<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the Quarterly period ended SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from to
-------------------- --------------------
Commission File Number 0-18054
SUN SPORTSWEAR, INC.
(Exact name of registrant as specified in its charter)
Washington 91-1132690
(State or other jurisdiction (IRS Employer
of incorporation of Identification No.)
organization)
6520 South 190th Street, Kent, Washington 98032
(Address of principal executive offices) (Zip Code)
(206) 251-3565
(Registrant's telephone number including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
As of November 4, 1996 the Registrant had 5,748,500 shares of common stock
outstanding.
Page 1 of 21
<PAGE> 2
SUN SPORTSWEAR, INC.
INDEX
Page
----
Part I. Financial Information
Item 1. Financial Statements:
Balance Sheets at September 30, 1996 3-4
(unaudited) and December 31, 1995
Statements of Income 5
for the three months ended
September 30, 1996 and 1995 (unaudited)
and for the nine months ended
September 30, 1996 and 1995 (unaudited)
Statements of Cash Flows 6
for the nine months ended
September 30, 1996 and 1995 (unaudited)
Notes to Financial Statements 7-8
Item 2. Management's Discussion and Analysis 8-12
of Financial Condition and Results of Operations
Part II. Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of 13
Security Holders
Item 5. Other Information 14-19
Item 6. Exhibits and Reports on Form 8-K 20
Signature Page 21
Page 2 of 21
<PAGE> 3
SUN SPORTSWEAR, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 141,773 $ 2,006,633
Accounts receivable, net of
allowance for doubtful accounts of
$45,904 and $46,317, respectively 6,530,384 13,102,275
Inventories, net (Note 2) 19,415,919 23,631,358
Prepaid expenses and other
current assets 1,225,966 959,872
Deferred income taxes 1,138,332 788,332
Federal income tax receivable 1,042,387 1,979,535
----------- -----------
Total current assets 29,494,761 42,468,005
EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, NET
(Note 3) 3,923,159 4,831,994
OTHER ASSETS 14,506 15,107
----------- -----------
Total assets $33,432,426 $47,315,106
=========== ===========
</TABLE>
(continued)
See accompanying notes to financial statements
Page 3 of 21
<PAGE> 4
SUN SPORTSWEAR, INC.
BALANCE SHEETS
(CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 3,400,208 $13,500,000
Accounts payable 3,552,640 4,985,953
Accrued royalties payable 1,309,865 1,753,745
Accrued wages and taxes payable 912,711 512,078
Accrued interest payable 19,846 51,263
Current portion of long-term debt -0- 245,652
----------- -----------
Total current liabilities 9,195,270 21,048,691
----------- -----------
NONCURRENT LIABILITIES:
Long-term debt,
net of current portion -0- 92,354
Deferred income taxes 155,642 155,642
----------- -----------
Total noncurrent liabilities 155,642 247,996
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock, no par value,
20,000,000 shares authorized;
5,748,500 shares at 9/30/96 and
12/31/95 issued and outstanding 21,618,339 21,618,339
Retained earnings 2,463,175 4,400,080
----------- -----------
Total shareholders' equity 24,081,514 26,018,419
----------- -----------
COMMITMENTS AND
CONTINGENCIES
Total liabilities and
shareholders' equity $33,432,426 $47,315,106
=========== ===========
</TABLE>
See accompanying notes to financial statements
Page 4 of 21
<PAGE> 5
SUN SPORTSWEAR, INC.
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- --------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Proprietary sales $ 2,991,595 $ 2,843,584 $ 13,317,282 $ 13,273,455
Licensed sales 6,484,430 14,056,260 41,706,383 61,403,890
Sales deductions (342,311) (675,266) (1,421,946) (2,150,700)
------------ ------------ ------------ ------------
Net sales (Note 4) 9,133,714 16,224,578 53,601,719 72,526,645
Cost of goods sold 9,101,063 17,097,761 46,596,495 64,930,346
------------ ------------ ------------ ------------
Gross margin 32,651 (873,183) 7,005,224 7,596,299
------------ ------------ ------------ ------------
Operating expenses:
Selling 1,087,992 914,315 2,604,171 2,801,000
Design and pattern 634,349 571,100 1,978,307 1,830,082
General and
administrative 1,588,579 1,928,714 4,816,007 6,042,717
Provision for
doubtful accounts
and factoring fees 22,261 90,614 100,746 120,467
------------ ------------ ------------ ------------
3,333,181 3,504,743 9,499,231 10,794,266
------------ ------------ ------------ ------------
Operating income (3,300,530) (4,377,926) (2,494,007) (3,197,967)
------------ ------------ ------------ ------------
Other expense (income):
Interest expense 74,978 264,453 492,359 969,506
Other, net (6,605) (111,659) (51,461) (172,645)
------------ ------------ ------------ ------------
68,373 152,794 440,898 796,861
------------ ------------ ------------ ------------
Income before provision
for income taxes (3,368,903) (4,530,720) (2,934,905) (3,994,828)
Provision for
income taxes (1,145,000) (1,540,500) (998,000) (1,358,500)
------------ ------------ ------------ ------------
Net loss $ (2,223,903) $ (2,990,220) $ (1,936,905) $ (2,636,328)
============ ============ ============ ============
Earnings per share: $ (0.39) $ (0.52) $ (0.34) $ (0.46)
============ ============ ============ ============
Weighted average
shares outstanding 5,748,500 5,748,500 5,748,500 5,748,165
</TABLE>
See accompanying notes to financial statements
Page 5 of 21
<PAGE> 6
SUN SPORTSWEAR, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,936,905) $ (2,636,328)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 1,294,076 1,131,097
Loss (gain) on disposal of equipment 699 (11,252)
Decrease in accounts receivable 6,571,891 11,247,195
Decrease in inventories 4,215,439 352,345
Decrease (increase) in federal income tax
receivable, accrued and deferred 587,148 (1,649,500)
Increase in other assets (265,493) (130,628)
Decrease in accounts payable (1,068,892) (3,491,769)
(Decrease) increase in accrued liabilities (74,664) 55,604
------------ ------------
Net cash provided by operating activities 9,323,299 4,866,764
------------ ------------
Cash flows from investing activities:
Capital expenditures (399,048) (966,203)
Proceeds from sale of equipment 13,108 39,283
------------ ------------
Net cash used in investing activities (385,940) (926,920)
------------ ------------
Cash flows from financing activities:
Decrease in outstanding
checks in excess of funds on deposit (364,421) (1,274,043)
Net repayments under line of credit agreement (10,099,792) (3,391,000)
Principal payments under long-term debt (338,006) (207,751)
Proceeds from issuance of common
stock for employee stock options -0- 4,648
------------ ------------
Net cash used in financing activities (10,802,219) (4,868,146)
------------ ------------
Net decrease in cash 1,864,860 928,302
Cash at beginning of period 2,006,633 1,217,171
------------ ------------
Cash at end of period $ 141,773 $ 288,869
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid (received) during the period for:
Interest $ 523,775 $ 967,052
Income taxes $ (1,585,148) $ 291,000
</TABLE>
See accompanying notes to financial statements
Page 6 of 21
<PAGE> 7
SUN SPORTSWEAR, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL STATEMENTS
The accompanying financial statements at September 30, 1996 for the three and
nine months ended September 30, 1996 and September 30, 1995 are unaudited. These
unaudited interim financial statements and related notes have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations. However, in
the opinion of management, the accompanying condensed financial statements
include all adjustments, consisting only of normal recurring accruals, necessary
for a fair statement of the results for the interim periods. The results of
operations and cash flows for the nine months ended September 30, 1996 and 1995
are not necessarily indicative of the results of operations and cash flows that
may be expected for the entire year, which are subject to year-end adjustments
in conjunction with the annual audit by the Company's independent public
accountants. The accompanying condensed financial statements and related notes
should be read in conjunction with the financial statements and footnotes
thereto included in Sun Sportswear, Inc.'s (the "Company") 1995 Form 10-K and
Annual Report to Shareholders. See also "Item 2 - Management's Discussion and
Analysis of Financial Condition and Results of Operations - Quarterly Net Sales
- - Seasonality" on page 11 of this report.
NOTE 2 - INVENTORIES:
Inventories are composed as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Garments in process $ 32,119 $ 2,244,781
Unprinted finished garments 17,823,307 19,827,823
Printed finished garments 2,554,484 5,617,347
Supplies 980,725 407,064
Lower of cost or market allowance (1,974,716) (4,465,657)
------------ ------------
$ 19,415,919 $ 23,631,358
============ ============
</TABLE>
NOTE 3 - EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Equipment and leasehold improvements are summarized by major classifications as
follows:
<TABLE>
<CAPTION>
Estimated September 30, December 31,
useful lives 1996 1995
------------ ------------- ------------
<S> <C> <C> <C>
Production equipment 5-7 $ 3,722,949 $ 3,658,861
Leasehold improvements 5-10 2,369,879 2,380,317
Design system hardware and software 3-5 963,417 851,056
Information system hardware and software 3-5 1,840,880 2,145,582
Furniture and fixtures 5 937,672 1,116,112
Distribution equipment 5-10 371,033 343,941
Warehouse equipment 5-7 357,814 395,797
Vehicles 5 12,417 12,417
------------ ------------
10,576,061 10,904,083
LESS - Accumulated depreciation (6,652,902) (6,072,089)
------------ ------------
$ 3,923,159 $ 4,831,994
============ ============
</TABLE>
Page 7 of 21
<PAGE> 8
NOTE 4 - MAJOR CUSTOMERS:
The Company operates almost exclusively in one industry, which is the wholesale
distribution of imprinted, dyed and decorated casual apparel. The Company has
three major customers, all of whom are mass merchants. The percentage of gross
sales for each customer and the total percentage of gross sales for the three
customers are as follows:
<TABLE>
<CAPTION>
Percentage of gross sales for Total percentage
the Company's three largest of gross sales for
customers the three customers
<S> <C> <C>
For the nine months ended September 30,
1996 11%, 26% and 44% 81%
1995 19%, 25% and 44% 88%
For the year ended December 31, 1995 17%, 24% and 47% 88%
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentage relationship of certain income statement items to net sales and the
dollar increase or decrease as a percentage of such items from period to period:
<TABLE>
<CAPTION>
----------------------
Dollar
(decrease)/increase
as a percentage
1995 to 1996
----------------------
three nine
months months
Three months ended Nine months ended ended ended
September 30, September 30, Sept 30, Sept 30,
------------------- ------------------- -------- --------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Gross sales
Proprietary sales 32.7% 17.5% 24.9% 18.3% 5.2% 0.3%
Licensed sales 71.0 86.6 77.8% 84.7 (53.9) (32.1)
Sales deductions (3.7) (4.1) (2.7) (3.0) (49.3) (33.9)
Net sales 100.0 100.0 100.0 100.0 (43.7) (26.1)
Cost of goods sold 99.6 105.4 86.9 89.5 (46.8) (28.2)
Gross margin 0.4 (5.4) 13.1 10.5 (103.7) (7.8)
Operating expenses 36.5 21.6 17.7 14.9 (4.9) (12.0)
Interest expense 0.8 1.6 0.9 1.3 (71.6) (49.2)
Other (income)
and expense (0.1) (0.7) (0.1) (0.2) (94.1) (70.2)
Provision (benefit)
for income taxes (12.5) (9.5) (1.9) (1.9) (25.6) (26.5)
----- ----- ----- -----
Net income (24.4)% (18.4)% (3.6)% (3.6)% (25.6) (26.5)
----- ----- ----- -----
</TABLE>
THIRD QUARTER OF 1996 AND THIRD QUARTER OF 1995
NET SALES. Net sales for the quarter ended September 30, 1996 decreased 44% to
$9.1 million from $16.2 million in the same period of 1995. Gross sales of men's
and boys' products decreased 62% to $2.8 million in the third quarter of 1996
from $7.1 million in the same period of 1995. Women's and girls' gross sales
decreased by 32% to $6.7 million in the third quarter of 1996 from $9.8 million
in the same
Page 8 of 21
<PAGE> 9
period of 1995. The Company believes these sales decreases were the result of a
soft retail environment in certain sectors of the screenprinted apparel market.
The Company expects its fourth quarter 1996 sales to be below its fourth quarter
1995 sales as a result of this soft retail environment (see "Quarterly Net Sales
- - Seasonality" below).
The Company is working to improve its results by focusing on new
customers, on the private label needs of its mid-tier and mass market customers,
and by building its men's and boys' business. To assist in these efforts, the
Company is in the process of upgrading and enlarging its sales staff and has
expanded its product design capabilities to encompass private label business.
Gross sales of licensed products decreased 54% to $6.5 million in the
third quarter of 1996 from $14.1 million in the third quarter of 1995. The
Company believes this sales decrease was the result of a soft retail environment
in certain sectors of the screenprinted apparel market.
The Company, on an ongoing basis, is actively seeking additional
licenses and brands to add to its existing stable of licensed properties. Recent
license acquisitions include Disney Enterprises' 1996 live action movie release,
101 Dalmatians((C) Disney) and a Budweiser(R) license from Anheuser-Busch. There
can be no assurances, however, that any license acquisitions will receive
positive market acceptance by Sun's customers.
The Company is currently negotiating to renew its two top selling
licenses, both of which expire at the end of 1996 (these two licenses accounted
for 26% and 25%, respectively, of the Company's gross revenues in the first nine
months of 1996). While the Company expects to renew these and other licenses,
there can be no assurance that any license held by the Company will be renewed
by the licensor.
Gross sales of proprietary products increased by 5% to $3.0 million in
the 1996 quarter from $2.8 million in the 1995 quarter. The Company believes
this increase was primarily the result of the Company's concerted effort to
increase its private label business with such customers as J.C. Penney (Arizona
Jeans(R) label) and Sears (Canyon River Blues(R) label).
Gross sales to Sun's largest three customers decreased 58% in the third
quarter of 1996 versus sales in the same period of 1995, primarily as the result
of a soft retail environment in certain sectors of the screenprinted apparel
market. Gross sales to Sun's other customers increased 30% in the third quarter
of 1996 versus the same period of 1995, primarily as a result of the Company's
concerted efforts to increase its private label business.
Sales deductions, consisting of sales returns, discounts and
allowances, decreased to $342,000 in the 1996 quarter from $675,000 in 1995.
This decrease was primarily due to the overall sales volume decrease in the
third quarter of 1996.
GROSS MARGIN. Gross margin as a percentage of net sales increased to .4% in the
third quarter of 1996 from -5.4% in the third quarter of 1995. The increase
primarily resulted from three factors. First, in the 1995 quarter, the Company
accrued over $2.0 million in inventory markdowns arising from expected losses
on the sale of surplus inventory. Second, 1995 margins were negatively impacted
by efforts to reduce men's inventory, including customer incentives and
substitution of existing, higher value inventory to fill customer orders for
lower value product. Third, in the 1995 quarter, the Company recorded over
$350,000 in charges arising from minimum royalty commitments the Company made
pursuant to its license contracts that are not anticipated to be recovered
through licensed product sales. The above factors were partially offset by the
fact that the reduced overall sales level in 1996 had a disproportionate effect
on gross margin (as a percentage of net sales) due to the diminished capacity
to cover the Company's fixed costs.
OPERATING EXPENSES. Operating expenses decreased to $3.3 million (or 37% of net
sales) in 1996 from $3.5 million (or 22% of net sales) in the third quarter of
1995. The dollar decrease was primarily attributable to decreases in general
and administrative expenses. The increase as a percentage of sales was the
result of the lower sales volume in 1996, compared to the 1995 quarter.
General and administrative expenses decreased to $1.6 million (or 17%
of net sales) in the third quarter of 1996 from $1.9 million (or 12% of net
sales) in the same period of 1995. The dollar decrease was primarily the result
of elimination of positions under a restructuring plan implemented by the
Company
Page 9 of 21
<PAGE> 10
in the first quarter of 1996, and the fact that $275,000 of consulting expenses
were incurred in the third quarter of 1995 (associated with the Company's 1995
re-engineering efforts) versus $50,000 in the 1996 quarter. The increase as a
percentage of sales was the result of the lower sales volume in 1996, compared
to the 1995 quarter.
Partially offsetting the decrease in general and administrative
expenses was an increase in selling expense to $1.1 million (or 12% of net
sales) in the third quarter of 1996 from $914,000 (or 6% of net sales) in the
same period of 1995. The dollar increase was primarily the result of $275,000 in
one-time markdown allowances granted to certain customers. The increase as a
percentage of sales was primarily of the result of the lower sales volume in
1996, compared to the 1995 quarter.
INTEREST EXPENSE. Quarterly interest expense decreased 72% to $75,000 in the
third quarter of 1996 from $264,000 in 1995 primarily as a result of lower
borrowing levels in the 1996 quarter.
NET LOSS. Net loss decreased to $2.2 million in the third quarter of 1996 from
a net loss of $3.0 million in the same period of 1995, as a result of the
factors described above.
FIRST NINE MONTHS OF 1996 AND FIRST NINE MONTHS OF 1995
NET SALES. Net sales for the nine months ended September 30, 1996 decreased 26%
to $53.6 million from $72.5 million in the same period of 1995. Gross sales of
women's and girls' apparel decreased 20% to $38.8 million in 1996 from $48.2
million in 1995. Sales of men's and boys' products decreased 39% to $16.2
million in the first nine months of 1996 from $26.5 million in the same period
of 1995. The Company believes the primary reason for these decreases was a soft
retail environment in certain sectors of the screenprinted apparel market.
Gross sales of licensed products decreased by 32% to $41.7 million in
the first nine months of 1996 from $61.4 million in the first nine months of
1995. The Company believes the primary reason for this decrease was a soft
retail environment in certain sectors of the screenprinted apparel market.
Gross sales of proprietary products remained unchanged at $13.3 million
in the first nine months of 1996 versus $13.3 million in the first nine months
of 1995. The Company believes that sales of proprietary products held relatively
firm primarily as a result of the Company's concerted effort to increase its
private label business.
Gross sales to Sun's largest three customers decreased 31% in the first
nine months of 1996 versus the comparable period in 1995, primarily as a result
of a soft retail environment in certain sectors of the screenprinted apparel
market. Gross sales to Sun's other customers remained virtually unchanged in the
first nine months 1996 versus the first nine months of 1995, primarily as a
result of the Company's concerted efforts to increase its private label
business.
Sales deductions, consisting of sales returns, discounts and
allowances, decreased to $1.4 million in 1996 from $2.1 million in the first
nine months of 1995. This decrease was primarily due to decreases in sales
allowances due to the overall sales volume decrease for the nine months ending
September 30, 1996.
GROSS MARGIN. Gross margin as a percentage of net sales increased to 13.1% in
the first nine months of 1996 from 10.5% in 1995. This increase was primarily
the result of three factors. First, in the third quarter of 1995, the Company
accrued over $2.0 million in inventory markdowns arising from expected losses
on the sale of surplus inventory. Second, 1995 margins were negatively impacted
by efforts to reduce men's inventory, including customer incentives and
substitution of existing, higher value inventory to fill customer orders for
lower value product. Third, in the third quarter of 1995, the Company recorded
over $350,000 in charges arising from minimum royalty commitments the Company
made pursuant to its license contracts that are not anticipated to be recovered
through licensed product sales. The above factors were partially offset by the
fact that the reduced overall sales level in 1996 had a disproportionate effect
on gross margin (as a percentage of net sales) due to the diminished capacity
to cover the Company's fixed costs.
OPERATING EXPENSES. Operating expenses decreased to $9.5 million (or 17.7% of
net sales) in 1996 from $10.8 million (or 14.9% of net sales) in the first nine
months of 1995. The dollar decrease was primarily
Page 10 of 21
<PAGE> 11
attributable to decreases in selling and general and administrative expenses.
The increase as a percentage of sales is a result of the lower sales volume in
1996, compared to 1995.
General and administrative expenses decreased to $4.7 million (or 9.2%
of net sales) in 1996 from $6.0 million (or 8.3% of net sales) in 1995. This
dollar decrease was primarily the result of elimination of positions under a
restructuring plan implemented by the Company in the first quarter of 1996, and
the fact that consulting expenses were $490,000 lower in the first nine months
of 1996 than in the same period of 1995 (the 1995 consulting expenses were
associated with the Company's 1995 re-engineering efforts).
Selling expense decreased to $2.6 million (or 4.9% of net sales) in the
first nine months of 1996 from $2.8 million (or 3.9% of net sales) in the same
period of 1995. The dollar decrease was primarily the result of elimination of
positions under a restructuring plan implemented by the Company in the first
quarter of 1996.
INTEREST EXPENSE. Interest expense decreased 49% to $492,000 in the first nine
months of 1996 from $970,000 in 1995 primarily as a result of lower borrowing
levels in the nine months of 1996.
NET LOSS. Sun's net loss decreased to a loss of $1.9 million in the first nine
months of 1996 from a loss of $2.6 million in the same period of 1995, as a
result of the factors described above.
QUARTERLY NET SALES - SEASONALITY
The Company's net sales fluctuate from quarter to quarter. Quarterly
net sales for 1996 and 1995 are set forth below.
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
Amount Percent Amount Percent
<S> <C> <C> <C> <C>
First Quarter $24,433 * $25,720 27.4%
Second Quarter 20,035 * 30,582 32.5
Third Quarter 9,134 * 16,225 17.3
Fourth Quarter 21,438 22.8
------- ------ ------- -----
Total $53,602 100.0% $93,965 100.0%
======= ====== ======= =====
</TABLE>
* Unknown
The Company's highest sales and heaviest production demands
historically occur in the first, second and fourth quarters of each year. During
the first, second and fourth quarters, spring and summer products - which
include T-shirts, tank tops, shorts and similar garments - and back-to-school
products are primarily produced and sold. During the third and part of the
fourth quarter, winter season products - which include sweatshirts and long
sleeve T-shirts - and holiday products are primarily produced and sold.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances working capital needs primarily from "internally
generated funds" (which the Company defines as net income plus depreciation) and
short term borrowing under a credit agreement. In February 1996, the Company
entered into a credit agreement with Heller Financial, Inc. The Heller credit
agreement provides for a line of credit (including commercial letters of credit)
of up to $24 million and expires in February 1998. At September 30, 1996,
approximately $9.0 million was available for borrowing. The borrowing rate for
the revolving portion of the line is the prime rate. All the Company's assets,
including accounts receivable and inventories, are pledged as security for
borrowings under the Heller credit agreement. Under the agreement, the amount
borrowed at any time, together with letters of credit issued on behalf of the
Company, may not exceed 85% of eligible accounts receivable and 60% of eligible
inventory - up to $8.5 million. The Heller credit agreement requires compliance
with certain financial covenants principally relating to working capital,
tangible net worth, ratio of debt to equity, capital expenditures, minimum
earnings (before taxes, interest and depreciation), restrictions on the payment
of dividends and restrictions on the incurrence of long-term debt. In September
1996 the Heller agreement was amended to relax certain of these debt covenants.
The Company was in compliance with the amended Heller debt covenants at
September 30, 1996.
Page 11 of 21
<PAGE> 12
Inventory levels decreased by $4.2 million or 18% from December 31,
1995 to September 30, 1996 primarily as a result of the Company's concerted
efforts to operate its business with lower levels of inventory. The Company
believes there was approximately $1.3 million (net of previously recorded
markdown reserves of $1.9 million) of impaired inventory on hand at September
30, 1996, which is expected to be sold at little or no margin by year end 1996.
As a result, the Company believes its gross margin will be negatively impacted
in the last three months of 1996 by 1% to 2% of net sales.
Accounts receivable decreased by 50% to $6.5 million at September 30,
1996 from $13.1 million at December 31,1995, primarily as a result of lower
sales in the third quarter of 1996 than in the fourth quarter of 1995.
