UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended JULY 3, 1999
------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_________________ to
Commission file number 1-8016
-------
TULTEX CORPORATION
------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Virginia 54-0367896
- ------------------------------- -------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
101 Commonwealth Boulevard, P. O. Box 5191, Martinsville, Virginia 24115
- --------------------------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code 540-632-2961
------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
34,676,235 shares of Common Stock, $1 par value, as of August 13, 1999
- ---------- -- ---------------
<PAGE>
2
PART I. FINANCIAL INFORMATION
ITEM 1.
TULTEX CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED - $000'S OMITTED EXCEPT IN
SHARES AND PER SHARE DATA) JULY 3, 1999 (AND JULY 4, 1998)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------- ---------------------------------
JULY 3, 1999 July 4, 1998 JULY 3, 1999 July 4, 1998
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net Sales $ 86,052 $ 132,792 $ 157,690 $ 232,666
Cost of Products Sold 74,832 108,807 140,529 189,630
--------------- ---------------- --------------- ----------------
Gross Profit 11,220 23,985 17,161 43,036
Selling, General and Administrative 13,616 21,906 25,648 45,889
--------------- ---------------- --------------- ----------------
Operating Income (Loss) (2,396) 2,079 (8,487) (2,853)
Other (Income) Expense:
Interest Expense 6,401 8,134 12,657 15,042
Interest Income and Other, Net (845) (142) (1,911) (777)
Loss on Sale of Subsidiaries 945 16,304 945 16,304
--------------- ---------------- --------------- ----------------
Income (Loss) Before Income Taxes and
Extraordinary Item (8,897) (22,217) (20,178) (33,422)
Provision (Benefit) for Income Taxes (3,292) (8,665) (7,466) (13,035)
--------------- ---------------- --------------- ----------------
Income (Loss) Before Extraordinary Item (5,605) (13,552) (12,712) (20,387)
Extraordinary Gain on Extinguishment of Debt (Net of Income
Tax of $15,285) (Note 3) 24,938 - 24,938 -
--------------- ---------------- --------------- ----------------
NET INCOME (LOSS) 19,333 (13,552) 12,226 (20,387)
Preferred Dividend Requirement (Note 4) (30) (147) (61) (294)
--------------- ---------------- --------------- ----------------
Balance Applicable to Common Stock $ 19,303 $ (13,699) $ 12,165 $ (20,681)
=============== ================ =============== ================
Basic Earnings Per Common Share:
Income (Loss) Before Extraordinary Item $ (.19) $ (.46) $ (.43) $ (.69)
Extraordinary Item .83 - .83 -
=============== ================ =============== ================
Net Income (Loss) $ .64 $ (.46) $ .40 $ (.69)
=============== ================ =============== ================
Diluted Earnings Per Common Share:
Income (Loss) Before Extraordinary Item $ (.19) $ (.46) $ (.43) $ (.69)
Extraordinary Item .83 - .83 -
=============== ================ =============== ================
Net Income (Loss) $ .64 $ (.46) $ .40 $ (.69)
=============== ================ =============== ================
Dividends Per Common Share (Note 4) $ .00 $ .00 $ .00 $ .00
</TABLE>
<PAGE>
3
TULTEX CORPORATION
CONSOLIDATED BALANCE SHEET (UNAUDITED - $000'S OMITTED)
JULY 3, 1999 (AND JANUARY 2, 1999)
<TABLE>
<CAPTION>
Assets JULY 3, 1999 January 2, 1999
- ------ ------------------- -----------------
<S> <C> <C>
Current Assets:
Cash $ 1,693 $ 5,769
Accounts Receivable - Net of Allowance for Doubtful
Accounts $4,007 (1999) and $4,106 (1998) 72,462 74,599
Inventories (Note 2) 225,813 176,818
Prepaid Expenses 3,590 1,913
Income Taxes Refundable 649 8,782
Deferred Tax Assets 4,908 4,534
------------------- -----------------
Total Current Assets 309,115 272,415
Property, Plant and Equipment, Net of Depreciation 99,451 107,001
Intangible Assets 22,039 22,777
Deferred Tax Assets - 2,419
Other Assets 41,350 42,716
=================== =================
Total Assets $ 471,955 $ 447,328
=================== =================
Liabilities and Stockholders' Equity
- -------------------------------------
Current Liabilities:
Accounts Payable $ 41,499 $ 23,448
Accrued Expenses 14,554 12,815
Revolving Credit Facility (Note 3) 115,484 60,000
------------------- -----------------
Total Current Liabilities 171,537 96,263
Long-Term Debt (Notes 3, 8 and 10) 129,395 199,405
Deferred Tax Liabilities 5,613 -
Other Liabilities 5,741 5,222
Stockholders' Equity:
5% Cumulative Preferred Stock (Note 4) 198 198
Series B, $7.50 Cumulative Convertible Preferred Stock (Note 4) 1,500 1,500
Common Stock (Notes 4 and 10) 30,048 30,050
Capital in Excess of Par Value 8,086 7,095
Retained Earnings 125,244 113,079
Accumulated Other Comprehensive Income (5,085) (5,085)
Unearned Stock Compensation (25) (35)
------------------- -----------------
159,966 146,802
Less Notes Receivable - Stockholders 297 364
------------------- -----------------
Total Stockholders' Equity 159,669 146,438
------------------- -----------------
Total Liabilities and Stockholders' Equity $ 471,955 $ 447,328
=================== =================
<PAGE>
4
TULTEX CORPORATION
CONSLIDATED STATEMENT OF CASH FLOWS (UNAUDITED - $000'S OMITTED)
THREE MONTHS ENDED JULY 3, 1999 (AND JULY 4, 1998)
Six Months Ended
------------------------------------------
JULY 3, 1999 July 4, 1998
---------------- -----------------
Operations:
Net Income (Loss) $ 12,226 $ (20,387)
Items Not Requiring (Providing) Cash:
Depreciation 9,265 10,212
Amortization 2,929 1,660
Deferred Income Taxes 7,658 -
Loss on Sale of Subsidiaries 945 16,304
Extraordinary Gain (40,223) -
Other Non-Cash Items (62) 57
(Gain) Loss on Sale of Assets (371) -
Changes in Assets and Liabilities
Accounts Receivable 2,137 5,332
Inventories (48,995) (62,127)
Prepaid Expenses (1,552) (2,033)
Accounts Payable and Accrued Expenses 18,845 (1,247)
Income Taxes Refundable 8,133 (13,847)
Other Long-Term Liabilities 519 (1,454)
------------------ ------------------
Cash Provided (Used) by Operations (28,546) (67,530)
------------------ ------------------
Investing Activities:
Capital Expenditures (3,186) (5,215)
Changes in Other Assets 624 900
Business Acquisition - (2,743)
Proceeds from Sale of Property and Equipment 1,017 -
------------------ ------------------
Cash Provided (Used) by Investing Activities (1,545) (7,058)
------------------ ------------------
Financing Activities:
Issuance (Payment) of Secured Revolving Credit Facility Borrowings 115,484 -
Issuance (Payment) of Unsecured Revolving Credit Facility Borrowings (45,000) 74,600
Payments on Long-Term Borrowings (41,131) (226)
Cost of Debt Issuance (3,405) -
Cash Dividends - (297)
Proceeds from Stock Plans 67 104
------------------ ------------------
Cash Provided (Used) by Financing Activities 26,015 74,181
------------------ ------------------
Net Increase (Decrease) in Cash (4,076) (407)
Cash at End of Prior Year 5,769 2,507
------------------ ------------------
Cash at End of Period $ 1,693 $ 2,100
================== ==================
</TABLE>
<PAGE>
5
TULTEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JULY 3, 1999
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements furnished in this
quarterly 10-Q Report reflect all adjustments, consisting only of normal
recurring adjustments, which are, in the opinion of management, necessary for a
fair statement of the results of the interim periods. The unaudited consolidated
financial statements should be read in conjunction with the Company's annual
report on Form 10-K for the year ended January 2, 1999. The balance sheet,
statement of operations and statement of cash flows included in this 10-Q have
been prepared from the Company's records and are subject to audit and year-end
adjustments.
Certain prior year amounts have been reclassified to conform with current year
presentation.
NOTE 2 - INVENTORIES
A summary of inventories by component follows. (In thousands of dollars)
<TABLE>
<CAPTION>
JULY 3, 1999 January 2, 1999
------------------------- --------------------------
<S> <C> <C>
Raw Materials $1,628 $2,952
Goods-in-Process 21,098 21,688
Finished Goods 193,338 143,506
Supplies 9,749 8,672
========================= ==========================
Total Inventory $225,813 $176,818
========================= ==========================
</TABLE>
NOTE 3 - LONG TERM DEBT
Total long-term debt at July 3, 1999 includes Senior Notes of $115.0 million and
$14.4 million of convertible subordinated notes. The Company's asset-based
secured credit facility, which has an outstanding balance of $115.5 million at
July 3, 1999, is included in the current liability section of the balance sheet
since the borrowing base for the facility is calculated as a percentage of
eligible accounts receivable and inventories.
On May 10, 1999 the Company entered into a new, asset-based secured facility
which has a maximum borrowing availability of $150 million with Bank of America
Business Credit ("BABC"). Under the new facility BABC will lend funds subject to
availability under a borrowing base calculated as a percentage of eligible
accounts receivable and inventories, provided that the total amount advanced
will not exceed $150 million. Proceeds from this facility were used to pay all
outstanding amounts under the Company's former $87.5 million unsecured revolving
credit facility and fund a partial tender offer for the 9 5/8% and 10 5/8%
Senior Notes (see below). The facility will also be used to provide working
capital.
To obtain the required consents of noteholders to permit the Company to grant a
first security interest on accounts receivable, inventories and related assets
to secure the BABC credit facility, the Company initiated a consent
solicitation. In connection with the solicitation the Company also invited
noteholders to tender notes for purchase by the Company in a "modified dutch
auction" with a maximum purchase price of
<PAGE>
6
65% of face value per note and agreed to provide funding of $42 million
(exclusive of accrued interest) for such purchases. The Company accepted tenders
for $70 million face value of notes and received consents from holders of more
than 51% of both note series as required. As a result of the refinancing the
Company purchased $70 million face value notes for $42 million and retired the
former revolving credit facility borrowings and accrued interest of $54.5
million by a payment of $39.5 million in cash and the forgiveness of $15.0
million of borrowings by the former lenders. In connection with the consent
solicitation, interest payments on these notes have been changed to quarterly
instead of semiannually. Also, the holders of notes not accepted for purchase by
the Company who also consented have received freely tradeable warrants for
15,525,000 shares of the Company's common stock. Two-thirds of these warrants
have an exercise price of $.8125 per share, and the remaining one-third have an
exercise price of $1.425 per share. The warrants have an 8-year term, and may be
exercised by payment of cash or by tender of notes for an amount equal to the
exercise price of the warrants. The Company recorded an estimated fair value
associated with the warrants to be approximately $1 million which has been
recorded as deferred financing costs and will be amortized over the term of the
outstanding long-term bonds.
The new facility matures in three years with an extension provision for an
additional two years, subject to lenders' approval. The Company has the option
of setting quarterly interest rates equal to either the Prime Rate or London
Interbank Offered Rate ("LIBOR") plus applicable margins. The applicable margin
is based on a funded debt / EBITDA ratio that will range from 0% to 1.75% for
Prime Rate or 1.75% to 3.75% for LIBOR based loans. The Company shall pay a fee
of .375% per year on any unused borrowings. A $10 million sublimit under the
facility is available for letters of credit.
Significant financial covenants of the new facility include the requirement to
maintain a minimum fixed charge coverage ratio on a quarterly basis, the
requirement to maintain EBITDA at certain levels during the second and third
quarters of fiscal year 1999 and annual limitations on capital expenditures.
Other covenants place restrictions on the Company's ability to incur additional
indebtedness, pay dividends, create liens or other encumbrances, to make certain
payments, investments, loans and guarantees and to sell or otherwise dispose of
a substantial portion of its assets.
Due to the operating results in the quarter ended July 3, 1999, the Company has
requested and received waivers and amendments from its lenders for violations of
its EBITDA and fixed charge coverage covenants under the $150 million secured
credit facility. Covenants applicable to the 10 5/8% Senior Notes and 9 5/8%
Senior Notes were not violated. However, fixed charge coverage covenants
applicable to both the secured credit facility and the Senior Notes are
generally measured on a trailing four-quarter basis. Compliance with such
covenants during succeeding quarters will be difficult considering the Company's
past financial performance and the short-term impact on margins of its plans to
aggressively sell products to reduce inventory levels by year-end.
As a result of the above refinancing the Company recorded an extraordinary gain
on the extinguishment of debt of $24.9 million, or $.83 per share, net of income
taxes of $15.3 million, for the quarter ended July 3, 1999.
On July 15, 1999 the holders of the Company's $14.4 million convertible
subordinated notes exercised their options to convert 20% of the original
principal amount of the notes into 4,609,600 shares of the Company's common
stock (see Note 10).
<PAGE>
7
NOTE 4 - STOCKHOLDERS' EQUITY
The 5% cumulative preferred stock is $100 par value, with 22,000 shares
authorized, and 1,975 shares issued and outstanding as of July 3, 1999 and
January 2, 1999. The stated quarterly dividend has not been paid since July 1,
1998 due to restrictions in the Company's bond indenture.
The Series B, $7.50 cumulative, convertible preferred stock is $100 stated
value, with 150,000 shares authorized, and 15,000 shares issued and outstanding
as of July 3, 1999 and January 2, 1999. The stated quarterly dividend has not
been paid since July 1, 1998 due to restrictions in the Company's bond
indenture.
The common stock is $1 par value, 60,000,000 shares authorized, with shares
issued and outstanding of 30,048,211 as of July 3, 1999 and 30,050,155 as of
January 2, 1999. On July 15, 1999 the holders of the Company's $14.4 million
convertible subordinated notes exercised their options to convert 20% of the
original principal amount of the notes into 4,609,600 shares of the Company's
common stock (see Note 10). There were no dividends declared on the Company's
common stock for the three month period ended July 3,1999.
NOTE 5 - EARNINGS PER SHARE
Income (loss) per common share is computed using the weighted average common
shares outstanding. The weighted average common shares outstanding for the three
months ended July 3, 1999 and July 4, 1998 were 30,049,634 and 29,885,088,
respectively. The weighted average common shares outstanding for the six-month
periods were 30,049,895 and 29,883,189 respectively. The weighted average common
shares outstanding are the same for both basic and diluted earnings per share.
NOTE 6 - COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS 130 requires that the Company report comprehensive income (loss)
components in a full set of general-purpose financial statements. Comprehensive
income (loss) represents the change in stockholders' equity during the period
from non-owner sources. Currently, other comprehensive income (loss) consists of
a minimum pension liability adjustment. The Company adopted SFAS 130 on January
4, 1998. Total comprehensive income for the three and six months ended July 3,
1999 was $19.3 million and $12.2 million, respectively. Total comprehensive loss
for the three and six months ended July 4, 1998 was $13.6 million and $20.4
million.
