SHARE PURCHASE AGREEMENT
BETWEEN
MASGAN INC. AND
SALORNA INC. AS VENDORS
AND
3096726 CANADA INC.
AS PURCHASER
December 22, 1994
TABLE OF CONTENTS
1. DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. PURCHASED SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3. PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. ADJUSTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5. SECURITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6. REPRESENTATIONS AND WARRANTIES OF THE VENDORS . . . . . . . . . . 10
6.1 Enforceability of the Agreement. . . . . . . . . . . . . . . . 10
6.2 Corporate Status . . . . . . . . . . . . . . . . . . . . . . . 11
6.3 Capital Stock & Records . . . . . . . . . . . . . . . . . . . 11
6.4 Business . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.5 Assets and Liabilities . . . . . . . . . . . . . . . . . . . 14
6.6 Conduct of Business . . . . . . . . . . . . . . . . . . . . . 16
6.7 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.8 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.10 Patents, Trade Marks and Copyright . . . . . . . . . . . . . 21
6.11 Environmental Matters . . . . . . . . . . . . . . . . . . . . 22
6.12 Labour Relations . . . . . . . . . . . . . . . . . . . . . . 26
6.13 Bank Accounts, Etc. . . . . . . . . . . . . . . . . . . . . . 27
6.14 Conflicting Interests . . . . . . . . . . . . . . . . . . . . 27
6.15 No Finder's or Broker's Fee . . . . . . . . . . . . . . . . . 27
6.16 Vendors' Residence . . . . . . . . . . . . . . . . . . . . . 28
6.17 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . 28
6.18 Investment . . . . . . . . . . . . . . . . . . . . . . . . . 29
7. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER . . . . . . . . . 29
7.1 Enforceability of the Agreement . . . . . . . . . . . . . . 30
7.2 No Violation . . . . . . . . . . . . . . . . . . . . . . . . 30
7.3 No Legal Proceedings . . . . . . . . . . . . . . . . . . . . 30
7.4 No Finder's Fee . . . . . . . . . . . . . . . . . . . . . . 30
7.5 Purchaser's Residence . . . . . . . . . . . . . . . . . . . 31
8. SURVIVAL AND RELIANCE ON REPRESENTATIONS AND WARRANTIES AND
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.1 Survival Notwithstanding Investigation . . . . . . . . . . 31
8.2 Indemnification by Vendors . . . . . . . . . . . . . . . . . 31
8.3 Indemnification by Purchaser . . . . . . . . . . . . . . . . 32
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8.4 Indemnification against Third Party Claims . . . . . . . . . 32
8.5 Indemnification to be After Tax, Insurance, Etc. . . . . . . 34
8.6 Expiry of Liability . . . . . . . . . . . . . . . . . . . . . 34
8.7 De Minimis . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.8 Limitation of Liability . . . . . . . . . . . . . . . . . . . 35
8.9 Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.10 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.11 Nonexclusivity of Remedy; Waiver of Certain Rights . . . . . . 39
9. COVENANTS OF THE VENDORS . . . . . . . . . . . . . . . . . . . . . 39
9.1 Best Efforts to Maintain and Preserve . . . . . . . . . . . . 40
9.2 Notice of Cessation in Ordinary Course . . . . . . . . . . . 40
9.3 Access for Purchaser . . . . . . . . . . . . . . . . . . . . 40
9.4 Maintain Insurance . . . . . . . . . . . . . . . . . . . . . 41
9.5 Corporate Proceedings for Transfer . . . . . . . . . . . . . 41
9.6 Replacement of Officers and Directors . . . . . . . . . . . 41
9.7 Further Assurances . . . . . . . . . . . . . . . . . . . . . 42
9.8 Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . 42
9.9 1994 Audited Financing Statements . . . . . . . . . . . . . . 42
9.10 List of Arbitrators . . . . . . . . . . . . . . . . . . . . . 43
10. COVENANTS OF THE PURCHASER . . . . . . . . . . . . . . . . . . . . 43
10.1 Discharge of Toronto Dominion Bank Security . . . . . . . . . 43
10.2 List of Arbitrators . . . . . . . . . . . . . . . . . . . . . 43
10.3 Investment Canada Act . . . . . . . . . . . . . . . . . . . . 43
11. CONDITIONS OF CLOSING . . . . . . . . . . . . . . . . . . . . . . 44
11.1 Conditions for the Benefit of the Purchaser . . . . . . . . 44
11.2 Conditions for the Benefit of the Vendors . . . . . . . . . . 50
12. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
13. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . 52
13.1 Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . 52
13.2 Specific Performance . . . . . . . . . . . . . . . . . . . . . 53
13.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 54
13.4 Time of the Essence . . . . . . . . . . . . . . . . . . . . . 54
13.5 Public Announcement . . . . . . . . . . . . . . . . . . . . . 54
13.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 54
13.7 Successors and Assigns . . . . . . . . . . . . . . . . . . . . 54
13.8 References to Disclosure Schedule . . . . . . . . . . . . . . 55
13.9 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 55
13.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . 55
13.11 Language . . . . . . . . . . . . . . . . . . . . . . . . 56
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EXHIBITS AND SCHEDULE
EXHIBIT 1 Audited Financial Statements of Rayonese Textile Inc.
EXHIBIT 2 Note
EXHIBIT 3 List of security and Purchaser's covenants
EXHIBIT 4 Opinion of Vendor's Counsel
EXHIBIT 5 Non-Competition and Confidentiality Agreement
DISCLOSURE SCHEDULE
THIS AGREEMENT made as of the 22nd day of December, 1994
B E T W E E N: MASGAN INC., a corporation duly incorporated under, the
Canada Business Corporations Act, herein acting and
represented by Maurice Wechsler, its President, duly
authorized in virtue of a resolution of its Board of
Directors dated December 7, 1994;
(hereinafter, "MASGAN")
A N D: SALORNA INC., a corporation duly incorporated under the
Canada Business Corporations Act, herein acting and
represented by Henri Wechsler, its President, duly
authorized in virtue of a resolution of its Board of
Directors dated December 7, 1994;
(hereinafter, "SALORNA")
(MASGAN and SALORNA being hereinafter
collectively referred to as the
"Vendors")
OF THE FIRST PART,
A N D: 3096726 CANADA INC., a corporation duly incorporated
under the Canada Business Corporations Act, herein
acting and represented by Franklin N. Saxon, its Vice
President and Treasurer, duly authorized in virtue of a
resolution of its Board of Directors dated December 20,
1994;
(the "Purchaser")
OF THE SECOND PART.
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THIS AGREEMENT WITNESSETH that in consideration of the mutual
covenants and agreements herein set out and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
the parties hereto covenant and agree as follows:
1. DEFINED TERMS
Where used herein, except where the context otherwise requires, the
following terms shall have the following meanings respectively:
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this
definition, "control" when used with respect to any specified Person
means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Audit Date" means December 31, 1993.
"Audited Financial Statements" means the audited balance sheet of the
Corporation and related statements of earnings and retained earnings
and changes in financial position for the fiscal year ended December
31, 1993, prepared by Price Waterhouse, Chartered Accountants and
attached hereto as Exhibit 1.
"Bank Guarantee" means the irrevocable guarantee of a Schedule I
Canadian Chartered Bank obtained at the cost of the Vendors in favour
of the Purchaser in form and terms acceptable to the Purchaser
guaranteeing the payment of any and all claims of the Purchaser for
indemnification by each of the Vendors under Section 8 up to an
aggregate amount of $500,000 in respect of each of the Vendors.
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"Book Value of the Purchased Shares" means the value of the
shareholders' equity of the Corporation as established by the Closing
Balance Sheet.
"Closing" means the consummation and completion of the sale and
purchase of the Purchased Shares as provided for in Section 12 hereof.
"Closing Balance Sheet" means the audited balance sheet of the
Corporation as at the Closing Date to be prepared by KPMG Peat Marwick
Thorne, Chartered Accountants, in accordance with generally accepted
accounting principles consistently applied.
"Closing Date" means 10:00 a.m. local time at the Closing Place on
March 1, 1995 or such other time and date as the parties may agree
upon.
"Closing Place" means the office of Counsel for the Purchaser at 1981
McGill College, 12th Floor, in the City of Montreal in the Province of
Quebec.
"Conversion Rate" means the rate of conversion of Canadian currency
into United States currency, which the Vendors and the Purchaser have
agreed shall be Cdn. $1.375 for U.S. $1.00 for the purposes of this
Agreement.
"Corporation" means Rayonese Textile Inc., a corporation existing
under the Canada Business Corporations Act, pursuant to a Certificate
of Continuance dated August 15, 1978.
"Counsel for the Vendors" means Messrs. Kugler Kandestin.
"Counsel for the Purchaser" means Messrs. Ogilvy Renault.
"CULP" means Culp, Inc., a corporation existing under the laws of the
State of North Carolina, U.S.A.
"Disclosure Schedule" means the Schedule so entitled which is appended
to this Agreement.
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"Dollars and $" means lawful money of Canada, unless otherwise
indicated.
"Employment Agreements" means the employment agreements referred to in
Sections 11.1.11 and 11.2.2.
"Indemnitee" and "Indemnitor" have the respective meanings attributed
to such terms in Section 8.4.
"Lien" means any hypothec, priority, mortgage, pledge, lien, charge,
encumbrance, easement, title defect or irregularity, lease, security
interest or option or claim or right of another.
"Non-Competition Agreements" means the non-competition and
confidentiality agreements referred to in Section 11.1.13.
"Notes" means the convertible notes provided for in Section 3.6.
"Person" means an individual, partnership, joint venture, association,
corporation, trust, or a government or any department or agency
thereof.
"Proprietary Intangibles" means and includes all rights held in virtue
of any copyright, design, trade mark, trade name, trade secret,
patent, trade dress, logos, computer software or other intellectual
property or any application therefor.
"Purchase Price" has the meaning attributed to it in Section 3 hereof.
"Purchased Shares" means all of the issued and outstanding shares of
the Corporation.
"Purchaser's Default" means default by the Purchaser to perform any of
its obligations under Sections 3.2, 3.3 or 3.4, the Notes or the
security documents or covenants referred to in Exhibit 3 attached
hereto.
"Securities Act" means the United States Securities Act of 1933.
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"Taxes" means any tax (including, without limitation, any tax on
income, corporations, capital, excise, property, transfer, water,
business, goods and services), any duty, stamp, deduction, deduction
at source, charge, assessment, fees or costs of any nature (including,
without limitation, any interest, penalty or additional costs relating
thereto) imposed by any competent authority.
"Third Party Claim" means any demand or statement or any notice
thereof which has been made on or communicated to the Vendors or
Purchaser or the Corporation by or on behalf of any Person other than
the foregoing and which, if maintained or enforced, will or might
result in a loss, liability or expense of the nature described in
either Section 8.2 or Section 8.3.
"This Agreement", "these presents", "herein", "hereby", "hereunder"
and similar expressions refer to this Agreement of Purchase and Sale
and the accompanying schedules.
"Vendors' Best Knowledge" means the knowledge of the Vendors after the
enquiry by the Vendors of the following officers and employees of the
Corporation: the President, Henri Wechsler; the Secretary-Treasurer,
Maurice Wechsler; the Vice-President, Blair Barwick and the Plant
Manager, Bertrand Voisine.
"1994 Audited Financial Statements" means the audited financial
statements of the Corporation to be prepared and delivered pursuant to
Section 9.9.
2. PURCHASED SHARES
The Vendors covenant and agree to sell, assign and transfer the
Purchased Shares to the Purchaser and the Purchaser agrees to acquire
the Purchased Shares from the Vendors on the Closing Date, the whole
for the Purchase Price and upon the terms and conditions herein
provided.
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3. PURCHASE PRICE
The purchase price of the Purchased Shares shall be the sum of TEN
MILLION DOLLARS ($10,000,000) (the "Purchase Price"), subject to
adjustment in accordance with Section 4 hereof. The Purchase Price
shall be payable by the Purchaser to the Vendors as follows:
3.1 TWO MILLION FIVE HUNDRED THOUSAND DOLLARS ($2,500,000) payable at
Closing by certified cheque, banker's draft or bank wire transfer
as follows:
To MASGAN $1,250,000
To SALORNA $1,250,000
3.2 the balance of SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS
($7,500,000), as adjusted in accordance with Section 4 hereof
(the "Balance"), shall be represented by the Notes and shall,
subject to the provisions of Sections 3.3 and 3.4, be payable
thirty-six (36) months after Closing by certified cheque,
banker's draft or bank wire transfer in U.S. funds converted at
the Conversion Rate, said Balance to bear interest calculated and
payable in U.S. funds at the rate of six percent (6%) per annum,
compounded in the event of non-payment, said interest being
payable in arrears on a quarterly basis commencing ninety (90)
days following Closing; the payment of the Balance and interest
thereon shall be made to the Vendors in the following
proportions:
To MASGAN: 50%
To SALORNA: 50%
In the event of a Purchaser's Default, the entire Balance shall
become due and payable if such Purchaser's Default, except in the
case of default of the Purchaser to deliver certificates for
shares of CULP within the delays stipulated in Sections 3.3 and
3.4 which shall require no notice, is not rectified by the
Purchaser within ten (10) days following notice thereof given by
the Vendors to the Purchaser.
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3.3 At any time after the first anniversary of the Closing and
subject to the provisions of Sections 3.4 and 3.5:
(i) upon forty-five (45) days' prior notice (which may be given
prior to the first anniversary of the Closing) to the
Purchaser, each of the Vendors shall be entitled to demand
payment of all or any portion of the Balance owed to it with
interest accrued to the date of payment;
(ii) for so long as the portion of the Balance owed to it remains
unpaid, each of the Vendors (for the purposes hereof, the
"Converting Party") shall be entitled, in accordance with
the terms of the Notes, to convert all or any part of said
portion of the Balance or remainder thereof owed to it (as
determined by the Converting Party), into common shares of
the capital stock of CULP, at the conversion price of
U.S.$12.50 per common share. In the event that the common
shares of the capital stock of CULP should be divided or
consolidated at any time prior to the exercise of the said
right of conversion, the conversion price for the purposes
of this Section 3.3(ii) and Section 3.4 shall be adjusted
accordingly. Upon such conversion, the portion of the
Balance or remainder thereof owed to the Converting Party
shall be reduced by an amount corresponding to the aggregate
conversion price of the converted common shares. The
Purchaser shall cause CULP to take all reasonable action to
cause the delivery of the certificates representing the
shares to be received by each Vendor upon any conversion
made pursuant to this Section 3.3 (ii) or Section 3.4 at the
earliest possible date but, in any event, no later than 14
days following the Date of Conversion, as defined in the
Notes.
