<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report September 30, 1994
(Date of Earliest event reported)
KELLWOOD COMPANY
(exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
1-7340 36-2472410
- ------------------------ ------------------------------------
(Commission File Number) (IRS Employer Identification Number)
600 Kellwood Parkway, P.O. Box 14374, St. Louis, Missouri 63178
(Address of principal executive offices) (Zip Code)
314-576-3100
(Registrant's telephone number, including area code)
<PAGE> 2
Item 2 - Acquisition of Assets
- ------------------------------
On September 30, 1994, the registrant acquired all of the issued
and outstanding stock of Halmode Apparel, Inc. (the "Company")
pursuant to a Stock Purchase Agreement dated August 24, 1994,
as amended September 30, 1994.
The consideration paid on September 30, 1994, consisted of a
$40,750,000 cash fixed purchase price payment. In addition, a
deferred purchase price of $2,250,000 is to be paid in two cash
installments on September 30, 1995 and 1996; also, the sellers may be
entitled to a cash contingent purchase price covering a five year period
beginning October 1, 1994 and ending September 30, 1999. The annual
contingent purchase price payment for each period will be
determined based upon the Company's earnings.
The stock was purchased from the shareowners of the Company. There is no
material relationship between the sellers and the registrant or any of its
affiliates, any director or officer of the registrant, or any associate of
any such director or officer.
The source of the funds for the acquisition was the registrant's
existing line of credit.
The assets of the Company were used in the design, manufacture
and marketing of dresses, junior sportswear, maternitywear and
uniforms. The registrant intends to continue such use.
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Item 7 - Financial Statements and Exhibits
- ------------------------------------------
(a) Financial statements of Halmode Apparel, Inc.:
Condensed balance sheet at July 31, 1994
Condensed statement of earnings for the seven months ended
July 31, 1994
Condensed statement of cash flows for the seven months ended
July 31, 1994
Note to condensed financial statements
Report of independent certified public accountants
Balance sheet at December 31, 1993
Statement of income and retained earnings for the year ended
December 31, 1993
Statement of cash flows for the year ended December 31, 1993
Notes to financial statements
(b) Pro forma financial information:
Consolidated balance sheet at July 31, 1994
Consolidated statement of earnings for the three months ended
July 31, 1994
Consolidated statement of earnings for the year ended
April 30, 1994
(c) Exhibits:
S.E.C. Exhibit
Reference No. Description
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2.1 Stock purchase agreement for the stock
of Halmode Apparel, Inc. dated
August 24, 1994, filed herewith
2.2 Amendment to stock purchase agreement
dated September 30, 1994, filed herewith
99.1 Financial statements of Halmode Apparel,
Inc. as of and for the period ended
July 31, 1994, filed herewith
99.2 Financial statements of Halmode Apparel,
Inc. as of and for the year ended
December 31, 1993, filed herewith
99.3 Pro forma financial statements, filed
herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
Kellwood Company
Date: October 12, 1994 /s/ James C. Jacobsen
----------------------------------
James C. Jacobsen
Executive Vice President Administration
(Chief Financial Officer)
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EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
FOR THE STOCK OF
HALMODE APPAREL, INC.
AUGUST 24, 1994
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<TABLE>
TABLE OF CONTENTS
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<CAPTION>
Page
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<S> <C>
I. PURCHASE AND SALE OF STOCK
1.1 The Transaction. . . . . . . . . . . . . . . . 1
1.2 Capital Stock. . . . . . . . . . . . . . . . . 1
II. CONSIDERATION FOR TRANSFER
2.1 Determination of the Purchase Price. . . . . . 2
2.2 Payment of the Purchase Price. . . . . . . . . 3
III. THE CLOSING AND TRANSFER OF STOCK
3.1 Closing. . . . . . . . . . . . . . . . . . . . 4
3.2 Deliveries by the Selling Parties. . . . . . . 4
3.3 Deliveries by the Buyer. . . . . . . . . . . . 5
3.4 Conditions to the Buyer's Obligation to Close. 6
3.5 Conditions to the Sellers' Obligation to Close 7
3.6 Closing Agreements . . . . . . . . . . . . . . 8
IV. REPRESENTATIONS AND WARRANTIES OF THE SELLING PARTIES
4.1 Capital Stock. . . . . . . . . . . . . . . . . 9
4.2 Authorization of Agreement and Enforceability. 9
4.3 Effect of Agreement. . . . . . . . . . . . . . 9
4.4 Approvals, Consents and Notices. . . . . . . . 9
4.5 Due Organization . . . . . . . . . . . . . . . 9
4.6 Subsidiaries and Partnerships. . . . . . . . . 10
4.7 Financial and Business Records . . . . . . . . 10
4.8 Absence of Changes . . . . . . . . . . . . . . 10
4.9 Bank Accounts and Investments. . . . . . . . . 13
4.10 Receivables. . . . . . . . . . . . . . . . . . 14
4.11 Inventory. . . . . . . . . . . . . . . . . . . 14
4.12 Real Property. . . . . . . . . . . . . . . . . 14
4.13 Tangible Personal Property . . . . . . . . . . 16
4.14 Intellectual Property. . . . . . . . . . . . . 17
4.15 Agreements, Permits and Licenses . . . . . . . 18
4.16 Employment/Labor Matters . . . . . . . . . . . 20
4.17 Customers, Contractors and Suppliers . . . . . 22
4.18 Insurance . . . . . . . . . . . . . . . . . . 22
4.19 Absence of Undisclosed Liabilities; Liens. . . 23
4.20 Taxes. . . . . . . . . . . . . . . . . . . . . 23
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4.21 Product Warranty/Liability . . . . . . . . . . 24
4.22 Litigation . . . . . . . . . . . . . . . . . . 24
4.23 Compliance with Law. . . . . . . . . . . . . . 25
4.24 Environmental Matters. . . . . . . . . . . . . 26
4.25 Quotas . . . . . . . . . . . . . . . . . . . . 27
4.26 No Brokers . . . . . . . . . . . . . . . . . . 27
4.27 Suitability and Completeness of Assets . . . . 27
4.28 Full Disclosure. . . . . . . . . . . . . . . . 27
V. REPRESENTATIONS AND WARRANTIES OF THE BUYER
5.1 Corporate Organization and Authority . . . . . 27
5.2 No Conflicts; Approvals. . . . . . . . . . . . 28
5.3 Investment Representation. . . . . . . . . . . 28
5.4 No Brokers . . . . . . . . . . . . . . . . . . 28
5.5 Completeness of Information. . . . . . . . . . 29
VI. CERTAIN AGREEMENTS AND COVENANTS OF THE PARTIES
6.1 Approvals, Consents, Notices and Opinions. . . 29
6.2 Other Pre-Closing Requirements . . . . . . . . 29
6.3 Risk of Loss . . . . . . . . . . . . . . . . . 31
6.4 Post-Closing Filings . . . . . . . . . . . . . 31
6.5 Relationship of the Parties following Closing. 31
6.6 Non-Competition. . . . . . . . . . . . . . . . 32
6.7 Non-Solicitation of Customers. . . . . . . . . 32
6.8 Non-Solicitation of Employees. . . . . . . . . 33
6.9 Non-Interference . . . . . . . . . . . . . . . 33
6.10 Confidentiality. . . . . . . . . . . . . . . . 33
6.11 Announcement . . . . . . . . . . . . . . . . . 34
6.12 Expenses . . . . . . . . . . . . . . . . . . . 34
VII. INDEMNIFICATION
7.1 Survival of Indemnification. . . . . . . . . . 34
7.2 Indemnification of the Buyer . . . . . . . . . 34
7.3 Indemnification of the Sellers . . . . . . . . 35
7.4 Notice and Claim Procedure . . . . . . . . . . 35
7.5 Limitation on Indemnification. . . . . . . . . 36
7.6 Set-Off. . . . . . . . . . . . . . . . . . . . 36
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VIII. MISCELLANEOUS
8.1 Waiver; Amendment. . . . . . . . . . . . . . . 36
8.2 Counterparts; Attachments. . . . . . . . . . . 36
8.3 Severability . . . . . . . . . . . . . . . . . 36
8.4 Headings . . . . . . . . . . . . . . . . . . . 36
8.5 Parties in Interest. . . . . . . . . . . . . . 36
8.6 Third-Party Beneficiary. . . . . . . . . . . . 37
8.7 Arms Length Contract . . . . . . . . . . . . . 37
8.8 No Derogation. . . . . . . . . . . . . . . . . 37
8.9 Notices. . . . . . . . . . . . . . . . . . . . 37
8.10 Termination; Seller Revocation . . . . . . . . 38
8.11 Governing Law. . . . . . . . . . . . . . . . . 38
8.12 Interpretation . . . . . . . . . . . . . . . . 38
8.13 Entire Agreement . . . . . . . . . . . . . . . 38
Definition Reference Page. . . . . . . . . . . . . . . . . . . . 40
Exhibits
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A Share Ownership Schedule
B Contingent Payments
3.2(f) Sellers' Opinion Letter
3.2(g) Employment Agreement
3.3(c) Buyers' Opinion Letter
Schedules
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4.1(a) Capital Structure
4.4 Approvals, Consents and Notices of Selling
Parties
4.5 Jurisdictions
4.7(a) Financial Statements
4.8 Interim Change
4.9 Bank Accounts and Investments
4.10 Receivables
4.11 Inventory
4.12(a) Owned Real Property
4.12(b) Leased Real Property
4.12(c) Condition of Real Property
4.12(d) Use of Real Property
4.13(a) Motor Vehicles
4.13(b) Fixed Assets
4.13(c) Computer Assets
4.13(d) Other Tangible Assets
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Schedules
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4.13(e) Condition of Assets
4.13(f) Title to Assets
4.13(g) Personal Property Leases
4.14(a) Intellectual Property
4.14(c) Software and Information Systems
4.15(a) Material Agreements
4.15(b) Permits and Licenses
4.16(a) Employees
4.16(b) Employee Benefit Plans
4.16(c) Employee Benefit Arrangements
4.16(e) Independent Representatives
4.17 Customers, Contractors and Suppliers
4.18 Insurance
4.19 Liabilities and Liens
4.20(c) Tax Adjustments and Agreements
4.21 Product Warranty/Liability
4.22 Litigation
4.24(c) Environmental Matters, Studies and Investigations
5.2(c) Approvals, Consents and Notices of Buyer
6.2(e) Permitted Transactions with Affiliates
</TABLE>
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<PAGE> 6
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT is made and entered into this 24th
day of August, 1994, by and among Kellwood Company, a Delaware
corporation (the "Buyer"), those parties whose names, stock ownership
(number of shares and percentage of total shares owned) and addresses
are set forth on Exhibit A attached hereto (the "Sellers") and Halmode
Apparel, Inc., a Delaware corporation (the "Company"). Buyer, Sellers
and the Company are hereinafter referred to collectively as the
"Parties" and each singularly as a "Party."
RECITALS
--------
WHEREAS, Sellers are the record legal and beneficial owners of
all right, title and interest in and to all of the issued and
outstanding shares of capital stock of the Company (collectively, the
"Shares"); and
WHEREAS, the Company is engaged in the advertising, design,
importation, distribution, manufacture and sale of apparel (the
"Business"); and
WHEREAS, the Sellers desire to sell and the Buyer desires to
purchase all, but not less than all, of the Shares and the Business.
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained and other good and valuable consideration
(the receipt, adequacy and sufficiency of which are hereby
acknowledged by the Parties by their execution hereof), the Parties
hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF STOCK
1.1. The Transaction. Subject to and upon the terms and
---------------
conditions hereinafter set forth, at the Closing (as hereinafter
defined), the Sellers shall sell, transfer, assign and deliver to the
Buyer, and the Buyer shall purchase, accept, assume and receive, all
right, title and interest in and to all, but not less than all, of the
Shares, including all rights to receive and share in dividends and
distributions thereon and the right to vote on Company matters, free
and clear from any assignments, charges, chattel mortgages, claims,
conditional sales contracts, covenants, deeds of trust, encumbrances,
hire purchase agreements, imperfections, legal or equitable claims of
others, liens, mortgages, pledges, restrictions, restrictive
agreements, security agreements, security interests, transfer
restrictions and title retention agreements of any kind or nature
whatsoever (collectively, the "Liens").
1.2. Capital Stock. The authorized capital stock of the
-------------
Company is 1,000,000 shares of Common Stock, par value $.20 per share.
The Shares represent all of the issued shares of capital stock of the
Company which are currently outstanding, and are owned legally,
beneficially and of record by the Sellers.
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<PAGE> 7
ARTICLE II
CONSIDERATION FOR TRANSFER
2.1. Determination of the Purchase Price.
-----------------------------------
(a) Formula. The purchase price for the Shares shall be equal
-------
to: (i) (A) Forty Million Seven-Hundred Fifty Thousand Dollars
($40,750,000) less (B) the amount, if any, by which the Shareholders'
----
Equity (as hereinafter defined) shall be less than Sixteen Million
Dollars ($16,000,000) (the excess of (A) over (B) being hereinafter
referred to as the "Fixed Purchase Price Amount"); plus (ii) the
----
Deferred Purchase Price Amount (as hereinafter defined); plus (iii)
----
the contingent payments (the "Contingent Purchase Price Amount")
described in Exhibit B attached hereto ((i), (ii) and (iii) are
collectively hereinafter referred to as the "Purchase Price"). For
purposes of this Agreement: (i) "Shareholders' Equity" shall mean the
amount equal to the shareholders' equity of the Company as of the
Closing Date (as hereinafter defined), as determined pursuant to
paragraph (b) below; and (ii) Deferred Purchase Price Amount shall
mean (A) Two Million Two Hundred Fifty Thousand Dollars ($2,250,000),
less (B) the amount by which the Fixed Purchase Price Amount shall be
- ----
less than zero (0), less (C) the amount of uncontroverted Buyer
----
Indemnification Claims (as hereinafter defined) asserted in writing on
or prior to the last day of the two (2) year period following the
Closing Date.
(b) Closing Statement. Not later than forty-five (45) days
-----------------
after the Closing, the Sellers shall provide the Buyer with a
statement, for review by the Buyer and/or the Buyer's auditors, which
shall include: (i) a balance sheet for the Company as of the Closing
Date and (ii) the Seller's calculation of the Fixed Purchase Price
Amount based on the formula set forth in paragraph (a) above
(collectively, the "Closing Statement"). The Closing Statement shall
be prepared in accordance with generally accepted accounting
principles, applied on a basis consistent with the preparation of the
March 31, 1994 and December 31, 1993 Company financial statements.
The Parties acknowledge and agree that the balance sheet referred to
in (i) above shall not include any Pre-Billed Sales, Pre-Shipped
Orders and Consignment Sales (as such terms are hereinafter defined)
shall be excluded in determining the Shareholders' Equity, except to
the extent of their inventory value. For purposes of this Agreement:
(i) "Pre-Billed Sales" shall mean sales billed to customers prior to
the actual shipment of goods to the customer from the finished goods
warehouse; (ii) "Pre-Shipped Orders" shall mean orders actually
shipped to a customer in advance of the customer's requested shipment
date, when the customer's requested shipment date is subsequent to the
Closing Date; and (iii) "Consignment Sales" shall mean any sales
recorded pursuant to consignment arrangements.
(c) Notice. Within forty-five (45) days following the
------
delivery of the Closing Statement, the Buyer shall notify the Sellers
in writing either that it accepts or disputes the Sellers' calculation
of the Fixed Purchase Price Amount, which notice shall include its
proposed adjustment to the Fixed Purchase Price Amount if it disputes
the same. If the Buyer fails to deliver such notice within such time,
the Closing Statement and Fixed Purchase Price Amount will be deemed
accepted by the Buyer.
(d) Dispute Resolution. If the Buyer delivers notice to the
------------------
Sellers that it disputes the Sellers' calculation of the Fixed
Purchase Price Amount, the Sellers shall respond to the Buyer's
objections and describe their position with respect thereto in writing
within fifteen (15) days following their receipt of the Buyer's
notice. The Buyer and the Sellers shall then make a good faith effort
to resolve any disputed items within fifteen (15) days following the
date of the Buyer's receipt of the
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<PAGE> 8
Sellers' aforementioned written response. If they are unable to do so, and
if the amount of the disagreement in the aggregate is One Hundred Thousand
Dollars ($100,000) or less, such amount shall be adjusted between the Parties
equally by dividing the amount by two (2) and deeming the quotient so
determined to be the amount of the adjustment agreed to by the
Parties. Should the amount in dispute exceed One Hundred Thousand
Dollars ($100,000) in the aggregate, the disputed items shall be
presented to the New York, New York office of the "Big Six" accounting
firm KPMG Peat Marwick (the "Arbitrator"), to make a final written
determination with respect to the correctness of each item remaining
in dispute. The Arbitrator shall not be regarded as a mere fact
finder or appraiser, but shall exercise its independent discretion and
judgment as an accountant. The Arbitrator will be directed to make a
final written determination within thirty (30) days of the dispute
being submitted to it. The Arbitrator shall have full access to all
requisite accounting and other records of the Company. Any
determination by the Arbitrator shall be consistent with: (i)
generally accepted accounting principles, consistently applied; and
(ii) this Agreement. The Buyer, on the one hand, and the Sellers, on
the other hand, shall each bear one-half (1/2) of the costs and
expenses associated with the Arbitrator's review and determination,
unless the Arbitrator shall determine otherwise. All such costs and
expenses shall be paid promptly. The Arbitrator's determination of
all matters and disputes shall be final, conclusive and binding on the
Buyer and the Sellers.
2.2. Payment of the Purchase Price.
-----------------------------
(a) Closing Payment. The initial payment of the Fixed
---------------
Purchase Price Amount to be made by the Buyer at Closing shall be
equal to Forty Million Seven Hundred Fifty Thousand Dollars
($40,750,000) (the "Closing Payment"). On the Closing Date, by wire
transfer of immediately available U.S. Dollar funds or other means
acceptable to the Parties, the Buyer shall pay the Closing Payment to
the Sellers in separate amounts equal to Forty Million Seven Hundred
Fifty Thousand Dollars ($40,750,000) multiplied by each Seller's Pro-
---------- --
Rata Percentage (as hereinafter defined). For purposes of this
Agreement, "Pro-Rata Percentage" shall mean with respect to each
Seller, such Seller's percentage ownership of all the Shares, as set
forth in Exhibit A.
(b) Post-Closing Payments of Fixed Purchase Price. Following
---------------------------------------------
the Closing, the Fixed Purchase Price Amount shall be finally
determined pursuant to and in accordance with Section 2.1. In the
event that the Fixed Purchase Price Amount is less than the Closing
Payment, the Sellers shall pay the Buyer such difference. Any such
payment shall be due within two (2) business days following: (i) the
acceptance by the Sellers and the Buyer of the Closing Statement; or
(ii) the Arbitrator's determination regarding the Closing Statement,
in accordance with the procedures provided in Section 2.1. Such
payment shall also include interest from the Closing Date at the
reference rate of the Continental National Bank of Chicago, Illinois
and shall be made payable by certified cheque or bank draft or wire
funds transfer, as directed by the Buyer.
