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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
FARAH INCORPORATED
(Name of Subject Company)
FARAH INCORPORATED
(Name of Person Filing Statement)
COMMON STOCK, NO PAR VALUE PER SHARE
(Title of Class of Securities)
307387100
(CUSIP Number of Class of Securities)
RICHARD C. ALLENDER
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND PRESIDENT
FARAH INCORPORATED
4171 N. MESA
BLDG. D, SUITE 500
EL PASO, TEXAS 79902-1433
(Name, address and telephone number of
person authorized to receive notice and communications
on behalf of the person filing statement)
Copy to:
DANIEL W. RABUN
BAKER & MCKENZIE
SUITE 4500
2001 ROSS AVENUE
DALLAS, TEXAS 75201
(214) 978-3000
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Farah Incorporated, a Texas corporation
(the "Company"), and the address of the principal executive offices of the
Company is 4171 N. Mesa, Bldg. D, Suite 500, El Paso, Texas 79902-1433. The
title of the class of equity securities to which this
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9")
relates is the Company's common stock, no par value per share (the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER
This statement relates to the tender offer (the "Offer") described in the
Tender Offer Statement on Schedule 14D-1, dated May 8, 1998, filed by Foxfire
Acquisition Corp., a Texas corporation (the "Purchaser"), and Tropical
Sportswear Int'l Corporation, a Florida corporation and the sole shareholder of
the Purchaser ("TSI"), with the Securities and Exchange Commission (the
"Commission") relating to an offer by the Purchaser to purchase all of the
Company's issued and outstanding Shares at a purchase price of $9.00 per Share
(such amount, or any greater amount per Share paid pursuant to the Offer, being
hereinafter referred to as the "Per Share Amount"), net to each seller in cash,
without interest, upon the terms and subject to the conditions set forth in the
Purchaser's Offer to Purchase, dated May 8, 1998 filed as Exhibit (a)(1), and
the related Letter of Transmittal filed as Exhibit (a)(2) (which together
constitute the "Offer Documents"). The Offer is conditioned upon, among other
things, shareholders of the Company validly tendering and not withdrawing prior
to the Expiration Date (defined below) of the Offer a number of Shares which,
together with Shares already owned by TSI and its subsidiaries, is equivalent to
66 2/3% of the total outstanding Shares (the "Minimum Condition"). Upon the
terms and subject to the conditions of the Offer, the Purchaser will accept for
payment and pay for all Shares validly tendered prior to the Expiration Date and
not withdrawn. The term "Expiration Date" shall mean 12:00 Midnight, New York
City time, on Friday, June 5, 1998, unless and until Purchaser, in accordance
with the terms of the Merger Agreement, shall have extended the period of time
for which the Offer is open, in which event the term "Expiration Date" shall
mean the latest time and date at which the Offer, as so extended by Purchaser,
shall expire. The Offer Documents indicate that the principal executive offices
of TSI and Purchaser are located at 4902 West Waters Avenue, Tampa, Florida
33634-1302. The Purchaser and TSI are sometimes referred to herein as the
"bidders."
The Offer is being made pursuant to the Agreement and Plan of Merger, dated
as of May 1, 1998 (the "Merger Agreement"), among the Company, TSI and the
Purchaser. A copy of the Merger Agreement is filed as Exhibit (c)(1) to this
Schedule 14D-9 and is incorporated herein by reference in its entirety.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and address of the Company, which is the person filing this
Schedule 14D-9, are set forth in Item 1 above.
(b) Certain contracts, agreements, arrangements or understandings between
the Company or its affiliates and certain of its executive officers, directors
or affiliates are described in the Company's Information Statement set forth on
Annex A hereto, the information in which is incorporated herein by reference in
its entirety. Certain of the information set forth in Annex A was included in
the Company's Proxy Statement filed with the Commission on January 26, 1998.
Except for the matters set forth in this Item 3, there are no material
contracts, agreements, arrangements or understandings or actual or potential
conflicts of interest between the Company or its affiliates and (i) its
executive officers, directors or affiliates or (ii) to the knowledge of the
Company, the bidders, their executive officers, directors or affiliates.
Merger Agreement
The following is a summary of certain provisions of the Merger Agreement.
The summary is qualified in its entirety by reference to the Merger Agreement,
which is incorporated herein by reference and a copy of which has been filed as
Exhibit (c)(1) to this Schedule 14D-9.
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The Offer. The Merger Agreement provides that the Purchaser will commence
the Offer and that, upon the terms and subject to the prior satisfaction or
waiver of the conditions of the Offer, the Purchaser will purchase all Shares
validly tendered pursuant to the Offer. The Merger Agreement provides that the
Purchaser will not amend or waive the Minimum Condition and will not decrease
the Per Share Amount or decrease the number of Shares sought in the Offer,
impose any further conditions to the Offer or amend any condition of the Offer
in a manner materially adverse to the holders of Shares. Notwithstanding the
foregoing, the Merger Agreement provides that the Purchaser may extend the Offer
(i) if at the scheduled Expiration Date any of the conditions to the Offer have
not been satisfied, including but not limited to any legal or regulatory
requirements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the regulation thereunder (the "HSR Act"), (ii) from time to time
for a maximum of an aggregate of 10 business days beyond the initial Expiration
Date (which initial Expiration Date shall be 20 business days following the
commencement of the Offer), and (iii) for any period required by any rule,
regulation, interpretation or position of the Commission or the staff of the
Commission applicable to the Offer. The Merger Agreement further provides,
however, that in no event may the Offer be extended beyond the date of
termination of the Merger Agreement, and either party has the right to terminate
the Merger Agreement if the Offer is not completed by August 31, 1998.
Conditions of the Offer. Notwithstanding any other provision of the Offer,
the Purchaser shall not be required to accept for payment or pay for any Shares
tendered pursuant to the Offer, and may terminate or amend the Offer and may
postpone the acceptance for payment of and payment for Shares tendered, if (i)
the Minimum Condition shall not have been satisfied, (ii) any applicable waiting
period under the HSR Act shall not have expired or not been terminated prior to
the expiration of the Offer or (iii) at any time on or after the date of the
Merger Agreement, and prior to the acceptance for payment of Shares, any of the
following conditions shall exist:
(a) there shall have been any judgment, order or decree resulting from
litigation brought by any United States (federal, state or local) or
foreign government, or governmental, regulatory or administrative
authority, agency or commission or court of competent jurisdiction
("Governmental Authority") or other person, or before any court or
Governmental Authority, agency or tribunal, domestic or foreign: (i)
prohibiting the acquisition by TSI or the Purchaser of any Shares; (ii)
prohibiting or limiting in any material respect the ownership or operation
by TSI, the Purchaser or any of their respective subsidiaries of any
material portion of the business or assets of the Company, or to compel
TSI, the Purchaser or any of their respective subsidiaries to dispose of or
hold separate any material portion of the business or assets of the Company
or any of its Subsidiaries, (iii) restraining or prohibiting the making of
the Offer or the consummation of the Merger; (iv) imposing limitations on
the ability of TSI or the Purchaser to exercise effectively full rights of
ownership of any Shares, including, without limitation, the right to vote
any Shares acquired by the Purchaser pursuant to the Offer, or otherwise on
all matters properly presented to the Company's shareholders, including,
without limitation, the approval of the Merger Agreement and the Offer and
the Merger; or (v) requiring divestiture by TSI or the Purchaser of any
Shares;
(b) (i) the Company's Board of Directors shall have withdrawn or
modified in a manner adverse to TSI or the Purchaser the approval or
recommendation of the Offer, the Merger or the Merger Agreement or approved
or recommended any Business Combination Proposal or any other acquisition
of Shares other than the Offer and the Merger or (ii) the Company's Board
of Directors shall have resolved to do any of the foregoing;
(c) the Company shall have failed to perform or comply in any material
respects with all agreements and covenants required by the Merger Agreement
to be performed or complied with by it at or prior to the election or
appointment of the Purchaser's designees to the Company's Board of
Directors upon the purchase by the Purchaser of Shares pursuant to the
Offer, or any of the representations and warranties of the Company
contained in the Merger Agreement that are qualified as to materiality
shall fail to be true and correct, or any such representations and
warranties that are not so qualified shall fail to be true and correct in
all material respects, each as of the date of the election or appointment
of the Purchaser's designees to the Company's Board of Directors upon the
purchase by the Purchaser of Shares pursuant to the Offer as though made on
and as of such date, except that those representations and warranties which
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address matters only as of a particular date shall remain true and correct,
or true and correct in all material aspects, as the case may be, as of such
date;
(d) the Merger Agreement shall have been terminated in accordance with
its terms;
(e) the Purchaser and the Company shall have agreed that the Purchaser
shall terminate the Offer or postpone the acceptance for payment of or
payment for Shares thereunder;
(f) there shall have occurred (i) any general suspension of, or
limitation on prices for, or trading in securities on the New York Stock
Exchange, Inc. (the "NYSE") (other than limitations on hours or numbers of
days of trading); (ii) a currency moratorium on the exchange market in New
York City; (iii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States; (iv) any limitation
(whether or not mandatory) by any United States government or governmental,
administrative or regulatory authority or agency, on the extension of
credit by banks or other lending institutions; or (v) a decline of at least
25% in either the Dow Jones Average of Industrial Stocks or the Standard &
Poor's 500 index from the date of the Merger Agreement, or any material
disruption or material adverse change in the financial or capital markets
generally, or in the markets for high yield debt in particular or affecting
the syndication or funding of the Purchaser's planned financing which the
Company has been advised will consist of up to $125 million aggregate
principal amount of senior subordinated notes of TSI;
(g) it shall have been publicly disclosed or TSI or the Purchaser
shall have otherwise learned that beneficial ownership (determined for the
purposes of this paragraph as set forth in Rule 13d-3 of the Exchange Act)
of more than 25% of the outstanding Shares has been acquired by any
corporation (including the Company or any of its Subsidiaries or
affiliates), partnership, person or other entity or "group" (within the
meaning of Section 13(d)(3) of the Exchange Act), other than TSI, the
Purchaser or any of their affiliates; or
(h) all consents of and notices to or filings with Governmental
Authorities and third parties required in connection with the Offer and the
Merger shall not have been obtained or made other than those the absence of
which, individually or in the aggregate, would not have a material adverse
effect on the Company or prevent or materially delay consummation of any of
the Offer or the Merger.
The foregoing conditions are for the sole benefit of the Purchaser and TSI
and may be asserted by the Purchaser or TSI regardless of the circumstances
giving rise to any such condition or may be waived by the Purchaser or TSI in
whole or in part at any time and from time to time in their sole discretion. The
failure by TSI or the Purchaser at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right; the waiver of any such
right with respect to particular facts and other circumstances shall not be
deemed a waiver with respect to any other facts and circumstances; and each such
right shall be deemed an ongoing right that may be asserted at any time and from
time to time.
The Merger. Following the consummation of the Offer, the Merger Agreement
provides that, subject to the terms and conditions thereof, at the election of
TSI and in accordance with the Texas Business Corporation Act (the "TBCA") in
the event that the Purchaser shall acquire at least 90% of the outstanding
Shares of the Company, at the effective time of the Merger (the "Effective
Time") the Purchaser shall be merged with and into the Company and, as a result
of the Merger, the separate corporate existence of the Purchaser shall cease and
the Company shall continue as the surviving corporation (the "Surviving
Corporation"). In the event that the Purchaser does not acquire at least 90% of
the Shares, the Company will duly call, give notice of, convene and hold an
annual or special meeting of its shareholders as soon as practicable following
the consummation of the Offer for the purpose of considering and taking action
on the Merger Agreement and the Merger (the "Shareholders Meeting").
The respective obligations of TSI and the Purchaser, on the one hand, and
the Company, on the other hand, to effect the Merger are subject to the
satisfaction of each of the following conditions, any and all of which may be
waived, in whole or in part, jointly by TSI and the Company to the extent
permitted by applicable law: (i) the Merger Agreement shall have been approved
by the requisite vote of the holders of Shares, to the extent required by
applicable law, the Company's Restated Articles of Incorporation and
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Amended and Restated Bylaws and by the NYSE; (ii) no governmental authority
shall have enacted, issued, promulgated, enforced or entered any law, order,
executive order, stay, decree, judgment, injunction or other order or statute,
rule or regulation which is in effect and which has the effect of making the
acquisition of Shares by the Purchaser or TSI or any affiliate of either of them
illegal or otherwise preventing or prohibiting consummation of the Offer or the
Merger; (iii) the Purchaser shall have purchased all Shares validly tendered and
not withdrawn pursuant to the Offer, unless such failure to purchase is a result
of a breach of TSI's and the Purchaser's obligations to purchase any Shares
validly tendered and not withdrawn pursuant to the Offer; and (iv) the
applicable waiting period under the HSR Act shall have expired or been
terminated.
At the Effective Time of the Merger (i) each issued and outstanding Share
(other than Shares that are owned by the Company as treasury stock, any Shares
owned by TSI, the Purchaser or any other wholly owned Subsidiary of TSI, or any
Shares that are held by shareholders exercising dissenters' rights under the
TBCA) will be converted into the right to receive the price per share paid
pursuant to the Offer, and (ii) each issued and outstanding share of the common
stock, par value $.01 per share, of the Purchaser will be converted into one
share of common stock of the Surviving Corporation and shall constitute the only
outstanding shares of capital stock of the Surviving Corporation.
The Company's Board of Directors. The Merger Agreement provides that
promptly after the purchase by the Purchaser of Shares pursuant to the Offer,
the Purchaser shall be entitled to designate such number of directors, rounded
up to the next whole number, on the Company's Board of Directors as is equal to
the product of the total number of directors on the Company's Board of Directors
(giving effect to the directors designated by the Purchaser) multiplied by the
percentage that the number of Shares beneficially owned by the Purchaser or TSI
bears to the total number of Shares then outstanding. The Company will promptly
take all actions necessary to cause the Purchaser's designees to be elected as
directors of the Company, including increasing the size of the Company's Board
of Directors or securing the resignations of such number of its incumbent
directors or both.
Shareholders Meeting. If required by applicable law in order to consummate
the Merger, the Company agreed, in accordance with applicable law and the
Company's Restated Articles of Incorporation and Amended and Restated Bylaws, to
(a) duly call, give notice of, convene and hold an annual or special meeting of
its shareholders as soon as practicable following consummation of the Offer for
the purpose of considering and taking action on the Merger Agreement and the
transactions contemplated thereby and (b) subject to the fiduciary obligations
of the Company's Board of Directors, include in the proxy statement for the
Shareholders Meeting (the "Proxy Statement") the recommendation of the Company's
Board of Directors that the shareholders of the Company approve the Merger
Agreement and the Merger and use its reasonable best efforts to obtain such
approval. To the extent permitted by law, TSI and the Purchaser each agreed to
vote all Shares beneficially owned by them in favor of the Merger. Further, if
required by applicable law in order to consummate the Merger, as promptly as
practicable after the purchase of all Shares validly tendered and not withdrawn
pursuant to the Offer, the Company will file a Proxy Statement with the
Commission under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and will use its reasonable best efforts to have the Proxy Statement
cleared by the Commission. The Company agrees to give TSI and its counsel the
opportunity to review the Proxy Statement prior to its being filed with the
Commission and will give TSI and its counsel the opportunity to review all
amendments and supplements to the Proxy Statement and all responses to requests
for additional information and replies to comments prior to their being filed
with, or sent to, the Commission. If the Purchaser acquires at least two-thirds
of the outstanding Shares, the Purchaser will have sufficient voting power to
approve the Merger, even if no other shareholder votes in favor of the Merger.
The Merger Agreement provides that in the event that the Purchaser acquires
at least 90% of the outstanding Shares, pursuant to the Offer or otherwise, TSI,
the Purchaser and the Company will, at the request of TSI and subject to the
terms of the Merger Agreement, take all necessary and appropriate action to
cause the Merger to become effective as soon as practicable after such
acquisition, without a meeting of shareholders of the Company, in accordance
with the TBCA.
Options and Restricted Stock. Immediately after the Purchaser has accepted
for payment all Shares validly tendered and not withdrawn prior to the
Expiration Date, each outstanding option to purchase Shares
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(in each case, an "Option") granted under (a) the Company's 1991 Stock Option
and Restricted Stock Plan, as amended, (b) the Company's 1988 Stock Option Plan
for Non-Employee Directors (c) the Company's 1996 Non-Employee Director Stock
Option Plan, as amended, (d) the Company's 1998 Stock Option and Restricted
Stock Plan, and (e) the Company's 1986 Stock Option Plan (such plans (a) through
(e) hereinafter the "Company Option Plans"), whether or not then exercisable or
vested, shall, subject to the Company's receipt of any required consent of the
holders of such Options, be canceled by the Company, and each holder of a
canceled Option shall be entitled to receive from the Purchaser at the same time
as payment for Shares is made by the Purchaser in connection with the Offer, in
consideration for the cancellation of such Option, an amount in cash equal to
the product of (i) the number of Shares previously subject to such Option and
(ii) the excess, if any, of the Per Share Amount over the exercise price per
Share previously subject to such Option. Immediately prior to the acceptance for
payment by the Purchaser of all Shares validly tendered and not withdrawn prior
to the Expiration Date, all restrictions on any restricted stock awards granted
under the Company Option Plans shall lapse and the holders of such restricted
stock shall be entitled to receive from the Purchaser at the same time as
payment for Shares is made by the Purchaser in connection with the Offer in
consideration for the restricted stock an amount in cash equal to the product of
(i) the number of Shares subject to such restricted stock award and (ii) the Per
Share Amount.
Interim Operations; Covenants. Pursuant to the Merger Agreement, the
Company agreed that, between the date of the Merger Agreement and the election
or appointment of the Purchaser's designees to the Company's Board of Directors
upon the purchase by the Purchaser of Shares pursuant to the Offer, unless TSI
otherwise agrees in writing (which agreement will not be unreasonably withheld),
(1) the business of the Company and its subsidiaries (the "Subsidiaries") will
be conducted only in, and the Company and Subsidiaries will not take any action
except in, the ordinary course of business and in a manner substantially
consistent with past practice, (2) the Company will use all reasonable efforts
to preserve substantially intact its business organization, to keep available
the services of the current officers, employees and consultants of the Company
and the Subsidiaries and to preserve the current relationships of the Company
and the Subsidiaries with customers, suppliers and other persons with which the
Company or any Subsidiary has significant business relations, (3) the Company
will not, and will not permit any Subsidiary to take any action that would (a)
materially and adversely affect the ability of any party to obtain any consents
required for the Offer or the Merger, (b) cause any of the conditions to the
Offer or the Merger not to be satisfied, or (c) materially and adversely affect
the ability of any party to perform its covenants and agreements under the
Merger Agreement, and (4) the Company will not, and will not permit any
Subsidiary to: (a) amend or otherwise change its articles of incorporation or
bylaws or other organizational or governing documents; (b) issue, sell, pledge,
dispose of, grant, encumber, or authorize the issuance, sale, pledge,
disposition, grant or encumbrance of, (i) any shares of capital stock of the
Company or any Subsidiary of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of such capital
stock, or any other ownership interest of the Company or any Subsidiary (except
for shares of the Company's common stock, if any, issuable under agreements
currently in effect and shares of capital stock pursuant to currently
outstanding Options or employee benefit plans currently in effect), or (ii) any
of the Company's or any Subsidiaries' assets, except for sales in the ordinary
course of business and in a manner consistent with past practice; (c) declare,
set aside, make or pay any dividend or other distribution, payable in cash,
stock, property or otherwise, with respect to any of its capital stock or sell,
lease, mortgage or otherwise dispose of or otherwise encumber any shares of
capital stock of any Subsidiary; (d) reclassify, combine, split, divide or
redeem, purchase or otherwise acquire, directly or indirectly, any of its
capital stock; (e) (i) acquire any interest in any corporation, partnership,
other business organization or any division thereof or any assets, other than
the acquisition of assets in the ordinary course of business consistent with
past practice; (ii) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an accommodation
become responsible for, the obligations of any person, or make any loans or
advances, except for indebtedness incurred in the ordinary course of business
and consistent with past practice with a maturity of not more than one year in a
principal amount not, in the aggregate, in excess of $1,000,000; (iii) enter
into, modify, amend or terminate any contract or agreement material to the
business, results of operations or financial condition of the Company other than
in the ordinary course of business, consistent with past practice; (iv)
authorize any capital expenditure; (v) impose, or suffer the imposition, on any
asset of the
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Company or any Subsidiary of any lien or permit any such lien to exist; or (vi)
enter into or amend any contract, agreement, commitment or arrangement with
respect to any matter set forth in this subsection (e); (f) except in the
ordinary course of business consistent with past practice and except in the case
of officers for annual increases in compensation payable or to become payable to
any officer of the Company consistent with past practice, (i) increase the
compensation payable or to become payable to any director, officer or other
employee, or grant any bonus to, or grant any severance or termination pay to,
or enter into any employment or severance agreement with, any director, officer
or other employee of the Company or any Subsidiary or enter into or amend any
collective bargaining agreement, or (ii) establish, adopt, enter into or amend
any bonus, profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation or other plan, trust or fund for the
benefit of any director, officer or class of employees; (g) commence any
litigation other than in accordance with past practice, or settle or compromise
any pending or threatened litigation which is material or which relates to the
Offer or the Merger; (h) grant or convey to any person any rights, including,
but not limited to, by way of sale, license or sublicense, in any of the
Company's intellectual property; (i) make any significant change in any tax or
accounting methods, principles or practices or systems of internal accounting
controls, except as may be appropriate to conform to changes in tax laws or
generally accepted accounting principles ("GAAP"); or (j) after the date of the
Merger Agreement, file any material tax return without the prior consent of TSI,
which consent will not be unreasonably withheld.
Pursuant to the Merger Agreement, subject to the Confidentiality Agreements
dated March 20, March 23 and March 26, 1998 between the Company and TSI (the
"Confidentiality Agreements"), from the date of the Merger Agreement to the
election or appointment of the Purchaser's designees to the Company's Board of
Directors upon the purchase by the Purchaser of Shares pursuant to the Offer,
the Company will provide TSI, during normal business hours and upon reasonable
notice, access to all financial, operating and other data and information
regarding the business of the Company as TSI reasonably requests, other than
information and documents that in the opinion of the Company's counsel may not
be disclosed under applicable law.
No Solicitation. Pursuant to the Merger Agreement, the Company has agreed
that neither the Company nor any of its Subsidiaries will, directly or
indirectly, through any officer, director, agent or otherwise, solicit, initiate
or encourage the submission of any proposal or offer from any person relating to
any acquisition or purchase of all or any material portion of the assets of, or
any equity interest in, the Company or any Subsidiary or any merger,
consolidation, share exchange, business combination or other similar transaction
with the Company or any Subsidiary (a "Business Combination Proposal") or
participate in any negotiations regarding, or furnish to any other person any
information with respect to, or otherwise cooperate in any way with, or assist
or participate in, facilitate or encourage, any effort or attempt by any other
person to do or seek any of the foregoing; provided, however, that nothing shall
prohibit the Company from furnishing information to, or entering into
discussions or negotiations with, any person in connection with an unsolicited
Business Combination Proposal by such person received by the Company after the
date of the Merger Agreement, if, and only to the extent that, (a) a majority of
the disinterested members of the Company's Board of Directors, after
consultation with the Company's independent financial advisor and based on the
advice of outside counsel, determines in good faith that such action is required
in order for the Company's Board of Directors not to breach its fiduciary duties
to shareholders imposed by law and (b) prior to furnishing such information to,
or entering into discussions or negotiations with, such person, the Company (i)
gives TSI as promptly as practicable prior written notice of the Company's
intention to furnish such information or begin such discussions, the identity of
such person and the material terms of such Business Combination Proposal and
(ii) receives from such person an executed confidentiality agreement on terms no
less favorable to the Company than those contained in the Confidentiality
Agreement executed by TSI in favor of the Company.
The Company also agreed, pursuant to the Merger Agreement, that neither the
Board of Directors of the Company nor any committee thereof shall (i) withdraw
or modify, or propose to withdraw or modify, in a manner adverse to TSI or the
Purchaser, the approval or recommendation by such Board of Directors or any such
committee thereof the Offer, the Merger Agreement or the Merger or (ii) approve
or recommend, or propose to approve or recommend, any Business Combination
Proposal. Notwithstanding the foregoing, the Board of Directors of the Company,
to the extent required by the fiduciary obligations thereof, as determined
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in good faith by a majority of the disinterested members thereof based on the
advice of outside counsel, may approve or recommend (and, in connection
therewith, withdraw or modify its approval or recommendation of the Offer, the
Merger Agreement and the Merger) a Superior Proposal. "Superior Proposal" means
a bona fide Business Combination Proposal made by a third party to acquire,
directly or indirectly, all of the Shares then outstanding or all or
substantially all the assets of the Company, and otherwise on terms that a
majority of the disinterested members of the Board of Directors of the Company
determines in its good faith judgment (based on the advice of the Company's
independent financial advisor) to be more favorable to the holders of Shares
than the Offer and the Merger and for which financing, to the extent required,
is then committed or which, in the good faith judgment of a majority of such
disinterested members (based on the advice of the Company's independent
financial advisor), is reasonably capable of being financed by such third party.
Indemnification and Insurance. Pursuant to the Merger Agreement, TSI and
the Purchaser have agreed that the Articles of Incorporation and Bylaws of the
Surviving Corporation shall contain provisions no less favorable with respect to
indemnification than are set forth in the Restated Articles of Incorporation and
Amended and Restated Bylaws of the Company, which provisions shall not be
amended, repealed or otherwise modified for a period of six (6) years from the
Effective Time in any manner that would affect adversely the rights thereunder
of individuals who at any time prior to the Effective Time were directors,
officers or employees of the Company or any of the Subsidiaries, unless such
modification shall be required by the TBCA. In addition, from and after the
Effective Time, TSI and the Surviving Corporation shall indemnify, defend and
hold harmless each person who is now, or has been at any time prior to the date
of the Merger Agreement or who becomes prior to the Effective Time, an officer,
director, employee or agent of the Company or any of the Subsidiaries
(collectively, the "Indemnified Parties") against all losses, expenses
(including reasonable attorneys' fees), claims, damages, liabilities or amounts
that are paid in settlement of, with the approval of the Surviving Corporation
(which approval shall not unreasonably be withheld), or otherwise in connection
with, any threatened or actual claim, action, suit, proceeding or investigation
(a "Claim"), based in whole or in part on or arising in whole or in part out of
the fact that the Indemnified Party (or the person controlled by the Indemnified
Party) is or was a director, officer, employee or agent of the Company or any of
the Subsidiaries and pertaining to any matter existing or arising out of actions
or omissions occurring at or prior to the Effective Time (including, without
limitation, any Claim arising out of the Merger Agreement or any of the
transactions contemplated thereby), whether asserted or claimed prior to, at or
after the Effective Time, in each case to the fullest extent permitted under the
TBCA and by the Company's Restated Articles of Incorporation and Amended and
Restated Bylaws as in effect on May 1, 1998, and shall pay any expenses, as
incurred, in advance of the disposition of any such action or proceeding to each
Indemnified Party to the fullest extent permitted under the TBCA and by the
Company's Restated Articles of Incorporation and Amended and Restated Bylaws as
in effect on May 1, 1998.
TSI and the Purchaser also agreed, pursuant to the Merger Agreement, to
maintain in effect for three years from the Effective Time, if available, the
current directors' and officers' liability insurance policies maintained by the
Company (provided that TSI may substitute therefor policies of at least the same
coverage containing terms and conditions which are not materially less
favorable) with respect to matters occurring prior to the Effective Time;
provided, that neither TSI nor the Surviving Corporation shall be obligated to
make aggregate premium payments for such three-year period in respect of such
policy (or coverage replacing such policy) which exceed, for the portion related
to the Company's directors and officers, 150% of the annual premium payments of
the Company's current policy in effect as of May 1, 1998 (the "Maximum Amount").
If the amount of the premiums necessary to maintain or procure such insurance
coverage exceeds the Maximum Amount, TSI shall use its reasonable efforts to
maintain the most advantageous policies of directors' and officers' liability
insurance obtainable for a premium equal to the Maximum Amount.
Representations and Warranties. Pursuant to the Merger Agreement, the
Company has made customary representations and warranties to TSI and the
Purchaser with respect to, among other things, its organization, capitalization,
financial statements, public filings, conduct of business, employee benefit
plans, intellectual property, labor matters, compliance with laws, tax matters,
litigation, environmental matters, tangible property, material contracts,
undisclosed liabilities, and the absence of any material adverse effect on the
Company since November 2, 1997.
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<PAGE> 9
Termination; Fees. The Merger Agreement may be terminated and the Offer
and the Merger may be abandoned at any time prior to the Effective Time,
(a) by mutual written consent duly authorized by the boards of
directors of each of TSI, the Purchaser and the Company prior to the date
of the election or appointment of the Purchaser's designees to the
Company's Board of Directors upon the purchase by the Purchaser of Shares
pursuant to the Offer;
(b) by either TSI or the Company if the Effective Time shall not have
occurred on or before August 31, 1998;
(c) by TSI if: (i) due to an occurrence or circumstance that results
in a failure to satisfy any condition of the Offer, the Purchaser shall
have (A) failed to commence the Offer within 10 days following the date of
the Merger Agreement, (B) terminated the Offer without having accepted any
Shares for payment thereunder or (C) failed to pay for Shares pursuant to
the Offer within 90 days following the commencement of the Offer, unless
any such failure listed above shall have been caused by or resulted from
the failure of TSI or the Purchaser to perform in any material respect any
covenant or agreement of either of them contained in the Merger Agreement
or the material breach by TSI or the Purchaser of any representation or
warranty of either of them contained in the Merger Agreement; or (ii) prior
to the purchase of Shares pursuant to the Offer, (A) the Company's Board of
Directors withdraws its recommendation of the Merger Agreement or the
Merger or shall have resolved to do so, (B) the Company's Board of
Directors shall have recommended to the shareholders of the Company any
Superior Proposal or resolved to do so, or (C) a tender offer or exchange
offer for 50% or more of the outstanding shares of capital stock of the
Company is commenced (other than by TSI or its affiliates) and the
Company's Board of Directors fails to recommend against the shareholders of
the Company tendering their shares into such tender offer or exchange
offer; or
(d) by the Company if: (i) the Purchaser shall have (A) failed to
commence the Offer within 10 days following the date of the Merger
Agreement, (B) terminated the Offer without having accepted any Shares for
payment thereunder or (C) failed to pay for Shares pursuant to the Offer
within 90 days following the commencement of the Offer, unless such failure
to pay for Shares shall have been caused by or resulted from the failure of
the Company to satisfy the conditions set forth in paragraph (c) of the
conditions to the Offer as set forth under "Conditions to the Offer" (the
"Conditions to the Offer"); or (ii) prior to the purchase of Shares
pursuant to the Offer, the Board of Directors of the Company approves or
recommends a Superior Proposal.
The above referenced termination provisions are sometimes referred to,
collectively or individually, as the "Termination Rights."
Pursuant to the Merger Agreement, the Company shall pay TSI a fee (an
"Alternative Proposal Fee") equal to three percent (3%) of the aggregate amount
payable by the Purchaser to the shareholders of the Company pursuant to the
Offer and the Merger, plus all of the TSI Expenses (as hereinafter defined), if:
(i) the Merger Agreement is terminated pursuant to paragraph (c)(ii)
or (d)(ii) of the Termination Rights; or
(ii) the Merger Agreement is terminated pursuant to a Termination
Right (other than (A) due to an occurrence or circumstance that results in
a failure to satisfy paragraphs (a), (f) or (h) of the Conditions to the
Offer or (B) pursuant to paragraph (d) of the Termination Rights, unless
the event providing the basis for such termination is the result of an
occurrence or circumstance that results in a failure to satisfy paragraphs
(b) or (c) of Conditions of the Offer), and (A) the Offer shall have
remained open for at least 20 business days, (B) the Minimum Condition
shall not have been satisfied, (C) a Business Combination Transaction
Proposal shall have been made prior to termination of the Offer, and (D)
such Business Combination Transaction is thereafter consummated within 12
months of such termination. "Business Combination Transaction" means any of
the following involving the Company: (1) any merger, consolidation, share
exchange, business combination or other similar transaction; (2) any sale,
lease, exchange, transfer or other disposition (other than a pledge or
mortgage) of 50% or more of the assets of the Company in a single
transaction or series of related transactions; or
8
<PAGE> 10
(3) the acquisition by a person or entity or any "group" (as such term is
defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) of beneficial ownership of 50% or more of the
shares of the Company's common stock, whether by tender offer, exchange
offer or otherwise.
TSI shall be entitled to receive the TSI Expenses (but not the Alternative
Proposal Fee) in immediately available funds in the event that the Merger
Agreement is terminated by TSI pursuant to paragraph (c)(i) of the Termination
Rights (other than due to an occurrence or circumstance that results in a
failure to satisfy paragraphs (a), (f) or (h) of the Conditions to the Offer
hereto in which case such TSI Expenses shall not exceed $1,500,000).
As used herein, "TSI Expenses" means all reasonable out-of-pocket expenses
and fees actually incurred by TSI or the Purchaser or on their respective behalf
in connection with the Offer and the Merger prior to the termination of the
Merger Agreement (including, without limitation, all fees and expenses of
counsel, financial advisors, banks or other entities providing financing to TSI
(including financing, commitment and other fees payable thereto), accountants,
environmental and other experts and consultants to TSI and its affiliates, and
all printing and advertising expenses) and in connection with the negotiation,
preparation, execution, performance and termination of the Merger Agreement, the
structuring of the Offer and the Merger, any agreements relating thereto and any
filings to be made in connection therewith.
Except as set forth in this Section, all costs and expenses incurred in
connection with the Merger Agreement and the Offer and the Merger shall be paid
by the party incurring such expenses, whether or not the Offer or the Merger is
consummated.
Richard C. Allender
Richard C. Allender, the Chairman of the Board, Chief Executive Officer and
President of the Company, currently has an employment agreement with the Company
dated July 10, 1995 which is described in the section entitled "Employment
Contracts and Termination Agreements" in Annex A. The current employment
agreement provides for a three-year term which renews on a daily basis and
provides for a base salary of $400,000 per year. In connection with the Offer,
TSI and Mr. Allender entered into a new Employment Agreement (the "Employment
Agreement") to provide for the employment of Mr. Allender following the closing
of the Offer. The term of the Employment Agreement will commence on the earlier
to occur of the Effective Time or the date upon which the Purchaser is entitled
to designate directors to be elected to the Company's Board of Directors
pursuant to the Merger Agreement, and will continue for a three (3) year term
(the "Initial Term"), after which the Employment Agreement will be renewed
automatically on a daily basis so that the term after the Initial Term will
continue for a twelve (12) month term.
During each year that the Employment Agreement is in effect, TSI and/or its
subsidiaries will pay to Mr. Allender a minimum annual salary of $300,000 ("Base
Salary"). The Employment Agreement also provides that during each year that the
Employment Agreement is in effect, TSI will pay to Mr. Allender an annual bonus
of at least $100,000. On the first day of the Initial Term, TSI will grant to
Mr. Allender options to purchase 15,000 shares of TSI's common stock at an
exercise price equal to the fair market value of the shares on the date of grant
of such option. The options will be vested and immediately exercisable. During
each year that the Employment Agreement is in effect, TSI will grant additional
options to Mr. Allender upon such terms as are generally available to senior
executive officers of TSI or its subsidiaries. During the term of his
employment, Mr. Allender will be entitled to participate in or receive all
benefits under TSI's employee benefit plans and arrangements, including, without
limitation, TSI's 401(k) plan and all benefits which are available to senior
executive officers of TSI or its subsidiaries. TSI will pay the cost of premiums
for Mr. Allender's existing split-dollar life insurance policy, but the cost of
premiums for such split-dollar life insurance policy may not exceed $121,000 per
annum, unless otherwise agreed by TSI. Except as otherwise provided in the
Employment Agreement, TSI will be obligated from and after the date of the
Employment Agreement to pay a minimum of three annual premium payments of
$121,000, or an aggregate amount of premiums of $363,000, including any payments
made during the Initial Term or any term after the Initial Term (the "Minimum
Premium Commitment"). On the first day of the Initial Term and as an inducement
to surrender his rights under his existing employment contract and to remain
with the Company following the
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<PAGE> 11
closing, TSI will pay Mr. Allender a bonus of $600,000. In addition, if Mr.
Allender is employed by TSI or any of its subsidiaries on the last day of the
Initial Term, TSI will pay to Mr. Allender on such date an additional bonus of
$500,000 (the "Final Bonus"). During the term of his employment, Mr. Allender
will be entitled to receive all perquisites which are available to senior
executive officers of TSI or its subsidiaries including, without limitation,
country club membership dues of approximately $350 per month; a car allowance of
$1,000 per month; and a gas allowance of $250 per month.
TSI may terminate Mr. Allender's employment for Cause, which means: (i) Mr.
Allender's conviction of a felony involving moral turpitude; or (ii) Mr.
Allender's serious, willful gross misconduct or willful gross neglect of duties
(other than any such neglect resulting from Mr. Allender's incapacity due to
physical or mental illness or any such neglect after the issuance of a notice of
termination delivered pursuant to the Employment Agreement by Mr. Allender for
Good Reason), which, in either case, has resulted, or in all probability is
likely to result, in material economic damage to TSI; provided no act or failure
to act by Mr. Allender will constitute "Cause" under clause (ii) above if Mr.
Allender believed in good faith that such act or failure to act was in the best
interest of TSI.
Mr. Allender may terminate his employment at any time during the term of
the Employment Agreement for Good Reason by giving written notice to TSI which
will set forth in reasonable detail the facts and circumstances constituting
Good Reason. "Good Reason" will mean (A) a substantial adverse change in Mr.
Allender's status or position(s) as an executive officer of TSI or its
subsidiaries, including, without limitation, any adverse change in Mr.
Allender's status or position(s) as a result of a material diminution in duties
or responsibilities or the assignment to Mr. Allender of any duties or
responsibilities which, in Mr. Allender's reasonable judgment, are inconsistent
with such status or position(s) or any removal of Mr. Allender from or any
failure to reappoint or reelect Mr. Allender to such position(s) (except in
connection with the termination of Mr. Allender's employment for Cause or
incapability, as a result of Mr. Allender's death or incapacity, or by Mr.
Allender other than for Good Reason); (B) a reduction by TSI or its subsidiaries
in Mr. Allender's Base Salary; (C) Mr. Allender's office is moved, without his
consent, from the city of El Paso, Texas, except for reasonably required travel
on TSI's and its subsidiaries' business; (D) TSI's material breach of any of its
obligations under the Employment Agreement; or (E) (y) any failure by TSI to
continue in effect any benefit plan or arrangement in which Mr. Allender
participates, or any other plan or arrangement providing Mr. Allender with
benefits (hereinafter referred to as "Benefit Plans"), or (z) the taking of any
action by TSI which would adversely affect Mr. Allender's participation in or
materially reduce Mr. Allender's benefits under any such Benefit Plan or deprive
Mr. Allender of any material fringe benefit or perquisite of office enjoyed by
Mr. Allender, unless in the case of either subclause (y) or (z) above, there is
substituted a comparable plan or program that is economically equivalent, in
terms of the benefit offered to Mr. Allender, to the Benefit Plan being altered,
reduced, affected or ended.
If Mr. Allender's employment is terminated by reason of death, his estate
will be paid all salary, bonus or other benefits, otherwise payable to Mr.
Allender through the end of the month in which his death occurred, and TSI and
its subsidiaries will have no further obligations to Mr. Allender under the
Employment Agreement. If Mr. Allender's employment is terminated for Cause, TSI
or its subsidiaries will pay Mr. Allender his Base Salary and benefits through
the date of termination specified in the notice of termination, and TSI and its
subsidiaries will have no further obligations to Mr. Allender under the
Employment Agreement, including, but not limited to, any obligations in respect
of the Minimum Premium Commitment.
If Mr. Allender's employment is terminated (i) by TSI other than as a
result of death or Cause, or (ii) by Mr. Allender for Good Reason, Mr. Allender
will be entitled to the following: (A) Mr. Allender's earned but unpaid Base
Salary through the date of termination; (B) the Base Salary in effect
immediately prior to the date of termination for the remainder of the current
term of the Agreement; (C) an annual bonus for the current fiscal year prorated
through the date of termination equal to the greater of (x) the annual bonus
awarded to Mr. Allender with respect to TSI's most recent fiscal year ending
prior to the date of termination or (y) $100,000; (D) the amount of the Minimum
Premium Commitment which has not been paid as of the date of termination; and
(E) the Final Bonus. After such termination, TSI will continue to provide Mr.
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<PAGE> 12
Allender with those benefits he was entitled to immediately prior to his
termination, for thirty-six (36) months.
To the extent Mr. Allender is an Optionee (as defined under any of TSI's
stock option plans), if Mr. Allender's employment is terminated without Cause or
Mr. Allender terminates his employment for Good Reason, all options held by Mr.
Allender will automatically vest and become exercisable.
The foregoing is a summary of the Employment Agreement which summary is
qualified in its entirety by reference to the Employment Agreement is filed as
Exhibit (c)(6) hereto.
Other Executive Officers
Certain of the Company's other executive officers currently have employment
contracts with the Company which are described in the section entitled
"Employment Contracts and Termination Agreements" in Annex A. TSI has provided
to each such executive officer an outline of proposed economic terms of
employment to be effective following the closing of the Offer. TSI has informed
the Company that it will provide to these executive officers a draft of an
employment contract which would include the economic terms outlined in the
proposal. Each executive officer will then be required to make a decision
whether to accept the terms of the employment contracts offered by TSI or keep
the terms of the existing employment agreements with the Company. Each executive
officer may negotiate terms which are not materially different than the terms
set forth above.
The material economic terms of the employment proposals provided by TSI to
certain of the Company's executive officers are as follows:
<TABLE>
<CAPTION>
RETENTION STOCK OPTION
TERM SIGNING BONUS BONUS BASE SALARY GRANTS
EXECUTIVE OFFICER (YEARS) $(1) $(2) $ #
- ----------------- ------- ------------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Jackie L. Boatman................. 2 50,000 50,000 250,000 10,000
Russell G. Gibson................. 1(3) 0 50,000 185,000 6,000
Michael R. Mitchell............... 2(3) 50,000 50,000 300,000 10,000
</TABLE>
- ---------------
(1) Payable upon the first day of the term of employment.
(2) Payable upon the last day of the term of employment.
(3) The term is extended automatically so that there will always be a one
year term.
Vesting of Stock Options; Restricted Stock
All of the outstanding options to purchase Shares granted by the Company
under the Company Option Plans will immediately vest and become exercisable upon
a change in control. The holders of options covered by the Company Option Plans
will receive in cash the excess, if any, of the Per Share Amount over the
exercise price per share subject to any options held times the number of Shares
subject to such options. The Company Option Plans are filed as Exhibits
(c)(7-12) to this Schedule 14D-9 and are incorporated by reference. In addition,
any restrictions on restricted stock granted under the Company's Option Plans
will lapse upon a change in control, and the holder of such restricted stock
shall be entitled to tender the restricted stock to the Purchaser and receive
the Per Share Amount for each such share of restricted stock. The Company
presently anticipates that the payment to be made at the closing of the Offer to
all employees and directors of the Company in respect of the options and
restricted stock will be approximately $3,196,000, of which amount approximately
$2,296,100 will be payable to the Company's executive officers and directors.
Indemnification of Directors and Officers
The Amended and Restated Bylaws of the Company provide that directors and
officers may be indemnified to the maximum extent permitted by the TBCA. The
TBCA permits, and in some cases requires, corporations to indemnify officers,
directors, agents and employees who are or have been a party to or are
threatened to be made a party to litigation, against judgments, penalties
(including excise and similar taxes), fines, settlements and reasonable expenses
under certain circumstances.
The Company has adopted provisions in its Restated Articles of
Incorporation that limit the liability of its directors to the fullest extent
permitted by the TBCA. Under the Company's Restated Articles of Incorporation,
and as permitted by the TBCA, a director is not liable to the Company or its
shareholders for
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<PAGE> 13
monetary damages for an act or omission in the director's capacity as a director
of the Company. Such limitation of liability does not affect a director's
liability for a breach of a director's duty of loyalty to the Company, an act or
omission not in good faith or that involves intentional misconduct or a knowing
violation of the law, a transaction from which a director received an improper
benefit, whether or not the benefit resulted from an action taken within the
scope of the director's office, an act or omission for which the liability of a
director is expressly provided by statute, or an act related to an unlawful
stock repurchase or dividend payment. Such limitation of liability also does not
affect the availability of equitable remedies such as injunctive relief or
rescission.
The preceding discussion of the Company's Restated Articles of
Incorporation and Amended and Restated Bylaws, and the TBCA is not intended to
be exhaustive and is qualified in its entirety by the Restated Articles of
Incorporation, Amended and Restated Bylaws, and the TBCA.
In addition to the foregoing, the Merger Agreement contains provisions
dealing with the indemnification of the Company's directors and officers. See
the description of these provisions under Item 3 -- Merger
Agreement -- Indemnification and Insurance.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
Recommendation of the Board of Directors
The Company's Board of Directors has unanimously approved the Merger
Agreement, the Offer and the Merger and determined that the terms of the Offer
and the Merger are fair to, and in the best interests of, the Company's
shareholders and unanimously recommends that shareholders accept the Offer and
tender all their Shares pursuant thereto. This recommendation is based in part
upon an opinion received from Financo, Inc., the Company's financial advisors
("Financo"), that the Per Share Amount to be offered to the Company's
shareholders in the Offer and the Merger is fair to the shareholders from a
financial point of view. THE FULL TEXT OF THE FAIRNESS OPINION RECEIVED BY THE
COMPANY FROM FINANCO IS ATTACHED HERETO AS ANNEX B. SHAREHOLDERS ARE URGED TO
READ SUCH OPINION IN ITS ENTIRETY.
As set forth in the Purchaser's Offer to Purchase, the Purchaser will
purchase Shares tendered prior to the close of the Offer if the Minimum
Condition shall have been satisfied by that time and if all other conditions to
the Offer have been satisfied (or waived). Shareholders considering not
tendering their Shares in order to wait for the Merger should note that the
Purchaser is not obligated to purchase any Shares, and can terminate the Offer
and the Merger Agreement and not proceed with the Merger, if the Minimum
Condition or any of the other conditions to the Offer are not satisfied.
Under the TBCA, the approval of the Board and the affirmative vote of the
holders of two-thirds of the outstanding Shares (unless at least 90% of the
outstanding Shares are held by the Purchaser) are required to approve the
Merger. Accordingly, if the conditions to the Offer are satisfied, the Purchaser
will have sufficient voting power to cause the approval of the Merger without
the affirmative vote of any other shareholder. Under the TBCA, if the Purchaser
acquires, pursuant to the Offer or otherwise, at least 90% of the then
outstanding Shares, the Purchaser will be able to approve and adopt the Merger
Agreement and the Merger, without a vote of the Company's shareholders. TSI, the
Purchaser and the Company have agreed to use their reasonable efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Offer, the Merger and the other transactions contemplated by
the Merger Agreement. If the Purchaser does not acquire at least 90% of the then
outstanding Shares pursuant to the Offer or otherwise and a vote of the
Company's shareholders is required under the TBCA, a longer period of time will
be required to effect the Merger.
The Offer is scheduled to expire at 12:00 Midnight, New York City time, on
Friday, June 5, 1998, unless the Purchaser, in its sole discretion, elects to
extend the period of time for which the Offer is open. Pursuant to the Merger
Agreement, the Purchaser may, but need not, extend the Offer until the
applicable waiting period under the HSR Act, shall have expired or been
terminated. In addition, the Merger Agreement allows the
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<PAGE> 14
Purchaser to (i) extend the Offer, if at the scheduled expiration date of the
Offer any of the conditions to the Purchaser's obligations to purchase the
Shares have not been satisfied, (ii) extend the Offer from time to time for up
to a maximum of an aggregate of 10 business days beyond the initial expiration
date of the Offer (which initial expiration date shall be 20 business days
following the commencement of the Offer), notwithstanding that all conditions to
the Offer are satisfied as of the date of such extension, and (iii) extend the
Offer for any period required by any rule, regulation, interpretation or
position of the Commission or the staff thereof applicable to the Offer. A copy
of the press release issued jointly by TSI and the Company announcing the Merger
and the Offer is filed as Exhibit (a)(4) to this Schedule 14D-9 and is
incorporated herein by reference in its entirety.
Background of the Offer
During 1997, the Board of Directors discussed in general at various
meetings of the Board of Directors the possibility of pursuing opportunities to
maximize shareholder value, which discussions included considering the possible
sale of the Company. In early November 1997, Mr. Allender was contacted on an
unsolicited basis by the Chief Executive Officer of a publicly-traded apparel
company regarding the possible sale of the Company. On November 19, 1997, Mr.
Allender and Michael R. Mitchell, two of the Company's executive officers and
directors, met with the prospective purchaser in New York.
On December 1, 1997, the Company's Board of Directors met at its regularly
scheduled meeting and discussed the meeting with the prospective purchaser and
other ways of maximizing shareholder value. The Board of Directors invited a
prospective financial advisor to the meeting to make a presentation of
opportunities to maximize shareholder value and the possible retention of this
person as the Company's financial advisor.
On December 31, 1997, William W. Compton, Chairman of the Board and Chief
Executive Officer of TSI, telephoned Mr. Allender on an unsolicited basis to
discuss a possible business combination between the Company and TSI.
During December 1997 through March 1998, the Company and the prospective
purchaser that contacted the Company in November 1997 conducted mutual due
diligence. On February 9-10, 1998, representatives of the Company and the
prospective purchaser met at the offices of the prospective purchaser. At these
meetings, the prospective purchaser discussed a possible stock for stock
acquisition of the Company. No terms or pricing for the possible acquisition
were discussed. The Company's representatives informed the prospective purchaser
that the Company would retain a financial advisor to assist in evaluating a
possible transaction.
On January 6, 1998, Mr. Compton submitted to Mr. Allender a letter
indicating an interest in discussions regarding a possible transaction. The
letter of interest did not contain any terms for a possible acquisition.
In February, 1998, Mr. Compton telephoned Mr. Allender, and the parties
discussed potential benefits of various forms of business combinations between
the Company and TSI.
On March 2, 1998, the Company's Board of Directors met in Dallas, Texas to
interview prospective financial advisors, including Financo.
On March 10, 1998 and following the Company's Annual Meeting of
Shareholders, the Company's Board of Directors met in El Paso, Texas. At this
meeting the Board of Directors discussed the selection of a financial advisor
and discussed various alternatives to maximize shareholder value, which included
the sale of the Company, raising additional capital or continuing the operations
of the Company without any significant changes.
On March 23, 1998, Mr. Allender and Mr. Charles J. Smith, a director of the
Company, traveled to Tampa, Florida and met with Mr. Compton, Mr. Michael Kagan,
Executive Vice President and Chief Financial Officer of TSI, and Mr. Richard J.
Domino, President of TSI. The parties discussed recent developments in the
apparel industry and continued their review of the potential benefits of various
strategic relationships between the Company and TSI. Prior to these discussions,
TSI entered into a Confidentiality Agreement with the Company dated March 20,
1998, a copy of which is filed as Exhibit (c)(2) to this
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<PAGE> 15
Schedule 14D-9, pursuant to which, among other things, TSI agreed that any
non-public information made available to it by the Company would be held in
strict confidence. Also prior to these discussions, on March 23, 1998, the
Company entered into a Confidentiality Agreement with TSI, a copy which is filed
as Exhibit (c)(3) to this Schedule 14D-9, pursuant to which, among other things,
the Company agreed that any non-public information made available to it by TSI
would be held in strict confidence.
On March 24, 1998, Mr. Allender and Mr. Smith met with a third prospective
purchaser who had previously contacted Mr. Allender on an unsolicited basis.
TSI entered into a new Confidentiality Agreement with the Company dated
March 26, 1998, a copy of which is filed as Exhibit (c)(4) to this Schedule
14D-9, pursuant to which, among other things, TSI agreed that any non-public
information made available to it by the Company would be held in strict
confidence, and TSI further agreed to a two-year standstill with regard to
initiating any form of business combination or other acquisition transaction
involving the Company, with regard to initiating any purchase or sale of any
securities of the Company and with regard to inducing certain employees of the
Company to leave the employ of the Company, unless TSI was specifically invited
or authorized to initiate such a transaction by the Company or the Company
provided its prior written consent.
Between March 10, 1998 and March 26, 1998, there was a substantial number
of telephone conversations among various members of the Board of Directors
regarding the selection of a financial advisor which resulted in a consensus
developing among such Board members that the sale of the Company was the most
likely alternative available to maximize shareholder value. On March 26, 1998,
the Company entered into an agreement with Financo pursuant to which Financo was
engaged as the Company's exclusive agent to review and analyze the financial and
structural alternatives available to the Company, with a view toward meeting its
long-term strategic objectives and the maximization of shareholder value,
including but not limited to, (a) identifying opportunities for the possible
sale of the Company; (b) advising the Company concerning opportunities for such
a sale; and (c) as requested by the Company, participating on the Company's
behalf in negotiations concerning such a sale.
Based upon the advice of Financo, the Company determined that the most
likely buyer for the Company would be another apparel industry operator with
channels of distribution comparable to those of the Company (a "Strategic
Acquiror"). Financo contacted 16 potential Strategic Acquirors, including TSI
and the two other persons that the Company had recently been in contact with
respect to a possible transaction. The Company's management organized due
diligence information to be made available for review by these prospective
acquirors. Eight Strategic Acquirors executed a confidentiality agreement with
the Company. Each such Strategic Acquiror received a letter from Financo
outlining the procedures governing the sale process (the "Procedures Letter").
The Procedures Letter, among other things, instructed all potential acquirors to
submit non-binding definitive acquisition proposals to Financo not later than
5:00 p.m., New York City time, on April 27, 1998.
On April 17, 1998, Financo distributed a letter (the "Contract Distribution
Letter") that included as attachments drafts (prepared by the Company's legal
counsel) of two forms of definitive agreements for the sale of the Company. One
draft contract provided for a sale of the Company through a cash tender offer
followed by a cash-out merger (the "Tender Offer Draft Contract"); the second
draft contract provided for the sale of the Company through a stock for stock
merger subject to a vote by the Company's shareholders. Potential acquirors were
instructed to submit a definitive acquisition proposal to Financo on or before
April 27, 1998 and such a proposal should be accompanied by a draft contract
applicable to the form of acquisition transaction chosen by such potential
acquiror marked to indicate any modifications to the draft contracts prepared by
the Company's legal counsel.
During the period from March 26, 1998 through April 26, 1998, seven of the
Strategic Acquirors conducted due diligence, including, to the extent such
persons deemed appropriate, reviewing the due diligence information prepared by
the Company, receiving additional due diligence materials, meeting with Financo
and management of the Company and its legal counsel, independent accountants and
other
14
<PAGE> 16
representatives, and visiting, or conducting due diligence in respect of,
certain of the Company's facilities in Texas, Australia, Costa Rica, England,
Fiji and Mexico.
During the period from March 30, 1998 through April 29, 1998, members of
the Company's management and Board of Directors were provided an opportunity to
speak telephonically with representatives of Financo and the Company's legal
counsel on each business day (except for four days) to review the process of the
potential transaction. In these conversations, Financo provided the Board of
Directors with a detailed report of the sale process as of that day. The Board
of Directors was able to provide guidance to Financo and the Company's
management and legal counsel for the following day.
On April 27, 1998, TSI submitted a non-binding proposal to acquire all of
the shares of the Company's common stock for $8.50 per share through a cash
tender offer followed by a cash-out merger and a draft of the Tender Offer Draft
Contract, marked to indicate proposed changes, and a commitment from Prudential
Securities Credit Corp. to finance up to $100 million in acquisition costs for
the purchase of the stock of the Company. The TSI proposal was to expire on May
1, 1998. Shortly after TSI delivered this proposal, TSI transmitted to Financo a
commitment letter and a term sheet from Fleet Capital Corporation ("Fleet")
setting forth Fleet's commitment to provide TSI with certain senior financing to
fund, among other things, other TSI integration costs, as well as the continuing
operations of TSI and the Company.
Members of the Company's management and the Board of Directors spoke
telephonically with Financo on April 29, 1998 to review in detail the proposals
submitted by the possible acquirors. During the course of this conversation,
TSI's financial advisor contacted Financo and informed them that TSI had
increased its offer to $9.00 per share, which offer was to expire at 5:00 p.m.,
New York City time, on May 1, 1998. After lengthy discussions of the various
proposals, the members of the Board of Directors participating in the telephone
conference decided it was appropriate to pursue further discussions with TSI
with a view toward negotiating a definitive acquisition agreement to be
submitted to the Board of Directors for further review and consideration, along
with the other acquisition proposals.
On April 30, 1998, members of TSI's management, legal counsel and financial
advisors met with representatives of the Company, their legal counsel and
financial advisors to negotiate the terms of the Merger Agreement. Negotiations
regarding the Merger Agreement continued among the parties and their advisors
through May 1, 1998.
The Company's Board of Directors met on May 1, 1998, where extensive
presentations from management of the Company, Financo and the Company's legal
counsel were made regarding the acquisition proposals received from the
prospective purchasers. The Board of Directors of the Company thereafter
unanimously approved the Merger Agreement, the Offer and the Merger and
determined that the terms of the Offer and the Merger are fair to, and in the
best interests of, the Company's shareholders and unanimously recommended that
shareholders accept the Offer and tender all their Shares pursuant thereto. On
May 1, 1998, Financo delivered to Company's Board of Directors its written
opinion that the consideration to be received by the shareholders of the Company
in the Offer and Merger was fair to such shareholders from a financial point of
view as of the date of such meeting. The opinion of Financo is set forth in
Annex B attached hereto. The shareholders of the Company are urged to read that
opinion in its entirety.
On May 1, 1998, following the Company's Board of Directors' meeting and the
close of the stock market, the Company and TSI executed the Merger Agreement. On
May 4, 1998 (prior to the opening of the stock market on the first business day
following the execution of the Merger Agreement), the parties publicly announced
the Offer and the Merger.
On May 8, 1998, Purchaser and TSI commenced the Offer.
