SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 2, 1997
BRAZOS SPORTSWEAR, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
0-18054 91-1770931
(Commission File Number) (IRS Employer Identification No.)
3860 VIRGINIA AVENUE, CINCINNATI, OHIO 45227
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (513) 272-3600
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. ACQUISITION OR DISPOSITION OF ASSETS
On July 2, 1997, Brazos Sportswear, Inc. ("Brazos") issued $100 million of
10 1/2% senior notes due 2007 (hereinafter referred to as the "Offering"). The
net proceeds from the Offering, after deducting discounts to the initial
purchasers and other transaction costs, of $95.5 million were used to finance
the acquisition by Brazos of (i) all the outstanding capital stock of SolarCo,
Inc., the parent company of Morning Sun, Inc. ("Morning Sun" or the "Morning Sun
Acquisition") from approximately 34 persons and (ii) all of the assets of
Premier Sports Group, Inc. ("Premier" or the "Premier Acquisition"), and repay
certain debt obligations of Brazos, Morning Sun and Premier.
The purchase price for the Morning Sun Acquisition was approximately $31.7
million, consisting of (i) $29.3 million of cash paid at closing, (ii) 73,171
shares of Brazos common stock, (iii) additional estimated consideration of $1.6
million and (iv) estimated transaction costs of $125,000. Brazos also assumed
debt of approximately $8.4 million which was repaid with a portion of the
Offering proceeds. This transaction will be accounted for as a purchase with an
estimated $25 million of the excess of acquisition cost over the fair value of
net assets acquired being assigned to goodwill. The estimated amount of goodwill
of $25 million, utilizing March 29, 1997 information, is preliminary and subject
to modification pending the completion of appraisals and analyses of the net
assets acquired.
The purchase price for the Premier Acquisition was approximately $7.6
million, consisting of (i) $2 million of cash, (ii) a $1.5 million subordinated
note which is convertible into and payable only through the issuance of 136,364
shares of Brazos common stock, (iii) "earnout consideration" of up to $4 million
and (iv) estimated transaction costs of $125,000. Brazos also assumed debt of
approximately $8 million which was repaid with a portion of the Offering
proceeds. As of March 29, 1997, Premier had a nominal amount of net assets.
Accordingly, it is anticipated that substantially all of the purchase price will
be reflected as goodwill. The estimated amount of goodwill, utilizing March 29,
1997 information, is preliminary and subject to modification pending the
completion of appraisals and analyses of the net assets acquired.
A copy of the press release with respect to the Offering, the Morning Sun
Acquisition and the Premier Acquisition is included as an exhibit to this Form
8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired.
The required audited financial statements for the three most recent fiscal
years, together with the report of the auditors, and the unaudited interim
financial statements for the most recent interim fiscal period, of SolarCo, Inc.
and Subsidiary are attached hereto as Exhibit 99.1 and are incorporated herein
by reference.
(b) Pro forma financial information.
An unaudited pro forma condensed combined balance sheet as of March 29,
1997 has been prepared giving effect to the Offering, the Morning Sun
Acquisition and the Premier Acquisition as if each had occurred on such date.
Unaudited pro forma condensed combined statements of operations for the
thirteen-week period ended March 29, 1997 and the fiscal year ended December 28,
1996 have been prepared giving effect to the Offering, the Morning Sun
Acquisition, the Premier Acquisition, Brazos' merger with Sun Sportswear, Inc.
("Sun Sportswear") on March 14, 1997 ("Sun Merger") and Brazos' acquisition of
certain assets of Plymouth Mills, Inc. ("Plymouth") effective August 2, 1996, as
if each had occurred on the first day of fiscal 1996. The unaudited pro forma
condensed combined balance sheet as of March 29, 1997 and the unaudited pro
forma condensed combined statements of operations for the thirteen-week period
ended March 29, 1997 and the fiscal year ended December 28, 1996 are attached
hereto as Exhibit 99.2 and are incorporated herein by reference.
<PAGE>
(c) Exhibits
The following exhibits are filed herewith:
EXHIBIT
DESIGNATION NATURE OF EXHIBIT
----------- -----------------
10.1 Stock Purchase Agreement with respect to acquisition of
capital stock of SolarCo.
10.2 Asset Purchase Agreement with respect to acquisition of
of assets of Premier Sports Group, Inc.
99.1 Audited Financial Statements of SolarCo, Inc. and
Subsidiary for the three most recent fiscal years as
follows --
-- Report of independent public accounts
-- Consolidated balance sheet at December 31, 1995 and
December 29, 1996
-- Consolidated statement of income for the years ended
January 1, 1995, December 31, 1995 and December 29,
1996
-- Consolidated statement of stockholders' equity for
the years ended January 1, 1995, December 31, 1995
and December 29, 1996
-- Consolidated statement of cash flows for the years
ended January 1, 1995, December 31, 1995 and
December 29, 1996
Notes to consolidated financial statements
Unaudited Interim Financial Statements of SolarCo,
Inc. and Subsidiary for the most recent interim
period as follows --
-- Consolidated condensed balance sheet at December 29,
1996 and March 30, 1997 (unaudited)
-- Consolidated condensed statement of income for the
thirteen-week periods ended March 31, 1996 and March
30, 1997 (unaudited)
-- Consolidated condensed statement of cash flows for
the thirteen-week periods ended March 31, 1996 and
March 30, 1997 (unaudited)
-- Notes to consolidated condensed unaudited financial
statements
99.2 Unaudited pro forma financial statements of Brazos
Sportswear, Inc. as follows --
-- Pro forma condensed combined balance sheet as of
March 29, 1997
-- Pro forma condensed combined statement of operations
for the year ended December 28, 1996
-- Pro Forma condensed combined statement of operations
for the thirteen-week period ended March 29, 1997
99.3 Press Release.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BRAZOS SPORTSWEAR, INC.
By: /s/ F. CLAYTON CHAMBERS
F. Clayton Chambers
Vice President and Chief
Financial Officer
Date: July 16, 1997
EXHIBIT 10.1
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STOCK PURCHASE AGREEMENT
BY AND AMONG
BRAZOS SPORTSWEAR, INC.
AND
THE STOCKHOLDERS
OF
SOLARCO, INC.
------------------------------------
MAY 8, 1997
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<PAGE>
TABLE OF CONTENTS
PAGE NO.
ARTICLE I
PURCHASE AND SALE OF STOCK .......................................... 1
1.1. PURCHASE AND SALE OF STOCK .................................... 1
1.2. ADDITIONAL CONSIDERATION ...................................... 2
1.2.1. DELAYED CLOSING AMOUNT ................................ 2
1.2.2. TAX BENEFIT AMOUNT .................................... 2
1.3. ESCROW AGREEMENT .............................................. 2
1.4. CLOSING ....................................................... 3
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS .................. 3
2.1. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS ............ 3
2.1.1. ORGANIZATION AND STANDING ............................. 3
2.1.2. AUTHORITY; NONCONTRAVENTION; STATUTORY APPROVALS;
COMPLIANCE ............................................ 4
2.1.2.1. AUTHORITY ..................................... 4
2.1.2.2. NONCONTRAVENTION .............................. 4
2.1.2.3. STATUTORY APPROVALS ........................... 5
2.1.2.4. COMPLIANCE .................................... 5
2.1.3. CAPITALIZATION AND TITLE TO SHARES .................... 6
2.1.4. FINANCIAL STATEMENTS .................................. 6
2.1.5. ADDITIONAL SOLARCO INFORMATION ........................ 6
2.1.5.1. REAL ESTATE ................................... 6
2.1.5.2. MACHINERY AND EQUIPMENT ....................... 6
2.1.5.3. INVENTORY ..................................... 7
2.1.5.4. RECEIVABLES ................................... 7
2.1.5.5. PAYABLES ...................................... 7
2.1.5.6. INSURANCE ..................................... 7
2.1.5.7. MATERIAL CONTRACTS ............................ 7
2.1.5.8. EMPLOYEE COMPENSATION PLANS ................... 7
2.1.5.9. CERTAIN SALARIES .............................. 7
2.1.5.10. EMPLOYEE AGREEMENTS .......................... 8
2.1.5.11. PATENTS ...................................... 8
2.1.5.12. TRADE NAMES .................................. 8
2.1.5.13. PROMISSORY NOTES ............................. 8
(i)
<PAGE>
2.1.5.14. GUARANTIES ................................... 8
2.1.6. NO UNDISCLOSED DEFAULTS ............................... 8
2.1.7. ABSENCE OF CERTAIN CHANGES OR EVENTS .................. 9
2.1.8. TAXES ................................................. 9
2.1.9. INTELLECTUAL PROPERTY ................................. 9
2.1.10. TITLE TO PROPERTIES .................................. 10
2.1.11. LITIGATION ........................................... 10
2.1.12. ENVIRONMENTAL COMPLIANCE ............................. 10
2.1.12.1. ENVIRONMENTAL CONDITIONS ..................... 10
2.1.12.2. PERMITS, ETC ................................. 10
2.1.12.3. COMPLIANCE ................................... 11
2.1.12.4. PAST COMPLIANCE .............................. 11
2.1.12.5. ENVIRONMENTAL CLAIMS ......................... 11
2.1.12.6. RENEWALS ..................................... 11
2.1.13. FINDER'S FEE ......................................... 11
2.1.14. EMPLOYMENT MATTERS ................................... 12
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BRAZOS ............................ 13
3.1. REPRESENTATIONS AND WARRANTIES OF BRAZOS ...................... 13
3.1.1. ORGANIZATION AND STANDING ............................. 13
3.1.2. AUTHORITY; NONCONTRAVENTION; STATUTORY APPROVALS;
COMPLIANCE ............................................ 13
3.1.2.1. AUTHORITY ..................................... 13
3.1.2.2. NONCONTRAVENTION .............................. 14
3.1.2.3. STATUTORY APPROVALS ........................... 14
3.1.2.4. COMPLIANCE .................................... 14
3.1.3. FINDER'S FEE .......................................... 15
ARTICLE IV
OBLIGATIONS PENDING CLOSING DATE .................................... 15
4.1. AGREEMENTS .................................................... 15
4.1.1. MAINTENANCE OF PRESENT BUSINESS ....................... 15
4.1.2. INSPECTION ............................................ 15
4.2. ADDITIONAL AGREEMENTS OF THE SHAREHOLDERS ..................... 16
4.2.1. PROHIBITION OF CERTAIN EMPLOYMENT CONTRACTS ........... 16
4.2.2. PROHIBITION OF CERTAIN LOANS .......................... 16
4.2.3. PROHIBITION OF CERTAIN COMMITMENTS .................... 16
4.2.4. DISPOSAL OF ASSETS .................................... 16
4.2.5. MAINTENANCE OF INSURANCE .............................. 17
(ii)
<PAGE>
4.2.6. NO AMENDMENT TO ARTICLES OF INCORPORATION, ETC ........ 17
4.2.7. NO ISSUANCE, SALE, OR PURCHASE OF SECURITIES .......... 17
4.2.8. PROHIBITION ON DIVIDENDS .............................. 17
4.3. ADDITIONAL AGREEMENTS OF THE SHAREHOLDERS AND BRAZOS .......... 17
4.3.1. HART-SCOTT-RODINO ..................................... 17
4.3.2. NOTICE OF MATERIAL DEVELOPMENTS ....................... 17
4.4. DISCLOSURE STATEMENT .......................................... 17
4.5. COMMERCIALLY REASONABLE EFFORTS ............................... 18
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS ................................. 18
5.1. CONDITIONS PRECEDENT TO OBLIGATIONS OF BRAZOS ................. 18
5.1.1. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS;
PERFORMANCE OF OBLIGATIONS ............................ 18
5.1.2. NO INJUNCTION ......................................... 18
5.1.3. OPINION OF COUNSEL .................................... 18
5.1.4. HART-SCOTT-RODINO, ETC ................................ 19
5.1.5. CONSENT OF CERTAIN PARTIES IN PRIVITY WITH SOLARCO .... 19
5.1.6. TENDER OF STOCK ....................................... 19
5.1.7. RESIGNATIONS .......................................... 19
5.1.8. FINANCING ............................................. 19
5.1.10. ADOPTION AGREEMENT ................................... 19
5.1.11. ESCROW AGREEMENT ..................................... 20
5.1.12. EMPLOYEE COMPENSATION MATTERS ........................ 20
5.2. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SHAREHOLDERS ....... 20
5.2.1. REPRESENTATIONS AND WARRANTIES OF BRAZOS;
PERFORMANCE OF OBLIGATIONS ............................ 20
5.2.2. NO INJUNCTION ......................................... 20
5.2.3. OPINION OF BRAZOS' COUNSEL ............................ 20
5.2.4. HART-SCOTT-RODINO, ETC ................................ 21
5.2.5. SATISFACTION OR ASSUMPTION OF INDEBTEDNESS AND
OTHER OBLIGATIONS ..................................... 21
5.2.6. ESCROW AGREEMENT....................................... 21
5.2.7. PAYMENT OF CONSIDERATION............................... 21
ARTICLE VI
TERMINATION AND ABANDONMENT.......................................... 21
6.1. TERMINATION.................................................... 21
6.1.1. BY MUTUAL CONSENT...................................... 21
6.1.2. BY THE SHAREHOLDERS OR BRAZOS.......................... 21
6.2 WAIVER......................................................... 22
6.3 EXPENSE ON TERMINATION......................................... 22
(iii)
<PAGE>
6.4. AGREEMENT WITH RESPECT TO INITIAL PAYMENT...................... 22
ARTICLE VII
INDEMNIFICATION ..................................................... 22
7.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES .................... 22
7.2. INDEMNIFICATION OF BRAZOS ..................................... 23
7.3. INDEMNIFICATION OF SHAREHOLDERS ............................... 23
7.4. INDEMNIFICATION PROCEDURE ..................................... 23
7.5. ADDITIONAL PROVISIONS REGARDING INDEMNIFICATION ............... 24
ARTICLE VIII
MISCELLANEOUS ....................................................... 24
8.1. ENTIRETY ...................................................... 24
8.2. COUNTERPARTS .................................................. 24
8.3. NOTICES AND WAIVERS ........................................... 25
8.4. TABLE OF CONTENTS AND CAPTIONS ................................ 25
8.5. SUCCESSORS AND ASSIGNS ........................................ 25
8.6. SEVERABILITY .................................................. 25
8.7. APPLICABLE LAW ................................................ 26
8.8. PUBLIC ANNOUNCEMENTS .......................................... 26
(iv)
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT ("Agreement"), dated as of May 8, 1997, by and
among Brazos Sportswear, Inc., a Delaware corporation ("Brazos"), and the
shareholders (the "Shareholders") of Solarco, Inc. a Washington corporation
("Solarco"). On the date hereof, the following shareholders have executed and
delivered this Agreement: Robert C. Klein ("Klein"), TCR International Partners,
L.P., a Delaware limited partnership, Terbem Limited, a British Virgin Island
corporation, Tinvest Limited, a British Virgin Island corporation, Bobst
Investment Corp., a British Virgin Island corporation, and Mitvest Limited, a
British Virgin Island corporation; on the date hereof, such Shareholders hold
72.8% of the fully diluted capital stock of Solarco. Prior to the Closing Date
(as hereinafter defined), those Shareholders listed on SCHEDULE A hereto who are
not signatories to this Agreement shall execute an adoption agreement (the
"Adoption Agreement") wherein such Shareholders adopt this Agreement as if they
were parties hereto on the date hereof.
WHEREAS, Brazos desires to purchase from the Shareholders all of the
issued and outstanding capital stock of Solarco, and the Shareholders desire to
sell such capital stock to Brazos.
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties and covenants herein contained, the parties hereto
agree as follows:
ARTICLE I
PURCHASE AND SALE OF STOCK
1.1. PURCHASE AND SALE OF STOCK. (i) Subject to the terms and conditions
of this Agreement, at the Closing, the Shareholders agree to sell and convey to
Brazos, and Brazos agrees to purchase and accept from the Shareholders, all of
the Class A Voting Common Stock of Solarco, par value $.25 per share ("Class A
Shares"), and Class B Non-Voting Common Stock of Solarco, par value $.25 per
share ("Class B Shares") (the Class A Shares and Class B Shares are collectively
referred to as the "Solarco Capital Stock"). In consideration of the sale of the
Solarco Capital Stock, Brazos shall pay to the Shareholders an aggregate of (a)
$30,000,000 (which amount shall be reduced by the amount of the excess (the
"Excess Amount") of the payments described in Section 5.2.5 of the Solarco
Disclosure Statement over $2,500,000), of which (i) $29,250,000 (less the Excess
Amount) shall be paid in immediately available funds at Closing (except for any
amount escrowed under Section 1.3 hereof) and (ii) $750,000 shall be paid by the
issuance to Klein (in partial payment of the consideration for the Solarco
Capital Stock held by Klein) of 73,171 shares of Brazos common stock, par value
$.001 per share, (b) the Additional Consideration (as hereinafter defined) and
(c) the payment described in Section 1.1(ii) below (the consideration payable as
described in items (a), (b) and (c) above is collectively referred to as the
"Consideration"). Except as otherwise provided herein, the Consideration shall
be paid at the Closing to the Shareholders in the percentages set forth in
SCHEDULE A hereto. Not less than two days prior to Closing, the Shareholders
shall provide wire transfer or other delivery instructions to Brazos.
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(ii) On the date hereof, Brazos shall pay to Solarco, for the benefit of
the Shareholders, the amount of $350,000 in immediately available funds (the
"Initial Payment").
1.2. ADDITIONAL CONSIDERATION. The Shareholders shall be entitled to
receive additional consideration for the sale of the Solarco Capital Stock (the
"Additional Consideration") as set forth in Sections 1.2.1 and 1.2.2 below:
1.2.1. DELAYED CLOSING AMOUNT. If the Closing has not occurred on or
before May 31, 1997, a "Delayed Closing Amount" shall be payable on the
Closing Date to the Shareholders based on the percentages set forth in
SCHEDULE A. The Delayed Closing Amount is equal to the "Prime Rate" times
the amount of the Consideration payable under Section 1.1(i)(a) for the
time period from June 1, 1997 through the Closing Date; such amount to be
calculated on a per annum basis. The Prime Rate shall be the rate reported
by THE WALL STREET JOURNAL.
1.2.2. TAX BENEFIT AMOUNT. A "Tax Benefit Amount" shall be deposited
and distributed pursuant to the Escrow Agreement described in Section 1.3.
The Tax Benefit Amount shall be equal to the excess, if any, of (A) the
federal and state income and payroll tax liability of the Solarco
Consolidated Group (as hereafter defined) for tax periods ending on or
before the Closing Date (the "Tax Cost") assuming none of the options to
purchase Solarco Capital Stock set forth in Section 2.1.3(a) of the
Solarco Disclosure Statement were exercised over (B) the actual Tax Cost
of the Solarco Consolidated Group. For purposes of this Section 1.2.2, the
term "Solarco Consolidated Group" shall include Solarco and any Solarco
Subsidiary which is a member of the same "affiliated group" as defined in
Section 1504 of the Internal Revenue Code of 1986, as amended, and
together with Solarco has elected to file a consolidated federal income
tax return. If the Tax Benefit Amount is greater than $2,000,000, such
excess amount shall be paid to the Shareholders in cash in the percentages
set forth in SCHEDULE A at the time the Tax Benefit Amount is paid to the
Escrow Agent.
The Tax Benefit Amount shall be computed at or before the Closing Date.
Brazos will make all required filings with the Internal Revenue Service
and take all other reasonably practicable steps to obtain a tax refund
after the Closing with respect to the Tax Benefit Amount, and upon receipt
of such amount, it shall cause an equal amount (up to $2,000,000) to be
deposited with the Escrow Agent.
1.3. ESCROW AGREEMENT. On the Closing Date, the Consideration which is
payable in cash (the "Cash Consideration") shall be reduced by the amount, if
any, deposited in escrow as set forth in this Section 1.3. Brazos and the
Shareholders shall establish an escrow account with an escrow agent mutually
acceptable to the parties hereto (the "Escrow Agent") pursuant to a mutually
acceptable Escrow Agreement (the "Escrow Agreement") for the purpose of
satisfying claims, if any, of Brazos under Article VII. Subject to adjustment
under this Section 1.3, the escrow account shall be funded with $2,000,000,
which shall consist of (i) the Tax Benefit Amount computed in
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<PAGE>
Section 1.2 and (ii) if necessary, the amount of the Cash Consideration required
to bring the aggregate amount of the Escrow Funds to $2,000,000 (collectively,
the "Escrow Funds"). Among other mutually agreed upon terms, the Escrow
Agreement shall provide that (i) the Escrow Funds shall be disbursed in the
percentages set forth in SCHEDULE A upon the expiration of one year from the
Closing Date unless Brazos shall have exercised its rights under Article VII and
pursuant to the Escrow Agreement with respect to any claims under such article,
(ii) the Escrow Agent shall invest the Escrow Funds in a money market fund or
similar investment specified by the Shareholders and the investment income
earned on the Escrow Funds shall be disbursed to the Shareholders and to Brazos
in the percentages that the Escrow Funds are distributed under the terms of this
Agreement and the Escrow Agreement, and (iii) if upon the expiration of such one
year period the parties have not mutually agreed on the disbursement of the
Escrow Funds because of a claim by Brazos under Article VII, the Escrow Agent
shall interplead the portion of such funds in dispute into a court of competent
jurisdiction, pending final disposition of Brazos' claims. The Escrow Agreement
will provide that Three Cities Research, Inc. will be appointed attorney-in-fact
for the Shareholders for the purpose of the operation of the Escrow Agreement.