(c) Post-Closing Payments of the Deferred Purchase Price
----------------------------------------------------
Amount. Following the Closing, the Deferred Purchase Price Amount
- ------
shall be determined and payable to the Sellers in separate amounts
equal to the Deferred Purchase Price Amount for the applicable period
multiplied by each Seller's Pro-Rata Percentage, in accordance with
- ---------- --
the terms of a letter of credit agreement acceptable to all of the
Parties (the "L/C Agreement"). Pursuant to the L/C Agreement, the
Deferred Purchase Price Amount shall be payable in separate
installments of One Million Dollars ($1,000,000) one (1) year
following the Closing Date and One Million Two Hundred Fifty Thousand Dollars
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<PAGE> 9
($1,250,000) two (2) years following the Closing Date. All
such payments shall: (i) be reduced for the deductions described in
Section 2.1(a), if any, and as further provided in the L/C Agreement;
and (ii) also include interest from the Closing Date at the reference
rate of the Continental National Bank of Chicago, Illinois.
(d) Post-Closing Payments of the Contingent Purchase Price
------------------------------------------------------
Amount. The Contingent Purchase Price Amount, if any, shall be: (i)
- ------
determined in accordance with Exhibit B; and (ii) shall be payable in
the manner and time-frame specified in Exhibit B to each of the
Sellers in separate amounts equal to the Contingent Purchase Price
Amount for the applicable period multiplied by each Seller's Pro-Rata
---------- --
Percentage.
ARTICLE III
THE CLOSING AND TRANSFER OF STOCK
3.1. Closing. The purchase and sale of the Shares contemplated
-------
by this Agreement (the "Closing") shall occur at the offices of
Phillips, Nizer, Benjamin, Krim & Ballon in New York, NY, at 10 a.m.
(E.S.T.) on September 30, 1994, or at such other time or place as may
be agreed upon by the Parties in writing (the "Closing Date"). Upon
consummation, the Closing shall be deemed to have taken place as of
the close of business on the Closing Date. At the Closing, the
Sellers shall take all steps necessary to put the Buyer in actual
possession and operating control of the Business and the Company.
3.2. Deliveries by the Selling Parties. The Sellers and the
---------------------------------
Company (collectively, the "Selling Parties") shall deliver, or cause
the delivery, to or for the benefit of the Buyer on or prior to the
Closing Date, the following:
(a) Share Certificates. Share certificates evidencing all of
------------------
the issued and outstanding Shares, together with duly
executed stock powers attached, all in such form as to
permit title to the Shares to be transferred to the Buyer;
(b) Corporate Records. A Certificate of the Secretary of the
-----------------
Company certifying as to the authenticity of, as well as
the actual, Certificate of Incorporation, By-laws, minute
books, corporate seals and stock record books of the
Company;
(c) Closing Certificate. A Certificate of the Selling Parties
-------------------
certifying as to: (i) the accuracy of the representations
and warranties set forth in Article IV; (ii) that there
are no actions pending which would prevent or materially
affect the transactions contemplated hereby; (iii) the
condition of the Business; and (iv) compliance with all
covenants, agreements and undertakings of the Selling
Parties to be complied with prior to the Closing;
(d) State Certificates. A Certificate of Good Standing from
------------------
each jurisdiction in which the Company is incorporated
and/or qualified to do business and a certificate of the
Delaware Secretary of State regarding the Certificate of
Incorporation of the Company, each dated within thirty
(30) days of the Closing Date;
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<PAGE> 10
(e) L/C Agreement. Executed L/C Agreement backed by a stand-by
-------------
letter of credit, in form and substance acceptable to each
of the Parties;
(f) Legal Opinion. Opinion of Sellers' counsel in the form of
-------------
Exhibit 3.2(f) attached hereto;
(g) Employment Agreement. Executed Employment Agreement
--------------------
between Robert W. Adler and the Company, substantially in
the form of Exhibit 3.2(g) attached hereto;
(h) Resignations. Resignations from all those officers and
------------
directors of the Company other than those whom Buyer
determines, not less than two (2) days prior to Closing,
will retain their office and/or directorship after the
Closing;
(i) Resolutions. Certified copies of the resolutions of the
-----------
Company's Board of Directors evidencing the approval and
authorization of the transactions contemplated hereby;
(j) Tax Clearances. All reasonably available clearances which
--------------
are provided by any competent taxing authority in order to
establish that all taxes due as at or prior to Closing
have been paid by the Company and each of the Sellers
which, if not paid, may result in any Lien on the Shares;
(k) Releases. Releases and termination statements, executed
--------
by the appropriate secured party and in a form appropriate
for recording and filing, that are sufficient to release
any and all Liens against or relating to the Shares;
(l) Landlord Consents. Consents from the landlords of the
-----------------
real estate leases of the Company relating to the
transfer of the ownership of the Company, as are required
by said leases to avoid default thereunder; and
(m) Miscellaneous. Such other transfers, assignments,
-------------
assurances, certificates, waivers, releases (including,
without limitation, the termination of the TAKK
condominium lease), consents (including consents to
assignments) and approvals, satisfactory in form and
substance to the Buyer and its counsel, as may be
required, in the Buyer's sole opinion, to effect or
evidence the assignment, conveyance, transfer and delivery
to the Buyer of the Shares and/or to enable Buyer to
continue to operate the Business in the manner operated by
the Company and the Sellers prior to the Closing.
3.3. Deliveries by the Buyer. The Buyer shall deliver, or
-----------------------
cause the delivery, to or for the benefit of the Sellers on or prior
to the Closing Date, the following:
(a) Closing Payment. The Closing Payment referred to in
---------------
Section 2.2 above;
(b) L/C Agreement. Executed L/C Agreement backed by a stand-by
-------------
letter of credit, in form and substance acceptable to each
of the Parties;
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<PAGE> 11
(c) Legal Opinion. Opinion of Buyer's counsel in the form of
-------------
Exhibit 3.3(c) attached hereto;
(d) Employment Agreement. Executed Employment Agreement
--------------------
between Robert W. Adler and the Company, substantially in
the form of Exhibit 3.2(g) attached hereto; and
(e) Officer Certificate. A certificate signed by an officer
-------------------
of the Buyer that the conditions to Closing described in
Sections 3.5(b) and (c) have been fulfilled.
3.4 Conditions to the Buyer's Obligation to Close. The
---------------------------------------------
obligations of the Buyer to complete the Closing are subject to
fulfillment prior to or at Closing of the following conditions.
(a) No Legal Proceedings. At the Closing, no judicial or
--------------------
administrative proceeding shall be pending or threatened
seeking to enjoin or prevent, nor shall any order or
injunction have been issued prohibiting, consummation of
the transactions contemplated hereby (each Party shall
advise the others immediately of any information regarding
any such action).
(b) Fulfillment of Obligations. The Selling Parties shall
--------------------------
have duly performed or complied with all of the material
obligations to be performed or complied with by them under
the terms of this Agreement at or prior to the Closing
Date.
(c) Accuracy of Representations and Warranties. The
------------------------------------------
representations and warranties of the Selling Parties set
forth in Article IV hereof shall be true and correct in
all material respects as of the date of this Agreement and
as of the Closing Date, as though made on and as of the
Closing Date (except as otherwise specifically
contemplated by this Agreement).
(d) Approvals, Notices and Opinions. All approvals, notices
-------------------------------
and opinions required with respect to the transactions
contemplated by this Agreement, including the requirements
of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended ("H-S-R"), shall have been obtained or
met.
(e) Reviews and Investigations. The Buyer and its respective
--------------------------
agents shall have made such due diligence reviews and
investigations of the Selling Parties as they shall
desire, including, without limitation, legal due diligence
reviews and investigations (particularly with respect to
confirmation of ownership of the Shares), and the results
of such reviews and investigations shall be satisfactory
in Buyer's sole opinion.
(f) No Material Changes. No event shall have occurred which
-------------------
results in a material adverse change in the Business,
which event was previously unknown and not included or
reflected in any of the disclosures in this Agreement or
the Schedules attached hereto.
-6-
<PAGE> 12
(g) Closing Deliveries. The Selling Parties shall have
------------------
delivered all of the items listed in Section 3.2, unless
the Buyer shall have waived delivery of any or all of the
same.
(h) Loans To/From Affiliates. The Company shall not have any
------------------------
liability to or receivable from the Sellers or any
Affiliates (as hereinafter defined) or related companies
of the Sellers or the Company. As used herein,
"Affiliate" shall mean any party who or which controls, is
controlled by or is under common control with the Company.
(i) Phase 1 Audit. The Buyer shall have completed a "phase
-------------
1" environmental audit of the Company's Roanoke, VA plant
and warehouse facility and be satisfied with the results
of the same, in its sole opinion.
(j) Delivery of Schedules. The Selling Parties shall have
---------------------
delivered to the Buyer Schedules 4.10 and 4.11 on or prior
to the Closing Date and all remaining Schedules to this
Agreement within two (2) weeks following the date of this
Agreement.
(k) Buyer Board of Director Approval. The Buyer's Board of
--------------------------------
Directors shall have approved this Agreement and the
transactions contemplated hereby.
3.5 Conditions to the Sellers' Obligation to Close. The
----------------------------------------------
obligations of the Sellers to complete the Closing are subject to
fulfillment prior to or at the Closing of the following conditions.
(a) No Legal Proceedings. At the Closing, no judicial or
--------------------
administrative proceeding shall be pending or threatened
seeking to enjoin or prevent, nor shall any order or
injunction have been issued prohibiting, consummation of
the transactions contemplated hereby (each Party shall
advise the others immediately of any information regarding
any such action).
(b) Fulfillment of Obligations. The Buyer shall have duly
--------------------------
performed or complied with all of the material obligations
to be performed or complied with by it under the terms of
this Agreement at or prior to the Closing Date.
(c) Accuracy of Representations and Warranties. The
------------------------------------------
representations and warranties of the Buyer set forth in
Article V hereof shall be true and correct in all material
respects as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date
(except as otherwise specifically contemplated by this
Agreement).
(d) Approvals, Notices and Opinions. All approvals, notices
-------------------------------
and opinions required with respect to the transactions
contemplated by this Agreement, including the H-S-R
requirements, shall have been obtained or met.
(e) Closing Deliveries. The Buyer shall have delivered all of
------------------
the items listed in Section 3.3, unless the Sellers shall
have waived delivery of any or all of the same.
-7-
<PAGE> 13
3.6. Closing Agreements. At the Closing, the Parties shall
------------------
execute, acknowledge and deliver, or cause to be executed,
acknowledged or delivered, such other instruments or documents, in
form and substance reasonably acceptable to their respective counsel,
as may be reasonably necessary to carry out the transactions
contemplated by this Agreement and to comply with the terms hereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE SELLING PARTIES
Each of the Selling Parties jointly and severally represents and
warrants to the Buyer that each of the statements contained in this
Article IV is accurate, correct and complete as of the date of this
Agreement, except that the representations and warranties in
subparagraphs 4.1(b) and (c) below are made severally and not jointly.
4.1. Capital Stock.
-------------
(a) Capital Structure. Schedule 4.1(a) attached hereto sets
-----------------
forth a complete and correct list of the authorized capital stock of
the Company, the par value thereof, and the number of shares of
capital stock which are issued and outstanding. All of the
outstanding capital stock is duly issued, fully paid and
nonassessable. None of the shares of capital stock is registered
pursuant to the United States Securities Act of 1933 or Securities
Exchange Act of 1934 or the securities laws and regulations of any
other jurisdiction. All previously issued shares of the Company which
are not currently in issue have been duly redeemed. There are no
outstanding or authorized options, warrants, rights, contracts, calls,
puts, right to subscribe, conversion rights, or other agreements or
commitments to which the Company is a party or which are binding upon
them providing for the issuance, disposition or acquisition of any of
their capital stock. Except as set forth on Schedule 4.1(a), there
are no outstanding or authorized stock appreciation, phantom stock or
similar rights with respect to the Company's capital stock. No shares
of the Company's capital stock were issued in violation of any
preemptive, subscription or other right of any person to acquire
securities of the Company. Exhibit A attached hereto is a complete
and correct list of all the Company's shareholders. The Shares
represent all of the issued shares of capital stock of the Company
which are currently outstanding and are owned legally, beneficially
and of record exclusively by the Sellers. At the Closing, the Sellers
shall be the record legal and beneficial owners of all outstanding
stock of the Company.
(b) Ownership. Each Seller is the legal, beneficial and
---------
record owner of the number of Shares set forth after his, her or its
name on Exhibit A and has full legal right and power to execute and
deliver this Agreement and perform his, her or its obligations
hereunder.
(c) Title to Common Stock. The Sellers shall have good and
---------------------
marketable title to the Shares and the absolute right, power and
capacity to sell, assign and transfer the same to the Buyer free and
clear of any Liens. Upon delivery of the share certificates for the
Shares and executed stock powers to the Buyer, the Buyer will have
full, valid and marketable title to the same.
-8-
<PAGE> 14
4.2. Authorization of Agreement and Enforceability. This
---------------------------------------------
Agreement has been, and the other agreements and documents to be
delivered at Closing will be, duly and validly executed and delivered
by each of the Selling Parties and constitute the valid and legally
binding obligations of the Selling Parties, enforceable in accordance
with their respective terms, except as the same may be limited by
bankruptcy, insolvency, reorganization or other laws affecting
creditors' rights generally and subject to the availability of
equitable remedies.
4.3. Effect of Agreement. Neither the execution, delivery, and
-------------------
performance of this Agreement, nor the consummation of the
transactions contemplated hereby will: (i) conflict with or result in
a breach of any provision of the Certificate of Incorporation or
Bylaws of the Company; (ii) constitute or result in the breach of, or
conflict with, any term, condition or provision of, any note, bond,
mortgage, indenture or other material contract to which any of the
Selling Parties is a party or by which any of them or any of their
respective properties or assets may be bound, except for such
conflicts, breaches or defaults as to which written waivers or
consents shall have been obtained on or prior to the Closing Date;
(iii) to the best of the Selling Parties' knowledge, after due
inquiry, violate any law, statute, regulation, judgment, order,
injunction, or decree applicable to any of the Selling Parties or any
of their respective properties or assets; (iv) result in an imposition
of any Lien on any of the Shares, or an event which, with the giving
of notice, lapse of time, or both, would result in any imposition; or
(v) result in any third party having the right to enjoin, rescind or
otherwise prevent or impede the transactions contemplated hereby or to
obtain any other judicial or administrative relief as a result of any
transaction carried out in accordance with the provisions of this
Agreement.
4.4. Approvals, Consents and Notices. Except as otherwise
--------------------------------
disclosed on Schedule 4.4 attached hereto, compliance is not required
with any law, rule, or regulation of any government or governmental or
regulatory authority, nor is the consent, license, approval,
authorization, or declaration of or notice to any landlord, mortgagee,
secured party, governmental or regulatory authority or other third
party required in connection with the execution, delivery,
performance, and validity of this Agreement, the consummation of the
transactions contemplated hereby, or the fulfillment of the terms
hereof.
4.5. Due Organization. The Company is a corporation duly
----------------
organized, validly existing and in good standing under the laws of the
State of Delaware and has full power and authority and all requisite
licenses, permits and franchises to own, operate or lease its assets
and properties and to carry on the Business as currently conducted and
at all times conducted prior to the Closing Date. The Company is duly
licensed and qualified to do business as a foreign corporation and is
in good standing in all jurisdictions where, by the nature of its
business or the character and location of its property or personnel,
failure to be so licensed or qualified would have a material adverse
effect upon its Business or assets or where failure to qualify would
affect the ability of the Company to enforce any of its rights.
Except as set forth on Schedule 4.5 attached hereto, the Company has
all requisite corporate power and authority, and all necessary
consents, authorizations, approvals, orders, licenses, certificates,
and permits of and from, and declarations and filings with, all
federal, state, local, and other governmental authorities and all
courts and other tribunals to own, lease, license, use, and operate
its properties and other assets and to conduct the Business as
presently conducted and at all times conducted prior to the Closing
Date, where the failure to possess such consents and other documents
would have a material adverse effect on its condition, financial or
otherwise. Schedule
-9-
<PAGE> 15
4.5 also sets forth a list of all jurisdictions in which the Company has
manufacturing/sourcing relationships or operations, distributes or sells
products or otherwise carries on business. For purposes of this Section 4.5,
the Company shall not be deemed to be carrying on business in a jurisdiction
solely because it ships products to such jurisdiction if such shipments
originate from outside of such jurisdiction, or solicits orders subject to
acceptances by an office outside of such jurisdiction.
4.6. Subsidiaries and Partnerships. The Company does not own,
-----------------------------
legally or beneficially, any equity interest in any other company,
corporation, business trust, partnership, limited partnership, joint
venture, or other entity.
4.7. Financial and Business Records.
------------------------------
(a) Financial Statements and Accounting Methods. Schedule
-------------------------------------------
4.7(a) attached hereto is a list of the financial statements of the
Company which have been provided to and relied upon by the Buyer
(collectively, the "Financial Statements"). The Financial Statements:
(i) are accurate, correct and complete; (ii) are in accordance with
the books of account and records of the Company; (iii) present fairly
the financial condition and results of operations of the Company as of
the dates and for the periods indicated; and (iv) were prepared in
accordance with generally accepted accounting principles, consistently
applied, from the books and records of the Company. Since December
31, 1993, there has been no significant change in the accounting
methods or practices of the Company. The Company has made and kept
books, records and accounts in sufficient detail to reflect accurately
and fairly its activities and transactions. The Company has and
maintains an internal accounting system sufficient to permit
preparation of its financial statements in accordance with generally
accepted accounting principles, consistently applied.
(b) Books and Records. All of the corporate and business
-----------------
books and records of the Company have been made available to the
Buyer, are in all material respects complete and correct and have been
maintained in accordance with good, sound and consistent business
practices. The Company has and maintains an internal accounting
system sufficient to permit the preparation and maintenance of such
records accurately and completely and in accordance with good, sound
and consistent business practices.
4.8. Absence of Changes. Except as set forth on Schedule 4.8
------------------
attached hereto, since December 31, 1993, the Selling Parties have not
taken, caused, allowed to occur or agreed or committed to do, whether
in writing or otherwise, any of the following actions or events with
respect to the Company or the Business and none of such actions or
events have been taken or occurred:
(a) Operations.
