<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 9, 1996
REGISTRATION NO. 333-11111
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
RIDGEVIEW, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
NORTH CAROLINA 2251 & 2252 56-0377410
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
RIDGEVIEW, INC.
2101 NORTH MAIN AVENUE
NEWTON, NORTH CAROLINA 28658
(704) 464-2972
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
---------------------
HUGH R. GAITHER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
RIDGEVIEW, INC.
2101 NORTH MAIN AVENUE
NEWTON, NORTH CAROLINA 28658
(704) 464-2972
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
<TABLE>
<S> <C>
DUMONT CLARKE, IV R. DOUGLAS HARMON
MOORE & VAN ALLEN, PLLC SMITH HELMS MULLISS & MOORE, L.L.P.
NATIONSBANK CORPORATE CENTER 214 NORTH CHURCH STREET
100 NORTH TRYON STREET, FLOOR 47 P.O. BOX 31247
CHARLOTTE, NORTH CAROLINA 28202-4003 CHARLOTTE, NORTH CAROLINA 28231
(704) 331-1000 (704) 343-2000
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 9, 1996
1,600,000 SHARES
(LOGO) RIDGEVIEW(R)
COMMON STOCK
Of the 1,600,000 shares of Common Stock offered hereby, 1,520,000 are being
sold by Ridgeview, Inc. (the "Company") and 80,000 are being sold by certain
shareholders of the Company (the "Selling Shareholders"). See "Selling
Shareholders." The Company will not receive any of the proceeds from the sale of
the shares by the Selling Shareholders.
Prior to this offering (the "Offering"), there has been no public market
for the Common Stock of the Company (the "Common Stock"). It currently is
anticipated that the initial public offering price will be between $9.00 and
$11.00 per share. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. Application has
been made for the Common Stock to be listed on the Nasdaq National Market under
the symbol "RIDG."
Immediately prior to the completion of this Offering, the Company will
acquire, by issuing 240,000 shares of Common Stock pursuant to a share exchange
agreement, all of the issued and outstanding shares of a corporation affiliated
with the Company through common ownership of its shares by directors, officers
and employees of the Company. The consummation of the proposed share exchange is
conditioned upon all of the conditions to the issuance and sale of the shares of
Common Stock offered hereby, other than the condition that the proposed share
exchange be consummated, having been met or waived. See "Certain
Transactions -- Transactions with and Acquisition of Affiliate."
SEE "RISK FACTORS," BEGINNING ON PAGE 6, FOR A DISCUSSION OF CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share......................... $ $ $ $
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Total(3).......................... $ $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses, payable by the Company estimated to be $600,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
240,000 additional shares of Common Stock on the same terms and conditions
as set forth above to cover over-allotments, if any. If the Underwriters
exercise this option in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
---------------------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if accepted by them and subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
the certificates for the shares of Common Stock will be available for delivery
at the offices of Interstate/Johnson Lane Corporation, Charlotte, North
Carolina, on or about , 1996.
---------------------
INTERSTATE/JOHNSON LANE SCOTT & STRINGFELLOW, INC.
Corporation
The date of this Prospectus is , 1996
<PAGE> 3
Photographs of certain of the Company's products, socks and women's
hosiery, as worn by various individuals, registered trademarks licensed by the
Company for use on its products and the names and trademarks of certain of the
Company's major customers appear here.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus. Prospective investors should carefully consider the
information discussed under "Risk Factors." Except as set forth in the financial
statements and unless otherwise indicated, all information in this Prospectus
(i) gives effect to an approximate 129 for 1 split of the Company's outstanding
Common Stock effected October 8, 1996 in the form of a stock dividend, (ii)
reflects the issuance of 240,000 shares of Common Stock pursuant to a share
exchange agreement by and among the Company and the shareholders of an
affiliated corporation, which will occur immediately prior to the completion of
this Offering, and (iii) assumes no exercise of the Underwriters' over-allotment
option. Unless otherwise indicated, references to years in this Prospectus refer
to the Company's fiscal year ending December 31 in such year. This Prospectus
contains forward-looking statements and information which involve risks and
uncertainties. The Company's actual results could differ materially from the
results anticipated in these forward-looking statements as a result of certain
risks and uncertainties described under the heading "Risk Factors" and elsewhere
in this Prospectus.
THE COMPANY
Founded in 1912, the Company designs, manufactures and markets a complete
range of sports, rugged outdoor and heavyweight casual socks as well as a wide
variety of women's hosiery products, including tights, trouser socks, pantyhose
and knee-highs. The Company believes it is one of the leading vendors of sports
socks to sporting goods and active apparel stores. The Company also sells its
products to department stores, discount stores and a variety of other retailers.
In addition, the Company produces sports socks for sale by others under such
brand names as adidas, ASICS, Bass, Brooks, Fila, Head Sportswear, IZOD, New
Balance and Reebok and women's hosiery products for sale under the Liz Claiborne
and Elisabeth brand names. Under license agreements, the Company produces and
sells socks and women's hosiery directly to retailers under the brand names
Converse, Ellen Tracy, Evan-Picone, Jacques Moret and Woolrich. See
"Business -- Women's Hosiery Products." The Company is currently negotiating
licensing terms to produce and sell socks under the Coleman and Rockport brand
names. The Company expects that approximately two-thirds of its net sales in the
current year will be derived from sales of socks with the balance derived from
sales of women's hosiery products. As of September 30, 1996, the Company had
more than 3,500 customers in the United States, Europe and other parts of the
world. Only one of such customers, Target, accounted for more than 10% of the
Company's 1995 net sales and is expected to account for more than 10% of the
Company's 1996 net sales.
In recent years the Company has diversified geographically and modernized
its production capacity, increased its domestic customer base, expanded its
contract manufacturing business, negotiated the rights to manufacture and sell
socks and women's hosiery under widely-recognized brand names and increased its
marketing activities and sales in Europe and other foreign markets. These steps
included in 1994 and 1995 establishing a manufacturing facility with high speed
electronic knitting equipment in Ft. Payne, Alabama to produce
promotionally-priced, multi-pair pack sports socks and replacing all of the
mechanical sock knitting equipment in the Company's facilities in Newton, North
Carolina with similar electronic equipment. In 1994, the Company entered the
designer segment of the women's hosiery market through a licensing agreement to
manufacture and sell women's hosiery under the Ellen Tracy brand name in the
United States. Ellen Tracy hosiery products manufactured by the Company are
available in tights, trouser socks and pantyhose in department stores, including
Neiman Marcus, Nordstrom, Saks Fifth Avenue, Macy's, Dillard's and
Bloomingdale's. The Company recently negotiated a license to manufacture and
sell women's hosiery under the Evan-Picone trademark, an established brand of
women's hosiery. See "Business -- Women's Hosiery Products."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 5
In June 1995, the Company expanded its manufacturing capacity and customer
base by acquiring Seneca Knitting Mills Corporation ("Seneca") located in Seneca
Falls, New York (the "Seneca Acquisition"). See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- General -- The
Seneca Acquisition." Seneca has been engaged since 1954 exclusively in producing
rugged outdoor and heavyweight casual socks under various private labels, for
customers such as Kmart, J.C. Penney and Structure (a division of The Limited,
Inc.), and under Seneca's own brand, Oyster Bay. In 1995, the Company obtained
through a strategic alliance with another domestic manufacturer, Chipman-Union
Co., a new sports sock manufacturing program for adidas. To accommodate growth
from the adidas program, the Company has doubled the capacity of its
manufacturing facility in the Republic of Ireland, which was established in 1986
to serve European customers. See "Business -- Sales and Marketing -- Sports,
Rugged Outdoor and Heavyweight Casual Socks."
During the last three years, the Company has experienced substantial
growth. Net sales increased 52.8% from $35.6 million in 1993 to $54.4 million in
1995, a compound annual growth rate of 23.6%. On a pro forma basis (giving
effect to certain acquisitions -- see "Summary Consolidated Financial Data"),
for the six months ended June 30, 1996, net sales increased 25.7% compared to
net sales in the same period in the prior year. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- General -- Recent
Growth." The Company's future growth strategy includes the following elements:
INCREASING SALES TO EXISTING CUSTOMERS. Many of the Company's existing
customers in the sporting goods industry, such as Just for Feet, The Sports
Authority, Sports & Recreation and Oshman's Sporting Goods, are rapidly
expanding the number of stores they operate, and the Company expects its sales
to these customers will increase as a result of their unit growth. The Company
also expects to be able to increase its sales to other existing customers such
as Target, the Company's largest customer, as well as J.C. Penney and Nordstrom.
EXPANDING SALES RELATIONSHIPS THROUGH CROSS-SELLING. The Company is
seeking to establish relationships with certain major retailers with which the
Company has not historically done business. Management believes that the
Company's expanded customer base of major retailers resulting from the Seneca
Acquisition and the Evan-Picone hosiery program creates opportunities for
cross-selling the Company's other products.
OBTAINING ADDITIONAL LICENSING ARRANGEMENTS. The Company is seeking to
license additional nationally and internationally recognized consumer brand
names to complement the Converse, Ellen Tracy, Evan-Picone, Jacques Moret and
Woolrich licensed brand names. Management is currently negotiating licensing
terms to produce and sell socks under the Coleman and Rockport brand names.
ADDING COMPLEMENTARY PRODUCT CATEGORIES THROUGH SELECTIVE
ACQUISITIONS. Women's casual socks and men's dress socks are complementary
product categories that could be added to the Company's existing product lines
through selective acquisitions of other manufacturers of socks or women's
hosiery or through internal product diversification. Although the Company has no
proposal, agreement, understanding or arrangement relating to the acquisition of
any other company at this time, future acquisitions could also be expected to
expand production capacity and add to the Company's customer base.
INCREASING INTERNATIONAL SALES. The Company plans to build on the existing
customer base served by its manufacturing facility in the Republic of Ireland
and on the Company's base of export sales of domestically manufactured products.
See "Business -- Sales and Marketing -- International Sales and Marketing of
Socks."
In recent years, manufacturers of socks and women's hosiery have
experienced a period of rapid technological change and encountered a demanding
retail environment characterized by customers' expectations of immediate order
fulfillment and depth in all product categories. See "Business -- Industry
Overview." The Company is investing in new technology and strengthening its
ability to provide a significant share of major retailers' total socks and
women's hosiery requirements. The Company's core operating strategy includes the
following elements:
- Manufacturing a broad range of products, including sports socks, rugged
outdoor and heavyweight casual socks, tights, trouser socks, pantyhose and
knee-highs, for sale under widely-recognized brand names as well as for
large retailers' private label programs and under the Company's own
brands.
2
<PAGE> 6
- Replacing most of its mechanical sock knitting machines with more
flexible electronic machines capable of operating at significantly higher
production levels with lower per unit costs.
- Making additional capital investments required to make the Company a
lower-cost, higher volume producer of a wide variety of products with the
capability of responding to tighter shipment schedules and increased
production capabilities demanded by large retailers. See "Managements
Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- Business and Industry Trends."
- Outsourcing the manufacturing of a variety of styles of socks and women's
hosiery products to meet peak demand and accommodate major new women's
hosiery programs such as Evan-Picone, allowing the Company to operate its
own manufacturing facilities at more efficient production levels.
- Focusing on consistent product quality and providing rapid order
fulfillment to a large and diverse customer base.
The Company believes the sock and women's hosiery manufacturing industry is
entering a period of consolidation. Management believes the pace of
consolidation will increase in future years in part as a result of a trend among
large retailers to do business with a smaller group of vendors that are capable
not only of providing a significant share of a large retailer's total sock and
women's hosiery requirements but also of satisfying large retailers' increasing
inventory management demands. Although the Company does not currently have any
proposal, agreement, understanding or arrangement regarding any particular
acquisition, management believes manufacturers such as the Company that have the
commitment and resources to remain independent will be presented with attractive
acquisition opportunities in future years.
The Company's executive offices are located at 2101 North Main Avenue,
Newton, North Carolina 28658, and its telephone number is (704) 464-2972.
ACQUISITION OF AFFILIATE
Immediately prior to the completion of this Offering, the Company will
acquire all of the 500 issued and outstanding shares of Interknit, Inc.
("Interknit"), a corporation affiliated with the Company through common
ownership of its shares by eight persons who are also shareholders of the
Company, including the Company's five executive officers (four of whom are
members of the Company's Board of Directors), one director who is not an
executive officer and one greater than 10% shareholder of the Company who was
formerly a director and executive officer of the Company (the "Interknit
Acquisition"). Interknit was established by these persons and five other
employees of the Company in January 1994 for the purpose of providing a
consistent, reliable supply of high quality "greige goods" (unfinished socks and
women's hosiery) for the Company's sock finishing and shipping facility in Ft.
Payne, Alabama. During 1995, approximately 82% of Interknit's output of greige
goods was sold to the Company, and Interknit purchased approximately 11% of its
raw materials requirements from the Company. Pursuant to a share exchange
agreement entered into on August 27, 1996 by and among the Company and the
shareholders of Interknit (the "Share Exchange Agreement"), the shareholders of
Interknit will, immediately prior to the completion of this Offering, transfer
all of the 500 shares of outstanding capital stock of Interknit to the Company
in exchange for an aggregate of 240,000 shares of Common Stock. Assuming the
market price of the Common Stock on the date this Offering is completed is equal
to the initial public offering price (and assuming an initial public offering
price of $10.00 per share), the 240,000 shares when issued will have an
aggregate fair market value of $2.4 million. The Interknit Acquisition will be
accounted for as a "pooling of interests." The obligations of the shareholders
of Interknit under the Share Exchange Agreement are conditioned upon all of the
conditions to the issuance and sale of the shares of Common Stock offered hereby
to the Underwriters, other than the condition that the proposed share exchange
be consummated, having been met or waived. See "Certain Transactions --
Transactions with and Acquisition of Affiliate" for a more complete description
of the terms and conditions of the Interknit Acquisition.
3
<PAGE> 7
Unless the context otherwise requires, all references to the "Company" in
this Prospectus are to the Company, including its subsidiaries, and Interknit,
collectively, and all references to the Company's outstanding Common Stock
include the 240,000 shares of Common Stock to be issued to the shareholders of
Interknit.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................... 1,520,000 shares
Common Stock offered by the Selling Shareholders...... 80,000 shares
Common Stock to be outstanding after this Offering.... 3,120,000 shares(1)
Use of proceeds by the Company........................ To reduce outstanding debt and fund
capital expenditures, including
construction of a new distribution
facility and purchase of additional
electronic knitting equipment. See
"Use of Proceeds."
Risk Factors.......................................... Investors should carefully consider
the risks and uncertainties that may
adversely affect the Company's future
results of operations or financial
condition, which are described under
the heading "Risk Factors" on page 6
of this Prospectus.
Nasdaq National Market symbol......................... RIDG
</TABLE>
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(1) Excludes (i) 245,000 shares of Common Stock available for future grants of
stock options, restricted stock and other stock-based awards under the
Company's stock incentive plans and (ii) 75,000 shares of Common Stock that
may be issued in connection with future purchases by employees under the
Company's employee stock purchase plan. See "Management -- Employee Benefit
Plans."
4
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA(1)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------- -------------------------------------
PRO PRO PRO
FORMA FORMA FORMA
1991 1992 1993 1994 1995 1995(2) 1995 1996 1995(2) 1996(3)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
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STATEMENT OF OPERATIONS DATA:
Net sales..................... $32,283 $32,438 $35,605 $40,093 $54,408 $59,602 $21,474 $31,799 $26,026 $32,712
Gross profit.................. 7,232 6,259 7,792 9,130 10,685 11,658 4,552 6,143 5,422 6,474
Operating income.............. 1,760 944 1,760 2,362 2,016 2,210 838 1,242 986 1,522
Interest expense.............. (721) (630) (661) (829) (1,584) (2,014) (520) (1,064) (906) (1,130)
Income before income
taxes....................... 1,159 610 1,433 1,587 535 314 335 207 104 420
Net income.................... $ 912 $ 533 $ 1,084 $ 1,014 $ 296 $ 105 $ 238 $ 129 $ 37 $ 271
Net income per share.......... $ 0.67 $ 0.40 $ 0.80 $ 0.75 $ 0.22 $ 0.07 $ 0.18 $ 0.10 $ 0.02 $ 0.17
Weighted average shares
outstanding................. 1,362 1,359 1,353 1,350 1,350 1,590 1,353 1,355 1,593 1,595
OTHER DATA:
Operating income before
depreciation and
amortization(4)............. $ 2,447 $ 1,768 $ 2,661 $ 3,279 $ 3,216 $ 3,736 $ 1,342 $ 1,988 $ 1,725 $ 2,391
Depreciation and
amortization................ 687 824 901 917 1,200 1,526 504 746 739 869
Capital expenditures.......... 2,066 1,512 840 1,881 3,619 4,383 1,794 606 1,834 624
As adjusted for certain
charges(5):
Gross profit................ 11,306 12,279 4,862 5,732
Operating income............ 3,137 3,331 1,148 1,296
Operating income before
depreciation and
amortization(4)........... 4,337 4,857 1,652 2,035
Net income.................. $ 969 $ 778 $ 424 $ 223
Net income per share........ $ 0.72 $ 0.49 $ 0.31 $ 0.14
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1996
AT DECEMBER 31, ---------------------------------
----------------------------------------------- PRO PRO FORMA AS
1991 1992 1993 1994 1995 ACTUAL FORMA(6) ADJUSTED(7)
------- ------- ------- ------- ------- ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................ $ 7,205 $ 6,885 $ 7,616 $11,696 $11,911 $15,112 $15,090 $ 15,158
Total assets........................... 18,094 19,145 21,614 24,487 38,534 44,445 46,401 46,119
Long-term debt (less current
portion)............................. 5,693 5,859 5,771 9,492 14,624 17,516 18,771 5,585
Total debt............................. 7,964 9,651 10,918 11,292 21,511 25,423 27,052 13,516
Shareholders' equity................... 5,924 6,119 6,690 7,776 7,986 8,106 8,243 21,779
</TABLE>
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(1) The summary historical consolidated financial data have been derived from
the Company's annual consolidated financial statements and unaudited interim
financial statements appearing elsewhere in this Prospectus. The summary
consolidated pro forma financial data have been derived from the Company's
unaudited pro forma financial statements also appearing elsewhere in this
Prospectus.
(2) Gives effect to the Seneca and Interknit Acquisitions as if each of such
events had occurred on January 1, 1995. See the unaudited pro forma
condensed consolidated financial statements and notes thereto.
(3) Gives effect to the Interknit Acquisition as if such event had occurred on
January 1, 1996.
(4) Operating income before depreciation and amortization is net sales minus
cost of goods sold, selling, general and administrative expenses and
supplemental retirement benefit expense plus depreciation and amortization
expense. While the components of the measure are computed in accordance with
generally accepted accounting principles ("GAAP"), the measure itself does
not represent cash generated from operating activities determined in
accordance with GAAP, is not necessarily indicative of cash available to
fund cash needs and should not be considered an alternative to net income as
an indicator of the Company's operating performance or as an alternative to
cash flow as a measure of liquidity.
(5) Gross profit for the year ended December 31, 1995 and the six months ended
June 30, 1995 reflects charges for the write-off of obsolete, unfinished
women's hosiery products in excess of normal reserves in the amounts of
$621,000 and $310,000, respectively. Operating income for the year ended
December 31, 1995 reflects the recognition of a supplemental retirement
obligation in the amount of $500,000 to the Company's former chairman. See
"Certain Transactions -- Supplemental Retirement Benefit." The data
presented have been adjusted to eliminate the effect of these one-time
charges.
(6) Gives effect to the Interknit Acquisition as if such event had occurred on
June 30, 1996.
(7) Adjusted to give effect to this Offering and the use of the net proceeds
thereof as described in "Use of Proceeds."
5
<PAGE> 9
RISK FACTORS
In addition to other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing the shares of Common Stock offered hereby.
Competition. As the result of increasing retail concentration and
overcapacity in certain segments of the industry, competition in the sock and
women's hosiery manufacturing industries, which is based on price, quality and
service, is becoming increasingly intense. The Company faces competition in both
its sock and women's hosiery businesses from a large number of manufacturers
located in the United States, many of which have substantially greater market
shares and financial and other resources than the Company. Competition from
foreign manufacturers is a factor primarily affecting competition for sales of
women's sheer hosiery only. Increased competition from these and future
competitors could reduce sales and prices, adversely affecting the Company's
results of operations. Accordingly, there can be no assurance that the Company
will be able to compete effectively with its competitors in the future. See
"Business -- Competition."
Reliance on Target. In 1995, sales to Target represented approximately 13%
of the Company's total net sales (approximately 12% on a pro forma basis
assuming the Seneca Acquisition had occurred at the beginning of 1995). The
Company could be adversely affected in the event of the bankruptcy or insolvency
of, or a downturn in the business of, Target or in the event that Target were to
increase its purchases of private label women's hosiery from other
manufacturers. See "Business -- Major Customers."
Seasonality and Fluctuations in Operating Results. Sales of certain of the
Company's products, particularly rugged outdoor socks, ski socks and heavyweight
tights, are seasonal in nature and generally occur during the fall and winter
selling seasons, which begin in August and end in December. Historically, the
majority of the Company's net sales have been generated, and most of the
Company's profits have been earned, in the third and fourth quarters of its
fiscal year. The seasonal nature of some of the Company's products requires
management to engage in extensive advance planning and scheduling. In the event
actual sales of seasonal products are lower than sales that are projected and
planned for, there is a risk that the Company may have to carry over excess
inventory to the next season or sell excess inventory at discounted prices. The
Company's operating results may also fluctuate significantly on an annual and
quarterly basis as a result of a number of other factors, including general
economic and political conditions (such as recessions or military conflicts),
the timing of domestic and international orders from large customers such as
Target, the timing of capital expenditures, increased competition and variations
in the product mix of the Company's sales. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Risks Associated with Licensed Brands. Sales of socks and women's hosiery
products under licensed brand names represented approximately 7.5% of the
Company's total net sales in 1995. As part of its future growth strategy, the
Company is seeking to license additional nationally-recognized brand names to
complement the Converse, Ellen Tracy, Evan-Picone, Jacques Moret and Woolrich
licensed brand names. The Company's right to manufacture and sell socks under
these and any additional licensed brand names is, and will be, dependent on
license agreements with the owners of the registered trademarks. In general, the
Company's current license agreements give it the right to use the trademarks
with respect to certain specified categories of hosiery products for terms
ranging from one to three years, with renewal rights if certain minimum annual
sales thresholds are satisfied, in exchange for the payment of a royalty equal
to a percentage of the Company's net sales of products under the trademark. Each
of these license agreements provides for payment of a minimum guaranteed royalty
for each annual period during the term of the agreement and requires the Company
to spend a specified percentage of its net sales for each annual period on
advertising. Each of the agreements also gives the owner of the trademark the
right to terminate the agreement under certain circumstances, including the
failure by the Company to meet manufacturing and distribution standards required
under the license and, in some instances, failure by the Company to meet
specified annual sales targets. There can be no assurance that the Company's
sales of products under these or other licensed brand names will be sufficient
to satisfy minimum annual sales thresholds. The Company's net sales of Ellen
Tracy products in 1995 represented only 84% of the annual sales target of $3.0
million for such year, and the Company expects its sales of Ellen Tracy products
in the current year to achieve approximately 65% to 70% of
6
<PAGE> 10
the higher annual sales target for 1996 of $5.0 million. In 1995, the Company
paid minimum guaranteed royalties based on the $3.0 million annual sales target
for such year and intends to do so again in the current year based on the $5.0
million annual sales target. The Company does not consider the additional
payments made in 1995 and expected to be made in 1996 under minimum guaranteed
royalty payment provisions of the Ellen Tracy license agreement to be material.
Management believes its performance as licensee has otherwise been satisfactory
to date and believes the Company's prospects of renewing the Ellen Tracy license
agreement with renegotiated minimum annual sales targets when the contract's
initial three-year term expires at the end of the current year are good. There
can be no assurance, however, that the Company will be able to renew the Ellen
Tracy license agreement, any of the other license agreements it currently has,
or any additional license agreements the Company may be able to obtain in the
future upon the expiration of their respective terms. With the exception of the
Evan-Picone license agreement, which was entered into in July 1996 and has an
initial term ending December 31, 1999, the Company believes the termination or
nonrenewal of any of the existing license agreements would have only a
short-term adverse impact on the Company's consolidated results of operations
and no material adverse impact on the Company's consolidated financial
condition. The nonrenewal or termination of one or more existing license
agreements could make it more difficult, however, for the Company to license
additional brand names in the future. See "Business -- Operations -- Women's
Hosiery Products."
Operational Risks Associated with Transition of Evan-Picone Women's Hosiery
Program. In July 1996, the Company negotiated a license for the Evan-Picone
women's hosiery program, which was previously held by another manufacturer. The
Company does not have the manufacturing capacity to satisfy the current demand
for Evan-Picone products, and the prior licensee will continue to manufacture
Evan-Picone women's hosiery under a contract with the Company until the Company
has arranged to outsource all of its manufacturing requirements to other
manufacturers, which the Company expects to accomplish by the end of 1996.
Outsourcing by its very nature complicates the quality assurance risks
associated with textile manufacturing. Should any of the contract manufacturers
involved in the Evan-Picone program fail to meet the quality standards
established by the Company or encounter financial or operational difficulties,
the program could suffer. The Company is also contracting with an independent
warehouse distribution center for inventory and order fulfillment services with
respect to Evan-Picone products. Dependence upon this service provider further
complicates the risks associated with the Evan-Picone program. To facilitate the
transition of the operational aspects of the program, the Company has employed
the individual who managed the Evan-Picone program for the prior licensee and
expects to contract for the services of the nationwide independent sales force
and network of merchandisers used by the prior licensee to sell Evan-Picone
women's hosiery and provide merchandising services to retailers. There can be no
assurances, however, that the transition of the operations will occur in
accordance with the Company's plans and without significant disruptions that
could adversely affect the Evan-Picone program and the Company's operating
results.
Net sales of women's hosiery under the Evan-Picone brand name by the prior
licensee, which were $17.5 million in such licensee's fiscal year ended January
31, 1996, declined by approximately 33% from such licensee's fiscal 1994 to 1996
and are expected to decline significantly in the twelve months ending January
31, 1997. Notwithstanding this declining sales trend, based on discussions with
representatives of the major department and discount stores handling the
Evan-Picone women's hosiery products, the Company believes the Evan-Picone brand
name continues to be well-recognized by consumers. There can be no assurances,
however, that consumer recognition of the brand will continue, that the Company
will be successful in stabilizing the program or that the declining sales trend
of recent years will not continue. The largest single customer for Evan-Picone
women's hosiery, May Department Stores Co., accounted for approximately 20% of
the net sales of this program by the prior licensee in its most recent fiscal
year. The loss of this customer or another major customer for the Evan-Picone
brand of women's hosiery would have a material adverse impact on the Company's
sales and profitability under the Evan-Picone program and could lead to the
Company's failure to meet minimum sales thresholds. See "Business --
Operations -- Women's Hosiery Products."
Management of Growth and Dependence on Key Personnel. During the last
three years, the Company has experienced substantial growth and expects in the
future to devote significant resources to enhancing and marketing existing
products, developing and marketing new products and increasing personnel to
support its
7
<PAGE> 11
anticipated growth. If the Company's management is unable to manage growth
effectively, this could have a material adverse effect on the Company. The
success of the Company is largely dependent on the personal efforts and
abilities of its President and Chief Executive Officer, Hugh R. Gaither, its
Executive Vice President of Sales and Marketing, William D. Durrant, and its
Executive Vice President and Chief Financial Officer, Walter L. Bost, Jr. The
loss of the services of any one of the Company's executive officers could have a
material adverse effect upon the Company's business and development. None of
these executive officers has an employment agreement with the Company. The
Company intends to purchase key man life insurance on Messrs. Gaither, Durrant
and Bost in the amounts of $2.0 million, $1.0 million and $1.0 million,
respectively. See "Management."
Risks Associated with Possible Acquisitions. As part of its growth
strategy and in order to achieve greater product diversification, the Company
may pursue acquisitions of other sock and women's hosiery manufacturers. The
Company does not currently have any proposal, agreement, understanding or
arrangement regarding any particular acquisition. With respect to any future
acquisitions, there can be no assurance that the Company will be able to locate
or acquire suitable candidates or that any operations which are acquired can be
effectively and profitably integrated into the Company. Furthermore, any future
acquisitions may negatively impact the Company's operating results, particularly
during the periods immediately following the acquisition, and may place
significant demands on the Company's managerial and financial resources. In
order to provide funds for any acquisitions, the Company will likely need to
incur, from time to time, additional indebtedness to banks and other financial
institutions and to issue, in public or private transactions, equity and debt
securities. The availability and terms of any such financing will depend on
market and other conditions, and there can be no assurance that such additional
financing will be available on terms acceptable to the Company, if at all. See
"Business -- Growth Strategy."
Risk of Price Increases and Quality of Raw Materials. The principal raw
materials used by the Company in the manufacture of its products are cotton,
nylon, wool, spandex and a variety of other synthetic fibers. Prices for cotton
and wool generally experience greater fluctuation than do prices for synthetic
fibers. With recent declines in cotton prices, United States cotton prices are
close to their ten-year average price, but there can be no assurance that as a
result of shortages in the cotton supply by reason of weather, crop disease or
other factors, prices will not increase. Most of the Company's purchases of
cotton-spun yarn are made pursuant to fixed-price contracts with three to five
different suppliers (having terms ranging from six to twelve months) that are
entered into during the fall of each year based on projected demand for cotton
during the following year. There can be no assurance, however, that price
increases of cotton or other raw materials, for which the Company does not enter
into supply contracts, will not adversely affect the Company's results of
operations. In addition, the Company's failure to discover raw material defects
could adversely affect the Company's results of operations. See "Business -- Raw
Materials."
Financial Condition of Customers. In recent years a number of large
retailers, including certain customers of the Company, have filed for bankruptcy
protection or experienced financial difficulties, thus increasing the risk of
extending credit to such customers. Historically, the bankruptcies and financial
difficulties of the Company's customers have not had a material adverse effect
on the Company's financial condition. There can be no assurance, however, that
additional customers will not file for bankruptcy protection or experience
financial difficulties in the future and that such events will not adversely
affect the Company's operating results or financial condition. See
"Business -- Credit and Collections."
Unaffiliated Manufacturers. The Company outsources the manufacturing of a
variety of styles of socks and women's hosiery. The inability of an outside
manufacturer to ship the Company's products in a timely manner or to meet the
Company's quality standards could adversely affect the Company's ability to
deliver products to its customers in a timely manner. The Company does not have
long-term contracts with any outside manufacturers. Outsourcing is generally
accomplished by issuing a purchase order to another manufacturer with which the
Company has an established relationship for the purchase of greige or finished
goods that the Company either cannot or chooses not to manufacture itself. In
those instances where the Company expects to have a continuing relationship with
another manufacturer for the manufacture of a particular product, such as the
manufacturers to which the Company is outsourcing the manufacturing of
Evan-Picone sheer hosiery, the Company will project its demand for the product
over a period of several
8
<PAGE> 12
months and then periodically issue purchase orders to the other manufacturer
that normally conform to those projections.
Fashion Trends and Retail Cyclicality. The Company's business depends in
part on its ability to anticipate, gauge and respond to changing consumer
demands and fashion trends in a timely manner. There can be no assurance,
however, that the Company will continue to be successful in this regard. The
Company attempts to minimize the risk of changing fashion trends and product
acceptance by closely monitoring retail sales trends. The retail apparel
industry has been subject to substantial cyclical variation, and a recession in
the general economy or uncertainties regarding future economic prospects that
affect consumer spending habits could have an adverse effect on the Company. See
"Business -- Seasonality."
Environmental Matters. The Company's manufacturing operations are subject
to compliance with various federal, state and local governmental laws and
regulations. The Company believes that it is currently in compliance in all
material respects with applicable environmental laws and regulations. In the
event additional environmental requirements are imposed, the expense of
compliance could be substantial. See "Business -- Regulation."
Possibility of Additional Unionization. The employees of the Company at
its manufacturing facilities in Seneca Falls, New York and the Republic of
Ireland are currently represented by unions. If the balance of the Company's
employees should elect to be represented by a union in the future, increased
costs may be incurred and the financial results of the Company could adversely
be affected. See "Business -- Employees."
Exchange Rate Fluctuations. Approximately 12%, 10% and 9% of the Company's
net revenue for the fiscal years ended December 31, 1993, 1994 and 1995,
respectively, were derived from the Company's operations in the Republic of
Ireland. Since the revenues and expenses of the Company's operations in the
Republic of Ireland are generally denominated in the Irish punt, exchange rate
fluctuations between the Irish punt and the United States dollar will subject
the Company to currency translation risk with respect to the reported results of
its operations in the Republic of Ireland.
Control by Existing Shareholders. Upon completion of this Offering, the
Company's 47 existing shareholders, most of whom are lineal descendants of the
Company's founders, will beneficially own a total of 49% of the outstanding
shares of Common Stock. As a result, subsequent to this Offering, these
shareholders, acting together with a limited number of other shareholders, would
be able to elect all of the Company's directors, amend the Company's Articles of
Incorporation, effect a merger, sale of assets or other business acquisition or
disposition, and otherwise effectively control the outcome of other matters
requiring shareholder approval. See "Principal and Management Shareholders" and
"Description of Capital Stock."
Anti-Takeover Provisions; Possible Issuance of Preferred Stock. The
Company's Articles of Incorporation and Bylaws contain various provisions that
may make it more difficult for a third party to acquire, or may discourage
acquisition bids for, the Company and could limit the price that certain
investors might be willing to pay in the future for shares of the Common Stock.
In addition, the Articles of Incorporation provide for 2,000,000 shares of
authorized but unissued Preferred Stock, the terms of which from time to time
may be fixed by the Board of Directors who also have the right to determine the
price, rights, preferences, privileges and restrictions, including voting
rights, of those shares without any further vote or action by the shareholders
of the Company. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future. The issuance of such Preferred Stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it more difficult
for a third party to acquire control of the outstanding voting stock of the
Company. See "Description of Capital Stock."
No Prior Market for Common Stock; Possible Volatility of Stock
Price. Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiations among the Company and the representatives of the Underwriters
and may not be indicative of the market price of the Common Stock after this
Offering. There can be no assurance that an active trading market will develop
or continue after this Offering or that the market price of the Common Stock
will not decline below the initial public offering price. The trading price of
the Common Stock could be
9
<PAGE> 13
subject to significant fluctuations in response to variations in the Company's
operating results, announcements by the Company, its competitors and others,
general trends in the sock and women's hosiery industry and other factors. In
addition, in recent months and years the equity markets have experienced
significant price and volume fluctuations which have affected the market prices
for many companies and often have been unrelated to the operating performance of
specific companies or market segments. Broad market fluctuations may, after
completion of this Offering, adversely affect the market price of the Common
Stock. See "Shares Eligible for Future Sale" and "Underwriting."
Related Party Transactions and Conflicts of Interest. In the past, the
Company has engaged in transactions with affiliates of the Company which were
not the result of arm's length negotiations, including selling raw materials to
and purchasing significant quantities of greige goods from Interknit. Interknit
is a corporation affiliated with the Company through common ownership of its
shares by eight persons who are also shareholders of the Company, including the
Company's five executive officers, Albert C. Gaither, Hugh R. Gaither, William
D. Durrant, Walter L. Bost, Jr. and Susan Gaither Jones (four of whom are also
directors), one director who is not an executive officer of the Company, J.
Michael Gaither, and one greater than 10% shareholder of the Company, J. Robert
Gaither, Jr., who was formerly a director and executive officer of the Company.
Immediately prior to the completion of this Offering, the Company will acquire
all of the 500 issued and outstanding shares of Interknit from these eight
persons and the other five shareholders of Interknit, who are either current or
former employees of the Company, in exchange for 240,000 shares of the Common
Stock. As guarantors of the debt incurred to finance the start-up costs of
Interknit, the shareholders of Interknit may derive an additional benefit from
this Offering should the lender subsequently release them from their personal
guaranties. See "Certain Transactions -- Transactions with and Acquisition of
Affiliate." To address the conflicts of interest the directors of the Company
who are also shareholders of Interknit had between their fiduciary duties as
directors and their personal interests as shareholders of Interknit, the Board
of Directors created a special committee comprised of Hugh R. Gaither, William
D. Durrant and two directors who are not shareholders of Interknit to consider
the issue and make a recommendation to the Board of Directors. The Board of
Directors also engaged Interstate/Johnson Lane Corporation to perform a
valuation of Interknit and issue an opinion to the Board, prior to the Board's
approval of the Share Exchange Agreement, regarding the fairness from a
financial point of view to the shareholders of the Company of the exchange
ratio. The Company has adopted a policy that all related party transactions be
on terms no less favorable than could be obtained from third parties and that to
the extent they are outside the ordinary course of business they be presented
for the approval of the Company's disinterested directors. See "Certain
Transactions -- Policy on Related Party Transactions."
Shares Eligible for Future Sale. Sales of a substantial number of shares
of the Common Stock in the public market following this Offering, or the
perception that such sales may occur, could adversely affect the market price of
the Common Stock. Upon completion of this Offering, there will be 3,120,000
shares of Common Stock outstanding (3,360,000 shares if the Underwriters'
over-allotment option is exercised). Of these shares, the 1,600,000 shares
offered hereby (1,840,000 if the Underwriters' over-allotment option is
exercised) will be freely tradeable without restriction under the Securities
Act, except for any shares held by "affiliates" of the Company, which will be
subject to the resale limitations of Rule 144 under the Securities Act. An
additional 1,264,547 additional shares will be eligible for sale in the public
market beginning 180 days after the date of this Prospectus upon the expiration
of certain lock-up agreements with the Underwriters, subject to the provisions
of Rule 144. See "Shares Eligible for Future Sale" and "Underwriting."
Dilution. Purchasers of the Common Stock in this Offering will suffer
immediate and substantial dilution in the net tangible book value per share of
the Common Stock from the initial public offering price. See "Dilution."
10
<PAGE> 14
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,520,000 shares of
Common Stock offered hereby by the Company (assuming an initial public offering
price of $10.00 per share and after deducting underwriting discounts and
commissions and estimated expenses of this Offering) are estimated to be $13.5
million ($15.8 million if the Underwriters' over-allotment option is exercised
in full). The Company intends to use approximately $10.7 million of the net
proceeds (approximately $12.9 million if the Underwriters' over-allotment option
is exercised in full) to repay outstanding indebtedness under its revolving
credit facility (the "Revolving Credit Facility"). The Revolving Credit Facility
is a $20.0 million credit line with a bank secured by substantially all of the
Company's property, which bears interest at a rate equal to the bank's prime
rate plus 1% (currently 9.25%) and expires in January 1999. As of September 30,
1996, borrowings outstanding under the Revolving Credit Facility were $16.4
million. The Company expects to continue using the Revolving Credit Facility for
working capital needs and to fund the growth of its business after completion of
this Offering. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
The Company will use $850,000 of the net proceeds to pay a $500,000
promissory note the Company issued in June 1995 to the former principal
shareholder of Seneca in connection with the Seneca Acquisition and a $350,000
note payable to the estate of one of his immediate family members. The $500,000
promissory note bears interest at 7% per annum and is due and payable in full in
September 1997, unless the Company completes a public offering of the Common
Stock sooner, in which event the note provides that it shall become due and
payable in full. The $350,000 note bears interest at 9% per annum and is due and
payable in full in December 1996, but contains the same acceleration provision
relating to a public offering of the Common Stock by the Company.
Of the balance of the net proceeds, approximately $1.5 million will be used
to construct a distribution facility on Company-owned land adjacent to the
Company's existing facility in Newton, North Carolina, and approximately
$500,000 will be used to fund a portion of the estimated $1.5 million total cost
of purchasing and installing over the next 18 to 24 months approximately 60
electronic knitting machines to replace the more than 100 knitting machines
currently installed in the Company's women's hosiery division. Pending
application of the balance of the net proceeds for such purposes, the Company
intends to use the $2.0 million balance of the net proceeds to temporarily repay
additional amounts of outstanding indebtedness under its Revolving Credit
Facility.
