<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
JANUARY 13, 1999
------------------------------------------------
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
HAGGAR CORP.
(Exact name of registrant as specified in the charter)
NEVADA 0-20850 75-2187001
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) file number) Identification Number)
6113 LEMMON AVENUE
DALLAS, TEXAS 75209
(Address of principal executive offices including zip code)
(214) 352-8481
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
Index to exhibits appears on sequentially numbered page 12.
1
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On January 13, 1999, Haggar Clothing Co. (Haggar), a wholly-owned subsidiary
of the registrant, Haggar Corp., completed the previously announced
acquisition of Jerell, Inc. ("Old Jerell"), a Texas corporation engaged in
the design and marketing of women's apparel. Pursuant to an Agreement and
Plan of Merger dated December 17, 1998 (the "Agreement"), Old Jerell was
merged into a Texas corporation recently formed as a wholly-owned subsidiary
of Haggar. Immediately thereafter, the Texas subsidiary was merged into a
newly formed Nevada corporation which is also a wholly-owned subsidiary of
Haggar, and the name of the surviving Nevada subsidiary was changed to
Jerell, Inc. ("New Jerell").
The purchase price for the acquisition was determined by arm's-length
negotiation among the parties. In connection with the merger, Haggar paid
cash consideration of $36.9 million to the shareholders of Old Jerell, all of
whom were directors, officers, employees or previous employees (or affiliates
thereof) of Old Jerell. The total cash consideration is subject to certain
post-closing adjustments related to Old Jerell as of the closing date. In
order to facilitate these post-closing adjustments and provide a source of
recovery for any breaches of representations by Old Jerell, the shareholders
of Old Jerell have deposited $2.0 million in escrow with Chase Bank of Texas
to be held until January 13, 2000. In addition, a shareholder of Old Jerell
also deposited $1.5 million with Chase Bank of Texas of which various amounts
will be distributed in annual installments to the shareholder through January
13, 2002.
Pursuant to the Agreement, Haggar also paid $0.4 million to a certain
executive officer of Old Jerell in consideration for a covenant not to
compete with New Jerell. Immediately subsequent to the acquisition, Haggar
repaid $4.7 million in indebtedness incurred by Old Jerell pursuant to a
third party factoring agreement. In addition, Haggar incurred approximately
$0.2 million in expenses attributable to the acquisition. Of the $42.2
million aggregate acquisition cost, Haggar borrowed $20.0 million under its
existing credit facility with Chase Bank of Texas, received $2.8 million from
the repayment of loans from certain shareholders of Old Jerell, and funded
the balance from working capital.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
<TABLE>
<S> <C>
(a) Financial Statements of Businesses Acquired
Jerell, Inc.'s financial statements for the year ending October
31, 1998, are filed as part of this report and are listed as
Exhibit 99(a) of this report.
(b) Pro forma Financial Information
Pro Forma financial statements filed as part of this report are
listed on the Index of Financial Information on page 4 of this
report.
(c) Exhibits
(2) Agreement and Plan of Merger dated December 17, 1998, among
Haggar Clothing, Co., JI Acquisition, Inc., Jerell, Inc.,
and the shareholders named therein.
(10) (a) Escrow Agreement dated January 13, 1999, among Hagger
Clothing Co., Chase Bank of Texas, and the Seller
Representive named therein.
(b) Restated Employment Agreement effective November 1,
1994, between Jerell, Inc., and the Employee named
therein.
(c) First Amendment to Restated Employment Agreement
dated January 13, 1999, among Jerell, Inc., Haggar
Clothing Co., and the Employee named therein.
(99) (a) Financial statements of Jerell, Inc. for the year
ending October 31, 1998, including Report of Independent
Public Accountants.
(b) Consent of Independent Public Accountants.
</TABLE>
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: January 28, 1999
HAGGAR CORP.
(Registrant)
By: /s/ DAVID M. TEHLE
------------------------------------
David M. Tehle
(SENIOR VICE PRESIDENT, CHIEF
FINANCIAL OFFICER)
3
<PAGE>
HAGGAR CORP.
Index of Financial Information
<TABLE>
<CAPTION>
ITEM 7. (A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED EXHIBIT NO.
-----------
<S> <C>
Financial Statements of Jerell, Inc. for the year
ended October 31, 1998, including the
Report of Independent Auditors..................................... 99(a)
ITEM 7. (B) PRO FORMA FINANCIAL INFORMATION PAGE NO.
-----------
Summary of Information Related to the
Unaudited Condensed Pro Forma
Consolidated Financial Data........................................ 5
Unaudited Condensed Pro Forma Consolidated
Balance Sheet as of September 30, 1998............................. 6 - 7
Notes to Unaudited Condensed Pro Forma
Consolidated Balance Sheet as of
September 30, 1998................................................. 8 - 9
Unaudited Condensed Pro Forma Consolidated Statement of
Operations for the year ending September 30, 1998.................. 10
Notes to Unaudited Condensed Pro Forma Consolidated
Statement of Operations for the year ending
September 30, 1998................................................. 11
ITEM 7. (C) PRO FORMA FINANCIAL INFORMATION
Index of Exhibits.......................................................... 12
</TABLE>
4
<PAGE>
SUMMARY INFORMATION RELATED TO THE
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited condensed pro forma consolidated financial data
consists of the Unaudited Condensed Pro Forma Consolidated Balance Sheet of
Haggar Corp. and its subsidiaries ("Haggar") as of September 30, 1998, and the
Unaudited Condensed Pro Forma Consolidated Statement of Operations of Haggar
for the year ended September 30, 1998 (collectively, the "Pro Forma
Statements"). The Unaudited Condensed Pro Forma Consolidated Balance Sheet
gives effect to the purchase of the common stock of Jerell, Inc. ("Jerell")
(the "Transaction") as if the Transaction had occurred on September 30, 1998.
The Unaudited Condensed Pro Forma Consolidated Statement of Operations for
the year ending September 30, 1998, gives effect to the Transaction as if the
Transaction had occurred on October 1, 1997.
The Pro Forma Statements do not purport to represent what the results of
operations of Haggar would actually have been if the aforementioned
Transaction in fact had occurred on the assumed dates, or to project the
results of operations for any future periods or at any future date.
5
<PAGE>
HAGGAR CORP. AND SUBSIDIARIES
UNAUDITED-CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PURCHASE OF JERELL, INC.
HISTORICAL ------------------------- PRO FORMA
ASSETS BALANCES DEBIT CREDIT BALANCES
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 20,280 $ 126(a) $ 4,741(b) $ 1,635
2,817(c) 444(e)
660(d) 37,063(g)
20,000(f)
Accounts receivable, net 63,613 4,172(a) 72,526
4,741(b)
Inventories 92,244 7,374(a) 400(h) 99,218
Deferred tax benefit 7,623 186(a) 7,809
Other current assets 1,557 3,179(a) 2,817(c) 1,919
-------- ---------- ---------- --------
Total current assets 185,317 43,255 45,465 183,107
Property, plant and equipment, net 64,424 1,127(a) 65,551
Goodwill, net -- 27,129(g) 27,129
Other assets 2,234 1,162(a) 3,840
444(e)
-------- ---------- ---------- --------
Total Assets $251,975 $73,117 $45,465 $279,627
-------- ---------- ---------- --------
-------- ---------- ---------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 22,995 $ 3,745(a) $ 26,740
Accrued liabilities 31,261 2,150(a) 34,371
660(d)
300(h)
Short-term borrowings 3,453 3,453
Current portion of
long-term debt 3,854 155(a) 4,009
-------- ---------- ---------- --------
Total current liabilities 61,563 7,010 68,573
Long-term debt 24,937 642(a) 45,579
20,000(f)
-------- ---------- ---------- --------
Total liabilities 86,500 27,652 114,152
</TABLE>
6
<PAGE>
HAGGAR CORP. AND SUBSIDIARIES
UNAUDITED-CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<S> <C> <C> <C> <C>
Stockholders' equity:
Common stock, $0.10 par value 857 857
Additional paid-in capital 41,860 41,860
Retained earnings 128,329 128,329
-------- ---------- ---------- --------
171,046 171,046
Less - Treasury stock at cost (5,571) (5,571)
-------- ---------- ---------- --------
Total stockholders'
equity 165,475 165,475
Total liabilities and
stockholders' equity $251,975 $ -- $ 27,652 $279,627
-------- ---------- ---------- --------
-------- ---------- ---------- --------
</TABLE>
The accompanying notes are an integral part of this statement.
7
<PAGE>
HAGGAR CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
The unaudited condensed pro forma consolidated balance sheet as of September
30, 1998, combines the following information (in thousands):
1. The historical consolidated balance sheet of Haggar Corp. and
subsidiaries as of September 30, 1998,
2. The historical consolidated balance sheet of Jerell, Inc. as of
October 31, 1998, and
3. The sources and uses of funds to acquire the Jerell, Inc. stock
as follows:
<TABLE>
<CAPTION>
Sources of Funds: Amount
--------
<S> <C> <C>
Excess cash on hand available for investment $18,771
Borrowings under revolving line of credit 20,000
Payment of notes receivable due from former
stockholders of Jerell, Inc. 2,817
Payment by former stockholders of Jerell, Inc.
for tax withholdings 660
-------
Total Sources of Funds $42,248
-------
-------
Uses of Funds:
Purchase of stock $36,863
Payment pursuant to non-compete agreements 444
Payment of funds borrowed from factor 4,741
Costs and expenses related to the purchase of stock 200
-------
Total Uses of Funds $42,248
-------
-------
</TABLE>
8
<PAGE>
HAGGAR CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
Pro forma adjustments to reflect the acquisition of Jerell, Inc. are as
follows (in thousands):
<TABLE>
<S> <C>
(a) To record the book value of account balances of Jerell, Inc.
at October 31, 1998.
(b) To record the payment of funds borrowed
from factor......................................................... $4,741
(c) To record the payment of notes receivable
due from former stockholders........................................ $2,817
(d) To record the payment by former stockholders
for tax withholdings................................................ $660
(e) To record the payment of non-compete
agreements with certain executive officers
of Jerell, Inc. .................................................... $444
(f) To record funds borrowed under the
revolving line of credit ........................................... $20,000
(g) To record goodwill:
Purchase of stock....................................... $36,863
Transaction costs....................................... 200
-------
Total consideration paid for stock................... 37,063
Less: Net book value of
assets acquired and
liabilities assumed..................................... (10,634)
Adjustment to record
assets acquired and liabilities
assumed at fair market value............................ 700
-------
Goodwill recorded.................................... $27,129
-------
-------
(h) To record assets acquired and liabilities assumed at
fair market value:
Inventories............................................ $400
Accrued liabilities.................................... 300
----
Total.................................................. $700
----
----
</TABLE>
9
<PAGE>
HAGGAR CORP. AND SUBSIDIARIES
UNAUDITED-CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDING SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Historical Pro Forma
Year Ending Jerell, Inc. Acquisition Year Ending
Sept. 30,1998 Operations Adjustments Sept. 30,1998
------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Net Sales $402,475 $65,795 (a) $468,270
Cost of goods sold 277,713 45,490 (a) 323,203
-------- ---------- ----------- --------
Gross profit 124,762 20,305 (a) 145,067
Selling and administrative expenses (112,296) (14,257)(a) (1,467)(b) (128,020)
Royalty Income 2,878 2,878
-------- ---------- ----------- --------
Operating Income 15,344 6,048 (a) (1,467) 19,925
Other income, net 1,094 (66)(a) 1,028
Interest expense (3,452) (630)(a) (2,016)(c) (6,098)
-------- ---------- ----------- --------
Income before provision (benefit)
for income taxes 12,986 5,352 (a) (3,483) 14,855
Provision (benefit) for income taxes 4,962 1,913 (a) (671)(d) 6,204
-------- ---------- ----------- --------
Net Income $8,024 $3,439 (a) $(2,812) $8,651
-------- ---------- ----------- --------
-------- ---------- ----------- --------
Net income per common share $0.94 $1.01
Weighted average shares
outstanding 8,545 8,545
</TABLE>
The accompanying notes are an integral part of this statement.
10
<PAGE>
HAGGAR CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDING SEPTEMBER 30, 1998
The unaudited condensed pro forma consolidated statement of operations for the
year ending September 30, 1998, combine the following information:
1. The historical condensed consolidated statement of operations for
Haggar Corp. for the year ending September 30, 1998,
2. The historical condensed consolidated statement of operations of
Jerell, Inc. for the year ending October 31, 1998, and
3. Pro forma adjustments to reflect the Transaction as if the
Transaction had occurred on October 1, 1997, are as
follows (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
(a) To record Jerell, Inc. operations for the twelve month
period ending October 31, 1998.
(b) The pro forma adjustments to selling and administrative
expenses are as follows:
To recognize the amortization of goodwill......... $1,356
To recognize the amortization of
non-compete agreements..................... 111
------
Total.................................... $1,467
(c) To recognize the incremental interest expense
due to the revolving line of credit debt at 6.3%,
which is the average rate for the twelve months
ending September 30, 1998, offset by the reduction in
interest expense due to the payment of funds borrowed
from a factor at 9%...................................... $2,016
(d) To recognize the incremental federal and
state income taxes resulting from the
consolidation of Jerell, Inc. operating and
the pro forma adjustments, using an effective rate
of approximately 38.5%................................... ($671)
</TABLE>
11
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION
- ------- -----------
<S> <C>
(2) Agreement and Plan of Merger dated December 17, 1998, among
Haggar Clothing, Co., JI Acquisition, Inc., Jerell, Inc.,
and the shareholders named therein.
(10) (a) Escrow Agreement dated January 13, 1999, among Hagger
Clothing Co., Chase Bank of Texas, and the Seller
Representive named therein.
(b) Restated Employment Agreement effective November 1,
1994, between Jerell, Inc., and the Employee named
therein.
(c) First Amendment to Restated Employment Agreement
dated January 13, 1999, among Jerell, Inc., Haggar
Clothing Co., and the Employee named therein.
(99) (a) Financial statements of Jerell, Inc. for the year
ending October 31, 1998, including Report of Independent
Public Accountants.
(b) Consent of Independent Public Accountants.
</TABLE>
12
<PAGE>
EXECUTION VERSION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
ACQUIROR,
ACQUIROR SUB,
TARGET
AND
THE SHAREHOLDERS NAMED HEREIN
DATED AS OF DECEMBER 17, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE l
DEFINITIONS
<TABLE>
<CAPTION>
<S> <C>
1.01 Definitions .......................................................... 2
1.02 References, Titles and Rules of Construction ......................... 10
ARTICLE 2
THE MERGER; CLOSING
2.01 The Merger ........................................................... 10
2.02 Effective Time; Closing .............................................. 11
2.03 Effect of the Merger ................................................. 11
2.04 Articles of Incorporation; Bylaws .................................... 11
2.05 Directors and Officers ............................................... 11
2.06 Reductions Notice .................................................... 12
2.07 Escrow ............................................................... 12
2.08 Shareholder Approval ................................................. 13
ARTICLE 3
CONVERSION OF SECURITIES
3.01 Conversion of Securities ............................................. 13
3.02 Exchange of Certificates ............................................. 14
3.03 Stock Transfer Books ................................................. 16
3.04 Common Stock Equivalents ............................................. 16
3.05 Tax Withholding ...................................................... 18
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE TARGET
4.01 Organization and Qualification; Target Subsidiaries................... 18
4.02 Articles of Incorporation and Bylaws ................................. 19
4.03 Capitalization ....................................................... 19
4.04 Authority Relative to This Agreement ................................. 20
4.05 No Conflict; Required Filings and Consents ........................... 20
4.06 Permits; Compliance .................................................. 21
4.07 Financial Statements ................................................. 22
4.08 Absence of Certain Changes or Events ................................. 22
4.09 Absence of Litigation; Compliance with Laws .......................... 23
4.10 Employee Benefit Plans ............................................... 23
i
<PAGE>
4.11 Labor Matters ........................................................ 25
4.12 Taxes ................................................................ 27
4.13 Environmental Matters ................................................ 29
4.14 Brokers .............................................................. 30
4.15 Tangible Property .................................................... 30
4.16 Material Contracts ................................................... 31
4.17 Vote Required ........................................................ 31
4.18 Parachute Payments ................................................... 31
4.19 Certain Business Practices ........................................... 31
4.20 Insurance ............................................................ 32
4.21 Board Recommendation ................................................. 32
4.22 Change in Control .................................................... 32
4.23 Intellectual Property ................................................ 32
4.24 Inventory ............................................................ 33
4.25 Relationship with Suppliers .......................................... 33
4.26 Relationship with Customers .......................................... 34
4.27 Accounts Receivable .................................................. 34
4.28 Affiliate Relationships .............................................. 34
4.29 Information Systems .................................................. 34
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
AND ACQUIROR SUB
5.01 Corporate Organization and Qualification ............................. 35
5.02 Articles of Incorporation and Bylaws ................................. 35
5.03 Authority Relative to This Agreement ................................. 35
5.04 No Conflict; Required Filings and Consents ........................... 35
5.05 Absence of Litigation ................................................ 36
5.06 Ownership of Acquiror Sub; No Prior Activities ....................... 36
5.07 Brokers .............................................................. 37
5.08 Financing ............................................................ 37
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
6.01 Owners of Shares ..................................................... 37
6.02 Authority Relative to This Agreement ................................. 37
6.03 No Conflict; Required Filings and Consents ........................... 37
6.04 Absence of Litigation ................................................ 38
6.05 Brokers .............................................................. 38
ii
<PAGE>
ARTICLE 7
CONDUCT OF BUSINESS PENDING THE MERGER
7.01 Conduct of Business by the Target Pending the Merger ................. 38
ARTICLE 8
ADDITIONAL AGREEMENTS
8.01 Proxy Statement ...................................................... 41
8.02 Target Shareholder Meeting ........................................... 41
8.03 Appropriate Action; Consents; Filings ................................ 41
8.04 Access to Information; Confidentiality ............................... 43
8.05 No Solicitation of Transactions by Target ............................ 43
8.06 Directors' and Officers' Indemnification ............................. 44
8.07 Obligations of Acquiror Sub .......................................... 44
8.08 Public 4announcements ................................................ 44
8.09 Notification of Certain Matters ...................................... 44
8.10 Further Action ....................................................... 44
8.11 Employee Benefits .................................................... 45
8.12 1998 Audited Financial Statements .................................... 45
8.13 Agreement to Vote or Consent ......................................... 45
8.14 Revocation of Proxies and Consents ................................... 46
8.15 Shareholders' Support of the Merger .................................. 46
8.16 Senior Credit Facility ............................................... 47
8.17 Shareholder Loans .................................................... 47
8.18 Non-Competition Agreements ........................................... 47
8.19 Matters relating to Shareholder Option Agreement ..................... 48
8.20 Termination Agreement ................................................ 49
8.21 Effective Time Shareholder List ...................................... 49
8.22 Employment Agreement Amendment ....................................... 49
ARTICLE 9
CONDITIONS TO THE MERGER
9.01 Conditions to the Obligations of Each Party .......................... 49
9.02 Conditions to the Obligations of Acquiror and Acquiror Sub ........... 50
9.03 Conditions to the Obligations of the Target .......................... 51
ARTICLE 10
TERMINATION, AMENDMENT AND WAIVER
10.01 Termination ......................................................... 52
iii
<PAGE>
10.02 Effect of Termination ............................................... 53
10.03 Expenses ............................................................ 53
10.04 Amendment ........................................................... 54
10.05 Waiver .............................................................. 54
ARTICLE 11
INDEMNIFICATION
11.01 Indemnification of Acquiror Indemnified Parties ..................... 54
11.02 Indemnification of Seller Indemnified Parties........................ 55
11.03 Defense of Third-Party Claims........................................ 55
11.04 Direct Claims........................................................ 56
11.05 Limitations.......................................................... 57
11.06 Matters Not Subject to Minimum Loss ................................. 58
ARTICLE 12
THE SELLER REPRESENTATIVE
12.01 Authorization of the Seller Representative........................... 59
12.02 Compensation; Exculpation; Indemnity................................. 61
12.03 Removal and Replacement of Seller Representative; Successor
Seller Representative; Action by Seller Representative............... 61
12.04 Reliance; Limitation as to Acquiror, Acquiror Sub and the
Surviving Corporation................................................ 62
ARTICLE 13
GENERAL PROVISIONS
13.01 Survival of Representations, Warranties and Agreements .............. 62
13.02 Notices.............................................................. 62
13.03 Severability......................................................... 64
13.04 Assignment; Binding Effect; Benefit.................................. 64
13.05 Incorporation of Schedules........................................... 64
13.06 Specific Performance................................................. 64
13.07 Governing Law........................................................ 64
13.08 Headings............................................................. 64
13.09 Counterparts......................................................... 64
13.10 Waiver of Jury Trial................................................. 65
13.11 Entire Agreement..................................................... 65
13.12 No Waiver Relating to Claims for Fraud .............................. 65
</TABLE>
iv
<PAGE>
EXHIBITS
Exhibit A -- Form of Escrow Agreement
Exhibit B -- Form of Letter of Transmittal
Exhibit C -- Form of Option Release Agreement
Exhibit D -- Form of Non-Competition Agreement
Exhibit E -- Form of Termination Agreement
Exhibit F -- Terms of Employment Agreement Amendment
v
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of December 17, 1998 (this
"AGREEMENT"), is made among Haggar Clothing Co., a Nevada corporation
("ACQUIROR"), JI Acquisition, Inc., a Texas corporation and a direct, wholly
owned subsidiary of Acquiror ("ACQUIROR SUB"), Jerell, Inc., a Texas
corporation, each of the persons identified as "Shareholders" on Schedule I
hereto (the "SHAREHOLDERS"), and, for the limited purposes set forth in
Sections 8.19 and 8.20, each of the persons identified as "Additional Frankel
Shareholders" on the signature page hereto. As used in this Agreement, the
term "TARGET" means Jerell, Inc., a Texas corporation, at all times prior to
the Effective Time (as hereinafter defined) and means the Surviving
Corporation (as hereinafter defined) at all times thereafter.
PRELIMINARY STATEMENTS
A. The parties to this Agreement desire that Acquiror Sub be merged with
and into the Target (the "Merger") upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the Texas Business
Corporation Act (the "TBCA").
B. The Board of Directors of the Target (i) has determined that the
Merger is fair to, and in the best interests of, the Target and its shareholders
and has approved this Agreement and the transactions contemplated hereby
(including the Merger, the "TRANSACTIONS"), and (ii) has recommended approval of
this Agreement by, and directed that this Agreement be submitted to a vote of,
the shareholders of the Target.
C. The Boards of Directors of Acquiror and Acquiror Sub have determined
that the Merger is in the best interests of Acquiror and Acquiror Sub,
respectively, and of their respective shareholders and have approved this
Agreement and the Transactions. The Board of Directors of Acquiror Sub has
recommended approval of this Agreement to, and this Agreement has been approved
by, the sole shareholder of Acquiror Sub.
D. Each Shareholder is the beneficial owner of the number of shares of
Common Stock (as hereinafter defined) set forth opposite such Shareholder's name
on SCHEDULE I hereto. Each Shareholder fully supports the Merger and the
Transactions and, in order to encourage Acquiror and Acquiror Sub to enter into
this Agreement, the Shareholders are willing to enter into the agreements made
by such Shareholders herein.
AGREEMENTS
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Acquiror, Acquiror Sub, the Target and the Shareholders hereby agree as follows:
<PAGE>
ARTICLE l
DEFINITIONS
Section 1.01 DEFINITIONS. The following terms shall have the following
meanings in this Agreement:
"1998 Audited Balance Sheet" has the meaning set forth in Section 8.12.
"1998 Audited Financial Statements" has the meaning set forth in Section
8.12.
"Accounts Receivable" has the meaning set forth in Section 4.27.
"Acquiror" has the meaning set forth in the introductory paragraph of this
Agreement.
"Acquiror Disclosure Schedule" has the meaning set forth in Article 5.
"Acquiror Indemnified Costs" has the meaning set forth in Section 11.01.
"Acquiror Indemnified Parties" means Acquiror, each of Acquiror's
Affiliates, and each officer, director, employee and consultant of Acquiror and
its Affiliates.
"Acquiror Sub" has the meaning set forth in the introductory paragraph of
this Agreement.
"Acquiror Sub Common Stock" has the meaning set forth in Section 3.01.
"Acquisition Proposal" means any proposal or offer, other than a proposal
or offer by Acquiror or any of its Subsidiaries, with respect to (a) any merger,
reorganization, recapitalization, consolidation, share exchange, business
combination, liquidation, dissolution or other similar transaction involving the
Target or any Target Subsidiary, (b) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition of 5% or more of the assets of the Target
or any Target Subsidiary, in a single transaction or series of transactions
(whether related or unrelated), other than inventory sold, leased, exchanged,
mortgaged, pledged, transferred or otherwise disposed of in the ordinary course
of business, (e) any sale of, tender offer or exchange offer for 5% or more of
the outstanding shares of any class of the Target's or any Target Subsidiary's
capital stock or any class of the Target's or any Target Subsidiary's debt
securities or the filing of a registration statement under the Securities Act in
connection therewith, (d) the acquisition by any party of beneficial ownership
or a right to acquire beneficial ownership of, or the formation of any "group"
(as defined under Section 13(d)(3) of the Exchange Act) which beneficially owns
or has the right to acquire beneficial ownership of, 5% or more of the then
outstanding shares of any class of the Target's or any Target Subsidiary's
capital stock or any class of the Target's or any Target Subsidiary's debt
securities or (e) any public announcement of a proposal, plan or intention to do
any of the foregoing or any agreement to engage in any of the foregoing.
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"Affiliate" of a specified Person means a Person who, directly or
indirectly, through one or more intermediaries, Controls, is Controlled By, or
is Under Common Control with, such specified Person.
"Aggregate Consideration" means (a) $36,756,637 minus (b) the sum of
(i) the Transaction Costs Excess Amount, if any, plus (ii) the Extraordinary
Payments Excess Amount, if any, plus (iii) the Aggregate Option Exercise
Price, if any.
"Aggregate Option Exercise Price" means the aggregate exercise price that
would be paid if all Common Stock Equivalents outstanding immediately prior to
the Effective Time (including the Vierling Option) were exercised in full
(assuming for the purposes of this definition that all such Common Stock
Equivalents could be exercised in fill as of such time).
"Agreement" means this Agreement and Plan of Merger.
"Amended Employment Agreement" shall mean the Vierling Employment
Agreement, as amended by the Employment Agreement Amendment.
"Articles of Merger" has the meaning set forth in Section 2.02.
"Audited Financial Statements" has the meaning as set forth in Section
4.07.
"Balance Sheet" has the meaning set forth in Section 4.07.
"Balance Sheet Date" has the meaning set forth in Section 4.07.
"Business Day" means any day on which banks are not required or authorized
to close in New York, New York or Dallas, Texas.
"Cancelable Shares" means (i) any shares of Common Stock held by the
Target, Acquiror or Acquiror Sub (or any other direct or indirect wholly owned
subsidiary of Acquiror or the Target) immediately prior to the Effective Time,
and (ii) any shares of Common Stock held in the treasury of the Target
immediately prior to the Effective Time, including the shares acquired by the
Target from the Frankel Shareholders upon exercise of the Shareholder Option
immediately prior to the Effective Time pursuant to Section 8.19(b).
"Certificate" has the meaning set forth in Section 3.02.
"Closing" has the meaning set forth in Section 2.02.
"Closing Date" has the meaning set forth in Section 2.02.
"Closing Date Per Share Consideration" means (i) the Per Share
Consideration, minus (ii) the Per Share Merger Escrow Amount.
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"Code" has the meaning set forth in Section 3.05.
"Common Stock" means common stock, par value $0.05 per share, of the
Target.
"Common Stock Equivalents" means, without duplication, any rights,
warrants, options (including the Vierling Option), convertible securities or
indebtedness, exchangeable securities or indebtedness, or other rights,
exercisable for or convertible or exchangeable into, directly or indirectly,
Common Stock or securities convertible or exchangeable into Common Stock,
whether at the time of issuance or upon the passage of time or the occurrence of
some future event; provided, however, that Common Stock Equivalents shall not
include rights pursuant to any pledge, Lien or other security interest in Common
Stock that is released at or prior to Closing.
"Commonly Controlled Entity" has the meaning set forth in Section 4.10.
"Confidentiality Agreement" has the meaning set forth in Section 13.11.
"Control" (including the terms "Controlled By" and "Under Common Control
With") means the possession, directly or indirectly or as trustee or executor,
of the power to direct or cause the direction of the management and policies of
a Person, whether through the ownership of voting securities, as trustee or
executor, by contract or credit arrangement or otherwise.
"Dissenting Shares" has the meaning set forth in Section 3.02.
"Effective Time" has the meaning set forth in Section 2.02.
"Employment Agreement Amendment" has the meaning set forth in Section
8.22.
"Environmental Claims" has the meaning set forth in Section 4.13.
"Environmental Law" has the meaning set forth in Section 4.13.
"Environmental Permits" has the meaning set forth in Section 4.13.
"Equity Securities" has the meaning set forth in Section 3.04.
"ERISA" has the meaning set forth in Section 4.10.
"Escrow Account" shall have the meaning set forth in Section 2.07.
"Escrow Agent" means Chase Bank of Texas, National Association, and
includes its successors and assigns.
"Escrow Agreement" has the meaning set forth in Section 2.07.
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"Escrow Amount" shall mean the sum of the Frankel Option Escrow Amount, the
Vierling Option Escrow Amount and the Merger Escrow Amount.
"ESOP" means the Jerell, Inc. Employee Stock Ownership Plan, as amended and
restated as of November 1, 1994.
"Exchange Act" has the meaning set forth in Section 5.04.
"Exchange Agent" has the meaning set forth in Section 3.02.
"Exchange Fund" has the meaning set forth in Section 3.02.
"Expiration Date" has the meaning set forth in Section 11.05.
"Extraordinary Payments" means all payments or other distributions required
to be made, pursuant to any oral or written contracts or other agreements, to
any directors, officers, employees or agents of the Target or any Target
Subsidiary as a result of the Transactions, including all severance payments,
termination payments or other amounts payable, including the estimated costs of
benefits required to be provided under the terms of any employment agreement
determined as if the employee's employment with the Target or any Target
Subsidiary was terminated after the occurrence of a "change of control" or other
similar event (whether such payments or distribution are paid on or before the
Closing Date or are payable on or after the Closing Date.
"Extraordinary Payments Excess Amount" means the aggregate amount of all
Extraordinary Payments in excess of an aggregate of $888,000 payable to
Frankel and Vierling pursuant to incentive bonus arrangements between such
individuals and the Target.
"Financial Statements" has the meaning as set forth in Section 4.07.
"Frankel" shall mean Gerald M. Frankel.
"Frankel Option Escrow Amount" shall have the meaning set forth in
Section 2.07.
"Frankel Shareholders" has the meaning set forth in Section 8.19.
"Fully-Diluted Common Stock" means the number of outstanding shares of
Common Stock plus (without duplication) all shares of Common Stock issuable,
whether at such time or upon the passage of time or the occurrence of future
events, upon the exercise, conversion or exchange of all then outstanding Common
Stock Equivalents, including the Vierling Option.
"Governmental Authority" has the meaning set forth in Section 4.05.
"Hazardous Substances" has the meaning set forth in Section 4.13.
"HSR Act" has the meaning set forth in Section 4.05.
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"Indemnified Costs" means the Target Indemnified Costs, the Shareholder
Indemnified Costs or the Acquiror Indemnified Costs, as the case may be.
"Indemnified Party" means an Acquiror Indemnified Party or Seller
Indemnified Party, as the case may be.
"Initial Maximum Shareholder Escrow Amount" shall mean (i) with respect to
any holder of Outstanding Shares other than the Shareholders, an amount equal to
the product of the Per Share Merger Escrow Amount multiplied by the number of
Outstanding shares held by such holder, (ii) with respect to Frankel, the
Frankel Option Escrow Amount, and (iii) with respect to Vierling, the Vierling
Option Escrow Amount plus an amount equal to the product of the Per Share Merger
Escrow Amount multiplied by the number of Outstanding Shares held by Vierling.
"Indemnifying Party" has the meaning set forth in Section 11.03.
"Interest Differential" shall mean, with respect to any amount deposited
with the Escrow Agent pursuant to Section 2.07(b) and subsequently paid to
Vierling pursuant to the Amended Employment Agreement, an amount equal to the
excess, if any, of (i) simple interest which would have accrued from the Closing
Date to the date of such payment on such amount if such interest accrued at a
rate equal to the Prime Rate, over (ii) the interest, dividends, income and
other proceeds actually earned on such amounts in accordance with the terms and
provisions of the Escrow Agreement.
"Inventory" has the meaning set forth in Section 4.24.
"Law" has the meaning set forth in Section 4.05.
"Lease Third Party" has the meaning set forth in Section 4.05.
"Lien" has the meaning set forth in Section 4.03.
"Loan and Security Agreement" means the Loan and Security Agreement, dated
November 20, 1990, between Heller Financial, Inc. and Jerell, Inc., including
all amendments thereto.
"Material" means material to the condition (financial or other), business,
results of operations or prospects of a specified Person and its Subsidiaries,
taken as a whole; PROVIDED, HOWEVER, that, as used in this definition the word
"material" shall have the meaning accorded thereto in Section 11 of the
Securities Act.
"Material Adverse Effect" has the meaning set forth in Section 4.01.
"Material Contract" has the meaning set forth in Section 4.16.
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"Maximum Shareholder Escrow Amount" means, with respect to any Person, such
Person's Initial Maximum Shareholder Escrow Amount, less any amounts previously
deducted from such Person's Initial Maximum Shareholder Escrow Amount in
accordance with Section 11.05(c).
"Merger" has the meaning set forth in the Preliminary Statements of this
Agreement.
"Merger Escrow Amount" shall have the meaning set forth in Section 2.07.
"Option Consideration" has the meaning set forth in Section 3.04.
"Option Release Agreement" has the meaning set forth in Section 3.04.
"Outstanding Shares" shall mean the collective reference to each share of
Common Stock issued and outstanding immediately prior to the Effective Time
(after giving effect to the exercise of the Shareholder Option as contemplated
in Section 8.19(b)).
"PBGC" has the meaning set forth in Section 4.10.
"Per Share Consideration" means the quotient obtained when (i) the sum of
the Aggregate Consideration PLUS the Aggregate Option Exercise Price is divided
by (ii) the number of shares of Fully-Diluted Common Stock outstanding
immediately prior to the Effective Time (after giving effect to the exercise of
the Shareholder Option as contemplated in Section 8.19(b).
"Per Share Merger Escrow Amount" means the quotient obtained when the
Merger Escrow Amount is divided by the number of Outstanding Shares.
"Person" means an individual, corporation, partnership, limited
partnership, limited liability company, syndicate, person (including a "person"
as defined in Section 13(d)(3) of the Exchange Act), trust, estate, association
or entity or government, political subdivision, agency or instrumentality of a
government.
"Plan" has the meaning set forth in Section 4.10.
"Prime Rate" shall mean, for any calendar quarter, the rate which Chase
Bank of Texas, National Association announces as its prime lending rate on the
first day of such quarter.
"Pro Rata Portion" of any distribution made from the Escrow Account for the
account of Target's shareholders shall mean an amount equal to the quotient
obtained when (a) the amount of any distribution made from the Escrow Account
for the account of Target's shareholders is divided by (b) the number of
Outstanding Shares.
"Proxy Statement" has the meaning set forth in Section 8.01.
"Reductions Notice" has the meaning set forth in Section 2.06.
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"Representative" has the meaning set forth in Section 8.04.
"Required Target Vote" has the meaning set forth in Section 4.17.
"Return" has the meaning set forth in Section 4.12.
"SEC" has the meaning set forth in Section 3.02.
"Secretary" has the meaning set forth in Section 2.02.
"Securities Act" has the meaning set forth in Section 4.03.
"Seller Indemnified Parties" means each of the Target's shareholders, each
shareholder, partner and affiliate of such shareholder, and each officer,
director, employee and consultant of such shareholder and its affiliates.
"Seller Representative" has the meaning set forth in Section 12.01.
"Senior Credit Facility" means, collectively, the Loan and Security
Agreement and all other Financing Agreements (as such term is defined in the
Loan and Security Agreement), including all amendments thereto.
"Shareholder Indemnified Costs" has the meaning set forth in Section
11.01.
"Shareholder Option" shall have the meaning set forth in Section 8.19.
"Shareholder Option Agreement" means the Stock Option Agreement dated
March 15, 1995 by and among the Frankel Shareholders and Vierling, as amended
October 9, l998, and December 15, 1998.
"Shareholder Option Exercise Price" shall have the meaning set forth in
Section 8.19.
"Shareholders" has the meaning set forth in the introductory paragraph of
this Agreement.
"Subsidiary" or "Subsidiaries" of any Person means any corporation,
company, partnership, joint venture or other legal entity of which such Person
(either alone or through or together with any other subsidiary), owns or has
rights to acquire, directly or indirectly, 50% or more of the stock or other
equity or similar interests the holders of which are generally entitled to vote
for the election of the board of directors or other governing body of such
corporation or other legal entity.
"Surviving Corporation" has the meaning set forth in Section 2.01.
"TBCA" has the meaning set forth in the Preliminary Statements of this
Agreement.
"Target" has the meaning set forth in the introductory paragraph of this
Agreement.
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"Target Banker" has the meaning set forth in Section 4.14.
"Target Disclosure Schedule" has the meaning set forth in Section 4.01.
"Target Equity Agreements" has the meaning set forth in Section 4.03.
"Target Indemnified Costs" has the meaning set forth in Section 11.01.
"Target Permits" has the meaning set forth in Section 4.06.
"Target Program or Target Agreement" has the meaning set forth in Section
4.10.
"Target Shareholder Meeting" has the meaning set forth in Section 8.02.
"Target Subsidiary" has the meaning set forth in Section 4.01.
"Target Transaction Costs" means the aggregate amount of all fees, costs
and expenses of the Target or any Target Subsidiary actually incurred in
connection with this Agreement or the consummation of the Transactions (whether
incurred on behalf of the Target or any Target Subsidiary or on behalf of any
Shareholder or other shareholder of the Target), including any investment
banking, accounting, advisory, brokers, finders, printers or legal fees or fees
paid to any Governmental Authority or other third party, and including any fees
and expenses incurred in connection with the preparation and dissemination of
the Proxy Statement and the conduct of the Target Shareholder Meeting.
"Target's Intellectual Property" has the meaning set forth in Section
4.23.
"Tax" has the meaning set forth in Section 4.12.
"Termination Agreement" shall have the meaning set forth in Section 8.20.
"Terminating Acquiror Breach" has the meaning set forth in Section 10.01.
"Terminating Shareholder Breach" has the meaning set forth in Section
10.01.
"Terminating Target Breach" has the meaning set forth in Section 10.01.
"Third Party Action" has the meaning set forth in Section 11.03.
"Third Party Provisions" has the meaning set forth in Section 13.04.
"Title Claims" means, with respect to any Shareholder, any claim brought
against such Shareholder based upon the breach by such Shareholder of the
representations and warranties made by such Shareholder in Section 6.01.
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"Transaction Costs Excess Amount" means the excess, if any, of the Target
Transaction Costs over $400,000.
"Transactions" has the meaning set forth in the Preliminary Statements of
this Agreement.
"U.S. GAAP" means United States generally accepted accounting principles
applied on a consistent basis throughout the relevant period.
"Unaudited Financial Statements" has the meaning as set forth in Section
4.07.
"Vierling" shall mean Edward D. Vierling.
"Vierling Employment Agreement" shall mean the Restated Employment
Agreement between the Target and Vierling effective as of November 1, 1994.
"Vierling Option" shall have the meaning set forth in Section 8.19.
"Vierling Option Escrow Amount" shall have the meaning set forth in Section
2.07.
Section 1.02 REFERENCES. TITLES AND RULES OF CONSTRUCTION. All references
in this Agreement to Exhibits, Schedules, Articles, Sections, subsections, or
other subdivisions refer to the corresponding Exhibits, Schedules, Articles,
Sections, subsections, and other subdivisions of this Agreement unless expressly
provided otherwise. Titles appearing at the beginning of any Exhibits,
Schedules, Articles, Sections, subsections, or other subdivisions of this
Agreement are for convenience only, do not constitute any part of such Articles,
Sections, subsections or other subdivisions, and shall be disregarded in
construing the language contained therein. The words "this Agreement," "herein,"
"hereby," "hereunder," and "hereof," and words of similar import, refer to this
Agreement as a whole and not to any particular subdivision unless expressly so
limited. The words "this Section," "this subsection," and words of similar
import, refer only to the Sections or subsections hereof in which such words
occur. The word "including" (in its various forms) means "including without
limitation" and the word "or" is not exclusive. Pronouns in masculine, feminine,
or neuter genders shall be construed to state and include any other gender and
words, terms, and titles (including terms defined herein) in the singular form
shall be construed to include the plural and vice versa, unless the context
otherwise expressly requires.
ARTICLE 2
THE MERGER: CLOSING
Section 2.01 THE MERGER. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the TBCA, at the Effective Time
Acquiror Sub shall be merged with and into the Target. As a result of the
Merger, the outstanding shares of capital stock of Acquiror Sub and the Target
shall be converted or canceled in the manner provided in Article 3, the
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separate corporate existence of Acquiror Sub shall cease and the Target shall
continue as the surviving corporation of the Merger (the "SURVIVING
CORPORATION").
Section 2.02 EFFECTIVE TIME: CLOSING. As promptly as practicable and in no
event later than the third Business Day following the satisfaction or waiver of
the conditions set forth in Article (or such other date as may be agreed by
Acquiror and the Target) (the "CLOSING DATE"), the parties hereto shall cause
the Merger to be consummated by filing articles of merger (the "ARTICLES OF
MERGER") with the office of the Secretary of State of the State of Texas (the
"SECRETARY") in such form as is required by, and executed in accordance with,
the applicable provisions of the TBCA. The term "EFFECTIVE TIME" means the date
and time of the later to occur of (i) the filing of the Articles of Merger with
the Secretary, and (ii) such later time as may be agreed in writing by Acquiror
and the Target and specified in the Articles of Merger. Immediately prior to the
filing of the Articles of Merger, a closing (the "CLOSING") will be held at the
Dallas, Texas offices of Vinson & Elkins L.L.P. (or such other place and time as
the parties may agree).
Section 2.03 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of the TBCA. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time all the rights, privileges, immunities, powers and franchises (of a public
as well as of a private nature) of the Target and Acquiror Sub and all property
(real, personal and mixed) of the Target and Acquiror Sub and all debts due to
either the Target or Acquiror Sub on any account, and all other choses in
action, and every other interest of or belonging to or due to each of the Target
and Acquiror Sub shall vest in the Surviving Corporation, and all debts,
liabilities, obligations and duties of each of the Target and Acquiror Sub shall
become the debts, liabilities, obligations and duties of the Surviving
Corporation and may be enforced against the Surviving Corporation to the same
extent as if such debts, liabilities, obligations and duties had been incurred
or contracted by the Surviving Corporation. The title to any real estate or any
interest therein vested, by deed or otherwise, in the Target or Acquiror Sub
shall not revert or in any way become impaired by reason of the Merger, and all
rights of creditors and all liens upon any property of the Target or Acquiror
Sub shall be preserved unimpaired following the Merger.
Section 2.04 ARTICLES OF INCORPORATION: BYLAWS. (a) At the Effective Time,
the Articles of Incorporation of Acquiror Sub, as in effect immediately prior to
the Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation until thereafter amended as provided by the TBCA and such Articles
of Incorporation; provided, however, the Articles of Merger shall amend Article
I of Acquiror Sub's Articles of Incorporation to provide that the name of the
Surviving Corporation shall be "Jerell, Inc."
(b) At the Effective Time, the Bylaws of Acquiror Sub, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation until thereafter amended as provided by the TBCA, the Articles of
Incorporation of the Surviving Corporation and such Bylaws.
Section 2.05 DIRECTORS AND OFFICERS. The directors of Acquiror Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation until a
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successor is elected or appointed and qualified or until the earliest of such
director's death, resignation, removal or disqualification, and the officers
of Acquiror Sub immediately prior to the Effective Time shall be the initial
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed and qualified, or as otherwise
provided in the Bylaws of the Surviving Corporation.
Section 2.06 REDUCTIONS NOTICE. No later than two Business Days before the
Closing Date, the Target shall deliver to Acquiror a written notice (the
"REDUCTIONS NOTICE") which shall accurately set forth (i) the amount of any
Target Transaction Costs previously paid or payable by the Target, (ii) the
Transaction Costs Excess Amount, if any, (iii) the amount of any Extraordinary
Payments previously paid or payable by the Target, and (iv) the Extraordinary
Payments Excess Amount, if any. At or prior to the Closing, the Target shall pay
any unpaid Target Transaction Costs and Extraordinary Payments.
Section 2.07 ESCROW.
(a) INDEMNIFICATION ESCROW. Pursuant to Article 11, and subject to the
terms and conditions set forth in Article 11, (i) the Target's shareholders
(including the Shareholders) are jointly and severally obligated to indemnify
the Acquiror Indemnified Parties from and against certain Target Indemnified
Costs, and (ii) the Shareholders have severally, and not jointly, agreed to
indemnity the Acquiror Indemnified Parties from and against certain
Shareholder Indemnified Costs. At or prior to Closing, each of the Seller
Representative, Acquiror and the Escrow Agent shall enter into an Escrow
Agreement in the form of EXHIBIT A, subject only to the comments, if any, of
the Escrow Agent as to its rights and obligations thereunder (the "ESCROW
AGREEMENT"). Notwithstanding any other provision in this Agreement to the
contrary, in order to secure the indemnity obligations of the Target's
shareholders (including the Shareholders) to the Acquiror Indemnified Parties
under this Agreement:
(A) Frankel hereby agrees with Acquiror, Acquiror Sub and the
Surviving Corporation that a portion of the funds which would otherwise be
payable to Frankel pursuant to Section 8.19(b) equal to $770,000 (the
"Frankel Option Escrow Amount") shall be deposited by the Acquiror in an
account with the Escrow Agent (the "Escrow Account") to be held in escrow
and distributed pursuant to the terms of this Agreement and the Escrow
Agreement. Acquiror is directed by Frankel to deposit, or cause to be
deposited, the Frankel Option Escrow Amount with the Escrow Agent at the
Closing and Acquiror shall make such deposit, or cause such deposit to be
made, as directed;
(B) Vierling hereby agrees with Acquiror, Acquiror Sub and the
Surviving Corporation that a portion of the finds which would otherwise be
payable to Vierling pursuant to Section 3.04 equal to $183,248 (the
"Vierling Option Escrow Amount") shall be deposited by the Acquiror in the
Escrow Account to be held in escrow and distributed pursuant to the terms
of this Agreement and the Escrow Agreement. Acquiror is directed by
Vierling to deposit, or cause to be deposited, the Vierling Option Escrow
Amount with the Escrow Agent at the Closing and Acquiror shall make such
deposit, or cause such deposit to be made, as directed;
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(C) an amount equal to $1,046,752 (the "MERGER ESCROW AMOUNT")
shall be deposited by the Acquiror in the Escrow Account to be held in
escrow and distributed, pursuant to the terms and subject to the conditions
set forth in this Agreement and the Escrow Agreement, for the account of
either (1) one or more Acquiror Indemnified Parties pursuant to Article 11,
or (2) the Target's shareholders, as contemplated in clause (B) of
Section 3.01(a).