----------
(i) Cause the Business to (A) create or assume on the assets
of the Company or the Business any Lien, except in the
ordinary course of business and consistent with past
practice, (B) change any credit policy as to sales of
inventories, (C) pre-ship any orders in advance of the
customer's requested shipment date, (D) pre-bill any
customers for sales prior to the actual shipment of goods
to the customer, or (E) make any commitment with respect
to any of the foregoing matters;
-10-
<PAGE> 16
(ii) Fail to maintain inventories in accordance with prior
practices in the ordinary course of business or to
maintain the properties and assets of the Company in good
repair, order and condition, reasonable wear and tear
excepted;
(iii) Fail to maintain the Company's books, accounts and
records in the usual, regular and ordinary manner on a
basis consistent with prior years or change the credit
practices or the methods or accounting principles used in
maintaining books, accounts or business records;
(iv) Extend credit in the sale of products, collection of
receivables or otherwise, other than in the ordinary
course of business;
(v) Any material damage, destruction or loss, whether or not
covered by insurance, adversely affecting assets;
(vi) Any material adverse change in financial condition,
assets, liabilities or personnel or in relationships
with personnel, suppliers, subcontractors, customers,
distributors, lessors or others, except changes in the
ordinary course of business;
(vii) Any major decisions affecting the Business, including (A)
changes in wholesaler alignments, inventory levels,
management organization or personnel, arrangements with
sales brokers, advertising agencies, subcontractors,
market research projects, advertising and promotion
budgets, the content of advertisements or working capital
levels (payables, receivables and inventory), or (B)
changes in discretionary costs, such as advertising,
maintenance and repairs, research and development, and
training;
(viii) Fail to maintain and keep in full force and effect all
insurance on assets and property or for the benefit of
employees of the Business, all liability and other
casualty insurance, and all bonds on personnel; and
(ix) Fail to use best efforts to preserve intact the
organization of the Business and to keep available the
services of the present executives, employees, agents and
independent representatives of the Company and to
preserve the good will of suppliers, customers and others
having business relationships with the Company and/or
the Business.
(b) Liabilities and Liens.
---------------------
(i) Borrow any money or guarantee any debt for borrowed
money, except (A) in the ordinary course of business and
consistent with past practice, and (B) within the maximum
credit limit under existing lines of credit;
(ii) Other than in the ordinary course of business and
consistent with past practice, incur any material
liability or obligation (absolute, accrued, contingent or
otherwise) or issue any debt securities or assume,
guarantee endorse or otherwise as an
-11-
<PAGE> 17
accommodation become responsible for, the obligations of any
other individual or entity, or change any assumption underlying,
or methods of calculating, any bad debt, contingency or
other reserve, any of which could result in a Lien on the
assets of the Company or incur a debt or liability or
enter into or agree to enter into any lease, contract,
purchase or sale order, or other commitment, which
involves an expenditure, obligation, purchase or sale of
more than $50,000, other than in the ordinary course of
business;
(iii) Mortgage, pledge or subject to Lien any of the assets of
the Company or agree to do so, other than in the ordinary
course of business and in accordance with past practice;
(iv) Cancel any debts or waive any claims or rights of
substantial value or sell, transfer, or otherwise dispose
of any of the assets of the Company, except for
inventory or accounts in the ordinary course of its
business and consistent with past practice; and
(v) Any advances to or investments in or transfers of assets
to any Affiliate.
(c) Employment and Management.
-------------------------
(i) Enter into an employment contract or agreement (oral or
written) with any shareholder or employee of the Company
or enter into or amend any employment, bonus, severance
or retirement contract or arrangement, nor increase any
salary or other form of compensation payable or to become
payable to any directors, officers, executives or
employees of the Business (except for increases
consistent with the Company's historical practice in the
ordinary course of business); and
(ii) Effect or permit to occur any change in the directors or
management personnel of the Company.
(d) Compliance with Law. Fail in any material respect to
-------------------
comply with any laws, ordinances, regulations or other
governmental restrictions applicable to it or fail in any
material respect to attain or maintain all licenses and
permits required to operate the Business as it is
presently being operated.
(e) Extraordinary Transactions.
--------------------------
(i) Merge or consolidate with, purchase all or a part of the
assets of, or otherwise acquire any business or any
proprietorship, partnership, firm, association,
corporation or other business organization or division
thereof;
(ii) Dispose of, mortgage or encumber any of the assets,
properties, rights or claims of the Company, other than
sales of inventory in the ordinary course of business and
in accordance with past practice;
-12-
<PAGE> 18
(iii) Grant any powers of attorney (other than powers of
attorney granted in the ordinary course of business and
consistent with past practice with respect to tax or
customs matters);
(iv) Engage in or enter into any material transaction of any
nature not expressly provided for herein involving the
assets of the Company, except transactions in the
ordinary course of business and consistent with past
practice;
(v) Dispose of or license any rights to the use of any
Intellectual Property, or dispose of or disclose to any
party any of the Intellectual Property or trade secrets,
not theretofore a matter of public knowledge;
(vi) Make or permit, or agree to make or permit, any
substantial amendment or premature termination of any
material contract, mortgage, lease, license, agreement or
other instrument to which it is a party or by which any
of its properties or assets are bound, except in the
ordinary course of business; and
(vii) Purchase, lease or otherwise acquire any real estate or
any interest therein.
(f) Capital Stock; Corporate Documents.
----------------------------------
(i) Declare, set aside or pay any dividend or transfer any
funds or assets from the Company to the Sellers or other
shareholders of the Company or make any other
distribution with respect to the capital stock of the
Company, except for distributions of the Company's
accumulated adjustments account and other distributions
which would not reduce Shareholders' Equity below Sixteen
Million Dollars ($16,000,000);
(ii) Authorize for issuance, issue, sell or deliver any
additional shares of its capital stock of any class or
any securities or obligations convertible into shares of
its capital stock of any class or issue or grant any
option, warrant or other right to purchase any shares of
its capital stock of any class; and
(iii) Split, combine or reclassify any shares of its capital
stock of any class or redeem or otherwise acquire,
directly or indirectly, any shares of its capital stock
of any class, or amend the Certificate of Incorporation
or Bylaws of the Company.
4.9. Bank Accounts and Investments. Schedule 4.9 attached
-----------------------------
hereto sets forth an accurate, correct and complete list of all banks
and financial institutions in which the Company has an account,
deposit, safe-deposit box, lock box or line of credit, factoring
arrangement or other loan facility or relationship, including the
names of all persons authorized to draw on those accounts or deposits,
or to borrow under such lines of credit or other loan facilities, or
to obtain access to such boxes. Schedule 4.9 sets forth an accurate,
correct and complete list of all certificates of deposit, debt or
equity securities and other investments owned, beneficially and/or
legally of record, by the Company (the "Investments"). The Company
has good and marketable title to all of the Investments. Except as
set forth on Schedule 4.9, the Investments to be reflected on the
Closing Statement will
-13-
<PAGE> 19
be: (i) properly valued at the lower of cost or market, (ii) readily
marketable, and (iii) fully paid and not subject to assessment or other
claims upon the holder thereof.
4.10. Receivables. Schedule 4.10 attached hereto sets forth
-----------
the most recent accurate, correct and complete list and aging of all
outstanding Company accounts and notes receivable and any and all
other amounts due the Company from whatever source (collectively, the
"Receivables"). All Receivables are due and valid claims having
arisen in the ordinary course of business against account debtors for
goods or services delivered or rendered and will be subject to no
legitimate setoffs, discounts, credits, reductions, defenses, offsets
or counterclaims, except as reserved against in accordance with
generally accepted accounting principles, consistently applied. On
the Closing Statement, there will be appropriate reserves for
discounts, returns and allowances for the Receivables. Except as set
forth on Schedule 4.10, no Receivables are or will be subject to prior
Lien. The Company has not incurred any liabilities for discounts,
returns, refunds, allowances or otherwise, except as will be provided
for on the Closing Statement in accordance with generally accepted
accounting principles, consistently applied.
4.11. Inventory. Schedule 4.11 attached hereto sets forth the
---------
most recent accurate, correct and complete list of all of the
Company's inventories of raw materials, work in process and finished
goods, wherever located, including goods in transit or overseas
(collectively, the "Inventory"), which list provides a breakdown by
division code and style, location and amount. All items of
Inventory: (i) are valued at the lower of cost or market value, in
accordance with generally accepted accounting principles, consistently
applied; (ii) contain no material amounts (except as appropriately
reserved) that are not of good and merchantable quality, salable and
usable for the purposes intended in the ordinary course of the
Business and meet the current standards and specifications of the
Business; (iii) conform to warranties customarily given to purchasers
of like products (except as appropriately reserved); (iv) were
purchased or manufactured by the Company in the ordinary course of
business consistent with past practice; (v) are at levels adequate and
not excessive in relation to the circumstances of the Business and in
accordance with past inventory stocking practices; and (vi) consist of
inventories of the kind and quality regularly and currently used in
and sold by the Business (except as appropriately reserved). Except
as set forth on Schedule 4.11, no items are held on consignment by the
Company, as consignee or consignor.
4.12. Real Property.
-------------
(a) Owned Real Property. Schedule 4.12(a) attached hereto
-------------------
provides a general description of all ownership rights of the Company
to real property including all rights, options, land, buildings,
leaseholds, leasehold improvements and other appurtenances related
thereto (collectively, the "Owned Real Property"), street address,
legal description, options and commitments, oral or written, and
details of all leases relating to the same, specifying in the case of
leases or subleases, the name of the lessor/lessee or
sublessor/sublessee, the lease term (specifying any renewal provisions
or termination options), basic annual rent, and any other material
terms. Except as set forth on Schedule 4.12(a) attached hereto, the
Company owns no interest in any real property and has no agreements to
acquire the title to any real property.
(b) Leased Real Property. Schedule 4.12(b) attached hereto
--------------------
provides a general description of all rights of the Company to leased
real property including all rights, options, land,
-14-
<PAGE> 20
buildings, leaseholds, leasehold improvements and other appurtenances related
thereto (collectively, the "Leased Real Property") and details of all
leases relating to the same, specifying in the case of leases or
subleases, the name of the lessor/lessee or sublessor/sublessee, the
lease term (specifying any renewal provisions or termination options),
basic annual rent, street address, legal description, options and
commitments, oral or written, and any other material terms. To the
best of the Selling Parties' knowledge, after due inquiry, all of such
leases are in good standing and are valid, binding, and in full force
and effect, and will be unaffected by the transactions contemplated
hereby. Except as set forth on such Schedule, to the best of the
Selling Parties' knowledge, after due inquiry, there is not under any
such lease any existing material default of the Company or of any
other party thereto, or event which, after notice or lapse of time, or
both, would constitute a material default or result in a right to
accelerate against or loss of rights by the Company. In addition, no
notice has been received of any such event or default. The Company is
current with respect to all of its payment obligations and enjoys
peaceful and undisturbed possession of the Leased Real Property under
such leases. The Company has been in peaceable possession of the
Leased Real Property since the commencement of the original term of
each lease relating thereto.
(c) Condition of the Real Property. The buildings on the
------------------------------
Owned Real Property and Leased Real Property (collectively, the "Real
Property") and other improvements have been maintained, since their
occupancy by the Company, in a manner consistent with that of a
prudent owner. Such properties are in good operating condition and
repair, ordinary wear and tear and the repair required in the ordinary
course of business excepted. Except as set forth on Schedule 4.12(c)
attached hereto, no extraordinary expenditures either for repair or
replacement of any of the foregoing are foreseeable. The Selling
Parties are not aware of any structural defect to the buildings on the
Real Property or any part of the foundation, structure or roof
thereof. None of the buildings on the Leased Real Property is
subject to any outstanding work order or notice of defect or non-
compliance or other notice issued by any government department, board
or official, fire underwriter or like authority. Such properties
conform to all applicable laws, ordinances and regulations, except for
such minor variations as do not impair or interfere with the use of
such properties for the purposes for which they are employed, and the
Selling Parties have not received any notice to the contrary.
Notwithstanding any of the foregoing to the contrary, the Selling
Parties make no representation or warranty with regard to the
maintenance or condition of commercial office buildings or apparel
marts in which the Company leases less than ten percent (10%) of the
entire rentable space in such buildings or marts, except specifically
for that portion of such buildings or marts which the Company leases.
(d) Use, Agreements and Other Matters. The Company has not
---------------------------------
entered into any material agreement which might result in any of the
Real Property being subject to or assessed for any taxes, rates,
levies, assessments, local improvement rates or charges of a similar
nature other than as currently assessed. A true, correct and
complete copy of the real property tax bills for the Real Property for
the current tax year and bills with respect to any special assessments
affecting any of the Real Property has been delivered to the Buyer.
All real property taxes and special assessments with respect to the
Real Property which were due and payable prior to the date hereof have
been paid in full. The use being made of the Real Property is in
conformity in all material respects with the certificates of occupancy
issued for each of the Real Property. The Real Property and the
present use and condition thereof do not violate any applicable deed
restrictions or other covenants, restrictions or agreements, site plan
approvals, zoning or subdivision regulations or urban redevelopment
plans applicable thereto, as modified by any duly issued variances.
No party to any
-15-
<PAGE> 21
reciprocal easement agreement affecting any of the
Real Property is in default thereunder and no event has occurred
which, with the giving of notice, lapse of time, or both, would
constitute a default thereunder. All maintenance payments with
respect to such reciprocal easement agreements which were due and
payable prior to the date hereof have been paid. The buildings
located on the Owned Real Property are located entirely within the
boundaries of such properties and there are no encroachments above
grade onto such properties. No building or other improvement which is
part of any of the Real Property encroaches, in any respect, upon any
property owned by any adjacent landowner or upon any real property
interest held by any other person with respect to any of the Real
Property (including easements on the Real Property) and no asset of
any other Person encroaches upon the Real Property. Except as set
forth on Schedule 4.12(d) attached hereto, all water, sewer, gas,
electricity, telephone and other utilities serving the Real Property
are supplied directly to the Real Property by facilities of public
utilities and are adequate for the full operation of the Business.
The Selling Parties have no knowledge of any federal, state, county or
municipal plans to change any highways or road systems in the vicinity
of any of the Real Property or to restrict or change access from any
such highway or road to any of the Real Property or of any pending or
threatened condemnation of any of the Real Property or any parts
thereof or of any plans for improvements which might result in a
special assessment against any of the Real Property. The Selling
Parties have delivered, or will within two (2) weeks following the
date of this Agreement deliver, to the Buyer accurate, correct and
complete copies of all environmental audits, title insurance policies,
surveys or other reports/studies regarding the Real Property which
they possess or have access to.
4.13. Tangible Personal Property.
--------------------------
(a) Motor Vehicles. Schedule 4.13(a) attached hereto sets
--------------
forth an accurate, correct and complete list of all motor vehicles
used in the Business, whether owned or leased (collectively, the
"Vehicles").
(b) FF&E. Schedule 4.13(b) attached hereto sets forth an
----
accurate, correct and complete list of all material trade fixtures,
furniture, furnishings, machinery, and equipment used in the Business,
whether owned or leased (collectively, the "FF&E").
(c) Computer Assets. Schedule 4.13(c) attached hereto sets
---------------
forth an accurate, correct and complete list of all electronic data
processing and computer equipment used in the Business, whether owned
or leased (collectively, the "Computer Assets").
(d) Other Tangible Assets. Schedule 4.13(d) attached hereto
---------------------
sets forth an accurate, correct and complete list of all other
material tangible personal property used in the Business, whether
owned or leased (collectively, the "Other Tangible Assets").
(e) Condition of Assets. To the best of the Selling Parties'
-------------------
knowledge, after due inquiry: (i) all of the Vehicles, FF&E, Computer
Assets and Other Tangible Assets (collectively, the "Tangible
Personal Property") are (A) properly licensed and registered in
accordance with and conform to all applicable laws, ordinances and
regulations, except for such minor variations as do not impair or
interfere with the use of such assets for the purposes for which they
are employed, and the Selling Parties have not received any notice to
the contrary, (B) insured as set forth in Schedule 4.18, (C) in good
operating condition and repair (reasonable wear and tear excepted),
suitable for the
-16-
<PAGE> 22
purposes for which they are presently being used, and
are adequate to meet all present and reasonably anticipated future
requirements of the Business as presently conducted and (D) not
subject to any Lien; and (ii) except as set forth on Schedule 4.13(e)
attached hereto, no extraordinary expenditures either for repair or
replacement of any of the foregoing are foreseeable.
(f) Title to Assets. Schedule 4.13(f) attached hereto sets
---------------
forth an accurate, correct and complete list of all the Tangible
Personal Property which the Company owns. The Company is the legal
and beneficial owner of all right, title and interest in and has good
and marketable title to all such assets. None of the same are subject
to: (i) any title defect or objection; (ii) any contract of lease,
license or sale; (iii) any royalty or commission arrangement; or (iv)
any Lien.
(g) Leased Assets. Schedule 4.13(g) attached hereto sets
-------------
forth a complete, correct and accurate list and summary description of
all leases of all Tangible Personal Property used in the Business,
specifying the name of the lessor/lessee or sublessor/sublessee, the
lease term (specifying any renewal provisions or termination options),
basic annual rent, options and commitments, oral or written, and any
other material terms.
4.14. Intellectual Property.
---------------------
(a) Trademarks, Patents, Etc.. Schedule 4.14(a) attached
-------------------------
hereto sets forth an accurate, correct and complete list and summary
description of: (i) all patents, patent licenses, copyrights, trade
secrets, trademarks, service marks, franchises, service names, trade
names, and assumed names and all registrations and applications
therefor which the Company owns or has rights to for all articles
offered for sale by the Company and for all forthcoming articles; and
(ii) all licenses and other agreements relating to any and all
designs, drawings, patterns, specifications, patents, patent licenses,
copyrights, trade secrets, trademarks, service marks, franchises,
service names, trade names, and assumed names and all registrations
and applications therefor which the Company owns or has rights to,
including, all existing designs, drawings, patterns and specifications
owned by the Company for all articles offered for sale by the Company
and for all forthcoming articles and existing designs, drawings,
patterns and specifications produced for but not used by the Company
and all copyrights related thereto (collectively, the "Intellectual
Property") . Neither the Company, nor the Business, has been known by
or done business under any name other than those listed in such
Schedule. Except as set forth on Schedule 4.14(a), none of the
Intellectual Property is subject to any extensions, renewals, taxes or
fees due within ninety (90) days after Closing. Except as set forth
in such Schedule: (i) the Company is the sole and exclusive owner of
and/or has the sole and exclusive right to use the Intellectual
Property; (ii) no action, suit, proceeding or investigation is
pending, or to the best of the Selling Parties' knowledge, after due
inquiry, threatened with respect to the Intellectual Property; (iii)
to the best of the Selling Parties' knowledge, after due inquiry, none
of the Intellectual Property interferes with, infringes upon,
conflicts with or otherwise violates the rights of others or is being
interfered with or infringed upon by others, and none is subject to
any outstanding order, decree, judgment, stipulation or charge; (iv)
there are no royalty, commission or similar arrangements, and no
licenses, sublicenses or agreements, pertaining to any of the
Intellectual Property; and (v) none of the Selling Parties have agreed
or are obligated to indemnify any person for or against any
infringement of or by the Intellectual Property, except in the
ordinary course of business or as required by law. To the best of the
Selling Parties' knowledge, after due inquiry, the Selling Parties are
not infringing upon any patent, patent license, trade secret,
trademark, copyright, service mark,
-17-
<PAGE> 23
franchise, service name, trade name, or assumed name or application or
registration therefor which is owned or held by or pending with respect to
any person or entity, and there is no claim or action by any such person or
entity pending or threatened with respect thereto.
