<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 22, 1997
PLUMA, INC.
(Exact name of Registrant as specified in Charter)
North Carolina 333-18755 56-1541893
(State of (Commission File (IRS Employer
incorporation) Number) Identification No.)
801 Fieldcrest Road
Eden, North Carolina 27289-0487
(Address of principal executive offices) (Zip Code)
(910) 635-4000
(Registrant's telephone number, including area code)
1
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On December 22, 1997, Pluma, Inc. (the "Company") acquired for cash
from Stardust Corporation, a Wisconsin corporation having its corporate
headquarters in Verona, Wisconsin (the "Seller"), substantially all the assets
and properties of the Seller, real and personal, tangible and intangible, of
every kind and description, wherever located, used by the Seller in connection
with the operation of its national wholesale distributorship for undecorated
sportswear (the "Business").
In addition, on December 22, 1997, the Company acquired certain real
estate located in Dane County, Wisconsin leased by the Seller and used
exclusively in connection with the Business. The lessors/owners of the acquired
real estate were John Beale and Linda Beale, who also are the sole shareholders
of the Seller (the "Beales"). The acquired real estate includes certain real
property and all buildings, other improvements, fixtures and appurtances thereon
(the "Beale Property").
The assets acquired by the Company from the Seller (the "Stardust
Assets") included certain tangible personal property (machinery, equipment,
tools, furniture, office equipment, supplies, materials and other items of
tangible personal property of every kind owned by the Seller and used in
connection with the Business, wherever located and whether or not carried on the
Seller's financial books); inventories; other tangible assets; certain assumed
contracts; accounts receivable and trade accounts due the Seller; all the
intellectual property used by the Seller in connection with the Business; all
permits, authorizations, certificates, approvals and licenses relating to the
operation of the Business; all records, technical data, asset ledgers, books of
accounts, inventory records, budgets, customer and supplier lists, payroll and
personnel records, computer programs, correspondence and other files; all the
Seller's rights to any choses in action, claims, causes or rights of action;
certain expenses prepaid by the Seller; and any and all of the Seller's goodwill
in and going concern value of the Business.
Excluded from the Stardust Assets acquired by the Company were the
Seller's cash and securities; certain prepaid items; certain personal property
and insurance policies relating to the Business; all pension, profit sharing or
savings plans; corporate minute and stock books; certain contracts; and certain
other identified assets.
The Stardust Assets were acquired by the Company free and clear of all
liabilities, obligations, liens, security interests and encumbrances. However,
in addition to the payment of the purchase price referenced below, the Company
did assume Seller's obligations under certain contracts and agreed to pay
specific trade payables of Seller incurred in the ordinary course of business as
of December 22, 1997 (in the approximate amount of $6.8 million) which amount
will be finally determined in a post-closing adjustment period. The Company also
agreed to assume Seller's obligation for certain accrued employee vacation
liabilities.
2
<PAGE>
The Stardust Assets were used by the Seller in its operation of the
Business. The Company is one of several manufacturers supplying undecorated
sportswear, namely fleece goods (i.e., sweatshirts, sweatpants), and tee shirts,
to the Seller. The Company will continue to use the Stardust Assets and the
Beale Property in connection with the national wholesale distribution of
undecorated sportswear.
The Company paid the Seller for the Stardust Assets a total of
Thirty-three Million Five Hundred Thousand and 00/100 Dollars ($33,500,000) in
cash, (less accrued employee vacation liabilities assured by the Company) plus
$250,000 paid by the Seller prior to the closing for its 1998 catalog expenses
and deposits made to reserve space at 1998 trade shows. The total purchase price
paid to the Seller is subject to reduction based on the amount of adjusted
working capital of Seller as of the closing date which shall be determined in a
post-closing adjustment period. The sum of One Million Five Hundred Thousand and
00/100 Dollars ($1,500,000.00) in cash was paid by the Company to the Beales for
the Beale Property and is not subject to adjustment.
The purchase price paid for the Stardust Assets was established by
applying a multiple to the anticipated earnings attributable to the purchased
assets after integration into the Company's existing operations. With respect to
the Beale Property, the purchase price was determined to be the fair market
value of the real property, buildings, improvements, fixtures and appurtenances
thereon.
As consideration for the Company's purchase of the Stardust assets, the
Seller and its shareholders (John and Linda Beale) agreed that for a period of
five (5) years (or, in the case of either Beale who is employed by the Company,
for a period of one (1) year after the termination of such employment if such
period is longer than five (5) years from the Closing Date) they will not engage
in the business of a wholesale distributorship of undecorated sportswear within
the entire United States except as an employee of the Company. Additionally,
John Beale, the president of Seller, executed a three (3) year employment
contract with the Company and Jim Beale, the general manager of Stardust,
executed a five (5) year employment contract with the Company.
The source of funds paid by the Company to both the Seller and the
Beales was a new short-term credit facility consisting of a Revolving Line of
Credit in an amount not to exceed $100,000,000.00 to be repaid in full on April
30, 1998 (the "Loan"). The Loan was obtained from NationsBank, N.A., for the
purposes of funding the acquisition of the Stardust Assets, the Beale Property
and certain assets of another unrelated seller; refinancing existing debt; and
providing general working capital. The Company intends to replace the Loan with
a permanent syndicated credit facility.
There is no material relationship between the Seller or the Beales and
the Company or any of the Company's affiliates, directors, or officers or any
affiliates of the Company's directors and officers.
3
<PAGE>
Item 7. Financial Statements and Exhibits.
(a) Financial statements of the business acquired.
(i) Financial Statements of Stardust Corporation.
(A) Balance Sheets.
(B) Statements of Operations and Retained Earnings.
(C) Statements of Cash Flows.
(D) Notes to Financial Statements.
(ii) Report of Independent Certified Public Accountants.
(b) ProForma financial information.
Unaudited ProForma Combined Financial Statements.
(i) ProForma Combined Balance Sheet (unaudited)
as of September 30, 1997.
(ii) ProForma Combined Statement of Operations
(unaudited) as of December 31, 1996.
(iii) ProForma Combined Statement of Operations
(unaudited) as of September 30, 1997.
(iv) Notes to ProForma Combined Financial
Statements (unaudited).
(c) Exhibits.
(1) Asset Purchase Agreement among Pluma, Inc., Stardust
Corporation and John Beale and Linda Beale dated as
of December 22, 1997.
4
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PLUMA, INC.
/s/ Forrest H. Truitt, II
By: _____________________________________
Forrest H. Truitt, II
Executive Vice President, Treasurer
and Chief Financial Officer
Dated: December 22, 1997
5
<PAGE>
(a) C O N T E N T S
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
FINANCIAL STATEMENTS
BALANCE SHEETS 4
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS 5
STATEMENTS OF CASH FLOWS 6
NOTES TO FINANCIAL STATEMENTS 7
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Stardust Corporation
We have audited the accompanying balance sheets of Stardust Corporation (a
Wisconsin corporation) as of December 31, 1996 and 1995, and the related
statements of operations and retained earnings and cash flows for the years then
ended. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Stardust Corporation as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
Grant Thornton, LLP
Madison, Wisconsin
January 13, 1997
<PAGE>
STARDUST CORPORATION
BALANCE SHEETS
December 31,
<TABLE>
<CAPTION>
ASSETS 1996 1995
--------- --------
<S> <C> <C>
CURRENT ASSETS
Cash and temporary cash investments (note A1) $ 8,777,707 $ 8,660,416
Trade accounts receivable (note A2) 5,180,715 3,910,887
Inventories (notes A3 and B) 5,389,840 3,357,568
Prepaid expenses 58,619 42,023
---------- -------
Total current assets 19,406,881 15,970,894
PROPERTY AND EQUIPMENT - AT COST
Office furniture and equipment 548,873 541,514
Warehouse equipment 310,848 310,848
Vehicles 97,800 81,902
---------- -------
957,521 934,264
Less accumulated depreciation
(note A4) 730,796 645,578
---------- --------
226,725 288,686
---------- --------
$19,633,606 $16,259,580
========== ==========
LIABILITIES
CURRENT LIABILITIES
Trade accounts payable $ 3,983,480 $ 3,306,696
Accrued compensation, vacation and taxes 17,600 70,236
Accrued profit sharing plan contribution (note E) 140,000 130,000
---------- ----------
Total current liabilities 4,141,080 3,506,932
COMMITMENTS (notes D and E) - -
STOCKHOLDERS' EQUITY
Common stock - authorized, 2,800 shares without par value; issued
and outstanding, 760 shares 38,000 38,000
Retained earnings 15,454,526 12,714,648
---------- ----------
15,492,526 12,752,648
---------- ----------
$19,633,606 $16,259,580
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
-4-
<PAGE>
STARDUST CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Year ended December 31,
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Net sales $64,097,352 $68,592,942
Cost of goods sold 55,334,087 58,895,087
---------- ----------
Gross profit 8,763,265 9,697,855
Operating expenses
Selling and marketing 2,573,365 3,026,643
Administrative 1,760,568 1,766,399
---------- ----------
4,333,933 4,793,042
---------- ----------
Operating profit 4,429,332 4,904,813
Other income 500,546 341,391
---------- --------
NET EARNINGS (note F) 4,929,878 5,246,204
Retained earnings at beginning of year 12,714,648 12,002,444
Dividends to stockholders (2,190,000) (4,534,000)
---------- ----------
Retained earnings at end of year $15,454,526 $12,714,648
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
-5-
<PAGE>
STARDUST CORPORATION
STATEMENTS OF CASH FLOWS
Year ended December 31,
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Cash flows from operating activities
Net earnings for the year $ 4,929,878 $ 5,246,204
Adjustments to reconcile net earnings
to net cash provided by operating
activities
Depreciation of property and
equipment 96,465 128,995
(Increase) decrease in:
Trade accounts receivable (1,269,828) 291,902
Inventories (2,032,272) 3,739,252
Prepaid expenses (16,596) (26,256)
Increase (decrease) in:
Trade accounts payable 676,784 (1,534,525)
Accrued compensation, vacation
and taxes (52,636) (12,392)
Accrued profit sharing plan
contribution 10,000 5,000
---------- ------
Net cash provided by
operating activities 2,341,795 7,838,180
Cash flows from investing activities
Additions to property and equipment (34,504) (73,123)
Cash flows from financing activities
Dividends paid (2,190,000) (4,934,000)
---------- ----------
NET INCREASE IN CASH AND TEMPORARY CASH
INVESTMENTS 117,291 2,831,057
Cash and temporary cash investments at beginning of year 8,660,416 5,829,359
---------- ----------
Cash and temporary cash investments at end of year $ 8,777,707 $ 8,660,416
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
-6-
<PAGE>
STARDUST CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE A - SUMMARY OF ACCOUNTING POLICIES
The company is a distributor of active sportswear apparel. The company
operates from its facilities in Verona, Wisconsin, and sells to customers
located throughout the United States.
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A summary of the company's significant accounting policies consistently
applied in the preparation of the accompanying financial statements follows.
1. Cash and Temporary Cash Investments
For purposes of the statements of cash flows, the company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be temporary cash investments.
The company's policy is to invest cash in excess of operating requirements
in income producing investments. Temporary cash investments of approximately
$7,800,000 and $4,665,000 as of December 31, 1996 and 1995, respectively,
include a repurchase account, put bonds and money market accounts stated at
cost which approximates fair value based on the short-term maturities of
these financial instruments.
2. Trade Accounts Receivable
The company considers trade accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts
become uncollectible, they will be charged to operations when that
determination is made.
3. Inventories
Inventories are stated at the lower of cost, determined by the last-in,
first-out (LIFO) method of inventory valuation, or market.
-7-
<PAGE>
STARDUST CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1995
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
4. Depreciation
Depreciation is provided in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives
principally by accelerated methods.
NOTE B - INVENTORY VALUATION
As disclosed in note A3, the company uses the last-in, first-out (LIFO)
method for determining the cost of inventories. If the first-in, first-out
(FIFO) method had been used to determine the cost, inventories would have
been $40,333 lower than reported at December 31, 1996 and $31,528 higher
than reported at December 31, 1995. As a result, net earnings would have
been $71,861 lower than reported and $45,847 higher than reported for the
years ended December 31, 1996 and 1995, respectively.
The change in the LIFO reserve in 1996 and 1995 results primarily from
changes in price levels during the year. The effect of the reduction of
inventory quantities (LIFO layer penetration) in 1995 was insignificant.
NOTE C - SHORT-TERM BORROWING ARRANGEMENTS
The company has a line of credit agreement with Middleton Community Bank.
The total amount available under this line of credit was $2,000,000 at
December 31, 1996. The interest rate was 7.75% at December 31, 1996.
Borrowings under the line of credit are collateralized by a general business
security agreement. There were no borrowings outstanding under this line of
credit agreement at either December 31, 1996 or 1995 or at any time during
1996 or 1995.
-8-
<PAGE>
STARDUST CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1995
NOTE D - LEASE COMMITMENT
The company leases land and buildings at 515 Commerce Parkway, Verona,
Wisconsin from John and Linda Beale, stockholders of the company, under an
operating lease expiring December 31, 2001. Rent expense under this lease
was $216,000 in 1996 and $204,000 in 1995. The company, as lessee, also pays
real estate taxes, insurance and maintenance costs on the property.
The following are the future minimum rental payments required under the
lease as of December 31, 1996:
Year ending December 31,
1997 $ 240,000
1998 240,000
1999 240,000
2000 240,000
2001 240,000
---------
$1,200,000
NOTE E - PROFIT SHARING PLAN
Effective January 1, 1992, the company adopted a profit sharing plan
covering substantially all employees. Employer contributions are at the
discretion of the Board of Directors and were $140,000 in 1996 and $130,000
in 1995.
NOTE F - INCOME TAXES
The stockholders of the company have elected, under the provisions of
Subchapter S of the Internal Revenue Code, to personally pay the income
taxes on the net earnings of the company. Accordingly, no provision has been
made in the accompanying financial statements for federal and state income
taxes on these net earnings. Had such income taxes been payable by the
company, the income tax provision would have approximated $1,930,000 for
1996 and $2,070,000 for 1995.
-9-
<PAGE>
(b) PRO FORMA COMBINED FINANCIAL INFORMATION (UNAUDITED)
The following pro forma financial information consists of an unaudited combined
balance sheet of the Company as of September 30, 1997 (the "Pro Forma Balance
Sheet"), an unaudited combined statement of operations of the Company for the
year ended December 31, 1996 (the "1996 Pro Forma Statement of Operations") and
an unaudited combined statement of operations of the Company for the nine months
ended September 30, 1997 (the "1997 Nine Month Pro Forma Statement of
Operations") (collectively, the "Pro Forma Information").
The Pro Forma Balance Sheet reflects the combination of the balance sheet of the
Company and the balance sheet of Stardust Corporation ("Stardust") as of
September 30, 1997, as adjusted for the acquisition on December 22, 1997 by the
Company of certain assets and liabilities of Stardust (the "Acquisition"). The
Pro Forma Balance Sheet is presented as if the Acquisition were consummated on
September 30, 1997.
The 1996 Pro Forma Statement of Operations reflects the combination of the
statement of operations of the Company and the statement of operations of
Stardust for the year ended December 31, 1996, as adjusted for the Acquisition.
The 1997 Nine Month Pro Forma Statement of Operations reflects the combination
of the statement of operations of the Company and the statement of operations of
Stardust for the nine months ended September 30, 1997, as adjusted for the
Acquisition. The 1996 Pro Forma Statement of Operations and the 1997 Nine Month
Pro Forma Statement of Operations are presented as if the Acquisition were
consummated on January 1, 1996.
The Pro Forma Information is derived from and should be read in conjunction with
the historical financial statements of Stardust and the related notes thereto
appearing elsewhere in this Current Report, and the Company's Registration
Statement on Form S-1 for the year ended December 31, 1996 and Quarterly Report
on Form 10-Q for the quarter ended September 30, 1997 previously filed with the
Securities and Exchange Commission. The Pro Forma Information is not necessarily
indicative of the results that would have been reported had such Acquisition
occurred at such date or at the beginning of the period indicated or to project
the Company's financial position or the results of operations at any future date
or for any future period.
<PAGE>
PLUMA, INC.