The Company has an agreement with Heller Financial, Inc., that is
intended to transfer Sun's accounts receivable collection risk to Heller, for
essentially all of its customers other than Target and Wal-Mart. Under the
agreement, Heller assumes 100% of the collection risk associated with the
Company's covered receivables and Heller receives a fee equal to .65% of the
gross amount of Kmart receivables and .55% of the gross amount of all other
covered receivables for assuming such collection risk. The agreement was amended
in the third quarter of 1996 to provide that Heller assumes 100% of the
collection risk associated with Kmart.
Notes payable (borrowings under the Company's line of credit) decreased
$10.1 million or 75% from December 31, 1995 to September 30, 1996. The decrease
in notes payable was primarily the result of the reduction in inventory and
accounts receivable that occurred during the first nine months of 1996.
During the first nine months of 1996, the Company purchased
approximately $400,000 of machinery and equipment for production, warehouse,
distribution and office use. The Company anticipates that total expenditures for
machinery and equipment will be less than $120,000 during the remainder of 1996.
Sun's primary ongoing cash needs are for working capital and capital
expenditures. The Company believes that its cash needs through the remainder of
1996 will be met by borrowings under its Heller credit facility.
INFLATION
From time to time, Sun's suppliers of blank garments and materials
increase their prices. Further, Sun increases its employees' compensation
relative to increases in the cost of living. Sun's mass merchant customers have
historically sold Sun's more basic products at predetermined sales price points,
many of which have not risen during the last few years. Because Sun's customers
generally operate on a fixed markup, their strategy of not increasing their
sales price points has made it difficult for the Company to pass on any cost
increases relative to its more basic products.
Page 12 of 21
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
No material change.
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Page 13 of 21
<PAGE> 14
ITEM 5 - OTHER INFORMATION
MERGER AGREEMENT WITH BSI HOLDINGS, INC.
Sun Sportswear, Inc., a Washington corporation ("Sun"), and BSI
Holdings, Inc., a Delaware corporation ("BSI"), have entered into a Plan and
Agreement of Merger, dated as of November 13, 1996 (the "Merger Agreement"),
which provides for a business combination involving Sun and BSI in a merger
transaction ("the "Merger"). The Merger, which was approved by the Boards of
Directors of Sun and BSI, is expected to close shortly after all of the
conditions to the consummation of the Merger, including obtaining applicable
regulatory approvals, are met or waived. The process is expected to be
completed within 3-4 months.
The Merger Agreement and the press release issued by Sun in connection
therewith are filed as exhibits to this report and are incorporated herein by
reference. The description of the Merger Agreement set forth herein does not
purport to be complete and is qualified in its entirety by the provisions of
the Merger Agreement.
At the effective date of the Merger (the "Effective Date"), BSI will
be merged with and into Sun, with Sun being the surviving corporation (after
the Effective Date, referred to herein as the "Surviving Corporation"). As a
result of the Merger, each holder of common stock, no par value, of Sun ("SUN
Common Stock") except for Seafirst Bank ("Seafirst") will receive cash (the
"Cash Consideration") in the amount of $2.20 per share of Sun Common Stock for
fifty percent (50%) of such
Page 14 of 21
<PAGE> 15
holder's Sun Common Stock with the remaining fifty percent (50%) continuing to
be Sun Common Stock. In addition, each holder of Sun Common Stock will be
given the option to elect not to receive the Cash Consideration and to retain
all of his or her Sun Common Stock.
Seafirst Bank ("Seafirst") Seattle, Washington, is the beneficial
holder of 3.8 million shares of Sun Common Stock, representing approximately
66% of the total Sun Common Stock outstanding. Pursuant to the Merger
Agreement, Seafirst will receive $2,536,206 cash and a subordinated promissory
note from the Surviving Corporation in the amount of $1,500,000 with respect to
48.28% or 1,834,640 shares of Sun Common Stock it owns and will retain the
remaining 1,965,360 shares of Sun Common Stock it owns. To the extent other
holders of Sun Common Stock elect not to receive the Cash Consideration, for
each such share so retained Seafirst shall have an additional share of Sun
Common Stock converted into cash in the amount of $2.20 per share.
Each outstanding share of BSI common stock, par value $.01 per share
("BSI Common Stock") will be converted into the right to receive 40.2 shares of
common stock of the Surviving Corporation (New Common Stock). At the Effective
Date of the Merger, it is anticipated that holders of BSI Common Stock and
holders of Sun Common Stock would hold approximately 88% and 12%, respectively
of the outstanding common stock of the Surviving Corporation, after giving
effect to
Page 15 of 21
<PAGE> 16
outstanding warrants and options to purchase common stock of the respective
corporations.
Each outstanding share of a series of Preferred Stock, par value $.01
per share, of BSI ("BSI Preferred Stock") will be converted into the right to
receive one share of a series of Preferred Stock, no par value, of the
Surviving Corporation ("New Preferred Stock") having substantially the same
rights and preferences as the BSI Preferred Stock which is so converted
(including the right to convert such New Preferred Stock into common stock of
the Surviving Corporation at $2.20 per share).
The Merger Agreement also provides that immediately subsequent to the
consummation of the Merger, the Surviving Corporation will merge (the
"Reincorporation") into a Delaware corporation which is a wholly-owned
subsidiary of the Surviving Corporation ("Sun Delaware") and in conjunction
with the Reincorporation each outstanding share of Surviving Corporation
common stock will be converted into .2 shares of Sun Delaware common stock.
The Merger Agreement contains certain covenants of the parties pending
the consummation of the Merger. Generally, the parties must carry on their
businesses in the ordinary course consistent with past practice, may not pay
dividends on their common stock, or issue any additional capital stock. The
Merger Agreement also requires consent from both Sun and BSI for either to
make, among other things,
Page 16 of 21
<PAGE> 17
charter and bylaw amendments; capital expenditures, acquisitions, dispositions,
or incurrence of indebtedness above specified levels; and certain employee
contracts.
The Merger is subject to the receipt of the approval of the holder of
two-thirds of the outstanding shares of Sun Common Stock and, the holders of a
majority of the outstanding shares of BSI Common Stock. The Merger is also
subject to customary closing conditions, including, without limitation, the
receipt of all necessary governmental approvals and the making of all necessary
governmental filings, including the filing of the requisite notification with
the Federal Trade Commission and the Department of Justice under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
expiration of the applicable waiting periods thereunder. The Merger is also
subject to receipt of opinions of counsel that the Merger will qualify as a
tax-free reorganization, except to the extent holders of Sun Common Stock
receive cash or notes and except for cash in lieu of fractional shares. In
addition, the Merger is conditioned upon the effectiveness of a registration
statement to be filed with the Securities and Exchange Commission ("Commission")
with respect to the New Common Stock and New Preferred Stock issuable in the
Merger. Shareholders meetings to vote upon the Merger are expected to be held
in February 1997.
The Merger Agreement may be terminated under certain circumstances,
including (1) by mutual consent of the parties; (2) by any party if the Merger
is not consummated by April 30, 1997 (provided, however, that such termination
date shall be extended for up to sixty (60) additional days if all conditions
to closing the
Page 17 of 21
<PAGE> 18
Merger, other than the receipt of certain consents and/or statutory approvals
by any of the parties, have been satisfied by April 30, 1997 or in order to
attempt to obtain relief from any court order prohibiting the Merger); (3) by
Sun, if Sun's common shareholders or BSI's common shareholders vote against
the Merger or certain other matters related thereto or if any state or
federal court order prohibits the Merger; by BSI if Sun's common shareholders
vote against the Merger or certain other matters related thereto, or if
any state or federal law or court order prohibits the Merger; (4) by a
nonbreaching party if there exist breaches of any representations or warranties
contained in the Merger Agreement as of the date thereof, which breaches,
individually or in the aggregate, would result in a material adverse effect on
the breaching party and which are not cured within twenty (20) days after
notice; (5) by a nonbreaching party if there occur material breaches of any
covenant or agreement which are not cured within twenty (20) days after notice;
(6) by either party if BSI is unable to secure necessary financing to
consummate the Merger; (7) by either party, under certain circumstances, as a
result of a third-party tender offer or business combination proposal which
such party, pursuant to its directors' fiduciary duties, is, in the opinion of
such party's counsel and after the other party has first been given an
opportunity to make concessions and adjustments in the terms of the Merger
Agreement, required to accept; or (8) by BSI if the Board of Directors does not
implement in all material respects a business plan for Sun prepared by BSI with
respect to Sun's operations pending the Effective Date of the Merger.
Page 18 of 21
<PAGE> 19
The Merger Agreement provides that if a breach described in clause (4)
or (5) of the previous paragraph occurs, the nonbreaching party will be
entitled to reimbursement of its documented costs and expenses, including legal,
accounting and financial advisory fees and expenses. If BSI terminates
the Merger Agreement pursuant to (6) of the previous paragraph, Sun shall
receive its documented costs and expenses and if BSI terminates the Merger
Agreement pursuant to (8) of the previous paragraph, BSI shall receive its
documented costs and expenses up to a maximum of $500,000. The Merger Agreement
also requires a payment of $750,000 (which includes reimbursement of
out-of-pocket expenses) by one party to the other, if the Merger Agreement is
terminated as a result of the acceptance by such party of a third-party tender
offer or business combination proposal. Finally, if BSI terminates the Merger
Agreement pursuant to (3) of the previous paragraph because of a state or
federal injunction or restraining order which would restrain or prohibit
consummation of the Merger, Sun shall issue to BSI a ten year warrant to
purchase 1,500,000 shares of Sun Common Stock at market price.
Page 19 of 21
<PAGE> 20
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description
2.1 Plan and Agreement of Merger, dated as of
November 13, 1996, between Sun and BSI.
99.1 Press release of Sun, issued November 13, 1996,
regarding the Merger.
The registrant agrees to furnish supplementally any omitted exhibits
or schedules to the Commission upon request.
(b) Reports on 8-K
None
Page 20 of 21
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUN SPORTSWEAR, INC.
DATE: November 13, 1996 BY: /s/ William S. Wiley
------------------------- --------------------------------
William S. Wiley
Chairman of the Board,
Chief Executive Officer
and President
DATE: November 13, 1996 BY: /s/ Kevin C. James
------------------------- --------------------------------
Kevin C. James
Senior Vice President
and Chief Financial Officer
Page 21 of 21
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
2.1 Plan and Agreement of Merger,
dated as of November 13,
1996, between Sun and BSI.
99.1 Press Release of Sun, issued
November 13, 1996, regarding
the Merger.
</TABLE>
<PAGE> 1
EXHIBIT 2.1
- --------------------------------------------------------------------------------
PLAN AND AGREEMENT OF MERGER
OF
SUN SPORTSWEAR, INC.
AND
BSI HOLDINGS, INC.
-----------------------------------------
NOVEMBER 13, 1996
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
---------
<S> <C> <C>
ARTICLE I
MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Stockholder Approval. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3. Effective Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4. Name and Continued Corporate Existence of Surviving Corporation; Tax Treatment . . . . . . . . . . . . . . . 2
1.4.1. Name and Existence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4.2. Tax Treatment with Respect to Conversion of BSI Capital Stock. . . . . . . . . . . . . . . . . . . 2
1.5. Governing Law and Articles of Incorporation of Surviving Corporation . . . . . . . . . . . . . . . . . . . . 2
1.5.1. Washington Law Governs and Sun Articles of Incorporation, as Amended and Restated, Survive. . . . . 2
1.6. Bylaws of Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6.1. Sun Bylaws Survive. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7. Directors of Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.7.1. Directors of Surviving Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.7.2. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.8. Capital Stock of Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.8.1. Capital Stock of Surviving Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.9. Conversion of BSI Securities upon Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.9.1. General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.9.2. Cancellation of Certain BSI Common and Preferred Stock. . . . . . . . . . . . . . . . . . . . . . 4
1.9.3. Conversion of BSI Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.9.4. Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.9.4.1. Deposit With Exchange Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.9.4.2. Exchange Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.9.4.3. Distributions With Respect to Unexchanged Shares. . . . . . . . . . . . . . . . . 5
1.9.4.4. No Fractional Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.9.4.5. Closing of Transfer Books. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.9.4.6. Termination of Duties of Exchange Agent. . . . . . . . . . . . . . . . . . . . . . 6
1.10. Conversion of Sun Securities Upon Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.10.1. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.10.2. Conversion of Sun Common Stock held by Election Right Holders . . . . . . . . . . . . . . . . . . . 7
1.10.3. Procedure for Election by Election Right Holders. . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.10.4. Revocation of Election; Return of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.10.5. Conversion of Sun Common Stock held by SeaFirst. . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
1.10.6. Effect of Conversions of Sun Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.10.7. Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.10.8. Exchange of Sun Common Stock Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.11. Dissenting Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.11.1 BSI Dissenting Common Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.11.2 BSI Dissenting Preferred Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.11.3 Sun Dissenting Common Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.12. Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.12.1. General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.12.2. Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.13. Agreement of SeaFirst . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.14. Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF BSI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.1. Representations and Warranties of BSI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.1.1. Organization and Standing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.1.2. Authority; Noncontravention; Statutory Approvals; Compliance . . . . . . . . . . . . . . . . . . 11
2.1.2.1. Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.1.2.2. Noncontravention. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.1.2.3. Statutory Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.1.2.4. Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.1.3. Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.1.4. BSI Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.1.5. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.1.6. Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.1.7. Additional BSI Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.1.7.1. Real Estate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.1.7.2. Machinery and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.1.7.3. Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.1.7.4. Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.1.7.5. Payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.1.7.6. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.1.7.7. Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.1.7.8. Employee Compensation Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.1.7.9. Certain Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.1.7.10. Employee Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.1.7.11. Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.1.7.12. Trade Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.1.7.13. Promissory Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.1.7.14. Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C>
2.1.7.15. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.1.8. No Undisclosed Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.1.9. Absence of Certain Changes or Events. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.1.10. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.1.11. Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.1.12. Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.1.13. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.1.14. Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.1.14.1. Environmental Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.1.14.2. Permits, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.1.14.3. Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.1.14.4. Past Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.1.14.5. Environmental Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.1.14.6. Renewals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.1.15. Compliance with Other Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.1.16. Finder's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.1.17. Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.1.18. Investigations; Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.1.19. Information for Registration Statement and Proxy Statement/Prospectus. . . . . . . . . . . . . . 21
2.1.20. Ownership of Sun Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.1.21. Vote Required. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SUN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.1. Representations and Warranties of Sun . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.1.1. Organization and Standing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.1.2. Authority; Noncontravention; Statutory Approvals; Compliance. . . . . . . . . . . . . . . . . . . 23
3.1.2.1. Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.1.2.2. Noncontravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.1.2.3. Statutory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.1.2.4. Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.1.3. Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.1.4. Sun Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.1.5. Reports and Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.1.6. Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.1.7. Additional Sun Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.1.7.1. Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.1.7.2. Machinery and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.1.7.3. Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.1.7.4. Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.1.7.5. Payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<S> <C>
3.1.7.6. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.1.7.7. Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.1.7.8. Employee Compensation Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.1.7.9. Certain Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.1.7.10. Employee Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.1.7.11. Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.1.7.12. Trade Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.1.7.13. Promissory Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.1.7.14. Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.1.7.15. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.1.8. No Undisclosed Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.1.9. Absence of Certain Changes or Events. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.1.10. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.1.11. Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.1.12. Title to Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.1.13. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.1.14. Environmental Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.1.14.1. Environmental Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.1.14.2. Permits, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.1.14.3. Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.1.14.4. Past Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.1.14.5. Environmental Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.1.14.6. Renewals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.1.15. Compliance with Other Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.1.16. Finder's Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.1.17. Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.1.18. Investigations; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.1.19. Information for Registration Statement and Proxy Statement/Prospectus. . . . . . . . . . . . . . 32
3.1.20. Ownership of BSI Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
3.1.21. Vote Required. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE IV
OBLIGATIONS PENDING EFFECTIVE DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.1. Agreements of Sun and BSI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.1.1. Maintenance of Present Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.1.2. Maintenance of Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.1.3. Maintenance of Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.1.4. Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.1.5. Inspection of Each Merging Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.2. Additional Agreements of Sun and BSI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.2.1. Hart-Scott-Rodino. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
(iv)
<PAGE> 6
<TABLE>
<S> <C>
4.2.2. Proxy Statement/Prospectus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.2.3. Notice of Material Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.3. Additional Agreements of BSI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.3.1. Prohibition of Certain Employment Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.3.2. Prohibition of Certain Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.3.3. Prohibition of Certain Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.3.4. Disposal of Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.3.5. Maintenance of Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.3.6. No Amendment to Certificate of Incorporation, etc. . . . . . . . . . . . . . . . . . . . . . . . 36
4.3.7. No Issuance, Sale, or Purchase of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.3.8. Prohibition on Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.4. Additional Agreements of Sun. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.4.1. Prohibition of Certain Employment Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.4.2. Prohibition of Certain Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.4.3. Prohibition of Certain Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.4.4. Disposal of Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.4.5. Maintenance of Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.4.6. No Amendment to Articles of Incorporation, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.4.7. No Issuance, Sale, or Purchase of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.4.8. Prohibition on Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.4.9. Listing of Sun Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.4.10. Notice of Certain Developments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.5. Stockholders' Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.6. Joint Proxy Statement and Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.6.1. Preparation and Filing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.6.2. Fairness Opinions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.7. Additional Agreements regarding Operation of Sun Pending Effective Date . . . . . . . . . . . . . . . . . 39
4.8. Disclosure Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.1. Conditions Precedent to Obligations of BSI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.1.1. Representations and Warranties of Sun; Performance of Obligations. . . . . . . . . . . . . . . . 42
5.1.2. No Injunction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.1.3. Opinion of Sun Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.1.4. Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.1.5. Stockholder Approval. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.1.6. Hart-Scott-Rodino, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.1.7. Listing of Sun Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.1.8. Consent of Certain Parties in Privity With Sun . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.1.9. Resignations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
</TABLE>
(v)
<PAGE> 7
<TABLE>
<S> <C>
5.1.10. Sun Dissenters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.1.11. Registration Statement Effective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.1.12. Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.1.13. Lock-Up Agreement of SeaFirst. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.1.14. Additional Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.2. Conditions Precedent to Obligations of Sun. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.2.1. Representations and Warranties of BSI; Performance of Obligations. . . . . . . . . . . . . . . . 44
5.2.2. No Injunction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.2.3. Opinion of BSI's Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.2.4. Tax Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.2.5. Stockholder Approval. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.2.6. Hart-Scott-Rodino, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.2.7. Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.2.8. Consent of Certain Parties in Privity With BSI. . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.2.9. Registration Statement Effective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.2.10. BSI Dissenters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.2.11. Equity Investment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.2.12. Additional Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.3. Additional Condition Precedent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE VI
TERMINATION AND ABANDONMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.1.1. By Mutual Consent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.1.2. By Sun Because of Conditions Precedent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.1.3. By BSI Because of Conditions Precedent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.1.4. By Sun or BSI if Merger not Effective by April 30, 1997 . . . . . . . . . . . . . . . . . . . . . 47
6.1.5. By BSI under Section 4.7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.1.6. By BSI or Sun under Section 5.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.1.7. By Sun or BSI Because of Alternate Business Combination . . . . . . . . . . . . . . . . . . . . . 48
6.2. Termination by Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.3. Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.4. Waiver of Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.5. Expense on Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE VII
ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.1. Directors' and Officers' Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.2. Undertaking to File Reports and Cooperate in Rule 144 and Rule 145 Transactions; Rule 14 Affiliates . . . 52
7.3. BSI Options and Warrants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
</TABLE>
(vi)
<PAGE> 8
<TABLE>
<S> <C>
7.4. WARN Act Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
ARTICLE VIII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.1. Entirety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.2. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.3. Notices and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.4. Termination of Representations, Warranties, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.5. Table of Contents and Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.6. Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.7. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.8. Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
8.9. Public Announcements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
</TABLE>
(vii)
<PAGE> 9
PLAN AND AGREEMENT OF MERGER
PLAN AND AGREEMENT OF MERGER, dated as of November 13, 1996, by and
between Sun Sportswear, Inc., a Washington corporation ("Sun" or the "Surviving
Corporation"), and BSI Holdings, Inc., a Delaware corporation ("BSI"). Sun and
BSI are hereinafter collectively referred to as the "Merging Corporations."
WHEREAS, the respective boards of directors of Sun and BSI deem it
desirable and in the best interests of their respective corporations and their
respective stockholders that BSI be merged into Sun, pursuant to the provisions
of Section 252 of the General Corporation Law of the State of Delaware (the
"DGCL") and Section 23B.11.070 of the Washington Business Corporation Act (the
"WBCA"), in exchange for the consideration herein provided for, and have
proposed, declared advisable, and approved such merger pursuant to this Plan
and Agreement of Merger (the "Agreement"), which Agreement has been duly
approved by resolutions of the respective boards of directors of Sun and BSI;
and
WHEREAS, immediately subsequent to the consummation of the merger
contemplated herein, the Surviving Corporation will merge into a Delaware
corporation which is a wholly-owned subsidiary of the Surviving Corporation
("Sun Delaware"), on the terms set forth in Appendix I hereto, which shall
include the conversion of each outstanding share of Surviving Corporation
common stock into 0.2 of a share of Sun Delaware common stock (the
"Reincorporation").
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties and covenants herein contained, the parties hereto
agree as follows:
ARTICLE I
MERGER
1.1. Surviving Corporation. Subject to the adoption and approval
of this Agreement by the requisite vote of the stockholders of each of the
Merging Corporations and to the other conditions hereinafter set forth, Sun and
BSI shall be, upon the Effective Date of the merger as defined in Section 1.3
hereof, merged into a single surviving corporation (the "Merger"), which shall
be Sun, one of the Merging Corporations, which shall continue, prior to the
Reincorporation, its corporate existence and remain a Washington corporation
governed by and subject to the laws of that state.
1.2. Stockholder Approval. This Agreement shall be submitted for
adoption and approval by the stockholders of each of the Merging Corporations
in accordance with their respective articles or certificates of incorporation
and the applicable laws of the State of Washington and the State of Delaware,
respectively, at separate meetings called and held for such purpose.
1
<PAGE> 10
1.3. Effective Date. On the Closing Date (as hereinafter
defined), articles or a certificate of merger shall be executed by the
parties to the Merger and filed with the Secretary of State of the
State of Washington pursuant to Section 23B.11.050 of the WBCA and
with the Secretary of State of the State of Delaware in accordance
with Section 252(c) of the DGCL. The Merger shall become effective at
the time specified in the articles or certificate of merger as so
filed, such time being herein called the "Effective Date."
1.4. Name and Continued Corporate Existence of Surviving
Corporation; Tax Treatment
1.4.1. Name and Existence. On the Effective Date, the
Articles of Incorporation of Sun, the corporation whose corporate
existence is to survive the Merger and continue thereafter as the
surviving corporation, shall be amended and restated in its entirety
into the form annexed hereto as Appendix II (the "Restated Articles of
Incorporation"), which shall provide that the name of the Surviving
Corporation shall be changed to "Brazos Sportswear, Inc." In all
other respects the identity, existence, purposes, powers, objects,
franchises, rights, and immunities of Sun, the surviving corporation
of the Merger, shall continue unaffected and unimpaired by the Merger,
and the corporate identity, existence, purposes, powers, objects,
franchises, rights, and immunities of BSI shall be wholly merged into
Sun, and Sun shall be fully vested therewith. Accordingly, on the
Effective Date, the separate existence of BSI, except insofar as
continued by statute, shall cease.
1.4.2. Tax Treatment with Respect to Conversion of BSI
Capital Stock. With respect to the conversion of shares of BSI common
stock, par value $.01 per share (the "BSI Common Stock"), and BSI
Preferred Stock (as hereinafter defined) the merger is intended to
qualify as and, subject to the requirements of Section 368(a)(1)(A)
of the Internal Revenue Code of 1986, as amended (the "Code"), shall
be characterized as a tax-free merger transaction described in
Section 368(a)(1)(A) of the Code.
