SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
--------------------- ----------------------
Commission file number 0-935
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BELL NATIONAL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 94-1451828
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(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
4209 Vineland Road, Suite J-1, Orlando, Florida 32811
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (407) 849-0290
-----------------------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report.)
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 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]
As of August 9, 1997, the number of shares of the registrant's common stock
outstanding is 5,934.542.
<PAGE>
Part I - Financial Information
ITEM 1. Financial Statements.
BELL NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
ASSETS
June 30, December 31,
1997 1996
--------- ------------
(Unaudited)
Cash and cash equivalents $ -- $ --
Accounts receivable, net 1,259 1,222
Inventory, net 2,669 2,740
Prepaid expenses and other current assets 106 95
--------- --------
Total current assets 4,034 4,057
Property and equipment, net 130 157
Goodwill, net 653 663
Deferred sample books, net 1,068 1,242
--------- --------
$ 5,885 $ 6,119
========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
BELL NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
1997 1996
------------ ------------
(Unaudited)
Current Liabilities:
Accounts payable 1,112 1,047
Current portion of long-term debt 2,220 2,225
Accrued compensation and employee benefits 533 444
Accrued expenses 486 512
----------- ---------
Total current liabilities 4,351 4,228
Accrued stock appreciation rights 159 268
Other liabilities 50 48
----------- ---------
4,560 4,544
Stockholders' equity:
Common stock, no par value; authorized
12,000,000 shares, issued and outstanding
5,934,542 shares at June 30, 1997 and
5,488,114 shares at December 31, 1996 15,849 15,815
Additional paid-in capital 10 10
Accumulated deficit (14,534) (14,250)
----------- ---------
Total stockholders' equity 1,325 1,575
----------- ---------
$ 5,885 $ 6,119
=========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
BELL NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ---------------------
1997 1996 1997 1996
--------- --------- --------- ---------
Net sales $ 2,860 $ 3,383 $ 5,434 $ 6,550
Costs and expenses:
Cost of sales 1,649 1,978 3,008 3,661
Selling, general and administrative 1,242 1,527 2,585 3,018
--------- --------- --------- ---------
Operating income (loss) (31) (122) (159) (129)
Other expense:
Interest expense (79) (70) (133) (142)
Other 18 (17) 8 (10)
--------- --------- --------- ---------
Income (loss) before income taxes (92) (209) (284) (281)
Provision for income taxes -- -- -- (2)
--------- --------- --------- ---------
Net income (loss) $ (92) $ (209) $ (284) $ (283)
========= ========= ========= =========
Net income (loss) per common share $ (0.02) $ (0.04) $ (0.05) $ (0.05)
========= ========= ========= =========
Weighted average number of common
shares outstanding 5,561,701 5,283,114 5,525,111 5,283,114
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE>
BELL NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Additional Total
Common Stock Paid-in Accumulated Stockholders'
Shares Dollars Capital Deficit Equity
--------- -------- ---------- ----------- ------------
Balance at
December 31, 1996 5,488,114 $ 15,815 $ 10 $ (14,250) $ 1,575
Exercise of SAR's 446,428 34 -- -- 34
Net income (loss) -- -- -- (284) (284)
--------- -------- ------- --------- --------
Balance at
June 30, 1997 5,934,542 $ 15,849 $ 10 $ (14,534) $ 1,325
========= ======== ======= ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
BELL NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Ended June 30,
-------------------------
1997 1996
---------- ---------
Operating activities:
Net income (loss) $ (284) $ (283)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 27 29
Amortization of goodwill 10 10
Amortization of deferred sample books 520 607
Amortization of deferred debt commitment fee -- 8
(Increase) decrease in assets:
Accounts receivable (37) (115)
Inventory 71 1,129
Prepaid expenses and other current assets (11) 42
Increase (decrease) in liabilities:
Accounts payable 65 (248)
Accrued compensation and employee benefits 89 98
Accrued expenses (24) 71
Accrued stock appreciation rights (109) --
------- -------
Net cash provided by operating activities 317 1,348
------- -------
Investing activities:
Acquisition of property and equipment -- (2)
Purchase of deferred sample books (346) (503)
------- -------
Net cash used in investing activities (505) (505)
------- -------
Financing activities:
Net (payments) borrowings on bank debt (5) (842)
Issuance of common stock from SAR's 34 --
Principal payments on capital lease obligations -- (1)
------- -------
Net cash (used for) provided by financing activities $ 29 $ (843)
------- -------
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
BELL NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
(Unaudited)
Six Months Ended June 30,
-------------------------
1997 1996
-------- --------
Net decrease in cash and cash equivalents $ -- $ --
Cash and cash equivalents at beginning of period -- --
-------- -------
Cash and cash equivalents at end of period $ -- $ --
======== =======
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest $ 132 $ 142
Income taxes -- --
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
BELL NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(Unaudited)
Note 1. The Company
General. The information contained in this report is unaudited but, in
management's opinion, all adjustments necessary for a fair presentation have
been included and were of a normal and recurring nature. The results for the
three and six months ended June 30, 1997 are not necessarily indicative of
results to be expected for the entire year. These financial statements and notes
should be read in conjunction with Bell National Corporation's (the "Company")
Annual Report on Form 10-K for the year ended December 31, 1996.
Bell National Corporation's wholly owned subsidiary Payne Fabrics, Inc.
("Payne") is a designer and distributor of decorative drapery and upholstery
fabrics. Payne was acquired by the Company on June 15, 1990. On August 5, 1997
Payne sold substantially all of its assets and most of its liabilities related
to its business to Westgate Fabrics.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations The Company's revenues and expenses result from the
operations of Payne Fabrics, Inc.
Six Months Ended June 30, 1997 The Company had net sales of $5,434,000, cost of
goods sold of $3,008,000, selling, general and administrative expenses of
$2,585,000 and an operating loss of $159,000 during the first six months of
1997. The operating loss was increased by interest expense of $133,000, offset
by other income of $8,000 resulting in a net loss of $284,000.
Six Months Ended June 30, 1996 The Company had net sales of $6,550,000, cost of
goods sold of $3,661,000, selling, general and administrative expenses of
$3,018,000 and an operating loss of $129,000 during the first six months of
1996. The operating loss was increased by interest expense of $142,000, other
expense of $10,000 and income taxes of $2,000, resulting in a net loss of
$283,000.
Comparison Of Six Months 1997 Results to 1996 Sales for the first six months of
1997 decreased by $1,116,000 compared to the corresponding period in 1996. All
fabric and workroom categories experienced declines.
The gross profit for the first six months of 1997 was 44.6% compared to 44.1%
for the same period in 1996. Selling, general and administrative costs for the
first six months of 1997 were $433,000 lower than the same period of 1996. The
results include a $76,000 favorable adjustment for SAR's deemed exercised on
June 15, 1997.
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<PAGE>
Interest expense decreased by $9,000 for the first six months of 1996 due to the
slightly lower debt balance in comparison to the same period of the prior year
offset by high rates in 1997. Other expenses were $18,000 lower in the first six
months of 1997 versus 1996. Also in the first six months of 1997 provisions for
income taxes were $2,000 lower than in 1996.
The net loss of $284,000 in the first six months of 1997 compared to a net loss
of $283,000 for the same period in 1996 resulted in a loss per share of $0.05
for the first six months of 1997 and 1996.
Quarter Ended June 30, 1997 The Company had net sales of $2,860,000, cost of
goods sold of $1,649,000, selling, general and administrative expenses of
$1,242,000 and an operating loss of $31,000 during the second quarter of 1997.
The operating loss was increased by interest expense of $79,000, offset by other
income of $18,000 resulting in a net loss of $92,000.
Quarter Ended June 30, 1996 The Company had net sales of $3,383,000, cost of
goods sold of $1,978,000, selling, general and administrative expenses of
$1,527,000 and an operating loss of $122,000 during the second quarter of 1996.
The operating loss together with interest expense of $70,000 and other expense
of $17,000 resulted in a net loss of $209,000.
Comparison of Second Quarter 1997 Results to 1996 Sales for the second quarter
of 1997 decreased by $523,000 compared to the corresponding period in 1996. All
fabric and workroom categories experienced declines.
The gross profit for the second quarter of 1997 was 42.3% compared to 41.5% for
the same period in 1996. Selling, general and administrative costs for the
second quarter of 1997 were $285,000 lower than the same period of 1996. The
results include a $56,000 favorable adjustment for SAR's deemed exercised on
June 15, 1997.
Interest expense increased by $9,000 for the second quarter of 1997 due to the
high rate charged in comparison to the same period of the prior year. Other
expenses were $35,000 lower in the second quarter of 1997 versus 1996.
The net loss of $92,000 in the second quarter of 1997 compared to the net loss
of $209,000 for the same period in 1996 resulted in a loss per share of $0.02
for the second quarter of 1997 compared to a loss per share of $0.04 for the
same period of 1996.
Liquidity and Capital Resources
Available Resources In connection with the bank loan agreement, the Company
instituted a cash management system whereby the net cash generated by operations
is immediately used to reduce bank debt. The immediate reduction of outstanding
bank debt provides the Company with a greater reduction in interest expense than
could be offset with interest income from alternative investments. A review of
the financial statements, summary data, working capital and discussion of
liquidity must take into consideration the fact that the Company does not
maintain any cash balances in any of its accounts by design. Working capital
needs, when they arise, are met by daily borrowings.
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<PAGE>
Future Needs For and Sources of Capital
During the first half of 1997, the Company generated $317,000 of cash from
operations compared to $1,348,000 during the first half of 1996. The dramatic
reduction of $1,129,000 of inventory during the first six months of 1996 was not
repeatable in 1996. The operating cash generated in 1997 and proceeds from the
issuance of common stock under SAR agreements of $34,000 was used to purchase
$346,000 of sample books and repay bank principal of $5,000.
During the first six months of 1996, the Company generated $1,348,000 of cash
from operations compared to $481,000 during the first six months of 1995.
Greater cash was generated from operations in 1996 primarily as a result of a
significant decrease in working capital during the first six months of 1995.
Accounts receivable, inventory, prepaid expenses and other current assets
decreased in net by $1,056,000 in 1996 due to efforts in reducing inventory
levels. The decrease in current assets was slightly offset by a decrease in
current liabilities (excluding the current portion of debt and capital lease
obligations) of $79,000 in 1996. The operating cash generated in the first six
months of 1996 was used to purchase $503,000 of sample book inventory, purchase
$2,000 of equipment and to pay down bank debt by $842,000.
During 1996 and continuing in 1997, the Company and its Payne Fabrics, Inc.
("PFI") subsidiary did not meet certain of their covenants under its revolving
credit agreement (the "Credit Agreement") with Bank One, N.A. (formerly Bank
One, Dayton, National Association) (the "Bank"). In addition, the quarterly
principal installments due after September 1, 1996 had not been made although
interest payments were kept current. The Company has therefore classified all
amounts owing to the Bank as current liabilities, reflecting the Bank's right
under the Credit Agreement to demand immediate and full payment of its loans.
On May 12, 1997 the Bank formally notified PFI that it was in default under the
Credit Agreement. This notice included a demand for payment of all outstanding
amounts by May 30, 1997. Subsequently, the Company and PFI entered into a
Revolving Credit Modification Agreement (the "Credit Modification Agreement')
with the Bank, under which the: (i) maturity date of the amounts outstanding
under the Credit Agreement was extended to July 31, 1997, (ii) the interest
charged was increased to prime-plus-2.0% for revolving loans and
prime-plus-4.25% for the term loan, and (iii) the Company and PFI agreed to pay
the Bank a $30,000 fee. The Bank further agreed to forebear from accelerating
the loans under the Credit Agreement and enforcing its rights against the
collateral security therefor until the extended maturity date, which allowed the
Company the opportunity to secure the means of extinguishing the Bank debt.
ITEM 5. Other Information
The following information contains disclosures required under item 2 of
Securities and Exchange Commission ("SEC") Form 8-K Current Report ("Form 8-K"),
and is included herein in lieu of filing such information in a separate Form
8-K.
