-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EZQBKQkSr2sQKwJNqr9+qB7BID3emu0hM/+hxmQtmbSvQFPfNsc+JDxItvmcWCdY pDFk2Ehqd8c5FIBG3h2LcQ== 0000950117-96-001618.txt : 19961225 0000950117-96-001618.hdr.sgml : 19961225 ACCESSION NUMBER: 0000950117-96-001618 CONFORMED SUBMISSION TYPE: PRE 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970214 FILED AS OF DATE: 19961224 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BELDING HEMINWAY CO INC /DE/ CENTRAL INDEX KEY: 0000011027 STANDARD INDUSTRIAL CLASSIFICATION: TEXTILE MILL PRODUCTS [2200] IRS NUMBER: 131574754 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: PRE 14A SEC ACT: 1934 Act SEC FILE NUMBER: 001-03462 FILM NUMBER: 96685985 BUSINESS ADDRESS: STREET 1: 1430 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10018 BUSINESS PHONE: 2125564700 PRE 14A 1 BELDING HEMINWAY COMPANY, INC SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant [x] Filed by a Party other than the Registrant [ ] Check the appropriate box: [x] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [ ] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to 'ss.'240.14a-11(c) or 'ss.'240.14a-12 BELDING HEMINWAY COMPANY, INC. (Name of Registrant As Specified In Its Charter) N/A (Name of Person(s) Filing Proxy Statement if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [x] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or Item 22(a)(2) of Schedule 14A. [ ] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. 1) Title of each class of securities to which transaction applies: N/A 2) Aggregate number of securities to which transaction applies: N/A 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11: N/A 4) Proposed maximum aggregate value of transaction: N/A 5) Total fee paid: N/A [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: N/A 2) Form, Schedule or Registration Statement No.: N/A 3) Filing Party: N/A 4) Date Filed: N/A BELDING HEMINWAY COMPANY, INC. 1430 BROADWAY NEW YORK, NEW YORK 10018 NOTICE OF SPECIAL MEETING OF STOCKHOLDERS February 14, 1997 TO THE STOCKHOLDERS OF BELDING HEMINWAY COMPANY, INC. NOTICE is hereby given that a Special Meeting (the "Meeting") of Stockholders of BELDING HEMINWAY COMPANY, INC. (the "Company"), a Delaware corporation, will be held at the Company's executive offices, 1430 Broadway, 12th Floor, New York, New York, on Friday, February 14, 1997 at 10:00 a.m. for the following purposes: 1. To consider and vote upon a proposal to approve (A) the Asset Purchase Agreement dated as of December 12, 1996 (the "Sale Agreement"), among the Company, The Belding Thread Group, LLC, Danfield Threads, Inc., Culver International, Inc., American Collars, Inc. and The Bridge Realty Company and Hicking Pentecost PLC and its subsidiary, HP Belt Acquisition Corporation, (B) the sale (the "Sale") of substantially all the business, operations and assets of the Company and its subsidiaries related to the manufacturing, marketing and sale of industrial and consumer thread, including sewing threads and certain non-sewing yarns (collectively, the "Thread Division"), for an aggregate cash consideration of $54,924,200, subject to adjustment, plus the assumption of certain liabilities, as contemplated by the Sale Agreement, (C) the amendment to the Company's Restated Certificate of Incorporation to change the name of the Company to Carlyle Industries, Inc., effective upon the consummation of the Sale, and (D) the other transactions contemplated by the Sale Agreement; and 2. To transact such other business as may properly come before the Meeting or any adjournment thereof. All the above matters are more fully described in the accompanying Proxy Statement. The Board of Directors has fixed the close of business on January 10, 1997 as the date for the determination of stockholders entitled to notice of, and to vote at, the Meeting. A list of stockholders entitled to vote at the Meeting will be open to examination by stockholders during ordinary business hours for a period of ten (10) days prior to the Meeting at the executive offices of the Company, 1430 Broadway, New York, New York 10018. The list will also be available at the Meeting. By order of the Board of Directors, EDWARD F. COOKE Secretary New York, New York January __, 1997 WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENVELOPE PROVIDED. IF YOU ATTEND THE MEETING, YOU MAY REVOKE THE PROXY AND VOTE YOUR SHARES IN PERSON. BELDING HEMINWAY COMPANY, INC. 1430 Broadway New York, New York 10018 SPECIAL MEETING OF STOCKHOLDERS PROXY STATEMENT Approximate Date of Mailing: January , 1997 The enclosed Proxy (the "Proxy") is solicited on behalf of the Board of Directors (the "Board") of Belding Heminway Company, Inc. (the "Company") for use at a Special Meeting of Stockholders to be held at the time and place set forth in the foregoing notice and at any adjournment thereof (the "Meeting"). At the Meeting, the Company's stockholders will consider and vote upon a proposal to approve (A) the Asset Purchase Agreement dated as of December 12, 1996 (the "Sale Agreement"), among the Company, The Belding Thread Group, LLC, Danfield Threads, Inc., Culver International, Inc., American Collars, Inc. and The Bridge Realty Company (collectively, the "Sellers"); and Hicking Pentecost PLC ("Hicking Pentecost") and its subsidiary, HP Belt Acquisition Corporation ("Buyer"), (B) the sale (the "Sale") of substantially all the business, operations and assets of the Company and its subsidiaries related to the manufacturing, marketing and sale of industrial and consumer thread, including sewing threads and certain non-sewing yarns (collectively, the "Thread Division"), for an aggregate cash consideration of $54,924,200, subject to adjustment, plus the assumption of certain liabilities, as contemplated by the Sale Agreement, (C) the amendment to the Company's Restated Certificate of Incorporation to change the name of the Company to Carlyle Industries, Inc., effective upon the consummation of the Sale, and (D) the other transactions contemplated by the Sale Agreement. The Company's Board of Directors unanimously recommends that the Company's stockholders approve the Sale Agreement, the Sale and the other transactions contemplated by the Sale Agreement (collectively, the "Sale Transaction"). The Company has two classes of outstanding voting securities entitled to be voted at the Meeting: Common Stock, par value $.01 per share ("Common Stock"), and Preferred Stock, par value $.01 per share ("Preferred Stock"). The Common Stock and the Preferred Stock are referred to herein together as the "Capital Stock" of the Company. Each outstanding share of Capital Stock is entitled to one vote. Unless otherwise stated, the Common Stock and the Preferred Stock will vote together as a single class on all matters submitted for a stockholders' vote at the Meeting. The Board has fixed January 10, 1997 as the record date (the "Record Date") for the determination of stockholders entitled to notice of, and to vote at, the Meeting. At the close of business on January 10, 1997, there were outstanding and entitled to vote 7,388,282 shares of Common Stock and 20,805,060 shares of Preferred Stock. 2 SUMMARY The following is a summary, is not complete and is qualified in its entirety by reference to the more detailed information set forth elsewhere in this Proxy Statement, including the appendices hereto, which stockholders are urged to read in its entirety. THE MEETING TIME, PLACE, AND PURPOSE The Special Meeting will be held at 10:00 a.m. on Friday, February 14, 1997 at the Company's executive offices, 1430 Broadway, 12th Floor, New York, New York to vote upon the proposal to approve the Sale Transaction. REQUIRED VOTE. Approval of a majority of the 28,193,345 shares of the Capital Stock outstanding on the Record Date has been established as a requirement for the approval of the Sale Transaction in order to comply with the provisions of Section 271 of the Delaware General Corporation Law which requires such approval for the sale of all or substantially all of a corporation's assets since that provision may be applicable to the Sale Transaction. Noel Group, Inc. ("Noel") has irrevocably agreed with Hicking Pentecost and the Buyer to vote for approval of the Sale Transaction. As Noel holds 76.3% of the Capital Stock of the Company, Noel's vote is sufficient to approve the Sale Transaction. See "The Meeting." RECOMMENDATION The Board of Directors believes that the Sale Transaction is in the best interest of, and is fair to, the Company and its stockholders. The Special Committee of the Board of Directors, which was established to determine the fairness of the terms of the Sale Transaction to the Company's Common Stockholders, believes that the Sale Transaction is fair to the holders of Common Stock. The Board of Directors unanimously recommends that stockholders vote FOR approval of the Sale Transaction. See "The Sale Transaction - Recommendation of the Board of Directors." The Bridgeford Group, Inc. ("Bridgeford") was retained by the Company to identify and analyze strategic alternatives for the Company. Bridgeford has delivered a written opinion, dated December 12, 1996, to the Board of Directors of the Company to the effect that, as of the date of its opinion, based upon the considerations and subject to the assumptions and limitations set forth in such opinion, the proposed Sale as set forth in the Sale Agreement is fair to the Company and its stockholders, from a financial point of view. Stockholders should read the opinion of Bridgeford, a copy of which opinion is included as Appendix A to this Proxy Statement. See " The Sale Transaction - Opinion of Bridgeford." Advest, Inc. ("Advest") was retained by the Special Committee and has delivered a written opinion, dated December 10, 1996, to the Special Committee to the effect that, as of the date of its opinion, based upon the considerations and subject to the assumptions and limitations set forth in such opinion, the proposed Sale is fair to the holders of Common Stock, from a 3 financial point of view. Stockholders should read the opinion of Advest, a copy of which opinion is included as Appendix B to this Proxy Statement. See " The Sale Transaction - Opinion of Advest." THE SALE TRANSACTION REASONS FOR THE SALE The Board of Directors unanimously approved the proposed Sale Transaction, and recommends that stockholders approve the proposed Sale Transaction, for the reasons discussed below under "The Sale Transaction - Recommendation of the Board of Directors; Reasons for the Sale" including the Board's belief that the total consideration to be received by the Company in the Sale represents an attractive valuation for the Thread Division. TERMS OF THE SALE Pursuant to the terms of the Sale Agreement, the Buyer has agreed to pay $54,924,200 in cash, subject to adjustment, and to assume certain liabilities of the Company relating to the assets and business to be transferred with the exception of certain excluded liabilities. A copy of the Sale Agreement is included as Appendix C to this Proxy Statement. For a more particular description of the Sale Agreement and the assets and liabilities to be transferred to the Buyer and to be retained by the Company, see "The Sale Transaction - Terms of the Sale Agreement." CONDITIONS TO THE SALE Consummation of the Sale is subject to the satisfaction of a number of conditions, including obtaining the requisite stockholder approvals, the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the successful completion of an underwritten offering of securities by Hicking Pentecost. See "The Sale Transaction - Terms of the Sale Agreement" and "Certain Information Concerning Hicking Pentecost and the HP Financing." CONDUCT OF BUSINESS AFTER THE SALE; USE OF PROCEEDS After completion of the proposed Sale of the Thread Division, the button business (the "Button Division") will constitute the sole business of the Company. Although the Board has no current intention of selling the Button Division, the Board will continue to explore all alternatives which it believes are in the best interests of the Company's stockholders. The Company plans to use the cash proceeds from the Sale to repay its outstanding bank indebtedness. The Company may use the remainder of the proceeds, net of taxes and expenses of the Sale, for general corporate purposes, to finance additional growth in the Button Division, or for acquisitions, as yet unidentified. The Company may also use the proceeds to pay accrued dividends on the Preferred Stock or to redeem shares of such stock in accordance with the terms of the Company's Restated Certificate of Incorporation if the Company is not restricted from making such payments under the terms of any credit facility or other restrictive agreements then in effect. See "Unaudited Pro Forma Consolidated Financial Statements" and "The Sale Transaction - Potential Effect of Sale upon Holders of Common Stock and Preferred Stock." 4 Under the terms of the Sale Agreement, the Company has agreed to change its name upon consummation of the Sale and the Sellers have agreed to cease using certain names in the conduct of their business. Accordingly, if the proposed Sale is approved, the Company must amend its Restated Certificate of Incorporation to change the Company's name. The Board of Directors proposes to change the name of the Company to "Carlyle Industries, Inc.". Approval of the proposed Sale Transaction includes the approval to amend the Restated Certificate of Incorporation to change the name of the Company to "Carlyle Industries, Inc.". POTENTIAL EFFECT OF SALE UPON HOLDERS OF COMMON STOCK AND PREFERRED STOCK The consummation of the Sale Transaction could, under certain circumstances, result in the acceleration of the payment of dividend arrearages on, and the partial or complete redemption of, the Company's Preferred Stock, principally held by Noel. For a more detailed discussion of the potentially differing effects of the Sale Transaction on the holders of the two classes of the Company's stock, see "The Sale Transaction - Potential Effects of Sale upon Holders of Common Stock and Preferred Stock". NO DISSENTERS' RIGHTS OF APPRAISAL Under the General Corporation Law of the State of Delaware, stockholders do not have appraisal rights in connection with the Sale. See "The Sale Transaction - Absence of Dissenters' Rights of Appraisal." PRO FORMA FINANCIAL INFORMATION See "Capitalization" and "Unaudited Pro Forma Consolidated Financial Statements" for certain pro forma financial information with respect to the Sale Transaction. 5 THE MEETING As of the Record Date, 28,193,342 shares of Capital Stock of the Company were issued and outstanding and entitled to vote at the Meeting. The holders of a majority of such shares, present in person or represented by proxy, shall constitute a quorum at the Meeting. Any stockholder present in person or by proxy who abstains from voting on any particular matter described herein will be counted for purposes of determining a quorum. An abstention from voting or a broker's non-vote by a stockholder will have the same effect as a vote against such matter by such stockholder. Approval of a majority of the 28,193,342 shares of Capital Stock of the Company outstanding on the Record Date has been established as a requirement for the approval of the Sale Transaction in order to comply with the provisions of Section 271 of the Delaware General Corporation Law which requires such approval for the sale of all or substantially all of a corporation's assets since that provision may be applicable to the Sale Transaction. Noel Group, Inc. ("Noel") has irrevocably agreed with Hicking Pentecost and the Buyer to vote for approval of the Sale Transaction. As Noel holds 76.3% of the Capital Stock of the Company, Noel's vote is sufficient to approve the Sale Transaction. Proxies in the accompanying form, which are properly executed and duly returned to the Company and not revoked prior to exercise, will be voted in accordance with the instructions contained therein. If a proxy is executed and returned without instructions as to how it is to be voted, such proxy will be voted in favor of the proposal to approve the Sale Transaction. Each proxy granted pursuant to this solicitation is revocable and may be revoked at any time prior to its exercise, provided written notice of revocation is received by the Secretary of the Company prior to the Meeting. A stockholder who attends the Meeting in person may, if he or she wishes, vote by ballot at the Meeting, thereby canceling any proxy previously given by such stockholder. Officers and employees of the Company may solicit proxies by personal interview, mail, telegraph or telephone. The Company may also retain third parties to solicit proxies from stockholders. Brokers, bankers and other nominees will be reimbursed for out-of-pocket and other reasonable clerical expenses incurred in obtaining instructions from beneficial owners of the Company's Capital Stock. The cost of preparing this Proxy Statement and all other costs in connection with solicitation of proxies for the Meeting are being borne by the Company. Even if you plan to attend the Meeting in person, please sign, date and return the enclosed proxy promptly. If you attend the Meeting, your proxy will be voided at your request and you can vote in person. A postage-paid return-addressed envelope is enclosed for your convenience. Your cooperation in giving this matter your immediate attention and in returning your proxy will be appreciated. THE SALE TRANSACTION BACKGROUND In March 1996, Hicking Pentecost approached the Company with a view to acquiring either the entire Company or its Thread Division. Shortly thereafter, the Company and Hicking Pentecost entered into a confidentiality agreement with respect to the information concerning the Company 6 that was to be furnished to Hicking Pentecost. In April 1996, the Board engaged Bridgeford to analyze strategic alternatives for the Company, including the opportunities for the sale of the Company. In the course of investigating a sale of the entire Company, Bridgeford contacted entities that Bridgeford and the Company considered potential buyers for the Company. By the end of June, Bridgeford had received no indications of interest in a transaction for the entire Company at a price deemed either fair or reasonable. As Bridgeford had received indications of interest in a transaction for the Thread Division, Bridgeford continued to pursue the possible sale of the Thread Division with potential purchasers. After extensive discussions, in July, Hicking Pentecost orally proposed a valuation of the Thread Division of approximately $62 million, including the assumption of certain long term liabilities. Hicking Pentecost was then allowed to perform a more detailed business due diligence investigation of the Thread Division and was given access to the Company's corporate and divisional management. While Hicking Pentecost performed its additional due diligence, Bridgeford continued its efforts to determine the interest, if any, of other potential purchasers. On August 9, 1996, after negotiations on a possible letter of intent, Hicking Pentecost submitted to the Company a letter of intent (the "Letter of Intent") which set forth some of the basic terms upon which Hicking Pentecost was willing to acquire the Thread Division, subject to a number of contingencies, including a financing contingency. The Letter of Intent did not bind any party to proceed with the Sale Transaction but contained, among other things, two binding provisions: an exclusivity provision which prohibited the Company from pursuing a transaction with, or responding to inquiries from, other proposed purchasers for 60 days; and a non-disclosure provision. At the time of the presentation of the Letter of Intent, representatives of Hicking Pentecost stressed that the implementation of the exclusivity provision was an essential and non-negotiable condition of further negotiations. At that time, no negotiations with other parties were in progress, although an exploratory meeting had been scheduled with another potential purchaser. Given the favorable terms of the Hicking Pentecost offer and the high level of interest expressed by Hicking Pentecost, Bridgeford and management of the Company did not believe that it was in the best interests of the Company to risk losing the possibility of selling the Thread Division to Hicking Pentecost by continuing its discussions with any other potential purchaser. Accordingly, the Company entered into the Letter of Intent which, by its terms, could be terminated by the Company prior to the close of business on August 14, 1996. Bridgeford then cancelled the previously scheduled meeting with the other potential purchaser. During the exclusivity period, the Company received two letters dated August 9, 1996 and August 12, 1996 from the potential purchaser expressing an interest in the acquisition of the entire Company. Neither letter included an estimated valuation, proposed price, indication of intent to finance a proposed transaction, or other proposed transaction terms for the Board to consider. On August 14, 1996, the Board of Directors met to review the terms of the Letter of Intent. At the request of the Board, representatives of Bridgeford attended the meeting and reviewed the strategic alternatives available to the Company. The Board considered maintaining the status quo by refinancing the Company's bank indebtedness and continuing to operate the Thread and Button Divisions; selling the Thread Division to Hicking Pentecost on the terms proposed in the Letter of Intent and continuing to operate the Button Division; selling the Thread Division and the Button Division separately; and variations of these possibilities. The Board and Bridgeford discussed, among other things, the 1995 results of the Thread Division and recent improvements in the results of operations of Thread Division and of the Company, as a whole; the status of the Company's negotiations with potential lenders to refinance the Company's bank indebtedness and the status 7 of the Company's current credit facility (as more particularly described in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources"); the characteristics of the thread industry including increased competition, excess capacity and the competitive advantage enjoyed by companies with international operations; the Hicking Pentecost valuation of the Thread Division as compared to comparable transactions; the ability of the Company to reduce its current bank indebtedness if the sale were consummated on substantially the terms included in Hicking Pentecost's offer; the prospects for, and potential valuation of, the Company's Button Division as a stand-alone business; the potential effect of the sale of the Thread Division on the trading market for and liquidity of the Company's Common Stock; and other relevant factors. The Board and Bridgeford's representatives then proceeded to review the Letter of Intent, commencing with the aggregate consideration of $62 million (which included the assumption of certain liabilities). The Board and its advisors discussed in detail the fairness of the price, and the likelihood that any other buyer would be willing to pay a price equal to or exceeding that offered by Hicking Pentecost for the Thread Division in view of Bridgeford's extensive effort to locate buyers over a considerable period of time. The Board and its advisors also reviewed the various contingencies set forth in the Letter of Intent including, among others, the conclusion of a mutually acceptable agreement, the ability of Hicking Pentecost to obtain financing through both bank borrowing and an equity offering in the United Kingdom and the completion of Hicking Pentecost's due diligence. The directors and the Company's counsel reviewed the likelihood of these contingencies being met; the tax effect of the proposed Sale; the status of the Company's continued listing on the New York Stock Exchange if the Sale were effected; and the position of Noel as a holder of substantial blocks of both Preferred and Common Stock of the Company. The Board reviewed the letters received from the potential purchaser referred to above, noting that the letters contained no proposals for a transaction, and discussed the likelihood of that company submitting an offer for either the Company or the Thread Division, the numerous attempts by Bridgeford to contact that company, delays by that company in responding to such contacts, and the preliminary nature of the discussions proposed to take place. The Board then weighed the advantages to be gained by proceeding with Hicking Pentecost under the terms set forth in the Letter of Intent, which the Board had been advised were highly advantageous terms, and the likelihood of Hicking Pentecost terminating discussions if the Board rejected the Letter of Intent in the form presented, which included the exclusivity clause and provisions on non-disclosure. After additional discussion, the Board approved the Letter of Intent, thus rendering it effective for the 60-day period commencing on August 9, 1996. The Board then appointed a Negotiating Committee consisting of Ms. Karen Brenner, then the Chairman of the Company, and Mr. Gregory H. Cheskin, then President and Chief Executive Officer of the Company, to negotiate a definitive agreement between the Company and Hicking Pentecost and to present such agreement to the Board for consideration, which authority was later granted solely to Ms. Brenner upon Mr. Cheskin's resignation from his positions with the Company. At its August 14, 1996 meeting, the Board also approved the retention of Zimet, Haines, Friedman & Kaplan, which also serves as counsel to Noel, to assist the Negotiating Committee and to act as special counsel to the Company in connection with the transaction. The Board also appointed a Special Committee consisting of Messrs. Robert A. Levinson, Alan E. Woltz and Gilbert H. Lamphere, to review any agreement submitted to the Board with a view to determining the fairness of that agreement to the holders of Common Stock, to report its unanimous conclusion in that 8 respect to the Board and to retain legal counsel and such financial or other advisors as such committee deemed appropriate. The Special Committee retained Morrison & Foerster LLP as its legal counsel and Advest as its financial advisor. For a description of the shares of Preferred Stock and Common Stock of the Company and the shares of Common Stock of Noel beneficially owned by the directors of the Company (including the Special Committee) and present and past relationships between the directors and Noel, see "Principal Stockholders" and "Equity Securities Beneficially Owned by the Directors and Executive Officers" including the footnotes to the charts set forth therein. Because the negotiations with Hicking Pentecost were progressing and it was believed that discussions with rival buyers would jeopardize the eventual consummation of the Sale, the Company did not institute discussions with any other potential buyers and extended the exclusivity provisions of the Letter of Intent to October 21, 1996. Bridgeford received a letter dated November 1, 1996 from an additional potential buyer indicating that it was prepared to offer between $95 and $105 million to purchase the Company, including the Thread Division, subject to the successful completion of due diligence. The letter stated that the proposed buyer would require exclusivity during the due diligence period and a "break-up" fee of $500,000 if the Company completed another transaction for some or all of its business during such period. Bridgeford requested additional information on the structure of the proposed transaction and on the ability of the prospective buyer to finance the proposed offer. Negotiations towards a definitive agreement with, and the completion of due diligence by, Hicking Pentecost continued into December 1996. On December 10, 1996, the Board of Directors met to consider the terms of the proposed transaction. At that time, the Board reviewed the other potential buyer's letter to Bridgeford dated November 1, 1996 and a second letter dated December 9, 1996 directed to the Company, which restated the proposal to acquire the business of the Company and indicated that a financed bid could be submitted within fourteen days. Bridgeford noted that the proposed offer could not be accurately evaluated because the structure of the proposed transaction and the extent to which the Company's liabilities were included in the proposed consideration was not specified; the proposed offer was subject to financing, the terms and source of which had not been supplied; and the proposed offer was subject to the successful completion of the other potential buyer's due diligence, which could not be assured. With the assistance of Bridgeford, the Board considered this information in the context of the advanced negotiations with Hicking Pentecost; the time required for the other potential buyer to complete its due diligence and to negotiate the terms of a transaction; the ability of the other potential buyer to obtaining financing; the potential buyer's request for exclusivity and a break-up fee; the likelihood that delaying the execution of the Sale Agreement would seriously jeopardize the proposed transaction with Hicking Pentecost and other relevant factors. The Board also considered the fact that, if the Company entered into the Sale Agreement, the Company would not be in a position to accept a more advantageous offer were such an offer to be received, as Hicking Pentecost was requiring a "no shop" and no solicitation covenant to be included in the Sale Agreement. The Board also noted that, as a precondition of executing the proposed Sale Agreement, Hicking Pentecost was continuing to require Noel simultaneously to execute an irrevocable agreement to vote in favor of the proposed Sale Transaction at the Meeting. The Board concluded that it was in the best interest of the shareholders to proceed with the Sale Transaction. 9 After reviewing the proposed terms of the Sale Agreement and the prospects for the Company if the Sale Transaction were not approved and after receiving the preliminary oral opinion of Bridgeford, the Board of Directors unanimously voted to authorize the execution of the Sale Agreement and to recommend that the shareholders of the Company approve the terms of the Sale Transaction at the Meeting, subject to the determination by the Special Committee that the terms of the Sale Transaction were fair to the holders of Common Stock and the receipt of Bridgeford's written fairness opinion. In the course of performing its mandate of determining the fairness of the terms of the proposed Sale Agreement to the holders of Common Stock, the Special Committee engaged, consulted with and relied upon Advest and such other professional advisors, and made such inquiries and conducted such meetings and other deliberations, as the Special Committee and such advisors deemed appropriate. The Special Committee was provided with copies of the Sale Agreement for its review prior to its execution, and members of the Company's management and its financial advisors and counsel were made available to the Special Committee and its advisors. The Special Committee was also provided with copies of the correspondence, discussed above, that had been received by the Company and Bridgeford from other potential buyers. The Special Committee's advisors had an opportunity to discuss issues relating to such other potential buyers (as well as such other issues as they deemed appropriate) with the Company's management, counsel and financial advisors, as did the members of the Special Committee through their participation in meetings of the full Board. In considering the fairness of the terms of the proposed Sale Agreement to the holders of Common Stock, the Special Committee considered such factors as the Special Committee deemed appropriate, including among others, the correspondence from other potential buyers discussed above (considered in the context of management's and Bridgeford's belief as to the likelihood that delaying the execution of the Sale Agreement to negotiate with those potential buyers would seriously jeopardize the proposed transaction with Hicking Pentecost), and the opinion of Advest, more fully described below, that the Sale Transaction is fair, from a financial point of view, to the Company's Common Stockholders. In view of the wide variety of factors considered by the Special Committee, the Special Committee did not quantify or otherwise attempt to assign relative weights to the specific factors it considered. On December 10 and 11, 1996, the Special Committee met to review the final terms of the Sale Agreement and, after further discussion and consultation with its professional advisors, the Special Committee unanimously determined that the terms of the Sale Transaction are fair to the holders of Common Stock. On December 12, 1996, the Company, certain of its subsidiaries, Hicking Pentecost and the Buyer executed the Sale Agreement and Noel, Hicking and the Buyer executed a separate agreement pursuant to which Noel irrevocably agreed to vote in favor of the Sale Transaction at the Meeting. The Company then publicly announced the Sale Transaction. 10 RECOMMENDATION OF THE BOARD OF DIRECTORS The Board of Directors of the Company believes that the Sale Transaction is in the best interests of, and is fair to, the Company and its stockholders. The Special Committee believes that the terms of the Sale Transaction are fair to the holders of Common Stock. The Board of Directors unanimously approved the Sale Transaction, subject to the approval of the stockholders of the Company, and unanimously recommends that the stockholders vote FOR approval of the Sale Transaction at the Meeting. The terms of the Sale Transaction were the result of arm's length negotiations between the Company and Hicking Pentecost and their respective representatives. In the course of reaching their decisions to approve the transaction, the Board of Directors consulted with its professional advisors as well as with management. In voting upon the Sale Transaction, the Board considered in detail all the factors they deemed relevant to their decision, including the attractive valuation for the Thread Division included in the proposed Sale Transaction, the prospects for the Company if the Thread Division were retained in view of the increased competition in the thread industry, the likelihood of selling either the Thread Division or the entire Company to another buyer or buyers on more favorable terms, given the extensive work performed by Bridgeford to locate such other buyers, and the Company's ability to refinance its operations on advantageous terms. After considering these factors and the additional factors discussed above (to which the Board did not assign specific weights) and in consultation with its financial advisors, the Board approved the Sale Transaction, and recommends that the stockholders approve the Sale Transaction. OPINION OF BRIDGEFORD As described above under "Background," at the meeting of the Board of Directors held on December 10, 1996, Bridgeford delivered its oral opinion (subsequently confirmed in writing) to the effect that, based upon the assumptions made, matters considered and limits of the review undertaken, as described in the opinion, the proposed Sale as set forth in the Sale Agreement is fair to the Company and its stockholders from a financial point of view. The full text of Bridgeford's written opinion, dated December 12, 1996, is attached hereto as Appendix A. Stockholders are urged to read the opinion in its entirety including the portions thereof describing the assumptions made, matters considered and limits of the review undertaken by Bridgeford. Bridgeford's opinion is directed only to the fairness from a financial point of view of the cash consideration to be received by the Company and does not constitute a recommendation to any stockholder of the Company as to how the stockholder should vote on the Sale Transaction. The summary of the opinion of Bridgeford set forth in this Proxy Statement is qualified in its entirety by reference to the full text of the opinion. A summary of the terms under which Bridgeford was retained by the Company is set forth below. In arriving at its opinion, Bridgeford reviewed and analyzed (i) publicly available information concerning the Company which Bridgeford believed to be relevant to its inquiry, (ii) financial and operating information with respect to the business, operations and prospects of the Company furnished to Bridgeford by the Company, (iii) a comparison of the historical financial results and present financial condition of the Company with those of other companies which Bridgeford deemed relevant and (iv) a comparison of the financial terms of the proposed transaction with the financial terms of certain other recent transactions which Bridgeford deemed 11 relevant. In addition, Bridgeford had discussions with the management of the Company concerning its businesses, operations, assets, present condition and future prospects, conducted a limited physical inspection of the properties and facilities of the Thread Division and undertook such other studies, analyses and investigations as Bridgeford deemed appropriate. In arriving at its opinion, Bridgeford assumed and relied upon the accuracy and completeness of the financial and other information furnished to Bridgeford and did not make nor obtain any evaluations or appraisals of the assets or liabilities of the Thread Division but did utilize appraisals provided by the Company. Bridgeford's opinion was based upon market, economic and other conditions as they existed on, and could be evaluated as of, the date of Bridgeford's written opinion. No limitations were imposed on Bridgeford with respect to its investigations or procedures in arriving at its opinion. Bridgeford was not retained by the Company with respect to a possible restructuring of the Company's indebtedness; did not express an opinion as to the relative merits of the Sale or any other strategic alternative that might be available to the Company; and was not asked to, and did not, address the effects of the Sale or other strategic alternatives on the financial condition or the solvency of the Company, including the ability of the Company to pay dividends on its Preferred or Common Stock. Based on and subject to the foregoing, Bridgeford prepared and presented to the Board of Directors various financial analyses at the Board's December 10, 1996 meeting. These analyses were confirmed in connection with the delivery of the written opinion and served as a basis for deriving reference ranges for the value of the Thread Division utilizing comparable transaction analysis, comparable company analysis, discounted cash flow analysis and leveraged buyout analysis. In the comparable transaction analysis, Bridgeford reviewed the prices paid in recent acquisitions of companies in the industrial thread industry, comparing in particular the consideration received as a multiple of earnings before interest, taxes, depreciation and amortization (EBITDA") and earnings before interest and taxes ("EBIT"). Of the seven acquisitions reviewed, Bridgeford identified two as relevant from a valuation standpoint due to the comparability of the businesses acquired: namely Hicking Pentecost's 1995 acquisition of Blue Mountain Industries and Ruddick Corporation's 1996 acquisition of Threads USA. In the comparable company analysis, Bridgeford compared the Thread Division to several publicly traded companies in businesses deemed by Bridgeford to be comparable to the Thread Division with respect to, among other things, lines of business, distribution systems and overall size. These companies included Burke Mills, Inc.; Culp, Inc.; Guilford Mills, Inc.; Texfi Industries, Inc.; Thomaston Mills, Inc.; and Unifi, Inc., none of which, Bridgeford noted, were directly comparable to the Thread Division. In particular, Bridgeford reviewed the aggregate valuation of each of these companies as multiples of historical and projected operating results, including EBITDA and EBIT. In the discounted cash flow analysis, Bridgeford used an estimate of future cash flow generated by the Thread Division's operations over a five-year period based on a forecast developed by Bridgeford. Since Belding management's practice has been to generate projected financial results for only one fiscal year in advance, Bridgeford constructed a five year plan using the Company's projections for the year ended December 31, 1997 and Bridgeford estimates for the following four years. Bridgeford's estimates for the years ended December 31, 1998, 1999, 2000 and 2001 assumed 12 modest revenue growth and operating margins constant at their expected levels for the year ended December 31, 1997. Bridgeford also reviewed the Thread Division's historical working capital requirements to construct an estimated schedule of working capital requirements for the years ended December 31, 1997, 1998, 1999, 2000 and 2001. The Thread Division's free cash flows, defined as EBIT before amortization ("EBITA") taxed at 40% ("Unlevered Net Income") plus depreciation, less capital expenditures, less increases in net working capital, were discounted to present value at discount rates ranging from 10% to 15%, reflecting the estimated weighted average after-tax cost of capital. Bridgeford multiplied EBITDA for the fifth year (fiscal 2001) by terminal value multiples of EBITDA ranging form 6.0 to 6.5, and discounted to present value the amounts derived thereby using the same ranges of discount rates. In a leveraged buyout analysis, the price a financial buyer can afford to pay for a company, given certain assumptions regarding capital structure, interest rates, debt repayment requirements and required rates of return, is evaluated. In its leveraged buyout analysis of the Thread Division, Bridgeford used the same operating results and working capital requirement assumptions it employed in its discounted cash flow analysis and assumed an appropriate post-transaction capital structure to determine the value a financial acquiror would consider appropriate for the Thread Division. After reviewing the results of each of the foregoing analyses, and considering the current market and economic environment and the extensive marketing effort undertaken in connection with the sale of the Thread Division, which involved contacting fourteen potential strategic acquirors, only five of which expressed any interest in investigating a possible transaction, Bridgeford developed a reference range for the Thread Division of between $45 million and $65 million. In this connection, Bridgeford considered the comparable transaction analysis as the most meaningful analysis in developing such reference range. The foregoing does not purport to be a complete description of Bridgeford's written opinion or its presentations to the Board. Bridgeford believes that its analyses must be considered as a whole and that selecting portions of those analyses or the factors considered by Bridgeford, rather than considering all of analyses and factors, could create an incomplete view of the procedures underlying its opinion. The process of preparing a fairness opinion involves many procedures, analyses and factors and is not readily susceptible to a partial or summary description. In arriving at its opinion, Bridgeford made numerous assumptions with respect to industry performance, business and economic conditions and other matters, many of which are beyond the Company's control. Bridgeford's analyses, estimates and views as to values developed in connection with its opinion are not necessarily indicative of actual values, which may be significantly more or less, and do not purport to be appraisals or necessarily reflect the prices at which businesses may actually be sold. Because estimates are inherently subject to uncertainty, none of the Company, Bridgeford or any other person assumes responsibility for their accuracy. The full text of Bridgeford's written opinion is set forth in Appendix A to the Proxy Statement. Bridgeford engages in providing financial advisory services, on a fee basis, primarily to corporations in connection with mergers, acquisitions, divestitures, leveraged buy-outs, joint ventures, reorganizations, recapitalizations and other extraordinary corporate transactions. The Company selected Bridgeford to render its opinion on the basis of its expertise. Bridgeford has provided financial advisory services to Noel and certain of Noel's subsidiaries in the past, has 13 received customary fees for those services and may provide similar services to Noel and its subsidiaries in the future. The Company retained Bridgeford for the purposes of (i) identifying and analyzing strategic alternatives for the Company, including but not limited to a sale of the Company, (ii) advising the Company concerning an appropriate course of action which would be in the best interests of the Company, whether or not identified by Bridgeford and (iii) as requested by the Company, participating on the Company's behalf in negotiations concerning such alternatives. Under the terms of the agreement pursuant to which the Company retained Bridgeford (the "Bridgeford Agreement"), Bridgeford shall be paid a fee for its services of approximately $928,000, contingent upon the closing of the Sale. The Company has agreed to indemnify and hold harmless Bridgeford against any losses, claims, damages or liabilities to which it may become subject as a result of its rendering of services pursuant to the Bridgeford Agreement and to reimburse Bridgeford for its reasonable out-of-pocket expenses not in excess of $50,000 incurred in connection with its rendering of those services. OPINION OF ADVEST At the meeting of the Special Committee held on December 10, 1996, Advest delivered its oral opinion (subsequently confirmed in writing) to the effect that, based upon the assumptions made, matters considered and limits of the review undertaken, as set forth in such opinion, the proposed Sale as set forth in the Sale Agreement is fair, from a financial point of view, to the holders of Common Stock. The full text of Advest's written opinion, dated December 10, 1996, is attached hereto as Appendix B. Stockholders are urged to read the opinion in its entirety for the assumptions made, matters considered and limits of the review undertaken by Advest. Advest's opinion is directed only to the fairness from a financial point of view of the cash consideration to be received by the Company and does not constitute a recommendation to any stockholder of the Company as to how such stockholder should vote on the Sale Transaction. The summary of the opinion of Advest set forth in this Proxy Statement is qualified in its entirety by reference to the full text of such opinion. A summary description of the terms under which Advest was retained by the Company is set forth below. In arriving at its opinion, Advest reviewed and analyzed: (i) publicly available information concerning the Company, its outstanding securities and such other information as Advest deemed appropriate, (ii) financial and operating information with respect to the business and prospects of the Company furnished to Advest by the Company or its advisors, (iii) a comparison of the financial results and condition of the Company with those of other companies that Advest deemed relevant, and (iv) a comparison of the financial terms of the proposed transaction with those of certain other recent transactions that Advest deemed relevant. In addition, Advest had discussions with the Company's management concerning its present condition and future prospects. In rendering its opinion, Advest relied upon the accuracy of the financial and other information provided to Advest by the Company and its Advisors and assumed the accuracy and completeness of such information and did not attempt to independently verify any of such information. In arriving at its opinion, Advest did not conduct a physical inspection of the 14 properties and facilities of the Company. Advest's opinion is based on conditions as they existed and could be evaluated on December 10, 1996. Advest, as part of its investment banking business is engaged in the valuation of securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities and private placements, and in valuations for corporate and other purposes. The Special Committee selected Advest to render its opinion on the basis of such firm's expertise. Advest has also performed certain financial advisory services for Noel and certain of Noel's other subsidiaries in the past, and has received customary fees for such services and may provide such services to Noel and its subsidiaries in the future. No limitations were imposed by the Special Committee upon Advest with respect to the investigations made or procedures followed by Advest in rendering its opinion as to the fairness of the proposed Sale, from a financial point of view, to the holders of Common Stock. Advest did not express an opinion as to the relative merits of the Sale and other strategic alternatives that may be available to the Company. Based upon and subject to the foregoing, Advest prepared and presented to the Special Committee certain financial analyses at its December 10, 1996 meeting, which analyses were subsequently confirmed in connection with its written opinion. Such financial analyses included a sale process analysis, a comparable company analysis, a comparable transactions analysis, and a discounted cash flow analysis, which are more particularly described below. In its sale process review, Advest reviewed the sale process which was conducted by Bridgeford in the marketing of the Thread Division and found it to be sufficiently comprehensive. In its comparable transaction analysis, Advest compared the proposed sale price for the Thread Division with selected comparable transactions in the yarn, thread and fabric industries. The transactions evaluated by Advest included the acquisitions of: Threads USA by Ruddick Corporation; Blue Mountain Industries by Hicking Pentecost; Rossville Companies by Culp, Inc.; Belding Heminway by Noel Group, Inc; Pioneer Corporation by Unifi, Inc.; Vintage Yarns by Unifi, Inc.; and MacField by Unifi, Inc. Advest compared Hicking Pentecost's offer for the Thread Division with certain averages and medians for the group as a whole and separately with the average of only the Threads USA and Blue Mountain Industries acquisitions, which were shown separately based on Advest's belief that these two target companies were most representative of Belding's Thread Division from a business point of view and were the most recent acquisitions in the yarn, thread and fabric industries. In its comparable company analysis, Advest compared the proposed sale price for the Thread Division with eight comparable threads, yarns and fabrics manufacturers and marketers: Burke Mills, Inc.; Culp, Inc.; Guilford Mills, Inc.; Texfi Industries, Inc.; Thomaston Mills, Inc.; Unifi, Inc.; Concord Fabrics, Inc. and Johnston Industries, Inc. Utilizing historical and projected operating data for the Thread Division provided to Advest by Bridgeford and the Company's management, Advest compared the proposed sale price with certain average and median valuation measures for the publicly traded comparable group. In its discounted cash flow analysis, Advest undertook a series of discounted cash flow studies based on the Button Division's projected operating income (EBIT) for the years 1997 15 through 2001. Based on projections supplied to Advest by management, Advest determined a range of present values for the Company. Based on the foregoing, Advest concluded that the proposed aggregate purchase price for the Thread Division was within the range of fairness, from a financial point of view. The summary set forth does not purport to be a complete description of Advest's written opinion or Advest's oral presentations to the Special Committee. Advest believed that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it, without considering all factors an analyses, could create an incomplete view of the processes underlying its opinion. The preparation of a fairness opinion is a complex process and not necessarily susceptible to partial analysis or summary description. In its analyses, Advest made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the Company's control. Any estimates contained therein are not necessarily indicative of actual values, which may be significantly more or less favorable than as set forth therein. Estimates of value of companies do not purport to be appraisals or necessarily reflect the prices at which companies may actually be sold. Because such estimates are inherently subject to uncertainty, none of the Company, Advest or any other person assumes responsibility for their accuracy. The Special Committee retained Advest to render an opinion with respect to the fairness, from a financial point of view, to the Company's common stockholders of the consideration to be received in the proposed sale of the Thread Division. The opinion to be delivered was not intended to address the Company's underlying business decision to effect the sale of the Thread Division. Under the terms of the agreement pursuant to which the Company retained Advest, as amended (the "Advest Agreement"), the Company agreed to pay Advest $50,000 for its services if no opinion was required, and $125,000 for its services if an opinion was requested. The Company also agreed to indemnify and hold harmless Advest against any losses, claims, damages or liabilities to which it may become subject as a result of its rendering of services pursuant to the Advest Agreement and to reimburse Advest for their reasonable out-of-pocket expenses not in excess of $5,000 incurred during the period of their engagement with respect to the services to be rendered by them. CERTAIN INFORMATION CONCERNING HICKING PENTECOST AND THE HP FINANCING Hicking Pentecost. Hicking Pentecost is a public limited company registered in England and Wales with its principal executive office at 19 Stanwell Road, Penarth, Vale of Glamorgan, United Kingdom CF64 2EZ. The Buyer, a Delaware corporation and an indirect, wholly owned subsidiary of Hicking Pentecost, was recently organized for the purpose of acquiring the assets