(b) Trade Secrets, Proprietary Information and Know-How. All
---------------------------------------------------
information in the nature of trade secrets or proprietary information
is owned solely and exclusively by the Company and the Company has
been responsible for the development of such information. All such
information has been maintained in confidence and shall be in the
possession of the Company at Closing.
(c) Software and Information Systems. The Company has all
--------------------------------
necessary right, title and interest to all electronic data processing
systems, information systems, computer software programs, program
specifications, charts, procedures, source codes, input data,
routines, data bases and report layouts and formats, record file
layouts, diagrams, functional specifications and narrative
descriptions, flow charts and other related material used in the
Business (collectively the "Software"). Schedule 4.14(c) attached
hereto sets forth an accurate, correct and complete list and summary
description of all Software and identifies (i) Software which is owned
by the Company and any licenses thereof; (ii) Software which is
licensed to the Company and whether any copies of such licensed
Software have been made; (iii) any other Software in which the Company
has any use, possessory or proprietary rights; and (iv) all pending
Software development projects, together with an identification of the
persons undertaking such projects. Except as set forth on Schedule
4.14(c), with respect to the Software: (i) all Software documentation
is current, accurate and sufficient in detail and content to identify
and explain the nature thereof, and to allow its full and proper use
by the Buyer without reliance on the special knowledge or memory of
others; (ii) no proprietary rights in any Software have been
transferred, whether by sale, assignment or license, or have been lost
for any reason, within the past five (5) years; (iii) the Software has
not been used, divulged or appropriated for the benefit of any other
person, or to the detriment of the Company; (iv) the Company's rights
in the Software are free and clear of any Liens; (v) the Company has
taken reasonable measures to protect the secrecy, confidentiality and
value of the Software; (vi) the Company has received no notice of any
violation of trade secret rights, copyrights or other proprietary
rights with respect to any Software and knows of no basis therefor;
and (vii) copies of the Software are in the Company's possession and
control.
4.15. Agreements; Permits and Licenses.
--------------------------------
(a) Material Agreements. Schedule 4.15(a) attached hereto
-------------------
sets forth a correct and complete list of all Material Agreements (as
hereinafter defined) (except for the leases relating to the Leased
Real Property and Tangible Personal Property, which are set forth on
Schedules 4.12(b) and 4.13(g), respectively, attached hereto). With
regard to the Material Agreements: (i) all such Material Agreements
are in full force and effect and are in good standing, valid, binding
and enforceable in accordance with their respective terms; (ii) no
amounts payable under any Material Agreement are past due, to the best
of the Selling Parties' knowledge, after due inquiry; (iii) each party
thereto has complied with all material commitments and obligations on
its part to be performed or observed under each Material Agreement;
and (iv) the Selling Parties have not received any notice of a
default, offset or counterclaim under any Material Agreement, or any
other communication calling upon the Selling Parties to comply with
any provision of any Material Agreement or asserting noncompliance,
and no event or condition has happened or presently exists which
constitutes a default or, after notice or lapse of time or both, to
the best of the Selling Parties' knowledge, after due inquiry, would
constitute
-18-
<PAGE> 24
a default under any Material Agreement. The Selling
Parties have delivered, or will deliver within two (2) weeks following
the date of this Agreement, to the Buyer a true and correct copy of
each Material Agreement. For purposes of this Agreement, "Material
Agreements" shall mean any and all of the following agreements: (i)
loan and credit agreements (including, without limitation, letter of
credit facilities), factoring agreements, security agreements,
guarantees, notes, conditional sales agreements, leasing agreements
(including the leases for all Tangible Personal Property and the
Leased Real Property), sale-leaseback agreements or title retention
agreements; (ii) purchase orders and/or other contracts and
commitments for the future purchase of materials, supplies or
equipment in excess of the requirements for normal operating
inventories or for business booked as of the Closing Date; (iii)
contracts, agreements, indentures, instruments or commitments by and
between the Company and any person or entity with whom the Company is
not dealing at arm's length; (iv) employment and sales/agency
contracts or agreements of non-competition, non-disclosure and/or
confidentiality; (v) management or service contracts or agreements,
and contracts and agreements with independent contractors and sub-
contractors, other than those which arise in the ordinary course of
business or provide for the payment in any twelve (12) month period
of Twenty-Five Thousand Dollars ($25,000) or less in the aggregate;
(vi) customer purchase orders accepted by or on behalf of the Company
(A) providing in one instance or in the aggregate for the shipment of
goods having a listed price of more than Two Hundred Fifty Thousand
Dollars ($250,000), or (B) in respect of which the Company has been
paid in advance or has received any prepayment; (vii) any contract for
the purchase of equipment or any construction or other similar
agreement involving any expenditure in excess of Fifty Thousand
Dollars ($50,000); (viii) any purchase order, agreement or commitment
(but not including closeouts in the normal course of business)
obligating the Company to sell or deliver any product at a price
which does not cover the cost (including labor, materials and
production overhead) plus the customary profit margin associated with
such product; (ix) any joint venture, partnership or other cooperative
arrangement or any other agreement involving the sharing of profits;
(x) any sales or buying agency agreements or arrangements, brokerage,
distribution, license, consignment or similar contracts or agreements,
other than those contracts or agreements entered into in the normal
course of business and terminable by the Company without payment or
penalty on 60 days (or less) notice; (xi) any deed, easement,
agreement or other instrument affecting any right, title or interest
in or to real property; (xii) any contract or option for the purchase
or sale of any assets other than in the ordinary course of business;
and (xiii) all contracts, agreements, indentures, instruments and
commitments, other than those described in (i) through (xii) above,
(A) arising in the ordinary course of business or providing for the
payment in any twelve (12) month period of Twenty-Five Thousand
Dollars ($25,000) or more in any one instance or in the aggregate, (B)
not arising in the ordinary course of business and providing for the
payment in any twelve (12) month period of Fifty Thousand Dollars
($50,000) or more in any one instance or in the aggregate, (C)
having a term (including extensions) in excess of twelve (12) months,
(D) not terminable without payment or penalty on 60 days (or less)
notice, or (E) between the Company and any of the Selling Parties or
another Affiliate.
(b) Permits and Licenses. Schedule 4.15(b) attached hereto
--------------------
sets forth a correct and complete list of each license, franchise,
permit or other similar authorization affecting, or relating in any
way to, the Business (collectively, the "Permits"), together with the
name of the government agency or entity issuing the same except: (i)
normal routine items (such as, without limitation, local business
permits, auto and truck license tags, building permits, etc., which
normally relate to the business of designing and marketing apparel and
goods for or to the Business); or (ii) for Permits as
-19-
<PAGE> 25
to which the failure to have them would not have a material adverse effect on
the Business. Except as set forth on such Schedule, such Permits are
valid, in good standing and in full force and effect and, assuming the
required consents can be obtained prior to Closing, are transferable
by the Company to the Buyer, and none of the Permits will, assuming
the required consents have been obtained prior to the Closing Date or
are not required hereunder, be terminated or impaired or become
terminable as a result of the transactions contemplated hereby. Upon
the Closing, the Buyer will, assuming the required consents have been
obtained or are not required, have all of the right, title and
interest in all the Permits which the Company presently has.
4.16. Employment/Labor Matters.
------------------------
(a) Employees. Schedule 4.16(a) attached hereto contains an
---------
accurate, correct and complete list and summary description of the
name, position, length of service, and present rate of compensation,
direct and indirect, of all of the Company's employees whose gross
wages or salary (exclusive of benefits, perquisites and bonus) exceed
$60,000 per year. Except as set forth on Schedule 4.16(a), to the best
of the Selling Parties' knowledge, after due inquiry, the services of
substantially all of the Company's employees (the "Employees") will
continue to be available on substantially the same terms and
conditions to the Company following the Closing. There are no
disputes pending or, to the best of the Selling Parties' knowledge,
after due inquiry, threatened, involving any Employee, except
individual grievances which, in the aggregate, are not material. The
Company is not obligated by, subject to, aware of, threatened by or a
party to, any collective bargaining agreement or other labor contract
(or part thereof), the selection of a collective bargaining
representative for the Employees, any order of any labor board or
administrative agency, labor dispute, labor board proceeding,
grievance proceeding or unfair labor practice proceeding or practice
decision relating to the Employees. There is no unfair labor practice
or age or sex discrimination complaint against the Company pending
before or, to the best of the Selling Parties' knowledge, threatened
before the National Labor Relations Board or any other (Federal,
state, or local) board, department, commission, or agency. In the
last ten (10) years, there has not been and there is not presently
pending or existing any strike, slowdown, picketing, work stoppage, or
other labor disruption against or affecting, or threatened against,
the Company. No application for certification of a collective
bargaining unit has been instituted or is pending or, to the best of
the Selling Parties' knowledge, after due inquiry, is threatened.
Except as described in Schedule 4.16(a), no Employee who is employed
by the Company following the Closing will become entitled to any
retirement, severance or similar benefit or enhanced benefit solely as
a result of the transactions contemplated hereby. Except as set forth
on Schedule 4.16(a), with regard to the Employees, the Company has
complied with all laws, rules and regulations relating to the
employment of labor, including provisions relating to wages, hours,
overtime, equal opportunity, occupational health and safety,
severance, collective bargaining and the payment of social security
and other taxes.
(b) Employee Benefit Plans. Schedule 4.16(b) attached hereto
----------------------
includes a list of each "employee benefit plan", as such term is
defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), which: (i) is maintained or sponsored
by the Company or any of their ERISA Affiliates (as hereinafter
defined); and (ii) covers any Employee (collectively, the "Employee
Benefit Plans"). Except as set forth on Schedule 4.16(b), each
Employee Benefit Plan which is intended to be qualified under Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Tax
Code"), has received a favorable determination letter from the
Internal Revenue
-20-
<PAGE> 26
Service regarding such qualification, and each Employee Benefit Plan has been
maintained in compliance in all material respects with its terms and with the
requirements prescribed by any and all statutes, orders, rules and
regulations, including, but not limited to, ERISA and the Tax Code, which are
applicable to such Employee Benefit Plan. No Employee Benefit Plan is a
Multiemployer Plan (as hereinafter defined) and no Employee Benefit Plan is
subject to Title IV of ERISA. Neither the Company, nor any of its ERISA
Affiliates, has incurred or will incur any liability under Title IV of
ERISA or otherwise relating to any Employee Benefit Plan that could
become, after the Closing Date, an obligation of the Buyer or any of
its Affiliates. The Selling Parties have furnished to the Buyer copies
of each Employee Benefit Plan and the most recent Internal Revenue
Service determination letters with respect to each such Employee
Benefit Plan. For purposes of this Agreement: (i) "ERISA Affiliate"
of any entity shall mean any other entity which, together with such
entity, would be treated as a single employer under Section 414 of the
Tax Code; and (ii) "Multiemployer Plan" shall mean each Employee
Benefit Plan that is a multiemployer plan, as defined in Section 3(37)
of ERISA.
(c) Employee Benefit Arrangements. Schedule 4.16(c) attached
-----------------------------
hereto includes a list of each employment, severance or other similar
contract, arrangement or policy (written or oral) and each plan or
arrangement (written or oral) providing for insurance coverage,
medical benefits (including any self-insured arrangements), workers'
compensation, disability benefits, supplemental unemployment benefits,
vacation benefits, retirement benefits or for deferred compensation,
profit-sharing, bonuses, stock options, stock appreciation or other
forms of incentive compensation or post-retirement or employment
insurance, compensation or benefits which: (i) is not an Employee
Benefit Plan; (ii) is entered into, maintained or contributed to, as
the case may be, by the Company or any of its ERISA Affiliates; and
(iii) covers any Employee (collectively, the "Employee Benefit
Arrangements"). Copies or descriptions of all Employee Benefit
Arrangements have been made available or furnished previously to the
Buyer. Each Employee Benefit Arrangement has been maintained in
substantial compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations
which are applicable to such Employee Benefit Arrangement. Neither
the Company, nor any of its ERISA Affiliates, have incurred or will
incur any liability relating to any Employee Benefit Arrangement that
could become, after the Closing Date, an obligation of the Buyer or
any of its Affiliates. No Employee is eligible for payments that
would constitute "parachute payments" under Section 280G of the Tax
Code or for other severance or separation type payments.
(d) Contributory Plans. With respect to each Employee
------------------
Benefit Plan or Employee Benefit Arrangement to which the Company is
required to make or have made contributions (hereinafter referred to
as "Contributory Plans"): (i) each of the Contributory Plans is in
material compliance, and has been administered in accordance with its
terms and the applicable law; (ii) the Company has not incurred any
funding deficiency in connection with any of the Contributory Plans
and each of the Contributory Plans is fully funded; (iii) none of the
Contributory Plans or any related trusts has been terminated; and (iv)
as of the most recent valuation date for each of the Contributory
Plans, the present value of the accrued benefits (as computed by the
actuaries for such Contributory Plan using the actuarial assumptions
in effect for such purposes as reflected in the most recent actuarial
report or valuation for such Contributory Plan) of all participants
and former participants in such Contributory Plan did not, and as of
the Closing Date such present value will not, exceed the fair market
value of its assets.
-21-
<PAGE> 27
(e) Independent Representatives. Schedule 4.16(e) attached
---------------------------
hereto contains a complete and correct list of the independent sales
representatives of the Company (the "Sales Reps") and a summary of the
sales volume (or, in the alternative, commission volume) of each such
Sales Rep for the twelve (12) months ended December 31, 1993 and the
material terms of the commission and expense arrangements or written
agreements between the Company and each such Sales Rep. None of the
Sales Reps has claimed that he, she or it has a written agreement with
the Company obligating the Company or its successors to continue to
engage such representative with respect to sales of the Company beyond
the term of his, her or its agreement. To the best of the Selling
Parties' knowledge, after due inquiry, there are no facts or
circumstances which may give rise to any material dispute between any
such representative and the Company.
4.17. Customers, Contractors and Suppliers. All outstanding
------------------------------------
contracts and orders with customers, contractors and suppliers of the
Business were entered into by or on behalf of the Company in the
ordinary course of business and consistently with past practice. Such
outstanding contracts or orders with customers, on average, are at a
gross profit substantially consistent with that experienced in the
Financial Statements and, there are no contracts with suppliers which
require or permit performance more than twelve (12) months following
Closing. Schedule 4.17 attached hereto sets forth an accurate,
correct and complete list of the twenty-five (25) largest customers,
ten (10) largest contractors, ten (10) largest fabric suppliers and
five (5) largest trim suppliers of the Business on a consolidated
basis determined on the basis of revenues from items sold (with
respect to customers) or costs of items purchased (with respect to
suppliers) for the twelve (12) months ended December 31, 1993.
Except as otherwise set forth herein, the Selling Parties know of no
fact, condition or event which is presently materially adversely
affecting or in connection with the execution, delivery and
performance of this Agreement, the consummation of the transactions
contemplated hereby or the fulfillment of the terms hereof could
materially adversely affect the relationship of the Business with any
major customer, contractor or supplier.
4.18. Insurance. The Selling Parties have provided the Buyer
---------
with an accurate, correct and complete list and summary description
(including the name of the insurer, coverage, premium and expiration
date) of all binders, policies of insurance, insurance programs or
fidelity bonds (collectively, the "Insurance") maintained by the
Company or in which the Company is a beneficiary or a named insured.
All Insurance has been issued by properly licensed insurance companies
under valid and enforceable policies or binders for the benefit of the
Company, and all such policies or binders are in such types and full
force and effect and are in amounts and for risks, casualties and
contingencies customarily insured against by enterprises in operations
similar to the Business. Except as set forth on Schedule 4.18, there
are no pending or asserted claims by the Company against any Insurance
as to which any insurer has denied liability, and there are no claims
under any Insurance that have been disallowed or improperly filed.
The Selling Parties have provided the Buyer with accurate, correct and
complete information regarding the Company's claims experience for the
last five (5) fiscal years for all single claims exceeding Ten
Thousand Dollars ($10,000) and the interim period through the date
hereof with respect to the Business (both insured and self-insured).
No notice of cancellation or nonrenewal with respect to, or material
increase of premium for, any Insurance has been received by the
Company. The Selling Parties do not have knowledge of any facts or
the occurrence of any event which: (i) reasonably might form the basis
of any claim against the Company relating to the conduct or operations
of the Business and which will materially increase the insurance
-22-
<PAGE> 28
premiums payable under any Insurance, or (ii) otherwise will
materially increase the insurance premiums payable under any
Insurance.
4.19. Absence of Undisclosed Liabilities; Liens. Except to the
-----------------------------------------
extent reflected in the Financial Statements or as listed on Schedule
4.19 attached hereto, the Company has no debts, obligations,
commitments or liabilities of any nature, whether absolute, accrued,
contingent or otherwise and whether direct or indirect, primary or
secondary, due or to become due, and since December 31, 1993, the
Company has not incurred any liabilities other than in the ordinary
course of business on terms and conditions and in amounts consistent
with past practices. Schedule 4.19 also identifies all Liens against
or relating to the Company's assets and the Business, and except as
set forth on such Schedule, there is no basis for the assertion of any
more of the same. The Company is solvent having assets of a value
which exceeds its liabilities, and the Company is able to meet its
debts as they mature in the normal course of business.
4.20. Taxes.
-----
(a) Filings. The Company and any body corporate, partnership
-------
or trust in which it directly or indirectly owns an interest
(collectively, the "Taxpayers") has filed or sent, or will file or
send, all returns, declarations and reports and all information
returns and statements (collectively, the "Returns") required to be
filed or sent with respect to all foreign, federal, state, county,
local and other taxes of every kind and however measured, including
(without limitation) income, gross receipts, excise, franchise,
property, value added, import duties, employment, payroll, sales and
use taxes and any additions to tax and any interest or penalties
thereon (collectively, the "Taxes") for any period ending on or before
the Closing Date. As of the time of filing, the Returns correctly
reflected, and Returns not yet filed as of the date hereof will
correctly reflect, the income, business, assets, operations,
activities and status of the relevant Taxpayers and any other
information required to be shown thereon. All such returns are
complete and accurate and disclose all taxes required to be paid for
in the periods covered thereby. Each Taxpayer has timely paid or made
provision for all Taxes shown as due and payable on its Returns
required to be filed or sent prior to the date hereof and will timely
pay all Taxes that will be shown as due and payable on its Returns
required to be filed or sent after the date hereof. All required Tax
estimates, deposits, prepayments and similar reports or payments for
current periods have been properly made. No Taxpayer is delinquent in
the filing of any Return or the payment of any Tax. The Taxpayers
have timely requested any extension of time within which to file any
Return. The Selling Parties have delivered, or will deliver within
two (2) weeks following the date of this Agreement, to the Buyer
accurate, correct and complete copies of all foreign, federal, state,
county, local and other income tax Returns for the last five (5) most
recently completed fiscal years.
