<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 8-K
------------------------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): December 1, 1997
WORLDTEX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION)
<TABLE>
<S> <C>
1-11438 56-1789271
(COMMISSION FILE NUMBER) (IRS EMPLOYER IDENTIFICATION NO.)
212 12TH AVENUE N.E.
HICKORY, NORTH CAROLINA 28601
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(704) 328-5381
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On December 1, 1997, Worldtex, Inc. (the "Company"), through a wholly-owned
subsidiary ("Buyer"), completed the acquisition of substantially all of the
assets of the Elastic Corporation of America division ("ECA") of NFA Corp. for
approximately $76.3 million in cash and the assumption of $6.0 million in long
term debt. Buyer acquired ECA from NFA Corp. pursuant to the Asset Purchase
Agreement, dated as of October 29, 1997, which is filed as Exhibit 2.1 to this
Report. ECA was a supplier of woven and knitted narrow elastic fabrics to the
apparel industry, and the Company intends that the acquired assets continue to
be used for such purposes.
On December 1, 1997, the Company also completed a Rule 144A private
placement of $175.0 million of its 9 5/8% Senior Notes due 2007 (the "Senior
Notes") for net cash proceeds to the Company of approximately $170.0 million,
which were used to pay the purchase price for the ECA acquisition, to repay
existing debt of approximately $79.0 million and to pay transactions expenses.
The remaining net cash proceeds will be used for general corporate purposes. The
Senior Notes have not been registered under the Securities Act of 1933 and may
not be offered or sold in the United States absent registration or an applicable
exemption from registration requirements.
The foregoing transactions are more fully described in the Company's news
release, dated December 1, 1997, which is filed as Exhibit 99.1 to this Report.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ELASTIC CORPORATION OF AMERICA (A DIVISION OF NFA CORP.)
Audited Financial Statements:
Independent Auditors' Report........................................................ 3
Statements of assets, liabilities and divisional equity as of December 28, 1996,
December 30, 1995 and December 31, 1994.......................................... 4
Statements of income and divisional equity for the fiscal years ended December 28,
1996, December 30, 1995 and December 31, 1994.................................... 5
Statements of cash flows for the fiscal years ended December 28, 1996, December 30,
1995 and December 31, 1994....................................................... 6
Notes to Financial Statements....................................................... 7
Unaudited Financial Statements:
Statement of assets, liabilities and divisional equity as of September 27, 1997..... 12
Statements of income and divisional equity for the thirty-nine weeks ended September
27, 1997 and September 28, 1996.................................................. 13
Statements of cash flows for the thirty-nine weeks ended September 27, 1997 and
September 28, 1996............................................................... 14
Notes to Unaudited Financial Statements............................................. 15
</TABLE>
2
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
NFA Corp.
Chestnut Hill, Massachusetts
We have audited the accompanying statements of assets, liabilities and
divisional equity of the Elastic Corporation of America ("ECA") (a division of
NFA Corp. ("NFA")) as of December 28, 1996, December 30, 1995, and December 31,
1994, and the related statements of income and divisional equity, and cash flows
for the periods then ended. These financial statements are the responsibility of
ECA's management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of ECA at December 28, 1996, December 30, 1995,
and December 31, 1994, and the results of its operations and its cash flows for
the periods then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared from the separate
records maintained by ECA and may not necessarily be indicative of the
conditions that would have existed or the results of operations if ECA had been
operated as an unaffiliated company. As discussed in Note 1 to the financial
statements, a portion of expenses represents allocations made from NFA
home-office items applicable to ECA and other NFA corporate charges.
DELOITTE & TOUCHE LLP
October 14, 1997
3
<PAGE> 4
ELASTIC CORPORATION OF AMERICA
(A DIVISION OF NFA CORP.)
STATEMENTS OF ASSETS, LIABILITIES AND DIVISIONAL EQUITY
DECEMBER 28, 1996, DECEMBER 30, 1995 AND DECEMBER 31, 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................ $ 109,005 $ 111,559 $ 153,853
Accounts receivable, less allowance for doubtful
accounts of $330,000, $230,000, and $230,000,
respectively (Note 9)........................ 9,569,967 6,865,331 9,652,638
Employee loans.................................. 233,188 94,987 84,687
Inventories (Note 2)............................ 10,676,161 8,646,900 10,174,377
Prepaid expenses................................ 297,433 194,118 316,335
----------- ----------- -----------
Total current assets............................ 20,885,754 15,912,895 20,381,890
----------- ----------- -----------
Property, plant and equipment:
Land............................................ 159,558 159,558 159,558
Building and leasehold improvements............. 5,346,247 5,251,544 4,482,994
Machinery and equipment......................... 19,476,965 18,722,645 18,372,419
Construction in progress........................ 286,500 144,520 361,847
----------- ----------- -----------
25,269,270 24,278,267 23,376,818
Less accumulated depreciation
and amortization............................. 16,137,534 14,440,390 12,542,623
----------- ----------- -----------
Property, plant and equipment--net........... 9,131,736 9,837,877 10,834,195
----------- ----------- -----------
Escrow funds restricted under bond indenture...... -- 8,808 1,031,517
----------- ----------- -----------
Deferred financing cost........................... 171,615 195,079 220,043
----------- ----------- -----------
Total............................................. $30,189,105 $25,954,659 $32,467,645
=========== =========== ===========
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities:
Accounts payable................................ $1,959,779 $1,079,467 $1,832,469
Accrued pension costs (Note 4).................. -- 556,050 395,372
Accrued commissions............................. 20,475 100,000 269,356
Accrued expenses (other)........................ 549,343 422,854 427,383
Current maturities of long-term debt (Note 3)... -- 700,000 700,000
----------- ----------- -----------
Total current liabilities.................... 2,529,597 2,858,371 3,624,580
Long-term debt (Note 3)........................... 6,000,000 6,000,000 6,700,000
Deferred compensation (Note 6).................... 717,496 734,512 664,796
----------- ----------- -----------
Total liabilities............................ 9,247,093 9,592,883 10,989,376
Commitments (Note 5)
Divisional equity (Note 7)........................ 20,942,012 16,361,776 21,478,269
----------- ----------- -----------
Total............................................. $30,189,105 $25,954,659 $32,467,645
=========== =========== ===========
</TABLE>
See notes to financial statements.
4
<PAGE> 5
ELASTIC CORPORATION OF AMERICA
(A DIVISION OF NFA CORP.)
STATEMENTS OF INCOME AND DIVISIONAL EQUITY
FIFTY-TWO-WEEK PERIODS ENDED DECEMBER 28, 1996 AND DECEMBER 30, 1995
AND FIFTY-THREE-WEEK PERIOD ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
NET SALES (Note 9).................................. $55,797,589 $58,055,129 $61,339,740
COST OF SALES....................................... 41,827,674 45,059,635 45,666,324
----------- ----------- -----------
GROSS PROFIT........................................ 13,969,915 12,995,494 15,673,416
----------- ----------- -----------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Notes
8 and 10)......................................... 6,664,083 6,219,131 9,379,301
INTEREST EXPENSE (Notes 3, 7, and 8)................ 813,898 1,147,251 1,000,785
----------- ----------- -----------
TOTAL EXPENSES...................................... 7,477,981 7,366,382 10,380,086
----------- ----------- -----------
NET INCOME.......................................... 6,491,934 5,629,112 5,293,330
DIVISIONAL EQUITY, BEGINNING OF PERIOD.............. 16,361,776 21,478,269 20,729,793
DISTRIBUTIONS TO CORPORATE.......................... (1,911,698) (10,745,605) (4,544,854)
----------- ----------- -----------
DIVISIONAL EQUITY, END OF PERIOD.................... $20,942,012 $16,361,776 $21,478,269
=========== =========== ===========
</TABLE>
See notes to financial statements.
5
<PAGE> 6
ELASTIC CORPORATION OF AMERICA
(A DIVISION OF NFA CORP.)
STATEMENTS OF CASH FLOWS
FIFTY-TWO-WEEK PERIODS ENDED DECEMBER 28, 1996 AND DECEMBER 30, 1995
AND FIFTY-THREE-WEEK PERIOD ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income.......................................... $6,491,934 $5,629,112 $5,293,330
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on disposal of property, plant and
equipment...................................... -- (15,081) (3,000)
Depreciation and amortization..................... 1,876,702 1,943,071 1,992,437
Changes in assets and liabilities:
Accounts receivable, net....................... (2,842,837) 2,777,007 (978,832)
Inventories.................................... (2,029,261) 1,527,477 (992,703)
Prepaid expenses............................... (103,315) 122,217 170,463
Accounts payable and accrued expenses.......... 371,226 (766,209) (4,544)
Deferred compensation.......................... (17,016) 69,716 307,682
---------- ---------- ----------
Net cash provided by operating activities.... 3,747,433 11,287,310 5,784,833
---------- ---------- ----------
Cash Flows From Investing Activities:
Addition to property, plant and equipment........... (1,170,937) (943,513) (1,370,691)
Decrease in escrow funds restricted under bond
indenture......................................... 8,808 1,022,709 335,546
Proceeds from sale of equipment..................... 23,840 36,805 200,240
---------- ---------- ----------
Net cash (used in) provided by investing
activities................................ (1,138,289) 116,001 (834,905)
---------- ---------- ----------
Cash Flow From Financing Activities:
Repayments on notes payables........................ -- -- (7,299)
Payments for long-term debt......................... (700,000) (700,000) (400,000)
Cash remitted to corporate.......................... (1,911,698) (10,745,605) (4,544,854)
---------- ---------- ----------
Net cash used in financing activities........ (2,611,698) (11,445,605) (4,952,153)
---------- ---------- ----------
Net Decrease in Cash:............................... (2,554) (42,294) (2,225)
Cash, Beginning of Period:.......................... 111,559 153,853 156,078
---------- ---------- ----------
Cash, end of Period:................................ $ 109,005 $ 111,559 $ 153,853
========== ========== ==========
Supplemental Cash Flow Information
Cash paid for interest............................ $ 379,969 $ 399,678 $ 294,302
========== ========== ==========
</TABLE>
See notes to financial statements.
6
<PAGE> 7
ELASTIC CORPORATION OF AMERICA
(A DIVISION OF NFA CORP.)
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION--Elastic Corporation of America ("ECA") is a division
of NFA Corp. ("NFA"). ECA is engaged in the manufacture and distribution of
narrow elastic and other specialty textiles. On September 19, 1997, NFA
entered into a letter of intent to sell the ECA business of NFA.
The accompanying financial statements include the historical basis
financial statements of ECA. ECA has been operated as a division of NFA,
sharing corporate services (audit, legal and group administrative
functions) with other NFA divisions. The financial statements have been
prepared from the separate records maintained for the ECA division for the
periods presented, and include the historical assets, liabilities, revenues
and expenses related to the ECA division. For the periods presented,
selling, general and administrative expenses include a corporate charge
which was determined based on 1.5% of sales. In addition, employee pension
costs are allocated based on number of personnel. A cost of capital, at
prime, is also charged by NFA for the average daily balance of net advances
and loans ("divisional equity") in excess of specified amounts (Note 7).
Management believes that the foregoing allocation for pension costs is
reasonable; however, this allocation and the corporate charges do not
necessarily equal the costs which would have been incurred on a stand-alone
basis.
The financial information included herein does not reflect any adjustments
that may be made by the buyer to record the allocation of purchase price to
the assets purchased and liabilities assumed in preparing an opening
balance sheet, nor does it reflect what the results of operations are
expected to be in the future or what the financial position and results of
operations would have been had ECA been a separate stand-alone entity
during the periods presented.
CASH--ECA was included in the centralized cash management system of NFA,
whereby net daily cash activity of ECA's zero balance disbursement account
was charged or credited to ECA through its divisional equity account (Note
7). Cash balances represent amounts associated with payroll and other
miscellaneous bank accounts.
INVENTORIES--Inventories are stated at the lower of cost, on a first-in,
first-out ("FIFO") method, or market.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment is recorded at
cost. Depreciation and amortization are computed principally by use of the
straight-line method over the estimated useful lives (generally three to
thirty years).
DEFERRED FINANCING COST--The cost relating to long-term debt is capitalized
and amortized using the interest method over the maturities of the related
obligation.
REVENUE RECOGNITION--Sales are reflected in the statements of income and
divisional equity when products are shipped.
INCOME TAXES--NFA has elected to be an S Corporation for federal income tax
purposes. Income earned by NFA is allocated to stockholders who are
responsible for the payment of taxes thereon. The states in which ECA
operates permit S Corporation status for state income tax purposes. As a
result of ECA operating in states which permit S Corporation status, no
provision for income taxes has been provided in the accompanying financial
statements.
USE OF ESTIMATES--The preparation of ECA's financial statements in
conformity with generally accepted accounting principles necessarily
requires management to make estimates and assumptions that affect the
7
<PAGE> 8
ELASTIC CORPORATION OF AMERICA
(A DIVISION OF NFA CORP.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
reported amounts of 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.
IMPAIRMENT OF LONG-LIVED ASSETS--In March 1995, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." ECA's adoption of SFAS No. 121 in
1996 had no financial statement impact.
FISCAL YEAR--ECA operates on a fifty-two or fifty-three-week year ending on
the last Saturday in December. The fiscal years ended December 28, 1996 and
December 30, 1995 contained fifty-two weeks and December 31, 1994 contained
fifty-three weeks.
2. INVENTORIES
Inventories at the balance sheet dates are as follows:
<TABLE>
<CAPTION>
DECEMBER DECEMBER DECEMBER
28, 30, 31,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Raw materials and supplies................ $2,019,078 $2,152,763 $2,318,698
Work in process........................... 4,774,643 3,968,341 3,830,128
Finished goods............................ 3,882,440 2,525,796 4,025,551
----------- ---------- -----------
$10,676,161 $8,646,900 $10,174,377
=========== ========== ===========
</TABLE>
3. LONG-TERM DEBT
Long-term debt at the balance sheet dates consists of the following:
<TABLE>
<CAPTION>
DECEMBER DECEMBER DECEMBER
28, 30, 31,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Industrial Revenue Bonds, Columbiana, Alabama
("IRB-AL") rental payments payable $700,000
annually through 1996, the remaining $6 million
is due June 1, 2014 plus interest at variable
rates ranging from 3.12%-4.15%................. $6,000,000 $6,700,000 $7,400,000
Less current maturities.......................... -- (700,000) (700,000)
---------- ---------- ----------
$6,000,000 $6,000,000 $6,700,000
========== ========== ==========
</TABLE>
In June 1992 NFA entered into a lease agreement ("the Agreement") with the
Industrial Development Board of the City of Columbiana ("IDBCC"). Pursuant
to the Agreement, IDBCC, the issuer of $8,100,000 of Revenue Bonds ("the
Bonds") issued for the purpose of financing the cost of acquiring,
constructing and equipping an industrial facility (ECA's Headquarters, "the
NFA Project"), leased the NFA Project to NFA. NFA agreed to pay rentals to
IDBCC equal to the debt service on the Bonds. The final maturity of the
Bonds and the termination of the lease was June 1, 2004. IDBCC assigned and
pledged to the bond trustee all of its rights under the lease. As security
for the payment of the debt service on the Bonds, NFA entered into a
Guaranty Agreement in favor of the bond trustee, guaranteeing payment on
the debt service. The Guaranty is supported by an irrevocable direct pay
Letter of Credit ("LOC") which permits the bond trustee to draw an amount
sufficient to pay, when due, the principal of, and up to 200 days interest
on, the bonds. The LOC was established to not exceed $6,333,334. There were
no balances drawn or outstanding on this LOC at the balance sheet dates. As
security for NFA's obligations under the LOC, NFA and IDBCC executed a
mortgage, assignment of leases and security
8
<PAGE> 9
ELASTIC CORPORATION OF AMERICA
(A DIVISION OF NFA CORP.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
agreement in favor of the bank that issued the LOC, whereby the bank was
granted a mortgage, and security interest in the NFA project. Under the
terms of the Agreement and bond indenture, funds available to NFA were
required to be deposited into an escrow project fund with the bond trustee.
Use of such funds was limited to the NFA Project. NFA is also required to
comply with certain affirmative and negative covenants; these covenants
restrict NFA from incurring other indebtedness, limit distributions of
income and require the maintenance of certain financial ratios. NFA was in
compliance with these covenants at the balance sheet dates. The obligation
associated with the bond issuance and the related capital costs of the NFA
Project have been recorded by ECA.
The capitalized costs of the NFA project were approximately $7,700,000,
$7,700,000 and $7,100,000 at December 28, 1996, December 30, 1995 and
December 31, 1994, respectively.
The net book value of the NFA Project costs was approximately $3,900,000,
$4,100,000, and $4,400,000 at December 28, 1996, December 30, 1995, and
December 31, 1994, respectively.
In May 1997 the lease was amended to extend the term of the agreement from
June 1, 2004 to June 1, 2014. In conjunction with the execution of the
amendment, bond holders approved an amendment to the bond indenture to
remove the requirements for scheduled annual mandatory redemption of the
bonds on June 1, 1997 and thereafter. The indenture was also amended to
extend the final maturity of the bonds from June 1, 2004 to June 1, 2014.
The expiration of the LOC has been extended to March 31, 1999. The
scheduled maturity of long-term debt as of December 28, 1996 reflects the
lease amendment.
4. RETIREMENT PLANS
Until December 30, 1995, NFA had a noncontributory defined benefit
retirement plan covering substantially all nonunion employees, including
employees of ECA. The plan provided benefits to employees upon retirement
that were correlated to the Social Security law.
The benefits under the plan were based on the employee's highest seven
years of compensation. NFA's policy was to fund the minimum required
contribution necessary to meet the present and future obligations of the
plan. Contributions were intended to provide not only benefits attributed
to service to date but also for those expected to be earned in the future.
Contributions were made to a tax-exempt master trust. Plan assets consisted
principally of listed equity securities, corporate obligations and U.S.
Government bonds.
In 1995, NFA adopted a plan amendment, effective December 31, 1995, ceasing
the addition of new participants to the plan. The plan obligations were
remeasured using an assumed discount rate of 6% and a long-term rate of
return of 6%. In 1996 the plan was terminated and the plan obligation was
settled in 1997. NFA recognized a curtailment gain of approximately
$1,129,000 upon amending the plan. There was no allocation of the
curtailment gain to ECA. As all activity determined costs have previously
been recorded, NFA believes that it has no further costs relating to this
plan after 1995.
9
<PAGE> 10
ELASTIC CORPORATION OF AMERICA
(A DIVISION OF NFA CORP.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Pension costs for 1995 and 1994 related to the employees of the ECA
business were determined based on actuarial calculations and allocations,
based on number of employees, as follows:
<TABLE>
<CAPTION>
1995 1994
-------- ---------
<S> <C> <C>
Service cost--benefits earned during the period................. $431,849 $ 358,790
Interest cost on projected benefit obligation................... 362,245 295,712
Actual return on plan asset..................................... (237,710) (266,630)
Net amortization and deferral................................... 916 (11,743)
-------- --------
Net pension expense............................................. $557,300 $ 376,129
======== ========
</TABLE>
NFA maintains a 401(k) defined contribution plan covering substantially all
employees. Beginning in 1996, the plan includes an employer annually
elective matching contribution provision. The 401(k) expense applicable to
ECA employees amounted to $77,115 in 1996.
5. COMMITMENTS
NFA leases certain equipment and vehicles under noncancelable leases
expiring at various dates through 2002. Certain of these leases contain
renewal and purchase options. Future minimum rental commitments on leases
applicable to the ECA business were as follows:
<TABLE>
<S> <C>
1997................................................... $ 801,318
1998................................................... 603,043
1999................................................... 561,259
2000................................................... 551,805
2001................................................... 493,820
2002................................................... 97,342
----------
$3,108,587
==========
</TABLE>
Rentals charged to operations under these leases were $759,505, $623,772,
and $214,177 for 1996, 1995, and 1994, respectively.
Under patent agreements entered into by NFA, NFA is required to pay
royalties relating to the sale of certain ECA products. Royalty amounts
charged to selling, general and administrative expenses were $385,200,
$381,900, and $460,500 for 1996, 1995, and 1994, respectively.
6. DEFERRED COMPENSATION AND EMPLOYMENT AGREEMENTS
NFA has established nonqualified unfunded deferred compensation agreements
for certain ECA employees. One agreement provides for fixed monthly
benefits payable until February 1, 1997, on which date the remaining
balance will be paid out in full. The outstanding unfunded obligation under
this agreement amounted to $98,022 and was included in accrued expenses at
December 28, 1996. The other agreement is part of an employment agreement
and pertains to a bonus arrangement based on ECA's annual pretax income in
excess of a specified base, less certain adjustments. The base amounts for
periods subsequent to December 31, 1994 were not exceeded and, as such, no
accrual has been recorded for 1995 and 1996. The deferred compensation is
payable on January 1, 2006, or earlier in the event of termination, and
earns interest at 66% of the prime rate (8.5% at December 28, 1996). The
employment agreement, which expires on January 1, 2006, provides for an
annual base salary of $160,000, effective January 1, 1996 with annual
increases based on the greater of the consumer price index or a specified
10
<PAGE> 11
ELASTIC CORPORATION OF AMERICA
(A DIVISION OF NFA CORP.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
amount. The minimum base salary will be $200,000 through December 31, 2000
and $240,000 thereafter. Provisions of the agreement also provide for the
payment by NFA of a portion of the proceeds, subject to certain conditions,
from a sale, as defined, of NFA. Proceeds to which the employee would be
entitled shall be determined based on a formula as specified in the
agreement. As a result of the letter of intent entered into by NFA (Note
1), NFA intends on paying a portion of the proceeds from the proposed sale
of ECA to the employee under this provision of his employment agreement.