1.4. CLOSING. The closing (the "Closing") of the transactions contemplated
by this Agreement 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 or before July
15, 1997, or at such other time and date and place as Brazos and the
Shareholders shall mutually agree (the "Closing Date").
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDERS
2.1. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. Each of the
Shareholders represents and warrants to Brazos as follows:
2.1.1.ORGANIZATION AND STANDING. (a) Solarco 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, except where
the failure to be so qualified or licensed would have a material adverse
effect on Solarco and the Solarco Subsidiaries taken as a whole. As used
in this Agreement, (i) 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
(ii) the term "Solarco Subsidiaries" means all direct or indirect
subsidiaries of Solarco,
3
<PAGE>
including Morning Sun, Inc., a Washington corporation. True, accurate and
complete copies of the charter documents and bylaws of Solarco and the
Solarco Subsidiaries, in effect on the date hereof, have been delivered to
Brazos.
(b) All outstanding shares of stock of the Solarco Subsidiaries are
validly issued, fully paid, and nonassessable and owned by Solarco, and
Solarco has good and indefeasible title thereto free and clear of any
Encumbrance (as hereinafter defined). 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 have a material adverse effect on Solarco and
the Solarco Subsidiaries taken as a whole.
2.1.2.AUTHORITY; NONCONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE.
2.1.2.1. AUTHORITY. Each Shareholder severally represents and
warrants that it has all requisite power and authority and/or
capacity to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by the Shareholders and, assuming the
due authorization, execution and delivery hereof by Brazos,
constitutes the valid and binding obligation of the Shareholders
enforceable against the Shareholders 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 Solarco Disclosure Statement, the execution and
delivery of this Agreement by the Shareholders does 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
(herein, an "Encumbrance") upon any of the properties or assets of
Solarco or any of the Solarco Subsidiaries (any such violation,
conflict, breach, default, right of termination, modification,
cancellation or acceleration, loss or creation, a "Violation" with
respect to Solarco or any of the Solarco Subsidiaries) pursuant to
any provisions of (i) the articles of incorporation, bylaws or
similar governing documents of Solarco or any of the Solarco
Subsidiaries, (ii) any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction,
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writ, permit or license of any Governmental Authority (as defined in
Section 2.1.2.3) applicable to Solarco or any of the Solarco
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 Solarco Disclosure
Statement (the "Solarco 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 Solarco or any Solarco Subsidiaries
is now a party or by which it or any of its properties or assets may
be bound or affected.
2.1.2.3. STATUTORY APPROVALS. Except as required pursuant to
the Hart-Scott- Rodino Antitrust Improvement Act of 1976 and the
rules and regulations promulgated thereunder, 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 or authority (each, a "Governmental
Authority") is necessary for the execution and delivery of this
Agreement by the Shareholders or the consummation of the
transactions contemplated hereby, except as described in Section
2.1.2.3 of the Solarco Disclosure Statement (the "Solarco Required
Statutory Approvals," it being understood that references in this
Agreement to "obtaining" such Solarco 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).
2.1.2.4. COMPLIANCE. Except as set forth in Section 2.1.2.4 of
the Solarco Disclosure Statement, neither Solarco nor any Solarco
Subsidiary is in material violation of or is under investigation or
review, nor to any Shareholder's knowledge, is any investigation or
review threatened, with respect to any material violation of, or has
been given notice or been charged with any material 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 as
set forth in Section 2.1.2.4 of the Solarco Disclosure Statement,
Solarco and the Solarco Subsidiaries have all permits, licenses,
franchises and other governmental authorizations, consents and
approvals necessary to conduct their business as currently conducted
in all material respects. Except as set forth in Section 2.1.2.4 of
the Solarco Disclosure Statement, neither Solarco nor any Solarco
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 similar governing documents
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.
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2.1.3.CAPITALIZATION AND TITLE TO SHARES. (a) The authorized
capitalization of Solarco consists of 7,625,800 shares of Class A Voting
Common Stock, $.25 par value per share, of which at the date hereof,
2,700,912 shares were issued and outstanding, and 2,675,800 shares of
Class B Non-Voting Common Stock, at which at the date hereof 1,592,088
shares were issued and outstanding. Except as set forth in Section 2.1.3
of the Solarco 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 Solarco 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 Solarco.
(b) Each Shareholder severally represents and warrants that it holds
good and valid title to all of the Class A Shares and Class B Shares owned
by such Shareholder, free and clear of all Encumbrances; the number of
such shares held by each Shareholder is as set forth in Section 2.1.3(b)
of the Solarco Disclosure Statement.
2.1.4.FINANCIAL STATEMENTS. Section 2.1.4 of the Solarco Disclosure
Schedule contains a true and correct copy of the balance sheets and
related statements of income, stockholders' equity and cash flows for
Solarco which have been audited by Moss Adams, LLP as of and for each of
the periods ended December 31, 1995 and December 29, 1996 (the "Annual
Statements"), and the unaudited balance sheet and related statement of
income as of and for the three-month period ended March 31, 1997 (the
"1997 Statement," and together with the Annual Statements collectively
referred to as the "Financial Statements"). The Financial Statements
fairly present the financial position and results of operation of Solarco
and the Solarco Subsidiaries as of and for the periods indicated. The
Annual Statements have been prepared in accordance with GAAP applied on a
basis consistent with prior periods. The 1997 Statement has been prepared
on a basis consistent with prior periods. Since December 29, 1996, Solarco
has not changed any significant accounting method or practice.
2.1.5.ADDITIONAL SOLARCO INFORMATION. Section 2.1.5 of the Solarco
Disclosure Statement contains true, complete and correct lists of the
following items, and the Shareholders have furnished to Brazos true,
complete and correct copies of all documents referred to in such lists:
2.1.5.1. REAL ESTATE. All real property and structures thereon
owned, leased or subject to a contract of purchase and sale, or
lease commitment, by Solarco or any Solarco Subsidiary, with a
description of the nature and amount of any Encumbrances thereto;
2.1.5.2. MACHINERY AND EQUIPMENT. All machinery,
transportation equipment, tools, equipment, furnishings, and
fixtures (excluding such items as did
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not have a cost basis of $5,000 or more at their respective dates of
acquisition by Solarco or any Solarco Subsidiary) owned, leased or
subject to a contract of purchase and sale, or lease commitment, by
Solarco or any Solarco Subsidiary with a description of the nature
and amount of any Encumbrances thereon;
2.1.5.3. INVENTORY. All inventory items or groups of inventory
items owned by Solarco or any Solarco Subsidiary, together with the
amount of any Encumbrances thereon;
2.1.5.4. RECEIVABLES. All accounts and notes receivable of
Solarco or any Solarco Subsidiary, 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 Solarco or any Solarco Subsidiary 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;
2.1.5.5. PAYABLES. All accounts and notes payable of Solarco
or any Solarco Subsidiary, together with an appropriate aging
schedule;
2.1.5.6. INSURANCE. All insurance policies or bonds currently
maintained by Solarco or any Solarco Subsidiary, including title
insurance policies, with respect to Solarco or any Solarco
Subsidiary, including those covering their respective 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;
2.1.5.7. 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 whole or
in part after the Closing Date, and which involve or may involve
aggregate payments by or to Solarco or any Solarco Subsidiary of
$50,000 or more after such date; such list shall also include any
obligations of Solarco or any Solarco Subsidiary to make any
payments or provide any consideration to any person as a result of
the consummation of this Agreement;
2.1.5.8. 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 trustee agreements of Solarco or any
Solarco Subsidiary, with respect to such plans;
2.1.5.9. CERTAIN SALARIES. The names and salary rates of all
present officers and employees of Solarco or any Solarco Subsidiary
whose current regular annual salary rate is $50,000 or more,
together with any bonuses paid or payable to such
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persons for the fiscal year ended December 29, 1996, 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;
2.1.5.10. EMPLOYEE AGREEMENTS. Any collective bargaining
agreements of Solarco or any Solarco Subsidiary with any labor union
or other representative of employees, including amendments and
supplements, and all employment and consulting agreements of Solarco
or any Solarco Subsidiary;
2.1.5.11. PATENTS. All patents, trademarks, copyrights and
other material intellectual property rights owned, licensed, or used
by Solarco or any Solarco Subsidiary;
2.1.5.12. TRADE NAMES. All trade names and fictitious names
used or held by Solarco or any Solarco Subsidiary, whether and where
such names are registered and where used;
2.1.5.13. PROMISSORY NOTES. All long-term and short-term
promissory notes, installment contracts, loan agreements, credit
agreements, and any other agreements of Solarco or any Solarco
Subsidiary relating thereto or with respect to collateral securing
the same; and
2.1.5.14. GUARANTIES. All indebtedness, liabilities and
commitments of others and as to which Solarco or any Solarco
Subsidiary 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.
Section 2.1.5 of the Solarco Disclosure Statement shall be true,
complete and correct as of the Closing Date, except for items contained in
Paragraphs 2.1.5.3; 2.1.5.4; and 2.1.5.5, which are true, complete and
correct as of March 31, 1997 or such other date as therein indicated.
Prior to the Closing Date, the Shareholders shall update the information
contained in Paragraph 2.1.5.7 by providing such updated information in
writing to Brazos.
2.1.6.NO UNDISCLOSED DEFAULTS. Except as may be specified in the
Financial Statements or in Section 2.1.6 of the Solarco Disclosure
Statement, neither Solarco nor any Solarco Subsidiary is a party to, or
bound by, any material contract or arrangement of any kind to be performed
after the Closing Date, nor is Solarco or any Solarco Subsidiary 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.
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2.1.7.ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Solarco Disclosure Statement, from March 31, 1997, through the date
hereof, (a) Solarco and the Solarco Subsidiaries have conducted their
business, in all material respects, only in the ordinary course of
business consistent with past practice and (b) there has not been, and no
fact or condition exists which, to the knowledge of the Shareholders
(which term, shall for purposes of this Agreement, mean the knowledge of
the Shareholders listed in Section 2.1.7 of the Solarco Disclosure
Statement), would have or, is reasonably likely to have, a material
adverse effect on the business, operations, assets, liabilities or results
of operations of Solarco and the Solarco Subsidiaries taken as a whole.
2.1.8. TAXES. Except as set forth in Section 2.1.8 of the Solarco
Disclosure Statement, 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 Solarco and the Solarco
Subsidiaries 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 Solarco or any Solarco Subsidiary; and the tax provision
reflected in Annual Statements is adequate, in accordance with generally
accepted accounting principles, to cover liabilities of Solarco or any
Solarco Subsidiary at the date thereof for all taxes, including any
interest, penalties and additions to taxes of any character whatsoever
applicable to Solarco or any Solarco Subsidiary or their respective assets
or business. Except as set forth on Section 2.1.8 of the Solarco
Disclosure Statement, no waiver of any statute of limitations executed by
Solarco or any Solarco Subsidiary with respect to federal or state income
or other tax is in effect for any period. The federal income tax returns
of Solarco or any Solarco Subsidiary have never been examined by the
Internal Revenue Service. There are no tax liens on any assets of Solarco
or any Solarco Subsidiary except for taxes not yet currently due.
2.1.9. INTELLECTUAL PROPERTY. Except as set forth in Section 2.1.9
of the Solarco Disclosure Statement, Solarco and the Solarco Subsidiaries
own or possess 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 is either material to the
business of Solarco and the Solarco Subsidiaries or that is necessary for
the manufacture, use or sale of any products manufactured, used or sold by
Solarco and the Solarco Subsidiaries. The Intellectual Property is owned
or licensed by Solarco or the Solarco Subsidiaries free and clear of any
Encumbrance other than such Encumbrances as are listed in Section 2.1.9 of
the Solarco Disclosure Statement. Except as otherwise indicated in such
section, neither Solarco nor any Solarco Subsidiary has granted to any
other person any license to use any Intellectual Property. Except as
described in Section 2.1.9 of the Solarco Disclosure Statement, none of
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the Intellectual Property violates, conflicts with or infringes the rights
of any third parties. Neither Solarco nor any Solarco Subsidiary has
received any notice of infringement, misappropriation, or conflict with,
the intellectual property rights of others in connection with the use by
Solarco or the Solarco Subsidiaries of their Intellectual Property.
2.1.10. 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, Solarco and
the Solarco Subsidiaries have good and indefeasible title to all their
properties, interests in properties and assets, real and personal,
reflected in the Financial Statements, free and clear of any Encumbrance
of any nature whatsoever, except (i) liens and Encumbrances reflected in
the December 31, 1996 balance sheet of Solarco included in the Financial
Statements, (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
Solarco or any Solarco Subsidiary 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 Solarco or any
Solarco Subsidiary and in respect to which Solarco or any Solarco
Subsidiary has not taken adequate steps to prevent a default from
occurring.
2.1.11. LITIGATION. Except as set forth in Section 2.1.11 of the
Solarco Disclosure Statement, (a) there are no material claims, suits,
actions or proceedings, pending or, to the knowledge of the Shareholders,
threatened, nor are there, to the knowledge of the Shareholders, any
material investigations or reviews pending or threatened against, relating
to or affecting Solarco or any Solarco Subsidiary, and (b) there are no
judgments, decrees, injunctions, rules or orders of any court,
governmental department, commission, agency, instrumentality or authority
or any arbitrator applicable to Solarco or any Solarco Subsidiary.
2.1.12. ENVIRONMENTAL COMPLIANCE. Except as set forth in Section
2.1.12 of the Solarco Disclosure Statement:
2.1.12.1. ENVIRONMENTAL CONDITIONS. There are no materially
adverse environmental conditions or circumstances such as the
presence or release of any hazardous substance on any property
presently or previously owned by Solarco or any Solarco Subsidiary.
2.1.12.2. PERMITS, ETC. Solarco and the Solarco Subsidiaries
have in full force and effect all environmental permits, licenses,
approvals and other authorizations required to conduct their
respective operations and are operating in material compliance
thereunder.
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2.1.12.3. COMPLIANCE. Solarco's and the Solarco Subsidiaries'
operations and use of their assets do not violate in any material
respect 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. ss. 9601 ET SEQ.), the
Hazardous Materials Transportation Act (42 U.S.C. ss. 1801 ET SEQ.),
the Resource Conservation and Recovery Act (42 U.S.C. ss. 1609 ET
SEQ.), the Clean Water Act (33 U.S.C. 1251 ET SEQ. the Clean Air Act
(42 U.S.C. ss. 7401 ET SEQ.), the Toxic Substances Control Act (17
U.S.C. ss.2601 ET SEQ.), the Federal Insecticide Fungicide and
Rodenticide Act (7 U.S.C. ss. 136 ET SEQ.), thE Safe Drinking Water
Act (42 U.S.C. ss.201 and ss.300f ET SEQ.), the Rivers and HarbORS
Act (33 U.S.C. ss.401 ET SEQ.), the Oil Pollution Act (33 U.S.C. ss.
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").
2.1.12.4. PAST COMPLIANCE. To the knowledge of the
Shareholders, none of the operations or assets of Solarco or any
Solarco Subsidiary has ever been conducted or used in such a manner
as to constitute a material violation of any of the Applicable
Environmental Laws.
2.1.12.5. ENVIRONMENTAL CLAIMS. No notice has been served on
Solarco or any Solarco Subsidiary from any entity, governmental
agency or individual regarding any existing, pending or threatened
investigation or inquiry related to alleged material violations
under any Applicable Environmental Laws.
2.1.12.6. RENEWALS. The Shareholders do not know of any reason
Solarco or any Solarco Subsidiary 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
Solarco's or any Solarco Subsidiary's assets for their current
purposes and uses.
2.1.13. FINDER'S FEE. All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried on the
Shareholders and their respective counsel, directly with Brazos and its
counsel, without the intervention of any other person as the result of an
act of Solarco, any Solarco Subsidiary, or the Shareholders and, so far as
known to the Shareholders, 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.
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2.1.14. EMPLOYMENT MATTERS. (a) The Shareholders have delivered to,
or upon request will deliver to, Brazos copies of any material health and
life insurance plans, bonus, deferred compensation, pension, profit
sharing and retirement plans and all other material employee benefit
plans, programs or arrangements providing benefits for employees (or
former employees) of Solarco or any Solarco Subsidiary, all of which are
listed on Section 2.1.5.8 of the Solarco Disclosure Statement (the
"Solarco Benefit Plans"); a copy of the most recent favorable
determination letter received with respect to a Solarco 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 Solarco Benefit Plan (if any
such report was required); and the most recent summary plan description
for each Solarco Benefit Plan for which a summary plan description is
required. Each of the Solarco 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 Solarco 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 the Shareholders,
threatened claims by or on behalf of the Solarco Benefit Plans, the United
States Department of Labor, the Internal Revenue Service, or by any
current or former employee of Solarco or any Solarco Subsidiary 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
is reasonably likely to result in a material liability on the part of
Solarco, or Solarco Subsidiary or a Solarco Benefit Plan under ERISA or
any other law (other than benefit claims and funding obligations in the
ordinary course of business). Neither Solarco nor any Solarco Subsidiary
has 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; neither Solarco nor any Solarco
Subsidiary is a party to any such Multiemployer Pension Plan.
(b) Except as set forth in Section 2.1.14 of the Solarco Disclosure
Statement, (i) Neither Solarco nor any Solarco Subsidiary is a party to
any collective bargaining agreement or other labor agreement with any
union or labor organization; (ii) to the knowledge of the Shareholders,
there is no current union representation election or controversy involving
employees of Solarco or any of the Solarco Subsidiaries, nor do the
Shareholders 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 Solarco
or any Solarco Subsidiary pending, or to the knowledge of the
Shareholders, 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
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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
Solarco or any Solarco Subsidiary pending, or to the knowledge of the
Shareholders, threatened; (v) there is no strike, dispute, slowdown, work
stoppage or lockout pending, or to the knowledge of the Shareholders,
threatened, against or involving Solarco or any Solarco Subsidiary or any
Solarco Subsidiary; (vi) Solarco and the Solarco 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 the Shareholders, threatened, in respect
of which any director, officer, employee or agent of Solarco or any
Solarco Subsidiary is or may be entitled to claim indemnification from
Solarco or any Solarco Subsidiary pursuant to its respective articles of
incorporation or bylaws (or similar governing documents) or as provided in
any indemnification agreements.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF BRAZOS
3.1. REPRESENTATIONS AND WARRANTIES OF BRAZOS. Brazos represents and
warrants to the Shareholders as follows:
3.1.1.ORGANIZATION AND STANDING. Brazos 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, except where
the failure to be so qualified or licensed would have a material adverse
effect on Brazos.
3.1.2. AUTHORITY; NONCONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE
3.1.2.1. AUTHORITY. Brazos has all requisite power and
authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation by Brazos of the transactions
contemplated hereby, have been duly authorized by all necessary
corporate action. This Agreement has been duly and validly executed
and delivered by Brazos and, assuming the due authorization,
execution and delivery hereof by the Shareholders, constitutes the
valid and binding obligation of Brazos enforceable against it in
accordance with its terms, except as enforceability may be limited
by
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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 Brazos Disclosure Statement, the execution and
delivery of this Agreement by Brazos does 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
encumbrance upon any of their respective properties or assets (any
such violation, conflict, breach, default, right of termination,
modification, cancellation or acceleration, loss or creation, a
"Violation" with respect to Brazos pursuant to any provisions of (i)
the charter documents, bylaws or similar governing documents of
Brazos, (ii) any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of any
Governmental Authority applicable to Brazos or any of its 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 Brazos
Disclosure Statement (the "Brazos 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 Brazos is now a party or by which
it or any of its properties or assets may be bound or affected.
3.1.2.3. STATUTORY APPROVALS. No declaration, filing or
registration with, or notice to or authorization, consent or
approval of, any Governmental Authority is necessary for the
execution and delivery of this Agreement by Brazos or the
consummation by Brazos of the transactions contemplated hereby,
except as described in Section 3.1.2.3 of the Brazos Disclosure
Statement (the "Brazos Required Statutory Approvals," it being
understood that references in this Agreement to "obtaining" such
Brazos 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 Brazos Disclosure Statement, Brazos, is not in material
violation of or is under investigation with respect to any material
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. Except as set forth in Section 3.1.2.4 of the
Brazos Disclosure Statement, Brazos has all permits, licenses,
franchises and other governmental authorizations, consents and
approvals necessary
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to conduct its businesses as currently conducted in all material
respects. Except as set forth in Section 3.1.2.4 of the Brazos
Disclosure Statement, Brazos is not 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) charter documents 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.
3.1.3. FINDER'S FEE. Except as set forth on Section 3.1.3 of the
Brazos Disclosure Statement, all negotiations relative to this Agreement
and the transactions contemplated hereby have been carried on by Brazos
and its counsel directly with the Shareholders and their counsel, without
the intervention of any other person as the result of any act of Brazos,
and so far as is known to Brazos, 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.
ARTICLE IV
OBLIGATIONS PENDING CLOSING DATE
4.1. AGREEMENTS. The Shareholders agree that from the date hereof to the
Closing Date, except as otherwise set forth in the Solarco Disclosure Statement,
Solarco and the Solarco Subsidiaries have and the Shareholders will cause
Solarco and each of the Solarco Subsidiaries to:
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.
4.1.2. INSPECTION. Permit Brazos 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. Brazos
agrees that it and its Representatives shall hold all data and information
obtained with respect to Solarco and the Solarco Subsidiaries hereto in
confidence and Brazos 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; without the consent of Three Cities Research, Inc., as agent
for the shareholders, Brazos will not, prior to the Closing, require or
utilize the participation of Klein or other Morning Sun personnel in the
business or financial activities of Brazos.
