any outstanding Option for any reason
expires, is cancelled or otherwise terminates, the Shares allocable to the
unexercised portion of such Option shall again be available for issuance under
this Plan. In the event that Shares issued under this Plan revert to the Company
prior to the Vest Date under a grant of Restricted Stock, such Shares shall
again be available for issuance under this Plan.
SECTION 6
TERMS AND CONDITIONS OF OPTIONS
(a) Term of Option. The term of each Option shall be ten (10) years from
the Date of Grant or such shorter term as may be determined by the Committee;
provided, however, in the case of an ISO granted to a Ten-Percent Shareholder,
the term of such ISO shall be five (5) years from the Date of Grant or such
shorter time as may be determined by the Committee.
(b) Exercise Price and Method of Payment.
(i) Exercise Price. The Exercise Price shall be such price as is
determined by the Committee in its sole discretion and set forth in the Stock
Option Agreement; provided, however, in the case of an ISO granted to an
Optionee, the Exercise Price shall not be less than 100% of the Fair Market
Value of the Shares subject to such option on the Date of Grant (or 110% in the
case of an Option granted to a Participant who is a Ten-Percent Shareholder on
the Date of Grant).
(ii) Payment of Shares. Payment for the Shares upon exercise of
an Option shall be made in cash, by certified check, or if authorized by the
Committee, by delivery of other Shares having a Fair Market Value on the date of
delivery equal to the aggregate exercise price of the Shares as to which said
Option is being exercised, or by any combination of such methods of payment or
by any other method of payment as may be permitted under applicable law and this
Plan and authorized by the Committee under Section 3(c) of this Plan.
(c) Exercise of Option.
(i) Procedure for Exercise; Rights of Shareholder. Any Option
granted hereunder shall be exercisable at such times under such conditions as
shall be determined by the Committee, including without limitation performance
criteria with respect to the Company and/or the Optionee, and in accordance with
the terms of this Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the Stock
Option Agreement by the Optionee entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company. Full payment may, as authorized by the Committee,
consist of any form of consideration and method of payment allowable under
Section 6(b)(ii) of this Plan. Upon the receipt of notice of exercise and full
payment for the Shares, the Shares shall be deemed to have been issued and the
Optionee shall be entitled to receive such Shares and shall be a shareholder
with respect to such Shares, and the Shares shall be considered fully paid and
nonassessable. No adjustment will be made for a dividend or other right for
which the record date is prior to the date on which the stock certificate is
issued, except as provided in Section 9 of this Plan.
Each exercise of an Option shall reduce, by an equal number, the total
number of Shares that may thereafter be purchased under such Option.
(ii) Termination of Status as an Employee or Consultant. Except
as provided in Subsections 6(c)(iii) and 6(c)(iv) below, an Optionee holding an
Option who ceases to be an Employee or Consultant of the Company may, but only
until the earlier of the date (i) the Option held by the Optionee expires, or
(ii) thirty (30) days after the date such Optionee ceases to be an Employee or a
Consultant, exercise the Option to the extent that the Optionee was entitled to
exercise it on such date; provided, however, that in the event the Optionee is
an Employee and is terminated without cause (as determined in the sole
discretion of the Committee) then the thirty (30) day period described in this
sentence shall be automatically extended to ninety (90) days (and in the case of
a Nonstatutory Option, such period shall be automatically extended to six (6)
months), unless the Committee further extends such period in its sole
discretion. To the extent that the Optionee was not entitled to exercise an
Option on such date, or if the Optionee does not exercise it within the time
specified herein, such Option shall terminate. The Committee shall have the
authority to determine the date an Optionee ceases to be an Employee or a
Consultant.
(iii) Permanent and Total Disability. Notwithstanding the
provisions of Section 6(c)(ii) above, in the event an Optionee is unable to
continue to perform Services for the Company or any of its Subsidiaries as a
result of such Optionee's Permanent and Total Disability, (and, for ISOs, at
the time such Permanent and Total Disability begins, the Optionee was an
Employee and had been an Employee since the Date of Grant), such Optionee may
exercise an Option in whole or in part notwithstanding that such Option may not
be fully exercisable, but only until the earlier of the date (i) the Option
held by the Optionee expires, or (ii) twelve (12) months from the date of
termination of Services due to such Permanent and Total Disability. To the
extent the Optionee is not entitled to exercise an Option on such date or if
the Optionee does not exercise it within the time specified herein, such Option
shall terminate.
(iv) Death of an Optionee. Upon the death of an Optionee, any
Option held by an Optionee shall terminate and be of no further effect;
provided, however, notwithstanding the provisions of Section 6(c)(ii) above, in
the event an Optionee's death occurs during the term of an Option held by such
Optionee and, at the time of death, the Optionee was an Employee or Consultant
(and, for ISOs, at the time of death, the Optionee was an Employee and had been
an Employee since the Date of Grant), the Option may be exercised in whole or in
part notwithstanding that such Option may not have been fully exercisable on the
date of the Optionee's death, but only until the earlier of the date (i) the
Option held by the Optionee expires, or (ii) twelve (12) months from the date of
the Optionee's death, by the Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance. To the extent the Option
is not entitled to be exercised on such date or if the Option is not exercised
within the time specified herein, such Option shall terminate.
(b) Non-Transferability of Options. Any Option granted under this Plan may
not be sold, pledged, assigned, hypothecated, transferred or disposed of in any
manner other than by will or by the laws of descent and distribution or pursuant
to a qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder, and is not
assignable by operation of law or subject to execution, attachment or similar
process. Any Option granted under this Plan can only be exercised during the
Optionee's lifetime by such Optionee. Any attempted sale, pledge, assignment,
hypothecation or other transfer of the Option contrary to the provisions hereof
and the levy of any execution, attachment or similar process upon the Option
shall be null and void and without force or effect. No transfer of the Option by
will or by the laws of descent and distribution shall be effective to bind the
Company unless the Company shall have been furnished written notice thereof and
an authenticated copy of the will and/or such other evidence as the Committee
may deem necessary to establish the validity of the transfer and the acceptance
by the transferee or transferees of the terms and conditions of the Option. The
terms of any Option transferred by will or by the laws of descent and
distribution shall be binding upon the executors, administrators, heirs and
successors of Optionee.
(c) Time of Granting Options. Any Option granted hereunder shall be
deemed to be granted on the Date of Grant. Written notice of the Committee's
determination to grant an Option to an Employee, evidenced by a Stock Option
Agreement, dated as of the Date of Grant, shall be given to such Employee within
a reasonable time after the Date of Grant.
(d) Modification, Extension and Renewal of Options. Within the
limitations of this Plan, the Committee may modify, extend or renew outstanding
Options or may accept the cancellation of outstanding Options (to the extent not
previously exercised) for the granting of new Options in substitution therefor.
The foregoing notwithstanding, no modification of an Option shall, without the
consent of the Optionee, alter or impair the Optionee's rights or obligations
under such Option.
(e) Restrictions on Transfer of Shares. Any Shares issued upon exercise
of an Option shall be subject to such rights of repurchase and other transfer
restrictions as the Committee may determine in its sole discretion. Such
restrictions shall be set forth in the applicable Stock Option Agreement.
(f) Special Limitation on ISOs. To the extent that the aggregate Fair
Market Value (determined on the Date of Grant) of the Shares with respect to
which ISOs are exercisable for the first time by an individual during any
calendar year under this Plan, and under all other plans maintained by the
Company, exceeds $100,000, such Options shall be treated as Options that are not
ISOs.
(g) Leaves of Absence. Leaves of absence approved by the Committee which
conform to the policies of the Company shall not be considered termination of
employment if the employer-employee relationship as defined under the Code or
the regulations promulgated thereunder otherwise exists.
(h) Withholding Taxes. The Committee may, in its discretion, require an
Optionee to pay to the Company at the time of exercise of an Option the amount
that the Company deem necessary to satisfy its obligation to withhold federal,
state or local income or other taxes incurred by reason of the exercise. Upon
the exercise of an Option requiring tax withholding, an Optionee may make a
written election to have shares of Common Stock withheld by the Company from the
shares otherwise to be received. The acceptance of any such election by an
Optionee shall be at the sole discretion of the Committee. In addition, the
Committee may require to withhold shares of Common Stock from the shares
otherwise to be received by an Optionee upon exercise of an option. The number
of shares withheld pursuant to this paragraph shall have an aggregate Fair
Market Value on the date of exercise sufficient to satisfy the applicable
withholding taxes.
SECTION 7
RESTRICTED STOCK
(a) Authority to Grant Restricted Stock. The Committee shall have the
authority to grant to Participants Shares that are subject to certain terms,
conditions and restrictions (the "Restricted Stock"). The Restricted Stock may
be granted by the Committee either separately or in combination with Options.
The terms, conditions and restrictions of the Restricted Stock shall be
determined from time to time by the Committee without limitation, except as
otherwise provided in this Plan; provided, however, that each grant of
Restricted Stock shall require the Participant to remain an Employee of (or
otherwise provide Services to) the Company or any of its Subsidiaries for at
least six (6) months from the Date of Grant. The granting, vesting and issuing
of the Restricted Stock shall also be subject to the following provisions:
(i) Nature of Grant. Restricted Stock shall be granted to
Participants for Services rendered and at no additional cost to Participant;
provided, however, that the value of the Services performed must, in the opinion
of the Committee, equal or exceed the par value of the Restricted Stock to be
granted to the Participant.
(ii) Restricted Stock Account. The Company shall establish a
restricted stock account (the "Restricted Stock Account") for each Participant
to whom Restricted Stock is granted, and such Restricted Stock shall be credited
to such account. No certificates will be issued to the Participant with respect
to the Restricted Stock until the Vest Date as provided herein. Every credit of
Restricted Stock under this Plan to a Restricted Stock Account shall be
considered "contingent" and unfunded until the Vest Date. Such contingent
credits shall be considered bookkeeping entries only, notwithstanding the
"crediting" of "dividends" as provided herein. Such accounts shall be subject to
the general claims of the Company's creditors. The Participant's rights to the
Restricted Stock Account shall be no greater than that of a general creditor of
the Company. Nothing contained herein shall be construed as creating a trust or
fiduciary relationship between the Participants and the Company, the Board of
Directors or the Committee.
(iii) Restrictions. The terms, conditions and restrictions of
the Restricted Stock shall be determined by the Committee on the Date of Grant.
The Restricted Stock may not be sold, assigned, transferred, redeemed, pledged
or otherwise encumbered during the period in which the terms, conditions and
restrictions apply (the "Restriction Period"). More than one grant of Restricted
Stock may be outstanding at any one time, and the Restriction Periods may be of
different lengths. Receipt of the Restricted Stock is conditioned upon
satisfactory compliance with the terms, conditions and restrictions of this Plan
and those imposed by the Committee.
(iv) Restricted Stock Criteria. At the time of each grant of
Restricted Stock, the Committee in its sole discretion may establish certain
criteria to determine the times at which restrictions placed on Restricted Stock
shall lapse (i.e., the termination of the Restriction Period), which criteria
may include without limitation performance measures and targets and/or holding
period requirements (the "Restricted Stock Criteria"). The Committee may
establish a corresponding relationship between the Restricted Stock Criteria and
(i) the number of Shares of Restricted Stock that may be earned, and (ii) the
extent to which the terms, conditions and restrictions on the Restricted Stock
shall lapse. Restricted Stock Criteria may vary among grants of Restricted
Stock; provided, however, that once the Restricted Stock Criteria are
established for a grant of Restricted Stock, the Restricted Stock Criteria shall
not be modified with respect to such grant.
(v) Vesting. On the date the Restriction Period terminates, the
Restricted Stock shall vest in the Participant (the "Vest Date"), who may then
require the Company to issue certificates evidencing the Restricted Stock
credited to the Restricted Stock Account of such Participant.
(vi) Dividends. The Committee may provide from time to time that
amounts equivalent to dividends shall be payable with respect to the Restricted
Stock held in the Restricted Stock Account of a Participant. Such amounts shall
be credited to the Restricted Stock Account and shall be payable to the
Participant on the Vest Date.
(vi) Termination of Services. If a Participant (x) with the
consent of the Committee, ceases to be an Employee of, or otherwise ceases to
provide Services to, the Company or any of its Subsidiaries, or (y) dies or
suffers from Permanent and Total Disability, the vesting or forfeiture
(including without limitation the terms, conditions and restrictions) of any
grant under this Section 7 shall be determined by the Committee in its sole
discretion, subject to any limitations or terms of this Plan. If the Participant
ceases to be an Employee of, or otherwise ceases to provide Services to, the
Company or any of its Subsidiaries for any other reason, all grants of
Restricted Stock under this Plan shall be forfeited (subject to the terms of
this Plan).
(b) Deferral of Payments.
The Committee may establish procedures by which a Participant
may elect to defer the transfer of Restricted Stock to the Participant. The
Committee shall determine the terms and conditions of such deferral in its sole
discretion.
SECTION 8
ISSUANCE OF SHARES
As a condition to the transfer of any Shares issued under this Plan, the
Company may require an opinion of counsel, satisfactory to the Company, to the
effect that such transfer will not be in violation of the Securities Act of
1933, as amended (the "Securities Act"), or any other applicable securities
laws, rules or regulations, or that such transfer has been registered under
federal and all applicable state securities laws. The Company may refrain from
delivering or transferring Shares issued under this Plan until the Committee has
determined that the Participant has tendered to the Company any and all
applicable federal, state or local tax owed by the Participant as the result of
the receipt of a Plan Award, the exercise of an Option or the disposition of any
Shares issued under this Plan, in the event that the Company reasonably
determines that it might have a legal liability to satisfy such tax. The Company
shall not be liable to any person or entity for damages due to any delay in the
delivery or issuance of any stock certificate evidencing any Shares for any
reason whatsoever.
SECTION 9
CAPITALIZATION ADJUSTMENTS; MERGER; CHANGE IN CONTROL
(a) Adjustments Upon Changes in Capitalization. Subject to any required
action by the shareholders of the Company, the number of Shares covered by each
outstanding Option, the aggregate number of Shares that have been authorized for
issuance under this Plan and the number of Shares of Restricted Stock credited
to any Restricted Stock Account of a Participant (as well as the Exercise Price
covered by any outstanding Option), shall be proportionately adjusted for any
increase or decrease in the number of issued Shares resulting from a stock
split, payment of a stock dividend with respect to the Stock or any other
increase or decrease in the number of issued Shares effected without receipt of
consideration by the Company. Such adjustment shall be made by the Committee in
its sole discretion, which adjustment shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class shall affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of Shares subject to an Option.
(b) Dissolution, Liquidation, Sale of Assets or Merger. In the event of
the proposed dissolution or liquidation of the Company, or a proposed sale of
all or substantially all of the assets of the Company, or the proposed merger of
the Company with or into another corporation, any Options and grants of
Restricted Stock shall terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Committee. The Committee may,
in the exercise of its sole discretion, in such instances declare that any
Option shall terminate as of a date fixed by the Committee and give each
Optionee the right to exercise the Optionee's Option as to all or any part of
the Shares covered by such Option, including Shares as to which the Option would
not otherwise be exercisable.
(c) Change in Control. Subject to Section 9(b), in the event there occurs
a Change of Control, (i) the Optionees shall have the right to exercise from and
after the date of the Change in Control the Option held by such Optionee in
whole or in part notwithstanding that such Option may not be fully exercisable,
and (ii) any and all restrictions on any Restricted Stock credited to a
Restricted Stock Account shall lapse and such stock shall immediately vest in
the Participants notwithstanding that the Restricted Stock held in such account
was unvested.
SECTION 10
NO EMPLOYMENT RIGHTS
No provision of this Plan, under any Stock Option Agreement or under any
grant of Restricted Stock shall be construed to give any Participant any right
to remain an Employee of, or provide Services to, the Company or any of its
Subsidiaries or to affect the right of the Company to terminate any
Participant's service at any time, with or without cause.
SECTION 11
SHAREHOLDER APPROVAL
If this Plan is adopted by action of the Board of Directors prior to
approval by the Company's shareholders, the Board of Directors, to continue and
implement this Plan, shall submit this Plan to the shareholders of the Company
for their approval at the first annual meeting of shareholders held subsequent
to the adoption of this Plan by the Board of Directors, which meeting shall be
held within twelve (12) months after the date on which this Plan is so adopted.
This Plan shall not become effective until such approval has been obtained.
With respect to any amendment to this Plan adopted by the Committee that
is required to be approved by the Company's shareholders pursuant to the terms
of Section 12 of this Plan, such approval shall be obtained within twelve (12)
months after the date such amendment is adopted by the Committee; provided, that
such amendment shall not become effective until such approval has been obtained.
The approval by the Company's shareholders of this Plan, and their
approval of any subsequent amendment to this Plan requiring their approval,
shall be solicited (i) substantially in accordance with section 14(a) of the
Exchange Act and the rules and regulations promulgated thereunder, or (ii) after
the Company has furnished in writing to the shareholders entitled to vote
substantially the same information concerning this Plan as that which would be
required by the rules and regulations then in effect under section 14(a) of the
Exchange Act.
SECTION 12
TERM OF PLAN; EFFECT OF AMENDMENT OR TERMINATION
(a) Term of Plan. This Plan shall become effective upon its adoption by
the Board of Directors and will be subject to the approval by the shareholders
of the Company in accordance with Section 11 above. This Plan shall continue in
effect for a term of ten (10) years unless sooner terminated under this Section
12.
(b) Amendment and Termination. The Committee in its sole discretion may
terminate this Plan at any time. The Committee may amend this Plan at any time
in such respects as the Committee may deem advisable; provided, that the
following amendments shall require approval of the holders of a majority of the
outstanding Shares entitled to vote:
(i) Any change in the aggregate number of Shares that may be
issued under this Plan, other than in connection with an adjustment under
Section 9 of this Plan;
(ii) Any change in the designation of the Participants eligible
to be granted Plan Awards; or
(iii) Any change in this Plan that would materially increase the
benefits accruing to Participants under this Plan.