The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Shareholders.
DIVIDEND POLICY
Although the Company has paid regular cash dividends on the Common Stock in
the past, the Company intends to cease paying dividends and to retain earnings
to support the growth and development of its business. Accordingly, the Company
does not anticipate that any dividends will be declared on the Common Stock for
the foreseeable future. The payment of future dividends, if any, will be at the
discretion of the Board of Directors and will depend upon the Company's
earnings, financial condition, cash requirements, restrictive covenants under
the Revolving Credit Facility or any other indebtedness, future prospects and
other factors deemed relevant by the Company's Board of Directors.
11
<PAGE> 15
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1996 (i) on an actual basis, (ii) on a pro forma basis to reflect the
Interknit Acquisition and (iii) on a pro forma, as adjusted basis to reflect the
Interknit Acquisition and the sale by the Company of 1,520,000 shares of Common
Stock in this Offering (at an assumed initial public offering price of $10.00
per share) and the application of the estimated net proceeds therefrom. See "Use
of Proceeds."
<TABLE>
<CAPTION>
AT JUNE 30, 1996
-----------------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt, including current portion
of long-term debt.................................... $ 7,907 $ 8,281 $ 7,931
-------- -------- --------
Long-term debt, less current portion................... 17,516 18,771 5,585
-------- -------- --------
Shareholders' equity:
Common Stock, $.01 par value; 20,000,000 shares
authorized; 1,360,000 shares issued and
outstanding, actual; 1,600,000 shares issued and
outstanding, pro forma; and 3,120,000 shares
issued and outstanding, pro forma, as
adjusted(1)....................................... 14 16 31
Additional paid-in capital........................... 1,108 1,131 14,652
Foreign currency translation adjustments............. 91 91 91
Retained earnings.................................... 6,893 7,005 7,005
-------- -------- --------
Total shareholders' equity........................ 8,106 8,243 21,779
-------- -------- --------
Total capitalization......................... $33,529 $35,295 $35,295
======== ======== ========
</TABLE>
- ---------------
(1) Excludes (i) 245,000 shares of Common Stock available for future grants of
stock options, restricted stock and other stock-based awards under the
Company's stock incentive plans and (ii) 75,000 shares of Common Stock that
may be issued in connection with future purchases by employees under the
Company's employee stock purchase plan. See "Management -- Employee Benefit
Plans."
12
<PAGE> 16
DILUTION
On a pro forma basis giving effect to the Interknit Acquisition as if such
event had occurred on June 30, 1996, the net tangible book value at June 30,
1996 was approximately $6,305,000, or $3.94 per share of Common Stock. Pro forma
net tangible book value per share represents the amount of the Company's net
tangible assets less total liabilities divided by the number of shares of Common
Stock outstanding. After giving effect to the sale of 1,520,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $10.00 per
share, and after deducting underwriting discounts and commissions and estimated
offering expenses, the Company's pro forma as adjusted net tangible book value
at June 30, 1996 would have been $19,841,000, or $6.36 per share. This
represents an immediate increase in pro forma net tangible book value of $2.42
per share to existing shareholders and an immediate dilution of $3.64 per share
to new investors purchasing shares of Common Stock in this Offering. The
following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share........................... $10.00
-----
Pro forma net tangible book value per share at June 30, 1996.... $3.94
Increase per share attributable to new investors................ 2.42
-----
Pro forma net tangible book value per share after this Offering... 6.36
-----
Net tangible book value dilution per share to new investors....... $ 3.64
=====
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1996,
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by the existing
shareholders and by the new investors at an assumed initial public offering
price of $10.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders... 1,600,000 51.3% $ 1,147,000 7.0% $ 0.72
New investors........... 1,520,000 48.7 15,200,000 93.0 10.00
--------- ----- ----------- -----
Total......... 3,120,000 100.0% $16,347,000 100.0%
========= ===== =========== =====
</TABLE>
The above computations exclude (i) 245,000 shares of Common Stock available
for future grants of stock options, restricted stock and other stock-based
awards under the Company's stock incentive plans and (ii) 75,000 shares of
Common Stock that may be issued in connection with future purchases by employees
under the Company's employee stock purchase plan. See "Management -- Employee
Benefit Plans."
13
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data (except the pro forma
data), insofar as they relate to each of the years 1991 through 1995, have been
derived from the Company's annual audited consolidated financial statements,
including the consolidated balance sheets at December 31, 1994 and 1995 and the
related consolidated statements of operations for each of the three years in the
period ended December 31, 1995 and notes thereto appearing elsewhere in this
Prospectus. The data for the six months ended June 30, 1995 and June 30, 1996
(except the pro forma data) have been derived from the Company's unaudited
financial statements also appearing elsewhere herein, which, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments and an adjustment for an obsolete inventory write-off in excess of
normal reserves, necessary for a fair statement of the results of operations for
the unaudited interim periods.
Historically, the majority of the Company's sales have been generated, and
most of the Company's profits have been earned, in the third and fourth quarters
of the year. Accordingly, the data for the six months ended June 30, 1996 should
not be considered indicative of results expected for the year ending December
31, 1996. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements and unaudited
pro forma condensed consolidated financial statements included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------- -------------------------------------
PRO PRO PRO
FORMA FORMA FORMA
1991 1992 1993 1994 1995 1995(1) 1995 1996 1995(1) 1996(2)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $32,283 $32,438 $35,605 $40,093 $54,408 $59,602 $21,474 $31,799 $26,026 $32,712
Cost of goods sold........... 25,051 26,179 27,813 30,963 43,723 47,944 16,922 25,656 20,604 26,238
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit................. 7,232 6,259 7,792 9,130 10,685 11,658 4,552 6,143 5,422 6,474
Selling, general and
administrative expenses.... 5,472 5,315 6,032 6,768 8,669 9,448 3,714 4,901 4,436 4,952
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income............. 1,760 944 1,760 2,362 2,016 2,210 838 1,242 986 1,522
Other income (expense):
Interest expense........... (721) (630) (661) (829) (1,584) (2,014) (520) (1,064) (906) (1,130)
Other...................... 120 296 334 54 103 118 17 29 24 28
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes...................... 1,159 610 1,433 1,587 535 314 335 207 104 420
Provision for income taxes... 247 77 349 573 239 209 97 78 67 149
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income................... $ 912 $ 533 $ 1,084 $ 1,014 $ 296 $ 105 $ 238 $ 129 $ 37 $ 271
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Net income per share......... $ 0.67 $ 0.40 $ 0.80 $ 0.75 $ 0.22 $ 0.07 $ 0.18 $ 0.10 $ 0.02 $ 0.17
Cash dividends per share..... $ 0.08 $ 0.09 $ 0.09 $ 0.11 $ 0.12 $ 0.11 $ 0.06 $ 0.03 $ 0.05 $ 0.03
Weighted average shares
outstanding................ 1,362 1,359 1,353 1,350 1,350 1,590 1,353 1,355 1,593 1,595
OTHER DATA:
Operating income before
depreciation and
amortization(3)............ $ 2,447 $ 1,768 $ 2,661 $ 3,279 $ 3,216 $3,736 $ 1,342 $ 1,988 $1,725 $2,391
Depreciation and
amortization............... 687 824 901 917 1,200 1,526 504 746 739 869
Capital expenditures......... 2,066 1,512 840 1,881 3,619 4,383 1,794 606 1,834 624
As adjusted for certain
charges(4):
Gross profit............... 11,306 12,279 4,862 5,732
Operating income........... 3,137 3,331 1,148 1,296
Operating income before
depreciation and
amortization(3).......... 4,337 4,857 1,652 2,035
Net income................. $ 969 $ 778 $ 424 $ 223
Net income per share....... $ 0.72 $ 0.49 $ 0.31 $ 0.14
</TABLE>
14
<PAGE> 18
<TABLE>
<CAPTION>
AT JUNE 30, 1996
AT DECEMBER 31, ---------------------------------------
----------------------------------------------- PRO FORMA
1991 1992 1993 1994 1995 ACTUAL PRO FORMA(5) AS ADJUSTED(6)
------- ------- ------- ------- ------- ------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................... $ 7,205 $ 6,885 $ 7,616 $11,696 $11,911 $15,112 $ 15,090 $ 15,158
Property, plant and equipment,
net............................. 5,578 6,096 5,740 6,332 10,349 10,242 11,588 11,588
Total assets...................... 18,094 19,145 21,614 24,487 38,534 44,445 46,401 46,119
Long-term debt (less current
portion)........................ 5,693 5,859 5,771 9,492 14,624 17,516 18,771 5,585
Total debt........................ 7,964 9,651 10,918 11,292 21,511 25,423 27,052 13,516
Shareholders' equity.............. 5,924 6,119 6,690 7,776 7,986 8,106 8,243 21,779
</TABLE>
- ---------------
(1) Gives effect to the Seneca and Interknit Acquisitions as if each of such
events had occurred on January 1, 1995. See the unaudited pro forma
condensed consolidated financial statements and notes thereto.
(2) Gives effect to the Interknit Acquisition as if such event had occurred on
January 1, 1996.
(3) Operating income before depreciation and amortization is net sales minus
cost of goods sold, selling, general and administrative expenses and
supplemental retirement benefit expense plus depreciation and amortization
expense. While the components of the measure are computed in accordance
with GAAP, the measure itself does not represent cash generated from
operating activities determined in accordance with GAAP, is not necessarily
indicative of cash available to fund cash needs and should not be
considered an alternative to net income as an indicator of the Company's
operating performance or as an alternative to cash flow as a measure of
liquidity.
(4) Gross profit for the year ended December 31, 1995 and the six months ended
June 30, 1995 reflects charges for the write-off of obsolete, unfinished
women's hosiery products in excess of normal reserves in the amounts of
$621,000 and $310,000, respectively. Operating income for the year ended
December 31, 1995 reflects the recognition of a supplemental retirement
obligation in the amount of $500,000 to the Company's former chairman. See
"Certain Transactions -- Supplemental Retirement Benefit." The data
presented have been adjusted to eliminate the effect of these one-time
charges.
(5) Gives effect to the Interknit Acquisition as if such event had occurred on
June 30, 1996.
(6) Adjusted to give effect to the Offering and the use of the net proceeds as
described in "Use of Proceeds."
15
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis provides information regarding the
Company's consolidated financial condition as of June 30, 1995 and 1996 and as
of December 31, 1993, 1994 and 1995 and its results of operations for the six
months ended June 30, 1995 and 1996 and for the years ended December 31, 1993,
1994 and 1995. This discussion and analysis should be read in conjunction with
the preceding Selected Consolidated Financial Data and the Company's
consolidated financial statements and notes thereto included elsewhere in this
Prospectus. Data for the six months ended June 30, 1996 are not necessarily
indicative of results expected for the year ending December 31, 1996. The
percentages provided below are calculated using the detailed financial data
contained in the Company's consolidated financial statements and notes thereto.
GENERAL
The Company derives its revenue from the manufacture and sale of sports,
rugged outdoor and heavyweight casual socks and women's hosiery products. The
Company's manufacturing facilities are located in Newton, North Carolina; Ft.
Payne, Alabama; Seneca Falls, New York; and Tralee, in the Republic of Ireland.
The Company believes it is one of the leading vendors of sports socks to
sporting goods and active apparel stores. The Company also sells its products to
department stores, discount stores and a variety of other retailers. In
addition, the Company produces sports socks for sale by others under such
widely-recognized brand names as adidas, ASICS, Bass, Brooks, Fila, Head
Sportswear, IZOD, New Balance and Reebok and women's hosiery products for sale
under the Liz Claiborne and Elisabeth brand names. Under license agreements, the
Company produces and sells socks and women's hosiery directly to retailers under
the brand names Converse, Ellen Tracy, Evan-Picone, Jacques Moret and Woolrich.
The Company is currently negotiating licensing terms to produce and sell socks
under the Coleman and Rockport brand names.
The Company's net sales have increased over the past three years, from
$35.6 million in 1993 to $54.4 million in 1995, a compounded annual growth rate
of 23.6%. The majority of the Company's revenue growth over the past three years
is attributable to increased sales of lightweight sports socks sold at
promotional prices in multi-pair packs, rugged outdoor and heavyweight casual
socks and women's tights and trouser socks. The increased sales of lightweight
sports socks and women's tights and trouser socks were generated internally,
while the increased sales of rugged outdoor and heavyweight casual sock lines
resulted from the Seneca Acquisition in June 1995. The Company's operating
income before depreciation and amortization, as adjusted for certain one-time
items (an obsolete inventory write-off in excess of normal reserves and the
recognition of a supplemental retirement benefit liability in 1995), also
increased over the past three years, from $2.7 million in 1993 to $4.3 million
in 1995. In 1994 and 1995, the Company invested a significant portion of its
capital resources in modernizing its sock manufacturing operations, with
aggregate capital expenditures for modern electronic knitting equipment and
other capital improvements during such years totalling $5.5 million. While the
expenses associated with the Seneca Acquisition and the lost production time and
other costs associated with the Company's modernization program had a negative
impact on the Company's net income for the year ended December 31, 1995 and the
first six months of 1996, management believes the integration of Seneca's
operations has been substantially completed, as has been the Company's
modernization program for its sports sock operations.
16
<PAGE> 20
The following table presents the Company's net sales by product category
for the most recent three years and the first six months of 1995 and 1996,
expressed in thousands of dollars and as a percentage of total net sales. For a
detailed description of each product category, see "Business -- Operations."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------------------------- ----------------------------------
1993 1994 1995 1995 1996
--------------- --------------- --------------- --------------- ---------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SOCKS:
Sports specific............. $13,421 37.7% $14,212 35.4% $14,878 27.3% $ 7,380 34.4% $10,287 32.4%
Sports promotional.......... 9,385 26.4 12,035 30.0 13,344 24.5 6,858 31.9 8,932 28.1
Active sport................ 1,654 4.6 1,879 4.8 1,846 3.4 904 4.2 738 2.3
Rugged outdoor and
heavyweight casual........ -- -- -- -- 9,178 16.9 -- -- 4,298 13.5
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total socks............. 24,460 68.7 28,126 70.2 39,246 72.1 15,142 70.5 24,255 76.3
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
WOMEN'S HOSIERY:
Sheer pantyhose and
knee-highs................ 6,147 17.3 5,782 14.4 6,047 11.1 3,522 16.4 3,395 10.7
Tights and trouser socks.... 4,998 14.0 6,185 15.4 9,115 16.8 2,810 13.1 4,149 13.0
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total women's hosiery... 11,145 31.3 11,967 29.8 15,162 27.9 6,332 29.5 7,544 23.7
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total net sales.... $35,605 100.0% $40,093 100.0% $54,408 100.0% $21,474 100.0% $31,799 100.0%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
As illustrated by the table set forth above, socks have accounted for an
increasing percentage of the Company's total net sales, increasing from 68.7% in
1993 to 76.3% in the six months ended June 30, 1996. Within the sock product
lines, the percentage of total net sales attributable to rugged outdoor and
heavyweight casual socks, which were not previously sold by the Company, was
16.9% in 1995, due to the Seneca Acquisition in June 1995, while sales of sports
promotional socks grew at a faster rate than sales of heavier weight sports
specific and active sport socks due primarily to consumer preferences. Within
the women's hosiery product lines, the percentage of net sales attributable to
tights and trouser socks increased from 14.0% in 1993 to 16.8% in 1995 due to
consumer preferences and the success of the Ellen Tracy program, which began in
1994. The net sales by product category for the six months ended June 30, 1996
are not indicative of the net sales by product category expected for the year
ending December 31, 1996, because sales of rugged outdoor and heavyweight casual
socks, tights and trouser socks typically are higher during the third and fourth
quarters and sales of women's hosiery products are expected to increase as a
percentage of total net sales due to implementation of the Evan-Picone program
in the third and fourth quarters of 1996.
RESULTS OF OPERATIONS
Industry and Business Trends
Management believes that the Company's recent operating results have been,
and its future operating results may be, affected by certain industry and
business trends discussed below and elsewhere in this Prospectus. The impact of
these trends on historical operating results can be difficult to identify and
measure and, with respect to future operating results, difficult to predict. The
following discussion of such trends includes forward-looking statements that are
subject to inherent risks and uncertainties. Accordingly, the Company's
performance in future periods may differ materially from those suggested by such
statements.
The Company's success depends in part on its ability to anticipate and
respond to changing customer demands and fashion trends. See "Risk
Factors -- Fashion Trends and Retail Cyclicality." One such trend that the
Company has benefitted from in recent years is a fashion trend toward more
casual dress and active wear. Sales of the Company's socks have increased in
part because socks typically are an integral part of a more casual,
sports-oriented wardrobe. While existing retailers have modified their sales
strategies to emphasize such items, new retailers have emerged that focus
entirely on casual clothing or sporting goods and apparel. Women's hosiery
products also have been affected by the trend toward more casual dress by
shifting the emphasis from traditional sheer products to more durable,
heavyweight products such as tights and trouser socks. This trend has increased
the Company's sales of women's hosiery products as well as its profitability,
due to the emphasis on heavier-weight product lines which carry higher margins.
Selling, general and
17
<PAGE> 21
administrative costs have increased as well, due to development costs incurred
to modify and expand the Company's established product lines to include more
casual and sports-oriented items.
As the market for socks and women's hosiery products has become more
fashion conscious, association with brand names has become an increasingly
important marketing tool. The Company has responded to this trend by entering
into licensing agreements to use designer brand names such as Ellen Tracy,
Evan-Picone and Jacques Moret in its women's hosiery product lines, Woolrich in
its rugged outdoor and heavyweight casual product lines and Converse in its
sports sock product lines. See "Risk Factors -- Risks Associated with Licensed
Brands." Because these licensing agreements typically involve higher margin
products, they have had a positive impact on the Company's revenue and gross
profit margins. Licensing arrangements also tend to result in higher selling,
general and administrative costs due to royalty payments, cooperative
advertising and marketing requirements imposed by licensors. Management expects
to continue to pursue licensing arrangements for brand names that complement the
Company's existing product lines.
As producers of consumer goods, sock and women's hosiery manufacturers are
subject to certain trends in the retailing industry. Of considerable importance
in recent years has been the trend toward consolidation of apparel retailers
into large regional or national chains. See "Business -- Industry Overview."
This trend has been particularly prevalent among the sporting goods retailers
and discount and department stores where the bulk of the Company's products are
sold. The centralized purchasing departments for these chains have the leverage
to demand preferential pricing and tend to favor vendors who can supply a
variety of related products in large quantities, accommodate strict packaging
and shipping requirements and maintain substantial finished goods inventories
managed by computerized information networks that are compatible with electronic
ordering systems. These retailers also expect manufacturers to play an expanding
role in the marketing and managing of their product lines. In order to maintain
and increase sales to such retailers, the Company has modernized and expanded
its production facilities, developed outsourcing relationships with other
manufacturers, invested approximately $400,000 since 1990 to update its
information systems and hired key sales people who are familiar with the
preferences and practices of such retailers. Implementation of this strategy has
resulted in substantial increases in revenues, narrower gross profit margins on
higher production volumes and increased selling, general and administrative
expenses.
The Company believes a trend toward consolidation in the sock and women's
hosiery industry has developed in recent years, due in part to powerful
incentives for manufacturers to become low cost, high volume producers. Smaller
companies that have not modernized their production facilities, focused on
profitable niche markets and developed effective channels of distribution are
finding it increasingly difficult to survive as independent manufacturers. This
consolidation trend periodically creates attractive acquisition opportunities
for companies that have the commitment and resources to remain independent.
While any future acquisitions by the Company will be designed to contribute to
the Company's long-term profitability by expanding capacity and adding
complementary product lines, they may initially have a negative impact on the
Company's gross profit and selling, general and administrative expenses as the
operations of the acquired company are integrated into the Company's existing
operations. To the extent any future acquisitions are financed by or involve the
assumption of additional debt, interest expense also will increase. The Seneca
Acquisition, for example, enabled the Company to broaden its product line to
include rugged outdoor and heavyweight casual socks. While the Seneca
Acquisition is expected to have a positive impact on the Company's long-term
profitability, increased interest expense and the expenses associated with the
integration of Seneca's operations into the Company's had an adverse effect on
the Company's operating results for the second half of 1995 and the first six
months of 1996. The Interknit Acquisition, however, will be effected to achieve
the benefits of vertical integration rather than in response to the trend toward
consolidation in the industry. Because the operations of Interknit and the
Company's facility in Ft. Payne, Alabama are already closely coordinated,
management expects that the administrative expenses associated with the
integration of Interknit into the Company's operations will be minimal. See
"Certain Transactions -- Transactions with and Acquisition of Affiliate."
In late 1994, the Company replaced all of its mechanical sports sock
knitting machines with electronic machines capable of operating at significantly
higher production levels with lower per unit costs. The efficiencies achieved
through this modernization program were initially offset to some degree by a
greater than
18
<PAGE> 22
expected negative manufacturing variance (direct manufacturing costs in excess
of budget) incurred as a result of the downtime associated with the installation
of, training and break-in period for the new knitting machinery. Management
estimates that approximately $200,000 of the negative manufacturing variance for
1995 was attributable to the initial operating inefficiencies associated with
the new knitting machinery. See "Business -- Manufacturing." The anticipated
replacement over the next 18 to 24 months of the more than 100 knitting machines
currently used by the Company to manufacture women's hosiery products with
approximately 60 new electronic knitting machines is expected to produce similar
results in future periods. The replacement program for the women's hosiery
division will be effected over a period of several months in order to minimize
the manufacturing disruptions experienced in 1995 with the replacement program
for the sock division. See "Use of Proceeds."
The Seneca Acquisition
In June 1995, the Company expanded its manufacturing capacity and customer
base for rugged outdoor and heavyweight casual socks by acquiring all of the
issued and outstanding capital stock of Seneca for $3.0 million in cash and the
issuance of $4.0 million in notes payable. The purchase price exceeded the fair
value of Seneca's net tangible assets by $1.9 million. Because the acquisition
was accounted for as a purchase, goodwill equal to that amount is being
amortized using the straight-line method over a period of 15 years. Seneca's
historical financial statements and pro forma financial statements of the
Company reflecting the acquisition are included elsewhere in this Prospectus.
Although the Company operates Seneca as a separate subsidiary, promptly after
the acquisition was consummated management began to integrate Seneca's
operations and sales and marketing efforts with those of the Company. While the
acquisition increased the Company's sales in the last six months of 1995 by $9.2
million and by $4.3 million in the first six months of 1996, expenses
attributable to the acquisition and these integration efforts had an adverse
effect on the Company's operating results for the last six months of 1995 and
the first six months of 1996. Seneca's net sales and profitability generally
experience stronger performance in the third and fourth quarters. See
"-- Seasonality." Net income attributed to Seneca, which includes interest
expense of $387,000 and amortization expense of $77,000, was $134,000 for the
six months ended December 31, 1995, and net loss attributed to Seneca, which
includes interest expense of $383,000 and amortization expense of $77,000, was
$471,000 for the six months ended June 30, 1996. See "-- Comparison of 1995 to
1994," "-- Comparison of Six Months Ended June 30, 1995 to Six Months Ended June
30, 1996" and "-- Liquidity and Capital Resources" for a detailed analysis of
the impact of the acquisition on the Company's consolidated financial position
and results of operations during these periods.
In order to improve the profitability of Seneca, the Company has instituted
cost accounting and quality control procedures similar to those in place at its
other manufacturing facilities, discontinued Seneca's inefficient wool spinning
operation and reduced the size of Seneca's workforce by approximately 30
employees. These steps have been taken under the supervision of experienced
operations personnel on temporary reassignment from the Company's other domestic
divisions. Steps also have been taken in the sales and marketing area to
increase Seneca's profitability, including the cross-selling of Seneca's product
lines to established customers of the Company. In addition, the Company's
product development staff has begun to modify and expand Seneca's product lines
in reaction to changes in customer preferences.
19
<PAGE> 23
Results of Operations as a Percentage of Net Sales
The following table presents the Company's results of operations as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales........................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold............................... 78.1 77.2 80.4 78.8 80.7
----- ----- ----- ----- -----
Gross profit................................... 21.9 22.8 19.6 21.2 19.3
Selling, general and administrative expenses..... 16.9 16.9 15.9 17.3 15.4
----- ----- ----- ----- -----
Operating income............................... 5.0 5.9 3.7 3.9 3.9
Interest expense................................. (1.9) (2.1) (2.9) (2.4) (3.3)
Other income, net................................ 0.9 0.1 0.2 0.1 0.1
----- ----- ----- ----- -----
Income before income taxes....................... 4.0 3.9 1.0 1.6 0.7
Income tax expense............................... 1.0 1.4 0.4 0.5 0.3
----- ----- ----- ----- -----
Net income..................................... 3.0% 2.5% 0.6% 1.1% 0.4%
===== ===== ===== ===== =====
</TABLE>
Comparison of Six Months Ended June 30, 1996 to Six Months Ended June 30, 1995
Net sales for the six months ended June 30, 1996 were $31.8 million, an
increase of $10.3 million, or 48.1%, over the same period for the prior year.
Seneca accounted for $4.3 million, or 41.6%, of the net sales increase. In
addition, the Company's subsidiary in the Republic of Ireland experienced a
72.0% increase in net sales for the first six months of 1996, compared to the
same period in 1995 primarily as the result of a strategic alliance entered into
with Chipman-Union Co., another domestic hosiery manufacturer, pursuant to which
the Company is the primary manufacturer to fill orders for sports socks from
European distributors of products bearing the adidas brand name. Sales of sports
socks bearing the adidas name, which were not sold by the Company in 1995, were
$2.2 million for the first six months of 1996. See note 13 to the Company's
consolidated financial statements. The Company's domestic divisions, excluding
Seneca, experienced an average of 24.3% net sales growth due to increased demand
for sport specific and sports promotional socks and women's hosiery products. On
a pro forma basis, net sales for the six-month period ended June 30, 1996 were
$32.7 million, compared to $26.0 million for the comparable period of 1995, or
an increase of 25.7%.
Gross profit for the first six months of 1996 was $6.1 million, an increase
of $1.6 million, or 35.0%, over the same period for the prior year. As a
percentage of net sales, gross profit decreased from 21.2% in 1995 to 19.3% in
1996. Included in the cost of goods sold for the first six months of 1995,
however, is a charge of $310,000 related to accumulated unfinished women's
hosiery products determined during the period to be obsolete, which exceeded the
Company's normal estimate for reserves for obsolete and discontinued inventory.
This charge in excess of normal reserves reduced gross profit, as a percentage
of net sales, by 1.4%. Although the Company experienced significant growth in
net sales compared to the prior six-month period, this sales growth came from
products that generally carried gross profit margins lower than the gross profit
margins of the products sold in the prior period. During the first six months of
1996, $4.3 million in sales of rugged outdoor and heavyweight casual socks by
Seneca carried a gross profit margin of 15.6%, while $2.2 million in sales by
the Company's subsidiary in the Republic of Ireland were from the new adidas
program that carried a gross profit margin of less than 10%. Price increases on
selected products are expected to increase the gross profit margins generally
realized on products sold by Seneca and the Irish subsidiary. The pricing of a
significant private label program in the women's hosiery division also was
reduced early in 1996 to increase sales volume. Management believes that
continued sales growth even at generally lower gross profit margins will
maximize the Company's use of its production facilities, increase its operating
efficiencies and allow fixed costs to be more efficiently absorbed. The overall
effect of increased sales during the 1996 period of products that carried lower
gross profit margins was partially offset by slight increases in gross profit
margins during the period on sport specific and active sports sock products.
Gross profit on a pro forma basis increased
20
<PAGE> 24
$1.1 million, or 19.4%, from $5.4 million for the six months ended June 30, 1995
to $6.5 million for the first six months of 1996.
Selling, general and administrative expenses for the six months ended June
30, 1996 were $4.9 million, compared to $3.7 million for the same period in
1995, an increase of $1.2 million. This increase was primarily due to the
additional expenses associated with the integration of the Seneca Acquisition.
As a percentage of net sales, selling, general and administrative expenses
decreased from 17.3% in the six-month period ended June 30, 1995, to 15.4% for
the same period in 1996. This reduction is largely due to net sales increasing
at a faster rate than selling, general and administrative expenses. On a pro
forma basis, selling, general and administrative expenses increased 11.6%, from
$4.4 million for the first six months of 1995 to $4.9 million for the comparable
period of 1996.
Operating income increased from $838,000 to $1.2 million for the six months
ended June 30, 1996. As a percentage of net sales, operating income was 3.9% for
each of the six-month periods of 1995 and 1996. For the pro forma six-month
period ended June 30, 1996, operating income increased $536,000 from the same
pro forma period of 1995. This represents a pro forma increase of 54.4% and is
primarily attributable to the profitability of Interknit during the first six
months of 1996 versus an operating loss during the comparable period of 1995.
Interest expense increased 104.6% from $520,000 in the first six months of
1995 to $1.1 million in the comparable 1996 period due to the debt incurred for
the Seneca Acquisition. See "-- Liquidity and Capital Resources." The
acquisition debt of $7.0 million was incurred at June 28, 1995, and as a result,
no interest expense related to that debt is reflected in the six months ended
June 30, 1995, whereas the six-month period ended June 30, 1996 reflects
interest relating to that debt. Pro forma interest expense for the six-month
periods ended June 30, 1996 and 1995 was $1.1 million and $906,000,
respectively.
Other income for the first six months of 1996 was $29,000 compared to
$17,000 for the same period in 1995. Relative to net sales, other income
remained stable on both a historical and pro forma basis.
Income tax for the six-month period for 1996 was $78,000, compared to
$97,000 for 1995. The decrease in income tax expense was largely due to the loss
incurred at Seneca.
Net income for the six months ended June 30, 1996 was $109,000 less than
net income for the comparable period of 1995. This decrease is primarily
attributable to the net loss incurred by Seneca during the six months ended June
30, 1996. Since the Seneca Acquisition was effective on June 28, 1995, a
comparison of the historical operating results for the six-month periods ended
June 30, 1996 and 1995 is not meaningful. Without giving effect to Seneca's net
loss during the first six months of 1996, the Company's net income would have
increased $363,000, or 153%, over the comparable period of 1995. Pro forma net
income for the six months ended June 30, 1996 was $271,000, compared to pro
forma net income of $37,000 for the comparable period of 1995. The increase in
pro forma net income is primarily attributable to the profitability of Interknit
during the first six months of 1996 versus an operating loss during the
comparable period in 1995.
Comparison of 1995 to 1994
Net sales for 1995 were $54.4 million, compared to $40.1 million in 1994,
an increase of $14.3 million, or 35.7%. The Seneca Acquisition in June 1995 was
responsible for $9.2 million of the overall increase in net sales. The balance
of the increase was attributable to growth in demand for certain of the
Company's women's hosiery products and sport socks from new and existing
customers.
Gross profit for 1995 was $10.7 million, or 19.6% of net sales, as compared
to $9.1 million, or 22.8% of net sales, for 1994. The decrease in gross profit
as a percentage of net sales for 1995 was due in part to a trend towards higher
sales volume at lower gross profit margins. Included in the cost of goods sold
for 1995, however, is a charge of $621,000 related to accumulated unfinished
women's hosiery products determined during the year to be obsolete, which
exceeded the Company's normal estimate for reserves for obsolete and
discontinued inventory. This charge in excess of normal reserves reduced gross
profit, as a percentage of net sales, by 1.1%.
21
<PAGE> 25
Selling, general and administrative expenses increased $1.9 million in 1995
to $8.7 million, as compared to $6.8 million in 1994. The majority of the
increase was attributable to costs associated with the integration of Seneca
into the Company's operations during the second half of 1995. The Company also
recorded a one-time charge of $500,000 during 1995 to recognize its future
liability under an agreement entered into in December 1995 to pay a supplemental
retirement benefit to the Company's former Chairman over a seven-year period.
See "Certain Transactions -- Supplemental Retirement Benefit." As a percentage
of net sales, selling, general and administrative expenses nonetheless decreased
in 1995 to 15.9% compared to 16.9% in 1994. The Company attributes this
percentage decrease primarily to net sales increasing at a faster rate than
selling, general and administrative expenses.
Although the Company experienced significant growth in net sales during
1995, operating income decreased to $2.0 million compared to $2.4 million in
1994. The decrease was the result of the one-time charges for the write-off of
obsolete inventory and to recognize the Company's future liability to pay a
supplemental retirement benefit. Had these one-time charges, which totaled $1.1
million, not been incurred, operating income in 1995 would have been $3.1
million, or a 32.8% increase over operating income in the prior year.
Interest expense in 1995 was $1.6 million compared to $829,000 in 1994.
Interest on the additional borrowings incurred to fund the Seneca Acquisition
and increased borrowings under the Revolving Credit Facility to support higher
levels of inventory and accounts receivable accounted for most of this 91%
increase in interest expense.
Other income for 1995 was $103,000, compared to $54,000 for 1994. The lower
amount of other income for 1995 was primarily due to losses incurred on the sale
or disposal of equipment in 1994 that offset other income in that year. There
were no offsetting losses from the sale or disposal of equipment in 1995.
Income taxes for 1995 decreased by $334,000 from 1994. The effective tax
rate in 1995 was 44.7% compared to 36.1% in 1994. The increase in the effective
tax rate for 1995 was the result of a decrease in the percentage of the
Company's total income represented by income from the Company's operations in
the Republic of Ireland, which is not subject to United States income tax.
Net income for 1995 was $296,000 compared to $1.0 million in 1994. The
decrease was the result primarily of the one-time charges incurred during 1995
for the write-off of obsolete inventory in excess of normal reserves and to
recognize the Company's future liability to pay a supplemental retirement
benefit to a former executive officer. Without these charges, income before
income taxes for 1995 would have been $1.7 million and net income would have
been $969,000. The Company's net income for 1995 was also adversely impacted by
the 91% increase in interest expense over the prior year described above.
Comparison of 1994 to 1993
Net sales for 1994 were $40.1 million, as compared to $35.6 million for
1993, for an increase of $4.5 million, or 12.6%. The increase in net sales was
primarily attributable to sales of Ellen Tracy women's hosiery products, which
the Company began selling in 1994, and steady growth in sports sock sales
resulting primarily from strong demand for sport specific socks from large
format sporting goods retailers.
Gross profit for 1994 was $9.1 million, or 22.8% of net sales, as compared
to $7.8 million, or 21.9% of sales, for 1993. The increase in gross profit as a
percentage of net sales resulted from a combination of increased sales of
tights, trouser socks and other higher margin products in the women's hosiery
division and operating efficiencies achieved from steady production at close to
capacity in the women's hosiery and promotional sports sock divisions.
Selling, general and administrative expenses increased 12.2% to $6.8
million in 1994 from $6.0 million in 1993. As a percentage of net sales,
however, selling, general and administrative expenses remained constant at
16.9%. The Company attributes this result primarily to net sales increasing at a
faster rate than selling, general and administrative expenses.
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The changes in sales, margins and expenses during 1994 described above
combined to result in an increase in operating income of 34.2% from $1.8 million
in 1993 to $2.4 million in 1994. As a percentage of net sales, operating income
increased from 5.0% in 1993 to 5.9% in 1994.
Interest expense in 1994 of $829,000 was 25.4% higher than interest expense
of $661,000 in 1993. The increase was attributable to increased borrowings to
support accounts receivables and inventories and an
increase in prevailing interest rates during 1994.
Other income decreased 83.8% to $54,000 in 1994 from $334,000 in 1993. The
unusually large amount of other income in 1993 was attributable to the
recognition in such year of $108,000 in foreign currency exchange gains upon the
repayment of debt, denominated in U.S. dollars, owed to the Company by its
foreign subsidiary conducting operations in the Republic of Ireland, which had
been recorded, at the date of incurrence, on the foreign subsidiary's balance
sheet in a foreign currency. The Company also received in 1993 an extraordinary
grant of $104,000 from the Republic of Ireland to offset the adverse effect of
currency exchange losses incurred during 1993 on outstanding receivables of the
Company's foreign subsidiary when the exchange rate for certain European
currencies, particularly the British pound, began floating on the open market
without limits.
Income taxes for 1994 increased by $224,000 compared to 1993. The effective
tax rate was 36.1% in 1994 compared to 24.8% in 1993. This increase in the
effective tax rate for 1994 was the result of a decrease in the percentage of
the Company's total income represented by income from the Company's operations
in the Republic of Ireland, which is not subject to United States income tax.
Net income for 1994 was $1.0 million compared to $1.1 million for 1993. The
decrease in net income was primarily a result of higher income taxes in 1994
caused primarily by decreasing income from the Company's operations in the
Republic of Ireland.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities for the years ended December 31, 1993,
1994 and 1995 were $(102,000), $984,000 and $2.0 million, respectively. Cash
flows from operating activities during the six months ended June 30, 1995 and
1996 were $924,000 and $(3.0 million), respectively. The negative cash flows
from operating activities during the first six months of 1996 were the result of
a $4.3 million increase in inventories and a $1.7 million increase in accounts
receivable since year end. The $4.3 million increase in inventories was largely
due to increased inventories to support higher levels of sales in the women's
hosiery division and to support sales of Seneca's rugged outdoor and heavyweight
casual socks, which are higher in the last six months of the year. The $1.7
million increase in accounts receivable was the result of increased net sales by
the Company's other divisions.
In addition to cash flow from operations, the Company obtains working
capital and, on a temporary basis, finances its capital expenditures for
equipment modernization, through borrowings under the Company's Revolving Credit
Facility extended by NationsBank, N.A. (South) ("NationsBank"). Borrowings under
the Revolving Credit Facility were also used to fund a portion of the costs of
the Seneca Acquisition. The Revolving Credit Facility, which was recently
increased by $3.0 million to provide the additional working capital needed to
support the Evan-Picone women's hosiery program, provides for borrowings of up
to $20.0 million through January 1999. As of September 30, 1996, $16.4 million
was outstanding under the Revolving Credit Facility, and there was $3.6 million
available for additional borrowings. Funds borrowed under the Revolving Credit
Facility bear interest at a rate equal to NationsBank's prime rate plus 1% per
annum (currently 9.25%) and are secured by the Company's accounts receivable,
inventory, equipment and certain real property. Amounts outstanding under the
Revolving Credit Facility may not exceed the sum of specified percentages of the
Company's accounts receivable and the value of the Company's inventory.
The Revolving Credit Facility imposes several financial and other covenants
that the Company must satisfy including, among other things, maintenance of
specified levels of working capital, maintenance of a specified tangible net
worth, debt service coverage ratios and positive cash flow. The covenants also
impose limits on capital expenditures and dividends. Pursuant to grant
agreements with the Republic of Ireland, the
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retained earnings of the Company's Irish subsidiary are subject to certain
restrictions based upon the amount of government grants received to date. See
note 12 to the Company's consolidated financial statements.
In addition to the Revolving Credit Facility, the Company has two term
loans outstanding with NationsBank. As of September 30, 1996, the term loans had
an aggregate principal balance of approximately $5.2 million. The first loan,
which was entered into as a source of permanent financing for the Company's
capital equipment modernization program and at September 30, 1996 had an
outstanding principal balance of $4.2 million, bears interest at NationsBank's
prime rate plus 1% (currently 9.25%) and is payable in four monthly installments
of $41,667 each, with a balloon payment of approximately $4.0 million due in
January 1997. This loan is secured by the same collateral as the Revolving
Credit Facility and imposes similar restrictive covenants on the Company. The
Company expects to extend, and increase the principal balance of, this term loan
prior to its due date. Any additional principal the Company is able to borrow
will be used to reduce the outstanding balance under the Revolving Credit
Facility, thereby increasing the amount available for additional borrowings
thereunder to support future sales growth. The second term loan with
NationsBank, which at September 30, 1996 had an outstanding principal balance of
$964,000, was obtained in connection with the Seneca Acquisition in June 1995.
