FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-4095
THOMAS NELSON, INC.
(Exact name of Registrant as specified in its charter)
Tennessee 62-0679364
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) number)
Nelson Place at Elm Hill Pike, Nashville, Tennessee 37214-1000
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (615) 889-9000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of<PAGE>
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
At November 9, 1994, the Registrant had outstanding 9,897,933 shares of
Common Stock and 795,233 shares of Class B Common Stock.
<TABLE>
Part I
Item 1. Financial Statements
THOMAS NELSON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
September 30, March 31, September 30,
1994 1994 1993
----------- ---------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,165 $ 788 $ 1,244
Accounts receivable, less
allowances of
$8,987, $8,345 and
$10,555 respectively 76,722 58,038 69,966
Inventories 67,041 66,994 60,389
Prepaid expenses 17,812 11,400 11,444
Deferred tax asset 12,673 12,673 4,703
----------- ----------- -----------
Total Current Assets 175,413 149,893 147,746
PROPERTY, PLANT AND EQUIPMENT 27,092 26,179 23,703
Less accumulated depreciation ( 9,926) ( 8,820) ( 7,673)
----------- ----------- -----------
17,166 17,359 16,030
2<PAGE>
OTHER ASSETS 13,934 12,054 11,430
DEFERRED CHARGES 4,662 4,179 4,508
GOODWILL 31,819 32,278 39,840
----------- ----------- -----------
TOTAL ASSETS $ 242,994 $ 215,763 $ 219,554
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 24,520 $ 20,798 $ 21,278
Accrued expenses 20,402 18,618 21,816
Dividends payable 428 428 423
Income taxes currently payable 3,314 4,471 1,784
Current portion of long-term debt 887 878 2,099
Current portion of capital
lease obligation 751 723 416
--------- ----------- -----------
Total Current Liabilities 50,302 45,916 47,816
LONG-TERM DEBT 122,773 102,618 106,622
CAPITAL LEASE OBLIGATION 478 861 770
DEFERRED TAX LIABILITY 768 768 1,065
OTHER LIABILITIES 1,486 2,875 4,923
SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value,
authorized 1,000,000 shares; none
issued - - -
Common stock, $1.00 par value,
authorized 20,000,000 shares;
issued 9,893,233, 9,891,233 and
9,882,192 shares, respectively 9,893 9,891 9,882
Class B common stock, $1.00 par
value, authorized 5,000,000
shares; issued 799,933, 799,933
and 801,474 shares, respectively 800 800 801
Additional paid-in capital 20,990 20,982 20,952
3<PAGE>
Retained earnings 34,874 30,651 26,348
Foreign currency translation
adjustments 630 401 375
--------- ----------- -----------
Total Shareholders' Equity 67,187 62,725 58,358
--------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 242,994 $ 215,763 $ 219,554
========== =========== ===========
See Accompanying Notes
</TABLE>
<TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
<CAPTION>
Six Months Ended Three Months Ended
September 30, September 30,
1994 1993 1994 1993
--------- -------- -------- --------
(Unaudited)(Unaudited) (Unaudited)(Unaudited)
<S> <C> <C> <C> <C>
NET REVENUES $ 119,615 $ 109,203 $ 70,512 $ 64,364
COST AND EXPENSES:
Cost of goods sold 60,621 56,091 35,347 33,134
Selling, general and
administrative 46,143 43,592 23,761 22,147
Amortization of goodwill and
non-compete agreements 877 988 437 531
---------- ---------- --------- ----------
Total 107,641 100,671 59,545 55,812
---------- ---------- --------- ----------
OPERATING INCOME 11,974 8,532 10,967 8,552
4<PAGE>
Other (income) expense ( 98) ( 62) ( 52) ( 93)
Interest expense 4,030 3,556 2,113 1,858
---------- ---------- --------- ---------
Income before income taxes 8,042 5,038 8,906 6,787
Provision for income taxes 2,963 1,643 3,283 2,227
---------- ---------- --------- ---------
Net income before cumulative
effect of change in
accounting principle 5,079 3,395 5,623 4,560
Cumulative effect of change in
accounting principle for
income taxes 0 336 0 0
---------- ---------- -------- ---------
NET INCOME $ 5,079 $ 3,731 $ 5,623 $ 4,560
========== ========== ======== =========
Weighted average
number of shares
outstanding 10,691 10,684 10,691 10,684
NET INCOME PER SHARE:
Before cumulative effect of
change in accounting
principle $ 0.48 $ 0.32 $ 0.53 $ 0.43
Cumulative effect of change
in accounting principle 0.00 0.03 0.00 0.00
----------- ----------- --------- ---------
Net income per share $ 0.48 $ 0.35 $ 0.53 $ 0.43
=========== =========== ========= =========
DIVIDENDS DECLARED PER SHARE $ 0.08 $ 0.08 $ 0.04 $ 0.04
=========== =========== ========= =========
See Accompanying Notes
</TABLE>
<TABLE>
5<PAGE>
THOMAS NELSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
Six Months Ended September 30,
-----------------------------
1994 1993
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 5,079 $ 3,731
Adjustments to reconcile net income to net
cash provided by (used in) operations:
Depreciation and amortization 3,085 2,803
Changes in assets and liabilities,
net of acquisitions:
Accounts receivable, net ( 18,184) ( 20,254)
Inventories 252 ( 6,359)
Prepaid expenses ( 6,363) ( 845)
Accounts payable and accrued
expenses 4,781 7,296
Income taxes currently payable and
deferred ( 1,157) 1,426
----------- -----------
Net Cash Used In Operating Activities ( 12,507) ( 12,202)
----------- -----------
Cash Flows From Investing Activities:
Capital expenditures ( 1,000) ( 666)
Proceeds from sale of property, plant and
equipment, excluding effects of
disposition ( 2) 24
Purchase of net assets of acquired
companies - net of cash ( 187) --
Proceeds from sales of business assets -- 4,155
Changes in other assets and deferred
6<PAGE>
charges ( 3,603) ( 4,042)
----------- -----------
Net Cash Used in Investing Activities ( 4,792) ( 529)
----------- -----------
Cash Flows From Financing Activities:
Net borrowings under line of credit 20,155 14,333
Payments under capital lease
obligation ( 355) ( 202)
Dividends paid ( 855) ( 845)
Changes in other liabilities ( 1,508) ( 294)
Proceeds from issuance of common stock 10 388
Common stock retired -- ( 101)
----------- -----------
Net Cash Provided by Financing Activities 17,447 13,279
----------- -----------
Effect of Translation Rate Changes 229 ( 104)
----------- -----------
Net Increase in Cash and Cash Equivalents 377 444
Cash and Cash Equivalents at Beginning of
Period 788 800
----------- -----------
Cash and Cash Equivalents at End of Period $ 1,165 $ 1,244
=========== ===========
Supplemental Disclosures of Non-cash
Investing and Financing Activities:
Dividends accrued and unpaid $ 428 $ 423
See Accompanying Notes
</TABLE>
THOMAS NELSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(A) - Basis of Presentation
7<PAGE>
The accompanying unaudited consolidated financial statements reflect all
adjustments (which are of a normal recurring nature) that are, in the opinion
of management, necessary for a fair statement of the results for the interim
periods presented. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to SEC rules and
regulations. The statements should be read in conjunction with the Summary of
Significant Accounting Policies and notes to the consolidated financial
statements included in the Company's annual report for the year ended March
31, 1994.
The balance sheet and related information in these notes as of March 31,
1994, have been taken from the audited consolidated financial statements as of
that date. Certain reclassifications have been made to conform presentation
of the fiscal 1994 Financial Statements with reclassifications made in fiscal
1995.
In March 1994, PPC, Inc. (Pretty Paper Company) became a wholly-owned
subsidiary of the Company through a pooling of interest transaction, and
accordingly financial statements have been restated to include the accounts
and operations of Pretty Paper Company for all periods prior to the
combination.
(B) - Inventories
Components of inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30, March 31, September 30,
1994 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
Finished goods $ 58,667 $ 58,463 $ 54,922
Raw materials and work in
process 8,374 8,531 5,467
------------ ----------- -----------
$ 67,041 $ 66,994 $ 60,389
8<PAGE>
============ =========== ===========
</TABLE>
(C) - Prepaid Expenses
Components of prepaid expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30, March 31, September 30,
1994 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
Direct marketing costs $ 4,629 $ 3,320 $ 2,216
Royalty advances & production
costs 11,048 7,096 7,129
Other 2,135 984 2,099
------------ ----------- -----------
$ 17,812 $ 11,400 $ 11,444
============ =========== ===========
</TABLE>
(D) - Other Assets
Components of other assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30, March 31, September 30,
1994 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
Prepaid royalties $ 8,416 $ 6,200 $ 6,190
Copyright production masters,
net of accumulated amortization
of $968, $789 and $513,
respectively 1,030 1,209 1,019
Non-compete agreements, net of
accumulated amortization of
$1,690, $1,214, and $830,
9<PAGE>
respectively 3,144 3,489 3,604
Other 1,344 1,156 617
------------ ----------- -----------
$ 13,934 $ 12,054 $ 11,430
============ =========== ===========
</TABLE>
(E) - Accrued Expenses
Components of accrued expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30, March 31, September 30,
1994 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
Accrued interest $ 1,222 $ 969 $ 905
Accrued royalties 11,431 9,980 11,949
Accrued payroll 2,749 3,043 2,686
Contractual commitments 1,603 1,626 1,174
Deferred subscriptions revenues 656 699 773
Other 2,741 2,301 4,329
------------ ----------- -----------
$ 20,402 $ 18,618 $ 21,816
============ =========== ==========
</TABLE>
(F) - Cash Dividend
On May 24, 1994, the Company's directors declared a cash dividend of $.04
per share. The dividend was paid August 15, 1994, to shareholders of record
on August 1, 1994.
On August 25, 1994, the Company's directors declared a cash dividend of
$.04 per share. The dividend is payable November 21, 1994, to shareholders of
record on November 7, 1994.
10<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
The following table sets forth certain selected statements of income data
expressed as a percentage of net revenues and the percentage change in dollars
in such data from the prior fiscal year.
<TABLE>
<CAPTION>
Six Months Ended
September 30, Increase
-------------------
1994 1993 (Decrease)
-------- -------- -----------
<S> <C> <C> <C>
Net revenues 100.0% 100.0% 9.5%
Cost and expenses:
Cost of goods sold 50.7 51.4 8.1%
Selling, general and
administrative 38.6 39.9 5.9%
Amortization of goodwill and
non-compete agreements 0.7 0.9 -11.2%
-------- --------
Total 90.0 92.2 6.9%
-------- --------
Operating income 10.0 7.8 40.3%
Income before income taxes 6.7 4.6 59.6%
Net income before cumulative effect
of change in accounting principle 4.2 3.1 49.6%
Net income 4.2 3.4 36.1%
</TABLE>
The Company's quarterly operating results may fluctuate significantly due
to the seasonality of new product introductions, the timing of selling and
marketing expenses, and changes in sales and product mixes. In addition, the
Company's net revenues normally fluctuate seasonally, with net revenues in the
second and third fiscal quarters historically being greater than those in the
11<PAGE>
first and fourth fiscal quarters. This seasonality is the result of increased
consumer purchases of the Company's products during the traditional year-end
holidays.
Results of Operations
Net revenues increased by $10.4 million or approximately 10% for the first
six months and $6.1 million or approximately 10% for the second quarter of
fiscal 1995 when compared to the previous year. The increase was primarily
due to volume increases arising from the introduction of new book, gift, Bible
and music products. Price increases did not have a material effect.