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
PRO FORMA
STARDUST ADJUSTMENTS PRO FORMA
PLUMA, INC. CORPORATION (notes 1 and 2) COMBINED
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash $ 138,802 $ 4,707,134 $ (4,707,134) $ 138,802
Accounts receivable 41,161,412 5,643,859 (1,254,000) 45,551,271
Refundable income taxes 319,937 - - 319,937
Deferred income taxes 1,305,967 - - 1,305,967
Inventories 35,010,866 9,987,557 - 44,998,423
Other current assets 283,511 62,394 300,000 645,905
------------------- ------------------- ------------------- -------------------
Total current assets 78,220,495 20,400,944 (5,661,134) 92,960,305
Property, plant and equipment, net 35,434,942 174,259 1,525,741 37,134,942
Goodwill - - 25,461,348 25,461,348
Other assets 798,163 - 200,000 998,163
------------------- ------------------- ------------------- -------------------
Total $ 114,453,600 $ 20,575,203 $ 21,525,955 $ 156,554,758
=================== =================== =================== ===================
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term debt $ 849,640 $ - $ 5,960,526 $ 6,810,166
Note payable 187,773 - - 187,773
Accounts payable 6,725,626 8,075,158 (1,254,000) 13,546,784
Accrued expenses 4,039,718 30,000 - 4,069,718
------------------- ------------------- ------------------- -------------------
Total current liabilities 11,802,757 8,105,158 4,706,526 24,614,441
Long-term debt 33,303,467 - 29,289,474 62,592,941
Deferred income taxes 3,658,918 - - 3,658,918
------------------- ------------------- ------------------- -------------------
Total liabilities 48,765,142 8,105,158 33,996,200 90,866,300
------------------- ------------------- ------------------- -------------------
Shareholders' equity
Preferred stock
Common stock 7,222,550 10,000 (10,000) 7,222,550
Paid-in capital 29,626,577 28,000 (28,000) 29,626,577
Retained earnings 28,839,331 12,432,045 (12,432,045) 28,839,331
------------------- ------------------- ------------------- -------------------
Total shareholders' equity 65,688,458 12,470,045 (12,470,045) 65,688,458
------------------- ------------------- ------------------- -------------------
Total $ 114,453,600 $ 20,575,203 $ 21,525,955 $ 156,554,758
=================== =================== =================== ===================
</TABLE>
See notes to pro forma combined financial statements (unaudited).
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
STARDUST ADJUSTMENTS PRO FORMA
PLUMA, INC. CORPORATION (note 3) COMBINED
<S> <C> <C> <C> <C>
Net sales $ 127,820,319 $ 64,097,352 $ (5,080,000) $ 186,837,671
Cost of goods sold 106,247,340 55,334,087 (5,080,000) 156,501,427
------------------ ------------------ ----------------- ---------------
Gross profit 21,572,979 8,763,265 - 30,336,244
Selling, general and administrative expenses 9,149,039 4,333,933 (320,414) 13,162,558
------------------ ------------------ ----------------- ---------------
Income from operations 12,423,940 4,429,332 320,414 17,173,686
------------------ ------------------ ----------------- ---------------
Other income (expenses):
Interest expense (3,735,468) - (2,635,754) (6,371,222)
Other expense - - (1,273,067) (1,273,067)
Other income 484,058 500,546 (288,000) 696,604
------------------ ------------------ ----------------- ---------------
Total other expenses, net (3,251,410) 500,546 (4,196,821) (6,947,685)
------------------ ------------------ ----------------- ---------------
Income before income taxes 9,172,530 4,929,878 (3,876,407) 10,226,001
Income taxes 3,354,151 - 389,784 3,743,935
------------------ ------------------ ----------------- ---------------
Net income $ 5,818,379 $ 4,929,878 $ (4,266,191) $ 6,482,066
================== ================== ================= ===============
Earnings per common share and common equivalent -
primary and fully diluted $ 1.09 $ 1.22
================== ===============
Weighted average number of shares outstanding 5,315,797 5,315,797
================== ===============
</TABLE>
See notes to pro forma combined financial statements (unaudited).
<PAGE>
PLUMA, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
PRO FORMA
STARDUST ADJUSTMENTS PRO FORMA
PLUMA, INC. CORPORATION (note 3) COMBINED
<S> <C> <C> <C> <C>
Net sales $ 99,477,525 $ 45,446,923 $ (2,798,000) $ 142,126,448
Cost of goods sold 84,714,875 38,970,013 (2,798,000) 120,886,888
------------------- ------------------- ---------------- -----------------
Gross profit 14,762,650 6,476,910 - 21,239,560
Selling, general and administrative expenses 7,043,811 3,636,802 (249,225) 10,431,388
------------------- ------------------- ---------------- -----------------
Income from operations 7,718,839 2,840,108 249,225 10,808,172
------------------- ------------------- ---------------- -----------------
Other income (expenses):
Interest expense (1,697,223) - (1,650,374) (3,347,597)
Other expense - - (954,801) (954,801)
Other income 407,878 535,410 (288,000) 655,288
------------------- ------------------- ---------------- -----------------
Total other expenses, net (1,289,345) 535,410 (2,893,175) (3,647,110)
------------------- ------------------- ---------------- -----------------
Income before income taxes 6,429,494 3,375,518 (2,643,950) 7,161,062
Income taxes 2,366,054 - 270,680 2,636,734
------------------- ------------------- ---------------- -----------------
Net income $ 4,063,440 $ 3,375,518 $ (2,914,630) $ 4,524,328
=================== =================== ================ =================
Earnings per common share and common equivalent -
primary and fully diluted $ .55 $ .61
=================== =================
Weighted average number of shares outstanding 7,366,625 7,366,625
=================== =================
</TABLE>
See notes to pro forma combined financial statements (unaudited).
<PAGE>
PLUMA, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - GENERAL
The Company has purchased certain assets and assumed certain liabilities of
Stardust Corporation for $33,750,000, subject to adjustment as described in the
Asset Purchase Agreement dated December 22, 1997, between Pluma, Inc. and
Stardust Corporation. In connection with this transaction, the Company has
also obtained a non-compete agreement with Stardust and its shareholders. In
addition, the Company has also purchased for $1,500,000 from the shareholders of
Stardust the land and building currently used and leased by Stardust Corporation
from the shareholders of Stardust. Both transactions are treated as components
of a single transaction and are accounted for using the purchase method of
accounting.
The Company has not completed reviewing Stardust's records in order to make its
determination of the fair value of Stardust's assets and liabilities. The fair
value adjustments reflected in the pro forma combined financial statements
reflect, among other things, estimates of fair value made by the Company based
on assumptions it believes to be reasonable. Accordingly, the final pro forma
condensed combined amounts may be different from those set forth herein.
NOTE 2 - PRO FORMA ADJUSTMENTS IN THE COMBINED BALANCE SHEET
The purchase price has been preliminarily allocated to the net assets acquired
based on the respective estimated fair values as follows:
Assets acquired:
Accounts receivable $ 4,389,859
Inventories 9,987,557
Prepaid catalog and
trade show expenses 250,000
Other current assets 62,394
Property, plant and equipment 1,700,000
Non-compete agreement 250,000
----------------------
Total assets acquired 16,639,810
Liabilities assumed:
Accounts payable (6,821,158)
Accrued expenses (30,000)
----------------------
Net assets acquired 9,788,652
Total consideration given 35,250,000
----------------------
Goodwill $ 25,461,348
======================
The adjustment to accounts receivable and accounts payable reflects the
elimination of intercompany balances. The adjustment to other current assets
includes the short-term portion of the non-compete agreement and prepaid catalog
and trade show expenses paid
<PAGE>
subsequent to September 30, 1997 but prior to the acquisition. The adjustment to
other assets represents the allocation of the purchase price to the long-term
portion of the non-compete agreement. The cost of the acquisition has been
financed though additional debt.
NOTE 3 - PRO FORMA ADJUSTMENTS IN THE COMBINED STATEMENTS OF OPERATIONS
The adjustments to net sales and cost of goods sold reflect the elimination of
intercompany sales and purchases.
Selling, general and administrative expenses are adjusted as follows:
NINE
YEAR MONTHS
ENDED ENDED
12/31/96 9/30/97
Decrease in management salaries $ (110,000) $ (82,500)
Decrease in lease expense (216,000) (180,000)
Net decrease in depreciation expense (44,414) (24,225)
Amortization of non-compete agreement 50,000 37,500
------------- ---------------
$ (320,414) $ (249,225)
============= ===============
The decrease in management salaries is due primarily to the elimination of one
such position. The decrease in lease expense is due to the purchase of the land
and building. Net depreciation expense is adjusted to reflect the assessed value
of property acquired and changes in estimated expected useful lives. The
non-compete agreement assumes an amortization period of five years.
The adjustment to interest expense assumes the servicing of the additional debt
at the Company's effective borrowing rate of 8.1%. The adjustment to other
expense reflects the amortization of the goodwill over a 20 year amortization
period. The adjustment to other income reflects the elimination of interest
income earned by Stardust on its cash which will not be included in the
transaction. The adjustment to income taxes reflects additional tax expense
calculated using a combined federal and state income tax rate of 37%.
<PAGE>
Exhibit 1
DRAFT
12/19/97
ASSET PURCHASE AGREEMENT
AMONG
PLUMA, INC.,
STARDUST CORPORATION
AND
JOHN BEALE AND LINDA BEALE
DATED AS OF
DECEMBER ____, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I.........................................................................................................1
SALE AND PURCHASE OF ASSETS..............................................................................1
1.1 Transfer of Assets.....................................................................1
1.2 Purchased Assets.......................................................................2
(a) Tangible Personal Property....................................................2
(b) Inventories...................................................................2
(c) Other Tangible Assets.........................................................2
(d) Assumed Contracts.............................................................2
(e) Accounts Receivable...........................................................2
(f) Intellectual Property.........................................................2
(g) Permits.......................................................................2
(h) Records.......................................................................3
(i) Claims........................................................................3
(j) Prepaids......................................................................3
(k) Goodwill......................................................................3
1.3 Real Property..........................................................................3
(a) Real Property.................................................................3
(b) Improvements..................................................................3
1.4 Excluded Assets........................................................................3
(a) Cash; Securities..............................................................3
(b) Prepaid Items.................................................................3
(c) Personal Property Disposed Of.................................................3
(d) Insurance.....................................................................4
(e) Assets of Benefit Plans.......................................................4
(f) Certain Records...............................................................4
(g) Certain Contracts.............................................................4
(h) Other Assets..................................................................4
1.5 Liabilities............................................................................4
ARTICLE II........................................................................................................5
CONSIDERATION............................................................................................5
2.1 Consideration..........................................................................5
(a) Real Property.................................................................5
(b) General.......................................................................5
(c) Closing Balance Sheet.........................................................5
(d) Purchase Price Adjustment.....................................................6
(e) Dispute Resolution............................................................6
(f) Instructions to Escrow Agent; Other Payments..................................7
2.2 Allocation.............................................................................7
2.3 Proration of Certain Items.............................................................7
(a) Taxes.........................................................................8
(b) Utilities.....................................................................8
i
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(c) Personal Property Leases......................................................8
(d) Deposits......................................................................8
(e) Prepaid Items.................................................................8
2.4 Noncompetition.........................................................................8
ARTICLE III.......................................................................................................9
REPRESENTATIONS AND WARRANTIES OF SELLER AND ............................................................9
3.1 Organization and Good Standing; Governing Documents....................................9
3.2 Authority..............................................................................9
3.3 No Conflict or Breach.................................................................10
3.4 Consents and Approvals................................................................10
3.5 Financial Statements..................................................................10
3.6 Books and Records.....................................................................11
3.7 Title to and Sufficiency of Assets....................................................11
3.8 Real Property.........................................................................12
(a) Owned........................................................................12
(b) Leased.......................................................................12
(c) Improvements; Zoning.........................................................12
3.9 Tangible Personal Property............................................................12
3.10 Inventories...........................................................................13
3.11 Contracts.............................................................................13
3.12 Receivables...........................................................................13
3.13 Intellectual Property.................................................................13
3.14 Major Suppliers and Customers.........................................................14
3.15 Litigation............................................................................14
3.16 Compliance with Decrees and Laws......................................................14
3.17 Permits...............................................................................15
3.18 Taxes.................................................................................15
3.19 Environmental Matters.................................................................16
3.20 Insurance.............................................................................17
3.21 Labor and Employment Matters..........................................................17
3.22 Employees; Compensation; Benefit Plans................................................18
(a) Employees; Compensation......................................................18
(b) Employee Benefit Plans.......................................................18
3.23 Absence of Certain Changes............................................................20
3.24 Warranties............................................................................20
3.25 Related Party Transactions............................................................20
3.26 Brokers...............................................................................21
3.27 Names.................................................................................21
3.28 Grantor Status. .....................................................................21
3.29 Disclosure............................................................................21
ARTICLE IV.......................................................................................................21
REPRESENTATIONS AND WARRANTIES OF BUYER.................................................................21
4.1 Organization and Good Standing........................................................21
ii
<PAGE>
4.2 Authority.............................................................................21
4.3 No Conflict or Breach.................................................................21
4.4 Governmental Approvals................................................................22
4.5 Brokers...............................................................................22
ARTICLE V........................................................................................................22
COVENANTS OF SELLER.....................................................................................22
5.1 Conduct of Business...................................................................22
5.2 Access and Information................................................................23
5.3 December 31, 1997 Audit...............................................................23
ARTICLE VI.......................................................................................................23
MUTUAL COVENANTS........................................................................................23
6.1 Best Efforts..........................................................................23
6.2 Confidentiality.......................................................................24
6.3 Employee Benefit Matters; Employees...................................................24
6.4 No Other Solicitations................................................................26
6.5 Due Diligence.........................................................................26
6.6 Access................................................................................26
ARTICLE VII......................................................................................................27
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS.............................................................27
7.1 Representations and Warranties........................................................27
7.2 Compliance with Covenants.............................................................27
7.3 Absence of Litigation.................................................................27
7.4 Absence of Change.....................................................................27
7.5 Consents and Approvals................................................................27
7.6 Environmental Audit...................................................................27
7.7 Removal of Liens......................................................................27
7.8 Legal Opinion.........................................................................28
7.9 Key Employees.........................................................................28
7.10 Title Insurance.......................................................................28
7.11 Real Estate Leases....................................................................28
ARTICLE VIII.....................................................................................................28
CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS............................................................28
8.1 Representations and Warranties........................................................28
8.2 Compliance with Covenants.............................................................28
8.3 Absence of Litigation.................................................................28
8.4 Consents and Approvals................................................................28
8.5 Legal Opinion.........................................................................28
ARTICLE IX.......................................................................................................29
CLOSING ...............................................................................................29
9.1 Closing...............................................................................29
iii
<PAGE>
9.2 Deliveries by Seller..................................................................29
9.3 Deliveries by Beales..................................................................29
9.4 Deliveries by Buyer...................................................................30
9.5 Mutual Deliveries.....................................................................31
9.6 Further Assurances....................................................................31
ARTICLE X........................................................................................................31
INDEMNIFICATION.........................................................................................31
10.1 Indemnification by Seller.............................................................31
10.2 Indemnification by Buyer..............................................................32
10.3 Notice of Claim.......................................................................32
10.4 Defense...............................................................................33
10.5 Time for Claims.......................................................................33
10.6 Limit on Claims. ....................................................................33
10.7 Escrow................................................................................33
10.8 Sole Remedy...........................................................................34
ARTICLE XI.......................................................................................................34
TERMINATION.............................................................................................34
11.1 Termination...........................................................................34
11.2 Effect on Obligations.................................................................35
ARTICLE XII......................................................................................................35
MISCELLANEOUS...........................................................................................35
12.1 Survival of Representations...........................................................35
12.2 Bulk Sales............................................................................35
12.3 Risk of Loss..........................................................................35
12.4 Expenses..............................................................................36
12.5 Seller Employees......................................................................36
12.6 Publicity.............................................................................36
12.7 Best Efforts..........................................................................36
12.8 Receivables and Inventory Matters.....................................................36
12.9 Arbitration...........................................................................36
12.10 Notices...............................................................................37
12.11 Governing Law.........................................................................38
12.12 Jurisdiction; Service of Process......................................................38
12.13 Counterparts..........................................................................38
12.14 Assignment............................................................................39
12.15 Third Party Beneficiaries.............................................................39
12.16 Headings..............................................................................39
12.17 Amendments............................................................................39
12.18 Specific Performance..................................................................39
12.19 Severability..........................................................................39
12.20 Construction..........................................................................39
12.21 Entire Agreement......................................................................39
</TABLE>
iv
<PAGE>
EXHIBITS
Exhibit A Escrow Agreement
Exhibit B Bill of Sale
Exhibit C Instrument of Assumption
Exhibit D Notice to Suppliers
SCHEDULES
Schedule 1.2(a) Tangible Personal Property
Schedule 1.2(b) Inventory
Schedule 1.2(d) Assumed Contracts
Schedule 1.2(f) Intellectual Property
Schedule 1.2(g) Transferable Permits
Schedule 1.3(a) Real Property
Schedule 1.4(h) Other Excluded Assets
Schedule 1.5(b) Certain Current Liabilities
Schedule 3.4 Required Consents
Schedule 3.5 Undisclosed Liabilities
Schedule 3.7(a) Permitted Real Estate Liens
Schedule 3.7(c) Liens
Schedule 3.11 All Contracts
Schedule 3.12 Receivables Matters
Schedule 3.13 Intellectual Property Matters
Schedule 3.14 Major Suppliers and Customers
Schedule 3.15 Litigation
Schedule 3.17 Permits
Schedule 3.20 Insurance Policies
Schedule 3.22 Employee Benefit Plans
Schedule 3.25 Related Party Transactions
Schedule 6.3 Accrued Vacation
v
<PAGE>
DRAFT
12/19/97
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (together with all Schedules and
Exhibits hereto, this "Agreement"), dated as of December ____, 1997, is entered
into by and among PLUMA, INC., a North Carolina corporation ("Buyer"), STARDUST
CORPORATION, a Wisconsin corporation ("Seller"), and JOHN BEALE and LINDA BEALE,
the shareholders of Seller (the "Beales").