(b) EMPLOYMENT ESCROW. Notwithstanding any other provision set forth
in this Agreement to the contrary, Vierling hereby agrees with Acquiror,
Acquiror Sub and the Surviving Corporation that an additional portion of the
amounts which would otherwise be payable to Vierling at Closing pursuant to
Section 3.04 equal to $1,500,000 shall be deposited in an account with the
Escrow Agent to be held in escrow and distributed pursuant to the terms of the
Amended Employment Agreement and the Escrow Agreement. Acquiror hereby agrees
that, at the time any portion of the amounts deposited with the Escrow Agent
pursuant to this Section 2.07(b) are paid to Vierling in accordance with the
terms of the Amended Employment Agreement and the Escrow Agreement, Acquiror
shall also pay to Vierling an amount equal to the Interest Differential, if any.
Section 2.08 SHAREHOLDER APPROVAL. By its execution and delivery of this
Agreement, Acquiror hereby consents (in its capacity as the sole shareholder of
Acquiror Sub), to the Merger, this Agreement and the consummation of the
Transactions, and agrees that Acquiror will not (in its capacity as the sole
shareholder of Sub) withdraw, revoke, rescind or alter such consent in any way
without the prior written consent of the Target; provided, however, that nothing
set forth in this Section 2.08 shall limit or otherwise qualify Acquiror's right
to terminate this Agreement pursuant to the terms and subject to the conditions
set forth in Article 10.
ARTICLE 3
CONVERSION OF SECURITIES
Section 3.01 CONVERSION OF SECURITIES. At the Effective Time, by virtue of
the Merger and without any action on the part of Acquiror Sub, the Target or the
holders of any of the following shares of capital stock, subject to the other
provisions of this Section 3.01 and to Section 2.07 and Section 3.02:
(a) Each Outstanding Share (excluding (i) the Cancelable Shares and
(ii) the Dissenting Shares) shall be converted into the right to receive (A) an
amount equal to the Closing Date Per Share Consideration, plus (B) a Pro Rata
Portion of any distributions made from the Escrow Account for the account of
Target's shareholders, if any, and shall no longer be outstanding and
automatically shall be canceled and cease to exist. Each certificate previously
evidencing any such shares of Common Stock shall thereafter represent the right
to receive the amounts to which such shares of Common Stock are entitled in the
Merger pursuant to this Section and may be exchanged for such amounts in
accordance with the provisions of Section 3.02, without interest. The holders of
certificates previously evidencing such shares of Common Stock shall cease to
have any
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rights with respect to such shares of Common Stock, except as otherwise
provided herein or by the TBCA;
(b) each Cancelable Share shall no longer be outstanding and
automatically shall be canceled and cease to exist, and no consideration shall
be paid or payable in respect of such shares;
(c) each Dissenting Share shall no longer be outstanding and
automatically shall be canceled and cease to exist, and each certificate
previously evidencing such shares shall thereafter represent the right to
receive the payment to which the shares represented by such certificate are
entitled pursuant to Section 3.02(h); and
(d) each share of common stock, par value $.0l per share, of Acquiror
Sub ("ACQUIROR SUB COMMON STOCK") issued and outstanding immediately prior to
the Effective Time shall be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation, and the
Surviving Corporation shall have no other outstanding equity securities
immediately after the Effective Time.
Section 3.02 EXCHANGE OF CERTIFICATES.
(a) PAYMENTS AT CLOSING. Each shareholder of Target who surrenders
a Certificate (as hereinafter defined) to the Surviving Corporation at the
Closing, together with a completed and duly executed letter of transmittal in
the form of EXHIBIT B hereto (a "LETTER OF TRANSMITTAL"), shall be entitled
to receive in exchange therefor (i) an amount equal to the Closing Date Per
Share Consideration is multiplied by the number of shares represented by such
Certificate, payable by wire transfer of immediately available funds on the
Closing Date immediately following the Effective Time to an account
designated in writing by such shareholder no later than two (2) Business Days
prior to the Closing Date, and (ii) thereafter, a Pro Rata Portion of any
distribution made from the Escrow Account for the account of Target's
shareholders, if any, and the Certificate so surrendered shall forthwith be
cancelled. As used in this Agreement, a "Certificate" means a certificate
which immediately prior to the Effective Time evidenced Outstanding Shares.
(b) EXCHANGE AGENT. As of or before the Effective Time, Acquiror
shall deposit, or shall cause to be deposited, with a bank or trust company
organized under the laws of, and having an office in, the United States and
designated by Acquiror (the "EXCHANGE AGENT"), for the benefit of certain
holders of Outstanding Shares and for exchange in accordance with this
Article 3 through the Exchange Agent, cash in an amount equal to (i) the
Aggregate Consideration, minus (ii) the aggregate amount paid to shareholders
of the Target at the Closing pursuant to Section 3.02(a), minus (iii) the
aggregate amount deposited with the Escrow Agent pursuant to Section 2.07,
minus (iv) the aggregate amount payable pursuant to Section 3.04 with respect
to Common Stock Equivalents (such funds being hereinafter referred to as the
"EXCHANGE FUND"). Upon such payment to the Exchange Agent and any payments
required pursuant to Section 3.02(a), Acquiror, Acquiror Sub and the
Surviving Corporation shall thereafter have no further liability to any
shareholder of the Target with respect to any share of Common Stock except as
set forth in Section 3.02(h), in Section 2.07 and in the Escrow Agreement.
The Exchange Agent shall, pursuant to irrevocable
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instructions from Acquiror, deliver out of the Exchange Fund all amounts
received by the Exchange Agent for the account of Target's shareholders.
Except as contemplated by Section 3.02(c), the Exchange Fund shall not be
used for any other purpose; PROVIDED, HOWEVER, that the Exchange Fund may be
invested by the Exchange Agent, pursuant to instructions from Acquiror, in
obligations of or guaranteed by the United States of America or any agency
thereof and backed by the full faith and credit of the United States of
America, in commercial paper obligations rated A-1 or P-1 or better by
Moody's Investors Service or Standard & Poor's Corporation, respectively, or
in deposit accounts, certificates of deposit or banker's acceptances of,
repurchase or reverse repurchase agreements with, or Eurodollar time deposits
purchased from, commercial banks located in the United States with capital,
surplus and undivided profits aggregating in excess of $500 million (based on
the most recent financial statements of such bank that are then publicly
available from the United States Securities and Exchange Commission ("SEC")
or otherwise); PROVIDED FURTHER that any such investment or resulting payment
of earnings shall not delay the receipt by holders of shares of Common Stock
of cash or otherwise impair such holders' respective rights hereunder. If
the Exchange Fund shall realize a loss on any such investment, Acquiror shall
promptly thereafter deposit in such Exchange Fund cash in an amount
sufficient to enable such Exchange Fund to satisfy all remaining obligations
originally contemplated to be paid out of such Exchange Fund. Any net profit
resulting from, or interest or income produced by, such investments shall be
payable to the Surviving Corporation or Acquiror, as Acquiror directs.
(c) EXCHANGE AGENT PROCEDURES. As soon as reasonably practicable
after the Effective Time, Acquiror will instruct the Exchange Agent to mail
to each holder of record of a Certificate (other than Certificates delivered
at Closing pursuant to Section 3.02(a) a Letter of Transmittal and
instructions for use in effecting the surrender of the Certificates in
exchange for the amounts to which Outstanding Shares are entitled pursuant to
Section 3.01. Upon surrender of a Certificate for cancellation to the
Exchange Agent, together with a completed and duly executed Letter of
Transmittal, and such other customary documents as may be required pursuant
to such instructions, the holder of such Certificate shall be entitled to
receive in exchange therefor (i) an amount equal to the Closing Date Per
Share Consideration multiplied by the number of shares represented by such
Certificate, and (ii) thereafter, a Pro Rata Portion of any distribution made
from the Escrow Account for the account of Target's shareholders, if any.
Subject to Section 3.02(g), under no circumstances will any holder of a
Certificate be entitled to receive any part of the Aggregate Consideration
until such holder shall have surrendered such Certificate. In the event of a
transfer of ownership of shares of Common Stock which is not registered in
the transfer records of the Target, the amount into which such shares have
converted to the right to receive may be paid in accordance with this Article
3 to the transferee if the Certificate evidencing such shares of Common Stock
is presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this
Section 3.02, each Certificate shall be deemed at any time after the
Effective Time to evidence only the right to receive, upon such surrender,
the amounts which such holder has the right to receive in respect of the
shares of Common Stock formerly represented by such Certificate, without
interest.
(d) NO FURTHER RIGHTS IN COMMON STOCK. The payment of the amounts
described in Section 3.02(a), the deposit of the amount described in Section
3.02(b) with the Exchange Agent
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and the deposit of the Merger Escrow Amount with the Escrow Agent pursuant to
Section 2.07 shall be deemed to have been made in full satisfaction of all
rights pertaining to Outstanding Shares.
(e) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund
which remains undistributed to the holders of Common Stock on the first
anniversary of the Effective Time shall be delivered to Acquiror, upon
demand, and, subject to Section 3.02(f), any holders of Common Stock who have
not theretofore complied with this Article shall thereafter look only to
Acquiror for the amounts to which they are entitled pursuant to Section 3.01.
(f) NO LIABILITY. Neither Acquiror nor the Surviving Corporation
shall be liable to any holder of shares of Common Stock for any part of the
Aggregate Consideration delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(g) LOST CERTIFICATES. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such Person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the portion of the Aggregate Consideration to which the holder of
such Certificate is entitled pursuant to this Article 3.
(h) DISSENTING SHARES. Notwithstanding any other provision of this
Agreement to the contrary, shares of Common Stock that are issued and
outstanding immediately prior to the Effective Time (excluding Cancelable
Shares) and which are held by shareholders who shall have not voted to approve
this Agreement or consented with respect thereto in writing and who properly
shall have demanded payment of the fair value of such shares in accordance with
Article 5.12 of the TBCA (collectively, the "DISSENTING SHARES") shall not be
converted into or represent the right to receive any portion of the Aggregate
Consideration. Such shareholders instead shall be entitled to receive payment of
the fair value of such shares of Common Stock held by them in accordance with
the provisions of Article 5.12 of the TBCA, except that each Dissenting Share
held by shareholders who shall have failed to perfect or who effectively shall
have withdrawn or otherwise lost their rights under Article 5.12 of the TBCA
shall thereupon be deemed to have been converted, as of the Effective Time, into
the right to receive, without any interest thereon, less any required
withholding taxes, the portion of the amounts which Outstanding Shares are
entitled to receive upon surrender in the manner provided in this Section of
Certificates that, immediately prior to the Effective Time, evidenced such
shares of Common Stock.
Section 3.03 STOCK TRANSFER BOOKS. At the Effective Time, the stock
transfer books of the Target shall be closed and there shall be no further
registration of transfers of shares of Common Stock thereafter on the records of
the Target. On or after the Effective Time, any Certificate presented to the
Exchange Agent or Acquiror for any reason shall be exchanged for the amount to
which the holder of such Certificate is entitled pursuant to this Article 3.
Section 3.04 COMMON STOCK EQUIVALENTS.
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(a) CANCELLATION. At the Effective Time, by virtue of the Merger
and without any action on the part of Acquiror Sub, the Target or any of
their respective shareholders, all Common Stock Equivalents then outstanding,
whether or not exercisable, whether or not vested, and whether or not
performance-based, shall automatically be canceled and cease to exist and, if
applicable, shall thereafter represent the right to receive the following
consideration: for each share of Common Stock issuable upon the exercise,
conversion or exchange of such Common Stock Equivalent, including any
additional shares subject thereto by reason of their terms upon consummation
of the "change of control" resulting from the Merger, an amount (subject to
any applicable withholding tax) in cash equal to the difference between (i)
the Per Share Consideration, and (ii) the per share cash exercise price of
such Common Stock Equivalent, to the extent such difference is a positive
number (such amount in cash as described above being hereinafter referred to
as the "OPTION CONSIDERATION").
(b) TERMINATION OF RIGHTS. The surrender of a Common Stock
Equivalent in exchange for the Option Consideration shall be deemed a release
of any and all rights the holder of such Common Stock Equivalent had or may
have had in respect of such Common Stock Equivalent. Prior to the Effective
Time, the Target shall use its reasonable best efforts to take all action
necessary (including causing the Board of Directors of the Target (or any
committees thereof) to take such actions as are allowed by the terms of the
Common Stock Equivalents) to ensure that, following the Effective Time, no
holder of any Common Stock Equivalent or any participant in any plans,
programs or arrangements by which the Target is bound shall have any right
thereunder to acquire or otherwise receive any capital stock or Common Stock
Equivalents of, or other equity or similar interests in (including capital
stock and Common Stock Equivalents, "EQUITY SECURITIES"), the Target, the
Surviving Corporation or any Affiliate thereof. Without in any way limiting
the matters set forth in the immediately preceding sentence, the Target shall
take all action necessary to terminate, and cause to be terminated, at or
prior to the Effective Time, the Target's Incentive Stock Option Plan dated
March 15, 1995.
(c) PAYMENT PROCEDURES. Subject to Section 2.07, upon the later of
the Effective Time and the delivery of a duly executed Option Surrender
Agreement, Release and Waiver in the form attached hereto as EXHIBIT C (the
"OPTION RELEASE AGREEMENT") by a holder of a Common Stock Equivalent,
Acquiror shall, or shall cause the Surviving Corporation to, pay to such
holder the Option Consideration in respect thereof. Subject to Section 2.07,
each holder of a Common Stock Equivalent who delivers an Option Release
Agreement to the Surviving Corporation at the Closing shall be entitled to
receive the Option Consideration in respect thereof, payable by wire transfer
of immediately available funds on the Closing Date immediately following the
Effective Time to an account designated in writing by such holder no later
than two (2) Business Days prior to the Closing Date, and the Common Stock
Equivalent so surrendered shall forthwith be cancelled. Subject to Section
2.07, each holder of a Common Stock Equivalent who delivers an Option Release
Agreement to the Surviving Corporation after the Closing shall be entitled to
receive in exchange therefor the Option Consideration in respect thereof,
which shall be paid promptly by the Surviving Corporation in accordance with
the instructions set forth in the relevant Option Release Agreement, and the
Common Stock Equivalent so surrendered shall forthwith be cancelled. No
interest shall be paid or accrued on the Option Consideration. Until settled
in accordance with the provisions of this
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Section, each Common Stock Equivalent shall be deemed at any time after the
Effective Time to represent for all purposes only the right to receive the
Option Consideration.
(d) OPTION RELEASE AGREEMENTS. Simultaneously with the execution
and delivery of this Agreement, the Target has delivered to Acquiror an
Option Release Agreement executed by the holders of all Common Stock
Equivalents which are outstanding as of the date of this Agreement. By his
execution and delivery of this Agreement, Vierling hereby covenants and
agrees that, at or prior to the Closing, Vierling shall execute and deliver
to Acquiror an Option Release Agreement relating to the Vierling Option. The
Target shall use its best efforts to obtain prior to the Closing, from each
other beneficial and record holder of any other Common Stock Equivalent
outstanding immediately prior to the Effective time, if any, an Option
Release Agreement duly executed and delivered by such holder.
Section 3.05 TAX WITHHOLDING. Acquiror and the Surviving Corporation
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of Common Stock or Common
Stock Equivalents such amounts as Acquiror or the Surviving Corporation is
required to deduct and withhold with respect to the making of such payment
under the Internal Revenue Code of 1986, as amended (the "CODE"), or any
provision of state, local or foreign tax law. To the extent that amounts are
so withheld, such amounts shall be treated for all purposes of this Agreement
as having been paid to the holder of Common Stock or Common Stock Equivalents
in respect of which such deduction and withholding was made.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE TARGET
The Target hereby represents and warrants to Acquiror and Acquiror Sub
that:
Section 4.01 ORGANIZATION AND QUALIFICATION: TARGET SUBSIDIARIES. The
Target is a corporation, and each Subsidiary of the Target (a "TARGET
SUBSIDIARY") is a corporation or partnership, in each case duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its organization and has the requisite corporate or partnership power and
authority to own, lease and operate its properties and to conduct its
business as it is now being conducted. The Target and each Target Subsidiary
is duly qualified or licensed as a foreign corporation or partnership to do
business, and is in good standing, in each jurisdiction where the character
of the properties owned, leased or operated by it or the nature of its
business makes such qualification or licensing necessary, except for such
failures to be so qualified or licensed and in good standing which,
individually or in the aggregate, would not reasonably be expected to prevent
or delay consummation of the Merger or otherwise prevent the Target from
performing its obligations under this Agreement and have not had, and would
not reasonably be expected to have, a Material Adverse Effect on the Target.
As used in this Agreement, the term "MATERIAL ADVERSE EFFECT" means with
respect to any Person, any change or effect that is Material and adverse to
the condition (financial or other), business, results of operations or
prospects of such Person and its Subsidiaries, taken as a whole. As of the
date hereof, a true and correct list of all Target Subsidiaries, together
with the
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jurisdiction of organization and the authorized, issued and outstanding
Equity Securities of each Target Subsidiary is disclosed in Section 4.01 of
the Disclosure Schedule delivered by the Target and signed by the Target and
Acquiror for identification simultaneous with the execution and delivery of
this Agreement (the "TARGET DISCLOSURE SCHEDULE"). Except as disclosed in
Section of the Target Disclosure Schedule, the Target does not directly or
indirectly own any Equity Securities of, or any interest convertible into or
exchangeable or exercisable for any Equity Securities of, any corporation,
company, partnership, joint venture or other business association or entity.
Section 4.02 ARTICLES OF INCORPORATION AND BYLAWS. The Target has
heretofore furnished or made available to Acquiror a complete and correct
copy of the Articles of Incorporation and Bylaws or equivalent organizational
documents, each as amended to date, of the Target and each Target Subsidiary.
Neither the Target nor any Target Subsidiary is in violation of any provision
of its Articles of Incorporation, Bylaws or equivalent organizational
documents.
Section 4.03 CAPITALIZATION. The authorized capital stock of the Target
consists solely of 4,000,000 shares of Common Stock, and, except as disclosed
in Section 4.03 of the Target Disclosure Schedule, the Target has no other
authorized, issued or outstanding Equity Securities. As of the date hereof,
1,319,612 shares of Common Stock are issued and outstanding, all of which are
validly issued, fully paid and nonassessable and were not issued in violation
of any preemptive or similar rights. Section 4.03 of the Target Disclosure
Schedule sets forth a true, complete and accurate list of all holders of
record of any Equity Securities of the Target and the number of shares of
each class of Equity Securities held by each such record holder. Except as
disclosed in Section 4.03 of the Target Disclosure Schedule (which includes a
list of all Common Stock Equivalents and the exercise prices and vesting
schedules thereof), as of the date of this Agreement, no shares of Common
Stock and no other Equity Securities of the Target or any Target Subsidiary
are reserved for issuance, and there are no options, warrants, convertible
securities or other rights, contracts, agreements, arrangements, commitments
or understandings obligating the Target or any Target Subsidiary to (a)
offer, sell, issue, grant, pledge, transfer, encumber or otherwise dispose of
any shares of Common Stock or any other Equity Securities of the Target or
any Target Subsidiary, (b) redeem, purchase or otherwise acquire, or offer to
redeem, purchase or otherwise acquire, any shares of Common Stock or any
other Equity Securities of the Target or any Target Subsidiary or (c) grant
any Lien on any shares of Common Stock or any other Equity Securities of the
Target or any Target Subsidiary (collectively, "TARGET EQUITY AGREEMENTS").
Except as disclosed in Section 4.03 of the Target Disclosure Schedule, (i)
each outstanding Equity Security of each Target Subsidiary is owned by the
Target or a Target Subsidiary, and is duly authorized, validly issued and,
with respect to capital stock, fully paid and nonassessable, and was not
issued in violation of any preemptive or similar rights, and (ii) all such
issued and outstanding Equity Securities that are indicated as owned by the
Target or a Target Subsidiary in Section 4.03 of the Target Disclosure
Schedule are owned (A) beneficially as set forth therein and (B) free and
clear of all Liens. As used in this Agreement, the term "LIEN" means any
mortgage, pledge, security interest, encumbrance, lien or charge of any kind
(including any agreement to give any of the foregoing), any conditional sale
or other title retention agreement, any lease in the nature thereof or the
filing of or agreement to give any financing statement under the Uniform
Commercial Code of any jurisdiction. Except as disclosed in Section 4.03 of
the Target Disclosure Schedule, there are no voting trusts, proxies or
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other contracts, agreements, arrangements, commitments or understandings of
any character to which the Target or any Target Subsidiary is a party or by
which the Target or any Target Subsidiary is bound with respect to voting of
any shares of Common Stock or any other Equity Securities of the Target or
any Target Subsidiary, with respect to the registration of the offering, sale
or delivery of any shares of Common Stock or any other Equity Securities of
the Target or any Target Subsidiary under the Securities Act of 1933 (the
"SECURITIES ACT") or otherwise relating to any shares of Common Stock or any
other Equity Securities of the Target or any Target Subsidiary.
Section 4.04 AUTHORITY RELATIVE TO THIS AGREEMENT. The Target has all
necessary corporate power and authority to execute and deliver this Agreement
and, with respect to the Merger, upon the approval of this Agreement by the
Target's shareholders in accordance with this Agreement and the TBCA, to
perform its obligations hereunder and to consummate the Transactions. The
execution and delivery of this Agreement by the Target and the consummation
by the Target of the Transactions have been duly and validly authorized by
all necessary corporate action (including approval by the Board of Directors
of the Target of the cancellation of the Common Stock Equivalents pursuant to
Section 3.04) and no other corporate proceedings on the part of the Target are
necessary to authorize this Agreement or to consummate the Transactions
(other than, with respect to the Merger, the approval of this Agreement by
the Target's shareholders in accordance with the TBCA and the filing and
recording of appropriate Articles of Merger with the Secretary in accordance
with this Agreement and the TBCA). This Agreement has been duly and validly
executed and delivered by the Target and, assuming the due authorization,
execution and delivery of this Agreement by the other parties hereto,
constitutes a legal, valid and binding obligation of the Target, enforceable
against the Target in accordance with its terms.
Section 4.05 NO CONFLICT: REQUIRED FILINGS AND CONSENTS. (a) The
execution and delivery of this Agreement by the Target do not, and the
performance of this Agreement by the Target will not, subject to (i) with
respect to the Merger, obtaining the requisite approval of this Agreement by
the Target's shareholders in accordance with this Agreement and the TBCA and
(ii) obtaining the consents, approvals, authorizations and permits and making
the filings disclosed in Section 4.05(a) of the Target Disclosure Schedule,
(A)(1) contravene or violate the Articles of Incorporation, Bylaws or
equivalent organizational documents of the Target or any Target Subsidiary,
(2) contravene or violate any Law (as hereinafter defined) applicable to the
Target or any Target Subsidiary or by which any property or asset of the
Target or any Target Subsidiary is bound or affected, or (3) except as
disclosed in Section 4.05(a) of the Target Disclosure Schedule, result in any
breach of or constitute a default under, or give to others any right of
termination, unilateral amendment, acceleration or cancellation of; or result
in the creation of a Lien on any property or asset of the Target or any
Target Subsidiary pursuant to, or require the consent of any third party
pursuant to, or give rise to the loss of any benefit under, or create or
increase any obligation under, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit (including all Target Permits (as
hereinafter defined)), franchise, benefit plan or other instrument or
obligation to which the Target or any Target Subsidiary is a party or by
which the Target or any Target Subsidiary or any property or asset of the
Target or any Target Subsidiary is bound or affected, or (B) with the passage
of time, the giving of notice or the taking of any action by any third party,
have any of the effects set forth in clause (A) of this paragraph, except for
such contraventions, violations, breaches, defaults or other occurrences
(excluding those relating to clause (A)(1) of this paragraph) which,
individually
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or in the aggregate would not reasonably be expected to prevent or delay
consummation of the Merger or otherwise prevent the Target from performing
its obligations under this Agreement and would not reasonably be expected to
have a Material Adverse Effect on the Target. As used in this Agreement, the
term "LAW" shall mean all laws, statutes, ordinances, decrees, judgments,
orders, writs, injunctions, rules and regulations of any United States
(federal, state or local) or foreign government or any political subdivision
thereof; or any governmental, regulatory or administrative authority, agency
or commission or court of competent jurisdiction ("GOVERNMENTAL AUTHORITY").
(b) The execution and delivery of this Agreement by the Target do
not, and the performance of this Agreement by the Target will not, require
any consent, approval, authorization or permit of; or filing with or
notification to, any Governmental Authority, except (i) pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
rules and regulations promulgated thereunder (the "HSR ACT"), and filing and
recording of appropriate Articles of Merger with the Secretary as required by
this Agreement and the TBCA, (ii) as disclosed in Section 4.05(b) of the
Target Disclosure Schedule and (iii) where failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or
notifications, individually or in the aggregate, would not reasonably be
expected to prevent or delay consummation of the Merger or otherwise prevent
the Target from performing its obligations under this Agreement and would not
reasonably be expected to have a Material Adverse Effect on the Target.
(c) Each lease of real property of the Target or a Target
Subsidiary, and any other lease Material to the Target and the Target
Subsidiaries taken as a whole, for which the execution of this Agreement or
the consummation of the Transactions will (i) give to a party thereto other
than the Target or any wholly-owned Target Subsidiary (a "LEASE THIRD PARTY")
a right of termination, unilateral amendment, acceleration or cancellation
thereunder, (ii) give rise to any loss of benefit thereunder, (iii) create or
increase any obligation thereunder, (iv) result in the creation of any Lien,
or (v) require the consent of any Lease Third Party pursuant thereto, is
disclosed, and the nature of any such matter is disclosed, in Section 4.05(c)
of the Target Disclosure Schedule.
Section 4.06 PERMITS: COMPLIANCE. Except as disclosed in Section 4.06
of the Target Disclosure Schedule, each of the Target and the Target
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exceptions, consents, certificates,
approvals and orders of any Governmental Authority necessary for it to own,
lease and operate its properties or to conduct its business as it is now
being conducted (the "TARGET PERMITS"), except for those which the failure to
possess, individually or in the aggregate, would not reasonably be expected
to prevent or delay consummation of the Merger or otherwise prevent the
Target from performing its obligations under this Agreement and have not had,
and would not reasonably be expected to have, a Material Adverse Effect on
the Target and, as of the date hereof, no suspension, revocation, termination
or cancellation of any of the Target Permits is pending or, to the best
knowledge of the Target or any Target Subsidiary, threatened, except for such
suspensions, revocations, terminations or cancellations which, individually
or in the aggregate, would not reasonably be expected to prevent or delay
consummation of the Merger or otherwise prevent the Target from performing
its obligations under this Agreement, and have not had, and would not
reasonably be expected to have, a Material Adverse Effect on the Target.
Except as disclosed in Section 4.06 of the Target Disclosure Schedule,
neither the Target nor any Target Subsidiary is in contravention, default or
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violation of, or, with the giving of notice, the passage of time or the
taking of any action by any third party, would be in contravention, default
or violation of, (a) any Law applicable to the Target or any Target
Subsidiary or by which any property or asset of the Target or any Target
Subsidiary is bound or affected, or (b) any of the Target Permits, except for
such contraventions, defaults or violations which, individual1y or in the
aggregate, would not reasonably be expected to prevent or delay consummation
of the Merger or otherwise prevent the Target from performing its obligations
under this Agreement and have not had, and would not reasonably be expected
to have, a Material Adverse Effect on the Target.
Section 4.07 FINANCIAL STATEMENTS. (a) The Target has delivered
Acquiror true, complete and accurate copies of the audited consolidated
balance sheet of the Target and its consolidated subsidiaries as of October
31, 1997 and 1996, together with the audited consolidated statements of
operations, changes in shareholders' equity and cash flows of the Target and
its consolidated Subsidiaries for the years then ended, and the notes
thereto, accompanied by the reports thereon of Philip Vogel & Co. PC,
independent public accountants (the "AUDITED FINANCIAL STATEMENTS"), and the
unaudited consolidated balance sheet of the Target and its consolidated
subsidiaries as of October 31, 1998 (the "BALANCE SHEET"), together with the
related unaudited consolidated statements of operations, changes in
shareholders' equity and cash flows of the Target and its consolidated
subsidiaries for the year then ended (the "UNAUDITED FINANCIAL STATEMENTS"
and collectively with the Audited Financial Statements, the "FINANCIAL
STATEMENTS"). Each of the Financial Statements (including, in each case, any
notes thereto) was prepared in accordance with U.S. GAAP consistently applied
throughout the periods indicated (except as may be indicated in the notes
thereto and except that the Unaudited Financial Statements do not contain all
U.S. GAAP notes to such financial statements), and each fairly presents in
all Material respects the financial position, results of operations and
changes in shareholders' equity and cash flows of the Target and its
consolidated subsidiaries as at the respective dates thereof and for the
respective periods indicated therein (subject, in the case of the Unaudited
Financial Statements, to normal and recurring year-end adjustments which,
individually or in the aggregate, have not had, and would not reasonably be
expected to have, a Material Adverse Effect on the Target).
(b) Except (i) to the extent explicitly set forth on the Balance
Sheet, or (ii) as disclosed in Section 4.07(b) of the Target Disclosure
Schedule, neither the Target nor any Target Subsidiary has any liability or
obligation of any nature (whether accrued, absolute, contingent or otherwise)
which would be required to be reflected on a balance sheet, or in the notes
thereto, prepared in accordance with U.S. GAAP, except for liabilities and
obligations incurred in the ordinary course of business consistent with past
practice since October 31, 1998 (the "BALANCE SHEET Date").
Section 4.08 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the Balance
Sheet Date, except as disclosed in Section 4.08 of the Target Disclosure
Schedule, the Target and the Target Subsidiaries have conducted their
business only in the ordinary course and in a manner consistent with past
practice and, since the Balance Sheet Date, (a) there has not been any event
or events (whether or not covered by insurance) which, and, to the best
knowledge of the Target or any Target Subsidiary, no facts or conditions
exist which, individually or in the aggregate, would reasonably be expected
to prevent or delay consummation of the Merger or otherwise prevent the
Target from
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performing its obligations under this Agreement or have had, or would
reasonably be expected to have, a Material Adverse Effect on the Target and
(b) the Target and the Target Subsidiaries have taken no action which would
have been prohibited by, and no event has occurred or condition come into
existence which would have resulted in a breach of, Section 7.01 had such
Section been in effect from the Balance Sheet Date through the date of this
Agreement.
Section 4.09 ABSENCE OF LITIGATION; COMPLIANCE WITH LAWS. Except as
disclosed in Section 4.09 of the Target Disclosure Schedule, there is no
claim, suit, action, proceeding or investigation pending or, to the best
knowledge of the Target or any Target Subsidiary, threatened against the
Target or any Target Subsidiary, at law or in equity, before any arbitrator
or Governmental Authority which (a) individually or in the aggregate, has
had, or would reasonably be expected to have, a Material Adverse Effect on
the Target or (b) seeks to and would reasonably be expected to prevent or
delay consummation of the Merger or otherwise prevent the Target from
performing its obligations under this Agreement, and to the best knowledge of
the Target or any Target Subsidiary no basis therefor exists. Neither the
Target or any Target Subsidiary nor any property or asset of the Target or
any Target Subsidiary is in violation of any Law, which violation,
individually or in the aggregate, would reasonably be expected to prevent or
delay consummation of the Merger or otherwise prevent the Target from
performing its obligations under this Agreement or has had, or would
reasonably be expected to have, a Material Adverse Effect on the Target.
Except as disclosed in Section 4.09 of the Target Disclosure Schedule, there
is no claim pending, or to the best knowledge of the Target or any Target
Subsidiary threatened, by any Persons against the Target or any Target
Subsidiary for indemnification pursuant to any statute, organizational
document, contract or otherwise with respect to any claim, suit, action,
investigation or proceeding pending before any arbitrator or Governmental
Authority, and to the best knowledge of the Target or any Target Subsidiary
no basis therefor exists. Except as set forth in Section 4.09 of the Target
Disclosure Schedule, the Target and each Target Subsidiary is in compliance
with all applicable Laws and is not in default with respect to any decree,
writ, injunction or order applicable to it, except such events of
noncompliance or defaults which, individually or in the aggregate, would not
reasonably be expected to prevent or delay consummation of the Merger or
otherwise prevent the Target from performing its obligations under this
Agreement and have not had, and would not reasonably be expected to have, a
Material Adverse Effect on the Target.
Section 4.10 EMPLOYEE BENEFIT PLANS. (a) Section 4.10 of the Target
Disclosure Schedule lists each of the following which is sponsored,
maintained or contributed to by, or under which there is any liability of;
the Target or a Target Subsidiary and which is for the benefit of any current
or former employee, officer, director, agent, consultant or similar
representative to the Target or any Target Subsidiary (i) all employee
benefit plans, as such term is defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), including
employee benefit plans (such as foreign plans) which are not subject to the
provisions of ERISA (each a "Plan") and (ii) each personnel policy, stock
option plan, stock purchase plan, stock appreciation right plan, phantom
stock plan, collective bargaining agreement, bonus plan or arrangement,
incentive award plan or arrangement, vacation policy, severance pay plan,
policy or agreement, deferred compensation agreement or arrangement,
executive compensation or supplemental income arrangement, consulting
agreement, employment agreement, cafeteria plan, education assistance plan,
dependent care assistance plan and each other employee benefit plan,
agreement, arrangement,
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program, practice or understanding (each a "TARGET PROGRAM OR TARGET
AGREEMENT"). Section 4.09 of the Target Disclosure Schedule discloses the
name of each officer or employee of the Target or any Target Subsidiary with
an annual base compensation greater than $100,000 and the annual base
compensation applicable to each such officer or employee. The Target has made
available to Acquiror a true, correct and complete copy of (i) each Plan,
(ii) each Material document prepared in connection with each Plan, (iii)
descriptions of each Target Program or Target Agreement, (iv) the most recent
report on Form 5500 for each Plan (if applicable), (v) the summary plan
description for each Plan (if applicable), and (vi) the most recent
determination letter from the Internal Revenue Service for each Plan intended
to be qualified under Section 401 of the Code, and any outstanding
determination letter application for such Plans. The Target has provided
Acquiror with a schedule of employer expenses with respect to each Plan and
Target Program or Target Agreement for the current plan year and past plan
year along with any administrative agreement associated with any Plan. The
Target has provided Acquiror with a copy of each plan document relating to a
Target Program or Target Agreement which is required to have a written plan
document under the Code. None of the Plans is a multiemployer plan within the
meaning of ERISA. Except as otherwise disclosed in Section 4.10 of the Target
Disclosure Schedule, each Plan and Target Program or Target Agreement has
been operated in accordance with its terms, the applicable provisions of
ERISA, the requirements of applicable Law, and any collective bargaining
agreements, except where the failure to so operate would not reasonably be
expected to prevent or delay consummation of the Merger or otherwise prevent
the Target from performing its obligations under this Agreement and has not
had, and would not reasonably be expected to have, a Material Adverse Effect
on the Target. Neither the Target nor any entity that, together with Target,
is commonly controlled, as determined under Section 414(b), (c) or (m) of the
Code or Section 4001 of ERISA ("COMMONLY CONTROLLED ENTITY") has, within six
years prior to the Effective Time, sponsored, maintained or contributed to
any employee benefit plan (as such term is defined in Section 3(3) of ERISA)
which is or has been subject to Title IV of ERISA. The Target and the Target
Subsidiaries have complied in all respects with the Worker Adjustment
Retraining Notification Act and no fact or event exists that could give rise
to liability under such act, except for such occurrences, noncompliances and
liabilities as, individually or in the aggregate, would not reasonably be
expected to prevent or delay consummation of the Merger or otherwise prevent
the Target from performing its obligations under this Agreement and have not
had, and would not reasonably be expected to have, a Material Adverse Effect
on the Target.
(b) Except as otherwise disclosed in Section 4.10 of the Target
Disclosure Schedule, (i) there are no claims, suits, actions, proceedings or
investigations pending (other than routine claims for benefits) or, to the best
knowledge of the Target or any Target Subsidiary, threatened against, or with
respect to, any of the Plans, Target Programs or Target Agreements or their
assets, (ii) as to any Plan intended to be qualified under Section 401 of the
Code, there has been no termination or partial termination of the Plan within
the meaning of Section 411(d)(3) of the Code, (iii) no act, omission or
transaction has occurred which would result in imposition on the Target or the
Target Subsidiaries of (A) breach of fiduciary duty liability damages under
Section 409 of ERISA, (B) a civil penalty assessed pursuant to subsections (c),
(i) or (l) of Section 502 of ERISA or (C) a tax imposed pursuant to Chapter 43
of Subtitle D of the Code, (iv) to the best knowledge of the Target or any
Target Subsidiary, there is no matter pending (other than routine qualification
determination filings) with respect to any of the Plans before the Internal
Revenue Service, the
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Department of Labor or the Pension Benefit Guaranty Corporation ("PBGC"), and
(v) no trust funding a Plan is intended to be exempt from federal income
taxation pursuant to Section 501(c)(9) of the Code.
(c) In connection with the consummation of the Transactions, no
payments have or will be made under the Plans, Target Programs and Target
Agreements which, in the aggregate, would result in imposition of the
sanctions imposed under sections 280G and 4999 of the Code.
(d) Except as otherwise disclosed in Section 4.10 of the Target
Disclosure Schedule, no Plan, Target Program or Target Agreement provides
retiree medical or retiree life insurance benefits to any Person and neither
the Target nor any Target Subsidiary is contractually or otherwise obligated
(whether or not in writing) to provide any Person with life insurance or
medical benefits upon retirement or termination of employment, other than as
required by the provisions of Section 601 through 608 of ERISA and Section
4980B of the Code. Additionally, each Plan which is an "employee welfare
benefit plan", as such term is defined in Section 3(1) of ERISA, may be
unilaterally amended or terminated in its entirety without incurring
additional liability under such Plan except as to benefits owed or accrued
thereunder prior to such amendment or termination.
(e) Except as otherwise disclosed in Section 4.10 of the Target
Disclosure Statement no Plan, Target Program or Target Agreement provides
that payments pursuant to such Plan, Target Program or Target Agreement may
be made in securities of the Target or a Commonly Controlled Entity, nor does
any trust maintained pursuant to any Plan, Target Program or Target Agreement
hold any securities of the Target or a Commonly Controlled Entity.
(f) No Plan currently has any outstanding loan the proceeds of
which were used to acquire Equity Securities of the Target or any Target
Subsidiary or to repay a prior outstanding loan.
(g) Neither this Agreement nor any other agreement entered into by
the Target or any Target Subsidiary in connection with the Merger and the
other Transactions contemplates or requires any action, if undertaken by the
Target or any Target Subsidiary, that would result in the administration of
any Plan in violation of the Code or ERISA.
Section 4.11 LABOR MATTERS. (a) All employees and former employees of
the Target or any Target Subsidiary have been, or will have been on or before
the Effective Time, paid in full all wages, salaries, commissions, bonuses,
vacation pay, severance and termination pay, sick pay, and other compensation
for all services performed by them that was accrued by them up to the
Effective Time and payable as of the Effective Time in accordance with the
obligations of the Target or any Target Subsidiary under any employment or
labor practices and policies, or any collective bargaining agreement or
individual agreement to which the Target or any Target Subsidiary is a party,
or by which the Target or any Target Subsidiary may be bound.
(b) To the best knowledge of Target, all employees of the Target or
any Target Subsidiary working in the United States are lawfully authorized to
work in the United States
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according to federal immigration Laws and all other employees are lawfully
authorized to work in the countries in which they work.
(c) Except as disclosed in Section 4.11 of the Target Disclosure
Schedule, (i) neither the Target nor any Target Subsidiary has agreed to
recognize any union or other collective bargaining representative, nor has
any union or other collective bargaining representative been certified as the
exclusive bargaining representative of any of the employees of the Target or
any Target Subsidiary, and (ii) to the best knowledge of Target, there is no
question concerning representation by any collective bargaining
representative of employees of the Target or any Target Subsidiary, and no
labor union or representative thereof claims to or is seeking to represent
employees of the Target or any Target Subsidiary. To the best knowledge of
the Target or any Target Subsidiary, no union organizational campaign or
representation petition is currently pending with respect to any of the
employees of the Target or any Target Subsidiary.
(d) Except as disclosed in Section 4.11 of the Target Disclosure
Schedule, neither the Target nor any Target Subsidiary is a party to or bound
by any collective bargaining agreement, other labor contract or individual
agreement applicable to any employees of the Target or any Target Subsidiary.
No collective bargaining agreements, other labor contracts or individual
agreements relating to employees of the Target or any Target Subsidiary are
being negotiated.
(e) There is no labor strike or labor dispute, slow down, lockout
or stoppage actually pending or threatened against or affecting the Target or
any Target Subsidiary, and neither the Target nor any Target Subsidiary has
experienced any labor strikes or Material labor disputes, slowdowns, lockouts
or stoppages since prior to 1995. Neither the Target nor any Target
Subsidiary (i) is engaged, nor since prior to 1995 has been engaged, in any
unfair labor practices, and (ii) has, or has had since prior to 1995, any
unfair labor practice charges or complaints before the National Labor
Relations Board pending or, to the best knowledge of the Target or any Target
Subsidiary, threatened against it. Except as disclosed in Section 4.11 of the
Target Disclosure Schedule, neither the Target nor any Target Subsidiary has,
or has had since prior to 1995, any grievances, arbitrations, or other
proceedings arising or asserted to arise out of or under any collective
bargaining agreement, pending or, to the best knowledge of the Target or any
Target Subsidiary, threatened against it.
(f) Except as disclosed in Section 4.11 of the Target Disclosure
Schedule, there are no collective bargaining agreements, individual
agreements, employment or labor practices, policies or procedures, or other
representations, whether written or, to the best knowledge of the Target or
any Target Subsidiary, oral, which have been made to employees of the Target
or any Target Subsidiary that commit the Acquiror or Acquiror Sub to retain
them as employees for any period of time subsequent to the Effective Time, or
that are, in any way, inconsistent with their possible future status with the
Acquiror or Acquiror Sub as employees-at-will who may be terminated at any
time without cause or notice, except as otherwise provided by Law.
(g) Except as disclosed in Section 4.11 of the Target Disclosure
Schedule, neither the Target nor any Target Subsidiary is subject to any
settlement or conciliation agreement, letter of commitment, deficiency letter
or consent decree with any present or former employee or applicant for
employment, labor union or other employee representative, or any Governmental
Authority or
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arbitrator relating to claims of unfair labor practices, employment
discrimination, or other claims with respect to employment and labor
practices and policies, and no Governmental Authority or arbitrator has
issued a judgment, order, decree, injunction, decision, determination, award
or finding with respect to the employment and labor practices or policies of
the Target or any Target Subsidiary which, individually or in the aggregate,
has had, or would reasonably be expected to have, a Material Adverse Effect
on the Target or the employment and labor practices and policies of the
Target or any Target Subsidiary.
(h) The Target and any Target Subsidiary are, and have always been
since prior to 1995, in substantial compliance with all applicable Laws
regarding labor and employment practices, including those Laws regarding: (i)
wages, salaries, commissions, bonuses, vacation pay, severance or termination
pay, sick pay or other compensation; (ii) employee benefits; (iii) unlawful,
unfair, wrongful or discriminatory employment or labor practices; (iv)
employment contracts, collective bargaining agreements, or any other
employment covenants whether express or implied; (v) minimum wages, overtime
pay or maximum hours of work; (vi) occupational safety and health standards;
or (vii) plant closing and mass layoff, family and medical leave,
immigration, workers' compensation, disability, unemployment compensation, or
whistleblowing; and to the best knowledge of the Target and any Target
Subsidiary no basis for a violation of any such Law exists.
(i) Except as disclosed in Section 4.11 of the Target Disclosure
Schedule, neither the Target nor any Target Subsidiary has, or has had since
prior to 1995, any charges, complaints, or proceedings before the Equal
Employment Opportunity Commission, Department of Labor or any other
Governmental Authority responsible for regulating labor or employment
practices, pending, or, to the best knowledge of the Target or any Target
Subsidiary, threatened against them.
(j) The Target has taken commercially reasonable steps, including
the implementation of programs that are acknowledged by Target's vendors, to
assure that all contractors who manufacture any products which are designed,
manufactured or marketed by the Target or any Target Subsidiaries comply with
all applicable Laws regarding labor and employment practices, including those
Laws regarding: (i) wages, salaries, commissions, bonuses, vacation pay,
severance or termination pay, sick pay or other compensation; (ii) employee
benefits; (iii) unlawful, unfair, wrongful or discriminatory employment or
labor practices; (iv) employment contracts, collective bargaining agreements,
or any other employment covenants whether express or implied; (v) minimum
wages, overtime pay or maximum hours of work; (vi) occupational safety and
health standards; or (vii) plant closing and mass layoff, family and medical
leave, immigration, workers' compensation, disability, unemployment
compensation, or whistleblowing; and to the best knowledge of the Target and
any Target Subsidiary no basis for a violation of any such Law exists.