1.5. Governing Law and Articles of Incorporation of Surviving Corporation
1.5.1. Washington Law Governs and Sun Articles of
Incorporation, as Amended and Restated, Survive. The laws of the
State of Washington shall continue to govern the Surviving
Corporation. On the Effective Date, the Restated Articles of
Incorporation shall be the articles of incorporation of Sun until
further amended in the manner provided by law.
1.6. Bylaws of Surviving Corporation
1.6.1. Sun Bylaws Survive. Effective as of the Effective
Date, the bylaws of Sun shall be amended and restated in their
entirety in the form attached hereto as Appendix III (the "Restated
Bylaws"), and the Restated Bylaws shall be the bylaws of the Surviving
Corporation until altered, amended, or repealed, or until new bylaws
shall be adopted in accordance with the provisions of law, the
Restated Articles of Incorporation and the Restated Bylaws.
2
<PAGE> 11
1.7. Directors of Surviving Corporation
1.7.1. Directors of Surviving Corporation. The names and
addresses of the persons who, upon the Effective Date, shall
constitute the board of directors of the Surviving Corporation, and
who shall hold office until their successors are duly elected and
qualified, are as follows:
Name Address
---- -------
Randall B. Hale 2929 Allen Parkway, Suite 2500
Houston, Texas 77019
Nolan Lehmann 2929 Allen Parkway, Suite 2500
Houston, Texas 77019
Alan Elenson 330 Tompkins Avenue
Staten Island, NY 10304
Michael S. Chadwick 3100 Texas Commerce Tower
Houston, Texas 77002
Ford Taylor 3860 Virgina Avenue
Cincinnati, Ohio 45243
1.7.2. Vacancies. On or after the Effective Date, if a
vacancy shall exist for any reason in the board of directors of the
Surviving Corporation, such vacancy shall be filled in the manner
provided in the Restated Articles of Incorporation and/or Restated
Bylaws of the Surviving Corporation.
1.8. Capital Stock of Surviving Corporation
1.8.1. Capital Stock of Surviving Corporation. The
authorized number of shares of capital stock of the Surviving
Corporation, and the par value, designations, preferences, rights, and
limitations thereof, and the express terms thereof, shall be as set
forth in the Restated Articles of Incorporation.
1.9. Conversion of BSI Securities upon Merger
1.9.1. General. The manner and basis of converting the
issued and outstanding shares of the capital stock of BSI into shares
of the capital stock of Sun shall be as hereinafter set forth in this
Section 1.9.
3
<PAGE> 12
1.9.2. Cancellation of Certain BSI Common and Preferred
Stock. Each share of BSI Common Stock or BSI Preferred Stock owned by
any BSI subsidiary shall be cancelled and shall cease to exist.
1.9.3. Conversion of BSI Capital Stock. (a) On the
Effective Date, each share of BSI Common Stock then issued and
outstanding, other than BSI Dissenting Common Shares (as defined in
Section 1.11.1) and the shares cancelled pursuant to Section 1.9.2,
without any action on the part of the holders thereof, shall
automatically become and be converted into the right to receive
certificates evidencing 40.2 fully paid and nonassessable shares of
issued and outstanding Sun common stock, no par value per share ("Sun
Common Stock"), upon surrender, in accordance with Section 1.9.4.2
hereof, of certificates theretofore evidencing shares of BSI Common
Stock. Upon such conversion, all such shares of BSI Common Stock
shall be cancelled and cease to exist, and each holder of a
certificate representing any such shares shall cease to have any
rights with respect thereto, except the right to receive the shares of
Sun Common Stock to be issued in consideration therefor upon the
surrender of such certificate in accordance herewith.
(b) On the Effective Date, each share of preferred stock
of BSI ("BSI Preferred Stock") then issued and outstanding, other than
BSI Dissenting Preferred Shares (as defined in Section 1.11.2) and the
shares cancelled pursuant to Section 1.9.2, without any action on the
part of the holders thereof, shall automatically become and be
converted into the right to receive certificates evidencing one fully
paid and nonassessable share of issued and outstanding Sun preferred
stock ("Sun Preferred Stock") (which shall be convertible into Sun
Common Stock at $2.20 per share) upon surrender, in accordance with
Section 1.9.4.2, of certificates theretofore evidencing shares of BSI
Preferred Stock. All shares of Sun Preferred Stock so issued shall
have the same rights and preferences as the outstanding preferred
stock of BSI, as the terms thereof shall be amended after the date
hereof with respect to conversion (at $2.20 per share of Sun Common
Stock) and mandatory redemption rights which exist as of the date
hereof and which will be in effect upon and after the Effective Date.
Upon such conversion, all such shares of BSI Preferred Stock shall be
cancelled and cease to exist, and each holder of a certificate
representing any such shares shall cease to have any rights with
respect thereto, except the right to receive the shares of Sun
Preferred Stock to be issued in consideration therefor upon the
surrender of such certificate in accordance with Section 1.9.4.2.
Prior to the Effective Date, the terms of the outstanding preferred
stock of Brazos Sportswear, Inc., a subsidiary of BSI, shall be
amended to permit exchange for BSI Preferred Stock, which upon
issuance will have terms substantially comparable to the BSI Preferred
Stock.
1.9.4. Exchange of Certificates
1.9.4.1. Deposit With Exchange Agent. As
soon as practicable after the Effective Date, the Surviving
Corporation shall deposit with a bank or trust company
mutually agreeable to BSI and Sun (the "Exchange Agent")
certificates
4
<PAGE> 13
representing shares of Sun Common Stock and Sun Preferred
Stock, required to effect the exchanges completed hereby,
together with cash payable in respect of fractional shares.
1.9.4.2. Exchange Procedures. As soon as
practicable after the Effective Date, the Exchange Agent shall
mail to each holder of record a certificate or certificates
which immediately prior to the Effective Date represented
outstanding shares of BSI Common Stock or BSI Preferred Stock
(the "Certificates") that were converted (the "Converted
Shares") into the right to receive shares of Sun Common Stock
or Sun Preferred Stock, as applicable (together, the "Sun
Shares"), (i) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to
the Certificates shall pass, only upon actual delivery of the
Certificates to the Exchange Agent) and (ii) instructions for
use in effecting the surrender of the Certificates in exchange
for certificates representing Sun Shares. Upon surrender of a
Certificate to the Exchange Agent (or to such other agent or
agents as may be appointed by agreement of Sun and BSI),
together with a duly executed letter of transmittal and such
other documents as the Exchange Agent shall require, the
holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing that number of
whole Sun Shares which such holder has the right to receive
pursuant to the provisions of this Section 1.9.4.2. In the
event of a transfer of ownership of Converted Shares which is
not registered in the transfer records of BSI or Sun, as the
case may be, a certificate representing the proper number of
Sun Shares may be issued to a transferee if the Certificate
representing such Converted Shares is presented to the
Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and by evidence satisfactory
to the Exchange Agent that any applicable stock transfer taxes
have been paid. If any Certificate shall have been lost,
stolen, mislaid or destroyed, upon receipt of (i) an affidavit
of that fact from the holder claiming such Certificate to be
lost, stolen, mislaid or destroyed, (ii) such bond, security
or indemnity as the Surviving Corporation or the Exchange
Agent may reasonably require, and (iii) any other
documentation necessary to evidence and effect the bona fide
exchange thereof, the Exchange Agent shall issue to such
holder a certificate representing the number of Sun Shares
into which the shares represented by such lost, stolen,
mislaid or destroyed Certificate shall have been converted.
Until surrendered as contemplated by this Section 1.9.4.2,
each Certificate shall be deemed at any time after the
Effective Date to represent only the right to receive upon
such surrender a certificate representing Sun Shares and cash
in lieu of any fractional shares of Sun Common Stock as
contemplated by this Section 1.9.4.2.
1.9.4.3. Distributions With Respect to
Unexchanged Shares. No dividends or other distributions
declared or made after the Effective Date with respect to Sun
Shares with a record date after the Effective Date shall be
paid to the holder of any unsurrendered Certificate with
respect to the Sun Shares represented thereby,
5
<PAGE> 14
and no cash payment in lieu of fractional shares shall be paid
to any such holder, until the holder of record of such
Certificate shall surrender such Certificate as contemplated
hereby. Subject to the effect of unclaimed property, escheat
and other applicable laws, following surrender of any such
Certificate, there shall be paid to the record holder of the
certificates representing whole Sun Shares issued in exchange
therefor, without interest, (i) at the time of such surrender,
the amount of any cash payable in lieu of a fractional share
of Sun Common Stock to which such holder is entitled hereto
and the amount of dividends or other distributions with a
record date after the Effective Date theretofore paid with
respect to such whole Sun Shares and (ii) at the appropriate
payment date, the amount of dividends or other distributions
with a record date after the Effective Date but prior to
surrender and a payment date subsequent to surrender payable
with respect to such whole Sun Shares.
1.9.4.4. No Fractional Securities.
Notwithstanding any other provision of this Agreement, the
Surviving Corporation shall not issue any fractional share of
Sun Common Stock upon the surrender for exchange of
Certificates. In lieu of any such fractional shares, any
holder of BSI Common Stock who would otherwise have been
entitled to a fractional share of Sun Common Stock shall be
entitled to receive a cash payment in lieu of such fractional
share on the basis of the lesser of $2.20 per share or the
product of such fraction multiplied by the closing price for
Sun Common Stock on the Nasdaq Stock Market on the last
trading day before the Effective Date without any interest
thereon.
1.9.4.5. Closing of Transfer Books. From and
after the Effective Date, the stock transfer books of BSI
shall be closed and no transfer of any capital stock of BSI
shall thereafter be made. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for
registration or transfer, they shall be cancelled and
exchanged for certificates representing the appropriate Sun
Shares.
1.9.4.6. Termination of Duties of Exchange
Agent. Any certificates representing Sun Shares deposited
with the Exchange Agent pursuant hereto and not exchanged
within one year after the Effective Date pursuant to this
section shall be returned by the Exchange Agent to the
Surviving Corporation, which shall thereafter act as Exchange
Agent. All funds held by the Exchange Agent for payment to
the holders of unsurrendered Certificates and unclaimed at the
end of one year from the Effective Date shall be returned to
the Surviving Corporation, whereupon any holder of
unsurrendered Certificates shall look as a general unsecured
creditor only to the Surviving Corporation for payment of any
funds to which any holder may be entitled, subject to
applicable law. The Surviving Corporation shall not be liable
to any person for such shares or funds delivered to a public
official pursuant to any applicable abandoned property,
escheat or similar law.
6
<PAGE> 15
1.10. Conversion of Sun Securities Upon Merger
1.10.1. General. The manner and basis of converting the
issued and outstanding shares of Sun Common Stock shall be as
hereinafter set forth in this Section 1.10.
1.10.2. Conversion of Sun Common Stock held by Election Right
Holders. On the Effective Date, each holder of an outstanding
certificate or certificates representing shares of Sun Common Stock
(other than SeaFirst Bank, N.A. ("SeaFirst") and Sun Dissenting Common
Shares, as hereinafter defined) shall have 50% of the shares held by
such holder converted into the right to receive $2.20 in cash (the
"Cash Consideration") for each share of Sun Common Stock so converted
in accordance with this section; provided, however, such holders (the
"Election Right Holders") shall have the right to elect to retain all
shares of Sun Common Stock (and not have 50% of such shares converted)
in accordance with Section 1.10.3 hereof.
1.10.3. Procedure for Election by Election Right Holders.
Elections to retain shares of Sun Common Stock must be made as to
all, but not less than all, of the shares of Sun Common Stock held by
an Election Right Holder on a form to be mutually agreed upon by Sun
and BSI (a "Form of Election") to be provided by the Exchange Agent
promptly after the Effective Date for that purpose to holders of
record of Sun Common Stock who are Election Right Holders, together
with appropriate transmittal materials. Elections shall be made by
mailing to the Exchange Agent a duly completed Form of Election. To
be effective, a Form of Election must be properly completed, signed
and submitted to the Exchange Agent at its designated office by 5:00
p.m. not later than 60 days subsequent to the Effective Date (the
"Election Deadline"). Neither Sun nor the Exchange Agent will be
under any obligation to notify any person of any defect in a Form of
Election submitted to the Exchange Agent. A holder of shares of Sun
Common Stock that does not submit an effective Form of Election prior
to the Election Deadline shall be deemed to have made a non-election
(a "Non-Election"). All shares of Sun Common Stock which are subject
to a Non-Election ("Non-Election Shares") shall be converted as set
forth in Section 1.10.2 hereof.
1.10.4. Revocation of Election; Return of Certificates. An
election may be revoked, but only by written notice received by the
Exchange Agent prior to the Election Deadline. Upon any such
revocation, unless a duly completed Form of Election is thereafter
submitted in accordance with Section 1.10.3, such shares shall be
Non-Election Shares.
1.10.5. Conversion of Sun Common Stock held by SeaFirst. On
the Effective Date, except as provided below, 48.28% of all shares of
Sun Common Stock held by SeaFirst shall be converted into the right to
receive consideration of $2.20 for each share of Sun Common Stock so
converted, consisting of $1.3824 in cash and $.8176 in the form of a
subordinated note (the "Subordinated Note") issued by Brazos
Sportswear, Inc., a Delaware corporation which shall be a subsidiary
of the Surviving Corporation, substantially in the form attached
hereto as Appendix IV; provided, however, to the extent that the
Election Right Holders elect
7
<PAGE> 16
to retain Sun Common Stock, for each such share so retained, SeaFirst
shall have an additional share of Sun Common Stock converted into cash
in the amount of $2.20 per share. The number of shares of Sun Common
Stock held by SeaFirst which shall be converted shall be calculated
immediately following the Election Deadline. The Subordinated Note
will contain customary provisions regarding covenants and financial
reporting obligations, will provide for the holder to have board
visitation rights, and will be automatically due and payable upon the
Surviving Corporation completing a qualifying public offering of
securities; in addition, if the Subordinated Note is not paid in full
at maturity, any remaining principal balance will be convertible at
the option of the holder into Sun Common Stock at a price of $2.20 per
share, and the holder shall be entitled to one demand registration
right (at the expense of the Surviving Corporation) with respect to
such shares.
1.10.6. Effect of Conversions of Sun Common Stock. Upon
completion of all conversions of shares of Sun Common Stock under this
Section 1.10, (i) 48.86% of all shares of Sun Common Stock outstanding
immediately prior to the Effective Date shall have been converted into
consideration in the aggregate amount of $6,179,637, which shall be in
cash except with respect to certain of the consideration payable to
SeaFirst, which shall receive $1,500,000 of such the consideration in
the form of the Subordinated Note, and (ii) 51.14% of all shares of
Sun Common Stock outstanding immediately prior to the Effective Date
shall remain outstanding.
1.10.7. Fractional Shares. No fractional shares shall be
issued upon conversion of the Sun Common Stock as provided in this
section, but in lieu thereof, Sun will settle all such fractional
share interests in cash on the basis of the lesser of $2.20 per share
or the closing price for the Sun Common Stock on The Nasdaq Stock
Market on the last trading day before the Effective Date.
1.10.8. Exchange of Sun Common Stock Certificates. (a) Upon
the surrender of each certificate representing shares of Sun Common
Stock converted hereunder, the Exchange Agent shall pay the holder of
such certificate the consideration to which such holder is entitled
multiplied by the number of shares of Sun Common Stock formerly
represented by such certificate in exchange therefor (and cash in lieu
of fractional interests in accordance with Section 1.10.7), such
certificate shall forthwith be cancelled and a balance certificate
will be issued for the shares not converted. No interest shall be
paid or accrue on the consideration paid. Immediately following the
Election Deadline, the Exchange Agent shall calculate the number of
shares of Sun Common Stock held by SeaFirst which are converted, and
upon surrender by SeaFirst of certificates, the consideration payable
upon conversion shall be delivered by the Exchange Agent, Sun or
Brazos Sportswear, Inc., as appropriate, and SeaFirst shall be issued
a balance certificate for the shares not converted. The Subordinated
Note shall be delivered to SeaFirst upon the surrender of certificates
as provided herein.
(b) On the Effective Date, BSI, on behalf of Sun, shall
deposit or cause to be deposited, in trust with the Exchange Agent,
for the benefit of the holders of shares of Sun
8
<PAGE> 17
Common Stock, for exchange in accordance with this Article, the
aggregate cash consideration (a total of $4,679,637) payable upon
conversion of the Sun Common Stock.
(c) If prior to mailing of the Joint Proxy
Statement/Prospectus (as hereinafter defined) to the shareholders of
Sun and BSI, Sun settles a currently outstanding dispute with Samsung,
which is described in the Sun Disclosure Statement, which results in a
cash payment to Sun in excess of $200,000, then the cash consideration
to be paid to the Sun Common Stock holders (as exist prior to
Effective Date) upon consummation of the Merger shall be increased to
reflect such excess recovery (net of expenses in connection with such
settlement).
1.11. Dissenting Shares.
1.11.1 BSI Dissenting Common Shares. Shares of BSI Common
Stock held by any holder entitled to and seeking relief as a
dissenting shareholder under Section 262 of the DGCL (the "BSI
Dissenting Common Shares") shall not be converted into the right to
receive Sun Common Stock but shall be converted into such
consideration as may be due with respect to such shares pursuant to
the applicable provisions of the DGCL, unless and until the right of
such holder to receive fair cash value for such BSI Dissenting Common
Shares terminates in accordance with Section 262 of the DGCL. If such
right is terminated otherwise than by the purchase of such shares by
the Surviving Corporation, then such shares shall cease to be BSI
Dissenting Common Shares and shall be converted into and represent the
right to receive Sun Common Stock as provided in Section 1.9.3(a).
1.11.2 BSI Dissenting Preferred Shares. Shares of BSI
Preferred Stock held by any holder entitled to and seeking relief as a
dissenting shareholder under Section 262 of the DGCL (the "BSI
Dissenting Preferred Shares" and, together with the BSI Dissenting
Common Shares, the "BSI Dissenting Shares") shall not be converted
into the right to receive Sun Preferred Stock but shall be converted
into such consideration as may be due with respect to such shares
pursuant to the applicable provisions of the DGCL, unless and until
the right of such holder to receive fair cash value for such BSI
Dissenting Preferred Shares terminates in accordance with Section 262
of the DGCL. If such right is terminated otherwise than by the
purchase of such shares by the Surviving Corporation, then such shares
shall cease to be BSI Dissenting Preferred Shares and shall be
converted into and represent the right to receive Sun Preferred Stock
as provided in Section 1.9.3(b).
1.11.3 Sun Dissenting Common Shares. Shares of Sun Common
Stock held by any holder entitled to and seeking relief as a
dissenting shareholder under Section 23B.13 of the WBCA (the "Sun
Dissenting Common Shares") shall be converted into such consideration
as may be due with respect to such shares pursuant to the applicable
provisions of the WBCA, unless and until the right of such holder to
receive fair cash value for such Sun Dissenting Common Shares
terminates in accordance with Section 23B.13 of the WBCA. If such
right is terminated otherwise than by the purchase of such shares by
the Surviving Corporation, then such shares shall cease to be Sun
Dissenting Common Shares and shall be accorded the
9
<PAGE> 18
treatment of Sun Common Stock pursuant to 1.10.2 (other than Sun
Common Stock held by SeaFirst and Sun Dissenting Common Shares).
1.12. Effects of the Merger.
1.12.1. General. The Merger shall have the effects set forth
in the WBCA and DGCL, respectively. Without limiting the generality
of the foregoing and subject thereto, at the Effective Date, all of
the properties, rights, privileges, powers and franchises of Sun and
BSI shall vest in the Surviving Corporation, and all debts,
liabilities, obligations and duties of BSI shall become the debts,
liabilities and duties of the Surviving Corporation.
1.12.2. Accounting Treatment. The assets and liabilities of
the Merging Corporations shall be taken up on the books of the
Surviving Corporation in accordance with generally accepted accounting
principles, and the retained earnings and shareholders' equity
accounts of the Surviving Corporation shall be determined, in
accordance with generally accepted accounting principles, by the board
of directors of the Surviving Corporation. Nothing herein shall
prevent the board of directors of the Surviving Corporation from
making any future changes in its accounts in accordance with law.
1.13. Agreement of SeaFirst. Upon execution of this Agreement,
SeaFirst, the holder of 3,800,000 shares of Sun Common Stock, shall agree to
vote all of SeaFirst's Sun Common Stock for the approval of this Agreement
(including the Reincorporation) and the transactions contemplated hereby as
required by the WBCA at the Sun Meeting; provided, however, that
notwithstanding the foregoing, in the event that Sun's Board of Directors shall
terminate this Agreement pursuant to Section 6.1.7(a), SeaFirst shall be free
to vote its Sun Common Stock for such other transaction as shall be presented
to the shareholders of Sun for their approval at the Sun Meeting or such other
meeting as may be called by Sun. In addition, upon execution of this
Agreement, SeaFirst shall agree that prior to the closing of the Merger, unless
this Agreement shall have been terminated in accordance with Article VI hereof,
it will not transfer or assign, directly or indirectly, any shares of Sun
Common Stock.
1.14. Closing. The closing (the "Closing") of the Merger shall take
place at the offices of Porter & Hedges, L.L.P., 700 Louisiana, Houston, Texas
77002 at 10:00 a.m., local time, on the second business day immediately
following the date on which the last of the conditions set forth in Article V
hereof is fulfilled or waived, or at such other time and date and place as BSI
and Sun shall mutually agree (the "Closing Date").
10
<PAGE> 19
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF BSI
2.1. Representations and Warranties of BSI. BSI represents
and warrants to Sun as follows:
2.1.1. Organization and Standing. BSI is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware, has full requisite corporate power and authority to
carry on its business as it is currently conducted, and to own and
operate the properties currently owned and operated by it, and is duly
qualified or licensed to do business and is in good standing as a
foreign corporation authorized to do business in all jurisdictions in
which the character of the properties owned or the nature of the
business conducted by it would make such qualification or licensing
necessary other than in such jurisdictions where the failure to be so
qualified and in good standing would not, when taken together with all
other such failures, have a material adverse effect on the business,
operations, properties, assets, financial condition, results of
operations or prospects of BSI or the BSI Subsidiaries taken as a
whole or on the consummation of this Agreement (any such material
adverse effect being hereinafter referred to as a "BSI Material
Adverse Effect"). As used in this Agreement, (a) the term
"subsidiary" of a person shall mean any corporation or other entity
(including partnerships and other business associations) in which such
person directly or indirectly owns at least a majority of any class of
the outstanding voting securities or equity and (b) the term "BSI
Subsidiaries" means all direct or indirect subsidiaries of BSI. True,
accurate and complete copies of the Certificate of Incorporation and
Bylaws of BSI, in effect on the date hereof, have been delivered to
Sun. In addition, for the purposes of this Agreement, "knowledge"
with respect to any person or entity shall mean the actual knowledge
of any director, officer or other person in a supervisory or
managerial role, and the knowledge such person would be expected to
have upon making due inquiry with respect to the matter in question.
2.1.2. Authority; Noncontravention; Statutory Approvals;
Compliance
2.1.2.1. Authority. BSI has all requisite power and
authority to enter into this Agreement and, subject to the
applicable BSI Shareholders' Approval (as defined in Section
4.5), to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation
by BSI of the transactions contemplated hereby, have been duly
authorized by all necessary corporate action on the part of
BSI, subject in the case of this Agreement to obtaining the
applicable BSI Shareholders' Approval. This Agreement has
been duly and validly executed and delivered by BSI and,
assuming the due authorization, execution and delivery hereof
and thereof by Sun, constitutes the valid and binding
obligation of BSI enforceable
11
<PAGE> 20
against BSI in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency,
reorganization, debtor relief or similar laws affecting the
rights of creditors' generally.