(c) Effect of Termination. In the event this Plan is terminated, no
Shares shall be issued under this Plan nor shall any Shares of Restricted Stock
be credited to a Restricted Stock Account, except upon exercise of an Option
granted prior to such termination or issuance of Shares of Restricted Stock
previously credited to a Restricted Stock Account. The termination of this Plan,
or any amendment thereof, shall not affect any Shares previously issued to a
Participant, any Option previously granted under this Plan or any Restricted
Stock previously credited to a Restricted Stock Account.
SECTION 13
GOVERNING LAW
THIS PLAN AND ANY AND ALL STOCK OPTION AGREEMENTS AND AGREEMENTS RELATING
TO THE GRANT OF RESTRICTED STOCK EXECUTED IN CONNECTION WITH THIS PLAN SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS,
WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
<PAGE>
EXHIBIT 10.57
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is entered into as
of May 20, 1996, by and among Galey & Lord, Inc., a Delaware corporation
("Parent"), and Galey & Lord Industries, Inc., a Delaware corporation and wholly
owned subsidiary of Parent ("Industries"); and Farah Incorporated, a Texas
corporation ("Farah"), Farah U.S.A., Inc., a Texas corporation ("Seller"), and
Dimmit Industries, S.A. de C.V., a Mexican corporation and subsidiary of Seller
("Dimmit") (collectively, the "Seller Parties").
RECITALS:
1. Dimmit is a Mexican maquiladora engaged in the business of sewing
and finishing men's, women's and boys' apparel (the "Business");
2. The Buyer Parties wish to purchase from Farah and Seller certain
assets of Seller used in the Business and all of the issued and outstanding
capital stock of Dimmit through the acquisition of such assets and capital stock
of Dimmit by New Subsidiary, which subsidiary will be organized for the purpose
of consummating the transactions contemplated hereby, on the terms and subject
to the conditions set forth herein; and
3. Farah and Seller wish to sell, transfer, assign and deliver to New
Subsidiary certain assets of Seller used in the Business and all of the issued
and outstanding capital stock of Dimmit, on the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements stated herein, the parties
agree as follows:
ARTICLE I
GENERAL DEFINITIONS
For purposes of this Agreement, the terms set forth below in
this Article I shall have the meanings ascribed to them below:
Affiliate: with respect to any person, means any person that directly or
indirectly controls, is controlled by or is under common control with such
person.
Assembly Services Agreement: has the meaning set forth in Section 8.3(b) of
this Agreement.
Auditors: has the meaning set forth in Section 2.8(b) of this Agreement.
best efforts: means a party's efforts in accordance with reasonable
commercial practice and consistent with its past practice.
Business: has the meaning set forth in the Recitals hereof.
Buyer Parties: means, collectively, Parent, Industries and New Subsidiary
Claim Notice: has the meaning set forth in Section 7.4(a) of this
Agreement.
Closing: has the meaning set forth in Section 2.4 of this Agreement.
Closing Adjustment Amount: has the meaning set forth in Section 2.8(a) of
this Agreement.
Closing Date: has the meaning set forth in Section 2.4 of this Agreement.
Code: means the Internal Revenue Code of 1986, as amended from time to
time, and any successor statute thereto.
Contracts: has the meaning set forth in Section 4.12 of this Agreement.
Dimmit Assets: has the meaning set forth in Section 2.9 of this Agreement.
Dimmit Stock: has the meaning set forth in Section 2.1(a) of this Agreement
Documents: has the meaning set forth in Section 4.2 of this Agreement.
Eagle Pass Warehouse: means the warehouse located in Eagle Pass, Texas
leased by Seller pursuant to the lease agreement dated as of March 13, 1996
between A&S Trading Inc. and Seller.
Election Period: has the meaning set forth in Section 7.4(a) of this
Agreement.
Employee Plans: has the meaning set forth in Section 6.2(b) of this
Agreement.
Environment: means soil, surface waters, ground waters, land, stream
sediments, surface or subsurface strata, and ambient air.
Environmental Audit: has the meaning set forth in Section 6.12 of this
Agreement.
Environmental Condition: means any condition with respect to the
Environment on or affecting the Piedras Factory or the Eagle Pass Warehouse,
whether or not yet discovered, which constitutes a violation of any
Environmental Law or which results in any damage, loss, cost, expense, claim,
demand, order or liability to or against any of the Buyer Parties or the Seller
Parties, directly or indirectly as a result of the ownership or use of the
Piedras Factory or the Eagle Pass Warehouse and/or the operation of the
Business.
Environmental Indemnification Matters: has the meaning set forth in Section
7.7(a) of this Agreement.
Environmental Laws: means (a) any Governmental Rule regulating or relating
or pertaining to the Environment or the protection of human health implemented
as of the date hereof, previously enforced or subsequently enacted, (b) any
Governmental Rule implemented as of the date hereof, previously enforced or
subsequently enacted, that asserts jurisdiction over the Piedras Factory or the
Eagle Pass Warehouse or the operations or activity at the Piedras Factory or the
Eagle Pass Warehouse that relates or pertains to the Environment, including
without limitation, those which regulate the presence, release, emission, threat
of release, use, handling, manufacturing, generation, production, storage,
treatment, processing, transportation or disposal of any Hazardous Substance,
including without limitation (i) requiring any permit, license, approval,
consent or authorization, or the renewal thereof, (ii) regulating the amount,
form, manner of storage, transport and/or disposal of Hazardous Substances, or
(iii) requiring any reporting, inspection report, business plan, notification,
or any other dissemination of or access to information regarding Hazardous
Substances to a Governmental Body, including warnings or notices to tenants,
subtenants, employees, occupants, invitees or consumers.
Environmental Permit: means any Permit required as of the date hereof by
any Environmental Law.
Excluded Assets: has the meaning set forth in Section 2.2 of this
Agreement.
Farah Assets: has the meaning set forth in Section 2.1(b) of this
Agreement.
Final Adjusted Purchase Price: has the meaning set forth in Section 2.6 of
this Agreement.
Final Balance Sheet: has the meaning set forth in Section 2.8 of this
Agreement.
Final Statement: has the meaning set forth in Section 2.8 of this
Agreement.
Financial Statements: has the meaning set forth in Section 4.9 of this
Agreement.
Finished Good: means any garment that is 100% complete and packed in a
shipping carton awaiting shipment to Seller.
GAAP: means United States generally accepted accounting principles in
United States Dollars.
Governmental Body: means any United States federal, state, local or Mexican
governmental authority or regulatory body, any subdivision, agency, commission
or authority thereof (including without limitation, environmental protection,
planning and zoning), or any quasi-governmental or private body asserting,
exercising or empowered to assert or exercise any regulatory authority
thereunder and any person directly or indirectly owned by and subject to the
control of any of the foregoing, or any court, arbitrator or other judicial or
quasi-judicial tribunal.
Governmental Rule: means any statute, law, treaty, rule, code, ordinance,
regulation, permit, certificate or order of any Governmental Body or any
judgment, decree, injunction, writ, order or like action of any Governmental
Body.
Hazardous Substances: means (a) any pollutant, toxic substance,
contaminant, chemical, hazardous waste, hazardous material, petroleum product,
oil, or radioactive material; (b) any substance, gas material or chemical which
is defined as or included in the definition of "hazardous substances," "toxic
substances," "hazardous materials," "hazardous wastes," or words of similar
import under any Governmental Rule or Environmental Law; (c) radon gas,
asbestos, urea formaldehyde foam insulation or polychlorinated biphenyls in
excess of federal, state, local, or Mexican safety guidelines, whichever are
more stringent; (d) any other chemical, material, gas or substance, the exposure
to or release of which is or may be prohibited, limited or regulated by any
Governmental Body, or (e) any other chemical, material, gas or substance that
does or may pose a hazard to health and/or safety of the occupants of the
Piedras Factory or the Eagle Pass Warehouse, or the owners and/or occupants of
property adjacent to or surrounding the Piedras Factory or the Eagle Pass
Warehouse.
Indemnified Amounts: has the meaning set forth in Section 7.1 of this
Agreement.
Indemnified Party: has the meaning set forth in Section 7.4(a) of this
Agreement.
Indemnifying Party: has the meaning set forth in Section 7.4(a) of this
Agreement.
Indemnity Notice: has the meaning set forth in Section 7.4(b) of this
Agreement.
Initial Adjusted Purchase Price: has the meaning set forth in Section 2.6
of this Agreement.
Lien: means any lien, pledge, claim, charge, mortgage, security interest or
other encumbrance, option or other rights of any kind or nature whatsoever.
Materials: means cut fabric, Trim, raw materials, shipping boxes and
related materials.
New Subsidiary: means a newly formed and wholly owned subsidiary of
Industries.
Permit: means any permit, license, approval, consent or authorization
issued by a Governmental Body or required by any Governmental Rule.
Permitted Liens: means (a) Liens for current taxes and assessments not yet
due, (b) inchoate workmen, repairmen, warehousemen, customer, employee and
carriers Liens arising in the ordinary course of business, in each case with
respect to obligations or claims which are either not delinquent, or are being
contested in good faith and by appropriate proceedings conducted with due
diligence, and (c) Liens on the office equipment under the leases set forth on
Schedule 1 to this Agreement.
person: means any individual, firm, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization, government or agency or subdivision thereof or any other entity.
Piedras Factory: has the meaning set forth in Section 2.1(b) of this
Agreement.
Pre-Closing Adjustment Amount: has the meaning set forth in Section 2.7(a)
of this Agreement.
Pre-Closing Balance Sheet: has the meaning set forth in Section 2.7(a) of
this Agreement.
Pre-Closing Statement: has the meaning set forth in Section 2.7(a) of this
Agreement.
Pre-Closing Taxes: has the meaning set forth in Section 6.9 of this
Agreement.
Purchase Price: has the meaning set forth in Section 2.5 of this Agreement.
Purchased Assets: has the meaning set forth in Section 2.1 of this
Agreement.
Subsidiary: of any person, means any entity, more than 50% of the
outstanding voting interests of which are owned, directly or indirectly, by such
person, by one or more other Subsidiaries of such person or by such person and
one or more other Subsidiaries of such person.
Survival Period: has the meaning set forth in Section 7.3 of this
Agreement.
Tax: has the meaning set forth in Section 4.16(b) of this Agreement.
Third Party Claim: has the meaning set forth in Section 7.4(a) of this
Agreement.
Trim: means thread, buttons, fusibles, lining, pocketing, waste band
materials, zippers, labels, hanging tags, plastic bags, hangers and such other
items used in the manufacture of apparel.
Water Treatment Equipment: has the meaning set forth in Section 7.7(e) of
this Agreement.
WIP: means any garment physically located at the Piedras Factory on the
Closing Date regardless of the state of completion of such garment, except for
any garment classified as a Finished Good.
ARTICLE II
PURCHASE, SALE AND DELIVERY
Section 2.1 Purchased Assets. Subject to the terms and
conditions of this Agreement, at the Closing Farah and Seller shall sell,
transfer, convey, assign and deliver to New Subsidiary, and New Subsidiary shall
acquire and purchase from Farah and Seller, all right, title and interest in and
to the Purchased Assets. For purposes of this Agreement, but subject to Section
2.2, the term "Purchased Assets" shall mean all of the following assets,
properties and rights of Farah and Seller owned by them immediately prior to the
Closing:
(a) All of the capital stock owned by Farah and Seller in
Dimmit, representing 100% of the outstanding capital stock of such
corporation ("Dimmit Stock") free and clear of all Liens;
(b) All of Seller's tools, machinery, equipment, furniture,
fixtures, replacement and spare parts, computer systems, owned software
and hardware, and other assets ("Farah Assets") physically located at
Dimmit's facility located in Piedras Negras, State of Coahuila, Mexico
(the "Piedras Factory") and the Eagle Pass Warehouse, used or held for
use in and necessary for the operation of the Business as presently
conducted free and clear of all Liens other than Permitted Liens. A
list of all Farah Assets as of March 31, 1996 is attached hereto as
Schedule 2.1(b); and
(c) All of Seller's rights in the contracts, leases,
agreements or commitments listed on Schedule 2.1(c) for the purchase,
sale or rental of goods and services that relate to the operation of
the Business at the Piedras Factory free and clear of all Liens other
than Permitted Liens.
Section 2.2 Excluded Assets. Notwithstanding Section 2.1, the
Purchased Assets shall not include, and the Buyer Parties will not
acquire or purchase any right, title or interest in any of the
following (collectively, the "Excluded Assets"):
(a) Seller's WIP, Finished Goods, Materials and chemicals
inventories at the Piedras Factory on the Closing Date;
(b) Seller's "Scan-Pack" computer system, software, hardware,
intellectual property and related peripherals; provided, however, that
from and after the Closing, Seller Parties agree to make available to
Buyer Parties and Dimmit, Seller's "Scan-Pack" computer system,
software, hardware, intellectual property and related peripherals as
necessary for the continuing operations of the Business and for such
reasonable period of time necessary for Buyer Parties to replace such
system.
(c) Any other assets listed on Schedule 2.2;
(d) All rights of any nature whatsoever in the trademarks,
trade names, logos or other rights that utilize the names Farah(R),
Savane(R), John Henry(R), Farah Clothing Company(R), PROCESS 2000(R) or
any other trademarks owned or licensed by Seller or any of it
Affiliates; and
(e) All chemical formulations, technical processes, including
without limitation, soft washes and enzyme treatments and washes,
valuable trade secrets and know-how, including PROCESS 2000 (the "Farah
Processes"); provided, however, that Farah and Seller acknowledge that,
after the Closing, Buyer Parties and Dimmit will produce products using
"dip" or "immersion" finishing processes which are either independently
developed or acquired by the Buyer Parties which may be substantially
similar to the Farah Processes or may contain chemical formulations,
technical processes or other know-how which may be substantially
similar to the chemical formulations, technical processes or know-how
comprising the Farah Processes.
Section 2.3 No Assumption of Liabilities. Except as set forth
on Schedule 2.3, Buyer Parties are not assuming, and shall not be deemed to have
assumed, any liabilities or obligations of Farah or Seller of any kind,
character, nature or description whatsoever, whether known or unknown, direct or
indirect, absolute or contingent. Without limiting the generality of the
foregoing, it is hereby agreed and acknowledged that Buyer Parties are not
assuming, and shall not have any obligation for or with respect to, any
liability or obligation of Farah or Seller (a) under any Employee Plans, (b) in
respect of any Taxes or other governmental charges or assessments of whatever
kind or nature,(c) to any employees or former employees of Farah or Seller for
wages, salary, vacation pay, sick leave pay or any other pay for time not
worked, back pay and damages payable under make whole remedies pursuant to any
Governmental Rule governing employment practices, or severance pay, unemployment
compensation or any other payment, and (d) any liabilities arising under any
Environmental Laws, as a result of any Environmental Condition (irrespective of
whether such Environmental Condition is known to any of the Seller Parties or is
described or referred to herein).
Section 2.4 Closing. The closing of the purchase and sale
provided for herein (the "Closing") shall take place on June 5, 1996 at 10:00
a.m., or at such other time and on such other date as are mutually agreed to by
the Buyer Parties and the Seller Parties, at the offices of Baker & McKenzie,
2001 Ross Avenue, Suite 4500, Dallas, Texas. The date on which the Closing is
held is referred to in this Agreement as the "Closing Date."
Section 2.5 Purchase Price. Subject to the adjustments
provided in this Agreement, the purchase price to be paid at the Closing for the
Purchased Assets is US$22,505,000 (the "Purchase Price"). The Purchase Price
shall be adjusted pursuant to Section 2.8 below and Parent shall cause New
Subsidiary to pay at the Closing the aggregate sum of US$22,505,000 plus or
minus the Pre-Closing Adjustment Amount to Seller by wire transfer in
immediately available funds to the account(s) designated in writing by Seller.
Section 2.6 Purchase Price Adjustment.
(a) The Purchase Price to be paid at the Closing shall be
adjusted by the Pre-Closing Adjustment Amount in accordance with the
provisions of Section 2.7. The Purchase Price, as adjusted pursuant to
Section 2.7, is referred to herein as the "Initial Adjusted Purchase
Price." After the Closing Date, the Purchase Price will be further
adjusted by the Closing Adjustment Amount in accordance with the
provisions of Section 2.8. The Purchase Price, as adjusted pursuant to
Section 2.8, is referred to herein as the "Final Adjusted Purchase
Price."
(b) Seller has provided the Buyer Parties Schedule 2.1(b)
which lists all Farah Assets based on a physical inventory as of March
31, 1996, and has provided Buyer Parties the aggregate book value of
the Farah Assets. The Seller Parties and the Buyer Parties agree that
no adjustments will be made to the Purchase Price pursuant to Sections
2.7 or 2.8 for the aggregate valuation of the Farah Assets set forth on
Schedule 2.1(b).
Section 2.7 Pre-Closing Adjustment.
(a) No later than May 22, 1996, Seller shall prepare and
deliver to Buyer Parties a balance sheet with respect to Dimmit (the
"Pre-Closing Balance Sheet") as of March 31, 1996 and a statement (the
"Pre-Closing Statement") reflecting the calculation of the Pre-Closing
Adjustment Amount, accompanied by a certificate of an officer of each
of the Seller Parties to the effect that the Pre-Closing Balance Sheet
and the Pre-Closing Statement have, to his/her knowledge, been prepared
in accordance with the terms of this Agreement. The Pre-Closing Balance
Sheet shall be prepared in accordance with GAAP (without footnotes and
year-end adjustments) applied on a consistent basis with prior periods.
The Pre-Closing Adjustment Amount shall be the difference between the
current assets and current liabilities (as determined in accordance
with GAAP applied on a consistent basis with prior periods) of Dimmit
reflected on the Pre-Closing Balance Sheet. Any excess of current
liabilities over current assets will decrease the Purchase Price and
any excess of current assets over current liabilities will increase the
Purchase Price.