3.4 In the event that Robert G. Culp, III, Judith C. Walker, Harry R.
Culp and Esther R. Culp, as a group, at any time cease to hold
voting control of common shares of CULP which represent, in the
aggregate, 15% or more of the outstanding common shares of CULP,
the Purchaser shall give notice of such cessation to each of the
vendors within ten (10) days
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following the date on which such
cessation occurs and each of the Vendors shall, in addition to
the right to convert such portion of the Balance into common
shares of CULP in accordance with the terms of the Notes, have
the right, upon fifteen days' notice to the Purchaser, to demand
payment of the entire portion of the Balance owed to it with
interest accrued thereon to the date of payment, subject to the
condition that, upon such cessation, if either of the Vendors
shall within the first twelve (12) months following the Closing,
pursuant to this Section 3.4, demand payment of the Balance or
conversion of the Balance into common shares of the capital stock
of CULP, each such Vendor shall deliver to the Purchaser a Bank
Guarantee. Such Bank Guarantee shall be enforceable against the
guarantor in respect of any and all claims of the Purchaser under
Section 8 asserted within the period of twenty-four (24) months
following the Closing which the Vendors and the Purchaser shall
agree in writing to be payable by either of the Vendors or which
shall be determined to be payable by an arbitration award
pursuant to Section 8.10 with respect to any claim relating to a
breach of any representation or warranty in Section 6 or a final
judgment of a court in the case of any other claim.
3.5 In the event that, at any time within the first twelve (12)
months after the first anniversary of the Closing, either of the
Vendors shall demand payment of any part of the Balance which
would result in the outstanding Balance being reduced to less
than U.S. $727,273 or shall demand conversion of any such part of
the Balance into common shares of the capital stock of CULP as
contemplated by Section 3.3 (ii), the Purchaser shall be entitled
to exclude from such payment or conversion the last U.S. $727,273
of the Balance, until each of the Vendors shall have delivered to
the Purchaser a Bank Guarantee. Such Bank Guarantee shall be
enforceable against the guarantor in respect of any and all
claims of the Purchaser under Section 8 asserted within the
period of twenty-four (24) months following the Closing which the
Vendors and the Purchaser shall agree in writing to be payable by
either of the Vendors or which shall be determined to be payable
by an arbitration award pursuant to Section 8.10 with respect to
any claim
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relating to a breach of any representation or warranty
in Section 6 or a final judgment of a court in the case of any
other claim.
3.6 The Purchaser shall issue to each of the Vendors a convertible
note for an amount equal to its respective portion of the Balance
in the form and terms of the Note attached hereto as Exhibit 2.
4. ADJUSTMENT
KPMG Peat Marwick Thorne, Chartered Accountants, will prepare the
Closing Balance Sheet within forty-five (45) days following Closing.
The Purchase Price shall be adjusted on the date which is forty-five
(45) days following Closing, as follows:
4.1 The Purchase Price shall be increased by the amount, if any, by
which the Book Value of the Purchased Shares exceeds $4,000,000;
or
4.2 The Purchase Price shall be reduced by the amount, if any, by
which $4,000,000 exceeds the Book Value of the Purchased Shares.
Following such adjustment, the Notes delivered at Closing will be
surrendered by Vendors and will be replaced without novation by new
Notes reflecting the adjusted Balance.
5. SECURITY
5.1 As security for the repayment of the Balance and interest
thereon, the Purchaser shall cause the Corporation to grant in
favour of the Vendors, at Closing, the security described in
Exhibit 3 attached hereto.
5.2 While any part of the Balance remains outstanding the Purchaser
shall comply with, fulfill and respect each of the covenants set
forth in Exhibit 3 attached hereto.
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6. REPRESENTATIONS AND WARRANTIES OF THE VENDORS
The Vendors jointly represent and warrant to the Purchaser as follows:
6.1 Enforceability of the Agreement
6.1.1 The Vendors are the sole and absolute owners of the
Purchased Shares in the proportion set out in Section 6.3
hereof, with good and marketable title thereto, free and
clear of all Liens, with full power and authority to sell,
assign and transfer the Purchased Shares as herein
provided.
6.1.2 The Vendors have been duly authorized to execute and become
party to this Agreement and to consummate the transactions
herein provided.
6.1.3 Neither the entering into of this Agreement nor the
consummation of any of the transactions contemplated hereby
will
6.1.3.1 result in the violation of (a) any of the terms or
provisions of the respective constating documents
or by-laws of the Vendors or of the Corporation or
of any agreement, written or oral, to which either
of the Vendors or the Corporation is a party; or
(b) any law or regulation of any jurisdiction to
which either of the Vendors or the Corporation is
subject, or
6.1.3.2 subject the Corporation to any penalty or
liability.
6.1.4 The Vendors are not aware of any legal proceedings pending
or threatened or of any circumstances which may reasonably
be expected to give rise to such proceedings which in any
way might interfere with the sale or delivery of the
Purchased Shares or the consummation of any of the
transactions herein contemplated.
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6.1.5 Except as disclosed on the Disclosure Schedule, the Vendors
are not required to give any notice to, make any filing
with, or obtain any authorization, consent, permit or
approval from, any Person, including without limitation,
any government or governmental agency, in order for the
parties to consummate the transactions contemplated by this
Agreement.
6.2 Corporate Status
6.2.1 The Corporation
6.2.1.1 has been duly incorporated and organized and is
validly subsisting and in good standing under the
laws of the jurisdiction in which it was
incorporated;
6.2.1.2 has the corporate power to own, lease, occupy or
otherwise hold the properties and rights now owned,
leased, occupied or otherwise held by it and to
conduct the business now being conducted by it.
6.3 Capital Stock & Records
6.3.1 The authorized capital stock of the Corporation consists of
an unlimited number of Class A and Class B common shares
and Class C special shares of which 4900 Class A common,
5100 Class B common and 410 Class C special shares (and no
more) are outstanding and each of such outstanding shares
has been duly allotted and issued and is fully paid and
non-assessable, and the paid-up capital for income tax
purposes of each class of such shares is as shown in the
Audited Financial Statements. The Purchased Shares are
owned by the Vendors in the following proportions:
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Class A Class B Class C
Common Common Special
MASGAN: 2450 2550 205
SALORNA: 2450 2550 205
6.3.2 No Person has any agreement or option or any right or
privilege (whether by law or by contract) capable of
becoming an agreement or option
6.3.2.1 to acquire any of the Purchased Shares ;
6.3.2.2 to subscribe for or otherwise acquire any of the
unissued shares of the capital stock or any other
securities of the Corporation.
6.3.3 The corporate records and minute books of the Corporation
contain complete and accurate minutes of all meetings of
the directors and shareholders of the Corporation held
since the date of the incorporation of the Corporation, and
all such meetings were duly called and held. The share
certificate books, registers of shareholders, registers of
transfers and registers of directors of the Corporation are
complete and accurate.
6.3.4 Except as stated in the Disclosure Schedule the Corporation
does not exist as a result or incident of any amalgamation
or merger between the Corporation and any other Person or
Persons or between other Persons pursuant to which the
properties or rights of the Corporation became or remained
subject to the rights of the creditors of such previously
existing Person or Persons.
6.3.5 The Disclosure Schedule contains a complete list of all of
the officers and directors of the Corporation as of the
date hereof.
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6.4 Business
6.4.1 The business of the Corporation is as described in the
Disclosure Schedule; and save as stated in the Disclosure
Schedule the Corporation has conducted its business
substantially as so described continuously during the
period of 10 years preceding the Audit Date and during said
period the Corporation has not conducted any other
business.
6.4.2 The respective locations or jurisdictions where the
Corporation presently conducts and has, during the 10 years
preceding the Audit Date, conducted its business are as set
out in the Disclosure Schedule and, save as therein
specified, the Corporation has not, during the said 10-year
period, conducted business in any other location or
jurisdiction.
6.4.3 The Corporation is, to Vendors' Best Knowledge, conducting
its business in compliance with all applicable laws, rules
and regulations of each jurisdiction in which such business
is being carried on; is not in breach of any such laws,
rules or regulations; is duly licenced, registered or
qualified in each jurisdiction where the nature of its
business would require it to be so licensed, registered or
qualified or where it owns or leases property or conducts
its business to enable such businesses to be conducted as
now conducted, and its properties and assets to be owned,
leased and operated, and all such licences, registrations
and qualifications are valid, subsisting and in good
standing, and none of the same contains any burdensome
term, provision, condition or limitation which has or
reasonably may be expected to have an adverse effect on the
operation of any such business.
6.4.4 Except as set out in the Disclosure Schedule, the
Corporation is not now conducting nor has it conducted its
business under any name other than its corporate name.
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6.5 Assets and Liabilities
6.5.1 The respective balance sheets included in the Audited
Financial Statements and in the 1994 Audited Financial
Statements fairly present or will present, as the case may
be, the financial position of the Corporation as at the
respective dates specified therein and the related
statements of earnings, retained earnings and changes in
financial position for each of the periods then ended
fairly present or will present, as the case may be, the
results of the operations and the changes in financial
position for the periods then ended of the Corporation and
have been prepared or will be prepared, as the case may be,
in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods
specified therein, except as specifically stated in such
Audited Financial Statements or 1994 Audited Financial
Statements. Since the Audit Date, there has been no
material adverse change in the condition (financial or
otherwise), liabilities, licences, permits, business
(including relationships with suppliers, customers, and
others), operations or prospects of the Corporation.
6.5.2 Except to the extent reflected or reserved against in the
most recent balance sheet of the Corporation included in
the Audited Financial Statements or as set out in the
Disclosure Schedule, the Corporation did not have at the
Audit Date and except as reflected on the Closing Balance
Sheet, the Corporation will not have as of the Closing
Date, any liabilities or obligations (except for
liabilities and obligations which in the aggregate are
immaterial) whether accrued, absolute, contingent or
otherwise (including without limitation product liability
as manufacturer, supplier or otherwise, warranty liability,
liabilities as guarantor or otherwise with respect to
obligations of others or lease liabilities or liabilities
for Taxes and whether due or to become due.
-15-
6.5.3 The Corporation has or will have good and marketable title
to all its properties and assets, including, without
limitation, all those referred to in the most recent
balance sheets included in the Audited Financial
Statements, the 1994 Audited Financial Statements, and the
Closing Balance Sheet, as of the respective dates thereof,
(other than any thereof which have been disposed of in the
ordinary course of business) free and clear of any Liens,
except for Liens specifically referred to in the said
balance sheets. All of the real and immovable properties
and interests therein, including, without limitation, the
immoveable property owned by the Corporation and located at
680 boulevard Monseigneur Dubois in Ville Saint-Jerome,
Quebec, reflected in any such balance sheet which are owned
by the Corporation are described in the Disclosure
Schedule. All properties, equipment and machinery and all
other tangible personal property either owned or leased by
the Corporation are in good operating condition and repair,
except for normal wear and tear and normal usage and are in
each case adequate for the conduct of the business of the
Corporation in the ordinary course. The plans delivered to
the Purchaser by the Vendors of the real or immovable
property described in the Disclosure Schedule are complete
and correct in all material respects. The Corporation has
and will have valid leasehold interests in all the
properties, equipment and machinery shown in the Disclosure
Schedule or reflected in the Audited Financial Statements
or to be reflected in the 1994 Audited Financial Statements
as being leased by it, free and clear of any Liens. All
such leases (complete and correct copies of which have been
made available to the Purchaser) are valid, subsisting and
effective in accordance with their respective terms and are
in good standing, and no event or condition exists which
constitutes or after notice or lapse of time or both would
constitute a default thereunder.
6.5.4 The Corporation does not own or possess any property right
or other asset which is not so owned or possessed solely
for the
-16-
purpose of conducting its business as such business
is now being conducted.
6.5.5 Except as set out in the Disclosure Schedule, there is not
6.5.5.1 any suit, action or other proceeding or
governmental investigation pending or threatened
against the Corporation in or before or by any
court, board or administrative or other tribunal;
6.5.5.2 any order, decree, injunction or judgment of any
court, administrative agency or board or admin-
istrative or other tribunal against or affecting
the Corporation;
6.5.5.3 any legal impediment to the continued operation in
the ordinary course of the properties and business
of the Corporation; or
6.5.5.4 to the Vendors' Best Knowledge, any violation by
the Corporation of any law, directive, or
legislation.
6.5.6 Except as set out in the Disclosure Schedule, the
Corporation does not hold any loan or advance due by, or
any stock, obligation or securities of, or any other
interest in, any Person.
6.6 Conduct of Business
6.6.1 Except as set out in the Disclosure Schedule, the business
of the Corporation has been conducted since the Audit Date
in the ordinary course, and since the Audit Date the
Corporation has not entered into any transaction other than
in the ordinary course of its business and, in particular,
without limiting the generality of the foregoing, the Cor-
poration has not since the Audit Date
-17-
6.6.1.1 purchased or redeemed directly or indirectly any
shares of the capital stock of the Corporation;
6.6.1.2 issued or sold or agreed to issue or sell any
shares of the capital stock of the Corporation or
any option, warrant, conversion or other right to
acquire any such share or any securities convert-
ible into or exchangeable for such shares, or
amended its charter or bylaws;
6.6.1.3 declared or paid any dividend or declared or made
any other distribution on any of the shares of any
class of its capital stock or on any other of its
securities;
6.6.1.4 acquired or sold, assigned, transferred, licenced,
terminated, leased or disposed of any Proprietary
Intangibles;
6.6.1.5 suffered or incurred any damage, destruction, loss
or liability (whether or not covered by any
insurance), any strike or other labour trouble, or
any loss of employees or customers that, either by
itself or in the aggregate has affected adversely
or may reasonably be expected to affect adversely,
to a material extent, the Corporation or the
business of the Corporation;
6.6.1.6 made or authorized any payment to an officer,
director, former director, shareholder, employee or
Affiliate of the Corporation, otherwise than at the
regular rates payable to them, by way of, salary,
pension, bonus, rent or other remuneration;
6.6.1.7 authorized or made any capital expenditure other
than expenditures which in the aggregate do not
exceed $1,700,000.
-18-
6.6.1.8 incurred any indebtedness or extended any credit,
except in the ordinary course of business;
6.6.1.9 agreed to take any of the actions described in
Sections 6.6.1.1 through 6.6.1.8.
6.7 Contracts
6.7.1 Except as set out in the Disclosure Schedule, the
Corporation is not a party to any contract, guarantee or
agreement either written or oral, express or implied, or
arising solely by operation of law (referred to for the
purposes of this Section 6.7 as the "Contracts"), involving
a commitment, whether contingent or otherwise, by the
Corporation or by any other Person, in excess of $25,000 in
the case of contracts, guarantees and agreements other than
purchase orders of the Corporation for raw materials and
sales orders received from customers or in excess of
$100,000 in the case of purchase orders of the Corporation
for raw materials and sales orders received from customers,
other than any contract or agreement which is terminable at
the option of the Corporation without penalty upon not more
than ninety (90) days' notice.
6.7.2 Each of the Corporation's Contracts has been duly
authorized and executed by or on behalf of the respective
parties thereto, is a valid and binding obligation of each
of such parties, enforceable against such parties in
accordance with its terms, except as such enforceability
thereof may be limited by bankruptcy, insolvency,
reorganization, or other similar laws of general
application.
6.7.3 Neither the Corporation nor any other party to any of the
Contracts is in default or in breach of any such contract
or agreement, nor does there exist any state of facts
which, after notice or lapse of time or both, would
constitute such a breach
-19-
or default, except breaches or defaults which in the
aggregate in respect of any such contract or agreement
are immaterial, and neither the execution of this Agreement
by the parties hereto nor the implementation of any of the
provisions of this Agreement will constitute a default or
breach of any such contract or agreement.