15
<PAGE> 17
Reasons for the Recommendation
In approving the Offer and the Merger Agreement and recommending that all
shareholders tender their Shares pursuant to the Offer, the Board considered a
number of factors including:
(a) possible alternatives to the Offer and the Merger, including,
without limitation, continuing to operate the Company as an independent
entity, and the risks associated therewith;
(b) the familiarity of the Board with the business, results of
operations and prospects of the Company and the nature of its industry;
(c) the Company's existing competition in the industry in which it
operates and future competition, the relevant size of other participants in
the industry in which it operates and the available capital and other
resources of such other participants as compared to the available capital
and other resources of the Company;
(d) the presentation of Financo at the May 1, 1998 Board meeting and
the written opinion of Financo that, as of the date of such opinion and
based upon certain matters considered relevant by Financo, the $9.00 per
Share in cash to be received by the holders of Shares in the Offer and the
Merger was fair to such holders from a financial point of view. The full
text of the written opinion of Financo dated May 1, 1998, which sets forth
assumptions made, matters considered and limitations on the review
undertaken in connection with the opinion, is attached hereto as Annex B.
Shareholders are urged to, and should, read such opinion carefully in its
entirety;
(e) that the Per Share Amount represents (i) a premium of
approximately 60% over the closing price for the Shares on March 30, 1998,
the last trading day prior to the announcement that Financo had been
retained by the Company, and (ii) a premium of approximately 33% over the
closing price for the Shares on May 1, 1998, the last trading day prior to
the announcement of the Offer;
(f) the financial and other terms and conditions of the Offer and
Merger Agreement;
(g) the fact that the terms of the Merger Agreement should not unduly
discourage other third parties from making bona fide proposals to acquire
the Company subsequent to the execution of the Merger Agreement and, if any
such proposals were made, the Board, in the exercise of its fiduciary
duties, could determine to provide information to and engage in
negotiations with any such third party subject to the terms and conditions
of the Merger Agreement;
(h) the fact that the Offer and the Merger were not subject to a
financing condition; and
(i) the likelihood that the Offer and the Merger would be consummated.
The Board did not assign relative weights to the factors or determine that
any factor was of particular importance. Rather, the Board viewed its position
and recommendation as being on the totality of the information presented to and
considered by it.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
Financo is acting as the Company's financial advisor in connection with the
Offer and the Merger. Pursuant to its agreement with the Company, Financo is
entitled to a transaction fee of 1% of the Aggregate Value of the transaction
(less amounts previously paid by the Company in connection with the Company's
retention of Financo, including, $100,000 paid to Financo on the date of their
engagement and $250,000 paid to Financo at the time of delivery of the opinion
referred to in Item 4). The Aggregate Value of the transaction shall mean the
sum of (i) the value of the cash paid by TSI in the Offer and the Merger to the
Company's shareholders, (ii) any indebtedness of the Company for money borrowed
that is "assumed" in connection with the Offer and the Merger, and (iii) any
dividends paid by the Company out of the ordinary course of business through the
date of the closing of the Offer and the Merger. Indebtedness is deemed
"assumed" if (i) such indebtedness is repaid, assumed or otherwise defeased by
TSI or the Purchaser, or (ii) in certain circumstances, such indebtedness
remains an obligation of the Company upon consummation of a sale transaction.
The indebtedness of money borrowed, for purposes of calculating the transaction
fee, is the
16
<PAGE> 18
average outstanding amount of such indebtedness for the twelve month period
preceding the closing of a sale transaction. The transaction fee shall become
payable in cash upon the closing of the Offer and the Merger. In addition,
whether or not the Offer or the Merger is completed, the Company has agreed to
reimburse Financo periodically for their respective reasonable out-of-pocket
expenses, including the fees and disbursements of its counsel, and to indemnify
Financo against certain expenses and liabilities incurred in connection with its
engagement, including liabilities under Federal securities laws.
Except as set forth above, neither the Company nor any person acting on its
behalf has or currently intends to employ, retain or compensate any person to
make solicitations or recommendations to the shareholders of the Company on its
behalf with respect to the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) On March 31, 1998, pursuant to the terms of the Company's 1996
Non-Employee Directors Stock Option Plan (the "1996 Plan"), the Company made
automatic grants of options to purchase 2,500 Shares at $6.03125 per Share to
each of its non-employee directors, or an aggregate of 12,500 Shares. According
to the terms of the 1996 Plan, one-half of the options granted under the 1996
Plan vest on the first anniversary of the grant date, and the remaining one-half
vest on the second anniversary of the grant date. To the best of the Company's
knowledge, no other transactions in the Shares have been effected during the
past 60 days by the Company or by any executive officer, director, affiliate or
subsidiary of the Company.
(b) To the best of the Company's knowledge, all of the Company's executive
officers and directors who own Shares currently intend to tender all of their
Shares pursuant to the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Except as set forth herein, no negotiation is being undertaken or is
underway by the Company in response to the Offer which relates to or would
result in (i) an extraordinary transaction, such as a merger or reorganization,
involving the Company or any subsidiary thereof; (ii) a purchase, sale or
transfer of a material amount of assets by the Company or any subsidiary
thereof; (iii) a tender offer for or other acquisition of securities by or of
the Company; or (iv) any material change in the present capitalization or
dividend policy of the Company.
(b) Except as set forth herein, there is no transaction, board resolution,
agreement in principle or signed contract in response to the Offer that relate
to or would result in one or more of the events referred to in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
Texas Business Combination Law
In general, Article 13.03 of the TBCA (the "Texas Business Combination
Statute") prohibits any person who is an "affiliated shareholder," including a
beneficial owner of 20% or more of the outstanding voting shares, of an issuing
public corporation from engaging in a "business combination" (including the
Merger) with certain Texas corporations for a period of three years following
the time at which such person became an affiliated shareholder unless (i) either
the transaction by which such person became an affiliated shareholder or the
business combination is approved by the board of directors of the corporation
prior to the time at which such person became an affiliated shareholder, or (ii)
the business combination (including the Merger) is approved, by the affirmative
vote of the holders of at least two-thirds of the outstanding shares of the
issuing public corporation not beneficially owned by the affiliated shareholder
or an affiliate or associate of the affiliated shareholder, at a meeting of
shareholders and not by written consent, called for that purpose not less than
six months after the date such person first became an affiliated shareholder.
The requirements of the Texas Business Corporation Statute apply unless the
corporation adopts an amendment to its articles of incorporation or bylaws
expressly electing to not be governed thereby. The Company's Restated Articles
of Incorporation and Amended and Restated Bylaws do not include such a
provision. Accordingly, the requirements of the Texas Business Combination
Statute apply to the Company.
17
<PAGE> 19
The Company's Board of Directors at its meeting on May 1, 1998 approved the
Merger and, therefore, has taken all action necessary to exempt the transactions
contemplated by the Merger Agreement from, or make inapplicable to such
transactions, any state anti-takeover laws, including the Texas Business
Combination Statute, that are applicable or purport to be applicable to such
transactions.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
(a)(1) Purchaser's Offer to Purchase, dated May 8, 1998
(a)(2) Letter of Transmittal
(a)(3) Opinion of Financo, Inc., dated May 1, 1998 (filed as Annex
B hereto)
(a)(4) Joint Press Release of Farah Incorporated and Tropical
Sportswear Int'l Corporation, dated May 4, 1998
(a)(5) Press Release of Tropical Sportswear Int'l Corporation,
dated May 8, 1998
(c)(1) Merger Agreement, among Farah Incorporated, Tropical
Sportswear Int'l Corporation and Foxfire Acquisition Corp.,
dated May 1, 1998
(c)(2) Confidentiality Agreement between Farah Incorporated and
Tropical Sportswear Int'l Corporation, dated March 20, 1998
(c)(3) Confidentiality Agreement between Tropical Sportswear Int'l
Corporation and Farah Incorporated, dated March 23, 1998
(c)(4) Confidentiality Agreement between Farah Incorporated and
Tropical Sportswear Int'l Corporation, dated March 26, 1998
(c)(5) The Company's Information Statement filed pursuant to
Section 14(f) of the Securities Exchange Act of 1934 and
Rule 14f-1 (filed as Annex A hereto)
(c)(6) Employment Agreement by and between TSI and Richard C.
Allender, dated May 1, 1998
(c)(7) Amended and Restated Farah Manufacturing Company, Inc. 1986
Stock Option Plan (filed as Exhibit 4(a) to the Company's
Registration Statement on Form S-8, Registration No. 2-
75949)
(c)(8) Farah Incorporated 1988 Stock Option Plan for Non-Employee
Directors (filed as Exhibit 10.31 to Form 10-K as of October
31, 1988)
(c)(9) Farah Incorporated 1991 Stock Option and Restricted Stock
Plan dated October 15, 1991 (filed as Exhibit 10.108 to Form
10-K as of October 31, 1991)
(c)(10) Amendment to the Farah Incorporated 1991 Stock Option and
Restricted Stock Plan, dated December 6, 1995 (filed as
Exhibit 10.56 to Form 10-Q as of May 5, 1996)
(c)(11) Farah Incorporated 1996 Non-Employee Directors Stock Option
Plan
(c)(12) Farah Incorporated 1998 Stock Option and Restricted Stock
Plan
(c)(13) Restated Articles of Incorporation of the Company (filed as
Exhibit 3.1 to the Company's Registration Statement on Form
S-3, Registration No. 033-52811)
(c)(14) Articles of Amendment to Articles of Incorporation of the
Company (filed as Exhibit 3.2 to the Company's Registration
Statement on Form S-3, Registration No. 033-52811)
(c)(15) Amended and Restated Bylaws of the Company (filed as Exhibit
3.2 to the Form 10-K as of November 5, 1993)
</TABLE>
18
<PAGE> 20
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Schedule 14D-9 is true, complete
and correct.
FARAH INCORPORATED
By: /s/ RICHARD C. ALLENDER
------------------------------------
Richard C. Allender
Chairman of the Board, Chief
Executive
Officer and President
May 8, 1998
19
<PAGE> 21
ANNEX A
INFORMATION STATEMENT PURSUANT TO SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
NO VOTE OR OTHER ACTION OF THE COMPANY'S SHAREHOLDERS IS REQUIRED IN
CONNECTION WITH THIS INFORMATION STATEMENT. NO PROXIES ARE BEING
SOLICITED AND YOU ARE REQUESTED NOT TO SEND THE COMPANY A PROXY.
This Information Statement, which is being mailed on or about May 8, 1998
to the holders of shares of the common stock, no par value (the "Common Stock"),
of Farah Incorporated, a Texas corporation (the "Company"), is being furnished
in connection with the designation by Foxfire Acquisition Corp., a Texas
corporation ("Purchaser"), of persons (the "Purchaser Designees") to the Board
of Directors of the Company (the "Board"). Such designation is to be made
pursuant to an Agreement and Plan of Merger dated as of May l, 1998 (the "Merger
Agreement") among the Company, Tropical Sportswear Int'l Corporation, a Florida
corporation and the sole shareholder of Purchaser ("TSI"), and Purchaser.
Pursuant to the Merger Agreement, among other things, Purchaser is to
commence a cash tender offer no later than May 8, 1998 to purchase all of the
issued and outstanding shares of Common Stock (the "Shares") at a price of $9.00
per Share, net to the seller in cash, as described in Purchaser's Offer to
Purchase dated May 8, 1998 and the related Letter of Transmittal (which Offer to
Purchase and related Letter of Transmittal together constitute the "Offer"). The
Offer is scheduled to expire at 12:00 midnight, New York City time, on Friday,
June 5, 1998, unless extended. The Offer is conditioned upon, among other
things, a number of Shares which, together with Shares already owned by TSI and
its subsidiaries, is equivalent to 66 2/3% of the outstanding Shares being
validly tendered prior to the expiration of the Offer and not withdrawn (the
"Minimum Condition"). The Merger Agreement also provides for the merger (the
"Merger") of Purchaser with and into the Company as soon as practicable after
consummation of the Offer. Following the effective time of the consummation of
the Merger (the "Effective Time"), the Company will be the surviving corporation
(the "Surviving Corporation") and a wholly owned subsidiary of TSI. In the
Merger, each Share issued and outstanding immediately prior to the Effective
Time (other than Shares held in the treasury of the Company or by TSI, or any
indirect or direct wholly owned subsidiary of TSI or the Company, all of which
will be canceled, and other than Shares, if any, held by shareholders who have
perfected rights as dissenting shareholders under Texas Business Corporation
Act) will be converted into the right to receive cash in an amount of $9.00.
The Merger Agreement provides that promptly upon the purchase by Purchaser
of Shares pursuant to the Offer, and from time to time thereafter, Purchaser
shall be entitled to designate the number of directors, rounded up to the next
whole number, on the Board as shall give Purchaser representation on the Board
equal to the product of (i) the total number of directors on the Board (giving
effect to the election of any additional directors pursuant to the Merger
Agreement) and (ii) the percentage that the aggregate number of Shares
beneficially owned by Purchaser or any affiliate thereof following such purchase
bears to the total number of Shares then outstanding. The Company shall at such
times promptly take all actions necessary to cause Purchaser Designees to be
elected as directors of the Company, including increasing the size of the Board
or securing the resignations of incumbent directors or both. At such times, the
Company shall also use its best efforts to cause Purchaser Designees to
constitute the same percentage as Purchaser Designees shall constitute of the
Board of (i) each committee of the Board, (ii) each board of directors of each
domestic subsidiary of the Company, and (iii) each committee of each such board,
in each case only to the extent permitted by applicable law. The Company's
obligations to cause to be elected Purchaser Designees to the Board shall be
subject to Section 14(f) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and Rule 14f-1 promulgated thereunder.
Following the election of Purchaser Designees and prior to the consummation
of the Merger, any amendment of the Merger Agreement or the Restated Articles of
Incorporation or the Amended and Restated Bylaws of the Company, any termination
of the Merger Agreement by the Company, any extension by the Company of the time
for the performance of any of the obligations or the acts of TSI or Purchaser or
waiver of any of the Company's rights thereunder shall require the concurrence
of a majority of the directors of the
A-1
<PAGE> 22
Company then in office who neither were Purchaser Designees or employees of the
Company, or if no such directors are then in office, no such amendment,
termination, extension or waiver shall be effected which is materially adverse
to the holders of Shares (other than TSI and its subsidiaries).
The terms of the Merger Agreement, a summary of the events leading up to
the Offer and the execution of the Merger Agreement and other information
concerning the Offer and the Merger are contained in the Offer to Purchase and
in the Solicitation/Recommendation Statement on Schedule 14D-9 of the Company
(the "Schedule 14D-9") with respect to the Offer, copies of which are being
delivered to shareholders of the Company contemporaneously herewith. Certain
other documents (including the Merger Agreement) were filed with the Securities
and Exchange Commission (the "Commission") as exhibits to the Schedule 14D-9 and
as exhibits to the Tender Offer Statement on Schedule 14D-1 of TSI and Purchaser
(the "Schedule 14D-1"). The exhibits to the Schedule 14D-9 and the Schedule
14D-1 may be examined at, and copies thereof may be obtained from, the regional
offices of and public reference facilities maintained by the Commission (except
that the exhibits thereto cannot be obtained from the regional offices of the
Commission) in the manner set forth in Section 8 of the Offer to Purchase. The
Company has been advised that Purchaser intends to finance the purchase of
Shares in the Offer and the Merger either through capital contributions or
advances made directly or indirectly by TSI. The Company has also been advised
that TSI and Purchaser anticipate that the funds required in connection with the
transactions contemplated by the Merger Agreement will be obtained through the
private placement of senior subordinated debt of TSI.
No action is required by the shareholders of the Company in connection with
the election of Purchaser Designees to the Board. However, Section 14(f) of the
Exchange Act, requires the mailing to the Company's shareholders of the
information set forth in this Information Statement prior to a change in a
majority of the Company's directors otherwise than at a meeting of the Company's
shareholders.
The information contained in this Information Statement concerning TSI and
Purchaser Designees has been furnished to the Company by such persons, and the
Company assumes no responsibility for the accuracy or completeness of such
information. The Schedule 14D-1 indicates that the principal executive offices
of TSI and Purchaser are located at 4902 West Waters Avenue, Tampa, Florida
33634-1302.
A-2
<PAGE> 23
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth persons who were known to the Company as of
April 30, 1998, to be beneficial owners of more than five percent (5%) of the
outstanding shares of Common Stock:
<TABLE>
<CAPTION>
AMOUNT OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP CLASS
- ------------------- ---------- ----------
<S> <C> <C>
Franklin Resources, Inc..................................... 1,000,000(1) 9.7%
777 Mariners Island Blvd, 6th Floor
San Mateo, California 94404
Reich & Tang Asset Management L.P........................... 968,700(2) 9.4%
600 Fifth Avenue
New York, New York 10020
Dimensional Fund Advisors, Inc.............................. 761,800(3) 7.4%
1299 Ocean Avenue
11th Floor
Santa Monica, California 90401
Wynnefield Partners Small Cap Value, L.P.................... 716,900(4) 7.0%
One Penn Plaza, Suite 4720
New York, New York 10119
</TABLE>
- ---------------
(1) According to Schedule 13G filed January 19, 1998, the following entities are
the beneficial owners of 1,000,000 shares of Common Stock: Franklin
Resources, Inc.; Charles B. Johnson; Rupert H. Johnson, Jr.; and Franklin
Advisory Services, Inc.
(2) According to Schedule 13G filed February 13, 1998.
(3) According to Schedule 13G filed February 10, 1998.
(4) According to Schedule 13D filed December 19, 1997, the following entities
are the beneficial owners of 716,900 shares of Common Stock: Wynnefield
Partners Small Cap Value, L.P.; Wynnefield Small Cap Value Offshore Fund,
Ltd.; Wynnefield Partners Small Cap Value L.P. I; and Channel Partnership II
L.P.
A-3
<PAGE> 24
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the number of shares of Common Stock
beneficially owned by each director, each named executive officer and by all
directors and executive officers as a group as of April 30, 1998.
<TABLE>
<CAPTION>
SHARES
AMOUNT SUBJECT TO
OF BENEFICIAL OPTIONS AND PERCENT
NAME OWNERSHIP(1) AWARDS(1) OF CLASS
---- ------------- ----------- --------
<S> <C> <C> <C>
Richard C. Allender......................................... 243,449 184,400 2.4%
Jackie L. Boatman........................................... 73,000 73,000 (2)
Clark L. Bullock............................................ 11,000 11,000 (2)
Christopher L. Carameros.................................... 11,000 11,000 (2)
John D. Curtis.............................................. 6,500 6,500 (2)
Russell G. Gibson........................................... 40,000 40,000 (2)
Sylvan Landau............................................... 23,500 18,500 (2)
Michael R. Mitchell......................................... 101,328 92,500 1.0%
Charles J. Smith............................................ 11,000 11,000 (2)
All directors and executive officers as a group (10
persons).................................................. 524,777 451,900 5.1%(3)
</TABLE>
- ---------------
(1) The shares of Common Stock that are either subject to options that become
exercisable within 60 days or subject to restricted stock awards that vest
within 60 days are also included in the column entitled "Amount of
Beneficial Ownership."
(2) Less than one percent of the outstanding shares of Common Stock.
(3) Percentage considers an aggregate of 646,000 shares of Common Stock to be
outstanding which are either subject to options which are exercisable within
60 days or subject to restricted stock awards which vest within 60 days.
A-4
<PAGE> 25
PURCHASER DESIGNEES
None of the Purchaser Designees or their associates is a director of, or
holds any position with, the Company. To the best of the Company's knowledge,
except as set forth in the Offer to Purchase, none of the Purchaser Designees or
their associates beneficially owns any equity securities, or rights to acquire
any equity securities, of the Company or has been involved in any transactions
with the Company or any of its directors or executive officers that are required
to be disclosed pursuant to the rules and regulations of the Commission.
Purchaser has informed the Company that each of the Purchaser Designees listed
below has consented to act as a director of the Company. The following is
certain biographical information pertaining to each Purchaser Designee:
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL POSITIONS
NAME AND ADDRESS HELD DURING THE PAST FIVE YEARS
- ---------------- --------------------------------------------------------------
<S> <C>
William W. Compton........................ Mr. Compton has served as Chairman of the Board, Chief
4902 West Waters Avenue Executive Officer and a Director of TSI since November 1989.
Tampa, Florida 33634-1302 He also served as President of TSI from November 1989 to
November 1994. Mr. Compton has over 28 years of experience
in the apparel industry. Prior to joining TSI, he served as
President and Chief Operating Offer of Munsingwear, Inc., an
apparel manufacturer and Marketer, President/Executive Vice
President of Corporate Marketing for five apparel divisions
of McGregor/Faberge Corporation and President, U.S.A. and a
director of Farah Manufacturing Corporation, a men's apparel
manufacturer. Mr. Compton currently serves on the Board of
Directors of Brigham Young University Marriott School of
Management, and on the Board of Directors of AAMA. Mr.
Compton beneficially owns 40 shares of the common stock, no
par value per share, of the Company.
Michael Kagan............................. Mr. Kagan has served as Executive Vice President, Chief
4902 West Waters Avenue Financial Officer, Secretary and a Director of TSI since
Tampa, Florida 33634-1302 November 1989. Mr. Kagan has more than 30 years experience
in the apparel industry. Prior to joining TSI, Mr. Kagan
served as Senior Vice President of Finance for Munsingwear,
Inc. and as Executive Vice President and Chief Operating
Officer of Flexnit Company, Inc., a manufacturer of women's
intimate apparel.
Donald H. Livingstone..................... Mr. Livingstone has served as a Director of TSI since August
610 Tanner Building 1997. He has been a Teaching Professor at the Brigham Young
Brigham Young University University Marriott School of Management and the Director of
Provo, Utah 84602 its Center for Entrepreneurship since September 1994. Mr.
Livingstone is also currently a member of the Board of
Trustees of The Eureka Funds. From 1976 through March 1995,
he was a partner with Arthur Andersen LLP. He joined Arthur
Andersen LLP in 1966.
</TABLE>
A-5
<PAGE> 26
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth certain information regarding the current members
of the Company's Board of Directors and the Company's Executive Officers:
Directors
RICHARD C. ALLENDER, age 52, has been a director of the Company since June
1988. Mr. Allender has served the Company in various capacities since 1985. Mr.
Allender has been President and Chief Executive Officer of the Company since
July 1990 and Chairman of the Board since March 1993.
CLARK L. BULLOCK, age 49, has been a director of the Company since March
1994. For the last eight years, Mr. Bullock has been Chairman and Chief
Executive Officer of Shelter Rock Investors Services Corporation, a financial
services and investment company. Mr. Bullock also serves as Chairman of the
Board of several of Shelter Rock's portfolio companies, including Almedica
Services Corp. and Almedica Corp. (pharmaceutical clinical supplies and
services), SR Metals Inc. (metal plate processing) and George Glove Company
(dermatological glove products). Mr. Bullock also served as director for the
Fundamental Family of Funds until 1997.
CHRISTOPHER L. CARAMEROS, age 44, has been a director of the Company since
August 1987. Since September 1990, Mr. Carameros has been a business consultant
and until July 1, 1997, served as an officer, director and minority owner of
Cactus Apparel, Inc., a privately held private label clothing manufacturer. Mr.
Carameros is also a director of Helen of Troy Limited, a manufacturer of hair
care appliances. See "Certain Transactions."
JOHN D. CURTIS, age 57, has served on the Board of the Company since June
1996. Mr. Curtis has served on the Board of Jayhawk Acceptance Corporation since
October 1995. Since November 1995, Mr. Curtis has been the President of First
Extended Service Corporation. Prior to joining First Extended Service
Corporation, Mr. Curtis was a partner in the law firm of Baker & McKenzie from
November 1992 until November 1995.
SYLVAN LANDAU, age 73, has been a director of the Company since January
1987. Prior to 1987, Mr. Landau was employed by Haggar Corp. for 39 years in
various capacities, including President of Haggar International and President of
the Reed St. James division. Mr. Landau served as Vice Chairman of Corporate
Marketing of the Company from January 1987 to February 1988 and has served as a
consultant of the Company since 1988. Mr. Landau has served the Dallas Market
Center in various capacities since 1988, and currently is Executive Vice
President--Retail Development. The Dallas Market Center is a corporation which
operates various real properties in Dallas, Texas, and which provides markets
for the wholesale trade.
MICHAEL R. MITCHELL, age 44, has been a director of the Company since March
1994. Mr. Mitchell has been employed by the Company since 1981 in various sales
and marketing capacities. Mr. Mitchell was appointed President of Farah U.S.A.,
Inc., a subsidiary of the Company, in March 1994.
CHARLES J. SMITH, age 71, has been a director of the Company since March
1994. For more than five years prior to his retirement in 1994, Mr. Smith served
in various capacities with Crystal Brands, Inc., an apparel manufacturer and
marketer, most recently as an Executive Vice President. Since then, Mr. Smith
has served as a consultant to various apparel companies. In May 1995, Mr. Smith
became a partner and director of Phoenix Apparel Group, Inc., a privately-held
apparel sourcing and consulting company.
Executive Officers
The executive officers of the Company consist of Richard C. Allender,
Jackie L. Boatman, Michael R. Mitchell, Russell G. Gibson and Karen S. Castillo.
Messrs. Allender and Mitchell are currently directors of the Company.
JACKIE L. BOATMAN, age 39, has been an executive officer of the Company
since March 1994. Mr. Boatman has been employed by the Company since 1987 in
various capacities. Mr. Boatman served as Senior Vice President -- Manufacturing
of Farah U.S.A., Inc., a subsidiary of the Company, from May 1991
A-6
<PAGE> 27
through March 1994, and has served as Executive Vice President -- Operations for
Farah U.S.A., Inc. since March 1994.
KAREN S. CASTILLO, age 43, has been Secretary of the Company since March
1996. Ms. Castillo has been employed by the Company since March 1973 in various
capacities.
RUSSELL G. GIBSON, age 45, has served as Executive Vice President, Chief
Financial Officer, Treasurer and Assistant Secretary of the Company since March
1996. Mr. Gibson served as Senior Vice President, Financial Planning and
Reporting of Farah U.S.A., Inc., a subsidiary of the Company, from November 1994
until March 1996. Prior to November 1994, Mr. Gibson served as Controller of El
Paso Electric Company, Inc.
COMMITTEES AND MEETINGS OF THE BOARD
The Company has an Executive Committee which during fiscal year 1997 was
comprised of Richard C. Allender (Chairman), Christopher L. Carameros, Timothy
B. Page (until September 2, 1997) and Charles J. Smith. The Executive Committee
has the power to exercise all of the authority of the Board in the management of
the business and affairs of the Company to the extent provided in the Company's
Amended and Restated Bylaws and by applicable law. The Executive Committee met
or voted on resolutions five times during fiscal year 1997.
The Company has an Audit Committee which consisted of John D. Curtis
(Chairman), Clark L. Bullock and Charles J. Smith. The Audit Committee is
responsible for evaluating accounting and control procedures and practices of
the Company and reporting on such matters to the Board. The Audit Committee
serves as a direct liaison with the Company's independent public accountants and
recommends the engagement or discharge of such accountants. The Audit Committee
meets periodically with the Chief Financial Officer, other appropriate officers
of the Company and the Company's independent public accountants to review the
Company's financial and accounting systems, accounting and financial controls,
reports by the independent public accountants, proposed accounting changes and
financial statements and opinions on such financial statements. The Audit
Committee met or unanimously voted on resolutions nine times during fiscal year
1997.
The Company has a Nominating Committee which during fiscal year 1997
consisted of Charles J. Smith (Chairman), Richard C. Allender and Sylvan Landau.
The Nominating Committee receives recommendations from its members or other
members of the Board for candidates to be appointed to the Board or Board
Committee positions, reviews and evaluates such candidates and makes
recommendations to the Board for nominations to fill Board and Board Committee
positions. The Nominating Committee did not meet or vote on resolutions during
fiscal year 1997.
The Company has a Stock Option and Compensation Committee which during
fiscal year 1997 consisted of Charles J. Smith (Chairman), Clark L. Bullock and
John D. Curtis. See "Stock Option and Compensation Committee Interlocks and
Insider Participation" and "Stock Option and Compensation Committee Report on
Executive Compensation." The Stock Option and Compensation Committee reviews and
makes recommendations to the Board on officer and senior employee compensation,
restricted stock and stock option awards and other compensation, and generally
oversees matters relating to compensation of employees of the Company. The Stock
Option and Compensation Committee met or unanimously voted on resolutions four
times during fiscal year 1997.
The full Board met or unanimously voted on resolutions four times during
fiscal year 1997. Each of the directors attended or acted upon at least 75% of
the aggregate number of Board of Director meetings, consents, and Board of
Director Committee meetings or consents held or acted upon during fiscal year
1997.
CERTAIN TRANSACTIONS
The Company contracted with a company to establish and operate a laundry in
Mexico. Christopher L. Carameros, a member of the Company's Board, had a 10%
profits interest in this company. In fiscal 1997, the Company paid the company
$842,000 for finishing pants and shirts and $1,568,000 to reimburse it for the
Company's share of the facility's start up and installation costs. The Company
and this company decided not
A-7
<PAGE> 28
to continue the joint ownership of the laundry in fiscal 1997 and in connection
therewith the Company purchased from this company $500,000 of equipment. The
amount of such payment was based on arm's length negotiations and was based on
the Company's assessment of the equipment's fair market value. The Company is
now the sole operator of the new laundry and anticipates making no further
payments to this company for contract production. The Company has, however,
entered into a five-year lease with the company for the facility.
COMPENSATION OF DIRECTORS
Each director who is not an officer or employee of the Company receives
$1,000 per month for serving on the Board and an additional $1,000 for attending
each Board meeting or Board Committee meeting not held in conjunction with a
Board meeting. No payment is made for attendance of meetings by phone. Directors
who are not officers or employees of the Company are also entitled to $1,000 per
day and related expenses for their time expended on Company business for special
assignments upon submission and approval of expense statements. During fiscal
year 1997, the Company paid Messrs. Bullock, Curtis and Smith $1,000, $2,000 and
$2,000, respectively, for such special assignment services. Directors who are
officers or employees of the Company receive no additional compensation for
serving on the Board or Board Committees or for attendance at Board or Board
Committee meetings.
During fiscal year 1997, the Company engaged Mr. Landau to provide
consulting services. The Company paid Mr. Landau $38,780 during fiscal year 1997
for such consulting services. See "Directors and Executive Officers."
On September 1, 1996, the Company's Board adopted the Company's 1996
Non-Employee Director Stock Option Plan (the "1996 Plan"). The Company's
shareholders approved the 1996 Plan on March 11, 1997, the date of the 1997
Annual Meeting of Shareholders. The 1996 Plan provides for the grant of options
to purchase a total of 300,000 shares of Common Stock. Pursuant to the 1996
Plan, 50% of the options granted may be exercised one year from the date of
grant and 50% two years from the date of grant. No options may be granted under
the 1996 Plan after August 31, 2001.
Pursuant to the 1996 Plan, each director of the Company who is, at the
time, not otherwise an officer or employee of the Company or any of its
subsidiaries will automatically be granted an option to purchase 2,500 shares of
Common Stock on the last day of each March, June, September and December of each
year in which the 1996 Plan is in effect. The 1996 Plan is administered by the
Stock Option and Compensation Committee. The Stock Option and Compensation
Committee has no discretion to determine the selection of directors to whom
options may be granted, the number of shares subject to an option, the number of
options that may be granted or the price at which such options may be exercised.
In the event that an option holder ceases to be a director of the Company
for any reason, such option holder may exercise his/her options for a period of
60 days after he or she ceases to be a director, and his/her unexercised options
will expire at the end of such period. Should an option holder, subject to this
restriction, die during such two-year period, however, or while serving as a
director, his/her options may be exercised by the beneficiary under the option
holder's will or by the executor of such option holder's estate for a period of
180 days after death and any unexercised options will expire at the end of such
period. In no event, however, will the period during which such options may be
exercised extend beyond the term of the options.
Pursuant to the Company's 1996 Plan, Clark L. Bullock, Christopher L.
Carameros, John D. Curtis, Sylvan Landau and Charles J. Smith were each granted
the following numbers of options: on March 31, 1997, options to acquire 2,500
shares of Common Stock at $10.0625 per share; on June 30, 1997, options to
acquire 2,500 shares of Common Stock at $6.6250 per share; on September 30,
1997, options to acquire 2,500 shares of Common Stock at $6.9065 per share; on
December 31, 1997, options to acquire 2,500 shares of Common Stock at $5.5625
per share and on March 31, 1997, options to acquire 2,500 shares of Common Stock
at $6.03125 per share.
The Company also has the Farah Incorporated 1988 Non-Employee Directors
Stock Option Plan (the "1988 Plan") which prior to the adoption of the 1996 Plan
provided for the granting of options to non-
A-8
<PAGE> 29
employee directors. The 1988 Plan provided for the grant of options to purchase
a total of 150,000 shares of Common Stock. Options granted pursuant to the 1988
Plan may be exercised immediately following the date of grant. No option may be
exercised after 10 years from the date on which it is granted. The exercise
price of the options under the 1988 Plan is the fair market value of the Common
Stock at the time the option is granted. Pursuant to the 1988 Plan, on March 11,
1997, the date of the 1997 Annual Meeting of Shareholders, options to acquire
1,500 shares of Common Stock at $10.375 per share were granted to each of Clark
L. Bullock, Christopher L. Carameros, John D. Curtis, Sylvan Landau and Charles
J. Smith. The last date options could be granted under the 1988 Plan was April
30, 1997, the termination date for the 1988 Plan.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the summary of compensation paid or accrued
to the Company's Chief Executive Officer and its named executive officers during
fiscal years 1995-1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
--------------------------------------------------- COMPENSATION(2)
OTHER ----------------------
NAME AND ANNUAL ALL OTHER
PRINCIPAL POSITION FISCAL YEAR SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION
- ------------------ ----------- -------- -------- --------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Richard C. Allender.............. 1997 $365,000 $ 0 $16,921 0 $192,319(3)
President & Chief 1996 344,083 112,000 16,379 140,000 131,014(3)
Executive Officer 1995 300,000 0 15,000 0 128,050(3)
Jackie L. Boatman................ 1997 $225,000 $ 0 $10,301 0 $ 25,625(4)
Executive Vice 1996 202,217 40,000 10,105 45,000 25,227(4)
President, Farah 1995 190,020 10,000 9,501 7,000 26,060(4)
U.S.A., Inc.
Russell G. Gibson(5)............. 1997 $170,004 $ 0 $ 7,524 0 $ 25,740(6)
Executive Vice 1996 141,068 20,000 7,191 30,000 25,221(6)
President and Chief Financial
Officer
Michael R. Mitchell.............. 1997 $279,996 $ 0 $13,043 0 $ 36,411(7)
President, Farah 1996 249,718 60,000 12,170 70,000 35,976(7)
U.S.A., Inc. 1995 240,000 0 12,000 0 36,510(7)
Timothy B. Page(8)............... 1997 $240,960 $ 0 $ 0 0 $ 20,915(9)
Executive Vice 1996 240,800 40,000 0 35,000 21,334(9)
President and Chief 1995 160,000 0 0 0 1,340(9)
Operating Officer
</TABLE>
- ---------------
(1) Such amounts represent the Company's contribution, pursuant to separate
Deferred Compensation Agreements between the Company and the Company's Chief
Executive Officer and each other executive officer, to a deferral account on
behalf of such officer.
(2) The number and value of aggregate restricted stock holdings as of November
2, 1997 are as follows:
<TABLE>
<CAPTION>
VESTING
---------------
FISCAL
EXECUTIVE OFFICER NUMBER VALUE($) YEAR NUMBER
----------------- ------ -------- ------ ------
<S> <C> <C> <C> <C>
Richard C. Allender................................... 12,500 72,656 1998 12,500
</TABLE>
(3) Includes $4,800 for fiscal year 1997 and $4,500 for each of fiscal years
1996 and 1995, contributed by the Company on behalf of Mr. Allender pursuant
to a defined contribution plan, the Farah Savings and Retirement Plan (the
"401(k) Plan"), $6,019, $5,514 and $2,550 for fiscal years 1997, 1996 and
1995, respectively, for life insurance premiums paid by the Company on
behalf of Mr. Allender, and $181,500 for fiscal year 1997 and $121,000 for
each of fiscal years 1996 and 1995, respectively, for reverse split-dollar
life insurance premiums paid by the Company on behalf of Mr. Allender.
(4) Includes $4,800 for fiscal year 1997 and $4,500 for each of fiscal years
1996 and 1995, contributed by the Company on behalf of Mr. Boatman pursuant
to the 401(k) Plan, $825, $727 and $1,560 for fiscal years
A-9
<PAGE> 30
1997, 1996 and 1995, respectively, for life insurance premiums paid by the
Company on behalf of Mr. Boatman, and $20,000 for each of fiscal years 1997,
1996 and 1995, for reverse split-dollar life insurance premiums paid by the
Company on behalf of Mr. Boatman.
(5) Mr. Gibson was appointed Executive Vice President and Chief Financial
Officer of the Company in March 1996.
(6) Includes $4,800 for fiscal year 1997 and $4,472 for fiscal year 1996,
contributed by the Company on behalf of Mr. Gibson pursuant to the 401(k)
Plan, $940 for fiscal year 1997 and $749 for fiscal year 1996, for life
insurance premiums paid by the Company on behalf of Mr. Gibson, and $20,000
for each of fiscal years 1997 and 1996 for reverse split-dollar life
insurance premiums paid by the Company on behalf of Mr. Gibson.
(7) Includes $4,800 for fiscal year 1997 and $4,500 for each of fiscal years
1996 and 1995, contributed by the Company on behalf of Mr. Mitchell pursuant
to the 401(k) Plan, $1,612, $1,476 and $2,010, for fiscal years 1997, 1996
and 1995, respectively, for life insurance premiums paid by the Company on
behalf of Mr. Mitchell, and $30,000 for each of fiscal years 1997, 1996 and
1995, for reverse split-dollar life insurance premiums paid by the Company
on behalf of Mr. Mitchell.
(8) Mr. Page resigned as an executive officer of the Company on September 2,
1997. See "-- Employment Contracts and Termination Agreements."
(9) Includes $915 for fiscal year 1997, $1,334 for fiscal year 1996 and $1,340
for fiscal year 1995 for life insurance premiums paid by the Company on
behalf of Mr. Page, and $20,000 for each of fiscal years 1997 and 1996, for
reverse split-dollar life insurance premiums paid by the Company on behalf
of Mr. Page.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END VALUES
The following table shows aggregate exercises of options during the fiscal
year ended November 2, 1997, by each of the named executive officers, and the
aggregate fiscal year-end value of the unexercised options held by the named
executive officers.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
NUMBER OPTIONS OPTIONS
OF AT FISCAL AT FISCAL
SHARES YEAR-END YEAR-END
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE($)
- ---- ----------- -------- ------------- ----------------
<S> <C> <C> <C> <C>
Richard C. Allender............................. -- -- 229,400/0 17,500/0
Jackie L. Boatman............................... -- -- 87,000/0 10,063/0
Russell G. Gibson............................... -- -- 40,000/0 3,125/0
Michael R. Mitchell............................. -- -- 127,500/0 13,125/0
Timothy B. Page(1).............................. -- -- 35,000/0 8,750/0
</TABLE>
- ---------------
(1) Mr. Page resigned as an executive officer of the Company on September 2,
1997. See "-- Employment Contracts and Termination Agreements."
EMPLOYMENT CONTRACTS AND TERMINATION AGREEMENTS
On July 10, 1995, the Company entered into an Employment Agreement with
Richard C. Allender. The term of the Employment Agreement is for a three-year
period which renews automatically on a daily basis and continues thereafter for
a three-year term. The Employment Agreement currently provides for a minimum
annual salary of $325,000. The Company is also obligated to pay the premiums of
a reverse split-dollar life insurance policy for Mr. Allender in the amount of
$121,000 per year for three years. On December 5, 1997, the Board increased Mr.
Allender's base salary to $400,000 per year effective on January 1, 1998 and
continued the annual premium on the reverse split-dollar life insurance policy
through the year 2000.
A-10
<PAGE> 31
The Company can terminate the Employment Agreement upon the death or
permanent disability of Mr. Allender or for cause. In the event of a change in
control of the Company, Mr. Allender may terminate his employment (i) at any
time during the term of the Employment Agreement, for Good Reason (as defined
below), by giving written notice to the Company, or (ii) for a period of 180
days beginning on the date of the change in control of the Company, in his sole
discretion, by providing written notice to the Company. For purposes of the
Employment Agreement, a "change in control" of the Company shall mean a change
in control of a nature that would be required to be reported in response to Item
1(a) of the Current Report on Form 8-K, pursuant to Section 13 or 15(d) of 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, is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), of 20%
(the "Relevant Percentage") or more of the combined voting power of the
Company's Common Stock, or (B) individuals who constitute the Board of the
Company on the date of the agreement (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 shall be, for
purposes of this clause (B), considered as though such person were a member of
the Incumbent Board. "Good Reason" shall mean (A) a substantial adverse change
in Mr. Allender's status or position(s) as an executive officer of the Company;
(B) a reduction by the Company in Mr. Allender's base salary as in effect
immediately prior to the change in control; or (C) Mr. Allender's office is
moved, without his consent, from the city where his office is located
immediately prior to the change in control.
If Mr. Allender's employment is terminated by the Company other than for
cause, or by Mr. Allender for Good Reason after a change in control, the Company
shall be obligated to pay Mr. Allender his base salary for a period of 36 months
and the remaining premiums under the reverse split-dollar life insurance policy
described above. If Mr. Allender's employment is terminated by him without Good
Reason but after a change in control, the Company shall be obligated to pay Mr.
Allender his base salary for a period of 18 months and the remaining premiums
under the reverse split-dollar life insurance policy described above. In
addition, the Company shall maintain in full force and effect, for the same
period for which severance payments are being made after such termination of the
Employment Agreement, all health insurance, long-term disability, life insurance
and accidental death and disability benefits in which Mr. Allender was entitled
to participate immediately prior to such termination.
On March 1, 1993, the Company entered into Employment Agreements with
Jackie L. Boatman and Michael R. Mitchell, which were amended and restated in
August 1994. The term of the Employment Agreements were originally for a term of
three-years, but they were both extended in February 1996 to be in effect until
March 1, 1998 and were extended again in December 1997 to be in effect until
March 1, 1999. The Employment Agreements provide for a minimum annual salary of
$175,000 and $225,000, respectively. In March 1996, the Company entered into a
one-year employment contract with Russell G. Gibson. The Company extended the
contract in December 1997 to be in effect until March 1, 1999. Mr. Gibson's
compensation is payable monthly, and his minimum annual salary is to be approved
by the Board. Mr. Gibson's annual salary in 1997 was $170,000. The Company is
also obligated to pay, during the term of the Employment Agreements, the
premiums of a reverse split-dollar life insurance policy for Messrs. Boatman,
Gibson and Mitchell not to exceed $20,000, $20,000 and $30,000, respectively,
per year. The terms of Messrs. Boatman's, Gibson's and Mitchell's Employment
Agreements are substantially the same as the Employment Agreement with Mr.
Allender except for the benefits payable upon termination of the Employment
Agreement.
If either Messrs. Boatman, Gibson or Mitchell is terminated by reason of
incapacity, they shall be entitled to their annual salary for a period of 12
months. If Messrs. Boatman, Gibson or Mitchell's employment is terminated by the
Company other than for cause, death or disability, or by Messrs. Boatman, Gibson
or Mitchell for Good Reason after a change in control, the Company shall be
obligated to pay Messrs. Boatman, Gibson and Mitchell their base salaries for a
period of 18 months, 12 months and 24 months, respectively, and shall also be
obligated to pay one additional annual premium on each of the
A-11
<PAGE> 32
reverse split-dollar life insurance policies for each of Messrs. Boatman and
Mitchell. If Mr. Gibson's employment is terminated by the Company without cause,
or by Mr. Gibson for Good Reason after a change in control, the Company shall be
obligated to pay one additional annual premium on the reverse split-dollar life
insurance policy for Mr. Gibson.
On December 5, 1997, the Board increased Messrs. Boatman's, Gibson's and
Mitchell's base salary to $250,000, $185,000 and $300,000, respectively, per
year, effective January 1, 1998.
Timothy B. Page resigned as a director and executive officer of the Company
on September 2, 1997. The Company entered into a Severance Agreement and Release
in Full of All Claims (the"Severance Agreement") with Mr. Page pursuant to his
resignation. Under the Severance Agreement, the Company agreed to pay Mr. Page
$80,320, less lawful deductions, in four equal monthly installments of $20,080
no later than September 30, 1997, October 31, 1997, November 28, 1997 and
December 31, 1997. The Company also agreed to pay Mr. Page $120,480, less lawful
deductions, in 12 equal monthly installments of $10,040 no later than January
30, 1998, February 27, 1998, March 31, 1998, April 30, 1998, May 29, 1998, June
30, 1998, July 31, 1998, August 31, 1998, September 30, 1998, October 31, 1998,
November 28, 1998 and December 31, 1998. Mr. Page also received two payments of
accrued vacation pay, less lawful deductions. The Company additionally
transferred a club membership issued to Farah U.S.A., Inc. for Mr. Page to an
individual membership for Mr. Page. In return, Mr. Page agreed to release and
indemnify the Company, its subsidiaries and their officers, directors, agents,
stockholders, insurers, legal representatives and employees, including immediate
family members, spouses, heirs, executors, administrators, legal
representatives, successors and assigns.
A-12
<PAGE> 33
PERFORMANCE OF THE COMMON STOCK
The graph below compares the cumulative total return of the Company's
Common Stock to the S&P 500 Index and the Dow Jones Clothing Industry Group
assuming a $100 investment on November 6, 1992.
<TABLE>
<CAPTION>
Dow Jones
Industry
Measurement Period Farah Group S&P 500
(Fiscal Year Covered) Incorporated Clothing Index
<S> <C> <C> <C>
1992 100.00 100.00 100.00
1993 154.55 90.72 114.95
1994 150.00 91.00 119.40
1995 127.27 91.39 150.97
1996 129.55 118.98 187.35
1997 105.68 125.31 247.52
</TABLE>
STOCK OPTION AND COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Stock Option and Compensation Committee was composed of Clark L.
Bullock, John D. Curtis and Charles J. Smith. No member of the Stock Option and
Compensation Committee had any relationships during 1997 requiring disclosure
according to applicable rules and regulations of the Commission.
SECTION 16(A)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of a registered class of
the Company's equity securities, to file with the Commission initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company. Executive officers, directors and greater than 10%
shareholders are required by Commission regulations to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely upon review of the copies of such
reports furnished to the Company during the year ended November 2, 1997, no
director, officer or beneficial holder of more than 10% of any class of equity
securities of the Company failed to file on a timely basis reports required by
Section 16(a) of the Exchange Act during the most recent fiscal year.
A-13
<PAGE> 34
STOCK OPTION AND COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Stock Option and Compensation Committee's (the "Committee") policy is
to review and make recommendations to the Board on cash compensation, stock
option and restricted stock awards and other compensation for the Company's
executive officers. Generally, compensation for executive officers is
established effective as of the beginning of each fiscal year. The Committee
takes into account many factors in making the determination of aggregate
compensation. Such factors include (1) the financial results of the Company for
the preceding fiscal year, (2) the performance of the Company's stock, (3)
compensation paid to executive officers in prior years,(4) compensation of
executive officers employed by companies in industries similar to the Company
and (5) meeting specific Company objectives. In fiscal year 1994 the Company
entered into employment agreements with each of the executive officers, other
than Russell G. Gibson and Timothy B. Page who were not executive officers at
the time. The employment agreements for Richard C. Allender, the Company's Chief
Executive Officer, and the executive officers, excluding Mr. Gibson, were
amended in fiscal year 1995 but the amendment did not increase the annual
compensation amounts. The employment agreements provide for a minimum annual
salary and provide discretion to the Board to make increases based on the
performance of the executive and the Company. The Company entered into an
employment agreement with Mr. Gibson in March 1996. Mr. Gibson's agreement gives
the Board full discretion in setting salary levels. The annual salary levels in
the agreements were based in part on advice received from an outside consulting
firm retained at the time the employment contracts were entered into, although
the Committee exercised its discretion in setting the final amounts of annual
compensation. The outside consulting firm used a private database to survey the
compensation levels and policies of 116 companies with annual sales in the
$100,000,000 - $200,000,000 range. The companies included in the database
surveyed by the consultant are not the same companies included in the Dow Jones
Clothing Industry Group described in the section of this Information Statement
labeled "Performance of the Common Stock" or companies necessarily involved in
the apparel industry. The Committee did not consult with an outside consulting
firm in connection with changes in base compensation or bonus awards for fiscal
year 1997.
Compensation of the Company's executive officers is comprised of (1) annual
salary, (2) annual incentive compensation, (3) stock option and restricted stock
awards and (4) other employee benefits which are described in this Information
Statement. The compensation earned by executive officers in annual incentive
compensation and stock option and restricted stock awards is intended to align
the interests of management and shareholders.
Annual salary is determined by the skills and experience required by the
position, the impact of the individual on the Company, the performance of the
individual and as discussed above, the Company's existing employment agreements.
The base salaries for Messrs. Allender, Boatman, Gibson and Mitchell were
increased to $400,000, $250,000, $185,000 and $300,000, respectively, per year,
effective as of January 1, 1998. Such adjustments were based on the
discretionary judgment of the Committee.
Annual incentive compensation is based on the discretionary judgment of the
Committee after recommendations are made by the Company's Chief Executive
Officer. In fiscal year 1997, the Company paid the Company's executive officers
no annual incentive compensation and there were no awards of stock options or
restricted stock awards.
By: John D. Curtis
Clark L. Bullock
Charles J. Smith, Chairman
A-14
<PAGE> 35
ANNEX B
May 1, 1998
Board of Directors
Farah Incorporated
Board Of Directors:
We understand that Farah Incorporated (the "Company") has entered into a
definitive Agreement and Plan of Merger (the "Merger Agreement") dated May 1,
1998 among the Company, Tropical Sportswear Int'l Corporation, a Florida
corporation ("TSI"), and Foxfire Acquisition Corporation, a Texas corporation
and a wholly-owned subsidiary of TSI ("Acquisition Sub" and, together with TSI,
the "Proposed Acquiror"), pursuant to which, inter alia, Acquisition Sub would
acquire the Company through a tender offer (the "Tender Offer") at $9.00 per
share in cash for all of the outstanding shares of common stock, no par value
(the "Shares"), of the Company, followed by a second step merger of Acquisition
Sub into the Company at the same price per Share (the "Merger"). The terms and
conditions of the proposed Tender Offer and Merger (the "Proposed Sale") are set
forth in more detail in the Merger Agreement.
The Board Of Directors of the Company (the "Board") has requested that
Financo, Inc. ("Financo") render its opinion (the "Opinion") with respect to the
fairness, from a financial point of view, to the Company's stockholders of the
consideration offered in the Proposed Sale. In addition to the engagement of
Financo to render the Opinion, Financo has acted as financial advisor to the
Company in connection with the Proposed Sale. If the Proposed Sale is
consummated, Financo shall receive a fee in connection therewith, against which
the fee payable to Financo for this Opinion shall be deducted.
In conducting our analysis of the Proposed Sale and arriving at the
Opinion, we have reviewed and analyzed such materials and considered such
financial and other factors that we deemed relevant under the circumstances,
including the following:
(1) the financial terms and conditions of the Merger Agreement;
(2 certain publicly available historical financial and operating data
concerning the Company, including the Company's Annual Reports to
stockholders for the fiscal years ended November 1997, 1996 and 1995, and
the Quarterly Report on Form 10-Q filed with the Securities and Exchange
Commission (the "SEC") for the fiscal quarter ended February 2, 1998;
(3) certain internal financial analyses and forecasts of the Company
related to the business, earnings, cash flow, assets and prospects of the
Company originally prepared by the management of the Company on December 2,
1997 and thereafter updated by the management of the Company on April 6,
1998;
(4) publicly available financial, operating and stock market data
concerning certain companies engaged in businesses that we deemed
relatively and reasonably comparable to the Company or otherwise relevant
to our inquiry;
(5) a trading history of the Shares from March 31, 1995 to the
present;
(6) a comparison of the financial terms of the Proposed Sale with the
terms of certain other recent transactions which we deemed relevant and
comparable;
(7) the process Financo conducted, in conjunction with senior
management of the Company and the Board, to contact prospective acquirors
of the Company and solicit acceptable proposals for the sale of the
Company, and
(8) such other financial studies, analyses and investigations we
deemed appropriate.
In addition, we have had discussions with the management of the Company
concerning its business and operations, assets, present condition and future
prospects, visited certain manufacturing, distribution, and offices of the
Company, participated in discussions and negotiations among representatives of
the Company
B-1
<PAGE> 36
Board of Directors
Farah Incorporated
May 1, 1998
Page 2
and the Proposed Acquiror, and undertook such other studies, analyses and
investigations as we deemed relevant and appropriate.
In rendering the Opinion, we have relied, without independent investigation
or verification, upon the accuracy and completeness of all publicly available
and Company-generated financial and other information related to the Company,
and have conducted only a limited physical inspection of the properties and
facilities of the Company. We have not made any evaluations or appraisals of the
assets or liabilities of the Company, nor were we furnished with any such
appraisals. With respect to the financial forecasts provided to us by the
Company, we have assumed, with the Board's consent, that such forecasts have
been reasonably and accurately prepared and represent management's best
currently available judgments and estimates as to the future financial
performance of the Company, and we express no opinion with respect to such
forecasts or the assumptions upon which they are based. We have further relied
upon the assurances of senior management of the Company that they are not aware
of any facts that would make such financial or other information relating to the
Company inaccurate or misleading. The Opinion is necessarily based upon
economic, financial and market conditions as they exist and can be evaluated
only as of the date of this letter and we assume no responsibility to update or
revise the Opinion based upon events or circumstances occurring after the date
hereof. Further, we express no opinions on matters of a legal, regulatory, tax
or accounting nature relating to or arising out of the Proposed Sale.
In rendering this Opinion, we have assumed that the Proposed Sale will be
consummated on the terms described in the Merger Agreement, without any waiver
of any material terms or conditions by the Company.
The Opinion is directed to the Board and does not constitute a
recommendation to any stockholders of the Company as to whether such
stockholders should tender their Shares in the Tender Offer or vote in favor of
the Merger. This Opinion may not be reproduced, summarized, excerpted from or
otherwise publicly referred to or disclosed in any manner without Financo's
prior written consent, except that the Company may include the Opinion in its
entirety in any disclosure document to be sent to the Company's stockholders or
filed with the SEC relating to the Tender Offer and/or the Merger.
This Opinion addresses only the fairness, from a financial point of view,
of the consideration to be received by the Company's stockholders in the
Proposed Sale, and we do not express any views on any of the other terms of the
Proposed Sale. Specifically, the Opinion does not address the Company's
underlying business decision to effect the Proposed Sale.
Based upon and subject to the foregoing, we are of the opinion that, from a
financial point of view, the consideration to be received by the Company's
stockholders in the Proposed Sale is fair to such stockholders.
Very truly yours,
FINANCO, INC.
By: /s/ GILBERT W. HARRISON
------------------------------------
Gilbert W. Harrison
Chairman
B-2
<PAGE> 37
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C>
(a)(1) Purchaser's Offer to Purchase, dated May 8, 1998
(a)(2) Letter of Transmittal
(a)(4) Joint Press Release of Farah Incorporated and Tropical
Sportswear Int'l Corporation, dated May 4, 1998
(a)(5) Press Release of Tropical Sportswear Int'l Corporation,
dated May 8, 1998
(c)(1) Merger Agreement, among Farah Incorporated, Tropical
Sportswear Int'l Corporation and Foxfire Acquisition Corp.,
dated May 1, 1998
(c)(2) Confidentiality Agreement between Farah Incorporated and
Tropical Sportswear Int'l Corporation, dated March 20, 1998
(c)(3) Confidentiality Agreement between Tropical Sportswear Int'l
Corporation and Farah Incorporated, dated March 23, 1998
(c)(4) Confidentiality Agreement between Farah Incorporated and
Tropical Sportswear Int'l Corporation, dated March 26, 1998
(c)(6) Employment Agreement by and between TSI and Richard C.
Allender, dated May 1, 1998
(c)(11) Farah Incorporated 1996 Non-Employee Directors Stock Option
Plan
(c)(12) Farah Incorporated 1998 Stock Option and Restricted Stock
Plan
</TABLE>
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
FARAH INCORPORATED
AT
$9.00 NET PER SHARE
BY
FOXFIRE ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
TROPICAL SPORTSWEAR INT'L CORPORATION
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON FRIDAY, JUNE 5, 1998, UNLESS THE OFFER IS EXTENDED (THE "EXPIRATION
DATE").
THE OFFER IS BEING MADE PURSUANT TO AN AGREEMENT AND PLAN OF MERGER DATED
AS OF MAY 1, 1998, AMONG TROPICAL SPORTSWEAR INT'L CORPORATION, FOXFIRE
ACQUISITION CORP. AND FARAH INCORPORATED. THE BOARD OF DIRECTORS OF FARAH
INCORPORATED HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE OFFER AND THE
MERGER AND DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR TO,
AND IN THE BEST INTERESTS OF, THE SHAREHOLDERS OF FARAH INCORPORATED, AND
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR
SHARES.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER, THE NUMBER OF
SHARES THAT REPRESENTS AT LEAST SIXTY-SIX AND TWO-THIRDS PERCENT (66 2/3%) OF
THE SHARES OF COMMON STOCK OUTSTANDING ON THE EXPIRATION DATE, AND (II) CERTAIN
OTHER CONDITIONS SET FORTH IN THIS OFFER TO PURCHASE. SEE SECTION 14.
---------------------
The Dealer Manager for the Offer is:
PRUDENTIAL SECURITIES INCORPORATED
May 8, 1998
<PAGE> 2
IMPORTANT
Any shareholder who desires to tender all or any portion of such
shareholder's Shares (as defined herein) should either (i) complete and sign the
Letter of Transmittal (or a manually signed facsimile thereof) in accordance
with the instructions in the Letter of Transmittal, mail or deliver it and any
other required documents to the Depositary and either deliver the certificates
for such Shares to the Depositary or tender such Shares pursuant to the
procedures for book-entry transfer set forth in Section 3 or (ii) request such
shareholder's broker, dealer, commercial bank, trust company or other nominee to
effect the transaction for such shareholder. Any shareholder whose Shares are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee must contact such broker, dealer, commercial bank, trust company
or other nominee to tender such Shares.