This loan bears interest at NationsBank's prime rate plus 1% (currently 9.25%)
and is payable in 31 monthly installments of $12,000 each, with a balloon
payment of approximately $640,000 due in January 1999.
NationsBank has issued a commitment letter, subject to completion of this
Offering and satisfactory loan documentation, to change the interest rates on
both the Revolving Credit Facility and the term loans to give the Company an
option to choose an interest rate based on NationsBank's prime rate or London
Interbank Offered Rates ("LIBOR"). The LIBOR-based option, which the Company
expects to select, ranges from LIBOR plus 2% to LIBOR plus 3 1/4%, depending
upon the Company's leverage ratio (as defined). Based on the Company's pro forma
leverage ratio as of June 30, 1996, as adjusted to reflect the Interknit
Acquisition and the completion of this Offering, the interest rates under the
LIBOR-based option (assuming the Company had selected six-month LIBOR on such
date as the base rate) would be 7.8% as of the date of this Prospectus. Based on
estimates by management, the Company expects the interest rates upon completion
of this Offering under the LIBOR-based option will be the LIBOR base rate
selected by the Company plus 2% or 2 1/4%.
In payment of a portion of the purchase price of Seneca, the Company issued
a $500,000 promissory note due in June 1997 to Seneca's former principal
shareholder. This note, which is due in September 1997, provides for
acceleration of the due date upon completion of this Offering. In connection
with the Seneca Acquisition, the Company also guaranteed an existing obligation
of Seneca in the amount of $350,000 owed to the estate of a family member of the
former principal shareholder of Seneca that similarly provides for acceleration
of the due date upon completion of this Offering. The Company will use $850,000
of the net proceeds of this Offering to satisfy these obligations. See "Use of
Proceeds."
As a result of the Interknit Acquisition, the Company's total debt will
increase by approximately $1.7 million. Interknit's debt, which was incurred to
finance the start-up and capital equipment costs and working capital needs of
Interknit, bears interest at rates ranging from 6.9% to 9.3% and is payable in
monthly installments through 2004.
The Company intends to use the balance of the estimated net proceeds of
this Offering to temporarily repay borrowings outstanding under the Revolving
Credit Facility. Additional borrowings under the Revolving Credit Facility will
be made during the 18 to 24 month period following the completion of this
Offering in the approximate amounts of $1.5 million to construct a distribution
facility and $500,000 to fund a portion of the estimated $1.5 million cost of
purchasing 60 electronic knitting machines to replace the more than 100 knitting
machines currently installed in the women's hosiery division. The Company has no
contractual commitments for these planned capital expenditures.
Management believes the net proceeds of this Offering, when combined with
the Revolving Credit Facility and other financing arrangements described herein
and anticipated cash flows from operations, will be adequate to fund the
Company's working capital requirements and planned capital expenditures for a
period of at least 12 months following completion of this Offering. There can be
no assurance, however, that
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acquisitions, adverse economic or competitive conditions or other factors will
not result in the need for additional financing or have an adverse impact on the
availability and reasonableness of such additional financing, if required.
SEASONALITY
The Company's business is impacted by the general seasonal trends that are
characteristic of the apparel and retail industries. The Company's net sales and
profitability generally experience stronger performance in the third and fourth
quarters. As the timing of the shipment of products may vary from year to year,
the results for any particular quarter may not be indicative of results for the
full year.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"),
effective for fiscal years beginning after December 15, 1995. SFAS 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to these assets and
certain identifiable intangibles to be disposed of. Since the Company's current
policy is consistent with the provisions of SFAS 121, it does not anticipate
that the new pronouncement will impact its financial statements.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"),
effective for fiscal years beginning after December 15, 1995. SFAS 123
establishes a fair value-based method of accounting for compensation cost
related to stock options and other forms of stock-based compensation plans.
However, SFAS 123 allows an entity to continue to measure compensation costs
using the principles of Accounting Principles Board Pronouncement 25 if certain
pro forma disclosures are made. The Company intends to adopt the provisions for
pro forma disclosure requirements of SFAS 123 in 1996 and anticipates that SFAS
123 will not have a material impact on its financial statements. As of August
15, 1996, the Company had not granted any stock-based awards subject to SFAS
123.
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BUSINESS
GENERAL
The Company designs, manufactures and markets a complete range of sports,
rugged outdoor and heavyweight casual socks as well as a wide variety of women's
hosiery products, including tights, trouser socks, pantyhose and knee-highs. The
Company believes it is one of the leading vendors of sports socks to sporting
goods and active apparel stores. The Company also sells its products to
department stores, discount stores and a variety of other retailers. In
addition, the Company produces sports socks for sale by others under such
widely-recognized brand names as adidas, ASICS, Bass, Brooks, Fila, Head
Sportswear, IZOD, New Balance and Reebok and women's hosiery products for sale
under the Liz Claiborne and Elisabeth brand names. Under license agreements, the
Company produces and sells socks and women's hosiery directly to retailers under
the brand names Converse, Ellen Tracy, Evan-Picone, Jacques Moret and Woolrich.
The Company is currently negotiating licensing terms to produce and sell socks
under the Coleman and Rockport brand names. The Company expects that
approximately two-thirds of its net sales in the current fiscal year will be
derived from sales of socks with the balance derived from sales of women's
hosiery products. As of September 30, 1996, the Company had more than 3,500
customers in the United States, Europe and other parts of the world.
The Company was founded in 1912 in Newton, North Carolina by a group of
individuals, including Joseph Albert Gaither, grandfather of the Company's
Chairman and great grandfather of the Company's President and Chief Executive
Officer, as a manufacturer of women's hosiery. In the mid-1970's the Company
began diversifying its product line to include sports socks, and during the past
ten years the Company has diversified geographically and modernized its
production capacity, increased its domestic customer base, expanded its contract
manufacturing business, acquired the rights to manufacture and sell socks and
women's hosiery under several widely-recognized brand names and increased its
marketing activities and sales in Europe and other foreign markets. In 1986 the
Company established a manufacturing facility in the Republic of Ireland to serve
European customers and in 1992 established a manufacturing facility in Ft.
Payne, Alabama to produce promotionally-priced, multi-pair pack sports socks. In
June 1995, the Company expanded its manufacturing capacity and customer base by
acquiring Seneca, which has been engaged since 1954 exclusively in designing,
manufacturing and marketing these socks. In 1995 the Company also completed a
major expansion of its manufacturing facility in the Republic of Ireland to
accommodate growth from a new sports sock manufacturing program for adidas.
INDUSTRY OVERVIEW
According to statistics compiled by the National Association of Hosiery
Manufacturers ("NAHM"), total retail dollar volume in the United States of total
hosiery, which includes all socks, women's sheer hosiery and tights, increased
by approximately 18% from $6.1 billion in 1990 to $7.2 billion in 1995. During
the same five-year period, total retail dollar volume of (i) socks increased by
26% from $3.0 to $3.8 billion on a 31% increase in retail unit volume, (ii)
women's sheer hosiery remained unchanged at $2.7 billion on an 18% increase in
retail unit volume and (iii) tights increased 96% from $300 million to $589
million on an 88% increase in retail unit volume. From 1990 to 1995, total
retail dollar volume of men's and boy's sport/athletic socks (a category that
includes rugged outdoor and heavyweight casual socks) increased by approximately
28% from $587 million to $754 million on a 32% increase in retail unit volume.
During the same period, annual per capita purchases of socks in the United
States increased from 9.2 to 11.5 pairs while the total United States population
increased from 254 million to 266 million persons.
During the first six months of 1996, total retail dollar volume of total
hosiery increased by 7.6% to $3.3 billion from $3.0 billion in the first six
months of 1995. During the first six months of 1996 compared to the same period
in the prior year, total retail dollar volume of (i) socks increased by 15.4%
from $1.5 billion to $1.8 billion on an 11.5% increase in retail unit volume,
(ii) women's sheer hosiery declined by 2.9% from $1.4 billion to $1.3 billion on
a 9.7% decrease in retail unit volume and (iii) tights increased 25.5% from $150
million to $187 million on a 3.6% increase in retail unit volume.
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Statistics compiled by the NAHM regarding United States foreign trade in
hosiery products indicate that during the past ten years total hosiery imports
have increased approximately one and one-half times from 12,012,000 dozens of
pairs to 29,713,000 dozens of pairs while total hosiery exports have increased
more than five-fold from 3,942,000 dozens of pairs to 22,236,000 dozens of
pairs. From 1990 to 1995, total hosiery imports' share of retail dollars spent
on hosiery in the United States has increased from 5.2% to 8.2% with most of the
increase attributable to increased sales of imported women's sheer hosiery.
Imported socks' share of retail dollars spent on socks in the United States
increased from 6.7% in 1990 to 7.6% in 1995. Imported tights' share of total
retail dollars spent on tights in the United States increased during the same
period from 8.1% to 14.3%.
From 1990 to 1995, exports of socks increased more than three-fold from
2,979,000 dozens of pairs to 9,785,000 dozens of pairs with a corresponding
increase in total dollar value of sock exports from $32.8 million to $98.5
million. The leading countries for United States exports of socks and women's
hosiery in 1995 were Canada, Japan, Mexico and Germany. Analysts for the NAHM
believe that the potential for increased export sales of hosiery to countries
with increasing per capita disposable income is great, particularly for socks,
but that different retail distribution practices and customs in many of these
countries will require United States manufacturers to adapt their sales and
marketing strategies. Companies with foreign operations located in close
proximity to developed and developing markets are expected to have an advantage
over manufacturers having only domestic manufacturing capability.
As part of the current trend in the United States towards more casual
dress, socks are increasingly becoming a fashion statement for style-conscious
consumers. The Company believes that this trend has helped drive the growth in
recent years in sales of socks. Sales of promotionally-priced, multi-pair pack
sports socks have also increased significantly during the past five years and
captured an increasing share of the sports sock retail dollar volume. Influenced
by the same trend towards more casual dress, the market for women's hosiery is
changing from its emphasis on traditional sheer pantyhose to include more
durable, heavyweight products such as tights and trouser socks. Manufacturing of
women's hosiery products is also becoming increasingly concentrated with only 58
manufacturers of sheer hosiery operating in the United States. Of that number,
the 30 largest manufacturers produce most of the women's hosiery sold in the
United States.
Rapid technological change is also affecting all sock and women's hosiery
manufacturers. In the last ten years, manufacturers have been replacing their
existing mechanical knitting machines with a smaller number of higher speed
electronic machines capable of equal or greater production than the machines
they replaced. The newer electronic machines, which have fewer moving parts and
require less maintenance, also provide greater production flexibility since they
can be rapidly changed over to knit a different style or type of product.
Changing over older mechanical machines is a time-consuming, labor intensive
process. The increased production capacity of the latest generation of knitting
machinery has led to production overcapacity in some segments of the industry,
which has been exacerbated by the fact that many of the older machines they
replaced have been purchased by others and put back into production.
In recent years, the industry has also been, and will continue in the
future to be, affected by certain trends in the retailing industry, including a
trend towards consolidation of all categories of retailers into larger units
having greater purchasing power. The retail sporting goods industry, for
example, which was traditionally highly fragmented and comprised of relatively
small sporting goods retailers, sports specific specialty shops, pro shops and
departments within chain and discount stores, is being transformed by the rapid
growth of large format sporting goods retailers. They include customers of the
Company such as The Sports Authority, which operates more than 120 stores under
that name, Sports and Recreation, which operates more than 60 stores principally
under the names "Sports Unlimited," "Sports" and "Sports & Rec" in conjunction
with a local community name, and Oshman's Sporting Goods, which operates, in
addition to its 125 traditional sporting goods stores, a growing chain of large
format stores under the name "SuperSports USA." Similarly, smaller regional
discount chains in many regions of the United States are experiencing increasing
pressure from the growth of the larger national discount stores such as Wal-Mart
Stores and Target. Department stores are also affected by the industry trend
towards consolidation of retailers. In 1995, Federated Department Stores and
Broadway Stores merged, and May Department Stores Co. and J.C. Penney separately
purchased most of
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Woodward & Lothrop, Inc. Industry analysts expect the trend towards
consolidation and bankruptcy reorganizations among retailers to continue.
The large format sporting goods stores and national discount, department
and chain stores to which the Company and its competitors sell their products
are using sophisticated electronic inventory management systems to achieve
optimal in-stock levels of merchandise. These systems with electronic order
placement features require manufacturers to make greater investments in working
capital to maintain a more extensive inventory of finished products and in
information technology that will give them a quick response capability when
orders are placed, usually electronically, by these retailers. Increasingly, the
large format sporting goods stores, national discount stores and large
department store chains are also requiring manufacturers to play a greater role
in marketing and managing their retail sock and women's hosiery business. This
includes placing logistical demands on manufacturers that impose extra
distribution costs and penalizing them through "chargebacks" when they do not
conform to a retailer's rules for packaging, prepricing and shipping goods.
The logistical and other demands retailers are placing on manufacturers and
the rapid technological changes that have created overcapacity in some segments
of the industry have already led to some consolidation of women's hosiery
manufacturers (58 at December 31, 1995, as opposed to 66 at the same date in
1990 and 86 in 1986). While, according to the NAHM, the number of manufacturers
of socks in the United States increased to 309 at December 31, 1995 compared
with 279 at the same date in 1990, the Company expects this number to decline in
the next several years. Industry analysts expect that the sock manufacturing
industry will be increasingly characterized by the presence of a small number of
large manufacturers, relatively few medium-sized manufacturers and a large
number of small manufacturers primarily selling greige goods and finished
hosiery products to the larger manufacturers.
The trend towards consolidation of manufacturers of socks and women's
hosiery is expected to be reinforced by the trend among large retailers such as
the national discount chains and the large format sporting goods stores to do
business with a smaller group of vendors that are capable of providing a
significant share of their total sock and women's hosiery requirements. With the
exception of the very large manufacturers such as Sara Lee Hosiery and
Kayser-Roth, most manufacturers concentrate on making either socks or women's
hosiery products. The Company, which produces socks and women's sheer hosiery
and tights, is one of only a few companies its size that makes all three of
these categories of products. The Company believes that being a diversified
manufacturer will become increasingly important as larger retailers seek to
reduce the total number of vendors with which they do business. The Company also
believes that product diversity will make the Company less vulnerable to
consumer trends and trends in the retailing industry affecting only one segment
of the sock and women's hosiery industry.
GROWTH STRATEGY
During the past ten years, the Company has increased sales by diversifying
its product lines, adding to and geographically diversifying its production
capacity, expanding its domestic customer base, expanding its contract
manufacturing business, acquiring the rights to manufacture and sell products
under licensed brand names and increasing its marketing activities and sales in
Europe and other foreign markets. The Company intends to continue this overall
growth strategy by focusing on the following goals:
INCREASING SALES TO EXISTING CUSTOMERS. Many of the Company's
existing customers in the sporting goods industry, such as Just for
Feet, The Sports Authority, Sports & Recreation and Oshman's Sporting
Goods, are expanding the number of stores they operate, and the
Company expects that its sales to these customers will increase as a
result of their unit growth. The Company also believes that it will be
able to increase its sales to other existing customers such as Target,
J.C. Penney and Nordstrom. The Company also expects to be able to
expand its contract manufacturing of products sold under such
widely-recognized brand names as adidas, Reebok and Fila for major
athletic footwear and apparel companies, and for other companies, such
as Liz Claiborne, that design, contract for the manufacture of and
market products under their own trademarks.
ESTABLISHING SALES RELATIONSHIPS THROUGH CROSS-SELLING. The
Company is seeking to establish relationships with certain major
retailers with which the Company has not historically done business.
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Management believes that the Company's expanded customer base of major
retailers resulting from the Seneca Acquisition and the Evan-Picone women's
hosiery program creates opportunities for cross-selling the Company's other
products. The recent expansion of the Company's manufacturing facility in
Ft. Payne, Alabama that produces multi-pair pack sports socks also
positions the Company to compete effectively for sales to new customers.
OBTAINING ADDITIONAL LICENSING ARRANGEMENTS. The Company is
seeking to license additional nationally and internationally
recognized brand names to complement the Converse, Ellen Tracy,
Evan-Picone, Jacques Moret and Woolrich licensed brand names.
Management is currently negotiating licensing terms to produce and
sell socks under the Coleman and Rockport brand names.
ADDING COMPLEMENTARY PRODUCT CATEGORIES THROUGH SELECTIVE
ACQUISITIONS. Women's casual socks and men's dress socks are
complementary product categories that could be added to the Company's
existing product lines through selective acquisitions of other
manufacturers or through internal product diversification. Although
the Company has no proposal, agreement, understanding or arrangement
relating to the acquisition of any other company at this time, future
acquisitions could also be expected to expand production capacity and
add to the customer base.
INCREASING INTERNATIONAL SALES. The Company plans to build on
the existing customer base served by the Company's manufacturing
facility in the Republic of Ireland and on the Company's base of
export sales of domestically manufactured products. In 1995 the
Company completed an expansion of this facility that approximately
doubled its production capacity.
OPERATING STRATEGIES
In recent years, manufacturers of socks and women's hosiery have
experienced a period of rapid technological change and encountered a demanding
retail environment characterized by customers' expectations of immediate order
fulfillment and depth in all product categories. Through the following core
operating strategies, the Company is investing in new technology and
strengthening its ability to provide a significant share of major retailers'
total socks and women's hosiery requirements.
PRODUCING HOSIERY PRODUCTS FOR SALE UNDER BRAND NAMES. The
Company produces socks for sale under its own brand names and for sale
by athletic footwear companies and others under such widely-recognized
brand names as adidas, ASICS, Bass, Brooks, Fila, Head Sportswear,
IZOD, New Balance and Reebok. Under licensing arrangements, the
Company produces and sells women's hosiery products directly to
retailers under the Ellen Tracy, Evan-Picone and Jacques Moret brand
names and socks under the Converse and Woolrich brand names. The
Company also manufactures women's hosiery products for Liz Claiborne,
Inc. under its brand names. The Company believes its reputation as a
producer of well-known branded products, including the Company's own
branded products in the sporting goods retail industry, distinguishes
the Company from many of its competitors that manufacture socks and
women's hosiery for sale only under retailers' private labels.
INVESTING TO BECOME A LOWER-COST MANUFACTURER. In recent years
the Company has made significant capital investments in manufacturing
technology with the goal of becoming a lower-cost, higher-volume
producer of a broad range of products. Most of these investments have
been made to replace existing mechanical knitting machinery for socks
with higher speed, more flexible electronic knitting machines that
require less maintenance and result in significant productivity
increases. The Company has also invested in sophisticated machinery
that automates the finishing operations at certain of its facilities,
significantly reducing the labor inputs required. The Company will
continue making capital investments in manufacturing and distribution
technology when appropriate to remain competitive.
OUTSOURCING MANUFACTURING TO INCREASE OPERATING EFFICIENCIES. To
meet peak demand, the Company regularly outsources the manufacturing
of certain products. As a result, the Company has been able to operate
its own manufacturing facilities at more efficient production levels.
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MANUFACTURING A BROAD RANGE OF PRODUCTS. For a number of years
the Company has manufactured a complete range of sports socks and
produced a wide variety of women's hosiery products, including tights,
trouser socks, pantyhose and knee-highs. With the Seneca Acquisition,
the Company added rugged outdoor and heavyweight casual socks to its
product lines. The Company has also broadened its product lines beyond
traditional products to include complementary products such as thermal
underwear/leggings, glove liners and gators for skiers and other
outdoor sports enthusiasts.
MAINTAINING A LARGE AND DIVERSE CUSTOMER BASE. As of September
30, 1996, the Company had more than 3,500 customers in the United
States, Europe and other parts of the world. Only one of such
customers, Target, accounted for more than 10% of the Company's 1995
net sales and is expected to account for more than 10% of the
Company's 1996 net sales. Management believes that maintaining a large
and diverse customer base puts the Company in a stronger position to
recover increased raw material and manufacturing costs through price
increases than many of the Company's competitors who are dependent on
a small number of major customers.
PROVIDING RAPID ORDER FULFILLMENT. The Company maintains
finished inventory of many of its products that allows the Company to
fill and deliver customer orders for those products generally within
three days of the date the order is placed. In recent years, the
Company has made capital investments in information technology to
develop and implement its Quick Response system, which coordinates its
manufacturing and order fulfillment systems with the sophisticated
electronic inventory management control systems employed by an
increasing number of the Company's larger customers.
FOCUSING ON CONSISTENT, HIGH QUALITY. The Company believes that
consistent product quality is as important to its customers as rapid
order fulfillment. The Company maintains a rigorous quality assurance
program for its manufacturing operations and enjoys a good reputation
among its customers for product quality.
The Company's intended uses of the proceeds of this Offering will
contribute to the further implementation of the Company's core operating
strategies by reducing outstanding debt, improving cash flow and funding
additional capital expenditures intended to give the Company an advantage as a
lower-cost, higher-volume producer in an increasingly competitive marketplace.
See "Use of Proceeds."
OPERATIONS
Sports Socks
The Company manufactures an extensive collection of sports specific, active
sport and sports promotional socks for men, women and children. The socks are
knitted from a variety of natural and synthetic fibers and are manufactured in a
wide array of styles, including tubes, crews, half-crews, quarters, rolldowns,
slouches and cuffs.
"Sports specific socks," which allow a team or individual athlete to match
their socks to their activity, contain extra cushioning and differ according to
where the protective cushioning is placed (ball, toes, instep, heel, arch,
shin), how thick the cushioning is and the materials used to construct the
socks. The Company produces most of its sports specific socks for athletic
footwear and apparel companies that design, contract for the manufacture of and
market sports socks under such widely-recognized brand names as adidas, ASICS,
Bass, Brooks, Fila, Head Sportswear, IZOD, New Balance and Reebok. Through its
vendor relationships with these athletic footwear and apparel companies, the
Company not only increases its sales but also gains access to changes in styling
trends in the sporting goods industry. The Company also produces its own
collection of sports specific socks, which are sold to retailers under the
Company's SportSox brand name (in packaging and on displays that also bear the
Ridgeview name and trademark). This collection includes socks for seven
different sports, including in-line skating, tennis, cross-training, cycling and
aerobics.
The Company's "team collection" of sports specific socks is designed for
sale to sporting goods dealers that outfit school and recreational athletic
teams. The collection includes basketball, baseball, soccer and
30
<PAGE> 34
volleyball socks. The baseball socks include the traditional nylon stirrup and
sanitary socks worn under the stirrups as well as several styles of one piece,
knitted-in stirrup socks. The soccer socks include acrylic soccer socks for
recreational play and heavier, more expensive nylon socks for the serious soccer
player.
Under the brand name Kidsox, the Company manufactures several styles of
basic cushion socks specifically for children that are made with the same
quality features found in their adult-sized counterparts. The Kidsox line
includes a feature the Company calls "dirt defender," which is a grey color
blend on the bottom of the sock that helps keep that portion of the sock
color-fast despite rough use and repeated washings.
"Active sport socks" are specifically designed for the serious athlete who
participates in active sports such as basketball, tennis, running, cycling and
aerobics. They offer high performance features like special fibers and triple
layer construction to provide cushioning in high impact areas and protection
against abrasion and blisters. The Company's premium line of active sport socks,
which includes socks for eight different sports, is sold at premium prices under
the Company's LINEOne brand name in packaging and on displays that also bear the
Ridgeview name and trademark. The natural and synthetic fibers used in these
socks include mercerized cotton (cotton yarn processed in a caustic solution to
increase the fiber's strength and luster), wool, silk, Duraspun (a Monsanto
synthetic fiber that allows for maximum shock absorbency and offers excellent
wicking properties), CoolMax (a DuPont synthetic fiber that breathes, while
wicking perspiration away from the skin) and Thermastat (a DuPont cold-weather
synthetic fiber that traps warmth while allowing moisture to escape).
Under the brand name SportSox and under private labels of various sporting
goods and discount stores, the Company manufactures and sells in multi-pair
packs a variety of styles of lightweight basic cushion socks designed to be sold
at promotional prices. These socks, which include tubes, crews, quarters,
rolldowns, slouches and cuffs and offer many of the features that are found in
the Company's premium-line socks, are knitted from a cotton-rich blend of yarns.
Rugged Outdoor and Heavyweight Casual Socks
The Company's collection of rugged outdoor and heavyweight casual socks,
which expanded significantly with the acquisition of Seneca, is designed for
hikers and other outdoor enthusiasts as well as consumers who appreciate the
value of heavyweight casual socks. The collection of rugged outdoor and
heavyweight casual socks, most of which are sold under private labels, includes
14 styles of thermal insulated socks, 11 styles of hiking and trekking socks, 15
styles of general outdoor wear socks and 13 styles of heavyweight casual socks.
In June 1995, Seneca began manufacturing rugged outdoor and heavyweight
casual socks under the licensed brand name Woolrich. Under the three-year
license agreement with Woolrich, Inc., the Company has the right to manufacture
and sell rugged outdoor and heavyweight casual socks under the Woolrich name in
the United States. The Company must meet minimum annual sales thresholds that
increase during the license term and pay a royalty equal to the greater of 5% of
its net sales of Woolrich brand socks or the applicable minimum annual sales
amount. The license agreement terminates on June 30, 1998 with an option to
renew for an additional three-year period provided the Company's performance as
licensee has been satisfactory. The Company is currently negotiating licensing
terms to manufacture and sell socks, beginning January 1, 1997, under the
Coleman and Rockport names under similar licensing agreements.
The Company also manufactures and sells a collection of outdoor socks
specifically designed for downhill and cross-country skiers, which includes nine
styles of bright, colorful skiing socks and liners. These socks are sold under
the Ridgeview name or private labels to several large retailers with national
distribution as well as to smaller, resort-oriented ski merchandise shops. The
skier-oriented outdoor collection also includes several styles of thermal
underwear/leggings as well as glove liners and gators. The Company believes the
favorable market response to its thermal underwear/leggings products offers
continued opportunities for sales growth and additional complementary product
development.
The fibers used in manufacturing the rugged outdoor and heavyweight casual
and ski sock collections include wool, wool blend, cotton and silk. They also
include such synthetic fibers as polypropylene (which when blended with wool or
cotton provides a superior level of durability and serves to effectively wick
moisture
31
<PAGE> 35
away from the skin, keeping feet dry), turbo hi-bulk acrylic (a premium grade of
acrylic that provides high bulk, softness and loft), Thermax (a hollow core
fiber used in cold weather socks that traps warmth while wicking moisture away
from the skin) and CoolMax. The thermal underwear/leggings are constructed from
a blend of DuPont's newest cold weather fighting polyester fiber, Thermostat,
and spandex fiber, Lycra.
Women's Hosiery Products
The Company manufactures a complete line of women's private label hosiery,
including more than 600 styles of tights, trouser socks, pantyhose and
knee-highs available in all popular colors and textures. The Company's largest
customer for these private label products is Target. In 1994, the Company
entered the designer segment of the women's hosiery market through the
negotiation of the license to manufacture and sell women's hosiery under the
Ellen Tracy brand name in the United States and Canada. The licensor, Ellen
Tracy, Inc. is a designer and manufacturer of "upmarket" women's ready-to-wear
fashions. In return, the Company must meet certain quality standards, distribute
only to better department and specialty stores, sell only limited quantities of
Ellen Tracy hosiery at off-price and pay a royalty equal to 7% of its net sales
of Ellen Tracy products. In addition, the Company is required to expend in each
year the agreement is in effect an amount equal to 3% of the annual sales
targets on advertising and promotions of Ellen Tracy products. Approximately
one-half of that amount is required to be made in the form of a contribution to
the national advertising budget of the licensor. The Company has recently
broadened the Ellen Tracy product line beyond the original limited product
category of high-end tights and trouser socks to include dress pantyhose and
casual socks and improved the packaging of the entire line of Ellen Tracy
products. Ellen Tracy hosiery products are now available in tights, trouser
socks and pantyhose sold at premium retail prices.
The Company is required to make minimum guaranteed royalty payments in
increasing amounts each year under the Ellen Tracy license agreement. The
minimum guaranteed royalty payments are based on 7% of increasing annual sales
targets for Ellen Tracy products of $1.5, $3.0 and $5.0 million in 1994, 1995
and 1996, respectively, which were established by negotiation with no prior
sales experience by the Company or a prior licensee of this Ellen Tracy hosiery
program to serve as a guide. The Company's net sales of Ellen Tracy products
exceeded $1.5 million in 1994. The Company's net sales of Ellen Tracy products
in 1995 represented only 84% of the $3.0 million sales target for that year, and
the Company does not expect its sales of Ellen Tracy products in the current
year to achieve the higher sales target of $5.0 million for such period.
Although the termination provisions of the license agreement gave the licensor
the right to terminate the agreement if the Company did not achieve the sales
target of $3.0 million for 1995, the licensor did not exercise its right to do
so. Management believes its performance as licensee has otherwise been
satisfactory to date and that it will be able to renew the license at its
expiration in December 1996 for another three-year term with renegotiated
minimum guaranteed royalty payments based on the Company's actual sales
experience as the initial licensee of this Ellen Tracy women's hosiery program.
There can be no assurance, however, that the Company will be able to renew the
Ellen Tracy license upon the expiration of its term.
In July 1996, the Company negotiated a license to manufacture and sell
women's sheer hosiery and medium-weight tights under the Evan-Picone brand name,
a widely-recognized and established brand of women's hosiery. The initial term
of the license agreement ends December 31, 1999, but the license is renewable at
the Company's option for another three years, provided the Company has satisfied
the minimum annual sales threshold of $14.0 million for the twelve-month period
ending June 30, 1999. The Company is required to pay royalties equal to 5% of
net sales of Evan-Picone products (3% of net sales of excess inventory and
close-out sales). In addition, the Company must spend 2% of annual net sales of
Evan-Picone products on advertising. The Company is required to make minimum
guaranteed royalty payments during the term of the agreement in increasing
amounts in each annual period of the license term, which is $450,000 in the
first annual period and increases to $750,000 in the sixth annual period of the
license agreement. The license also requires the Company to use its best efforts
to sell and promote Evan-Picone women's hosiery and provides that the Company
shall be deemed to be not using its best efforts if the Company's net sales fail
to exceed certain specified amounts during each annual period of the license
term. The specified amount of net sales of Evan-Picone products that must be
achieved is $9.5 million for the first annual period of the license agreement
and increases in each annual period thereafter with net sales requirements of
$14.0 and $20.0 million in the
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<PAGE> 36
third and sixth annual periods, respectively. Net sales of women's hosiery under
the Evan-Picone brand name by the prior licensee were $17.5 million in such
licensee's fiscal year ended January 31, 1996. In the event the Company fails to
meet the specified amount of net sales in any annual period, the licensor has
the right to terminate the agreement. The licensor may also terminate the
agreement in certain other events, including a change of control of the Company,
the Company's failure to make payments due under the agreement, abandonment of
the trademark or the granting of a lien or encumbrance on Evan-Picone products.
The Company also manufactures and sells tights packaged under the Jacques
Moret brand name under a one-year license agreement with Jacques Moret, Inc., a
firm that designs, contracts for the manufacture of, markets and sells an
extensive collection of active apparel.
SALES AND MARKETING
During 1995 the Company integrated the sales and marketing of its socks and
women's hosiery products, which have traditionally been segregated by product
category. This reorganization of the Company's direct sales force gives one
executive officer responsibility for sales of all of the Company's products and
allows each member of the direct sales force to offer the entire mix of the
Company's products to customers.
The chart set forth below provides an overview of the sales and marketing
of the Company's products by product category, pricing approach, selected brand
names, market segment, major customers and method of distribution.
<TABLE>
<CAPTION>
SELECTED PERCENTAGE
PRICING BRAND DISTRIBUTION MAJOR OF 1995
PRODUCT CATEGORY GENERAL DESCRIPTION APPROACH NAMES CHANNELS USED CUSTOMERS REVENUE
- -------------------- -------------------- ------------ -------------- ------------------ -------------------- ----------
<S> <C> <C> <C> <C> <C> <C>
SOCKS:
Sports specific Functional, high Moderate adidas, Sporting goods The Sports 27.3%
quality socks with Reebok, Fila, stores, athletic Authority, Sports &
extra cushioning Converse, footwear stores, Recreation, Champs,
that allow an IZOD, Head, athletic footwear Oshman's SuperSports
individual to match ASICS, and apparel USA, SportMart,
socks to a Ridgeview, Pro manufacturers Reebok, Fila
particular sport Am
activity
Sports promotional Lightweight, basic Value Jacques Moret, Sporting goods The Sports 24.5%
cushion socks for a SportSox, stores, athletic Authority, Sports &
variety of uses GAMEsocks footwear stores, Recreation, Champs,
mass market and Oshman's SuperSports
discount stores USA
Rugged outdoor and Heavyweight socks Moderate to Woolrich, Mass market and Kmart, J.C. Penney, 16.9%
heavyweight casual with true rib Premium Oyster Bay, discount stores, The Gap, Lands' End,
construction made Winchester, outdoor specialty Eddie Bauer, WIX
with wool and cotton Seneca stores, department Corporation, Wal-
blends for hiking, stores, mail order Mart Stores,
skiing, hunting and retailers, SportMart, Target
other active outdoor sporting goods
uses stores
Active sport Cushion-engineered Premium LINEOne Sporting goods The Sports 3.4%
socks with fiber and stores, athletic Authority, Sports &
construction footwear stores, Recreation, Champs,
elements intended to athletic footwear Oshman's SuperSports
provide high and apparel USA, SportMart
performance features manufacturers
for the serious
athlete
</TABLE>
33
<PAGE> 37
<TABLE>
<CAPTION>
SELECTED PERCENTAGE
PRICING BRAND DISTRIBUTION MAJOR OF 1995
PRODUCT CATEGORY GENERAL DESCRIPTION APPROACH NAMES CHANNELS USED CUSTOMERS REVENUE
- -------------------- -------------------- ------------ -------------- ------------------ -------------------- ----------
<S> <C> <C> <C> <C> <C> <C>
WOMEN'S HOSIERY:
Tights and trouser Opaque, durable Moderate to Ellen Tracy, Department stores, Target, J.C. Penney, 16.8%
socks pantyhose and Premium Liz Claiborne mass market and Mercantile,
trouser socks made discount stores, Dillard's, Federated
with heavy-weight women's fashion (Macy's, Rich's),
nylon yarns and with specialty stores Neiman Marcus,
spandex in either Parisian, Nordstrom
half or all of the
knitted courses
Sheer pantyhose and Basic ladies Value to Ellen Tracy, Mass market, Target, J.C. Penney, 11.1%
knee-highs pantyhose and Premium Liz Claiborne, discount and Mercantile,
knee-highs made with Evan-Picone department stores Dillard's, Federated
lightweight nylon (Macy's, Rich's),
yarns and nylon/ Neiman Marcus,
spandex yarns for Parisian, Nordstrom
everyday and special
uses
</TABLE>
Sports, Rugged Outdoor and Heavyweight Casual Socks
The Company believes it is one of the leading vendors of sports socks to
sporting goods and active apparel stores. The Company also sells its own and
licensed brand name socks to athletic footwear stores, sporting goods dealers,
department stores and mass merchandisers throughout the United States and
Canada. Among the Company's leading customers for its own sports sock brands are
Just for Feet, The Sports Authority, The Athlete's Foot, Oshman's Sporting
Goods, Sportmart, and Sports & Recreation. Among the Company's leading customers
for its rugged outdoor and heavyweight casual socks, most of which are sold
under various retailers' private labels, are Kmart, J.C. Penney and Structure (a
division of The Limited, Inc.).
The Company also sells sports specific socks to many of the large athletic
footwear and apparel companies, including Adidas AG, Reebok International, Ltd.,
New Balance, Inc. and Fila Holdings SpA, which design, contract for the
manufacture of and market sports socks under their widely-recognized brand
names. Under a strategic alliance entered into in 1995 with Chipman-Union Co.,
another domestic sock manufacturer that holds licenses to manufacture and sell
socks under the adidas brand name, the Company is the primary manufacturer of
sport socks bearing the adidas brand name to fill orders from distributors of
adidas branded products located throughout Europe. To accommodate growth from
the adidas sports sock manufacturing program, in 1995 the Company doubled the
capacity of its manufacturing facility in the Republic of Ireland.
In conjunction with its retailers, the Company employs a sophisticated
marketing program for its own footwear collection designed to increase sales by
educating consumers about the benefits of its active sports, sports specific and
outdoor and rugged casual socks. For example, the Company's LINEOne brand of
active sports socks are packaged in bright, colorful, attention-getting sleeves
printed with extensive information about the benefits of the extra cushioning in
high impact areas, the unique qualities and benefits of the natural and
synthetic fibers used and other features of the LINEOne brand that are designed
to help consumers appreciate the value of these premium-priced socks. The
marketing program includes offering retailers a variety of merchandising aids
such as floor and counter unit displays equipped with signage bearing the
Ridgeview name as well as the Company's brand names. For the Company's
promotionally-priced socks, which are typically sold in packages of three or six
pairs each, the Company offers retailers free-standing, wire-constructed package
bins equipped with similar signage. For most of its socks, the Company also
offers a 'tier' unit sock display system equipped with Ridgeview and brand name
specific signage designed to fit into retailers' existing pegboard or slat wall
product display systems.
Approximately 50% of the Company's sock sales in 1995 were made by a
nationwide network of more than 80 independent sales representatives, most of
whom specialize in sporting goods and athletic apparel, who earn commissions on
sales of the Company's products. The Company has an internal sales force of six
34
<PAGE> 38
employees, four of whom are located at the Company's headquarters and the rest
of whom are located at the Company's other facilities. Two of these sales
employees work exclusively with large athletic footwear and apparel companies
for which the Company serves as a manufacturing source and major private label
accounts. Sales of sports socks manufactured at the Company's facility in the
Republic of Ireland, which are sold primarily to Adidas AG and Reebok
International Ltd. for distribution by them to retail outlets in Europe, are
handled by a small group of employees located at that facility.
Since the Seneca Acquisition in June 1995, the Company has been selling
rugged outdoor and heavyweight casual socks under the licensed brand name
Woolrich. Sales of Woolrich socks are made primarily by the 40-person direct
sales force employed by Woolrich, Inc., who earn commissions from the Company.
In both its branded and private label sock business, the Company engages in
cooperative advertising with major retail accounts, whereby the Company pays a
percentage of the cost of advertising and promotional expenses. In most
instances, the percentage of the Company's contribution to the retailer's
advertising budget is related to the volume of the Company's sales to the retail
account.
International Sales and Marketing of Socks
In 1995, approximately 10% of the Company's sock sales (on a pro forma
basis assuming the Seneca Acquisition had occurred at the beginning of 1995)
were attributable to sales to customers located outside of the United States.
Among the principal countries to which the Company exports socks are the United
Kingdom, France, Japan, Singapore and Finland. All of the production at the
Company's manufacturing facility in the Republic of Ireland is sold in Europe.
To accommodate growth from the new adidas sports sock manufacturing program, the
Company completed a major expansion of this facility in 1995. See note 13 of the
Company's consolidated financial statements.
Women's Hosiery Products
The Company sells private label women's hosiery products to approximately
150 department stores, specialty retailers, mass market and discount stores
throughout the United States in over 5,000 locations. Among the Company's
leading customers for its private label products are Target, J.C. Penney,
Nordstrom and Liz Claiborne, Inc., which designs, contracts for the manufacture
of and markets women's hosiery packaged under various trademarks, including Liz
Claiborne and Elisabeth, to better department and specialty stores. The Company
sells Ellen Tracy women's hosiery to more than 100 department and specialty
stores in over 1,000 locations throughout the United States and Canada.
Principal customers for the Ellen Tracy line of hosiery products include Saks
Fifth Avenue, Neiman Marcus, Nordstrom, Macy's, Bloomingdale's and Dillard's.
In July 1996, the Company began selling the line of Evan-Picone women's
hosiery products, which is distributed through more than 200 department and
specialty stores in over 1,500 locations throughout the United States and
Canada. Principal customers for the Evan-Picone product line include May
Department Stores Co., Dillard's, J.C. Penney and Federated Department Stores.