2.1.2.2. Noncontravention. Except as set forth in
Section 2.1.2.2 of the BSI Disclosure Statement, the execution
and delivery of this Agreement by BSI do not, and the
consummation of the transactions contemplated hereby will not,
violate, conflict with, or result in a breach of any provision
of, or constitute a default (with or without notice or lapse
of time or both) under, or result in the termination or
modification of, or accelerate the performance required by, or
result in a right of termination, modification, cancellation
or acceleration of any obligation or the loss of a material
benefit under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or
assets (any such violation, conflict, breach, default, right
of termination, modification, cancellation or acceleration,
loss or creation, a "Violation" with respect to BSI or any of
the BSI Subsidiaries; such term when used in Article III
having a correlative meaning with respect to Sun or any of the
Sun Subsidiaries) of BSI or any of the BSI Subsidiaries
pursuant to any provisions of (i) the articles of
incorporation, bylaws or similar governing documents of BSI or
any of the BSI Subsidiaries, (ii) subject to obtaining the BSI
Shareholders' Approvals, any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit
or license of any Governmental Authority (as defined in
Section 2.1.2.3) applicable to BSI or any of the BSI
Subsidiaries or any of their respective properties or assets
or (iii) subject to obtaining the third-party consents or
other approvals set forth in Section 2.1.2.2 of the BSI
Disclosure Statement (the "BSI Required Consents"), any note,
bond, mortgage, indenture, deed of trust, license, franchise,
permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which BSI or any of the
BSI Subsidiaries is now a party or by which it or any of its
properties or assets may be bound or affected, excluding from
the foregoing clauses (ii) and (iii) such Violations that
would not, in the aggregate, have a BSI Material Adverse
Effect.
2.1.2.3. Statutory Approvals. No declaration,
filing or registration with, or notice to or authorization,
consent or approval of, any court, federal, state, local or
foreign governmental or regulatory body (including a stock
exchange or other self-regulatory body) or authority (each, a
"Governmental Authority"), the failure to obtain, make or give
which would have, in the aggregate, a BSI Material Adverse
Effect, is necessary for the execution and delivery of this
Agreement by BSI or the consummation by BSI of the
transactions contemplated hereby, except as described in
Section 2.1.2.3 of the BSI Disclosure Statement (the "BSI
Required Statutory Approvals," it being understood that
references in this Agreement to "obtaining" such BSI Required
Statutory Approvals shall mean making such declarations,
filings or registrations; giving such notices; obtaining such
authorizations, consents or
12
<PAGE> 21
approvals; and having such waiting periods expire as are
necessary to avoid a violation of law).
2.1.2.4. Compliance. Except as set forth in Section
2.1.2.4 of the BSI Disclosure Statement, neither BSI nor any
BSI Subsidiary, is in violation of or is under investigation
with respect to any violation of, or has been given notice or
been charged with any violation of, any law, statute, order,
rule, regulation, ordinance or judgment (including, without
limitation, any applicable environmental law, ordinance or
regulation) of any Governmental Authority except for
violations which in the aggregate do not and, insofar as
reasonably can be foreseen, will not have a BSI Material
Adverse Effect. Except as set forth in Section 2.1.2.4 of the
BSI Disclosure Statement, BSI and the BSI Subsidiaries have
all permits, licenses, franchises and other governmental
authorizations, consents and approvals necessary to conduct
their businesses as currently conducted in all material
respects except for those which the failure to obtain would
not, in the aggregate, have a BSI Material Adverse Effect.
Except as set forth in Section 2.1.2.4 of the BSI Disclosure
Statement, neither BSI nor any BSI Subsidiary is in material
breach or violation of or in material default in the
performance or observance of any term or provision of, and no
event has occurred which, with lapse of time or action by a
third party, could result in a material default under, (i) its
articles of incorporation or bylaws or (ii) any contract,
commitment, agreement, indenture, mortgage, loan agreement,
note, lease, bond, license, approval or other instrument to
which it is a party or by which it is bound or to which any of
its property is subject except in the case of clause (ii) for
violations and defaults which would not, in the aggregate,
have a BSI Material Adverse Effect.
2.1.3. Capitalization. (a) The authorized capitalization of
BSI consists of 10,000,000 shares of preferred stock, par value $.01
per share, 650,000 of which have been designated Series A-1 Preferred
Stock, 650,000 of which are issued and outstanding, 300,000 of which
have been designated Series A-2 Preferred Stock, 300,000 of which are
issued and outstanding, 8,000,000 of which have been designated Series
B Preferred Stock, 4,456,285 of which are issued and outstanding and
10,000,000 shares of common stock, par value $.01 per share (the "BSI
Common Stock"), of which at the date hereof, 330,555 shares were
issued and outstanding. Except as set forth in Section 2.1.3 of the
BSI Disclosure Statement, there exist no (a) outstanding options,
subscriptions, warrants, calls, or similar commitments to purchase,
issue or sell or to convert any securities or obligations into any of
the authorized or issued capital stock of BSI or any securities or
obligations convertible into or exchangeable for such capital stock or
(b) registration rights, stockholder agreements or voting agreements
with respect to the outstanding shares of capital stock of BSI.
(b) BSI has obtained commitments from its shareholders
and/or third parties with respect to such parties' agreement to invest
not less than $2,000,000 and up to $3,500,000 in equity funds (or
funds which are substantially equivalent to equity funds) into BSI on
or before the Effective Date. To the extent that warrants or options
to purchase BSI capital
13
<PAGE> 22
stock are issued in connection with such equity investment, the
exchange ratio for the BSI Common Stock shall be proportionately
adjusted. Written commitments will be provided to Sun upon its
request.
2.1.4. BSI Subsidiaries. All outstanding shares of stock of
the BSI Subsidiaries are validly issued, fully paid, and nonassessable
and owned by BSI, and BSI has good and indefeasible title thereto free
and clear of any mortgage, pledge, lien, charge, security interest,
option, right of first refusal, preferential purchase right, defect,
encumbrance or other right or interest of any other person
(collectively, an "Encumbrance"). Each such subsidiary is a
corporation duly organized, validly existing, and in good standing
under the laws of the jurisdiction under which it is incorporated and
has full requisite corporate power and authority to own its property
and carry on its business as presently conducted by it and is duly
qualified or licensed to do business and is in good standing as a
foreign corporation authorized to do business in all jurisdictions in
which the character of the properties owned or the nature of the
business conducted makes such qualification or licensing necessary,
except where the failure to be so qualified or licensed would not have
a BSI Material Adverse Effect with respect to such subsidiary. As
hereinafter used in this Article II, the term "BSI" also includes any
and all of its directly and indirectly held subsidiaries, except where
the context indicates to the contrary.
2.1.5. Financial Statements. BSI has delivered to Sun
copies of BSI's audited consolidated balance sheet and related
statements of income, shareholders' equity (deficit), and cash flows,
with appended notes which are an integral part of such statements, as
at and for BSI's fiscal year ended December 31, 1995, and its
unaudited balance sheet and related statement of income for the
nine-month period ending September 30, 1996. In addition, BSI has
delivered to Sun the financial statements of each of the BSI
Subsidiaries. Such financial statements are complete in all material
respects, present fairly, in all material respects, the financial
condition of BSI and the BSI Subsidiaries as at the dates indicated,
and the results of operations for the respective periods indicated (in
the case of unaudited statements, subject to year-end audit
adjustments and the absence of complete footnotes), and have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis, except as noted therein.
2.1.6. Liabilities. BSI does not have any liabilities or
obligations, either accrued, absolute, contingent, or otherwise, or
have any knowledge of any potential liabilities or obligations, which
would constitute or result in a BSI Material Adverse Effect, other
than those (i) reflected or reserved against in the September 30, 1996
unaudited consolidated balance sheet of BSI, (ii) incurred in the
ordinary course of business since September 30, 1996 or (iii) set
forth in Section 2.1.6 of the BSI Disclosure Statement.
2.1.7. Additional BSI Information. Section 2.1.7 of the BSI
Disclosure Statement contains true, complete and correct lists of the
following items, and BSI has furnished to Sun true, complete and
correct copies of all documents referred to in such lists:
14
<PAGE> 23
2.1.7.1. Real Estate. All real property and
structures thereon owned, leased or subject to a contract of
purchase and sale, or lease commitment, by BSI, with a
description of the nature and amount of any Encumbrances
thereto;
2.1.7.2. Machinery and Equipment. All machinery,
transportation equipment, tools, equipment, furnishings, and
fixtures (excluding such items as did not have a cost basis of
$5,000 or more at their respective dates of acquisition by
BSI) owned, leased or subject to a contract of purchase and
sale, or lease commitment, by BSI with a description of the
nature and amount of any Encumbrances thereon;
2.1.7.3. Inventory. All inventory items or groups
of inventory items owned by BSI, together with the amount of
any Encumbrances thereon;
2.1.7.4. Receivables. All accounts and notes
receivable of BSI, together with (i) aging schedules by
invoice date and due date, (ii) the amounts provided for as an
allowance for bad debts, (iii) the identity and location of
any asset in which BSI holds a security interest to secure
payment of the underlying indebtedness, and (iv) a description
of the nature and amount of any Encumbrances on such accounts
and notes receivable;
2.1.7.5. Payables. All accounts and notes payable
of BSI, together with an appropriate aging schedule;
2.1.7.6. Insurance. All insurance policies or bonds
currently maintained by BSI, including title insurance
policies, with respect to BSI, including those covering BSI's
properties, buildings, machinery, equipment, fixtures,
employees and operations, as well as a listing of any
premiums, audit adjustments or retroactive adjustments due or
pending on such policies or any predecessor policies;
2.1.7.7. Material Contracts. All material contracts
and license agreements, which shall include, but shall not be
limited to, agreements which are to be performed in whole or
in part after the Effective Date, and which involve or may
involve aggregate payments by or to BSI of $50,000 or more
after such date ("Material Contracts");
2.1.7.8. Employee Compensation Plans. All bonus,
incentive compensation, deferred compensation, profit-sharing,
retirement, pension, welfare, group insurance, death benefit,
or other fringe benefit plans, arrangements or trust
agreements of BSI, together with copies of the most recent
reports with respect to such plans, arrangements, or trust
agreements filed with any governmental agency and all Internal
Revenue Service determination letters that have been received
with respect to such plans (collectively, "Employee Plans");
15
<PAGE> 24
2.1.7.9. Certain Salaries. The names and salary
rates of all present officers and employees of BSI whose
current regular annual salary rate is $50,000 or more,
together with any bonuses paid or payable to such persons for
the year ended December 31, 1995, or since that date, and, to
the extent existing on the date of this Agreement, all
arrangements with respect to any bonuses to be paid to them
from and after the date of this Agreement;
2.1.7.10. Employee Agreements. Any collective
bargaining agreements of BSI with any labor union or other
representative of employees, including amendments and
supplements, and all employment and consulting agreements of
BSI;
2.1.7.11. Patents. All patents, trademarks,
copyrights and other material intellectual property rights
owned, licensed, or used by BSI;
2.1.7.12. Trade Names. All trade names and
fictitious names used or held by BSI, whether and where such
names are registered and where used;
2.1.7.13. Promissory Notes. All long-term and
short-term promissory notes, installment contracts, loan
agreements, credit agreements, and any other agreements of BSI
relating thereto or with respect to collateral securing the
same;
2.1.7.14. Guaranties. All indebtedness, liabilities
and commitments of others and as to which BSI is a guarantor,
endorser, co-maker, surety, or accommodation maker, or is
contingently liable therefor (excluding liabilities as an
endorser of checks and the like in the ordinary course of
business) and all letters of credit, whether stand-by or
documentary, issued by any third party;
2.1.7.15. Financial Statements. Financial statements
containing the information described in Paragraphs 2.1.5;
Section 2.1.7 of the BSI Disclosure Statement shall be true,
complete and correct as of the Effective Date, except for items
contained in Paragraphs 2.1.7.3; 2.1.7.4; 2.1.7.5; and 2.1.7.15 which
are true, complete and correct as of September 30, 1996 or such other
date as therein indicated.
2.1.8. No Undisclosed Defaults. Except as may be specified
in Section 2.1.8 of the BSI Disclosure Statement, BSI is not a party
to, or bound by, any material contract or arrangement of any kind to
be performed after the Effective Date, nor is BSI in default in any
material obligation or covenant on its part to be performed under any
material obligation, lease, contract, order, plan or other arrangement
except as identified in such section.
2.1.9. Absence of Certain Changes or Events. Except as
disclosed in the BSI Disclosure Statement, from September 30, 1996,
through the date hereof, (a) BSI and each
16
<PAGE> 25
of the BSI Subsidiaries has conducted its business only in the
ordinary course of business consistent with past practice and (b)
there has not been, and no fact or condition exists which would have
or, insofar as reasonably can be foreseen, could have, a BSI Material
Adverse Effect.
2.1.10. Taxes. Except as set forth in Section 2.1.10 of the
BSI Disclosure Statement, and except with respect to failures which,
in the aggregate, would not result in a material adverse change with
respect to BSI, proper and accurate federal, state and local income,
value added, sales, use, franchise, gross revenue, turnover, excise,
payroll, property, employment, customs duties and any and all other
tax returns, reports, and estimates have been filed with appropriate
governmental agencies, domestic and foreign, by BSI for each period
for which any returns, reports, or estimates were due (taking into
account any extensions of time to file before the date hereof); all
taxes shown by such returns to be payable and any other taxes due and
payable have been paid other than those being contested in good faith
by BSI; and the tax provision reflected in BSI's financial statements
as of September 30, 1996 is adequate, in accordance with generally
accepted accounting principles, to cover liabilities of BSI at the
date thereof for all taxes, including any interest, penalties and
additions to taxes of any character whatsoever applicable to BSI or
its assets or business. Except as set forth on Section 2.1.10 of the
BSI Disclosure Statement, no waiver of any statute of limitations
executed by BSI with respect to federal or state income or other tax
is in effect for any period. The federal income tax returns of BSI
have never been examined by the Internal Revenue Service. There are
no tax liens on any assets of BSI except for taxes not yet currently
due and those which could not reasonably be expected to result in a
Material Adverse Effect.
2.1.11. Intellectual Property. Except as set forth in
Section 2.1.11 of the BSI Disclosure Statement, BSI owns or possesses
licenses to use all patents, patent applications, trademarks and
service marks (including registrations and applications therefor),
trade names, copyrights and written know-how, trade secrets and all
other similar proprietary data and the goodwill associated therewith
(collectively, the "Intellectual Property") that are either material
to the business of BSI or that are necessary for the manufacture, use
or sale of any products manufactured, used or sold by BSI, including
all such Intellectual Property listed in Section 2.1.11 of the BSI
Disclosure Statement. The Intellectual Property is owned or licensed
by BSI free and clear of any Encumbrance other than such Encumbrances
as are listed in Section 2.1.11 of the BSI Disclosure Statement.
Except as otherwise indicated in such schedule, BSI has not granted to
any other person any license to use any Intellectual Property. Except
as described in Section 2.1.11 of the BSI Disclosure Statement, to the
knowledge of BSI, none of the Intellectual Property violates,
conflicts with or infringes the rights of any third parties. BSI has
not received any notice of infringement, misappropriation, or conflict
with, the intellectual property rights of others in connection with
the use by BSI of the Intellectual Property.
17
<PAGE> 26
2.1.12. Title to Properties. With exceptions which in the
aggregate are not material, and except for merchandise and other
property sold, used or otherwise disposed of in the ordinary course of
business for fair value, BSI has good and indefeasible title to all
its properties, interests in properties and assets, real and personal,
reflected in the September 30, 1996 financial statements referred to
in Paragraph 2.1.5 or in Section 2.1.7 of the BSI Disclosure Schedule,
free and clear of any Encumbrance of any nature whatsoever, except (i)
liens and Encumbrances reflected in the balance sheet of BSI dated
September 30, 1996 referred to in Paragraph 2.1.5 or in Section 2.1.7
of the BSI Disclosure Statement, (ii) liens for current taxes not yet
due and payable, and (iii) such imperfections of title, easements and
Encumbrances, if any, as are not substantial in character, amount, or
extent and do not and will not materially detract from the value, or
interfere with the present use, of the property subject thereto or
affected thereby, or otherwise materially impair business operations.
All leases pursuant to which BSI leases (whether as lessee or lessor)
any real or personal property for rental or lease payments in excess
of $100,000 on an annualized basis are in good standing, valid, and
effective; and there is not, under any such leases, any existing or
prospective default or event of default or event which with notice or
lapse of time, or both, would constitute a default by BSI and in
respect to which BSI has not taken adequate steps to prevent a
default from occurring. The buildings and premises of BSI that are
used in its business are in good operating condition and repair,
subject only to ordinary wear and tear. All equipment of BSI and the
BSI Subsidiaries is in good operating condition and in a state of
reasonable maintenance and repair, ordinary wear and tear excepted,
and is free from any known defects except as may be repaired by
routine maintenance and such minor defects as to not substantially
interfere with the continued use thereof in the conduct of normal
operations.
2.1.13. Litigation. Except as set forth in Section 2.1.13 of
the BSI Disclosure Statement, (a) there are no material claims, suits,
actions or proceedings, pending or, to the knowledge of BSI,
threatened, nor are there, to the knowledge of BSI, any material
investigations or reviews pending or threatened against, relating to
or affecting BSI, any BSI Subsidiary or any BSI Benefit Plan (as
defined in Section 2.1.17 hereof), (b) there are no material
judgments, decrees, injunctions, rules or orders of any court,
governmental department, commission, agency, instrumentality or
authority or any arbitrator applicable to BSI or any BSI Subsidiary,
and (c) there have not been any material developments with respect to
such disclosed claims, suits, actions, proceedings, investigations or
reviews.
2.1.14. Environmental Compliance. Except as set forth in
Section 2.1.14 of the BSI Disclosure Statement:
2.1.14.1. Environmental Conditions. There are no
environmental conditions or circumstances, such as the
presence or release of any hazardous substance, on any
property presently or previously owned by BSI that could
result in a BSI Material Adverse Effect.
18
<PAGE> 27
2.1.14.2. Permits, etc. BSI has in full force and
effect all environmental permits, licenses, approvals and
other authorizations required to conduct its operations and is
operating in material compliance thereunder.
2.1.14.3. Compliance. BSI's operations and use of
its assets do not violate any applicable federal, state or
local law, statute, ordinance, rule, regulation, order or
notice requirement pertaining to (a) the condition or
protection of air, groundwater, surface water, soil, or other
environmental media, (b) the environment, including natural
resources or any activity which affects the environment, or
(c) the regulation of any pollutants, contaminants, waste,
substances (whether or not hazardous or toxic), including,
without limitation, the Comprehensive Environmental Response
Compensation and Liability Act (42 U.S.C. Section 9601 et
seq.), the Hazardous Materials Transportation Act (49 U.S.C.
Section 1801 et seq.), the Resource Conservation and Recovery
Act (42 U.S.C. Section 1609 et seq.), the Clean Water Act (33
U.S.C. 1251 et seq.), the Clean Air Act (42 U.S.C. Section
7401 et seq.), the Toxic Substances Control Act (17 U.S.C.
Section 2601 et seq.), the Federal Insecticide Fungicide and
Rodenticide Act (7 U.S.C. Section 136 et seq.), the Safe
Drinking Water Act (42 U.S.C. Section 201 and Section 300f
et seq.), the Rivers and Harbors Act (33 U.S.C. Section 401
et seq.), the Oil Pollution Act (33 U.S.C. Section 2701 et
seq.) and analogous state and local provisions, as any of the
foregoing may have been amended or supplemented from time to
time (collectively the "Applicable Environmental Laws"),
except for violations which, either singly or in the
aggregate, would not result in a BSI Material Adverse Effect.
2.1.14.4. Past Compliance. None of the operations
or assets of BSI has ever been conducted or used in such a
manner as to constitute violation of any of the Applicable
Environmental Laws, except for violations which, either singly
or in the aggregate, would not result in a BSI Material
Adverse Effect.
2.1.14.5. Environmental Claims. No notice has been
served on BSI from any entity, governmental agency or
individual regarding any existing, pending or threatened
investigation or inquiry related to alleged violations under
any Applicable Environmental Laws, or regarding any claims for
remedial obligations or contribution under any Applicable
Environmental Laws, other than any of the foregoing which,
either singly or in the aggregate, would not result in a
material adverse change with respect to BSI Material Adverse
Effect.
2.1.14.6. Renewals. BSI does not know of any reason
Sun would not be able to renew any of the permits, licenses,
or other authorizations required pursuant to any Applicable
Environmental Laws to operate and use any of BSI's assets for
their current purposes and uses.
2.1.15. Compliance with Other Laws. Except as set forth in
Section 2.1.15 of the BSI Disclosure Statement, BSI is not in
violation of or in default with respect to, or in alleged
19
<PAGE> 28
violation of or alleged default with respect to, the Occupational
Safety and Health Act (29 U.S.C. Section Section 651 et seq.) as
amended ("OSHA"), or any other applicable law or any applicable rule,
regulation, or any writ or decree of any court or any governmental
commission, board, bureau, agency, or instrumentality, or delinquent
with respect to any report required to be filed with any governmental
commission, board, bureau, agency or instrumentality, except for
violations which, either singly or in the aggregate, do not and are
not expected to result in a BSI Material Adverse Effect.
2.1.16. Finder's Fee. Except as set forth on Section 2.1.16
of the BSI Disclosure Statement, all negotiations relative to this
Agreement and the transactions contemplated hereby have been carried
on by BSI and its counsel directly with Sun and its counsel, without
the intervention of any other person as the result of any act of BSI,
and so far as is known to BSI, without the intervention of any other
person in such manner as to give rise to any valid claim against any
of the parties hereto for a brokerage commission, finder's fee or any
similar payments.
2.1.17. Compliance with ERISA. (a) BSI has delivered to, or
upon request will deliver to, Sun copies of the health and life
insurance plans, bonus, deferred compensation, pension, profit sharing
and retirement plans and all other employee benefit plans, programs or
arrangements providing benefits for employees (or former employees) of
BSI, all of which are listed on Section 2.1.7.8 of the BSI Disclosure
Statement (the "BSI Benefit Plans"); a copy of the most recent
favorable determination letter received with respect to a BSI Benefit
Plan from the Internal Revenue Service (if the plan is a tax-qualified
plan under the Code); the most recent annual report (Form 5500) filed
with the Internal Revenue Service with respect to each BSI Benefit
Plan (if any such report was required); and the most recent summary
plan description for each BSI Benefit Plan for which a summary plan
description is required. Each of the BSI Benefit Plans has been
administered and maintained in material compliance with the
requirements of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and, if applicable, the Code and all other
applicable laws. There is no "accumulated funding deficiency" (as
such term is defined in Section 302 of ERISA or Section 412 of the
Code) with respect to a BSI Benefit Plan that is an "employee pension
benefit plan" (as defined in Section 3(2) of ERISA), and there has
been no application for a waiver of the minimum funding standards
imposed by Code Section 412 with respect to any such plan. There are
no pending or, to the knowledge of BSI, threatened claims by or on
behalf of the BSI Benefit Plans, the United States Department of
Labor, the Internal Revenue Service, or by any current or former
employee of BSI or beneficiary of such current or former employee
alleging a breach of any fiduciary duties or a violation of applicable
state or federal law which could result in a material liability on the
part of BSI or a BSI Benefit Plan under ERISA or any other law (other
than benefit claims and funding obligations in the ordinary course of
business). BSI has not suffered or otherwise caused a "complete
withdrawal" or "partial withdrawal," as such terms are respectively
defined in Sections 4203 and 4205 of ERISA, from any Multiemployer
Pension Plan, as such term is defined in Section 3(37) of ERISA; BSI
is not a party to any such Multiemployer Pension Plan.