Section 4.12 TAXES. (a) Except as disclosed in Section 4.l2(a) of the
Target Disclosure Schedule, the Target, each of the Target Subsidiaries, and
any affiliated, consolidated, combined, unitary or similar group of which the
Company or any Target Subsidiary is or was a member has (i) timely filed all
Returns (as hereinafter defined) required to be filed by them prior to the
date of this Agreement (taking into account extensions), and all such Returns
are true, correct and complete in all Material respects, (ii) timely paid or
accrued all Taxes (as hereinafter defined) shown to be due on such Returns
and (iii) paid or accrued all Taxes for which a notice of assessment or
collection has
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been received (other than amounts being contested in good faith by
appropriate proceedings), except in the case of clause (i), (ii) or (iii) for
any such filings, payments or accruals which, individually or in the
aggregate, have not had, and would not reasonably be expected to have, a
Material Adverse Effect on the Target. Except as set forth in Section 4.12(a)
of the Target Disclosure Schedule, neither the Internal Revenue Service nor
any other federal, state, local or foreign Taxing authority has asserted any
claim for Taxes, or to the best knowledge of the Target or any Target
Subsidiary, is threatening to assert any claims for Taxes, due from or with
respect to the Company, any Target Subsidiary, or any affiliated,
consolidated, combined, unitary or similar group of which the Company or any
Target Subsidiary is or was a member, which claims, individually or in the
aggregate, have not had, and would not reasonably be expected to have, a
Material Adverse Effect on the Target. There are no legal or administrative
Tax proceedings pursuant to which the Target, any Target Subsidiary, or any
affiliated, consolidated, combined, unitary or similar group of which the
Target or any Target Subsidiary is or was a member is or could be made liable
for any Material Taxes, penalties, interest, or other charges. No audit or
other proceeding by any Governmental Authority or similar entity is pending
in regard to any Material Taxes due from or with respect to the Target, any
Target Subsidiary, or any affiliated, consolidated, combined, unitary or
similar group of which the Company or any Target Subsidiary is or was a
member or any Return filed by the Target, any Target Subsidiary, or any
affiliated, consolidated, combined, unitary or similar group of which the
Company or any Target Subsidiary is or was a member. The Target, each Target
Subsidiary, and any affiliated, consolidated, combined, unitary or similar
group of which the Company or any Target Subsidiary is or was a member has
open years for federal, state and foreign income tax returns only as
disclosed in Section 4.12(a) of the Target Disclosure Schedule. The Target
and each Target Subsidiary have withheld or collected and paid over to the
appropriate Governmental Authorities (or are properly holding for such
payment) all Taxes required by Law to be withheld or collected in connection
with any amounts paid or owing to any employee, creditor, independent
contractor, stockholder or other third party, except for amounts which,
individually or in the aggregate, have not had, and would not reasonably be
expected to have, a Material Adverse Effect on the Target. Neither the Target
nor any Target Subsidiary has consented to the application of Section
341(f)(2) of the Code (or any predecessor provision). Neither the Target nor
any Target Subsidiary has agreed to make any Material adjustment pursuant to
Section 481(a) of the Code (or any predecessor provision) by reason of any
change in any accounting method, and there is no application pending with any
taxing authority requesting permission for any changes in any accounting
method of the Target or any Target Subsidiary which, in each respective case,
will or would reasonably cause the Target, any Target Subsidiary, or any
affiliated, consolidated, combined, unitary or similar group of which the
Company or any Target Subsidiary is or was a member to include any Material
adjustment in taxable income for any taxable period (or portion thereof)
ending after the Effective Time. Neither the Target nor any Target Subsidiary
is a party to, is bound by, or has any obligation under, any tax sharing
agreement, tax allocation agreement or similar contract, agreement or
arrangement. Neither the Target nor any Target Subsidiary has executed or
entered into with the Internal Revenue Service, or any taxing authority, a
closing agreement pursuant to Section 7121 of the Code or any similar
provision of state, local, foreign or other income tax Law, which will
require any increase in taxable income or alternative minimum taxable income,
or any reduction in tax credits for, the Target, any Target Subsidiary, or
any affiliated, consolidated, combined, unitary or similar group of which the
Company or any Target Subsidiary is or was a member for a taxable period
ending after the Effective Time. There are no Liens for Taxes upon the
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assets of the Target or any Target Subsidiary (other than Liens for Taxes
that are not yet due or that are being contested in good faith by appropriate
proceedings), except for Liens which, individually or in the aggregate, have
not had, and would not reasonably be expected to have, a Material Adverse
Effect on the Target.
(b) As used in this Agreement, (i) "RETURN" means any return,
declaration, report, statement and other document required to be filed in
respect of Taxes and (ii) "TAX" means any federal, state, local, foreign and
other net income, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, windfall profits, customs, duty or other tax together with
any interest and any penalties, additions to tax or additional amounts with
respect thereto.
Section 4.13 ENVIRONMENTAL MATTERS. (a) For purposes of this Agreement,
the following terms shall have the following meanings: (i) "HAZARDOUS
SUBSTANCES" means (A) those substances deemed in or regulated under the
following federal statutes and their state counterparts, as each may be in
effect on or prior to the Closing Date, and all regulations thereunder: the
Hazardous Materials Transportation Act, the Resource Conservation and
Recovery Act, the Comprehensive Environmental Response, Compensation and
Liability Act, the Clean Water Act, the Safe Drinking Water Act, the Atomic
Energy Act, the Federal Insecticide, Fungicide, and Rodenticide Act, the
Toxic Substances Control Act and the Clean Air Act; (B) petroleum and
petroleum products, byproducts and breakdown products including crude oil and
any fractions thereof; (C) natural gas, synthetic gas and any mixtures
thereof; (D) polychlorinated biphenyls; (E) any other chemicals, materials or
substances defined or regulated as toxic or hazardous under any applicable
Environmental Law; and (F) any substance with respect to which a federal,
state or local agency requires environmental investigation, monitoring,
reporting or remediation; and (ii) "ENVIRONMENTAL LAW" means any federal,
state, foreign or local law, rule or regulation, as each may be in effect on
or prior to the Closing Date, including any judicial or administrative order,
consent decree or judgment, relating to pollution or protection of the
environment, health, safety or natural resources, including those relating to
(A) releases or threatened releases of Hazardous Substances or materials
containing Hazardous Substances or (B) the manufacture, handling, transport,
use, treatment, storage or disposal of Hazardous Substances or materials
containing Hazardous Substances.
(b) Except as disclosed in Section 4.13 of the Target Disclosure
Schedule: (i) the Target and each Target Subsidiary are and have been in
Material compliance with all applicable Environmental Laws; (ii) the Target
and each Target Subsidiary have obtained all permits, approvals,
identification numbers, licenses or other authorizations required under any
applicable Environmental Laws ("ENVIRONMENTAL PERMITS") and are and have been
in Material compliance with their requirements; (iii) such Environmental
Permits are transferable to the Surviving Corporation pursuant to the Merger
without the consent of any Governmental Authority; (iv) there are no
underground or aboveground storage tanks or any surface impoundments, septic
tanks, pits, swamps or lagoons in which Hazardous Substances are being or have
been treated, stored or disposed of on any owned or leased real property or
on any real property formerly owned, leased or occupied by the Target or any
Target Subsidiary, except in compliance with all applicable Environmental
Laws; (v) there is no asbestos or asbestos-containing material on any owned
or leased real property in any
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condition that-could reasonably be expected to give rise to any corrective
action requirements or other liability under applicable Environmental Laws;
(vi) the Target and the Target Subsidiaries have not released, discharged or
disposed of Hazardous Substances on any real property owned or leased or on
any real property formerly owned or leased by the Target or any Target
Subsidiary except in compliance with all applicable Environmental Laws and
none of such property requires remediation of any Hazardous Substances; (vii)
neither the Target nor any Target Subsidiary is undertaking, and neither the
Target nor any Target Subsidiary has completed, any investigation or
assessment or remedial or response action relating to any such release,
discharge or disposal of or contamination with Hazardous Substances at any
site, location or operation, either voluntarily or pursuant to the order of
any Governmental Authority or the requirements of any Environmental Law; and
(viii) there are no past, pending or, to the best knowledge of the Target or
any Target Subsidiary, threatened actions, suits, demands, demand letters,
claims, liens, notices of non-compliance or violation, notices of liability
or potential liability, investigations, proceedings, consent orders or
consent agreements relating to Environmental Laws, any Environmental Permits
or any Hazardous Substances ("ENVIRONMENTAL CLAIMS") against the Target or
any Target Subsidiary or any of their property, and there are no
circumstances that can reasonably be expected to form the basis of any such
Environmental Claim.
(c) The Target and the Target Subsidiaries have made available to
Acquiror copies of any and all environmental reports, studies or analyses in
its possession or under its control relating to real property currently or
formerly owned or currently or formerly leased by the Target or any Target
Subsidiary or the current or former operations of the Target or any Target
Subsidiary.
Section 4.14 BROKERS. No broker, finder or investment banker (other than
Bear Steams & Co. Inc., financial advisor to the Target ("TARGET BANKER"),
whose fees and expenses will be included in Target Transaction Costs) is
entitled to any brokerage, finder's or other fee or commission in connection
with the Transactions based upon arrangements made by or on behalf of the
Target or any Target Subsidiary.
Section 4.15 TANGIBLE PROPERTY. (a) The Target and the Target
Subsidiaries, individually or together, have title to all their tangible
properties and assets reflected in the Balance Sheet or acquired since the
date thereof sufficient to conduct their respective businesses as currently
conducted without interference, with only such exceptions as, individually or
in the aggregate, have not had, and would not reasonably be expected to have,
a Material Adverse Effect on the Target.
(b) Such title is held by the Target and the Target Subsidiaries,
individually or together, free and clear of Liens, other than Liens the
existence of which is reflected in the Balance Sheet and Liens that are
described in Section 4.15 of the Target Disclosure Schedule.
(c) The Target and the Target Subsidiaries, individually or together,
hold under valid lease agreements all real and personal properties being held
under capitalized leases, and all real and personal property that is subject to
the operating leases, and enjoy peaceful and undisturbed possession of such
properties under such leases, other than any properties that, individually or in
the aggregate, are not Material to the Target. Neither the Target nor any of the
Target Subsidiaries has received any written notice of any adverse claim to the
title to any properties owned by them or with
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respect to any lease under which any properties are held by them, other than
any claims which, individually or in the aggregate, have not had, and would
not reasonably be expected to have, a Material Adverse Effect on the Target.
(d) All items of property, plant and equipment of the Target and
the Target Subsidiaries have been adequately maintained, are in good
operating condition, reasonable wear and tear excepted, and are usable in the
ordinary course of business, except where the failure to be in such repair or
condition or so usable, individually or in the aggregate, has not had, and
would not reasonably be expected to have, a Material Adverse Effect on the
Target.
Section 4.16 MATERIAL CONTRACTS. Section 4.16 of the Target Disclosure
Schedule lists each contract, agreement, commitment, arrangement, lease,
policy or other instrument to which the Target or any Target Subsidiary is a
party, which by its terms (a) requires, or is currently expected to result
in, the payment or receipt by the Target or any Target Subsidiary of more
than $100,000 (other than those which may be terminated by the Target or any
Target Subsidiary without the payment of any penalty or fine with less than
three months' notice), (b) provides for the employment of any Person or
providing for retention of management, executive or consulting services, (c)
provides for the payment or accrual of any compensation or severance upon a
change in control of the Target or any Target Subsidiary, (d) limits or
restricts the manner or location in which the Target or a Target Subsidiary
may conduct their respective businesses, (e) contains a Target Equity
Agreement, (f) obligates the Target or a Target Subsidiary to treat any
information confidentially, (g) prohibits the Target or a Target Subsidiary
from acquiring an interest in any Equity Securities of any Person, or (h) is
Material to the Target (each of the foregoing, a "MATERIAL CONTRACT"). Each
Material Contract is in fill force and effect and is enforceable against the
parties thereto in accordance with its terms and no condition or state of
facts exists that, with notice or the passage of time (including following
consummation of the Merger), or both, would constitute a default by the
Target or any Target Subsidiary or, to the best knowledge of the Target or
any Target Subsidiary, any third party under such Material Contracts, or give
rise to a right of termination. The Target and each Target Subsidiary has
duly complied in all Material respects with the provisions of each Material
Contract to which it is a party.
Section 4.17 VOTE REQUIRED. The affirmative vote to approve this
Agreement by the holders of at least two-thirds of the shares of Common Stock
outstanding as of the record date for the Target Shareholder Meeting (the
"REQUIRED TARGET VOTE") is the only vote of the holders of any class or
series of capital stock of the Target or any Target Subsidiary necessary to
approve this Agreement, the Merger or the Transactions.
Section 4.18 PARACHUTE PAYMENTS. Except as disclosed in Section 4.18 of
the Target Disclosure Schedule, neither the Target nor any Target Subsidiary
has entered into any agreement that would result in the making of "parachute
payments," as defined in Section 280G of the Code, to any Person.
Section 4.19 CERTAIN BUSINESS PRACTICES. As of the date of this
Agreement, except for such actions which have not had, and would not
reasonably be expected to have, a Material Adverse Effect on the Target,
neither the Target, any Target Subsidiary nor any director, officer, or, to
the
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best knowledge of the Target or any Target Subsidiary, any agent or employee
of the Target or any Target Subsidiary has (a) used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity, (b) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties
or campaigns or violated any provision of the Foreign Corrupt Practices Act
of 1977, as amended, or (c) made any other unlawful payment.
Section 4.20 INSURANCE. The Target and each Target Subsidiary owns and
is, and has been continuously since January l, 1988, beneficiary under
insurance policies underwritten by reputable insurers that, as to risks
insured coverages and related limits and deductibles, are customary in the
industries in which the Target or such Target Subsidiary operates. Except as
disclosed in Section 4.20 of the Target Disclosure Schedule, neither the
Target nor any Target Subsidiary has received any notice of cancellation or
termination of any insurance policy as to which it is a named beneficiary.
All insurance policies of the Target and each Target Subsidiary are valid and
enforceable against the underwriters thereof in accordance with their terms.
Section 4.21 BOARD RECOMMENDATION. At a meeting duly called and held in
compliance with the TBCA prior to the date of this Agreement, the Board of
Directors of the Target has adopted resolutions (a) approving the Merger,
based on a determination that the Merger is fair to the Target and to the
holders of Common Stock and is in the best interests of such shareholders and
(b) approving this Agreement and the Transactions and recommending approval
of this Agreement by the shareholders of the Target. These resolutions have
not been withdrawn, rescinded, superseded or modified in any way and remain
in fill force and effect. Prior to the execution of this Agreement, the Board
of Directors of the Target has taken all action necessary to cause this
Agreement and the Transactions (including the Merger) to be exempt from the
provisions of Article 13.03 of the TBCA.
Section 4.22 CHANGE IN CONTROL. Except as disclosed in Section 4.22 of
the Target Disclosure Schedule, neither the Target nor any Target Subsidiary
is a party to any contract, agreement, commitment, arrangement or
understanding that contains a "change in control," "potential change in
control" or similar provision, which, as a result of the consummation of the
Transactions will (either alone or upon the occurrence of any additional acts
or events) result in (a) any payment (whether of severance pay or otherwise)
becoming due from the Target or such Target Subsidiary to any Person, (b) the
acceleration of any obligations under such contract, agreement or
understanding or (c) would reasonably be expected to prevent or delay
consummation of the Merger or otherwise prevent the Target from performing
its obligations under this Agreement or would reasonably be expected to have
a Material Adverse Effect on the Target.
Section 4.23 INTELLECTUAL PROPERTY. Section 4.23 of the Target Disclosure
Schedule (a) identifies, illustrates (in the case of marks consisting of a
graphical design or fanciful fonts), and describes (in the case of an item's
trade dress) all of the Target's and the Target Subsidiaries' intellectual
property (the "TARGET'S INTELLECTUAL PROPERTY") pertaining to any product,
software or service manufactured, marketed, licensed or sold by the Target or
any Target Subsidiary in the conduct of its business or used, employed or
exploited in the development, license, sale, marketing, distribution or
maintenance thereof and which is Material to the business of the Target and the
Target Subsidiaries taken as a whole (such intellectual property includes, but
is not limited to, all
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foreign and doMestic trademarks, service marks, trade names, trade dresses,
labels, logos, copyrights, patents, inventions, industrial models, processes,
designs, and trade-secrets (including any proprietary or confidential
information), and all related applications, whether filed or unfiled,
registrations, and grants) and (b) lists all contracts and other agreements
to which the Target or any Target Subsidiary is a party, including such
contracts and agreements where the Target or a Target Subsidiary is either a
licensee or licensor, for each of the foregoing items of intellectual
property. No third party has any interest (other than as a shareholder of the
Target) in, owns, possesses or otherwise holds in any manner any of the
Target's Intellectual Property. Except as disclosed in Section 4.23 of the
Target Disclosure Schedule, all patents, copyrights, trademarks (including
state, federal and foreign registrations and applications) and other rights
and property listed in Section of the Target Disclosure Schedule are valid
and in fill force and effect. The rights and properties listed in Section
4.23 of the Target Disclosure Schedule are not subject to any maintenance
fees or renewal fees except as disclosed in Section 4.23 of the Target
Disclosure Schedule. Except as set forth on Schedule 4.23 of the Target
Disclosure Schedule, the Target or a Target Subsidiary owns or has the
exclusive right to use the Target's Intellectual Property in connection with
the business now operated by it. The Target has taken reasonable security
measures to protect the secrecy, confidentiality and value of the Target's
Intellectual Property, to the extent such measures are appropriate. The
Target has not received any notice of infringement of, or conflict with,
asserted rights of others with respect to any of the Target's Intellectual
Property, and there is no claim, action, suit, investigation or proceeding
pending or, to the best knowledge of the Target or any Target Subsidiary,
threatened against the Target or any Target Subsidiary with respect thereto.
Except as set forth in Section 4.23 of the Target Disclosure Schedule,
neither the Target nor any Target Subsidiary is required to pay any royalty
or other amount to anyone with respect to any of the Target's Intellectual
Property. To the best knowledge of the Target or any Target Subsidiary, the
trademarks, service marks, trade names, trade dress, labels and logos
described in Section 4.23 of the Target Disclosure Schedule are sufficient
for the conduct of the Target's and the Target Subsidiaries' businesses as
now conducted.
Section 4.24 INVENTORY. Except (a) for Inventory (as defined below)
which has been adequately reserved for in the Balance Sheet and (b) as
disclosed in Section 4.24 of the Target Disclosure Schedule, the Inventory of
the Target and the Target Subsidiaries is usable and salable in the ordinary
course of business, is of consistent and merchantable quality and quantity,
is fit for its intended purposes and not subject to any write down or write
off in accordance with U.S. GAAP and has been produced in accordance with all
applicable Laws. All packaging Inventory complies in all Material respects
with all applicable federal and state labeling requirements. As used in this
Agreement, the term "INVENTORY" shall mean all finished products, samples,
work-in-process, trim, raw materials, labels and packaging materials that are
used in, or held for use in, the operations of the business of the Target or
the Target Subsidiaries.
Section 4.25 RELATIONSHIP WITH SUPPLIERS. Section 4.25 of the Target
Disclosure Schedule discloses the ten largest suppliers of the Target and the
Target Subsidiaries based on purchases during the twelve month period ended
October 31, 1998, showing the approximate total purchases by the Target and
the Target Subsidiaries from each such supplier during such period. There has
not been any Material adverse change in the business relationship between the
Target and the Target Subsidiaries and any supplier disclosed in Section 4.25
of the Target Disclosure Schedule, and,
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except as disclosed in Section 4.25 of the Target Disclosure Schedule, to the
best knowledge of Target there will not be any such Material adverse change
in the future as a result of the consummation of the Transactions or
otherwise.
Section 4.26 RELATIONSHIP WITH CUSTOMERS. Section 4.26 of the Target
Disclosure Schedule discloses the ten largest customers of the Target and the
Target Subsidiaries based on sales during the twelve month period ended
October 31, 1998, showing the approximate total sales by the Target and the
Target Subsidiaries to each such customer during such period. There has not
been any Material adverse change in the business relationship between the
Target and the Target Subsidiaries and any customer disclosed in Section 4.26
of the Target Disclosure Schedule, and, except as disclosed in Section 4.26
of the Target Disclosure Schedule, to the best knowledge of Target there will
not be any such Material adverse change in the future as a result of the
consummation of the Transactions or otherwise.
Section 4.27 ACCOUNTS RECEIVABLE. The Accounts Receivable (as
hereinafter defined) of each of the Target and the Target Subsidiaries are
valid and genuine, have arisen solely out of bona fide sales and deliveries
of goods, performance of services or other business transactions in the
ordinary course of business consistent with past practice. Except (a) as has
been adequately reserved for in the Balance Sheet and (b) as disclosed in
Section 4.27 of the Target Disclosure Schedule, such Accounts Receivable are
not subject to valid defenses, set-offs or counterclaims. The allowances for
collection losses associated with such Accounts Receivable reflected in the
Balance Sheet have been determined in accordance with U.S. GAAP consistent
with past practice. Except as disclosed in Section 4.27 of the Target
Disclosure Schedule, there are no discounts, trade promotions or similar
marketing arrangements that affect the collectibility or value of any such
Accounts Receivable. As used in this Agreement, the term "ACCOUNTS
RECEIVABLE" shall mean all of the trade notes or accounts receivable arising
out of Inventory sold or shipped or services performed.
Section 4.28 AFFILIATE RELATIONSHIPS. Section 4.28 of the Target
Disclosure Schedule sets forth a complete and accurate list of all contracts,
agreements or other arrangements involving the Target or any Target
Subsidiary in which any of their respective officers, directors, or
Affiliates or any of the shareholders of Target have a financial interest,
including indebtedness owed to the Target or any Target Subsidiary.
Section 4.29 INFORMATION SYSTEMS. Except as disclosed in Section 4.29
of the Target Disclosure Schedule, no client customer, supplier or vendor of
Target or any Target Subsidiary, and no electric, telecommunications or other
utility with whom any information system of Target or any Target Subsidiary
interact, has notified the Target or any Target Subsidiary that any
information system of Target or any Target Subsidiary, when used in
combination with any information system of such Person, will be unable to
accurately process date and time data from, into and beyond the year 2000.
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
AND ACQUIROR SUB
Except as set forth in the Disclosure Schedule delivered by Acquiror to
the Target and the Shareholders and signed by the Target and Acquiror for
identification prior to the execution and delivery of this Agreement (the
"ACQUIROR DISCLOSURE SCHEDULE"), which shall identify exceptions by specific
section references. Acquiror and Acquiror Sub hereby, jointly and severally,
represent and warrant to the Target and the Shareholders that:
Section 5.01 CORPORATE ORGANIZATION AND QUALIFICATION. Acquiror and
each of its Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation
and has the requisite corporate power and authority to own, lease and operate
its properties and to conduct its business as it is now being conducted.
Acquiror and each of its Subsidiaries is duly qualified or licensed as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated
by it or the nature of its business makes such qualification or licensing
necessary, except for such failures to be so qualified or licensed and in
good standing which, individually or in the aggregate, would not reasonably
be expected to prevent or delay consummation of the Merger or otherwise
prevent the Acquiror or Acquiror Sub from performing its obligations under
this Agreement and have not had, and would not reasonably be expected to have
a Material Adverse Effect on Acquiror or Acquiror Sub.
Section 5.02 ARTICLES OF INCORPORATION AND BYLAWS. Acquiror has
heretofore furnished or made available to the Target a complete and correct
copy of the Articles of Incorporation and Bylaws of Acquiror, and the
Articles of Incorporation and Bylaws of Acquiror Sub, each as amended to
date. Neither Acquiror nor Acquiror Sub is in violation of any provision of
its Articles of Incorporation or Bylaws.
Section 5.03 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Acquiror and
Acquiror Sub has all necessary corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to
consummate the Transactions. The execution and delivery of this Agreement by
Acquiror and Acquiror Sub and the consummation by Acquiror and Acquiror Sub
of the Transactions have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of Acquiror
or Acquiror Sub are necessary to authorize this Agreement or to consummate
the Transactions (other than, with respect to the Merger, the filing and
recording of appropriate Articles of Merger with the Secretary as required by
this Agreement and the TBCA). This Agreement has been duly and validly
executed and delivered by Acquiror and Acquiror Sub and, assuming the due
authorization, execution and delivery of this Agreement by the other parties
hereto, constitutes a legal, valid and binding obligation of each of Acquiror
and Acquiror Sub, enforceable against each of Acquiror and Acquiror Sub in
accordance with its terms.
Section 5.04 NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) The
execution and delivery of this Agreement by Acquiror and Acquiror Sub do not,
and the performance of this Agreement by
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Acquiror and Acquiror Sub will not, subject to obtaining the consents,
approvals, authorizations and permits and making the filings described in
Section 5.04(a) of the Acquiror Disclosure Schedule, (i) (A) contravene or
violate the Articles of Incorporation or Bylaws of either Acquiror or
Acquiror Sub, (B) contravene or violate any Law applicable to Acquiror or
Acquiror Sub or by which any property or asset of any of Acquiror or Acquiror
Sub is bound or affected, or (C) result in any breach of or constitute a
default under, or give to others any right of termination, unilateral
amendment, acceleration or cancellation of, or result in the creation of a
Lien on any property or asset of Acquiror or Acquiror Sub or require the
consent of any third party pursuant to, or give rise to the loss of any
benefit under, or create or increase any obligation under, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise,
benefit plan or other instrument or obligation to which Acquiror or Acquiror
Sub is a party or by which Acquiror or Acquiror Sub or any property or asset
of Acquiror or Acquiror Sub is bound or affected, or (ii) with the passage of
time, the giving of notice or the taking of any action by any third party,
have any of the effects set forth in clause (i) of this paragraph, except for
any such contraventions, violations, breaches, defaults or other occurrences
(excluding those relating to clause (i)(A) of this paragraph) which,
individually or in the aggregate, would not reasonably be expected to prevent
or delay consummation of the Merger or otherwise prevent Acquiror or Acquiror
Sub from performing its obligations under this Agreement and would not
reasonably be expected to have a Material Adverse Effect on Acquiror or
Acquiror Sub.
(b) The execution and delivery of this Agreement by Acquiror and
Acquiror Sub do not, and the performance of this Agreement by Acquiror and
Acquiror Sub will not, require any consent, approval, authorization or permit
of, or filing with or notification to, any Governmental Authority, except (i)
pursuant to the Securities Exchange Act of 1934, as amended (the "EXCHANGE
Act"), the HSR Act and filing and recording of appropriate Articles of Merger
with the Secretary as required by this Agreement and the TBCA, (ii) as
disclosed in Section 5.04(b) of the Acquiror Disclosure Schedule, and
(iii) where failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, individually or in the
aggregate, would not reasonably be expected to prevent or delay consummation
of the Merger or otherwise prevent Acquiror or Acquiror Sub from performing
its obligations under this Agreement and would not reasonably be expected to
have a Material Adverse Effect on Acquiror or Acquiror Sub.
Section 5.05 ABSENCE OF LITIGATION. Except as disclosed in Section
5.05 of the Acquiror Disclosure Schedule, there is no claim, suit, action,
proceeding or investigation pending or, to the best knowledge of Acquiror,
threatened against Acquiror or Acquiror Sub, before any arbitrator or
Governmental Authority, which seeks to delay and would reasonably be expected
to prevent or delay consummation of the Merger or otherwise prevent Acquiror
or Acquiror Sub from performing its obligations under this Agreement, and to
the best knowledge of Acquiror no basis therefore exists.
Section 5.06 OWNERSHIP OF ACQUIROR SUB; NO PRIOR ACTIVITIES. (a)
Acquiror Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement.
(b) As of the date hereof and the Effective Time, except for
obligations or liabilities incurred in connection with its incorporation or
organization and the Transactions and except for this Agreement and any other
agreements or arrangements contemplated by this
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Agreement, Acquiror Sub has not and will not have incurred, directly or
indirectly, through any Subsidiary or Affiliate, any obligations or
liabilities or engaged in any business activities of any type or kind
whatsoever or entered into any agreements or arrangements with any Person.
Section 5.07 BROKERS. No broker, finder or investment banker (other than
Arthur Andersen LLP, whose fees and expenses will be paid by Acquiror) is
entitled to any brokerage, finder's or other fee or commission in connection
with the Transactions based upon arrangements made by or on behalf of
Acquiror or Acquiror Sub.
Section 5.08 FINANCING. Acquiror has arranged with Chase Bank of Texas,
National Association a senior lending facility under which Acquiror
contemplates that it will receive debt financing for the Transactions (the
"Acquiror Credit Facility"). As of the date of this Agreement, there is
sufficient capacity under the Acquiror Credit Facility for Acquiror to borrow
funds thereunder necessary to pay the Shareholder Option Exercise Price, the
amounts required to be paid to or for the benefit of the Target's
shareholders pursuant to Section 3.02(a) or 3.02(b), the amounts required to
be deposited with the Escrow Agent pursuant to Section 2.07 and the amounts
required to be paid to holders of Common Stock Equivalents pursuant to
Section 3.04 and any related fees and expenses. As of the date of this
Agreement, Acquiror is not aware of any facts or circumstances that create a
reasonable basis for Acquiror to believe that Acquiror will not be able to
obtain financing for the Transactions under the Acquiror Credit Facility.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
Each Shareholder, severally and not jointly, hereby represents and
warrants to Acquiror and Acquiror Sub that:
Section 6.01 OWNERS OF SHARES. Except as disclosed on SCHEDULE I
hereto, such Shareholder is the holder of record of, and beneficially owns,
the number of shares of Common Stock set forth opposite such Shareholder's
name on SCHEDULE I hereto, free and clear of any Liens.
Section 6.02 AUTHORITY RELATIVE TO THIS AGREEMENT. (a) Such Shareholder
has full legal capacity to execute and deliver this Agreement, to perform his
or her obligations hereunder and to consummate the Transactions.
(b) This Agreement has been duly and validly executed and
delivered by such Shareholder and, assuming the due authorization, execution
and delivery of this Agreement by the other parties hereto, constitutes a
legal, valid and binding obligation of such Shareholder, enforceable against
such Shareholder in accordance with its terms.
Section 6.03 NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) The
execution and delivery of this Agreement by such Shareholder do not, and the
performance of this Agreement by such Shareholder will not, (i) (A)
contravene or violate any Law applicable to such Shareholder or by which any
property or asset of any of such Shareholder is bound or affected, or (B)
result in any
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breach of or constitute a default under, or give to others any right of
termination, unilateral amendment, acceleration or cancellation of, or result
in the creation of a Lien on any property or asset of such Shareholder or
require the consent of any third party pursuant to, or give rise to the loss
of any benefit under, or create or increase any obligation under, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise, benefit plan or other instrument or obligation to which such
Shareholder is a party or by which such Shareholder or any property or asset
of such Shareholder is bound or affected, or (ii) with the passage of time,
the giving of notice or the taking of any action by any third party, have any
of the effects set forth in clause (i) of this paragraph, except for any such
contraventions, violations, breaches, defaults or other occurrences which,
individually or in the aggregate, would not reasonably be expected to prevent
or delay consummation of the Merger or otherwise prevent such Shareholder
from performing such Shareholder's obligations under this Agreement.
(b) The execution and delivery of this Agreement by such
Shareholder do not, and the performance of this Agreement by such Shareholder
will not, require any consent, approval, authorization or permit of, or
filing with or notification to, any Governmental Authority, except (i)
pursuant to the HSR Act, and (ii) where failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or
notifications, individually or in the aggregate, would not reasonably be
expected to prevent or delay consummation of the Merger or otherwise prevent
such Shareholder from performing its obligations under this Agreement.
Section 6.04 ABSENCE OF LITIGATION. There is no claim, suit, action,
proceeding or investigation pending or, to the best knowledge of such
Shareholder, threatened against such Shareholder, before any arbitrator or
Governmental Authority, which seeks to prevent or delay and would reasonably
be expected to prevent or delay consummation of the Merger or otherwise
prevent such Shareholder from performing its obligations under this
Agreement, and to the best knowledge of such Shareholder no basis therefor
exists.
Section 6.05 BROKERS. No broker, finder or investment banker (other than
Target Banker) is entitled to any brokerage, finder's or other fee or
commission in connection with the Transactions based upon arrangements made
by or on behalf of such Shareholder.
ARTICLE 7
CONDUCT OF BUSINESS PENDING THE MERGER
Section 7.01 CONDUCT OF BUSINESS BY THE TARGET PENDING THE MERGER. The
Target covenants and agrees that, between the date of this Agreement and the
Effective Time, except as set forth in Section 7.01 of the Target Disclosure
Schedule or as expressly contemplated by any other provision of this
Agreement, unless Acquiror shall otherwise agree in writing, (1) the business
of the Target and the Target Subsidiaries shall be conducted only in, and the
Target and the Target Subsidiaries shall not take any action except in, the
ordinary course of business and in a manner consistent with past practice,
(2) the Target shall use all reasonable efforts to (w) preserve substantially
intact its business organization, to keep available the services of the
current officers, employees and
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consultants of the Target and the Target Subsidiaries and to preserve the
current relationships of the Target and the Target Subsidiaries with
customers, suppliers and other Persons with whom the Target or any Target
Subsidiary has significant business relations, (x) maintain and keep its
properties and assets in as good repair and condition as at present, ordinary
wear and tear excepted, and maintain supplies and inventories in quantities
and quality consistent with its customary business practice, (y) keep in full
force and effect insurance and bonds comparable in amount and scope of
coverage to that currently maintained, and (z) maintain in effect all
existing Target Permits, and timely apply for and obtain any additional
Target Permits that are or will be required for current or currently planned
operations, and (3) the Target will not and will not permit any Target
Subsidiary to:
(a) amend or otherwise change its Articles of Incorporation or Bylaws
or other equivalent organizational documents;
(b) except for allocations of previously unallocated shares of
Common Stock within the ESOP, offer, issue, sell, pledge, transfer, grant,
encumber or otherwise dispose of; or authorize the offer, issuance, sale,
pledge, transfer, grant, encumbrance or other disposition of; (A) any shares
of capital stock or other Equity Securities of the Target or any Target
Subsidiary of any class, or any options, warrants, convertible securities or
other rights, contracts, agreements, arrangements, commitments or
understandings of any character obligating the Target or any Target
Subsidiary to offer, issue, sell, pledge, transfer, grant, encumber or
otherwise dispose of any shares of capital stock or any other Equity
Securities of the Target or any Target Subsidiary (except for shares of
Common Stock, if any, issuable under agreements currently in effect on the
date hereof and disclosed in Section 4.03 of the Target Disclosure Schedule),
or (B) any of the Target's or any Target Subsidiaries' Material assets,
except for sales of Inventory or sales or returns of obsolete or surplus
equipment in the ordinary course of business and in a manner consistent with
past practice; or amend the terms of or reprice any Common Stock Equivalent
outstanding on the date of this Agreement;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to
any of its capital stock or other Equity Securities;
(d) reclassify, combine, split, divide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock or other
Equity Securities;
(e) (A) acquire (including by merger, consolidation, acquisition
of stock or assets or otherwise) any interest in any corporation,
partnership, other business organization or any division thereof or any
Material assets, other than the acquisition of Inventory in the ordinary
course of business consistent with past practice; (B) incur any indebtedness
for borrowed money or issue any debt securities or assume, guarantee or
endorse, or otherwise as an accommodation become responsible for, the
obligations of any Person, except for indebtedness incurred in the ordinary
course of business and consistent with past practice with a maturity of not
more than one year in a principal amount not, in the aggregate, in excess of
$100,000; (C) enter into any Material Contract other than in the ordinary
course of business, consistent with past practice, or modify or amend any
existing Material Contract; (D) authorize any capital expenditure in the
aggregate in excess of $100,000; (E)create any Lien on the property of the
Target or any Target Subsidiary; (F) enter into
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any "keep well" or other agreement or arrangement to maintain the financial
condition of any other Person; (G) make any loan or advance to, or otherwise
make any investment in, any Person, other than loans or advances to, or
investments in, a wholly-owned Target Subsidiary existing on the date of this
Agreement; or (H) enter into or amend any contract, agreement, commitment or
arrangement with respect to any matter set forth in this subsection;
(f) (A) grant any increases in the compensation (including salary,
bonus and other benefits) of any of its directors, officers, management
employees or key employees; (B) pay or agree to pay any pension, retirement
allowance or other employee benefit to any director, officer, management
employee or key employee, whether past or present other than any benefit
which an employee currently has a right to under any Plan or Target Program
or Target Agreement; (C) enter into any new, or materially amend any
existing, employment or severance or termination agreement with any Person or
any collective bargaining agreement; (D) grant any general increase in
compensation (including salary, bonus and other benefits) to employees,
except for increases occurring in the ordinary course of business consistent
with past practice; or (E) establish, adopt, enter into, amend, or
accelerate vesting or waive performance criteria under, any Plan or Target
Program or Target Agreement or any arrangement that if adopted would
constitute a Plan or Target Program or Target Agreement;
(g) settle or compromise any pending or threatened litigation;
(h) grant or convey to any Person any rights in any of the
Target's Intellectual Property, including by way of sale, license or
sub-license, or fail to use its reasonable efforts to maintain in effect any
of the Target's Intellectual Property;
(i) authorize, recommend, propose or announce an intention to
adopt a plan of complete or partial liquidation or dissolution;
(j) other than as required by Law or U.S. GAAP, make any changes
with respect to accounting policies, procedures and practices;
(k) engage in or permit any transaction or act which, if it had
been engaged in or permitted prior to the date of this Agreement, would have
rendered untrue in any Material respect any of the representations and
warranties of the Target contained in this Agreement;
(l) deposit or otherwise invest any cash on hand into accounts,
securities or other instruments having a maturity of more than 30 days or
that will impose payment or penalty upon liquidation within 30 days of such
deposit or investment;
(m) conduct its business in any manner that would reasonably be
expected to prevent or delay consummation of the Transactions or otherwise
prevent the Target from performing its obligations under this Agreement or
have a Material Adverse Effect on the Target; or
(n) agree to or make any commitment to, whether orally or in
writing, take any actions prohibited by this Agreement.
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ARTICLE 8
ADDITIONAL AGREEMENTS
Section 8.01 PROXY STATEMENT. As promptly as practicable after the
execution of this Agreement, the Company shall prepare a proxy statement to
be sent to the shareholders of the Target (the "PROXY STATEMENT") in
connection with the Target Shareholder Meeting (as hereinafter defined). All
expenses incurred by the Target or any Target Subsidiary in connection with
the Proxy Statement and the Target Shareholder Meeting, including, the fees
and disbursements of their counsel, accountants and other representatives,
and printing and other fees and expenses incurred in connection therewith,
shall constitute Target Transaction Costs. Acquiror shall furnish all
information concerning it as the Target may reasonably request in connection
with the preparation of the Proxy Statement. The Proxy Statement shall
contain the recommendation of the board of directors of the Target that
Target's shareholders vote to approve and adopt the Merger and this
Agreement, and such recommendation shall not be withdrawn. The Target shall
give Acquiror reasonable opportunity to review and provide comment to the
Proxy Statement. As promptly as practicable following the execution of this
Agreement, and in no event later than December 31, 1998, the Target shall
cause the Proxy Statement to be mailed to its shareholders entitled to
receive notice of and to vote at the Target Shareholder Meeting.
Section 8.02 TARGET SHAREHOLDER MEETING. The Target shall take all
actions necessary in accordance with all applicable Laws and the Articles of
Incorporation and Bylaws of the Target to call and hold a meeting of its
shareholders (the "TARGET SHAREHOLDER MEETING") as promptly as practicable
for the purpose of voting upon the approval of this Agreement, and the Target
shall use all reasonable efforts to hold the Target Shareholder Meeting as
soon as practicable after the date of this Agreement. The Target shall use
all reasonable efforts to solicit from its shareholders proxies in favor of
the approval of this Agreement, and shall take all other action reasonably
necessary or advisable to secure the Required Target Vote in compliance with
all applicable laws.
Section 8.03 APPROPRIATE ACTION; CONSENTS; FILINGS. (a) The Target and
Acquiror shall use all reasonable efforts to (i) take, or cause to be taken
(including by the ESOP), all appropriate action, and do, or cause to be done,
all things necessary, proper or advisable under applicable Law or required to
be taken by any Governmental Authority or otherwise to consummate and make
effective the Transactions as promptly as practicable, (ii) obtain or cause
to be obtained (including by the ESOP) from any Governmental Authorities any
consents, licenses, permits, waivers, approvals, authorizations or orders
required to be obtained by Acquiror or the Target or any of their
Subsidiaries or the ESOP in connection with the authorization, execution and
delivery of this Agreement and the consummation of the Transactions,
including the Merger, and (iii) as promptly as practicable, make or cause to
be made (including by the ESOP) all necessary filings, and thereafter make or
cause to be made (including by the ESOP) any other required submissions, with
respect to this Agreement and the Merger required under (A) the Securities
Act and the Exchange Act, and any other applicable federal or state
securities laws, (B) the TBCA, (C) the HSR Act and any related governmental
request thereunder, and (D) any other applicable Law; PROVIDED that Acquiror
and the Target shall cooperate with each other in connection with the making
of all such
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filings, including providing copies of all such documents to the non-filing
party prior to filing and, if requested, to accept all reasonable additions,
deletions or changes suggested in connection therewith; and provided further
that, except as expressly provided herein, each party shall retain discretion
and control over its affairs. The Target and Acquiror shall use all
reasonable efforts to furnish to each other all information required for any
application or other filing to be made pursuant to any applicable Law in
connection with the Transactions.
(b) (i) Each of Acquiror and the Target shall give (or shall
cause their respective Subsidiaries to give) any notices to third parties,
and use, and cause their respective Subsidiaries to use, all reasonable
efforts to obtain any third party consents (including those set forth in
Section 4.05(a) of the Target Disclosure Schedule and Section 5.04(a) of the
Acquiror Disclosure Schedule), (A) necessary or advisable to consummate the
Transactions, (B) otherwise required under any contracts, licenses, leases or
other agreements in connection with consummation of the Transactions or (C)
required to prevent a Material Adverse Effect on the Target.
(ii) The Target shall use, and shall cause the Target
Subsidiaries to use, all reasonable efforts to obtain from each Lease Third
Party to a lease identified in Section 4.05 of the Target Disclosure
Schedule a consent or estoppel certificate in which that Lease Third Party
agrees not to exercise any right of termination, unilateral amendment,
acceleration or cancellation under such lease arising from the execution of
this Agreement or consummation of the Transactions.
(c) From the date of this Agreement until the Effective Time, each
party shall promptly notify the other parties of any pending, or to the best
knowledge of the first party, threatened, action, proceeding or investigation
by or before any Governmental Authority or any other Person (i) challenging
or seeking Material damages in connection with the Merger or (ii) seeking to
restrain or prohibit the consummation of the Merger or otherwise limit the
right of Acquiror or Acquiror Sub to own or operate all or any portion of the
businesses or assets of the Target, which in either case is reasonably likely
to have a Material Adverse Effect on the Target or Acquiror prior to the
Effective Time, or a Material Adverse Effect on Acquiror or the Surviving
Corporation after the Effective Time.
(d) The parties hereto agree to cooperate and use all reasonable
efforts to resist or resolve any action (including legislative,
administrative or judicial action) and to have vacated or overturned any
order of any Governmental Authority that is in effect and that prevents or
prohibits the consummation of the Transactions; PROVIDED, HOWEVER, that in no
event shall any party take, or be required to take, any action that could
reasonably be expected to have a Material Adverse Effect on Acquiror or the
Target.
(e) Without limiting the foregoing, the Target and its Board of
Directors shall (i) take all action necessary or otherwise reasonably
requested by Acquiror to exempt the Transactions from the provisions of any
applicable takeover, business combination, control share acquisition or
similar statute (including Article 13.03 of the TBCA) and (ii) if any state
takeover statute or similar statute or regulation becomes applicable to the
Transactions, take all action necessary to ensure that the Transactions may
be consummated as promptly as practicable on the
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terms contemplated by this Agreement and otherwise to minimize the effect of
such statute or regulation on the Transactions.
Section 8.04 ACCESS TO INFORMATION; CONFIDENTIALITY. (a) Subject to the
Confidentiality Agreement, from the date of this Agreement to the Effective
Time, the Target will (i) provide to Acquiror and its Representatives, during
normal business hours and upon reasonable notice, access to all officers,
employees, agents, properties, offices and other facilities of the Target and
each Target Subsidiary and (ii) furnish to Acquiror and its Representatives
such information and documents which they may reasonably request regarding
the business, assets, liabilities, employees and other aspects of the Target
and any Target Subsidiary. "REPRESENTATIVE" means, with respect to any
Person, that Person's employees, officers, directors, representatives
(including any investment banker, financial advisor, attorney or accountant
which has acted as such Person's representative at any time during the period
beginning on June 1, 1998 and ending on the Closing Date), Subsidiaries,
agents or affiliates.
(b) Upon written notice from Acquiror, the Target shall promptly
allow access to any and all real property owned, leased or operated by the
Target or any Target Subsidiary for the purpose of performing Phase I
environmental site assessments. Target shall allow such access for the
purpose of performing Phase II or III environmental site assessments upon
such terms as Target and Acquiror may mutually agree. Such assessments shall
be performed by a nationally recognized and duly qualified environmental
consultant selected by Acquiror. The cost of any such assessments shall be
borne by Acquiror.
Section 8.05 NO SOLICITATION OF TRANSACTIONS BY TARGET. During the term
of this Agreement, the Target will not, and will cause its Representatives to
not, directly or indirectly, (i) initiate, solicit, seek, encourage or
otherwise facilitate (including by way of furnishing information or
assistance) any inquiry, communication or proposal that constitutes, or could
reasonably be expected to result in, an Acquisition Proposal, (ii) enter into
any agreement contemplating or otherwise relating to an Acquisition Proposal,
(iii) provide any information or data to, or engage in, maintain or continue
discussions or negotiations with, any Person in furtherance of any such
inquiry, communication or proposal or otherwise relating to an Acquisition
Proposal or for the purpose of obtaining an Acquisition Proposal, (iv)
accept, agree to, endorse or recommend any Acquisition Proposal, or (v)
release any third party from any standstill or confidentiality agreement, or
waive or amend any provision thereof, to which it is a party; provided, that
no Person shall be deemed to have provided any information or data to, or
engaged in, maintained or continued discussions or negotiations with, any
other Person in violation of this Section if such Person (without identifying
Acquiror) advises the other Person that they are precluded from taking any
action that would constitute a violation of this Section, and nothing shall
prohibit the Board of Directors of Target from making any disclosure to the
shareholders of Target if such disclosure is required by applicable Law. The
Target shall notify Acquiror orally (within one Business Day) and in writing
(as promptly as practicable) of all relevant details relating to, and all
material aspects of (including the identity of the Person making such
inquiry, communication or proposal), all inquiries, communications and
proposals which it or any of its Representatives may receive relating to any
of such matters and, if such inquiry, communication or proposal is in written
form or electronically or magnetically stored, shall deliver to Acquiror a
copy of such inquiry, communication or proposal as promptly as practicable.
The
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Target has terminated, and has caused each of its Representatives to
terminate, any existing initiation, solicitation, encouragement,
facilitation, communication, discussion or negotiation with any Person
conducted heretofore by the Target or any of its Representatives relating to
any Acquisition Proposal. The Target shall promptly notify its
Representatives of the obligations undertaken in this Section and any
violation of the restrictions set forth in the two immediately preceding
sentences by any Representative, whether or not acting on behalf of the
Target, shall be deemed to be a breach of this Section by the Target.