6.7.4 Except as set out in the Disclosure Schedule, the
Corporation does not, pursuant to any contract, agreement,
franchise, licence, or permit hold, possess, use or have
access to, or have the right to hold, possess, use or have
access to, any property or right of any nature belonging to
any other Person which is necessary, desirable or useful in
the conduct of the business of the Corporation as such
business is being customarily conducted, other than any
such property or right for which an alternative or
substitute property or right is reasonably expected to be
available to the Corporation upon the termination of any
such contract, agreement, franchise, licence or permit on
terms and conditions substantially equivalent or more
favourable to the Corporation.
6.7.5 Except as set out in the Disclosure Schedule, the
Corporation is not bound by any contract or agreement
purporting to constrain or limit the Corporation or in the
conduct of its business and affairs including, without
limitation, any agreement concerning confidentiality or
non-competition.
6.7.6 The Disclosure Schedule sets out all grants, subventions
and other benefits to which the Corporation is now or in
the future may become entitled to receive from any
government or municipality or from any department, board or
other instrumentality thereof, other than any such grants,
subventions or other benefits which accrue or become
available by operation of the law generally to Persons con-
ducting businesses similar to those being conducted by the
Corporation, and the Corporation is not in default to
comply with the terms
-20-
and conditions upon which it is or may become entitled to
receive any such grant, subvention or other benefit,
except as set out in the Disclosure Schedule.
6.7.7 Except as set out in the Disclosure Schedule, the
Corporation is not a party to or bound by (i) any
collective bargaining agreement or any other agreement with
any union of employees, (ii) any agreement for the benefit
of or with its employees, directors, officers or
shareholders, or (iii) any trust fund, arrangement or any
pension, bonus, profit sharing, compensation, retirement,
deferred compensation, illness or other plan, for the
benefit of or with its employees, directors, officers or
shareholders. There are no unfunded liabilities of the
Corporation in respect of any agreement or plan, including
without limitation the plans referred to in the Disclosure
Schedule, established for the benefit of its employees,
directors or officers.
6.8 Insurance
6.8.1 The Corporation, the business of the Corporation and the
Corporation's properties are insured with financially sound
and reputable insurers against claims, losses and damages
from all such liabilities, hazards and risks, to such
extent and in such amounts and with such deductible amounts
therefrom as is customary for Persons operating like
businesses and owning like properties, all as provided for
in and by the policies and contracts of insurance described
in the Disclosure Schedule (which describes types of
coverage, amount and policy numbers).
6.8.2 All such policies and contracts of insurance are in full
force and effect, and the Corporation is in good standing
with respect to each such policy or contract.
-21-
6.9 Taxes
6.9.1 The Corporation has duly and timely filed all tax returns
required to be filed by it and has paid all Taxes which are
due and payable on or prior to the date hereof; adequate
provision has been made in the Audited Financial Statements
and will be made in the 1994 Audited Financial Statements
for all such Taxes payable for the current year for which
tax returns are not yet required to be filed; there are no
agreements, waivers, or other arrangements providing for an
extension of time with respect to the filing of any tax
return or the payment of any Taxes by the Corporation;
there are no actions, suits, proceedings, investigations or
claims, threatened or pending against the Corporation in
respect of Taxes, nor are there any matters under
discussion with any governmental or municipal authority
relating to Taxes asserted by any such authority; the
Corporation has been assessed by all federal and provincial
tax authorities having jurisdiction up to and including the
year 1993.
6.9.2 The Corporation has withheld from each payment made to any
of its officers, directors, employees, shareholders or
creditors, all amounts which it is required by the laws to
which it is subject to withhold or deduct and has duly
remitted all amounts so withheld or deducted to the proper
recipients thereof within the delays and in the manner
required by such laws.
6.10 Patents, Trade Marks and Copyright
6.10.1 The Corporation owns free and clear of any Liens or is
licenced or otherwise has the right to use in the manner
that the same is now being used each of the Proprietary
Intangibles presently used in the business of the Cor-
poration, all of which are as set out in the Disclosure
Schedule, and the Corporation has not
-22-
granted any licence, permit or right to use such Proprietary
Intangibles nor any of them.
6.10.2 No Person has made or threatened to make a claim to the
right to use any of such Proprietary Intangibles or to deny
to the Corporation the right to use the same, except as set
forth in the Disclosure Schedule.
6.10.3 No other Proprietary Intangibles are owned by the
Corporation or are used or required to be used in the
business of the Corporation.
6.11 Environmental Matters
6.11.1 In this Section 6.11, the following terms shall have
the following meanings respectively:
"Environment" refers, but is not limited to every layer of the earth
including the air and the atmosphere, land (including the soil
surface, subsurface and all underground areas, including those
submerged by water) and water (including all surface water, subsurface
water and groundwater), all organic and inorganic and all animate and
inanimate matter;
"Environmental Approval" means any permit, licence, certificate of
authorization, authorization, approval, attestation, consent or other
instrument or document, including, without limitation, those of an
administrative nature, required pursuant to the Environmental Laws;
"Environmental Conditions" refers to any contamination or damage to
the Environment, including any contamination or damage caused by or
relating to the generation, production, use, handling, storage,
treatment, transportation, disposal, elimination, recycling, reuse,
valorization, release, spilling, leaking, pumping, pouring, emitting,
emptying, discharging,
-23-
ejecting, escaping, leaching, disposing,
seeping, draining, dumping, migrating or threatened release of
Hazardous Materials by the Corporation or its predecessors in
interest, including, without limitation, any soil or groundwater
contamination existing on any Facility which exceeds the A criteria of
the Politique de rehabilitation des terrains contamines of the Quebec
Government; with respect to claims or potential claims by employees,
"Environmental Conditions" also includes the exposure of persons to
Hazardous Materials at a workplace of the Corporation;
"Environmental Laws" means any federal, provincial or municipal law,
by-law, regulation, rule, policy, directive, protocol, order, decree
or code, including the provisions of any Environmental Approval, which
applies to any Facility, the Corporation and its operations, and which
concerns, in whole or in part, directly or indirectly, the protection
or maintenance of the quality of the Environment or the health and
safety of the public and of employees;
"Environmental Noncompliance" means any violation of any Environmental
Law or any Environmental Approval;
"Facilities" means any facility, land, property or location owned,
leased, operated or used or previously owned, leased, operated or used
by the Corporation or its predecessors in interest, and
"Hazardous Materials" means any substance, constituent, contaminant,
waste, waste material
(i) that is likely, immediately or at some future
time, to alter or cause harm or damage or other impairment to the
Environment or to endanger or diminish human life, safety, well-being
or comfort; or
-24-
(ii) that is deemed or presumed, in accordance with any
Environmental Law, to be potentially toxic or hazardous.
6.11.2 Except as set forth in the Disclosure Schedule,
6.11.2.1 there are no investigations, inquiries,
administrative proceedings, remedial orders,
actions, suits, claims, legal proceedings or any
other proceeding pending or threatened against the
Corporation which involve, or relate to,
Environmental Conditions, Environmental
Noncompliance or the release, use or disposal of
any Hazardous Materials at any Facility;
6.11.2.2 to the Vendors' Best Knowledge, there are no
conditions, activities, procedures or other facts
or circumstances at any Facility which constitute
or could be reasonably expected to constitute in
the future an Environmental Noncompliance or an
Environmental Condition;
6.11.2.3 to the Vendors' Best Knowledge, the Corporation
has all Environmental Approvals that are required
in order to carry on its operations and activities
and said Environmental Approvals are in full force
and effect; the Corporation is in compliance with
all said Environmental Approvals;
6.11.2.4 to the Vendors' Best Knowledge there is no friable
asbestos or urea formaldehyde in any walls,
roofing or plumbing in any of the Facilities;
6.11.2.5 other than the transformers currently in use or
held as spares, to the Vendors' Best Knowledge the
Corporation does not use or store any
-25-
polychlorinated biphenyls ("PCBs") in a manner
which constitutes an Environment Noncompliance;
6.11.2.6 to the Vendors' Best Knowledge, there are no and
have not been any processes, operations, equipment
or any other activity at or on any Facility or in
the course of transportation from or to any
Facility which currently result or have in the
past resulted in the release or threatened release
of Hazardous Materials into the Environment, or
which otherwise contribute or contributed to
Environmental Conditions or constitutes or
constituted an Environmental Noncompliance;
6.11.2.7 there are no underground storage tanks, or
underground piping associated with tanks, used for
the containment or management of Hazardous
Materials at any Facility which do not have a full
secondary containment system in place, and there
are no abandoned underground storage tanks at any
Facility which have not been either abandoned in
place or removed pursuant to an Environmental
Approval in accordance with Environmental Laws;
6.11.2.8 to the Vendors' Best Knowledge, none of the
Facilities has ever been used as a waste disposal,
waste storage or landfill site;
6.11.2.9 to the Vendors' Best Knowledge, the Corporation
has complied with all contracts, agreements or
understandings entered into with the government
authorities relating to environmental matters; and
6.11.2.10 all engineering and environmental data and
studies with respect to the Corporation or the
Facilities which have been prepared in the last
five years and
-26-
which are in the possession of the Vendor have been
delivered to the Purchaser.
6.12 Labour Relations
Without restricting the provisions of Section 6.7.7 and except as
set out in the Disclosure Schedule:
6.12.1 there is no collective agreement governing the labour
relations of the Corporation and its employees, and no
union has been certified in respect thereof, nor is any
proceeding in process for obtaining a union certification
or the conclusion of a collective agreement with respect to
such employees;
6.12.2 the Corporation has observed in all respects the
provisions of all applicable laws and regulations
respecting employment, including, but not limited to,
labour standards legislation and regulations and
legislation and regulations prohibiting discrimination, and
there is no complaint, civil action or other proceeding in
process alleging a violation of any such law or regulation;
and
6.12.3 the Corporation has not received any remedial order or
notice of offence under (a) the Act Respecting Occupational
Health and Safety (Quebec) R.S.Q., c. S-2.1, (b) the
Workmen Compensation Act (Quebec) R.S.Q., c. A-3 or (c) the
Act Respecting Industrial Accidents and Occupational
Diseases (Quebec) R.S.Q., c. A-3.001, or under equivalent
statutes or regulations in other jurisdictions, except in
respect of matters which have been settled or remedied
since the issuance of such order or notice, and the
Corporation has performed all its financial or monetary
obligations under such statutes or regulations towards its
employees and towards the Commission or equivalent body
having jurisdiction in respect thereof, and, to the
knowledge of either of the Vendors, there are no facts
which may give rise to a claim for which the Corporation
might
-27-
be held liable under the provisions of the said
statutes or regulations.
6.13 Bank Accounts, Etc.
The Disclosure Schedule sets out the name of
6.13.1 each bank, trust company or other Person with which the
Corporation has an account or safekeeping arrangement or
safety deposit box and the names of each Person authorized
to operate or have access to such account, arrangement or
box on behalf of the Corporation; and
6.13.2 each Person holding a general or special power of
attorney from the Corporation with a summary of the terms
thereof.
6.14 Conflicting Interests
Neither the Vendors nor any Affiliate of either of the Vendors or
of the Corporation, nor any officer, director, or shareholder of
either of the Vendors or of any such Affiliate or of the
Corporation, nor any member of their respective families owns, or
during the last 3 years has owned, directly or indirectly, or has
or during the last 3 years has had a substantial ownership
interest in any business, corporate or otherwise, which is a
party to, or in any property which is the subject of, business
arrangements with the Corporation or which is competitive with
any business or property of the Corporation.
6.15 No Finder's or Broker's Fee
No Person other than Werner Management Consultants Inc. and/or
Martin Rubenstein has, or as a result of any of the transactions
contemplated hereby will have, as a result of any commitment of
either of the Vendors or of the Corporation towards such Person,
any right, interest or valid claim against or upon the Purchaser
or the Corporation or any of their respective properties for any
commission,
-28-
fee, or other compensation as broker or finder or for
services in any similar capacity. At or prior to the Closing,
the Vendors and/or the Corporation will pay, to the complete
exoneration of the Purchaser and the Corporation, any and all
commissions, fees and other compensation due to the said Werner
Management Consultants Inc. and/or Martin Rubenstein and will
indemnify the Purchaser and hold the Purchaser harmless against
and from any and all claims, demands, losses, suits, costs and
expenses suffered or incurred by the Purchaser in respect
thereof.
6.16 Vendors' Residence
Neither of the Vendors is a non-resident within the meaning of
that term as used in the Income Tax Act of Canada.
6.17 Full Disclosure
6.17.1 The Vendors, by their respective duly appointed
officers, have made or caused to be made due enquiry with
respect to each of the representations, warranties, and
statements contained in this Agreement and in each of the
schedules, certificates, documents and other writings
referred to herein or furnished to the Purchaser hereunder,
and none of the same contains any untrue statement of a
material fact or omits to state a material fact necessary
to make the statements contained herein and therein not
misleading.
6.17.2 Except as set out herein or in the Disclosure Schedule,
there is no fact or circumstance presently known to the
Vendors which materially adversely or in the future may (so
far as the Vendors can now reasonably foresee) materially
adversely affect the condition (financial or otherwise),
property, assets, liabilities, business, operations, or
prospects of the Corporation or the ability of the Vendors
to perform their obligations hereunder.
-29-
6.18 Investment
6.18.1 Each of Vendors understands that the Notes (and any
underlying shares of Culp common stock) have not been, and
will not be, registered under the Securities Act, or under
the securities laws of any state of the United States or
any province of Canada, and are being offered and sold in
reliance upon U.S. federal, state and provincial exemptions
for transactions not involving any public offering.
6.18.2 Each of the Vendors is acquiring the Notes (and any
underlying shares of Culp common stock) solely for its own
account for investment purposes, and not with a view to the
distribution thereof.
6.18.3 Each of Vendors is a sophisticated investor with
knowledge and experience in business and financial matters
and has received certain information concerning the
Purchaser and Culp and has had the opportunity to obtain
additional information as desired in order to evaluate the
merits and the risks inherent in holding the Notes (and any
underlying shares of Culp common stock).
6.18.4 Each of the Vendors is able to bear the economic risk
and lack of liquidity inherent in holding the Notes (and
any underlying shares of Culp common stock), and is an
accredited investor within the meaning of Rule 501(a) of
the Regulation D promulgated under the Securities Act.
7. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Vendors as follows:
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7.1 Enforceability of the Agreement
The Purchaser has full power and authority to purchase and
acquire the Purchased Shares as herein provided and has been duly
authorized to execute and become a party to this Agreement and to
consummate the transactions herein provided.
7.2 No Violation
Neither the entering into of this Agreement nor the consummation
of any of the transactions contemplated hereby will result in the
violation of any of the terms or provisions of the constating
documents or by-laws of the Purchaser or of any agreement,
written or oral, to which the Purchaser is a party or any law or
regulation of any jurisdiction to which the Purchaser is subject.