Any shareholder who desires to tender Shares and whose certificates
representing such Shares are not immediately available, or who cannot comply
with the procedures for book-entry transfer on a timely basis, may tender such
Shares by following the procedures for guaranteed delivery set forth in Section
3.
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective locations and telephone numbers
set forth on the back cover of this Offer to Purchase. Requests for additional
copies of this Offer to Purchase, the Letter of Transmittal and the Notice of
Guaranteed Delivery may be directed to the Information Agent, the Depositary, or
to brokers, dealers, commercial banks or trust companies. A shareholder also may
contact brokers, dealers, commercial banks or trust companies for assistance
concerning the Offer.
ii
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION................................................ 1
THE OFFER
1. Terms of the Offer.................................... 2
2. Acceptance for Payment and Payment for Shares......... 4
3. Procedure for Tendering Shares........................ 5
4. Withdrawal Rights..................................... 7
5. Certain Federal Income Tax Consequences............... 8
6. Price Range of the Shares; Dividends on the Shares.... 9
7. Effect of the Offer on the Market for the Shares;
Stock Listing; Exchange Act Registration; Margin
Regulations........................................... 9
8. Certain Information Concerning the Company............ 11
9. Certain Information Concerning the Purchaser and
TSI................................................... 13
10. Source and Amount of Funds............................ 15
11. Background of the Offer; Purpose of the Offer and the
Merger; The Merger Agreement and Certain Other
Agreements............................................ 16
12. Plans for the Company; Other Matters.................. 27
13. Dividends and Distributions........................... 29
14. Conditions of the Offer............................... 30
15. Certain Legal Matters................................. 31
16. Fees and Expenses..................................... 33
17. Miscellaneous......................................... 33
Schedule I -- Directors and Executive Officers of Tropical
Sportswear Int'l Corporation and Foxfire Acquisition
Corp...................................................... I-1
</TABLE>
iii
<PAGE> 4
To the Holders of Common Stock of Farah Incorporated:
INTRODUCTION
Foxfire Acquisition Corp., a Texas corporation (the "Purchaser") and a
wholly owned subsidiary of Tropical Sportswear Int'l Corporation, a Florida
corporation ("TSI"), hereby offers to purchase all of the outstanding shares
(the "Shares") of common stock, no par value per share (the "Common Stock"), of
Farah Incorporated, a Texas corporation (the "Company"), at $9.00 per Share, net
to the seller in cash, upon the terms and subject to the conditions set forth in
this Offer to Purchase and in the related Letter of Transmittal (which, together
with any amendments or supplements hereto or thereto, collectively constitute
the "Offer"). Tendering shareholders will not be obligated to pay brokerage fees
or commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, transfer taxes on the purchase of Shares pursuant to the Offer. The
Purchaser will pay all fees and expenses of Prudential Securities Incorporated
("Prudential Securities"), which is acting as the Dealer Manager (the "Dealer
Manager"), The Bank of New York, which is acting as the Depositary (the
"Depositary"), and MacKenzie Partners, Inc., which is acting as the Information
Agent (the "Information Agent"), incurred in connection with the Offer. See
Section 16.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER, THE NUMBER OF
SHARES THAT REPRESENTS AT LEAST SIXTY-SIX AND TWO-THIRDS PERCENT (66 2/3%) OF
THE SHARES OUTSTANDING ON THE EXPIRATION DATE (THE "MINIMUM CONDITION"). SEE
SECTION 14. The Company has informed the Purchaser that, as of April 30, 1998,
there were 10,286,357 Shares issued and outstanding. Based on the foregoing, the
Purchaser believes that the Minimum Condition will be satisfied if 6,857,572
Shares are validly tendered and not withdrawn prior to the expiration of the
Offer.
The purpose of the Offer is for TSI, through the Purchaser, to acquire a
controlling equity interest in the Company as the first step in a business
combination of TSI and the Company. The Offer is being made pursuant to an
Agreement and Plan of Merger, dated as of May 1, 1998 (the "Merger Agreement"),
by and among TSI, the Purchaser and the Company pursuant to which, as soon as
practicable after the completion of the Offer and satisfaction or waiver, if
permissible, of all conditions to the Merger (as defined below), the Purchaser
will be merged with and into the Company (the "Merger") and the separate
corporate existence of the Purchaser will cease. Following the consummation of
the Merger, the Company will continue as the surviving corporation (the
"Surviving Corporation") and will be a wholly owned subsidiary of TSI. At the
effective time of the Merger (the "Effective Time"), each Share then outstanding
(other than Shares held by TSI, the Purchaser or any other wholly owned
subsidiary of TSI and Shares, if any, held by shareholders who perfect their
dissenters' rights under Texas law) will be converted into the right to receive
$9.00 in cash. The Merger Agreement is more fully described in Section 11.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT, THE OFFER AND THE MERGER AND DETERMINED THAT THE TERMS OF THE OFFER
AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY'S
SHAREHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS ACCEPT THE OFFER AND
TENDER THEIR SHARES.
The Company has advised TSI that Financo, Inc., the Company's financial
advisor ("Financo"), has delivered to the Company's Board of Directors its
written opinion dated May 1, 1998 to the effect that the consideration to be
received by the shareholders of the Company in the Offer and the Merger is fair
to such shareholders from a financial point of view as of the date of delivery
of that opinion. Such opinion is set forth in full as an exhibit to the
Company's Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule
14D-9") that is being mailed to shareholders of the Company concurrently with
this Offer to Purchase. Shareholders of the Company are urged to read the
opinion in its entirety for a description of the assumptions made, factors
considered and procedures followed by Financo, as well as certain information
concerning Financo.
<PAGE> 5
The Merger Agreement provides that, except as otherwise provided therein,
following satisfaction or waiver, if permissible, of the conditions to the Offer
and subject to the terms and conditions thereof, the Purchaser will accept for
payment, in accordance with the terms of the Offer, all Shares validly tendered
and not withdrawn pursuant to the Offer, and pay for such Shares as soon as
practicable pursuant to applicable law. The Offer will not remain open following
the time Shares are accepted for payment.
Consummation of the Merger is conditioned upon, among other things, the
approval and adoption by the requisite vote of shareholders of the Company of
the Merger Agreement, if required by applicable law in order to consummate the
Merger. See Section 12. Under the Texas Business Corporation Act ("TBCA"),
except as otherwise provided below, the affirmative vote of two-thirds of the
outstanding shares of Common Stock is required to approve the Merger Agreement
and the Merger.
Under Article 5.16 of the TBCA, if a corporation owns at least 90% of the
outstanding shares of each class of another corporation, the corporation holding
such stock may merge itself into such other corporation without any action or
vote on the part of the shareholders of such other corporation (a "short-form
merger"). In the event that the Purchaser acquires in the aggregate at least 90%
of the Shares pursuant to the Offer or otherwise, then TSI intends to cause the
Purchaser to effect a short-form merger without any vote of the shareholders of
the Company, subject to compliance with the provisions of Article 5.16 of the
TBCA.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION AND SHOULD BE READ IN THEIR ENTIRETY BEFORE ANY DECISION
IS MADE WITH RESPECT TO THE OFFER.
THE OFFER
1. TERMS OF THE OFFER.
Upon the terms and subject to the conditions of the Offer, the Purchaser
will accept for payment and pay for all Shares validly tendered prior to the
Expiration Date and not withdrawn as provided in Section 4 of this Offer to
Purchase. The term "Expiration Date" shall mean 12:00 Midnight, New York City
time, on Friday, June 5, 1998, unless and until the Purchaser, in accordance
with the terms of the Merger Agreement, shall have extended the period of time
for which the Offer is open, in which event the term "Expiration Date" shall
mean the latest time and date at which the Offer, as so extended by the
Purchaser, shall expire.
The Offer is conditioned upon, among other things, the satisfaction of the
Minimum Condition and the expiration or termination of all waiting periods
imposed by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the regulations thereunder (the "HSR Act"). See Section 14. If such
conditions are not satisfied prior to the Expiration Date, subject to the terms
of the Merger Agreement, the Purchaser reserves the right (but shall not be
obligated) to (i) decline to purchase and return any of the Shares tendered and
terminate the Offer, (ii) waive any of the conditions to the Offer, to the
extent permitted by applicable law, and, subject to complying with applicable
rules and regulations of the Securities and Exchange Commission (the
"Commission"), purchase all Shares validly tendered or (iii) extend the Offer
and, subject to the right of shareholders to withdraw Shares until the
Expiration Date, retain the Shares that will have been tendered during the
period or periods for which the Offer is extended.
Subject to the terms of the Merger Agreement as described below, the
Purchaser expressly reserves the right, in its sole discretion, at any time or
from time to time, (i) to extend the period of time during which the Offer is
open and thereby delay acceptance for payment of, and the payment for, any
Shares, by giving oral or written notice of such extension to the Depositary and
(ii) to amend the Offer in any respect by giving oral or written notice of such
amendment to the Depositary. The rights reserved by the Purchaser in this
paragraph are in addition to the Purchaser's rights to terminate the Offer as
described in Section 11. Any extension, amendment or termination will be
followed as promptly as practicable by public announcement thereof, such
announcement in the case of an extension to be issued no later than 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date in accordance with the public announcement requirements of
applicable law, including Rules 14d-4(c), 14d-6(d) and 14e-1(d) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Without
limiting the obligation of the
2
<PAGE> 6
Purchaser under such Rules or the manner in which the Purchaser may choose to
make any public announcement, the Purchaser currently intends to make
announcements by issuing a press release to The Financial Relations Board, Inc.
The Merger Agreement provides that the Purchaser will not amend or waive
the Minimum Condition and will not decrease the consideration offered in the
Offer (the "Offer Price") or decrease the number of Shares sought, impose any
further conditions to the Offer or amend any other term or condition of the
Offer in any manner materially adverse to the holders of the Shares.
Notwithstanding the foregoing, the Merger Agreement provides that the Purchaser
may extend the Offer (i) if at the scheduled Expiration Date any of the
conditions to the Offer have not been satisfied, including but not limited to
any legal or regulatory requirements under the HSR Act, (ii) from time to time
for a maximum of an aggregate of ten business days beyond the initial Expiration
Date (which initial Expiration Date shall be twenty business days following the
commencement of the Offer), and (iii) for any period required by any rule,
regulation, interpretation or position of the Commission or the staff of the
Commission, applicable to the Offer. The Merger Agreement further provides,
however, that in no event may the Offer be extended beyond the date of
termination of the Merger Agreement, and either party has the right to terminate
the Merger Agreement if the Offer is not completed by August 31, 1998.
If the Purchaser extends the Offer, or if the Purchaser (whether before or
after its acceptance for payment of Shares) is delayed in its purchase of or
payment for Shares or is unable to pay for Shares pursuant to the Offer for any
reason, then, without prejudice to the Purchaser's rights under the Offer, the
Depositary may retain tendered Shares on behalf of the Purchaser, and such
Shares may not be withdrawn except to the extent tendering shareholders are
entitled to withdrawal rights as described in Section 4. However, the ability of
the Purchaser to delay the payment for Shares that the Purchaser has accepted
for payment is limited by Rule 14e-l(c) under the Exchange Act, which requires
that a bidder pay the consideration offered or return the securities deposited
by or on behalf of holders of securities promptly after the termination or
withdrawal of the Offer.
If the Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer,
the Purchaser will disseminate additional tender offer materials and extend the
Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the
Exchange Act. The minimum period during which the Offer must remain open
following material changes in the terms of the Offer or information concerning
the Offer, other than a change in price or a change in percentage of securities
sought, will depend upon the facts and circumstances then existing, including
the relative materiality of the changed terms or information. In a public
release, the Commission has stated that in its view an offer must remain open
for a minimum period of time following a material change in the terms of the
Offer and that waiver of a material condition, such as the Minimum Condition, is
a material change in the terms of the Offer. The release states than an offer
should remain open for a minimum of five business days from the date a material
change is first published, sent or given to security holders and that, if
material changes are made with respect to terms of the Offer that are not
materially less significant than a change in the offer price or the number of
shares being sought, a minimum of ten business days may be required to allow
adequate dissemination and investor response. The requirement to extend the
Offer will not apply to the extent that the number of business days remaining
between the occurrence of the change and the then-scheduled Expiration Date
equals or exceeds the minimum extension period that would be required because of
such amendment. As used in this Offer to Purchase, "business day" has the
meaning set forth in Rule 14d-1 under the Exchange Act.
The Company has provided the Purchaser with the Company's shareholder lists
and security position listings for the purpose of disseminating the Offer to
holders of Shares. This Offer to Purchase and the related Letter of Transmittal
will be mailed by the Purchaser to record holders of Shares and will be
furnished by the Purchaser to brokers, dealers, commercial banks, trust
companies and similar persons whose names, or the names of whose nominees,
appear on the shareholder lists or, if applicable, who are listed as
participants in a clearing agency's security position listing, for subsequent
transmittal to beneficial owners of Shares.
3
<PAGE> 7
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), promptly after the Expiration Date the Purchaser will accept for
payment and will pay for all Shares validly tendered prior to the Expiration
Date and not properly withdrawn in accordance with Section 4. All determinations
concerning the satisfaction of such terms and conditions will be within the
Purchaser's discretion, which determinations will be final and binding. See
Sections 1 and 4. The Purchaser expressly reserves the right, in its sole
discretion, to delay acceptance for payment of, or payment for, Shares in order
to comply in whole or in part with any applicable law, including, without
limitation, the HSR Act. Any such delays will be effected in compliance with
Rule 14e-l(c) under the Exchange Act (relating to a bidder's obligation to pay
the consideration offered or return the securities deposited by or on behalf of
holders of securities promptly after the termination or withdrawal of such
bidder's offer).
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of (i) certificates for
such Shares (or a timely Book-Entry Confirmation (as defined below) with respect
to such Shares), (ii) a Letter of Transmittal (or a manually signed facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, or, in the case of a book-entry transfer, an Agent's Message (as
defined below), and (iii) any other documents required by the Letter of
Transmittal. If, prior to the Expiration Date, the Purchaser increases the Offer
Price, the Purchaser will pay such increased consideration for all Shares
purchased pursuant to the Offer, whether or not such Shares were tendered prior
to such increase in the Offer Price.
For purposes of the Offer, the Purchaser will be deemed to have accepted
for payment, and thereby purchased, Shares properly tendered to the Purchaser
and not withdrawn as, if and when the Purchaser gives oral or written notice to
the Depositary of the Purchaser's acceptance for payment of such Shares. Payment
for Shares accepted for payment pursuant to the Offer will be made by deposit of
the purchase price therefor with the Depositary, which will act as agent for
tendering shareholders for the purpose of receiving payment from the Purchaser
and transmitting payment to tendering shareholders. UNDER NO CIRCUMSTANCES WILL
INTEREST BE PAID ON THE PURCHASE PRICE TO BE PAID BY THE PURCHASER FOR THE
SHARES, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH
PAYMENT.
Upon the deposit of funds with the Depositary for the purpose of making
payments to tendering shareholders, the Purchaser's obligation to make such
payment shall be satisfied and tendering shareholders must thereafter look
solely to the Depositary for payment of amounts owed to them by reason of the
acceptance for payment of Shares pursuant to the Offer. The Purchaser will pay
any stock transfer tax incident to the transfer to it of validly tendered
Shares, except as otherwise provided in Instruction 6 of the Letter of
Transmittal, as well as any charges and expenses of the Depositary and the
Information Agent.
If any tendered Shares are not purchased pursuant to the Offer for any
reason, certificates for any such Shares will be returned, without expense to
the tendering shareholder (or, in the case of Shares delivered by book-entry
transfer of such Shares into the Depositary's account at the Book-Entry Transfer
Facility (as defined below) pursuant to the procedures set forth in Section 3,
such Shares will be credited to an account maintained at the Book-Entry Transfer
Facility), as promptly as practicable after the expiration or termination of the
Offer.
Subject to the terms of the Merger Agreement, the Purchaser reserves the
right to transfer or assign, in whole or in part, to TSI or to one or more
direct or indirect wholly owned subsidiaries of TSI, the right to purchase
Shares tendered pursuant to the Offer, but any such transfer or assignment will
not relieve the Purchaser of its obligations under the Offer and will in no way
prejudice the rights of tendering shareholders to receive payment for Shares
validly tendered and accepted for payment pursuant to the Offer.
4
<PAGE> 8
3. PROCEDURE FOR TENDERING SHARES.
Valid Tender
For Shares to be validly tendered pursuant to the Offer, either (i) a
properly completed and duly executed Letter of Transmittal (or a manually signed
facsimile thereof), together with any required signature guarantees, or in the
case of a book-entry transfer, an Agent's Message, and any other required
documents, must be received by the Depositary at one of its addresses set forth
on the back cover of this Offer to Purchase prior to the Expiration Date and
either certificates for tendered Shares must be received by the Depositary at
one of such addresses or such Shares must be delivered pursuant to the
procedures for book-entry transfer set forth below (and a Book-Entry
Confirmation received by the Depositary), in each case, prior to the Expiration
Date or (ii) the tendering shareholder must comply with the guaranteed delivery
procedures set forth below.
The Depositary will establish an account with respect to the Shares at The
Depository Trust Company (the "Book-Entry Transfer Facility") for purposes of
the Offer within two business days after the date of this Offer to Purchase. Any
financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Shares by causing the
Book-Entry Transfer Facility to transfer such Shares into the Depositary's
account in accordance with the Book-Entry Transfer Facility's procedure for such
transfer. However, although delivery of Shares may be effected through
book-entry transfer into the Depositary's account at the Book-Entry Transfer
Facility, the Letter of Transmittal (or a manually signed facsimile thereof),
properly completed and duly executed, with any required signature guarantees, or
an Agent's Message, and any other required documents must, in any case, be
transmitted to, and received by, the Depositary at one of its addresses set
forth on the back cover of this Offer to Purchase prior to the Expiration Date,
or the tendering shareholder must comply with the guaranteed delivery procedures
described below. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN
ACCORDANCE WITH SUCH BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE DEPOSITARY.
The confirmation of a book-entry transfer of Shares into the Depositary's
account at the Book-Entry Transfer Facility as described above is referred to
herein as a "Book-Entry Confirmation." The term "Agent's Message" means a
message transmitted by the Book-Entry Transfer Facility to, and received by, the
Depositary and forming a part of a Book-Entry Confirmation, which states that
such Book-Entry Transfer Facility has received an express acknowledgment from
the participant in such Book-Entry Transfer Facility tendering the Shares that
such participant has received and agrees to be bound by the terms of the Letter
of Transmittal and that the Purchaser may enforce such agreement against the
participant.
THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY,
IS AT THE ELECTION AND RISK OF THE TENDERING SHAREHOLDER. SHARES WILL BE DEEMED
DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE
OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Signature Guarantees
No signature guarantee is required on the Letter of Transmittal (i) if the
Letter of Transmittal is signed by the registered holder(s) (which term, for
purposes of this Section, includes any participant in the Book Entry Transfer
Facility's systems whose name appears on a security position listing as the
owner of the Shares) of Shares tendered therewith and such registered holder has
not completed either the box entitled "Special Delivery Instructions" or the box
entitled "Special Payment Instructions" on the Letter of Transmittal or (ii) if
such Shares are tendered for the account of a financial institution (including
most commercial banks, savings and loan associations and brokerage houses) that
is a participant in the Security Transfer Agent's Medallion Program, the New
York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange
Medallion Program (each, an "Eligible Institution" and, collectively,
5
<PAGE> 9
"Eligible Institutions"). In all other cases, all signatures on Letters of
Transmittal must be guaranteed by an Eligible Institution. If the certificates
for Shares are registered in the name of a person other than the signer of the
Letter of Transmittal, or if payment is to be made, or certificates for Shares
not tendered or not accepted for payment are to be returned, to a person other
than the registered holder or holders of the certificates surrendered, then the
tendered certificates for such Shares must be endorsed or accompanied by
appropriate stock powers, in either case, signed exactly as the name or names of
the registered holders or owners appear on the certificates, with the signatures
on the certificates or stock powers guaranteed as aforesaid. See Instructions 1
and 5 to the Letter of Transmittal.
Guaranteed Delivery
If a shareholder desires to tender Shares pursuant to the Offer and such
shareholder's certificates for Shares are not immediately available or the
procedures for book-entry transfer cannot be completed on a timely basis or time
will not permit all required documents to reach the Depositary prior to the
Expiration Date, such Shares may nevertheless be tendered if all the following
conditions are met:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by the Purchaser, is received
by the Depositary, as provided below, prior to the Expiration Date; and
(iii) the certificates (or a Book-Entry Confirmation) evidencing such
Shares, together with a properly completed and duly executed Letter of
Transmittal (or a manually signed facsimile thereof), with any required
signature guarantees, or, in the case of a book-entry transfer, an Agent's
Message, and any other required documents are received by the Depositary
within three trading days after the date of execution of such Notice of
Guaranteed Delivery. A "trading day" is any day on which the New York Stock
Exchange, Inc. (the "NYSE") is open for business.
The Notice of Guaranteed Delivery may be delivered by hand to the
Depositary or transmitted by telegram, facsimile transmission or mail to the
Depositary and must include a guarantee by an Eligible Institution in the form
set forth in such Notice of Guaranteed Delivery.
The valid tender of Shares pursuant to one of the procedures described
above will constitute a binding agreement between the tendering shareholder and
the Purchaser upon the terms and subject to the conditions of the Offer.
Appointment
By executing the Letter of Transmittal as set forth above, the tendering
shareholder irrevocably appoints designees of the Purchaser, and each of them,
as such shareholder's attorneys-in-fact and proxies in the manner set forth in
the Letter of Transmittal, each with full power of substitution, to the full
extent of such shareholder's rights with respect to the Shares tendered by such
shareholder and accepted for payment by the Purchaser and with respect to any
and all other Shares or other securities issued or issuable in respect of such
Shares on or after May 1, 1998, the date of the Merger Agreement. All such
proxies will be considered coupled with an interest in the tendered Shares. Such
appointment will be effective when, and only to the extent that, the Purchaser
accepts for payment Shares tendered by such shareholder as provided herein. Upon
such appointment, all prior powers of attorney, proxies and consents given by
such shareholder with respect to such Shares or other securities will, without
further action, be revoked and no subsequent powers of attorney, proxies,
consents or revocations may be given by such shareholder (and, if given, will
not be deemed effective). The designees of the Purchaser will thereby be
empowered to exercise all voting and other rights with respect to such Shares
and other securities, including, without limitation, in respect of any annual,
special or adjourned meeting of the Company's shareholders, actions by written
consent in lieu of any such meeting or otherwise, as they in their sole
discretion deem proper. The Purchaser reserves the right to require that, in
order for Shares to be deemed validly tendered, immediately upon the Purchaser's
acceptance for payment of
6
<PAGE> 10
such Shares, the Purchaser must be able to exercise full voting, consent and
other rights with respect to such Shares and other related securities, including
voting at any meeting of shareholders.
Determination of Validity
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of any tender of Shares will be determined by the
Purchaser, in its sole discretion, which determination will be final and
binding. The Purchaser reserves the absolute right to reject any or all tenders
of any Shares determined by it not to be in proper form or the acceptance for
payment of, or payment for which may, in the opinion of the Purchaser's counsel,
be unlawful. The Purchaser also reserves the absolute right, in its sole
discretion, subject to the provisions of the Merger Agreement, to waive any of
the conditions of the Offer or any defect or irregularity in the tender of any
Shares of any particular shareholder, whether or not similar defects or
irregularities are waived in the case of other shareholders. No tender of Shares
will be deemed to have been validly made until all defects or irregularities
relating thereto have been cured or waived. None of the Purchaser, TSI, the
Depositary, the Information Agent, the Dealer Manager or any other person will
be under any duty to give notification of any defects or irregularities in
tenders or incur any liability for failure to give any such notification. The
Purchaser's interpretation of the terms and conditions of the Offer (including
the Letter of Transmittal and the instructions thereto) will be final and
binding.
Backup Withholding
In order to avoid "backup withholding" of U.S. federal income tax on
payments of cash pursuant to the Offer, a shareholder surrendering Shares in the
Offer must, unless an exemption applies, provide the Depositary with such
shareholder's correct taxpayer identification number ("TIN") on a Substitute
Form W-9 and certify under penalties of perjury that such TIN is correct and
that such shareholder is not subject to backup withholding. If a shareholder
does not provide such shareholder's correct TIN or fails to provide the
certifications described above, the Internal Revenue Service may impose a
penalty on such shareholder and payment of cash to such shareholder pursuant to
the Offer may be subject to backup withholding of 31%. All shareholders
surrendering Shares pursuant to the Offer should complete and sign the
Substitute Form W-9 included as part of the Letter of Transmittal to provide the
information and certification necessary to avoid backup withholding (unless an
applicable exemption exists and is proved in a manner satisfactory to the
Purchaser and the Depositary). Certain shareholders (including, among others,
all corporations and certain foreign individuals and entities) are not subject
to backup withholding. Foreign shareholders, if exempt, should complete and sign
a Form W-8, Certificate of Foreign Status, a copy of which may be obtained from
the Depositary, in order to avoid backup withholding. See Instruction 9 to the
Letter of Transmittal.
4. WITHDRAWAL RIGHTS.
Except as otherwise provided in this Section 4, tenders of Shares are
irrevocable. Shares tendered pursuant to the Offer may be withdrawn pursuant to
the procedures set forth below at any time prior to the Expiration Date and,
unless theretofore accepted for payment and paid for by the Purchaser pursuant
to the Offer, may also be withdrawn at any time after July 7, 1998. If the
Purchaser extends the Offer, is delayed in its acceptance for payment of Shares
or is unable to accept Shares for payment pursuant to the Offer for any reason,
then, without prejudice to the Purchaser's rights under the Offer, the
Depositary may, nevertheless, on behalf of the Purchaser, retain tendered
Shares, and such Shares may not be withdrawn except to the extent that tendering
stockholders are entitled to withdrawal rights as described herein.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase and
must specify the name of the person having tendered the Shares to be withdrawn,
the number of Shares to be withdrawn and the name of the registered holder of
the Shares to be withdrawn, if different from the name of the person who
tendered the Shares. If certificates for Shares have been delivered or otherwise
identified to the Depositary, then, prior to the physical release of such
certificates, the serial numbers shown on such certificates must be submitted to
the Depositary and, unless such Shares have been tendered by an
7
<PAGE> 11
Eligible Institution, the signatures on the notice of withdrawal must be
guaranteed by an Eligible Institution. If Shares have been delivered pursuant to
the procedures for book-entry transfer as set forth in Section 3, any notice of
withdrawal must also specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Shares and
otherwise comply with such Book-Entry Transfer Facility's procedures.
Withdrawals of tenders of Shares may not be rescinded, and any Shares properly
withdrawn will thereafter be deemed not validly tendered for purposes of the
Offer. However, withdrawn Shares may be retendered by again following one of the
procedures described in Section 3 any time prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Purchaser, in its sole
discretion, which determination will be final and binding. None of the
Purchaser, TSI, the Depositary, the Information Agent, the Dealer Manager or any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
The receipt of cash for Shares pursuant to the Offer or the Merger will be
a taxable transaction for U.S. federal income tax purposes and also may be a
taxable transaction under state, local, foreign or other tax laws. In general, a
shareholder who tenders Shares in the Offer or receives cash in exchange for
Shares in the Merger will recognize gain or loss for federal income tax purposes
equal to the difference, if any, between the amount of cash received and the
shareholder's tax basis in the Shares sold. Gain or loss will be determined
separately for each block of Shares (i.e., Shares acquired at the same time and
price) exchanged pursuant to the Offer or the Merger. Such gain or loss
generally will be capital gain or loss if the Shares disposed of were held by
the shareholder as capital assets on the date of sale, and will be long-term
capital gain or loss if the holding period for the Shares disposed of is more
than one year at the date of sale. Under present law, long-term capital gains
recognized by an individual shareholder will generally be taxed at a maximum
federal marginal tax rate of 28% (or, in the case of certain gains on capital
assets held by an individual shareholder for more than 18 months, 20%), and
long-term capital gains recognized by a corporate stockholder will be taxed at a
maximum federal marginal tax rate of 35%.
A shareholder of Shares who perfects such shareholder's dissenter's rights,
if any, under the TBCA generally will recognize gain or loss in an amount equal
to the difference between the amount realized and such shareholder's tax basis
in such Shares.
Unless an exemption applies, the Depositary will be required to withhold
31% of any cash payments to which a shareholder or other payee is entitled
pursuant to the Offer or the Merger, unless the shareholder or other payee
provides his or her tax identification number (social security number or
employer identification number) and certifies that such number is correct. Each
shareholder and, if applicable, each other payee is required to complete and
sign the substitute Form W-9 that will be included as part of the Transmittal
Letter sent to shareholders of the Company by the Purchaser to avoid backup
withholding, unless an applicable exemption exists and is proved in a manner
satisfactory to TSI and the Depositary.
The foregoing summary constitutes a general description of certain U.S.
federal income tax consequences of the Offer and the Merger without regard to
the particular facts and circumstances of each shareholder of the Company and is
based on the provisions of the Internal Revenue Code of 1986, as amended,
Treasury Department Regulations issued pursuant thereto and published rulings
and court decisions in effect as of the date hereof, all of which are subject to
change, possibly with retroactive effect. No rulings have been or will be sought
from the Internal Revenue Service concerning the tax consequences of the Offer
and the Merger. Special tax consequences not described herein may be applicable
to certain shareholders subject to special tax treatment (including, but not
limited to, insurance companies, tax-exempt organizations, financial
institutions or broker dealers, foreign shareholders and shareholders who have
acquired their Shares pursuant to the exercise of employee stock options or
otherwise as compensation). ALL SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISORS
WITH RESPECT TO SPECIFIC TAX EFFECTS APPLICABLE TO THEM OF THE OFFER AND THE
MERGER, INCLUDING THE APPLICABILITY AND
8
<PAGE> 12
EFFECT OF THE ALTERNATIVE MINIMUM TAX AND ANY STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS.
6. PRICE RANGE OF THE SHARES; DIVIDENDS ON THE SHARES.
The Shares are traded on the NYSE under the symbol "FRA." The following
table sets forth, for each of the quarters indicated, the high and low reported
sales price per Share on the NYSE based on published financial sources.
<TABLE>
<CAPTION>
SALES PRICE
------------
HIGH LOW
---- ---
<S> <C> <C>
1996
First Quarter............................................. $ 7 1/8 $4 1/2
Second Quarter............................................ 6 3/8 4 1/2
Third Quarter............................................. 9 5 3/4
Fourth Quarter............................................ 7 7/8 5 7/8
1997
First Quarter............................................. 9 6
Second Quarter............................................ 11 1/8 8 1/4
Third Quarter............................................. 10 6 1/4
Fourth Quarter............................................ 7 15/16 5 1/2
1998
First Quarter............................................. 5 7/8 4 3/4
Second Quarter............................................ 6 15/16 5
</TABLE>
On May 1, 1998, the last full trading day prior to the first public
announcement of the Purchaser's intention to commence the Offer, the last
reported sales price of the Shares on the NYSE was $6 3/4 per Share. On May 7,
1998, the last full trading day prior to the commencement of the Offer, the last
reported sales price of the Shares on the NYSE was $8 13/16 per Share.
SHAREHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES.
The Company has advised the Purchaser that the Company has not declared or
paid any cash dividends on its common stock since 1986.
7. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; STOCK LISTING; EXCHANGE ACT
REGISTRATION; MARGIN REGULATIONS.
Market for the Shares
The purchase of Shares pursuant to the Offer will reduce the number of
holders of Shares and the number of Shares that might otherwise trade publicly
and, depending upon the number of Shares so purchased, could adversely effect
the liquidity and market value of the remaining Shares held by the public.
Stock Listing
Depending upon the number of Shares purchased pursuant to the Offer, and
the aggregate market value and per share price of any Shares not purchased
pursuant to the Offer, the Shares may no longer meet the guidelines of the NYSE
for continued listing. According to the NYSE's published guidelines, the NYSE
would consider delisting the Shares if, among other things, the number of
recordholders of at least 100 Shares each should fall below 1,200, the number of
publicly held Shares (exclusive of holdings of officers, directors and their
families and other concentrated holdings of 10% or more ("NYSE Excluded
Holdings")) should fall below 600,000 or the aggregate market value of publicly
held Shares (exclusive of NYSE Excluded Holdings) should fall below $5,000,000.
If, as a result of the purchase of Shares pursuant to the Offer or otherwise,
the Shares no longer meet the requirements of the NYSE for continued listing and
the listing of the Shares is discontinued, the market for the Shares would be
adversely affected.
9
<PAGE> 13
If the NYSE were to delist the Shares, it is possible that the Shares would
continue to trade on another securities exchange or in the over-the-counter
market and that price or other quotations would be reported by such exchange or
through the National Association of Securities Dealers Automated Quotation
System ("Nasdaq") or other sources. The extent of the public market therefor and
availability of such quotations would depend, however, upon such factors as the
number of shareholders and/or the aggregate market value of such securities
remaining at such time, the interest in maintaining a market in the Shares on
the part of securities firms, the possible termination of registration under the
Exchange Act as described below and other factors. The Purchaser cannot predict
whether the reduction in the number of Shares that might otherwise trade
publicly would have an adverse or beneficial effect on the market price for or
marketability of the Shares or whether it would cause future market prices to be
greater or less than the Offer price.
According to the Company's Annual Report on Form 10-K for the fiscal year
ended November 2, 1997 (the "Company 1997 10-K"), as of January 9, 1998, there
were approximately 2,200 holders of record of Shares. According to information
provided by the Company, as of April 30, 1998, there were 10,286,357 Shares
outstanding.
Exchange Act Registration
The Shares currently are registered under the Exchange Act. Registration of
the Shares under the Exchange Act may be terminated upon application of the
Company to the Commission if the Shares are neither listed on a national
securities exchange nor held by 300 or more holders of record. Termination of
registration of the Shares under the Exchange Act would substantially reduce the
information required to be furnished by the Company to its shareholders and to
the Commission and would make certain provisions of the Exchange Act, such as
the short-swing profit recovery provisions of Section 16(b), the requirement of
furnishing a proxy statement pursuant to Section 14(a) in connection with
shareholders' meetings and the related requirement of furnishing an annual
report to shareholders and the requirements of Rule 13e-3 under the Exchange Act
with respect to "going private" transactions, no longer applicable to the
Company. Furthermore, the ability of "affiliates" of the Company and persons
holding "restricted securities" of the Company to dispose of such securities
pursuant to Rule 144 or Rule 144A promulgated under the Securities Act of 1933,
as amended (the "Securities Act"), may be impaired or eliminated. If
registration of the Shares under the Exchange Act were terminated, the Shares
would no longer be eligible for continued listing on any stock exchange or
Nasdaq. The Purchaser may seek to cause the Company to apply for termination of
registration of the Shares under the Exchange Act as soon after the completion
of the Offer as the requirements for such termination are met.
If registration of the Shares is not terminated prior to the Merger, then
the Shares will be delisted from the NYSE and the registration of the Shares
under the Exchange Act will be terminated following the consummation of the
Merger.
Margin Regulations
The Shares presently are "margin securities" under the regulations of the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board"),
which status has the effect, among other things, of allowing brokers to extend
credit on the collateral of such securities. Depending upon factors similar to
those described above regarding listing and market quotations, it is possible
that, following the Offer, the Shares would no longer constitute "margin
securities" for the purposes of the margin regulations of the Federal Reserve
Board and therefore could no longer be used as collateral for loans made by
brokers.
If registration of the Shares under the Exchange Act were terminated, the
Shares would no longer be "margin securities."
10
<PAGE> 14
8. CERTAIN INFORMATION CONCERNING THE COMPANY
General
The information concerning the Company contained in this Offer to Purchase,
including the information set forth below under the caption "Selected Financial
Information," has been furnished by the Company or has been taken from or based
upon publicly available documents and records on file with the Commission and
other public sources. Neither TSI nor the Purchaser assumes responsibility for
the accuracy or completeness of the information concerning the Company contained
in such documents and records or for any failure by the Company to disclose
events that may have occurred or that may affect the significance or accuracy of
any such information but that are unknown to TSI or the Purchaser.
The Company, founded in 1920, is a leading manufacturer and marketer of
apparel for men and boys. Beginning in fiscal 1996, a limited number of women's
products were added to the Company's product lines. The Company was incorporated
in Texas in 1947 as Farah Manufacturing Company, Inc. The name of the Company
was changed to Farah Incorporated in 1987.
The Company is organized as three distinct operating divisions: Farah
U.S.A., Inc. ("Farah U.S.A."), Farah International, Inc. ("Farah International")
and Savane Direct Incorporated ("Savane Direct," formerly Value Slacks, Inc.).
Farah U.S.A. (76% of consolidated revenue for fiscal 1997) manufactures and
sells a variety of casual and dress apparel to retailers throughout the United
States. Farah International (18% of consolidated revenue for fiscal 1997)
manufactures and sells apparel in Europe and the South Pacific region. Farah
International's primary markets are the United Kingdom, Australia and New
Zealand. Savane Direct (6% of consolidated revenue for fiscal 1997) operates
retail stores that sell first quality apparel manufactured by the Company,
close-outs and seconds from Farah U.S.A., and a limited amount of merchandise
purchased from third parties. As of November 2, 1997, Savane Direct had 36
retail stores, all located in the United States.
The Company is a Texas corporation with its principal executive offices at
4171 North Mesa, Building D, Suite 500, El Paso, Texas 79902-1433. The telephone
number of the Company at such offices is (915) 496-7000.
11
<PAGE> 15
Selected Financial Information
Set forth below is certain selected consolidated financial information with
respect to the Company, excerpted or derived from the Company 1997 10-K and its
Quarterly Report on Form 10-Q for the quarter ended February 2, 1998, both filed
with the Commission pursuant to the Exchange Act.
More comprehensive financial information is included in such reports and in
other documents filed by the Company with the Commission. The following summary
is qualified in its entirety by reference to such reports and other documents
and all of the financial information (including any related notes) contained
therein. Such reports and other documents may be inspected and copies may be
obtained from the Commission in the manner set forth below.
FARAH INCORPORATED
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL YEARS ENDED
------------------------- ---------------------------------------
FEBRUARY 1, FEBRUARY 2, NOVEMBER 2, NOVEMBER 3, NOVEMBER 3,
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Net sales.......................... $ 59,044 $ 61,938 $ 273,719 $ 247,598 $ 240,797
Operating income (loss)............ (2,943) (1,027) (578) 1,869 (13,027)
Income (loss) before income
taxes........................... (4,039) (1,390) (3,628) 9,737 (15,276)
Net income (loss).................. (3,070) (1,955) 270 6,756 (12,941)
Net income (loss) per share........ $ (0.30) $ (0.19) $ 0.03 $ 0.66 $ (1.28)
Shares outstanding................. 10,278,239 10,191,103 10,278,989 10,172,971 10,145,326
FINANCIAL POSITION AT PERIOD-END:
Total assets....................... $ 167,094 $ 149,624 $ 175,592 $ 153,863 $ 173,827
Long-term debt excluding current
installment..................... 15,083 4,919 13,771 4,706 12,568
Shareholders' equity............... 79,324 79,454 82,714 82,140 73,970
</TABLE>
Available Information
The Company is subject to the informational filing requirements of the
Exchange Act and, in accordance therewith, is obligated to file reports, proxy
statements and other information with the Commission relating to its business,
financial condition and other matters. Information as of particular dates
concerning the Company's directors and officers, their remuneration, options
granted to them, the principal holders of the Company's securities and any
material interests of such persons in transactions with the Company is required
to be disclosed in proxy statements distributed to the Company's shareholders
and filed with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at Seven World Trade Center, Suite
1300, New York, NY 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, IL 60661. Copies of such information also may be obtained by
mail, upon payment of the Commission's customary charges, by writing to the
Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549.
The Commission also maintains a website at http://www.sec.gov that contains
reports, proxy statements and other information. Such material may also be
available for inspection at the offices of the NYSE, located at 20 Broad Street,
New York, New York 10005.
Certain Projected Financial Information
In the course of its discussions with TSI described in Section 11, the
Company provided TSI and its financial advisors with certain business and
financial information that TSI believes was not and is not publicly available.
Such information included, among other things, certain financial projections
(the "Com-
12
<PAGE> 16
pany Projections") prepared by management of the Company as a long-range plan.
The Company Projections do not take into account any of the potential effects of
the transactions contemplated by the Offer and the Merger. The Company does not
as a matter of course publicly disclose internal projections as to future
revenues, earnings or financial condition. The Company Projections disclose,
among other things, the following:
<TABLE>
<CAPTION>
1998 FORECAST 1999 FORECAST
------------- -------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Net sales................................................... $279,817 $301,747
Operating income............................................ 6,014 21,580
Income (loss) before income taxes........................... 806 16,597
Net income.................................................. 60 10,981
Net income per share........................................ 0.01 1.02
</TABLE>
THE COMPANY PROJECTIONS WERE NOT PREPARED WITH A VIEW TO PUBLIC DISCLOSURE
OR COMPLIANCE WITH PUBLISHED GUIDELINES OF THE COMMISSION OR THE GUIDELINES
ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS. THE
PROJECTIONS ARE INCLUDED IN THIS OFFER TO PURCHASE ONLY BECAUSE SUCH INFORMATION
WAS PROVIDED TO TSI. NONE OF TSI, THE PURCHASER OR ANY PARTY TO WHOM THE
PROJECTIONS WERE PROVIDED GIVES ANY ASSURANCES AS TO THE ACCURACY OF SUCH
INFORMATION. WHILE PRESENTED WITH NUMERICAL SPECIFICITY, THESE PROJECTIONS ARE
BASED UPON A VARIETY OF ASSUMPTIONS RELATING TO THE BUSINESS OF THE COMPANY THAT
MAY NOT BE REALIZED AND ARE SUBJECT TO SIGNIFICANT UNCERTAINTIES AND
CONTINGENCIES, MANY OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY AND TSI.
THERE CAN BE NO ASSURANCE THAT THE PROJECTIONS WILL BE REALIZED, AND ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE SHOWN. THE PROJECTIONS HAVE NOT BEEN
EXAMINED BY THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS. FOR THESE REASONS, AS
WELL AS THE BASES ON WHICH SUCH PROJECTIONS WERE COMPILED, THE INCLUSION OF SUCH
PROJECTIONS HEREIN SHOULD NOT BE REGARDED AS AN INDICATION THAT TSI, THE
PURCHASER OR ANY OTHER PARTY WHO RECEIVED SUCH INFORMATION CONSIDERS IT AN
ACCURATE PREDICTION OF FUTURE EVENTS.
9. CERTAIN INFORMATION CONCERNING THE PURCHASER AND TSI.
General
The Purchaser, a Texas corporation and a wholly owned subsidiary of TSI,
was organized for the purpose of acquiring the Company and has conducted no
activities unrelated to such purpose since its organization. All of the issued
and outstanding shares of capital stock of the Purchaser are owned by TSI. The
principal executive offices of the Purchaser are located at the principal
executive offices of TSI. The telephone number of the Purchaser at such offices
is (813) 249-4900.
TSI markets and manufactures men's and women's sportswear including pants,
jeans, shorts and shirts through all major retail distribution channels
including department and specialty stores. TSI provides major retailers with
comprehensive brand management programs and distinguishes itself from
traditional private label manufacturers by providing apparel retailers with
customer, product and market analysis, apparel design, merchandising, and
inventory forecasting through the use of state-of-the-art technology. TSI is a
Florida corporation with its principal executive offices at 4209 West Waters
Avenue, Tampa, Florida 33634-1302. Its telephone number at such address is (813)
249-4900.
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Selected Financial Information
Set forth below is certain selected consolidated financial information with
respect to TSI. Such financial information has been taken from the periodic
reports and other documents filed by TSI with the Commission. More comprehensive
information concerning TSI is included in such reports and other documents and
the financial information that follows is qualified in its entirety by reference
to such reports and other documents and all of the financial information and
notes contained therein. Such reports and other documents may be inspected and
copies may be obtained from the Commission in the manner set forth below.
TROPICAL SPORTSWEAR INT'L CORPORATION
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOURTEEN THIRTEEN
WEEKS WEEKS FISCAL YEARS ENDED
ENDED ENDED ---------------------------------------------
JANUARY 3, DECEMBER 28, SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 30,
1998 1996 1997 1996 1995
---------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales........................ $ 35,094 $ 30,727 $ 151,692 $ 117,355 $ 110,064
Operating income................. 2,729 2,274 16,612 11,034 7,146
Income before income taxes....... 2,080 1,441 13,176 7,916 2,985
Net income....................... 1,305 919 8,269 5,171 2,160
Net income per share............. $ 0.18 $ 0.15 $ 1.37 $ 0.86 $ 0.36
Weighted average number of shares
used in the calculation....... 7,100,600 6,015,000 6,015,000 6,015,000 6,015,000
BALANCE SHEET DATA:
Total assets..................... $ 72,402 $ 71,290 $ 69,658 $ 63,415 $ 55,237
Long-term debt including
obligations under capital
leases........................ 16,819 9,561 24,055 24,162 27,175
Shareholders' equity............. 41,379 19,301 26,651 18,382 13,211
</TABLE>
Certain Information
The name, citizenship, business address, present principal occupation or
employment and five-year employment history of each of the directors and
executive officers of the Purchaser and TSI are set forth in Schedule I hereto.
Except as set forth in this Offer to Purchase, neither the Purchaser or
TSI, nor, to the best of their knowledge, any of the persons listed on Schedule
I, nor any associate or majority-owned subsidiary of any of the foregoing,
beneficially owns or has a right to acquire any Shares, and neither the
Purchaser nor TSI nor, to the best of their knowledge, any of the persons or
entities referred to above, nor any of the respective executive officers,
directors or subsidiaries of any of the foregoing, has effected any transaction
in Shares during the past 60 days.
Except as set forth in this Offer to Purchase, neither the Purchaser or
TSI, nor, to the best of their knowledge, any of the persons listed on Schedule
I, has any contract, arrangement, understanding or relationship with any other
person with respect to any securities of the Company, including, but not limited
to, any contract, arrangement, understanding or relationship concerning the
transfer or the voting of any securities of the Company, joint ventures, loan or
option arrangements, puts or calls, guarantees of loans, guarantees against
loss, or the giving or withholding of proxies. Except as set forth in this Offer
to Purchase, none of the Purchaser, TSI, or any of their respective affiliates,
nor, to the best of their knowledge, any of the persons listed on Schedule I,
has had, since November 5, 1994, any business relationships or transactions with
the Company or any of its executive officers, directors or affiliates that would
require reporting under the rules of the Commission. Except as set forth in this
Offer to Purchase, since November 5, 1994, there have been no
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<PAGE> 18
contacts, negotiations or transactions between the Purchaser, TSI, any of their
respective affiliates or, to the best of their knowledge, any of the persons
listed on Schedule I, and the Company or its affiliates concerning a merger,
consolidation or acquisition, tender offer or other acquisition of securities,
election of directors or a sale or other transfer of a material amount of
assets.
Available Information
TSI is subject to the informational filing requirements of the Exchange Act
and, in accordance therewith, is obligated to file reports, proxy statements and
other information with the Commission relating to its business, financial
condition and other matters. Information as of particular dates concerning TSI's
directors and officers, their remuneration, options granted to them, the
principal holders of TSI's securities and any material interests of such persons
in transactions with TSI is required to be disclosed in proxy statements
distributed to TSI's shareholders and filed with the Commission. Such reports,
proxy statements and other information can be inspected and copied at the
offices of the Commission in the same manner as set forth with respect to
information concerning the Company in Section 8. Such material may also be
available for inspection at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006-1506.
10. SOURCE AND AMOUNT OF FUNDS.
The total amount of funds required by the Purchaser to purchase all of the
Shares pursuant to the Offer and the Merger and to pay related fees and expenses
is expected to be approximately $100 million. The Purchaser plans to obtain the
necessary funds either through capital contributions or advances made directly
or indirectly by TSI.
TSI and the Purchaser anticipate that the funds required in connection with
the transactions contemplated by the Merger Agreement will be obtained through
the private placement of senior subordinated debt of TSI.
Pursuant to an Engagement Letter dated April 26, 1998, between Prudential
Securities and its affiliates, including Prudential Securities Credit Corp., and
TSI, Prudential Securities has been engaged to act as TSI's lead underwriter,
placement agent or initial purchaser, as the case may be, in connection with the
proposed issuance to institutional investors of up to $125 million aggregate
principal amount of senior subordinated notes of TSI (the "Securities"). The net
proceeds to TSI from the sale of the Securities principally will be used to
finance the Offer and the Merger and to pay related fees and expenses. This
Offer to Purchase does not constitute an offer to sell or a solicitation of an
offer to buy any of the Securities to be placed by Prudential Securities.
In addition, TSI has received a letter (the "Commitment Letter") dated
April 26, 1998, from Prudential Securities Credit Corp. ("Prudential Credit")
pursuant to which Prudential Credit has committed, subject to the terms and
conditions of the Commitment Letter, to provide TSI with a senior subordinated
exchangeable bridge loan in an initial aggregate principal amount of up to $100
million (the "Bridge Loan"), that will be available to TSI and the Purchaser on
the date of the consummation of the Offer if for any reason the net proceeds
from the sale of Securities have not been received by TSI on or prior to the
date of such consummation.
Borrowings under the Bridge Loan will mature in one year. If, upon
maturity, TSI fails to repay the Bridge Loan in full and provided that no
default or event of default exists on such date (other than the failure to repay
the Bridge Loan on the maturity date), any then outstanding portion of the
Bridge Loan shall automatically be exchanged for senior subordinated exchange
notes (the "Exchange Notes"), which will mature on the date that is 180 days
after the original maturity date of TSI's five-year revolving credit facility.
The Bridge Loan will initially bear interest at a rate per annum equal to the
sum of (a) the three-month London interbank offered rate, adjusted for reserves
("LIBOR") calculated on the basis of the actual number of days elapsed in a year
of 360 days plus (b) a spread (the "Spread") of 400 basis points. If the Bridge
Loan is not repaid in whole within 90 days following the date of the
consummation of the Offer, the Spread will increase by 50 basis points at the
end of such ninety-day period and shall increase by an additional 50 basis
15
<PAGE> 19
points at the end of each 90-day period thereafter until the Maturity Date. If
Exchange Notes are issued on the Maturity Date, the Exchange Notes will bear a
fixed rate of interest per annum equal to the sum of the interest rate in effect
with respect to the Bridge Loan immediately prior to the issuance of the
Exchange Notes plus 100 basis points; provided, however, that the interest rate
applicable to the Bridge Loan and Exchange Notes shall not exceed (i) 18% per
annum or (ii) the maximum rate permitted by applicable law.
The Bridge Loan will contain such covenants with respect to TSI and its
subsidiaries as are usual and customary for financing of this kind. Borrowings
under the Bridge Loan are subject to the satisfaction or waiver of certain
conditions, including, without limitation: (i) the execution and delivery of
definitive documentation with respect to the Bridge Loan, in form and substance
reasonably satisfactory to Prudential Credit, (ii) all conditions precedent to
the Offer shall have been satisfied or, with consent of Prudential Credit,
waived, and (iii) receipt of all necessary governmental, shareholder and
material third-party approvals.
Pursuant to the Commitment Letter, TSI has agreed to pay certain fees to
Prudential Credit to reimburse Prudential Credit for certain expenses and to
provide certain indemnities, as is customary for commitments of the type
described herein. The foregoing discussion of the Commitment Letter is qualified
in its entirety by reference to the Commitment Letter, a copy of which has been
filed with the Commission as an Exhibit to the Schedule 14D-1.
TSI anticipates that the loans made to TSI under the Bridge Loan will be
repaid from the offering and sale of Securities. TSI further anticipates that
amounts outstanding under the Securities will be repaid from a variety of
sources, including, without limitation, funds generated internally by TSI and
its subsidiaries (including, following the Merger, funds generated by the
Company and its subsidiaries) bank refinancing and the public or private sale of
debt or equity securities. No final decisions have been made concerning the
sources to be utilized or the methods by which TSI and its subsidiaries will
repay such indebtedness. Such decisions will be made and may be modified by TSI
based on then prevailing market conditions and such other factors as TSI deems
appropriate.
11. BACKGROUND OF THE OFFER; PURPOSE OF THE OFFER AND THE MERGER; THE MERGER
AGREEMENT AND CERTAIN OTHER AGREEMENTS.
The following description was prepared by TSI and the Company. Information
about the Company was provided by the Company and neither the Purchaser nor TSI
takes any responsibility for the accuracy or completeness of any information
regarding meetings or discussions in which TSI or its representatives did not
participate.
Background of the Offer
TSI has principally grown internally through increased sales of core
products to current customers, sales to new customers and expansion into
complementary apparel product lines. TSI has also monitored opportunities to
grow through acquisition of either established brands or established companies.
On December 31, 1997, William W. Compton, Chairman of the Board and Chief
Executive Officer of TSI, telephoned Richard C. Allender, President and Chief
Executive Officer of the Company, to discuss a possible business combination
between the companies. Mr. Allender requested that TSI submit to the Company a
letter of interest prior to further discussions. TSI drafted and submitted such
a letter of interest to the Company on January 6, 1998. The letter of interest
did not contain any terms with regard to an acquisition proposal. On January 8,
1998, Mr. Allender contacted Mr. Compton and indicated that due to personal
circumstances he would prefer to delay any further discussions until February,
1998.
In December, 1997, Prudential Securities began informally working with TSI
as its financial advisor in connection with a potential acquisition of the
Company.
In February, 1998, Mr. Compton telephoned Mr. Allender and the parties
continued their review of the potential benefits of various forms of business
combinations between them.
16
<PAGE> 20
On March 23, 1998, Mr. Allender and Mr. Charles J. Smith, a director of the
Company, traveled to Tampa, Florida and met with Mr. Compton, Mr. Michael Kagan,
Executive Vice President and Chief Financial Officer of TSI and Mr. Richard J.
Domino, President of TSI. The parties discussed recent developments in the
apparel industry and continued their review of the potential benefits of various
strategic relationships including the possibility of combining the companies.
Prior to these discussions, TSI entered into a Confidentiality Agreement with
the Company dated March 20, 1998, a copy of which is filed as an Exhibit to the
Schedule 14D-1, pursuant to which, among other things, TSI agreed that any
non-public information made available to it by the Company would be held in
strict confidence. Also prior to these discussions, on March 23, 1998, the
Company entered into a Confidentiality Agreement with TSI, a copy which is filed
as an Exhibit to the Schedule 14D-1, pursuant to which, among other things, the
Company agreed that any non-public information made available to it by TSI would
be held in strict confidence.
On March 26, 1998, the Company entered into an agreement with Financo
pursuant to which Financo was engaged as the Company's exclusive agent to review
and analyze the financial and structural alternatives available to the Company,
with a view toward meeting its long-term strategic objectives and the
maximization of shareholder value, including but not limited to, (a) identifying
opportunities for the possible sale of the Company; (b) advising the Company
concerning opportunities for such a sale, whether or not identified by Financo;
and (c) as requested by the Company, participating on the Company's behalf in
negotiations concerning such a sale.
On March 26, 1998, TSI entered into a new Confidentiality Agreement with
the Company, a copy of which is filed as an Exhibit to the Schedule 14D-1,
pursuant to which, among other things, TSI agreed that any non-public
information made available to it would be held in strict confidence, and further
agreed to a two year standstill with regard to initiating any form of business
combination or other acquisition transaction involving the Company, with regard
to initiating any purchase or sale of any securities of the Company and with
regard to inducing certain employees of the Company to leave the employ of the
Company, unless TSI was specifically invited or authorized to initiate such a
transaction by the Company or the Company provided its prior written consent.
(The Confidentiality Agreements signed on March 20, 1998 and March 26, 1998 are
hereinafter referred to collectively as the "Confidentiality Agreements").
On March 26, 1998, TSI was invited to conduct a due diligence investigation
of the Company. Commencing on April 1, 1998, members of a due diligence team
established by TSI conducted detailed due diligence involving a presentation by
the Company's management, interviews of the Company's independent auditors and a
detailed review of confidential information provided by the Company in a data
room. Due diligence contacts and communications with the Company continued to
occur on a regular basis until May 1, 1998.
On April 8, 1998, Mr. Compton traveled with certain other operational
personnel to several of the Company's facilities in Mexico accompanied by Mr.
Allender and Jackie L. Boatman, Executive Vice President -- Operations of the
Company. The parties toured the facilities and discussed various aspects of
their operations.
On April 16, 1998, Mr. Compton traveled with certain other operational
personnel to several of the Company's facilities in Costa Rica accompanied by
Mr. Boatman. The parties toured the facilities and discussed various aspects of
their operations.
On April 6, 1998, Financo, on behalf of the Company, issued a letter
advising TSI of the process that would govern the submission of acquisition
proposals. Pursuant to this letter, all bidders were requested to transmit to
Financo a non-binding expression of interest concerning such possible
acquisition. The written proposals were due to be submitted no later than 5:00
p.m. New York City time, on Monday, April 27, 1998.
On April 17, 1998, Financo, on behalf of the Company, submitted to TSI two
forms of acquisition agreements, one of which contemplated a merger and the
other drafted to include a tender offer and a merger, and requested that TSI
review and provide comments to one of the acquisition agreements as part of its
written proposal on April 27, 1998.
17
<PAGE> 21
On April 22, 1998, the Board of Directors of TSI (the "TSI Board"), met and
reviewed with TSI's management and financial and legal advisors the due
diligence conducted to date and the financial and operational implications of an
acquisition of the Company. The TSI Board authorized TSI to make a non-binding
proposal to acquire all of the outstanding Shares of the Company subject to a
price limitation.
On April 27, 1998, TSI submitted a non-binding proposal to Financo, which
included proposed terms of employment agreements with the following of the
Company's executives: Mr. Allender, Mr. Gibson, Mr. Boatman, Mr. Mitchell, Mr.