The financial statements do not include any amounts that might be payable
upon the sale of ECA. Any amounts paid will be recorded in the period in
which a sale is consummated. Severance payments are also provided for under
the agreement.
Deferred compensation expense, including interest, aggregated $43,724,
$40,218, and $285,432 in 1996, 1995, and 1994, respectively.
7. DIVISIONAL EQUITY
Divisional equity represents NFA's investment in the ECA business and is
comprised of permanent loans and advances, net income of the ECA business,
intracompany receivables and payables and cumulative receipts less
disbursements through ECA's zero balance cash account. NFA charges ECA an
interest (or cost of capital) charge based on the average daily balance of
divisional equity in excess of $7,500,000 at prime (8.5%, 8.5%, and 8% at
December 28, 1996, December 30, 1995, and December 31, 1994, respectively)
(Note 8).
8. RELATED-PARTY TRANSACTIONS
ECA is charged a home office service fee of 1.5% of its total sales by NFA.
The home office service fee, which is included in selling, general and
administrative expense, was $836,922, $870,827, and $920,097 for 1996,
1995, and 1994, respectively.
ECA is also charged a cost of capital in the form of interest by NFA (Note
7). Total interest expense charged to ECA by NFA was $437,157, $703,282,
and $629,063 for 1996, 1995, and 1994, respectively.
9. SIGNIFICANT CUSTOMERS
During 1996, 1995, and 1994, one unrelated customer accounted for
approximately 13%, 24%, and 29%, and another unrelated customer accounted
for approximately 10%, 9%, and 10%, respectively, of ECA's revenues.
Additionally, at December 28, 1996, December 30, 1995, and December 31,
1994, accounts receivable from one customer approximated 31%, 31%, and 42%,
respectively; accounts receivable from the other customer approximated 6%,
4%, and 4%, respectively, of ECA's accounts receivable.
10. CONTINGENCIES
NFA is a defendant in certain litigation relating to counterclaims filed
against ECA in connection with patents used by ECA. It is the opinion of
management that any losses in connection with this matter will not have a
material adverse effect on the financial position or results of operations
of ECA. Legal fees associated with certain litigation have been recorded by
ECA in the amount of approximately $855,200, $49,000, and $956,700 for
1996, 1995, and 1994, respectively. In addition, in 1995, NFA settled
certain litigation pertaining to ECA for $2,000,000. This amount, which was
recorded by NFA in 1994, has been allocated to ECA and is included in
selling, general and administrative expenses for 1994.
* * * * * *
11
<PAGE> 12
ELASTIC CORPORATION OF AMERICA
(A DIVISION OF NFA CORP.)
STATEMENTS OF ASSETS, LIABILITIES AND DIVISIONAL EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 27, 1997
------------------
(UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash.................................................................... $ 179,772
Accounts receivable less allowance for doubtful accounts of $906,000.... 11,826,938
Employee loans.......................................................... 213,544
Inventories............................................................. 11,752,408
Prepaid expenses........................................................ 506,278
-----------
Total current assets.................................................... 24,478,940
-----------
Property, plant and equipment:
Land.................................................................... 159,558
Building and leasehold improvements..................................... 5,577,360
Machinery and equipment................................................. 20,154,087
Construction in progress................................................ 1,551,835
-----------
27,442,840
Less accumulated depreciation........................................... 17,513,209
-----------
9,929,631
-----------
Other assets.............................................................. 759,786
-----------
Total..................................................................... $ 35,168,357
===========
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities:
Accounts payable........................................................ $ 2,827,182
Accrued expenses........................................................ 1,365,728
Current maturities of long-term debt.................................... --
-----------
Total current liabilities............................................ 4,192,910
Long-term debt............................................................ 6,000,000
Deferred compensation..................................................... 717,496
-----------
Total liabilities.................................................... 10,910,406
-----------
Commitments
Divisional equity......................................................... 24,257,951
-----------
Total..................................................................... $ 35,168,357
===========
</TABLE>
See notes to financial statements.
12
<PAGE> 13
ELASTIC CORPORATION OF AMERICA
(A DIVISION OF NFA CORP.)
STATEMENTS OF INCOME AND DIVISIONAL EQUITY
THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Net sales....................................................... $52,738,894 $41,779,106
Cost of sales................................................... 38,913,629 31,151,218
----------- -----------
Gross Profit.................................................... 13,825,265 10,627,888
----------- -----------
Selling, general and administrative expenses.................... 6,447,226 5,241,023
Interest expense................................................ 983,361 615,274
----------- -----------
Total expenses.................................................. 7,430,587 5,856,297
----------- -----------
Net income...................................................... 6,394,678 4,771,591
----------- -----------
Divisional equity, beginning of period.......................... 20,942,012 16,361,776
Distributions to corporate...................................... (3,078,739) (3,335,556)
----------- -----------
Divisional equity, end of period................................ $24,257,951 $17,797,811
=========== ===========
</TABLE>
See notes to financial statements.
13
<PAGE> 14
ELASTIC CORPORATION OF AMERICA
(A DIVISION OF NFA CORP.)
STATEMENTS OF CASH FLOWS
THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................... $ 6,394,678 $ 4,771,591
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................ 1,387,502 1,673,151
Changes in assets and liabilities provided (used) cash:
Accounts receivable, net..................................... (2,837,327) (2,424,444)
Inventories.................................................. (1,076,247) (1,222,345)
Prepaid expenses............................................. (208,845) (108,271)
Accounts payable and accrued expenses........................ 1,663,315 2,102,149
Deferred compensation........................................ -- (54,533)
----------- -----------
Net cash provided operating activities.................. 5,323,076 4,737,298
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in escrow funds restricted under bond indenture........ -- 4,778
Additions to property, plant and equipment...................... (2,173,570) (677,931)
----------- -----------
(2,173,570) (673,153)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash remitted to NFA Corp. ..................................... (3,078,739) (3,335,556)
Payments for long term debt..................................... -- (700,000)
----------- -----------
(3,078,739) (4,035,556)
----------- -----------
NET INCREASE CASH................................................. 70,767 28,589
CASH, BEGINNING OF PERIOD......................................... 109,005 111,559
----------- -----------
CASH, END OF PERIOD............................................... $ 179,772 $ 140,148
=========== ===========
</TABLE>
See notes to financial statements.
14
<PAGE> 15
ELASTIC CORPORATION OF AMERICA
(A DIVISION OF NFA CORP.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- Elastic Corporation of America ("ECA") is a
division of NFA Corp. ("NFA"). ECA is engaged in the manufacture and
distribution of narrow elastic and other specialty textiles. On September 19,
1997, NFA entered into a letter of intent to sell the ECA business of NFA. On
October 29, 1997 NFA signed an asset purchase agreement for the sale of the ECA
Business.
The accompanying unaudited interim financial statements include the
historical basis financial statements of ECA. ECA has been operated as a
division of NFA, sharing corporate services (audit, legal and group
administrative functions) with other NFA divisions. The financial statements
have been prepared from the separate records maintained for the ECA division.
Certain information normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. As such, these interim financial statements should be read in
conjunction with ECA's 1996 financial statements and notes thereto.
In the opinion of ECA management, the accompanying interim unaudited
financial statements as of September 27, 1997 and for the thirty-nine weeks
ended September 27, 1997 have been prepared on the same basis as the audited
financial statements and include all adjustments, consisting only of normal
recurring adjustments, necessary for a presentation of the financial position
and operating results of ECA for the period in accordance with the basis of
presentation described in Note 1 to the audited ECA financial statements.
Other Assets -- Other assets consists of long term accounts receivable of
$600,000 and deferred financing costs.
Accounts Receivable -- ECA has recorded an additional allowance for
doubtful accounts of $500,000 in the thirty-nine week period ended September 27,
1997 for that portion of accounts receivable that management has determined to
be uncollectable.
2. INVENTORIES
Inventories at the balance sheet date are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 27,
1997
-------------
<S> <C>
Raw materials and supplies...................................................... $ 2,377,046
Work in process................................................................. 5,398,844
Finished goods.................................................................. 3,976,518
------------
$ 11,752,408
============
</TABLE>
3. LONG-TERM DEBT
In June 1992 NFA entered into a lease agreement ("the Agreement") with the
Industrial Development Board of the City of Columbiana ("IDBCC"). Pursuant to
the agreement, IDBCC, the issuer of $8,100,000 of Revenue Bonds ("the Bonds")
issued for the purpose of financing the cost of acquiring, constructing and
equipping an industrial facility (ECA's Headquarters, "the NFA Project"), leased
the NFA Project to NFA. NFA agreed to pay rentals to IDBCC equal to the debt
service on the Bonds. The final maturity of the Bonds and the termination of the
lease was June 1, 2004. IDBCC assigned and pledged to the bond trustee all of
its rights under the lease. As security for the payment of the debt service on
the Bonds, NFA entered into a Guaranty Agreement in favor of the bond trustee,
guaranteeing payment on the debt service. The Guaranty is supported by an
irrevocable direct pay Letter of Credit ("LOC") which permits the bond trustee
to draw an amount sufficient to pay, when due, the principal of, and up to 200
days interest on, the bonds. The LOC was
15
<PAGE> 16
established to not exceed $6,333,334. There were no balances drawn or
outstanding on this LOC at the balance sheet dates. As security for NFA's
obligations under the LOC, NFA and IDBCC executed a mortgage, assignment of
leases and security agreement in favor of the bank that issued the LOC, whereby
the bank was granted a mortgage, and security interest in the NFA project. Under
the terms of the Agreement and bond indenture, funds available to NFA were
required to be deposited into an escrow project fund with the bond trustee. Use
of such funds was limited to the NFA Project. NFA is also required to comply
with certain affirmative and negative covenants; these covenants restrict NFA
from incurring other indebtedness, limit distributions of income and require the
maintenance of certain financial ratios. NFA was in compliance with these
covenants at the balance sheet dates. The obligations associated with the bond
issuance and the related capital costs of the NFA Project have been recorded by
ECA.
In May 1997 the lease was amended to extend the term of the agreement from June
1, 2004 to June 1, 2014. In conjunction with the execution of the amendment,
bond holders approved an amendment to the bond indenture to remove the
requirements for scheduled annual mandatory redemption of the bonds on June 1,
1997 and thereafter. The indenture was also amended to extend the final maturity
of the bonds from June 1, 2004 to June 1, 2014. The expiration of the LOC has
been extended to March 31, 1999.
4. DEFERRED COMPENSATION AND EMPLOYMENT AGREEMENTS
NFA has established nonqualified unfunded deferred compensation agreements for
certain ECA employees. One agreement provides for fixed monthly benefits payable
until February 1, 1997, on which date the remaining balance was paid out in
full. The other agreement is part of an employment agreement and pertains to a
bonus arrangement based on ECA's annual pretax income in excess of a specified
base, less certain adjustments. The base amounts for periods subsequent to
December 31, 1994 were not exceeded and, as such, no accrual has been recorded
subsequent to December 31, 1994. The deferred compensation is payable on January
1, 2006, or earlier in the event of termination, and earns interest at 66% of
the prime rate. The employment agreement, which expires on January 1, 2006,
provides for an annual base salary of $160,000, effective January 1, 1996 with
annual increases based on the greater of the consumer price index or a specified
amount. The minimum base salary will be $200,000 through December 31, 2000 and
$240,000 thereafter. Provisions of the agreement also provide for the payment by
NFA of a portion of the proceeds, subject to certain conditions, from a sale, as
defined, of NFA. Proceeds to which the employee would be entitled shall be
determined based on a formula as specified in the agreement. As a result of the
letter of intent entered into by NFA (Note 1), NFA intends on paying a portion
of the proceeds from the proposed sale of ECA to the employee under this
provision of his employment agreement. The financial statements do not include
any amounts that might be payable upon the sale of ECA. Any amounts paid will be
recorded in the period in which a sale is consummated. Severance payments are
also provided for under the agreement.
5. DIVISIONAL EQUITY
Divisional equity represents NFA's investment in the ECA business and is
comprised of permanent loans and advances, net income of the ECA business,
intracompany receivables and payables and cumulative receipts less disbursements
through ECA's zero balance cash account. NFA charges ECA an interest (or cost of
capital) charge based on the average daily balance of divisional equity in
excess of $7,500,000 at prime.
6. CONTINGENCIES
NFA is a defendant in certain litigation relating to counterclaims filed
against ECA in connection with patents used by ECA. It is the opinion of
management that any losses in connection with this matter will not have a
material adverse effect on the financial position or results of operations of
ECA.
16
<PAGE> 17
(b) Pro forma financial information.
The following Unaudited Pro Forma Combined Statements of Operations for the
year ended December 31, 1996 and the nine months ended September 30, 1997 give
effect to the acquisition by the Company of substantially all of the assets of
ECA (the "ECA Acquisition"), the acquisition by the Company of the Narrow
Fabrics division ("Elastex") of Texfi Industries, Inc. (the "Elastex
Acquisition"), the offering of the Senior Notes (the "Offering") and the
application of the net proceeds from the Offering (the ECA Acquisition, the
Elastex Acquisition, the Offering and the application of the net proceeds from
the Offering, collectively, the "Transactions"), as if each had occurred at the
beginning of the earliest period presented. The following Unaudited Pro Forma
Combined Balance Sheet as of September 30, 1997 gives effect to the Transactions
as if each had occurred on September 30, 1997.
The Unaudited Pro Forma Combined Financial Statements have been prepared
using the purchase method of accounting for the ECA Acquisition and the Elastex
Acquisition, whereby the total cost of each acquisition is allocated to the
tangible and intangible assets acquired and liabilities assumed based upon their
respective fair values at the effective dates of such acquisitions. For purposes
of the Unaudited Pro Forma Combined Financial Statements, such allocations have
been made based upon currently available information and management's estimates.
For convenience, the thirty-nine week period ended September 27, 1997 for ECA is
hereinafter referred to as the nine months then ended.
The Unaudited Pro Forma Combined Statement of Operations for the year ended
December 31, 1996 is based on the respective audited financial statements for
the year ended December 31, 1996 of the Company and the fiscal year ended
December 28, 1996 of ECA and the unaudited financial statements for the year
ended November 1, 1996 of Elastex; the Unaudited Pro Forma Combined Statement of
Operations for the nine months ended September 30, 1997 is based on the
respective unaudited financial statements for the nine months ended September
30, 1997 of the Company, ended September 27, 1997 of ECA and ended August 1,
1997 of Elastex; and the Unaudited Pro Forma Combined Balance Sheet as of
September 30, 1997 is based on the respective unaudited financial statements as
of September 30, 1997 of the Company, as of September 27, 1997 of ECA, and as of
August 1, 1997 of Elastex. The unaudited financial statements reflect all
adjustments, consisting of normal recurring accruals, which in the opinion of
management of the applicable company are necessary for a presentation of results
for the respective periods in accordance with the basis of presentation
described in the respective company's financial statements.
The Unaudited Pro Forma Combined Financial Statements do not purport to
represent what the results of operations or financial position of the Company
would actually have been if any of the Transactions had occurred on such dates
or to project the results of operations or financial position of the Company for
any future date or period.
17
<PAGE> 18
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------
WORLDTEX ELASTEX ECA ADJUSTMENTS PRO FORMA
-------- ------- ------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales.......................... $207,829 $15,756 $55,798 $ -- $ 279,383
Cost of goods sold................. 168,754 13,055 41,828 -- 223,637
-------- ------- ------- -------- --------
Gross profit....................... 39,075 2,701 13,970 -- 55,746
Selling, general and administrative
expenses......................... 16,582 866 6,664 969(a) 25,081
-------- ------- ------- -------- --------
Operating profit................... 22,493 1,835 7,306 (969) 30,665
Interest expense................... 5,826 -- 814 12,264(b) 18,904
Other income (expense), net........ 694 -- -- -- 694
-------- ------- ------- -------- --------
Income before income taxes......... 17,361 1,835 6,492 (13,233) 12,455
Income taxes....................... 6,415 -- -- (1,865)(c) 4,550
-------- ------- ------- -------- --------
Net income......................... $ 10,946 $ 1,835 $ 6,492 $ (11,368) $ 7,905
======== ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
--------------------------------------------------------------
WORLDTEX ELASTEX ECA ADJUSTMENTS PRO FORMA
-------- ------- ------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales.......................... $148,350 $14,964 $52,739 $ -- $ 216,053
Cost of goods sold................. 122,040 12,265 38,914 -- 173,219
-------- ------- ------- -------- --------
Gross profit..................... 26,310 2,699 13,825 -- 42,834
Selling, general and administrative
expenses......................... 11,688 1,156 6,447 443(a) 19,734
-------- ------- ------- -------- --------
Operating profit................... 14,622 1,543 7,378 (443) 23,100
Interest expense................... 4,417 21 983 8,876(b) 14,297
Other income (expense), net........ 30 (65) -- -- (35)
-------- ------- ------- -------- --------
Income before income taxes....... 10,235 1,457 6,395 (9,319) 8,768
Income taxes....................... 3,492 -- -- (557)(c) 2,935
-------- ------- ------- -------- --------
Net income....................... $ 6,743 $ 1,457 $ 6,395 $ (8,762) $ 5,833
======== ======= ======= ======== ========
</TABLE>
- ---------------
(a) Reflects (i) amortization of goodwill associated with the acquisitions of
Elastex and ECA of $1.8 million and $1.2 million for the year ended December
31, 1996 and nine months ended September 30, 1997, respectively; (ii)
reduction of lease expense of $162,000 and $122,000 for the year ended
December 31, 1996 and the nine months ended September 30, 1997,
respectively, resulting from the buyout of certain leases of Elastex; and
(iii) adjustment to management fees charged by the former parent of ECA of
$637,000 and $641,000 for the year ended December 31, 1996 and the nine
months ended September 30, 1997, respectively, net of $200,000 and $150,000
for the year ended December 31, 1996 and nine months ended September 30,
1997, respectively, for estimated costs on a stand alone basis.
(b) Reflects (i) pro forma interest expense calculated using an assumed interest
rate of 9 5/8% per annum on the Senior Notes; (ii) estimated additional
amortization of deferred financing costs of $567,000 and $424,000 for the
year ended December 31, 1996 and the nine months ended September 30, 1997,
respectively; and (iii) elimination of allocated interest charges from the
former parent of ECA of $437,000 and $707,000 for the year ended December
31, 1996 and the nine months ended September 30, 1997, respectively. If
actual interest rates vary by 25 basis points from assumed rates, total pro
forma interest expense will increase or decrease by $328,000 for the nine
months ended September 30, 1997.
(c) Reflects an assumed effective corporate income tax rate of 38% on the
earnings of Elastex, ECA and the pro forma adjustments.
(See Notes to Pro Forma Combined Statement of Operations on the following page.)
18
<PAGE> 19
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-----------------------------------------------------------
WORLDTEX ELASTEX ECA ADJUSTMENTS PRO FORMA
-------- ------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash................................... $ 8,435 $ -- $ 180 $ 13,730(a)(c) $ 22,345
Accounts and notes receivable.......... 38,708 -- 12,041 (800)(a) 49,949
Inventories............................ 37,896 2,291 11,752 -- 51,939
Prepaid expenses and other current
assets.............................. 2,780 33 506 -- 3,319
-------- ------ ------- -------- --------
Total current assets........... 87,819 2,324 24,479 12,930 127,552
Property, plant and equipment -- net..... 84,145 3,946 9,929 -- 98,020
Other assets............................. 29,636 -- 760 62,692(b) 93,088
-------- ------ ------- -------- --------
$201,600 $ 6,270 $35,168 $ 75,622 $ 318,660
======== ====== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings.................. $ 2,128 $ -- $ -- $ -- $ 2,128
Current installments of long-term
debt................................ 7,807 -- -- (7,143)(c) 664
Accounts and notes payable-trade and
other liabilities................... 25,396 1,680 4,193 -- 31,269
Income taxes payable................... 1,431 -- -- -- 1,431
-------- ------ ------- -------- --------
Total current liabilities...... 36,762 1,680 4,193 (7,143) 35,492
Long-term debt........................... 66,428 -- 6,000 113,113(c) 185,541
Other long-term liabilities.............. 17,121 -- 717 -- 17,838
-------- ------ ------- -------- --------
Total liabilities.............. 120,311 1,680 10,910 105,970 238,871
-------- ------ ------- -------- --------
Stockholders' equity:
Preferred stock........................ -- -- -- -- --
Common stock........................... 147 -- -- -- 147
Paid-in capital........................ 30,059 4,590 24,258 (28,848)(b) 30,059
Retained earnings...................... 63,662 -- -- (1,500)(d) 62,162
Cumulative foreign translation
adjustment.......................... (11,081) -- -- -- (11,081)
Less--Treasury stock, at cost.......... (1,498) -- -- -- (1,498)
-------- ------ ------- -------- --------
Total stockholders' equity...... 81,289 4,590 24,258 (30,348) 79,789
-------- ------ ------- -------- --------
$201,600 $ 6,270 $35,168 $ 75,622 $ 318,660
======== ====== ======= ======== ========
</TABLE>
- ---------------
(a) Reflects adjustments for certain assets not acquired in connection with the
acquisitions of Elastex and ECA.
(b) Reflects the estimated allocation of the purchase price for the acquisitions
of Elastex and ECA over the net book value of the respective assets acquired
and liabilities assumed using the purchase method and capitalized debt
issuance costs.
(c) Reflects the impact of the sources and uses of funds related to the
Company's cash and debt from the Offering and the Elastex and ECA
Acquisitions.
(d) Reflects the write-off of financing costs associated with the Company's
existing debt due to the Offering.
19
<PAGE> 20
(c) Exhibits.
The Index to Exhibits to this Report is incorporated herein by reference.
20
<PAGE> 21
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
WORLDTEX, INC.