7.3 No Legal Proceedings
The Purchaser is not aware of any legal proceedings pending or
threatened or of any circumstances which may reasonably be
expected to give rise to such proceedings which in any way might
interfere with the purchase of or payment for the Purchased
Shares or the consummation of any of the transactions herein
contemplated.
7.4 No Finder's Fee
No Person has, or as a result of any of the transactions
contemplated hereby will have, by reason of any commitment of the
Purchaser towards such Person, any right, interest, or valid
claim against or upon the Vendors or any property of the Vendors
for any commission, fee, or other compensation as broker or
finder or for services in any similar capacity.
-31-
7.5 Purchaser's Residence
The Purchaser is resident in Canada but is an American as defined
in and for the purposes of the Investment Canada Act.
8. SURVIVAL AND RELIANCE ON REPRESENTATIONS AND
WARRANTIES AND INDEMNIFICATION
8.1 Survival Notwithstanding Investigation
Notwithstanding any investigation conducted before or after the
Closing Date and notwithstanding any actual or implied knowledge
or notice of any fact or circumstance which any Person may have
as a result of such investigation or otherwise, the parties
hereto shall be entitled to rely upon the representations and
warranties set forth herein and the obligations of the parties
hereto with respect thereto shall survive the Closing Date and
shall continue in full force and effect in accordance with the
terms of this Section 8.
8.2 Indemnification by Vendors
The Vendors shall be liable jointly to the Purchaser and to the
Corporation and shall jointly defend, indemnify and hold harmless
the Purchaser and the Corporation against any and all loss,
liability or expense, excluding indirect or consequential
damages, arising directly or indirectly out of
8.2.1 the breach of any agreement, covenant, representation or
warranty of the Vendors contained in this Agreement or in
any document required to be furnished by the Vendors to the
Purchaser hereunder and
8.2.2 the non-fulfillment of any agreement, covenant or
obligation of either of the Vendors contained in this
Agreement or in any other agreement or contract required to
be entered into by
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either of the Vendors pursuant hereto to the extent not
waived in writing by the Purchaser.
8.3 Indemnification by Purchaser
The Purchaser shall be liable to the Vendors and shall defend,
indemnify and hold harmless the Vendors against any and all loss,
liability or expense, excluding indirect or consequential
damages, arising directly or indirectly out of
8.3.1 the breach of any agreement, covenant, representation or
warranty by the Purchaser contained in this Agreement or in
any document required to be furnished by the Purchaser to
the Vendors hereunder and
8.3.2 the non-fulfillment of any agreement, covenant or
obligation of the Purchaser contained in this Agreement or
in any contract or agreement required to be entered into by
the Purchaser pursuant hereto, to the extent not waived in
writing by the Vendors.
8.4 Indemnification against Third Party Claims
8.4.1 Promptly upon receipt by either the Purchaser, either of
the Vendors or the Corporation (herein referred to as the
"Indemnitee") of notice of any Third Party Claim in respect
of which Indemnitee proposes to demand indemnification from
a party to this Agreement (the "Indemnitor"), the
Indemnitee shall give notice to that effect to the
Indemnitor with reasonable promptness; provided, however,
that failure to give or delay in giving such notice shall
not relieve the Indemnitor of its obligations hereunder
except and solely to the extent of any prejudice caused to
the Indemnitor by such failure or delay.
8.4.2 The Indemnitor shall, in the event of a Third Party Claim
in relation to Taxes, immediately pay all such Taxes,
subject to
-33-
the Indemnitor's right to reimbursement, in
whole or in part, if the final decision rendered in respect
of such Third Party Claim rejects same, in whole or in
part.
8.4.3 The Indemnitor shall have the right by notice to the
Indemnitee not later than 30 days after receipt of the
notice described in Section 8.4.1 to assume the control of
the defence, compromise or settlement of the Third Party
Claim, provided that
8.4.3.1 such assumption shall, by its terms, be without
cost to the Indemnitee; and
8.4.3.2 the Indemnitor shall at the Indemnitee's request
furnish it with reasonable security against any
costs or other liabilities to which it may be or
become exposed by reason of such defence,
compromise or settlement.
8.4.4 Upon the assumption of control by the Indemnitor as
aforesaid, the Indemnitor shall, at its expense, diligently
proceed with the defence, compromise or settlement of the
Third Party Claim at Indemnitor's sole expense, including
employment of counsel reasonably satisfactory to the
Indemnitee and, in connection therewith, the Indemnitee
shall co-operate fully, but at the expense of the
Indemnitor, to make available to the Indemnitor all
pertinent information and witnesses under the Indemnitee's
control, make such assignments and take such other steps as
in the opinion of counsel for the Indemnitor are necessary
to enable the Indemnitor to conduct such defence, provided
always that the Indemnitee shall be entitled to reasonable
security from the Indemnitor for any expense, costs or
other liabilities to which it may be or may become exposed
by reason of such co-operation.
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8.4.5 The final determination of any such Third Party Claim,
including all related costs and expenses, will be binding
and conclusive upon the parties hereto and the Corporation
as to the validity or invalidity, as the case may be, of
such Third Party Claim against the Indemnitor hereunder.
8.4.6 Should the Indemnitor fail to give notice to the Indemnitee
as provided in Section 8.4.3, the Indemnitee shall be
entitled to make such settlement of the Third Party Claim
as in its sole discretion may appear advisable, and such
settlement or any other final determination of the Third
Party Claim shall be binding upon the Indemnitor.
8.5 Indemnification to be After Tax, Insurance, Etc.
The amount of the indemnification for any loss, liability or
expense which the Vendors, Purchaser or the Corporation shall be
entitled to receive from any party hereto pursuant to this
Agreement shall be payable on demand and shall be determined
after giving effect to any insurance recoveries, tax savings and
recoveries from third parties other than the Corporation.
8.6 Expiry of Liability
8.6.1 The agreements, covenants, representations and warranties
of the Vendors and the Purchaser herein, other than those
of the Vendors relating to any liability of the Purchaser
or of the Corporation for the payment of any Taxes and
those of the Vendors in Section 6.11, shall terminate upon
the expiry of the period of two (2) years following the
Closing Date, except to the extent that, during such
period, the Purchaser or the Corporation shall have given
notice to the Vendors of a claim in respect of any such
agreement, covenant, representation or warranty, including
reasonable description of the claim and the basis therefor,
in which case such agreement, covenant,
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representation and warranty shall continue in full force and
effect until the final determination of such claim.
8.6.2 The agreements, covenants, representations and warranties
herein of each of the Vendors relating to any liability of
the Purchaser or of the Corporation for the payment of
Taxes arising out of this Agreement, arising from the
business and assets of the Corporation as conducted or held
up to and including the Closing Date, or arising from any
of the transactions contemplated by this Agreement, shall
terminate upon the expiry of the limitation or prescription
period under the relevant taxing statutes, but the
Purchaser covenants that, from and after the Closing Date,
it will exercise all reasonable efforts to ensure that
neither it nor the Corporation, without prior notice to the
Vendors, enters into any agreement, waiver or other
arrangement which provides for an extension of time with
respect to the filing of any tax return or the payment or
assessment of any Taxes dealt with by any such agreement,
covenant, representation or warranty.
8.6.3 The representations and warranties of each of the Vendors
contained in Section 6.11 shall survive the Closing
indefinitely.
8.7 De Minimis. The Vendors and the Purchaser each agree that they
shall not assert against the other and the Purchaser shall not
assert against the Balance or any Bank Guarantee delivered to the
Purchaser pursuant to Sections 3.4 or 3.5 any claim or claims
under this Section 8 and the Indemnitor shall not be obliged to
indemnify the Indemnitee in respect of any such claim or claims
unless and until the aggregate amount of the claim or claims
reported to the other to that date, including the claim or claims
then being reported, is in excess of $75,000.
8.8 Limitation of Liability. The liability of each of the Vendors
as an Indemnitor in respect of any claim or claims of the
Purchaser as an Indemnitee for indemnification under this
Section 8 is limited to an
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aggregate amount of Five Million Dollars ($5,000,000) and
the liability of the Purchaser in respect of any such claim or
claims of the Vendors is limited to an aggregate of Ten Million
Dollars ($10,000,000).
8.9 Set-Off. Except when a Purchaser's Default has occurred and has
not, except in the case of default of the Purchaser to deliver
certificates for shares of CULP within the delays stipulated in
Sections 3.3 and 3.4 which shall require no notice, been
rectified by the Purchaser within ten (10) days following notice
thereof given by the Vendors to the Purchaser, the Purchaser
shall be entitled to set off and claim against (i) the Balance or
(ii) any portion of the Balance or any Bank Guarantee delivered
to the Purchaser pursuant to Sections 3.4 or 3.5 any amount of
indemnification due by the Vendors to the Purchaser under this
Section 8, subject to the provisions of Sections 3.4 and 3.5 with
respect to the enforceability of the Bank Guarantee.
8.10 Arbitration.
8.10.1 All disputes with respect to claims for indemnification
pursuant to this Section 8 arising from an alleged
breach of any representation or warranty made in
Section 6 or Section 7 shall be decided by a single
arbitrator (selected as described below) in the City of
Montreal, Quebec in accordance with the rules of Book
VII of the Code of Civil Procedure of the Province of
Quebec (except to the extent modified in this Section
8.10) unless the parties mutually agree in writing to
the contrary. The arbitrator will be one of the three
persons designated on the List of Arbitrators (the
"Arbitrator List" to be delivered at closing in
accordance with Sections 9.10 and 10.2 . The
arbitrator shall be selected from the Arbitrator List
in the order of preference established thereby, on the
basis of the availability of the person whose name is
listed. For greater clarity, if the first person named
on the Arbitrator List is unavailable, the second
person named will be selected and if the second person
named is unavailable, the third party will be selected.
The selection process will be
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carried out jointly by the Vendors and the Purchaser
within five (5) business days of the date of the Notice
provided for in Section 8.10.2.
8.10.2 Notice of the demand for arbitration (the "Notice") by
either party hereto (the party making a demand for
arbitration shall be referred to herein as the
"Notifying Party") shall be made in writing to the
other party to this Agreement (the party receiving a
demand for arbitration from a Notifying Party shall be
referred to herein as the "Notified Party"). The
Notice shall be accompanied, if desired, by the
Notifying Party's written request for the Notified
Party's production of documents related to the subject
matter of the demanded arbitration. The Notified Party
shall within five (5) business days of its receipt of
the Notice deliver to the Notifying party all documents
reasonably requested by the Notifying Party. Within
five (5) days after its receipt of the Notice, the
Notified Party shall deliver to the Notifying Party, if
desired, its written request for the Notifying Party to
produce documents related to the subject matter of the
demanded arbitration. The Notifying Party shall have
five (5) business days following its receipt of such
written request from the Notified Party to produce all
reasonably requested documents. The period between the
date of delivery of the Notice and the expiration of
the fifth (5th) business day following the Notifying
Party's receipt of the Notified Party's request for
production of documents shall be referred to herein as
the "Discovery Period". Anything herein to the
contrary notwithstanding, a party shall not be required
to disclose documents protected by the attorney-client
privilege. The parties shall not be entitled to
conduct any discovery other than that provided for
herein, i.e. the parties shall not be entitled to
request or take depositions or submit written
interrogatories or perform any other discovery. All
meetings and discussions between the Vendors, or either
of them, and the Purchaser, or their representatives,
held for purposes of
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resolving disputes shall be considered settlement
discussions and any statements made by the Vendors,
the Purchaser or any of their respective
representatives, at or in connection with such meetings
or discussions, may not be used or referred to in
any way in any subsequent proceeding.
8.10.3 Within five (5) business days after the expiration of the
Discovery Period, the arbitrator shall set a time and
date for a prehearing conference between the arbitrator
and the parties to the arbitration, which such
prehearing conference shall be held within fifteen (15)
days of the expiration of the Discovery Period. At the
prehearing conference, the arbitrator shall resolve all
disputes between the parties with respect to permitted
document production requests and shall set a date for
convening the parties to the arbitration within ten
(10) days of the prehearing conference.
8.10.4 The arbitration shall be completed within three (3)
consecutive business days. The Notifying Party shall
have the first day to present its position and the
Notified Party shall have the next one and one-half(1 1/2)
successive business days to present its position. The
Notifying Party shall then have one-half of one
business day to rebut the position of the Notified
Party. The amount of time spent by a party cross-
examining the witnesses presented by the other party
shall be deducted from the time allotted to the party
conducting the cross-examination for the presentation
of its position or from its rebuttal of the other
party's position. The arbitrator shall render a
decision within fourteen (14) days following the
completion of the arbitration. The award rendered by
the arbitrator shall be final and binding upon the
parties. The arbitrator shall have the power to award
attorneys' fees to either party in accordance with the
terms of this Agreement. Interest shall accrue on the
award from the date of the award to the date of payment
at the then current prime rate of The
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Toronto Dominion Bank as such may be amended from time
to time.
8.10.5 The expense of any such arbitration (including attorneys'
fees incurred in the arbitration process by the
participating parties) (a) shall be borne by the party
seeking indemnification in the proportion that the
aggregate dollar amount of the disputed items submitted
to the arbitration by the party seeking indemnification
that are unsuccessfully disputed by such party bears to
the aggregate dollar amount of such items submitted to
the arbitration by such party and (b) shall be borne by
the Indemnifying Party in the proportion that the
aggregate dollar amount of the disputed items submitted
to the arbitration by the party seeking indemnification
that are successfully disputed by such party bears to
the aggregate dollar amount of such items submitted to
the arbitration by such party.
8.11 Nonexclusivity of Remedy; Waiver of Certain Rights
Except for those provisions requiring arbitration pursuant to
Section 8.10 with respect to an alleged breach of a warranty or
representation in Sections 6 or 7 for which arbitration pursuant
to Section 8.10 shall be the exclusive remedy, the
indemnification provisions of Section 8 are in addition to, and
not in derogation of, any statutory, equitable, or civil or
common law remedy (including, without limitation, any remedy
described in Section 13.2) any party may have for any and all
breaches or failures of representations, warranties, covenants,
contracts and agreements made in or pursuant to this Agreement or
with respect to the transactions contemplated hereby.
9. COVENANTS OF THE VENDORS
The Vendors covenant and agree with the Purchaser as follows:
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9.1 Best Efforts to Maintain and Preserve
The Vendors will exercise their best efforts with due diligence
to ensure that, from the date hereof until the Closing Date,
9.1.1 the business of the Corporation will be conducted, except
as otherwise herein provided or approved in writing by the
Purchaser, only in the ordinary course in substantially the
same manner as heretofore and in such manner that each of
the representations and warranties made by the Vendors
herein as of the date hereof will, on the Closing Date, be
true and correct;
9.1.2 the business organization of the Corporation will be
maintained intact, the services of its competent officers
and employees will be retained, and its relationships with
and the goodwill of its customers, suppliers and others
having business relations with it will be preserved, the
whole so as to maintain the goodwill and on-going business
of the Corporation.
9.2 Notice of Cessation in Ordinary Course
The Vendors will promptly notify the Purchaser of the happening
or existence or apprehended happening or existence of any event
or circumstance on or prior to the Closing Date by reason of
which the business of the Corporation has ceased or may cease to
be conducted in the ordinary course as heretofore or by reason of
which the representations and warranties made by the Vendors
herein may cease to be true and correct.