10
<PAGE>
On July 17, 1997, the Company and PFI entered into an Asset Purchase Agreement
dated as of July 17, 1997 (as amended, the "Asset Agreement"), with Westgate
Fabrics, Inc. ("Westgate"), and on August 5, 1997 the transactions contemplated
by the Asset Agreement were consummated. Under the Asset Purchase, PFI sold
substantially all of its properties and assets (excluding cash) to Westgate, and
Westgate assumed specified liabilities of PFI. The purchase price paid by
Westgate to PFI was $3,850,000 in cash, $150,000 of which was deposited into
escrow to secure certain post-closing working capital-based purchase price
adjustments called for under the Asset Agreement. Such purchase price was
arrived at through arm's-length negotiations between the Company/PFI and
Westgate. The assets sold included PFI's name and trademark, and PFI is in the
process of changing its name to "PFI National Corporation".
Among the liabilities retained by PFI under the Asset Agreement were Credit
Agreement indebtedness, payroll compensation and commissions due through the
closing date, liabilities for taxes, the PFI pension plan and 401(k) plan and
certain lease obligations. Approximately $2.26 million of the cash received
under the Asset Agreement was applied to satisfy in full all amounts owed to the
Bank under the Credit Agreement and Credit Modification Agreement. In connection
with the closing of the Asset Agreement, PFI entered into an agreement with the
landlord of its Dayton facility whereby the relevant lease would be terminated
in 90 days (as opposed to its September 2000 termination date) in exchange for a
one-time payment of $100,000 and prepayment of the remaining three months' rent.
PFI faces substantial cash requirements to extinguish all remaining retained
liabilities, and the amount of cash it will net from the sale may not be
determined for some time.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports
(a) Exhibits
2.2 Asset Purchase Agreement, dated as of July 17, 1997, by and among
Payne Fabrics, Inc., Bell National Corporation and Westgate
Fabrics, Inc.
2.3 Amendment No. 1 to the Asset Purchase Agreement, dated as of
August 5, 1997, by and between Payne Fabrics, Inc., Bell National
Corporation and Westgate Fabrics, Inc.
2.4 Post-Closing Escrow Agreement, dated as of August 5, 1997, by and
between Westgate Fabrics, Inc., Payne Fabrics, Inc. and Crouch &
Hallett, L.L.P.
27.0 Financial Data Schedule
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BELL NATIONAL CORPORATION
--------------------------------------------
(Registrant)
Date: August 12, 1997 /s/ Alexander M. Milley
--------------------------------------------
Alexander M. Milley, Chairman of the Board
and Secretary
Date: August 12, 1997 /s/ Thomas R. Druggish
--------------------------------------------
Thomas R. Druggish, Chief Financial Officer
(Principal Financial Officer and Accounting
Officer)
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made as of the 17th day of July, 1997, by
and among Payne Fabrics, Inc., a Delaware corporation ("Seller"), Bell National
Corporation, a California corporation ("Shareholder"), and Westgate Fabrics,
Inc., a Texas corporation ("Purchaser").
W I T N E S S E T H:
WHEREAS, the Seller is a distributor of decorative fabrics and related
products to the interior design profession (the "Business"); and
WHEREAS, the Seller desires to sell to Purchaser, and Purchaser desires to
purchase from the Seller, the assets used or useful in the ownership and
operation of the Business hereinafter described, under the terms and conditions
herein set forth; and
WHEREAS, the Shareholder is the sole shareholder of the Seller;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the parties hereto agree as follows:
1. PURCHASE AND SALE OF ASSETS.
1.1 Purchase and Sale of Assets. Subject to the conditions set forth in
this Agreement, at the Closing (as defined hereinafter), the Seller shall sell,
assign, transfer, convey and deliver to Purchaser, and Purchaser shall purchase
and receive from the Seller, all of Seller's right, title and interest in and to
the following assets that are owned or held by Seller (the "Assets"), free and
clear of all liens, security interests, charges, encumbrances and similar rights
of others ("Liens") (other than Permitted Liens, as hereinafter defined), except
those assets specifically listed on Schedule 1 attached hereto (the "Excluded
Assets"):
(a) All of the leasehold interests in real property located at (i) 390
Decorative Center, Dallas, Texas 75207, (ii) 351 Peachtree Hills Avenue
N.E., #141, Atlanta, Georgia 30305, (iii) 979 Third Avenue, Space 1510, New
York, New York 10022, and (iv) 41 Madison Avenue at 26th Street, 5th Floor,
New York, New York 10010 (collectively the "Real Estate"), including but
not limited to all improvements and all options thereon, subject, however,
to such modifications of and/or amendments to such leasehold interests (and
the leases therefor) as may be required or requested by any applicable
landlord thereof (and, unless such modification or amendment would result
in incremental cost or expense to Purchaser, not unreasonably objected to
by the Seller or Purchaser);
<PAGE>
(b) All equipment, machinery, spare parts, tools, instruments,
vehicles, furniture, fixtures and other similar items of tangible personal
property used or held for use in the Business and/or located at any of the
Real Estate;
(c) All inventory, samples and sample books used or held for use in
the Business (whether on location or in transit) and/or located at any of
the Real Estate;
(d) All accounts receivable relating to the Business;
(e) All purchase orders, contracts and commitments of Seller relating
to the Business, including, but not limited to, those for the purchase of
items of inventory or other personal property placed or incurred by Seller;
(f) All items of prepaid expense incurred by Seller in the operation
of the Business;
(g) All of Seller's customer lists, work orders, file and computer
copies of customer invoices, customer files and other customer records, all
drawings, specification sheets, files of all types primarily relating to
the Business, technical information, administrative systems, telephone
numbers, facsimile numbers, e-mail and internet addresses, and other such
property which relates to the Business;
(h) All of Seller's (i) proprietary information, designs, design
properties (developed and undeveloped), trade secrets and confidential
information, technical information and data, trademarks, trade names and
service marks relating to the Business; (ii) machinery and equipment
warranties and service contracts relating to the Business; (iii) all causes
of action not pending as of the date hereof to the extent related to the
Business or any of the Assets; and (iv) all other documentation (including
archival properties) primarily relating to the operation of the Business,
including all licenses and permits necessary or related to the operation of
the Business (to the extent transferable);
(i) All books and records primarily related to the Assets or the
operation of the Business (or the appropriate extracts therefrom to the
extent that such information is commingled with information unrelated to
the Assets or Business), including all financial, accounting and property
tax records, computer data and programs, market data, technical data and
records and all correspondence with and documents pertaining to suppliers,
governmental authorities and other third parties (it being understood,
however, that copies of the same may be retained by the Seller);
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<PAGE>
(j) The contractual rights of the Seller under those contracts,
agreements and other documents listed as "Assumed Contracts" in part II on
Schedule 2 hereto, as the same may be amended through the Closing Date (as
defined in Section 2.2) with the mutual consent of the Seller and Purchaser
(the "Assumed Contracts"); and
(k) All other assets of Seller, both tangible and intangible, used or
held for use in the operation of the Business and which are not Excluded
Assets, including, but not limited to, all insurance recoveries or rights
to the same relating to damages to or loss of the Assets.
In this Agreement, the term "Permitted Lien" means and includes: (i) liens for
taxes, assessments and other government charges not yet due and payable; (ii)
liens imposed by law, such as banker's, warehouseman's, mechanic's and
materialmen's liens, and other similar statutory or common law liens arising in
the ordinary course of business; (iii) Liens arising out of pledges, bonds or
deposits under worker's compensation laws, unemployment insurance, old age
pension or other social security or retirement benefits or similar legislation
and deposits securing obligations for self-insurance arrangements in connection
with any of the foregoing; (iv) easements, rights of way, building restrictions,
minor defects or irregularities in title and such other encumbrances or charges
against property (real, personal or mixed) as are of a nature that do not in a
materially adverse way affect the marketability of the same or interfere with
the use thereof in the ordinary course of business as presently conducted; (v)
liens of landlords arising under the leases as to which a Company is lessee and
which are disclosed pursuant to part II of Schedule 2 hereto; and (vi) liens
securing indebtedness disclosed or reflected in the Seller Financial Statements
(as defined in Section 3.6) which will be released and discharged in full on or
prior to the Closing Date.
1.2 Assumed Liabilities. At the Closing, the Purchaser shall assume and
agree to pay, perform, satisfy and discharge in accordance with their respective
terms (subject to any defenses or claimed offsets asserted in good faith against
the obligee to whom such liabilities are owed) the following liabilities and
obligations of the Seller (collectively the "Assumed Liabilities"):
(a) The current trade accounts payable, open purchase orders, customer
deposits and other accrued expenses (including accrued employee vacation
and sick pay) and Real Estate expenses relating to the Business, as of the
Closing Date, set forth in the categories listed on Schedule 2 hereto, in
each case only to the extent accrued on the Closing Balance Sheet (as
finalized as provided in Section 2.4); and
(b) To the extent relating to periods on and after the Closing, the
contractual obligations of the Seller under the Assumed Contracts.
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Except as specifically set forth above, Purchaser does not assume and shall in
no event be liable for any debt, obligation, responsibility or liability of the
Business or Seller.
2. CONSIDERATION; CLOSING.
2.1 Purchase Price. The consideration to be received by the Seller in
exchange for the Assets (the "Purchase Price") shall be $3.85 million (subject
to adjustment as described in Section 2.4 hereof), of which (i) $3.7 million
will be paid to the Seller in cash at the Closing (and shall be subject to
adjustment pursuant to Section 2.4) and (ii) $150,000 will be paid in cash at
the Closing to an escrow agent (the "Escrow Agent") and held in accordance with
the terms of the Post-Closing Escrow Agreement in the form of Exhibit A hereto
(the "Escrow Agreement"). The Purchaser and Seller agree to allocate the
foregoing Purchase Price and Assumed Liabilities for federal and state income
tax purposes among the Assets (i) in accordance with their mutual agreement,
which Purchaser and Seller will use their reasonable best efforts to arrive at
within 60 days after the Closing Date, and (ii) in any event, in a manner not
inconsistent with Section 1060 of the Internal Revenue Code of 1986, as amended
(the "Code"), and the related Treasury Regulations issued thereunder (the
"Treasury Regulations"); provided, however, that if such agreement is not so
arrived at within such time period, either the Purchaser or Seller may, at its
own expense, obtain appraisals of the Assets from qualified appraisers selected
in good faith by the requesting party, and such appraisals shall control the
allocation of the Purchase Price and Assumed Liabilities among the Assets,
absent manifest error. With regard to the allocation described in this Section
2.1, the Purchaser and the Seller agree to file Form 8594 and all required
supplemental and other forms, if any, with the Internal Revenue Service when due
(including after extension) consistent with the allocations agreed to or
otherwise determined hereunder.
2.2 Time of Closing. A closing (the "Closing") for the sale and purchase of
the Assets and assumption of the Assumed Liabilities shall be held at the
offices of Purchaser in Dallas, Texas (or such other place as may be agreed upon
by the parties in writing) on July 31, 1997 (provided, however, that such date
may be extended by the Purchaser to no later than August 7, 1997 to accommodate
any delay's in consummating Purchaser's financing) (the "Closing Date"). The
Closing shall be deemed to be effective as of 12:01 a.m. on the Closing Date.
2.3 Closing Procedure. At the Closing, the Seller shall deliver to
Purchaser such bills of sale, instruments of assignment, transfer and conveyance
and similar documents as Purchaser shall reasonably request. Against such
delivery, Purchaser shall (i) issue and deliver to Seller and the Escrow Agent
the Purchase Price in accordance with Section 2.1 above and (ii) execute and
deliver the assumption agreements with respect to the Assumed Liabilities as are
contemplated by Section 1.2 hereof. Each party will cause to be prepared,
executed and delivered all other documents required to be delivered by such
party pursuant to this Agreement and all
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<PAGE>
other appropriate and customary documents as another party or its counsel may
reasonably request for the purpose of consummating the transactions contemplated
by this Agreement. All actions taken at the Closing shall be deemed to have been
taken simultaneously at the time the last of any such actions is taken or
completed.