The Company's cost of goods sold increased by $4.5 million for the first
six months and as a percentage of net revenues decreased from the previous
year's 51.4% to 50.7%. Cost of goods sold increased for the second fiscal
quarter by $2.2 million or approximately 7% over fiscal 1994, and as a
percentage of net revenues decreased from the previous year's 51.5% to 50.1%.
The decrease of cost of goods sold, as a percentage of net revenues, was the
result of changes in the mix of products and market channels. Generally,
books, music and gift product lines have greater gross margins than Bible
products. Direct marketing revenues, a growing distribution channel, have
greater gross margins than sales to retail stores and mass merchandisers.
Selling, general and administrative expenses increased over the previous
fiscal year by $2.6 million for the six months or approximately 6% and for the
quarter by $1.6 million or approximately 7%. These expenses as a percentage
of net revenues decreased from the previous year-to-date of 39.9% to 38.6% and
for the three months from 34.4% to 33.7% primarily due to the decreases in
salaries and benefits related to synergies realized from the continued
consolidation of certain functions of the Nelson and Word divisions.
Amortization of goodwill and non-compete agreements decreased 11% from the
prior six months due to purchase price adjustments relating to the acquisition
of Word, Incorporated.
Interest expense increased 14% and 15% for the first six months and second
quarter, respectively, over the prior year period due to increased borrowings
used for working capital needs and higher interest rates.
Liquidity and Capital Resources
12<PAGE>
The primary sources of liquidity to meet the Company's future obligations
and working capital needs are the cash generated by its operations,
collections of its accounts receivable, and the credit available pursuant to
its $80 million credit facilities, that may be used for working capital
requirements and other business purposes. At September 30, 1994, the Company
had approximately $19.1 million available in long-term credit under its credit
facilities.
During the three months ended September 30, 1994, capital expenditures
totaled approximately $1.0 million. The Company has no plans that will
require significant capital expenditures for fiscal year ending March 31,
1995.
PART II
Item 4. Submission of Matters to a Vote of Security Holders at the Company's
Annual Meeting of Shareholders, which was held on August 25, 1994,
the following proposal was approved:
The election of two directors to serve for a term of three years
expiring at the Annual Meeting of Shareholders to be held in 1997
and until their successors are duly elected and qualified. The
persons nominated for election to the Board of Directors received
the number of total votes (Common and Class B) shown opposite their
respective names:
<TABLE>
<CAPTION>
For Against Withheld
--------- ------- --------
<S> <C> <C> <C>
Robert J. Niebel, Sr. 14,504,254 0 38,048
Millard V. Oakley 14,504,254 0 37,848
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
Exhibit 10 - Agreement and Plan of Merger among Thomas Nelson, Inc.,
13<PAGE>
PPC, Inc., Nelson Subsidiary Company, and the
shareholders of the Company (not including exhibits or
schedules thereto)
Exhibit 27 - Financial Data Schedule
(b) No Form 8-K was filed by the Company during the quarter ended
September 30, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Thomas Nelson, Inc.
(Registrant)
November 11, 1994 BY /s/ Joe L. Powers
------------------------------- -------------------------------------
Joe L. Powers
Vice President, Secretary
(Chief Accounting Officer)
14<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated March 31, 1994
("Agreement") among Thomas Nelson, Inc., a Tennessee corporation
("Nelson"), PPC, Inc., a North Carolina corporation (the
"Company"), Nelson Subsidiary Company, a North Carolina
corporation ("Sub") and the shareholders of the Company, all of
whom have executed a signature page of this Agreement
(individually, a "Shareholder" and collectively, the
"Shareholders").
RECITALS:
A. Nelson, the Company, Sub and the Shareholders deem it
advisable and in the best interests of each of them that the
Company combine with Nelson through a merger of the Company and
Sub.
B. For federal income tax purposes, it is intended that
the merger provided for herein shall qualify as a reorganization
within the meaning of Section 368(a)(2)(E) of the Internal
Revenue Code of 1986, as amended (the "Code"), and for financial
accounting purposes shall be accounted for as a "pooling of
interests."
C. Eric Presley and Clay Presley are Shareholders and
executive officers of the Company and, in such capacities, are
familiar with the operations of the Company (collectively, the
"Management Shareholders").
D. Nelson, Sub, the Company, the Management Shareholders
and the Shareholders desire to make certain representations,
warranties and agreements in connection with the merger.
NOW, THEREFORE, in consideration of the foregoing, and of
the representations, warranties, covenants and agreements
contained herein, the parties hereto hereby agree as follows:
ARTICLE 1.
THE MERGER
1.1. Merger. Upon the terms hereof and subject to the
satisfaction or waiver, if permissible, of the conditions set
forth in Article 5, and in accordance with the North Carolina
Business Corporation Act (the "NCBCA"), Sub shall be merged with
and into the Company (the "Merger"). The Merger will occur at a
closing (the "Closing"), which will occur at the Effective Time
(as hereinafter defined) and pursuant to this Agreement and the
Articles of Merger substantially in the form of Exhibit A hereto
(the "Articles of Merger"). The Closing shall take place at the
offices of Bass, Berry & Sims, 2700 First American Center,
<PAGE>
Nashville Tennessee, at 9:00 a.m., local time, on March 31, 1994
or at such other time and at such other place as the parties
hereto may agree. The date on which the Closing occurs is
hereinafter referred to as the "Closing Date."
1.2. Effective Time. As soon as practicable after
satisfaction or waiver of all conditions to the Merger set forth
herein, the Articles of Merger shall be filed with the Secretary
of State of the State of North Carolina. The Merger shall become
effective upon such filings or at such later time as provided by
applicable law (the "Effective Time").
1.3. Effect of the Merger. The Merger shall have the
effects set forth in Section 55-11-06 of the NCBCA. At the
Effective Time of the Merger, Sub shall be merged with and into
the Company and the separate corporate existence of Sub shall
thereupon cease. The Company shall be the surviving corporation
in the Merger (the "Surviving Corporation"), and the separate
corporate existence of the Company with all its purposes,
objects, rights, privileges, powers and franchises shall continue
unaffected and unimpaired by the Merger.
1.4. Conversion of Shares.
(a) At the Effective Time, by virtue of the Merger and
without any action on the part of the holder of any Common
Stock, $1.00 par value, of the Company ("Company Common
Stock") or Common Stock, $1.00 par value, of Sub ("Sub
Common Stock") (i) each share of Company Common Stock
outstanding immediately prior to the Effective Time,
excluding shares held by the Company as treasury stock,
shall be converted into 8.8889 shares of Common Stock, $1.00
par value, of Nelson ("Nelson Common Stock"); and each
outstanding share of Sub Common Stock shall be converted
into one share of Common Stock of the Surviving Corporation
and shall constitute the only issued and outstanding Common
Stock of the Surviving Corporation, and each certificate
evidencing ownership of Sub Common Stock shall evidence
ownership of the same number of shares of Common Stock of
the Surviving Corporation.
(b) In the event that subsequent to the date hereof
and prior to the Effective Time, Nelson shall effect a stock
split, reverse stock split, stock dividend, recapitalization
or reorganization or similar transaction affecting its
capitalization or shall make or declare to shareholders of
record prior to the Effective Time any stock dividend with
respect to its capital stock, then, in any such event, the
number of shares of Nelson Common Stock to be issued to
shareholders of the Company pursuant to Section 1.4(a) above
shall be appropriately adjusted.
2
<PAGE>
(c) At the Effective Time, all shares of Company
Common Stock that are held by the Company as treasury stock
shall be canceled and no Nelson Common Stock shall be
delivered in exchange therefor under this Agreement.
(d) From and after the Effective Time, the holders of
certificates formerly representing Company Common Stock
shall cease to have any rights with respect thereto and
their sole right shall be to receive cash and Nelson Common
Stock pursuant to Section 1.5 and Section 1.6.
1.5. No Fractional Shares. No fractional shares of Nelson
Common Stock shall be issued. In lieu thereof, each holder of
the Company Common Stock who otherwise would be entitled to a
fractional share of Nelson Common Stock shall, upon surrender of
such holder's certificate, be entitled to receive a cash payment
(without interest) equal to the product of such fractional share
and $200.00.
1.6. Exchange of and Payment For Certificates. From and
after the Effective Time, each holder of a certificate for
outstanding shares of Company Common Stock shall receive in
exchange therefor, upon surrender thereof to Thomas Nelson, Inc.,
Nelson Place at Elm Hill Pike, P.O. Box 141000, Nashville,
Tennessee 37214, Attention: Joe L. Powers, a certificate or
certificates representing the number of whole shares of Nelson
Common Stock into which such number of shares of Company Common
Stock represented by such certificate has been converted in
accordance with Section 1.4(a) above and, in respect of any
fractional share, a cash payment in accordance with Section 1.5
above. If any certificate for shares of Nelson Common Stock is
to be issued in a name other than that in which the certificate
surrendered is registered, the person requesting such issuance
shall pay any transfer or other taxes required, or establish to
the satisfaction of Nelson that such tax has been paid or is not
applicable.
1.7. Shareholder Approval. The execution of this Agreement
by the Shareholders shall constitute their written consent to the
transactions contemplated hereby, in lieu of a meeting, in
accordance with Section 55-7-04 of the NCBCA.
1.8. Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and no transfer of
Company Common Stock shall thereafter be made.
3
<PAGE>
1.9. Articles of Incorporation, Bylaws and Directors and
Officers of the Surviving Corporation.
(a) Articles of Incorporation. The Articles of
Incorporation of Sub in effect immediately prior to the
Effective Time of the Merger shall be the Articles of
Incorporation of the Surviving Corporation unless and until
amended as provided by law.
(b) Bylaws. The bylaws of Sub in effect immediately
prior to the Effective Time of the Merger shall be the
bylaws of the Surviving Corporation unless and until amended
or repealed as provided by law.
(c) Directors and Officers. The directors of Sub on
the Effective Time of the Merger shall be the directors of
the Surviving Corporation, and the officers of Sub on the
Effective Time of the Merger shall be the officers of the
Surviving Corporation, in both cases until their successors
shall have been elected and shall qualify or until otherwise
provided by law.
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES
OF NELSON AND SUB
Nelson and Sub hereby jointly and severally represent and
warrant to the Company and the Shareholders that:
2.1. Corporate Organization. Each of Nelson, Sub and the
other subsidiaries of Nelson is a corporation duly organized,
validly existing and in good standing under the laws of its state
of incorporation and each has the requisite corporate power and
authority to own, lease and operate its properties and conduct
its business. Nelson and each of its subsidiaries is duly
qualified to transact business as a foreign corporation and is in
good standing in each jurisdiction in which it owns or leases
property of a nature or transacts business of a type, that would
make such qualification necessary, except for such failures to be
qualified or to be in good standing, if any, which individually
or in the aggregate, would not have a Material Adverse Effect (as
hereinafter defined) on Nelson and its subsidiaries taken as a
whole. For purposes of this Agreement, "Material Adverse Effect"
means any claims, circumstances, developments, occurrences,
states of fact or matters which result in losses or the
expenditure or commitment of $10,000 or more per individual claim
and $50,000 or more in the aggregate for all such claims, with
respect to the business, operations, assets, financial condition
or results, or prospects in respect of the business of the
Company or Nelson, as the case may be.