9.3 Access for Purchaser
The Vendors will cause the Corporation to permit the Purchaser by
its duly appointed officers, employees and representatives at any
time and from time to time prior to the Closing Date, during
reasonable business hours, to make such investigation of the
business, properties and rights
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of the Corporation and of its
financial and legal condition as the Purchaser may deem necessary
or advisable in order to become familiar with such business,
properties and assets and other matters including, without
limitation, full access to all premises at which any business is
carried on by the Corporation; and produce or cause to be
produced for inspection by the Purchaser, its officers, employees
and representatives, all leases, licences, contracts, title
documents, insurance policies, pension plans, guarantees, lists
of salaries (management and others), management contracts,
documents relating to pending lawsuits, title deeds and share
certificate books, share registers, constating documents of the
Corporation and all other corporate documents, and all books,
records, accounts and other statements, and all other data which
in the opinion of the Purchaser or its said officers, employees
or representatives are required to make an examination of the
Corporation and its business, properties and rights.
9.4 Maintain Insurance
The Vendors will cause the Corporation to continue to maintain in
full force and effect all policies of insurance now in effect or
duly renew the same upon substantially the same terms and
conditions.
9.5 Corporate Proceedings for Transfer
The Vendors will cause the Corporation to take all necessary
steps and proceedings as may be considered appropriate by counsel
for the Purchaser in order that the Purchased Shares may be duly
and regularly transferred to the Purchaser as of the Closing
Date.
9.6 Replacement of Officers and Directors
The Vendors will cause such directors and officers of the
Corporation to be replaced at or prior to the Closing Date by
such nominees as the Purchaser may notify to the Vendors not less
than 3 days prior to the Closing Date.
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9.7 Further Assurances
The Vendors, upon the request of the Purchaser, whether before or
after the Closing, shall do, execute, acknowledge and deliver or
cause to be done, executed, acknowledged or delivered all such
further acts, deeds, documents, assignments, transfers,
conveyances, powers of attorney and assurances as may be
reasonably necessary or desirable in the opinion of counsel to
the Purchaser to effect complete consummation of the transactions
contemplated by this Agreement.
9.8 Exclusivity
Neither of the Vendors will (and will not cause or permit the
Corporation to) (i) solicit, initiate, or encourage the
submission of any proposal or offer from any Person (other than
the Purchaser) relating to the acquisition of any capital stock
or other voting securities, or any substantial portion of the
assets of, the Corporation (including any acquisition structured
as a merger, consolidation, or share exchange) or (ii)
participate in any discussions or negotiations regarding, furnish
any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any
Person to do or seek any of the foregoing. The Vendors will not
vote the Purchased Shares in favor of any such acquisition
(including any merger, consolidation, or share exchange). The
Vendors will notify the Purchaser immediately if any Person makes
any proposal, offer, inquiry, or contact with respect to any of
the foregoing.
9.9 1994 Audited Financing Statements
The Vendors will cause Price Waterhouse, Chartered Accountants,
to prepare and deliver to the Corporation prior to February 15,
1995 the audited financial statements of the Corporation for the
year ended December 31, 1994. The Purchaser's designated
accountant shall have the right to attend the inventory count
carried out in connection with the preparation of such audited
financial statements for the year ended December 31, 1994 by
Price Waterhouse, Chartered Accountants and
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the Vendors will give timely notice of the date and time of such
count to the Purchaser to permit the attendance of such designated
accountant.
9.10 List of Arbitrators
The Vendors shall agree with the Purchaser and initialled a List
of Arbitrators for the purposes of any required arbitration in
accordance with Section 8.10.
10. COVENANTS OF THE PURCHASER
The Purchaser covenants with the Vendors as follows:
10.1 Discharge of Toronto Dominion Bank Security
The Purchaser concurrently with the Closing will pay to the
Toronto Dominion Bank (the "Bank") all amounts owing by the
Corporation to the Bank at Closing and discharge all security
held by the Bank in respect of such amounts.
10.2 List of Arbitrators
The Purchaser shall agree with the Vendors and initial a List of
Arbitrators for the purposes of any required arbitration in
accordance with Section 8.10.
10.3 Investment Canada Act
The Purchaser will in accordance with the Investment Canada Act,
give notice of its acquisition of the Purchased Shares following
the Closing and will indemnify the Vendors against and hold them
harmless from any and all liability which they may suffer or
incur under the Investment Canada Act by reason of the failure of
the Purchaser to fulfill any of its obligations under that Act.
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11. CONDITIONS OF CLOSING
11.1 Conditions for the Benefit of the Purchaser
The purchase and sale of the Purchased Shares is subject to the
following terms and conditions for the exclusive benefit of the
Purchaser to be fulfilled and performed on or prior to the
Closing Date:
11.1.1 Representations and Warranties Remain Correct
Each of the representations and warranties of the Vendors
contained in this Agreement or in any certificate or other
document delivered to the Purchaser pursuant hereto shall be true
and correct on and as of the Closing Date with the same force and
effect as though such representations and warranties had been
made on and as of such date and the Purchaser shall have received
on the Closing Date a certificate dated the Closing Date, in form
satisfactory to counsel for the Purchaser, signed by duly
authorized officers of both Vendors to the effect that such
representations and warranties referred to above are true and
correct on and as of the Closing Date with the same force and
effect as though made on and as of such date.
11.1.2 Compliance with Covenants
The Vendors shall have complied with all covenants and
agreements herein agreed to be performed or caused to be
performed by them or either of them on or prior to the
Closing Date.
11.1.3 Permits, Etc.
On or before the Closing Date, there shall have been
given to or obtained from, as the case may be, all
appropriate Persons, including without limiting the
generality thereof, all federal,
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provincial, state,
municipal or other governmental or administrative bodies,
all such notices, permits, approvals and consents, in
form and terms satisfactory to Counsel for the Purchaser,
as may be required in order to permit the change of
ownership of the Purchased Shares and the transactions
contemplated herein provided for to be completed without
affecting or resulting in the cancellation or termination
of any licence, permit, franchise, contract or other
right held by the Corporation, and without thereby
imposing on the Purchaser or the Corporation any
additional expense, liability, constraint, penalty or
other liability, which notices, permits, approvals and
consents shall include, without limiting the generality
of the foregoing, those set out in the Disclosure
Schedule.
11.1.4 Environmental Audit and Rectification of Environmental
Noncompliances and Environmental Conditions
An environmental audit is to be carried out by the
Purchaser in order to determine compliance of the
Facilities and operations of the Corporation with all
Environmental Laws and Environmental Approvals, and to
identify existing or potential Environmental
Noncompliances and Environmental Conditions (the
"Environmental Audit").
It is agreed that the Closing is conditional on, and
subject to, the full cooperation of the Vendors in the
conducting of the Environmental Audit and the
satisfaction of the Purchaser with the results thereof.
In the event that any Environmental Noncompliance or
Environmental Condition is required by the Purchaser to
be rectified by the Vendors prior to the Closing or as a
condition thereof, the Purchaser shall give notice
thereof to the Vendors requiring the Vendors to elect
either (i) to cause such rectification, entirely at their
cost, within a delay to be
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prescribed by the Purchaser in
such notice or (ii) to terminate this Agreement. The
Vendors shall give notice of their election to the
Purchaser within seven (7) days of the Purchaser's
notice. In the event that the Vendors elect to cause
such rectification within the delay prescribed by the
Purchaser, the Closing Date shall be deferred to a date
which is fifteen (15) days following written notice by
the Purchaser to the Vendors that the Purchaser is
satisfied with such rectification and the provision made
by the Vendors for the costs thereof. In the event that
the rectification is not completed within the prescribed
delay or if the Purchaser gives notice to the Vendors
that it is not satisfied therewith, this Agreement shall
terminate.
11.1.5 Title Search
Without prejudice to or in any way affecting the
representations and warranties provided by the Vendors in
Section 6.5.3, the Purchaser shall have completed an
examination of title to the immovable properties of the
Corporation and determined, to its satisfaction, that the
Corporation has good and marketable title to all its
immovable properties and interests therein, free and
clear of any Liens.
11.1.6 Due Diligence
Without prejudice to or in any way affecting the
representations and warranties provided by the Vendors in
this Agreement, the Purchaser shall have completed and be
satisfied with the results of its due diligence
investigation of the Corporation, including, without
limitation, such investigation of the business,
properties and rights of the Corporation and of its
financial and legal condition, including the level of
bank indebtedness, as the Purchaser may deem
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necessary or advisable in order to become familiar with such
business, properties and assets and other matters.
11.1.7 No Actions or Proceedings
No action or proceeding at law or in equity shall be pending or
threatened by any Person, including without limiting the
generality thereof any governmental authority, regulatory body or
agency to enjoin or prohibit:
11.1.7.1 the purchase and sale of the Purchased Shares
contemplated hereby or the right of the Purchaser
to own the Purchased Shares; and
11.1.7.2 the right of the Corporation to conduct its
operations and carry on its business in the normal
course.
11.1.8 Opinion of Vendors' Counsel
The Purchaser shall have received from Counsel for the Vendors a
favourable opinion addressed to the Purchaser, dated the Closing
Date in the terms of the draft opinion set out in Exhibit 4 with
such additions or modifications thereto as shall be mutually
agreed between Counsel for the Vendors and Counsel for the
Purchaser acting reasonably and as to such other matters incident
to the transactions contemplated hereby as the Purchaser or
Counsel for the Purchaser may reasonably request. In providing
such opinion, Counsel for Vendors may rely upon the opinion of
Bennett, Jones, Verchere with respect to matters governed by the
laws of the Province of Alberta and with respect to the matters
referred to in Sections 6.1.2 and 6.1.3 and shall express no
opinion with respect to matters governed by laws of the United
States.
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11.1.9 Corporate and Other Proceedings
All corporate and other proceedings of the Corporation in
connection with the transactions contemplated hereby, and all
documents and instruments incident hereto, shall have been duly
authorized and executed, shall be in form and substance to the
satisfaction of the Purchaser and Counsel for the Purchaser, and
the Purchaser and Counsel for the Purchaser shall have received
all such documents and instruments, or duly certified copies
thereof, as may be reasonably requested.
11.1.10 Replacement of Officers and Directors
Each of the officers and directors of the Corporation to be
replaced in accordance with the notice referred to in Section 9.6
shall have been replaced by the nominee of the Purchaser named in
such notice, and each such nominee shall have been duly appointed
or elected to the office or post designated in such notice.
11.1.11 Employment Agreements
Each of Maurice Wechsler and Henri Wechsler shall have executed
with the Corporation an employment agreement providing for
employee services to be furnished to the Corporation in return
for remuneration to be paid by the Corporation to each of the
said Maurice Wechsler and Henri Wechsler (at mutually agreed
intervals) equal to (i) a salary of Cdn.$150,000, (ii) such
expenses as shall be mutually agreed upon, and (iii) such bonus
incentives as shall be mutually agreed upon.
11.1.12 Release
Each officer and director of the Corporation, shall have
executed in favor of the Corporation a release of any
claim
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which he may have against the Corporation as
director, officer or employee of the Corporation in
respect of any matter occurring prior to the Closing
Date.
11.1.13 Non-Competition and Confidentiality Agreements
Each of Maurice Wechsler and Henri Wechsler and the Vendors shall
have executed with the Purchaser a non-competition and
confidentiality agreement in favour of the Corporation, the whole
in the form and terms of the draft agreement attached hereto as
Exhibit 5.
11.1.14 List of Arbitrators
A List of Arbitrators for the purposes of Section 8.10 shall have
been agreed and delivered, initialled by the Vendors and the
Purchaser, to the Purchaser in accordance with the provision of
Section 9.10.
11.1.15 Rescission on Failure to Fulfill
In case any of the foregoing conditions shall not be fulfilled
and performed at or before the Closing Date to the reasonable
satisfaction of the Purchaser and Counsel for the Purchaser, the
Purchaser may rescind this Agreement by notice to the Vendors and
in such event, the Purchaser shall be released from all
obligations and liability hereunder, the whole without prejudice
to any right of the Purchaser to claim for damages or loss of
profits arising out of such non-fulfillment or non-performance.
The conditions set out in this Section 11.1 are for the exclusive
benefit of the Purchaser and may be waived by it in whole or in
part by instrument in writing.
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11.2 Conditions for the Benefit of the Vendors
The purchase and sale of the Purchased Shares is subject to the
following terms and conditions for the exclusive benefit of the
Vendors to be fulfilled and performed on or prior to the Closing
Date.
11.2.1 Compliance with Covenants
The Purchaser shall have complied with all covenants and
agreements herein agreed to be performed or caused to be
performed by it on or prior to the Closing Date.
11.2.2 Employment Agreements
Each of Maurice Wechsler and Henri Wechsler shall have executed
with the Corporation an employment agreement as required in
Section 11.1.11.
11.2.3 List of Arbitrators
A List of Arbitrators for the purposes of Section 8.10
shall have been agreed and delivered, initialled by the
Vendors and the Purchaser, to the Vendors in accordance
with the provisions of Section 10.2.
11.2.4 Opinion of Culp's Counsel
The Vendors shall have received from Culp's counsel in the United
States a favourable opinion addressed to the Vendors affirming
the due execution, validity and enforceability of the guarantee
of Culp provided pursuant to Section 5 and the validity and
enforceability of the conversion right of the Vendors under the
Notes.
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11.2.5 Rescission on Failure to Fulfill
In case any of the foregoing conditions shall not be fulfilled
and performed at or before the Closing Date to the reasonable
satisfaction of the Vendors and Counsel for the Vendors, the
Vendors may rescind this Agreement by notice to the Purchaser and
in such event, the Vendors shall be released from all obligations
and liability hereunder, the whole without prejudice to any right
of the Vendors to claim for damages or loss of profits arising
out of such non-fulfillment or non-performance. The conditions
set out in this Section 11.2 are for the exclusive benefit of the
Vendors and may be waived by them in whole or in part by
instrument in writing.
12. CLOSING
The sale and purchase of the Purchased Shares herein provided for
shall be consummated and completed on the Closing Date at the Closing
Place.
12.1 At the Closing, the Vendors shall deliver or cause to be
delivered to the Purchaser free and clear of all Liens
12.1.1 a duly executed certificate or certificates for the
Purchased Shares, registered in the name of the Purchaser
or its duly appointed nominee and
12.1.2 all such other agreements, contracts, certificates,
opinions, consents, approvals, and other documents herein
required to be delivered by the Vendors or either of them
at or prior to the Closing Date and not theretofore
received by the Purchaser.
12.2 The Purchaser shall deliver or cause to be delivered to or to the
order of the Vendors the portion of the Purchase Price referred
to in paragraph 3.1 hereof in the form herein required to be so
delivered.
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13. MISCELLANEOUS
13.1 Notices, Etc.
Any communication provided for under this Agreement shall be in
writing in the English language and may be given to the Person to
whom it is addressed by delivering the same to or for or mailing
the same by certified mail to such Person at the address of such
Person as hereinafter set out or at such other address as such
Person shall have theretofore notified to the other party or
parties hereto. Any communication so addressed and delivered or
mailed as aforesaid shall be deemed to have been sufficiently
given or made on the date on which it was so delivered or five
(5) days following the date of mailing, as the case may be.