Kernaghan, and Mr. Martinez. The proposal also included TSI's intention to add
two of the Company's directors to the TSI Board. The proposal was to expire on
May 1, 1998.
On April 29, 1998, a representative of Financo contacted a representative
of TSI's financial advisor and suggested that TSI consider improving the value
of TSI's acquisition proposal. Thereafter, following a meeting among certain of
the executive officers of TSI and consultation with TSI's financial advisors,
TSI increased its offer to $9.00 per Share, which offer was to expire at 5:00
p.m., New York City time, on May 1, 1998.
On April 30, 1998, members of TSI's management and representatives of TSI's
outside counsel and representatives of TSI's financial advisors met with
representatives of the Company, their financial advisors and their outside
counsel to negotiate the terms of the Merger Agreement. Intensive discussions
regarding the Merger Agreement continued among the parties and their advisors
through May 1, 1998.
On May 1, 1998, Financo delivered to Company's Board of Directors its
written opinion to the effect that the consideration to be received by the
public shareholders of the Company in the Offer and Merger is fair to such
shareholders from a financial point of view as of the date of such meeting. The
opinion of Financo is set forth in full as Exhibit to the Company's Schedule
14D-9, which is being mailed to the shareholders of the Company concurrently
with this Offer to Purchase. The shareholders of the Company are urged to read
that opinion in its entirety.
At a special meeting held on May 1, 1998, the TSI Board reviewed the
transactions and, following presentations by senior officers and financial and
legal advisors of TSI, unanimously approved the Merger Agreement, the Offer, and
the Merger.
The Company's Board of Directors held a special meeting on May 1, 1998,
where presentations from senior management of the Company and the Company's
financial and legal advisors were made regarding the proposed transaction
between the Company and TSI. The Board of Directors of the Company thereafter
unanimously approved the Merger Agreement, the Offer and the Merger and
determined that the terms of the Offer and Merger were fair to, and in the best
interest of, the Company's shareholders, and unanimously recommended that the
shareholders of the Company accept the Offer and tender their Shares.
In the evening of May 1, 1998, the parties executed the Merger Agreement.
On May 4, 1998 (prior to the opening of the stock market on the first business
day following execution of the Merger Agreement), the parties publicly announced
the strategic combination.
On May 8, 1998, the Purchaser and TSI commenced the Offer.
Purpose of the Offer and the Merger
The purpose of the Offer, the Merger and the Merger Agreement is to enable
TSI to acquire control of, and the entire equity interest in, the Company. The
Offer is being made pursuant to the Merger Agreement and is intended to increase
the likelihood that the Merger will be effected. The purpose of the Merger is to
acquire all outstanding Shares not purchased pursuant to the Offer. The
transaction is structured as a tender offer followed by a merger in order to
ensure the acquisition by the Purchaser of all the outstanding Shares. Upon
consummation of the Merger, the Company will become a wholly owned subsidiary of
TSI.
If the Merger is consummated, TSI's common equity interest in the Company
would increase to 100% and TSI would be entitled to all benefits resulting from
that interest. These benefits include complete management with regard to the
future conduct of the Company's business and any increase in its value.
Similarly, TSI will also bear the risk of any losses incurred in the operation
of the Company and any decrease in the value of the Company.
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<PAGE> 22
Shareholders of the Company who sell their Shares in the Offer will cease
to have any equity interest in the Company and any opportunity to participate in
its earnings and any future growth. If the Merger is consummated, the
shareholders will no longer have an equity interest in the Company and instead
will have only the right to receive cash consideration pursuant to the Merger
Agreement or to exercise statutory dissenters' rights under Texas law. See
Section 12. Similarly, the shareholders of the Company will not bear the risk of
any decrease in the value of the Company after selling their Shares in the Offer
or the subsequent Merger.
The primary benefits of the Offer and the Merger to the shareholders of the
Company are that such shareholders are being afforded an opportunity to sell all
of their Shares for cash at a price which represents a premium of approximately
33.3% over the closing market price of the Shares on May 1, 1998, the last full
trading day prior to the initial public announcement of the Offer.
The Merger Agreement
The following is a summary of certain provisions of the Merger Agreement.
This summary is qualified in its entirety by reference to the Merger Agreement
which is incorporated herein by reference and a copy of which has been filed
with the Commission as an Exhibit to the Schedule 14D-1. The Merger Agreement
may be examined and copies may be obtained at the places and in the manner set
forth in Section 9 of this Offer to Purchase.
The Offer. The Merger Agreement provides that the Purchaser will commence
the Offer and that, upon the terms and subject to the prior satisfaction or
waiver of the conditions of the Offer, the Purchaser will purchase all Shares
validly tendered pursuant to the Offer. The Merger Agreement provides that the
Purchaser will not amend or waive the Minimum Condition and will not decrease
the Offer Price or decrease the number of Shares sought in the Offer, impose any
further conditions to the Offer or amend any condition of the Offer in a manner
materially adverse to the holders of Shares. Notwithstanding the foregoing, the
Merger Agreement provides that the Purchaser may extend the Offer (i) if at the
scheduled Expiration Date any of the conditions to the Offer have not been
satisfied, including but not limited to any legal or regulatory requirements
under the HSR Act, (ii) from time to time for a maximum of an aggregate of ten
business days beyond the initial Expiration Date (which initial Expiration Date
shall be twenty business days following the commencement of the Offer), and
(iii) for any period required by any rule, regulation, interpretation or
position of the Commission or the staff of the Commission applicable to the
Offer. The Merger Agreement further provides, however, that in no event may the
Offer be extended beyond the date of termination of the Merger Agreement, and
either party has the right to terminate the Merger Agreement if the Offer is not
completed by August 31, 1998.
The Merger. The Merger Agreement provides that following the consummation
of the Offer and subject to the terms and conditions thereof, in accordance with
Texas law, in the event that the Purchaser shall acquire at least 90% of the
outstanding Shares of the Company, at the Effective Time the Purchaser shall be
merged with and into the Company and, as a result of the Merger, the separate
corporate existence of the Purchaser shall cease and the Company shall continue
as the surviving corporation (the "Surviving Corporation"). In the event that
the Purchaser does not acquire at least 90% of the Shares, the Company will duly
call, give notice of, convene and hold an annual or special meeting of its
shareholders as soon as practicable following the consummation of the Offer for
the purpose of considering and taking action on the Merger Agreement and the
Merger (the "Shareholders Meeting").
The respective obligations of TSI and the Purchaser, on the one hand, and
the Company, on the other hand, to effect the Merger are subject to the
satisfaction of each of the following conditions: (i) the Merger Agreement shall
have been approved by the requisite vote of the holders of Shares, to the extent
required by applicable law, the Company's Articles of Incorporation and Bylaws
and by the NYSE; (ii) no governmental authority shall have enacted, issued,
promulgated, enforced or entered any law, order, executive order, stay, decree,
judgment, injunction or other order or statute, rule or regulation which is in
effect and which has the effect of making the acquisition of Shares by the
Purchaser or TSI or any affiliate of either of them illegal or otherwise
preventing or prohibiting consummation of the Offer or the Merger; (iii) the
Purchaser shall have
19
<PAGE> 23
purchased all Shares validly tendered and not withdrawn pursuant to the Offer,
unless such failure to purchase is a result of a breach of the Purchaser's
obligation to purchase any Shares validly tendered and not withdrawn pursuant to
the Offer; and (iv) the applicable waiting period under the HSR Act shall have
expired or been terminated.
At the Effective Time of the Merger (i) each issued and outstanding Share
(other than Shares that are owned by the Company as treasury stock, any Shares
owned by TSI, the Purchaser or any other wholly owned Subsidiary of TSI, or any
Shares that are held by shareholders exercising dissenters' rights under Texas
law) will be converted into the right to receive the price per share paid
pursuant to the Offer and (ii) each issued and outstanding share of the common
stock, par value $.01 per share, of the Purchaser will be converted into one
share of common stock of the Surviving Corporation and shall constitute the only
outstanding shares of capital stock of the Surviving Corporation.
The Company's Board of Directors. The Merger Agreement provides that
promptly after the purchase by the Purchaser of Shares pursuant to the Offer,
the Purchaser shall be entitled to designate such number of directors, rounded
up to the next whole number, on the Company's Board of Directors as is equal to
the product of the total number of directors on the Company's Board of Directors
(giving effect to the directors designated by the Purchaser) multiplied by the
percentage that the number of Shares beneficially owned by the Purchaser or TSI
bears to the total number of Shares then outstanding. The Company will promptly
take all actions necessary to cause the Purchaser's designees to be elected as
directors of the Company, including increasing the size of the Company's Board
of Directors or securing the resignations of such number of its incumbent
directors or both.
Shareholders' Meeting. If required by applicable law in order to
consummate the Merger, the Company agrees, in accordance with applicable law and
the Company's Restated Articles of Incorporation and Amended and Restated
Bylaws, to (a) duly call, give notice of, convene and hold an annual or special
meeting of its shareholders as soon as practicable following consummation of the
Offer for the purpose of considering and taking action on the Merger Agreement
and the transactions contemplated thereby and (b) subject to the fiduciary
obligations of the Company's Board of Directors, include in the Proxy Statement
for the Shareholders Meeting the recommendation of the Company's Board of
Directors that the shareholders of the Company approve the Merger Agreement and
the Merger and use its reasonable best efforts to obtain such approval. To the
extent permitted by law, TSI and the Purchaser each agree to vote all Shares
beneficially owned by them in favor of the Merger. Further, if required by
applicable law in order to consummate the Merger, as promptly as practicable
after the purchase of all Shares validly tendered and not withdrawn pursuant to
the Offer, the Company shall file a Proxy Statement with the Commission under
the Exchange Act, and shall use its reasonable best efforts to have the Proxy
Statement cleared by the Commission. The Company agrees to give TSI and its
counsel the opportunity to review the Proxy Statement prior to its being filed
with the Commission and will give TSI and its counsel the opportunity to review
all amendments and supplements to the Proxy Statement and all responses to
requests for additional information and replies to comments prior to their being
filed with, or sent to, the Commission. If the Purchaser acquires at least two-
thirds of the outstanding Shares, the Purchaser will have sufficient voting
power to approve the Merger, even if no other shareholder votes in favor of the
Merger.
The Merger Agreement provides that in the event that the Purchaser acquires
at least 90% of the outstanding Shares, pursuant to the Offer or otherwise, TSI,
the Purchaser and the Company will, at the request of TSI and subject to the
terms of the Merger Agreement, take all necessary and appropriate action to
cause the Merger to become effective as soon as practicable after such
acquisition, without a meeting of shareholders of the Company, in accordance
with Texas law.
Options and Restricted Stock. Immediately after the Purchaser has accepted
for payment all Shares validly tendered and not withdrawn prior to the
Expiration Date, each outstanding option to purchase Shares (in each case, an
"Option") granted under (a) the Company's 1991 Stock Option and Restricted Stock
Plan, as amended, (b) the Company's 1988 Stock Option Plan for Non-Employee
Directors (c) the Company's 1996 Non-Employee Director Stock Option Plan, as
amended, (d) the Company's 1998 Stock Option and Restricted Stock Plan, and (e)
the Company's 1986 Stock Option Plan (such plans (a) through
20
<PAGE> 24
(e) hereinafter the "Company Option Plans"), whether or not then exercisable or
vested, shall, subject to the Company's receipt of any required consent of the
holders of such Options, be canceled by the Company, and each holder of a
canceled Option shall be entitled to receive from the Purchaser at the same time
as payment for Shares is made by the Purchaser in connection with the Offer, in
consideration for the cancellation of such Option, an amount in cash equal to
the product of (i) the number of Shares previously subject to such Option and
(ii) the excess, if any, of the Offer Price over the exercise price per Share
previously subject to such Option. Immediately prior to the acceptance for
payment by the Purchaser of all Shares validly tendered and not withdrawn prior
to the Expiration Date, all restrictions on any restricted stock awards granted
under the Company Option Plans shall lapse and the holders of such restricted
stock shall be entitled to receive from the Purchaser at the same time as
payment for Shares is made by the Purchaser in connection with the Offer in
consideration for the restricted stock an amount in cash equal to the product of
(i) the number of Shares subject to such restricted stock award and (ii) the
Offer Price.
Interim Operations; Covenants. Pursuant to the Merger Agreement, the
Company agreed that, between the date of the Merger Agreement and the election
or appointment of the Purchaser's designees to the Company's Board of Directors
upon the purchase by the Purchaser of Shares pursuant to the Offer, unless TSI
otherwise agrees in writing (which agreement will not be unreasonably withheld),
(1) the business of the Company and its subsidiaries (the "Subsidiaries") will
be conducted only in, and the Company and the Subsidiaries will not take any
action except in, the ordinary course of business and in a manner substantially
consistent with past practice, (2) the Company will use all reasonable efforts
to preserve substantially intact its business organization, to keep available
the services of the current officers, employees and consultants of the Company
and the Subsidiaries and to preserve the current relationships of the Company
and the Subsidiaries with customers, suppliers and other persons with which the
Company or any Subsidiary has significant business relations, (3) the Company
will not, and will not permit any Subsidiary to take, any action that would (i)
materially and adversely affect the ability of any party to the Merger Agreement
to obtain any consents required for the Offer or the Merger, (ii) cause any of
the conditions to the Offer or the Merger not to be satisfied, or (iii)
materially and adversely affect the ability of any party to perform its
covenants and agreements under the Merger Agreement, and (4) the Company will
not, and will not permit any Subsidiary to: (a) amend or otherwise change its
articles of incorporation or bylaws or other organizational or governing
documents; (b) issue, sell, pledge, dispose of, grant, encumber, or authorize
the issuance, sale, pledge, disposition, grant or encumbrance of, (i) any shares
of capital stock of the Company or any Subsidiary of any class, or any options,
warrants, convertible securities or other rights of any kind to acquire any
shares of such capital stock, or any other ownership interest of the Company or
any Subsidiary (except for shares of the Company's common stock, if any,
issuable under agreements currently in effect and shares of capital stock
pursuant to currently outstanding Options or employee benefit plans currently in
effect), or (ii) any of the Company's or any Subsidiaries' assets, except for
sales in the ordinary course of business and in a manner consistent with past
practice; (c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to any
of its capital stock or sell, lease, mortgage or otherwise dispose of or
otherwise encumber any shares of capital stock of any Subsidiary; (d)
reclassify, combine, split, divide or redeem, purchase or otherwise acquire,
directly or indirectly, any of its capital stock; (e) (i) acquire any interest
in any corporation, partnership, other business organization or any division
thereof or any assets, other than the acquisition of assets in the ordinary
course of business consistent with past practice; (ii) incur any indebtedness
for borrowed money or issue any debt securities or assume, guarantee or endorse,
or otherwise as an accommodation become responsible for, the obligations of any
person, or make any loans or advances, except for indebtedness incurred in the
ordinary course of business and consistent with past practice with a maturity of
not more than one year in a principal amount not, in the aggregate, in excess of
$1,000,000; (iii) enter into, modify, amend or terminate any contract or
agreement material to the business, results of operations or financial condition
of the Company other than in the ordinary course of business, consistent with
past practice; (iv) authorize any capital expenditure; (v) impose, or suffer the
imposition, on any asset of the Company or any Subsidiary of any lien or permit
any such lien to exist; or (vi) enter into or amend any contract, agreement,
commitment or arrangement with respect to any matter set forth in this
subsection (e); (f) except in the ordinary course of business consistent with
past practice and except in the case of officers for annual increases in
compensation payable or to become payable to any officer of the Company
consistent with
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<PAGE> 25
past practice of the Company, (i) increase the compensation payable or to become
payable to any director, officer or other employee, or grant any bonus to, or
grant any severance or termination pay to, or enter into any employment or
severance agreement with, any director, officer or other employee of the Company
or any Subsidiary or enter into or amend any collective bargaining agreement, or
(ii) establish, adopt, enter into or amend any bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation or other plan, trust or fund for the benefit of any director,
officer or class of employees; (g) commence any litigation other than in
accordance with past practice, or settle or compromise any pending or threatened
litigation which is material or which relates to the Offer or the Merger; (h)
grant or convey to any person any rights, including, but not limited to, by way
of sale, license or sublicense, in any of the Company's intellectual property;
(i) make any significant change in any tax or accounting methods, principles or
practices or systems of internal accounting controls, except as may be
appropriate to conform to changes in tax laws or generally accepted accounting
principles ("GAAP"); or (j) after the date of the Merger Agreement, file any
material tax return without the prior consent of TSI, which consent will not be
unreasonably withheld.
Pursuant to the Merger Agreement, subject to the Confidentiality
Agreements, from the date of the Merger Agreement to the election or appointment
of the Purchaser's designees to the Company's Board of Directors upon the
purchase by the Purchaser of Shares pursuant to the Offer, the Company will
provide TSI, during normal business hours and upon reasonable notice, access to
all financial, operating and other data and information regarding the business
of the Company as TSI reasonably requests, other than information and documents
that in the opinion of the Company's counsel may not be disclosed under
applicable law.
No Solicitation. Pursuant to the Merger Agreement, the Company has agreed
that neither the Company nor any of its Subsidiaries will, directly or
indirectly, through any officer, director, agent or otherwise, solicit, initiate
or encourage the submission of any proposal or offer from any person relating to
any acquisition or purchase of all or any material portion of the assets of, or
any equity interest in, the Company or any Subsidiary or any merger,
consolidation, share exchange, business combination or other similar transaction
with the Company or any Subsidiary (a "Business Combination Proposal") or
participate in any negotiations regarding, or furnish to any other person any
information with respect to, or otherwise cooperate in any way with, or assist
or participate in, facilitate or encourage, any effort or attempt by any other
person to do or seek any of the foregoing; provided, however, that nothing shall
prohibit the Company from furnishing information to, or entering into
discussions or negotiations with, any person in connection with an unsolicited
Business Combination Proposal by such person received by the Company after the
date of the Merger Agreement, if, and only to the extent that, (a) a majority of
the disinterested members of the Company's Board of Directors, after
consultation with the Company's independent financial advisor and based on the
advice of outside counsel, determines in good faith that such action is required
in order for the Company's Board of Directors not to breach its fiduciary duties
to shareholders imposed by law and (b) prior to furnishing such information to,
or entering into discussions or negotiations with, such person, the Company (i)
gives TSI as promptly as practicable prior written notice of the Company's
intention to furnish such information or begin such discussions, the identity of
such person and the material terms of such Business Combination Proposal and
(ii) receives from such person an executed confidentiality agreement on terms no
less favorable to the Company than those contained in the Confidentiality
Agreement executed by TSI in favor of the Company.
The Company also agreed, pursuant to the Merger Agreement, that neither the
Board of Directors of the Company nor any committee thereof shall (i) withdraw
or modify, or propose to withdraw or modify, in a manner adverse to TSI or the
Purchaser, the approval or recommendation by such Board of Directors or any such
committee thereof, the Offer, the Merger Agreement or the Merger or (ii) approve
or recommend, or propose to approve or recommend, any Business Combination
Proposal. Notwithstanding the foregoing, the Board of Directors of the Company,
to the extent required by the fiduciary obligations thereof, as determined in
good faith by a majority of the disinterested members thereof based on the
advice of outside counsel, may approve or recommend (and, in connection
therewith, withdraw or modify its approval or recommendation of the Offer, the
Merger Agreement and the Merger) a Superior Proposal. "Superior Proposal" means
a bona fide Business Combination Proposal made by a third party to acquire,
directly or indirectly, all of the Shares then outstanding or all or
substantially all the assets of the Company, and otherwise on terms that a
majority
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<PAGE> 26
of the disinterested members of the Board of Directors of the Company determines
in its good faith judgment (based on the advice of the the Company's independent
financial advisor) to be more favorable to the holders of Shares than the Offer
and the Merger and for which financing, to the extent required, is then
committed or which, in the good faith judgment of a majority of such
disinterested members (based on the advice of the Company's independent
financial advisor), is reasonably capable of being financed by such third party.
Indemnification and Insurance. Pursuant to the Merger Agreement, TSI and
the Purchaser have agreed that the Articles of Incorporation and Bylaws of the
Surviving Corporation shall contain provisions no less favorable with respect to
indemnification than are set forth in the Restated Articles of Incorporation and
Amended and Restated Bylaws of the Company, which provisions shall not be
amended, repealed or otherwise modified for a period of six (6) years from the
Effective Time in any manner that would affect adversely the rights thereunder
of individuals who at any time prior to the Effective Time were directors,
officers or employees of the Company or any of the Subsidiaries, unless such
modification shall be required by Texas law. In addition, from and after the
Effective Time, TSI and the Surviving Corporation shall indemnify, defend and
hold harmless each person who is now, or has been at any time prior to the date
of the Merger Agreement or who becomes prior to the Effective Time, an officer,
director, employee or agent of the Company or any of the Subsidiaries
(collectively, the "Indemnified Parties") against all losses, expenses
(including reasonable attorneys' fees), claims, damages, liabilities or amounts
that are paid in settlement of, with the approval of the Surviving Corporation
(which approval shall not unreasonably be withheld), or otherwise in connection
with, any threatened or actual claim, action, suit, proceeding or investigation
(a "Claim"), based in whole or in part on or arising in whole or in part out of
the fact that the Indemnified Party (or the person controlled by the Indemnified
Party) is or was a director, officer, employee or agent of the Company or any of
the Subsidiaries and pertaining to any matter existing or arising out of actions
or omissions occurring at or prior to the Effective Time (including, without
limitation, any Claim arising out of the Merger Agreement or any of the
transactions contemplated thereby), whether asserted or claimed prior to, at or
after the Effective Time, in each case to the fullest extent permitted under
Texas law and by the Company's Restated Articles of Incorporation and Amended
and Restated Bylaws as in effect on May 1, 1998, and shall pay any expenses, as
incurred, in advance of the disposition of any such action or proceeding to each
Indemnified Party to the fullest extent permitted under Texas law and by the
Company's Restated Articles of Incorporation and Amended and Restated Bylaws as
in effect on May 1, 1998.
TSI and the Purchaser also agreed, pursuant to the Merger Agreement, to
maintain in effect for three years from the Effective Time, if available, the
current directors' and officers' liability insurance policies maintained by the
Company (provided that TSI may substitute therefor policies of at least the same
coverage containing terms and conditions which are not materially less
favorable) with respect to matters occurring prior to the Effective Time;
provided, that neither TSI nor the Surviving Corporation shall be obligated to
make aggregate premium payments for such three-year period in respect of such
policy (or coverage replacing such policy) which exceed, for the portion related
to the Company's directors and officers, 150% of the annual premium payments of
the Company's current policy in effect as of May 1, 1998 (the "Maximum Amount").
If the amount of the premiums necessary to maintain or procure such insurance
coverage exceeds the Maximum Amount, TSI shall use its reasonable efforts to
maintain the most advantageous policies of directors' and officers' liability
insurance obtainable for a premium equal to the Maximum Amount.
Representations and Warranties. Pursuant to the Merger Agreement, the
Company has made customary representations and warranties to TSI and the
Purchaser with respect to, among other things, its organization, capitalization,
financial statements, public filings, conduct of business, employee benefit
plans, intellectual property, labor matters, compliance with laws, tax matters,
litigation, environmental matters, tangible property, material contracts,
undisclosed liabilities, and the absence of any material adverse effect on the
Company since November 2, 1997.
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<PAGE> 27
Termination; Fees. The Merger Agreement may be terminated and the Offer
and the Merger may be abandoned at any time prior to the Effective Time,
(a) by mutual written consent duly authorized by the boards of
directors of each of TSI, the Purchaser and the Company prior to the date
of the election or appointment of the Purchaser's designees to the
Company's Board of Directors upon the purchase by the Purchaser of Shares
pursuant to the Offer;
(b) by either TSI or the Company if the Effective Time shall not have
occurred on or before August 31, 1998;
(c) by TSI if: (i) due to an occurrence or circumstance that results
in a failure to satisfy any condition of the Offer, the Purchaser shall
have (A) failed to commence the Offer within 10 days following the date of
the Merger Agreement, (B) terminated the Offer without having accepted any
Shares for payment thereunder or (C) failed to pay for Shares pursuant to
the Offer within 90 days following the commencement of the Offer, unless
any such failure listed above shall have been caused by or resulted from
the failure of TSI or the Purchaser to perform in any material respect any
covenant or agreement of either of them contained in the Merger Agreement
or the material breach by TSI or the Purchaser of any representation or
warranty of either of them contained in the Merger Agreement; or (ii) prior
to the purchase of Shares pursuant to the Offer, (A) the Company's Board of
Directors withdraws its recommendation of the Merger Agreement or the
Merger or shall have resolved to do so, (B) the Company's Board of
Directors shall have recommended to the shareholders of the Company any
Superior Proposal or resolved to do so, or (C) a tender offer or exchange
offer for 50% or more of the outstanding shares of capital stock of the
Company is commenced (other than by TSI or its affiliates) and the
Company's Board of Directors fails to recommend against the shareholders of
the Company tendering their shares into such tender offer or exchange
offer; or
(d) by the Company if: (i) the Purchaser shall have (A) failed to
commence the Offer within 10 days following the date of the Merger
Agreement, (B) terminated the Offer without having accepted any Shares for
payment thereunder or (C) failed to pay for Shares pursuant to the Offer
within 90 days following the commencement of the Offer, unless such failure
to pay for Shares shall have been caused by or resulted from the failure of
the Company to satisfy the conditions set forth in paragraph (c) of the
conditions to the Offer as set forth under Section 14 below (the
"Conditions to the Offer"); or (ii) prior to the purchase of Shares
pursuant to the Offer, the Board of Directors of the Company approves or
recommends a Superior Proposal.
The above referenced termination provisions are sometimes referred to,
collectively, or individually, as the "Termination Rights."
Pursuant to the Merger Agreement, the Company shall pay TSI a fee (an
"Alternative Proposal Fee") equal to three percent (3%) of the aggregate amount
payable by the Purchaser to the shareholders of Company pursuant to the Offer
and the Merger, plus all of the TSI Expenses (as hereinafter defined), if:
(i) the Merger Agreement is terminated pursuant to paragraph (c)(ii)
or (d)(ii) of the Termination Rights; or
(ii) the Merger Agreement is terminated pursuant to a Termination
Right (other than (A) due to an occurrence or circumstance that results in
a failure to satisfy paragraphs (a), (f) or (h) of the Conditions to the
Offer or (B) pursuant to paragraph (d) of the Termination Rights, unless
the event providing the basis for such termination is the result of an
occurrence or circumstance that results in a failure to satisfy paragraphs
(b) or (c) of Conditions of the Offer), and (A) the Offer shall have
remained open for at least twenty (20) business days, (B) the Minimum
Condition shall not have been satisfied, (C) a Business Combination
Transaction Proposal shall have been made prior to termination of the
Offer, and (D) such Business Combination Transaction is thereafter
consummated within 12 months of such termination. "Business Combination
Transaction" means any of the following involving the Company: (1) any
merger, consolidation, share exchange, business combination or other
similar transaction; (2) any sale, lease, exchange, transfer or other
disposition (other than a pledge or mortgage) of 50% or more of the assets
of the Company in a single transaction or series of related transactions;
or
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<PAGE> 28
(3) the acquisition by a person or entity or any "group" (as such term is
defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) of beneficial ownership of 50% or more of the
shares of the Company's common stock, whether by tender offer, exchange
offer or otherwise.
TSI shall be entitled to receive the TSI Expenses (but not the Alternative
Proposal Fee) in immediately available funds in the event that the Merger
Agreement is terminated by TSI pursuant to paragraph (c)(i) of the Termination
Rights (other than due to an occurrence or circumstance that results in a
failure to satisfy paragraphs (a), (f) or (h) of the Conditions to the Offer
hereto in which case such TSI Expenses shall not exceed $1,500,000).
As used herein, "TSI Expenses" means all reasonable out-of-pocket expenses
and fees actually incurred by TSI or the Purchaser or on their respective behalf
in connection with the Offer and the Merger prior to the termination of the
Merger Agreement (including, without limitation, all fees and expenses of
counsel, financial advisors, banks or other entities providing financing to TSI
(including financing, commitment and other fees payable thereto), accountants,
environmental and other experts and consultants to TSI and its affiliates, and
all printing and advertising expenses) and in connection with the negotiation,
preparation, execution, performance and termination of the Merger Agreement, the
structuring of the Offer and the Merger, any agreements relating thereto and any
filings to be made in connection therewith.
Except as set forth in this Section, all costs and expenses incurred in
connection with the Merger Agreement and the Offer and the Merger shall be paid
by the party incurring such expenses, whether or not the Offer or the Merger is
consummated.
Employment Agreement
Richard C. Allender, the Chairman of the Board, Chief Executive Officer and
President of the Company, currently has an employment agreement with the Company
dated July 10, 1995. The current employment agreement provides for a three-year
term which renews on a daily basis and provides for a base salary of $400,000
per year. In connection with the Offer, TSI and Mr. Allender entered into a new
Employment Agreement (the "Employment Agreement") to provide for the employment
of Mr. Allender following the consummation of the Offer. The term of the
Employment Agreement will commence on the earlier to occur of the Effective Time
or the date upon which the Purchaser is entitled to designate directors to be
elected to the Company's Board of Directors pursuant to the Merger Agreement,
and will continue for a three (3) year term (the "Initial Term"), after which
the Employment Agreement will be renewed automatically on a daily basis so that
the term after the Initial Term will continue for a twelve (12) month term.
During each year that the Employment Agreement is in effect, TSI and/or its
subsidiaries will pay to Mr. Allender a minimum annual salary of $300,000 ("Base
Salary"). The Employment Agreement also provides that during each year that the
Employment Agreement is in effect, TSI will pay to Mr. Allender an annual bonus
of at least $100,000. On the first day of the Initial Term, TSI will grant to
Mr. Allender options to purchase 15,000 shares of TSI's common stock at an
exercise price equal to the fair market value of the shares on the date of grant
of such option. The options will be vested and immediately exercisable. During
each year that the Employment Agreement is in effect, TSI will grant additional
options to Mr. Allender upon such terms as are generally available to senior
executive officers of TSI or its subsidiaries. During the term of his
employment, Mr. Allender will be entitled to participate in or receive all
benefits under TSI's employee benefit plans and arrangements, including, without
limitation, TSI's 401(k) plan and all benefits which are available to senior
executive officers of TSI or its subsidiaries. TSI will pay the cost of premiums
for Mr. Allender's existing split-dollar life insurance policy, but the cost of
premiums for such split-dollar life insurance policy may not exceed $121,000 per
annum, unless otherwise agreed by TSI. Except as otherwise provided in the
Employment Agreement, TSI will be obligated from and after the date of the
Employment Agreement to pay a minimum of three annual premium payments of
$121,000, or an aggregate amount of premiums of $363,000, including any payments
made during the Initial Term or any term after the Initial Term (the "Minimum
Premium Commitment"). On the first day of the Initial Term and as an inducement
to surrender his rights under his existing employment contract and to remain
with the Company following the closing, TSI will pay Mr. Allender a bonus of
$600,000. In addition, if Mr. Allender is employed by TSI or
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<PAGE> 29
any of its subsidiaries on the last day of the Initial Term, TSI will pay to Mr.
Allender on such date an additional bonus of $500,000 (the "Final Bonus").
During the term of his employment, Mr. Allender will be entitled to receive all
perquisites which are available to senior executive officers of TSI or its
subsidiaries including, without limitation, country club membership dues of
approximately $350 per month; a car allowance of $1,000 per month; and a gas
allowance of $250 per month.
TSI may terminate Mr. Allender's employment for Cause, which means: (i) Mr.
Allender's conviction of a felony involving moral turpitude; or (ii) Mr.
Allender's serious, willful gross misconduct or willful gross neglect of duties
(other than any such neglect resulting from Mr. Allender's incapacity due to
physical or mental illness or any such neglect after the issuance of a notice of
termination delivered pursuant to the Employment Agreement by Mr. Allender for
Good Reason), which, in either case, has resulted, or in all probability is
likely to result, in material economic damage to TSI; provided no act or failure
to act by Mr. Allender will constitute "Cause" under clause (ii) if Mr. Allender
believed in good faith that such act or failure to act was in the best interest
of TSI.
Mr. Allender may terminate his employment at any time during the term of
the Employment Agreement for Good Reason by giving written notice to TSI which
will set forth in reasonable detail the facts and circumstances constituting
Good Reason. "Good Reason" will mean (A) a substantial adverse change in Mr.
Allender's status or position(s) as an executive officer of TSI or its
subsidiaries, including, without limitation, any adverse change in Mr.
Allender's status or position(s) as a result of a material diminution in duties
or responsibilities or the assignment to Mr. Allender of any duties or
responsibilities which, in Mr. Allender's reasonable judgment, are inconsistent
with such status or position(s) or any removal of Mr. Allender from or any
failure to reappoint or reelect Mr. Allender to such position(s) (except in
connection with the termination of Mr. Allender's employment for Cause or
incapability, as a result of Mr. Allender's death or incapacity, or by Mr.
Allender other than for Good Reason); (B) a reduction by TSI or its subsidiaries
in Mr. Allender's Base Salary; (C) Mr. Allender's office is moved, without his
consent, from the city of El Paso, Texas, except for reasonably required travel
on TSI's and its subsidiaries' business; (D) TSI's material breach of any of its
obligations under the Employment Agreement; or (E) (y) any failure by TSI to
continue in effect any benefit plan or arrangement in which Mr. Allender
participates, or any other plan or arrangement providing Mr. Allender with
benefits (hereinafter referred to as "Benefit Plans"), or (z) the taking of any
action by TSI which would adversely affect Mr. Allender's participation in or
materially reduce Mr. Allender's benefits under any such Benefit Plan or deprive
Mr. Allender of any material fringe benefit or perquisite of office enjoyed by
Mr. Allender, unless in the case of either subclause (y) or (z) above, there is
substituted a comparable plan or program that is economically equivalent, in
terms of the benefit offered to Mr. Allender, to the Benefit Plan being altered,
reduced, affected or ended.
If Mr. Allender's employment is terminated by reason of death, his estate
will be paid all salary, bonus or other benefits, otherwise payable to Mr.
Allender through the end of the month in which his death occurred, and TSI and
its subsidiaries will have no further obligations to Mr. Allender under the
Employment Agreement. If Mr. Allender's employment is terminated for Cause, TSI
or its subsidiaries will pay Mr. Allender his Base Salary and benefits through
the date of termination specified in the notice of termination, and TSI and its
subsidiaries will have no further obligations to Mr. Allender under the
Employment Agreement, including, but not limited to, any obligations in respect
of the Minimum Premium Commitment.
If Mr. Allender's employment is terminated (i) by TSI other than as a
result of death or for Cause, or (ii) by Mr. Allender for Good Reason, Mr.
Allender will be entitled to the following: (A) Mr. Allender's earned but unpaid
Base Salary through the date of termination; (B) the Base Salary in effect
immediately prior to the date of termination for the remainder of the current
term of the Agreement; (C) an annual bonus for the current fiscal year prorated
through the date of termination equal to the greater of (x) the annual bonus
awarded to Mr. Allender with respect to TSI's most recent fiscal year ending
prior to the date of termination or (y) $100,000; (D) the amount of the Minimum
Premium Commitment which has not been paid as of the date of termination; and
(E) the Final Bonus; and (ii) after such termination, TSI will continue to
provide Mr. Allender with those benefits he was entitled to immediately prior to
his termination, for thirty-six (36) months.
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To the extent Mr. Allender is an Optionee (as defined under any of TSI's
stock option plans), if Mr. Allender's employment is terminated without Cause or
Mr. Allender terminates his employment for Good Reason, all options held by Mr.
Allender will automatically vest and become exercisable.
The foregoing is a summary of the Employment Agreement which summary is
qualified in its entirety by reference to the Employment Agreement filed as
Exhibit (c)(5) hereto.
12. PLANS FOR THE COMPANY; OTHER MATTERS.
Plans for the Company
TSI is conducting a detailed review of the Company and its assets,
corporate structure, operations, properties, policies, management and personnel
and will consider, subject to the terms of the Merger Agreement, what, if any,
changes would be desirable in light of the circumstances that exist upon
completion of the Offer. Such changes could include changes in the Company's
corporate structure, operations, properties, policies, personnel, Board of
Directors or management, although, except as disclosed in this Offer to
Purchase, TSI has no current plans with respect to any of such matters. The
Merger Agreement provides that, promptly after the purchase by the Purchaser of
the Shares pursuant to the Offer, TSI has the right to designate such number of
directors, rounded up to the next whole number, on the Company's Board of
Directors as is equal to the product of the total number of directors on the
Company's Board of Directors (giving effect to the directors designated by TSI)
multiplied by the percentage that the number of Shares beneficially owned by the
Purchaser and TSI bears to the total number of Shares then outstanding. See
Section 11. The Merger Agreement provides that the directors of the Purchaser at
the Effective Time of the Merger will, from and after the Effective Time, be the
directors of the Surviving Corporation and that the officers of the Company
immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, in each case until their respective successors are duly
elected and qualified.
The Merger Agreement further provides that TSI will use its reasonable best
efforts to cause two members of the Board of Directors of the Company, as it was
comprised as of the date of the Merger Agreement, to be elected to the Board of
Directors of TSI. Mr. Richard C. Allender and Mr. Charles Smith, a current
director of the Company, are expected to join TSI's Board of Directors pursuant
to this provision of the Merger Agreement.
Except as disclosed in this Offer to Purchase, neither TSI nor the
Purchaser has any present plans or proposals involving an extraordinary
corporate transaction, such as a merger, reorganization, liquidation, relocation
of operations, or sale or transfer of a material amount of the assets of, the
Company or any of the Subsidiaries, or any material changes in the Company's
corporate structure, business or composition of its management or personnel.
Other Matters
Shareholder Approval. Except as described below, under the TBCA, the
approval of the Board of Directors of the Company and the affirmative vote of
the holders of two-thirds of the outstanding Shares are required to adopt and
approve the Merger Agreement and the transactions contemplated thereby. The
Company has represented in the Merger Agreement that the Board of Directors of
the Company unanimously has approved the Merger Agreement, the Offer and the
Merger and the transactions contemplated thereby in satisfaction of the
requirement under the TBCA. Therefore, unless the Merger is consummated pursuant
to the short-form merger provisions under the TBCA described below (in which
case no further corporate action by the shareholders of the Company will be
required to complete the Merger), the only remaining required corporate action
of the Company will be the approval of the Merger Agreement and the transactions
contemplated thereby by the affirmative vote of the holders of two-thirds of the
Shares. The Merger Agreement provides that TSI will vote, or cause to be voted,
all of the Shares then owned by TSI and the Purchaser in favor of the approval
of the Merger and the approval and adoption of the Merger Agreement. In the
event that TSI, the Purchaser and TSI's other subsidiaries acquire in the
aggregate at least two-thirds of the Shares, the vote of no other shareholder of
the Company will be required to approve the Merger and the Merger Agreement.
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<PAGE> 31
Short-Form Merger. Article 5.16 of the TBCA provides that, if a
corporation owns at least 90% of the outstanding shares of each class of another
corporation, the corporation holding such stock may merge itself into such other
corporation without any action or vote on the part of the board of directors or
the shareholders of such other corporation (a "short-form merger"). In the event
that the Purchaser acquires in the aggregate at least 90% of the Shares,
pursuant to the Offer or otherwise, then TSI intends to cause the Purchaser to
effect a short-form merger without any vote of the shareholders of the Company,
subject to compliance with the provisions of Article 5.16 of the TBCA. Even if
the Purchaser does not own 90% of the outstanding Shares following consummation
of the Offer, the Purchaser could, after the expiration of the Offer seek to
purchase additional shares in the open market or otherwise in order to reach the
90% threshold and employ a short-form merger. The per share consideration paid
for any Shares so acquired may be greater or less than that paid in the Offer.
Texas Business Combination Law. In general, Article 13.03 of the TBCA (the
"Texas Business Combination Statute") prohibits any person who is an "affiliated
shareholder," including a beneficial owner of 20% or more of the outstanding
voting shares of an issuing public corporation, from engaging in a "business
combination" (including the Merger) with certain Texas corporations for a period
of three years following the time at which such person became an affiliated
shareholder, unless (i) either the transaction by which such person became an
affiliated shareholder or the business combination is approved by the board of
directors of the corporation prior to the time at which such person became an
affiliated shareholder, or (ii) the business combination (including the Merger)
is approved, by the affirmative vote of the holders of at least two-thirds of
the outstanding voting shares of the issuing public corporation not beneficially
owned by the affiliated shareholder or an affiliate or associate of the
affiliated shareholder, at a meeting of shareholders and not by written consent,
called for that purpose not less than six months after the date such person
first became an affiliated shareholder. The requirements of the Texas Business
Combination Statute apply unless the corporation adopts an amendment to its
articles of incorporation or by-laws expressly electing to not be governed
thereby. According to publicly available information, the Company's Restated
Articles of Incorporation and Amended and Restated By-Laws do not include such a
provision. Accordingly, the requirements of the Texas Business Combination
Statute apply to the Company.
The Company has represented in the Merger Agreement that its Board of
Directors unanimously has approved the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, and such approval
constitutes approval of the Offer, the Merger Agreement and the transactions
contemplated thereby, including the Merger, for purposes of Article 13.03 of the
TBCA, such that the provisions of Article 13.03 of the TBCA will not apply to
the Offer, the Merger and the Merger Agreement.
Dissenters' Rights. Shareholders do not have dissenters' rights as a
result of the Offer. If the Purchaser acquires 90% or more of the outstanding
shares of the Company and effects a short-form merger, shareholder approval of
the Merger would not be required; however, shareholders may have dissenters'
rights. Notwithstanding the uncertainty regarding the requirement of the
Purchaser to provide statutory dissenters' rights, the Purchaser will provide
dissenters' rights in accordance with the terms of Article 5.16(E) of the TBCA
to any dissenting shareholders. Further, if at least 90% of the outstanding
shares of the Company is not acquired by the Purchaser, thus precluding
availability of a short-form merger, then shareholder approval of the Merger
will be required and shareholders of the Company who file with the Company a
written objection to the Merger in accordance with Article 5.12 of the TBCA and
who do not vote in favor of the Merger will have certain rights under Texas law
to demand payment of the fair value of their Shares if the Merger is
consummated. If a dissenting shareholder complies with the applicable statutory
procedures, such rights could lead to a judicial determination of the fair value
required to be paid to such dissenting holder for such holder's Shares (i.e.,
the value of the Shares immediately before the shareholders meeting approving
the Merger, excluding any appreciation or depreciation in anticipation of the
Merger) and to receive payment of such fair value in cash. If a shareholder
demand to the Surviving Corporation for payment of such fair value remains
unsettled within the 60 days following the consummation of the Merger, the
Surviving Corporation or the dissenting shareholder may commence a proceeding
for judicial determination of the fair value of the Shares and interest accrued.
The court shall determine the fair value of the Shares and shall direct payment
of that value by the Surviving Corporation together with interest thereon,
beginning 91 days after the consummation
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<PAGE> 32
of the Merger to the date of such judgment, to the shareholders entitled to such
payment. The Purchaser cannot make any representation as to the outcome of an
appraisal of fair value of the Shares as determined by a Texas court, and
shareholders should recognize that such an appraisal could result in a
determination of a value higher or lower than, or equivalent to, the
consideration per Share provided in the Offer or consideration per Share to be
paid in the Merger. In an appraisal proceeding, however, the Purchaser could
argue that, for purposes of such proceeding, the fair value of the Shares is
less than the consideration per Share provided in the Offer. Pursuant to Article
5.12 of the TBCA, statutory appraisal rights are the exclusive remedy for
dissenting shareholders for the recovery of the value of their Shares or money
damages with respect to the Merger in the absence of fraud.
THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING SHAREHOLDERS DOES NOT
PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES TO BE FOLLOWED BY
SHAREHOLDERS DESIRING TO EXERCISE ANY AVAILABLE DISSENTERS' RIGHTS. THE
PRESERVATION AND EXERCISE OF DISSENTERS' RIGHTS REQUIRE STRICT ADHERENCE TO THE
APPLICABLE PROVISIONS OF THE TBCA.
The foregoing description of the TBCA is not necessarily complete and is
qualified in its entirety by reference to the TBCA.
Rule 13e-3. The Commission has adopted Rule 13e-3 under the Exchange Act
which is applicable to certain "going private" transactions and which may under
certain circumstances be applicable to the Merger following the purchase of
Shares pursuant to the Offer in which the Purchaser seeks to acquire any
remaining Shares. Rule 13e-3 should not be applicable to the Merger if the
Merger is consummated within one year after the expiration or termination of the
Offer and the price paid in the Merger is not less than the per share price paid
pursuant to the Offer. However, in the event that the Purchaser is deemed to
have acquired control of the Company pursuant to the Offer and if the Merger is
consummated more than one year after completion of the Offer or an alternative
acquisition transaction is effected whereby shareholders of the Company receive
consideration less than that paid pursuant to the Offer, in either case at a
time when the Shares are still registered under the Exchange Act, the Purchaser
may be required to comply with Rule 13e-3 under the Exchange Act. If applicable,
Rule 13e-3 would require, among other things, that certain financial information
concerning the Company and certain information relating to the fairness of the
Merger or such alternative transaction and the consideration offered to minority
shareholders in the Merger or such alternative transaction, be filed with the
Commission and disclosed to shareholders prior to consummation of the Merger or
such alternative transaction. The purchase of a substantial number of Shares
pursuant to the Offer may result in the Company being able to terminate its
Exchange Act registration. See Section 7. If such registration were terminated,
Rule 13e-3 would be inapplicable to the Merger or such alternative transaction.
13. DIVIDENDS AND DISTRIBUTIONS.
As described above, the Merger Agreement provides that, prior to the time
the designees of the Purchaser have been elected to the Board of Directors of
the Company, the Company will not (a) issue, sell, pledge, dispose of, grant,
encumber, or authorize the issuance, sale, pledge, disposition, grant or
encumbrance of, (i) any shares of capital stock of the Company or any Subsidiary
of any class, or any options, warrants, convertible securities or other rights
of any kind to acquire any shares of such capital stock, or any other ownership
interests of the Company or any Subsidiary (except for shares of the Company's
stock, if any, issuable under agreements in effect on the date of the Merger
Agreement and shares of capital stock issuable pursuant to currently outstanding
Options or employee benefits plans in effect on the date of the Merger
Agreement), or (ii) any of the Company's or any Subsidiary's assets except for
sales in the ordinary course of business in a manner consent with past practice;
(b) declare, set aside, make or pay any dividends or other distributions payable
in cash, stock, property or otherwise with respect to any of its capital stock
or sell, lease, mortgage or otherwise dispose of or otherwise encumber any
shares of capital stock of any Subsidiaries; or (iii) reclassify, combine,
split, divide or redeem, purchase or otherwise acquire, directly or indirectly
any of its capital stock.
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<PAGE> 33
14. CONDITIONS OF THE OFFER.
Notwithstanding any other provision of the Offer, the Purchaser shall not
be required to accept for payment or pay for any Shares tendered pursuant to the
Offer, and may terminate or amend the Offer and may postpone the acceptance for
payment of and payment for Shares tendered, if (i) the Minimum Condition shall
not have been satisfied, (ii) any applicable waiting period under the HSR Act
shall not have expired or not been terminated prior to the expiration of the
Offer or (iii) at any time on or after the date of the Merger Agreement, and
prior to the acceptance for payment of Shares, any of the following conditions
shall exist:
(a) there shall have been any judgment, order or decree resulting from
litigation brought by any United States (federal, state or local) or
foreign government, or governmental, regulatory or administrative
authority, agency or commission or court of competent jurisdiction
("Governmental Authority") or other person, or before any court or
Governmental Authority, agency or tribunal, domestic or foreign: (i)
prohibiting the acquisition by TSI or the Purchaser of any Shares; (ii)
prohibiting or limiting in any material respect the ownership or operation
by TSI, the Purchaser or any of their respective subsidiaries of any
material portion of the business or assets of the Company, or to compel
TSI, the Purchaser or any of their respective subsidiaries to dispose of or
hold separate any material portion of the business or assets of the Company
or any of its Subsidiaries, (iii) restraining or prohibiting the making of
the Offer or the consummation of the Merger; (iv) imposing limitations on
the ability of TSI or the Purchaser to exercise effectively full rights of
ownership of any Shares, including, without limitation, the right to vote
any Shares acquired by the Purchaser pursuant to the Offer, or otherwise on
all matters properly presented to the Company's shareholders, including,
without limitation, the approval of the Merger Agreement and the Offer and
the Merger; or (v) requiring divestiture by TSI or the Purchaser of any
Shares;
(b) (i) the Company's Board of Directors shall have withdrawn or
modified in a manner adverse to TSI or the Purchaser the approval or
recommendation of the Offer, the Merger or the Merger Agreement or approved
or recommended any Business Combination Proposal or any other acquisition
of Shares other than the Offer and the Merger or (ii) the Company's Board
of Directors shall have resolved to do any of the foregoing;
(c) the Company shall have failed to perform or comply in any material
respects with all agreements and covenants required by the Merger Agreement
to be performed or complied with by it at or prior to the election or
appointment of the Purchaser's designees to the Company's Board of
Directors upon the purchase by the Purchaser of Shares pursuant to the
Offer, or any of the representations and warranties of the Company
contained in the Merger Agreement that are qualified as to materiality
shall fail to be true and correct, or any such representations and
warranties that are not so qualified shall fail to be true and correct in
all material respects, each as of the date of the election or appointment
of the Purchaser's designees to the Company's Board of Directors upon the
purchase by the Purchaser of Shares pursuant to the Offer as though made on
and as of such date, except that those representations and warranties which
address matters only as of a particular date shall remain true and correct,
or true and correct in all material aspects, as the case may be, as of such
date;
(d) the Merger Agreement shall have been terminated in accordance with
its terms;
(e) the Purchaser and the Company shall have agreed that the Purchaser
shall terminate the Offer or postpone the acceptance for payment of or
payment for Shares thereunder;
(f) there shall have occurred (i) any general suspension of, or
limitation on prices for, or trading in securities on the NYSE (other than
limitations on hours or numbers of days of trading); (ii) a currency
moratorium on the exchange market in New York City; (iii) a declaration of
a banking moratorium or any suspension of payments in respect of banks in
the United States; (iv) any limitation (whether or not mandatory) by any
United States government or governmental, administrative or regulatory
authority or agency, on the extension of credit by banks or other lending
institutions; or (v) a decline of at least 25% in either the Dow Jones
Average of Industrial Stocks or the Standard & Poor's 500 index from the
date of the Merger Agreement, or any material disruption or material
adverse change in the financial or capital
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<PAGE> 34
markets generally, or in the markets for high yield debt in particular or
affecting the syndication or funding of the Securities;
(g) it shall have been publicly disclosed or TSI or the Purchaser
shall have otherwise learned that beneficial ownership (determined for the
purposes of this paragraph as set forth in Rule 13d-3 promulgated under the
Exchange Act) of more than 25% of the outstanding Shares has been acquired
by any corporation (including the Company or any of its Subsidiaries or
affiliates), partnership, person or other entity or "group" (within the
meaning of Section 13(d)(3) of the Exchange Act), other than TSI, the
Purchaser or any of their affiliates; or
(h) all consents of and notices to or filings with Governmental
Authorities and third parties required in connection with the Offer and the
Merger shall not have been obtained or made other than those the absence of
which, individually or in the aggregate, would not have a material adverse
effect on the Company or prevent or materially delay consummation of any of
the Offer or the Merger.
The foregoing conditions are for the sole benefit of the Purchaser and TSI
and may be asserted by the Purchaser or TSI regardless of the circumstances
giving rise to any such condition or may be waived by the Purchaser or TSI in
whole or in part at any time and from time to time in their sole discretion. The
failure by TSI or the Purchaser at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right; the waiver of any such
right with respect to particular facts and other circumstances shall not be
deemed a waiver with respect to any other facts and circumstances; and each such
right shall be deemed an ongoing right that may be asserted at any time and from
time to time.
15. CERTAIN LEGAL MATTERS.
Except as described in this Section 15, based on information provided by
the Company, none of the Company, the Purchaser or TSI is aware of any license
or regulatory permit that appears to be material to the business of the Company
and the Subsidiaries, taken as a whole, that might be adversely affected by the
Purchaser's acquisition of Shares (and the indirect acquisition of the stock or
other equity interests of the Subsidiaries) as contemplated herein or of any
approval or other action by a domestic or foreign governmental, administrative
or regulatory agency or authority that would be required for the acquisition and
ownership of the Shares (and the indirect acquisition of the stock or other
equity interests of the Subsidiaries) by the Purchaser as contemplated herein.
Should any such approval or other action be required, the Purchaser and TSI
presently contemplate that such approval or other action will be sought, except
as described below under "State Takeover Laws." While, except as otherwise
described in this Offer to Purchase, the Purchaser does not presently intend to
delay the acceptance for payment of or payment for Shares tendered pursuant to
the Offer pending the outcome of any such matter, there can be no assurance that
any such approval or other action, if needed, would be obtained or would be
obtained without substantial conditions or that failure to obtain any such
approval or other action might not result in consequences adverse to the
Company's business or that certain parts of the Company's business might not
have to be disposed of or other substantial conditions complied with in the
event that such approvals were not obtained or such other actions were not taken
or in order to obtain any such approval or other action. If certain types of
adverse action are taken with respect to the matters discussed below, the
Purchaser could decline to accept for payment or pay for any Shares tendered.
See Section 14 for certain conditions to the Offer, including conditions with
respect to governmental actions.
State Takeover Laws
The Company is incorporated under the laws of the State of Texas. See
Section 12, "Plans for the Company; Other Matters" for a discussion of the Texas
Business Combination Statute.
A number of states have adopted laws and regulations applicable to attempts
to acquire securities of corporations which are incorporated, or have
substantial assets, shareholders, principal executive offices or principal
places of business, or whose business operations otherwise have substantial
economic effects in such states. In Edgar v. MITE Corp., the Supreme Court of
the United States invalidated on constitutional grounds the Illinois Business
Takeover statute, which, as a matter of state securities law, made takeovers of
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<PAGE> 35
corporations meeting certain requirements more difficult. However in 1987, in
CTS Corp. v. Dynamics Corp. of America, the Supreme Court held that the State of
Indiana may, as a matter of corporate law and, in particular, with respect to
those aspects of corporate law concerning corporate governance, constitutionally
disqualify a potential acquirer from voting on the affairs of a target
corporation without the prior approval of the remaining shareholders. The state
law before the Supreme Court was by its terms applicable only to corporations
that had a substantial number of shareholders in the state and were incorporated
there.
The Company and certain of its subsidiaries conduct business in a number of
other states throughout the United States, some of which have enacted takeover
laws and regulations. Neither TSI nor the Purchaser knows whether any or all of
these takeover laws and regulations will by their terms apply to the Offer, and,
except as set forth above with respect to Article 13.03 of the TBCA, neither TSI
nor the Purchaser has currently complied with any other state takeover statute
or regulation. The Purchaser reserves the right to challenge the applicability
or validity of any state law purportedly applicable to the Offer and nothing in
this Offer to Purchase or any action taken in connection with the Offer is
intended as a waiver of such right. If it is asserted that any state takeover
statute is applicable to the Offer and an appropriate court does not determine
that it is inapplicable or invalid as applied to the Offer, the Purchaser might
be required to file certain information with, or to receive approvals from, the
relevant state authorities, and the Purchaser might be unable to accept for
payment or pay for Shares tendered pursuant to the Offer, or may be delayed in
consummating the Offer. In such case, the Purchaser may not be obligated to
accept for payment or pay for any Shares tendered pursuant to the Offer. See
Section 14.
Antitrust
The Offer and the Merger are subject to the HSR Act, which provides that
certain acquisition transactions may not be consummated unless certain
information has been furnished to the Antitrust Division of the Department of
Justice (the "Antitrust Division") and the Federal Trade Commission (the "FTC")
and certain waiting period requirements have been satisfied.
TSI and the Company expect to file soon their Notification and Report Forms
with respect to the Offer under the HSR Act. The waiting period under the HSR
Act with respect to the Offer will expire at 11:59 p.m., New York City time, on
the fifteenth day after the date TSI's form is filed unless early termination of
the waiting period is granted. However, the Antitrust Division or the FTC may
extend the waiting period by requesting additional information or documentary
material from TSI or the Company. If such a request is made, such waiting period
will expire at 11:59 p.m., New York City time, on the tenth day after
substantial compliance by TSI with such request. Only one extension of the
waiting period pursuant to a request for additional information is authorized by
the HSR Act. Thereafter, such waiting period may be extended only by court order
or with the consent of TSI. In practice, complying with a request for additional
information or material can take a significant amount of time. In addition, if
the Antitrust Division or the FTC raises substantive issues in connection with a
proposed transaction, the parties frequently engage in negotiations with the
relevant governmental agency concerning possible means of addressing those
issues and may agree to delay consummation of the transaction while such
negotiations continue. The Purchaser will not accept for payment Shares tendered
pursuant to the Offer unless and until the waiting period requirements imposed
by the HSR Act with respect to the Offer have been satisfied. See Section 14.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the Purchaser's acquisition of Shares
pursuant to the Offer and the Merger. At any time before or after the
Purchaser's acquisition of Shares, the Antitrust Division or the FTC could take
such action under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking to enjoin the acquisition of Shares pursuant
to the Offer or otherwise or seeking divestiture of Shares acquired by the
Purchaser or divestiture of substantial assets of TSI or its subsidiaries,
including the Company and the Subsidiaries. Private parties, as well as state
governments, may also bring legal action under the antitrust laws under certain
circumstances. Based upon an examination of publicly available information
relating to the businesses in which TSI and the Company are engaged, TSI and the
Purchaser believe that the acquisition of Shares by the Purchaser will not
violate the antitrust laws. Nevertheless, there can be no assurance that a
challenge to the Offer or other acquisition of Shares by the Purchaser on
antitrust grounds will not be made or,
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if such a challenge is made, of the result. See Section 14 for certain
conditions to the Offer, including conditions with respect to litigation and
certain governmental actions.