R E C I T A L S :
1. Seller is headquartered in Verona, Wisconsin, and is the
owner and operator of a national wholesale distributorship for undecorated
sportswear (the "Business").
2. Seller desires to sell, and Buyer desires to buy,
substantially all of the assets of Seller used in or relating to the operation
of the Business, on the terms and conditions set forth in this Agreement.
3. In addition, the Beales desire to sell, and Buyer desires
to buy, certain real estate and improvements owned by the Beales and leased by
Seller and used in connection with the Business, on the terms and conditions set
forth in this Agreement.
THEREFORE, Seller, the Beales and Buyer agree as follows:
ARTICLE I
SALE AND PURCHASE OF ASSETS
1.1 Transfer of Assets. Seller agrees to sell, assign,
transfer and deliver to Buyer, and Buyer agrees to purchase and accept from
Seller, at the Closing (as defined below) substantially all of the assets and
properties of Seller, real and personal, tangible and intangible, of every kind
and description, wherever located, used by Seller in connection with the
operations of the Business, but excluding certain assets described in Section
1.4. The Beales agree to sell, assign, transfer and deliver to Buyer, and Buyer
agrees to purchase and accept from the Beales, at the Closing, that real estate
described in Section 1.3 and all buildings and other improvements, fixtures and
appurtenances thereon, all of which are owned by the Beales and leased by
Seller. The assets being sold hereunder by the Seller and the Beales (including,
without limitation, the aforesaid real property and improvements) are
collectively referred to as the "Purchased Assets", and the assets described in
Section 1.4 are collectively referred to as the "Excluded Assets".
<PAGE>
1.2 Purchased Assets. The Purchased Assets specifically
include, but are not limited to, the following assets of Seller which are to be
conveyed by Seller:
(a) Tangible Personal Property. All machinery,
equipment, tools, furniture, office equipment, supplies, materials and
other items of tangible personal property of every kind owned by Seller
and used in connection with the Business (wherever located and whether
or not carried on the Seller's books), including without limitation
those listed on Schedule 1.2(a) (the "Tangible Personal Property"), and
any additions, improvements, replacements and alterations thereto made
between the date of this Agreement and the Closing Date, together with
any express or implied warranty by the manufacturers or sellers of any
item or component part thereof, and all maintenance records and other
documents relating thereto.
(b) Inventories. All inventories of the Business as
of the Effective Time (as defined below) (the "Inventory"), the
location and an approximation of which as of the date hereof are
described on Schedule 1.2(b), which Schedule will be updated as of the
Closing Date.
(c) Other Tangible Assets. All other tangible assets
of Seller of every kind and description, real, personal or mixed,
wherever located, which are carried on the books of the Business or
which are owned by Seller and used in connection with the Business.
(d) Assumed Contracts. All of Seller's interest in
those certain Contracts (as defined in Section 3.11 below) that are
described on Schedule 1.2(d) (the "Assumed Contracts").
(e) Accounts Receivable. All accounts receivable and
trade accounts due to Seller as of the Effective Time in connection
with the Business (the "Receivables"), and the full benefit of any
security therefor.
(f) Intellectual Property. All of the intellectual
property rights that are owned or used by Seller in connection with the
Business, including without limitation the following: (A) all
trademarks, service marks, trade names, logos and other designations,
including without limitation the name "Stardust Corporation" and any
variations thereof (the "Marks") and any registrations relating
thereto, excluding, however, those trademarks, service marks, trade
names, logos and other designations listed on Schedule 1.4(h) which are
used by Star Motorsports, Inc.; and (B) all confidential or proprietary
processes, formulas, technical data and other similar information that
is of commercial value to the Business (the "Trade Secrets") (all items
described in (A) and (B) being referred to collectively herein as the
"Intellectual Property"), together with the goodwill related thereto.
All items of Intellectual Property are described on Schedule 1.2(f).
(g) Permits. All permits, authorizations,
certificates, approvals and licenses relating to the operation of the
Business that are legally transferable, including without limitation
those listed on Schedule 1.2(g) (the "Transferred Permits").
2
<PAGE>
(h) Records. All records, technical data, asset
ledgers, books of account, inventory records, budgets, customer and
supplier lists, payroll and personnel records, computer programs,
correspondence and other files of Seller created or maintained in
connection with the Business.
(i) Claims. All of Seller's rights to any choses in
action, claims, causes or rights of action arising in connection with
the Business.
(j) Prepaids. Those prepaid expenses which will
benefit Buyer in its normal operation of the Business after the Closing
in an amount equivalent to such items' book value.
(k) Goodwill. Any and all of Seller's goodwill in and
going concern value of the Business.
1.3 Real Property. The Purchased Assets also specifically
include the following assets which are owned by and are to be conveyed by the
Beales, and which are presently leased by Seller and used in connection with the
Business:
(a) Real Property. All that certain lot or parcel of
land in Dane County, Wisconsin, more particularly described on Schedule
1.3(a) (the "Real Property"), and all of the Beales' right, title and
interest in and to all rights, privileges and easements appurtenant
thereto.
(b) Improvements. All improvements and fixtures
located on the Real Property including, without limitation, all
buildings located thereon containing an aggregate of approximately
63,000 square feet; any and all other buildings, structures and
amenities currently located on the Real Property; and all fixtures,
apparatus, equipment, vaults, machinery and built-in appliances used in
connection with the operation and occupancy of the Real Property, such
as heating and air conditioning systems, electrical systems and
plumbing systems (collectively, the "Improvements").
1.4 Excluded Assets. The following assets of Seller shall be
excluded from the Purchased Assets and shall be retained by Seller:
(a) Cash; Securities. All cash on hand and on deposit
in banks, cash equivalents, marketable securities and investments.
(b) Prepaid Items. All prepaid expenses which will
not benefit Buyer in its normal operation of the Business after the
Closing in an amount equivalent to such items' book value.
(c) Personal Property Disposed Of. All tangible
personal property disposed of or consumed in the ordinary course of
business of the Business or with the written consent of Buyer between
the date hereof and the Closing Date.
3
<PAGE>
(d) Insurance. All insurance policies relating to the
Business, including policies relating to property, liability, business
interruption, health and workers' compensation and lives of officers of
Seller, except for those identified as "Assumed Contracts" on Schedule
1.2(d).
(e) Assets of Benefit Plans. Pension, profit sharing
or savings plans and trusts and the assets thereof.
(f) Certain Records. Minute books and stock books of
Seller.
(g) Certain Contracts. Any Contracts entered into by
Seller or by which Seller or any of the Purchased Assets is bound,
other than the Assumed Contracts.
(h) Other Assets. The assets listed on Schedule
1.4(h).
1.5 Liabilities.
(a) The Purchased Assets shall be sold and conveyed
to Buyer free and clear of all liabilities, obligations, liens, security
interests and encumbrances whatsoever. Buyer shall in no event assume or be
liable for any liability or obligation not specifically assumed pursuant to this
Section 1.5, and Seller shall retain responsibility for all liabilities accrued
as of the Effective Time (as defined below in Section 9.1) and all liabilities
arising from Seller's operations prior to the Effective Time, whether or not
accrued and whether or not disclosed, except for the Assumed Liabilities (as
defined in Section 1.5(b) below) Specifically, but without limiting the
generality of the foregoing sentence, Buyer shall not assume any liability or
obligation of Seller with respect to employees or former employees of Seller
(including any liability for accrued salaries, wages, payroll taxes, severance
pay entitlements, health, medical, retirement, vacation or deferred compensation
benefits, except for the obligations with respect to accrued vacation described
in Section 6.3(e)); any tort or contractual claims; any taxes due or claimed to
be due in respect of the Purchased Assets or the operation of the Business prior
to the Effective Time; or any liability in respect of the use, storage,
transportation, discharge, handling or disposal of any Hazardous Material (as
defined in Section 3.19) prior to the Effective Time.
(b) As the only exceptions to the provisions of
paragraph (a) above, Buyer will assume at Closing the following obligations of
Seller (the "Assumed Liabilities"): (i) obligations of Seller under the Assumed
Contracts, to the extent that such obligations are not by their terms required
to be performed prior to the Effective Time (provided that Buyer shall not
assume any obligations of Seller for any breach of Seller's obligations under
the Assumed Contracts); (ii) obligations of Seller for trade payables incurred
in the ordinary course of operations of the Business and reflected on the
Closing Balance Sheet (as defined below in Section 2.1(b)); and (iii) accrued
vacation and holiday pay reflected on the Closing Balance Sheet; and (iv)
obligations of Seller for other current liabilities of the nature described on
Schedule 1.5(b) that are incurred in the ordinary course of operations of the
Business and reflected on the Closing Balance Sheet.
4
<PAGE>
ARTICLE II
CONSIDERATION
2.1 Consideration.
(a) Real Property. The consideration payable by Buyer to the
Beales for the Real Property and the Improvements shall be $1,500,000 (the "Real
Property Consideration"), which shall be payable on the Closing Date by delivery
of a wire transfer of immediately available funds to a single account designated
by the Beales. No part of the Real Property Consideration will be held in
escrow, and the amount of the Real Property Consideration is not subject to
adjustment.
(b) General. The aggregate purchase price (the "Purchase
Price") for the Purchased Assets other than the Real Property and the
Improvements shall be equal to the sum of (a) $33,500,000, minus (b) $24,146
(which constitutes a credit for accrued vacation and holiday pay obligations
assumed by Buyer), plus (c) the total amount actually paid by Seller prior to
the Effective Time against invoices for its 1998 catalog, plus (d) the total
deposits actually paid by Seller prior to the Effective Time to reserve space at
1998 trade shows (provided, however, that the amounts to be paid under clauses
(c) and (d) shall not in the aggregate exceed $450,000). The Purchase Price is
subject to adjustment as provided in Section 2.1(d) below. Because the Purchase
Price is subject to adjustment following the Closing Date, the amount paid on
the Closing Date is sometimes referred to in this Agreement as the "Initial
Purchase Price." The Initial Purchase Price shall be payable on the Closing Date
by delivery of the following:
(i) a wire transfer of immediately available funds in
the amount of $2,500,000 to US Bank, National Association (the
"Escrow Agent"), which shall hold $2,000,000 (the "Price
Adjustment Holdback Amount") in escrow pending final
determination of the Closing Balance Sheet and the Adjustments
Statement (each as defined below) and shall hold the remaining
$500,000 (the "Indemnity Holdback Amount") in escrow until the
90th day following the Closing Date, all in accordance with
the escrow agreement attached to this Agreement as Exhibit A
(the "Escrow Agreement"), which will be executed and delivered
at the Closing; and
(ii) a wire transfer of immediately available funds
for the remainder of the Purchase Price to a single account
designated by Seller, representing the remainder of the
Initial Purchase Price.
(c) Closing Balance Sheet. As soon as practicable following
the Closing Date, Seller shall cause to be prepared a statement of Purchased
Assets and Assumed Liabilities as of the Effective Time (the "Closing Balance
Sheet"). If the Effective Time either coincides with Seller's 1997 fiscal year
end or occurs prior to Seller's 1997 fiscal year end, Seller will cause the
Closing Balance Sheet to be audited by its independent auditors. If the
Effective Time occurs following Seller's 1997 fiscal year end, Seller will cause
its normal fiscal year end audit to occur (as described in Section 5.3), and
will cause the Closing Balance Sheet to be compiled by its independent auditors.
Buyer and its independent auditors shall be permitted to observe any physical
inventory conducted in connection with preparation of the Closing Balance Sheet
and to review the preparation of the Closing
5
<PAGE>
Balance Sheet and all work papers, books and records associated with such
preparation. Buyer and Seller shall cooperate with each other and their
respective auditors to the extent reasonable and practical in the course of
preparing the Closing Balance Sheet. Seller shall cause the Closing Balance
Sheet to be delivered to Buyer, together with the auditor's report thereon, no
later than the 90th day following the Closing Date. Seller shall simultaneously
deliver notice to the Escrow Agent that the Closing Balance Sheet has been
delivered to Buyer, stating the date on which the Closing Balance Sheet was
delivered to Buyer. The Closing Balance Sheet shall be prepared in accordance
with generally accepted accounting principles applied on a basis consistent with
those applied in preparation of prior financial statements of Seller (except
that certain reserves will be established). The Closing Balance Sheet shall
reflect, among other things, an amount to be known as "Adjusted Working
Capital", which shall consist of trade accounts receivable as adjusted to
reflect the proper reserve for uncollectible accounts, plus Inventory valued at
weighted average invoice cost consistent with Seller's historic and current
accounting records in accordance with generally accepted accounting principles,
plus other current assets purchased by Buyer, less trade accounts payable, less
other current liabilities assumed by Buyer, if any. The Closing Balance Sheet
shall form the basis for certain adjustments to the Purchase Price, as described
in Section 2.1(d) below. Seller shall deliver to Buyer at the same time as the
Closing Balance Sheet a statement (the "Adjustments Statement") showing any
Purchase Price adjustment required as a result of the amounts reflected on
Closing Balance Sheet, and specifying the final Purchase Price, as adjusted (the
"Final Purchase Price").
(d) Purchase Price Adjustment. If Adjusted Working Capital
reflected on the Closing Balance Sheet is less than $5,000,000, the Purchase
Price shall be reduced one dollar for each dollar of such shortfall. If Adjusted
Working Capital reflected on the Closing Balance Sheet is equal to or greater
than $5,000,000, the Purchase Price will not be adjusted.
(e) Dispute Resolution. If Buyer has any objection to the
Closing Balance Sheet or the Adjustments Statement, it shall deliver a notice of
objection to Seller and to the Escrow Agent within 15 business days following
its receipt of the Closing Balance Sheet and the Adjustments Statement, stating
in reasonable detail the amounts objected to, the reasons for such objection and
the proposed Final Purchase Price. If Buyer does not deliver notice of objection
within such period, then Buyer shall be deemed to agree with the Closing Balance
Sheet and the Adjustments Statement, and such documents shall be final and
binding between the parties. If Buyer does deliver a notice of objection within
the 15 business day period described above, the parties agree to negotiate in
good faith to resolve their differences as to any disputed amounts. If they are
unable to resolve their differences within 15 business days after Buyer's notice
of objection, then such differences shall be submitted to the Milwaukee,
Wisconsin office of Ernst & Young, or such other nationally recognized
independent certified public accounting firm as may be jointly selected by Buyer
and Seller, who shall act as an arbitrator. The arbitrator shall be instructed
to use its commercially reasonable efforts to perform such services within 30
days of the submission to it of the Closing Balance Sheet and Adjustments
Statement and the related dispute, and, in any case, as soon as practicable
after such submission. Each of the parties shall bear all costs and expenses
incurred by it (including legal and accounting fees) in connection with such
arbitration; provided, however, that the fees and expenses of the arbitrator
shall be shared equally by Buyer and Seller. This provision for arbitration
shall be specifically enforceable by the parties and the decision of the
arbitrator shall be final and binding and there shall be no right of appeal
therefrom. Time is of the essence with respect to this Section 2.1(e).