(b) Compliance. Except as set forth on Schedule 4.20(c)
----------
attached hereto, each Taxpayer has withheld amounts from employees and
others working in the Business, as required under applicable law, and
has filed all Returns with respect to employee income tax withholding
and social security and unemployment taxes in compliance with the tax
withholding provisions of all applicable laws.
(c) Disputes. There are no Tax Liens on any assets of any
--------
Taxpayer and no basis exists for the imposition of any such Liens.
Except as set forth on Schedule 4.20(c) attached hereto, within
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<PAGE> 29
the past seven (7) years no material adjustment of or deficiency for any
Tax or claim for additional Taxes has been proposed, threatened,
asserted or assessed against the Company and no such adjustment,
deficiency or claim relating to fraud has ever been assessed against
the Company. No Taxpayer has any dispute with any taxing authority as
to Taxes of any nature. There are no audit examinations being
conducted or threatened, and there is no deficiency or refund
litigation or controversy in progress or threatened, with respect to
any Taxes previously paid by any Taxpayer or with respect to any
Returns previously filed by or on behalf of any Taxpayer. No Taxpayer
has any extension or waiver of any statute of limitations relating to
the assessment or collection of Taxes. There are in effect no powers
of attorney or other authorizations to any persons to represent any
Taxpayer with respect to any Tax. Except as set forth on Schedule
4.20(c), no consent, agreement or other undertaking has been filed by
any Taxpayer. The Company has not been included in any unitized,
affiliated, combined or otherwise consolidated Returns filed by any
Taxpayer.
(d) Adequacy of Reserves. The Company's balance sheet for
--------------------
the year ended December 31, 1993, contains adequate accruals for all
Taxes for all periods ending on or prior to December 31, 1993. The
Closing Statement will contain adequate accruals for all Taxes payable
by any Taxpayer for all periods ending on or prior to the Closing Date
and for any period beginning before the Closing Date and ending after
the Closing Date in respect of the portion of such period up to the
Closing Date.
4.21. Product Warranty/Liability. Schedule 4.21 attached
--------------------------
hereto sets forth an accurate, correct and complete statement of all
written warranties, written warranty policies, service, maintenance
agreements and product liability insurance coverage of the Business.
Each of the products presently or heretofore manufactured,
constructed, assembled, distributed, sold or produced by the Company
in connection with the Business: (i) contains no material defects in
design, materials, manufacture, workmanship or otherwise, other than
those products expressly sold as seconds in the ordinary course of
business; (ii) is merchantable and, where a particular purpose is
known, is fit for such particular purpose; (iii) is in compliance in
all material respects with all applicable federal, state, local and
foreign laws and regulations; (iv) is reasonably fit in all material
respects for the ordinary purposes for which it is intended to be used
and conforms in all material respects to any promises or affirmations
of fact made on the container or label for such product; and (v)
contains warranties which are in conformity with the labeling and
other requirements of all applicable laws. Except as set forth on
such Schedule, there have not been any liabilities, claims or
obligations arising from or alleged to arise from any actual or
alleged injury to persons or property as a result of the ownership,
possession or use of any product sold by the Company prior to the
Closing Date and any such liability, claim or obligation would be
fully covered by product liability insurance of the Company. To the
best of the Selling Parties' knowledge, after due inquiry, Schedule
4.21 also sets forth a complete and accurate description of existing
circumstances from which it is reasonable to assume that any such
liability, claim or liability will be asserted and all recall programs
of the Company which may be underway or pending. The Company has
heretofore only sold to customers products to which the Company had
good title. The Company's consumer product warranty and complaint
experience for the last five (5) most recently completed fiscal years
and the interim period through the date hereof is set forth on
Schedule 4.21.
4.22. Litigation. Except as set forth on Schedule 4.22
----------
attached hereto, none of the Selling Parties is engaged in or a party
to or threatened with any suit, action, proceeding, investigation or
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<PAGE> 30
legal, administrative, arbitration or other method of settling
disputes or disagreements or governmental investigation, which relates
to the Business and/or any of the Shares, and the Selling Parties do
not know, anticipate or have notice of any basis for any such action.
There is no order or injunction issued prohibiting consummation of the
transactions contemplated hereby. There is no judicial,
administrative or other proceeding, investigation or inquiry pending
or threatened seeking to enjoin, restrain or prohibit, or to obtain
damages in respect of, or which is related to or arises out of, this
Agreement or the consummation of the transactions contemplated hereby,
or which could reasonably be expected to: (i) impair or interfere in
any material respect with Buyer's ownership or operation of the
Company or the Business; (ii) reduce or materially adversely affect
the value of the Company or the Business; or (iii) result in any
material liability to the Buyer.
4.23. Compliance with Law. The Company, its assets and the
-------------------
Business conform in all material respects to all applicable statutes,
rules, orders, codes, ordinances, requirements, laws, rules and
regulations (including, but not limited to, those relating to the
environment, importing/exporting, zoning, working conditions, waste
disposal, pensions, advertising, production, processing, antitrust,
wages, hours, hiring, promotion, or employment), and there is no basis
for any suit, action, investigation or proceeding arising out of or in
connection with any of the foregoing. There are no outstanding work
orders or notices relating to the Company, its assets or the Business
(including, without limitation, the Real Property) from or required by
any police or fire department, sanitation, environmental, labour,
health or factory authorities or from any other federal, provincial or
municipal governmental or other regulatory authority, nor are there
any matters under discussion by the Company with any such departments
or authorities relating to work orders or notices. No notice from any
governmental body or other person of any violation of any statute,
code, ordinance, law, rule or regulation has been served upon the
Company, and, to the best of the Selling Parties' knowledge, after due
inquiry, there is no basis therefor. The Selling Parties, any
officer, agent or employee of the Company, and any distributor,
licensee or any other person acting on behalf of the Company: (i) have
not made any unlawful domestic or foreign political contributions;
(ii) have not made any payment or provided services which were not
legal to make or provide or which such parties should have known were
not legal for the payee or the recipient of such services to receive,
(iii) have not received any payments, services or gratuities which
were not legal to receive or which such parties should have known were
not legal for the payor or the provider to make or provide, (iv) have
not had any transactions or payments which are not recorded in its
accounting books and records or disclosed in their financial
statements, (v) have not had any off-book bank or cash accounts or
"slush funds", (vi) have not made any payments to governmental
officials in their individual capacities for the purpose of affecting
their action or the action of the government they represent to obtain
special concessions, or (vii) have not made illegal payments to obtain
or retain business. No circumstances exist involving the safety
aspects of the Company's products which would cause any obligation to
report to any state, local or federal agency. None of the Selling
Parties, nor any of their assets, is a party to any settlement
agreement or instrument, or subject to any other corporate restriction
or any judgment, order, writ, injunction, decree, rule, regulation,
code, or ordinance which materially and adversely affects the
business, operations, properties, assets, or condition, financial or
otherwise, of the Company or the Business.
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<PAGE> 31
4.24. Environmental Matters.
---------------------
(a) Facilities; Permits. The ownership, use and/or operation
-------------------
by the Company of each facility (all references to "facility" in this
Section being deemed to include the Real Property) used in the
Business ("Facilities") have been and are in compliance with all
applicable Environmental Laws (as hereinafter defined) and the Company
has not received any notice of non-compliance and does not know of any
past or present facts, grounds, conditions or circumstances which
could give rise to a notice of non-compliance with any Environmental
Laws. There are no actions, claims, proceedings, or investigations,
pending or threatened against the Company with respect to the
Facilities and their operation for either existing or alleged
violations of any Environmental Laws, nor are there any past or
present facts, grounds, conditions or circumstances which could give
rise to any such actions, claims, proceedings or investigation. The
Company has no contingent liabilities under any Environmental Laws
with respect to the Facilities or their operation and there are no
past or present facts, grounds, conditions or circumstances relating
to the Facilities or their operation that could result in any material
liability or potential liability to the Buyer pursuant to any
Environmental Laws. To the best of the Selling Parties' knowledge,
after due inquiry, there is no environmental contamination in, on or
under the Facilities, including any patent or latent environmental
contamination of the atmosphere, air, soil, subsoil, ground water or
surface waters within or adjacent to the Facilities, violative of any
applicable Environmental Laws. There is no urea formaldehyde foam
insulation, aluminum wiring or PCBs in or under the Facilities. There
are no underground storage tanks under the Facilities. The Company
holds all permits, certificates, approvals, registrations and licenses
("Environmental Permits") required by all applicable Environmental
Laws, the Facilities and their operation are in compliance with all
Environmental Permits and all such Permits are valid and in full force
and effect. For purposes of this Agreement, "Environmental Laws"
shall mean all applicable common, statutory, administrative and civil
law relating to the protection of human health or the environment,
including: (i) all requirements pertaining to reporting, licensing,
limiting, permitting, investigating and/or remediation of emissions,
discharges, releases or threatened releases of Hazardous Substances
(as hereinafter defined) or of any other substance, whether solid,
liquid or gaseous in nature, into the air, surface water, groundwater
or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of, Hazardous
Substances, whether solid, liquid or gaseous in nature; (ii) all
requirements pertaining to the protection of the health and safety of
employees or the public; and (iii) all environmental, health and
safety laws governing the manufacturing and other activities, past or
present of the Company and its contractors.
(b) Contamination and Hazardous Substances. The Company has
--------------------------------------
in connection with the Facilities and their operation, received,
handled, generated, used, stored, deposited, labelled, treated,
documented, transported and disposed of any Hazardous Substances in
compliance with all Environmental Laws. The Company has not engaged
in operations which have caused or permitted the release or discharge
of Hazardous Substances anywhere so as to create any existing or
contingent liability of the Company for response costs, damages or
penalties. For purposes of this Agreement, "Hazardous Substances"
shall mean any asbestos, flammable substances, explosive or
radioactive materials, PCB-laden oil, PCBs, hazardous materials,
hazardous waste, pollutants, contaminants, toxic substances, pollution
or related materials specified as such in, or regulated under federal,
state, municipal or local laws, ordinances, rules, regulations or
policies now in effect or in effect at the Closing governing the
Company's manufacturing and other activities or related to use,
storage,
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<PAGE> 32
treatment, transportation, manufacture, refinement, handling
production or disposal of such materials.
(c) Investigations and Studies. Except as disclosed on
--------------------------
Schedule 4.24(c) attached hereto, there have been no environmental
investigations, studies, audits, tests, reviews or other analyses
conducted by or which are in the possession of the Selling Parties in
relation to any property or facility presently owned or leased by the
Company in connection with the operation of the Business. Copies of
all such investigations, studies, audits, tests, reviews or other
analyses will be delivered to the Buyer no later than two (2) weeks
following the date of this Agreement.
4.25. Quotas. None of the Selling Parties has received notice
------
from any suppliers or buying agents for the Business that such parties
will have a reduced import quota for 1995.
4.26. No Brokers. The Selling Parties have not retained or
----------
engaged an investment banker, broker, finder, agent or similar
intermediary or incurred a liability or obligation for brokerage fees,
commissions or finders fees, nor had any communications or dealings
with any broker or finder, with respect to this Agreement or the
transactions contemplated hereby.
4.27. Suitability and Completeness of Assets. The assets of
--------------------------------------
the Company are adequate and suitable for the conduct of the Business
and comprise the capacity and rights to manufacture, produce, develop,
use, sell, ship and deliver the products of the Business and to
perform the same services in the same manner as presently being
performed by the Company. Upon Closing, the Company will have the
right to carry on the Business, to advertise, design, import, sell and
distribute products as now produced and sold by the Company, subject
to no rights or claims of any person or entity.
4.28. Full Disclosure. The representations and warranties of
---------------
the Selling Parties contained in this Agreement and each Schedule,
certificate or other written statement delivered pursuant to this
Agreement or in connection with the transactions contemplated herein
are accurate, correct and complete in all material respects, do not
contain any untrue statement of a material fact or, considered in the
context in which presented, omit to state a material fact necessary in
order to make the statements and information contained herein or
therein not misleading. There is no fact, presently known to the
Selling Parties, which materially adversely affects the business,
operations, properties, prospects or condition, financial or
otherwise, of the Business or the Company or the ability of the
Selling Parties to fully perform this Agreement and the transactions
contemplated hereby, which has not been set forth or described in this
Agreement or in a Schedule, certificate or other written statement
delivered pursuant to this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE BUYER
The Buyer hereby represents and warrants to the Sellers as follows.
5.1. Corporate Organization and Authority. The Buyer is a
------------------------------------
corporation duly organized and validly existing under the laws of the
State of Delaware, is in good standing under the laws of
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<PAGE> 33
such state, and has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby.
5.2. No Conflicts; Approvals.
-----------------------
(a) Authorization. Subject to the satisfaction of Section
-------------
3.4(k), the execution and delivery of this Agreement by the Buyer and
the consummation of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the
part of the Buyer. This Agreement is a valid and binding obligation
of the Buyer, enforceable in accordance with the terms hereof, except
as the same may be limited by bankruptcy, insolvency, reorganization
or other laws affecting creditors' rights generally and subject to the
availability of equitable remedies.
(b) Conflicts. The execution and delivery by the Buyer of
---------
this Agreement, the consummation of the transactions contemplated
hereby and its compliance with any of the provisions hereof will not:
(i) conflict with or result in a breach or violation of or a default
under any provision of the Certificate of Incorporation and the
by-laws of the Buyer;(ii) result in a default (or give rise to any
right of termination, cancellation, or acceleration) under any of the
terms, conditions, provisions of any note, bond, mortgage, deed of
trust, commitment, indenture, lease, guarantee, authorization,
franchise, license, permit, agreement, security agreement or any other
instrument or obligation to which the Buyer is a party; (iii) violate
any judgment, order, writ, injunction, decree, statute, rule, or
regulation applicable to the Buyer; (iv) result in an imposition of
any Lien on any asset of the Buyer, or an event which, with the giving
of notice, lapse of time, or both, would result in any imposition; or
(v) result in any third party having the right to enjoin, rescind or
otherwise prevent or impede the transactions contemplated hereby or to
obtain any other judicial or administrative relief as a result of any
transaction carried out in accordance with the provisions of this
Agreement.
(c) Approvals, Consents and Notices. Except as otherwise
-------------------------------
disclosed on Schedule 5.2(c) attached hereto, compliance is not
required with any law, rule, or regulation of any government or
governmental or regulatory authority, nor is the consent, license,
approval, authorization, or declaration of or notice to any landlord,
mortgagee, secured party, governmental or regulatory authority or
other third party required of or by the Buyer in connection with the
execution, delivery, performance, and validity of this Agreement, the
consummation of the transactions contemplated hereby, or the
fulfillment of the terms hereof.
5.3. Investment Representation. The Buyer is acquiring the
-------------------------
Shares for its own account for investment purposes only and not with a
view to, or for sale in connection with, any distribution of any or
all of the Shares, or with any present intention of selling any or all
of the Shares. The Buyer acknowledges and understands that the Shares
have not been registered under any state or federal securities laws,
and are being sold in reliance upon federal and state exemptions for
transactions not involving any public offering.
5.4. No Brokers. The Buyer has not retained or engaged an
----------
investment banker, broker, finder, agent or similar intermediary or
incurred a liability or obligation for brokerage fees, commissions or
finders fees, nor had any communications or dealings with any broker
or finder, with respect to this Agreement or the transactions
contemplated hereby.
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<PAGE> 34
5.5. Completeness of Information. All information relating
---------------------------
to the transactions contemplated hereby furnished by the Buyer
pursuant to this Agreement and the schedules, attachments and exhibits
hereto are accurate and complete in all material respects and no
material information required to be stated or necessary to make such
information not misleading has been omitted herefrom.
ARTICLE VI
CERTAIN AGREEMENTS AND
COVENANTS OF THE PARTIES
The Parties covenant and agree as follows.
6.1. Approvals, Consents, Notices and Opinions.
-----------------------------------------
(a) Hart-Scott-Rodino. As promptly as practicable after the
-----------------
date hereof, the Buyer and the Selling Parties shall make all filings
that are or may be required under H-S-R, including, without
limitation, responses to requests for information. The Buyer shall
pay all filing fees associated with the H-S-R filing(s) and up to an
additional $25,000 of costs and expenses which the Company and the
Selling Parties incur in connection with such filing(s).
(b) Shareholder Agreements. The Sellers and the Company
----------------------
agree that any agreement among themselves with regard to any
restriction on the transfer of or right of first refusal regarding the
Shares shall automatically be deemed terminated as of the Closing and
that any consent required under such agreement by the Sellers or the
Company with regard to the sale of the Shares by the other Sellers is
hereby granted.
(c) Other. Each of the Parties shall: (i) give all other
-----
notices to governmental authorities and other third parties, including
lessors and licensees, which are required to be given by them in
connection with this Agreement and the transactions contemplated
hereby; and (ii) obtain all consents or waivers required to be
obtained under any law, rule, regulation, order, permit, license,
license agreement, authorization, lease, note, mortgage, indenture,
agreement, or other instrument or otherwise in connection with this
Agreement and the transactions contemplated hereby.
6.2. Other Pre-Closing Requirements.
------------------------------
(a) Access. From the date hereof through the Closing Date,
------
the Sellers agree to provide the Buyer, its attorneys, accountants and
agents with such access to the Selling Parties, the Business records,
wherever located, and representatives of the Business, as Buyer shall
deem reasonably necessary to complete its due diligence investigation
and review. The Buyer's access to such information and
representatives shall be in accordance with the confidentiality
provisions of Section 6.10.
(b) Conduct of the Business. From the date hereof through
-----------------------
the Closing Date, the Selling Parties shall continue to operate the
Business in the ordinary course of business consistent with past
practice, use their reasonable best efforts to preserve intact its
business organizations and relationships with third parties, to keep
available the services of the Employees and agents and
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<PAGE> 35
independent representatives of the Company and to preserve the good will of
suppliers, customers and others having business relationships with the
Business. In addition, the Selling Parties shall not take, cause,
allow to occur or agree or commit, whether in writing or otherwise, to
do any of the actions or events with respect to the Company or the
Business set forth in Section 4.8.