(b) Buyer Parties shall be given the opportunity to review the
Pre-Closing Balance Sheet and the Pre-Closing Statement at least ten
(10) business days prior to the Closing Date and make any reasonable
objections it may have in writing to Farah and Seller so that the
parties may resolve any differences prior to Closing. During such
review period and the period of any dispute referred to in the
preceding sentence, the Seller Parties shall provide the Buyer Parties
full access to the books, records, facilities and employees of Dimmit
and the Seller (with respect to the Business) and the Seller Parties
shall cooperate fully with the Buyer Parties, in each case to the
extent required by the Buyer Parties in order to investigate the basis
for the preparation of the Pre-Closing Statement or for any such
dispute; provided, however, that any such investigation shall be
conducted in such a manner as not to interfere unreasonably with the
operation of the Business. If no written objections are made by any of
the Buyer Parties prior to Closing, then the Pre-Closing Balance Sheet
and the Pre-Closing Statement shall be deemed acceptable for purposes
of calculating the Pre-Closing Adjustment Amount; provided, however,
Buyer Parties shall not be deemed to have waived any rights they may
have to object to the Final Balance Sheet and Final Statement provided
in Section 2.8.
Section 2.8 Closing Adjustment.
(a) Within ninety (90) calendar days following the Closing
Date, Farah and Seller shall prepare and deliver to Buyer Parties a
balance sheet with respect to Dimmit (the "Final Balance Sheet") as of
the Closing Date (prior to the effects of the transactions occurring at
the Closing) and a statement (the "Final Statement") reflecting the
calculation of the Closing Adjustment Amount, accompanied by a
certificate of an officer of each of Farah and Seller to the effect
that the Final Balance Sheet and the Final Statement have, to his/her
knowledge, been prepared in accordance with the terms of this
Agreement. The Final Balance Sheet shall be prepared in accordance with
GAAP (without footnotes and year-end adjustments) applied on a
consistent basis with prior periods. As used herein, "Closing
Adjustment Amount" means the difference between the current assets and
current liabilities of Dimmit reflected on the Final Balance Sheet (as
determined in accordance with GAAP applied on a consistent basis with
prior periods). Any excess of current liabilities over current assets
will decrease the Purchase Price and any excess of current assets over
current liabilities will increase the Purchase Price.
(b) Buyer Parties shall have a period of thirty (30) calendar
days after delivery of the Final Balance Sheet and the Final Statement
to review such documents and make any objections they may have in
writing to Seller. If written objections are delivered to Seller by any
of the Buyer Parties within such thirty-day period, then the parties
shall attempt to resolve the matter or matters in dispute. If no
written objections are made within such thirty-day period, then the
Final Balance Sheet and the Final Statement shall be final and binding
on the parties hereto. If disputes with respect to the Final Balance
Sheet or the Final Statement cannot be resolved by Buyer Parties and
Seller within thirty (30) calendar days after the delivery of the
objections thereto, then, at the request of either any of the Buyer
Parties or Seller, the specific matters in dispute shall be submitted
to the Dallas office of a "Big Six" accounting firm, other than Coopers
& Lybrand, LLP or Ernst & Young, L.L.P. (the "Auditors") as may be
approved by Seller and Buyer Parties, which firm shall render its
opinion as to such matters. Based on such opinion, such independent
accounting firm will then send to the parties its determination of the
specified matters in dispute, which determination shall be final and
binding on the parties hereto. The fees and expenses of the Auditors
shall be allocated between the Seller and New Subsidiary in the same
proportion that the aggregate amount of such remaining disputed items
so submitted to the Auditors that is unsuccessfully disputed by each
(as finally determined by the Auditors) bears to the total amount of
such remaining disputed items so submitted (without taking into account
any deduction pursuant to Section 2.8(c) below).
(c) If the Final Adjusted Purchase Price exceeds the Initial
Adjusted Purchase Price, then within five (5) days following the final
determination thereof, New Subsidiary shall pay Seller by wire transfer
in immediately available funds to the account or accounts designated by
Seller the excess amount. If the Initial Adjusted Purchase Price
exceeds the Final Adjusted Purchase Price, then within five (5) days
following the final determination thereof, Seller shall pay New
Subsidiary by wire transfer in immediately available funds to the
account or accounts designated by New Subsidiary the excess amount. Any
payment by New Subsidiary or Seller under this Section 2.8(c) shall
bear interest at a rate per annum equal to the prime rate of interest
charged by Citibank, N.A., from time to time, calculated from the
Closing Date to the date of such payment.
Section 2.9 Allocation Reporting. The Buyer Parties and the
Seller Parties agree to report the allocation of the Purchase Price among the
Purchased Assets and, if the Buyer Parties make an election under Section 338 of
the Code with respect to the acquisition of the Dimmit Stock hereunder, among
the assets of Dimmit (the "Dimmit Assets"), in each case as set forth in
Schedule 2.9. As soon as practicable after the Closing Date, but in no event
later than December 31, 1996, the Buyer Parties and the Seller Parties, as
appropriate, shall jointly prepare IRS Form 8594 or any other forms required
under Sections 338 or 1060 of the Code to report the allocation of the Purchase
Price and any adjustments thereto in conformity with the preceding sentence
which reflects, among other things, the agreed fair market value of the
Purchased Assets and the Dimmit Assets. Each party hereto agrees not to assert,
in connection with any Tax return, Tax audit or similar proceeding, any
allocation that differs from that set forth in this Section 2.9.
ARTICLE III
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF FARAH AND SELLER
Each of Farah and Seller, jointly and severally, represent and
warrant to each of Buyer Parties the following:
Section 4.1 Corporate Status and Good Standing. Each of Farah,
Seller and Dimmit is a corporation duly incorporated, validly existing and in
good standing under the laws of its jurisdiction of incorporation, with full
corporate power and authority to own and lease its properties and to conduct
business as the same exists. Each of Farah, Seller and Dimmit is duly licensed
or qualified to do business as a foreign corporation in all states or
jurisdictions in which the nature of its business requires such qualification,
except where the failure to be so qualified would not have a material adverse
effect on such party or the Purchased Assets, the Dimmit Assets or the Business.
Section 4.2 Authorization. Each of Farah, Seller and Dimmit
has full corporate power and authority, and its board of directors and
shareholders have taken all necessary action to authorize it, to execute and
deliver this Agreement or any documents executed in connection herewith
(collectively, the "Documents"), to consummate the transactions contemplated
herein and therein and to take all actions required to be taken by it pursuant
to the provisions hereof and thereof, and each of this Agreement and the
Documents constitutes the valid and binding obligation of each of Farah, Seller
and Dimmit that is a party thereto, enforceable in accordance with its terms,
except as enforceability may be limited by general equitable principles,
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors' rights generally.
Section 4.3 Non-Contravention. Dimmit is not in violation of
any term of its Articles of Association or its bylaws. Except as set forth on
Schedule 4.3, neither the execution and delivery of this Agreement or any
Document, nor the consummation of the transactions contemplated herein or
therein, does or will (a) constitute a violation or breach of the Articles of
Incorporation or Articles of Association (or other charter document) or the
bylaws of Farah, Seller or Dimmit, (b) conflict with or violate any Governmental
Rule applicable to Farah, Seller or Dimmit or which is applicable to the
Business or by which any of the Purchased Assets or the Dimmit Assets are bound
or affected, (c) constitute a default under or a breach of, or result in
acceleration of any obligation under, any provision of any contract, lease,
mortgage or other instrument to which Farah, Seller or Dimmit is a party or by
which the Business or any of the Purchased Assets or the Dimmit Assets may be
affected or secured, which default, breach or acceleration has not been waived,
(d) result in the creation of any Lien on any of the Purchased Assets or the
Dimmit Assets, or (e) result in the termination of any license, franchise, lease
or Permit to which Farah, Seller or Dimmit is bound or which binds or affects
the Business.
Section 4.4 Consents and Approvals. Except as set forth in
Schedule 4.4, no authorization, approval, order, license, Permit, franchise or
consent and no registration, declaration, notice or filing by or with any
Governmental Body or other party is required for the execution and delivery by
any of the Seller Parties of this Agreement or any Document or the consummation
by any of the Seller Parties of the transactions contemplated hereby and
thereby.
Section 4.5 Validity. There are no pending or threatened
judicial or administrative actions, proceedings or investigations which question
the validity of this Agreement or any action taken or contemplated by Farah,
Seller or Dimmit or in connection with this Agreement.
Section 4.6 Title. Farah and Seller are the true and lawful
owners of the Dimmit Stock, free and clear of any and all Liens, liabilities and
assignments of any kind. Except as set forth on Schedule 4.6, Seller is the true
and lawful owner of the Farah Assets, free and clear of any and all Liens,
liabilities and assignments of any kind, other than Permitted Liens. Farah and
Seller have the full right to sell and transfer to New Subsidiary good and
marketable title to the Purchased Assets, free and clear of any and all Liens,
other than Permitted Liens with respect to Farah Assets. The execution and
delivery to New Subsidiary of the instruments of transfer of ownership
contemplated by this Agreement will vest good and marketable title to the
Purchased Assets in New Subsidiary, free and clear of all Liens, other than
Permitted Liens with respect to Farah Assets. Except for the Water Treatment
Equipment, the Purchased Assets and the Dimmit Assets (a) are adequate and
suitable for the conduct of the Business, and (b) comprise all of the assets and
properties of the Seller Parties used in and necessary for the conduct of the
Business as it is currently being conducted other than the Excluded Assets.
Schedule 4.6(a) sets forth a correct and complete list of the Dimmit Assets in
all material respects. Dimmit is the true and lawful owner of the Dimmit Assets,
free and clear of any and all Liens, other than Permitted Liens.
Section 4.7 Liabilities. Except as set forth in Schedule 4.7,
or the Pre-Closing Balance Sheet or the Final Balance Sheet, there is no
existing, contingent or threatened material liability, obligation, Lien or claim
of any nature (absolute, accrued, contingent or otherwise) that relates to or
has been or may be asserted against Dimmit or the Purchased Assets, the Dimmit
Assets or the Business.
Section 4.8 Employees and Related Matters. Schedule 4.8 is a
complete list of all employees of Dimmit, and employees of Seller working at the
Piedras Factory, listing the title or position held, base salary, any
commissions or other compensation paid or payable, and all employee benefits
received by such employees. Dimmit has no material liability and has operated
its Business in compliance with all Governmental Rules with respect to all
employee benefit or other labor-related contributions for its present and former
employees, including without limitation the payment of any severance, salaries,
bonuses, vacation premiums, social security contributions and worker housing
fund contributions, except where such non-compliance would not have a material
adverse effect on Dimmit, the Purchased Assets, the Dimmit Assets or the
Business. Since March 31, 1996, neither Seller nor Dimmit has (i) increased the
compensation payable or to become payable by the Seller or Dimmit to any
employee of the Business, except for increases in salary or wages of its
employees in the ordinary course of business in accordance with past practice,
(ii) granted any severance or termination pay to (except as may be required by
existing arrangements), or entered into any employment or severance agreement
with, any such employees or (iii) established, adopted or entered into any
collective bargaining agreement with respect to any such employees.
Section 4.9 Financial Statements; No Material Change. Annexed
hereto as Schedule 4.9 are true and complete copies of (a) the unaudited balance
sheet of Dimmit as of October 31, 1995, and the related unaudited statement of
income for the year then ended (the "Year-End Financial Statements"), (b) the
unaudited balance sheet of Dimmit as of March 31, 1996 and the related statement
of income for the five (5) months then ended (the "Interim Financial Statement")
(the Year End Financial Statements and the Interim Financial Statements are
collectively referred to herein as the "Financial Statements"), and (c) the
"Expense Element Summary for Location 42" provided by Seller for each of the
three months ended September 30, 1995, October 31, 1995 and November 30, 1995
(the "Monthly General Ledger"). The Financial Statements have been, and the
Pre-Closing Balance Sheet and the Final Balance Sheet will be, prepared from the
books and records of Dimmit in accordance with GAAP (without footnotes and
year-end adjustments) applied on a consistent basis with prior periods and the
Financial Statements fairly present the financial position of Dimmit as of such
dates and the results of its operations as of the dates or throughout the
periods indicated, and the Pre-Closing Balance Sheet and the Final Balance Sheet
will fairly present the financial position of Dimmit as of the dates indicated
thereon. The Monthly General Ledger has been prepared from the books and records
of Dimmit and Seller, and the Monthly General Ledger fairly presents the
operating expenses of the Business throughout the periods indicated thereon in
all material respects. There has been no material adverse change in the Business
since the date of the most recent Interim Financial Statement, and no event has
occurred which could be expected to lead to or cause such a material adverse
change.
Section 4.10 Capitalization; Ownership. The total authorized
capital stock and the issued and outstanding capital of Dimmit is set forth on
Schedule 4.10. All of the shares of Dimmit Stock have been duly authorized and
are validly issued, fully paid and nonassessable and are owned of record by
Farah and Seller free and clear of all Liens, except as set forth on Schedule
4.10. At the Closing, Farah and Seller will convey to the New Subsidiary good
and marketable title to the Dimmit Stock, free and clear of all Liens. There are
no outstanding subscriptions, options, warrants, rights or privileges,
preemptive or contractual, to acquire any shares of capital stock of Dimmit, or
agreements therefor, or any securities or obligations of any kind convertible
into any class of capital stock of Dimmit. Dimmit has no Subsidiaries and does
not own any shares of stock or any other securities of any corporation and does
not have any interest in any limited liability company, firm, partnership,
association, joint venture, trust or other entity.
Section 4.11 Litigation. Except as set forth in Schedule 4.11,
(a) there are no legal actions, suits, proceedings, arbitrations, controversies
or investigations (whether or not purportedly on behalf of or against any of the
Seller Parties) pending or, to the knowledge of each of the Seller Parties,
threatened or contemplated, by any Governmental Body or other party against any
of the Seller Parties which relates to or affects Dimmit or the Purchased
Assets, the Dimmit Assets or the Business or the transactions contemplated by
this Agreement and (b) neither Farah, Seller nor Dimmit is a party to or subject
to any judgment, order, writ, injunction or decree which relates to or affects
Dimmit or the Purchased Assets, the Dimmit Assets or the Business or the
transactions contemplated by this Agreement.
Section 4.12 Contracts. Schedule 4.12 contains a complete and
correct list of all of the contracts, leases, agreements and commitments (the
"Contracts") relating to or affecting Dimmit or the Purchased Assets, the Dimmit
Assets or the Business which by its terms or is currently expected to result in
the payment or receipt by any of the Seller Parties of more than $10,000 and the
Seller Parties have heretofore delivered or made available to Buyer Parties true
and complete copies of each such written Contract and a true and complete
summary of each such oral Contract. The Contracts are valid and binding
obligations of Seller or Dimmit, as the case may be, and are enforceable by and
against Seller or Dimmit, as the case may be, in accordance with their
respective terms, and the Contracts listed in Schedule 4.12 have not been
modified or amended except as disclosed in Schedule 4.12 or in any other
Schedule to this Agreement and neither Farah, Seller nor Dimmit is a party or
subject to or bound by, directly or indirectly, any other Contract which should
be described in Schedule 4.12. Seller and Dimmit have performed all obligations
required to be performed by them, have paid all amounts required to be paid by
them and are not in default in any material respect, under any Contract and no
event has occurred thereunder in each case which, with the lapse of time or the
giving of notice or both, would constitute such a default and, to the knowledge
of the Seller Parties, no other party to any Contract is in default in any
material respect thereunder. Except as set forth on Schedule 4.4, none of the
Contracts (including without limitation, the Contracts set forth on Schedule
2.1(c)), requires the consent of or the assignment by a third party in
connection with the transactions contemplated hereby.
Section 4.13 Compliance with Laws. Schedule 4.13 sets forth a
correct and complete list of all material Permits of any Governmental Body
presently held by any of the Seller Parties in connection with the Business. The
Permits listed in Schedule 4.13 constitute all material Permits which are
required in order to allow Seller and Dimmit to continue to carry on the
Business and use the Dimmit Assets and the Farah Assets with respect thereto as
now conducted. The Seller Parties are in compliance in all material respects
with such Permits and all applicable Governmental Rules required to be complied
with in order to allow Seller and Dimmit to continue to carry on the Business
and use the Farah Assets and the Dimmit Assets as now being conducted and used
by it, and neither Farah, Seller or Dimmit has received any written notification
of, or is aware of, any asserted failure to comply with any such Permits or
Governmental Rules. The Farah Assets were temporarily imported into Mexico by
Dimmit and are of United States of America origin, and to the knowledge of the
Seller Parties the Farah Assets were imported in compliance in all material
respects with Mexican customs law and regulations.
Section 4.14 Employee Disputes. Except as set forth on
Schedule 4.14, neither Farah, Seller nor Dimmit has any agreements, whether or
not expired, with any union, trade association or other employee organization
with respect to the Business or its operations and there are no unions, trade
associations or other organizations representing or purporting to represent or
attempting to represent any employees of Seller (who are involved in the
Business) or Dimmit. There are no pending or threatened disputes, grievances,
charges, complaints, petitions or proceedings involving the employees of Seller
(who are involved in the Business) or Dimmit or any collective bargaining
representatives, and there is not pending or threatened, any strike, lockouts or
general work stoppages which would cause a cessation of operations of the
Business or any facility of the Business, and neither Seller nor Dimmit has been
the subject of any orders to show cause, notices of debarment or administrative
proceedings relating to its employment practices with respect to the Business.
Section 4.15 Insurance. The Seller Parties have adequate
insurance coverage for the Purchased Assets, the Dimmit Assets and the operation
of the Business. Set forth on Schedule 4.15 is a complete and correct list of
all policies of insurance carried by any of the Seller Parties or pursuant to
which any of the Seller Parties (only as such insurance policies relate to
Dimmit, the Purchased Assets, the Dimmit Assets or the Business) is named
beneficiary or pursuant to which the Purchased Assets, the Dimmit Assets or the
Business are insured. All of such policies are in full force and effect; all
premiums due and payable in respect of such policies have been paid in full; and
there exists no default or other circumstance which would create the substantial
likelihood of the cancellation or non-renewal of any such policy. The Seller
Parties have notified such insurers of any material claim known to any of the
Seller Parties which they believe is covered by any such insurance policy and
have delivered or made available to the Buyer Parties, a copy of any such claim.