<PAGE>
8
Activity in Stockholders' Equity is as follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
Capital
Series In Accumulated Unearned Notes Total
Current 5% B Excess Other Stock Receivable- Stock-
Comprehensive Preferred Preferred Common of Par Retained Comprehensive Compen- Stock- holders'
Income (Loss) Stock Stock Stock Value Earnings Income (Loss) sation holders Equity
------------ -------- -------- ------- -------- -------- ------------ --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of
January 2, 1999 $198 $1,500 $30,050 $7,095 $113,079 $(5,085) $(35) $(364) $146,438
Collections -
Stockholders'
Notes
receivable 67 67
Stock
Compensation
10 10
Retricted
awards Lost (2) (9) (11)
Fair value
Assigned to
Warrants 1,000 1,000
Dividends on
Preferred stock (61) (61)
Comprehensive
Income (loss):
Net income $12,226 12,226 12,226
------------ -------- -------- ------- -------- -------- ------------ --------- ---------- --------
Balance as of
July 3, 1999 $12,226 $198 $1,500 $30,048 $8,086 $125,244 $(5,085) $(25) $(297) $159,669
============ ======== ======== ======= ======== ======== ============ ========= ========== ========
</TABLE>
NOTE 7 - SEGMENT REPORTING
The Company currently operates in a single business segment which designs,
manufactures and distributes fleece and jersey apparel. During the year ended
January 2, 1999, the Company exited its LogoAthletic, Inc. and
LogoAthletic/Headwear, Inc. ("LogoAthletic") licensed apparel business. The
segment information reported below reflects the operations of the Company's
ongoing apparel segment separate from the LogoAthletic business operations
("Other") through the date of sale (July 15, 1998). Management evaluates
performance based upon operating earnings before interest and income taxes.
<PAGE>
9
<TABLE>
<CAPTION>
(in thousands of dollars) Apparel Other Consolidated
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
THREE MONTHS ENDED JULY 3, 1999
Net sales $ 86,052 $ - $ 86,052
Operating income (loss) (2,396) - (2,396)
........................................................................................
Three months ended July 4, 1998
Net sales $ 102,886 $ 29,906 $ 132,792
Operating income (loss) 3,119 (1,040) 2,079
SIX MONTHS ENDED JULY 3, 1999
Net sales $157,690 $ - $157,690
Operating income (loss) (8,487) - (8,487)
........................................................................................
Six months ended July 4, 1998
Net sales $ 174,499 $ 58,167 $232,666
Operating income (loss) 160 (3,013) (2,853)
- ----------------------------------------------------------------------------------------
</TABLE>
Reconciling information between reportable segments and the Company's
consolidated totals is shown in the following table:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(in thousands) JULY 3, 1999 July 4,1998 JULY 3, 1999 July 4, 1998
<S> <C> <C> <C> <C>
Total operating income (loss)
for reportable segments $ (2,396) $ 2,079 $ (8,487) $ (2,853)
Interest expense 6,401 8,134 12,657 15,042
Interest income and other, net (845) (142) (1,911) (777)
Loss on sale of subsidiaries 945 16,304 945 16,304
-------------- ------------ -------------- --------------
Income (loss) before income taxes
and extraordinary Item $ (8,897) $(22,217) $ (20,178) $ (33,422)
============== ============ ============== ==============
</TABLE>
NOTE 8 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION
<PAGE>
10
The following financial information presents consolidated financial data which
includes (i) the parent company only ("Parent"), (ii) the wholly-owned guarantor
subsidiaries on a combined basis ("Wholly-owned Guarantor Subsidiaries"), (iii)
the wholly-owned non-guarantor subsidiaries on a combined basis ("Wholly-owned
Non-guarantor Subsidiaries"), (iv) the LogoAthletic subsidiaries whose assets
were sold during the third quarter of 1998 ("Subsidiaries Sold") and (v) the
Company on a consolidated basis.
<TABLE>
<CAPTION>
Wholly-owned Wholly-owned
(In thousands of Parent Guarantor Non-guarantor Subsidiaries
dollars) Subsidiaries Subsidiaries Sold Eliminations Consolidated
---------- -------------- -------------- -------------- ------------ --------------
For the three months
ended
July 3, 1999
<S> <C> <C> <C> <C> <C> <C>
Net sales $72,498 $31,502 $17,652 $ - $ (35,600) $86,052
Cost and expenses 80,687 32,249 17,613 - (35,600) 94,949
---------- -------------- -------------- -------------- ------------ --------------
Pretax income (loss) $ (8,189) $ (747) $ 39 $ - $ - $(8,897)
---------- -------------- -------------- -------------- ------------ --------------
For the three months
ended
July 4, 1998
Net sales $ 87,146 $6,781 $43,281 $ 30,338 $ (34,754) $132,792
Cost and expenses 111,886 5,758 39,604 32,515 (34,754) 155,009
---------- -------------- -------------- -------------- ------------ --------------
Pretax income (loss) $(24,740) $ 1,023 $ 3,677 $ (2,177) $ - $(22,217)
---------- -------------- -------------- -------------- ------------ --------------
For the six months
ended
July 3, 1999
Net sales $133,331 $60,317 $32,446 $ - $ (68,404) $157,690
Cost and expenses 148,832 64,137 33,303 - (68,404) 177,868
---------- -------------- -------------- -------------- ------------ --------------
Pretax income (loss) $(15,501) $ (3,820) $ (857) $ - $ - $ (20,178)
---------- -------------- -------------- -------------- ------------ --------------
For the six months
ended
July 4, 1998
Net sales $141,726 $11,559 $81,302 $ 59,713 $ (61,634) $232,666
Cost and expenses 178,785 10,059 74,418 64,460 (61,634) 266,088
---------- -------------- -------------- -------------- ------------ --------------
Pretax income (loss) (37,059) $ 1,500 $ 6,884 $ (4,747) $ - $ (33,422)
---------- -------------- -------------- -------------- ------------ --------------
As of July 3, 1999
Current assets $272,721 $55,664 $40,379 $ - $ (59,649) $309,115
Noncurrent assets 182,115 15,108 10,619 - (45,002) 162,840
---------- -------------- -------------- -------------- ------------ --------------
Total assets $454,836 $70,772 $50,998 $ - $(104,651) $471,955
---------- -------------- -------------- -------------- ------------ --------------
<PAGE>
11
Wholly-owned Wholly-owned
(In thousands of Guarantor Non-guarantor Subsidiaries
dollars) Parent Subsidiaries Subsidiaries Sold Eliminations Consolidated
---------- -------------- -------------- -------------- ------------ --------------
Current liabilities $ 155,963 $ 16,391 $ 39,299 $ - $ (40,116) $ 171,537
Noncurrent liabilities 147,935 (573) (2,165) - (4,448) 140,749
---------- -------------- -------------- -------------- ------------ --------------
Total liabilities $ 303,898 $ 15,818 $ 37,134 $ - $ (44,564) $ 312,286
---------- -------------- -------------- -------------- ------------ --------------
As of January 2, 1999
Current assets $ 232,075 $53,958 $ 29,638 $ - $ (43,256) $ 272,415
Noncurrent assets 190,194 14,908 10,865 - (41,054) 174,913
---------- -------------- -------------- -------------- ------------ --------------
Total assets $ 422,269 $ 68,866 $ 40,503 $ - $ (84,310) $ 447,328
---------- -------------- -------------- -------------- ------------ --------------
Current liabilities $ 79,551 $11,002 $ 26,138 $ - $ (20,428) $ 96,263
Noncurrent liabilities 209,288 (495) (438) - (3,728) 204,627
---------- -------------- -------------- -------------- ------------ --------------
Total liabilities $ 288,839 $10,507 $ 25,700 $ - $ (24,156) $ 300,890
---------- -------------- -------------- -------------- ------------ --------------
</TABLE>
NOTE 9 - NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 requires that an entity recognize
all derivative instruments in the balance sheet at fair value. The statement is
effective for fiscal years beginning after June 15, 2000. Management has not yet
made an assessment of the impact of the adoption of SFAS 133.
NOTE 10 - SUBSEQUENT EVENTS
On July 15, 1999 the holders of the Company's $14.4 million convertible
subordinated notes exercised their options to convert 20% of the original
principal amount of the notes into 4,609,600 shares of the Company's common
stock. The number of shares were determined by dividing the principal amount of
the notes converted by the closing price of the Company's common stock on the
business day prior to the submission of notes for conversion. The conversion
provision of the notes allows the noteholders to convert annually, beginning
April 15, 1999, up to 20% of the original principal amount of the notes into the
Company's common stock at the then market price. The annual option to convert up
to 20% of the original principal amount is noncumulative.
<PAGE>
12
ITEM 2
TULTEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
JULY 3, 1999
RESULTS OF OPERATIONS
- ---------------------
The following table presents the Company's consolidated statement of operations
as a percentage of net sales.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------------------------------
7/3/99 7/4/98 7/3/99 7/4/98
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Products Sold 87.0 81.9 89.1 81.5
----------- ---------- ----------- -----------
Gross Profit 13.0 18.1 10.9 18.5
Selling, General and Administrative 15.8 16.5 16.3 19.7
----------- ---------- ----------- -----------
Operating Income (2.8) 1.6 (5.4) (1.2)
Interest Expense 7.4 6.1 8.0 6.5
Interest Income and Other, Net (1.0) (0.1) (1.2) (.3)
Loss on Sale of Subsidiaries 1.1 12.3 .6 7.0
----------- ---------- ----------- -----------
Income (Loss) Before Income Taxes and
Extraordinary Item (10.3) (16.7) (12.8) (14.4)
Provision (Benefit) for Income Taxes (3.8) (6.5) (4.7) (5.6)
----------- ---------- ----------- -----------
Income (Loss) Before Extraordinary Item (6.5)% (10.2) (8.1) (8.8)
Extraordinary Gain on Extinguishment of Debt 29.0 - 15.9 -
=========== ========== =========== ===========
Net Income (Loss) 22.5% (10.2)% 7.8% (8.8)%
=========== ========== =========== ===========
</TABLE>
Note: Certain items have been rounded to cause the columns to add to 100%.
THIS QUARTERLY REPORT ON FORM 10-Q MAY CONTAIN CERTAIN FORWARD-LOOKING
STATEMENTS REFLECTING THE COMPANY'S CURRENT EXPECTATIONS. ALTHOUGH THE COMPANY
BELIEVES THAT THE EXPECTATIONS REFLECTED IN ANY SUCH FORWARD-LOOKING STATEMENTS
ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO
HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE COMPANY'S EXPECTATIONS INCLUDE THE FINANCIAL STRENGTH OF THE
RETAIL INDUSTRY, THE LEVEL OF CONSUMER SPENDING ON APPAREL, THE COMPANY'S
ABILITY TO PROFITABLY AND TIMELY SATISFY CUSTOMER DEMAND FOR ITS PRODUCTS, THE
COMPETITIVE PRICING ENVIRONMENT WITHIN THE APPAREL INDUSTRY, THE COMPANY'S
SUBSTANTIAL LEVERAGE AND THE RESTRICTIVE COVENANTS IN ITS BORROWING DOCUMENTS,
THE COMPANY'S ABILITY TO COMPLY WITH FINANCIAL COVENANTS UNDER ITS BORROWING
DOCUMENTS, ESPECIALLY ITS ABILITY TO GENERATE SUFFICIENT EARNINGS TO SATISFY THE
EBITDA AND FIXED CHARGE COVERAGE COVENANTS, THE WILLINGNESS OF THE COMPANY'S
LENDERS TO WAIVE ANY FUTURE VIOLATIONS OF FINANCIAL COVENANTS IN ITS BORROWING
DOCUMENTS, FLUCTUATIONS IN THE PRICE OF COTTON AND POLYESTER USED BY THE COMPANY
IN THE MANUFACTURE OF ITS PRODUCTS, THE COMPANY'S RELATIONSHIP WITH ITS
PARTIALLY UNIONIZED WORKFORCE, THE SEASONALITY AND CYCLICALITY OF THE FLEECEWEAR
INDUSTRY, AND REMEDIATION OF YEAR 2000 COMPUTER APPLICATIONS. SUCH STATEMENTS
ARE PROVIDED IN ACCORDANCE WITH THE SAFE HARBOR PROVISIONS OF THE PRIVATE
LITIGATION REFORM ACT OF 1995. INVESTORS SHOULD CONSIDER OTHER RISKS AND
UNCERTAINTIES DISCUSSED IN OTHER DOCUMENTS FILED BY THE COMPANY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
Net income applicable to common stock for the three months ended July 3, 1999
was $19.3 million, or $.64 per share. Results for the period include an
extraordinary gain, net of income taxes, on the extinguishment of debt of $24.9
million, or $.83 per share, relating to the Company's debt refinancing on May
10, 1999. Excluding the extraordinary gain, the Company reported a net loss
applicable to common stock of $5.6 million, or $.19 per share. This compares
with a net loss applicable to common stock of $13.7 million, or
<PAGE>
13
$.46 per share, for the three months ended July 4, 1998. The results for 1998
include the operations of LogoAthletic, Inc. and LogoAthletic/Headwear, Inc.
("LogoAthletic"), subsidiaries whose assets were sold on July 15, 1998, and a
pre-tax loss of $16.3 million (after-tax of $9.9 million, or $.33 per share) on
the sale of those assets. Excluding the loss on sale of LogoAthletic, the net
loss applicable to common stock for the second quarter of 1998 was $3.8 million,
or $.13 per share. Net income applicable to common stock for the first six
months of fiscal 1999 was $12.2 million, or $.40 per share. Excluding the
extraordinary gain, the Company reported a net loss applicable to common stock
of $12.8 million, or $.43 per share. This compares to a net loss applicable to
common stock of $20.7 million, or $.69 per share, for the same period in fiscal
1998. Excluding the loss on sale of LogoAthletic, the first six months 1998 net
loss applicable to common stock was $10.7 million, or $.36 per share.
Net sales for the three months ended July 3, 1999 were $86.1 million as compared
to $132.8 million in the comparable period of 1998. The decline was primarily
the result of the sale of LogoAthletic. On a pro forma basis, excluding the
effects of LogoAthletic, sales were $20 million less than the comparable period
in 1998. The pro forma sales decrease resulted from shipping delays, pricing
pressure in jersey products and the deferral by retailers of some fleece sales
to the quarter ending October 2, 1999. Shipping delays were largely caused by
problems encountered in the implementation of new software during the period.
For the six months to date, sales were $157.7 million as compared to $232.7
million in the same period in 1998. The sales decrease was primarily due to the
sale of LogoAthletic. On a pro forma basis, excluding LogoAthletic, sales were
$23.4 million lower than the comparable period in 1998. The sales decrease
resulted primarily from pricing pressure in jersey products, aggressive selling
by the Company to manage inventories in the first quarter and shipping delays in
the second quarter.
Gross profit percentage was 13.0% for the second quarter of 1999 compared to
18.1% for the same period in 1998. For the six-month period, the gross profit
percentage was 10.9% as compared to 18.5% for the six-month period in 1998. The
primary reasons for the decreases were pricing pressures in jersey products,
shipping delays involving higher margin products in the second quarter and
aggressive selling by the Company to manage inventories in the first quarter.
The sale of LogoAthletic, whose licensed apparel business historically incurred
lower costs as a percent of sales than the Company's activewear business, also
contributed to the decrease. Gross profits for the last six months of 1999 will
be adversely impacted by short running schedules in the first six months of 1999
and by aggressive pricing strategies to reduce inventories.
Selling, general and administrative expenses ("S,G&A") of $13.6 million
represent a decrease of $8.3 million as compared to the second quarter of 1998.
As a percentage of sales, S,G&A expenses were 15.8% compared to 16.5% for the
second quarter of 1998. The primary reason for the decrease was the sale of
LogoAthletic, which incurred proportionally higher advertising and marketing
costs than the Company's activewear business. Also contributing to the reduction
was a decrease of $.7 million in advertising expenses in the activewear
business. Higher computer equipment and software amortization, resulting from
the implementation of an enterprise-wide management information system, offset
the reduction in advertising. For the six-month period S,G&A expenses were $25.6
million, or 16.3% of sales, compared to $45.9 million, or 19.7% of sales, in the
same period in 1998. The primary reason for the decrease was the sale of
LogoAthletic. A reduction of $1.7 million in advertising expenses in the
activewear business was partially offset by higher computer equipment and
software amortization of $1.4 million.