By /s/ MITCHELL R. SETZER
------------------------------------
Mitchell R. Setzer
Treasurer
Date: December 16, 1997
21
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<C> <S>
2.1 Asset Purchase Agreement, dated as of October 29, 1997, among Elastic Corporation of
America, Inc., Worldtex, Inc., and NFA Corp. -- filed herewith
23.1 Consent of Deloitte & Touche LLP -- filed herewith
99.1 News Release of Worldtex, Inc., dated December 1, 1997 -- filed herewith
</TABLE>
22
<PAGE> 1
EXHIBIT 2.1
================================================================================
ASSET PURCHASE AGREEMENT
DATED AS OF OCTOBER 29, 1997
AMONG
ELASTIC CORPORATION OF AMERICA, INC.,
(A WHOLLY-OWNED SUBSIDIARY OF WORLDTEX, INC.)
WORLDTEX, INC.,
AND
NFA CORP.
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. DEFINITIONS....................................................................... 1
1.1 Defined Terms............................................................... 1
1.2 Terms Defined Elsewhere..................................................... 5
1.3 Construction................................................................ 6
2. PURCHASE AND SALE................................................................. 7
2.1 Acquired Assets............................................................. 7
2.2 Excluded Assets............................................................. 7
2.3 Assumed Contracts........................................................... 8
2.4 Other Liabilities Assumed................................................... 8
2.5 Non-Assumption of Liabilities............................................... 8
2.6 Schedules of Assets Not Exclusive........................................... 9
2.7 Assurances.................................................................. 9
3. PURCHASE PRICE.................................................................... 9
3.1 Closing Consideration....................................................... 9
3.2 Calculation of Closing Net Worth............................................ 9
3.3 Adjustment for Receivables.................................................. 10
3.4 Returned Products........................................................... 11
3.5 Payments.................................................................... 11
3.6 Allocation of Purchase Price................................................ 11
4. REPRESENTATIONS AND WARRANTIES OF SELLER.......................................... 12
4.1 Organization................................................................ 12
4.2 Authority; Binding Effect................................................... 12
4.3 Financial and Other Information; Absence of Adverse Changes................. 12
4.4 Acquired Assets............................................................. 13
4.5 Contracts................................................................... 15
4.6 Litigation; Compliance with Law............................................. 16
4.7 Taxes....................................................................... 16
4.8 Employee Benefits........................................................... 16
4.9 Labor Relations............................................................. 18
4.10 Environmental Matters....................................................... 18
4.11 Customers and Suppliers..................................................... 19
4.12 Transactions with Related Persons........................................... 19
4.13 Disclosure of All Material Facts............................................ 19
5. REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT................................ 19
5.1 Organization................................................................ 19
5.2 Authority; Binding Effect................................................... 19
5.3 Financing................................................................... 20
6. CONFIDENTIAL INFORMATION.......................................................... 20
6.1 Buyer Confidential Information.............................................. 20
6.2 Seller Confidential Information............................................. 20
6.3 Notice of Disclosure of Confidential Information............................ 20
7. COVENANTS......................................................................... 21
7.1 Access...................................................................... 21
7.2 Public Announcements........................................................ 21
7.3 Conduct of Business of Seller Prior to the Closing.......................... 21
7.4 Consents.................................................................... 22
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
---
<S> <C> <C>
7.5 Real Property Matters....................................................... 22
7.6 Additional Agreements....................................................... 22
7.7 Notification of Certain Matters............................................. 22
7.8 Expenses; Transfer Taxes.................................................... 22
7.9 Non-Solicitation of Transactions............................................ 22
7.10 Non-Competition............................................................. 23
7.11 Non-Solicitation of Employees............................................... 23
7.12 HSR Act..................................................................... 23
7.13 Employee Matters............................................................ 23
7.14 Taxes....................................................................... 25
7.15 Post-Closing Credit Support................................................. 25
8. CONDITIONS TO OBLIGATIONS OF BUYER AND PARENT..................................... 26
8.1 Representations and Warranties; Covenants................................... 26
8.2 Opinion of Counsel to Seller................................................ 26
8.3 Absence of Litigation, Damages, Changes..................................... 26
8.4 Environmental Report........................................................ 26
8.5 Consents Obtained........................................................... 26
8.6 Title Insurance............................................................. 26
8.7 Material Adverse Change..................................................... 27
8.8 HSR Act..................................................................... 27
8.9 Financing................................................................... 27
9. CONDITIONS TO OBLIGATIONS OF SELLER............................................... 27
9.1 Representations and Warranties; Covenants................................... 27
9.2 Absence of Litigation....................................................... 27
9.3 Release From IRB Agreements................................................. 27
9.4 HSR Act..................................................................... 27
9.5 Opinion of Counsel to Buyer................................................. 27
10. CLOSING........................................................................... 27
10.1 Deliveries to Buyer........................................................ 28
10.2 Deliveries by Buyer........................................................ 28
11. INDEMNIFICATION................................................................... 29
11.1 Indemnification Obligations................................................ 29
11.2 Indemnification Procedures................................................. 29
12. MISCELLANEOUS..................................................................... 30
12.1 Brokerage.................................................................. 30
12.2 Survival................................................................... 31
12.3 Notices.................................................................... 31
12.4 Bulk Sales Laws............................................................ 31
12.5 Termination................................................................ 31
12.6 Binding Effect; Assignment; No Third Party Beneficiaries................... 32
12.7 Specific Performance....................................................... 32
12.8 Entire Agreement; Modifications; Headings; Counterparts.................... 32
12.9 Guarantee.................................................................. 32
12.10 Applicable Law............................................................. 32
</TABLE>
(ii)
<PAGE> 4
LIST OF SCHEDULES
<TABLE>
<S> <C>
Schedule 1.1 Accounting Principles
Schedule 2.2(d) Other Excluded Assets
Schedule 3.6 Allocation of Purchase Price
Schedule 4.1(a) Qualifications to do Business; Managers
Schedule 4.3(a) Financial Statements of the ECA Business
Schedule 4.3(c) Special Income Items/Write-Ups and Revaluations
Schedule 4.3(d) Certain Actions Since December 28, 1996
Schedule 4.4(a) Title Exceptions
Schedule 4.4(b) Real Property
Schedule 4.4(c) Machinery and Equipment
Schedule 4.4(d) Insurance
Schedule 4.4(e) Inventory Locations
Schedule 4.4(f) Receivables
Schedule 4.4(g) Permits
Schedule 4.4(i) Intellectual Property; Technology
Schedule 4.5 List of Contracts
Schedule 4.6 Litigation
Schedule 4.7 Tax Extensions/Waivers
Schedule 4.8(a) Employee Benefit Plans
Schedule 4.8(b) Employee and Agent Compensation
Schedule 4.8(h) Health Benefit Premiums and Claims
Schedule 4.9(b) Employment Losses
Schedule 4.10 Environmental Matters
Schedule 4.11 Customers and Suppliers
Schedule 4.12 Transactions with Related Persons
Schedule 5.3 Bridge Loan Commitment Letter
Schedule 7.10 Non-Competitive Products
Schedule 8.2 Form of Opinion of Counsel to Seller
Schedule 8.5 Required Consents
Schedule 9.5 Form of Opinion of Counsel to Buyer
</TABLE>
(iii)
<PAGE> 5
ASSET PURCHASE AGREEMENT
Asset Purchase Agreement, dated as of October 29, 1997, among NFA Corp., a
Massachusetts corporation (the "Seller"), Elastic Corporation of America, Inc.,
a Delaware corporation (the "Buyer"), and Worldtex, Inc., a Delaware corporation
(the "Parent").
Seller desires to sell, and Buyer desires to purchase, substantially all of
the assets of the Elastic Corporation of America division of the Seller.
Accordingly, the parties agree as follows:
1. DEFINITIONS.
1.1 Defined Terms. The following terms shall have the respective meanings
indicated below for purposes of this Agreement:
"Accountants Proprietary Information" shall mean planning documentation,
inherent and control risk assessments, listing of matters for the attention of
the partner and detailed audit programs or records of tests and such other
comparable items as shall be so designated by the accountants, provided that any
information specifically relating to Seller that is the subject of such work
papers contained in any of the foregoing shall not be deemed Accountants
Proprietary Information, and such information shall be provided to a party when
such party is entitled to accountants' work papers pursuant to this Agreement.
"Accounting Principles" shall mean the accounting principles set forth on
Schedule 1.1 hereto.
"Affiliate" of a specified Person shall mean a Person directly or
indirectly controlling, controlled by, or under common control with, such
specified Person. For the purposes of this definition, "control" when used with
respect to any Person means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Arbitrating Firm" shall mean one of the "big six" independent public
accounting firms (other than any such firm that audited the 1994, 1995 or 1996
financial statements of Buyer, Seller or any of their respective Affiliates)
selected by agreement of Buyer and Seller or, if they cannot agree, chosen by
lot by Seller and Buyer from among the aforesaid firms.
"Assets" shall mean all properties, assets, privileges, rights, interests
and claims, real and personal, tangible and intangible, of every type and
description, wherever located, in which Seller has any right, title or interest.
"Assumed Litigation" shall mean the action entitled NFA Corp. v. Southern
Webbing Mills, Inc. and Asheboro Elastics Corporation, Civil Action No.
96.0225-R, in the United States District Court for the Western District of
Virginia, Roanoke Division, and related Arbitration as described in that certain
summary letter of Wolf, Greenfield & Sacks, P.C. dated July 30, 1997, a copy of
which has been previously delivered to Buyer.
"Basket Amount" shall mean $800,000.
"Best efforts" shall mean, whenever used with reference to a party's
obligation, an obligation of such party to use reasonable commercial efforts,
but shall not be interpreted to require such party to take any action or refrain
from taking any action that would be materially burdensome to such party or to
amend this Agreement or any agreement contemplated hereby or to forego or waive
any of its rights hereunder or thereunder.
"Business" shall mean the business conducted by the Elastic Corporation of
America division of the Seller prior to the Closing, including the manufacture
of narrow woven and narrow crochet knitted elastic products.
"Business Day" shall mean any day other than a Saturday, Sunday or other
day on which banks in Charlotte, North Carolina or Boston, Massachusetts, are
required to or may be closed.
<PAGE> 6
"Business-Related" shall mean, when used in reference to a specified asset
or obligation, only those of such assets or obligations that are used or held
for use in, or related to, the Business.
"Cap" shall mean $15,640,000, provided that the Cap shall be reduced to
$4,000,000 on the second anniversary of the Closing Date, to $2,000,000 on the
third anniversary of the Closing Date and to $1,000,000 on the 30th day after
the sixth anniversary of the Closing Date, except that if on any such date on
which the Cap would otherwise be reduced there is any claim, whether or not
fixed as to liability or liquidated as to amount, with respect to which any
Buyer Indemnified Party has given written notice to Seller, the Cap shall not be
deemed reduced for purposes of Seller's indemnification obligations beneath the
amount of any such claim.
"Cash," "dollars" or "$" shall mean United States dollars.
"Closing Net Worth" shall mean Net Worth, determined as of the Closing
Date, provided that the net amount of property, plant and equipment included in
determining Closing Net Worth shall not exceed $9,986,000, and any excess above
such amount (or such higher amount as may be approved in writing by Buyer) shall
be disregarded.
"Contracts" shall mean all mortgages, liens, security interests, leases,
instruments, contracts, commitments, arrangements and agreements of every type
and description to which Seller is a party or by which Seller or any of the
Acquired Assets are bound.
"Current Liabilities" shall mean, as of any date, all current liabilities
of the Business as of such date, excluding liabilities for Federal, state, local
or other income Taxes, determined in accordance with U.S. GAAP applied on a
consistent basis with the Annual Financial Statements.
"Cut-Off Date" shall mean the 180th day after the Closing Date.
"EBIT" shall mean, for any fiscal period and with respect to any Person,
operating income of such Person before (i) interest expense, (ii) extraordinary
items of income and expense, (iii) interest income, (iv) income taxes of Seller
and (v) allocation of corporate overhead and legal expenses, and adjusted to
exclude the effect of any gain or loss on the disposition of fixed assets and
the cumulative effect of a change in accounting principles and estimation
techniques, all as determined in accordance with U.S. GAAP applied consistently
with the 1996 Financial Statements. All audit adjustments actually made shall be
recorded in determining EBIT.
"EBITDA" shall mean, for any fiscal period and with respect to any Person,
EBIT of such Person adjusted to exclude depreciation and amortization expense
otherwise taken into account in determining EBIT for such period.
"Environmental Condition" shall mean (w) any generation, use, handling,
storage, transportation, treatment, release, discharge, emission, spillage or
disposal of any Hazardous Substance, Hazardous Waste, waste containing a
Hazardous Substance or Petroleum Substance which occurred at or prior to the
Closing in connection with the Business (whether at the Real Property or another
location) any time at or prior to the Closing, by Seller or any of its
Affiliates and that results in an Environmental Liability, (x) any contamination
of air, soil, groundwater or surface water above, at, on, under, or adjacent to
the Real Property at or prior to the Closing in connection with the Business, or
(y) exposure of any person to any Hazardous Substance, Hazardous Waste, waste
containing a Hazardous Substance or Petroleum Substance in connection with the
Business at or prior to Closing. The terms "Hazardous Waste," "Hazardous
Substance," "Release" and "Facility" have the meanings set forth in the Resource
Conservation and Recovery Act and the Comprehensive Environmental Response
Compensation and Liability Act, as such statutes are amended from time to time,
and any federal or state law, rule or regulation adopted pursuant thereto or
otherwise relating to liability for environmental contamination, and "Petroleum
Substance" means petroleum, petroleum products, crude oil or any fraction
thereof and waste oil.
"Environmental Liability" shall mean any liability or potential liability
under any applicable Environmental Laws.
2
<PAGE> 7
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Excluded Business" shall mean the business conducted by the Seller other
than the Business.
"FIFO" shall mean the first-in, first-out method of accounting for
inventory under U.S. GAAP.
"Financing" shall mean the borrowing arrangements and Rule 144A Offering to
be undertaken by Parent in connection with the acquisition by Buyer contemplated
by this Agreement.
"Financing Parties" shall mean the initial purchasers in the Rule 144A
Offering and the lenders in the borrowing arrangements included in the
Financing.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Income Tax Returns" shall mean Returns relating to Income Taxes.
"Income Taxes" shall mean Taxes in the nature of income or franchise taxes,
including interest, penalties and additions to tax with respect thereto.
"Interest Rate" shall mean a rate per annum equal to the prime rate of
NationsBank, N.A.. as in effect from time to time.
"IRB Agreements" shall mean those agreements executed in connection with
the $8,100,000 Revenue Bonds (NFA Corp Project), Series 1992-A, issued by the
Industrial Development Board of the City of Columbiana, Alabama, under that
certain Trust Indenture dated June 1, 1992, as amended by First Supplemental
Trust Indenture dated May 1, 1997, listed as Items 1 through 13 in Section (j)
of Schedule 4.5.
"Knowledge" of Seller shall mean the actual knowledge of David Casty,
Edward Gleadall, George McDonough, Joe Murray, Bernie Wedge, Cindy Seitel,
Jackie Rorrer, Allan Sachs or Charles Carter.
"Leased Real Property" shall mean the Real Property leased pursuant to the
leases listed as Items 5, 6 and 7 in Section (b) of Schedule 4.5.
"Legal Expenses" shall mean the reasonable fees, costs and expenses of any
kind incurred by any Person entitled to indemnification pursuant to Article 11
in investigating, preparing for, defending against or providing evidence,
producing documents or taking other action with respect to any claim as to which
such Person is entitled to indemnification under Article 11.
"Legal Requirements" shall mean laws, ordinances, codes, rules, standards,
regulations, decrees or orders or any court or governmental entity and other
requirements of all governmental, administrative or judicial entities.
"Material Adverse Effect" shall mean any change in, or effect on, the
Business that is, or is reasonably likely to be, materially adverse to the
business, operations, assets, financial condition or prospects of the Business
or any material adverse effect on the ability of the Seller to carry out its
obligations under and to consummate the transactions contemplated by this
Agreement.
"Net Worth" shall mean, as of any date, the net book value of the Acquired
Assets, net of all applicable reserves, less the amount of the Assumed
Liabilities, all determined in accordance with U.S. GAAP applied on a consistent
basis with the Annual Financial Statements.
"Obsolescence Reserve" shall mean, as of any date, the reserve for slow
moving or obsolete inventory determined as of such date in accordance with U.S.
GAAP.
"Operating Leases" shall mean the leases listed as Items 1, 2, 3 and 4 in
Section (b) of Schedule 4.5.
"Owned Real Property" shall mean the Real Property located at Woolwine,
Virginia; Columbiana, Alabama; and Hemingway, South Carolina, all as more
particularly described in Items 1, 2 and 3 of Schedule 4.4(b).
"Permits" shall mean all permits, consents, orders, certificates, licenses,
franchises, registrations, approvals, authorizations and similar rights by
governmental or regulatory authorities or bodies.
3
<PAGE> 8
"Person" shall mean and include an individual, corporation, company,
partnership, joint venture, association, trust, and other unincorporated
organization or entity and a governmental entity or any department or agency
thereto.
"Perquisites" shall mean all perquisites provided by Seller to employees.
"Real Property" shall mean all real property, fixtures, buildings and
improvements thereon, wherever located, owned, occupied, used or held for use by
Seller in connection with the Business, and all appurtenances and easements and
rights of way which benefit such real property and all construction-in-progress
relating thereto.
"Receivables Reserve" shall mean, as of any date, the reserve for
uncollectable receivables and credit memos determined as of such date in
accordance with U.S. GAAP.
"Remedial Action" shall mean all action: (x) to cleanup, remove, treat or
in any other way remediate any Hazardous Substance, Hazardous Waste or waste
containing a Hazardous Substance in the environment; (y) to prevent the Release
of any Hazardous Substance, Hazardous Waste or waste containing a Hazardous
Substance so that they do not endanger or other otherwise adversely affect the
environment or public health or welfare; or (z) to perform pre-remedial studies,
investigations or monitoring, in or under any real property, assets or
facilities. Capitalized terms used in this definition have the meanings provided
in the definition of Environmental Condition.
"Routine Contracts" shall mean (i) all Contracts for the purchase of
Inventories in the ordinary course of business and consistent with past
practices of the Business from established vendors, no one of which individual
purchase orders will involve the payment of more than $100,000 or provide for
deliveries to the Business more than six months after the date of such purchase
order, (ii) all Contracts for the sale of Inventories in the ordinary course of
business and consistent with past practices of the Business to established
customer accounts where an individual invoice does not exceed $100,000 or
require shipments by Buyer more than six months after the Closing Date, and
(iii) all Contracts for the purchase or sale of services or involving the lease
by Seller as lessee of office equipment incurred in the ordinary course of the
Business, no one of which will involve the expenditure by any party thereto of
an amount in excess of $50,000 after the Closing Date or will have a duration of
more than six months after the Closing Date, in each case referred to in clause
(i), (ii) or (iii) only if and to the extent such Contracts shall be consistent
with the representations and warranties of Seller and the other provisions of
this Agreement.
"Rule 144A Offering" shall mean the offering of debt securities by Parent
in a private placement under circumstances in which such securities are intended
to qualify for resale pursuant to Rule 144A under the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Subsidiary" shall mean any corporation in which securities representing a
majority of the combined voting power of voting interests entitled to vote
generally for the election of directors are beneficially owned by such company
and/or one or more Subsidiaries.
"Target Closing Net Worth" shall mean $22,689,000.
"Taxes" shall mean (a) all Taxes, fees, levies, customs duties,
assessments, or charges of any kind whatsoever, including, without limitation,
gross income, net income, gross receipts, profits, windfall profits, sales, use,
occupation, value-added, consumption, ad valorem, transfer, license, franchise,
withholding, payroll, employment, excise, estimated, stamp, premium, capital
stock, production, net worth, alternative or add-on minimum, environmental,
business and occupation, disability, severance, or real or personal property
taxes imposed by any Federal, state, county, local, foreign, or other
governmental authority together with any interest, penalties, or additions to
tax imposed with respect thereto and (b) any obligations under any tax sharing,
tax allocation, or tax indemnity agreements or arrangements with respect to any
Taxes described in clause (a) above.
4
<PAGE> 9
"Taxing Authority" shall mean any governmental authority having
jurisdiction over the assessment, determination, collection, or other imposition
of any Tax.
"Technology" shall mean all technology trade secrets, confidential or
proprietary information, research in progress, inventions and invention
disclosures (whether patentable or unpatentable), know how, formulae, processes,
procedures, research records, records of inventions, test information, market
surveys and marketing know-how; and drawings, schematics, blueprints, flow
sheets, designs and models, if any, of any nature whatsoever.
"U.S. GAAP" shall mean the Accounting Principles and, to the extent not
inconsistent therewith, other generally accepted accounting principles in the
United States of America as in effect from time to time.
"WARN Act" shall mean the Worker Adjustment and Retraining Notification
Act, 29 U.S.C. 2101 et seq.