To MASGAN INC.: 145 Finchley Rd.
Hampstead, Quebec
H3X 3A3
With copy to: Kugler Kandestin
1 Place Ville Marie
Suite 2101
Montreal, Quebec
H3B 2C6
Attention: Gerald Kandestin or
Arthur Wechsler
To SALORNA INC.: 141 Finchley Rd.
Hampstead, Quebec
H3X 3A3
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With copy to: Kugler Kandestin
1 Place Ville Marie
Suite 2101
Montreal, Quebec
H3B 2C6
Attention: Gerald Kandestin or
Arthur Wechsler
To the Purchaser: c/o The Vice President and
Chief Financial Officer
Culp, Inc.
P.O. Box 2686
101 South Main St., 7th Floor
High Point, N.C.
U.S.A. 27261-2686
With copy to: Ogilvy Renault
1981 McGill College
Suite 1100
Montreal, Quebec
H3A 3C1
Attention: Richard J.F. Bowie
13.2 Specific Performance
Each of the parties acknowledges and agrees that the other
parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with
their specific terms or otherwise are breached. Accordingly,
each of the parties agrees that the other parties shall be
entitled to an injunction or injunctions to prevent breaches of
the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action
instituted in any court having jurisdiction over the parties and
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the matter, in addition to any other remedy to which they may be
entitled, at law or in equity.
13.3 Governing Law
This Agreement shall in all respects be governed by and construed
in accordance with the laws of the Province of Quebec, including
all matters of construction, validity and performance.
13.4 Time of the Essence
Time shall be of the essence of this Agreement.
13.5 Public Announcement
No public announcement with respect to this Agreement or any
transaction contemplated hereby shall be made by the parties
hereto unless and until the text of the announcement and the time
and manner of its release have been approved by the other party
hereto, provided that, if at any time, any party hereto shall be
bound by applicable law to make any such public announcement,
such party shall be at liberty to do so, after consultation with
the other party.
13.6 Expenses
Each party shall pay its own expenses incurred in connection with
the authorization, preparation, execution and performance of this
Agreement, including, without limitation, all fees and expenses
of its counsel, employees, agents and representatives.
13.7 Successors and Assigns
This Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors, heirs,
representatives and permitted assigns, provided that no benefit
under this Agreement
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may be voluntarily assigned by any party without the prior
consent of the other party.
13.8 References to Disclosure Schedule
Any matter declared in any numbered section of this Agreement to
be set out, stated, described or reflected in the Disclosure
Schedule shall be deemed to have been sufficiently disclosed to
the parties hereto for all purposes of this Agreement if, in a
section of the Disclosure Schedule bearing the same number, such
matter has been fully and plainly described or there is a cross
reference to another section of the Disclosure Schedule
containing such full and plain description.
13.9 Entire Agreement
This Agreement embodies the entire agreement and understanding
among the parties hereto and supersedes all prior agreements
between such parties. Neither this Agreement nor any of the
terms hereof may be changed, waived, discharged or terminated
otherwise than by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or
modification is sought. Any waiver of any term or condition or
any breach of any covenant of this Agreement shall not operate as
a waiver of any other such term or condition or breach, nor shall
any failure to enforce any provision hereof operate as a waiver
of such provision or of any other provision hereof.
13.10 Counterparts
This Agreement may be executed by the parties hereto in several
counterparts, each of which when so executed and delivered shall
be an original, but all such counterparts shall constitute but
one and the same instrument.
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13.11 Language
The parties hereto confirm that it is their wish that this
Agreement as well as all other documents relating hereto
including communications have been and shall be drawn up in
English only.
Les parties aux presentes confirment leur volonte que cette
convention, de meme que tous les documents, y compris tous avis,
s'y rattachant, soient redies en anglais seulement.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the date first hereinbefore written.
MASGAN INC.
Per: Maurice Wechsler
Maurice Wechsler
SALORNA INC.
Per: Henri Wechsler
Henri Wechsler
3096726 CANADA INC.
Per: Franklin N. Saxon
Rayonese Textile Inc.
Financial Statements
December 31, 1993
Price Waterhouse
January 14, 1994
Auditors' Report
To the Shareholders of
Rayonese Textile Inc.
We have audited the balance sheet of Rayonese Textile Inc. as at
December 31, 1993 and the statements of loss and deficit and
changes in financial position for the year then ended. These
financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform an audit to obtain reasonable assurance 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.
In our opinion, these financial statements present fairly, an all
material respects, the financial position of the company as at
December 31, 1993 and the results of its operations and the
changes in financial position for the year then ended in
accordance with generally accepted accounting principles.
Price Waterhouse
Chartered Accountants
Rayonese Textile Inc.
Balance Sheet
December 31
1993 1992
Assets
Current Assets
Accounts receivable $1,700,036 $1,854,831
Inventories (Note 2) 2,847,700 2,891,000
Prepaid Expenses 47,400 6,000
4,595,136 4,751,831
Property, plant and equipment (Note 3) 4,151,020 4,666,211
$8,746,156 $9,418,042
Liabilities
Current liabilities
Bank Indebtedness (Note 4) $2,027,283 $1,549,269
Accounts payable and accrued charges 563,763 844,455
Current portion of long-term debt
(Note 4) 420,000 420,000
Income taxes payable 1,998 1,607
Dividend payable __________ 130,000
3,013,044 2,945,331
Long-term debt (Note 4) 985,000 1,405,000
Deferred income taxes 497,297 587,297
4,495,341 4,937,628
Shareholders' Equity
Stated capital (Note 5) 4,110,000 4,110,000
Contributed surplus 493,137 493,137
Deficit (352,322)
(122,723)
4,250,815 4,480,414
$8,746,156 $9,418,042
Approved by the Board __________ Director ____________ Director
Rayonese Textile Inc.
Statement of Loss and Deficit
Year ended December 31
1993 1992
Gross sales $11,282,100 $13,151,964
Discounts 141,827 142,257
Net sales 11,140,273 13,009,707
Cost of goods sold 10,313,840 11,684,224
Gross profit 826,433 1,325,483
Selling expenses 292,477 299,658
Administrative expenses 642,517 725,880
Interest on long-term debt 99,944 141,670
Interest on demand loan 109,096 135,740
1,144,034 1,302,948
Income (loss) before income taxes (317,601) 22,535
Provision for income taxes
(recovery)
Current 1,998 1,607
Deferred (90,000) 5,137
(88,002) 6,744
Net income (loss) for the year (229,599) 15,791
Retained earnings (deficit),
beginning of year (122,723) 66,486
Dividends (205,000)
Deficit, end of year $ (352,322) $ (122,723)
Rayonese Textile Inc.
Statement of Changes in Financial Position
Year ended December 31
1993 1992
Operating activities
Net income (loss) for the year $ (229,599) $ 15,791
Items not involving a current
cash flow
Depreciation 597,997 596,098
Deferred income taxes (90,000) 5,137
Loss on disposal of fixed
assets 1,008
278,398 618,034
Net change in non-cash operating
elements of working capital (253,606) 1,414
Cash provided by operating
activities 24,792 619,448
Investment activity
Purchase of fixed assets - net (82,806) (77,240)
Financing activities
Dividends (205,000)
Repayment of term loan (420,000) (1,975,000)
New debt 2,000,000
Cash used in financing
activities (420,000) (180,000)
Net cash increase (decrease)
during the year (478,014) 362,208
Bank indebtedness, beginning of
year (1,549,269) (1,911,477)
Bank indebtedness, end of year $(2,027,283) $(1,549,289)
Rayonese Textile Inc.
Notes to Financial Statements
December 31, 1993
1. Summary of significant accounting policies
Inventories
Inventories are valued at the lower of cost and net
realizable value.
Fixed assets and depreciation
Fixed assets are recorded at cost which is net of the
proceeds of government grants and investment tax credits.
Maintenance and repairs are charged against operations as
incurred.
Depreciation is based on the estimated useful lives of the
assets. The following methods and composite rates of
depreciation are used for the principal assets of the
business:
Building 5% diminishing balance
Machinery and equipment 6 straight-line - 20%
diminishing balance
Furniture and fixtures 20% diminishing balance
Automobiles and automotive
equipment 30% diminishing balance
Income taxes
Income taxes are accounted for on the tax allocation method
whereby taxes are fully provided for on reported income at
current tax rates. Deferred income taxes are a result of
claiming deductions from taxable income, as permitted by income
tax regulations, in amounts which do not coincide with those
charged for financial reporting purposes.
2. Inventories
1993 1992
Finished products $ 329,889 $ 265,606
Work in process 1,519,230 1,607,930
Raw materials 184,674 202,019
Factory supplies 813,907 815,445
$2,847,700 $2,891,000
Rayonese Textile Inc.
Notes to Financial Statements
December 31, 1993 Page 2
3. Property, plant and equipment
1993
___________________________________
Accumulated
Cost depreciation Net
Land $ 27,740 $ $ 27,740
Building 2,384,494 1,650,150 734,344
Machinery and equipment 11,041,188 7,702,311 3,338,877
Furniture and fixtures 153,585 128,400 25,185
Automobiles and
automotive equipment 95,820 70,946 24,874
$13,702,827 $9,551,807 $4,151,020
1992
___________________________________
Accumulated
Cost depreciation Net
Land $ 27,740 $ $ 27,740
Building 2,371,846 1,609,070 762,776
Machinery and equipment 10,972,976 7,162,107 3,810,869
Furniture and fixtures 151,639 122,347 29,292
Automobiles and
automotive equipment 95,820 60,286 35,534
$13,620,021 $8,953,810 $4,666,211
4. Bank indebtedness and long-term debt
1993 1992
Term loan at bank prime rate
plus 1/2% repayable in
monthly installments of
$35,000 $1,405,000 $1,825,000
Less: Portion included in
current liabilities 420,000 420,000
$ 985,000 $1,405,000
The term loan is secured by a fixed and floating charge over
land, building, machinery and equipment.
Rayonese Textile Inc.
Notes to Financial Statements
December 31, 1993 Page 3
Loan repayments over the next four years amount to:
1994 $420,000
1995 $420,000
1996 $420,000
1997 $145,000
Bank indebtedness is secured by a pledge of trade accounts
receivable and inventories to the bank.
5. Stated capital
The company is authorized to issue an unlimited number of
Class A and Class B common shares and Class C special
shares. As at December 31, 1993, the company's stated
capital was composed as follows:
1993 1992
4,900 Class A common shares $ 4,900 $ 4,900
5,100 Class B common shares 5,100 5,100
410 Class C special shares 4,100,000 4,100,000
$4,110,000 $4,110,000
Rayonese Textile Inc.
Statement of Cost of Goods Sold
(unaudited)
Year ended December 31
1993 1992
Opening inventory $ 2,891,000 $2,826,721
Purchases, freight and duty 4,212,506 5,206,051
Wages and employee benefits 3,489,327 3,973,658
Factory overhead
Supplies 708,872 764,514
Light, heat and power 902,430 842,081
Insurance and taxes 218,851 262,927
Depreciation
Machinery and equipment 540,204 539,439
Building 41,080 39,481
Automotive equipment 8,437 6,795
Other 148,833 113,557
2,568,707 2,568,794
13,161,540 14,575,224
Less: Closing inventory 2,847,700 2,891,000
Cost of goods sold $10,313,840 $11,684,224
Rayonese Textile Inc.
Statement of Selling and Administrative Expenses
(unaudited)
Year ended December 31
1993 1992
Selling
Shipping expenses $ 43,852 $ 52,529
Salaries and commissions 112,375 108,954
Travel and promotion 89,890 94,528
Automobile expenses 44,137 39,463
Depreciation - automobiles 2,223 3,176
Loss on disposal of fixed assets 1,008
$292,477 $299,658
Administrative
Administrative salaries $390,788 $384,162
Office salaries 152,069 165,514
Professional fees 31,699 48,089
Office supplies and postage 28,366 31,006
Telephone and telegraph 22,235 20,728
Donations 7,017 23,872
Depreciation - office furniture 6,053 7,207
General 5,922 5,344
Bad debt expense (1,632) 39,958
$642,517 $725,880
EXHIBIT 2
PROMISSORY NOTE
1. PROMISE TO PAY
In accordance with that certain Share Purchase Agreement dated , 1994
(the "Share Purchase Agreement") under which 3096726 Canada Inc. (the
"Purchaser") has agreed to purchase from Masgan Inc. and Salorna Inc. all
of the issued and outstanding shares of Rayonese Textile Inc., the Purchaser
hereby promises to pay to (the "Vendor") on [36 months after Closing]
the sum of $2,727,272.50 in lawful currency of the United States of America
(the "Debt"), said Debt to bear interest at the rate of six per cent (6%) per
annum, compounded in the event of non-payment, said interest being
payable in arrears on a quarterly basis commencing ninety (90) days
following the Closing Date under the Share Purchase Agreement and both
before and after maturity and judgment.
2. CAPITALIZED TERMS
In this Promissory Note, expressions beginning with a capital letter and not
otherwise defined herein shall have the meaning ascribed thereto in the
Share Purchase Agreement.
3. PAYMENT BY ANTICIPATION
Subject to the provisions of Sections 3.4 and 3.5 of the Share Purchase
Agreement, the Vendor shall have the right to demand payment of all or part
of the Debt, with interest accrued to the date of payment, (i) at any time and
from time to time on or after [first anniversary of Closing], upon forty-five
(45) days' prior notice (which may be given prior to the first anniversary of
the Closing) to the Purchaser, the whole as more fully set forth in Section 3.3
of the Share Purchase Agreement, or (ii) at any time in the event of any
Purchaser's Default which is, except in the case of default of the Purchaser to
deliver certificates for shares of CULP within the delays stipulated in
Sections 3.3 and 3.4 of the Share Purchase Agreement, not rectified by the
Purchaser within ten (10) days following notice thereof given by the Vendors
to the Purchaser.
4. CHANGE OF CONTROL OF CULP
The Vendor shall have the right to demand payment of the entire Debt, with
interest accrued to the date of payment, upon fifteen (15) days' notice to the
Purchaser in the event that Robert G. Culp, III, Judith C. Walker, Harry R.
Culp and Esther R. Culp, as a group, at any time cease to hold voting control
of common shares of Culp, Inc. ("CULP") which represent, in the aggregate,
15% or more of the outstanding common shares of CULP, the whole as more
fully set forth in and subject to the provisions of Section 3.4 of the Share
Purchase Agreement.
5. CONVERSION
5.1 Conversion Privilege
(a) After [first anniversary of Closing] and for so long as the
Debt or any part thereof remains unpaid, the Vendor shall,
subject to the provisions of Section 3.5 of the Share Purchase
Agreement, have the right at any time to convert the Debt or,
from time to time, to convert any part thereof into
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common shares of the capital stock of CULP par value $.05 per share
("Common Shares") at the conversion price of U.S.$12.50 per Common Share
(the "Conversion Price").