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4.1.3. ACQUISITION PROPOSALS. Neither Solarco nor the Shareholders
shall, nor shall they permit any Solarco Subsidiary, or any of their
respective officers, directors or representatives to directly or
indirectly (i) solicit, initiate or encourage any inquiries or Acquisition
Proposals (defined below) from any person or (ii) participate in any
discussions or negotiations regarding, furnish to any person other than
Brazos or its representatives any information with respect to, or
otherwise assist, facilitate or encourage any Acquisition Proposal by any
other person. "Acquisition Proposal" means any proposal for a merger,
consolidation or other business combination involving Solarco or any
Solarco Subsidiary or the acquisition or purchase of any equity interest
in, or a material portion of the assets of, Solarco or any Solarco
Subsidiary. The Shareholders shall promptly communicate to Brazos the
terms of any such Acquisition Proposals which they or Solarco may receive
or any inquiries made to them or their directors, officers,
representatives or agents.
4.2. ADDITIONAL AGREEMENTS OF THE SHAREHOLDERS. Except as otherwise set
forth in the Solarco Disclosure Statement, the Shareholders agree that from the
date hereof to the Closing Date, they will cause Solarco and each Solarco
Subsidiary to:
4.2.1.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;
4.2.2.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 not exceeding
$9.5 million if the Closing occurs on or before July 15, 1997 (or an
amount not exceeding the sum of $1.3 million plus the amount of borrowings
shown on the business plan heretofore presented to Brazos for the end of
the month in which the Closing occurs after such date), (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) as is otherwise agreed
to in writing by Brazos;
4.2.3.PROHIBITION OF CERTAIN COMMITMENTS. Not (a) enter into
commitments for capital expenditures which would exceed $250,000, in the
aggregate for Solarco and all Solarco Subsidiaries, 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 Brazos or (b) enter into any agreement with any affiliate
of Solarco or any Solarco Subsidiary without Brazos's written consent;
4.2.4.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 Brazos;
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4.2.5.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;
4.2.6.NO AMENDMENT TO ARTICLES OF INCORPORATION, ETC. 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;
4.2.7.NO ISSUANCE, SALE, OR PURCHASE OF SECURITIES. Except with
respect to exercises of currently outstanding warrants or options which
are described in the Solarco Disclosure Schedule, 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
4.2.8.PROHIBITION ON DIVIDENDS. Except with respect to any
distribution of the Initial Payment, not declare or pay any dividend on
shares of its capital stock or make any other distribution of assets to
the holders thereof.
4.3. ADDITIONAL AGREEMENTS OF THE SHAREHOLDERS AND BRAZOS. The
Shareholders and Brazos agree to take the following actions after the date
hereof:
4.3.1.HART-SCOTT-RODINO. Within 10 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.
4.3.2. NOTICE OF MATERIAL DEVELOPMENTS. The Shareholders will
promptly notify Brazos in writing of any material adverse effect on the
business, operations, assets, liabilities or result of operations of
Solarco and the Solarco Subsidiaries taken as a whole.
4.4. DISCLOSURE STATEMENT. On the date of this Agreement, (i) Brazos has
delivered to Solarco a statement (the "Brazos Disclosure Statement"), and (ii)
the Shareholders have delivered to Brazos a statement (the "Solarco Disclosure
Statement"). The Brazos Disclosure Statement and the Solarco 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,
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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.
4.5. COMMERCIALLY REASONABLE EFFORTS. The parties hereto shall use
commercially reasonable efforts to cause the occurrence of the events contained
in Sections 5.1 and 5.2, respectively, to be satisfied at or before the Closing,
to the extent the occurrence of such events is in control of any such party.
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS
5.1. CONDITIONS PRECEDENT TO OBLIGATIONS OF BRAZOS. The obligations of
Brazos to consummate and effect the transactions contemplated hereunder shall be
subject to the satisfaction of the following conditions, or to the waiver
thereof by Brazos in the manner contemplated by Section 6.2 on or before the
Closing Date:
5.1.1.REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS;
PERFORMANCE OF OBLIGATIONS. The representations and warranties of the
Shareholders herein contained shall be true and correct in all material
respects 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. The Shareholders
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 them before the Closing Date; and the
Shareholders shall have delivered to Brazos a certificate, dated the
Closing Date and signed by each Shareholder, to the effect that such
conditions have been satisfied.
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 transactions contemplated hereby.
5.1.3.OPINION OF COUNSEL. Brazos shall have received a favorable
opinion, dated as of the Closing Date, from Paul, Weiss, Rifkind, Wharton
& Garrison, counsel for the Shareholders (and/or local counsel reasonably
acceptable to Brazos), in form and substance reasonably satisfactory to
Brazos, to the effect that (i) Solarco has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
State of Washington; and (ii) this Agreement has been duly executed and
delivered by, and is the legal, valid and binding obligation of the
Shareholders and is enforceable against them in accordance with its
respective terms, except as 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 also
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shall cover such other matters incident to the transactions herein
contemplated as Brazos and its counsel may reasonably request. In
rendering such opinion, such counsel may rely upon certificates of public
officials and of officers of Solarco as to matters of fact.
5.1.4.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 Solarco, any Solarco
Subsidiary or their affiliates or any component of Brazos or its
subsidiaries or affiliates or other actions as a precondition to the
expiration of any waiting period or the receipt of any necessary
governmental approval or consent.
5.1.5.CONSENT OF CERTAIN PARTIES IN PRIVITY WITH SOLARCO. The
holders of any material indebtedness of Solarco or any Solarco Subsidiary,
the lessors of any material property leased by Solarco or any Solarco
Subsidiary, and the other parties to any other material agreements to
which Solarco or any Solarco Subsidiary is a party shall have, if required
by the terms of the respective agreement, consented to the transactions
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).
5.1.6. TENDER OF STOCK. The Shareholders shall have delivered to
Brazos certificates representing all of the issued and outstanding Solarco
Capital Stock, duly endorsed for transfer or accompanied by duly executed
stock powers, free and clear of any Encumbrance.
5.1.7.RESIGNATIONS. All officers and directors of Solarco and the
Solarco Subsidiaries shall have provided written resignations to Brazos
with respect to such positions.
5.1.8. FINANCING. Brazos shall have obtained financing to fund the
payment of the Cash Consideration on the Closing Date;
5.1.9. KLEIN AGREEMENTS. Klein shall have executed an employment
agreement with Morning Sun, Inc. in the form attached hereto as EXHIBIT A.
In addition, Klein shall have executed an agreement acknowledging, in
customary form (a) that the shares of Brazos common stock issued to him on
the Closing date are "restricted" securities and (b) that he is an
accredited investor acquiring such shares for investment purposes only.
5.1.10. ADOPTION AGREEMENT. All Shareholders who did not execute
this Agreement on the date hereof shall have executed and delivered to
Brazos the Adoption Agreement.
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5.1.11. ESCROW AGREEMENT. The Shareholders shall have executed and
delivered to Brazos the Escrow Agreement.
5.1.12. EMPLOYEE COMPENSATION MATTERS. (a) the Shareholders shall
have entered into an agreement regarding the assumption by the
Shareholders of existing salary continuation obligations upon the
voluntary resignation of certain Morning Sun employees within four months
of the Closing Date and (b) except as otherwise mutually agreed by the
parties, as of the Closing Date, Solarco shall have outstanding no stock
options or warrants to acquire any class of Solarco's capital stock.
5.2. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SHAREHOLDERS. The
obligations of the Shareholders to consummate and effect the transactions
contemplated hereunder shall be subject to the satisfaction of the following
conditions, or to the waiver thereof by the Shareholders in the manner
contemplated by Section 6.2 on or before the Closing Date:
5.2.1.REPRESENTATIONS AND WARRANTIES OF BRAZOS; PERFORMANCE OF
OBLIGATIONS. The representations and warranties of Brazos herein contained
shall be true and correct in all material respects 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. Brazos shall have performed and complied, in all material
respects, with all of its agreements and covenants contained in or
contemplated by this Agreement to be performed or complied with by Brazos
before the Closing Date; and Brazos shall have delivered to the
Shareholders 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 such conditions
have been satisfied.
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 transactions contemplated hereby.
5.2.3.OPINION OF BRAZOS' COUNSEL. The Shareholders shall have
received a favorable opinion, dated the Closing Date, from Porter &
Hedges, L.L.P., counsel to Brazos, in form and substance reasonably
satisfactory to the Shareholders, to the effect that (i) Brazos has been
duly incorporated and is validly existing as a corporation in good
standing under the laws of Delaware; (ii) all corporate or other
proceedings required to be taken by or on the part of Brazos to authorize
the execution of this Agreement and the implementation of the transactions
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 Brazos and is enforceable against Brazos 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
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generally. Such opinion shall also cover such other matters incident to
the transactions herein contemplated the Shareholders and their counsel
may reasonably request. In rendering such opinion, such counsel may rely
upon certificates of public officials and of officers of Brazos as to
matters of fact.
5.2.4.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 Solarco or its affiliates
or other actions as a precondition to the expiration of any waiting period
or the receipt of any necessary governmental approval or consent.
5.2.5. SATISFACTION OR ASSUMPTION OF INDEBTEDNESS AND OTHER
OBLIGATIONS. Brazos shall have (i) repaid all indebtedness of Morning Sun,
Inc. to Seafirst Bank (which amount shall not exceed $12.0 million) and
(ii) assumed to the reasonable satisfaction of the Shareholders the 1997
Morning Sun, Inc. employee bonus payments and deferred earn-out amounts
not exceeding an aggregate of $2.5 million, which are described in Section
5.2.5 of the Solarco Disclosure Statement.
5.2.6. ESCROW AGREEMENT. Brazos shall have executed and delivered to
the Shareholders the Escrow Agreement.
5.2.7.PAYMENT OF CONSIDERATION. The Consideration shall have been
paid or delivered to the Shareholders in accordance with Article I hereof.
ARTICLE VI
TERMINATION AND ABANDONMENT
6.1. TERMINATION. Anything contained in this Agreement to the contrary
notwithstanding, this Agreement may be terminated and the transactions
contemplated hereby abandoned at any time before the Closing Date:
6.1.1.BY MUTUAL CONSENT. By mutual consent of the holders of not
less than 51% of the Solarco Capital Stock and Brazos; or
6.1.2.BY THE SHAREHOLDERS OR BRAZOS. By the holders of not less than
51% of the Solarco Capital Stock or Brazos if the terminating party or
parties is not in material breach of any of its obligations hereunder and
if the transactions contemplated by this Agreement have not been
consummated on or before July 15, 1997, except such date shall be extended
for an additional 60 days to the extent necessary to comply with the H-S-R
Act.
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6.2 WAIVER. Subject to the requirements of any applicable law, any of the
terms or conditions of this Agreement may be waived at any time by the party
which is entitled to the benefit thereof. The failure of any party at any time
or times to require performance of any provision hereof shall in no manner
affect the right to enforce the same. No waiver by any party of any condition,
or of the breach of any provision of this Agreement in one or more instances
shall be deemed to be or construed as a further or continuing waiver of any such
condition or breach or a waiver of any other condition or the breach of any
other provision.
6.3 EXPENSE ON TERMINATION. If the transactions contemplated hereby are
abandoned pursuant to and in accordance with the provisions of Section 6.1
hereof, all expenses will be paid by the party incurring them; PROVIDED, except
as otherwise set forth herein, this provision shall not limit any claim
resulting from the breach of this Agreement by any party hereto, PROVIDED,
FURTHER, that in the event this Agreement is terminated by any party in
accordance with Section 6.1.2, then Brazos shall pay to Three Cities Research
("TCR"), for the benefit of the Shareholders, the amount of $650,000 unless
either (a) at the time of such termination, the Shareholders are in material
breach of the Agreement or (b) the reason the transactions contemplated by this
Agreement were not consummated on or before July 15, 1997 (or such later date as
provided in Section 6.1.2) was the failure of any of the conditions set forth in
Section 5.1.1, 5.1.2, 5.1.3, 5.1.4, 5.1.5, 5.1.6, 5.1.7, 5.1.9, 5.1.10., 5.1.11,
or 5.1.12 (which failure was not the consequence of a breach by Brazos of its
covenants under this agreement) and upon receipt of such amount, the
Shareholders hereby irrevocably waive, release and agree not to sue Brazos or
its stockholders, officers, directors, affiliates, employees, or their
successors, assigns, agents or representatives with respect to all claims,
causes of action, rights of contribution, cost recovery, losses, liabilities,
suits, costs, fees, judgments or expenses which may thereafter arise in
connection with this Agreement or any breach by Brazos of any of the
representations, warranties, covenants or agreements contained herein.
6.4. AGREEMENT WITH RESPECT TO INITIAL PAYMENT. In the event any party
terminates this Agreement in accordance with Section 6.1.2 and TCR is not
entitled to the payment of the $650,000 described in Section 6.3, then the
Shareholders shall cause Solarco to immediately refund the Initial Payment to
Brazos. In the event that TCR is entitled to receive (on behalf of the
Shareholders) the $650,000 payment described in Section 6.3 and retains (on
behalf of the Shareholders) the Initial Payment, the aggregate of such payments
shall be deemed consideration for an option to purchase the Solarco Capital
Stock which expired by reason of the termination of this Agreement.
ARTICLE VII
INDEMNIFICATION
7.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained herein or any instrument or document delivered or to be
delivered pursuant to or in connection with this Agreement, shall survive the
execution and delivery of this Agreement and the Closing without limitation
notwithstanding any investigation or due diligence theretofore made by or on
behalf of any party hereto; provided, however, that all representations and
warranties of each
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party hereto shall terminate on the one year anniversary of the Closing Date
except (a) as to the representations and warranties contained in Section
2.1.3(b) which shall continue and survive indefinitely, and (b) as to the
representations and warranties contained in Section 2.1.8 (Taxes), which shall
continue and survive for the full period of the applicable statutes of
limitations (giving effect to any waiver, mitigation or extension thereof). All
claims for indemnification by any party hereto with respect to a breach of a
representation or warranty must be asserted prior to the expiration of the
applicable survival period. Except with respect to any claim regarding the
breach of the representations and warranties contained in Section 2.1.8 (Taxes),
none of the parties hereto will make any claim for indemnification until such
party shall have incurred at least $250,000 in Claims (as herein defined) and
thereafter only for claims in excess of such aggregate amount.
7.2. INDEMNIFICATION OF BRAZOS. The Shareholders shall indemnify, defend
and hold harmless Brazos and its affiliates and subsidiaries against and in
respect of any and all claims, demands, actions, costs, damages, losses,
diminution in value, expenses, liabilities, judgments, settlements, suits,
causes of action or deficiencies, including interest, penalties and reasonable
attorneys' fees (collectively, "Claims") that such indemnified persons shall
incur or suffer, which arise, result from or relate to any breach of, or failure
by the Shareholders to perform, any of their representations, warranties,
covenants or agreements in or under this Agreement.
7.3. INDEMNIFICATION OF SHAREHOLDERS. Brazos shall indemnify, defend and
hold harmless the Shareholders against and in respect of any and all Claims that
the Shareholders shall incur or suffer, which arise, result from or relate to
any breach of, or failure by Brazos to perform, any of its representations,
warranties, covenants or agreements in or under this Agreement.
7.4. INDEMNIFICATION PROCEDURE. Promptly upon the discovery of facts
giving rise to a claim for indemnity under this Article VII or the receipt of
notice of any Claim, judicial or otherwise, with respect to any matter as to
which indemnification may be claimed under this Article VII, the indemnified
party shall give written notice thereof to the indemnifying party together with
such information respecting such matter as the indemnified party shall then
have; PROVIDED, HOWEVER, that the failure of the indemnified party to give
notice as provided herein shall not relieve the indemnifying party of any
obligations, to the extent the indemnifying party is not materially prejudiced
thereby. If indemnification is sought with respect to a third-party (I.E., one
who is not a party to this Agreement) Claim asserted or brought against an
indemnified party, the indemnifying party shall be entitled to participate in
and to assume the defense thereof, jointly with any other indemnifying party
similarly notified, to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party. After such notice from the indemnifying
party to such indemnified party of its election to so assume the defense of such
a third-party Claim, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof, other than reasonable and
necessary costs of investigation, unless the indemnifying party has failed to
assume and diligently prosecute the defense of such third-party Claim and to
employ counsel reasonably satisfactory to such indemnified person. An
indemnifying party who elects not to assume the defense of a third-party Claim
shall not be liable for the fees and expenses of more than one counsel in any
single
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jurisdiction for all parties indemnified by such indemnifying party with respect
to such Claim or with respect to Claims separate but similar or related in the
same jurisdiction arising out of the same general allegations. Notwithstanding
any of the foregoing to the contrary, the indemnified party will be entitled to
select its own counsel and assume the defense of any action brought against it
if the indemnifying party fails to select counsel reasonably satisfactory to the
indemnified party or if counsel fails to diligently defend, and the expenses of
such defense shall be paid by the indemnifying party. No indemnifying party
shall consent to entry of any judgment or enter into any settlement with respect
to a claim without the consent of the indemnified party, which consent shall not
be unreasonably withheld. No indemnified party shall consent to entry of any
judgment or enter into any settlement of any such action the defense of which
has been assumed by an indemnifying party without the consent of such
indemnifying party, which consent shall not be unreasonably withheld.
7.5. ADDITIONAL PROVISIONS REGARDING INDEMNIFICATION.
(a) All claims for indemnification by Brazos hereunder shall be made
against the Escrow Funds or amounts which are payable by Brazos into escrow in
accordance with Section 1.3 hereof prior to making any claim for indemnification
against the Shareholders individually. Except with respect to any claim by
Brazos for indemnification which relates to the representations and warranties
contained in Section 2.1.3(b) or Section 2.1.8, the Shareholders' aggregate
obligation with respect to indemnification for a claim for breach of
representations and warranties hereunder shall be limited to the amount of
$3,000,000. With respect to claims for indemnification relating to breaches of
representations and warranties contained in Section 2.1.8 and to the extent
Brazos' claims for indemnification have exceeded $3,000,000, such claims shall
only be made against the Shareholders for the pro rata share of any liability
(based on the respective share holdings set forth in SCHEDULE A).
(b) The parties hereto agree that their remedies after the Closing Date
with respect to breaches of representations, warranties, covenants and
agreements contained herein are limited to claims for indemnification as
provided for in this Article VII.
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.
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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.
IF TO BRAZOS
Addressed to: With a copy to:
Brazos Sportswear, Inc. Porter & Hedges, L.L.P.
3860 Virginia Avenue 700 Louisiana, 35th Floor
Cincinnati, Ohio 45227 Houston, Texas 77210-4744
Attention: President Attention: Richard L. Wynne
Facsimile: (513) 272-2812 Facsimile: (713) 226-0247
IF TO SHAREHOLDERS
Addressed to: With a copy to:
Three Cities Research, Inc.,
as agent for the Shareholders Paul, Weiss, Rifkind, Wharton & Garrison
135 East 57th Street, 24th Floor 1285 Avenue of the Americas
New York, New York 10022 New York, New York 10019-6064
Attn: Jonathan Stein Attn: Robert Hirsh
Facsimile: (212) 980-1142 Facsimile: (212) 373-2159
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. 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.
8.5. 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.
8.6. 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
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parties 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.
8.7. APPLICABLE LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware.
8.8. PUBLIC ANNOUNCEMENTS. The parties agree that before the Closing 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.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed all as of the day and year first above written.
BRAZOS SPORTSWEAR, INC.
By: /S/ RANDALL B. HALE
Randall B. Hale,
Chairman of the Board
SHAREHOLDERS:
TCR INTERNATIONAL PARTNERS, L.P.
By:
By: /S/ J. WILLIAM UHRIG
Name: J. WILLIAM UHRIG
Title: GENERAL PARTNER
TERBEM LIMITED
By: Attorney-in-Fact
By: /S/ JONATHAN STEIN
Name: JONATHAN STEIN
Title: ATTORNEY-IN-FACT
TINVEST LIMITED
By: Attorney-in-Fact
By: /S/ JONATHAN STEIN
Name: JONATHAN STEIN
Title: ATTORNEY-IN-FACT
27
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BOBST LIMITED
By: Attorney-in-Fact
By: /S/ JONATHAN STEIN
Name: JONATHAN STEIN
Title: ATTORNEY-IN-FACT
MITVEST LIMITED
By: Attorney-in-Fact
By: /S/ JONATHAN STEIN
Name: JONATHAN STEIN
Title: ATTORNEY-IN-FACT
ROBERT KLEIN
Robert C. Klein
--------------------------
28
EXHIBIT 10.2
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
Dated May 30, 1997
By and Among
PREMIER SPORTS GROUP, INC.,
LAURENCE E. CRABB
BRAZOS, INC.
AND
BRAZOS SPORTSWEAR, INC.
- --------------------------------------------------------------------------------
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ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT dated as of May 30, 1997 (the "AGREEMENT"),
is by and among BRAZOS, INC., a Texas corporation (the "BUYER"), BRAZOS
SPORTSWEAR, INC., a Delaware corporation and the parent of Buyer (the "Parent"),
PREMIER SPORTS GROUP, INC., a Colorado corporation (the "SELLER"), and LAURENCE
E. CRABB (the "SHAREHOLDER"), the owner of 100% the issued and outstanding
capital stock of the Seller.