Federal Reserve Board Regulations
Regulations G, U and X (the "Margin Regulations") of the Federal Reserve
Board restrict the extension or maintenance of credit for the purpose of buying
or carrying margin stock, including the Shares, if the credit is secured
directly or indirectly by margin stock. Such secured credit may not be extended
or maintained in an amount that exceeds the maximum loan value of all the direct
and indirect collateral securing the credit, including margin stock and other
collateral. All financing for the Offer will be structured so as to be in full
compliance with the Margin Regulations.
16. FEES AND EXPENSES.
TSI has engaged Prudential Securities to act as financial advisor to TSI in
connection with the proposed acquisition of the Company and as Dealer Manager in
connection with the Offer. TSI will pay Prudential Securities an advisory fee in
connection with the transactions contemplated by the Merger Agreement as well as
a fee in connection with its services as Dealer Manager. The advisory fee will
be paid if the Purchaser acquires at least 90% of the outstanding Shares on or
before the Effective Time and will be equal to the sum of (i) 1% of the
aggregate amount paid by the Purchaser in the Offer and the Merger, and (ii) 1%
of the Company's long-term debt, excluding the Company's revolving credit
facility. TSI has also agreed to indemnify Prudential Securities and certain
related persons against certain liabilities in connection with the Offer,
including certain liabilities under federal securities laws.
The Purchaser has retained MacKenzie Partners, Inc. to act as the
Information Agent and The Bank of New York to act as the Depository in
connection with the Offer. Such firms each will receive reasonable and customary
compensation for their services. The Purchaser has also agreed to indemnify each
such firm against certain liabilities in connection with their services,
including certain liabilities under federal securities laws.
The Purchaser will not pay any fees or commissions to any broker or dealer
or other person (other than the Dealer Manager and the Information Agent) for
making solicitations or recommendations in connection with the Offer. Brokers,
dealers, banks and trust companies will be reimbursed by the Purchaser for
customary mailing and handling expenses incurred by them in forwarding material
to their customers.
17. MISCELLANEOUS.
The Offer is being made to all holders of Shares other than the Company.
The Purchaser is not aware of any jurisdiction in which the making of the Offer
or the tender of Shares in connection therewith would not be in compliance with
the laws of such jurisdiction. If the Purchaser becomes aware of any
jurisdiction in which the making of the Offer would not be in compliance with
applicable law, the Purchaser will make a good faith effort to comply with any
such law. If, after such good faith effort, the Purchaser cannot comply with any
such law, the Offer will not be made to (nor will tenders be accepted from or on
behalf of) the holders of Shares residing in such jurisdiction. In any
jurisdiction where the securities, blue sky or other laws require the Offer to
be made by a licensed broker or dealer, the Offer shall be deemed to be made on
behalf of the Purchaser by the Dealer Manager or one or more registered brokers
or dealers licensed under the laws of such jurisdiction.
No person has been authorized to give any information or to make any
representation on behalf of TSI or the Purchaser not contained herein or in the
Letter of Transmittal and, if given or made, such information or representation
must not be relied upon as having been authorized.
The Purchaser and TSI have filed with the Commission the Schedule 14D-1
pursuant to Rule 14d-3 under the Exchange Act furnishing certain additional
information with respect to the Offer. The Schedule 14D-1 and any amendments
thereto, including exhibits, may be examined and copies may be obtained from the
offices of the Commission and the National Association of Securities Dealers,
Inc. in the manner set forth in Section 9 of this Offer to Purchase (except that
they will not be available at the regional offices of the Commission).
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FOXFIRE ACQUISITION CORP. MAY 8, 1998
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS
OF TSI AND THE PURCHASER
1. DIRECTORS AND EXECUTIVE OFFICERS OF TSI.
The following table sets forth the name, business address and present
principal occupation or employment, and material occupations, positions, offices
or employment for the past five years, of each director and executive officer of
TSI. Unless otherwise indicated, each such person is a citizen of the United
States of America and the business address of each such person is c/o TSI, 4902
West Waters Avenue, Tampa, Florida 33634-1302. Unless otherwise indicated, each
occupation set forth opposite an individual's name refers to employment with
TSI. Unless otherwise indicated, each such person has held his or her present
occupation as set forth below, or has been an executive officer at TSI, or the
organization indicated, for the past five years. Directors are identified by an
asterisk.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL POSITIONS
NAME AND ADDRESS HELD DURING THE PAST FIVE YEARS
- ---------------- --------------------------------------------------------------
<S> <C>
*William W. Compton....................... Mr. Compton has served as Chairman of the Board, Chief
Executive Officer and a Director of TSI since November 1989.
He also served as President of TSI from November 1989 to
November 1994. Mr. Compton has over 28 years of experience
in the apparel industry. Prior to joining TSI, he served as
President and Chief Operating Offer of Munsingwear, Inc., an
apparel manufacturer and Marketer, President/Executive Vice
President of Corporate Marketing for five apparel divisions
of McGregor/Faberge Corporation and President, U.S.A. and a
director of Farah Manufacturing Corporation. Mr. Compton
currently serves on the Board of Directors of Brigham Young
University Marriott School of Management, and on the Board
of Directors of AAMA. Mr. Compton beneficially owns 40
shares of the common stock, no par value per share, of the
Company.
Richard J. Domino......................... Mr. Domino joined TSI in 1988 and has served as President of
TSI since November 1994. Mr. Domino served as Senior Vice
President of Sales and Marketing from January 1994 to
October 1994 and Vice President of Sales from December 1989
to December 1993. He has over 23 years experience in
apparel-related sales and marketing. Before joining TSI, Mr.
Domino was employed by Thomson Sportswear, Inc., a men's
apparel manufacturer and marketer, as its Sales Manager for
the Northwest Territory, and by Haggar Corp., a men's
apparel manufacturer and marketer, as its New Jersey
Salesman.
*Michael Kagan............................ Mr. Kagan has served as Executive Vice President, Chief
Financial Officer, Secretary and a Director of TSI since
November 1989. Mr. Kagan has more than 30 years experience
in the apparel industry. Prior to joining TSI, Mr. Kagan
served as Senior Vice President of Finance for Munsingwear,
Inc. and as Executive Vice President and Chief Operating
Officer of Flexnit Company, Inc., a manufacturer of women's
intimate apparel.
</TABLE>
I-1
<PAGE> 38
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL POSITIONS
NAME AND ADDRESS HELD DURING THE PAST FIVE YEARS
- ---------------- --------------------------------------------------------------
<S> <C>
*Jesus Alvarez-Morodo..................... Mr. Alvarez-Morodo has served as a Director of TSI since
Citizen of Mexico November 1989. Mr. Alvarez-Morodo has been Vice Chairman of
Virginia Fabregas #80 the Board of Elamex, S.A. de C.V., a manufacturing company
Col. San Rafael controlled by Accel S.A. de C.V. ("Accel") ("Elamex"), since
Mexico, D.F. 06470 1995 and President and Chief Executive Officer of Accel
since 1992. Accel is a publicly traded Mexican holding
company having subsidiaries engaged in warehousing,
distribution and manufacturing. He has been a director of
Elamex since 1990. Mr. Alvarez-Morodo has held various
positions with Accel and its predecessor, Grupo Chihuahua
S.A. de C.V. ("Grupo Chihuahua"), and its subsidiaries since
1982, including Vice President from 1989 to 1992.
*Eloy S. Vallina-Laguera.................. Mr. Vallina-Laguera has served as a Director of TSI since
Citizen of Mexico November 1989. Mr. Vallina-Laguera has been Chairman of the
Ave. Zarco 2401 Board of Accel and its predecessor, Grupo Chihuahua, since
Chihuahua Chih. its inception in 1979, and Chairman of the Board of Elamex
Mexico 31020 since 1990. He is also Chairman of Kleentex Corp., and an
advisory director of Norwest Bank El Paso. Mr.
Vallina-Laguera was Chairman of Banco Commercial Mexicano,
later Multibanco Comermex, one of Mexico's largest
commercial banks at that time, from 1971 until its
expropriation in 1982.
*Leslie J. Gillock........................ Ms. Gillock has served as a Director of TSI since August 1997.
Fruit of the Loom Ms. Gillock has served in various capacities with Fruit of
P.O. Box 90015 the Loom, Inc. since 1978, including Vice President of
Bowling Green, KY Marketing since March 1995, Director of Marketing from
42103-9015 January 1993 through February 1995, and Marketing Manager
for Intimate Apparel from January 1989 through December
1992. She has over 19 years experience in the apparel
industry.
*Donald H. Livingstone.................... Mr. Livingstone has served as a Director of TSI since August
610 Tanner Building 1997. He has been a Teaching Professor at the Brigham Young
Brigham Young University University Marriott School of Management and the Director of
Provo, Utah 84602 its Center for Entrepreneurship since September 1994. Mr.
Livingstone is also currently a member of the Board of
Trustees of The Eureka Funds. From 1976 through March 1995,
he was a partner with Arthur Andersen LLP. He joined Arthur
Andersen LLP in 1966.
*Leon H. Reinhart......................... Mr. Reinhart has served as a Director of TSI since August
First National Bank 1997. Mr. Reinhart has been President, Chief Executive Officer
401 West A Street and a director of First National Bank based in San Diego,
San Diego, CA 92101 California since May 1996. Prior to such time, he served as
Chief Credit Officer and Deputy General Manager of Citibank
Mexico from 1988 through April 1996. Mr. Reinhart's
experience includes more than 20 years as a financial
executive with Citibank, N.A. and its affiliates in a
variety of domestic and international positions.
</TABLE>
I-2
<PAGE> 39
2. DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER.
Unless otherwise indicated, all information concerning the current business
address, citizenship, principal occupation or employment and five-year
employment history for each person identified below is the same as the
information given in paragraph 1 above.
Directors
William W. Compton
Michael Kagan
Jesus Alvarez-Morodo
Eloy S. Vallina-Laguera
Leslie J. Gillock
Donald H. Livingstone
Leon H. Reinhart
Executive Officers
William W. Compton
Michael Kagan
I-3
<PAGE> 40
Facsimile copies of the Letter of Transmittal, properly completed and duly
signed, will be accepted. The Letter of Transmittal, certificates for Shares and
any other required documents should be sent or delivered by each shareholder of
the Company or his broker, dealer, commercial bank, trust company or other
nominee to the Depositary, at one of the addresses set forth below:
The Depositary for the Offer is:
THE BANK OF NEW YORK
<TABLE>
<S> <C> <C>
BY MAIL: FACSIMILE TRANSMISSION: BY HAND OR OVERNIGHT COURIER:
Tender & Exchange Department (for Eligible Institutions Only) Tender & Exchange Department
P.O. Box 11248 (212) 815-6213 101 Barclay Street
Church Street Station Receive and Deliver Window
New York, NY 10286-1248 New York, NY 10286-1248
</TABLE>
FOR CONFIRMATION TELEPHONE:
(800) 507-9357
Questions and requests for assistance or additional copies of this Offer to
Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and the
Guidelines for Certification of Taxpayer Identification on Substitute Form W-9
may be directed to the Information Agent or the Dealer Manager at their
respective locations and telephone numbers set forth below. Shareholders may
also contact their broker, dealer, commercial bank or trust company for
assistance concerning the Offer.
The Information Agent for the Offer is:
(MACKENZIE PARTNERS, INC. LOGO)
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
CALL TOLL-FREE (800) 322-2885
The Dealer Manager for the Offer is:
PRUDENTIAL SECURITIES INCORPORATED
One New York Plaza
18th Floor
New York, New York 10292
(212) 778-1818 (Call Collect)
or
CALL TOLL-FREE (800) 881-9234
<PAGE> 1
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
OF
FARAH INCORPORATED
PURSUANT TO THE OFFER TO PURCHASE
DATED MAY 8, 1998
BY
FOXFIRE ACQUISITION CORP.
a wholly owned subsidiary of
TROPICAL SPORTSWEAR INT'L CORPORATION
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON FRIDAY, JUNE 5, 1998, UNLESS THE OFFER IS EXTENDED (THE "EXPIRATION
DATE").
The Depositary for the Offer is:
THE BANK OF NEW YORK
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or Overnight Delivery:
(for Eligible Institutions Only)
Tender & Exchange Department (212) 815-6213 Tender & Exchange Department
P.O. Box 11248 101 Barclay Street
Church Street Stations Confirm Receipt of Facsimile by Receive and Deliver Window
New York, New York 10286-1248 Telephone: New York, New York 10286-1248
(800) 507-9357
- ------------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- ------------------------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR(S) ON TENDERED CERTIFICATE(S)
SHARE CERTIFICATE(S) (ATTACH ADDITIONAL LIST IF NECESSARY)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL NUMBER
OF SHARES
SHARE REPRESENTED BY NUMBER OF
CERTIFICATE SHARE SHARES
NUMBER(S)* CERTIFICATE(S) TENDERED**
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
TOTAL SHARES
- ------------------------------------------------------------------------------------------------------------------------------------
* Need not be completed by Book-Entry Shareholders.
** Unless otherwise indicated, it will be assumed that all Shares evidenced by any certificates delivered to the Depositary are
being tendered. See Instruction 4.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] CHECK HERE IF YOU CANNOT LOCATE YOUR CERTIFICATE(S) AND REQUIRE ASSISTANCE
IN REPLACING THEM. UPON RECEIPT OF NOTIFICATION BY THIS LETTER OF
TRANSMITTAL, FARAH INCORPORATED'S STOCK TRANSFER AGENT WILL CONTACT YOU
DIRECTLY WITH REPLACEMENT INSTRUCTIONS.
<PAGE> 2
LETTER OF TRANSMITTAL TO TENDER SHARES OF COMMON STOCK OF FARAH
INCORPORATED PURSUANT TO THE OFFER TO PURCHASE DATED MAY 8, 1998, BY FOXFIRE
ACQUISITION CORP. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON FRIDAY JUNE 5, 1998, UNLESS THE OFFER IS EXTENDED.
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN
AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS
ACCOMPANYING THIS LETTER SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED.
THIS LETTER OF TRANSMITTAL IS TO BE USED EITHER IF CERTIFICATES ARE TO BE
FORWARDED HEREWITH OR IF DELIVERY OF SHARES (AS DEFINED BELOW) IS TO BE MADE BY
BOOK-ENTRY TRANSFER TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY AT THE DEPOSITORY
TRUST COMPANY (HEREINAFTER REFERRED TO AS THE "BOOK-ENTRY TRANSFER FACILITY")
PURSUANT TO THE PROCEDURES SET FORTH IN SECTION 3 OF THE OFFER TO PURCHASE (AS
DEFINED BELOW). SHAREHOLDERS WHO DELIVER SHARES BY BOOK-ENTRY TRANSFER ARE
REFERRED TO HEREIN AS "BOOK-ENTRY SHAREHOLDERS" AND OTHER SHAREHOLDERS ARE
REFERRED TO HEREIN AS "CERTIFICATE SHAREHOLDERS."
SHAREHOLDERS WHOSE CERTIFICATES ARE NOT IMMEDIATELY AVAILABLE OR WHO CANNOT
DELIVER THEIR SHARES AND ALL OTHER DOCUMENTS REQUIRED HEREBY TO THE DEPOSITARY
OR COMPLETE THE PROCEDURES FOR BOOK-ENTRY TRANSFER PRIOR TO THE EXPIRATION DATE
MUST TENDER THEIR SHARES ACCORDING TO THE GUARANTEED DELIVERY PROCEDURE SET
FORTH IN SECTION 3 OF THE OFFER TO PURCHASE. SEE INSTRUCTION 2. DELIVERY OF
DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO
THE DEPOSITARY.
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE BOOK-ENTRY TRANSFER
FACILITY, AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN THE BOOK-ENTRY
TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER):
Name of Tendering Institution:
Account Number:
Transaction Code Number:
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Owners:
Window Ticket Number (if any):
Date of Execution of Notice of Guaranteed Delivery:
Name of Institution which Guaranteed Delivery:
Account Number:
Transaction Code Number:
(BOXES ABOVE FOR USE BY ELIGIBLE INSTITUTIONS ONLY)
2
<PAGE> 3
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
Ladies and Gentlemen:
The undersigned hereby tenders to Foxfire Acquisition Corp., a Texas
corporation (the "Purchaser") and a wholly owned subsidiary of Tropical
Sportswear Int'l Corporation, a Florida corporation ("TSI"), the above-described
shares of common stock, no par value per share (the "Shares"), of Farah
Incorporated, a Texas corporation (the "Company"), pursuant to the Purchaser's
offer to purchase all outstanding Shares at a price of $9.00 per Share, net to
the seller in cash, upon the terms and subject to the conditions set forth in
the Offer to Purchase dated May 8, 1998 (the "Offer to Purchase"), receipt of
which is hereby acknowledged, and in this Letter of Transmittal (which, together
with the Offer to Purchase and any amendments or supplements hereto or thereto,
constitute the "Offer"). The undersigned understands that the Purchaser reserves
the right to transfer or assign, in whole or in part from time to time, to TSI
or one or more direct or indirect wholly owned subsidiaries of TSI, the right to
purchase Shares tendered pursuant to the Offer.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), effective upon acceptance for payment of and payment for the
Shares tendered herewith, the undersigned hereby sells, assigns, and transfers
all right, title and interest in and to all the Shares that are being tendered
hereby (and any and all other Shares or other securities issued or issuable in
respect thereof (collectively, "Distributions")), and irrevocably constitutes
and appoints the Depositary the true and lawful agent and attorney-in-fact of
the undersigned with respect to such Shares and all Distributions, with full
power of substitution (such power of attorney being deemed to be an irrevocable
power coupled with an interest), to (i) deliver certificates for such Shares and
all Distributions, or transfer ownership of such Shares and all Distributions on
the account books maintained by the Book-Entry Transfer Facility, together, in
any such case, with all accompanying evidences of transfer and authenticity, to
or upon the order of the Purchaser, upon receipt by the Depositary, as the
undersigned's agent, of the purchase price (adjusted, if appropriate, as
provided in the Offer to Purchase), (ii) present such Shares and all
Distributions for cancellation and transfer on the Company's books and (iii)
receive all benefits and otherwise exercise all rights of beneficial ownership
of such Shares and all Distributions, all in accordance with the terms of the
Offer.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the tendered
Shares and all Distributions and that, when the same are accepted for payment by
the Purchaser, the Purchaser will acquire good, marketable and unencumbered
title thereto, free and clear of all liens, restrictions, claims, charges and
encumbrances, and the same will not be subject to any adverse claims. The
undersigned will, upon request, execute any signature guarantees or additional
documents deemed by the Depositary or the Purchaser to be necessary or desirable
to complete the sale, assignment and transfer of the tendered Shares and all
Distributions. In addition, the undersigned shall promptly remit and transfer to
the Depositary for the account of the Purchaser any such Distributions issued to
the undersigned, in respect of the tendered Shares, accompanied by documentation
of transfer, and pending such remittance or appropriate assurance thereof, the
Purchaser shall be entitled to all rights and privileges as owner of any such
Distributions and, subject to the terms of the Merger Agreement (as defined in
the Offer to Purchase), may withhold the entire purchase price or deduct from
the purchase price the amount or value thereof, as determined by the Purchaser,
in its sole discretion.
All authority conferred or agreed to be conferred in this Letter of
Transmittal shall be binding upon the successors, assigns, heirs, executors,
administrators and legal representatives of the undersigned and shall not be
affected by, and shall survive, the death or incapacity of the undersigned.
Except as stated in the Offer to Purchase, this tender is irrevocable.
The undersigned hereby irrevocably appoints William W. Compton and Michael
Kagan, and each of them, and any other designees of the Purchaser, the attorneys
and proxies of the undersigned, each with full power of substitution, to vote at
any annual, special or adjourned meeting of the Company's shareholders or
otherwise act (including pursuant to written consent) in such manner as each
such attorney and proxy or his
3
<PAGE> 4
or her substitute shall in his or her sole discretion deem proper, to execute
any written consent concerning any matter as each such attorney and proxy or his
or her substitute shall in his or her sole discretion deem proper with respect
to, and to otherwise act with respect to all the Shares tendered hereby which
have been accepted for payment by the Purchaser prior to the time any such vote
or action is taken (and any and all Distributions issued or issuable in respect
thereof) and with respect to which the undersigned is entitled to vote. This
appointment is effective when, and only to the extent that, the Purchaser
accepts for payment such Shares as provided in the Offer to Purchase. This power
of attorney and proxy is coupled with an interest in the tendered Shares, is
irrevocable and is granted in consideration of the acceptance for payment of
such Shares in accordance with the terms of the Offer. Such acceptance for
payment shall revoke all prior powers of attorney and proxies given by the
undersigned at any time with respect to such Shares and no subsequent powers of
attorney or proxies may be given by the undersigned (and, if given, will not be
deemed effective). The Purchaser reserves the right to require that, in order
for Shares to be deemed validly tendered, immediately upon the Purchaser's
acceptance for payment of such Shares, the Purchaser must be able to exercise
full voting and other rights with respect to such Shares, including voting at
any shareholders meeting then scheduled.
The undersigned understands that the valid tender of Shares pursuant to any
one of the procedures described in Section 3 of the Offer to Purchaser and in
the instructions hereto will constitute a binding agreement between the
undersigned and the Purchaser upon the terms and subject to the conditions of
the Offer. The undersigned recognizes that under certain circumstances set forth
in the Offer to Purchase, the Purchaser may not be required to accept for
payment any of the tendered Shares. The Purchaser's acceptance for payment of
Shares pursuant to the Offer will constitute a binding agreement between the
undersigned and the Purchaser upon the terms and subject to the conditions of
the Offer.
Unless otherwise indicated herein under "Special Payment Instructions,"
please issue the check for the purchase price of any Shares purchased, and/or
return any certificates for Shares not tendered or accepted for payment, in the
name(s) of the registered holder(s) appearing under "Description of Shares
Tendered." Similarly, unless otherwise indicated under "Special Delivery
Instructions," please mail the check for the purchase price of any Shares
purchased, and/or any certificates for Shares not tendered or accepted for
payment (and accompanying documents, as appropriate) to the address(es) of the
registered holder(s) appearing under "Description of Shares Tendered." In the
event that both the Special Delivery Instructions and the Special Payment
Instructions are completed, please issue the check for the purchase price of any
Shares purchased, and/or return any certificates for Shares not tendered or
accepted for payment in the name(s) of, and mail said check and/or any
certificates to, the person or persons so indicated. In the case of a book-entry
delivery of Shares, please credit the account maintained at the Book-Entry
Transfer Facility indicated above with any Shares not accepted for payment. The
undersigned recognizes that the Purchaser has no obligation pursuant to the
Special Payment Instructions to transfer any Shares from the name of the
registered holder(s) thereof if the Purchaser does not accept for payment any of
the Shares so tendered.
4
<PAGE> 5
---------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if a certificate for Shares not tendered or not
purchased and/or the check for the purchase price of Shares purchased are
to be ISSUED in the name of someone other than the undersigned.
Issue [ ] check [ ] certificate(s) to:
Name
-------------------------------------------------------
(PLEASE PRINT)
Address
-----------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
(INCLUDE ZIP CODE)
---------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
(SEE SUBSTITUTE FORM W-9 INCLUDED HEREIN)
[ ] Credit unpurchased Shares tendered by book-entry transfer to the
Book-Entry Transfer Facility account set forth below:
---------------------------------------------------------------
(ACCOUNT NUMBER)
===============================================================
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if a certificate for Shares not tendered or not
purchased and/or the check for the purchase price of Shares purchased are
to be SENT to someone other than the undersigned.
Send [ ] check [ ] certificate(s) to:
Name
-------------------------------------------------------
(PLEASE PRINT)
Address
-----------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
(INCLUDE ZIP CODE)
---------------------------------------------------------------
(TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER)
---------------------------------------------------------------
5
<PAGE> 6
SHAREHOLDERS SIGN HERE
(ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(SIGNATURE(S) OF OWNER(S))
Dated: , 1998
---------------------
(Must be signed by the registered holder(s) exactly as name(s) appear(s) on
stock certificate(s) or on a security position listing or by person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by trustee, executor, administrator,
guardian, attorney-in-fact, agent, officer of a corporation or any other person
acting in a fiduciary or representative capacity, please set forth full title
below.)
(See Instruction 5)
Name(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (Full Title):
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Daytime Area Code and Telephone Number:
-----------------------------------------
Tax Identification Number or Social Security Number:
----------------------------
- --------------------------------------------------------------------------------
(See Substitute Form W-9 Below)
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED, SEE INSTRUCTIONS 1 AND 5)
Authorized Signature:
-----------------------------------------------------------
Name:
---------------------------------------------------------------------------
(PLEASE PRINT)
Title:
--------------------------------------------------------------------------
Name of Firm:
-------------------------------------------------------------------
Address:
------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number:
-------------------------------------------------
Dated: , 1998
---------------------
6
<PAGE> 7
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS FOR THE TENDER OFFER
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a financial
institution (including most commercial banks, savings and loan associations and
brokerage houses) that is a participant in the Security Transfer Agent's
Medallion Program, the New York Stock Exchange Medallion Signature Guarantee
Program or the Stock Exchange Medallion Program (each an "Eligible Institution,"
and collectively, "Eligible Institutions"). No signature guarantee is required
on this Letter of Transmittal (i) if this Letter of Transmittal is signed by the
registered holder(s) (which term, for purposes of this document, shall include
any participant in a Book-Entry Transfer Facility whose name appears on a
security position listing as the owner of Shares) of Shares tendered herewith,
unless such holder(s) has completed either the box entitled "Special Delivery
Instructions" or the box entitled "Special Payment Instructions" in this Letter
of Transmittal or (ii) if such Shares are tendered for the account of an
Eligible Institution. See Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed by shareholders
either if certificates for Shares are to be forwarded herewith or if a tender of
Shares is to be made pursuant to the procedures for delivery by book-entry
transfer set forth in Section 3 of the Offer to Purchase. For Shares to be
validly tendered pursuant to the Offer, either (i) a properly completed and duly
executed Letter of Transmittal (or a manually signed facsimile thereof),
together with any required signature guarantees, or in the case of a book-entry
transfer, an Agent's Message (as defined in the Offer to Purchase), and any
other required documents, must be received by the Depositary at one of the
Depositary's addresses set forth herein prior to the Expiration Date and either
certificates for tendered Shares must be received by the Depositary at one of
such addresses or such Shares must be delivered pursuant to the procedures for
book-entry transfer (and a book-entry confirmation received by the Depositary),
in each case, prior to the Expiration Date or (ii) the tendering shareholder
must comply with the guaranteed delivery procedure set forth below.
Shareholders whose certificates for Shares are not immediately available,
who cannot complete the procedures for book-entry transfer on a timely basis or
who cannot deliver all required documents to the Depositary prior to the
Expiration Date, may tender their Shares pursuant to the guaranteed delivery
procedure set forth in Section 3 of the Offer to Purchase. Pursuant to such
procedures, (i) such tender must be made by or through an Eligible Institution,
(ii) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form provided by the Purchaser (or a manually signed
facsimile thereof), must be received by the Depositary prior to the Expiration
Date and (iii) the certificates for (or a book-entry confirmation with respect
to) such Shares, together with this properly completed and duly executed Letter
of Transmittal (or a manually signed facsimile thereof), with any required
signature guarantees, or, in the case of a book-entry transfer, an agent's
message, and any other required documents are received by the Depositary within
three trading days after the date of execution of such Notice of Guaranteed
Delivery, all as provided in Section 3 of the Offer to Purchase. A "trading day"
is any day on which the New York Stock Exchange, Inc. is open for business. The
Notice of Guaranteed Delivery may be delivered by hand to the Depositary or
transmitted by telegram, facsimile transmission or mail to the Depositary and
must include a guarantee by an Eligible Institution in the form set forth in
such Notice of Guaranteed Delivery.
The method of delivery of Shares, this Letter of Transmittal and all other
required documents, including delivery through the Book-Entry Transfer Facility,
is at the election and risk of the tendering shareholder. Shares will be deemed
delivered only when actually received by the Depositary (including, in the case
of a book-entry transfer, by book-entry confirmation). If delivery is by mail,
registered mail with return receipt requested, properly insured, is recommended.
In all cases, sufficient time should be allowed to ensure timely delivery.
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. All tendering shareholders, by execution of
this Letter of Transmittal (or a manually signed facsimile thereof), waive any
right to receive any notice of the acceptance of their Shares for payment.
7
<PAGE> 8
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares should be listed on a separate
schedule attached hereto.
4. PARTIAL TENDERS (APPLICABLE TO CERTIFICATE SHAREHOLDERS ONLY). If fewer
than all the Shares evidenced by any certificate submitted are to be tendered,
fill in the number of Shares which are to be tendered in the box entitled
"Number of Shares Tendered." In such case, new certificate(s) for the remainder
of the Shares that were evidenced by the old certificate(s) will be sent to the
registered holder(s), unless otherwise provided in the appropriate box on this
Letter of Transmittal, as soon as practicable after the expiration or
termination of the Offer. All Shares represented by certificates delivered to
the Depositary will be deemed to have been tendered unless otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written on
the face of the certificate(s) without any change whatsoever.
If any of the Shares tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Shares are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of certificates.
If this Letter of Transmittal or any certificates or stock powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and proper evidence
satisfactory to the Purchaser of their authority so to act must be submitted.
When this Letter of Transmittal is signed by the registered owner(s) of the
Shares listed and transmitted hereby, no endorsements of certificates or
separate stock powers are required unless payment or certificates for Shares not
tendered or accepted for payment are to be issued to a person other than the
registered owner(s). Signatures on such certificates or stock powers must be
guaranteed by an Eligible Institution. See Instruction 1.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the shares tendered hereby, the certificates evidencing
the Shares tendered hereby must be endorsed or accompanied by appropriate stock
powers, in either case, signed exactly as the name(s) of the registered owner(s)
appear(s) on the certificates for such Shares. Signatures on such certificates
or stock powers must be guaranteed by an Eligible Institution. See Instruction
1.
6. STOCK TRANSFER TAXES. Except as set forth in this Instruction 6, the
Purchaser will pay, or cause to be paid, any stock transfer taxes with respect
to the transfer and sale of Shares to it or its assignee pursuant to the Offer.
If, however, payment of the purchase price is to be made to, or if certificates
for Shares not tendered or accepted for payment are to be registered in the name
of, any persons other than the registered holder(s), or if tendered certificates
are registered in the name of any person other than the person(s) signing this
Letter of Transmittal, the amount of any stock transfer taxes (whether imposed
on the registered holder or such person) payable on account of the transfer to
such person will be deducted from the purchase price unless satisfactory
evidence of the payment of such taxes or exemption therefrom is submitted.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the certificates listed in this Letter of
Transmittal.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check is to be issued
in the name of and/or certificates for Shares not accepted for payment are to be
returned to a person other than the signer of this Letter of Transmittal or if a
check is to be sent and/or such certificates are to be returned to a person
other than the signer of this Letter of Transmittal or to an address other than
that shown above, the appropriate boxes on this Letter of Transmittal should be
completed. Any shareholder tendering Shares by book-entry transfer will have any
Shares not accepted for payment returned by crediting the account maintained by
such shareholder at the Book-Entry Transfer Facility from which such transfer
was made.
8
<PAGE> 9
8. WAIVER OF CONDITIONS. Except as otherwise provided in the Offer to
Purchase, the Purchaser reserves the absolute right, in its sole discretion, to
waive any of the conditions of the Offer or any defect or irregularity in the
tender of any Shares of any particular shareholder, whether or not similar
defects or irregularities are waived in the case of other shareholders.
9. SUBSTITUTE FORM W-9. The tendering shareholder (or other payee) is
required, unless an exemption applies, to provide the Depositary with a correct
Taxpayer Identification Number ("TIN"), generally the shareholder's social
security or federal employer identification number, and with certain other
information, on a Substitute Form W-9, which is provided under "Important Tax
Information" below, and to certify under penalties of perjury, that such number
is correct and that the shareholder (or other payee) is not subject to backup
withholding. If a tendering shareholder is subject to backup withholding, he or
she must cross out item 2 of the Certification Box on the Substitute Form W-9
before signing such Form. Failure to furnish the correct TIN on the Substitute
Form W-9 may subject the tendering shareholder (or other payee) to a $50 penalty
imposed by the Internal Revenue Service and payments of cash to the tendering
shareholder (or other payee) pursuant to the Offer may be subject to backup
withholding of 31%. If the tendering shareholder has not been issued a TIN and
has applied for a number or intends to apply for a number in the near future, he
or she should write "Applied For" in the space provided for the TIN in Part 1,
sign and date the Substitute Form W-9 and sign and date the Certificate of
Awaiting Taxpayer Identification Number. If "Applied For" is written in Part 1
and the Depositary is not provided with a TIN by the time of payment, the
Depositary will withhold 31% of all such payments for surrendered Shares
thereafter until a TIN is provided to the Depositary.
10. LOST OR DESTROYED CERTIFICATES. If any certificate(s)representing
Shares has been lost or destroyed, the shareholder should check the appropriate
box on page 2 of this Letter of Transmittal. The Company's stock transfer agent
will then instruct such shareholder as to the procedure to be followed in order
to replace the certificate(s). The shareholder will have to post a surety bond
of approximately 2% of the current market value of the Shares. This Letter of
Transmittal and related documents cannot be processed until procedures for
replacing lost or destroyed certificates have been followed.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance or additional copies of the Offer to Purchase, this Letter of
Transmittal, the Notice of Guaranteed Delivery and the Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 may be
directed to the Information Agent or the Dealer Manager at their respective
locations and telephone numbers set forth below.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A MANUALLY SIGNED FACSIMILE COPY
THEREOF), TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES, OR IN THE CASE OF A
BOOK-ENTRY TRANSFER, AN AGENT'S MESSAGE, AND CERTIFICATES, OR A BOOK-ENTRY
CONFIRMATION, FOR SHARES AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY
THE DEPOSITARY, OR THE NOTICE OF GUARANTEED DELIVERY (OR A MANUALLY SIGNED
FACSIMILE COPY THEREOF) MUST BE RECEIVED BY THE DEPOSITARY, ON OR PRIOR TO THE
EXPIRATION DATE.
IMPORTANT TAX INFORMATION
Under federal income tax law, a shareholder surrendering Shares must,
unless an exemption applies, provide the Depositary (as payor) with his correct
TIN on the Substitute Form W-9 included in this Letter of Transmittal. If the
shareholder is an individual, his TIN is his social security number. If the
correct TIN is not provided, the shareholder may be subject to a $50 penalty
imposed by the Internal Revenue Service and payments of cash to the tendering
shareholder (or other payee) pursuant to the Offer may be subject to backup
withholding of 31%.
Certain shareholders (including, among others, all corporations and certain
foreign individuals and entities) are not subject to backup withholding. In
order for an exempt foreign shareholder to avoid backup withholding, that person
should complete, sign and submit a Form W-8, Certificate of Foreign Status,
signed under penalties of perjury, attesting to his exempt status. A Form W-8
can be obtained from the Depositary. Exempt shareholders, other than foreign
shareholders, should furnish their TIN, write "Exempt" on the face
9
<PAGE> 10
of the Substitute Form W-9 and sign, date and return the Substitute Form W-9 to
the Depositary. See the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional instructions.
If backup withholding applies, the Depositary is required to withhold 31%
of any payment made to payee. Backup withholding is not an additional tax.
Rather, the federal income tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If backup withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a shareholder
with respect to Shares purchased pursuant to the Offer, the shareholder is
required to notify the Depositary of his correct TIN (or the TIN of any other
payee) by completing the Substitute Form W-9 included in this Letter of
Transmittal certifying (i) that the TIN provided on the Substitute Form W-9 is
correct (or that such shareholder is awaiting a TIN), and that (ii) the
shareholder is not subject to backup withholding because (a) the shareholder has
not been notified by the Internal Revenue Service that the shareholder is
subject to backup withholding as a result of a failure to report all interest
and dividends or (b) the Internal Revenue Service has notified the shareholder
that the shareholder is no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The shareholder is required to give the Depositary the TIN, generally the
social security number or employer identification number, of the record owner(s)
of the Shares. If the Shares are in more than one name or are not in the name of
the actual owner, consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional guidance on which
number to report. If the tendering shareholder has not been issued a TIN and has
applied for a number or intends to apply for a number in the near future, he or
she should write "Applied For" in the space provided for the TIN in Part 1, sign
and date the Substitute Form W-9 and sign and date the Certificate of Awaiting
Taxpayer Identification Number, which appears in a separate box below the
Substitute Form W-9. If "Applied For" is written in Part 1 and the Depositary is
not provided with a TIN by the time of payment, the Depositary will withhold 31%
of all payments of the purchase price until a TIN is provided to the Depositary.
10
<PAGE> 11
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
PAYER'S NAME:
- ------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX ------------------------------------
AT THE RIGHT AND CERTIFY BY SIGNING AND Social Security Number(s)
FORM W-9 DATING BELOW. OR
----------------------------------
(See Instruction 9) Employer Identification Number(s)
Please fill in your name and
address below.
------------------------------------------------------------------------------------
PART 2 -- CERTIFICATION -- Under Penalties of Perjury, I
certify that:
----------------------------- (1) The number shown on the form is my correct Taxpayer PART 3 --
Name
----------------------------- Identification Number (or I am waiting for a number to be Awaiting TIN [ ]
Address (number and street) issued to me) and ------------------------
-----------------------------
(City, State and Zip Code) (2) I am not subject to backup withholding because (i) I am PART 4 -- For Payee
Exempt from
DEPARTMENT OF THE TREASURY exempt from backup withholding, or (ii) I have not been Backup Withholding
INTERNAL REVENUE SERVICE notified by the Internal Revenue Service ("IRS") that I Exempt [ ]
am subject to backup withholding as a result of failure
to report all interest or dividends or (iii) the IRS has
notified me that I am no longer subject to backup
withholding.
------------------------------------------------------------------------------------
CERTIFICATION INSTRUCTIONS -- You must cross out Item (2) in Part 2 above if you have
PAYOR'S REQUEST FOR TAXPAYER been notified by the IRS that you are currently subject to backup withholding because
IDENTIFICATION NUMBER (TIN) of under reporting interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding, you received another
notification from the IRS stating that you are no longer subject to backup withholding,
do not cross out Item (2). If you are exempt from backup withholding, check the box in
Part 4 above.
SIGNATURE ------------------------- DATE-------------------------, 1998
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN A $50 PENALTY
IMPOSED BY THE INTERNAL REVENUE SERVICE AND IN BACKUP WITHHOLDING OF 31%
OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE
ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON
THE SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED FOR"
IN PART 1 OF THE SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (i) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office
or (ii) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by
the time of payment, 31% of all reportable payments made to me thereafter
will be withheld, until I provide a number.
, 1998
-------------------------------- --------------------------------
Signature Date
11
<PAGE> 12
Questions and requests for assistance or additional copies of the Offer to
Purchase, Letter of Transmittal and other tender offer materials may be directed
to the Information Agent or the Dealer Manager at their respective locations and
telephone numbers set forth below:
The Information Agent for the Offer is:
(MACKENZIE PARTNERS, INC. LOGO)
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
CALL TOLL-FREE (800) 322-2885
The Dealer Manager for the Offer is:
PRUDENTIAL SECURITIES INCORPORATED
One New York Plaza
18th Floor
New York, New York 10292
(212) 778-1818 (Call Collect)
or
CALL TOLL-FREE (800) 881-9234
12
<PAGE> 1
TAMPA, FL AND EL PASO, TX, MAY 4, 1998 NEWS RELEASE -- Tropical Sportswear Int'l
Corporation (NASDAQ:TSIC) and Farah Incorporated (NYSE:FRA) today jointly
announced the signing of a definitive merger agreement whereby TSI will acquire
100 percent of the outstanding shares of Farah common stock. Pursuant to the
agreement, TSI will pay $9.00 per share for each of the approximately 10.3
million outstanding shares of Farah common stock. The transaction will be
structured as a cash tender offer followed by a cash merger to acquire any
shares not previously tendered. As a result of the transaction, Farah will
become a wholly owned subsidiary of TSI. The transaction is subject to receipt
by TSI of at least 66-2/3% of Farah common stock as well as customary regulatory
approvals. The Board of Directors of both companies unanimously approved the
transaction. TSI expects to commence its cash tender offer for the Farah shares
on May 8, 1998. The transaction is expected to be completed within 90 days.
William W. Compton will remain as Chairman of the Board and CEO of the combined
companies. Richard C. Allender and Charles Smith, both members of the Farah
Board, are expected to join TSI's Board of Directors. On a pro forma basis, the
combined companies reported publicly reported revenues of approximately $434
million for their respective most recent publicly reported twelve months. TSI
will maintain its corporate headquarters, distribution and cutting facilities in
Tampa and also intends to have a continued presence in the El Paso area.
William W. Compton said: "Tropical anticipates there will be cost savings and
other opportunities that will be realized with the combination of the two
companies. We see this acquisition as a tremendous opportunity to improve our
position in the finest retailers in America. Tropical will offer customers and
consumers more innovative products and services using its successful formula of
combining quality, value and technology. The Savane(R), Farah(R), Phillips-Van
Heusen(R), Bill Blass(R), John Henry(R), Bay to Bay(R) and Generra(R) brands are
well established and we plan to continue their development. We intend to
continue the growth of private and national brands in order to provide the
retailer and consumer with a wider range of men's and women's sportswear
choices. The combination of these two, well established, apparel companies will
bring a new and dynamic competitor to the apparel industry."
Richard Allender, Chief Executive Officer of Farah, commented, "the effect of
the acquisition will be to continue the tremendous growth of the Savane(R) label
that has taken place over the last seven years. I am also personally pleased
that TSI will maintain a continued presence in the El Paso area."
Tropical Sportswear Int'l Corporation markets and manufactures men's and women's
sportswear including pants, jeans, shorts and shirts through all major retail
distribution channels including department and specialty stores. TSI provides
major retailers with comprehensive brand management programs and distinguishes
itself from traditional private label manufacturers by providing apparel
retailers with customer, product and market analysis, apparel design,
merchandising, and inventory forecasting through the use of state-of-the-art
technology.
<PAGE> 2
Farah Incorporated is a multinational apparel marketer and manufacturer with
headquarters in the United States. Farah's principal business is the sale of
men's and boys' pants, coats, and shirts and women's slacks. The principal
markets for Farah's products are retail customers in the United States, Europe,
and the South Pacific.
This press release contains certain forward-looking statements with respect to
anticipated future results, which are subject to risks and uncertainties that
could cause actual results to differ materially from anticipated results. Risk
factors include, but are not limited to: economic conditions that affect
consumer spending; successfully identifying emerging fashion trends, foreign and
domestic labor and manufacturing conditions; and, governmental actions such as
import or trade restrictions. Please refer to documents on file with the SEC for
a more detailed discussion of risk factors.
<PAGE> 1
FRIDAY, MAY 8, 1998, _____ EASTERN TIME
COMPANY PRESS RELEASE
Source: Tropical Sportswear Int'l Corporation
TROPICAL SPORTSWEAR INT'L CORPORATION COMMENCES TENDER OFFER
FOR FARAH SHARES
TAMPA, Florida -- May 8, 1998 -- On May 4, 1998, Tropical Sportswear Int'l
Corporation, (Nasdaq: TSIC) announced that it had entered into a definitive
merger agreement with Farah Incorporated (NYSE: FRA).
Foxfire Acquisition Corp., a wholly owned subsidiary of Tropical, has today
commenced a tender offer at $9.00 in cash per share for all of the shares of
Farah. The initial expiration date for the tender offer is June 5, 1998.
Prudential Securities Incorporated is the Dealer Manager, and MacKenzie
Partners, Inc. is the Information Agent for the tender offer.
Tropical Sportswear Int'l Corporation markets and manufactures men's and
women's sportswear including pants, jeans, shorts and shirts through all major
retail distribution channels including department and specialty stores. TSI
provides major retailers with comprehensive brand management programs and
distinguishes itself from traditional private label manufacturers by providing
apparel retailers with customer, product and market analysis, apparel design,
merchandising, and inventory forecasting through the use of state-of-the-art
technology.
For more information contact:
Tropical Sportswear Int'l Corporation, Tampa
Michael Kagan, (813) 249-4900
<PAGE> 1
EXHIBIT (c)(1)
===============================================================================
AGREEMENT AND PLAN OF MERGER
AMONG
TROPICAL SPORTSWEAR INT'L CORPORATION
FOXFIRE ACQUISITION CORP.
AND
FARAH INCORPORATED
DATED MAY 1, 1998
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE OFFER................................................................................................2
1.01 The Offer.................................................................................2
1.02 Target Action.............................................................................3
THE MERGER...............................................................................................5
2.01 The Merger................................................................................5
2.02 Effective Time; Closing...................................................................5
2.03 Effect of the Merger......................................................................5
2.04 Articles of Incorporation; Bylaws.........................................................5
2.05 Directors and Officers....................................................................5
2.06. Conversion of Securities..................................................................6
2.07 Employee Stock Options; Restricted Stock..................................................6
2.08 Dissenting Shares.........................................................................7
2.09 Surrender of Shares; Stock Transfer Books.................................................7
REPRESENTATIONS AND WARRANTIES OF THE TARGET.............................................................9
3.01 Organization and Qualification; Subsidiaries..............................................9
3.02 Articles of Incorporation and Bylaws.....................................................10
3.03 Capitalization...........................................................................10
3.04 Authority Relative to This Agreement.....................................................10
3.05 No Conflict; Required Filings and Consents...............................................11
3.06 Permits; Compliance......................................................................12
3.07 SEC Filings; Financial Statements........................................................12
3.08 Absence of Certain Changes or Events.....................................................13
3.09 Absence of Litigation....................................................................14
3.10 Employee Benefit Plans...................................................................14
3.11 Labor Matters............................................................................16
3.12 Taxes....................................................................................17
3.13 Environmental Matters....................................................................18
3.14 Opinion of Financial Advisor.............................................................20
3.15 Brokers..................................................................................20
3.16 Tangible Property........................................................................20
3.17 Material Contracts.......................................................................21
3.18 Offer Documents; Schedule 14D-9..........................................................21
3.19 Change in Control........................................................................21
3.20 Intellectual Property....................................................................22
3.21 Insurance................................................................................23
3.22 Certain Business Practices...............................................................23
3.23 State Takeover Laws......................................................................23
3.24 Board Recommendation.....................................................................23
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
AND ACQUIROR SUB...................................................................................23
4.01 Corporate Organization...................................................................24
4.02 Authority Relative to This Agreement.....................................................24
4.03 No Conflict; Required Filings and Consents...............................................24
4.04 Offer Documents; Proxy Statement.........................................................25
4.05 Brokers..................................................................................25
4.06 Financing................................................................................26
CONDUCT OF BUSINESS PENDING THE MERGER..................................................................26
5.01 Conduct of Business by the Target Pending the
Acquiror Sub's Election Date.............................................................26
ADDITIONAL AGREEMENTS...................................................................................28
6.01 Shareholder's Meeting....................................................................28
6.02 Proxy Statement..........................................................................29
6.03 Target Board Representation; Section 14(f)...............................................29
6.04 Access to Information; Confidentiality...................................................30
6.05 No Solicitation of Transactions..........................................................30
6.06 Directors' and Officers' Indemnification.................................................31
6.07 Obligations of Acquiror Sub..............................................................33
6.08 Public Announcements.....................................................................33
6.09 Delivery of SEC Documents................................................................33
6.10 Notification of Certain Matters..........................................................33
6.11 Further Action...........................................................................34
6.12 Employee Benefits........................................................................34
6.13 Appropriate Action; Consents; Filings....................................................34
6.14 Payments in Respect of Target Options....................................................35
6.15 Supplemental Indenture...................................................................36
6.16 Employee Stock Purchase Plan.............................................................36
6.17 Directorships............................................................................37
CONDITIONS TO THE MERGER................................................................................37
7.01 Conditions to the Merger.................................................................37
TERMINATION, AMENDMENT AND WAIVER.......................................................................37
8.01 Termination..............................................................................37
8.02 Fees and Expenses........................................................................39
8.03 Amendment................................................................................40
8.04 Waiver...................................................................................40
GENERAL PROVISIONS......................................................................................40
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
9.01 Non-Survival of Representations, Warranties and Agreements...............................40
9.02 Notices..................................................................................40
9.03 Certain Definitions......................................................................42
9.04 Severability.............................................................................43
9.05 Assignment; Binding Effect; Benefit......................................................43
9.06 Incorporation of Schedules...............................................................43
9.07 Specific Performance.....................................................................43
9.08 Governing Law............................................................................43
9.09 Headings.................................................................................43
9.10 Counterparts.............................................................................44
9.11 Waiver of Jury Trial.....................................................................44
9.12 Entire Agreement.........................................................................44
</TABLE>
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of May 1, 1998 (this
"Agreement"), by and among Tropical Sportswear Int'l Corporation, a Florida
corporation ("Acquiror"), Foxfire Acquisition Corp., a Texas corporation and a
direct, wholly owned subsidiary of Acquiror ("Acquiror Sub"), and Farah
Incorporated, a Texas corporation (the "Target").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Acquiror, Acquiror Sub and the
Target have each determined that it is in the best interests of their respective
shareholders for Acquiror, through Acquiror Sub, to acquire the Target upon the
terms and subject to the conditions set forth herein;
WHEREAS, in furtherance of such acquisition, it is proposed that
Acquiror Sub shall make a cash tender offer (as it may be amended from time to
time as permitted by this Agreement, the "Offer") to acquire all the issued and
outstanding shares of common stock, no par value per share, of the Target
("Target Common Stock"; shares of Target Common Stock being hereinafter
collectively referred to as the "Shares") for $9.00 per Share (such amount, or
iany greater amount per Share paid pursuant to the Offer, being hereinafter
referred to as the "Per Share Amount") net to the seller in cash, without
interest thereon, upon the terms and subject to the conditions of this Agreement
and the Offer;
WHEREAS, the Board of Directors of Acquiror and Acquiror Sub have
approved the making of the Offer and the transactions related thereto;
WHEREAS, the Board of Directors of the Target has approved the making
of the Offer and resolved and agreed, subject to the terms and conditions
contained herein, to recommend that holders of Shares tender their Shares
pursuant to the Offer; and
WHEREAS, also in furtherance of such acquisition, the Boards of
Directors of Acquiror, Acquiror Sub and the Target have each approved the merger
(the "Merger") of Acquiror Sub with and into the Target in accordance with the
Texas Business Corporation Act ("Texas Law") following the consummation of the
Offer and upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Acquiror, Acquiror Sub and the Target hereby agree as follows:
ARTICLE I
<PAGE> 6
THE OFFER
SECTION 1.01. The Offer. (a) Provided that this Agreement shall not
have been terminated in accordance with Section 8.01 and none of the events set
forth in Annex A hereto shall have occurred or be existing (unless such event
shall have been waived by Acquiror Sub), Acquiror shall cause Acquiror Sub to
commence, and Acquiror Sub shall commence, the Offer at the Per Share Amount as
promptly as reasonably practicable after the date hereof, but in no event later
than five business days after the public announcement of Acquiror Sub's
intention to commence the Offer. The obligation of Acquiror Sub to accept for
payment and pay for Shares tendered pursuant to the Offer shall be subject only
to (i) the condition (the "Minimum Condition") that at least the number of
Shares that, when combined with the Shares already owned by Acquiror and its
direct and indirect subsidiaries, constitute two-thirds of the then outstanding
Shares shall have been validly tendered and not withdrawn prior to the
expiration of the Offer and (ii) the satisfaction or waiver of the other
conditions set forth in Annex A hereto. Acquiror Sub expressly reserves the
right to waive any such condition (other than the Minimum Condition), to
increase the price per Share payable in the Offer, and to make any other changes
in the terms and conditions of the Offer; provided, however, that
(notwithstanding Section 8.03) no change may be made which (A) decreases the
price per Share payable in the Offer, (B) reduces the maximum number of Shares
to be purchased in the Offer, (C) imposes conditions to the Offer in addition to
those set forth in Annex A hereto, (D) amends or changes the terms and
conditions of the Offer in any manner materially adverse to the holders of
Shares (other than Acquiror and its subsidiaries) or (E) changes or waives the
Minimum Condition. Notwithstanding clause (D) of the foregoing sentence,
Acquiror Sub may, without the consent of the Target (i) extend the Offer, if at
the scheduled expiration date of the Offer any of the conditions to Acquiror
Sub's obligations to purchase the Shares have not been satisfied, (ii) extend
the Offer from time to time for up to a maximum of an aggregate of 10 business
days beyond the initial expiration date of the Offer (which initial expiration
date shall be 20 business days following the commencement of the Offer),
notwithstanding that all conditions to the Offer are satisfied as of the date of
such extension, and (iii) extend the Offer for any period required by any rule,
regulation, interpretation or position of the Securities and Exchange Commission
(the "SEC") or the staff thereof applicable to the Offer. Notwithstanding the
foregoing, the Offer may not be extended beyond the date of termination of this
Agreement pursuant to Section 8. The Per Share Amount shall, subject to
applicable withholding of taxes, be net to the seller in cash, without interest
thereon, upon the terms and subject to the conditions of the Offer. Subject to
the terms and conditions of the Offer (including, without limitation, the
Minimum Condition), Acquiror Sub shall accept for payment and pay, as promptly
as practicable after expiration of the Offer, for all Shares validly tendered
and not withdrawn.
(b) As soon as reasonably practicable on the date of commencement of
the Offer, Acquiror Sub shall file with the Securities and Exchange Commission
(the "SEC") and disseminate to holders of Shares to the extent required by law a
Tender Offer Statement on
<PAGE> 7
Schedule 14D-1 (together with all amendments and supplements thereto, the
"Schedule 14D-1") with respect to the Offer and the other Transactions (as
hereinafter defined). The Schedule 14D-1 shall contain or shall incorporate by
reference an offer to purchase (the "Offer to Purchase") and forms of the
related letter of transmittal and any related summary advertisement (the
Schedule 14D-1, the Offer to Purchase and such other documents, together with
all supplements and amendments thereto, being referred to herein collectively as
the "Offer Documents"). Acquiror, Acquiror Sub and the Target agree to correct
promptly any information provided by any of them for use in the Offer Documents
which shall have become false or misleading in any material respect, and
Acquiror and Acquiror Sub further agree to take all steps necessary to cause the
Schedule 14D-1 as so corrected to be filed with the SEC and the other Offer
Documents as so corrected to be disseminated to holders of Shares, in each case
as and to the extent required by applicable federal securities laws. The Target
and its counsel shall be given an opportunity to review and comment on the Offer
Documents and any amendments thereto prior to the filing thereof with the SEC.
Acquiror and Acquiror Sub will provide the Target and its counsel with a copy of
any written comments or telephonic notification of any verbal comments Acquiror
or Acquiror Sub may receive from the SEC or its staff with respect to the Offer
Documents promptly after the receipt thereof and will provide the Target and its
counsel with a copy of any written responses and telephonic notification of any
verbal response of Acquiror, Acquiror Sub or their counsel. In the event that
the Offer is terminated or withdrawn by Acquiror Sub, Acquiror and Acquiror Sub
shall cause all tendered Shares to be returned to the registered holders of the
Shares represented by the certificate or certificates surrendered to the Paying
Agent (as defined herein).
SECTION 1.02. Target Action. (a) The Target hereby approves of and
consents to the Offer and represents that (i) the Target's Board of Directors,
at a meeting duly called and held on May 1, 1998, has (A) determined that this
Agreement and the transactions contemplated hereby, including, without
limitation, the terms of each of the Offer and the Merger (the "Transactions"),
are fair to and in the best interests of the holders of Shares (other than
Acquiror and its subsidiaries), (B) approved this Agreement and the Transactions
and (C) resolved to recommend, subject to the conditions set forth herein, that
the shareholders of the Target accept the Offer and approve this Agreement and
the Transactions; and (ii) Financo, Inc. ("Target Banker") has delivered to the
Target's Board of Directors a written opinion that the consideration to be
received by the holders of Shares pursuant to each of the Offer and the Merger
is fair to such holders from a financial point of view. The Target has been
authorized by Target Banker, subject to prior review by Target Banker, to
include such fairness opinion (or references thereto) in the Offer Documents and
in the Schedule 14D-9 (as defined in paragraph (b) of this Section 1.02) and the
Proxy Statement referred to in Section 6.02. Subject to the fiduciary duties of
the Target's Board of Directors under applicable law, the Target hereby consents
to the inclusion in the Offer Documents of the recommendation of the Target's
Board of Directors described above.
(b) As soon as reasonably practicable on the date of commencement of
the Offer, the Target shall file with the SEC a Solicitation/Recommendation
Statement on Schedule 14D-9 (together with all amendments and supplements
thereto, the "Schedule 14D-9") containing,
<PAGE> 8
subject only to the fiduciary duties of the Target's Board of Directors under
applicable law, the recommendation of the Target's Board of Directors described
in Section 1.02(a) and shall disseminate the Schedule 14D-9 to the extent
required by Rule 14d-9 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and any other applicable federal securities laws.
The Target, Acquiror and Acquiror Sub agree to correct promptly any information
provided by any of them for use in the Schedule 14D-9 which shall have become
false or misleading, and the Target further agrees to take all steps necessary
to cause the Schedule 14D-9 as so corrected to be filed with the SEC and
disseminated to holders of Shares, in each case as and to the extent required by
applicable federal securities laws. Acquiror, Acquiror Sub and their counsel
shall be given an opportunity to review and comment on the Schedule 14D-9 and
any amendments thereto prior to the filing thereof with the SEC. The Target will
provide Acquiror and Acquiror Sub and their counsel with a copy of any written
comments or telephonic notification of any verbal comments the Target may
receive from the SEC or its staff with respect to the Schedule 14D-9 promptly
after the receipt thereof and will provide Acquiror and Acquiror Sub and their
counsel with a copy of any written responses and telephonic notification of any
verbal response of the Target or its counsel.
(c) The Target shall promptly furnish Acquiror Sub with mailing labels
containing the names and addresses of all record holders of Shares and with
security position listings of Shares held in stock depositories, each as of the
most recent date reasonably practicable. The Target shall furnish Acquiror Sub
with such additional information, including, without limitation, updated
listings and computer files of shareholders, mailing labels and security
position listings, and such other assistance as Acquiror, Acquiror Sub or their
agents may reasonably request. Subject to the requirements of applicable law,
and except for such steps as are necessary to disseminate the Offer Documents
and any other documents necessary to consummate the Offer or the Merger,
Acquiror and Acquiror Sub shall hold in confidence the information contained in
such labels, listings and files, shall use such information only in connection
with the Offer and the Merger, and, if this Agreement shall be terminated in
accordance with Section 8.01, shall deliver promptly to the Target all copies of
such information then in their possession and shall certify in writing to the
Target its compliance with this Section 1.02(c).