of the Thread Division. The Buyer has not conducted any other business. Hicking Pentecost is a leading manufacturer of specialty threads for non-clothing applications, with manufacturing facilities located worldwide. Hicking Pentecost also manufactures knitwear products and industrial products for the construction and water industries. At March 31, 1996, Hicking Pentecost had total assets of 70.7 million pounds sterling (approximately $118.07 million based on the prevailing rate of exchange on December 20, 1996), and turnover and profit attributable to shareholders of 85.9 million pounds sterling and 4.8 million pounds sterling, respectively (approximately $143.5 million and $8.02 million, respectively, based on the prevailing 16 rate of exchange on December , 1996), for its fiscal year ended March 31, 1996. Hicking Pentecost's ordinary shares are traded on the London Stock Exchange (the "LSE"). HP Financing. Hicking Pentecost expects to finance the Purchase Price to be paid to the Company at the Closing of the Sale through (i) proceeds received by Hicking Pentecost from a conditional placing and open offer (the "Placing and Open Offer") of units of its convertible non-interest bearing unsecured loan stock (the "Stock Units") in the United Kingdom and (ii) bank facilities available to Hicking Pentecost. The Sale is conditional upon the successful consummation of the Placing and Open Offer. Placing and Open Offer. A portion of the Purchase Price will be financed by the proceeds of the Placing and Open Offer of 7,924,199 Stock Units, which proceeds are expected to amount to approximately 22 million pounds sterling (approximately $36.7 million based on the prevailing rate of exchange on December 20, 1996), net of expenses. The Placing and Open Offer has been underwritten by Baring Brothers International Limited ("Baring Brothers") pursuant to a placing agreement dated December 12, 1996 (the "Placing Agreement"), between Hicking Pentecost and Baring Brothers. The Stock Units will be placed conditionally by Credit Lyonnais Securities (trading as Credit Lyonnais Laing), as broker, on behalf of Baring Brothers, principally with institutional investors. Under the Open Offer, Baring Brothers is inviting Qualifying Shareholders (as defined below) to apply for the allotment of and/or subscribe for Stock Units at the issue price of 300p per Stock Unit on the basis of one Stock Unit for every three ordinary shares of Hicking Pentecost held by such shareholders on December 5, 1996 (the "HP Record Date"), up to their respective maximum pro rata entitlements. "Qualifying Shareholders" are those holders of ordinary shares of Hicking Pentecost recorded on its register of members on the HP Record Date, excluding overseas shareholders. The Stock Units will constitute non-interest bearing and unsecured obligations of Hicking Pentecost. Upon completion of the Sale, the Stock Units will automatically convert into new ordinary shares (the "New Shares") of Hicking Pentecost. Assuming the applicable conversion rate is one New Share for each Stock Unit, conversion of the Stock Units will result in the issue of 7,924,199 New Shares (representing approximately 25% of the issued ordinary share capital of Hicking Pentecost as enlarged by the conversion of Stock Units). In the event that the completion of the Sale does not take place on or before March 31, 1997 or the Sale Agreement is terminated prior to that date, the Stock Units will be repaid at the issue price on April 21, 1997, or, if earlier, 21 days after the date on which the Sale Agreement is terminated. The obligation of Baring Brothers to complete the Placing and Open Offer is subject to certain customary conditions, including: the passing of a resolution (without amendment) at Hicking Pentecost's extraordinary general meeting of shareholders and not, except with the written consent of Baring Brothers, at any adjournment thereof; none of Hicking Pentecost's representations, warranties or undertakings contained in the Placing Agreement being breached or untrue or inaccurate or misleading at the date of the Placing Agreement and there being no change in circumstances such that if repeated immediately prior to the commencement of dealings in the Stock Units on and with the authority of the LSE (the "Commencement of Dealings") by reference to the facts and circumstances subsisting at such time any of such representations, warranties or undertakings would be breached or untrue or inaccurate or misleading; the Sale Agreement not having been terminated, and there being no breach which would give rise to such a termination 17 prior to the Commencement of Dealings; there not having arisen any requirement for Hicking Pentecost to publish a Supplementary Prospectus (as defined in the Placing Agreement); and the agreement of the LSE to admission of the Stock Units and the New Shares to the official list of LSE and (in the case of the Stock Units) this becoming effective by the dissemination of the appropriate notice under the Listing Rules of the LSE by not later than 8:30 a.m. on January 14, 1997. In addition, Baring Brothers may in its absolute discretion elect to terminate the Placing Agreement if, at any time before the Commencement of Dealings, (i) Hicking Pentecost shall fail to comply with any of its obligations under the Placing Agreement which failure would, in the sole opinion of Baring Brothers, prejudice the success of the Placing and Open Offer or (ii) any press or public announcement concerning Hicking Pentecost (and its subsidiaries and subsidiary undertakings), or the Placing and Open Offer, which is material in the context of the Placing and Open Offer, has been made otherwise than in compliance with the Placing Agreement. The Stock Units, the application forms and the underlying ordinary shares of Hicking Pentecost have not and will not be registered under the Securities Act of 1933, as amended (the "U.S. Securities Act"), or under the securities laws of any state of the United States, and may not be offered, sold, delivered or transferred directly or indirectly within the United States, except in certain transactions exempt from the registration requirements of the U.S. Securities Act. This Proxy Statement does not constitute an offer to sell or the solicitation of an offer to purchase Stock Units or the underlying ordinary shares of Hicking Pentecost. Bank Facilities. Hicking Pentecost is a party to credit facility agreements (the "HP Bank Agreements") with various banks. Hicking Pentecost currently has available borrowing capacity under the HP Bank Agreements of approximately 20 million pounds sterling (approximately $33.4 million based on the prevailing rate of exchange on December 20, 1996). The HP Bank Agreements contain customary representations and warranties, covenants and events of default. CONDUCT OF BUSINESS AFTER THE SALE; USE OF PROCEEDS After completion of the proposed Sale of the Thread Division, the Button Division will constitute the sole business of the Company. Although the Board has no current intention of selling the Button Division, the Board will continue to explore all alternatives which it believes are in the best interests of the Company's stockholders. The Company plans to use the cash proceeds from the Sale to repay its outstanding bank indebtedness. The Company may use the remainder of the proceeds, net of taxes and expenses of the Sale, for general corporate purposes, to finance additional growth in the Button Division, or for acquisitions, as yet unidentified. The Company may also use the proceeds to pay accrued dividends on the Preferred Stock or to redeem shares of such stock in accordance with the terms of the Company's Restated Certificate of Incorporation if the Company is not restricted from making such payments under the terms of any credit facility or other restrictive agreements then in effect. See "Unaudited Pro Forma Consolidated Financial Statements" and "The Sale Transaction - Potential Effect of Sale upon Holders of Common Stock and Preferred Stock." Under the terms of the Sale Agreement, the Company has agreed to change its name upon consummation of the Sale and the Sellers have agreed to cease using certain names in the conduct 18 of their business. Accordingly, if the proposed Sale Transaction is approved, the Company must amend its Restated Certificate of Incorporation to change the Company's name. The Board of Directors proposes to change the name of the Company to "Carlyle Industries, Inc.". Approval of the proposed Sale Transaction includes the approval of the Certificate of Amendment to the Restated Certificate of Incorporation to change the name of the Company to Carlyle Industries, Inc.", a copy of which is attached hereto as Appendix D. Although the Company does not expect that its Common Stock will be immediately delisted from the New York Stock Exchange as a result of the Sale Transaction, there can be no assurance that the Common Stock will not be delisted from such exchange in the future as a direct or indirect result of the Sale Transaction. In such event, the Company intends to apply for listing of its Common Stock on The Nasdaq SmallCap Market, although no assurance can be given that such listing will be granted. If the Common Stock is delisted from the New York Stock Exchange in the future, the market on which the Common Stock trades after the Sale may offer less liquidity than the present market, which could affect the value of the Common Stock. Upon consummation of the proposed Sale Transaction, the Company intends to move its corporate headquarters to the corporate offices currently operated by the Button Division at 1 Palmer Terrace, Carlstadt, New Jersey 07072. POTENTIAL EFFECT OF THE SALE UPON HOLDERS OF COMMON STOCK AND PREFERRED STOCK If the Sale is consummated, the concentration of the Company's business in the Button Division will result in significant changes to the Company that may not affect the two classes of stock in the same way. Preferred Stock. The potential return on the Preferred Stockholders' investment in the Company is limited by the terms of the Company's Restated Certificate of Incorporation to the redemption price or liquidation preference of such stock, plus accrued and unpaid dividends (the "Redemption Amount"). As long as the liquidation value of the Company remains in excess of the Redemption Amount, the amount eventually received by the Preferred Stockholders should not be directly affected by the Company's future financial performance or the positive or negative results of the disposition of the Thread Division and the concentration of capital and management resources on the development of the Button Division. However, the timing of the payment of the Redemption Amount may be affected by such factors and by the Sale. Under the terms of the Company's Restated Certificate of Incorporation, the Company is obligated to pay dividends on its Preferred Stock and to redeem 20% of the Preferred Stock per annum (subject to adjustment) commencing in 1995, unless the Company has a contractual obligation which prevents such payments (a "Restrictive Agreement"). The Credit Agreement dated October 29, 1993, as amended (the "Credit Agreement") between the Company, NationsBank of North Carolina, N.A., Fleet Bank, The Bank of New York and the Daiwa Bank, Ltd. prohibited such payments without the banks' consent, which was not granted. As of November 30, 1996, the Company was in arrears in dividend and redemption payments totalling approximately $2,620,000 and $8,322,000, respectively (the "Arrearages"), but had no current legal obligation to pay the Arrearages. The Company has received a commitment and is currently negotiating a new credit facility (the "Heller Facility") with Sanwa Business Credit Corporation and Heller Financial, Inc., which is more particularly described under "Management's Discussion and Analysis of Financial 19 Condition and Results of Operations - Liquidity and Capital Resources." Under the terms of the Heller Facility, as proposed, dividend and redemption payments to the holders of Preferred Stock would continue to be significantly restricted. If the Sale is consummated and its bank indebtedness is not paid in full, the Company will continue to be prohibited from paying the Arrearages without the consent of its lenders. If the Sale is consummated and its bank indebtedness is paid in full, the Company will become obligated to pay the Arrearages unless, and to the extent that, the Company has entered into a Restrictive Agreement. In the absence of further borrowing under a new or existing credit agreement, the Company is not expected to have the resources to pay the Arrearages promptly. In that event, the Company would enter into discussions with Noel with a view to satisfying the Arrearages to the extent consistent with the Company's resources. However, after the Sale Transaction, should the Company enter into a new credit facility, the Company may have sufficient resources to pay, and the new facility may permit the payment of, the Arrearages and future amounts due to the holders of Preferred Stock under the terms of the Company's Restated Certificate of Incorporation and might also permit the acceleration of the redemption of the Preferred Stock, if the Company elected to do so. Common Stock. As the return on the Preferred Stock is fixed, the Common Stock may be expected to benefit from any future growth in the Company and suffer as a result of a downturn in the Company's prospects. In addition, if the Company is in a position to and does effect a redemption or other retirement of shares of Preferred Stock, the Common Stock, which currently represents 26.2% of the voting securities of the Company, will represent a greater percentage of the Company's voting securities. In the event of the redemption of the Preferred Stock in full, voting control of the Company would pass to the holders of Common Stock. See "Principal Stockholders - Changes in Control." After the Sale, decisions with respect to the financing of the Company's operations and the payment of amounts due to the holders of Preferred Stock will continue to be made by the Board of Directors of the Company. As the holder of 76.33% of the outstanding voting securities of the Company, Noel has the power to elect all the members of the Board of Directors. As the holder of 19,312,837.5 shares (92.83%) of the Preferred Stock, Noel would benefit from any payment to holders of Preferred Stock. Noel also holds 2,205,814 shares (29.86%) of the Common Stock of the Company. For a description of the shares of Preferred Stock and Common Stock of the Company and the shares of Common Stock of Noel beneficially owned by the directors of the Company and present and past relationships between the directors and Noel, see "Principal Stockholders" and "Equity Securities Beneficially Owned by the Directors and Executive Officers" including the footnotes to the charts set forth therein. In general, divergent interests between two classes of stock could give rise to a conflict of interest. In this instance, the Company believes that both classes of its stock will be benefited by the completion of the Sale Transaction. See "The Sale Transaction - Background; Recommendation of the Board of Directors." A description of the terms of the Preferred Stock, including the liquidation and redemption value thereof and the dividend rate, is set forth in "Market Information and Related Stockholder Matters." 20 TERMS OF THE SALE AGREEMENT The following is a summary, is not complete and is qualified in its entirety by reference to the copy of the Sale Agreement included as Exhibit A to this Proxy Statement, which stockholders are urged to read in its entirety. Capitalized terms used but not defined herein shall have the meaning set forth in the Sale Agreement. Pursuant to the terms of the Sale Agreement, in consideration of the transfer to the Buyer of all of the business and assets of the Thread Division, other than Excluded Assets, as defined, the Buyer has agreed to pay $54,924,200 in cash (the "Purchase Price"), subject to adjustment, and to assume the liabilities of the Sellers related to the Thread Division and the assets transferred, other than Excluded Liabilities, as defined. The liabilities to be assumed by the Buyer include certain environmental and long-term liabilities estimated by the Company to be approximately $6,900,000, as well as certain current, contingent and other liabilities. The Purchase Price (subject to adjustment as described below) is payable at the Closing as follows: (i) an amount required to release the Acquired Assets from the lien securing the Company's bank indebtedness shall be paid to the holders of such indebtedness, (ii) $3.0 million shall be paid to the Escrow Agent to be held to secure the Company's indemnification obligations to the Buyer described below, and (iii) the balance of the Purchase Price shall be paid to the Company. The amount held in escrow shall be reduced to $1,500,000 at the expiration of nine months from the Closing, and the escrow shall be terminated eighteen months after the Closing, in each case, assuming no claims have been made thereon by the Buyer. A dollar-for-dollar post- Closing Purchase Price adjustment will be made to the extent of changes in the Thread Division's working capital from September 30, 1996 through the Closing. The closing of the Sale (the "Closing") is scheduled to occur on the later of February 14, 1997 or three business days after the satisfaction of the conditions to Closing. The obligations of the parties to consummate the Sale are subject, among other things, to the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") which will expire at 11:59 p.m. on January 15, 1997, unless the Federal Trade Commission or the Antitrust Division of the Department of Justice extends such period by requesting additional information or grants earlier termination of the waiting period. The obligations of Hicking Pentecost and the Buyer to consummate the Sale are subject, among other things, to the following additional conditions: (i) the successful completion of the Placing and Open Offer and the admission of the Stock Units to the official list of the LSE (see "Certain Information Concerning Hicking Pentecost and the HP Financing"); (ii) the approval of the Sale by a majority of the Company's stockholders (which approval Noel, the holder of 76.3% of the Capital Stock, has irrevocably agreed to give, see "The Meeting"); (iii) the approval of the Sale and the HP Financing (and related matters) by the requisite vote of the holders of the outstanding ordinary shares of Hicking Pentecost; and (iv) the opinion of Bridgeford shall not have been modified or withdrawn. Assets and Liabilities to be Transferred. The assets to be transferred to the Buyer include all tangible and intangible assets of the Thread Division with the exception of the Excluded Assets. Excluded Assets include, among other assets, the business, assets and properties of, or exclusively relating to, the Button Division; the real property, leases of real property and all other interests in the real property of the Company, together with all buildings, improvements, fixtures and all other appurtenances thereto, located at or otherwise relating to (i) 520 Reese Street, Emporia, 21 Virginia, (ii) 30-40 Echo Lake Road, Watertown, Connecticut, (iii) Route 12, Village of Grosvenordale, Thompson, Connecticut, (iv) 94, 107 and 112 Providence Street, Putnam, Connecticut, (v) 523-525 52nd Street, West New York, New Jersey and (vi) the Company's corporate headquarters in New York, New York; the capital stock of, all cash and marketable securities held by, and all corporate records relating to, the Sellers and all rights under contracts exclusively between or among the Sellers; all assets held in connection with employee benefit plans (other than the Company's 401(k) plan); and all rights, claims and insurance policies related to the Excluded Assets or the Excluded Liabilities. Assumed Liabilities include all liabilities and obligations of any Seller, known or unknown, arising out of the business of the Thread Division or the Acquired Assets including, among others, all liabilities related to any litigation, claims, contracts, or environmental laws relating to the Acquired Business or the Acquired Assets, other than Excluded Liabilities. The Buyer may seek indemnification from the Sellers to the extent that certain of the Assumed Liabilities exceed the amounts with respect thereto reflected or reserved on the Thread Division's September 30, 1996 balance sheet, which indemnification is subject to certain limitations including, among others, a $3,000,000 limit on Sellers' aggregate indemnification obligation (other than with respect to Excluded Liabilities), as more particularly described below. Excluded Liabilities include, among other liabilities, liabilities related to the Excluded Assets (including environmental liabilities relating to the Excluded Assets); liabilities related to the disposal at specified superfund waste disposal sites prior to the Closing; liabilities that in accordance with generally accepted accounting principles were required to have been, but were not, in any amount, reflected or reserved for on the Thread Division's September 30, 1996 balance sheet; liabilities related to certain taxes; any indebtedness or guarantee of any Seller other than specified items; liabilities related to specified litigation or potential litigation; and certain liabilities related to corporate, personnel and intercompany matters. The retention of these liabilities could have a negative effect on the value of the Company's ongoing business. The definition of Excluded Liabilities includes all matters described under the heading "Business of the Company -- Legal Proceedings" below. Representations and Warranties. The Sale Agreement contains various representations and warranties of the Sellers including, among others, representations and warranties related to organization and similar corporate matters; authorization, performance, enforceability and related matters; the accuracy of financial statements and other financial information provided to the Buyer; undisclosed liabilities; taxes; litigation; ownership, condition and title to assets and properties; accounts receivables and inventories; contracts; employee benefit plans; absence of changes; compliance with applicable laws and environmental matters; licenses and permits; employee and labor relations; the use of corporate names; the Bridgeford fairness opinion; the disclosure in the Sale Agreement regarding representations and warranties of the Sellers; intercompany services; and the accuracy of information to be contained in this Proxy Statement. The Sale Agreement contains various representations and warranties of the Buyer and Hicking Pentecost including, among others, representations and warranties related to organization and similar corporate matters; authorization, performance, enforceability and related matters; ownership of the Buyer; the required vote of the shareholders of Hicking Pentecost to approve the transactions set forth in the Sale Agreement, the Placing and Open Offer and related matters (the "Hicking Pentecost Shareholder Vote"); the execution of an underwriting agreement with respect 22 to the Placing and Open Offer; the ability of Hicking Pentecost to consummate the transactions set forth in the Sale Agreement assuming the successful completion of the Placing and Open Offer; and the accuracy of certain information regarding Hicking Pentecost and the Buyer to be contained in this Proxy Statement. The representations and warranties survive the Closing for a period of two years. No Solicitation. Pursuant to the Sale Agreement, each of the Sellers has agreed that, prior to the Closing, it will not, nor will it permit any of its respective officers, directors, stockholders or other representatives to, directly or indirectly, encourage, solicit, initiate or participate in discussions or negotiations with or provide any information or assistance to, any corporation, partnership, person, or other entity or group (other than the Buyer, Hicking Pentecost or their representatives) regarding any merger or sale or disposition of securities or assets or similar transaction involving any Seller, or assist or participate in, facilitate or encourage any effort or attempt by any other person to do any of the foregoing (other than sales of inventory in the ordinary course of business consistent with past practice and other than any such transaction to acquire solely the assets of the Button Division). Covenants. Pursuant to the Sale Agreement, the Sellers have agreed, among other things, that prior to the Closing, the Sellers (i) will give the Buyer and its representatives, employees, counsel, and accountants access to the personnel and records of the Thread Division, (ii) will carry on the business of the Thread Division in the ordinary course consistent with past practice and will not authorize or agree to any action which would render the Sellers' representations or warranties untrue or incorrect or result in any of the conditions to Closing not being satisfied; (iii) will use all reasonable efforts to keep all insurance policies in effect and, at the Closing, will assign any rights thereunder to the Buyer to the extent such rights cover claims relating to Assumed Liabilities; (iv) will notify Buyer of any material supplements or amendments to the schedules to the Sale Agreement or the commencement of any litigation, (v) will forward monthly financial statements to Buyer, (vi) will use all reasonable efforts to obtain all consents, effect all required filings, and, at the Closing, will transfer applicable governmental permits, and will cause certain assets to be transferred to Sellers; (vii) at the Closing, will assign all rights under executed confidentiality agreements to the Buyer to the extent assignable and thereafter will keep information with respect to the Thread Division confidential and will not solicit the employment of any of the employees of the Acquired Business, in each case as provided in the confidentiality agreement executed with Hicking Pentecost; (viii) will promptly file this Proxy Statement with the Securities and Exchange Commission and will use all reasonable efforts to hold a meeting of the Company's stockholders for consideration of the Sale as soon as practicable; (ix) will change their respective corporate names to cease the use of any of the names "Belding", "Culver", "Danfield", "Heminway", "Bartlett", "Corticelli", or "Robinson"; and (x) will fully vest those employees who will continue as employees of the Buyer after the Sale in their benefits under the Company's savings plan . Pursuant to the Sale Agreement, Hicking Pentecost and the Buyer have agreed, among other things that prior to Closing, Hicking Pentecost and the Buyer shall (i) use all reasonable efforts to call a meeting of Hicking Pentecost's shareholders for the purpose of obtaining the Hicking Pentecost Shareholder Vote and, subject to the accuracy of the Sellers' representations and warranties in the Sale Agreement, cause the Board of Directors of Hicking Pentecost to recommend unanimously such matters to the Hicking Pentecost shareholders for approval; (ii) use all reasonable efforts to cause the Hicking Pentecost Shareholder Vote to be obtained and the underwritten equity 23 offering to be successfully completed as soon as practicable and keep the Company apprised of the status thereof; (iii) not authorize or agree to take any action which would render its representations or warranties materially untrue or incorrect or result in the conditions to Closing not being satisfied; (iv) maintain the terms of the confidentiality agreement executed with the Company; (v) make certain required filings in the State of Connecticut; and (vi) follow certain procedures relating to certain environmental matters. The Sale Agreement also contains mutual covenants relating to the use of reasonable efforts by both parties to complete the Sale; cooperation; publicity; filings under the HSR Act; the delivery of records by the Sellers; the continued employment of certain employees and the continuation of certain employee compensation, benefit and severance plans for a period of one year from the Closing; the establishment of a profit sharing plan within the meaning of Section 401(k) of the Code by the Buyer; tax indemnification; indemnification with respect to breaches of representations, warranties, covenants or agreements; and indemnification by the Sellers with respect to all Excluded Liabilities and with respect to certain Assumed Liabilities; and indemnification by the Buyer and the Parent with respect to Assumed Liabilities (but only to the extent the Sellers' are not obligated to indemnify the Buyer against such Assumed Liabilities). The Sellers' indemnification obligations for losses, except for losses relating to Excluded Liabilities, are limited as follows: the total indemnification shall not exceed $3,000,000; only losses of $20,000 or more may be submitted for indemnification; and no indemnification shall be made until the aggregate amount of losses equal $200,000 (provided that the Sellers shall be liable from the first dollar of such losses in the event the aggregate of such losses exceeds such amount). The indemnification obligations of the Buyer and Hicking Pentecost are similarly limited except for losses relating to Assumed Liabilities. All indemnification payments required to be made by the Sellers, other than with respect to Excluded Liabilities, shall be paid first out of the portion of the Purchase Price held in escrow, which amount will initially be $3,000,000. Indemnification payments required to be made by the Sellers with respect to Excluded Liabilities shall, at the option of the Buyer, be made either directly by the Sellers or out of the escrow. Each party's indemnification obligations under the Sale Agreement shall (i) in the case of tax indemnification, terminate at the time the applicable statutes of limitations expire, (ii) in the case of indemnification for breaches of representations, warranties, covenants or agreements, terminate two years after the Closing and (iii) in the case of indemnification with respect to Excluded Liabilities or Assumed Liabilities, as applicable, not terminate, provided that none of such indemnification obligations shall terminate if notice of an indemnification claim shall have been given to the indemnifying party prior to the expiration of the applicable period. Termination; Arbitration. The Sale Agreement may be terminated by mutual written consent of the Company and Hicking Pentecost, by either party if the Closing does not occur on or prior to March 31, 1997 or if the conditions to such party's obligation to consummate the transaction shall have become incapable of fulfillment (provided that such condition shall not have become incapable of fulfillment as a result of any breach by such party of any of its representations, warranties, covenants, or agreements under the Sale Agreement). The Sale Agreement may also be terminated by Hicking Pentecost or the Buyer in the event that the waiting period under the HSR Act is extended by a request for additional information by the Federal Trade Commission or the Antitrust Division, provided that such termination right is exercised within 30 business days after notice of such request is received. If the agreement is terminated by either party as a result of a material breach of the other party, the breaching party shall pay the expenses of the other party up to a maximum of $250,000. 24 Any disagreement or dispute arising out of or relating to the Sale Agreement shall be settled by arbitration if the parties, through good faith negotiation, are unable to resolve such dispute within thirty days. FEDERAL INCOME TAX CONSEQUENCES OF THE SALE The Sale will result in a taxable disposition for Federal income tax purposes. Gain on the Sale generally will be taxable to the Company based on the amount realized (including liabilities assumed) in excess of the tax basis of assets sold. See "Unaudited Pro Forma Consolidated Financial Information". ACCOUNTING TREATMENT OF THE SALE If the Sale is consummated, the Company will record the disposition of the Thread Division as a discontinued operation. The current estimate of the loss to be recorded in the disposal is approximately $11.3 million, including a tax provision of $4.5 million. A tax provision is required because the loss includes the write-off of approximately $18.0 million of goodwill. The estimate does not consider the proceeds, if any, which may be received by the Company from the $3.0 million of sales proceeds to be held in escrow or the related taxes payable (estimated to be approximately 40%) with respect to any such proceeds. The actual loss will depend on results of operations through the disposal date, working capital at the disposal date, and the Company's 1997 tax position. See "Capitalization" and "Unaudited Pro Forma Consolidated Financial Statements." ABSENCE OF DISSENTERS' RIGHTS OF APPRAISAL The General Corporation Law of the State of Delaware governs stockholders' rights in connection with the Sale. Under the applicable provisions of Delaware law, the Company's stockholders will have no right in connection with the Sale to dissent and seek appraisal of their shares of Capital Stock. BUSINESS OF THE COMPANY The Company and its subsidiaries manufacture and market industrial sewing threads and distribute a line of home sewing and craft products, principally buttons. The Company currently operates in two industry segments: Industrial Products and Consumer Products. Industrial products are principally sewing threads used in industrial applications. Consumer products are principally sewing threads and buttons used in consumer product applications. For additional information on Industry Segments, see "Note 21 of the Company's Consolidated Financial Statements". The Company was the surviving corporation in a merger (the "Merger") with BH Acquisition Corporation, a Delaware corporation wholly-owned by Noel. The Merger, completed on October 29, 1993, was the second step of a transaction pursuant to which Noel acquired the entire equity interest in the Company. References herein to the "Predecessor" shall be deemed to refer to the Company, as it existed prior to October 1, 1993. The Company's principal executive offices are located in 17,000 square feet of leased premises at 1430 Broadway, New York, New York and its telephone number is 212-556-4700. 25 THREAD DIVISION The business of the Company's Thread Division is conducted through various subsidiaries, including a wholly-owned subsidiary, The Belding Thread Group, LLC, a Connecticut limited liability company ("BTG"), which was formed through the transfer of the net assets of the Belding Corticelli Thread Company, a division of the Company ("BCTC"), and the Heminway & Bartlett Manufacturing Company, a wholly-owned subsidiary of the Company ("H&B"). The Thread Division also includes the business of Danfield Threads, Inc. ("Danfield") which was acquired in June 1994 and Culver International, Inc. and Culver Textile Corp. (together, "Culver") which was acquired in August 1995. Danfield and Culver were merged in August 1996 with Danfield continuing as the surviving corporation. Danfield's and Culver's main products are specialty threads marketed primarily to the wholesale bedding and embroidery market. Products. The Thread Division manufactures and markets industrial thread and special engineered yarn used in non-sewing products. The products are generally made of synthetic materials such as nylon, polyester, and other specialty fibers. The Thread Division's manufacturing and packaging operation, where filaments are twisted, dyed, bonded, wound onto bobbins and packages, are conducted at the four plants located in the eastern United States, as more particularly described below. The Thread Division's sewing threads are targeted to niche markets, characterized by demanding sewing conditions, where the Thread Division's technical expertise distinguishes its products from those of other manufacturers. The Thread Division is also distinguished from many of its competitors in that its manufacturing systems are sufficiently flexible to produce relatively small lots in a wide range of custom sizes, colors and packages. Synthetic sewing threads are marketed to a number of industries, including automotive, apparel (specialty applications), mattress and bedding, footwear recreational products, athletic equipment and furniture. Specially engineered yarn is sold to manufacturers of wire, telecommunications cable, fibre optics, aircraft harnesses, and dental hygiene products. The Thread Division does not compete in the commodity thread market (generally polyester/cotton) principally used by the apparel industry. Competitive Factors. The industry in which the Thread Division operates is highly competitive and management believes that competition in this industry is based primarily upon service, quality and pricing of products. The Thread Division competes with many manufacturers and/or distributors of industrial threads, some of which have substantially greater assets and financial resources and more extensive international operations than the Company. Substantially all the materials used in the Thread Division's production processes are commodity items. The raw materials for thread production include synthetic materials such as nylon, polyester and other specialty fibers, all of which are obtained in the unfinished and undyed state. The raw materials are purchased directly from various suppliers and are generally purchased from multiple sources. Management believes that raw materials are in ready supply, but because its raw materials are commodities, the future prices of such materials are unpredictable. The bulk of the Thread Division's revenues are derived in the United States. In 1995, approximately 6% of revenues related to export sales of threads. Inventory levels in the Thread 26 Division remain relatively constant throughout the year. Policies related to the return of products and payment terms are in accordance with industry standards. Research, Development and Engineering. The Thread Division maintains a research and development staff of six, which focuses on the development of products, processes and finishes. In addition, one full-time engineer oversees machinery development projects. The Company's expenditures in product research and development and process engineering during each of the last three fiscal years totaled approximately 1% of the Company's sales. Employees; Labor Relations. The Thread division has approximately 680 employees. None of the employees of the Thread Division are represented by collective bargaining agreements and the Company believes relations with its employees are satisfactory. Facilities. The Thread Division is headquartered in Charlotte, North Carolina and its customer service group is based in Hendersonville, North Carolina. The following table describes each of the facilities currently operated by the Thread Division:
Owned/ Location Size (Sq. Ft.) Leased Purpose Watertown, CT 196,000 Owned Twisting, finishing and winding of synthetic industrial sewing thread and braids. Bobbin winding. Hendersonville, NC 104,000 Owned Twisting, finishing and winding of nylon monocord thread and other synthetic thread. Bobbin winding. R&D and engineering center. Customer service. Winsted, CT 97,000 Owned Twisting, finishing and winding of nylon and polyester thread. Bobbin manufacturing. Bronx, NY 30,000 Owned Winding of nylon and polyester threads and bobbins. Hendersonville, NC 11,000 Leased Distribution Ft. Worth,TX 7,200 Leased Distribution Ontario, CA 3,000 Leased Distribution Tupelo, MS 3,000 Leased Distribution Charlotte, NC 5,300 Leased Divisional headquarters Fairview, NJ 1,500 Leased
The Thread Division also owns the following four facilities, no longer used in operations: a 100,000 square foot former production facility at Watertown, Connecticut of which approximately 27 48,000 square feet are leased to unrelated third parties; a 160,000 square foot former production facility at North Grosvenordale, Connecticut; a 120,000 square foot former production and dye house facility in Putnam, Connecticut; a 49,000 square foot former Culver production facility in West New York, New Jersey. Under the terms of the Sale Agreement, if the Sale is consummated, the Company will continue to hold these four facilities and any liabilities related thereto. See, "The Sale Transaction - Terms of the Sale Agreement." BUTTON DIVISION The Company's button business is conducted through the Blumenthal/Lansing Company, which was formed from the merger of B. Blumenthal & Co., Inc., a wholly-owned subsidiary of the Company, and Lansing Company, Blumenthal's wholly-owned subsidiary. The corporate name was changed to Blumenthal/Lansing Company on January 1, 1995. Management believes that the Blumenthal/Lansing Company is the largest packager and distributor of buttons to the retail market in the United States. Products. The Button Division packages and distributes an extensive variety of buttons for home sewing and crafts to mass merchandisers, specialty chains, and independent retailers and wholesalers throughout the United States. Buttons and buckles, sold under the La Mode and Le Chic registered trademarks and the Le Bouton, La Petite, Classic and Boutique brand names, are available in thousands of styles, colors, materials and sizes to meet every consumer need. The Button Division also produces and distributes private-label lines for some of the nation's best-known retailers. The Button Division also markets complimentary product lines, including appliques, craft kits and fashion and jewelry accessories to its home sewing and craft customers. Craft kits include Button Craft carded items, Crafter's Choice packages of mixed, color-coordinated buttons for major craft projects and Button Bargain bags and containers of mixed buttons. Fashion and jewelry accessories consist of buckles, earring backs and other accessories for jewelry making. Though these other product lines constitute a relatively small portion of the overall sales, management believes they could represent a significant growth opportunity. Markets. The Button Division's products are sold primarily for use in the home sewing market where buttons are used for garment construction, replacement, and the upgrading and/or restyling of ready-to-wear clothing. More modest button usage is found in craft projects, home decorating, and garment manufacturing on a small scale and done by dressmakers and other cottage industry consumers. The market is served by large fabric specialty chains, mass merchandisers (such as Wal-Mart), local and regional fabric specialty chains of 4 to 25 stores, independent fabric stores, notions wholesalers, and craft stores and chains. The Button Division does not concentrate on lower-margin apparel markets. Product Sourcing, Distribution and Sales. The button lines are sourced from more than 75 button manufacturers around the world, with most buttons coming from the traditional markets of Holland, Italy, and the Orient. Button manufacturers specialize in different materials (plastic, wood, glass, leather, metal, jewel, pearl, etc.) and have varying approaches to fashion, coloration, finishing, and other factors. The Button Division maintains a staff of buyers who travel regularly in Europe and the Orient to work with suppliers and seek out new sources. New styles are selected twice a 28 year by management staff and fashion department personnel who have studied the fashion and color trends for approaching seasons. All imported and domestically purchased buttons are shipped to the Lansing, Iowa facility for carding and distribution to customers. As thousands of button styles are received in bulk, computerized card printing systems enable Blumenthal/Lansing to economically imprint millions of button cards with such necessary data as style number, price, number of buttons, bar code, country of origin, and care instructions. Buttons are then attached to cards primarily through stapling, a process that involves nearly one-half of Lansing's warehouse employees and requires stapling machines which are no longer available except through expensive custom-manufacture. The Button Division also blister-packages and shrink-wraps some products. Shipments are made primarily to individual stores with a small percentage to warehouse locations. Shipments average over 14,000 per month and 700 per day, and most are made via UPS. The Button Division's accounts include major fabric specialty chains, most mass merchandisers carrying buttons, most regional fabric specialty chains and many independent stores. Mass merchandisers and specialty chain customers are characterized by the need for sophisticated electronic support, rapid turn-around of merchandise and direct-to-store service for hundreds to thousands of locations nationwide. The Button Division enjoys long-standing ties to all of its key accounts and the average relationship with its ten largest customers extends over 20 years. Although the Button Division has more than 1,000 accounts, its sales are highly concentrated and the loss of one or more of its large customers would have a material adverse effect on the Button Division. Due to the large account nature of its customer base, most customer contact is coordinated by management; additional sales coverage is provided by regional sales managers. Certain retailers are serviced by independent representatives and representative organizations. Competitive Factors The retail button market is served by several competitors. The Company, which management believes is the largest button distributor, competes primarily with two full-line button packagers and distributors in the general button market and several smaller competitors in the promotional button market. Management believes that the principal bases for competition are product innovation, range of selection, brand names, price, display techniques and speed of distribution. Management believes the Button Division's broad base of supplier relationships, wide distribution and ability to serve nationwide retail chains impose significant barriers to entry into this market. Although no industry-wide statistics are available, the Company believes that it is the leading distributor of fashion buttons in the United States to the retail trade with an estimated 55% of the market. Management believes that retail button distribution depends on trends in the home-sewing market, which management believes is mature. The retail customer base for buttons has changed substantially over the past two decades as department stores and small independent fabric stores have been replaced by mass merchandisers and specialty retail chains which have continued to consolidate recently through mergers and store closings. The bulk of the Button Division's revenues are derived in the United States. In 1995, less than 1% of revenues related to export sales. Inventory levels remain relatively constant throughout 29 the year. The Button Division's policies related to merchandise return and payment terms are in accordance with industry standards. Employees; Labor Relations The Button Division has approximately 165 employees, two of whom are covered by a collective bargaining agreement with the United Auto Workers which expires on May 31, 1997. Management believes relations with both the non-union and unionized employees are satisfactory. Properties The Button Division operates from a 104,000 square foot packaging and distribution facility located in Lansing, Iowa which is owned by the Company. Divisional management, sales and marketing, product development, fashion and purchasing are headquartered in a 6,300 square foot office facility in Carlstadt, New Jersey which is leased by the Company. Management believes that the Button Division's facilities are in good condition and adequate for the Division's present and reasonably foreseeable future needs. In addition to the properties operated by the Button Division, the Company owns a 214,000 square foot former dye facility located in Emporia, Virginia. LEGAL PROCEEDINGS General. The Company is not currently a party to any significant litigation except as indicated below: Environmental Matters. The Company is subject to a number of federal, state and local environmental laws and regulations, including those concerning the treatment, storage and disposal of waste, the discharge of effluents into waterways, the emissions of substances into the air and various health and safety matters. In addition, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA") and comparable state statutes generally impose joint and several liability on present and former owners and operators, transporters and generators for remediation of contaminated properties regardless of fault. These parties are typically identified as "potentially responsible parties" or PRP. Several years ago a property owned by H&B located at 30 Echo Lake Road in Watertown, Connecticut was being investigated by the United States Environmental Protection Agency ("EPA") for possible inclusion on the National Priorities List promulgated pursuant to CERCLA but no such listing has yet occurred. A Site Inspection conducted at this location detected certain on-site soil and groundwater contamination, as well as contamination of nearby water. This site is listed on the Connecticut State Hazardous Waste Disposal Site list, but remediation activity has not been required by the Connecticut Department of Environmental Protection ("CTDEP"). Belding Chemical Industries owns an inactive facility located in North Grosvenordale, Connecticut at which soil contamination has been found. The Company reported this contamination to the CTDEP in 1989 and is presently working with the CTDEP to further assess the site. 30 In or about June 1992, the Company received notice from the EPA that the Company, Belding Corticelli Thread Company and H&B had been identified, along with 1,300 other parties, as potentially responsible parties in connection with the alleged release of hazardous substances from the Solvents Recovery Superfund site in Southington, Connecticut. The Company has settled its alleged liability. Its subsidiaries, along with other potentially responsible parties have committed to perform the Non-Time Critical Removal Action at the site. H&B's alleged contribution of waste disposed of at this site is approximately 1%. Belding Corticelli's alleged contribution of waste is de micromis. The Company is unable, at this time, to estimate the ultimate cost of the remedy for this site. By letter dated January 21, 1994, the EPA notified H&B that it was a potentially responsible party, along with approximately 335 other parties, with respect to the Old Southington Landfill in Southington, Connecticut. H&B's alleged contribution of waste disposed of at this site is 0.0637%. The ultimate cost of the remedy for this site has not yet been determined. The Company received notice in April 1995 that the State of New Jersey has made a $34 million demand for payment for expenses incurred for cleanup and claims at the Chemical Control Superfund Site. H&B, identified as a PRP at this site, was one of the 167 parties that settled its liability with the EPA. The State's demand, however, is separate from the federal settlement. H&B's alleged contribution of waste disposed at the site was identified as 0.89342%. By third-party summons and complaint dated November 27, 1991, H&B has been named as a third-party defendant in an action pending in the United States District Court for the District of Rhode Island entitled United States vs. Williams M. Davis et al vs. American Cyanamid Company et al. In addition to H&B, approximately 60 other companies have been joined as third-party defendants. The third-party complaint alleges claims for contribution under CERCLA. The third-party complaint alleges that H&B and the majority of the other third-party defendants shipped waste to Chemical Control Corporation, which was commingled with other wastes and shipped to the Davis Liquid Waste Site located in Smithfield, RI. H&B had entered into an agreement to settle its liability in connection with these claims for payment of the sum of $200,000. The agreement has not yet been approved by the court. Although there can be no assurances, based on information currently available, the Company does not believe that future expenditures with respect to environmental matters will have a material adverse effect on the Company's business, financial condition, liquidity or operating results. Other Litigation. The Company purchased Culver International, Inc. from Bruce Goldwyn ("Goldwyn") in August of 1995. The Company filed suit in September 1996 in the Superior Court for New York County against Goldwyn for breach of the representations and warranties made about the quality, merchantability and salability of the inventory acquired in the transaction, seeking damages of approximately $1.4 million. As part of the acquisition, the Company had given Goldwyn a note in the face amount of $530,964 (representing the discounted value of the Company's obligation to pay $200,000 per year for three years), the first $200,000 payment of which was due in August 1996. The note allowed Belding to set-off its damages arising from violations of the representations and warranties in the purchase agreement and, based on its claims, Belding withheld the entire August 1996 payment. Goldwyn has moved to dismiss the action on the grounds that his representations and warranties were not breached. In addition, Goldwyn has asserted counterclaims seeking not only the August 1996 payment but, pursuant to the terms of the note, the full, accelerated amount of $530,964, and accumulated interest, and his attorneys' fees for the collection of the note. 31 CAPITALIZATION The following table sets forth the consolidated capitalization of the Company as of September 30, 1996, and pro forma amounts giving effect to the proposed Sale Transaction as described in Note 1. The capitalization table should be read in conjunction with the "Unaudited Pro Forma Consolidated Financial Statements", "Selected Financial Data" and "Consolidated Financial Statements" appearing elsewhere in this Proxy Statement.