The Company is selling Evan-Picone product through a nationwide network of
independent sales representatives, most of whom were selling Evan-Picone product
for the company that previously held the license for the Evan-Picone women's
hosiery program. The Company intends to expand the Evan-Picone product line to
include medium-weight tights and trouser socks as well as pantyhose and
knee-highs.
The Company has an internal sales force of six employees located throughout
the United States who handle primarily the private label and Ellen Tracy hosiery
business. For both private label and Ellen Tracy hosiery products, senior
management is actively involved in selling to major accounts and participates
during market weeks and at other times in presentations to department stores and
specialty retailing customers.
The Company works closely with retailers, placing special emphasis on
packaging and design, to develop attractive and economical private label hosiery
programs that will meet with consumer acceptance and generate increased sales
for the retailer as well as the Company. For example, in 1995 the Company made
35
<PAGE> 39
significant changes in product construction and pricing for its private label
programs with Target and took steps to control product costs by making
additional investments in knitting and automated finishing and packaging
machinery to increase the efficiency of the Company's manufacturing operations.
In both its private label and branded business, the Company engages in
cooperative advertising with major retail accounts, whereby the Company pays a
percentage of the cost of advertising and promotional expenses. In most
instances, the percentage of the Company's contribution to the retailer's
advertising budget is related to the volume of the Company's sales to the retail
account. From time to time, the Company's major yarn suppliers also contribute
to the cost of such cooperative advertising and promotions. The Company is
required to devote 3% of its Ellen Tracy sales to advertising. In 1995,
approximately one-half of that amount was used for cooperative advertising with
retail accounts, and the remainder was paid to Ellen Tracy, Inc. to support
general advertising of the Ellen Tracy brand name in fashion magazines and other
national media.
The Company intends to expand its private label women's hosiery business,
sales of which have increased in each of the last three years, by augmenting
sales under private label programs with existing customers, improving customer
service and pursuing additional private label program business with major
retailers. Following the anticipated purchases of additional electronic knitting
equipment during the next 18 to 24 months, together with the investments in
technology recently made to strengthen women's hosiery manufacturing and the
ability to contract with other manufacturers for finished product when
necessary, the Company will have the capability to expand sales of its private
label business without making significant additional capital expenditures. The
Company intends to expand the sales of Ellen Tracy and Evan-Picone women's
hosiery by adding to the existing styles offered, increasing its sales and
marketing effort and continuing major product development.
MANUFACTURING
The chart set forth below provides an overview of the Company's
manufacturing facilities by geographic location:
<TABLE>
<CAPTION>
AT SEPTEMBER
30, 1996
NUMBER OF ------------
KNITTING APPROXIMATE
NUMBER MACHINES OUTPUT PER
OF INSTALLED IN YEAR APPROXIMATE WEEK IN
LOCATION KNITTING LAST THREE OPERATIONS SQUARE DOZENS OF
OF FACILITY MACHINES YEARS COMMENCED FOOTAGE PRODUCT CATEGORIES PAIRS
- --------------- --------- ------------- ---------- ------------ ---------------------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Newton, NC 114 12 1912 100,000 Tights, trouser socks, pantyhose 18,000
(women's and knee-highs
hosiery)
Newton, NC 53 53 1976 70,000 Complete range of sports specific 15,000
(sports socks
socks)
Tralee, 79 48 1986 45,000 Complete range of sports specific 15,000
Republic of socks
Ireland
Ft. Payne, AL 71 71 1992 72,000 Complete range of sports 35,000
promotional socks
Seneca Falls, 197 29 1954 180,000 Complete range of rugged outdoor 12,000
NY ----- ----- ------- and heavyweight casual socks -------
Total 514 213 467,000 95,000
=== === ======= ======
<CAPTION>
AT SEPTEMBER 30, 1996
APPROXIMATE
LOCATION NUMBER OF
OF FACILITY EMPLOYEES
- --------------- ------------
<S> <C>
Newton, NC 160
(women's
hosiery)
Newton, NC 155
(sports
socks)
Tralee, 115
Republic of
Ireland
Ft. Payne, AL 145
Seneca Falls, 190
NY ------
Total 765
===
</TABLE>
Sports, Rugged Outdoor and Heavyweight Casual Socks
The Company manufactures socks primarily for inventory requirements based
on estimated demand but also in response to customer orders on private label
business. The Company maintains finished inventory of its own and licensed brand
products under the Company's Quick Response inventory control system. Products
maintained in finished inventory are generally shipped within three days of
receipt of an order, which in the
36
<PAGE> 40
case of the Company's larger customers is typically received and processed by
the Company electronically. Orders for socks not maintained in finished goods
inventory are typically shipped within ten to thirty days of receipt of the
customer's order, depending upon the size of the order.
The Company manufactures socks at all of its facilities. At its facility
located in Newton, North Carolina, the Company has 53 knitting machines, all of
which are electronic. In its facility located in Ft. Payne, Alabama, where all
of the Company's promotionally-priced, multi-pair pack lightweight cushion socks
are made, the Company has 71 electronic knitting machines. At its facility
located in the Republic of Ireland, where the Company makes sports specific
socks primarily for sale to major athletic footwear and apparel companies, the
Company has 79 knitting machines, 48 of which were installed in the last three
years. At its facility located in Seneca Falls, New York where the Company
produces all of its rugged outdoor and heavyweight casual socks, the Company has
197 "double cylinder" knitting machines, most of which are mechanical machines.
The Company's electronic, CAD/CAM-driven machines allow the Company to vary
its manufacturing runs to adjust quickly to changing patterns in demand without
traditional high change-over or retooling costs. They also allow the Company to
maintain a computer library of pattern and texture designs that can be
electronically transmitted to these knitting machines. When the appropriate
yarns have been installed to feed into them, the machines will automatically
adjust to knit socks conforming to the new pattern and texture design.
The Company generally operates its sock knitting machinery at each facility
five days a week, 24 hours a day, except in Newton where the Company operates
its sock knitting machinery seven days a week, 24 hours a day. Finishing socks,
which includes toe closing, bleaching, scouring and dyeing, boarding, pairing
and packaging, is generally accomplished at each facility by one shift of labor
working five days a week and overtime when necessary. To meet peaks in demand
for finished inventory that cannot be met from its own production, the Company
from time to time purchases greige goods from other manufacturers.
Although the Company expects to continue making regular, and in some years
significant, investments in technology that will increase the productive
capacity, efficiency and competitive position of its sock manufacturing
operations, the Company believes that its sock manufacturing operations,
supplemented by the purchase of greige goods from others when necessary, will be
able to meet current and projected demand for the Company's products.
Women's Hosiery Products
The Company manufactures its women's hosiery products not only in response
to customer orders but also for inventory requirements based on estimated
demand. The Company maintains finished inventory of certain private label and
Ellen Tracy hosiery under the Company's Quick Response inventory system.
Products maintained in finished inventory are generally shipped within three
days of receipt of an order from a retail account, which in the case of the
Company's larger customers, such as Target, is typically received and processed
by the Company electronically. Orders for women's hosiery not maintained in
finished goods inventory are typically shipped within ten to thirty days of
receipt of the customer's order.
The Company's manufacturing of women's hosiery is currently done at the
facility in Newton, North Carolina, where the Company has 114 knitting machines,
automated assembly equipment and static dyeing machines. Eleven of the Company's
machines are electronic, CAD/CAM-driven and allow the Company to vary its
manufacturing runs to adjust quickly to changing patterns in demand without
traditional high change-over or retooling costs. The Evan-Picone hosiery program
and certain other women's hosiery products are outsourced to other
manufacturers. With a portion of the net proceeds of this Offering, the Company
intends to purchase over the next 18 to 24 months approximately 60 new
electronic CAD/CAM knitting machines to replace the existing knitting machines
used in the production of women's hosiery. Not only do modern electronic
knitting machines produce hosiery at a faster rate and reduce change-over and
retooling costs, they provide higher efficiency levels, significantly improve
product quality, reduce "fallout" and enhance product development through
product sophistication and diversity. The Company generally operates its women's
hosiery knitting machinery 24 hours a day, five days a week. The finishing of
women's hosiery, which includes toe closing, fabricating, boarding and
packaging, is generally accomplished by one shift of labor working five
37
<PAGE> 41
days a week. Overtime work is scheduled when necessary to respond to increased
product demand. The Company recently purchased new assembly and packaging
machinery, which by automating several of the steps in the finishing process has
reduced the Company's labor requirements for this traditionally labor intensive
part of the manufacturing process.
For its electronic CAD/CAM-driven knitting machinery, the Company is able
to maintain a computer library of hosiery patterns and texture designs that can
be electronically transmitted to the knitting machines. When the appropriate
yarns have been installed to feed into them, these machines will automatically
adjust to knit hosiery conforming to the new pattern and texture design. The
Company has a small in-house product development staff that develops original
designs on the Company's CAD/CAM system and contracts with an experienced
fashion designer to provide design input on a seasonal basis. The Company is
seeking to hire an experienced fashion designer to provide design input on all
of the Company's socks and women's hosiery programs.
The Company regularly contracts with other manufacturers for greige goods
as well as finished hosiery when orders for the Company's women's hosiery
products exceed its production capacity. Although the Company expects to make
continuing, significant investments in technology to increase the productive
capacity and efficiency of its women's hosiery manufacturing operations, the
Company believes that, with the exception of the Evan-Picone program and a
limited number of other styles of women's hosiery products that will be
outsourced from time to time to other manufacturers, it will have sufficient
technologically advanced production capacity to meet current and projected
demand for its women's hosiery products for the next several years.
QUALITY ASSURANCE PROGRAM
The Company maintains a rigorous quality assurance program for its
manufacturing operations that begins with the purchase of only high-quality
yarns and a program of regular maintenance and constant monitoring, some of
which is done by computer, of the Company's knitting machinery. Greige goods
produced by the Company or purchased from others are carefully inspected prior
to finishing, and randomly selected samples of finished goods are inspected
prior to being packaged and shipped. The Company also emphasizes strong
interaction with its major customers on quality assurance issues and employee
education on the importance of quality assurance. During each of the past five
years, the Company has achieved high-quality standards with less than 1% of its
products in each of such years being returned as defective. Based on their
collective years of experience, management of the Company believes this record
compares favorably with those of others in the industry.
RAW MATERIALS
The Company's products are manufactured from yarns spun from either
synthetic (e.g., nylon and acrylic) or natural (e.g., cotton and wool) fibers,
or a blend of both. The principal yarns used in the manufacture of sports,
outdoor and casual socks are cotton, wool and a variety of synthetic fibers. The
principal yarns used in the manufacture of women's hosiery products are textured
nylon of varying weights and spandex, principally DuPont's Lycra. As the Company
has achieved greater manufacturing efficiencies through investments in modern
knitting machinery and automated finishing and packaging equipment that reduce
labor inputs and as the prices of yarns spun from both natural and synthetic
fibers have increased, the cost of raw materials as a percentage of the
Company's cost of goods sold has increased.
With recent declines in cotton prices, United States cotton prices are
currently just above their ten-year average price of 70 cents a pound after two
years of prices that were significantly above the ten-year average. Prices for
wool, the other major natural fiber the Company uses, have also declined in the
last year after sharp increases in the previous two years, reflecting increased
consumer demand for natural fibers and changes in production. The Company and
other major users of cotton and wool yarns typically enter into fixed-price
contracts, having terms ranging from six to twelve months, during the fall of
the year when much of the cotton crop is being harvested worldwide. By doing so,
the Company and its competitors are able to avoid making significant purchases
of cotton and wool on the spot market and are able to establish and maintain
pricing for their products using large amounts of these natural fibers
throughout the year with only minor adjustments.
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The Company purchases its requirements for textured nylon, polyester,
polypropylene and other yarns made from synthetic fibers from a variety of
suppliers at prevailing prices that are influenced both by changes in demand and
the producers' costs. Many synthetic fibers, such as polyester, are
petrochemical-based, and prices for them are influenced by changes in the price
of petroleum. The Company has reduced the adverse effect of price increases for
synthetic fiber yarns in recent years by negotiating rebates with its major
synthetic yarn suppliers based on the Company's volume of purchases.
The Company has generally been successful in recovering increased raw
material costs on its branded products, many of which include significant
amounts of wool and cotton yarn as well as yarns made from synthetic fibers.
Recovering higher costs for raw materials on the Company's private label women's
hosiery products is generally more difficult because of the highly competitive
nature of this business.
QUICK RESPONSE INVENTORY SYSTEM
The Company has developed its sophisticated Quick Response inventory system
to enable the Company to coordinate its manufacturing operations and order
fulfillment system with the electronic inventory control systems employed by
most of the Company's women's hosiery customers and an increasing number of its
major sport socks customers. The Quick Response inventory system, which combines
bar code technology with electronic data interchange ("EDI"), provides a link
between the customers' and the Company's computers, eliminates inefficiencies by
automating receipt and processing of customers orders and allows the Company to
respond with "just-in-time" manufacturing techniques to the tighter shipment
schedules demanded by large retailers. Using the EDI technology, the Company
receives from certain major customers, via electronic interchange, weekly
updates of sales and inventory levels from store locations nationwide. For
certain customers, such as Target and The Sports Authority, this information
automatically generates orders which the Company then fills.
With a portion of the net proceeds of this Offering, the Company intends to
construct a distribution center at its manufacturing facility in Newton, North
Carolina, which will incorporate sophisticated inventory control and order
fulfillment technology and become an integral component of the Company's Quick
Response inventory system. In the last five years, the Company has made
significant investments in computer hardware and software to implement its Quick
Response system. While the Company will need to continue making significant
capital investments in new information technology to maintain and strengthen its
Quick Response system in response to major retailers' increasingly sophisticated
EDI expectations, the Company believes the current system is adequate for its
current business.
MAJOR CUSTOMERS
In 1995, sales of women's hosiery products and socks to Target accounted
for approximately 13% of the Company's total net sales (approximately 12% on a
pro forma basis assuming the Seneca Acquisition had occurred at the beginning of
1995). During such year, no other single customer accounted for more than 10% of
the Company's business. The Company's business relationship with Target began
more than 20 years ago when Target had less than 100 stores. As the number of
stores operated by Target has increased to over 700, the Company's sales to this
customer have increased commensurately. The Company's five largest women's
hosiery customers, including Target, accounted for approximately 75% of the
Company's total women's hosiery business in 1995. During the same year, the
Company's five largest sock customers accounted for approximately 25% of the
Company's sock business.
CREDIT AND COLLECTIONS
The Company's credit and collection functions are managed by the Company's
credit department at its corporate headquarters, except for credit and
collection on sales of socks manufactured at the Company's facilities located in
Seneca Falls, New York and in the Republic of Ireland, which are handled by
employees at those facilities. The credit of the Company's customers is
evaluated regularly by monitoring of accounts receivable and through reports
obtained from major business credit evaluation services. In the case of smaller
retail outlets for sports socks, the Company relies in part on credit evaluation
information available through a variety of credit information sources. The
Company believes its credit and collection management has been a
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<PAGE> 43
significant factor in minimizing the effect on the Company of bankruptcy filings
of certain customers for its sports socks. In each of the last five years, the
Company's write-off of uncollectible receivables has averaged less than 1% of
net sales.
SEASONALITY
The Company's sales of rugged outdoor and heavyweight casual socks, ski
socks and thermal underwear/leggings are highly seasonal and generally occur
during the fall and winter selling seasons, which begin in August and end in
December. The Company's women's hosiery business is also somewhat seasonal with
hosiery sales, particularly sales of tights (which sell for higher wholesale
prices than women's sheer hosiery) increasing in the fall and winter months.
Historically, the majority of the Company's sales have been generated, and most
of the Company's profits have been earned, in the third and fourth quarters of
its fiscal year.
BACKLOG
As a result of the seasonality of certain products, the Company accumulates
a temporary backlog of orders primarily during the summer and early fall months.
At September 30, 1996, the Company's order book reflected unfilled customer
orders for approximately $8.3 million of products as compared to $8.6 million at
the same date in the prior year. Order book data at any given date is also
materially affected by the timing of recording orders and of shipments, as well
as the status of major private label programs. Recently, certain large customers
who formerly placed firm orders with the Company began instead providing
projections of their demand for the Company's products and transmitting smaller
firm orders on a more frequent basis. Accordingly, order book data should not be
taken as indicative of eventual actual shipments or net sales, or as providing
meaningful period-to-period comparisons. Excluding those products which are
seasonal in nature and major private label programs, the Company receives orders
fairly evenly throughout the year and generally ships within three to thirty
days after receipt of a customer's order.
COMPETITION
The sock manufacturing segment of the hosiery industry is highly fragmented
and competitive. According to the NAHM, at December 31, 1995 there were 309
companies manufacturing socks in the United States at 394 locations. The Company
is subject to competition from a number of these companies that manufacture and
sell a complete range of sports socks or, in many cases, specific categories of
sports socks, such as active sports socks, that are competitive with one or more
of the Company's products. The Company believes that it is one of the leading
vendors of sports socks to sporting goods and active apparel stores. The number
of competitors in the manufacture and sale of rugged outdoor and heavyweight
casual socks is considerably smaller because the number of "double cylinder"
knitting machines required to make these socks is limited.
The women's hosiery industry is highly competitive and is currently
experiencing excess capacity and flat demand for sheer hosiery products. The
women's hosiery industry is dominated by the industry leader, Sara Lee Hosiery,
and by Kayser-Roth. Sara Lee Hosiery not only sells private label and brand name
women's hosiery to department stores, specialty stores and mass merchandisers,
it also sells substantial quantities of its brand name products directly to
consumers through its outlet catalog. Sara Lee Hosiery and Kayser-Roth, as well
as several other large domestic manufacturers of women's hosiery, have
substantially greater market share and financial resources than the Company. The
Company is also subject to competition from a large number of smaller domestic
competitors, which compete primarily based on price for private label business.
Sara Lee Hosiery manufactures and sells women's hosiery in the designer segment
of the market under the licensed Donna Karan brand name in competition with the
Company's Ellen Tracy hosiery. Other women's hosiery manufacturers sell similar
designer name brand women's hosiery with equal or greater consumer recognition,
which is marketed to the same group of fashion-conscious consumers to which the
Company's Ellen Tracy hosiery is marketed.
Competition among manufacturers of all categories of the Company's products
is primarily on the basis of customer service, product quality, pricing, order
fulfillment capability and relationships forged over time
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<PAGE> 44
between sales personnel and buyers for the large national retailers and other
major customers. The Company believes that the most important of these are order
fulfillment and product quality, which encompass the ability to service the
customer's needs by fulfilling and shipping orders for products that are of a
consistent quality on a timely basis. The Company believes its good reputation
for order fulfillment and consistent product quality gives it a competitive
advantage over many of its competitors, including some competitors whose prices
are lower than the Company's prices for similar products.
The Company believes that its increased size, which has occurred as the
result of internal sales growth and the Seneca Acquisition, as well as its
diversified product lines, give the Company an increasing competitive advantage.
The Company believes a manufacturer's size will be particularly important during
a period of anticipated consolidation in the sock and women's hosiery industry
that is being driven in part by increased retail concentration. In this regard,
the Company expects to benefit from an industry trend for retailers to align
with a fewer number of major manufacturers who can provide a significant share
of a major retailer's total sock and women's hosiery requirements, have the
capability of assisting the retailer in managing its hosiery business and are
able to meet increased logistical demands imposed by major retailers.
REGULATION
The Company's business is subject to regulation by federal, state and local
governmental agencies dealing with various aspects of conducting a sock and
women's hosiery manufacturing business such as work place safety, protection of
the environment, wage and hour policies, product labeling, family and medical
leave policies and product flammability standards. Certain of these regulations,
particularly those relating to air quality, water quality and disposal of waste
products, are technical in nature, involve substantial penalties in the event of
breach and require extensive controls to assure compliance with their
provisions. While the Company believes that it has operated and intends to
operate in full compliance with these regulations, such compliance may result in
significant additional costs.
EMPLOYEES
As of September 30, 1996, the Company employed approximately 765 persons,
136 of whom, employed at Seneca, were covered by a collective bargaining
agreement with the International Ladies Garment Workers Union, which in 1995
merged with the Amalgamated Clothing and Textile Workers Union to form the Union
of Needletrades, Industrial and Textile Employees. The employees at the
Company's facility in the Republic of Ireland are not covered by a collective
bargaining agreement, but the Company does recognize Services Industrial
Professional Technical Union as their representative. In April 1995, the Company
signed a three-year collective bargaining agreement covering wages and benefits
for the Company's employees at Seneca. None of the Company's employees
represented by a union has engaged in any kind of work stoppage in the last ten
years. The Company considers its relationships with its employees to be good.
At its manufacturing facility in Newton, North Carolina, the Company
operates a day care center for the benefit of its employees with space for 58
children. The operating costs of the center that are not covered by payments
made by employees using the center, grants received or funds from other sources
are paid by the Company. Approximately 75% of the Company's hourly employees at
this facility are female. In October 1996, Working Mother magazine named the
Company to the magazine's annual list of "100 Best Companies for Working
Mothers," citing the availability of this day care center and the Company's
other family-friendly policies for its employees. Management believes these
policies contribute to a stable and productive work force.
PROPERTIES
The Company's corporate offices, all of its women's hosiery and a
significant portion of its sports sock manufacturing operations are located in
Newton, North Carolina in five Company-owned buildings containing approximately
170,000 square feet of space. The Company plans to construct a distribution
center on Company-owned land adjacent to the Company's existing facility in
Newton that will add an additional 75,000
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to 100,000 square feet of space. The Company's facilities in Newton also include
a 4,000 square foot building housing a Company-sponsored child care center.
The Company owns an approximately 60,000 square foot sock finishing and
shipping facility and leases on a month-to-month basis an approximately 12,000
square foot sock knitting and sewing facility in Ft. Payne, Alabama. The Company
also owns a manufacturing facility located in Tralee, Republic of Ireland. With
the assistance of a grant from the Irish Development Authority equal to
approximately one-third of the total capital investment required, the Company
expanded the size of this facility in 1995 to approximately 45,000 square feet.
The Company also owns an approximately 100,000 square foot, three-story building
at Seneca that houses the knitting, sewing and finishing operations for the
Company's production of rugged outdoor and heavyweight casual socks. The Company
owns a nearby 80,000 square foot building on 37 acres of land that serves as a
warehouse and distribution center for Seneca.
LITIGATION
The Company is not a party to any legal proceedings which it believes would
have a material adverse effect on the business, income, assets or operation of
the Company. The Company is not aware of any material threatened litigation
against the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers and their ages, as of August
15, 1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
--------------------------------------------- ---- ---------------------------------
<S> <C> <C>
Albert C. Gaither............................ 65 Chairman and Director
Hugh R. Gaither.............................. 45 President, Chief Executive
Officer and Director
William D. Durrant........................... 58 Executive Vice President -- Sales
and Marketing and Director
Walter L. Bost, Jr........................... 41 Executive Vice President and
Chief Financial Officer
Susan Gaither Jones.......................... 36 Vice President and Director
J. Michael Gaither........................... 45 Secretary and Director
Claude S. Abernethy, Jr...................... 69 Director
George Watts Carr, III....................... 53 Prospective Director*
Joseph D. Hicks.............................. 53 Prospective Director*
Charles M. Snipes............................ 63 Prospective Director*
</TABLE>
- ---------------
* Messrs. Carr, Hicks and Snipes have been elected as directors of the Company,
effective upon the completion of this Offering. They have each agreed to serve
upon the effectiveness of their election as directors.
Albert C. Gaither has been a director since 1958 and Chairman of the
Company since January 1992. From January 1980 through December 1991 he served as
the Company's President and from January 1992 until September 1995 was the
Company's Chief Executive Officer. He received his B.A. from Davidson College in
1956 and has been employed by the Company since 1956. Mr. Gaither is Susan
Gaither Jones' father and a cousin of Hugh R. Gaither and J. Michael Gaither.
Hugh R. Gaither has been a director since 1977 and President of the Company
since January 1992. Since September 1995, he has also served as the Company's
Chief Executive Officer. Prior thereto he had served as Vice President of the
Company since January 1980. Mr. Gaither joined the Company in 1975 after
receiving his B.A. from Davidson College and his M.B.A. from the University of
North Carolina at Chapel Hill. During 1994 and 1995, Mr. Gaither served as
Chairman of the NAHM. Mr. Gaither is J. Michael Gaither's brother and a cousin
of Albert C. Gaither and Susan Gaither Jones.
William D. Durrant, who was elected to his current position in September
1995, has been employed by the Company since 1976 and has been a director since
1979. From January 1992 until September 1995, Mr. Durrant served as Senior Vice
President -- Sales and Marketing for the Company's sports sock divisions. From
July 1976 until December 1992, he served as Vice President -- Sales for the
sports sock divisions.
Walter L. Bost, Jr., who is a certified public accountant, was elected to
his current position in September 1995 and has been employed by the Company for
more than eight years, during which entire period he has served as the Company's
Chief Financial Officer. From 1982 until 1987 he was controller of a
privately-owned hosiery manufacturing company located in Hickory, North
Carolina. Mr. Bost received his B.A. in Accounting from the University of North
Carolina at Chapel Hill in 1977.
Susan Gaither Jones has been a Vice President of the Company since January
1992 engaged principally in sales, marketing and customer service activities
related to the Company's women's hosiery division. She has been employed by the
Company in various positions since 1984 and a director since 1991. Ms. Jones
received her B.A. in Psychology from Appalachian State University in 1982. Ms.
Jones is Albert C. Gaither's daughter and a cousin of Hugh R. Gaither and J.
Michael Gaither.
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J. Michael Gaither is Vice President and General Counsel of J.H. Heafner
Company, Inc., a privately-owned firm located in Lincolnton, North Carolina
engaged in the manufacturing and distribution of motor vehicle tires. Mr.
Gaither, who has been a director since 1980, received his B.A. from Duke
University in 1974 and his J.D. from the University of North Carolina at Chapel
Hill in 1977. Mr. Gaither is Hugh R. Gaither's brother and a cousin of Albert C.
Gaither and Susan Gaither Jones.
Claude S. Abernethy, Jr. has been a Senior Vice President of
Interstate/Johnson Lane Corporation, a New York Stock Exchange member firm since
1963. Mr. Abernethy received his B.A. from Davidson College and his M.B.A. from
Harvard University. He has been a director since 1969 and is a director of
Interstate/Johnson Lane, Inc., the parent of Interstate/Johnson Lane
Corporation, and two other publicly-traded companies: Air Transportation Holding
Company, an air freight company, and Carolina Mills, Inc.
George Watts Carr, III is the President of Cone Denim North America, a
division of Cone Mills Corporation, a position he assumed effective October 1,
1996. From 1993 to October 1996, he was employed by the North Carolina
Department of Commerce, first as Director of Business and Industry Development
and most recently as President of the North Carolina Partnership for Economic
Development. From 1991 to 1992 Mr. Carr was employed by Unifi, Inc., one of the
Company's principal suppliers of yarn, as Senior Vice President -- Marketing of
the hosiery division. From 1970 to 1991 he was employed by Macfield, Inc., a
yarn manufacturer, where he held various management positions in customer
service, manufacturing and marketing and served as President of the hosiery
division from 1981 to 1991 and as a director.
Joseph D. Hicks is the President and Chief Executive Officer and a director
of Siecor Corporation, a privately-held fiber optics cable company. Mr. Hicks,
who has worked at Siecor Corporation since 1979, received his B.S.E.E. from the
University of Kentucky in 1966 and his M.B.A. from the University of Maryland in
1970. Prior to his employment by Siecor Corporation, Mr. Hicks held various
positions with Motorola, Inc.
Charles M. Snipes is the President and a member of the Board of Directors
of Bank of Granite Corporation, a bank holding company, and has been President
and Chief Executive Officer since 1994 and a director since 1982 of its
principal subsidiary, the Bank of Granite. He serves as a director of Vanguard
Furniture, Inc., First Factors, Inc. and Ingold Company, Inc., all of which are
privately-held companies. Mr. Snipes received his B.A. from Lenoir-Rhyne College
in 1958.
TERMS OF DIRECTORS AND OFFICERS
All directors hold office until the next annual meeting of shareholders or
until their successors have been duly elected and qualified. The Company's
executive officers are appointed by and serve at the discretion of the Company's
Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established a Compensation Committee to make
recommendations concerning salaries and incentive compensation for executive
officers and other employees of the Company and administer the Company's stock
plans. The Board has also established an Audit Committee to recommend to the
Board of Directors the selection of the Company's independent auditors and
review the results and scope of the audit and other services provided by the
independent auditors. It is currently anticipated that Messrs. Abernethy, Carr,
Hicks and Snipes will be appointed the members of the Compensation and Audit
Committees.
COMPENSATION OF DIRECTORS
Following completion of this Offering, the Company intends to pay its
directors who are not compensated as officers or employees of the Company an
annual retainer fee of $5,000 and a fee of $500 for each meeting of the Board of
Directors or any committee thereof attended (other than any such committee
meeting held in conjunction with a meeting of the full board). The Company will
also reimburse each director for out-of-pocket expenses incurred in attending
meetings of the Board of Directors and any of its committees. Directors
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who qualify as "independent directors" under Schedule D of the National
Association of Securities Dealers, Inc. are eligible to participate in the
Company's Outside Directors' Stock Option Plan. See "Management -- Employee
Benefit Plans -- Outside Directors' Stock Option Plan."
Directors who are officers or employees of the Company will not receive any
compensation for serving as directors.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information with respect to the 1995
compensation of the Company's Chief Executive Officer and four other most highly
compensated executive officers (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1)
- ---------------------------------------------------- -------- ------- ---------------
<S> <C> <C> <C>
Hugh R. Gaither..................................... $180,000 $90,165 $ 7,882
President and Chief Executive Officer
Albert C. Gaither................................... 168,000 89,826 14,011
Chairman
William D. Durrant.................................. 166,000 96,570 10,216
Executive Vice President -- Sales and Marketing
Walter L. Bost, Jr.................................. 108,000 35,179 2,104
Executive Vice President and
Chief Financial Officer
Susan Gaither Jones................................. 96,000 21,613 5,649
Vice President
</TABLE>
- ---------------
(1) The amounts shown for Hugh R. Gaither, Albert C. Gaither, William D. Durrant
and Susan Gaither Jones include $3,500 in fees paid to them for serving as
directors. Upon completion of this Offering, directors who are employees of
the Company will not receive any compensation for services as directors. The
amounts shown for Hugh R. Gaither, Albert C. Gaither and Ms. Jones include
$2,882, $9,077 and $325, respectively, representing the present value of the
imputed interest for premiums paid by the Company under a split dollar life
insurance arrangement. The amounts shown for Messrs. Durrant and Bost and
Ms. Jones include $4,400, $374 and $296, respectively, representing the
dollar value of term life insurance premiums paid by the Company during
1995. The amounts shown for Hugh R. Gaither, Albert C. Gaither, Messrs.
Durrant and Bost and Ms. Jones also include contributions made by the
Company to the Company's 401(k) Plan in the amounts of $1,500, $1,434,
$2,310, $1,730 and $1,555, respectively.
SALARY CONTINUATION AGREEMENTS
The Company has entered into salary continuation agreements with each of
the Named Executive Officers. For each Named Executive Officer other than Albert
C. Gaither, the agreements provide that upon retirement, death or disability,
the officer or his or her designated beneficiary, as applicable, will begin
receiving monthly payments equal to 60% of the highest monthly base salary paid
to the officer during the term of his or her employment. The agreements provide
that such payments will continue for a period of 15 years. At 1995 salary levels
the annual benefit that would be payable under these agreements to Hugh R.
Gaither, Messrs. Durrant and Bost and Ms. Jones would be $108,000, $99,600,
$64,800 and $57,600, respectively. The retirement benefits payable to each of
the Named Executive Officers, other than Albert C. Gaither whose retirement
benefit is fully vested, will be 25% vested when the officer reaches age 50, 50%
at age 55 and 100% at age 60. The salary continuation agreement entered into
with Albert C. Gaither provides for monthly payments of $3,000 for a period of
15 years commencing upon Mr. Gaither's retirement or death. The Company's
obligations under all salary continuation agreements are unsecured and are not
required to be funded. The Company has elected to partially fund its obligations
under these agreements through the purchase of life insurance on the Named
Executive Officers that are expected to provide a return to the Company that
will approximately offset its liability. The compensation expense associated
with these
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<PAGE> 49
agreements is recognized over the term of the officers' employment. See note 12
to the Company's consolidated financial statements.
EMPLOYEE BENEFIT PLANS
Omnibus Stock Plan. The Company has an Omnibus Stock Plan (the "Omnibus
Plan"), which is intended to encourage high levels of performance by the
Company's officers and key employees and to enable the Company to recruit,
reward, retain and motivate employees of experience and ability on a basis
competitive with industry practices. The Company has reserved 230,000 shares of
Common Stock for issuance under the Omnibus Plan.
The Omnibus Plan will be administered by the Compensation Committee of the
Board of Directors. Awards under the plan may include, but are not limited to,
incentive stock options or nonqualified stock options, stock appreciation
rights, restricted stock, performance awards, or other stock-based awards, such
as stock units, securities convertible into stock, phantom securities and
dividend equivalents. The Compensation Committee, based on recommendations made
by management, will have sole authority and discretion under the Omnibus Plan to
(i) designate eligible participants in the plan and (ii) determine the types of
awards to be granted and the conditions and limitations applicable to such
awards, if any, including the acceleration of vesting or exercise rights upon a
Change in Control of the Company (as defined in the plan). The awards may be
granted singly or together with other awards, or as replacement of, in
combination with, or as alternatives to, grants or rights under the Omnibus Plan
or other employee benefit plans of the Company. Awards under the Omnibus Plan
may be issued based on past performance, as an incentive for future efforts, or
contingent upon the future performance of the Company.
Options granted under the Omnibus Plan must be exercised within the period
fixed by the Compensation Committee, which may not exceed 10 years from the date
of the option grant, or in the case of incentive stock options granted to any
10% shareholder, five years from the date of the option grant. Options may be
made exercisable in whole or in installments, as determined by the Compensation
Committee. Options will not be transferable other than by will or the laws of
descent and distribution and, during the lifetime of an optionee, may be
exercised only by the optionee. The option price will be determined by the
Compensation Committee; provided, however, that the option price for incentive
stock options may not be less than the market value of the Common Stock on the
date of grant of the option and the option price for incentive stock options
granted to any 10% shareholder may not be less than 110% of the market value of
the Common Stock on the date of grant. Unless otherwise designated by the
Compensation Committee as "incentive stock options" intended to qualify under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
options granted under the Omnibus Plan are intended to be "nonqualified stock
options." No options or other awards have been granted under the Omnibus Plan.
Employee Stock Purchase Plan. The Company has an Employee Stock Purchase
Plan (the "Purchase Plan"), which is intended to qualify as an "employee stock
purchase plan" under Section 423 of the Code. A total of 75,000 shares of Common
Stock are available for purchase under the Purchase Plan and it will be
administered by the Compensation Committee of the Board of Directors. The
Purchase Plan will permit eligible employees of the Company, including executive
officers, to periodically purchase shares of the Common Stock after the
completion of this Offering through payroll deductions. Participating employees
may authorize the Company to withhold up to 6% of their base compensation in
each offering period established under the Plan to purchase shares of Common
Stock. The Purchase Plan provides for 12-month offering periods beginning
January 1 of each year. At the end of each offering period, participating
employees are entitled to use such withheld compensation to purchase the number
of newly issued shares of Common Stock or shares purchased by the Company in the
market determined by dividing the amount of withheld compensation by 85% of the
lower of the market price of the Common Stock on the first or last business day
of the offering period. Participants may terminate their participation in the
Purchase Plan prior to the end of each offering period and obtain a refund of
payroll deductions not yet applied to the purchase of Common Stock. Upon
termination of employment, a participant's right to participate in the Purchase
Price will automatically cease, and all payroll deductions not applied to the
purchase of Common Stock will be refunded.
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<PAGE> 50
Outside Directors' Stock Option Plan. In September 1996, the Company
adopted an Outside Directors' Stock Option Plan (the "Directors' Plan"),
reserving 15,000 shares of Common Stock for issuance thereunder. Each outside
director serving as such as of the effective date of the Registration Statement
of which this Prospectus constitutes part automatically will receive an option
to purchase 500 shares of Common Stock at the fair market value on such
effective date. Each outside director joining the Board for the first time
following the Offering will automatically be granted an option to purchase 500
shares of Common Stock at the fair market value on the date of his or her
initial election to the Board. On each anniversary of an outside director's
election to the Board, he or she will automatically be granted an option to
purchase 500 shares of Common Stock at the then fair market value, provided that
the director shall have continuously served as a director of the Company and the
number of shares of Common Stock available under the Directors' Plan is
sufficient to permit such grant. Options granted under the Directors' Plan will
be nonqualified stock options, will vest in installments of 33 1/3% on each
anniversary of the option grant and will expire 10 years from the date of grant.
Eligible "outside directors" are persons who qualify as "independent directors"
under Schedule D of the Bylaws of the National Association of Securities
Dealers, Inc. The Directors' Plan is designed to operate automatically and is
not expected to require administration. However, to the extent administration is
required, it will be provided by a committee of the Board of Directors
consisting of two or more disinterested persons appointed by the Board of
Directors who are ineligible to participate in the Directors' Plan.
401(k) Plan. The Company has a tax deferred savings plan (the "401(k)
Plan") that covers all employees age 21 and older who have been employed by the
Company for at least 12 months. Eligible employees may contribute up to 6% of
their compensation to the 401(k) Plan on a pre-tax basis, not to exceed $9,500
per year (adjusted for cost-of-living increases). The Company, at its
discretion, may annually match up to 25% of an employee's pre-tax contributions,
up to a maximum of 6% of compensation. The rates of pre-tax and matching
contributions may be reduced with respect to highly compensated employees, as
defined in the Code, so that the 401(k) Plan will comply with Sections 401(k)
and 401(m) of the Code. Pre-tax and matching contributions are allocated to each
employee's individual account, which is invested in selected mutual funds
according to the directions of the employee. An employee's pre-tax contributions
are fully vested and nonforfeitable at all times. The Company's matching
contributions vest after three years of employment.
CERTAIN TRANSACTIONS
TRANSACTIONS WITH AND ACQUISITION OF AFFILIATE
Immediately prior to the completion of this Offering, the Company will
acquire all of the issued and outstanding shares of Interknit, a corporation
affiliated with the Company through common ownership of its shares by eight
persons who are also shareholders, and five of whom are executive officers, of
the Company. Since beginning operations in January 1994, Interknit has sold
substantially all of its output of greige goods to, and has purchased a portion
of its raw materials requirements from, the Company. In addition, the services
of several of the executive officers of the Company have been provided to
Interknit from time to time without consideration. The purchase and sale
transactions between the Company and Interknit during the Company's two most
recent years and the six months ended June 30, 1996 are summarized in the table
below.
<TABLE>
<CAPTION>
PERCENTAGE
SALES OF
PURCHASES BY PERCENTAGE OF BY THE INTERKNIT'S
THE COMPANY INTERKNIT'S COMPANY TO RAW MATERIAL
FROM INTERKNIT NET SALES INTERKNIT PURCHASES
-------------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Year ended December 31, 1994.................. $2,338,000 100% $266,000 19%
Year ended December 31, 1995.................. 3,162,000 82 289,000 11
Six Months ended June 30, 1996................ 2,363,026 71 25,000 1
</TABLE>
47
<PAGE> 51
When the Company began planning for this Offering in early 1995, the
Company was advised by all prospective underwriters to combine the operations of
Interknit and the Company. A committee comprised of four directors (two of whom
are not shareholders of Interknit) was appointed in 1995 to study the proposed
acquisition and (with one of the independent directors dissenting) subsequently
recommended the Company proceed with the acquisition. On August 15, 1996, the
Board of Directors met and unanimously (including the director who previously
dissented) approved the Share Exchange Agreement pursuant to which the
shareholders of Interknit will, immediately prior to the completion of this
Offering, transfer all of the 500 issued and outstanding shares of capital stock
of Interknit to the Company in exchange for an aggregate of 240,000 shares of
Common Stock (the "Exchange"). When the Exchange is consummated, the following
directors, executive officers and greater than 5% shareholders of the Company
will receive the number of shares of Common Stock set forth opposite their names
below.