2.4. Purchase Price Adjustment. The Purchase Price shall be adjusted in
accordance with the following procedures:
(a) On or prior to the Closing Date, the Seller and Purchaser shall
mutually determine a preliminary and estimated balance sheet of the Seller
as of immediately prior to the effective time of the Closing, prepared in
accordance with generally accepted accounting principles, applied
consistently with the Seller's past practices; provided, however, that: (i)
any items eliminated in connection with the transactions contemplated
hereby (such as Excluded Assets and any other liabilities which are not
Assumed Liabilities) shall be excluded therefrom; and (ii) in connection
with the computation of current assets, (x) the inventory value of goods
purchased prior to 1995 will not be permitted to exceed $449,000 (Pre-1995
Inventory"), (y) there will be an inventory reserve of no less than
$130,000, and (z) "remnants" (i.e., pieces of less than four yards) will be
given no economic value. The balance sheet so agreed-upon shall be referred
to herein as the "Provisional Closing Balance Sheet".
(b) Not later than 90 days after the Closing, the Purchaser, at its
own cost, shall prepare and deliver to Seller a balance sheet of the Seller
as of immediately prior to the effective time of the Closing (the "Closing
Balance Sheet"), prepared in accordance with: (i) generally accepted
accounting principles, applied consistently with the Seller's past
practices (it being understood that the Purchaser will not seek to apply
Purchaser's historic inventory valuation policy for such purpose) and (ii)
otherwise, the provisos set forth in Section 2.4(a) above. The time period
for preparation of the Closing Balance Sheet shall be extended for such
additional time period that may be required in the event that the Seller
and its representatives do not furnish to the Purchaser books and records
(or supplemental information relating thereto) that may be reasonably
requested in order for the Purchaser to prepare the Closing Balance Sheet.
(c) In connection with preparing and finalizing (as hereinafter
provided) the Closing Balance Sheet, the parties shall determine (as
provided herein) the Working Capital of the Seller as of immediately prior
to the effective time of the Closing (the "Closing Date Value"). For
purposes of this Agreement, "Working Capital" means the difference between
(i) total current assets of the Seller, as set forth on the Closing Balance
Sheet, less (ii) the Assumed Liabilities of the Seller, as set forth on the
Closing Balance Sheet; in each case giving effect to: (x) the adjustments
described or referred to in clauses (a) and (b) above, and (y)
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the procedures for the final determination thereof as set forth in the
following provisions of this Section 2.4.
(d) Within 60 days after the Closing Balance Sheet is delivered to
Seller pursuant to clause (b) above, Seller, at its own cost, shall
complete its examination thereof, and provide for the examination thereof
by its accountants, if necessary, and shall deliver to the Purchaser either
(i) a written acknowledgment accepting the Closing Balance Sheet, including
the determination of the Closing Date Value, or (ii) a written report
setting forth in reasonable detail any proposed adjustments to the Closing
Balance Sheet or the Closing Date Value ("Adjustment Report"). A failure by
Seller to deliver the Adjustment Report within the required 60 day period
shall constitute its acceptance of the Closing Balance Sheet and the
Closing Date Value. The Purchaser shall, and shall cause its independent
auditors to, cooperate with Seller and its accountants (including any
independent accountants) in the course of the preparation of the Adjustment
Report. Such 60 day time period set forth above shall be extended for such
additional time period that may be required in the event that the Purchaser
and its representatives do not furnish to the Seller books and records (or
supplemental information relating thereto) that may be reasonably requested
in order for the Seller to prepare the Adjustment Report.
(e) During a period of 30 days following the delivery by Seller of the
Adjustment Report, Seller and Purchaser shall attempt to resolve any
difference they may have with respect to the matters raised in the
Adjustment Report. In the event Seller and Purchaser fail to agree on all
of the proposed adjustments contained in the Adjustment Report within such
30 day period, then Seller and Purchaser mutually agree that the New
Orleans, Louisiana office of Arthur Andersen LLP (the "Independent
Auditors") shall make the final determination with respect to the
correctness of the proposed adjustments in the Adjustment Report in light
of the terms and provisions of this Agreement; provided, however, that the
Independent Auditors shall not propose changes to the Adjustment Report
that would result in the Closing Date Value being outside the range between
the respective determinations of such Closing Date Value by Seller and
Purchaser. The decision of the Independent Auditors shall be final and
binding on Seller and Purchaser, and may be used in a court of law by
either Seller or Purchaser for the purpose of enforcing such decision. The
costs and expenses of the Independent Auditors and their services rendered
pursuant to this clause (e) shall be borne by the non-prevailing party or,
if neither party prevails, equally by Seller and Purchaser.
(f) In the event that, after finalization of the Closing Balance
Sheet, the Closing Date Value as set forth thereon is greater than $2.5
million, Seller shall be entitled to receive from Purchaser, and Purchaser
shall be obligated to pay to Seller, an amount of cash equal to such excess
(without any interest).
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In the event that such Closing Date Value is less than $2.5 million,
Purchaser shall be entitled to receive from Seller, and Seller shall be
obligated to pay to Purchaser, an amount of cash equal to such deficiency
(without any interest); and Seller hereby authorizes Purchaser to claim
such amount from the Escrow Agent in accordance with the provisions of the
Escrow Agreement. In either event, such cash shall be paid within five
business days after the finalization of the Closing Balance Sheet to such
account as may be designated by the party entitled to receive the same.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLER.
The Seller hereby represents and warrants to the Purchaser, as follows:
3.1 Organization and Good Standing of the Seller. The Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware.
3.2 Subsidiaries, Investments. The Seller has no equity, profit sharing,
participation or other ownership interest in any corporation or partnership.
3.3 Corporate Power and Authority; Binding Effect. The Seller has the
corporate power and authority and all material licenses and permits required by
governmental authorities to own, lease and operate its properties and assets, to
carry on its business as currently being conducted, and to execute, deliver and
perform this Agreement, the Consulting Agreement (as defined in Section 7.4) and
the Escrow Agreement (the Consulting Agreement and Escrow Agreement being
collectively referred to as the "Ancillary Agreements"). Each of this Agreements
and the Ancillary Agreement, has been, or at the time of the Closing will have
been, duly authorized, executed and delivered by the Seller and is, or from and
after the Closing will be, the legal, valid and binding obligation of the Seller
enforceable against the Seller in accordance with its terms, except that (i)
enforceability may be limited by bankruptcy, insolvency or other similar laws
affecting creditors' rights generally, and (ii) the availability of equitable
remedies may be limited by equitable principles of general applicability.
3.4 Compliance with Other Instruments. Neither the execution and delivery
by the Seller of this Agreement and the Ancillary Agreements nor the
consummation by it of the transactions contemplated hereby and thereby will
violate, breach, be in conflict with, or constitute a default under, or permit
the termination or the acceleration of maturity of, or result in the imposition
of any lien, claim or encumbrance upon any property or asset of the Seller
pursuant to (i) the Seller's certificate or articles of incorporation or bylaws,
(ii) any note, bond, indenture, mortgage, deed of trust, evidence of
indebtedness, loan or material lease agreement, other agreement or instrument by
which the Seller is bound, to which it is a party or
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to which its assets are subject ("Material Seller Agreements"), or (iii)
judgment, order, injunction or decree by which the Seller is bound, to which it
is a party or to which its assets are subject, excepting, however, in the case
of the foregoing clause (ii): (x) such Material Seller Agreements which are not
Assumed Contracts and which the Seller shall satisfy or discharge in full with
the Purchase Price funds, and (y) such violations, breaches, conflicts,
defaults, accelerations, liens, claims and encumbrances which could not
reasonably be expected to have a material adverse effect on the business,
results of operations, Assets or condition (financial or otherwise) of the
Business or on the ability of the Seller to perform its obligations under this
Agreement (a "Material Adverse Effect").
3.5 Consents. No approval, authorization, consent, order or other action
of, or filing with, any governmental authority or administrative agency is
required in connection with the execution and delivery by the Seller of this
Agreement or the Ancillary Agreements or the consummation by the Seller of the
transactions contemplated hereby and thereby. No approval, authorization or
consent of any other third party is required in connection with the execution
and delivery by the Seller of this Agreement or the Ancillary Agreements and the
consummation of the transactions contemplated hereby and thereby, except for
such authorizations and consents: (i) under non-Assumed Contracts and satisfy or
discharge in full with the Purchase Price Funds, and (ii) the failure of which
to obtain could not reasonably be expected to have a Material Adverse Effect.
3.6 Financial Statements and Records of the Seller.
(a) The Seller has delivered to Purchaser true, correct and complete
copies of (i) the balance sheet of the Seller as of December 31, 1996, and
the related statement of income for the year then ended, accompanied by the
audit report of Ernst & Young thereon, and (ii) the unaudited balance sheet
of the Seller as of May 31, 1997, and the related statement of income for
the five months then ended (collectively, the "Seller Financial
Statements").
(b) The Seller Financial Statements present fairly in all material
respects the financial position of the Seller as of the dates thereof and
the results of operations thereof for the periods then ended and have been
prepared in conformity with generally accepted accounting principles
applied on a consistent basis with prior periods. The books and records of
the Seller have been and are being maintained in accordance with good
business practice, reflect only valid transactions, are complete and
correct in all material respects, and present fairly in all material
respects the basis for the financial position and results of operations of
the Seller set forth in the Seller Financial Statements.
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3.7 Absence of Certain Changes. Since May 31, 1997, the Seller has not
(except as may result from the transactions contemplated by this Agreement or
otherwise disclosed in writing to the Purchaser).
(i) suffered any change in its business, results of operations,
working capital, assets, liabilities or condition (financial or otherwise)
or the manner of conducting its business other than changes in the ordinary
course of business that, individually or in the aggregate, have not had a
Material Adverse Effect;
(ii) suffered any damage or destruction to or loss of its assets not
covered by insurance, or any loss of suppliers, that has had a Material
Adverse Effect;
(iii) acquired or disposed of any asset, or incurred, assumed,
guaranteed or endorsed any indebtedness, liability or obligation, or
subjected or permitted to be subjected any material amount of Assets to any
lien, claim or encumbrance of any kind, except in the ordinary course of
business or pursuant to agreements in force at the date of this Agreement;
(iv) forgiven, compromised, canceled, released, waived or permitted to
lapse any material rights or claims;
(v) entered into or terminated any material agreement, commitment or
transaction, or agreed or made any changes in material leases or
agreements, other than renewals or extensions thereof and leases,
agreements, transactions and commitments entered into in the ordinary
course of business;
(vi) written up, written down or written off the book value of any
material amount of assets;
(vii) increased the compensation of or paid any bonuses to any
employees or contributed to any employee benefit plan, other than in
accordance with established policies, practices or requirements;
(viii) entered into any employment, consulting, compensation or
collective bargaining agreement with any person or group;
(ix) entered into, adopted or amended any employee benefit plan; or
(x) declared or distributed any dividend in respect of its capital
stock, or repurchased any of its capital stock, or paid any management fee
or similar payment to the Shareholder or its affiliates.
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3.8 No Material Undisclosed Liabilities. There are no material liabilities
or obligations of the Seller of any nature, whether absolute, accrued,
contingent or otherwise, other than (i) the liabilities and obligations that are
fully reflected, accrued, or reserved against on the Seller Financial
Statements, for which the reserves are appropriate and reasonable, or incurred
in the ordinary course of business and consistent with past practices since May
31, 1997 or (ii) liabilities or obligations not required to be disclosed in
financial statements prepared in accordance with generally accepted accounting
principles.