20
<PAGE> 29
(b) Except as set forth in Section 2.1.17 of the BSI
Disclosure Statement, (i) neither BSI nor any BSI Subsidiary is a
party to any collective bargaining agreement or other labor agreement
with any union or labor organization; (ii) to the knowledge of BSI,
there is no current union representation election or controversy
involving employees of BSI or any of the BSI Subsidiaries, nor does
BSI know of any activity or proceeding of any labor organization (or
representative thereof) or employee group (or representative thereof)
to organize any such employees; (iii) there is no material unfair
labor practice charge or material grievance arising out of a
collective bargaining agreement or other material grievance procedure
against BSI or any of the BSI Subsidiaries pending, or to the
knowledge of BSI, threatened; (iv) there is no material complaint,
lawsuit or proceeding in any forum by or on behalf of any present or
former employee, any applicant for employment or classes of the
foregoing alleging breach of any express or implied contract of
employment, any law or regulation governing employment or the
termination thereof or other discriminatory, wrongful or tortious
conduct in connection with the employment relationship against BSI or
any of the BSI Subsidiaries pending, or to the knowledge of BSI,
threatened; (v) there is no strike, dispute, slowdown, work stoppage
or lockout pending, or to the knowledge of BSI , threatened, against
or involving BSI or any of the BSI Subsidiaries; (vi) BSI and the BSI
Subsidiaries are in compliance in all material respects with all
applicable laws respecting employment and employment practices, terms
and conditions of employment, wages, hours of work and occupational
safety and health; and (vii) there is no proceeding, claim, suit,
action or governmental investigation pending or, to the knowledge of
BSI, threatened, in respect of which any director, officer, employee
or agent of BSI or any of the BSI Subsidiaries is or may be entitled
to claim indemnification from BSI or any of the BSI Subsidiaries
pursuant to their respective articles of incorporation or bylaws or as
provided in any indemnification agreements.
2.1.18. Investigations; Litigation. Except as required
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976
and the rules and regulations promulgated thereunder (collectively,
"HSR"), (i) no investigation or review by any governmental entity with
respect to BSI or any of the transactions contemplated by this
Agreement is pending or, to the best of BSI's knowledge, threatened,
nor has any governmental entity indicated to BSI an intention to
conduct the same, and (ii) there is no action, suit or proceeding
pending or, to the best of BSI's knowledge, threatened against or
affecting BSI at law or in equity, or before any federal, state,
municipal or other governmental department, commission, board, bureau,
agency or instrumentality, which either individually or in the
aggregate, does or is likely to result in a BSI Material Adverse
Effect.
2.1.19. Information for Registration Statement and Proxy
Statement/Prospectus. None of the information supplied or to be
supplied by or on behalf of BSI for inclusion in or incorporation by
reference in (a) the registration statement on form S-4 to be filed
with the SEC by Sun in connection with the issuance of shares of Sun
Common Stock and Sun Preferred Stock in the Merger (the "Registration
Statement") will, at the time the Registration Statement is filed with
the SEC and at the time it becomes effective under the Securities Act,
21
<PAGE> 30
contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained
therein not misleading and (b) the proxy and information statement in
definitive form relating to the meetings of the shareholders of Sun
and BSI to be held in connection with the Merger and the prospectus
relating to the Sun Common Stock and Sun Preferred Stock to be issued
in the Merger (the "Joint Proxy Statement/Prospectus") will, at the
dates mailed to such shareholders and, as the same may be amended or
supplemented, at the times of such meetings, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are
made, not misleading, and will comply as to form in all material
respects with the provisions of the Securities Act and the Securities
Exchange Act and the rules and regulations thereunder.
2.1.20. Ownership of Sun Common Stock. BSI does not
"beneficially own" (as such term is defined for purposes of Section
13(d) of the Securities Exchange Act) any shares of Sun Common Stock.
2.1.21. Vote Required. The approval of the Merger by a
majority of all votes entitled to be cast by all holders of BSI Common
Stock at a BSI Meeting at which a quorum is present, are the only
votes of the holders of any class or series of the capital stock of
BSI required to approve this Agreement, the Merger and the other
transactions contemplated hereby (herein the "BSI Shareholders'
Approval").
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SUN
3.1. Representations and Warranties of Sun. Sun
represents and warrants to BSI as follows:
3.1.1. Organization and Standing. Sun is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Washington, has full requisite corporate power and authority
to carry on its business as it is currently conducted, and to own and
operate the properties currently owned and operated by it, and is duly
qualified or licensed to do business and is in good standing as a
foreign corporation authorized to do business in all jurisdictions in
which the character of the properties owned or the nature of the
business conducted by it would make such qualification or licensing
necessary other than in such jurisdictions where the failure to be so
qualified and in good standing would not, when taken together with all
other such failures, have a material adverse effect on the business,
operations, properties, assets, financial condition, results of
operations or prospects of Sun or the Sun Subsidiaries taken as a
whole or on the consummation of this Agreement (any such material
adverse effect being hereinafter referred to as a "Sun Material
Adverse Effect"). As used in this Agreement, (a) the term
"subsidiary" of a person shall mean any corporation or
22
<PAGE> 31
other entity (including partnerships and other business associations)
in which such person directly or indirectly owns at least a majority
of any class of the outstanding voting securities or equity and (b)
the term "Sun Subsidiaries" means all direct or indirect subsidiaries
of Sun. True, accurate and complete copies of the Certificate of
Incorporation and Bylaws of Sun, in effect on the date hereof, have
been delivered to BSI.
3.1.2. Authority; Noncontravention; Statutory Approvals;
Compliance.
3.1.2.1. Authority. Sun has all requisite power and
authority to enter into this Agreement and, subject to the
applicable Sun Shareholders' Approval (as defined in Section
4.5), to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation
by Sun of the transactions contemplated hereby, have been duly
authorized by all necessary corporate action on the part of
Sun, subject in the case of this Agreement to obtaining the
applicable Sun Shareholders' Approval. This Agreement has
been duly and validly executed and delivered by Sun and,
assuming the due authorization, execution and delivery hereof
and thereof by BSI, constitutes the valid and binding
obligation of Sun enforceable against Sun in accordance with
its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, debtor relief or
similar laws affecting the rights of creditors' generally.
3.1.2.2. Noncontravention. Except as set forth in
Section 3.1.2.2 of the Sun Disclosure Statement, the execution
and delivery of this Agreement by Sun do not, and the
consummation of the transactions contemplated hereby will not,
violate, conflict with, or result in a breach of any provision
of, or constitute a default (with or without notice or lapse
of time or both) under, or result in the termination or
modification of, or accelerate the performance required by, or
result in a right of termination, modification, cancellation
or acceleration of any obligation or the loss of a material
benefit under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or
assets (any such violation, conflict, breach, default, right
of termination, modification, cancellation or acceleration,
loss or creation, a "Violation" with respect to Sun or any of
the Sun Subsidiaries) pursuant to any provisions of (i) the
articles of incorporation, bylaws or similar governing
documents of Sun or any of the Sun Subsidiaries, (ii) subject
to obtaining the Sun Shareholders' Approvals, any statute,
law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any Governmental
Authority (as defined in Section 3.1.2.3) applicable to Sun or
any of the Sun Subsidiaries or any of their respective
properties or assets or (iii) subject to obtaining the
third-party consents or other approvals set forth in Section
3.1.2.2 of the Sun Disclosure Statement (the "Sun Required
Consents"), any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease
or other instrument, obligation or agreement of any kind to
which Sun or any of the Sun Subsidiaries is now a party or by
which it or any of its properties or assets may be bound or
affected,
23
<PAGE> 32
excluding from the foregoing clauses (ii) and (iii) such
Violations that would not, in the aggregate, have a Sun
Material Adverse Effect.
3.1.2.3. Statutory Approvals. No declaration,
filing or registration with, or notice to or authorization,
consent or approval of, any court, federal, state, local or
foreign governmental or regulatory body (including a stock
exchange or other self-regulatory body) or authority (each, a
"Governmental Authority"), the failure to obtain, make or give
which would have, in the aggregate, a Sun Material Adverse
Effect, is necessary for the execution and delivery of this
Agreement by Sun or the consummation by Sun of the
transactions contemplated hereby, except as described in
Section 3.1.2.3 of the Sun Disclosure Statement (the "Sun
Required Statutory Approvals," it being understood that
references in this Agreement to "obtaining" such Sun Required
Statutory Approvals shall mean making such declarations,
filings or registrations; giving such notices; obtaining such
authorizations, consents or approvals; and having such waiting
periods expire as are necessary to avoid a violation of law).
3.1.2.4. Compliance. Except as set forth in Section
3.1.2.4 of the Sun Disclosure Statement, neither Sun nor any
Sun Subsidiary, is in violation of or is under investigation
with respect to any violation of, or has been given notice or
been charged with any violation of, any law, statute, order,
rule, regulation, ordinance or judgment (including, without
limitation, any applicable environmental law, ordinance or
regulation) of any Governmental Authority except for
violations which in the aggregate do not and, insofar as
reasonably can be foreseen, will not have a Sun Material
Adverse Effect. Except as set forth in Section 3.1.2.4 of the
Sun Disclosure Statement, Sun and the Sun Subsidiaries have
all permits, licenses, franchises and other governmental
authorizations, consents and approvals necessary to conduct
their businesses as currently conducted in all material
respects except for those which the failure to obtain would
not, in the aggregate, have a Sun Material Adverse Effect.
Except as set forth in Section 3.1.2.4 of the Sun Disclosure
Statement, neither Sun nor any Sun Subsidiary is in material
breach or violation of or in material default in the
performance or observance of any term or provision of, and no
event has occurred which, with lapse of time or action by a
third party, could result in a material default under, (i) its
articles of incorporation or bylaws or (ii) any contract,
commitment, agreement, indenture, mortgage, loan agreement,
note, lease, bond, license, approval or other instrument to
which it is a party or by which it is bound or to which any of
its property is subject except in the case of clause (ii) for
violations and defaults which would not, in the aggregate,
have a Sun Material Adverse Effect.
3.1.3. Capitalization. The authorized capitalization of Sun
consists of 20,000,000 shares of common stock, no par value (the "Sun
Common Stock"), of which at the date hereof, 5,748,500 shares were
issued and outstanding and 1,000,000 shares of preferred stock, $.01
par value per share (the "Sun Preferred Stock"), at which at the date
hereof no
24
<PAGE> 33
shares were issued and outstanding. Except as set forth in Section
3.1.3 of the Sun Disclosure Statement, there exist no (a) outstanding
options, subscriptions, warrants, calls, or similar commitments to
purchase, issue or sell or to convert any securities or obligations
into any of the authorized or issued capital stock of Sun or any
securities or obligations convertible into or exchangeable for such
capital stock or (b) registration rights, stockholder agreements or
voting agreements with respect to the outstanding shares of capital
stock of Sun. The Sun Disclosure Schedule shall disclose that as of
the date hereof and as of the Effective Date, there are outstanding
not less than 290,250 options to purchase Sun Common Stock under Sun's
existing stock option plans, such number of options otherwise will be
available under the plans for issuance.
3.1.4. Sun Subsidiaries. All outstanding shares of stock of
the Sun Subsidiaries are validly issued, fully paid, and nonassessable
and owned by Sun, and Sun has good and indefeasible title thereto free
and clear of any Encumbrance. Each such subsidiary is a corporation
duly organized, validly existing, and in good standing under the laws
of the jurisdiction under which it is incorporated and has full
requisite corporate power and authority to own its property and carry
on its business as presently conducted by it and is duly qualified or
licensed to do business and is in good standing as a foreign
corporation authorized to do business in all jurisdictions in which
the character of the properties owned or the nature of the business
conducted makes such qualification or licensing necessary, except
where the failure to be so qualified or licensed would not have a Sun
Material Adverse Effect with respect to such subsidiary. As
hereinafter used in this Article III, the term "Sun" also includes any
and all of its directly and indirectly held subsidiaries, except where
the context indicates to the contrary.
3.1.5. Reports and Financial Statements. Sun has previously
furnished to BSI true and complete copies of (a) all annual reports on
Form 10-K and quarterly reports on Form 10-Q filed with the Securities
and Exchange Commission (the "Commission") pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), since December
31, 1991, (b) Sun's other reports filed with the Commission since
December 31, 1991, (c) all definitive proxy solicitation materials
filed with the Commission since December 31, 1991, (d) any
registration statements declared effective by the Commission since
December 31, 1991 and (e) any other reports filed with the Commission
by Sun after the date hereof under the Exchange Act (collectively, the
"Reports"), and such Reports were, or will be, prepared in accordance
with generally accepted accounting principles applied on a consistent
basis as of and for the periods involved and fairly present, or will
present, the consolidated financial position for Sun and the Sun
Subsidiaries as of the dates thereof and the consolidated results of
their operations and changes in financial position as of and for the
periods then ended; and the Reports did not and will not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Since December 31, 1991, Sun has filed with the
Commission all reports required to be filed by Sun under the Exchange
Act and the rules and regulations of the Commission.
25
<PAGE> 34
3.1.6. Liabilities. Sun does not have any liabilities or
obligations, either accrued, absolute, contingent, or otherwise, or
have any knowledge of any potential liabilities or obligations, which
would constitute or result in a Sun Material Adverse Effect, other
than those (i) disclosed in the Reports, (ii) reflected or reserved
against in the September 30, 1996 unaudited consolidated balance sheet
of Sun, (iii) incurred in the ordinary course of business since
September 30, 1996 or (iv) set forth in Section 3.1.6 of the Sun
Disclosure Statement.
3.1.7. Additional Sun Information. Section 3.1.7 of the BSI
Disclosure Statement contains true, complete and correct lists of the
following items, and Sun has furnished to BSI true, complete and
correct copies of all documents referred to in such lists:
3.1.7.1. Real Estate. All real property and
structures thereon owned, leased or subject to a contract of
purchase and sale, or lease commitment, by Sun, with a
description of the nature and amount of any Encumbrances
thereto;
3.1.7.2. Machinery and Equipment. All machinery,
transportation equipment, tools, equipment, furnishings, and
fixtures (excluding such items as did not have a cost basis of
$5,000 or more at their respective dates of acquisition by
Sun) owned, leased or subject to a contract of purchase and
sale, or lease commitment, by Sun with a description of the
nature and amount of any Encumbrances thereon;
3.1.7.3. Inventory. All inventory items or groups
of inventory items owned by Sun, together with the amount of
any Encumbrances thereon;
3.1.7.4. Receivables. All accounts and notes
receivable of Sun, together with (i) aging schedules by
invoice date and due date, (ii) the amounts provided for as an
allowance for bad debts, (iii) the identity and location of
any asset in which Sun holds a security interest to secure
payment of the underlying indebtedness, and (iv) a description
of the nature and amount of any Encumbrances on such accounts
and notes receivable;
3.1.7.5. Payables. All accounts and notes payable
of Sun, together with an appropriate aging schedule;
3.1.7.6. Insurance. All insurance policies or bonds
currently maintained by Sun, including title insurance
policies, with respect to Sun, including those covering Sun's
properties, buildings, machinery, equipment, fixtures,
employees and operations, as well as a listing of any
premiums, audit adjustments or retroactive adjustments due or
pending on such policies or any predecessor policies;
3.1.7.7. Material Contracts. All material contracts
and license agreements, which shall include, but shall not be
limited to, all agreements or commitments to purchase raw
materials or inventory and all agreements which are to be
performed in
26
<PAGE> 35
whole or in part after the Effective Date, and which involve
or may involve aggregate payments by or to Sun of $50,000 or
more after such date ("Material Contracts"); such list shall
also include any obligations of Sun or its affiliates to make
any payments or provide any consideration to any person as a
result of the consummation of this Agreement;
3.1.7.8. Employee Compensation Plans. All Employee
Plans;
3.1.7.9. Certain Salaries. The names and salary
rates of all present officers and employees of Sun whose
current regular annual salary rate is $50,000 or more,
together with any bonuses paid or payable to such persons for
the fiscal year ended December 31, 1995, and, to the extent
existing on the date of this Agreement, all arrangements with
respect to any bonuses to be paid to them from and after the
date of this Agreement;
3.1.7.10. Employee Agreements. Any collective
bargaining agreements of Sun with any labor union or other
representative of employees, including amendments and
supplements, and all employment and consulting agreements of
Sun;
3.1.7.11. Patents. All patents, trademarks,
copyrights and other material intellectual property rights
owned, licensed, or used by Sun;
3.1.7.12. Trade Names. All trade names and
fictitious names used or held by Sun, whether and where such
names are registered and where used;
3.1.7.13. Promissory Notes. All long-term and
short-term promissory notes, installment contracts, loan
agreements, credit agreements, and any other agreements of Sun
relating thereto or with respect to collateral securing the
same;
3.1.7.14. Guaranties. All indebtedness, liabilities
and commitments of others and as to which Sun is a guarantor,
endorser, co-maker, surety, or accommodation maker, or is
contingently liable therefor (excluding liabilities as an
endorser of checks and the like in the ordinary course of
business) and all letters of credit, whether stand-by or
documentary, issued by any third party;
3.1.7.15. Financial Statements. The September 30,
1996 unaudited consolidated balance sheet and related
statement of income of Sun.
Section 3.1.7 of the Sun Disclosure Statement shall be true,
complete and correct as of the Effective Date, except for items contained in
Paragraphs 3.1.7.3; 3.1.7.4; 3.1.7.5; and 3.1.7.15, which are true, complete and
correct as of September 30, 1996 or such other date as therein indicated. In
addition, Sun shall, on BSI's request, furnish BSI copies of all Reports filed
by Sun with the Commission after the date hereof through the Effective Date.
27
<PAGE> 36
3.1.8. No Undisclosed Defaults. Except as may be specified
in the Reports or in Section 3.1.8 of the Sun Disclosure Statement,
Sun is not a party to, or bound by, any material contract or
arrangement of any kind to be performed after the Effective Date, nor
is Sun in default in any material obligation or covenant on its part
to be performed under any material obligation, lease, contract, order,
plan or other arrangement except as identified in the Reports or in
such section.
3.1.9. Absence of Certain Changes or Events. Except as
disclosed in the Sun Disclosure Statement, from September 30, 1996,
through the date hereof, (a) Sun and each of the Sun Subsidiaries has
conducted its business only in the ordinary course of business
consistent with past practice and (b) there has not been, and no fact
or condition exists which would have or, insofar as reasonably can be
foreseen, could have, a Sun Material Adverse Effect.
3.1.10. Taxes. Except as set forth in Section 3.1.10 of the
Sun Disclosure Statement, and except with respect to failures which in
the aggregate, would not result in a material adverse change with
respect to Sun, proper and accurate federal, state and local income,
value added, sales, use, franchise, gross revenue, turnover, excise,
payroll, property, employment, customs duties and any and all other
tax returns, reports, and estimates have been filed with appropriate
governmental agencies, domestic and foreign, by Sun for each period
for which any returns, reports, or estimates were due (taking into
account any extensions of time to file before the date hereof); all
taxes shown by such returns to be payable and any other taxes due and
payable have been paid other than those being contested in good faith
by Sun; and the tax provision reflected in Sun's financial statements
as of September 30, 1996 (which have been or will be delivered to BSI)
is adequate, in accordance with generally accepted accounting
principles, to cover liabilities of Sun at the date thereof for all
taxes, including any interest, penalties and additions to taxes of any
character whatsoever applicable to Sun or its assets or business.
Except as set forth on Section 3.1.10 of the Sun Disclosure Statement,
no waiver of any statute of limitations executed by Sun with respect
to federal or state income or other tax is in effect for any period.
The federal income tax returns of Sun have never been examined by the
Internal Revenue Service. There are no tax liens on any assets of Sun
except for taxes not yet currently due and those which could not
reasonably be expected to result in a Sun Material Adverse Effect.
3.1.11. Intellectual Property. Except as set forth in
Section 3.1.11 of the Sun Disclosure Statement, Sun owns or possesses
licenses to use all Intellectual Property that is either material to
the business of Sun or that is necessary for the manufacture, use or
sale of any products manufactured, used or sold by Sun, including all
such Intellectual Property listed in the Reports. The Intellectual
Property is owned or licensed by Sun free and clear of any Encumbrance
other than such Encumbrances as are listed in Section 3.1.11 of the
Sun Disclosure Statement. Except as otherwise indicated in such
section, Sun has not granted to any other person any license to use
any Intellectual Property. Except as described in Section 3.1.11 of
the Sun Disclosure Statement, none of the Intellectual Property
violates,
28
<PAGE> 37
conflicts with or infringes the rights of any third parties. Sun has
not received any notice of infringement, misappropriation, or conflict
with, the intellectual property rights of others in connection with
the use by Sun of its Intellectual Property.
3.1.12. Title to Properties. With exceptions which in the
aggregate are not material, and except for merchandise and other
property sold, used or otherwise disposed of in the ordinary course of
business for fair value, Sun has good and indefeasible title to all
its properties, interests in properties and assets, real and personal,
reflected in the financial statements contained in the Reports, free
and clear of any Encumbrance of any nature whatsoever, except (i)
liens and Encumbrances reflected in the balance sheet of Sun included
in the Reports, (ii) liens for current taxes not yet due and payable,
and (iii) such imperfections of title, easements and Encumbrances, if
any, as are not substantial in character, amount, or extent and do not
and will not materially detract from the value, or interfere with the
present use, of the property subject thereto or affected thereby, or
otherwise materially impair business operations. All leases pursuant
to which Sun leases (whether as lessee or lessor) any real or personal
property for rental or lease payments in excess of $100,000 on an
annualized basis are in good standing, valid, and effective; and there
is not, under any such leases, any existing or prospective default or
event of default or event which with notice or lapse of time, or both,
would constitute a default by Sun and in respect to which Sun has not
taken adequate steps to prevent a default from occurring. The
buildings and premises of Sun that are used in its business are in
good operating condition and repair, subject only to ordinary wear and
tear. All equipment of Sun and the Sun Subsidiaries is in good
operating condition and in a state of reasonable maintenance and
repair, ordinary wear and tear excepted, and is free from any known
defects except as may be repaired by routine maintenance and such
minor defects as to not substantially interfere with the continued use
thereof in the conduct of normal operations.
3.1.13. Litigation. Except as set forth in Section 3.1.13 of
the Sun Disclosure Statement, (a) there are no material claims, suits,
actions or proceedings, pending or, to the knowledge of Sun,
threatened, nor are there, to the knowledge of Sun, any material
investigations or reviews pending or threatened against, relating to
or affecting Sun, any Sun Subsidiary or any Sun Benefit Plan (as
defined in Section 3.1.17 hereof), (b) there are no material
judgments, decrees, injunctions, rules or orders of any court,
governmental department, commission, agency, instrumentality or
authority or any arbitrator applicable to Sun or any Sun Subsidiary,
and (c) there have not been any material developments with respect to
such disclosed claims, suits, actions, proceedings, investigations or
reviews.
3.1.14. Environmental Compliance. Except as set forth in
Section 3.1.14 of the Sun Disclosure Statement:
3.1.14.1. Environmental Conditions. There are no
environmental conditions or circumstances such as the presence
or release of any hazardous substance on any
29
<PAGE> 38
property presently or previously owned by Sun that could
result in a Sun Material Adverse Effect.