<TABLE>
<CAPTION>
NUMBER OF
DIRECTOR, EXECUTIVE OFFICER SHARES
OR GREATER THAN 5% SHAREHOLDER OF COMMON STOCK
--------------------------------------------------------------------- ---------------
<S> <C>
Hugh R. Gaither...................................................... 37,200
William D. Durrant................................................... 37,200
Walter L. Bost, Jr................................................... 24,000
Albert C. Gaither.................................................... 16,800
Susan Gaither Jones.................................................. 16,800
J. Michael Gaither................................................... 8,400
J. Robert Gaither, Jr................................................ 8,400
</TABLE>
The aggregate number of shares to be issued to the shareholders of
Interknit was determined by the Company in part on the basis of a valuation of
Interknit's business performed by Interstate/Johnson Lane Corporation
("Interstate"), one of the managing underwriters of this Offering, by dividing
the value derived by Interstate by $10.00 (the mid-point of the estimated
initial public offering price per share for the Common Stock in this Offering).
The resulting number of shares of Common Stock to be issued in the Exchange is
fixed at 240,000, but the aggregate value of such shares on the date of issuance
will be determined by the market price of the Common Stock on such date, which
will be the closing date of this Offering. The table set forth below shows the
aggregate value of the 240,000 shares at the high, mid- and low points of the
range of the estimated initial public offering price set forth on the cover of
this Prospectus.
<TABLE>
<CAPTION>
AGGREGATE
ESTIMATED INITIAL MARKET
PUBLIC OFFERING VALUE OF
PRICE OF THE 240,000 SHARES
COMMON STOCK OF COMMON STOCK
- ----------------- ---------------
<S> <C>
$ 9.00 $ 2,160,000
10.00 2,400,000
11.00 2,640,000
</TABLE>
The Company has agreed to pay Interstate $25,000 for rendering an opinion
to the Board of Directors of the Company regarding the terms of the Exchange.
The fairness opinion sets forth Interstate's opinion that, taking into
consideration such information about Interknit, the Company and this Offering as
Interstate deemed relevant, the exchange ratio for the Exchange is fair to the
shareholders of the Company from a financial point of view. One of the Company's
directors, Claude S. Abernethy, Jr., who is not a shareholder of Interknit, is a
Senior Vice President of Interstate and a director of Interstate/Johnson Lane,
Inc., the parent of Interstate.
Another important factor in the Board of Directors' determination of the
exchange ratio and approval of the Exchange was its assessment, based on
historical and projected results of operations, of the positive contribution the
Interknit Acquisition is expected to make to the Company's results of
operations. Because it was only recently established and is equipped with modern
electronic knitting machines incorporating recent developments in technology,
Interknit's knitting operations with its 71 machines will be among the Company's
most efficient. Moreover, as Interknit's productive capacity has increased in
the two and one-half years since commencing operations, Interknit's outside
sales to customers other than the Company have also increased. In the first six
months of 1996, outside sales represented approximately 28% of Interknit's total
sales.
48
<PAGE> 52
Since inception, Interknit has incurred approximately $1.7 million in debt
to finance start-up and capital equipment costs and working capital needs.
Although there is no agreement or understanding with Interknit's lenders
regarding a release of their liability, as guarantors of this debt the directors
and executive officers who are shareholders of Interknit may derive an
additional benefit from the Exchange and this Offering if the lenders
subsequently agree to release them from their personal guaranties.
Under the terms of the Share Exchange Agreement, the obligations of the
shareholders of Interknit to complete the Exchange are subject to all of the
conditions to the issuance and sale of the shares of Common Stock offered hereby
to the Underwriters, other than the condition that the Exchange be consummated,
having been met or waived and certain other conditions, none of which are within
the control of any individual shareholders of Interknit in their capacity as
such. The offer and sale of the shares of Common Stock to the shareholders of
Interknit pursuant to the Share Exchange Agreement is exempt from registration
under the Securities Act, pursuant to the exemption from registration set forth
in Section 4(2) of the Securities Act for transactions not involving any public
offering. When and if issued, the 240,000 shares will be "restricted securities"
within the meaning of Rule 144 promulgated under the Securities Act and must be
held for at least two years before they will be eligible for sale under Rule
144.
SUPPLEMENTAL RETIREMENT BENEFIT
In December 1992, J. Robert Gaither, Jr., the Company's former Chairman,
retired after more than 45 years of employment with the Company. Until August
15, 1996, when he submitted his resignation, he continued to serve as a director
of the Company. From the date of his retirement in 1992 until December 31, 1995,
the Company continued to pay Mr. Gaither approximately $105,000 annually. During
such three-year period, the Company also paid him $36,000 annually under a
salary continuation agreement entered into while he was still employed as an
executive officer of the Company.
In December 1995, the Company and Mr. Gaither entered into an amendment to
his salary continuation agreement pursuant to which the Company agreed to pay
him, in addition to the $36,000 the Company is obligated to pay him annually for
another 12 years, a supplemental retirement benefit of $84,000 annually for
seven years. In the event of his death before the end of the seven-year period,
the Company's obligation will continue until the end of such period and the
payments will be made to his designated beneficiary. In 1995, the Company
accrued a liability and recorded an expense of $500,000 for this obligation. See
note 12 of the Company's consolidated financial statements.
POLICY ON RELATED PARTY TRANSACTIONS
The Company has adopted a policy that all transactions with affiliates and
persons owning more than 5% of the Common Stock be on terms no less favorable
than could be obtained from third parties, and that all material transactions
with its affiliates and persons owning more than 5% of the Common Stock, which
are outside the ordinary course of business, if any, will be presented for the
approval of the Company's disinterested directors.
49
<PAGE> 53
PRINCIPAL AND MANAGEMENT SHAREHOLDERS
As of September 30, 1996 there were 47 holders of record of the Company's
Common Stock. The following table sets forth certain information with respect to
the beneficial ownership of shares of Common Stock of the Company as of
September 30, 1996 and as adjusted to reflect the sale of the shares of Common
Stock offered by the Company and the Selling Shareholders, by (i) each person
known by the Company to be the beneficial owner of more than 5% of the shares of
Common Stock outstanding, (ii) each director of the Company, (iii) each of the
Named Executive Officers, and (iv) all directors and executive officers of the
Company as a group. None of the prospective directors of the Company currently
own any shares of Common Stock. Except as otherwise indicated, each person named
below has sole voting and dispositive power with respect to the shares of Common
Stock beneficially owned by such person.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
BEFORE THIS OFFERING AFTER THIS OFFERING
-------------------- --------------------
NAME NUMBER PERCENT(1) NUMBER PERCENT(1)
- ------------------------------------------------------ ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Robert E. Cline(2).................................... 217,760 13.6% 192,747 6.2%
J. Robert Gaither, Jr.(3)............................. 204,268 12.8 184,466 5.9
Grace W. Gaither(3)................................... 204,268 12.8 184,466 5.9
James C. Gaither(4)................................... 186,855 11.7 186,855 6.0
Rachel C. Gaither(4).................................. 186,855 11.7 186,855 11.7
Albert C. Gaither(5).................................. 167,597 10.5 157,175 5.0
Ann Heafner Gaither(5)................................ 167,597 10.5 157,175 5.0
Carolina Glove Co.(6)................................. 89,371 5.6 89,371 2.9
Hugh R. Gaither....................................... 51,366 3.2 51,366 1.6
Claude S. Abernethy, Jr.(7)........................... 44,557 2.8 44,557 1.4
William D. Durrant.................................... 42,351 2.6 42,351 1.4
Susan Gaither Jones................................... 35,732 2.2 35,732 1.1
Walter L. Bost, Jr.................................... 29,151 1.8 29,151 *
J. Michael Gaither.................................... 22,566 1.4 22,566 *
All Directors and Executive Officers as a Group
(including persons named above)..................... 393,320 24.6% 382,898 12.3%
</TABLE>
- ---------------
* Less than 1%.
(1) For purposes of this table, the percentage of class beneficially owned has
been computed, in accordance with Rule 13d-3(1) under the Securities
Exchange Act of 1934 (the "Exchange Act"), on the basis of 1,600,000 shares
of Common Stock outstanding on August 15, 1996 and 3,120,000 shares
outstanding after this Offering. Beneficial ownership is based upon
information available to the Company or furnished by the respective
shareholders, directors and executive officers.
(2) Robert E. Cline's address is P.O. Box 2343, Hickory, NC 28603.
(3) The address for these shareholders is c/o Ridgeview, Inc., 2101 N. Main
Avenue, Newton, NC 28658. Of the 204,268 shares of Common Stock beneficially
owned by J. Robert Gaither, Jr. and his wife, Grace W. Gaither, prior to
this Offering, 96,611 are owned of record by Mr. Gaither and 107,657 are
owned of record by Mrs. Gaither. Of the 184,466 shares of Common Stock
beneficially owned by Mr. and Mrs. Gaither after this Offering, 87,231 are
owned of record by Mr. Gaither and 97,235 are owned of record by Mrs.
Gaither.
(4) The address for these shareholders is Route 2, Box 199, Conover, NC 28613.
Of the 186,855 shares of Common Stock beneficially owned by James C. Gaither
and his wife, Rachel C. Gaither, prior to and after this Offering, 156,335
are owned of record by Mr. Gaither and 30,520 are owned of record by Mrs.
Gaither.
(5) The address for these shareholders is c/o Ridgeview, Inc., 2101 N. Main
Avenue, Newton, NC 28658. Of the 167,597 shares of Common Stock beneficially
owned by Albert C. Gaither and his wife, Ann Heafner Gaither, prior to this
Offering, 136,351 are owned of record by Mr. Gaither and 31,036 shares are
owned of record by Mrs. Gaither. Of the 157,654 shares of Common Stock
beneficially owned by Mr. and Mrs. Gaither after this Offering, 136,351 are
owned of record by Mr. Gaither and 20,614 shares are owned of record by Mrs.
Gaither.
(6) Carolina Glove Co.'s address is P.O. Box 999, Conover, NC 28613.
(7) Of the 44,557 shares of Common Stock beneficially owned by Mr. Abernethy,
prior to and after this Offering, 2,576 are owned of record by his wife,
Raenelle Abernethy and 22,536 are owned by certain persons with whom Mr.
Abernethy shares voting or dispositive power.
50
<PAGE> 54
SELLING SHAREHOLDERS
The following table sets forth information with respect to the ownership of
Common Stock as of August 15, 1996 by each Selling Shareholder, the number of
shares of Common Stock being sold by each Selling Shareholder and the number of
shares beneficially owned by each Selling Shareholder after this Offering.
<TABLE>
<CAPTION>
SHARES SHARES
OWNED PRIOR OWNED AFTER
TO THIS NUMBER OF SHARES THIS
NAME OFFERING BEING SOLD OFFERING
- -------------------------------------------------------- ----------- ---------------- -----------
<S> <C> <C> <C>
Robert E. Cline(1)...................................... 217,760 25,013 192,747
Grace W. Gaither(2)..................................... 107,657 10,422 97,235
Ann Heafner Gaither..................................... 31,036 10,047 20,989
J. Robert Gaither, Jr.(1)(2)............................ 96,611 9,380 87,231
Robert Macon Yount(3)................................... 71,085 8,338 62,747
William H. Gaither...................................... 18,417 5,961 12,456
Comer Gaither........................................... 14,811 5,628 9,183
Cole A. Gaither......................................... 7,727 2,501 5,226
Lawson Gaither.......................................... 4,508 1,459 3,049
Ernest H. Yount, Jr..................................... 12,620 1,251 11,369
----------- ------- -----------
Total.............................................. 582,232 80,000 502,232
========= ============= =========
</TABLE>
- ---------------
(1) Until they resigned on August 15, 1996, Robert E. Cline and J. Robert
Gaither, Jr. were directors of the Company.
(2) The numbers shown for Grace W. Gaither do not include 96,611 and 87,328
shares owned prior to and after this Offering, respectively, by her husband,
J. Robert Gaither, Jr. The numbers shown for J. Robert Gaither, Jr. do not
include 107,657 and 97,342 shares owned prior to and after this Offering,
respectively, by his wife, Grace W. Gaither.
(3) Until he resigned on March 19, 1996, Robert Macon Yount was a director of
the Company. After this offering Mr. Yount will own 2.0% of the shares of
Common Stock outstanding.
51
<PAGE> 55
DESCRIPTION OF CAPITAL STOCK
Upon completion of this Offering, the Company's authorized capital stock
will consist of 20,000,000 shares of Common Stock, par value $.01 per share, and
2,000,000 shares of Preferred Stock (the "Preferred Stock"), and there will be
3,120,000 shares of Common Stock outstanding (3,360,000 if the Underwriters'
over-allotment option is exercised).
The following description of the capital stock of the Company does not
purport to be complete or to give full effect to the North Carolina provisions
of statutory or common law and is subject in all respects to the provisions of
the Company's Articles of Incorporation (the "Articles") and Bylaws.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. Subject to preferences that may be
applicable to any outstanding Preferred Stock, the holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available therefor. See
"Dividend Policy." In the event of liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior liquidation rights of
Preferred Stock, if any, then outstanding. The Common Stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the Common Stock.
All currently outstanding shares of Common Stock are fully paid and
nonassessable, and the shares of Common Stock to be outstanding upon completion
of this Offering will be fully paid and nonassessable.
PREFERRED STOCK
Immediately following the completion of this Offering, the Company will be
authorized to issue 2,000,000 shares of undesignated Preferred Stock. The Board
of Directors, without any further vote or action by the shareholders, will have
the authority to issue the undesignated Preferred Stock in one or more series
and to fix the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued series of shares of undesignated Preferred
Stock and to fix the number of shares constituting any series and the
designations of such series. The Board of Directors, without shareholder
approval, can issue Preferred Stock with voting and conversion rights which
could adversely affect the voting power of the holders of Common Stock. The
issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of the Company. The Company has no present plans
to issue any shares of Preferred Stock.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BYLAWS
Certain provisions of the Articles and Bylaws described below could have
the effect of delaying, deferring or preventing a change in control of the
Company or the removal of existing management. In addition, the exculpation
provisions in the Articles with respect to directors and the indemnification
provisions in the Bylaws described below may discourage shareholders from
bringing a lawsuit against directors for breach of their fiduciary duty and also
may have the effect of reducing the likelihood of derivative litigation against
directors and officers, even though such an action, if successful, might
otherwise have benefitted the Company and its shareholders. A shareholder's
investment in the Company may be adversely affected to the extent that
litigation costs and damage awards against the Company's directors and officers
are paid by the Company pursuant to the indemnification provisions described
below.
Classified Board of Directors. The Bylaws provide that at any time when
the Board of Directors consists of nine or more directors upon action by the
directors, the Board may be divided into three classes with staggered three-year
terms. This classified board provision could have the effect of discouraging a
third party from making a tender offer or otherwise attempting to obtain control
of the Company, even though such an attempt might be beneficial to the Company
and its shareholders. In addition, this provision could delay shareholders who
do not agree with the policies of the Board of Directors from removing a
majority of the Board for two years. See "Number of Directors; Removal; Filling
Vacancies" below.
52
<PAGE> 56
Special Meetings of Shareholders. The Bylaws provide that special meetings
of the shareholders of the Company may be called only by the Chairman of the
Board of the Company, the President of the Company, or a majority of the
directors. This provision will render it more difficult for shareholders to take
action opposed by the Board of Directors.
Advance Notice Requirements for Shareholder Proposals and Director
Nominations. The Bylaws establish an advance notice procedure for the
nomination, other than by or at the discretion of the Board of Directors or a
committee thereof, of candidates for election as director as well as for other
shareholder proposals to be considered at shareholders' meetings. Notice of
shareholder proposals and director nominations must be timely given in writing
to the Secretary of the Company prior to the meeting at which the matters are to
be acted upon or the directors are to be elected.
Number of Directors; Removal; Filling Vacancies. The Bylaws provide that
the Board of Directors will consist of between three and 15 members, as
determined from time to time by the Board of Directors. The number of directors
has been set at nine. There are currently three vacancies on the Board of
Directors that will be filled by the election of Messrs. Carr, Hicks and Snipes
as directors effective upon completion of this Offering. Further, subject to the
rights of the holders of any series of Preferred Stock then outstanding, the
Bylaws authorize only the Board of Directors to fill newly created
directorships. Accordingly, this provision could prevent a shareholder from
obtaining majority representation on the Board of Directors by enlarging the
Board of Directors and filling the new directorships with its own nominees.
Subject to the rights of the holders of any series of Preferred Stock then
outstanding, the Bylaws also provide that directors of the Company may be
removed only by the affirmative vote of holders of a majority of the outstanding
shares of voting stock.
Limitation of Liability. The Articles eliminate, to the fullest extent
permitted by the North Carolina Business Corporation Act (the "Business
Corporation Act"), the personal liability of each director to the Company or its
shareholders for monetary damages for breach of duty as a director. This
provision in the Articles does not change a director's duty of care, but it
eliminates monetary liability for certain violations of that duty, including
violations based on grossly negligent business decisions that may include
decisions relating to attempts to change control of the Company. The provision
does not affect the availability of equitable remedies for a breach of the duty
of care, such as an action to enjoin or rescind a transaction involving a breach
of fiduciary duty. In certain circumstances, however, equitable remedies may not
be available as a practical matter. Under the Business Corporation Act, the
limitation of liability provision is ineffective against liabilities for (i)
acts or omissions that the director knew or believed at the time of the breach
to be clearly in conflict with the best interests of the Company, (ii) unlawful
distributions described in Section 55-8-33 of the Business Corporation Act, or
(iii) any transaction from which the director derived an improper personal
benefit. The provision also in no way affects a director's liability under the
federal securities laws.
Indemnification. The Bylaws provide that, in addition to the
indemnification of directors and officers otherwise provided by the Business
Corporation Act, the Company's current or former directors, officers and
employees will be indemnified against any and all liability and litigation
expenses, including reasonable attorneys' fees, arising out of their status or
activities as directors, officers and employees, except for liability or
litigation expense incurred on account of activities that were at the time known
or believed by such director, officer or employee to be clearly in conflict with
the best interests of the Company. The Bylaws also provide that this right to
indemnification is not exclusive of any other right now possessed or hereafter
acquired under any statute, agreement or otherwise.
Transactions with Interested Shareholders. The Articles provide that any
purchase by the Company of shares of voting stock of the Company from any
"Interested Shareholder" that has beneficially owned the shares for less than
two years (other than a purchase pursuant to an offer directed by the Company to
all holders of shares of the same class) requires shareholder approval upon the
affirmative vote of the majority of the shares of voting stock not beneficially
owned by the Interested Shareholder, voting as a single class. The Articles
define "Interested Shareholder" to mean any person (other than a person or
entity who or which as of October 1, 1996, beneficially owned 10% or more of the
outstanding voting stock of the Company, any subsidiary of the Company or any
employee benefit plan maintained by the Company or such subsidiary) that (i)
beneficially owns 10% or more of the outstanding voting stock, (ii) is an
affiliate of the Company and
53
<PAGE> 57
within the prior two years was a beneficial owner of 10% or more of the
outstanding voting stock or (iii) is an assignee of or has otherwise succeeded
to any shares of voting stock that were within the prior two years beneficially
owned by a person described in clauses (i) or (ii), other than as a result of a
public offering of such shares within the meaning of the Securities Act.
The Articles further provide that, except as noted below, any of the
following transactions involving an Interested Shareholder requires the
affirmative approval of the holders of a majority of the shares of voting stock
not beneficially owned by the Interested Shareholder, voting as a single class:
(i) any merger or consolidation of the Company or any subsidiary of the Company
with the Interested Shareholder or any corporation affiliated with the
Interested Shareholder, (ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series of transactions)
to or with the Interested Shareholder or its affiliate of any assets of the
Company or any of the Company's subsidiaries having an aggregate fair market
value of $10.0 million or more, (iii) the issuance or transfer by the Company or
any subsidiary (in one transaction or a series of transactions) of any equity
securities (including any securities that are convertible into equity
securities) of the Company or any subsidiary having an aggregate fair market
value of $10.0 million or more to the Interested Shareholder or its affiliate in
exchange for cash, securities, or other property (or combination thereof), (iv)
the adoption of any plan or proposal for the liquidation or dissolution of the
Company proposed by or on behalf of an Interested Shareholder or any of its
affiliates, or (v) any reclassification of securities (including any reverse
stock split), or recapitalization of the Company, or any merger or consolidation
of the Company with any of its subsidiaries, or any other transaction (whether
or not with or into or otherwise involving an Interested Shareholder) that has
the effect, directly or indirectly, of increasing the proportionate share of the
outstanding shares of any class of equity securities (including any securities
that are convertible into equity securities) of the Company or any of its
subsidiaries that is directly or indirectly owned by an Interested Shareholder
or any of its affiliates.
Such shareholder approval is not required if (i) the transaction is
approved by a majority of the directors of the Company who are not affiliated or
associated with the Interested Shareholder and who were members of the Company's
Board of Directors at the time the Interested Shareholder became an Interested
Shareholder or are successors to any such disinterested director recommended for
election by a majority of all such disinterested directors or (ii) the
Interested Shareholder has beneficially owned its shares of voting stock for two
years or more.
Amendment of Certain Provisions of the Articles and Bylaws. The Articles
and Bylaws generally require the affirmative vote of the holders of at least
66 2/3% of the outstanding voting stock in order to amend any of the foregoing
provisions of the Articles and Bylaws or the provisions requiring such vote.
These voting requirements will make it more difficult for minority shareholders
to make changes in the Articles and Bylaws which could be designed to facilitate
the exercise of control over the Company. In addition, the requirement for
approval by at least a 66 2/3% shareholder vote will enable the holders of a
minority of the voting securities of the Company to prevent the holders of a
majority or more of such securities from amending such provisions of the
Articles and Bylaws.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for the Common Stock will be First Union
National Bank of North Carolina.
54
<PAGE> 58
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, 3,120,000 shares of the Company's Common
Stock will be outstanding (3,360,000 shares if the Underwriters' over-allotment
option is exercised in full). The 1,600,000 shares sold in this Offering
(1,840,000 shares if the Underwriters' over-allotment option is exercised in
full) will be freely tradeable without restriction or further registration under
the Securities Act, unless acquired by an "affiliate" of the Company (as that
term is defined in the Securities Act) which shares will be subject to the
resale limitations of Rule 144 under the Securities Act. Beginning 180 days
after the date of this Prospectus, all but 255,453 of the remaining shares will
be eligible for resale under Rule 144.
In general, under Rule 144 as currently in effect, a shareholder who has
beneficially owned for at least two years shares privately acquired directly or
indirectly from the Company or from an affiliate of the Company, and persons who
are affiliates of the Company, will be entitled to sell within any three-month
period a number of shares that does not exceed the greater of (i) 1% of the
outstanding shares of the Common Stock (approximately 31,000 shares immediately
after completion of this Offering, or approximately 34,000 shares if the
Underwriters' over-allotment option is exercised in full) or (ii) the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain
requirements relating to the manner and notice of sale and the availability of
current public information about the Company.
The Company, each of its directors and officers and the Selling
Shareholders have agreed with the Underwriters not to offer, sell or otherwise
dispose of any shares of Common Stock for a period of 180 days after the date of
this Prospectus without the prior written consent of Interstate/Johnson Lane
Corporation except for shares offered or sold under the Company's stock-based
benefit plans.
The Company has reserved 320,000 shares of Common Stock for issuance under
the Omnibus Plan, the Purchase Plan and the Directors' Plan. At appropriate
times subsequent to the closing of this Offering, the Company intends to file
registration statements under the Securities Act to register the Common Stock to
be issued under these plans. After the effective date of such registration
statements, shares issued under these plans will be freely tradeable without
restriction or further registration under the Securities Act, unless acquired by
affiliates of the Company.
Prior to this Offering, there has been no market for the Common Stock. No
predictions can be made with respect to the effect, if any, that public sales of
shares of the Common Stock or the availability of shares for sale will have on
the market price of the Common Stock after this Offering. Sales of substantial
amounts of the Common Stock in the public market following this Offering, or the
perception that such sales may occur, could adversely affect the market price of
the Common Stock or the ability of the Company to raise capital through sales of
its equity securities.
55
<PAGE> 59
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Shareholders have agreed to sell to each of the
Underwriters named below (the "Underwriters"), and each of such Underwriters,
for whom Interstate/Johnson Lane Corporation and Scott & Stringfellow, Inc. (the
"Representatives") are acting as representatives, has agreed severally to
purchase from the Company and the Selling Shareholders, the respective number of
shares of Common Stock set forth opposite its name below. The Underwriters are
committed to purchase and pay for all shares if any shares are purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------------------------------------------------------------------------- ----------------
<S> <C>
Interstate/Johnson Lane Corporation..........................................
Scott & Stringfellow, Inc. ..................................................
--------
Total.............................................................. 1,600,000
========
</TABLE>
The Underwriting Agreement provides that the several Underwriters will be
obligated to purchase all of the shares of Common Stock offered hereby if any
are purchased. Under certain circumstances the commitment of a nondefaulting
Underwriter may be increased.
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the initial public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession of not in excess of per share of which
may be reallocated to other dealers. After the initial public
offering, the public offering price, concession and reallowance to dealers may
be reduced by the Representatives. No such reduction shall change the amount of
proceeds to be received by the Company or the Selling Shareholders as set forth
on the cover page of this Prospectus. The Representatives have advised the
Company that the Underwriters do not intend to confirm sales to any accounts
over which they exercise discretionary authority.
The Company has granted the Underwriters an option for 30 days after the
date of this Prospectus to purchase, at the initial public offering price, less
the underwriting discounts and commissions as set forth on the cover page of
this Prospectus, up to 240,000 additional shares of Common Stock at the same
price per share as the Company and the Selling Shareholders receive for the
1,600,000 shares of Common Stock, solely to cover over-allotments, if any. If
the Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by each of them, as shown in the foregoing table, bears to the
1,600,000 shares of Common Stock offered hereby. The Underwriters may exercise
such option only to cover the over-allotments in connection with the sale of the
1,600,000 shares of Common Stock offered hereby.
Each of the Company's directors, executive officers and greater than 5%
shareholders has agreed not to offer, sell, contract to sell or otherwise
dispose of Common Stock for a period of 180 days following the date of this
Prospectus, without the prior written consent of Interstate/Johnson Lane
Corporation. The Company also has agreed not to offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock or any securities convertible
into or exchangeable for, or any rights to purchase or acquire, Common Stock for
a period of 180 days following the date of this Prospectus without the prior
written consent of Interstate/Johnson Lane Corporation, except for the granting
of options, stock awards or the sale of stock pursuant to the Company's existing
stock plans.
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock will be negotiated
between the Company and the Representatives. Among the factors to be considered
in determining the initial public offering price of the Common Stock, in
addition to prevailing market conditions, will be the Company's historical
performance, estimates of the business potential
56
<PAGE> 60
and earnings prospects of the Company, an assessment of the Company's management
and the consideration of the above factors in relation to market valuation of
companies in related business.
At the request of the Company, the Underwriters have reserved 75,000 of the
shares of Common Stock being offered hereby for sale at the initial public
offering price to directors, officers, employees and certain individuals
associated with the Company, its directors, its officers or its employees. The
number of shares of Common Stock available to the public will be reduced to the
extent such persons purchase such reserved shares. Any reserved shares that are
not so purchased will be offered by the Underwriters to the general public on
the same basis as the other shares offered hereby.
In the Underwriting Agreement, the Company and the Selling Shareholders
have agreed to indemnify the Underwriters against certain liabilities that may
be incurred in connection with this Offering, including liabilities under the
Securities Act, or to contribute payments that the Underwriters may be required
to make in respect thereof.
The aggregate number of shares to be issued to the shareholders of
Interknit was determined by the Company in part on the basis of a valuation of
Interknit's business performed by Interstate/Johnson Lane Corporation, one of
the managing underwriters of this Offering. The Company has agreed to pay
Interstate/Johnson Lane Corporation $25,000 for rendering to the Board of
Directors of the Company a fairness opinion regarding the terms of the Exchange.
One of the Company's directors, Claude S. Abernethy, Jr., who is not a
shareholder of Interknit, is a Senior Vice President of Interstate/Johnson Lane
Corporation and a director of Interstate/Johnson Lane, Inc., the parent of
Interstate/Johnson Lane Corporation.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Shareholders by Moore & Van Allen, PLLC,
Charlotte, North Carolina. Certain legal matters relating to the shares of
Common Stock offered hereby will be passed upon for the Underwriters by Smith
Helms Mulliss & Moore, L.L.P., Charlotte, North Carolina.
EXPERTS
The financial statements and schedules included in this Prospectus and in
the Registration Statement have been audited by BDO Seidman, LLP, Mengel,
Metzger, Barr & Co. LLP and KPMG, to the extent and for the periods set forth in
the respective reports of such firms contained herein and in the Registration
Statement. All such financial statements and schedules have been included in
reliance upon such reports given upon the authority of such firms as experts in
auditing and accounting.
Whisnant & Company of Hickory, North Carolina resigned effective September
15, 1995 as the independent auditors for the Company. The change in independent
auditors was made because Whisnant & Company does not routinely prepare
financial statements for filings with the Securities and Exchange Commission
(the "Commission"). The reports of Whisnant & Company regarding the financial
statements as of and for the years ended December 31, 1993 and 1994, which are
not included in this Prospectus, contained no adverse opinion, disclaimer of
opinion or qualifications as to uncertainty, audit scope or accounting
principles. The decision to change independent auditors was made by management
of the Company, but was not voted on or approved by the Board of Directors. The
resignation of Whisnant & Company and the engagement of BDO Seidman, LLP was
effective on September 15, 1995. The Company had no disagreements with Whisnant
& Company on any matter of accounting principle or practice, financial statement
disclosure or auditing scope or procedure during the two years ended December
31, 1994 or the interim period between such date and its resignation on
September 15, 1995. Whisnant & Company was authorized by the Company to respond
fully to inquiries of BDO Seidman, LLP. The Company had not consulted with BDO
Seidman, LLP regarding application of accounting principles prior to such firm's
engagement.
57
<PAGE> 61
ADDITIONAL INFORMATION
The Company has filed a Registration Statement, including amendments
thereto, relating to the Common Stock offered hereby with the Commission. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any contract or other document to which
reference is made are not necessarily complete and in each instance reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement. For further information with respect to the Company and
the Common Stock offered hereby, reference is made to such Registration
Statement, exhibits and schedules. A copy of the Registration Statement may be
inspected without charge at the Commission's principal office at 450 Fifth
Street N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: Northeast Regional Office, 7 World Trade Center, Suite 1300, New
York, New York 10048; and Midwest Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of all or any part of the
Registration Statement, including the exhibits thereto, may be obtained, upon
payment of the prescribed fees, at such offices of the Commission. In addition,
registration statements and certain other filings made with the Commission
through its Electronic Data Gathering and Retrieval System ("EDGAR") are
publicly available through the Commission's site on the Internet's World Wide
Web, located at http://www.sec.gov. The Registration Statement, including all
exhibits thereto, has been filed with the Commission via EDGAR.
The Company has not previously been subject to the informational
requirements of the Exchange Act. Upon completion of this Offering, the Company
intends to register the Common Stock under the Exchange Act and, in accordance
therewith, will file reports, proxy statements, and other information
periodically with the Commission. Such reports, proxy statements and other
information will be available for inspection and copying at the Commission's
Washington, D.C. office and the Northeast and Midwest Regional Offices. The
Company intends to furnish its shareholders with annual reports containing
audited financial statements.
TRADEMARK INFORMATION
The following trademarks are mentioned in this Prospectus: adidas, which is
a registered trademark of Adidas AG, ASICS, which is a registered trademark of
ASICS Corporation; Bass, which is a registered trademark of Phillips-Van Heusen
Corporation; Brooks, which is a registered trademark of Brooks Sports, Inc.;
Coleman, which is a registered trademark of The Coleman Company, Inc.; Converse,
which is a registered trademark of Converse, Inc.; Ellen Tracy, which is a
registered trademark of Ellen Tracy, Inc.; Evan-Picone, which is a registered
trademark of Jones Investment Company, Inc.; Fila, which is a registered
trademarks of Fila Holdings SpA; IZOD, which is a registered trademark of
Phillips-Van Heusen Corporation; Jacques Moret, which is a registered trademark
of Jacques Moret, Inc.; GAMEsocks, Kidsox, LINEOne, Oyster Bay, Pro Am,
Ridgeview, SportSox, Thinskins and Seneca which are registered trademarks of the
Company; Reebok, which is a registered trademark of Reebok International, Ltd.;
New Balance, which is a registered trademark of New Balance Athletic Shoe, Inc.;
Liz Claiborne and Elisabeth, which are registered trademarks of Liz Claiborne,
Inc.; Rockport, which is a registered trademark of The Rockport Company, Inc.;
Winchester, which is a registered trademark of Kmart Corporation; and Woolrich,
which is a registered trademark of John Rich & Sons Investment Holding Company.
58
<PAGE> 62
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
RIDGEVIEW, INC. AND SUBSIDIARIES
Report of BDO Seidman, LLP....................................................... F-2
Report of KPMG................................................................... F-3
Report of Mengel, Metzger, Barr & Co. LLP........................................ F-4
Consolidated balance sheets as of December 31, 1994 and 1995 and June 30, 1996
(unaudited)................................................................... F-5
Consolidated statements of income for the years ended December 31, 1993, 1994 and
1995 and the six months ended June 30, 1995 (unaudited) and June 30, 1996
(unaudited)................................................................... F-6
Consolidated statements of shareholders' equity for the years ended December 31,
1993, 1994 and 1995 and the six months ended June 30, 1996 (unaudited)........ F-7
Consolidated statements of cash flows for the years ended December 31, 1993, 1994
and 1995 and the six months ended June 30, 1995 (unaudited) and June 30, 1996
(unaudited)................................................................... F-8
Notes to consolidated financial statements....................................... F-10
SENECA KNITTING MILLS CORPORATION AND SUBSIDIARIES
Report of Mengel, Metzger, Barr & Co. LLP........................................ F-22
Consolidated balance sheets as of April 1, 1995 and April 2, 1994................ F-23
Consolidated statements of income and retained earnings for the years ended April
1, 1995, April 2, 1994 and April 3, 1993...................................... F-24
Consolidated statements of cash flows for the years ended April 1, 1995, April 2,
1994 and April 3, 1993........................................................ F-25
Notes to consolidated financial statements....................................... F-26
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF RIDGEVIEW, INC.
AND SUBSIDIARIES
Introduction..................................................................... F-31
Pro forma condensed consolidated balance sheet as of June 30, 1996............... F-32
Pro forma condensed consolidated statement of income for the six months ended
June 30, 1996................................................................. F-33
Pro forma condensed consolidated statement of income for the six months ended
June 30, 1995................................................................. F-34
Pro forma condensed consolidated statement of income for the year ended
December 31, 1995............................................................. F-35
Notes to pro forma condensed consolidated financial statements................... F-36
</TABLE>
F-1
<PAGE> 63
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Ridgeview, Inc.
Newton, North Carolina
We have audited the accompanying consolidated balance sheets of Ridgeview, Inc.
and subsidiaries as of December 31, 1994 and 1995, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of The Irish branch of Ridgeview Limited (a wholly-owned
subsidiary), which statements reflect total assets of $4,183,000 and $7,038,000
as of December 31, 1994 and 1995, respectively, and total revenues of
$4,227,000, $4,065,000 and $4,724,000 for each of the three years in the period
ended December 31, 1995, respectively. Also, we did not audit the financial
statements of Seneca Knitting Mills Corporation and subsidiaries (a wholly-owned
subsidiary), which statements reflect total assets of $9,898,000 as of December
31, 1995 and total revenues of $9,178,000 for the period from the date of
acquisition (June 28, 1995) through December 31, 1995. Those statements were
audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the amounts included for these subsidiaries,
is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the
consolidated financial statements referred to above present fairly in all
material respects, the financial position of Ridgeview, Inc. and subsidiaries as
of December 31, 1994 and 1995, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
Greensboro, North Carolina
February 2, 1996, except for the stock split discussed in Note 10,
which is as of October 8, 1996
F-2
<PAGE> 64
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF RIDGEVIEW LIMITED
We have audited the financial statements of the Irish branch of Ridgeview
Limited ("the financial statements") for the three years ended 31 December 1995
which have been prepared by branch management in accordance with the basis of
preparation set out below. These branch financial statements are not attached to
this report. The latest audit report we issued is in respect of the audit for
the year ended 31 December 1995 and this was dated 18 March 1996.
BASIS OF PREPARATION
The financial statements have been prepared solely for the purposes of
incorporating the results of the Irish branch into the financial statements of
Ridgeview Limited.
The financial statements, which are prepared in Irish punts, have been
prepared under the historical cost convention and in accordance with generally
accepted accounting principles in the Republic of Ireland which do not vary
substantially from generally accepted accounting principles in the United
States.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The company's directors and branch management are responsible for the
preparation of the financial statements. The directors are required to prepare
the financial statements for each financial year which give a true and fair view
of the state of affairs and of the profit and loss for that period. It is our
responsibility to form an independent opinion, based on our audit, on those
statements and to report our opinion to you.
BASIS OF OPINION
We conducted our audits in accordance with Auditing Standards issued by the
Auditing Practices Board of the Republic of Ireland, which do not vary
substantially from those of the United States. An audit includes an examination,
on a test basis, of evidence relevant to the amounts and disclosures in the
financial statements. It also includes an assessment of the significant
estimates and judgements made by branch management in the preparation of the
financial statements, and of whether the accounting policies are appropriate to
the branch's circumstances, consistently applied and adequately disclosed.
We planned and performed our audits so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements which we audited, none of which are
attached to this report, give a true and fair view of the state of affairs of
the branch at 31 December 1993, 31 December 1994 and 31 December 1995, and of
the profit for the branch for the years ended 31 December 1993, 31 December 1994
and 31 December 1995.
/s/ KPMG
Chartered Accountants
Registered Auditors
90 South Mall
Cork, Ireland
Date: 4 October 1996
F-3
<PAGE> 65
INDEPENDENT AUDITORS' REPORT
Board of Directors
Seneca Knitting Mills Corporation
We have audited the consolidated balance sheet of Seneca Knitting Mills
Corporation (a wholly-owned subsidiary of Ridgeview, Inc.) as of December 31,
1995, and the related consolidated statements of income and retained earnings
and cash flows for the six months then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Seneca Knitting
Mills Corporation as of December 31, 1995, and the consolidated results of its
operations and its consolidated cash flows for the six months then ended in
conformity with generally accepted accounting principles.