3.9 Tax Liabilities. The Seller has filed all federal, state, county and
local tax returns and reports required to be filed by it, including those with
respect to income, payroll, property, withholding, social security,
unemployment, franchise, excise and sales and use taxes; has either paid in full
all taxes that have become due as reflected on any return or report and any
interest and penalties with respect thereto or has fully accrued on its books or
has established adequate reserves for all taxes payable but not yet due; and has
made required cash deposits with appropriate governmental authorities
representing estimated payments of taxes, including income taxes and employee
withholding tax obligations. No extension or waiver of any statute of
limitations has been granted to or requested by the Seller with respect to any
tax. No unsatisfied deficiency, delinquency or default for any tax, assessment
or governmental charge has been assessed (or, to the knowledge of the Seller,
claimed or proposed) against the Seller, nor has the Seller received notice of
any such deficiency, delinquency or default.
3.10 Title to Properties.
(a) The Seller has good and marketable fee or leasehold title to the
Assets reflected in its books and records as being owned or leased,
including (except as they have since been affected by transactions in the
ordinary course of business or otherwise permitted by Purchaser) the real
and personal properties reflected in the Seller Financial Statements
(except for assets subject to financing leases required to be capitalized
under generally accepted accounting principles, all of which are so
reflected in the Seller Financial Statements or notes thereto), and all
assets purchased by the Seller since the date of the Seller Financial
Statements (except for such assets as have been disposed of by the Seller
in the ordinary course of business or otherwise permitted by Purchaser),
free and clear of any lien, claim or encumbrance, except (i) as reflected
in the Seller Financial Statements or notes thereto, (ii) Permitted Liens
and (iii) arising from the absence of lessor consent required by the terms
of any lease.
(b) (i) Applicable zoning ordinances permit the operation of the
Business at the Real Estate; (ii) the Seller (or owners of the Real Estate)
has all easements and rights, including easements for all utilities,
services, roadways
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and other means of ingress and egress, necessary to operate the Business;
and (iii) neither the whole nor any portion of the Real Estate has been
condemned, requisitioned or otherwise taken by any public authority, and no
notice of any such condemnation, requisition or taking has been received;
except in each case where the failure of such provisions to be true and
correct would not have a material adverse effect on the business and
operations of the Business. To the Seller's knowledge, no such
condemnation, requisition or taking is threatened or contemplated and there
are no pending public improvements which may result in special assessments
against or which may otherwise materially and adversely affect the Business
conducted at Real Estate. To the knowledge of the Seller, the Real Estate
has not been used for deposit or disposal of hazardous wastes or substances
in violation of any past or current law in any material respect and there
is no material liability of the Seller or Business under past or current
law with respect to any hazardous wastes or substances which have been
deposited or disposed of on or in the Real Estate.
(c) The Seller has received no notice of, and has no actual knowledge
of, any material violation of any zoning, building, health, fire, water use
or similar statute, ordinance, law, regulation or code in connection with
the Business conducted at the Real Estate.
(d) To the knowledge of the Seller, no hazardous or toxic material (as
hereinafter defined) exists in any structure located on, or exists on or
under the surface of, the Real Estate which is, in any case, in material
violation of applicable environmental law. For purposes of this Section,
"hazardous or toxic material" shall mean waste, substance, materials,
smoke, gas or particulate matter designated as hazardous, toxic or
dangerous under any environmental law. For purposes of this Section,
"environmental law" shall include the Comprehensive Environmental Response
Compensation and Liability Act, the Clean Air Act, the Clean Water Act and
any other applicable federal, state or local environmental, health or
safety law, rule or regulation relating to or imposing liability or
standards concerning or in connection with hazardous, toxic or dangerous
waste, substance, materials, smoke, gas or particulate matter.
3.11 Equipment, Inventory, Sample Books, Accounts Receivable.
(a) All of the equipment included in the Assets viewed as a whole (and
not on an asset by asset basis) are in good condition and working order,
ordinary wear and tear and obsolescence excepted, are suitable for the uses
for which intended, and are free from any known defects, ordinary wear and
tear and obsolescence excepted and except for such minor defects as do not
substantially interfere with the continued use thereof.
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(b) The inventory included in the Assets (excluding Pre-1995 Inventory
and "remnants" (i.e., pieces of less than four yards)) is, to the knowledge
of the Seller and Shareholder, (i) of good and merchantable quality,
subject to such inventory reserves (of not less than $130,000 for all
inventories) as are set forth in the Seller Financial Statements and (ii)
valued in the Seller Financial Statements in accordance with past practice
of the Seller.
(c) The accounts receivable included in the Assets are collectible in
the ordinary course of business, subject to such reserves for doubtful
accounts as are set forth in the Seller Financial Statements.
(d) Seller's sample book spending in 1996 was at least $689,000. In
1997, Seller's sample book spending through June 30 was at least $293,000.
3.12 Contracts. Included in part II of Schedule 2 hereto is a complete and
accurate list of all of the following categories of contracts and commitments
(including summaries of oral contracts) to which the Seller is a party or bound
and which are included in the Assumed Contracts:
(i) contracts with any labor union; employee benefit plans or
contracts; and employment, consulting or similar contracts, including
confidentiality agreements;
(ii) leases, whether as lessor or lessee; all agreements, instruments
of indebtedness or commitments in each case involving liabilities to be
assumed pursuant to the terms of this Agreement; and guaranty or
suretyship, performance bond, indemnification or contribution agreements
involving obligations;
(iii) contracts with third parties that involve aggregate payments by
the Seller of more than $25,000;
(iv) a current listing of purchase orders or commitments for the
purchase of items of inventory or other personal property;
(v) insurance policies material to the business of the Seller; and
(vi) other contracts that are material to the operations, business or
financial condition of the Business.
To the extent requested, the Seller has furnished or made available accurate and
complete copies of the Assumed Contracts to Purchaser. All of the
above-referenced
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Assumed Contracts are valid, binding, subsisting and enforceable obligations of
the Seller.
3.13 Litigation and Government Claims. There is no pending suit, action or
litigation, or administrative, arbitration or other proceeding or governmental
investigation or inquiry, to which the Seller is a party or to which its assets
are subject which would, if decided against the Seller, individually or in the
aggregate, have a Material Adverse Effect. To the knowledge of the Seller, there
are no such proceedings threatened or contemplated which would, if decided
against the Seller, individually or in the aggregate, have a material adverse
effect on the business, results of operations, assets or the condition,
financial or otherwise, of the Business.
3.14 No Violations or Defaults. To the knowledge of the Seller, the Seller
is not in violation of or default under nor has any event occurred that, with
the lapse of time or the giving of notice or both, would constitute a violation
of or default under, or permit the termination or the acceleration of maturity
of, or result in the imposition of a lien, claim or encumbrance upon any
property or asset of the Seller pursuant to, the articles of organization or
bylaws of the Seller or any loan or lease agreement, other agreement or
instrument, judgment, order, injunction or decree to which the Seller is a
party, by which it is bound, or to which any of its assets is subject, except
(i) Material Seller Agreementswhich are not Assumed Contracts and which Seller
shall not satisfy or discharge in full with the Purchase Price funds and (ii)
where such violation or default would not have a Material Adverse Effect. To the
knowledge of the Seller, there are no existing violations of any law applicable
to the Business that have a material adverse effect on the business, operations,
properties, assets or condition of the Business.
3.15 Labor Matters.
(a) The Seller is not party to any collective bargaining agreements
with any union, and no collective bargaining agreement is currently being
negotiated by the Seller.
(b) There are no discrimination charges against the Seller (relating
to sex, age, race, national origin, handicap or veteran status) pending
before any federal or state agency or authority that is reasonably likely
to have a Material Adverse Effect.
(c) There is no labor strike or similar material dispute pending or,
to the knowledge of the Seller, threatened against or involving the Seller.
(d) There is no arbitration proceeding under any collective bargaining
agreement pending or, to the knowledge of the Seller, threatened involving
any employees of the Seller.
(e) For the past two years, the Seller has followed the practices
outlined in its employee policy manuals in all material respects with
regard to conditions and terms of employment and termination benefits with
respect to its employees.
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3.16 Brokers and Finders. The Seller has not engaged any person to act or
render services as a broker, finder or similar capacity in connection with the
transactions contemplated herein and no person has, as a result of any agreement
or action by the Seller, any right or valid claim against the Seller, Purchaser
or any of Purchaser's affiliates for any commission, fee or other compensation
as a broker or finder, or in any similar capacity in connection with the
transactions contemplated herein.
3.17 No Oral Representations. The Purchaser acknowledges and agrees that
neither the Seller nor Shareholder (nor any of their respective officers,
directors, affiliates, employees, representatives or other agents) has made any
oral representation or warranty with respect to the Seller, the Business, this
Agreement and/or the transactions contemplated hereby.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser hereby represents and warrants to the Seller as follows:
4.1 Organization and Good Standing. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of Texas and has
all requisite corporate power and authority to own and lease its properties and
carry on its business as currently conducted.
4.2 Due Authorization, Execution and Delivery. Purchaser has full power and
authority to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement and the Ancillary
Agreements and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of Purchaser. This Agreement has been duly executed and delivered by Purchaser
and constitutes the legal, valid and binding obligations of Purchaser,
enforceable against it in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally or general equitable principles. From and
after the Closing, each of the Ancillary Agreements will be duly executed and
delivered by Purchaser and will constitute the legal, valid and binding
obligation of Purchaser, enforceable against it in accordance with its terms,
except as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally or general
equitable principles.
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4.3 No Violation. Neither the execution and delivery by Purchaser of this
Agreement or the Ancillary Agreements nor the consummation of the transactions
contemplated hereby or thereby will violate, breach, be in conflict with, or
constitute a default under, or permit the termination or the acceleration of
maturity of (i) the Purchaser's certificate or articles of incorporation or
bylaws, (ii) any note, bond, indenture, mortgage, deed of trust, evidence of
indebtedness, loan or material lease agreement, other agreement or instrument by
which the Purchaser is bound, to which it is a party or to which its assets are
subject, or (iii) judgment, order, injunction or decree by which the Purchaser
is bound, to which it is a party or to which its assets are subject.
4.4 Consents. No consent, approval, authorization, license, exemption of,
filing or registration with any court, governmental authority, commission,
board, bureau, agency or instrumentality, domestic or foreign, is required by
Purchaser in connection with the execution and delivery of this Agreement or the
Ancillary Agreements or the consummation by it of any transaction contemplated
hereby and thereby. No approval, authorization or consent of any other third
party is required in connection with the execution and delivery by Purchaser of
this Agreement or the Ancillary Agreements, or the consummation of the
transactions contemplated hereby and thereby, except as may have been previously
obtained by Purchaser and are in full force and effect.
4.5 Finders and Brokers. The Purchaser has not engaged any person other
than Conrad/Collins Merchant Banking Group ("MBG"), the fees and expenses of
which will be paid by the Purchaser or its affiliates, to act or render services
as a broker, finder or similar capacity in connection with the transactions
contemplated herein and no person (including MBG) has, as a result of any
agreement or action by the Purchaser or any of its affiliates, any right or
valid claim against the Seller or any of Seller's affiliates for any commission,
fee or other compensation as a broker or finder, or in any similar capacity in
connection with the transactions contemplated herein.
4.6 No Oral Representations. The Seller and Shareholder acknowledge and
agree that neither the Purchaser nor any of its officers, directors, affiliates,
employees, representatives or other agents has made any oral representation or
warranty with respect to the Purchaser, this Agreement and/or the transactions
contemplated hereby.
5. CERTAIN COVENANTS AND AGREEMENTS.
5.1 Reasonable Efforts. Each of the Seller, Shareholder and Purchaser shall
take all reasonable action necessary to consummate the transactions contemplated
by this Agreement and will use all necessary and reasonable means at its
disposal to obtain all necessary consents and approvals of other persons and
governmental authorities required to enable it to consummate the transactions
contemplated by this
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Agreement. Except as otherwise provided herein, each of the Seller, Shareholder
and Purchaser acknowledges and agrees that it shall pay all of its own costs,
fees and expenses incurred by it in obtaining such necessary consents and
approvals. Each party shall make all filings, applications, statements and
reports to all governmental agencies or entities which are required to be made
prior to the Closing Date by or on its behalf pursuant to any statute, rule or
regulation in connection with the transactions contemplated by this Agreement,
and copies of all such filings, applications, statements and reports shall be
provided to the others.