6
<PAGE>
(f) Instructions to Escrow Agent; Other Payments. As soon as
the Closing Balance Sheet and Adjustments Statement have become final, whether
by lapse of time, mutual agreement of the parties or by a decision of the
arbitrator, Buyer and Seller agree to execute joint instructions to the Escrow
Agent and to take other actions, as described below. If either Buyer or Seller
fails to execute such instructions to the Escrow Agent within three business
days following the lapse of time, mutual agreement or final decision of the
arbitrator, then the arbitrator is authorized to execute such instructions and
deliver them to the Escrow Agent.
(i) If the Final Purchase Price equals the Initial
Purchase Price, the Escrow Agent shall be instructed to
distribute the entire Price Adjustment Holdback Amount (with
accrued interest) to Seller.
(ii) If the Final Purchase Price is less than the
Initial Purchase Price, the Escrow Agent shall be instructed
to distribute to Buyer so much of the Price Adjustment
Holdback Amount as shall be equal to such shortfall (with
accrued interest), and to distribute to Seller the remainder
of the Price Adjustment Holdback Amount, if any (with accrued
interest). If the Price Adjustment Holdback Amount is less
than the amount of the shortfall between the Final Purchase
Price and the Initial Purchase Price, then Seller and the
Beales jointly and severally agree to pay immediately by wire
transfer to Buyer any additional amounts due to cover such
shortfall.
(iii) If there is a notice of objection with respect
to the Adjustments Statement, the Escrow Agent shall
nevertheless be instructed to (A) distribute to Seller the
excess, if any, of the proposed Final Purchase Price as stated
in the notice of objection over the Initial Purchase Price or
(B) distribute to Buyer the excess of the Initial Purchase
Price over the proposed Final Purchase Price as stated in the
Adjustments Statement.
2.2 Allocation. Following completion of the Closing Balance
Sheet and all adjustments to the Initial Purchase Price, Buyer shall prepare and
circulate to Seller the Form 8594 promulgated by the Internal Revenue Service to
show the parties' agreement as to the allocation of the Final Purchase Price
among the assets purchased by Buyer from Seller, reflecting the amounts shown
and as allocated on the Closing Balance Sheet, and reflecting the allocation of
$250,000 of the Purchase Price to the covenants not to compete set forth in
Section 2.4 below. Each of Buyer and Seller agrees to file such Form 8594 with
its respective federal income tax return for the tax year in which the Closing
occurs. Each party agrees to deliver to the other a copy of the Form 8594 as
filed with its return within 30 days of filing such return.
2.3 Proration of Certain Items. With respect to certain
expenses incurred in the operation of the Business by Seller and the ownership
of the Real Property by the Beales, the following prorations shall be made:
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(a) Taxes. Real and personal ad valorem property
taxes shall be apportioned at the Closing as of the Effective Time,
based on the net general taxes for the year 1997 as stated on the tax
bill from the taxing authority.
(b) Utilities. Utilities, water and sewer charges
shall be apportioned based on meter readings as of the Closing Date.
(c) Personal Property Leases. The next payment due to
lessors after the Effective Time with respect to any equipment that are
assigned to and assumed by Buyer shall be apportioned between Seller
and Buyer based on the time in such period before and after the
Effective Time.
(d) Deposits. Deposits paid by Seller with respect to
any Assumed Contracts which can be transferred to Buyer will be so
transferred and Buyer will pay Seller the full amount thereof.
(e) Prepaid Items. All prepaid expenses and deferred
items and similar other assets which will benefit Buyer in its normal
operation of the Business after the Closing shall be apportioned at the
Closing as of the Effective Time.
(f) Volume Rebates. All volume rebates whether in
cash or credit for Seller's fiscal year ending December 31, 1997 shall
belong to Seller and shall be paid in cash to Seller when received,
whether before or after the Closing.
Appropriate cash payments by Seller, the Beales or Buyer, as the case may
require, shall be made from time to time, as soon as practicable after the facts
giving rise to the obligation for such payments are known, to give effect to the
prorations provided in this Section.
2.4 Noncompetition. As a condition to Buyer's obligation to
purchase the Purchased Assets and in order to ensure to Buyer the full benefits
of the Purchased Assets and the Business, each of Seller and the Beales hereby
covenants and agrees that, during the "Restricted Period" (defined below), he or
it will not in any manner, directly or indirectly, whether as an owner, manager,
lender, consultant, partner, agent, employee, officer or director, engage in the
business of a wholesale distributorship of undecorated sportswear within the
entire United States except for Alaska. In addition, each of Seller and the
Beales hereby covenants and agrees that, during the "Restricted Period" (defined
below), he or it will not directly or indirectly, on behalf of itself or himself
or on behalf of any other person, firm, partnership, corporation, association or
other entity, call upon or solicit any of the customers of Seller for the
purpose of soliciting or providing any undecorated sportswear. The term
"Restricted Period" shall mean five years following the Closing Date; provided,
however, that in the case of either of the Beales who become employed by Buyer,
the "Restricted Period" shall mean five years following the Closing Date or one
year following termination of such person's employment with Buyer, whichever
occurs later. Seller and the Beales acknowledge that any breach of the covenants
of this Section will result in irreparable damage and continuing injury to
Buyer. Therefore, in the event of any breach or threatened breach of the
covenants in this Section, Seller and the Beales acknowledge that Buyer shall be
entitled, without limiting any other remedies,
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to an injunction for violations of this Section restraining Seller or either of
the Beales, as the case may be, from committing any such violation, and Seller
and the Beales hereby consent to the issuance of such injunction. Seller and the
Beales acknowledge and agree that (a) Stardust presently sells undecorated
sportswear to customers in all states except Alaska; (b) the covenants of this
Section are reasonably necessary for the protection of Buyer and its business;
(c) such covenants are reasonably limited with respect to the activities
prohibited, the duration thereof, the geographical area thereof, the scope
thereof and the effect thereof on Seller, the Beales and the public; (d) the
purpose and effect of such covenants is solely to protect Buyer for a limited
period of time from unfair competition by Seller and the Beales; (e) the
purchase of the Purchased Assets is expressly conditioned upon Seller and the
Beales agreeing to enter into all of the covenants and provisions of this
Section; and (f) such covenants and provisions will not prevent Seller or the
Beales from engaging in other commercial activities by which a reasonable income
may be earned. In the event that any provision of this Section shall be
determined by any court to be unenforceable, this Section shall be interpreted
to extend over the maximum time periods for which it may be enforceable, and to
the maximum extent in any and all other respects as to which it may be
enforceable, all as shall be determined by such court. Notwithstanding the
foregoing, nothing in this Section 2.4 shall prevent John Beale from performing
his duties under the Employment Agreement with Pluma described in Section 7.9,
and nothing in this Section 2.4 shall prevent Seller or the Beales from engaging
in any of the following activities: (a) owning any number of shares of Buyer;
(b) owning up to 2% of the equity of any corporation whose securities are
registered on a national exchange; or (c) owning or operating any business
engaged in the purchase of undecorated sportswear for resale to retail consumers
as decorated sportswear, or any business engaged in the contract printing of
undecorated sportswear for resale to retail consumers as decorated sportswear.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER AND BEALES
Seller and the Beales, jointly and severally, represent and
warrant to Buyer as follows:
3.1 Organization and Good Standing; Governing Documents.
Seller is a corporation duly organized, validly existing and in good standing
under the laws of the State of Wisconsin. Seller has all requisite power and
authority to own, operate and lease the Purchased Assets and to conduct the
operations of the Business as presently conducted. The character of the property
owned, leased or operated by Seller and/or the nature of the business conducted
by it do not require Seller to be qualified in any jurisdiction other than
Wisconsin, except for instances in which the failure to be qualified would not
have a material adverse effect on the Business. Seller has previously delivered
to Buyer true and complete copies of its Articles of Incorporation and Bylaws,
including all amendments thereto. Except for the Beales, there are no persons or
entities having any shareholder interest or other ownership interest in Seller.
3.2 Authority. Seller has all requisite power and authority to
execute and deliver this Agreement and the Escrow Agreement and to perform the
transactions contemplated hereby and thereby. Each of the Beales has full legal
capacity to execute and deliver this Agreement and to perform the transactions
contemplated hereby. The execution, delivery and performance of this
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Agreement have been duly and validly authorized by all necessary corporate and
shareholder action on the part of Seller. This Agreement has been duly executed
and delivered by Seller and the Beales and constitutes a valid and binding
obligation of Seller and the Beales, enforceable against each of them in
accordance with its terms. The Escrow Agreement will be duly executed and
delivered by Seller at the Closing, and will constitute at Closing a valid and
binding obligation of Seller, enforceable against Seller in accordance with its
terms.
3.3 No Conflict or Breach. The execution, delivery and
performance of this Agreement and the Escrow Agreement do not and will not:
(a) conflict with or constitute a violation of the
Articles of Incorporation or Bylaws of Seller;
(b) assuming compliance with the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the rules and regulations thereunder (the "HSR Act"), and except for
the requirements of any bulk sales laws (which the parties have agreed
to waive), conflict with or constitute a violation of any law, statute,
judgment, order, decree or regulation of any legislative body, court,
administrative agency, governmental authority or arbitrator applicable
to or relating to Seller, the Beales or the Purchased Assets;
(c) conflict with, constitute a default under, result
in a breach or acceleration of or, except as set forth on Schedule 3.4,
require notice to or the consent of any third party under any contract,
agreement, lease, commitment, mortgage, note, license or other
instrument or obligation to which Seller or either of the Beales is
party or by which any of them are bound or by which the Purchased
Assets are affected; or
(d) result in the creation or imposition of any lien,
charge or encumbrance of any nature whatsoever on any of the Purchased
Assets.
3.4 Consents and Approvals. Schedule 3.4 describes each of the
following which is required in connection with the valid execution and delivery
by Seller and the Beales of this Agreement, in connection with the valid
execution and delivery by Seller of the Escrow Agreement, or in connection with
the consummation by Seller and the Beales of the transactions contemplated
herein and therein (including without limitation the assignment of the Assumed
Contracts to Buyer): (a) each consent, approval, authorization, registration or
filing with any federal, state or local judicial or governmental authority or
administrative agency, other than as required under the HSR Act or bulk sales
acts, and (b) each consent, approval, authorization of or notice to any other
third party. The items described in clauses (a) and (b) are referred to
collectively as the "Required Consents".
3.5 Financial Statements. Seller has previously delivered to
Buyer true and complete copies of (a) the audited balance sheets of Seller as of
December 31, 1993, 1994, 1995 and 1996 and the related statements of operations,
stockholders' equity and cash flows for the fiscal years then ended, including
the footnotes thereto, and the reports prepared in connection therewith by the
independent certified public accountants auditing the same; and (b) interim
unaudited financial
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statements for the nine months ended September 30, 1997 (collectively, the
"Financial Statements"). Each of the Financial Statements:
(a) is true, complete and correct;
(b) is in accordance with the books and records of
the Seller;
(c) presents fairly the assets, liabilities and
financial condition of Seller as of the respective date thereof, and
the results of operations for the period then ending; and
(d) has been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout
the periods involved.
Seller has no liability or obligation, whether accrued, absolute, or contingent
that is not reflected or reserved against in the December 31, 1996 financial
statements, except for (a) liabilities and obligations that are not required by
generally accepted accounting principles to be included therein; (b) liabilities
and obligations incurred after December 31, 1996 in the ordinary course of
business consistent with past practice that will not, individually or in the
aggregate, result in a material adverse effect on the Business; and (c)
liabilities and obligations disclosed on Schedule 3.5.
3.6 Books and Records. The books and records of Seller
relating to the Business and the Purchased Assets are true, accurate and
complete and have been maintained in accordance with generally accepted
accounting principles applied on a consistent basis.
3.7 Title to and Sufficiency of Assets. The Beales have good
and marketable title to the Real Property and the Improvements, and Seller has
good and marketable title to all of the other Purchased Assets, free and clear
of any liens, encumbrances, claims, security interests, mortgages or pledges of
any nature (collectively, "Liens"), other than:
(a) covenants, restrictions and easements of record
that do not affect the full use and enjoyment of the Real Property for
the purposes for which it is currently used or detract from its value,
and the liens affecting the Real Property which are described on
Schedule 3.7(a).
(b) Liens for taxes not yet due and payable; and
(c) Liens described on Schedule 3.7(c), all of which
will be removed at or prior to Closing.
The Liens described in clauses (a) and (b) are referred to collectively as
"Permitted Liens". The Purchased Assets constitute all of the assets, tangible
and intangible, of any nature whatsoever, required to operate the Business in
the manner presently operated by Seller, except for the Excluded Assets. The
Beales own no personal property that is located on or in or used in connection
with the Real Property and the Improvements, except as listed on Schedule
1.4(h).
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3.8 Real Property.
(a) Owned. Seller owns no real property. The Real Property is
owned by the Beales, and the Beales have delivered to Buyer true and correct
copies of (i) all deeds, title insurance policies and existing surveys of the
Real Property and (ii) all documents evidencing any Liens on the Real Property.
The Beales own and will own at the Closing fee simple title to the Real
Property. All water, sewer, gas, electric, telephone and drainage facilities and
other utilities required by law or by the normal use and operation of the Real
Property are installed and operating under valid permits or agreements.
(b) Leased. The Real Property constitutes all of the real
property used by Seller in connection with the Business. True and correct copies
of the lease (including all amendments thereto) (the "Real Property Lease") for
the Real Property have previously been delivered to Buyer. The Real Property
Lease is valid, binding and enforceable in accordance with its terms and is in
full force and effect, and there are no offsets or defenses by either landlord
or tenant thereunder. There are no existing defaults, and no events or
circumstances have occurred which, with or without notice or lapse of time or
both, would constitute defaults, under the Real Property Lease.
(c) Improvements; Zoning. To the best knowledge of Sellers and
the Beales, the Real Property is zoned for the various purposes for which the
Improvements are presently being used, and all Improvements (including, without
limitation, parking related thereto) are in compliance with all applicable
building codes, subdivision, zoning and land use laws, ordinances and
regulations without special permit or variance. Neither Seller nor the Beales
have any knowledge of any proposed change in such laws, ordinances or
regulations which would interfere with the use of the Real Property as presently
operated. To the best knowledge of Seller and the Beales, all Improvements are
in good repair and in good operating condition, ordinary wear and tear excepted,
and free from latent and patent defects. Specifically, but without limiting the
generality of the foregoing, to the best knowledge of Seller and the Beales, (i)
the Real Property and the roofs of all buildings included in the Improvements
drain adequately; (ii) no portion of the Real Property lies within an area
designated as "wetlands"; (iii) all functional systems and structural components
of the buildings including, without limitation, the roofs, roof curbs, floors,
heating, air conditioning and ventilating mechanical systems, compressors,
electrical systems, plumbing systems, sprinklers and other fire protection and
life safety systems, refrigeration systems, vaults, equipment and appliances are
in good condition and working order; and (iv) the Improvements are free from
damage or infestation from termites or other wood destroying organisms. To the
best knowledge of Seller and the Beales, no part of any Improvement encroaches
on any real property not included in the Real Property.
3.9 Tangible Personal Property. All of the tangible personal
property owned by Seller and used in connection with the Business is listed on
Schedule 1.2(a), and all tangible personal property leased by Seller and used in
connection with the Business is described on Schedule 1.2(d) (which lists
Assumed Contracts). To the best knowledge of Seller and the Beales, each item of
Tangible Personal Property, and each item of tangible personal property leased
under the Assumed Contracts, is in good operating order, condition and repair,
ordinary wear and tear excepted, is suitable for immediate use in the ordinary
course of business of the Business, is free from defects, is merchantable and is
of a quality and quantity presently usable in the ordinary course of business of
the
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Business. To the best knowledge of Seller and the Beales, no item of Tangible
Personal Property is in need of repair or replacement other than as part of
routine maintenance in the ordinary course of business.