3.1.14.2. Permits, etc. Sun has in full force and
effect all environmental permits, licenses, approvals and
other authorizations required to conduct its operations and is
operating in material compliance thereunder.
3.1.14.3. Compliance. Sun's operations and use of
its assets do not violate any Applicable Environmental Laws,
except for violations which, either singly or in the
aggregate, would not result in a Sun Material Adverse Effect.
3.1.14.4. Past Compliance. None of the operations
or assets of Sun has ever been conducted or used in such a
manner as to constitute violation of any of the Applicable
Environmental Laws except for violations which, either singly
or in the aggregate, would not result in a Sun Material
Adverse Effect.
3.1.14.5. Environmental Claims. No notice has been
served on Sun from any entity, governmental agency or
individual regarding any existing, pending or threatened
investigation or inquiry related to alleged violations under
any Applicable Environmental Laws, or regarding any claims for
remedial obligations or contribution under any Applicable
Environmental Laws, other than any of the foregoing which,
either singly or in the aggregate, would not result in a Sun
Material Adverse Effect.
3.1.14.6. Renewals. Sun does not know of any reason
Sun would not be able to renew any of the permits, licenses,
or other authorizations required pursuant to any Applicable
Environmental Laws to operate and use any of Sun's assets for
their current purposes and uses.
3.1.15. Compliance with Other Laws. Except as set forth in
the Reports or in Section 3.1.15 of the Sun Disclosure Statement, Sun
is not in violation of or in default with respect to, or in alleged
violation of or alleged default with respect to, OSHA or any other
applicable law or any applicable rule, regulation, or any writ or
decree of any court or any governmental commission, board, bureau,
agency, or instrumentality, or delinquent with respect to any report
required to be filed with any governmental commission, board, bureau,
agency or instrumentality, except for violations which, either singly
or in the aggregate, do not and are not expected to result in a Sun
Material Adverse Effect.
3.1.16. Finder's Fee. Except as set forth in Section 3.1.16
of the Sun Disclosure Statement, all negotiations relative to this
Agreement and the transactions contemplated hereby have been carried
on by Sun and its counsel, directly with BSI or its counsel, without
the intervention of any other person as the result of an act of Sun
and, so far as known to Sun, without the intervention of any other
person in such manner as to give rise to any valid
30
<PAGE> 39
claim against any of the parties hereto for a brokerage commission,
finder's fee, or any similar payments.
3.1.17. Compliance with ERISA. (a) Sun has delivered to, or
upon request will deliver to, BSI copies of the health and life
insurance plans, bonus, deferred compensation, pension, profit sharing
and retirement plans and all other employee benefit plans, programs or
arrangements providing benefits for employees (or former employees) of
Sun, all of which are listed on Section 3.1.7.8 of the Sun Disclosure
Statement (the "Sun Benefit Plans"); a copy of the most recent
favorable determination letter received with respect to a Sun Benefit
Plan from the Internal Revenue Service (if the plan is a tax-qualified
plan under the Code); the most recent annual report (Form 5500) filed
with the Internal Revenue Service with respect to each Sun Benefit
Plan (if any such report was required); and the most recent summary
plan description for each Sun Benefit Plan for which a summary plan
description is required. Each of the Sun Benefit Plans has been
administered and maintained in material compliance with the
requirements of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and, if applicable, the Code and all other
applicable laws. There is no "accumulated funding deficiency" (as
such term is defined in Section 302 of ERISA or Section 412 of the
Code) with respect to a Sun Benefit Plan that is an "employee pension
benefit plan" (as defined in Section 3(2) of ERISA), and there has
been no application for a waiver of the minimum funding standards
imposed by Code Section 412 with respect to any such plan. There are
no pending or, to the knowledge of Sun, threatened claims by or on
behalf of the Sun Benefit Plans, the United States Department of
Labor, the Internal Revenue Service, or by any current or former
employee of Sun or beneficiary of such current or former employee
alleging a breach of any fiduciary duties or a violation of applicable
state or federal law which could result in a material liability on the
part of Sun or a Sun Benefit Plan under ERISA or any other law (other
than benefit claims and funding obligations in the ordinary course of
business). Sun has not suffered or otherwise caused a "complete
withdrawal" or "partial withdrawal," as such terms are respectively
defined in Sections 4203 and 4205 of ERISA, from any Multiemployer
Pension Plan, as such term is defined in Section 3(37) of ERISA; Sun
is not a party to any such Multiemployer Pension Plan.
(b) Except as set forth in Section 3.1.17 of the Sun
Disclosure Statement, (i) neither Sun nor any Sun Subsidiary is a
party to any collective bargaining agreement or other labor agreement
with any union or labor organization; (ii) to the knowledge of Sun,
there is no current union representation election or controversy
involving employees of Sun or any of the Sun Subsidiaries, nor does
Sun know of any activity or proceeding of any labor organization (or
representative thereof) or employee group (or representative thereof)
to organize any such employees; (iii) there is no material unfair
labor practice charge or material grievance arising out of a
collective bargaining agreement or other material grievance procedure
against Sun or any of the Sun Subsidiaries pending, or to the
knowledge of Sun, threatened; (iv) there is no material complaint,
lawsuit or proceeding in any forum by or on behalf of any present or
former employee, any applicant for employment or classes of the
foregoing alleging breach of any express or implied contract of
employment, any law or
31
<PAGE> 40
regulation governing employment or the termination thereof or other
discriminatory, wrongful or tortious conduct in connection with the
employment relationship against Sun or any of the Sun Subsidiaries
pending, or to the knowledge of Sun, threatened; (v) there is no
strike, dispute, slowdown, work stoppage or lockout pending, or to the
knowledge of Sun, threatened, against or involving Sun or any of the
Sun Subsidiaries; (vi) Sun and the Sun Subsidiaries are in compliance
in all material respects with all applicable laws respecting
employment and employment practices, terms and conditions of
employment, wages, hours of work and occupational safety and health;
and (vii) there is no proceeding, claim, suit, action or governmental
investigation pending or, to the knowledge of Sun, threatened, in
respect of which any director, officer, employee or agent of Sun or
any of the Sun Subsidiaries is or may be entitled to claim
indemnification from Sun or any of the Sun Subsidiaries pursuant to
their respective articles of incorporation or bylaws or as provided in
any indemnification agreements.
3.1.18. Investigations; Litigation. Except as required
pursuant to HSR, (i) no investigation or review by any governmental
entity with respect to Sun in connection with any of the transactions
contemplated by this Agreement is pending or, to the best of Sun's
knowledge, threatened, nor has any governmental entity indicated to
Sun an intention to conduct the same and (ii) there is no action, suit
or proceeding pending or, to the best of Sun's knowledge, threatened
against or affecting Sun or the Sun Subsidiaries at law or in equity,
or before any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality,
which either individually or in the aggregate, does or is likely to
result in a Sun Material Adverse Effect.
3.1.19. Information for Registration Statement and Proxy
Statement/Prospectus. None of the information supplied or to be
supplied by or on behalf of Sun for inclusion in or incorporation by
reference in (a) the registration statement on form S-4 to be filed
with the SEC by Sun in connection with the issuance of shares of Sun
Common Stock and Sun Preferred Stock in the Merger (the "Registration
Statement") will, at the time the Registration Statement is filed with
the SEC and at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained
therein not misleading and (b) the proxy and information statement in
definitive form relating to the meetings of the shareholders of BSI
and Sun to be held in connection with the Merger and the prospectus
relating to the Sun Common Stock and Sun Preferred Stock to be issued
in the Merger (the "Joint Proxy Statement/Prospectus") will, at the
dates mailed to such shareholders and, as the same may be amended or
supplemented, at the times of such meetings, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are
made, not misleading, and will comply as to form in all material
respects with the provisions of the Securities Act and the Securities
Exchange Act and the rules and regulations thereunder.
32
<PAGE> 41
3.1.20. Ownership of BSI Common Stock. Sun does not
"beneficially own" (as such term is defined for purposes of Section
13(d) of the Securities Exchange Act) any shares of BSI Common or
Preferred Stock.
3.1.21. Vote Required. The approval of the Merger by
two-thirds of all votes entitled to be cast by all holders of Sun
Common Stock at a Sun Meeting at which a quorum is present are the
only votes of the holders of any class or series of the capital stock
of Sun required to approve this Agreement, the Merger and the other
transactions contemplated hereby (herein, the "Sun Shareholders'
Approval").
ARTICLE IV
OBLIGATIONS PENDING EFFECTIVE DATE
4.1. Agreements of Sun and BSI. Subject to the provisions of
Section 4.7 hereof with respect to Sun, each of Sun and BSI agrees that from
the date hereof to the Effective Date, except as otherwise set forth in the
Disclosure Statement, it will (and unless otherwise indicated by the context,
since September 30, 1996 or the date of the last Report, it has):
4.1.1. Maintenance of Present Business. Other than as
contemplated by this Agreement, operate its business only in the
usual, regular, and ordinary manner so as to maintain the goodwill it
now enjoys and, to the extent consistent with such operation, use all
reasonable efforts to preserve intact its present business
organization, keep available the services of its present officers and
employees, and preserve its relationships with customers, suppliers,
jobbers, distributors, and others having business dealings with it;
4.1.2. Maintenance of Properties. At its expense, maintain
all of its property and assets in customary repair, order, and
condition, reasonable wear and use and damage by fire or unavoidable
casualty excepted;
4.1.3. Maintenance of Books and Records. Maintain its books
of account and records in the usual, regular, and ordinary manner, in
accordance with generally accepted accounting principles applied on a
consistent basis;
4.1.4. Compliance with Law. Duly comply in all material
respects with all laws applicable to it and to the conduct of its
business;
4.1.5. Inspection of Each Merging Corporation. Permit the
other party hereto, and its officers, directors, employees,
accountants, counsel, investment bankers, financial advisors and other
authorized representatives (collectively the "Representatives"),
during normal business hours, to inspect its records and to consult
with its officers, employees, attorneys, and agents for the purpose of
determining the accuracy of the representations and warranties
hereinabove made and the compliance with covenants contained in this
Agreement. Sun and
33
<PAGE> 42
BSI each agrees that it and its officers and representatives shall
hold all data and information obtained with respect to the other party
hereto in confidence and each further agrees that it will not use such
data or information or disclose the same to others, except to the
extent such data or information either are, or become, published or a
matter of public knowledge; and
4.1.6. No Solicitation. No party hereto shall, and each such
party shall cause its subsidiaries not to, permit any of its
Representatives to, and shall use its best efforts to cause such
persons not to, directly or indirectly, initiate, solicit or
encourage, or take any action to facilitate the making of any offer or
proposal which constitutes or is reasonably likely to lead to any
Takeover Proposal (as defined below), or, in the event of any
unsolicited Takeover Proposal, engage in negotiations or provide any
confidential information or data to any person relating to any
Takeover Proposal. Notwithstanding the foregoing, in the event of an
unsolicited Takeover Proposal, unless the Sun Shareholder Approval and
the BSI Shareholder Approval shall have both been obtained, Sun or BSI
may, to the extent that its Board of Directors is advised in a
written, reasoned opinion of outside counsel that such action is
required by its fiduciary duties under law, participate in discussions
or negotiations with and furnish information to any person in
connection with an unsolicited Takeover Proposal made by such person.
Each party hereto shall notify the other party orally and in writing
of any such inquiries, offers or proposals (including, without
limitation, the terms and conditions of any such proposal and the
identity of the person making it), within 24 hours of the receipt
thereof, shall keep the other party informed of the status and details
of any such inquiry and shall give the other party five days' advance
notice of any agreement to be entered into with or any information to
be supplied to any person making such inquiry, offer or proposal.
Each party hereto shall immediately cease and cause to be terminated
all existing discussions and negotiations, if any, with any parties
conducted heretofore with respect to any Takeover Proposal. As used
in this Section 4.1.6, "Takeover Proposal" shall mean any tender or
exchange offer, proposal for a merger, consolidation or other business
combination involving any party to this Agreement or any of its
material subsidiaries, or any proposal or offer (in each case, whether
or not in writing and whether or not delivered to the stockholders of
a party generally) to acquire in any manner, directly or indirectly, a
substantial equity interest in, or a substantial portion of the assets
of any party to this Agreement or any of its material subsidiaries,
other than pursuant to the transactions contemplated by this
Agreement. Nothing contained herein shall prohibit a party from
taking and disclosing to its shareholders a position contemplated by
Rule 14c-2(a) under the Exchange Act with respect to a Takeover
Proposal by means of a tender offer.
4.2. Additional Agreements of Sun and BSI. Sun and BSI
agree to take the following actions after the date hereof:
4.2.1. Hart-Scott-Rodino. Within 20 days of the date
hereof, each party (or their affiliates) shall file such materials as
are required under the HSR Act with respect to the transaction
contemplated hereby and shall cooperate with the other party to the
extent necessary to assist the other party in the preparation of such
filings.
34
<PAGE> 43
4.2.2. Proxy Statement/Prospectus. Sun and BSI shall
cooperate in the preparation and prompt filing of the Joint Proxy
Statement/Prospectus contemplated by Section 4.6 hereof with the
Commission with respect to, among other things, the meetings of Sun's
and BSI's stockholders called for the purpose of securing stockholder
approval of the merger contemplated by this Agreement. Each of Sun
and BSI shall use all reasonable efforts to have such proxy
statement/prospectus cleared by the Commission.
4.2.3. Notice of Material Developments. Each of Sun and BSI
will promptly notify the other party in writing of any Material
Adverse Effect with respect Sun or BSI, respectively.
4.3. Additional Agreements of BSI. Except as otherwise set forth
in the BSI Disclosure Statement, BSI agrees that from September 30, 1996 it has
not, and from the date hereof to the Effective Date, it will:
4.3.1. Prohibition of Certain Employment Contracts. Not
enter into any contracts of employment which (i) cannot be terminated
on notice of 14 days or less or (ii) provide for any severance
payments or benefits covering a period beyond the termination date
except as may be required by law;
4.3.2. Prohibition of Certain Loans. Not incur any
borrowings except (i) the refinancing of indebtedness now outstanding
or additional borrowings under its existing revolving credit
facilities, (ii) the prepayment by customers of amounts due or to
become due for goods sold or services rendered or to be rendered in
the future, (iii) trade payables incurred in the ordinary course of
business, (iv) other borrowings incurred in the ordinary course of
business to finance normal operations or (v) as is otherwise agreed to
in writing by Sun;
4.3.3. Prohibition of Certain Commitments. Not enter into
commitments for capital expenditures which would exceed $100,000 in
the aggregate, except (i) as may be necessary for the maintenance of
existing facilities, machinery and equipment in good operating
condition and repair in the ordinary course of business, (ii) as may
be required by law or (iii) as is otherwise agreed to in writing by
Sun;
4.3.4. Disposal of Assets. Not sell, dispose of, or
encumber, any property or assets, except (i) in the ordinary course of
business or (ii) as is otherwise agreed to in writing by Sun;
4.3.5. Maintenance of Insurance. Maintain insurance upon
all its properties and with respect to the conduct of its business of
such kinds and in such amounts as is customary in the type of business
in which it is engaged, but not less than that presently carried by
it, which insurance may be added to from time to time in its
discretion; provided, that if during the period from the date hereof
to and including the Effective Date any of its property or assets are
damaged or destroyed by fire or other casualty, the obligations of Sun
and BSI under this
35
<PAGE> 44
Agreement shall not be affected thereby (subject, however, to the
provision that the coverage limits of such policies are adequate in
amount to cover the replacement value of such property or assets and
loss of profits during replacement, less commercially reasonable
deductible, if of material significance to the assets or operations of
BSI) but it shall promptly notify Sun in writing thereof and proceed
with the repair or restoration of such property or assets in such
manner and to such extent as may be approved by Sun, and upon the
Effective Date all proceeds of insurance and claims of every kind
arising as a result of any such damage or destruction shall remain the
property of Surviving Corporation;
4.3.6. No Amendment to Certificate of Incorporation, etc.
Not amend its certificate of incorporation or bylaws or other
organizational documents or merge or consolidate with or into any
other corporation or change in any manner the rights of its capital
stock or the character of its business;
4.3.7. No Issuance, Sale, or Purchase of Securities. Except
with respect to exercises of currently outstanding warrants or options
and the proposed equity investment described in Section 2.1.3(b)
hereof, not issue or sell, or issue options or rights to subscribe to
(or cancel or amend any options currently outstanding), or enter into
any contract or commitment to issue or sell (upon conversion or
otherwise), any shares of its capital stock or subdivide or in any way
reclassify any shares of its capital stock, or acquire, or agree to
acquire, any shares of its capital stock; and
4.3.8. Prohibition on Dividends. Not declare or pay any
dividend on shares of its capital stock or make any other distribution
of assets to the holders thereof.
4.4. Additional Agreements of Sun. Except as otherwise set forth
in the Sun Disclosure Statement, subject to the provisions of Section 4.7
hereof, Sun agrees that from the date of its last Report, it has not, and from
the date hereof to the Effective Date, it will:
4.4.1. Prohibition of Certain Employment Contracts. Not
enter into any contracts of employment which (i) cannot be terminated
on notice of 14 days or less or (ii) provide for any severance
payments or benefits covering a period beyond the termination date
except as may be required by law, provided, however, any severance
agreement or payment or any incentive bonus plan entered into prior
to the date hereof is subject to approval by BSI;
4.4.2. Prohibition of Certain Loans. Not incur any
borrowings except (i) the refinancing of indebtedness now outstanding
or additional borrowings under its existing revolving credit
facilities, (ii) the prepayment by customers of amounts due or to
become due for goods sold or services rendered or to be rendered in
the future, (iii) trade payables incurred in the ordinary course of
business, (iv) other borrowings incurred in the ordinary course of
business to finance normal operations or (v) as is otherwise agreed to
in writing by BSI;
36
<PAGE> 45
4.4.3. Prohibition of Certain Commitments. Not (a) enter
into commitments for capital expenditures which would exceed $500,000,
in the aggregate, except (i) as may be necessary for the maintenance
of existing facilities, machinery and equipment in good operating
condition and repair in the ordinary course of business, (ii) as may
be required by law or (iii) as is otherwise agreed to in writing by
BSI or (b) enter into any agreement with any affiliate of Sun without
BSI's written consent;
4.4.4. Disposal of Assets. Not sell, dispose of, or
encumber, any property or assets, except (i) in the ordinary course of
business or (ii) as is otherwise agreed to in writing by BSI;
4.4.5. Maintenance of Insurance. Maintain insurance upon
all its properties and with respect to the conduct of its business of
such kinds and in such amounts as is customary in the type of business
in which it is engaged, but not less than that presently carried by
it, which insurance may be added to from time to time in its
discretion; provided, that if during the period from the date hereof
to and including the Effective Date any of its property or assets are
damaged or destroyed by fire or other casualty, the obligations of Sun
and BSI under this Agreement shall not be affected thereby (subject,
however, to the provision that the coverage limits of such policies
are adequate in amount to cover the replacement value of such property
or assets and loss of profits during replacement, less commercially
reasonable deductible, if of material significance to the assets or
operations of Sun) but it shall promptly notify BSI in writing thereof
and proceed with the repair or restoration of such property or assets
in such manner and to such extent as may be approved by BSI, and upon
the Effective Date all proceeds of insurance and claims of every kind
arising as a result of any such damage or destruction shall remain the
property of Surviving Corporation;
4.4.6. No Amendment to Articles of Incorporation, etc.
Except as otherwise provided herein, not amend its articles of
incorporation or bylaws or other organizational documents or merge
into any other corporation or change in any manner the rights of its
capital stock or the character of its business;
4.4.7. No Issuance, Sale, or Purchase of Securities. Except
with respect to exercises of currently outstanding warrants or
options, not issue or sell, or issue options or rights to subscribe to
(or cancel or amend any options currently outstanding), or enter into
any contract or commitment to issue or sell (upon conversion or
otherwise), any shares of its capital stock or subdivide or in any way
reclassify any shares of its capital stock, or acquire, or agree to
acquire, any shares of its capital stock;
4.4.8. Prohibition on Dividends. Not declare or pay any
dividend on shares of its capital stock or make any other distribution
of assets to the holders thereof;
4.4.9. Listing of Sun Common Stock. Use its best efforts to
cause, as of the Effective Date, the listing on The Nasdaq Stock
Market of the shares of Sun Common Stock to be issued pursuant to this
Agreement; and
37
<PAGE> 46
4.4.10. Notice of Certain Developments. Promptly furnish to
BSI copies of all communications from Sun to its stockholders and all
reports filed by it with the Commission and The Nasdaq Stock Market,
and relating to periodic or other material developments concerning
Sun's financial condition, business, or affairs.
4.5. Stockholders' Meetings. Each party shall promptly call and hold
a meeting of stockholders (the "BSI Meeting" and the "Sun Meeting",
respectively) for the purpose of considering and acting upon proposals to
approve the Merger contemplated by this Agreement (and the Reincorporation with
respect to Surviving Corporation) and any other matters requiring stockholder
approval in connection herewith (the "BSI Shareholder Approval" and the "Sun
Shareholder Approval", respectively).
4.6. Joint Proxy Statement and Registration Statement.
4.6.1. Preparation and Filing. As promptly as reasonably
practicable after the date hereof, Sun will prepare and file (with the
cooperation of BSI) with the Securities and Exchange Commission (the
"Commission") in accordance with the Securities Act and Securities
Exchange Act, a combined joint proxy statement (the "Joint Proxy
Statement/Prospectus") and registration statement on Form S-4 (the
"Registration Statement"), relating to approval and adoption of this
Agreement and the transactions contemplated hereby by the stockholders
of Sun and BSI. The parties will take such actions as may be
reasonably required to cause the Registration Statement to be declared
effective under the Securities Act as promptly as practicable after
such filing and to cause the shares of Sun Common Stock and Sun
Preferred Stock issuable in connection with the Merger to be
registered or to obtain an exemption from registration under
applicable state "blue sky" or securities laws; provided, however,
that no party shall be required to register or qualify as a foreign
corporation or to take other action which would subject it to general
service of process in any jurisdiction where it will not be, following
the Merger, so subject. Each of the parties hereto shall furnish all
information concerning itself which is required or customary for
inclusion in the Registration Statement or the Joint Proxy
Statement/Prospectus. As soon as reasonably practicable after the
Registration Statement has been declared effective by the Commission,
Sun and BSI shall promptly mail to each of the respective stockholders
in Sun and BSI the Joint Proxy Statement/Prospectus. Subject to the
exercise of fiduciary obligations under applicable law as advised in
writing by outside counsel (a copy of which will be provided promptly
to BSI), Sun shall, through its Board of Directors, include in the
Joint Proxy Statement/Prospectus the recommendation of the Board of
Directors of Sun that the stockholders of Sun adopt this Agreement,
and shall use its best efforts to obtain such adoption.
4.6.2. Fairness Opinions. It shall be a condition to the
mailing of the Joint Proxy Statement/Prospectus to the shareholders of
BSI and Sun that Sun shall have received an opinion from Rodman &
Renshaw dated the date of the Joint Proxy Statement/Prospectus, to the
effect that, as of the date thereof, the consideration to be paid in
the Merger is fair from
38
<PAGE> 47
a financial point of view to the holders of Sun Common Stock;
provided, however, that the opinion need not address the consideration
to be paid to SeaFirst.
4.7. Additional Agreements regarding Operation of Sun Pending
Effective Date.