September 30, Pro Forma 1996 Adjustments Pro Forma ------------ ----------- --------- Short term debt 37,786 (37,786) (B) - (52) (A) Long term debt 227 (175) (B) - Other liabilities 18,698 (6,116) (A) 12,582 ------ ------ 56,711 12,582 Redeemable Preferred Stock, par value $0.01 per share 20,805,060 shares authorized; Shares issued and outstanding: Series A. - None Series B - 20,805,060 20,805 20,805 Accumulated dividends on preferred stock 2,388 2,388 ------ ------ 23,193 23,193 ------ ------ Common Stock, par value $0.01 per share 20,000,000 shares authorized; Shares issued and outstanding - 7,388,282 74 74 Paid in Capital 19,858 19,858 Retained Earnings (32,057) (11,311) (C) (43,368) -------- -------- Total Common Stockholders' Equity (12,125) (23,436) -------- -------- Total Capitalization 67,779 12,339 ======= =======
(1) Information in the Pro Forma column is based upon the amounts outstanding at September 30, 1996, as adjusted to give effect to the following: (A) Sale of assets to, and the assumption of certain liabilities by, the Buyer in exchange for estimated proceeds, net of escrow proceeds of $3 million and transaction costs, of $49,619,000. (B) Reduction of debt in the amount of $38,013,000 using proceeds received in the transactions. (C) Represents the estimated loss to be recorded upon the Sale Transaction, including a tax provision of $4,500,000. See "The Sale Transaction - Accounting Treatment of the Sale". See "Unaudited Pro Forma Consolidated Financial Statements." 32 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS The following unaudited pro forma financial information gives effect to the proposed Sale Transaction. The Pro Forma Consolidated Balance Sheet gives effect to the proposed Sale Transaction as if such transaction occurred on September 30, 1996. The Pro Forma Consolidated Statements of Operations for the year and nine months ended December 31, 1995 and September 30, 1996, respectively, assume that the proposed Sale Transaction occurred on January 1, 1995 and 1996, respectively. The Pro Forma Consolidated Statements of Operations are presented for comparative purposes only and are not intended to be indicative of what the actual results of operations would have been had the Sale Transaction actually occurred as of the beginning of the respective periods. The Pro Forma Consolidated Statements of Operations also do not purport to indicate the results which may be attained in the future and do not reflect any adjustments which may be made in the future to the Company's general and administrative expenses or as a result of any future payment of dividends on the Preferred Stock or the redemption of shares of Preferred Stock. The Unaudited Pro Forma Consolidated Financial Statements should be read in conjunction with the "Selected Financial Data" and "Consolidated Financial Statements" appearing elsewhere in this Proxy Statement. If the Sale Transaction closes, the Company will record the disposition of the Thread Division as a discontinued operation. The current estimate of the loss to be recorded in the disposal is approximately $11.3 million including a tax provision of $4.5 million. A tax provision is required because the loss includes the write-off of approximately $18.0 million of goodwill. The estimate does not consider the proceeds, if any, which may be received by the Company from the $3.0 million of sales proceeds to be held in escrow or the related taxes payable (estimated to be approximately 40%) with respect to any such proceeds. The actual loss will depend on results of operations through the disposal date, working capital at the disposal date, and the Company's 1997 tax position. 33 PRO FORMA CONSOLIDATED BALANCE SHEET September 30, 1996 (Unaudited) ($ in thousands)
Pro Forma ASSETS Historical Adjustments Pro Forma ---------- ----------- --------- Current Assets: $ (7,860) (3) (37,941) (4) 165 (1) Cash and cash equivalents $ 448 49,619 (2) $ 4,431 Accounts receivable trade, net 11,927 (9,838) (1) 2,089 Inventories 18,081 (15,388) (1) 2,693 Federal income taxes receivable 100 100 Current deferred tax asset 1,483 1,483 Other current assets 632 (109) (1) 523 --------- -------- -------- Total current assets 32,671 11,319 --------- ------- Property, plant and equipment, at cost 32,809 (29,202) (1) 3,607 Less: Accumulated depreciation and amortization (4,913) 4,016 (1) (897) ---------- -------- Net property, plant and equipment 27,896 2,710 --------- ------- Goodwill, net 20,322 (18,058) (1) 2,264 Deferred tax asset - 3,362 (3) 3,362 Other assets 1,723 (565) (1) 1,158 --------- -------- Total Assets $ 82,612 $ 20,813 ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 5,208 $ (3,597) (1) $ 1,611 (37,766) (4) Current maturities of long-term debt 37,786 (20) (1) - Other current liabilities 9,625 (2,762) (1) 6,863 --------- -------- 52,619 8,474 (175) (4) Long-term debt 227 (52) (1) - Deferred tax liability - Other liabilities 18,698 (6,116) (1) 12,582 --------- ---------- -------- Total Liabilities 71,544 21,056 --------- -------- Redeemable Preferred Stock, par value $0.01 per share 20,805,060 shares authorized; Shares issued and outstanding Series A. - None Series B - 20,805,060 20,805 20,805 Accumulated dividends on preferred stock 2,388 2,388 --------- -------- 23,193 23,193 --------- -------- Common Stock, par value $0.01 per share 74 74 20,000,000 shares authorized; Shares issued and outstanding; September 30, 1996: 7,388,282 December 31, 1995: 7,409,282 Paid in Capital 19,858 19,858 Retained Earnings (32,057) (11,311) (43,368) ---------- --------- Total Common Stockholders' Equity (12,125) (23,436) ---------- --------- Total Liabilities and Stockholders' Equity $ 82,612 $ 20,813 ========= ========
See Notes to Unaudited Consolidated Financial Statements 34 Notes To Unaudited Pro Forma Balance Sheet (1) To eliminate the Balance Sheet accounts related to the Thread Division. (2) To record net cash proceeds from the Sale Transaction net of escrow and estimated transaction costs. (3) To record $3.4 million of deferred tax asset and $7.9 million of tax payment in connection with the Sale Transaction. (4) To record the retirement of outstanding debt utilizing proceeds received from the Sale Transaction. 35 PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS Nine Months Ended September 30, 1996 (Unaudited) ($ in thousands)
Pro Forma Pro Historical Adjustments Forma ---------- ----------- ------ Net Sales $ 67,158 (50,962) (1) $ 16,196 Cost of sales 48,063 (40,123) (1) 7,940 --------- -------- Gross Profit 19,095 (10,839) (1) 8,256 (324) (2) Selling, general & administrative 10,508 (4,947) (1) 5,237 Other (income) expense (384) 336 (1) (48) --------- ---------- Income from continuing operations before interest and income taxes 8,971 (5,904) (1) 3,067 (3,382) (3) Interest expense 3,395 (13) (1) - --------- ----------- Income from continuing operations before income taxes 5,576 (2,509) (1) 3,067 Provision for income taxes 2,367 (1,176) (4) 1,191 --------- --------- Income from continuing operations 3,209 1,876 Less dividends on preferred stock 1,014 1,014 Income applicable to common stock from --------- --------- continuing operations $ 2,195 $ 862 ======== ======== Earnings per common share: Continuing operations $ 0.30 $ 0.12 ======== ========= Weighted average common shares 7,397 7,397 ======== =========
Notes to Unaudited Pro Forma Consolidated Statements of Operations (1) To eliminate the results of the Thread Division through September 30, 1996. (2) To eliminate goodwill amortization related to the Thread Division. (3) To eliminate interest expense from results of operations due to the elimination of debt utilizing proceeds received from the sale of the Thread Division. (4) To provide for income taxes on pro forma book taxable income. 36 PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS Year Ended December 31, 1995 (Unaudited) ($ in thousands)
Pro Forma Historical Adjustments Pro Forma ---------- ----------- --------- Net Sales $ 88,654 (68,301) $ 20,353 Cost of sales 65,905 (56,081) (1) 9,824 --------- -------- -------- Gross Profit 22,749 (12,220) (1) 10,529 (1,185) (2) Selling, general & administrative 15,940 (7,522) (1) 7,233 Other (income) expense (324) 96 (1) (228) -------- --------- Income from continuing operations before interest and income taxes 7,133 (3,609) (1) 3,524 Impairment charge 25,000 (25,000) (1)(5) - Income (loss) from continuing operations before interest and income taxes (17,867) 3,524 (3,987) (3) Interest expense 4,000 (13) (1) - -------- -------- Income from continuing operations before income taxes (21,867) 25,391 (1) 3,524 Provision for income taxes (314) 1,687 (4) 1,373 --------- -------- Income from continuing operations (21,553) 2,151 Less dividends on preferred stock 1,282 1,282 Income applicable to common stock from continuing operations $(22,835) $ 869 ========= ======== Earnings per common share: Continuing operations $ (3.08) $ 0.12 ======== ======= Weighted average common shares 7,414 7,414 ======== ======
Notes to Unaudited Pro Forma Consolidated Statements of Operations (1) To eliminate the results of the Thread Division through December 31, 1995. (2) To eliminate goodwill amortization related to the Thread Division. (3) To eliminate interest expense from results of operations as a result of elimination of debt utilizing proceeds received from the sale of the Thread Division. (4) To provide for income taxes on pro forma book taxable income. (5) The 1995 impairment charge relating entirely to the Thread Division. 37 SELECTED FINANCIAL DATA The following selected consolidated financial data relating to the Company and its subsidiaries have been taken or derived from the financial statements and other records of the Company and the Predecessor. Such selected consolidated financial data are qualified in their entirety by, and should be read in conjunction with, the "Consolidated Financial Statements" and the "Unaudited Pro Forma Consolidated Financial Statements". BELDING HEMINWAY COMPANY, INC. AND SUBSIDIARIES SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
COMPANY PREDECESSOR -------------------------------------------------------------- ----------------------------------- Nine Months Years Ended Three Months Nine Months Years Ended September 30, December 31, December 31, September 30, December 31, 1996 1995 1995 1994 1993 1993 1992 1991 --------------------- ---------------------- ------------ --------------- ----------------- SUMMARY OF OPERATIONS: Net sales $67,158 $65,769 $ 88,654 $ 76,767 $17,978 $57,766 $91,829 $91,859 ======= ======= ========= ========= ======= ======= ======= ======= Income (loss) applicable to common stock before gain on preferred stock redemption 2,195 914 $(22,835) $ (315) $ 332 $(18,554) $ (515) $ 406 Gain on preferred stock redemption - - - 4,099 - - - - -------- ------- --------- --------- --------- -------- -------- -------- Income (loss) applicable to common stock from continuing operations 2,195 914 (22,835) 3,784 332 (18,554) (515) 406 Income (loss) from discontinued operations, net of taxes 358 377 (17) 1,497 611 1,130 2,829 1,719 Loss on disposal of discontinued operations, net of taxes -0- -0- (17,983) - - - - - -------- ------- --------- -------- ------- ------- ------- -------- Net income (loss) applicable to common stock $ 2,553 1,291 $(40,835) $ 5,281 $ 943 $(17,424) $ 2,314 $ 2,125 ======== ======= ========= ======== ======= ========= ======== ======= PER COMMON SHARE DATA: Continuing operations $ 0.30 $ 0.12 $ (3.08) $(.06) $ .07 $(9.45) $ (.26) $ .21 Discontinued operations 0.05 0.05 (2.43) .28 .12 .58 1.45 .90 Gain on preferred stock redemption - - - .78 - - - - ---------- --------- ---------- -------- -------- --------- ------- -------- Total $ 0.35 $ 0.17 $ (5.51) $ 1.00 $ .19 $ (8.87) $ 1.19 $ 1.11 ======== ======= ======== ====== ====== ======== ====== ====== Cash dividend per common share None None None None None $ .32 $ .64 $ .64 ====== ===== ===== ====== ====== ===== ====== ======
38
COMPANY PREDECESSOR ------------------------------------------------------ --------------------------- September 30, December 31, December 31, December 31, December 31, December 31, 1996 1995 1994 1993 1992 1991 ------------ ------------ ----------- ------------ ----------- ------------ BALANCE SHEET DATA: Working Capital $(19,948) $ 9,786 $ 10,355 $ 18,018 $14,024 $22,588 Total Assets $ 82,612 $ 94,124 $128,452 $124,552 $95,734 $92,476 Long-term debt, capital lease obligations and redeemable preferred stock $ 23,420 $ 66,845 $ 61,262 $ 81,085 $19,297 $24,275 Common stockholders' equity $(12,125) $(14,677) $ 26,162 $ 1,943 $47,188 $45,646
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATION The following discussion supplements the financial information presented in the historical consolidated financial statements of the Company. The discussion for 1993 is based upon the results of the Predecessor through September 30, 1993 and the results of the Company from October 1, 1993 to December 31, 1993. YEAR-TO-DATE SALES Sales during the nine month period ended September 30, 1996 totaled $67.2 million as compared to $65.8 million during the same period of 1995 for an increase of $1.4 million. Sales in the consumer product segment totaled $36.0 million during the first nine months of 1996 as compared to $29.7 million in the first nine months of 1995 for an increase of $6.3 million. The increase in consumer segment sales was mostly the result of incremental sales contributed by Culver. Sales in the industrial product segment totaled $31.2 million in 1996 as compared to $36.1 million during the first nine months of 1995 for a decrease of $4.9 million. All of this year to year reduction occurred during the first two quarters of 1996. GROSS MARGIN Gross margin during the first nine months of 1996 totaled $19.1 million as compared to $18.3 million during the same period in 1995 for an increase of $.8 million. The gross margin percent during the first nine months of 1996 was 28.4% as compared to 27.8% during the nine months ended September 30, 1995. 39 Gross margin in the consumer product segment during the first nine months of 1996 totaled $11.6 million as compared with $10.1 million during the first nine months of 1995. Increased sales by the Button division and incremental sales resulting from the Culver acquisition provided the additional margin dollars. The gross margin percentage during the first nine months of 1996 in the consumer product segment was 32.3% as compared to 33.9% during the same period in 1995. The decline in gross margin percentage in the consumer product segment was due to the lower Culver margins. Gross margin in the industrial segment during the first nine months of 1996 totaled $7.5 million as compared to $8.2 million in 1995. The decline in margin dollars was directly attributable to the decline in year-to-date sales volume of this segment. The gross margin percentage during the nine months of 1996 for the industrial segment was 24.0% as compared to 22.3% during the first nine months of 1995. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expenses during the first nine months of 1996 totaled $10.5 million as compared to $11.7 million during the first nine months of 1995. Selling, general and administrative expenses in the consumer product segment in the first nine months of 1996 totaled $3.9 million as compared to $3.3 million in 1995. The increase in selling, general and administrative costs in the consumer product segment was the result of additional expenses attributable to Culver operations. Selling, general and administrative expenses in the industrial product segment totaled $6.6 million during the nine months ended September 30, 1996 as compared to $8.4 million during the first nine months of 1995. The decline in selling, general and administrative expenses in the industrial product segment was the result of reduced spending totaling $1.6 million, principally the result of headcount reductions and lower goodwill amortization of $.3 million. INTEREST EXPENSE Interest expense during the nine month period ended September 30, 1996 totaled $3.4 million as compared to $3.0 million during the same period in 1995. The weighted average interest rate during the first nine months of 1996 was 9.33% as compared to 8.66% in 1995. Weighted average debt during the nine months ended September 30, 1996 was $46.1 million as compared to $44.8 million during the nine months ended September 30, 1995. INCOME TAXES The provision for income taxes during the nine months ended September 30, 1996 was $2.4 million as compared to $2.0 million during the same period last year. The combined effective income tax rate in 1996 totaled 42.4% as compared to 52.0% in 1995. The combined effective income tax rates are higher than combined statutory rates because of nondeductible goodwill. The 1996 combined effective income tax rate is lower than the 1995 rate because of the reduction in goodwill amortization. 40 PREFERRED DIVIDENDS Preferred dividends during the first nine months of 1996 totaled $1.0 million as compared to $1.0 million during the same period in 1995. Preferred dividends are accrued and compound at rate of 6%. Preferred dividend payments are subject to the approval of the Company's bank lenders. Such approval has not been granted and no dividend payments have been made by the Company. 1995 COMPARED TO 1994 SALES Sales for 1995 were $88.7 million as compared with $76.8 million in 1994, an increase of $11.9 million or 16%. Sales in the consumer products segment were $43.6 million in 1995, an increase of $13.4 million over 1994 consumer segment sales of $30.2 million. The increase in consumer products segment sales during 1995 was primarily driven by the full year inclusion of Danfield in 1995 results. Danfield was acquired on June 30, 1994 and had sales of $18.9 million during 1995 versus $9.0 million in the six months ended December 31, 1994. Also contributing to the favorable sales variance in 1995 was $2.1 million of sales contributed by Culver which was acquired on August 31, 1995 and a $1.4 million increase in sales by the Buttons division and thread consumer segment. Sales in the industrial segment were $45.1 million in 1995 as compared with $46.6 million in 1994, for a decline of $1.5 million. Weakness in customers' primary markets resulted in the 3% sales decline during 1995. GROSS MARGIN The gross margin in 1995 was $22.7 million or 25.7% of sales as compared with $22.7 million in 1994 or 29.6% of sales. The consumer products segment gross margin in 1995 was $13.8 million as compared with $11.7 million in 1994. The gross margin percentage in 1995 was 31.7% compared with 38.9% in 1994. The gross margin dollar improvement in 1995 was primarily the result of Danfield which was included for a full year in 1995 as compared to six months in 1994. The gross margin percentage decline was principally the result of lower margin on Culver sales. Gross margin in the industrial segment in 1995 was $8.9 million or 19.8% of sales as compared with $11.0 million in 1994 or 23.6% of sales, for a decline of $2.1 million. During 1995, the industrial segment experienced higher raw material and labor costs and higher than historical levels of manufacturing inefficiencies due to the effects of the consolidation and relocation of facilities that occurred in 1994 and implementation issues related to the new management information system. These increased costs were not fully recouped through sales price increases. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expense totaled $15.9 million or 18.0% of sales in 1995 as compared to $15.8 million or 20.6% of sales in 1994. 41 Selling, general and administrative expense in the consumer products segment totaled $4.8 million in 1995 or 11.0% of sales as compared with $3.7 million in 1994 or 12.3% of sales. The dollar increase in consumer segment selling, general and administrative expenses was the result of a full year of Danfield activity in 1995 versus six months in 1994 in addition to four months inclusion of Culver activity in 1995 versus none in 1994. Selling, general and administrative expense in the industrial segment was $7.3 million in 1995 versus $6.9 million in 1994. IMPAIRMENT CHARGE An impairment charge was recorded during 1995 related to the Thread division (See Note 2 to the Consolidated Financial Statements). The charge represented a $6.4 million write down of certain property, plant and equipment to estimated fair value as of December 31, 1995 and the write-off of a proportionate amount of goodwill allocated to the Thread division in connection with the 1993 acquisition. The goodwill write-off was $17.4 million and other related charges were $1.2 million. There were no such impairment charges in 1994. DISCONTINUED OPERATIONS During the fourth quarter of 1995, the Company announced its decision to divest the Home Furnishings division. Consequently, the results of operations of the Home Furnishings division for 1995 and all prior periods have been classified as results of discontinued operations. As a result of the decision to sell the Home Furnishings division, the Company also recorded an estimated loss on disposition in the amount of $18 million net of income tax benefit during the fourth quarter of 1995, including $7.6 million of goodwill write-off. The resulting book value of the division is a net liability of $793 and is classified as a current liability as of December 31, 1995. The loss on disposition of discontinued operations includes the Company's estimate in December of 1995 of the amount expected to be realized upon the sale of the Home Furnishings division. The amounts the Company will ultimately realize could differ materially in the near term from the amounts assumed in arriving at the loss on disposal of the discontinued operations. Summarized condensed operating results of the Home Furnishings division are as follows (dollars in thousands): 1995 1994 Net sales $30,084 $40,734 ======= ======= Gross margin $ 3,380 $ 6,585 Selling, general 3,298 4,307 ------- ------- and administrative Operating income $ 82 $ 2,278 ======= ======= 42 INTEREST EXPENSE Interest expense increased to $4.0 million in 1995 compared to $3.2 million in 1994. The increase was attributable to an increase in average outstanding debt during 1995 to $45.9 million from $41.4 million in 1994. In addition to the increase in the average debt level there was also an increase in the weighted average interest rate from 7.8% in 1994 to 8.7% in 1995. INCOME TAXES The income tax benefit for 1995 was $314 thousand. The write-off of nondeductible goodwill was the primary reason for the lower than statutory tax benefit. 1994 COMPARED TO 1993 SALES Sales for 1994 were $76.8 million, an increase of $1.1 million or 1.5% over the $75.7 million of net sales in 1993. Sales in the industrial segment were $46.6 million during 1994, compared with $47.0 in 1993. Sales in the consumer segment increased $1.5 million to $30.2 million in 1994 as compared to $28.7 million in 1993. The increase in consumer division sales was primarily the result of the acquisition of Danfield during 1994 and the $9.0 million of Danfield sales recorded during the second six months of 1994. Offsetting the increase in sales attributable to the Danfield acquisition were the effects of the disposition of the net assets of Pentapco, Inc. during the second quarter of 1993 which contributed $4.6 million of sales in 1993. Further offsetting the increase in sales attributable to Danfield was a decline of $3.0 million in sales of buttons and consumer segment thread. GROSS MARGIN Gross margin for 1994 was $22.7 million or 29.6% of sales as compared to $24.7 million in 1993 or 32.7% of sales. The industrial segment gross margin was $11.0 million and 23.6% of sales in 1994 compared to $13.4 million or 28.5% of sales in 1993. The decline in the industrial segment gross margin in 1994 was mostly attributable to an unfavorable price variance as the decline in sales volume was not a significant contribution to the gross margin decline. The unfavorable price variance in the industrial segment during 1994 was primarily caused by increased costs resulting from inefficiencies that occurred in connection with the consolidation of certain activities during 1994. Those consolidation activities included: closing the Putnam, CT mill and dyehouse operation; moving production to the Company's mill in Watertown, CT; moving dyeing operations to the Company's dyehouse in Southampton, VA; and closing a warehouse in Atlanta, GA. 43 Costs associated with these consolidation efforts included increased freight costs from moving product to new locations, increased shipping costs to meet expedited delivery dates of certain customers and increased salary costs associated with start up operations when inventory was moved from Atlanta and Putnam locations to new locations in Watertown and Hendersonville. The consumer products segment gross margin was $11.7 million and 38.9% of sales in 1994 compared to $11.3 million or 39.4% of sales in 1993 for an overall improvement of $ .4 million. A favorable volume variance of $ .3 million was mostly attributable to the addition of gross margin dollars related to Danfield. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expense totaled $15.8 million or 20.6% of sales during 1994 compared to $44.3 million in 1993 for a decline of $28.5 million. Selling, general and administrative expenses at the Corporate level declined from $31.7 million in 1993 to $5.2 million in 1994 for a decline of $26.5 million. During the third quarter of 1993, selling, general and administrative expenses included nonrecurring acquisition related restructuring charges of $18.5 million and a nonrecurring charge of $4.6 million to establish a provision for environmental liabilities, both recorded by the Predecessor. Additionally, reductions in general and administrative expenses totaling $3.4 million at the Corporate level were recorded in 1994 mainly as the result of the replacement of a centralized mainframe computer system with a new decentralized local area/wide area network based information system and the resultant elimination of related staff functions. In the industrial products segment, selling, general and administrative expense increased from $6.6 million in 1993 to $6.9 million in 1994. In the consumer products segment, selling, general and administrative expenses declined from $6.1 million in 1993 to $3.7 million. Pentapco contributed to 1993 selling, general and administrative expenses in the amount of $1.7 million. Additional reductions during 1994 were achieved by closing the Carlstadt, New Jersey warehousing and distribution facility and consolidating those functions in Lansing, Iowa. INTEREST EXPENSE Interest expense increased to $3.2 million in 1994 compared to $3.0 million in 1993. The increase was attributable to an increase in average outstanding debt during 1994 to $41.4 million from $32.5 million in 1993. Offsetting the interest effects of the increase in average outstanding debt was a reduction in average interest rates from 8.8% in 1993 to 7.8% in 1994. INCOME TAXES The effective combined income tax rate for 1994 was 51%. The primary reason for the higher than statutory rate was the non-deductible goodwill amortization recorded during 1994. 44 IMPACT OF INFLATION The Company's results are affected by the impact of inflation on manufacturing and operating costs. Historically, the Company has used selling price adjustments, cost containment programs and improved operating efficiencies to offset the otherwise negative impact of inflation on its operations. LIQUIDITY AND CAPITAL RESOURCES The Company has received a commitment from Sanwa Business Credit Corporation and Heller Financial, Inc. to provide a credit facility to the Company and certain of its subsidiaries in the aggregate amount of $42 million, consisting of two term loans aggregating $22 million and a $20 million revolving credit facility (the "Heller Facility"). The Company is negotiating the terms of a new credit agreement which is expected to be funded before December 31, 1996 but no assurances can be given that a new credit agreement will be effectuated. The term loans are expected to be amortizable in installments over a period of five years and to bear interest, at the option of the Company, in the case of the first tranche of $14 million ("Tranche A"), at prime plus 1.50% or LIBOR plus 3.50% and, in the case of the second tranche of $8 million ("Tranche B"), at prime plus 1.75% or LIBOR plus 3.75%. The revolving loan is expected to bear interest, at the option of the Company, at prime plus 1.25% or LIBOR plus 3.25%. The rates are expected to be subject to a reduction of up to .75% in the aggregate if the Company meets certain EBITDA levels (defined to mean net income before taxes, interest, amortization, depreciation and other non-cash charges, but exclusive of extraordinary, non-recurring gains, gains and loses from asset dispositions and certain income derived from affiliates) in fiscal 1997 and 1998. The loan agreement is expected to contain customary negative covenants and financial conditions. Among them, the Company expects to continue to be prohibited from making any payments to its preferred stockholders as dividend, redemption or otherwise until Tranche B of the term loan has been discharged in full. Thereafter, under the proposed terms, the Company may apply up to 25% of its excess cash flow to these payments. The Company intends to apply the proceeds from the Heller Facility to discharge in full its obligations under the Company's credit facility with NationsBank. The following is the description of the Company's Liquidity and Capital Resources as set forth in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996: Cash provided by operations during the nine months ended September 30, 1996 totaled $4.3 million. Net cash provided by investing activities during the nine months ended September 30, 1996 totaled $7.3 million which included net proceeds of $8.2 million from the sale of the Home Furnishings division and $.5 million from the sale of an unused parcel of land, offset by $1.0 million of capital expenditures and $.4 million of investments in other assets. Net cash used by financing activities totaled $11.8 million. Net proceeds of $8.2 million from the sale of the Home Furnishings division were used to repay bank debt during the quarter. Reductions in long term liabilities of $1.1 million reflect primarily payments to the Company's pension plan and payments of other long term liabilities. At September 30, 1996, the Company's principal sources of liquidity included cash and cash equivalents of $.4 million and trade accounts receivable of $11.9 million. At September 30, 1996 the 45 Company had $.9 million of unused availability under its revolving credit facility (the "Revolving Facility"). At December 31, 1995, the Company was in default on certain of its loan covenants specified in the Credit Agreement dated October 29, 1993, as amended ("Credit Agreement"). As a result, on March 15, 1996, the Credit Agreement was amended as more fully described in the Company's Form 10-K for the year ended December 31, 1995, and Form 10-Q for the quarterly period ended March 31, 1996. The Company completed the sale of the Home Furnishings division on July 31, 1996 and used the net proceeds to repay all existing revolving facility advances against the Company's Home Furnishings division receivables and inventories and thus avoided fees otherwise payable under the amended Credit Agreement. The banks participating in the Company's Credit facility have agreed in exchange for the payment of a $250 thousand fee to postpone to March 31, 1997 the payment of the $2.5 million in fees required by the most recent amendment to the Credit Agreement. In order to meet the requirements of the Term Facility and thus avoid fees payable by the deadline, the Company expects that it will have to refinance the Term Facility by the deadline, or sell assets. If the Company is not successful in refinancing the Term Facility, it will be obligated to demonstrate progress toward the sale of assets and complete a sale of those assets at sufficient levels to repay the Term Facility by the deadline, in order to avoid the payment of fees. If the Company refinances the Term Facility, the new borrowing arrangements may carry higher rates of interest and increased administrative costs. If the Company raises funds through asset sales to discharge the Term Facility, the reduction in interest expense resulting therefrom may not be sufficient to offset the diminution in income that would result from such asset sales. There can be no assurance that the Company will be able to refinance the Term Facility on commercially acceptable terms or demonstrate sufficient progress towards asset sale(s) by the dates fees are due and/or complete a transaction sufficient to discharge the Term Facility by the deadline. If the Company cannot satisfy those conditions, the Company would be obligated to pay fees under the agreement. There is no assurance that the Company's cash flow would be sufficient to pay those fees. If the Company is unable to pay any of the fees when due it will be in default under the Term Facility. The Company has engaged a financial advisor in order to assist it in the evaluation of strategic alternatives. The Company's ability to make interest and installment principal payments on outstanding debt also depends on generating sufficient cash flow from operations as well as maintaining certain levels of receivables and inventory. However, there can be no assurance the Company will have sufficient cash flow or that working capital levels will be sufficient to make such payments. If the Company is unable to make installment principal and interest payments when due, it will be in default of the Credit Agreement. If the Company is not successful in refinancing the Credit Facility and thereby does not repay all of the amounts outstanding under the Credit Facility on its final maturity date of July 1, 1997 or meet other covenant provisions, it will be in default under the Credit Facility. Any such default or non-compliance with the Credit Facility would entitle the lender to require immediate payment of the outstanding indebtedness and to refuse advances and to exercise various rights against the Company, including, without limitation, the right to foreclose its security interest in the 46 Company's assets and realize upon its collateral by any available judicial procedure and/or to take possession of and sell any or all of the collateral with or without judicial process. If such non-compliance occurred and the lender demanded payment or refused to make further loans and the Company was unable to obtain alternative financing, the lack of appropriate liquidity would have a material adverse effect on the Company's results of operations and its ability to continue as a going concern. The Company was also in default on one covenant of certain leasing arrangements totaling $2.2 million in debt at December 31, 1995. The leasing arrangements have been amended on terms parallel to the Credit Agreement. The maturity date has been moved to July 1, 1997 and interest rate increased to prime rate plus 1.50%. Lessor has also received a second lien on certain Company assets. The Company is now in compliance with the provisions as amended of these leasing arrangements during 1996. If the Company does not comply with the provisions and is unable to obtain alternative financing, the Company would be in default and the lender could take back the equipment under lease which would have an adverse effect on the Company's operations. The Company is in discussions with several banks and financial institutions to refinance all of its existing debt at commercially acceptable terms. However, there can be no assurance that the Company will be able to complete a refinancing of the Term Facility or demonstrate sufficient progress towards asset sale(s) by the dates fees are due and/or complete a transaction sufficient to discharge the Term Facility by the deadline. Pursuant to the terms of the Company's Series B Preferred Stock, 20% of such shares were scheduled to be redeemed on March 15 of each year commencing in 1995 and ending in 1999. Dividends on the Series B Preferred Stock accrue at an annual rate of 6% and are payable quarterly on March 15, June 15, September 15, and December 15. Both the preferred stock redemptions and the quarterly dividend payments are subject to approval of the banks participating in the Company's credit facility. The Company was notified as of March 15, 1995 that the banks declined approval of the dividend and redemption payments and no such payments have been made. As a result, additional dividends will accrue on the scheduled but unpaid dividends at a rate of 6% per annum. 47 MARKET INFORMATION AND RELATED STOCKHOLDER MATTERS (A) Market Information. From October 1993 to December 15, 1994 there existed no independent public trading market for the Company's Common Stock. The high and low closing price for a share of the Common Stock during the period December 15, 1994 to December 31, 1994 was $8.00 and $6.50 respectively. The high and low closing price for a share of the Common Stock during 1995 was $8.125 and $2.875 respectively. The high and low closing price for a share of Common Stock from January 1, 1996 through September 30, 1996 was $2.50 and $1.375, respectively. On December 11, 1996, the day before the first public announcement of the proposed Sale, the closing price for a share of Common Stock was $1.875. On December 12, 1996, the day of such announcement, the closing price for a share of Common Stock was $2.625. In October 1993, Noel acquired the entire equity interest in the Company. On February 28, 1994, Noel distributed to its common stockholders all the issued and outstanding shares of Series A common stock of the Company. From February 28, 1994 until December 15, 1994, there was no independent public trading market for the Series A common stock of the Company. During that period, the Series A common stock of the Company traded in tandem with, as if stapled to, the shares of common stock of Noel, i.e., no separate stock certificates representing shares of Series A common stock were issued and the certificates representing shares of Noel's common stock were deemed to evidence ownership of the Series A common stock of the Company. Prior to December 15, 1994, certain shares of the Company's Series B common stock were also issued to the Company's management group and certain affiliated person and entities. On December 15, 1994, the Series A common stock of the Company ceased trading stapled to the shares of Noel and began trading independently. On that date, all authorized shares of Series A and Series B common stock of the Company were automatically reclassified as shares of Common Stock without series to create a single class of Common Stock. The Company's Common Stock was initially accepted for listing on the Nasdaq Small-Cap Market, where it traded independently from December 15, 1994 until February 15, 1995. On February 15, 1995, the Company's Common Stock was delisted from Nasdaq and began trading on the New York Stock Exchange. (B) Holders. There were 232 record holders of the Company's Common Stock as of November 25, 1996. The Company believes that, as of December 19, 1996, there were in excess of 2,097 beneficial holders, including those stockholders whose shares are held of record by depository companies. (C) Dividends. No cash dividends on the Common Stock have been paid to date and the Company has no intention of paying dividends in the foreseeable future. Currently, agreements between the Company and its lenders prohibit or restrict the Company from paying any cash dividends on the Common and Preferred Stock during the terms of such agreements. In addition, dividends on the Common Stock are subject to the prior right of holders of the Preferred Stock to receive cumulative dividends at the rate of $ .06 per annum per share (or, if the Company defaults on its obligation to redeem shares of Preferred Stock on the mandatory redemption dates, at the rate of 6% per annum on the principal amount of the Preferred Stock then outstanding plus accrued and unpaid dividends thereon). In addition, the holders of Preferred Stock are entitled, upon a dissolution, liquidation or winding up of the Company, to a liquidation preference of $1 per share plus all accrued and unpaid dividends. Under the terms of the Company's Credit Facility, the Banks must approve any payments related to the Preferred Stock. As the Banks have declined approval of the preferred dividend and redemption 48 payments, additional dividends will accrue on the scheduled but unpaid dividends at a rate of 6% per annum. The Predecessor paid common stock dividends on a per share basis of $ .32 and $ .64 during 1993 and 1992 respectively. PRINCIPAL STOCKHOLDERS The following table sets forth each person known to the Company to be the beneficial owner of more than 5% of the outstanding Common Stock and/or Preferred Stock of the Company as of December 16, 1996. Beneficial ownership has been determined for purposes herein in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), under which a person is deemed to be the beneficial owner of securities if such person has or shares voting power or investment power in respect of such securities or has the right to acquire beneficial ownership within 60 days. On December 18, 1996, there were outstanding 7,388,282 shares of Common Stock and 20,805,060 shares of Preferred Stock of the Company.
Common Stock Series B Preferred Stock -------------------------------- ----------------------------- Amount of Shares Name and Address of Amount of Shares Percent Beneficially Percent Beneficial Owner Beneficially Owned of Class Owned of Class - ---------------------- ------------------ -------- ------------ --------- The Noel Group, Inc. 2,205,814 29.86% 19,312,837.5 92.83% 667 Madison Avenue New York, New York(1)
(1) Noel acquired the entire equity interest in the Company in October 1993. In February 1994, Noel made an irrevocable distribution to its common stockholders of 3,542,404 shares of the Company's Common Stock. In a series of other transactions, Noel sold, or caused the Company to issue, shares of the Company's Common Stock and/or Preferred Stock to various affiliates of Noel and certain members of the Company's management group. The shares reported in this table reflect Noel's remaining equity interest in the Company as of March 1, 1996. Messrs. Joseph S. DiMartino, William L. Bennett and Samuel F. Pryor, IV and Ms. Karen Brenner, directors of the Company, are affiliated in various capacities with Noel and Mr. Lamphere is a former officer and director of Noel. Each of these directors also beneficially own shares of common stock, par value $.01 per share, of Noel ("Noel Common Stock") as more particularly set forth in the footnotes to the following table. CHANGES IN CONTROL As of December 16, 1996, Noel owned beneficially 2,205,814 shares of Common Stock and 19,312,837.5 shares of Preferred Stock (76.3% of the issued and outstanding Capital Stock of the Company). By virtue of its ownership of the Common Stock and the Preferred Stock, Noel holds voting control of the Company. Under the terms of the Company's charter, the Preferred Stock is required to be redeemed by the Company in installments on or prior to March 1999, subject to the approval of the Banks. The Banks did not approve the redemption payment due in March 1995 or March 1996. To the 49 extent that the Preferred Stock is redeemed by the Company in accordance with the charter, voting control of the Company will pass to the holders of the Common Stock on or prior to March 1999. EQUITY SECURITIES BENEFICIALLY OWNED BY THE DIRECTORS AND EXECUTIVE OFFICERS According to information furnished to the Company as of December 18, 1996, the directors of the Company, certain of the Company's executive officers as of December 18, 1996 (the "Named Executive Officers") within the meaning of Item 402(a)(3) of Regulation S-K of the Securities and Exchange Commission (the "SEC") and all current directors and executive officers as a group, beneficially owned shares of Capital Stock of the Company as set forth below. Beneficial ownership has been determined for purposes herein in accordance with Rule 13d-3 of the Exchange Act under which a person is deemed to be the beneficial owner of securities if such person has or shares voting power or investment power in respect of such securities or has the right to acquire beneficial ownership within 60 days.