/s/ MENGEL, METZGER, BARR & CO. LLP
Rochester, New York
January 31, 1996
F-4
<PAGE> 66
RIDGEVIEW, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.......................................................... $ 86 $ 223 $ 144
Accounts receivable (less allowance for doubtful accounts of
$195, $371 and $379) (Note 8).............................. 7,196 9,997 11,630
Inventories (Note 3).......................................... 9,994 14,780 19,075
Prepaid expenses (Note 14).................................... 24 297 464
Deferred income taxes (Note 7)................................ 69 -- --
------- ------- -------
Total current assets.................................. 17,369 25,297 31,313
PROPERTY, PLANT AND EQUIPMENT, less accumulated depreciation and
amortization (Note 4)......................................... 6,332 10,349 10,242
DEFERRED INCOME TAXES (Note 7).................................. 15 -- --
OTHER ASSETS.................................................... 771 1,027 1,093
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, less
accumulated amortization of $0, $56 and $167 (Note 2)......... -- 1,861 1,797
------- ------- -------
Total assets (Note 6)................................. $24,487 $38,534 $44,445
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings (Note 5)................................ $ 1,156 $ 1,255 $ 1,869
Accounts payable.............................................. 2,515 4,922 6,439
Accrued expenses and other liabilities........................ 724 852 1,225
Income taxes payable (Note 7)................................. 488 -- 14
Deferred income taxes (Note 7)................................ -- 581 518
Current portion of long-term debt (Note 6).................... 644 5,632 6,038
Current portion of deferred compensation (Note 12)............ 146 144 98
------- ------- -------
Total current liabilities............................. 5,673 13,386 16,201
LONG-TERM DEBT, less current portion (Note 6)................... 9,492 14,624 17,516
DEFERRED COMPENSATION, less current portion (Note 12)........... 874 1,434 1,491
DEFERRED CREDIT (Note 12)....................................... 672 1,064 1,024
DEFERRED INCOME TAXES (Note 7).................................. -- 40 107
------- ------- -------
Total liabilities..................................... 16,711 30,548 36,339
------- ------- -------
COMMITMENTS AND CONTINGENCIES (Notes 9 and 12)
SHAREHOLDERS' EQUITY: (Notes 10 and 12)
Common stock -- authorized 20,000,000 shares of $.01 par
value; issued 1,350,087 shares, 1,349,701 shares and
1,360,000 shares, respectively............................. 14 14 14
Additional paid-in capital.................................... 1,078 1,077 1,108
Retained earnings, including amounts reserved of $460, $475
and $955 (Note 12)......................................... 6,678 6,806 6,893
Foreign currency translation adjustments...................... 6 89 91
------- ------- -------
Total shareholders' equity............................ 7,776 7,986 8,106
------- ------- -------
Total liabilities and shareholders' equity.......... $24,487 $38,534 $44,445
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 67
RIDGEVIEW, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- -------------------------
1993 1994 1995 1995 1996
------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES (Notes 8 and 11)................... $35,605 $40,093 $54,408 $21,474 $31,799
COST OF SALES (Note 11)...................... 27,813 30,963 43,723 16,922 25,656
------- ------- ------- ------- -------
GROSS PROFIT................................. 7,792 9,130 10,685 4,552 6,143
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................... 6,032 6,768 8,169 3,714 4,901
SUPPLEMENTAL RETIREMENT BENEFIT (Note 12).... -- -- 500 -- --
------- ------- ------- ------- -------
OPERATING INCOME............................. 1,760 2,362 2,016 838 1,242
------- ------- ------- ------- -------
OTHER INCOME (EXPENSE)
Interest expense........................... (661) (829) (1,584) (520) (1,064)
Foreign currency exchange gains............ 108 -- -- -- --
Grant income............................... 163 117 75 41 39
Other, net................................. 63 (63) 28 (24) (10)
------- ------- ------- ------- -------
Total other income (expense)....... (327) (775) (1,481) (503) (1,035)
------- ------- ------- ------- -------
INCOME BEFORE INCOME TAXES................... 1,433 1,587 535 335 207
PROVISION FOR INCOME TAXES (Note 7).......... 349 573 239 97 78
------- ------- ------- ------- -------
NET INCOME................................... $ 1,084 $ 1,014 $ 296 $ 238 $ 129
======= ======= ======= ======= =======
EARNINGS PER SHARE........................... $ 0.80 $ 0.75 $ 0.22 $ 0.18 $ 0.10
======= ======= ======= ======= =======
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING......................... 1,353 1,350 1,350 1,353 1,355
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 68
RIDGEVIEW, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY
------------------ PAID-IN RETAINED TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENTS TOTAL
--------- ------ ---------- -------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992........... 1,355,367 $ 14 $1,090 $4,841 $ 174 $6,119
Net income........................... 1,084 1,084
Cash dividends ($.09 per share)...... (115) (115)
Redemption of common stock........... (5,151) (12) (12)
Foreign currency translation
adjustment........................ (386) (386)
--------- --- ------ ------ ----- ------
Balance at December 31, 1993........... 1,350,216 14 1,078 5,810 (212) 6,690
Net income........................... 1,014 1,014
Cash dividends ($.11 per share)...... (146) (146)
Redemption of common stock........... (129)
Foreign currency translation
adjustment........................ 218 218
--------- --- ------ ------ ----- ------
Balance at December 31, 1994........... 1,350,087 14 1,078 6,678 6 7,776
Net income........................... 296 296
Cash dividends ($.12 per share)...... (168) (168)
Issuance of common stock............. 5,151 15 15
Redemption of common stock........... (5,540) (16) (16)
Foreign currency translation
adjustment........................ 83 83
--------- --- ------ ------ ----- ------
Balance at December 31, 1995........... 1,349,698 14 1,077 6,806 89 7,986
Six months ended June 30, 1996
(unaudited):
Net income........................... 129 129
Cash dividends ($.03 per share)...... (42) (42)
Issuance of common stock............. 10,302 31 31
Foreign currency translation
adjustment........................ 2 2
--------- --- ------ ------ ----- ------
Balance at June 30, 1996 (unaudited)... 1,360,000 $ 14 $1,108 $6,893 $ 91 $8,106
========= === ====== ====== ===== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 69
RIDGEVIEW, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------------
1993 1994 1995 1995 1996
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers............ $ 34,808 $ 38,764 $ 53,231 $ 20,561 $ 29,065
Cash paid to suppliers and employees.... (34,236) (36,689) (48,793) (18,715) (30,965)
Foreign currency exchange gains realized
in cash.............................. 108 -- -- -- --
Interest paid........................... (613) (730) (1,403) (442) (1,005)
Income taxes paid, net of refunds....... (190) (373) (937) (437) (54)
Other cash receipts..................... 21 12 16 25 15
Other cash disbursements................ -- -- (126) (68) (83)
-------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities........................... (102) 984 1,988 924 (3,027)
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for organizational costs....... -- -- (133) (68) --
Payments for investments in
subsidiaries......................... -- -- (76) -- (65)
Payments for purchase of 100% of Seneca
capital stock, net of cash
acquired............................. -- -- (2,097) (2,097) --
Proceeds from sale of property and
equipment............................ 24 435 174 114 28
Payments for purchase of property, plant
and equipment........................ (840) (1,881) (3,619) (1,794) (606)
-------- -------- -------- -------- --------
Net cash used in investing activities... (816) (1,446) (5,751) (3,845) (643)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net short-term borrowings............... 1,426 1,057 99 (313) 304
Proceeds from long-term debt............ 595 56 58,729 25,928 30,588
Repayment of long-term debt............. (860) (761) (55,254) (22,442) (27,290)
Dividends paid.......................... (115) (146) (168) (84) (42)
Proceeds from issuance of common
stock................................ -- -- 15 15 31
Payments for stock redemption........... (12) -- (16) -- --
Proceeds from government grants......... 104 56 490 -- --
-------- -------- -------- -------- --------
Net cash provided by financing
activities........................... 1,138 262 3,895 3,104 3,591
-------- -------- -------- -------- --------
EFFECT OF EXCHANGE RATE ON CASH........... (17) 20 5 (4) --
-------- -------- -------- -------- --------
Net increase (decrease) in cash......... 203 (180) 137 179 (79)
CASH, beginning of period................. 63 266 86 86 223
-------- -------- -------- -------- --------
CASH, end of period....................... $ 266 $ 86 $ 223 $ 265 $ 144
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 70
RIDGEVIEW, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONCLUDED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------- -------------------------
1993 1994 1995 1995 1996
------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net income................................. $ 1,084 $ 1,014 $ 296 $ 238 $ 129
------- ------- ------- ------- -------
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization........... 901 917 1,200 504 746
Provision for doubtful accounts
receivable............................ 4 162 126 45 28
Capital grants recognized............... (163) (117) (75) (32) (39)
Decrease in government grants........... -- -- (43) -- --
(Gain) loss on sale of assets........... (15) 66 (13) 27 25
Increase in deferred compensation
liability............................. 138 139 557 15 12
Decrease in deferred income taxes....... (30) (60) (243) (35) 4
Changes in operating assets and
liabilities, net of effects from
purchase of Seneca:
(Increase) decrease in accounts
receivable............................ (659) (1,329) (1,119) (841) (1,675)
(Increase) decrease in inventories...... (2,065) (884) 946 (814) (4,291)
(Increase) decrease in prepaid expenses
and other assets...................... (25) (153) (303) (72) (198)
Increase (decrease) in accounts
payable............................... 444 813 1,403 2,330 1,530
Increase (decrease) in income taxes
payable............................... 161 260 (455) (304) 19
Increase (decrease) in accrued expenses
and other liabilities................. 123 156 (289) (137) 683
------- ------- ------- ------- -------
Total adjustments to net income.... (1,186) (30) 1,692 686 (3,156)
------- ------- ------- ------- -------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES................................. $ (102) $ 984 $ 1,988 $ 924 $(3,027)
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR
ENDED
SCHEDULE OF NONCASH INVESTING DECEMBER 31,
AND FINANCING ACTIVITIES 1995
------------
<S> <C>
Purchase price of 100% of Seneca capital stock............................. $ 7,000
Less: Short-term notes issued.............................................. (4,000)
Less: Cash acquired........................................................ (903)
-------
Payment for purchase of Seneca capital stock, net of cash acquired......... $ 2,097
=======
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 71
RIDGEVIEW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of Ridgeview, Inc. and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions are eliminated in
consolidation.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS. The consolidated
financial statements as of June 30, 1996 and for the six months ended June 30,
1995 and 1996 are unaudited, and have been prepared on the same basis as the
audited financial statements included herein. In the opinion of management, such
unaudited financial statements include all adjustments consisting of normal
recurring accruals and an adjustment for an obsolete inventory write-off in
excess of normal reserves of $310,000 for the six month period ended June 30,
1995, necessary to present fairly the information set forth therein. Results for
interim periods are not indicative of results to be expected for an entire year.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
INVENTORIES. All inventories except those at Seneca are stated at the
lower of cost (first-in, first-out) or market. Inventories for Seneca are stated
at the lower of cost (last-in, first-out) or market.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated at
cost. Expenditures for maintenance and repairs, which do not improve or extend
the life of an asset, are charged to expense as incurred. Expenditures for
renewals and improvements that significantly add to productive capacity or
extend the useful life of an asset are capitalized.
Depreciation is provided over the estimated useful lives of the individual
assets by the straight-line method. The estimated useful lives used in the
computation of depreciation are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements.................................... 8-39
Machinery and equipment....................................... 5-12
Automobiles and trucks........................................ 5
Office furniture and equipment................................ 5-10
</TABLE>
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED. The excess of cost
over fair value of net assets acquired represents the excess of purchase price
over the fair value of net tangible assets of businesses acquired and is
amortized using the straight-line method over the estimated useful life of 15
years. Recoverability of the excess of cost over the fair value of net assets
acquired (goodwill) is reviewed annually unless circumstances indicate that such
review should be performed sooner. The underlying business which gave rise to
the goodwill is evaluated based upon expectations of non-discounted cash flows
and operating income to determine whether any impairment has occurred.
FAIR VALUE OF FINANCIAL INSTRUMENTS. Financial instruments of the Company
include long-term debt. Based upon the current borrowing rates available to the
Company, estimated fair values of these financial instruments approximate their
recorded carrying amounts.
INCOME TAXES. Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes,
which requires an asset and liability approach to financial accounting and
reporting for income taxes. The difference between the financial statement and
tax basis of assets and liabilities is determined annually. Deferred income tax
assets and liabilities are computed for those differences that have future tax
consequences using the currently enacted tax
F-10
<PAGE> 72
RIDGEVIEW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS UNAUDITED)
laws and rates that apply to the periods in which they are expected to affect
taxable income. The cumulative effect of adopting SFAS No. 109 was not
significant.
REVENUE RECOGNITION. Sales and related costs are recorded by the Company
upon shipment of its products.
ADVERTISING COSTS. Advertising costs, included in selling, general and
administrative expenses, are expensed as incurred and were $462,000, $629,000
and $851,000 for the years ended December 31, 1993, 1994 and 1995, respectively,
and $384,000 and $444,000 for the six months ended June 30, 1995 and 1996,
respectively.
FOREIGN CURRENCY TRANSLATION. The Company's subsidiary, Ridgeview Limited
("Limited") operates primarily in the Republic of Ireland and the local
currency, the Irish punt, has been designated as its functional currency.
Limited's assets and liabilities are translated at the balance sheet date using
the current exchange rate for the Irish punt and U.S. dollar. Results of
operations are translated using the exchange rates for the Irish punt and U.S.
dollar prevailing throughout the period. The resulting foreign currency
translation adjustments are included as a separate component of shareholders'
equity.
RECENT ACCOUNTING PRONOUNCEMENTS. The Financial Accounting Standards Board
has recently issued SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," and SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles be reported at the lower of the
carrying amount or their estimated recoverable amount. Adoption of this standard
by the Company did not have a significant impact on the consolidated financial
statements. SFAS No. 123 encourages the accounting for stock-based employee
compensation programs to be reported within the financial statements on a fair
value based method; however, it allows an entity to continue to measure
compensation cost under Accounting Principles Board Opinion ("APB") No. 25. If
electing to remain with the accounting under APB No. 25, then the standard
requires pro forma disclosure of net income and earnings per share as if the
fair value based method had been adopted. The Company intends to adopt the pro
forma disclosure requirements of SFAS No. 123. Both standards are effective for
fiscal years beginning after December 15, 1995.
EARNINGS PER SHARE. Earnings per share are calculated using the weighted
average number of shares outstanding of Common Stock and dilutive common stock
equivalents during each period presented, after giving retroactive effect to a
129 for 1 stock split (see Note 10). Additionally, earnings per share, after
giving retroactive effect to the reduction in debt through the use of proceeds
from the proposed public offering, for the year ended December 31, 1995 and the
six months ended June 30, 1996 would have been $0.30 and $0.15, respectively.
RECLASSIFICATIONS. Financial statements for 1993 and 1994 have been
reclassified, where applicable, to conform to financial statement presentation
used in 1995.
NOTE 2 -- ACQUISITIONS
On June 28, 1995, the Company acquired all of the issued and outstanding
shares of capital stock of Seneca and certain real property owned by Seneca or
certain of its shareholders for $3 million in cash and $4 million in notes
payable in a transaction accounted for as a purchase. The purchase price
exceeded the fair value of the net tangible assets acquired by $1.9 million,
which amount is being amortized over 15 years on the straight-line method. The
operating results of Seneca are included in the Company's consolidated results
of operations from the date of acquisition.
F-11
<PAGE> 73
RIDGEVIEW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS UNAUDITED)
The Company expects to acquire all of the outstanding shares of capital
stock of Interknit, Inc. ("Interknit"), a corporation affiliated through common
ownership (see Note 11), in exchange for 240,000 shares of Common Stock in a
transaction to be accounted for as a pooling of interests. The shares of Common
Stock are to be issued immediately prior to the completion of the Company's
proposed initial public offering of Common Stock (see Note 14).
The following unaudited pro forma summary presents information as if the
acquisition of Seneca had occurred at January 1, 1994. The pro forma
information, which is provided for information purposes only, is based on
historical information and does not necessarily reflect the actual results that
would have occurred, nor is it necessarily indicative of future results of
operations of the combined entities.
Pro forma information (unaudited):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1994 1995
------- -------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net sales.................................................... $54,305 $59,176
Net income................................................... $ 1,151 $ 160
Earnings per share........................................... $ 0.85 $ 0.12
</TABLE>
NOTE 3 -- INVENTORIES
A summary of inventories by major classification is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1994 1995 1996
------ ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Raw materials........................................ $1,520 $ 3,444 $ 3,309
Work-in-process...................................... 4,480 4,864 6,803
Finished goods....................................... 3,994 6,522 9,013
(LIFO reserve)....................................... -- (50) (50)
------ ------- -------
$9,994 $14,780 $ 19,075
====== ======= =======
</TABLE>
NOTE 4 -- PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1994 1995 1996
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Land................................................ $ 132 $ 313 $ 313
Buildings and improvements.......................... 4,722 6,220 6,268
Machinery and equipment............................. 9,906 12,756 12,959
Automobiles and trucks.............................. 85 102 102
Office furniture and equipment...................... 1,831 2,072 2,245
------- ------- -------
16,676 21,463 21,887
Less accumulated depreciation and amortization...... 10,344 11,114 11,645
------- ------- -------
Net property, plant and equipment................... $ 6,332 $10,349 $ 10,242
======= ======= =======
</TABLE>
F-12
<PAGE> 74
RIDGEVIEW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS UNAUDITED)
Depreciation expense for each of the three years in the period ended
December 31, 1995 was $874,000, $901,000 and $1,096,000, respectively, and was
$491,000 and $657,000 for the six months ended June 30, 1995 and 1996,
respectively.
NOTE 5 -- SHORT-TERM BORROWINGS
Short-term borrowings consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1994 1995 1996
------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Bank drafts issued, not yet presented for payment...... $1,156 $1,255 $1,869
====== ====== ======
</TABLE>
The Company has an agreement with a bank whereby funds are automatically
drawn on the Company's Revolving Credit Facility (see Note 6) and transferred to
the Company's bank account to cover bank drafts as they are presented for
payment. Included in short-term borrowings is the liability for bank drafts
issued, but not yet presented for payment.
F-13
<PAGE> 75
RIDGEVIEW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE 6 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1994 1995 1996
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revolving Credit Facility (see discussion below)...... $ 4,869 $12,553 $ 16,191
Term loan payable to bank in monthly installments of
$42, plus interest at prime plus 1% (9.25% at June
30, 1996), beginning February 2, 1995, with a final
balloon payment November 2, 1996, collateralized by
substantially all assets of the Company............. 5,000 4,542 4,292
Note payable to bank in 32 monthly installments of
$12, plus interest at prime plus 1% (9.25% at June
30, 1996), beginning July 1996, with a final payment
due January 1999, collateralized by substantially
all assets of the Company........................... -- 1,000 1,000
Note payable to bank in annual installments of $160,
beginning in 1997, with a final payment due in 2001,
collateralized by the assets of Limited and a
guarantee by the Company............................ -- 800 800
Note payable to Seneca County IDA, due in monthly
payments of approximately $5 including interest at
5% through March 1996 at which time the interest
rate adjusts annually to 50% of prime but not less
than 5%, collateralized by certain equipment........ -- 354 330
Note payable to former principal shareholder of
Seneca, due September 1, 1997, with interest only
payable monthly at 7% per annum; unsecured.......... -- 500 500
Note payable, due December 1996, with interest only
payable monthly at 9% per annum; unsecured.......... -- 350 350
Various notes payable in installments through March
1998, including interest at rates ranging up to
13.2%; collateralized by a building and
communications equipment............................ 267 157 91
------- ------- -------
10,136 20,256 23,554
Less current portion............................. 644 5,632 6,038
------- ------- -------
Total long-term debt.................................. $ 9,492 $14,624 $ 17,516
======= ======= =======
</TABLE>
On January 10, 1995, the Company restructured its existing bank loan
agreements. The restructured agreements provide a Revolving Credit Facility and
a $5 million term loan. The term loan provides for monthly payments and a final
balloon payment due on November 2, 1996. In connection with the restructured
agreements, short-term borrowings of $4.3 million and long-term notes totaling
$5.6 million at December 31, 1994 were effectively canceled and replaced with
the restructured bank loans. Accordingly, the loan balances outstanding at
December 31, 1994 were classified as long-term.
In connection with the acquisition of Seneca (see Note 2), the Revolving
Credit Facility was amended to increase the Company's borrowing capability to
$15 million. The Revolving Credit Facility was amended again on August 28, 1996
(pursuant to a letter of commitment issued by the lender) to, among other
things,
F-14
<PAGE> 76
RIDGEVIEW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS UNAUDITED)
increase the borrowing capability to $20 million. The amended Revolving Credit
Facility expires in January 1999. Borrowings under the Revolving Credit Facility
bear interest at the lender's prime interest rate plus 1% and are collateralized
by substantially all assets of the Company.
The provisions of the restructured agreements relating to both the
Revolving Credit Facility and the term loan contain certain covenants which
require, among other things, the maintenance of minimum amounts of working
capital and tangible net worth, restrictions on capital expenditures,
restrictions on dividends and compliance with minimum financial ratios relating
to debt coverage and cash flows. At December 31, 1995 and June 30, 1996, the
Company was in violation of certain of these loan covenants. Pursuant to the
August 28, 1996 letter of commitment issued by the lender, these violations have
been waived and the lender has agreed to permanent modifications of the loan
covenants. Accordingly, the amounts outstanding at December 31, 1995 and June
30, 1996 have been classified as long-term.
Approximate maturities of long-term debt for the next five years are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, (IN THOUSANDS)
-------------------------------------------------------
<S> <C>
1996................................................... $ 5,632
1997................................................... 390
1998................................................... 363
1999................................................... 13,411
2000................................................... 220
Thereafter............................................. 240
-----------
$ 20,256
===========
</TABLE>
NOTE 7 -- INCOME TAXES
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1993 1994 1995
---- ---- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.............................................. $272 $550 $ 448
State................................................ 34 60 54
Foreign.............................................. 45 23 (20)
---- ---- -----
351 633 482
---- ---- -----
Deferred:
Federal.............................................. 4 (48) (229)
State................................................ -- (6) (28)
Foreign.............................................. (6) (6) 14
---- ---- -----
(2) (60) (243)
---- ---- -----
Provision for income taxes............................. $349 $573 $ 239
==== ==== =====
</TABLE>
F-15
<PAGE> 77
RIDGEVIEW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS UNAUDITED)
The actual income tax expense differs from the "expected" tax expense for
those years (computed by applying the applicable statutory U.S. corporate income
tax rate of 34% to income before income taxes) as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1994 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Income before income taxes............................... $1,433 $1,587 $ 535
====== ====== ====
Computed "expected" tax expense.......................... 487 540 182
Increase (decrease) in taxes resulting from:
Foreign income with no U.S. income tax effect....... (183) (64) 20
State income taxes, net of federal income tax....... 23 36 17
Nondeductible expenses.............................. 5 14 27
Foreign tax......................................... 39 17 (6)
Other............................................... (22) 30 (1)
------ ------ ----
$ 349 $ 573 $ 239
====== ====== ====
</TABLE>
Net deferred tax assets and net deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
----- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Receivable and inventory reserves.......................... $ 69 $ 195
Accrued expenses........................................... -- 73
Deferred compensation liability............................ 374 578
----- -------
Total deferred tax assets............................. $ 443 $ 846
----- -------
Deferred tax liabilities:
Tax greater than book depreciation......................... $(359) $ (618)
LIFO reserve............................................... -- (849)
----- -------
Total deferred tax liabilities........................ (359) (1,467)
----- -------
Net deferred tax assets (liabilities)................. $ 84 $ (621)
===== =======
</TABLE>
The Company does not accrue income taxes on the undistributed earnings of
its foreign subsidiary, Limited, which are intended to be invested in Limited
indefinitely. At December 31, 1995, the amount of undistributed earnings for
which taxes have not been accrued was $1.7 million.
NOTE 8 -- CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMER
The Company sells its products principally through retailers in North
America and Europe (see Note 13). The Company performs ongoing credit
evaluations of its customers and generally does not require collateral for
outstanding accounts receivable. Allowances are maintained for potential credit
losses, and such losses during the periods covered by these financial statements
have not exceeded management's expectations.
For the years ended December 31, 1993, 1994 and 1995, sales to one
customer, Target, accounted for 11%, 18% and 13%, respectively, of the Company's
net sales. For the six months ended June 30, 1995 and 1996, sales to this same
customer accounted for 12% of net sales in both periods. Accounts receivable
from this same customer were 23%, 19% and 7%, respectively, of total accounts
receivable at December 31, 1994 and 1995 and June 30, 1996.
F-16
<PAGE> 78
RIDGEVIEW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE 9 -- BENEFIT PLANS
The Company has an employee savings plan which covers participating
employees who have completed one year of employment and have attained age 21.
Under the terms of the plan, the Company contributes an amount equal to 25% of
participating employees' contributions which do not exceed 6% of each
participant's earnings. Total contributions to the plan by the Company amounted
to $86,000, $87,000 and $85,000 for the years ended December 31, 1993, 1994 and
1995, respectively, and $45,000 and $44,000 for the six months ended June 30,
1995 and 1996, respectively.
As specified by the collective bargaining agreement between Seneca and The
International Ladies' Garment Workers' Union, which in 1995 merged with the
Amalgamated Clothing and Textile Workers Union to form the Union of
Needletrades, Industrial and Textile Employees ("UNITE"), Seneca is required to
make contributions based on a percentage of the gross salary for all bargaining
unit employees, who are members of the union, to the following multi-employer
benefit plans:
1. Eastern Region, UNITE Health and Welfare Fund, a trust fund
established by collective agreement for the purpose of providing workers
with health, welfare and recreation benefits and services.
2. UNITE National Retirement Fund, a trust fund established by
collective agreement for the purpose of providing pensions or annuities on
retirement or death of workers.
3. UNITE Health Services Plan, a trust fund established by collective
agreement for the purpose of providing workers with drugs, medication and
other health services.
From the date of acquisition of Seneca, June 28, 1995, through December 31,
1995 and for the six months ended June 30, 1996, contribution expense under this
collective bargaining agreement amounted to approximately $243,000. The
Company's applicable portion of total plan benefits and net assets of the plans
are not separately identifiable.
NOTE 10 -- CAPITAL STOCK
In contemplation of a proposed initial public offering of the Company's
common stock (see Note 14), the Company's board of directors has authorized, and
the Company's shareholders have approved, amended and restated articles of
incorporation that increase the Company's authorized capital stock to 22,000,000
shares, to be divided into 20,000,000 shares of common stock and 2,000,000
shares of preferred stock. The board of directors has also declared a stock
dividend effective October 8, 1996 that resulted in the issuance of
approximately 129 additional shares of Common Stock for each share of Common
Stock then issued and outstanding. To reflect this split-up of the Company's
outstanding common stock into a greater number of shares, all share numbers and
per share amounts in these financial statements have been adjusted
retroactively.
Also in contemplation of the proposed initial public offering, the board of
directors and the shareholders have approved the Omnibus Plan, which permits the
issuance of options, stock appreciation rights ("SARS"), limited SARS,
restricted stock, performance awards and other stock-based awards to selected
employees and independent contractors of the Company. The Company has reserved
230,000 shares of common stock for issuance under the Omnibus Plan, which
provides that the term of each award shall be determined by a committee of the
board of directors charged with administering the Omnibus Plan, but no longer
than ten years after the date they are granted. Under the terms of the Omnibus
Plan, options granted may be either nonqualified or incentive stock options.
SARS and limited SARS granted in tandem with an option shall be exercisable only
to the extent the underlying option is exercisable. To date, no awards have been
granted under the Omnibus Plan.
F-17
<PAGE> 79
RIDGEVIEW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS UNAUDITED)
The directors have also authorized an employee stock purchase plan that,
after the initial public offering is completed and the plan activated, will
allow employees to purchase shares of common stock of the Company through
payroll deductions at 85% of the market value of the shares at the time of
purchase. The Company has reserved 75,000 shares for issuance under this plan.
In September 1996, the Company adopted an Outside Directors' Stock Option
Plan (the "Directors' Plan"), reserving 15,000 shares of common stock for
issuance thereunder. The Directors' Plan provides that each outside director, at
the time of initial election, shall automatically be granted an option to
purchase 500 shares of common stock at the fair market value on the date of
election. On each anniversary date of an outside director's election, option to
purchase 500 additional shares of common stock will automatically be granted,
provided that the director shall have continuously served and the number of
shares of common stock available under the Directors' Plan is sufficient.
Options granted under the Directors' Plan will be nonqualified stock options,
will vest in increments of 33 1/3% on each anniversary and will expire ten years
after the date they are granted. To date, no awards were made or granted under
the Directors' Plan.
NOTE 11 -- RELATED PARTY TRANSACTIONS
All of the Company's executive officers are shareholders of Interknit,
which manufactures greige goods and sells substantially all of its production to
the Company. The Company also sells raw materials to Interknit.
The Company's transactions with Interknit are summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- -----------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Purchases of greige goods........... $ -- $2,338 $3,162 $1,442 $2,363
Sales of raw materials.............. -- 266 289 288 25
Payables and receivables related to
the above transactions are as
follows:
Accounts payable.................... -- 135 136 206 300
Accounts receivable................. -- 1 1 32 6
</TABLE>
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
SELF INSURANCE PLAN. The Company is self insured for certain health
benefits up to $50,000 per occurrence per individual, with certain maximum
aggregate policy limits per claim year. The cost of such benefits is recognized
as an expense in the period the claim occurred. This cost amounted to $575,000,
$402,000 and $491,000 for the years ended December 31, 1993, 1994 and 1995,
respectively, and $275,000 and $412,000 for the six months ended June 30, 1995
and 1996, respectively.
LOAN GUARANTEE. On July 5, 1995, the Company acquired a 50% interest in a
limited liability corporation formed for the purpose of purchasing an airplane.
The limited liability company financed the purchase of the airplane with
proceeds of a bank loan. At December 31, 1995, this loan had an outstanding
balance of $1.2 million, of which $600,000 is guaranteed by the Company. The
Company's investment in the limited liability company, which is accounted for
under the equity method, is not material and is included in other assets.
DEFERRED COMPENSATION. The Company has various agreements with certain
executive officers that provide for specified levels of compensation upon
retirement, death or disability. The expense related to these agreements
amounted to $174,000, $175,000 and $176,000 for the years ended December 31,
F-18
<PAGE> 80
RIDGEVIEW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS UNAUDITED)
1993, 1994 and 1995, respectively, and $88,000 and $129,000 for the six months
ended June 30, 1995 and 1996, respectively.
In December 1995, the Company agreed to provide a senior level executive a
supplemental retirement benefit of $7,000 per month for a period of 84 months
commencing January 1996. As a result, the Company recorded a $500,000 pre-tax
charge to operating expenses.
DEFERRED CREDIT. The Republic of Ireland grants relating to property,
plant and equipment additions at Limited have been deferred and are amortized
over the life of the related assets. During the year ended December 31, 1995,
$445,000 in additional grants were received in connection with a major expansion
of Limited's manufacturing facility. No grants were received for the years ended
December 31, 1993 and 1994. Over a ten-year period, the grants are subject to
full or partial repayment to the Republic of Ireland if certain conditions
specified in the grant agreement are not met. In the opinion of management,
Limited was in compliance with those conditions at December 31, 1995, and the
Company intends to remain in compliance throughout the ten-year period.
RESERVED RETAINED EARNINGS. Pursuant to the grant agreements with the
Republic of Ireland, Limited is required to maintain a minimum amount of equity
(and equity equivalents, as defined) based upon the amount of government grants
received. At December 31, 1994 and 1995, $460,000 and $475,000 of retained
earnings, respectively, have been reserved for this purpose.
On March 27, 1996, in compliance with the above government grant agreement,
Limited reserved an additional $480,000 of retained earnings for an aggregate of
$955,000 at June 30, 1996. These reserved retained earnings are required to be
maintained for the duration of the grant agreement, which expires December 31,
1999.
LEASES. The Company has several noncancellable operating leases, primarily
for manufacturing, showroom, storage and office purposes, that expire over the
next four years. Total rental expense amounted to $85,000, $99,000 and $186,000
for the years ended December 31, 1993, 1994 and 1995, respectively, and $78,000
and $143,000 for the six months ended June 30, 1995 and 1996, respectively.
Future minimum lease payments under noncancellable operating leases are as
follows: 1996 -- $244,000; 1997 -- $136,000; 1998 -- $88,000; and
1999 -- $13,000.
LICENSE AGREEMENTS. In the normal course of its business, the Company
enters into license agreements for the use of trademarks owned by others on the
Company's products. Each of the license agreements provides for payment of
minimum royalties for each annual period during the term of the license
agreement.
Aggregate minimum guaranteed royalty payments under the license agreements
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, (IN THOUSANDS)
-----------------------------------------------------
<S> <C>
1996................................................. $400
1997................................................. 50
1998................................................. 50
--------
Total minimum royalty payments....................... $500
========
</TABLE>
On May 28, 1996, the Company signed an additional license agreement for the
Evan-Picone trademark, which calls for minimum guaranteed royalty payments of
$450,000, $500,000 and $600,000 for the period commencing July 1, 1996 through
December 31, 1997 and the years ending December 31, 1998 and 1999, respectively.
F-19
<PAGE> 81
RIDGEVIEW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS UNAUDITED)
Total royalty expense for license agreements amounted to $40,000, $169,000
and $270,000 for the years ended December 31, 1993, 1994 and 1995, respectively,
and $129,000 and $197,000 for the six months ended June 30, 1995 and 1996,
respectively.
NOTE 13 -- INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one principal industry segment, the manufacture and
sale of socks and women's hosiery products. The Company's products are sold
primarily through retailers.
Financial information by geographic region is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales to unaffiliated
customers:
United States.................. $31,379 $36,028 $49,684 $19,042 $27,633
Europe......................... 4,226 4,065 4,724 2,432 4,166
------- ------- ------- ------- -------
Total net sales................ $35,605 $40,093 $54,408 $21,474 $31,799
======= ======= ======= ======= =======
Transfers between geographic
areas (Eliminated in
consolidation):
United States.................. $ 175 $ 84 $ 144 $ 24 $ 340
Europe......................... -- -- -- -- 16
------- ------- ------- ------- -------
Total transfers................ $ 175 $ 84 $ 144 $ 24 $ 356
======= ======= ======= ======= =======
Operating income (loss):
United States.................. $ 1,464 $ 2,294 $ 2,134 $ 765 $ 1,133
Europe......................... 296 140 (118) 73 109
Eliminations................... -- (72) -- -- --
Other income (expense), net.... (327) (775) (1,481) (503) (1,035)
------- ------- ------- ------- -------
Income before income taxes..... $ 1,433 $ 1,587 $ 535 $ 335 $ 207
======= ======= ======= ======= =======
Identifiable assets:
United States.................. $18,703 $21,267 $32,525 $35,125 $38,834
Europe......................... 3,673 4,183 7,038 4,783 6,837
Eliminations................... (762) (963) (1,029) (813) (1,226)
------- ------- ------- ------- -------
Total assets................... $21,614 $24,487 $38,534 $39,095 $44,445
======= ======= ======= ======= =======
</TABLE>
The classification by geographic region of the Company's net sales to
unaffiliated customers in the table above is based on the geographic location of
the customers for the Company's products. Transfers between geographic regions
are recorded at amounts generally above cost and in accordance with the rules
and regulations of the respective governing tax authorities. Operating income
consists of total net sales less operating expenses, and does not include other
income (expense) net, or income taxes. Identifiable assets of geographic areas
are those assets used in the Company's operations in each area.
F-20
<PAGE> 82
RIDGEVIEW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE 14 -- PROPOSED PUBLIC OFFERING
The Company's board of directors has approved resolutions authorizing the
preparation and filing of a registration statement under the Securities Act with
the Commission pursuant to which the Company intends to register shares of its
Common Stock for sale to the public through a group of underwriters on a firm
commitment basis. Direct costs of $282,000 incurred in preparation of the
proposed initial public offering have been deferred and will be charged to
additional paid-in capital upon successful completion of the proposed public
offering or, if the public offering is not successfully completed, expensed
during the period in which the Company determines not to proceed with such
offering.
F-21
<PAGE> 83
INDEPENDENT AUDITORS' REPORT
Board of Directors
Seneca Knitting Mills Corporation
and Subsidiaries
We have audited the accompanying consolidated balance sheets of Seneca Knitting
Mills Corporation and Subsidiaries as of April 1, 1995 and April 2, 1994, and
the related consolidated statements of income and retained earnings and cash
flows for each of the three fiscal years in the period ended April 1, 1995.
These financial statements are the responsibility of the Companies' management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Seneca Knitting
Mills Corporation and Subsidiaries as of April 1, 1995 and April 2, 1994, and
the consolidated results of their operations and their consolidated cash flows
for each of the three fiscal years in the period ended April 1, 1995, in
conformity with generally accepted accounting principles.
As discussed in Note J, the Company changed its method of accounting for income
taxes in the year ended April 3, 1993.