(a) On or prior to the date hereof, Sun's Board of
Directors has approved the business plan prepared by BSI with respect
to Sun's operations pending the Effective Date ("Plan"), which
approval includes the direction by such board to Sun's management to
implement the Plan. Accordingly, subject to the following provisions,
Sun hereby agrees to implement the Plan in all material respects. Sun
shall not be obligated to implement any particular provision of the
Plan if the Board determines that such actions are, based on more
recent information or events, inconsistent with the objectives of the
Plan and are not in the best interests of Sun and its shareholders.
Sun and BSI agree that BSI shall have no authority to take any action
on behalf of Sun with respect to the Plan (or the Additional
Recommendations, as defined below) and shall not be involved in the
implementation of the Plan except as requested by Sun.
(b) Prior to the Effective Date, Sun agrees to provide to
BSI on the first and fifteenth day of each month a written summary
report regarding the status of the Plan and the results thereof, which
report shall include a listing of all matters which have not yet been
implemented in material compliance with the Plan. Based on these
reports and BSI's independent inspection of Sun's operations, BSI will
make other recommendations and suggestions regarding Sun's operations
prior to the Effective Date (the "Additional Recommendations"). BSI
will discuss with Sun's management and/or Board of Directors the
Additional Recommendations, the reasons for the Additional
Recommendations and how such Additional Recommendations affect or
complement the Plan. Sun hereby agrees to implement the Additional
Recommendations in all material respects; provided, however, that Sun
shall have no obligation to implement the Additional Recommendations
unless the Board finds that the Additional Recommendations are
consistent with the Plan and are in the best interest of Sun and its
shareholders.
(c) Notwithstanding any other term or provision of this
Agreement, BSI hereby agrees that all actions taken by Sun in
accordance with the Plan or the Additional Recommendations (and the
consequences thereof) shall in no event constitute a breach of any
representation, warranty, covenant or agreement herein.
(d) Sun hereby agrees that in the event the Plan and the
Additional Recommendations are not timely implemented in all material
respects notwithstanding any determination by the Sun Board of
Directors regarding the advisability of the Plan or the Additional
Recommendations, BSI may elect to notify Sun of its intent to
terminate this Agreement, and upon such termination shall have the
right to reimbursement of all documented legal, accounting and other
out-of-pocket expenses incurred by BSI in connection with the
negotiation, execution and performance of this Agreement (such
expenses
39
<PAGE> 48
not to exceed $500,000 for the purposes of this section only);
provided, however, BSI shall give Sun ten days prior written notice of
any such proposed termination, and Sun shall have such ten day period
in which to cure its failure to implement the Plan and/or the
Additional Recommendations. If such failure is not cured within such
ten day period, BSI shall be entitled to terminate this Agreement and
to immediate expense reimbursement as hereinabove provided.
(e) (i) In the event the Merger is not consummated, Sun
hereby agrees to indemnify and hold harmless BSI, and its officers,
directors, affiliates, shareholders and agents (collectively,
"indemnitees"), from and against any and all claims, damages,
lawsuits, expenses, costs, judgments and liabilities (including
counsel fees and expenses) of any nature whatsoever ("Losses")
relating to the Plan or the Additional Recommendations, to the extent
the indemnitees incur any Losses as a result of Sun's implementation
thereof, or with respect to any third-party claim against the
indemnitees with respect to the actions taken by Sun which relate to
the Plan or the Additional Recommendations.
(ii) Promptly after BSI becomes aware of one or
more facts, occurrences, happenings or events (including, without
limitation, the commencement of any action) which may give rise to a
claim for indemnification under this section, BSI shall notify Sun in
writing of such facts, occurrences, happenings or events, but failure
to give such notice shall not relieve Sun of any liability hereunder
except for any fees or expenses unreasonably incurred in connection
therewith or to the extent such failure actually prejudices Sun with
respect to such claim or action. Thereafter, BSI shall deliver to
Sun, promptly after BSI's receipt thereof, copies of all notices and
documents received by BSI relating to such claim or action. Any
claims for indemnification under this section must be asserted in
writing (setting forth in reasonable detail a description of such
claim) to Sun.
(iii) BSI shall provide Sun with prompt notice of
the payment or occurrence of any Losses. Upon the payment or
occurrence of any Loss, Sun shall pay the indemnitee the amount of
such Loss.
(iv) If, pursuant to this section, BSI notifies
Sun of any claim or legal proceeding by any person (other than BSI or
any other indemnitee) which might give rise to a claim for
indemnification against Sun, Sun, at its sole cost and expense, may,
upon written notice to BSI, assume the defense of such claim or
related legal proceeding. If Sun assumes the defense of any such
claim or legal proceeding, Sun shall select counsel reasonably
acceptable to BSI to conduct the defense of such claim or legal
proceeding and, at the sole cost and expense of Sun, shall take all
steps reasonably necessary in the defense, compromise or settlement
thereof; provided, that Sun shall not expressly consent to a
settlement or compromise of, or expressly consent to the entry of any
judgment arising from, any such claim or legal proceeding without the
prior written consent of BSI (which consent shall not be unreasonably
withheld or delayed, although BSI may, in considering whether or not
to give such consent, assess the implications of such settlement,
compromise or judgment on the
40
<PAGE> 49
current or future conduct of BSI's business activities). BSI and any
other indemnitee shall be entitled to participate in (but not control)
the defense of any such action, with their own counsel and at their
own expense.
If, with respect to a third-party claim, Sun neither
acknowledges nor disclaims in writing to BSI Sun's obligation to
indemnify the indemnitees pursuant hereto, BSI or any other indemnitee
may defend against such claim or related legal proceeding with such
counsel and in such manner as they deem appropriate, and may consent
to the settlement or compromise of, or consent to the entry of a
judgment arising from, such claim or legal proceeding without the
consent of Sun. Sun and its agents and representatives shall be
entitled to participate in (but not control) the defense of any such
action, with Sun's own counsel and at its own expense.
Whether or not Sun chooses to defend any claim or litigation
for which BSI or any other indemnitee may be entitled to
indemnification under this section, each of the parties hereto shall
cooperate in the defense thereof. Such cooperation shall include the
retention and the provision of records and information that are
reasonably relevant to such claim or litigation, and making employees
available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder.
4.8. Disclosure Statement. On the date of this Agreement, (i) BSI
has delivered to Sun a Statement (the "BSI Disclosure Statement"), accompanied
by a certificate signed by the chief financial officer of BSI stating that the
BSI Disclosure Statement is being delivered pursuant to this Section 4.8(i),
and (ii) Sun has delivered to BSI a Statement (the "Sun Disclosure Statement"),
accompanied by a certificate signed by the chief financial officer of Sun
stating that the Sun Disclosure Statement is being delivered pursuant to this
Section 4.8(ii). The BSI Disclosure Statement and the Sun Disclosure Statement
are collectively referred to herein as the "Disclosure Statements." The
Disclosure Statements, when so delivered, shall be deemed to constitute an
integral part of this Agreement and to modify or otherwise affect the
respective representations, warranties, covenants or agreements of the parties
hereto contained herein to the extent that such representations, warranties,
covenants or agreements expressly refer to the Disclosure Statements. Except
as otherwise contained herein or in the Disclosure Statements, any and all
statements, representations, warranties or disclosures set forth in the
Disclosure Statements shall be deemed to have been made on and as of the date
of this Agreement.
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS
5.1. Conditions Precedent to Obligations of BSI. The obligations
of BSI to consummate and effect the Merger hereunder shall be subject to the
satisfaction of the following conditions, or to the waiver thereof by BSI in
the manner contemplated by Section 6.4 on or before the Closing Date:
41
<PAGE> 50
5.1.1. Representations and Warranties of Sun; Performance of
Obligations. The representations and warranties of Sun herein
contained shall be true and correct as of the date hereof and as of
the Closing Date with the same effect as though made at such date
(except to the extent such representations and warranties speak only
as of any other date, which need only be true and correct as of such
other date), except as affected by transactions permitted or
contemplated by this Agreement; except in each case for such failures
of representations and warranties to be true and correct (without
regard to any materiality qualifications contained therein) which
individually, or in the aggregate, have not had and would not be
reasonably likely to result in a Sun Material Adverse Effect. Sun
shall have performed and complied, in all material respects, with all
its agreements and covenants contained in or contemplated by this
Agreement to be performed or complied with by Sun before the Closing
Date; and Sun shall have delivered to BSI a certificate, dated the
Closing Date and signed by its chairman of the board or its president,
and by its chief financial or accounting officer, and its secretary,
to the effect that, to the best of such officer's knowledge, such
conditions have been satisfied; provided however, BSI acknowledges
that Sun has delivered to BSI, on or before the date of this
Agreement, its business plan for the remainder of 1996 and for the
first quarter of 1997 the (the "Sun Business Plan") and BSI agrees
that if Sun achieves the results forecasted in the Sun Business Plan
in all material respects, BSI will not assert that such financial
results constitute a Sun Material Adverse Effect even though such
financial results show a decline from the results of operations set
forth in the financial statements dated September 30, 1996 delivered
to BSI pursuant to the Agreement; provided further, the foregoing
provisions shall not preclude BSI from asserting that a Sun Material
Adverse Effect has occurred as a result of other occurrences which
might constitute a Sun Material Adverse Effect.
5.1.2. No Injunction. No injunction or restraining order
shall be in effect in any court of competent jurisdiction which would
restrain or prohibit the consummation of the merger contemplated
hereby.
5.1.3. Opinion of Sun Counsel. BSI shall have received a
favorable opinion, dated as of the Effective Date, from Graham &
James, LLP/Riddell Williams P.S., counsel for Sun, in form and
substance reasonably satisfactory to BSI, to the effect that (i) Sun
has been duly incorporated and is validly existing as a corporation in
good standing under the laws of the State of Washington; (ii) all
corporate proceedings required to be taken by or on the part of Sun to
authorize the execution of this Agreement and the implementation of
the merger contemplated hereby have been taken; (iii) the shares of
Sun Common and Preferred Stock which are to be delivered in accordance
with this Agreement will, when issued, be validly issued, fully paid
and nonassessable outstanding securities of Sun; and (iv) this
Agreement has been duly executed and delivered by, and is the legal,
valid and binding obligation of Sun and is enforceable against Sun in
accordance with its respective terms, except as enforceability may be
limited by (a) equitable principles of general applicability or (b)
bankruptcy,
42
<PAGE> 51
insolvency, reorganization, fraudulent conveyance or similar laws
affecting the rights of creditors generally. Such opinion also shall
cover such other matters incident to the transactions herein
contemplated as BSI and its counsel may reasonably request. In
rendering such opinion, such counsel may rely upon (i) certificates of
public officials and of officers of Sun as to matters of fact and (ii)
the opinion or opinions of other counsel, which opinions shall be
reasonably satisfactory to BSI, as to matters other than federal or
Washington law.
5.1.4. Tax Opinion. BSI shall have received an opinion of
Porter & Hedges, L.L.P., in form and substance satisfactory to BSI,
dated the Effective Date, that BSI and holders of BSI Common Stock and
BSI Preferred Stock (except to the extent any stockholders receive
cash in lieu of fractional shares and except for payments to any
dissenting stockholder) will recognize no gain or loss for federal
income tax purposes as a result of consummation of the Merger.
5.1.5. Stockholder Approval. The approval of a requisite
majority of the stockholders of Sun of the Merger contemplated by this
Agreement shall have been obtained.
5.1.6. Hart-Scott-Rodino, etc. All waiting periods required
by HSR shall have expired with respect to the transactions
contemplated by this Agreement, or early termination with respect
thereto shall have been obtained without the imposition of any
governmental request or order requiring the sale or disposition or
holding separate (through a trust or otherwise) of particular assets
or businesses of Sun, its affiliates or any component of BSI or other
actions as a precondition to the expiration of any waiting period or
the receipt of any necessary governmental approval or consent.
5.1.7. Listing of Sun Common Stock. The Nasdaq Stock Market
shall have agreed that on the Effective Date it will list the shares
of Sun Common Stock issuable at the Effective Date of this Agreement.
5.1.8. Consent of Certain Parties in Privity With Sun. The
holders of any material indebtedness of Sun, the lessors of any
material property leased by Sun, and the other parties to any other
material agreements (including those licensors listed in Section 5.1.8
of the Sun Disclosure Statement hereto) to which Sun is a party shall
have, if required by the terms of the respective agreement, consented
to the Merger contemplated hereby (which consents shall have been
obtained without any material charge or expense imposed by the
consenting party and without any material adverse amendments to any
underlying agreements).
5.1.9. Resignations. All officers and directors of Sun
shall have provided written resignations to BSI with respect to such
positions.
5.1.10. Sun Dissenters. The holders of not more than 1% of
the issued and outstanding shares of Sun Common Stock (the "Sun
Dissenting Shareholders") shall have delivered a written demand for
appraisal of such shares in the manner provided in the WBCA.
43
<PAGE> 52
5.1.11. Registration Statement Effective. The Registration
Statement shall have been declared effective by the Commission, the
information contained therein shall be true and correct in all
material respects, no stop order shall have been issued or proceedings
instituted or threatened suspending the effectiveness of the
Registration Statement and all approvals, consents, permits, licenses
or qualifications from authorities administering the securities or
"blue-sky" laws of any state having jurisdiction, required in the
reasonable judgment of BSI for the consummation of the merger, shall
have been obtained and shall be effective, and no such approval,
consent, permit, license, or qualification shall contain any condition
which in the judgment of BSI is unduly burdensome.
5.1.12. Financing. BSI shall have obtained debt financing in
an amount sufficient in its reasonable judgment for the consummation
of the Merger.
5.1.13. Lock-Up Agreement of SeaFirst. SeaFirst shall have
executed a 180 day "Lock-up" agreement with respect to its shares of
Sun Common Stock held at the Effective Date, such agreement to be in a
form acceptable to BSI.
5.1.14. Additional Matters. Sun shall have provided to BSI
such additional resolutions and certificates as may be reasonably
required in connection with the consummation of the Merger.
5.2. Conditions Precedent to Obligations of Sun. The obligations
of Sun to consummate and effect the Merger hereunder shall be subject to the
satisfaction of the following conditions, or to the waiver thereof by Sun in
the manner contemplated by Section 6.4 on or before the Closing Date:
5.2.1. Representations and Warranties of BSI; Performance of
Obligations. The representations and warranties of BSI herein
contained shall be true and correct as of the date hereof and as of
the Closing Date with the same effect as though made at such date
(except to the extent such representations and warranties speak only
as of any other date, which need only be true and correct as of such
other date), except as affected by transactions permitted or
contemplated by this Agreement; except in each case for such failures
of representations and warranties to be true and correct (without
regard to any materiality qualifications contained therein) which
individually, or in the aggregate, have not had and would not be
reasonably likely to result in a BSI Material Adverse Effect. BSI
shall have performed and complied, in all material respects, with all
its agreements and covenants contained in or contemplated by this
Agreement to be performed or complied with by BSI before the Closing
Date; and BSI shall have delivered to Sun a certificate, dated the
Closing Date and signed by its chairman of the board or its president,
and by its chief financial or accounting officer, and its secretary,
to the effect that, to the best of such officer's knowledge, such
conditions have been satisfied.
44
<PAGE> 53
5.2.2. No Injunction. No injunction or restraining order
shall be in effect in any court of competent jurisdiction which would
restrain or prohibit the consummation of the merger contemplated
hereby.
5.2.3. Opinion of BSI's Counsel. Sun shall have received a
favorable opinion, dated the Effective Date, from Porter & Hedges,
L.L.P., counsel to BSI, in form and substance reasonably satisfactory
to Sun, to the effect that (i) BSI has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
the State of Delaware; (ii) all corporate or other proceedings
required to be taken by or on the part of BSI to authorize the
execution of this Agreement and the implementation of the merger
contemplated hereby have been taken; and (iii) this Agreement has been
duly executed and delivered by, and is the legal, valid and binding
obligation of BSI and is enforceable against BSI in accordance with
its terms, except as the enforceability may be limited by (a)
equitable principles of general applicability or (b) bankruptcy,
insolvency, reorganization, fraudulent conveyance or similar laws
affecting the rights of creditors generally. Such opinion shall also
cover such other matters incident to the transactions herein
contemplated as Sun and its counsel may reasonably request. In
rendering such opinion, such counsel may rely upon (i) certificates of
public officials and of officers of BSI as to matters of fact and (ii)
on the opinion or opinions of other counsel, which opinions shall be
reasonably satisfactory to Sun, as to matters other than federal or
Texas law.
5.2.4. Tax Opinion. Sun shall have received an opinion of
Graham & James LLP/Riddell Williams P.S. in form and substance
satisfactory to Sun, dated the Effective Date, that Sun and holders of
Sun Common Stock (except to the extent any stockholders receive the
Cash Consideration or cash in lieu of fractional shares and except for
payments to any dissenting shareholder) will recognize no gain or loss
for federal income tax purposes as a result of consummation of the
Merger.
5.2.5. Stockholder Approval. The approval of the requisite
majority of the stockholders of BSI and Sun of the Merger contemplated
by this Agreement shall have been obtained.
5.2.6. Hart-Scott-Rodino, etc. All waiting periods required
by HSR shall have expired with respect to the transactions
contemplated by this Agreement, or early termination with respect
thereto shall have been obtained without the imposition of any
governmental request or order requiring the sale or disposition or
holding separate (through a trust or otherwise) of particular assets
or businesses of Sun, its affiliates or any component of BSI or other
actions as a precondition to the expiration of any waiting period or
the receipt of any necessary governmental approval or consent.
5.2.7. Fairness Opinion. Sun shall have received a
favorable opinion from Rodman & Renshaw for inclusion in the Joint
Proxy Statement/Prospectus as to the fairness, from a
45
<PAGE> 54
financial point of view, to the holders of Sun Common Stock (other
than SeaFirst) of the consideration to be paid in the merger.
5.2.8. Consent of Certain Parties in Privity With BSI. The
holders of any material indebtedness of BSI, the lessors of any
material property leased by BSI, and the other parties to any other
material agreements (including those licensors listed on Section 5.2.8
of the BSI Disclosure Statement hereto) to which BSI is a party shall
have, if required by the terms of the respective agreements, consented
to the Merger contemplated hereby (which consents shall have been
obtained without any material charge or expense imposed by the
consenting party and without any material adverse amendments to any
underlying agreements).
5.2.9. Registration Statement Effective. The Registration
Statement shall have been declared effective by the Commission, the
information contained therein shall be true and correct in all
material respects, no stop order shall have been issued or proceedings
instituted or threatened suspending the effectiveness of the
Registration Statement or, in the reasonable opinion of Sun's counsel,
the issuance of the Sun Common Stock and Sun Preferred Stock to the
BSI stockholders shall be exempt from registration under federal
securities laws.
5.2.10. BSI Dissenters. The holders of not more than 1% of
the issued and outstanding BSI Common Stock and BSI Preferred Stock
shall have dissented with respect to the Merger as provided in the
DGCL.
5.2.11. Equity Investment. BSI shall have obtained the
equity investment as contemplated by Section 2.1.3(b) hereof.
5.2.12. Additional Matters. BSI shall have provided to Sun
such additional resolutions and certificates as may be reasonably
required in connection with the consummation of the merger.
5.3. Additional Condition Precedent. The obligations of BSI and
Sun to consummate and effect the Merger also shall be subject to the condition
that BSI shall have secured, on or prior to the earlier to occur of the mailing
of the Joint Proxy Statement/Prospectus or January 15, 1997 (the "Financing
Termination Date"), a commitment letter in customary form (the "Commitment")
for debt financing in addition to that already in place of not less than
$5,000,000 for purposes of the consummation of the Merger. The Commitment
shall be from a lender reasonably acceptable to Sun. BSI shall deliver a copy
of the Commitment to Sun on or prior to the Financing Termination Date. In the
event that BSI has not secured the Commitment and delivered a copy of the same
to Sun on or prior to the Financing Termination Date, BSI or Sun each shall be
entitled to terminate this Agreement at any time thereafter upon written notice
to the other in the manner provided for in Article VI of this Agreement.
46
<PAGE> 55
ARTICLE VI
TERMINATION AND ABANDONMENT
6.1. Termination. Anything contained in this Agreement to the
contrary notwithstanding, this Agreement may be terminated and the Merger
contemplated hereby abandoned at any time (whether before or after the approval
and adoption thereof by the stockholders of BSI or Sun contemplated by this
Agreement) before the Effective Date:
6.1.1. By Mutual Consent. By mutual written consent of Sun
and BSI.
6.1.2. By Sun Because of Conditions Precedent. By Sun, if
any condition set forth in Paragraph 5.2 hereof has not been met and
has not been waived prior to the Effective Date; provided however,
that prior to any termination of this Agreement by Sun on the basis
that BSI has not met the conditions of Section 5.2.1, Sun shall first
provide written notice to BSI, of (i) any breaches of the
representations and warranties of BSI made herein as of the date
hereof which breaches, individually or in the aggregate, have had,
would or would be reasonably likely to result in a BSI Material
Adverse Effect, and BSI shall have 20 days to remedy such breaches
after receipt by BSI of notice in writing from Sun, specifying the
nature of such breaches and requesting that they be remedied, or (ii)
any failure to perform and comply with in all material respects its
agreements and covenants hereunder, and BSI shall have 20 days to
perform such agreement or covenants after receipt by BSI of notice in
writing from Sun, specifying the nature of such failure and requesting
that it be remedied.
6.1.3. By BSI Because of Conditions Precedent. By BSI, if
any condition set forth in Paragraph 5.1 hereof has not been met and
has not been waived prior to the Effective Date; provided however,
that prior to any termination of this Agreement by BSI on the basis
that Sun has not met the conditions of Section 5.1.1, BSI shall first
provide written notice to Sun, of (i) any breaches of the
representations and warranties of Sun made herein as of the date
hereof which breaches, individually or in the aggregate, have had,
would or would be reasonably likely to result in a Sun Material
Adverse Effect, and Sun shall have 20 days to remedy such breaches
after receipt by Sun of notice in writing from BSI, specifying the
nature of such breaches and requesting that they be remedied, or (ii)
any failure to perform and comply with in all material respects its
agreements and covenants hereunder, and Sun shall have 20 days to
perform such agreement or covenants after receipt by Sun of notice in
writing from BSI, specifying the nature of such failure and requesting
that it be remedied.
6.1.4. By Sun or BSI if Merger not Effective by April 30,
1997. By either Sun or BSI, if the Merger shall not have become
effective on or before April 30, 1997; provided, such date shall be
extended for up to 60 additional days in order (a) to satisfy the
requirements of the Commission (or any condition to Closing related to
the requirements of the Commission), (b) to obtain clearance under HSR
or (c) to obtain relief from any
47
<PAGE> 56
injunction or restraining order prohibiting consummation of the
merger; provided, further, that a party in default or in breach of its
obligations or agreements under this Agreement shall have no right to
terminate the Agreement under this Section 6.1.4.
6.1.5. By BSI under Section 4.7. By BSI under the provisions
of Section 4.7 hereof.
6.1.6. By BSI or Sun under Section 5.3. By BSI or Sun under
the provisions of Section 5.3 hereof.
6.1.7. By Sun or BSI Because of Alternate Business
Combination.