Common Stock Series B Preferred Stock ------------------------- -------------------------- Amount of Amount of Shares Shares Name and Address of Beneficially Percent Beneficially Percent Beneficial Owner Owned of Class Owned of Class - ------------------- ------------ -------- ------------ -------- William L. Bennett 161,613(1) 2.19% 294,034.5(2) 1.41% c/o Noel Group, Inc. 667 Madison Avenue New York, New York 10021 Gilbert H. Lamphere 184,828(3) 2.50% 245,028.5(4) 1.18% c/o The Fremont Group 50 Fremont Street San Francisco, California 94105 Samuel F. Pryor, IV 134,066(5) 1.81% 245,028.5(6) 1.18% 645 Madison Avenue Suite 2200 New York, New York 10021 Robert A. Levinson 140,170(7) 1.90% 610,120 2.93% c/o Andrex Industries Corp. 1071 Avenue of the Americas New York, New York 10019 Joseph S. DiMartino 4,600(8) (9) -- -- c/o Noel Group, Inc. 667 Madison Avenue New York, New York
50
Common Stock Series B Preferred Stock ------------------------- -------------------------- Amount of Amount of Shares Shares Name and Address of Beneficially Percent Beneficially Percent Beneficial Owner Owned of Class Owned of Class - ------------------- ------------ -------- ------------ -------- Alan E. Woltz 4,600(10) (9) -- -- Bay Lane Water Mill, NY 11976 Karen Brenner 254,200(11) 3.35% -- -- c/o Noel Group, Inc. 667 Madison Avenue New York, New York Gary P. Silverman 15,875(12) (9) -- -- c/o Belding Heminway Company, Inc. 1430 Broadway New York, New York 10018 Edward Cooke 10,000(13) (9) -- -- c/o Belding Heminway Company, Inc. 1430 Broadway New York, New York 10018 All directors and executive 909,952(15) 11.92% 1,394,211.50 6.70% officers as a group (9 persons)(14)(15)
(1) Consists of: (i) 115,124 shares held of record by Mr. Bennett; (ii) 19,885 shares owned by Constance Leeds Bennett, Mr. Bennett's wife, and 526 shares held by Constance Leeds Bennett as trustee for the benefit of Mr. Bennett's children, as to all of which shares Mr. Bennett disclaims beneficial ownership; (iii) 20,478 shares held by Mr. Bennett as trustee under two Rabbi Trusts (the "Rabbi Trusts") established by the Company for the benefit of former executives under the Company's deferred compensation program, as to all of which shares Mr. Bennett disclaims beneficial ownership; and (iv) 5,600 shares which Mr. Bennett could acquire upon the exercise of director's stock options. Mr. Bennett also beneficially owns 445,315 shares (2.2%) of Noel Common Stock including 3,000 shares held by Constance Leeds Bennett as trustee for the benefit of Mr. Bennett's children, as to all of which shares Mr. Bennett disclaims beneficial, and 442,315 shares issuable upon exercise of stock options. (2) Consists of: (i) 98,011.5 shares held of record by Mr. Bennett; and (ii) 196,023 shares held by Mr. Bennett as trustee under the Rabbi Trusts, as to all of which shares Mr. Bennett disclaims beneficial ownership. 51 (3) Consists of: (i) 50,238 shares held of record by Mr. Lamphere; (ii) 128,601 shares held by various irrevocable trusts for the benefit of Mr. Lamphere's minor children, as to all of which shares Mr. Lamphere disclaims beneficial ownership; (iii) 389 shares held in Mr. Lamphere's 401(k) account; and (iv) 5,600 shares which Mr. Lamphere could acquire upon the exercise of director's stock options. Mr. Lamphere also beneficially owns 479,998 shares (2.3%) of Noel Common Stock including 1,362 shares held directly; 9,747 shares held by various irrevocable trusts for the benefit of Mr. Lamphere's minor children and 2,222 shares held in Mr. Lamphere's 401(k) account, as to all of which shares Mr. Lamphere disclaims beneficial ownership; and 466,667 shares issuable upon exercise of stock options. (4) Consists of shares of Preferred Stock held by various irrevocable trusts for the benefit of Mr. Lamphere's minor children, as to all of which shares Mr. Lamphere disclaims beneficial ownership. (5) Consists of: (i) 48,102 shares held of record by Mr. Pryor; (ii) 56,809 shares held by an irrevocable trust for the benefit of Mr. Pryor's minor children, as to all of which shares Mr. Pryor disclaims beneficial ownership; (iii) 23,102 shares held by The Prospect Group, Inc. Capital Accumulation IRC and Profit Sharing Plan for the benefit of Mr. Pryor; (iv) 453 shares held by Mr. Pryor's wife; end (v) 5,600 shares which Mr. Pryor could acquire upon the exercise of director's stock options. Mr. Pryor also beneficially owns 301,665 shares (1.5%) of Noel Common Stock including 2,583 shares held by Mr. Pryor's wife and 5,748 shares held by certain trusts for the benefit of Mr. Pryor's minor children as to all of which shares Mr. Pryor disclaims beneficial ownership; and 293,334 shares issuable upon exercise of stock options. (6) Consists of: (i) 73,508.5 shares of Preferred Stock held of record by Mr. Pryor; (ii) 98,011.5 shares of Preferred Stock held by an irrevocable trust for the benefit of Mr. Pryor's minor children, as to all of which shares Mr. Pryor disclaims beneficial ownership; and (iii) 73,508.5 shares held by The Prospect Group, Inc. Capital Accumulation IRC and Profit Sharing Plan for the benefit of Mr. Pryor. (7) Consists of: (i) 59,570 shares held of record by Mr. Levinson; (ii) 75,000 shares held by three trusts for the benefit of Mr. Levinson's children, as to all of which trusts Mr. Levinson serves as co-trustee; and (iii) 5,600 shares of Common Stock which could be acquired by Mr. Levinson upon the exercise of director's stock options. (8) Consists of 4,600 shares which could be acquired upon exercise of director's stock options. Mr. DiMartino also beneficially owns 808,334 shares (3.8%) of Noel Common Stock which consists solely of shares issuable upon exercise of stock options and warrants. (9) Represents less than 1% of the outstanding shares. (10) Consists of 4,600 shares which could be acquired upon exercise of director's stock options. (11) Consists of: (i) 50,000 shares held by the Noel Group, Inc. Retirement Plan FBO K. Brenner, and (ii) 204,200 shares which Ms. Brenner could acquire upon the exercise of stock options. Ms. Brenner also beneficially owns 233,334 shares (1.1%) of Noel Common Stock which consists solely of shares issuable upon exercise of stock options. 52 (12) Includes: (i) 12,875 shares held of record by Mr. Silverman, of which 2,650 shares are subject to employment vesting restrictions; and (ii) 3,000 shares which Mr. Silverman could acquire upon the exercise of stock options. An aggregate of shares reported in this column are subject to employment vesting restrictions." (13) Includes: (i) 5,000 shares held of record by Mr. Cooke, of which 2,000 are subject to employment vesting restrictions; and (ii) 5,000 shares which Mr. Cooke could acquire upon the exercise of stock options. (14) For purposes of computing the aggregate number of shares beneficially owned by directors and Executive Officers of the Company as a group, the same shares are not counted more than once. (15) Includes 243,800 shares subject to stock options. INDEPENDENT AUDITORS Arthur Andersen LLP, certified public accountants, have been appointed by the Board of Directors, upon recommendation of the Audit Committee of the Board as independent auditors for the Company to examine and report on its financial statements for the 1996 fiscal year. Representatives of Arthur Andersen are expected to be present at the Meeting, with the opportunity to make a statement if they desire to do so, and to be available to respond to appropriate questions. STOCKHOLDERS' PROPOSALS Any proposal by a stockholder of the Company intended to be presented at the 1997 Annual Meeting of Stockholders was required to have been received by the Company at its principal executive office not later than December 31, 1996 for inclusion in the Company's proxy statement and form of proxy relating to that meeting. Any such proposal must also comply with the other requirements of the proxy solicitation rules of the Securities and Exchange Commission. OTHER BUSINESS Management does not know of any other matters to be brought before the Meeting except those set forth in the notice thereof. If other business is properly presented for consideration at the Meeting, it is intended that the Proxies will be voted by the persons named therein in accordance with their judgment on such matters. By order of the Board of Directors, EDWARD F. COOKE Secretary January ___, 1997 53 TABLE OF CONTENTS SUMMARY.................................................................................... 3 The Meeting........................................................................ 3 The Sale Transaction............................................................... 4 THE MEETING................................................................................ 6 THE SALE TRANSACTION....................................................................... 6 Background......................................................................... 6 Recommendation of the Board of Directors........................................... 11 Opinion of Bridgeford.............................................................. 11 Opinion of Advest.................................................................. 14 Certain Information Concerning Hicking Pentecost and the HP Financing.............. 16 Conduct of Business after the Sale; Use of Proceeds................................ 18 Potential Effect of the Sale upon Holders of Common Stock and Preferred Stock...... 19 Terms of the Sale Agreement........................................................ 21 Federal Income Tax Consequences of the Sale........................................ 25 Accounting Treatment of the Sale................................................... 25 Absence of Dissenters' Rights of Appraisal......................................... 25 BUSINESS OF THE COMPANY.................................................................... 25 Thread Division.................................................................... 26 Button Division.................................................................... 28 Legal Proceedings.................................................................. 30 CAPITALIZATION............................................................................. 32 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS...................................... 33 SELECTED FINANCIAL DATA.................................................................... 38 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................................................................... 39 MARKET INFORMATION AND RELATED STOCKHOLDER MATTERS......................................... 48 PRINCIPAL STOCKHOLDERS..................................................................... 49 Changes In Control................................................................. 49 EQUITY SECURITIES BENEFICIALLY OWNED BY THE DIRECTORS AND EXECUTIVE OFFICERS........................................................................ 50 INDEPENDENT AUDITORS....................................................................... 53 STOCKHOLDERS' PROPOSALS.................................................................... 53 OTHER BUSINESS............................................................................. 53
54 INDEX TO FINANCIAL STATEMENTS..............................................................F-1 APPENDIX A OPINION OF THE BRIDGEFORD GROUP................................................A-1 APPENDIX B OPINION OF ADVEST, INC.........................................................B-1 APPENDIX C ASSET PURCHASE AGREEMENT.......................................................C-1 APPENDIX D PROPOSED CERTIFICATE OF AMENDMENT .............................................D-1
55 INDEX TO FINANCIAL STATEMENTS Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995..........................F-2 Consolidated Statements of Operations for the Nine months Ended September 30, 1996 and 1995...................F-3 Consolidated Statements of Cash Flows for the Nine months Ended September 30, 1996 and 1995...................F-4 Notes to Unaudited Consolidated Financial Statements September 30, 1996......................................................F-5 Report of Independent Public Accountants - December 31, 1995............F-7 Consolidated Balance Sheets- December 31, 1995 and 1994 ................F-8 Consolidated Statements of Operations - Company - for the Years Ended December 31, 1995 and 1994 and the Three Months December 31, 1993 Predecessor - for the Nine Months September 30, 1993..............F-10 Consolidated Statements of Cash Flows - Company - for the Years Ended December 31, 1995 and 1994 and the Three Months December 31, 1993 Predecessor - for the Nine Months September 30, 1993..............F-11 Consolidated Statements of Stockholders' Equity for the year ended December 31, 1995 and for the period October 1, 1993 to December 31, 1994...............F-12 Notes to Consolidated Financial Statements for the Year Ended December 31, 1995..............................F-13
F-1 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS BELDING HEMINWAY COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
ASSETS SEPTEMBER 30, 1996 DECEMBER 31, 1995 (UNAUDITED) (NOTE) ----------- ------ Current Assets: Cash and cash equivalents $ 448 $ 629 Accounts receivable trade, net 11,927 11,314 Inventories 18,081 18,360 Federal income taxes receivable 100 787 Current deferred tax asset 1,483 313 Other current assets 632 953 ------- ------- Total current assets 32,671 32,356 ------- ------- Property, plant and equipment, at cost 32,809 33,013 Less: Accumulated depreciation and amortization (4,913) (3,538) ------- ------- Net property, plant and equipment 27,896 29,475 ------- ------- Goodwill, net 20,322 20,450 Deferred tax asset -- 9,515 Other assets 1,723 2,328 ------- ------- Total Assets $82,612 $94,124 ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $5,208 $5,593 Current maturities of long-term debt 37,786 4,029 Other current liabilities 9,625 12,948 ------- ------- 52,619 22,570 ------- ------- Long-term debt 227 44,666 Other liabilities 18,698 19,386 ------- ------- Total Liabilities 71,544 86,622 ------- ------- Redeemable Preferred Stock, par value $0.01 per share 20,805,060 shares authorized; Shares issued and outstanding: Series A - None Series B - 20,805,060 20,805 20,805 Accumulated dividends on preferred stock 2,388 1,374 ------- ------- 23,193 22,179 ------- ------- Common Stock, par value $0.01 per share 20,000,000 shares authorized; Shares issued and outstanding: September 30, 1996: 7,388,282 74 December 31, 1995: 7,409,282 74 Paid in Capital 19,858 19,859 Retained Earnings (32,057) (34,610) ------- ------- Total Common Stockholders' Equity (12,125) (14,677) ------- ------- Total Liabilities and Stockholders' Equity $82,612 $94,124 ======= =======
See Notes to Unaudited Consolidated Financial Statements. F-2 BELDING HEMINWAY COMPANY, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED SEPTEMBER 30, 1996 1995 ------------------ Net sales $ 67,158 $ 65,769 Cost of sales 48,063 47,487 -------- -------- Gross profit 19,095 18,282 Selling, general & administrative expenses 10,508 11,654 Other (income) expense -- net (384) (222) -------- -------- Income from continuing operations before interest and income taxes 8,971 6,850 Interest expense 3,395 2,961 -------- -------- Income from continuing operations before income taxes 5,576 3,889 Provision for income taxes 2,367 2,023 -------- -------- Income from continuing operations 3,209 1,866 Less dividends on preferred stock 1,014 952 -------- -------- Income applicable to common stock from continuing operations 2,195 914 Income (loss) from discontinued operations, net of income tax provision 358 377 -------- -------- Income applicable to common stock $ 2,553 $ 1,291 ======== ======== Earnings per common share: Continuing operations $ 0.30 $ 0.12 Discontinued operations 0.05 0.05 -------- -------- Total $ 0.35 $ 0.17 ======== ======== Weighted average common shares outstanding (in thousands) 7,397 7,416 ======== ======== Total depreciation and amortization 2,344 2,644 ======== ========
See Notes to Unaudited Consolidated Financial Statements. F-3 BELDING HEMINWAY COMPANY, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, 1996 1995 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Income from continuing operations $ 3,209 $ 1,866 Reconciliation of net income from continuing operations to net cash provided by operations: Depreciation and amortization 2,344 2,644 Deferred tax provision 1,993 1,105 Gain on asset sale (131) -- Changes in operating assets and liabilities: Accounts receivable (613) (419) Inventories (752) (3,972) Federal income taxes receivable 565 -- Other current assets 443 259 Accounts payable (385) 1,842 Other current liabilities (1,894) (2,709) Other liabilities (637) -- Other operating assets and liabilities 164 131 Cash flow from discontinued operations (44) 2,207 -------- -------- 4,262 2,954 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of discontinued operations 8,190 2,623 Capital expenditures (970) (2,915) Investments in other assets (389) (199) Proceeds from asset sales 534 -- Acquisition of Culver noncash net assets -- (2,800) Adjustments related to acquisitions (42) (123) -------- -------- 7,323 (3,414) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving credit facility and capitalized lease obligations 31,787 29,801 Repayment of long term debt and capital lease obligations (42,469) (27,295) Payment of long term liabilities (1,084) (2,427) -------- -------- (11,766) 79 -------- -------- Decrease in cash and cash equivalents (181) (381) Cash and cash equivalents beginning of period 629 1,015 -------- -------- Cash and cash equivalents end of period $ 448 $ 634 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 3,393 $ 2,007 ======== ======== Income taxes $ 103 $ 798 ======== ======== See Notes to Unaudited Consolidated Financial Statements F-4 BELDING HEMINWAY COMPANY, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 NOTE 1: BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Certain reclassifications have been made to prior year amounts in order to present them on a basis consistent with the current year. Operating results for the nine-month period ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. For further information, refer to the consolidated financial statements and footnotes included in the Company's annual report on Form 10-K for the year ended December 31, 1995. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operation: The Company and its subsidiaries manufacture and market industrial and consumer threads and distribute a line of home sewing and craft products, principally buttons. The Company has divested the Home Furnishings division (See Note 5). Consolidation: The accompanying consolidated financial statements include the accounts of the Company and all subsidiaries after elimination of intercompany items and transactions. Depreciation and Amortization: Depreciation and amortization are computed principally by the straight-line method for each class of depreciable and amortizable asset based on their estimated useful lives. Buildings and improvements, machinery and equipment, and furniture, fixtures and leasehold improvements are generally depreciated over periods of 20-35, 5-25 and 5-10 years, respectively. Revenue Recognition: Revenue is recognized upon shipment of merchandise. Cash Equivalents: The Company considers all highly liquid investments with a maturity of six months or less when purchased to be cash equivalents. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 3: EARNINGS PER SHARE Earnings per common share for the Company have been computed on the basis of weighted average common shares outstanding after providing for quarterly preferred dividend requirements. F-5 BELDING HEMINWAY COMPANY, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 NOTE 4: INVENTORIES: The components of inventories, net of reserves, are as follows (dollars in thousands):
SEPTEMBER 30, 1996 DECEMBER 31, 1995 ------------------ ----------------- Raw materials and greige goods $ 5,264 $ 3,189 Manufacturing supplies 1,202 1,346 Work in Progress 5,231 6,033 Finished goods 6,384 7,792 ------- ------- $18,081 $18,360 ======= =======
NOTE 5: DISCONTINUED OPERATIONS On July 31, 1996 the Company completed the sale of its Home Furnishings division. Proceeds received on the sale, adjusted for closing costs and changes in net asset value of the division subsequent to the contract date were used to repay the Company's revolving bank loan. Such net proceeds approximated the amount that had been borrowed under the revolving loan in support of the Home Furnishings division's inventories and receivables. The repayment of bank debt was sufficient in amount to avoid bank fees that would have been payable had the Company not completed the sale within the time frame prescribed by the Company's Credit Agreement dated October 29, 1993, as amended ("Credit Agreement") or in an amount sufficient to repay amounts borrowed against the division's inventories and receivables. The results of the Home Furnishings division for the period January 1, 1996 through July 31, 1996 and all prior periods have been presented as results of discontinued operations. F-6 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Belding Heminway Company, Inc. We have audited the accompanying consolidated balance sheets of Belding Heminway Company, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, cash flows and stockholders' equity for the years ended December 31, 1995 and 1994 and the period October 1, 1993 to December 31, 1993 (post-acquisition basis). We have also audited the accompanying consolidated statements of operations and cash flows for the nine month period ended September 30, 1993 (pre-acquisition basis). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Belding Heminway Company, Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of their operations, cash flows and stockholders' equity for the years ended December 31, 1995 and 1994 and the periods October 1, 1993 to December 31, 1993, (post-acquisition basis) and January 1, 1993 to September 30, 1993 (pre-acquisition basis) in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The 1995, 1994 and 1993 schedules listed in the index of financial statements and schedules are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These 1995, 1994 and 1993 schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP New York, New York February 23, 1996 (Except for the amendment to the Credit Agreement (Notes 4 and 9) as to which the date is March 15, 1996) F-7 BELDING HEMINWAY COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
DECEMBER 31, 1995 DECEMBER 31, 1994 ----------------- ----------------- ASSETS Current Assets: Cash and cash equivalents $ 629 $ 1,015 Accounts receivable trade (net of allowance of $2,127 and $2,376 respectively) 11,314 10,815 Inventories 18,360 15,733 Federal income taxes receivable 787 525 Current deferred tax asset 313 2,180 Other current assets 953 1,250 --------- --------- 32,356 31,518 --------- --------- Property, plant and equipment, at cost: Land 2,283 1,986 Building and improvements 13,312 16,477 Machinery and equipment 17,418 14,370 --------- --------- 33,013 32,833 Less: Accumulated depreciation and amortization (3,538) (1,763) --------- --------- 29,475 31,070 --------- --------- Goodwill (net of amortization of $2,947 and $1,467 respectively) 20,450 33,481 Deferred tax assets 9,515 469 Net assets of discontinued operations -- 29,049 Other assets 2,328 2,865 --------- --------- Total Assets $ 94,124 $ 128,452 ========= =========
See Notes to Consolidated Financial Statements F-8 BELDING HEMINWAY COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
DECEMBER 31, 1995 DECEMBER 31, 1994 ----------------- ----------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 5,593 $ 4,127 Current maturities of long-term debt 4,029 4,123 Federal income taxes payable -- 773 Other current liabilities 12,948 12,140 ----------- ----------- 22,570 21,163 ----------- ----------- Long-Term Debt 44,666 40,365 Other Liabilities 19,386 19,865 ----------- ----------- Total Liabilities 86,622 81,393 ----------- ----------- Redeemable Preferred Stock, par value $0.01 per share 20,805,060 shares authorized; Shares issued and outstanding: Series A - None Series B - 20,805,060 20,805 20,805 Accumulated dividends on preferred stock 1,374 92 ----------- ----------- 22,179 20,897 ----------- ----------- Common Stock, par value $0.01 per share 20,000,000 shares authorized; Shares issued and outstanding: December 31, 1995: 7,409,282 74 74 December 31, 1994: 7,429,032 Paid in Capital 19,859 19,863 Retained Earnings (34,610) 6,225 ----------- ----------- Total Common Stockholders' Equity (14,677) 26,162 ----------- ----------- Total Liabilities and Stockholders' Equity $ 94,124 $ 128,452 =========== ==========
See Notes to Consolidated Financial Statements F-9 BELDING HEMINWAY COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPANY PREDECESSOR ----------------------------------------------------- -------------- YEARS ENDED THREE MONTHS NINE MONTHS DECEMBER 31, DECEMBER 31, SEPTEMBER 30, 1995 1994 1993 1993 ----------------------------- ------------ ------------- Net sales $ 88,654 $ 76,767 $ 17,978 $ 57,766 Cost of sales 65,905 54,043 11,767 39,241 -------- -------- -------- -------- 22,749 22,724 6,211 18,525 Selling, general & administrative expenses 15,940 15,846 3,881 21,910 Other (income) expense -- net (324) (507) (78) 2,402 -------- -------- -------- -------- 7,133 7,385 2,408 (5,787) Impairment charge 25,000 -- -- -- Restructuring charge -- -- -- 18,548 -------- -------- -------- -------- Income (loss) from continuing operations before interest and income taxes (17,867) 7,385 2,408 (24,335) Interest expense 4,000 3,245 864 2,136 -------- -------- -------- -------- Income (loss) from continuing operations before income taxes (21,867) 4,140 1,544 (26,471) Provision (benefit) for income taxes (314) 2,113 605 (7,917) ------ ------ ------ ------ Income (loss) from continuing operations (21,553) 2,027 939 (18,554) Less dividends on preferred stock 1,282 2,342 607 -- -------- -------- -------- -------- Income (loss) from continuing operations applicable to common stock before gain on preferred stock redemption (22,835) (315) 332 (18,554) Gain on preferred stock redemption -- 4,099 -- -- -------- -------- -------- -------- Income (loss) applicable to common stock from continuing operations (22,835) 3,784 332 (18,554) -------- -------- -------- -------- Income (loss) from discontinued operations, net of income tax provision (17) 1,497 611 1,130 Loss on disposal of discontinued operations, net of income tax benefit (17,983) -- -- -- -------- -------- -------- -------- Income (loss) applicable to common stock $(40,835) $ 5,281 $ 943 $(17,424) ======== ======== ======== ======== Earnings per common share: Continuing operations $ (3.08) $ (.06) $ .07 $ (9.45) Discontinued operations (2.43) .28 .12 .58 Gain on preferred stock redemption -- 78 -- -- -------- -------- -------- -------- Total $ (5.51) $ 1.00 $ .19 $ (8.87) ======== ======== ======== ======== Dividend declared per common share None None None $ .32 ======== ======== ======== ======== Weighted average common shares outstanding (in thousands) 7,414 5,265 5,000 1,964 ======== ======== ======== ========
See Notes to Consolidated Financial Statements. Effective October 1, 1993, the Company revalued its assets and liabilities to reflect the price paid to purchase 100% of the Predecessor's issued and outstanding common stock. Accordingly, the Predecessor's Consolidated Statement of Operations is not comparable to the Company's Consolidated Statement of Operations. F-10 BELDING HEMINWAY COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
COMPANY PREDECESSOR -------------------------------------- ------------- YEARS ENDED THREE MONTHS NINE MONTHS DECEMBER 31, DECEMBER 31, SEPTEMBER 30, 1995 1994 1993 1993 ----------------------- ------------ ------------- Cash Flows From Operating Activities: Income (loss) from continuing operations $(21,553) $ 2,027 $ 939 $(18,554) Reconciliation of net income (loss) from continuing operations to net cash provided (used) by operations: Depreciation and amortization 3,278 2,251 936 1,295 Noncash impairment charge 25,000 -- -- -- Noncash restructuring charge -- -- -- 15,549 Deferred tax provision (benefit) (674) 825 770 (6,949) Changes in operating assets and liabilities: Accounts receivable trade 294 (630) (170) 2,265 Inventory (564) 169 504 260 Other current assets 157 678 (22) (4,220) Other assets 137 (662) (6) (185) Accounts payable 94 (1,969) 496 (666) Federal income taxes payable (773) -- -- (571) Other current liabilities (3,070) (1,482) (1,333) 1,390 Cash flow from discontinued operations 6,018 3,677 1,012 7,021 -------- --------- ------- -------- 8,344 4,884 3,126 (3,365) -------- --------- ------- -------- Cash Flows From Investing Activities: Acquisitions of operating companies noncash net assets (3,050) (8,390) (64,542) -- Adjustments related to acquisitions (57) (4,470) (6,560) -- Proceeds from asset sales -- 18,747 3,098 9,620 Capital expenditures (3,820) (3,617) (764) (844) Investments in other assets (123) (2,524) -- 318 -------- --------- ------- -------- (7,050) (254) (68,768) 9,094 -------- --------- ------- -------- Cash Flows From Financing Activities: Issuance of preferred stock -- -- 40,500 -- Acquisition related increase in long-term debt -- -- 47,000 -- Acquisition related repayments of long-term debt -- -- (19,500) -- Proceeds from revolving credit facility and capitalized lease obligations 40,551 21,906 -- 21,386 Repayments of short-term borrowings -- -- -- (23,843) Repayment of long-term debt and capital lease obligations (39,219) (27,031) (1,223) (3,409) Acquisition related payments (290) (145) -- -- Changes in other long-term liabilities (2,722) (432) (1,921) -- Other, net -- -- -- (112) -------- --------- ------- -------- (1,680) (5,702) 64,856 (5,978) -------- --------- ------- -------- Decrease in cash and cash equivalents (386) (1,072) (786) (249) Cash and cash equivalents beginning of period 1,015 2,087 2,873 3,122 -------- --------- ------- -------- Cash and cash equivalents end of period $ 629 $ 1,015 $ 2,087 $ 2,873 ======== ======== ======= ======== Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest $ 4,349 $ 2,762 $ 818 $ 2,427 ======== ======== ======== ======== Income taxes $ 1,146 $ 935 $ 68 $ 826 ======== ======== ======== ========
See Notes to Consolidated Financial Statements F-11 BELDING HEMINWAY COMPANY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
PREFERRED STOCK COMMON STOCK ---------------------------------------- -------------------------------------------------- Paid In Retained Series A Series B Series A Series B Common Capital Earnings ---------------------------------------- --------------------------------------------------------------------- Accum. Shares Amount Shares Amount Dividend Shares Amount Shares Amount Shares Amount ------ ------ ------ ------ -------- ------ ------ ------ ------ ------ ------ OCTOBER 1, 1993 - - - - - - - - - - - - - Issuance of stock 5 $500 40,000,000 $40,000 3,542,404 $708 1,457,596 $292 Dividends accrued on preferred stock $1,085 $ (606) Net income 1,550 --- ---- ---------- ------- ------ --------- ---- --------- ---- --------- ---- ------- -------- DECEMBER 31, 1993 5 $500 40,000,000 $40,000 $1,085 3,542,404 $708 1,457,596 292 - - 944 --- ---- ---------- ------- ------ --------- ---- --------- ---- --------- ---- ------- -------- Series B Common Shares Issued 128,000 26 Series B Common Shares Returned (2,000) Dividends accrued on (2,342) preferred stock 2,342 Dividends paid on 333,543 3 $2,738 12/4/94 (3,335) Conversion of Series B 16,170 Preferred (19,694,940)(19,695) 1,969,489 20 Gain on preferred 4,099 conversion Conversion of Series A Pfd. to B Pfd. (5) (500) 500,000 500 Reclassification of Series Common (3,542,404) (708) (1,583,596) (318) 5,126,000 51 975 Net income 3,524 Legal fees related to recapitalization (20) --- ---- ---------- ------- ------ --------- ---- --------- ---- --------- ---- ------- -------- DECEMBER 31, 1994 - - 20,805,060 $20,805 $ 92 - - - - 7,429,032 $ 74 $19,863 $ 6,225 --- ---- ---------- ------- ------ --------- ---- --------- ---- --------- ---- ------- -------- Net loss (39,553) Dividends accrued on preferred stock 1,282 (1,282) Common stock returned (19,750) (4) --- ---- ---------- ------- ------ --------- ---- --------- ---- --------- ---- ------- -------- DECEMBER 31, 1995 - - 20,805,060 $20,805 $1,374 - - - - 7,409,282 $ 74 $19,859 $(34,610) === ==== ========== ======= ====== ========= ==== ========= ==== ========= ==== ======= =========
See Notes to Consolidated Financial Statements F-12 Belding Heminway Company, Inc. and Subsidiaries Notes to Consolidated Financial Statements 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Nature of Operation: The Company and its subsidiaries manufacture and market industrial and consumer threads and distribute a line of home sewing and craft products, principally buttons. The Company has announced its decision to divest the Home Furnishings division (See Note 3). Basis of Presentation: For financial accounting purposes, the Company revalued its assets and liabilities as of October 1, 1993, to reflect the price paid by Noel to acquire 100% of the Company's Common Stock (Note 5). The Company's consolidated financial statements through September 30, 1993 reflect the historical cost of its assets, liabilities and results of operations and are referred to as the "Predecessor" consolidated financial statements. Consolidation: The accompanying consolidated financial statements include the accounts of the Company and all subsidiaries after elimination of intercompany items and transactions. Depreciation and Amortization: Depreciation and amortization are computed principally by the straight-line method for each class of depreciable and amortizable asset based on their estimated useful lives. Buildings and improvements, machinery and equipment, and furniture, fixtures and leasehold improvements are generally depreciated over periods of 20-35, 5-25 and 5-10 years, respectively. Revenue Recognition: Revenue is recognized upon shipment of merchandise. Cash Equivalents: The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. THREAD DIVISION ASSET IMPAIRMENT: During 1995, the Thread division's results were substantially below historical levels and the levels expected when the Company was acquired in 1993. Based on the performance and expected future levels of operations, management determined that the book value of certain property, plant, and equipment, which was adjusted to reflect the 1993 acquisition, was impaired. As a result, the Company recorded an impairment charge of $6.4 million to adjust the book value of the equipment to its estimated December, 1995 fair value. Fair value was based on estimated realizable value in a sale. The amounts actually realized in the future could differ materially from the amounts assumed in determining the impairment charge. Among other factors, the write down reflects the failure of plant consolidations made in connection with the acquisition to achieve expected results and the estimated effect of future cost reduction activities on the revenues associated with those assets. A proportionate amount of goodwill allocated to the Thread division in connection with the 1993 acquisition was also written-off following the principals in F-13 Statement of Financial Accounting Standard No. 121. The goodwill write off was $17.4 million and other related charges were $1.2 million. The Company's adoption of Statement of Financial Accounting Standard No. 121 (Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of). was effective January 1, 1995, and the adoption had no impact on the consolidated financial statements as of that date. 3. DISCONTINUED OPERATIONS: During the fourth quarter of 1995, the Company announced its decision to divest the Home Furnishings division. Consequently, the results of operations of the Home Furnishings division for 1995 and all prior periods have been classified as discontinued operations. In connection with this decision, the Company has retained an investment banker and has begun the process of identifying prospective buyers. It is anticipated a sale could be completed by mid year 1996. As a result of the decision to sell the Home Furnishings division, the Company recorded an estimated loss on disposition in the amount of $18 million net of income tax benefit during the fourth quarter of 1995, including $7.6 million of goodwill write-off. The resulting book value of the division is a net liability of $793 thousand and is classified as a current liability as of December 31, 1995. The Home Furnishings division had revenues of (in thousand of dollars) $39,324, $40,734 and $30,084 during the years ended December 31, 1993, 1994 and 1995 respectively. The loss on discontinued operations includes the Company's best estimate in December 1995 of the amounts expected to be realized on the sale of the Home Furnishings division. The amounts the Company will ultimately realize could differ materially in the near term from the amounts assumed in arriving at the loss on disposal of the discontinued operations. 4. LIQUIDITY: At December 31, 1995, the Company was in default on certain of its loan covenants. On March 15, 1996, the Company amended its Credit Agreement dated October 29, 1993, as amended ("Credit Agreement"). As further described in Note 9, $4.029 million principal amount of the Company's long term debt must be paid in 1996, and $44.488 million or substantially all of the Company's long-term debt must be paid in 1997. In addition, a schedule of fees is required to be paid beginning July 31, 1996, if the sale of the Home Furnishings division has not been completed and progress toward completion or completion of other asset sales has not taken place. Based on its current 1996 budgets, progress to date on the sale of the Home Furnishings division, and preliminary discussions regarding the sale of other assets, the Company believes that it will remain in compliance with the provisions of the revised Credit Agreement through December 31, 1996. However, there can be no assurance that budgets will be achieved or that asset sales, including the sale of the Home Furnishings division, will take place at expected prices or take place at all. Failure of these events to occur as expected could result in non-compliance with the terms of the revised Credit Agreement in 1996. If such non-compliance occurred and the lender demanded payment or refused to make further loans and the Company was unable to obtain alternate financing, the lack of adequate liquidity would have a material adverse effect on the Company's results of operations and its ability to continue as a going concern. 5. ACQUISITION BY NOEL GROUP, INC.: F-14 On July 21, 1993 Noel Group, Inc. ("Noel"), through its wholly-owned subsidiary, BH Acquisition Corporation ("BH Acquisition"), accepted for payment 1,434,712 shares of common stock, par value $1.00 per share (the "Shares"), of the Predecessor, representing approximately 73% of all outstanding shares, pursuant to a tender offer to the stockholders of the Predecessor at $30.25 per share, net to the seller in cash (the "Offer"). The Offer was made pursuant to an Agreement and Plan of Merger dated as of June 16, 1993 among the Predecessor, Noel and BH Acquisition. In October 1993, BH Acquisition was merged with and into the Predecessor (with the Company being the surviving corporation) pursuant to a merger among the Predecessor, Noel, and BH Acquisition. The total purchase price for 100% of the Shares, including the 27%, acquired following the tender offer was approximately $64.5 million. Effective October 1, 1993, the Company increased the carrying amounts of its net assets to reflect the price paid for 100% of its common stock, a process generally referred to as "push down" accounting. 6. INCENTIVE PROGRAM: As of December 6, 1994, the Company's voting stockholders adopted the Belding Heminway Company, Inc. 1994 Incentive Program ("the Program"). Grants under the Program may consist of incentive stock options, non-qualified stock options, stock appreciation rights in tandem with stock options or freestanding, restricted stock grants, or restored options. In connection with the Program, 500,000 shares of Common Stock were available for grants at the start of the Program. The following table summarizes stock option activity under the Program:
Option ----------------- (Dollars in thousands except per share amounts) Shares Price Aggregate ----------------------------------------------- ------ ----- --------- Outstanding at December 31, 1993 - - - Granted 190,000 $10.00 $1,900 Exercised - - - Cancelled - - - ------- ------------ ------ Outstanding at December 31, 1994 190,000 $10.00 1,900 Granted 76,000 $7.50-$3.13 402 Exercised - - - Cancelled (20,000) $10.00 (200) ------- ------------ ------ Outstanding at December 31, 1995 246,000 $10.00-$3.13 $2,102 ======= ============ =======
In 1996, the Company entered into an agreement with a consultant for a specified amount of cash consideration and 200,000 stock options (See Note 23). F-15 7. INVENTORIES: The components of inventories as of December 31, net of reserves are as follows (dollars in thousands):
1995 1994 ------- ------- Manufacturing supplies $ 1,346 $ 1,291 Raw materials and greige goods 3,189 3,872 Work in progress 6,033 5,106 Finished goods 7,792 5,464 ------- ------- $18,360 $15,733 ======= =======
At December 31, 1995 and 1994, $12,455 and $11,718 respectively, of inventories were valued by the last-in first-out ("LIFO") method. If the first-in, first-out ("FIFO") method (which approximates replacement costs) of inventory accounting had been used by the Company, inventories would not have been materially affected. Inventories are stated at lower of cost or market with cost determined principally on an average cost, or LIFO basis. 8. OTHER CURRENT LIABILITIES AND OTHER LIABILITIES: Other liabilities as of December 31 consist of the following (dollars in thousands):
CURRENT 1995 1994 ------- ------- ------- Insurance ............................................ $ 2,754 $ 3,383 Salaries, wages, bonuses and other compensation ...... 2,741 1,628 Plant consolidations ................................. 1,187 1,907 Net liabilities of discontinued operations ........... 793 -- Other ................................................ 5,473 5,222 ------- ------- $12,948 $12,140 ======= =======
LONG TERM 1995 1994 --------- ------- ------- Pension liability ............................ $ 6,483 $ 6,647 Environmental liabilities .................... 4,600 4,523 Other post-retirement benefits ............... 4,249 4,315 Other ........................................ 4,054 4,380 ------- ------- $19,386 $19,865 ======= =======
F-16 9. DEBT: Debt obligations as of December 31 consist of (dollars in thousands):
1995 1994 ---- ---- Senior Bank Facilities Term facility (a) ........................ $20,650 $18,339 Revolving facility (a) ................... 25,450 26,000 Capitalized lease obligations ................ 2,508 149 Note Payable Connecticut Development Authority 87 -- ------- ------- 48,695 44,488 Less: Current installments .................. 4,029 4,123 ------- ------- $44,666 $40,365 ======= =======
(a) The Senior Bank Facilities under the Credit Agreement consist of (i) a $25.0 million amortizing senior term loan facility (the "Term Facility") and (ii) a $29.0 million senior revolving credit facility (the "Revolving Facility") up to $2.5 million of which is available as standby and trade letters of credit (which letters of credit are subject to certain fees). On December 31, 1995, the Company was in default on certain of its loan covenants specified in the Credit Agreement. As a result, on March 15, 1996, the Credit Agreement was amended to provide, among other changes, the following: Defaults at December 31, 1995 were waived. Maturity of Senior Bank Facilities was changed to July 1, 1997 from December 31, 1999. Loans bear interest at the rate of NationsBank prime rate plus 1.75%. Previously the Company had the option of selecting an interest rate equivalent to (a) 1.75% plus the higher of (1) NationsBank's prime rate and (2) the Federal funds rate plus 1/2 of 1% or (b) a rate based upon certain rates offered for U.S. dollar deposits in the London interbank market plus 2.75%. If Revolving Facility advances exist against the Company's Home Furnishings division receivables and inventory on July 31, 1996 and August 31, 1996, the Company will pay fees of $100,000 and $200,000, respectively. If the Company has not refinanced or repaid the Term Facility in full by December 31, 1996, the Company will be obligated to demonstrate progress towards disposition of assets in addition to the Home Furnishings division and complete a sale of those assets by the due date, at sufficient levels to repay the Term Facility, in order to avoid the payment of fees as follows: September 30, 1996, $300,000; November 15, 1996, $700,000; December 31, 1996, $1,500,000. The requirement for the Company to maintain an interest rate cap agreement was deleted. (See Note 10 to Consolidated Financial Statements) Financial covenant tests were revised. Terms of the Revolving Facility were revised to reduce advances available against work in process inventory effective September 30 and December 31, 1996. On the basis of preliminary discussions with financial institutions and financial consultants, the Company believes that it can complete the sale of its Home Furnishings Division on or prior to July 31, 1996 (and use the net proceeds to repay existing credit facility advances against the Company's Home F-17 Furnishings Division receivables and inventory) and thus avoid the fees which would otherwise be payable under the credit facility if advances against the Home Furnishings Division remain outstanding on that date. There can be no assurance the Company will complete a sale of Home Furnishings prior to July 31. If the transaction is not completed by that date, the Company believes that the fees could be funded by cash flows from operations. However, there can be no assurance such funds will be available. If the Company is unable to pay those fees when due it will be in default under the credit facility. In addition, the Company may not generate sufficient proceeds from the sale of Home Furnishings to repay the revolving credit facility advances existing against the Company's Home Furnishings Division. If the Company generates insufficient proceeds from the sale, the Banks could prevent the sale or the Company could be in default under the credit agreement. In order to meet the requirements of the Term Facility and thus avoid fees payable on September 30, November 15 and December 31, the Company expects that it will have to refinance the Term Facility by September 30, 1996. If the Company is not successful in refinancing the Term Facility by September 30, 1996 it will be obligated to demonstrate progress toward the sale of assets in addition to the Home Furnishings division by September 30 and complete a sale of these assets by December 31, 1996, at sufficient levels to repay the Term Facility by December 31, 1996, in order to avoid the payment of fees. If the Company refinances the Term Facility, it is likely that the new borrowing arrangements will carry higher rates of interest and increased administrative costs. If the Company raises funds through asset sales to discharge the Term Facility, the reduction in interest expense resulting therefrom will not be sufficient to offset the diminution in income that would result from such asset sales. There can be no assurance that the Company will be able to refinance the Term Facility on commercially acceptable terms or demonstrate sufficient progress towards asset sale(s) by the dates fees are due and/or complete a transaction sufficient to discharge the Term Facility by December 31, 1996. If the Company cannot satisfy those conditions, the Company would be obligated to pay fees under the agreement. There is no assurance that the Company's cash flow would be sufficient to pay those fees. If the Company is unable to pay any of the fees when due it will be in default under the Term Facility. The Company's ability to make interest and installment principal payments on outstanding debt also depends on generating sufficient cash flow from operations as well as maintaining certain levels of receivables and inventory. However, there can be no assurance the Company will have sufficient cash flow or working capital levels will be sufficient to make such payments. If the Company is unable to make installment principal and interest payments when due it will be in default of the Credit Agreement. If the Company is not successful in refinancing the Credit Agreement and thereby does not repay all of the amounts outstanding under the Credit Agreement on its final maturity date of July 1, 1997 or meet other covenant provisions it will be in default under the Credit Agreement. Any such default or non-compliance with the Credit Agreement would entitle the lender to require immediate payment of the outstanding indebtedness and to refuse advances and to exercise various rights against the Company, including, without limitation, the right to foreclose its security interest in the Company's assets and realize upon its collateral by any available judicial procedure and/or to take possession of and sell any or all of the collateral with or without judicial process. If such non-compliance occurred and the lender demanded payment or refused to make further loans and the Company was unable to obtain alternative financing, the lack of appropriate liquidity would have a material adverse effect on the Company's results of operations and its ability to continue as a going concern. The Company paid a fee of $150,000 for this amendment. F-18 The Company was also in default on one covenant of certain leasing arrangements totaling $2.2 million in debt at December 31, 1995. The leasing arrangements have been amended on substantially similar terms to the amendment of the Credit Agreement. The maturity date has been moved to July 1, 1997 and interest rate increased to prime rate plus 1.50%. Lessor has also received second lien on certain Company assets. The Company believes it will be in compliance with the provisions of these leasing arrangements during 1996. If the Company does not comply with the provisions and is unable to obtain alternative financing, the Company would be in default and the lender could take back the equipment under lease which would have an adverse effect on the Company's operations. Loans outstanding as of December 31, 1995, under the Term Facility total $20.650 million and are repayable in consecutive quarterly installments: one installment of $.804 million, three installments of $.902 million each, two installments of $1.263 million each, and one installment of $14.614 million. Each bank is entitled to a commitment fee of 1/2% per annum on the unused portion of its commitment under the Senior Bank Facilities, payable quarterly in arrears. In addition, NationsBank is entitled to an administrative agency fee of $100 thousand payable annually in advance for the life of the Facilities. The Senior Bank Facilities are guaranteed, subject to certain limitations, by all direct and indirect domestic subsidiaries of the Company. The Senior Bank Facilities are secured by a first priority lien or security interest in substantially all the assets of the Company. The Senior Bank Facilities contain representations and warranties, covenants and events of default customary for credit facilities of this nature. Such customary covenants include restrictions on the ability to borrow more debt, acquire other companies, pay dividends, and the use of proceeds from the sale of assets. The Company must maintain certain current asset and debt to equity ratios. In addition, the Company must meet certain coverage tests related to interest and cash flow. Payments on principal of long-term debt outstanding, as of December 31, 1995, required are as follows (dollars in thousands): 1996 $ 4,029 1997 44,488 1998 72 1999 78 2000 28 ------- $48,695 =======
These payments may be adjusted based on the Company's proceeds from asset sales and "excess cash flow" as defined in the Credit Agreement. Interest expense for the nine months ended September 30, 1993 includes $150 thousand of interest on BH Acquisition debt. This interest expense is reflected in the Company's historical cost financial statements because the Company was obligated to repay the debt. In addition, interest expense for that nine month period reflects $99 thousand on $7.3 million loaned to the Company by BH Acquisition. F-19 10. INTEREST RATE CAP AGREEMENT: The Company has a two-year 6% interest rate cap agreement with NationsBank in the notional amount of $12 million for the purpose of hedging against increases in interest rates on its bank debt. The agreement, dated April 22, 1994 provides for a quarterly determination of the amount by which the three-month LIBOR rates exceed 6%. If the three-month LIBOR rate exceeds 6%, a payment will be made to the Company three months in arrears. Payments of $19 thousand were made to the Company under this agreement in 1995. The cost of the agreement to the Company was $139 thousand which is being amortized over the life of the agreement. 11. LEASE PAYMENTS: The following is a schedule by year of future minimum lease payments under capital and non-cancelable operating leases with initial or remaining terms of one year or more at December 31, 1995 (dollars in thousands):
CAPITAL OPERATING ------- --------- 1996............................ $ 702 $ 757 1997............................ 2,041 576 1998............................ 63 502 1999............................ 63 486 2000............................ 21 40 Later Years................ -- -- ------ ------ Total minimum lease payments $2,890 $2,361 ======= Amount representing interest.... 382 ------ Present value of future minimum lease payments (including current portion of $519)..... $2,508 ======
Rental expense for premises and machinery and equipment leased by the Company under operating leases was as follows (dollars in thousands):
COMPANY PREDECESSOR -------------------------------- ------------- YEARS ENDED THREE MONTHS NINE MONTHS DECEMBER 31, DECEMBER 31, SEPTEMBER 30, 1995 1994 1993 1993 ---------------- ------------- --------- Premises................... $532 $573 $ 86 $562 Machinery.................. $104 $151 $115 $349
12. FINANCIAL INSTRUMENTS: The Company's financial instruments are comprised of cash, cash equivalents, accounts receivable, debt and Series B Preferred Stock and the interest rate cap agreement. The carrying amounts of cash, cash equivalents and accounts receivable approximate fair values due to the short-term maturity of the instruments. It was not practicable to obtain an estimate of the fair value of the Company's outstanding debt obligations or Series B Preferred Stock. F-20 13. PENSION PLAN: The Company sponsors a defined benefit plan which requires no contribution from the employees. The plan was frozen as of December 31, 1994, and no new employees are eligible to join this plan after that date. Prior to December 31, 1994, the Plan covered substantially all employees. The employees covered under this plan do not receive any additional accruals for service rendered after December 31, 1994. Plan assets consist principally of common stocks, U.S. Government and corporate obligations. Net periodic pension cost of the pension plan was as follows (dollars in thousands):
COMPANY PREDECESSOR ------------------------------- -------------- YEARS ENDED THREE MONTHS NINE MONTHS DECEMBER 31, DECEMBER 31, SEPTEMBER 30, 1995 1994 1993 1993 ---------------- ------------- -------------- Service cost on benefits earned during the year................... $ --- $ 338 $ 16 $ 164 Interest cost on projected benefit obligations........................ 1,455 1,354 65 674 Actual return on plan assets.......... (3,558) (67) (18) $(186) Amortization, net..................... 2,271 (1,013) --- --- ------ ------- ---- ----- Net periodic pension costs......... $ 168 $ 612 $ 63 $ 652 ====== ======= ==== =====
The benefits under the plans are determined based on formulas which reflect the employees' years of service and compensation during their employment period. The projected unit credit method is used to determine pension costs. Funding requirements for the plan are based on the unit credit method. The Company's policy is to fund pension cost as required by ERISA. During 1995, the Danfield pension plan was merged into the Company's plan. The Danfield plan, which was also frozen as of December 31, 1994, was overfunded in the amount of $611 thousand as of that date. As of December 31, 1994, as required by the purchase method of accounting, a liability was recorded reflecting the excess of the Company's projected benefit obligation measured at an 8.5% discount rate over the fair value of plan assets. The following table sets forth information on the plan as of December 31 (dollars in thousands):
1995 1994 1993 ---- ---- ---- Actuarial present value of benefit obligations Vested ................................... $ 19,352 $ 15,644 $ 26,293 ======== ======== ======== Accumulated .............................. $ 19,407 $ 16,370 $ 26,370 ======== ======== ======== Projected ................................ $ 19,407 $ 16,370 $ 27,150 Fair value of plan assets ................... 17,202 11,713 21,592 -------- -------- -------- Unfunded projected benefit obligation 2,205 4,657 5,558 Unrecognized gain ........................... (583) -- -- -------- -------- -------- Accrued pension cost ........................ $ 2,788 $ 4,657 $ 5,558 ======== ======== ========
F-21 Assumptions used in measuring the pension obligation at December 31 were:
1995 1994 1993 ---- ---- ---- Weighted average discount rate 7.5% 8.5% 7.5% Rate of increase of compensation levels N/A 5.0% 5.0% Expected long-term rate of return on assets 9.5% 9.5% 9.0%
In addition to its liability for the Company sponsored plan, the Company also had an additional pension liability in the amount of $3.6 million as of December 31, 1995 in connection with a terminated multi-employer plan. 14. OTHER POST-RETIREMENT BENEFITS: The Company provides certain health and life insurance benefits for eligible retirees and their dependents. The Predecessor adopted, effective January 1, 1993, SFAS No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions," whereby the cost of post-retirement benefits are accrued during employees' working careers. These costs were previously recognized by Predecessor as a charge to income in the period the benefits were paid. The plan is not funded. The Company's policy is to pay the cost of benefits as incurred. Certain benefits are available to full-time employees who were over age 30, as of January 1, 1992, provided such employees work for the Company for 25 years and reach certain ages, but not less than age 55. Employees hired after January 1, 1993 will not be eligible to receive benefits under this Plan. In its historical financial statements, the Predecessor elected to amortize the January 1, 1993 obligation over a 20 year period. As of October 1, 1993, as required by the purchase method of accounting, the liability as of that date was recorded in the Company's consolidated financial statements. The present value of the postretirement benefit accrual at December 31, 1995 and 1994 measured in accordance with the standard at a 7.5% and 8.5% discount rate, respectively, is estimated as follows (dollars in thousands):
1995 1994 ---- ---- Retirees ................................... $3,388 $3,279 Fully eligible active plan participants .... 647 557 Other active participants .................. 769 479 ------ ------ Subtotal ................................ 4,804 4,315 Unrecognized net loss ...................... 555 -- ------ ------ $4,249 $4,315 ====== ======
An 8.5% discount rate was used to measure expense for the year ended December 31, 1995. A 7.5% discount rate was used to measure expense for the year ended December 31, 1994 and the three month period ended December 31, 1993. The assumed discount rate was 8.5% at January 1, 1993 for purposes of determining the Predecessor's 1993 net postretirement benefit expense and for determining the accumulated postretirement benefit obligation at January 1, 1993. F-22
COMPANY PREDECESSOR --------------------------------------- ------------- YEARS ENDED THREE MONTHS NINE MONTHS DECEMBER 31, DECEMBER 31, SEPTEMBER 30, 1995 1994 1993 1993 -------------------- ------------ ------------- Service Cost ........................ $ 33 $ 32 $ 14 $ 33 Interest Cost ....................... 367 352 81 243 Amortization of Transition Obligation -- -- -- 147 ---- ---- ---- ---- $400 $384 $ 95 $423 ==== ==== ==== ====
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation at December 31, 1995 was 11% for 1995, decreasing gradually to 5.5% by the year 2005. A one-percentage point increase in the assumed health care cost trend rate would increase the accumulated postretirement benefit obligation as of December 31, 1995 by $72 thousand and the sum of service costs and interest costs on an annual basis by $6 thousand. 15. STOCKHOLDERS' EQUITY: COMMON STOCK Each share of Common Stock is entitled to one vote per share. As of December 31, 1995 there were 20,000,000 shares of Common Stock authorized and 7,409,282 shares outstanding. Payment of dividends on the common stock are prohibited under the current terms of the Company's bank credit facility. PREFERRED STOCK Each share of Series B Preferred Stock is entitled to one vote per share. As of December 31, 1995 there were 20,805,060 shares of Series B Preferred Stock authorized and outstanding. The Series B Preferred Stock is entitled to a preference on liquidation equal to $1 per share plus accrued and unpaid dividends at the rate of $.06 per annum per share. Twenty percent of the shares of Series B Preferred Stock amounting to approximately $4.2 million are scheduled to be redeemed by the Company from funds legally available therefore, on March 15th of each year commencing in 1995 and ending in 1999. Such shares may also be redeemed at any time at the Company's option. Dividends on the Series B Preferred Stock accrue at an annual rate of 6% and are payable quarterly on March 15, June 15, September 15, and December 15. Both the preferred stock redemptions and the quarterly dividend payments are subject to approval of the banks participating in the Company's credit facility. The Company was notified as of March 15, 1995 that the banks declined approval of the dividend and redemption payments and no such payments have been made. As a result, additional dividends will accrue on the scheduled but unpaid dividends at a rate of 6% per annum. Dividends in arrears as of December 31, 1995 and 1994 were $1,374,000 and $92,000 respectively. Because of its holdings of both Common and Preferred stock, Noel has approximately 76.3% of the vote with respect to the Company's capital stock. F-23 16. EXCHANGE OF PREFERRED STOCK: On November 14, 1994, the Board of Directors adopted the 1994 Voluntary Recapitalization Plan (as subsequently amended, the "Plan") pursuant to which the Company offered its preferred stockholders the right to exchange up to 50% of their outstanding shares of Series B Preferred Stock (and all accrued but unpaid dividends thereon through December 4, 1994) for shares of Common Stock of the Company on the basis of one share of common stock for each ten dollars face amount of Series B Preferred Stock. The Company also allowed the preferred stockholders to exchange the accrued but unpaid dividends on their unexchanged shares of Series B Preferred Stock and their shares of Series A Preferred Stock for shares of Common Stock of the Company on the same basis. Pursuant to the Plan, the preferred stockholders exchanged an aggregate sum of 19,694,940 shares of Series B Preferred Stock (representing approximately 49% of the then issued and outstanding shares of Series B Preferred Stock) and all of the accrued but unpaid dividends on the Series A and Series B Preferred Stock through December 4, 1994, for 2,303,032 shares of Common Stock. The difference between the carrying value of preferred stock and accrued dividends exchanged, $23.0 million, and the fair value of the common stock issued, $18.9 million, has been recorded as a gain on redemption of preferred stock which is accounted for as a negative preferred stock dividend in the amount of $4.1 million. In addition, Noel, formerly the holder of all of the issued and outstanding shares of Series A Preferred Stock of the Company, exercised its right under the Company's charter to convert all of its Series A Preferred Stock into shares of Series B Preferred Stock on the basis of 100,000 Series B preferred shares for each share of Series A Preferred Stock surrendered for conversion. After giving effect to the Plan and the Series A Conversion, there remain 20,805,060 shares of Series B Preferred Stock issued and outstanding. On December 13, 1994, the Company amended its Restated Certificate of Incorporation to increase the number of authorized shares of Common Stock from 13,542,404 shares to 20,000,000 shares and to grant to all holders of capital stock, irrespective of class or series, one vote per share on all matters on which stockholders are entitled to vote. Formerly, only the holders of preferred stock were entitled to vote. 17. UNSTAPLING OF COMMON STOCK: On February 28, 1994, Noel distributed 3,542,404 shares of the Company's Series A Common Stock to Noel shareholders at a ratio of 0.175434 shares of Series A Common Stock for each share of common stock of Noel. During the period from February 28, 1994 to December 14, 1994, the shares of Series A Common Stock of the Company traded stapled to the shares of common stock of Noel, i.e., no separate stock certificates representing shares of Series A Common Stock were issued and the certificates representing shares of Noel's common stock were deemed to evidence ownership of the Series A Common Stock of the Company. The Company also sold shares of Series B Common Stock during that period of time to certain management employees and their affiliates, which shares are represented by separate stock certificates. On December 15, 1994, shares of Series A Common Stock of the Company ceased to be stapled to the shares of Noel (the "Unstapling Date"). On the Unstapling Date, all authorized shares of Series A and Series B Common Stock of the Company were automatically reclassified as shares of Common Stock without series to create a single class of Common Stock. The Company has delivered stock certificates representing shares of Common Stock of the Company, and cash in lieu of fractional shares thereof, to the F-24 holders of record of its Series A Common Stock as of December 5, 1994. The certificates representing shares of Series B Common Stock are deemed to represent the same number of shares of Common Stock of the Company. Holders of Series B Common Stock have the right, but are not required, to exchange their certificates for new certificates representing shares of Common Stock of the Company. The Company's Common Stock commenced trading independently on the Unstapling Date on the NASDAQ Small-Cap Market and on February 15, 1995, delisted from the NASDAQ and began trading on the New York Stock Exchange under the symbol BHY. 18. ACQUISITION RELATED RESTRUCTURING CHARGE: The accompanying Predecessor consolidated financial statements for the nine months ended September 30, 1993, include a restructuring charge of $18.5 million. This restructuring was directly related to the acquisition. The principal components of the charge were (dollars in thousands): Severance ............................................... $ 7,283 Write down of real estate investments ................... 7,329 Acquisition related fees and expenses ................... 1,841 Other write downs of assets to be disposed .............. 1,382 Other ................................................... 713 ------- $18,548 =======
The write down of real estate investments represents the difference between their estimated short term cash liquidation value and their estimated long-term realizable value. The charges reflect new management's intention to dispose of these investments. The accompanying financial statements for the nine months ended September 30, 1993 also include a $4.6 million provision for environmental liabilities which was included in selling, general and administrative expenses. 19. INCOME TAXES: Effective January 1, 1993, the Predecessor adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". The cumulative effect of adopting the new standard was to increase deferred income tax liabilities by $200 thousand as of January 1, 1993, which amount is reflected in the tax provision for the nine months ended September 30, 1993. The income (loss) before income taxes are for the periods 1995, 1994 and 1993 are substantially all domestic in origin. F-25 The components of the income tax provision or benefit are (dollars in thousands):
CONTINUING OPERATIONS COMPANY PREDECESSOR - --------------------- ------------------------------------------------- ----------- YEARS ENDED THREE MONTHS NINE MONTHS DECEMBER 31, DECEMBER 31, SEPTEMBER 30, 1995 1994 1993 1993 --------------------------- ------------- ------------- Cumulative effect of adopting SFAS No. 109 $ -- $ -- $ -- $ 200 Current provision (benefit) 360 1,288 (165) (1,168) Deferred provision (benefit) (674) 825 770 (6,949) ------- ------- ------- ------- $ (314) $ 2,113 $ 605 $(7,917) ======= ======= ======= =======
DISCONTINUED OPERATIONS COMPANY PREDECESSOR - ----------------------- --------------------------------------------- ------------ YEARS ENDED THREE MONTHS NINE MONTHS DECEMBER 31, DECEMBER 31, SEPTEMBER 30, 1995 1994 1993 1993 -------------------------- ------------- ------------- Current provision $ 2 $ 260 $228 $307 Deferred provision (benefit) (6,642) 836 201 424 ------- ------ ---- ---- $(6,640) $1,096 $429 $731 ======= ====== ==== ====
The Company's tax provision or benefit differed from that which would have been provided at a 34% rate as follows (dollars in thousands):
CONTINUING OPERATIONS COMPANY PREDECESSOR - --------------------- ----------------------------------------------- ------------- YEARS ENDED THREE MONTHS NINE MONTHS DECEMBER 31, DECEMBER 31, SEPTEMBER 30, 1995 1994 1993 1993 ------------------------- ------------ ------------- Federal provision at 34% $(7,435) $1,416 $ 503 $(9,196) State and local provision, net 242 317 (16) 386 Non-deductible restructuring charges -- -- -- 668 Cumulative effect of SFAS No. 109 -- -- -- 200 Amortization/write-off of goodwill 6,847 333 84 -- Other, net 32 47 34 25 ------- ------ ------- ------- $ (314) $2,113 $ 605 $(7,917) ======= ====== ======= =======
DISCONTINUED OPERATIONS COMPANY PREDECESSOR - ----------------------- ----------------------------------------------- ------------- YEARS ENDED THREE MONTHS NINE MONTHS DECEMBER 31, DECEMBER 31, SEPTEMBER 30, 1995 1994 1993 1993 --------------------------- ------------ ------------- Federal provision at 34% $(8,378) $ 873 $ 401 $482 Foreign loss (income) 30 9 (47) 151 State and local provision, net (755) 147 57 98 Amortization of goodwill 2,463 67 18 -- ------- ------ ----- ---- $(6,640) $1,096 $ 429 $731 ======= ====== ===== ====
The income tax benefit applicable to discontinued operations as of December 31, 1995 (in thousand of dollars) consisted of $6,603 from loss on disposal and $37 from loss from operations. At December 31, 1995 and 1994, the components of the net deferred tax asset are (dollars in thousands): F-26
1995 1994 ---- ---- Loss on discontinued operations $ 6,658 $ -- Book value of fixed assets over tax basis (6,893) (8,966) Pension liability 2,533 2,659 Other post-retirement benefit liability 1,839 1,787 Environmental liabilities 2,192 2,164 Operating loss carryforwards 1,271 789 Estimated value of assets held for sales over tax basis -- 112 Other, net 2,228 4,104 ------- ------- $ 9,828 $ 2,649 ======= =======
The Company was a member of the Noel Group, Inc.'s consolidated tax group for the period of October 30, 1993 through June 30, 1994. For the nine months ended September 30, 1993 and for all periods subsequent to June 30, 1994, the Company filed its own consolidated tax return. Net operating losses (NOL) of $2.6 million and $500 thousand were generated for the periods of July 1, 1994 through December 31, 1994 and for the calendar year 1995, respectively. The $2.6 million NOL is available to offset future taxable income while the $500 thousand can offset both prior and future taxable income. The Federal income tax receivable of $787 thousand consists of $112 thousand which represents a carryback of losses and $675 thousand representing payments to the Internal Revenue Service for future liabilities. Based on the Company's business plan for the future, management is of the opinion that it is more likely than not that the deferred tax asset at December 31, 1995 will be realized. 20. EARNINGS PER COMMON SHARE: Earnings per common share for the Company have been presented as earnings from continuing operations, earnings from discontinued operations, and earnings resulting from the exchange of Preferred Stock (See Note 16). Earnings per share from continuing operations have been calculated as net income from continuing operations after preferred dividend requirements divided by weighted average common shares outstanding during the period. Earnings per common share from discontinued operations have been calculated as income (loss) from discontinued operations plus net loss on disposition of discontinued operations divided by the weighted average number of common shares outstanding. Earnings per common share from the gain on preferred redemption have been calculated as the gain on preferred redemption divided by the weighted average number of common shares outstanding during the period. 21. INDUSTRY SEGMENT DATA: The Company operates in two principal segments, Industrial Products and Consumer Products. Industrial involves the production and marketing of industrial threads and yarns used in industrial applications. Consumer is involved in the distribution of buttons, notions, braids and yarns to major retail chains and outlets and specialty threads marketed primarily to the wholesale bedding and embroidery market and dental floss. Consumer thread operations, other than dental floss, are conducted principally through operations acquired in 1994 and 1995 (Danfield and Culver, respectively). The 1994 and 1993 segment data has been restated to conform to the 1995 segment classifications. F-27 Button sales are made predominantly to retailers, general merchandisers and specialty hobby and craft stores. Thread sales are made to manufacturers and jobbers. Almost all of the Company's Button and Thread customers are located in the United States. The Company grants credit and performs periodic credit evaluations of its customers' financial conditions. (Dollars in thousands).