<PAGE>
14
Interest expense for the second quarter of 1999 was $6.4 million compared to
$8.1 million in the comparable period of 1998. The decrease for the second
quarter over the comparable period of 1998 is due to lower average borrowings,
partially offset by higher borrowing rates. Second quarter 1999 working capital
borrowings averaged $85.0 million at an average rate of 9.2% compared to $144.3
million and 8.3%, respectively, for the comparable period in 1998. Interest
expense for the six-month period was $12.7 million as compared to $15.0 million
for the comparable period in 1998. Working capital borrowings for the first six
months of 1999 averaged $69.7 million at an average rate of 8.8% compared to
$119.5 million and 7.9%, respectively, for the comparable period in 1998. The
reduction in average borrowings reflects the proceeds received from the sale of
LogoAthletic during the third quarter of 1998 and the debt refinancing on May
10, 1999. The nature of the Company's business requires extensive seasonal
borrowings to support its working capital needs.
The loss on sale of subsidiaries of $.9 million for both the three and six
months ended July 3, 1999 represents an estimated final purchase adjustment
negotiated in connection with the sale of LogoAthletic as allowed for in the
Asset Purchase Agreement. In the second quarter of 1998 an estimated loss of
$16.3 million was recorded for the sale of LogoAthletic.
Benefit (Provision) for income taxes reflects an effective rate for combined
federal and state income taxes of 37% for both periods of 1999 and 39% for the
comparable periods of 1998.
YEAR 2000
- ---------
The Year 2000 issue is the result of computer systems and other equipment with
embedded chips using two digits, rather than four, to define the applicable
year. If the Company's computer systems are not Year 2000 compliant, they may
recognize a date using "00" as the Year 1900 rather than the Year 2000. If not
corrected, computer applications could fail or create erroneous results which
could have a material adverse impact on the Company's business, operations or
financial condition in the future.
The Company began addressing the Year 2000 issue in 1995 with the formation of a
Y2K Team. The Company is in the process of addressing Year 2000 compliance, both
internally and with third parties. The Company's objective is to confirm
compliance by October 2, 1999. Third parties that are not compliant at that time
may delay compliance. The Year 2000 Project is comprised of four phases:
1. Inventory of all hardware, software, local area networks, personal
computers, telecommunications equipment and software (data and
voice), program logic controllers (PLC) and non-information
technology embedded software and equipment.
2. Assessment of the inventory through testing for Year 2000
compliance.
3. Remediation of all affected systems. Systems will be modified,
upgraded or replaced as appropriate for compliance. Contingency
plans will be established for areas of concern.
4. Testing of internal system compliance and testing with customers
and suppliers will be performed on an ongoing basis until project
completion.
The Company has completed the inventory and assessment phases. The remediation
phase is scheduled for completion by October 2, 1999. The testing phase will be
ongoing as hardware and software are remedied, upgraded or replaced.
<PAGE>
15
As part of the Year 2000 Project, the Company has implemented a new Enterprise
Resource Planning system (ERP), which has replaced 80% of the Company's Legacy
systems with Year 2000 compliant software. All major infrastructure, computers,
PC's and telecommunications equipment have been replaced with Year 2000
compliant hardware and software as part of the project. Additionally, the
Company has implemented the Year 2000 compliant versions of electronic data
interchange (EDI) systems for testing with the Company's customers. This testing
commenced in the first quarter of 1999 and is scheduled for completion by
September 4, 1999. The remaining Legacy software has been identified, assessment
is nearing completion and upgrades or replacements are being ordered for
non-compliant software and hardware. Updates or modification to this software is
scheduled for completion by September 4, 1999, with testing scheduled for
completion by October 2, 1999.
The Company relies on third party suppliers for raw materials, water, utilities,
transportation and other services. Interruption of supplier operations due to
Year 2000 issues could affect Company operations. The Company has initiated
efforts with all major suppliers to gauge compliance and exposure in these
areas. The Company has formally requested written confirmation of Year 2000
compliance from its major contractors and vendors. Approximately 80% have
responded to date. Specific testing will be requested where appropriate. Should
any vendor, supplier, equipment or process not be able to conform within the
prescribed timeframes, the Company will take appropriate action to ensure
continuity of its business. Contingency plans will be developed for any area not
able to conform within the prescribed timeframe. While approaches to reducing
risks of interruption due to supplier failures will vary by facility, options
include identifying of alternate suppliers, stockpiling raw materials and
adjusting operating schedules. Costs associated with any contingency will be
determined as this assessment continues.
Year 2000 Project costs are linked with the ERP implementation costs. Total
costs for both the Year 2000 Project and the ERP system implementation are
expected to be approximately $21.5 million. Of this total, $20.5 million has
been incurred and capitalized as part of the ERP implementation as of July 3,
1999. The remaining $1.0 million is specifically related to Year 2000 project
costs and will be expensed as incurred throughout 1999. These costs include
external testing with banks, vendors and customers, as well as EDI software
upgrades. The Company believes the remaining costs relating to the Year 2000
issue will not have a material impact on the Company's consolidated financial
position, results of operations or cash flows.
Due to the general uncertainty inherent in the Year 2000 problem, resulting in
part from the readiness of third-party suppliers and customers, the Company is
unable to determine at this time whether the consequences of Year 2000 failures
will have a material impact on the Company's results of operations, liquidity or
financial condition. The Year 2000 Project is expected to significantly reduce
the Company's level of uncertainty about the Year 2000 problem and about the
Year 2000 compliance of its major suppliers and customers. The Company believes
that, with the implementation of its new ERP systems and the completion of the
Year 2000 Project as scheduled, the possibility of interruptions of normal
operations is reduced.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------------------------
<PAGE>
16
Net working capital at July 3, 1999 decreased $38.6 million from year-end 1998
due primarily to higher inventories, offset by higher line of credit borrowings,
accounts payable and accrued expenses. Inventories increased $49.0 million from
January 2, 1999 to July 3, 1999. Inventories traditionally increase during the
first half of the year to support second half shipments. Compared to January 2,
1999, accounts payable and accrued expenses increased $18.8 million and accounts
receivable decreased $2.1 million. Receivables normally build to a peak in
September and October and begin to decline in December as shipment volume
decreases and cash is collected.
Total long-term debt at July 3, 1999 includes Senior Notes of $115 million and
$14.4 million of convertible subordinated notes. The Company's asset-based
secured credit facility, which has an outstanding balance of $115.5 million at
July 3, 1999, is included in the current liability section of the balance sheet
since the borrowing base for the facility is calculated as a percentage of
eligible accounts receivable and inventories. Total debt as a percentage of
total capitalization was 60.5% as of July 3, 1999 compared to 63.9% as of
January 2, 1999.
On May 10, 1999 the Company entered into a new, asset-based secured facility
which has a maximum borrowing availability of $150 million with Bank of America
Business Credit ("BABC"). Under the new facility BABC will lend funds subject to
availability under a borrowing base calculated as a percentage of eligible
accounts receivable and inventories, provided that the total amount advanced
will not exceed $150 million. Proceeds from this facility were used to pay all
outstanding amounts under the Company's former $87.5 million unsecured revolving
credit facility and fund a partial tender offer for the 9 5/8% and 10 5/8%
Senior Notes (see below). The facility will also be used to provide working
capital.
To obtain the required consents of noteholders to permit the Company to grant a
first security interest on accounts receivable, inventories and related assets
to secure the BABC credit facility, the Company initiated a consent
solicitation. In connection with the solicitation the Company also invited
noteholders to tender notes for purchase by the Company in a "modified dutch
auction" with a maximum purchase price of 65% of face value per note and agreed
to provide funding of $42 million (exclusive of accrued interest) for such
purchases. The Company accepted tenders for $70 million face value of notes and
received consents from holders of more than 51% of both note series as required.
As a result of the refinancing the Company purchased $70 million face value
notes for $42 million and retired the former revolving credit facility
borrowings and accrued interest of $54.5 million by a payment of $39.5 million
in cash and the forgiveness of $15.0 million of borrowings by the former
lenders. In connection with the consent solicitation, interest payments on these
notes have been changed to quarterly instead of semiannually. Also, the holders
of notes not accepted for purchase by the Company who also consented have
received freely tradeable warrants for 15,525,000 shares of the Company's common
stock. Two-thirds of these warrants have an exercise price of $.8125 per share,
and the remaining one-third have an exercise price of $1.425 per share. The
warrants have an 8-year term, and may be exercised by payment of cash or by
tender of notes for an amount equal to the exercise price of the warrants.
The new facility matures in three years with an extension provision for an
additional two years, subject to lenders' approval. The Company has the option
of setting quarterly interest rates equal to either the Prime Rate or London
Interbank Offered Rate ("LIBOR") plus applicable margins. The applicable margin
is based on a funded debt / EBITDA ratio that will range from 0% to 1.75% for
Prime Rate or 1.75% to 3.75% for LIBOR based loans. The Company shall pay a fee
of .375% per year on any unused borrowings. A $10
<PAGE>
17
million sublimit under the facility is available for letters of credit.
Significant financial covenants of the new facility include the requirement to
maintain a minimum fixed charge coverage ratio on a quarterly basis, the
requirement to maintain EBITDA at certain levels during the second and third
quarters of fiscal year 1999 and annual limitations on capital expenditures.
Other covenants place restrictions on the Company's ability to incur additional
indebtedness, pay dividends, create liens or other encumbrances, to make certain
payments, investments, loans and guarantees and to sell or otherwise dispose of
a substantial portion of its assets.
Due to the operating results in the quarter ended July 3, 1999, the Company has
requested and received waivers and amendments from its lenders for violations of
its EBITDA and fixed charge coverage covenants under the $150 million secured
credit facility. Covenants applicable to the 10 5/8% Senior Notes and 9 5/8%
Senior Notes were not violated. However, fixed charge coverage covenants
applicable to both the secured credit facility and the Senior Notes are
generally measured on a trailing four-quarter basis. Compliance with such
covenants during succeeding quarters will be difficult considering the Company's
past financial performance and the short-term impact on margins of its plans to
aggressively sell products to reduce inventory levels by year-end.
On July 15, 1999 the holders of the Company's $14.4 million convertible
subordinated notes exercised their options to convert 20% of the original
principal amount of the notes into 4,609,600 shares of the Company's common
stock. The number of shares were determined by dividing the principal amount of
the notes converted by the closing price of the Company's common stock on the
business day prior to the submission of notes for conversion. The conversion
provision of the notes allows the noteholders to convert annually, beginning
April 15, 1999, up to 20% of the original principal amount of the notes into the
Company's common stock at the then market price. The annual option to convert up
to 20% of the original principal amount is noncumulative.
For the first six months of 1999, net cash used by operations of $28.5 million
reflects the seasonal increase in inventories of $49.0 million, partially offset
by increases in accounts payable and accrued expenses of $18.8 million and
refunds of income taxes of $8.1 million. Cash used by investing activities was
$1.5 million in 1999. The cash used in 1999 reflects capital expenditures of
$3.2 million, partially offset by the sale of non-operating properties of $1.0
million. Cash provided by financing activities of $26.0 million in 1999 was
primarily used for working capital requirements. Management believes current
cash balances, cash flows from operations and its new secured credit facility to
be sufficient during 1999 and the foreseeable future to fund its planned capital
expenditures and working capital needs.
TULTEX CORPORATION
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On May 27, 1999 at the Company's Annual Meeting of Stockholders held in
Martinsville, Va., there were three matters submitted to a vote of security
holders.
<PAGE>
18
1. A Board of Directors, consisting of nine persons, was elected for the ensuing
year.
2. Amendments to the 1996 Stock Incentive Plan increasing the number of shares
available under the plan to 2,700,000 shares of Common Stock plus an
additional 300,000 shares for the Plan's replenishment provision were
ratified.
3. The Board of Directors' appointment of PricewaterhouseCoopers, LLP,
independent accountants, as auditors for fiscal 1999 was ratified.
The actual count for these matters is summarized below.
Board of Directors:
<TABLE>
<CAPTION>
Authority Broker
Director For Withheld Abstain Non-Votes
--------------------------------------- ----------------- --------------- --------------- ------------
<S> <C> <C> <C> <C>
Charles W. Davies, Jr. 22,271,895 3,254,905 0 0
Lathan M. Ewers, Jr. 22,362,629 3,164,171 0 0
John M. Franck 23,444,587 2,082,213 0 0
Seth P. Bernstein 23,425,258 2,101,542 0 0
H. Richard Hunnicutt, Jr. 24,105,798 1,421,002 0 0
O. Randolph Rollins 23,450,638 2,076,162 0 0
Bruce M. Jacobson 23,530,875 1,995,925 0 0
Richard M. Simmons 23,487,730 2,039,070 0 0
Lynn J. Beasley 23,404,892 2,121,908 0 0
1996 Stock Incentive Plan:
Broker
1996 Stock Incentive Plan For Against Abstain Non-Votes
--------------------------------------- ----------------- --------------- --------------- ------------
Amendment to Increase Shares 23,207,057 1,093,637 1,153,393 0
Auditors:
Broker
Independent Accountant For Against Abstain Non-Votes
--------------------------------------- ----------------- --------------- --------------- ------------
PricewaterhouseCoopers, LLP 25,448,090 39,890 38,820 0
</TABLE>
Item 5. Other Events
- --------------------
On August 13, 1999 the Company announced that its Board of Directors had
appointed O. Randolph Rollins, currently Executive Vice President and General
Counsel, as President and Chief Executive Officer to succeed Charles W. Davies,
Jr., who resigned. The Company also announced that the Board's Executive
Compensation Committee had accepted on August 5, 1999, the resignation submitted
by James M. Chriss. Mr. Chriss joined the Company as President in May 1999. See
Form 8-K filed on August 17, 1999 for the complete press release.
<PAGE>
19
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
--------
10.20 Second Amendment to Loan and Security Agreement dated as of August
4, 1999 between Tultex Corporation and Nationsbank, N.A.
10.21 Agreement dated July 2, 1999 between Pension Benefit Guaranty
Corporation and Tultex Corporation
10.22 Intercreditor Agreement dated May 7, 1999 between U.S. Bank National
Association and Nationsbank, N.A.
(b) Reports on Form 8-K
-------------------
The following reports on Form 8-K were filed during the quarter for which this
report was filed:
1. Current report on Form 8-K dated July 15, 1999 and filed on August 5,
1999 reporting under Item 5 the conversion of 20% of the Registrant's $14.4
million of subordinated notes into 4,609,600 shares of the Registrant's
common stock.
2. Current report on Form 8-K dated August 13, 1999 and filed on August 17,
1999 reporting under Item 5 the press release issued by the Registrant
announcing the appointment of a new President and CEO.
Items 1, 2, and 3 are inapplicable and are omitted.
<PAGE>
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
TULTEX CORPORATION
------------------
(Registrant)
Date August 17, 1999 /s/ O. R. Rollins
--------------- -----------------
O. R. Rollins, President and Chief
Executive Officer
Date August 17, 1999 /s/ P. W. Harris, Jr.
--------------- ----------------------
P. Woolard Harris, Jr.,
Vice President and Chief Financial Officer
Exhibit 10.20
SECOND AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO Loan and Security Agreement (the "Amendment")
is made and entered into effective as of the 4th day of August, 1999, by and
among Bank of America, N.A., formerly NationsBank, N.A., as agent for the
lenders party to the Loan Agreement (as hereafter defined) from time to time
(the "Agent"), the financial institutions party to the Loan Agreement (the
"Lenders"), TULTEX CORPORATION, a Virginia corporation ("Tultex"), the
Subsidiaries of Tultex party hereto as borrowers (together with Tultex, the
"Borrowers"), and the Subsidiaries of Tultex party hereto as guarantors (the
"Guarantors", and, together with the Borrowers, the "Obligors").