5.2 Public Announcements. Prior to Closing, no party hereto shall make any
announcement to the public, the Seller's or Purchaser's respective "trades" or
to the respective employees, customers or suppliers of such parties, or to any
federal, state, local or foreign government, agency or authority, with respect
to this Agreement and/or the transactions contemplated hereby (an
"Announcement") to which any other such party hereto shall reasonably object;
however, Shareholder will be required under the Securities Exchange Act of 1934,
as amended, to report this Agreement and such transactions, and such reporting
(to the extent required under such Act) shall be permitted in all events. Prior
to Closing, each party shall afford the other parties hereto the opportunity to
review and comment upon each Announcement proposed to be made by it prior to the
release thereof.
5.3 Ordinary Course of Business. During the period from the date hereof to
the Closing Date, unless the prior consent of Purchaser is first obtained and
except as may be required to obtain consents and approvals required under
Section 5.1, the Seller shall not, and the Shareholder shall cause the Seller to
not, (i) knowingly take any action which would cause any representation
contained in Article 3 to be untrue as of the Closing Date, (ii) enter into any
transaction with respect to the Business other than in the ordinary course of
business, (iii) permit any encumbrance, mortgage or pledge on any Asset (other
than Permitted Liens), (iv) dispose of any material Asset, or (v) except in the
ordinary course of business, incur any liabilities in the category of Assumed
Liabilities not reflected on the Seller Financial Statements. During the period
from the date hereof to the Closing Date, unless the prior consent of Seller is
first obtained and except as may be required to obtain consents and approvals
required under Section 5.1, the Purchaser shall not knowingly take any action
which would cause any representation contained in Article 4 to be untrue as of
the Closing Date.
5.4 Employees. Seller will terminate all of its employees as of the Closing
Date and shall assume all liabilities or obligations to such employees relating
to: (i) any violation by Seller of (or non-compliance by Seller with) the Worker
Adjustment and Retraining Notification Act with respect to "plant closings,"
(ii) salary and severance obligations to such employees accrued through the
Closing Date, (iii) claims for health care and other benefits accrued through
the Closing Date (excluding vacation and sick pay accrued on the Closing Balance
Sheet) and (iv) any failure to provide health continuation coverage, if any,
required by ERISA to any employees not hired by
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Purchaser. Seller acknowledges that Purchaser may elect to offer employment to
certain of such terminated employees on and after the Closing Date.
5.5 Acquisition Proposals. From the date hereof until the Closing Date or
until this Agreement is terminated or abandoned as provided in this Agreement,
neither Seller nor Shareholder shall, directly or indirectly, (i) solicit or
initiate discussion with or (ii) enter into negotiations or agreements with, or
furnish any information to, any corporation, partnership, person or other entity
or group (other than Purchaser or its authorized representatives pursuant to
this Agreement) concerning any proposal for a merger, sale of substantial
assets, sale of shares of stock or securities or other takeover or business
combination transaction involving Seller or the Assets, and each of Shareholder
and Seller will instruct its officers, directors, advisors and its financial and
legal representatives and consultants not to take any action contrary to the
foregoing provisions of this sentence.
5.6 Seller Financial Statements. From the date hereof until the Closing
Date, Seller shall promptly furnish to the Purchaser copies of all of its
internally prepared unaudited financial statements for periods on and after May
31, 1997.
5.7 Seller Name. Promptly after the Closing, Shareholder shall cause the
Seller to change its corporate name to a name which does not contain the words
"Payne" or "Fabrics."
5.8 Confidential Information. In the event the Closing shall not occur,
each party and their respective counsel, accountants, lenders and their
respective employees, agents and representatives shall treat in confidence all
confidential documents and materials and other confidential information which
they shall have obtained regarding the other and its respective business during
the course of the negotiations leading to the transactions contemplated hereby
and shall return all copies (including computer files) of non-public documents
and materials which have been furnished in connection therewith. Further, in the
event the Closing shall occur, Seller and Seller's counsel, accountants, lenders
and their respective employees, agents and representatives shall treat in
confidence all confidential documents and materials and other confidential
information which they shall have obtained regarding the Business, the Purchaser
or any affiliate thereof, if obtained at any time insofar as the same relates to
the Business or (as the same relates to the Purchaser or any affiliate), if
obtained during the course of the negotiations leading to the transactions
contemplated hereby, and shall return or destroy all copies (including computer
files) of non-public confidential documents and materials which have been
furnished in connection therewith or which contain or incorporate any of the
foregoing.
5.9 Cooperation. After the Closing Date, the Purchaser and Seller shall:
(1) make available to each other, as reasonably requested, and to any taxing
authority or any accountant or other authorized employee representative, all
information, records
17
<PAGE>
or documents (i) relating to tax liabilities or potential tax liabilities of the
Seller and/or Business for all periods prior to or including the Closing date,
and (ii) reasonably necessary in order to prepare consolidated financial
statements for any period prior to or including the Closing Date, and (2) shall
preserve all such information, records and documents until the expiration of any
applicable statute of limitations (including extensions thereof) or other
relevant period. The Purchaser shall not take any action with respect to any
taxes or tax returns which could result in any liability, payment or obligation
to the Seller or Shareholder in respect of any taxes owing by the Seller and/or
Business without the prior written consent of Seller. Seller and Purchaser shall
promptly notify Seller in writing of any notice, inquiry, audit, examination or
other state of fact which could result in any liability, payment or obligation
to Seller in respect of any taxes owing by the Seller and/or Business. Seller
shall be responsible for any assessment of tax for periods up to the Closing
Date, shall control any audit or assessment process, and shall bear its own
costs. Each party shall bear its own expenses in complying with the foregoing
provisions.
5.10 Financing. Purchaser has delivered to Seller true, correct and
complete copies of its commitments to obtain the financing(s) in order to pay
the entire cash Purchase Price. Any additional information requested by Seller
in writing and provided by Purchaser with respect to such financing(s), the
sources thereof and the Purchaser's own financial resources shall be, to the
knowledge of the Purchaser, true, complete and correct in all material respects.
Purchaser will use its reasonable best efforts to comply (or will cause
compliance) with all covenants with respect to, will use its best reasonable
efforts to satisfy (or cause to be satisfied) all conditions within its (or its
affiliates) control to, such financing(s). The Purchaser will promptly advise
Seller of any facts, circumstances or events reasonably likely to prevail or
occur that would grant any such financing source the right to refuse to fund, or
otherwise lead such financing source to refuse to be or be unable to fund, the
financing(s) committed to by such source(s).
5.11 Ohio Real Estate Lease. Purchaser agrees from and after the Closing
Date to assume all expenses of the tenant (on a "triple net basis") under the
lease for the Seller's Kettering, Ohio facility for the 90 day period referenced
in Section 6.6, including rent, utilities, insurance, taxes and other expenses
chargeable to tenant thereunder (but excluding any lease termination fees or
fees paid for consents to the transactions contemplated hereby). Nothing
contained herein shall require Purchaser to enter into any sublease or similar
arrangement with the landlord of such real estate.
6. CONDITIONS TO PURCHASER'S CLOSING.
All obligations of Purchaser under this Agreement shall be subject to the
fulfillment at or prior to the Closing of the following conditions, it being
understood that Purchaser may, in its sole discretion, waive any or all of such
conditions in whole or in part:
18
<PAGE>
6.1 Representations, Etc. The Seller shall have performed in all material
respects the covenants and agreements contained in this Agreement that are to be
performed by it at or prior to the Closing, and the representations and
warranties of the Seller contained in this Agreement shall be true and correct
in all material respects as of the Closing Date with the same effect as though
made at such time (except as contemplated or permitted by this Agreement). The
Seller shall have executed and delivered to the Purchaser a certificate or
certificates certifying its compliance with the foregoing, in form and substance
satisfactory to the Purchaser. Notwithstanding the foregoing sentence: (i) from
time to time on or prior to the Closing, the Seller shall be permitted to
deliver to Purchaser information which changes, modifies or supplements the
representations and warranties set forth in Section 3 because of the occurrence
or non-occurrence of any event, or any circumstance arising, after the date of
this Agreement; (ii) upon such delivery such representations and warranties
shall deemed to be amended by such information, and (iii) if, in the reasonable
judgment of Purchaser, such event(s) or circumstance(s) results in the
incurrence of additional losses, claims, expenses or liabilities to the
Purchaser for which Seller or Shareholder has not made adequate provision for
payment, then the condition stated in the second sentence of this Section 6.1
shall be deemed not to have been satisfied. If, notwithstanding (x) any failure
of such condition as provided in the foregoing clause "(iii)", or (y) any
misrepresentation on the part of the Seller as to which Purchaser has received
written notice (such notice specifically noting the section(s) of this Agreement
as to which there has been a misrepresentation) from or on behalf of Seller
prior to the Closing, Purchaser proceeds with the Closing, then such failure of
condition and/or such misrepresentation (as the case may be) shall be deemed for
all purposes to be waived.
6.2 Consents. All consents and approvals required to consummate the
transactions contemplated by this Agreement shall have been obtained without
material cost or other materially adverse consequence to Purchaser and shall be
in full force and effect.
6.3 No Adverse Litigation. No order or temporary, preliminary or permanent
injunction or restraining order shall have been entered and no action, suit or
other legal or administrative proceeding by any court or governmental authority,
agency or other person shall be pending or threatened on the Closing Date which
may have the effect of (i) making any of the transactions contemplated hereby
illegal, (ii) materially adversely affecting the value of the Assets or (iii)
making Purchaser or its officers, directors or affiliates liable for the payment
of damages to any person.
6.4 Inventory Due Diligence Investigation. Purchaser's due diligence
investigation of the Business shall not have revealed any matters materially
adverse to Purchaser regarding the condition, age or value of the inventory of
the Business.
19
<PAGE>
6.5 Financing. Purchaser shall have obtained the financing(s) referred to
in Section 5.10 hereof; provided, however, that this condition shall be deemed
to be satisfied if such financing shall not have been obtained due to a breach
by Purchaser of Section 5.10.
6.6 Ohio Real Estate. The landlord of the real estate leased by Seller in
Kettering, Ohio shall have agreed to permit Purchaser to access and occupy such
facilities for a period of 90 days from the Closing Date at a monthly cost to
Purchaser equal to the monthly cost presently incurred by Seller for such space.
6.7 Closing Deliveries. Purchaser shall have received each of the documents
or items required to be delivered to it pursuant to Section 8.1 hereof.
7. CONDITIONS TO SELLER'S CLOSING.
All obligations of the Seller under this Agreement shall be subject to the
fulfillment at or prior to the Closing of the following conditions, it being
understood that the Seller may, in its sole discretion, waive any or all of such
conditions in whole or in part:
7.1 Representations, Etc. Purchaser shall have performed in all material
respects the covenants and agreements contained in this Agreement that are to be
performed by Purchaser as of the Closing, and the representations and warranties
of Purchaser contained in this Agreement shall be true and correct in all
material respects as of the Closing Date with the same effect as though made at
such time (except as contemplated or permitted by this Agreement).
7.2 Consents. All consents and approvals required to consummate the
transactions contemplated by this Agreement shall have been obtained without
material cost or other materially adverse consequence to Seller and shall be in
full force and effect.
7.3 No Adverse Litigation. No order or temporary, preliminary or permanent
injunction or restraining order shall have been entered and no action, suit or
other legal or administrative proceeding by any court or governmental authority,
agency or other person shall be pending or threatened on the Closing Date which
may have the effect of (i) making any of the transactions contemplated hereby
illegal, or (ii) making the Seller, Shareholder or any of their respective
officers, directors or affiliates liable for the payment of damages to any
person.