Section 4.16 Taxes.
(a) Each of Farah, Seller and Dimmit have timely and duly filed (giving
effect to extensions duly taken) all federal, state, local or foreign Tax
returns or reports required to be filed by, or with respect to, Dimmit, the
Purchased Assets, the Dimmit Assets, or the Business on or prior to the date
hereof, and will have so filed all such returns or reports required to be filed
by them on or prior to the Closing Date.
(b) The Tax returns and reports described in subparagraph (a) above
reflect or will reflect accurately all liability for taxes, charges, fees,
levies or other assessments of any nature whatsoever (including without
limitation, all federal, state, local and foreign income taxes, estimated taxes,
value added taxes, excise taxes, sales taxes, use taxes, transfer taxes, gross
receipts taxes, franchise taxes, employment and payroll related taxes, ad
valorem taxes, property taxes and import and export duties, whether or not
measured in whole or in part by net income), together with any related
penalties, interest and additions to taxes (any of the foregoing being referred
to herein as a "Tax"), for the periods covered thereby. Farah, Seller and Dimmit
have paid or will pay all Taxes required to be paid by each of them with respect
to the periods and/or the returns and reports described in subparagraph (a)
above. All Taxes with respect to Dimmit, the Purchased Assets, the Dimmit Assets
or the Business not yet due but incurred on or before the Closing Date
(including without limitation, Taxes arising out of the transactions hereby
contemplated) are or will be adequately disclosed and fully provided for on the
books and records and the financial statements of Farah, Seller and Dimmit.
Farah, Seller and Dimmit have fully and timely collected, withheld and/or paid
over all Taxes with respect to Seller, Dimmit or any of their respective
employees (including, without limitation, income and social security Taxes) or
with respect to the Purchased Assets, the Dimmit Assets or the Business that are
required to be collected, withheld and/or paid over to a Governmental Body or
taxing authority.
(c) Except as set forth in Schedule 4.16(c), neither Farah, Seller or
Dimmit are currently being audited by any Governmental Body or taxing authority
with respect to the periods and/or the returns and reports described in
subparagraph (a) above, and there are no claims or assessments pending against
Farah, Seller or Dimmit with respect to Dimmit, the Purchased Assets, the Dimmit
Assets or the Business. Neither Farah, Seller nor Dimmit has agreed to waive or
extend the statute of limitations with respect to any such Taxes or Tax returns
or reports or is a party to any agreement providing for the allocation or
sharing of any such Taxes or has a contractual obligation to indemnify any other
person with respect to any such Taxes. No written claim has ever been made by a
Governmental Body or taxing authority in a jurisdiction where Farah, Seller or
Dimmit does not presently file Tax returns or reports with respect to Dimmit,
the Purchased Assets, the Dimmit Assets or the Business that Farah, Seller or
Dimmit is or may be subject to taxation by that jurisdiction. True, correct and
complete copies of all Tax returns and reports filed by Farah, Seller or Dimmit
with respect to Dimmit, the Purchased Assets, the Dimmit Assets or the Business
(including, without limitation, any transfer pricing studies or reports prepared
for or submitted to the Mexican taxing authorities) have been made available to
Parent and Industries. True, correct and complete copies of any closing
agreements with respect to Dimmit, the Purchased Assets, the Dimmit Assets or
the Business which were entered into with any Governmental Body or taxing
authority have heretofore been furnished to Parent and Industries.
Section 4.17 Finder's Fees. Neither Farah, Seller nor Dimmit
has incurred any liability for finder's or brokerage fees or agent's commissions
in connection with this Agreement or the transactions hereby contemplated.
Section 4.18 Environmental Compliance. Except as set forth in
Schedule 4.18:
(a) There are no pending, and the Seller Parties have no actual
knowledge of any threatened, litigations or proceedings before any Governmental
Body in which any person or entity alleges (i) the violation of any
Environmental Law, or (ii) any Environmental Condition at, from or caused by
operations now or previously conducted at the Piedras Factory or the Eagle Pass
Warehouse, and none of the Seller Parties has (i) received any written notice of
and has actual knowledge that any third party, Governmental Body or any employee
or agent thereof, has determined or has alleged, or requires an investigation to
determine that there exists any Environmental Condition or any violation of any
Environmental Law; (ii) received any written notice under the citizen suit
provision of any Environmental Law in connection therewith; or (iii) received
any written request for inspection or request for information, notice, demand,
administrative inquiry or any formal or informal complaint or claim with respect
to or in connection with any Environmental Condition or as a result of any
violation of any Environmental Law.
(b) No Lien has been imposed or asserted on any of the Seller Parties'
assets by any Governmental Body or other person in connection with any
Environmental Law or Environmental Condition.
(c) Each of the Seller Parties (i) has all Environmental Permits
necessary for the activities and operations of the Business and for any past or
ongoing alterations or improvements at the Piedras Factory or the Eagle Pass
Warehouse, and (ii) is not in violation of any such Environmental Permits and
has applied for renewals where necessary.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER PARTIES
Each of Parent and Industries, jointly and severally,
represent and warrant to each of Farah, Seller and Dimmit the following:
Section 5.1 Corporate Status and Good Standing. Each of Parent
and Industries is, and on the Closing Date the New Subsidiary will be, a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation, with full corporate power and
authority to own and lease its properties and to conduct its business as the
same exists on the date hereof and on the Closing Date. Each of Parent and
Industries is, and on the Closing Date the New Subsidiary will be, duly
qualified to do business as a foreign corporation in all states in which the
nature of its business requires such qualification. except where the failure to
be so qualified would not have a material adverse effect on such party.
Section 5.2 Authorization. Each of Parent and Industries has,
and on the Closing Date the New Subsidiary will have, full corporate power and
authority and its board of directors and stockholders have taken, and on the
Closing Date the New Subsidiaries' Board of Directors and its stockholders will
have taken, all necessary action to authorize it, to execute and deliver this
Agreement and the Documents, to consummate the transactions contemplated herein
and to take all actions required to be taken by it pursuant to the provisions
hereof or thereof, and each of this Agreement and the Documents constitutes, and
with respect to the New Subsidiary will constitute as of the Closing Date, the
valid and binding obligation of each of Parent, Industries and New Subsidiary
that is a party hereto, enforceable in accordance with its terms, except as
enforceability may be limited by general equitable principles, bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors' rights
generally.
Section 5.3 Non-Contravention. Neither the execution and
delivery of this Agreement or any Document, nor the consummation of the
transactions contemplated herein or therein, does or will violate, conflict with
or result in breach of or require notice or consent under any law, the charter
or bylaws of either Parent, Industries or New Subsidiary or any provision of any
agreement or instrument to which either Parent, Industries or New Subsidiary is
a party, except for that certain Credit Agreement dated April 28, 1995, as
amended, among Parent, Industries, First Union National Bank of North Carolina,
as agent for the lenders thereunder, and the various lenders thereunder.
Section 5.4 Validity. There are no pending or threatened
judicial or administrative actions, proceedings or investigations which question
the validity of this Agreement or any action taken or contemplated by either
Parent and Industries in connection with this Agreement.
Section 5.5 New Subsidiary. On the Closing Date and prior to
the consummation of the transactions contemplated herein, New Subsidiary will
not have any business, will not conduct any business and will not have any
operating assets, and Industries will own all of the issued and outstanding
capital stock of New Subsidiary.
Section 5.6 Environmental Investigation. Buyer Parties
acknowledge having inspected the Piedras Factory and Farah Assets, and having
obtained a report of such investigations prepared by RMT, Inc.dated as of April,
1996.
ARTICLE VI
COVENANTS
Section 6.1 Conduct of the Business Pending the Closing. (a)
Each of the Seller Parties covenants and agrees that, between the date hereof
and the Closing Date, the Business shall be conducted only in the ordinary
course of business and in a manner consistent with the current practice of the
Business; and each of the Seller Parties shall use its best efforts to preserve
substantially intact the business organization of Dimmit and the Business, to
keep available the services of the employees of Seller and Dimmit currently
engaged in the Business so that they will be available to Buyer Parties and
Dimmit after the Closing.
(b) Except as contemplated by this Agreement, between the date hereof
and the Closing Date, the Seller Parties shall not, without the consent of the
Buyer Parties:
(i) incur any liability or obligation with respect to Dimmit,
the Purchased Assets, the Dimmit Assets or the Business, absolute or contingent,
except for any thereof in the ordinary course of business and in a manner
consistent with current practice, or mortgage, pledge, subject to Lien or
encumber any of the Purchased Assets or the Dimmit Assets;
(ii) increase the compensation payable or to become payable by
the Seller or Dimmit to any employee of the Business, except for increases in
salary or wages of its employees in accordance with past practices, or grant any
severance or termination pay to (except as may be required by existing
arrangements), or enter into any employment or severance agreement with, any
such employee or establish, adopt or enter into any collective bargaining
agreement, with respect to any such employees;
(iii) enter into any new material transaction, contract
or agreement with respect to the Business;
(iv) sell, assign, lease or transfer or otherwise dispose of
any of the Purchased Assets or the Dimmit Assets, except sales in the ordinary
course of the Business consistent with past practice;
(v) materially amend, modify or terminate any Contract
affecting the Business other than in the ordinary course of the Business or
permit any Environmental Permit or any Permit of any of the Seller Parties with
respect to the Business to terminate or expire;
(vi) materially alter or revise the manner of keeping its
books, accounts or records or the accounting practices, procedures or methods of
Dimmit or the Business therein reflected;
(vii) fail to maintain Dimmit's status as a corporation
existing under the laws of Mexico;
(viii) make any investment of a capital nature or any
commitment therefor;
(ix) declare or make any dividend or any distribution or
transfer of, or on, any of the Purchased Assets or the Dimmit Assets;
(x) create, suffer or incur any damage, destruction or loss
(whether or not covered by insurance) or any other event or condition of any
character which would have a material adverse effect on the Purchased Assets,
the Dimmit Assets, Dimmit or the Business;
(xi) fail to maintain in full force and effect all insurance
policies of any of the Seller Parties that relate to the Purchased Assets, the
Dimmit Assets, Dimmit or the Business;
(xii) authorize for issuance, issue or sell any shares of
Dimmit's capital stock or other securities; acquire directly or indirectly, by
redemption or otherwise, any such capital stock, reclassify or split-up any such
capital stock, or grant or enter into any options, warrants, calls or
commitments of any kind with respect thereto; or
(xiii) fail to maintain all Farah Assets and Dimmit Assets
material to the conduct of the Business in customary repair, order and
condition, reasonable wear and tear excepted.
Section 6.2 Employees.
(a) Each of Parent and Industries agrees that prior to the
Closing it will take no action which might encourage or cause employees
of Seller or Dimmit employed at the Piedras Factory to cease their
employment at the Piedras Factory. At or prior to the Closing,
Industries or New Subsidiary will offer the employees of Seller
presently employed at the Piedras Factory and set forth on Schedule
6.2(a) continued employment on such terms as Industries or New
Subsidiary deems appropriate. Following the Closing, Dimmit employees
will be allowed to continue to be employed at the Piedras Factory at
the same level of seniority, wages and benefits presently offered
Dimmit employees. Neither Parent, Industries or New Subsidiary nor any
Affiliates thereof will be permitted to hire Dimmit's Import/Export
manager at the time of Closing; provided, however, that from and after
the Closing, the Seller Parties covenant and agree to make available to
Buyer Parties and Dimmit Dimmit's Import/Export manager to assist with
the continuing operations of Dimmit and the training of a new
Import/Export manager until such time as a new Import/Export manager is
adequately trained. A list of those people not eligible to be hired by
Parent, Industries or New Subsidiary or Affiliates thereof is found on
Schedule 6.2(b). Seller Parties covenant and agree that any employees
of Seller or Dimmit who are not eligible to be hired by any of the
Buyer Parties or their respective Affiliates (including without
limitation, Dimmit's Import/Export manager) if terminated at or prior
to Closing, will be terminated by Seller Parties in compliance with any
severance obligations payable under Mexican law or otherwise and
neither Buyer Parties or Dimmit shall assume or be responsible for any
such severance obligations. From the date hereof, Seller Parties agree
not to transfer or relocate employees to or from the Piedras Factory
prior to the Closing, other than those employees set forth on Schedule
6.2(b). In carrying out their obligations under this Section 6.2(a),
Buyer Parties and Seller Parties agree they will use their best efforts
to minimize any severance obligations payable to employees of Seller or
Dimmit at the time of Closing that any party may become responsible for
under Mexican law as a result of the transactions contemplated hereby.
(b) Neither the Buyer Parties nor Dimmit shall assume any
pension, retirement or employee stock ownership plans or any
disability, medical, dental or other health plan, life insurance or
other death benefit plans, profit sharing, deferred compensation,
incentive compensation or severance plans, including without
limitation, any employee benefit plan (within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as
amended), covering any present or former employees of Farah or Seller
employed in the Business and maintained or sponsored by Farah or Seller
or to which Farah or Seller makes contributions (collectively, the
"Employee Plans").
(c) Each of Farah, Seller, Dimmit, Parent and Industries
agrees that for a period of three (3) years following the Closing, it
will not, and will cause its Affiliates not to, employ, offer
employment to, solicit, encourage, or entice any person employed by the
other or an Affiliate of the other to terminate his employment with the
other or take employment with it or its Affiliates.
Section 6.3 Consents. After the Closing, the Seller Parties
and Buyer Parties will use their best efforts to obtain any consents required in
connection with the transactions contemplated hereby that are necessary to
effect the transactions contemplated hereby and that have not been previously
obtained.
Section 6.4 Governmental Filings. As promptly as practicable
after the execution of this Agreement, each party shall, in cooperation with the
other, file any reports or notifications that may be required to be filed by it
under applicable law, and shall furnish to the other all such information in its
possession as may be necessary for the completion of the reports or
notifications to be filed by the other.
Section 6.5 Access to Information. Prior to the Closing, Buyer
Parties may make such investigation of the business and properties of Seller and
Dimmit as is reasonable and, upon reasonable notice, Seller Parties shall give
to Buyer Parties and their counsel, accountants and other representatives
reasonable access, during normal business hours throughout the period prior to
the Closing, to the property, books, commitments, agreements, records, files and
personnel of each of Seller and Dimmit, and Seller and Dimmit shall furnish to
Buyer Parties during that period all copies of documents and information
concerning the Business as Buyer Parties may reasonably request, subject to
applicable law. Buyer Parties shall hold, and shall cause its counsel,
accountants and other agents and representatives to hold, all such information
and documents in confidence.
Section 6.6 Non-competition. For a period of three (3) years
following the Closing, each of Buyer Parties agrees that it will not, either on
its own account or in conjunction with or on behalf of any other person,
directly or indirectly, and it will cause its Affiliates, officers, directors,
agents and employees not to, solicit, entertain proposals from, bid on, or
accept business from private label customers of Seller or its Affiliates listed
on Schedule 6.6 (with the exception of The GAP).
Section 6.7 Other Action. Each of the parties shall use its
reasonable efforts to cause the fulfillment at the earliest practicable date
but, in any event, prior to the Closing Date of all of the conditions to their
respective obligations to consummate the transactions under this Agreement.
Section 6.8 Access to Books and Records/Preparation of
Reports. After Closing, Buyer Parties shall permit Seller Parties access, upon
reasonable notice and during normal business hours, to and the right to make
copies of any books, records and files related to Dimmit or the Business or that
constitute part of the Purchased Assets or Dimmit Assets for any reasonable
purpose, such as for use in litigation, environmental or financial reporting,
Tax return preparation, or Tax compliance matters.
Section 6.9 Tax Returns. Farah and Seller will be responsible
for the preparation and filing of all Tax returns or reports required to be
filed by, or with respect to, Farah, the Seller, the Purchased Assets, the
Dimmit Assets, Dimmit or the Business, but in the case of the Purchased Assets,
the Dimmit Assets, Dimmit or the Business only for Tax periods ending on or
prior to the Closing Date, and Farah or Seller will make all payments required
to be made with respect to such Tax returns or reports. Buyer Parties shall be
responsible for the preparation and filing of all Tax returns or reports
required to be filed by, or with respect to, the Purchased Assets, the Dimmit
Assets, Dimmit or the Business for Tax periods ending after the Closing Date.
Buyer Parties will make all payments required to be made with respect to such
Tax returns or reports; provided, however, that Farah and Seller shall pay to
Buyer Parties within five (5) days prior to the due date (or extended due date)
of such Tax returns and reports the amount of any Pre-Closing Taxes required to
be made with respect to such Tax returns and reports to the extent not accrued
on the Pre-Closing Balance Sheet or the Final Balance Sheet. For purposes of
this Agreement, "Pre-Closing Taxes" means any Taxes attributable to (a) the
operations of Dimmit or the Business (including, without limitation, Taxes in
respect of the payment of wages, food coupons or other compensation to employees
of Dimmit or Seller engaged in the Business), (b) the property or assets owned
or used by Dimmit, (c) transactions engaged in by Dimmit or in connection with
the Business, or (d) the ownership, use or possession of the Dimmit Assets or
the Purchased Assets, in each case on or prior to the Closing Date. For purposes
of this Agreement, Pre-Closing Taxes shall be determined by closing the books of
the Business and/or Dimmit and/or the relevant Tax period as of the end of the
Closing Date on an actual basis (if the relevant Tax period actually ends on the
Closing Date) or on a pro forma basis as of the end of the Closing Date (if the
relevant Tax period does not actually end on the Closing Date).