W I T N E S S E T H :
WHEREAS, the Agent, the Lenders and the Obligors entered into that
certain Loan and Security Agreement, dated May 7, 1999 (as amended, the "Loan
Agreement"), pursuant to which the Agent and the Lenders agreed to extend
certain financial accommodations to the Obligors; and
WHEREAS, pursuant to the Loan Agreement, the Obligors agreed, among
other things, to comply with certain covenants set forth therein, including
certain financial covenants; and
WHEREAS, the Obligors have failed to comply with the financial
covenants set forth in Sections 11.1(a) and (b) of the Loan Agreement; and
WHEREAS, the Obligors' agreement to comply with such financial
covenants was a material inducement to the Agent's and the Lenders' agreement to
enter into the Loan Agreement and extend financial accommodations thereunder;
and
WHEREAS, the Obligors have requested that the Agent and the Lenders
waive such financial covenant defaults, and the Agent and the Lenders are
willing to do so, subject to the terms and conditions set forth herein,
including the amendments to the Loan Agreement set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises, and other
good and valuable consideration, the receipt and legal sufficiency of which is
hereby acknowledged, the parties hereto hereby agree as follows:
1. All capitalized terms used herein and not otherwise expressly
defined herein shall have the respective meanings given to such terms in the
Loan Agreement. Each reference in the Loan Agreement to "NationsBank" shall mean
Bank of America, N.A.
<PAGE>
2. The parties hereto acknowledge that the Obligors are in default
under SECTIONS 11.1(A) and (B) of the Loan Agreement for the fiscal quarter
ending on July 3, 1999 (the "Specified Defaults"). In reliance upon the
representations, warranties, agreements and covenants of the Obligors set forth
herein and in the Loan Agreement, as amended hereby, the Agent and the Lenders
agree to waive the Specified Defaults. However, the Agent and the Lenders
reserve all of their rights and remedies at all times with respect to any
Default or Event of Default, other than the Specified Defaults, whether
presently existing or occurring hereafter.
3. The Loan Agreement is amended by deleting the definition of
"Applicable Margin" set forth in SECTION 1.1 and replacing it with the
following:
"Applicable Margin" means, as to (a) Prime Rate Loans, 1.75%,
and (b) LIBOR Loans, 3.75%, as adjusted in accordance with the
performance pricing matrix set forth on ANNEX II attached hereto based
upon the ratio of Consolidated Funded Indebtedness as of the date of
determination to Consolidated EBITDA for the preceding four fiscal
quarters. Adjustments to the Applicable Margin shall be effective as of
(i) the first day of the calendar month which begins at least 10 days
after the Agent's receipt of the Obligors' audited financial statements
as of each fiscal year end (commencing with the financial statements
for the fiscal year ending on January 1, 2000) in conformance with
SECTION 10.1(A), together with the accountant's certificate described
in SECTION 10.2 setting forth the calculations necessary to determine
the ratio referred to above, and (ii) the first day of the calendar
month which begins at least 10 days after the Agent's receipt of the
Obligors' financial statements as of the last day of each subsequent
fiscal quarter in conformance with SECTION 10.1(B), together with the
officer's certificate described in SECTION 10.3 setting forth the
calculations necessary to determine the ratio referred to above;
PROVIDED no decrease in the Applicable Margin shall be made if a
Default or Event of Default exists as of the effective date of such
scheduled adjustment. In the event the Obligors fail to provide in a
timely manner the financial statements and certificates referred to
above, and without prejudice to any additional rights under SECTIONS
4.1(D) and 12.2, the maximum Applicable Margin shall apply to all LIBOR
Loans and Prime Rate Loans until the first day of the calendar month
which begins at least 10 days after the Agent's receipt of such
financial statements and certificates.
4. The Loan Agreement is amended by deleting the definition of
"Borrowing Base" set forth in SECTION 1.1 and replacing it with the following:
"Borrowing Base" means at any time an amount equal to the
lesser of:
(a) the Revolving Credit Facility MINUS the sum of
(i) the Letter of Credit Reserve, PLUS
(ii) such other reserves as the Agent in its
reasonable discretion may establish from time to time, and
(b) an amount equal to
(i) 85% (or such lesser percentage as the Agent may
in its reasonable discretion determine from time to time) of the face
value of Eligible Receivables due and owing at such time, PLUS
-2-
<PAGE>
(ii) 60% (or such lesser percentage as the Agent may
in its reasonable discretion determine from time to time) of the face
value of Eligible Bill and Hold Receivables due and owing at such time,
PLUS
(iii) THE LESSER OF
(A) the product of (1) the lesser of (x)
cost (determined on a first-in-first-out accounting basis and as
adjusted, until Tultex has updated its standard inventory costing
systems in accordance with SECTION 9.15, in the case of raw materials
and finished goods, for the applicable Capitalized Variance set forth
below) and (y) fair market value of Eligible Inventory, net of reserves
for obsolescence, at such time (the "Eligible Inventory Amount"),
multiplied by (2) the ratio of (x) 85% of the median orderly
liquidation value of finished goods, greige goods and raw material
Inventory of the Obligors included in the most recent Inventory
Appraisal, as determined by the Inventory Appraiser pursuant to such
Inventory Appraisal, to (y) the Eligible Inventory Amount as of the
date of such Inventory Appraisal, PROVIDED that no more than $4,000,000
shall be included in the Borrowing Base with respect to inventory
located at retail stores, AND
(B) the Applicable Inventory Advance
Percentage of the lesser of cost (determined on a first-in-first-out
accounting basis and as adjusted, until Tultex has updated its standard
inventory costing systems in accordance with SECTION 9.15, in the case
of raw materials and finished goods, for the applicable Capitalized
Variance set forth below) and fair market value of Eligible Inventory,
net of reserves for obsolescence, at such time, PROVIDED that no more
than $4,000,000 shall be included in the Borrowing Base with respect to
inventory located at retail stores, AND
(C) the Inventory Sublimit, MINUS
(iv) the sum of
(A) the Letter of Credit Reserve, PLUS
(B) such other reserves as the Agent in its
reasonable discretion may establish from time to time.
As used herein, "Applicable Inventory Advance Percentage" means (x) 50%
in the case of Eligible Inventory consisting of raw materials, (y) 40%
in the case of Eligible Inventory consisting of greige goods, and (z)
60% in the case of Eligible Inventory consisting of finished goods, or,
in any such case, such lesser percentage as the Agent may in its
reasonable discretion determine from time to time. As used herein,
"Inventory Sublimit" means (i) $100,000,000 at all times prior to
October 2, 1999, (2) $90,000,000 at all times on or after October 2,
1999 but prior to November 6, 1999, (3) $80,000,000 at all times on or
after November 6, 1999 but prior to December 4, 1999, and (4)
$75,000,000 at all times thereafter. As used herein, "Capitalized
Variance" means, (A) in the case of raw materials, a reduction equal to
5.5% of the amount of Eligible Inventory consisting of raw materials,
and (B) in the case of finished goods, an increase equal to the lesser
of $13,000,000 and 10% of the amount of Eligible Inventory consisting
of finished goods.
-3-
<PAGE>
5. The Loan Agreement is amended by deleting SECTION 11.1(B) and
replacing it with the following:
(b) Minimum EBITDA. Permit the EBITDA of Tultex and its
Consolidated Subsidiaries for the third fiscal quarter of fiscal year
1999 to be less than $3,000,000.
6. As consideration for the accommodations set forth herein, the
Obligors shall pay to the Lenders a non-refundable fee of $100,000, such fee to
be shared on a Ratable basis. The Obligors acknowledge that such fee shall
constitute compensation for the Lenders' waiver and other accommodations
contemplated hereby and shall not constitute interest. The Obligors agree that
such fee shall be fully earned as of the date hereof.
7. To induce the Agent and the Lenders to enter into this Amendment and
grant the accommodations set forth herein, the Obligors hereby represent and
warrant that, as of the date hereof, except for the Specified Defaults, there
exists no Default or Event of Default.
8. To induce the Agent and the Lenders to enter into this Amendment and
grant the accommodations set forth herein, each Obligor agrees that (a) except
as expressly set forth herein, neither the Agent nor any Lender has agreed to
(and has no obligation whatsoever to discuss, negotiate or agree to) any other
restructuring, modification, amendment, waiver or forbearance with respect to
the Secured Obligations or the Loan Agreement, (b) no understanding with respect
to any other restructuring, modification, amendment, waiver or forbearance with
respect to the Secured Obligations or the Loan Agreement shall constitute a
legally binding agreement or contract, or have any force or effect whatsoever,
unless and until reduced to writing and signed by authorized representatives of
each party hereto, and (c) the execution and delivery of this Amendment has not
established any course of dealing between the parties hereto or created any
obligation or agreement of the Agent or any Lender with respect to any future
restructuring, modification, amendment, waiver or forbearance with respect to
the Secured Obligations or the Loan Agreement.
9. To induce the Agent and the Lenders to enter into this Amendment and
grant the accommodations set forth herein, each Obligor (a) acknowledges and
agrees that no right of offset, defense, counterclaim, claim or objection exists
in favor of such Obligor against the Agent or any Lender arising out of or with
respect to the Loan Agreement, the other Loan Documents or the Secured
Obligations, and (b) releases, acquits, remises and forever discharges the Agent
and each Lender and its Affiliates and all of their past, present and future
officers, directors, employees, agents, attorneys, representatives, successors
and assigns from any and all claims, demands, actions and causes of action,
whether at law or in equity, whether now accrued or hereafter maturing, and
whether known or unknown, which such Obligor now or hereafter may have by reason
of any manner, cause or things to and including the date of this Amendment with
respect to matters arising out of or with respect to the Loan Agreement, the
other Loan Documents or the Secured Obligations.
10. The Obligors hereby restate, ratify, and reaffirm each and every
term, condition, representation and warranty heretofore made by each of them
under or in connection with the execution and delivery of the Loan Agreement, as
amended hereby, and the other Loan Documents, as fully as though such
representations and warranties had been made on the date hereof and with
specific reference to this Amendment, except to the extent that any such
representation or warranty relates solely to a prior date.
-4-
<PAGE>
11. In addition to any other fees described herein, the Obligors agree
to pay on demand all reasonable costs and expenses of the Agent and each Lender
in connection with the preparation, execution and delivery of this Amendment,
including, without limitation, the reasonable fees and out-of-pocket expenses of
legal counsel to the Agent and each Lender.
12. This Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which, when so
executed and delivered, shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.
13. This Amendment shall be binding upon and inure to the benefit of
the successors and permitted assigns of the parties hereto.
14. This Amendment shall be governed by, and construed in accordance
with, the laws of the State of Georgia, other than its laws respecting choice of
law.
-5-
<PAGE>
IN WITNESS WHEREOF, the Obligors, the Agent and the Lenders have caused
this Amendment to be duly executed under seal by their authorized officers in
several counterparts, all as of the date first above written.
BORROWERS:
TULTEX CORPORATION
By:
------------------------------------------
O. Randolph Rollins
Executive Vice President and General Counsel
CALIFORNIA SHIRT SALES, INC.
By:
------------------------------------------
O. Randolph Rollins
Vice President
DOMINION STORES, INC.
By:
------------------------------------------
O. Randolph Rollins
Vice President
TULTEX/T-SHIRT CITY, INC.
By:
------------------------------------------
O. Randolph Rollins
Vice President
TRACK GEAR, INC.
By:
------------------------------------------
O. Randolph Rollins
Chairman and Chief Executive Officer
<PAGE>
GUARANTORS:
AKOM, LTD.
By:
------------------------------------------
O. Randolph Rollins
Vice President
DOMINION DISTRIBUTION, INC.
By:
------------------------------------------
O. Randolph Rollins
Vice President
LIGA MAYOR DE MEXICO S.A. DE C.V.
By:
------------------------------------------
O. Randolph Rollins
Legal Representative
TULTEX SUBSIDIARY (VA), INC.
By:
------------------------------------------
O. Randolph Rollins
Vice President
TULTEX SUBSIDIARY (MASS), INC.
By:
------------------------------------------
O. Randolph Rollins
Vice President
<PAGE>
TULTEX CANADA, INC.
By:
------------------------------------------
O. Randolph Rollins
Vice President
TULTEX INTERNATIONAL, INC.
By:
------------------------------------------
O. Randolph Rollins
Vice President
SWEATJET INCORPORATED
By:
------------------------------------------
O. Randolph Rollins
Vice President
LENDERS:
BANK OF AMERICA, N.A.
By:
------------------------------------------
Name:
----------------------------------
Title:
----------------------------------
GENERAL ELECTRIC CAPITAL CORPORATION
By:
------------------------------------------
Name:
----------------------------------
Title:
----------------------------------
<PAGE>
CONGRESS FINANCIAL CORPORATION (SOUTHERN)
By:
------------------------------------------
Name:
----------------------------------
Title:
----------------------------------
PNC BANK NATIONAL ASSOCIATION
By:
------------------------------------------
Name:
----------------------------------
Title:
----------------------------------
THE CIT GROUP/COMMERCIAL SERVICES, INC.
By:
------------------------------------------
Name:
----------------------------------
Title:
----------------------------------
AGENT:
BANK OF AMERICA, N.A.
By:
------------------------------------------
Name:
----------------------------------
Title:
----------------------------------
Exhibit 10.21
AGREEMENT
---------
THIS AGREEMENT is executed and entered into effective as of July 2,
1999 (the "Effective Date"), by and between the Pension Benefit Guaranty
Corporation ("PBGC") and Tultex Corporation ("Tultex" or "Company").
WITNESSETH
----------
WHEREAS, Tultex is a contributing sponsor, as defined in section
4001(a)(13) of ERISA (as hereinafter defined), of the Pension Plan for the
Employees of Tultex ("Plan"); and
WHEREAS, Tultex recently completed a recapitalization of the Company
whereby a new $150 million secured credit facility from Bank of America was
obtained that: 1) paid off all of the outstanding amounts under the Company's
prior unsecured revolving credit agreement; 2) funded a partial tender offer for
the Senior Notes; 3) provided a security interest to its Senior Noteholders; and
4) provided Tultex with working capital (the "Recapitalization"); and
WHEREAS, PBGC informed Tultex that, as a result of the
Recapitalization, PBGC may determine to initiate proceedings pursuant to section
4042(a)(4) of ERISA to terminate the Plan based on the ground that the possible
long-run loss to the PBGC may reasonably be expected to increase unreasonably;
and
WHEREAS, in consideration of Tultex's willingness to undertake the
obligations set forth below in this Agreement, PBGC will not institute
proceedings under section 4042 of ERISA to terminate the Plan based on the
grounds that the Recapitalization results in an unreasonable increase in the
possible long-run loss to the PBGC.
<PAGE>
NOW THEREFORE, for good and valuable consideration, and intending to be
bound hereby, PBGC and Tultex agree as follows.
I. DEFINITIONS.
------------
When used herein:
"Additional Cash Contributions" shall have the meaning set forth in
Section II.
"Agreement" means this agreement made by and between PBGC and Tultex.
"Bank of America" means Bank of America Business Credit.
"Code" means the Internal Revenue Code of 1986, as amended.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"PBGC" means the Pension Benefit Guaranty Corporation, a wholly-owned
United States government corporation.
"Plan" shall have the meaning set forth in the recitals hereto.
"Plan Year" means the 12-month period from June 1 to May 31. For
example, the 1999 Plan Year ends on May 31, 1999.