4
<PAGE>
2.2. Authority. Nelson and Sub have the requisite corporate
power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby, including the
execution and delivery of any other agreements and documents
contemplated by this Agreement. The execution and delivery of
this Agreement and the consummation of the transactions
contemplated hereby have been duly approved by the respective
Boards of Directors of Nelson and Sub and by Nelson, as the sole
shareholder of Sub, and no other corporate proceedings on the
part of Nelson or Sub are necessary to consummate the
transactions so contemplated, including the delivery of the
Nelson Common Stock. This Agreement has been duly executed and
delivered by Nelson and Sub and constitutes the legal, valid and
binding obligation of Nelson and Sub, enforceable against each of
Nelson and Sub in accordance with its terms.
2.3. Disclosure. Nelson has delivered to the Company copies
of Nelson's Annual Report on Form 10-K for the fiscal year ended
March 31, 1993, Quarterly Reports on Form 10-Q for the quarterly
periods ending June 30, 1993, September 30, 1993 and December 31,
1993 and proxy statement dated July 21, 1993 (such filings being,
collectively, the "Nelson Filings"). The Nelson Filings complied
in all material respects with the regulations of the Securities
and Exchange Commission ("SEC"), and none of the Nelson Filings,
as of the respective dates thereof, contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were
made, not misleading. Nelson has for the twelve months prior to
the date hereof filed with the SEC all reports and registration
statements and all other filings required to be filed with the
SEC pursuant to the Securities Act of 1933, as amended (the
"Securities Act") and the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
2.4. Consents and Approvals; No Violation. Neither the
execution and delivery of this Agreement by Nelson or Sub nor the
consummation by Nelson or Sub of the transactions contemplated
hereby will (a) conflict with, or result in any breach or
violation of, any provision of their respective charters or
bylaws, (b) violate, conflict with, breach, constitute a default
(or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in the creation
of any lien or other encumbrance upon any of the properties or
assets of Nelson or Sub under any of the terms, conditions, or
provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement, or other instrument or obligation to
which Nelson or Sub is a party or to which they or any of their
respective properties or assets are subject, except for such
violations, conflicts, breaches, defaults, terminations,
accelerations or creations of liens or other encumbrances, that,
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individually or in the aggregate, would not have a Material
Adverse Effect, (c) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Nelson or Sub, except
for orders, writs, injunctions, decrees, statutes, rules and
regulations, the violation of which would not have a Material
Adverse Effect, or (d) require any consent, approval,
authorization or permit of or from, or filing with or
notification to, any court, governmental authority, or other
regulatory or administrative agency or commission, domestic or
foreign ("Governmental Entity"), except (i) the registration,
qualification or approval for sale under any applicable blue sky
or securities laws of the shares of Nelson Common Stock to be
issued pursuant to this Agreement, (ii) filings, if any, pursuant
to the Exchange Act, (iii) filings required in connection with
the Merger pursuant to the NCBCA or (iv) consents, approvals,
authorizations, permits, filings or notifications which, if not
obtained or made, will not, individually or in the aggregate,
have a Material Adverse Effect.
2.5. Fees. Neither Nelson nor Sub has paid or become
obligated to pay any fee or commission to any broker, finder or
similar intermediary in connection with the transactions
contemplated hereby or in connection with any offer to acquire
the Company Common Stock or assets.
2.6. Capitalization of Nelson. The authorized capital stock
of Nelson consists of 1,000,000 shares of Preferred Stock, $1.00
par value ("Nelson Preferred Stock"), 20,000,000 shares of Nelson
Common Stock and 5,000,000 shares of Class B Common Stock, $1.00
par value ("Nelson Class B Common Stock). As of December 31,
1993, there were 9,766,670 shares of Nelson Common Stock issued
and outstanding, 801,445 shares of Nelson Class B Common Stock
issued and outstanding, and no shares of Nelson Preferred Stock
issued and outstanding.
2.7. Financial Statements. Nelson has heretofore delivered
to the Company its Annual Report to Shareholders for the fiscal
year ended March 31, 1993 (which report includes consolidated
financial statements as of and for such fiscal year, and the
accompanying report of its independent public accountants, Arthur
Andersen & Co.), and has also delivered to the Company its
quarterly reports on Form 10-Q for the quarters ended June 30,
1993, September 30, 1993 and December 31, 1993. The March 31,
1993 annual financial statements together with the consolidated
financial statements included within the Form 10-Q reports
referred to above, including any notes and related schedules, are
collectively referred to herein as the "Nelson Financial
Statements." The Nelson Financial Statements (a) are in all
material respects in accordance with the books and records of
Nelson, (b) set forth fairly in all material respects the
financial position, results of operations, retained earnings and
cash flows of Nelson and its consolidated subsidiaries as at and
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for the periods therein specified and (c) are prepared in
accordance with generally accepted accounting principles applied
on a consistent basis for the periods reported except as may be
noted therein.
2.8. Absence of Certain Changes. Since December 31, 1993
there has not been any material adverse change in the financial
condition, results of operations, assets or business of Nelson
and its subsidiaries, taken as a whole, other than changes in the
ordinary course of business.
2.9. Common Stock of Nelson to be Delivered. The shares of
Nelson Common Stock into which the shares of Company Common Stock
will be converted pursuant to this Agreement have been duly and
validly authorized by all necessary corporate action on the part
of Nelson and will, when so converted and delivered, upon
surrender of such shares of Company Common Stock, be validly
issued, fully paid and nonassessable.
2.10. Pooling of Interests. To the actual knowledge of
the executive officers of Nelson and Sub, after consulting with
independent accountants or other advisors, neither Nelson nor Sub
has taken or failed to take any action which would prevent the
accounting for the Merger as a pooling of interests in accordance
with Accounting Principles Board Opinion No. 16, the
interpretative releases issued pursuant thereto; and the
pronouncements of the SEC.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SHAREHOLDERS
A. Representations and Warranties by the Company and the
Management Shareholders.
The Company and the Management Shareholders hereby jointly
and severally represent and warrant to Nelson and Sub that:
3.1. Corporate Organization. The Company is a corporation
duly organized, validly existing, and in good standing under the
laws of the State of North Carolina and has the requisite
corporate power and authority to own, lease and operate its
properties and conduct its business; and the Company is duly
qualified to transact business as a foreign corporation and is in
good standing in the jurisdictions set forth on Schedule 3.1
hereto, which are the only jurisdictions in which the Company
owns or leases property of a nature, or transacts business of a
type, that would make such qualification necessary, except for
such failure to be qualified or to be in good standing, if any,
which individually or in the aggregate would not have a Material
Adverse Effect.
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3.2. Subsidiaries and Other Interests. The Company has no
direct or indirect subsidiaries, or any interest or investment in
any corporation, partnership, joint venture, business trust or
other entity.
3.3. Capitalization. The authorized capital stock of the
Company consists of 100,000 shares of Company Common Stock. As
of the date of this Agreement, 10,000 shares of Company Common
Stock were validly issued and outstanding, fully paid and
nonassessable, and not subject to any preemptive rights. Except
as set forth above, there are no other shares of capital stock of
the Company authorized, issued or outstanding and there are no
outstanding subscriptions, options, warrants, rights, convertible
securities or any other agreements or commitments of any
character relating to the issued or unissued capital stock or
other securities of the Company obligating the Company to issue,
deliver or sell or cause to be issued, delivered or sold,
additional shares of capital stock of the Company or obligating
the Company to grant, extend, or enter into any subscription,
option, warrant, right, convertible security or other similar
agreement or commitment. There are no outstanding obligations of
the Company to repurchase, redeem or otherwise acquire any
securities of the Company. Following the Effective Time, the
Company will not have any obligation to issue, transfer,
contribute or sell any shares of capital stock or other
securities of the Company pursuant to any employee benefit plan
as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or any employment,
severance, or other similar contract, arrangement or policy or
any plan or arrangement providing for insurance coverage,
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 compensation or
benefits (including post-retirement insurance, compensation, or
benefits) which, in each case, (i) is maintained, administered or
contributed to by the Company or any of its affiliates, and (ii)
covers any employee or former employee of the Company or any of
its affiliates or under which the Company or any of its
affiliates has any liability, or otherwise. There are no voting
trusts or other agreements or understandings to which the Company
is a party with respect to the voting of the capital stock of the
Company.
3.4. Authority. The Company has the requisite corporate
power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby, including the
execution and delivery of any other agreements and documents
contemplated by this Agreement. The execution and delivery of
this Agreement and the consummation of the transactions
contemplated hereby have been duly approved by the Board of
Directors and Shareholders of the Company and no other corporate
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proceedings on the part of the Company are necessary to authorize
this Agreement or to consummate the transactions so contemplated.
This Agreement has been duly executed and delivered by, and
constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
3.5. Consents and Approvals; No Violation. Except as set
forth on Schedule 3.5 hereto, neither the execution and delivery
of this Agreement by the Company nor the consummation by the
Company of the transactions contemplated hereby will (a) conflict
with, or result in any breach or violation of, any provision of
its articles of incorporation or bylaws; (b) violate, conflict
with, breach, constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default)
under, or result in the termination of, or accelerate the
performance required by, or result in the creation of any lien or
other encumbrance upon any of the properties or assets of the
Company under, any of the terms, conditions, or provisions of any
note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which the Company
is a party or to which any of its properties or assets are
subject, except for such violations, conflicts, breaches,
defaults, terminations, accelerations or creations of liens or
other encumbrances that individually or in the aggregate would
not have a Material Adverse Effect; (c) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the
Company, except for orders, rents, injunctions, decrees,
statutes, rules and regulations, the violation of which
individually or in the aggregate would not have a Material
Adverse Effect; or (d) require any consent, approval,
authorization or permit of or from, or filing with or
notification to, any Governmental Entity, except (i) the
registration, qualification or approval for sale under any
applicable blue sky and securities laws of the shares of Nelson
Common Stock to be issued pursuant to this Agreement,
(ii) filings, if any, pursuant to the Exchange Act, (iii) filings
required in connection with the Merger pursuant to the NCBCA or
(iv) consents, approvals, authorizations, permits, filings or
notifications which if not obtained or made, will not
individually or in the aggregate have a Material Adverse Effect.
3.6. Financial Statements; Pooling of Interests.
(a) The Company has delivered to Nelson copies of:
(a) balance sheets of the Company as of December 31, 1993
and 1992, (b) statements of income (loss) and retained
earnings of the Company for the three years ended December
31, 1993; and (c) statements of cash flows of the Company
for the three years ended December 31, 1993. The financial
statements (including the notes thereto) referred to in
subsections (a) through (c) of this Section 3.6 are
hereinafter referred to as the "Company Audited Statements".
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The Company Audited Statements have been audited and
reported on by Cherry Bekaert & Holland, independent
certified public accountants. The Company shall deliver to
Nelson promptly after the issuance thereof any financial
statements which the Company may subsequently issue prior to
the Effective Time with respect to quarterly periods ending
subsequent to those covered by the Company Audited
Statements, and, as hereinafter used, the term "Company
Audited Statements", or the specific reference to any
components thereof, shall include any such subsequently
issued financial statements. The Company Audited Statements
have been prepared in conformity with generally accepted
accounting principles (except as noted therein) applied on a
consistent basis throughout the periods indicated and fairly
present, in all material respects, as of their respective
dates and for their respective periods the financial
position, results of operations, retained earnings and cash
flows of the Company.