Section 8.06 DIRECTORS' AND OFFICERS' INDEMNIFICATION. The Articles of
Incorporation and Bylaws of the Surviving Corporation shall contain
provisions no less favorable with respect to indemnification than are set
forth in the Articles of Incorporation and Bylaws of the Acquiror, as in
effect on the date hereof; which provisions shall not be amended, repealed or
otherwise modified for a period of four (4) years from the Effective Time in
any manner that would affect adversely the rights thereunder of individuals
who at any time prior to the Effective Time were directors, officers or
employees of the Target or any of the Target Subsidiaries, unless such
modification shall be required by Law.
Section 8.07 OBLIGATIONS OF ACQUIROR SUB. Acquiror shall take all action
necessary to cause Acquiror Sub to perform its obligations under this
Agreement and to consummate the Merger on the terms and subject to conditions
set forth in this Agreement.
Section 8.08 PUBLIC ANNOUNCEMENTS. (a) Neither Acquiror, Acquiror Sub
nor the Target shall issue any press release or make any public statement
with respect to this Agreement or any Transaction without the prior consent
of the other parties hereto, and (b) the Target will not issue any other
press release or otherwise make any public statements regarding its business,
except that any party may make any disclosure required by applicable Law
(including federal securities laws) or any listing agreement to which it is a
party if it determines in good faith that it is required to do so and
provides the other parties hereto with prior notice and a reasonable
opportunity to review and provide comment to the disclosure.
Section 8.09 NOTIFICATION OF CERTAIN MATTERS. The Target shall give
prompt notice to Acquiror, and Acquiror shall give prompt notice to the
Target, of (a) the occurrence or non-occurrence of any event the occurrence
or non-occurrence of which would be likely to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate and (b) any
failure of the Target, Acquiror or Acquiror Sub, as the case may be, to
comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder, in the case of either clause (a) or (b)
above such that any condition contained in Sections 9.02 (a), 9.02(b) or
9.03 would not be satisfied; PROVIDED, HOWEVER, that the delivery of any
notice pursuant to this Section 8.09 shall not limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
Section 8.10 FURTHER ACTION. At any time and from time to time, each
party to this Agreement agrees, subject to the terms and conditions of this
Agreement, to take such actions and to execute and deliver such documents as
may be necessary to effectuate the purposes of this Agreement at the earliest
practicable time.
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Section 8.11 EMPLOYEE BENEFITS. Subject to Section 13.04:
(a) On and after the Effective Time, Acquiror shall cause officers
and employees of the Target and the Target Subsidiaries to be provided
employee benefit plans, programs and policies which are no less favorable in
the aggregate to such officers and employees than those provided to similarly
situated employees of Acquiror and its Subsidiaries as of the date hereof.
Officers and employees of Target and Target Subsidiaries shall receive credit
for time employed by Target and Target Subsidiaries for purposes of
eligibility and vesting under the employee benefit plans, programs and
policies contemplated by this Section 8.11(a).
(b) Nothing contained in this Section shall create any third party
beneficiary rights in any officer or employee or former officer or employee
(including any beneficiary or dependent thereof) of the Target, any of the
Target Subsidiaries or the Surviving Corporation in respect of continued
employment for any specified period of any nature or kind whatsoever.
(c) Nothing contained in this Section shall create any obligation
on the part of Acquiror, Acquiror Sub or the Surviving Corporation to
maintain the ESOP. Each of the parties hereto hereby acknowledges and agrees
that it is the intent of the parties that the Surviving Corporation shall, as
promptly as practicable following the Effective Time, terminate the ESOP.
Section 8.12 1998 AUDITED FINANCIAL STATEMENTS. As promptly as
practicable after the execution of this Agreement, and in any event no later
than December 3l, 1998, the Target shall deliver to Acquiror a true, complete
and accurate copy of the audited consolidated balance sheet of Target and its
consolidated subsidiaries as of October 31, 1998 (the "1998 AUDITED BALANCE
SHEET"), together with audited consolidated statements of operations, changes
in shareholders' equity and cash flows of the Target and its consolidated
subsidiaries for the year then ended, and the notes thereto, accompanied by
the unqualified report thereon of Arthur Andersen LLP, independent public
accountants (collectively, and including the 1998 Audited Balance Sheet, the
"1998 AUDITED FINANCIAL STATEMENTS"). The 1998 Audited Financial Statements
(including the notes thereto) shall be prepared in accordance with U.S. GAAP
consistently applied throughout the periods indicated and shall fairly
present in all Material respects the financial position, results of
operations and changes in shareholders' equity and cash flows of the Target
and its consolidated subsidiaries at the date thereof and for the periods
indicated therein. The Target shall, and shall cause each Target Subsidiary
to, furnish to Arthur Andersen LLP such customary management representation
letters as Arthur Andersen LLP may require as a condition to its execution
and delivery of its report on the 1998 Audited Financial Statements. Acquiror
shall pay the fees and expenses of Arthur Andersen LLP relating to the
preparation and delivery of the Audited Financial Statements (the "AUDIT
EXPENSES"). If this Agreement is terminated and the Merger and the other
Transactions are abandoned at any time prior to the Effective Time as
contemplated in Section 10.01, upon payment by the Target to Acquiror of the
amount of the Audit Expenses, the Audited Financial Statements shall for all
purposes be deemed the property of the Target, and may be used for any
purpose deemed appropriate by the Target.
Section 8.13 AGREEMENT TO VOTE OR CONSENT. Each Shareholder, severally and
not jointly, hereby agrees to attend the Target Shareholder Meeting, in person
or by proxy, and to vote, or cause
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to be voted (or, if the shareholders of the Target act by written consent, to
consent in writing, or cause to consent in writing, with respect to) all
voting securities of the Target, whether issued heretofore or hereafter, that
such Shareholder owns or has the right to vote, consent with respect to or
direct the vote or consent with respect to, and agrees to instruct the
trustee(s) of the ESOP to vote any securities held pursuant to the ESOP with
respect to which such Shareholder has pass-through voting rights, (a) in
favor of the approval and adoption of the Merger Agreement and the Merger,
such agreement to vote to apply also to any adjournment or adjournments of the
Target Shareholder Meeting, and (b) against any proposal or other matter that
may interfere or be inconsistent with the Merger.
Section 8.14 REVOCATION OF PROXIES AND CONSENTS. To the extent
inconsistent with Section 8.13, each Shareholder hereby revokes any and all
previous proxies or written consents with respect to all voting securities of
the Target that such Shareholder owns or has the right to vote or consent
with respect to or direct the vote or consent with respect to, including any
securities held pursuant to the ESOP with respect to which such Shareholder
has any pass-through voting rights, and such Shareholder hereby agrees
promptly to provide written notice of such revocation to any other person to
whom any such previous proxy or written consent had been granted or delivered.
Section 8.15 SHAREHOLDERS' SUPPORT OF THE MERGER. Each of the
Shareholders, severally and not jointly, hereby agrees that, during the term
of this Agreement, except as disclosed on SCHEDULE I hereto:
(a) such Shareholder will not, except as contemplated in Section
8.19, directly or indirectly, offer, issue, sell, pledge, transfer, grant,
encumber or otherwise dispose of, or authorize the offer, issuance, sale,
pledge, transfer, grant, encumbrance or other disposition of, any voting
securities of the Target that such Shareholder owns or has the right to vote
or consent with respect to (or any voting or consent rights associated with
such securities), including any securities held pursuant to the ESOP with
respect to which such Shareholder has any pass-through voting rights, to any
Person other than Acquiror or its designee, or enter into any voting
agreement, other contract, agreement, commitment or understanding or
arrangement with respect to any of the foregoing; and
(b) such Shareholder will not, and will cause its Representatives
to not, directly or indirectly, (i) initiate, solicit, seek, encourage or
otherwise facilitate (including by way of furnishing information or
assistance) any inquiry, communication or proposal that constitutes, or could
reasonably be expected to result in, an Acquisition Proposal, (ii) enter into
any agreement contemplating or otherwise relating to an Acquisition Proposal,
(iii) provide any information or data to, or engage in, maintain or continue
discussions or negotiations with, any Person in furtherance of any such
inquiry, communication or proposal or otherwise relating to an Acquisition
Proposal or for the purpose of obtaining an Acquisition Proposal, (iv)
accept, agree to, endorse or recommend any Acquisition Proposal, or (v)
release any third party from any standstill or confidentiality agreement, or
waive or amend any provision thereof, to which it is a party; provided, that
no Person shall be deemed to have provided any information or data to, or
engaged in, maintained or continued discussions or negotiations with, any
other Person in violation of this Section if such Person (without identifying
Acquiror) advises the other Person that they are precluded from taking any
action that would constitute a violation of this Section, and nothing shall
prohibit any Shareholder who is a
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member of the Board of Directors of Target, in his capacity as a member of
the Board of Directors of Target, from making any disclosure to the
shareholders of Target if such disclosure is required by applicable Law. Each
of the Shareholders hereby agrees that it shall notify Acquiror orally
(within one Business Day) and in writing (as promptly as practicable) of all
relevant details relating to, and all material aspects of (including the
identity of the Person making such inquiry, communication or proposal), all
inquiries, communications and proposals which it or any of its
Representatives may receive relating to any of such matters and, if such
inquiry, communication or proposal is in written form or electronically or
magnetically stored, shall deliver to Acquiror a copy of such inquiry,
communication or proposal as promptly as practicable. Each of the
Shareholders has terminated, and has caused each of its Representatives to
terminate, any existing initiation, solicitation, encouragement,
facilitation, communication, discussion or negotiation with any Person
conducted heretofore by such Shareholder or its Representatives relating to
any Acquisition Proposal. Each of the Shareholders shall promptly notify its
Representatives of the obligations undertaken in this Section and any
violation of the restrictions set forth in the two immediately preceding
sentences by any such Representative, whether or not acting on behalf of such
Shareholder, shall be deemed to be a breach of this Section by such
Shareholder.
Section 8.16 SENIOR CREDIT FACILITY. At or prior to the Closing,
the Target shall deliver to Acquiror evidence of the release of all Liens on
any assets of Target or any Target Subsidiary granted in connection with, and
executed receipts, payoff letters or similar documents executed by the
Target's lenders under, the Senior Credit Facility, each in form and
substance reasonably satisfactory to Acquiror and Acquiror's lenders.
Section 8.17 SHAREHOLDER LOANS. At or prior to the Closing, each
Shareholder shall repay all loans or advances made by the Target or any
Target Subsidiary to such Shareholder, including those described in Section
4.28 of the Target Disclosure Schedule. At or prior to the Closing, Frankel
shall repay all loans or advances made by the Target or any Target Subsidiary
to Abraham Frankel, including those described in Section 4.28 of the Target
Disclosure Schedule. The Target shall use its reasonable best efforts to
cause all loans or advances made by the Target or Target Subsidiary to any of
the Target's shareholders to be paid to the Target or such Target Subsidiary
in full at or prior to Closing. If all or any portion of any loan or advance
made by Target or a Target Subsidiary to any of Mary Manwarring, Melvin
Pickens or Leroy Spencer is not repaid within thirty (30) days after the
Closing Date, Frankel shall, within fifteen (15) days after Acquiror delivers
to Frankel written notice that all or any portion of such loan or advance
remains unpaid, at Frankel's election, either (a) purchase from the Target or
such Target Subsidiary all of Target's or such Target Subsidiary's rights
with respect to such loan or advance, in exchange for a purchase price equal
to the then unpaid amount of any such loan or advance, together with all
accrued and unpaid interest thereon, which purchase price shall be paid by
wire transfer of immediately available funds to an account designated by
Acquiror in such notice or (b) pay to Target or such Target Subsidiary the
then unpaid amount of any such loan or advance, together with all accrued and
unpaid interest thereon, which shall be paid by wire transfer of immediately
available funds to an account designated by Acquiror in such notice.
Section 8.18 NON-COMPETITION AGREEMENTS. Simultaneously with the
execution and delivery of this Agreement, Acquiror, on the one hand, and
Frankel and Honu Frankel, on the other
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hand, will execute, enter into and deliver a Non-Competition Agreement in the
form of EXHIBIT D hereto.
Section 8.19 MATTERS RELATING TO SHAREHOLDER OPTION AGREEMENT. In order
to provide Vierling with long-term incentives to remain employed by Target,
each of the Shareholders other than Vierling and each of the Additional
Frankel Shareholders (collectively the "Frankel Shareholders") entered into
the Shareholder Option Agreement with Vierling, pursuant to which, subject to
the terms and conditions set forth therein, each of the Frankel Shareholders
has granted to Vierling an option (the "SHAREHOLDER OPTION") to purchase up
to all shares of Common Stock held by such Frankel Shareholder, other than
shares held by the ESOP for the benefit of such Frankel Shareholder. The
Shareholder Option Agreement provides that Vierling may assign the
Shareholder Option to the Target and that, with respect to all shares of
Common Stock acquired by the Target upon exercise of the Shareholder Option,
Vierling will have the option (the "VIERLING OPTION") to purchase such shares
from the Target at any time during the five-year period commencing on the
date the Target acquires the shares of Common Stock upon exercise of the
Shareholder Option, at an exercise price per share equal to the purchase
price paid by the Target to acquire the shares which are subject to
Shareholder Option. The Target, Vierling and each of the Frankel Shareholders
hereby covenant and agree with each other and with Acquiror and Acquiror Sub
that, upon the terms and subject to the conditions set forth in this
Agreement, and notwithstanding any other provision set forth in the
Shareholder Option Agreement:
(a) Vierling hereby assigns the Shareholder Option to the Target,
which assignment shall be effective at the Closing and prior to the Effective
Time, and shall occur automatically and without any further action on the
part of the Target, any Shareholder, Acquiror or Acquiror Sub;
(b) The Target shall have the right to exercise the Shareholder
Option at the Closing, and each of the Frankel Shareholders hereby
acknowledges and agrees with the Target, Acquiror and Acquiror Sub that (i)
the exercise of the Shareholder Option by the Target shall occur at the
Closing prior to the Effective Time and immediately following the assignment
of the Shareholder Option to the Target as described in Section 8.19(a) and
(ii) the exercise price per share of Common Stock subject to the Shareholder
Option (the "Shareholder Option Exercise Price") which shall be payable by
the Target upon exercise of the Shareholder Option is set forth on SCHEDULE I
hereto, which exercise price shall not be amended or otherwise modified. The
Target, Vierling, each Frankel Shareholder, Acquiror and Acquiror Sub hereby
covenant and agree that, upon receipt by the Target of certificates
representing the shares of Common Stock subject to the Shareholder Option,
together with stock powers transferring such shares, duly executed in blank
by the appropriate Frankel Shareholder, the exercise price payable by the
Target to each Frankel Shareholder pursuant to this Section 8.19(b) shall,
subject to Section 2.07, be paid at the Closing immediately following the
Effective Time by wire transfer of immediately available funds to an account
designated in writing by such Frankel Shareholder no later than two (2)
Business Days prior to the Closing Date. Each Frankel Shareholder, severally
and not jointly, hereby covenants and agrees with Acquiror and the Target
that, upon delivery to the Target of certificates representing the shares of
Common Stock held by such Frankel Shareholder which are subject to the
Shareholder Option, together with stock powers transferring such shares, duly
executed in blank by the
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appropriate Frankel Shareholder, the Target shall be vested with good title
to such shares, free and clear of all Liens.
(c) The Target, Vierling, each Frankel Shareholder, Acquiror and
Acquiror Sub hereby covenant and agree that the exercise price per share of
Common Stock subject to the Vierling Option shall be equal to the per share
exercise price for each share of Common Stock subject to the Shareholder
Option, as described in SCHEDULE I hereto, which exercise price shall not be
amended or otherwise modified.
(d) Acquiror acknowledges that, immediately following the exercise
by the Target of the Shareholder Option as set forth in Section 8.19(b),
Vierling will hold a Common Stock Equivalent as described in this Section.
Section 8.20 TERMINATION AGREEMENT. The Target, each of the Shareholders
and each of the Additional Frankel Shareholders hereby covenant and agree
with Acquiror and Acquiror Sub that, at the Closing, the Target and each of
the Shareholders and the Additional Frankel Shareholders shall execute and
deliver, enter into and perform the Release and Termination Agreement in the
form of EXHIBIT E hereto (the "Termination Agreement").
Section 8.21 EFFECTIVE TIME SHAREHOLDER LIST. At the Closing, the Target
shall deliver to Acquiror a true, complete and accurate list of all holders
of record of any Equity Securities of the Target outstanding immediately
prior to the Effective Time, which list shall accurately set forth the number
of shares of each class of Equity Securities held by each such record holder
and, with respect to any Equity Security that is a Common Stock Equivalent,
the exercise price per share of such Common Stock Equivalent.
Section 8.22 EMPLOYMENT AGREEMENT AMENDMENT. At or prior to the Closing,
the Target and Vierling will execute, enter into and deliver an amendment to
the Vierling Employment Agreement (the "Employment Agreement Amendment"),
pursuant to which the Vierling Employment Agreement will be amended to
contain the terms which are described in EXHIBIT F hereto, which Employment
Agreement Amendment shall be in a form acceptable to Acquiror.
ARTICLE 9
CONDITIONS TO THE MERGER
Section 9.01 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The
obligations of the Target, Acquiror and Acquiror Sub to consummate the Merger
are subject to the satisfaction of the following conditions:
(a) the Required Target Vote shall have been obtained;
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(b) no Governmental Authority shall have enacted, issued,
promulgated, enforced or entered any Law which is in effect and which has the
effect of making the Merger illegal or otherwise preventing or prohibiting
consummation of the Merger; and
(c) any applicable waiting period under the HSR Act relating to
the Merger shall have expired or been terminated, and no restrictive order or
other requirements shall have been placed on Acquiror, the Target or the
Surviving Corporation in connection therewith.
Section 9.02 CONDITIONS TO THE OBLIGATIONS OF ACQUIROR AND ACQUIROR SUB.
The obligations of Acquiror and Acquiror Sub to consummate the Merger are
subject to the satisfaction of the further conditions that:
(a) the Target shall have performed or complied with all
agreements and covenants required to be performed or complied with by it
under this Agreement at or prior to the Effective Time which are qualified as
to materiality (including by reference to Material Adverse Effect or any
similar qualification) and shall have performed and complied in all material
respects with all agreements and covenants required to be performed or
complied with by it under this Agreement at or prior to the Effective Time
which are not so qualified as to materiality, and each of the representations
and warranties of the Target contained in this Agreement which are qualified
as to materiality (including by reference to Material Adverse Effect or any
similar qualification) shall be true and accurate at the Effective Time and
each of the representations and warranties of the Target contained in this
Agreement which are not so qualified as to materiality shall be true and
accurate at the Effective Time in all material respects, each as though made
at and as of the Effective Time, except that those representations and
warranties which address matters only as of a particular date need only be
true and accurate as of such date, and Acquiror shall have received a
certificate of an executive officer of the Target, dated the date of the
Effective Time, to the foregoing effect;
(b) each Shareholder shall have performed or complied with all
agreements and covenants required to be performed or complied with by such
Shareholder under this Agreement at or prior to the Effective Time which are
qualified as to materiality (including by reference to Material Adverse
Effect or any similar qualification) and shall have performed and complied in
all material respects with all agreements and covenants required to be
performed or complied with by it under this Agreement at or prior to the
Effective Time which are not so qualified as to materiality, and each of the
representations and warranties of such Shareholder contained in this
Agreement which are qualified as to materiality (including by reference to
Material Adverse Effect or any similar qualification) shall be true and
accurate as of the Effective Time and each of the representations and
warranties of such Shareholder contained in this Agreement which are not so
qualified as to materiality shall be true and accurate as of the Effective
Time in all material respects, each as though made at and as of the Effective
Time, except that those representations and warranties which address matters
only as of a particular date need only be true and accurate as of such date,
and Acquiror shall have received a certificate duly executed on behalf of
each Shareholder, dated the date of the Effective Time, to the foregoing
effect;
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(c) the beneficial and record holders of Common Stock
Equivalents relating to all shares of Common Stock that may be issued upon
the exercise of all Common Stock Equivalents (whether or not vested) shall
have executed and delivered Option Release Agreements to the Target;
(d) from the date of this Agreement, no Governmental Authority
shall have enacted, issued, promulgated, enforced or entered into any Law
which is in effect and which has the effect of imposing Material limitations
on the ability of Acquiror or any Subsidiary of Acquiror to continue to
conduct, own or operate, as heretofore conducted, owned or operated, all or
any Material portion of the businesses or assets of Acquiror or such
Subsidiary of Acquiror or the businesses or assets of the Target or any
Target Subsidiary;
(e) the consents, approvals, authorizations, permits and estoppel
certificates disclosed in Sections 4.05(a) and 4.05(c) of the Target's
Disclosure Schedule shall have been obtained;
(f) not more than 5% of the outstanding shares of Common Stock
(excluding Cancelable Shares) shall be Dissenting Shares;
(g) all loans or advances made by the Target or any Target
Subsidiary to any of the Target's shareholders shall have been paid to the
Target or such Target Subsidiary in full at or prior to Closing;
(h) Acquiror shall have received a copy of the Termination Agreement,
fully executed by the Target, each of the Shareholders and each of the
Additional Frankel Shareholders;
(i) Acquiror shall have received the Effective Time Shareholder List;
and
(j) Acquiror shall have received certificates representing the
shares of Common Stock subject to the Shareholder Option, together with stock
powers transferring such shares, duly executed in blank by each appropriate
Frankel Shareholder, together with evidence reasonably satisfactory to
Acquiror that any Liens on such shares have been released or terminated.
Section 9.03 CONDITIONS TO THE OBLIGATIONS OF THE TARGET. The obligations
of the Target to consummate the Merger are subject to the satisfaction of the
further conditions that Acquiror and Acquiror Sub shall have performed or
complied with all agreements and covenants required to be performed or complied
with by them under this Agreement at or prior to the Effective Time which are
qualified as to materiality (including by reference to Material Adverse Effect
or any similar qualification) and shall have performed and complied in all
material respects with all agreements and covenants required to be performed or
complied with by them under this Agreement at or prior to the Effective Time
which are not so qualified as to materiality, and each of the representations
and warranties of Acquiror or Acquiror Sub contained in this Agreement which are
qualified as to materiality (including by reference to Material Adverse Effect
or any similar qualification) shall be true and accurate as of the Effective
Time and each of the representations and warranties of Acquiror or Acquiror Sub
contained in this Agreement which are not so qualified as to materiality shall
be true and accurate as of the Effective Time in all material respects, each as
though made at and as of the
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Effective Time, except that those representations and warranties which
address matters only as of a particular date need only be true and accurate
as of such date, and the Target shall have received a certificate of an
executive officer of Acquiror, dated the date of the Effective Time, to the
foregoing effect.
ARTICLE 10
TERMINATION, AMENDMENT AND WAIVER
Section 10.01 TERMINATION. This Agreement may be terminated and the
Merger and the other Transactions may be abandoned at any time prior to the
Effective Time, notwithstanding any requisite approval of this Agreement and
the Transactions, as follows:
(a) by mutual written consent duly authorized by the boards of
directors of each of Acquiror, Acquiror Sub and the Target;
(b) by either Acquiror or the Target if either (i) the Effective
Time shall not have occurred on or before February 1, 1999; PROVIDED,
HOWEVER, that the right to terminate this Agreement under this Section
10.01(b) shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date; or (ii) there
shall be any Law which is final and nonappealable and has the effect of making
the Merger illegal or otherwise preventing or prohibiting the consummation of
the Merger, except if the party relying on such Law has not complied with its
obligations under Section 8.03(a);
(c) by Acquiror if the Required Target Vote shall not be obtained at
the Target Shareholder Meeting;
(d) by Acquiror, upon a breach of any representation, warranty,
covenant or agreement on the part of the Target set forth in this Agreement, or
if any such representation or warranty of the Target shall have become untrue,
in either case such that the conditions set forth in Section 9.02(a) would
not be satisfied (a "TERMINATING TARGET BREACH"), and which Terminating Target
Breach is not cured by the Target within ten (10) calendar days following
delivery to the Target by Acquiror of notice of such breach;
(e) by Acquiror, upon a breach of any representation, warranty,
covenant or agreement on the part of any Shareholder set forth in this
Agreement, or if any such representation or warranty of such Shareholder
shall become untrue, in either case such that the conditions set forth in
Section 9.02(b) would not be satisfied (a "TERMINATING SHAREHOLDER BREACH"),
and which Terminating Shareholder Breach is not cured by such Shareholder
within ten (10) calendar days following delivery to such Shareholder by
Acquiror of notice of such breach;
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(f) by Acquiror, upon a breach of any representation, warranty,
covenant or agreement set forth in Section 4.03, Section 4.13, Sections
7.01(a), (b), (c), (d) or (i) or Sections 8.05 or 8.15, or upon any such
representation or warranty becoming untrue; or
(g) by the Target, upon a breach of any representation, warranty,
covenant or agreement on the part of Acquiror set forth in this Agreement, or
if any such representation or warranty of Acquiror shall have become untrue,
in either case such that the conditions set forth in Section 9.03 would not
be satisfied (a "TERMINATING ACQUIROR BREACH"), and which Terminating
Acquiror Breach is not cured by Acquiror within ten (10) calendar days
following delivery to Acquiror by the Target of notice of such breach.
Section 10.02 EFFECT OF TERMINATION. If this Agreement is terminated and
the Merger is abandoned pursuant to Section 10.01, all obligations of the
parties hereto shall terminate except the obligations of the parties pursuant
to this Section, Section 10.03, Section 10.04, and Section 10.05 and Article
13 and pursuant to the Confidentiality Agreement. No termination of this
Agreement pursuant to Sections 10.01(d), 10.01(e), 10.01(f) or 10.01(g) shall
prejudice the ability of a non-breaching party from seeking damages from any
other party for any breach of this Agreement, including attorneys' fees and
the right to pursue any remedy at law or in equity, and nothing contained
herein (including this Section) shall relieve any party from liability for
any breach of this Agreement.
Section 10.03 EXPENSES. (a) If the Closing occurs, all costs and
expenses incurred in connection with this Agreement and the Transactions
shall be paid by the party incurring such expenses, whether or not any
Transaction is consummated, except that (i) the fees payable to the Escrow
Agent shall be borne by Acquiror, and (ii) the broker, finder or financial
advisory fees payable to any Person retained by Acquiror or Acquiror Sub, on
the one hand, or the Target or any shareholder of the Target, on the other,
shall be borne by Acquiror and the Target and the Target's shareholders,
respectively.
(b) If the Closing does not occur, all costs and expenses incurred
in connection with this Agreement and the transactions shall be paid by the
party incurring such expenses; provided, that if this Agreement is terminated
prior to the Closing and:
(i) such termination is other than pursuant to Sections
10.01(a), 10.01(b), or 10.01(g), the Target shall pay to Acquiror an
amount equal to the Acquiror Expenses. As used herein, "ACQUIROR
EXPENSES" means all fees, costs and expenses in an amount which
shall not exceed $600,000 actually incurred by Acquiror or Acquiror
Sub or on their respective behalf in connection with the Transactions
prior to the termination of this Agreement (including all fees and
expenses of counsel, financial advisors, banks or other entities
providing financing to Acquiror (including financing, commitment
and other fees payable thereto), accountants, environmental and
other experts and consultants to Acquiror and its Affiliates) and in
connection with the negotiation, preparation, execution, performance and
termination of this Agreement, the structuring of the Transactions, any
agreements relating thereto and any filings to be made in connection
therewith; or
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(ii) such termination is pursuant to Section 10.01(g),
Acquiror shall pay to Target all Target Transaction Costs in an amount
which shall not exceed $600,000.
Section 10.04 AMENDMENT. This Agreement may be amended by the parties
hereto by action taken by or on behalf of the respective Boards of Directors
of Acquiror and the Target at any time prior to the Effective Time; PROVIDED,
HOWEVER, that, after the approval of this Agreement and the Transactions by
the shareholders of the Target, no amendment may be made which would reduce
the amount or change the type of consideration into which each share of
Common Stock shall be converted upon consummation of the Merger. This
Agreement may not be amended except by an instrument in writing signed by the
Target and Acquiror.
Section 10.05 WAIVER. At any time prior to the Effective Time, Acquiror
may (a) extend the time for the performance of any obligation hereunder of
the Target or any Shareholder, (b) waive any inaccuracy in the
representations and warranties of the Target or any Shareholder contained
herein or in any document delivered pursuant hereto, and (c) waive compliance
by the Target or any Shareholder with any agreement or condition contained
herein. At any time prior to the Effective Time, the Target may (a) extend
the time for performance of any obligation hereunder of Acquiror or Acquiror
Sub, (b) waive any inaccuracy in the representations and warranties of
Acquiror or Acquiror Sub contained herein or in any document delivered
pursuant hereto, and (c) waive compliance by Acquiror or Acquiror Sub with
any agreement or condition contained herein. Any such extension or waiver
shall be valid only if set forth in an instrument in writing signed by the
party or parties to be bound thereby.
ARTICLE 11
INDEMNIFICATION
11.01 INDEMNIFICATION OF ACQUIROR INDEMNIFIED PARTIES.
(a) By virtue of the approval of this Agreement and the Merger by
the Target's Board of Directors and approval of this Agreement by the
Target's shareholders pursuant to the Target's Articles of Incorporation and
Bylaws and the applicable provisions of the TBCA, each of the Target's
shareholders shall be deemed to have agreed that, from and after the
Effective Time and subject to the provisions of this Article (including
Section 11.05), each of the Target's shareholders shall, jointly and
severally, indemnify and hold harmless the Acquiror Indemnified Parties from
and against any and all damages, losses, claims, liabilities, assessments,
judgments, taxes, demands, charges, suits, penalties, costs and expenses
(including court costs and reasonable attorneys' fees and expenses incurred
in investigating, preparing for and participating in any litigation, action
or proceeding, including any litigation, action or proceeding brought to
enforce the terms and provisions of this Article) that arise out of (a) any
failure of any of the representations or warranties made by the Target under
this Agreement to be true and accurate at the time as of which they are made;
or (b) any breach or default by the Target of any covenant or agreement made
by the Target under this Agreement and which is required to be performed by
the Target at or prior to the Effective Time ("TARGET INDEMNIFIED COSTS").
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(b) From and after the Effective time and subject to the
provisions of this Article (including Section 11.05), each Shareholder,
severally and not jointly, agrees to indemnify and hold harmless the Acquiror
Indemnified Parties from and against any and all damages, losses, claims,
liabilities, assessments, judgments, taxes, demands, charges, suits,
penalties, costs and expenses (including court costs and reasonable
attorneys' fees and expenses incurred in investigating, preparing for and
participating in any litigation, action or proceeding, including any
litigation, action or proceeding brought to enforce the terms and provisions
of this Article) that arise out of (a) any failure of any of the
representations or warranties made by such Shareholder under this Agreement
to be true and accurate at the time as of which they are made; or (b) any
breach or default by such Shareholder of any covenant or agreement made by
such Shareholder under this Agreement ("SHAREHOLDER INDEMNIFIED COSTS").
11.02 INDEMNIFICATION OF SELLER INDEMNIFIED PARTIES. From and after the
Effective time and subject to the provisions of this Article (including
Section 11.05), each of Acquiror and Acquiror Sub hereby agree, jointly and
severally, to indemnify and hold harmless the Seller Indemnified Parties from
and against any and all damages, losses, claims, liabilities, assessments,
judgments, taxes, demands, charges, suits, penalties, costs and expenses
(including court costs and reasonable attorneys' fees and expenses incurred
in investigating, preparing for and participating in any litigation, action
or proceeding, including any litigation, action or proceeding brought to
enforce the terms and provisions of this Article) that arise out of (a) any
failure of any of the representations or warranties made by Acquiror or
Acquiror Sub under this Agreement to be true and accurate at the time as of
which they are made; or (b) any breach or default by Acquiror or Acquiror Sub
of any of their respective covenants or agreements under this Agreement
("ACQUIROR INDEMNIFIED COSTS").
11.03 DEFENSE OF THIRD-PARTY CLAIMS. An Indemnified Party shall give
prompt written notice to any entity or Person who is obligated to provide
indemnification under Section 11.01 or 11.02 (an "INDEMNIFYING PARTY") of the
commencement or assertion of any action, proceeding, demand or claim by a
third party (collectively, a "THIRD PARTY ACTION") in respect of which such
Indemnified Party shall seek indemnification hereunder ; provided, however,
that an Acquiror Indemnified Party shall be deemed to have given such notice
to each of the Target's shareholders if such Acquiror Indemnified Party gives
such notice to the Seller Representative as set forth in Section 13.02. Any
failure so to notify an Indemnifying Party shall not relieve such
Indemnifying Party from any liability that it, he, or she may have to such
Indemnified Party under this Article unless, and only to the extent that, the
failure to give such notice materially and adversely prejudices such
Indemnifying Party. The Indemnifying Party shall have the right to assume
control of the defense of, settle, or otherwise dispose of such Third Party
Action on such terms as it deems appropriate; provided, however, that:
(a) The Indemnified Party shall be entitled, at its own expense,
to participate in the defense of such Third Party Action (provided, however,
that the Indemnifying Parties shall pay the attorneys' fees of one law firm
retained by the Indemnified Party (plus appropriate local counsel) if (i) the
employment of separate counsel shall have been authorized in writing by any
such Indemnifying Party in connection with the defense of such Third Party
Action, (ii) the Indemnifying Party shall not have employed counsel
reasonably satisfactory to the Indemnified Party to have charge of such Third
Party Action or (iii) the Indemnified Party's counsel shall have advised the
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Indemnified Party in writing, with a copy delivered to the Indemnifying
Party, that there is, under applicable standards of professional conduct, a
material conflict of interest between the Indemnifying Party and the
Indemnified Party);
(b) The Indemnifying Party shall obtain the prior written approval
of the Indemnified Party before entering into or making any settlement,
compromise, admission, or acknowledgment of the validity of such Third Party
Action or any liability in respect thereof if such settlement, compromise,
admission, or acknowledgment (i) would impose injunctive or other equitable
relief against the Indemnified Party, or (ii) could, in the reasonable
opinion of the Indemnified Party, have a Material Adverse Effect on such
Indemnified Party;
(c) No Indemnifying Party shall consent to the entry of any judgment
or enter into any settlement that does not include as an unconditional term
thereof the giving by each claimant or plaintiff to each Indemnified Party of
a release from all liability in respect of such Third Party Action; and
(d) At the Indemnified Party's option, the Indemnifying Party
shall not be entitled to control (but shall be entitled to participate at its
own expense in the defense of), and the Indemnified Party shall be entitled
to have sole control over, the defense or settlement, compromise, admission,
or acknowledgment of any Third Party Action (i) as to which the Indemnifying
Party falls to assume the defense within a reasonable length of time, (ii) to
the extent the Third Party Action seeks an order, injunction, or other
equitable relief against the Indemnified Party which, if successful, would
reasonably be expected to result in a Material Adverse Effect on the
Indemnified Party, or (iii) if the Indemnifying Party shall not have employed
counsel reasonably satisfactory to the Indemnified Party to have charge of
such Third Party Action; PROVIDED, HOWEVER, that the Indemnified Party shall
not, without the prior written consent of the Indemnifying Party, enter into
or make any settlement, compromise, admission, or acknowledgment of the
validity of such Third Party Action or any liability in respect thereof if
such settlement, compromise, admission or acknowledgment (A) would impose
injunctive or other equitable relief against the Indemnifying Party, (B)
would give rise to liability on the part of any Indemnifying Party, or (C)
could, in the reasonable opinion of the Indemnifying Party, have a Material
adverse effect on its business.
The parties hereto shall extend reasonable cooperation in connection
with the defense of any Third Party Action pursuant to this Article 11 and,
in connection therewith, shall furnish such records, information, and
testimony and attend such conferences, discovery proceedings, hearings,
trials, and appeals as may be reasonably requested.
11.04 DIRECT CLAIMS. In any case in which an Indemnified Party seeks
indemnification hereunder which is not subject to Section 11.03 because no
Third Party Action is involved (a "direct action"), the Indemnified Party
shall notify the Indemnifying Party in writing of any Indemnified Costs which
such Indemnified Party claims are subject to indemnification under the terms
hereof. Subject to Section 11.05(c) and 11.05(f), failure of the Indemnified
Party to exercise promptness in such notification shall not amount to a
waiver of such claim unless and only to the extent that the resulting delay
materially and adversely prejudices the position of the Indemnifying Party
with respect to such claim.
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11.05 LIMITATIONS. The following provisions shall limit the parties'
indemnification obligations hereunder:
(a) MINIMUM LOSS. Subject to Section 11.06, no Indemnifying Party
shall be required to indemnify an Indemnified Party for Indemnified Costs
unless and until the aggregate amount of all Indemnified Costs for which all
Acquiror Indemnified Parties (taken together), on the one hand, or Seller
Indemnified Parties (taken together), on the other hand, as applicable, are
otherwise entitled to indemnification pursuant to this Article exceeds
$200,000 (the "MINIMUM LOSS"). After the Minimum Loss is exceeded, such
Indemnified Parties shall be entitled to be paid the entire amount of any
Indemnified Costs in excess of (but not including) the Minimum Loss, subject
to the limitations on recovery and recourse set forth in this Section 11.05.
(b) DE MINIMIS LOSSES. If (i) the Minimum Loss has been exceeded
by the Acquiror Indemnified Parties (taken together), on the one hand, or the
Seller Indemnified Parties (taken together), on the other hand, or (ii) the
Minimum Loss is not applicable pursuant to Section 11.06, then any damages,
losses, claims, liabilities, assessments,judgments, taxes, demands, charges,
suits, penalties, costs and expenses (including court costs and reasonable
attorneys' fees and expenses incurred in investigating and preparing for any
litigation, action or proceeding, including any litigation, action or
proceeding brought to enforce the terms and provisions of this Article) which
in the aggregate do not exceed $1,000 with respect to any single Third Party
Action or Direct Action ("De Minimis Losses"), shall not be deemed to be
Indemnified Costs for any purposes under this Agreement other than
determining whether the Minimum Loss has been exceeded.
(c) LIMITATION AS TO TIME. No Indemnifying Party shall be liable
for any Indemnified Costs pursuant to this Article unless a written claim for
indemnification in accordance with Section 11.03 or 11.04 is given by the
Indemnified Party to the Indemnifying Party with respect thereto on or before
5:00 p.m., Dallas, Texas time on the first anniversary of the Closing Date
(the "EXPIRATION DATE"), except that this time limitation shall not apply to
(i) Title Claims, (ii) claims based upon a breach of the representations and
warranties made in Section 4.03, (iii) claims based upon a breach of the
covenants and agreements set forth in Section 8.21, or (iv) claims
contemplated in Section 13.12.
(d) LIABILITY CAP. Without limiting any of the foregoing
provisions of this Section 11.05, the parties hereby agree that (i) the
maximum liability of any shareholder of the Target (other than the
Shareholders) under this Article for Target Indemnified Costs shall in no
event exceed such shareholder's Maximum Shareholder Escrow Amount and (ii)
the maximum aggregate liability of the shareholders of Target (including the
Shareholders) under this Article for Target Indemnified Costs shall in no
event exceed $5,400,000, except that the limitation set forth in this clause
(ii) shall not apply to (A) claims based upon a breach of the representations
and warranties made in Section 4.03, (B) claims based upon a breach of the
covenants and agreements set forth in Section 8.21, or (C) claims
contemplated in Section 13.12.
(e) RECOURSE AGAINST ESCROWED FUNDS. In determining whether an
Acquiror Indemnified Party is entitled to any amounts from a Shareholder or
other shareholder of Target with respect to Target Indemnified Costs or
Shareholder Indemnified Costs, Section 11.05(a) and Section
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11.05(b) shall apply. In the event of any claim by an Acquiror Indemnified
Party against a Shareholder for Shareholder Indemnified Costs, the Acquiror
Indemnified Party shall seek payment first out of the amount held by the
Escrow Agent pursuant to the Escrow Agreement from time to time in an amount
not to exceed such Shareholder's Maximum Shareholder Escrow Amount and, if
such Shareholder's Maximum Shareholder Escrow Amount has been reduced to zero
pursuant to this Section, the Acquiror Indemnified Party shall then be
entitled, subject to the terms and conditions of this Agreement, to seek
payment directly from such Shareholder for all amounts remaining due to the
Acquiror Indemnified Party from such Shareholder with respect to such claim
for Shareholder Indemnified Costs. In no event shall an Acquiror Indemnified
Party be entitled to be paid out of the Escrow Amount in respect of claims
for Target Indemnified Costs against any shareholder of the Target (other
than the Shareholders, the liability of whom shall still be limited as
described in Section 11.05(d)) an amount in excess of such shareholder's
Maximum Shareholder Escrow Amount. In the event of any claim by an Acquiror
Indemnified Party against a Shareholder or other shareholder of the Target
for Target Indemnified Costs, each shareholder's Maximum Shareholder Escrow
Amount shall be reduced (but not below zero) by such shareholder's PRO RATA
portion (based upon the Initial Maximum Shareholder Escrow Amount of such
shareholder) of the amount paid out of the Escrow Amount in respect of such
claim, and, to the extent that the portion of such claim for which such
shareholder is liable exceeds such shareholder's Maximum Shareholder Escrow
Amount as of the time of payment of such claim out of the Escrow Amount, then
the Acquiror Indemnified Party shall be entitled to seek the remaining amount
of any Target Indemnified Costs from such other shareholders of Target whose
respective Maximum Shareholder Escrow Amounts exceed zero and from the
Shareholders, PRO RATA (based upon the Initial Maximum Shareholder Escrow
Amounts of such Shareholders), until such amounts have been paid in full or
each shareholder's Maximum Shareholder Escrow Amount has been reduced to
zero, after which the Acquiror Indemnified Party shall be entitled to seek
payment from any Shareholder directly for such excess, subject to the
limitation set forth in Section 11.05(d).
(f) MATERIALITY. For purposes of determining (i) whether an
Indemnifying Party shall be required to indemnify an Indemnified Party under
this Article, (ii) the aggregate amount of Minimum Loss suffered by an
Indemnified Party, or (iii) the aggregate amount of Indemnified Costs
suffered by an Indemnified Party, each representation and warranty (whether
made as of the date of this Agreement or made on and as of the Closing Date)
contained in this Agreement for which indemnification is sought hereunder
shall be read (including for purposes of determining whether a breach of such
representation or warranty has occurred) without regard to, and as if such
representation or warranty did not contain, materiality qualifications that
may be contained therein (including Material Adverse Effect).
(g) SOLE AND EXCLUSIVE REMEDY. Acquiror, Acquiror Sub, the
Target, the Surviving Corporation and the Shareholders each acknowledge and
agree that, after the Closing, notwithstanding any other provision of this
Agreement to the contrary, such party's sole and exclusive remedy with
respect to Indemnified Costs shall be in accordance with, and limited by, the
provisions set forth in this Article.
Section 11.06 MATTERS NOT SUBJECT TO MINIMUM LOSS. Notwithstanding any of
the provisions set forth in Section 11.05, the parties hereby agree that Section
11.05(a) shall not limit
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in any way the obligations of (a) any Shareholder to indemnify the Acquiror
Indemnified Parties for Indemnified Costs arising out of a breach by such
Shareholder of his agreement set forth in Section 8.17, or (b) the Target's
shareholders (including the Shareholders) to indemnify the Acquiror
Indemnified Parties for Indemnified Costs arising out of (i) a breach by the
Target of its agreement set forth in Section 2.06 relating to the accuracy of
the Reductions Notice, (ii) claims based upon a breach of the representations
and warranties made in Section 4.03, or (iii) claims based upon a breach of
the covenants and agreements set forth in Section 8.21.
ARTICLE l2
THE SELLER REPRESENTATIVE
By virtue of the approval of this Agreement and the Merger by the
Target's Board of Directors and approval of this Agreement by the Target's
shareholders pursuant to the Target's Articles of Incorporation and Bylaws
and the applicable provisions of the TBCA, each of the Target's shareholders
shall be deemed to have agreed that
12.01 AUTHORIZATION OF THE SELLER REPRESENTATIVE. Edward D. Vierling
(the "SELLER REPRESENTATIVE") (and each successor appointed in accordance
with Section 12.03), hereby is appointed, authorized and empowered to act, on
behalf of the Target's shareholders, in connection with, and to facilitate
the consummation of the transactions contemplated by, this Agreement, and in
connection with the activities to be performed on behalf of the Target's
shareholders under this Agreement and the Escrow Agreement, for the purposes
and with the powers and authority hereinafter set forth in this Article 12
and in the Escrow Agreement, which shall include the power and authority:
(a) To execute and deliver the Escrow Agreement (with such
modifications or changes therein as to which the Seller Representative, in its
reasonable discretion, shall have consented to) and to agree to such amendments
or modifications thereto as the Seller Representative, in its reasonable
discretion, may deem necessary or desirable to give effect to the matters set
forth in this Article 12;
(b) To execute and deliver such waivers and consents in connection
with this Agreement and the consummation of the transactions contemplated hereby
as the Seller Representative, in its reasonable discretion, may deem necessary
or desirable to give effect to the intentions of this Agreement;
(c) As the Seller Representative of the Target's shareholders, to
enforce and protect the rights and interests of such shareholders and to enforce
and protect the rights and interests of the Seller Representative arising out of
or under or in any manner relating to this Agreement and the Escrow Agreement
(including, but not limited to, in connection with any and all claims for
indemnification brought by any Indemnified Party under Article 11 of this
Agreement) and, in connection therewith, to (i) assert any claim or institute
any action, proceeding or investigation; (ii) investigate, defend, contest or
litigate any claim, action, proceeding or investigation initiated by
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any Indemnified Party, or any other Person, against the Target's shareholders
and/or the Escrow Amount, and receive process on behalf of any or all of the
Target's shareholders in any such claim, action, proceeding or investigation
and compromise or settle on such terms as the Seller Representative shall
determine to be appropriate, give receipts, releases and discharges on behalf
of all of the Target's shareholders with respect to any such claim, action,
proceeding or investigation; (iii) file any proofs, debts, claims and
petitions as the Seller Representative may deem advisable or necessary; (iv)
settle or compromise any claims asserted under Article 11 of this Agreement;
(v) assume, on behalf of all of the Target's shareholders, the defense of any
claim that is the basis of any claim asserted under Article 11 of this
Agreement; and (vi) file and prosecute appeals from any decision, judgment or
award rendered in any of the foregoing actions, proceedings or
investigations, it being understood that the Seller Representative shall not
have any obligation to take any such actions, and shall not have liability
for any failure to take any such action;
(d) To enforce payment from the Escrow Account on behalf of the
Target's shareholders, in the name of the Seller Representative or, if the
Seller Representative so elects, upon at least fifteen (15) days' prior
written notice to the Target's shareholders and in the absence of written
instructions to the contrary, in the names of one or more of the Target's
shareholders;
(e) To cause to be paid out of the Escrow Account the full amount
of any judgment or judgments and legal interest and costs awarded in favor of
any Acquiror Indemnified Party arising out of the indemnification provisions
set forth in Article 11 of this Agreement;
(f) To refrain from enforcing any right of the Target's
shareholders or any of them and/or of the Seller Representative arising out
of or under or in any manner relating to this Agreement or the Escrow
Agreement;
(g) To make, execute, acknowledge and deliver all such other
agreements, guarantees, orders, receipts, endorsements, notices, requests,
instructions, certificates, stock powers, letters and other writings, and, in
general, to do any and all things and to take any and all action that the
Seller Representative, in its sole and absolute discretion, may consider
necessary or proper or convenient in connection with or to carry out the
activities described in paragraphs (a) through (f) above and the transactions
contemplated by this Agreement and the Escrow Agreement.