ARTICLE II
THE MERGER
SECTION 2.01. The Merger. Upon the terms and subject to the conditions
set forth in this Agreement (including Article VII), and in accordance with
Texas Law, at the Effective Time (as hereinafter defined), Acquiror Sub shall be
merged with and into the Target. As a result of the Merger, the separate
corporate existence of Acquiror Sub shall cease and the Target shall continue as
the surviving corporation of the Merger (the "Surviving Corporation"). The name
of the Surviving Corporation shall be Savane International Corp.
<PAGE> 9
SECTION 2.02. Effective Time; Closing. As promptly as practicable and
in no event later than the first business day following the satisfaction or
waiver of the conditions set forth in Article VII (or such other date as may be
agreed by each of the parties hereto), the parties hereto shall cause the Merger
to be consummated by filing articles of merger (the "Articles of Merger") with
the Secretary of State of the State of Texas (the "Secretary") in such form as
is required by, and executed in accordance with the relevant provisions of,
Texas Law. The term "Effective Time" means the date and time of the filing of
the Articles of Merger with the Secretary (or such later time as may be agreed
in writing by each of the parties hereto and specified in the Articles of
Merger). Immediately prior to the filing of the Articles of Merger, a closing
will be held at the Dallas, Texas offices of Baker & McKenzie (or such other
place and time as the parties may agree).
SECTION 2.03. Effect of the Merger. The effect of the Merger shall be
as provided in the applicable provisions of Texas Law.
SECTION 2.04. Articles of Incorporation; Bylaws. (a) At the Effective
Time, the Articles of Incorporation of the Target, as in effect immediately
prior to the Effective Time, shall be amended as of the Effective Time by
operation of this Agreement and by virtue of the Merger without any further
action by the shareholders or directors of the Surviving Corporation to read in
its entirety as set forth on Annex B hereto.
(b) At the Effective Time, the Bylaws of Acquiror Sub, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation until thereafter amended as provided by law, the Articles of
Incorporation of the Surviving Corporation and such Bylaws.
SECTION 2.05. Directors and Officers. The directors of Acquiror Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation until a successor is
elected or appointed and has qualified or until the earliest of such director's
death, resignation, removal or disqualification, and the officers of the Target
immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed and qualified, or as otherwise provided in the Bylaws of
the Surviving Corporation.
SECTION 2.06. Conversion of Securities. At the Effective Time, by
virtue of the Merger and without any action on the part of Acquiror Sub, the
Target or the holders of any of the following shares of capital stock:
(a) Each Share issued and outstanding immediately prior to the
Effective Time (other than any Shares to be canceled pursuant to Section 2.06(b)
and any Dissenting Shares (as hereinafter defined)) shall be canceled and shall
be converted automatically into the right to receive an amount equal to the Per
Share Amount in cash (the "Merger Consideration") payable,
<PAGE> 10
without interest, to the holder of such Share, upon surrender, in the manner
provided in Section 2.09, of the certificate that formerly evidenced such Share;
(b) Each Share held in the treasury of the Target and each Share owned
by Acquiror Sub, Acquiror or any direct or indirect wholly owned subsidiary of
Acquiror or of the Target immediately prior to the Effective Time shall be
cancelled without any conversion thereof and no payment or distribution shall be
made with respect thereto; and
(c) Each share of Common Stock, $0.01 par value per share, of Acquiror
Sub issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock, no par value per share, of the Surviving
Corporation.
SECTION 2.07. Employee Stock Options; Restricted Stock. (a) Immediately
after the Tender Offer Acceptance Date (as hereinafter defined), each
outstanding option to purchase Shares (in each case, an "Option") granted under
(a) the Target's 1991 Stock Option and Restricted Stock Plan, as amended, (b)
the Target's 1988 Stock Option Plan for Non-Employee Directors (c) the Target's
1996 Non-Employee Director Stock Option Plan, as amended, (d) the Target's 1998
Stock Option and Restricted Stock Plan, and (e) the Target's 1986 Stock Option
Plan (such plans (a) through (e) hereinafter the "Target Option Plans"), whether
or not then exercisable or vested, shall, subject to the Target's receipt of any
required consent of the holders of such Options, be cancelled by the Target, and
each holder of a cancelled Option shall be entitled to receive from Acquiror Sub
at the same time as payment for Shares is made by Acquiror Sub in connection
with the Offer, in consideration for the cancellation of such Option, an amount
in cash equal to the product of (i) the number of Shares previously subject to
such Option and (ii) the excess, if any, of the Per Share Amount over the
exercise price per Share previously subject to such Option. The term "Tender
Offer Acceptance Date" means the date on which the Acquiror Sub shall have
accepted for payment all Shares validly tendered and not withdrawn prior to the
expiration date with respect to the Offer.
(b) Immediately prior to the Tender Offer Acceptance Date, all
restrictions on any restricted stock awards granted under the Target Option
Plans shall lapse and the holders of such restricted stock shall be entitled to
receive from Acquiror Sub at the same time as payment for Shares is made by
Acquiror Sub in connection with the Offer in consideration for the restricted
stock an amount in cash equal to the product of (i) the number of Shares subject
to such restricted stock award and (ii) the Per Share Amount.
SECTION 2.08. Dissenting Shares. Notwithstanding any provision of this
Agreement to the contrary, Shares that are outstanding immediately prior to the
Effective Time and which are held by shareholders who shall not have voted in
favor of this Agreement or consented thereto in writing and who shall have
timely filed with the Target a written objection to the action contemplated by
this Agreement in accordance with Section 5.12 of Texas Law (collectively, the
"Dissenting Shares") shall not be converted into or represent the right to
receive
<PAGE> 11
the Merger Consideration. Such shareholders shall be entitled to receive
payment of the fair value of such Shares held by them in accordance with the
provisions of Texas Law, except that all Dissenting Shares held by shareholders
who effectively shall have withdrawn or lost their rights to demand payment of
the fair value of such Shares under Texas Law shall thereupon be deemed to have
been converted into and to have become exchangeable for, as of the Effective
Time, the right to receive the Merger Consideration, without any interest
thereon, upon surrender, in the manner provided in Section 2.09, of the
certificate or certificates that formerly evidenced such Shares. The Target
shall give Acquiror (i) prompt notice of any written notice of intent to seek
dissenters rights received by the Target and (ii) the opportunity to direct all
negotiations and proceedings with respect to any such notices. The Target shall
not, without the prior written consent of Acquiror, voluntarily make any payment
with respect to, or settle, offer to settle, or otherwise negotiate with respect
to, any such notices.
SECTION 2.09. Surrender of Shares; Stock Transfer Books. (a) Prior to
the Effective Time, Acquiror Sub shall designate a bank or trust company
reasonably satisfactory to the Target to act as agent (the "Paying Agent") for
the holders of Shares in connection with the Merger to receive the funds to
which holders of Shares shall become entitled pursuant to Section 2.06(a). At
the Effective Time, Acquiror shall cause the Surviving Corporation to have
sufficient funds to deposit, and shall cause the Surviving Corporation to
deposit in trust with the Paying Agent, cash in the aggregate amount equal to
the product of (i) the number of Shares outstanding immediately prior to the
Effective Time (other than Shares owned by Acquiror or Acquiror Sub) and (ii)
the Per Share Amount. Such funds shall be invested by the Paying Agent as
directed by the Surviving Corporation, provided that such investments shall be
in obligations of or guaranteed by the United States of America or of any agency
thereof and backed by the full faith and credit of the United States of America,
in commercial paper obligations rated A-1 or P-1 or better by Moody's Investors
Services, Inc. or Standard & Poor's Corporation, respectively, or in deposit
accounts, certificates of deposit or banker's acceptances of, repurchase or
reverse repurchase agreements with, or Eurodollar time deposits purchased from,
commercial banks with capital, surplus and undivided profits aggregating in
excess of $150 million (based on the most recent financial statements of such
bank which are then publicly available at the SEC or otherwise); provided,
however, that no loss on any investment made pursuant to this Section 2.09 shall
relieve Acquiror or the Surviving Corporation of its obligation to pay the Per
Share Amount for each Share outstanding immediately prior to the Effective Time.
(b) Promptly after the Effective Time, Acquiror shall cause the
Surviving Corporation to mail to each person who was, at the Effective Time, a
holder of record of Shares entitled to receive the Merger Consideration pursuant
to Section 2.06(a) a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the certificates
evidencing such Shares (the "Certificates") shall pass, only upon proper
delivery of the Certificates to the Paying Agent) and instructions for use in
effecting the surrender of the Certificates pursuant to such letter of
transmittal. Upon surrender to the Paying Agent of a Certificate, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, and such other documents as may be required
pursuant
<PAGE> 12
to such instructions, the holder of such Certificate shall be entitled to
receive in exchange therefor the Merger Consideration for each Share formerly
evidenced by such Certificate, and such Certificate shall then be canceled. No
interest shall accrue or be paid on the Merger Consideration payable upon the
surrender of any Certificate for the benefit of the holder of such Certificate.
If payment of the Merger Consideration is to be made to a person other than the
person in whose name the surrendered Certificate is registered on the stock
transfer books of the Target, it shall be a condition of payment that the
Certificate so surrendered shall be endorsed properly or otherwise be in proper
form for transfer and that the person requesting such payment shall have paid
all transfer and other taxes required by reason of the payment of the Merger
Consideration to a person other than the registered holder of the Certificate
surrendered or shall have established to the satisfaction of the Surviving
Corporation that such taxes either have been paid or are not applicable. The
Surviving Corporation shall pay all charges and expenses, including those of the
Paying Agent, in connection with the distribution of the Merger Consideration.
(c) At any time following one year after the Effective Time, the
Surviving Corporation shall be entitled to require the Paying Agent to deliver
to it any funds which had been made available to the Paying Agent and not
disbursed to holders of Shares (including, without limitation, all interest and
other income received by the Paying Agent in respect of all funds made available
to it) and, thereafter, such holders shall be entitled to look to the Surviving
Corporation (subject to abandoned property, escheat and other similar laws) only
as general creditors thereof with respect to any Merger Consideration that may
be payable upon due surrender of the Certificates held by them. Notwithstanding
the foregoing, neither the Surviving Corporation nor the Paying Agent shall be
liable to any holder of a Share for any Merger Consideration delivered in
respect of such Share to a public official pursuant to any abandoned property,
escheat or other similar law.
(d) Acquiror, Acquiror Sub or the Surviving Corporation, as the case
may be, shall be entitled to deduct and withhold from the consideration
otherwise payable to any holder of Target Common Stock pursuant to this
Agreement such amounts as may be required to be deducted and withheld with
respect to the making of such payment under the Internal Revenue Code of 1986,
as amended, or under any provision of state, local or foreign tax law.
(e) At the close of business on the day of the Effective Time, the
stock transfer books of the Target shall be closed and, thereafter, there shall
be no further registration of transfers of Shares on the records of the Target.
From and after the Effective Time, the holders of Shares outstanding immediately
prior to the Effective Time shall cease to have any rights with respect to such
Shares except as otherwise provided herein or by applicable law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE TARGET
<PAGE> 13
Except as set forth in the Disclosure Schedule delivered by the Target
and signed by the Target and Acquiror for identification prior to the execution
and delivery of this Agreement (the "Target Disclosure Schedule"), which shall
identify exceptions by specific section references, the Target hereby represents
and warrants to Acquiror and Acquiror Sub that:
SECTION 3.01. Organization and Qualification; Subsidiaries. The Target
is a corporation, and each subsidiary of the Target (a "Subsidiary") is a
corporation or partnership, in each case duly incorporated or organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has the requisite corporate or partnership
power and authority to own, lease and operate its properties and to carry on its
business as it is now being conducted. The Target and each Subsidiary are duly
qualified or licensed as a foreign corporation or partnership to do business,
and are in good standing, in each jurisdiction where the character of the
properties owned, leased or operated by them or the nature of their business
makes such qualification or licensing necessary, except for such failures to be
so qualified or licensed and in good standing that would not, individually or in
the aggregate, have a Material Adverse Effect on the Target. As used in this
Agreement, the term "Material Adverse Effect" means with respect to any person,
any event, change or effect, individually or together with any other event,
change or effect, that is or is reasonably likely to be materially adverse (i)
to the financial condition, business or results of operations of such person and
its subsidiaries, taken as a whole, or (ii) the ability of the Target to perform
its obligations under this Agreement or to consummate any of the Transactions.
As of the date hereof, a true and correct list of all Subsidiaries, together
with the jurisdiction of organization of each Subsidiary and the percentage of
the outstanding capital stock or other equity interests of each Subsidiary owned
by the Target and each other Subsidiary, is set forth in Section 3.01 of the
Target Disclosure Schedule. Except as disclosed in Section 3.01 of the Target
Disclosure Schedule, the Target does not directly or indirectly own any equity
or similar interest in, or any interest convertible into or exchangeable or
exercisable for any equity or similar interest in, any corporation, partnership,
joint venture or other business association or entity.
SECTION 3.02. Articles of Incorporation and Bylaws. The Target has
heretofore furnished or made available to Acquiror a complete and correct copy
of the Articles of Incorporation and Bylaws or equivalent organizational and
governing documents, each as amended to date, of the Target and each Subsidiary.
Neither the Target nor any Subsidiary is in violation of any provision of its
Articles of Incorporation, Bylaws or equivalent organizational and governing
documents.
SECTION 3.03. Capitalization. The authorized capital stock of the
Target consists of 20,000,000 shares of Target Common Stock. As of April 30,
1998, 10,286,357 shares of Target Common Stock were issued and outstanding, all
of which are validly issued, fully paid and nonassessable and not subject to
preemptive rights, and 1,016,500 shares of Target Common Stock were issuable
pursuant to outstanding Options or restricted stock awards under the Target
Option Plans and there are 36,275 shares of treasury stock. Except as set forth
in this Section 3.03, Section 3.03 of the Target Disclosure Schedule or in the
Target SEC Reports (as hereinafter
<PAGE> 14
defined), as of the date of this Agreement, there are no options, warrants or
other rights, agreements, arrangements or commitments of any character relating
to the issued or unissued capital stock of, or other equity interests in, the
Target or any Subsidiary obligating the Target or any Subsidiary to issue, sell
or otherwise transfer any shares of capital stock of, or other equity interests
in, the Target or any Subsidiary. Between March 17, 1998 and the date of this
Agreement, no shares of Target Common Stock have been issued by the Target,
except pursuant to the exercise of Options or as set forth in Section 3.03 of
the Target Disclosure Schedule. There are no outstanding contractual obligations
of the Target or any Subsidiary to repurchase, redeem or otherwise acquire any
shares of Target Common Stock or any capital stock of, or any equity interest
in, any Subsidiary. Except as described in the Target SEC Reports or Section
3.03 of the Target Disclosure Schedule, each outstanding share of capital stock
of, or other equity interest in, each Subsidiary is duly authorized, validly
issued, fully paid and nonassessable and is owned by the Target or a Subsidiary
free and clear of any lien or other adverse claim. None of the outstanding
shares of capital stock or other equity interests of the Target or any
Subsidiary has been issued in violation of any preemptive rights of the current
or past shareholders or partners of the Target or any of the Subsidiaries.
SECTION 3.04. Authority Relative to This Agreement. The Target has all
necessary corporate power and authority to execute and deliver this Agreement
and, with respect to the Merger, upon the approval of this Agreement and the
Merger by the Target's shareholders in accordance with this Agreement and Texas
Law, to perform its obligations hereunder and to consummate the Transactions.
The execution and delivery of this Agreement by the Target and the consummation
by the Target of the Transactions have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of the
Target are necessary to authorize this Agreement or to consummate the
Transactions (other than, with respect to the Merger, the approval of this
Agreement and the Merger by the Target's shareholders in accordance with Texas
Law and the filing and recordation of appropriate Articles of Merger with the
Secretary in accordance with this Agreement and Texas Law). This Agreement has
been duly and validly executed and delivered by the Target and, assuming the due
authorization, execution and delivery of this Agreement by Acquiror and Acquiror
Sub, constitutes a legal, valid and binding obligation of the Target,
enforceable against the Target in accordance with its terms.
SECTION 3.05. No Conflict; Required Filings and Consents. (a)
The execution and delivery of this Agreement by the Target do not, and the
performance of this Agreement by the Target will not, subject to (x) with
respect to the Merger, obtaining the requisite approval of this Agreement and
the Merger by the Target's shareholders in accordance with this Agreement and
Texas Law, and (y) obtaining the consents, approvals, authorizations and permits
and making the filings described in Section 3.05(a) and Section 3.05(b) of the
Target Disclosure Schedule, (i) conflict with or violate the Articles of
Incorporation, Bylaws or equivalent organizational documents of the Target or
any Subsidiary, (ii) conflict with or violate any law applicable to the Target
or any Subsidiary or by which any property or asset of the Target or any
Subsidiary is bound or affected, or (iii) except as specified in Section
3.05(a)(iii) of the Target Disclosure
<PAGE> 15
Schedule, result in any breach of or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any right of termination, unilateral amendment, acceleration or
cancellation of, or result in the creation of a lien or other encumbrance on any
property or asset of the Target or any Subsidiary, or require the consent of any
third party pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Target or any Subsidiary is a party or by which the Target or any
Subsidiary or any property or asset of the Target or any Subsidiary is bound or
affected, except for such conflicts, violations, breaches, defaults or other
occurrences which individually or in the aggregate would not reasonably be
expected to have a Material Adverse Effect on the Target.
(b) The execution and delivery of this Agreement by the Target do not,
and the performance of this Agreement by the Target will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic or foreign, except (i)
pursuant to the Exchange Act, state securities or "blue sky" laws ("Blue Sky
Laws"), the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the rules and regulations promulgated thereunder (the "HSR Act"), and filing
and recordation of appropriate Articles of Merger with the Secretary as required
by Texas Law, (ii) as specified in Section 3.05(b) of the Target Disclosure
Schedule and (iii) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
prevent or delay consummation of the Merger, or otherwise prevent the Target
from performing its obligations under this Agreement and would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.
SECTION 3.06. Permits; Compliance. Except as disclosed in Section 3.06
of the Target Disclosure Schedule, each of the Target and the Subsidiaries is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exceptions, consents, certificates, approvals and orders
of any United States (federal, state or local) or foreign government, or
governmental, regulatory or administrative authority, agency or commission or
court of competent jurisdiction ("Governmental Authority") necessary for the
Target or any Subsidiary to own, lease and operate its properties or to carry on
its business as it is now being conducted, except for those which the failure to
possess would not individually or in the aggregate reasonably be expected to
have a Material Adverse Effect on the Target (the "Target Permits") and, as of
the date hereof, no suspension or cancellation of any of the Target Permits is
pending or, to the knowledge of the Target, threatened, except such suspensions
or terminations as would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect on the Target. Except as disclosed
in Section 3.06 of the Target Disclosure Schedule or as would not reasonably be
expected to have a Material Adverse Effect on the Target, neither the Target nor
any Subsidiary is in conflict with, or in default or violation of, or, with the
giving of notice or the passage of time, would be in conflict with, or in
default or violation of, (a) any law applicable to the Target or any Subsidiary
or by which any property or asset of the Target or any Subsidiary is bound or
affected, (b) any of the Target Permits, or (c) any of the provisions of its
Articles of Incorporation or Bylaws (or other organizational or governing
instruments).
<PAGE> 16
SECTION 3.07. SEC Filings; Financial Statements. (a) The Target has
filed all forms, reports and documents required to be filed by it with the SEC
since December 31, 1994 (collectively, the "Target SEC Reports"). The Target SEC
Reports (i) were prepared in all material respects in accordance with the
requirements of the Securities Act of 1933, as amended, and the Exchange Act, as
the case may be, and the rules and regulations thereunder and (ii) did not, at
the time they were filed (or at the effective date thereof in the case of
registration statements), contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. No Subsidiary is currently required
to file any form, report or other document with the SEC under Section 12 of the
Exchange Act.
(b) Each of the financial statements (including, in each case, any
notes thereto) contained in the Target SEC Reports was prepared in accordance
with United States generally accepted accounting principles applied on a
consistent basis ("U.S. GAAP") throughout the periods indicated (except as may
be indicated in the notes thereto and except that financial statements included
with interim reports do not contain all U.S. GAAP notes to such financial
statements) and each fairly presented in all material respects the financial
position, results of operations and changes in shareholders' equity and cash
flows of the Target as at the respective dates thereof and for the respective
periods indicated therein (subject, in the case of unaudited statements, to
normal and recurring year-end adjustments which were not and are not expected,
individually or in the aggregate, to be material in amount or effect).
(c) Except (i) to the extent set forth on the balance sheet of the
Target and the consolidated Subsidiaries as at November 2, 1997, including the
notes thereto, (ii) as set forth in Section 3.07(c) of the Target Disclosure
Schedule or (iii) as disclosed in any SEC Report filed by the Target after
November 2, 1997, and prior to the date of this Agreement, neither the Target
nor any Subsidiary has any liability or obligation of any nature (whether
accrued, absolute, contingent or otherwise) that is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on the Target,
prepared in accordance with U.S. GAAP, except for liabilities and obligations
incurred in the ordinary course of business consistent with past practice since
November 2, 1997, which would not, individually or in the aggregate, be
reasonably expected to have a Material Adverse Effect on the Target.
(d) The Target has heretofore furnished or made available to Acquiror
complete and correct copies of all amendments and modifications (if any) that
have not been filed by the Target with the SEC to all agreements, documents and
other instruments that previously had been filed by the Target as exhibits to
the Target SEC Reports and are currently in effect.
SECTION 3.08. Absence of Certain Changes or Events. Since November 2,
1997, except as contemplated by, or disclosed pursuant to, this Agreement,
including Section 3.08 of the Target Disclosure Schedule, or disclosed in any
Target SEC Report filed since November 2,
<PAGE> 17
1997, and prior to the date of this Agreement, the Target and the Subsidiaries
have conducted their business only in the ordinary course and in a manner
consistent with past practice and, since November 2, 1997, there has not been
(a) any event or events (whether or not covered by insurance), changes or
occurrences that have had, or are reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on the Target, (b) any material change
by the Target in its tax or accounting methods, principles or practices, or
systems of internal accounting controls, except as may be appropriate to conform
to changes in the tax laws or U.S. GAAP, (c) any entry by the Target or any
Subsidiary into any commitment or transaction, except in the ordinary course of
business and consistent with past practice, (d) any declaration, setting aside
or payment of any dividend or distribution in respect of any capital stock of
the Target or any redemption, purchase or other acquisition or exchange of any
shares, or securities convertible into any shares, of the capital stock of the
Target or a Subsidiary, (e) other than pursuant to the Plans (as defined in
Section 3.10), any increase in or establishment of any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing, stock
option, stock purchase or other employee benefit plan, except in the ordinary
course of business consistent with past practice, (f) any granting by the Target
or any of its Subsidiaries to any director, employee or officer of the Target or
any of its Subsidiaries of any increases in compensation, severance or
termination pay except in the ordinary course of business consistent with past
practice or any entry by the Target or any of its Subsidiaries into any
employment, severance or termination agreement with any such director, employee
or officer, or (g) incurrence of any additional debt obligations or other
obligations for borrowed money (other than indebtedness of a Subsidiary to the
Target or another Subsidiary) in excess of an aggregate of $1,000,000 except in
the ordinary course of the business of the Target consistent with past
practices.
SECTION 3.09. Absence of Litigation. Except as disclosed in Section
3.09 of the Target Disclosure Schedule or the Target SEC Reports filed prior to
the date of this Agreement, there is no claim, action, proceeding or
investigation pending or, to the best knowledge of the Target or any of the
Subsidiaries, threatened against the Target or any Subsidiary, or, to the
knowledge of Target, against any director or employee, or against any property,
asset, interest or right of any of them, before any arbitrator or Governmental
Authority which (a) individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect on the Target or (b) seeks to and is
reasonably likely to significantly delay or prevent the consummation of the
Offer or the Merger. Neither the Target nor any Subsidiary nor any property or
asset of the Target or any Subsidiary is in violation of any order, writ,
judgment, injunction, decree, determination or award having, individually or in
the aggregate, a Material Adverse Effect on the Target.
SECTION 3.10. Employee Benefit Plans.
(a) Section 3.10 of the Target Disclosure Schedule lists (a) all
material employee benefit plans, programs and arrangements, including but not
limited to all material plans described in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), currently
contributed to or maintained for the benefit of any current or
<PAGE> 18
former employee, officer or director of the Target or any Subsidiary (the
"Plans") and (b) all written contracts and agreements relating to employment and
all severance agreements with any of the directors or officers of the Target or
any Subsidiary (other than, in each case, any such contract or agreement that is
terminable by the Target or any Subsidiary at will without penalty or other
adverse consequence) (the "Target Employment Contracts"). Section 3.10 of the
Target Disclosure Schedule sets forth the name of each officer or employee of
the Target or any Subsidiary with an annual base compensation greater than
$100,000 and the annual base compensation applicable to each such officer or
employee. The Target has made available to Acquiror a copy of each Plan, each
material document prepared in connection with each Plan and each Target
Employment Contract. Except as set forth in Section 3.10 of the Target
Disclosure Schedule, none of the Plans is a multiemployer plan within the
meaning of Section 3(37) of ERISA. Except as set forth in Section 3.10 of the
Target Disclosure Schedule, each Plan has been operated in accordance with its
terms and the requirements of applicable law except where the failure to so
operate would not have a Material Adverse Effect on the Target. The Target does
not currently have any direct or indirect material liability under, arising out
of or by operation of Title IV of ERISA in connection with the termination of,
or withdrawal from, any Plan or other retirement plan or arrangement and, as of
the date hereof, no fact exists or event has occurred that would reasonably be
expected to give rise to any such liability. The Target and the Subsidiaries
have complied in all respects with the Worker Adjustment Retraining Notification
Act, and no fact or event exists that could give rise to liability under such
act, except for such occurrences, noncompliances and liabilities as would not,
individually or in the aggregate, have a Material Adverse Effect on the Target.
(b) Neither the Target nor any Subsidiary has any liability to the
Pension Benefit Guaranty Corporation ("PBGC") other than routine premium costs,
nor has there been any application for waiver or waiver of the minimum funding
standards imposed by Section 412 of the Internal Revenue Code of 1986, as
amended (the "Code") and no "accumulated funding deficiency" within the meaning
of Section 412(a) of the Code exists (whether or not waived) with respect to any
Plan. Except as set forth in Section 3.10 of the Target Disclosure Schedule, no
Plan has any material unfunded accrued benefits as determined per U.S. GAAP that
are not fully reflected in the Target financial statements.
(c) No Plan that is a defined benefit pension plan within the meaning
of Section 3(35) of ERISA ("Defined Benefit Plan") has been terminated or
partially terminated. The Target and any applicable Subsidiary have made full
and timely payment of all amounts required under the terms of each of the Plans
that are employee pension benefit plans as defined in Section 3(2) of ERISA.
Except as disclosed on Section 3.10 of the Target Disclosure Schedule, no
reportable event within the meaning of Section 4043 of ERISA has occurred with
respect to any Plan that is a Defined Benefit Plan.
(d) Each Plan that is intended to qualify under section 401(a) of the
Code has received a determination from the Internal Revenue Service stating that
is so qualifies and that its trust is exempt from taxation under section 501(a)
of the Code and, except as set forth in Section
<PAGE> 19
3.10 of the Target Disclosure Schedule, nothing has occurred since the date of
such determination that could materially adversely affect such qualification or
exempt status.
(e) No breaches of fiduciary duty have occurred with respect to any
Plan that might reasonably be expected to give rise to material liability and no
prohibited transaction (within the meaning of Section 406 of ERISA or section
4975 of the Code) has occurred with respect to any Plan that gives rise to or
might reasonably be expected to give rise to material liability.
(f) Except as set forth in Section 3.10 of the Target Disclosure
Schedule, no Plan that is a "welfare plan" as defined in section 3(1) of ERISA
provides medical or death benefits with respect to current or former employees
of the Target or any Subsidiary beyond their termination of employment (other
than to the extent required by applicable law).
(g) The Target and all Subsidiaries have complied in material respects
with the continuation coverage requirements of Title X of the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA").
(h) Except as set forth in Section 3.10 of the Target Disclosure
Schedule and except for Plans maintained pursuant to a collective bargaining
agreement, each Plan can be amended or terminated at any time and without
material liability to the Target other than for benefits accrued prior to such
amendment or termination. No agreement, commitment, or obligation exists to
increase any benefits under any Plan or to adopt any new Plan. Except where
there would not be a Material Adverse Effect on Target or its Subsidiaries, each
of the Subsidiaries that is incorporated, organized or domiciled outside the
jurisdiction of the United States has withheld or collected and paid over to the
applicable Governmental Authority or other custodial entity all material
contributions, taxes, premiums or payments required by law (whether representing
the employer's or employee's portions thereof) for any employee welfare program
existing in the applicable jurisdiction, including without limitation, any
program or fund for social security, retirement, employee savings, or mandatory
insurance for employee benefits or risks.
(i) There are no material claims, lawsuits, or arbitrations pending or,
to the knowledge of the Target or any of the Subsidiaries, threatened involving
any Plan (other than routine claims for benefits) nor is there any reasonable
basis to anticipate any such claims, lawsuits, or arbitrations involving any
Plans.
(j) Notwithstanding any of the foregoing to the contrary, for all
purposes of Section 3.10 other than the first, third and fourth sentences of
Section 3.10 (a), the term "Plan" shall not include any multi-employer plan
within the meaning of Section 3(37) of ERISA that is disclosed in Section 3.10
of the Target Disclosure Schedule.
SECTION 3.11. Labor Matters. Except as set forth in Section 3.11 of the
Target Disclosure Schedule or in the Target SEC Reports, neither the Target nor
any Subsidiary is a party to, nor does it have any obligation pursuant to, any
material oral and legally binding or
<PAGE> 20
written agreement, collective bargaining or otherwise, with any party regarding
the rates of pay or working conditions of any of its employees, and, except as
set forth in Section 3.11 of the Target Disclosure Schedule is obligated under
any agreement to recognize or bargain with any labor organization or union on
behalf of its employees. Except as set forth in Section 3.11 of the Target
Disclosure Schedule, the Target and each Subsidiary is in compliance with all
applicable federal, state, local and foreign laws and regulations concerning the
employer-employee relationship and with all agreements relating to the
employment of its employees, including, but not limited to, applicable wage and
hour laws, immigration laws, fair employment laws, safety laws, worker
compensation statutes, unemployment laws and social security laws, except for
such non-compliance as would not have a Material Adverse Effect on the Target
and its Subsidiaries, taken as a whole. Neither the Target nor any of its
Subsidiaries is the subject of any litigation asserting that it has committed an
unfair labor practice within the meaning of the National Labor Relations Act or
comparable foreign, state or local law or seeking to compel the Target or any of
its Subsidiaries to bargain with any labor organization as to wages or
conditions of employment. There is no strike or material labor dispute involving
the Target or any Subsidiary pending or, to the knowledge of the Target or any
of the Subsidiaries, threatened.
SECTION 3.12. Taxes. (a) Except as set forth in Section 3.12 of the
Target Disclosure Schedule, the Target and each of the Subsidiaries have (i)
filed all federal, state, local and foreign tax returns required to be filed by
them prior to the date of this Agreement (taking into account extensions), and
all tax returns filed are accurate and complete in all material respects, (ii)
paid or accrued all taxes shown to be due on such returns and paid all
applicable ad valorem and value added taxes as are due and (iii) paid or accrued
all taxes for which a notice of assessment or collection has been received
(other than amounts being contested in good faith by appropriate proceedings),
except in the case of clause (i), (ii) or (iii) for any such filings, payments
or accruals which would not, individually or in the aggregate, have a Material
Adverse Effect on the Target. Except as set forth in Section 3.12 of the Target
Disclosure Schedule, neither the Internal Revenue Service nor any other federal,
state, local or foreign taxing authority has asserted any claim for taxes, or to
the best knowledge of the Target and each of the Subsidiaries, is threatening to
assert any claims for taxes, which claims, individually or in the aggregate,
could have a Material Adverse Effect on the Target. The Target and each
Subsidiary has open years for federal, state and foreign tax returns only as set
forth in Section 3.12 of the Target Disclosure Schedule. The Target and each
Subsidiary have withheld or collected and paid over to the appropriate
governmental authorities (or are properly holding for such payment) all taxes
required by law to be withheld or collected, except for amounts which would not,
individually or in the aggregate, have a Material Adverse Effect on the Target.
Neither the Target nor any of the Subsidiaries has made an election under
Section 341(f) of the Code. There are no liens for taxes upon the assets of the
Target or any Subsidiary (other than liens for taxes that are not yet due or
that are being contested in good faith by appropriate proceedings), except for
liens which would not, individually or in the aggregate, have a Material Adverse
Effect on the Target. Except as set forth in Section 3.12 of the Target
Disclosure Schedule, there has not been an ownership change, as defined in
Section 382(g) of the Code, of the Target or any of the Subsidiaries that
occurred either after September 19, 1985, or on or after any taxable period in
which the Target or any of
<PAGE> 21
the Subsidiaries incurred a net operating loss that carries over to any taxable
period ending after November 2, 1997. Except as set forth in Section 3.12 of the
Target Disclosure Schedule, neither the Target or any of the Subsidiaries has or
has had a permanent establishment in any foreign country, as defined in any
applicable tax treaty or convention between the United States and such foreign
country.
(b) Except as set forth in Section 3.12 of the Target Disclosure
Schedules, neither the Target, any Subsidiary incorporated under the laws of the
United States of America, Farah Manufacturing (U.K.) Limited, Farah (New
Zealand) Limited, Farah (Australia) Pty. Limited, Touche Industrial, S.A. de C.
V. or Corporacion Farah - Costa Rica, S.A. has executed an extension or waiver
of any statute of limitations on the assessment or collection of any tax due
(excluding such statutes that relate to years currently under examination by the
Internal Revenue Service or other applicable taxing authorities) that is
currently in effect.
(c) The provision for any taxes due or to become due for the Target or
any Subsidiary for the period or periods through and including the date of the
Target financial statements filed in the most recent Target SEC Report that has
been made and is reflected on such financial statements is sufficient to cover
all such taxes in all material respects.
(d) The Target and each Subsidiary is in compliance with, and its
records contain all information and documents (including properly completed IRS
Forms W-9) necessary to comply with, all applicable information reporting and
tax withholding requirements under federal, foreign, state, and local tax laws,
and such records identify with specificity all accounts subject to backup
withholding under Section 3406 of the Code, except for such instances of
noncompliance and such omissions as are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Target.
SECTION 3.13. Environmental Matters. (a) For purposes of this
Agreement, the following terms shall have the following meanings: (i) "Hazardous
Substances" means (A) any hazardous substance, hazardous material, hazardous
waste, regulated substance or toxic substance as defined in or regulated under
any Environmental Laws, including but not limited to the following federal
statutes and their state counterparts, as each may be amended from time to time,
and all regulations thereunder: the Hazardous Materials Transportation Act, the
Resource Conservation and Recovery Act, the Comprehensive Environmental Response
Compensation and Liability Act, the Clean Water Act, the Safe Drinking Water
Act, the Atomic Energy Act, the Federal Insecticide, Fungicide, and Rodenticide
Act, the Toxic Substances Control Act and the Clean Air Act; (B) petroleum and
petroleum products, byproducts and breakdown products including crude oil and
any fractions thereof; (C) natural gas, synthetic gas, and any mixtures thereof;
(D) asbestos requiring abatement, removal or encapsulation pursuant to the
requirements of governmental authorities and any polychlorinated biphenyls; (E)
any other chemicals, materials or substances defined or regulated as toxic or
hazardous or as a pollutant or contaminant or as a waste under any applicable
Environmental Law; and (F) any substance with respect to which a federal,
foreign, state or local agency requires environmental investigation, monitoring,
reporting or remediation; and (ii) "Environmental Laws" means any federal,
state, foreign, or local law, rule
<PAGE> 22
or regulation, now or hereafter in effect and as amended, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to pollution or protection of the
environment, health, safety or natural resources, including without limitation,
those relating to (A) releases or threatened releases of Hazardous Substances or
materials containing Hazardous Substances or (B) the manufacture, handling,
transport, use, treatment, storage or disposal of Hazardous Substances or
materials containing Hazardous Substances.
(b) Except as described in Section 3.13 of the Target Disclosure
Schedule or as would not individually or in the aggregate result in or be likely
to result in any fine, tax, assessment, penalty, loss, cost, damage, liability,
expense or other payment related thereto, that would reasonably be expected to
have a Material Adverse Effect on the Target: (i) the Target and each Subsidiary
and any property owned, leased, or operated by the Target or by any of the
Subsidiaries and, where required by the context, the owner or operator of such
property, but only with respect to such property (an "Operating Property"), and
any facility or property in which the Target or any of the Subsidiaries
participates in the management and, where required by the context, the owner or
operator of such facility or property, but only with respect to such facility or
property (a "Participation Facility"), are and have been in compliance with all
applicable Environmental Laws; (ii) the Target and each Subsidiary have obtained
all permits, approvals, identification numbers, licenses or other authorizations
required under any applicable Environmental Laws ("Environmental Permits") and
are and have been in compliance with their requirements; (iii) such
Environmental Permits are transferable to the Surviving Corporation pursuant to
the Merger without the consent of any Governmental Authority; (iv) there are no
underground or aboveground storage tanks or any surface impoundments, septic
tanks, pits, sumps or lagoons in which Hazardous Substances are being or have
been treated, stored or disposed of on any Operating Property, Participation
Facility, or on any real property formerly owned, leased or occupied by the
Target or any Subsidiary; (v) there is, to the best knowledge of the Target, no
asbestos or asbestos-containing material on any Operating Property or
Participation Facility in violation of applicable Environmental Laws; (vi) the
Target and the Subsidiaries have not released, discharged or disposed of
Hazardous Substances on any Operating Property or Participation Facility or on
any real property formerly owned or leased by the Target or any Subsidiary, and
none of such property is contaminated with any Hazardous Substances; (vii)
neither the Target nor any of the Subsidiaries is undertaking, and neither the
Target nor any of the Subsidiaries has completed, any investigation or
assessment or remedial or response action relating to any such release,
discharge or disposal of or contamination with Hazardous Substances at any site,
location or operation, either voluntarily or pursuant to the order of any
Governmental Authority or the requirements of any Environmental Law; and (viii)
there are no pending or, to the knowledge of the Target, past or threatened
actions, suits, demands, demand letters, claims, liens, notices of
non-compliance or violation, notices of liability or potential liability,
investigations, proceedings, consent orders or consent agreements relating in
any way to Environmental Laws, any Environmental Permits or any Hazardous
Substances ("Environmental Claims") against the Target or any Subsidiary or any
Operating Property or Participation Facility, and there are no circumstances
that can reasonably be expected to form the basis of any such
<PAGE> 23
Environmental Claim, including without limitation with respect to any off-site
disposal location presently or formerly used by the Target or any of the
Subsidiaries or any of their predecessors.
(c) The Target and the Subsidiaries have made available to Acquiror
copies of any environmental reports, studies or analyses in its possession or
under its control relating to Operating Property or Participation Facility or
the operations of the Target or the Subsidiaries.
SECTION 3.14. Opinion of Financial Advisor. The Target has received a
copy of the written opinion of Target Banker on the date of this Agreement to
the effect that the consideration to be paid by Acquiror Sub in the Offer and
the Merger is fair from a financial point of view to the Target's shareholders
as of the date thereof.
SECTION 3.15. Brokers. No broker, finder or investment banker (other
than Target Banker) is entitled to any brokerage, finder's or other fee or
commission in connection with the Transactions based upon arrangements made by
or on behalf of the Target or any Subsidiary. The Target has heretofore
furnished to Acquiror a correct copy of all agreements between the Target and
Target Banker pursuant to which such firm would be entitled to any payment
relating to the Transactions.
SECTION 3.16. Tangible Property. (a) Except as described in Section
3.16 of the Target Disclosure Schedule, the Target and the Subsidiaries have
good and marketable title to all their tangible properties and assets free and
clear of all liens, with only such exceptions as, individually or in the
aggregate, would not have a Material Adverse Effect on the Target. All tangible
properties used in the businesses of the Target and the Subsidiaries are in good
condition, reasonable wear and tear excepted, and are usable in the ordinary
course of business consistent with past practice.
(b) All items of inventory of the Target and the Subsidiaries reflected
on the most recent balance sheet included in the Target financial statements
contained in the Target SEC Reports prior to the date of this Agreement and
prior to the Effective Time consisted and will consist, as applicable, of items
of a quality and quantity usable and salable in the ordinary course of business
and conform to generally accepted standards in the industry in which the Target
and the Subsidiaries are a part.
(c) The accounts receivable of the Target and the Subsidiaries as set
forth on the most recent balance sheet included in the Target financial
statements contained in the Target SEC Reports prior to the date of this
Agreement or arising since the date thereof are valid and genuine; have arisen
solely out of bona fide sales and deliveries of goods, performance of services
and other business transactions in the ordinary course of business consistent
with past practice; are not subject to valid defenses, set-offs or
counterclaims; and are collectible in all material respects after billing at the
full recorded amount thereof less, in the case of accounts receivable appearing
on the most recent balance sheet included in the Target financial statements
contained in the Target SEC Reports prior to the date of this Agreement, the
recorded allowance for
<PAGE> 24
collection losses on such balance sheet. The allowance for collection losses on
such balance sheet has been determined in accordance with U.S. GAAP.
(d) All Assets that are material to the Target's business on a
consolidated basis, held under leases or subleases by any of the Target and the
Subsidiaries, are held under valid contracts enforceable in accordance with
their respective terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or other laws affecting the
enforcement of creditors' rights generally and except that the availability of
the equitable remedy of specific performance or injunctive relief is subject to
the discretion of the court before which any proceedings may be brought), and
each such contract is in full force and effect.
(e) The assets of the Target and the Subsidiaries include all assets
required to operate the business of the Target and the Subsidiaries as presently
conducted.
SECTION 3.17. Material Contracts. Section 3.17 of the Target Disclosure
Schedule lists each contract which is required by its terms or is currently
expected to result in the payment or receipt by the Target or any Subsidiary of
more than $500,000 and which is not terminable by the Target or any Subsidiary
without the payment of any penalty or fine on not more than three months' notice
(a "Material Contract") to which the Target or any Subsidiary is a party, other
than contracts which have been filed as an exhibit to or have been incorporated
by reference in any Target SEC Report. Each Material Contract is in full force
and effect and is enforceable against the parties thereto (other than the
Target) in accordance with its terms, and no condition or state of facts exists
that, with notice or the passage of time, or both, would constitute a material
default by the Target or, to the knowledge of the Target, any third party under
such Material Contracts. The Target has duly complied in all material respects
with the provisions of each Material Contract to which it is a party.
SECTION 3.18. Offer Documents; Schedule 14D-9. Neither the Schedule
14D-9 nor any information supplied by the Target for inclusion in the Offer
Documents shall, at the respective times the Schedule 14D-9, the Offer
Documents, or any amendments or supplements thereto are filed with the SEC or
are first published, sent or given to shareholders of the Target, as the case
may be, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under which they are
made, not misleading, except that no representation or warranty is made by the
Target with respect to information supplied by Acquiror Sub or Acquiror for
inclusion in the Schedule 14D-9. The Schedule 14D-9 shall comply in all material
respects as to form with the requirements of the Exchange Act and the rules and
regulations thereunder.
SECTION 3.19. Change in Control. Except as set forth in Section 3.19 of
the Target Disclosure Schedule, the Target is not a party to any contract,
agreement or understanding that contains a "change in control," "potential
change in control" or similar provision, which, as a result of the consummation
of the Transactions will (either alone or upon the occurrence of any
<PAGE> 25
additional acts or events) result in (i) any payment exceeding $500,000 (whether
of severance pay or otherwise) becoming due from the Target to any person, or
(ii) the acceleration of any obligations in excess of $500,000 under such
contract, agreement or understanding.
SECTION 3.20. Intellectual Property. Section 3.20 of the Target
Disclosure Schedule (i)(A) identifies each trademark, service mark, trade name,
copyright and all registrations and applications for any of the foregoing; (ii)
lists each patent, invention, industrial model, process, design and all
registrations and applications for any of the foregoing; and (iii) identifies
any know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), trade dress,
labels and logos, pertaining to any product, software or service manufactured,
marketed, licensed or sold by the Target and the Subsidiaries in the conduct of
their business or used, employed or exploited in the development, license, sale,
marketing, distribution or maintenance thereof and which is material to the
business of the Target and the Subsidiaries taken as a whole and (B) lists all
contracts and other agreements to which the Target or any Subsidiary is a party,
including, such contract and agreement where the Target or any Subsidiary is
either licensee or licensor, for each of the foregoing items of intellectual
property (all of the foregoing, the "Target's Intellectual Property"). None of
the Target's affiliates, including, to the Target's knowledge, any of its
shareholders, has any interest (other than as a shareholder of the Target) in,
owns, possesses or otherwise holds in any manner any of the Target's
Intellectual Property. Except as set forth in Section 3.20 of the Target
Disclosure Schedule, all patents, copyrights, trademarks, including state,
federal and foreign registrations and applications, and other rights and
property listed in Section 3.20 of the Target Disclosure Schedule are valid and
in full force and effect. The rights and properties listed in Section 3.20 of
the Target Disclosure Schedule are subject to maintenance fees and renewal fees;
however, as of the date hereof except as set forth in Section 3.20 of the Target
Disclosure Schedule,, these rights and properties will not be subject to any
unpaid maintenance fees or renewal fees falling due within ninety (90) days
after the date hereof. Except as set forth on Schedule 3.20 of the Target
Disclosure Schedule, the Target owns or has the exclusive right to use the
Target's Intellectual Property in connection with the business now operated by
it and its Subsidiaries. The Target has taken reasonable security measures to
protect the secrecy, confidentiality and value of the Target's Intellectual
Property. Except as set forth in Section 3.20 of the Target Disclosure Schedule,
the Target has not received any notice of infringement of or conflict with
asserted rights of others with respect to any of the Target's Intellectual
Property, and there is no claim, action, suit or proceeding pending or, to the
Target's knowledge, threatened or reasonably anticipated against the Target with
respect thereto. Except as set forth in Section 3.20 of the Target Disclosure
Schedule, the Target is not required to pay any royalty or other amount to
anyone with respect to any of the Target's Intellectual Property. To the
Target's knowledge, the Target's trademarks, service marks, trade names, trade
dress, labels and logos described in Section 3.20 of the Target Disclosure
Schedule are sufficient for the conduct of its business as now conducted by it
and as described in the SEC Report. Neither the Target nor any Subsidiary is in
default under any of the Target Intellectual Property licenses.
<PAGE> 26
SECTION 3.21. Insurance. All material assets and risks of the Target
and the Subsidiaries are covered by valid and currently effective insurance
policies in such types and amounts as are consistent with customary practices
and standards of companies engaged in businesses and operations similar to those
of the Target. None of the Target and the Subsidiaries has received notice from
any insurance carrier that (i) any policy of insurance will be canceled or that
coverage thereunder will be reduced or eliminated, or (ii) premium costs with
respect to such policies of insurance will be substantially increased. There are
presently no claims for amounts exceeding in any individual case $100,000
pending under such policies of insurance and no notices of claims in excess of
such amounts have been given by the Target or any Subsidiary under such
policies.
SECTION 3.22. Certain Business Practices. As of the date of this
Agreement, except for such actions which would not have a Material Adverse
Effect, neither the Target, any Subsidiary nor any director, officer, or, to the
best knowledge of the Target, any agent or employee of the Target or any
Subsidiary has (i) used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, (ii)
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended, or (iii)
made any other unlawful payment.
SECTION 3.23. State Takeover Laws. Prior to the date hereof, the Target
and each Subsidiary has taken all necessary action to exempt the Transactions
from, or to make inapplicable to the Transactions, any "moratorium," "fair
price," "business combination," "control share," or other anti-takeover Laws,
including Part 13 of Texas Law that are applicable or purport to be applicable
to the Transactions.
SECTION 3.24. Board Recommendation. The Board of Directors of the
Target, at a meeting duly called and held, has by vote of those directors
present (who constituted all of the directors then in office) (i) determined
that this Agreement and the Transactions, including the Offer and the Merger,
taken together, are fair to and in the best interests of the shareholders of the
Target and (ii) resolved to recommend that the holders of the shares of the
Target Common Stock approve this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
ACQUIROR AND ACQUIROR SUB
Except as set forth in the Disclosure Schedule delivered by Acquiror to
the Target and signed by the Target and Acquiror for identification prior to the
execution and delivery of this Agreement (the "Acquiror Disclosure Schedule"),
which shall identify exceptions by specific section references, Acquiror and
Acquiror Sub hereby, jointly and severally, represent and warrant to the Target
that:
<PAGE> 27
SECTION 4.01. Corporate Organization. Each of Acquiror and Acquiror Sub
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has the requisite corporate
power and authority and all necessary governmental approvals to own, lease and
operate its properties and to carry on its business as it is now being
conducted, except where the failure to have such power, authority and
governmental approvals would not, individually or in the aggregate, have a
material adverse effect on the ability of Acquiror and Acquiror Sub to perform
their obligations hereunder and to consummate the Transactions.
SECTION 4.02. Authority Relative to This Agreement. Each of Acquiror
and Acquiror Sub has all necessary corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the Transactions. The execution and delivery of this Agreement by Acquiror and
Acquiror Sub and the consummation by Acquiror and Acquiror Sub of the
Transactions have been duly and validly authorized by all necessary corporate
action and no other corporate proceedings on the part of Acquiror or Acquiror
Sub are necessary to authorize this Agreement or to consummate the Transactions
(other than with respect to the Merger, the filing and recordation of
appropriate Articles of Merger with the Secretary, as required by this Agreement
and Texas Law). This Agreement has been duly and validly executed and delivered
by Acquiror and Acquiror Sub and, assuming the due authorization, execution and
delivery of this Agreement by the Target, constitutes a legal, valid and binding
obligation of each of Acquiror and Acquiror Sub enforceable against each of
Acquiror and Acquiror Sub in accordance with its terms.
SECTION 4.03. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by Acquiror and Acquiror Sub do not,
and the performance of this Agreement by Acquiror and Acquiror Sub will not,
subject to obtaining the consents, approvals, authorizations and permits and
making the filings described in Section 4.03(a) and Section 4.03(b) of the
Acquiror Disclosure Schedule, (i) conflict with or violate the Articles of
Incorporation or Bylaws of either Acquiror or Acquiror Sub, (ii) conflict with
or violate any law applicable to Acquiror or Acquiror Sub or by which any
property or asset of either of them is bound or affected, or (iii) result in any
breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of Acquiror or
Acquiror Sub or require the consent of any third party pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Acquiror or Acquiror Sub is
a party or by which Acquiror or Acquiror Sub or any property or asset of any of
them is bound or affected, except for any such conflicts, violations, breaches,
defaults or other occurrences which would not, individually or in the aggregate,
have a Material Adverse Effect on Acquiror or prevent Acquiror and Acquiror Sub
from performing their respective obligations under this Agreement and
consummating the Transactions.
<PAGE> 28
(b) The execution and delivery of this Agreement by Acquiror and
Acquiror Sub do not, and the performance of this Agreement by Acquiror and
Acquiror Sub will not require any consent, approval, authorization or permit of,
or filing with or notification to, any governmental or regulatory authority,
domestic or foreign, except (i) pursuant to the Exchange Act, Blue Sky Laws, the
HSR Act and filing and recordation of appropriate Articles of Merger with the
Secretary as required by this Agreement and Texas Law and (ii) where failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not have a Material Adverse Effect on Acquiror
and would not prevent or delay consummation of the Transactions, or otherwise
prevent Acquiror or Acquiror Sub from performing their respective obligations
under this Agreement.
SECTION 4.04. Offer Documents; Proxy Statement. The Offer Documents
will not, at the time the Offer Documents are filed with the SEC or are first
published, sent or given to shareholders of the Target, as the case may be,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading. The information supplied by Acquiror for inclusion in the proxy
statement to be sent to the shareholders of the Target in connection with the
Target Shareholders Meeting (such proxy statement, as amended and supplemented,
being referred to herein as the "Proxy Statement") and Schedule 14D-9 will not,
on the date the Proxy Statement or Schedule 14D-9 (or any amendment or
supplement thereto) is first mailed to shareholders of the Target, at the time
of the Shareholders Meeting and at the Effective Time, contain any statement
which, at such time and in light of the circumstances under which it is made, is
false or misleading with respect to any material fact, or omits to state any
material fact required to be stated therein or necessary in order to make the
statements therein not false or misleading or necessary to correct any statement
in any earlier communication with respect to the solicitation of proxies for the
Target Shareholders Meeting which shall have become false or misleading;
provided, however, that Acquiror or Acquiror Sub makes no representation or
warranty with respect to information supplied by the Target for inclusion in the
Offer Documents. The Offer Documents shall comply in all material respects as to
form with the requirements of the Exchange Act and the rules and regulations
thereunder.
SECTION 4.05. Brokers. No broker, finder or investment banker (other
than Prudential Securities Incorporated) is entitled to any brokerage, finder's
or other fee or commission in connection with the Transactions based upon
arrangements made by or on behalf of Acquiror or Acquiror Sub.
SECTION 4.06. Financing. Acquiror has firm commitment letters that
provide for adequate financing to Acquiror (the "Acquiror Financing") in order
for Acquiror and Acquiror Sub to fulfill their obligations under this Agreement.
Acquiror will make available to Acquiror Sub the funds to purchase all Shares
tendered pursuant to the Offer and to consummate the Merger.
<PAGE> 29
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Target Pending the Acquiror
Sub's Election Date. The Target covenants and agrees that, between the date of
this Agreement and the election or appointment of Acquiror Sub's designees to
the Target's Board of Directors pursuant to Section 6.03 upon the purchase by
Acquiror Sub of any Shares pursuant to the Offer (the "Acquiror Sub's Election
Date"), except as set forth in Section 5.01 of the Target Disclosure Schedule or
as contemplated by any other provision of this Agreement, unless Acquiror shall
otherwise agree in writing (which agreement shall not be unreasonably withheld),
(1) the business of the Target and the Subsidiaries shall be conducted only in,
and the Target and the Subsidiaries shall not take any action except in, the
ordinary course of business and in a manner substantially consistent with past
practice, (2) the Target shall use all reasonable efforts to preserve
substantially intact its business organization, to keep available the services
of the current officers, employees and consultants of the Target and the
Subsidiaries and to preserve the current relationships of the Target and the
Subsidiaries with customers, suppliers and other persons with which the Target
or any Subsidiary has significant business relations, (3) the Target will not,
and will not permit any Subsidiary to take any action that would (i) materially
and adversely affect the ability of any party to obtain any consents required
for the Transactions, (ii) cause any of the conditions to the Offer set forth on
Annex A, or any of the conditions to the Merger set forth in Article VII, not to
be satisfied, or (iii) materially and adversely affect the ability of any party
to perform its covenants and agreements under this Agreement, and (4) the Target
will not, and will not permit any Subsidiary to:
(a) amend or otherwise change its Articles of Incorporation or Bylaws
or other organizational or governing documents;
(b) issue, sell, pledge, dispose of, grant, encumber, or authorize the
issuance, sale, pledge, disposition, grant or encumbrance of, (i) any shares of
capital stock of the Target or any Subsidiary of any class, or any options,
warrants, convertible securities or other rights of any kind to acquire any
shares of such capital stock, or any other ownership interest (including,
without limitation, any phantom interest), of the Target or any Subsidiary
(except for shares of the Target Common Stock, if any, issuable under agreements
currently in effect on the date hereof and described in Section 3.03 of the
Target Disclosure Schedule and shares of capital stock pursuant to currently
outstanding Options or Plans currently in effect on the date hereof and
described in Section 3.10 of the Target Disclosure Schedule), or (ii) any of the
Target's or any Subsidiaries' assets, except for sales in the ordinary course of
business and in a manner consistent with past practice;
(c) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to any of its
capital stock or sell, lease,
<PAGE> 30
mortgage or otherwise dispose of or otherwise encumber any shares of capital
stock of any Subsidiary;
(d) reclassify, combine, split, divide or redeem, purchase or otherwise
acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any interest in any
corporation, partnership, other business organization or any division thereof or
any assets, other than the acquisition of assets in the ordinary course of
business consistent with past practice; (ii) incur any indebtedness for borrowed
money or issue any debt securities or assume, guarantee or endorse, or otherwise
as an accommodation become responsible for, the obligations of any person, or
make any loans or advances, except for indebtedness incurred in the ordinary
course of business and consistent with past practice with a maturity of not more
than one year in a principal amount not, in the aggregate, in excess of
$1,000,000; (iii) enter into, modify, amend or terminate any contract or
agreement material to the business, results of operations or financial condition
of the Target other than in the ordinary course of business, consistent with
past practice; (iv) authorize any capital expenditure, other than capital
expenditures set forth in Section 5.01(e)(iv) of the Target Disclosure Schedule;
(v) impose, or suffer the imposition, on any asset of the Target or any
Subsidiary of any lien or permit any such lien to exist (other than in
connection with liens in effect as of the date hereof that are disclosed in
Section 5.01(e)(v) of the Target Disclosure Schedule or for liens incurred in
connection with indebtedness permitted under clause (ii) above); or (vi) enter
into or amend any contract, agreement, commitment or arrangement with respect to
any matter set forth in this subsection (e);
(f) except in the ordinary course of business consistent with past
practice and except in the case of officers for annual increases in compensation
payable or to become payable to any officer of the Target consistent with past
practices of the Target, (i) increase the compensation payable or to become
payable to any director, officer or other employee, or grant any bonus to, or
grant any severance or termination pay to, or enter into any employment or
severance agreement with, any director, officer or other employee of the Target
or any Subsidiary or enter into or amend any collective bargaining agreement, or
(ii) establish, adopt, enter into or amend any bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation or other plan, trust or fund for the benefit of any director,
officer or class of employees;
(g) commence any litigation other than in accordance with past
practice, or settle or compromise any pending or threatened litigation which is
material or which relates to the Transactions, provided that nothing in this
Section 5.01(g) will prohibit the Target from settling or compromising any such
litigation if, after consultation with counsel, the Target's Board of Directors
believes that such action is necessary to comply with its fiduciary duties;
(h) grant or convey to any person any rights, including, but not
limited to, by way of sale, license or sublicense, in any of the Target's
Intellectual Property;
<PAGE> 31
(i) make any significant change in any tax or accounting methods,
principles or practices or systems of internal accounting controls, except as
may be appropriate to conform to changes in tax laws or U.S. GAAP; or
(j) after the date of this Agreement, file any material tax return
without the prior consent of Acquiror, which consent will not be unreasonably
withheld.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Shareholder's Meeting. (a) If required by applicable law
in order to consummate the Merger, the Target shall, in accordance with
applicable law and the Target's Articles of Incorporation and Bylaws, (a) duly
call, give notice of, convene and hold an annual or special meeting of its
shareholders as soon as practicable following consummation of the Offer for the
purpose of considering and taking action on this Agreement and the transactions
contemplated hereby (the "Target Shareholders Meeting") and (b) subject to the
fiduciary obligations of the Target's Board of Directors as advised by
independent legal counsel, include in the Proxy Statement the recommendation of
the Target's Board of Directors that the shareholders of the Target approve this
Agreement and the Transactions, including, without limitation, the Merger and
use its reasonable best efforts to obtain such approval. To the extent permitted
by law, Acquiror and Acquiror Sub each agree to vote all Shares beneficially
owned by them in favor of the Merger.