(b) During the two years prior to the date hereof (the
"Covered Period"), other than as set forth in Schedule 3.6
hereto,
(i) the Company has not made or instituted any
changes in the equity interest of its voting common stock,
including but not limited to any distributions to
stockholders, and additional issuances, exchanges and
retirements of securities (including but not limited to any
exchange of equity for debt);
(ii) there has been no payment of an extra
dividend that is a substitute for a previously paid bonus to
any employee of the Company;
(iii) there has been no alteration in the
equity interest of the Company through or as a result of any
business combination;
(iv) there are no agreements between the Company
and any of its shareholders prohibiting such shareholder
from acquiring additional shares of the Company or its
successors (including Nelson) for a period of years
("standstill agreement");
(v) the Company has not sold a significant
segment of its assets;
(vi) the Company has not concluded any spin-off of
assets;
(vii) the Company has not granted any options,
warrants, stock appreciation rights, or similar equity-based
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<PAGE>
rights. To the extent such rights have been granted they
have been rescinded and no shares have been issued under the
terms thereof. Furthermore, during the Covered Period there
has been no change in the original terms of any stock
option, warrant, stock appreciation right or similar right
granted prior to the Covered Period. Furthermore, during
the Covered Period there has been no issuance of bonus
shares or any other shares by the Company to employees
(shareholder or nonshareholder);
(viii) the Company has not reacquired shares of
voting common stock for any purpose during the Covered
Period, nor has the Company engaged in any transactions with
respect to treasury stock during the Covered Period; and
(ix) the Company has not owned, nor does the
Company own as of the date hereof, any shares of the capital
stock of Nelson.
3.7. Employee and Fringe Benefits Plans.
(a) Schedule 3.7 hereto sets forth the names, ages and
titles of all members of the Board of Directors and officers
of the Company and all employees of the Company earning in
excess of $10,000 per annum, and the annual rate of
compensation (including bonuses) being paid to each such
member of the Board of Directors, officer and employee as of
the most recent practicable date.
(b) Schedule 3.7 hereto lists each employment, bonus,
deferred compensation, pension, stock option, stock
appreciation right, profit-sharing or retirement plan,
arrangement or practice, each medical, vacation, retiree
medical, severance pay plan, and each other agreement or
fringe benefit plan, arrangement or practice, of the
Company, whether legally binding or not, which affects one
or more of its employees, including all "employee benefit
plans" as defined by Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")
(collectively, the "Plans"). All Plans which are subject to
Title IV of ERISA or the minimum funding standards of
Section 412 of the Code shall be referred to as the "Pension
Plans."
(c) For each Plan which is an "employee benefit plan"
under Section 3(3) of ERISA, the Company has delivered to
Nelson correct and complete copies of the plan documents and
summary plan descriptions, the most recent determination
letter received from the Internal Revenue Service, the most
recent Form 5500 Annual Report, and all related trust
agreements, insurance contracts and funding agreements which
implement each such Plan.
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(d) The Company does not have any commitment, whether
formal or informal and whether legally binding or not,
(i) to create any additional such Plan; (ii) to modify or
change any such Plan; or (iii) to maintain for any period of
time any such Plan. Schedule 3.7 hereto contains an
accurate and complete description of the funding policies
(and commitments, if any) of the Company with respect to
each such existing Plan.
(e) The Company has no unfunded past service liability
in respect of any of its Plans; the actuarially computed
value of vested benefits under any Pension Plan of the
Company (determined in accordance with methods and
assumptions utilized by the Pension Benefit Guaranty
Corporation ("PBGC") applicable to a plan terminating on the
date of determination) does not exceed the fair market value
of the fund assets relating to such Pension Plan; neither
the Company nor any Plan nor any trustee, administrator,
fiduciary or sponsor of any Plan has engaged in any
prohibited transactions as defined in Section 406 of ERISA
or Section 4975 of the Code for which there is no statutory
exemption in Section 408 of ERISA or Section 4975 of the
Code; all filings, reports and descriptions as to such Plans
(including Form 5500 Annual Reports, Summary Plan
Descriptions, PBGC-1's and Summary Annual Reports) required
to have been made or distributed to participants, the
Internal Revenue Service, the United States Department of
Labor and other governmental agencies have been made in a
timely manner or will be made on or prior to the Effective
Time; there is no material litigation, disputed claim,
governmental proceeding or investigation pending or
threatened with respect to any of such Plans, the related
trusts, or any fiduciary, trustee, administrator or sponsor
of such Plans; such Plans have been established, maintained
and administered in all material respects in accordance with
their governing documents and applicable provisions of ERISA
and the Code and Treasury Regulations promulgated
thereunder; there has been no "Reportable Event" as defined
in Section 4043 of ERISA with respect to any Pension Plan
that has not been waived by the Pension Benefit Guaranty
Corporation; and each Pension Plan and each Plan which is
intended to be a qualified plan under Section 401(a) of the
Code has received, within the last three years, a favorable
determination letter from the Internal Revenue Service.
(f) The Company has complied in all material respects
with all applicable federal, state and local laws, rules and
regulations relating to employees' employment and/or
employment relationships, including, without limitation,
wage related laws, anti-discrimination laws, employee safety
laws and COBRA (defined herein to mean the requirements of
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Code Section 4980B, Proposed Treasury Regulation Section
1.162-26 and Part 6 of Subtitle B of Title I of ERISA).
(g) The consummation of the transactions contemplated
by this Agreement will not (i) result in the payment or
series of payments by the Company to any employee or other
person of an "excess parachute payment" within the meaning
of Section 280G of the Code, (ii) entitle any employee or
former employee of the Company to severance pay,
unemployment compensation or any other payment, and (iii)
accelerate the time of payment or vesting of any stock
option, stock appreciation right, deferred compensation or
other employee benefits under any Plan (including vacation
and sick pay).
(h) None of the Plans which are "welfare benefit
plans," within the meaning of Section 3(1) of ERISA, provide
for continuing benefits or coverage after termination or
retirement from employment, except for COBRA rights under a
"group health plan" as defined in Code Section 4980B(g) and
ERISA Section 607.
(i) Neither the Company nor any "affiliate" of the
Company (as defined in ERISA) has ever participated in or
withdrawn from a multi-employer plan as defined in Section
4001(a)(3) of Title IV of ERISA, and the Company has not
incurred and does not owe any liability as a result of any
partial or complete withdrawal by any employer from such a
multi-employer plan as described under Sections 4201, 4203,
or 4205 of ERISA.
(j) No Pension Plan has been completely or partially
terminated, nor has any proceeding been instituted by the
PBGC to terminate any such Pension Plan; the Company has not
incurred, and does not presently owe, any liability to the
PBGC or the Internal Revenue Service with respect to any
Pension Plan including, but not by way of limitation, any
liability for PBGC premiums or excise taxes under Code
Section 4971.
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3.8. Taxes.
(a) The Company (i) has duly filed with the
appropriate federal, state, local, and foreign taxing
authorities all Tax Returns (as hereinafter defined)
required to be filed by or with respect to the Company, and
such Tax Returns are true, correct and complete in all
material respects, (ii) has paid in full or made adequate
provision on its balance sheet (in accordance with generally
accepted accounting principles) for the payment of all Taxes
(as hereinafter defined) required to be paid by the Company
other than those Taxes with respect to which the failure to
pay or to so provide adequate provision for would not have a
material adverse effect on the business, financial condition
or results of operations of the Company, (iii) have not made
the consent provided for in Section 341(f) of the Code (or
any corresponding provision of state, local, or foreign
income tax law) or agreed to have Section 341(f)(2) of the
Code (or any corresponding provision of state, local, or
foreign income tax law) apply to any disposition of an asset
owned by it, (iv) has not granted or been requested to grant
any extension of the limitation period applicable to any
claim for taxes or assessments with respect to Taxes, and
(v) has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor or
shareholder.
(b) The Management Shareholders have no knowledge of
any proposed tax assessment against the Company.
(c) For the purposes of this Agreement, (i) "Taxes"
means all taxes, charges, fees, duties, levies, penalties,
or other assessments imposed by any United States federal,
state, local, or foreign taxing authority, including without
limitation income, excise, gross receipts, business,
property, sales, use, service, occupancy, privilege,
license, transfer, franchise, profits, payroll, withholding,
unemployment, social security, or other taxes, including any
interest, penalties, or additions to tax attributable
thereto, and (ii) "Tax Return" means any return, report,
information return, or other document (including any related
or supporting information) with respect to Taxes.
(d) Since its incorporation and through the date
hereof, the Company has elected S Corporation status under
the Code. Throughout that period, the Company has been in
compliance with all applicable provisions of the Code and
regulations promulgated thereunder relating to eligibility
as an S Corporation.
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3.9. Litigation. Except as set forth on Schedule 3.9
hereto, there is no action, suit, proceeding or investigation
pending or, to the actual knowledge of the Company and the
Management Shareholders, threatened against the Company.
3.10. Labor. There has not been any strike, slowdown,
picketing, work stoppage, labor arbitration or proceeding in
respect of the grievance of any employee, an application or
complaint filed by an employee or union with the National Labor
Relations Board or any comparable state or local agency,
organizational activity or other labor dispute (collectively, a
"Labor Dispute") against or affecting the Company. No Labor
Dispute exists with or is being threatened by the employees of
the Company which could have a Material Adverse Effect on the
Company. There are no collective bargaining agreements in
effect between the Company and labor unions or organizations
representing any of the employees of the Company.
3.11. Title and Related Matters. Except as reflected in
the Company Audited Statements, the Company has good and
marketable title to all the properties, interest in properties
and assets, real and personal, reflected in the balance sheet as
of December 31, 1993 referred to in Section 3.6, or acquired
after December 31, 1993 (except properties, interests and assets
sold or otherwise disposed of since December 31, 1993 in the
ordinary course of business), free and clear of all mortgages,
liens, pledges, charges and other encumbrances and imperfections
except (a) liens of current taxes not yet due and payable and (b)
mortgages, liens, pledges, charges and other encumbrances and
imperfections referred to in the notes to such balance sheet, or
which do not detract from or interfere with the present use of
the properties subject thereto or affected thereby, or otherwise
impair present business operations at such properties. The
structures and equipment of the Company comply in all material
respects with the requirements of all applicable federal, state
or local laws, regulations, ordinances or orders of any
governmental authority, including those relating to zoning,
building or use permits. To the actual knowledge of the Company
and the Management Shareholders, all such structures and
equipment material to the Company's business are in good repair
and operating order, ordinary wear and tear excepted. All leases
pursuant to which the Company leases any real property are valid
and subsisting, and all leases requiring monthly payments of in
excess of $1,000 or annual payments in excess of $12,000 pursuant
to which the Company leases personal property are valid and
subsisting, and there is not as of the date of this Agreement
under any of such leases any material default by the Company or
by any other party which default is known to the Company or any
event that with the passage of time or the giving of notice or
both would constitute such a material default. Following the
Merger, the Company will continue to have good and marketable
leasehold title to the property, real and personal, now leased by
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the Company free and clear of any claims, liens, mortgages,
options, charges, security interests, restrictions, easements,
rights, privileges and encumbrances and, except as set forth on
Schedule 3.11 hereto, the Merger will not result in any increase
in rents or charges under any lease. Copies of all such leases
have been made available to Nelson.
3.12. Contracts and Commitments; No Default. Except as
reflected in the Company Audited Statements or in Schedule 3.12
hereto, the Company is not a party to any oral or written
(a) agreement, commitment, contract or indenture relating to the
borrowing of money by the Company; (b) guaranty of any obligation
for the borrowing of money or otherwise; (c) consulting or other
similar contract providing for the rendering of managerial or
personal services; or (d) other contract, agreement or commitment
not in the ordinary course of business or involving more than
$10,000. Except as set forth in Schedule 3.12 hereto, the
Company has in all material respects performed all obligations to
be performed by it under all contracts, licenses, agreements and
commitments to which it is a party, and there is not under any
such contracts, licenses, agreements or commitments any existing
default or event of default or event which with notice or lapse
of time or both would constitute a default. Complete and
accurate copies of all contracts, licenses, agreements and
commitments and other items so described in Schedule 3.12 will be
made available to Nelson. Between the date hereof and the
Effective Time, the Company will not, without the prior written
consent of Nelson, enter into or amend any contract, license,
agreement or other instrument of any of the types listed in this
Section 3.12.