/s/ Mengel, Metzger, Barr & Co. LLP
Rochester, New York
May 11, 1995
F-22
<PAGE> 84
SENECA KNITTING MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 1, APRIL 2,
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash...................................................................... $ 239,926 $ 428,135
Note receivable from shareholder.......................................... 453,000 --
Accounts receivable, less allowance for doubtful accounts of $50,000 in
1995 and $18,000 in 1994................................................ 1,370,913 960,291
Inventories............................................................... 2,254,794 2,078,550
Prepaid income taxes...................................................... 90,585 --
Other prepaid expenses.................................................... 91,925 125,036
Deferred income taxes..................................................... 108,000 111,000
---------- ----------
TOTAL CURRENT ASSETS............................................... 4,609,143 3,703,012
PROPERTY, PLANT AND EQUIPMENT
Land...................................................................... 25,216 93,898
Buildings................................................................. 439,259 748,850
Leasehold improvements.................................................... 652,554 617,856
Machinery and equipment................................................... 1,901,405 1,264,795
Furniture and fixtures.................................................... 171,899 211,530
Vehicles.................................................................. 34,221 34,221
---------- ----------
3,224,554 2,971,150
Less accumulated depreciation and amortization............................ 1,875,024 1,787,536
---------- ----------
1,349,530 1,183,614
OTHER ASSETS
Cash value of life insurance.............................................. 293,413 270,883
Sundry.................................................................... 1,000 93,336
---------- ----------
294,413 364,219
---------- ----------
$6,253,086 $5,250,845
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt......................................... $ 107,929 $ 60,000
Accounts payable.......................................................... 1,189,663 624,890
Accrued payroll and related accruals...................................... 264,151 308,250
Accrued retirement and welfare contributions.............................. 358,106 330,334
Income taxes payable...................................................... 16,859 469,390
Other accrued liabilities................................................. 17,282 38,952
---------- ----------
TOTAL CURRENT LIABILITIES.......................................... 1,953,990 1,831,816
LONG-TERM DEBT.............................................................. 780,015 501,831
DEFERRED INCOME TAXES....................................................... 48,300 74,500
LEASE COMMITMENTS
SHAREHOLDERS' EQUITY
Common stock, Class A, voting, $10 par value:
Authorized, 50,000 shares
Issued and outstanding, 16,725 shares................................. 167,250 167,250
Common stock, Class B, non-voting, $10 par value:
Priority as to dividends and dissolution, Authorized, 50,000 shares
Issued and outstanding, 20,000 shares................................. 200,000 200,000
Retained earnings......................................................... 3,103,531 2,475,448
---------- ----------
3,470,781 2,842,698
---------- ----------
$6,253,086 $5,250,845
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-23
<PAGE> 85
SENECA KNITTING MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
APRIL 1, APRIL 2, APRIL 3,
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
Net sales............................................ $14,211,680 $11,743,641 $8,312,529
Cost of sales........................................ 11,162,712 8,911,545 6,974,301
----------- ----------- ----------
GROSS PROFIT.................................... 3,048,968 2,832,096 1,338,228
Selling, general and administrative expenses......... 1,901,427 1,292,725 901,400
----------- ----------- ----------
INCOME FROM OPERATIONS.......................... 1,147,541 1,539,371 436,828
Other (expense) income:
Interest expense................................... (160,509) (155,707) (133,647)
Interest income.................................... 6,771 11,376 3,896
Gain on sale of property, equipment and sundry
assets.......................................... 27,104 9,723 (163)
Sundry............................................. 22,176 17,351 6,519
----------- ----------- ----------
(104,458) (117,257) (123,395)
----------- ----------- ----------
INCOME BEFORE INCOME TAXES...................... 1,043,083 1,422,114 313,433
Income taxes:
Current:
Federal......................................... 385,200 400,000 46,000
State........................................... 53,000 68,500 21,200
Deferred (benefit)................................. (23,200) 54,284 71,331
----------- ----------- ----------
415,000 522,784 138,531
----------- ----------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING
CHANGE........................................ 628,083 899,330 174,902
Cumulative effect of change in accounting for income
taxes.............................................. -- -- 112,765
----------- ----------- ----------
NET INCOME...................................... 628,083 899,330 287,667
Retained earnings at beginning of year............... 2,475,448 1,576,118 1,288,451
----------- ----------- ----------
RETAINED EARNINGS AT END OF YEAR................ $ 3,103,531 $ 2,475,448 $1,576,118
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-24
<PAGE> 86
SENECA KNITTING MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------
APRIL 1, APRIL 2, APRIL 3,
1995 1994 1993
--------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS -- OPERATING ACTIVITIES
Net income for the year.................................. $ 628,083 $ 899,330 $ 287,667
Adjustments to reconcile net income to net cash provided
from operating activities:
Depreciation and amortization......................... 271,572 184,428 156,159
Gain on sale of property, equipment and sundry
assets.............................................. (27,104) (9,723) 163
Bad debts............................................. 32,299 49,095 28,078
Deferred income taxes................................. (23,200) 54,284 (41,434)
Cash value of life insurance.......................... (3,756) (2,432) (3,448)
Changes in certain assets and liabilities affecting
operations:
Accounts receivable................................. (442,921) (213,436) (342,743)
Inventories......................................... (176,244) (665,048) (257,184)
Prepaid income taxes................................ (90,585) -- --
Other prepaid expenses.............................. 33,111 (46,764) 52,298
Sundry other assets................................. -- (1,000) --
Accounts payable.................................... 564,773 167,775 29,754
Accrued payroll and related accruals................ (44,099) 121,226 50,181
Accrued retirement and welfare contributions........ 27,772 255,933 (18,475)
Income taxes payable................................ (452,531) 399,767 63,439
Other accrued liabilities........................... (21,670) 23,246 8,278
--------- ---------- ----------
NET CASH PROVIDED FROM OPERATING ACTIVITIES...... 275,500 1,216,681 12,733
CASH FLOWS -- INVESTING ACTIVITIES
Purchase of property and equipment....................... (771,048) (321,444) (70,060)
Proceeds from the sale of equipment...................... -- 35,500 2,450
Cash value of life insurance............................. (18,774) (19,856) (19,856)
--------- ---------- ----------
NET CASH (USED FOR) INVESTING ACTIVITIES......... (789,822) (305,800) (87,466)
CASH FLOWS -- FINANCING ACTIVITIES
Note payable to bank..................................... -- (770,000) 253,000
Proceeds on long-term debt............................... 390,000 150,000 --
Payments on long-term debt............................... (63,887) (60,000) (65,000)
--------- ---------- ----------
NET CASH PROVIDED FROM (USED FOR) FINANCING
ACTIVITIES..................................... 326,113 (680,000) 188,000
--------- ---------- ----------
NET (DECREASE) INCREASE IN CASH.................. (188,209) 230,881 113,267
Cash at beginning of year................................ 428,135 197,254 83,987
--------- ---------- ----------
CASH AT END OF YEAR.............................. $ 239,926 $ 428,135 $ 197,254
========= ========== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash payments during the fiscal year for:
Interest.............................................. $ 170,480 $ 142,917 $ 138,867
========= ========== ==========
Income taxes.......................................... $ 981,316 $ 68,733 $ 3,761
========= ========== ==========
NON-CASH INVESTING ACTIVITY
Sale of property, equipment and sundry assets financed
through a note receivable from shareholder............... $ 453,000 $ -- $ --
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-25
<PAGE> 87
SENECA KNITTING MILLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 1, 1995 AND APRIL 2, 1994
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company is primarily engaged in the manufacturing and sale of yarn and
heavy weight sport hosiery. GPM Corporation is involved in real estate
activities. The Company grants credit to qualified customers, who are located
primarily in the United States and involved in retail sales.
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of Seneca
Knitting Mills Corporation (the Company) and its wholly-owned subsidiaries,
Seneca Knitting Mills International Sales, Inc. (a Foreign Sales Corporation)
and GPM Corporation. All significant intercompany transactions and balances have
been eliminated.
FISCAL YEAR END
The Company has adopted a 52-53 week fiscal year ending on the Saturday
closest to March 31.
CASH
The Company maintains its cash balances in one financial institution
located in New York State. These balances are insured by the Federal Deposit
Insurance Corporation up to $100,000. At April 1, 1995, uninsured amounts held
at this financial institution total approximately $121,000.
INVENTORIES
Substantially all of the Company's inventories are stated at the lower of
cost or market with cost determined on the last-in, first-out (LIFO) basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated on the basis of cost. Major
renewals and betterments are charged to the property accounts while
replacements, maintenance and repairs, which do not improve or extend the lives
of the respective assets, are expensed currently.
Depreciation is provided using both accelerated and straight-line methods
at rates sufficient to amortize the cost of the related asset over its estimated
useful life. Upon sale or retirement, the related cost and accumulated
depreciation are removed from the accounts and the related gain or loss is
reflected in operations.
INCOME TAXES
Deferred income tax assets and liabilities arise from temporary differences
associated with differences between the financial statement and tax basis of
assets and liabilities. Deferred tax assets and liabilities not related to an
asset or liability are classified as current or noncurrent depending on the
periods in which the temporary differences are expected to reverse. The
principal types of temporary differences between assets and liabilities for
financial statement and tax return purposes are accumulated depreciation,
inventories, accounts receivable, accrued payroll and accrued vacation.
F-26
<PAGE> 88
SENECA KNITTING MILLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B: NOTE RECEIVABLE FROM SHAREHOLDER
Note receivable from shareholder results from the sale of certain assets of
the Company to the shareholder as of March 31, 1995. Pursuant to the agreement
as discussed in Note J and as a condition thereto, the note receivable from
shareholder is to be paid when the sale is completed. Therefore, the Company has
classified the note receivable from shareholder as a current asset as of April
1, 1995.
NOTE C: INVENTORIES
The major categories of inventory are as follows:
<TABLE>
<CAPTION>
APRIL 1, APRIL 2,
1995 1994
---------- ----------
<S> <C> <C>
Raw materials................................................. $1,542,447 $1,137,666
Work in process............................................... 1,290,778 1,372,182
Finished goods................................................ 1,550,148 1,408,189
Supplies...................................................... 227,096 196,643
---------- ----------
4,610,469 4,114,680
Less LIFO reserve............................................. 2,355,675 2,036,130
---------- ----------
$2,254,794 $2,078,550
========== ==========
</TABLE>
NOTE D: NOTE PAYABLE TO BANK
The Company maintains a revolving line of credit of $3,750,000. Interest is
at prime for outstanding borrowings up to $1,875,000 and prime plus .5% for
amounts over that amount. The line of credit is secured by the Company's
accounts receivable, inventories and the personal guarantee of the Company's
majority shareholder. At April 1, 1995, there was no outstanding balance.
F-27
<PAGE> 89
SENECA KNITTING MILLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E: LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
APRIL 1, APRIL 2,
1995 1994
-------- --------
<S> <C> <C>
Note payable to bank, due in monthly payments of $5,000 plus
interest at prime plus 1% (an effective rate of 10% at April
1, 1995) through December 1997. Collateralized by accounts
receivable, inventories and fixed assets and the personal
guarantee of the Company's majority shareholder............. $151,831 $211,831
Note payable to Seneca County IDA, due in monthly payments of
$5,500 including interest at 5% through March 1996 at which
time the interest rate adjusts annually to 50% of prime but
not less than 5%. Collateralized by certain equipment and
the personal guarantee of the Company's majority
shareholder................................................. 386,113 --
Note payable to related party, due June 1, 1996, with interest
only payable monthly at 10% per annum....................... 200,000 200,000
Note payable to related party, due September 8, 1996, with
interest only payable monthly at 8% per annum............... 150,000 150,000
-------- --------
887,944 561,831
Less current portion........................................... 107,929 60,000
-------- --------
$780,015 $501,831
======== ========
</TABLE>
Annual fiscal year maturities of long-term debt are estimated as follows:
<TABLE>
<S> <C>
1996............................................................ $107,929
1997............................................................ 460,382
1998............................................................ 84,790
1999............................................................ 55,669
2000............................................................ 58,517
Thereafter...................................................... 120,657
--------
$887,944
========
</TABLE>
NOTE F: INCOME TAXES
Deferred income tax assets and liabilities are determined based on the
differences between the financial statement and tax basis of assets and
liabilities as measured by the enacted rates which will be in effect when these
differences reverse.
F-28
<PAGE> 90
SENECA KNITTING MILLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes resulting from temporary differences are summarized
as follows:
<TABLE>
<CAPTION>
ASSETS/(LIABILITIES)
-----------------------
APRIL 1, APRIL 2,
1995 1994
-------- --------
<S> <C> <C>
Accumulated depreciation................................... $(48,300) $(74,500)
Inventories................................................ 38,400 44,000
Accounts receivable........................................ 20,000 7,200
Accrued payroll............................................ -- 28,000
Accrued vacation........................................... 49,600 31,800
-------- --------
$ 59,700 $ 36,500
======== ========
Classification of deferred taxes:
Current asset.............................................. $108,000 $111,000
Non-current liability...................................... (48,300) (74,500)
-------- --------
$ 59,700 $ 36,500
======== ========
</TABLE>
At April 1, 1995, the Company has unused investment tax credits (ITC) of
approximately $64,000 to reduce future state income taxes, which expire at
various dates through 2005. The future benefit of these New York State ITC
carryforwards is significantly limited because of the state income tax rules
and, accordingly, no related deferred tax asset has been recorded relating to
these credits.
NOTE G: BENEFIT PLANS
As specified by the collective agreement between the Company and The
International Ladies' Garment Workers' Union (ILGWU), the Company is required to
make contributions to the following multi-employer benefit plans:
1. Eastern Region, ILGWU Health and Welfare Fund, a trust fund
established by collective agreement for the purpose of providing workers
with health, welfare and recreation benefits and services.
2. ILGWU National Retirement Fund, a trust fund established by
collective agreement for the purpose of providing pensions or annuities on
retirement or death of workers.
3. ILGWU Health Services Plan, a trust fund established by collective
agreement for the purpose of providing workers with drugs, medication and
other health services.
Contributions are made as a percentage of the gross salary for all
bargaining unit employees (union) as follows:
<TABLE>
<CAPTION>
EFFECTIVE JANUARY 1,
-----------------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
ILGWU Health and Welfare Fund........................... 4.50% 4.50% 4.50%
ILGWU National Retirement Fund.......................... 9.00% 9.00% 9.00%
ILGWU Health Services Plan.............................. 2.375% 2.375% 2.375%
</TABLE>
For the years ended April 1, 1995, April 2, 1994 and April 3, 1993,
contribution expense amounted to approximately $487,500, $430,400 and $300,200,
respectively. The Company's applicable portion of total plan benefits and net
assets of the plans are not separately identifiable.
NOTE H: OTHER
Sales to four major customers in 1995 were approximately $4,737,000, to
three major customers in 1994 approximately $3,024,000, and to two major
customers in 1993 approximately $2,130,000.
F-29
<PAGE> 91
SENECA KNITTING MILLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I: LEASE COMMITMENTS
The Company leases warehouse space from a related party at a monthly amount
of $4,000 plus taxes and insurance through December 1997.
The Company leases retail store space in Ithaca, Camillus and Corning, New
York at a total monthly amount aggregating $4,250 expiring at different dates
through January 1997.
The Company leases certain equipment and vehicles. Lease payments aggregate
approximately $5,000 per month and expire at different dates through February
1998.
Total lease expense approximated $150,000, $92,000 and $21,000 for the
years ended April 1, 1995, April 2, 1994 and April 3, 1993, respectively.
NOTE J: CHANGE IN ACCOUNTING PRINCIPLE
The Company adopted, effective March 29, 1992, Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under the
liability method specified by SFAS 109, deferred tax assets and liabilities are
determined based on the difference between the financial statements and tax
bases of assets and liabilities as measured by the enacted tax rates which are
expected to be in effect when these differences reverse. Deferred tax expense
(credit) is the result of changes in deferred tax assets and liabilities. The
principal types of differences between assets and liabilities for financial
statement and tax return purposes are further detailed in Note F.
The deferred method, used in years prior to 1993, required the Company to
provide for deferred tax expense based on certain items of income and expense
which were reported in different years in the financial statements and the tax
returns as measured by the tax rate in effect for the year the difference
occurred.
The change from the deferred method to the liability method of accounting
for income taxes decreased the Company's 1993 net income by approximately
$120,000 before the cumulative effect of the change in accounting. Also, net
income for 1993 increased by approximately $113,000 as a result of the
cumulative effect of the change in accounting related to years prior to 1993
which were not restated.
NOTE K: SUBSEQUENT EVENT
On April 27, 1995, the shareholders of the Company signed an agreement for
the sale of their common stock to Ridgeview, Inc., a North Carolina corporation.
Subject to several conditions of the contract, the shareholders of the Company
anticipate the sale of their common stock to be completed prior to July 1995.
F-30
<PAGE> 92
RIDGEVIEW, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma condensed consolidated balance sheet as
of June 30, 1996 gives effect to the proposed acquisition of Interknit as if
such event had occurred on June 30, 1996. The unaudited pro forma statements of
income for the six months ended June 30, 1995 and the year ended December 31,
1995 give effect to the acquisition of Seneca and the proposed acquisition of
Interknit as if such events had occurred on January 1, 1995. See Note 2 to the
Company's consolidated financial statements. The unaudited pro forma statement
of income for the six months ended June 30, 1996 gives effect to the proposed
acquisition of Interknit as if such event had occurred on January 1, 1996. The
pro forma condensed consolidated information has been prepared by the Company's
management and is based on the historical financial statements of the Company,
Seneca and Interknit. These pro forma condensed consolidated financial
statements may not be indicative of the results that actually would have
occurred if the combinations had been in effect on the dates indicated or which
may be obtained in the future. The pro forma condensed financial information for
the year ended December 31, 1994 to include Interknit is not material to the
combined financial statements of the Company and, accordingly, such financial
information is not included in this Prospectus. Interknit had no operations in
the year ended December 31, 1993.
F-31
<PAGE> 93
RIDGEVIEW, INC. AND SUBSIDIARIES
PRO FORMA FINANCIAL CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
RIDGEVIEW INTERKNIT ADJUSTMENTS PRO FORMA
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Accounts receivable................... $11,630,003 $ 722,794 $(305,841)(B.1(a)) $12,046,956
Inventories........................... 19,074,777 105,575 (47,500)(B.1(b)) 19,132,852
Other current assets.................. 608,050 27,891 635,941
----------- ---------- ----------
Total current assets................ 31,312,830 856,260 31,815,749
Property, plant and equipment, net.... 10,242,418 1,345,125 11,587,543
Other assets.......................... 1,092,387 108,587 1,200,974
Excess of cost over fair value of net
assets acquired, less
amortization........................ 1,797,153 1,797,153
----------- ---------- --------- ----------
Total assets........................ $44,444,788 $2,309,972 $(353,341) $46,401,419
=========== ========== ========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable...................... $ 6,439,336 $ 392,687 $(305,841)(B.1(a)) $ 6,526,182
Current portion of long-term debt..... 6,038,292 218,943 6,257,235
Other current liabilities............. 3,722,668 236,816 (17,100)(B.1(c)) 3,942,384
----------- ---------- ----------
Total current liabilities........... 16,200,296 848,446 16,724,801
Long-term debt, less current
portion............................. 17,516,384 1,255,051 18,771,435
Other liabilities..................... 2,621,874 38,958 2,660,832
----------- ---------- ----------
Total liabilities................... 36,338,554 2,142,455 38,158,068
Shareholders' equity.................. 8,106,234 167,517 (30,400)(B.1(c)) 8,243,351
----------- ---------- --------- ----------
Total liabilities and shareholders'
equity........................... $44,444,788 $2,309,972 $(353,341) $46,401,419
=========== ========== ========= ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
F-32
<PAGE> 94
RIDGEVIEW, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
RIDGEVIEW INTERKNIT ADJUSTMENTS PRO FORMA
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales............................ $31,799,404 $3,300,002 $(2,387,673)(B.2(a)) $32,711,733
Costs of goods sold.................. 25,656,306 2,921,709 2,340,173(B.2(a)) 26,237,842
----------- ---------- -----------
Gross profit......................... 6,143,098 378,293 6,473,891
Selling, general and administrative
expenses........................... 4,901,083 51,222 4,952,305
----------- ---------- -----------
Operating income..................... 1,242,015 327,071 1,521,586
Interest expense..................... 1,063,672 66,610 1,130,282
Other income, net.................... 28,938 28,938
Income taxes......................... 77,796 88,511 (17,100)(B.2(b)) 149,207
----------- ---------- ----------- -----------
Net income........................... $ 129,485 $ 171,950 $ (30,400) $ 271,035
=========== ========== =========== ===========
Net income per share................. $ 0.10 $ 0.17
=========== ===========
Weighted average shares
outstanding........................ 1,354,852 1,594,852
=========== ===========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
F-33
<PAGE> 95
RIDGEVIEW, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRO
RIDGEVIEW SENECA INTERKNIT ADJUSTMENTS FORMA
----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales................. $21,474,024 $4,768,572 $1,512,902 $(1,729,825)(B.3(a)) $26,025,673
Costs of goods sold....... 16,921,693 3,904,326 1,565,288 1,787,775(B.3(b)) 20,603,532
----------- ---------- ---------- -----------
Gross profit (loss)....... 4,552,331 864,246 (52,386) 5,422,141
Selling, general and
administrative
expenses................ 3,714,346 636,876 8,279 76,685(B.3(c)) 4,436,186
----------- ---------- ---------- -----------
Operating income (loss)... 837,985 227,370 (60,665) 985,955
Interest expense.......... 520,155 44,770 39,751 301,313(B.3(d)) 905,989
Other income, net......... 17,525 6,013 23,538
Income taxes.............. 97,804 73,040 (29,804) (74,165)(B.3(e)) 66,875
----------- ---------- ---------- ----------- -----------
Net income (loss)......... $ 237,551 $ 109,560 $ (64,599) $ (245,883) $ 36,629
=========== ========== ========== =========== ===========
Net income per share...... $ 0.18 $ 0.02
=========== ===========
Weighted average shares
outstanding............. 1,352,663 1,592,663
=========== ===========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
F-34
<PAGE> 96
RIDGEVIEW, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
RIDGEVIEW SENECA INTERKNIT ADJUSTMENTS PRO FORMA
----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales................. $54,407,813 $4,768,572 $3,876,758 $(3,450,853)(B.3(a)) $59,602,290
Costs of goods sold....... 43,723,004 3,904,326 3,825,248 3,508,803(B.3(b)) 47,943,775
----------- ---------- ---------- -----------
Gross profit.............. 10,684,809 864,246 51,510 11,658,515
Selling, general and
administrative
expenses................ 8,668,711 636,876 66,005 76,685(B.3(c)) 9,448,277
----------- ---------- ---------- -----------
Operating income (loss)... 2,016,098 227,370 (14,495) 2,210,238
Interest expense.......... 1,583,336 44,770 84,910 301,313(B.3(d)) 2,014,329
Other income, net......... 102,581 15,530 118,111
Income taxes.............. 238,808 73,040 (28,326) (74,165)(B.3(e)) 209,357
----------- ---------- ---------- ----------- -----------
Net income (loss)......... $ 296,535 $ 109,560 $ (55,549) $ (245,883) $ 104,663
=========== ========== ========== =========== ===========
Net income per share...... $ 0.22 $ 0.07
=========== ===========
Weighted average shares
outstanding............. 1,349,894 1,589,894
=========== ===========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
F-35
<PAGE> 97
RIDGEVIEW, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
A. GENERAL
On June 28, 1995, the Company acquired all of the outstanding capital stock
of Seneca for $3.0 million in cash and $4.0 million in notes payable in a
transaction that was accounted for as a purchase. The purchase price exceeded
the fair value of the net assets acquired by $1.9 million, which is being
amortized over 15 years using the straight-line method.
Immediately prior to completion of this Offering, the Company will acquire
all of the outstanding stock of Interknit, a corporation affiliated with the
Company through common ownership of its shares by certain shareholders of the
Company. Interknit was established for the purpose of providing a consistent,
reliable supply of greige goods to the Company's sock finishing and shipping
facility in Ft. Payne, Alabama. Pursuant to an exchange agreement by and among
the Company and the shareholders of Interknit, the shareholders of Interknit
will, immediately prior to completion of this Offering, transfer all of the
outstanding capital stock of Interknit to the Company in exchange for an
aggregate of 240,000 shares of Common Stock. The acquisition of Interknit will
be accounted for as a pooling of interests. The aggregate number of shares of
Common Stock to be issued in the acquisition was determined by the Company in
part on the basis of a valuation of Interknit's business performed by
Interstate/Johnson Lane Corporation.
B. PRO FORMA ADJUSTMENTS
1. Balance sheet as of June 30, 1996.
(a) The adjustments to accounts receivable and accounts payable
eliminate the intercompany receivable and payable between the Company and
Interknit.
(b) The adjustment to inventories eliminates intercompany profits
included in the Company's ending inventory.
(c) The adjustments to other liabilities and shareholders' equity
reflect the tax effect of the elimination of intercompany profits included
in the Company's ending inventory.
2. Statement of income for the six months ended June 30, 1996.
(a) The adjustments to net sales and cost of goods sold reflect the
elimination of sales of greige goods by Interknit to the Company and sales
of raw materials by the Company to Interknit. The adjustment to cost of
goods sold also reflects the elimination of intercompany profits included
in the Company's ending inventory.
(b) The adjustment to income taxes reflects the net of tax effect of
the elimination of intercompany profits included in the Company's ending
inventory.
3. Statements of income for the year ended December 31, 1995 and the six
months ended June 30, 1995, which for Seneca reflect operations for the
period from January 1, 1995 to June 28, 1995.
(a) The adjustment to net sales reflects the elimination of sales of
greige goods by Interknit to the Company and sales of raw materials by the
Company to Interknit.
(b) The adjustment to cost of goods sold reflects the decrease in
depreciation expense arising from recording Seneca's property, plant and
equipment at its fair value in connection with the acquisition. The
adjustment also reflects the decrease in cost of goods sold by eliminating
sales between the Company and Interknit.
F-36
<PAGE> 98
RIDGEVIEW, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONCLUDED)
(UNAUDITED)
(c) The adjustment to selling, general and administrative expenses
reflects the increase in amortization expense arising from the excess of
cost over book value of assets acquired (goodwill) and organizational costs
related to the Seneca Acquisition.
(d) This pro forma adjustment reflects the interest expense incurred
on the notes payable issued in connection with the Seneca Acquisition.
(e) This pro forma adjustment reflects the decrease in the income tax
provision arising from net deductible expenses for book purposes and an
increase in deferred tax expense arising from an increase in tax
depreciation over book related to the Seneca Acquisition.
F-37
<PAGE> 99
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN
OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 6
Use of Proceeds....................... 11
Dividend Policy....................... 11
Capitalization........................ 12
Dilution.............................. 13
Selected Consolidated Financial
Data................................ 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 26
Management............................ 43
Certain Transactions.................. 47
Principal and Management
Shareholders........................ 50
Selling Shareholders.................. 51
Description of Capital Stock.......... 52
Shares Eligible for Future Sale....... 55
Underwriting.......................... 56
Legal Matters......................... 57
Experts............................... 57
Additional Information................ 58
Trademark Information................. 58
Financial Statements.................. F-1
</TABLE>
---------------------
Until , 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,600,000 SHARES
(LOGO) RIDGEVIEW(R)
COMMON STOCK
-----------------
PROSPECTUS
, 1996
-----------------
INTERSTATE/JOHNSON LANE
Corporation
SCOTT & STRINGFELLOW, INC.
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 100
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with this offering:
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee............................. $ 6,980
Nasdaq National Market listing fee........................................ 20,600
National Association of Securities Dealers filing fee..................... 3,490
Printing and shipping expenses............................................ 101,000
Legal fees and expenses................................................... 175,000
Accounting fees and expenses.............................................. 260,000
Blue Sky fees and expenses................................................ 10,000
Transfer agent's fees..................................................... 10,000
Miscellaneous expenses.................................................... 12,930
-------
Total................................................................... $600,000
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 55-2-02 of the North Carolina Business Corporation Act (the
"Business Corporation Act") enables a corporation in its articles of
incorporation to eliminate or limit, with certain exceptions, the personal
liability of a director for monetary damages for breach of duty as a director.
No such provision is effective to eliminate or limit a director's liability for
(i) acts or omissions that the director at the time of the breach knew or
believed to be clearly in conflict with the best interests of the corporation,
(ii) improper distributions described in Section 55-8-33 of the Business
Corporation Act, (iii) any transaction from which the director derived an
improper personal benefit, or (iv) acts or omissions occurring prior to the date
the exculpatory provision became effective. The Company's Articles of
Incorporation limit the personal liability of its directors to the fullest
extent permitted by the Business Corporation Act.
Sections 55-8-50 through 55-8-58 of the Business Corporation Act permit a
corporation to indemnify its directors and officers under either or both a
statutory or nonstatutory scheme of indemnification. Under the statutory scheme,
a corporation may, with certain exceptions, indemnify a director or officer of
the corporation who was, is, or is threatened to be made, a party to any
threatened, pending or completed legal action, suit or proceeding, whether
civil, criminal, administrative, or investigative, because of the fact that such
person was a director or officer of the corporation, or is or was serving at the
request of such corporation as a director, officer, agent or employee of another
corporation or enterprise. This indemnity may include the obligation to pay any
judgment, settlement, penalty, fine (including an excise tax assessed with
respect to an employee benefit plan) and reasonable expenses, including
attorneys' fees, incurred in connection with a proceeding; provided that no such
indemnification may be granted unless such director or officer (i) conducted
himself or herself in good faith, (ii) reasonably believed that (A) any action
taken in his or her official capacity with the corporation was in the best
interests of the corporation and (B) in all other cases, his or her conduct was
at least not opposed to the corporation's best interests, and (iii) in the case
of any criminal proceeding, had no reasonable cause to believe his or her
conduct was unlawful. In accordance with Section 55-8-55 of the Business
Corporation Act, the determination of whether a director has met the requisite
standard of conduct for the type of indemnification set forth above is made by
the board of directors, a committee of directors, special legal counsel or the
shareholders. A corporation may not indemnify a director under the statutory
scheme in connection with a proceeding by or in the right of the corporation in
which the director was adjudged liable to the corporation or in connection with
a proceeding in which a director was adjudged liable on the basis of having
received an improper personal benefit.
II-1
<PAGE> 101
In addition to, and notwithstanding the conditions of and limitations on
indemnification described above under the statutory scheme, Section 55-8-57 of
the Business Corporation Act permits a corporation in its articles of
incorporation or bylaws or by contract or resolution to indemnify or agree to
indemnify any of its directors or officers against liability and expenses,
including attorneys' fees, in any proceeding (including proceedings brought by
or on behalf of the corporation) arising out of their status as such or their
activities in such capacities, except for any liabilities or expenses incurred
on account of activities that were, at the time taken, known or believed by the
person to be clearly in conflict with the best interests of the corporation.
Pursuant to this nonstatutory scheme, the Company's Bylaws provide for
indemnification to the fullest extent permitted by law of any person who at any
time serves or has served as an officer, employee or a director of the Company,
or who, while serving as an officer, employee or a director of the Company,
serves or has served at the request of the Company as a director, officer,
partner, trustee, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or as a trustee or administrator under an
employee benefit plan; provided such persons have not engaged in activities
known or believed by the person who undertook them to be clearly in conflict
with the Company's best interests when they occurred.
Sections 55-8-52 and 55-8-56 of the Business Corporation Act require a
corporation, unless its articles of incorporation provide otherwise, to
indemnify a director or officer who has been wholly successful on the merits or
otherwise in the defense of any proceeding to which such director or officer
was, or was threatened to be made, a party. Unless prohibited by the articles of
incorporation, a director or officer also may make application and obtain
court-ordered indemnification if the court determines that such director or
officer is fairly and reasonably entitled to such indemnification in view of all
the relevant circumstances as provided in Sections 55-8-54 and 55-8-56 of the
Business Corporation Act.
In addition, Section 55-8-57 of the Business Corporation Act authorizes a
corporation to purchase and maintain insurance on behalf of an individual who is
or was a director or officer of the corporation against certain liabilities
incurred by such persons, whether or not the corporation is otherwise authorized
by the Business Corporation Act to indemnify such party. The Company intends to
purchase insurance to protect itself and its directors and officers against
expense or loss arising from any action, suit or proceeding brought by reason of
the fact that any person is a director or officer of the Company. The policy is
expected to provide for the payment on behalf of its directors and officers of
losses which arise from claims (including claims made under the Securities Act
of 1933, as amended, or the Securities Exchange Act of 1934, as amended) against
the directors and officers for a wrongful act while acting in that capacity. The
policy is also expected to provide for payment of losses which the Company may
be required or permitted to pay as indemnity due the directors or officers for
claims against them for wrongful acts.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S> <C>
1 -- Form of Underwriting Agreement.
2.1 -- Share Exchange Agreement dated August 27, 1996 by and among Ridgeview, Inc. and
the shareholders of Interknit, Inc.*
3.1 -- Articles of Incorporation of Ridgeview, Inc., as amended and restated.
3.2 -- Bylaws of Ridgeview, Inc., as amended and restated.
4 -- Form of stock certificate for Ridgeview, Inc. Common Stock.
5 -- Opinion of Moore & Van Allen, PLLC.*
10.1 -- License Agreement dated as of January 1, 1994 by and between Ellen Tracy, Inc. and
Ridgeview, Inc.*
10.2 -- License Agreement dated May 28, 1996 between Jones Investment Co., Inc. and
Ridgeview, Inc.*
10.3 -- Loan and Security Agreement (Term Loan) dated as of January 10, 1995 between
Ridgeview, Inc. and NationsBank, N.A. (Carolinas).*
</TABLE>
II-2
<PAGE> 102
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S> <C>
10.4 -- First Amendment to Loan and Security Agreement (Term Loan) dated as of June 28,
1995 between Ridgeview, Inc. and NationsBank of Georgia, N.A.*
10.5 -- Second Amendment to Loan and Security Agreement (Term Loan) dated October 1995
between Ridgeview, Inc. and NationsBank of Georgia, N.A.*
10.6 -- Third Amendment to Loan and Security Agreement (Term Loan) dated as of June 11,
1996 between Ridgeview, Inc. and NationsBank, N.A. (South).*
10.7 -- Loan and Security Agreement (Revolving Loans) dated as of January 10, 1995 between
Ridgeview, Inc. and NationsBank of Georgia, N.A.*
10.8 -- First Amendment to Loan and Security Agreement (Revolving Loans) dated as of June
28, 1995 by and between Ridgeview, Inc. and NationsBank of Georgia, N.A.*
10.9 -- Second Amendment to Loan and Security Agreement (Revolving Loans) dated October
1995 by and between Ridgeview, Inc. and NationsBank of Georgia, N.A.*
10.10 -- Third Amendment to Loan and Security Agreement (Revolving Loans) dated as of June
11, 1996 by and between Ridgeview, Inc. and NationsBank, N.A. (South).*
10.11 -- Form of Loan and Security Agreement for outstanding loans from Metlife Capital
Corporation to Interknit, Inc.*
10.12 -- Mortgage and Security Agreement dated June 28, 1995 between Ridgeview, Inc. and
NationsBank of Georgia, N.A.*
10.13 -- Deed of Trust and Security Agreement (Term Loans) dated as of January 10, 1995 by
and among Ridgeview, Inc., Christopher C. Kupec and NationsBank, N.A.
(Carolinas).*
10.14 -- Deed of Trust and Security Agreement (Revolving Loans) dated as of January 10,
1995, by and among Ridgeview, Inc., Christopher C. Kupec and NationsBank of
Georgia, N.A.*
10.15 -- First Amendment to Deed of Trust and Security Agreement (Revolving Loans) dated as
of June 11, 1996, by and among Ridgeview, Inc., Christopher C. Kupec and
NationsBank, National Association (South).*
10.16 -- Security Agreement dated as of June 28, 1995 by and between Seneca Knitting Mills
Corporation and NationsBank of Georgia, N.A.*
10.17 -- Corporate Guaranty Agreement dated June 28, 1996 issued by Ridgeview, Inc. to
Clara G. Souhan guaranteeing payment of a promissory note dated June 28, 1996 made
by Seneca Knitting Mills Corporation payable to the order of Clara G. Souhan.*
10.18 -- Agreement for Sale of Capital Stock dated April 27, 1995, between George G.
Souhan, Susan C. Souhan, Geb F. Souhan, Elizabeth M. Souhan and Timothy J.J.
Souhan and Ridgeview, Inc.*
10.19 -- Agreement for Sale of Capital Stock Amendment No. 1 dated June 28, 1995, between
George C. Souhan, Susan C. Souhan, Geb F. Souhan, Elizabeth M. Souhan and Timothy
J.J. Souhan and Ridgeview, Inc.*
10.20 -- Amended and Restated Promissory Note dated June 28, 1996 of Ridgeview, Inc.
payable to the order of George G. Souhan.*
10.21 -- Salary Continuation Agreement dated March 1, 1983 by and between Ridgeview Mills,
Inc. and Albert C. Gaither.*
10.22 -- Salary Continuation Agreement dated March 1, 1983 by and between Ridgeview Mills,
Inc. and Hugh R. Gaither.*
10.23 -- First Amendment to Salary Continuation Agreement by and between Ridgeview, Inc.
and Hugh R. Gaither dated June 8, 1992.*
10.24 -- Salary Continuation Agreement dated March 1, 1983 by and between Ridgeview Mills,
Inc. and William D. Durrant.*
10.25 -- First Amendment to Salary Continuation Agreement by and between Ridgeview, Inc.
and William D. Durrant dated June 8, 1992.*
10.26 -- Salary Continuation Agreement dated June 8, 1992 by and between Ridgeview, Inc.
and Susan Gaither Jones.*
</TABLE>
II-3
<PAGE> 103
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S> <C>
10.27 -- Salary Continuation Agreement dated July 1, 1996 by and between Ridgeview, Inc.
and Walter L. Bost, Jr.*
10.28 -- Split Dollar Life Insurance Agreement dated January 1, 1992 between Ridgeview,
Inc. and Albert C. Gaither.*
10.29 -- Ridgeview, Inc. 1995 Omnibus Stock Option Plan as amended and restated.*
10.30 -- Commitment letter dated August 28, 1996 between Ridgeview, Inc. and NationsBank,
National Association (South).*
10.31 -- Promissory Note dated June 28, 1996 of Seneca Knitting Mills Corporation payable
to the order of Clara Souhan.*
10.32 -- Description of Incentive Bonus Arrangements for Named Executive Officers.*
10.33 -- Ridgeview, Inc. Stock Option Plan for Outside Directors.
10.34 -- Fourth Amendment to Loan and Security Agreement (Term Loan) dated as of September
6, 1996 by and between Ridgeview, Inc. and NationsBank, N.A. (South).
10.35 -- Fourth Amendment to Loan and Security Agreement (Revolving Loans) dated as of
September 6, 1996 by and between Ridgeview, Inc. and NationsBank, N.A. (South).
10.36 -- Second Amendment to Deed of Trust and Security Agreement (Revolving Loans) dated
as of September 6, 1996 by and among Ridgeview, Inc., Christopher C. Kupec and
NationsBank, National Association (South).
10.37 -- Letter, dated October 3, 1996, from NationsBank, N.A. (South) to Walter L. Bost,
Jr. regarding a conditional commitment to modify the terms of the Loan and
Security Agreement (Revolving Loans), dated as of January 10, 1995, as amended,
and Loan and Security Agreement (Term Loan), dated as of January 10, 1995, as
amended.
16 -- Letter dated October 8, 1996 Regarding Change in Certifying Accountant.
21 -- Subsidiaries of Ridgeview, Inc.*
23.1 -- Consent of BDO Seidman, LLP.
23.2 -- Consent of KPMG.
23.3 -- Consent of Mengel, Metzger, Barr & Co. LLP.
23.4 -- Consent of Moore & Van Allen, PLLC (included in Exhibit 5).*
24 -- Power of Attorney.*
27 -- Financial Data Schedule (for SEC use only).*
</TABLE>
(B) SCHEDULES
Report of Independent Certified Public Accountants.
Schedule II -- Valuation and Qualifying Accounts.*
- ---------------
* Previously Filed
II-4
<PAGE> 104
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, on October 8, 1996.
RIDGEVIEW, INC.
By: /s/ WALTER L. BOST, JR.
------------------------------------
Walter L. Bost, Jr.
Executive Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ -----------------
<C> <S> <C>
/s/ ALBERT C. GAITHER* Chairman and Director October 8, 1996
- ---------------------------------------------
Albert C. Gaither
/s/ HUGH R. GAITHER* President, Chief Executive October 8, 1996
- --------------------------------------------- Officer and Director
Hugh R. Gaither
/s/ WILLIAM D. DURRANT* Executive Vice October 8, 1996
- --------------------------------------------- President -- Sales and
William D. Durrant Marketing and Director
/s/ WALTER L. BOST, JR. Executive Vice President and October 8, 1996
- --------------------------------------------- Chief Financial Officer
Walter L. Bost, Jr.
/s/ SUSAN GAITHER JONES* Vice President and Director October 8, 1996
- ---------------------------------------------
Susan Gaither Jones
/s/ P. DOUGLAS YODER Chief Accounting Officer and October 8, 1996
- --------------------------------------------- Comptroller (Principal
P. Douglas Yoder Accounting Officer)
/s/ J. MICHAEL GAITHER* Secretary and Director October 8, 1996
- ---------------------------------------------
J. Michael Gaither
/s/ CLAUDE S. ABERNETHY, JR.* Director October 8, 1996
- ---------------------------------------------
Claude S. Abernethy, Jr.
</TABLE>
* By: /s/ WALTER L. BOST, JR.
Attorney-in-Fact
II-5
<PAGE> 105
CONSENT OF PROSPECTIVE DIRECTOR
Pursuant to the requirements of Rule 438 promulgated under the Securities
Act of 1933, I hereby consent to being named in the Registration Statement as a
person about to become a director of the Registrant.
/s/ George Watts Carr, III
--------------------------------------
George Watts Carr, III
October 8, 1996
II-6
<PAGE> 106
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Ridgeview, Inc.
The audits referred to in our report to Ridgeview, Inc. and subsidiaries,
dated February 2, 1996, except for Note 10 which is as of October 8, 1996, which
is contained in the Prospectus constituting part of this Registration Statement,
included the audits of the financial statement schedule listed in the
accompanying index for each of the three years in the period ended December 31,
1995. The financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based upon our audits.
In our opinion, such schedule presents fairly, in all material respects,
the information set forth therein.
/s/ BDO Seidman, LLP
Greensboro, North Carolina
February 2, 1996
II-7
<PAGE> 107
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBITS
------- ----------------------------------------------------------------------------------
<C> <S> <C>
1 -- Form of Underwriting Agreement.
2.1 -- Share Exchange Agreement dated August 27, 1996 by and among Ridgeview, Inc. and
the shareholders of Interknit, Inc.*
3.1 -- Articles of Incorporation of Ridgeview, Inc., as amended and restated.
3.2 -- Bylaws of Ridgeview, Inc., as amended and restated.
4 -- Form of stock certificate for Ridgeview, Inc. Common Stock.