Section 6.10 Transfer Taxes. Any sales, use, stock transfer or
other like Taxes or recording fees payable as a result of the transactions
contemplated hereby shall be paid by Farah and Seller, and Farah and Seller
shall, at their expense, timely file all necessary Tax returns and other
documentation with respect to all such Taxes or fees and deliver copies of such
Tax returns and other documentation to Buyer Parties promptly after filing. In
furtherance and not in limitation of the foregoing, any income, gains or
transfer Taxes that become payable in connection with the transactions
contemplated by this Agreement (including, without limitation, any Mexican
income or gains Taxes payable in connection with the sale of the Dimmit Stock
hereunder) shall be paid by Farah and Seller.
Section 6.11 Cooperation and Exchange of Information. The
Seller Parties and the Buyer Parties agree to provide each other with such
cooperation and information as either of them reasonably may request or need of
the other in connection with (a) the preparation of any Tax return of Dimmit or
with respect to the Business, the Dimmit Assets or the Purchased Assets, (b)
determining any Taxes or right to a refund of Taxes of Dimmit or with respect to
the Business, the Dimmit Assets or Purchased Assets, (c) responding to any
examination of Tax returns of Dimmit or with respect to the Business, the Dimmit
Assets or Purchased Assets, (d) defending or prosecuting any proceeding in
respect of Taxes assessed or proposed to be assessed against Dimmit or with
respect to the Business, the Dimmit Assets or Purchased Assets and (e) the
defense of any litigation or other proceeding relating to Dimmit, the Business,
the Dimmit Assets or the Purchased Assets whether existing on the Closing Date
or arising thereafter out of, or relating to, an occurrence or event happening
before or after the Closing Date.
Section 6.12 Environmental Inspection, Audit and Testing. The
Buyer Parties shall have the right to cause an independent environmental
consultant chosen by the Buyer Parties in their sole discretion, to inspect,
audit, and test the Eagle Pass Warehouse for the existence of any and all
Environmental Conditions and any and all violations of Environmental Laws (the
"Environmental Audit") and to deliver a report describing the findings and
conclusions of the Environmental Audit. The scope and sequence of the
Environmental Audit shall be at the sole discretion of the Buyer Parties, and
the Environmental Audit may be commenced on or after the date hereof. If the
Environmental Audit reveals, or if at any time prior to Closing, the Buyer
Parties otherwise become aware of the existence of any Environmental Condition
on, at, under or about the Eagle Pass Warehouse or any violation of an
Environmental Law, the Buyer Parties shall have, in their sole discretion, the
right and option not to assume the lease for the Eagle Pass Warehouse.
ARTICLE VII
INDEMNIFICATION
Section 7.1 Seller Parties' Indemnity Obligations. Each of
Farah and Seller, jointly and severally, shall indemnify each of Buyer Parties
and Dimmit (including their officers, directors, employees and agents) against,
and hold harmless from and against, any and all claims, actions, causes of
action, arbitrations, proceedings, losses, damages, liabilities, judgments and
expenses (including without limitation, reasonable attorneys' fees)
("Indemnified Amounts") incurred by Buyer Parties or Dimmit or any of their
respective Affiliates as a result of (a) any error, inaccuracy, breach or
misrepresentation in any of the representations and warranties made by or on
behalf of Farah, Seller or Dimmit in this Agreement, (b) any violation or breach
by Farah, Seller or Dimmit of or default by Farah, Seller or Dimmit under the
terms of this Agreement, (c) any and all liabilities arising out of or related
to Taxes of Farah or Seller (including without limitation, any and all Taxes
that may be imposed on Farah or Seller pursuant to Treasury Regulation Section
1.1502-6 or any corresponding provision of any state, local or foreign
Governmental Rule or otherwise by virtue of Farah or Seller being a member of an
affiliated, consolidated, combined or unitary group), (d) any and all
liabilities or obligations of Farah or Seller of any kind, character, nature or
description whatsoever, whether known or unknown, direct or indirect, absolute
or contingent, whether or not accruing or arising with respect to the period of
time prior to, after or on the Closing Date, (e) any and all Pre-Closing Taxes,
(f) any and all liabilities or obligations of any kind, character, nature or
description whatsoever, whether known or unknown, direct or indirect, absolute
or contingent, that relates to or arises as a result of the ownership, use,
possession or operation of the Purchased Assets, the Dimmit Assets, Dimmit or
the Business at or prior to the Closing to the extent not reflected on the
Pre-Closing Balance Sheet or the Final Balance Sheet, (g) any payments required
to be made by Farah or Seller under Section 6.9 or 6.10, and (h) any claims or
causes of action brought by the seller of the Water Treatment Equipment for
unpaid amounts or otherwise. Each of Buyer Parties and Dimmit shall be entitled
to recover its reasonable and necessary attorneys' fees and litigation expenses
incurred in connection with successful enforcement of its rights under this
Section 7.1.
Section 7.2 Buyer Parties' Indemnity Obligations. Each of the
Buyer Parties shall indemnify each of Farah and Seller (including their
officers, directors, employees and agents) against, and hold them harmless from
and against, any and all Indemnified Amounts incurred by Farah or Seller or any
of their Affiliates as a result of (a) any material error, inaccuracy, breach or
misrepresentation in any of the representations and warranties made by or on
behalf of Buyer Parties in this Agreement, (b) any violation or breach by Buyer
Parties of or default by Buyer Parties under the terms of this Agreement, (c)
any and all liabilities relating to or arising as a result of the ownership,
use, possession or operation of the Purchased Assets, the Dimmit Assets, Dimmit
or the Business after the Closing, and (d) any payments required to be made by
Buyer Parties under Section 6.9. Each of Farah and Seller shall be entitled to
recover its reasonable and necessary attorneys' fees and litigation expenses
incurred in connection with successful enforcement of its rights under this
Section 7.2.
Section 7.3 Survival; Threshold and Limits of Liability. All
representations and warranties made hereby by the parties to this Agreement
shall, unless waived in writing, notwithstanding any examination by or on behalf
of any party hereto and notwithstanding the consummation of the transactions
hereby contemplated, survive the Closing for a period of eighteen (18) months
from the Closing Date, other than the representations and warranties made in
Sections 4.16 and 4.17 which shall survive for the statute of limitations
applicable thereto (the period during which the representations and warranties
shall survive being referred to herein with respect to such representations and
warranties as the "Survival Period"). Any claim for indemnification made in
writing during the Survival Period shall remain in effect for purposes of such
indemnification notwithstanding such claim may not be resolved within the
Survival Period. All covenants and agreements made hereby by the parties to this
Agreement shall, unless waived in writing, survive the Closing without
limitation. No party shall be liable for indemnification pursuant to Section
7.1(a), Section 7.2(a) or Section 7.7 (other than for breach of any
representation or warranty contained in Sections 4.16 and 4.17) unless and until
the aggregate amount of such liability (for all such claims) exceeds US$250,000,
in which event the Indemnifying Party (defined below) shall be fully liable
without regard to such threshold. Any liability under this Section 7 shall be
limited in the aggregate to a maximum amount equal, in the case of the Seller
Parties, to the Purchase Price.
Section 7.4 Indemnification Procedures. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
(a) A party claiming indemnification under this Agreement (an
"Indemnified Party") shall with reasonable promptness (i) notify the
party from whom indemnification is sought (the "Indemnifying Party") of
any third-party claim or claims asserted against the Indemnified Party
("Third Party Claim") for which indemnification is sought and (ii)
transmit to the Indemnifying Party a copy of all papers served with
respect to such claim (if any) and a written notice ("Claim Notice")
containing a description in reasonable detail of the nature of the
Third Party Claim, an estimate of the amount of damages attributable to
the Third Party Claim to the extent feasible (which estimate shall not
be conclusive of the final amount of such claim) and the basis of the
Indemnified Party's request for indemnification under this Agreement.
Within ten (10) days after receipt of any Claim Notice (the
"Election Period"), the Indemnifying Party shall notify the Indemnified
Party whether the Indemnifying Party disputes its potential liability
to the Indemnified Party with respect to such Third Party Claim and, if
the Indemnifying Party does not dispute its potential liability to the
Indemnified Party with respect to such Third Party Claim, whether the
Indemnifying Party elects to defend the Indemnified Party with respect
to such Third Party Claim.
If the Indemnifying Party does not dispute its potential
liability to the Indemnified Party within the Election Period and
notifies the Indemnified Party that it elects to defend such Third
Party Claim, the Indemnifying Party shall control negotiations toward
resolution of such claim without the necessity of litigation, and if
litigation ensues, to defend the same with counsel reasonably
acceptable to the Indemnified Party, at the Indemnifying Party's
expense, and the Indemnified Party shall extend reasonable cooperation
in connection with such defense. The Indemnified Party shall be
entitled to participate in, but not to control, the defense of any
Third Party Claim resulting in litigation, at its own cost and expense;
provided, however, that if the parties to any suit or proceeding shall
include the Indemnifying Party as well as the Indemnified Party and the
Indemnified Party shall have been advised in writing by counsel that
one or more legal defenses may be available to it that may not be
available to the Indemnifying Party, then the Indemnified Party shall
be entitled to elect to control such suit or proceeding, but the
Indemnifying Party shall be obligated to bear the fees and expenses of
counsel of the Indemnified Party, which shall be selected by the
Indemnified Party in its complete and sole discretion. If the
Indemnifying Party does not dispute its potential liability to the
Indemnified Party within the Election Period and the Indemnifying Party
fails to assume control of the negotiations prior to litigation or to
defend such action within a reasonable time, the Indemnified Party
shall be entitled, but not obligated, to assume control of such
negotiations or defense of such action, and the Indemnifying Party
shall be liable to the Indemnified Party for its expenses reasonably
incurred or amounts paid in connection therewith. If the Indemnifying
Party disputes its potential liability to the Indemnified Party within
the Election Period or does not elect to defend such Third Party Claim,
then the Indemnified Party shall be entitled to assume control of such
negotiations or defense of action and the liability for the expense
thereof, as well as any liability with respect to such Third Party
Claim, shall be determined as provided in Section 7.5 below. If the
Indemnifying Party disputes its potential liability to the Indemnified
Party within the Election Period, and, if it is determined as provided
in Section 7.5 that the Indemnifying Party is liable to the Indemnified
Party with respect to such to such Third Party Claim, the Indemnifying
Party may then assume the defense of such Third Party Claim.
If the Indemnifying Party fails to notify the Indemnified
Party within the Election Period that the Indemnifying Party elects to
defend the Indemnified Party pursuant to the preceding paragraph, or if
the Indemnifying Party elects to defend the Indemnified Party but fails
to prosecute or settle the Third Party Claim as herein provided, then
the Indemnified Party shall have the right to defend, at the sole cost
and expense of the Indemnifying Party (if the Indemnified Party is
entitled to indemnification hereunder), the Third Party Claim by all
appropriate proceedings, which proceedings shall be promptly and
vigorously prosecuted by the Indemnified Party to a final conclusion or
settled. The Indemnified Party shall have full control of such defense
and proceedings. Notwithstanding the foregoing, if the Indemnifying
Party has delivered a written notice to the Indemnified Party to the
effect that the Indemnifying Party disputes its potential liability to
the Indemnified Party under this Section 7 and if such dispute is
resolved in favor of the Indemnifying Party, the Indemnifying Party
shall not be required to bear the costs and expenses of the Indemnified
Party's defense pursuant to this Section or of the Indemnifying Party's
participation therein at the Indemnified Party's request, and the
Indemnified Party shall reimburse the Indemnifying Party in full for
all costs and expenses of such litigation. The Indemnifying Party may
participate in, but not control, any defense or settlement controlled
by the Indemnified Party pursuant to this Section, and the Indemnifying
Party shall bear its own costs and expenses with respect to such
participation.
Neither the Indemnifying Party nor the Indemnified
Party shall settle, compromise, or make any other disposition of any
Third Party Claim which would or might result in any liability to the
Indemnified Party or the Indemnifying Party under this Section 7
without the written consent of such other party.
(b) In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder that does not involve a Third
Party Claim, the Indemnified Party shall transmit to the Indemnifying
Party a written notice (the "Indemnity Notice") describing in
reasonable detail the nature of the claim, an estimate of the amount of
damages attributable to such claim to the extent feasible (which
estimate shall not be conclusive of the final amount of such claim) and
the basis of the Indemnified Party's request for indemnification under
this Agreement. If the Indemnifying Party does not notify the
Indemnified Party within fifteen (15) days from its receipt of the
Indemnity Notice that the Indemnifying Party disputes such claim, the
claim specified by the Indemnified Party in the Indemnity Notice shall
be deemed a liability of the Indemnifying Party hereunder.
Section 7.5 Disputes. If the Indemnifying Party disputes,
either as to the amount or liability, that any claim described in a Claim Notice
or an Indemnity Notice, as the case may be, is covered by such Indemnifying
Party's covenant to indemnify contained in this Section 7, then the Indemnifying
Party and the Indemnified Party agree to promptly negotiate in good faith to
resolve their differences and to mutually agree upon an amount, if any, owed to
Indemnified Party by the Indemnifying Party hereunder. If Indemnifying Party and
Indemnified Party fail to resolve the dispute within thirty (30) days
thereafter, the dispute shall be referred to non-binding mediation by a single
mediator mutually agreed to by the Buyer Parties and Seller and conducted in
Dallas, Texas. The cost of the mediator shall be paid one half by the Buyer
Parties and one half by Seller. If the Indemnifying Party and Indemnified Party
fail to agree within forty-five (45) days after the date such matter was
referred to the mediator, the matter shall be resolved by binding and final
arbitration of a single arbitrator mutually agreed to by the Buyer Parties and
Seller conducted in Dallas, Texas in accordance with the rules of commercial
arbitration of the American Arbitration Association. The prevailing party in any
such arbitration proceeding shall be entitled to attorney's fees and other
out-of-pocket expenses reasonably and necessarily incurred in connection with
such proceeding, the amounts of which shall be contained in the award of the
arbitrator.
Section 7.6 General. Except as contemplated by Section 7.3,
the covenants and agreements entered into pursuant to this Agreement to be
performed after the Closing shall survive the Closing without limitation. The
rights of the parties to indemnification under this Section 7 shall not be
limited due to any investigations heretofore made by such parties or their
representatives, regardless of negligence in the conduct of any such
investigations.
7.7 Environmental Indemnification.
(a) Except as set forth in this Section 7.7, the parties agree
that all matters of, or relating to indemnification for liabilities and
claims for environmental protection, compliance, non-compliance and
violations ("Environmental Indemnification Matters") are dealt with
exclusively in this Section 7.7 and are excluded from all other
sections of this Agreement. Any other indemnification sections outside
of Section 7.7 apply after the Closing to Environmental Indemnification
Matters only if and to the extent that they are specifically referenced
in this Section 7.7. All claims for Indemnified Amounts related to
Environmental Indemnification Matters shall be asserted and resolved
pursuant to the limitations and procedures stated in Sections 7.3, 7.4
and 7.5.
(b) Buyer Parties and Seller Parties agree that this Section
7.7 merges and states all of their respective rights, risks, duties and
obligations, causes of action, remedies, claims, exposures, liabilities
and the like to one another and to their respective present and future
Affiliates with respect to any claims for Indemnified Amounts related
to Environmental Indemnification Matters.
(c) Farah and Seller, jointly and severally, shall indemnify
and hold each of the Buyer Parties and Dimmit harmless from and against
any and all Indemnified Amounts which may be incurred by any of Buyer
Parties or Dimmit by reason of, resulting from, in connection with or
arising in any manner whatsoever from any Environmental Condition or
violation or claimed violation of any Environmental Laws relating to or
arising as a result of the ownership, use, possession or operation at
or prior to the Closing of the Purchased Assets, the Dimmit Assets,
Dimmit or the Business.
(d) Buyer Parties and Dimmit, jointly and severally, shall
indemnify and hold Seller Parties harmless from and against any and all
Indemnified Amounts which may be incurred by Seller Parties by reason
of, resulting from, in connection with or arising in any manner
whatsoever from any Environmental Condition or violation or claimed
violation of any Environmental Laws relating to or arising as a result
of ownership, use, possession or operation of the Purchased Assets, the
Dimmit Assets, Dimmit or the Business after the Closing.
(e) Notwithstanding any other term in this Agreement, Buyer
Parties acknowledge that the water treatment equipment supplied to the
Piedras Plant by Water Technologies Incorporated pursuant to an
agreement to purchase dated November 15, 1994 ("Water Treatment
Equipment") is not operating as represented and warranted by Water
Technologies Incorporated. After the Closing, Buyer Parties assume all
responsibility for the operation, repair and maintenance of the Water
Treatment Equipment and hereby release Seller Parties from and against
any and all claims for Indemnified Amounts related to the operation,
repair and maintenance of the Water Treatment Equipment after the
Closing.
7.8 Subrogation. Each indemnitor is subrogated to the rights,
claims, remedies, defenses and causes of action against all other persons or
entities that are or may be available to each indemnitee; and each indemnitee
claiming hereunder, upon making a claim for defense and/or indemnification,
shall tender to its indemnitor all such rights, claims, remedies and causes of
action.