(a) by Sun, upon two days' prior notice to BSI, if, as a
result of a tender offer by a party other than BSI or any of its
affiliates or any written offer or proposal with respect to a merger,
sale of a material portion of its assets or other business combination
(each, a "Business Combination") by a party other than BSI or any of
its affiliates, the Board of Directors of Sun determines in good faith
that the fiduciary obligations of such directors under applicable law
require that such tender offer or other written offer or proposal be
accepted; provided, however, that (i) the Board of Directors of Sun
shall have been advised in writing by outside counsel that
notwithstanding a binding commitment to consummate an agreement of the
nature of this Agreement entered into in the proper exercise of their
applicable fiduciary duties, and notwithstanding all concessions which
may be offered by BSI in negotiations entered into pursuant to clause
(ii) below, such fiduciary duties would also require the directors to
reconsider such commitment as a result of such tender offer or other
written offer or proposal; and (ii) prior to any such termination, Sun
shall, and shall cause its respective financial and legal advisors to,
negotiate with BSI to make such adjustments in the terms and
conditions of this Agreement as would enable Sun to proceed with the
transactions contemplated herein; provided further, that BSI and Sun
acknowledge and affirm that, notwithstanding anything in this Section
6.1.7(a) to the contrary, BSI and Sun intend this Agreement to be an
exclusive agreement and, accordingly, nothing in this Agreement is
intended to constitute a solicitation of an offer or proposal for a
Business Combination, it being acknowledged and agreed that any such
offer or proposal would interfere with the strategic advantages and
benefits that BSI and Sun expect to derive from the Merger and other
transactions contemplated hereby;
(b) by BSI, upon two days' prior notice to Sun, if, as a
result of a tender offer by a party other than Sun or any of its
affiliates or any written offer or proposal with respect to a Business
Combination by a party other than Sun or any of its affiliates, the
Board of Directors of BSI determines in good faith that the fiduciary
obligations of such directors under applicable law require that such
tender offer or other written offer or proposal be accepted; provided,
however, that (i) the Board of Directors of BSI shall have been
advised in writing by outside counsel that notwithstanding a binding
commitment to consummate an agreement of the nature of this Agreement
entered into in the proper exercise of their applicable fiduciary
duties and notwithstanding all concessions which may be offered by Sun
48
<PAGE> 57
in negotiations entered into pursuant to clause (ii) below, such
fiduciary duties would also require the directors to reconsider such
commitment as a result of such tender offer or other written offer or
proposal; and (ii) prior to any such termination, BSI shall, and shall
cause its respective financial and legal advisors to, negotiate with
Sun to make such adjustments in the terms and conditions of this
Agreement as would enable BSI to proceed with the transactions
contemplated herein; provided, further, that Sun and BSI acknowledge
and affirm that, notwithstanding anything in this Section 6.1.7(b) to
the contrary, Sun and BSI intend this Agreement to be an exclusive
agreement and, accordingly, nothing in this Agreement is intended to
constitute a solicitation of an offer or proposal for a Business
Combination, it being acknowledged and agreed that any such offer or
proposal would interfere with the strategic advantages and benefits
that Sun and BSI expect to derive from the Merger and other
transactions contemplated hereby;
6.2. Termination by Board of Directors. An election of Sun or BSI
to terminate this Agreement and abandon the merger as provided in Paragraph 6.1
shall be exercised by such party's board of directors.
6.3. Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to and in accordance with the provisions
of Paragraph 6.1 hereof, this Agreement shall become void and have no effect
and there shall be no liability on the part of either BSI or Sun or their
respective officers or directors hereunder, except as provided in Section 6.5
and except that (i) Sections 4.7, 6.5 and the agreement contained in the last
sentence of Section 4.1.5 shall survive any such termination and (ii) no such
termination shall relieve any party from liability for breach of any
representation, warranty or agreement contained herein; provided, however, that
no party hereto shall waive any term or condition hereof, unless in the
judgment of the board of directors taking the action, such waiver will not have
a materially adverse effect on the benefits intended under this Agreement to
the stockholders of its corporation.
6.4. Waiver of Conditions. Subject to the requirements of any
applicable law, any of the terms or conditions of this Agreement may be waived
in writing at any time by the party which is entitled to the benefit thereof,
by action taken by its board of directors, the executive committee of its board
of directors, or its chief executive officer.
6.5. Expense on Termination. If the merger contemplated hereby is
terminated pursuant to and in accordance with the provisions of Paragraph 6.1
hereof, all expenses will be paid by the party incurring them, provided,
however, (i) that if either Sun or BSI terminates this Agreement as a result of
a breach of or default in the other party's obligations hereunder, then the
party that so breached or defaulted hereunder shall pay all of the other
party's documented costs and expenses, including legal, accounting and
financial advisory fees and expenses, incurred in connection with the
negotiation and implementation of this Agreement (and if Sun is the terminating
party, BSI shall reimburse Sun for 50% of the filing fee and printing costs
associated with the Joint Proxy Statement/Prospectus), (ii) that if Sun or BSI,
respectively, terminates this Agreement pursuant to Section 6.1.7(a) or
6.1.7(b), respectively, the terminating party shall pay the other party the sum
of
49
<PAGE> 58
$750,000 (which amount shall be deemed to constitute full payment of such
parties' fees and expenses incurred in connection with the negotiation and
implementation of this Agreement) and (iii) if BSI terminates the agreement
because the condition precedent contained in Section 5.1.12 (Financing) has not
been satisfied prior to the Closing Date (so long as the Commitment has been
received not later than the Financing Termination Date), BSI shall pay Sun's
documented costs and expenses, including legal, accounting and financial
advisory fees and expenses. In addition to the foregoing provisions, if BSI
terminates this Agreement pursuant to Section 5.1.2, upon such termination Sun
shall issue to BSI a warrant (the "Warrant") to purchase 1,500,000 shares of
Sun Common Stock (as adjusted to reflect any changes in the capital structure
of Sun) at an exercise price equal to the average closing price for 20 trading
days prior to issuance. The Warrant shall be exercisable for a period of ten
years after the date of issuance, shall contain customary anti-dilution and
"cheap stock" protection and shall contain a "cashless exercise" provision.
BSI and Sun shall mutually agree on the form of such warrant within 15 days of
the date hereof.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1. Directors' and Officers' Indemnification.
(a) Indemnification. To the extent, if any, not provided
by an existing right under one of the parties' directors and officers
liability insurance policies, from and after the Effective Date, the
Surviving Corporation shall, to the fullest extent permitted by
applicable law, indemnify, defend and hold harmless each person who is
now, or has been at any time prior to the date hereof, or who becomes
prior to the Effective Date, a director, officer or employee of the
parties hereto or any subsidiary thereof (each an "Indemnified Party"
and, collectively, the "Indemnified Parties") against all losses,
expenses (including reasonable attorneys' fees and expenses), claims,
damages or liabilities or, subject to the proviso of the next
succeeding sentence, amounts paid in settlement, arising out of
actions or omissions occurring at or prior to the Effective Date and
whether asserted or claimed prior to, at or after the Effective Date)
that are in whole or in part (i) based on, or arising out of the fact
that such person is or was a director, officer or employee of such
party or a subsidiary of such party or (ii) based on, arising out of
or pertaining to the transactions contemplated by this Agreement. In
the event of any such loss, expense, claim, damage or liability
(whether or not arising before the Effective Date), (i) the Surviving
Corporation shall pay the reasonable fees and expenses of counsel
selected by the Indemnified Parties, which counsel shall be reasonably
satisfactory to the Surviving Corporation, promptly after statements
therefor are received and otherwise advance to such Indemnified Party
upon request reimbursement of documented expenses reasonably incurred,
in either case to the extent not prohibited by the WBCA (or the law of
jurisdiction of incorporation of the Surviving Corporation) and upon
receipt of any affirmation and undertaking required by the WBCA (or
the law of jurisdiction of incorporation of the Surviving
Corporation), (ii) the Surviving Corporation will cooperate in the
defense of any such matter and (iii) any determination required to be
made with respect
50
<PAGE> 59
to whether an Indemnified Party's conduct complies with the standards
set forth under Washington law (or the law of jurisdiction of
incorporation of the Surviving Corporation) and the Surviving
Corporation's Restated Articles of Incorporation or Bylaws shall be
made by independent counsel mutually acceptable to the Surviving
Corporation and the Indemnified Party; provided, however, that the
Surviving Corporation shall not be liable for any settlement effected
without its written consent (which consent shall not be unreasonably
withheld). The Indemnified Parties as a group may retain only one law
firm with respect to each related matter except to the extent, there
is, in the opinion of counsel to an Indemnified Party, under
applicable standards of professional conduct, a conflict on any
significant issue between positions of any two or more Indemnified
Parties.
(b) Insurance. For a period of four years after the
Effective Date, the Surviving Corporation shall cause to be maintained
in effect the policies of directors' and officers' liability insurance
maintained by BSI and Sun for the benefit of those persons who are
covered by such policies at the Effective Date (or the Surviving
Corporation may substitute therefor policies of at least the same
coverage with respect to matters occurring prior to the Effective
Time), to the extent that such liability insurance can be maintained
annually at a cost to the Surviving Corporation not greater than
$50,000; provided that if such insurance cannot be so maintained or
obtained at such cost, the Surviving Corporation shall maintain or
obtain as much of such insurance as can be so maintained or obtained
at a cost equal to $50,000 annually.
(c) Successors. In the event the Surviving Corporation
or any of its successors or assigns (i) consolidates with or merges
into any other person and shall not be the continuing or surviving
corporation or entity of such consolidation or merger or (ii)
transfers all or substantially all of its properties and assets to any
person, then and in either such case, proper provision shall be made
so that the successors and assigns of the Surviving Corporation shall
assume the obligations set forth in this Section 7.1.
(d) Survival of Indemnification. To the fullest extent
permitted by law, from and after the Effective Date, all rights to
indemnification now existing in favor of the employees, agents,
directors or officers of BSI, Sun and their respective subsidiaries
with respect to their activities as such prior to the Effective Date,
as provided in their respective Articles of or Certificate of
Incorporation or Bylaws, in effect on the date thereof or otherwise in
effect on the date hereof, shall survive the Merger and shall continue
in full force and effect for a period of not less than six years from
the Effective Date.
(e) Benefit. The provisions of this Section 7.1 are
intended to be for the benefit of, and shall be enforceable by, each
Indemnified Party, his or her heirs and his or her representatives.
51
<PAGE> 60
7.2. Undertaking to File Reports and Cooperate in Rule 144 and
Rule 145 Transactions; Rule 145 Affiliates.
(a) For as long as any stockholders of BSI who are
subject to Rule 144 or Rule 145 of the Securities Act continue to hold
the shares of Sun Common Stock issued pursuant to the terms hereof,
Sun will use reasonable commercial efforts to timely file all annual,
quarterly and other reports required to be filed by it under Section
13 or 15(d) of the Exchange Act and the rules and regulations of the
Commission thereunder, as amended from time to time. If any such
stockholder proposes to sell any Sun Common Stock pursuant to Rule 144
and 145, Sun shall cooperate with such stockholders so as to enable
such sales to be made in accordance with applicable laws, rules and
regulations, the requirements of Sun's transfer agent, and the
reasonable requirements of the broker through which the sales are
proposed to be executed. Without limiting the generality of the
foregoing, Sun shall, upon request, furnish with respect to each such
sale (i) a written statement certifying that Sun has complied with the
public information requirements of Rule 144 and 145 and (ii) an
opinion of Sun's counsel regarding such matters as Sun's transfer
agent or such stockholder's broker may reasonably desire to confirm.
(b) BSI shall identify in a letter to Sun all persons who
will be, at the Closing Date, "affiliates" of BSI, as such term is
used in Rule 145 under the Securities Act. BSI shall use all
reasonable efforts to cause its affiliates to deliver to Sun on or
prior to the Closing Date a written agreement substantially in the
form attached as Appendix V (each, an "Affiliate Agreement"). If any
affiliate refuses to provide such a written agreement, Sun shall, in
lieu of receipt of such written agreement, be entitled to place
appropriate legends on the certificates evidencing the Sun Common
Stock to be received by such affiliate pursuant to the terms of this
Agreement, and to issue appropriate stock transfer instructions to the
transfer agent for Sun Common Stock, to the effect that the shares of
Sun Common Stock received or to be received by such affiliate pursuant
to the terms of this Agreement may only be sold, transferred or
otherwise conveyed, and the holder thereof may only reduce his
interest in or risks relating to such shares of Sun Common Stock,
pursuant to an effective registration statement under the Securities
Act, in compliance with Rule 145, as amended from time to time, or in
a transaction which, in the opinion of legal counsel satisfactory to
the Sun, is exempt from the registration requirements of the
Securities Act. The foregoing restrictions on the transferability of
Sun Common Stock shall apply to all purported sales, transfers and
other conveyances of the shares of Sun Common Stock received or to be
received by such affiliate pursuant to this Agreement and to all
purported reductions in the interest in or risks relating to such
shares of Sun Common Stock, whether or not such affiliate has
exchanged the certificates previously evidencing such affiliates'
shares of BSI Common Stock for certificates evidencing the shares of
Sun Common Stock into which such shares were converted. The Joint
Proxy Statement/Prospectus and the Registration Statement shall
disclose the foregoing in a reasonably prominent manner.
52
<PAGE> 61
7.3. BSI Options and Warrants. As of the Effective Date, each of
the then outstanding options and warrants to purchase BSI Common Stock will and
without further action on the part of the holder thereof be exchanged for an
option or warrant, as the case may be, to purchase that number of shares of Sun
Common Stock determined by multiplying the number of shares of BSI Common Stock
subject to such BSI option or warrant at the Effective Date, times the
applicable exchange rate for the BSI Common Stock set forth in Article I
hereof, and the exercise price thereof shall adjust in accordance with the
terms and provisions of such option or warrant. If the foregoing calculation
results in an exchanged BSI option or warrant being exercisable for a fraction
of a share of Sun Common Stock, then the number of shares of Sun Common Stock
subject to such option or warrant will be rounded down to the nearest whole
number of shares, and the total exercise price for the option or warrant will
be reduced by the exercise price of the fractional share. The term,
exerciseability, vesting schedule and all other terms and conditions of the BSI
options or warrants will otherwise be unchanged by the provisions of this
paragraph and shall operate in accordance with their terms. All shares of Sun
Common Stock issued upon exercise of any BSI employee stock options shall be
registered under an effective form S-8 Registration Statement filed with the
Commission.
7.4. WARN Act Issues. Prior to the Effective Date, Sun shall be
responsible for providing and discharging any and all notifications, benefits
and liabilities to Sun employees, former employees and government agencies
required by the Worker Adjustment and Retraining Notification Act of 1988
("WARN Act") or any other applicable law including any requirements that may be
imposed as a result of the transactions contemplated by this Agreement. Sun
shall provide to BSI copies of all such notifications provided under the WARN
Act or similar laws or regulations.
ARTICLE VIII
MISCELLANEOUS
8.1. Entirety. This Agreement and the agreements to be entered
into in connection herewith embody the entire agreement between the parties
with respect to the subject matter hereof, and all prior agreements between the
parties with respect thereto are hereby superseded in their entirety.
8.2. Counterparts. Any number of counterparts of this Agreement
may be executed and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
instrument.
8.3. Notices and Waivers. Any notice or waiver to be given to any
party hereto shall be in writing and shall be delivered by courier, sent by
facsimile transmission or first class registered or certified mail, postage
prepaid.
53
<PAGE> 62
IF TO BSI
Addressed to: With a copy to:
BSI Holdings, Inc. Porter & Hedges, L.L.P.
3860 Virginia Avenue 700 Louisiana, 35th Floor
Cincinnati, Ohio 45243 Houston, Texas 77210-4744
Attention: President Attention: Richard L. Wynne
Facsimile: (513) 272-2812 Facsimile: (713) 228-1331
IF TO SUN
Addressed to: With a copy to:
Sun Sportswear, Inc. Graham & James LLP/Riddell
6520 South 190th Street Williams P.S.
Kent, Washington 98032 1001 Fourth Avenue Plaza
Attenton: President Suite 4500
Facsimile: (206) 251-3565 Seattle, Washington 98154-1065
Attention: Marion V. Larson
Facsimile: (206) 389-1708
Any communication so addressed and mailed by first-class registered or
certified mail, postage prepaid, shall be deemed to be received on the third
business day after so mailed, and if delivered by courier or facsimile to such
address, upon delivery during normal business hours on any business day.
8.4. Termination of Representations, Warranties, etc. The
respective representations and warranties contained in Articles II and III
shall expire with, and be terminated and extinguished by, the merger pursuant
to this Agreement at the time of the consummation thereof on the Effective
Date. This Paragraph 8.4 shall have no effect upon any other right or
obligation of the parties in connection with this Agreement or otherwise,
whether to be exercised or performed before or after the Effective Date.
8.5. Table of Contents and Captions. The table of contents and
captions contained in this Agreement are solely for convenient reference and
shall not be deemed to affect the meaning or interpretation of any article,
section, or paragraph hereof.
8.6. Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of and be enforceable by the successors and
assigns of the parties hereto.
8.7. Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void, or unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. It is hereby stipulated and declared to be
the intention of the parties
54
<PAGE> 63
that they would have executed the remaining terms, provisions, covenants and
restrictions without including any of such which may be hereafter declared
invalid, void or unenforceable.
8.8. Applicable Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware
(except to the extent that the form and content of the Articles of Merger and
the consequences of the filing thereof shall be governed by the WBCA).
8.9. Public Announcements. The parties agree that before the
Effective Date that they shall consult with each other before the making of any
public announcement regarding the existence of this Agreement, the contents
hereof or the transactions contemplated hereby, and to obtain the prior
approval of the other party as to the content of such announcement, which
approval shall not be unreasonably withheld. However, the foregoing shall not
apply to any announcement or written statement which, upon the written advice
of counsel, is required by law or the National Association at Securities
Dealers (the "NASD") to be made, except that the party required to make such
announcement shall, whenever practicable, consult with and solicit prior
approval from such other party concerning the timing and content of such
legally required announcement or statement before it is made.
55
<PAGE> 64
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed in their respective corporate names by their respective duly
authorized representatives, all as of the day and year first above written.
BSI HOLDINGS, INC.
By:_______________________________________
Randall B. Hale, Chairman of the Board
SUN SPORTSWEAR, INC.
By:_______________________________________
William S. Wiley, President
56
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED SEPT. 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000856711
<NAME> SUN SPORTSWEAR, INC.
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 141,773
<SECURITIES> 0
<RECEIVABLES> 6,576,288
<ALLOWANCES> 45,904
<INVENTORY> 19,415,919
<CURRENT-ASSETS> 29,494,761
<PP&E> 10,576,061
<DEPRECIATION> 6,652,902
<TOTAL-ASSETS> 33,432,426
<CURRENT-LIABILITIES> 9,195,270
<BONDS> 155,642
0
0
<COMMON> 21,618,339
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 24,081,514
<SALES> 53,601,719
<TOTAL-REVENUES> 53,601,719
<CGS> 46,596,495
<TOTAL-COSTS> 56,095,726
<OTHER-EXPENSES> (51,461)
<LOSS-PROVISION> 100,746
<INTEREST-EXPENSE> 492,359
<INCOME-PRETAX> (2,934,905)
<INCOME-TAX> (998,000)
<INCOME-CONTINUING> (1,936,905)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,936,905)
<EPS-PRIMARY> (.34)
<EPS-DILUTED> (.34)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
CONTACT: Kevin James, Senior Vice President & CFO
Sun Sportswear, Inc.
(206) 251-3565
For Immediate Release: November 13, 1996
SUN SPORTSWEAR, INC. ANNOUNCES THIRD QUARTER 1996 RESULTS
AGREES TO MERGE WITH BSI HOLDINGS, INC.
KENT, WASHINGTON -- SUN SPORTSWEAR, INC. ("Sun" or the "Company") (NASDAQ:
SSPW) today announced third quarter 1996 results and the signing of an
agreement to merge with BSI Holdings, Inc. ("BSI")
MERGER WITH BSI
Sun has entered into a definitive merger agreement with respect to the merger
(the "Merger") of the Company and BSI Holdings, Inc., which has been approved
by the boards of both companies. The Merger would position the combined entity
as one of the leading character apparel licensees in the U.S.
The terms of the agreement provide for Sun stockholders, other than Seafirst
Bank ("Seafirst"), to receive cash in the amount of $2.20 per share for 50% of
their shares. The non-Seafirst shareholders will retain the remaining 50% of
their shares, subject to the right to elect to retain 100% of their shares and
forgo the cash consideration. Seafirst, the owner of 3,800,000 shares or 66.1%
of the outstanding common stock of the Company, will have 48.3% of its shares
exchanged for $2.20 per share of cash and a convertible promissory note.
Seafirst will retain its remaining shares, subject to adjustment based on the
elections of the non-Seafirst shareholders.
The merger is structured as a tax free exchange of shares (except to the extent
Sun common stockholders receive cash or notes).
BSI, through its primary operating subsidiary Brazos Sportswear, Inc., is a
manufacturer and distributor of decorated sportswear with annualized revenues
of approximately $200 million. BSI operates facilities in ten states and sells
products throughout the United States to over 15,000 customers. All shares of
BSI will be converted into shares of Sun Common stock, which upon closing of
the Merger will represent approximately 88% of Sun's outstanding shares, after
taking into consideration warrants and options to purchase such shares.
The Merger is conditioned upon certain regulatory approvals and approval of the
shareholders of both companies. The Merger is expected to be completed by
February 28, 1997.
<PAGE> 2
Bill Wiley, President and CEO of Sun, stated "We are excited about the future
prospects that will result from a Sun and BSI combination. The organizations
are a strong complement to each other and will result in a larger customer base,
a broader license portfolio, broader manufacturing capabilities and improved
utilization, an expanded sales force, and stronger domestic and international
sourcing."
THIRD QUARTER 1996 RESULTS OF OPERATIONS
Sun posted net sales of $9.1 million for the three months ended September 30,
1996, compared to $16.2 million in the same period of 1995. Net loss was $2.2
million, or $.39 per share, for the 1996 quarter, versus a net loss of $2.9
million, or $.52 per share, in the same quarter of 1995.
Bill Wiley stated, "Sales in the third quarter of 1996 were hampered by a soft
retail environment in certain sectors of the screenprinted apparel market."
The loss was lower in the 1996 quarter due to lower operating expenses, which
resulted from a restructuring plan implemented by the Company earlier in 1996;
lower interest expenses, which resulted from concerted efforts by the Company
to operate in 1996 with lower levels of inventory; and the Company's much lower
inventory markdown reserves in the third quarter of 1996 (third quarter 1995
included a $2.0 million - pre-tax - inventory markdown).
For the nine months ended September 30, 1996, net sales were $53.6 million
compared to $72.5 million in 1995. Net loss for 1996 decreased to $1.9
million, or $.34 per share, compared to the 1995 net loss of $2.6 million, or
$.46 per share.
The Company noted that sales for the fourth quarter of 1996 are anticipated to
be below fourth quarter 1995 levels.
Sun supplies its line of imprinted, dyed and decorated casual sportswear for
adults and children, primarily to customers in the mass merchandising and
mid-tier segments such as Wal-Mart, Target, Kmart, JC Penney and Montgomery
Ward.
<PAGE> 3
FINANCIAL HIGHLIGHTS
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the quarter For the nine months
ended September 30, ended September 30,
(unaudited) (unaudited)
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales $ 9,134 $ 16,225 $ 53,602 $ 72,527
Gross Margin 33 *(873) 7,005 *7,596
Operating Expenses 3,333 3,505 9,499 10,794
Interest and
Other Expense 68 153 441 797
Net Loss (2,224) (2,990) (1,937) (2,636)
Earnings Per Share (.39) (.52) (.34) (.46)
Weighted Average
Shares Outstanding 5,749 5,749 5,749 5,748
</TABLE>
* includes a $2.0 million inventory markdown reserve recorded in the third
quarter of 1995 to cover expected losses on the sale of surplus inventory.
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
<S> <C> <C>
Inventories $ 19,416 $ 23,631
</TABLE>
* * * * * * * * * *