COMPANY PREDECESSOR ---------------------------------------------------- ------------- YEARS ENDED THREE MONTHS NINE MONTHS DECEMBER 31, DECEMBER 31, SEPTEMBER 30, 1995 1994 1993 1993 ----------------------------- ------------- ------------- SALES: Industrial $ 45,081 $ 46,600 $ 11,893 $ 35,136 Consumer Products 43,573 30,167 6,085 22,630 -------- -------- -------- -------- Net Sales $ 88,654 $ 76,767 $ 17,978 $ 57,766 ======== ======== ======== ======== DEPRECIATION AND AMORTIZATION: Industrial $ 2,302 $ 1,837 $ 890 $ 765 Consumer Products 849 290 40 177 Corporate 127 124 6 353 -------- -------- -------- -------- Total depreciation and amortization $ 3,278 $ 2,251 $ 936 $ 1,295 ======== ======== ======== ======== OPERATING PROFIT: Industrial $(24,011) $ 5,296 $ 1,619 $ 5,234 Consumer Products 9,126 7,122 1,937 779 General corporate expenses, net (2,982) (5,033) (1,148) (30,348) Interest expense (4,000) (3,245) (864) (2,136) -------- -------- -------- -------- Income before Federal income taxes $(21,867) $ 4,140 $ 1,544 $(26,471) ======== ======== ======== ======== CAPITAL EXPENDITURES: Industrial $ 3,254 $ 2,364 $ 629 $ 538 Consumer Products 527 465 135 49 Corporate 39 788 -- 257 -------- -------- -------- -------- $ 3,820 $ 3,617 $ 764 $ 844 ======== ======== ======== ========
DECEMBER 31, DECEMBER 31, IDENTIFIABLE ASSETS: 1995 1994 ------------ ------------ Industrial ..................... $45,358 $ 61,337 Consumer Products .............. 36,059 30,994 Corporate ...................... 12,707 7,072 Discontinued Operations ........ -- 29,049 ------- -------- Total Assets ................... $94,124 $128,452 ======= ========
22. COMMITMENT AND CONTINGENCIES: Although there can be no assurances, based on information currently available, the Company does not believe that the outcome of all known or threatened litigation and other claims will have a material adverse effect on the Company's financial condition, liquidity or operating results. F-28 23. RELATED PARTY TRANSACTION: A director of the Company who is also a managing director of the Company's majority stockholder was engaged by the Company as a financial consultant in February 1996 at an annual rate of $100,000. The agreement also provided for 200,000 stock options exercisable over a twelve-month period at fair market value as of the date of grant. 24. QUARTERLY RESULTS OF OPERATIONS: (UNAUDITED)
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, QUARTER ENDED 1995 1995 1995 1995 ---- ---- ---- ---- Net sales $ 22,885 $ 20,612 $ 21,844 $ 23,313 Cost of sales 18,418 15,212 15,970 16,305 -------- -------- -------- -------- Gross margin $ 4,467 $ 5,400 $ 5,874 $ 7,008 ======== ======== ======== ======== Income (loss) from continuing operations $(23,749) $ 151 $ 166 $ 597 Income (loss) from discontinued operations (18,377) (49) 128 298 -------- -------- -------- -------- Income (loss) applicable to common stock $(42,126) $ 102 $ 294 $ 895 ======== ======== ======== ======== Income (loss) per common share: Continuing operations $ (3.21) $ .02 $ .02 $ .08 Discontinued operations (2.48) (.01) .02 .04 -------- -------- -------- -------- Total $ (5.69) $ .01 $ .04 $ .12 ======== ======== ======== ========
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, QUARTER ENDED 1994 1994 1994 1994 ---- ---- ---- ---- Net sales $ 21,287 $ 20,356 $17,622 $17,502 Cost of sales 16,704 14,337 11,337 11,665 -------- -------- ------- ------- Gross margin 4,583 6,019 6,285 5,837 ======== ======== ======= ======= Income (loss) from continuing operations $ (581) (17) 297 (14) Income (loss) from discontinued operations 730 315 288 164 Gain on preferred stock redemption 4,099 -- -- -- -------- -------- ------- ------- Income applicable to common stock $ 4,248 $ 298 $ 585 $ 150 ======== ======== ======= ======= Income (loss) per common share: Operating income $ (.10) $ -- $ .06 $ -- Gain on preferred stock redemption .71 -- -- -- -------- -------- ------- ------- .61 -- .06 -- Discontinued operations .12 .06 .05 .03 -------- -------- ------- ------- Total $ .73 $ .06 $ .11 $ .03 ======== ======== ======= =======
SEASONALITY ------------ Although there is no pronounced seasonality in demand for the Company's products, typically the second quarter is the Company's best in terms of profitability. In the third quarter, plants are closed for the first week of July for normal maintenance. All but one plant generally close for a week between Christmas and the New Year during the fourth quarter. Results can also be adversely affected by regional weather, as they were in 1994 at Thread's Northeast facilities. F-29 1995 ----- Results for the fourth quarter of 1995 were negatively impacted by the $6.4 million impairment charge, the $17.4 million goodwill write off, the $1.2 million of other related charges and the $18.4 million loss from discontinued operations. In addition, during each quarter of 1995, the Thread division experienced higher than historical levels of manufacturing inefficiencies due to higher raw material costs, the effects of the consolidation and relocation of facilities that occurred in 1994 and implementation issues related to the new management information system. Results of operations for 1995 also include the effects of the acquisition of Culver Textile Company, Inc. as of August 31, 1995. 1994 ----- Results for each of the quarters in 1994 were affected by unusual or nonrecurring events. Poor winter weather reduced production and shipments at the Company's Connecticut facilities which reduced first quarter results. The button division had completed the closing of its Carlstadt and Kansas City facilities by the end of the first quarter, thereby reducing costs in the second, third and fourth quarters. Danfield was acquired on June 30, 1994 and contributed sales of $4.5 million in each of the third and fourth quarters. Danfield contributed $.2 million and $.8 million to income before interest and taxes in the third and fourth quarters, respectively. A number of changes in the Thread division adversely affected results in the third and fourth quarters. The division experienced delays in production and ability to ship to customers due to implementation of a new management information system; transfer of production from its Putnam, Connecticut facility (now closed) to other Company facilities; closing of the Atlanta warehouse; and the relocation of the customer service department from Atlanta to Hendersonville. The division experienced higher raw material and freight costs as well as greater manufacturing inefficiencies during this period. These expenses were particularly pronounced in the fourth quarter. Earnings per share for the year 1994 does not equal the sum of the 1994 quarterly earnings per share because of the preferred stock conversion on December 15, 1994 and the resultant effect on fourth quarter weighted average common shares outstanding. 25. OTHER: The Company has approximately 1,192 employees, of whom approximately 31 are sales and marketing personnel and the balance are employed in its mills and offices. Approximately 142 employees are covered by three collective bargaining agreements with labor unions two of which expire within the next twelve months. The Company believes relations with its employees are satisfactory. F-30 26. PREDECESSOR CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY:
COMMON STOCK -------------------- ISSUED MINIMUM PARENT TREASURY STOCK ------ CAPITAL RETAINED PENSION COMPANY -------------- SHARES AMOUNT SURPLUS EARNINGS LIABILITY DEBT SHARES COST ------ ------ -------- ------- --------- ---- ------ ---- Balances as of December 31, 1992 3,605,113 $3,605 $14,470 $57,153 - - 1,683,531 $28,040 Net loss for the period ended September 30, 1993 (17,424) Acquisition of Treasury Stock (52) Issuance of stock in connection with employer compensation plan 3 1,629 96 Issuance of stock in connection with stock option plan (11) (52,550) (868) Recording of parent company debt $(6,461) Recording of minimum pension liability as required by FASB #87 $(3,953) Cash dividend $.32 per share (928) --------- ------ ------- ------- ------- ------- --------- ------- Balances September 30, 1993 3,605,113 $3,605 $14,462 $38,801 $(3,953) $(6,461) 1,632,610 $27,216 ========= ====== ======= ======= ======= ======= ========= =======
F-31 Appendix A The Bridgeford Group December 12, 1996 Board of Directors Belding Heminway Company 1430 Broadway New York, NY 10018 Attention: Ms. Karen Brenner Dear Sirs and Madam: We understand that Hicking Pentecost PLC ("Hicking") has made an offer to acquire the net assets of the Thread Division (the "Business") of Belding Heminway Company ("Belding") for total consideration of $62 million. The consideration be will be comprised of approximately $55 million in cash and $7 million of assumed liabilities. The terms and conditions of this transaction (the "Proposed Transaction") are set forth in more detail in the Asset Purchase Agreement dated December 12, 1996 (the "Agreement") by and among Belding, The Belding Thread Group, LLC, Danfield Threads, Inc., Culver International, Inc., American Collars, Inc., The Bridge Realty Company, HP Belt Acquisition Corporation, and Hicking. We have been requested by Belding to render our opinion with respect to the fairness, from a financial point of view, to Belding and its shareholders of the Proposed Transaction. In arriving at our opinion, we reviewed and analyzed: (1) publicly available information concerning Belding which we believe to be relevant to our inquiry, (2) financial and operating information with respect to the business, operations and prospects of Belding furnished to us by Belding, (3) a comparison of the historical financial results and present financial condition of Belding with those of other companies which we deemed relevant, and (4) a comparison of the financial terms of the Proposed Transaction with the financial terms of certain other recent transactions which we deemed relevant. In addition, we have had discussions with the management of Belding concerning their businesses, operations, assets, present condition and future prospects and undertook such other studies, analyses and investigations as we deemed appropriate. A-1 Board of Directors Belding Heminway Company December 12, 1996 Page 2 We have assumed and relied upon the accuracy and completeness of the financial and other information furnished to us in arriving at our opinion without independent verification. In arriving at our opinion, we have conducted a limited physical inspection of the properties and facilities of the Business and have not made nor obtained any independent evaluations or appraisals of the assets or liabilities of the Business but utilized appraisals provided by Belding. Our opinion is necessarily based upon market, economic and other conditions as they exist on, and can be evaluated as of, the date of this letter. Prior to this Proposed Transaction, you authorized us to act as your advisor in evaluating strategic alternatives for Belding. We have acted as financial advisor to Belding in connection with the Proposed Transaction and will receive a fee for our services which is contingent upon the consummation of the Proposed Transaction. In addition, Belding has agreed to indemnify us against certain liabilities which may arise from rendering this opinion. Based upon and subject to the foregoing, we are of the opinion as of the date hereof that, from a financial point of view, the Proposed Transaction is fair to Belding and its shareholders. Very truly yours, By:/s/ Alexander P. Lynch -------------------------------------- Alexander P. Lynch Co-President and Co-Chief Executive Officer A-2 Appendix B December 10, 1996 Special Committee of the Board of Directors Belding Heminway Company, Inc. c/o Gilbert H. Lamphere The Fremont Group 50 Fremont Street San Francisco, CA 94105 Dear Sirs: We have been requested by the Special Committee (the "Committee") of the Board of Directors of Belding Heminway Company, Inc. (the "Company") to render to the Committee an opinion with respect to the fairness, from a financial point of view, to the Company's common shareholders of the consideration to be received in the proposed sale of the Company's Thread Division (the "Transaction"). Advest, Inc., as part of its investment banking business, is engaged in the valuation of securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities and private placements, and in valuations for corporate and other purposes. In arriving at our opinion, we reviewed and analyzed: (i) publicly available information with respect to the Company its outstanding securities nd such other information as Advest deemed appropriate, (ii) financial and operating information with respect to the business and prospects of the Company furnished to us by the Company and its advisors, (iii) a comparison of the financial results and condition of the Company with those of other companies that we deemed relevant, and (iv) a comparison of the financial terms of the Transaction with those of certain other recent transactions that we deemed relevant. In addition, we have had discussions with the Company's management concerning its present condition and future prospects. We have relied upon the accuracy of the financial and other information provided to us by the Company and its advisors. We have assumed the accuracy and completeness of such information and have not attempted to independently verify any of such information. B-1 In arriving at our opinion, we have not conducted a physical inspection of the properties and facilities of the Company. Our opinion is necessarily based upon conditions as they exist and can be evaluated as of December 10, 1996. Based upon and subject to the foregoing, we are of the opinion that the Transaction is fair, from a financial point of view, to the Company's common shareholders. Very truly yours, Advest, Inc. By:/s/ -------------------------- Randolph Guggenheimer, Jr. Managing Director B-2 Appendix C EXECUTION COPY ================================================================================ ASSET PURCHASE AGREEMENT Dated as of December 12, 1996 among BELDING HEMINWAY COMPANY, INC. THE BELDING THREAD GROUP, LLC DANFIELD THREADS, INC. CULVER INTERNATIONAL, INC. AMERICAN COLLARS, INC. THE BRIDGE REALTY COMPANY HP BELT ACQUISITION CORPORATION and HICKING PENTECOST PLC ================================================================================ C-1 TABLE OF CONTENTS
Page 1. Purchase, Sale and Assumption.....................................................C-4 2. Closing; Transactions to be Effected; Purchase Price Adjustment.......................................................................C-10 3. Conditions to Closing............................................................C-13 4. Representations and Warranties of the Sellers....................................C-15 5. Representations and Warranties of the Parent and the Buyer........................................................................C-32 6. Covenants of the Sellers.........................................................C-34 7. Covenants of the Parent and the Buyer............................................C-40 8. Mutual Covenants.................................................................C-42 9. Employee and Related Matters.....................................................C-45 10. Further Assurances...............................................................C-46 11. Indemnification..................................................................C-47 12. Assignment.......................................................................C-52 13. No Third-Party Beneficiaries.....................................................C-52 14. Termination......................................................................C-52 15. Survival of Representations......................................................C-53 16. Expenses.........................................................................C-54 17. Arbitration......................................................................C-55 18. Amendments.......................................................................C-55 19. Notices..........................................................................C-56 20. Interpretation...................................................................C-57
C-2 21. Counterparts.....................................................................C-57 22. Entire Agreement.................................................................C-57 23. Fees.............................................................................C-57 24. Severability.....................................................................C-57 25. Consent to Jurisdiction..........................................................C-58 26. Governing Law; Specific Performance..............................................C-58
Appendix A Index of Defined Terms Exhibit A Form of Escrow Agreement Exhibit B Form of Zimet, Haines, Friedman & Kaplan Opinion Exhibit C Form of Sidley & Austin/Edwards Geldard Opinions Schedule 1(c)(iii) Certain Environmental Liabilities Schedule 1(f) Allocation Schedule Schedule 2(b)(ii) Secured Debt Payment Schedule 2(c)(i) Calculation of Working Capital Schedule 3(a)(v) Material Consents Schedule 4(a) Jurisdictions in which Sellers are qualified to do business Schedule 4(b) Consents Schedule 4(c) Subsidiaries and Equity Interests Schedule 4(d) Financial Statements Schedule 4(f) Tax Returns Schedule 4(g) Encumbrances Schedule 4(h)-1 Real Property Owned in Fee Schedule 4(h)-2 Real Property Leased Schedule 4(j) Intellectual Property Schedule 4(k) Contracts Schedule 4(l) Litigation Schedule 4(n) Insurance Policies Schedule 4(o)(i) Benefit Plans Schedule 4(o)(ii)-1 Benefit Plan Documents Schedule 4(o)(ii)-2 Proceedings Schedule 4(o)(iii) Contributions and Payments Schedule 4(o)(v) Liabilities to Multiemployer Plans Schedule 4(o)(vi) Pension Plans Schedule 4(o)(vii) Employee Welfare Benefit Plans Schedule 4(p) Material Events Schedule 4(q) Compliance with Applicable Laws; Environmental Matters Schedule 4(r) Material Licenses and Permits Schedule 4(s) Employee and Labor Relations Schedule 4(t) Corporate Name Schedule 4(v) Intercompany Services Schedule 6(b) Conduct of the Sellers Schedule 9(a) Continued Employees
C-3 ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT dated as of December 12, 1996, among BELDING HEMINWAY COMPANY, INC., a Delaware corporation (the "Company" or a "Seller"), THE BELDING THREAD GROUP, LLC, a Connecticut limited liability company ("Belding Thread Group" or a "Seller"), DANFIELD THREADS, INC., a Connecticut corporation ("Danfield" or a "Seller"), CULVER INTERNATIONAL, INC., a New Jersey corporation ("Culver International" or a "Seller"), AMERICAN COLLARS, INC., a Connecticut corporation ("American Collars" or a "Seller"), THE BRIDGE REALTY COMPANY, a Connecticut corporation ("Bridge Realty" or a "Seller"; together with the Company, Belding Thread Group, Danfield, Culver International, American Collars and Bridge Realty, the "Sellers"), HP BELT ACQUISITION CORPORATION, a Delaware corporation (the "Buyer"), and HICKING PENTECOST PLC, a public limited company registered in England and Wales (the "Parent"). WHEREAS the parties desire that the Buyer purchase from the Sellers, and that the Sellers sell to the Buyer, the Acquired Assets (as defined in Section 1(a)), and that the Buyer assume the Assumed Liabilities (as defined in Section 1(c)), upon the terms and subject to the conditions set forth in this Agreement; WHEREAS in consideration of the Parent and the Buyer entering into this Agreement, Noel Group, Inc., a Delaware corporation and the majority stockholder of the Company ("Noel"), is entering into an agreement dated the date hereof with the Parent and the Buyer (the "Noel Agreement"); NOW, THEREFORE, in consideration of the premises and of the respective representations, warranties, covenants, agreements and conditions contained herein, the parties hereto hereby agree as follows: 1. Purchase, Sale and Assumption. (a) Purchase and Sale. On the terms and subject to the conditions of this Agreement, the Sellers agree to sell, transfer, assign and deliver to the Buyer, and the Buyer agrees to, and the Parent agrees to cause the Buyer to, accept and purchase from the Sellers, at the Closing (as defined in Section 2(a)) all the business and operations of any of the Sellers related to the manufacturing, marketing and sale of industrial and consumer thread, including sewing threads and non-sewing yarn products but excluding yarn marketed by Blumenthal/Lansing Company ("Blumenthal"), a subsidiary of the Company (such business and operations being herein called, collectively, the "Acquired Business") and all the assets and properties of any of the Sellers of every kind and description in current use or held for future use or sale in connection with the Acquired Business, wherever located and whether tangible or intangible or real, personal or mixed, as the same shall exist on the Closing Date (as defined in Section 2(a)) other than Excluded Assets (as defined in Section 1(b)) (such assets being herein called, collectively, the "Acquired Assets"), including, without limitation, all right, title and interest of any of the Sellers in, to and under the following assets of the Acquired Business: (i) all real property, leases of real property and all other interests in real property listed or described on Schedules 4(h)-(1) and 4(h)-(2), in each case C-4 together with all buildings, improvements, fixtures and all other appurtenances thereto; (ii) all accounts receivable and indebtedness owed to the Sellers with respect to the Acquired Business and all inventories, deferred items, machinery, equipment, supplies, computer hardware, office furniture and other assets of the Acquired Business, other than Excluded Assets; (iii) all right, title and interest of any of the Sellers in and to all patents, patent applications, copyrights (registered or unregistered), trademarks (registered or unregistered), trademark registrations, trademark registration applications, service marks (registered or unregistered) and trade names used or employed by any of the Sellers in or associated with the Acquired Business (including, without limitation, the names "Belding", "Culver", "Danfield", "Heminway", "Bartlett", "Corticelli", "Robinson", all variations and combinations of such names and all other names under which any of the Sellers conduct the Acquired Business), and all license and other rights of any of the Sellers associated with, used or employed by any of the Sellers in the Acquired Business, together with the goodwill of such business; (iv) all inventions, discoveries, processes, formulae, specifications, data, computer software, trade secrets, know-how and proprietary information of the Acquired Business, other than Excluded Assets; (v) all sales and promotional literature and other selling material owned, associated with, used or employed in or by the Acquired Business; (vi) all books of account, records, files, invoices, customers' lists, suppliers' lists, mailing lists and other data owned, associated with, used or employed by any of the Sellers in connection with the Acquired Business, other than Excluded Assets; (vii) all rights of any of the Sellers under all contracts, agreements, licenses, leases (whether as lessee or lessor), commitments, and sales and purchase orders relating to the Acquired Business and under all commitments, bids and offers and all rights and claims (including, without limitation, refunds and claims thereto) with respect to all Assumed Liabilities; (viii) all prepaid expenses relating to the Acquired Assets or the Acquired Business; (ix) all rights, claims (including refunds (other than Tax refunds relating to periods ending on or prior to the Closing Date or relating to any portion of any Straddle Period (as defined in Section 11(a)) ending on the Closing Date) and claims thereto) and causes of action relating to the Acquired Assets or the Acquired Business, including all rights to indemnification under any agreement pursuant to which any Seller acquired any of the Acquired Assets and all rights C-5 under any insurance policies of any of the Sellers with respect to the Acquired Assets or the Acquired Business; (x) all renewal rights, rights to contingent commissions, profit-sharing commissions, or other similar commission rights and other similar rights of the Sellers relating to the Acquired Business; and (xi) all other assets, rights and claims of every kind and nature, real or personal, tangible or intangible, of any of the Sellers, other than the Excluded Assets. (b) Excluded Assets. The term "Excluded Assets" means, collectively, the following: (i) the business and all assets and properties of Blumenthal, or otherwise exclusively relating to the Company's Button Division; (ii) all rights, claims (including refunds (including Tax refunds) and claims thereto) and causes of action of any Seller with respect to the Excluded Assets or the Excluded Liabilities (as defined in Section 1(d)) and all rights under any insurance policies of any of the Sellers with respect to the Excluded Assets or the Excluded Liabilities; (iii) the capital stock of any of the Sellers; (iv) any and all minute books, stock transfer records, corporate seals and records of Taxes (as defined in Section 4(f)(iv)), including without limitation all Tax Returns (as defined in Section 4(f)(iv)) and related files (including without limitation payroll records and paid invoices) and backup documentation with respect to Taxes of any Seller and all corporate and other records and files located at the Company's corporate headquarters at 1430 Broadway, New York, New York ("Corporate Headquarters"); (v) all cash in banks and all marketable securities held by any of the Sellers; (vi) all furniture, fixtures, computer equipment, E-mail software, supplies and other assets located at the Company's Corporate Headquarters and not primarily used by any Continued Employee (as defined in Section 9(a)); (vii) all real property, leases of real property and all other interests in real property, in each case together with all buildings, improvements, fixtures and all other appurtenances thereto located at or otherwise relating to (A) 520 Reese Street, Emporia, Virginia, (B) 30-40 Echo Lake Road, Watertown, Connecticut, (C) Route 12, Village of Grosvenordale, Thompson, Connecticut, (D) 107 Providence Street, Putnam, Connecticut, (E) 523-525 52nd Street, West New York, New Jersey, and (F) Corporate Headquarters, and all files and records primarily relating to such properties; C-6 (viii) all assets of, under or held in connection with any Benefit Plan (as defined in Section 4(o)) maintained, or contributed to, by any Seller for the benefit of any employees of any Seller, other than the assets of Sellers' 401(k) Plan (as defined in Section 6(o)); and (ix) all rights under any contract or agreement exclusively between or among any of the Sellers. (c) Assumed Liabilities. On the terms and subject to the conditions of this Agreement, the Buyer agrees to assume, at and effective from the Closing, and shall pay, perform or otherwise discharge the Assumed Liabilities, other than the Excluded Liabilities. The term "Assumed Liabilities" means, collectively, all liabilities and obligations of any Seller arising out of or related to the Acquired Business or the Acquired Assets (including any Unassigned Assets (as defined in Section 1(g))) including without limitation the following: (i) all liabilities and obligations to the extent reflected or reserved for on the Interim Balance Sheet (as defined in Section 4(d)) or that arise in connection with the operation of the Acquired Business after the date of the Interim Balance Sheet; (ii) all liabilities and obligations of any Seller arising out of or related to the Acquired Business or the Acquired Assets, which liabilities or obligations (x) are of a kind not reflected or reserved for on the Interim Balance Sheet and were not required to have been, under United States generally accepted accounting principles ("GAAP"), so reflected or reserved for, other than the Excluded Liabilities, (y) are reflected or reserved for on the Interim Balance Sheet but not to the extent required by GAAP to be so reflected or reserved for (but only to the extent not so reflected or reserved for) or (z) are of a kind that are reflected or reserved for on the Interim Balance Sheet, to the extent the amount of such liabilities and obligations exceeds the amount so reflected or reserved for; (iii) all costs in excess of $735,000 incurred by the Buyer after the Closing Date in connection with the assessment, remediation or correction of the environmental conditions reflected in the items in Schedule 1(c)(iii); (iv) all liabilities and obligations arising out of or related to any litigation or claims with respect to the Acquired Business or the Acquired Assets, other than the Excluded Liabilities; (v) all liabilities and obligations arising out of or related to any contract, agreement or lease in effect immediately prior to the Closing comprising part of the Acquired Assets; (vi) all liabilities and obligations arising out of or related to any Environmental Law, Contaminant or Release (as such terms are defined in Section 4(q)) or otherwise relating to the environment, regardless of whether C-7 such liabilities and obligations arose on or before the Closing Date, other than the Excluded Liabilities; and (vii) all liabilities and obligations arising out of or related to any event occurring after the Closing in connection with the operation of the Acquired Business or the use or ownership of any of the Acquired Assets after the Closing. (d) Excluded Liabilities. The term "Excluded Liabilities" means, collectively, the following liabilities and obligations of any Seller: (i) all liabilities and obligations arising out of or related to any of the Excluded Assets, including all such liabilities and obligations relating to the Excluded Assets (A) arising out of or related to any Environmental Law, Contaminant or Release or (B) otherwise relating to the environment; (ii) all liabilities and obligations of any Seller for any Taxes (except Taxes (other than federal, state, local or foreign income taxes) to the extent taken into account as Current Liabilities for purposes of preparing the WC Statement (as defined in Section 2(c))) attributable to taxable years or periods ending at the time of or prior to the close of business on the Closing Date, or, in the case of any Straddle Period (as defined in Section 11(a)(i)), the portion of such Straddle Period (as determined in Section 11(a)(i)) ending at the close of business on the Closing Date; (iii) all liabilities and obligations related to or arising out of any indebtedness of any Seller for borrowed money and all direct or indirect guarantees of any Seller (including through take-or-pay, keep-well or similar agreements or security agreements pledging assets as security for obligations of a third party) of indebtedness, liabilities or obligations of others (including any other Seller), other than indebtedness and other obligations owed by Danfield to the State of Connecticut Department of Economic Development (the "CDA") under the Assistance Agreement dated as of November 19, 1993 between Danfield and the CDA; (iv) all liabilities and obligations of any Seller with respect to any contract, agreement, arrangement or understanding (including without limitation any payables) with any of their respective affiliates (other than the agreement referred to in Item 8 on Schedule 4(k)); (v) all liabilities and obligations of any Seller arising out of or related to the matters identified in Item 5 on Schedule 4(l); (vi) all liabilities and obligations arising out of or related to the failure of any Seller timely to give any required notice under the WARN Act (as defined in Section 4(s)) with respect to employee terminations effected by the Sellers; (vii) all liabilities and obligations that are not reflected or reserved for on the Interim Balance Sheet in any amount but that were required to have been so C-8 reflected or reserved for in accordance with GAAP (other than liabilities and obligations relating to the environment and disclosed in Schedule 4(q)); (viii) all pension or similar liabilities and obligations of any Seller to any employee or retired employee of such Seller under any pension or similar Benefit Plan (other than the Sellers' post-retirement medical and life insurance plans with respect to the employees and retirees listed in Schedule 4(o)(i)) maintained, or contributed to, by any Seller for the benefit of any employees of any Seller; (ix) all liabilities and obligations for workers compensation or medical insurance for any event or occurrence before the Closing (other than the Sellers' post-retirement medical and life insurance plans with respect to the employees and retirees listed in Schedule 4(o)(i)); (x) all other liabilities and obligations of any Seller under any medical, life or long-term disability self-insurance program or plan (other than the Sellers' post-retirement medical and life insurance plans with respect to the employees and retirees listed in Schedule 4(o)(i)); (xi) all liabilities and obligations under or relating to the Company's 1994 Incentive Program, as amended; (xii) audit, legal and financial adviser fees payable by any Seller; (xiii) all liabilities and obligations related to or arising out of the off-site disposal of any Contaminants on or prior to the Closing Date at Beacon Heights Landfill, Beacon Falls, Connecticut, Davis Liquid Waste Landfill, Smithfield, Rhode Island, Solvents Recovery Service of New England, Inc., Lazy Lane, Southington, Connecticut, Old Southington Landfill, Old Turnpike Road, Southington, Connecticut, Chemical Control Corporation, 23 South Front Street, Elizabeth, New Jersey, and Barkhamsted-New Hartford Landfill (a/k/a Regional Refuse Disposal District One Landfill), Route 44 (New Hartford Road) Barkhamsted and New Hartford, Connecticut; and (xiv) all liabilities and obligations of a type recorded by any of the Sellers on their books of account or related records as a "corporate" or intercompany liability, including tax compliance costs, consultant, broker or actuary fees and premiums payable to any insurance company, other than such liabilities and obligations to the extent shown on the Interim Balance Sheet. (e) Purchase Price. The purchase price for the Acquired Assets shall be $54,924,200 (the "Purchase Price"), payable by the Buyer pursuant to, and as set forth in, Section 2(b)(ii). The Purchase Price shall be subject to adjustment as provided in Section 2(c). No separate amount shall be payable by any Seller in respect of the assumption by the Buyer of the Assumed Liabilities and no such assumption shall reduce the Purchase Price payable hereunder. (f) Allocation of Purchase Price. A schedule (the "Allocation Schedule") prepared in accordance with Section 1060 of the Internal Revenue Code of 1986, as amended C-9 (the "Code"), and the regulations thereunder, allocating the Purchase Price (including, for purposes of this Section 1(f), any other consideration to be paid to the Sellers, including the Assumed Liabilities) among the Acquired Assets is attached as Schedule 1(f). Promptly following the making of the Purchase Price adjustments contemplated by Section 2(c), the Buyer and the Sellers shall in good faith negotiate adjustments to the Allocation Schedule to reflect any differences between the Purchase Price and the Adjusted Purchase Price (as defined in Section 2(c)), and execute a revised Allocation Schedule. Each of the Sellers and the Buyer agrees to file Internal Revenue Service Form 8594, and all federal, state, local and foreign Tax Returns (as defined in Section 4(f)(iv)), in accordance with the Allocation Schedule. Each of the Sellers and the Buyer agrees promptly to provide the other parties hereto with any other information reasonably necessary to complete Form 8594. (g) Nonassignable Assets. (i) To the extent that any lease, contract, permit, license or other asset included in the Acquired Assets is not capable of being assigned, transferred, subleased or sublicensed without the consent or waiver of a third party (whether or not a Governmental Entity as defined in Section 4(b)), or if such assignment, transfer, sublease or sublicense would constitute a breach thereof or a violation of applicable law, this Agreement (and any related documents delivered at the Closing) shall not constitute an actual or attempted assignment, transfer, sublease or sublicense thereof unless and until such consent or waiver of such third party has been duly obtained or such assignment, transfer, sublease or sublicense has otherwise become lawful (any lease, contract, permit, license or other asset otherwise included in the Acquired Assets and not assigned, transferred, subleased or sublicensed as a result of this Section 1(g)(i) is hereinafter referred to as an "Unassigned Asset"). (ii) To the extent that the consents and waivers referred to in Section 1(g)(i) are not obtained prior to the Closing, or until the impracticalities of transfer referred to therein are resolved, (x) each Seller shall use all reasonable efforts to (A) provide or cause to be provided to the Buyer the benefits of any Unassigned Asset, (B) cooperate in any arrangement, reasonable and lawful as to both the Sellers and the Buyer, designed to provide such benefits to the Buyer and (C) enforce for the account of the Buyer any rights of the Sellers arising from such Unassigned Asset, including all rights to indemnification, insurance and the right to elect to terminate in accordance with the terms thereof, in each case after consulting with and upon the advice and direction of the Buyer. In connection with the foregoing, the Sellers agree to make their personnel, and applicable books and records, reasonably available to the Buyer (at no cost to the Buyer) in order to effect all actions reasonably required to be taken by the Sellers under this Section 1(g). The Buyer agrees to reimburse the Sellers for all reasonable out-of-pocket expenses incurred by the Sellers in connection with the foregoing. 2. Closing; Transactions to be Effected; Purchase Price Adjustment. (a) Closing. The closing (the "Closing") of the purchase and sale of the Acquired Assets and the assumption by the Buyer of the Assumed Liabilities shall be held at the offices of Sidley & Austin, 875 Third Avenue, New York, New York, at 10:00 a.m. on February 14, 1997 (the "Scheduled Closing Date"), or if the conditions to Closing set forth in Section 3 of this Agreement shall not have been satisfied by such date, as soon as practicable (but in any event not later than three business days) after such conditions shall have been satisfied. The date on which the Closing shall occur is hereinafter referred to as the "Closing Date". C-10 (b) Transactions to be Effected. At the Closing, on the terms and subject to the conditions of this Agreement: (i) the Sellers shall deliver to the Buyer such appropriately executed and authenticated instruments of sale, assignment, transfer and conveyance to the Buyer of the Acquired Assets as the Buyer or its counsel may reasonably request, such instruments to be reasonably satisfactory in form to the Buyer and its counsel; and (ii) (A) the Buyer shall deliver to the Escrow Agent (as defined in the escrow agreement substantially in the form of Exhibit A (the "Escrow Agreement") to be executed at the Closing by each party hereto and the Escrow Agent) by wire transfer immediately available funds in an amount equal to $3,000,000 (the "Escrow"); the Escrow shall be held and invested by the Escrow Agent pursuant to the terms and conditions of the Escrow Agreement; (B) the Buyer shall pay, on behalf of the Sellers, all amounts owed to the obligees with respect to the indebtedness listed on Schedule 2(b)(ii) (the "Secured Debt Payment"); (C) the Buyer shall deliver to the Sellers, by wire transfer to a bank account designated in writing by the Company on behalf of the Sellers at least two business days prior to the Closing Date, immediately available funds in an amount equal to the difference between the Purchase Price and the sum of (x) the Escrow and (y) the Secured Debt Payment; and (D) the Buyer shall deliver to the Sellers such instruments of assumption with respect to the Assumed Liabilities, appropriately executed and authenticated by the Buyer, as the Sellers or their counsel may reasonably request, such instruments to be reasonably satisfactory in form to the Sellers and their counsel. The Sellers shall deliver to the Buyer at least two business days prior to the Closing Date a certificate signed by an authorized officer of the Company setting forth the amount of the Secured Debt Payment. (c) Purchase Price Adjustments. (i) WC Adjustment. Within 60 days after the Closing Date, the Buyer shall prepare and deliver to the Company a statement (the "WC Statement"), setting forth the Working Capital (as defined below) as of the close of business on the Closing Date (the "Closing Working Capital"). The Purchase Price shall be increased by the amount by which the Closing Working Capital exceeds $21,662,000, which is the amount of Working Capital as of the date of the Interim Balance Sheet (the "WC Amount"), and the Purchase Price shall be decreased by the amount by which the Closing Working Capital is less than the WC Amount (the Purchase Price as so increased or decreased shall hereinafter be referred to as the "Adjusted Purchase Price"). If the Purchase Price is less than the Adjusted Purchase Price, the Buyer shall, and if the Purchase Price is more than the Adjusted Purchase Price, the Sellers shall, within five business days after the WC Statement becomes final and binding on the parties, make payment to the Sellers or to the Buyer, as the case may be, by wire transfer in immediately available funds of the amount of such difference, together with interest thereon at a rate equal to the rate of interest from time to time announced publicly by Citibank, N.A. as its base rate, calculated on the basis of the actual number of days elapsed over 365, from the Closing Date to the date of payment. C-11 The term "Working Capital" shall mean Current Assets minus Current Liabilities. The terms "Current Assets" and "Current Liabilities" shall mean current assets and current liabilities of the Acquired Business, calculated in accordance with Schedule 2(c)(i) and, to the extent not inconsistent therewith, with GAAP applied on a basis consistent with past practice from September 30, 1993, through September 30, 1996. (ii) Preparation of WC Statement; Resolution of Disagreements. The Buyer shall prepare the WC Statement. A physical count of all inventory shall be conducted by the Buyer after and as close as practicable to the Closing Date for the purpose of preparing the WC Statement, and the Company and the Buyer and their respective independent auditors shall have the right to observe and participate in the taking of such physical inventory. A copy of all documents prepared in connection with such inventory (including without limitation all count sheets) shall be provided or made available to the Company promptly after such inventory shall have been conducted. During the 30-day period following the Company's receipt of the WC Statement, the Company and its independent auditors will be permitted to review the working papers of the Buyer relating to such WC Statement and to discuss the WC Statement and the preparation thereof with representatives of the Buyer familiar therewith. The WC Statement shall become final and binding upon the parties on the 30th day following receipt thereof by the Company unless the Company, on behalf of the Sellers, gives written notice of their disagreement (a "Notice of Disagreement") with respect to the WC Statement to the Buyer prior to such date. Any Notice of Disagreement shall specify in reasonable detail the nature of any disagreement so asserted. If a Notice of Disagreement is received by the Buyer in a timely manner, then the WC Statement (as revised in accordance with clause (i) or (ii) below) shall become final and binding upon the parties on the earlier of (i) the date the parties hereto resolve in writing any differences they have with respect to any matter specified in the Notice of Disagreement or (ii) the date any disputed matters are finally resolved in writing by the Arbitrator (as defined below). During the 30 business-day period following the delivery of a Notice of Disagreement, the Sellers and the Buyer shall seek in good faith to resolve in writing any differences which they may have with respect to any matter specified in the Notice of Disagreement. At the end of such 30 business-day period, the Sellers and the Buyer shall submit to an arbitrator (the "Arbitrator") for review and resolution any and all matters with respect to the WC Statement that remain in dispute. The Arbitrator shall be such nationally recognized independent public accounting firm as shall be agreed upon by the parties hereto in writing. Absent such agreement, the Buyer and the Sellers shall each designate a nationally recognized independent public accounting firm and such two firms shall jointly select a third nationally recognized independent public accounting firm to serve as the Arbitrator. If such procedure fails to result in the selection of an Arbitrator, such Arbitrator shall be selected in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the "Arbitration Rules"). The Seller and the Buyer shall jointly request that the arbitration be conducted in New York City in accordance with the Arbitration Rules. The Arbitrator shall render a decision resolving the matters submitted to the Arbitrator within 30 days following submission thereto, which decision shall be strictly limited to the issues relating to the WC Statement submitted to such Arbitrator pursuant to this Section 2(c)(ii) and shall be within the range represented by the Sellers' position and the Buyer's position. The cost of any arbitration (including the fees of the Arbitrator) pursuant to this Section 2(c)(ii) shall be borne by the Buyer and by the Sellers in such proportion as shall be determined by the Arbitrator in accordance with the results of the arbitration and the reasonableness of the respective positions taken by the parties. The fees and disbursements of the Buyer's independent auditors shall be C-12 borne by the Buyer, and the fees and disbursements of the Sellers' independent auditors shall be borne by the Sellers. 3. Conditions to Closing. (a) Conditions to Buyer's Obligation. The obligation of the Buyer to, and of the Parent to cause the Buyer to, effect the Closing is subject to the satisfaction (or waiver by the Buyer) as of the Closing of the following conditions: (i) The representations and warranties of the Sellers made in this Agreement and qualified as to materiality shall be true and correct and those not so qualified shall be true and correct in all material respects on and as of the Closing, as though made on and as of the Closing Date, and the Sellers shall have performed or complied in all material respects with all obligations and covenants required by this Agreement to be performed or complied with by the Sellers by the time of the Closing; and the Sellers shall have delivered to the Buyer a certificate dated the Closing Date and signed by an authorized officer of each Seller confirming the foregoing. (ii) The Buyer shall have received an opinion dated the Closing Date of Zimet, Haines, Friedman & Kaplan, counsel for the Sellers, substantially to the effect set forth in Exhibit B. (iii) No injunction or order of any Governmental Entity of competent jurisdiction shall be in effect, and no statute, rule or regulation of any Governmental Entity of competent jurisdiction shall have been promulgated or enacted, as of the Closing which restrains or prohibits the purchase and sale of the Acquired Business or any of the Acquired Assets. (iv) The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), if applicable to the purchase and sale of the Acquired Assets, shall have expired or been terminated. (v) The Sellers shall have (A) obtained consents, in form reasonably satisfactory to the Buyer, to the transactions contemplated hereby from the persons whose consent is required for the transfer or assignment to the Buyer of any of the Acquired Assets, or no such consent shall be required, under each of the agreements identified on Schedule 3(a)(v), and (B) made all filings, in form reasonably satisfactory to the Buyer, with, and paid all related filing fees to, all persons whose receipt of a filing is required for the transfer or assignment to the Buyer of any of the Acquired Assets, or no such filing shall be required. (vi) Each of the Required Parent Vote (as defined in Section 5(a)) and the Required Company Vote (as defined in Section 4(b)) shall have been obtained. (vii) The Parent shall have issued the Parent Loan Stock as contemplated by Section 5(d) and such Parent Loan Stock shall have been admitted to the official list of the LSE (each term as defined in Section 5(a)) in accordance with paragraph 7.1 of the rules of the LSE. C-13 (viii) Except as set forth in Schedule 4(b), the Buyer shall have received evidence reasonably satisfactory to it and its counsel that all Acquired Assets are being acquired by the Buyer free and clear of all Liens and Encumbrances other than Permitted Liens and Permitted Encumbrances (each term as defined in Section 4(g) or (h), as applicable). (ix) The Fairness Opinion (as defined in Section 4(u)) shall not have been withdrawn or modified in any respect by the Investment Bank (as defined in Section 4(u)). (x) The Buyer shall have received evidence, reasonably satisfactory to it, that Kenney Drapery Associates, Inc. has irrevocably waived in writing its privilege, if any, to purchase, as a result of the transactions contemplated by this Agreement, 135 East 144th Street, Bronx, New York, pursuant to Section 32 of the Commercial Lease dated June 9, 1993, between Bridge Realty and Kenney Drapery Associates, Inc. (xi) The Buyer shall have received evidence, reasonably satisfactory to it, that all assets comprising part of the Acquired Assets that as of the date of this Agreement are owned by Belding Chemical Industries, Inc. or by Heminway & Bartlett Manufacturing Company (such assets being the "Non-Seller Assets") have been properly transferred to one or more Sellers. (b) Conditions to Sellers' Obligation. The obligation of the Sellers to effect the Closing is subject to the satisfaction (or waiver by the Sellers) as of the Closing of the following conditions: (i) The representations and warranties of the Buyer and the Parent made in this Agreement and qualified as to materiality shall be true and correct and those not so qualified shall be true and correct in all material respects on and as of the Closing, as though made on and as of the Closing Date, and the Buyer and the Parent shall have performed or complied in all material respects with all obligations and covenants required by this Agreement to be performed or complied with by the Buyer and the Parent by the time of the Closing; and the Buyer and the Parent shall have delivered to the Sellers a certificate dated the Closing Date and signed by an authorized officer of the Buyer and of the Parent confirming the foregoing. (ii) The Sellers shall have received opinions dated the Closing Date of Sidley & Austin, U.S. counsel for the Buyer, and of Edwards Geldard, U.K. counsel for the Buyer, substantially to the effect set forth in Exhibits C-1 and C-2, respectively. (iii) The conditions contemplated by Sections 3(a)(iii) and 3(a)(iv) shall have been satisfied. (iv) Definitive copies of the Company's Proxy Statement (as defined in Section 6(l)) shall have been filed with the Securities and Exchange Commission C-14 (the "SEC") and mailed as contemplated by such Section, and the Required Company Vote shall have been obtained. 