The grant of authority provided for in this Section 12.01; (i) is coupled
with an interest and is being granted, in part, as an inducement to the Target,
Acquiror and Acquiror Sub to enter into this Agreement and shall be irrevocable
and survive the death, incompetency, bankruptcy or liquidation of any
shareholder of Target and shall be binding on any successor thereto; (ii)
subject to the provisions of Section 12.03 below, may be exercised by the Seller
Representative acting by signing as Seller Representative of each of the
Target's shareholders; and (iii) shall survive any distribution from the Escrow
Agent.
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12.02 COMPENSATION; EXCULPATION; INDEMNITY.
(a) The Seller Representative shall not be entitled to any fee,
commission or other compensation for the performance of its service
hereunder, but shall be entitled to the payment of all of its out-of-pocket
expenses incurred as Seller Representative, and in furtherance of the
foregoing, may pay or cause to be paid or reimburse itself for the payment of
any and all such expenses out of any amounts to be released from the Escrow
Account for the benefit of Target's shareholders or, upon the written consent
of Acquiror, out of the Escrow Amount.
(b) In dealing with this Agreement, the Escrow Agreement and any
instruments, agreements or documents relating thereto, and in exercising or
failing to exercise all or any of the powers conferred upon the Seller
Representative hereunder or thereunder, (i) the Seller Representative shall
not assume any, and shall incur no, responsibility whatsoever to any
shareholder of Target by reason of any error in judgment or other act or
omission performed or omitted hereunder or in connection with this Agreement
or the Escrow Agreement; and (ii) the Seller Representative shall be entitled
to rely on the advice of counsel, public accountants or other independent
experts experienced in the matter at issue, and any error in judgment or
other act or omission of the Seller Representative pursuant to such advice
shall in no event subject the Seller Representative to liability to the
Target, any of Target's shareholders, Acquiror, Acquiror Sub, the Surviving
Corporation or any other Person.
12.03 REMOVAL AND REPLACEMENT OF SELLER REPRESENTATIVE; SUCCESSOR
SELLER REPRESENTATIVE ACTION BY SELLER REPRESENTATIVE.
(a) If Seller Representative is unable or unavailable to perform
his duties hereunder, a Seller Representative, who shall be a shareholder of
Target or a representative of a non-individual shareholder of Target, or, if
after the Effective Time, shall have been a shareholder of Target or a
representative of a non-individual shareholder of Target immediately prior to
the Effective Time, shall be appointed by Target's shareholders who,
immediately prior to the Effective Time, hold a majority of the Outstanding
Shares, unless such Person is unable or unwilling to accept such appointment.
(b) Any Seller Representative, or all of them, may be removed at
any time by a written notice delivered by Target's shareholders who,
immediately prior to the Effective Time, hold a majority of the Outstanding
Shares to the Seller Representative, Target's other shareholders, Acquiror
and the Surviving Corporation. A Seller Representative so removed shall be
replaced promptly by shareholders of Target who, immediately prior to the
Effective Time, hold a majority of the Outstanding Shares by written notice
delivered to all of the Target's shareholders and Acquiror.
(c) If any successor Seller Representative is appointed as
contemplated in Sections 12.03(a) or 12.03(b), written notice of such
appointment executed by Target's shareholders who, immediately prior to the
Effective Time, hold a majority of the Outstanding Shares shall be delivered to
the Seller Representative, the Target's other shareholders and Acquiror. Any
successor
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Seller Representative shall have all of the authority and responsibilities
conferred upon or delegated to a Seller Representative pursuant to this
Article 12.
12.04 RELIANCE; LIMITATION AS TO ACQUIROR, ACQUIROR SUB AND THE
SURVIVING CORPORATION.
(a) Acquiror, Acquiror Sub, the Target and the Surviving
Corporation may conclusively and absolutely rely, without inquiry, and until
the receipt of written notice of a change of the Seller Representative under
Section 12.03 may continue to rely, without inquiry, upon the action of the
Seller Representative as the action of each of Target's shareholders in all
matters referred to in this Article 12.
(b) Each of the parties hereto hereby acknowledges and agrees
that, except as set forth in this Section 12.04 the provisions of this
Article 12 create no binding obligations between Acquiror, Acquiror Sub and
the Surviving Corporation, on the one hand, and the Target's shareholders, on
the other hand; provided, however, that if Acquiror is given written notice
of the appointment of a successor Seller Representative as contemplated in
Section 12.03, Acquiror, Acquiror Sub and the Surviving Corporation shall be
obligated to recognize, and shall only be able to so rely upon the action of,
such successor Seller Representative as the Seller Representative for all
purposes under this Agreement.
ARTICLE 13
GENERAL PROVISIONS
Section 13.01 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
Regardless of any investigation at any time made by or on behalf of any party
hereto or of any information any party may have in respect thereof, each of
the representations and warranties made by Acquiror, Acquiror Sub, the Target
or any Shareholder hereunder or pursuant hereto or in connection with the
transactions contemplated hereby shall survive the Closing, but shall
terminate at 5:00 p.m., Dallas, Texas time on the Expiration Date, other than
(i) the representations and warranties made by the Shareholders in Section
6.01, which representations and warranties shall survive until the expiration
of the applicable statute of limitations, and (ii) the representations and
warranties made by the Target in Section 4.03, which representations and
warranties shall survive indefinitely. Following the date of termination of a
representation or warranty, no claim can be brought with respect to a breach
of such representation or warranty, but no such termination shall affect any
claim for a breach of a representation or warranty that was asserted before
the date of termination. To the extent that such are performable after the
Closing, each of the covenants and agreements contained in this Agreement
shall survive the Closing for the period stated or, if no such period is
stated, such covenant or agreement shall survive indefinitely.
Section 13.02 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
facsimile, telegram or telex or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at the following
addresses (or at
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such other address for a party as shall be specified in a notice given in
accordance with this Section 13.02):
(a) if to Acquiror or Acquiror Sub:
Haggar Clothing Co.
6113 Lemmon Avenue
Dallas, Texas 75209
Attention: General Counsel
Facsimile: (214) 956-4446
with a copy to:
Vinson & Elkins L.L.P.
3700 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: J. Christopher Kirk
Facsimile: (214) 999-7897
(b) if to the Target:
Jerell, Inc.
1431 Regal Row
Dallas, Texas 75247-3672
Attention: Chief Executive Officer
Facsimile: (214) 637-4205
with a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201
Attention: Alan M. Utay
Facsimile: (214) 969-4343
(c) if to the Seller Representative:
Edward D. Vierling
c/o Jerell, Inc.
1431 Regal Row
Dallas, Texas 75247-3672
Facsimile: (214) 637-4205
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(d) If to any Shareholder, at the address set forth opposite such
Shareholder's name on Schedule I.
Section 13.03 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the Transactions is not affected in any manner materially
adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the Transactions be consummated as originally
contemplated to the fullest extent possible.
Section 13.04 ASSIGNMENT; BINDING EFFECT; BENEFIT. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other parties. Subject to
the preceding sentence, this Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and
assigns. Notwithstanding anything contained in this Agreement to the
contrary, except for the provisions of Article 3 and Section 8.06
(collectively, the "THIRD PARTY PROVISIONS"), nothing in this Agreement,
expressed or implied, is intended to confer on any Person other than the
parties hereto or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
Section 13.05 INCORPORATION OF SCHEDULES. Schedules I, II and III hereto
and the Target Disclosure Schedule and the Acquiror Disclosure Schedule
referred to herein and signed for identification by the parties hereto, are
hereby incorporated herein and made a part hereof for all purposes as if
fully set forth herein.
Section 13.06 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement
was not performed in accordance with the terms hereof and that the parties
shall be entitled to specific performance of the terms hereof, in addition to
any other remedy at law or equity.
Section 13.07 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS APPLICABLE TO
CONTRACTS EXECUTED IN AND TO BE PERFORMED WHOLLY IN THAT STATE. ALL ACTIONS
AND PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE HEARD
AND DETERMINED IN ANY FEDERAL OR STATE COURT SITTING IN THE CITY OF DALLAS,
TEXAS.
Section 13.08 HEADINGS. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect
in any way the meaning or interpretation of this Agreement.
Section 13.09 COUNTERPARTS. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate
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counterparts, each of which when executed and delivered shall be deemed to be
an original but all of which taken together shall constitute one and the same
agreement.
Section 13.10 WAIVER OF JURY TRIAL. Each of Acquiror, Acquiror Sub, the
Target and the Shareholders hereby irrevocably waives all right to trial by
jury in any action, proceeding or counterclaim (whether based on contract,
tort or otherwise) arising out of or relating to this Agreement or the
actions of Acquiror, Acquiror Sub, the Target or any Shareholder in the
negotiation, administration, performance and enforcement thereof.
Section 13.11 ENTIRE AGREEMENT. This Agreement, Schedules 1, II and III
hereto, the Target Disclosure Schedule and the Acquiror Disclosure Schedule
and the confidentiality agreement (the "CONFIDENTIALITY AGREEMENT"), dated
August 24, 1998 between the Target and Acquiror constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings among the parties with
respect thereto. No addition to or modification of any provision of this
Agreement shall be binding upon any party hereto unless made in writing and
signed by all parties hereto.
Section 13.12 NO WAIVER RELATING TO CLAIMS FOR FRAUD. The liability of
any party under Article 11 shall be in addition to, and not exclusive of; any
other liability that such party may have at law or equity based on such
party's willful breach of any covenant set forth in this Agreement or such
party's fraudulent acts or omissions. None of the provisions set forth in
this Agreement, including but not limited to the provisions set forth in
Section 11.05(a) (relating to Minimum Loss), 11.05(b) (relating to DeMinimis
Claims), 11.05(c) (relating to limitations on the time during which a claim
for indemnification may be brought), 11.05(d) (relating to a cap on
liability) or 11.05(e) (relating to recourse against escrowed funds), shall be
deemed a waiver by any party to this Agreement of any right or remedy which
such party may have at law or equity based on any other party's willful
breach of any covenant set forth in this Agreement or any party's fraudulent
acts or omissions, nor shall any such provisions limit, or be deemed to
limit, (a) the amounts of recoveries sought or awarded in any claim based on
any other party's willful breach of any covenant set forth in this Agreement
or any party's fraudulent acts or omissions, (b) the time period during which
a claim based on any other party's willful breach of any covenant set forth
in this Agreement or any party's fraudulent acts or omissions may be brought,
or (c) the recourse which any party may seek against another party with
respect to a claim based on any other party's willful breach of any covenant
set forth in this Agreement or any party's fraudulent acts or omissions;
provided, that with respect to such rights and remedies at law or equity, the
parties further acknowledge and agree that none of the provisions of this
Section 13.12 nor any reference to this Section 13.12 throughout this
Agreement, shall be deemed a waiver of any defenses which may be available in
respect of actions or claims based on any other party's willful breach of any
covenant set forth in this Agreement or any party's fraudulent acts or
omissions, including but not limited to, defenses of statutes of limitations
or limitations of damages.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, Acquiror, Acquiror Sub, the Target and the
Shareholders have caused this Agreement to be executed as of the date first
written above by theft respective officers thereunto duly authorized.
"ACQUIROR"
HAGGAR CLOTHING CO.
By /s/ Frank Bracken
---------------------------------
Name: Frank Bracken
Title: President & Chief
Operating Officer
"ACQUIROR SUB"
JI ACQUISITION, INC.
By /s/ Frank Bracken
---------------------------------
Name: Frank Bracken
Title: President
"TARGET"
JERELL, INC.
By_________________________________
Name:_________________________
Title: _______________________
[SIGNATURE PAGE TO MERGER AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, Acquiror, Acquiror Sub, the Target and the
Shareholders have caused this Agreement to be executed as of the date first
written above by theft respective officers thereunto duly authorized.
"ACQUIROR"
HAGGAR CLOTHING CO.
By_________________________________
Name:_________________________
Title:________________________
"ACQUIROR SUB"
JI ACQUISITION, INC.
By_________________________________
Name:_________________________
Title:________________________
"TARGET"
JERELL, INC.
By /s/ Gerald M. Frankel
-------------------------------
Name: Gerald M. Frankel
Title: _______________________
[SIGNATURE PAGE TO MERGER AGREEMENT]
<PAGE>
SHAREHOLDERS
/s/ Gerald M. Frankel
-------------------------------------------------
Gerald M. Frankel
/s/ Honu Frankel
-------------------------------------------------
Honu Frankel
/s/ Edward D. Vierling
-------------------------------------------------
Edward D. Vierling
ADDITIONAL FRANKEL SHAREHOLDERS
/s/ Richard Frankel
-------------------------------------------------
Richard Frankel for the limited purposes set forth
in Sections 8.19 and 8.20
/s/ Elizabeth Frankel Bailanson
-------------------------------------------------
Elizabeth Frankel Bailanson, for the limited
purposes set forth in Section 8.19 and 8.20
/s/ Jessica Frankel
-------------------------------------------------
Jessica Frankel, for the limited purposes set
forth in Section 8.19 and 8.20
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EXHIBIT A
FORM OF
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made and entered into as of
_________________ 199 , by and among Edward D. Vierling ("Vierling"), Edward
D. Vierling, not in his individual capacity, but in his capacity as Seller
Representative under the Merger Agreement described herein (the "Seller
Representative"), Haggar Clothing Co., a Nevada corporation ("Acquiror"), and
Chase Bank of Texas, N.A., a national banking association with its
headquarters in _______________________ (the "Escrow Agent").
RECITALS
A. Pursuant to the Agreement and Plan of Merger dated as of December
17, 1998 (the "Merger Agreement"), by and between Acquiror, JI Acquisition,
Inc., a Texas corporation and a direct, wholly-owned subsidiary of Acquiror
("Acquiror Sub"), Jerell, Inc., a Texas corporation (the "Target"), and each
of the Target's shareholders named therein, Acquiror Sub shall be merged with
and into the Target (the "Merger"). Unless otherwise defined herein,
capitalized terms used herein shall have the meanings assigned to them in the
Merger Agreement.
B. Simultaneously with the execution and delivery of this Agreement,
Acquiror or a Subsidiary of Acquiror and Vierling entered into the Employment
Agreement Amendment.
C. It is a condition precedent to the consummation of the Merger that
Acquiror, Vierling, the Seller Representative and the Escrow Agent execute
and deliver this Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the recitals and of the respective
agreements and covenants contained herein, and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties,
intending to be legally bound, hereby agree as follows:
SECTION 1. ESTABLISHMENT OF ESCROW ACCOUNTS. Concurrently with the
execution hereof and pursuant to the Merger Agreement, Acquiror will deliver
(a) $1,500,000 in cash (the "Vierling Escrow Amount") to an account
designated by the Escrow Agent as the "Vierling Escrow Account, which
amount shall be held as security for certain payment obligations, if any, due
from Acquiror to Vierling in accordance with the Amended Employment
Agreement, and (b) $2,000,000 in cash (the "Indemnification Escrow Amount")
to an account designated by the Escrow Agent as the "Jerell Escrow Account,"
which amount shall be held as security for the indemnification obligations of
the Target's shareholders to Acquiror Indemnified Parties in accordance with
Article II of the Merger Agreement. The Vierling Escrow Amount, together with
any Interest (as hereinafter defined) earned thereon from any
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investment thereof hereunder, is hereinafter referred to as the "Vierling
Escrowed Property," and the Indemnification Escrow Amount, together with any
Interest thereon from any investment thereof hereunder, is hereinafter
referred to as the "Indemnification Escrowed Property and the sum of the
foregoing amounts is hereinafter referred to as the "Escrowed Property." The
Escrowed Property and any interest, dividends, income, or other proceeds
earned thereon from and after the Closing Date (the "Interest") shall be
held, administered and disposed of by the Escrow Agent in accordance with the
terms and conditions hereinafter set forth.
SECTION 2. INVESTMENT OF PROCEEDS OF ESCROWED PROPERTY.
(a) The Escrow Agent shall from time to time invest and reinvest
(i) the Vierling Escrowed Property, if any, in such of the investments listed
below as Acquiror and Vierling may from time to time elect by joint notice in
writing and (ii) the Indemnification Escrowed Property, if any, in such of
the investments listed below as Acquiror and the Seller Representative may
from time to time elect by joint notice in writing ("Permitted Investments"):
(A) Any U.S. Government or U.S. Government Agency security;
(B) Any commercial paper rated A1/P1 or better;
(C) Any certificate of deposit or time deposit in any bank with
a long-term debt rating of A or better from Moody's
Investors Services, Inc. or Standard & Poor's Corporation;
(D) [THE CHASE BANK TREASURY FUND]; or
(E) The following institutional money market funds:
(1) Dreyfus Treasury Cash Management Fund
(2) Provident T-Fund Dollar Account
(3) Federated Treasury Obligations Fund
(4) AIM Treasury Portfolio
In the absence of written instructions to the contrary from Acquiror and
Vierling, the Escrow Agent shall invest the Vierling Escrowed Property in
Permitted Investments set forth in clause (D) of this Section 2(a). In the
absence of written instructions to the contrary from Acquiror and the Seller
Representative, the Escrow Agent shall invest the Indemnification Escrowed
Property in Permitted Investments set forth in clause (D) of this Section
2(a).
(b) Any Interest shall be set aside and distributed as provided in
Section 2(d).
(c) The Escrow Agent will act upon investment instructions the
Business Day after such instructions are received, provided the requests are
communicated within a sufficient amount of time to allow the Escrow Agent to
make the specified investment. Instructions received after an applicable
investment cutoff deadline will be treated as being received by the Escrow
Agent on the next Business Day, and the Escrow Agent shall not be liable for
any loss arising directly or indirectly, in whole or in part, from the
inability to invest Escrowed Property on the day the instructions are
received. The Escrow Agent shall not be liable for any loss incurred by the
actions
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of third parties or by-any loss arising by error, failure or delay in the
making of an investment or reinvestment, and the Escrow Agent shall not be
liable for any loss of principal or income in connection therewith, unless
such error, failure or delay results from the Escrow Agent's gross negligence
or willful misconduct. As and when the Escrowed Property or any Interest or
any portion thereof is to be released under this Agreement, the Escrow Agent
shall cause the Permitted Investments to be converted into cash, and the
Escrow Agent shall not be liable for any loss of principal or income in
connection therewith. None of the parties hereto shall be liable for any loss
of principal or income due to the choice of Permitted Investments in which
the Escrowed Property is invested or the choice of Permitted Investments that
are converted into cash pursuant to this Section 2(c).
(d) Subject to Section 2(e), any Interest on the Vierling Escrowed
Property shall be distributed to Vierling within ten days of the end of each
calendar quarter in which the Interest was paid, in accordance with joint
written instructions executed by Vierling and Acquiror and received by the
Escrow Agent. Subject to Section 2(e), any interest earned on the
Indemnification Escrowed Property shall be distributed for the benefit of the
Target's shareholders upon the termination of this Agreement pursuant to
Section 15 in accordance with joint written instructions executed by the
Seller Representative and Acquiror and received by the Escrow Agent.
Notwithstanding anything to the contrary contained herein, any provision
hereof requiring the disbursement of Interest by the Escrow Agent shall be
construed to refer only to Interest which has accrued and been paid to the
Escrow Agent. Any Interest which has accrued and, except for the fact that it
has not been paid to the Escrow Agent, would otherwise be required to be
disbursed, shall be disbursed within two Business Days of being paid.
SECTION 3. RELEASE OF THE VIERLING ESCROWED PROPERTY.
(a) Upon the occurrence of an event requiring the distribution to
Vierling or Acquiror of all or any portion of the Vierling Escrowed Property
in accordance with the Amended Employment Agreement or upon the mutual
agreement of Acquiror and Vierling, Acquiror and Vierling will deliver to the
Escrow Agent a written notice (a "Distribution Notice") requesting
distribution to Vierling or Acquiror, as applicable, of a specified amount of
the Vierling Escrowed Property, if any. Within three (3) Business Days after
delivery of a Distribution Notice to the Escrow Agent and the other parties
hereto, the Escrow Agent shall pay to either or both of Acquiror and Vierling
the amount of the Vierling Escrowed Property specified in such Distribution
Notice. The Escrow Agent will not distribute any of the Vierling Escrowed
Property until it receives a Distribution Notice or a Final Determination (as
hereinafter defined) setting forth the rights of Acquiror and Vierling with
respect to the Vierling Escrowed Property.
(b) The Escrow Agent shall disburse to Acquiror (for its own
account or for the account of any Indemnitee, as defined in Section 8) such
portion of the Indemnification Escrowed Property as instructed pursuant to
this Section 3 to pay Target Indemnified Costs or Shareholder Indemnified
Costs (collectively, "Indemnified Costs") for which the Indemnitee is
entitled to reimbursement pursuant to Article 11 of the Merger Agreement.
Payment shall be made not more than three Business Days after: (i) the
delivery to the Escrow Agent of joint written instructions signed by Acquiror
and the Seller Representative specifying an amount to be paid to an
Indemnitee, or (ii) the delivery to the Escrow Agent and the Seller
Representative of a copy of a Final
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Determination establishing the Indemnitee's right to reimbursement under
this Agreement and Article l l of the Merger Agreement with respect to such
Indemnified Costs. A "Final Determination" shall mean a final,
non-appealable judgment of a court of competent jurisdiction and shall be
accompanied by an opinion of counsel for the presenting party reasonably
satisfactory' to the Escrow Agent to the effect that such judgment is a
final, non-appealable judgment of a court of competent jurisdiction.
SECTION 4. NO DISTRIBUTION OF EXPENSES. Neither Acquiror, Vierling,
the Seller Representative nor any other shareholder of Target shall be
entitled to reimbursement out of the Escrowed Property for any costs and
expenses incurred by them in connection with exercising their rights or
performing their duties under this Agreement, except that (a) Acquiror shall
be entitled to reimbursement for Indemnified Costs as provided in Section 8
of this Agreement; and (b) upon joint written instructions executed by
Acquiror and the Seller Representative and received by the Escrow Agent, the
Seller Representative shall be entitled to reimbursement from the
Indemnification Escrowed Property for such costs and expenses as may be
agreed upon by Acquiror and the Seller Representative.
SECTION 5. SEGREGATION OF THE FUND. (a) The Escrow Agent shall
segregate from the Indemnification Escrow Account and transfer into a
separate account (the "Pending Claims Account") maintained by the Escrow
Agent for the benefit of Acquiror and the Target's shareholders the portion
of the Indemnification Escrowed Property that may be necessary to satisfy in
fill all Pending Claims (as defined below), and shall hold such portion in
accordance with this Section 5. "Pending Claims" shall mean unresolved Claims
(as defined in Section 8) that are the subject of one or more Claims Notices
delivered under Section 8(b). Such segregated Indemnification Escrowed
Property will be invested pursuant to Section 2.
(b) Any portion of the Indemnification Escrowed Property
segregated under Section 5(a) shall continue to be segregated by the Escrow
Agent until the Escrow Agent is directed to release such Indemnification
Escrowed Property by (i) written instructions signed by Acquiror and the
Seller Representative instructing the Escrow Agent how to pay all or any
portion of such segregated Indemnification Escrowed Property, or (ii) a copy
of a Final Determination establishing the Indemnitee's or the Target's
shareholders' right to reimbursement under Section 8. The Escrow Agent shall
be entitled to rely conclusively on the written advice of counsel to Acquiror
or the Seller Representative, as the case may be, that the judgment delivered
to the Escrow Agent pursuant to this Section 5(b) is a Final Determination.
SECTION 6. DISTRIBUTION OF INDEMNIFICATION ESCROWED PROPERTY TO THE
TARGET'S SHAREHOLDERS. Not later than the second Business Day after the date
which is l2 months from the execution of this Agreement (the "Release Date"),
the Escrow Agent shall distribute to the Target's shareholders the remainder
of the Indemnification Escrowed Property (plus accrued and undistributed
Interest on the Indemnification Escrowed Property) minus the sum of the total
amount of Indemnification Escrowed Property that is then being segregated
with respect to Pending Claims under Section 5. Any amounts segregated with
respect to Pending Claims shall be released as provided in Section 5(b).
Notwithstanding anything to the contrary contained herein, any provision
hereof requiring the disbursement of Interest by the Escrow Agent shall be
construed to refer only to Interest which has accrued
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and been paid to the Escrow Agent. Any Interest which has accrued and, except
for the fact that it has not been paid to the Escrow Agent, would be required
to be disbursed, shall be disbursed within two Business Days of being paid.
SECTION 7. TAXPAYER IDENTIFICATION NUMBERS. The parties acknowledge
that payment of any Interest earned on the Escrowed Property invested in this
escrow, or the distribution of any other amounts under this escrow, will be
subject to backup withholding penalties unless a properly completed Internal
Revenue Service Form W-8 or W-9 certification is submitted to the Escrow
Agent by the party entitled to receive such payment.
SECTION 8. CLAIMS AGAINST THE INDEMNIFICATION ESCROWED PROPERTY. From
and after the Closing, but subject to the conditions and limitations set
forth in this Agreement and the Merger Agreement, the Acquiror Indemnified
Parties and their respective successors and assigns (collectively, the
"Indemnitees") shall be entitled to reimbursement out of the Indemnification
Escrowed Property for any and all Indemnified Costs pursuant to and as
provided in Article 11 of the Merger Agreement (collectively, the "Claims").
Notwithstanding any of the provisions of the Merger Agreement, the Escrow
Agent shall be entitled to conclusively rely upon the provisions of Sections
8(a)-(d) hereof in Determining whether a Claim for indemnification shall be
paid out of the Indemnification Escrowed Property.
(a) Claims against the Indemnification Escrowed Property may be
made by Acquiror, on its own behalf or on behalf of any other Acquiror
Indemnified Party, for indemnification of any Indemnified Costs. No person
other than Acquiror shall be permitted to make a Claim on behalf of the
Acquiror Indemnified Parties against the Indemnification Escrowed Property
for Indemnified Costs under this Section 8 unless Acquiror provides written
notice to Escrow Agent and the Seller Representative that Acquiror has
authorized another Acquiror Indemnified Party to make such claims.
(b) Acquiror shall promptly notify the Seller Representative and
the Escrow Agent in writing of any sums which Acquiror Claims are subject to
indemnification ("Claims Notice"). Failure of Acquiror to exercise promptness
in such notification shall not amount to a waiver of such Claim unless, and
only to the extent that, the resulting delay materially and adversely
prejudices the Target's shareholders. Such notice shall consist of a
description of the Claim and specify each Acquiror Indemnified Party and the
amount (which may be estimated) of the Claim in United States dollars.
(c) The Seller Representative may contest the Claims (or any
portion thereof) specified in any Claims Notice by giving the Escrow Agent
and Acquiror written notice of such contest within ten days after receipt by
the Seller Representative and the Escrow Agent of such Claims Notice, which
notice of contest shall include a statement of the grounds of such contest
and shall state the amount of any such claim by Acquiror that the Seller
Representative does not dispute.
(d) Payment of any claim for indemnification (or portion thereof)
shall become due and payable as follows:
(i) If, notwithstanding Section 3 of this Agreement, at 5:00
p.m. (Dallas time) on the fifteenth Business Day after receipt by the Seller
Representative and the Escrow Agent
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of a Claims notice pursuant to Section 8(b) above, the Escrow Agent has not
received written notice from the Seller Representative that the Seller
Representative contests the Claim (or portion thereof) pursuant to Section
8(c) above, the Claim (or the uncontested portion thereof) shall be promptly
paid by the Escrow Agent to Acquiror;
(ii) If the Seller Representative contests the claim (or
portion thereof) pursuant to Section 8(c) and the Claim (or portion thereof)
is settled by a written agreement of the Seller Representative and Acquiror,
the amount provided in such written agreement shall, upon receipt by the
Escrow Agent of a copy of such written agreement, be promptly paid by the
Escrow Agent pursuant to the terms of such written agreement; and
(iii) If the Seller Representative contests the Claim (or
portion thereof) pursuant to Section 8(c) hereof and a Final Determination
has been obtained, the amount set forth in such Final Determination shall be
promptly paid by the Escrow Agent pursuant to the terms of such Final
Determination.
SECTION 9. EXPIRATION OF CLAIMS FOR REIMBURSEMENT. Any claim for
reimbursement from the Escrow Account must be asserted in writing by Acquiror
or any Acquiror Indemnified Party designated pursuant to Section 8(a) in
accordance with Section 8 by a writing received by the Seller Representative
and the Escrow Agent prior to 5:00 p.m. (Dallas time) on the Release Date.
SECTION 10. THE ESCROW AGENT. To induce the Escrow Agent to act
hereunder, it is further agreed by Acquiror and the Seller Representative
that:
(a) The Escrow Agent shall not be under any duty to give the
Escrowed Property held by it hereunder any greater degree of care than it
gives its own similar property and shall not be required to invest any
Escrowed Property held hereunder except as directed in this Agreement.
Uninvested Escrowed Property held hereunder shall not earn or accrue Interest.
(b) This Agreement expressly sets forth all the duties of the
Escrow Agent with respect to any and all matters pertinent hereto. No implied
duties or obligations shall be read into this Agreement against the Escrow
Agent. The Escrow Agent shall not be bound by the provisions of any agreement
among the other parties hereto except this Agreement.
(c) The Escrow Agent shall not be liable, except for its own gross
negligence or willful misconduct and, except with respect to claims based
upon such gross negligence or willful misconduct that are successfully
asserted against the Escrow Agent, Acquiror, Vierling and the Seller
Representative (on behalf of the Target's shareholders) shall jointly and
severally indemnify and hold harmless the Escrow Agent (and any successor
escrow agent) from and against any and all losses, liabilities, claims,
actions, damages and expenses, including reasonable attorneys' fees and
disbursements, arising out of and in connection with this Agreement. Without
limiting the foregoing, the Escrow Agent shall in no event be liable in
connection with its investment or reinvestment of any cash held by it
hereunder in good faith, in accordance with the terms hereof, including
without limitation, any liability for any delays (not resulting from its
gross negligence or willful misconduct) in the investment or reinvestment of
the Escrowed Property or any loss of
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<PAGE>
Interest incident to any such delays. This Section l0(c) shall survive
notwithstanding any termination of this Agreement or the resignation of the
Escrow Agent.
(d) The Escrow Agent shall be entitled to rely in good faith upon
any order, judgment, certification, demand, notice, instrument or other
writing delivered to it hereunder in accordance with the terms hereof without
being required to determine the authenticity or the correctness of any fact
stated therein or the propriety or validity or the service thereof. The Escrow
Agent may act in reliance upon any instrument or signature believed by it in
good faith to be genuine and may assume that any person purporting to give
receipt or advice or make any statement or execute any document in connection
with the provisions hereof has been duly authorized to do so.
(e) The Escrow Agent may act pursuant to the advice of counsel
with respect to any matter relating to this Agreement and shall not be liable
for any action taken or omitted in good faith in accordance with such advice.
(f) The Escrow Agent does not have any interest in the Escrowed
Property deposited hereunder but is serving as escrow holder only and having
only possession thereof. Acquiror shall pay or reimburse the Escrow Agent
upon request for any transfer taxes or other taxes relating to the Escrowed
Property incurred in connection herewith and shall indemnify and hold
harmless the Escrow Agent from any amounts that it is obligated to pay in the
way of such taxes. Any payments of income from the Escrow Account shall be
subject to withholding regulations then in force with respect to United
States taxes. It is understood that the Escrow Agent shall be responsible for
income reporting only with respect to income earned on investment of the
Escrowed Property and is not responsible for any other reporting. This
Section 10(f) shall survive notwithstanding any termination of this Agreement
or the resignation of the Escrow Agent.
(g) The Escrow Agent makes no representation as to the validity,
value, genuineness or the collectibility of any security or other document or
instrument held by or delivered to it.
(h) The Escrow Agent shall not be called upon to advise any party
as to the wisdom in selling or retaining or taking or refraining from any
action with respect to any securities or other property deposited hereunder.
(i) The Escrow Agent (and any successor escrow agent) may at any
time resign as such by delivering the Escrowed Property to any successor
escrow agent jointly designated by the other parties hereto in writing or to
any court of competent jurisdiction, whereupon the Escrow Agent shall be
discharged of and from any and all other obligations arising in connection
with this Agreement. The resignation of the Escrow Agent will take effect on
the date (the "Resignation Date") which is the earlier to occur of: (i) the
date a successor is appointed (including a court of competent jurisdiction)
or (ii) the date which is 30 days after the date of delivery of its written
notice of resignation to the other parties hereto. Upon the appointment of a
successor escrow agent, such successor escrow agent shall deliver written
notice to Acquiror and the Seller Representative of the appointment of such
successor escrow agent. If at the Resignation Date the Escrow Agent has not
received a designation of a successor escrow agent, the Escrow Agent's sole
responsibility after the Resignation Date shall be to safekeeping the
Escrowed Property until receipt of a designation of
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<PAGE>
successor escrow agent or a joint written disposition instruction by the
other parties hereto or a Final Determination.
(j) The Escrow Agent shall have no responsibility for the contents
of any writing of any third party contemplated herein as a means to resolve
disputes and may rely without any liability upon the contents thereof.
(k) In the event of any disagreement between Acquiror and the
Seller Representative resulting in adverse claims or demands being made in
connection with the Indemnification Escrowed Property, or in the event that
the Escrow Agent in good faith is in doubt as to what action it should take
hereunder with respect to the Indemnification Escrowed Property, the Escrow
Agent shall be entitled to retain the Indemnification Escrowed Property until
the Escrow Agent shall have received (i) a Final Determination directing
delivery of the Indemnification Escrowed Property or (ii) a written agreement
executed by Acquiror and the Seller Representative directing delivery of the
Indemnification Escrowed Property, in which event the Escrow Agent shall
disburse the Indemnification Escrowed Property in accordance with such Final
Determination or agreement. The Escrow Agent shall act on such Final
Determination or agreement without further question.
In the event of any disagreement between Acquiror and Vierling
resulting in adverse claims or demands being made in connection with the
Vierling Escrowed Property, or in the event that the Escrow Agent in good
faith is in doubt as to what action it should take hereunder with respect to
the Vierling Escrowed Property, the Escrow Agent shall be entitled to retain
the Vierling Escrowed Property until the Escrow Agent shall have received (i)
a Final Determination directing delivery of the Vierling Escrowed Property or
(ii) a written agreement executed by Acquiror and Vierling directing delivery
of the Vierling Escrowed Property, in which event the Escrow Agent shall
disburse the Vierling Escrowed Property in accordance with such Final
Determination or agreement. The Escrow Agent shall act on such Final
Determination or agreement without further question.
(l) The compensation of the Escrow Agent (as payment in full) for
the services to be rendered by the Escrow Agent hereunder shall be the amount
of $[ ] for the initial year and $[ ] annually thereafter,
together with reimbursement for all reasonable expenses, disbursements and
advances incurred or made by the Escrow Agent in performance of its duties
hereunder (including reasonable fees, expenses and disbursements of its
counsel) not to exceed $1,000 absent any litigation or other dispute
arising under this Agreement. Acquiror hereby agrees with the Escrow Agent,
Vierling and the Seller Representative that all fees and expenses of the
Escrow Agent hereunder shall be paid by Acquiror. Without limiting Acquiror's
obligations as set forth in the immediately preceding sentence, any fees or
expenses of the Escrow Agent or its counsel which are not paid as provided
for herein may be taken from any property held by the Escrow Agent hereunder.
The Escrow Agent's fee may be adjusted from time to time to conform to its
then current guidelines.
(m) Except as may be required by applicable law, no prospectuses,
press releases, reports and promotional material, or other similar materials
which mention in any language the Escrow Agent's name or the rights, powers,
or duties of the Escrow Agent shall be issued by the
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<PAGE>
other parties hereto or on such parties' behalf unless the Escrow Agent
shall first have given its specific written consent thereto.
(n) The other parties hereto authorize the Escrow Agent, for any
securities held hereunder, to use the services of any United States central
securities depository it deems appropriate, including, but not limited to,
the Depositary Trust Company and the Federal Reserve Book Entry System.
Section 11. NOTICES. All notices, requests, consents, waivers, and
other communications required or permitted to be given hereunder shall be in
writing and shall be deemed to have been duly given if: (a) transmitted by
facsimile, upon acknowledgment of receipt thereof in writing by facsimile or
otherwise; (b) personally delivered, upon delivery or refusal of delivery;
(c) mailed by registered or certified United States mail, return receipt
requested, postage prepaid, upon delivery or refusal of delivery; or (d) sent
by a nationally recognized overnight delivery service, upon delivery or
refusal of delivery. All notices, consents, waivers, or other communications
required or permitted to be given hereunder shall be addressed to the
respective party to whom such notice, consent, waiver, or other communication
relates at the following addresses:
(i) if to Acquiror or to any Indemnitee:
Haggar Clothing Co.
6113 Lemmon Avenue
Dallas, Texas 75209
Attention: General Counsel
Facsimile: (214) 956-4446
with a copy to:
Vinson & Elkins L.L.P.
3700 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 7520l
Attention: J. Christopher Kirk
Facsimile: (214) 999-7897
(ii) if to the Seller Representative, to:
Edward D. Vierling
c/o Jerell Inc.
1431 Regal Row
Dallas, Texas 75247-3672
Facsimile: (214) 637-4205
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<PAGE>
(iii) if to Vierling, to:
Edward D. Vierling
c/o Jerell Inc.
1431 Regal Row
Dallas, Texas 75247-3672
Facsimile: (214) 637-4205
(iv) if to the Escrow Agent, to:
Chase Bank of Texas, N.A.
------------------------------------
------------------------------------
Attn:
-------------------------------
Facsimile:
--------------------------
Any party by written notice to the other parties pursuant to this Section 11
may change the address or the persons to whom notices or copies thereof shall
be directed.
SECTION 12. WAIVERS; AMENDMENTS. Any waiver by any party hereto of
any breach of or failure to comply with any provision of this Agreement by
any other party hereto shall be in writing and shall not be construed as, or
constitute, a continuing waiver of such provision, or a waiver of any other
breach of or failure to comply with, any other provision of this Agreement.
This Agreement may only be modified by a writing signed by all of the parties
hereto.
SECTION 13. CONSTRUCTION. The headings in this Agreement are solely
for convenience of reference and shall not be given any effect in the
construction or interpretation of this Agreement. Unless otherwise stated,
references to Sections are references to Sections of this Agreement.
SECTION 14. ASSIGNMENT; THIRD PARTIES. Neither this Agreement nor any of
the rights, interests, or obligations hereunder shall be assigned by any of the
parties hereto, whether by operation of law or otherwise; provided, however,
that (a) upon notice to Vierling, the Seller Representative and the Escrow Agent
and without releasing Acquiror from any of its obligations or liabilities
hereunder, Acquiror may assign or delegate any or all of its rights or
obligations under this Agreement to any Affiliate of Acquiror or any Person with
or into which Acquiror or any parent company of Acquiror merges or consolidates,
and (b) nothing in this Agreement shall limit Acquiror's ability to make a
collateral assignment of its rights under this Agreement to any institutional
lender that provides funds to Acquiror or Acquiror's designee without the
consent of Vierling, the Seller Representative or the Escrow Agent. Vierling,
the Seller Representative and the Escrow Agent shall execute an acknowledgment
of such assignment(s) and collateral assignments in such forms as Acquiror or
its institutional lenders may from time to time reasonably request;
PROVIDED, HOWEVER, that unless written notice is given to Vierling, the Seller
Representative and the Escrow Agent that any such collateral assignment has been
foreclosed upon, Vierling, the Seller Representative and the Escrow Agent shall
be entitled to deal exclusively with Acquiror as to any matters arising under
this Agreement or any of the other agreements delivered pursuant hereto. In
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<PAGE>
the event of such an assignment, the provisions of this Agreement shall
inure to the benefit of and be binding on Acquiror's assigns.
SECTION 15. TERMINATION. This Agreement shall terminate at the time
of the final distribution by the Escrow Agent of all Escrowed Property in
accordance with the provisions of this Agreement.
SECTION 16. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute a single instrument.
SECTION 17. GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the internal law of the State of Texas
(without reference to its rules as to conflicts of law).
SECTION 18. CONSENT TO SERVICE. Acquiror, Vierling and the Seller
Representative hereby irrevocably submit to the jurisdiction of any Texas
state or federal court sitting in Dallas, Texas in any action or proceeding
to which the Escrow Agent is a party arising out of or relating to this
Agreement, and the parties hereby irrevocably agree that all claims in
respective of such action or proceeding shall be heard and determined in such
a Texas state or federal court. The parties hereby consent to and grant to
such court jurisdiction over the person of such parties and of the subject
matter of any such dispute and agree that delivery or mailing of any process
or other papers in the manner provided hereinabove, or in such other manner
as may be permitted by law, shall be valid as to sufficient service thereof.
SECTION 19. SEVERABILITY. The invalidity, legality or enforceability
of any provisions of this Agreement shall in no way affect the validity,
legality or enforceability of any other provision; and if any provision is
held to be unenforceable as a matter of law, the other provisions shall not
be affected thereby and shall remain in full force and effect.
SECTION 20. WAIVER OF OFFSET RIGHTS. The Escrow Agent hereby waives
any and all rights to offset that it may have against the Escrowed Property
including, without limitation, claims arising as a result of any claims,
amounts, liabilities, costs, expenses, Indemnified Costs, or other losses
(collectively "Escrow Agent Claims") that the Escrow Agent may be otherwise
entitled to collect from any party to this Agreement or any Indemnitee, other
than Escrow Agent Claims arising under this Agreement.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
A-11
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first written above.
"ACQUIROR"
HAGGAR CLOTHING CO.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
"VIERLING"
------------------------------------------
Edward D. Vierling
"SELLER REPRESENTATIVE"
------------------------------------------
Edward D. Vierling, , not in his individual
capacity, but in his capacity as Seller
Representative under the Merger Agreement
"ESCROW AGENT"
CHASE BANK OF TEXAS, N.A.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
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<PAGE>
EXHIBIT B
FORM OF LETTER OF TRANSMITTAL
For surrender of Certificate(s) Formerly Representing Shares of Common Stock
of
JERELL, INC.
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN
AS SET FORTH ON THE LAST PAGE OF THIS LETTER OF TRANSMITTAL WILL
NOT CONSTITUTE A VALID DELIVERY
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Pursuant to the Agreement and Plan of Merger (the "Merger Agreement")
dated as of December 17, 1998, among Haggar Clothing Co., a Nevada
corporation ("Acquiror"), JI Acquisition, Inc., a Texas corporation and a
direct, wholly-owned subsidiary of Acquiror ("Acquiror Sub"), Jerell, Inc., a
Texas corporation (the "Target"), and the Target's shareholders named
therein, the parties thereto have agreed that Acquiror Sub shall be merged
(the "Merger") with and into the Target, with the Target being the surviving
corporation in the Merger. Pursuant to the terms of the Merger Agreement,
certain shares of the Company's common stock, par value $0.05 per share (the
"Shares"), will, at the effective time of the Merger, be converted into the
right to receive certain cash payments as set forth in the Merger Agreement,
which payments shall be effected at the times and subject to the conditions
set forth in the Merger Agreement. Capitalized terms used but not otherwise
defined in this Letter of Transmittal shall have the meanings ascribed to
them in the Merger Agreement. Each registered holder of a certificate which
prior to the Merger represented one or more Shares (each, a "Certificate")
may present their Certificate(s), together with this Letter of Transmittal,
to Acquiror at the closing of the Merger or to the Exchange Agent after the
closing of the Merger. If, however, such registered holder has endorsed a
Certificate to another person and the endorsing party's signature has been
properly signature guaranteed by an Eligible Institution (defined below), the
endorsee should complete a copy of this Letter of Transmittal. In either
case, the person signing this Letter of Transmittal represents and warrants
to the Target, Acquiror and the Surviving Corporation that it is the
beneficial owner of the Shares represented by the Certificates surrendered
herewith and described below, free of all Liens, and has full power and
authority to execute and deliver this Letter of Transmittal and deliver the
Certificates described below. The person signing this Letter of Transmittal
represents and warrants to the Target, Acquiror and the Surviving Corporation
that, except as described below or as may be described in an Option Release
Agreement executed by the undersigned and delivered to Acquiror or the
Exchange Agent simultaneously with the delivery of this Letter of
Transmittal, the undersigned does not hold, beneficially or of record, any
Equity Securities in the Target or any Target Subsidiary or any options,
warrants or other rights to acquire any Equity Securities in the Target or
any Target Subsidiary, or similar securities or contractual obligations the
value of which is derived from the value of any Equity Securities in the
Target, or securities convertible into or exchangeable for Equity Securities
in, or similar securities or contractual obligations of the Target or any
Target subsidiary.
B-1
<PAGE>
<TABLE>
<CAPTION>
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DESCRIPTION OF CERTIFICATES SURRENDERED
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Name and Address of the Registered Holder of the Certificate Certificates Enclosed
(If blank. please fill in exactly as name appears on Certificate) (Attach signed addendum, if necessary)
- -----------------------------------------------------------------------------------------------------------------
Class of Shares Number of Shares
Certificate Represented by Represented
Number Certificate by Certificate
---------------------------------------------------------
Common
---------------------------------------------------------
---------------------------------------------------------
Total Shares
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
IF CERTIFICATES ARE LOST, MUTILATED OR DESTROYED, PLEASE CONTACT THE
CHIEF FINANCIAL OFFICER OF THE TARGET AT (214) 637-5300 (EXT. 543) FOR
INSTRUCTIONS.