(c) Notification of Material Events. From the date hereof
-------------------------------
through the Closing Date, the Selling Parties, on the one hand, and
the Buyer, on the other hand, will each give prompt notice to the
other of material events or matters, as follows:
(i) the occurrence, or failure to occur, of any event the
occurrence or failure of which would, or would be likely
to, cause any of their respective representations or
warranties contained in this Agreement to be untrue or
incorrect at any time from the date hereof to the Closing
Date;
(ii) any failure on their respective parts or on the part of
any of their officers, directors, employees,
representatives or agents, if any, to comply with or
satisfy any covenant, condition or agreement to be
complied with or satisfy any covenant, condition or
agreement to be complied with or satisfied by each of
them under this Agreement;
(iii) any notice or communication from any governmental or
regulatory agency or authority in connection with the
transactions contemplated by this Agreement; and
(iv) any actions, suits, claims, investigations or proceedings
commenced or, threatened, against, relating to or
involving or otherwise affecting the Company or the
Business that, if pending on the date of this Agreement,
would have been required to have been disclosed hereunder
or that relate to the consummation of the transactions
contemplated by this Agreement.
Each Party shall have the right to deliver to any other Party a
written disclosure schedule as to any material matter of which it
becomes aware following execution of this Agreement which would
constitute a breach of any representation, warranty or covenant of
this Agreement by such Party, identifying on such disclosure schedule
the representation, warranty or covenant which would be so breached.
Each such disclosure schedule shall be delivered as soon as
practicable after such Party becomes aware of the matter disclosed
therein. The nondisclosing Party shall have until Closing to notify
the disclosing Party that: (i) it will close notwithstanding the new
disclosure; or (ii) it will not close based on such new disclosure.
(d) Insurance. The Company shall maintain all insurance
---------
coverage insuring the Business through the Closing Date.
(e) Transactions with Affiliates. The Selling Parties will
----------------------------
not, and will not permit any of their Affiliates to, purchase any
material asset or services of any description from, or sell any
material asset or service of any description to, the Company, except
as set forth on Schedule 6.2(e) attached hereto.
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<PAGE> 36
(f) Exclusivity. During the term hereof, the Sellers shall
-----------
not, nor shall they permit the Company to take any action to seek,
encourage, solicit or support any inquiry, proposal, expression of
interest or offer from any other person or entity with respect to an
acquisition, combination or similar transaction involving the Business
or the Company or any property, assets or securities related thereto,
and the Sellers will promptly inform the Buyer of the existence of any
such inquiry, proposal, expression of interest or offer and shall not
without the written consent of the Buyer furnish any information to or
participate in any discussions or negotiations with any other person
or entity regarding the same.
(g) Best Efforts and Cooperation. Each of the Parties shall
----------------------------
use his, her or its best efforts to consummate the transactions
contemplated hereby and to cooperate with each other in any reasonable
arrangement to achieve that end.
6.3. Risk of Loss. The Buyer shall not assume any risk of
------------
destruction, loss or damage due to fire or other cause to the Business
and the assets of the Company through the Closing Date. If a
destruction, loss or damage which occurs prior to the Closing Date is
such that a significant portion of such assets are lost, stolen,
damaged or destroyed, the Buyer shall have the right to terminate this
Agreement and the transactions contemplated hereby. The Buyer assumes
all such risk following the Closing Date.
6.4. Post-Closing Filings.
--------------------
(a) Notice of Closing. Immediately upon the Closing, the
-----------------
Buyer shall file such documents as are required to report for the
public record that the Closing has occurred.
(b) Real Estate Lease Filings. Each of the Buyer and the
-------------------------
Selling Parties agree to execute and deliver all filings relating to
the leases of the Leased Real Property required under New York state
and/or local law in connection with the transactions contemplated
hereby.
6.5. Relationship of the Parties following Closing.
---------------------------------------------
(a) Power of Attorney. The Sellers hereby constitute and
-----------------
appoint, effective as of the Closing Date, the Buyer and its
successors and assigns as the true and lawful attorney of the Sellers
with full power of substitution in the name of the Buyer or the
Sellers, but for the benefit of the Buyer to institute and prosecute
in the names of the Sellers all proceedings which the Buyer may in its
sole discretion deem proper in order to transfer, assert or enforce
any right, title or interest in, to or under the Shares, and to defend
or compromise any and all actions, suits or proceedings in respect of
the Shares, except that in no event shall the foregoing power of
attorney include any power to amend, modify, supplement or terminate
this Agreement in any respect. The trustee of each trust that is a
Seller hereunder shall take all necessary steps to ensure that the
trust's beneficiaries grant the trustee the requisite authority to
appoint the Buyer as the attorney of such Seller, as hereinabove
described, on or prior to the Closing Date. The Buyer shall be
entitled to retain for its own account any amounts collected pursuant
to the foregoing powers, including any amounts payable as interest in
respect thereof. The foregoing is intended to be an irrevocable power
of attorney coupled with an interest.
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<PAGE> 37
(b) Segregation of Identity. From and after the Closing
-----------------------
Date, except to the extent reasonably necessary in the ordinary course
of the Business under employment arrangements or as directors of the
Company, the Sellers shall: (i) have no authority, express or implied,
to represent to any party whatsoever that any portion of the Business
or the operations thereof are in any way affiliated with the Sellers;
(ii) not assume or create any obligation or responsibility on behalf
of or in the name of the Business or the Company or any subsidiary or
division thereof; and (iii) not use any document, sign, product,
stationery, advertising, uniform packaging code, or any other item
whatsoever bearing the name of, or identified solely with, the Company
or the Business. The Buyer shall use reasonable efforts to code all
products and all shipping cartons for products with a distinctive code
or mark to enable the Buyer and the Sellers to distinguish products
Sold (as hereinafter defined) by the Company after the Closing Date
from those Sold on or prior to the Closing Date. For purposes of this
Agreement, the term "Sold", as it relates to products, shall mean
products on which title has transferred to a third party in accordance
and consistent with the seller's past practice.
(c) Cooperation in Litigation. It is recognized that in the
-------------------------
future, litigation, collection matters or tax matters may arise
relating to the Business and the conduct thereof, which may relate
directly or indirectly to the period prior to the Closing or the
period subsequent to the Closing, or both. The Parties agree
therefore, that to the extent reasonable under the circumstances, they
will assist and provide information, records, and documents to any
other Party with respect to any such litigation or potential
litigation or matters in which the other Party is or may be involved.
(d) Records and Documents. For ten (10) years following the
---------------------
Closing Date, the Buyer shall grant to the Sellers and their
representatives, at the request of the Sellers, access to and the
right to make copies of those records and documents of the Company, as
may be necessary or useful in connection with the Sellers' business
and affairs, including litigation, tax matters, collection of accounts
receivable or the like.
(e) Further Assurances. The Parties agree: (i) to cooperate
------------------
in any reasonable arrangement designed to provide for the Buyer the
benefits of the Business; and (ii) that at any time and from time to
time after the Closing Date, each of them will, upon the request of
the other, do, execute, acknowledge and deliver or cause to be done,
executed, acknowledged and delivered all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney and assurances
as may be required for the better carrying out and performance of all
the terms of this Agreement.
6.6. Non-Competition. For a period of five (5) years
---------------
following the Closing Date, the Sellers shall not, on their behalf or
on behalf of any other individual or entity, directly or indirectly,
in any capacity whatsoever, carry on or be engaged in, or have any
financial or other interest in, or be commercially involved in, any
endeavor, activity or business which is the same as or in competition
with the Business within North America, provided, however, that a
Seller may own not more than five percent (5%) of the equity
securities of a publicly traded company.
6.7. Non-Solicitation of Customers. For a period of five (5)
-----------------------------
years following the Closing Date, the Sellers shall not, on their
behalf or on behalf of any other individual or entity, directly or
indirectly, in regards to products similar to or competitive with
those of the Business in any capacity whatsoever: (i) canvas or
solicit the business of (or procure or assist the canvassing or
soliciting of
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<PAGE> 38
the business of) any customer of the Business; (ii)
accept (or procure or assist the acceptance of) any business from any
customer of the Business; or (iii) supply (or procure or assist the
supply of) any goods or services to any customer of the Business.
6.8. Non-Solicitation of Employees. For a period of five (5)
-----------------------------
years following the Closing Date, the Sellers shall not, on their
behalf or on behalf of any other individual or entity, directly or
indirectly, in any capacity whatsoever: (i) solicit the employment or
engagement of or otherwise entice away from the employment of the
Business any individual who is employed by the Business, whether or
not such individual would commit any breach of his or her contract or
terms of employment by reason of leaving the employ of the Buyer; or
(ii) procure or assist any individual or entity to solicit the
employment or engagement of or otherwise entice away from the
employment of the Business any individual who is employed by the
Business whether or not such individual would commit any breach of his
contract or terms of employment by reason of leaving the employ of the
Business.
6.9. Non-Interference. For a period of five (5) years
----------------
following the Closing Date, the Sellers shall not, on their behalf or
on behalf of any other individual or entity, directly or indirectly,
in any capacity whatsoever: (i) interfere or attempt to interfere with
the Business hereafter carried on by the Buyer; (ii) persuade, or
attempt to persuade, any employee or supplier of the Business to
discontinue or alter such individual's or entity's relationship with
the Business; or (iii) persuade, or attempt to persuade, any customer
of the Business to discontinue or alter such individual's or entity's
relationship with the Business, other than in the ordinary course of
business.
6.10. Confidentiality.
---------------
(a) Covenant. The Buyer agrees to hold in confidence, not to
--------
disclose to others and not to use for any purpose other than in
connection with the transactions contemplated hereby, any and all
information, which is to be disclosed to it by, and/or obtained by it
from the Selling Parties hereunder, except that the Buyer may disclose
the same to its attorneys, accountants, bankers, selected employees
and advisors and any parties as required by applicable law or court
order.
(b) Covenant Exceptions. The Buyer's foregoing obligations
-------------------
of confidence, non-disclosure and non-use shall not apply to the
following categories of information: (i) information which was in the
public domain or public knowledge; (ii) information which hereafter
becomes in the public domain or public knowledge except by breach of
this agreement by the Buyer; (iii) information which the Buyer can
show, by competent proof, was in its possession at the time of
disclosure by the Selling Parties and was not obtained directly or
indirectly from the Selling Parties; and (iv) information which the
Buyer obtains from a third party not subject to any secrecy commitment
provided that such information was not, to the best of the Buyer's
knowledge, after due inquiry, obtained by said third party directly or
indirectly from the Selling Parties.
(c) Covenant Expiration. The Buyer's foregoing obligations
-------------------
of confidence, non-disclosure and non-use shall expire at the end of
two (2) years from the date of this Agreement, regardless of whether
the Closing takes place.
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<PAGE> 39
6.11. Announcement. Following the execution of this Agreement,
------------
the Parties shall approve a joint announcement so as to satisfy the
requirements of public disclosure applicable to the Parties, such
approval not to be unreasonably withheld by any Party. In addition,
the Parties agree to consult with each other before issuing any press
release or making any public statement with respect to this Agreement
or the transactions contemplated hereby and, except as may be required
by applicable law or any listing agreement with any national
securities exchange, will not issue any such press release or make any
such public statement prior to such consultation.
6.12. Expenses. Except as provided in Section 6.1(a) or as
--------
otherwise expressly provided herein, each Party shall pay its or their
own expenses incidental to the preparation of this Agreement and
incurred by it or them in connection with the transactions
contemplated hereby, regardless of whether the Closing takes place.
Each of the Parties covenants and agrees to indemnify and hold the
other Parties harmless from and against any loss, cost, damage,
expense (including reasonable attorneys' fees and expenses) and
liability resulting from any claims that may be made against the
others by any other broker or party claiming a fee or other
compensation in connection with the transactions contemplated by this
Agreement, arising from the acts of the indemnifying party.
ARTICLE VII
INDEMNIFICATION
7.1. Survival of Indemnification. The obligation of
---------------------------
indemnification set out in this Article VII shall: (i) in the case of
indemnification arising from the breach of any of the representations
or warranties contained herein, survive for a period of two (2) years
following the Closing Date (the "Survival Period"), except with
respect to the representations and warranties contained in Sections
4.1, 4.2, 4.12, 4.14, 4.16(b), (c) and (d), 4.24, 4.26, 5.1, 5.2, 5.3
and 5.4, which in each case shall survive the Closing without limit as
to time, and Section 4.20, which shall survive the Closing until all
applicable statutes of limitation have expired; and (ii) in the case
of indemnification for all other matters, survive the Closing without
limit as to time. Any Indemnification Claim (as hereinafter defined)
for breach of any of the representations and warranties subject to the
Survival Period must be asserted in writing prior to the end of the
Survival Period, and if asserted in writing on or before the
expiration of the Survival Period, such claims shall survive until
resolved or judicially determined, and if not so asserted, then the
Parties shall be forever estopped and prohibited from asserting any
such Indemnification Claim hereunder.
7.2. Indemnification of the Buyer. In addition to their
----------------------------
obligation to indemnify the Buyer as otherwise set forth herein, the
Sellers, jointly and severally, shall indemnify and hold the Buyer
harmless against and in respect of the following: any and all claims,
demands, losses, costs, expenses (including court costs and reasonable
attorney fees), obligations, liabilities, damages, suits, causes of
action, deficiencies, taxes, interest on taxes, or penalties
(collectively the "Indemnification Claims"), plus interest at the
reference rate at the Continental National Bank of Chicago, Illinois,
from the date the Indemnification Claim is actually incurred by the
Buyer or the Company, that the Buyer or the Company may suffer or
incur which arise or result from or relate to any misrepresentation,
breach of warranty, or nonfulfillment of any covenant or agreement on
the part of any of the Selling Parties, hereunder or under any other
agreement, certificate, or other document contemplated or furnished
(or to be furnished) hereunder. Notwithstanding the foregoing, the
Sellers shall only be severally, and
-34-
<PAGE> 40
not jointly, obligated for Indemnification Claims relating to breaches of the
representations and warranties set forth in Sections 4.1(b) and (c).
7.3. Indemnification of the Sellers. In addition to its
------------------------------
obligation to indemnify the Sellers as otherwise set forth herein, the
Buyer shall indemnify and hold the Sellers harmless against and in
respect of any and all Indemnification Claims, plus interest at the
reference rate set forth in Section 7.2 herein, from the date the
Indemnification Claim is actually incurred by the Sellers, that the
Sellers may suffer or incur which arise or result from or relate to
any misrepresentation, breach of warranty, or nonfulfillment of any
covenant or agreement on the part of the Buyer hereunder or under any
other agreement, certificate, or other document contemplated or
furnished (or to be furnished) hereunder.
7.4. Notice and Claim Procedure.
--------------------------
(a) General Requirements. Any Party who or which may be
--------------------
entitled to a right to recover indemnification pursuant to this
Agreement (the "Indemnified Party"): (i) shall give the persons or
entities required to make such indemnification (the "Indemnifying
Party") notice (which shall include all facts known to the Indemnified
Party giving rise to such right and an estimate of the amount thereof)
of the Indemnification Claim and any Third Party Claim (as hereinafter
defined) relating to such right promptly after receipt or becoming
aware thereof; (ii) prior to taking any material action with respect
to a Third Party Claim, shall consult with the Indemnifying Party as
to the procedure to be followed in defending, settling, or
compromising the Third Party Claim; (iii) shall not consent to any
settlement or compromise of the Third Party Claim without the written
consent of the Indemnifying Party (which consent, unless the
Indemnifying Party has elected to assume the exclusive defense of such
Claim, shall not be unreasonably withheld or delayed); and (iv) shall
permit the Indemnifying Party, if it so elects, to assume the defense
of such Third Party Claim (including, except as provided below, the
compromise or settlement thereof) at its own cost and expense,
provided, however, that in such event the Indemnified Party shall have
- -------- -------
the right to approve the Indemnifying Party's choice of legal counsel,
which approval shall not be unreasonably withheld. For the purposes
of this Agreement, "Third Party Claim" shall mean any Indemnification
Claim by any third party which gives rise or could reasonably be
expected to give rise to a right of indemnification hereunder.
(b) Consultation and Consent. If the Indemnified Party
------------------------
shall: (i) fail to notify or to consult with the Indemnifying Party
with respect to any Third Party Claim in accordance with subparagraph
(a)(i) or (a)(ii) above (which failure shall have a material and
adverse effect upon the Indemnifying Party); or (ii) consent to the
settlement or compromise of any Third Party Claim without having
received the written consent of the Indemnifying Party (unless, if the
Indemnifying Party has not elected to assume the defense of such
Claim, the consent of the Indemnifying Party is unreasonably withheld
or delayed), then the Indemnifying Party shall be relieved of its
indemnification obligation with respect to such Third Party Claim
under this Agreement.
(c) Defense of Claim. If the Indemnifying Party shall elect
----------------
to assume the defense of any Third Party Claim pursuant to this
Agreement, it shall notify the Indemnified Party in writing of such
election. The Indemnifying Party shall not compromise or settle any
such Third Party Claim without the written consent of the Indemnified
Party (which consent shall not be unreasonably withheld or delayed).
Notwithstanding the foregoing, the party which defends any Third Party
Claim shall, to the
-35-
<PAGE> 41
extent required by applicable insurance policies, share or give control
thereof to any insurer with respect to such Claim.
7.5. Limitation on Indemnification. In the case of
-----------------------------
Indemnification Claims arising from any misrepresentation or breach of
warranty contained herein (except those contained in Section 4.1), the
obligation of indemnification set out in Sections 7.2 and 7.3 shall
not apply until such time as such cumulative Indemnification Claims of
the Indemnified Party in the aggregate exceeds Three Hundred Thousand
Dollars ($300,000). The liability of the Indemnifying Party for such
Indemnification Claims shall be limited to the amount by which the
same, in the aggregate, exceeds Three Hundred Thousand Dollars
($300,000).
7.6. Set-Off. The Indemnified Party shall be entitled to
-------
recover any indemnification payments due hereunder by setting off such
amount against any amount due from the Indemnified Party to the
Indemnifying Party under this Agreement or otherwise. Any
indemnification amounts due to the Indemnified Party which are not so
offset, shall be due and payable by the Indemnifying Party within
thirty (30) days of the Indemnifying Party's receipt of written notice
from the Indemnified Party. The Indemnified Party's rights hereunder
are cumulative and shall be in addition to all other rights and
remedies available at law or in equity.
ARTICLE VIII
MISCELLANEOUS
8.1. Waiver; Amendment. Each Party may, at its option, waive
-----------------
in writing any and all of the obligations herein contained to which
any other Party is subject. The failure of any Party at any time to
require performance by any other Party of any provision hereof shall
in no way affect such Party's full right to require such performance
at any time thereafter. Nor shall the waiver by any Party of a breach
of any provision hereof be taken or held to be a waiver of any
succeeding breach of such provision or as a waiver of the provision
itself. This Agreement may be amended or modified only by an
instrument in writing executed by all Parties.
8.2. Counterparts; Attachments. This Agreement may be executed
-------------------------
simultaneously in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and
the same instrument. All exhibits and schedules attached hereto and
all other documents referred to herein and delivered pursuant to and
in accordance with this Agreement are deemed to be an integral part of
this Agreement.