3.13. Insurance. The Company has provided to Nelson
complete copies of all policies of insurance relating to
properties of the Company. The principal policies of fire,
liability and other forms of insurance held by the Company will
be outstanding and in full force at all times from the date
hereof to the Effective Time, and the Company agrees that it will
take such steps as may be necessary to ensure that substantially
equivalent coverage is in effect at and after the Effective Time.
3.14. Trademarks, Etc. Schedule 3.14 hereto is an
accurate and complete list of all trademarks, tradenames,
trademark registrations, service names, service marks,
copyrights, formulas and applications therefor owned by the
Company or used or required by the Company in the operation of
the Company's business, title to each of which is, except as set
forth in Schedule 3.14 hereto, held by the Company free and clear
of all adverse claims, liens, security agreements, restrictions
or other encumbrances. Except as set forth in Schedule 3.14
hereto, there is no (i) infringement action, lawsuit, claim or
complaint which asserts that the Company's operations violate or
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infringe the rights or the trade names, trademarks, trademark
registration, service name, service mark or copyright of others
with respect to any apparatus or method of the Company or (ii)
adversely held trademark, trade name, trademark registration,
service name, service mark or copyright. The Company is not in
any way making use of any confidential information or trade
secrets of any person except with the consent of such person.
The Company neither owns nor licenses any patent rights.
3.15. Environmental Matters. Except as set forth on
Schedule 3.15 hereto:
(a) All federal, state and local permits, licenses and
authorizations required for the use and operation of the
real property owned, leased or used by the Company have been
obtained and are presently in effect except for such
permits, licenses and authorizations the failure to obtain
or maintain in effect would not individually or in the
aggregate have a Material Adverse Effect.
(b) None of such real property has been used by the
Company at any time to handle, treat, store or dispose of
any hazardous or toxic waste or substance, nor is any of the
real property, including all soils, ground waters and
service waters located on, in or under such real property,
contaminated with pollutants or other substances, which
contamination may give rise to a clean-up obligation under
any federal, state or local law, rule, regulation or
ordinance.
(c) There are no outstanding violations or any consent
decrees entered against the Company regarding environmental
and land use matters, including, but not limited to, matters
affecting the emission of air pollutants, the discharge of
water pollutants, the management of hazardous or toxic
substances or wastes or noise.
(d) There are no claimed, threatened or alleged
violations with respect to any federal, state or local
environmental law, rule, regulation, ordinance, permit,
license, or authorization and there are no present
discussions with any federal, state or local governmental
agency concerning any alleged violation of environmental
laws, rules, regulations, ordinances, permits, licenses or
authorizations.
(e) All operations conducted by the Company on such
real property have been and are, in all material respects,
in compliance with all federal, state and local statutes,
rules, regulations, ordinances, permits, licenses and
authorizations relating to environmental compliance and
control.
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(f) There are no pending or, to the actual knowledge
of the Company and the Management Shareholders, threatened
lawsuits or administrative proceedings against the Company
that may affect the Company regarding environmental
compliance, control or liability.
3.16. Accounts Receivable. All accounts and notes
receivable of the Company, whether reflected in the Company
Audited Statements or otherwise, represent sales actually made in
the ordinary course of business. None of such receivables is
subject to any counterclaim or set-off other than normal sales
adjustments or allowances consistent with past practice.
3.17. Inventory. All inventories of raw material, work-
in-process and finished goods of the Company, whether reflected
in the Company Audited Statements or otherwise, are of good and
merchantable quality and are usable and saleable in the ordinary
course of business, except for items of obsolete materials and
materials of below standard quality, all of which have been
written down in the Company Audited Statements to realizable
market value or for which adequate reserves have been provided
therein. The aggregate of all inventories is not less than the
amounts reflected on the December 31, 1993 balance sheet.
3.18. Absence of Certain Changes. Except as set forth
in Schedule 3.18, since December 31, 1993, (a) there has not been
any material adverse change in the business, financial condition
or results of operations of the Company, and (b) the Company has
not made any change in its business or operations or in the
manner of conducting its business, or incurred any obligation or
liability, other than in the ordinary course of business and
consistent with past practice.
3.19. No Undisclosed Liability. Except as and to the
extent of the amounts specifically reflected or reserved against
in the Company Audited Statements, the Company does not have any
material liability or obligation of any nature, whether absolute,
accrued, contingent, or otherwise and whether due or to become
due (including, without limitation, liability for taxes and
interest, penalties, and other charges payable with respect
thereto), except for liabilities incurred in the ordinary course
of business since December 31, 1993 and reflected on Schedule
3.19 hereto. The reserves reflected in the Company Audited
Statements are adequate, appropriate, and reasonable in
accordance with generally accepted accounting principles applied
on a consistent basis as of the dates of such financial
statements.
3.20. Compliance with Applicable Law. The Company is in
material compliance in the conduct of its business and the
ownership of its assets with all applicable laws, rules and
regulations of all governmental authorities (federal, state,
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local, foreign or otherwise) (collectively, "Laws"), including
Laws prohibiting certain business combinations, restraints of
trade and unfair methods of competition and other anticompetitive
practices, including tying arrangements. The Company has not
received any notice of, or notice of any investigation of, a
possible violation of any applicable Laws. The Company is not
subject to any currently existing order, writ, judgment,
injunction or decree relating to its business, assets or
operations.
3.21. Certain Payments. Neither the Company nor any of
its directors, officers, agents or employees have, and no other
person associated with or acting for or on behalf of the Company
has, directly or indirectly, (a) made any contribution, gift,
bribe, rebate, payoff, influence payment, kickback or other
payment to any individual, corporation, partnership or other
entity, or any legislative body or Governmental Entity, whether
in money, property or services (i) to obtain favorable treatment
in securing business, (ii) to pay for favorable treatment for
business secured or (iii) to obtain special concessions or for
special concessions already obtained for or in respect of the
Company or any affiliate of the Company, or (b) established or
maintained any fund or asset which has not been recorded in the
books and records of the Company.
3.22. Fees. The Company has not paid or become
obligated to pay any fee or commission to any broker, finder or
similar intermediary in connection with the transactions
contemplated hereby or in connection with any offer to acquire
the Company Common Stock or assets.
3.23. Pooling of Interests. To the actual knowledge of
the Company and the Management Shareholders, after consulting
with independent accountants or other advisors, neither the
Company nor the Shareholders has taken or failed to take any
action which would prevent the accounting for the Merger as a
pooling of interests in accordance with Accounting Principles
Board Opinion No. 16, the interpretative releases issued pursuant
thereto, and the pronouncements of the SEC.
3.24. Product and Service Warranties. Except as
described on Schedule 3.24, the Company has not given or made any
warranties to third parties with respect to any products supplied
or services performed by it which may still be in effect at any
time after the date hereof, except for warranties imposed by law.
Except as described on Schedule 3.24, there have been no claims
or investigations made with respect to any product or service
warranties which have not been fully settled and resolved or any
unresolved warranty claims which have not been adequately
reserved against on the Company Audited Statements. The Company
does not know of any basis for any other claim or investigation.
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3.25. Orders, Commitments and Returns. The aggregate of
all accepted and unfilled orders for the sale of merchandise
entered into by the Company does not exceed an amount which can
reasonably be expected to be filled in the ordinary course of
business on a schedule which will maintain satisfactory customer
relationships, and the aggregate of all contracts or commitments
for the purchase of products by the Company does not exceed an
amount which is reasonable for its anticipated volumes of
business (all of which orders, contracts and commitments were
made in the ordinary course of business). As of the date of this
Agreement, there are no asserted claims to return merchandise of
the Company by reason of alleged overshipments, defective
merchandise, breach of warranty or otherwise. Except as set
forth on Schedule 3.25 hereto, there is no merchandise in the
hands of customers under any understanding that such merchandise
is returnable other than pursuant to the standard returns policy
set forth in Section 3.24 of this Agreement. To the actual
knowledge of the Company and the Management Shareholders, neither
the execution or delivery of this Agreement nor the consummation
of the transactions contemplated hereby will result in any
cancellations or withdrawals of accepted and unfilled orders for
the sale of the Company's merchandise.
3.26. Customers and Suppliers. Schedule 3.26 hereto
contains an accurate and complete list of the names and addresses
of the 20 largest customers to whom the Company has sold or
leased products or services during the past two fiscal years and
the 10 largest suppliers from whom the Company has purchased
supplies during the past two fiscal years. The Company has not
received any indication from any customer or supplier whose name
appears on such list that such customer or supplier will not
continue as a customer or supplier of the Company after the
Closing. Except as set forth on Schedule 3.26 hereto, no
customer, or group of related customers, accounted for more than
5% of the Company's sales for the fiscal year ended December 31,
1993.
3.27. Relationships with Related Persons. Except as set
forth in the Company Audited Statements or on Schedule 3.27
hereto, to the actual knowledge of the Company or the Management
Shareholders, none of the Shareholders has, and no affiliate of
any Shareholder or the Company has, (nor during the period
beginning January 1, 1993 through and including the date hereof
had) any interest in any property, real or personal, tangible or
intangible, used in or pertaining to the business of the Company.
Except as set forth on Schedule 3.27 hereto, during the period
beginning January 1, 1993 through and including the date hereof,
to the actual knowledge of the Company or the Management
Shareholders, none of the Shareholders nor any affiliate of any
Shareholder or the Company, individually or collectively, owns or
has owned of record or as a beneficial owner, an equity interest
or any other financial or profit interest in any firm,
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corporation or any other entity or person which (a) has had
business dealings or a material financial interest in any
transaction with the Company, or (b) which is in competition with
the Company with respect to any line of the products or services
of the Company. Except as set forth in the Company Audited
Statements or on Schedule 3.27 hereto, to the actual knowledge of
the Company or the Management Shareholders, none of the
Shareholders has any claim or right against the Company.
3.28. Corporate Records. The Company has delivered or
provided to Nelson for its review complete copies of the
following items, as amended and presently in effect, for the
Company: (a) Article of Incorporation, (b) Bylaws, (c) minute
books, and (d) stock registration books (all hereinafter referred
to as the "Corporate Records").
3.29. Full Disclosure. Neither this Agreement, nor any
Schedule, exhibit, list, certificate or other instrument and
document furnished or to be furnished by the Company to Nelson
pursuant to this Agreement, contains any untrue statement of a
material fact or omits to state any material fact required to be
stated herein or therein or necessary to make the statements and
information contained herein or therein not misleading. The
Company has not withheld from Nelson disclosure of any event,
condition or fact which the Company knows, or has reasonable
grounds to know, may constitute a Material Adverse Effect.
B. Representations and Warranties by the Shareholders.
Each Shareholder severally and not jointly represents and
warrants to Nelson and Sub that:
3.30. Title to and Validity of Company Common Stock.
Such Shareholder now has, and on the Closing Date will be the
holder of record with unrestricted power to vote the shares of
Company Common Stock designated as owned by such Shareholder in
Schedule 3.30 hereto, free and clear of any security interests,
claims, liens, equities and other encumbrances, except as
provided herein. All of such shares are on the date hereof and
will on the Closing Date be registered in the name of such
Shareholder.
3.31. Authority. Such Shareholder has the legal power,
right and authority to enter into and perform this Agreement.