3.10 Inventories. All items included in the Inventory (i) are
in good condition, not obsolete or defective; (ii) are and will be useable or
saleable within 180 days from the date delivered to Seller in the ordinary
course of business of the Business; (iii) are located at the Real Property; and
(iv) have been acquired by Seller only in bona fide transactions entered into in
the ordinary course of business.
3.11 Contracts. Schedule 3.11 lists all material written
contracts, commitments, agreements (including agreements for the borrowing of
money or the extension of credit), leases, licenses, understandings and
obligations to which Seller is party or by which Seller or any of the Purchased
Assets (including, without limitation, the Real Property and Improvements) are
bound or affected (collectively, the "Contracts"). Seller is not party to any
material oral contracts, commitments, understandings or agreements, nor are any
of the Purchased Assets bound or affected by any material oral contracts,
commitments, understandings or agreements. Certain of the Contracts will be
assigned to Buyer at the Closing, and are defined herein as "Assumed Contracts"
and are listed on Schedule 1.2(d). Either Seller or the Beales have delivered to
Buyer true and complete copies of all Contracts, including any and all
amendments and other modifications thereto. Each of the Assumed Contracts is
valid, binding and enforceable in accordance with its terms and is in full force
and effect. There are no existing defaults, and no events or circumstances have
occurred which, with or without notice or lapse of time or both, would
constitute defaults, under any of the Assumed Contracts. The assignment of the
Assumed Contracts by Seller to Buyer will not, with respect to any Assumed
Contract, (i) constitute a default thereunder, (ii) require the consent of any
person or party, except for the Required Consents, or (iii) affect the
continuation, validity and effectiveness thereof or the terms thereof.
3.12 Receivables. Except as set forth on Schedule 3.12, all
Receivables reflected on the Financial Statements, and all Receivables to be
reflected on the Closing Balance Sheet, in each case net of the reserves, if
any, established on such financial statements, are or at the Closing Date will
be, legal, valid and binding obligations, and are collectible in full at face
value (net of the reserves described above) within 60 days after the due date
thereof. All such Receivables were created in the ordinary course of business of
the Business. Except as set forth on Schedule 3.12, there are no set-offs,
counterclaims or disputes asserted with respect to any Receivable, nor, to the
best knowledge of Seller or the Beales, are any such set-offs, counterclaims or
disputes threatened. No discount or allowance from any Receivable has been made
or agreed to, except discounts for prompt payment granted in the ordinary course
of business and reflected in documents evidencing such account. The reserves, if
any, established for doubtful or uncollected accounts as shown on the Audited
Statement, as adjusted for the passage of time through the Closing Date in
accordance with the past practice of Seller, have been calculated in a method
consistent with those historically used with respect to the accounts receivable
of the Business.
3.13 Intellectual Property. Schedule 1.2(f) sets forth a list
of all Marks owned or used by Seller in connection with the Business (including
without limitation the name "Stardust" and
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any variations thereof), a list of the goods or services with which each Mark is
used, the dates of first use of each Mark and all United States, foreign and
state registrations relating to any of the Marks (the "Trademark
Registrations"). Each of the Marks has been in continuous use since the date of
first use recited in Schedule 1.2(f), and each of the Marks is now in use in
interstate or intrastate commerce, in each case as specified in Schedule 1.2(f),
on or in connection with all of the goods or services set forth on such
Schedule. Seller has no rights in any copyrighted works or inventions that are
patented. Schedule 1.2(f) includes a brief description of all of the Trade
Secrets. Seller has not disclosed any of the Trade Secrets to any third party.
Seller owns all right, title and interest in and to each item included in the
Intellectual Property, free and clear of any Liens or licenses. Seller has not
licensed any of the Intellectual Property to any third party, and, to the best
knowledge of Seller and the Beales, no party is using any such Intellectual
Property, except as described on Schedule 3.13. The Intellectual Property
consists of all of the intellectual property rights necessary to conduct the
Business. There are no claims or suits against Seller challenging Seller's
ownership of or right to use any of the Intellectual Property, nor, to the best
knowledge of Seller and the Beales, does there exist any basis therefor. There
are no claims or suits against Seller alleging that any of the Intellectual
Property infringes any rights of any third parties, nor, to the best knowledge
of Seller and the Beales, does there exist any basis therefor.
3.14 Major Suppliers and Customers. Schedule 3.14 contains a
list of the top ten suppliers of Seller and the top 25 customers of Seller, as
measured by the amounts (net of returns and allowances) purchased by Seller from
such suppliers, or sold by Seller to such customers, during the periods of (a)
portion of the 1997 fiscal year ended November 10, 1997 and (b) the fiscal year
ended December 31, 1996. Schedule 3.14 reflects in each case the amounts (net of
returns and allowances) so purchased or sold by Seller during such period.
Seller is not engaged in any dispute with any of such suppliers or customers.
Neither Seller or the Beales have received any written or verbal notice that any
supplier or customer listed on Schedule 3.14 intends to terminate or curtail its
relationship with the Business, either before or after the Closing Date.
3.15 Litigation. Except as described on Schedule 3.15, and
except for returns of goods in the ordinary course of business in volumes not
exceeding historical averages, there are no claims, actions, suits, arbitration
proceedings, inquiries, hearings, injunctions or investigations ("Claims")
pending, or to the best knowledge of Seller and the Beales, threatened, against
Seller, or involving its operations, the Business or any Purchased Assets.
Except as described on Schedule 3.15, no Claims have been brought within the
last three years against Seller or the Business, or affecting the Purchased
Assets, or relating to Seller's or the Beales' ownership, use or operation of
the Purchased Assets. To the best knowledge of Seller and the Beales, there are
no facts or circumstances which could serve as the basis for any Claim against
Seller or the Beales involving the Business or the Purchased Assets, or, by
virtue of the execution, delivery and performance of this Agreement, against
Buyer.
3.16 Compliance with Decrees and Laws. There is not
outstanding or, to the best knowledge of Seller and the Beales, threatened, any
order, writ, injunction or decree of any court, governmental agency or
arbitration tribunal against or involving Seller, the Business or the Purchased
Assets. Seller is currently, and has been at all times in compliance in all
material respects with all laws, statutes, rules, regulations, orders and
licensing requirements ("Rules") of federal, state, local
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and foreign agencies and authorities applicable to the business, properties and
operations of the Business (including, without limitation, those relating to
antitrust and trade regulation, civil rights, labor and discrimination, safety
and health). The Beales are currently, and have been at all times, in full
compliance with all Rules applicable to the Real Property. To the best knowledge
of Seller and the Beales, there has been no allegation of any violation of any
such Rules, and to the best knowledge of Seller and the Beales, no investigation
or review by any federal, state or local body or agency is pending, threatened
or planned with respect to Seller, the Business or the Purchased Assets.
3.17 Permits. Seller and the Beales have obtained all permits,
authorizations, certificates, approvals, licenses, exemptions and
classifications that are material to the conduct of the Business and the
ownership and operation of the Purchased Assets, all of which are described on
Schedule 3.17 (the "Permits"). Neither Seller nor the Beales is in violation in
any material respect under any of the Permits, and no proceedings are pending
or, to the best knowledge of Seller or the Beales, threatened, to revoke or
limit any Permit. Any Permits that are legally transferable (including, without
limitation, those listed on Schedule 1.2(g)) will be effectively assigned and
transferred to Buyer at the Closing.
3.18 Taxes. Seller and the Beales have properly completed,
duly and timely filed in correct form with the appropriate United States, state
and local governmental agencies and with the appropriate foreign countries and
political subdivisions thereof, all tax returns, reports and declarations of
estimated tax (the "Tax Returns") required to be filed before the Effective
Time. All Tax Returns are accurate, complete and correct as filed, and Seller
has paid in full or made adequate provision in its financial statements for all
amounts shown to be due on the Tax Returns. The Beales have paid in full all
amounts shown to be due on the Tax Returns. All United States, state and local
income, profits, franchise, sales, use, occupancy, property, payroll, severance,
excise, value added, withholding and other taxes, and all taxes owing to any
foreign countries and political subdivisions thereof (including interest,
penalties and any additions to tax) (the "Taxes") due from or claimed to be due
by each taxing authority in respect of Seller, the Beales, the Business or the
Purchased Assets, for all periods through the date of this Agreement, have been,
and for all periods through the Effective Time will be, fully paid or,
alternatively, in the case of Seller, adequately provided for in the financial
statements of Seller for all amounts shown to be due on Seller's tax returns.
Seller has timely made and will timely make all withholdings of tax required to
be made under all applicable United States, state and local tax regulations, and
such withholdings have either been paid or will be paid to the respective
governmental agencies or set aside in accounts for such purpose or accrued,
reserved against and entered upon the books of Seller. All deficiencies asserted
as a result of any examinations of the Tax Returns have been paid or adequately
provided for in the Financial Statements, and no issue has been raised by a
taxing authority in any such examination which, if raised with regard to any
other period not so examined, would be expected to result in a proposed
deficiency for any other period not so examined. Seller will not have any
liability, either in its own right or as a transferee, for Taxes in excess of
the amount paid or reserved for any period prior to the Closing. There are no
outstanding agreements or waivers extending the statutory period of limitation
applicable to any Tax Return, or the period for assessment or collection of any
Taxes. Neither Seller nor the Beales are parties (either jointly or separately)
to any pending action or proceeding, nor to the best knowledge of Seller and the
Beales, is there threatened any action or proceeding, by any governmental
authority for assessment or collection of taxes, and neither Seller nor the
Beales have been notified by any governmental authority that an audit
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or review of any tax matter is contemplated. There are no tax liens (other than
liens for taxes for current and subsequent years which are not yet due and
payable) upon any of the Purchased Assets. Each of Seller and the Beales is not
a "foreign person" within the meaning of Section 1445 of the Internal Revenue
Code of 1986, as amended (the "Code"), and Buyer has no obligation to withhold
taxes from the Purchase Price due to Seller or the Beales. Seller has not ever
been a member of any affiliated group of corporations filing a consolidated
federal or state income tax return.
3.19 Environmental Matters. To the best knowledge of Seller
and the Beales, the existing and prior uses of the Purchased Assets comply with,
and at all times have complied with, and neither Seller nor the Beales is in
violation of, or has violated, in connection with the ownership, use,
maintenance or operation of the Purchased Assets or the Real Property, any
applicable federal, state, county or local statutes, laws, regulations, rules,
ordinances, codes, licenses or permits of any governmental authorities relating
to environmental matters, including by way of illustration and not by way of
limitation the Comprehensive Environmental Response, Compensation and Liability
Act as amended, the Resource Conservation Recovery Act as amended, the Clean Air
Act, the Clean Water Act, the Occupational Safety and Health Act, the Toxic
Substances Control Act, any "Superfund" or "Superlien" law, Chapters 280 through
299 (inclusive) and Chapter 160 of the Wisconsin Statutes, and the regulations
promulgated thereunder, or any other federal, state or local statute, law,
ordinance, code, rule, regulation, order, decree or guideline (whether published
or unpublished) regulating, relating to or imposing liability or standards of
conduct concerning any petroleum, petroleum by-product (including but not
limited to crude oil, diesel oil, fuel oil, gasoline, lubrication oil, oil
refuse, oil mixed with other waste, oil sludge, and all other liquid
hydrocarbons, regardless of specific gravity), natural or synthetic gas,
hazardous substance or materials, toxic or dangerous waste, substance or
material, pollutant or contaminant (collectively "Environmental Laws").
Specifically, but not in limitation of the foregoing, to the best knowledge of
Seller and the Beales:
(a) Seller has obtained and is in full compliance
with the terms and provisions of all licenses and permits necessary for
compliance with the Environmental Laws with respect to the Business,
all of which are listed on Schedule 1.2(g).
(b) The Purchased Assets (including, without
limitation, the Real Property and Improvements) are free of asbestos
containing materials ("ACM's") and polychlorinated biphenyls ("PCB's").
(c) Seller and its predecessors in interest have
operated the Purchased Assets and the Real Property, and have at all
times received, handled, used, stored, treated and disposed of all
Hazardous Materials, in strict compliance with all Environmental Laws.
As used in this Agreement, "Hazardous Material" means and includes
asbestos, ACM's, PCB's, lead-based paints, any petroleum product,
petroleum by-products (including but not limited to crude oil or any
fraction of it, diesel oil, fuel oil, gasoline, lubrication oil, oil
refuse, oil mixed with other wastes, oil sludge and all other liquid
hydrocarbons, regardless of specific gravity), natural or synthetic gas
products and/or hazardous substance or materials, waste, pollutant or
contaminant, defined as such in (or for the purposes of) the
Environmental Laws. Seller has not transported or arranged for the
transport of any Hazardous Materials.
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(d) No Hazardous Material has been released,
deposited, discharged, placed, disposed of or originated on or under
the Purchased Assets, nor has the Real Property been used by any person
as a landfill or waste disposal site.
(e) There are no underground or aboveground tanks
situated on the Real Property.
(f) There are no monitoring wells on the Real
Property for monitoring any Hazardous Wastes.
(g) There are no Liens on any of the Purchased Assets
resulting from any cleanup or proposed cleanup under the Environmental
Laws.
(h) No Environmental Law, and no proposed
Environmental Law, imposes standards or requirements, or will impose
standards or requirements, which will require the owner or operator of
the Business and the Real Property to engage in any work, repairs,
construction or capital expenditures in order to comply with such
Environmental Law or such proposed Environmental Law.
(i) No notices of any violation, inquiries or
requests for information relating to any of the matters referred to in
Subsections (a) through (h) above relating to the Purchased Assets or
the Real Property or their use have been received by Seller or either
of the Beales.
3.20 Insurance. Schedule 3.20 describes all insurance policies
maintained by Seller or the Beales with respect to the Business and the
Purchased Assets. Such policies are valid, binding and enforceable in accordance
with their terms, are in full force and effect, and all premiums due thereon
have been paid and will be paid through the Effective Time. Such policies
provide adequate coverage for all risks normally insured against. Neither Seller
nor, with respect to the Real Property and the Improvements, the Beales, has
been refused any insurance by any insurance carrier during the past two years.
3.21 Labor and Employment Matters. With respect to employment
matters:
(a) No employees of Seller who work in the Business
are or have been represented by a union or other labor organization or
covered by any collective bargaining agreement at Seller's business,
and to the best knowledge of Seller and the Beales, no union is
attempting to organize any such employees at Seller's business.
(b) There is no labor strike, dispute, slowdown,
stoppage or similar labor difficulty pending or, to the best knowledge
of Seller or the Beales, threatened against or affecting Seller or the
Business, nor have there been any such events pending or threatened
during the past 24 months.
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(c) Seller is in compliance in all material respects
with all federal, state and local laws and regulations respecting
employment and employment practices, terms and conditions of employment
and wages and hours, and there is no unfair labor practice complaint
against Seller pending or, to the best knowledge of Seller or the
Beales, threatened.
(d) No representations have been made by Seller, the
Beales or Seller's employees or agents to employees of Seller with
respect to Buyer's intentions to employ, or not to employ, Seller's
employees (except for John Beale and James Beale) or with respect to
the conditions of any such employment; and, except as provided for
herein, no representations shall be made by Seller, the Beales or
Seller's employees or agents to employees and Seller with respect to
Buyer's intentions to employ, or not to employ, Seller's employees or
with respect to the conditions of any such employment.
3.22 Employees; Compensation; Benefit Plans.
(a) Employees; Compensation. Seller has previously given to
Buyer a complete and correct list of the name, position, rate of compensation
and any incentive compensation arrangements, bonuses or commissions or fringe or
other benefits, whether payable in cash or in kind, of each current employee,
director, independent contractor, consultant and agent of Seller who is
associated with the Business and each other person to whom Seller pays or
provides, or has an obligation, agreement (written or unwritten), policy or
practice of paying or providing, retirement, health, welfare or other benefits
of any kind or description whatsoever.
(b) Employee Benefit Plans.