W I T N E S S E T H:
WHEREAS, the Seller is engaged in the business of sourcing, marketing and
selling apparel products (the "BUSINESS"); and
WHEREAS, the Seller desires to sell substantially all of its assets, and
the Buyer desires to acquire such assets, and to assume only such liabilities as
are expressly set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements, and subject to the terms
and conditions herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF ASSETS
1.1 PURCHASE AND SALE OF ASSETS. Subject to the terms and conditions set
forth in this Agreement, at the Closing, the Seller shall sell, convey,
transfer, assign and deliver to the Buyer all of the assets of the Seller,
whether real, personal, tangible or intangible, including without limitation
those assets of the Seller relating to or used or useful in the operation of the
Business described in Section 1.2 hereof, and without limitation of the
foregoing, including (i) all items, whether real, personal, tangible or
intangible which comprise each account balance under the caption "ASSETS" in the
April 30, 1997 unaudited balance sheet (including all such items which were at
the Balance Sheet Date, as defined in Section 2.1.5, carried at no cost), all of
which items are hereinafter collectively referred to as the "BALANCE SHEET
ASSETS;" (ii) all other assets whether real, personal, tangible or intangible of
Seller in existence at the Balance Sheet Date relating to the Business, all of
which assets are hereinafter collectively referred to as the "MISCELLANEOUS
ASSETS;" and (iii) all assets into which the Balance Sheet Assets and
Miscellaneous Assets have been converted, or which otherwise have been acquired,
by the Seller in the ordinary course of business between the Balance Sheet Date
and the Closing Date, all of which are hereinafter collectively referred to as
the "CONVERSION ASSETS;" PROVIDED, HOWEVER, that the Balance Sheet Assets,
Miscellaneous Assets and Conversion Assets shall not include any Excluded
Assets. As used herein, the term "EXCLUDED ASSETS" means (i) all assets in
possession of the Seller but owned by third parties; (ii) the corporate charter,
related organizational documents and minute books of Seller; and (iii) the cash
or other
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consideration paid or payable by the Buyer to the Seller pursuant to Section 1.3
hereof. The Assets purchased and sold pursuant to this Agreement are referred to
herein as the "PURCHASED ASSETS."
1.2 DESCRIPTION OF CERTAIN PURCHASED ASSETS. The Purchased Assets sold and
purchased pursuant to this Agreement shall include, without limitation, the
following:
(a) the machinery, equipment, leasehold improvements, furniture and
fixtures and vehicles described in SCHEDULE 1.2(A) (the "MACHINERY AND
EQUIPMENT");
(b) the inventory described in SCHEDULE 1.2(B) (the "INVENTORY"),
subject to changes in the ordinary course of business since the Balance
Sheet Date;
(c) the accounts receivable described in SCHEDULE 1.2(C) (the
"ACCOUNTS RECEIVABLE"), subject to changes in the ordinary course of
business since the Balance Sheet Date; and
(d) the Seller's intangible assets, including all rights to the name
"Premier Sports Group, Inc.," and the Seller's phone numbers, account
ledgers, all sales and promotional literature, computer software, books,
records, files and data (including customer and supplier lists), copies of
all contracts and documents evidencing accounts and contracts receivable
and payable and all other records of the Seller relating to the Purchased
Assets or the Business (excluding the corporate minute books of the
Seller).
1.3 CONSIDERATION FOR PURCHASED ASSETS. As consideration for the sale of
the Purchased Assets to the Buyer and for the other covenants and agreements of
the Seller, on the Closing Date, the Buyer shall:
1.3.1 CONSIDERATION PAID AT CLOSING.
(a) pay to the Seller an amount equal to the average net book value
of the Purchased Assets as of the end of the 12 months immediately
preceding the month in which the Closing occurs (the "Average Net Book
Value"), plus $1,500,000 (the "CASH CONSIDERATION") in the form of a
cashier's or bank check or wire transfer to an account designated by the
Seller prior to the Closing Date. Not less than two days prior to Closing,
the Seller shall deliver to Buyer a calculation of the Average Net Book
Value, which if the Closing were to occur in May 1997, would be
approximately $493,000; and
(b) cause the Parent to execute and deliver to the Seller a
convertible subordinated promissory note in the original principal amount
of $1,500,000.00 (the "CONVERTIBLE NOTE"), in the form attached hereto as
EXHIBIT A as part of the Convertible Subordinated Note Agreement contained
in such exhibit, which note shall bear no interest. The Convertible Note
shall be (i) due and payable on the seventh anniversary of the date hereof
and (ii) convertible in whole or in part by the Seller into the number of
shares of
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Parent common stock determined by dividing the outstanding principal
balance attributable to the converted portion of such note by $11.00
(which price shall be adjusted on the occurrence of certain events as set
forth in the Convertible Subordinated Note Agreement); provided, such note
shall not be convertible prior to the expiration of 366 days following the
Closing. The Convertible Note shall be subordinated to the indebtedness of
Parent as provided in the Convertible Subordinated Note Agreement or in
any related subordination agreement executed in connection herewith.
1.3.2 CONTINGENT CONSIDERATION. (a) In addition to the consideration
provided for in Section 1.3.1, the Seller shall be entitled, under the
following conditions, to additional consideration for the Purchased Assets
which shall be calculated and paid by the Buyer to the Seller in
accordance with this paragraph. Subject to the reductions provided below,
the Buyer shall pay to the Seller an amount equal to $4,000,000 (the
"CONTINGENT AMOUNT"), which amount shall be payable in 20 equal quarterly
installments beginning June 30, 1999, plus interest thereon at the rate of
7.0% per annum payable quarterly beginning September 30, 1997.
Notwithstanding the foregoing, if the Average Operating Income (as
hereinafter defined) for the years ended December 31, 1997 and 1998, is
less than $2,500,000, then the quarterly principal installments on the
Contingent Amount shall not commence until the March 31 following the year
in which the Average Operating Income for the Rolling Calculation Period
(as hereinafter defined) is equal to or greater than $2,500,000. However,
in no event shall the quarterly principal installments, if any, commence
later than March 31, 2001.
(b) In addition, if the Average Operating Income for the Calculation
Period (as hereinafter defined) is less than $2,500,000, then the
Contingent Amount shall be reduced (but not below zero) by the product of
(a) the amount by which $2,500,000 exceeds such Average Operating Income,
multiplied by, (b) three. The above calculation shall be made not later
than February 15, 2001, and the Buyer shall provide to the Seller, as soon
as reasonably practicable after such date, a written statement (the
"CALCULATION STATEMENT") showing in detail the calculation of such
Contingent Amount, together with the calculation of any necessary
adjustments as described below. Based on such Calculation Statement, the
Buyer shall be credited with all necessary adjustments, if any, including,
without limitation, those based on the time value of money (assuming a
discount factor of 7.0% per annum) and adjustments to previous interest
payments made by the Buyer to the Seller so as to provide the Buyer with
proper credit for any excess interest paid by the Buyer to the Seller
based on the adjusted Contingent Amount. Such excess interest payments, if
any, shall be applied first against the outstanding balance of the
Contingent Amount, as adjusted, with any remaining excess to be reimbursed
by the Seller to the Buyer as a purchase price adjustment, which purchase
price adjustment shall be payable in immediately available funds as soon
as reasonably practicable after the Seller's receipt of the Calculation
Statement, or in the event the Seller disputes the Calculation Statement,
upon final resolution thereof in accordance with this Agreement.
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(c) As used in this Section 1.3.2, the following terms have the
meanings set forth below:
"AVERAGE OPERATING INCOME" means with respect to one or more
completed calendar year periods, the quotient of (i) sum of the Operating
Income for such periods, divided by, (ii) the number of calendar years
included in such period.
"CALCULATION PERIOD" means the years ended December 31, 1997 through
December 31, 2000, but exclusive of the calendar year during such period
with the least amount of Average Operating Income.
"OPERATING INCOME" means with respect to any given period, the
difference between (i) net sales, less (ii) cost of goods sold, operating
expenses and selling, general and administrative expenses, but prior to
any adjustments for other expenses (income), income taxes, extraordinary
items, interest, depreciation and amortization, as reflected on the
Buyer's financial statements (which for the calendar year 1997 shall
include, for purposes of the required calculations hereunder, the Seller's
operations prior to the date hereof).
"ROLLING CALCULATION PERIOD" means the year ended December 31, 1997,
and each completed year ended December 31 thereafter.
(d) By way of example and not in limitation of the foregoing,
attached hereto as SCHEDULE 1.3.2 is a calculation of the Contingent
Amount and adjustments thereto based on the assumptions set forth in such
schedule.
(e) The Buyer agrees that the Business formerly operated by the
Seller shall maintain separate profit and loss statements for purposes of
calculating the Contingent Amount or any other calculation required
pursuant to this section, with such statements being produced by the Buyer
on a monthly and annual basis. For purposes of calculating "net sales"
under Section 1.3.2, all sales amounts made by the Business on an
"intercompany basis" shall be divided by .85 to give effect to a deemed
15% gross margin on such sales.
(f) The parties agree that the Calculation Statement may be disputed
by the Seller within 30 days after the Calculation Statement is provided
by the Buyer to the Seller in accordance with this section. In the event
the Seller so disputes the Calculation Statement, the Seller may thereupon
request an audit thereof by the independent public accounting firm
regularly engaged to audit the books of the Parent. If the parties are
unable to reach an agreement with respect to any disputed items, then the
disputed items which have not been resolved shall be finally determined by
such accounting firm, in its sole judgment, and such determination shall
be binding on the parties hereto, without further right of appeal. The
cost of the audit will be borne by the Seller, unless the contested amount
in error is determined by the accounting to be greater than 5%, in which
case the Buyer shall bear the cost of the audit referred to in this
paragraph.
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(g) The parties agree that the Buyer's obligations with respect to
the Contingent Amount is not conditioned upon the Shareholder's continued
employment with the Buyer after the date of Closing.
1.3.3 ASSUMPTION OF LIABILITIES. In consideration of the sale of the
Purchased Assets, on the Closing Date, the Buyer shall assume only those
liabilities hereinafter listed and defined as the "ASSUMED LIABILITIES."
For purposes of this Agreement, "ASSUMED LIABILITIES" means (i) all items
which comprise each account balance under the caption "LIABILITIES" in the
April 30, 1997 unaudited balance sheet, and (ii) liabilities incurred by
the Seller in the ordinary course of business subsequent to the Balance
Sheet Date for the account or benefit of the Buyer or, of the property,
other assets and business of the Seller to be transferred to the Buyer
pursuant to this Agreement (all such obligations and liabilities of Seller
are itemized on SCHEDULE 1.3.3); PROVIDED, HOWEVER, the Assumed
Liabilities shall not include any Excluded Liabilities and in no event
shall the total amount of indebtedness assumed exceed an amount to be
agreed upon by the Seller and the Buyer within 10 days of the date hereof.
As used herein, the term "EXCLUDED LIABILITIES" means (a) all liabilities
of the Seller which are not "ASSUMED LIABILITIES," (b) any and all federal
and state income tax liability of the Seller or the Shareholder
(collectively "TAX LIABILITY"), and (c) all attorneys' and accountants'
fees and expenses and any other fees and expenses incurred by the Seller
or the Shareholder in connection with the consummation of the transactions
contemplated hereby.
With respect to all Assumed Liabilities for which the Shareholder
has provided personal guaranties, the Buyer shall use reasonable
commercial efforts to cause such guaranties to be released effective as of
the Closing Date, and the Shareholder shall be indemnified with respect to
any liability under such guaranties as hereinafter provided.
1.4 ALLOCATION. The consideration for the Purchased Assets shall be
allocated pursuant to an allocation to be mutually agreed upon by the parties
within 90 days from the Closing Date. The parties agree to be bound by such
allocation of the consideration for all purposes, including calculations of any
and all state and federal income taxes.
1.5 EMPLOYEES. SCHEDULE 1.5 lists the name, current salary or wage rate
for each officer and employee of the Seller employed in the Business. Upon
Closing or thereafter, the Buyer may offer employment to any or all of the
Seller's employees. The Seller shall cooperate with the Buyer in connection with
any such offers, and use its best efforts to cause the acceptance of any and all
offers. Except as provided in Section 1.6, all transferred employees shall be
employees-at-will of the Buyer. Notwithstanding any other provision of this
Agreement, this Section 1.5 shall not be deemed to create any right or claim for
the benefit of, and shall not be enforceable by, any person which is not a party
to this Agreement.
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1.6 EMPLOYMENT AND NON-COMPETITION AGREEMENTS. On the Closing Date, the
Shareholder shall enter into an Employment and Non-Competition Agreement with
the Buyer, in the form attached hereto as EXHIBIT B hereto.
1.7 CLOSING. Completion of the transactions contemplated hereby (the
"CLOSING") shall take place at the offices of Porter & Hedges, L.L.P.,
NationsBank Center, 34th Floor, 700 Louisiana Street, Houston, Texas 77002, on
or before July 31, 1997 or at such other place and time as the parties hereto
may mutually agree. The date upon which the Closing occurs is referred to herein
as the "CLOSING DATE."
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF
THE SELLER AND THE SHAREHOLDER
2.1 REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE SHAREHOLDER. The
Seller and Shareholder hereby jointly and severally represent and warrant as
follows:
2.1.1 ORGANIZATION AND STANDING. The Seller is a corporation duly
organized and validly existing under the laws of the State of Colorado,
has full requisite corporate power and authority to carry on its business
as currently conducted, and to own and operate the properties 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.
2.1.2 AGREEMENT AUTHORIZED AND NON-INTERFERENCE. The execution and
delivery of this Agreement has been authorized by the board of directors
and the sole shareholder of the Seller, and the consummation of the
transactions contemplated hereby has been duly and validly authorized by
all necessary corporate or shareholder action on the part of the Seller,
and this Agreement is a valid and binding obligation of the Seller and the
Shareholder, enforceable (subject to normal equitable principles) 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. Except as provided in
SCHEDULE 2.1.2 attached hereto, the execution and delivery of this
Agreement by the Seller and the Shareholder, or the consummation of the
transactions contemplated hereby, will not conflict with or result in a
violation or breach of any term or provision of, nor constitute a default
under (i) the articles of incorporation, bylaws or other organizational
documents of the Seller, (ii) any indenture, mortgage, deed of trust,
credit agreement or other contract or agreement of any nature whatsoever
to which the Seller is a party or by which it or its properties are bound,
or (iii) any provision of any law, rule, regulation, order, permit,
certificate, writ, judgment, injunction, decree, determination, award or
other decision of any court, arbitrator or other governmental authority to
which the Seller and its properties are subject.
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2.1.3 CAPITALIZATION. The authorized capital stock of the Seller
consists of 1,000,000 shares of common stock, $.001 par value per share
(the "COMMON STOCK"), of which, at the date hereof, 550,000 shares were
issued and outstanding and owned legally and beneficially by the
Shareholder; at the same date, the Seller did not have outstanding
options, warrants, calls or commitments of any character relating to its
authorized but unissued shares of Common Stock, and all issued shares of
Common Stock are validly issued, fully paid and nonassessable and were not
issued in violation of any preemptive rights of any party.
2.1.4 SUBSIDIARIES. The Seller has no subsidiary corporations or any
interest in any other organization, incorporated or unincorporated,
partnership or any other entity of any type.
2.1.5 FINANCIAL STATEMENTS. The Seller has delivered to the Buyer
copies of the Seller's audited balance sheet and related statements of
income, retained earnings and cash flows, as at and for the Seller's years
ended December 31, 1994, 1995 and 1996, and also has delivered to the
Buyer copies of the Seller's unaudited balance sheet and related income
statement as at and for the four months ended April 30, 1997 (the "BALANCE
SHEET DATE"). Such financial statements are true, correct and complete in
all material respects and present fairly and fully the financial condition
of the Seller as at the dates indicated and the results of operations for
the respective periods indicated, and have been prepared in accordance
with generally accepted accounting principles as promulgated by the
American Institute of Certified Public Accountants applied on a consistent
basis ("GAAP"), except as noted therein, and such financial statements as
at and for the four months ended April 30, 1997, include all adjustments
which the Seller considers necessary for a fair presentation of its
results for that period. The accounts receivable reflected in the April
30, 1997 unaudited balance sheet, or which have been thereafter acquired
by the Seller, have been collected or are current and collectible within
90 days of the date hereof at the aggregate recorded amounts thereof. The
inventories of the Seller reflected in the April 30, 1997 unaudited
balance sheet, or which have thereafter been acquired by it, consist of
items of a quality and quantity salable in the normal course of the
Seller's business, the values at which such inventories are carried are in
accordance with GAAP applied on a consistent basis.
2.1.6 LIABILITIES. Except for those that would not have a Material
Adverse Effect (as hereinafter defined) on the Seller, the Seller does not
have any liabilities or obligations, either accrued, absolute, contingent,
or otherwise, or have any knowledge of any potential liabilities or
obligations that would adversely affect the value and conduct of the
business of the Seller, other than those (i) reflected or reserved against
in the April 30, 1997 unaudited balance sheet of the Seller or (ii)
incurred in the ordinary course of business since April 30, 1997.
2.1.7 ADDITIONAL INFORMATION. For purposes of this Agreement, the
term "ENCUMBRANCE" shall mean any security interest, mortgage, pledge,
claim, lien, charge,
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option, right of first refusal, preferential purchase right, defect,
encumbrance or other right or interest of any other person. Attached as
SCHEDULE 2.1.7.1 through and including SCHEDULE 2.1.7.15 are true,
complete and correct lists of the following items (such schedule may refer
to the disclosures contained in the schedules delivered pursuant to
Section 1.2:
2.1.7.1 REAL ESTATE. All real property and structures thereon
owned or leased (or previously owned or leased) or subject to a
contract of purchase and sale, or lease commitment, by the Seller,
with a description of the nature and amount of any Encumbrance
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 $500 or more at their
respective dates of acquisition by the Seller) owned, leased or
subject to a contract of purchase and sale, or lease commitment, by
the Seller, 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 the Seller, together with the amount of any
Encumbrances thereon;
2.1.7.4 RECEIVABLES. All accounts and notes receivable of the
Seller, together with (i) an appropriate invoice date and due date
aging schedule, (ii) the amounts provided for as an allowance for
bad debts, (iii) the identity and location of any asset in which the
Seller 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 the
Seller, together with an appropriate aging schedule;
2.1.7.6 INSURANCE. All insurance policies or bonds, including
title insurance policies, with respect to the Seller, including
those covering its properties (real or personal), buildings,
machinery, equipment, fixtures, employees and operations;
2.1.7.7 MATERIAL CONTRACTS. All contracts (including purchase
and sale contracts), whether or not made in the ordinary course of
business, including leases under which the Seller is lessor or
lessee, which are to be performed in whole or in part after the date
hereof, and which involve or may involve aggregate payments by or to
the Seller of $1,000 or more after such date;
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 the Seller,
together with copies of the most recent reports with respect to such
plans,
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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, the
"EMPLOYEE PLANS");
2.1.7.9 BANK ACCOUNTS. The name of each bank in which the
Seller has an account, the names of all persons authorized to draw
thereon, the account balances and the account numbers for each such
account;
2.1.7.10 EMPLOYEE AGREEMENTS. Any collective bargaining
agreements of the Seller with employees, including amendments,
supplements, and written or oral understandings, and all employment,
compensation or consulting agreements, whether written or oral, of
the Seller with any person;
2.1.7.11 PATENTS AND INTELLECTUAL PROPERTY. All patents,
trademarks, and copyrights owned, licensed, or used by the Seller;
2.1.7.12 TRADE NAMES. All trade names and fictitious names
used or held by the Seller, whether and where such names are
registered and where such names are used;
2.1.7.13 PROMISSORY NOTES AND INDEBTEDNESS. All long-term and
short- term promissory notes, installment contracts, loan
agreements, credit agreements and any other agreements of the Seller
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 the Seller 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; and
2.1.7.15 FINANCIAL STATEMENTS. Audited financial statements as
of December 31, 1994, 1995 and 1996 and unaudited financial
statements as of April 30, 1997 containing the information described
in Paragraph 2.1.5, prepared in the manner described in such
paragraph.
SCHEDULE 2.1.7.1 - 2.1.7.15 shall be true, complete and correct as
of the date hereof, except for items 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 April 30, 1997.
2.1.8 NO UNDISCLOSED DEFAULTS. Except as may be specified in
SCHEDULE 2.1.7.7, the Seller is not a party to, or bound by, any material
contract to be performed after the date
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hereof or in default in any obligation or covenant on its part to be
performed under any material obligation, lease, contract or plan.
2.1.9 ABSENCE OF CERTAIN CHANGES AND EVENTS. Other than as a result
of the transactions contemplated by this Agreement, since April 30, 1997,
there has not been:
2.1.9.1 FINANCIAL CHANGE. Any material adverse change in the
financial condition, operations, assets, liabilities, business or
prospects of the Seller;
2.1.9.2 PROPERTY DAMAGE. Any material damage, destruction, or
loss to the business or properties of the Seller (whether or not
covered by insurance);
2.1.9.3 DIVIDENDS. Except with respect to distributions to the
Shareholder for purposes of payment of S corporation taxes in
amounts reflective of his distributive share of Seller income, any
declaration, setting aside, or payment of any dividend or other
distribution in respect of the capital stock of the Seller, or any
direct or indirect redemption, purchase or any other acquisition by
the Seller of any of its capital stock;
2.1.9.4 CAPITALIZATION CHANGE. Any change in the capital stock
or in the number of shares or classes of the Seller's authorized or
outstanding capital stock as described in Paragraph 2.1.3;
2.1.9.5 LABOR DISPUTES. Any labor dispute between the Seller
and its employees;
2.1.9.6 EMPLOYMENT ARRANGEMENTS. Any change in the duration or
level of compensation, bonus or severance payable under any
employment or contractor arrangement with Seller (whether by
amendment to any existing arrangement or by the entering into a new
arrangement); or
2.1.9.7 OTHER MATERIAL CHANGES. Any other event or condition
known to the Seller that particularly pertains to and materially and
adversely affects the operations, assets, business or prospects of
the Seller.