ARTICLE VIII
CONDITIONS TO CLOSING
Section 8.1 Conditions Precedent to Obligations of the Buyer
Parties. The obligation of the Buyer Parties to consummate the purchase under
this Agreement is subject to the fulfillment, prior to or at the Closing, of
each of the following conditions (any or all of which may be waived by the Buyer
Parties in their sole discretion):
(a) all representations and warranties of the Seller Parties
contained in this Agreement shall, if specifically qualified by
materiality, be true and correct, and, if not so qualified, be true and
correct in all material respects at and as of the time of the Closing
with the same effect as though made again at, and as of, that time;
(b) the Seller Parties shall have performed and complied in
all material respects with all obligations and covenants required by
this Agreement to be performed or complied with by the Seller Parties
prior to or at the Closing;
(c) the Buyer Parties shall have been furnished with a
certificate, dated the Closing Date, executed by an officer of each of
Farah, Seller and Dimmit certifying to the fulfillment of the
conditions specified in Sections 8.1(a) and 8.1(b) hereof;
(d) no provision of any applicable Governmental Rule shall
prohibit, and there shall not be in effect any injunction, restraining
order, judgment or decree issued by a court of competent jurisdiction
in any action or proceeding against, the consummation of this
Agreement;
(e) Seller shall have paid-in-full all obligations under the
leases for the leased equipment set forth on Schedule 8.1(e) attached
hereto such that Seller will have obtained the full right to sell and
transfer to Buyer good and marketable title to such leased equipment,
free and clear of any and all Liens other than Permitted Liens, and all
Liens on the Farah Assets and the Dimmit Assets other than Permitted
Liens shall have been released;
(f) Since March 31, 1996, there shall not have occurred any
damage, destruction or loss relating to the Business or any of the
Purchased Assets or Dimmit Assets, whether or not covered by insurance,
which has had or may reasonably be expected to have a material adverse
effect on the Purchased Assets, the Dimmit Assets, Dimmit or the
Business, nor shall there have occurred any other event or condition
(other than an event or condition relating to the industry of the
Business, the financial markets or the economy generally) which has had
or which reasonably may be expected to have a material adverse effect
on the Purchased Assets, the Dimmit Assets, Dimmit or the Business;
(g) all documents required to be executed and/or delivered
by Seller Parties pursuant to Section 9.1 shall have been so executed
and/or delivered;
(h) the Assembly (Maquila) and Technical Assistance Agreement
between Seller (as successor in interest to Radco Sportswear, Inc.) and
Dimmit shall have been terminated;
(i) Buyer Parties shall have received an opinion of Baker &
McKenzie-Juarez, with respect to Dimmit, in form and substance
reasonably satisfactory to the Buyer Parties;
(j) the Seller Parties shall have obtained all consents
and approvals required by the Seller Parties to consummate the
transactions as contemplated hereby; and
(k) the Buyer Parities shall have received written
confirmation in form and substance reasonably satisfactory to them that
each of the options to extend the terms of each of the real property
leases for the real property comprising the Piedras Factory (which
original terms expired on April 30, 1995) have been duly exercised in
accordance with the terms thereof and that the terms of each such lease
has been duly and validly extended as provided therein.
Section 8.2 Conditions Precedent to Obligations of the Seller
Parties. The obligation of the Seller Parties to consummate the sale under this
Agreement is subject to the fulfillment, prior to or at the Closing, of each of
the following conditions (any or all of which may be waived by the Seller
Parties in their sole discretion):
(a) all representations and warranties of the Buyer Parties
contained in this Agreement shall, if specifically qualified by
materiality, be true and correct, and if not so qualified, be true and
correct in all material respects at and as of the time of the Closing
with the same effect as though made again at, and as of, that time;
(b) Buyer Parties shall have performed and complied in all
material respects with all obligations and covenants required by this
Agreement to be performed or complied with by Buyer Parties prior to or
at the Closing;
(c) Seller Parties shall have been furnished with a
certificate, dated the Closing Date, executed by an officer of each of
Parent, Industries and New Subsidiary certifying to the fulfillment of
the conditions specified in Sections 8.2(a) and 8.2(b) hereof;
(d) no provision of any applicable Governmental Rule shall
prohibit, and there shall not be in effect any injunction, restraining
order, judgment or decree issued by a court of competent jurisdiction
in any action or proceeding against, the consummation of this
Agreement;
(e) All documents required to be executed and/or delivered by
Buyer Parties pursuant to Section 9.2 shall have been so executed
and/or delivered;
(f) New Subsidiary shall have become a party to this
Agreement and shall have agreed to be bound by the terms hereof as a
Buyer Party; and
(g) Buyer Parties shall have obtained all consents and
approvals required by the Buyer Parties to consummate the transactions
contemplated hereby.
Section 8.3 Mutual Conditions. The obligation of the Buyer
Parties to consummate the purchase, and the Seller Parties to consummate the
sale, under this Agreement is subject to the occurrence prior to or at the
Closing of each of the following conditions (any of which may be waived by the
parties):
(a) Approval by all necessary U.S. and Mexican governmental
and regulatory entities being received and the obtaining of all
necessary consents and permits for the transactions contemplated
hereby by all parties; and
(b) Industries and New Subsidiary having entered into an
Assembly Services Agreement substantially in the form of Exhibit A
annexed hereto (the "Assembly Services Agreement") wherein Industries
and New Subsidiary will cause Dimmit to produce garments for Seller or
its Affiliates for a period of time following the purchase and sale
contemplated hereby. In the event of a conflict between the terms of
this Agreement and the terms of the Assembly Services Agreement, this
Agreement shall control.
ARTICLE IX
DELIVERIES AT CLOSING
Section 9.1 Documents to be Delivered by the Seller Parties.
At the Closing, the Seller Parties shall deliver, or cause to be delivered, to
the Buyer Parties the following:
(a) a copy of resolutions of the board of directors of each of
Farah, Seller and Dimmit authorizing the execution, delivery and
performance of this Agreement by each such party and a certificate of
the secretary or assistant secretary of each such party, dated the
Closing Date, that such resolutions were duly adopted and are in full
force and effect;
(b) the officer's certificate referred to in Section 8.1(c);
(c) such bills of sale and deeds, assignments and any other
necessary instruments, satisfactory in form and content and approved
prior to the Closing by Buyer Parties, conveying good and marketable
title to all the Purchased Assets to Buyer Parties;
(d) a stock certificate or certificates representing all
outstanding shares of Dimmit Stock, duly endorsed in blank or
accompanied by an irrevocable stock power duly endorsed in blank;
(e) the Assembly Services Agreement duly executed and
delivered by Seller;
(f) such opinions, consents of third parties and other
certificates required pursuant to Sections 8.1 and 8.3; and
(g) a duly sworn affidavit of Seller dated as of the Closing
Date that the Seller is not a "foreign person," setting forth Seller's
taxpayer identification number and otherwise meeting the requirements
of Section 1445(b)(2) of the Code and the Treasury Regulations
promulgated thereunder.
Section 9.2 Documents to be Delivered by the Buyer Parties. At
the Closing, the Buyer Parties shall deliver, or cause to be delivered, to the
Seller Parties the following:
(a) the wire transfer referred to in Section 2.5;
(b) a copy of resolutions of the board of directors of each of
Parent, Industries and New Subsidiary authorizing the execution,
delivery and performance of this Agreement by each such party and a
certificate of the secretary or assistant secretary of each such party,
dated the Closing Date, that such resolutions were duly adopted and are
in full force and effect;
(c) the officer's certificate referred to in Section 8.2(c);
and
(d) the Assembly Services Agreement duly executed and
delivered by Industries and New Subsidiary.
<PAGE>
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Termination. This Agreement may be terminated
at any time prior to the Closing:
(a) by mutual written agreement executed by the Seller Parties
and Buyer Parties;
(b) by Buyer Parties, if any of the conditions specified in
Section 8.1 hereof shall not have been satisfied or waived in writing
by the Buyer Parties on or before July 31, 1996; or
(c) by the Seller Parties, if any of the conditions specified
in Section 8.2 hereof shall not have been satisfied or waived in
writing by the Seller Parties on or before July 31, 1996;
provided, however, that a party shall not be allowed to exercise any
right of termination pursuant to this Section 10.1 if the event giving
rise to such termination right shall be due to the failure of the party
seeking to terminate this Agreement to perform or observe in any
material respect any of the covenants or agreements set forth herein to
be performed or observed by such party.
Upon such termination, none of the parties nor any other
person shall have any liability or further obligation arising out of
this Agreement except for any liability resulting from its breach of
this Agreement prior to termination, except that the provisions of
Sections 10.2, 10.4, and 10.8 shall continue to apply.
Section 10.2 Confidentiality; Publicity; Books and Records.
(a) Neither Farah, Seller nor its Affiliates will, directly or
indirectly, disclose or provide to any other person any non-public
information of a confidential nature concerning the business or
operations of any of the Buyer Parties or Dimmit or an Affiliate
thereof, including without limitation, any process, chemical
formulations or other proprietary information of any of the Buyer
Parties or Dimmit or an Affiliate thereof used in the Piedras Factory,
which becomes known to Farah, Seller or an Affiliate thereof after the
Closing, except as is required in governmental filings or judicial,
administrative or arbitration proceedings. In the event that Farah,
Seller or an Affiliate of either becomes legally required to disclose
any such information in any governmental filings or judicial,
administrative or arbitration proceedings, such party shall, and shall
cause any Affiliate to, provide Buyer Parties with prompt notice of
such requirement so that Buyer Parties may seek a protective order or
other appropriate remedy. In the event that such protective order or
other remedy is not obtained, such party shall, and shall cause any
Affiliate to, furnish only that portion of the information that such
party or any Affiliate, as the case may be, is advised by its counsel
is legally required and such disclosure shall not result in any
liability hereunder unless such disclosure was caused by or resulted
from a previous disclosure by such party or any Affiliate that was not
permitted by this Agreement.
(b) None of the Buyer Parties nor its Affiliates will,
directly or indirectly, disclose or provide to any other person any
non-public information of a confidential nature concerning the business
or operations of Seller or Dimmit or an Affiliate thereof, including
without limitation, any processes, chemical formulations or other
proprietary information of Seller or Dimmit or its Affiliates known or
which becomes known to any of the Buyer Parties or Affiliates thereof
as a result of the transactions contemplated hereby or Dimmit's
operation of the Piedras Factory after the Closing, except as is
required in governmental filings or judicial, administrative or
arbitration proceedings. In the event that any Buyer Party or any
Affiliate thereof becomes legally required to disclose any such
information in any governmental filings or judicial, administrative or
arbitration proceedings, such party shall, and shall cause any
Affiliate to, provide Seller Parties with prompt notice of such
requirements so that Seller Parties may seek a protective order or
other appropriate remedy. In the event that such protective order or
other remedy is not obtained, such party shall, and shall cause any
Affiliate to, furnish only that portion of the information that such
party or Affiliate, as the case may be, is advised by its counsel as
legally required, and such disclosure shall not result in any liability
hereunder unless such disclosure was caused by or resulted from a
previous disclosure by such party or any Affiliate that was not
permitted by this Agreement.
(c) Subject to applicable securities law or stock exchange
requirements, the parties hereto will promptly advise, and obtain the
approval of, the other parties before issuing any press release with
respect to this Agreement or the transactions contemplated hereby.
(d) For a period of five years after the Closing Date, Buyer
Parties will preserve and retain the books and records of Seller and
Dimmit constituting part of the Purchased Assets and make such books
and records available at the then current administrative headquarters
of Buyer Parties to each of Seller and Dimmit and its officers,
employees and agents, upon reasonable notice and at reasonable times,
at Seller Parties' cost and expense, it being understood that Seller
Parties shall be entitled to make copies of any such books and records
as they deem reasonable.
Section 10.3 Expenses. Buyer Parties and Seller Parties shall
pay their own respective expenses, including the fees and disbursements of their
respective counsel in connection with the negotiation, preparation and execution
of this Agreement and the consummation of the transactions contemplated herein,
except as otherwise provided herein.
Section 10.4 Entire Agreement. This Agreement, including all
schedules and exhibits hereto, constitutes the entire agreement of the parties
with respect to the subject matter hereof, and may not be modified, amended or
terminated except by a written instrument specifically referring to this
Agreement signed by all the parties hereto.
Section 10.5 Waivers and Consents. All waivers and consents
given hereunder shall be in writing. No waiver by any party hereto of any breach
or anticipated breach of any provision hereof by any other party shall be deemed
a waiver of any other contemporaneous, preceding or succeeding breach or
anticipated breach, whether or not similar.
Section 10.6 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been received only if
and when (i) personally delivered; (ii) on the first day after transmission of a
confirmed facsimile sent to the other party at the facsimile number below; (iii)
one business day after deposit thereof for overnight delivery with a nationally
recognized overnight courier service; or (iv) on the third day after mailing, by
United States mail, first class, postage prepaid, by certified mail return
receipt requested, addressed in each case as follows (or to such other address
as may be specified by like notice):
(a) If to Buyer Parties, to:
Galey & Lord, Inc.
7736 McCloud Rd.
Greensboro, NC
Attn: Mike Harmon
910-665-3037
910-665-3113 (fax)
With a copy to (which shall not constitute notice):
Rosenman & Colin LLP
575 Madison Avenue
New York, NY 10022
Attn: Howard S. Jacobs
212-940-8800
212-940-8776 (fax)
(b) If to Seller Parties, to:
Farah U.S.A., Inc.
8889 Gateway West
El Paso, Texas 79925
Attention: Timothy B. Page
(915) 593-4500
(915) 593-4545 (fax)
With a copy to (which shall not constitute notice):
Baker & McKenzie
4500 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: Daniel W. Rabun
(214) 978-3000
(214) 978-3099 (fax)
Section 10.7 Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors, legal representatives and assigns. No third party shall
have any rights hereunder. No assignment shall release the assigning party.
Section 10.8 Choice of Law; Section Headings; Table of
Contents. This Agreement shall be governed by the internal laws of the State of
New York (without regard to the choice of law provisions thereof). The United
Nations Convention on the International Sale of Goods is hereby excluded from
application to this Agreement and any transaction pursuant to this Agreement.
The section headings and any table of contents contained in this Agreement are
for reference purposes only and shall not affect the meaning or interpretation
of this Agreement.
Section 10.9 English Controlling. For purposes of convenience,
this Agreement may be translated into Spanish, but it is understood that the
English version of this Agreement (and the schedules and exhibits) will control
for all purposes. In case of a conflict in meaning between the two versions, the
parties are responsible for performing in accordance with the English version
hereof.
Section 10.10 Severability. If any term or provision of this
Agreement or the application thereof to any person or circumstance shall be
deemed invalid, illegal or unenforceable to any extent or for any reason, such
provision shall be severed from this Agreement and the remainder of this
Agreement and the application thereof shall not be affected and shall be
enforceable to the fullest extent permitted by law. A provision which is valid,
legal and enforceable shall be substituted for the severed provision.
Section 10.11 Construction. The parties have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties and no presumption or burden
of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement. Any reference to any
federal, state, local, or foreign statute or law shall be deemed also to refer
to all rules and regulations promulgated thereunder, unless the context requires
otherwise.
Section 10.12 Force Majeure. No Buyer or Seller shall be
liable for loss or damage or deemed to be in breach of this Agreement if its
failure to perform its obligations results from: (1) acts of God; or (2) fires,
strikes, embargoes, war, or riot. Any delay resulting from any of these causes
shall extend performance accordingly or excuse performance, in whole or in part,
as may be reasonable.
Section 10.13 Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed to be an original and
all of which together shall be deemed to be one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
first above written.
GALEY & LORD, INC.
By: /s/ Arthur C. Wiener
Arthur C. Wiener, Chairman of the Board,
President and Chief Executive Officer
GALEY & LORD INDUSTRIES, INC.
By: /s/ Arthur C. Wiener
Arthur C. Wiener, Chairman of the Board,
President and Chief Executive Officer
FARAH INCORPORATED
By: /s/ Timothy B Page
Timothy B. Page, Executive Vice President
FARAH U.S.A., INC.
By: /s/ Timothy B. Page
Timothy B. Page, Executive Vice President
DIMMIT INDUSTRIES, S.A. de C.V.
By: /s/ Richard C. Allender
Richard C. Allender, President
<PAGE>
EXHBIT A
ASSEMBLY SERVICES AGREEMENT
This Assembly Services Agreement (the "Agreement") is entered into as
of __________, 1996 by and between Farah U.S.A., Inc., a Texas corporation (the
"Company"), and _____________________, a Delaware corporation ("Contractor").
RECITALS
1. Company and Contractor have entered into that certain Asset Purchase
Agreement (the "Asset Purchase Agreement") dated as of May 20, 1996 by and among
Farah Incorporated, a Texas corporation, Company, Dimmit Industries, S.A. de
C.V., a Mexican corporation and a subsidiary of Company ("Dimmit"), Galey &
Lord, Inc., a Delaware corporation, Galey & Lord Industries, Inc., a Delaware
corporation, and Contractor.
2. As part of the Asset Purchase Agreement, Contractor will acquire
Dimmit's garment manufacturing facility located in Piedras Negras, State of
Coahuila, Mexico (the "Piedras Factory"), at which Dimmit has produced garments
for Company.
3. Company desires to enter into an agreement with Contractor for
certain garment assembly and other production services, including sewing and
finishing (the "Services"), whereby Contractor will, or will cause Dimmit to,
assemble and/or manufacture ("Manufacture") for it certain men's, women's and
boys apparel (the "Garments") at the Piedras Factory, in accordance with the
specifications and instructions of Company.
4. Contractor is willing to Manufacture for Company the Garments under
the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the premises and mutual promises,
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
ARTICLE I
GENERAL DEFINITIONS
The terms set forth below in this Article I shall have the
meanings ascribed to them below:
Affiliate: with respect to any person, means any person that directly or
indirectly controls, is controlled by or is under common control with such
person.
best efforts: means a party's efforts in accordance with reasonable
commercial practice and/or consistent with Company's past practice in operating
the Piedras Factory.
Finished Good: means any Garment that is 100% complete and packed in a
shipping carton awaiting shipment to Company.
person: means any individual, firm, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization, government or agency or subdivision thereof or any other entity.
Subsidiary: of any person, means any entity, more than 50% of the
outstanding voting interests of which are owned, directly or indirectly, by such
person, by one or more other Subsidiaries of such person or by such person and
one or more other Subsidiaries of such person.
ARTICLE II
SCOPE OF AGREEMENT
Section 2.1 General Services.
(a) Contractor covenants and agrees to Manufacture the
Garments that Company requests it Manufacture at the Piedras Factory,
utilizing the tools, machinery, equipment, fixtures and computer
systems of Contractor located in and at the Piedras Factory. Contractor
agrees and guarantees that the Services shall be carried out in a good
and workmanlike manner in compliance with the patterns, specifications
and instructions of Company provided to Contractor in writing from time
to time as specified herein.