4. Representations and Warranties of the Sellers. The Sellers jointly and severally represent and warrant to the Buyer and the Parent as follows: (a) Organization and Standing of the Sellers. Each of the Sellers is a corporation or limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. Each of the Sellers has full corporate (or limited liability company, as the case may be) power and authority and possesses all governmental franchises, licenses, permits, authorizations and approvals (other than any relating to environmental matters for which the Sellers' sole representations and warranties are set forth in paragraph (q) of this Section 4) necessary to enable it to use its corporate name (as such) and to own, lease or otherwise hold its properties and assets and to carry on its business as presently conducted consistent with past practice, except where the failure to have such governmental franchises, licenses, permits, authorizations or approvals would not, individually or in the aggregate with all such other failures, result in a material adverse effect on the assets, liabilities, business, financial condition, or results of operations or prospects of the Acquired Business, taken as a whole (a "Material Adverse Effect"). Each of the Sellers is duly qualified and in good standing to do business in each jurisdiction in which the nature of the Acquired Business or the ownership, leasing or holding of the Acquired Assets makes such qualification necessary, except such jurisdictions where the failure to so qualify would not, individually or in the aggregate with all such other failures, result in a Material Adverse Effect. A list of the jurisdictions in which each Seller is so qualified is set forth on Schedule 4(a). (b) Authority; No Conflict. Each of the Sellers has all requisite corporate power and authority to execute and deliver this Agreement and, subject to the approval of this Agreement, the sale of the Acquired Assets as contemplated hereby and the other transactions contemplated hereby by the affirmative vote of a majority of the aggregate votes that holders of the outstanding shares of the Company's Common Stock, par value $.01 per share, and the Company's Series B Preferred Stock, par value $.01 per share (collectively, the "Company Voting Stock"), are entitled to cast with respect thereto (the "Required Company Vote"), to perform its obligations hereunder. All corporate and stockholder acts and other proceedings required to be taken by each of the Sellers to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly and properly taken, subject to the setting of a record date for and the calling of the Company Stockholders' Meeting (as defined in Section 6(p)) and to obtaining the Required Company Vote. This Agreement has been duly executed and delivered by each of the Sellers and constitutes a valid and binding obligation of each of the Sellers enforceable against each of the Sellers in accordance with its terms, except to the extent that enforcement hereof may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws affecting creditors' rights generally and by general principles of equity. The execution and delivery of this Agreement by the Sellers do not, and the consummation of the transactions contemplated hereby and compliance with the terms hereof will not: (i) except as set forth in Schedule 4(b), require any consent or approval (other than those that have heretofore been obtained and are set forth in Schedule 4(b)) under, result in the breach of, result in or permit the termination of, constitute a default (or any event which might, with the passage of time or the giving of notice or both, constitute a default) under, or result in the acceleration of any Seller's obligations, or C-15 the loss of any benefit to any Seller, under, any note, bond, mortgage, indenture, deed of trust, license, lease, contract, commitment or other agreement or arrangement to which any Seller or any of its affiliates is a party or by which any of them or any of the Acquired Assets is bound or encumbered (except where the failure to obtain such consent or approval, and except where such breaches, terminations or defaults, would not, individually or in the aggregate with all such other failures and/or breaches, terminations and defaults, (x) have a Material Adverse Effect or (y) prevent, materially delay or materially impair the ability of the Sellers to consummate the transactions contemplated hereby), (ii) violate or breach any provision of the Certificate of Incorporation or By-laws (or comparable constitutive documents) of any Seller or any of its affiliates, (iii) violate or breach any foreign or domestic judgment, order or decree, or any foreign or domestic statute, law, ordinance, rule or regulation applicable to any Seller or any of its affiliates or the Acquired Business (except where such violations or breaches would not, individually or in the aggregate with all such other violations and breaches, (x) have a Material Adverse Effect or (y) prevent, materially delay or materially impair the ability of the Sellers to consummate the transactions contemplated hereby) or (iv) result in the creation or imposition of any lien, charge, encumbrance or restriction of any nature whatsoever upon any of the Acquired Assets (except where the creation or imposition of such lien, charge, encumbrance or restriction would not, individually or in the aggregate with all such other liens, charges, encumbrances or restrictions, (x) have a Material Adverse Effect or (y) prevent the consummation of any of the transactions contemplated hereby). No consent, approval, license, permit, or authorization of, or registration, declaration or filing with, any federal, state, local or foreign court, administrative or regulatory agency or commission or other governmental authority or instrumentality, or any arbitral tribunal (collectively, "Governmental Entities") or any other third party (except where the failure to obtain such consents, approvals or authorizations of any such other third parties would not, individually or in the aggregate with all such other failures, (x) have a Material Adverse Effect or (y) prevent, materially delay or materially impair the ability of the Sellers to consummate the transactions contemplated hereby), is required to be obtained or made by or with respect to any Seller or any of its affiliates in connection with (i) the execution and delivery of this Agreement or the consummation by the Sellers of the transactions contemplated hereby or (ii) the conduct of the Acquired Business following the Closing as presently conducted consistent with past practice, in each case other than (A) as set forth in Schedule 4(b), (B) compliance with and filings under the HSR Act, (C) the filings and/or notices pursuant to Section 6(l) and other filings required under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),(D) those that may be required solely by reason of the Buyer's (as opposed to any third party's) participation in the transactions contemplated hereby and (E) those that have heretofore been obtained, made or filed and are set forth in Schedule 4(b). (c) Subsidiaries and Equity Interests of the Sellers. Except for other Sellers, Belding Thread Limited, a company incorporated under the laws of Hong Kong ("Belding Thread Limited") and as set forth in Schedule 4(c), none of the Sellers directly or indirectly owns any capital stock of or other equity interests in or controls, directly or indirectly, any corporation, partnership, trust, limited liability company, joint venture or other entity currently engaged (or engaged at any time during the past three years) in the Acquired Business. (d) Financial Statements. (i) Schedule 4(d) sets forth: C-16 the consolidated balance sheets of the Acquired Business as of December 31, 1995, December 31, 1994 and December 31, 1993, and the consolidated statements of operations of the Acquired Business for the fiscal years ended December 31, 1995, December 31, 1994 and December 31, 1993, together with the notes to such financial statements; and (B) the consolidated balance sheets of the Acquired Business as of September 30, 1996 (the "Interim Balance Sheet") and September 30, 1995, and the consolidated statements of operations of the Acquired Business for the nine-month periods ended September 30, 1996 and September 30, 1995 (the "Interim Financial Statements"; and together with the financial statements referred to in clause (A) above, the "Financial Statements"). (ii) The Financial Statements: (A) except as set forth in Schedule 4(d), have been prepared in accordance with GAAP consistently applied from September 30, 1993, through September 30, 1996, and present fairly the financial condition of the Acquired Business as at their indicated dates, and the results of its operations for the indicated periods (it being understood that such Financial Statements give effect to acquisitions made by the Acquired Business only from and after the respective dates of such acquisitions); (B) except as set forth in Schedule 4(d), reflect accurately in all material respects all the costs and expenses of the Acquired Business from and after January 1, 1994; and (C) except as set forth in Schedule 4(d), reflect no grant of financial assistance by any Governmental Entity or other person or income, gain or credit from any disposal of any fixed assets. The Acquired Assets constitute, with the exception of any Excluded Assets, all the assets, properties, rights and interests reflected on the Interim Balance Sheet (after giving effect to all transactions in the ordinary course of the Acquired Business, consistent with past practice, since the date of the Interim Balance Sheet). (e) Undisclosed Liabilities. To the Sellers' knowledge, the Acquired Business does not have any liabilities, debts, claims or obligations of any nature (whether accrued, absolute, contingent, unasserted or otherwise and whether or not of a nature required by GAAP to be reflected, disclosed or reserved against in a balance sheet of the Acquired Business or in the notes thereto) which are, individually or in the aggregate, material in relation to the Interim Balance Sheet, except (i) to the extent reflected, disclosed or reserved against in the Interim Balance Sheet (or described in the notes thereto), (ii) for liabilities and obligations incurred in the ordinary course of business consistent with past practice since the date of the Interim Balance Sheet and not in violation of this Agreement, (iii) Excluded Liabilities and (iv) as reflected in the Schedules hereto. (f) Taxes. (i) Except as set forth on Schedule 4(f), the Sellers have, in respect of the Acquired Business, filed all Tax Returns (as defined below) which are required to have been filed (except for such Tax Returns the failure of which to file would not, individually or in the aggregate, have a Material Adverse Effect), and all such returns are true, correct and complete in all material respects. The Sellers have paid all Taxes (as defined below) shown to be due on such Tax Returns, and all monies required to be withheld by the Sellers from employees of the Acquired Business for income Taxes and social security and other payroll Taxes have been collected or withheld, and either paid to the respective taxing authorities, set aside in accounts for such purpose, or accrued, reserved against and entered upon the books of the Acquired Business (except for such Taxes the failure of which to have paid, withheld, collected, set aside, accrued or reserved against would not, individually or in the aggregate, have a Material Adverse Effect). C-17 (ii) The reserve for Taxes reflected in the Interim Balance Sheet is adequate for the payment of all liabilities for Taxes (other than federal, state, local or foreign income Taxes) with respect to or imposed upon the Acquired Business or the Acquired Assets through the date of such Interim Balance Sheet. Any Taxes in respect of the period since the date of such Interim Balance Sheet have arisen in the ordinary course of business and not in violation of this Agreement. Except as set forth in Schedule 4(f), there are no ongoing audits or examinations of any of the Tax Returns of any of the Sellers and none of the Sellers has been notified in writing by any Governmental Entity that any such audit is contemplated or pending. Except as set forth in Schedule 4(f), no Governmental Entity is now asserting or threatening to assert against any of the Sellers any deficiency or claim for additional Taxes. Except as set forth in Schedule 4(f), no waiver agreement by any of the Sellers is in force for the extension of time for the assessment or payment of any Taxes. (iii) Except as set forth in Schedule 4(f), none of the Sellers has any agreement or arrangement with any other person regarding the filing of Tax Returns or relating to the sharing of tax benefits or liabilities with such persons. (iv) For purposes of this Agreement, "Taxes" shall mean federal, state, local or foreign income, gross receipts, property, sales, use, license, excise, franchise, employment, payroll, withholding, alternative or add-on minimum, ad valorem, transfer or excise tax, or any other tax, custom, duty, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or penalty, imposed by any Governmental Entity (other than any fee, assessment, charge, or penalty imposed with reference to the specific environmental conditions of a particular piece of property comprising part of the Acquired Assets). For purposes of this Agreement, "Tax Returns" shall mean all federal, state, local and foreign tax returns, declarations, statements, reports, schedules, forms and information returns and any amended Tax Returns relating to Taxes. (v) The consummation of the transactions contemplated hereby will not result in any payment by the Buyer pursuant to a contractual arrangement entered into by any Seller on or prior to the Closing which would reasonably be expected to be an "excess parachute payment" under Section 280G of the Code. (g) Assets Other than Real Property. The Sellers own all the Acquired Assets comprising property other than real property and interests in real property (including but not limited to the Acquired Assets comprising property other than real property and interests in real property reflected on the Interim Balance Sheet or thereafter acquired, except for inventory since sold, and accounts receivable since collected, in the ordinary course of business consistent with past practice), in each case free and clear of all liens, security interests, claims, encumbrances, pledges, options, rights of first refusal, and other charges, encumbrances or restrictions of any nature whatsoever ("Liens"), except (1) such as are disclosed in Schedule 4(g), (2) mechanics', carriers', workmen's, repairmen's or other like statutory liens arising from or incurred in the ordinary course of business for which the underlying payments are not yet delinquent and (3) Liens (other than Liens contractually agreed to by any Seller) which do not, individually or in the aggregate, materially impair the value or use in the Acquired Business as presently conducted of the property to which they relate (the Liens described in clauses (2) and (3) above or referred to in Items 3, 10 and 12 on Schedule 4(b) are hereinafter referred to as C-18 "Permitted Liens"). At the Closing, the Buyer shall acquire the Acquired Assets described in the preceding sentence free and clear of all Liens other than Permitted Liens. (h) Real Property Assets. (i) Schedule 4(h)-(l) sets forth a complete list of all Acquired Assets comprising real property and interests in real property owned in fee simple by the Sellers. The Sellers have good and valid fee title to all Acquired Assets comprising real property and interests in real property owned by them, free and clear of all Liens, mortgages, easements, restrictive covenants, encroachments, rights-of-way, zoning and building restrictions, and other liens, encumbrances, charges or restrictions of any nature whatsoever (collectively, "Encumbrances"), except (1) Encumbrances which relate to loan facilities provided by (a) Nationsbank of North Carolina, N.A. and (b) Fleet Bank, N.A., both of which with respect to the Acquired Assets shall be released and satisfied at or prior to the Closing Date, (2) subject to survey matters which violate the provisions of clause (5) of this paragraph (h), Encumbrances listed in Schedule 4(h)-(l) hereto, (3) liens for taxes, assessments and other governmental charges which are not yet due and payable, (4) zoning, building and other similar governmental restrictions, provided the same are not violated in any material respect by any improvements of any Seller or by the use thereof for the conduct of the Acquired Business, and (5) (a) easements, covenants, rights-of-way or other similar restrictions that are not listed in Schedule 4(h)-(1) hereto, and (b) any other matters that would be disclosed by a current survey, provided that none of the items referred to in clauses (a) and (b) of this subparagraph (5) in any material respect either impair the value of the applicable Acquired Asset or interfere with the use thereof for the conduct of the Acquired Business. Sellers represent that the items referred to in clauses (2), (4), and (5) above, individually or in the aggregate, do not materially impair the value of the Acquired Asset(s) to which they relate or the use of such Acquired Asset(s) for the conduct thereon of the Acquired Business as presently conducted (the Encumbrances described in clauses (2), (3), (4), and (5) above are hereinafter referred to collectively as "Permitted Encumbrances"). At the Closing, the Buyer shall acquire the Acquired Assets described in Schedules 4(h)-(1) free and clear of all Encumbrances other than Permitted Encumbrances. (ii) Schedule 4(h)-(2) sets forth a complete list of all Acquired Assets comprising real property and interests in real property leased (as lessee or sublessee) by the Sellers. Except as may be set forth in Schedule 4(h)-(2), Sellers hereby represent as to each real property lease: (1) the applicable Seller (listed on Schedule 4(h)-(2)) is the owner of a valid and subsisting leasehold interest as tenant under the applicable lease, (2) the real property lease is in full force and effect, unmodified and not supplemented by any writing or otherwise, and true, correct and complete copies thereof (if in writing) have been delivered to Buyer, (3) all rent, additional rent and other charges reserved therein have been paid to the extent they are due and payable on the date hereof, (4) the applicable Seller has not received any assertions by third parties claiming any right to use or occupy the premises demised under such lease, (5) the applicable Seller(s) has not received any notice of default from the landlord under such applicable lease which default(s), if any, remains uncured, and to the Sellers' knowledge, the applicable Seller(s) is not in default beyond any applicable grace period under any of the terms thereof, and there are no circumstances which, with the passage of time or the giving of notice or both, would constitute an event of default thereunder, (6) to the Sellers' knowledge, the lessor under such real property lease is not in default in any material respect under any of the terms or provisions thereof on the part of the lessor to be observed or performed, (7) the lessor under the real property lease has satisfied all its repair or construction obligations, if any, to date pursuant to the terms of the real property lease and (8) the execution, delivery and performance C-19 of this Agreement and the consummation of the transactions contemplated hereby do not require the consent (other than those consents which have been obtained and are in full force and effect) under, and will not contravene any provision of or cause a default under, such real property lease. (iii) Other than the Bronx Space Lease (as defined in Section 6(s)), there are no other leases and other agreements, whether written or oral, demising space in or providing for the use or occupancy of all or any portion of the Acquired Assets which constitute leased or owned real property. The Bronx Space Lease has not been amended, modified or supplemented, and Sellers have delivered a true and correct copy thereof to Purchaser. The Bronx Space Lease is in full force and effect, and is not in default in any material respect by either party thereto, and no Seller has received any written or oral notice or other communication of any alleged breach or default thereunder by the applicable Seller, nor does there exist any event, which, with notice or lapse of time or both, would constitute a default thereunder. Pursuant to the terms of the Bronx Space Lease, Sellers are holding a security deposit in the amount of $10,800. No brokerage or leasing commission, fee or other compensation is or will be due from Sellers as of the Closing Date or thereafter in connection with the Bronx Space Lease or any renewal thereof. The parties hereby acknowledge and agree that the Purchase Price has been reduced by $10,800 to account for the Seller's assumption of the obligations of Bridge Realty pursuant to the terms of the Bronx Space Lease with respect to the security deposit presently being held thereunder. No further adjustment to the Purchase Price shall be made in connection with such security deposit. (iv) Except as set forth in Schedules 4(h)-(l) and 4(h)-(2), the Sellers have not granted, and the real estate and leaseholds identified in Schedules 4(h)-(l) and 4(h)-(2) are not subject to, any options to purchase or rights of first refusal. None of the real property owned or leased by the Sellers and described or required to be described in Schedules 4(h)-(1) or 4(h)-(2), nor the current use thereof by the Sellers, violates any restrictive covenants or any provision of any federal, state, local or foreign law, any ordinance, or any zoning regulation (except that with respect to Environmental Laws, the Sellers' sole representations and warranties are set forth in Section 4(q)), or encroaches on any property owned by others so as adversely to affect the continued use of such property in the Acquired Business for the purposes for which it is currently used, except for any such violation or encroachment which does not materially interfere, individually or in the aggregate with all other violations or encroachments, with the continued use of such property in the Acquired Business for the purposes for which it is currently used. No condemnation proceeding is pending or, to the Sellers' knowledge, threatened, which would preclude or impair the use of any real property described or required to be described in Schedules 4(h)-(1) or 4(h)-(2) in the Acquired Business for the purposes for which it is currently used. (i) Condition of Assets. (i) The tangible personal assets included in the Acquired Assets have been maintained in all material respects in accordance with generally accepted industry practice (it being understood that with respect to such assets that are in storage, such industry practice is that generally accepted for similar assets in storage). The tangible personal assets included in the Acquired Assets, taken as a whole, are in all material respects in good operating condition and repair, ordinary wear and tear excepted. The leased personal property included in the Acquired Assets is in all material respects in the condition required of such property by the terms of the leases applicable thereto. C-20 (ii) The equipment and machinery acquired or manufactured by one or more of the Sellers for use in China in connection with Project Aurora (as such term is used by the Sellers) is hereinafter called the "Aurora Equipment". The Aurora Equipment (1) comprises part of the Acquired Assets and (2) includes three bonding machines located at the Hendersonville, North Carolina plant used in the Acquired Business, of which machines one is a modular prototype (approximately two years old) that was in operation and has since been disassembled to convert it to a manufacturing format, and two are substantially new manufacturing format units that are in the process of being assembled. (j) Intellectual Property. Schedule 4(j) sets forth a true and complete list of all material patents, trademarks (registered or unregistered), trade names (registered or unregistered), service marks (registered or unregistered), registered copyrights and computer software applications, other than off-the-shelf applications, together with all applications therefor, owned or used by or licensed to any Seller which are material to the Acquired Business as presently conducted and all license agreements related thereto to which any Seller is a party (in each case, except those relating solely to the Excluded Assets) (collectively, "Intellectual Property") and specifies, with respect to each such item, where applicable, the date granted or applied for, the expiration date and, to the Sellers' knowledge, the current status thereof. Except as disclosed in Schedule 4(j), a Seller owns or has the valid right to use, without payment to any other party, the Intellectual Property used in or necessary for the conduct of the Acquired Business and the consummation of the transactions contemplated hereby will not alter or impair any such rights. To the Sellers' knowledge, all registrations listed in Schedule 4(j) related to Intellectual Property owned by the Sellers have been duly maintained except as otherwise set forth on such Schedule. Except for the license for use of the name "Belding Hausman" granted by the Company to Lewis Textiles Corporation (the "BH License") or as otherwise set forth in Schedule 4(j), there is no restriction affecting the use by the Sellers of any of the Intellectual Property. Except as disclosed in Schedule 4(j), all Intellectual Property owned by a Seller is owned free and clear of all Encumbrances. Except as disclosed in Schedule 4(j), no claims or other proceedings are pending or, to the Sellers' knowledge, threatened by any person or entity with respect to the ownership, validity, enforceability or use of any Intellectual Property. Except as set forth in Schedule 4(j), (i) to the Sellers' knowledge the conduct of the Acquired Business does not infringe upon the rights of any third party, (ii) to the Sellers' knowledge no third party is infringing upon any Intellectual Property owned by a Seller, and (iii) no reexamination of or litigation with respect to any Intellectual Property is pending and no order, holding, decision or judgment has been rendered by any Governmental Entity, and no agreement, consent or stipulation exists, which would prevent any Seller from using any Intellectual Property. Except as set forth in Schedule 4(j), the Intellectual Property identified on such Schedule is all the Intellectual Property necessary to conduct the Acquired Business as presently conducted. (k) Contracts. Except (w) for this Agreement or as described in Schedule 4(k) or any other Schedule to this Agreement, (x) for documents filed as exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1995 or in Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30 and September 30, 1996, as amended, (y) Excluded Liabilities and (z) for contracts or agreements (1) not relating to the Acquired Business or (2) exclusively relating to the Excluded Assets, none of the Sellers is a party to or bound by, nor are any of the Acquired Assets subject to, any: C-21 (i) employee collective bargaining agreement or other contract with any labor union, (B) plan, program, practice, arrangement or agreement that provides for the payment of severance, termination or similar type of compensation or benefits upon the termination, retirement or resignation of any employee or (C) plan, program, arrangement or agreement that provides for medical, life insurance, pension or other benefits for employees of any Seller or any of its affiliates upon their retirement from, or termination of employment with, any Seller; (ii) covenant not to compete or other contract or commitment limiting or restraining any of the Sellers from engaging or competing in any products or lines of business with any corporation, partnership or other entity or person; (iii) agreement, contract or commitment with any other Seller (or any affiliate of any such other Seller) or any officer, director or employee of any Seller or any of its affiliates (other than employment agreements arising by operation of law with the Sellers' directors, officers and employees); (iv) lease or similar agreement under which a Seller is a lessor or sublessor of, or makes available for use by any third party, any real property owned or leased by such Seller or any portion of premises otherwise occupied by such Seller; (v) lease or similar agreement under which a Seller is the lessee or lessor of, or holds or uses, any material machinery, equipment, vehicle or other material tangible personal property, (B) contract, order or commitment for the future purchase or sale of materials, supplies, services, products or equipment (other than purchase contracts and orders for inventory in the ordinary course of business consistent with past practice and which in any instance has an aggregate future liability not in excess of $50,000), (C) management, service, consulting or other similar type of contract, (D) distribution or sales agency agreement or other similar distribution or commission arrangement or (E) advertising agreement or arrangement, in any such case described in this paragraph (v) which in any instance has an aggregate future liability in excess of $50,000; (vi) other than Excluded Liabilities, agreement, contract or instrument pursuant to or under which a Seller has (A) borrowed or loaned any money, including any note, bond, indenture or other evidence of indebtedness, or (B) directly or indirectly guaranteed (including, without limitation, through take-or-pay, keep-well or similar agreements or security agreements pledging assets as security for obligations of a third party) indebtedness, liabilities or obligations of others (other than endorsements for the purpose of collection in the ordinary course of business); (vii) agreement or contract under which any other person has directly or indirectly guaranteed indebtedness, liabilities or obligations of a Seller (other than endorsements for the purpose of collection in the ordinary course of business); C-22 (viii) mortgage, pledge, security agreement, deed of trust or other document granting a lien or other Encumbrance (including liens upon properties acquired under conditional sales, capital leases or other title retention or security devices) securing obligations in excess of $50,000; (ix) agreement or contract providing for the payment by a Seller of any bonus or commission based on sales or earnings or return on net assets or other measure of performance of a Seller or providing for any bonus or other payment by a Seller based on the sale of any portion of the Acquired Business; (x) partnership or joint venture agreements; (xi) agreements or commitments for capital expenditures; (xii) agreements, contracts or commitments for any future charitable or political contribution; (xiii) contract, commitment or other option relating to the sale or purchase of assets, other than purchases of raw materials not in excess of $50,000 in any case and sales of inventory in the ordinary course of business consistent with past practice; (xiv) reimbursement or other agreements relating to letters of credit or performance bonds; (xv) contract, commitment or other option relating to the purchase by a Seller of any equity or debt interest in or asset (other than purchases of assets in the ordinary course of business consistent with past practice) of any corporation or other entity, other than the Sellers; or (xvi) other agreement, contract, lease, license, commitment or instrument to which a Seller is a party or by or to which any of them or any of the Acquired Assets or the Acquired Business is bound or subject which agreement, contract, lease, license, commitment or instrument individually has an aggregate future liability in excess of $50,000; Each agreement, contract, lease, license, commitment or instrument relating to the Acquired Business to which a Seller is a party or by which any of them or any of the Acquired Assets is bound (collectively, the "Contracts") is valid, binding and in full force and effect. Except as disclosed in Schedule 4(k), each Seller has performed all material obligations required to be performed by it to date under the Contracts and is not (with or without the lapse of time or the giving of notice, or both) in breach or default in any material respect thereunder and, to the Sellers' knowledge, no other party to any of the Contracts is (with or without the lapse of time or the giving of notice, or both) in breach or default in any material respect thereunder. (l) Litigation; Decrees. Except for litigation arising in the ordinary course of the Acquired Business which would not, individually or in the aggregate, reasonably be expected C-23 to have a Material Adverse Effect or as set forth in Schedule 4(l), there are no lawsuits, claims, proceedings or investigations pending or, to the Sellers' knowledge, threatened before any Governmental Entity brought by or against or affecting a Seller, or any of its officers, directors, employees, agents or affiliates in their capacities as such, relating to the Acquired Business or the Acquired Assets, which (1) in each instance relate to or involve more than $50,000 (other than claims that are fully covered by the insurance policies set forth in Schedule 4(n)), (2) seek any injunctive relief, or (3) which relate to the transactions contemplated by this Agreement. Except as set forth in Schedule 4(l), there are no outstanding judgments, orders, consents, agreements or decrees of any Governmental Entity against any Seller relating to the Acquired Business. None of the Sellers is in default under, or has failed to comply in all material respects with, any judgment, order, consent, agreement or decree of any Governmental Entity applicable to the Acquired Business. (m) Accounts Receivable; Inventories. (i) All accounts receivable of the Sellers comprising part of the Acquired Assets have arisen from bona fide transactions in the ordinary course of business. To the Sellers' knowledge, all accounts receivable reflected on the Interim Balance Sheet are good and collectible at the aggregate recorded amounts thereof, net of any applicable reserves for doubtful accounts reflected on the Interim Balance Sheet, and all accounts receivable of the Acquired Business arising since the date of the Interim Balance Sheet are, to the Seller's knowledge, good and collectible at the aggregate recorded amounts thereof, net of any applicable reserves for doubtful accounts set forth on the most recent internal financial statement of the Acquired Business consistent with past practice. (ii) The inventories of the Acquired Business are of a quality and quantity usable and salable in the ordinary course of business consistent with past practice. The inventories of the Sellers are reflected on the Interim Balance Sheet and in the books and records of the Acquired Business in accordance with GAAP consistently applied (except as described in the notes to the Interim Balance Sheet). (n) Insurance. The insurance policies currently maintained with respect to (or, in the case of any comprehensive general liability policies (each a "CGL"), which would have applicability to) the Acquired Assets and the Acquired Business are listed in Schedule 4(n). All such policies are in full force and effect. The Sellers have heretofore made available to the Buyer true and complete copies of all such policies. Except as set forth in Schedule 4(n), no notice of cancellation or non-renewal with respect to, or disallowance of any claim under, any such insurance policy has been received by a Seller (other than disallowances under the Sellers' medical insurance policies). None of the Sellers has been refused in writing any insurance with respect to the Acquired Business, and no coverage has been limited by any insurance carrier to which a Seller has applied for or received insurance during the past three years. (o) Benefit Plans. (i) Schedule 4(o)(i) contains a list of all (A)"employee pension benefit plans" (as defined in section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) (sometimes referred to herein as "Pension Plans"), "employee welfare benefit plans" (as defined in Section 3(l) of ERISA), bonus, stock option, stock purchase, deferred compensation plans or arrangements, post-retirement medical and life insurance and other employee fringe benefit plans or arrangements (all the foregoing being herein called "Benefit Plans") maintained, or contributed to, by any Seller for the benefit of any employees of any Seller who are employed primarily in the Acquired Business and (B) C-24 employees or retired employees of any Seller who are or were employed primarily in the Acquired Business to whom any amount is owed under the Sellers' post-retirement medical and life insurance plans. The Sellers have delivered to the Buyer true, complete and correct copies of (1) each Benefit Plan (or, in the case of any unwritten Benefit Plans, descriptions thereof), (2) the most recent annual report on Form 5500 filed with the Internal Revenue Service with respect to each Benefit Plan (if any such report was required), (3) the most recent summary plan description for each Benefit Plan for which such a summary plan description is required and (4) each trust agreement and group annuity contract relating to any Benefit Plan. (ii) Each Benefit Plan has been administered in all material respects in accordance with its terms and the applicable provisions of ERISA and the Code. Except as disclosed in Schedule 4(o)(ii)-l, all material reports, returns and similar documents with respect to the Benefit Plans required to be filed with any governmental agency or distributed to any Benefit Plan participant have been duly and timely filed or distributed. Except as disclosed in Schedule 4(o)(ii)-2, there are no investigations by any governmental agency, termination proceedings or other claims (except claims for benefits payable in the normal operation of the Benefit Plans), suits or proceedings against or involving any Benefit Plan or asserting any rights or claims to benefits under any Benefit Plan that could reasonably give rise to any material liability, and, to the Sellers' knowledge, there are no facts that could reasonably give rise to any material liability in the event of any such investigation, claim, suit or proceeding. (iii) Except as disclosed in Schedule 4(o)(iii), all contributions to, and payments from, the Benefit Plans that may have been required to be made in accordance with the Benefit Plans have been timely made. (iv) No "prohibited transaction" (as defined in Section 4975 of the Code or Section 406 of ERISA) has occurred that involves the assets of any Benefit Plan and that could subject the Acquired Business or any of its employees, or, to the Sellers' knowledge, a trustee, administrator or other fiduciary of any trusts created under any Benefit Plan, to any material tax or penalty on prohibited transactions imposed by Section 4975 of the Code or the sanctions imposed under Title I of ERISA. None of the Sellers nor, to the Sellers' knowledge, any trustee, administrator or other fiduciary of any Benefit Plan nor any agent of any of the foregoing has engaged in any transaction or acted or failed to act in a manner that could subject the Acquired Business to any material liability for breach of fiduciary duty under ERISA or any other applicable law. Except for annual premiums payable to the Pension Benefit Guaranty Corporation, no monetary liability under Title IV of ERISA has been incurred by the Sellers or their affiliates within six years prior to the date hereof that has not been satisfied in full and no condition exists that presents a material risk of incurring such liability. (v) Except as disclosed in Schedule 4(o)(v), at no time within the five years preceding the Closing Date has any Seller been required to contribute to any "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) or incurred any withdrawal liability, within the meaning of Section 4201 of ERISA, which liability has not been fully paid as of the date hereof, or announced an intention to withdraw, but not yet completed such withdrawal, from any multiemployer plan. C-25 (vi) Except as disclosed in Schedule 4(o)(vi), none of the Sellers maintains or contributes to a Pension Plan which is subject to Section 302 of ERISA or Section 412 of the Code. (vii) With respect to any Benefit Plan that is an employee welfare benefit plan, except as disclosed in Schedule 4(o)(vii), (1) no such Benefit Plan is funded through a welfare benefits fund, as such term is defined in Section 419(e) of the Code and (2) each such Benefit Plan that is a group health plan, as such term is defined in Section 5000(b)(1) of the Code, complies with the applicable requirements of Section 4980B(f) of the Code. (viii) Each Pension Plan which is intended to qualify under Section 401(a) of the Code, including the Sellers' 401(k) Plan, has been determined to be so qualified by the Internal Revenue Service, and, to the Sellers' knowledge, no circumstance has occurred or exists which might cause such plan to cease being so qualified. (p) Absence of Changes or Events. Except as set forth in Schedule 4(p), since the date of the Interim Balance Sheet the Acquired Business has been conducted in the ordinary course consistent with past practice; and there has not been any change, event or development (other than changes, events or developments relating to the economy or the Acquired Business's industry generally), or any discovery of any pre-existing facts, that has resulted or will result in a Material Adverse Effect. Without limiting the generality of the foregoing sentence, except as set forth in Schedule 4(p), since the date of the Interim Balance Sheet, none of the Sellers has, with respect to the Acquired Business or the Acquired Assets: (i) incurred any material obligation or liability (absolute, accrued, contingent or otherwise), except (x) in the ordinary course of business consistent with past practice, (y) in connection with the performance of this Agreement or (z) Excluded Liabilities; (ii) discharged or satisfied any Encumbrances, or paid or satisfied any material obligation or liability (absolute, accrued, contingent or otherwise) other than (x) liabilities shown or reflected on the Interim Balance Sheet, (y) liabilities incurred since the date of the Interim Balance Sheet in the ordinary course of business consistent with past practice or (z) Excluded Liabilities; (iii) experienced any material change or any written threat of any material change in any Seller's relations with, or any loss or written threat of loss of, any significant suppliers, clients, customers or employees of the Acquired Business; (iv) disposed of or failed to keep in effect any rights in, to or for the use of any material license or Intellectual Property; (v) incurred any damage, destruction or loss (other than ordinary wear and tear), whether or not covered by insurance, having a Material Adverse Effect; or C-26 (vi) taken any action of a type that would have required the consent of the Buyer if such action were to have been taken during the period between the date hereof and the Closing Date. (q) Compliance with Applicable Laws; Environmental Matters. (i) Except with respect to Environmental Laws or as set forth in Schedule 4(q), each Seller is in compliance with all applicable statutes, laws, ordinances, rules, orders and regulations of any Governmental Entity, except where noncompliance would not, individually or in the aggregate with all other noncompliance, have a Material Adverse Effect. Except with respect to Environmental Laws or as set forth in Schedule 4(q), no notice, citation, summons or order has been issued, no complaint has been filed, no penalty has been assessed and no investigation or review is pending or, to the Sellers' knowledge, threatened with respect to any alleged violation by any Seller, in respect of the Acquired Business, of any statute, law, ordinance, order, rule or regulation of any Governmental Entity. (ii) Except as set forth in Schedule 4(q), to the Sellers' knowledge, the condition of the Acquired Assets on the Closing Date is in compliance in material respects with the Environmental Laws, except where noncompliance would not have a Material Adverse Effect; (iii) Except as set forth on Schedule 4(q), there are no notices, citations, summons, complaints or orders issued or filed by any Governmental Entity and to Sellers' knowledge, there is no administrative process or internal investigation, which has been initiated by a Governmental Entity, which the Sellers' have been advised will result in a notice, citation, summons, complaint, or order to be issued or filed by any Governmental Entity, which allege a violation of any Environmental Laws with respect to the Acquired Business or the Acquired Assets, which have not been corrected or resolved; (iv) Except as set forth in Schedule 4(q), the operation of the Acquired Business and of the Acquired Assets on the Closing Date is in compliance in material respects with the Environmental Laws, except where noncompliance would not have a Material Adverse Effect; (v) Except as set forth in Schedule 4(q), the Sellers have obtained all licenses, permits, and authorizations from a Governmental Entity, which are necessary under the Environmental Laws for Sellers to own, lease or use the Acquired Assets or to carry on and conduct the Acquired Business, substantially as such assets are used and such business is conducted by Sellers on the Closing Date ("Governmental Permits"), except where the failure to obtain such Governmental Permits would not have a Material Adverse Effect. Except as set forth in Schedule 4(q), all such Governmental Permits are in good standing and the Sellers' conduct of the Acquired Business and the Sellers' operation of the Acquired Assets, on the Closing Date, comply in material respects with the terms and conditions of such Governmental Permits; (vi) Except as set forth in Schedule 4(q), none of the Acquired Assets is listed or, to the Sellers' knowledge, proposed for listing on the National Priorities List pursuant to CERCLA or on any similar state list; C-27 (vii) Except as set forth in Schedule 4(q), none of the Sellers is subject, in connection with the Acquired Business or the Acquired Assets, to any judicial or administrative order, judgment, decree or settlement alleging or concerning: (A) a violation, or liability under, any Environmental Laws; or (B) liability or damage in connection with a Release or a Contaminant; (viii) Except as set forth in Schedule 4(q), with respect to the Acquired Business and the Acquired Assets, the Sellers have not within the four years immediately prior to the Closing Date reported to any Governmental Entity: (A) a Release of a Contaminant within the meaning of Section 103(a) of CERCLA, Section 304 of the Emergency Planning and Community Right to Know Act, 42 U.S.C. Section 11004(a), or Section 311(b)(3) of the Clean Water Act, 33 U.S.C. Section 1321(b)(3), or similar State laws; or (B) a violation of any Environmental Law; (ix) Except as set forth in Schedule 4(q), to the Sellers' knowledge, no underground storage tanks are now located or previously have been located, nor to the Sellers' knowledge, have RCRA-regulated hazardous wastes been buried on or in the real estate, which is the subject of this Agreement; (x) Except as set forth in Schedule 4(q), to the Sellers' knowledge, there is not now in any equipment included among the Acquired Assets any concentration of polychlorinated biphenyls (PCBs), nor, to the Sellers' knowledge, has there been released to the real estate, which is the subject of this Agreement, any concentration of PCBs; (xi) Except as set forth in Schedule 4(q), no written notice or claim of liability has been issued to the Sellers (nor, to the Sellers' knowledge, has the assertion or issuance of any claim been threatened prior to the Closing Date, which within four months of such threatened notice or claim, results in a written notice or claim liability) for a Release or threatened Release of a Contaminant actionable under CERCLA, RCRA, or similar State laws, or common laws with respect to the Acquired Business or the Acquired Assets; (xii) Except as set forth in Schedule 4(q) or Schedule 4(h)(1) or (2), there is no lien, encumbrance, or restriction on the use of the real property to be transferred to the Buyer in connection with this Agreement that currently exists with regard to (A) any violation of the Environmental Laws or (B) damages or costs incurred by a Governmental Entity in response to a Release or threatened Release of a Contaminant; (xiii) Except as set forth in Schedule 4(q) or Schedule 1(c)(iv), there is no material on or part of any Acquired Asset which, to the Sellers' knowledge, contains asbestos and is damaged; (xiv) Except as set forth in Schedule 4(q), none of the Acquired Assets is, on the Closing Date, in violation of RCRA, such that upon that basis, a Governmental Entity C-28 thereafter asserts a claim that any of the Acquired Assets is being operated as hazardous waste treatment, storage or disposal facility, which requires a permit, under RCRA or any State equivalent; (xv) Except as set forth in Schedule 4(q), with respect to the Acquired Assets and the Acquired Business, none of the Sellers is subject to any existing order or agreement, in writing, with any Governmental Entity or with any other person or entity, which (A) requires the clean up, removal or treatment of any Contaminant, (B) acknowledges or assumes liability for the Release of any Contaminant or (C) requires the defense or prosecution of any claim arising from the Release of a Contaminant. For purposes of this Agreement, the term "Environmental Laws" means all applicable federal, state and local laws, ordinances or regulations relating to or addressing the protection of the air, the land, the water or the environment, including but not limited to the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. ss.ss. 9601 et seq. ("CERCLA"); the Resource Conservation and Recovery Act, 42 U.S.C. ss.ss. 6901 et seq., ("RCRA"); the Occupational Safety and Health Act, 29 U.S.C. ss.ss. 651 et. seq., ("OSHA"); and any similar state laws, ordinances, or regulations as such laws, ordinances and regulations exist and are in effect on the Closing Date. The term "Contaminant" shall mean petroleum, petroleum-based substances or any hazardous substance as defined in Section 101(14) of CERCLA, 42 U.S.C. ss. 9601(14). The term "Release" shall mean the release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration of Contaminants into the outdoor environment, including the movement of Contaminants through or in the soil, surface water or groundwater. (r) Licenses, Permits, etc. Except as disclosed in Schedule 4(r), all licenses, permits, franchises, authorizations and approvals issued or granted to the Sellers by any Governmental Entity and applicable to the Acquired Business are validly held by a Seller and the same will not be subject to suspension, modification or revocation as a result of this Agreement or the consummation of the transactions contemplated hereby. All such licenses, permits, franchises, authorizations and approvals are in full force and effect and each of the Sellers is in compliance with the terms and conditions thereof, except where the failure to be in compliance would not, individually or in the aggregate with all such other failures, result in a Material Adverse Effect (except that with respect to Environmental Laws and licenses, permits, franchises authorizations and approvals issued or issuable thereunder, the Sellers' sole representations and warranties are set forth in Section 4(q)). None of such licenses, permits, franchises, authorizations or approvals is subject to any pending administrative or judicial proceeding to revoke, cancel or declare such license, permit, franchise, authorization or approval invalid in any respect and, to the Sellers' knowledge, no such proceeding is threatened. (s) Employee and Labor Relations. Except as set forth in Schedule 4(s) hereto: (i) there is no labor strike, dispute, slowdown or work stoppage or lockout actually pending or, to the Sellers' knowledge, threatened against or affecting the Acquired Business and during the past three years there has not been any such action; C-29 (ii) to the Sellers' knowledge, no union organizational campaign is in progress with respect to the employees of the Acquired Business and the Sellers have not been notified in writing as to any question concerning representation respecting such employees; (iii) the Acquired Business is being conducted (and, to the Sellers' knowledge, has for the past three years been conducted) in compliance in all material respects with all applicable laws, rules and regulations, federal, state, local or foreign, respecting employment and employment practices, terms and conditions of employment and wages and hours, and occupational safety and health, and the Sellers are not engaged in any unfair labor practice with respect to employees of the Acquired Business; (iv) there is no unfair labor practice charge or complaint against any Seller in connection with the Acquired Business pending or, to the Sellers' knowledge, threatened before the National Labor Relations Board or any other comparable Governmental Entity; (v) there is no pending, or, to the Sellers' knowledge, threatened grievance that, if adversely decided, would have a Material Adverse Effect; (vi) to the Sellers' knowledge, no charges with respect to or relating to any Seller in connection with the Acquired Business are pending before the Equal Employment Opportunity Commission or any Governmental Entity responsible for the prevention of unlawful employment practices and (B) none of the Sellers or any of their affiliates has received notice of the intent of any Governmental Entity responsible for the enforcement of labor or employment laws to conduct an investigation with respect to or relating to any Seller in connection with the Acquired Business and to the Sellers' knowledge no such investigation is in progress; (vii) to the Sellers' knowledge, each employee of the Acquired Business who actually commenced such employment on or after December 6, 1986, was hired in material compliance with the Immigration Reform and Control Act of 1986 and the rules and regulations thereunder ("IRCA") and, with respect to the Acquired Business, each Seller prior to the Closing Date has complied in all material respects with all record keeping and other regulatory requirements under IRCA; and (viii) no notice is required to be given by the Sellers under the Worker Adjustment and Retraining Notification Act of 1988 (the "WARN Act"), relating to any "plant closing" or "mass layoff" (as those terms are defined in the WARN Act) effected by the Sellers prior to the Closing in connection with the transactions contemplated by this Agreement. (t) Corporate Names. Except as set forth in Schedule 4(t), each of the Sellers (i) has, to the Sellers' knowledge, the exclusive right to use its exact name or "d/b/a" name(s), as applicable, as the name of a corporation in each jurisdiction in which it is required C-30 to be qualified to do business and has no knowledge that it does not have the right so to use such names in each other jurisdiction in which it does business, (ii) has not received any written notice of conflict with respect to the rights of others regarding its corporate name and (iii) is not aware of any infringing use of the name "Belding", "Culver", "Danfield", "Heminway", "Bartlett", "Corticelli", "Robinson", or derivatives or combinations thereof or any other name under which any of the Sellers conduct the Acquired Business by any corporation, partnership or other business or entity. Except for other Sellers, the use of the name "Belding Hausman" pursuant to the BH License or as set forth on Schedule 4(t), no person, firm or corporation or other business association is presently authorized by any Seller or any of its affiliates to use the name of any Seller as a corporate or business name. (u) Fairness Opinion. The written opinion (the "Fairness Opinion") of The Bridgeford Group (the "Investment Bank"), that as of the date of such opinion, the terms of this Agreement are fair to the Company and its stockholders from a financial point of view, has been delivered to the Company (which has delivered a copy to the Buyer). (v) Intercompany Services. Except as described in Schedule 4(v), there are no intercompany services currently being provided, directly or indirectly through third parties, by (i) the Acquired Business to any Seller or affiliate of a Seller or (ii) any Seller or any such affiliate to the Acquired Business, and there are no contracts between any Seller, on the one hand, and any of its affiliates, on the other, relating to or affecting the Acquired Business. (w) Full Disclosure. To the Sellers' knowledge, no representation or warranty of any Seller contained in this Agreement contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements made therein, in the context in which made, not misleading. (x) Proxy Statement; Other Information. None of the information that will be included in the Proxy Statement (including any amendments or supplements thereto), or in any schedules or other reports required to be filed by the Company with the SEC in connection with the transactions contemplated hereby (other than information furnished to the Company in writing by the Parent or the Buyer expressly for inclusion therein ("Buyer Information")), will, at the respective times such Proxy Statement or any amendments or supplements thereto or any such schedules or reports are filed with the SEC or mailed to stockholders of the Company or on the date of the Company Stockholders' Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order (i) to make the statements therein, in light of the circumstances under which they were made, not misleading or (ii) to correct any statement in any earlier communication with respect to the solicitation of proxies or otherwise. The Proxy Statement will comply in all material respects with the applicable requirements of the Exchange Act and the applicable rules and regulations thereunder. (y) Belding Thread Limited. Other than the right to use its exact name as the name of a corporation in Hong Kong and in any jurisdiction in which it does business, Belding Thread Limited does not own, lease or have an interest in any asset or property, wherever located and whether tangible or intangible or real, personal or mixed, in current use or held for future use or sale in connection with the Acquired Business. C-31 (z) Sellers' Knowledge; Receipt of Notices, etc. For purposes of this Agreement, (i) the terms "Sellers' knowledge" or "Sellers' best knowledge" or words of similar import shall mean the actual knowledge of Karen Brenner, Edward F. Cooke, Gary P. Silverman, George Hilton, David Seymour, Robert Hegan, Frederick Moore, William Stuckey, John Palmer, Palmer Morris, Sonya Morgan, Kim Hall, Paul Amaral or John Cleary and (ii) Belding Chemical Industries, Inc., and Heminway & Bartlett Manufacturing Company each shall be deemed an additional Seller for purposes of the phrases "no Seller has received a notice", "no claim has been received by the Sellers" or phrases of similar import. (aa) FIRPTA. Each Seller represents and warrants that it is not a "foreign person" for purposes of Section 1445 of the Code or any applicable regulations promulgated thereunder. 