2.1.10 TAXES.
2.1.10.1 The federal income tax returns of the Seller for the
years 1993, 1994 and 1995 have been provided to the Buyer prior to
the date hereof. Proper and accurate federal, state and local
income, 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 the Seller and by
the Shareholder (with respect to his distributive share of Seller
income) for each period for which any returns,
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reports, or estimates were due. All taxes shown by such returns to
be payable have been paid. All sales taxes have been properly
collected and accounted for through the date hereof by the Seller,
and the Seller has made all required deposits of such taxes with all
taxing authorities. The tax provision reflected in the Seller's
financial statements as of April 30, 1997 is adequate to cover
liabilities of the Seller at the date thereof for all taxes of any
character whatsoever applicable to the Seller or its assets or
business. No waiver of any statute of limitations executed by the
Seller or by the Shareholder (to the extent of his distributive
share of Seller income) with respect to federal or state income or
other tax is in effect for any period. No deficiencies for any taxes
have been proposed, asserted or assessed against the Seller or the
Shareholder (with respect to his distributive share of Seller
income), and no requests or waivers of the time to assess any such
tax are pending. The federal income tax returns of the Seller or the
Shareholder (with respect to his distributive share of Seller
income) have never been audited by the Internal Revenue Service. No
audit of any federal or state or other tax return of the Seller or
the Shareholder (with respect to his distributive share of Seller
income) is presently in process nor has an appointment for or notice
of any such audit been requested or given by any taxing authority.
2.1.10.2 The Seller (i) made an effective, valid and binding S
election pursuant to Section 1372 of the Internal Revenue Code of
1986, as amended (the "CODE") effective January 1, 1989, (ii) has
since then maintained its status as an S corporation pursuant to
Section 1361 of the Code without lapse or interruption, and (iii)
has made and continuously maintained elections similar to the
federal S election in each state or local jurisdiction where the
Seller does business or is required to file a tax return to the
extent such states or jurisdictions permit such elections. As a
result of the consummation of the transaction contemplated under the
Agreement, the Seller neither is nor will or can be subject to the
built-in gains tax under Section 1374 of the Code, any other
corporate level tax imposed by the Code, or any similar corporate
level tax imposed on the Seller by any taxing authority.
2.1.11 INTELLECTUAL PROPERTY. The Seller 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 the
Seller or that are necessary for the operation of the business of the
Seller. The Intellectual Property is owned or licensed by the Seller free
and clear of any Encumbrance (as defined in Section 2.1.7). The Seller has
not granted to any other person any license to use any Intellectual
Property. The Seller has not received any notice of infringement,
misappropriation, or conflict with the intellectual property rights of
others in connection with the use by the Seller of the Intellectual
Property.
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2.1.12 TITLE TO PROPERTIES; CONDITION OF ASSETS. The Seller has good
and marketable title to the Purchased Assets, free and clear of any
Encumbrance of any nature whatsoever, except liens for current taxes not
yet due and payable. All leases pursuant to which the Seller leases
(whether as lessee or lessor) any substantial amount of real or personal
property are in good standing, valid and effective, and to the best
knowledge of the Seller, 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 the Seller. The
buildings and premises of the Seller that are used in its business are in
good operating condition and repair, subject only to ordinary wear and
tear. Except as set forth on SCHEDULE 2.1.12, all equipment of the Seller
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 do not substantially interfere with the continued use thereof
in the conduct of normal operations.
2.1.13 LITIGATION, ETC. There is no suit, action, or legal,
administrative, arbitration, or other proceeding or governmental
investigation pending or, to the knowledge of the Seller, threatened to
which the Seller is a party or, to the knowledge of the Seller, might
become a party or which particularly affects the Seller. To the knowledge
of the Seller, there are no changes in the zoning or building ordinances
directly affecting the leasehold interests of the Seller, pending or
threatened.
2.1.14 HAZARDOUS WASTES AND SUBSTANCES. None of the current or past
operations or assets of the Seller have been conducted or used in such a
manner as to constitute a violation of any APPLICABLE ENVIRONMENTAL LAWS
(as hereinafter defined). No notice (whether formal or informal, written
or oral) has been served on the Seller from any entity, governmental
agency or individual regarding any existing, pending or threatened
investigation or inquiry related to violations under any Applicable
Environmental Laws or regarding any claims for remedial obligations or
contribution for removal costs or damages under any Applicable
Environmental Laws. The Buyer is not required to obtain permits, licenses
or similar authorizations pursuant to any Applicable Environmental Laws in
effect as of the date of this Agreement to operate and use any of the
Purchased Assets of the Seller for their current or proposed purposes and
uses. No asbestos or asbestos containing material currently is being used
or has ever been used by the Seller in its operations and no friable
asbestos is situated on or under its properties. For the purposes hereof,
"APPLICABLE ENVIRONMENTAL LAWS" means any applicable federal, state or
local law, statute, ordinance, rule, regulation, order or notice
requirement pertaining to human health, the environment, or to the
storage, treatment, discharge, release or disposal of hazardous wastes or
hazardous substances, including, without limitation (i) the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C.
ss.ss.9601 ET SEQ.), as amended from time to time ("CERCLA") (including,
without limitation, as amended pursuant to the Superfund Amendments and
Reauthorization Act of 1986), and regulations promulgated under CERCLA,
(ii) the Resources Conservation and Recovery Act of 1976 (42 U.S.C.
ss.ss.6901 ET
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SEQ.), as amended from time to time ("RCRA"), and regulations promulgated
under RCRA, (iii) the Federal Water Pollution Control Act (U.S.C.A.
ss.9601 ET SEQ.), as amended and regulations promulgated under its
authority, and (iv) any applicable state laws or regulations relating to
the environment.
2.1.15 COMPLIANCE WITH OTHER DOMESTIC AND FOREIGN LAWS. Neither the
Seller nor any of the Seller's apparel products is in violation of or in
default with respect to, or in alleged violation of or alleged default
with respect to, any domestic or foreign applicable law or any applicable
rule, regulation, or any writ or decree of any court or any domestic or
foreign governmental commission, board, bureau, agency, or
instrumentality, including, but not limited to, all domestic and foreign
customs, import, export or similar laws or regulations which relate to
international trade, and the Seller is not delinquent with respect to any
report required to be filed with any domestic or foreign governmental
commission, board, bureau, agency or instrumentality.
2.1.16 EMPLOYMENT PRACTICES. There are no labor or employment
disputes or controversies pending or, to the Seller's knowledge,
threatened against the Seller or any of the employees of the Seller, and
the Seller has not taken or failed to take any action which action or
omission would provide a reasonable basis for any such controversy. To the
Seller's knowledge, after due inquiry, there are no organizational efforts
presently being made or threatened by or on behalf of any labor union with
respect to any employees of the Seller. The Seller has complied with all
requirements under the Occupational Safety and Health Act, all laws, rules
and regulations with respect to worker's compensation insurance or, if
applicable, all requirements relating to obtaining "non-subscriber status"
thereunder, and all other laws relating to the employment of labor,
including, without limitation, laws relating to equal employment
opportunity and employment discrimination, employment of illegal aliens or
undocumented or ineligible workers, wages, hours, collective bargaining
and the collection or payment of social security and withholding taxes, or
both, and similar taxes. The Seller is not liable for any arrearage of
wages or any taxes or penalties for failure to comply with any of the
foregoing.
2.1.17 TRANSACTIONS WITH MANAGEMENT. Except as set forth on SCHEDULE
2.1.17, the Seller is not a party to any contract, lease or agreement with
any of the officers or direc tors of the Seller or the Shareholder or any
member of the family of any such persons.
2.1.18 FINDER'S FEE. All negotiations relative to this Agreement and
the transactions contemplated hereby have been carried on by the Seller
and the Shareholder and their counsel directly with the Buyer and its
counsel, without the intervention of any other person as the result of any
act of the Seller or the Shareholder, and so far as is known to the
Seller, 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.
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2.1.19 COMPLIANCE WITH ERISA. Each benefit plan set forth on
SCHEDULE 2.1.7.8 (the "BENEFIT PLANS") complies currently, and has
complied in the past, in form and operation, with the applicable
provisions of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), the Internal Revenue Code of 1986, as amended (the
"CODE"), and other applicable laws. All contributions required to be made
to each Benefit Plan under the terms of such Benefit Plans, ERISA or other
applicable laws have been timely made.
2.1.19.1 PROHIBITED TRANSACTIONS. The Seller has not engaged
in a transaction in connection with which it could be subject
(either directly or indirectly) to a material liability for either a
civil penalty assessed pursuant to Section 502(i) of ERISA or a tax
imposed by Section 4975 of the Code.
2.1.19.2 PLAN TERMINATION; MATERIAL LIABILITIES. There has
been no termination of an "employee pension benefit plan" as defined
in ERISA which is subject to Title IV of ERISA (a "STATUTORY PLAN")
or trust created under any Statutory Plan that would give rise to a
material liability to the Pension Benefit Guaranty Corporation
("PBGC") on the part of the Seller. All Statutory Plans intended to
be tax-qualified under Section 401(a) or 403(a) of the Code have
complied in the past, both in form and operation, with every
provision of the Code, regulation promulgated pursuant thereto, and
every ruling, notice or announcement issued by the Internal Revenue
Service necessary to maintain the qualified status of such Statutory
Plans. No material liability to the PBGC has been or is expected to
be incurred with respect to any Statutory Plan. The PBGC has not
instituted proceedings to terminate any Statutory Plan. There exists
no condition or set of circumstances that presents a material risk
of termination or partial termination of any Statutory Plan by the
PBGC.
2.1.19.3 ACCUMULATED FUNDING DEFICIENCY. Full payment has been
made of all amounts that are required under the terms of each
Statutory Plan, ERISA or other applicable laws to have been paid as
contributions to such Statutory Plan as of April 30, 1997, and no
accumulated funding deficiency (as defined in Section 302 of ERISA
and Section 412 of the Code), whether or not waived, exists with
respect to any Statutory Plan.
2.1.19.4 RELATIONSHIP OF BENEFITS TO PENSION PLAN ASSETS. The
current value of all accrued benefits, both vested and unvested,
under all Statutory Plans does not exceed the current value of the
assets of such Statutory Plans allocable to such accrued benefits,
except as disclosed in the financial statements described in
Paragraph 2.1.5. For purposes of the representation in this
Paragraph 2.1.19.4, the term "CURRENT VALUE" has the meaning
specified in Section 4062(b)(1)(A) of ERISA, the term "ACCRUED
BENEFIT" has the meaning specified in Section 3 of ERISA and
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"CURRENT VALUE" is based on the same actuarial assumptions used by
the Seller for funding.
2.1.19.5 EXECUTION OF AGREEMENTS. The execution and delivery
of this Agreement and the consummation of the transactions
contemplated hereby will not involve any transaction that is subject
to the prohibitions of Section 406 of ERISA or in connection with
which a tax could be imposed pursuant to Section 4975 of the Code.
2.1.19.6 FIDUCIARY LIABILITY. There have been no acts,
failures to act, omissions or transactions involving a Statutory
Plan or the assets thereof that could result in imposition on the
Seller (whether direct or indirect) of damages or liability in
actions brought under Section 502 or Sections 404 through 409 of
ERISA.
2.1.19.7 PENDING CLAIMS. There are no claims, pending or
overtly threatened, involving any of the Benefit Plans by any
current or former employee (or beneficiary thereof) of the Seller
that allege any violation of ERISA or the terms of the Benefit
Plans, nor is there any reasonable basis to anticipate any claims
involving such Benefit Plans that would likely be successfully
maintained against the Seller.
2.1.19.8 MULTIEMPLOYER PLANS. Neither the Seller nor any trade
or business (whether or not incorporated) which, together with the
Seller, would be deemed to be a "SINGLE EMPLOYER" within the meaning
of Section 4001(b) of ERISA or Subsections 414(b), (c), (m) or (o)
of the Code sponsors, maintains, or contributes to, or has at any
time in the six-year period preceding the date of this Agreement
sponsored, maintained or contributed to, any plan (not exempt from
the provisions of ERISA), including, but not limited to, any plan
which is a "MULTIEMPLOYER PLAN" as such term is defined in Section
3(37) or 4001(a)(3) of ERISA.
2.1.19.9 NO REPORTABLE EVENT. There has been no "REPORTABLE
EVENT" (within the meaning of Section 4043(b) of ERISA with respect
to a Statutory Plan) or any "PROHIBITED TRANSACTION" (as such term
is defined in Section 406 of ERISA and Section 4975(c) of the Code)
with respect to any of the Employee Plans. All reporting and
disclosure requirements under Title I of ERISA have been met.
2.1.20 NECESSARY CONSENTS. The Seller has obtained all consents to
assignment or waivers thereof, if any, from any governmental authority or
from any third party with respect to any assets or agreements necessary
for the Buyer to conduct such business after the date hereof.
2.1.21 LICENSES. The Seller has all permits and licenses necessary
or appropriate to its Business as currently conducted. The aforesaid are
current and in full force and effect and are set forth on SCHEDULE 2.1.21.
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2.1.22 ACKNOWLEDGMENT REGARDING DEBT FINANCING. The Seller and the
Shareholder hereby acknowledge that the Parent anticipates that as of the
Closing Date it shall have issued $100,000,000 in high-yield notes (the
"High Yield Notes") which will be used for purposes of retiring existing
indebtedness, payment of the Cash Consideration hereunder, and payment of
consideration for the acquisition of the outstanding stock of Solarco,
Inc., a Washington corporation ("SOLARCO"). The Seller and the Shareholder
represent that they have been provided all necessary information and
documentation concerning the proposed debt offering and understand the
terms thereof which are applicable to the Parent and the Buyer.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE BUYER AND PARENT
3.1 REPRESENTATIONS AND WARRANTIES OF THE BUYER AND PARENT. The Buyer and
Parent represent and warrant as follows:
3.1.1 ORGANIZATION AND STANDING. Each of the Buyer and Parent is a
corporation duly organized and validly existing under the laws of the
State of Texas and Delaware, respectively, has full requisite corporate
power and authority to carry on its business as currently conducted, and
to own and operate the properties 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.
3.1.2 AGREEMENT AUTHORIZED AND ENFORCEABLE. The execution and
delivery of this Agreement has been authorized by the board of directors
of each of the Buyer and Parent; the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of the Buyer and Parent; and this Agreement
constitutes the valid and binding obligation of the Buyer and Parent,
enforceable (subject to normal equitable principles) against the Buyer and
Parent, as the case may be, 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. Except as provided in SCHEDULE 3.1.2 attached hereto, the
execution and delivery of this Agreement by the Buyer and Parent, or the
consummation of the transactions contemplated hereby, will not conflict
with or result in a violation or breach of any term or provision of, nor
constitute a default under (i) the articles of incorporation, bylaws or
other organizational documents of the Buyer or Parent, (ii) any indenture,
mortgage, deed of trust, credit agreement or other contract or agreement
of any nature whatsoever to which the Buyer or Parent is a party or by
which it or its properties are bound, or (iii) any provision of any law,
rule, regulation, order, permit, certificate, writ, judgment, injunction,
decree,
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determination, award or other decision of any court, arbitrator or other
governmental authority to which the Buyer or Parent and their properties
is subject.
3.1.3 FINANCIAL STATEMENTS; OFFERING MEMORANDUM. (a) Parent has
delivered to the Seller copies of the Parent's balance sheet and related
statements of income, retained earnings and cash flows, which statements
have been audited by Arthur Andersen LLP, as at and for the Seller's years
ended December 30, 1995 and December 28, 1996, and also has delivered to
the Seller copies of the Parent's unaudited balance sheet and related
income statement as at and for the thirteen week period ended March 29,
1997. Such financial statements are true, correct and complete in all
material respects and present fairly and fully the financial condition of
the Parent as at the dates indicated and the results of operations for the
respective periods indicated, and have been prepared in accordance with
GAAP, except as noted therein, and such financial statements as at and for
the thirteen week period ended March 29, 1997, include all adjustments
which the Parent considers necessary for a fair presentation of its
results for that period.
(b) The Parent has delivered to the Seller a copy of an Offering
Memorandum dated May 29, 1997 (the "Offering Memorandum") relating to the
Parent's proposed high yield note offering. With respect to all
information concerning Parent or its historical operations, the Offering
Memorandum does not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein not misleading, and to the knowledge of
Parent and Brazos, all other information contained in the Offering
Memorandum is true and correct in all material respects.
3.1.4 SHARE AUTHORIZATION. The shares of Parent common stock
issuable upon conversion of the Convertible Note have been reserved for
issuance and have been duly authorized and, upon issuance thereof in
accordance with the terms of the Convertible Note, will be validly issued,
fully paid and nonassessable shares of common stock of the Parent.
3.1.5 FINDER'S FEE. Except as set forth on SCHEDULE 3.1.4, all
negotiations relative to this Agreement and the transactions contemplated
hereby have been carried on by the Buyer and its counsel directly with the
Seller, the Shareholder and their counsel, without the intervention of any
other person as the result of any act of the Buyer, and so far as is known
to the Buyer, 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.
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ARTICLE 4
OBLIGATIONS PENDING CLOSING
From the date hereof through the Closing or earlier termination of this
Agreement pursuant to ARTICLE 6:
4.1 INSPECTION OF SELLER. The Buyer and its respective officers,
attorneys, accountants and authorized representatives shall have the right,
during normal business hours, to inspect the Seller's properties, books and
records, and to consult with the Seller's officers, directors, employees,
suppliers, customers, lenders, agents and attorneys concerning the ownership and
operation of the Seller. Such inspections may reasonably include, for example,
environmental and other physical inspections of the Seller's properties; review
of the Seller's books, records of account and tax records; and a review of
records of corporate proceedings, contracts, trademarks, licenses, permits, and
other business activities and matters in which the Buyer may have an interest in
light of the transactions contemplated by this Agreement. The Buyer agrees to
maintain all information it learns from such inspections and consultations in
confidence and will not disclose such information except to its officers,
directors, employees, bankers, investors, attorneys, accountants and other
authorized representatives unless such information is or becomes public
knowledge through no fault of the Buyer and prior to Closing will not use such
information except in connection with this Agreement. In the event that the
transaction contemplated hereby is not consummated, the Buyer shall return all
materials obtained in its due diligence investigation without retaining any
copies of such materials.
4.2 ACQUISITION PROPOSALS. The Seller shall not, and shall not permit any
of its officers, directors, shareholders or representatives to directly or
indirectly (i) solicit, initiate or encourage any inquiries or Acquisition
Proposals from any person or (ii) participate in any discussions or negotiations
regarding, furnish to any person other than the Buyer or its representatives any
information with respect to, or otherwise assist, facilitate or encourage any
Acquisition Proposal by any other person. "ACQUISITION PROPOSAL" means any
proposal for a merger, consolidation or other business combination involving the
Seller or the Business or for the acquisition or purchase of any outstanding
capital stock or equity interest in, or a material portion of the assets of, the
Seller or the Business. The Seller and the Shareholder shall promptly
communicate to Buyer the terms of any such Acquisition Proposals which they may
receive or any inquiries made to them or its directors, officers,
representatives or agents.
4.3 ADDITIONAL AGREEMENTS OF SELLER. The Seller agrees that from the date
hereof until the Closing Date, it shall:
(a) MAINTENANCE OF PRESENT BUSINESS. Except 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, preserve intact its present business
organization, keep available the services of its present officers and
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employees, and preserve its relationship with customers, suppliers,
jobbers, distributors and others having business dealings with it;
(b) MAINTENANCE OF PROPERTIES. At its expense, maintain all of its
material properties and assets in customary repair, order and condition,
reasonable wear and use excepted;
(c) MAINTENANCE OF BOOKS AND RECORDS. Maintain its books of account
and records in the usual, regular, and ordinary manner, in accordance with
its customary accounting principles applied on a consistent basis;
(d) COMPLIANCE WITH LAW. Comply with all laws applicable to, and
having a material effect on, it and to the conduct of its business;
(e) PROHIBITION OF CERTAIN CONTRACTS. Except for orders made and
contracts entered into in the ordinary course of business, not enter into
any contracts which involve the payment of more than $25,000 each;
(f) PROHIBITION OF LOANS. Not incur any obligations for borrowed
money, except for loans in the usual and ordinary course of business;
(g) PROHIBITION OF CERTAIN COMMITMENTS. Except for orders made and
contracts entered into in the ordinary course of business, not enter into
a commitment for expenditures or incur any liability exceeding $100,000 in
the aggregate;
(h) DISPOSAL OF ASSETS. Not sell, dispose of, or encumber any
property or assets having a value in excess of $50,000 in the aggregate,
except in the usual and ordinary course of business;
(i) 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 not less than that presently carried by it,
which is adequate for the business operated by it, which insurance may be
added to from time to time in its discretion;
(j) NO AMENDMENT TO CHARTER DOCUMENTS AND RELATED MATTERS. Not amend
its charter documents, or merge or consolidate with or into any person,
change in any manner the rights of its capital stock or the character of
its business;
(k) NO ISSUANCE, SALE, OR PURCHASE OF SECURITIES. Except for the
exercise of currently outstanding stock options by the Tom Menk, not issue
or sell, or issue options or rights to subscribe to, 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
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any shares of its capital stock, or acquire, or agree to acquire, any
shares of its capital stock; and
(l) PROHIBITION ON DIVIDENDS. Except as otherwise provided herein,
not declare any dividend which is payable after Closing on shares of its
capital stock or make any other non-cash distribution of assets to the
holders thereof.