1.2 Terms Defined Elsewhere. The following terms are defined in the text
of the Agreement as indicated below:
<TABLE>
<CAPTION>
TERM LOCATION IN AGREEMENT
------------------------------------------------------------------- ---------------------
<S> <C>
"1996 Financial Statements"........................................ Section 4.3(a)
"Acquired Assets".................................................. Section 2.1
"Acquisition Transaction".......................................... Section 7.9
"Annual Financial Statements"...................................... Section 4.3(a)
"Assigned Receivables"............................................. Section 3.3(b)
"Assumed Contracts"................................................ Section 2.3
"Assumed Employee Liabilities"..................................... Section 7.13(a)
"Assumed Liabilities".............................................. Section 2.4
"Benefit Plans".................................................... Section 4.8(a)
"Business Employees"............................................... Section 4.8(a)
"Business Intellectual Property"................................... Section 4.4(i)
"Buyer's Savings Plan"............................................. Section 7.13(d)
"Buyer"............................................................ Preamble
"Buyer Confidential Information"................................... Section 6.1
"Buyer Indemnified Party".......................................... Section 11.1
"CERCLA"........................................................... Section 4.10(c)
"Closing".......................................................... Section 10
"Closing Balance Sheet"............................................ Section 3.2(a)
"Closing Consideration"............................................ Section 3.1
"Closing Date"..................................................... Section 10
"Closing Financial Statements"..................................... Section 3.2(a)
"Closing Receivables".............................................. Section 3.3(a)
"COBRA"............................................................ Section 7.13(f)
"Collected Amount"................................................. Section 3.3(b)
"Contract Default"................................................. Section 4.2
"Customer Refund".................................................. Section 3.4
"Deferral Notice".................................................. Section 10
"Dispute Deadline Date"............................................ Section 3.2(b)
"Disputed Amount".................................................. Section 3.2(c)
"Employee Claims".................................................. Section 7.13(a)
"Environmental Laws"............................................... Section 4.10(a)
"Environmental Permits"............................................ Section 4.10(a)
"ERISA"............................................................ Section 4.8(a)(i)
</TABLE>
5
<PAGE> 10
<TABLE>
<CAPTION>
TERM LOCATION IN AGREEMENT
------------------------------------------------------------------- ---------------------
<S> <C>
"ERISA Affiliate".................................................. Section 4.8(g)
"Excluded Assets".................................................. Section 2.2
"Excluded Receivables"............................................. Section 2.2(g)
"FICA"............................................................. Section 7.13(b)
"Financial Statements"............................................. Section 4.3(a)
"FUTA"............................................................. Section 7.13(b)
"indemnified party"................................................ Section 11.2(a)
"indemnifying party"............................................... Section 11.2(a)
"Intellectual Property"............................................ Section 2.1(g)
"Interim Balance Sheet"............................................ Section 4.3(a)
"Interim Financial Statements"..................................... Section 4.3(a)
"Inventories"...................................................... Section 2.1(b)
"IRS".............................................................. Section 4.8(b)
"Liens"............................................................ Section 4.2
"Losses"........................................................... Section 11.1(a)
"Machinery and Equipment".......................................... Section 2.1(d)
"Minimum EBITDA"................................................... Section 7.15
"Non-Compete Parties".............................................. Section 7.10
"Non-Compete Period"............................................... Section 7.10
"Parent"........................................................... Preamble
"PBGC"............................................................. Section 4.8(g)
"Post-Closing Certificate"......................................... Section 3.2(a)
"Prepaid Expenses"................................................. Section 2.1(c)
"Product Liability Claims"......................................... Section 2.5(a)
"Property"......................................................... Section 4.4(b)
"Purchase Price"................................................... Section 3
"Real Property Leases"............................................. Section 4.4(b)
"Receivables"...................................................... Section 2.1(a)
"Receivables Deficiency"........................................... Section 3.3(b)
"Receivables Notice"............................................... Section 3.3(b)
"Related Person"................................................... Section 4.12
"Representatives".................................................. Section 6.1
"Returns".......................................................... Section 4.7(b)
"Seller's Accountants"............................................. Section 3.2(a)
"Seller's Savings Plan"............................................ Section 7.13(d)
"Seller"........................................................... Preamble
"Seller Confidential Information".................................. Section 6.2
"Seller Contracts"................................................. Section 4.5
"Software"......................................................... Section 2.1(k)
"Survival Date".................................................... Section 12.2
"Third Party Action"............................................... Section 11.2(a)
"Transferred Employee"............................................. Section 7.13(a)
"Uncollected Amount"............................................... Section 3.3(b)
</TABLE>
1.3 Construction. Unless herein otherwise provided, or unless the context
shall otherwise require, words importing the singular number shall include the
plural number, and vice versa; the terms "herein", "hereof " and "hereunder", or
other similar terms, refer to this Agreement as a whole and not only to the
particular sentence, paragraph, Section or Article in which any such terms may
be employed; a reference to
6
<PAGE> 11
any Person shall include such Person's predecessors and successors; and all
accounting terms not otherwise defined herein have the meanings assigned to them
in accordance with U.S. GAAP.
2. PURCHASE AND SALE.
Subject to the terms and conditions hereof, at the Closing, Seller shall
sell, transfer and assign to Buyer, and Buyer shall purchase and acquire from
Seller, the Business and the Acquired Assets.
2.1 Acquired Assets. As used herein, "Acquired Assets" shall mean all
Assets that are used or held for use in, or related to, the Business (except for
the Excluded Assets), including, without limitation, the following:
(a) All accounts and notes receivable ("Receivables").
(b) All inventories, including raw materials, work-in-process and
finished goods ("Inventories").
(c) All prepaid expenses and deferred expenses to the extent such
items will benefit the Business after the Closing Date and to the extent
transferable ("Prepaid Expenses").
(d) All machinery, equipment, computer hardware, fixtures, tools,
furniture, office supplies, spare parts, supplies, vehicles and other fixed
assets ("Machinery and Equipment").
(e) The Owned Real Property.
(f) Seller's rights, title and interest in, to and under each of the
Assumed Contracts.
(g) All patents, patent rights, trademarks, trade names, service
marks, service names, copyrights, registrations and applications for the
foregoing, licenses with respect to the foregoing and other such property
(including, without limitation, the name "Elastic Corporation of America")
("Intellectual Property").
(h) All Technology.
(i) All Permits.
(j) All claims and rights against third parties, including, without
limitation, insurance claims, unliquidated rights under manufacturers' and
vendors' warranties, rights of recovery, set-offs and credits.
(k) All computer software and databases ("Software").
(l) All deposits relating to the Acquired Assets.
(m) The Assumed Litigation.
(n) All books and records relating to the Business or the Acquired
Assets including, without limitation, copies of lists of customers and
suppliers (past, present and potential); records with respect to items
(a)-(m) above; business development plans; advertising matter, catalogues,
brochures, correspondence, mailing lists, photographs, sales materials and
records; purchasing materials and records; operating manuals and
guidelines; software manuals and documenting data stored on electronic,
optical or magnetic form; sales order files; personnel records of
employees; accounting, tax and litigation files; and other records or
documents of any kind used in or required to continue the Business. Seller,
however, shall be entitled to retain copies of any such documents or
records which are necessary for its tax, accounting or legal purposes.
2.2 Excluded Assets. The following Assets (the "Excluded Assets") are not
included in the Acquired Assets and Seller shall not sell to Buyer and Buyer
shall not purchase from Seller the following:
(a) All cash and cash equivalents on hand, in transit or in
depositories.
(b) All of the assets, properties, interests and rights of the Seller
which are not used or held for use in, or related to, the Business.
(c) The name "NFA Corp."
7
<PAGE> 12
(d) The assets listed in Schedule 2.2(d) hereto.
(e) Any rights to and under Contracts not assumed by Buyer pursuant to
Section 2.3.
(f) The rights to any of Seller's claims for any federal, state,
local, or foreign tax refunds.
(g) The Receivables owing from Maidenform (and its subsidiary
Trueform) and Lovable as of the Business Day next preceding the Closing
Date (the "Excluded Receivables")(which Excluded Receivables as of
September 27, 1997 in the aggregate equaled $1,819,450), the Receivables
attributable to Seller's voluntary employee's beneficiary association trust
and any Receivable owing from Seller or any Affiliate of Seller.
(h) All books and records of the Seller related to the Excluded
Business, the Excluded Assets and the liabilities not assumed by the Buyer
in accordance with Section 2.5.
2.3 Assumed Contracts. From and after the Closing, Buyer shall assume and
perform Seller's obligations to be performed after the Closing Date under the
following Contracts: (i) all Routine Contracts, (ii) the IRB Agreements, (iii)
the Operating Leases, and (iv) those of the other Contracts listed on Schedule
4.5 hereto that Buyer (by so indicating on such Schedule) has agreed to assume;
provided, however, that (a) in no event shall Buyer assume any liability or
obligation under any Contract (i) required by the terms thereof to be discharged
on or prior to the Closing Date, (ii) the existence of which constitutes a
breach of any representation or warranty of Seller contained in or made pursuant
to this Agreement, (iii) incurred by Seller in violation of the provisions of
this Agreement, (iv) arising out of a breach or default by Seller on or prior to
the Closing Date (including any event that with the passage of time or the
giving of notice, or both, would become a breach or default) under any Contract,
or (v) existing as of the Closing Date that, under U.S. GAAP, should have been
accrued or reserved for on a balance sheet or in the notes thereto as a
liability or obligation if and to the extent not accrued or reserved for on the
Closing Balance Sheet, and (b) Buyer shall have the right not to assume any
Contract if either Seller or another party thereto is in breach thereof or
default thereunder (including any event that with the passage of time or the
giving of notice, or both, would become a breach or default) as of the Closing
or to the assumption of which any necessary consent is not received prior to the
Closing. Contracts to be assumed by Buyer hereunder (and, as of any time prior
to the Closing, without giving effect to clause (b) of the preceding sentence)
are referred to as "Assumed Contracts." If any Assumed Contract for which
assignment to Buyer is provided herein is not assignable without the consent of
another party, such consent is not obtained at or prior to the Closing and, if
applicable, Buyer waives the condition set forth in Section 8.5(a) with respect
thereto, then such Assumed Contract shall not be assigned to and assumed by
Buyer at the Closing. Instead, upon Buyer's request, Seller shall cooperate in
any reasonable arrangement designed to provide for Buyer the benefits intended
to be assigned to Buyer under the relevant Assumed Contract, including
enforcement of any and all rights of Seller against the other party thereto
arising out of the breach or cancellation thereof by such other party or
otherwise.
2.4 Other Liabilities Assumed. Buyer shall assume as of the Closing and
pay thereafter the Current Liabilities that are not discharged on or prior to
the Closing Date, to the extent accrued or reserved for in the calculation of
Closing Net Worth, as finally determined (the "Assumed Liabilities").
2.5 Non-Assumption of Liabilities. Buyer shall not assume or be bound by
any duties, responsibilities, obligations or liabilities of Seller of any kind
or nature, known, unknown, contingent or otherwise, other than those obligations
and liabilities expressly assumed by it pursuant to Sections 2.3 and 2.4.
Without limiting the generality of the foregoing, in no event shall Buyer assume
or incur any liability or obligation under this Agreement or otherwise in
respect of any of the following:
(a) Any product liability or similar claim for injury to person or
property, regardless of when made or asserted, which arises out of or is
based upon any express or implied representation, warranty, agreement or
guarantee made by Seller, or alleged to have been made by Seller, or which
is imposed or asserted to be imposed by operation of law, in connection
with any service performed or product sold or leased by or on behalf of
Seller on or prior to the Closing Date, including without limitation any
claim relating to any product delivered in connection with the performance
of such service and any claim seeking recovery for consequential damage,
lost revenue or income ("Product Liability Claims").
8
<PAGE> 13
(b) Except as and to the extent included in the Assumed Liabilities,
any liability or obligation for any Tax imposed on Seller (or any member of
an affiliated group of which it is or was a member) or assessed or incurred
in connection with the assets, property or operation of the Business on or
prior to the Closing Date or arising under or in connection with the
Excluded Assets or the Excluded Business.
(c) Any liability or obligation arising prior to or as a result of the
Closing to any employees, agents or independent contractors of Seller,
whether or not employed by Buyer after the Closing, or under any benefit
arrangement with respect thereto, other than the Assumed Employee
Liabilities.
(d) Any liability or obligation with respect to an Environmental
Condition arising from acts or omissions at or prior to Closing, including
without limitation any matter arising under CERCLA.
2.6 Schedules of Assets Not Exclusive. To the extent any assets of Seller
are intended to be transferred to Buyer pursuant to the general language of this
Article 2 but do not appear on the applicable Schedules, the general language of
this Article 2 shall govern and such assets shall nonetheless be deemed
transferred to Buyer.
2.7 Assurances. After the Closing, for no further consideration, Seller
shall perform all such other action and shall execute, acknowledge and deliver
all such assignments, transfers, consents and other documents as Buyer or its
counsel may reasonably request to vest in Buyer, and protect Buyer's right,
title and interest in, and enjoyment of, the Business and the Acquired Assets.
3. PURCHASE PRICE.
The purchase price for the Acquired Assets (the "Purchase Price") shall be
calculated and paid in accordance with this Article 3.
3.1 Closing Consideration. Subject to the terms and conditions of this
Agreement, at the Closing Buyer shall deliver to Seller cash in an amount equal
to $78,200,000 minus the face amount of the Excluded Receivables (the "Closing
Consideration"). Buyer shall also assume the IRB Agreements as provided in
Section 2.3.
3.2 Calculation of Closing Net Worth.
(a) As promptly as practicable after the Closing Date, and in any event not
later than 60 days after the Closing Date, Seller shall deliver to Buyer (i) a
draft consolidated balance sheet of the Business as of the end of the Closing
Date (the "Closing Balance Sheet") and a draft statement of income and draft
statement of cash flows of the Business for the period from the end of the
preceding fiscal year of Seller through the end of the Closing Date, including
footnotes thereto (collectively, the "Closing Financial Statements"), prepared
in accordance with U.S. GAAP consistently applied with the Financial Statements
but without giving effect to any changes attributable to the purchase of the
Acquired Assets or assumption of the Assumed Liabilities by Buyer (which drafts
shall reflect all audit adjustments and be in substantially final form subject
to resolution of any disputes raised by Buyer), (ii) the draft audit report of
Deloitte & Touche LLP, Seller's independent public accountants ("Seller's
Accountants"), with respect to its review of the Closing Financial Statements,
which audit report shall be unqualified, (iii) a certificate of Seller (the
"Post-Closing Certificate") showing its calculation of the Closing Net Worth and
(iv) a report of Seller's Accountants addressed to Buyer stating that the
Closing Net Worth as set forth in the Post-Closing Certificate was calculated in
accordance with the Closing Financial Statements and this Agreement. Buyer shall
give Seller full access to the personnel, books and records of Buyer during
normal business hours upon reasonable request of Seller and shall provide to
Seller information reasonably requested by Seller all to enable Seller and its
representatives to prepare the Closing Financial Statements and the Post-Closing
Certificate. Seller shall use its best efforts to make available to Buyer its
accountants' work papers (excluding papers containing Accountants Proprietary
Information of such accountants) and such other information relating to the
preparation of the Closing Financial Statements and the calculation of the
Closing Net Worth as Buyer shall reasonably request.
(b) In the event that Buyer disputes the calculation of the Closing Net
Worth, Buyer shall give written notice thereof to Seller on or before the 60th
day after the Post-Closing Certificate was given to Buyer (the "Dispute Deadline
Date"), which notice shall set forth the basis for such dispute in reasonable
detail. Buyer
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and Seller shall use all reasonable efforts to resolve any such dispute, but if
any such dispute cannot be resolved by such parties within 30 days after the
date the dispute notice is given, all unresolved disputes shall be referred to
an Arbitrating Firm for resolution. Buyer and Seller shall seek to cause the
Arbitrating Firm to make its determination within 30 days after referral of a
dispute to it. The determination of the Arbitrating Firm shall be conclusive and
binding on each party. The fees of the Arbitrating Firm shall be allocated and
paid by Seller or Buyer, or divided between them, on a basis determined by the
Arbitrating Firm to be fair taking into account the correctness of the positions
asserted by each of them with respect to the disputed matters resolved by the
Arbitrating Firm.
(c) The Closing Net Worth shall be deemed to be finally determined in the
amount set forth in the Post-Closing Certificate on the Dispute Deadline Date
unless a dispute notice is given in accordance with Section 3.2(b) with respect
to the calculation thereof. If such a dispute notice is given with respect to
Closing Net Worth (each such calculation to which such dispute relates, a
"Disputed Amount"), the Disputed Amount shall be deemed finally determined on
the date that the Arbitrating Firm gives written notice to Buyer and Seller of
its determination with respect to all disputes regarding the calculation
thereof, or, if earlier, the date on which Seller and Buyer agree in writing on
the amount thereof, in which case such Disputed Amount shall be calculated in
accordance with such determination or agreement, as the case may be. Promptly
after the Closing Net Worth has been finally determined, Seller shall furnish to
Buyer final versions of the Closing Financial Statements, together with the
final audit report of Seller's Accountants with respect thereto.
(d) If the Closing Net Worth, as finally determined, is less than the
Target Closing Net Worth, then Seller shall pay to Buyer the amount of such
deficiency, plus interest on the amount of such deficiency from and including
the Closing Date to but excluding the date of payment at a rate per annum equal
to the Interest Rate. If the Closing Net Worth, as finally determined, exceeds
Target Closing Net Worth, then Buyer shall pay to Seller the amount of such
excess, plus interest on the amount of such excess from and including the
Closing Date to but excluding the date of payment at a rate per annum equal to
the Interest Rate.
(e) Any amount due pursuant to Section 3.2(d) shall be paid within five
Business Days after Closing Net Worth shall have been finally determined. Any
payment referred to in this Section 3.2(e) shall be deemed an adjustment to the
Purchase Price.
3.3 Adjustment for Receivables.
(a) On or before the eighth Business Day after the Closing Date, Seller
shall deliver to Buyer a list of all Receivables included in the Acquired Assets
as of the Closing (the "Closing Receivables") showing, in each case, the name of
the customer owing such Receivable, the date and number of each outstanding
invoice and the amount owed by such customer on each such invoice. The total of
all such Receivables, less the amount of the Receivables Reserves as of the
Closing Date, shall equal the amount included for Receivables in Seller's
calculation of Closing Net Worth set forth in the Post-Closing Certificate.
Buyer shall provide Seller with access to the books and records of Buyer to the
extent necessary to prepare such list.
(b) After the Closing, Buyer shall have full right and authority to collect
for its own account all Closing Receivables and shall make a good faith effort
to collect the Closing Receivables. Seller shall immediately pay to Buyer any
amount received by Seller after the Closing attributable to payment of any
Closing Receivables, except with respect to Assigned Receivables after
assignment thereof to Seller as provided below. Within 30 days after the Cut-Off
Date, Buyer shall give Seller notice (the "Receivables Notice") specifying the
aggregate amount of Closing Receivables collected by Buyer during the period
from the Closing Date through the Cut-Off Date (the "Collected Amount"). If (i)
the face amount of the Closing Receivables minus the Collected Amount (the
"Uncollected Amount"), exceeds (ii) the Receivables Reserve (the "Receivables
Deficiency"), then Seller shall be obligated to pay to Buyer cash in an amount
equal to the Receivables Deficiency, plus interest accrued on the amount thereof
from and including the Closing Date to but excluding the date of payment at a
rate per annum equal to the Interest Rate, within five Business Days after the
date that the Receivables Notice is given. If the Receivables Reserve exceeds
the Uncollected Amount, then Buyer shall be obligated to pay to Seller cash in
an amount equal to such excess, plus interest accrued on the amount thereof from
and including the Closing Date, to but excluding the date of payment at a rate
per annum equal
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to the Interest Rate, within five Business Days after the date that the
Receivables Notice is given. If the Uncollected Amount is greater than zero, on
such date that the Receivables Notice is given or, if Seller is obligated to pay
to Buyer an amount equal to the Receivables Deficiency, on such date that Seller
shall pay Buyer an amount equal to the Receivables Deficiency plus interest as
aforesaid, Buyer shall assign to Seller the Closing Receivables (including the
unpaid portion of any Closing Receivables) that were not collected during the
period from the Closing Date through the Cut-Off Date (the "Assigned
Receivables"). Upon an assignment to Seller of Assigned Receivables pursuant to
this Section, Buyer shall have no further responsibility with respect to any
such Assigned Receivables and shall not be entitled to receive any portion of
any amounts collected by Seller with respect thereto, and Seller shall be
entitled to undertake any and all collection efforts (including, without
limitation, the commencement of legal action) with respect to any such Assigned
Receivables, provided that Buyer shall, if so requested by Seller within five
(5) Business Days after receipt of the Receivables Notice, make a good faith
effort to collect the Assigned Receivables for the account of Seller and remit
any receipts thereof on the 90th and 180th day after the Cut-Off Date, but after
such 180th day Buyer shall have no further obligation to collect the Assigned
Receivables. Buyer shall give Seller access to such books and records of Seller
with respect to Assigned Receivables as Seller shall reasonably request. Except
as provided in the second preceding sentence, Buyer shall promptly pay to Seller
any amount received by Buyer after the Cut-Off Date attributable to payment of
any Assigned Receivables. For purposes of this Section 3.3, all amounts
collected on account of Receivables shall be applied as indicated by the
customer or, if no indication is made, to the oldest outstanding Receivable,
except to the extent that the customer has asserted to Buyer a colorable defense
against a Receivable as to which payment would otherwise be applied hereunder.
Buyer will not notify customers that Seller has guaranteed to Buyer collection
of the Closing Receivables, although Seller acknowledges that this Agreement
will be filed by Parent in the public record with the Securities and Exchange
Commission. Buyer shall, if so requested by Seller, make a good faith effort to
collect the Excluded Receivables for the account of Seller, but Buyer shall have
no further obligation to collect the Excluded Receivables after the Cut-Off
Date. Buyer shall promptly pay to Seller any amount received by Buyer after the
Closing attributable to payment of any of the Excluded Receivables.