5. Representations and Warranties of the Parent and the Buyer. The Parent and the Buyer jointly and severally hereby represent and warrant to each of the Sellers as follows: (a) Authority; No Conflict. Each of the Parent and the Buyer is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorporation and the Buyer is in good standing under the laws of the jurisdiction of its incorporation. Each of the Parent and the Buyer has all requisite corporate power and authority to execute and deliver this Agreement and, subject to the approval by the shareholders of the Parent as required by law as set forth in Section 5(c) (the "Required Parent Vote"), to perform its obligations hereunder. All corporate and stockholder acts and other proceedings required to be taken by each of the Parent and the Buyer to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly and properly taken, subject to obtaining the Required Parent Vote and the setting of a record date for and the calling of the meeting of the Parent's shareholders referred to in Section 7(a). This Agreement has been duly executed and delivered by each of the Parent and the Buyer and constitutes a valid and binding obligation of each of the Parent and the Buyer, enforceable against each of the Parent and the Buyer in accordance with its terms, except to the extent that enforcement hereof may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws affecting creditors' rights generally and by general principles of equity. The execution and delivery of this Agreement by the Parent and the Buyer do not, and the consummation of the transactions contemplated hereby and compliance with the terms hereof will not: subject to obtaining the Required Parent Consents (as defined below), (i) require any consent, approval or notice under, result in the breach of, result in or permit the termination of, constitute a default (or any event which might, with the passage of time or the giving of notice or both, constitute a default) under, or result in the acceleration of any of the Parent's or the Buyer's obligations under, any note, bond, mortgage, indenture, deed of trust, license, lease, contract, commitment or other agreement to which the Parent or the Buyer is a party or by which the Parent, the Buyer or any of their properties or assets is bound, (ii) violate or breach any provision of the Certificate of Incorporation or Bylaws (or comparable constitutive documents) of the Parent or the Buyer or any of their affiliates, or (iii) violate or breach any foreign or domestic judgment, order or decree, or any foreign or domestic statute, law, ordinance, rule or regulation applicable to the Parent, the Buyer or to the property or assets of the Parent or the Buyer. No consent, approval, license, permit, or authorization of, or registration, declaration or filing with, any Governmental Entity, C-32 or any other third party (except where the failure to obtain such consents, approvals or authorizations of any such third parties would not, individually or in the aggregate with all other such failures, prevent, materially delay or materially impair the ability of the Parent or the Buyer to consummate the transactions contemplated hereby), is required to be obtained or made by or with respect to the Parent, the Buyer or any of their affiliates in connection with the execution and delivery of this Agreement by the Parent and the Buyer or the consummation by the Parent and the Buyer of the transactions contemplated hereby, other than (A) compliance with and filings under the HSR Act, (B) the making of all announcements and the publication and filing of all documents required under the Rules and Regulations of The London Stock Exchange Limited (the "LSE") and/or as may be required pursuant to the Financial Services Act 1986, including, without limitation, announcements of the transactions contemplated by this Agreement, the issue of a circular to the shareholders of the Parent and the publication of Listing Particulars in connection with the issue, as contemplated by Section 5(d), of up to 7,924,199 units of convertible non-interest bearing unsecured loan stock of the Parent (the "Parent Loan Stock"), (C) compliance with the laws of any state with respect to the ownership by a foreign entity of real property, and (D) compliance with any statute imposing environmental investigation, clean-up or notification obligations on a buyer of property, (collectively, the "Required Parent Consents"). (b) The Buyer. The Parent indirectly owns all the outstanding shares of capital stock of the Buyer. (c) Required Parent Vote. The only resolution of the holders of any class or series of the Parent's securities necessary to approve this Agreement and the transactions contemplated hereby is as follows, which resolution has been authorized and approved by the boards of directors of the Parent and the Buyer: (i) to approve the purchase by the Buyer of the Acquired Assets and the assumption by the Buyer of the Assumed Liabilities, (ii)(x) to increase the authorized share capital of the Parent and (y) to authorize the directors of the Parent to allot relevant securities (as defined in Section 80 of the Companies Act 1985 of the United Kingdom (the "Companies Act")) and (iii) to empower the directors of the Parent to allot equity securities (within the meaning of Section 94 of the Companies Act) out of any relevant securities which they are authorized to allot, as if Section 89(l) of the Companies Act 1985 did not apply to such allotment. The resolution referred to in the next preceding sentence, as a special resolution (as defined in the Companies Act), will pursuant to applicable law and regulation require the affirmative vote of the holders of not less than 75% of the outstanding Ordinary Shares of 50 pence each of the Parent voting on such resolution. (d) Financing Documents. The Parent intends to finance approximately $40,000,000 of the aggregate Purchase Price payable as contemplated hereby through an underwritten offering of Parent Loan Stock (the "Financing"). The Parent has entered into an underwriting agreement dated as of December 12, 1996, between the Parent and Baring Brothers Limited (the "Underwriting Agreement"), providing for such an offering in the amount set forth therein, and has delivered to the Company a true and correct copy thereof. As of the date of this Agreement, nothing causes the Parent to believe that the conditions to the underwriter's obligations under the Underwriting Agreement are not capable of satisfaction. (e) Regulatory Filings, The Parent has previously delivered to the Company a true and complete copy of its Annual Report for its financial year ended 31 March 1996. C-33 (f) Ability to Consummate Transactions. Assuming the completion of the Financing and the receipt by the Parent of net proceeds from the Financing of the Pound Sterling equivalent of approximately $40,000,000, at the Closing the Parent and/or the Buyer will have on hand cash and/or available credit under existing or committed bank financing arrangements, in an amount in excess of the Purchase Price, which cash and/or credit shall be available for use in effecting the Closing under this Agreement. (g) Proxy Statement; Other Information. None of the Buyer Information that will be included in the Proxy Statement (including any amendments or supplements thereto), or in any schedules or other reports required to be filed by the Company with the SEC in connection with the transactions contemplated hereby, will, at the respective times such Proxy Statement or any amendments or supplements thereto or any such schedules or reports are filed with the SEC or mailed to stockholders of the Company or on the date of the Company Stockholders' Meeting, contain any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary in order (i) to make the statements therein, in light of the circumstances under which they were made, not misleading or (ii) to correct any statement in any earlier communication with respect to the solicitation of proxies or otherwise. (h) The reports prepared by Law Engineering and Environmental Services, Inc. in connection with the transactions contemplated hereby and delivered to the Buyer and/or its counsel on or prior to the date hereof do not include any information that is required to be disclosed by the Sellers in Schedule 4(q) and that is not so disclosed in such Schedule. 6. Covenants of the Sellers. The Sellers jointly and severally covenant and agree as follows: (a) Access. Prior to the Closing, the Sellers will give the Buyer and its representatives, employees, counsel and accountants access, at reasonable times and upon reasonable notice (all requests for such access to be made through Karen Brenner, which requests shall not be unreasonably denied), to the officers, personnel, accountants, properties, contracts, books and records of the Acquired Business; provided that such access does not unreasonably disrupt the normal operations of the Sellers or the Acquired Business. (b) Conduct of the Sellers. Except as contemplated by this Agreement or with the prior written consent of the Buyer, during the period from the date of this Agreement to the Closing, the Sellers will conduct the Acquired Business only in the ordinary and usual course of business consistent with past practice and will use all reasonable efforts to preserve intact the present business organization of the Acquired Business, keep available the services of the present employees of the Acquired Business and preserve its relationships with licensors, licensees, customers, suppliers, employees and any others having business dealings with it with respect to the Acquired Business and to otherwise preserve unimpaired its goodwill and ongoing business. Without limiting the generality of the foregoing, and except as set forth on Schedule 6(b) or as otherwise expressly provided in this Agreement, no Seller will prior to the Closing, without the prior written consent of the Buyer: (i) incur or assume any long-term or short-term indebtedness for borrowed money, except for indebtedness constituting Excluded Liabilities; C-34 (ii) make any loans, advances or capital contributions to, or investments in, any person, except for any Excluded Assets and except in the ordinary course of business consistent with past practice and in an amount not to exceed $50,000 in the aggregate; (iii) settle or compromise any suit, proceeding or claim relating to the Acquired Business, other than Excluded Liabilities, or threatened suit, proceeding or claim relating to the Acquired Business, other than Excluded Liabilities, in an amount not covered by insurance in excess of $50,000 in the aggregate; (iv) increase the compensation or fringe benefits payable or to become payable to any Continued Employee (as defined in Section 9(a)) (it being understood that the Buyer shall not unreasonably withhold its consent to any pay increase for any Continued Employee not in excess of 2% of the aggregate pay of such Continued Employee) or pay any benefit not required by any existing plan or arrangement (including the granting of, or waiver of performance or other vesting criteria under, stock options, stock appreciation rights, shares of restricted stock or deferred stock or performance units) or grant any severance or termination pay to (except pursuant to existing agreements or policies), or enter into any employment or severance agreement with, any Continued Employee or establish, adopt, enter into, terminate or amend any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, welfare, deferred compensation, employment, termination, severance or other employee benefit plan, agreement, trust, fund, policy or arrangement for the benefit or welfare of any Continued Employees, except to the extent such termination or amendment is required by applicable law; provided, however, that the Sellers' may terminate the wasting trust under the money purchase pension plan formerly maintained by the Sellers. (v) other than the acquisition of the Non-Seller Assets, acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of or equity in, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof to the extent that the same would comprise Acquired Assets or are or would be engaged in the Acquired Business, or otherwise acquire or agree to acquire any assets that would comprise Acquired Assets, other than in transactions that are in the ordinary course of business consistent with past practice and in the case of assets other than raw materials and inventory, not in excess of $50,000 in the aggregate; (vi) sell, lease, mortgage or otherwise encumber or dispose of or agree to sell, lease, mortgage or otherwise encumber or dispose of, any of the Acquired Assets, other than (x) the sale of inventory in the ordinary course consistent with past practice, (y) Liens relating to Excluded Liabilities that will be released simultaneously with or prior to the Closing or (z) as permitted by the proviso to Section 6(d); C-35 (vii) knowingly violate or fail to perform any obligation or duty imposed upon it by any applicable federal, state or local law, rule, regulation, guideline or ordinance applicable to or binding upon the Acquired Business, except where such violation or failure to perform would not, individually or in the aggregate with all other such violations and failures to perform, have a Material Adverse Effect; (viii) (x) modify, amend or terminate any contract, (y) waive, release, relinquish or assign any contract (including any insurance policy) or other right or claim or (z) cancel or forgive any indebtedness owed to any Seller relating to the Acquired Business, other than, in each case specified in clause (x), (y) or (z), in a manner in the ordinary course of business consistent with past practice and which is not material to the Acquired Business; (ix) change any of the accounting methods, principles or practices used by it with respect to the Acquired Business except as required by the SEC or the Financial Accounting Standards Board; or (x) authorize, recommend, announce, propose or agree to take any of the foregoing actions or any action which would (x) make any representation or warranty in this Agreement that is qualified as to materiality untrue or incorrect, (y) make any representation or warranty in this Agreement that is not so qualified untrue or incorrect in any material respect or (z) result in any of the conditions to the Closing set forth in Section 3 not being satisfied. (c) Insurance. The Sellers shall use all reasonable efforts to keep, or cause to be kept, all insurance policies (including all CGLs) set forth on Schedule 4(n), or replacements therefor with reputable firms and providing no lesser coverage (in amount or scope), in full force and effect through the close of business on the Closing Date. As of the Closing, at the request of the Buyer, each of the Sellers shall cause to be assigned to the Buyer any and all assignable rights which any Seller may have under such insurance policies to the extent covering claims relating to the period on or prior to the Closing Date that are Assumed Liabilities; provided, however, that Buyer shall agree to pay any fees or premiums due or payable in connection with such assignment. (d) Other Transactions. Prior to the Closing, none of the Sellers or any of their affiliates shall, nor shall they permit any of their respective officers, directors, stockholders or other representatives to, directly or indirectly, encourage, solicit, initiate or participate in discussions or negotiations with, or provide any information or assistance to, any corporation, partnership, person, or other entity or group (other than the Parent, the Buyer and their representatives) concerning any merger or sale or disposition of securities or assets (other than sales of inventory in the ordinary course of business consistent with past practice) or similar transaction involving any Seller (each, an "Acquisition Proposal"), or assist or participate in, facilitate or encourage any effort or attempt by any other person to do or seek to do any of the foregoing; provided, however, that the Company may solicit, encourage the submission of, participate in discussions or negotiations regarding, and furnish to any person information with respect to, any Acquisition Proposal to acquire solely the assets of the button business of the Company. In the event that any Seller or any of its affiliates receives an Acquisition Proposal, it C-36 will promptly notify the Buyer of such proposal. Each of the Sellers represents and warrants to, and covenants and agrees with, the Buyer that none of the Sellers or any of their affiliates has incurred any obligation to any potential acquiror that would be violated by reason of the execution, delivery and consummation of this Agreement. (e) Supplemental Disclosure. Each of the Sellers shall, prior to the Closing, supplement or amend the Schedules hereto with respect to any matter hereafter arising or discovered which, if existing or known at the date of this Agreement, would have required a material change from the information set forth or described in such Schedules at such date; provided, however, that for the purpose of determining the rights and obligations of the parties hereunder, any such supplemental or amended disclosure shall not be deemed to have been disclosed as of the date of this Agreement unless so agreed to in writing by the Buyer. The Sellers will promptly notify the Buyer in writing of any event, condition or circumstance occurring from the date hereof through the Closing of which Sellers become aware and which would constitute a violation or breach of this Agreement by a Seller. (f) Litigation. Each of the Sellers shall promptly notify the Buyer of any litigation or other legal proceeding which after the date hereof is commenced against any Seller with respect to the affairs of the Acquired Business or the Acquired Assets or that may adversely affect the ability of any Seller to satisfy its obligations hereunder or to the Sellers' knowledge against any director, officer, employee, consultant, agent or stockholder thereof with respect to the affairs of the Acquired Business or the Acquired Assets. (g) Additional Financial Statements. As soon as available after the end of each calendar month, the Company shall deliver to the Buyer such monthly financial statements of the Acquired Business as are prepared from time to time for senior management of the Acquired Business; provided, however, that no representations or warranties are made or shall be deemed to have been made with respect to any of such financial statements. (h) Confidentiality Agreements. The Company has entered into certain additional confidentiality agreements (similar to the Confidentiality Agreement (as defined in paragraph (i) below)) with third parties regarding the possible sale of the Company, any other Seller or any material portion of the Acquired Business, and, at Closing, the Company shall (i) subject to clause (ii) of this sentence, assign all rights relating to the Acquired Business or the Acquired Assets in such confidentiality agreements to the Buyer and (ii) to the extent such assignment is not permitted, otherwise hold and maintain such confidentiality agreements for the benefit of the Buyer (it being understood that no Seller shall by virtue of this paragraph be required to breach any such confidentiality agreement). (i) Confidentiality; No Solicitation. From and after the Closing Date, the Sellers agree that they shall comply with the provisions of the agreement dated as of March 18, 1996 (the "Confidentiality Agreement"), between the Company and the Parent, in accordance with the terms thereof (including the termination provisions thereof) as though for purposes thereof they were the Parent, mutatis mutandis. (j) Non-Seller Assets. The Sellers shall cause the Non-Seller Assets to be transferred to one or more Sellers prior to the Closing. C-37 (k) Consents. The Sellers shall use all reasonable efforts to obtain as soon as practicable the consent, approval or waiver from, or to make such filings with, in form reasonably satisfactory to the Buyer, any person whose consent, approval or waiver, or receipt of a filing, is necessary to assign or transfer any Acquired Asset to the Buyer (whether or not such consent, approval, waiver or receipt is set forth in Schedule 4(b)) or otherwise to satisfy the conditions set forth in Section 3(a)(v); provided that the Sellers shall not hereby be required to pay any fees (other than filing fees) or other amounts or waive material rights or make other material concessions in connection with or as a condition to the granting of any such consents, approvals or waivers or the making of any such filings. (l) Proxy Statement. (i) As soon as reasonably practicable after the date hereof, the Company shall prepare for filing and file with the SEC a proxy statement in preliminary form relating to the Required Company Vote (as amended or supplemented from time to time, the "Proxy Statement"), respond to comments and requests from the SEC, file such document in definitive form with the SEC, mail such document to its stockholders entitled thereto, solicit proxies with respect to the Company Voting Stock as contemplated thereby and appoint persons to vote such proxies. The Company shall promptly deliver to the Parent and the Buyer copies of any comments or requests with respect to the Proxy Statement that it receives from the SEC. The Parent, the Buyer and the Company will consult and cooperate with each other in preparing and filing such document and responding to such comments and requests, and the Company shall not file with the SEC or mail to its stockholders the Proxy Statement or any amendment or supplement thereto, or respond to such comments or requests, without the prior approval of the Parent and the Buyer, which approval will not be unreasonably withheld. The Proxy Statement shall include a copy of the Fairness Opinion referred to in Section 4(u), together with a description of the analyses and procedures utilized by the Investment Bank in arriving at their opinion. (ii) If at any time prior to the Closing any event or circumstance relating to any Seller or any of its affiliates, or their respective officers and directors, should be discovered by such party, that is required to be set forth in a supplement to the Proxy Statement, such party shall promptly inform the other parties hereto. All documents that the Company is responsible for filing with the SEC in connection with the transactions contemplated herein will comply as to form and substance in all material respects with the applicable requirements of the Exchange Act and the rules and regulations thereunder. (m) Governmental Permits. The Sellers shall cooperate with the Buyer to effect the timely transfer of applicable Governmental Permits to the Buyer and to provide any joint notification of change in ownership to Governmental Entities as the Buyer may reasonably determine is necessary or advisable. (n) Corporate Name. Each Seller and each of their respective subsidiaries shall change its corporate name effective as of the Closing or as soon thereafter as is practicable and thereafter shall cease to use any of the names "Belding", "Culver", "Danfield", "Heminway", "Bartlett", "Corticelli", "Robinson", or any derivative or combination thereof or any other name under which any of the Sellers conduct the Acquired Business, except to the extent that any such C-38 name is currently used by any such Seller or subsidiary in connection with the button business of the Company and except that nothing herein shall affect the BH License. (o) Sellers' 401(k) Plan. The Sellers shall amend their profit-sharing plan that includes a qualified cash or deferred arrangement (the "Sellers' 401(k) Plan") to the extent necessary to provide that the Continued Employees of the Acquired Business whose employment with the Sellers is terminated prior to or as of the Closing as a result of the transactions contemplated hereby shall be fully vested in their benefits under the Sellers' 401(k) Plan. (p) Company Stockholders' Meeting. The Company shall use all reasonable efforts to call a meeting of the holders of the Company Voting Stock to be held as promptly as practicable after the date hereof, for the purpose of obtaining the Required Company Vote (the "Company Stockholders' Meeting") and shall use all reasonable efforts to hold such meeting. Subject to the accuracy of the representations and warranties of the Parent and the Buyer set forth in Section 5, the Company will, through its Board of Directors, recommend to the holders of the Company Voting Stock approval of such matters. The Company hereby covenants that without the prior written consent of the Parent and the Buyer, prior to the vote of such holders on this Agreement, the Company Stockholders' Meeting shall not be adjourned, except pursuant to an order of a court of competent jurisdiction. (q) Certificates of Occupancy; Permits and Authorizations. Sellers shall use reasonable efforts to obtain for Buyer as soon possible after the date hereof an original or a true copy of the certificates of occupancy or such other similar permits or authorizations, if any, as are customarily issued in the applicable jurisdictions permitting the use and occupancy of each of the Acquired Assets which constitutes a fee simple interest in real property. (r) FIRPTA Certification. At Closing, the Company, Bridge Realty and any other Seller which will be conveying a real property interest to Buyer shall execute and deliver to Buyer an affidavit stating that none of such parties is a "foreign person" within the meaning of Section 1445 of the Code, and otherwise sufficient to exempt Buyer from the withholding requirements set forth therein. (s) Required Title Insurance Documents. At Closing, the Company, Bridge Realty and any other Seller which will be conveying a real property interest to Buyer shall execute, acknowledge and deliver such instruments and documents as may reasonably be required by the title insurance company (the "Title Company") selected by Buyer to issue owner's title insurance policies (in the forms set forth in the next succeeding sentence) insuring the Acquired Assets which constitute fee simple real property against all title defects or encumbrances other than the Permitted Encumbrances, or as may be required to effectuate the transactions contemplated hereunder, including but not limited to such title affidavits, indemnities and proofs as may be required by the Title Company to eliminate exceptions for unfiled mechanics' or materialmen's liens, for the insolvency of Sellers, for the occupancy of any party other than the tenant under that certain Commercial Lease dated as of June 9, 1983 (the "Bronx Space Lease"), between Bridge Realty, as lessor, and Kenney Drapery Associates, Inc., as lessee (as tenant only) and to enable the Title Company to insure the "gap" between the Closing Date and recordation of the deeds. The owner's title insurance policies shall be written on the following forms: (i) with respect to the fee simple real property assets situated in North C-39 Carolina, the title insurance policy shall be written on ALTA Form 1970 (or on a later form endorsed to delete the exclusions from coverage relating to creditors' rights, environmental matters and waiver of arbitration, to the extent allowable under state law or regulation governing the title insurance industry), and (ii) with respect to the fee simple real property assets situated in New York and Connecticut, the title insurance policy shall be written on ALTA Form 1992. The Sellers shall deliver originals or certified copies of any resolutions, partnership agreements, trust indentures, agency agreements, powers of attorney, consents and other documentation, and shall execute such affidavits and indemnities, as may be reasonably required by the Title Company, with respect to the authority of the Sellers or of the Person(s) signing on behalf of the Sellers, to enable the Sellers to deliver the state of title to the Acquired Assets constituting real property and interests therein that is required hereunder. 7. Covenants of the Parent and the Buyer. The Parent and the Buyer jointly and severally covenant and agree as follows: (a) Parent Shareholder Meeting. The Parent shall use all reasonable efforts to call a meeting of its shareholders to be held as promptly as practicable after the date hereof, for the purpose of voting upon the matters set forth in Section 5(c) and obtaining the Required Parent Vote and shall use all reasonable efforts to hold such meeting. Subject to the accuracy of the representations and warranties of the Sellers set forth in Section 4, the Parent will, through a unanimous resolution of its board of directors, recommend to its shareholders approval of such matters. (b) Parent's Efforts to Obtain Financing. Subject to the rules of the LSE and the terms and conditions of the Parent Loan Stock and the Underwriting Agreement, the Parent shall use all reasonable efforts to cause the conditions set forth in Sections 3(a)(vi) and 3(a)(vii) to be satisfied as promptly as practicable. (c) Supplemental Information. The Buyer and the Parent shall keep the Company apprised of the status of, and events relating to the meeting of the Parent's shareholders and the Parent's efforts to obtain financing, and without limiting the generality of the foregoing, the Parent shall promptly notify the Company of the satisfaction of the conditions set forth in Sections 3(a)(vi) and 3(a)(vii) and, in reasonable detail, of the occurrence of any event (or non-occurrence of a required event) that could reasonably be expected to prevent or materially impair the Parent's efforts to obtain the Required Parent Vote or to satisfy the conditions set forth in Sections 3(a)(vi) and 3(a)(vii) or otherwise to consummate the transactions contemplated hereby. The Parent shall deliver to the Company, promptly following the filing or mailing to shareholders thereof, a copy of each circular and other public document relating to the Required Parent Vote or the Parent's efforts to obtain financing as herein contemplated. (d) Conduct of the Parent and the Buyer. Neither the Parent nor the Buyer shall authorize, recommend, announce, propose or agree to take any action which would (i) make any representation or warranty of the Parent or the Buyer in this Agreement that is qualified as to materiality untrue or incorrect, (ii) make any representation or warranty of the Parent or the Buyer in this Agreement that is not so qualified untrue or incorrect in any material respect or (iii) result in any of the conditions to the Closing set forth in Section 3 not being satisfied. C-40 (e) Confidentiality; No Solicitation. From and after the date hereof until the Closing Date and, in the event this Agreement is terminated pursuant to Section 14, from and after the date of such termination, the provisions of the Confidentiality Agreement shall remain in full force and effect in accordance with the terms thereof (including the termination provisions thereof) and the Parent hereby confirms its agreement to be bound thereby and to comply therewith. (f) Connecticut Certification. The Buyer shall serve as the "certifying party" and shall make such filings and certifications with respect to the real property located on Callendar Road in Watertown, in the State of Connecticut and included in the Acquired Assets as are required to be made by the "certifying party" under or pursuant to the Connecticut Hazardous Waste Establishment Transfer Act (the "Connecticut Act") with respect to the transfer of such real property to the Buyer at the Closing. The Sellers shall make such filings with respect to the real property located on North Main Street in Winsted, in the State of Connecticut and included in the Acquired Assets (the "Winsted Property") as are required of the transfer or to be made under or pursuant to the Connecticut Act with respect to the transfer of such real property to the Buyer at the Closing. The Sellers have determined that a Form 1 is appropriate under the Connecticut Act and shall file a Form 1 with the State of Connecticut with respect to the Winsted Property. (g) Environmental Matters. (i) The Buyer shall not initiate nor shall it conduct any assessment or investigation, including the collection of samples, undertake any correction or remediation, or install any pollution control device, including all activities relating to the foregoing, related to any Environmental Law, Contaminant or Release or otherwise relating to the environment ("Environmental Measures"), for which it intends to seek indemnification from the Sellers pursuant to this Agreement, and notwithstanding Section 11(b) hereof, the Sellers shall not be required to indemnify the Buyer (under any provision of this Agreement) for such Environmental Measures, unless (i) the Buyer is under a legal obligation to undertake such Environmental Measure pursuant to a written claim, demand or request by, or a written requirement imposed by, a Governmental Entity or other person or entity or (ii) after consultation with United States environmental counsel, the Buyer reasonably determines that it is required to undertake such Environmental Measure in order to comply with Environmental Law. (ii) After the Closing, the Buyer shall, except for the Excluded Liabilities and except for the Buyer's right to be indemnified by the Sellers pursuant to Section 11(b), be solely responsible and liable for any Environmental Measures in connection with the Acquired Business and Acquired Assets required of the Buyer after the Closing Date. (iii) Except for the Buyer's right to be indemnified by the Sellers pursuant to Section 11(b) and except for claims of fraud committed by any of the Sellers against the Buyer or the Parent, the Buyer and the Parent jointly and severally agree to release and forever discharge and covenant not to sue (except as otherwise contemplated by Section 26(b) hereof) the Sellers and their respective affiliates, officers, directors, employees, and agents from any Losses arising from or related to any claim against the Sellers or their respective affiliates, officers, directors, employees or agents with respect to any Environmental Law, Contaminant or C-41 Release or otherwise relating to the environment in connection with the Acquired Business and the Acquired Assets. (iv) The Buyer shall provide to the Sellers, including their respective environmental consultants, at Sellers' expense, prior to submission to a Governmental Entity or other person, copies of any documents to be so submitted, so long as such documents relate to an Environmental Measure for which the Buyer has asserted or intends to assert a claim of indemnification pursuant to Section 11(b). The Buyer, including its respective environmental consultants, shall notify the Sellers, orally or in writing at least five (5) business days prior to conducting any environmental assessment or remediation activity at any of the facilities comprising part of the Acquired Assets, including field work or sampling, for which the Buyer has asserted or intends to assert a claim of indemnification pursuant to Section 11(b). At the written request of any Seller, or its environmental consultant, the Buyer, including its environmental consultant, shall allow split or duplicate samples to be taken by the requesting Seller or its authorized representative, at the cost of such Seller, of any samples collected by or on behalf of the Buyer, including its environmental consultants, regarding any Environmental Measures for which the Buyer has asserted or intends to assert a claim of indemnification pursuant to Section 11(b). Any Seller, and its environmental consultants, shall be allowed to conduct its own independent sampling at its expense at any of the facilities comprising part of the Acquired Assets, upon giving notice to the Buyer, in writing at least five (5) business days prior to conducting such sampling, as long as such sampling relates to any Environmental Measure for which the Buyer seeks indemnification and such sampling does not interfere with the operations of the Buyer. (v) The Buyer agrees that any Environmental Measures undertaken by it for which it will seek indemnification shall be conducted through cost-effective and cost-reasonable means, taking into consideration, where applicable, reasonably available site specific data and the best estimates of the risk to the extent feasible and scientifically appropriate. (h) Certain Accounts Receivable. The Buyer shall promptly pay to the Company all amounts, if any, received by the Buyer prior to the second anniversary of the Closing Date from account debtors with respect to any accounts receivable of the Acquired Business at the Closing Date specified in item 2(iv) (relating to receivables subject to insolvency, bankruptcy, reorganization or similar proceedings) under the heading "Receivables" on Schedule 2(c)(i) for which a bad debt reserve of 100% was deducted in calculating Closing Working Capital. 8. Mutual Covenants. Each of the Sellers, the Parent and the Buyer covenants and agrees as follows: (a) All Reasonable Efforts. Subject to the terms and conditions of this Agreement, each party will use all reasonable efforts to cause to be satisfied the conditions to the obligations of the other parties to effect the Closing. The covenant contained in this Section 8(a) shall continue after the Scheduled Closing Date. (b) Cooperation. The Buyer and the Sellers shall cooperate and shall cause their officers, employees, agents, auditors and representatives to cooperate with each other during the period prior to the Closing (in order to effect the Closing) and for a period of 180 C-42 days after the Closing to ensure the orderly transition of the Acquired Assets from the Sellers to the Buyer and to minimize any disruption to the respective businesses of the Sellers and the Buyer that might result from the transactions contemplated hereby. If so requested by the Buyer, the Sellers will negotiate in good faith with the Buyer a transition services agreement contemplating the provision by the Sellers to the Buyer for a reasonable period of time following the Closing Date services historically provided by the Sellers to the Acquired Business. None of the Sellers or the Buyer shall be required by this Section 8(b) to take any action that would unreasonably interfere with the conduct of its business. (c) Publicity. The Sellers and the Buyer agree that, from the date hereof through the Closing Date, no public release or announcement concerning the transactions contemplated hereby shall be issued by either party without the prior consent of the other party (which consent shall not be unreasonably withheld), except as such release or announcement may, in the opinion of counsel to the disclosing party, be required by applicable law, whether domestic or foreign, or the rules or regulations of any United States or foreign securities exchange, or in connection with the Parent's efforts contemplated by Section 7(b) in which case the party required to make the release or announcement shall allow the other party reasonable time to comment on such release or announcement in advance of such issuance. In furtherance of the foregoing, the parties agree that the Company will promptly following the execution and delivery of this Agreement issue a press release in substantially the form heretofore approved by the Buyer. (d) Antitrust Notification; Other Filings. (i) The Parent will as promptly as practicable, but in no event later than two business days following the execution and delivery of this Agreement, file with the Antitrust Division of the United States Federal Trade Commission (the "FTC") and the Antitrust Division of the United States Department of Justice (the "DOJ") the notification and report form, if any, required for the transactions contemplated hereby and, subject to Section 14(a)(iii), any supplemental information requested in connection therewith pursuant to the HSR Act. Any such notification and report form and supplemental information will be in substantial compliance with the requirements of the HSR Act. Each of the Sellers, the Buyer and the Parent shall furnish to the others such necessary information and assistance as the others may reasonably request in connection with the preparation of any filing or submission which is necessary under the HSR Act. The Company and the Parent shall keep each other apprised of the status of any communications with, and inquiries or requests for additional information from, the FTC and the DOJ and, subject to Section 14(a)(iii), shall comply promptly with any such inquiry or request. Each of the Company and the Parent will use all reasonable efforts to obtain any clearance required under the HSR Act for the purchase and sale of the Acquired Business; provided, however, that such reasonable efforts obligation shall not require the Parent, the Buyer or any of the Sellers to restructure any of the transactions contemplated by, or to divest any of its assets or, in the case of the Parent and the Buyer, any of the assets to be acquired pursuant to, this Agreement. (ii) The Sellers and the Buyer each shall cooperate with each other and use all reasonable efforts to prepare and file as promptly as practicable all documentation to effect all necessary applications, notices, petitions, filings and other documents and to obtain as promptly as practicable all permits, consents, approvals and authorizations necessary or advisable to be obtained from any third party and/or any Governmental Entity in connection with the transactions contemplated by this Agreement. Subject to applicable laws relating to the C-43 exchange of information, the Buyer shall have the right to review in advance, and to the extent practicable the Sellers will consult the Buyer on, all the information relating to the Acquired Business that appears in any filing made by the Sellers with, or written materials submitted by the Sellers to, any third party and/or any Governmental Entity in connection with the transactions contemplated by this Agreement. In exercising the foregoing right, the Buyer shall act reasonably and as promptly as practicable. (iii) The Sellers, the Buyer and the Parent each shall, upon request by any other, promptly furnish the others with all information concerning itself, its subsidiaries, directors, officers and stockholders and such other matters as may be reasonably necessary in connection with the Financing or with the Proxy Statement or any other statement, filing, notice or application made by or on behalf of the Sellers, the Buyer, the Parent, or any of their respective subsidiaries to any Governmental Entity in connection with the transactions contemplated by this Agreement. (iv) The Sellers, the Buyer and the Parent each shall keep the others apprised of the status of matters relating to completion of the transactions contemplated hereby, including promptly furnishing the others with copies of notices or other communications received by the Sellers, the Buyer and the Parent, as the case may be, from any third party (other than such party's legal counsel or other advisors or consultants) and/or any Governmental Entity with respect to the transactions contemplated by this Agreement. (e) Records. (i) On the Closing Date, the Sellers shall deliver or cause to be delivered to the Buyer all of the Sellers' original agreements, documents, books, records and files relating to the Acquired Business (collectively, "Records"), subject to the following exceptions: The Buyer recognizes that certain Records may contain incidental information relating to the Sellers or may relate primarily to Excluded Assets and/or Excluded Liabilities, and that the Sellers may retain such Records and shall provide copies of the relevant portions thereof to the Buyer; The Sellers may retain all Records relating to the sale of the Acquired Assets, including bids received from other parties and analyses relating to the Acquired Business; The Sellers may retain any Tax Returns and any files and records relating thereto (including without limitation payroll records and paid invoices). The Buyer shall be provided with copies of such Tax Returns, files and records only to the extent that they relate to the Acquired Business or the Acquired Assets or the Buyer's obligations under this Agreement. The Sellers shall not dispose of or destroy such records without first offering to turn over possession thereof (to the extent relating to the Acquired Business or the Acquired Assets or the Buyer's obligations under this Agreement) to the Buyer (at the Buyer's expense) by written notice to the Buyer at least 30 days prior to the proposed date of such disposition or destruction; C-44 The Sellers may retain their respective corporate record books and stock records containing their certificates of incorporation, bylaws, minutes of the meetings of the board(s) of directors and stockholders, and similar corporate governance documents; and The Sellers may retain all records exclusively relating to, or that themselves are, Excluded Assets. The Sellers shall not dispose of or destroy such records without first offering to turn over possession thereof (to the extent relating to the Buyer's obligations under this Agreement) to the Buyer (at the Buyer's expense) by written notice to the Buyer at least 30 days prior to the proposed date of such disposition or destruction. (ii) The Buyer shall not dispose of or destroy any Records delivered to the Buyer pursuant to this Section 8(e) or Section 9(c) without first offering to turn over possession thereof to the Company (at the Company's expense) by written notice to the Company at least 30 days prior to the proposed date of such disposition or destruction. (iii) After the Closing, upon reasonable written notice, the Buyer and the Sellers agree to furnish or cause to be furnished to each other and their representatives, employees, counsel and accountants reasonable access, during normal business hours, to such information and Records pertinent to the Acquired Business and assistance (relating to the Acquired Business) as is reasonably necessary for financial reporting, benefits administration and accounting matters, the preparation and filing of any Tax Returns or other filings required to be made with any Governmental Entity or the defense of any Tax claim or assessment or other claim; provided, however, that such access does not unreasonably disrupt the normal operations of the Sellers, the Buyer or the Acquired Business. 9. Employee and Related Matters. (a) Employment Offers; Continuation of Comparable Benefit Plans. The Buyer and the Sellers agree that all employees of the Acquired Business who are listed on Schedule 9(a) (as updated by the Buyer on the Closing Date) ("Continued Employees") employed on the Closing Date shall be offered employment with the Buyer. The Buyer shall establish and maintain, for a period of at least one year from and after the Closing, employee compensation and employee benefit plans or arrangements (including severance, medical and flexible spending plans and policies, but excluding the Sellers' defined benefit pension plans) that will provide benefits to the Continued Employees that, in the aggregate, are no less favorable than those provided pursuant to the employee compensation and employee benefit plans and arrangements in effect on the date hereof as disclosed on Schedule 4(o)(i). Continued Employees shall receive credit for all service with the Sellers and their affiliates for purposes of eligibility and level or amount of benefits under all of such employee compensation and employee benefit plans and arrangements, and Continued Employees and their dependents shall not be subject to any restrictions or limitations relating to pre-existing medical conditions as a result of the purchase by the Buyer of the Acquired Business. Without limiting the generality of the foregoing, the Buyer shall pay to any Continued Employee terminated by the Buyer prior to the end of such one year period the amount to which such Continued Employee would be entitled under the severance plans and policies disclosed on Schedule 4(o)(i). C-45 (b) 401(k) Plan. Effective as of the Closing, the Buyer shall have in effect a profit-sharing plan that includes a qualified cash or deferred arrangement within the meaning of Section 401(k) of the Code (the "Buyer's 401(k) Plan") that will provide benefits (including the availability of participant loans) to Continued Employees substantially identical in all material respects (except for investment options and such changes as may be required by law) to those provided by the Sellers' 401(k) Plan as of the date hereof. Each Continued Employee participating in the Sellers' 401(k) Plan as of the Closing shall become a participant in the Buyer's 401(k) Plan as of the Closing. Continued Employees shall receive credit for all service with the Sellers and their affiliates for purposes of eligibility and vesting under the Buyer's 401(k) Plan. As soon as practicable after the Closing, Sellers shall cause to be transferred from Sellers' 401(k) Plan to Buyer's 401(k) Plan an amount in cash and notes representing participant loan balances (or such assets as are approved by Buyer; which approval shall not be unreasonably withheld) equal to the then account balances of the Continued Employees (including investment gains and losses to the time of transfer). Such amounts shall be credited to the appropriate accounts of the Continued Employees under the Buyer's 401(k) Plan upon receipt. (c) Employee Withholding and Reporting. Promptly after the Closing, the Sellers shall transfer to the Buyer any records or copies of such records (including, but not limited to, Forms W-4 and Employee Withholding Allowance Certificates) relating to withholding and payment of income and employment taxes (federal, state and local) and FICA taxes with respect to wages paid by the Sellers during the 1997 calendar year to any Continued Employees. The Buyer shall, to the extent permitted by applicable law, provide all such employees with properly completed Forms W-2, Wage and Tax Statements for the 1997 calendar year setting forth the wages and taxes withheld with respect to such employees for the 1997 calendar year by the Sellers and the Buyer as predecessor and successor employers, respectively. The Buyer and the Sellers shall also comply with the filing requirements set forth in Revenue Procedure 84-77, 1984-2 C.B. 753, to implement this Section 9(c). If the Buyer shall determine that it is not permitted by applicable law to provide such Forms W-2, the Buyer shall so inform the Sellers and shall return such records to the Sellers not later than thirty days prior to the time that the Sellers are required to provide such employees with such Forms W-2. (d) No Right of Employment. Nothing in this Section 9, express or implied, is intended to confer or shall confer upon any of the Sellers' employees, former employees or any Continued Employee any rights or remedies of any nature or kind whatsoever under or by reason of this Agreement, including, without limitation, any rights of employment. 