(b) Notwithstanding the provisions of Section 6.01(a), in the event
that Acquiror and Acquiror Sub shall acquire in the aggregate at least 90% of
the outstanding Shares, pursuant to the Offer or otherwise, the parties hereto
shall, at the request of Acquiror, take all necessary and appropriate action to
cause the Merger to become effective as soon as practicable after such
acquisition, without a meeting of shareholders of the Target, in accordance with
Texas Law.
SECTION 6.02. Proxy Statement. If required by applicable law in order
to consummate the Merger, as promptly as practicable after the purchase of all
Shares validly tendered and not withdrawn pursuant to the Offer, the Target
shall file the Proxy Statement with the SEC under the Exchange Act, and shall
use its reasonable best efforts to have the Proxy Statement cleared by the SEC.
Acquiror, Acquiror Sub and the Target shall cooperate with each other in the
preparation of the Proxy Statement, and the Target shall notify Acquiror of the
receipt of any comments of the SEC with respect to the Proxy Statement and of
any requests by the SEC for any amendment or supplement thereto or for
additional information and shall provide to Acquiror promptly copies of all
correspondence between the Target or any representative of the Target and the
SEC. The Target shall give Acquiror and its counsel
<PAGE> 32
the opportunity to review the Proxy Statement prior to its being filed with the
SEC and shall give Acquiror and its counsel the opportunity to review all
amendments and supplements to the Proxy Statement and all responses to requests
for additional information and replies to comments prior to their being filed
with, or sent to, the SEC. Each of the Target, Acquiror and Acquiror Sub agrees
to use its reasonable best efforts, after consultation with the other parties
hereto, to respond promptly to all such comments of and requests by the SEC and
to cause the Proxy Statement and all required amendments and supplements thereto
to be mailed to the holders of Shares entitled to vote at the Target
Shareholders Meeting at the earliest practicable time with the intent being to
complete the Merger before August 31, 1998. Without limiting the generality of
the foregoing, the Target agrees that its obligations pursuant to this Section
6.02 shall not be affected by the commencement, public proposal, public
disclosure or communication to the Target of any Business Combination Proposal.
SECTION 6.03. Target Board Representation; Section 14(f). (a) Promptly
upon the purchase by Acquiror Sub of Shares pursuant to the Offer, and from time
to time thereafter, Acquiror Sub shall be entitled to designate up to such
number of directors, rounded up to the next whole number, on the Target's Board
of Directors as shall give Acquiror Sub representation on the Target's Board of
Directors equal to the product of the total number of directors on the Target's
Board of Directors (giving effect to the directors elected pursuant to this
sentence) multiplied by the percentage that the aggregate number of Shares
beneficially owned by Acquiror Sub or any affiliate of Acquiror Sub at such time
bears to the total number of Shares then outstanding, and the Target shall, at
such time, promptly take all actions necessary to cause Acquiror Sub's designees
to be elected as directors of the Target, including increasing the size of the
Target's Board of Directors or securing the resignations of incumbent directors
or both. At such times, the Target shall use its best efforts to cause persons
designated by Acquiror Sub to constitute the same percentage as persons
designated by Acquiror Sub shall constitute of the Target's Board of Directors
of (i) each committee of the Target's Board of Directors (some of whom may be
required to be independent as required by applicable law), (ii) each board of
directors of each domestic Subsidiary and (iii) each committee of each such
board, in each case only to the extent permitted by applicable law.
Notwithstanding the foregoing, until the time Acquiror Sub acquires a majority
of the then outstanding Shares on a fully diluted basis, the Target shall use
its best efforts to ensure that all the members of the Target's Board of
Directors and each committee of the Target's Board of Directors and such boards
and committees of the domestic Subsidiaries as of the date hereof who are not
employees of the Target shall remain members of the Target's Board of Directors
and of such boards and committees.
(b) The Target shall promptly take all actions required pursuant to
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder in order
to fulfill its obligations under this Section 6.03 and shall include in the
Schedule 14D-9 such information with respect to the Target and its officers and
directors as is required under Section 14(f) and Rule 14f-1 to fulfill such
obligations. Acquiror or Acquiror Sub shall supply to the Target and be solely
responsible for any information with respect to either of them and their
nominees, officers, directors and affiliates required by such Section 14(f) and
Rule 14f-1.
<PAGE> 33
(c) Following the election or appointment of designees of Acquiror Sub
pursuant to this Section 6.03, prior to the Effective Time, any amendment of
this Agreement or the Articles of Incorporation or Bylaws of the Target, any
termination of this Agreement by the Target, any extension by the Target of the
time for the performance of any of the obligations or other acts of Acquiror or
Acquiror Sub or waiver of any of the Target's rights hereunder shall require the
concurrence of a majority of the directors of the Target then in office who
neither were designated by Acquiror Sub nor are employees of the Target or if no
such directors are then in office, no such amendment, termination, extension or
waiver shall be effected which is materially adverse to the holders of Shares
(other than Acquiror and its subsidiaries).
SECTION 6.04. Access to Information; Confidentiality. Subject to the
Confidentiality Agreement (as hereinafter defined), from the date hereof to
Acquiror Sub's Election Date, the Target will provide Acquiror, during normal
business hours and upon reasonable notice, access to all financial, operating
and other data and information regarding the business of the Target as Acquiror
reasonably requests, other than information and documents that in the opinion of
Target's counsel may not be disclosed under applicable law.
SECTION 6.05. No Solicitation of Transactions.
(a) The Target shall not, directly or indirectly, through any officer,
director, agent or otherwise, solicit, initiate or encourage the submission of
any proposal or offer from any person relating to any acquisition or purchase of
all or any material portion of the assets of, or any equity interest in, the
Target or any Subsidiary or any merger, consolidation, share exchange, business
combination or other similar transaction with the Target or any Subsidiary (an
"Business Combination Proposal") or participate in any negotiations regarding,
or furnish to any other person any information with respect to, or otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other person to do or seek any of the foregoing;
provided, however, that nothing contained in this Section 6.05 shall prohibit
the Target from furnishing information to, or entering into discussions or
negotiations with, any person in connection with an unsolicited Business
Combination Proposal by such person received by the Target after the date of the
Agreement, if, and only to the extent that, (a) a majority of the disinterested
members of the Target's Board of Directors, after consultation with Target
Banker and based on the advice of outside counsel, determines in good faith that
such action is required in order for the Target's Board of Directors not to
breach its fiduciary duties to shareholders imposed by law and (b) prior to
furnishing such information to, or entering into discussions or negotiations
with, such person, the Target (i) gives Acquiror as promptly as practicable
prior written notice of the Target's intention to furnish such information or
begin such discussions, the identity of such person and the material terms of
such Business Combination Proposal and (ii) receives from such person an
executed confidentiality agreement on terms no less favorable to the Target than
those contained in the Confidentiality Agreement. The Target agrees not to
release any third party from, or waive any provision of, any confidentiality or
standstill agreement to which the Target is a party. The Target immediately
shall cease and cause to be terminated all
<PAGE> 34
existing discussions or negotiations with any parties conducted heretofore with
respect to any of the foregoing.
(b) Neither the Board of Directors of Target nor any committee thereof
shall (i) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to Acquiror or Acquiror Sub, the approval or recommendation by such
Board of Directors or any such committee of the Offer, this Agreement or the
Merger or (ii) approve or recommend, or propose to approve or recommend, any
Business Combination Proposal. Notwithstanding the foregoing, the Board of
Directors of Target, to the extent required by the fiduciary obligations
thereof, as determined in good faith by a majority of the disinterested members
thereof based on the advice of outside counsel, may approve or recommend (and,
in connection therewith, withdraw or modify its approval or recommendation of
the Offer, this Agreement and the Merger) a Superior Proposal. For purposes of
this Agreement, "Superior Proposal" means a bona fide Business Combination
Proposal made by a third party to acquire, directly or indirectly, all of the
Shares then outstanding or all or substantially all the assets of Target, and
otherwise on terms that a majority of the disinterested members of the Board of
Directors of Target determines in its good faith judgment (based on the advice
of the Target's independent financial advisor) to be more favorable to the
holders of Shares than the Offer and the Merger and for which financing, to the
extent required, is then committed or which, in the good faith judgment of a
majority of such disinterested members (based on the advice of Target's
independent financial advisor), is reasonably capable of being financed by such
third party.
SECTION 6.06. Directors' and Officers' Indemnification. (a) The
Articles of Incorporation and Bylaws of the Surviving Corporation shall contain
provisions no less favorable with respect to indemnification than are set forth
in the Articles of Incorporation and Bylaws of the Target, which provisions
shall not be amended, repealed or otherwise modified for a period of six (6)
years from the Effective Time in any manner that would affect adversely the
rights thereunder of individuals who at any time prior to the Effective Time
were directors, officers or employees of the Target or any of the Subsidiaries,
unless such modification shall be required by Texas Law.
(b) From and after the Effective Time, Acquiror and the Surviving
Corporation shall indemnify, defend and hold harmless each person who is now, or
has been at any time prior to the date of this Agreement or who becomes prior to
the Effective Time, an officer, director, employee or agent of the Target or any
of the Subsidiaries (collectively, the "Indemnified Parties") against all
losses, expenses (including reasonable attorneys' fees), claims, damages,
liabilities or amounts that are paid in settlement of, with the approval of the
Surviving Corporation (which approval shall not unreasonably be withheld), or
otherwise in connection with, any threatened or actual claim, action, suit,
proceeding or investigation (a "Claim"), based in whole or in part on or arising
in whole or in part out of the fact that the Indemnified Party (or the person
controlled by the Indemnified Party) is or was a director, officer, employee or
agent of the Target or any of the Subsidiaries and pertaining to any matter
existing or arising out of actions or omissions occurring at or prior to the
Effective Time (including, without limitation, any Claim arising out of this
<PAGE> 35
Agreement or any of the transactions contemplated hereby), whether asserted or
claimed prior to, at or after the Effective Time, in each case to the fullest
extent permitted under Texas Law and by Target's Articles of Incorporation and
Bylaws as in effect on the date hereof, and shall pay any expenses, as incurred,
in advance of the disposition of any such action or proceeding to each
Indemnified Party to the fullest extent permitted under Texas Law and by
Target's Articles of Incorporation and Bylaws as in effect on the date hereof.
Without limiting the foregoing, in the event any such Claim is brought against
any of the Indemnified Parties, Acquiror or the Surviving Corporation shall have
the right to assume the defense thereof and neither Acquiror nor the Surviving
Corporation shall be liable to such Indemnified Parties for any legal expenses
of other counsel or any other expenses subsequently incurred by such Indemnified
Parties in connection with the defense thereof, except that if Acquiror or the
Surviving Corporation elects not to assume such defense or counsel for the
Indemnified Parties advises that there are substantive issues that raise
conflicts of interest between Acquiror or the Surviving Corporation and the
Indemnified Parties, such Indemnified Parties may retain counsel satisfactory to
them and which shall be reasonably satisfactory to Acquiror and the Surviving
Corporation and they shall pay all reasonable fees and expenses of such counsel
for such Indemnified Parties. The Indemnified Parties, or the Acquiror and the
Surviving Corporation, as the case may be, shall use all reasonable efforts to
assist in the defense of any such Claim, provided that the Acquiror and the
Surviving Corporation shall not be liable for any settlement effected without
their written consent, which consent, however, shall not be unreasonably
withheld. The Acquiror and the Surviving Corporation shall be obligated pursuant
to this paragraph to pay only one law firm to represent the Indemnified Parties
with respect to each such Claim unless there is, as determined by counsel to the
Indemnified Parties, under applicable standards of professional conduct, a
conflict or a reasonable likelihood of a conflict on any significant issue
between the positions of any two or more Indemnified Parties at the expense of
the Acquiror and the Surviving Corporation.
(c) Prior to the Effective Time the Target shall, and after the
Effective Time Surviving Corporation shall, to the fullest extent permitted by
Texas Law, make reasonable advances to the Indemnified parties to cover expenses
for which such Indemnified Parties would otherwise be entitled to
indemnification pursuant to this Section 6.06.
(d) Acquiror shall maintain in effect for three years from the
Effective Time, if available, the current directors' and officers' liability
insurance policies maintained by the Target (provided that Acquiror may
substitute therefor policies of at least the same coverage containing terms and
conditions which are not materially less favorable) with respect to matters
occurring prior to the Effective Time; provided, that neither Acquiror nor the
Surviving Corporation shall be obligated to make aggregate premium payments for
such three-year period in respect of such policy (or coverage replacing such
policy) which exceed, for the portion related to Target's directors and
officers, 150% of the annual premium payments on Target's current policy in
effect as of the date of this Agreement (the "Maximum Amount"). If the amount of
the premiums necessary to maintain or procure such insurance coverage exceeds
the Maximum Amount, Acquiror shall use its reasonable efforts to maintain the
most advantageous policies of directors' and officers' liability insurance
obtainable for a premium equal to the Maximum Amount.
<PAGE> 36
SECTION 6.07. Obligations of Acquiror Sub. Acquiror shall take all
action necessary to cause Acquiror Sub to perform its obligations under this
Agreement and to consummate the Merger on the terms and subject to the
conditions set forth in this Agreement.
SECTION 6.08. Public Announcements. (a) Acquiror, Acquiror Sub and the
Target shall consult with each other before issuing any press release or
otherwise making any public statements with respect to this Agreement or any
Transaction and shall not issue any such press release or make any such public
statement prior to such consultation and (b) prior to the Effective Time, the
Target will not issue any other press release or otherwise make any public
statements regarding its business, except as may be required by law or any
listing agreement with the NYSE, to which the Target is a party.
SECTION 6.09. Delivery of SEC Documents. The Target shall promptly
deliver to Acquiror true and correct copies of any report, statement or schedule
filed with the SEC subsequent to the date of this Agreement.
SECTION 6.10. Notification of Certain Matters. The Target shall give
prompt notice to Acquiror, and Acquiror shall give prompt notice to the Target,
of (a) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
and (b) any failure of the Target, Acquiror or Acquiror Sub, as the case may be,
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder; provided, however, that the delivery of any
notice pursuant to this Section 6.10 shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
SECTION 6.11. Further Action. At any time and from time to time, each
party to this Agreement agrees, subject to the terms and conditions of this
Agreement, to take such actions and to execute and deliver such documents as may
be necessary to effectuate the purposes of this Agreement at the earliest
practicable time.
SECTION 6.12 Employee Benefits.
(a) Each of Acquiror and Acquiror Sub agrees that, during the period
commencing at the Acquiror Sub's Election Date and ending on the first
anniversary thereof, the employees of the Target and the Subsidiaries will
continue to be provided with benefits under employee benefit plans that are no
less favorable in the aggregate than those currently provided by the Target and
the Subsidiaries to such employees.
(b) Acquiror will cause the Target (and, after the Merger, the
Surviving Corporation) to honor all employee benefit obligations to current and
former employees and directors under the Target's employee benefit plans in
existence on the date hereof and disclosed in Section 3.10 of the Target
Disclosure Schedule and all employment or severance agreements
<PAGE> 37
entered into by the Target or adopted by the Board of Directors of the Target
prior to the date hereof and disclosed in Sections 3.10 or 6.12(b) of the Target
Disclosure Schedule; provided, however, that nothing shall prevent Acquiror or
the Target (and, after the Merger, the Surviving Corporation) from taking any
action with respect to such plans, obligations or agreements or refraining from
taking any such action which is permitted or provided for under the terms
thereof or under applicable law.
(c) Employees of the Target (and, after the Merger, the Surviving
Corporation) shall be given credit for all actual service with the Target and
any Subsidiaries under all employee benefit plans, programs and policies of the
Surviving Corporation or Acquiror in which they become participants for all
purposes thereunder, except to the extent that such crediting would produce
duplication of benefits or violate any provision of ERISA or the Code.
SECTION 6.13. Appropriate Action; Consents; Filings. (a) The Target and
Acquiror shall use their best efforts to (i) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary, proper or
advisable under applicable law or required to be taken by any Governmental
Authority or otherwise to consummate and make effective the Transactions as
promptly as practicable, (ii) obtain from any Governmental Authorities any
consents, licenses, permits, waivers, approvals, authorizations or orders
required to be obtained or made by Acquiror or the Target or any of their
subsidiaries in connection with the authorization, execution and delivery of
this Agreement and the consummation of the Transactions, including, without
limitation, the Merger, and (iii) as promptly as practicable, make all necessary
filings, and thereafter make any other required submissions, with respect to
this Agreement and the Merger required under (A) the Exchange Act, and any other
applicable federal or state securities laws, (B) the rules and regulations of
the NYSE, (C) Texas Law, (D) the HSR Act and any related governmental request
thereunder, and (E) any other applicable law; provided that Acquiror and the
Target shall cooperate with each other in connection with the making of all such
filings, including providing copies of all such documents to the non-filing
party and its advisors prior to filing and, if requested, to accept all
reasonable additions, deletions or changes suggested in connection therewith.
The Target and Acquiror shall use reasonable best efforts to furnish to each
other all information required for any application or other filing to be made
pursuant to the rules and regulations of any applicable law (including all
information required to be included in the Offer Documents and the Schedule
14D-9) in connection with the transactions contemplated by this Agreement.
(b) (i) Each of Acquiror and the Target shall give (or shall cause
their respective subsidiaries to give) any notices to third parties, and use,
and cause their respective subsidiaries to use, their reasonable best efforts to
obtain any third party consents (including those set forth in Section
3.05(a)(iii)), (A) necessary to consummate the Transactions, (B) disclosed or
required to be disclosed in the Target Disclosure Schedule or the Acquiror
Disclosure Schedule or (C) required to prevent a Material Adverse Effect from
occurring prior to or after Acquiror Sub's Election Date.
<PAGE> 38
(ii) In the event that Acquiror or the Target shall fail to obtain any
third party consent described in subsection (b)(i) above, it shall use its best
efforts, and shall take any such actions reasonably requested by the other
party, to minimize any adverse effect upon the Target and Acquiror, their
respective subsidiaries, and their respective businesses resulting, or which
could reasonably be expected to result after Acquiror Sub's Election Date, from
the failure to obtain such consent.
(c) From the date of this Agreement until Acquiror Sub's Election Date,
each party shall promptly notify the other party of any pending, or to the best
knowledge of the first party, threatened, action, proceeding or investigation by
or before any Governmental Authority or any other person (i) challenging or
seeking material damages in connection with the Transactions or (ii) seeking to
restrain or prohibit the consummation of the Transactions or otherwise limit the
right of Acquiror or, to the knowledge of such first party, any Acquiror
Subsidiary to own or operate all or any portion of the businesses or assets of
the Target, which in either case is reasonably likely to have a Material Adverse
Effect on the Target prior to the Effective Time, or a Material Adverse Effect
on the Acquiror and the Acquiror Subsidiaries (including the Surviving
Corporation) after the Effective Time.
SECTION 6.14. Payments in Respect of Target Options.
(a) As soon as practicable after the date of this Agreement, the Board
of Directors of Target (or if appropriate, any committee administering the
Target Option Plans) shall adopt such resolutions or take such other actions as
are required to adjust the terms of all outstanding Options to provide that each
Option outstanding immediately after the Tender Offer Acceptance Date shall be
canceled in accordance with Section 2.07 hereof. After the date of this
Agreement, neither the Board of Directors of Target nor any committee thereof
shall cause any Option to become exercisable as a result of the execution of
this Agreement or the consummation of the Transactions; provided, however,
Acquiror acknowledges that all Options regardless of whether exercisable or
vested will be subject to Section 2.07 of this Agreement.
(b) All amounts payable pursuant to Section 2.07 shall be subject to
any required withholding of taxes and shall be paid without interest. Target
shall use its best efforts to obtain all consents of the holders of the Options
as shall be necessary to effectuate the provisions of this Agreement relating
thereto. Notwithstanding anything to the contrary contained in this Agreement,
payment shall, at Acquiror's request, be withheld in respect of any Option until
all necessary consents are obtained.
(c) The Target Option Plans shall terminate as of the Effective Time,
and the provisions in any other Plan providing for the issuance, transfer or
grant of any capital stock of Target or any interest in respect of any capital
stock of Target shall be deleted as of the Effective Time of the Merger, and
Target shall ensure that following the Effective Time of the Merger no holder of
a Option or any participant in any Target Option Plan or other Plan shall have
any right thereunder to acquire any capital stock of Target or the Surviving
Corporation.
<PAGE> 39
SECTION 6.15. Supplemental Indenture. After the date of the acceptance
for payment of shares of Target Common Stock pursuant to the Offer and prior to
the Effective Time, Target and the Trustee (as defined below) shall enter into a
supplemental indenture (the "Supplemental Indenture") to the Indenture dated as
of February 1, 1994 (the "Indenture"), between Target and Texas Commerce Bank,
N.A., as Trustee (the "Trustee"), pursuant to the Indenture, which shall (i)
become effective upon the Effective Time and (ii) provide that, from and after
the Effective Time, each of Target's outstanding Convertible Notes shall cease
to be convertible into shares of Target Common Stock, but shall be convertible
solely into an amount of cash, without interest, equal to the product of (x) the
number of shares of Target Common Stock into which such Convertible Note was
convertible immediately prior to the Effective Time, and (y) the Merger
Consideration. Target shall give Acquiror a reasonable opportunity to comment on
the form of Supplemental Indenture prior to the execution thereof, and shall not
enter into the Supplemental Indenture if Acquiror reasonably objects thereto.
SECTION 6.16. Employee Stock Purchase Plan. As soon as practicable
after the date of this Agreement, the Board of Directors of Target shall take
such action as is necessary to terminate the Farah U.S.A. Inc Employee Stock
Purchase Plan.
SECTION 6.17. Directorships. Acquiror shall use its reasonable best
efforts to cause two members of the Board of Directors of Target, as designated
by Acquiror, to be elected to the Board of Directors of Acquiror.
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to the Merger. The obligations of the Target,
Acquiror, and Acquiror Sub to consummate the Merger are subject to the
satisfaction of the following conditions, and only the following conditions:
(a) this Agreement shall have been approved by the affirmative vote of
the shareholders of the Target to the extent required by Texas Law, the Target's
Articles of Incorporation and Bylaws and by the NYSE.
(b) no Governmental Authority shall have enacted, issued, promulgated,
enforced or entered any law, order, executive order, stay, decree, judgment,
injunction or other order or statute, rule or regulation (each an "Order") which
is in effect and which has the effect of making the acquisition of Shares by
Acquiror or Acquiror Sub or any affiliate of either of them illegal or otherwise
preventing or prohibiting consummation of the Transactions;
(c) any waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated; and
(d) Acquiror Sub or its permitted assignee shall have purchased all
Shares validly tendered and not withdrawn pursuant to the Offer; provided,
however, that neither
<PAGE> 40
Acquiror nor Acquiror Sub shall be entitled to assert the failure of this
condition if, in breach of this Agreement or the terms of the Offer, Acquiror
Sub fails to purchase any Shares validly tendered and not withdrawn pursuant to
the Offer.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated and the
Merger and the other Transactions may be abandoned at any time prior to the
Effective Time, notwithstanding any requisite approval of this Agreement and the
transactions contemplated hereby as follows:
(a) by mutual written consent duly authorized by the boards of
directors of each of Acquiror, Acquiror Sub and the Target prior to Acquiror
Sub's Election Date; or
(b) by either Acquiror or the Target if the Effective Time shall not
have occurred on or before August 31, 1998; provided, however, that the right to
terminate this Agreement under this Section 8.01(b) shall not be available to
any party whose failure to fulfill any obligation under this Agreement has been
the cause of, or resulted in, the failure of the Effective Time to occur on or
before such date; provided, that the passage of the period referred to in this
Section 8.01(b) shall be tolled for any part thereof during which any party to
this Agreement shall be subject to a nonfinal order or other action restraining,
enjoining or otherwise prohibiting the purchase of shares of Target Common Stock
pursuant to the Offer or the consummation of the Merger or the calling or
holding of the Target Shareholders Meeting;
(c) by Acquiror if: (i) due to an occurrence or circumstance that
results in a failure to satisfy any condition set forth in Annex A hereto,
Acquiror Sub shall have (A) failed to commence the Offer within 10 days
following the date of this Agreement, (B) terminated the Offer without having
accepted any Shares for payment thereunder or (C) failed to pay for Shares
pursuant to the Offer within 90 days following the commencement of the Offer,
unless any such failure listed above shall have been caused by or resulted from
the failure of Acquiror or Acquiror Sub to perform in any material respect any
covenant or agreement of either of them contained in this Agreement or the
material breach by Acquiror or Acquiror Sub of any representation or warranty of
either of them contained in this Agreement; or (ii) prior to the purchase of
Shares pursuant to the Offer, (A) the Target's Board of Directors withdraws its
recommendation of this Agreement or the Merger or shall have resolved to do so,
(B) shall have recommended to the shareholders of the Target any Superior
Proposal or resolved to do so, or (C) a tender offer or exchange offer for 50%
or more of the outstanding shares of capital stock of the Target is commenced
(other than by Acquiror or its affiliates) and the Target's Board of Directors
fails to recommend against the shareholders of the Target tendering their shares
into such tender offer or exchange offer; or
<PAGE> 41
(d) by the Target if: (i) Acquiror Sub shall have (A) failed to
commence the Offer within 10 days following the date of this Agreement, (B)
terminated the Offer without having accepted any Shares for payment thereunder
or (C) failed to pay for Shares pursuant to the Offer within 90 days following
the commencement of the Offer, unless such failure to pay for Shares shall have
been caused by or resulted from the failure of the Target to satisfy the
conditions set forth in paragraph (c) of Annex A; or (ii) to the extent
permitted by Section 6.05(b), prior to the purchase of Shares pursuant to the
Offer, the Board of Directors of the Target approves or recommends a Superior
Proposal.
SECTION 8.02. Fees and Expenses. (a) The Target shall pay Acquiror a
fee (an "Alternative Proposal Fee") equal to three percent (3%) of the
aggregate amount payable by Acquiror Sub to the shareholders of Target pursuant
to the Offer and the Merger, plus all of the Acquiror Expenses (as hereinafter
defined), if:
(i) this Agreement is terminated pursuant to Section
8.01(c)(ii) or (d)(ii); or
(ii) this Agreement is terminated pursuant to Section 8.01
(other than (A) due to an occurrence or circumstance that results in a failure
to satisfy paragraphs (a), (f) or (h) of Annex A hereto or (B) pursuant to
Section 8.01(d) unless the event providing the basis for such termination is the
result of an occurrence or circumstance that results in a failure to satisfy
paragraphs (b) or (c) of Annex A hereto) and (A) the Offer shall have remained
open for at least twenty (20) business days, (B) the Minimum Condition shall not
have been satisfied, (C) a Business Combination Transaction Proposal shall have
been made prior to termination of the Offer, and (D) such Business Combination
Transaction described in clause 8.02(ii)(C) is thereafter consummated within 12
months of such termination. As used herein, the term "Business Combination
Transaction" shall mean any of the following involving the Target: (1) any
merger, consolidation, share exchange, business combination or other similar
transaction (other than the Transactions); (2) any sale, lease, exchange,
transfer or other disposition (other than a pledge or mortgage) of 50% or more
of the assets of the Target in a single transaction or series of related
transactions; or (3) the acquisition by a person or entity or any "group" (as
such term is defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) of beneficial ownership of 50% or more of the shares of
Target Common Stock, whether by tender offer, exchange offer or otherwise.
(b) Acquiror shall be entitled to receive the Acquiror Expenses (but
not the Alternative Proposal Fee) in immediately available funds in the event
that this Agreement is terminated by Acquiror pursuant to Section
8.01(c)(i)(other than due to an occurrence or circumstance that results in a
failure to satisfy paragraphs (a), (f) or (h) of Annex A hereto in which case
such Acquiror Expenses shall not exceed $1,500,000).
(c) As used herein, "Acquiror Expenses" means all reasonable
out-of-pocket expenses and fees actually incurred by Acquiror or Acquiror Sub or
on their respective behalf in
<PAGE> 42
connection with the Transactions prior to the termination of this Agreement
(including, without limitation, all fees and expenses of counsel, financial
advisors, banks or other entities providing financing to Acquiror (including
financing, commitment and other fees payable thereto), accountants,
environmental and other experts and consultants to Acquiror and its affiliates,
and all printing and advertising expenses) and in connection with the
negotiation, preparation, execution, performance and termination of this
Agreement, the structuring of the Transactions, any agreements relating thereto
and any filings to be made in connection therewith.
(d) Except as set forth in this Section, all costs and expenses
incurred in connection with this Agreement and the Transactions shall be paid by
the party incurring such expenses, whether or not any Transaction is
consummated.
SECTION 8.03. Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective boards of directors
at any time prior to the Effective Time; provided, however, that, after the
approval of this Agreement and the Transactions by the shareholders of the
Target, no amendment may be made which would violate Texas Law. This Agreement
may not be amended except by an instrument in writing signed by the parties
hereto.
SECTION 8.04. Waiver. At any time prior to the Effective Time, any
party hereto may (a) extend the time for the performance of any obligation or
other act of any other party hereto, (b) waive any inaccuracy in the
representations and warranties of any other party contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any agreement
of any other party or condition benefiting such party contained herein. Any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed by the party or parties to be bound thereby.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon termination of this Agreement
pursuant to Section 8.01, as the case may be, except that (a) the
representations and warranties of the Target set forth in Article III shall
terminate on the Acquiror Sub's Election Date, and (b) the agreement set forth
in Articles II and IX and Sections 6.03(c), 6.06, 6.07, 6.12 and 6.14 shall
survive termination indefinitely.
SECTION 9.02. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
facsimile, telegram or telex or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at
<PAGE> 43
the following addresses (or at such other address for a party as shall be
specified in a notice given in accordance with this Section 9.02):
if to Acquiror or Acquiror Sub:
Tropical Sportswear Int'l Corporation
4902 West Waters Avenue
Tampa, Florida 33634-1302
Attention: President
Facsimile: (813) 249-4904
with a copy to:
Stephen A. Opler
Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
42nd Floor
Atlanta, Georgia 30309-3424
Facsimile: (404) 881-4777
if to the Target:
Farah Incorporated
4171 N. Mesa
Bldg. D, Suite 500
El Paso, Texas 79902-1433
Attention: President
Facsimile: (915) 496-7545
with a copy to:
Daniel W. Rabun
Baker & McKenzie
2001 Ross Avenue, Suite 4500
Dallas, Texas 75201
Facsimile: (214) 965-5902
SECTION 9.03. Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliate" of a specified person means a person who, directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such specified person;
<PAGE> 44
(b) "beneficial owner" with respect to any shares means a person who
shall be deemed to be the beneficial owner of such shares (i) which such person
or any of its affiliates or associates (as such term is defined in Rule 12b-2
promulgated under the Exchange Act) beneficially owns, directly or indirectly,
(ii) which such person or any of its affiliates or associates has, directly or
indirectly, (A) the right to acquire (whether such right is exercisable
immediately or subject only to the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of consideration rights,
exchange rights, warrants or options, or otherwise, or (B) the right to vote
pursuant to any agreement, arrangement or understanding, (iii) which are
beneficially owned, directly or indirectly, by any other persons with whom such
person or any of its affiliates or associates or any person with whom such
person or any of its affiliates or associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of any
such shares, or (iv) pursuant to Section 13(d) of the Exchange Act and any rules
or regulations promulgated thereunder;
(c) "business day" means any day on which the principal offices of the
SEC in Washington, D.C. are open to accept filings, or, in the case of
determining a date when any payment is due, any day on which banks are not
required or authorized to close in New York, New York;
(d) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting securities, as
trustee or executor, by contract or credit arrangement or otherwise;
(e) "person" means an individual, corporation, partnership, limited
partnership, syndicate, person (including, without limitation, a "person" as
defined in Section 13(d)(3) of the Exchange Act), trust, association or entity
or government, political subdivision, agency or instrumentality of a government;
and
(f) "subsidiary" or "subsidiaries" of any person means any corporation,
partnership, joint venture or other legal entity of which such person (either
alone or through or together with any other subsidiary), owns or has rights to
acquire, directly or indirectly, 50% or more of the stock or other equity
interests the holders of which are generally entitled to vote for the election
of the board of directors or other governing body of such corporation or other
legal entity.
SECTION 9.04. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the Transactions is not affected in any manner materially adverse
to any party. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a
<PAGE> 45
mutually acceptable manner in order that the Transactions be consummated as
originally contemplated to the fullest extent possible.
SECTION 9.05. Assignment; Binding Effect; Benefit. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, except for the provisions
of Article II and Sections 6.06 and 6.12, nothing in this Agreement, expressed
or implied, is intended to confer on any person other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
SECTION 9.06. Incorporation of Schedules. The Target Disclosure
Schedule and the Acquiror Disclosure Schedule referred to herein and signed for
identification by the parties hereto are hereby incorporated herein and made a
part hereof for all purposes as if fully set forth herein.
SECTION 9.07. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
SECTION 9.08. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO
THE RULES OF CONFLICTS OF LAW THEREOF. ALL ACTIONS AND PROCEEDINGS ARISING OUT
OF OR RELATING TO THIS AGREEMENT SHALL BE HEARD AND DETERMINED IN ANY COURT
SITTING IN THE CITY OF EL PASO, TEXAS.
SECTION 9.09. Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 9.10. Counterparts. This Agreement may be executed and
delivered (including by facsimile transmission) in one or more counterparts, and
by the different parties hereto in separate counterparts, each of which when
executed and delivered shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
SECTION 9.11. Waiver of Jury Trial. Each of Acquiror, the Target and
Acquiror Sub hereby irrevocably waives all right to trial by jury in any action,
proceeding or counterclaim (whether based on contract, tort or otherwise)
arising out of or relating to this Agreement or the actions of Acquiror, the
Target or Acquiror Sub in the negotiation, administration, performance and
enforcement thereof.
<PAGE> 46
SECTION 9.12. Entire Agreement. This Agreement, the Target Disclosure
Schedule, the Acquiror Disclosure Schedule, the confidentiality agreement, dated
March 12, 1998, (the "Confidentiality Agreement"), between the Target and
Acquiror, and any documents delivered by the parties in connection herewith
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings among the
parties with respect thereto. No addition to or modification of any provision of
this Agreement shall be binding upon any party hereto unless made in writing and
signed by all parties hereto.
<PAGE> 47
IN WITNESS WHEREOF, Acquiror, Acquiror Sub and the Target have caused
this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
TROPICAL SPORTSWEAR INT'L CORPORATION
By: /s/ William W. Compton
-----------------------------------------------
William W. Compton
Chairman and Chief Executive Officer
FOXFIRE ACQUISITION CORP.
By: /s/ Michael Kagan
-----------------------------------------------
Michael Kagan
Secretary
FARAH INCORPORATED
By: /s/ Richard C. Allender
-----------------------------------------------
Richard C. Allender
Chairman of the Board, Chief Executive Officer
and President
43
<PAGE> 48
ANNEX A
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer, Acquiror Sub shall
not be required to accept for payment or pay for any Shares tendered pursuant to
the Offer, and may terminate or amend the Offer and may postpone the acceptance
for payment of and payment for Shares tendered, if (i) the Minimum Condition
shall not have been satisfied, (ii) any applicable waiting period under the HSR
Act shall not have expired or been terminated prior to the expiration of the
Offer or (iii) at any time on or after the date of this Agreement, and prior to
the acceptance for payment of Shares, any of the following conditions shall
exist:
(a) there shall have been any judgement, order or decree resulting from
litigation brought by any Governmental Authority or other person, or before any
court or Governmental Authority, agency or tribunal, domestic or foreign: (i)
prohibiting the acquisition by Acquiror or Acquiror Sub of any Shares; (ii)
prohibiting or limiting in any material respect the ownership or operation by
Acquiror, Acquiror Sub or any of their respective subsidiaries of any material
portion of the business or assets of Target, or to compel Acquiror, Acquiror Sub
or any of their respective subsidiaries to dispose of or hold separate any
material portion of the business or assets of Target or any of its Subsidiaries,
(iii) restraining or prohibiting the making of the Offer or the consummation of
the Merger; (iv) imposing limitations on the ability of Acquiror or Acquiror Sub
to exercise effectively full rights of ownership of any Shares, including,
without limitation, the right to vote any Shares acquired by Acquiror Sub
pursuant to the Offer, or otherwise on all matters properly presented to the
Target's shareholders, including, without limitation, the approval of this
Agreement and the Transactions; or (v) requiring divestiture by Acquiror or
Acquiror Sub of any Shares;
(b) (i) the Target's Board of Directors shall have withdrawn or
modified in a manner adverse to Acquiror or Acquiror Sub the approval or
recommendation of the Offer, the Merger or this Agreement or approved or
recommended any Business Combination Proposal or any other acquisition of Shares
other than the Offer and the Merger or (ii) the Target's Board of Directors
shall have resolved to do any of the foregoing;
(c) the Target shall have failed to perform or comply in any material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by it at or prior to the Acquiror Sub's Election
Date, or any of the representations and warranties of the Target contained in
this Agreement that are qualified as to materiality shall fail to be true and
correct, or any such representations and warranties that are not so qualified
shall fail to be true and correct in all material respects, each as of the
Acquiror Sub's Election Date as though made on and as of the Acquiror Sub's
Election Date, except that those representations and warranties which address
matters only as of a particular date shall remain true and correct, or true and
correct in all material aspects, as the case may be, as of such date;
(d) this Agreement shall have been terminated in accordance with its
terms;
A-1
<PAGE> 49
(e) Acquiror Sub and the Target shall have agreed that Acquiror Sub
shall terminate the Offer or postpone the acceptance for payment of or payment
for Shares thereunder;
(f) there shall have occurred (i) any general suspension of, or
limitation on prices for, or trading in securities on the New York Stock
Exchange (other than limitations on hours or numbers of days of trading); (ii) a
currency moratorium on the exchange market in New York City; (iii) a declaration
of a banking moratorium or any suspension of payments in respect of banks in the
United States; (iv) any limitation (whether or not mandatory) by any United
States government or governmental, administrative or regulatory authority or
agency, on the extension of credit by banks or other lending institutions; or
(v) a decline of at least 25% in either the Dow Jones Average of Industrial
Stocks or the Standard & Poor's 500 index from the date hereof, or any material
disruption or material adverse change in the financial or capital markets
generally, or in the markets for high yield debt in particular or affecting the
syndication or funding of the Acquiror Financing;
(g) it shall have been publicly disclosed or Acquiror or Acquiror Sub
shall have otherwise learned that beneficial ownership (determined for the
purposes of this paragraph as set forth in Rule 13d-3 promulgated under the
Exchange Act) of more than 25% of the outstanding Shares has been acquired by
any corporation (including the Target or any of its Subsidiaries or affiliates),
partnership, person or other entity or "group" (within the meaning of Section
13(d)(3) of the Exchange Act), other than Acquiror, Acquiror Sub or any of their
Affiliates; or
(h) all consents of and notices to or filings with governmental
authorities and third parties required in connection with the Transactions shall
not have been obtained or made other than those the absence of which,
individually or in the aggregate, would not have a Material Adverse Effect on
the Target or prevent or materially delay consummation of any of the
Transactions.
The foregoing conditions are for the sole benefit of Acquiror Sub and
Acquiror and may be asserted by Acquiror Sub or Acquiror regardless of the
circumstances giving rise to any such condition or may be waived by Acquiror Sub
or Acquiror in whole or in part at any time and from time to time in their sole
discretion. The failure by Acquiror or Acquiror Sub at any time to exercise any
of the foregoing rights shall not be deemed a waiver of any such right; the
waiver of any such right with respect to particular facts and other
circumstances shall not be deemed a waiver with respect to any other facts and
circumstances; and each such right shall be deemed an ongoing right that may be
asserted at any time and from time to time.
A-2
<PAGE> 50
ANNEX B
ARTICLES OF INCORPORATION
<PAGE> 51
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
SAVANE INTERNATIONAL CORP.
1. SAVANE INTERNATIONAL CORP. (the "Corporation"), pursuant to the
provisions of Article 4.07 of the Texas Business Corporation Act, hereby adopts
amended and restated articles of incorporation which accurately copy the
articles of incorporation and all amendments thereto that are in effect to date
and as further amended by such restated articles of incorporation as hereinafter
set forth and which contain no other change in any provision thereof.
2. The articles of incorporation of the Corporation are amended by the
restated articles of incorporation by deleting in their entirety Articles One
and Four and inserting new Articles One and Four as follows:
ARTICLE ONE
The name of the corporation is Savane International Corp.
ARTICLE FOUR
The total number of shares of stock which the Corporation
shall have authority to issue is one thousand (1000) shares, all of
which shall be common stock (par value $.01 per share).
3. The articles of incorporation prior to this amendment stated that
the Corporation's registered office was 8889 Gateway West, El Paso, Texas, and
that the name of the registered agent at such address was William F. Farah.
However, pursuant to a filing with the Secretary of State of Texas, the
registered office of the Corporation was changed to 6070 Gateway East, Building
E, Suite 102, El Paso, Texas 79905, and the registered agent was changed to
Crawford Kerr, Jr.
<PAGE> 52
4. Effective at the time of the filing with the Secretary of State of
Texas of the Restated and Amended Articles of Incorporation of the Corporation
with respect hereto, each share of the Corporation's common stock outstanding
immediately prior to such time shall without any action on the part of the
respective holders thereof, be cancelled and exchanged for ________ shares of
common stock, and each stock certificate that, immediately prior to the time of
such filing, represented shares of the Corporation's common stock shall, from
and after such time and without the necessity of presenting the same for
exchange, represent the number of whole shares of common stock as equals the
product obtained by multiplying the number of shares of common stock formerly
represented by such certificate by __________.
5. Each such amendment made by these restated articles of incorporation
has been effected in conformity with the provisions of the Texas Business
Corporation Act and such restated articles of incorporation and each such
amendment made by the restated articles of incorporation were duly adopted by
the shareholders of the Corporation on the __th day of May, 1998.
6. The number of shares outstanding was _____; the number of shares
entitled to vote on the restated articles of incorporation as so amended was
_____; the number of shares voted for such restated articles of incorporation as
so amended was ____; and the number of shares voted against such restated
articles of incorporation as so amended was _______.
7. The articles of incorporation and all amendments and supplements
thereto are hereby superseded by the following restated articles of
incorporation which accurately copy the entire text thereof as further amended
as above set forth, and no other provision is changed except as set forth above:
-2-
<PAGE> 53
ARTICLE ONE
The name of the Corporation is Savane International Corp.
ARTICLE TWO
The period of the Corporation's duration is perpetual.
ARTICLE THREE
The purpose or purposes for which the Corporation is organized
are: To engage in any commercial, mercantile, industrial,
manufacturing, merchandising, transportation, marine, exploration,
mining, agricultural, research, licensing, servicing or agency business
not prohibited by law, and any, some or all of the foregoing.
ARTICLE FOUR
The total number of shares of stock which the Corporation
shall have authority to issue is one thousand (1000) shares, all of
which shall be common stock (par value $.01 per share).
ARTICLE FIVE
The post-office address of the Corporation's registered office
is 6070 Gateway East, Building E, Suite 102, El Paso, Texas 79905, and
the name of its registered agent at such address is Crawford Kerr, Jr.
ARTICLE SIX
The number of directors of the Corporation may be fixed by the
by-laws, but shall not be less than three (3).
ARTICLE SEVEN
The names and addresses of the directors are:
<TABLE>
<CAPTION>
Names Address
<S> <C>
Jesus Alvarez-Morodo 4902 W. Waters Avenue, Tampa, Florida 33634-1302
William W. Compton 4902 W. Waters Avenue, Tampa, Florida 33634-1302
Leslie Gillock 4902 W. Waters Avenue, Tampa, Florida 33634-1302
Michael Kagan 4902 W. Waters Avenue, Tampa, Florida 33634-1302
Donald H. Livingstone 4902 W. Waters Avenue, Tampa, Florida 33634-1302
</TABLE>
-3-
<PAGE> 54
<TABLE>
<S> <C>
Leon Reinhart 4902 W. Waters Avenue, Tampa, Florida 33634-1302
Eloy S. Vallina 4902 W. Waters Avenue, Tampa, Florida 33634-1302
</TABLE>
ARTICLE EIGHT
The shareholders of the Corporation shall not be entitled to
any preemptive right to acquire unissued or treasury shares of the
Corporation.
ARTICLE NINE
Each outstanding share of common stock shall be entitled to
one vote on all matters submitted to a vote at a meeting of
shareholders. The shareholders of the corporation shall not be entitled
to the right of cumulative voting.
ARTICLE TEN
A director of the Corporation shall not be liable to the
Corporation or its shareholders for monetary damages for an act or
omission in the director's capacity as a director, except to the extent
such exemption from liability or limitation thereof is not permitted
under the Texas Miscellaneous Corporation Laws Act as currently in
effect or as the same may hereafter be amended.
No amendment, modification or repeal of this Article Ten shall
adversely affect any right or protection of a director that exists at
the time of such amendment, modification or repeal.
Dated: the ____ day of May, 1998.
SAVANE INTERNATIONAL CORP.
By
-------------------------------
Richard C. Allender, President
By
-------------------------------
Karen S. Castillo, Secretary
-4-
<PAGE> 55
State of Texas )
)
County of Dallas )
I, _________, a Notary Public, do hereby certify that on this _____ day
of May, 1998, personally appeared before me _____ and _____, the President and
Secretary, respectively, of the corporation executing the foregoing document,
and being first duly sworn, acknowledged that they signed the foregoing document
in the capacities therein set forth and declared that the statements therein
contained are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the day and
year before written.
-------------------------------------
Notary Public in and for the
State of Texas
-5-
<PAGE> 1
[LOGO SAVANE]
EXHIBIT (c)(2)
March 20, 1998
Mr. William W. Compton
Chairman of the Board and
Chief Executive Officer
Tropical Sportswear International Corporation
4902 W. Waters Avenue
Tampa, Florida 33634-1302
Dear Mr. Compton:
In connection with your consideration of a possible acquisition of, or
investment in, Farah Incorporated, a Texas corporation (the "Company"), the
Company has agreed to provide you certain information regarding the Company
which is non-public, confidential and proprietary in nature.
1. As a condition to the Company furnishing information to you, the
Company is requiring that you agree, as set forth below, to treat "Evaluation
Materials" confidentially. As used in this Agreement, the term "Evaluation
Materials" should, except as otherwise provided herein, mean any information
that either the Company or its financial advisor, or its other representatives
furnish to you and your directors, officers, partners, employees, agents and
representatives (including without limitation, financial advisors, counsel,
persons contemplating providing financing for any transaction, accountants,
experts and consultants) (collectively, the "Representatives") in connection
with a possible transaction involving the Company, whether furnished orally or
in writing or gathered by inspection and regardless of whether specifically
identified as "confidential," together with analyses, compilations, studies or
other documents prepared by you or by your Representatives which contain or
otherwise reflect or are derived from such information.
The term "Evaluation Materials" does not include information which (a)
is or becomes generally available to the public other than as a result of a
disclosure by you or any of your Representatives, or (b) was within your
possession prior to its being furnished to you by the Company or its financial
advisor or representative or was or becomes available to you on a
non-confidential basis from a source other than the Company or its financial
advisor or representatives, provided that such source is not known by you, after
reasonable inquiry, to be prohibited from disclosing such information to you by
a contractual, legal or fiduciary obligation to the Company or its financial
advisor or representatives.
2. You agree that the Evaluation Materials will be used solely for the
purpose of evaluating a possible transaction with the Company and that such
Evaluation Materials will be kept confidential by you; provided, however, that
you may disclose any Evaluation Materials to your Representatives who need to
know such information for the purpose of evaluating the transaction (it being
understood that they shall be informed by you of the confidential nature of such
information and that you shall undertake reasonable efforts to cause them to
treat such information on a confidential basis). You will be responsible for any
breach of this Agreement by your Representatives. You agree, at your sole
expense, to take all reasonable measures, including but not limited to court
proceedings, to restrain your Representatives from unauthorized disclosure or
use of the Evaluation Materials.
<PAGE> 2
Mr. William W. Compton
March 20, 1998
Page 2
3. The public disclosure of your possible interest in consummating a
transaction involving the Company could have a material adverse effect on the
Company's business if for any reason a definitive agreement with respect to such
transaction is not consummated. In addition, any disclosure by you or any of
your Representatives of your possible interest in consummating a transaction
involving the Company to any shareholder could have a material adverse effect on
the Company's business. Accordingly, you agree that without the prior written
consent of the Company, you will not, and you will direct your Representatives
not to, disclose to any person either the fact that discussions or negotiations
are taking place concerning a possible transaction between you and the Company
or any of the terms, conditions or other facts with respect to any such possible
transaction, including the status thereof and no Evaluation Materials will be
provided to any such persons; provided, however, that you may make such
disclosure as you determine may be required by any applicable law, regulation or
rule based upon advice of legal counsel. You agree to provide the Company
reasonable prior notice of any such disclosure. The term "person" as used in
this letter shall be broadly interpreted to include, without limitation, any
corporation, company, governmental agency or body, partnership or individual.
4. You acknowledge that you are aware, and that you will advise your
Representatives who are informed as to the matters which are the subject of this
letter, that certain laws prohibit any person who has received material,
non-public information concerning the matters which are the subject of this
letter from purchasing or selling securities of the Company or from
communicating such information to any person under circumstances in which it is
reasonably foreseeable that such person is likely to purchase or sell such
securities.
5. In the event that you are requested in any proceeding to disclose
any Evaluation Materials, you will give the Company prompt notice of such
request so that the Company may seek an appropriate protective order. It is
further agreed that, if in the absence of a protective order you are nonetheless
compelled to disclose Evaluation Materials, you may disclose such information
without liability hereunder; provided, however, that you give the Company
written notice of the information to be disclosed as far in advance of its
disclosure as is practicable.
6. Upon the Company's request, you shall promptly deliver to the
Company all written Evaluation Materials furnished to you or your
Representatives by the Company or its financial advisor or representative, and
any other written materials containing or reflecting any information in the
Evaluation Materials (whether prepared by the Company, its advisors or
otherwise) and will not retain any copies, extracts or other reproductions in
whole or in part of such written materials. Upon the Company's request, all
documents, memoranda, notes and other writings whatsoever prepared by you or
your advisors based on the information in the Evaluation Materials shall be
destroyed, and such destruction shall be certified in writing to the Company by
an authorized officer supervising such destruction.
7. During the course of your evaluation, all inquiries and other
communications with officers and employees of the Company with respect to a
possible transaction are to be made only to officers and employees of the
Company who are specifically designated by Richard C. Allender, on behalf of the
Company. Accordingly, you agree not to directly or indirectly contact or
communicate with any officer or other employee of the Company with respect to a
possible transaction without the express written consent of the Company.
8. Although the Company has endeavored to include in the Evaluation
Materials information known to it which it believes to be relevant for the
purpose of your investigation, you understand that neither the Company nor any
of its financial advisors or representatives have made or
<PAGE> 3
Mr. William W. Compton
March 20, 1998
Page 3
make any representation or warranty as to the accuracy or completeness of the
Evaluation Materials. You agree that neither the Company nor any of its
financial advisors or representatives shall have any liability to you or any of
your Representatives resulting from the use of the Evaluation Materials. Only
those representations or warranties that are made to you in a definitive sale
agreement when, as, and if, it is executed, and subject to such limitations and
restrictions as may be specified in such definitive sale agreement, will have
legal effect.
9. You agree that money damages would not be a sufficient remedy for
any breach of this Agreement by you or your Representatives, and that in
addition to all other remedies the Company shall be entitled to specific
performance and injunctive or other equitable relief as a remedy for any such
breach, and you further agree to waive and to use your reasonable efforts to
cause your Representatives to waive any requirement for the securing or posting
of any bond in connection with such remedy.
<PAGE> 4
Mr. William W. Compton
March 20, 1998
Page 4
10. Without the Company's prior written consent, those of your
employees who have received Evaluation Materials will not for a period of two
(2) years from the date hereof directly induce or cause others to induce any
person who is either an officer of the Company or any of its subsidiaries or
involved in any of the negotiations or due diligence review in respect of a
transaction to leave the employment of the Company.
11. This Agreement shall be governed and construed in accordance with
the laws of the State of Texas without giving effect to its conflict of laws,
principles or rules.
12. If at any time you consider a transaction which would involve
participation, directly or indirectly by a third party, you agree to cause such
third party to execute a confidentiality agreement satisfactory to the Company
prior to the disclosure to such party of any Evaluation Materials.
13. If you are in agreement with the foregoing, please so indicate by
signing, dating and returning one copy of this Agreement, which will constitute
your agreement with respect to the matters set forth herein.
Very truly yours,
FARAH INCORPORATED
By:/s/ Richard C. Allender
------------------------------------------
Richard C. Allender
Chairman of the Board, President and Chief
Executive Officer
Confirmed and agreed to:
TROPICAL SPORTSWEAR
INTERNATIONAL CORPORATION
By:/s/ William W. Compton
----------------------------
Mr. William W. Compton
Chairman of the Board and
Chief Executive Officer
Dated: 3/20/98
--------------------------
<PAGE> 1
T S I
TROPICAL SPORTSWEAR INT'L
March 23, 1998
Mr. Richard C. Allender
Chairman of the Board
President and Chief Executive Officer
Farah Incorporated
P.O. Box 13800
El Paso, Texas 79913-3800
Dear Mr. Allender:
In connection with your consideration of a possible acquisition of, or
investment in, Farah Incorporated, a Texas corporation (the "Company") by
Tropical Sportswear Int'l Corporation ("TSI"), TSI has agreed to provide you
certain information regarding the TSI which is non-public, confidential and
proprietary in nature.
1. As a condition to TSI furnishing information to you, TSI is
requiring that you agree, as set forth below, to treat "Evaluation Materials"
confidentially. As used in this Agreement, the term "Evaluation Materials"
should, except as otherwise provided herein, mean any information that either
TSI or its financial advisor, or its other representatives furnish to you and
your directors, officers, partners, employees, agents and representatives
(including without limitation, financial advisors, counsel, accountants, experts
and consultants) (collectively, the "Representatives") in connection with a
possible transaction involving TSI, whether furnished orally or in writing or
gathered by inspection and regardless of whether specifically identified as
"confidential" together with analyses, compilations, studies or other documents
prepared by you or by your Representatives which contain or otherwise reflect or
are derived from such information.
The term "Evaluation Materials" does not include information which (a)
is or becomes generally available to the public other than as a result of a
disclosure by you or any of your Representatives, or (b) was within your
possession prior to its being furnished to you by TSI or its financial advisor
or representative or was or becomes available to you on a non-confidential basis
from a source other than TSI or its financial advisor or
<PAGE> 2
Mr. Richard C. Allender
March 23, 1998
Page 2
representatives, provided that such source is not known by you, after reasonable
inquiry, to be prohibited from disclosing such information to you by a
contractual, legal or fiduciary obligation to TSI or its financial advisor or
representatives.
2. You agree that the Evaluation Materials will be used solely for the
purpose of evaluating a possible transaction with TSI and that such Evaluation
Materials will be kept confidential by you; provided, however, that you may
disclose any Evaluation Materials to your Representatives who need to know such
information for the purpose of evaluating the transaction (it being understood
that they shall be informed by you of the confidential nature of such
information and that you shall undertake reasonable efforts to cause them to
treat such information on a confidential basis). You will be responsible for any
breach of this Agreement by your Representatives. You agree, at your sole
expense, to take all reasonable measures, including but not limited to court
proceedings, to restrain your Representatives from unauthorized disclosure or
use of the Evaluation Materials.
3. The public disclosure of your possible interest in consummating a
transaction involving TSI could have a material adverse effect on TSI's business
if for any reason a definitive agreement with respect to such transaction is not
consummated. In addition, any disclosure by you or any of your Representatives
of your possible interest in consummating a transaction involving TSI to any
shareholder could have a material adverse effect on TSI's business. Accordingly,
you agree that without the prior written consent of TSI, you will not, and you
will direct your Representatives not to, disclose to any person either the fact
that discussions or negotiations are taking place concerning a possible
transaction between you and TSI or any of the terms, conditions or other facts
with respect to any such possible transaction, including the status thereof and
no Evaluation Materials will be provided to any such persons; provided, however,
that you may make such disclosure as you determine may be required by any
applicable law, regulation or rule based upon advice of legal counsel. You agree
to provide TSI reasonable prior notice of any such disclosure. The term "person"
as used in this letter shall be broadly interpreted to include, without
limitation, any corporation, company, governmental agency or body, partnership
or individual.