"Recapitalization" shall have the meaning set forth in the recitals
hereto.
"Required Credit Balance" means, as of the end of any Plan Year, the
amount of the Additional Cash Contributions paid or payable for such Plan Year
and prior Plan Years, adjusted for interest at the end of the Plan Year. The
Required Credit Balance shall be maintained until the Agreement terminates
pursuant to Section VI hereof.
"Senior Noteholders" mean the holders of Tultex 9-5/8 percent Senior
Notes due 2007 and 10-5/8 percent Senior Notes due 2005.
"Tultex Corporation" shall mean Tultex Corporation, a Virginia
corporation with its headquarters in Martinsville, Virginia.
2
<PAGE>
II. ADDITIONAL CASH CONTRIBUTIONS:
------------------------------
In addition to the minimum funding contributions to the Plan required
under the funding standards of section 412 of the Code, Tultex will make
Additional Cash Contributions to the Plan as follows: for the 1999 Plan year, $2
million on or before December 31, 1999; for the 2000 Plan year, $2 million on or
before December 31, 2000; and for the 2001 Plan year, $1.5 million on or before
December 31, 2001.
III. CREDIT BALANCE MAINTENANCE REQUIREMENT.
---------------------------------------
For each Plan Year during the term of this Agreement, beginning with
the 1999 Plan Year, on or before December 31 following the end of the Plan Year,
Tultex will make any contribution to the Plan necessary to maintain the Required
Credit Balance in the Plan's funding standard account.
IV. TAX DEDUCTIBILITY LIMITATION ON CONTRIBUTIONS.
----------------------------------------------
Tultex shall not be obligated to make the portion of any payment
required under Section II or III of this Agreement that would be non-deductible
under Code ss. 404 for the Plan Year. If a required payment exceeds the maximum
deductible amount for the Plan under Code ss. 404 for the Plan year, then the
portion of any payment not made in a given Plan Year due to the maximum tax
deductible contribution limitation will be carried over and paid in the next
Plan Year for which it is deductible. The amount of the maximum deductible
contributions will be determined with the current liability calculated lowering
the interest rate as necessary to make such additional contributions deductible,
but not less than the lowest interest rate in the permissible range as
prescribed under Code ss. 412(l)(7)(C), or any successor provisions thereto.
3
<PAGE>
V. RENEWABLE LETTER OF CREDIT.
---------------------------
On or before September 30, 1999, Tultex will provide to PBGC an
irrevocable Letter of Credit, substantially in the form attached hereto, for the
benefit of PBGC with the following terms:
(a) Amount: An initial amount of $2 million. After Additional Cash
Contributions of $4 million have been contributed to the Plan, the Letter of
Credit may be reduced to $1.5 million.
(b) Duration and Features: The Letter of Credit shall be a one year
irrevocable Letter of Credit, effective on September 30, 1999, and, with annual
renewals, shall remain in effect until all Additional Cash Contributions have
been made.
(c) Annual Notice and Replacement: The Letter of Credit shall provide
that the issuing bank shall notify PBGC and Tultex no less than sixty (60) days
prior to the expiration of the Letter of Credit as to whether it intends to
renew the Letter of Credit for another year. If the issuing bank does not intend
to renew, Tultex must provide a replacement Letter of Credit before the
thirtieth (30) day prior to the expiration of the Letter of Credit. Should the
Letter of Credit be drawn upon to satisfy the requirements of Section
V(d)(3)-(5) below, Tultex must provide PBGC a replacement Letter of Credit
within five (5) business days for the amount specified in Section V(a) above.
(d) Draw Events: PBGC may draw the full amount of the Letter of Credit,
and any replacement Letter of Credit, in the event of the following:
(1) PBGC receives a Notice of Intent to Terminate the
Plan in a distress termination pursuant to section
4041(c) of ERISA;
(2) Ten (10) days after PBGC issues a Notice of
Determination that the Plan should be terminated in
an involuntary termination pursuant to section 4042
of ERISA;
4
<PAGE>
(3) Tultex fails to provide a replacement Letter of
Credit more than thirty (30) business days before the
expiration of the Letter of Credit then in place;
(4) Tultex fails to make an Additional Cash Contribution
by the prescribed date; and
(5) Tultex fails to maintain the Required Credit Balance
as described in Section III above.
(e) Escrow Account for Letter of Credit:
(1) Amounts received by PBGC pursuant to a draw on the
Letter of Credit or replacement Letter of Credit
under Section V(d)(1) and (d)(2) above shall be held
in an interest bearing escrow account until the Plan
has been terminated, either by court order or by
agreement between the Plan administrator of the Plan
and PBGC. If, however, PBGC subsequently withdraws
the Notice of Determination, or fails or otherwise
declines to terminate the Plan under ERISA ss.ss.
4041(c) or 4042, PBGC will return the amount in the
escrow account to Tultex. Taxes on earnings on any
escrowed amounts shall be charged to the escrow
account. After-tax interest earned on escrowed
amounts shall he available for distribution to
Tultex. If the Plan is terminated and the liabilities
of the Plan associated with termination are less than
the escrow amount, PBGC will apply the amount drawn
to satisfy Tultex's liabilities associated with
termination of the Plan. Any amounts remaining in the
escrow after Tultex's termination liabilities are
satisfied will be returned to Tultex.
(2) Amounts received by PBGC pursuant to a draw of the
Letter of Credit under Section V(d)(3) above shall be
held in an interest bearing escrow account until such
time as an event described in sections V(d)(1), (2) ,
(4) or (5) occurs, at which time Sections V(e)(1) or
(3) will govern the use of the amount in escrow
account.
(3) Amounts received by PBGC pursuant to a draw of the
Letter of Credit under Section V(d)(4) above shall be
held in an interest bearing escrow account until such
time as the missed Additional Cash Contribution has
been made and PBGC receives from Tultex a replacement
Letter of Credit in the amount required under section
V(a) above. If the missed Additional Cash
Contribution has been made to the Plan and PBGC
receives a replacement Letter of Credit under section
V(c) above, PBGC will return the amount in the escrow
account to Tultex.
(4) Amounts received by PBGC pursuant to a draw of the
Letter of Credit under Section V(d)(5) above shall be
held in an interest bearing escrow
5
<PAGE>
account until such time as Tultex contributes to the
Plan an amount sufficient to maintain the credit
balance required by Section III above. If Tultex
contributes to the Plan an amount sufficient to
maintain the Required Credit Balance and PBGC
receives a replacement Letter of Credit under section
V(c) above, PBGC will return the amount in the escrow
account to Tultex.
In the event the Plan is successfully terminated in a standard
termination under section 4041(b) of ERISA, amounts received by PBGC pursuant to
a draw of the Letter of Credit will be returned. In addition, if the Agreement
terminates in accordance with Section VI below, any balance in the escrow
account will be returned to Tultex.
VI. EXPIRATION OF THE AGREEMENT.
----------------------------
This Agreement will terminate upon the earliest to occur of (a), (b),
(c), or (d) below, but in the case of (a), (b), or (c), no earlier than five (5)
years from the date of the Agreement, and provided that Tultex has made all
contributions required under the Agreement.
(a) The date on which Tultex obtains ratings on its unsecured debt
from Standard & Poor's and Moody's of at least BBB and Baa2,
respectively.
(b) The date on which Tultex demonstrates to PBGC that the Plan
has no unfunded benefit liabilities as determined under
section 4001(a)(18) of ERISA as of the last day of the Plan
Year for any two consecutive Plan Years (the last day of the
Plan Year in the second consecutive year being the measurement
date).
(c) In the event there is no rating as provided in subsection (a)
above, the date on which Tultex obtains a private ratings on a
hypothetical issue of unsecured debt at the rating level (or
better) specified in paragraph (a) above. For purposes of
obtaining such private ratings, the amount of the hypothetical
debt will equal at least $100 million.
(d) The date on which the Plan is successfully terminated in a
standard termination under section 4041(b) of ERISA.
6
<PAGE>
VII. NOTICE OF EXPIRATION OF AGREEMENT.
----------------------------------
Tultex shall provide PBGC with written notice of any determination by
Tultex that it has achieved one of the tests for expiration of this Agreement
set forth in Section VI above. PBGC will respond in writing to Tultex within
thirty (30) days of the receipt of Tultex's written notice whether it concurs
with the determination. Such concurrence shall not be unreasonably withheld.
Upon receipt by Tultex of PBGC's concurrence, the Agreement will terminate.
VIII. REPORTING REQUIREMENTS.
-----------------------
From and after the Effective Date and until termination of this
Agreement, and in addition to any reporting obligations that Tultex may have
under ERISA, Tultex shall deliver or cause to be delivered to PBGC--Corporate
Finance & Negotiations Department the following:
(a) Copies of Form 5500 (with attachments) when filed with the
IRS, and Actuarial Valuation Reports prior to the end of the
Plan year for the Plan.
(b) Written notice of date and amount of contributions made to the
Plan within ten (10) business days after the contribution is
made, or written notice of failure to make any contribution
within five (5) business days after the due date. If any of
the contributions required under this Agreement cannot be made
in a Plan Year due to the maximum tax deductible contribution
limitation, Tultex will, within ten (10) days of such
determination, provide PBGC with the calculations supporting
that conclusion.
(c) Written notice thirty (30) days prior to any change in any of
the Plan's actuarial assumptions or methods for the purpose of
the minimum funding standard of section 412 of the Code, which
change shall be subject to PBGC's consent in advance. Such
consent shall not be unreasonably withheld.
(d) Written notice no later than thirty (30) days prior to any
Plan merger or spinoff.
(e) Written notice thirty (30) days prior to any material
refinancing of debt or material change in debt amortization
schedule, any violation of financial covenants, or receipt of
a waiver of financial covenants.
7
<PAGE>
(f) Written notice thirty (30) days prior to any transaction that
would have the effect of transferring assets and liabilities
of the Plan or transferring sponsorship of the Plan.
(g) Written notice thirty (30) days prior to any sale, transfer or
other disposition of assets of any member of the controlled
group where such assets represent (i) 10% or more of the book
value of the assets of the controlled group on a consolidated
basis, or (ii) generated 10% or more of the consolidated
revenues or operating income.
(h) Copies of any notices of reportable events at the time they
are filed.
IX. GENERAL PROVISIONS.
-------------------
(a) Compliance with ERISA. Nothing in this Agreement shall affect or in
any way diminish Tultex's obligations to comply with ERISA.
(b) Limitation of Rights. This Agreement is intended to be and is for
the sole and exclusive benefit of PBGC and Tultex. Nothing expressed or
mentioned in or to be implied from the Agreement gives any person other than
PBGC and Tultex any legal or equitable right, remedy or claim against Tultex or
PBGC under or in respect of this Agreement.
(c) Notices. All notices, demands, instructions and other
communications required or permitted under the Agreement to any party to the
Agreement shall be in writing and shall be personally delivered or sent by
registered, certified or express mail, postage prepaid, return receipt
requested; telefacsimile (which shall be immediately followed by the original of
such communication); or pre-paid overnight delivery service with confirmed
receipt and shall be deemed to be given for purposes of this Agreement on the
date the writing is received by the intended recipient, or in the case of
telefacsimile, on the date transmitted to the intended recipient. Unless
otherwise specified in a notice sent or delivered in accordance with the
8
<PAGE>
foregoing provisions of this section, notices, demands, instructions and other
communications in writing shall be sent to the parties as indicated below:
To Tultex: General Counsel
Tultex Corporation
PO Box 5191
Martinsville, VA 24115
Telephone (540) 632-2961
Facsimile (540) 632-8751
To PBGC: Director Corporate Finance
and Negotiations Department
Pension Benefit Guaranty Corporation
1200 K Street, N.W.
Washington, D.C. 20005-4026
Telephone: (202) 326-4070
Facsimile: (202) 842-2643; and
General Counsel
Pension Benefit Guaranty Corporation
1200 K Street, N.W.
Washington, D.C. 20005-4026
Telephone: (202) 326-4020
Facsimile: (202) 326-4112
(d) Counterparts. This Agreement may be executed in one or more
counterparts and by different parties on separate counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
(e) Entire Agreement. This Agreement contains the complete and
exclusive statement of the agreement and understanding by and among the parties
hereto and supersedes all prior agreements, understandings, commitments,
representations, communications, and proposals, oral or written, between the
parties relating to the subject matter of this Agreement. This Agreement may not
be amended, modified, or supplemented except by an instrument in writing
executed by the parties to this Agreement.
9
<PAGE>
(f) Representations and Warranties. PBGC and Tultex each represents and
warrants to the other that it has full power and authority to enter into this
Agreement and that this Agreement constitutes a legal, valid and binding
obligation enforceable against it in accordance with the Agreement's terms.
(g) No Waivers. The failure of any party to the Agreement to enforce a
provision of the Agreement shall not constitute a waiver of the party's right to
enforce that provision of the Agreement.
(h) Headings. The section and paragraph headings contained in this
Agreement are for convenience only and shall not affect the meaning or
interpretation of this Agreement.
(i) Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of Virginia and by ERISA, the Code and
other laws of the United States to the extent they preempt Virginia law.
(j) Binding Effect. This Agreement shall be binding upon Tultex and
PBGC and their respective successors, if any.
(k) Construction. The language used in this Agreement shall be deemed
to be the language chosen by the parties to express their mutual intent, and no
rule of strict construction shall be applied against any party hereto. Nor shall
any rule of construction that favors a non-draftsman be applied. A reference to
any statute shall be deemed also to refer to all rules and regulations
promulgated under the statute, unless the context requires otherwise.
(l) Assignment. This Agreement may not be assigned in whole or in part
by either party without the express written consent of the other party.
(m) No Change to Governing Plan Documents or Administration. This
Agreement is not a document or instrument governing the Plan, nor does anything
in this Agreement amend,
10
<PAGE>
supplement or derogate from the documents and instruments governing the Plan.
Further, nothing in this Agreement alters, amends or otherwise modifies the
operation or administration of the Plan.
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be duly executed and delivered by their respective duly authorized
officers as of the day and year first stated above.
PENSION BENEFIT GUARANTY CORPORATION
------------------------------------
By: Andrea E. Schneider
Title: Chief Negotiator and Director, Corporate
Finance and Negotiations Department
TULTEX CORPORATION
-------------------------------------
By: O. Randolph Rollins
Title: Executive Vice President and
General Counsel
11
INTERCREDITOR AGREEMENT
This INTERCREDITOR AGREEMENT (the "Agreement") is made and entered into
this 7th day of May, 1999, by and between U.S. BANK NATIONAL ASSOCIATION, in its
capacity as Successor Trustee under the below-described Indentures (in such
capacity, "Trustee"), and NATIONSBANK, N.A., in its capacity as Agent for the
Lenders under the below-described Loan Agreement (in such capacity, "Agent").