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WIRE PAYMENT INSTRUCTIONS
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If you are delivering an executed copy of this Letter of Transmittal
along with your Certificate(s) to Acquiror at or prior to the closing
of the Merger, you are entitled to receive the payment to be made in
consideration of receipt of your Certificate(s) (the "Payment") by
wire transfer of immediately available funds at the closing of the
Merger to the account designated below:
------------------------------
------------------------------
------------------------------
------------------------------
------------------------------
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If you are delivering an executed copy of this Letter of Transmittal
along with your Certificate(s) (i) to Acquiror at or prior to the closing of
the Merger, but you have not completed the box entitled "Wire Payment
Instructions" above, or (ii) to the Exchange Agent after the closing of the
Merger, the Exchange Agent will deliver the Payment to the address stated
above, unless you indicate otherwise in the boxes below entitled
"Special Issuance Instructions" or "Special Delivery Instructions."
B-2
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
SPECIAL ISSUANCE SPECIAL DELIVERY
INSTRUCTIONS INSTRUCTIONS
Payment Issued to a Designee Payment Issued to You
(See Instruction No. 3) (See Instruction No. 3)
- ------------------------------------------------------------------------------------------------------
<S> <C>
If you desire the Exchange Agent to make If you desire the Exchange Agent to
the Payment to a person other than you (the make the Payment to you, but deliver such
"Designee"), please give the Designee's name, Payment to someone other than you or to you
address, and telephone number below: at an address other than the address shown
above, please give such name and address
below:
Name: ____________________________________ Name:___________________________________
Address:__________________________________ Address:________________________________
__________________________________________ ________________________________________
__________________________________________ ________________________________________
__________________________________________ ________________________________________
Telephone No.:____________________________ Telephone No.:__________________________
- ------------------------------------------------------------------------------------------------------
</TABLE>
Please complete, sign, and date the "Signature" box below. Your
signature must appear exactly as it appears on the Certificates described
above or the endorsements on such Certificates, respectively. When
Certificates are held by joint tenants, both joint tenants should sign. When
signing as administrator, attorney-in-fact, executor, fiduciary, guardian,
officer, trustee, or other person acting in a representative capacity, please
give your full title. If a corporation, an authorized officer should sign in
the name of the corporation. If a partnership, a general partner should sign
in the name of the partnership.
If you have completed either the "Special Issuance Instructions" box or
the "Special Delivery Instructions" box above and you are not an Eligible
Institution, you must have your signature guaranteed by an Eligible
Institution that is a member of: (a) the Securities Transfer Agents Medallion
Program, (b) the New York Stock Exchange Medallion Signature Program, or (c)
the Stock Exchange Medallion Program (collectively, the "Medallion Programs").
An "Eligible Institution" is: (a) a firm that is a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc., or (b) a commercial bank or trust company that has an office
or correspondent in the United States of America.
If a holder of a Certificate has not delivered an executed copy of this
Letter of Transmittal along with their Certificate(s) to Acquiror at the
closing of the Merger or to the Exchange Agent on or before the first
anniversary of the Closing Date, the Exchange Agent will return to the
Company all funds remaining to be paid to such holder. Such holder will
thereafter be entitled to look only to Acquiror for their Payment, without
interest thereon.
B-3
<PAGE>
- ---------------------------------------------------------------------------
SIGNATURE
Name:_____________________________________________________________________
Address:__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
Telephone No.:____________________________________________________________
Signature:________________________________________________________________
Title:____________________________________________________________________
Date:_____________________________________________________________________
SIGNATURE GUARANTEE
Name of Eligible Institution:_____________________________________________
Address:__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
Telephone No.:____________________________________________________________
Authorized Signature:_____________________________________________________
Date:_____________________________________________________________________
- ---------------------------------------------------------------------------
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<PAGE>
INSTRUCTIONS AND TERMS
1. ACCEPTANCE OF THIS LETTER OF TRANSMITTAL. Each of Acquiror and the
Exchange Agent will only accept this Letter of Transmittal if it determines,
in its sole discretion, that this Letter of Transmittal is valid and proper.
If either Acquiror or the Exchange Agent rejects this Letter of Transmittal
as invalid or improper, this Letter of Transmittal will be returned to you
along with a letter describing the deficiencies in it.
2. PERSONS AUTHORIZED TO EXECUTE THIS LETTER OF TRANSMITTAL. The only
persons who may execute this Letter of Transmittal and deliver it along with
the respective Certificates are: (a) persons who are the registered holders
of the Shares represented by such Certificates as of the Effective Time of
the Merger, and (b) persons to whom such a registered holder has properly
endorsed the Certificates described above, provided that the endorsing
party's signature must be properly signature guaranteed by an Eligible
Institution. The signature of any registered holder that endorses
Certificates to another person must appear on such endorsement exactly as it
appears on the face of the respective Certificate.
3. GUARANTEE OF SIGNATURE. If you complete either the "Special
Issuance Instructions" box or the "Special Delivery Instructions" box and you
are not an Eligible Institution, you must have an Eligible Institution that
is a member of a Medallion Program guarantee your signature.
4. CERTIFICATES. The Certificates with respect to which this Letter of
Transmittal relate must accompany this Letter of Transmittal. If you have
lost your Certificates, please contact the Chief Financial Officer of the
Target for assistance.
5. METHOD OF DELIVERY. You may return this Letter of Transmittal and
the respective Certificates to the Target, Attention: Chief Financial
Officer, who will forward them to Acquiror or the Exchange Agent, as
appropriate. The method of delivery, however, is at your sole risk and
option. All documents will be considered delivered only when Acquiror or the
Exchange Agent, as appropriate, actually receives them.
6. TRANSFER TAXES. The registered holders of Shares represented by
Certificates as of the effective time of the Merger will not be responsible
for the payment of any transfer or similar taxes with respect to the exchange
of their Certificates. Any person to whom such a registered holder has
endorsed a Certificate and any Designee, however, will be responsible for
paying any such taxes.
7. FURTHER ASSURANCES. You agree to execute and deliver to the
Acquiror and to the Exchange Agent any additional documents necessary or
desirable to perfect the exchange of the Certificates described above.
8. SUCCESSORS. This Letter of Transmittal shall be binding upon you
and your administrators, assigns, heirs, representatives and successors, and
shall not be affected by, and shall survive, your death or incapacity.
9. SURVIVABILITY. The terms of this Letter of Transmittal shall
survive the exchange of your Certificates described above for the Payment.
lO. INADEQUATE SPACE. If the space provided in this Letter of
Transmittal is inadequate for any purpose, please attach a separate signed
addendum.
B-5
<PAGE>
11. FURTHER INFORMATION. Please direct all questions and requests for
assistance with respect to this Letter of Transmittal (i) to the Target's
Chief Financial Officer prior to the Effective Time of the Merger, and (ii)
to the Exchange Agent following the Effective Time of the Merger at the
address and telephone number set forth below.
TAX INFORMATION AND GUIDELINES
You must provide Acquiror or the Exchange Agent, as appropriate, with
your correct Taxpayer Identification Number ("TIN") on the Substitute Form
W-9 set forth below. If you are an individual, your TIN is your social
security number.
On the Substitute Form W-9, you must certify under penalties of perjury
that: (a) your TIN is correct, and (b) you are not subject to backup
withholding, either because the Internal Revenue Service ("IRS") has not
notified you that you are subject to backup withholding as a result of a
failure to report interest or dividends or because the IRS has notified you
that you are no longer subject to backup withholding. If the IRS has notified
you that you are subject to backup withholding because of under reporting of
interest or dividends, you must cross out item (2) in the "Certification"
section of the Substitute Form W-9. If subsequently, however, the IRS
notified you that you are no longer subject to backup withholding, you should
not cross out item (2).
Exempt persons, which include all corporations and certain foreign
individuals, are not subject to the backup withholding and reporting
requirements. An exempt person should furnish its TIN, write "Exempt" on the
face of the Substitute Form W-9, and sign and date the form. To satisfy
Acquiror or the Exchange Agent, as appropriate, that a foreign person
qualifies as an exempt recipient, such person must also submit to Acquiror or
the Exchange Agent, as appropriate, with this Letter of Transmittal a Form
W-8, Certificate of Foreign Status, signed under penalties of perjury,
attesting to such person's foreign status.
If you are required to provide a TIN, but have not been issued a TIN and
have applied for one, or intend to apply for one in the near future, you
should write "Applied For" on the line of the Substitute Form W-9 requiring a
TIN.
If you do not provide Acquiror or the Exchange Agent, as appropriate,
with your correct TIN, you may be subject to a $50 penalty that the IRS
imposes. Failure to comply truthfully with the backup withholding
certification requirements may also result in the imposition of criminal and
civil fines and penalties.
B-6
<PAGE>
<TABLE>
<CAPTION>
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<S> <C> <C>
SUBSTITUTE PART I - PLEASE PROVIDE YOUR Social Security Number
TAXPAYER IDENTIFICATION
FORM W-9 NUMBER IN THE BOX AT
RIGHT AND CERTIFY BY ----------------------------------
SIGNING AND DATING BELOW. OR
Employer Identification Number
- --------------------------------------------------------------------------------------
DEPARTMENT OF THE TREASURY, PART II - FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING,
INTERNAL REVENUE SERVICE SEE "TAX INFORMATION AND GUIDELINES" ABOVE FOR
PAYER'S REQUEST FOR TAXPAYER CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON
IDENTIFICATION NUMBER (TIN) THIS SUBSTITUTE FORM W-9 AND COMPLETE AS INSTRUCTED
THEREIN.
- --------------------------------------------------------------------------------------
CERTIFICATION - Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification
number or a taxpayer identification number has not been issued to me and
either: (a) I have mailed or delivered an application to receive a taxpayer
identification number to the appropriate Internal Revenue Service Center or
Social Security Administration office, or (b) I intend to mail or deliver
an application in the near future. I understand that if I do not provide a
taxpayer identification number within 60 days, 31% of all reportable
payments made to me thereafter will be withheld until I provide a number.
(2) I am not subject to backup withholding either because I have not been
notified by the Internal Revenue Service (the "Service") that I am subject
to backup withholding as a result of a failure to report all interest or
dividends or the Service has notified me that I am no longer subject to
backup withholding.
CERTIFICATION INSTRUCTION - You must cross out item (2) above if you have been
notified by the Service that you are subject to backup withholding because of under
reporting interest or dividends on your tax return unless you received a subsequent
notification from the Service stating that you are no longer subject to backup
withholding.
- --------------------------------------------------------------------------------------
SIGNATURE: DATE:
- --------------------------------------------------------------------------------------
NAME:
- --------------------------------------------------------------------------------------
ADDRESS:
- --------------------------------------------------------------------------------------
</TABLE>
IF PRIOR TO THE CLOSING OF THE MERGER FOR DELIVERY TO ACQUIROR AT CLOSING,
PLEASE DELIVER THIS COMPLETED LETTER OF TRANSMITTAL AND THE RELATED CERTIFICATES
TO:
JERELL, INC.
1431 REGAL ROW
DALLAS, TEXAS 75247-3672
ATTENTION: CHIEF FINANCIAL OFFICER
IF SUBSEQUENT TO THE CLOSING OF THE MERGER, PLEASE DELIVER THIS COMPLETED
LETTER OF TRANSMITTAL AND THE RELATED CERTIFICATES TO:
-------------------------------
-------------------------------
-------------------------------
-------------------------------
B-7
<PAGE>
CERTIFICATION OF NON-FOREIGN STATUS PURSUANT TO THE
INTERNAL REVENUE CODE SECTION 1445
Section 1445 of the Internal Revenue Code provides that a transferee of
a U.S. real property interest must withhold tax if the transferor is a
foreign person. To inform the Acquiror that withholding of tax is not
required upon the disposition of a U.S. real property interest pursuant to
the terms of the Merger Agreement, the undersigned hereby warrants,
represents and certifies that the undersigned is not a foreign corporation
(as such term is defined in the Internal Revenue Code and Income Tax
Regulations) for purposes of U.S. income taxation.
The undersigned understands that this certification may be disclosed to
the Internal Revenue Service by Acquiror and that any false statement by the
undersigned contained herein could be punished by fine, imprisonment, or both.
Under penalties of perjury, the undersigned declares that the
undersigned has examined this certification and to the best of the
undersigned's knowledge and belief it is true, correct and complete.
---------------------------------------
(Signature of Holder)
Date: _______, 1998
B-8
<PAGE>
EXHIBIT C
FORM OF
OPTION SURRENDER AGREEMENT,
RELEASE AND WAIVER
NOTE: SIGNATURE MUST BE PROVIDED BELOW AND ON
THE SCHEDULE OF OWNERSHIP.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
To: Haggar Clothing Co., a Nevada corporation ("Acquiror")
Jerell, Inc., a Texas corporation (the "Target"):
The undersigned acknowledges that, pursuant to the Agreement and Plan of
Merger dated as of December 17, 1998 (the "Merger Agreement"), by and among
Acquiror, JI Acquisition, Inc., a Texas corporation and a direct, wholly
owned subsidiary of Acquiror ("Acquiror Sub"), Target and the Target's
shareholders named therein, the Options (as defined below) will be cancelled
at the time the proposed merger of Acquiror Sub with and into the Target (the
"Merger") becomes effective (the "Effective Time"). Upon the later to occur
of (i) the Effective time, or (ii) delivery by the undersigned of this Option
Surrender Agreement, Release and Waiver (this "Option Release") to Acquiror
at or prior to the closing of the Merger, the undersigned shall be entitled,
subject to the terms and conditions set forth in the Merger Agreement, to
receive certain cash consideration. Capitalized terms used but not otherwise
defined in this Option Release shall have the meanings ascribed to them in
the Merger Agreement.
Effective as of the Effective Time of the Merger, the undersigned hereby
surrenders for cancellation to Acquiror and to the Target all of the
undersigned's right, title and interest in and to each option (each, an
"Option") to purchase shares of the Target's common stock, par value $0.05
per share ("Common Stock"), whether vested or unvested, including those
options of the undersigned listed on the attached Schedule of Ownership (the
"Ownership Schedule"). The surrender by the undersigned of each such Option
held by the undersigned is made in consideration for the payment of an amount
equal to the Option Consideration payable with respect to such Option which
payment shall be effected at the times and subject to the conditions set
forth in the Merger Agreement.
The undersigned hereby represents, warrants and acknowledges that: (i)
the Ownership Schedule attached hereto correctly and completely sets forth
all Options held by the undersigned; (ii) such Options are being surrendered
hereby for cancellation as of the Effective Time; (iii) the undersigned holds
such Options free and clear of all Liens, except as disclosed in the Merger
Agreement, and has full power and authority to surrender for cancellation
such Options, and (iv) except as set forth in the Ownership Schedule, the
undersigned does not have the right to acquire Equity Securities in the
Target or any Target Subsidiary or any options, warrants or other rights to
acquire any Equity Securities in the Target or any Target Subsidiary, or
similar securities or contractual obligations the value of which is derived
from the value of any Equity Securities in the
C-1
<PAGE>
Target, or securities convertible into or exchangeable for Equity Securities
in, or similar securities or contractual obligations of, the Target or any
Target subsidiary.
This Option Release is irrevocable by the undersigned but will terminate
if and when the Merger Agreement is terminated (other than by consummation of
the Merger) in accordance with its terms.
The undersigned, on behalf of itself, himself or herself, and on behalf
of all spouses, heirs, predecessors, successors, assigns, representatives or
agents of the undersigned (including, without limitation, any trust of which
the undersigned is the trustee or which is for the benefit of the undersigned
or a member of his or her family), to the fullest extent permitted by law,
hereby acknowledges that the payments made in exchange for this Option
Release are in full satisfaction of any and all rights the undersigned may
have under the Options as to which the undersigned has any right, title or
interest and hereby releases each of Acquiror, the Target and the Surviving
Corporation from any obligations it would otherwise have with respect
thereto, other than the obligation to make the payments to the undersigned as
described in this Option Release and in the Merger Agreement.
The undersigned also acknowledges that, if this Option Release is
delivered to Acquiror at or prior to the closing of the Merger, all payments
to be made in exchange for this Option Release at the Closing are to be paid
in immediately available funds by wire transfer at the Closing to the account
specified on the Ownership Schedule. The undersigned acknowledges that, if
this Option Release is delivered to Acquiror or the Surviving Corporation
after the closing of the Merger, all payments made in exchange for this
Option are to be delivered to the address set forth on the Ownership
Schedule. The undersigned also acknowledges that neither Acquiror, the Target
nor the Surviving Corporation is required to make any payments to the
undersigned pursuant to this Option Release unless his or her Option is
outstanding immediately prior to the Effective Time.
The undersigned also acknowledges that all payments to be made pursuant
to this Option Release may be subject to applicable withholding taxes.
The undersigned, upon request, will execute and deliver any additional
documents deemed by Acquiror or the Target to be reasonably necessary or
desirable to complete the surrender of the Options surrendered hereby.
The undersigned recognizes that the Merger is subject to various
conditions and that the Target will not be required to accept the surrender
of any of the Options surrendered hereby if the Merger is not consummated.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
C-2
<PAGE>
___________________________________________
Name:______________________________________
Date:______________________________________
Address:___________________________________
___________________________________________
___________________________________________
Area Code and Telephone:___________________
Taxpayer Identification
or Social Security Number:________________
C-3
<PAGE>
INSTRUCTIONS
1. EXECUTION OF THE OPTION RELEASE AND THE OWNERSHIP SCHEDULE. This
Option Release is to be completed by the holder of Options. In order to
validly surrender Options, the holder must complete and sign this Option
Release and the Ownership Schedule in accordance with the instructions herein
and mail or deliver them to the Target.
THE OWNERSHIP SCHEDULE MUST BE SIGNED BY THE HOLDER AND RETURNED
TOGETHER WITH THIS OPTION RELEASE. A second copy of the Ownership Schedule for
the holder's records has also been included herewith.
2. DELIVERY. The Option Release and the enclosed Ownership Schedule,
when executed, should be mailed or delivered to:
(i) If prior to the closing of the Merger:
Jerell, Inc.
1431 Regal Row
Dallas, Texas 75247-3672
Attention: Chief Financial Officer
(ii) If after the closing of the Merger:
Haggar Clothing Co.
6113 Lemmon Avenue
Dallas, Texas 75209
Attention: General Counsel
The method of delivery of the Option Release and the Ownership Schedule
is at the option and risk of the surrendering holder. Delivery by expedited
mail, courier or other similar service is recommended. In all cases,
sufficient time should be allowed to ensure timely delivery. Holders are also
advised to retain a copy of all documents delivered.
3. SIGNATURE ON THE OPTION RELEASE. The signature on this Option
Release must correspond exactly with the holder's name in the records of the
Target.
4. REQUESTS FOR ASSISTANCE. If you have questions or need assistance
please call the Target's Chief Financial Officer at (214) 637-5300 (ext. 543).
C-4
<PAGE>
OWNERSHIP SCHEDULE
<TABLE>
<CAPTION>
NUMBER OF SHARES ISSUABLE
NAME OF OPTIONHOLDER UPON EXERCISE OF OPTION EXERCISE PRICE PER SHARE
- -------------------- ------------------------- ------------------------
<S> <C> <C>
--------------------------------------------------------------------
WIRE PAYMENT INSTRUCTIONS
--------------------------------------------------------------------
(To be completed if this Option Release is delivered to Acquiror at or
prior to the closing of the Merger):
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
PAYMENT DELIVERY INSTRUCTIONS
--------------------------------------------------------------------
(To be completed if this Option Release is delivered to the Surviving
Corporation after the closing of the Merger):
Address: ___________________________________
___________________________________
(Include Zip Code)
--------------------------------------------------------------------
--------------------------------------------------------------------
---------------------------
Signature of Holder
---------------------------
Type or Print Name
---------------------------
Date
--------------------------------------------------------------------
</TABLE>
C-5
<PAGE>
CERTIFICATION OF NON-FOREIGN STATUS PURSUANT TO THE
INTERNAL REVENUE CODE SECTION 1445
Section 1445 of the Internal Revenue Code provides that a transferee of
a U.S. real property interest must withhold tax if the transferor is a
foreign person. To inform Acquiror that withholding of tax is not required
upon the disposition of a U.S. real property interest pursuant to the terms
of the Merger Agreement, the undersigned hereby warrants, represents and
certifies that the undersigned is not a foreign corporation (as such term is
defined in the Internal Revenue Code and Income Tax Regulations) for purposes
of U.S. income taxation.
The undersigned understands that this certification may be disclosed to
the Internal Revenue Service by Acquiror and that any false statement by the
undersigned contained herein could be punished by fine, imprisonment, or both.
Under penalties of perjury, the undersigned declares that the
undersigned has examined this certification and to the best of the
undersigned's knowledge and belief it is true, correct and complete.
------------------------------------------
(Signature of Holder)
Date: ______________, 1998
C-6
<PAGE>
EXHIBIT D
FORM OF
NON-COMPETITION AGREEMENT
This Non-Competition Agreement (this "Agreement") is entered into as of
December 17, 1998, by and between Haggar Clothing Co., a Nevada corporation
("Acquiror"), and ______________________ ("Shareholder").
PRELIMINARY STATEMENTS
A. Concurrently with the execution of this Agreement, Acquiror, JI
Acquisition, Inc., a Texas corporation and wholly-owned subsidiary of Acquiror
("Acquiror Sub"), Jerell, Inc., a Texas corporation ("Target"), and each of the
persons named as "Shareholders" therein (including Shareholder), have entered
into an Agreement and Plan of Merger dated as of the date hereof (the "Merger
Agreement"), pursuant to which Acquiror Sub shall be merged with and into
Target. Capitalized terms used and not otherwise defined in this Agreement shall
have the meanings ascribed to them in the Merger Agreement;
B. Acquiror has required that Shareholder enter into this Agreement as an
inducement to Acquiror to enter into, and consummate the transactions
contemplated by, the Merger Agreement, and Shareholder desires to do so.
AGREEMENTS
NOW, THEREFORE, for and in consideration of the foregoing and the mutual
covenants and promises herein contained, the parties hereto, intending to be
legally bound hereby, hereby agree as follows:
1. CONSIDERATION. Shareholder has entered into this Agreement and made
the covenants hereinafter set forth in order to induce Acquiror to enter into,
and consummate the transactions contemplated by, the Merger Agreement.
2. CONFIDENTIAL INFORMATION. Shareholder acknowledges that the
confidential information and data obtained or possessed by Shareholder
concerning the business affairs of Target and the Target Subsidiaries (the
"Confidential Information") will, from and after the Effective time, be the
property of Acquiror, Target and the Surviving Corporation and not Shareholder.
Therefore, Shareholder agrees to not disclose to any Person or use for any
purpose the Confidential Information unless and to the extent that such
Confidential Information is (a) required to be disclosed by any applicable Law,
or (b) becomes generally known to and available for use by the public otherwise
than as a result of any act or omission to act of Shareholder. Shareholder
agrees to deliver to Acquiror, at the Closing, all memoranda, notes, plans,
records, reports and other documents (and copies thereof) relating to the
conduct of the business of Target and the Target Subsidiaries which Shareholder
may then possess or have under Shareholder's control.
D-1
<PAGE>
3. NONCOMPETITION. Except as expressly permitted herein, Shareholder
agrees that her or she shall not (and shall cause his or her Affiliates to not),
until 11:59 p.m. on the fourth anniversary of the Closing Date:
(a) directly or indirectly own, engage in, manage, operate, join,
control or participate in the ownership, management, operation or
control of, or be connected as a stockholder, director, officer,
employee, agent, consultant, partner, joint venturer, member,
beneficiary or otherwise with, any corporation, limited liability
company, partnership, sole proprietorship, association, business,
trust, or other organization, entity or individual which in any
way competes with Acquiror in the Business (as hereinafter
defined) in the Territory (as hereinafter defined); provided,
however, that Shareholder may own, directly or indirectly,
securities of any entity engaged in the Business if such
securities are traded on any national securities exchange or
listed on the National Association of Securities Dealers
Automated Quotation System and Shareholder does not, directly or
indirectly, own 1% or more of any class of equity securities, or
securities convertible into or exercisable or exchangeable for 1%
or more of any class of equity securities, of such entity;
(b) directly or indirectly aid, abet or otherwise assist, or act as a
consultant to, any individual, business or other organization or
entity in the Business in the Territory;
(c) directly or indirectly request or advise any present or future
customers of Acquiror or Target to cancel any contracts with
Acquiror, Target or the Surviving Corporation or curtail their
dealings with Acquiror, Target or the Surviving Corporation;
(d) directly or indirectly request or advise any present or future
service provider or financial resource of Acquiror or Target to
withdraw, curtail or cancel the furnishing of such service or
resource to Acquiror, Target or the Surviving Corporation or to
increase the price at which such services or resources are
provided to Acquiror, Target or the Surviving Corporation;
(e) directly or indirectly disclose or communicate to any other
person, firm or corporation engaged in the Business in the
Territory which disclosure or communication could reasonably be
expected to result in harm to Acquiror:
(i) the name of any past (within the last three years) or
present customer of Acquiror, Target or the Surviving
Corporation; or
(ii) the name of any past (within the last three years) or
present employee of Acquiror, Target or the Surviving
Corporation; or
D-2
<PAGE>
(f) directly or indirectly induce or attempt to influence any
employee of Acquiror or Target to terminate his or her employment
with Acquiror, Target or the Surviving Corporation.
As used herein, "Business" means the design, manufacture, marketing and import
of moderately priced women's sportswear and dresses. As used herein, "Territory"
means any point within the United States of America.
4. VALIDITY OF PROVISIONS. Shareholder acknowledges that the geographic
boundaries, scope of prohibited activities and time duration of the provisions
set forth in this Agreement are reasonable in nature and no broader than are
necessary to protect the Confidential Information and the business and goodwill
of Acquiror, Target and the Surviving Corporation, and that the enforcement of
such covenants will not cause Shareholder any undue hardship or unreasonably
interfere with Shareholder's ability to earn a livelihood. Nevertheless, if any
of the covenants set forth in this Agreement are found by a court having
jurisdiction to be unreasonable, or overly broad as to geographic area or time,
or otherwise unenforceable, the parties intend for the restrictions herein set
forth to be modified by such court so as to be reasonable and enforceable and,
as so modified by such court, to be fully enforced.
5. ENFORCEMENT OF COVENANTS. Shareholder agrees that a violation on his
or her part of any covenant contained in this Agreement shall cause irreparable
damage to Acquiror and, consequently, Shareholder further agrees that Acquiror
shall be entitled, as a matter of right, to an injunction restraining any
further violation of such covenant by Shareholder. Such right to an injunction
shall be cumulative and in addition to all other remedies that Acquiror may
have, including, but not limited to, recovery of damages.
6. EFFECTIVENESS OF AGREEMENT. Acquiror and the Shareholder hereby agree
that this Agreement shall, automatically and without any further action on the
part of either of Acquiror, Shareholder or any other party to the Merger
Agreement, become effective at the Effective Time. Acquiror and the Shareholder
agree that if the Merger Agreement is terminated in accordance with its terms,
this Agreement shall terminate and the parties hereto shall thereafter have no
further obligations to any other party hereunder.
7. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
facsimile, telegram or telex or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at the following
addresses (or at such other address for a party as shall be specified in a
notice given in accordance with this Section):
(i) if to Acquiror:
Haggar Clothing Co.
6113 Lemmon Avenue
Dallas, Texas 75209
Attention: General Counsel
Facsimile: (214) 956-4446
D-3
<PAGE>
with a copy to:
Vinson & Elkins L.L.P.
3700 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: J. Christopher Kirk
Facsimile: (214) 999-7897
(ii) If to Shareholder, at the address set forth beneath such
Shareholder's name on the signature page hereto.
8. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof and supersedes all
prior agreements and understandings among the parties with respect thereto. No
amendment to, addition to or modification of any provision of this Agreement
shall be binding upon any party hereto unless made in writing and signed by
Acquiror and Shareholder.
9. ASSIGNMENT; PARTIES BOUND. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of Law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any Person other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS APPLICABLE TO CONTRACTS EXECUTED
IN AND TO BE PERFORMED WHOLLY IN THAT STATE. ALL ACTIONS AND PROCEEDINGS ARISING
OUT OF OR RELATING TO THIS AGREEMENT SHALL BE HEARD AND DETERMINED IN ANY
FEDERAL OR STATE COURT SITTING IN THE CITY OF DALLAS, TEXAS.
11. NON-WAIVER OF BREACH. A waiver by any party hereto of a particular
breach or default by another party in connection with any provision of this
Agreement must be in writing and shall not be deemed a waiver of a default by a
third party or any subsequent default or breach of the same or any other
provision of this Agreement.
12. COUNTERPARTS. This Agreement may be executed and delivered (including
by facsimile transmission) in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when executed and
delivered shall be deemed to be an original, but all of which taken together
shall constitute one and the same agreement.
D-4
<PAGE>
13. ATTORNEYS' FEES. if any party hereto brings any action, at law or in
equity, to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to recover from the other party hereto reasonable
attorneys' fees in addition to any other relief to which such party may be
entitled.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
D-5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
HAGGAR CLOTHING CO.
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
By:
------------------------------------------
Shareholder
Address:
-------------------------------------
-------------------------------------
-------------------------------------
Attention:
--------------------------
Facsimile:
--------------------------
D-6
<PAGE>
EXHIBIT E
FORM OF RELEASE AND TERMINATION AGREEMENT
This Release and Termination Agreement, dated as of ________________, 199_
(this "TERMINATION AGREEMENT"), is made by and among, Jerell, Inc., a Texas
corporation (the "COMPANY"), Gerald M. Frankel ("GF"), Edward D. Vierling
("EV"), Richard Frankel ("RF"), Elizabeth Frankel Bailenson ("EF"), and Jessica
Frankel ("JF").
PRELIMINARY STATEMENTS
A. The Company, GF, EV, RF, EF, as successor-in-interest to the Elizabeth
Frankel Trust (the "EF TRUST") and JF, as successor-in-interest to the Jessica
Frankel Trust (the "JF TRUST"), as parties to that certain Succession Agreement
dated March 15, 1995 (the "SUCCESSION AGREEMENT").
B. Pursuant to the Succession Agreement, the Company and GF entered into
that certain Employment Agreement effective as of November 1, 1994 (the
"EMPLOYMENT AGREEMENT").
C. The Company, GF, EV, RF, EF, as successor-in-interest to the EF Trust
and JF, as successor-in-interest to the JF Trust, as parties to that certain
Voting Agreement dated as of March 15, 1995 (the "VOTING AGREEMENT").
D. GF, EV, RF, EF, as successor-in-interest to the EF Trust and JF, as
successor-in-interest to the JF Trust, as parties to that certain Stock
Option Agreement dated March 15, 1995 and amended on October 9, 1998 and
December 15, 1998 (as so amended, the "OPTION AGREEMENT").
E. The Company, GF, RF, EF, as successor-in-interest to the EF Trust
and JF, as successor-in-interest to the JF Trust, as parties to that certain
Buy-Sell Agreement dated June 27, 1991, which Buy-Sell Agreement was amended
on March 15, 1995 pursuant to the Succession Agreement (as so amended, the
"BUY-SELL AGREEMENT").
F. Haggar Clothing Co., a Nevada corporation ("ACQUIROR"), JI
Acquisition, Inc., a Texas corporation and wholly-owned subsidiary of
Acquiror ("ACQUIROR SUB"), the Company, GF, EV and, for the limited purposes
set forth therein, RF, EF and JF have entered into an Agreement and Plan of
Merger dated as of December 17, 1998 (the "MERGER AGREEMENT"), pursuant to
which Acquiror Sub shall be merged with and into the Company (the "MERGER").
Capitalized terms used but not otherwise defined in this Termination
Agreement shall have the meanings ascribed to such terms in the Merger
Agreement.
G. In order to induce Acquiror to enter into the Merger Agreement and to
consummate the transactions contemplated therein, the parties desire to enter
into this Termination Agreement to, among other things, terminate as of the
Effective Time their respective rights and obligations
E-1
<PAGE>
under the documents described in these Preliminary Statements to which they
are parties, which documents will thereafter be of no further force and legal
effect for all purposes, as set forth herein.
H. It is a condition precedent to the obligations of Acquiror to
consummate the Merger and the other Transactions contemplated in the Merger
Agreement that the parties hereto execute, deliver, enter into and perform this
Termination Agreement.
AGREEMENTS
NOW THEREFORE, in consideration of the premises and in order to induce
Acquiror to enter into, and consummate the Transactions contemplated by, the
Merger Agreement, the Company, GF, EV, RF, EF and JF, intending to be legally
bound, hereby agree as follows:
STATEMENT OF AGREEMENT
1. TERMINATION OF THE SUCCESSION AGREEMENT. Effective as of the Effective
Time, the Company, GF, EV, RF, EF and JF hereby terminate the Succession
Agreement, together with all rights, duties and obligations of the parties
thereunder. From and after the Effective Time, such parties shall have no, and
hereby release each other from all, obligations, claims, demands, costs,
contracts, liabilities, objections, actions and causes of action of any nature,
type or description, whether at law or in equity, in contract or tort, or
otherwise known or unknown, or suspected or unsuspected (collectively,
"OBLIGATIONS") that the parties ever had or now have or may claim to have or
hereafter have or claim to have to or against any of the other parties under the
Succession Agreement, and-the Succession Agreement shall be considered void and
of no further force and effect for all purposes.
2. TERMINATION OF THE EMPLOYMENT AGREEMENT. Effective as of the Effective
Time, the Company and GF hereby terminate the Employment Agreement, together
with all rights, duties and obligations of the parties thereunder. From and
after the Effective Time, such parties shall have no, and hereby release each
other from all, Obligations that the parties ever had or now have or may claim
to have or hereafter have or claim to have to or against any of the other
parties under the Employment Agreement, and the Employment Agreement shall be
considered void and of no further force and effect for all purposes.
3. TERMINATION OF THE VOTING AGREEMENT. Effective as of the Effective
Time, the Company, GF, EV, RF, EF and JF hereby terminate the Voting Agreement,
together with all rights, duties and obligations of the parties thereunder. From
and after the Effective Time, such parties shall have no, and hereby release
each other from all, Obligations that the parties ever had or now have or may
claim to have or hereafter have or claim to have to or against any of the other
parties under the Voting Agreement, and the Voting Agreement shall be considered
void and of no further force and effect for all purposes.
4. TERMINATION OF THE OPTION AGREEMENT. Effective as of the Effective
Time and following the consummation of the transactions contemplated in Section
8.19 of the Merger
E-2
<PAGE>
Agreement, the Company, GF, EV, RF, EF and JF hereby terminate the Option
Agreement together with all rights, duties and obligations of the parties
thereunder. From and after the Effective Time, such parties shall have no,
and hereby release each other from all, Obligations against each other that
the parties ever had or now have or may claim to have or hereafter have or
claim to have to or against any of the other parties under the Option
Agreement, and the Option Agreement shall be considered void and of no
further force and effect for all purposes.
5. TERMINATION OF THE BUY-SELL AGREEMENT. Effective as of the Effective
Time, the Company, GF, RF, EF and JF hereby terminate the Buy-Sell Agreement,
together with all rights, duties and obligations of the parties thereunder. From
and after the Effective Time, such parties shall have no, and hereby release
each other from all, Obligations that the parties ever had or now have or may
claim to have or hereafter have or claim to have to or against any of the other
parties under the Buy-Sell Agreement, and the Buy-Sell Agreement shall be
considered void and of no further force and effect for all purposes.
6. FURTHER ACTION. At any time and from time to time, each party to this
Termination Agreement agrees, subject to the terms and conditions of this
Termination Agreement, to take such reasonable actions and to execute and
deliver such documents as may be necessary to effectuate the purposes of this
Termination Agreement at the earliest practicable time.
7. WAIVER. Any failure of any of the parties to comply with any
obligation, covenant, agreement or condition herein may be waived by any of the
parties entitled to the benefit thereof only by a written instrument signed by
each such party granting such waiver, but such waiver or failure to insist upon
strict compliance with such obligation, representation, warranty, covenant,
agreement or condition shall not operate as a waiver of or estoppel with respect
to any subsequent or other failure.
8. GOVERNING LAW. THIS TERMINATION AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS APPLICABLE TO
CONTRACTS EXECUTED IN AND TO BE PERFORMED WHOLLY IN THAT STATE. ALL ACTIONS AND
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS TERMINATION AGREEMENT SHALL BE
HEARD AND DETERMINED IN ANY FEDERAL OR STATE COURT SITTING IN THE CITY OF
DALLAS, TEXAS.
9. COUNTERPARTS. This Termination Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
10. ENTIRETY OF THIS TERMINATION AGREEMENT. This Termination Agreement
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
among the parties with respect thereto. No addition to or modification of any
provision of this Termination Agreement shall be binding upon any party hereto
unless made in writing and signed by all parties hereto.
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<PAGE>
11. AMENDMENT. This Termination Agreement may not be amended except by an
instrument in writing signed by each party against whom such amendment is sought
to be enforced.
12. SEVERABILITY. If any term or other provision of this Termination
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Termination
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party. Upon such determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Termination Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby be consummated as originally contemplated to
the fullest extent possible.
13. HEADINGS. The descriptive headings contained in this Termination
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Termination Agreement.
14. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
facsimile, telegram or telex or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at the addresses
set forth in the Merger Agreement (or at such other address for a party as shall
be specified in a notice given in accordance with this Section).
[Remainder of this page is intentionally blank]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Termination
Agreement to be executed as of the date first written above.
JERELL, INC.
By:
------------------------------------
Name:
------------------------------
Title:
------------------------------
----------------------------------------
Gerald M. Frankel
----------------------------------------
Edward D. Vierling
----------------------------------------
Richard Frankel
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Elizabeth Frankel Bailenson
----------------------------------------
Jessica Frankel
E-5
<PAGE>
EXHIBIT F
TERMS OF AMENDMENT TO THE EMPLOYMENT AGREEMENT
Capitalized terms used but not otherwise defined in this Exhibit shall have
the meanings set forth in the Agreement.
1. Except as otherwise expressly described below, the economic terms of
the Vierling Employment Agreement will remain in effect until the end of
Acquiror's 1999 fiscal year, at which time Vierling and Acquiror or one of its
subsidiaries shall negotiate in good faith to enter into a three-year employment
contract with economic terms based upon, and consistent with, the letter from
Acquiror to Vierling dated November 18, 1998. Such agreement will be subject to
approval by Acquiror's Board of Directors, and will supersede all prior
agreements relating to Vierling's employment with the Target.
2. Vierling shall be employed as President of Acquiror's Women's Wear
Division.
3. Vierling's annual salary will be no less than $250,000. Unless
otherwise agreed by Vierling and Acquiror or an Acquiror Subsidiary as
contemplated in paragraph 1 above, during the term of Vierling's employment,
Vierling will be eligible to receive an annual cash performance bonus (the
"ANNUAL BONUS") based on a 70%/30% split between Target's net income performance
and Acquiror's net income performance, subject to the achievement of the
performance targets by Target and Acquiror as follows: (A) for Acquiror's 1999
fiscal year, (i) Target must meet its net income budget and (ii) there is no
minimum income performance requirement for Acquiror in order for Vierling to
receive an Annual Bonus; (B) for Acquiror's 2000 fiscal year, (i) Target must
meet its net income budget and (ii) Acquiror must make at least 25% of its net
income performance target in order for Vierling to receive an Annual Bonus and
(C) for Acquiror's 2001 fiscal year, (i) Target must meet its net income budget
and (ii) Acquiror must make at least 50% of its net income performance target in
order for Vierling to receive an Annual Bonus. The base amount of the Annual
Bonus will be $150,000. The Annual Bonus will be doubled for any year in which
both Acquiror's net income is 10% above the net income performance target and
Target's net income is 10% above the net income budget for that year. The net
income performance targets for Acquiror and the net income budgets for Target
will be established by the Board in its sole discretion; provided, however, that
the net income budget for Target will be based on the projections provided to
Acquiror by Jerell in connection with the Merger. Acquiror will notify Vierling
of the Acquiror net income performance targets for 1999 fiscal year within 45
days after the Closing Date and will notify Vierling of the Acquiror net income
performance targets for 2000 and 2001 fiscal years in accordance with Acquiror's
customary policies regarding such notification. The Annual Bonus, if any, shall
be paid within 90 days after the end of 1999, 2000 and 2001 fiscal years,
respectively.
4. The portion of the Aggregate Consideration that would otherwise have
been payable to Vierling pursuant to the Merger Agreement in an amount equal to
$1,500,000 will be held in
<PAGE>
escrow pursuant to the Merger Agreement and will be distributed to Vierling
as follows: $500,000 shall be paid to Vierling on each of the first, second
and third anniversaries of the Closing Date; provided, however, that Vierling
must remain a full-time employee of Acquiror for the entire calendar year
prior to a respective anniversary in order to receive such payment; provided,
further, however, that if Vierling's employment is terminated by Acquiror for
any reason, the remaining portion of the Employment Escrow Amount, if any,
shall be paid in full to Vierling.
5. On the Closing Date, Acquiror and Vierling shall enter into an
Agreement, using Acquiror's usual form, pursuant to which Acquiror will cause
Haggar Corp., a Nevada corporation and parent of Acquiror ("PARENT"), to grant
Vierling an option (the "STOCK OPTION") to purchase 25,000 shares of Parent's
common stock, par value $0.10 per share (the "COMMON STOCK") pursuant to
Parent's 1992 Long Term Incentive Plan, at an exercise price equal to the
closing price per share of the Common Stock on the Nasdaq National Market System
on the Closing Date. The Stock Option will vest as follows: 1/3 on December 31,
1999; 1/3 on December 31, 2000 and 1/3 on December 31, 2001; provided, however,
that the Stock Option shall so vest only if Vierling remains a full-time
employee of Acquiror for the entire preceding year.
Subject to approval by Acquiror's Board of Directors and performance review
of Vierling, Vierling will be eligible to receive annual grants of options to
purchase 10,000 to 25,000 shares of parent's Common Stock over the first three
years following the Closing Date.
F-2
<PAGE>
Exhibit 10(a)
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made and entered into as of
January 13, 1999, by and among Edward D. Vierling ("Vierling"), Edward D.
Vierling, not in his individual capacity, but in his capacity as Seller
Representative under the Merger Agreement described herein (the "Seller
Representative"), Haggar Clothing Co., a Nevada corporation ("Acquiror"), and
Chase Bank of Texas, N.A., a national banking association with its corporate
trust headquarters in Dallas, Texas (the "Escrow Agent").
RECITALS
A. Pursuant to the Agreement and Plan of Merger dated as of December 17,
1998 (the "Merger Agreement"), by and between Acquiror, JI Acquisition, Inc., a
Texas corporation and a direct, wholly-owned subsidiary of Acquiror ("Acquiror
Sub"), Jerell, Inc., a Texas corporation (the "Target"), and each of the
Target's shareholders named therein, Acquiror Sub shall be merged with and into
the Target (the "Merger"). Unless otherwise defined herein, capitalized terms
used herein shall have the meanings assigned to them in the Merger Agreement.
B. Simultaneously with the execution and delivery of this Agreement,
Acquiror or a Subsidiary of Acquiror and Vierling entered into the Amended
Employment Agreement.
C. It is a condition precedent to the consummation of the Merger that
Acquiror, Vierling, the Seller Representative and the Escrow Agent execute and
deliver this Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the recitals and of the respective
agreements and covenants contained herein, and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties,
intending to be legally bound, hereby agree as follows:
SECTION 1. ESTABLISHMENT OF ESCROW ACCOUNTS. Concurrently with the
execution hereof and pursuant to the Merger Agreement, Acquiror will deliver
(a) $1,500,000 in cash (the "Vierling Escrow Amount") to an account designated
by the Escrow Agent as the "Vierling Escrow Account," which amount shall be held
as security for certain payment obligations, if any, due from Acquiror to
Vierling in accordance with the Amended Employment Agreement, and (b) $2,000,000
in cash (the "Indemnification Escrow Amount") to an account designated by the
Escrow Agent as the "Jerell Escrow Account," which amount shall be held as
security for the indemnification obligations of the Target's shareholders to
Acquiror Indemnified Parties in accordance with Article 11 of the Merger
Agreement. The Vierling Escrow Amount, together with any Interest (as
hereinafter defined) earned thereon from any investment thereof hereunder, is
hereinafter referred to as the "Vierling Escrowed Property," and the
Indemnification Escrow Amount, together with any Interest earned thereon from
any investment thereof hereunder, is hereinafter referred to as the
"Indemnification Escrowed Property," and the sum of the foregoing amounts is
hereinafter referred to as the "Escrowed Property." The Escrowed Property and
any interest, dividends, income, or other proceeds earned
<PAGE>
thereon from and after the Closing Date (the "Interest") shall be held,
administered and disposed of by the Escrow Agent in accordance with the terms
and conditions hereinafter set forth.
SECTION 2. INVESTMENT OF PROCEEDS OF ESCROWED PROPERTY.
(a) The Escrow Agent shall from time to time invest and reinvest (i)
the Vierling Escrowed Property, if any, in such of the investments listed below
as Acquiror and Vierling may from time to time elect by joint written
instructions received by the Escrow Agent and (ii) the Indemnification Escrowed
Property, if any, in such of the investments listed below as Acquiror and the
Seller Representative may from time to time elect by joint written instructions
received by the Escrow Agent ("Permitted Investments"):
(A) Any U.S. Government or U.S. Government Agency security;
(B) Any commercial paper rated A1/P1 or better;
(C) Any certificate of deposit or time deposit in any bank with
a long-term debt rating of A or better from Moody's
Investors Services, Inc. or Standard & Poor's Corporation;
(D) Chase Vista 100% U.S. Treasury Securities Money Market Fund
(Vista Share Class); or
(E) The following institutional money market funds:
(1) Dreyfus Treasury Cash Management Fund
(2) Provident T-Fund Dollar Account
(3) Federated Treasury Obligations Fund
(4) AIM Treasury Portfolio
In the absence of written instructions to the contrary from Acquiror and
Vierling, the Escrow Agent shall invest the Vierling Escrowed Property in
Permitted Investments set forth in clause (D) of this Section 2(a). In the
absence of written instructions to the contrary from Acquiror and the Seller
Representative, the Escrow Agent shall invest the Indemnification Escrowed
Property in Permitted Investments set forth in clause (D) of this Section 2(a).
(b) Any Interest shall be set aside and distributed as provided in
Section 2(d).
(c) The Escrow Agent will act upon written investment instructions
the next Business Day after such instructions are received, provided such
instructions are communicated within a sufficient amount of time to allow the
Escrow Agent to make the specified investment by the next Business Day.