(i) Schedule 3.22 contains an accurate and complete
list of all Plans, as defined below, contributed to,
maintained or sponsored by Seller, to which Seller is
obligated to contribute or with respect to which Seller has
any liability or potential liability, whether direct or
indirect, including all Plans contributed to, maintained or
sponsored by each member of the controlled group of companies,
within the meaning of Sections 414(b), 414(c), and 414(m) of
the Code, of which Seller is a member to the extent Seller has
any potential liability with respect to such Plans. For
purposes of this Agreement, the term "Plans" shall mean: (A)
employee benefit plans as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended
("ERISA"), whether or not funded and whether or not
terminated, (B) employment agreements, and (C) personnel
policies or fringe benefit plans, policies, programs and
arrangements, whether or not subject to ERISA, whether or not
funded, and whether or not terminated, including without
limitation, stock bonus, deferred compensation, pension,
severance, bonus, vacation, travel, incentive, and health,
disability and welfare plans.
(ii) Except as disclosed in Schedule 3.22, Seller
does not contribute to, has no obligation to contribute to or
otherwise has no liability or potential liability with respect
to (A) any Multiemployer Plan (as such term is defined in
Section 3(37) of ERISA), (B) any Plan of the type described in
Sections 4063 and 4064 of ERISA or
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in Section 413 of the Code (and regulations promulgated
thereunder), (C) any Plan which is subject to the funding
requirements of Section 412 of the Code or Section 302 of
ERISA, or subject to Title IV of ERISA, or (D) any Plan which
provides health, life insurance, accident or other
"welfare-type" benefits to current or future retirees or
current former employees, their spouses or dependents, other
than in accordance with Section 4980B of the Code or
applicable state continuation coverage law.
(iii) Except as disclosed in Schedule 3.22, none of
the Plans obligates Seller to pay separation, severance,
termination or similar-type benefits solely as a result of any
transaction contemplated by this Agreement or solely as a
result of a "change in control," as such term is used in
Section 280G of the Code (and regulations promulgated
thereunder).
(iv) Each Plan and all related trusts, insurance
contracts, and funds have been maintained, funded and
administered in compliance in all respects with all applicable
laws and regulations, including but not limited to ERISA and
the Code. None of Seller, any trustee or administrator of any
Plan, or any other person has engaged in any transaction with
respect to any Plan which could subject Seller, or any trustee
or administrator of any Plan, or any party dealing with any
Plan, or Buyer to any tax or penalty imposed by ERISA or the
Code. No actions, suits, claims, complaints, charges,
proceedings, hearings, investigations, or demands with respect
to the Plans (other than routine claims for benefits) are
pending or threatened, and Seller has no knowledge of any
facts which could give rise to or be expected to give rise to
any actions, suits, claims, complaints, charges, proceedings,
hearings, investigations, or demands. As of the Closing Date,
all required payments, premiums, contributions, reimbursements
or accruals with respect to each Plan for all periods ending
prior to or as of the Closing Date shall have been made. No
plan has any material unfunded liabilities.
(v) Each Plan that is intended to be qualified under
Section 401(a) of the Code, and each trust (if any) forming a
part thereof, has received a favorable determination letter
from the Internal Revenue Service as to the qualification
under the Code of such Plan and the tax exempt status of such
related trust, and nothing has occurred since the date of such
determination letter that could adversely affect the
qualification of such Plan or the tax exempt status of such
related trust.
(vi) No underfunded "defined benefit plan" (as such
term is defined in Section 3(35) of ERISA) has been, during
the five years preceding the Closing Date, transferred out of
the controlled group of companies (within the meaning of
Sections 414(b), (c) and (m) of the Code) of which Seller is a
member or was a member during such five-year period.
(vii) With respect to each Plan, Seller has provided
Buyer with true, complete and correct copies, to the extent
applicable, of (A) all documents pursuant to which the Plans
are maintained, funded and administered, (B) the two most
recent
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annual reports (Form 5500 series) filed with the Internal
Revenue Service (with attachments), (C) the two most recent
financial statements, (D) all governmental rulings,
determinations, and opinions (and pending requests for
governmental rulings, determinations, and opinions), and (E)
the most recent valuation (but in any case at least one that
has been completed within the last calendar year) of the
present and future obligations under each Plan that provides
post-retirement or post-employment health, life insurance,
accident or other "welfare-type" benefits.
3.23 Absence of Certain Changes. Since December 31, 1996,
Seller has conducted the operations and business of the Business only in the
ordinary course, and has not:
(a) Suffered any material damage, destruction or loss
to any material asset used in the Business, whether or not covered by
insurance;
(b) Sold, transferred, distributed or otherwise
disposed of any assets used in the operation of the Business, except
for assets consumed or disposed of in the ordinary course of business
or having an aggregate value not in excess of $25,000;
(c) Made or entered into any general wage or salary
increase for its employees as a group;
(d) Amended or terminated any material contract,
lease, license or commitment relating to the conduct of the Business or
the Purchased Assets;
(e) Incurred any obligation or liability (whether
absolute, accrued, contingent or otherwise and whether due or to become
due) except normal trade or business obligations incurred in the
ordinary course of business;
(f) Introduced any new method of management,
operations or accounting;
(g) Suffered any material adverse change in the
condition (financial or otherwise), results of operations or business
of the Business or the Purchased Assets, or any other event or
condition of any character that might reasonably be expected to have a
material adverse effect on the Business or the Purchased Assets; or
(h) Agreed, whether in writing or otherwise, to take
any action described in this Section.
3.24 Warranties. There are no continuing or outstanding
warranties of Seller applicable to goods sold by Seller, except for warranties
implied by law.
3.25 Related Party Transactions. Except as described on
Schedule 3.25, the Assumed Contracts do not include any agreement with, or any
other commitment to (a) any officer or shareholder of Seller; (b) any person
related by blood or marriage to any such officer or shareholder;
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or (c) any corporation, partnership, trust or other entity in which Seller or
any such officer, shareholder or related person has an equity or participating
interest.
3.26 Brokers. No finder, broker, agent or other intermediary
has acted for or on behalf of Seller or the Beales in connection with the
negotiation or consummation of this Agreement or the sale of the Business, and
there are no claims for any brokerage commission, finder's fee or similar
payment due from Seller or the Beales.
3.27 Names. During the term of its existence, Seller has not
been known by or conducted business under any name other than Stardust
Corporation. All assets and rights relating to the Business are held by, and all
agreements, obligations, expenses and transactions relating to the Business have
been entered into, incurred and conducted by Seller under that name.
3.28 Grantor Status. Neither Seller nor either of the Beales
is a "Grantor" within the meaning of the Wisconsin Fair Dealership Law.
3.29 Disclosure. No representation, warranty or statement made
by Seller or the Beales in this Agreement contains or will contain any untrue
statement of a material fact, or omits or will omit to state any material fact
necessary to make the statements contained herein or therein not misleading. The
fact that Seller has delivered copies of certain documents to Buyer shall not
alone constitute disclosure of facts required to be disclosed on any Schedule to
this Agreement, unless such document is expressly referenced in such Schedule.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller and the Beales as
follows:
4.1 Organization and Good Standing. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of North Carolina.
4.2 Authority. Buyer has all requisite corporate power and
authority to execute, deliver and perform this Agreement and the Escrow
Agreement and to consummate the transactions contemplated hereby and thereby.
The execution, delivery and performance of this Agreement and the Escrow
Agreement, and the consummation of the transactions contemplated hereby and
thereby, have been duly and validly authorized by all necessary corporate action
on the part of Buyer. This Agreement has been duly executed and delivered by
Buyer, and the Escrow Agreement will be duly executed and delivered by Buyer at
the Closing, and constitutes or will constitute at Closing a valid and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms.
4.3 No Conflict or Breach. The execution, delivery and
performance of this Agreement and the Escrow Agreement do not and will not (a)
conflict with or constitute a violation of the Articles of Incorporation or
Bylaws of Buyer or (b) assuming compliance with the HSR Act,
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conflict with or constitute a violation of any statute, judgment, order, decree
or regulation of any court, administrative agency, governmental authority or
arbitrator applicable to or relating to Buyer.
4.4 Governmental Approvals. Except as required by the HSR Act,
no consent, approval, authorization, registration or filing with any federal,
state or local judicial or governmental authority or administrative agency is
required in connection with the valid execution and delivery by Buyer of this
Agreement or the consummation by Buyer of the transactions contemplated herein.
4.5 Brokers. Except for Philpott, Ball & Company, which is
acting as financial advisor to Buyer, for whose fees Buyer shall be solely
responsible, Buyer has retained no finder, broker, agent or other intermediary
to act for or on behalf of Buyer in connection with the negotiation or
consummation of this Agreement, and no party has made any claims for any
brokerage commission, finder's fee or similar payment due from Buyer.
ARTICLE V
COVENANTS OF SELLER AND BEALES
Seller and the Beales covenant and agree with Buyer as
follows:
5.1 Conduct of Business. Between the date of this Agreement
and the Effective Time, Seller shall, except as otherwise specifically consented
to in writing by Buyer:
(a) Conduct the operations of the Business in the
normal and customary manner in the ordinary course of business;
(b) Maintain and keep the tangible Purchased Assets
(including, without limitation, the Real Property and Improvements),
and any tangible assets leased under leases to be assumed by Buyer, in
good operating order, repair and condition, ordinary wear and tear
excepted;
(c) Keep in full force and effect the insurance
described in Section 3.20;
(d) Perform all of its obligations under all
Contracts and the Real Property Lease, and not amend, alter or modify
any provision thereof;
(e) Use its best efforts to preserve Seller's
organization intact and maintain its relationships with its employees,
suppliers and customers;
(f) Promptly advise Buyer of any material adverse
change in the condition (financial or otherwise) of the Business or the
Purchased Assets;
(g) Promptly advise Buyer of the occurrence of any
material event or circumstance which affects the consummation of the
transactions contemplated by this
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Agreement or which, if in existence on the date of this Agreement,
would have been required to have been disclosed in a Schedule to this
Agreement;
(h) Not create or permit to exist any Lien with
respect to any of the Purchased Assets, except for the Liens described
on Schedule 3.7(c), all of which will be removed at or prior to the
Closing;
(i) Not sell or dispose of any Purchased Assets,
except in the ordinary course of business of the Business;
(j) Promptly advise Buyer of any material change in
the list of employees referred to in Section 3.22(a) or in the
compensation payable to any such employee;
(k) Not make any capital improvements or expenditures
in excess of $10,000 in the aggregate;
(l) Maintain and collect the Receivables and extend
credit terms to its customers in the ordinary course of business
consistent with past practices; and
(m) Not sell or dispose of any fixed assets without
prior written consent of Buyer.
5.2 Access and Information. Between the date of this Agreement
and the Closing, Seller and the Beales shall permit Buyer and its counsel,
accountants and other representatives full access during normal business hours
to all the properties, assets, books, records, agreements and other documents of
Seller, and to the Real Property and Improvements (including, without
limitation, such access as shall be reasonably necessary to conduct a Phase I
and/or Phase II environmental audit of the Real Property and the Improvements).
Seller and the Beales shall furnish to Buyer and its representatives all
information concerning the Purchased Assets or the Business as Buyer may
reasonably request.
5.3 December 31, 1997 Audit. If the Closing has not occurred
by the end of Seller's 1997 fiscal year, Seller will cause its independent
auditors to audit its financial statements for the fiscal year ending December
31, 1997, and shall deliver copies of such financial statements and the
auditors' report thereon to Buyer as soon as practicable, but in no event later
than the date of delivery of the Closing Balance Sheet.
ARTICLE VI
MUTUAL COVENANTS
Each of Buyer and Seller covenants and agrees with the other
as follows:
6.1 Best Efforts. Each of Buyer and Seller shall use its best
efforts (not including the expenditure of money other than customary filing
fees) to make or obtain all consents, approvals,
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authorizations, registrations and filings with all federal, state or local
judicial or governmental authorities or administrative agencies as are required
in connection with the consummation of the transactions contemplated by this
Agreement. Without limiting the generality of the foregoing, Buyer and Seller
shall, as promptly as practicable following the execution of this Agreement, in
cooperation with each other, complete and file with the appropriate authorities
the premerger notification forms and any other documents required under the HSR
Act. In addition, Seller shall use its best efforts (not including the
expenditure of money other than customary filing fees) to obtain as promptly as
possible all other Required Consents.
6.2 Confidentiality. In recognition of the confidential nature
of certain of the information which will be provided to each party by the other,
each of Buyer, Seller and the Beales agrees to retain in confidence, and to
require its directors, officers, employees, consultants, professional
representatives and agents (collectively, its "Representatives") to retain in
confidence all information transmitted or disclosed to it by the other, and
further agrees that it will not use for its own benefit and will not use or
disclose to any third party, or permit the use or disclosure to any third party
of, any information obtained from or revealed by the other, except that each of
Buyer, Seller and the Beales may disclose the information to those of its
Representatives who need the information for the proper performance of their
assigned duties with respect to the consummation of the transactions
contemplated hereby. In making such information available to its
Representatives, each of Buyer, Seller and the Beales shall take any and all
precautions necessary to ensure that its Representatives use the information
only as permitted hereby. Notwithstanding anything to the contrary in the
foregoing provisions, such information may be disclosed (a) where it is
necessary to any regulatory authorities or governmental agencies, (b) if it is
required by court order or decree or applicable law, (c) if it is ascertainable
or obtained from public or published information, (d) if it is received from a
third party not known to the recipient to be under an obligation to keep such
information confidential, or (e) if the recipient can demonstrate that such
information was in its possession prior to disclosure thereof in connection with
this Agreement. If any party shall be required to make disclosure of any such
information by operation of law, such disclosing party shall give the other
parties prior notice of the making of such disclosure and shall use all
reasonable efforts to afford such other party an opportunity to contest the
making of such disclosure. In the event that the Closing shall not occur, each
of Buyer, Seller and the Beales shall immediately deliver, or cause to be
delivered, to the other parties (without retaining any copies thereof) any and
all documents, statements or other written information obtained from the other
that contain confidential information.
6.3 Employee Benefit Matters; Employees.
(a) Subject to the provisions of this Section 6.3,
and in conformity with Section 109.07(6)(a), Wis. Stats., Buyer agrees
to offer to hire substantially all of Seller's employees with not more
than a six month break in employment, on substantially the same terms
as the terms of employment (including compensation levels) enjoyed by
such employees at the date of this Agreement. Seller shall encourage
the full-time employees of the Seller to accept employment with Buyer.
All employees who accept offers of employment shall hereinafter be
referred to in this Section 6.3 as the "Continued Employees." Seller
shall assist Buyer in effecting the change of employment of the
Continued Employees as of the Closing Date in an orderly fashion.
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(b) (i) Effective as of the Effective Time, Buyer
shall take all action necessary and appropriate to establish and
maintain for the Continued Employees medical, dental, life, disability
and accidental death and dismemberment benefit plans, as well as other
employee welfare and fringe benefit plans and programs, which plans, in
the aggregate, shall be substantially comparable to the existing
employee welfare benefit plans (as defined in Section 3(1) of ERISA)
provided to the Continued Employees by Seller immediately prior to the
Effective Time and listed in Schedule 3.22 hereto and, except as
otherwise provided in subparagraphs (ii) and (iii) below, Seller shall
thereafter have no responsibility therefor.
(ii) Except as provided in subparagraph
(iii) below, Buyer shall not have any liability for disabilities,
illnesses, injuries, expenses or losses incurred prior to the Effective
Time by any Continued Employee or any dependent of any Continued
Employee, regardless of whether claims for such liabilities shall be
made prior to or after the Effective Time.
(iii) As required by Section 6.3(b)(i),
effective as of the Effective Time, Buyer shall establish and maintain
a medical plan and a dental plan for the benefit of the Continued
Employees and their dependents. The medical plan and dental plan
established and maintained by Buyer shall not contain a pre-existing
condition limitation and shall provide coverage for the Continued
Employees and their dependents effective as of the Effective Time.
Seller and its insurers shall retain liabilities for any continuation
of coverage required under Sections 601 - 609 of ERISA and Section
4980B of the Code with respect to any person other than a Continued
Employee, the obligation for which commenced on or prior to the
Effective Time. Buyer and its insurers shall be solely responsible for
any expenses and losses actually incurred following the Effective Time
for disabilities, injuries and illnesses incurred by any Continued
Employee or dependent under Buyer's medical plan and dental plan on or
after the Effective Time. Buyer shall be solely responsible for
providing any notices required under Section 606 of ERISA or Section
4980B of the Code to qualified beneficiaries entitled to health care
continuation coverage in connection with qualifying events occurring on
or after the Effective Time with respect to Continued Employees and
their dependents. Nothing in this subparagraph (iii) shall be construed
to confer additional benefits upon any employee, dependent or COBRA
beneficiary under any employee welfare benefit plan maintained by
Seller or to limit the right of Seller to amend or terminate any
welfare benefit of Seller as of or after the Effective Time.