7.4 Consulting Agreement The Purchaser shall have entered into a consulting
agreement with Seller in the form of Exhibit B hereto (the "Consulting
Agreement").
20
<PAGE>
7.5 Closing Deliveries. The Seller shall have received each of the
documents or items required to be delivered to it pursuant to Section 8.2.
8. DOCUMENTS TO BE DELIVERED AT CLOSING.
8.1 To Purchaser. At the Closing, there shall be delivered to Purchaser:
(a) The bills of sale, agreements of assignment and similar
instruments of transfer to the Assets contemplated by Section 2.3 hereof.
(b) A certificate, signed by an executive officer of Seller, as to the
fulfillment of the conditions set forth in Sections 6.1 through 6.3 hereof.
(c) The Ancillary Agreements.
(d) All other items reasonably requested by Purchaser.
8.2 To Seller. At the Closing, there shall be delivered to the Seller:
(a) The cash Purchase Price contemplated by Section 2.1 hereof, in the
form of wire transfer or cashier's or certified check as the Seller may
direct;
(b) A certificate, signed by an executive officer of Purchaser, as to
the fulfillment of the conditions set forth in Sections 7.1 and 7.2 hereof.
(c) An assumption agreement pursuant to which Purchaser shall assume
the Assumed Liabilities.
(d) The Ancillary Agreements.
(e) All other items reasonably requested by the Seller.
9. SURVIVAL.
All representations, warranties, covenants and agreements made by any party
to this Agreement or pursuant hereto shall be deemed to be material and to have
been relied upon by the parties hereto and shall survive the Closing; provided,
however, that notice of any claim, whether made under the indemnification
provisions hereof or otherwise, based on a breach of a representation, warranty,
covenant or agreement must be given within one year from the Closing Date (two
years from the Closing Date with respect to the covenant contained in Section
5.4). The representations and warranties hereunder shall not be affected or
diminished by any investigation at any time by or on behalf of the party for
whose benefit such representations and warranties were made. All statements
contained herein or in any certificate, exhibit,
21
<PAGE>
list or other document delivered pursuant hereto or in connection with the
transactions contemplated hereby shall be deemed to be representations and
warranties. No representation or warranty contained herein shall be deemed to be
made at any time after the date of this Agreement or, if made in a certificate,
the date of such certificate.
10. INDEMNIFICATION OF PURCHASER.
Subject to the limitations set forth in Sections 9 and 12, the Seller and
the Shareholder, jointly and severally, shall, from and after the Closing Date,
indemnify and hold Purchaser harmless from, against, for and in respect of:
(a) any and all damages, losses, settlement payments, obligations,
liabilities, claims, actions or causes of action and encumbrances suffered,
sustained, incurred or required to be paid by Purchaser because of the
breach of any written representation, warranty, agreement or covenant of
the Seller contained in this Agreement or any document, certificate or
agreement executed in connection with this Agreement;
(b) any and all non-Assumed Liabilities of Seller; and
(c) all reasonable costs and expenses (including, without limitation,
attorneys' fees, interest and penalties) incurred by Purchaser in
connection with any action, suit, proceeding, demand, assessment or
judgment incident to any of the matters indemnified against in this Section
10.
11. INDEMNIFICATION OF SELLER.
Subject to the limitations set forth in Sections 9 and 12, Purchaser shall,
from and after the Closing Date, indemnify and hold the Seller and the
Shareholder harmless from, against, for and in respect of:
(a) any and all damages, losses, settlement payments, obligations,
liabilities, claims, actions or causes of action and encumbrances suffered,
sustained, incurred or required to be paid by the Seller because of the
breach of any written representation, warranty, agreement or covenant of
Purchaser contained in this Agreement or any document, certificate or
agreement executed in connection with this Agreement;
(b) any and all liabilities, obligations, claims and demands arising
out of the ownership and operation of the Business on and after the Closing
Date, except to the extent the same arises from a breach of any written
representation, warranty, agreement or covenant of the Seller contained in
22
<PAGE>
this Agreement or any document, certificate or agreement executed in
connection with this Agreement;
(c) any of the Assumed Liabilities; and
(d) all reasonable costs and expenses (including, without limitation,
attorneys' fees, interest and penalties) incurred by the Seller in
connection with any action, suit, proceeding, demand, assessment or
judgment incident to any of the matters indemnified against in this Section
11.
12. GENERAL RULES REGARDING INDEMNIFICATION.
The obligations and liabilities of each indemnifying party hereunder with
respect to claims resulting from the assertion of liability by the third parties
shall be subject to the following terms and conditions:
(a) The indemnified party shall give prompt written notice (which in
no event shall exceed 30 days from the date on which the indemnified party
first became aware of such claim or assertion) to the indemnifying party of
any claim which might give rise to a claim by the indemnified party against
the indemnifying party based on the indemnity agreements contained in
Section 10 or 11 hereof, stating the nature and basis of said claims and
the amounts thereof, to the extent known;
(b) If any action, suit or proceeding is brought against the
indemnified party with respect to which the indemnifying party may have
liability under the indemnity agreements contained in Section 10 or 11
hereof, the indemnifying party shall have the right to control the defense
(including all proceedings on appeal or for review which counsel for the
indemnified party shall deem appropriate) of the action, suit or proceeding
shall, upon the written acknowledgment by the indemnifying party that it is
obligated to indemnify under such indemnity agreement. The indemnified
party shall have the right to employ its own counsel in any such case, but
the fees and expenses of such counsel shall be at the indemnified party's
own expense unless (A) the employment of such counsel and the payment of
such fees and expenses both shall have been specifically authorized in
writing by the indemnifying party in connection with the defense of such
action, suit or proceeding, or (B) counsel to such indemnified party shall
have reasonably concluded and specifically notified the indemnifying party
that there may be specific defenses available to it which are different
from or additional to those available to the indemnifying party or that
such action, suit or proceeding involves or could have an effect upon
matters beyond the scope of the indemnity agreements contained in Sections
10 and 11 hereof. In the latter such case only that portion of such fees
and expenses of the indemnified party's separate counsel reasonably
23
<PAGE>
related to matters covered by the indemnity agreements contained in Section
10 or 11 hereof shall be borne by the indemnifying party. The indemnified
party shall be kept fully informed of such action, suit or proceeding at
all stages thereof whether or not it is represented by separate counsel.
(c) The indemnified party shall make available to the indemnifying
party and its attorneys and accountants all books and records of the
indemnified party relating to such proceedings or litigation and the
parties hereto agree to render to each other such assistance as they may
reasonably require of each other in order to ensure the proper and adequate
defense of any such action, suit or proceeding.
(d) Neither the indemnified party nor the indemnifying party shall
make any settlement of any claims without the written consent of the other
such party, which consent shall not be unreasonably withheld or delayed.
(e) If any claims are made by third parties against an indemnified
party for which an indemnifying party would be liable, and it appears
likely that such claims might also be covered by the indemnified party's
insurance policies, the indemnified party shall make a timely claim under
such policies and to the extent that such party obtains any recovery from
such insurance, such recovery shall be offset against any sums due from an
indemnifying party (or shall be repaid by the indemnified party to the
extent that an indemnifying party has already paid any such amounts). The
parties acknowledge, however, that if an indemnified party is self-insured
as to any matters, either directly or through an insurer which assesses
retroactive premiums based on loss experience, then to the extent that the
indemnified party bears the economic burden of any claims through
self-insurance or retroactive premiums or insurance ratings, the
indemnifying party's obligation shall only be reduced by any insurance
recovery in excess of the amount paid or to be paid by the indemnified
party in insurance premiums.
(f) No indemnified party shall make any claim unless and until it has
incurred indemnified losses, damages and expenses in the cumulative
aggregate amount of $10,000, and then only in respect of the excess over
such $10,000 minimum.
(g) No party hereto shall have any liability to any other party hereto
for any punitive, consequent, incidental or special damages by virtue of
any breach of any representation, warranty, covenant or agreement in or
pursuant to this Agreement or any other agreement, instrument, certificate
or other document executed and delivered pursuant hereto or in connection
herewith or the transactions contemplated hereby.
24
<PAGE>
(h) Each party hereto agrees that the sole liability of any other
party hereto for any claim with respect to the transactions contemplated
under this Agreement from and after the Closing Date shall be limited to
indemnification under Sections 10, 11 and 12; provided, however, that the
foregoing shall not be deemed to prohibit or restrict the availability of
any equitable remedies (including specific performance) in the event of any
"Default" described in Section 13 (or in any provision of this Agreement or
other document which specifically contemplates the availability, or permits
the exercise, of equitable remedies (including specific performance)).
(i) In the event that Seller indemnifies Purchaser in respect of a
claim for indemnification under Section 10(a) in connection with a breach
of Section 3.11(c) with respect to any accounts receivable of the Seller,
then the Purchaser shall promptly assign (without recourse, representation
or warranty) the relevant receivable or receivables to (or as directed by)
the Seller, but only to the extent of the amounts actually paid by Seller.
(j) To the extent that funds are available for such claim under the
Escrow Agreement, Purchaser shall make a claim against such funds (in
accordance with the terms and conditions of the Escrow Agreement) in order
to satisfy a claim for indemnification permitted under this Agreement.
13. DEFAULT; REMEDIES.
In the event that the Closing is not consummated by virtue of a material
default made by the Seller or Purchaser in the observance or in the due and
timely performance of any of its covenants or agreements herein contained
("Default"), the non-Defaulting party shall be entitled to specific performance
of Sections 1, 2, 5, 6, 7, and 8 of this Agreement. In the event that specific
performance is not available, the non-Defaulting party shall be entitled to such
other remedies as are available at law or in equity.
14. TERMINATION PRIOR TO CLOSING
This Agreement may be terminated by either Purchaser or the Seller (as set
forth below), if either such party is not then in Default upon written notice to
the other upon the occurrence of any of the following:
(a) By the non-Defaulting party, if the other party Defaults and such
Default has not been cured within 30 days of written notice of such Default
by the other party;
(b) By mutual consent of the Seller and the Purchaser; or
25
<PAGE>
(c) If the Closing has not occurred on or before August 7, 1997.
15. MISCELLANEOUS PROVISIONS.
15.1 Expenses. Except as otherwise expressly provided herein, each party
shall pay the fees and expenses incurred by it in connection with the
transactions contemplated by this Agreement. If any action is brought for breach
of this Agreement or to enforce any provision of this Agreement, the prevailing
party shall be entitled to recover court costs, arbitration expenses and
reasonable attorneys' fees.
15.2 Prorations. All items of income and expense arising from the operation
of the Business with respect to the Assets and the Assumed Liabilities before
the Closing Date shall be for the account of the Seller and thereafter shall be
for the account of the Purchaser.
15.3 Amendment. This Agreement may be amended at any time but only by an
instrument in writing signed by the parties hereto.
15.4 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given to the receiving party or parties: (x) if
mailed by certified mail, return receipt requested, five business days
thereafter, (y) if sent by nationally recognized "next-day" delivery service,
the next business day thereafter, and (z) if personally delivered or telecopied,
the day thereof (or, if not a business day, the next business day thereafter) if
addressed or sent to the telecopy number set forth below (or at such other
address ro telecopy number for a party as shall be specified by like notice
hereunder):
If to the Seller:
c/o Bell National Corporation
4209 Vineland Road, Suite J-1
Orlando, Florida 32811
Attention: President
Fax: 407-849-0625
If to the Purchaser:
1000 Fountain Parkway
Grand Prairie, Texas 75050
Attention: Floyd W. Collins, Chief Executive Officer
Fax: 800-527-2517
15.5 Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors, heirs and
permitted
26
<PAGE>
assigns. The parties hereto acknowledge and agree that Purchaser may assign, in
whole or in part, its rights and obligations hereunder to its parent corporation
(Westgate Acquisition Corporation) or another entity controlled by, controlling
or under common control with, Purchaser and such affiliated corporation shall be
deemed the "Purchaser" pursuant hereto; provided, however, if such assignment
occurs, Westgate Fabrics, Inc. will continue to have ultimate responsibility
for, and will guarantee performance of, all obligations, representations and
duties contained herein and shall guarantee the obligations of such assignee
hereunder.