The execution, delivery and performance of this Agreement by such
Shareholder (a) require no action by or in respect of, or filing
with, any governmental body, agency or official and (b) do not
contravene or constitute a default under any provision of
applicable law or regulation or of any agreement, judgment,
injunction, order, decree or any other instrument binding upon
such Shareholder. This Agreement has been duly executed and
21
<PAGE>
delivered by such Shareholder and constitutes a valid and binding
agreement of such Shareholder.
3.32. Investment Intent.
(a) Such Shareholder acknowledges that the Nelson
Common Stock has not been registered under the Securities
Act or any state securities law, and that Nelson has
disclosed to such Shareholder that the Nelson Common Stock
may not be sold absent such registration or unless an
exemption from registration is available. None of the
Nelson Common Stock will be sold or transferred by such
Shareholder in violation of the Securities Act or any state
securities law. Such Shareholder is aware that, except as
provided in the Registration Rights Agreement (as
hereinafter defined), Nelson is under no obligation to
register any of the Nelson Common Stock under the Securities
Act or any state securities law.
(b) Such Shareholder confirms that Nelson has made
available to such Shareholder the opportunity to ask
questions of its officers and directors and to acquire such
information about the business and financial condition of
Nelson as such Shareholder has requested, which additional
information has been satisfactorily received.
3.33. Relationships with Related Persons. Except as set
forth in the Company Audited Statements or Schedule 3.33 hereto,
such Shareholder has not, and no affiliate of such Shareholder
has, (nor during the period beginning January 1, 1993 through and
including the date hereof had) any interest in the property, real
or personal, tangible or intangible, used in or pertaining to the
business of the Company. During the period beginning January 1,
1993 through and including the date hereof, neither such
Shareholder nor any affiliate of such Shareholder owns or has
owned of record or is a beneficial owner of an equity interest or
any other financial profit interest in any firm, corporation or
any other entity or person which (a) has had business dealings or
material financial interest in any transaction with the Company,
or (b) which is in competition with the Company with respect to
any line of the products or services of the Company. Such
Shareholder confirms that it has no claim or right against the
Company.
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<PAGE>
ARTICLE 4.
COVENANTS
4.1. Acquisition Proposals. From and after the date hereof
until the termination of this Agreement, the Company and the
Management Shareholders will not, directly or indirectly, and the
Company will instruct and shall cause its officers, directors,
employees, agents, advisors and other representatives and
consultants not to, directly or indirectly, solicit or initiate
or engage in negotiations or discussions concerning any proposals
or offers from any person relating to any acquisition or purchase
of all or a material amount of the assets of, or any securities
of, or any merger, consolidation or business combination with,
the Company, or provide any person other than Nelson, Sub, and
their affiliates with any information regarding the Company in
connection with any such proposal or offer.
4.2. Interim Operations. During the period from the date of
this Agreement to the earlier of the Effective Time and the
termination of this Agreement, except as specifically
contemplated by this Agreement, or as otherwise approved by
Nelson in writing:
(a) Conduct of Business. The Company will conduct its
business only in, and not take any action except in, the
ordinary and usual course of business and consistent with
past practice. Nelson shall be advised of and consulted
with regarding any major business decisions. The Company
will use reasonable efforts to preserve intact the business
organization of the Company, to keep available the services
of its present officers and key employees, and to preserve
the goodwill of customers, suppliers and others having
business relationships with it. From and after the date
hereof and until the Effective Time, the Company shall not
(i) knowingly take any action, or knowingly fail to take any
action, that would jeopardize the treatment of the Merger as
a "pooling of interests" for accounting purposes; (ii)
knowingly take any action, or knowingly fail to take any
action, that would jeopardize qualification of the Merger as
a reorganization within the meaning of Section 368(a)(2)(E)
of the Code; or (iii) enter into any contract, agreement,
commitment or arrangement with respect to either of the
foregoing.
(b) Articles of Incorporation. Except as contemplated
by this Agreement, the Company will not make any change or
amendment to its articles of incorporation or bylaws.
(c) Capital Stock. The Company will not issue or sell
any shares of its capital stock or any other securities, or
issue any securities convertible into or exchangeable for,
or options, warrants to purchase, scrip, rights to subscribe
23
<PAGE>
for, calls or commitments of any character whatsoever
relating to, or enter into any contract, understanding or
arrangement with respect to the issuance of, any shares of
its capital stock or any other securities or enter into any
arrangement or contract with respect to the purchase or
voting of shares of its capital stock or other securities,
or make any other changes in its capital structure.
(d) Dividends. Except for distributions to the
Shareholders for the payment of taxes relating to the
Company's operations for the fiscal year ended December 31,
1993 in an aggregate amount not to exceed $200,000, the
Company will not declare, set aside, pay or make any
dividend or other distribution or payment (whether in cash,
stock, or property) with respect to, or purchase or redeem,
any shares of its capital stock or other securities.
(e) Employee Plans, Compensation, Etc. Except as
provided in this Agreement and except for amendments to tax-
qualified employee benefit plans necessary to maintain their
status as such, the Company will not adopt or amend any Plan
or increase the compensation or fringe benefits of any
director, officer or employee (except, with respect to
persons who are not directors or officers, for normal
increases in the ordinary course of business and consistent
with past practice) or pay any benefit which is not required
by any existing plan or agreement (including without
limitation the granting of stock options or stock
appreciation or similar rights) or take any action or grant
any benefit not expressly required under the terms of any
existing agreement, trust, Plan or fund or enter into any
contract, agreement or legally enforceable commitment to do
any of the foregoing.
(f) Debt. The Company will not, except in the
ordinary course of business, (i) incur or assume any
indebtedness in excess of $10,000 in the aggregate unless
approved in advance by Nelson; or (ii) make any loans,
advances or capital contributions to, or investments in, any
other person.
4.3. Access to Information. Between the date of this
Agreement and the Effective Time, the Company will, during
regular business hour (and outside of regular business hours, if
reasonably necessary) upon reasonable notice: (a) give Nelson and
its authorized representatives access to all plants, offices,
warehouses and other facilities and to all books and records of
the Company; (b) permit Nelson, and its affiliates to make such
inspections as any of them may require; and (c) cause the
officers, employees, auditors, attorneys, and other advisors,
suppliers and customers of the Company to furnish Nelson and its
affiliates with such financial and operating data and other
24
<PAGE>
information with respect to the business and properties of the
Company as any of them may from time to time request. Any such
information provided to Nelson or its representatives shall be
subject to the confidentiality provisions of that certain Letter
Agreement between the Company and Nelson dated March 24, 1994
(the "Letter of Intent").
4.4. Certain Filings, Consents, and Arrangements; Public
Announcements. Nelson, its affiliates, and the Company, and its
affiliates, will cooperate with one another (a) in promptly
determining whether any filings are required to be made or
consents, approvals, permits or authorizations are required to be
obtained under any federal, state, or foreign law or regulation,
and (b) in promptly making any such filings, furnishing
information required in connection therewith, and seeking timely
to obtain any such consents, approvals, permits, or
authorizations. Nelson, the Company and their respective
affiliates shall not, without the prior written consent of the
others, unless otherwise required by law, disclose to any person
or entity either the fact that this Agreement has been executed
or the fact that discussions and negotiations are taking place
concerning a possible transaction between the parties hereto.
Nelson agrees that the information obtained concerning the
business of the Company will be held in the strictest confidence
and will be used by it solely to evaluate the Merger and if the
Merger does not occur, shall return or destroy, at the Company's
request, all copies of such information in their possession.
Nelson covenants not to use any such information in any way which
is detrimental in any material respect to the Company and agrees
not to disclose to any third party any non-public information
regarding the Company including, but not limited to, the
disclosure of customer lists, financial statements, evaluation of
assets or other information of a non-public nature.
4.5. State Takeover Statutes. The Company will, upon the
request of Nelson and at Nelson's expense, take all steps to
(a) exempt the Company and the Merger from the requirements of
any state takeover law (including the North Carolina Shareholder
Protection Act) by action of the Company's Board of Directors or
otherwise; and (b) assist in any challenge by Nelson to the
validity or applicability to the Merger of any state takeover
law.
4.6. Notification of Certain Matters. The Company shall
give prompt notice to Nelson, and Nelson shall give prompt notice
to the Company, of (a) the occurrence or nonoccurrence of any
event the occurrence or nonoccurrence of which would be likely to
cause any representation or warranty contained in this Agreement
to be untrue or inaccurate at or prior to the Closing Date; and
(b) any failure of the Company or Nelson, as the case may be, to
comply with or satisfy any covenant, condition, or agreement to
be complied with or satisfied by it hereunder; provided that the
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<PAGE>
delivery of notice pursuant to this Section 4.6 shall not limit
or otherwise affect the remedies available hereunder to the party
or parties receiving such notice.
4.7. Best Efforts; Further Assurances. Subject to the terms
and conditions hereof, the Company and Nelson each agree to use
its best efforts to take promptly, or cause to be taken, all
actions and to do promptly, or cause to be done, all things
necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions
contemplated by this Agreement, including using its best efforts
to obtain all necessary actions or non-actions, extensions,
waivers, consents and approvals from all applicable Governmental
Entities, effect all necessary registrations and filings, and
obtain any required contractual consents. If, at any time after
the Effective Time, the Surviving Corporation considers or is
advised that any deeds, bills of sale, assignments, assurances or
any other actions or things are necessary or desirable to vest,
perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of
the rights, properties or assets of the Company acquired or to be
acquired by the Surviving Corporation as a result of, or in
connection with the Merger or otherwise to carry out the purposes
of this Agreement, the officers and directors of the Surviving
Corporation will be authorized to execute and deliver, in the
name and on behalf of the Company or otherwise, all such other
deeds, bills of sale, assignments and assurances and to take and
do, in the name and on behalf of the Company or otherwise, all
such other actions and things as may be necessary or desirable to
vest, perfect or confirm any and all right, title and interest
in, to and under such rights, properties or assets in the
Surviving Corporation or otherwise to carry out the purposes of
this Agreement.
4.8. Issuance of Common Stock. As and when required by the
provisions of this Agreement, Nelson will cause to be issued the
Nelson Common Stock in the amounts and on the basis set out in
this Agreement to the record holders of the Company Common Stock
upon the surrender of duly and properly endorsed Company Stock
Certificates or upon evidence of loss thereof in a form
reasonably satisfactory to Nelson in accordance with Section 1.6
above.
4.9. Employee Benefits. Nelson will amend and take such
other action with respect to Nelson's employee benefit plans as
will be required to permit employees of the Company to become
eligible, from and after the Effective Time or such other time as
Nelson and the Company mutually agree upon, for benefits
available to employees of Nelson under Nelson's employee benefit
plans. Nelson shall be under no obligation to continue any
existing Plans maintained by the Company, nor any plan or
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practice relating to the issuance of stock of the Company to any
executive officer or other employee.
4.10. Other Agreements.
(a) Nelson shall enter into employment agreements with
Eric Presley and Clay Presley upon terms and conditions
mutually satisfactory to the parties thereto.
(b) Nelson shall pay to each of Eric Presley and Clay
Presley $150,000 at Closing in immediately available funds
(or, at their option on a deferred payment schedule) in
consideration for their having entered into non-compete
agreements with Nelson for a period of five (5) years
following the Closing Date, upon terms and conditions
mutually satisfactory to the parties thereto (the "Non-
Compete Agreements").