10. Further Assurances. From time to time before or after the Closing, as and when requested by the Buyer or the Company (the "requesting party"), the Company or the Buyer, as the case may be (the "other party") shall execute and deliver, or cause to be executed and delivered, all such documents and instruments and shall take, or cause to be taken, all such further or other actions, as the requesting party may reasonably deem necessary or desirable to consummate the transactions contemplated by this Agreement; provided, however, that if such execution and delivery or further or other actions is not necessary properly to consummate such transactions, then the requesting party shall reimburse the other party for its reasonable out-of-pocket expenses incurred in connection therewith. C-46 11. Indemnification. (a) (i) Tax Indemnification. The Sellers shall be jointly and severally liable for and shall pay and indemnify the Buyer and its affiliates and each of their respective officers, directors, employees and agents and hold them harmless from (1) all Taxes constituting Excluded Liabilities (whether assessed or unassessed) applicable to the Acquired Business or the Acquired Assets, in each case attributable to taxable years or periods ending at the time of or prior to the close of the Closing Date and, with respect to any Straddle Period, the portion of such Straddle Period ending at the close of the Closing Date, and (2) all liability for reasonable legal fees and expenses attributable to any item in clause (1) above. The Buyer shall be liable for and shall pay and shall indemnify the Sellers, their affiliates and each of their respective officers, directors, employees and agents from (x) all Taxes (whether assessed or unassessed) applicable to the Acquired Business or the Acquired Assets, in each case attributable to taxable years or periods beginning after the Closing Date and, with respect to any Straddle Period, the portion of such Straddle Period beginning after the Closing Date and (y) all liability for reasonable legal fees and expenses attributable to any item in clause (x) above. For purposes of this Agreement, any Straddle Period shall be treated on a "closing of the books" basis as two partial periods, one ending at the close of the Closing Date and the other beginning after the Closing Date; provided, however, that Taxes (such as property Taxes) imposed on a periodic basis shall be allocated pro rata on a daily basis in accordance with the principles under Section 164(d) of the Code. "Straddle Period" means any taxable year or period beginning before and ending after the Closing Date. (ii) Notwithstanding paragraph (i), any sales Tax, use Tax, real property transfer or gains Tax, documentary stamp Tax or similar Tax attributable to the sale or transfer of the Acquired Business or the Acquired Assets shall be paid by the Buyer. The Buyer and the Sellers agree timely to sign and deliver such certificates or forms as may be necessary or appropriate to establish an exemption from (or otherwise reduce), or file Tax Returns with respect to, such Taxes. (iii) The Sellers or the Buyer, as the case may be, shall provide prompt reimbursement for any Tax paid by one party all or a portion of which is the responsibility of the other party in accordance with the terms of this Section 11(a). Within a reasonable time prior to the payment of any said Tax, the party intending to pay such Tax shall give notice to the other party of the Tax payable and the portion which is the liability of each party, although failure to do so will not relieve the other party from its liability hereunder, unless and to the extent that the failure to give timely notice to such party shall have prejudiced such party's right or ability to contest the amount of Tax due or such party's responsibility therefor. Notwithstanding the foregoing, the Sellers (or the Buyer, as the case may be) shall not pay any portion of any Tax which is the responsibility of the other party without the consent of such other party, which consent may not be unreasonably withheld, unless the payment of such Tax is required pursuant to a demand for payment issued by a Tax authority and may not be contested prior to the payment thereof. If such a Tax is paid in contravention of the preceding sentence, such Tax will not be subject to reimbursement pursuant to this Section 11(a) if the payment of such Tax shall have prejudiced the other party's right or ability to contest the amount of Tax due and obtain refund thereof or such party's responsibility therefor or if the other party has not been given reasonable notice prior to such payment. If a Tax is paid by the Sellers (or the Buyer) and reimbursed by the other party and the other party wishes to seek a refund of such Tax, the Sellers (or the Buyer) will cooperate with such other party to allow such other party to seek a refund of such Tax. C-47 (iv) The Buyer (or the Sellers, as the case may be) shall promptly notify the Sellers (or the Buyer, as the case may be) in writing, upon receipt by the Buyer (or the Sellers, as the case may be) or any of its (or their) affiliates of notice of any pending or threatened federal, state, local or foreign Tax audits, examinations or assessments which may affect the Tax liabilities for which the Sellers (or the Buyer, as the case may be) would be required to indemnify the Buyer (or the Sellers, as the case may be) pursuant to paragraph (i) of this Section 11(a), although failure to do so will not relieve the Sellers (or the Buyer, as the case may be) from their liability hereunder , unless and to the extent that such failure shall have prejudiced the Sellers' (or the Buyer's, as the case may be) right or ability to defend against or otherwise contest such claim, the amount of Tax due or the Sellers' (or the Buyer's, as the case may be) responsibility therefor. If there is a Tax audit or administrative or court proceeding for which indemnity will be sought hereunder, the indemnifying party will be entitled to participate in such audit or administrative or court proceeding and, if it so chooses, assume the control of the portion of such audit or administrative or court proceeding related to the Tax for which indemnity is sought, with counsel or other representatives selected by the indemnifying party and reasonably satisfactory to the indemnified party. Should the indemnifying party so elect to assume the control of the relevant portion of such Tax audit or administrative or court proceeding, the indemnifying party will not be liable to the indemnified party for legal expenses subsequently incurred by the indemnified party in connection with such audit or administrative or court proceeding. If the indemnifying party assumes such control, the indemnified party shall have the right to participate in the audit or administrative or court proceeding and to employ counsel or other representatives, at its own expense, separate from the representatives employed by the indemnifying party, it being understood that the indemnifying party shall control the relevant portion of such audit or administrative or court proceeding. The indemnifying party shall be liable for the reasonable fees and expenses of the counsel or other representative employed by the indemnified party for any period during which the indemnifying party has not assumed the control thereof (other than during any period in which the indemnified party shall have failed to give notice of the claim as provided above). If the indemnifying party chooses to control the relevant portion of such audit or administrative or court proceeding, all the parties hereto shall cooperate in the defense or prosecution thereof. Such cooperation shall include the retention and (upon the indemnifying party's request) the provision to the indemnifying party of records and information which are reasonably relevant to such claim, and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. Whether or not the indemnifying party shall have assumed the control of a claim, the indemnified party shall not settle any Tax claim for any taxable year or period which may be the subject of indemnification under paragraph (i) of this Section 11(a) without the prior written consent of the indemnifying party, which consent may not be unreasonably withheld. The indemnifying party shall, if it deems it to be advisable, be entitled to pay the Tax directly to the taxing authority rather than reimburse the indemnified party. (v) After the Closing, each of the Sellers, the Buyer and the Parent shall: (i) at the requesting party's cost and expense, assist to the extent reasonably requested the other parties in preparing any Tax Returns which such other parties are responsible for preparing and filing; (ii) at the requesting party's cost and expense, to the extent reasonably requested by the Sellers or the Buyer cooperate in preparing C-48 for any audits of, or disputes with taxing authorities regarding, any Tax Returns relating to the Acquired Business or the Acquired Assets; (iii) make available to the other parties and to any taxing authority as reasonably requested all information, records, and documents relating to Taxes relating to the Acquired Business or the Acquired Assets; (iv) provide timely notice to the other parties in writing of any pending or threatened Tax audits or assessments relating to the Acquired Business or the Acquired Assets for taxable periods for which the other parties may have a liability under this Section 11(a); and (v) furnish the other parties with copies of all correspondence received from any taxing authority in connection with any Tax audit or information request with respect to any such taxable period for which the other may have indemnification liability under this Section 11(a). (b) Other Indemnification by the Sellers. The Sellers jointly and severally agree to indemnify the Buyer, its affiliates and each of their respective officers, directors, employees and agents (collectively, the "Buyer Indemnified Parties") and hold them harmless from any loss, liability, claim, damage or expense (including reasonable legal fees and expenses) (collectively, "Loss")suffered or incurred by any such Buyer Indemnified Party (other than any relating to Taxes for which the exclusive indemnification provisions are set forth in paragraph (a) of this Section 11) to the extent arising from: (i) any breach of any representation or warranty of the Sellers contained in this Agreement or in any Schedule, certificate, instrument or other document delivered pursuant hereto or in connection herewith or any breach of any representation or warranty of Noel contained in the Noel Agreement (regardless of whether any such breach is related to any Assumed Liability); provided that, for purposes of determining the occurrence of a breach of any representation or warranty of the Sellers or Noel in connection with any claim made for indemnification under this Section 11(b), as well as for determining the amount of any Losses arising therefrom, the materiality qualifiers (including without limitation the "material adverse change", "material adverse effect" and "material" qualifiers) shall be disregarded; provided further that the Sellers shall have no obligation under this clause (i) with respect to any breach by the Sellers of Section 4(p) after the date of this Agreement and prior to the Closing Date to the extent that the Sellers have given written notice specifying the details of such breach to the Buyer at least one business day prior to the Closing Date; (ii) any breach of any covenant or agreement of the Sellers contained in this Agreement, whether requiring performance before or after the Closing Date; (iii) any Assumed Liabilities referred to in Sections 1(c)(ii)(x),(y) or (z), 1(c)(iii) or 1(c)(iv); or C-49 (iv) any Excluded Liabilities; provided, however, that the Sellers shall not have any liability under clauses (i), (ii) and (iii) above unless the aggregate of all Losses relating thereto for which the Sellers would, but for this proviso, be liable exceeds on a cumulative basis an amount equal to $200,000 (it being understood and agreed that the Sellers shall be liable from the first dollar of such Losses in the event that the aggregate of such Losses exceeds such amount); provided further, however, that the Sellers shall not have any liability under clauses (i), (ii) and (iii) above for any individual items where the Loss relating thereto is less than $20,000 (which individual items shall not be included in determining whether the aggregate amount of Losses exceeds the amount set forth in the next preceding proviso); and provided further, however, that the aggregate amount required to be paid by the Sellers pursuant to Section 11(b)(i), (ii) and (iii) (including any fees and expenses of counsel and any other amounts payable pursuant to Section 11(f) or otherwise relating to Section 11(b)(i),(ii) or (iii)) shall not exceed $3,000,000. The Buyer acknowledges and agrees that, from and after the Closing, its sole and exclusive remedy for monetary damages with respect to any and all claims relating to the subject matter of this Agreement (other than claims of fraud committed by any of the Sellers against the Buyer or the Parent) shall be pursuant to the indemnification provisions set forth in this Section 11. (c) Other Indemnification by the Buyer. The Buyer and Parent, jointly and severally, shall indemnify the Sellers (and each of them), their affiliates and each of their respective officers, directors, employees and agents against and hold them harmless from any Loss suffered or incurred by any such indemnified party (other than any relating to Taxes for which the exclusive indemnification provisions are set forth in paragraph (a) of this Section 11) to the extent arising from: (i) any breach of any representation or warranty of the Buyer or the Parent contained in this Agreement or in any Schedule, certificate, instrument or other document delivered pursuant hereto or in connection herewith; provided that, for purposes of determining the occurrence of a breach of any representation or warranty of the Buyer or the Parent in connection with any claim made for indemnification under this Section 11(c), as well as for determining the amount of any Losses arising therefrom, the materiality qualifiers (including without limitation "material adverse change", "material adverse effect" and "material" qualifiers) shall be disregarded; (ii) any breach of any covenant or agreement of the Buyer contained in this Agreement, whether requiring performance before or after the Closing Date; (iii) any Assumed Liabilities (but only to the extent the Sellers are not obligated to indemnify the Buyer Indemnified Parties against such Assumed Liabilities pursuant to Section 11(b)(iii)); provided, however, that the indemnification baskets and cap from Section 11(b) shall apply to the Buyer's indemnification obligations under Section 11(c)(i) or (ii). Each of the Sellers acknowledges and agrees that, from and after the Closing, its sole and exclusive remedy for monetary damages with respect to any and all claims relating to the subject matter of this C-50 Agreement (other than claims of fraud committed by the Buyer against the Sellers) shall be pursuant to the Indemnification provisions set forth in this Section 11. (d) Losses Net of Insurance, etc. The amount of any Loss or Tax for which indemnification is provided under this Section 11 shall be net of (i) any amounts actually recovered by the indemnified party under insurance policies with respect to such Loss or Tax and (ii) the amount of any adjustment to the Purchase Price pursuant to Section 2(c) resulting from such Loss or Tax or from the facts or circumstances underlying, resulting in or giving rise to such Loss or Tax. Any indemnity payment under this Agreement shall be treated as an adjustment to the Adjusted Purchase Price, for Tax purposes, unless either party determines in good faith that such reporting position is incorrect. (e) Termination of Indemnification. The obligations to indemnify and hold harmless a party hereto, (i) pursuant to Section 11(a), shall terminate at the time the applicable statutes of limitations with respect to the Tax liabilities in question expire (giving effect to any extension thereof); (ii) pursuant to Sections 11(b)(i), (ii) and (iii) and 11(c)(i) and (ii), shall terminate on the date that is two years after the Closing Date; and (iii) pursuant to Sections 11(b)(iv) and 11(c)(iii) shall not terminate; provided, however, that such obligations to indemnify and hold harmless shall not terminate with respect to any item as to which the person to be indemnified or the related party hereto shall have, before the expiration of the applicable period, previously made a claim by delivering a notice (stating in reasonable detail the basis of such claim) to the indemnifying party. (f) Procedures Relating to Indemnification (Other than under Section 11(a)). In order for a party (the "indemnified party") to be entitled to any indemnification provided for under this Agreement (other than under Section 11(a)) in respect of, arising out of or involving a claim or demand made by any person, firm, Governmental Entity or corporation against the indemnified party (a "Third Party Claim"), such indemnified party must notify the indemnifying party in writing, and in reasonable detail, of the Third Party Claim within 10 business days after receipt by such indemnified party of written notice of the Third Party Claim; provided, however, that failure to give such notification shall not affect the indemnification provided hereunder except to the extent the indemnifying party shall have been actually prejudiced as a result of such failure. Thereafter, the indemnified party shall deliver to the indemnifying party, within five business days after the indemnified party's receipt thereof, copies of all notices and documents (including court papers) received by the indemnified party relating to the Third Party Claim. If a Third Party Claim is made against an indemnified party, the indemnifying party will be entitled to participate in the defense thereof and, if it so chooses, to assume the defense thereof with counsel selected by the indemnifying party and reasonably satisfactory to the indemnified party. Should the indemnifying party so elect to assume the defense of a Third Party Claim, the indemnifying party will not be liable to the indemnified party for legal expenses subsequently incurred by the indemnified party in connection with the defense thereof. If the indemnifying party assumes such defense, the indemnified party shall have the right to participate in the defense thereof and to employ counsel, at its own expense, separate from the counsel employed by the indemnifying party, it being understood that the indemnifying party shall control such defense. The assumption of such defense by the indemnifying party shall not affect the limitations on the indemnifying party's liability set forth in Section 11(b) or (c), as the C-51 case may be. The indemnifying party shall be liable for the reasonable fees and expenses of counsel employed by the indemnified party for any period during which the indemnifying party has not assumed the defense thereof (other than during any period in which the indemnified party shall have failed to give notice of the Third Party Claim as provided above). If the indemnifying party chooses to defend or prosecute any Third Party Claim, all the parties hereto shall cooperate in the defense or prosecution thereof. Such cooperation shall include the retention and (upon the indemnifying party's request) the provision to the indemnifying party of records and information which are reasonably relevant to such Third Party Claim, and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. Whether or not the indemnifying party shall have assumed the defense of a Third Party Claim, the indemnified party shall not admit any liability with respect to, or settle, compromise or discharge, such Third Party Claim without the indemnifying party's prior written consent (which consent shall not be unreasonably withheld). (g) Payment by Sellers. All payments, if any, required to be made by the Sellers under this Section 11: (i) with respect to any Excluded Liabilities shall, at the option of the Buyer, be made either directly by the Sellers to the applicable Buyer Indemnified Party or by the Escrow Agent to such Buyer Indemnified Party out of the proceeds of the Escrow, in the manner set forth in the Escrow Agreement or (ii) other than with respect to any Excluded Liabilities shall be made by the Escrow Agent to the applicable Buyer Indemnified Party out of the proceeds of the Escrow, in the manner set forth in the Escrow Agreement (it being understood and agreed that in the event such payments by the Escrow Agent pursuant to either clause (i) or (ii) exhaust the proceeds of the Escrow, the Sellers shall remain liable under this Section 11 for all amounts remaining due to the Buyer Indemnified Parties in excess of such proceeds, subject to any applicable limitations set forth in Section 11(b)). 12. Assignment. This Agreement and the rights and obligations hereunder shall not be assignable or transferable by the Buyer or the Sellers (other than by operation of law in connection with a merger, a sale of substantially all the assets, or a liquidation of the Buyer or the Sellers) without the prior written consent of the other parties hereto (which consent shall not be unreasonably withheld); provided, however, that the Buyer may upon notice to the Company not less than five business days prior to the Closing assign its right to purchase all or any portion of the Acquired Assets hereunder to one or more subsidiaries or affiliates of the Buyer without the prior written consent of the Sellers and, following the Closing Date, may freely dispose of the Acquired Business; provided further, however, that no assignment shall limit or affect the assignor's obligations hereunder. 13. No Third-Party Beneficiaries. Except as provided for indemnified parties in Section 11, this Agreement is for the sole benefit of the parties hereto and their permitted assigns and nothing herein expressed or implied shall give or be construed to give to any person or entity, other than the parties hereto and such assigns, any legal or equitable rights hereunder. 14. Termination. (a) Anything contained herein to the contrary notwithstanding, this Agreement may be terminated and the transactions contemplated hereby abandoned at any time prior to the Closing Date: (i) by mutual written consent of the Company and the Parent; C-52 (ii) by the Sellers if (x) any of the conditions set forth in Section 3(b) hereof shall have become incapable of fulfillment, and shall not have been waived by the Sellers in their sole and absolute discretion or (y) either of the conditions set forth in Section 3(a)(vi) or 3(a)(vii) hereof shall have become incapable of fulfillment, and shall not have been waived by the Buyer in its sole and absolute discretion, provided that in the case of both clauses (x) and (y) above, such condition shall not have become incapable of fulfillment as a result of any breach by any Seller of any of its respective representations, warranties or agreements under this Agreement; (iii) by the Buyer if (x) any of the conditions set forth in Section 3(a) hereof shall have become incapable of fulfillment, and shall not have been waived by the Buyer in its sole and absolute discretion, provided that such condition shall not have become incapable of fulfillment as a result of any breach by the Parent or the Buyer of any of its respective representations, warranties or agreements under this Agreement or (y) the Parent or the Buyer shall have received notice under the HSR Act that the FTC or the DOJ has formally extended the applicable waiting period under the HSR Act by requesting additional information concerning the purchase and sale of the Acquired Business or any related transaction of the Parent or the Buyer; provided, however, that the Buyer's right to terminate this Agreement under this clause (y) shall terminate if unexercised at or prior to the close of business on the 30th business day after such notice is so received; or (iv) by either party hereto, if the Closing does not occur on or prior to March 31, 1997; provided, however, that the party seeking termination pursuant to clause (ii) or (iii) is not in material breach of any of its representations, warranties, covenants and agreements contained in this Agreement. (b) In the event of termination by the Sellers or the Buyer pursuant to this Section 14, written notice thereof shall forthwith be given to the other parties and the transactions contemplated by this Agreement shall be terminated, without further action by either party. (c) If this Agreement is terminated and the transactions contemplated hereby are abandoned as described in this Section 14, this Agreement shall become void and of no further force and effect, except for the provisions of (i) Section 7(e) relating to confidentiality and non-solicitation, (ii) Section 8(c) relating to publicity, (iii) this Section 14, (iv) Section 16 relating to expenses, (v) Section 23 relating to finder's fees and broker's fees and (vi) Sections 17, 19, 20, 25 and 26, relating to arbitration, notices, interpretation, consent to jurisdiction and governing law, respectively. Nothing in this Section 14 shall be deemed to impair the right of either party to compel specific performance by the other party of its obligations under this Agreement. 15. Survival of Representations. The representations and warranties in this Agreement and in any other document delivered in connection herewith shall survive the C-53 Closing solely for purposes of Sections 11(b) and 11(c) of this Agreement and shall terminate at the close of business two years following the Closing Date. 16. Expenses. (a) Subject to the proviso to Section 10, to Section 11(a)(ii) and to paragraphs (b) and (c) of this Section 16, whether or not the transactions contemplated hereby are consummated, each party hereto shall bear its own expenses in connection with this Agreement and the transactions contemplated hereby (including, in the case of the Parent and the Buyer, the payment by the Parent of its $45,000 filing fee under the HSR Act), except that the Company shall pay all filing, printing and mailing fees and expenses relating to the filing, printing and dissemination of the Proxy Statement and any information agent and similar fees incurred by the Sellers relating to the transactions contemplated hereby. (b) If (i) this Agreement is terminated as a result of a breach by any Seller of any of its respective representations, warranties or agreements under this Agreement and (ii) the Parent and the Buyer are not in material breach of their representations, warranties and agreements under this Agreement, then the Company shall (notwithstanding paragraph (a) of this Section 16), on the date of such termination, pay to the Buyer the cash amount necessary to permit the Buyer fully to reimburse the Parent and its affiliates for all actual out-of-pocket fees and expenses incurred by any of them or on their behalf in connection with the preparation of this Agreement and the transactions contemplated by this Agreement (including the Financing and any currency or interest rate hedging activities in connection with the transactions contemplated hereby), including all fees and expenses of counsel, investment banking firms, accountants, experts and consultants to the Parent or any of its affiliates and all fees and expenses payable to banks, investment banking firms and other financial institutions and their respective counsel, accountants and agents in connection with arranging or providing financing; provided, however, that the aggregate amount payable by the Company pursuant to this paragraph (b) shall not exceed $250,000. (c) If (i) this Agreement is terminated as a result of a breach by the Parent or the Buyer of any of its respective representations, warranties or agreements under this Agreement and (ii) the Sellers are not in material breach of their representations, warranties and agreements under this Agreement, then the Parent and the Buyer shall (notwithstanding paragraph (a) of this Section 16), on the date of such termination, pay to the Company the cash amount necessary to permit the Company fully to reimburse the Sellers for all actual out-of-pocket fees and expenses incurred by any of them or on their behalf in connection with the preparation of this Agreement and the transactions contemplated by this Agreement, including all fees and expenses of counsel, investment banking firms, accountants, experts and consultants to the Sellers; provided, however, that the aggregate amount payable by the Parent and the Buyer pursuant to this paragraph (c) shall not exceed $250,000. (d) The parties hereto acknowledge and agree that in the event of the termination of this Agreement, the parties' sole and exclusive remedy for monetary damages with respect to or arising out of this Agreement (other than claims of fraud committed by one party against another or claims relating to the intentional refusal by any party to effect the Closing as contemplated hereby upon satisfaction of the conditions to such party's obligations set forth in Section 3) shall be pursuant to this Section 16. C-54 17. Arbitration. (a) Subject to the provisions of Sections 2(c) and 25, any disagreement, dispute, controversy or claim arising out of or relating to this Agreement or the transactions contemplated hereby, including without limitation, the interpretation hereof and any breach, termination or invalidity hereof, shall be settled exclusively and finally (i) through good faith negotiation of the parties for a period not in excess of 30 days and (ii) in the event such negotiations do not yield a settlement within such 30-day period, by arbitration (irrespective of the magnitude thereof, the amount in controversy or whether such matter would otherwise be considered justiciable or ripe by a court or arbitral tribunal). (b) The arbitration shall be conducted in accordance with the Arbitration Rules, except as those rules conflict with the provisions of this Section 17, in which event the provisions of this Section 17 shall control. (c) The arbitral tribunal shall consist of three arbitrators chosen in accordance with the Arbitration Rules. The arbitration shall be conducted in New York City. Any submission of a matter for arbitration shall include joint written instructions of the parties requiring the arbitral tribunal to render a decision resolving the matters submitted within 60 days following the submission thereof. (d) Any decision or award of the arbitral tribunal shall be final and binding upon the parties to the arbitration proceeding. The parties agree that the arbitral award may be enforced against the parties to the arbitration proceeding or their assets wherever they may be found and that a judgment upon the arbitral award may be entered in any court having jurisdiction thereof. (e) All out-of-pocket costs and expenses incurred by any party in connection with the resolution of any disagreement, dispute, controversy or claim pursuant to this Section 17, including, but not limited to, reasonable attorney's fees and disbursements, shall be borne by the party incurring the same; provided, however, that the arbitral tribunal shall have the discretion to declare any party as the "prevailing party" with respect to one or more of the issues that were the subject of the arbitration and to require the other parties to the arbitration to reimburse such "prevailing party" for some or all of its costs and expenses incurred in connection with such proceeding. (f) The costs of the arbitral tribunal shall be divided evenly between any parties thereto affiliated with the Sellers, on the one hand, and any parties thereto affiliated with the Buyer, on the other hand, unless there is a "prevailing party", in which case the arbitral tribunal may allocate more or all of such costs to the party thereto that is not the "prevailing party". (g) This Section 17 shall not prohibit or limit in any way any party from seeking or obtaining preliminary or interim injunctive or other equitable relief from a court for a breach or alleged breach of any of the covenants and agreements of another party contained in this Agreement. 18. Amendments. No amendment to this Agreement shall be effective unless it shall be in writing and signed by all parties hereto. C-55 19. Notices. All notices or other communications required or permitted to be given hereunder shall be in writing and shall be delivered by hand or sent by telecopy, or sent, postage prepaid, by registered, certified or express mail, or reputable overnight courier service and shall be deemed given when so delivered by hand or telecopied (but only if receipt thereof is acknowledged or if a confirming copy is delivered or sent within one business day thereafter by any other means of delivery permitted by this Section 19), or if mailed, three days after mailing (one business day in the case of express mail or overnight courier service), as follows: (i) if to the Parent or the Buyer, Hicking Pentecost PLC 19 Stanwell Road Penarth Vale of Glamorgan CF642EZ United Kingdom attention: Ceri M. Jones telecopy: 011 44 122 271 1666 with a copy to: Sidley & Austin 875 Third Avenue New York, New York 10022 attention: Scott M. Freeman telecopy: (212) 906-2021 (ii) if to the Sellers, Belding Heminway Company, Inc. 1430 Broadway New York, New York 10018 attention: Karen Brenner telecopy: (212) 593-6127 with a copy to: Zimet, Haines, Friedman & Kaplan 460 Park Avenue New York, New York 10022 attention: Herbert M. Friedman telecopy: (212) 223-1151 or to such other address as shall be furnished in writing by such party; provided that any notice or communications changing any of the addresses set forth above shall be effective and deemed given only upon its receipt. C-56 20. Interpretation. The headings contained in this Agreement, in any Exhibit or Schedule hereto and in the table of contents and index of defined terms to this Agreement, are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. For purposes of this Agreement, the term "including" shall be deemed to mean "including, without limitation" and the term "affiliate" or "affiliates" shall have the meaning specified in Rule 405 under the Securities Act of 1933, as amended. The parties hereto hereby agree that none of the Parent, the Buyer or any of their affiliates shall be or shall be deemed to be a "successor" to the Sellers or any of them for any purpose whatsoever and the only assets the Buyer shall acquire or be deemed to acquire hereunder and the only liabilities the Buyer shall assume or be deemed to assume hereunder shall be the Acquired Assets and the Assumed Liabilities, respectively. 21. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the parties and delivered to the other parties. 22. Entire Agreement. This Agreement contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter, including the Letter Agreement dated August 9, 1996 (the "Letter Agreement") between the Parent and the Company, which Letter Agreement the Parent and the Company are terminating concurrently herewith and which will be of no further force and effect. 23. Fees. Each party hereto hereby represents and warrants that the only brokers or finders that have acted for such party in connection with this Agreement or the transactions contemplated hereby or that may be entitled to any brokerage fee, finder's fee or commission in respect thereof are Baring Brothers International Limited and Dillon, Read & Co. Inc. with respect to the Buyer and The Bridgeford Group with respect to the Sellers. The Buyer agrees to pay the fees or commissions payable by the Buyer to Baring Brothers International Limited and Dillon, Read & Co. Inc., in connection with the transactions contemplated hereby. The Company agrees to pay the fees or commissions payable by the Company to The Bridgeford Group, in connection with the transactions contemplated hereby. The Buyer agrees to indemnify the Sellers against, and to hold them harmless from, any claims for brokerage or similar commission or other compensation which may be made against the Sellers by any third party in connection with the transactions contemplated hereby, which claim is based upon such third party having acted as broker, finder, investment banker, or in any similar capacity on behalf of the Buyer or any of its affiliates. The Company agrees to indemnify the Buyer against, and to hold it harmless from, any claims for brokerage or similar commission or other compensation which may be made against the Buyer by any third party in connection with the transactions contemplated hereby, which claim is based upon such third party having acted as broker, finder, investment banker, or in any similar capacity on behalf of the Sellers or any of its affiliates. 24. Severability. If any provision of this Agreement or the application of any such provision to any person or circumstance shall be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision hereof. C-57 25. Consent to Jurisdiction. (a) To the extent permitted by applicable law, each of the Sellers, the Parent and the Buyer irrevocably submits to the exclusive jurisdiction of (a) the Supreme Court of the State of New York, New York County, and (b) the United States District Court for the Southern District of New York, solely for the purposes of seeking specific performance or enforcing an arbitral award arising out of this Agreement or any transaction contemplated hereby. To the extent permitted by applicable law, each of the Sellers, the Parent and the Buyer agrees to commence any such action, suit or proceeding relating thereto either in the United States District Court for the Southern District of New York or, if, for jurisdictional or other legal reasons, such suit, action or other proceeding may not be brought in such court, in the Supreme Court of the State of New York, New York County. To the extent permitted by applicable law, each of the Sellers, the Parent and the Buyer further agrees that service of any process, summons, notice or document by U.S. registered mail to such party's respective address set forth above shall be effective service of process for any action, suit or proceeding in New York with respect to any matters to which it has submitted to jurisdiction as set forth above in this Section 25(a). To the extent permitted by applicable law, each of the Sellers, the Parent and the Buyer irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding described above in (a) the Supreme Court of the State of New York, New York County, or (b) the United States District Court for the Southern District of New York, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. (b) Should any litigation be commenced in connection with the matters described in the preceding Section 25(a), the party prevailing shall be entitled, in addition to such other relief as may be granted, to a reasonable sum for such party's attorneys' fees and expenses determined by the court in such litigation or in a separate action brought for that purpose. 26. Governing Law; Specific Performance. (a) This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York applicable to agreements made and to be performed entirely within such State, without regard to the conflicts of law principles of such State. (b) The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which they are entitled at law or in equity. C-58 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first written above. BELDING HEMINWAY COMPANY, INC. By:___________________________ Name: Title: THE BELDING THREAD GROUP, LLC By:___________________________ Name: Title: DANFIELD THREADS, INC. By:___________________________ Name: Title: CULVER INTERNATIONAL, INC. By:___________________________ Name: Title: AMERICAN COLLARS, INC. By:___________________________ Name: Title: C-59 THE BRIDGE REALTY COMPANY By:___________________________ Name: Title: HP BELT ACQUISITION CORPORATION By:___________________________ Name: Title: HICKING PENTECOST PLC By:___________________________ Name: Title: C-60 INDEX OF DEFINED TERMS
Section ------- Acquired Assets.....................................................................1(a) Acquired Business...................................................................1(a) Acquisition Proposal................................................................6(d) Adjusted Purchase Price..........................................................2(c)(i) Allocation Schedule.................................................................1(f) American Collars................................................................Recitals Arbitration Rules...............................................................2(c)(ii) Arbitrator......................................................................2(c)(ii) Assumed Liabilities.................................................................1(c) Aurora Equipment................................................................4(i)(ii) Belding Thread Group............................................................Recitals Belding Thread Limited..............................................................4(c) Benefit Plans....................................................................4(o)(i) BH License..........................................................................4(j) Blumenthal..........................................................................1(a) Bridge Realty...................................................................Recitals Bronx Space Lease...................................................................6(s) Buyer...........................................................................Recitals Buyer Indemnified Parties..........................................................11(b) Buyer Information...................................................................4(x) Buyer's 401(k) Plan.................................................................9(b) CDA............................................................................1(d)(iii) CERCLA..............................................................................4(q) CGL.................................................................................4(n) Closing.............................................................................2(a) Closing Date........................................................................2(a) Closing Working Capital.............................................................2(c) Code................................................................................1(f) Companies Act.......................................................................5(c) Company.........................................................................Recitals Company Stockholders' Meeting.......................................................6(p) Company Voting Stock................................................................4(b) Connecticut Act.....................................................................7(f) Confidentiality Agreement...........................................................6(i) Contaminants........................................................................4(q) Continued Employees.................................................................9(a) Contracts...........................................................................4(k) Corporate Headquarters..........................................................1(b)(iv) Culver International............................................................Recitals Current Assets...................................................................2(c)(i) Current Liabilities..............................................................2(c)(i) Danfield........................................................................Recitals DOJ.................................................................................8(d)
C-61
Section ------- Encumbrances........................................................................4(h) Environmental Laws..................................................................4(q) Environmental Measures..............................................................7(g) ERISA............................................................................4(o)(i) Escrow..........................................................................2(b)(ii) Escrow Agreement................................................................2(b)(ii) Exchange Act........................................................................4(b) Excluded Assets.....................................................................1(b) Excluded Liabilities................................................................1(d) Fairness Opinion....................................................................4(u) Financing...........................................................................5(d) Financial Statements.............................................................4(d)(i) FTC.................................................................................8(d) GAAP............................................................................1(c)(ii) Governmental Entities...............................................................4(b) Governmental Permits.............................................................4(q)(v) HSR Act.........................................................................3(a)(iv) indemnified party..................................................................11(f) Intellectual Property...............................................................4(j) Interim Balance Sheet............................................................4(d)(i) Interim Financial Statements.....................................................4(d)(i) Investment Bank.....................................................................4(u) IRCA...........................................................................4(s)(vii) Letter Agreement......................................................................22 Liens...............................................................................4(g) Loss...............................................................................11(b) LSE.................................................................................5(a) Material Adverse Effect.............................................................4(a) Noel............................................................................Recitals Noel Agreement..................................................................Recitals Non-Seller Assets...............................................................3(a)(xi) Notice of Disagreement..........................................................2(c)(ii) OSHA................................................................................4(q) Parent..........................................................................Recitals Parent Loan Stock...................................................................5(a) PCBs.............................................................................4(q)(x) Pension Plans.......................................................................4(o) Permitted Encumbrances..............................................................4(h) Permitted Liens.....................................................................4(g) Proxy Statement..................................................................6(l)(i) Purchase Price .....................................................................1(e) RCRA................................................................................4(q) Records.............................................................................8(e) Release.............................................................................4(q)
C-62
Section ------- Required Company Vote...............................................................4(b) Required Parent Consents............................................................5(a) Required Parent Vote................................................................5(a) Scheduled Closing Date..............................................................2(a) SEC.............................................................................3(b)(iv) Secured Debt Payment............................................................2(b)(ii) Seller..........................................................................Recitals Sellers' Knowledge..................................................................4(z) Sellers' 401(k) Plan................................................................6(o) Straddle Period....................................................................11(a) Tax Returns.....................................................................4(f)(iv) Taxes...........................................................................4(f)(iv) Third Party Claim..................................................................11(f) Title Company.......................................................................6(s) Unassigned Asset....................................................................1(g) Underwriting Agreement..............................................................5(d) WARN Act......................................................................4(s)(viii) WC Amount........................................................................2(c)(i) WC Statement.....................................................................2(c)(i) Winstead Property...................................................................7(f) Working Capital..................................................................2(c)(i)
C-63 APPENDIX D CERTIFICATE OF AMENDMENT OF THE RESTATED CERTIFICATE OF INCORPORATION OF BELDING HEMINWAY COMPANY, INC. ------------- Pursuant to Section 242 of the General Corporation Law ------------- THE UNDERSIGNED, the President of Belding Heminway Company, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: FIRST: Article FIRST of the Restated Certificate of Incorporation of the Corporation is hereby amended so that, as amended, said Article shall be and read as follows: "FIRST: The name of the Corporation is Carlyle Industries, Inc. SECOND: This amendment has been duly adopted by the holders of a majority of the issued and outstanding shares of capital stock of the Corporation in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the undersigned has executed this Certificate this __th day of February, 1996. _____________________________________ STATEMENT OF DIFFERENCES ------------------------ The Section Symbol shall be expressed as ................ 'ss.' APPENDIX BELDING HEMINWAY COMPANY, INC. PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS Special Meeting of Stockholders, February 14, 1997 The undersigned stockholder of BELDING HEMINWAY COMPANY, INC., a Delaware corporation (the "Company") hereby acknowledges receipt of the Notice and Proxy Statement dated January __, 1997 and appoints Karen Brenner and Edward F. Cooke, or any of them, voting singly in the absence of the others, attorneys and proxies, with full power of substitution and revocation, to vote, as designated on the reverse side, all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Stockholders of the Company to be held at Company's executive offices, at 1430 Broadway, New York, New York 10018 on February 14, 1997 at 10:00 A.M. (local time) or any adjournment thereof, in accordance with the following instructions: (Continued and to be signed on the reverse side) FOLD AND DETACH HERE THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN Please mark [X] BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THE PROXY WILL BE VOTED your vote as "FOR" PROPOSAL NO. 1. indicated in this example
1. PROPOSAL NO. 1 - To Approve the sale of substantially all the business, operations and assets of the Company and its subsidiaries related to the manufacturing, marketing and sale of industrial and consumer thread pursuant to the terms of the Sale Agreement dated as of December 12, 1996 [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. Date: _________________________, 1997 _____________________________________ Signature _____________________________________ Signature if held jointly When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such, if a corporation, please sign in full corporate name by an authorized officer. If a partnership, please sign in partnership name by an authorized person. PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING ENCLOSED ENVELOPE. FOLD AND DETACH HERE -----END PRIVACY-ENHANCED MESSAGE-----