(c) (i) On or as soon as practical after the
Effective Time, Seller shall take, or cause to be taken, all such
action as may be necessary to effect the termination of the Stardust
Corporation Profit Sharing Plan (the "Profit-Sharing Plan") as of the
Effective Time, and to make its regular contribution to the
Profit-Sharing Plan with respect to the participation in the
Profit-Sharing Plan by its employees through the Closing Date. Such
employees of Seller who are participants in the Profit-Sharing Plan as
of the Effective Time are referred to herein as "Seller's Plan
Participants." As of the Effective Time, all Seller's Plan Participants
shall be fully vested in their respective benefits, if any, accrued
under the Profit-Sharing Plan immediately prior to the Effective Time.
Seller shall retain liability for all benefits accrued
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under the Profit-Sharing Plan as of the Effective Time, and such
benefits will be distributed in accordance with the terms of the
Profit-Sharing Plan.
(ii) As of the Closing Date, Buyer shall
take all action necessary and appropriate to enable the Continued
Employees to receive credit for their prior service with Seller for
purposes of participation and vesting under the 401(k) retirement plan
maintained by Buyer for its eligible employees (the "Buyer's 401(k)
Plan"). Each such Continued Employee who as of the Effective Time has
attained age twenty-one (21) and completed one or more years of service
with Seller shall become a participant in Buyer's 401(k) Plan as of the
Effective Time and shall be fully vested under the Buyer's Plan on and
after the Effective Time.
(d) To the extent required by law, with respect to
employees of Seller, Seller shall retain and shall assume, bear and
discharge any and all liabilities for workers' compensation benefits
arising from acts or occurrences prior to the Effective Time, and Buyer
shall assume, bear and discharge all liabilities for workers'
compensation benefits for Continued Employees arising from acts or
occurrences that first occur on or after the Effective Time. Without
limiting the generality of the foregoing, Seller shall be solely
responsible for all pending workers' compensation claims described on
Schedule 3.5.
(e) Buyer shall assume Seller's obligations for
vacation and holiday leave accrued as of the Effective Time for all
Continued Employees, as set forth on Schedule 6.3 attached hereto.
6.4 No Other Solicitations. Until the earlier of the Closing
Date or the termination of this Agreement, (a) Seller, the Beales, and Seller's
other management and representatives shall not solicit or encourage any offer,
proposal or inquiry from, or engage in any discussions or negotiations with, any
person regarding the sale or lease of the Purchased Assets or the Business, and
(b) Buyer and its managers and representatives will not solicit or encourage any
offer, proposal or inquiry from, or engage in any discussions or negotiations
with, any person for the purchase of any wholesale apparel distributor, except
for the Frank L. Robinson Company.
6.5 Due Diligence. Each party to this Agreement will conduct
its own due diligence with respect to the transactions contemplated hereby and
the fact that a party has conducted independent due diligence shall in no way be
deemed to reduce or impair its ability to rely on the representations and
warranties of the other parties as set forth in this Agreement or its ability to
recover for any breaches thereof.
6.6 Access. Following the Closing, Buyer shall grant to Seller
and its representatives full access during normal business hours to all records
and other documents transferred to it by Seller relating to the ownership of the
Purchased Assets and the operation of the Business prior to the Closing Date.
Buyer agrees not to destroy any such documents without 30 days' prior written
notice to Seller, which notice shall grant to Seller the right to take
possession of any such documents within such 30 day period.
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ARTICLE VII
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
The obligations of Buyer to consummate the transactions
contemplated by this Agreement are subject to the satisfaction of the following
conditions on or before the Closing Date, unless specifically waived in writing
by Buyer prior to the Closing Date:
7.1 Representations and Warranties. The representations and
warranties of Seller and the Beales contained in this Agreement shall have been
true and correct on the date of this Agreement and shall be true and correct in
all material respects on the Closing Date as though made on and as of the
Closing Date.
7.2 Compliance with Covenants. Seller and the Beales shall
have duly performed and complied with all covenants, agreements and obligations
required by this Agreement to be performed or complied with by them on or prior
to the Closing.
7.3 Absence of Litigation. No action or proceeding shall be
pending or, in the reasonable opinion of Buyer, threatened, by or before any
court or other governmental body or agency seeking to restrain, prohibit or
invalidate the transactions contemplated by this Agreement or which would
materially adversely affect the right of Buyer to own, operate or control the
Purchased Assets or the Business after the Closing Date.
7.4 Absence of Change. Between the date of this Agreement and
the Closing Date, no material adverse change shall have occurred in the
business, operations or financial or other condition of the Business or the
Purchased Assets, nor shall there have occurred any material casualty loss or
destruction of, or damage to, any of the Purchased Assets.
7.5 Consents and Approvals. All (a) Required Consents, (b)
licenses, (c) other orders or notifications of, or registrations, declarations
or filings with, or expiration of waiting periods imposed by, any applicable
governmental or judicial authority and (d) consents, approvals, authorizations
or notifications of any other third parties in form satisfactory to Buyer), all
as required in connection with consummation of the transactions contemplated by
this Agreement by Buyer, including the operation of the Business by Buyer, shall
have been made or obtained or shall have occurred.
7.6 Environmental Audit. Buyer shall have caused an
independent environmental consultant, chosen by Buyer at its sole discretion, to
inspect, audit, and test the Purchased Assets for the existence of any and all
environmental conditions and any and all violations of Environmental Laws, and
to deliver a report describing the findings and conclusions of the inspection
(hereafter referred to as the "Environmental Assessment"). The scope, sequence,
and timing of the Environmental Assessment shall be at the sole discretion and
expense of the Buyer. The results of the Environmental Assessment shall be
satisfactory in all respects to Buyer in its sole business judgment.
7.7 Removal of Liens. All Liens indicated to exist by record
searches made by Buyer prior to the Closing Date (specifically including but not
limited to those Liens described on
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Schedule 3.7) shall have been removed, and Seller shall have provided evidence
satisfactory to Buyer of such removal.
7.8 Legal Opinion. Buyer shall have received from Wendel and
Center, counsel to Seller, an opinion, dated the Closing Date, in form and
substance satisfactory to Buyer.
7.9 Key Employees. Buyer shall have entered into employment
agreements (the "Employment Agreements") with John Beale and James Beale.
7.10 Title Insurance. Buyer shall have obtained an extended
coverage ALTA owner's title insurance policy on the Real Estate at standard
title insurance premiums, with no exceptions other than the Permitted Liens.
7.11 Real Estate Leases. The Real Property Leases shall have
been terminated.
ARTICLE VIII
CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
The obligations of Seller and the Beales to consummate the
transaction contemplated by this Agreement are subject to the satisfaction of
each of the following conditions on or before the Closing Date, unless
specifically waived in writing by Seller and the Beales prior to the Closing:
8.1 Representations and Warranties. The representations and
warranties of Buyer contained in this Agreement shall have been true and correct
on the date of this Agreement, and shall be true and correct in all material
respects on the Closing Date as though made on and as of the Closing Date.
8.2 Compliance with Covenants. Buyer shall have duly performed
and complied with all covenants, agreements and obligations required by this
Agreement to be performed or complied with by it on or before the Closing Date.
8.3 Absence of Litigation. No action or proceeding shall be
pending by or before any court or other governmental body or agency seeking to
restrain, prohibit or invalidate the transactions contemplated by this
Agreement.
8.4 Consents and Approvals. All Required Consents shall have
been obtained prior to or at the Closing.
8.5 Legal Opinion. Seller shall have received from Womble
Carlyle Sandridge & Rice, PLLC, and/or Allman Spry Leggett & Crumpler, counsel
to Buyer, an opinion, dated the Closing Date, in form and substance satisfactory
to Seller, which, as to matters of Wisconsin law, shall be given in reliance on
an opinion of Michael Best & Friedrich.
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ARTICLE IX
CLOSING
9.1 Closing. The closing of the sale of the Purchased Assets
(the "Closing") shall take place at the offices of Wendel & Center, in Madison,
Wisconsin, at 10:00 a.m., local time, on December ___, 1997, or such other date
as may be mutually agreed upon by the parties hereto; provided, however, as
follows: (a) if one or more conditions to this Agreement is not satisfied by
such date, the party whose obligation is conditioned upon satisfaction of such
condition may elect, in its sole discretion, one or more postponements of the
Closing for the purpose of enabling such condition to be satisfied; and (b)
notwithstanding the provisions of the preceding clause (a), in no event may the
Closing be postponed beyond February 15, 1998. The date of the Closing is
referred to as the "Closing Date". For the purposes of passage of title and risk
of loss, allocation of expenses, adjustments and other economic or financial
effects of the transactions contemplated hereby, the Closing when completed
shall be deemed to have occurred at 11:59 p.m., local time, on the Closing Date
(the "Effective Time").
9.2 Deliveries by Seller. At the Closing, Seller shall deliver
or cause to be delivered to Buyer the following:
(a) A certificate of the President of Seller
confirming the satisfaction of the conditions set forth in Sections 7.1
and 7.2 hereof as to representations, warranties and covenants of
Seller, and Section 7.4 hereof as to absence of changes.
(b) A copy of all resolutions authorizing the
execution, delivery and performance of this Agreement, and the
consummation of the transactions contemplated herein, accompanied by
the certification of the Secretary of Seller to the effect that such
resolutions are in full force and effect and have not been amended,
modified or rescinded.
(c) Evidence of the removal of Liens, as described in
Section 7.8.
(d) The legal opinion referred to in Section 7.9.
(e) Evidence of that all Required Consents have been
obtained or satisfied.
(f) A Bill of Sale and Assignment in the form
attached hereto as Exhibit C and such other instruments of transfer as
Buyer may request to convey and vest in Buyer all of Seller's right,
title and interest in and to all of the remaining Purchased Assets
(except for the Real Property), free and clear of all Liens.
(g) Documents in form satisfactory to Buyer assigning
to Buyer all of Seller's interest in all collateral securing any of the
Receivables.
9.3 Deliveries by Beales. At the Closing, the Beales shall
deliver to Buyer the following:
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(a) A certificate of the Beales confirming the
satisfaction of the conditions set forth in Sections 7.1 and 7.2 hereof
as to representations, warranties and covenants of the Beales.
(b) A warranty deed or deeds conveying fee simple
title to the Real Property.
(c) A standard owner's affidavit and lien waiver form
required by the title insurance company to cause an extended coverage
ALTA owner's title insurance policy to be issued to Buyer without
standard exceptions and with customary endorsements as Buyer may
reasonably request.
(d) A "FIRPTA" certificate and Form 1099.
(e) All architectural and engineering plans relating
to the Real Property and Improvements in possession of the Beales or
Seller.
(f) Copies of the certificate or certificates of
occupancy for the Real Property, if available.
(g) Upon delivery to the title company of the
existing surveys delivered to Buyer pursuant to Section 3.8(a) hereof,
if the title company will issue the title commitment and the final
title policy to be issued in connection therewith without exception as
to matters which would be shown by a current survey, then the Beales
shall deliver to Buyer at Closing an affidavit certifying, if true,
that the existing surveys so delivered remain accurate in every respect
and that no buildings, structures or other improvement have been
constructed on the Real Property since the date of the survey so
delivered.
9.4 Deliveries by Buyer. At the Closing, Buyer shall deliver
or cause to be delivered to Seller and/or the Beales, as the case may be, the
following:
(a) A certificate of the President of Buyer
confirming the satisfaction of the conditions set forth in Sections 8.1
and 8.2 as to representations, warranties and covenants of Buyer.
(b) A copy of all corporate resolutions authorizing
the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein, accompanied by
the certification of the Secretary or President of Buyer to the effect
that such resolutions are in full force and effect and have not been
amended, modified or rescinded.
(c) The legal opinions referred to in Section 8.5.
(d) An Instrument of Assumption of the liabilities to
be assumed by Buyer pursuant to Section 1.4(b), in the form attached
hereto as Exhibit D.
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(e) The Initial Purchase Price, evidenced by a wire
transfer of immediately available funds to an account designated by
Seller.
(f) The Real Property Consideration, evidenced by a
wire transfer of immediately available funds to an account designated
by the Beales.
9.5 Mutual Deliveries. At the Closing, each of Seller and
Buyer shall execute and deliver, or cause to be executed and delivered, to the
other the following:
(a) The Escrow Agreement.
(b) The Employment Agreements.
9.6 Further Assurances. Seller and the Beales shall, at any
time on or after the Closing Date, take any and all steps requested by Buyer to
place Buyer in possession and operating control of the Purchased Assets and the
Business, and will do, execute, acknowledge and deliver all such further acts,
deeds, assignments, transfers, conveyances, powers of attorney and assurances as
may be required for the more effective transfer to and reduction to possession
of Buyer, or its successors or assigns, of any of the Purchased Assets.
Specifically, but without limiting the generality of the foregoing, Seller and
the Beales agree to cooperate with Buyer to facilitate the transfer of Seller's
Wisconsin unemployment compensation account balance and experience rating to
Buyer.
ARTICLE X
INDEMNIFICATION
10.1 Indemnification by Seller. Seller and the Beales, jointly
and severally, shall indemnify, defend and hold harmless Buyer and its officers,
directors and affiliates (the "Buyer Indemnitees") from, against, and with
respect to any action or cause of action, loss, damage, claim, obligation,
liability, penalty, fine, cost and expense (including without limitation
reasonable attorneys' and consultants' fees and costs and expenses incurred in
investigating, preparing, defending against or prosecuting any litigation,
claim, proceeding, demand or request for action by any governmental or
administrative entity), of any kind or character (a "Loss") arising out of or in
connection with any of the following:
(a) any breach of any of the representations or
warranties of Seller or the Beales contained in or made pursuant to
this Agreement;
(b) any failure by Seller or the Beales to perform or
observe, or to have performed or observed, in full, any covenant,
agreement or condition to be performed or observed by it pursuant to
this Agreement;
(c) any and all liabilities and obligations of
Seller, of any kind or nature whatsoever, whether accrued, absolute,
contingent or otherwise, known or unknown, except
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for (i) obligations under the Assumed Contracts arising on or after the
Effective Time and (ii) other obligations expressly assumed by Buyer
under Section 1.5(b);
(d) Seller's ownership and operation of the Business
and the Purchased Assets prior to the Effective Time, including any and
all liabilities under the Assumed Contracts which relate to events
occurring prior to the Effective Time;
(e) The Beales' ownership and operation of the Real
Property prior to the Effective Time;
(f) noncompliance by Seller or Buyer with the
provisions of the Wisconsin bulk sales laws (if applicable); or
(g) any use, release, threatened release, emission,
generation, storage, transportation, disposal, or arrangement for the
disposal of Hazardous Materials by Seller, the Beales or any prior
owner or operator of the Purchased Assets, including, without
limitation, the cost of any environmental response action or liability
under the Comprehensive Environmental Response, Compensation and
Liability Act, whether such Loss accrues, is required or is necessary
prior to the Effective Time, to the full extent that such Loss is
attributable, in whole or in part, directly or indirectly, to the
presence, use, emission, generation, storage, transportation, release,
threatened release, disposal, or arrangements for disposal of Hazardous
Materials by any person on the property included in the Purchased
Assets or on any other properties to which Seller, its subsidiaries or
affiliates or any other prior owner or operator of the Purchased Assets
has sent or arranged for the disposal of Hazardous Materials prior to
the Effective Time. All terms used in this paragraph shall be given the
meanings provided under the Environmental Laws.
10.2 Indemnification by Buyer. Buyer shall indemnify, defend
and hold harmless Seller and the Beales from, against and with respect to any
Loss arising out of or in connection with any of the following:
(a) any breach of any of the representations and
warranties of Buyer contained in or made pursuant to this Agreement;
(b) any failure by Buyer to perform or observe, or to
have performed or observed, in full, any covenant, agreement or
condition to be performed or observed by it pursuant to this Agreement;
(c) the Assumed Liabilities; or
(d) Buyer's ownership and operation of the Business
and the Purchased Assets on and after the Effective Time.