Instructions received after an applicable investment cutoff deadline will be
treated as being received by the Escrow Agent on the next Business Day, and the
Escrow Agent shall not be liable for any loss arising directly or indirectly, in
whole or in part, from the inability to invest Escrowed Property on the day the
instructions are received. The Escrow Agent shall not be liable for any loss
incurred by the actions of third parties or by any loss arising by error,
failure or delay in the
2
<PAGE>
making of an investment or reinvestment, and the Escrow Agent shall not be
liable for any loss of principal or income in connection therewith, unless
such error, failure or delay results from the Escrow Agent's gross negligence
or willful misconduct. As and when the Escrowed Property or any Interest or
any portion thereof is to be released under this Agreement, the Escrow Agent
shall cause the Permitted Investments pertaining to such release to be
converted into cash, and the Escrow Agent shall not be liable for any loss of
principal or income in connection therewith. None of the parties hereto
shall be liable for any loss of principal or income due to the choice of
Permitted Investments in which the Escrowed Property is invested or the
choice of Permitted Investments that are converted into cash pursuant to this
Section 2(c).
(d) Any Interest earned on the Vierling Escrowed Property shall be
distributed to Vierling within ten calendar days of the end of each calendar
quarter in which the Interest was paid to the Escrow Agent, in accordance with
joint written instructions executed by Vierling and Acquiror and received by the
Escrow Agent. Any Interest earned on the Indemnification Escrowed Property
shall be distributed for the benefit of the Target's shareholders in accordance
with joint written instructions executed by the Seller Representative and
Acquiror and received by the Escrow Agent, said written instructions to include
each Target shareholder's name, mailing address, W-9 (if available), and amount
or percentage each shareholder is to receive of such distribution. Upon the
termination of this Agreement pursuant to Section 15, and in the absence of
joint written instructions to the contrary executed by the Seller Representative
and Acquiror and received by the Escrow Agent, the Exchange Agent will pay the
Interest earned on the Indemnification Escrowed Property to Acquiror for the
benefit of the Target's shareholders. Notwithstanding anything to the contrary
contained herein, any provision hereof requiring the disbursement of Interest by
the Escrow Agent shall be construed to refer only to Interest which has accrued
and been paid to the Escrow Agent. Any Interest which has accrued and, except
for the fact that it has not been paid to the Escrow Agent, would otherwise be
required to be disbursed, shall be disbursed within two Business Days of being
paid to the Escrow Agent.
SECTION 3. RELEASE OF THE ESCROWED PROPERTY.
(a) Upon the occurrence of an event requiring the distribution to
Vierling or Acquiror of all or any portion of the Vierling Escrowed Property in
accordance with the Amended Employment Agreement or upon the mutual agreement of
Acquiror and Vierling, Acquiror and Vierling will deliver to the Escrow Agent a
written notice (a "Distribution Notice") requesting distribution to Vierling or
Acquiror, as applicable, of a specified amount of the Vierling Escrowed
Property, if any. Within three (3) Business Days after delivery of a
Distribution Notice to the Escrow Agent and the other parties hereto, the Escrow
Agent shall pay to either or both of Acquiror and Vierling the amount of the
Vierling Escrowed Property specified in such Distribution Notice. The Escrow
Agent will not distribute any of the Vierling Escrowed Property, excluding
Interest on the Vierling Escrowed Property which is to be distributed pursuant
to Section 2(d), until it receives a Distribution Notice or a Final
Determination (as hereinafter defined) setting forth the rights of Acquiror and
Vierling with respect to the Vierling Escrowed Property.
(b) The Escrow Agent shall disburse to Acquiror (for its own account
or for the account of any Indemnitee, as defined in Section 8) such portion of
the Indemnification Escrowed Property as instructed in writing pursuant to this
Section 3 to pay Target Indemnified Costs or
3
<PAGE>
Shareholder Indemnified Costs (collectively, "Indemnified Costs") for which
the Indemnitee is entitled to reimbursement pursuant to Article 11 of the
Merger Agreement. Payment shall be made not more than three Business Days
after: (i) the delivery to the Escrow Agent of joint written instructions
signed by Acquiror and the Seller Representative specifying an amount to be
paid to an Indemnitee, or (ii) the delivery to the Escrow Agent and the
Seller Representative of a copy of a Final Determination establishing the
Indemnitee's right to reimbursement under this Agreement and Article 11 of
the Merger Agreement with respect to such Indemnified Costs. A "Final
Determination" shall mean a final, non-appealable judgment of a court of
competent jurisdiction and shall be accompanied by an opinion of counsel for
the presenting party received by the Escrow Agent to the effect that such
judgment is a final, non-appealable judgment of a court of competent
jurisdiction.
SECTION 4. NO DISTRIBUTION OF EXPENSES. Neither Acquiror, Vierling,
the Seller Representative nor any other shareholder of Target shall be entitled
to reimbursement out of the Escrowed Property for any costs and expenses
incurred by them in connection with exercising their rights or performing their
duties under this Agreement, except that (a) Acquiror shall be entitled to
reimbursement from the Indemnification Escrowed Property for Indemnified Costs
as provided in Section 8 of this Agreement; and (b) upon joint written
instructions executed by Acquiror and the Seller Representative and received by
the Escrow Agent, the Seller Representative shall be entitled to reimbursement
from the Indemnification Escrowed Property for such costs and expenses as
instructed by Acquiror and the Seller Representative.
SECTION 5. SEGREGATION OF THE FUND. (a) The Escrow Agent shall
segregate from the Indemnification Escrow Amount and transfer into a separate
account (the "Pending Claims Account") maintained by the Escrow Agent for the
benefit of Acquiror and the Target's shareholders the portion of the
Indemnification Escrowed Property that may be necessary to satisfy in full all
Pending Claims (as defined below), and shall hold such portion in accordance
with this Section 5. "Pending Claims" shall mean unresolved Claims (as defined
in Section 8) that are the subject of one or more Claims Notices delivered under
Section 8(b). Such segregated Indemnification Escrowed Property will be
invested pursuant to Section 2.
(b) Any portion of the Indemnification Escrowed Property segregated
under Section 5(a) shall continue to be segregated by the Escrow Agent until the
Escrow Agent is directed to release such Indemnification Escrowed Property by
(i) written instructions signed by Acquiror and the Seller Representative, and
received by the Escrow Agent, instructing the Escrow Agent how to pay all or any
portion of such segregated Indemnification Escrowed Property including, in the
case of payments to be made to Target's shareholders, the name, mailing address,
W-9 (if available), and amount or percentage each shareholder is to receive of
such release, or (ii) a copy of a Final Determination establishing the
Indemnitee's or the Target's shareholders' right to reimbursement under Section
8. The Escrow Agent shall be entitled to rely conclusively on the written advice
of counsel to Acquiror or the Seller Representative, as the case may be, that
the judgment delivered to the Escrow Agent pursuant to this Section 5(b) is a
Final Determination.
4
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SECTION 6. DISTRIBUTION OF INDEMNIFICATION ESCROWED PROPERTY TO THE
TARGET'S SHAREHOLDERS. Not later than the second Business Day after the date
which is 12 months from the execution of this Agreement (the "Release Date"),
the Escrow Agent shall distribute to the Target's shareholders the remainder of
the Indemnification Escrowed Property (plus accrued and undistributed Interest
on the Indemnification Escrowed Property) minus the sum of the total amount of
Indemnification Escrowed Property that is then being segregated with respect to
Pending Claims under Section 5. Any amounts segregated with respect to Pending
Claims shall be released as provided in Section 5(b). Notwithstanding anything
to the contrary contained herein, any provision hereof requiring the
disbursement of Interest by the Escrow Agent shall be construed to refer only to
Interest which has accrued and been paid to the Escrow Agent. Any Interest
which has accrued and, except for the fact that it has not been paid to the
Escrow Agent, would be required to be disbursed, shall be disbursed within two
Business Days of being paid to the Escrow Agent.
SECTION 7. TAXPAYER IDENTIFICATION NUMBERS. The parties acknowledge
that payment of any Interest earned on the Escrowed Property invested in this
escrow, or the distribution of any other amounts under this escrow, will be
subject to backup withholding penalties unless a properly completed Internal
Revenue Service Form W-8 or W-9 certification is submitted to the Escrow Agent
by the party entitled to receive such payment.
SECTION 8. CLAIMS AGAINST THE INDEMNIFICATION ESCROWED PROPERTY. From
and after the Closing, but subject to the conditions and limitations set forth
in this Agreement and the Merger Agreement, the Acquiror Indemnified Parties and
their respective successors and assigns (collectively, the "Indemnitees") shall
be entitled to reimbursement out of the Indemnification Escrowed Property for
any and all Indemnified Costs pursuant to and as provided in Article 11 of the
Merger Agreement (collectively, the "Claims"). Notwithstanding any of the
provisions of the Merger Agreement, the Escrow Agent shall be entitled to
conclusively rely upon the provisions of Sections 8(a)-(d) hereof in determining
whether a Claim for indemnification shall be paid out of the Indemnification
Escrowed Property.
(a) Claims against the Indemnification Escrowed Property may be made
by Acquiror, on its own behalf or on behalf of any other Acquiror Indemnified
Party, for indemnification of any Indemnified Costs. No person other than
Acquiror shall be permitted to make a Claim on behalf of the Acquiror
Indemnified Parties against the Indemnification Escrowed Property for
Indemnified Costs under this Section 8 unless Acquiror provides written notice,
received by the Escrow Agent and the Seller Representative that Acquiror has
authorized another Acquiror Indemnified Party to make such claims.
(b) Acquiror shall promptly notify the Seller Representative and the
Escrow Agent in writing of any sums which Acquiror claims are subject to
indemnification ("Claims Notice"). Failure of Acquiror to exercise promptness
in such notification shall not amount to a waiver of such Claim unless, and only
to the extent that, the resulting delay materially and adversely prejudices the
Target's shareholders. Such notice shall consist of a description of the Claim
and specify each Acquiror Indemnified Party (including the name and mailing
address) and the amount (which may be estimated) of the Claim in United States
dollars.
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<PAGE>
(c) The Seller Representative may contest the Claims (or any portion
thereof) specified in any Claims Notice by giving the Escrow Agent and Acquiror
written notice of such contest within ten calendar days after receipt by the
Seller Representative and the Escrow Agent of such Claims Notice, which notice
of contest shall include a statement of the grounds of such contest and shall
state the amount of any such claim by Acquiror that the Seller Representative
does not dispute.
(d) Payment of any claim for indemnification (or portion thereof)
from the Indemnified Escrowed Property shall become due and payable as follows:
(i) If, notwithstanding Section 3(b) of this Agreement, at
5:00 p.m. (Dallas time) on the fifteenth Business Day after receipt by the
Seller Representative and the Escrow Agent of a Claims Notice pursuant to
Section 8(b) above, the Escrow Agent has not received written notice from the
Seller Representative that the Seller Representative contests the Claim (or
portion thereof) pursuant to Section 8(c) above, the Claim (or the uncontested
portion thereof) shall be paid the next Business Day by the Escrow Agent to
Acquiror or Acquiror Indemnified Party as specified in the applicable Claims
Notice;
(ii) If the Seller Representative contests the Claim (or
portion thereof) pursuant to Section 8(c) and the Claim (or portion thereof) is
settled by a written agreement of the Seller Representative and Acquiror, the
amount provided in such written agreement shall, upon receipt by the Escrow
Agent of a copy of such written agreement, be paid by the next Business Day by
the Escrow Agent pursuant to the terms of such written agreement; and
(iii) If the Seller Representative contests the Claim (or
portion thereof) pursuant to Section 8(c) hereof and a Final Determination has
been obtained, the amount set forth in such Final Determination, if any, shall
be paid by the next Business Day by the Escrow Agent pursuant to the terms of
such Final Determination.
SECTION 9. EXPIRATION OF CLAIMS FOR REIMBURSEMENT. Any Claim for
reimbursement from the Indemnification Escrow Amount must be asserted in writing
by Acquiror or any Acquiror Indemnified Party designated pursuant to
Section 8(a) in accordance with Section 8 by a writing received by the Seller
Representative and the Escrow Agent prior to 5:00 p.m. (Dallas time) on the
Release Date.
SECTION 10. THE ESCROW AGENT. To induce the Escrow Agent to act
hereunder, it is further agreed by Acquiror, Vierling and the Seller
Representative that:
(a) The Escrow Agent shall not be under any duty to give the Escrowed
Property held by it hereunder any greater degree of care than it gives its own
similar property and shall not be required to invest any Escrowed Property held
hereunder except as directed in this Agreement. Uninvested Escrowed Property
held hereunder shall not earn or accrue Interest.
(b) This Agreement expressly sets forth all the duties of the Escrow
Agent with respect to any and all matters pertinent hereto. No implied duties
or obligations shall be read into
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<PAGE>
this Agreement against the Escrow Agent. The Escrow Agent shall not be bound
by the provisions of any agreement among the other parties hereto except this
Agreement.
(c) Acquiror, Vierling and the Seller Representative hereby jointly
and severally indemnify Escrow Agent, its officers, directors, partners,
employees and agents (each herein called an "Indemnified Party") against, and
hold each Indemnified Party harmless from, any and all expenses, including,
without limitation, attorneys' fees and court costs, losses, costs, damages and
claims, including, but not limited to, costs of investigation, litigation and
arbitration, tax liability and loss on investments suffered or incurred by any
Indemnified Party in connection with or arising from or out of this Escrow
Agreement, except such acts or omissions as may result from the willful
misconduct or gross negligence of such Indemnified Party. Without limiting the
foregoing, the Escrow Agent shall in no event be liable in connection with its
investment or reinvestment of any cash held by it hereunder in good faith, in
accordance with the terms hereof, including without limitation, any liability
for any delays (not resulting from its gross negligence or willful misconduct)
in the investment or reinvestment of the Escrowed Property or any loss of
Interest incident to any such delays. This Section 10(c) shall survive
notwithstanding any termination of this Agreement or the resignation of the
Escrow Agent. IT IS THE EXPRESS INTENT OF EACH OTHER PARTY TO INDEMNIFY AND
HOLD HARMLESS THE INDEMNIFIED PARTIES FROM THEIR OWN NEGLIGENT ACTS OR
OMISSIONS.
(d) The Escrow Agent shall be entitled to rely in good faith upon any
order, judgment, certification, demand, notice, instrument or other writing
delivered to it hereunder in accordance with the terms hereof without being
required to determine the authenticity or the correctness of any fact stated
therein or the propriety or validity or the service thereof. The Escrow Agent
may act in reliance upon any instrument or signature believed by it in good
faith to be genuine and may assume that any person purporting to give receipt or
advice or make any statement or execute any document in connection with the
provisions hereof has been duly authorized to do so.
(e) The Escrow Agent may act pursuant to the advice of counsel with
respect to any matter relating to this Agreement and shall not be liable for any
action taken or omitted in good faith in accordance with such advice.
(f) The Escrow Agent does not have any interest in the Escrowed
Property deposited hereunder but is serving as escrow holder only and having
only possession thereof. Acquiror shall pay or reimburse the Escrow Agent upon
request for any transfer taxes or other taxes relating to the Escrowed Property
incurred in connection herewith and shall indemnify and hold harmless the Escrow
Agent from any amounts that it is obligated to pay in the way of such taxes.
Any payments of income from either Escrow Account shall be subject to
withholding regulations then in force with respect to United States taxes. It
is understood that the Escrow Agent shall be responsible for income reporting
only with respect to income earned on investment of the Escrowed Property and is
not responsible for any other reporting. This Section 10(f) shall survive
notwithstanding any termination of this Agreement or the resignation of the
Escrow Agent.
(g) The Escrow Agent makes no representation as to the validity,
value, genuineness or the collectability of any security or other document or
instrument held by or delivered to it.
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(h) The Escrow Agent shall not be called upon to advise any party as
to the wisdom in selling or retaining or taking or refraining from any action
with respect to any securities or other property deposited hereunder.
(i) The Escrow Agent (and any successor escrow agent) may at any time
resign as such by delivering the Escrowed Property to any successor escrow agent
jointly designated by the other parties hereto in writing or to any court of
competent jurisdiction, whereupon the Escrow Agent shall be discharged of and
from any and all further obligations arising in connection with this Agreement.
The resignation of the Escrow Agent will take effect on the date (the
"Resignation Date") which is the earlier to occur of: (i) the date a successor
is appointed (including by a court of competent jurisdiction) or (ii) the date
which is 30 calendar days after the date of delivery of its written notice of
resignation to the other parties hereto. Upon the appointment of a successor
escrow agent, such successor escrow agent shall deliver written notice to
Acquiror, Vierling and the Seller Representative of the appointment of such
successor escrow agent. If at the Resignation Date the Escrow Agent has not
received a designation of a successor escrow agent, the Escrow Agent's sole
responsibility after the Resignation Date shall be to safekeep the Escrowed
Property until receipt of a designation of successor escrow agent or a joint
written disposition instruction by the other parties hereto or a Final
Determination.
(j) The Escrow Agent shall have no responsibility for the contents of
any writing of any third party contemplated herein as a means to resolve
disputes and may rely without any liability upon the contents thereof.
(k) In the event of any disagreement between Acquiror and the Seller
Representative resulting in adverse claims or demands being made in connection
with the Indemnification Escrowed Property, or in the event that the Escrow
Agent in good faith is in doubt as to what action it should take hereunder with
respect to the Indemnification Escrowed Property, the Escrow Agent shall be
entitled to retain the Indemnification Escrowed Property until the Escrow Agent
shall have received (i) a Final Determination directing delivery of all or a
portion of the Indemnification Escrowed Property or (ii) a written agreement
executed by Acquiror and the Seller Representative directing delivery of all or
a portion of the Indemnification Escrowed Property, in which event the Escrow
Agent shall disburse the Indemnification Escrowed Property in accordance with
such Final Determination or written agreement. The Escrow Agent shall act on
such Final Determination or written agreement without further question.
In the event of any disagreement between Acquiror and Vierling
resulting in adverse claims or demands being made in connection with the
Vierling Escrowed Property, or in the event that the Escrow Agent in good faith
is in doubt as to what action it should take hereunder with respect to the
Vierling Escrowed Property, the Escrow Agent shall be entitled to retain the
Vierling Escrowed Property until the Escrow Agent shall have received (i) a
Final Determination directing delivery of all or a portion of the Vierling
Escrowed Property or (ii) a written agreement executed by Acquiror and Vierling
directing delivery of all or a portion of the Vierling Escrowed Property, in
which event the Escrow Agent shall disburse the Vierling Escrowed Property in
accordance with such Final Determination or written agreement. The Escrow Agent
shall act on such Final Determination or written agreement without further
question.
8
<PAGE>
(l) The compensation of the Escrow Agent (as payment in full) for the
services to be rendered by the Escrow Agent hereunder shall be paid pursuant to
the attached fee schedule. Acquiror hereby agrees with the Escrow Agent,
Vierling and the Seller Representative that all fees and expenses of the Escrow
Agent hereunder shall be paid by Acquiror. Without limiting Acquiror's
obligations as set forth in the immediately preceding sentence, any fees or
expenses of the Escrow Agent or its counsel which are not paid as provided for
herein may be taken first, from the Indemnification Escrowed Property, and
second, from the Vierling Escrowed Property held by the Escrow Agent hereunder.
The Escrow Agent's fee may be adjusted from time to time to conform to its then
current guidelines.
(m) Except as may be required by applicable law, no prospectuses,
press releases, reports and promotional material, or other similar materials
which mention in any language the Escrow Agent's name or the rights, powers, or
duties of the Escrow Agent shall be issued by the other parties hereto or on
such parties' behalf unless the Escrow Agent shall first have given its specific
written consent thereto.
(n) The other parties hereto authorize the Escrow Agent, for any
securities held hereunder, to use the services of any United States central
securities depository it deems appropriate, including, but not limited to, the
Depositary Trust Company and the Federal Reserve Book Entry System.
SECTION 11. NOTICES. All notices, requests, consents, waivers, and
other communications required or permitted to be given hereunder shall be in
writing and shall be deemed to have been duly given if: (a) transmitted by
facsimile, upon acknowledgment of receipt thereof in writing by facsimile or
otherwise; (b) personally delivered, upon delivery or refusal of delivery; (c)
mailed by registered or certified United States mail, return receipt requested,
postage prepaid, upon delivery or refusal of delivery; or (d) sent by a
nationally recognized overnight delivery service, upon delivery or refusal of
delivery. All notices, consents, waivers, or other communications required or
permitted to be given hereunder shall be addressed to the respective party to
whom such notice, consent, waiver, or other communication relates at the
following addresses:
(i) if to Acquiror or to any Indemnitee:
Haggar Clothing Co.
6113 Lemmon Avenue
Dallas, Texas 75209
Attention: General Counsel
Facsimile: (214) 956-4446
9
<PAGE>
with a copy to:
Vinson & Elkins L.L.P.
3700 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: J. Christopher Kirk
Facsimile: (214) 999-7897
(ii) if to the Seller Representative, to:
Edward D. Vierling
c/o Jerell Inc.
1431 Regal Row
Dallas, Texas 75247-3672
Facsimile: (214) 637-4205
(iii) if to Vierling, to:
Edward D. Vierling
c/o Jerell Inc.
1431 Regal Row
Dallas, Texas 75247-3672
Facsimile: (214) 637-4205
(iv) if to the Escrow Agent, to:
Chase Bank of Texas, N.A.
2200 Ross Avenue, 5th Floor
Dallas, Texas 75201
Attn: Michael A. Scrivner
Facsimile: (214) 965-3577
Any party by written notice to the other parties pursuant to this Section 11 may
change the address or the persons to whom notices or copies thereof shall be
directed.
SECTION 12. WAIVERS; AMENDMENTS. Any waiver by any party hereto of any
breach of or failure to comply with any provision of this Agreement by any other
party hereto shall be in writing and shall not be construed as, or constitute, a
continuing waiver of such provision, or a waiver of any other breach of, or
failure to comply with, any other provision of this Agreement. This Agreement
may only be modified by a writing signed by all of the parties hereto.
SECTION 13. CONSTRUCTION. The headings in this Agreement are solely for
convenience of reference and shall not be given any effect in the construction
or interpretation of this Agreement. Unless otherwise stated, references to
Sections are references to Sections of this Agreement.
10
<PAGE>
SECTION 14. ASSIGNMENT; THIRD PARTIES. Neither this Agreement nor any
of the rights, interests, or obligations hereunder shall be assigned by any of
the parties hereto, whether by operation of law or otherwise; provided, however,
that (a) upon notice to Vierling, the Seller Representative and the Escrow Agent
and without releasing Acquiror from any of its obligations or liabilities
hereunder, Acquiror may assign or delegate any or all of its rights or
obligations under this Agreement to any Affiliate of Acquiror or any Person with
or into which Acquiror or any parent company of Acquiror merges or consolidates,
and (b) nothing in this Agreement shall limit Acquiror's ability to make a
collateral assignment of its rights under this Agreement to any institutional
lender that provides funds to Acquiror or Acquiror's designee without the
consent of Vierling, the Seller Representative or the Escrow Agent. Vierling,
the Seller Representative and the Escrow Agent shall execute an acknowledgment
of such assignment(s) and collateral assignments in such forms as Acquiror or
its institutional lenders may from time to time reasonably request; PROVIDED,
HOWEVER, that unless written notice is given to Vierling, the Seller
Representative and the Escrow Agent that any such collateral assignment has been
foreclosed upon, Vierling, the Seller Representative and the Escrow Agent shall
be entitled to deal exclusively with Acquiror as to any matters arising under
this Agreement or any of the other agreements or instructions delivered pursuant
hereto. In the event of such an assignment, the provisions of this Agreement
shall inure to the benefit of and be binding on Acquiror's assigns.
SECTION 15. TERMINATION. This Agreement shall terminate at the time of
the final distribution by the Escrow Agent of all Escrowed Property in
accordance with the provisions of this Agreement.
SECTION 16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute a single instrument.
SECTION 17. GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the internal law of the State of Texas (without
reference to its rules as to conflicts of law).
SECTION 18. CONSENT TO SERVICE. Acquiror, Vierling and the Seller
Representative hereby irrevocably submit to the jurisdiction of any Texas state
or federal court sitting in Dallas, Texas in any action or proceeding to which
the Escrow Agent is a party arising out of or relating to this Agreement, and
the parties hereby irrevocably agree that all claims in respect of such action
or proceeding shall be heard and determined in such a Texas state or federal
court. The parties hereby consent to and grant to such court jurisdiction over
the person of such parties and of the subject matter of any such dispute and
agree that delivery or mailing of any process or other papers in the manner
provided hereinabove, or in such other manner as may be permitted by law, shall
be valid as to sufficient service thereof.
SECTION 19. SEVERABILITY. The invalidity, illegality or
unenforceability of any provisions of this Agreement shall in no way affect the
validity, legality or enforceability of any other provision; and if any
provision is held to be unenforceable as a matter of law, the other provisions
shall not be affected thereby and shall remain in full force and effect.
11
<PAGE>
SECTION 20. LIENS. Each of the Acquiror, Vierling and the Seller
Representative hereby grants to Escrow Agent a lien upon, and security interest
in, all its right, title and interest in and to all of the Vierling Escrow
Property and the Indemnification Escrow Property as security for the payment and
performance of its obligations owing to Escrow Agent hereunder, including,
without limitation, its obligations of payment, indemnity and reimbursement
provided for hereunder, which lien and security interest may be enforced by
Escrow Agent without notice by charging and setting-off and paying from, the
Vierling Escrow Property the Indemnification Escrow Property any and all amounts
then owing to it pursuant to this Agreement or by appropriate foreclosure
proceedings.
SECTION 21. RIGHT OF INTERPLEADER. Should any controversy arise
involving the parties hereto or any of them or any other person, firm or entity
with respect to this Agreement or the Vierling Escrow Property or the
Indemnification Escrow Property, or should a substitute escrow agent fail to be
designated as provided in Section 10(j) hereof, or if Escrow Agent should be in
doubt as to what action to take, Escrow Agent shall have the right, but not the
obligation, either to (a) withhold delivery of the Vierling Escrow Property or
the Indemnification Escrow Property, as the case may be, until the controversy
is resolved, the conflicting demands are withdrawn or its doubt is resolved or
(b) institute a petition for interpleader in any court of competent jurisdiction
to determine the rights of the parties hereto. In the event Escrow Agent is a
party to any dispute, Escrow Agent shall have the additional right to refer such
controversy to binding arbitration. Should a petition for interpleader be
instituted, or should Escrow Agent be threatened with litigation or become
involved in litigation or binding arbitration in any manner whatsoever in
connection with this Escrow Agreement or the Vierling Escrow Property or the
Indemnification Escrow Property, then, as between (a) the Acquiror, Vierling and
the Seller Representative, on the one hand and (b) Escrow Agent on the other,
the Acquiror, Vierling and the Seller Representative agree to reimburse Escrow
Agent for its reasonable attorneys' fees and any and all other expenses, losses,
costs and damages reasonably incurred by Escrow Agent in connection with or
resulting from such threatened or actual litigation or arbitration prior to any
disbursement hereunder.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first written above.
"ACQUIROR"
HAGGAR CLOTHING CO.
By: /s/ Frank D. Bracken
---------------------------------------
Name: Frank D. Bracken
-------------------------------------
Title: President and COO
------------------------------------
"VIERLING"
/s/ Edward D. Vierling
------------------------------------------
Edward D. Vierling
"SELLER REPRESENTATIVE"
/s/ Edward D. Vierling
-------------------------------------------
Edward D. Vierling, , not in his individual
capacity, but in his capacity as Seller
Representative under the Merger Agreement
"ESCROW AGENT"
CHASE BANK OF TEXAS, N.A.
By: /s/ Michael A. Scrivner
----------------------------------------
Name: Michael A. Scrivner
--------------------------------------
Title: Vice President
-------------------------------------
[SIGNATURE PAGE TO ESCROW AGREEMENT]
<PAGE>
[LOGO]
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SCHEDULE OF FEES
FOR
ESCROW AGENT SERVICES
- -------------------------------------------------------------------------------
NOTE: WE ASSUME UNDER THE FOLLOWING FEE SCHEDULE THAT THE DEPOSIT PROCEEDS
WILL BE CONTINUALLY INVESTED IN ONE OF CHASE'S VISTA MONEY MARKET MUTUAL
FUNDS.
MINIMUM ADMINISTRATIVE FEE................................. $ 3,000
Payable Upon Account Opening and in Advance for each year in
which we act as Escrow Agent (There will be an additional charge
of $500 per account in excess of the two initial accounts.)
ACTIVITY FEES:
<TABLE>
<CAPTION>
<S> <C>
DISBURSEMENTS
Per Check $ 15.00
Per Wire U.S. $ 35.00
International $ 100.00
RECEIPTS
Per Check $ 7.50
Per Wire $ 10.00
INVESTMENTS
Per directed buy/sell $ 50.00
Per 1099 tax report $ 10.00
LEGAL EXPENSES: AT COST
There will be no legal expense for Chase if Chase's standard form escrow
agreement is employed without substantive amendments.
</TABLE>
<PAGE>
A New Account Acceptance Fee will be charged for the Bank's review of the
Escrow Agreement along with any related account documentation. A one (1) year
Minimum Administrative Fee will be assessed for any account which is funded.
The account will be invoiced in the month in which the account is opened and
annually thereafter. Payment of the invoice is due 30 days following receipt.
The Administrative Fee will cover a minimum of fifteen (15) annual
administrative hours for the Bank's standard Escrow services including
account setup, safekeeping of assets, investment of funds, collection of
income and other receipts, preparation of statements comprising account
activity and asset listing, and distribution of assets in accordance with the
specific terms of the Escrow Agreement.
EXTRAORDINARY SERVICES AND OUT-OF-POCKET EXPENSES:
Any additional services beyond our standard services as specified above, such
as annual administrative activities in excess of fifteen (15) hours and all
reasonable out-of-pocket expenses including attorney's fees will be
considered extraordinary services for which related costs, transaction
charges, and additional fees will be billed at the Bank's standard rate.
MODIFICATION OF FEES:
Circumstances may arise necessitating a change in the foregoing fee schedule.
The Bank will attempt at all times, however, to maintain the fees at a level
which is fair and reasonable in relation to the responsibilities assumed and
the duties performed.
OTHER INFORMATION:
Administrative Accounting Fee Disclosure: Chase may receive a 12(b)-1 fee of
up to 65 basis points (.65 percent) from affiliates of investment companies
whose shares may be purchased for client accounts, or a cash management fee
of up to 50 basis points (.50 percent) on client funds which are deposited
into an interest-bearing money market demand or savings account or certain
money market mutual fund investments including the Chase Vista funds. The fee
is compensation for administrative and accounting services provided to clients.
- -------------------------------------------------------------------------------
All fees quoted are subject to our review and acceptance and that of our
legal counsel of the documents governing the escrow. As a condition for
acceptance of an appointment, it is expected that all legal fees and
out-of-pocket expenses incurred by Chase Bank of Texas, N.A. and our
counsel in connection with our review of the transaction will be paid by
the client regardless of whether or not the transaction closes.
- -------------------------------------------------------------------------------
<PAGE>
Exhibit 10(b)
RESTATED
EMPLOYMENT AGREEMENT
BETWEEN
JERELL, INC.
AND
EDWARD D. VIERLING
EFFECTIVE AS OF NOVEMBER 1, 1994
<PAGE>
RESTATED EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into effective as of the
1st day of November, 1994, by and between Jerell, Inc., a Texas corporation
(the "Employer") and Edward D. Vierling (the "Employee").
R E C I T A L S:
A. Employer sells and merchandises garment items;
B. Employer desires to engage Employee as President and Chief
Executive Officer of Employer to perform the services required of him by the
terms hereof;
C. Employee desires to accept employment as President and Chief
Executive Officer of Employer.
D. Employer desires to protect its legitimate business interests.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties do hereby agree as follows:
ARTICLE I
ASSOCIATION AND RELATIONSHIP
1.1 NATURE OF EMPLOYMENT. Employer acting through its Board of
Directors shall direct, control, and supervise the duties and work of
Employee in Employee's capacity as a President and Chief Executive Officer of
Employer.
1.2 NATURE OF RELATIONSHIP. Employee shall be employed as President and
Chief Executive Officer of Employer, and Employee agrees to devote such time
and attention to Employer's business as may be necessary to accomplish his
assigned responsibilities and duties with such duties as may be assigned to
him from time to time by Employer; provided that only duties of the type,
nature and dignity normally assigned to an officer of his position in a
company of the size and nature of Employer may be assigned to Employee.
Employee agrees to perform his duties in accordance with any reasonable rules
and regulations promulgated by Employer. It is expressly agreed that the
continued employment of Employee by Employer from the date of this Agreement
is part of Employee's consideration for this Agreement. Employer may not
relocate Employee's principal office from the Dallas, Texas area without
Employee's prior written consent.
1.3 EXCLUSIVE SERVICES. Employee shall devote substantially his entire
working time and attention to Employer's business and affairs, except for
reasonable vacations and except for
EMPLOYMENT AGREEMENT -1- VIERLING
<PAGE>
illness or incapacity and shall not, without the consent of the Board of
Directors, either directly or indirectly, engage in any other profession or
business which would interfere with Employee's duties and responsibilities
hereunder. Passive and personal investments and the conduct of private
business affairs shall not be prohibited under the Agreement to the extent
that such activities do not detract from Employee's duties and
responsibilities.
1.4 SATISFACTION. Employee agrees that he will faithfully, promptly and
to the best of his ability, experience and talent perform all of the duties
that may be required of and from him pursuant to the express and implicit
terms hereof.
ARTICLE II
COMPENSATION AND EXPENSES
2.1 COMPENSATION. In consideration for his services, Employer agrees
that during the term of this Agreement, Employee shall be paid a salary of
$200,000 annually, payable in accordance with the normal payroll practices of
Employer during the period of Employee's employment under this Agreement.
2.2 BONUS. Employee shall be entitled to receive the following bonus
payments based upon Employee's performance hereunder and, in particular,
Employee's performance as the Chief Executive Officer of the Dress Division:
A. BASE BONUS. Employee shall be entitled to receive a Base Bonus
(herein so called) of 5% of the net profits before taxes of the Dress
Division (herein so called, which includes all division and profit centers of
the Employer other than the Multiples Division) for the Employer's fiscal
year if the Dress Division's net profits before taxes are $1 million or less.
B. EXCESS BONUS. The net profits before taxes of the Dress
Division in excess of $1 million for the Employer's fiscal year (the "Excess
Profits") shall be divided into three equal parts and applied and utilized as
follows:
1. The "first part" of the Excess Profits shall be divided
among the employees of the Dress Division as determined by Employee,
provided, however, Employee shall only be entitled to receive a maximum of
50% of the "first part" share of the Excess Profits, referred to herein as
the "Excess Bonus".
2. The "second part" of the Excess Profits shall be utilized
by the Employer for corporate purposes.
3. The "third part" of the Excess Profits shall be combined
with the third part of the "Multiples Division Excess Profits" (defined
below) to create a "Corporate Fund" (defined below) out of which Employee may
be entitled to receive a "Corporate Bonus" (defined below), all as provided
in subparagraph C below.
EMPLOYMENT AGREEMENT -2- VIERLING
<PAGE>
C. CORPORATE BONUS. Employee shall also be entitled to receive a
bonus out of a Corporate Fund (herein so called) made up of the "third part"
of the Excess Profits referred to in subparagraph B above and the "third
part" of the Multiples Division's Excess Profits (herein so called), all of
which Corporate Fund shall be subject to adjustments as provided below. The
Multiples Division's net profits before taxes in excess of $1 million for the
Employer's fiscal year shall be referred to as the "Multiples Division's
Excess Profits". The Multiples Division's Excess Profits shall be divided
into three equal parts, the first two parts of which Employee shall not be
entitled to participate. The "third part" of Multiples Division's Excess
Profits shall be added to the Corporate Fund. The Corporate Fund shall then
be reduced by ESOP contributions, interest on the ESOP debt (or, if the ESOP
debt is renegotiated, debt service to third-party lenders; provided,
however, there shall be no duplication of deductions - for example, if the
ESOP debt is paid by the ESOP out of ESOP contributions made by Employer, the
ESOP contributions will be deducted but not the debt payments by the ESOP)
and the remaining amount of corporate general, administrative and data
processing expenses not previously allocated to the Dress and Multiples
Divisions. Employee shall be entitled to a Corporate Bonus (herein so called)
equal to the lesser of (i) 25% of such remaining amount of the Corporate Fund
or (ii) 25% of the Corporate Fund.
D. DEFINITION OF NET PROFITS. The term "net profits before taxes"
as used herein with respect to the Dress and Multiples Divisions shall mean
all revenue from sales of garments derived from the Dress Division or the
Multiples Division, as the case may be, minus expenses incurred by such
Division, including (i) factoring fees and costs allocable to that Division
as well as (ii) such Division's share of corporate data processing costs and
expenses and corporate general and administrative expenses which corporate
expenses in the aggregate shall not exceed 10% of such Division's revenue.
Net profits before taxes for the Dress Division and Multiples Division, as
the case may be, and the Employer's net profits before taxes shall be
determined by the Employer in accordance with its historical internal
accounting practices as consistently applied for prior periods.
E. BONUS PAYMENTS. Employee shall be entitled to receive Base
Bonus, Excess Bonus and Corporate Bonus (collectively the "Bonus") payments
based on the Employer's then current fiscal year. Until such time as the
cumulative net profits before taxes for the current fiscal year are
determined, Employee shall be entitled to receive on a cumulative basis for
each fiscal quarter 50% of the Base Bonus, Excess Bonus and Corporate Bonus
accumulated through the then current fiscal quarter, such amount of the Bonus
to be paid not later than 45 days following the end of the first three fiscal
quarters and 90 days following the end of the Employer's fiscal year (for the
final fiscal quarter) and at the same time the final bonus payment for the
fiscal year shall be calculated and paid. In the event Employee's share of
the Bonus is overpaid during any fiscal quarter or fiscal year, the amount of
such overpayment may be offset against any future Bonus payments to Employee
hereunder. At Employee's option all or any portion of Employee's Bonus may be
paid in the form of or applied for the purchase of Employer common stock
which may be subject to a stock restriction agreement which, among other
things, values such shares of common stock at the book value per share as of
the end of the Employer's fiscal year as determined by the accountant's
annual audit report; provided, however, Employee's right to elect to receive
Employer stock shall
EMPLOYMENT AGREEMENT -3- VIERLING
<PAGE>
terminate immediately upon receipt of written notice of termination or an
event of termination provided for herein, whichever is the first to occur. In
no event shall Employee be permitted to acquire shares under this Agreement
and under any other agreement which would reduce the Frankel Shares equity
interest in the Company to less than 51% unless otherwise specifically
permitted by such agreement. Employee may receive or purchase shares at their
book value determined as of the end of the Employer's fiscal year in which
the Employee's Bonus is earned.
2.3 OTHER BENEFITS. The Employee shall be eligible to participate in
the Employer's ESOP and in other group plans currently maintained by the
Employer on the same terms and conditions as other employees of the Employer.
2.4 EXPENSES. Employer agrees to pay all travel and other expenses of
Employee incident to Employee's rendering services to the Employer subject to
proper documentation by Employee.
ARTICLE III
CONFIDENTIAL INFORMATION
3.1 NONDISCLOSURE. Employee expressly covenants and agrees that he
will not, during his employment with Employer or for a period of two years
after the termination hereof, irrespective of the manner or cause of the
termination, directly or indirectly, reveal, divulge, disclose, or
communicate to any person, firm, or corporation, other than authorized
officers, directors, and employees of Employer, in any manner whatsoever, any
Confidential Information (herein defined) of Employer or any of its
subsidiaries or affiliates without the prior written consent of a duly
authorized officer of Employer.
3.2 DEFINITION OF "CONFIDENTIAL INFORMATION". As used herein,
"Confidential Information" means information of any kind, nature, and
description disclosed to, discovered by, or otherwise known by Employee as a
direct or indirect consequence of or through his employment with Employer,
not generally known in the businesses in which Employer is or may become
engaged (other than through or as a result of Employee's unauthorized
disclosure), about Employer's business, merchandise, processes and services,
including, but not limited to, information relating to Employer's research,
developments, inventions, product lines, designs, purchasing, finances and
financial affairs, marketing, merchandising, clients, customers or persons or
concerns likely to become clients or customers, any past or present
merchandise or supply sources, or persons or concerns likely to become
merchandise or supply sources in the future, system designs, procedure
manuals, the prices it obtains or has obtained or at which it sells or has
sold its services or products, the names of its personnel, automated data
programs, reports, personnel procedures, and supply and service resources.
Without regard to whether any or all of the foregoing matters would be deemed
to be confidential, material, or important, the parties hereto stipulate that
between them, the same are important, material, and confidential and if
disclosed would materially affect the successful conduct of the business of
the Employer and its goodwill.
EMPLOYMENT AGREEMENT -4- VIERLING
<PAGE>
3.3 RETURN OF EMPLOYER INFORMATION. Upon termination of this Agreement
or Employee's employment, unless authorized to the contrary in writing by a
duly authorized officer of Employer, Employee will surrender to Employer all
proprietary information relating to Employer and its business, including, but
not limited to, Confidential Information, all lists, rolodex cards, charts,
schedules, reports, financial statements, books and records, designs, and all
copies thereof, of Employee (regardless of whether such information may have
been prepared or compiled by Employee) and any and all other property
belonging to Employer whatsoever. Employee shall have no right to copy or
otherwise reproduce any of the items set forth above, which items are the
sole and exclusive property of the Employer.
ARTICLE IV
EMPLOYEE COVENANTS
As a condition to continued employment and in consideration of the
compensation paid to Employee under Paragraph 2.1 and the Bonus structure set
forth in Paragraph 2.2, the benefits provided under the Succession Agreement
dated March 15, 1995, of which this Agreement is a part and the disclosure of
Confidential Information, Employee hereby agrees that for a period of 12
months following Employee's termination of employment and for the period
extending beyond the 12 months in which Employee is receiving payments
provided for hereunder, Employee will not directly or indirectly, either
through any kind of ownership (other than ownership of securities of a
publicly held corporation of which Employee owns less than one percent of any
class of outstanding securities), or lending relationship or as a director,
officer, principal, agent, employee, employer, advisor, consultant,
co-partner, or in any individual or representative capacity whatever, either
for his own benefit or for any other person or business entity, without the
written consent of the Employer:
(i) compete in any way with the Dress Division of Employer anywhere
in the United States;
(ii) hire any employee of Employer or in any way try to influence any
employee of Employer to terminate his employment with Employer; and
(iii) directly or indirectly request or advise any present or future
merchandise resource, supply resource, or service resource of the Employer to
withdraw, curtail or cancel the furnishing of sales of merchandise, supplies
or services to the Employer.
Anything in this Article IV to the contrary notwithstanding, the covenant
contained in paragraph (i) above shall be applicable only in the event
Employee voluntarily terminates employment hereunder or is terminated for
"cause" (as defined herein) by the Employer.
EMPLOYMENT AGREEMENT -5- VIERLING
<PAGE>
ARTICLE V
SURVIVAL OF COVENANTS
In the event of termination of this Agreement for any reason, then the
covenants contained in Article III and Article IV hereof shall survive the
termination of Employee's employment with Employer. Employee agrees that the
salary, bonus, participation in the benefit plans of the Employer, access to
Confidential Information and benefits derived from the Succession Agreement
dated March 15, 1995, constitute full and complete compensation to Employee
for all Employee's obligations, covenants and services and for all general
and specific assignments under this Agreement.
ARTICLE VI
ENFORCEMENT OF COVENANTS
6.1 SPECIFIC PERFORMANCE, ETC. Employee agrees that a violation on his
part of any covenant contained in Article III and IV of this Agreement will
cause such damage to Employer as will be irreparable and for that reason,
Employee further agrees that Employer shall be entitled as a matter of right,
to an injunction out of any court of competent jurisdiction, restraining any
further violation of said covenants by Employee, his employer, employees,
partners, or agents. Such right to injunction shall be cumulative and in
addition to whatever other remedies Employer may have, including,
specifically, recovery of damages. Employee and Employer expressly
acknowledge and agree that such covenants and agreements shall be construed
in such a manner as to be enforceable under applicable laws if a court of
competent jurisdiction determines that limitations on such covenants and
agreements are required.
6.2 COST AND EXPENSES. The non-prevailing party shall reimburse the
prevailing party for any reasonable legal fees, costs and expenses incurred
by the prevailing party in a proceeding to secure the performance of the
covenants contained in this Agreement or in establishing damages for the
breach thereof, or in obtaining any other appropriate relief hereunder.
6.3 INDEPENDENT COVENANTS. The covenants and agreements contained in
Articles III and IV herein shall be construed as covenants or agreements
independent of any other provision of this Agreement and the allegation or
existence of any claim or cause of action of Employee against Employer,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Employer of the covenants contained
therein; provided, however, if Employer is in default of any salary or Bonus
payments required to be made to Employee hereunder and fails to make such
payment 30 days after receipt of written notice of default from Employee, then
the covenants contained in Article IV shall not be enforceable against
Employee.
6.4 VALIDITY. It is the intent of the parties that the provisions
contained in this Agreement, in particular, the covenants contained in
Articles III and IV hereof shall, to the
EMPLOYMENT AGREEMENT -6- VIERLING
<PAGE>
fullest extent permissible under law and public policy, be enforced by the
courts of each state and jurisdiction in which enforcement is sought and that
unenforceability (or the modification necessary to conform with such law and
public policy) of any part of such covenants shall not be deemed to render
unenforceable any other part of those covenants. Accordingly, if any part of
Articles III and IV hereof shall be adjudicated to be invalid or
unenforceable in any action or proceeding in which Employee, his heirs,
executors, and administrators and the Employee, its successors or assigns,
are parties, whether in its entirety or except as modified as to the
duration, territory or otherwise, then such part shall be deemed deleted or
amended, as the case may be, from the Agreement in order to render the
remainder of those articles valid and enforceable. Any such deletion or
amendment shall apply only where the court rendering the same has
jurisdiction.
6.5 EMPLOYEE REPRESENTATIONS. Insofar as the covenants set out in
Articles III and IV are concerned, Employee specifically acknowledges and
agrees as follows: (i) the covenants are reasonable and necessary to protect
the goodwill and business interest of the Employer; (ii) the time duration
and geographical area limitations of the covenants are reasonable and
necessary to protect the goodwill and business interest of the Employer;
(iii) the consideration for the covenants is the employment and continued
employment of Employee by the Employer and the monetary considerations set
forth in Article II hereof; (iv) the covenants are not oppressive to Employee
and do not impose a greater restraint on Employee than is necessary to
protect the goodwill and other business interests of the Employer; and (v)
upon termination of employment hereunder for any reason Employee believes he
will be able to earn a livelihood without violating the provisions of
Articles III and IV.
ARTICLE VII
TERM OF AGREEMENT
7.1 TERM. Except for earlier termination specifically provided for
herein, the term of this Agreement shall commence on November 1, 1994, and
shall be in force until October 31, 1999.