15.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15.7 Headings. The headings of the Sections of this Agreement are inserted
for convenience only and shall not constitute a part hereof.
15.8 Entire Agreement. This Agreement and the documents referred to herein
contain the entire understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, warranties,
conveyances or undertakings other than those expressly set forth herein. This
Agreement supersedes any prior agreements and understandings between the parties
with respect to the subject matter.
15.9 Waiver. No attempted waiver of compliance with any provision or
condition hereof, or consent pursuant to this Agreement, will be effective
unless evidenced by an instrument in writing by the party against whom the
enforcement of any such waiver or consent is sought.
15.10 Bulk Sales. The Purchaser hereby waives compliance with all
applicable bulk sales laws (if any) in connection with the transactions
contemplated hereby.
15.11 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
15.12 Intended Beneficiaries. The rights and obligations contained in this
Agreement are hereby declared by the parties hereto to have been provided
expressly for the exclusive benefit of such entities as set forth herein and
shall not benefit, and do not benefit, any unrelated third parties.
15.13 Mutual Contribution. The parties to this Agreement and their counsel
have mutually contributed to its drafting. Consequently, no provision of this
Agreement shall be construed against any party on the ground that such party
drafted the provision or caused it to be drafted or the provision contains a
covenant of such party.
27
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
PAYNE FABRICS, INC.
By:/s/ Thomas R. Druggish
------------------------------------
BELL NATIONAL CORPORATION
By:/s/ Thomas R. Druggish
------------------------------------
WESTGATE FABRICS, INC.
By:/s/ Floyd W. Collins
------------------------------------
28
<PAGE>
Schedule 1
Excluded Assets
1. The following properties of Affiliates of the Seller in use at its
facilities:
o One Dell Latitude LM & Accessories
o One Compaq LTE 386s/20 & Accessories
o One Winbook XP & Accessories
o Two Canon BJ-30 Printers & Accessories
2. Seller's corporate seal, minute books, charter documents, corporate stock
record books and other books and records that pertain to the organization
or Seller
3. All cash and cash equivalents
<PAGE>
Schedule 2
Assumed Liabilities
I. Categories of Assumed Liabilities
a. Trade accounts payable
b. Open purchase orders
c. Customer deposits
d. Accrued expenses
e. Customer return obligations
f. Employee vacation and sick pay
II. Assumed Contracts
<TABLE>
<CAPTION>
<S> <C> <C>
Name Description Expiration
1. Wells Fargo Dayton building security system 30 day notice
2. IBM Mainframe computer 9/30/95 (est.)
3. Dempsey Waste Garbage collection 1/1/97 (est.)
System
4. UPS Shipping
5. Miami Valley Office Fax Maintenance - Panafax (serial 30 days notice
Products number 02940600545)
6. Telecorp Telephone maintenance Annual
7. Scoville Sample book fastener rental
8. USA Mobile Pagers 4/1/97
Communications
9. AT&T Dallas Dallas showroom phone
10. Centel Lease Telecommunications software
11. GE Capital Auto leases
12. Roadway Express Freight Discount Agreement
13. Smith Transfer Freight Agreement
14. Bank One Credit card merchant agreement 30 day notice
15. Arch Pagin Gary Murphy & Bill Arden Pagers
16. Pitney Bowes Postage Meter Rental, quarterly
17. Panasophic Easytrieve software license agreement None
18. Ameritech Ohio Yellow Pages
19. NY Showroom lease NY Showroom (requires Letter of 12/31/03
Credit or security deposit of $26,250)
20. Dallas Showroom lease Dallas showroom 7/31/98
21. Atlanta Showroom Atlanta showroom 6/30/97 (possibly
lease extended month
to month at 150%
of current rent)
<PAGE>
22. Marion Kent, Ltd. d.b.a High Point, NC Agent Representative 30 day notice
Altizer Cole Inc. Agreement
23. Davison, George & Boston, MA Agent Representative 60 day notice
Frances Agreement
24. Dean-Warren, Ltd. Scottsdale, AZ Agent Representative 90 day notice
Agreement
25. Decorators Walk Los Angeles, CA Agent Representative 120 day notice
Agreement
26. Decorators Walk San Francisco, CA Agent 60 day notice
Representative Agreement
27. Designers Showroom Seattle, WA Agent Representative 30 day notice
Agreement
28. Hines & Company Washington, DC Agent Representative Not Signed
Agreement, implied agreement has run
3 years. See new proposed agreement
below.
29. Hines & Company Washington, DC Agent Representative 60 day notice
Agreement, new agreement signed by
Payne awaits their signature
30. J.T. Hooker Showroom Denver, CO Agent Representative 60 day notice
Agreement
31. Interior Trading Tampa, FL Agent Representative 60 day notice
Company, Inc. Agreement
32. J.W. Showroom, Inc. Philadelphia, PA Agent Representative 90 day notice
Agreement
33. Lee Lawrence, Ltd. San Diego, CA Agent Representative 60 day notice
Agreement. See new Laguna Nigel
agreement below.
34. Lee Lawrence, Ltd. Laguna Nigel, CA Agent Representative 60 day notice
Agreement, new agreement signed by
Payne awaits their signature
35. Maximilian International New Orleans, LA Agent Representative 120 day notice
Showrooms Agreement
36. Pacific Home Honolulu, HI Agent Representative 30 day notice
Furnishings Agreement
37. Jeffrey Michael Dania (Miami), FL Agent Representative 90 day notice
Showroom Agreement after 2/5/98
38. Gene Smiley Inc. Minneapolis, MN Agent Representative 30 day notice
Agreement
39. Thybony Wallcoverings Troy (Detroit), MI Agent Representative 120day notice
Agreement
40. Thybony Wallcoverings Chicago, IL Agent Representative 30 day notice
Agreement
41. TradeMarks, Inc. Houston, TX Agent Representative 120 day notice
Agreement
42. TradeMarks, Inc. Houston, TX Agent Representative 30 day notice
Agreement, new agreement signed by
Payne awaits their signature.
2
<PAGE>
43. Bailey Showroom Kansas City Affiliate Showroom 120 day notice
Agreement
44. Central Products d.b.a. Oklahoma City Affiliate Showroom No contract
Designer's Works Discount on fabric
45. Charlotte Designer's Charlotte Affiliate Showroom 60 day notice
Showroom Agreement
46. Chicago Design Team Itasca, IL Affiliate Showroom Agreement 30 day notice
47. DSR Design Group Inc. Carmel, IN Affiliate Showroom 120 day notice
Agreement
48. Design Extension Tulsa, OK Affiliate Showroom No contract
Discount on fabric
49. Design Resource Inc. Baton Rouge, LA Affiliate Showroom No contract
Discount on fabric
50. Wholesale Accessories, Birmingham, AL Affiliate Showroom 90 day notice
Inc. d.b.a. Designers Agreement
Studio Resource
51. Josin Fabrics Omaha, NE Affiliate Showroom No contract
Discount on fabric
52. Josin Fabrics Lincoln, NE Affiliate Showroom No contract
Discount on fabric
53. KBK, Inc. San Antonio, TX Affiliate Showroom Not signed, 30
Agreement day notice
implied
54. Larry's Inc. Little Rock, AR Affiliate Showroom 120 day notice
Agreement
55. Laurco Fabrics Inc. Wichita, KS Affiliate Showroom No contract
Discount on fabric
56. Monroe & Associates Beechwood, OH Affiliate Showroom 120 day notice
Agreement
57. Prade Inc. Milwaukee, WI Affiliate Showroom No contract
Discount on fabric
58. To The Trade St. Louis, MO Affiliate Showroom 30 day notice
Agreement, proposed agreement would
become effective 7/1/97 subject to both
signatures
59. Showplace of Design Austin, TX Affiliate Showroom No contract
Discount on fabric
60. Singer Showroom Cincinnati, OH Affiliate Showroom 60 day notice
Agreement
61. Statements Des Moines, IA Affiliate Showroom No contract
Discount on fabric
62. Villa Decor Resource Orlando, FL Affiliate Showroom 120 day notice
Center Inc. Agreement
63. Villa Decor Resource Orlando, FL Affiliate Showroom 30 day notice
Center, Inc. Agreement, proposed agreement
awaits their signature
64. Coralys Designs Puerto Rico Foreign Affiliate Showroom No contract
Discount on fabric
3
<PAGE>
65. I.F.T. Design Centre Calgary Alberta Canada Foreign Affiliate 60 day notice
Showroom Agreement
66. AnneStarr Agencies Vancouver British Columbia Canada 60 day notice
Foreign Affiliate Showroom Agreement
67. Tissa, Inc. Montreal Quebec Canada Foreign 60 day notice
Affiliate Showroom Agreement
68. Tissa, Inc. Toronto Canada Foreign Affiliate 60 day notice
Showroom Agreement
69. Unidad Textile Puente Mexico City & Guadalajara, Mexico 60 day notice
Foreign Affiliate Showroom Agreement
70. Names & Marks, Inc. Royalty Agreement Payable (8%) on
product sales
71. British National Trust Royalty Agreement Payable (6%) on
product sales
72. Jane Albert Studio Royalty Agreement Payable (5%) on
product sales
73. AnneStarr/WD Western Royalty Agreement Payable (5%) on
Design Upholstry product sales
74. Jeff Jump NC, SC & TN Independent Selling 30 day notice
Agent Agreement
75. Sardia, S.A. Asian Pacific Rim Independent Selling Not signed
Agent Agreement
76. George Young Employment Contract
77. Corporate Care Health Insurance Program
Providers
78. Insurance Contracts
</TABLE>
4
<PAGE>
Exhibit A
[See Exhibit 2.4]
<PAGE>
Exhibit B
CONSULTING AGREEMENT
This Consulting Agreement ("Agreement") entered into this ____ day of
___________, 1997, by and between Westgate Fabrics, Inc., a Texas corporation
(the "Company"), and Payne Fabrics, Inc. ("Consultants").
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties to this Agreement do covenant and agree as
follows:
1. Consulting Services. During the term of this Agreement, the Consultants
will be reasonably available from time to time for consultation on the subject
of integrating the operations of Payne Fabrics, Inc. into the Company and
advising the Company regarding such operations. At the Company's request,
Consultants shall be available to perform consulting services as reasonably
requested by the Company. Consultants may assign all or a portion of the rights
and obligations hereunder to Bell National Corporation, Cadmus Corporation or
any of their respective affiliates.
2. Term. The term of the Consultants' performance of consulting services
under this Agreement shall commence on the date hereof and continue for three
months from the date hereof.
3. Compensation. The Company shall pay to the Consultants the sum of
$60,000, payable at the rate of $20,000 per month payable in arrears.
4. Enforceability. All provisions of this Agreement are intended to be
interpreted and construed in a manner making such provisions valid, legal and
enforceable. In the event any provision of this Agreement or portion thereof is
found to be wholly or partially invalid, illegal or unenforceable in any
judicial proceeding, such provision shall be deemed to be modified or restricted
to the extent necessary to make such provision valid, legal and enforceable. In
the event such provision or any portion thereof cannot be so modified or
restricted, such provision or portion thereof shall be deemed to be excised from
this Agreement and the validity, legality and enforceability of the remainder of
this Agreement shall not be affected or impaired in any manner.
5. Successors and Assigns. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns.
6. Amendment. This Agreement may be amended, modified or supplemented only
by a written instrument signed by the party against whom enforcement of any
amendment, modification or supplement is sought.
<PAGE>
7. Governing Law. This Agreement shall be governed by and construed under
and enforced in accordance with the laws of the State of Texas, excluding the
conflict of laws provisions of such jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
WESTGATE FABRICS, INC.
By:________________________________
PAYNE FABRICS, INC.