W I T N E S S E T H :
WHEREAS, Tultex Corporation, a Virginia corporation ("Tultex"),
CALIFORNIA SHIRT SALES, INC., a Virginia corporation, DOMINION STORES, INC., a
Virginia corporation, TULTEX/T-SHIRT CITY, INC., a Virginia corporation, and
TRACK GEAR INC., a Virginia corporation (collectively, "Borrowers"), AKOM, LTD.,
a Cayman Islands, B.W.I. corporation, DOMINION DISTRIBUTION, INC., a Virginia
corporation, LIGA MAYOR DE MEXICO S.A. DE C.V., a Mexican corporation, TULTEX
SUBSIDIARY (VA), INC., a Virginia corporation, formerly known as Logo Athletic,
Inc., TULTEX SUBSIDIARY (MASS), INC., a Massachusetts corporation formerly known
as Logo Athletic/Headwear, Inc., TULTEX CANADA, INC., a Canadian corporation,
SWEATJET INCORPORATED, a Virginia corporation, and TULTEX INTERNATIONAL, INC., a
Virginia corporation (collectively, "Guarantors"; Borrowers, Guarantors and any
other Person which hereafter becomes a borrower or guarantor under the Loan
Agreement, collectively, "Obligors"), certain lenders party thereto from time to
time (the "Lenders"), and Agent have entered into that certain Loan and Security
Agreement, dated as of May 7, 1999 (together with any amendments, supplements,
modifications, restatements and successor agreements, the "Loan Agreement"); and
WHEREAS, pursuant to the terms and conditions of the Loan Agreement,
the Lenders and Agent have agreed to make certain loans and financial
accommodations available to Obligors; and
WHEREAS, in order to secure their obligations arising under or with
respect to the Loan Agreement, Obligors have entered into certain security
agreements, assignments, mortgages, deeds of trust, and other security documents
(as amended from time to time, together with the Loan Agreement and the other
agreements, instruments and documents executed in connection therewith, the
"Bank Documents"), pursuant to which Obligors have granted Agent, as agent for
the Lenders and the other Bank Creditors (as defined below), a lien on and
security interest in the Collateral (as defined below); and
WHEREAS, in connection with the restructuring of the Obligors' existing
indebtedness, Tultex, as Issuer, the other Obligors, as Guarantors, and Trustee
have entered into (a) that certain Indenture, dated as of March 15, 1995, with
respect to Tultex's 10-5/8% Senior Notes due 2005 (the "10-5/8% Notes") in the
aggregate original principal amount of $110,000,000, together with
<PAGE>
the First Supplemental Indenture thereto, dated as of May 1, 1997, and the
Second Supplemental Indenture of even date herewith (together with any further
amendments, supplements, modifications, restatements and successor agreements,
the "10-5/8% Indenture"), and (b) that certain Indenture, dated as of April 17,
1997, with respect to Tultex's 9-5/8% Senior Notes due 2007 (together with the
10-5/8% Notes, the "Notes") in the aggregate original principal amount of
$75,000,000, together with the First Supplemental Indenture thereto, dated as of
May 1, 1997, and the Second Supplemental Indenture of even date herewith
(together with any further amendments, supplements, modifications, restatements
and successor agreements, the "9-5/8% Indenture", and together with the 10-5/8%
Indenture, the "Indentures"); and
WHEREAS, in order to secure their obligations arising under or with
respect to the Notes and the Indentures, Obligors have entered into certain
security agreements, assignments, mortgages, deeds of trust, and other security
documents (as amended from time to time, together with the Notes and the
Indentures and the other agreements, instruments and documents executed in
connection therewith, the "Noteholder Documents"), pursuant to which Obligors
have granted Trustee, as trustee for the holders of the Notes (the
"Noteholders"), a lien on and security interest in the Collateral; and
WHEREAS, it is contemplated in the Indentures and the Loan Agreement
that Agent will have a first priority lien on and security interest in the Bank
Priority Collateral (as defined below) and Trustee will have a first priority
lien on and security interest in the Noteholder Priority Collateral (as defined
below); and
WHEREAS, the parties hereto are executing and delivering this Agreement
to evidence their agreement in respect of their relative rights with respect to
the Collateral.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS. In addition to terms defined elsewhere in this
Agreement, the following terms shall have the meanings set forth below:
"Agent" shall have the meaning set forth in the preamble or recitals to this
Agreement.
"Bank Creditor" means any Secured Creditor under and as defined in the Loan
Agreement.
"Bank Documents" shall have the meaning set forth in the preamble or recitals to
this Agreement.
"Bank Obligations" means all Secured Obligations under and as defined in the
Loan Agreement.
"Bank Priority Collateral" means (a) all Receivables and Receivables Related
Collateral; (b) all Inventory; (c) all Contract Rights relating to or arising
out of Receivables or Inventory; (d) all General Intangibles, including all
Proprietary Rights; (e) all Tax Refund Claims; (f) all documents of title,
policies and certificates of insurance, securities, chattel paper and other
documents and instruments evidencing or pertaining to any and all items of Bank
Priority Collateral identified in the other clauses of this definition; (g) all
of Obligors' demand, time, savings, passbook, money market or like depository
accounts, and certificates of deposit,
-2-
<PAGE>
maintained with a bank, savings and loan association, credit union or like
organization; and (h) any and all products and proceeds of the foregoing
(including any claim to any item referred to in this definition, and any claim
against any third party for loss of, damage to or destruction of any or all of
the Bank Priority Collateral, or for proceeds payable under, or unearned
premiums with respect to, policies of insurance with respect to Bank Priority
Collateral) in whatever form, including cash, negotiable instruments and other
instruments for the payment of money, investment property, chattel paper,
security agreements and other documents.
"Borrowers" shall have the meaning set forth in the preamble or recitals to this
Agreement.
"Collateral" means, collectively, all Bank Priority Collateral and all
Noteholder Priority Collateral.
"Contract Rights" means, in each case whether now existing or hereafter
arising, any rights under contracts not yet earned by performance and not
evidenced by an instrument or chattel paper.
"Copyrights" means, in each case whether now existing or hereafter arising, all
of each Obligor's right, title and interest in and to: (a) all copyrights,
rights and interests in copyrights, works protectable by copyright, copyright
registrations and copyright applications; (b) all renewals of any of the
foregoing; (c) all income, royalties, damages and payments now or hereafter due
and/or payable under any of the foregoing, including damages or payments for
past or future infringements of any of the foregoing; (d) the right to sue for
past, present and future infringements of any of the foregoing; and (e) all
rights corresponding to any of the foregoing throughout the world.
"Enforcement Action" means (a) the commencement of any action, suit or
proceeding (including any Proceeding) against any Obligor to repossess,
foreclose, liquidate or otherwise realize upon any of the Collateral, (b) the
exercise of any remedy to enforce any Lien in any of the Collateral, including
any non-judicial action taken to repossess, foreclose, liquidate or otherwise
realize upon any of the Collateral (including the giving of any notice to any
Person obligated on a Receivable), and (c) any petition or other suit for the
appointment of a receiver for any Obligor or any Obligor's assets.
"Enforcement Notice" shall have the meaning set forth in Section 5 hereof.
"Equipment" means, in each case whether now existing or hereafter arising, all
of each Obligor's right, title and interest in and to all machinery, apparatus,
equipment, motor vehicles, tractors, trailers, rolling stock, fittings, fixtures
and other tangible personal property (other than Inventory) of every kind and
description used in any Obligor's business operations or owned by an Obligor or
in which an Obligor has an interest, and all parts, accessories and special
tools and all increases and accessions thereto and substitutions and
replacements therefor.
"Event of Default" means any Event of Default under and as defined in the Bank
Documents or the Noteholder Documents.
"General Intangibles" means, in each case whether now existing or hereafter
arising, all of each Obligor's general intangibles and other intangible personal
property of every kind and nature
-3-
<PAGE>
which relate to or arise out of any of the Receivables or Inventory, including
all of the following which relate to or arise out of any of the Receivables or
Inventory: all Proprietary Rights, corporate or other business records,
inventions, designs, blueprints, plans, specifications, goodwill, computer
software, customer lists, registrations, licenses, franchises, rights and claims
against carriers and shippers, rights to indemnification, business interruption
insurance and proceeds thereof, property, casualty or any similar type of
insurance and any proceeds thereof (to the extent payable in respect of Bank
Priority Collateral), and any letter of credit, guarantee, claims, security
interest or other security held by or granted to any Obligor to secure payment
by an account debtor of any of the Receivables.
"Guarantors" shall have the meaning set forth in the preamble or recitals to
this Agreement.
"Indentures" shall have the meaning set forth in the preamble or recitals to
this Agreement.
"Inventory" means, in each case whether now existing or hereafter arising, all
inventory as such term is defined in the Uniform Commercial Code and shall
include, without limitation, (a) all goods intended for sale or lease by any
Obligor or for display or demonstration, (b) all work in process, (c) all raw
materials and other materials and supplies of every nature and description used
or which might be used in connection with the manufacture, packing, shipping,
advertising, selling, leasing or furnishing of such goods or otherwise used or
consumed in any Obligor's business, and (d) all documents evidencing and general
intangibles relating to any of the foregoing.
"Lenders" shall have the meaning set forth in the preamble or recitals to this
Agreement.
"Lien" means any mortgage, deed to secure debt, deed of trust, lien,
pledge, charge, security interest, security title or encumbrance of any kind,
whether created by agreement or by possession of property, or conferred by
statute or applicable law.
"Loan Agreement" shall have the meaning set forth in the preamble or recitals to
this Agreement.
"Logo Athletic Note" means, collectively, (a) the Non-Negotiable Subordinated
Promissory Note of TKS Acquisition, Inc., dated July 15, 1998, payable to Tultex
in the principal amount of $5,000,000, (b) the Non-Negotiable Subordinated
Promissory Note of TKS Acquisition, Inc., dated July 15, 1998, payable to Tultex
in the principal amount of $2,500,000, and (c) the Non-Negotiable Subordinated
Promissory Note of TKS Acquisition, Inc., dated July 15, 1998, payable to Tultex
in the principal amount of $5,000,000.
"Noteholder Documents" shall have the meaning set forth in the preamble or
recitals to this Agreement.
"Noteholder Obligations" means all principal, interest, premium, if any, and
other obligations of Tultex and the other Obligors under the Notes, the
Indentures and the other Noteholder Documents.
"Noteholder Priority Collateral" means (a) all Equipment; (b) all Real Estate;
(c) all documents of title, policies and certificates of insurance, securities,
chattel paper and other documents and instruments evidencing or pertaining to
any and all items of Noteholder Priority Collateral
-4-
<PAGE>
identified in the other clauses of this definition; and (d) any and all products
and proceeds of the foregoing (including any claim to any item referred to in
this definition, and any claim against any third party for loss of, damage to or
destruction of any or all of the Noteholder Priority Collateral, or for proceeds
payable under, or unearned premiums with respect to, policies of insurance with
respect to the Noteholder Priority Collateral) in whatever form, including cash,
negotiable instruments and other instruments for the payment of money,
investment property, chattel paper, security agreements and other documents.
"Noteholders" shall have the meaning set forth in the preamble or recitals to
this Agreement.
"Notes" shall have the meaning set forth in the preamble or recitals to this
Agreement.
"Obligors" shall have the meaning set forth in the preamble or recitals to this
Agreement.
"Patents" means, in each case whether now existing or hereafter
arising, all of each Obligor's right, title and interest in and to (a) any and
all patents and patent applications, (b) inventions and improvements described
and claimed therein, (c) reissues, divisions, continuations, renewals,
extensions and continuations-in-part thereof, (d) income, royalties, damages,
claims and payments now or hereafter due and/or payable under and with respect
thereto, including damages and payments for past and future infringements
thereof, (e) rights to sue for past, present and future infringements thereof,
and (f) all rights corresponding to any of the foregoing throughout the world.
"Person" means an individual, limited liability company, corporation,
partnership, association, trust or unincorporated organization, joint venture or
other entity or a government or any agency or political subdivision thereof.
"Proceeding" means any bankruptcy, reorganization, insolvency, receivership, or
other similar proceeding with respect to any Obligor or any of its assets.
"Proprietary Rights" means all of each Obligor's now owned and hereafter arising
or acquired Patents, Copyrights, and Trademarks, and all rights under any of the
foregoing, all extensions, renewals, reissues, divisions, continuations, and
continuations-in-part of any of the foregoing, and all rights to sue for past,
present and future infringement of any of the foregoing.
"Real Estate" means, in each case whether now existing or hereafter arising, all
of each Obligor's right, title and interest in and to real property.
"Receivables" means, in each case whether now existing or hereafter arising, as
to each Obligor, (a) any and all rights to the payment of money or other forms
of consideration of any kind (whether classified under the Uniform Commercial
Code as accounts, contract rights, chattel paper, general intangibles, or
otherwise) including accounts receivable, letters of credit and the right to
receive payment thereunder, chattel paper, tax refunds, insurance proceeds,
Contract Rights, notes, drafts, instruments, documents, acceptances, and all
other debts, obligations and liabilities in whatever form from any Person, but
excluding the Logo Athletic Note and the Vendor Note, (b) all guarantees,
security and Liens for payment thereof, (c) all goods, whether now owned or
hereafter acquired, and whether sold, delivered, undelivered, in transit or
returned,
-5-
<PAGE>
which may be represented by, or the sale or lease of which may have given rise
to, any such right to payment or other debt, obligation or liability, and (d)
all proceeds of any of the foregoing.
"Receivables Related Collateral" means (a) all goods and other property
(other than Noteholder Priority Collateral), whether or not delivered, (i) the
sale or lease of which gives or purports to give rise to any Receivable,
including all merchandise returned or rejected by or repossessed from customers,
or (ii) securing any Receivable, including all rights as an unpaid vendor or
lienor (including stoppage in transit, replevin and reclamation) with respect to
such goods and other property, (b) all mortgages, deeds to secure debt and deeds
of trust on real or personal property, guaranties, leases, security agreements,
and other agreements and property which secure any Receivable, or are acquired
for the purpose of securing and enforcing any item thereof, and (c) all files,
correspondence, computer programs, tapes, discs and related data processing
software which contain information identifying or pertaining to any of the
Receivables or any account debtor, or showing the amounts thereof or payments
thereon or otherwise necessary or helpful in the realization thereon or the
collection thereof.
"Secured Party" means Agent, for the benefit of the Lenders and the other Bank
Creditors, and Trustee, for the benefit of the Noteholders.
"Tax Refund Claims" means, in each case whether now existing or hereafter
arising, all of each Obligor's tax refund claims and all rights with respect
thereto, including all rights to settle or compromise the amount of such claims,
to file amendments and other documents with respect thereto, and to receive the
proceeds thereof.
"Trademarks" means, in each case whether now existing or hereafter arising, all
of each Obligor's right, title and interest in and to (a) trademarks (including
service marks), trade names and trade styles and the registrations and
applications for registration thereof and the goodwill of the business
symbolized by the trademarks, (b) licenses of the foregoing, whether as licensee
or licensor, (c) renewals thereof, (d) income, royalties, damages and payments
now or hereafter due and/or payable with respect thereto, including damages,
claims and payments for past and future infringements thereof, (e) rights to sue
for past, present and future infringements thereof, including the right to
settle suits involving claims and demands for royalties owing, and (f) all
rights corresponding to any of the foregoing throughout the world.
"Trustee" shall have the meaning set forth in the preamble or recitals to this
Agreement.
"Tultex" shall have the meaning set forth in the preamble or recitals to this
Agreement.
"Uniform Commercial Code" means the Uniform Commercial Code as in effect in any
relevant jurisdiction.
"Vendor Note" means, collectively, (a) the promissory note dated July 1, 1997 of
Textiles Arco Iris, SA. De CV, as amended, payable to Tultex in the amount of
$198,000 as of April 3, 1999, and (b) the contract obligations due from [OMSA]
and related parties under the agreement dated October 11, 1995, as amended on
July 1, 1997, payable to Tultex in the amount of $4,354,000 as of April 3, 1999.