3.4 Returned Products. In the event that any customer returns to Buyer
for refund any Business-Related product shipped by Seller on or prior to the
Closing Date and there are insufficient Closing Receivables of such customer
against which such refund may be setoff fully, Seller shall be obligated to pay
to Buyer, upon demand by Buyer, an amount equal to the excess of (A) the amount
which Buyer refunded to said customer (in excess of the amount of such refund,
if any, applied as a setoff against a Closing Receivable), over (B) the salvage
value (determined in accordance with past practices of the Business), if any, of
said returned product (such excess, the "Customer Refund"), within five Business
Days after demand by Buyer, provided Seller shall not be obligated to make such
payment until the aggregate amount of (x) the Buyer Indemnified Parties' Losses
under Section 11.1(a) and (y) the Customer Refunds exceeds the sum of the Basket
Amount and the reserve for returns and allowances reflected on the Closing
Balance Sheet, after which Seller shall be obligated for any and all such Losses
and Customer Refunds in excess of the Basket Amount and the reserve for returns
and allowances reflected on the Closing Balance Sheet. In connection with any
demand for reimbursement hereunder, Buyer shall provide Seller with copies of
any credit memos issued by Buyer and other documentation in the possession of
Buyer relating to the return of the products for which such reimbursement is
demanded. Prior to making any refund for which Buyer shall seek reimbursement
hereunder, the customer seeking such refund shall provide Buyer with a
reasonable basis for such refund.
3.5 Payments. All payments of cash required to be made pursuant to this
Article 3 shall be made by wire transfer of immediately available funds to such
account in the United States as shall be designated by the party entitled to
receive the payment in a notice to the party required to make the payment given
at least two Business Days prior to the date such payment is due.
3.6 Allocation of Purchase Price. The Seller, Buyer and Parent agree that
the Purchase Price will be allocated for all purposes (including Tax and
financial accounting) (i) in the case of the Inventory, in an amount equal to
its fair market value which is agreed to be an amount equal to the value thereof
carried on the Closing Balance Sheet, as finally determined, and (ii) in the
case of Machinery and Equipment, in such amount as Buyer and Seller shall agree
within 60 days after the Closing Date or, if no such agreement is
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reached, as determined by an independent appraiser agreed upon by Seller and
Buyer or an Arbitrating Firm, whose determination shall be final and binding on
Seller, Buyer and Parent. One half of the fees of such appraiser or Arbitrating
Firm shall be paid by each of Seller and Buyer. It is the intention of the
parties that the allocation of the Purchase Price to Machinery and Equipment
minimize ordinary income to Seller, to the extent consistent with applicable
law. The Seller, Buyer and Parent will file all returns (including amended
returns and claims for refund) and information reports in a manner consistent
with such allocation.
4. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller hereby represents and warrants to Buyer and Parent that:
4.1 Organization. Seller was duly organized and is a corporation validly
existing and in good standing under the laws of the Commonwealth of
Massachusetts. Seller has all necessary corporate power and authority to own,
lease and operate the Acquired Assets and to carry on the Business as it is now
being conducted and is duly licensed or qualified to do business and is in good
standing in each jurisdiction listed in Part I of Schedule 4.1(a) hereto, which
constitute all jurisdictions where qualification as a foreign corporation is
required in connection with the conduct of the Business, except for such
failures to be licensed or qualified and in good standing, if any, which when
taken together with all other such failures of Seller would not in the aggregate
have a Material Adverse Effect. Seller has delivered to Buyer prior to the date
of this Agreement complete and correct copies of the Articles of Organization
and By-Laws of Seller, as amended and currently in effect. The names of each
managerial employee of the Business and his or her positions with the Business
are fully and correctly set forth on Part II of Schedule 4.1(a) hereto.
4.2 Authority; Binding Effect. The Seller has the power and authority to
execute and deliver this Agreement and the other instruments and documents
required or contemplated by this Agreement to be executed and delivered by it,
to perform its obligations hereunder and thereunder and to consummate the
transactions provided for herein and therein. Such execution, delivery,
performance and consummation do not and will not (i) contravene any provision of
the Articles of Organization or By-Laws of Seller, (ii) except to the extent
expressly indicated on Schedule 4.5, contravene or conflict with, result in a
breach of or loss of benefits to Seller under, require any consent, approval or
waiver of any party to, or entitle any party (with notice or the passage of time
or both) to terminate, accelerate any obligation under, materially alter the
terms of or call a default with respect to, any Seller Contract (any of the
foregoing referred to in this clause (ii), including those referred to in
Schedule 4.5 hereto, being defined as a "Contract Default"), (iii) result in the
creation of a lien, charge, security interest, right or claim of another,
restraint on transfer or other encumbrance (collectively, "Liens") upon any of
the Acquired Assets, (iv) result in any violation by Seller of any law, rule or
regulation applicable to it, (v) violate or require any consent or approval
under any judgment, injunction or decree of any court or governmental authority
applicable to Seller or (vi) except for filings required under the HSR Act,
require any consent or approval of, notice to or filing, registration or
qualification with, any court or governmental authority. This Agreement has been
duly authorized by all necessary action of the Seller, duly executed and
delivered by the Seller and constitutes, and the other instruments and documents
required or contemplated by this Agreement to be executed by Seller will be duly
executed by the Seller as so required or contemplated and when so executed will
constitute, the legal, valid and binding obligation of the Seller, enforceable
against the Seller in accordance with the terms hereof and thereof (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
or by the principles governing the availability of equitable remedies).
4.3 Financial and Other Information; Absence of Adverse Changes.
(a) Attached as Schedule 4.3(a) hereto are audited balance sheets of the
Business as of the end of Seller's 1996, 1995 and 1994 fiscal years and the
related audited statements of income and cash flows of the Business for each of
the fiscal years then ended (the "Annual Financial Statements", and the
financial statements included in the Annual Financial Statements as of the end
of, and for, the 1996 fiscal year, the "1996 Financial Statements"), together
with the report of Seller's Accountants with respect to the Annual Financial
Statements, and the unaudited balance sheet of the Business as of September 27,
1997 (the "Interim Balance Sheet") and the related statements of income and cash
flows for the nine months then ended
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(the "Interim Financial Statements" and, together with the Annual Financial
Statements, the "Financial Statements"). The fiscal year of Seller ends on the
last Saturday in December.
(b) Net sales for the Business (determined in accordance with U.S. GAAP)
were not less than $50,100,000, $53,008,000, $55,152,000 and $58,273,000 for the
first nine months of Seller's 1997 fiscal year, and for the 1996, 1995 and 1994
fiscal years of Seller, respectively. EBIT for the Business was not less than
$7,009,000, $6,940,000, $6,437,000, and $5,979,000 for the first nine months of
Seller's 1997 fiscal year and for the 1996, 1995 and 1994 fiscal years of
Seller, respectively.
(c) Except as set forth on Schedule 4.3(c), the statements of income
included in the Financial Statements do not contain any items of special or
nonrecurring income or expenses, and the balance sheets included in the
Financial Statements do not reflect any write-up or revaluation increasing the
book value of any assets; nor have there been any transactions since the date of
the Interim Balance Sheet giving rise to special or nonrecurring income or any
such write-up or revaluation. Inventories have been valued throughout the
periods covered by the Financial Statements on a consistent basis. The books and
accounts of the Business are complete and correct and fully and fairly reflect
all of the transactions of the Business. The Financial Statements are in
accordance with the books and records of the Business, were prepared in
conformity with U.S. GAAP applied on a consistent basis and present fairly in
all material respects the financial position, results of operations and cash
flows of the Business as of the dates and for the periods indicated, except that
the Interim Financial Statements do not have footnotes required by U.S. GAAP and
are subject to normal year-end adjustments.
(d) Except as set forth on Schedule 4.3(d), since December 28, 1996: (i)
there have been no employment or compensation arrangements entered into by
Seller with, no incentive or bonus compensation paid to, and no increases in the
rates of compensation payable to or to become payable by Seller to, any Business
Employee, except in the ordinary course of business consistent with the past
practice of Seller with respect to the Business, provided that the aggregate
amount of performance bonuses payable to Business Employees accrued by Seller
for its 1997 fiscal year will not exceed $500,000; (ii) no capital expenditures
have been authorized or made by Seller with respect to the Business, other than
those in the ordinary course of business and that in the aggregate do not
involve expenditures by Seller of more than $200,000, (iii) there have been no
sales or other dispositions or acquisitions (including by purchase, lease as
lessee or otherwise) of Business-Related properties or assets by Seller other
than those in the ordinary course of business and that in the aggregate
(excluding sales and acquisitions of Inventory in the ordinary course of
business) do not involve expenditures by Seller of more than $200,000; (iv)
there have been no damages or destructions, whether or not fully covered by
insurance, of or to any Business-Related properties or assets; (v) Seller has
not received written notice that any party to any Seller Contract intends to
cancel or terminate any of such agreements or to exercise or not exercise any
options thereunder; (vi) the operations and business of Seller relating to the
Business have been conducted in all respects only in the ordinary course
consistent with past practice (except for the execution of this Agreement); and
(vii) there has been no Material Adverse Effect.
(e) Seller has delivered to Buyer prior to the date of this Agreement the
audited balance sheets of Seller as of the end of Seller's 1996, 1995 and 1994
fiscal years and the related audited statements of income and cash flows for
each of the fiscal years then ended. Such financial statements were prepared in
conformity with U.S. GAAP applied on a consistent basis and present fairly in
all material respects the financial position, results of operations and cash
flows of Seller as of the dates and for the periods indicated.
4.4 Acquired Assets. The Acquired Assets constitute all the assets that
are used or held for use by Seller in connection with the Business and, except
for contemplated additions of Inventory in the ordinary course of business,
include all assets the use or benefit of which are necessary for the performance
of any Seller Contract and the conduct of the Business as now conducted and
presently proposed to be conducted.
(a) Title. Except for the Assets leased to Seller pursuant to the
Operating Leases, Seller has as of the date hereof, and on the Closing Date will
have and convey to Buyer, good and marketable title to all the Acquired Assets,
free and clear of all Liens, except (i) Liens and other exceptions permitted
under Section 7.5 below and set forth on Schedule 4.4(a), (ii) liens for current
taxes not yet due and payable, and (iii) mechanic's, materialmen's, landlord's
and other similar liens arising in the ordinary course of business
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securing payments not yet due and payable. No other Person has any right to the
use or possession of any of the Acquired Assets. No financing statement under
the Uniform Commercial Code with respect to any of the Acquired Assets (except
with respect to the Assets leased to Seller pursuant to the Operating Leases)
has been filed in any jurisdiction and Seller has not signed any such financing
statement or any security agreement authorizing any secured party thereunder to
file any such financing statement.
(b) Real Property. Schedule 4.4(b) hereto sets forth a true and correct
list of all parcels of land included in the Real Property, wherever located,
including with respect to each such parcel of Real Property (i) a full legal
description thereof, including metes and bounds and (ii) its street address.
Schedule 4.5 includes a true and correct list of all Contracts (the "Real
Property Leases") for the use or occupancy by Seller of Real Property, including
fixtures, buildings, improvements, appurtenances, easements and rights of way.
The term "Property" shall mean all Real Property and all property and rights
leased, used or held for use by Seller pursuant to a Real Property Lease. To the
Knowledge of Seller, all Property is in good condition and conforms with all
applicable building, zoning, environmental, land use and other laws, ordinances,
codes, orders and regulations and the use and proposed uses of such Property
conforms with such laws, ordinances, codes, orders and regulations. All
necessary or appropriate occupancy and other certificates and permits for the
lawful use and occupancy of the Property and the equipment thereon have been
issued are not violated and are in full force and effect. All notes or notices
of violations of law, ordinances, codes, orders or regulations noted in or
issued by any state, county, municipal or local department having jurisdiction
against or affecting any of such Property have been complied with. To the
Knowledge of Seller, all Property has access over currently utilized facilities
and land (independent of any facilities or other property not owned by or leased
(for a term continuous with the lease of such Property) to Seller) to all public
roads and has all utilities and other services necessary or desirable for the
conduct of the Business carried out on said Property and the same are in good
and useable condition. No condemnation or eminent domain proceeding against or
affecting all or any portion of any Property is pending or, to the Knowledge of
Seller, threatened. No Person (other than Seller) is in possession of (or has
any right, absolute or contingent, to possess superior to the right of Seller to
possess) all or any portion of the Property, except for lessor's right under any
Real Property Lease to retake upon termination of such Real Property Lease the
Property leased thereunder. There are no disputes with, or notices from, the
lessor under any Real Property Lease that have not been fully resolved and
satisfied.
(c) Machinery and Equipment. Schedule 4.4(c) hereto sets forth a complete
and accurate list as of the date of the Interim Balance Sheet of (i) each item
of Machinery and Equipment (whether owned or leased) acquired since December 31,
1994 with an original cost of $5,000 or more specifying the facility at which it
was then located and, in the case of owned equipment, its date of purchase,
method of depreciation, and book value as of the date of the Interim Balance
Sheet and (ii) in the case of other Machinery and Equipment, the aggregate net
book value of all Machinery and Equipment assigned to each department at each
location of the Business. None of the Machinery and Equipment has been moved to
a different facility since the date of the Interim Balance Sheet. The Machinery
and Equipment listed on Schedule 4.4(c): (i) comprises sufficient Machinery and
Equipment for Buyer to conduct and operate the Business as now being conducted
by Seller, (ii) is in satisfactory working order consistent with its age and
past practices of the Business, is free from any material defects and has been
maintained in a manner sufficient for Buyer to conduct and operate the Business
as now being conducted by Seller, and (iii) will be included in the Acquired
Assets. No other person has any right to use or possession of any of the
Machinery and Equipment included in the Acquired Assets. The Machinery and
Equipment included in the Acquired Assets include such spare or replacement
parts as are necessary in order to permit the conduct of the Business without
material interruption.
(d) Insurance. Schedule 4.4(d) hereto sets forth a complete and accurate
list of all policies of fire, liability, product liability, workers compensation
and other forms of insurance presently in effect with respect to the Business
and the Acquired Assets. All such policies are in full force and effect and
Seller has not received any notice of cancellation with respect thereto. During
the past three years, no application by Seller for insurance with respect to the
Acquired Assets has been denied for any reason.
(e) Inventories. Schedule 4.4(e) hereto sets forth a complete and accurate
list of the locations of the Inventories. All Inventories, net of the
Obsolescence Reserve, are in good and usable condition and are currently
marketable in the ordinary course of business; and the values thereof as shown
by the books of Seller
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do not exceed the aggregate of cost (determined on a FIFO basis) or market
thereof (whichever is lower) in accordance with U.S. GAAP consistently applied
with the Financial Statements. There have been no acquisitions or dispositions
of Inventories by Seller since December 27, 1996, except in the ordinary course
of business.
(f) Accounts Receivable. Schedule 4.4(f) contains a true and correct
summary statement as of the date of the Interim Balance Sheet indicating the
aging of all outstanding Receivables. All Receivables reflected on the Interim
Balance Sheet are enforceable by Seller, and all Receivables reflected on the
Closing Balance Sheet will be enforceable by Buyer. The Receivables represent
monies due for, and have arisen solely out of, bona fide sales and deliveries of
goods, performance of services and other business transactions in the ordinary
course of business consistent with past practice of the Business. None of the
Receivables represent monies due for goods either sold on consignment or sold on
approval. There are no defenses, rights of set-off, counterclaims, assignments,
restrictions, encumbrances, or conditions enforceable by third parties on or
affecting any Receivable except as shall have been adequately reserved against
under GAAP.
(g) Permits. Schedule 4.4(g) hereto sets forth a complete and accurate
list of all Permits used or held for use in connection with the conduct of the
Business or required for the ownership or possession of the Acquired Assets, and
(except if designated on Schedule 4.4(g) hereto as unassignable) all such
Permits will be assigned to Buyer as of the Closing and Buyer will be entitled
commencing as of such time to all authorizations and benefits provided
thereunder. Such Permits include all Permits the use and exercise of which are
necessary for the conduct of the Business as now conducted or the ownership or
possession of the Acquired Assets.
(h) Computer Software. The Software used or held for use in connection
with the conduct of the Business is adequate for the conduct of the Business.
(i) Intellectual Property; Software; Technology. The Intellectual
Property, Technology and Software owned by, licensed to or used by Seller and
related to, used in or held for use in the Business (the "Business Intellectual
Property") is sufficient for the conduct and operation of the Business as now
being conducted. Schedule 4.4(i) hereto sets forth a list of all Intellectual
Property included in the Business Intellectual Property and any licenses or
other agreements relating thereto, and contains an indication of any
governmental registrations made by Seller of Business Intellectual Property. All
of Seller's right, title and interest in the Business Intellectual Property are
included in the Acquired Assets. Except as indicated on such Schedule, all
Intellectual Property included on such Schedule and shown as registered has been
duly registered and filed. To the Knowledge of Seller, except as set forth on
Schedule 4.4(i), Seller is the sole and exclusive owner of, and has the sole and
exclusive right to use, the Business Intellectual Property, in each case free
and clear of any Lien, free from any requirement of any past, present or future
royalty payments, license fees, charges or other payments and subject to no
interference or other contest proceeding. Excluding Software, Seller has valid,
binding and enforceable rights to use all Business Intellectual Property used
but not owned by it and material to the Business. Except as set forth on
Schedule 4.4(i) and except with respect to Software, Seller has not granted any
outstanding licenses or other rights, or has any obligations to grant licenses
or other rights with respect to, any of the Business Intellectual Property.
Except as set forth on Schedule 4.4(i), no claims have been made by Seller of
any violation or infringement by others of the rights of Seller with respect to
any Business Intellectual Property, and Seller has no Knowledge of any basis for
the making of any such claim. Except as set forth on Schedule 4.4(i), to the
Knowledge of Seller, the Business has not violated or infringed any Intellectual
Property or Technology rights of others. Seller has not received any written
notice from any other Person pertaining to or challenging the right of Seller to
use any Business Intellectual Property.
4.5 Contracts. Schedule 4.5 hereto sets forth a complete and accurate list
of all Contracts (excluding Routine Contracts) of categories (a) through (p) of
Schedule 4.5 (collectively, and together with Routine Contracts, the "Seller
Contracts"). Seller has at or prior to the date of this Agreement furnished to
Buyer true and complete copies of all Seller Contracts listed on Schedule 4.5,
as in effect on the date of this Agreement, and no Seller Contract has been
subsequently modified or amended. Neither Seller nor, to the Knowledge of
Seller, any other party to any Seller Contract is in default or is claimed to be
in default in complying with any material provision of any Seller Contract or
has committed or permitted any event which, with notice or the
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passage of time or both, would constitute such a default; and each Seller
Contract is in full force and valid and binding upon Seller and (to the
Knowledge of Seller) upon any other parties thereto. The Routine Contracts will
not require the expenditure by Seller after the Closing of more than $1,000,000
in the aggregate. The present value (utilizing a discount rate of 8.94%),
determined as of the date of the Agreement, of the remaining lease payment
obligations under the Operating Leases is not greater than $2,330,000. Except as
indicated on Schedule 4.5, no consent of any party to any Seller Contract is
required for any of the transactions contemplated by this Agreement.
4.6 Litigation; Compliance with Law. Except as disclosed on Schedule 4.6
hereto, there is no action, suit or proceeding pending or, to the Knowledge of
Seller, threatened against or affecting Seller's performance of this Agreement,
the Business or the Acquired Assets. No investigation or review by any
governmental entity with respect to the Business or the Acquired Assets is
pending or, to the Knowledge of Seller, threatened. The Business is being
conducted in accordance with all Legal Requirements applicable to Seller, the
Business or the Acquired Assets. Seller holds, and is in compliance with, all
Permits required by applicable Legal Requirements. No event has occurred and is
continuing that permits, or after notice or lapse of time or both would permit,
any modification or termination of any Permit. Seller (i) has not received any
written notice asserting any noncompliance with any Legal Requirement or Permit,
(ii) is not subject to any Legal Requirement or Permit, which if enforced
against or complied with by Seller, could have a Material Adverse Effect, and
(iii) has no Knowledge of any Legal Requirement proposed or under consideration,
which, if effective, could have a Material Adverse Effect.
4.7 Taxes.
(a) Seller has timely filed all returns, declarations, statements, forms,
estimates, reports or other documents or information, including any amendments
to any of the foregoing, required to be filed with or supplied to any Taxing
Authority ("Returns") which are required to be filed in connection with or
relating to the Business, and all Taxes shown to be due on such Returns have
been timely paid. All such Returns are complete, accurate, and correct. Except
as disclosed in Schedule 4.7, Seller does not have in effect, and has not been
requested to make, any waiver or extension of any statute of limitations with
respect to Taxes in connection with or relating to the Business. Seller has paid
all Taxes required to be paid by it in connection with or relating to the
Business.
(b) None of the Acquired Assets is (i) subject to a tax benefit transfer
lease subject to the provisions of former Section 168(f)(8) of the Code; (ii)
"tax-exempt use property" within the meaning of Section 168(h) of the Code; or
(iii) except for the Assets leased pursuant to the IRB Agreements, "tax-exempt
bond financed property" within the meaning of Section 168(g)(5) of the Code.
(c) There are no pending, proposed, or, to the Knowledge of Seller,
threatened, audits, actions, assessments or deficiencies asserted with respect
to Taxes of Seller.
(d) Seller is not a foreign person subject to withholding under Section
1445 of the Code and the regulations promulgated thereunder, and certification
to that effect will be delivered to Buyer prior to the Closing Date.
4.8 Employee Benefits.
(a) To the Knowledge of Seller, set forth in Schedule 4.8(a) hereto is a
complete and correct list of:
(i) each "employee benefit plan" within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and
(ii) any other material benefit plan, arrangement or policy,
including, without limitation, any stock option, stock purchase, sick
leave, disability, workers compensation, vacation pay, holiday pay,
employee loan, educational assistance, incentive or bonus plan, policy or
arrangement or any employment, indemnification, consulting or severance
plan, policy or agreement,
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covering current or former employees of Seller employed in the Business
("Business Employees"), whether written or oral ("Benefit Plans"). Seller has
not made any commitment to create any additional Benefit Plan or to terminate or
modify or change in any respect any existing Benefit Plan.