10.3 Notice of Claim. Any party seeking to be indemnified
hereunder (the "Indemnified Party") shall, within 15 days following discovery of
the matters giving rise to a Loss,
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notify the party from whom indemnity is sought (the "Indemnity Obligor") in
writing of any claim for recovery, specifying in reasonable detail the nature of
the Loss and the amount of the liability estimated to arise therefrom. The
Indemnified Party shall provide to the Indemnity Obligor as promptly as
practicable thereafter all information and documentation reasonably requested by
the Indemnity Obligor to verify the claim asserted.
10.4 Defense. If the facts pertaining to a Loss arise out of
the claim of any third party, or if there is any claim against a third party
available by virtue of the circumstances of the Loss, the Indemnity Obligor may,
by giving written notice to the Indemnified Party within 15 days following its
receipt of the notice of such claim, elect to assume the defense or the
prosecution thereof, including the employment of counsel or accountants at its
cost and expense; provided, however, that during the interim the Indemnified
Party shall use its best efforts to take all action (not including settlement)
reasonably necessary to protect against further damage or loss with respect to
the Loss. The Indemnified Party shall have the right to employ counsel separate
from counsel employed by the Indemnity Obligor in any such action and to
participate therein, but the fees and expenses of such counsel shall be at the
Indemnified Party's own expense. Whether or not the Indemnity Obligor chooses so
to defend or prosecute such claim, all the parties hereto shall cooperate in the
defense or prosecution thereof and shall furnish such records, information and
testimony and shall attend such conferences, discovery proceedings and trials as
may be reasonably requested in connection therewith. The Indemnity Obligor shall
not be liable for any settlement of any such claim effected without its prior
written consent, which shall not be unreasonably withheld.
10.5 Time for Claims. Any claim asserted with respect to the
items enumerated in Section 10.1 or 10.2 of this Agreement must be submitted to
the Indemnity Obligor prior to the second anniversary of the Closing Date or be
forever barred, except for the following, each of which may be asserted at any
time following the Closing Date within the applicable statutes of limitations:
claims for breach of the representations in Section 3.7 (entitled "Title to and
Sufficiency of Assets"); claims for breach of the representations in Section
3.18 (entitled "Taxes"); claims for breach of the representations in Section
3.19 (entitled "Environmental Matters"); or claims under Section 10.1(g) with
respect to environmental matters.
10.6 Limit on Claims. The maximum aggregate liability of any
Indemnity Obligor under this Article X shall be $5,000,000; provided, however,
that this limitation shall not apply to any Losses arising from claims for
breach of the representations in Section 3.7 (entitled "Title to and Sufficiency
of Assets"); claims for breach of the representations in Section 3.18 (entitled
"Taxes"); claims for breach of the representations in Section 3.19 (entitled
"Environmental Matters"); claims under Section 10.1(g) with respect to
environmental matters; or any claim arising directly or indirectly from any
fraud by any party.
10.7 Escrow. Any claim by a Buyer Indemnitee for a Loss under
this Article X may be submitted to the Escrow Agent for payment, in accordance
with the terms of the Escrow Agreement. The parties acknowledge that the funds
held by the Escrow Agent are not intended to be the sole source of recovery for
any such Loss, and agree that the existence of the Escrow Agreement does not
foreclose Buyer from making claims directly against Seller or either of the
Beales.
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10.8 Sole Remedy. The remedies set forth in this Article X are
the exclusive remedies for breaches of the representations and warranties and
covenants in this Agreement and shall be in lieu of all other remedies;
provided, however, that the foregoing clause of this sentence shall not be
deemed a waiver by any party to this Agreement of any rights or remedies arising
by reason of any claim of fraud.
ARTICLE XI
TERMINATION
11.1 Termination. This Agreement may be terminated at any time
prior to the Closing:
(a) By the mutual written consent of Seller, the
Beales and Buyer;
(b) By Seller and the Beales (if neither Seller nor
either of the Beales is then in material breach of any term of this
Agreement), if Buyer shall (i) fail to perform in any material respect
its agreements contained herein required to be performed on or prior to
the Closing Date, or (ii) materially breach any of its representations
or warranties contained herein, which failure or breach is not cured
within ten days after Seller and the Beales have notified Buyer of its
intent to terminate this Agreement pursuant to this subparagraph;
(c) By Buyer (if Buyer is not then in material breach
of any term of this Agreement), if Seller or either of the Beales shall
(i) fail to perform in any material respect its or his agreements
contained herein required to be performed on or prior to the Closing
Date, or (ii) materially breach any of its representations or
warranties contained herein, which failure or breach is not cured
within ten days after Buyer and the Beales have notified Seller of its
intent to terminate this Agreement pursuant to this subparagraph.
(d) By either Seller, the Beales or Buyer, if there
shall be any order, writ, injunction or decree of any court or
governmental or regulatory agency binding on Seller, the Beales or
Buyer which prohibits or restrains Seller, the Beales or Buyer from
consummating the transactions contemplated hereby;
(e) By either Seller, the Beales or Buyer, if a
condition to its obligation to consummate the transactions contemplated
hereby has not been satisfied by February 15, 1998, or if such a
condition has become impossible of fulfillment at any time subsequent
to the date hereof;
(f) By Seller or the Beales, if the Closing has not
occurred by February 15, 1998, for any reason other than delay or
nonperformance of Seller or the Beales;
(g) By Buyer, if the Closing has not occurred by
February 15, 1998, for any reason other than delay or nonperformance by
Buyer; or
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(h) By Seller, if the Closing has not occurred by
December 31, 1997, and Buyer has not delivered to Seller a commitment
letter which is in form reasonably satisfactory to Seller in the
exercise of its good faith business judgment, providing for financing
sufficient to provide the funds required for Buyer to consummate the
Closing.
11.2 Effect on Obligations. Termination of this Agreement
pursuant to this Article shall terminate all obligation of the parties
hereunder, except for the obligations under Sections 12.4 (entitled "Expenses"),
12.6 (entitled "Publicity") and 6.2 (entitled "Confidentiality"); provided,
however, that termination pursuant to subparagraphs (b) or (c) of Section 11.1
shall not relieve the defaulting or breaching party from any liability to the
other party hereto. In the event of termination under subsection (c), Buyer
shall have the rights and remedies with respect to specific performance as set
forth in Section 12.15 hereof, in addition to any other remedies that may be
available at law or in equity.
ARTICLE XII
MISCELLANEOUS
12.1 Survival of Representations. All representations and
warranties of the parties hereto contained in this Agreement or otherwise made
in writing in connection with the transactions contemplated hereby shall survive
the execution and delivery of this Agreement and the Closing hereunder for two
years; provided, however, that each of the following categories of
representations and warranties of Seller and the Beales shall survive the
Closing for the entire period of the statute of limitations for claims of that
nature: the representations in Section 3.7 (entitled "Title to and Sufficiency
of Assets"); the representations in Section 3.18 (entitled "Taxes"); and the
representations in Section 3.19 (entitled "Environmental Matters").
12.2 Bulk Sales. The parties agree to waive the requirements,
if any, of all applicable bulk sales laws. As an inducement to Buyer to enter
into such waiver, Seller represents and warrants that (a) it will not be
rendered insolvent by the transactions contemplated by this Agreement, and (b)
all debts, obligations and liabilities relating to the Business that are not
expressly assumed by Buyer under this Agreement will be promptly paid and
discharged by Seller as and when they become due.
12.3 Risk of Loss. The risk of loss, damage or condemnation of
any of the Purchased Assets from any cause whatsoever shall be borne by Seller
or the Beales, as the case may be, at all times prior to the completion of the
Closing. In the event of any substantial or material loss, damage or
condemnation of any of the Purchased Assets prior to completion of the Closing,
Buyer shall have the option, in its sole discretion, to:
(a) terminate this Agreement by written notice to
Seller and the Beales;
(b) postpone the Closing for a period of up to sixty
days to permit Seller or the Beales, as the case may be, to repair,
replace or restore such Purchased Assets to their prior condition; or
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(c) proceed to close this Agreement and complete the
restoration and replacement of such damaged Purchased Assets after the
Closing Date, in which event Seller or the Beales, as the case may be,
shall assign to Buyer the right to receive all insurance proceeds
payable in connection with such damage, and Seller or the Beales, as
the case may be, will pay to Buyer all deductible amounts required to
be paid in connection with such loss.
12.4 Expenses. All costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such expense, whether or not the sale of the Purchased
Assets is consummated; provided, however, (a) that if all conditions to Buyer's
obligation to close under this Agreement have been satisfied, and Buyer is
unable to close due to a lack of financing, Buyer shall reimburse Seller for all
expenses reasonably incurred by Seller in connection with this transaction up to
the date of such termination, up to but not to exceed $150,000; and (b) that
Buyer shall pay the filing fees required in connection with the premerger
notification filings under the HSR Act.
12.5 Seller Employees. If Buyer or Seller terminates this
Agreement, then Buyer agrees that it will not, at any time prior to February 15,
1999, employ any person who is on the date of this Agreement an employee of
Seller.
12.6 Publicity.
(a) Prior to Closing, each party agrees not to make
any press releases or other announcements with respect to the
transactions contemplated hereby, except as required by applicable law,
without the prior approval of the other parties.
(b) After Closing, Seller and Buyer will jointly
provide a written notice to Seller's suppliers in the form of Exhibit
D.
12.7 Best Efforts. Each party hereto agrees to use its
commercially reasonable best efforts (not to include the expenditure of money
except for customary filing fees) to satisfy the conditions to the Closing set
forth in this Agreement and otherwise to consummate the transactions
contemplated by this Agreement.
12.8 Receivables and Inventory Matters. Buyer shall take
action consistent with its customary practices to collect all of the Receivables
following the Closing Date, and shall provide to John Beale the opportunity to
be informed as to the status of the collection process and to participate in the
collection process. In the event that Buyer collects from Seller, the Beales or
the Escrow Agent for any Loss arising out of the noncollectibility of any of the
Receivables, Buyer agrees to assign all of its rights in such uncollected
Receivables so that Seller may pursue collection thereof from the debtor. If
Buyer determines that any items of the Inventory are obsolete or unsaleable, it
shall provide to John Beale the opportunity to attempt to sell such items.
12.9 Arbitration. Any controversy which shall arise between
Seller and Buyer regarding the rights, duties or liabilities of any party under
this Agreement (except for any matter
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under Section 2.4 as to which injunctive relief is sought) shall be settled by
arbitration in accordance with the rules of the American Arbitration Association
in Madison, Wisconsin, by a panel of three arbitrators. One of the arbitrators
shall be selected by Seller, one shall be selected by Buyer, and the third shall
be selected by the first two. The award of the arbitrators shall be binding,
final and conclusive on the parties and judgment may be entered thereon in any
court. The arbitrators and the expenses incident to the proceeding shall be
borne equally between the parties; however, the fees of the respective counsel
engaged by the parties and the fees of witnesses called by the parties shall be
paid by the respective party engaging such counselor calling such witnesses. The
arbitrators shall be empowered to award (or not to award) to either party all or
a portion of such parties' reasonable attorneys fees and costs based upon the
relative merits of the respective positions of the parties.
12.10 Notices. All notices, demands and other communications
made hereunder shall be in writing and shall be given either by personal
delivery, by nationally recognized overnight courier (with charges prepaid) or
by facsimile (with telephone confirmation), and shall be deemed to have been
given or made when personally delivered, the day following the date deposited
with such overnight courier service or when transmitted to facsimile machine and
confirmed by telephone, addressed to the respective parties at the following
addresses (or such other address for a party as shall be specified by like
notice):
If to Seller:
Stardust Corporation
3014 Brynwood Drive
Madison, Wisconsin 53711
Attention: John Beale, President
Telephone: (608) 274-9200
With a copy (which shall not constitute notice) to:
Daniel Lipman, Esq.
Wendel & Center
6510 Grand Teton Plaza, Suite 302
Madison, Wisconsin 53719
Telephone: (608) 833-9696
Facsimile: (608) 833-5126
If to Shareholders:
John and/or Linda Beale
3014 Brynwood Drive
Madison, Wisconsin 53711
Telephone: (608) 274-9200
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With a copy (which shall not constitute notice) to:
Daniel Lipman, Esq.
Wendel and Center
6510 Grand Teton Plaza, Suite 302
Madison, Wisconsin 53719
Telephone: (608) 833-9696
Facsimile: (608) 833-5126
If to Buyer:
Pluma, Inc.
801 Fieldcrest Road
P. O. Drawer 487
Eden, North Carolina 27289-0487
Attention: Forrest H. Truitt
Telephone: (910) 635-4000
Facsimile: (910) 635-1814
With a copy (which shall not constitute notice) to:
Womble Carlyle Sandridge & Rice, PLLC
3300 One First Union Center
301 South College Street
Charlotte, North Carolina 28205
Attention: Lesley G. Powell, Esq.
Telephone: (704) 331-4978
Facsimile: (704) 338-7857
12.11 Governing Law. This Agreement shall be governed by the
laws of the State of Wisconsin.
12.12 Jurisdiction; Service of Process. Each of the parties to
this Agreement submits to the jurisdiction of any state or federal court sitting
in Dane County, Wisconsin, in any action or proceeding arising out of or
relating to this Agreement and agrees that all claims in respect of such action
or proceeding shall be heard and determined in such court. Each of the parties
to this Agreement waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought. Each party agrees that a final judgment in
any action or proceeding so brought shall be conclusive and may be enforced by
suit on the judgment or in any other manner provided by law or at equity.
12.13 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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12.14 Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. Neither this Agreement nor any of the rights, interest or
obligations hereunder shall be assigned by any of the parties hereto without the
prior written consent of all other parties hereto, and any purported assignment
without such consent shall be void; provided, however, that Buyer may assign its
rights, interest and obligations hereunder to any subsidiary that is wholly
owned by Buyer, so long as Buyer remains primarily liable for its obligations
hereunder.
12.15 Third Party Beneficiaries. None of the provisions of
this Agreement or any document contemplated hereby is intended to grant any
right or benefit to any person or entity which is not a party to this Agreement,
except for James Beale.
12.16 Headings. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of this
Agreement and shall not in any way affect the meaning or interpretation of this
Agreement.
12.17 Amendments. Any waiver, amendment, modification or
supplement of or to any term or condition of this Agreement shall be effective
only if in writing and signed by all parties hereto, and the parties hereto
waive the right to amend the provisions of this Section orally.
12.18 Specific Performance. Seller and the Beales acknowledge
that the Purchased Assets are unique and that if Seller or the Beales fail to
consummate the transactions contemplated by this Agreement such failure will
cause irreparable harm to Buyer for which there will be no adequate remedy at
law. Buyer shall be entitled, in addition to its other remedies at law or at
equity, to specific performance of this Agreement if Seller or the Beales shall,
without cause, refuse to consummate the transactions contemplated by this
Agreement.
12.19 Severability. In the event that any provision in this
Agreement shall be determined to be invalid, illegal or unenforceable in any
respect, the remaining provisions of this Agreement shall not be in any way
impaired, and the illegal, invalid or unenforceable provision shall be fully
severed from this Agreement and there shall be automatically added in lieu
thereof a provision as similar in terms and intent to such severed provision as
may be legal, valid and enforceable.
12.20 Construction. Each party to this Agreement and its
counsel have reviewed and revised this Agreement. The normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement or
of any amendments, schedules or exhibits to this Agreement.
12.21 Entire Agreement. This Agreement and the Schedules and
Exhibits hereto constitute the entire contract between the parties hereto
pertaining to the subject matter hereof, and supersede all prior and
contemporaneous agreements and understandings between the parties with respect
to such subject matter including without limitation the letter of intent dated
November 4, 1997, and any Confidentiality Agreements signed by the parties, all
of which are hereby terminated.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed by its duly authorized officer as of the date first above
written.
SELLER:
STARDUST CORPORATION
By: ___________________________
John Beale
President
BEALES:
_____________________________ (SEAL)
John Beale
_____________________________ (SEAL)
Linda Beale
BUYER:
PLUMA, INC.
By: ____________________________
R. Duke Ferrell, Jr.
President and Chief Executive Officer
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