(b) In the event that Robert G. Culp, III, Judith C. Walker, Harry
R. Culp and Esther R. Culp, as a group, at any time cease to
hold voting control of common shares of CULP which represent,
in the aggregate, 15% or more of the outstanding common
shares of CULP, the Vendor shall, subject to the provisions of
Section 3.4 of the Share Purchase Agreement have the right at
any time to convert the entire Debt into Common Shares at the
Conversion Price.
5.2 Conversion Procedure
In order to exercise its right of conversion, the Vendor shall
give notice to CULP at its office at 101 South Main Street, 7th Floor,
High Point, North Carolina, U.S.A. stating that it elects to convert the
Debt or a stated portion thereof into Common Shares (the date of receipt
by the Purchaser of such notice being herein referred to as the "Date of
Conversion").
As promptly as practicable, but not later than 14 days following the
Date of Conversion, and against delivery of this Note for replacement
as provided for below CULP shall issue and deliver to the Vendor a
certificate or certificates in the name of the Vendor for the number of
Common Shares deliverable upon the conversion of the Debt or
specified portion thereof based on the Conversion Price. Such
conversion shall be deemed to have been effected immediately prior to
the close of business on the Date of Conversion and the Vendor shall
be deemed to have become at such time the holder of record of the
Common Shares resulting from such conversion; provided, however,
that no such surrender on any day on which the transfer agent for
Common Shares shall be closed shall be effective to constitute the
Vendor as the holder of record of such Common Shares at such time,
but such surrender shall be effective to constitute the Vendor as the
holder of record thereof for all purposes at the close of business on the
next succeeding day on which such transfer agent is open.
The Common Shares issued to the Vendor hereunder shall be entitled
to dividends only in respect of dividends declared in favour of
shareholders of record on and after the Date of Conversion or such
later date as such holder shall become the holder of record of such
Common Shares pursuant to this Section 4.2.
Upon surrender to the Purchaser of this Note against delivery to the
Vendor of a share certificate or certificates as provided for above in the
case of a conversion of only part of the Debt, the Vendor shall be
entitled to receive, without expense to the Vendor, a new Note for the
unconverted portion of the Debt, upon the same terms and conditions
as this Note, said new Note not effecting novation in any way
whatsoever.
5.3 No Fractional Shares
Notwithstanding anything herein contained, CULP shall in no way be
required to issue fractional Common Shares upon the conversion of the
Debt or part thereof.
6. ADJUSTMENTS
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6.1 Subdivision, Redivision, Etc.
For so long as the Debt or part thereof remains unpaid, in case the
outstanding Common Shares of CULP shall be subdivided, redivided
or changed into a greater or consolidated into a lesser number of
shares or reclassified into different shares, the Vendor shall be entitled
to receive and shall accept, upon the exercise of its right of conversion
at any time on or after the effective date of such subdivision,
redivision, change, consolidation or reclassification, in lieu of the
number of Common Shares to which it was theretofore entitled upon
conversion at the Conversion Price, the aggregate number of shares of
CULP that the Vendor would have been entitled to receive as a result
of such subdivision, redivision, change, consolidation or reclassification
if, on the effective date thereof, it had been the registered holder of the
number of Common Shares to which it was theretofore entitled upon
conversion.
6.2 Certificate as to adjustment
CULP shall immediately after the occurrence of any event referred to
in Section 6.1 provide the Vendor with a notice specifying in
reasonable detail the nature of such event.
6.3 Reclassifications, reorganizations, etc.
In case of any reclassification or change of the Common Shares (other
than a change as a result of a subdivision, redivision or consolidation),
or in case of any amalgamation of CULP with, or merger of CULP into,
any other corporation (other than an amalgamation or merger in
which CULP is the continuing corporation and which does not result in
any reclassification or change, other than aforesaid, of the Common
Shares), CULP or the corporation formed by such amalgamation or the
corporation into which CULP shall have been merged, as the case may
be, shall execute and deliver to the Vendor an undertaking providing
that the Vendor shall have the right thereafter to convert the Debt or
remainder thereof into the kind and amount of shares and other
securities and property receivable upon such reclassification, change,
amalgamation or merger by a holder of the number of Common Shares
into which the Debt or remainder thereof might have been converted
immediately prior to such reclassification, change, amalgamation or
merger. The above provisions of this Note shall similarly apply to
successive reclassifications, changes, amalgamations or mergers.
7. NOTICES
Any communication provided for under this Note shall be in writing in the
English language and may be given to the party to whom it is addressed by
delivering the same to or for such party at the address of such party as
hereinafter set forth or at such other address as such party shall have
theretofore notified to the other party hereto. Any communication so
addressed and delivered as aforesaid shall be deemed to have been
sufficiently given or made on the date on which it was so delivered.
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To Purchaser: c/o The Vice President and
Chief Financial Officer
Culp, Inc.
P.O. Box 2686
101 South Main St., 7th Floor
High Point, N.C.
U.S.A. 27261-2686
With copy to: Kugler Kandestin
1 Place Ville Marie
Suite 2101
Montreal, Quebec
H3B 2C6
Attention: Gerald Kandestin or
Arthur Wechsler
To [Vendor]:
With copy to: Kugler Kandestin
1 Place Ville Marie
Suite 2101
Montreal, Quebec
H3B 2C6
Attention: Gerald Kandestin or
Arthur Wechsler
8. PREPAYMENT
Notwithstanding the provisions of Section 1 hereof, the Purchaser
shall have the right, at any time and from time to time after the date
hereof, with the Vendor's prior written consent, to pay by anticipation
to the Vendor, without penalty, all or part of the Debt, with interest
accrued to the date of payment.
9. NON-NEGOTIABLE
This Note is not negotiable and may not be assigned.
10. NO NOVATION
This Note evidences but does not novate or otherwise discharge the
Balance and interest payable thereon as defined in the Share Purchase
Agreement and is secured and guaranteed by the security and guarantees
described in the Share Purchase Agreement.
11. PREVAILING EFFECT OF SHARE PURCHASE AGREEMENT
In the event of any discrepancy between the terms of this Promissory Note
and the Share Purchase Agreement, the terms of the Share Purchase
Agreement shall prevail.
SIGNED at Montreal, this 1995.
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3096726 CANADA INC.
By_________________________________
[VENDOR]
____________________________________
UNDERTAKING
The undersigned, CULP, Inc., acknowledges having taken cognizance of
the above Promissory Note and hereby confirms that, for good and
valuable consideration received, it agrees to be bound by the provisions
of Sections 4 and 5 thereof relating to the conversion of the debt
evidenced by the said Promissory Note, or part thereof, into common
shares of the capital stock of CULP, Inc.
The undersigned further confirms that 218,182 common shares of CULP,
Inc. have been reserved and set aside for issuance further to the
exercise by of its conversion rights pursuant to the said Promissory
Note.
SIGNED at Montreal, this 1995.
CULP, INC.
____________________________________
EXHIBIT 3
SECIRITY AND COVENANTS
SECURITY
1. As security for repayment of the Balance as well as all
interest thereon (as evidenced, but neither novated nor
discharged, by the Notes), Purchaser shall, at Closing, deliver
or cause to be delivered to Vendors the following, namely:
(a) an unconditional guarantee therefor from Culp;
(b) an unconditional guarantee from the Corporation therefor,
in turn supported and secured by the hypothecation (without
dispossession) by the Corporation in favour of Vendors of:
i) as a universality, all of the Corporation's present and
future movable property, assets and undertakings of
every nature, form and description including, without
limitation, all equipment to be purchased by the
Corporation, Purchaser or Culp all insurance
indemnities resulting from any loss or destruction
thereof; and,
ii) all of the Corporation's immovable properties, all
present and future rentals resulting therefrom,
rental insurance thereon and insurance indemnities
resulting from the loss or destruction thereof; and,
(c) the hypothecation/pledge (with dispossession) of the
Purchased Shares,
supported by certified extracts of by-laws and/or resolutions
of the Boards of Directors of the Corporation, Culp and
Purchaser as appropriate, all in form and substance
satisfactory to Counsel for the Vendors, acting reasonably.
COVENANTS
2. Purchaser agrees and covenants with and in favour of Vendors
that for so long as the Balance (and all interest thereon as
stipulated herein) shall not have been fully paid to Vendors as
herein provided, that:
(a) the Corporation shall deliver to Vendors (i) within 30 days
following the end of each of the Corporation's fiscal
quarters (commencing with the fiscal quarter ending July
31, 1995), the Corporation's unaudited and unconsolidated
financial statements (which shall include a balance sheet,
statement of earnings and other documents normally forming
part thereof) and (ii) within 60 days following each of the
Corporation's fiscal year-ends (commencing with the fiscal
year ending April 30, 1995) the Corporation's unaudited and
unconsolidated financial
Page 2
statements (which shall include a balance sheet, statement of
earnings and other documents normally forming part thereof) all of
which shall be prepared and presented in accordance with generally
accepted accounting principles applied on a consistent basis (the
"Statement(s)");
(b) the ratio of the Corporation's debt to equity as reflected in any
Statement shall not be greater than the ratio of the Corporation's
debt to equity as reflected in the Closing Balance Sheet. For the
purposes of this calculation, any debt owing by the Corporation to
either Culp or the Purchaser which is postponed and hypothecated in
Vendors' favour (the "Postponed Debt") shall be treated as equity;
(c) the Corporation's working capital (defined in accordance with
generally accepted accounting principles) shall not be less than 90%
of the Corporation's working capital (defined in accordance with the
same generally accepted accounting principles) as reflected in the
Closing Balance Sheet. For the purposes hereof, amounts owing to the
Corporation by Culp, the Purchaser and/or their affiliates
outstanding for periods exceeding 45 days shall not be considered as
current assets;
(d) the Corporation's Tangible Net Worth (defined as the sum of the
Corporation's share capital, earned and contributed surpluses and
any Postponed Debt less (i) amounts owing to the Corporation by
Culp, the Purchaser and/or their affiliates outstanding for periods
exceeding 45 days, (ii) investments in affiliates, and (iii)
intangible assets) as reflected in any Statement shall not be less
than the Corporation's Tangible Net Worth (defined in the same
manner) as reflected in the Closing Balance Sheet;
(e) the Corporation shall not grant nor do or refrain from doing
anything which results in the existence of any hypothecs, security
interests or third party rights of any nature or form whatsoever
upon any of the Corporation's present and future property, assets
and undertakings of any nature or form whatsoever (whether ranking
ahead of, after or pari passu with hypothecs and/or security
interests in favour of Vendors thereon);
(f) the Corporation shall not do or refrain from doing anything which
results in (i) the declaration or payment of any dividend by the
Corporation, the redemption, retraction and/or repurchase of any
shares in the Corporation's capital stock or any other distribution
to any shareholder of the Corporation, (ii) the repayment of any
present or future loans to Culp (or any person "related" to Culp
within the meaning ascribed thereto under the relevant provisions of
the Bankruptcy and Insolvency Act, Canada), (iii) the issuance of
any shares in the Corporation's capital stock or any undertaking to
effect same, (iv) the modification of any rights, privileges and/or
restrictions attaching to the Purchased Shares, or (v) the
guaranteeing by the Corporation of any third party indebtedness;
Page 3
(g) the Corporation shall not sell or otherwise dispose of any of its
present or future property, assets or undertakings other than (i)
fixed assets which shall have become obsolete or are replaced in
an aggregate book value amount not to exceed $100,000.00 during
any fiscal year or (ii) inventory in the ordinary course of
business; and,
(h) the Corporation shall diligently, actively and legally carry on
business in substantially the same manner as the Corporation
carried on such business prior to the Closing Date and the
Corporation shall not carry on any business or own any property
required for the carrying on of the Corporation's business
through any subsidiary or any other person related" to the
Corporation within the meaning ascribed to under the relevant
provisions of the Bankruptcy and Insolvency Act, Canada.
EXHIBIT 4
(Letterhead of Kugler Kandestin)
, 1995
3096726 Canada Inc.
c/o Culp, Inc.
101 South Main Street
High Point, N.C.
27261
Re: Rayonese Textile Inc.
Dear Sirs:
We have acted as counsel to Masgan Inc. and Salorna Inc. (the
"Vendors") in connection with the sale by them to you of all of the
issued and outstanding shares of Rayonese Textile Inc. ("Rayonese")
pursuant to the terms of a Share Purchase Agreement dated ,
1994 (the "Share Purchase Agreement"). In that capacity we have
attended the closing of sale on this date.
All capitalized words and expressions used in this opinion without
definition shall have the respective meanings ascribed to them in the
Share Purchase Agreement.
We have, for the purposes of this opinion, examined executed
originals of the Share Purchase Agreement, a Non-Competition and
Confidentiality Agreement between Masgan, Henri Wechsler and the
Corporation. a Non- Competition and Confidentiality Agreement bearing
this date between Salorna, Maurice Wechsler and the Corporation (the
latter two Agreements referred to herein as the "Non-Competition
Agreements"), an Employment Agreement bearing this date between Henri
Wechsler and Rayonese, an Employment Agreement bearing this date between
Maurice Wechsler and Rayonese (the latter two Agreements referred to
herein as the "Employment Agreements") and originals, photostatic,
certified or facsimile copies of all such documents, and considered such
questions of law, as we have deemed relevant and necessary.
We have also, for such purposes, assumed the genuineness of all
signatures and the authenticity of all documents submitted to us as
originals and the conformity to original documents of all documents
submitted to us as photostatic, certified or facsimile copies thereof.
Relying solely upon and subject to the foregoing and to the
qualifications hereinafter expressed, we are of the opinion that:
1. Rayonese is a corporation duly incorporated, organized and validly
subsisting under the laws of the jurisdiction of its incorporation.
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2. Rayonese has all necessary corporate power and authority to own,
lease, occupy, operate and hold its properties and rights and to conduct
its business as and in the places where such properties and rights are
now owned, leased, occupied, operated or held or such business is now
conducted.
3. Each of the Vendors is a corporation incorporated, organized and
validly subsisting under the laws of the jurisdiction of its
incorporation.
4. Each of the Vendors has the necessary capacity and authority to
enter into the Share Purchase Agreement and the Non-Competition
Agreement to which it is a party and to perform its obligations
thereunder and the execution and delivery of each of such Agreements by
each of the Vendors and the performance by it of its obligations
thereunder have been authorized by all necessary corporate actions.
5. Each of Henri Wechsler and Maurice Wechsler has the necessary
capacity and authority to enter into the Non-Competition Agreement
and the Employment Agreement to which he is a party and to perform
his respective obligations thereunder.
6. Each of the Share Purchase Agreement and the Non-Competition
Agreements and Employment Agreements to which each is party have
been duly executed and delivered by each of the Vendors and each of
Henri Wechsler and Maurice Wechsler, and the Share Purchase
Agreement, the Employment Agreement and, subject to the
qualification and paragraph (c) below, each of the Non-Competition
Agreement to which each is a party constitute legal, valid and binding
obligations of the Vendors and Henri Wechsler and Maurice Wechsler,
respectively, enforceable against each of them in accordance with their
respective terms.
7. Neither the entering into of the Share Purchase Agreement nor the
consummation of any of the transactions contemplated thereby nor the
entering into of either of the Non-Competition Agreements will result
in the violation of any of the terms or provisions of the respective
constating documents or by-laws of the Vendors or of any law or
regulation to which either of the Vendors is subject or, to the best of
our knowledge, any material contracts of the Vendors or of Rayonese.