-6-
<PAGE>
2. PRIORITY OF LIENS. Notwithstanding the date, manner or order of
perfection of the Liens granted to Agent or Trustee, and notwithstanding any
provision of the Uniform Commercial Code, any other applicable law or decision,
or the Bank Documents or Noteholder Documents, or whether Agent or Trustee holds
possession of all or any part of the Collateral, or the provisions of any
financing statement, the following, as between Agent and Trustee, shall be the
relative priorities with respect to the various Liens of Agent and Trustee in
the Collateral, whether before, after or during any Proceeding:
(a) Agent shall have a first and prior Lien on the Bank
Priority Collateral to secure the Bank Obligations, which Lien shall be superior
to any Lien or other interest of Trustee in the Bank Priority Collateral, such
Liens and other interests of Trustee being subordinate to the Lien of Agent in
the Bank Priority Collateral; provided, however, that such Lien securing the
Bank Obligations shall only be superior to the Lien of the Trustee on, or other
interest of the Trustee in, the Bank Priority Collateral to the extent that the
Bank Obligations do not exceed the sum of $160,000,000 plus all accrued but
unpaid interest thereon (including any interest accruing during any Proceeding)
plus all costs and expenses of collecting or enforcing the Bank Obligations or
the Liens of Agent in the Collateral, including reasonable attorneys' fees;
provided further, that, to the extent that the Bank Obligations exceed such sum,
the Lien of Agent in the Bank Priority Collateral shall be PARI PASSU with the
Lien of the Trustee on, or other interest of the Trustee in, the Bank Priority
Collateral; and
(b) Trustee shall have a first and prior Lien on the
Noteholder Priority Collateral to secure the Noteholder Obligations, which Lien
shall be superior to any Lien or other interest of Agent in the Noteholder
Priority Collateral, such Liens and other interests of Agent being subordinate
to the Lien of Trustee in the Noteholder Priority Collateral; provided, however,
that such Lien securing the Noteholder Obligations shall only be superior to the
Lien of Agent on, or other interest of Agent in, the Noteholder Priority
Collateral to the extent that the Noteholder Obligations do not exceed the sum
of $125,000,000 plus all accrued but unpaid interest thereon (including any
interest accruing during any Proceeding) plus all costs and expenses of
collecting or enforcing the Noteholder Obligations or the Liens of the Trustee
in the Collateral, including reasonable attorneys' fees; provided further, that,
to the extent that the Noteholder Obligations exceed such sum, the Lien of the
Trustee in the Noteholder Priority Collateral shall be PARI PASSU with the Lien
of Agent on, or other interest of Agent in, the Noteholder Priority Collateral.
3. BAILEE FOR PERFECTION. Each Secured Party agrees that, with respect
to any Collateral at any time in its possession and in which the other Secured
Party has a Lien (whether or not subordinate pursuant to the terms hereof to the
Lien of the Secured Party in possession), the Secured Party in possession of any
such Collateral shall be the agent and bailee of the other Secured Party solely
for purposes of perfecting (to the extent not otherwise perfected) such other
Secured Party's Lien in such Collateral, subject in all events to the relative
priorities established pursuant to Section 2 hereof.
4. PRIORITY ON DISTRIBUTION. In the event of any distribution, division
or application, partial or complete, voluntary or involuntary, by operation of
law or otherwise, of all or any part of the Collateral, whether by reason of
liquidation, bankruptcy, arrangement, receivership, assignment for the benefit
of creditors, or any other similar action or proceeding, or
-7-
<PAGE>
the dissolution or other winding up of any Obligor's business, or any other
disposition of all or any part of the Collateral during the continuance of an
Event of Default:
(a) subject to the provisions of Section 2(a) hereof, all
proceeds of the Bank Priority Collateral shall be applied first to the Bank
Obligations, until paid in full, next to the Noteholder Obligations, until paid
in full, and then to Obligors or as otherwise required by applicable law; and
(b) subject to the provisions of Section 2(b) hereof, all
proceeds of the Noteholder Priority Collateral shall be applied first to the
Noteholder Obligations, until paid in full, next to the Bank Obligations, until
paid in full, and then to Obligors or as otherwise required by applicable law.
5. NOTICE OF ENFORCEMENT ACTION. Each Secured Party agrees to give to
the other copies of (a) any written notice given to an Obligor of such Secured
Party's intent to take any Enforcement Action (an "Enforcement Notice") or to
accelerate the maturity of any of the Bank Obligations or Noteholder Obligations
or commence any action, suit or proceeding to enforce payment of the Bank
Obligations or Noteholder Obligations (an "Acceleration Notice"), or (b) any
notice of a Default or Event of Default given to any Obligor under the Bank
Documents or Noteholder Documents (a "Default Notice"), concurrently with, but
in any event within 5 days after, the giving of such Enforcement Notice,
Acceleration Notice or Default Notice to such Obligor. No failure of a Secured
Party to give to the other a copy of such Enforcement Notice, Acceleration
Notice or Default Notice as provided herein shall affect the relative priorities
of the Liens established in Section 2 hereof or other rights provided herein or
create a cause of action or claim against the Secured Party failing to give any
such notice; provided, however, the provisions of this sentence shall not limit
any cause of action or claim against Trustee arising out of the taking of any
Enforcement Action by Trustee in violation of Section 7 hereof.
6. LIMITATION ON ACTIONS IN NON-PRIORITY COLLATERAL. For so long as
this Agreement shall be in effect, neither the Trustee nor any Noteholder shall
take any Enforcement Action with respect to any Bank Priority Collateral without
the prior written consent of Agent. For so long as this Agreement shall be in
effect, neither Agent nor any other Bank Creditor shall take any Enforcement
Action with respect to any Noteholder Priority Collateral without the prior
written consent of the Trustee.
7. TRUSTEE'S ENFORCEMENT ACTIONS IN ITS PRIORITY COLLATERAL. For so
long as this Agreement shall be in effect, Trustee agrees that it will not take
any Enforcement Action with respect to the Noteholder Priority Collateral until
the expiration of at least 90 days after Agent's receipt of an Enforcement
Notice from Trustee with respect thereto (the "Standstill Period"); provided,
however, that the Standstill Period shall be extended by (a) 30 days in the case
of any Enforcement Notice given with respect to an Event of Default under
Section 501(4) or (11) of the 10-5/8% Indenture or Section 401(4) or (11) of the
9-5/8% Indenture and (b) the number of days (not to exceed 30) by which the
delivery of any Default Notice to Agent succeeds the delivery of notice of the
corresponding Default or Event of Default to any Obligor; provided, further
however, that if prior to the expiration of such Standstill Period (including
any extensions thereto pursuant to this Section) all Events of Default under the
Noteholder Documents shall have been cured, then Trustee shall not be authorized
to take any Enforcement Action with respect to the Noteholder Priority
Collateral with respect to such Event of Default; provided further, however,
-8-
<PAGE>
that if prior to the expiration of such Standstill Period (including any
extensions thereto pursuant to this Section) Agent has commenced any Enforcement
Action, then Trustee may immediately take any Enforcement Action with respect to
the Noteholder Priority Collateral with respect to such Event of Default as long
as such Enforcement Action does not in any manner interfere with or affect any
Enforcement Action being taken by Agent with respect to the Bank Priority
Collateral. As between the Obligors, the Trustee and the Noteholders, no
extension of the Standstill Period shall affect the rights and remedies of the
Trustee and the Noteholders under the Noteholder Documents.
8. AGENT'S ENFORCEMENT ACTIONS IN ITS PRIORITY COLLATERAL. Nothing
herein shall be construed to limit, restrict or impair Agent's right to take any
Enforcement Action with respect to the Bank Priority Collateral after the
occurrence of any Event of Default.
9. USE OF FIXED ASSETS. Agent may, for up to 120 days following
Trustee's receipt of an Enforcement Notice from Agent (or, if earlier, for up to
120 days after such Enforcement Notice should have been received had it been
sent in compliance with Section 5 hereof), (a) enter upon any or all of the Real
Estate without force or process of law and without obligation to pay rents,
royalties or compensation to Trustee or any Obligor, and (b) use the Equipment
and Real Estate to the extent Agent deems necessary to complete the manufacture
of the Inventory, collect the Receivables and sell or otherwise dispose of the
Bank Priority Collateral. In the event any occurrence beyond the reasonable
control of Agent shall prevent or otherwise prohibit Agent or its designees from
taking any action with respect to the Bank Priority Collateral as contemplated
in this Section 9, including, without limitation, any Proceeding with respect to
any Obligor or its properties, such 120-day period shall be extended by the
number of days of such 120-day period that Agent's or its designees' access to
the Bank Priority Collateral shall have been prevented thereby. If Agent has
entered upon the Real Estate as provided herein, it shall use its best efforts
to complete as expeditiously as is commercially reasonable its use of such
premises, and Trustee and its designees shall have unrestricted access to the
Noteholder Priority Collateral at all times before, during and after such entry
for the purpose of evaluating the Noteholder Priority Collateral and showing it
to potential purchasers. Nothing herein shall prohibit Agent from abandoning
Bank Priority Collateral. Agent shall indemnify and hold harmless Trustee and
the Noteholders for any destruction of, or damage to, any of the Noteholder
Priority Collateral resulting directly from such entry and use, and shall repair
(or replace, as necessary) any such damage or destruction as promptly as
possible. In addition, Agent shall indemnify and hold harmless Trustee and the
Noteholders from any reasonable cost, expense, or other liability (including,
without limitation, reasonable legal fees and costs) incurred by Trustee and the
Noteholders with respect to any personal injury to or death of third Persons, or
any property damage to property owned by third Persons, to the extent any of the
foregoing are directly caused by Agent's entry upon and use of the Equipment and
Real Estate.
10. AGREEMENT ON CERTAIN BANKRUPTCY MATTERS.
(a) Except as specifically provided otherwise herein, this
Agreement shall continue in full force and effect during any Proceeding. For
such purposes, all references in this Agreement to any Obligor shall be deemed
to apply to such Obligor as debtor-in-possession and to a trustee for such
Obligor.
-9-
<PAGE>
(b) Sections 5, 6, 7, 11, 17 and 28 shall have no force or
effect during any Proceeding. Except as provided otherwise herein, Agent, the
Lenders, the Trustee and the Noteholders expressly preserve all rights that may
be asserted in any Proceeding, including, without limitation, rights in respect
of adequate protection and relief from the automatic stay.
(c) If, in or as a result of any Proceeding, Agent or any
Lender returns, refunds or repays to any Obligor, or any trustee or committee
appointed in such Proceeding, any payment or proceeds of the Collateral in
connection with any action, suit or proceeding alleging that Agent's or such
Lender's receipt of such payments or proceeds was a voidable transfer, then
Agent and the Lenders shall not be deemed ever to have received such payment or
proceeds for purposes of this Agreement in determining whether and when all of
the Bank Obligations have been paid in full.
(d) If, in or as a result of any Proceeding, Trustee or any
Noteholder returns, refunds or repays to any Obligor or any trustee or committee
appointed in such Proceeding, any payment or proceeds of the Collateral in
connection with any action, suit or proceeding alleging that Trustee's or such
Noteholder's receipt of such payments or proceeds was a voidable transfer, then
Trustee and the Noteholders shall not be deemed ever to have received such
payment or proceeds for purposes of this Agreement in determining whether and
when all of the Noteholder Obligations have been paid in full.
11. AGREEMENT TO RELEASE.
(a) Trustee agrees that it will, if requested to do so by
Agent during the continuance of an Event of Default, release its Lien in Bank
Priority Collateral in connection with and in order to facilitate any
foreclosure or realization upon such Bank Priority Collateral or any orderly
liquidation sale of such Bank Priority Collateral, and promptly upon the request
of Agent, Trustee, will, at its expense, execute and deliver such documents,
instruments and agreements as are necessary to effectuate such release and to
evidence such release in the appropriate public records. Notwithstanding the
foregoing, the Lien granted to Trustee shall, subject to all of the provisions
of this Agreement, continue in any proceeds of such Bank Priority Collateral
remaining after the application of such proceeds to the Bank Obligations.
(b) Agent agrees that it will, if requested to do so by
Trustee during the continuance of an Event of Default, release its Lien in
Noteholder Priority Collateral in connection with and in order to facilitate any
foreclosure or realization upon such Noteholder Priority Collateral or any
orderly liquidation sale of such Noteholder Priority Collateral, and promptly
upon the request of Trustee, Agent will, at its expense, execute and deliver
such documents, instruments and agreements as are necessary to effectuate such
release and to evidence such release in the appropriate public records.
Notwithstanding the foregoing, the Lien granted to Agent shall, subject to all
of the provisions of this Agreement, continue in any proceeds of such Noteholder
Priority Collateral remaining after the application of such proceeds to the
Noteholder Obligations.
12. WAIVER OF MARSHALING; APPLICATION OF PAYMENTS, COLLECTIONS AND
PROCEEDS. Each Secured Party hereby waives any right to require the other
Secured Party to marshall any security or Collateral or otherwise to compel such
other Secured Party to seek recourse against or satisfaction of the Bank
Obligations or Noteholder Obligations, as the case may be, from one
-10-
<PAGE>
source before seeking recourse or satisfaction from another source. Each Secured
Party shall be authorized to apply, reserve and reapply, in whole or in part,
any and all payments, collections and proceeds of Collateral received by it to
such portion of the Bank Obligations or Noteholder Obligations, as the case may
be, as such Secured Party may lawfully elect consistent with the provisions of
the Bank Documents or Noteholder Documents, as the case may be.
13. PROVISIONS CONCERNING INSURANCE. Proceeds of the Collateral include
insurance proceeds, and therefore the priorities set forth in Section 2 hereof
govern the ultimate disposition of casualty insurance proceeds. In furtherance
thereof, the Secured Parties agree that:
(a) Agent shall have the sole and exclusive right, as against
Trustee, to adjust settlement of insurance claims in the event of any covered
loss, theft or destruction of the Bank Priority Collateral. All proceeds of such
insurance shall inure to Agent, and Trustee shall cooperate (if necessary) in a
reasonable manner in effecting the payment of such insurance proceeds to Agent.
Agent shall have the right (as between the Secured Parties) to determine whether
such proceeds will be applied to the Bank Obligations or used to rebuild,
replace or repair the affected Bank Priority Collateral. If such proceeds are
applied to the Bank Obligations, any proceeds remaining after payment of the
Bank Obligations and all expenses of collection, including reasonable attorneys'
fees and expenses, shall be promptly remitted to Trustee for application to the
Noteholder Obligations, or to Obligors, as applicable.
(b) Trustee shall have the sole and exclusive right, as
against Agent, to adjust settlement of insurance claims in the event of any
covered loss, theft or destruction of the Noteholder Priority Collateral. All
proceeds of such insurance shall inure to Trustee, and Agent shall cooperate (if
necessary) in a reasonable manner in effecting the payment of such insurance
proceeds to Trustee. Trustee shall have the right (as between the Secured
Parties) to determine whether such proceeds will be applied to the Noteholder
Obligations or used to rebuild, replace or repair the affected Noteholder
Priority Collateral. If such proceeds are applied to the Noteholder Obligations,
any proceeds remaining after payment of the Noteholder Obligations and all
expenses of collection, including reasonable attorneys' fees and expenses, shall
be promptly remitted to Agent for application to the Bank Obligations, or to
Obligors, as applicable.
(c) All proceeds of business interruption insurance shall be
deemed to be proceeds of Bank Priority Collateral and shall be dealt with
accordingly hereunder.
(d) To the extent that the proceeds of any insurance do not
relate to any specific items of Collateral, such proceeds shall inure to the
Secured Parties pro rata in proportion to their respective claims, and Agent
shall act as agent for the Secured Parties in adjusting the settlement of any
claims with respect to such insurance and will keep Trustee informed of its
actions with respect to such insurance.