4.4 DELIVERY OF DISCLOSURE SCHEDULES. The parties acknowledge that the
schedules to be provided by the parties hereunder have not be provided by either
party to the other, and notwithstanding any provision contained herein, the
Buyer shall deliver to Seller and the Seller shall deliver to Buyer its
respective disclosure schedules within 10 days of the date hereof. The parties
acknowledge that either party may reject any disclosure contained therein for
any reason within 10 days after receipt thereof, and unless the parties agree in
writing on the contents of the disclosure within five days after the expiration
of such second ten day period, either party shall the right to terminate this
Agreement. If either party does not reject to other party's disclosure schedules
during such second 10 day period, such party's right to terminate this Agreement
pursuant to Section 6(c) hereof shall cease, and such parties shall be deemed to
have approved the other party's disclosure schedules.
ARTICLE 5
CONDITIONS PRECEDENT TO OBLIGATIONS OF
THE BUYER AND THE SELLER
5.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE BUYER. The obligation of
the Buyer to consummate the transactions contemplated by this Agreement shall be
subject to the following conditions:
5.1.1 REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE
SHAREHOLDER TRUE AT THE CLOSING DATE. The representations and warranties
of the Seller and the Shareholder herein contained shall be true and
correct as of the Closing Date in all material respects, except as
affected by transactions permitted or contemplated by this Agreement; each
of the Seller and the Shareholder shall have performed and complied in all
material respects with all covenants required by this Agreement to be
performed or complied with by them prior to the Closing; and each of the
Seller and the Shareholder shall have delivered to the Buyer a
certificate, dated the Closing Date to both such effects.
5.1.2 TENDER OF THE ASSETS; NECESSARY ASSIGNMENTS, ETC. On the
Closing Date, the Seller shall have executed and delivered all necessary
or appropriate instruments of transfer, bills of sale, certificates of
title and other documents to transfer the Purchased Assets to the Buyer.
The Seller shall have obtained all material third-party or governmental
consents reasonably required in connection with the operation of the
Business by Buyer after
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the Closing Date. The Shareholder shall have executed and delivered the
Employment and Non-Competition Agreement.
5.1.3 LANDLORD WAIVERS. The Seller shall have provided to the Buyer
and lenders of the Buyer an executed landlord waiver in a form
satisfactory to Buyer.
5.1.4 SUBORDINATION AGREEMENT. The Seller shall have executed and
delivered to Buyer and lenders of Buyer a subordination agreement with
respect to the Subordinated Note and Contingent Consideration in a form
satisfactory to the Buyer.
5.1.5 OPINION OF COUNSEL FOR THE SELLER. The Buyer shall have
received an opinion, dated the Closing Date, from Rothgerber, Appel,
Powers & Johnson LLP, counsel to the Seller and the Shareholder, with
respect to the legal matters set forth in Sections 2.1.1 and 2.1.2 hereof
and stating that the Seller is duly incorporated and in good standing
under the laws of the State of Colorado.
5.1.6 FINANCING. The Buyer shall have obtained financing for payment
of the Cash Consideration.
5.1.7 ADDITIONAL DOCUMENTS. On the Closing Date, the Seller shall
have delivered to the Buyer such certificates and resolutions of the
Seller and the Shareholder as the Buyer shall reasonably request.
5.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER. The obligations of
the Seller to consummate the transactions contemplated by this Agreement shall
be subject to the following conditions:
5.2.1 REPRESENTATIONS AND WARRANTIES OF THE BUYER TRUE AT THE
CLOSING DATE. The representations and warranties of the Buyer herein
contained shall be true and correct as of the Closing Date in all material
respects, except as affected by transactions permitted or contemplated by
this Agreement; the Buyer shall have performed and complied in all
material respects with all covenants required by this Agreement to be
performed or complied with by it prior to the date hereof; and the Buyer
shall have delivered to the Seller a certificate, dated the Closing Date
hereof to both such effects.
5.2.2 CONSIDERATION FOR ASSETS, ETC. On Closing Date, the Buyer
shall have delivered to the Seller the Cash Consideration and, the Parent
shall deliver the Convertible Note and Convertible Subordinated Note
Agreement. In addition, the Buyer shall have executed a document
evidencing the Buyer's assumption of the Assumed Liabilities.
5.2.3 EMPLOYMENT AND NON-COMPETITION AGREEMENT. Buyer shall have
executed and delivered the Employment and Non-Competition Agreement.
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5.2.4 OPINION OF COUNSEL FOR THE BUYER. The Seller shall have
received an opinion, dated the Closing Date, from Porter & Hedges, L.L.P.,
counsel to the Buyer, with respect to the legal matters set forth in
Sections 3.1.1 and 3.1.2 hereof and to the effect that the Buyer has been
duly incorporated and is validly existing and in good standing under the
laws of the State of Texas.
5.2.5 MORNING SUN TRANSACTION AND NOTE OFFERING. The acquisition of
Solarco and completion of the High Yield Note offering contemplated by the
Offering Memorandum shall have been consummated concurrently with the
closing of the transaction contemplated by this Agreement.
5.2.6 ADDITIONAL DOCUMENTS. On the date hereof, the Buyer and Parent
shall deliver to the Seller such certificates and resolutions of the Buyer
or Parent as the Seller shall reasonably request.
ARTICLE 6
TERMINATION
6.1 TERMINATION. Anything contained in this Agreement to the contrary
notwithstanding, this Agreement may be terminated and the transactions
contemplated hereby abandoned at any time before the Closing Date:
(a) BY MUTUAL CONSENT. By mutual consent of the Buyer and the
Seller; or
(b) BY THE BUYER OR THE SELLER. By the Buyer or the Seller if the
terminating party is not in material breach of any of its obligations
hereunder and if the transactions contemplated by this Agreement have not
been consummated on or before July 31, 1997.
(c) AS A RESULT OF DISCLOSURE SCHEDULE MATTERS. By either Seller or
Buyer in accordance with Section 4.4 hereof with respect to the approval
by either party of the Disclosure Schedules during the time period
provided in such section.
6.2 EXPENSE ON TERMINATION. If the transactions contemplated hereby are
abandoned pursuant to and in accordance with the provisions of Section 6.1
hereof, all expenses will be paid by the party incurring them; provided, this
provision shall not limit any claim resulting from the breach of this Agreement
by any party hereto.
22
<PAGE>
ARTICLE 7
INDEMNIFICATION
7.1 INDEMNIFICATION OF THE BUYER. In addition to any other remedies
available to the Buyer under this Agreement, or at law or in equity, the Seller
and the Shareholder shall, indemnify, defend and hold harmless the Buyer and its
officers, directors, employees, agents and shareholders, against and with
respect to any and all claims, costs, damages, losses, expenses, obligations,
liabil ities, recoveries, suits, causes of action and deficiencies, including
interest, penalties and reasonable attorneys' fees and expenses (collectively,
the "DAMAGES") that such indemnitees shall incur or suffer, which arise, result
from or relate to any breach of, or failure by the Seller or the Shareholder to
perform, any of their respective representations, warranties, covenants or
agreements in this Agreement or in any schedule, certificate, exhibit or other
instrument furnished to the Buyer by the Seller under this Agreement.
7.2 INDEMNIFICATION OF THE SHAREHOLDER AND THE SELLER. The Buyer shall
indemnify, defend and hold harmless the Shareholder and the Seller and its
officers, directors, employees, agents and shareholders against and with respect
to any and all Damages that such indemnitees shall incur or suffer, which arise,
result from or relate to any breach of, or failure by the Buyer to perform, any
of its representations, warranties, covenants or agreements in this Agreement or
in any schedule, certificate, exhibit or other instrument furnished or to be
furnished by or on behalf of the Buyer under this Agreement or arising from or
relating to the Assumed Liabilities or any personal guaranty relating thereto.
7.3 INDEMNIFICATION PROCEDURE. In the event that any party discovers or
otherwise becomes aware of an indemnification claim arising under Section 7.1 or
Section 7.2 of this Agreement, such indemnified party shall give written notice
to the indemnifying party, specifying such claim, and may thereafter exercise
any remedies available to such party under this Agreement; PROVIDED, HOWEVER,
that the failure of any indemnified party to give notice as provided herein
shall not relieve the indemnifying party of any obligations hereunder, to the
extent the indemnifying party is not materially prejudiced thereby. Further,
promptly after receipt by an indemnified party hereunder of written notice of
the commencement of any action or proceeding with respect to which a claim for
indemnification may be made pursuant to this Article, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party, give written notice to the latter of the commencement of such action;
PROVIDED, HOWEVER, that the failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party of any obligations
hereunder, to the extent the indemnifying party is not materially prejudiced
thereby. In case any such action is brought against an indemnified party, the
indemnifying party shall be entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party similarly notified, to the
extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after such notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof unless the indemnifying party has failed to assume the defense
of such claim and to employ counsel reasonably satisfactory to such indemnified
person. An indemnifying party who elects not
23
<PAGE>
to assume the defense of a claim shall not be liable for the fees and expenses
of more than one counsel in any single jurisdiction for all parties indemnified
by such indemnifying party with respect to such claim or with respect to claims
separate but similar or related in the same jurisdiction arising out of the same
general allegations. Notwithstanding any of the foregoing to the contrary, the
indemnified party will be entitled to select its own counsel and assume the
defense of any action brought against it if the indemnifying party fails to
select counsel reasonably satisfactory to the indemnified party, the expenses of
such defense to be paid by the indemnifying party. No indemnifying party shall
consent to entry of any judgment or enter into any settlement with respect to a
claim without the consent of the indemnified party, which consent shall not be
unreasonably withheld, or unless such judgment or settlement includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability with respect to such claim. No
indemnified party shall consent to entry of any judgment or enter into any
settlement of any such action, the defense of which has been assumed by an
indemnifying party, without the consent of such indemnifying party, which
consent shall not be unreasonably withheld.
7.4 OFFSET. The Buyer and the Seller hereby agree that if the Buyer shall
incur any Damages for which it is entitled to indemnification by the Seller or
the Shareholder pursuant to the terms of this Agreement, the Buyer shall have
the right to offset any payments due or to be due under the terms of the
Convertible Note or any other agreement contained herein or executed in
connection herewith, by the amount of the Damages. Such right of offset shall
not be considered an exclusive remedy, it being agreed that the Buyer shall also
be entitled to exercise any other remedies available to it at law or in equity,
including, without limitation, the indemnification rights set forth in this
Article.
7.5 ADDITIONAL PROVISIONS REGARDING INDEMNIFICATION.
(a) The representations and warranties contained herein or in any
instrument or document delivered or to be delivered pursuant to or in connection
with this Agreement, shall survive the execution and delivery and this Agreement
and the Closing without limitation notwithstanding any investigation or due
diligence theretofore made by or on behalf of any party hereto; provided,
however, that all representations and warranties of each party hereto shall
terminate on the second anniversary of the Closing Date except (i) as to the
representations and warranties contained in Section 2.1.12 with respect to title
to the Purchased Assets which shall continue and survive indefinitely, and (ii)
as to the representations and warranties contained in Section 2.1.10 (Taxes),
which shall continue and survive for the full period of the applicable statutes
of limitation (giving effect to any waiver or extension thereof). All claims for
indemnification by any party hereto with respect to a breach of a representation
or warranty must be asserted prior to the expiration of the applicable survival
period.
(b) Except with respect to any claim by the Buyer for indemnification
which relates to the representations and warranties contained in Sections 2.1.12
or 2.1.10, the Seller's and the Shareholder's aggregate obligation with respect
to indemnification for a claim for a breach of representations and warranties
hereunder shall be limited to the amount of $3,500,000. The parties agree that
the Seller shall have the right to satisfy any claim for indemnification by
tendering to the
24
<PAGE>
Parent either principal amount of the Convertible Note or shares which have been
acquired upon conversion thereof based upon the amount of principal so
converted.
ARTICLE 8
MISCELLANEOUS
8.1 MATERIALITY. For purposes of this Agreement, a contract, obligation,
liability, transaction, charge, encumbrance, proceeding or other matter or event
shall not be deemed "material" if the monetary amount involved is less than
$10,000. "MATERIAL ADVERSE EFFECT" when used in this Agreement shall mean any
adverse effect on the business, operations, assets or financial condition or
results of operations of the Seller unless such effect either can reasonably be
expected to result in less than a $100,000 effect on the financial condition or
results of operations, or the effect is due to general changes in the economy or
the wholesale apparel business generally.
8.2 AMENDMENT TO ARTICLES OF INCORPORATION. The Seller shall file, within
five days after the Closing Date, (a) with the Secretary of State of the State
of Colorado, an amendment to its articles of incorporation to change the
Seller's name to a name not similar to "Premier Sports Group, Inc."
8.3 FURTHER ASSURANCES. The parties hereto, and their respective,
successors and assigns, covenant and agree to take or cause to be taken all such
further acts, including the execution and delivery of documents, instruments,
conveyances, and powers of attorney, as may be requested to consummate the
transactions contemplated hereby. Without limiting the generality of the
foregoing, the Seller covenants and agrees to take any and all actions, and to
execute, acknowledge and deliver any and all documents and assurances as the
Buyer may reasonably require for the later assuring, assigning, transferring and
assigning unto the Buyer of the Purchased Assets, and to protect the right,
title and interest of the Buyer in and to, and its enjoyment of, the Purchased
Assets.
8.4 NOTICES. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed to have been duly given
if served personally on the party entitled thereto to whom notice is to be
given, or if mailed to the party entitled thereto to whom notice is to be given,
by first-class mail, registered or certified, postage prepaid, or if telefaxed
to the party entitled thereto to whom notice is to be given, addressed as
follows (or such other address as the party entitled thereto may have prior
thereto specified by notice given as contemplated in this Section):
If to Seller: Premier Sports Group Inc.
Attn: Laurence E. Crabb
2108 55th Street
Boulder, CO 80308
25
<PAGE>
With copy to: Rothgerber, Appel, Powers & Johnson LLP
Suite 3000
One Tabor Center
1200 Seventeenth Street
Denver, Colorado 80202-5839
If to Shareholder: Mr. Laurence E. Crabb
2108 55th Street
Boulder, CO 80308
With copy to: Rothgerber, Appel, Powers & Johnson LLP
Suite 3000
One Tabor Center
1200 Seventeenth Street
Denver, Colorado 80202-5839
Attention: Herbert H. Davis III
If to Buyer or Parent: Brazos, Inc.
3860 Virginia Avenue
Cincinnati, Ohio 45227
Attn: President
With copy to: Porter & Hedges, L.L.P.
700 Louisiana, Suite 3500
Houston, Texas 77002-2730
Attention: Richard L. Wynne
but if mailed or telefaxed, the same shall not be deemed effective unless and
until actually received by the party entitled thereto.
8.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one and the
same instrument.
8.6 AMENDMENTS AND WAIVERS. This Agreement may be amended, modified, or
superseded only by written instrument executed by each party hereto. Any waiver
of the terms, provisions, covenants, representations, warranties, or conditions
hereof shall be made only by a written instrument executed and delivered by an
authorized officer of such party. The failure of either party at any time or
times to require performance of any provision hereof shall in no manner affect
the right to enforce the same. No waiver by either party of any condition, or of
the breach of any term, provision, covenant, representation, or warranty
contained in this Agreement in one or more instances shall be deemed to be or
construed as a further or continuing waiver of any such condition or breach or a
waiver of any other condition or the breach of any other term, provision,
covenant, representation, or warranty.
26
<PAGE>
8.7 ENTIRE AGREEMENT; CONFLICTS. This Agreement (including the schedules
and exhibits hereto, all of which are by this reference fully incorporated into
this Agreement) and the documents and materials expressly referred to in
schedules or exhibits hereto sets forth the entire Agreement and understanding
of the parties with respect to the transactions contemplated hereby and
supersedes all prior agreements, arrangements, and understandings relating to
the subject matter hereof. In the event of any conflict or inconsistency between
the provisions of this Agreement and the contents or provisions of any schedule
or exhibit hereto, the provisions of this Agreement shall be deemed controlling.
8.8 SUCCESSORS AND ASSIGNS. All of the terms, provisions, covenants,
representations, warranties, and conditions of this Agreement shall be binding
on and shall inure to the benefit of and be enforceable by the parties hereto
and their respective successors, but this Agreement and the rights and
obligations hereunder shall not be assignable or delegable by any party.
8.9 APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without regard to the laws which
would otherwise apply by application of Texas' internal principles of conflicts
of law.
8.10 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 that they would have executed this Agreement had
the terms, provisions, covenants and re strictions which may be hereafter
declared invalid, void, or unenforceable not initially been included herein.
8.11 HEADINGS AND CAPTIONS. The headings 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.
8.12 SUCCESSOR LAWS. Reference made herein to any law or statute shall
include reference to any future law amending or superseding such law or statute
and to any future laws applicable to the same subject matter.
8.13 TIME OF THE ESSENCE. Time is of the essence in the performance of
this Agreement.
8.14 DISCLOSURE IN SCHEDULES. All matters disclosed in any schedules
hereto shall be deemed disclosure for the purposes of all schedules hereto to
the extent consistent with the context in which the disclosure is made.
27
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have duly executed this
Agreement on the date first above written.
BRAZOS, INC.
By: /S/ CLAYTON CHAMBERS
Name: CLAYTON CHAMBERS
Title: CFO
BRAZOS SPORTSWEAR, INC.
By: /S/ CLAYTON CHAMBERS
Name: CLAYTON CHAMBERS
Title: CFO
PREMIER SPORTS GROUP, INC.
("SELLER")
By: /S/ LAURENCE E. CRABB
Laurence E. Crabb, President
SHAREHOLDER:
/S/ LAURENCE E. CRABB
Laurence E. Crabb
28
EXHIBIT 99.1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
SolarCo, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of SolarCo,
Inc. and Subsidiary as of December 31, 1995 and December 29, 1996, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years ended January 1, 1995, December 31, 1995 and December 29, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of SolarCo, Inc. and Subsidiary as of December 31, 1995 and
December 29, 1996, and the results of their operations and cash flows for the
years ended January 1, 1995, December 31, 1995 and December 29, 1996, in
conformity with generally accepted accounting principles.