(b) Seller has delivered to Buyer prior to the date of this Agreement
complete and correct copies of each Benefit Plan, or written summaries of any
unwritten Benefit Plan, and, where applicable with respect to such Benefit
Plans, any related trust agreements, insurance contracts, the latest Internal
Revenue Service ("IRS") determination letter, the last three annual reports on
IRS Form 5500, the last three annual financial statements, the last three
actuarial reports, and the most recent summary plan description or other
employee handbook. Set forth on Schedule 4.8(b) is a true and complete statement
of (i) the names, current rates of base compensation and amounts of supplemental
compensation of all current Business Employees whose total compensation exceeded
$60,000 in the 1996 fiscal year or is expected to exceed $60,000 during the 1997
fiscal year, and (ii) the compensation from Seller of all sales agents, dealers
or distributors of Seller listed in part (g) of Schedule 4.5 for the fiscal year
1996 and for the first nine months of 1997.
(c) With respect to each Benefit Plan: (i) each such Benefit Plan is and
has been in substantial compliance, in form and operation, with all applicable
laws and regulatory requirements, and has been administered in accordance with
its terms and the terms of any applicable collective bargaining agreement; and
(ii) each such Benefit Plan intended to be tax-qualified under Section 401(a) of
the Code has received a favorable determination letter from the IRS as to its
tax-qualified status under the Code, and nothing has occurred since the date of
such favorable determination letter which would adversely affect its
tax-qualified status.
(d) No event has occurred and no condition exists with respect to any
Benefit Plan which could subject any Benefit Plan, Buyer, or any of Buyer's
employees, directly or indirectly (through an indemnification agreement or
otherwise), to a liability for a breach of fiduciary duty or for an excise tax,
penalty tax or fine under the Code or ERISA, including, without limitation,
liability for a "prohibited transaction" within the meaning of Section 406 of
ERISA or Section 4975 of the Code. No Benefit Plan or related trust is liable
for any federal, state, local or foreign taxes. There are no actions, suits, or
claims (other than routine claims for benefits in the ordinary course) with
respect to any Benefit Plan pending or threatened which could give rise to a
material liability, and Seller has no Knowledge of any facts which could give
rise to any such actions, suits or claims (other than routine claims for
benefits in the ordinary course). No Benefit Plan is currently under
investigation, audit or review by any governmental agency and, to the Knowledge
of Seller, no such investigation, audit or review is contemplated or under
consideration.
(e) No event has occurred nor does any condition exist with respect to: (i)
any plan subject to Title IV of ERISA currently or previously maintained,
sponsored or contributed to by Seller (including any terminated Plan) or (ii)
any employee benefit plan or arrangement maintained, sponsored or contributed to
by any entity which is treated as a single employer with Seller under Section
414(b), (c), (m) or (o) of the Code ("ERISA Affiliate") which could subject
Buyer or any of Buyer's employees, directly or indirectly (through an
indemnification agreement or otherwise), to liability, including, without
limitation, liability under Section 412, 4971 or 4980B of the Code or Title IV
of ERISA. Neither the execution of this Agreement nor the Closing will be a
"reportable event" under Section 4043 of ERISA (for which the 30-day notice
requirement has not been waived by the Pension Benefit Guaranty Corporation (the
"PBGC") with respect to any defined benefit plan maintained, sponsored or
contributed to by an ERISA Affiliate.
(f) All contributions and premium payments required to have been made under
or with respect to any Benefit Plan have been timely made.
(g) The execution and performance of this Agreement will not trigger or
accelerate the payment or vesting, or increase the amount of compensation or
remuneration (whether of severance pay or otherwise) due any employee, former
employee, or director of Seller, except as shall be solely the responsibility of
Seller.
(h) Schedule 4.8(h) sets forth: (i) the amount of premiums paid by Seller
with respect to current and former Business Employees (and their covered
dependents) under any insured group health plan for each of the last three
years; and (ii) the amount of claims paid by Seller with respect to current and
former Business
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Employees (and their covered dependents) under any self-insured group health
plan for each of the last three years. No Benefit Plan provides life, health or
other welfare benefits to retirees or other terminated employees of the
Business, other than continuation coverage mandated by Section 4980B of the Code
or any state law requiring similar continuation coverage.
(i) Each Benefit Plan covers only current or former employees or directors
of Seller and their beneficiaries. Substantially adequate and complete records
for each Benefit Plan have been maintained and are in the custody of Seller or a
third party service provider retained by Seller.
4.9 Labor Relations. (a) Except as set forth on Schedule 4.9(a), Seller
has paid or made provision for payment of all salaries and accrued wages of
Business Employees and has complied in all respects with all applicable laws,
rules and regulations relating to the employment of labor, including those
relating to equal employment opportunity obligations, prohibitions against
discrimination in employment, fair employment practices, entitlements, wages,
hours, collective bargaining and the payment and withholding of taxes, and has
withheld and paid to the appropriate government authority, or is holding for
payment not yet due to such authority, all amounts required by law or agreement
to be withheld from the wages or salaries of Business Employees. No union or
other collective bargaining unit has been certified or recognized by Seller as
representing any Business Employees. There are no controversies pending or, to
the Knowledge of Seller, threatened between Seller, on the one hand, and any
labor union or other collective bargaining unit purporting to represent any
Business Employees. The Business is not affected by any current or, to the
Knowledge of Seller, threatened strike or other labor disturbance, nor to the
Knowledge of Seller is any union attempting to represent any Business Employees
as collective bargaining agent. Seller has on file a properly completed
Immigration and Naturalization Service Form I-9 for each Business Employee to
the extent required by law, and Seller has duly examined all appropriate
documentation in connection therewith.
(b) Except as set forth on Schedule 4.9 (b), during the preceding 90 days,
there has been no "employment loss" as defined in the WARN Act with respect to
any Business Employee.
4.10 Environmental Matters.
(a) Seller has obtained all permits, licenses and other authorizations that
are required with respect to the ownership or occupancy of any Acquired Assets
or the operation of the Business as currently conducted under any Environmental
Laws (as hereinafter defined) (such permits, licenses and authorizations being
hereinafter referred to as "Environmental Permits"), including all federal,
state and local laws relating to pollution or protection of the environment such
as laws relating to emissions, discharges, releases or threatened releases of
hazardous, toxic or other pollutants, contaminants, chemicals or industrial
materials, substances or wastes into the environment, including but not limited
to ambient air, surface water, ground water, land surface or subsurface strata,
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of hazardous, toxic or other
pollutants, contaminants, chemicals or industrial materials, substances or
wastes (which laws, together with all regulations, rules, codes, plans, decrees,
judgments, injunctions, notices and demand letters issued, entered, promulgated
or approved thereunder being herein referred to as "Environmental Laws"). To
Seller's Knowledge, Seller is not in material violation of the terms and
conditions of any Environmental Permits required under the Environmental Laws,
and is also in compliance in all material respects with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables applicable to the Acquired Assets or the Business that
are contained in the Environmental Laws. Seller has not received any notice of
whatever form within the five years preceding the date of this Agreement
alleging noncompliance with any Environmental Law with respect to the Acquired
Assets or the Business.
(b) There is no civil, criminal or administrative action, demand, claim,
investigation, order, notice, or proceeding pending or, to Seller's Knowledge,
threatened against Seller, under the Environmental Laws.
(c) Except as disclosed on Schedule 4.10, to the Knowledge of Seller, there
are no past or present events, conditions, circumstances or plans that may
interfere with or prevent compliance or continued compliance with respect to the
Business or the Acquired Assets with the Environmental Laws, or that may give
rise to any common law or other legal liability or obligation with respect to
the Business or the Acquired
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Assets, including, but not limited to, liability or obligation under the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
based on or related to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling or the emission, discharge,
release or threatened release into the environment, of any pollutant,
contaminant, chemical, industrial toxic or hazardous material, substance or
waste. Without in any way limiting the foregoing, to Seller's Knowledge no
release, emission or discharge into the environment of any hazardous substance
(as that term is currently defined under CERCLA or any applicable similar state
law) has occurred or is currently occurring in connection with the conduct of
the Business and there is no spill, deposit or discharge of any hazardous
substance (as that term is currently defined under CERCLA or any applicable
similar state law) at, on, into, under or having originated from the Acquired
Assets or the Business. Except as disclosed on Schedule 4.10, to Seller's
Knowledge the Acquired Assets do not include any equipment, machinery, device,
or other apparatus that contains polychlorinated biphenyls that is not now or
ever has been leaking; any asbestos that is in friable condition; or any
underground tank that contains petroleum products or any toxic or hazardous
material, substance or waste, as those terms are defined in the Environmental
Laws, which tank has not been determined by Petro Tite test or equivalent method
to be free of leaks within the last twelve months.
4.11 Customers and Suppliers. Schedule 4.11 contains a true and complete
list of (i) the names of, and the dollar volume and percentage of products or
services purchased from, each of the 10 largest suppliers of products and
services to the Business during its 1996 fiscal year and the first nine months
of its 1997 fiscal year and (ii) the dollar volume and percentage of sales to
each of the 10 largest customers (in terms of sales and gross profits (which
will be treated as Buyer Confidential Information and will not be disclosed in
any filing except to the extent required by any Legal Requirement and then only
in accordance with the procedures set forth in Section 6.3, if applicable) of
products and services of the Business during such periods. Seller has not
received notice from any such customer or supplier that it does not intend to
continue, or currently is contemplating ceasing, business dealings with Seller.
4.12 Transactions with Related Persons. Schedule 4.13 contains a true and
complete description of all transactions relating to the Business or the
Acquired Assets between Seller, or any Benefit Plan of Seller or any of its
Related Persons or any other Related Person of Seller that have occurred since
December 31, 1994, or that have not been fully performed and discharged as of
the date of this Agreement (whether under any of the Contracts listed on
Schedule 4.5 or otherwise), excluding purchases from the Business of Inventory
in the ordinary course of business on customary, arms'-length terms. For
purposes of this Agreement, a "Related Person" of a specified person is (i) an
Affiliate of the person specified, (ii) a director or officer of any of the
foregoing referred to in this sentence, (iii) a spouse, parent, sibling, child,
mother-or father-in-law, son-or daughter-in-law, or brother-or sister-in-law of
any of the foregoing referred to in this sentence, and (iv) any trust or other
estate in which any of the foregoing referred to in this sentence has a
substantial beneficial interest or as to which any of the foregoing referred to
in this sentence serves as trustee or in a similar fiduciary capacity.
4.13 Disclosure of All Material Facts. None of the information provided
to Buyer or Parent by Seller, or any of its representatives, includes an untrue
statement of material fact or omits to state a material fact necessary in order
to make the statements made, in light of the circumstances under which they were
made, not misleading.
5. REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT.
Each of the Buyer and Parent hereby represents and warrants to Seller that:
5.1 Organization. Each of the Buyer and Parent was duly organized and is
a corporation validly existing and in good standing under the laws of Delaware.
5.2 Authority; Binding Effect. Each of the Buyer and Parent has the power
and authority to execute and deliver this Agreement and the other instruments
and documents required or contemplated by this Agreement to be executed and
delivered by it, to perform its obligations hereunder and thereunder and to
consummate the transactions provided for herein and therein. Such execution,
delivery, performance and consummation do not and will not (i) contravene any
provision of the certificate of incorporation or by-laws of
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<PAGE> 24
Buyer or Parent, (ii) contravene or conflict with, result in a breach of, or
entitle any party (with notice or the passage of time or both) to call a default
with respect to, any agreement or instrument to which Buyer or Parent is party
or by which any of its properties or assets are bound, (iii) result in any
violation by Buyer or Parent of any law, rule or regulation applicable to it,
(iv) violate or require any consent or approval under any judgment, injunction
or decree of any court or governmental authority applicable to Buyer or Parent
or (v) except for filings required under the HSR Act, the Exchange Act and, in
connection with the Rule 144A Offering, the Securities Act and state securities
laws, require any consent or approval of or notice to or filing, registration or
qualification with, any court or governmental authority. This Agreement has been
duly executed and delivered by Buyer and Parent and constitutes, and such other
instruments and documents required or contemplated by this Agreement to be
executed and delivered by Buyer and Parent will be duly executed by it as so
required or contemplated and when so executed will constitute, its legal valid
and binding obligation enforceable against it in accordance with the terms
hereof and thereof (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally or by the principles governing the availability of
equitable remedies).
5.3 Financing. Schedule 5.3 hereto sets forth a true and correct copy of
the commitment letter of NationsBank, N.A., relating to the bridge loan
agreement contemplated by the Financing.
6. CONFIDENTIAL INFORMATION.
6.1 Buyer Confidential Information. Prior to the Closing and after the
termination of this Agreement if there is no Closing, each of Buyer and Parent
shall, and shall cause their Affiliates and the Financing Parties and their
respective officers, employees, auditors, attorneys and other authorized
representatives ("Representatives") to, hold in confidence (unless and to the
extent compelled to disclose by judicial or administrative process or by other
requirements of law in which case the provisions of Section 6.3 below shall
apply) all Buyer Confidential Information (as defined below) and shall not
disclose the same to any third party except as may reasonably be necessary to
carry out this Agreement and the transactions contemplated hereby, including any
due diligence review. As used in this Section, "Buyer Confidential Information"
shall mean all information concerning Seller obtained by Buyer or Parent from
Seller or any of its Representatives in connection with the transactions
contemplated by this Agreement, except information (i) ascertainable or obtained
from public information, (ii) received from a third party not employed by or
otherwise affiliated with Seller that is not, to Buyer's knowledge, subject to
any prohibition against transmitting such information, (iii) which is or becomes
known to the public, other than through a breach of this Agreement, (iv)
furnished to Buyer or Parent expressly for use in any governmental or regulatory
filing or (v) reasonably required to be disclosed in connection with the Rule
144A Offering. If this Agreement is terminated without the Closing having been
consummated, Buyer and Parent will not thereafter solicit any Business Employee
with regard to employment, or hire any such Business Employee, prior to January
18, 1999.
6.2 Seller Confidential Information. Seller shall, and shall cause its
Affiliates and Representatives to, hold in confidence (unless and to the extent
compelled to disclose by judicial or administrative process or by other
requirements of law) all Seller Confidential Information (as defined below) and
shall not disclose the same to any third party except as may reasonably be
necessary to carry out this Agreement and the transactions contemplated hereby.
As used in this Section, "Seller Confidential Information" shall mean all
information concerning the Business or Buyer, except information (i)
ascertainable or obtained from public information, (ii) received from a third
party not employed by or otherwise affiliated with Seller or Buyer, (iii) which
is or becomes known to the public, other than through a breach of this
Agreement, or (iv) furnished to Seller for use in any governmental or regulatory
filing.
6.3 Notice of Disclosure of Confidential Information. In the event that
Parent, Buyer or Seller is requested or required (by oral questions,
interrogatories, requests for information or documents, subpoena, civil
investigative demand or similar process) to disclose any of the Seller
Confidential Information (in the case of Seller) or Buyer Confidential
Information (in the case of Parent or Buyer), it is agreed that such party will
provide the other parties with prompt notice of each such request so that such
other parties may seek an appropriate protective order and/or waive such party's
compliance with this Article 6. It is further agreed that, if, in the absence of
a protective order or the receipt of a waiver hereunder, Parent, Buyer or Seller
is
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nonetheless, in the opinion of its respective counsel, compelled to disclose any
of the Seller Confidential Information (in the case of Seller) or Buyer
Confidential Information (in the case of Parent or Buyer), to any tribunal or
else stand liable for contempt or suffer other significant censure or penalty,
such party may disclose such information to such tribunal without liability
hereunder, except to the extent of previous or subsequent disclosure by such
party or its Representatives which was not or would not be permitted by this
Section 6.3.
7. COVENANTS.
The parties covenant and agree as follows:
7.1 Access. From the date hereof through the Closing, Seller shall, after
reasonable advance notice from Buyer in each instance (except for matters
referred to in clause (iii)): (i) afford the Representatives of Buyer and of the
Financing Parties access during normal business hours to any and all premises,
properties, files, books, records, documents and other information of Seller
relating to the Business or the Acquired Assets, but only to the extent that
such access does not unreasonably interfere with the business and operations of
Seller; (ii) make available for inspection and copying by Buyer or any such
Representatives of Buyer or the Financing Parties true and complete copies of
any documents relating to the foregoing; (iii) on as frequent and timely a basis
as is practicable, furnish business and financial information that may be
reasonably requested by Buyer relating to the Business or the Acquired Assets;
(iv) arrange confidential interviews (by request made to David Casty) between
Buyer's representatives and key executive and managerial employees of Seller and
such other employees as Buyer may reasonably request (it being understood that
Seller may have a representative present during any such interview); (v) provide
reasonable assistance in connection with the Financing, including assistance in
the preparation of offering materials relating to the Financing and making
appropriate management personnel available to participate in the marketing of
the Financing; and (vi) allow Buyer to carry out such further inquiry as Buyer
considers reasonably necessary to substantiate its assessment of the Business
and the Acquired Assets. In connection with Buyer's investigation pursuant to
this Section 7.1, Buyer hereby agrees that it shall not contact any of Seller's
suppliers, customers or financial institutions without the prior written consent
of Seller.
7.2 Public Announcements. Prior to the Closing, neither Seller, without
the consent of Buyer, nor Buyer, without the consent of Seller, shall issue any
press release or otherwise make any public statement with respect to the
transactions contemplated by this Agreement, except as and to the extent that
such party shall be so obligated by law, in which case such party shall give
advance notice to the other parties, or as provided in the next sentence.
Promptly following the execution and delivery of this Agreement, (i) Buyer and
Seller, after consultation with one another, shall issue a joint press release
announcing the execution of this Agreement; and (ii) Seller and Buyer will
cooperate in issuing joint statements to suppliers, customers and employees of
the Business.
7.3 Conduct of Business of Seller Prior to the Closing. Seller agrees
that, during the period from the date hereof to the Closing, except as
specifically consented to or approved by Buyer in writing (it being understood
that the consent of Barry D. Setzer, Richard J. Mackey or John K. Ziegler shall
be sufficient for these purposes), the Business of Seller shall be operated
conducted only in the ordinary course and in a manner consistent with past
practice.
(a) Without limiting the generality of the foregoing, (i) Seller shall not
take any action that would be inconsistent with the representations and
warranties contained in clauses (i) through (vii) of Section 4.3(d) being true
and correct as of the Closing, and (ii) in general, Seller shall not take any
action that would result in a failure to meet the condition contained in Section
8.1.
(b) From the date hereof to the Closing, Seller shall use its best efforts
to preserve the business organization of the Business intact, to keep available
to Seller the current services of the Business, its Employees and to preserve
for Seller the goodwill of the Business's suppliers, customers and others with
whom a business relationship exists; provided, however, that nothing shall
permit Seller to dispose of any assets, make or agree to make any increase in
compensation, or take any other action with respect to employees, suppliers or
customers, in any such case that is inconsistent with current policies and
practices of Seller or with any other provisions of this Agreement.
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7.4 Consents. Seller shall use its best efforts to obtain the consents of
other parties required for the consummation of the transactions contemplated
hereunder or which if not obtained could constitute a breach or default under
any Seller Contract and the estoppel certificates with respect to Seller
Contracts requested by Buyer, including without limitation consents to the
assignment to Buyer of the IRB Agreements and the Operating Leases. Buyer shall
use its best efforts to assist Seller in obtaining such consents and, if
possible, the release of Seller from the IRB Agreements and the Operating Leases
(including through providing a guarantee of Parent of such IRB Agreements and
Operating Leases).
7.5 Real Property Matters. Not later than 15 days prior to the Closing
Date, Seller shall furnish to Buyer (i) recent surveys of the Owned Real
Property, reasonably satisfactory and certified to Buyer and its title company
or companies, showing all buildings and improvements, easements, rights of way
and other relevant matters (including location of all title exceptions) and
sufficient for Buyer's title insurance company to affirmatively insure the same
and (ii) commitments for title insurance issued by a nationally recognized title
company or companies specified by Buyer for the issuance of policies of title
insurance on the forms specified by Buyer, and in the amounts indicated, with
respect to the Owned Real Property. The commitments shall show title to such
Owned Real Property (including easements and rights of way which benefit such
Owned Real Property) in Seller, subject only to the exceptions set forth on
Schedules 4.4(a) hereto and such additional exceptions and conditions which can
be and are omitted at or prior to the time of Closing. Except with respect to
those exceptions set forth on Schedule 4.4(a) that are IRB Agreements, Seller
shall furnish to Buyer prior to the Closing information requested by Buyer
within five Business Days after Buyer receives such surveys and title
commitments to enable Buyer to reasonably determine that such Liens and other
exceptions permitted by this Section 7.5 do not have a material adverse effect
on the current use of the real property to which they relate.
7.6 Additional Agreements. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use its best efforts at its own
expense and in compliance with applicable law to take, or cause to be taken, all
action and to do, or cause to be done, all things reasonably necessary, proper
or advisable to consummate and make effective the transactions contemplated by
this Agreement. In case at any time after the Closing any further action is
reasonably necessary or desirable to carry out the purposes of this Agreement,
the proper officers of Buyer shall take all such action.
7.7 Notification of Certain Matters. Between the date hereof and the
Closing, Seller shall give prompt notice in writing to Buyer and Parent of: (i)
any information that indicates that any representation or warranty by it
contained in this Agreement was not true and correct as of the date of this
Agreement or will not be true and correct as of the Closing, (ii) the occurrence
of any event that will result, or has a reasonable prospect of resulting, in the
failure to satisfy a condition specified in Articles 8 or 9 hereof, (iii) any
notice or other communication from any third Person alleging that the consent of
such third Person is or may be required in connection with the transactions
contemplated by this Agreement (other than those consents indicated as required
on Schedule 4.5 hereto), and (iv) any notice of, or other communication relating
to, any default or event which, with notice or lapse of time or both, would
become a default under any Seller Contract.