8.3. Severability. If any provision of this Agreement shall
------------
be determined to be contrary to law or unenforceable, the remaining
provisions shall be severable and enforceable in accordance with their
terms.
8.4. Headings. The article, section and other headings
--------
contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
8.5. Parties in Interest. This Agreement shall inure to the
-------------------
benefit of and be binding upon the Parties and their respective
successors and assigns, provided that any assignment of this
-36-
<PAGE> 42
Agreement or the rights hereunder by any Party hereto without the prior
written consent of all other Parties, except an assignment by the Buyer to a
successor to its business, shall be void.
8.6. Third-Party Beneficiary. This Agreement is solely for
-----------------------
the benefit of the Parties hereto and their respective successors and
permitted assigns, and no other Party has any right, benefit, priority
or interest under, or because of the existence of, this Agreement.
Nothing in this Agreement, express or implied, is intended to confer
upon any person other than the Parties hereto any rights, liabilities,
or remedies under or by reason of this Agreement.
8.7. Arms Length Contract. This Agreement has been negotiated
--------------------
"at arms length" by the Parties, each represented by counsel of its
choice and each having an equal opportunity to participate in the
drafting of the provisions hereof. Accordingly, in construing the
provisions of this Agreement no Party shall be presumed or deemed to
be the "drafter" or "preparer" of the same.
8.8. No Derogation. For greater certainty, it is acknowledged
-------------
and agreed that neither the delivery at Closing by any of the Selling
Parties of any certificate or other clearance from any government or
regulatory authority or any other person at or prior to the Closing
Date, nor any inspection, analysis or investigation prior to the
Closing Date by the Buyer respecting the Company, the Business, or the
Business records, shall derogate from any right or remedy that the
Buyer may have against any of the Sellers for breach of
representation, warranty, covenant or indemnity from them contained
herein.
8.9. Notices. All notices, requests, demands and other
-------
communications which are required to be or may be given under this
Agreement shall be in writing and shall be deemed to have been duly
delivered: (i) on the date of delivery if by personal delivery; (ii)
on the date of transmission with confirmed receipt by telephone if
delivered by telecopier; or (iii) on the date on which return receipt
is signed or delivery is refused if dispatched by certified or
registered first class mail, Federal Express or similar service,
postage prepaid, return receipt requested, to the Party to whom the
same is so given or made;
(a) If to the Company or the Sellers:
Halmode Apparel, Inc.
501 7th Avenue
New York, NY 10018
Attn: Robert W. Adler
Telecopier: (212) 921-0372
(b) With a copy to:
Phillips, Nizer, Benjamin, Krim & Ballon
31 West 52nd St.
New York, NY 10019-6167
Attn: Herbert J. Goodfriend, Esq.
Telecopier: (212) 262-5152
-37-
<PAGE> 43
(c) If to the Buyer:
Kellwood Company
P.O. Box 14374
St. Louis, Missouri 63178
Attention: Corporate Secretary/Legal Department
Telecopier: (314)-576-3388
Any Party may change its address for receiving notice by written
notice given to the others named above.
8.10. Termination; Seller Revocation.
-------------------------------
(a) Revocation. Each of the Sellers agrees and acknowledges
----------
that he, she or it: (i) has read this Agreement and understands its
terms and effects; (ii) has signed this Agreement voluntarily and
knowingly and in exchange for the consideration described herein,
which is adequate and satisfactory; and (iii) was advised, and hereby
is advised in writing, to consult with an attorney prior to signing
this Agreement. In addition, each of the Sellers, other than Robert
W. Adler, the 1991 Gregory Adler Trust and the 1991 Pamela Adler
Trust, has the right to revoke his, her or its status as a party to
this Agreement for a period of ten (10) business days following the
date of this Agreement by giving written notice to the Buyer. In the
event that a Seller shall exercise such revocation right, the Buyer
shall have the options: (i) to terminate this Agreement; (ii) to
require the Parties to negotiate in good faith with the goal of (A)
amending the provisions of this Agreement which are necessary to
ensure that One Hundred Percent (100%) of the Sellers are parties
hereto, or (B) otherwise structuring the acquisition of the Business
by the Buyer in a form which is satisfactory to the Buyer, in its sole
discretion; or (iii) to close notwithstanding the exercise of such
revocation right(s).
(b) Termination. This Agreement and the terms and provisions
-----------
hereof may be terminated: (i) by the mutual agreement of the Parties
at any time prior to the Closing; (ii) by the Selling Parties in the
event of a material breach hereunder by the Buyer; (iii) by the Buyer
in the event of a material breach hereunder by the Selling Parties;
(iv) as provided in Sections 6.2(c), 6.3 or 8.10(a); or (v) by either
the Selling Parties or the Buyer if the transactions contemplated
herein have not been consummated by October 15, 1994. In any of
such events, this Agreement shall become void and have no effect,
without any liability on the part of any Party or its directors,
officers or shareholders, except for the confidentiality provisions of
Section 6.10 which shall survive. In addition, except as provided in
Section 6.1(a), each Party shall pay all of its own expenses incurred
in connection herewith.
8.11. Governing Law. This Agreement is to be governed by and
-------------
construed according to the laws of the State of New York and the
United States of America.
8.12. Interpretation. All pronouns and any variations thereof
--------------
shall be deemed to refer to the masculine, feminine or neuter,
singular or plural as the context requires. Unless otherwise
specified, all dollar amounts in this Agreement are in U.S. Dollars.
8.13. Entire Agreement. This Agreement and the exhibits,
----------------
schedules, and attachments hereto contain the entire understanding by
and among the Parties and supersede all other agreements and
understandings, whether oral or written, by and among the Parties and
their respective officers, directors, or employees with respect to the
transactions contemplated hereby.
-38-
<PAGE> 44
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in multiple originals, all as of the date first above
written.
Company
-------
HALMODE APPAREL, INC.
ATTEST:
/s/ HAZEL JONES By: /s/ ROBERT W. ADLER
- ------------------------------ ------------------------------------
Secretary Robert W. Adler, Chairman and CEO
SELLERS
-------
/s/ ROBERT W. ADLER
----------------------------------------
Robert W. Adler
/s/ ROBERT W. ADLER
----------------------------------------
Robert W. Adler, Trustee for 1991 Gregory
Adler Trust
/s/ ROBERT W. ADLER
----------------------------------------
Robert W. Adler, Trustee for 1991 Pamela
Adler Trust
/s/ JAY DIAMOMND
----------------------------------------
Jay Diamond
/s/ HAZEL JONES
----------------------------------------
Hazel Jones
/s/ SCOTT DIAMOND
----------------------------------------
Scott Diamond
/s/ STEVEN WEISSMAN
----------------------------------------
Steven Weissman
Signed, Sealed and Delivered /s/ BEATRICE MYERSON
----------------------------------------
Beatrice Myerson
/s/ GREG ADLER /s/ NORMA GULLACE
- ------------------------------ ----------------------------------------
Witness for Sellers Norma Gullace
Buyer
-----
KELLWOOD COMPANY
ATTEST:
/s/ THOMAS H. POLLIHAN By: /s/ HAL J. UPBIN
- ------------------------------ ----------------------------------------
Secretary
-39-
<PAGE> 45
<TABLE>
DEFINITION REFERENCE PAGE
-------------------------
<CAPTION>
FIRST
TERM USE DEFINED
- ---- --- -------
<S> <C> <C>
Affiliate 3.4(h)
Arbitrator 2.1(d)
Business Recitals
Buyer Recitals
Closing 1.1 3.1
Closing Date 2.1(a) 3.1
Closing Payment 2.2(a)
Closing Statement 2.1(b)
Company Recitals
Computer Assets 4.13(c)
Consignment Sales 2.1(b)
Contingent Purchase Price Amount 2.1(a)
Contributory Plans 4.16(d)
Deferred Purchase Price Amount 2.1(a)
Employees 4.16(a)
Employee Benefit Arrangements 4.16(c)
Employee Benefit Plans 4.16(b)
Environmental Permits 4.24(a)
Environmental Laws 4.24(a)
ERISA 4.16(b)
ERISA Affiliate 4.16(b)
Facilities 4.24(a)
FF&E 4.13(b)
Financial Statements 4.7(a)
Fixed Purchase Price Amount 2.1(a)
Hazardous Substances 4.24(a) 4.24(b)
H-S-R 3.4(d)
Indemnification Claims 7.2
Indemnified Party 7.4(a)
Indemnifying Party 7.4(a)
Insurance 4.18
Intellectual Property 4.14(a)
Inventory 4.11
Investments 4.9
L/C Agreement 2.2(c)
Leased Real Property 4.12(a)
Liens 1.1
Material Agreements 4.15(a)
Multiemployer Plan 4.16(b)
Owned Real Property 4.12(a)
Other Tangible Assets 4.13(d)
</TABLE>
-40-
<PAGE> 46
<TABLE>
DEFINITION REFERENCE PAGE
-------------------------
<CAPTION>
FIRST
TERM USE DEFINED
- ---- --- -------
<S> <C> <C>
Party Recitals
Parties Recitals
Permits 4.15(b)
Purchase Price 2.1(a)
Pre-Billed Sales 2.1(b)
Pre-Shipped Sales 2.1(b)
Pro-Rata Percentage 2.2(a)
Real Property 4.12(c)
Receivables 4.10
Returns 4.20(a)
Sales Reps 4.16(e)
Sellers Recitals
Shares Recitals
Selling Parties 3.2
Shareholders' Equity 2.1(a)
Software 4.14(c)
Sold 6.5(b)
Survival Period 7.1
Tangible Personal Property 4.13(e)
Tax Code 4.16(b)
Taxes 4.20(a)
Taxpayers 4.20(a)
Third Party Claim 7.4(a)
Vehicles 4.13(a)
</TABLE>
-41-
<PAGE> 1
EXHIBIT 2.2
AMENDMENT TO STOCK PURCHASE AGREEMENT
-------------------------------------
THIS AMENDMENT TO STOCK PURCHASE AGREEMENT is made and entered
into this 30th day of September, 1994, by and among Kellwood
Company, a Delaware corporation (the "Buyer"), those parties whose
names are set forth as Sellers on the signature page attached
hereto (the "Sellers") and Halmode Apparel, Inc., a Delaware
corporation (the "Company"). Buyer, Sellers and the Company are
hereinafter referred to collectively as the "Parties" and each
singularly as a "Party."
RECITALS
--------
WHEREAS, the Parties hereto have entered into that certain
Stock Purchase Agreement dated August 24, 1994 (the "Stock Purchase
Agreement") and desire to amend certain provisions of the Stock
Purchase Agreement as provided herein;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained and other good and valuable
consideration (the receipt, adequacy and sufficiency of which are
hereby acknowledged by the Parties by their execution hereof), the
Parties hereby agree as follows:
1. Amendment to Section 2.1(a). Section 2.1(a) of the Stock
---------------------------
Purchase Agreement is hereby amended in its entirety to read as
follows:
"Formula. The purchase price for the Shares shall be
-------
equal to: (i) (A) Forty Million Seven-Hundred Fifty
Thousand Dollars ($40,750,000) less (B) the amount, if
----
any, by which the Shareholders' Equity (as hereinafter
defined) shall be less than Sixteen Million Dollars
($16,000,000) and plus (C) the amount, if any, by which
----
the Shareholders' Equity shall be more that Sixteen
Million Dollars ($16,000,000) (the excess of (A) over (B)
or the aggregate of (A) and (C), as the case may be,
being hereinafter referred to as the "Fixed Purchase
Price Amount"); plus (ii) the Deferred Purchase Price
----
Amount (as hereinafter defined); plus (iii) the
----
contingent payments (the "Contingent Purchase Price
Amount") described in Exhibit B attached hereto ((i),
(ii) and (iii) are collectively hereinafter referred to
as the "Purchase Price"). For purposes of this
Agreement: (i) "Shareholders' Equity" shall mean the
amount equal to the shareholders' equity of the Company
as of the Closing Date (as hereinafter defined), as
determined pursuant to paragraph (b) below; and (ii)
Deferred Purchase Price Amount shall mean (A) Two Million
Two Hundred Fifty Thousand Dollars ($2,250,000), less (B)
----
the amount by which the Fixed Purchase Price Amount shall
be less than zero (0), less (C) the amount of
----
uncontroverted Buyer Indemnification Claims (as
hereinafter defined) asserted in writing on or prior to
the last day of the two (2) year period following the
Closing Date."
<PAGE> 2
2. Amendment to Section 2.2 (b). Section 2.2(b) of the Stock
----------------------------
Purchase Agreement is hereby amended to add, after the second
sentence thereof, the following:
"In the event that the Fixed Purchase Price Amount is
greater than the Closing Payment, the Buyer shall pay to
each Seller such Seller's Pro-Rata Percentage of such
excess."
3. Counterparts. This Agreement may be executed
------------
simultaneously in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one
and the same instrument.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in multiple originals, all as of the date
first above written.
Company
-------
HALMODE APPAREL, INC.
ATTEST:
/s/ HAZEL JONES /s/ ROBERT W. ADLER
- ---------------------- By: ----------------------------------
Secretary Robert W. Adler, Chairman and CEO
SELLERS
-------
/s/ ROBERT W. ADLER
------------------------------------
Robert W. Adler
/s/ ROBERT W. ADLER
------------------------------------
Robert W. Adler, Trustee for 1991 Gregory
Adler Trust
/s/ ROBERT W. ADLER
------------------------------------
Robert W. Adler, Trustee for 1991 Pamela
Adler Trust
/s/ JAY DIAMOND
------------------------------------
Jay Diamond
/s/ HAZEL JONES
------------------------------------
Hazel Jones
/s/ SCOTT DIAMOND
------------------------------------
Scott Diamond
/s/ STEVEN WEISSMAN
------------------------------------
Steven Weissman
/s/ BEATRICE MYERSON
Signed, Sealed and Delivered ------------------------------------
Beatrice Myerson
/s/ GREG ADLER /s/ NORMA GULLACE
- ----------------------- ------------------------------------
Witness for Sellers Norma Gullace
Buyer
-----
KELLWOOD COMPANY
ATTEST:
/s/ THOMAS H. POLLIHAN /s/ HAL J. UPBIN
- ---------------------------- By: ----------------------------------
Secretary Hal J. Upbin, Executive Vice President
Corporate Development
<PAGE> 1
EXHIBIT 99.1
HALMODE APPAREL, INC.
---------------------
CONDENSED FINANCIAL STATEMENTS
------------------------------
JULY 31, 1994
-------------
<PAGE> 2
<TABLE>
HALMODE APPAREL, INC.
CONDENSED BALANCE SHEET (UNAUDITED)
(Amounts in thousands)
July 31, 1994
ASSETS
<S> <C>
CURRENT ASSETS
Cash and time deposits $ -
Receivables, net 20,597
Inventories 14,425
Prepaid expenses 1,277
--------
TOTAL CURRENT ASSETS 36,299
--------
PROPERTY AND EQUIPMENT, NET 1,750
OTHER ASSETS 405
--------
$ 38,454
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Loan payable $ 9,045
Current maturities of long-term debt 908
Accounts payable and accrued expenses 9,163
--------
TOTAL CURRENT LIABILITIES 19,116
--------
LONG-TERM DEBT 990
--------
Shareowners' equity:
Common stock 9,556
Retained earnings 25,031
--------
34,587
Less treasury stock, at cost 16,239
--------
TOTAL SHAREOWNERS' EQUITY 18,348
--------
$ 38,454
========
See note to condensed financial statements.
</TABLE>
-1-
<PAGE> 3
<TABLE>
HALMODE APPAREL, INC.
CONDENSED STATEMENT OF EARNINGS (UNAUDITED)
For the Seven Months Ended July 31, 1994
(Amounts in thousands)
<S> <C>
SALES $ 96,187
COST OF SALES 69,355
--------
GROSS PROFIT 26,832
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 16,395
--------
OPERATING INCOME 10,437
INTEREST EXPENSE 786
--------
INCOME BEFORE INCOME TAXES 9,651
INCOME TAXES 255
--------
NET INCOME $ 9,396
========
See note to condensed financial statements.
</TABLE>
-2-
<PAGE> 4
<TABLE>
HALMODE APPAREL, INC.
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
For the Seven Months Ended July 31, 1994
(Amounts in thousands)
<S> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 8,026
INVESTING ACTIVITIES
Additions to property, plant and equipment (85)
-------
Net cash used by investing activities (85)
-------
FINANCING ACTIVITIES
Payments of loan payable (2,925)
Payments of long-term debt (653)
Payments of dividends (6,000)
-------
Net cash used by financing activities (9,578)
-------
NET DECREASE IN CASH (1,637)
CASH
Beginning of period 1,637
-------
End of period $ -
=======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 718
Income taxes paid 161
See note to condensed financial statements.
</TABLE>
-3-
<PAGE> 5
HALMODE APPAREL, INC.
NOTE TO CONDENSED FINANCIAL STATEMENTS
1. It is the opinion of management that all adjustments necessary
for a fair statement of results for the interim period have been
reflected in the statements presented. Such adjustments were
normal and recurring in nature.
Accounting policies have been continued without change and are
described in the Summary of Significant Accounting Policies
contained in the Company's 1993 annual financial statements. For
additional information regarding the Company's financial
condition, refer to the footnotes accompanying the annual
financial statements. Details in those notes have not changed
significantly except as a result of normal transactions in the
interim.
-4-
<PAGE> 1
EXHIBIT 99.2
HALMODE APPAREL, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1992
AND
INDEPENDENT AUDITORS' REPORT
<PAGE> 2
HALMODE APPAREL, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1992
<TABLE>
TABLE OF CONTENTS
<S> <C>
Independent Auditors' Report 1
Financial Statements
Balance Sheet 2
Statement of Income and Retained Earnings 3
Statement of Cash Flows 4
Notes to Financial Statements 5-11
</TABLE>
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
----------------------------
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF HALMODE APPAREL, INC.
We have audited the accompanying balance sheet of
HALMODE APPAREL, INC. as of December 31, 1993 and 1992, and the
related statements of income and retained earnings and cash flows
for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the financial
position of HALMODE APPAREL, INC. as of December 31, 1993 and
1992, and the results of its operations and its cash flows for
the years then ended, in conformity with generally accepted
accounting principles.
/s/ FRIEDMAN ALPREN & GREEN
February 11, 1994
-1-
<PAGE> 4
<TABLE>
HALMODE APPAREL, INC.