MOSS ADAMS LLP
Seattle, Washington
February 7, 1997
<PAGE>
SOLARCO, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
ASSETS
CURRENT ASSETS
Cash............................... $ 318,000 $ 686,000
Accounts receivable
Trade, net of allowance for
doubtful accounts, returns
and discounts of $1,328,000
and $1,559,000 at 1995 and
1996, respectively......... 8,220,000 8,152,000
Employees and other........... 48,000 73,000
Inventories........................ 4,820,000 5,229,000
Prepaid expenses................... 93,000 136,000
Deferred tax asset................. 180,000 205,000
------------ ------------
Total current assets..... 13,679,000 14,481,000
------------ ------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS,
net................................... 2,635,000 3,178,000
------------ ------------
OTHER ASSETS
Goodwill, net of accumulated
amortization of $58,000 and
$96,000 at 1995 and 1996,
respectively..................... 650,000 762,000
Other.............................. 124,000 63,000
------------ ------------
774,000 825,000
------------ ------------
$ 17,088,000 $ 18,484,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable -- line of credit..... $ 4,950,000 $ 4,000,000
Accounts payable -- trade.......... 998,000 3,136,000
Accrued wages and bonuses.......... 1,308,000 2,308,000
Other accrued liabilities.......... 402,000 293,000
Income tax payable................. 674,000 53,000
Current portion of long-term
debt............................. 676,000 831,000
------------ ------------
Total current
liabilities........... 9,008,000 10,621,000
------------ ------------
LONG-TERM DEBT, net of current portion
Notes payable...................... 1,570,000 1,845,000
Notes payable -- related parties... 3,000,000 --
------------ ------------
4,570,000 1,845,000
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $.25 par value,
4,950,000 shares authorized...... 1,073,000 1,073,000
Additional paid-in capital......... 7,000 7,000
Retained earnings.................. 2,430,000 4,938,000
------------ ------------
3,510,000 6,018,000
------------ ------------
$ 17,088,000 $ 18,484,000
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
SOLARCO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
JANUARY 1, DECEMBER 31, DECEMBER 29,
1995 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
SALES, net of returns, allowances and
discounts of $1,873,000, $2,975,000
and $2,920,000 at January 1, 1995,
December 31, 1995 and December 29,
1996, respectively................. $ 32,497,000 $ 46,036,000 $ 54,754,000
COST OF GOODS SOLD................... 23,739,000 34,023,000 39,506,000
------------ ------------ ------------
GROSS PROFIT......................... 8,758,000 12,013,000 15,248,000
------------ ------------ ------------
OPERATING EXPENSES
Retail outlet stores............ 850,000 786,000 654,000
Selling......................... 2,837,000 3,226,000 3,654,000
General and administrative...... 3,550,000 4,891,000 6,353,000
------------ ------------ ------------
7,237,000 8,903,000 10,661,000
------------ ------------ ------------
INCOME FROM OPERATIONS............... 1,521,000 3,110,000 4,587,000
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest expense................ (493,000) (700,000) (669,000)
Loss on disposal of equipment... 14,000 (78,000) (57,000)
Other........................... 13,000 (6,000) 4,000
------------ ------------ ------------
466,000 (784,000) (722,000)
------------ ------------ ------------
NET INCOME BEFORE INCOME TAX......... 1,055,000 2,326,000 3,865,000
INCOME TAX EXPENSE................... 240,000 823,000 1,357,000
------------ ------------ ------------
NET INCOME........................... $ 815,000 $ 1,503,000 $ 2,508,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
SOLARCO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------------- ADDITIONAL
NUMBER OF PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ------------ -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1995............. 4,293,000 $ 1,073,000 $ 7,000 $ 927,000 $ 2,007,000
Net income...................... -- -- -- 1,503,000 1,503,000
---------- ------------ -------- ----------- ------------
BALANCE, December 31, 1995........... 4,293,000 1,073,000 7,000 2,430,000 3,510,000
Net income...................... -- -- -- 2,508,000 2,508,000
---------- ------------ -------- ----------- ------------
BALANCE, December 29, 1996........... 4,293,000 $ 1,073,000 $ 7,000 $ 4,938,000 $ 6,018,000
========== ============ ======== =========== ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
SOLARCO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
JANUARY 1, DECEMBER 31, DECEMBER 29,
1995 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................... $ 815,000 $ 1,503,000 $ 2,508,000
Adjustments to reconcile net
income to net cash from
operating activities
Depreciation and
amortization............ 615,000 730,000 987,000
(Gain) Loss on disposal of
equipment............... (14,000) 78,000 57,000
Deferred income tax
benefit................. (7,000) (62,000) (25,000)
Stock bonuses.............. 37,000 -- --
Changes in assets and
liabilities
Accounts receivable,
net................ (2,934,000) (1,127,000) 43,000
Inventories........... (1,803,000) (843,000) (409,000)
Prepaid expenses and
other assets....... 45,000 (2,000) 18,000
Accounts payable...... 448,000 (654,000) 826,000
Other current
liabilities........ (128,000) 377,000 891,000
Income tax payable.... 239,000 435,000 (621,000)
------------ ------------ ------------
(2,687,000) 435,000 4,275,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment and
leasehold improvements........ (795,000) (823,000) (1,574,000)
Proceeds from sale of
equipment..................... 24,000 8,000 25,000
Collections on note
receivable -- officer......... -- 100,000 --
Contingent payment for
acquisition of subsidiary's
stock......................... -- (150,000) (150,000)
------------ ------------ ------------
(771,000) (865,000) (1,699,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on note
payable -- line of credit,
net........................... 3,633,000 380,000 362,000
Payments on notes
payable -- related parties.... (125,000) (1,000,000) (3,000,000)
Proceeds from long-term debt.... 598,000 1,608,000 1,100,000
Payments on long-term debt...... (463,000) (465,000) (670,000)
Proceeds from issuance of common
stock......................... 11,000 -- --
------------ ------------ ------------
3,654,000 523,000 (2,208,000)
------------ ------------ ------------
NET INCREASE IN CASH................. 196,000 93,000 368,000
CASH
Beginning of period............. 29,000 225,000 318,000
------------ ------------ ------------
End of period................... $ 225,000 $ 318,000 $ 686,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
SOLARCO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 1, 1995, DECEMBER 31, 1995 AND DECEMBER 29, 1996
NOTE 1 -- OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS -- SolarCo, Inc. ("the Company") is a holding company
incorporated in the State of Washington in 1993. Its wholly-owned subsidiary,
Morning Sun, Inc. ("Subsidiary" or "Morning Sun"), designs and embellishes
screen-printed and embroidered sportswear for women. It also operates a retail
factory outlet store, which sells returns, misprints, and other apparel. Net
retail sales totaled $2,979,000, $2,710,000 and $2,563,000 in 1994, 1995, and
1996, respectively.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of SolarCo, Inc. and its wholly-owned subsidiary, Morning
Sun, Inc. All intercompany accounts and transactions have been eliminated in
consolidation.
ANNUAL CLOSING DATE -- The Company operates using a fiscal period of 52 or
53 weeks, ending on the Sunday nearest December 31. The 1994 fiscal period ended
January 1, 1995, the 1995 fiscal period ended December 31, 1995 and the 1996
fiscal period ended December 29, 1996.
USE OF ESTIMATES -- The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS -- For purposes of the statement of cash flows,
the Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
ADVERTISING -- The Company expenses advertising costs as they are incurred.
Advertising expense was $107,000, $155,000 and $151,000 in 1994, 1995, and 1996,
respectively.
INVENTORIES -- Inventories are stated at the lower of cost or market, with
cost determined using the first-in, first-out (FIFO) method. Work in progress
and finished goods are valued using the full absorption method.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS -- Equipment and leasehold
improvements are stated at cost. Depreciation is computed using straight-line
and accelerated methods over the estimated useful lives of the assets. Leasehold
improvements are amortized over the term of the related lease. Depreciation and
amortization expense totaled $587,000, $709,000 and $949,000 in 1994, 1995, and
1996, respectively.
GOODWILL -- Goodwill represents the excess of the cost of the Company's
acquired subsidiary over the fair value of its net assets at the date of
acquisition. The excess cost is being amortized over 20 years using the
straight-line method. Amortization expense totaled $20,000 in 1994 and 1995, and
$38,000 in 1996.
INCOME TAXES -- Income taxes are provided for the tax effect of
transactions reported in the financial statements. The provision consists of
taxes currently due plus deferred taxes related primarily to differences in the
financial statement and tax bases of certain assets and liabilities. Deferred
tax expense or benefit represents the future consequences of those differences.
NOTE 2 -- STATEMENT OF CASH FLOWS SUPPLEMENTAL DISCLOSURES
CASH FLOW INFORMATION -- The Company paid $441,000, $699,000 and $671,000
of interest and $1,000, $450,000 and $2,001,000 of income taxes in 1994, 1995,
and 1996, respectively.
NONCASH TRANSACTION -- During 1995, the Company recognized an additional
$300,000 of contingent consideration for the acquisition of the stock of Morning
Sun, Inc. The additional cost was recorded as goodwill. Of the total, $150,000
was paid in cash and the balance was accrued.
<PAGE>
SOLARCO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- INVENTORIES
Inventories consist of the following:
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
Raw materials........................ $3,158,000 $3,348,000
Work in process...................... 102,000 48,000
Finished goods....................... 1,195,000 1,481,000
Factory outlet store................. 365,000 352,000
------------ ------------
$4,820,000 $5,229,000
============ ============
Periodically the Company discontinues production of certain products.
Accordingly, inventories on hand at year end relating to these products have
been written down to their estimated net realizable value.
NOTE 4 -- EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following:
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
Machinery and equipment.............. $2,488,000 $3,286,000
Computer equipment and software...... 966,000 1,548,000
Leasehold improvements............... 1,705,000 1,654,000
Office equipment..................... 117,000 121,000
Automobiles.......................... 41,000 41,000
------------ ------------
5,317,000 6,650,000
Less accumulated depreciation and
amortization......................... 2,682,00 3,472,000
------------ ------------
$2,635,000 $3,178,000
============ ============
NOTE 5 -- NOTE PAYABLE -- LINE OF CREDIT
A line of credit agreement with a bank provides for borrowings up to
$13,000,000, as limited by accounts receivable and inventories. The line bears
interest at prime with an option to borrow specific amounts over pre-determined
periods at fixed rates. The underlying promissory note matures June 1, 1998 and
is cross-collateralized with the Company's long-term debt.
NOTE 6 -- LONG-TERM DEBT
NOTES PAYABLE -- Notes payable consist of the following:
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
Various notes payable to a bank in
total monthly installments of
$76,000 plus interest at rates that
vary with prime, maturing September
1997 through August 2001........... $2,246,000 $2,676,000
Less current portion................. 676,000 831,000
------------ ------------
$1,570,000 $1,845,000
============ ============
<PAGE>
SOLARCO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Principal payments on long-term debt for future years are summarized as
follows:
1997................................. $ 831,000
1998................................. 826,000
1999................................. 520,000
2000................................. 349,000
2001 and thereafter.................. 150,000
------------
$ 2,676,000
============
The notes payable and line of credit are subject to a credit agreement with
the bank. Under the terms of the agreement, the Company has granted as
collateral to the bank a security interest in accounts receivable, inventories,
and equipment. The credit agreement contains certain covenants, including
requirements to maintain certain financial ratios and minimum levels of tangible
net worth, and to limit capital expenditures and payment of dividends.
NOTES PAYABLE -- RELATED PARTIES -- At December 31, 1995, the Company had
notes payable to stockholders and an affiliate of certain stockholders. The
notes were repaid in full during 1996.
NOTE 7 -- INCOME TAX
Income tax expense consists of the following:
JANUARY 1, DECEMBER 31, DECEMBER 29,
1995 1995 1996
---------- ------------ ------------
Current expense........... $ 246,500 $ 885,000 $1,382,000
Deferred benefit.......... (6,500) (62,000) (25,000)
---------- ------------ ------------
$ 240,000 $ 823,000 $1,357,000
========== ============ ============
Total income tax expense differs from the amount computed by applying
federal statutory rates to net income before income tax due to differences in
the deductibility of certain expenses, the inclusion of state income tax, and
the application of certain tax credits.
Deferred taxes are computed based on temporary differences between the
financial statement and tax bases of certain assets and liabilities. Differences
relate primarily to allowance for doubtful accounts, accumulated depreciation,
inventories, and accrued vacation, all of which result in deferred tax assets.
NOTE 8 -- COMMITMENTS
At December 31, 1995 the Company has noncancellable operating lease
agreements for its manufacturing and office facility and a showroom. Future
annual obligations under the terms of these lease agreements are as follows:
1997................................. $ 856,000
1998................................. 830,000
------------
Total future minimum payments........ $ 1,686,000
============
Rent expense for the Company's facilities totaled $730,000, $751,000 and
$830,000 in 1994, 1995, and 1996, respectively.
NOTE 9 -- RELATED PARTY TRANSACTIONS
NOTE RECEIVABLE -- OFFICER -- Included in other assets is a $32,000
unsecured promissory note from the President of the Company's Subsidiary. The
note bears interest at 6% and is due in full December 2001 or upon a change in
control of the Company or its subsidiary. A second note from the President was
paid in full during 1995.
<PAGE>
SOLARCO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTES PAYABLE -- The Company had short-term and long-term notes payable to
stockholders and an affiliate of certain stockholders. The short-term notes were
paid in full during 1995 and the long-term notes were paid in full during 1996.
Interest paid to these related parties totaled $241,000, $290,000 and $157,000
in 1994, 1995, and 1996, respectively.
NOTE 10 -- RETIREMENT PLANS
The Company has adopted a salary deferral plan ("the Plan") meeting the
requirements of Internal Revenue Code 401(k) for qualified plans. The Plan
covers substantially all employees over the age of 21 with one year of service.
Employees may defer up to 15% of their annual salary, subject to certain
limitations established by the Internal Revenue Service. Company contributions
are discretionary and may not exceed 25% of employees' compensation or $30,000.
No Company contributions were made to the Plan in 1994, 1995 or 1996.
NOTE 11 -- STOCK INCENTIVE PLAN
The Company has adopted a stock incentive plan ("the Plan") covering key
directors, employees, and other individuals. Under the terms of the Plan, the
Board of Directors may award incentive stock options, as defined by the Internal
Revenue Code, non-statutory stock options, stock bonus rights, and stock
bonuses. A total of 878,000 shares have been reserved for issuance under the
terms of the Plan.
During 1994, the Company awarded 78,000 shares of stock bonuses. A total of
$37,000 of compensation expense was recognized for value of shares issued.
During 1995 and 1996, respectively, the Company awarded 15,000 and 80,000
of stock options to employees and directors. Vesting of the options to employees
are contingent on a change in control of the Company or its Subsidiary, and no
compensation cost has been recognized for these options. The Company has
recorded no compensation cost for the remainder of the options, as the amount is
not material.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION (SFAS No.
123). The new standard measures compensation cost using a fair value method,
which computes compensation cost as the difference between the options' fair
value and the option price on the grant date. However, SFAS No. 123 allows
companies to continue to measure compensation cost using the intrinsic value
method, which computes compensation cost as the difference between a company's
stock price and the option price at the grant date. The Company has elected to
continue to use the intrinsic value method.
SFAS No. 123 requires pro forma disclosure of net income as if the fair
value method were used. The effect of applying the fair value method to the
stock options issued in 1996 results in net income that is not materially
different from the amount reported in the financial statements.
NOTE 12 -- CONCENTRATIONS OF CREDIT RISK
Financial instruments that subject the Company to concentrations of credit
risk are cash and accounts receivable. The Company places its temporary cash
investments with major financial institutions. At times, deposits with any one
institution exceed federally insured limits. The Company performs ongoing credit
evaluations of its customers and generally does not require collateral.
Customers are concentrated in the retail department and specialty apparel store
industry and are dispersed geographically throughout the United States and
Canada. The Company has not experienced a history of significant credit-related
losses.
<PAGE>
SOLARCO, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
DECEMBER 29, MARCH 30,
1996 1997
------------ -----------
ASSETS
CURRENT ASSETS:
Cash............................ $ 686,000 $ 77,000
Accounts receivable, net of
allowance for doubtful
accounts, returns and
discounts of $1,559,000 and
$1,163,000 at December 29,
1996 and March 30, 1997,
respectively.................. 8,225,000 2,740,000
Inventories..................... 5,229,000 6,279,000
Other........................... 341,000 1,680,000
------------ -----------
Total current assets....... 14,481,000 10,776,000
------------ -----------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS,
net................................ 3,178,000 3,110,000
------------ -----------
OTHER ASSETS......................... 825,000 781,000
------------ -----------
$ 18,484,000 $14,667,000
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable -- line of
credit........................ $ 4,000,000 $ 2,822,000
Current portion of long-term
debt.......................... 831,000 831,000
Accounts payable and accrued
liabilities................... 5,790,000 5,485,000
------------ -----------
10,621,000 9,138,000
------------ -----------
LONG-TERM DEBT, net of current
portion............................ 1,845,000 1,652,000
------------ -----------
STOCKHOLDERS' EQUITY:
Common stock, $.25 par value,
4,950,000 shares authorized,
4,293,000 shares
outstanding................... 1,073,000 1,073,000
Additional paid-in capital...... 7,000 7,000
Retained earnings............... 4,938,000 2,797,000
------------ -----------
6,018,000 3,877,000
------------ -----------
$ 18,484,000 $14,667,000
============ ===========
The accompanying notes are an integral part of
these consolidated financial statements
<PAGE>
SOLARCO, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTEEN WEEKS ENDED
MARCH 31, 1996 MARCH 30, 1997
---------------------- ----------------------
<S> <C> <C>
NET SALES............................ $5,629,000 $ 6,239,000
COST OF GOODS SOLD................... 4,826,000 5,078,000
---------------------- ----------------------
GROSS PROFIT......................... 803,000 1,161,000
---------------------- ----------------------
OPERATING EXPENSES
Retail outlet stores............ 149,000 177,000
Selling......................... 535,000 578,000
General and administrative...... 1,133,000 3,599,000
---------------------- ----------------------
1,817,000 4,354,000
---------------------- ----------------------
LOSS FROM OPERATIONS................. (1,014,000) (3,193,000)
---------------------- ----------------------
OTHER EXPENSE
Interest........................ (107,000) (94,000)
Other........................... (9,000) (9,000)
---------------------- ----------------------
(116,000) (103,000)
---------------------- ----------------------
NET LOSS BEFORE INCOME TAX CREDIT.... (1,130,000) (3,296,000)
INCOME TAX CREDIT.................... 397,000 1,155,000
---------------------- ----------------------
NET LOSS............................. $ (733,000) $ (2,141,000)
====================== ======================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
SOLARCO, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTEEN WEEKS ENDED
MARCH 31, 1996 MARCH 30, 1997
--------------------- ---------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss........................ $ (733,000) $(2,142,000)
Adjustments to reconcile net
loss to net cash from
operating activities:
Depreciation and
amortization............ 209,000 235,000
Changes in assets and
liabilities:
Accounts receivable,
net................ 5,788,000 5,485,000
Inventories........... (1,262,000) (1,050,000)
Other current
assets............. (112,000) (1,339,000)
Other noncurrent
assets............. 35,000 33,000
Accounts payable and
accrued
liabilities........ (568,000) (305,000)
--------------------- ---------------------
3,357,000 917,000
--------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment and
leasehold improvements, net... (367,000) (155,000)
--------------------- ---------------------
(367,000) (155,000)
--------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings/payments on notes
payable, net.................. (3,106,000) (1,178,000)
Payments on long-term debt...... (156,000) (193,000)
--------------------- ---------------------
(3,262,000) (1,371,000)
--------------------- ---------------------
NET DECREASE IN CASH................. (272,000) (609,000)
CASH
Beginning of period............. 318,000 686,000
--------------------- ---------------------
End of period................... $ 46,000 $ 77,000
===================== =====================
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid for:
Interest................... $ 110,000 $ 96,000
Income taxes............... $ 651,000 $ 15,000
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
SOLARCO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) SUBSEQUENT EVENT
During May 1997, SolarCo, Inc. (SolarCo) agreed to sell all of its
outstanding common stock to Brazos Sportswear, Inc. (Brazos) for approximately
$30 million plus the assumption of indebtedness ($5.3 million at March 30, 1997)
and certain contractual obligations not to exceed $2.5 million. The sale, which
is subject to the satisfactory completion of due diligence and other conditions,
including regulatory approvals and Brazos' ability to obtain financing, is
expected to close during the third quarter of 1997.
(2) SIGNIFICANT ACCOUNTING POLICIES
(a) INTERIM FINANCIAL STATEMENTS -- The accompanying consolidated
condensed financial statements of SolarCo 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 consolidated condensed financial statements include
all adjustments, consisting of only normal recurring adjustments, necessary for
a fair presentation of the results for the interim periods. These consolidated
condensed financial statements and notes thereto should be read in conjunction
with the audited consolidated financial statements and notes thereto of SolarCo
included herein.
(b) NEW ACCOUNTING PRONOUNCEMENT -- During February 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 128, EARNINGS PER SHARE (SFAS No. 128). SFAS No. 128 replaces the current
presentation of primary and fully-diluted earnings per share with a presentation
of basic and diluted earnings per share. Pursuant to the provisions of SFAS No.
128, basic earnings per share excludes any dilution. The current presentation of
primary earnings per share includes the dilutive effect of common stock
equivalents such as options. SolarCo intends to adopt the provisions of SFAS No.
128 during the fourth quarter of 1997.
Assuming profitable results of operations, management expects that the
adoption of the provisions of SFAS No. 128 will have the effect of reporting an
amount of basic earnings per share which is greater than the current
presentation of primary earnings per share because the dilutive effect of common
stock equivalents, such as options, will be excluded from the calculation of
basic earnings per share.
(3) INVENTORIES
Inventories consist of the following:
DECEMBER 29, MARCH 30,
1996 1997
------------- ----------
Raw materials........................ $ 3,348,000 $4,210,000
Work in process...................... 48,000 176,000
Finished goods....................... 1,481,000 1,348,000
Factory outlet store................. 352,000 545,000
------------- ----------
$ 5,229,000 $6,279,000
============= ==========
EXHIBIT 99.2
PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial statements have been
derived from the financial statements of Brazos, Plymouth, Sun Sportswear,
Morning Sun and Premier and are presented to show (i) the acquisition of
Plymouth as of August 2, 1996, (ii) the Sun Merger, which was a reverse
acquisition of Sun Sportswear effected on March 14, 1997, (iii) the
Acquisitions, which include the Morning Sun and Premier acquisitions, and (iv)
the Offering and the application of the net proceeds therefrom. These
acquisitions are accounted for under the purchase method of accounting pursuant
to which the purchase price is allocated based on the fair value of the assets
acquired and the liabilities assumed. The pro forma financial information is
presented for the year ended December 28, 1996, and as of and for the thirteen
weeks ended March 29, 1997.
The following is a summary of the purchase price and estimated goodwill for
the Morning Sun Acquisition as if the acquisition had taken place on March 29,
1997:
Purchase price
Cash............................ $ 29,250
Brazos common stock............. 750
Contingent consideration
(estimated).................... 1,600
---------
Total consideration to be paid....... 31,600
Estimated transaction costs.......... 125
---------
Purchase price including estimated
transaction costs.................. 31,725
Net assets acquired.................. (3,877)
Proceeds from exercise of Morning Sun
stock options prior to closing..... (1,200)
Expected tax benefit generated by the
exercise of non-qualified stock
options by Morning Sun............. (1,600)
---------
Estimated goodwill.............. $ 25,048
=========
The following is a summary of the purchase price and estimated goodwill for
the Premier Acquisition as if the acquisition had taken place on March 29, 1997:
Purchase price
Cash............................ $ 2,000
7% subordinated earnout
obligation..................... 4,000
Convertible subordinated note... 1,500
---------
Total consideration to be paid....... 7,500
Estimated transaction costs.......... 125
---------
Purchase price including estimated
transaction costs.................. 7,625
Net assets acquired.................. (10)
---------
Estimated goodwill.............. $ 7,615
=========
<PAGE>
The following is a summary of the uses of the proceeds after giving effect
to the Acquisitions and the Offering and the application of the net proceeds
therefrom as if those transactions had occurred on March 29, 1997:
Morning Sun Acquisition:
Purchase of common stock........ $ 29,250
Repay short-term debt........... 2,822
Repay assumed indebtedness and
other obligations............. 4,983
Premier Acquisition:
Purchase of net assets.......... 2,000
Repay short-term debt........... 2,717
Repay assumed indebtedness...... 106
Brazos:
Repay short-term debt........... 25,488
Repay term debt................. 11,600
Repay other long-term debt and
other obligations............. 15,376
Redeem preferred stock.......... 898
Payment of Initial Purchasers'
discount and offering and
transaction expenses.......... 4,000
----------
$ 99,240
==========
The unaudited pro forma condensed combined statements of operations for the
year ended December 28, 1996, and the thirteen weeks ended March 29, 1997, give
effect to the transactions referred to above as if each had occurred on the
first day of fiscal 1996.