8. At the time of the Closing the authorized capital of Rayonese consists
of [an unlimited number of Class A and Class B common shares
and Class C special shares of which 4900 Class A common, 5100
Class B common and 410 Class C special shares (and no more)
are outstanding and each of such outstanding shares has] been
validly issued, are outstanding as fully paid and non-assessable and
are registered in the names of the Vendors as follows:
Class A Class B Class C
Common Common Special
MASGAN INC. 2450 2550 205
SALORNA INC. 2450 2550 205
9. None of the issued and outstanding shares of Rayonese has been
issued in violation of any pre-emptive rights and there are no
outstanding subscriptions, options, warrants or other rights to
purchase any securities of Rayonese.
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10. We are not aware of any material suits, actions or other legal
proceedings to which Rayonese is a party and which are not disclosed
in the Disclosure Schedule.
Our opinion herein is subject to the following qualifications:
(a) The enforcement of the Share Purchase Agreement, the Employment
Agreements and the Non-Competition Agreements or any judgment
arising out of or in connection therewith may be limited by any
applicable bankruptcy, reorganization, winding-up, insolvency,
moratorium or other laws of general application affecting creditors'
rights from time to time in effect.
(b) No opinion is expressed as to any specific remedy that may be granted,
imposed or rendered and, in particular, no opinion is expressed as to
the availability of equitable remedies as such for the enforcement of
any provisions of the Share Purchase Agreement, the Employment
Agreements or the Non-Competition Agreements, such as specific
performance and injunction, which are available only in the discretion
of the court.
(c) No opinion is expressed as to the enforceability of the provisions of
Section 2.1 of each of the Non-Competition Agreements.
(d) Our opinion is confined to the laws of the Province of Quebec and the
laws of Canada applicable therein.
This letter of opinion is provided solely for your benefit pursuant to
Section 11.1.8 of the Share Purchase Agreement. It is not to be transmitted to
any other person nor is it to be relied upon by any other person or for any
other purpose or quoted or referred to in any document or filed with any other
person without our prior written consent.
Yours very truly,
KUGLER KANDESTIN
EXHIBIT 5
NON-COMPETITION AGREEMENT
THIS AGREEMENT made as of the day of, 1995
BETWEEN:
(hereinafter called "");
AND: , a corporation duly constituted
under the laws of Canada
(hereinafter called "");
AND: 3096726 CANADA INC., a
corporation duly constituted under the
laws of Canada
(hereinafter called the "Purchaser")
AND: RAYONESE TEXTILE INC., a
corporation duly constituted under the
laws of Canada
(hereinafter called the "Corporation")
WITNESSETH:
WHEREAS pursuant to the terms and conditions of a Share Purchase
Agreement between Masgan Inc. and Salorna Inc. (the "Vendors") and the
Purchaser made as of , 1994 (the "Share Purchase Agreement"), the
Purchaser has agreed to purchase from the Vendors all of the issued and
outstanding shares of the Corporation;
WHEREAS it is a condition precedent to the performance by the
Purchaser of its obligations under the Share Purchase Agreement that
and enter into this Agreement and and are willing to
fulfill that condition;
WHEREAS will be employed by the Corporation for a period of time
following the closing of the said purchase pursuant to an Employment
Agreement as contemplated in the Share Purchase Agreement (the
"Employment Agreement"); and
WHEREAS holds a controlling beneficial interest in ;
NOW, THEREFORE, in consideration of the purchase and sale of the
Purchased Shares pursuant to the Share Purchase Agreement and for other good
and valuable consideration received, the parties hereto agree as follows:
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1. DEFINITIONS
In this Agreement, expressions beginning with a capital letter and
not otherwise defined herein shall have the meaning ascribed thereto in
the Share Purchase Agreement.
2. NON-COMPETITION
2.1 Each of and undertakes not to engage, directly or
indirectly, in Canada or the United States of America, in any manner
whatsoever with the Corporation, nor participate, directly or
indirectly, in any manner whatsoever in any business or venture which is
in any way competitive with the business of the Corporation (as such
business will have been carried on at any time during the term of the
Employment Agreement) (a "Competing Business"), either alone or in
conjunction with any Person(s), or as a director, officer, employee,
shareholder, partner, provider of funds, advisor of, or otherwise have
an interest in, a Competing Business or any Person operating a Competing
Business or being an affiliate of any such Person, except with the prior
written consent of the Purchaser.
2.2 Each of and undertakes not to offer or permit any
firm, partnership or corporation in which either of them has any direct
or indirect interest to offer employment to or engage as an employee,
consultant, agent, distributor or representative any person who was an
employee of the Corporation at the Closing Date or at any time during
the term of the Employment Agreement.
2.3 The restrictions set forth in Sections 2.1 and 2.2 shall apply
from the date hereof until the latest of the following dates:
(i) Five (5) years from the date hereof; or
(ii) Four (4) years from the expiry of the original and any renewal
term of the Employment Agreement.
2.4 The restrictions set forth in Sections 2.1 and 2.2 shall apply
within the geographical limits of Canada and .
2.5 The restrictions set forth in Section 2.1 shall not apply to
the investment by either of or in shares of Culp, Inc. or
any successor entity in any proportion or in shares listed on a
recognized stock exchange in a proportion not exceeding five percent
(5%) of the issued shares of a Competing Business, provided such party
does not in any manner take part in the decision-making process of such
Competing Business otherwise than by exercising such party's rights as
shareholder.
3. CONFIDENTIALITY
3.1 Each of and agrees that, during the period of time
referred to in Section 2.3 and at any time thereafter, such party shall
keep secret and confidential and shall not, directly or indirectly, in
any manner whatsoever, divulge, communicate or disclose to any Person,
nor use for such party's benefit or for the benefit of any Person other
than the Corporation, any information, which is not otherwise of public
knowledge, relating to the Corporation's business strategies, financial
affairs, products, drawings, industrial designs, patents, patent rights,
copyrights,
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trademarks, specifications, blueprints, reports,
descriptions of manufacturing processes, technical know-how, customer
lists, computer systems, internal pricing, marketing strategies or
activities, billing procedures, supplier lists, sales and distribution
data or contractual relationships with third parties, except with the
prior written consent of the Purchaser.
3.2 Each of and shall deliver to the Purchaser or the
Corporation, upon termination of employment or upon request of the
Purchaser, all documents, files, lists, samples and other information
and property belonging to the Corporation or relating to the business of
the Corporation and copies thereof in the possession or under the
control of such party.
3.3 Each of and agrees to impose upon their respective
employees and agents the same requirements of confidentiality and
non-disclosure as are required of them hereunder.
4. DAMAGES AND INJUNCTIVE RELIEF
agrees that the Purchaser and/or the Corporation shall be
entitled to injunctive relief to ensure compliance on the part of
with the terms of this Agreement, without prejudice to the Purchaser's
and the Corporation's other rights and remedies available under this
Agreement or under the law.
5. ENFORCEABILITY AND SEVERABILITY
5.1 Each of and has carefully considered the nature and
extent of the restrictive covenants set forth herein and agrees that the
same are reasonable including with respect to duration, scope of
activity and geographical area and necessary to protect the Purchaser's
and the Corporation's legitimate interests. In particular, agrees
that said restrictive covenants do not prevent him from reasonably
earning his living.
5.2 However, in the event that a court of competent jurisdiction
should conclude that any of these covenants is too long in duration or
too broad in scope or in territory, the said court shall have the power
and the duty to reduce its duration, scope and/or territory to the
maximum duration, scope and/or territory it deems reasonable instead of
invalidating such covenant and as of such ruling the said covenant shall
be deemed modified accordingly.
5.3 Without limiting the foregoing, the parties agree that each of
the provisions in this Agreement shall be deemed to be separate and
distinct and if, for any reason whatsoever, any of these provisions is
held null or unenforceable by the final determination of a court of
competent jurisdiction and all appeals therefrom shall have failed or
the time for such appeals shall have expired, such provision shall be
deemed deleted from this Agreement without affecting the validity or
enforceability of any other provisions hereof which shall remain in full
force and effect.
5.4 All obligations of and under Section 2 and Section
3 of this Agreement shall terminate and become unenforceable in the
event of any Purchaser's Default which is, except in the case of default
of the Purchaser to deliver certificates for shares of CULP within the
delays stipulated in Sections 3.3 and 3.4 which shall require no
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notice, not rectified within ten (10) days following notice thereof
given by the Vendors to the Purchaser.
6. NOTICES
Any communication provided for under this Agreement shall be in
writing in the English language and may be given to the Person to
whom it is addressed by delivering the same to or for or mailing the
same by certified mail to such Person at the address of such Person as
hereinafter set out or at such other address as such Person shall have
theretofore notified to the other party or parties hereto. Any
communication so addressed and delivered or mailed as aforesaid shall
be deemed to have been sufficiently given or made on the date on
which it was so delivered or five (5) days following the date of mailing,
as the case may be.
To :
With copy to: Kugler Kandestin
1 Place Ville Marie
Suite 2101
Montreal, Quebec
H3B 2C6
Attention: Gerald Kandestin or
Arthur Wechsler
To : With copy to: Kugler Kandestin
1 Place Ville Marie
Suite 2101
Montreal, Quebec
H3B 2C6
Attention: Gerald Kandestin or
Arthur Wechsler
To The Purchaser: c/o The Vice President and
Chief Financial Officer
Culp, Inc.
P.O. Box 2686
101 South Main St., 7th Floor
High Point, N.C.
U.S.A. 27261-2686
To The Corporation: 680 Monseigneur Dubois
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Saint-Jerome, Quebec
J7Y 3L8
Attention: The President
7. GOVERNING LAW
This Agreement shall in all respects be governed by and construed in
accordance with the laws in force in the Province of Quebec, including
all matters of construction, validity and performance.
8. ASSIGNMENT
This Agreement shall enure to the benefit of the Purchaser, the
Corporation and their respective successors and assigns, whether as a
result of a sale, reorganization, amalgamation or otherwise and shall be
binding upon and and their respective successors and
assigns.
9. ENTIRE AGREEMENT
Except for the Share Purchase Agreement and the Employment Agreement,
this Agreement embodies the entire agreement and understanding among the
parties hereto and supersedes all prior agreements between such parties
with respect to the subject matter hereof.
10. WAIVER
Except as otherwise provided herein, neither this Agreement nor any
of the terms hereof may be changed, waived or discharged otherwise than
by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or modification is sought.
Any waiver of any term or condition or any breach of any covenant of
this Agreement shall not operate as a waiver of any other such term or
condition or breach, nor shall any failure to enforce any provision
hereof operate as a waiver of such provision or of any other provision
hereof.
11. PARAGRAPH HEADINGS
The paragraph headings appearing in this Agreement are inserted only
as a matter of convenience and in no way define, limit, construe or
describe the scope or intent of such paragraphs or of this Agreement.
IN WITNESS WHEREOF the parties hereto have executed this
Agreement as of the date first hereinbefore written.
Per:
Per
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3096726 CANADA INC.
Per:
RAYONESE TEXTILE INC.
Per:
DISCLOSURE SCHEDULE
OF THE SHARE PURCHASE AGREEMENT
DATED DECEMBER 22, 1994
6.1 Enforceability of the Agreement
6.1.5 N/A
6.3 Capital Stock & Records
6.3.4 N/A
6.3.5 Directors - Henri Wechsler
- Maurice Wechsler
Officers - Henri Wechsler (President)
- Maurice Wechsler
(Secretary/Treasurer)
- Blair Barwick (Vice-President)
(even though not mentioned in last
year's Annual Minutes)
6.4 Business
6.4.1 Business of the Corporation
- Vertical textile manufacturer
6.4.2 Location where Corporation conducts its business
- 680 Monseigneur Dubois
St-Jerome, Quebec, J7Y 3L8
6.4.4 N/A
6.5 Assets & Liabilities
6.5.2 N/A
6.5.3 2 Automobile Leases with Clairview Leasing Company
Inc. regarding the following vehicles:
- 1993 Chevrolet Lumina
Serial Number: 2G1WL51T1P239430
- 1994 Nissan Ultima GXE
Serial Number: 1N4BU3106RC143178
(attached hereto)
Picanol Looms - "Agreement of Sale and Specific
Hypothecation of Movables", dated February 16, 1994 and
published at the Registry of Personal and Movable Real
Rights on February 17, 1994, under number 94-0016375-0001
(attached hereto)
List of the Corporation's Fixed Assets on or about
December 18, 1994 (approximation) (attached hereto)
6.5.5.1 N/A
6.5.5.2 N/A
6.5.5.3 N/A
6.5.5.4 N/A
6.5.6 N/A
6.6 Conduct of Business
6.6.1.5 Labour Arbitration matter being handled by Ogilvy Renault
6.6.1.6 Repayment buy the Corporation to Masgan Inc. of a
$3,000,000.00 US loan to be effected on or before
December 23, 1994
6.6.1.7 List of the Corporation's Capital Expenditures for 1994
(attached hereto)
6.7 Contract
6.7.1. List of the Corporation's Contracts in excess of
$100,000.00 in the case of purchase orders of the
Corporation for raw materials and sales orders received
from customers, as at December 18, 1994 (attached hereto)
6.7.3 Contract with Republic Factors dated February 3, 1994 (attached
hereto)
6.7.4 N/A
6.7.5 N/A
6.7.6 N/A
6.7.7 (6.12) Collective Bargaining Agreement (already in the
possession of Ogilvy Renault)
6.8 Insurance
6.8.1 References regarding the Corporation's Insurance (attached
hereto)
6.9 Taxes
6.9.1 Federal and Provincial Notices of Assessment for 1993, 1992 and
1991 (attached hereto)
6.10 Patents, Trade Marks & Copyright
N/A
6.11 Environmental Matters
6.11.2.7 There is an underground storage facility which may be
described as a cement settling tank (46,000 gallons)
6.12 Labour Relations
6.12.1 See 6.7.7 above
6.12.2 Severance settlement between the Corporation and
Francesco Pignatelli dated July 26, 1994 (attached
hereto)
6.13 Bank Accounts
6.13.1 Corporation's Bank Accounts
- Toronto Dominion Bank (Bleury & St-Catherine)
- Toronto Dominion Bank (290 rue Labelle, St-Jerome
6.13.2 Authorized persons to sign on behalf of the Corporation
are Henri Wechsler, Maurice Wechsler and Blair Barwick
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6.15 No Finder's or Broker's Fee
Agreement with Werner Management Consultants Inc. (Martin Rubenstein)
dated August 23, 1994 and signed by the representative of the
corporation on August 24, 1994 (attached hereto)
6.17 Full Disclosure
6.17.2 N/A
10. Covenants of the Purchaser
10.1 Discharge of Toronto-Dominion Bank Security
Any and all amounts owed by the Corporation to Toronto-Dominion
Bank shall be discharged by the Purchaser on closing, and all
security held by the Bank in respect of such amounts
(Toronto-Dominion Security attached hereto)
11. Conditions of Closing
11.1.3 Permits - N/A
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