By:________________________________
2
<PAGE>
AMENDMENT NO. 1 TO
ASSET PURCHASE AGREEMENT
This Amendment No. 1 to the Asset Purchase Agreement (this "Amendment"),
dated as of August 5, 1997, is made and entered into by and between Payne
Fabrics, Inc., a Delaware corporation (the "Seller"), Bell National Corporation,
a California corporation ("Shareholder"), and Westgate Fabrics, Inc., a Texas
corporation ("Purchaser").
W I T N E S S E T H:
WHEREAS, Seller, Shareholder and Purchaser have entered into that certain
Asset Purchase Agreement, dated July 17, 1997 (the "Agreement")(capitalized
terms not otherwise defined herein having the meanings set forth in the Purchase
Agreement); and
WHEREAS, two or more New York City Tax Warrants (the "Tax Liens") were
filed against the Purchaser in New York county (the "Tax Liens") and such Tax
Liens will not in fact be released as of the Closing Date; and
WHEREAS, the Seller, Shareholder and Purchaser mutually desire to modify
the Purchase Agreement to provide that Seller and Shareholder shall use their
best efforts to have the Tax Liens released as soon as practicable after the
Closing Date and to indemnify Purchaser from any damage it may suffer as a
result of such Tax Liens;
NOW, THEREFORE, in consideration of the representations, covenants and
agreements contained herein, and certain other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. A new Section 5.12 will be added to the Purchase Agreement which Section
shall read as follows:
"5.12. Tax Liens. Each of Seller and Shareholder agrees to use
its best efforts to release any New York City Tax Warrants (the "Tax
Liens") filed against the Purchaser in New York county, as soon as
practicable after the Closing Date. The parties acknowledge that
Purchaser is not assuming any liability or responsibility with respect
to the indebtedness or other obligations underlying or otherwise
relating to the Tax Liens.
2. A new paragraph (b) will be added to Section 10 as set forth below and
the current paragraphs (b) and (c) will be renamed as paragraphs (c) and (d),
respectively.
"(b) any and all liabilities, obligations, claims and demands
arising out of the Tax Liens or any indebtedness or other obligation
related
<PAGE>
thereto (to the extent not compensated pursuant to Section 2(d) of the
Escrow Agreement);"
3. Except as set forth herein, the provisions of the Agreement shall
continue in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
PAYNE FABRICS, INC.
By:/s/ Thomas R. Druggish
---------------------------------
Its: Vice President
BELL NATIONAL CORPORATION
By:/s/ Thomas R. Druggish
---------------------------------
Its: Chief Financial Officer
WESTGATE FABRICS, INC.
By:/s/ Floyd W. Collins
---------------------------------
Its: Chief Executive Officer
-2-
<PAGE>
POST-CLOSING ESCROW AGREEMENT
THIS POST-CLOSING ESCROW AGREEMENT, dated as of August 5, 1997
("Agreement"), is by and among Westgate Fabrics, Inc. ("Purchaser"), Payne
Fabrics, Inc. ("Seller") and Crouch and Hallett, L.L.P. ("Escrow Agent").
W I T N E S S E T H:
WHEREAS, the Seller and Purchaser are parties to that certain Asset
Purchase Agreement, dated July 17, 1997 (as amended by Amendment No. 1, thereto,
the "Purchase Agreement") (capitalized terms not otherwise defined herein shall
have the meanings set forth in the Purchase Agreement); and
WHEREAS, the Seller agreed in the Purchase Agreement that the
indemnification obligations of the Seller thereunder shall be secured in the
manner set forth in this Agreement; and
WHEREAS, as contemplated by the Purchase Agreement, Purchaser has deposited
the sum of $150,000 (together with any interest earned thereon, the "Escrow
Funds") on the Closing Date in an escrow account with the Escrow Agent;
In consideration of the mutual covenants and agreements contained herein
and certain other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto covenant and agree as
follows:
1. Appointment of Escrow Agent and Deposit of Escrow Funds. The Purchaser
and the Seller hereby appoint and designate the Escrow Agent as the Escrow Agent
hereunder, and the Escrow Agent hereby accepts such appointment and agrees to
serve hereunder for the purposes and on the terms set forth herein. The Escrow
Agent shall receive, hold and deliver the Escrow Funds, as provided for herein.
The Escrow Funds shall be invested in money market and similar liquid
investments, as directed by Seller.
2. Disbursement of the Escrow Funds.
(a) Unless and to the extent that subparagraphs (b) or (c) below shall
apply, the Escrow Agent shall hold the Escrow Funds until the later of (i) the
90th day after the Closing or (ii) 10 days after finalization of the Closing
Balance Sheet (the "Termination Date"), and shall thereafter deliver all Escrow
Funds held by the Escrow Agent on such Termination Date to the Seller.
<PAGE>
(b) In the event that, after finalization of the Closing Balance Sheet in
accordance with Section 2.4 of the Purchase Agreement, the Closing Date Value is
less than $2.5 million, Purchaser shall then be entitled to receive from the
Escrow Agent the dollar amount of Escrow Funds as is equal to the dollar amount
of the shortfall between the Closing Date Value and $2.5 million.
(c) If, at any time prior to the Termination Date, Purchaser has given the
Escrow Agent a notice (the "Purchaser Notice") that it is entitled to receive
Escrow Funds as a result of the indemnification obligations of the Seller
arising under the Purchase Agreement, the Escrow Agent shall give a copy of the
Purchaser Notice to the Seller. If the Escrow Agent does not receive a written
objection from the Seller to the Purchaser Notice prior to the 10th day
following the date the Purchaser Notice is deemed delivered to the Seller, the
Escrow Agent shall disburse to the Purchaser the amount of Escrow Funds
described in the Purchaser Notice. If the Escrow Agent timely receives a copy of
a written objection from the Seller to the Purchaser Notice, then the provisions
of Section 4 hereof shall apply.
(d) On the date which is 60 days after the Closing Date, the Escrow Agent
shall deliver to Purchaser an amount equal to the sum of $10,000. Such amount
shall be taken from the Escrow Funds unless the Escrow Agent has received notice
by such date from the Seller and the Purchaser that the Tax Liens (as defined in
that certain Amendment No. 1 to the Purchase Agreement), has been released.
Payment of Escrow Funds to Purchaser under this section 4(d) does not foreclose
or otherwise impair or affect Purchaser's right to seek indemnification or other
recourse available to Purchaser under the Purchase Agreement or otherwise with
respect to any damage incurred by Purchaser, arising from the Tax Liens.
3. Escrow Agent Duties. Without in any way limiting any other provision of
this Agreement, it is expressly understood and agreed that the Escrow Agent
shall be under no duty or obligation to give any notice, or to do or to omit the
doing of any action with respect to the Escrow Funds. The Escrow Agent shall not
be liable for any error in judgment or any act or steps taken or permitted to be
taken in good faith, or for any mistake of law or fact, or for anything it may
do or refrain from doing in connection herewith, except for its own willful
misconduct or gross negligence. The Escrow Agent shall not be required in any
way to determine the validity or sufficiency, whether in form or substance, of
any instrument, document, certificate, statement or notice referred to in this
Agreement or contemplated hereby, or the identity or authority of the persons
executing the same, and it shall be sufficient if any writing purporting to be
such instrument, document, certificate, statement or notice is delivered to the
Escrow Agent and purports to be correct in form and signed or otherwise executed
by the party or parties required to sign or execute the same under this
Agreement.
2
<PAGE>
4. Right of Interpleader. Should any controversy arise between or among the
Purchaser and the Seller, or any other person, firm or entity, with respect to
this Agreement or the Escrow Funds, or the Escrow Agent should be in doubt as to
what action to take, the Escrow Agent shall have the right to (i) withhold
delivery of the Escrow Funds until the controversy is resolved, the conflicting
demands are withdrawn or the doubt is resolved, or (ii) institute a bill of
interpleader in a court of applicable jurisdiction to determine the rights of
the parties hereto. Should a bill of interpleader be instituted, or should the
Escrow Agent be threatened with litigation or become involved in litigation in
any manner whatsoever on account of this Agreement or the Escrow Funds, then as
between themselves and the Escrow Agent, Purchaser and the Seller, jointly and
severally, hereby bind and obligate themselves, their successors, heirs,
executors and assigns to pay the Escrow Agent its reasonable attorney's fees and
any and all other disbursements, expenses, losses, costs and damages of the
Escrow Agent in connection with or resulting from such threatened or actual
litigation.
5. Indemnity. Purchaser and Seller, jointly and severally, agree to
indemnify the Escrow Agent against and hold the Escrow Agent harmless from any
and all losses, costs (other than general servicing of the account), damages,
expenses, claims and attorney's fees suffered or incurred by the Escrow Agent as
a result of, in connection with or arising from or out of the acts or omissions
of the Escrow Agent in performance of or pursuant to this Agreement, except such
acts or omissions as may result from the Escrow Agent's willful misconduct or
gross negligence. Except for a claim for indemnification pursuant to this
Section 5, if applicable, the Escrow Agent shall not deduct any charges from the
Escrow Funds for serving as Escrow Agent.
6. Resignation. The Escrow Agent may resign upon 10 days' prior written
notice to Purchaser and the Seller, and, upon joint instructions from Purchaser
and the Seller, shall deliver the Escrow Funds to any designated substitute
Escrow Agent selected by Purchaser and the Seller. If Purchaser and the Seller
fail to designate a substitute Escrow Agent within 10 days, the Escrow Agent
may, at its sole discretion and its sole option, institute a bill of
interpleader as contemplated by Section 4 hereof.
7. Termination. Upon delivery of all of the Escrow Funds as provided in
Section 2 or upon the institution of a bill of interpleader as provided in
Section 4 hereof, this Agreement shall terminate except for the provisions of
Section 5.
8. Notices. Any notice or communication must be in writing and given in the
manner set forth in the Purchase Agreement. For the purpose of notice, the
addresses of Purchaser and the Seller shall be as set forth in the Purchase
Agreement, and the address of the Escrow Agent shall be as set forth opposite
its name on the
3
<PAGE>
signature page hereto. Any party may change its address for notice by written
notice given to the other parties.
9. Choice of Laws; Cumulative Rights. This Agreement shall be construed
under the laws of the State of Texas. All of the Escrow Agent's rights hereunder
are cumulative of any other rights it may have by law or otherwise.
10. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute only one original.
11. Entire Agreement. This Agreement and any other documents executed or
delivered pursuant to this Agreement, contain the complete agreement among the
parties with respect to the transactions contemplated hereby and supersede all
prior agreements and understandings, whether oral or written, among the parties
with respect to such transactions.
12. Binding Effect. This Agreement and the rights, interests and
obligations hereunder shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, personal representatives,
successors and assigns.
[signature page follows]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
WESTGATE FABRICS, INC.
By: /s/ Floyd W. Collins
------------------------------------
Its: Chief Executive Officer
PAYNE FABRICS, INC.
By: /s/ Thomas R. Druggish
------------------------------------
Its: Vice President
ESCROW AGENT:
Crouch & Hallett, L.L.P.
By: /s/ Bruce H. Hallett
------------------------------------
Bruce H. Hallett
Address: 717 N. Harwood, Suite 1400
Dallas, Texas 75201
5
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,259,000
<ALLOWANCES> 51,000
<INVENTORY> 2,669,000
<CURRENT-ASSETS> 4,034,000
<PP&E> 130,000
<DEPRECIATION> 935,000
<TOTAL-ASSETS> 5,885,000
<CURRENT-LIABILITIES> 4,351,000
<BONDS> 0
<COMMON> 15,849,000
0
0
<OTHER-SE> (14,524,000)
<TOTAL-LIABILITY-AND-EQUITY> 5,885,000
<SALES> 5,434,000
<TOTAL-REVENUES> 5,434,000
<CGS> 3,008,000
<TOTAL-COSTS> 5,593,000
<OTHER-EXPENSES> (8,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 133,000
<INCOME-PRETAX> (284,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (284,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (284,000)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