(c) Following the Closing, Nelson shall grant (i) to
Clay Presley a stock option to purchase 10,000 shares of
Nelson Common Stock; and (ii) to Eric Presley a stock option
to purchase 5,000 shares of Nelson Common Stock
(collectively, the "Option Agreements"). The Option
Agreements will be granted pursuant to the Stock Incentive
Plan of 1986 ("Plan") with an exercise price equal to the
closing sales price of Nelson Common Stock on the NASDAQ
National Market System on the date of grant (which shall be
the date of the first meeting of the Compensation Committee
of the Board of Directors following the Closing) and will
vest in 25% annual increments, commencing on the first
anniversary of the date of grant subject in all cases to the
provisions of the Plan.
(d) Nelson shall have entered into a Registration
Rights Agreement in the form of Exhibit B hereto with each
Shareholder (the "Registration Rights Agreement").
(e) Nelson shall have entered into an assignment of
option agreement with Eric Presley in substantially the form
attached hereto as Exhibit C (the "Assignment Agreement") and
shall have issued the shares of Nelson Common Stock issuable
thereunder.
ARTICLE 5.
CONDITIONS
5.1. Conditions to each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the
Merger are subject to the satisfaction, on or prior to the
Closing Date, of the following conditions, none of which may be
waived:
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(a) this Agreement shall have been adopted by the
affirmative vote or consent of the Shareholders in
accordance with applicable law and the Company's articles of
incorporation and bylaws; and
(b) there shall not be in effect (i) any action or
proceeding before a court or other governmental body by any
governmental agency or public authority, (ii) any judgment,
decree or order issued by a federal, state or local court of
competent jurisdiction, or (iii) any statute, rule or
regulation enacted or promulgated by any federal, state, or
local legislative, administrative or regulatory body of
competent jurisdiction, that in any of the cases (i),
(ii) or (ii) prohibits the consummation of the Merger or
makes such consummation illegal.
5.2. Conditions to Obligations of Nelson to Effect the
Merger. The obligations of Nelson to effect the Merger are
further subject to the satisfaction or waiver, where permissible,
of the following conditions:
(a) the representations and warranties of the Company,
the Management Shareholders and the Shareholders contained
in this Agreement shall be true as of the date hereof and
shall be deemed to have been made again at and as of the
Closing Date and shall then be true and correct;
(b) the Company and the Management Shareholders shall
have performed all of their respective covenants and
obligations contained in this Agreement;
(c) the Company shall have furnished Nelson with a
certificate dated as of the Effective Time, signed by the
President of the Company, to the effect that the conditions
set forth in Section 5.2(a) and (b) above have been
satisfied;
(d) the Company shall have delivered to Nelson, a
complete and correct list of its shareholders of record at
the Effective Time stating their names, addresses and number
of shares held, which shall be certified by the Secretary of
the Company;
(e) Nelson shall have been furnished the opinions of
counsel to the Company and the Shareholders, dated the
Closing Date, to the effect set forth in Exhibit D attached
hereto;
(f) since December 31, 1993 there shall not have been
a material adverse change nor any event that would result in
a material adverse change, as far as reasonably can be
determined or foreseen by Nelson, in the financial
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condition, results of operations, or business of the
Company;
(g) all corporate action necessary to authorize the
execution, delivery and performance of this Agreement by the
Company and the consummation of the transactions
contemplated in this Agreement (including the adoption by
the requisite vote of shareholders of the Company) shall
have been duly and validly taken, and the Company shall have
full power and right to merge on the terms provided in this
Agreement, and none of the holders of issued and outstanding
shares of the Company Common Stock shall have exercised or
have the right to exercise any rights to demand fair value
for their shares of Company Common Stock under the NCBCA;
(h) all necessary state securities and blue sky
permits and approvals required to carry out the Merger shall
have been obtained;
(i) Nelson shall not have determined that the Merger
has become inadvisable or impracticable by reason of any
litigation or proceeding instituted by a person, entity or
any government or agency thereof, with respect to which, in
the good faith judgment of its Board of Directors (acting
upon advice of competent outside counsel who shall have
advised to the following effect), it is reasonable to
conclude that such litigation or proceeding has resulted or
will result in an order, stay, judgment or decree which
(i) will restrain or prohibit (A) the consummation of the
transactions contemplated by this Agreement or (B) the
ownership by the Surviving Corporation after the Effective
Time of any of the properties, or the operation by the
Surviving Corporation or by Nelson after the Effective Time
of any of the businesses of the Company unless (1) such
order, stay, judgment or decree would not be violated by the
Merger, and (2) such ownership or operation is not material
to the Company's financial condition or prospects, or
(ii) will individually or in the aggregate have a Material
Adverse Effect; provided, however, that prior to making any
such determination Nelson and the Company shall use their
best efforts to prevent any such order, stay, judgment or
decree from arising or, if entered, continuing in effect;
(j) Eric Presley and Clay Presley shall have entered
into employment agreements with Nelson upon terms and
conditions mutually satisfactory to the parties thereto;
(k) Eric Presley, Clay Presley and Pam Manion shall
have entered into the Non-Compete Agreements with Nelson;
(l) Nelson shall have received undertakings in writing
from each director, executive officer and Shareholder of the
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Company, in substantially the form attached hereto as
Exhibit E to the effect that such person will comply with
the provisions of the Securities Act with respect to any
resales of the Nelson Common Stock received in connection
with the Merger, and providing, in addition, that such
Shareholder will not sell, assign or transfer any of such
Nelson Common Stock until Nelson shall have published
consolidated financial results including the combined
operations of Nelson and the Company for a period of at
least 30 days following the Effective Time of the Merger;
(m) Nelson shall have received letters from Arthur
Andersen & Co. and Cherry Bekaert & Holland independent
certified public accountants for Nelson and the Company,
respectively, confirming that nothing has come to their
attention that would lead them to believe that the Merger
will not be accounted for as a pooling of interests. Such
accounting firms shall, as to factual matters applicable to
the opinions set forth in such letters, be entitled to rely
on certificates of officers of Nelson and the Company;
(n) Nelson shall have completed to its satisfaction a
review of the Company's business and operations;
(o) Eric Presley shall have entered into the
Assignment Agreement; and
(p) Nelson shall have received evidence that any
receivable or other payment owed to the Company by any
Shareholder as of the date of Closing has been satisfied i n
full.
5.3. Conditions to the Obligations of the Company and the
Shareholders to Effect the Merger. The obligations of the
Company and the Shareholders to effect the Merger are further
subject to the satisfaction or waiver, where permissible, of the
following conditions:
(a) the representations and warranties of Nelson and
Sub contained in this Agreement shall be true and correct in
all material respects as of the date hereof and shall be
deemed to have been made again at and as of the Closing Date
and shall then be true and correct in all material respects;
(b) Nelson shall have performed all of its covenants
and obligations contained in this Agreement;
(c) Nelson shall have furnished to the Company and the
Shareholders a certificate dated as of the Effective Time,
signed by a duly authorized officer of Nelson, to the effect
that the conditions set forth in Section 5.3(a) and (b)
above have been satisfied;
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(d) the Company shall have been furnished an opinion
of Bass, Berry & Sims dated the Closing Date, to the effect
set forth in Exhibit F attached hereto;
(e) all corporate action necessary to authorize the
execution, delivery and performance of this Agreement by
Nelson and Sub, and the consummation of the transactions
contemplated in this Agreement shall have been duly and
validly taken, and Nelson and Sub shall have full power and
right to effect the Merger on the terms provided for in this
Agreement;
(f) Nelson shall have entered into a Registration
Rights Agreement with each of the Shareholders;
(g) Since the date hereof there shall not have been a
material adverse change or other event that would result in
a material adverse change in the financial condition,
results of operation, or business of Nelson;
(h) All necessary state securities and Blue Sky
permits and approvals required to carry out the Merger shall
have been obtained;
(i) Nelson shall have entered into employment
agreements with Eric Presley and Clay Presley upon terms and
conditions mutually satisfactory to the parties thereto;
(j) Nelson shall have entered into the Non-Compete
Agreements with Eric Presley and Clay Presley; and
(k) Nelson shall have entered into the Assignment
Agreement.
ARTICLE 6.
INDEMNIFICATION; SURVIVAL
6.1. Indemnification by the Shareholders.
(a) Each Shareholder, jointly and severally, hereby
agrees to defend, indemnify and hold harmless Nelson, Sub
and their respective shareholders, affiliates (including, as
of the Effective Date of the Merger, the Company), officers,
directors, employees, agents, successors and assigns (the
"Nelson Indemnified Persons") and shall reimburse the Nelson
Indemnified Persons for, from and against each loss,
liability, cost and expense (including without limitation,
interest, penalties, costs of preparation and investigation,
and the reasonable fees, disbursements and expenses of
attorneys, accountants and other professional advisors)
31
<PAGE>
(collectively, "Losses"), to the extent such Losses directly
or indirectly relate to, result from or arise out of:
(i) Any untrue representation, misrepresentation,
breach of warranty or nonfulfillment of any covenant,
agreement or other obligation by the Company or of any
Shareholder contained herein (other than under Sections
3.30, 3.31, 3.32 and 3.33), any Schedule hereto or in
any certificate, document or instrument delivered to
Nelson or Sub pursuant hereto.
(ii) Any cost, expense or liability incurred by
the Surviving Corporation or Nelson in connection with
any pollution of the soil or ground water of, or
originating from, any parcel of real property owned,
leased or used by the Company which exists on the
Closing Date (regardless of whether the possibility of
such cost or expense shall have been disclosed to Buyer
at or prior to the Closing). The term pollution shall
include any substance subject to any federal, state,
local or other law, rule, regulation or governmental
regulation of any kind, and the rules, regulations and
orders promulgated thereunder or any other substance
which constitutes a nuisance or hazard to the
environment or to the public health, safety or welfare.
(iii) Any cost, expense or liability resulting
from any and all copyright, trademark, patent or other
similar infringement, misappropriation or similar
actions including, without limitation, legal fees and
expenses incidental to any of the foregoing which arise
out of or are based on facts in existence prior to the
Closing.
(iv) Any cost, expense or liability resulting from
any and all claims by present or former shareholders of
the Company with respect to facts in existence as of
the date of Closing.
(v) Any other Loss incidental to the foregoing.
(b) Each Shareholder, severally and not jointly,
hereby agrees to defend, indemnify and hold harmless each
Nelson Indemnified Person and shall reimburse the Nelson
Indemnified Persons for, from and against all Losses,
directly or indirectly relating to, resulting from or
arising out of any untrue representation, misrepresentation,
breach of warranty or nonfulfillment of any covenant,
agreement or other obligation by such Shareholder in
Sections 3.30, 3.31, 3.32 and 3.33 herein.
32
<PAGE>
(c) Any claim of any Nelson Indemnified Person under
this Section 6.1 may be made and enforced by Nelson on
behalf of such Nelson Indemnified Person. The Shareholders
shall have no right of indemnification or contribution
against the Company with respect to any indemnification by
the Shareholders under this Section 6.1 if the Merger is
consummated.
6.2. Indemnification by Nelson. Nelson hereby agrees to
defend, indemnify and hold harmless the Company, its officers,
directors, employees, agents, successors and assigns and the
Shareholders (the "Company Indemnified Persons"), and shall
reimburse the Company Indemnified Persons for, from and against
Losses directly or indirectly relating to, resulting from or
arising out of:
(a) Any untrue representation, misrepresentation,
breach of warranty or nonfulfillment of any covenant,
agreement or other obligation by Nelson or Sub contained
herein or in any schedule hereto, certificate, document or
instrument delivered to the Company or the Shareholders
pursuant hereto.
(b) Any other Loss incidental to the foregoing.