7.2 DEATH OR DISABILITY.
A. DEATH. Subject to the provisions of this Section 7.2, this
Agreement shall terminate on the death of Employee. Any accrued salary payable
to Employee at the time of his death shall be paid to Employee's estate or
legal representative (the "Estate") within seven days following the date of
death. Employer shall also pay to the Estate an amount equal to the Bonus to
which Employee would otherwise have been entitled with respect to the pro
rata portion of the fiscal quarter during which his death occurred. Such
Bonus shall be computed and paid in accordance with Section 2.2 for the pro
rata portion of the fiscal year through Employee's date of death.
EMPLOYMENT AGREEMENT -7- VIERLING
<PAGE>
B. DISABILITY. Subject to the provisions of this Section 7.2,
this Agreement shall terminate in the event that Employee is determined to be
Disabled (herein defined) when he is unable to continue his normal duties of
employment by reason of a medically determined physical or mental impairment
for a cumulative period of at least sixty (60) days. For the purposes of
this Agreement, Employee is "Disabled" when, due to a physical or mental
condition, he is unable to continue his normal duties. If the parties cannot
mutually agree upon whether Employee is disabled for the purposes of this
Agreement, then the Employer and Employee (or if Employee is incapacitated or
unable to make the appointment, then Employee's spouse or personal
representative) shall each appoint one doctor of medicine licensed to
practice in Texas, and the two doctors so appointed shall determine if
Employee is in fact disabled for the purpose of this Agreement. If the two
doctors so appointed cannot agree if Employee is Disabled, they shall appoint
a third doctor of medicine and the decision of the majority shall be binding
on all parties. If Employee is on the Board of Directors of Employer,
Employee's vote in selecting the Employer's doctor shall not be counted in
making that decision even if the remaining directors voting are less than a
quorum. Employee shall also be entitled to receive as disability pay an
amount equal to his salary for a period of 12 months following the
termination of employment for disability, the payment of which may be offset
against any disability insurance payment from policies provided by and paid
for by the Employer. In addition, Employer shall pay to Employee as
disability pay an amount equal to the Bonus to which Employee would have
otherwise been entitled with respect to the pro rata portion of the fiscal
quarter during which he was determined to be disabled. Such Bonus shall be
computed and paid in accordance with Section 2.2 for the pro rata portion of
the fiscal year through the date his disability commenced.
7.3 MISCONDUCT. Without notification to Employee, except as provided
below, Employer may terminate Employee's employment hereunder for "cause".
The term "cause" as used herein shall mean either: (i) the conviction of
Employee of or a plea of nolo contendre by Employee to any felony or
misdemeanor perpetrated against Employer and having a material adverse effect
on Employer, (ii) the violation of any reasonable code of conduct which is
adopted by Employer (upon approval by its Board of Directors) and is
applicable generally to Employer's employees or (iii) the determination by
Employer's Board of Directors (by resolution adopted in good faith after
opportunity for a hearing for Employee and his counsel) that Employee has
perpetrated an action against Employer that would constitute a felony, or a
misdemeanor having a material adverse effect on Employer; PROVIDED, that the
Board on its own motion or Employee after an adverse determination by the
Board may refer the matter to the American Arbitration Association to
determine whether Employee's conduct meets the test set forth above. If
Employer believes Employee has violated such code of conduct, Employer shall
give written notice thereof to Employee. Employee's alleged conduct shall not
constitute a violation of the code of conduct if Employee ceases such conduct
within 30 days after receipt of written notice from Employer. In the event
Employee is terminated for cause, Employee shall not be entitled to any
salary, Bonus, or any other payment for periods after the date of
termination. Employer shall have no right to terminate this Agreement except
for "cause" as provided for herein. If Employer should, in violation of this
Agreement, terminate Employee's employment without "cause" (as defined
above), Employer shall pay to Employee as partial liquidated damages, the
full amount of salary and Bonus payments Employee would have been
EMPLOYMENT AGREEMENT -8- VIERLING
<PAGE>
entitled to receive during the remaining term of this Agreement, at the time
such payments would have been payable hereunder; provided, however, such
payments may be reduced by compensation and benefits received by Employee
from any new employer if Employee obtains employment elsewhere.
7.4 TERMINATION BY EMPLOYEE. Employee may voluntarily terminate
employment hereunder by giving 30 days' advance written notice of such
termination to Employer. In the event Employee exercises his right to
terminate this Agreement, Employee shall be entitled only to accrued salary
to the date of termination and Bonus accrued for the fiscal quarter preceding
the quarter in which the notice of termination is given. Such Bonus payments
shall be made at the time and in accordance with Section 2.2E hereof.
7.5 MUTUAL AGREEMENT. Employee's employment under this Agreement may be
terminated by the mutual written agreement of Employee and Employer.
ARTICLE VIII
MISCELLANEOUS
8.1 NOTICE. All notices provided for by this Agreement shall be made in
writing, (a) either by actual delivery of the notice to the party thereunto
entitled; or (b) by the mailing of the notice in the United States mail
addressed to the party to be notified at the address listed below (or at such
other address as may have been designated by written notice), certified or
registered mail, return receipt requested. The notice shall be deemed to be
received (a) if by personal delivery, on the date of its actual receipt by
the party entitled thereto or (b) if by mail, three (3) days after the date
of deposit in the United States mail.
<TABLE>
<S> <C>
Jerell, Inc. Edward D. Vierling
1431 Regal Row 1901 Kings Isle Drive
Dallas, Texas 75247 Plano, Texas 75093
</TABLE>
8.2 ENTIRE AGREEMENT. This Agreement, the Succession Agreement and
agreements related thereto contain the entire agreement of the parties hereto
and supersede all prior agreements and understandings, oral or written, if
any, between the parties hereto. No modification or amendment of any of the
terms, conditions, or provisions herein may be made otherwise than by written
agreement signed by the parties hereto.
8.3 GOVERNING LAW. The laws of the State of Texas shall govern the
validity, construction, enforcement and interpretation of this Agreement.
8.4 PARTIES BOUND. This Agreement and the rights and obligations
hereunder shall be binding upon and inure to the benefit of Employer,
Employee, and their respective heirs, personal representatives, successors,
and assigns; provided, however, that Employee may not assign any rights or
obligations hereunder without the express written consent of Employer.
EMPLOYMENT AGREEMENT -9- VIERLING
<PAGE>
This Agreement shall also bind and inure to the benefit of any successor of
Employer by merger or consolidation, or any assignee of all or substantially
all of Employer's properties or stock.
8.5 DESCRIPTIVE HEADINGS. Titles to paragraphs herein are for
information purposes only and shall not be used for interpretation of this
Agreement.
8.6 MULTIPLE COUNTERPARTS. This Agreement has been executed in a number
of identical counterparts, each of which for all purposes is to be deemed an
original, and all of which constitute, collectively, one agreement; but in
making proof of this Agreement, it shall not be necessary to produce or
account for more than one such counterpart.
8.7 INVALID PROVISIONS. If any provision of this Agreement is held to
be illegal, invalid, or unenforceable under present or future laws effective
during the term, including renewals, of this Agreement, such provision shall
be fully severable; this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part of
this Agreement; and the remaining provisions of this Agreement shall remain
in full force and effect and shall not be affected by the illegal, invalid,
or unenforceable provision or by its severance from this Agreement.
Furthermore, in lieu of each such illegal, invalid, or unenforceable
provision there shall be added automatically as part of this Agreement a
provision as similar in terms to such illegal, invalid, or unenforceable
provision as may be possible and be legal, valid, and enforceable.
8.8 WAIVERS AND CONSENTS. One or more waivers of any covenant, term,
or provision of this Agreement by any party shall not be construed as a
waiver of a subsequent breach of the same covenant, term, or provision, nor
shall it be considered a waiver of any other then existing or subsequent
breach of a different covenant, term, or provision. The consent or approval
by either party to or of any act by the other party requiring such consent or
approval shall not be deemed to waive or render unnecessary consent to or
approval of any subsequent similar act. No custom or practice of either party
shall constitute a waiver of either party's rights to insist upon strict
compliance with the terms hereof.
8.9 FORUM SELECTION. THE PARTIES HERETO AGREE THAT SHOULD ANY LEGAL
SUITS, ACTIONS OR PROCEEDINGS ARISING WITH REGARD TO THIS AGREEMENT OR THE
ENFORCEMENT OF ANY TERMS, CONDITIONS, REPRESENTATIONS AND WARRANTIES BE
INSTITUTED BY ANY PARTY HERETO, SUCH SUITS, ACTIONS OR PROCEEDINGS SHALL BE
INSTITUTED ONLY IN THE STATE OR FEDERAL COURTS IN THE COUNTY OF DALLAS, STATE
OF TEXAS, AND THE PARTIES HERETO DO HEREBY WAIVE CONSENT TO THE JURISDICTION
OF SUCH COURTS AND WAIVE ANY OBJECTION WHICH THEY MAY HAVE NOW OR HEREAFTER
TO THE VENUE OF ANY SUCH SUITS, ACTIONS OR PROCEEDINGS.
8.10 SERVICE OF PROCESS. SERVICE OF ANY AND ALL PROCESS WHICH MAY BE
SERVED ON ANY PARTY IN ANY SUIT, ACTION OR PROCEEDING MAY BE MADE IN THE
MANNER AND TO THE ADDRESS
EMPLOYMENT AGREEMENT -10- VIERLING
<PAGE>
PROVIDED FOR IN SECTION 8.1 ABOVE AND SERVICE THUS MADE SHALL BE TAKEN AND
HELD TO BE VALID PERSONAL SERVICE UPON SUCH PARTY BY ANY PARTY TO THIS
AGREEMENT ON WHOSE BEHALF SUCH SERVICE IS MADE.
IN WITNESS WHEREOF, this Agreement is signed and executed as of the day
and year first above written.
EMPLOYER:
JERELL, INC.
Date signed: March 15, 1995 By: /s/ illegible
------------------------------
EMPLOYEE:
Date signed: March 15, 1995 /s/ Edward D. Vierling
---------------------------------
Edward D. Vierling
49398SAM
EMPLOYMENT AGREEMENT -11- VIERLING
<PAGE>
Exhibit 10(c)
FIRST AMENDMENT TO RESTATED EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO RESTATED EMPLOYMENT AGREEMENT (this
"AMENDMENT") effective as of January 13, 1999, by and among Jerell, Inc., a
Texas corporation ("EMPLOYER"), Haggar Clothing Co., a Nevada corporation
("HAGGAR") and Edward D. Vierling ("EMPLOYEE"), amends that certain
Restated Employment Agreement, effective as of November 1, 1994 (the
"RESTATED AGREEMENT"), between Employer and Employee.
PRELIMINARY STATEMENTS
A. Haggar, JI Acquisition, Inc., a Texas corporation and wholly-owned
subsidiary of Haggar ("HAGGAR SUB"), Employer and certain shareholders
named therein, including Employee, have entered into an Agreement and Plan of
Merger, dated as of December 17, 1998 (the "MERGER AGREEMENT"), pursuant to
which Haggar Sub will be merged with and into Employer. Capitalized terms
used but not defined in this Amendment shall have the meanings ascribed to
them in the Merger Agreement.
B. It is a condition to Haggar's obligations to consummate the
transactions contemplated in the Merger Agreement that Employer and Employee
enter into this Amendment.
C. Simultaneously with the execution and delivery of this Agreement,
the Closing will occur and Employee will receive the amounts payable to Employee
specified in the Merger Agreement (the "TRANSACTION CONSIDERATION").
AGREEMENTS
The parties hereto desire to amend the Restated Agreement as set forth
herein. In consideration of the foregoing and the mutual covenants set forth in
the Restated Agreement, the Merger Agreement and this Amendment, the parties to
this Amendment, intending to be legally bound, hereby agree as follows:
1. AMENDMENT OF RECITALS. All references to "President and Chief
Executive Officer of Employer" in the Recitals of the Restated Agreement are
hereby amended and restated to read as "President and Chief Operating Officer
of Jerell, Inc."
2. AMENDMENT OF SECTION 1.1. The reference to "President and Chief
Executive Officer of Employer" in Section 1.1 of the Restated Agreement is
hereby amended and restated to read as "President and Chief Operating Officer
of Jerell, Inc."
3. AMENDMENT OF SECTION 1.2. The reference to "President and Chief
Executive Officer of Employer" in the first sentence of Section 1.2 of the
Restated Agreement is hereby amended and restated to read as "President and
Chief Operating Officer of Jerell, Inc."
4. AMENDMENT OF SECTION 2.1. The reference to "$200,000" in the
first sentence of Section 2.1 of the Restated Agreement is hereby amended and
restated to read as "$250,000."
<PAGE>
5. AMENDMENT OF SECTION 2.2. Section 2.2 of the Restated Agreement
is hereby amended and restated in its entirety to read as follows:
BONUS. During the term of Employee's employment, Employee
will be eligible to receive an annual cash performance bonus (the
"ANNUAL BONUS") based the achievement of certain net income
performance targets by Employer (weighted at 70%) and Haggar
(weighted at 30%) as follows: (A) for Haggar's 1999 fiscal year,
(i) Employer must meet its net income budget and (ii) there is no
minimum income performance requirement for Haggar in order for
Employee to receive an Annual Bonus; (B) for Haggar's 2000 fiscal
year, (i) Employer must meet its net income budget and (ii) Haggar
must make at least 25% of its net income performance target in
order for Employee to receive an Annual Bonus and (C) for Haggar's
2001 fiscal year, (i) Employer must meet its net income budget and
(ii) Haggar must make at least 50% of its net income performance
target in order for Employee to receive an Annual Bonus. The base
amount of the Annual Bonus will be $150,000. The Annual Bonus will
be doubled for any year in which both Haggar's net income is 10%
above the net income performance target and Employer's net income
is 10% above the net income budget for that year. The net income
performance targets for Haggar and the net income budgets for
Employer will be established by the Board of Directors of Haggar in
its sole discretion; provided, however, that the net income budget
for Employer will be based on the projections provided to Haggar by
Employer in connection with the Merger. The net income budget for
Employer for its 1999 fiscal year is $5 million. Haggar will
notify Employee of the Haggar net income performance targets for
1999 fiscal year within 45 days after the Closing Date (as defined
in the Merger Agreement) and will notify Employee of the Haggar net
income performance targets for 2000 and 2001 fiscal years in
accordance with Haggar's customary policies regarding such
notification. Whether Employer has met its net income budget or
Haggar has met its net income performance target for any period
will be determined by Haggar in accordance with its internal
accounting practices as consistently applied for prior periods.
The Annual Bonus, if any, shall be paid within 90 days after the end
of Haggar's 1999, 2000 and 2001 fiscal years, respectively.
6. AMENDMENT OF SECTION 2.3. Section 2.3 of the Restated Agreement
is hereby amended and restated in its entirety to read as follows:
OTHER BENEFITS. Employee shall be eligible to participate in
Haggar's benefit plans currently maintained by Haggar on the same
terms and conditions as other employees of Haggar.
7. ADDITION OF SECTION 2.5. A new Section 2.5 shall be added to the
Restated Agreement which shall read in its entirety as follows:
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<PAGE>
2.5 EMPLOYMENT ESCROW AMOUNT. Pursuant to Section 2.07 of the Merger
Agreement, Employee, Haggar and the Escrow Agent have entered into an
Escrow Agreement, pursuant to which a portion of the Option
Consideration that would otherwise have been payable to Employee
pursuant to the Merger Agreement in an amount equal to $1,500,000 (the
"EMPLOYMENT ESCROW AMOUNT") has been deposited with the Escrow Agent to
be distributed as follows:
(a) $500,000 shall be paid to Employee (subject to applicable
withholding tax) within two Business Days following each of the first,
second and third anniversaries of the Closing Date; provided, however,
that Employee must remain a full-time employee of Employer for the
entire calendar year prior to a respective anniversary in order to
receive such payment, unless Employee's failure to remain a full-time
employee results from Employee's death or Disability;
(b) if Employee's employment is terminated either (i) as a result
of Employee's death or Disability or (ii) by Employer for any reason,
the remaining portion of the Employment Escrow Amount held by the Escrow
Agent, if any, shall be paid in full to Employee (subject to applicable
withholding tax); and
(c) if Employee's employment is terminated by Employee for any
reason (other than as a result of Employee's death or Disability), the
remaining portion of the Employment Escrow Amount which is held by the
Escrow Agent, if any, shall be paid in full to Haggar.
Haggar, Employer and Employee hereby agree that, notwithstanding any
other provision set forth in the Merger Agreement (including Section
3.04 and Section 3.05 thereof), $1,500,000 of the Option Consideration
that would otherwise have been payable to Employee at the Closing
pursuant to Section 3.04 of the Merger Agreement and which is being
deposited with the Escrow Agent as the Employment Escrow Amount shall
not be subject to deduction for any withholding on the date hereof;
provided, however, that upon the release of all or any portion of the
Employment Escrow Amount to Employee as contemplated in this Section
2.5, Employer and Haggar shall be entitled to deduct and withhold, or
cause to be deducted and withheld, such amounts as are required to be
deducted and withheld with respect to the making of such payment under
the Code or any provision of state, local or foreign tax law. Upon the
occurrence of an event described in this Section 2.5 requiring the
distribution of all or any portion of the Employment Escrow Amount to
Employee on the one hand, or Employer or Haggar (or any taxing
authority) on the other hand, as applicable, Haggar and Employee will
deliver to the Escrow Agent joint written instructions requesting
distribution of such
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<PAGE>
amount to Employee on the one hand, or Employer or Haggar (or any such
taxing authority) on the other hand, as applicable.
8. ADDITION OF SECTION 2.6. A Section 2.6 shall be added to the Restated
Agreement which shall read as follows:
2.6 LONG-TERM INCENTIVES.
A. CLOSING OPTIONS. On the Closing Date, Haggar Corp., a
Nevada corporation and the sole shareholder of Haggar ("PARENT"), and
Employee shall enter into an agreement, using Parent's usual form
agreement, pursuant to which Parent will grant Employee an option (the
"STOCK OPTION") to purchase 25,000 shares of Parent's common stock, par
value $0.10 per share (the "COMMON STOCK") pursuant to Parent's 1992
Long Term Incentive Plan, at an exercise price equal to the closing
price per share of the Common Stock on the Nasdaq National Market System
on the Closing Date. The Stock Option will vest as follows: 1/3 on
January 13, 2000; 1/3 on January 13, 2001 and 1/3 on January 13, 2002;
provided, however, that the Stock Option shall vest on such dates only
if Employee remains a full-time employee of Employer from the Closing
Date though such dates of vesting.
B. ADDITIONAL OPTIONS. Subject to approval by Haggar's Board
of Directors and a performance review of Employee, Employee will be
eligible to receive annual grants of options to purchase 10,000 to
25,000 shares of parent's Common Stock following each of the first three
fiscal years of Parent following the Closing Date.
9. AMENDMENT OF ARTICLE III. Article III of the Restated Agreement
is hereby amended and restated in its entirety to read as follows:
3.1 NONDISCLOSURE. Employee expressly covenants and agrees that
he will not, during his employment with Employer or for a period of
two years after the termination of his employment, irrespective of
the manner or cause of the termination, directly or indirectly,
reveal, divulge, disclose, or communicate to any person, firm, or
corporation (other than authorized officers, directors, and
employees of Employer, Parent, Haggar or any of their respective
subsidiaries), in any manner whatsoever, any Confidential
Information (herein defined) of Employer, Parent, Haggar or any of
their respective subsidiaries without the prior written consent of
a duly authorized officer of Employer.
3.2 DEFINITION OF "CONFIDENTIAL INFORMATION". As used herein,
"Confidential Information" means information of any kind, nature,
and description disclosed to, discovered by, or otherwise known by
Employee as a direct or indirect consequence of or through his
employment with
-4-
<PAGE>
Employer, Parent, Haggar or any of their respective subsidiaries,
not generally known in the business in which Employer, Parent,
Haggar and their respective subsidiaries are or may become engaged
(other than through or as a result of Employee's unauthorized
disclosure), about the business, merchandise, processes and
services, conducted by or provided by Employer, Parent, Haggar or
any of their respective subsidiaries, including, but not limited
to, information relating to the research, developments, inventions,
product lines, designs, purchasing, finances and financial affairs,
marketing, merchandising, clients, customers or persons or concerns
likely to become clients or customers, any past or present
merchandise or supply sources, or persons or concerns likely to
become merchandise or supply sources in the future, system designs,
procedure manuals, the prices they obtain or have obtained or at
which they sell or have sold services or products, the names of
their personnel, automated data programs, reports, personnel
procedures, and supply and service resources. Without regard to
whether any or all of the foregoing matters would be deemed to be
confidential, material, or important, the parties hereto stipulate
that, between them, the same are important, material, and
confidential and if disclosed would materially affect the
successful conduct of the business of the Employer, Parent, Haggar
and their respective subsidiaries and their respective goodwill.
3.3 RETURN OF EMPLOYER INFORMATION. Upon termination of this
Agreement or Employee's employment, unless authorized to the
contrary in writing by a duly authorized officer of Employer,
Employee will surrender to Employer all proprietary information
relating to Employer, Parent, Haggar and each of their respective
subsidiaries, and their respective businesses, including, but not
limited to, Confidential Information, all lists, Rolodex cards,
charts, schedules, reports, financial statements, books and
records, designs, and all copies thereof, of Employee (regardless
of whether such information may have been prepared or complied by
Employee) and any and all other property belonging to Employer,
Parent, Haggar and their respective subsidiaries. Employee shall
have no right to copy or otherwise reproduce any of the items set
forth above, which items are the respective sole and exclusive
property of either Employer, Parent, Haggar or their respective
subsidiaries.
10. AMENDMENT OF ARTICLE IV. Article IV of the Restated Agreement is
hereby amended and restated in its entirety to read as follows:
EMPLOYEE COVENANTS
As a condition to continued employment and in consideration of the
compensation paid to Employee under Paragraph 2.1, the Bonus
structure set forth in Paragraph 2.2, the disclosure of
Confidential Information and the Transaction Consideration received
by Employee, Employee hereby agrees
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<PAGE>
that for a period of 12 months following Employee's termination of
employment and for the period extending beyond the 12 months in
which Employee is receiving payments provided for hereunder,
Employee will not directly or indirectly, either through any kind
of ownership (other than ownership of securities of a publicly held
corporation of which Employee owns less than one percent of any
class of outstanding securities), or lending relationship or as a
director, officer, principal, agent, employee, employer, advisor,
consultant, co-partner, or in any individual or representative
capacity whatever, either for his own benefit or for any other
person or business entity, without the written consent of Employer:
(i) compete in any way with Employer, Parent, Haggar or any of
their respective subsidiaries anywhere in the United States;
(ii) hire any employee of Employer, Parent, Haggar or any of
their respective subsidiaries or in any way try to influence any
employee of Employer, Parent, Haggar or any of their respective
subsidiaries to terminate his employment with Employer, Parent,
Haggar or any of such subsidiaries; and
(iii) directly or indirectly request or advise any present or
future merchandise resource, supply resource, or service resource
of Employer, Parent, Haggar or any of their respective subsidiaries
to increase the price of, withdraw, curtail or cancel the
furnishing of sales of merchandise, supplies or services to
Employer, Parent, Haggar or any such subsidiary.
Anything in this Article IV to the contrary notwithstanding, the
covenant contained in paragraph (i) above shall be applicable only
in the event Employee voluntarily terminates employment hereunder
or is terminated for "cause" (as defined herein) by Employer.
11. AMENDMENT OF ARTICLE V. Article V of the Restated Agreement is
hereby amended and restated in its entirety to read as follows:
SURVIVAL OF COVENANTS
In the event of termination of this Agreement for any reason, then
the covenants contained in Article III and Article IV hereof shall
survive the termination of Employee's employment with Employer.
Employee agrees that the salary, bonus, participation in the
benefit plans of the Employer, access to Confidential Information
and the Transaction Consideration received by Employee constitute
full and complete compensation to Employee for all Employee's
obligations, covenants and services and for all general and
specific assignments under this Agreement.
-6-
<PAGE>
12. AMENDMENT OF SECTION 6.1. Section 6.1 of the Restated Agreement is
hereby amended and restated in its entirety to read as follows:
RIGHT TO INJUNCTION. Employee agrees that a violation on his part
of any covenant contained in Article III and IV of this Agreement
will cause such damage to Employer, Parent, Haggar and their
respective subsidiaries as will be irreparable, and for that reason
Employee further agrees that Employer, Parent, Haggar and their
respective subsidiaries shall be entitled as a matter of right to
an injunction from any court of competent jurisdiction restraining
any further violation of said covenants by Employee, his employer,
employees, partners, or agents. Such right to injunction shall be
cumulative and in addition to whatever other remedies Employer,
Parent, Haggar and their respective subsidiaries may have,
including, specifically, recovery of damages. Employee and
Employer hereby expressly acknowledge and agree that such covenants
and agreements shall be construed in such a manner as to be
enforceable under applicable laws if a court of competent
jurisdiction determines that limitations on such covenants and
agreements are required.
13. AMENDMENT OF SECTION 6.3. Section 6.3 of the Restated Agreement is
hereby amended and restated in its entirety to read as follows:
INDEPENDENT COVENANTS. The covenants and agreements contained in
Articles III and IV herein shall be construed as covenants or
agreements independent of any other provision of this Agreement and
the allegation or existence of any claim or cause of action of
Employee against Employer, Parent, Haggar or any of their
respective subsidiaries, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by
Employer, Parent, Haggar or any of their respective subsidiaries,
of the covenants contained therein; provided, however, if Employer
is in default of any salary or Bonus payments required to be made
to Employee hereunder and fails to make such payment 30 days after
receipt of written notice of default from Employee, then the
covenants contained in Article IV shall not be enforceable against
Employee.
14. AMENDMENT OF SECTION 6.5. Section 6.5 of the Restated Agreement is
hereby amended and restated in its entirety to read as follows:
EMPLOYEE REPRESENTATIONS. Insofar as the covenants set out in
Articles III and IV are concerned, Employee specifically
acknowledges and agrees as follows: (i) the covenants are
reasonable and necessary to protect the goodwill and business
interest of Employer, Parent, Haggar and their respective
subsidiaries; (ii) the time duration and geographical area
limitations of the covenants are reasonable and necessary to
protect the goodwill and business interest of Employer, Parent,
Haggar and their respective subsidiaries, (iii) the consideration
for the covenants is the
-7-
<PAGE>
employment and continued employment of Employee by Employer, the
monetary considerations set forth in Article II hereof and the
Transaction Consideration received by Employee; (iv) the covenants
are not oppressive to Employee and do not impose a greater
restraint on Employee than is necessary to protect the goodwill and
other business interests of Employer, Parent, Haggar and their
respective subsidiaries, and (v) upon termination of employment
hereunder for any reason Employee believes he will be able to earn
a livelihood without violating the provisions of Articles III and
IV.
15. AMENDMENT OF SECTION 7.1. Section 7.1 of the Restated Agreement is
hereby amended and restated in its entirety to read as follows:
TERM. Except for earlier termination specifically provided for
herein, the term of this Agreement shall commence on November 1,
1994, and shall be in force until September 30, 1999, at which time
Employee and Haggar or one of its subsidiaries shall negotiate in
good faith to enter into a three-year employment contract with
economic terms based upon, and consistent with, the letter from
Haggar to Employee dated November 18, 1998. Such agreement will be
subject to approval by Haggar's Board of Directors, and will
supersede all prior agreements relating to Employee's employment
with Employer, including the Restated Agreement.
16. AMENDMENT OF SECTION 7.2. The last two sentences of Section 7.2(A)
and the last two sentences of Section 7.2(B) of the Restated Agreement are
hereby deleted in their entirety.
17. AMENDMENT OF SECTION 7.4. Section 7.4 of the Restated Agreement is
hereby amended and restated in its entirety to read as follows:
TERMINATION BY EMPLOYEE. Employee may voluntarily terminate
employment hereunder by giving 30 days' advance written notice of
such termination to Employer. In the event Employee exercises his
right to terminate this Agreement, Employee shall be entitled only
to accrued salary to date of termination.
18. AMENDMENT OF SECTION 8.1. The following mailing address for Haggar
shall be added to Section 8.1 of the Restated Agreement:
Haggar Clothing Co.
6113 Lemmon Avenue
Dallas, Texas 75209
19. AMENDMENT OF SECTION 8.2. Section 8.2 of the Restated Agreement
is hereby amended and restated in its entirety to read as follows:
-8-
<PAGE>
This Agreement, as amended, the Merger Agreement and the Escrow
Agreement contain the entire agreement of the parties hereto with
respect to the matters set forth therein and supersede all prior
agreements and understandings, oral or written, if any, between the
parties hereto. No modification or amendment of the terms,
conditions or provisions herein may be made otherwise than by
written consent signed by the parties hereto.
20. GOVERNING LAW. The laws of the State of Texas shall govern the
validity, construction, enforcement and interpretation of this Amendment.
21. PARTIES BOUND. This Amendment and the rights and obligations
hereunder shall be binding upon and inure to the benefit of Employer, Haggar and
Employee, and their respective heirs, personal representatives, successors and
assigns; provided, however, that Employee may not assign any rights or
obligations hereunder without the express written consent of Employer.
22. THIRD-PARTY BENEFICIARIES. Employee hereby acknowledges and
agrees that Parent and each of its subsidiaries are intended to be third-party
beneficiaries of the provisions of this Amendment and, as such, shall be
entitled to rely upon and enforce this Amendment to the same extent as if they
are a signatory hereto.
23. COUNTERPARTS. This Amendment may be signed in any number of
counterparts, each executed counterpart constituting an original but all
together constituting only one instrument.
24. HEADINGS. The section headings contained in this Amendment are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Amendment.
25. EFFECT OF AMENDMENT. Except as amended hereby, the terms and
provisions of the Restated Agreement shall remain in full force and effect and
are hereby in all respects ratified and confirmed by the parties hereto.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the date first above written.
EMPLOYER:
JERELL, INC.
By: /s/ Norman L. Spencer
------------------------------------
Name: Norman L. Spencer
----------------------------------
Title: Secretary
---------------------------------
HAGGAR:
HAGGAR CLOTHING CO.
By: /s/ Frank D. Bracken
------------------------------------
Name: Frank D. Bracken
----------------------------------
Title: President & COO
---------------------------------
EMPLOYEE:
/s/ Edward D. Vierling
---------------------------------------
EDWARD D. VIERLING
[SIGNATURE PAGE TO FIRST AMENDMENT TO RESTATED EMPLOYMENT AGREEMENT]
<PAGE>
Exhibit 99(a)
ARTHUR ANDERSEN LLP
JERELL, INC AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF OCTOBER 31, 1998
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Directors and Stockholders of
Jerell, Inc.:
We have audited the accompanying consolidated balance sheet of Jerell, Inc. (a
Texas corporation) and subsidiaries as of October 31, 1998, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Jerell, Inc. and subsidiaries
as of October 31, 1998, and the results of their operations and their cash flows
for the year then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
December 8, 1998
<PAGE>
JERELL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET-OCTOBER 31, 1998
ASSETS
<TABLE>
<CAPTION>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 126,199
Accounts receivable, net 398,874
Due from factor 3,772,970
Inventories, net 7,374,244
Notes receivable - stockholders 2,627,426
Deferred tax benefit 185,875
Other current assets 550,927
------------
Total current assets 15,036,515
PROPERTY, PLANT, AND EQUIPMENT, net 1,126,835
OTHER ASSETS 1,162,341
------------
Total assets $ 17,325,691
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,744,760
Accrued liabilities-
Accrued payroll 345,614
Accrued taxes 545,334
Accrued other 1,258,826
Current portion of long-term debt 138,309
Current portion of capital lease obligation 16,762
------------
Total current liabilities 6,049,605
LONG-TERM DEBT 268,842
OBLIGATIONS UNDER CAPITAL LEASE 56,374
DEFERRED COMPENSATION 317,366
------------
Total liabilities 6,692,187
COMMITMENTS AND CONTINGENCIES (See Note 12)
STOCKHOLDERS' EQUITY:
Common stock ($0.05 par value, 4,000,000 shares
authorized; 3,421,440 and 1,319,612 shares
issued and outstanding, respectively) 171,072
Additional paid-in capital 2,121,294
Retained earnings 33,612,287
Unrealized loss on securities available for sale, net
of tax of approximately $7,000 (14,174)
Less Treasury stock - 2,101,828 shares at cost (25,256,975)
------------
Total stockholders' equity 10,633,504
------------
Total liabilities and stockholders' equity $ 17,325,691
------------
------------
</TABLE>
The accompanying notes are an integral part
of this consolidated financial statement.
<PAGE>
JERELL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
<TABLE>
<CAPTION>
<S> <C>
NET SALES $ 65,794,849
COST OF GOODS SOLD 45,490,057
------------
Gross profit 20,304,792
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES (14,256,526)
------------
OPERATING INCOME 6,048,266
INTEREST EXPENSE, net (629,853)
LOSS ON DISPOSAL OF ASSETS (66,825)
------------
INCOME BEFORE PROVISION FOR INCOME TAXES 5,351,588
PROVISION FOR INCOME TAXES 1,912,946
------------
NET INCOME $ 3,438,642
------------
------------
</TABLE>
The accompanying notes are an integral part
of this consolidated financial statement.
<PAGE>
JERELL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED OCTOBER 31, 1998
<TABLE>
<CAPTION>
Common Stock
$0.05 Par Value
--------------------- Additional Unrealized Loss Total
Shares Paid-ln Retained on Marketable Treasury Stockholders'
Issued Amount Capital Earnings Securities Stock Equity
--------- -------- ----------- ----------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, October 31, 1997 3,421,440 $171,072 $ 2,121,294 $30,173,645 $ (6,696) $(24,875,635) $ 7,583,680
Purchase of treasury stock - - - - (381,340) (381,340)
Net income - - - 3,438,642 - - 3,438,642
Change in unrealized loss
on securities available
for sale - - - - (7,478) - (7,478)
--------- -------- ----------- ----------- -------- ------------ -----------
BALANCE, October 31, 1998 3,421,440 $171,072 $ 2,121,294 $33,612,287 $(14,174) $(25,256,975) $10,633,504
--------- -------- ----------- ----------- -------- ------------ -----------
--------- -------- ----------- ----------- -------- ------------ -----------
</TABLE>
The accompanying notes are an integral part
of this consolidated financial statement.
<PAGE>
JERELL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 1998
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,438,642
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation 176,912
Loss on sale of property, plant, and equipment 66,825
Changes in assets and liabilities-
Accounts receivable, net 284,064
Due from factor (1,611,959)
Inventory, net (1,158,446)
Other assets (579,485)
Accounts payable 964,047
Accrued liabilities 630,219
Deferred compensation 128,775
-----------
Net cash provided by operating activities 2,339,594
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (609,776)
Proceeds from sale of property, plant, and equipment 53,068
Net increase in notes receivable - stockholders (1,609,238)
-----------
Net cash used in investing activities (2,165,946)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (243,718)
Payments on capital lease obligations (23,377)
-----------
Net cash used in financing activities (267,095)
-----------
DECREASE IN CASH AND CASH EQUIVALENTS (93,447)
CASH AND CASH EQUIVALENTS:
Beginning of year 219,646
-----------
End of year $ 126,199
-----------
-----------
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of treasury stock in exchange for promissory notes $ 381,340
CASH PAID FOR:
Interest $ 714,579
Taxes 1,940,095
</TABLE>
The accompanying notes are an integral part
of this consolidated financial statement.
<PAGE>
JERELL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1998
1. NATURE OF OPERATIONS:
GENERAL ORGANIZATION
Jerell, Inc. (a Texas corporation) and its subsidiaries (the "Company")
maintain their headquarters in Dallas, Texas, and are primarily engaged in
the women's apparel products business. The Company designs its own
merchandise which it manufactures primarily through the use of outside
contractors. The Company's products are distributed nationally by an internal
sales force and internationally through various unrelated entities under
licensing agreements. Sales are primarily to department and specialty stores.
The Company also markets its product nationally through its retail outlet and
home sales divisions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Jerell, Inc.
and its subsidiaries. All significant intercompany balances and
transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment, stated at cost, consisted of the following at
October 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
Buildings $ 188,060
Furniture and fixtures 1,030,486
Machinery and equipment 3,975,155
Leasehold improvements 1,314,885
Construction in progress 3,765
----------
Total 6,512,351
Less- Accumulated depreciation and amortization 5,385,516
----------
Net property, plant, and equipment $1,126,835
----------
----------
</TABLE>
<PAGE>
-2-
DEPRECIATION
The Company provides for depreciation using either the double declining balance
or straight-line method through charges to operations in amounts, which allocate
the cost of the assets over their estimated useful lives, as follows:
<TABLE>
<CAPTION>
<S> <C>
Buildings and improvements 4 to 30 years
Furniture and fixtures 5 to 10 years
Machinery and equipment 3 to 10 years
Leasehold improvements 10 to 30 years
</TABLE>
INCOME TAXES
Income taxes are accounted for using the liability method under the
provisions of Statement of Financial Accounting Standards (SFAS) No. 109
"Accounting for Income Taxes."
REVENUE RECOGNITION
Revenue is recognized upon product shipment to customers.
ADVERTISING
The Company expenses the cost of advertising as incurred. Advertising expense
for the year ended October 31, 1998, was approximately $609,000.
FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosure about Fair Value of Financial Instruments," requires
the disclosure of the fair market value of off- and on-balance sheet financial
instruments. The carrying value of all financial instruments, including
long-term debt and cash and temporary cash investments, approximates their fair
value at year-end.
3. ACCOUNTS RECEIVABLE:
Financial instruments which potentially expose the Company to concentrations of
credit risk as defined by SFAS No. 105 consist primarily of trade accounts
receivable. In the normal course of business, the Company extends credit to some
of its customers with payment terms generally 30 days.
The Company's customers are not concentrated in any specific geographic region,
but are concentrated in the retail apparel industry. One customer accounted for
approximately 43% of the Company's net sales during the year ended October 31,
1998. No other customer accounted for more than 10% of the consolidated
revenues. The loss of the business of one or more of the Company's significant
customers could have a material adverse effect on the Company's results of
operations. The Company performs ongoing credit evaluations of its customers'
financial condition. The Company determines the need for an allowance for
doubtful accounts based upon factors surrounding the credit risk of specific
customers, historical trends, and other information. The allowance for
doubtful accounts was insignificant as of December 31, 1998.
4. DUE FROM FACTOR:
The Company has a factoring agreement with Heller Financial, Inc. (Heller) for
the purpose of providing working capital and credit administration for the
Company.
<PAGE>
-3-
Under the terms of the factoring agreement, Heller purchases substantially all
of the Company's trade accounts receivable without recourse. The Company is
entitled to draw advances against 90% of the outstanding assigned trade accounts
receivable, and interest charges on advances are at Heller's prime rate plus 1%
(9% at October 31, 1998). As of October 31, 1998, the Company had borrowed
approximately $6,760,000 against the outstanding assigned trade accounts
receivable of approximately $10,530,000. At October 31, 1998, the Company had
approximately $850,000 of outstanding letters of credit with Heller.
The arrangement with Heller provides for a total credit facility of $10,000,000,
which includes advances under the factoring agreement, letters of credit limited
to $2,100,000 and a special $250,000 line of credit. Available funds are based
on and collateralized by a percentage of eligible accounts receivable. In
addition, equipment, furniture and fixtures have been used to collateralize this
agreement, as well as assets held by the Company's principal stockholder. The
agreement also contains various covenants and restrictions relating to
maintenance of working capital, net worth and other financial ratios.
5. INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out) or market, and
consisted of the following at October 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
Piece goods $2,105,560
Trimming and supplies 199,874
Work-in-process 1,965,274
Finished garments 3,103,536
----------
$7,374,244
----------
----------
</TABLE>
Work-in-process and finished garments inventories consisted of materials, labor
and manufacturing overhead.
6. NOTES RECEIVABLE - STOCKHOLDERS:
Notes receivable due from stockholders consisted of the following at October 31,
1998:
<TABLE>
<CAPTION>
<S> <C>
Note receivable - stockholder. The note balance is payable at
maturity on April 30, 1999. Interest on the note accrues at prime
plus 1% (9% at October 31, 1998). The note is secured by stock in
the Company. $1,500,000
Note receivable - stockholder. The note balance is payable at
maturity on November 1, 1998. Interest on the note is 8% per
annum. The note is unsecured. 405,839
Note receivable - stockholder. Interest is payable annually and
accrues at the rate of 8% per annum. Principal is due at maturity
on April 30, 1999. The note is secured by stock in the Company. 625,900
----------
2,531,739
Accrued interest 95,687
----------
Total notes receivable - stockholders $2,627,426
----------
----------
</TABLE>
<PAGE>
-4-
7. OTHER ASSETS:
Other assets consisted of the following at October 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
Notes receivable from employees $ 357,070
Cash surrender value of life insurance 351,261
Investment securities 37,409
Other assets 416,601
----------
$1,162,341
----------
----------
</TABLE>
The Company's investments in securities are classified as available for sale.
Unrealized holding gains and losses, net of tax, are reported in a separate
component of stockholders' equity until realized. The fair values of investment
securities are estimated based on quoted market prices for those or similar
investments.
8. LONG-TERM DEBT:
Long-term debt consisted of the following at October 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
Notes payable to various terminated employees for the
purchase of treasury stock, payable in annual installments
through 2002, with interest at 6% per annum. $407,151
Less- Current maturities 138,309
--------
Long-term debt $268,842
--------
--------
</TABLE>
FUTURE OBLIGATIONS
Maturities under long-term debt agreements are as follows:
<TABLE>
<CAPTION>
Year ending
October 31, Amount
----------- --------
<S> <C>
1999 $138,309
2000 122,189
2001 84,574
2002 62,079
2003 -
--------
Total $407,151
--------
--------
</TABLE>
9. CAPITAL LEASE OBLIGATIONS:
The Company is the lessee of certain equipment under capital leases expiring
through June 2002. The assets and liabilities under the capital leases are
recorded at the present value of the minimum lease payments, which approximates
the fair value of the equipment. The equipment is being depreciated over its
estimated productive life. Depreciation charged to expense on leased equipment
in 1998 was $33,000.
<PAGE>
-5-
Minimum future lease payments under the capital leases as of October 31, 1998,
are as follows:
<TABLE>
<CAPTION>
Year ending
October 31, Amount
----------- --------
<S> <C>
1999 $ 22,907
2000 22,907
2001 22,907
2002 20,570
2003 -
--------
Total minimum lease payments 89,291
Less- Amount representing interest 16,155
--------
Present value of minimum lease payments 73,136
Less- Current portion of capital lease obligations 16,762
--------
Long-term obligation under capital leases $ 56,374
--------
--------
</TABLE>
10. DEFERRED COMPENSATION:
The Company is obligated under salary continuation agreements with key employees
to pay a minimum of $5,000 annually for a period of ten years from the date of
retirement. The maximum annual amount which can be paid is $10,000, contingent
upon the future annual financial performance of the Company. The present value
of the deferred compensation liability has been calculated using a discount rate
of 8% applied to the maximum annual obligation of $10,000.
11. INCOME TAXES:
The effective income tax rate for fiscal 1998 differed from the statutory rate
because of state income taxes and certain permanent tax differences.
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the tax reporting basis of the Company's assets
and liabilities. Deferred income taxes are classified as current or
noncurrent depending on the classification of the assets and liabilities to
which they relate. Deferred income taxes arising from temporary differences that
are not related to an asset or liability are classified as current or noncurrent
depending on the periods in which the temporary differences are expected to
reverse. Deferred tax expense was insignificant in fiscal 1998.
<PAGE>
-6-
Deferred tax assets consisted of the following at October 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
Deferred compensation $106,842
Allowances for accounts receivable 93,500
Inventory 58,000
Accrued vacation 34,375
Accumulated depreciation 11,000
Tax credit carryforward 41,000
--------
Gross deferred tax assets 344,717
Deferred tax asset valuation allowance (41,000)
--------
$303,717
--------
--------
</TABLE>
The Company has available at October 31, 1998, foreign tax credit carryforwards
of approximately $41,000, which expire in the year 2001. The Company has
recorded a valuation allowance for the full amount of the foreign tax credit due
to the uncertainty of the amount of foreign taxable income generated in future
years.
12. COMMITMENTS:
OPERATING LEASES
The Company leases its facilities along with certain of its manufacturing,
computer and automotive equipment under agreements, which expire at various
dates through 2002. The following is a schedule of future minimum rental
payments required under operating leases at October 31, 1998:
<TABLE>
<CAPTION>
Year ending
October 31, Amount
----------- --------
<S> <C>
1999 $ 759,000
2000 378,000
2001 159,000
2002 10,000
2003 -
----------
Total $1,306,000
----------
----------
</TABLE>
Total rental expense under operating leases for the year ended October 31, 1998,
was approximately $841,000.
LITIGATION
The Company is involved in various claims and lawsuits incidental to its
business. In the opinion of management, these claims and suits in the
aggregate will not have a material adverse effects on the Company's financial
position or the results of operations for future periods.
13. EMPLOYEE STOCK OWNERSHIP PLAN:
The Company and its subsidiaries have an Employee Stock Ownership Plan (ESOP)
covering substantially all employees. The ESOP is funded by Company
contributions through an Employee Stock Ownership Trust (ESOT) in amounts
determined at the discretion of the Board of Directors. Contributions for the
year ended October 31, 1998, were approximately $6,000.
<PAGE>
-7-
14. STOCK OPTION PLAN:
The Company has an incentive stock option plan available to certain key
employees and directors of the Company. Under the plan, the Company may grant
options for up to 215,000 shares of common stock. The exercise price of each
option is equal to the market price of the Company's stock on the date of the
grant. The maximum term of each option is ten years and the options vest upon
the sale of the Company's stock. On September 23, 1997, the Company granted an
option to purchase 20,000 shares of common stock at $7.12 per share. On June 22,
1998, the Company granted an option to purchase 12,000 shares of common stock at
$16.23 per share. The Company accounts for the stock option plan under
Accounting Principles Board Opinion No. 25, under which no compensation cost has
been recognized. Had compensation cost for these options been determined
consistent with SFAS No. 123, "Accounting for Stock-Based Compensation," the
impact on the Company's net income would have been insignificant.
15. SUBSEQUENT EVENT:
In December 1998, the Company signed a definitive agreement to sell all of the
Company's stock to an unrelated third party.
<PAGE>
EXHIBIT 99(b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
included in or made a part of this Form 8-K, and the incorporation of such
report into the Company's previously filed Registration Statement on Form S-8
File No. 33-75676.
Arthur Andersen LLP
Dallas, Texas
January 28, 1999