7.8 Expenses; Transfer Taxes. Each party shall pay its own fees and
expenses (including the fees of any attorneys, accountants, investment bankers
or others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby whether or not the transactions contemplated
hereby are consummated. Notwithstanding the foregoing, Seller and Buyer shall
each pay one-half of (x) all sales, use, transfer, excise, real property gains
or similar taxes imposed as a result of the transactions contemplated by this
Agreement and all costs of new real property surveys and title insurance
delivered at the Closing for the Owned Real Property, (y) the fees and expenses
of Seller's Accountants in auditing the Annual Financial Statements and the
Closing Financial Statements and (z) the filing fee required under the HSR Act.
7.9 Non-Solicitation of Transactions. From and after the date hereof,
Seller shall not, and shall cause its Affiliates (including their respective
directors, officers, employees and advisors) not to, solicit, encourage or
initiate any offer or proposal from, or engage in any discussions or
negotiations with, or provide any information to, any corporation, partnership,
person or other entity or group, other than Buyer and its Affiliates (including
its directors, officers, employees and advisors), concerning a merger,
consolidation or similar
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transaction involving, or any purchase of all or any significant portion of the
assets of, or any equity interest in, the Business (any such transactions being
referred to herein as an "Acquisition Transaction"), and Seller shall not, and
shall cause their respective Affiliates (including their respective directors,
officers, employees and advisors) not to, accept any proposal with respect to
any Acquisition Transaction. If Seller or any of its Affiliates (including their
respective directors, officers, employees and advisors) shall receive any
proposal with respect to any Acquisition Transaction, the recipient shall
immediately communicate to Buyer the terms of such proposal.
7.10 Non-Competition. Seller agrees that it shall not, prior to the third
anniversary of the Closing Date (the "Non-Compete Period"), directly or
indirectly, individually or for, with or through any other person (which shall
be deemed to include any equity participation in any other person), compete with
Buyer or any subsidiary or other Affiliate of Buyer or any of its successors or
assigns of the Business conducted at the Closing by Seller (collectively,
"Non-Compete Parties"), with respect to the Business in any state in the United
States; provided, however, that (i) nothing herein shall be construed to prevent
Seller from owning, as an investment, up to 4.9% of a class of equity securities
issued by any competitor of any Non-Compete Party that is publicly traded and
registered under Section 12 of the Securities Exchange Act of 1934, (ii) Seller
shall not be deemed to have breached this covenant if Seller merges or
consolidates with, or substantially all of the assets or stock of Seller or
acquired by, another person that so competes with respect to the Business and
(iii) nothing herein shall be construed to prevent Seller from producing and
selling the products described in Schedule 7.10, it being understood that the
manufacture and sale of such products by Seller's Hope Webbing, Charbert and
Novelty Bias Binding divisions does not compete with the Business. The parties
intend that the covenant contained in the preceding sentence shall be construed
as a series of separate covenants, one for each county and city included within
each state or other jurisdiction and, except for geographic coverage, each such
separate covenant shall be deemed identical. The parties agree that the
covenants deemed included in this Section are, taken as a whole, reasonable in
their geographic scope and their duration and no party shall raise any issue of
the reasonableness of the scope or duration of the covenants in any proceeding
to enforce any such covenants. If, in any judicial proceeding, a court shall
refuse to enforce any separate covenant, then the unenforceable covenant shall
be modified in order to make it acceptable to the court and enforced
accordingly, or, if necessary, deemed eliminated to the extent necessary to
permit the remaining separate covenants to be enforced.
7.11 Non-Solicitation of Employees. Seller agrees that, until the end of
the Non-Compete Period, Seller will not, directly or indirectly, (i) influence
or attempt to influence any Business Employee not to accept employment with
Buyer or, if employed by Buyer, to leave Buyer's employ, or (ii) employ any
person who was employed by Buyer at any time within one year prior to the time
of such employment with Seller or any of its Affiliates, unless such person's
employment with Buyer was terminated by Buyer.
7.12 HSR Act. Seller and Buyer each shall respond promptly to inquiries,
if any, from the Federal Trade Commission or the Department of Justice in
connection with the filings required for the transactions contemplated hereunder
by the HSR Act.
7.13 Employee Matters. (a) Seller will terminate employment of all of the
Business Employees, effective as of the Closing, and Buyer shall offer
employment, effective as of the Closing, to substantially all of such Business
Employees. Seller will use its best efforts to assist Buyer in hiring the
Business Employees that Buyer wishes to hire. The terms of employment of any of
the Business Employees hired by Buyer (a "Transferred Employee") shall be
determined in Buyer's sole discretion; provided, however, that Buyer will
provide Transferred Employees with employee benefit plans which, as of the
Closing, are substantially similar, in the aggregate, to the employee benefit
plans provided to employees of Buyer's subsidiary, Regal Manufacturing Company,
Inc., other than 401(k)/profit sharing and vacation pay, incentive pay and other
payroll practices, and that Buyer will provide full past service and seniority
credit to the Transferred Employees for their service with Seller for purposes
of the Transferred Employees' coverage under any employee benefit plans and
policies which Buyer may provide to Transferred Employees. Nothing in this
Agreement shall, or shall be construed to, limit Buyer's ability to terminate
the employment of any employee or to amend or terminate any employee benefit
plan. Except for Current Liabilities attributable to Transferred Employees, to
the extent accrued and provided for in the calculation of Closing Net Worth, as
finally
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determined ("Assumed Employee Liabilities"), Buyer shall not assume any
obligation or liability relating to or arising from any Benefit Plan,
commitment, undertaking, act or omission of Seller, any Affiliate of Seller or
any of their respective Representatives with respect to the Business's Employees
or any occupational injury or disease of any of Seller's employees occurring or
existing on or prior to the Closing Date (collectively, other than the Assumed
Employee Liabilities, "Employee Claims"). Seller shall pay directly to each of
its employees that portion of all benefits that has been accrued on behalf of
that employee as of the Closing Date, including obligations with respect to
accrued bonuses, incentive pay, and travel and entertainment expense
reimbursement.
(b) Seller and Buyer will treat the Buyer as a "successor employer" and
Seller as "predecessor," within the meaning of sections 3121(a)(1) and
3306(b)(1) of the Code, with respect to Transferred Employees for purposes of
Taxes imposed under the United States Federal Unemployment Tax Act ("FUTA") or
the United States Federal Insurance Contributions Act ("FICA"). At the request
of the Buyer with respect to any particular applicable Tax law relating to
employment, unemployment insurance, social security, disability, workers'
compensation, payroll, health care or other similar Tax other than Taxes imposed
under FICA and FUTA, Seller and Buyer will (i) treat Buyer as a successor
employer and Seller as a predecessor employer, within the meaning of the
relevant provisions of such Tax law, with respect to Transferred Employees and
(ii) cooperate with each other to avoid, to the extent possible, the filing of
more than one individual information reporting form pursuant to each such Tax
law with respect to each such Transferred Employee for the calendar year within
which the Closing Date occurs.
(c) Buyer shall be responsible for compliance with the WARN Act with
respect to the transactions contemplated by this Section 7.13 to occur as of the
Closing and for actions taken by Buyer subsequent to the Closing, provided that
if the representation and warranty set forth in Section 4.9(b) is not correct
and there is a failure to comply with the WARN Act attributable thereto, then
Seller shall be responsible for any consequences of such failure to comply with
the WARN Act by Buyer.
(d) Effective as of the Closing, Seller shall terminate the participation
of the Transferred Employees in the NFA Corp. 401(k) Savings and Protection Plan
("Seller's Savings Plan") and shall amend Seller's Savings Plan, if necessary,
to cause all of the Transferred Employees who are participants in Seller's
Savings Plan to become 100% vested in their account balances under such plan and
to permit Transferred Employees to receive a distribution of their account
balances under Seller's Savings Plan within a reasonable period of time
following the Closing Date. After Seller provides Buyer with a copy of a
favorable IRS determination letter with respect to Seller's Savings Plan (or
such other evidence as to the qualified status of Seller's Savings Plan as Buyer
may require), The Worldtex, Inc. Profit Sharing and Retirement Savings Plan
("Buyer's Savings Plan") shall accept direct rollovers of distributions to
Transferred Employees from Seller's Savings Plan in cash and promissory notes
representing participant loans to the extent permitted by Sections 401(a)(31)
and 402 of the Code and Buyer's Savings Plan.
(e) With respect to any Business Employee who is hospitalized as of the
Closing on an inpatient basis, Seller shall be responsible for all health care
claims incurred by such employee during the continuous period of such
hospitalization.
(f) Seller shall be responsible for providing continuation of group health
coverage required by Section 4980B of the Code or Sections 601 through 608 of
ERISA ("COBRA") with respect to any current or former Business Employee or any
"qualified beneficiary" (within the meaning of Section 4980B of the Code) of any
such current or former employee who has incurred a "qualifying event" (within
the meaning of Section 4980B of the Code) on or prior to the Closing Date,
including any "qualifying event" which is incurred as a result of the
transactions contemplated by this Section 7.13 to occur as of the Closing Date.
Buyer shall be responsible for providing COBRA coverage with respect to any
Transferred Employee or any "qualified beneficiary" of a Transferred Employee
who incurs a "qualifying event" after the Closing Date. Buyer shall credit the
service of Transferred Employees with Seller for purposes of any waiting period
under any medical plan Buyer provides to Transferred Employees and shall credit
all covered expenses of Transferred Employees and their eligible family members
under Seller's medical plan incurred from January 1, 1997 to the Closing for
purposes of annual deductibles and out-of-pocket limits under Buyer's medical
plan.
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(g) Notwithstanding any possible inference to the contrary, none of the
parties to this Agreement intends for this Section 7.13 to create any right or
obligation except as between the parties to this Agreement, and no past, present
or future employees of Seller or Buyer shall be treated as third-party
beneficiaries of this Section 7.13.
7.14 Taxes. Seller and Buyer shall (a) each provide the other with such
assistance as may reasonably be requested by either of them in connection with
the preparation of any Tax return, any audit or other examination by any Taxing
Authority or any judicial or administrative proceeding with respect to Taxes,
(b) each retain and provide the other with any records or other information
which may be relevant to such return, audit, examination or proceeding,
redacted, in the case of clauses (a) and (b), to provide only the information
thereon relevant to the Acquired Assets, and (c) each provide the other with the
relevant redacted portion of any final determination of any such audit or
examination, proceeding or determination that affects any amount required to be
shown on any Tax return of the other for any period (which shall be maintained
confidentially). Without limiting the generality of the foregoing, Buyer and
Seller shall retain, until the applicable statutes of limitations (including all
extensions) have expired, copies of all Tax returns, supporting workpapers, and
other books and records or information which may be relevant to such returns for
all Tax periods or portions thereof ending before or including the Closing Date,
and shall not destroy or dispose of such records or information without first
providing the other party with a reasonable opportunity to review and copy the
relevant redacted portions of the same. With respect to Taxes incurred in
connection with, relating to or arising out of the Business prior to the Closing
that are not yet due or owing as of the Closing, Seller will (i) timely file
when due all returns and reports for such Taxes, including information returns,
that are required to be filed, (ii) timely pay when due the Taxes that are shown
to be due pursuant to such returns or reports, and (iii) timely pay when due all
other such Taxes not required to be reported on returns.
7.15 Post-Closing Credit Support. (a) If, as of any date after the
Closing, EBITDA of Seller's Hope Webbing Company division for the 12 month
period most recently ended prior to such date is less than $3 million (the
"Minimum EBITDA") Seller will not pay any dividends on, make any other
distribution with respect to or purchase any of its capital stock (except for
dividends in amounts sufficient to enable the shareholders of Seller to pay
income taxes of such shareholders attributable to income of Seller at about the
time that such taxes are due). The restriction set forth in the preceding
sentence shall not be applicable from and after (i) such time as the EBITDA of
Seller's Hope Webbing Company division for each period of 12 consecutive months
ending on three successive month-ends shall have exceeded the EBITDA Minimum,
subject to reinstatement of such restrictions should such EBITDA again fail to
meet or exceed Minimum EBITDA or (ii) the second anniversary of the Closing
Date.
(b) If Seller disposes of its Hope Webbing Company division and distributes
substantially all of the proceeds of the sale to Seller's shareholders, it will
provide a cash escrow account or a letter of credit, issued by a bank reasonably
acceptable to Buyer, that may be drawn by Buyer in an amount not less than the
Cap in effect at that time and as such amount may be subsequently reduced to the
extent of any subsequent reduction of the Cap in accordance with the terms of
this Agreement, provided that Seller shall have no obligation to provide such
cash escrow or letter of credit after the 30th day following the fourth
anniversary of the Closing Date, provided, further, and notwithstanding the
preceding proviso, if on any date on which the Cap would otherwise be reduced
there is any claim, whether or not fixed as to liability or liquidated as to
amount, with respect to which any Buyer Indemnified Party has given written
notice to Seller, Seller's obligation to provide such cash escrow or letter of
credit shall include amounts attributable to such claim, subject to and not in
excess of the Cap in effect at the time written notice of such claim was given
to Seller. It is understood that Seller may dispose of its businesses other than
Hope Webbing Company division and distribute proceeds thereof to its
shareholders without restriction. This Agreement is not intended to prohibit the
distribution of the proceeds to Seller of the transactions contemplated by this
Agreement to Seller's shareholders.
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8. CONDITIONS TO OBLIGATIONS OF BUYER AND PARENT.
The obligations of Buyer and Parent required to be performed by it at the
Closing shall be subject to the satisfaction, at or prior to the Closing, of
each of the following conditions, each of which may be waived by Buyer and
Parent as provided herein except as otherwise required by applicable law:
8.1 Representations and Warranties; Covenants. Each of the
representations and warranties of Seller contained in this Agreement shall be
true and correct as of the date of this Agreement and (having been deemed to
have been made again at and as of the Closing in the same language) shall be
true and correct as of the Closing, except for representations and warranties
that speak as of a specific date or time other than the Closing (which need only
be true and correct as of such date or time), provided that this condition shall
be deemed to be satisfied if any breaches of such representations and warranties
of Seller could not result in Losses to Buyer and Parent, in the aggregate, in
excess of the Basket Amount. Each of the obligations of the Seller required by
this Agreement to be performed by them at or prior to the Closing shall have
been duly performed and complied with as of the Closing. At the Closing, Buyer
shall have received certificates, dated the Closing Date and duly executed on
behalf of Seller to the effect that the conditions set forth in the preceding
sentences have been satisfied.
8.2 Opinion of Counsel to Seller. Buyer shall have been furnished with
the opinion of Lane Altman & Owens LLP, counsel to Seller, addressed to Buyer
and dated the Closing Date, to the effect set forth in Schedule 8.2 hereto.
8.3 Absence of Litigation, Damages, Changes. No order, stay, injunction
or decree of any court of competent jurisdiction shall be in effect (i) that
prevents or delays the consummation of any of the transactions contemplated
hereby to occur at the Closing or (ii) that would impose any material limitation
on the ability of Buyer effectively to exercise full rights of ownership of the
Business or the Acquired Assets. No action, suit or proceeding before any court
or any governmental or regulatory entity shall be pending, and no investigation
by any governmental or regulatory entity shall have been commenced (and be
pending), seeking to restrain or prohibit (or questioning the validity or
legality of) the consummation of the transactions contemplated by this Agreement
or seeking damages against Buyer or Parent in excess of the Basket Amount as a
result of the consummation of the transactions contemplated hereby.
8.4 Environmental Report. Buyer shall have received at least five
Business Days prior to the Closing Date letters from Layton Environmental
Engineering, Inc. and ERM-Southeast, Inc. authorizing Buyer and the lenders
under the loan portion of the Financing to rely on their Phase I environmental
reports relating to the Owned Real Property dated August 1997 (in the case of
Layton relating to Columbiana) and July 25, 1997 (in the case of ECM relating to
Hemingway and Woolwine).
8.5 Consents Obtained.
(a) Seller shall have obtained and delivered to Buyer the consents referred
to on Schedule 8.5 hereto in form and substance reasonably satisfactory to
Buyer, provided that this condition shall be deemed satisfied with respect to
any Operating Lease if Seller shall have purchased the Machinery and Equipment
leased thereunder and, at the Closing, shall have sold it to Buyer as part of
the Acquired Assets, free and clear of all Liens, against receipt by Seller of
cash in amount equal to the present value (utilizing a discount rate of 8.94%
per annum) of the remaining required lease payment obligations under such
Operating Lease.
(b) Seller shall have obtained and delivered to Buyer estoppel
certificates, in form and substance reasonably satisfactory to Buyer, from third
parties to those Seller Contracts referred to in Schedule 8.5.
8.6 Title Insurance. Buyer shall have received (i) recent surveys of
Owned Real Property and the commitments for title insurance required to be
delivered to Buyer pursuant to Section 7.5 and (ii) such commitment for title
insurance redated the date and time of the Closing, including such endorsements
and affirmative insurance as Buyer shall reasonably specify, and certified in
the name of Buyer, that insure good and marketable title in Buyer to all of the
Owned Real Property, subject only to exceptions set forth on Schedule 4.4(a)
hereto (and specifically, but without limitation, containing no exception for
matters created,
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first appearing in the public records or attaching subsequent to the date of
such commitments but prior to the recordation of the deeds to the Owned Real
Property in the name of Buyer).
8.7 Material Adverse Change. No material adverse change in the business,
operations, assets, financial condition or prospects of the Business shall have
occurred since December 27, 1996.
8.8 HSR Act. All filings required to be made under the HSR Act in
connection with the transactions contemplated hereby shall have been made and
all applicable waiting periods with respect to each such filing, including any
extensions thereof, shall have expired or been terminated.
8.9 Financing. Parent shall have available pursuant to the Financing
funds sufficient to pay the Closing Consideration, provided that this Section
8.9 shall be deemed waived by Buyer and Parent if the Closing shall not have
occurred on or before December 18, 1997.
9. CONDITIONS TO OBLIGATIONS OF SELLER.
The obligations of Seller required to be performed by it at the Closing
shall be subject to the satisfaction, at or prior to the Closing, of each of the
following conditions, each of which may be waived by it as provided herein,
except as otherwise provided by applicable law:
9.1 Representations and Warranties; Covenants. Each of the
representations and warranties of Buyer and Parent contained in this Agreement
shall be true and correct as of the date of this Agreement and (having been
deemed to have been made again at and as of the Closing in the same language)
shall be true and correct in all respects as of the Closing, except for
representations and warranties that speak as of a specific date or time other
than the Closing (which need only be true and correct as of such date or time),
provided that this condition shall be deemed to be satisfied if any breaches of
such representations and warranties of Buyer and Parent could not result in
Losses to Seller, in the aggregate, in excess of the Basket Amount. Each of the
obligations of Buyer and Parent required by this Agreement to be performed by it
at or prior to the Closing shall have been duly performed and complied with as
of the Closing. At the Closing, Seller shall have received a certificate, dated
the Closing Date and duly executed on behalf of Buyer and Parent, to the effect
that the conditions set forth in the preceding sentences have been satisfied.
9.2 Absence of Litigation. No order, stay, injunction or decree of any
court of competent jurisdiction shall be in effect that prevents or delays the
consummation of any of the transactions contemplated hereby to occur at the
Closing.
9.3 Release From IRB Agreements. Seller shall have received a release
from its obligations under the IRB Agreements, in form and substance reasonably
satisfactory to Seller.
9.4 HSR Act. All filings required to be made under the HSR Act in
connection with the transactions contemplated hereby shall have been made and
all applicable waiting periods with respect to each such filing, including any
extensions thereof, shall have expired or been terminated.
9.5 Opinion of Counsel to Buyer. Seller shall have been furnished with
the opinion of Hughes Hubbard & Reed LLP, counsel to Buyer, addressed to Seller
and dated the Closing Date, to the effect set forth in Schedule 9.5 hereto.
10. CLOSING.
The transfers and deliveries to be made pursuant to this Agreement (the
"Closing") shall take place at the offices of Hughes Hubbard & Reed LLP, One
Battery Park Plaza, New York, New York, at 10:00 a.m. on the earlier of (i) on a
Friday (or on November 26, 1997) specified by Buyer to Seller in a written
notice given at least three Business Days in advance of such day, provided that
on the date that such notice is given the conditions set forth in Sections 8.3,
8.4 and 8.8 have been satisfied and (ii) December 19, 1997, or at such other
place, time or date as the parties shall agree upon in writing. The date on
which the Closing is to occur is herein referred to as the "Closing Date". If
the Closing does not occur on any date scheduled therefor in accordance with
this paragraph, the Closing shall be rescheduled to a later date in accordance
with the terms of this paragraph, subject to the parties' rights of termination
set forth in Section 12.5.
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At the Closing, subject to the satisfaction or waiver of the conditions to
its obligations set forth in this Agreement, Seller and Buyer shall make the
following deliveries or such deliveries in substitution therefor as are
satisfactory to the indicated recipient:
10.1 Deliveries to Buyer. The following Persons shall make the indicated
deliveries to Buyer:
(a) Seller shall deliver the following:
(i) Bills of sale, instruments of transfer, assignment and conveyance,
and other instruments in form and substance satisfactory to Buyer and
sufficient to convey, transfer, and assign to Buyer and effectively vest in
Buyer all right, title and interest in and to the Business and good and
marketable title to the Acquired Assets, free and clear of all Liens.
(ii) Warranty deeds in recordable and locally customary form
describing the Owned Real Property and all easements, rights of way and
uses which benefit the Owned Real Property in form and substance
satisfactory to Buyer and sufficient to convey, transfer and assign to
Buyer good and marketable title to the Owned Real Property subject only to
exceptions permitted by Schedules 4.4(a) and 4.4(b) hereto.
(iii) Possession of the Acquired Assets.