BALANCE SHEET
DECEMBER 31, 1993 AND 1992
<CAPTION>
ASSETS
------
1993 1992
---------- -----------
<S> <C> <C>
Current assets
Cash $ 1,637,461 $ 383,780
Accounts receivable, less allowances for sales
discounts and doubtful accounts of $657,000
and $768,000 - Notes 2 and 5 16,311,637 16,559,205
Inventories - Notes 1, 3 and 5 12,853,319 17,373,295
Prepaid expenses and other current assets 934,947 681,609
----------- -----------
Total current assets 31,737,364 34,997,889
Property, plant and equipment - at cost, less
accumulated depreciation and amortization -
Notes 1, 4 and 5 1,935,865 2,219,833
Cash surrender value of life insurance, less loans
of $643,786 and $685,128 209,636 95,813
Security deposits and other assets 197,463 196,656
----------- -----------
$34,080,328 $37,510,191
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities
Loan payable, banks - Note 2 $11,970,000 $14,760,000
Current maturities of long-term debt - Note 5 1,313,000 1,313,562
Accounts payable 2,735,104 3,356,961
Accrued expenses and other current liabilities 1,788,842 1,604,322
Income taxes payable 64,472 80,866
----------- -----------
Total current liabilities 17,871,418 21,115,711
----------- -----------
Long-term debt, less current maturities - Note 5 1,257,427 3,267,694
----------- -----------
Commitments - Note 9 - -
Stockholders' equity
Common stock, $.20 par value; 1,000,000 shares
authorized, 874,632 shares issued 174,926 174,926
Capital in excess of par value 9,381,022 9,381,022
Retained earnings 21,634,883 19,810,186
----------- -----------
31,190,831 29,366,134
Less - Treasury stock, at cost - 766,784 shares 16,239,348 16,239,348
----------- -----------
Total stockholders' equity 14,951,483 13,126,786
----------- -----------
$34,080,328 $37,510,191
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE> 5
<TABLE>
HALMODE APPAREL, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1993 AND 1992
<CAPTION>
1993 1992*
------------------------ ----------------------
Amount % Amount %
------------ ----- ------------ -----
<S> <C> <C> <C> <C>
Net sales $134,354,469 100.0% $126,830,095 100.0%
Cost of sales 96,791,196 72.0 89,311,031 70.4
------------ ----- ------------ -----
Gross profit 37,563,273 28.0 37,519,064 29.6
Selling, general and administrative
expenses 27,261,576 20.3 28,336,507 22.3
------------ ----- ------------ -----
Income before income taxes 10,301,697 7.7 9,182,557 7.3
Income taxes 252,000 .2 255,000 .2
------------ ----- ------------ -----
Net income 10,049,697 7.5% 8,927,557 7.1%
===== =====
Retained earnings, beginning of year 19,810,186 18,107,629
Dividends paid (8,225,000) (7,225,000)
------------ ------------
Retained earnings, end of year $ 21,634,883 $ 19,810,186
============ ============
<FN>
*Reclassified for comparative purposes.
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 6
<TABLE>
HALMODE APPAREL, INC.
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993 AND 1992
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income $ 10,049,697 $ 8,927,557
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 463,657 481,438
Provision for doubtful accounts 224,194 611,465
Gain on disposal of equipment, net - (16,475)
Changes in assets and liabilities
Accounts receivable 23,374 (2,970,596)
Inventories 4,519,976 4,386,892
Prepaid expenses and other assets (254,145) 595,043
Cash surrender value of life insuranc (113,823) (37,993)
Accounts payable (621,857) (912,127)
Accrued expenses and other current liabilities 184,520 (27,195)
Income taxes payable (16,394) (68,574)
------------ ------------
Net cash provided by operating activities 14,459,199 10,969,435
------------ ------------
Cash flows from investing activities
Proceeds from sale of equipment - 16,475
Additions to property, plant and equipment (179,689) (235,807)
------------ ------------
Net cash used in investing activities (179,689) (219,332)
------------ ------------
Cash flows from financing activities
Payments of loan payable, banks (2,790,000) 5,035,000
Payments on bankers' acceptances payable - (5,000,000)
Payments of long-term debt (2,010,829) (3,615,168)
Payments of dividends (8,225,000) (7,225,000)
------------ ------------
Net cash used in financing activities (13,025,829) (10,805,168)
------------ ------------
Net increase (decrease) in cash 1,253,681 (55,065)
Cash, beginning of year 383,780 438,845
------------ ------------
Cash, end of year $ 1,637,461 $ 383,780
============ ============
Supplemental cash flow disclosures
Interest paid $ 1,125,347 $ 1,377,732
Income taxes paid 286,491 330,704
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 7
HALMODE APPAREL, INC.
NOTES TO FINANCIAL STATEMENTS
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories are stated at the lower of cost (first-in,
first-out) or market.
Depreciation and Amortization
Property, plant and equipment is stated at cost.
Depreciation and amortization is computed by straight-line and
accelerated methods over the estimated useful lives of the
assets.
Debt acquisition costs are amortized over the term of the
debt.
Income Taxes
The Company has elected S Corporation status for Federal
income tax purposes and for certain states. Under these
elections, the Company's taxable income or loss is reportable
by its stockholders on their individual income tax returns, and
the Company makes no provisions for Federal income tax and
income taxes of the states for which S Corporation status was
elected.
2 - ACCOUNTS RECEIVABLE
The Company sells women's apparel to a cross section of
retailers throughout the country. Accounts receivable
financing arrangements with banks provide for advances of up to
85% of all trade receivables with interest at the prime rate.
Under an arrangement with an insurer, a substantial portion of
the Company's receivables, as defined, are insured. The
majority of uninsured receivables are from major retailers.
All accounts receivable, including amounts due from salesmen,
are pledged as collateral for the bank loans.
(Continued)
-5-
<PAGE> 8
HALMODE APPAREL, INC.
NOTES TO FINANCIAL STATEMENTS
3 - INVENTORIES
<TABLE>
Inventories consist of:
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Finished goods $ 6,375,156 $ 8,778,075
Work in process 5,129,267 6,164,348
Raw materials and supplies 1,348,896 2,430,872
----------- -----------
$12,853,319 $17,373,295
=========== ===========
</TABLE>
4 - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
Property, plant and equipment are summarized as follows:
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Land and buildings $ 1,219,650 $ 1,219,650
Building improvements 1,332,304 1,316,599
Machinery and equipment 4,532,968 4,406,443
Furniture and fixtures 374,542 374,542
Leasehold improvements 1,062,864 1,062,864
Delivery equipment 316,644 279,185
----------- -----------
8,838,972 8,659,283
Less - Accumulated depreciation
and amortization 6,903,107 6,439,450
----------- -----------
$ 1,935,865 $ 2,219,833
=========== ===========
</TABLE>
Additions to machinery and equipment of $48,855 and $293,767
for the years ended December 31, 1993 and 1992, respectively,
were financed by long-term debt.
(Continued)
-6-
<PAGE> 9
HALMODE APPAREL, INC.
NOTES TO FINANCIAL STATEMENTS
5 - LONG-TERM DEBT
<TABLE>
Long-term debt consists of:
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Term loans payable - banks, due June 30, 1995, requiring
quarterly principal payments of $285,156, and balloon
payments at maturity. Interest is charged at 1% over the
lead bank's prime rate. The loan proceeds were used to
purchase the remaining shares of stock held by the Company's
Employee Stock Ownership Trust. The banks have a security
interest in accounts receivable, property, plant and
equipment, imported inventories, and a life insurance policy,
with a face amount of $3,000,000, on the life of an officer.
The agreement has restrictive provisions affecting working
capital and other financial ratios measured at June 30 and
December 31. $2,057,813 $3,923,438
Registered bonds payable - Industrial Development Authority
of the City of Roanoke, Va., due February 1, 1994, requiring
annual principal payments of $30,000 and interest at 8-1/4%,
collateralized by machinery and equipment. 30,000 60,000
Registered bonds payable - Industrial Development Authority
of the City of Roanoke, Va., due February 1, 1999, requiring
annual principal payments of $30,000 and interest at 10%.
Proceeds were used to finance an addition to the current
building structure.
180,000 210,000
Loan payable for purchase of treasury stock, requiring 20
equal quarterly principal payments of $11,132 commencing
April 1, 1990 and interest at 8%. 44,527 100,186
---------- ----------
Subtotal (carried forward) 2,312,340 4,293,624
---------- ----------
(Continued)
-7-
<PAGE> 10
HALMODE APPAREL, INC.
NOTES TO FINANCIAL STATEMENTS
5 - LONG-TERM DEBT (Continued)
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Subtotal (brought forward) $2,312,340 $4,293,624
Loan payable, due February 1993, secured by machinery and
equipment, requiring monthly payments including interest. - 4,237
Loans payable, due 1995, secured by computer, requiring
monthly payments including interest. 35,748 63,222
Loans payable, due 1997, secured by computer, requiring
monthly payments including interest. 180,111 220,173
Loan payable, due 1998, secured by machinery and equipment,
requiring monthly payments including interest. 42,228 -
---------- ----------
2,570,427 4,581,256
Less - Current maturities 1,313,000 1,313,562
---------- ----------
$1,257,427 $3,267,694
========== ==========
</TABLE>
<TABLE>
Maturities of long-term debt as of December 31, 1993 for the
next five years and thereafter are approximately as follows:
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1994 $1,313,000
1995 1,017,000
1996 88,000
1997 89,000
1998 32,000
Thereafter 31,000
----------
$2,570,000
==========
</TABLE>
Total interest expense for the years ended December 31,
1993 and 1992 was approximately $1,119,000 and $1,380,000,
respectively.
(Continued)
-8-
<PAGE> 11
HALMODE APPAREL, INC.
NOTES TO FINANCIAL STATEMENTS
6 - SECTION 401(k) PLAN
The Company has converted its Employee Stock Ownership Plan
to a retirement plan which qualifies under Section 401(k) of
the Internal Revenue Code (the Code). The plan allows
employees to voluntarily contribute up to 15% of compensation,
not to exceed the maximum permitted under the Code. The
Company makes a matching contribution for each eligible
employee with at least 1,000 hours of service, up to a maximum
of 4% of the participant's compensation. In addition, the
Company may contribute additional amounts, as determined by its
Board of Directors. Retirement plan expense was $204,962 and
$201,467 for the years ended December 31, 1993 and 1992,
respectively.
7 - RELATED PARTY TRANSACTIONS
The Company rents certain real property (month-to-month
basis) and machinery from partnerships, some of whose partners
are officers of the Company. Total rent paid to the
partnerships for the years ended December 31, 1993 and 1992 was
approximately $26,000 and $39,000, respectively. In addition,
the Company is obligated to pay real estate taxes, insurance
and repairs for the property.
8 - MAJOR CUSTOMER
Sales to one customer for the year ended December 31, 1993
were approximately 13% of total net sales.
(Continued)
-9-
<PAGE> 12
HALMODE APPAREL, INC.
NOTES TO FINANCIAL STATEMENTS
9 - COMMITMENTS
Lease Commitments
<TABLE>
Minimum future rental payments under noncancelable
operating leases with initial terms of one year or more are
approximately as follows at December 31, 1993:
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1994 $ 884,000
1995 821,000
1996 679,000
1997 592,000
1998 396,000
Thereafter 1,133,000
----------
$4,505,000
==========
</TABLE>
Total minimum future rental payments have not been
reduced by approximately $147,000 of sublease rentals to be
received under a noncancelable sublease which expires in
1994.
Net rental expense for the years ended December 31,
1993 and 1992 was approximately $1,076,000 and $914,000,
respectively.
Licensing Agreement
Effective September 1, 1991, the Company entered
into a licensing agreement that requires it to pay
royalties of 6% and advertising of 3% on certain net
sales. The agreement calls for guaranteed minimum
royalties of $500,000 for the initial eighteen-month
period, increasing to $700,000 and $900,000 for the two
subsequent twelve-month periods, respectively. The
Company has a renewal option for an additional three
years. A standby letter of credit for $1,000,000 has
been issued by a bank on behalf of the Company in
connection with the Company's obligations under the
agreement.
(Continued)
-10-
<PAGE> 13
HALMODE APPAREL, INC.
NOTES TO FINANCIAL STATEMENTS
9 - COMMITMENTS (Continued)
Licensing Agreement (Continued)
Royalty expense under this agreement was approximately
$1,973,000 and $1,310,000 for the years ended December 31,
1993 and 1992, respectively.
Letters of Credit
The Company has outstanding approximately $14,053,000 of
open letters of credit as of December 31, 1993.
-11-
<PAGE> 1
EXHIBIT 99.3
HALMODE APPAREL, INC.
---------------------
PRO FORMA FINANCIAL STATEMENTS
------------------------------
JULY 31, 1994
-------------
<PAGE> 2
EXHIBIT 99.3
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
PRO FORMA FINANCIAL INFORMATION
-------------------------------
(Dollars in thousands)
On September 30, 1994, Kellwood Company acquired 100% of the capital
stock of Halmode Apparel, Inc., a designer, manufacturer and marketer
of women's apparel lines.
For purposes of presenting pro forma financial information, the
historical financial statements of Kellwood Company and Halmode
Apparel, Inc. have been combined based on the registrant's fiscal year
end of April 30, 1994. Accordingly, the pro forma consolidated
financial statements reflect their combined financial position at
July 31, 1994, and combined results of operations for the three months
ended July 31, 1994 and for the year ended April 30, 1994, assuming
the transaction referred to above had occurred May 1, 1993. Pro forma
adjustments include: (1) amortization of intangible assets and
goodwill; (2) imputed interest charges attributable to the financing
of this purchase; (3) revised executive compensation costs; (4) the
income tax effect of pro forma adjustments (1) through (3) at
statutory rates; and (5) provision for income taxes on earnings of
Subchapter S Corporations.
Such pro forma financial information should be read in conjunction
with the financial statements of Halmode Apparel, Inc. included in
this filing, and with Kellwood Company's 1994 Annual Report to
Shareowners and Form 10-Q for the quarter ended July 31, 1994.
-1-
<PAGE> 3
<TABLE>
KELLWOOD COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
July 31, 1994
(Amounts in thousands)
<CAPTION>
Kellwood Halmode Pro Forma Pro Forma
Company Apparel, Inc. Adjustments Results
-------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
- ------
Current assets:
Cash and time deposits $ 11,183 $ - $ - $ 11,183
Receivables, net 194,308 20,597 214,905
Inventories 233,266 14,425 247,691
Prepaid taxes and
expenses 19,950 1,277 21,227
--------- -------- --------- ---------
Total current assets 458,707 36,299 495,006
Property, plant and
equipment, net 67,284 1,750 69,034
Intangible assets, net 112,077 28,264 140,341
Other assets 55,089 405 55,494
--------- -------- --------- ---------
$ 693,157 $ 38,454 $ 28,264 $ 759,875
========= ======== ========= =========
LIABILITIES AND SHAREOWNERS' EQUITY
- -----------------------------------
Current liabilities:
Current portion of
long-term debt $ 9,429 $ 908 $ - $ 10,337
Notes payable 58,611 9,045 43,000 110,656
Accounts payable 62,991 7,585 70,576
Accrued expenses and
compensation 65,882 1,578 6,977 74,437
--------- -------- --------- ---------
Total current
liabilities 196,913 19,116 49,977 266,006
Long-term debt 149,514 990 150,504
Deferred income taxes
and other 30,590 5,060 35,650
Shareowners' equity:
Common stock 92,476 9,556 (9,556) 92,476
Retained earnings 262,843 25,031 (33,456) 254,418
Cumulative translation
adjustment (8,946) (8,946)
--------- -------- --------- ---------
346,373 34,587 (43,012) 337,948
Less treasury stock,
at cost 30,233 16,239 (16,239) 30,233
--------- -------- --------- ---------
Total shareowners'
equity 316,140 18,348 (26,773) 307,715
--------- -------- --------- ---------
$ 693,157 $ 38,454 $ 28,264 $ 759,875
========= ======== ========= =========
See notes to pro forma consolidated financial statements.
</TABLE>
-2-
<PAGE> 4
<TABLE>
KELLWOOD COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
Three Months Ended July 31, 1994
(Amounts in thousands except per share data)
<CAPTION>
Kellwood Halmode Pro Forma Pro Forma
Company Apparel, Inc. Adjustments Results
-------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $ 300,937 $ 32,038 $ - $ 332,975
Costs and expenses:
Cost of products sold 234,618 24,100 258,718
Selling, general and
administrative expenses 41,974 6,664 48,638
Interest expense 3,917 249 806 4,972
Other (income) expense 2,317 760 3,077
--------- -------- --------- ---------
Earnings before income
taxes 18,111 1,025 (1,566) 17,570
Income taxes 7,400 197 (107) 7,490
--------- -------- --------- ---------
Net earnings $ 10,711 $ 828 $ (1,459) $ 10,080
========= ======== ========= =========
Net earnings per share:
Primary $ 0.51 $ 0.48
========= =========
Fully diluted $ 0.50 $ 0.47
========= =========
Weighted average shares
outstanding:
Primary 21,022 21,022
========= =========
Fully diluted 21,477 21,477
========= =========
See notes to pro forma consolidated financial statements.
</TABLE>
-3-
<PAGE> 5
<TABLE>
KELLWOOD COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
Year Ended April 30, 1994
(Amounts in thousands except per share data)
<CAPTION>
Kellwood Halmode Pro Forma Pro Forma
Company Apparel, Inc. Adjustments Results
-------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $ 1,203,086 $ 137,049 $ - $ 1,340,135
Costs and expenses:
Cost of products sold 949,075 99,179 1,048,254
Selling, general and
administrative expenses 170,232 25,646 250 196,128
Interest expense 15,634 1,125 3,225 19,984
Other (income) expense 7,131 3,036 10,167
----------- --------- --------- -----------
Earnings before income
taxes 61,014 11,099 (6,511) 65,602
Income taxes 25,400 322 2,803 28,525
----------- --------- --------- -----------
Net earnings $ 35,614 $ 10,777 $ (9,314) $ 37,077
=========== ========= ========= ===========
Net earnings per share:
Primary $ 1.71 $ 1.78
=========== ===========
Fully diluted $ 1.68 $ 1.75
=========== ===========
Weighted average shares
outstanding:
Primary 20,851 20,851
=========== ===========
Fully diluted 21,252 21,252
=========== ===========
See notes to pro forma consolidated financial statements.
</TABLE>
-4-
<PAGE> 6
KELLWOOD COMPANY AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
1. It is the opinion of the management of the registrant that
all pro forma adjustments necessary to present fairly the
combined financial position and results of operations of
Kellwood Company and Halmode Apparel, Inc. have been
reflected in the pro forma statements presented. The pro
forma information is not necessarily indicative of the
actual results that would have been achieved had Halmode
Apparel, Inc. been acquired at the beginning of 1994 and is
not necessarily indicative of future results.
Accounting policies are described in the Summary of
Significant Accounting Policies in the registrant's 1994
Annual Report to Shareowners. For additional information
regarding the registrant's financial condition, refer to the
footnotes accompanying the annual financial statements.
2. Total inventory at July 31, 1994 consists of:
<TABLE>
<S> <C>
Finished goods $114,453
Work in process 58,329
Raw materials 74,859
--------
$247,691
========
</TABLE>
If inventories were valued at current replacement costs,
they would have been increased by $9,546 at July 31, 1994.
-5-