6.3. Procedure. The indemnified party shall promptly
notify the indemnifying party of any claim, demand, action or
proceeding which may result in indemnification being sought under
Sections 6.1 or 6.2 of this Agreement, and, if such claim,
demand, action or proceeding is a third party claim, demand,
action or proceeding, the indemnifying party will have the right
at its expense to assume the defense thereof using counsel
reasonably acceptable to the indemnified party. The indemnified
party shall have the right to participate, at its own expense,
with respect to any such third party claim, demand, action or
proceeding. In connection with any such third party claim,
demand, action or proceeding, the parties hereto shall cooperate
with each other and provide each other with access to relevant
books and records in their possession. No such third party
claim, demand, action or proceeding shall be settled without the
prior written consent of the indemnified party, which consent
shall not be unreasonably withheld. If a firm written offer is
made to settle any such third party claim, demand, action or
proceeding and the indemnifying party proposes to accept such
settlement and the indemnified party refuses to consent to such
settlement, then: (a) the indemnifying party shall be excused
from, and the indemnified party shall be solely responsible for,
all further defense of such third party claim, demand, action or
proceeding; and (b) the maximum liability of the indemnifying
party relating to such third party claim, demand, action or
proceeding shall be the amount of the proposed settlement if the
amount thereafter recovered from the indemnified party on such
33
<PAGE>
third party claim, demand, action or proceeding is greater than
the amount of the proposed settlement.
6.4. Duration. All representations, warranties, covenants
and agreements of the Company, the Shareholders, the Management
Shareholders, Nelson and Sub contained in or made pursuant to
this Agreement, and the rights of the Company, the Company
Indemnified Persons, Nelson, and the Nelson Indemnified Persons
to seek indemnification or otherwise bring any claim under this
Agreement, shall survive the Closing but, except in respect of
any claims for indemnification or other claims arising out of
this Agreement as to which notice shall have been duly given
prior to the first anniversary of the Closing Date, shall expire
on the first anniversary of the Closing Date. To be duly given,
any such notice shall set forth in reasonable detail the nature
of such claim, the provision(s) under this Agreement pursuant to
which such claim is being asserted and, to the extent feasible, a
reasonable estimate of the anticipated amount of such claim.
6.5. Limitations. Notwithstanding anything to the contrary
herein, in no event shall the maximum aggregate liability of any
Shareholder (including any Management Shareholder) with respect
to claims by Nelson or the Nelson Indemnified Persons under
Section 6.1 or otherwise under this Agreement exceed 10% of the
aggregate fair market value of the shares of Nelson Common Stock
issued to such Shareholder in the Merger, such fair market value
to be determined by multiplying the number of such shares by the
closing sales price of Nelson Common Stock on the NASDAQ National
Market System on the Closing Date.
ARTICLE 7.
MISCELLANEOUS
7.1. Termination. This Agreement may be terminated and the
Merger contemplated hereby may be abandoned at any time prior to
the Effective Time:
(a) by the mutual consent duly authorized by the
Boards of Directors of Nelson and the Company;
(b) by Nelson, if the Company shall fail to perform or
observe in any material respect any covenant, warranty or
agreement to be performed or observed by it hereunder;
(c) by the Company, if Nelson shall fail to perform or
observe in any material respect any covenant, warranty or
agreement to be performed or observed by it hereunder; or
(d) by either Nelson, on the one hand, or the Company,
on the other hand, if (i) the Merger is not consummated on
or before March 31, 1994, or (ii) any court of competent
34
<PAGE>
jurisdiction or other Governmental Entity shall have issued
an order, decree, ruling, or injunction (other than an order
or injunction issued on a temporary or preliminary basis)
preventing the consummation of the Merger and such order,
decree, ruling, or injunction shall have become final and
non-appealable.
In the event of any termination and abandonment pursuant to
this Section 7.1, no party hereto (or any of its directors or
officers) will have any liability or further obligation to any
other party to this Agreement, except for obligations under
Section 4.4 and Section 7.11, except that nothing herein will
relieve any party from liability for any material breach of this
Agreement.
7.2. Waiver and Amendment. Subject to the applicable
provisions of the NCBCA, any provision of this Agreement (other
than the conditions set forth in Section 5.1) may be waived at
any time by the party which is, or whose shareholders are,
entitled to the benefits thereof, and this Agreement may be
amended or supplemented at any time, provided that any action by
the Company to waive or amend any provision of this Agreement
will require the approval of the Board of Directors of the
Company. No such waiver, amendment, or supplement will be
effective unless in a writing which makes express reference to
this Section 7.2 and is signed by the party or parties sought to
be bound thereby.
7.3. Entire Agreement. This Agreement, the Exhibits and the
agreements contemplated herein (including the confidentiality
provisions of the Letter of Intent) hereto contain the entire
agreement among Nelson, Sub, the Company and the Shareholders
with respect to the Merger and the other transactions
contemplated hereby and such agreements supersede all prior and
contemporaneous agreements among the parties with respect to such
matters.
7.4. Applicable Law. This Agreement will be governed by and
construed in accordance with the laws of the State of Tennessee,
without giving effect to the principles of conflict of laws
thereof, except to the extent that the NCBCA mandatorily apply to
the Merger.
7.5. Interpretation. For purposes of this Agreement, (a)
the descriptive headings contained herein are for convenience and
reference only and will not affect in any way the meaning or
interpretation of this Agreement, (b) words in the singular
include the plural and vice versa, (c) masculine pronouns include
feminine and neuter versions thereof, (d) references to Sections
(other than Sections of the Securities Act, Exchange Act, NCBCA,
ERISA, and the Code), Exhibits and Schedules are references to
35
<PAGE>
Sections in and Exhibits and Schedules to this Agreement, and
(e) the word "or" is disjunctive but not necessarily exclusive.
7.6. Notices. All notices and other communications
(including any documents or other data provided pursuant to
requests for information by a party hereto) hereunder will be in
writing and will be given (and will be deemed to have been duly
given upon receipt) by delivery in person, by electronic
facsimile transmission, cable, telegram, telex or other standard
form of telecommunications, or by overnight courier or registered
or certified mail, postage prepaid, return receipt requested,
addressed as follows:
If to the Company to:
PPC, Inc.
900 West Academy Street
P. O. Box 459
Cherryville, NC 28021
Facsimile: (704) 435-4579
with copies to:
Petree Stockton, L.L.P.
3500 One First Union Center
301 South College Street
Charlotte, NC 28202
Attention: E. Lynwood Mallard
Facsimile: (704) 338-5125
If to the Shareholders:
To the addresses set forth on the signatures pages
attached hereto.
If to Nelson or Sub to:
Thomas Nelson, Inc.
Nelson Place at Elm Hill Pike
P.O. Box 141000
Nashville, TN 37214-1000
Attention: Joe L. Powers
Facsimile: (615) 883-6353
36
<PAGE>
with copies to:
Bass, Berry & Sims
First American Center
Nashville, TN 37238
Attention: James H. Cheek, III, Esq.
Facsimile: (615) 742-6293
or to such other address as any party may have furnished to the
other parties in writing in accordance herewith.
7.7. Counterparts. This Agreement may be executed in any
number of counterparts, each of which will be deemed to be an
original but all of which together will constitute but one
agreement.
7.8. Parties in Interest; Assignment. This Agreement is not
intended to nor will it confer upon any other person other than
the parties hereto any rights or remedies, except for the rights
and remedies of a Nelson Indemnified Person or Company
Indemnified Person under Article 6, and this Agreement is binding
upon and is solely for the benefit of the parties hereto and
their respective successors, legal representatives and assigns.
7.9. Enforcement of the Agreement. The parties hereto agree
that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached. It is
accordingly agreed that the parties hereto will be entitled to an
injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in
any court of the United States or any state having jurisdiction,
this being in addition to any other remedy to which they are
entitled at law or in equity.
7.10. Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced
by any rule of law or public policy, all other terms and
provisions of this Agreement will nevertheless remain in full
force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any
manner adverse to any party hereto. Upon any such determination
that any term or other provision is invalid, illegal, or
incapable of being enforced, the parties hereto will negotiate in
good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable
manner to the end that the transactions contemplated by this
Agreement are consummated to the extent possible.
37
<PAGE>
7.11. Fees and Expenses. All costs and expenses
incurred in connection with this Agreement shall be paid by the
party incurring such cost or expense, regardless of whether or
not the transactions contemplated hereby are consummated.
IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement.
THOMAS NELSON, INC.
By: /s/ Joe L. Powers
Title: Vice President
NELSON SUBSIDIARY COMPANY
By: /s/ Joe L. Powers
Title: Vice President
PPC, INC.
By: /s/ Eric Presley
Title: President
#323033
38
<PAGE>
SHAREHOLDERS:
Signature: /s/ Eric C. Presley
Name: Eric C. Presley
Address: PPC, Inc.
PO Box 459
Cherryville, NC 28021
No. of Shares: 3,500
Percentage: 35
Signature: /s/ W. Clay Presley
Name: W. Clay Presley
Address: PPC, Inc.
PO Box 459
Cherryville, NC 28021
No. of Shares: 2,000
Percentage: 20
Signature: /s/ Charles D. Gray
Name: Charles D. Gray
Address: Gray & Hampton
313 South Street
Gastonia, NC 28052
No. of Shares: 1,000
Percentage: 10
Signature: /s/ C. Daniel Page, Jr.
Name: C. Daniel Page, Jr., Trustee
for C. Daniel Page, Jr. Trust
U/A/D
Address: 6762 Trail Boulevard
Naples, FL 33963
No. of Shares: 1,000
Percentage: 10
Signature: /s/ Maria Trakas
Name: Maria Trakas
Address: 931 Scotch Drive
Gastonia, NC 28054
No. of Shares: 800
Percentage: 8
39
<PAGE>
Signature: /s/ George Trakas
Name: George Trakas
Address: 931 Scotch Drive
Gastonia, NC 28054
No. of Shares: 200
Percentage: 2
Signature: /s/ Phyllis Carothers
Name: Phyllis Carothers
Address: Carothers Funeral Home
312 W. Second Avenue
Gastonia, NC 28052
No. of Shares: 250
Percentage: 2.5
Signature: /s/ J.C. Carothers, Jr.
Name: J.C. Carothers, Jr.
Address: Carothers Funeral Home
312 W. Second Avenue
Gastonia, NC 28052
No. of Shares: 250
Percentage: 2.5
Signature: /s/ Jeff Davis
Name: Jeff Davis
Address: Jefferson Davis Assoc.
The Center, Suite 340
425 2nd St., SE
Cedar Rapids, Iowa 52401
No. of Shares: 500
Percentage: 5
Signature: /s/ Pam Manion
Name: Pam Manion
Address: 1301 Garfield Street
Hollywood, FL 33019
No. of Shares: 500
Percentage: 5
40
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1994 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 1,165
<SECURITIES> 0
<RECEIVABLES> 85,709
<ALLOWANCES> 8,987
<INVENTORY> 67,041
<CURRENT-ASSETS> 175,413
<PP&E> 27,092
<DEPRECIATION> 9,926
<TOTAL-ASSETS> 242,994
<CURRENT-LIABILITIES> 50,302
<BONDS> 123,251
<COMMON> 10,693
0
0
<OTHER-SE> 56,494
<TOTAL-LIABILITY-AND-EQUITY> 242,994
<SALES> 117,741
<TOTAL-REVENUES> 119,615
<CGS> 60,621
<TOTAL-COSTS> 106,764
<OTHER-EXPENSES> 877
<LOSS-PROVISION> 1,679
<INTEREST-EXPENSE> 4,030
<INCOME-PRETAX> 8,042
<INCOME-TAX> 2,963
<INCOME-CONTINUING> 5,079
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,079
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.48
</TABLE>