(b) Contractor shall have available at the Piedras Factory to
provide the Services all facilities, employees, technical means, tools,
machinery, equipment, fixtures, spare parts, computer systems and any
other items required for the rendering of the Services other than
Materials (as defined below).
(c) The bulk of the Services will consist of the sewing and
finishing of Garments by Contractor with Materials (defined below)
provided Contractor by Company. Contractor's intent is to provide
Company ample time to make a smooth transition to other production
facilities following the close of the transactions contemplated by the
Asset Purchase Agreement (the "Closing"), and to retain Company as a
long term customer of Contractor for some portion of Company's
production. Contractor understands and acknowledges that the Piedras
Factory constitutes a major portion of Company's current production and
that Company's ability to maintain a high rate of delivery to Company's
customers is critical to the business of Company and its reputation
with its customers.
Section 2.2 Sewing and Finishing.
(a) Contractor will provide certain sewing Services to Company
as part of the Manufacture of Garments contemplated under this
Agreement. Company will provide Contractor cut fabric, trim and
shipping boxes ("Sewing Materials"), export/import services and written
specifications for the Manufacture of unfinished Garments. Contractor
will provide all other goods and services necessary to produce a sewn,
unfinished garment.
(b) Contractor will provide certain finishing Services to
Company as part of the Manufacture of Garments contemplated under this
Agreement. Company will provide Contractor all labels, tickets,
shipping cartons, hangers and other necessary trim items ("Finishing
Materials") to produce a finished Garment. "Sewing Materials,"
"Finishing Materials" and any fabric, pieces, semi-finished or finished
Garments, or raw or other materials provided Contractor under this
Agreement are referred to herein as "Materials". Contractor will
provide all other goods and services necessary to produce a finished,
sewn Garment, including without limitation: washing, processing, enzyme
treatment, oven curing, pressing, labeling, inspecting, repairing,
tagging and packing. Company will provide Contractor any chemicals
necessary for finishing Garments, or Contractor may obtain any such
chemicals directly from vendors approved in writing by Company and
Company will reimburse Contractor for the cost of such chemicals.
Section 2.3 Quantities. The quantities of sewing and finishing
Services required by Company following the Closing are set out in the attached
Schedule 2.3 entitled: "Expected Assembly Services Agreement Quantities."
Company will require the quantities shown on Schedule 2.3.
Section 2.4 Work-in-Process. In accordance with the provisions of
Section 2.2(a) of the Asset Purchase Agreement, Company and Contractor have
agreed that work-in-process ("WIP"), Materials and finished Garments of Company
located at the Piedras Factory on the date of Closing are the property of
Company. An inventory and accounting will be performed on the date of Closing to
determine the total number of units of WIP, Finished Goods and Materials located
at the Piedras Factory. Upon the completion of sewing and finishing of units of
WIP on the date of Closing and subject to the terms and conditions of this
Agreement, Company will pay Contractor a price which is 50% of the prices set
forth on Schedule 4.1. Company will not pay Contractor for any units determined
to be Finished Goods on the date of Closing.
Section 2.5 Production and Delivery Schedules. Company will provide
Contractor on a weekly basis an estimated rolling 12 week production
requirements schedule by sewing line and finishing type (each, a "Production and
Delivery Schedule"). Each Production and Delivery Schedule will show quantities
required by line, required delivery dates (each, a "Delivery Date"), "do not
ship before" dates and priorities.
Section 2.6 Type of Production. Company will determine in its sole
discretion and consistent with Company's past practices in operating the Piedras
Factory what Garments will be Manufactured by Contractor pursuant to this
Agreement, as well as in what amounts, numbers or quantities and the types and
qualities of Materials that will be used by Contractor (whether provided by
Company or acquired by Contractor) in performing Services hereunder.
Section 2.7 Line Loading. Company will issue Cuts for sewing and
finishing to Contractor as required by Schedule 2.3; provided, however, that
should Contractor fail to produce the average number of units required by
Schedule 2.3, measured on a weekly basis, for each sew line and each finishing
line, Company shall only be required to issue Cuts equal to the average number
of units actually being produced by Contractor in each sew and finish line. In
addition, Company shall not be required to issue Cuts if the total number of
days of WIP in the Piedras Factory exceeds an average of 8.5 for sewing or 3.5
for finishing, as measured on a weekly basis by dividing average WIP for the
week by 5. Company acknowledges that such averages are consistent with Company's
past practices in operating the Piedras Factory. If the average number of days
of WIP exceeds 8.5 for sewing and 3.5 for finishing, Company will not be
required to issue Cuts until the average number of days of WIP falls below the
thresholds described above. As used herein, the term "Cut" means a group of
Garments generally of the same style, color and manufacturing specification that
Company provides to Contractor to Manufacture. A Cut is identified by a unique
number assigned by Company known as "cut number" and can consist of units of
Garments to either sew, finish or both.
ARTICLE III
DELIVERIES
Section 3.1 Deliveries. Contractor will perform the Services and
Manufacture the Garments as required by each Production and Delivery Schedule,
in the priority sequence requested by Company and within the requested time
frames. Company will work closely with Contractor to ensure that Contractor
receives Production and Delivery Schedules and all Materials necessary in a
timely manner. In the event that Contractor cannot meet a Production and
Delivery Schedule, Contractor will immediately notify Company in writing, and
Contractor agrees to make every effort (including through the use of overtime
and the addition of personnel at cost to Contractor, consistent with Company's
past practices in operating the Piedras Factory) to achieve and to meet the
Production and Delivery Schedules and Delivery Dates. Neither party to this
Agreement will charge the other party for the inability to achieve and to meet
the Production and Delivery Schedules and Delivery Dates provided that each
party uses its best efforts to perform under this Agreement and provided that
Company does not make unreasonable delivery requests that are inconsistent with
Company's past practices in operating the Piedras Factory.
Section 3.2 FOB Point. Once Manufacture of the Garments has been
completed, Contractor shall be responsible for delivering the completed Garments
FOB Piedras Negras, State of Coahuila, Mexico by loading such Garments onto
delivery trailers provided or designated by Company (the "FOB Point").
Contractor agrees to load the Garments onto the delivery trailers in accordance
with the Production and Delivery Schedule, and any other written priority
instructions provided by Company. Contractor shall be responsible for spotting
and queuing delivery trailers at the Piedras Factory, and Company will be
responsible for moving the delivery trailers on and off the grounds of the
Piedras Factory. Company shall be the importer of record for the Materials and
exporter of record for the Garments.
Section 3.3 Time of Essence. The Delivery Date set forth on the
Production and Delivery Schedule shall be the last date that Contractor can
deliver the Garments to the FOB Point and Contractor acknowledges and agrees
that time is of the essence and that consistent and/or repeated delivery of
Garments to the FOB Point more than three (3) days after the Delivery Date shall
result in Company and Contractor renegotiating and agreeing upon revised
Production and Delivery Schedules and Delivery Dates (provided that delays are
not caused by acts of Company), even if the Garments are nonetheless accepted by
Company after said date. No Partial Shipments are allowed unless expressly
authorized in advance and in writing by Company. Notwithstanding the above,
Company agrees and acknowledges that it will (subject to Articles VI and VII of
this Agreement) accept all completed Garments produced by Contractor under this
Agreement provided that (i) any completed Garment is delivered to the FOB Point
no more than 10 days after the date of the first shipment of Garments from the
same Cut number (provided that delays are not caused by acts of Company), and
(ii) Contractor is not consistently and/or repeatedly delivering Garments to the
FOB Point after the Delivery Date. As used herein, the term "Partial Shipment"
means any shipment of less than 99% of the total original number of units in a
Cut delivered by Company to Contractor for Manufacture.
Section 3.4 Late Delivery. Subject to the terms of Section 3.3 above,
if any Garments are completed and made available to Company after the Delivery
Date, Company may, at its sole option and without waiving any of its other
rights and remedies, accept the Garments or any proportion and offset its actual
costs and expenses including delivery costs, arising from Contractor's delay or
breach of any provision of this Agreement.
Section 3.5 Risk of Loss. Contractor assumes all risk of loss from the
time Materials provided by Company are delivered to Contractor until the time
Garments (or Materials, if appropriate) are delivered by Contractor to the FOB
Point and upon execution of the shipping documents by the carrier of the
Garments.
ARTICLE IV
PRICE AND PAYMENT
Section 4.1 Price. Company will pay Contractor for the Services in
accordance with the price schedule attached as Schedule 4.1.
Section 4.2 Payment. All payments due hereunder shall be in United
States of America dollars and are due and payable at the address of Company or
Contractor, as appropriate, set forth under Section 15.4 hereof. All shipments
shall be invoiced by Contractor at the time of delivery of the Garments to
Company. Payment shall be net seven (7) days after clearing U.S. Customs from
the date of invoice.
ARTICLE V
OWNERSHIP OF GARMENTS, MATERIALS AND EQUIPMENT
Section 5.1 Ownership. Contractor understands and acknowledges that it
shall under no circumstances be considered to have any ownership or proprietary
interest in the Garments, the Materials[, or in any equipment and/or machinery]
which Company or any affiliate thereof may now or in the future deliver to
Contractor. Company is under no obligation to provide Contractor any equipment
and/or machinery necessary to provide the Services.
Section 5.2 Materials.
(a) With respect to all Materials provided Contractor by
Company, Contractor agrees to take delivery of, store and hold said
Materials as agent for Company and to comply with Company's
instructions for the care of such Materials. Contractor shall have no
right, title or interest in such Materials and agrees to keep them free
and clear of all Liens. Company shall retain title to all Materials
(whether cut or part of any Finished Goods).
(b) At any time that Company ships any item, including
Materials, to Contractor, Company will provide shipping documentation
for each shipment delivered to Contractor showing the quantities of
each type of Materials delivered. Contractor must notify Company in
writing within two (2) business days of receipt of each shipment of any
discrepancies between quantities Contractor has received and the
quantities set forth in Company's shipping documents. Company will
provide Materials to Contractor based on Company's standards for such
Materials, consistent with Company's past practices. Contractor must
notify Company in writing on a weekly basis of any unused Materials. At
Company's request, Contractor must return any unused Materials to
Company at Company's sole cost and expense. Contractor will reimburse
Company for any usage of Materials in excess of Company's standards
(reimbursement to include the cost of transportation to the Piedras
Factory) and for all actual costs and expenses after delivery to
Contractor of such Materials.
ARTICLE VI
INSPECTION AND ACCESS BY COMPANY
Section 6.1 Inspection. Contractor hereby agrees it will allow
Company's personnel access to the Piedras Factory during regular business hours
or other facilities at which the Services are being carried out, in order for
Company's personnel to ascertain compliance on the part of Contractor with all
of the terms and conditions of this Agreement and specifications provided by
Company in connection with the Manufacture process and to assure that the
Materials, and supplies that may be provided to Contractor by Company are
utilized properly and exclusively for the purposes stated herein. Contractor
shall provide personnel consistent with Company's past practices in operating
the Piedras Factory to perform annual inventories of WIP, Finished Goods and
Materials located at the Piedras Factory.
Section 6.2 Acceptance. All shipments of Finished Goods are subject to
Company's standard 4.0 A.Q.L. quality audit, at Company's designated receiving
point. Acceptance of Garments shall be conditioned upon final inspection and
approval at the site at which Company receives the Garments and shall in no
event constitute a waiver of any of Company's rights or remedies arising from or
related to late shipment, nonconforming Garments or any other breach of this
Agreement. The following shall not be deemed to constitute acceptance of any
Garments: inspection of goods prior to shipment, execution of any inspection
certificate prior to shipment or approval for shipment or shipment audit.
ARTICLE VII
REJECTION
Section 7.1 Rejection or Return of Garments. Company may reject and/or
return any and all Garments received or completed if any portion: (i) exceeds
the allowable percentage of Seconds; (ii) is or will be delivered to the FOB
Point after the Delivery Date for such Garment(s); (iii) is not in full
conformance with all specifications, preproduction or confirmation samples or
quality standards of Company; (iv) is completed or shipped contrary to size,
finishing or sewing specifications, packing/shipment details or other
instructions; or (v) is not as warranted under Section 10.2 of this Agreement.
Company may charge and Contractor is liable for all reasonable expenses of
unpacking, inspecting, storing and shipping any items rejected. If fifteen (15)
days following a notice of rejection Contractor does not advise Company to
return the rejected Garments to Contractor at Contractor's cost, refund to
Company all amounts paid for the Garments, including Company's cost of Materials
provided Contractor, labor, and all claims for actual costs and expenses
incurred by Company, Company shall be entitled (but not required) to resell or
dispose of the rejected Garments on any terms Company sees fit in its sole
discretion after affording Contractor the right to promptly inspect such
Garments and agree that such Garments should be rejected. If such Garments are
rejected and such Garments are resold or disposed of, Company shall apply any
proceeds to all actual costs and expenses incurred by Company in connection with
this Agreement. Any such disposition shall not be deemed an acceptance of any
Garments. Company shall have no obligation with respect to the storage, safety
or return of any rejected Garments.
Section 7.2 Restrictions on Disposal of Rejected Garments. Contractor
may not, under any circumstances or for any reason, sell, offer for sale, or in
any other manner dispose of, any Materials delivered to Contractor or Garments
rejected hereby without the express written consent of Company. Contractor shall
not sell, transfer or otherwise dispose of any Seconds, overruns, unused or
rejected Garments or Materials unless and until: (i) Contractor has first
offered in writing all such Garments to Company's designated factory outlet
representatives; (ii) all items containing Trademarks (defined below) (e.g,
labels, buttons, patches, tags) and the like are completely removed before any
such sale, transfer or disposal; and (iii) Contractor has paid Company for the
replacement cost or actual cost of all Materials Company provided to Contractor.
Section 7.3 Variances.
(a) All Garments provided Company under this Agreement shall
be first quality ("First Quality"), as determined under Company's
standard 4.0 A.Q.L. quality standards. Subject to the provisions of
Section 7.3(b) below, Company reserves the right to reject any Garment
that is not First Quality. A Garment will be deemed to be a second
("Second") if the defect or defects that render the Garment other than
First Quality do not affect the Garment' fitness for the general
purpose for which it is sold. All Garments which are not First Quality
and which are not Seconds will be deemed to be unsaleable
("Unsaleable"). Company shall determine in its sole discretion whether
the Garments are First Quality, Seconds and/or Unsaleable after
affording Contractor the right to promptly inspect such Garments and
promptly dispute that such Garments are Seconds and/or Unsaleable. The
parties shall use their best efforts to resolve any such disputes. A
Garment will only be deemed a Second or Unsaleable if it contains a
defect which is attributable to Services rendered by Contractor under
this Agreement.
(b) (i) Company shall pay Contractor one hundred percent
(100%) of the First Quality price set forth on Schedule 4.1
for Seconds not exceeding two percent (2%) of Garments
delivered with any shipment Manufactured by Cut hereunder;
(ii) Company shall pay fifty percent (50%) of the
First Quality price for Seconds in excess of two percent (2%)
but not exceeding four percent (4%) of such Garments;
(iii) Company shall pay nothing for Seconds in excess
of four percent (4%); and
(iv) Company shall pay nothing for Unsaleable
Garments.
Company may reject any shipment of Garments that contains more than
four percent (4%) Seconds and one percent (1%) Unsaleable Garments.
(c) In the event of a rejection of a shipment of Garments for
containing more than 1% of Unsaleable Garments and more than 4% of
Seconds, a 100% reinspection may be done by Company at its sole
discretion to determine the First Quality Garments from Seconds and
Unsaleable Garments for that particular shipment. Company may invoice
Contractor, at Company's discretion, for the cost of such reinspection
at Company's standard rate per hour or rate per Garment charged for
such reinspection. Company may invoice Contractor for these costs and
shall offset these costs against any payables due Contractor.
(d) If a shipment is determined by Company to have a defect
level that exceeds the acceptable levels, and if, in Company's sole
judgment, repair of the non-First Quality Garments is desirable,
Company may repair the Garments at Company's standard charge back rates
for the required type of repairs and offset the costs of such repair
against any amounts due Contractor, or Company may return non-First
Quality Garments to Contractor for repair by Contractor at Contractor's
sole expense (including shipping expense), or Company may return
non-First Quality Garments to Contractor for disposal in accordance
with Section 7.2 of this Agreement.
(e) Contractor will reimburse Company for the cost of any
Materials for lost, destroyed or Unsaleable Garments in excess of the
acceptable levels set forth in Section 7.3(b) above and for any
shipping costs incurred by Company with respect to such Garments or the
Materials.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company represents and warrants to Contractor:
Section 8.1 Corporate Status and Good Standing. Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation, with full corporate power and
authority under its charter or articles of incorporation and bylaws to own and
lease its properties and to conduct business as the same exists. Company is duly
qualified to do business as a foreign corporation in all states in which the
nature of its business requires such qualification except where the failure to
be so qualified would not have an adverse effect on Company.
Section 8.2 Authorization. Company has full corporate power and
authority under its articles of incorporation and bylaws, and its board of
directors and shareholders have taken all necessary action to authorize it, to
execute and deliver this Agreement and the exhibits and schedules hereto, to
consummate the transactions contemplated herein and to take all actions required
to be taken by it pursuant to the provisions hereof, and each of this Agreement
and the exhibits hereto constitutes the valid and binding obligation of Company,
enforceable in accordance with its terms, except as enforceability may be
limited by general equitable principles, bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally.
Section 8.3 Non-Contravention. Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated herein or
therein, does or will violate, conflict with, result in breach of or require
notice or consent under any law, the articles of incorporation or bylaws of
Company or any provision of any agreement or instrument to which Company is a
party.
Section 8.4 Validity. There are no pending or threatened judicial or
administrative actions, proceedings or investigations which question the
validity of this Agreement or any action taken or contemplated by Company or in
connection with this Agreement.