14. NOTICES. All notices, requests and demands to or upon a Secured
Party shall be in writing and shall be sent by certified or registered mail,
return receipt requested, personal delivery, or by telecopier or other facsimile
transmission, and unless otherwise expressly provided herein, shall be deemed to
have been validly served, given or delivered when delivered, in the case of
personal delivery, one business day after deposit in the U.S. mail, postage
prepaid, in the case of certified or registered mail, or, in the case of
facsimile transmission, when received at the office of the noticed party,
addressed as follows:
-11-
<PAGE>
(A) If to Agent: NationsBank, N.A., as Agent
600 Peachtree Street
13th Floor
Atlanta, Georgia 30308
Attn: Sherry Lail
Fax: (404) 607-6437
(B) If to Trustee: U.S. Bank National Association
180 East Fifth Street
St. Paul, Minnesota 55101
Attn: Richard Prokosch
Fax: (651) 244-0711
or to such other address as each Secured Party may designate for itself by like
notice given in accordance with this Section 14. Any written notice that is not
sent in conformity with the provisions hereof shall nevertheless be effective on
the date that such notice is actually received by the noticed Secured Party. The
Secured Parties hereby agree that, except as expressly set forth to the contrary
in this Agreement, any requirement for the giving of notice to the other under
the Uniform Commercial Code or otherwise in connection with any exercise by such
Secured Party of any of its rights or remedies with respect to any of the
Collateral shall be satisfied by the giving of written notice at least ten days
prior to the date on which such rights or remedies are to be exercised by such
Secured Party, provided that nothing herein shall be deemed to require the
giving of any such notice when such notice is not required by applicable law.
15. RELATIONSHIP OF PARTIES; ADDITIONAL AGREEMENTS. This Agreement is
entered into solely for the purposes set forth herein, and, except as is
expressly provided otherwise herein, neither Secured Party assumes any
responsibility to the other Secured Party to advise such other Secured Party of
information known to such Secured Party regarding the financial condition of any
Obligor or regarding any of the Collateral, or of any other circumstances
bearing upon the risk of nonpayment of the obligations of any Obligor under the
Bank Documents or the Noteholder Documents. Each Secured Party shall be
responsible for managing its relationship with Obligors and neither Secured
Party shall be deemed the agent or fiduciary of the other Secured Party for any
purpose, except as expressly set forth herein. Trustee and Agent (and the
Lenders and the Noteholders) each may alter, amend, supplement, waive, release,
discharge, extend or otherwise modify any terms of the Noteholder Documents or
the Bank Documents, respectively, and otherwise manage and supervise their
relationships with Obligors in accordance with their usual practices modified
from time to time as they deem appropriate under the circumstances, without the
consent of the other Secured Party or regard to the existence of any rights that
the other Secured Party may now or hereafter have in any of the Collateral.
16. SPECIFIC ENFORCEMENT. If either Secured Party fails to comply with
any provision of this Agreement that is applicable to such Secured Party, the
other Secured Party may demand specific performance of this Agreement and may
exercise any other remedy available at law or equity.
17. ADDITIONAL CREDIT EXTENSIONS. Trustee acknowledges, understands and
agrees that (a) Agent and the Lenders may make additional loans and credit
extensions available to any
-12-
<PAGE>
Obligor from time to time, pursuant to the Bank Documents or otherwise, (b) all
such additional loans and credit extensions shall constitute part of the Bank
Obligations and shall be secured by all of the Collateral, and (c) nothing
herein shall restrict in any manner or in any way the right of Agent and the
Lenders to make such additional loans and credit extensions available to any
Obligor as Agent and the Lenders in their sole and absolute discretion may
elect. The foregoing shall not limit or restrict the provisions of Sections 2
and 4 hereof or any of the Obligors' agreements and obligations under the
Noteholder Documents.
18. NO ADDITIONAL RIGHTS OF OBLIGORS; NO EFFECT ON LIENS. Nothing
herein shall be construed to confer additional rights upon any Obligor. Without
limiting the generality of the foregoing, if any Secured Party shall enforce its
rights or remedies in violation of this Agreement, no Obligor shall be
authorized to use such violation as a defense to the rights and remedies of such
Secured Party, nor assert such violation as a counterclaim or basis of setoff or
recoupment against such Secured Party. Nothing contained in this Agreement is
intended to affect or limit in any way the Liens of either Secured Party hereto
with respect to any of the Collateral or other assets of Obligors, whether
tangible or intangible, insofar as Obligors and third parties are concerned. The
Secured Parties specifically reserve all of their respective Liens, and rights
to assert such Liens, as against Obligors and all third parties.
19 NO CHALLENGE OF RIGHTS. Each Secured Party agrees that it shall not
challenge the attachment, validity, perfection, priority (as established
pursuant to Section 2 hereof) or extent of the other Secured Party's Lien in the
Collateral in any judicial, administrative or other proceeding (including any
Proceeding).
20 REPRESENTATIONS AND WARRANTIES. Each Secured Party hereby represents
and warrants to the other Secured Party as follows:
(a) such Secured Party has all requisite power and authority
to execute, deliver and perform this Agreement without other or further
action or approval of any kind; and
(b) this Agreement constitutes the valid and legally binding
obligation of such Secured Party, enforceable in accordance with its
terms (except that enforceability may be limited by bankruptcy,
insolvency and other laws affecting creditors' rights generally), and
no consent or approval of any other party (other than any consent or
approval of the Lenders or the Noteholders which has been obtained),
and no consent, license, approval or authorization of any governmental
authority, bureau or agency, is required in connection with the
execution, delivery, performance, validity and enforceability of this
Agreement.
21. INDEPENDENT CREDIT INVESTIGATIONS. Neither the Secured Parties nor
any of their respective directors, officers, agents or employees shall be
responsible to the others or to any other Person, for any Obligor's solvency,
financial condition or ability to repay any of the Noteholder Obligations or any
of the Bank Obligations, or for statements of any Obligor, oral or written, or
for the validity, sufficiency or enforceability of any of the Noteholder
Documents or any of the Bank Documents, or the validity or priority of any Liens
granted by any Obligor to either Secured Party in connection with any of the
Noteholder Documents or any of the Bank Documents. Each Secured Party has
entered into its agreements with Obligors based upon its
-13-
<PAGE>
own independent investigation, and makes no warranty or representation to the
other Secured Party nor does it rely upon any representation of the other
Secured Party with respect to matters identified or referred to in this
paragraph.
22. TERM OF AGREEMENT. This Agreement is irrevocable and shall continue
in full force and effect and shall be irrevocable by each Secured Party until
the earliest to occur of the following: (a) the Secured Parties in writing
mutually agree to terminate this Agreement; (b) the Noteholder Obligations are
fully paid and discharged and there no longer exists any commitment to provide
loans or other financial accommodations under the Noteholder Documents; or (c)
the Bank Obligations are fully paid and discharged and there no longer exists
any commitment to provide loans or other financial accommodations under the Bank
Documents.
23. NO THIRD PARTY BENEFICIARIES. Nothing contained in this Agreement
shall be deemed to indicate that this Agreement has been entered into for the
benefit of any Person other than the Secured Parties, the Lenders, the other
Bank Creditors, and the Noteholders.
24. CONFLICT WITH DOCUMENTS. The provisions of this Agreement are
intended by the Secured Parties, as between them, to control any conflicting
provisions in the Bank Documents or the Noteholder Documents.
25. SECTION TITLES. The section titles contained in this Agreement are
and shall be deemed to be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the Secured Parties.
26. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which counterparts taken together shall constitute but one and the same
instrument. In proving this Agreement in any judicial proceeding, it shall not
be necessary to produce or account for more than one such counterpart signed by
the Secured Party against whom such enforcement is sought.
27. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the Secured Parties and their respective
successors and assigns. In no event, however, shall either Secured Party
transfer or assign any Lien that it may have in any of the Collateral to any
other Person unless the transferee or assignee thereof shall first agree in
writing to be bound by the terms of this Agreement to the same extent as if an
original signatory hereto.
28 REFINANCING OF SENIOR CREDITOR LOAN AGREEMENT. In the event that one
or more Obligors incur indebtedness, the proceeds of which are use to repay the
Bank Obligations arising under the Bank Documents in full (the "Refinancing
Indebtedness"), Trustee agrees, upon the request of the holder(s) of the
Refinancing Indebtedness, to enter into a replacement intercreditor agreement,
on the same terms and conditions as this Agreement (a "Replacement Intercreditor
Agreement"), with the holder(s) of such Refinancing Indebtedness or their
representative. Upon the execution and delivery of any such Replacement
Intercreditor Agreement, any reference in the Noteholder Documents to this
Agreement shall be deemed to refer to such Replacement Intercreditor Agreement.
-14-
<PAGE>
29. FURTHER ASSURANCES. Each of the Secured Parties agrees to execute
such Uniform Commercial Code amendments and other documents as may be necessary
to reflect of record the existence of this Agreement and the relative priorities
established pursuant to Section 2 hereof. If at any time or from time to time
hereafter it becomes necessary or advisable in connection with the foreclosure,
liquidation or disposition of any Collateral by the Secured Party which has been
accorded a priority Lien upon such Collateral, for such Secured Party to obtain
a subordination, release or discharge of the other Secured Party's Lien in any
such Collateral in order to convey good and marketable title to such Collateral,
then, so long as such foreclosure, liquidation or disposition, and the
application of the proceeds derived therefrom, have been accomplished in
conformity herewith, each Secured Party upon the request of the other shall
execute such instruments of subordination, release or discharge of such Liens,
in recordable form if required, as may be reasonable and appropriate in the
circumstances; provided, however, that in no event shall any such subordination,
release or discharge alter, impair, release, discharge or otherwise modify the
Liens of such other Secured Party in and to any other portion of the Collateral
then existing or the claim of such other Secured Party against any Obligor for
any obligations due it.
30. ENTIRE AGREEMENT; AMENDMENTS. This Agreement expresses the entire
understanding and agreement of the Secured Parties with respect to the subject
matter hereof and supersedes all prior understandings and agreements of the
Secured Parties regarding the same subject matter. This Agreement may not be
amended or modified except by a writing signed by the Secured Parties.
31. SEVERABILITY. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
32. GOVERNING LAW; CONSENT TO JURISDICTION: WAIVER OF JURY TRIAL. THIS
AGREEMENT SHALL BE INTERPRETED, AND THE RIGHTS AND LIABILITIES OF THE SECURED
PARTIES DETERMINED, IN ACCORDANCE WITH THE LAWS AND DECISIONS OF THE STATE OF
GEORGIA WITHOUT REGARD TO ITS CONFLICTS OF LAW RULES. EACH SECURED PARTY (A)
CONSENTS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN
THE STATE OF GEORGIA IN CONNECTION WITH ANY ACTION INSTITUTED HEREUNDER, (B)
WAIVES ANY OBJECTION TO THE JURISDICTION OR VENUE OF ANY SUCH COURT IN
CONNECTION WITH ANY ACTION INSTITUTED HEREUNDER, (C) AGREES NOT TO ASSERT ANY
DEFENSE BASED ON LACK OF JURISDICTION OR VENUE OF ANY SUCH COURT IN CONNECTION
WITH ANY ACTION INSTITUTED HEREUNDER, AND (D) WAIVES ITS RIGHT TO A TRIAL BY
JURY WITH RESPECT TO ANY SUIT OR ACTION ARISING UNDER OR IN CONNECTION WITH THIS
AGREEMENT.
-15-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the Secured
Parties, through their duly authorized officers, as of the day and year first
above written.
Trustee:
U.S. BANK NATIONAL ASSOCIATION,
as Successor Trustee
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
Agent:
NATIONSBANK, N.A., as Agent
By:
-----------------------------------------
Scott R. McGeerin
Vice President
<PAGE>
ACKNOWLEDGMENT AND AGREEMENT
Each of the undersigned hereby accepts and acknowledges receipt of a
copy of the foregoing Intercreditor Agreement and consents to and agrees to be
bound by all provisions thereof, including, without limitation, the agreements
between Agent and Trustee with respect to the payment by each to the other of
certain proceeds derived from the liquidation of the Collateral. Each of the
undersigned further acknowledges and understands that the Intercreditor
Agreement may be modified or amended at any time or times without notice to or
the consent of the undersigned.
Each of the undersigned accepts and agrees to be bound by the
provisions of Section 18 of the Intercreditor Agreement. Without limiting the
generality of the immediately preceding sentence, and as a further inducement to
Agent and Trustee to enter into the foregoing Intercreditor Agreement, each of
the undersigned recognizes and agrees that, if either Agent or Trustee shall
enforce its rights or remedies in contravention of the terms of the
Intercreditor Agreement, each of the undersigned agrees that it shall not use
such violation as a defense to the enforcement by Agent or Trustee, as the case
may be, of any rights or remedies, nor assert such violation as a counterclaim
or basis for set-off or recoupment against either Agent or Trustee.
Capitalized terms used in this Acknowledgment and Agreement without
definition have the meanings specified in the foregoing Intercreditor Agreement
unless the context otherwise requires.
IN WITNESS WHEREOF, this Acknowledgment and Agreement has been executed
by the undersigned, through their duly authorized officers, as of the day and
year first above written.
TULTEX CORPORATION
By:
-----------------------------------------
O. Randolph Rollins
Executive Vice President and General Counsel
CALIFORNIA SHIRT SALES, INC.
By:
-----------------------------------------
O. Randolph Rollins
Vice President
<PAGE>
DOMINION STORES, INC.
By:
-----------------------------------------
O. Randolph Rollins
Vice President
TULTEX/T-SHIRT CITY, INC.
By:
-----------------------------------------
O. Randolph Rollins
Vice President
TRACK GEAR INC.
By:
-----------------------------------------
O. Randolph Rollins
Chairman and Chief Executive Officer
AKOM, LTD.
By:
-----------------------------------------
O. Randolph Rollins
Vice President
DOMINION DISTRIBUTION, INC.
By:
-----------------------------------------
O. Randolph Rollins
Vice President
-2-
<PAGE>
LIGA MAYOR DE MEXICO S.A. DE C.V.
By:
-----------------------------------------
O. Randolph Rollins
Legal Representative
TULTEX SUBSIDIARY (VA), INC.
By:
-----------------------------------------
O. Randolph Rollins
Vice President
TULTEX SUBSIDIARY (MASS), INC.
By:
-----------------------------------------
O. Randolph Rollins
Vice President
TULTEX CANADA, INC.
By:
-----------------------------------------
O. Randolph Rollins
Vice President
SWEATJET INCORPORATED
By:
-----------------------------------------
O. Randolph Rollins
Vice President
-3-
<PAGE>
TULTEX INTERNATIONAL, INC.
By:
O. Randolph Rollins
-----------------------------------------
Vice President
-4-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> JUL-03-1999
<CASH> 1,693
<SECURITIES> 0
<RECEIVABLES> 76,469
<ALLOWANCES> 4,007
<INVENTORY> 225,813
<CURRENT-ASSETS> 309,115
<PP&E> 316,222
<DEPRECIATION> 216,771
<TOTAL-ASSETS> 471,955
<CURRENT-LIABILITIES> 171,537
<BONDS> 129,395
0
1,698
<COMMON> 30,048
<OTHER-SE> 127,923
<TOTAL-LIABILITY-AND-EQUITY> 471,955
<SALES> 157,690
<TOTAL-REVENUES> 157,690
<CGS> 140,529
<TOTAL-COSTS> 166,071
<OTHER-EXPENSES> (966)
<LOSS-PROVISION> 106
<INTEREST-EXPENSE> 12,657
<INCOME-PRETAX> (20,178)
<INCOME-TAX> (7,466)
<INCOME-CONTINUING> (12,712)
<DISCONTINUED> 0
<EXTRAORDINARY> 24,938
<CHANGES> 0
<NET-INCOME> 12,266
<EPS-BASIC> .64
<EPS-DILUTED> .64
</TABLE>