The unaudited pro forma condensed combined balance sheet as of March 29,
1997 gives effect to the Acquisitions and the Offering and the application of
the net proceeds therefrom as if each had occurred on such date.
The actual entries for the Acquisitions are subject to the completion of
purchase accounting and will be based upon more precise appraisals, evaluations
and estimates of fair value, which are not currently complete, and may differ
substantially from the pro forma adjustments.
The pro forma results are not indicative of the results of operations had
the Acquisitions taken place at the beginning of the respective periods or of
future results, primarily because the Acquisitions and related purchase prices
were based on financial terms and conditions that existed on the acquisition
dates, and not as of the beginning of the respective periods discussed above.
The pro forma operating results for the thirteen weeks ended March 29, 1997
are not indicative of the results that are expected for the fiscal year 1997,
due in part to the seasonal nature of the business, the negative impact of which
appears predominantly in the first quarter. The Company believes that the
Acquisitions amplify this seasonal effect due to the nature of their individual
product lines.
The unaudited pro forma condensed combined financial statements and the
accompanying notes should be read in conjunction with the historical financial
statements of Brazos included in its Current Report on Form 8-K/A dated May 12,
1997 and its Quarterly Report on Form 10-Q for the quarter ended March 29, 1997,
Sun Sportswear included in Brazos' Annual Report on Form 10-K for the year ended
December 31, 1996, and Morning Sun appearing elsewhere herein.
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 28, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO
SUN MORNING FORMA
BRAZOS(1) PLYMOUTH(2) SPORTSWEAR SUN PREMIER ADJUSTMENTS PRO FORMA
--------- ----------- ---------- ---------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $ 169,452 $25,860 $ 65,535 $ 54,754 $35,631 $ (11,510)(3) $ 339,722
Cost of goods sold................... 127,845 16,707 57,680 39,506 29,761 (18,416)(4) 253,083
--------- ----------- ---------- ---------- ------- ----------- ---------
Gross profit..................... 41,607 9,153 7,855 15,248 5,870 6,906 86,639
Operating expenses................... 32,529 4,636 13,151 10,661 3,219 2,889(5) 67,085
--------- ----------- ---------- ---------- ------- ----------- ---------
Operating income (loss).......... 9,078 4,517 (5,296) 4,587 2,651 4,017 19,554
Interest expense..................... 4,491 165 584 669 532 6,396(6) 12,837
Other expense (income), net.......... (234) 62 (37) 53 (14) -- (170)
--------- ----------- ---------- ---------- ------- ----------- ---------
Income (loss) before income
taxes.......................... 4,821 4,290 (5,843) 3,865 2,133 (2,379) 6,887
Provision (benefit) for income
taxes.............................. 789 434 (7) 1,357 -- (690)(7) 1,883
--------- ----------- ---------- ---------- ------- ----------- ---------
Net income (loss)................ 4,032 3,856 (5,836) 2,508 2,133 (1,689) 5,004
Dividends and accretion on preferred
stock.............................. 245 -- -- -- -- 686(8) 931
--------- ----------- ---------- ---------- ------- ----------- ---------
Net income (loss) available for
common shareholders............ $ 3,787 $ 3,856 $ (5,836) $ 2,508 $ 2,133 $ (2,375) $ 4,073
========= =========== ========== ========== ======= =========== =========
Earnings per common and common
equivalent share................... $.90 $.80
========= =========
Shares used in computing earnings
per common and common equivalent
share.............................. 4,198,907 5,103,056
========= =========
</TABLE>
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
GENERAL:
(1) Includes the results of operations of Plymouth from the date of
acquisition, August 2, 1996, through December 28, 1996.
(2) Includes the results of operations of Plymouth from January 1, 1996, to the
date of acquisition, August 2, 1996.
ACQUISITION AND OFFERING ADJUSTMENTS:
<TABLE>
<CAPTION>
SUN MORNING
PLYMOUTH SPORTSWEAR SUN PREMIER OFFERING TOTAL
--------- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
(3) Elimination of intercompany
sales to Brazos................. $ -- $ -- $-- $(11,510) $ -- $(11,510)
========= =========== ======== ======== ======== ========
(4) Elimination of cost of goods
sold on inter-company sales to
Brazos. Such amount is equal to
the amount of sales in pro forma
adjustment (3) above............ $ -- $ -- $-- $(11,510) $ -- $(11,510)
Reclassification of royalty
expense to operating expenses
to conform with Brazos'
financial reporting practices... -- (5,917) -- -- -- (5,917)
Decrease in depreciation of
fixed assets based on their
post-acquisition allocated
fair values..................... -- (913) (76) -- -- (989)
--------- ----------- -------- -------- -------- --------
$ -- $ (6,830) $ (76) $(11,510) $ -- $(18,416)
========= =========== ======== ======== ======== ========
(5) Reclassification of royalty
expense from cost
of goods sold to conform with
Brazos' financial reporting
practices...................... $ -- $ 5,917 $-- $ -- $ -- $ 5,917
Increase (decrease) in
depreciation of fixed
assets based on their
post-acquisition allocated
fair values..................... 3 (810) (41) (24) -- (872)
Amortization of intangible
assets, including goodwill, over
periods ranging from 15 to 40
years........................... 285 (4) 628 190 -- 1,099
Increase (decrease) in
compensation expense to reflect
compensation levels on a post-
acquisition basis pursuant to
post-acquisition employment and
advisory agreements............. 139 -- (1,740) (309) -- (1,910)
Elimination of non-recurring
expenses such as board of
directors fees and other fees
charged to Morning Sun by its
former majority shareholder..... -- -- (295) -- -- (295)
Elimination of Sun Merger
acquisition expenses............ -- (956) -- -- -- (956)
Elimination of duplicate letter
of credit fees.................. -- -- -- (94) -- (94)
--------- ----------- -------- -------- -------- --------
$ 427 $ 4,147 $(1,448) $ (237) $ -- $ 2,889
========= =========== ======== ======== ======== ========
<PAGE>
(6) Net increase in interest expense
related to increased net
indebtedness as follows:
WEIGHTED SUN MORNING
AMOUNT AVG. RATE PLYMOUTH SPORTSWEAR SUN PREMIER OFFERING TOTAL
-------- --------- --------- ---------- -------- -------- -------- --------
Interest on Senior Notes........ $100,000 10.58% $ -- $-- $ -- $ -- $10,576 $ 10,576
Interest on Premier
subordinated obligation....... 4,000 7% -- -- -- -- 280 280
Interest on estimated
average indebtedness.......... 16,338 8% -- -- -- -- 1,309 1,309
Reversal of interest expense on debt repaid............. (165) (584) (669 ) (532) (4,424) (6,374)
Amortization of deferred financing costs over the
respective lives of the related debt obligations........ 184 46 -- -- 375 605
--------- ---------- -------- -------- -------- --------
$ 19 $ (538) $ (669 ) $ (532) $ 8,116 $ 6,396
========= ========== ======== ======== ======== ========
(7) Incremental income tax effects for pro forma
adjustments, S-Corporation income, and Sun Sportswear's
losses at an effective tax rate of 40%.................. $ -- $-- $ -- $ -- $ (690) $ (690)
========= ========= ======== ======= ======== ========
(8) Dividends on 8% paid-in-kind convertible preferred
stock................................................... $ 329 $ 165 $ -- $ -- $ -- $ 494
Accretion of discount related to fair value allocated to
common stock purchase warrants 38 154 -- -- -- 192
--------- --------- -------- ------- -------- --------
$ 367 $ 319 $ -- $ -- $ -- $ 686
========= ========= ======== ======= ======== ========
</TABLE>
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED MARCH 29, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUN MORNING PRO FORMA PRO
BRAZOS(1) SPORTSWEAR(2) SUN PREMIER ADJUSTMENTS FORMA
--------- -------------- -------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Net sales............................... $ 34,907 $ 9,190 $ 6,239 $2,469 $ (586)(3) $52,219
Cost of goods sold...................... 26,520 8,785 5,078 1,942 (2,164)(4) 40,161
--------- -------------- -------- ------- ----------- -------
Gross profit........................ 8,387 405 1,161 527 1,578 12,058
Operating expenses...................... 8,602 2,215 4,354 735 (1,947)(5) 13,959
--------- -------------- -------- ------- ----------- -------
Operating loss...................... (215) (1,810) (3,193) (208) 3,525 (1,901)
Interest expense........................ 1,145 72 94 36 1,508(6) 2,855
Other expense (income), net............. 125 (15) 9 (3) -- 116
--------- -------------- -------- ------- ----------- -------
Loss before income taxes............ (1,485) (1,867) (3,296) (241) 2,017 (4,872)
Benefit for income taxes................ 609 -- 1,155 -- 184(7) 1,948
--------- -------------- -------- ------- ----------- -------
Net loss............................ (876) (1,867) (2,141) (241) 2,201 (2,924)
Dividends and accretion on preferred
stock................................. 165 -- -- -- 81(8) 246
--------- -------------- -------- ------- ----------- -------
Net loss available for common
shareholders...................... $ (1,041) $ (1,867) $(2,141) $ (241) $ 2,120 $(3,170)
========= ============== ======== ======= =========== =======
Loss per common and common
equivalent share...................... $(.27) $(.71)
===== =====
Shares used in computing loss per
common and common equivalent share.... 3,889,538 4,453,725
========= =========
</TABLE>
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
GENERAL
(1) Includes the results of operations of Sun Sportswear from the Sun Merger
date, March 14, 1997, through March 29, 1997.
(2) Includes the results of operations of Sun Sportswear from January 1, 1997,
to the Sun Merger date, March 14, 1997.
ACQUISITION AND OFFERING ADJUSTMENTS
<TABLE>
<CAPTION>
SUN MORNING
SPORTSWEAR SUN PREMIER OFFERING TOTAL
----------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
(3) Elimination of intercompany
sales to Brazos................. $ -- $ -- $ (586) $ -- $ (586)
=========== ======== ======== ======== =======
(4) Elimination of cost of goods
sold on inter-company sales to
Brazos. Such amount is equal to
the amount of sales in pro forma
adjustment (3) above............ $ -- $ -- $ (586) $ -- $ (586)
Reclassification of royalty
expense to operating expenses to
conform with Brazos' financial
reporting practices............. (833) -- -- -- (833)
Decrease in depreciation of
fixed assets based on their
post-acquisition allocated fair
values.......................... (180) (12) -- -- (192)
Elimination of non-recurring
charges to dispose of certain
inventory types and styles,
commensurate with Brazos'
business plan for Sun
Sportswear...................... (553) -- -- -- (553)
----------- -------- -------- -------- -------
$(1,566) $ (12) $ (586) $ -- $(2,164)
=========== ======== ======== ======== =======
(5) Reclassification of royalty
expense from cost of goods
sold to conform with Brazos'
financial reporting practices...... $ 833 $ -- $ -- $ -- $ 833
Decrease in depreciation of
fixed assets based on their
post-acquisition allocated fair
values.......................... (159) (3) (5) -- (167)
Amortization of goodwill over 40
years........................... (1) 155 47 -- 201
Decrease in compensation expense
to reflect compensation levels
on a post-acquisition basis
pursuant to post-acquisition
employment and advisory
agreements...................... -- (2,500 ) -- -- (2,500)
Elimination of non-recurring
expenses such as board of
directors fees and other fees
charged to Morning Sun by its
former majority shareholder..... -- (57 ) -- -- (57)
Elimination of Sun Merger
acquisition expenses.............. (233) -- -- -- (233)
Elimination of duplicate letter
of credit fees.................. -- -- (24) -- (24)
----------- -------- -------- -------- -------
$ 440 $(2,405 ) $ 18 $ -- $(1,947)
=========== ======== ======== ======== =======
<PAGE>
<CAPTION>
(6) Net increase in interest expense
related to increased net
indebtedness as follows:
<CAPTION>
WEIGHTED SUN MORNING
AMOUNT AVG. RATE SPORTSWEAR SUN PREMIER OFFERING TOTAL
-------- --------- ----------- -------- ------- -------- -------
Interest on Senior Notes........ $100,000 10.58% $-- $-- $ -- $ 2,644 $ 2,644
Interest on Premier
subordinated obligation....... 4,000 7% -- -- -- 70 70
Interest on estimated
average indebtedness.......... 1,000 8% -- -- -- 20 20
Reversal of interest expense on debt repaid............. (72) (94) (36) (1,128) (1,330)
Amortization of deferred financing costs over the
respective lives of the related debt obligations........ 10 -- -- 94 104
----------- -------- ------- -------- -------
$ (62) $ (94) $ (36) $ 1,700 $ 1,508
=========== ======== ======= ======== =======
(7) Incremental income tax effects
for pro forma adjustments,
S-Corporation income, and Sun
Sportswear's losses at an
effective tax rate of 40%............................... $-- $-- $ -- $ 184 $ 184
=========== ======== ======= ======== =======
(8) Dividends on 8% paid-in-kind
convertible preferred stock............................. $ 43 $-- $ -- $ -- $ 43
Accretion of discount related to
fair value allocated to common
stock purchase warrants................................. 38 -- -- -- 38
----------- -------- ------- -------- -------
$ 81 $-- $ -- $ -- $ 81
=========== ======== ======= ======== =======
</TABLE>
<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 29, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
BRAZOS MORNING SUN PREMIER ADJUSTMENTS PRO FORMA
---------- ------------ ------- ------------ ----------
ASSETS
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash............................ $ 357 $ 77 $ 61 $ -- $ 495
Accounts receivable, net........ 29,390 2,740 902 -- 33,032
Inventories..................... 47,838 6,279 1,817 -- 55,934
Prepaid expenses and other...... 4,529 525 1,084 -- 6,138
Income tax receivable........... 1,817 1,155 -- 1,600(1) 4,572
---------- ------------ ------- ------------ ----------
Total current assets....... 83,931 10,776 3,864 1,600 100,171
Property, plant and equipment, net... 6,471 3,110 212 -- 9,793
Other noncurrent assets.............. 435 30 72 -- 537
Intangible assets.................... 22,979 751 -- 36,413(2) 60,143
---------- ------------ ------- ------------ ----------
Total assets............... $ 113,816 $ 14,667 $ 4,148 $ 38,013 $170,644
========== ============ ======= ============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term
debt.......................... $ 2,612 $ 831 $ 10 $ (3,453)(3) $ --
Capital leases.................. 358 -- -- -- 358
Short-term debt................. 36,273 2,822 2,717 (32,227)(3) 9,585
Accounts payable and accrued
liabilities................... 32,621 5,485 1,192 (3,850)(4) 35,448
---------- ------------ ------- ------------ ----------
Total current
liabilities.............. 71,864 9,138 3,919 (39,530) 45,391
Long-term debt, net of current
maturities......................... 9,000 1,652 96 88,492 (3) 99,240
Capital leases, net of current
maturities......................... 1,078 -- -- -- 1,078
Subordinated debt due to related
parties............................ 12,092 -- -- (8,092)(3) 4,000
Convertible subordinated debt........ -- -- -- 1,500 (3) 1,500
Deferred income taxes................ 954 -- -- -- 954
Other................................ 295 -- 123 -- 418
---------- ------------ ------- ------------ ----------
Total liabilities.......... 95,283 10,790 4,138 42,370 152,581
Mandatorily redeemable preferred
stock.............................. 898 -- -- (898)(5) --
Mandatorily redeemable convertible
preferred stock.................... 7,836 -- -- -- 7,836
Shareholders' equity:
Common stock.................... 4 1,073 2 (1,075)(6) 4
Additional paid-in capital...... 10,539 7 10 733 (7) 11,289
Retained earnings (deficit)..... (744) 2,797 (2) (3,117)(8) (1,066)
---------- ------------ ------- ------------ ----------
Total shareholders'
equity.................. 9,799 3,877 10 (3,459) 10,227
---------- ------------ ------- ------------ ----------
Total liabilities and
shareholders' equity.... $ 113,816 $ 14,667 $ 4,148 $ 38,013 $170,644
========== ============ ======= ============ ==========
</TABLE>
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET
(1) Adjustment to reflect the tax
benefit generated by the
exercise of non-qualified stock
options prior to the Morning Sun
Acquisition..................... $ 1,600
=========
(2) Adjustment to reflect the effects of goodwill and deferred financing costs
as follows:
INTANGIBLE AMORTIZATION
ASSET PERIOD
----------- -------------
Morning Sun.......................... $ 25,048 40 years
Premier.............................. 7,615 40 years
Offering expenses.................... 3,750 10 years
-----------
$ 36,413
===========
(3) To record a net increase in debt from the issuance of $100,000 of Senior
Notes net of a discount of $760, a $4,000, 7% subordinated obligation and a
$1,500 convertible subordinated note pursuant to the Offering and the
Acquisitions, net of the repayment of certain debt obligations of Brazos,
Morning Sun and Premier as follows:
ISSUANCES REPAYMENTS NET ADJUSTMENT
---------- ----------- --------------
Current maturities of long-term
debt.............................. $ -- $ (3,453) $ (3,453)
Short-term debt................... -- (32,227) (32,227)
Long-term debt, net............... 99,240 (10,748) 88,492
Subordinated debt................. 4,000 (12,092) (8,092)
Convertible subordinated debt..... 1,500 -- 1,500
---------- ----------- --------------
$ 104,740 $ (58,520) $ 46,220
========== =========== ==============
The above repayment of short-term debt includes the following:
Morning Sun.......................... $ (2,822)
Premier.............................. (2,717)
Brazos revolver, net................. (26,688)
-----------
$ (32,227)
===========
(4) Adjustment to reflect the effects of the acquisitions of Morning Sun and
Premier and the Offering as follows:
Payment of an earnout related to the
acquisition of Plymouth............ $(2,950)
Payment of certain assumed
contractual obligations of Morning
Sun................................ (2,500)
Contingent consideration related to
the tax benefit generated by the
exercise of non-qualified stock
options prior to the Morning Sun
Acquisition........................ 1,600
-------------
$(3,850)
=============
(5) Adjustment to reflect redemption of Brazos' Series A-1 and A-2 preferred
stock with a portion of the proceeds from the Senior Notes.
(6) Adjustment to reflect the elimination of Morning Sun's and Premier's
historical common stock accounts.
(7) Adjustment to reflect the effects of the acquisitions of Morning Sun and
Premier as follows:
Elimination of Morning Sun's and
Premier's historical additional
paid-in capital accounts........... $ (17)
Stock issued related to the Morning
Sun Acquisition.................... 750
-------------
$ 733
=============
<PAGE>
(8) Adjustment to reflect the effects of the acquisitions of Morning Sun and
Premier and the Offering as follows:
Elimination of Morning Sun's and
Premier's historical retained
earnings .......................... $(2,795)
Effect of write-off of original issue
discount associated with the early
extinguishment of $3,500 face
amount of subordinated debt
pursuant to the Offering........... (322)
-------------
$(3,117)
=============
EXHIBIT 99.3
BRAZOS SPORTSWEAR COMPLETES
PURCHASE OF
MORNING SUN AND PREMIER SPORTS GROUP
CINCINNATI, OHIO, July 2, 1997 - Brazos Sportswear, Inc. (Nasdaq: BRZS)
announced today the completion of previously announced acquisitions of Morning
Sun, Inc. and Premier Sports Group, Inc.
Morning Sun is a Seattle-based designer and manufacturer of embroidered
and screen printed fleece wear, T-shirts and other women's tops sold
predominately to department stores. Premier is an importer of high-quality,
low-cost "fashion fleece" and other garments for domestic distributors, and
provides merchandising, design and sourcing services for apparel companies. The
two acquisitions will add approximately $80 million to Brazos Sportswear's
present $260 million in annualized revenues.
Concurrently with the completion of the acquisitions, Brazos entered into
a new $50 million revolving credit facility with Fleet Capital and Bank Boston.
Brazos also announced the completion of a $100 million senior notes offering.
Proceeds from the offering were used to fund the two acquisitions and refinance
existing indebtedness. The senior notes carry a 10.5% interest rate and mature
in 2007.
Ford Taylor, CEO of Brazos, stated, "We are excited about completing the
acquisitions of Morning Sun and Premier and are confident that the acquisitions
will add significantly to Brazos Sportswear's future prospects. In addition, the
new credit facility and senior notes offering significantly enhances the
company's capitalization and provides substantial long-term capital for future
growth."
Included in this release are "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Although Brazos believes
that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations reflected in such
forrward-looking statements will prove to be correct. Brazos' actual results
could differ materially from those anticipated in the forward-looking statements
as a result of certain factors including sales levels, distribution and
competition trends and other market factors.
Brazos Sportswear is one of the fastest growing decorated sportswear
companies in the United States, with facilities in 12 states and a customer base
of more than 12,000 throughout the U.S. and Japan.