Section 8.5 Title. Seller is the true and lawful owner of all Materials
provided Contractor hereunder, free and clear of any and all Liens, mortgages,
restrictions, liabilities and assignments of any kind other than Permitted
Liens.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES OF CONTRACTOR
Contractor represents and warrants to Company the following:
Section 9.1 Corporate Status and Good Standing. Each of Contractor and
Dimmit is a corporation duly incorporated, validly existing and in good standing
under the laws of its jurisdiction of incorporation, with full corporate power
and authority under its certificate or articles of incorporation and bylaws to
own and lease its properties and to conduct its business as the same exists.
Each of Contractor and Dimmit is duly qualified to do business as a foreign
corporation in all states or jurisdictions in which the nature of its business
requires such qualification, except where the failure to be so qualified would
not have an adverse effect on such party.
Section 9.2 Authorization. Contractor has full corporate power and
authority under its certificate or articles of incorporation and bylaws, and its
board of directors and stockholders have taken all necessary action to authorize
it, to execute and deliver this Agreement and the exhibits and schedules hereto,
to consummate the transactions contemplated herein and to take all actions
required to be taken by it pursuant to the provisions hereof or thereof, and
each of this Agreement and the exhibits hereto constitutes the valid and binding
obligation of Contractor, enforceable in accordance with its terms, except as
enforceability may be limited by general equitable principles, bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors' rights
generally.
Section 9.3 Non-Contravention. Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated herein or
therein, does or will violate, conflict with or result in breach of, or require
notice or consent under any law, the certificate or article or bylaws of
Contractor or Dimmit or any provision of any agreement or instrument to which
Contractor or Dimmit is a party, except for required filings with Mexican
authorities.
Section 9.4 Validity. There are no pending or threatened judicial or
administrative actions, proceedings or investigations which question the
validity of this Agreement or any action taken or contemplated by Contractor or
Dimmit in connection with this Agreement.
<PAGE>
ARTICLE X
COVENANTS
Section 10.1 Labor. During the term of this Agreement, Contractor
agrees that it shall be solely responsible for the payment of all wages, fringe
benefits, social security, unemployment and similar expenses and taxes
applicable to the performance of the Services contemplated under this Agreement
by employees of Contractor or Dimmit. As required by any applicable law,
Contractor warrants and agrees that it and Dimmit have produced and shall
maintain in effect full statutory coverage for workers' compensation, employers'
liability and disability insurance for all of their employees. Contractor
further agrees and warrants that it and Dimmit have and shall comply in all
material respects with all applicable state, federal, foreign and other
applicable wage and hour and other labor laws, including without limitation, all
child labor, minimum wage, overtime and safety related laws. Contractor agrees
that a material violation of any such law shall constitute a material breach of
this Agreement.
Section 10.2 Certification. Each invoice from Contractor for each
shipment of Garments to Company will contain the following certification by
Contractor:
"Contractor hereby certifies that (A) all Garments shipped
with this invoice are merchantable and fit for the use and
purpose for which they are intended and that they are free
from any defects or matter injurious to persons or property;
(B) Contractor has complied in all material respects with all
applicable local, foreign, domestic and other laws, rules,
regulations and requirements; and (C) Contractor will not
disclose nor has disclosed to any third party any Company
trade secrets or information which may reasonably be believed
to be confidential to Company (such as designs, styles,
patterns, colors, ingredients, etc.).
ARTICLE XI
INDEMNIFICATION
Section 11.1 Contractor's Indemnification. Contractor shall indemnify
Company and its Affiliates (including their officers, directors, employees and
agents) against, and hold harmless from and against, any and all claims,
actions, causes of action, arbitrations, proceedings, losses, damages,
liabilities, judgments and expenses (including without limitation, reasonable
attorneys' fees) ("Indemnified Amounts") incurred by Company or any of its
Affiliates as a result of (i) any material error, inaccuracy, breach or
misrepresentation in any of the representations and warranties made by
Contractor or on behalf of Dimmit in this Agreement, (ii) any violation or
breach by Contractor of or default by Contractor under the terms of this
Agreement, (iii) the Manufacture by Contractor of any Garments relating to this
Agreement; (iv) any claim or allegation that Contractor or any of its
contractors, representatives and agents, have not fully discharged all
obligations under labor laws as set forth in Section 10.1; and (v) the operation
by Contractor or Dimmit its Affiliate of the Piedras Factory during the term of
this Agreement. Company shall be entitled to recover its reasonable and
necessary attorneys' fees and litigation expenses incurred in connection with
successful enforcement of its rights under this Section 11.1.
Section 11.2 Company's Indemnification. Company shall indemnify
Contractor and its Affiliates (including their officers, directors, employees
and agents) against, and hold harmless from and against, any and all Indemnified
Amounts incurred by Contractor or any of its Affiliates as a result of: (i) any
material error, inaccuracy, breach or misrepresentation in any of the
representations and warranties made by Company in this Agreement; (ii) any
violation or breach by Company of or default by Company of or under the terms of
this Agreement; (iii) any Materials provided Contractor by Company under this
Agreement; and (iv) the design or shipment by Company of any Garment produced
under this Agreement. Contractor shall be entitled to recover its reasonable and
necessary attorneys' fees and litigation expenses incurred in connection with
successful enforcement of its rights under this Section 11.2.
Section 11.3 Limits of Liability. No party shall be liable under this
Section 11 or for the breach of any representation or warranty unless and until
the aggregate amount of such liability (for all such claims) exceeds
U.S.$100,000, in which event the indemnifying party shall be fully liable
without regard to such threshold.
ARTICLE XII
INTELLECTUAL PROPERTY PROTECTION
Section 12.1 Use of Intellectual Property. Contractor understands and
acknowledges that in order to provide the Services contemplated hereunder
Company may provide Contractor with or allow Contractor to use (i) Materials
that contain the trade names, trademarks or logos owned or licensed by Company
and/or its Affiliates, including without limitation, Farah(R), Savane(R), John
Henry(R), Farah Clothing Company(R), and PROCESS 2000(R) ("Trademarks") and (ii)
all chemical formulations, technical processes, including without limitation,
soft washes and enzyme treatments and washes, valuable trade secrets and
know-how, including PROCESS 2000 (the "Farah Processes"); provided, however,
that the Company acknowledges that Contractor and Dimmit produce products using
"dip" or "immersion" finishing processes which are either independently
developed or acquired by Contractor and Dimmit which may be substantially
similar to the Farah Processes or may contain chemical formulations, technical
processes or other know-how which may be substantially similar to the chemical
formulations, technical processes or know-how comprising the Farah Processes.
Contractor understands and acknowledges that it shall obtain no right, title or
interest in or to the Trademarks or Farah Processes by virtue of the Manufacture
of Garments, the provision of Services or carrying out its obligations under
this Agreement.
Section 12.2 Assignment. To the extent any right, title or interest in
and to the Trademarks or Farah Processes are deemed to accrue to Contractor or
its Affiliates pursuant to this Agreement or otherwise, Contractor hereby
assigns to Company, and will cause its Affiliates to assign to Company, any and
all such rights at such time as they may be deemed to accrue to Contractor.
ARTICLE XIII
TERMINATION
Section 13.1 Termination.
(a) This Agreement may be terminated:
(i) at any time by mutual written agreement
executed by Company and Contractor;
(ii) after November 30, 1997, by either party
upon ninety (90) days written notice to the
other party; or
(iii) by either party if the other party shall
fail to perform or observe in any material
respect any of the covenants or agreements
set forth herein to be performed or observed
by such party and such breach shall not be
remedied by the breaching party within ten
(10) business days of receipt of written
notice of the breach given by the
non-breaching party.
b) Upon such termination, none of the parties nor any other
person shall have any liability or further obligation arising out of
this Agreement except for any liability resulting from its breach of
this Agreement prior to termination, except that the provisions of
Sections 12 and 14 shall continue to apply.
Section 13.2 Remedies. In the event either party breaches in any
material respect any representations, warranties or covenants hereunder or fails
to comply in any material respect with any term or requirement of this
Agreement, in addition to any other remedies the non-breaching party shall be
entitled to; (i) cancel this Agreement in accordance with Section 13.1(a) (iii);
(ii) reject shipments; (iii) recover any and all actual costs and expenses
incurred by the non-breaching party as a result of such breach or failure to
comply; and/or (iv) offset any amounts due to the non-breaching party by any
actual costs and expenses incurred by the non-breaching party as a result of
such breach or failure to comply. Remedies herein shall not be exclusive but
shall be cumulative of any other remedy herein or under any other statute or
law.
Section 13.3 Unfinished Goods. Unless otherwise agreed to by the
parties, upon notice of termination of this Agreement, Contractor shall complete
all job orders for which Services were requested. If by the termination date
Contractor has not completed such job orders. Contractor shall immediately
return all Materials and unfinished Garments to Company. Final payment for
Services finished will be withheld until all Materials are returned and
unfinished Garments received by Company.
ARTICLE XIV
CONFIDENTIALITY
Section 14.1 Confidentiality.
(a) Neither Company nor its Affiliates will, directly or
indirectly, disclose or provide to any other person any non-public
information of a confidential nature concerning the business or
operations of Contractor or an Affiliate thereof, including without
limitation, any process, chemical formulations or other proprietary
information of Contractor or its Affiliates used in the Piedras
Factory, which becomes known to Company or its Affiliates as a result
of the transactions hereby, except as is required in governmental
filings or judicial, administrative or arbitration proceedings. In the
event that Company or an Affiliate thereof becomes legally required to
disclose any such information in any governmental filings or judicial,
administrative or arbitration proceedings, Company shall, and shall
cause any Affiliate to, provide Contractor with prompt notice of such
requirement so that Contractor may seek a protective order or other
appropriate remedy. In the event that such protective order or other
remedy is not obtained, Company shall, and shall cause any Affiliate
to, furnish only that portion of the information that Company or any
Affiliate, as the case may be, is advised by its counsel is legally
required and such disclosure shall not result in any liability
hereunder unless such disclosure was caused by or resulted from a
previous disclosure by such party or any Affiliate that was not
permitted by this Agreement.
b) Neither Contractor nor its Affiliates will, directly or
indirectly, disclose or provide to any other person any non-public
information of a confidential nature concerning the business or
operations of Company or its Affiliates, including without limitation,
any processes, chemical formulations, Trade Secrets or other
proprietary information of Company or its Affiliates known or which
becomes known to Contractor or Affiliates thereof as a result of the
transactions contemplated hereby or Contractor's operation of the
Piedras Factory, except as is required in governmental filings or
judicial, administrative or arbitration proceedings. In the event that
Contractor or any Affiliate becomes legally required to disclose any
such information in any governmental filings or judicial,
administrative or arbitration proceedings, Contractor shall, and shall
cause any Affiliate to, provide Company with prompt notice of such
requirements so that Company may seek a protective order or other
appropriate remedy. In the event that such protective order or other
remedy is not obtained, Contractor shall, and shall cause any Affiliate
to, furnish only that portion of the information that Contractor or its
Affiliate, as the case may be, is advised by its counsel as legally
required, and such disclosure shall not result in any liability
hereunder unless such disclosure was caused by or resulted from a
previous disclosure by Contractor or any Affiliate that was not
permitted by this Agreement.
ARTICLE XV
GENERAL PROVISIONS
Section 15.1 Expenses. Each party shall pay its own expenses, including
the fees and disbursements of its counsel in connection with the negotiation,
preparation and execution of this Agreement and the consummation of the
transactions contemplated herein, except as otherwise provided herein.
Section 15.2 Entire Agreement. This Agreement, including all schedules
and exhibits hereto, constitutes the entire agreement of the parties with
respect to the subject matter hereof, and may not be modified, amended or
terminated except by a written instrument specifically referring to this
Agreement signed by all the parties hereto.
Section 15.3 Waivers and Consents. All waivers and consents given
hereunder shall be in writing. No waiver by any party hereto of any breach or
anticipated breach of any provision hereof by any other party shall be deemed a
waiver of any other contemporaneous, preceding or succeeding breach or
anticipated breach, whether or not similar.
Section 15.4 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been received only if and when
(i) personally delivered; (ii) on the first day after transmission of a
confirmed facsimile sent to the other party at the facsimile number below; (iii)
one business day after deposit thereof for overnight delivery with a nationally
recognized overnight courier service; or (iv) on the third day after mailing, by
United States mail, first class, postage prepaid, by certified mail return
receipt requested, addressed in each case as follows (or to such other address
as may be specified by like notice):
If to Contractor, to: Galey & Lord, Inc.
7736 McCloud Rd.
Greensboro, NC
Attn: Mike Harmon
910-665-3037
910-665-3113 (fax)
With a copy to (which shall
not constitute notice): Rosenman & Colin LLP
575 Madison Avenue
New York, NY 10022
Attn: Howard S. Jacobs
212-940-8800
212-940-8776 (fax)
If to Company, to: Farah U.S.A., Inc.
8889 Gateway West
El Paso, Texas 79925
Attention: Timothy B. Page
(915) 593-4500
(915) 593-4545 (fax)
With a copy to (which shall
not constitute notice): Baker & McKenzie
4500 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: Daniel W. Rabun
(214) 978-3000
(214) 978-3099 (fax)
Section 15.5 Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors, legal representatives and assigns. No third party shall have any
rights hereunder. No assignment shall release the assigning party.
Section 15.6 Choice of Law; Section Headings; Table of Contents. This
Agreement shall be governed by the internal laws of the State of New York
(without regard to the choice of law provisions thereof). The United Nations
Convention on the International Sale of Goods is hereby excluded from
application to this Agreement and any transaction pursuant to this Agreement.
The section headings and any table of contents contained in this Agreement are
for reference purposes only and shall not affect the meaning or interpretation
of this Agreement.
Section 15.7 English Controlling. For purposes of convenience, this
Agreement may be translated into Spanish, but it is understood that the English
version of this Agreement (and the schedules and exhibits) will control for all
purposes. In case of a conflict in meaning between the two versions, the parties
are responsible for performing in accordance with the English version hereof.
Section 15.8 Severability. If any term or provision of this Agreement
or the application thereof to any person or circumstance shall be deemed
invalid, illegal or unenforceable to any extent or for any reason, such
provision shall be severed from this Agreement and the remainder of this
Agreement and the application thereof shall not be affected and shall be
enforceable to the fullest extent permitted by law. A provision which is valid,
legal and enforceable shall be substituted for the severed provision.
Section 15.9 Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise.
Section 15.10 Force Majeure. Neither party shall be liable for loss or
damage or deemed to be in breach of this Agreement if its failure to perform its
obligations results from: (1) compliance with any law, ruling, order,
regulation, requirement, or instruction of any federal, state, foreign, or
municipal government or any department or agency thereof; (2) acts of God; or
(3) fires, strikes, embargoes, war, or riot. Any delay resulting from any of
these causes shall extend performance accordingly or excuse performance, in
whole or in part, as may be reasonable.
Section 15.11 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and all
of which together shall be deemed to be one and the same instrument.
Section 15.12 Agency. Contractor is an independent contractor. Nothing
in this Agreement shall be construed to constitute either party the agent of the
other party, and neither party shall represent to any third party that it has
any right or authority to act as the agent for or otherwise to represent the
other party.
Section 15.13 Insurance. Contractor shall reimburse Company for the
value of all WIP, Garments and Materials lost, damaged or destroyed while in the
custody of Contractor, regardless of fault. Contractor shall procure insurance
through a carrier acceptable to Company and provide for full coverage against
loss or damage to said Materials, WIP and Garments. Certificates of such
insurance shall be provided to Company prior to receipt of Materials by
Contractor.
Section 15.14 Bankruptcy. If during the term of this Agreement a
petition in bankruptcy shall be filed by or against Contractor, or if Contractor
shall, as a debtor, seek or take the benefit of any insolvency or debtor's
relief proceeding, or if Contractor shall file an assignment for the benefit of
creditors, or if Contractor shall apply to its creditors to compound its debts,
then in any such event, Company shall have the right to decline to take further
deliveries hereunder or Company may, without prejudice to any other lawful
remedy, cancel this Agreement, and in either case, Contractor shall upon demand
deliver up to Company all Materials, Garments, WIP or other property of Company
in Contractor's custody.
Section 15.15 Assignment of Obligations. Without the prior written
authorization of Company, Contractor shall not assign, subcontract or otherwise
Transfer (collectively "Transfer") any obligations whatsoever under this
Agreement. Any such Transfer shall be void and of no effect and shall constitute
a material breach of this Agreement, notwithstanding any alleged or actual
knowledge of such Transfer by Company. In the event of any such Transfer,
Contractor shall remain responsible for all of its obligations under this
Agreement and Company shall be under no obligation to pay any Transferee for any
Garments or Services provided. Company may, however, at its sole option and in
addition to and without waiving any other remedies, pay said Transferee directly
and shall be entitled to a full offset and reimbursement from Contractor for
such payment and for any and all costs and damages incurred in connection with
such Transfer.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
first above written.
[______________________________________]
G&L SERVICE COMPANY, NORTH AMERICA, INC.
By: ____________________________________
Name: ____________________________
Title: ____________________________
FARAH U.S.A., INC.
By: ____________________________________
Name: ____________________________
Title: ____________________________
Galey & Lord Industries, Inc., a Delaware corporation, hereby
unconditionally guarantees to Company the performance of Contractor hereunder.
GALEY & LORD INDUSTRIES, INC.
By: ____________________________________
Name: ____________________________
Title: _________________________
<PAGE>
EXHIBIT 11
FARAH INCORPORATED AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF NET LOSS PER SHARE
Net loss per share is based on weighted average shares of common stock
outstanding.
<PAGE>
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<PERIOD-END> MAY-05-1996
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<RECEIVABLES> 37,239
<ALLOWANCES> 743
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<CURRENT-ASSETS> 110,143
<PP&E> 63,028
<DEPRECIATION> 31,000
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<SALES> 115,568
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<CGS> 85,637
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