(iv) A certificate of an officer of Seller certifying (i) that
attached to such certificate are true and correct copies of the Articles of
Organization and By-Laws of Seller as in effect as of the Closing, (ii)
that attached to such certificate are true and correct copies of
resolutions adopted by the Board of Directors of Seller authorizing the
execution, delivery and performance of this Agreement by such company and
that such resolutions are in full force and effect as of the Closing, (iii)
the incumbency and signatures of the officers of Seller who have executed
this Agreement and the other instruments and documents delivered at the
Closing on behalf of Seller and (iv) the face amount of the Excluded
Receivables as of the Business Day next preceding the Closing Date.
(v) A certificate from the Secretary of State of Massachusetts as to
the good standing of Seller and listing all charter documents on file.
(vi) Certification that Seller is not a foreign person subject to
withholding under Section 1445 of the Code.
(b) Seller shall deliver to Buyer such other instruments and documents as
may be reasonably requested by, and in form and substance reasonably
satisfactory to, Buyer or its title insurance company in order to effect the
transactions contemplated by this Agreement to occur at the Closing.
10.2 Deliveries by Buyer. Buyer shall make the following deliveries to
the indicated Persons:
(a) Cash by wire transfer to Seller's account in the amount required to be
paid at the Closing by Section 3.1.
(b) Instruments of assumption of the Assumed Liabilities (including with
respect to the IRB Agreements).
(c) A certificate of an officer of each of Buyer and Parent certifying (i)
that attached to such certificate are true and correct copies of the Certificate
of Incorporation and By-Laws of such company as in effect as of the Closing,
(ii) that attached to such certificate are true and correct copies of
resolutions adopted by the Board of Directors of such company authorizing the
execution, delivery and performance of this Agreement by such company and that
such resolutions are in full force and effect as of the Closing and (iii) the
incumbency and signatures of the officers of such company who have executed this
Agreement and the other instruments and documents delivered at the Closing on
behalf of such company.
(d) A certificate from the Secretary of State of Delaware as to the good
standing of Buyer and Parent and listing all charter documents on file.
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(e) Such other instruments and documents as may be reasonably requested by,
and in form and substance reasonably satisfactory to, Seller in order to effect
the transactions contemplated by this Agreement to occur at the Closing.
11. INDEMNIFICATION.
11.1 Indemnification Obligations.
(a) Seller hereby agrees to indemnify and hold harmless Buyer and Parent,
and Buyer's and Parent's respective directors, officers, employees and
Affiliates (each, a "Buyer Indemnified Party"), on an after-tax basis, against
and in respect of any and all losses, damages, liabilities, claims, costs and
expenses (including, without limitation, Legal Expenses) (collectively,
"Losses") arising out of, based upon or resulting from (i) the breach of any
representation or warranty of Seller contained in this Agreement or in any
statement or certification of Seller furnished pursuant hereto, (ii) the breach
by Seller of or failure of Seller to observe any of its covenants or agreements
contained in this Agreement, (iii) any liability or obligation of or
attributable to Seller or any of its Affiliates not expressly assumed by Buyer
pursuant to Sections 2.3 or 2.4, (iv) any Contract Default, (v) any Product
Liability Claim, (vi) any Employee Claim, and (vii) any Environmental Condition
(regardless of whether, in the case of Third Party Actions, suits or
proceedings, Seller may have a meritorious defense). Notwithstanding any other
provision herein to the contrary, (x) Seller shall not be required, pursuant to
this Section 11.1(a), to indemnify and hold harmless any Buyer Indemnified Party
until the aggregate amount of (A) the Buyer Indemnified Parties' Losses under
this Section 11.1(a) and (B) the Customer Refunds exceeds the Basket Amount,
after which Seller shall be obligated for any and all Losses of the Buyer
Indemnified Parties and Customer Refunds in excess of the Basket Amount
(provided that Seller's indemnity obligation under Section 11.1(a)(ii) shall not
be subject to the limitations in this clause (x)) and (y) the cumulative
indemnification obligation of Seller under this Agreement shall in no event
exceed the Cap.
(b) Buyer and Parent hereby jointly and severally agree to indemnify and
hold harmless Seller, on an after-tax basis, against and in respect of any and
all Losses arising out of, based upon or resulting from (i) the breach of any
representation or warranty of Buyer or Parent contained in this Agreement or in
any statement or certification of Buyer or Parent furnished pursuant hereto,
(ii) the breach by Buyer or Parent of or failure of Buyer or Parent to observe
any of its covenants or agreements contained in this Agreement, (iii) any claim
asserted against Seller in the complaint, as amended, filed in, or as a result
of, the Assumed Litigation and (iv) the Rule 144A Offering, except in the case
of this clause (iv) to the extent attributable to (x) any misstatement or
omission in information relating to the Business, the Acquired Assets or Seller
furnished to Buyer by or on behalf of Seller, (y) the negligence or willful
misconduct of Seller or (z) the breach by Seller of any of its covenants or
agreements contained in this Agreement (regardless of whether, in the case of
Third Party Actions, suits or proceedings, Buyer or Parent may have a
meritorious defense). Notwithstanding any other provision herein to the
contrary, (x) Buyer shall not be required, pursuant to this Section 11.1(b), to
indemnify and hold harmless Seller until the aggregate amount of the Losses of
Seller under this Section 11.1(b) exceeds the Basket Amount, after which Buyer
shall be obligated for any and all Losses of Seller in excess of the Basket
Amount (provided that Buyer's indemnity obligation under Sections 11.1(b)(ii),
(iii) and (iv) shall not be subject to the limitations of this clause (x)) and
(y) the cumulative indemnification obligation of Buyer under this Agreement
shall in no event exceed the Cap (excluding from such Cap the aggregate Losses
under Section 11.1(b)(iii)).
(c) For purposes of this Section 11.1, a party shall not be deemed to have
made a representation or warranty as of the Closing to the extent that such
party expressly disclaims such representation or warranty in the certificate
delivered by such party to the other parties pursuant to the last sentence of
Section 8.1 or Section 9.1.
11.2 Indemnification Procedures.
(a) Promptly after receipt by any Person entitled to indemnification under
Section 11.1 (an "indemnified party") of notice of the commencement of any
action, suit or proceeding by a Person not a party to this Agreement in respect
of which the indemnified party will seek indemnification hereunder (a "Third
Party
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Action"), the indemnified party shall notify the Person that is obligated to
provide such indemnification (an "indemnifying party") thereof in writing, but
any failure to so notify the indemnifying party shall not relieve it from any
liability that it may have to the indemnified party under Section 11.1, except
to the extent that the indemnifying party is prejudiced by the failure to give
such notice. The indemnifying party shall be entitled to participate in the
defense of such Third Party Action and to assume control of such defense with
counsel reasonably satisfactory to such indemnified party; provided, however,
that:
(i) the indemnified party shall be entitled to participate in the
defense of such Third Party Action and to employ counsel at its own expense
to assist in the handling of such Third Party Action;
(ii) the indemnifying party shall obtain the prior written approval of
the indemnified party before entering into any settlement of such Third
Party Action or ceasing to defend against such Third Party Action, if
pursuant to or as a result of such settlement or cessation, injunctive or
other equitable relief would be imposed against the indemnified party or
the indemnified party would be adversely affected thereby;
(iii) 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
(iv) the indemnifying party shall not be entitled to control the
defense of any Third Party Action unless within 15 days after receipt of
such written notice from the indemnified party the indemnifying party
confirms in writing its responsibility to indemnify the indemnified party
with respect to such Third Party Action and reasonably demonstrates that it
will be able to pay the full amount of the reasonably expected Losses in
connection with any such Third Party Action.
After written notice by the indemnifying party to the indemnified party of its
election to assume control of the defense of any such Third Party Action in
accordance with the foregoing and compliance by the indemnifying party with
Section 11.2(a)(iv), (i) the indemnifying party shall not be liable to such
indemnified party hereunder for any Legal Expenses subsequently incurred by such
indemnified party attributable to defending against such Third Party Action, and
(ii) as long as the indemnifying party is reasonably contesting such Third Party
Action in good faith, the indemnified party shall not admit any liability with
respect to, or settle, compromise or discharge the claim underlying, such Third
Party Action without the indemnifying party's prior written consent. If the
indemnifying party does not assume control of the defense of such Third Party
Action in accordance with this Section 11.2, the indemnified party shall have
the right to defend and/or settle such Third Party Action in such manner as it
may deem appropriate at the cost and expense of the indemnifying party, and the
indemnifying party will promptly reimburse the indemnified party therefor in
accordance with this Article 11. The reimbursement of fees, costs and expenses
required by this Article 11 shall be made by periodic payments during the course
of the investigation or defense, as and when bills are received or expenses
incurred.
(b) If an indemnified party becomes entitled to any indemnification from an
indemnifying party pursuant to this Agreement, such indemnification payment
shall be made in cash upon demand.
(c) If the indemnifying party shall be obligated to indemnify the
indemnified party pursuant to this Article 11, the indemnifying party shall,
upon payment of such indemnity in full, be subrogated to all rights of the
indemnified party with respect to the claims to which such indemnification
relates.
12. MISCELLANEOUS.
12.1 Brokerage. Seller hereby represents and warrants to Buyer and Parent
that neither it nor any of its Affiliates has made any agreement or taken any
other action which might cause any Person to become entitled to a broker's or
finder's fee or commission as a result of the transactions contemplated
hereunder other than the retention by Seller of Schroder & Co., Inc. whose fees
and commissions shall be the sole responsibility of Seller. Buyer and Parent
hereby represent and warrant to Seller that neither it nor any of its Affiliates
has made any agreement or taken any other action which might cause any Person to
become entitled to a broker's or finder's fee or commission as a result of the
transactions contemplated hereunder other than
30
<PAGE> 35
the retention by Buyer of NationsBanc Montgomery Securities, Inc., whose fees
and commissions shall be the sole responsibility of Buyer. In the event any
Person shall assert a claim to a fee, commission or other compensation on
account of alleged employment as a broker or finder, or performance of services
as a broker or finder, in connection with the transactions contemplated by this
Agreement, the party (or parties) alleged to have been responsible for such
employment or performance of services shall hold harmless the other party (or
parties) as well as the other party's (or parties') directors, officers and
employees, from and against such claim and at the indemnifying party's (or
parties') sole expense defend any and all actions, suits or proceedings
involving such claim that may at any time be brought against those so
indemnified and satisfy promptly any settlement or judgment arising therefrom.
If, however, it is ultimately determined in any such action, suit or proceeding
in which the indemnified party (or parties) were afforded the opportunity to
have their counsel participate in the defense, that the employment was by or
services were performed for the indemnified party (or parties), then the latter
shall be responsible under this Section and shall reimburse any amounts
theretofore paid by the indemnifying party (or parties) by reason hereof.
12.2 Survival. All covenants and agreements contained in this Agreement
and the right to indemnification with respect to all representations and
warranties contained in this Agreement or in any certificate, document or
statement delivered pursuant hereto, shall survive (and not be affected in any
respect by) the Closing, any investigation conducted by any party hereto and any
information which any party may receive. Notwithstanding the foregoing, the
right to indemnification with respect to each representation and warranty
contained in this Agreement or made pursuant to any certificate, document or
statement delivered pursuant hereto shall terminate on the last day of the 18th
month after the month that includes the Closing Date (the "Survival Date");
provided, however, that (i) the right to indemnification with respect to the
representations and warranties set forth in (x) Sections 4.7 and 4.8 shall
survive until 30 days after the expiration of the applicable statute of
limitations relating to the matters set forth in such sections, (y) Section 4.10
shall survive until the second anniversary of the Closing Date and (z) the first
sentence of Section 4.4(a) shall survive without limitation and (ii) the right
to indemnification with respect to such representations and warranties, and the
liability of any party with respect thereto, shall not terminate with respect to
any claim, whether or not fixed as to liability or liquidated as to amount, with
respect to which such party has been given written notice prior to the Survival
Date, such second anniversary or such 30th day after the expiration of the
applicable statute of limitations, whichever shall be applicable thereto in
accordance with this Section.
12.3 Notices. Any notice, direction or other advice or communication
required or permitted to be given hereunder shall be in writing and shall be
given by certified mail, next day delivery service such as Federal Express, or
personal delivery against receipt to the party to whom it is to be given (i) at
such party's address set forth on the signature page of this Agreement, or (ii)
to such other address as the party shall have furnished in writing in accordance
with the provisions of this Section 12.3. Any notice or other communication
shall be deemed to have been given as of the date so delivered, on the next
business day when sent by overnight delivery service or five days after the date
so mailed.
12.4 Bulk Sales Laws. The parties hereto waive compliance by Seller with
the provisions of any applicable bulk sales, fraudulent conveyance or other law
for the protection of creditors, including any bulk sales and similar laws
relating to Taxes. Seller shall indemnify and hold Buyer harmless from, and
reimburse Buyer for, any loss, cost, expense, liability or damage which Buyer
may suffer or incur by virtue of the noncompliance by the parties with such
applicable laws.
12.5 Termination. This Agreement and the transactions contemplated hereby
may be terminated and abandoned at any time prior to the Closing (i) by mutual
written agreement of Buyer and Seller; (ii) by Buyer or Seller upon written
notice to the other if the Closing shall not have been consummated on or before
December 19, 1997 other than by reason of a matter within the control of the
party asserting such termination (it being understood that Buyer shall not have
a right to terminate under this clause (ii) if the Closing has not been
consummated by December 19, 1997 although the conditions to Buyer's obligations
set forth in Article 8 shall have been satisfied, or waived by Buyer, and
regardless of whether Buyer or Parent has consummated the Financing); (iii) by
Buyer upon written notice to Seller, if there has been any violation or breach
by Seller of any representation, warranty, covenant or obligation contained in
this Agreement that has rendered the satisfaction of any condition to the
obligations of Buyer set forth in Article 8 hereof impossible and such
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<PAGE> 36
violation or breach has not been waived by Buyer or if any other event shall
occur that shall render the satisfaction of any such condition to the
obligations of Buyer impossible and such condition has not been waived by Buyer;
and (iv) by Seller upon written notice to Buyer if there has been a violation or
breach by Buyer of any representation, warranty, covenant or obligation
contained in this Agreement that has rendered the satisfaction of any condition
to the obligations of Seller set forth in Article 9 hereof impossible and such
violation or breach has not been waived by Seller or if any other event shall
occur that shall render the satisfaction of any such condition to the
obligations of Seller impossible and such condition has not been waived by
Seller. Except for any breach of this Agreement occurring at or prior to
termination (including, if applicable, a breach by Buyer of its obligation to
effect the Closing in accordance with this Agreement upon the satisfaction of
the conditions set forth in Article 8 due to the failure by Buyer and Parent to
consummate the Financing, it being understood that the condition in Section 8.9
shall not be a condition to the Closing on December 19, 1997), and for the
obligations contained in Sections 6.1, 7.8 and 12.1, upon the termination of
this Agreement pursuant to this Section, this Agreement shall forthwith become
null and void and none of the parties hereto or any of their respective
officers, directors, employees, agents, consultants, Shareholders or principals
shall have any liability or obligation hereunder or with respect hereto.
12.6 Binding Effect; Assignment; No Third Party Beneficiaries. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns and the provisions of
Article 11 shall inure to the benefit of the indemnified parties referred to
therein; provided, however, that neither this Agreement nor any of the rights,
interests or obligations hereunder may be assigned by any of the parties hereto
without the prior written consent of the other parties and any such purported
assignment shall be void. This Agreement is not intended to confer upon any
other Person any rights or remedies hereunder.
12.7 Specific Performance. The parties to this Agreement recognize that
any breach of the terms of this Agreement by either Seller or Buyer may give
rise to irreparable harm for which money damages would not be an adequate
remedy, and accordingly agree that, in addition to other remedies, either party
shall be entitled to enforce the terms of this Agreement by a decree of specific
performance without the necessity of proving the inadequacy as a remedy of money
damages.
12.8 Entire Agreement; Modifications; Headings; Counterparts. This
Agreement and the Exhibits and Schedules attached hereto, and the other writings
specifically identified herein or contemplated hereby contain the entire
agreement among the parties hereto with respect to the transactions contemplated
herein and supersede all previous written or oral negotiations, commitments and
writings (including without limitation the confidentiality agreement dated July
18, 1997 and letter agreement dated September 19, 1997). This Agreement may be
modified only by a written instrument duly executed by or on behalf of each
party. No breach of any covenant, agreement, warranty or representation shall be
deemed waived unless expressly waived in writing by and on behalf of the party
who might assert such breach. The Article and Section headings of this Agreement
are for convenience of reference only and do not form a part hereof and do not
in any way modify, interpret or construe the intentions of the parties. This
Agreement may be executed in two or more counterparts, and all such counterparts
shall constitute one and the same instrument.
12.9 Guarantee. By signing below, the Parent hereby unconditionally and
irrevocably guaranties the obligations of Buyer under this Agreement.
12.10 Applicable Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the Commonwealth of Massachusetts.
[Remainder of this page is blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
ELASTIC CORPORATION OF AMERICA, INC.
By: /s/ BARRY D. SETZER
------------------------------------
Name: Barry D. Setzer
Title: Chief Executive Officer
and President
Address: 212 12th Avenue N.E.
Hickory, North Carolina 28601
NFA CORP.
By: /s/ DAVID CASTY
------------------------------------
Name: David Casty
Title: Chairman
Address: 850 Boylston Street
Suite 428
Chestnut Hill, Massachusetts
02167
WORLDTEX, INC.
By: /s/ BARRY D. SETZER
------------------------------------
Name: Barry D. Setzer
Title: Chief Executive Officer
and President
Address: 212 12th Avenue N.E.
Hickory, North Carolina 28601
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<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
Nos. 33-55124, 33-72640 and 33-97276 of Worldtex, Inc. on Form S-8 of our audit
report dated October 14, 1997, (relating to the financial statements of Elastic
Corporation of America ("ECA") (a division of NFA Corp.) as of and for the
fiscal years ended December 28, 1996, December 30, 1995 and December 31, 1994,
which report expresses an unqualified opinion and includes an explanatory
paragraph that describes the basis of presentation of the ECA financial
statements) appearing in item 7(a) in this Current Report on Form 8-K of
Worldtex, Inc.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 12, 1997
<PAGE> 1
EXHIBIT 99.1
[WORLDTEX, INC. LETTERHEAD] NEWS RELEASE
COMPANY CONTACT:
Richard J. Mackey
Chairman of the Board
(704) 328-5381
FOR IMMEDIATE RELEASE
WORLDTEX COMPLETES ACQUISITION
OF ELASTIC CORPORATION OF AMERICA
AND $175 MILLION DEBT OFFERING
Hickory, North Carolina, December 1, 1997 -- Worldtex, Inc. (WTX-NYSE),
announced that it had completed the acquisition of Elastic Corporation of
America ("ECA"), the leading supplier of woven and knitted narrow elastic
fabrics to the apparel industry, for approximately $76.3 million in cash and the
assumption of $6.0 million in long term debt. ECA, a division of privately held
NFA Corp., had revenues of $52.7 million and $55.8 million for the nine months
ended September 30, 1997 and the year ended December 1996, respectively.
Worldtex noted that the ECA acquisition, together with the recent Elastex
acquisition from Texfi Industries, Inc. (NYSE:TXF) of its narrow elastic fabric
business, is expected to add almost $90 million to Worldtex's revenue base of
about $200 million, an increase of 45%.
Worldtex also said that it had completed a Rule 144A private placement of
$175.0 million of its 9 5/8% Senior Notes due 2007 for net cash proceeds to
Worldtex of approximately $170.0 million, which were used to pay the purchase
price for the ECA acquisition, to repay existing debt of approximately $79.0
million and to pay transactions expenses. The remaining net cash proceeds will
be used for general corporate purposes. The Senior Notes have not been
registered under the Securities Act of 1933 and may not be offered or sold in
the United States absent registration or an applicable exemption from
registration requirements.
ECA has focused on higher end narrow elastic fabrics, which are used as
apparel components such as elasticized waistbands, patented quickcord systems in
athletic wear and straps, facings, edgings and waistbands in women's intimate
apparel. The Company has also developed specialized capability in providing a
distinctive logo woven within the narrow elastic fabrics for designer customers,
including Calvin Klein, Donna Karan, Ralph Lauren, Jockey, Tommy Hilfiger,
Michael Jordan Sports, Hanes, Sara Lee, Fruit of the Loom, and others. The
proliferation of brand names in underwear and sportswear and ECA's superior
design, low cost manufacturing and sophisticated dying have contributed to the
Company's growth and excellent margins.
Mr. Barry Setzer, President and Chief Executive Officer of Worldtex said,
"The acquisition of ECA, when coupled with recently acquired Elastex, brings
very important strategic synergies and financial contributions to Worldtex. We
have now become a world leader in two niche elastic market segments, yarn and
narrow fabric. ECA has a higher profit margin business, and we believe it will
be accretive to our earnings per share. Furthermore, major capital investments
have recently been completed by ECA and, most importantly, the seasoned
management team which has successfully positioned the company as the industry
leader will remain in place."
Mr. Edward Gleadall, President of ECA, stated, "This is the classic merger
which will benefit customers, employees and stockholders. We have a long
relationship with Worldtex which has developed unique yarns and will help
provide ECA the opportunity to continue to be the leading manufacturer of
specialized narrow elastic fabrics. By combining ECA and Worldtex, we will work
together to develop new products efficiently and more profitably."
<PAGE> 2
Mr. Setzer concluded, "Worldtex's mission is to seek acquisitions of
companies in niche markets with leading positions. The targeted companies must
have complimentary value added products with which we are familiar. The purchase
of ECA fits our model perfectly."
Worldtex produces covered elastic yarn containing nylon, cotton, and
microfibers. These yarns are woven or knitted into fabrics for a growing number
of applications in apparel and home furnishings because stretch yarn offers
durability, shape retention, enhanced styling and most important of
all -- comfort.