4. You acknowledge that you are aware, and that you will advise your
Representatives who are informed as to the matters which are the subject of this
letter, that certain laws prohibit any person who has received material,
non-public information concerning the matters which are the subject of this
letter from purchasing or selling securities of TSI or from communicating such
information to any person under circumstances in which it is reasonably
foreseeable that such person is likely to purchase or sell such securities.
5. In the event that you are requested in any proceeding to disclose
any Evaluation Materials, you will give TSI prompt notice of such request so
that TSI may
<PAGE> 3
Mr. Richard C. Allender
March 23, 1998
Page 3
seek an appropriate protective order. It is further agreed that, if in the
absence of a protective order you are nonetheless compelled to disclose
Evaluation Materials, you may disclose such information without liability
hereunder; provided, however, that you give TSI written notice of the
information to be disclosed as far in advance of its disclosure as is
practicable.
6. Upon TSI's request, you shall promptly deliver to TSI all written
Evaluation Materials furnished to you or your Representatives by TSI or its
financial advisor or representative, and any other written materials containing
or reflecting any information in the Evaluation Materials (whether prepared by
TSI, its advisors or otherwise) and will not retain any copies, extracts or
other reproductions in whole or in part of such written materials. Upon TSI's
request, all documents, memoranda, notes and other writings whatsoever prepared
by you or your advisors based on the information in the Evaluation Materials
shall be destroyed, and such destruction shall be certified in writing to TSI by
an authorized officer supervising such destruction.
7. During the course of your evaluation, all inquiries and other
communications with officers and employees of TSI with respect to a possible
transaction are to be made only to officers and employees of TSI who are
specifically designated by William W. Compton or Michael Kagan, on behalf of
TSI. Accordingly, you agree not to directly or indirectly contact or communicate
with any officer or other employee of TSI with respect to a possible transaction
without the express written consent of TSI.
8. Although TSI has endeavored to include in the Evaluation Materials
information known to it which it believes to be relevant for the purpose of your
investigation, you understand that neither TSI nor any of its financial advisors
or representatives have made or make any representation or warranty as to the
accuracy or completeness of the Evaluation Materials. You agree that neither TSI
nor any of its financial advisors or representatives shall have any liability to
you or any of your Representatives resulting from the use of the Evaluation
Materials. Only those representations or warranties that are made to you in a
definitive sale agreement when, as, and if, it is executed, and subject to such
limitations and restrictions as may be specified in such definitive sale
agreement, will have legal effect.
9. You agree that money damages would not be a sufficient remedy for
any breach of this Agreement by you or your Representatives, and that in
addition to all other remedies TSI shall be entitled to specific performance and
injunctive or other equitable relief as a remedy for any such breach, and you
further agree to waive and to use your reasonable efforts to cause your
Representatives to waive any requirement for the securing or posting of any bond
in connection with such remedy.
<PAGE> 4
Mr. Richard C. Allender
March 23, 1998
Page 4
10. This Agreement shall be governed and construed in accordance with
the laws of the State of Florida without giving effect to its conflict of laws,
principles or rules.
11. If at any time you consider a transaction which would involve
participation directly or indirectly by a third party, you agree to cause such
third party to execute a confidentiality agreement satisfactory to TSI prior to
the disclosure to such party of any Evaluation Materials.
12. If you are in agreement with the foregoing, please so indicate by
signing, dating and returning one copy of this Agreement, which will constitute
your agreement with respect to the matters set forth herein.
Very truly yours,
TROPICAL SPORTSWEAR INT'L CORPORATION
By: /s/ William W. Compton
-------------------------
Mr. William W. Compton
Chairman of the Board and
Chief Executive Officer
FARAH INCORPORATED
By:/s/ Richard C. Allender
----------------------
Richard C. Allender
Chairman of the Board,
President and Chief
Executive Officer
<PAGE> 1
SAVANE
March 20, 1998
Mr. William W. Compton
Chairman of the Board and
Chief Executive Officer
Tropical Sportswear International Corporation
4902 W. Waters Avenue
Tampa, Florida 33634-1302
Dear Mr. Compton:
In connection with your consideration of a possible acquisition of, or
investment in, Farah Incorporated, a Texas corporation (the "Company"), the
Company has agreed to provide you certain information regarding the Company
which is non-public, confidential and proprietary in nature.
1. As a condition to the Company furnishing information to you, the
Company is requiring that you agree, as set forth below, to treat "Evaluation
Materials" confidentially. As used in this Agreement, the term "Evaluation
Materials" should, except as otherwise provided herein, mean any information
that either the Company or its financial advisor, or its other representatives
furnish to you and your directors, officers, partners, employees, agents and
representatives (including without limitation, financial advisors, counsel,
persons contemplating providing financing for any transaction, accountants,
experts and consultants) (collectively, the "Representatives") in connection
with a possible transaction involving the Company, whether furnished orally or
in writing or gathered by inspection and regardless of whether specifically
identified as "confidential," together with analyses, compilations, studies or
other documents prepared by you or by your Representatives which contain or
otherwise reflect or are derived from such information.
The term "Evaluation Materials" does not include information which (a)
is or becomes generally available to the public other than as a result of a
disclosure by you or any of your Representatives, or (b) was within your
possession prior to its being furnished to you by the Company or its financial
advisor or representative or was or becomes available to you on a
non-confidential basis from a source other than the Company or its financial
advisor or representatives, provided that such source is not known by you, after
reasonable inquiry, to be prohibited from disclosing such information to you by
a contractual, legal or fiduciary obligation to the Company or its financial
advisor or representatives.
2. You agree that the Evaluation Materials will be used solely
for the purpose of evaluating a possible transaction with the Company and that
such Evaluation Materials will be
<PAGE> 2
Mr. William W. Compton
March 20, 1998
Page 2
kept confidential by you; provided, however, that you may disclose any
Evaluation Materials to your Representatives who need to know such information
for the purpose of evaluating the transaction (it being understood that they
shall be informed by you of the confidential nature of such information and that
you shall undertake reasonable efforts to cause them to treat such information
on a confidential basis). You will be responsible for any breach of this
Agreement by your Representatives. You agree, at your sole expense, to take all
reasonable measures, including but not limited to court proceedings, to restrain
your Representatives from unauthorized disclosure or use of the Evaluation
Materials.
3. The public disclosure of your possible interest in
consummating a transaction involving the Company could have a material adverse
effect on the Company's business if for any reason a definitive agreement with
respect to such transaction is not consummated. In addition, any disclosure by
you or any of your Representatives of your possible interest in consummating a
transaction involving the Company to any shareholder could have a material
adverse effect on the Company's business. Accordingly, you agree that without
the prior written consent of the Company, you will not, and you will direct your
Representatives not to, disclose to any person either the fact that discussions
or negotiations are taking place concerning a possible transaction between you
and the Company or any of the terms, conditions or other facts with respect to
any such possible transaction, including the status thereof and no Evaluation
Materials will be provided to any such persons; provided, however, that you may
make such disclosure as you determine may be required by any applicable law,
regulation or rule based upon advice of legal counsel. You agree to provide the
Company reasonable prior notice of any such disclosure. The term "person" as
used in this letter shall be broadly interpreted to include, without limitation,
any corporation, company, governmental agency or body, partnership or
individual.
4. You acknowledge that you are aware, and that you will advise
your Representatives who are informed as to the matters which are the subject of
this letter, that certain laws prohibit any person who has received material,
non-public information concerning the matters which are the subject of this
letter from purchasing or selling securities of the Company or from
communicating such information to any person under circumstances in which it is
reasonably foreseeable that such person is likely to purchase or sell such
securities.
5. In the event that you are requested in any proceeding to
disclose any Evaluation Materials, you will give the Company prompt notice of
such request so that the Company may seek an appropriate protective order. It is
further agreed that, if in the absence of a protective order you are nonetheless
compelled to disclose Evaluation Materials, you may disclose such information
without liability hereunder; provided, however, that you give the Company
written notice of the information to be disclosed as far in advance of its
disclosure as is practicable.
6. Upon the Company's request, you shall promptly deliver to the
Company all written Evaluation Materials furnished to you or your
Representatives by the Company or its financial advisor or representative, and
any other written materials containing or reflecting any
<PAGE> 3
Mr. William W. Compton
March 20, 1998
Page 3
information in the Evaluation Materials (whether prepared by the Company, its
advisors or otherwise) and will not retain any copies, extracts or other
reproductions in whole or in part of such written materials. Upon the Company's
request, all documents, memoranda, notes and other writings whatsoever prepared
by you or your advisors based on the information in the Evaluation Materials
shall be destroyed, and such destruction shall be certified in writing to the
Company by an authorized officer supervising such destruction.
7. During the course of your evaluation, all inquiries and other
communications with respect to a possible transaction are to be made only to
directors, officers and employees of the Company who are specifically designated
by Richard C. Allender, on behalf of the Company. Accordingly, you agree not to
directly or indirectly contact or communicate with any shareholder, director,
officer or other employee of the Company with respect to a possible transaction
without the express written consent of the Company.
8. Although the Company has endeavored to include in the
Evaluation Materials information known to it which it believes to be relevant
for the purpose of your investigation, you understand that neither the Company
nor any of its financial advisors or representatives have made or make any
representation or warranty as to the accuracy or completeness of the Evaluation
Materials. You agree that neither the Company nor any of its financial advisors
or representatives shall have any liability to you or any of your
Representatives resulting from the use of the Evaluation Materials. Only those
representations or warranties that are made to you in a definitive sale
agreement when, as, and if, it is executed, and subject to such limitations and
restrictions as may be specified in such definitive sale agreement, will have
legal effect.
9. You agree that money damages would not be a sufficient remedy
for any breach of this Agreement by you or your Representatives, and that in
addition to all other remedies the Company shall be entitled to specific
performance and injunctive or other equitable relief as a remedy for any such
breach, and you further agree to waive and to use your reasonable efforts to
cause your Representatives to waive any requirement for the securing or posting
of any bond in connection with such remedy.
10. (a) You agree that, for a period of two (2) years after the
date hereof, unless and until you shall have been specifically invited or
authorized in writing by the Company, you will not, and will cause each of your
Affiliates (as defined below) not to, directly or indirectly, solicit, seek or
offer to effect, negotiate with or provide any information to any person with
respect to, or make any statement, proposal or inquiry, whether written or oral,
either alone or in concert with others, to the Board of Directors of the
Company, to any director or officer of the Company or to any shareholder or
securityholder of the Company or otherwise make any public announcement or
proposal or offer whatsoever with respect to, (i) any form of business
combination or other acquisition transaction involving the Company, including,
without limitation, a merger, consolidation, tender or exchange offer, sale or
purchase of assets or securities, or dissolution or liquidation of the Company,
(ii) any form of restructuring, recapitalization or similar transaction
<PAGE> 4
Mr. William W. Compton
March 20, 1998
Page 4
with respect to the Company, (iii) any request or proposal to amend, waive or
terminate any provision of this Agreement or (iv) any proposal or other
statement inconsistent with the terms of this Agreement. The term "Affiliates"
shall mean a person that, directly or indirectly, through one or more
intermediaries, controls or is controlled by, or is under common control with
you.
(b) You agree that, for a period of two (2) years after the date
hereof, without the prior written consent of the Company, you will not, and will
cause each of your Affiliates not to, singly or as part of a "partnership,
limited partnership, syndicate or other group" (as those terms are used within
the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), which meanings shall apply for all purposes of
this Agreement), directly or indirectly, through one or more intermediaries or
otherwise:
(i) acquire, offer or propose to acquire, or agree to
acquire, by purchase or otherwise, (A) any securities entitled to, or
that may be entitled to, vote generally in the election of the
Company's Board of Directors (collectively; "Voting Securities"), or
(B) any direct or indirect rights or options to acquire (through
purchase, exchange, conversion or otherwise) any Voting Securities or
(C) any assets or securities of the Company;
(ii) make, or in any way participate in, any
"solicitation" of "proxies" (as such terms are defined or used in
Regulation 14A of the Exchange Act) with respect to the Voting
Securities (including by the execution of action by written consent),
become a "participant" in any "election contest" (as such terms are
defined or used in Rule 14a-11 of the Exchange Act) with respect to the
Company, seek to advise, encourage or influence any person or entity
with respect to the voting of any Voting Securities or demand a copy of
the Company's stock ledger, list of its shareholders or other books and
records;
(iii) participate in or encourage the formation of any
group which owns or seeks or offers to acquire beneficial ownership of
securities of the Company or any assets of the Company or rights to
acquire such securities or which seeks or offers to effect control of
the Company or for the purpose of circumventing any provisions of this
Agreement; or
(iv) otherwise act, alone or in concert with others
(including by providing financing to another party), to seek or offer
to control, in any manner, the management, Board of Directors or
policies of the Company.
(c) Without the Company's prior written consent, those of your
employees who have received Evaluation Materials will not for a period of two
(2) years from the date hereof directly induce or cause others to induce any
person who is either an officer of the Company or any of its subsidiaries or
involved in any of the negotiations or due diligence review in respect of a
transaction to leave the employment of the Company.
<PAGE> 5
Mr. William W. Compton
March 20, 1998
Page 5
11. This Agreement shall be governed and construed in accordance
with the laws of the State of Texas without giving effect to its conflict of
laws, principles or rules.
12. If at any time you consider a transaction which would involve
participation, directly or indirectly by a third party, you agree to cause such
third party to execute a confidentiality agreement .satisfactory to the Company
prior to the disclosure to such party of any Evaluation Materials.
13. If you are in agreement with the foregoing, please so indicate
by signing, dating and returning one copy of this Agreement, which will
constitute your agreement with respect to the matters set forth herein.
Very truly yours,
FARAH INCORPORATED
By: /s/ Richard C. Allender
--------------------------------
Richard C. Allender
Chairman of the Board, President and
Chief Executive Officer
Confirmed and agreed to:
TROPICAL SPORTSWEAR
INTERNATIONAL CORPORATION
By:/s/ William W. Compton
--------------------------------
Mr. William W. Compton
Chairman of the Board and
Chief Executive Officer
Dated: 3/26/98
-----------------------------
<PAGE> 1
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into by and between Tropical
Sportswear Int'l Corporation, a Florida corporation (the "Company"), and Richard
C. Allender (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. The Executive's employment
pursuant to this Agreement will involve the Company and each of its subsidiaries
and their respective operations.
(b) The term of this Agreement shall commence on the earlier to occur of
the Effective Time or the Acquiror Sub's Election Date, as such terms are
defined in that certain Agreement and Plan of Merger, dated as of May 1, 1998,
among the Company, Foxfire Acquisition Corp., a Texas corporation, and Farah
Incorporated, a Texas corporation, (the "Effective Date") and shall continue for
a three (3) year term (the "Initial Term"). Following expiration of the Initial
Term, this Agreement shall be renewed automatically on a daily basis so that the
term of this Agreement after the Initial Term shall continue for a twelve (12)
month term. This term of this Agreement may be terminated as provided in Section
4.
(c) The Executive shall serve as Executive Vice President-Global Affairs
of the Company or such other offices as the Chairman of the Board of Directors
of the Company or its subsidiaries (the "Chairman") shall assign, and shall
perform such duties and responsibilities as may from time to time be prescribed
by the Chairman, provided that such 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. In furtherance of the
foregoing during the term of the Agreement, the Executive acknowledges and
agrees that he may not serve on the board of directors of any other corporation
or similar body of any other entity without the prior written approval of the
Chairman.
(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.
(e) During the term of this Agreement, the Company shall use its best
efforts to cause the Executive to be appointed as a member of the Board of
Directors of the Company (the "Board").
2. COMPENSATION.
(a) On the first day of the Initial Term, the Company shall pay to the
Executive a bonus of $600,000.
(b) During each year that this Agreement is in effect, the Company and/or
its subsidiaries shall pay to the Executive a minimum annual salary of $300,000,
or such additional amounts as the Chairman may approve (the "Base Salary"),
payable in monthly installments on the last day of each month
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<PAGE> 2
throughout the term of such employment, subject to Section 4 hereof. The
Chairman, upon review of the Executive's performance and/or the profitability of
the Company and its subsidiaries, may direct the Company or its subsidiaries to
pay the Executive a bonus, as the Chairman in his sole discretion may determine
to be appropriate; provided, however, that during each year that this Agreement
is in effect, the Company shall pay to the Executive an annual bonus, payable
within ninety (90) days following the end of the Company's fiscal year, of at
least $100,000 (prorated based on the number of days of the Executive's
employment if less than a full fiscal year).
(c) On the first day of the Initial Term, the Company shall grant to the
Executive options to purchase 15,000 shares of the Company's common stock, par
value $.01 per share, under the Company's 1997 Employee Stock Option Plan (the
"Stock Option Plan") or any successor thereto, upon such terms as are available
to senior executive officers of the Company or its subsidiaries. The exercise
price for the options shall be the Fair Market Value (as such term is defined in
the Stock Option Plan) on the date of grant of such options. The options shall
be vested and immediately exerciseable. During each year that this Agreement is
in effect, the Company shall make additional grants to the Executive under the
Stock Option Plan upon such terms as are generally available to senior executive
officers of the Company or its subsidiaries.
(d) During the term of his employment hereunder, the Executive shall be
entitled to participate in or receive all benefits under the Company's employee
benefit plans and arrangements, including, without limitation, the Company's
401(k) plan and all Benefits, as defined below, which are available to senior
executive officers of the Company or its subsidiaries, including the right to
have had the health and medical insurance on terms which are substantially the
same in scope and coverage as the health and medical insurance provided by Farah
Incorporated on May 1, 1998 (the "Existing Plan"), without regard to any
pre-existing conditions. Nothing paid to the Executive under any such plans or
arrangements shall be deemed to be in lieu of compensation to the Executive
hereunder. The Company may elect to continue Executive's participation in the
Existing Plan in lieu of the Company's health and medical insurance plans.
(e) The Company agrees to pay the cost of premiums for the Executive's
existing split-dollar life insurance policy. The cost of premiums for such
split-dollar life insurance policy shall not exceed $121,000 per annum, unless
otherwise agreed by the Company. Except as otherwise provided in Section 5 of
this Agreement, the Company shall be obligated from and after the date of this
Agreement to pay a minimum of three annual premium payments of $121,000, or an
aggregate amount of premiums of $363,000, including any payments made during the
Initial Term or any term after the Initial Term (the "Minimum Premium
Commitment").
(f) If the Executive is employed by the Company or any of its subsidiaries
on the last day of the Initial Term, the Company shall pay to the Executive on
such date an additional bonus of $500,000 (the "Final Bonus").
(g) During the term of his employment hereunder, the Executive shall be
entitled to receive all perquisites which are available to senior executive
officers of the Company or its subsidiaries including, without limitation,
monthly membership dues of approximately $350 at the El Paso Country Club (or
such other club as the Executive may designate); a car allowance of $1,000 per
month; and a gas allowance of $250 per month. Nothing paid to the Executive
under any such arrangements shall be deemed to be in lieu of compensation to the
Executive hereunder.
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<PAGE> 3
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 Chairman 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;
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 Board 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,
with respect to which the Executive shall have given the Company prior written
notice and a reasonable opportunity to seek a protective order. Notwithstanding
the foregoing, at no time during the term of this Agreement or thereafter shall
the Executive, directly or indirectly, reveal, divulge or disclose to any person
or entity any trade secret of the Company or its subsidiaries except at the
direction of the Company. The parties acknowledge and agree that this Agreement
is not intended to, and does not, alter either the Company's rights or the
Executive's obligations under any state or federal statutory or common law
regarding trade secrets or unfair trade practices.
(b) In addition, the Executive shall not either during the term of this
Agreement or within three (3) years following termination of employment from any
reason whatsoever, solicit any employee of the Company or its subsidiaries to
terminate his relationship with the Company or its subsidiaries or attempt to
influence an employee to seek employment with any competitor of the Company or
its subsidiaries.
(c) (i) The Executive agrees that he will not (without the prior written
consent of the Company) at any time during the period beginning
with termination of the Executive's employment pursuant to
Sections (b)-(d) and ending three (3) years from the date thereof
(the "Non-Compete Period"), directly or indirectly, either
individually or in conjunction with any person or entity, be
engaged in, as a principal, agent, shareholder, consultant,
officer, director, or employee, the provision of management,
sales or marketing services relating to the merchandising,
manufacturing, distributing, selling or marketing of men's,
women's, boys' or girls' sportswear (tops and bottoms) (the
"Business") in the Restricted Territory. For purposes of this
Agreement, the term "Restricted Territory" means the United
States and North, Central and South America, the United Kingdom,
Western Europe, Australia, New Zealand and Fiji. The Company and
the Executive acknowledge and agree that the Company and its
subsidiaries do business and sell men's, women's, boys' and
girls' sportswear (tops and bottoms) in all 50 states of the
United States and in each other country in the Restricted
Territory.
(ii) Notwithstanding subsection (i) above, the Executive may own
or hold up to 5% of the outstanding shares of capital stock of
any company engaged in the Business that is a publicly-traded
company so long as the Executive does not have any other
relationship, directly or indirectly, with such company.
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<PAGE> 4
(d) The Executive understands and agrees that the relationship between the
Company and its subsidiaries and each of its Protected Clients (as defined
below) constitutes a valuable asset of the Company and its subsidiaries and may
not be converted to the Executive's own use. Accordingly, the Executive hereby
agrees that during the term of this Agreement and, following termination of
employment pursuant to Section 5(b)-(d) for three (3) years thereafter, the
Executive shall not, without the prior written consent of the Company, directly
or indirectly, on the Executive's own behalf or as a principal or representative
of any person or entity or otherwise, solicit a Protected Client for the purpose
of providing or selling Competitive Services (as defined below); provided,
however, that the prohibition of this covenant shall apply only to Protected
Clients with whom the Executive had Material Contact on the Company's or its
subsidiaries' behalf during the twelve (12) months immediately preceding the
termination of his employment hereunder. For purposes of this Agreement, the
term "Protected Clients" means clients of the Company and its subsidiaries that
obtained Competitive Services from the Company or its subsidiaries within one
(1) year prior to the date of termination of the Executive's employment
hereunder. For purposes of this Agreement, the term "Competitive Services" means
the merchandising, manufacturing, distributing, selling or marketing of men's,
women's, boys' or girls' sportswear (tops and bottoms). For purposes of this
Agreement, the Executive had "Material Contact" with a Protected Client if (a)
he had business dealings with the Protected Client on the Company's behalf; (b)
he was responsible for supervising or coordinating the dealings between the
Company and the Protected Client; or (c) he obtained trade secrets or
confidential information about the customer as a result of his association with
the Company.
(e) The Executive agrees that during the term of his employment hereunder
and for three (3) years thereafter, he shall refrain from expressing or causing
others to express to any third party any derogatory or negative opinions
regarding the Company, any of its subsidiaries or any of their respective
officers, directors, employees, suppliers, customers, operations or products. In
addition, the Executive agrees that during the term of his employment hereunder
and for three (3) years thereafter, he shall make no statement or cause others
to make any statement to any third party (including, without limitation, any of
the Company's or its subsidiaries' respective officers, directors, employees,
suppliers or customers) that is intended to or does disparage the Company or any
of its subsidiaries or any of their respective officers, directors, employees,
suppliers, customers, operations or products.
(f) (i) The Executive acknowledges that a breach by him of Section 3
would cause irreparable damage to the Company, and in the event of the
Executive's actual or threatened breach of Section 3, the Company
shall be entitled to a temporary restraining order and an injunction
restraining the Executive from breaching such provisions without the
necessity of posting bond or proving irreparable harm, such being
conclusively admitted by the Executive. Nothing shall be construed as
prohibiting the Company from pursuing any other available remedies for
such breach or threatened breach, including, without limitation, the
recovery of damages from the Executive. The Executive acknowledges
that the restrictions set forth in Section 3 are reasonable in scope
and duration given the nature of the business of the Company. The
Executive agrees that the issuance of an injunction will not pose an
unreasonable restriction on the Executive's ability to obtain
employment or other work following termination of this Agreement.
(ii) The Executive has carefully read and considered the
provisions of Section 3, and, having done so, agrees that the
restrictions set forth in such sections including, without limitation,
the time period of restriction and geographical area of restriction
are fair and reasonable and are reasonably required for the protection
of the
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<PAGE> 5
interests of the Company. Notwithstanding the foregoing, in the event
that any of the provisions of Section 3 hereof shall be held to be
invalid or unenforceable, the remaining provisions hereof shall
nevertheless continue to be valid and enforceable as though the
invalid or unenforceable part(s) had not been included therein. In the
event that any provisions of subsection (b), and (c), (d) or (e)
relating to the time period and/or the area of restriction shall be
declared by a court of competent jurisdiction to exceed the maximum
time period or area such court deems reasonable and enforceable, this
Agreement shall be reformed by such court and the time period and/or
area of restriction deemed reasonable and enforceable by the court
shall become and thereafter be the maximum time period and/or area of
restriction.
4. TERMINATION.
(a) Death. The Executive's employment hereunder shall terminate upon his
death.
(b) Incapacity. The Company may terminate the Executive's employment
hereunder by giving written Notice of Termination, as defined below, to the
Executive in the event of the Executive's incapacity. For purposes of this
Agreement, the term "incapacity" shall mean that the Executive has been
determined (which determination shall be final and binding on all persons,
absent manifest error), as a result of a physical or mental illness or personal
injury he has incurred (including illness or injury resulting from any substance
abuse), by a Qualified Physician (who may be the doctor treating or otherwise
acting as the Executive's doctor in connection with the illness or injury in
question) selected by the Executive with the consent of the Company, or by the
Company at its expense and with the consent of the Executive (which consent
shall not be unreasonably withheld in either case), to be unable to perform, at
the time of that determination and, in all reasonable medical likelihood,
indefinitely thereafter, the normal duties then most recently assigned, under
and in accordance with the terms hereof, to the Executive while on Active
Status; provided that, the determination whether the Executive has incurred an
incapacity shall be made by a majority of three (3) Qualified Physicians,
(a) one (1) of whom shall be selected by the Executive,
(b) one (1) of whom shall be selected by the Company, and
(c) the remaining one (1) of whom shall be selected by the
Qualified Physicians selected by the Executive and the Company pursuant to
clauses (a) and (b) of this proviso and the fees and expenses of whom will be
shared and paid in equal amounts by the Executive and the Company if:
(1) (A) the Company has reasonably withheld its consent to the
Qualified Physician, if any, selected by the Executive or
(B) the Executive has reasonably withheld his consent to the
Qualified Physician, if any, selected by the Company and
(2) the Qualified Physicians selected by the Executive and the
Company disagree as to whether the Executive has incurred an incapacity. For
purposes of this definition, if the Executive is unable by reason of illness or
injury to give an informed consent to the performance of the treatment of that
illness or injury, a Qualified Physician selected by any person who is
authorized by applicable law to give that consent will be deemed to have been
selected by the Executive.
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<PAGE> 6
The term "Qualified Physician" means, in the case of any
determination whether the Executive has sustained an incapacity, a physician (a)
holding an M.D. degree from a medical school located in the United States, (b)
specializing and board certified in the treatment of the injury or illness that
has or may have caused that incapacity and (c) having admission privileges to
one or more hospitals located in Texas or in the state in which the Executive
then is domiciled.
The term "Active Status" means the Executive's employment status
from the Effective Date to the date of termination of such employment pursuant
to this Agreement.
(c) Cause. The Company may terminate the Executive's employment for
Cause. For purposes of this Agreement only, "Cause" shall mean: (i) the
Executive's conviction of a felony involving moral turpitude; or (ii) the
Executive's serious, willful gross misconduct or willful gross neglect of duties
(other than any such neglect resulting from the Executive's incapacity due to
physical or mental illness or any such neglect after the issuance of a Notice of
Termination, as defined below, by the Executive for Good Reason), which, in
either case, has resulted, or in all probability is likely to result, in
material economic damage to the Company; provided no act or failure to act by
the Executive will constitute "Cause" under clause (ii) if the Executive
believed in good faith that such act or failure to act was in the best interest
of the Company.
Any termination of the Executive's employment by the Company for Cause
shall be authorized by a vote of at least a majority of the following officers
of the Company: the Chairman of the Board, the President and the Chief Financial
Officer of the Company. In the case of clause (ii) of the second sentence of
this subsection (c), the Executive shall be given notice by the Chairman of the
Board specifying in detail the particular act or failure to act on which the
officers making the determination are relying in proposing to terminate him for
Cause and offering the Executive an opportunity, on a date at least 14 days
after receipt of such notice, to have a hearing, with counsel, before a majority
of the officers who authorized the termination for Cause. The Executive shall
not be terminated for Cause if, within 30 days after the date of the Executive's
hearing before such officers (or if the Executive waives a hearing, within 30
days after receiving notice of the proposed termination), he has corrected the
particular act or failure to act specified in the notice and by so correcting
such act or failure to act he has reduced the economic damage his act or failure
to act has allegedly caused the Company or its subsidiaries to a level which is
no longer material or has eliminated the probability that such act or failure to
act is likely to result in material economic damage to the Company or its
subsidiaries. No termination for Cause shall take effect until the expiration of
the correction period described in the preceding sentence and the determination
by a majority of the non-employee members of the Board that the Executive has
failed to correct the act or failure to act in accordance with the terms of the
preceding sentence.
(d) Good Reason. The Executive may terminate his employment at any time
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. "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, 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 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 the Executive's
death or incapacity, or by the Executive other than for Good Reason); (B) a
reduction by the Company or its subsidiaries in the
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<PAGE> 7
Executive's Base Salary; (C) the Executive' s office is moved, without his
consent, from the city of El Paso, Texas, except for reasonably required travel
on the Company's and its subsidiaries' business; (D) the Company's material
breach of any of its obligations under this Agreement; or (E) (y) any failure by
the Company to continue in effect any benefit plan or arrangement in which the
Executive participates, or any other plan or arrangement providing the Executive
with benefits (hereinafter referred to as "Benefit Plans"), or (z) the taking of
any action by the Company which would adversely affect the Executive's
participation in or materially reduce the Executive's benefits under any such
Benefit Plan or deprive the Executive of any material fringe benefit or
perquisite of office enjoyed by the Executive, unless in the case of either
subclause (y) or (z) above, there is substituted a comparable plan or program
that is economically equivalent, in terms of the benefit offered to the
Executive, to the Benefit Plan being altered, reduced, affected or ended.
(e) Notice of Termination. Any termination by the Company pursuant to the
Sections 4(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.
5. PAYMENTS TO THE EXECUTIVE UPON TERMINATION.
(a) Death. If the Executive's employment shall be terminated by reason of
death, his estate shall be paid all salary, bonus or other Benefits, as defined
below, otherwise payable 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.
(b) Incapacity. If the Executive's employment is terminated by the Company
or the Executive by reason of incapacity, the Executive or person charged with
legal responsibility for the Executive's estate shall be entitled to be paid the
following:
(i) (A) the Executive's earned but unpaid Base Salary through the
date of termination;
(B) Base Salary in effect immediately prior to the date of
termination for the remainder of the current term of the
Agreement (i.e., the Initial Term or any renewal term),
payable in monthly installments, less the amount of any
disability benefits provided or purchased by the Company
immediately prior to the date of termination;
(C) an annual bonus for the current fiscal year prorated through
the date of termination equal to the greater of (A) the
annual bonus awarded to the Executive with respect to the
Company's most recent fiscal year ending prior to the date
of termination or (B) $100,000;
(D) the amount of the Minimum Premium Commitment which has not
been paid as of the date of termination; and
(E) the Final Bonus.
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<PAGE> 8
The amounts under clause (A), (C) and (E) shall be paid
within thirty days from the date of termination of the
Agreement.
(ii) after such termination, the Company shall maintain for
the Executive's benefit, the Benefits, as defined below, in
full force and effect, for thirty-six (36) months.
The term "Benefits" shall mean all health insurance, long-term disability, life
insurance (excluding the split-dollar policy described in Section 2(e) and which
benefits in respect thereof are described below) and accidental death and
disability 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 termination. 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. Notwithstanding the foregoing or any other
provision of this Agreement to the contrary, in no event shall the Company or
any of its subsidiaries be obligated to provide the Executive with Benefits or
make any payments to the Executive after the thirty-six (36th) month following
the termination of the Executive's employment hereunder; provided Executive
shall continue to be entitled to any benefits provided to him under any insured
Benefit after such thirty-six month period. Further, notwithstanding any
provision of this Agreement to the contrary and notwithstanding the termination
of Executive's employment hereunder, if requested by the Company or any of its
subsidiaries, the Executive shall agree to continue or resume full-time
employment (unless such employment would have a material adverse effect on any
benefits of Executive under a long-term disability policy) with the Company or
its subsidiaries for up to three (3) additional years on any economic terms
proposed by the Company, if such employment is necessary for the Company or its
subsidiaries to provide the Executive with insured Benefits.
(c) Cause. If the Executive's employment shall be terminated for Cause,
the Company or its subsidiaries shall pay the Executive his Base Salary and
Benefits 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, including, but not limited to, any obligations
in respect of the Minimum Premium Commitment.
(d) Other Than Cause. If the Executive's employment is terminated (i) by
the Company other than as a result of death, disability or Cause as specified in
Sections 4(a), (b) or (c) above, or (ii) by the Executive for Good Reason, the
Executive shall be entitled to the following:
(i) (A) the Executive's earned but unpaid Base Salary through
the date of termination;
(B) Base Salary in effect immediately prior to the date
of termination for the remainder of the current term
of the Agreement (i.e., the Initial Term or any
renewal term);
(C) an annual bonus for the current fiscal year prorated
through the date of termination equal to the greater
of (A) the annual bonus awarded to the
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<PAGE> 9
Executive with respect to the Company's most recent
fiscal year ending prior to the date of termination
or (B) $100,000;
(D) the amount of the Minimum Premium Commitment which
has not been paid as of the date of termination; and
(E) the Final Bonus.
(ii) after such termination, the Company shall maintain for the
Executive's benefit, the Benefits, as defined below, in full
force and effect, for thirty-six (36) months.
The amounts under clause (A), (C) and (E) shall be paid within thirty days from
the date of termination of the Agreement.
(e) The Executive shall not be required to mitigate damages or the amount
of any payment provided for under Section 5 of this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation earned by the Executive as the
result of employment by another employer after the date of termination or
otherwise.
6. STOCK OPTIONS UPON TERMINATION. To the extent the Executive is an
Optionee (as defined under any of the Company's stock option plans (the
"Plans")), if the Executive's employment is terminated without Cause or the
Executive terminates his employment for Good Reason, all options held by the
Executive shall vest and become exercisable in accordance with the terms of the
Plans.
7. 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:
Tropical Sportswear Int'l Corporation
4902 West Waters Avenue
Tampa, Florida 33634-1302
Attention: Corporate Secretary
in the case of the Executive, to:
Richard C. Allender
900 Broadmoor
El Paso, Texas 79912
or to such other address as either party shall designate by giving written
notice of such change to the other party.
8. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is approved
by the Chairman and agreed to in writing signed by the Executive and such
officer as may be specifically authorized by the Chairman. No waiver
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<PAGE> 10
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.
9. VALIDITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future law, such
provision shall be fully severable, this Agreement shall be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part hereof, the remaining provisions of this Agreement shall remain
in full force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom, and in lieu of such
illegal, invalid or unenforceable provision, there shall be added automatically
as a part of this Agreement a legal, valid and enforceable provision as similar
to the terms and intent of such illegal, invalid or unenforceable provision as
may be possible.
10. SURVIVAL. The provisions of this Agreement shall not survive the
termination of the Executive's employment hereunder, except that the provisions
of Sections 3, 4, 5 and 6 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 Sections 2, 4, 5, 6 and 7 hereof shall survive
such termination and shall be binding upon the Company and its subsidiaries.
11. 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.
12. ENTIRE AGREEMENT. This Agreement, together with any awards of
stock options or stock awards under the Company's stock option and restricted
stock plans, 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.
13. ARBITRATION. Any claim or 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 binding upon the parties, shall constitute the sole and exclusive remedy for
any dispute between the parties, 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. Notwithstanding this
Section 13, and as provided in Section 3(f) above, nothing in this arbitration
provision shall prevent the Company from applying to a court of law or equity
for a temporary restraining order, an injunction, or similar relief, in order to
enforce its rights under Section 3 of this Agreement.
14. LEGAL FEES AND EXPENSES. Each party shall bear and pay his or its
own expenses in connection with this Agreement, including in connection with any
claim or dispute that arises concerning the rights of the Executive or the
Company under this Agreement.
10
<PAGE> 11
15. LIMITATIONS ON PAYMENTS. Notwithstanding any other provision of
this Agreement, if any portion of any payment under this Agreement, or under any
other agreement with or plan of the Company or its affiliates (in the aggregate
"Total Payments"), would constitute an "excess parachute payment," then the
Total Payments to be made to the Executive shall be reduced such that the value
of the aggregate Total Payments that the Executive is entitled to receive shall
be One Dollar ($1) less than the maximum amount which the Executive may receive
without becoming subject to the tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code") or which the Company may pay
without loss of deduction under Section 280G(a) of the Code. For purposes of
this Agreement, the terms "excess parachute payment" and "parachute payments"
shall have the meaning assigned to them in Section 280G of the Code, and such
"parachute payments" shall be valued as provided therein. Present value for
purposes of this Agreement shall be calculated in accordance with Section
1274(b) (2) of the Code. Within fifteen (15) days following the Date of
Termination or notice by the Company to the Executive of its belief that there
is a payment or benefit due the Executive which will result in an excess
parachute payment as defined in Section 280G of the Code, the Executive and the
Company, at the Company's expense, shall obtain the opinion (which need not be
unqualified) of nationally recognized tax counsel selected by the Company's
independent auditors and acceptable to the Executive in his sole discretion
(which may be regular outside counsel to the Company), which opinion sets forth
(i) the amount of the Base Period Income, (ii) the amount and present value of
Total Payments and (iii) the amount and present value of any excess parachute
payments determined without regard to the limitations of this paragraph. As used
in this Agreement, the term "Base Period Income" means an amount equal to the
Executive's "annualized includible compensation for the base period" as defined
in Section 280G(d) (1) of the Code. For purposes of such opinion, the value of
any noncash benefits or any deferred payment or benefit shall be determined by
the Company's independent auditors in accordance with the principles of Sections
28OG(d) (3) and (4) of the Code, which determination shall be evidenced in a
certificate of such auditors addressed to the Company and the Executive. If such
opinion determines that there would be an excess parachute payment, any payment
or benefit determined by such counsel to be includible in Total Payments shall
be reduced or eliminated as specified by the Executive in writing delivered to
the Company within five (5) days of his receipt of such opinion or, if the
Executive fails to so notify the Company, then as the Company shall reasonably
determine, so that under the bases of calculations set forth in such opinion
there will be excess parachute payment. If such legal counsel so requests in
connection with the opinion required by this paragraph, the Executive and the
Company shall obtain at the Company's expense, and the legal counsel may rely on
in providing the opinion, the advice of a firm of recognized executive
compensation to be received by the Executive. If the provisions of Sections 28OG
and 4999 of the Code are repealed without succession, then this paragraph shall
be of no further force or effect.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of this 1st day of May, 1998.
TROPICAL SPORTSWEAR INT'L CORPORATION
By: /S/ William W. Compton
----------------------------------------
William W. Compton
Chairman and Chief Executive Officer
/S/ Richard C. Allender
-------------------------------------------
Richard C. Allender
12
<PAGE> 1
EXHIBIT (c)(11)
FARAH INCORPORATED
1996 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
1. PURPOSE. The purpose of this 1996 Non-Employee Directors Stock
Option Plan (this "Plan") is to provide certain directors of Farah Incorporated
(the "Company") with a proprietary interest in the Company through the granting
of stock options ("Options") which will
a. increase the interest of the Non-Employee Directors (as
defined below) in the Company's welfare;
b. furnish an incentive to the Non-Employee Directors to continue
their services for the Company; and
c. provide a means through which the Company may attract able
persons to serve on the Board of Directors of the Company (the
"Board").
2. ADMINISTRATION.
a. This Plan shall be administered by the Board. The Board may
from time to time prescribe, amend and rescind such rules, regulations,
provisions and procedures, consistent with the terms of this Plan, as may be
advisable in its opinion in the administration of this Plan, and subject to the
terms of this Plan shall prescribe the provisions of the stock option agreements
to be issued hereunder and make all other determinations and interpretations
necessary or advisable for administrating this Plan and the stock option
agreements.
b. A majority of the Board shall constitute a quorum, and the
acts of a majority of the members present at any meeting at which a quorum is
present, or acts approved in writing by all members of the Board, shall be the
acts of the Board. All decisions, determinations and interpretations of the
Board shall be final and binding on all persons interested in this Plan.
3. PARTICIPANTS. Each director of the Company who is not at the
time of the grant of an Option an officer or employee of the Company (a
"Non-Employee Director") is to be granted Options under the Plan, and upon such
grant will become a participant in the Plan.
4. SHARES AND OPTIONS UNDER THIS PLAN.
a. The stock to be subject to Options granted under this Plan
shall be shares of the Company's common stock, no par value per share (the
"Common Stock"), which may be either authorized and unissued or treasury stock.
b. 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
exercise price of 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 Common Stock,
recapitalization, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company. Such adjustment shall
be made by the Board 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.
c. 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 shall terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board; provided, however, that
the Board may, in the exercise of its sole discretion, in such instances declare
that any Option shall terminate as of a date fixed by the Board and give each
Non-Employee Director the right to exercise
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the participant's Option as to all or any part of the shares covered by such
Option, including shares of Common Stock as to which the Option would not
otherwise be exercisable at that time.
d. The total amount of stock reserved for issuance or sale upon
the exercise of Options shall be 300,000 shares (subject to adjustment in
accordance with Section 4(b)).
e. In the event any outstanding Option for any reason expires, is
canceled or otherwise terminates, the shares allocable to the unexercised
portion of such Option shall again be available for issuance under this Plan.
5. ALLOTMENT OF SHARES. Subject to approval by the Company's
shareholders pursuant to Section 5(b), grants of Options under the Plan shall be
as described in Section 5.
a. Each Non-Employee Director shall be granted an Option to
purchase 5,000 shares of Common Stock of the Company on September 30, 1996 and
thereafter shall be granted an Option to purchase 2,500 shares of Common Stock
of the Company on the last day of each March, June, September, and December of
each year in which this Plan is in effect (each such date a "Grant Date"). Each
such Option shall be effective as of the Grant Date therefor.
b. The Plan shall be submitted to the Company's shareholders for
approval except as provided below. The Board may grant Options under the Plan
prior to the time of shareholder approval, which Options will be effective when
granted, but if for any reason the shareholders of the Company do not approve
the Plan prior to one year after the date of adoption of the Plan by the Board,
all Options granted under the Plan will be terminated and of no effect, and no
Option may be exercised in whole or in part prior to such shareholder approval.
Notwithstanding the foregoing, in the event that Rule 16b-3 of the General Rules
and Regulations to the Securities Exchange Act of 1934 ("Rule 16b-3") and the
rules of the New York Stock Exchange, Inc. (the "NYSE") are amended to eliminate
the requirement of such shareholder approval from and after the date of adoption
of the Plan by the Board, no such shareholder approval shall be required under
this Plan and all Options granted hereunder shall continue in full force and
effect.
6. GRANT OF OPTIONS. All Options under the Plan shall be
automatically granted as provided in Section 5. The grant of Options shall be
evidenced by stock option agreements containing such terms and provisions as are
approved by the Board, but not inconsistent with the Plan.
7. OPTION PRICE. The exercise price of each share of Common Stock
covered by an Option under the Plan shall be equal to the average between the
high and low sales price of the Common Stock as reported by the NYSE or such
other exchange if the Common Stock is not traded on the NYSE on the Grant Date
(the "Fair Market Value"). In the event the Grant Date is not a business day or
the Common Stock is not traded otherwise on the NYSE or such other exchange on
such date, then the exercise price shall be the average between the high and low
sales price of the Common Stock as reported by the NYSE on the first trading day
immediately preceding the Grant Date.
8. OPTION PERIOD. The period during which a participant's Options
shall be in force will begin on the Grant Date and will terminate at the first
of the following:
a. 5 p.m. on the fifth anniversary of the Grant Date;
b. 5 p.m. on the date 180 days following the date of the
Non-Employee Director's death or disability; or
c. 5 p.m. on the date 60 days following the date the Non-Employee
Director ceases to be a director of the Company for any other
reason other than death or disability, or such longer period
as the Board may deem appropriate.
9. VESTING. Fifty percent (50%) of each Option granted under this
Plan shall vest and become exercisable on the first anniversary of the Grant
Date of such Option. The remaining fifty percent (50%) of each Option granted
under this Plan shall vest and become exercisable on the second anniversary of
the Grant Date of such Option. No Option shall be exercisable after the fifth
anniversary of the Grant Date of such Option.
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10. CONDITIONS TO THE EXERCISE OF OPTIONS.
a. As a condition to the exercise of an Option and provided the
Non-Employee Director has not held the Option for a period of six months from
the Grant Date, the Non-Employee Director shall agree not to dispose of the
Common Stock obtained upon exercise of the Option until the expiration of six
months from the first anniversary of the Grant Date of the Option unless such
disposition is in a transaction which is exempt from the provisions of Section
16 of the Securities Exchange Act of 1934 as amended (the "Exchange Act").
b. An Option may not be exercised for fractional shares of stock
of the Company.
11. NON-ASSIGNABILITY. An Option may be transferred or assigned by
will or by the laws of descent and distribution upon the death of the
Non-Employee Director. In the Board's discretion and prior to the death of the
Non-Employee Director, Options may be transferred to a member of the
participant's family or to a trust, partnership or other entity which is,
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the Non-Employee Director or
members of the participant's family. Any transfer or other assignment except as
expressly permitted herein, whether voluntary, involuntary, by operation of law
or otherwise, shall immediately void the Option.
12. RIGHTS IN EVENT OF DEATH OR DISABILITY. If the Non-Employee
Director dies or becomes disabled prior to termination of his/her right to
exercise an Option in accordance with the provisions of his/her stock option
agreement without having totally exercised the Option, the Option may be
exercised to the extent the Non-Employee Director could have exercised the
Option on the date of his/her death or disability at any time prior to the
earlier dates specified in Section 8(a) or (b) hereof by (I) the participant's
estate or by the person who acquired the right to exercise the Option by bequest
or inheritance or by reason of the death of the Non-Employee Director in the
event of the participant's death, or (ii) the Non-Employee Director or his/her
personal representative in the event of the participant's disability, subject to
other terms of the Plan and applicable laws, rules and regulations. For purposes
of the Plan, the Board shall determine the date of disability of the
Non-Employee Director.
13. PAYMENT. An Option, or portion thereof, shall be exercised by
delivery of a written notice of exercise to the Company and payment of the full
price of the shares being purchased pursuant to the Option. A Non-Employee
Director may exercise an Option with respect to less than the full number of
shares for which the Option may then be exercised, but the Non-Employee Director
must exercise the Option in full shares of Common Stock. The price of Common
Stock purchased pursuant to an Option, or portion thereof, may be paid:
(a) by certified check, bank draft or money order payable
to the order of the Company;
(b) with approval of the Board, through the delivery of
shares of Common Stock with an aggregate Fair Market
Value on the date of exercise equal to the Option
Price; or
(c) by any combination of the above methods of payment or
any other method as permitted by the Board.
The Committee shall determine acceptable methods for tendering Common
Stock as payment upon exercise of an Option and may impose such limitations and
prohibitions on the use of Common Stock to exercise an Option as it deems
appropriate, including, without limitation, any limitation or prohibition
designed to avoid certain accounting consequences which may result from the use
of Common Stock as payment upon exercise of an Option. The Company may, in its
discretion, require a Non-Employee Director to pay to the Company at the time of
exercise the amount that the Company deems 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, the
Non-Employee Director may make a written election to have shares of Common Stock
withheld by the Company from the shares otherwise to be received. The number of
shares so withheld shall have an aggregate Fair Market Value on the date of
exercise sufficient to satisfy the applicable withholding taxes. The acceptance
of any such election by the Non-Employee Director shall be at the sole
discretion of the Board.
14. AMENDMENT AND DISCONTINUANCE. The Board may at any time amend
this Plan, provided that, except as permitted by Section 4(b), no amendment
without approval of the shareholders shall: (a) increase the total number
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of shares for which Options may be granted, (b) change the manner of determining
the price at which shares may be purchased, (c) change the class of persons
eligible to receive Options under this Plan, or (d) change the provisions
relating to the administration of this Plan by the Board. Notwithstanding the
foregoing, in the event that Rule 16b-3 is amended to eliminate the requirement
of such shareholder approval from and after the date of adoption of the Plan by
the Board, no such shareholder approval of such amendments shall be required
under this Plan. The Board may terminate this Plan at any time but such
termination shall not affect Options previously granted and such Options shall
remain in full force and effect as if this Plan had not been terminated.
Notwithstanding any other provision hereof, in no event shall the provisions of
this Plan be amended more frequently than once every six months other than to
comport with changes in the Internal Revenue Code of 1986, as amended from time
to time, and the Employee Retirement Income Security Act, as amended from time
to time, or the rules thereunder.
15. EFFECT OF THE PLAN.
a. Neither the adoption of the Plan nor any action of the Board
shall be deemed to give any director any right to be granted an Option to
purchase Common Stock of the Company or any other rights except as may be
evidenced by the stock option agreement, or any amendment thereto, duly
authorized by the Board and executed on behalf of the Company, and then only to
the extent and on the terms and conditions expressly set forth therein.
b. Nothing in this Plan or in any Option granted pursuant to this
Plan shall confer on any individual any right to continue as a director of the
Company or interfere in any way with the removal of such person as a director in
accordance with the Company's Articles of Incorporation and Bylaws.
16. RESERVATION OF SHARES. During the term of this Plan and any
Option exercisable hereunder, the Company shall at all times reserve and keep
available, and shall obtain from any regulatory body having jurisdiction any
requisite authority in order to issue or sell, such number of shares of its
Common Stock as shall be sufficient to satisfy the requirements of this Plan.
Inability of the Company to obtain any authority deemed by the Company's counsel
to be necessary to the lawful issuance or sale of any shares of its stock
hereunder shall relieve the Company of any liability in respect of the
nonissuance or sale of such stock as to which such authority shall not have been
obtained.
17. SECURITIES ACT OF 1933. Unless (a) the shares to be issued
upon exercise of an Option granted under this Plan have been effectively
registered under the Securities Act of 1933, as now in force or hereafter
amended; or (b) in the opinion of counsel for the Company, no such registration
is necessary, the Company shall be under no obligation to issue any shares
covered by any Option.
18. SECTION 16. With respect to persons subject to Section 16 of
the Exchange Act, transactions under this Plan are intended to comply with all
applicable provisions of Rule 16b-3 or its successors under the Exchange Act. To
the extent any provision of this Plan or action by the Board fails to so comply,
it shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Board.
19. EFFECTIVE DATE; TERM OF PLAN. This Plan shall become effective
as of September 1, 1996; provided, however, if this Plan is not approved by a
majority of the shareholders of Common Stock of the Company present or
represented by proxy and entitled to vote at the first annual meeting of
shareholders of the Company following September 1, 1996, any Options granted
under this Plan shall be null, void and of no force and effect as of their grant
date, and this Plan shall terminate. Notwithstanding the foregoing, in the event
that Rule 16b-3 and the rules of the NYSE are amended to eliminate the
requirement of such shareholder approval from and after the date of adoption of
the Plan by the Board, no such shareholder approval shall be required under this
Plan and all Options granted hereunder shall continue in full force and effect.
This Plan shall terminate May 31, 2001, unless sooner terminated as provided in
this Plan. At the end of such term, this Plan shall expire except for Options
then outstanding.
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EXHIBIT (c)(12)
FARAH INCORPORATED
1998 STOCK OPTION AND RESTRICTED STOCK PLAN
EFFECTIVE JANUARY 21, 1998
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.
<PAGE> 2
"DISINTERESTED DIRECTOR" shall mean a member of the Board of Directors
who is both (a) a Non-Employee Director, within the meaning of Rule 16b-3
promulgated under the Exchange Act, as amended from time to time, and (b) an
Outside Director, within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder, as amended from time to time.
"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 1998 Stock Option and
Restricted Stock Plan, as amended from time to time.
<PAGE> 3
"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)(ii) of this Plan.
"RESTRICTED STOCK CRITERIA" shall have that meaning in Section 7(a)(iv)
of this Plan.
"RESTRICTION PERIOD" shall have that meaning in Section 7(a)(iii) 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, no par value 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.
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.
<PAGE> 4
(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(other
than the Exercise Price) 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, or accelerate the vesting of any Plan Award;
(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
(xii) To take any other actions deemed necessary or
advisable for the administration of this Plan.
<PAGE> 5
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 hold the
Plan Awards for a period of six months following the date of such acquisition.
This condition shall be satisfied with respect to a derivative security if at
least six months elapse from the date of acquisition of the derivative security
to the date of disposition of the derivative security (other than upon exercise
or conversion) or its underlying equity security.
SECTION 4
ELIGIBILITY
(A) GENERAL RULE. Subject to the limitations set forth in subsection b
below or elsewhere in this Plan, Participants shall be eligible to participate
in this Plan.
(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
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 two hundred thousand (200,000) 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.
ADDITIONAL SHARES. In the event any outstanding Option for any
reason expires, is canceled 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.
<PAGE> 6
(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 (x) the Option held by the Optionee expires, or
(y) 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
<PAGE> 7
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 (x)
the Option held by the Optionee expires, or (y) 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 (x) the
Option held by the Optionee expires, or (y) 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.
(D) NON-TRANSFERABILITY OF OPTIONS. Except as may be permitted by the
Committee in its sole discretion, 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.
(E) 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.
(F) 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; provided that the Committee may, in its sole discretion, and
without the consent of the Optionee or any other person, accelerate the vesting
of all or part of any Option.
(G) 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.
<PAGE> 8
(H) 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.
(I) 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.
(J) LIMITATION ON GRANTS OF OPTIONS TO COVERED EMPLOYEES. The total
number of Shares for which Options may be granted and which may be awarded as
Incentive Stock to any "covered employee" within the meaning of Section 162(m)
of the Code and the regulations promulgated thereunder, as amended from time to
time, during any one-year period shall not exceed 100,000 in the aggregate.
(K) DISQUALIFYING DISPOSITIONS. The Stock Option Agreement evidencing
any ISO granted under this Plan shall provide that if the Optionee makes a
disposition, within the meaning of Section 425(c) of the Code and the
regulations promulgated thereunder, of any share or shares issued to him
pursuant to the exercise of the ISO within the two-year period commencing on the
day after the Date of Grant of such Option or within a one-year period
commencing on the day after the date of transfer of the share or shares to him
pursuant to the exercise of such Option, he shall, within ten days of such
disposition, notify the Company thereof and immediately deliver to the Company
any amount of federal income tax withholding required by law.
(L) WITHHOLDING TAXES. The Committee shall require an Optionee to pay
to the Company at the time of exercise of an Option the amount that the Company
deems 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 either pay such taxes in
cash or 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.
<PAGE> 9
(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
(x) the number of Shares of Restricted Stock that may be earned, and (y) 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.
(VII) 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.
<PAGE> 10
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 dissolution or liquidation of the Company, other than pursuant to a
Reorganization (hereinafter defined), any Option granted under the Plan shall
terminate as of a date to be fixed by the Committee, provided that not less than
30 days written notice of the date so fixed shall be given to each Optionee and
each such Optionee shall have the right during such period to exercise his
Options as to all or any part of the Shares covered thereby including Shares as
to which such Options would not otherwise be exercisable by reason of an
insufficient lapse of time.
In the event of a Reorganization in which the Company is not the
surviving or acquiring company, or in which the Company is or becomes a
wholly-owned subsidiary of another company after the effective date of the
Reorganization, then
(i) if there is no plan or agreement respecting the
Reorganization ("Reorganization Agreement") or if the
Reorganization Agreement does not specifically provide
for the change, conversion or exchange of the Shares
under outstanding unexercised Options for securities of
another corporation, then the Committee shall take such
action, and the Options shall terminate, as provided
above; or
(ii) if there is a Reorganization Agreement and if the
Reorganization Agreement specifically provides for the
change, conversion or exchange of the shares under
outstanding or unexercised options for securities of
another corporation, then the Committee shall adjust
the shares under such outstanding unexercised Options
(and shall adjust the Shares which are then available
to be optioned, if the Reorganization Agreement makes
specific provisions therefore) in a manner not
inconsistent with the provisions of the Reorganization
Agreement for the adjustment, change, conversion or
exchange of such stock and such options.
<PAGE> 11
The term "Reorganization" as used in this Subsection 9(b) shall mean any
statutory merger, statutory consolidation, sale of all or substantially all of
the assets of the Company, or sale, pursuant to an agreement with the Company,
of securities of the Company pursuant to which the Company is or becomes a
wholly-owned subsidiary of another company after the effective date of the
Reorganization.
Except as provided above in this Section 9(b) and except as otherwise
provided by the Committee in its sole discretion, any Options shall terminate
immediately prior to the consummation of such proposed action.
(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
TERM OF PLAN; EFFECT OF AMENDMENT OR TERMINATION
(A) EFFECTIVE DATE; TERM OF PLAN. This Plan shall be submitted to the
stockholders of the Company for approval and ratification at the next regular or
special meeting thereof to be held after March 1, 1998. Unless at such meeting
this Plan is approved and ratified by the affirmative vote of a majority of the
outstanding shares of Stock of the Company present in person or by proxy and
entitled to a vote, then, and in such event, this Plan and any then outstanding
Options or Incentive Stock that may have been conditionally granted prior to
such stockholder meeting shall become null and void and of no further force or
effect. Subject to the immediately preceding sentence, this Plan shall become
effective upon its adoption by the Board of Directors. This Plan shall continue
in effect for a term of ten (10) years unless sooner terminated under this
Section 11.
(B) AMENDMENT AND TERMINATION. The Board of Directors in its sole
discretion may terminate this Plan at any time. The Board of Directors may amend
this Plan at any time in such respects as the Board of Directors may deem
advisable; provided, that 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, shall require approval of the holders of a majority of
the outstanding Shares entitled to vote.
(C) EFFECT OF TERMINATION. In the event this Plan is terminated, no
Shares shall be issued under this Plan, 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.
<PAGE> 12
SECTION 12
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.