5 -- Opinion of Moore & Van Allen, PLLC.*
10.1 -- License Agreement dated as of January 1, 1994 by and between Ellen Tracy, Inc. and
Ridgeview, Inc.*
10.2 -- License Agreement dated May 28, 1996 between Jones Investment Co., Inc. and
Ridgeview, Inc.*
10.3 -- Loan and Security Agreement (Term Loan) dated as of January 10, 1995 between
Ridgeview, Inc. and NationsBank, N.A. (Carolinas).*
10.4 -- First Amendment to Loan and Security Agreement (Term Loan) dated as of June 28,
1995 between Ridgeview, Inc. and NationsBank of Georgia, N.A.*
10.5 -- Second Amendment to Loan and Security Agreement (Term Loan) dated October 1995
between Ridgeview, Inc. and NationsBank of Georgia, N.A.*
10.6 -- Third Amendment to Loan and Security Agreement (Term Loan) dated as of June 11,
1996 between Ridgeview, Inc. and NationsBank, N.A. (South).*
10.7 -- Loan and Security Agreement (Revolving Loans) dated as of January 10, 1995 between
Ridgeview, Inc. and NationsBank of Georgia, N.A.*
10.8 -- First Amendment to Loan and Security Agreement (Revolving Loans) dated as of June
28, 1995 by and between Ridgeview, Inc. and NationsBank of Georgia, N.A.*
10.9 -- Second Amendment to Loan and Security Agreement (Revolving Loans) dated October
1995 by and between Ridgeview, Inc. and NationsBank of Georgia, N.A.*
10.10 -- Third Amendment to Loan and Security Agreement (Revolving Loans) dated as of June
11, 1996 by and between Ridgeview, Inc. and NationsBank, N.A. (South).*
10.11 -- Form of Loan and Security Agreement for outstanding loans from Metlife Capital
Corporation to Interknit, Inc.*
10.12 -- Mortgage and Security Agreement dated June 28, 1995 between Ridgeview, Inc. and
NationsBank of Georgia, N.A.*
10.13 -- Deed of Trust and Security Agreement (Term Loans) dated as of January 10, 1995 by
and among Ridgeview, Inc., Christopher C. Kupec and NationsBank, N.A.
(Carolinas).*
10.14 -- Deed of Trust and Security Agreement (Revolving Loans) dated as of January 10,
1995, by and among Ridgeview, Inc., Christopher C. Kupec and NationsBank of
Georgia, N.A.*
10.15 -- First Amendment to Deed of Trust and Security Agreement (Revolving Loans) dated as
of June 11, 1996, by and among Ridgeview, Inc., Christopher C. Kupec and
NationsBank, National Association (South).*
10.16 -- Security Agreement dated as of June 28, 1995 by and between Seneca Knitting Mills
Corporation and NationsBank of Georgia, N.A.*
10.17 -- Corporate Guaranty Agreement dated June 28, 1996 issued by Ridgeview, Inc. to
Clara G. Souhan guaranteeing payment of a promissory note dated June 28, 1996 made
by Seneca Knitting Mills Corporation payable to the order of Clara G. Souhan.*
10.18 -- Agreement for Sale of Capital Stock dated April 27, 1995, between George G.
Souhan, Susan C. Souhan, Geb F. Souhan, Elizabeth M. Souhan and Timothy J.J.
Souhan and Ridgeview, Inc.*
10.19 -- Agreement for Sale of Capital Stock Amendment No. 1 dated June 28, 1995, between
George C. Souhan, Susan C. Souhan, Geb F. Souhan, Elizabeth M. Souhan and Timothy
J.J. Souhan and Ridgeview, Inc.*
10.20 -- Amended and Restated Promissory Note dated June 28, 1996 of Ridgeview, Inc.
payable to the order of George G. Souhan.*
</TABLE>
<PAGE> 108
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBITS
------- ----------------------------------------------------------------------------------
<C> <S> <C>
10.21 -- Salary Continuation Agreement dated March 1, 1983 by and between Ridgeview Mills,
Inc. and Albert C. Gaither.*
10.22 -- Salary Continuation Agreement dated March 1, 1983 by and between Ridgeview Mills,
Inc. and Hugh R. Gaither.*
10.23 -- First Amendment to Salary Continuation Agreement by and between Ridgeview, Inc.
and Hugh R. Gaither dated June 8, 1992.*
10.24 -- Salary Continuation Agreement dated March 1, 1983 by and between Ridgeview Mills,
Inc. and William D. Durrant.*
10.25 -- First Amendment to Salary Continuation Agreement by and between Ridgeview, Inc.
and William D. Durrant dated June 8, 1992.*
10.26 -- Salary Continuation Agreement dated June 8, 1992 by and between Ridgeview, Inc.
and Susan Gaither Jones.*
10.27 -- Salary Continuation Agreement dated July 1, 1996 by and between Ridgeview, Inc.
and Walter L. Bost, Jr.*
10.28 -- Split Dollar Life Insurance Agreement dated January 1, 1992 between Ridgeview,
Inc. and Albert C. Gaither.*
10.29 -- Ridgeview, Inc. 1995 Omnibus Stock Option Plan as amended and restated.*
10.30 -- Commitment letter dated August 28, 1996 between Ridgeview, Inc. and NationsBank,
National Association (South).*
10.31 -- Promissory Note dated June 28, 1996 of Seneca Knitting Mills Corporation payable
to the order of Clara Souhan.*
10.32 -- Description of Incentive Bonus Arrangements for Named Executive Officers.*
10.33 -- Ridgeview, Inc. Stock Option Plan for Outside Directors.
10.34 -- Fourth Amendment to Loan and Security Agreement (Term Loan) dated as of September
6, 1996 by and between Ridgeview, Inc. and NationsBank, N.A. (South).
10.35 -- Fourth Amendment to Loan and Security Agreement (Revolving Loans) dated as of
September 6, 1996 by and between Ridgeview, Inc. and NationsBank, N.A. (South).
10.36 -- Second Amendment to Deed of Trust and Security Agreement (Revolving Loans) dated
as of September 6, 1996 by and among Ridgeview, Inc., Christopher C. Kupec and
NationsBank, National Association (South).
10.37 -- Letter, dated October 3, 1996, from NationsBank, N.A. (South) to Walter L. Bost,
Jr. regarding a conditional commitment to modify the terms of the Loan and
Security Agreement (Revolving Loans), dated as of January 10, 1995, as amended,
and Loan and Security Agreement (Term Loan), dated as of January 10, 1995, as
amended.
16 -- Letter dated October 8, 1996 Regarding Change in Certifying Accountant.
21 -- Subsidiaries of Ridgeview, Inc.*
23.1 -- Consent of BDO Seidman, LLP.
23.2 -- Consent of KPMG.
23.3 -- Consent of Mengel, Metzger, Barr & Co. LLP.
23.4 -- Consent of Moore & Van Allen, PLLC (included in Exhibit 5).*
24 -- Power of Attorney.*
27 -- Financial Data Schedule (for SEC use only).*
</TABLE>
(B) SCHEDULES
Report of Independent Certified Public Accountants.
Schedule II -- Valuation and Qualifying Accounts.*
- ---------------
* Previously Filed
<PAGE> 1
EXHIBIT 1
1,600,000 SHARES
RIDGEVIEW, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
___________, 1996
INTERSTATE/JOHNSON LANE CORPORATION
SCOTT & STRINGFELLOW, INC.
as Representatives of the Underwriters
c/o Interstate/Johnson Lane Corporation
Interstate Tower
121 West Trade Street, Suite 1500
Charlotte, North Carolina 28202
Dear Ladies and Gentlemen:
Ridgeview, Inc., a North Carolina corporation (the "Company"), proposes to
issue and sell 1,520,000 shares of the Common Stock, $.01 par value, of the
Company (the "Common Stock"), and certain shareholders of the Company named in
Schedule I hereto (the "Selling Shareholders") propose severally to sell an
aggregate of 80,000 outstanding shares of Common Stock, to the underwriters
named in Schedule II hereto (the "Underwriters") for whom you are acting as the
representatives (the "Representatives"). Such 1,600,000 shares of Common Stock
are hereinafter referred to as the "Firm Shares." The Company has also agreed
to grant to the Underwriters an option (the "Option") to purchase up to an
additional 240,000 shares of Common Stock (the "Option Shares") on the terms
and for the purposes set forth in Section l(b) hereof. The Firm Shares and the
Option Shares are hereinafter collectively referred to as the "Shares."
The Company and the Selling Shareholders hereby confirm their agreements
with each of the Underwriters as follows.
1. AGREEMENT TO SELL AND PURCHASE.
(a) The Company and each Selling Shareholder hereby agree to sell to each
Underwriter, and upon the basis of the representations, warranties and
agreements of the Company and the Selling Shareholders herein contained and
subject to all the terms and conditions of this Agreement, each Underwriter
agrees, severally and not jointly, to purchase from the Company and each
Selling Shareholder, at a price of $_____ per share, that number of Firm Shares
(rounded up or down as determined by you in your discretion, in order to avoid
fractions of a share) obtained by multiplying the number of Firm Shares to be
sold by the Company or the number of Firm Shares to be sold by each Selling
Shareholder as set forth opposite the name of such Selling Shareholder in
Schedule I hereto, as the case may be, by a fraction the numerator of which is
the number of Firm Shares set forth opposite the name of
<PAGE> 2
each Underwriter in Schedule II hereto (or such number of Firm Shares increased
as set forth in Section 9 hereof) and the denominator of which is the
total number of Firm Shares. The difference of $_____ per Firm Share between
the initial public offering price and the price at which the Company and each
Selling Shareholder will sell the Firm Shares to the Underwriter is the
"Underwriters' Discount."
(b) Subject to all the terms and conditions of this Agreement, the Company
hereby grants the Option to the Underwriters to purchase, severally and not
jointly, up to 240,000 Option Shares from the Company at the same price per
share as the Underwriters shall pay for the Firm Shares. The Option may be
exercised only to cover overallotments in the sale of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time (but not more
than once) on or before the 30th day after the date of this Agreement upon
written or telegraphic notice (the "Option Shares Notice") by the
Representatives to the Company no later than 12:00 noon, Charlotte, North
Carolina time, at least two and no more than five business days before the date
specified for closing in the Option Shares Notice (the "Option Closing Date")
setting forth the aggregate number of Option Shares to be purchased and the
time and date for such purchase. On the Option Closing Date, the Company will
issue and sell to the Underwriters the number of Option Shares set forth in the
Option Shares Notice, and each Underwriter will purchase, severally and not
jointly, such percentage of the Option Shares as is equal to the percentage of
Firm Shares that it is purchasing.
(c) Certificates in negotiable form for the Firm Shares to be sold by the
Selling Shareholders hereunder have been placed in custody for delivery under
this Agreement, under a custody agreement (the "Custody Agreement") made with
_________, as custodian (the "Custodian").
2. DELIVERY AND PAYMENT.
(a) Delivery of the Firm Shares shall be made by the Company and the
Custodian to the Underwriters, against payment of the purchase price by
certified or official bank check or checks payable in New York Clearing House
(next-day) funds drawn to the order of the Company in the case of the 1,520,000
Firm Shares to be sold by the Company and to the order of the Custodian in the
case of the 80,000 Firm Shares to be sold by the Selling Shareholders, at the
office of Smith Helms Mulliss & Moore, L.L.P., 214 North Church Street,
Charlotte, North Carolina 28202, at 10:00 a.m., Charlotte, North Carolina time,
on the third business day following the date of this Agreement, or at such time
on such other date, not later than seven business days after the date of this
Agreement, as may be agreed upon by the Company and the Representatives (such
date is hereinafter referred to as the "Closing Date").
(b) To the extent the Option is exercised, delivery of the Option Shares
by the Company to the Underwriters against payment by the Underwriters to the
Company (in the manner specified above) will take place at the offices
specified above for the Closing Date at the time and date (which may be the
Closing Date) specified in the Option Shares Notice.
<PAGE> 3
(c) Certificates evidencing the Shares to be issued and sold by the Company
shall be in definitive form and shall be registered in such names and in such
denominations as the Representatives shall request at least two business days
prior to the Closing Date or the Option Closing Date, as the case may be, by
written notice to the Company. For the purpose of expediting the checking and
packaging of certificates for such Shares, the Company agrees to make such
certificates available for inspection at least 24 hours prior to the Closing
Date or the Option Closing Date, as the case may be.
(d) The cost of original issue tax stamps, if any, in connection with the
issuance and delivery of that number of the Shares to be issued and sold by the
Company to the Underwriters shall be borne by the Company. The Company will
pay and save each Underwriter and any subsequent holder of such Shares harmless
from any and all liabilities with respect to or resulting from any failure or
delay in paying Federal and state stamp and other transfer taxes, if any, which
may be payable or determined to be payable in connection with the original
issuance or sale to such Underwriter of such Shares.
(e) Upon each sale by an Underwriter of any Shares to selected dealers, the
Underwriter shall require the selected dealer purchasing any such Shares to
agree to re-offer the Shares on the terms and conditions of the offering set
forth in the Registration Statement and Prospectus (each as hereinafter
defined).
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents,
warrants and covenants to each of the Underwriters and the Selling Shareholders
that:
(a) The Company meets the requirements for use of Form S-1 and a
registration statement (Registration No. 333-11111) on Form S-1 relating to
the Shares, including a Preliminary Prospectus (as defined below) and such
amendments to such registration statement as may have been required to the date
of this Agreement, has been prepared by the Company under the provisions of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(collectively referred to as the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission. The term "Preliminary Prospectus" as used herein means a
preliminary prospectus as contemplated by Rule 430 or Rule 430A of the Rules
and Regulations included at any time as part of the Registration Statement (as
defined below). Copies of the Registration Statement and of each related
Preliminary Prospectus have been delivered to the Underwriters. If the
Registration Statement has not become effective, a further amendment to such
Registration Statement, including a form of final prospectus, necessary to
permit the Registration Statement to become effective will be filed promptly by
the Company with the Commission. If the Registration Statement has become
effective, a final prospectus containing information permitted to be omitted at
the time of effectiveness by Rule 430A of the Rules and Regulations will be
filed promptly by the Company with the Commission in accordance with Rule 424
or Rule 434 of the Rules and Regulations. The term "Registration Statement"
means the registration statement as amended at the time the Commission declares
or declared it effective pursuant to Section 8 of the Act (the "Effective
Date"), including financial statements and all exhibits and any information
deemed to be included by Rule 430A. The term "Prospectus" means the
<PAGE> 4
prospectus as first filed with the Commission pursuant to Rule 424 or Rule 434
of the Rules and Regulations or, if no such filing is required, the form of
final prospectus included in the Registration Statement at the Effective Date.
(b) No stop order or orders suspending the use of any Preliminary
Prospectus have been issued, and no proceedings for that purpose have been
commenced or are pending before or are contemplated by the Commission or any
state securities commission or other regulatory authority. On the Effective
Date, the date the Prospectus is first filed with the Commission pursuant to
Rule 424 or Rule 434 (if required), at all times subsequent to and including
the Closing Date and, if later, the Option Closing Date and when any
post-effective amendment to the Registration Statement becomes effective or any
amendment or supplement to the Prospectus is filed with the Commission, the
Registration Statement and the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment or supplement
thereto), including the financial statements included in the Prospectus, did or
will comply in all material respects with all applicable provisions of the Act
and the Rules and Regulations and will contain all statements required to be
stated therein in accordance with the Act and the Rules and Regulations. On
the Effective Date and when any post-effective amendment to the Registration
Statement becomes effective, no part of the Registration Statement or any such
amendment did or will contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading. At the Effective Date, the date the
Prospectus or any amendment or supplement to the Prospectus is filed with the
Commission and at the Closing Date and, if later, the Option Closing Date, the
Prospectus did not or will not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
foregoing representations and warranties in this Section 3(b) do not apply to
any statements or omissions made in reliance on and in conformity with
information relating to the Underwriters furnished in writing to the Company by
the Representatives specifically for inclusion in the Registration Statement or
Prospectus or any amendment or supplement thereto. The Company acknowledges
that the statements set forth in the last paragraph on the cover page of the
Prospectus and under the heading "Underwriting" in the Prospectus constitute
the only information relating to the Underwriters furnished in writing to the
Company by the Representatives specifically for inclusion in the Registration
Statement.
(c) All outstanding shares of capital stock of the Company (including the
Shares to be sold by the Selling Shareholders hereunder) have been duly
authorized, are validly issued, fully paid and nonassessable and conform to the
description thereof contained in the Prospectus; none of such outstanding
shares were issued in violation of the preemptive rights of any shareholder of
the Company; and the Company has an authorized and outstanding capital stock as
set forth under the caption "Description of Capital Stock" in the Prospectus.
(d) The Shares to be issued and sold by the Company to the Underwriters
hereunder have been duly and validly authorized and, when issued and delivered
against payment therefor as provided herein, will be duly and validly issued,
fully paid and nonassessable and will conform to the description thereof
contained in the Prospectus; the certificates evidencing the
<PAGE> 5
Shares will comply with all applicable requirements of North Carolina
law; and none of the Shares will be issued or sold in violation of any
preemptive rights of shareholders of the Company. Except as disclosed in the
Prospectus, there are no (i) outstanding securities or obligations of the
Company or any of its subsidiaries convertible into or exchangeable for any
capital stock of the Company or any of its subsidiaries, (ii) warrants, rights
or options to subscribe for or purchase from the Company or any of its
subsidiaries any such capital stock or any such convertible or exchangeable
securities or obligations or (iii) obligations of the Company or any of its
subsidiaries to issue any such convertible or exchangeable securities or
obligations, or any such warrants, rights or options.
(e) All of the outstanding shares of capital stock of the Company's
subsidiaries have been duly authorized and validly issued and are fully paid
and nonassessable, and are owned by the Company free and clear of any and all
liens, charges, encumbrances or claims.
(f) The financial statements and schedules included in the Registration
Statement or the Prospectus present fairly the consolidated financial condition
of the Company as of the respective dates thereof and the consolidated results
of operations and cash flows of the Company for the respective periods covered
thereby, all in conformity with generally accepted accounting principles
applied on a consistent basis throughout the entire period involved, except as
otherwise disclosed in the Prospectus. No other financial statements or
schedules of the Company are required by the Act or the Rules and Regulations
to be included in the Registration Statement or the Prospectus. BDO Seidman,
LLP, independent auditors (the "Accountants"), who have reported on such
financial statements and schedules, are independent accountants with respect to
the Company as required by the Act and the Rules and Regulations.
(g) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus and prior to the Closing Date
and, if later, the Option Closing Date, except as set forth in or contemplated
by the Registration Statement and the Prospectus, (i) there has not been and
will not have been any change in the capitalization of the Company, or in the
business, properties, business prospects, condition (financial or otherwise) or
results of operations of the Company, arising for any reason whatsoever, (ii)
the Company has not incurred nor will it incur any material liabilities or
obligations, direct or contingent, nor has it entered into nor will it enter
into any material transactions other than pursuant to this Agreement and the
transactions referred to herein and (iii) except for the dividend declared at
the Board of Directors meeting held September 24, 1996, the Company has not and
will not have paid or declared any dividends or other distributions of any kind
on any class of its capital stock.
(h) The Company is not, and does not intend to conduct its business in a
manner in which it would become, an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company," or a company "controlled" by an "investment company," as such terms
are defined in the Investment Company Act of 1940, as amended.
(i) There are no actions, suits or proceedings at law or in equity
pending or threatened to which the Company
<PAGE> 6
or any of its subsidiaries is a party or against or affecting the Company, its
subsidiaries or any of their respective officers in their capacity as such,
before or by any Federal or state court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign, wherein
an unfavorable ruling, decision or finding might materially and adversely
affect the Company or its business, properties, business prospects, condition
(financial or otherwise) or results of operations.
(j) The Company and its subsidiaries have (i) all governmental licenses,
permits, consents, orders, approvals and other authorizations necessary to
carry on their business as contemplated in the Prospectus, (ii) complied in all
material respects with all laws, regulations and orders applicable to them or
their business and (iii) performed all their obligations required to be
performed by them thereunder.
(k) Neither the Company nor any of its subsidiaries is in default under
any contract or other instrument to which it is a party or by which any of its
property is bound or affected, except defaults which singly or in the aggregate
do not have a material adverse effect on the condition, financial or otherwise,
results of operations, affairs or business prospects of the Company. To the
best knowledge of the Company, no other party under any contract or other
instrument to which it or its subsidiaries is a party is in default in any
material respect thereunder. Neither the Company nor any of its subsidiaries
is in violation of any provision of its respective articles or certificate of
incorporation or bylaws.
(l) No event of default or event which, but for the giving of notice or
the lapse of time or both, would constitute an event of default exists or will
exist under any material agreement or instrument for borrowed money or any
guarantee of any material agreement or instrument for borrowed money to which
the Company or any of its subsidiaries or any of the respective properties or
assets of the Company or its subsidiaries are subject.
(m) The Company and its subsidiaries own, possess, have the contractual
right to use or can acquire on reasonable terms, adequate trademarks, service
marks and trade names necessary to conduct the business now conducted by them,
and neither the Company nor any of its subsidiaries has received any notice of
infringement or conflict with asserted rights of others with respect to any
trademarks, service marks or trade names which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would have a material
adverse effect on the condition, financial or otherwise, results of operations,
affairs or business prospects of the Company and its subsidiaries.
(n) Neither the Company nor any of its subsidiaries has violated any
environmental, safety or similar law or regulation applicable to its business
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants, which
violation could have a material adverse effect on the condition (financial or
otherwise), results of operations, affairs or business prospects of the Company
or its subsidiaries; and no labor dispute by the employees of the Company or any
of its subsidiaries exists or, to the knowledge of the Company, is imminent
<PAGE> 7
which might be expected to have a material adverse effect on the condition,
financial or otherwise, results of operations, affairs or business prospects of
the Company or its subsidiaries.
(o) No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required for the
consummation by the Company of the transactions on its part herein
contemplated, except such as have been obtained under the Act or the Rules and
Regulations and such as may be required under state securities or Blue Sky laws
or the Bylaws and rules of the National Association of Securities Dealers, Inc.
(the "NASD") in connection with the purchase and distribution by the
Underwriters of the Shares.
(p) The Company has full corporate power and authority to enter into this
Agreement. This Agreement has been duly authorized, executed and delivered by
the Company and constitutes a valid and binding agreement of the Company and is
enforceable against the Company in accordance with the terms hereof. The
performance of this Agreement and the consummation of the transactions
contemplated hereby will not result in the creation or imposition of any lien,
charge or encumbrance upon any of the assets of the Company or its subsidiaries
pursuant to the terms or provisions of, or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, or give any
other party a right to terminate any of its obligations under, or result in the
acceleration of any obligation under, the respective articles or certificate of
incorporation or bylaws of the Company or its subsidiaries, any indenture,
mortgage, deed of trust, voting trust agreement, loan agreement, bond,
debenture, note agreement or other evidence of indebtedness, lease, contract or
other agreement or instrument to which the Company or any of its subsidiaries
is a party or by which the Company, any of its subsidiaries or any of their
properties are bound or affected, or violate or conflict with any judgment,
ruling, decree, order, statute, rule or regulation of any court or other
governmental agency or body applicable to the business or properties of the
Company or any of its subsidiaries.
(q) The Company is duly incorporated and validly existing in good
standing as a corporation under the laws of the State of North Carolina, and
each of the Company's subsidiaries is duly incorporated and validly existing as
a corporation under the laws of the jurisdiction of its incorporation. Each of
the Company and its subsidiaries has full power and authority (corporate and
other) to conduct all the activities conducted by it, to own or lease all the
assets owned or leased by it and to conduct its business as described in the
Registration Statement and the Prospectus. Each of the Company and its
subsidiaries is duly qualified and in good standing as a foreign corporation in
each jurisdiction in which it owns or leases real property or transacts
business requiring such qualification. Except as disclosed in the Registration
Statement, the Company does not own, directly or indirectly, any shares of
stock or any other equity or long-term debt securities of any corporation or
have any equity interest in any firm, partnership, joint venture, association
or other entity. Complete and correct copies of the respective articles or
certificate of incorporation and bylaws of the Company and each of its
subsidiaries and all amendments thereto have been delivered to the
Representatives, and no changes therein will be made subsequent to the date
hereof and prior to the Closing Date or, if later, the Option Closing Date.
<PAGE> 8
(r) The Company, or its subsidiaries, has good and marketable title to
all properties and assets described in the Prospectus as owned by it or them,
free and clear of all liens, charges, encumbrances or restrictions, except such
as are described in the Prospectus or are not material to the business of the
Company or its subsidiaries. The Company, or its subsidiaries, has valid,
subsisting and enforceable leases for the properties described in the
Prospectus as leased by it or them, with such exceptions as are not material
and do not materially interfere with the use made and proposed to be made of
such properties by the Company or its subsidiaries, and neither the Company nor
any of its subsidiaries, as applicable, is in default in any material respects
of any terms or provisions of any leases.
(s) The Company and its subsidiaries have filed all necessary federal,
state and foreign tax returns that are required to be filed by them and have
paid all taxes shown on such returns and on all assessments received by them to
the extent such taxes have become due. All taxes with respect to which the
Company and its subsidiaries are obligated have been paid or adequate accruals
have been set up to cover any such taxes. The Company has no knowledge of any
tax deficiency which has been assessed or threatened against the Company or any
of its subsidiaries.
(t) There is no document or contract of a character required to be
described in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement that is not described or filed as
required. All such contracts to which any of the Company or its subsidiaries
is a party have been duly authorized, executed and delivered by the Company or
such subsidiary, constitute valid and binding agreements of the Company or such
subsidiary and are enforceable against the Company or such subsidiary, as the
case may be, in accordance with the terms thereof. The Company knows of no
present situation or condition or fact that would prevent compliance with the
terms of such contracts, as amended to date. Except for amendments or
modifications of such contracts in the ordinary course of business, neither the
Company nor any such subsidiary has any intention of exercising any right that
it may have to cancel any of its obligations under any of such contracts, and
has no knowledge that any other party to any of such contracts has any
intention not to render full performance under such contracts.
(u) No statement, representation, warranty or covenant made by the
Company in this Agreement or made in any certificate or document required by
this Agreement to be delivered to the Underwriters was or will be, when made,
inaccurate, untrue or incorrect in any material respect.
(v) Neither the Company nor any of its directors, officers or controlling
persons has taken, directly or indirectly, any action designed, or which might
reasonably be expected, to cause or result, under the Act or otherwise, in, or
which has constituted, stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares or the
Common Stock.
(w) No holder of securities of the Company has any right that, if
exercised, would require the Company to cause such securities to be included in
the Registration Statement.
<PAGE> 9
(x) The Shares have been approved for trading, subject to notice that the
Registration Statement has been declared effective, on the Nasdaq National
Market.
(y) Other than as contemplated by this Agreement, there is no broker,
finder or other party that is entitled to receive from the Company any
brokerage or finder's fee or other fee or commission as a result of any of
the transactions contemplated by this Agreement.
4. REPRESENTATIONS OF THE SELLING SHAREHOLDERS. Each Selling Shareholder
severally represents, warrants and covenants to each of the Underwriters that:
(a) Such Selling Shareholder has duly executed and delivered a power of
attorney (the "Power of Attorney"), in the form heretofore delivered to you,
appointing Hugh R. Gaither and Walter L. Bost, Jr. as such Selling Shareholder's
attorney-in-fact (the "Attorney-in-Fact"), with authority to execute, deliver
and perform this Agreement on behalf of such Selling Shareholder, and in
connection therewith such Selling Shareholder has duly executed and delivered a
Custody Agreement, in the form heretofore delivered to you, with the Custodian.
Such Selling Shareholder agrees that the Shares represented by the certificates
held in custody for such Selling Shareholder under such Custody Agreement are
subject to the interests of the Underwriters hereunder, that the arrangements
made for such custody and appointment of the Attorney-in-Fact are irrevocable,
and that the obligations of such Selling Shareholder hereunder shall not be
terminated except as provided in this Agreement, the Power of Attorney or the
Custody Agreement, by any act of such Selling Shareholder, by operation of law
or otherwise, whether by the death, incapacity or bankruptcy of such Selling
Shareholder or by the occurrence of any other event. If such Selling
Shareholder should die, become incapacitated or become bankrupt, or if any other
event shall occur, before the delivery of the Shares being sold by such Selling
Shareholder hereunder, the certificate for such Shares deposited with the
Custodian shall be delivered by the Custodian in accordance with the terms and
conditions of this Agreement as if such death, incapacity, bankruptcy or other
event had not occurred, regardless of whether the Custodian or the
Attorney-in-Fact shall have received notice thereof.
(b) Such Selling Shareholder has and on the Closing Date will have valid
and unencumbered title to the Shares to be sold by such Selling Shareholder on
that date and full right, power and authority to enter into this Agreement, the
Custody Agreement and the Power of Attorney delivered therewith and to sell,
assign, transfer and deliver the Shares to be sold by such Selling Shareholder
hereunder; and upon the delivery of and payment for the Shares hereunder, the
several Underwriters will acquire valid and unencumbered title to the Shares to
be sold by such Selling Shareholder.
(c) Such Selling Shareholder has legal capacity or full corporate power
and authority, as applicable, to authorize, execute, and deliver each of this
Agreement, the Custody Agreement and the Power of Attorney; each of this
Agreement, the Custody Agreement and the Power of Attorney delivered thereunder
has been duly authorized, executed and delivered by such Selling Shareholder;
the execution, delivery and performance of this Agreement, the Custody
Agreement and the Power of Attorney delivered thereunder and the consummation
of the transactions herein and therein contemplated will not result in a breach
or violation of any of the terms and
<PAGE> 10
provisions of, or constitute a default under, any statute, any rule,
regulation or order of any governmental agency or body or any court having
jurisdiction over such Selling Shareholder or any of its properties, or any
agreement or instrument to which such Selling Shareholder is a party or by
which such Selling Shareholder is bound or to which any of the property or
assets of such Selling Shareholder is subject.
(d) No consent, approval, authorization, order, registration, or
qualification of or with any court or governmental agency or body is required
for the sale and delivery of the Shares to be sold by such Selling Shareholder
hereunder or for such Selling Shareholder's performance of its obligations
under this Agreement and the Custody Agreement or for the execution and
delivery of the Power of Attorney delivered under such Custody Agreement,
except such as have been obtained and made under the Act and the Rules and
Regulations and such as may be required under the securities laws of states and
foreign jurisdictions in connection with the offer and sale of the Shares to be
sold by such Selling Shareholder hereunder.
(e) There are no contracts, agreements or understandings between such
Selling Shareholder and any person which would give rise to a valid claim
against such Selling Shareholder for a brokerage commission, finder's fee or
other like payment in connection with the offering of the Shares other than the
compensation due and payable to the Underwriters as described in the
Prospectus.
(f) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto are made in reliance upon and in conformity with
information furnished to the Company by such Selling Shareholder expressly for
use therein, the Preliminary Prospectus did, and the Registration Statement and
the Prospectus and any amendments or supplements thereto will, when they become
effective or are filed with the Commission, as the case may be, not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein in light of the
circumstances under which they were made not misleading.
(g) The sale of Shares by such Selling Shareholder pursuant to this
Agreement is not prompted by or based upon any information concerning the
Company that is not set forth in the Prospectus.
(h) Such Selling Shareholder has not taken and will not take, directly or
indirectly, any action, in contravention of any law, designed to result in or
which has constituted or which might reasonably be expected to cause or result
in, under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares.
5. CERTAIN AGREEMENTS OF THE COMPANY. The Company agrees with each of the
Underwriters as follows:
<PAGE> 11
(a) The Company will not, either prior to the Effective Date or
thereafter during such period as the Prospectus is required by law to be
delivered in connection with sales of the Shares by an Underwriter or dealer,
file any amendment or supplement to the Registration Statement or the
Prospectus, unless a copy thereof shall first have been submitted to the
Representatives and made available to the Underwriters within a reasonable
period of time prior to the filing thereof and the Underwriters shall not have
objected thereto in good faith.
(b) The Company will use its best efforts to cause the Registration
Statement to become effective, and will notify you promptly, and will confirm
such advice in writing, (A) when the Registration Statement has become
effective and when any post-effective amendment thereto becomes effective, (B)
of the filing of the Prospectus pursuant to Rule 424 or Rule 434 under the Act,
(C) of any request by the Commission for amendments or supplements to the
Registration Statement or the Prospectus or for additional information, (D) of
the issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement or the initiation of any proceedings for that
purpose or the threat thereof, (E) of the happening of any event during the
period mentioned in the second sentence of Section 5(e) hereof that in the
judgment of the Company makes any statement made in the Registration Statement
or the Prospectus untrue or that requires the making of any changes in the
Registration Statement or the Prospectus in order to make the statements
therein, in light of the circumstances in which they are made, not misleading
and (F) of receipt by the Company or any representatives or attorney of the
Company of any other communication from the Commission relating to the Company,
the Registration Statement or any post-effective amendment thereto, any
Preliminary Prospectus or the Prospectus. If at any time the Commission shall
issue any order suspending the effectiveness of the Registration Statement, the
Company will make every reasonable effort to obtain the withdrawal of such
order at the earliest possible moment. If the Company has omitted any
information from the Registration Statement pursuant to Rule 430A of the Rules
and Regulations, the Company will use its best efforts to comply with the
provisions of and make all requisite filings with the Commission pursuant to
said Rule 430A and to notify the Representatives promptly of all such filings.
(c) The Company will furnish to the Representatives, without charge,
copies of the executed signature pages of the Registration Statement and of any
post-effective amendment thereto, including financial statements and schedules,
and all exhibits thereto, and such number of conformed copies of the
Registration Statement, with or without exhibits, and any supplement or
amendment thereto, as the Representatives shall reasonably request.
(d) The Company will comply with all the provisions of any undertakings
contained in the Registration Statement.
(e) Prior to the Effective Date, and thereafter from time to time, the
Company will deliver to the Representatives, without charge, as many copies of
the Preliminary Prospectus and the Prospectus or any amendment or supplement
thereto as the Representatives may reasonably request. The Company consents to
the use of the Preliminary Prospectus and the Prospectus, or any amendment or
supplement thereto, by the Underwriters and by all dealers to whom the Shares
may be sold, both in connection with the initial offering or sale of the Shares
and for any
<PAGE> 12
period of time thereafter during which the Prospectus is required by law to be
delivered in connection therewith. If during such period of time any event
shall occur which in the judgment of the Company or the Underwriters' counsel
should be set forth in the Preliminary Prospectus or the Prospectus to make any
statement therein, in the light of the circumstances under which it was made,
not misleading, or if it is necessary to supplement or amend the Preliminary
Prospectus or the Prospectus to comply with law, the Company will forthwith
prepare and duly file with the Commission an appropriate supplement or
amendment thereto, and will deliver to the Representatives, without charge,
such number of copies thereof as the Representatives may reasonably request.
(f) Prior to any public offering of the Shares by the Underwriters, the
Company will cooperate with the Underwriters and the Underwriters' counsel in
connection with the registration or qualification of the Shares for offer and
sale under the securities or Blue Sky laws of such jurisdictions as the
Representatives may reasonably request; provided, that in no event shall the
Company be obligated to qualify to do business as a foreign corporation in any
jurisdiction where it is not now so qualified or to take any action which would
subject it to general service of process in any jurisdiction where it is not now
so subject.
(g) During the period of five years commencing on the Effective Date, the
Company will furnish to the Representatives and make available to the
Underwriters, upon request, copies of such financial statements and other
periodic and special reports as the Company may from time to time distribute
generally to the holders of any class of its capital stock, and will furnish to
the Representatives and make available to the Underwriters, upon request, a copy
of each annual or other report it shall be required to file with the Commission.
(h) The Company will make generally available to holders of its
securities as soon as may be practicable but in no event later than the last
day of the fifteenth full calendar month following the calendar quarter in
which the Effective Date falls, an earnings statement (which need not be
audited but shall be in reasonable detail) for a period of 12 months ended
commencing after the Effective Date, and satisfying the provisions of Section
11(a) of the Act (including Rule 158 of the Rules and Regulations).
(i) Whether or not the transactions contemplated by this Agreement are
consummated or this Agreement is terminated, the Company will pay, or reimburse
if paid by the Underwriters, all costs and expenses incident to the performance
of the obligations of the Company under this Agreement, including but not
limited to costs and expenses of or relating to (A) the preparation, printing
and filing of the Registration Statement and exhibits thereto, each Preliminary
Prospectus, the Prospectus and any amendment or supplement to the Registration
Statement or the Prospectus, (B) the preparation and delivery of certificates
representing the Shares, (C) the printing of this Agreement and any Agreement
Among Underwriters and Selected Dealer Agreements, (D) furnishing (including
costs of shipping and mailing) such copies of the Registration Statement, the
Prospectus and any Preliminary Prospectus, and all amendments and supplements
thereto, as may be requested for use in connection with the offering and sale
of the Shares by the Underwriters or by dealers to whom Shares may be sold, (E)
the quotation of the Shares on the Nasdaq National Market, (F) any filing fees
required to
<PAGE> 13
be paid to the NASD, (G) the registration or qualification of the
Shares for offer and sale under the securities or Blue Sky laws of such
jurisdictions designated pursuant to Section 5(f) hereof, including the fees,
disbursements and other charges of your counsel in connection therewith, and
the preparation and printing of preliminary, supplemental and final Blue Sky
memoranda, (H) counsel to and accountants for the Company and (I) the transfer
agent for the Shares.
(j) If for any reason the Company shall fail to or shall be unable to
perform its obligations hereunder, the Company will reimburse the Underwriters
for all out-of-pocket expenses (including the fees, disbursements and other
charges of the Underwriters' counsel) reasonably incurred by the Underwriters in
connection herewith.
(k) The Company will not at any time, directly or indirectly, take any
action designed, or which might reasonably be expected, to cause or result in,
or which will constitute, stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of any of the Shares.
(l) The Company will apply the net proceeds from the offering and sale
of the Shares to be sold by the Company in the manner set forth in the
Prospectus under "Use of Proceeds."
(m) During the period of 180 days commencing at the Closing Date, the
Company will not, without the Representatives' prior written consent, grant
options or warrants to purchase shares of Common Stock at a price less than the
initial public offering price or issue any securities convertible into shares of
Common Stock at a conversion price less than the initial public offering price,
other than as may occur under the terms of the Company's stock plans as
described in the Prospectus.
(n) The Company will not, and will cause each of its executive officers,
directors and each beneficial owner of more than 5% of the outstanding shares
of Common Stock (if any) to enter into agreements with the Underwriters to the
effect that they will not, prior to the Effective Date and for a period of 180
days after the Effective Date, without the Representatives' prior written
consent, sell, contract to sell or otherwise dispose of any shares of Common
Stock or rights to acquire such shares (other than pursuant to employee stock
option plans or in connection with other employee incentive compensation
arrangements).
(o) The Company will not change or terminate the appointment of First
Union National Bank of North Carolina as transfer agent for the Shares for a
period of one year from the Effective Date without first obtaining the
Representatives' written consent, which shall not be unreasonably withheld.
(p) The Company will use all reasonable efforts to comply with, or cause
to be complied with, the conditions precedent to the several obligations of the
Underwriters in Section 7 hereof.
(q) The Company agrees to file with the Commission all required reports
on Form SR in accordance with the provisions of Rule 463 promulgated under the
Act and to provide a copy of such reports to the Representatives and the
Underwriters' counsel.
<PAGE> 14
(r) The Company shall register the Common Stock under the Exchange Act
and shall use its best efforts to maintain such registration for so long as
such registration shall be required.
6. AGREEMENTS OF THE SELLING SHAREHOLDERS. Each of the Selling Shareholders
agrees with the Underwriters as follows:
(a) Such Selling Shareholder will cooperate with you and your counsel
in order to qualify the Shares for offering and sale under the securities or
blue sky laws of such jurisdictions as you may reasonably request and will
comply to the best of such Selling Shareholder's ability with such laws so as
to permit the completion of the distribution of the Shares. Such Selling
Shareholder will file such statements and reports as may be required by the
laws of each jurisdiction in which the Shares have been qualified as above.
(b) Such Selling Shareholder will provide to you on or prior to the
Closing Date a properly completed and executed United States Treasury
Department Form W-9 (or other applicable form or statement specified by
Treasury Department regulations in lieu thereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The obligations of
each of the Underwriters hereunder are subject to the following conditions:
(a) Notification that the Registration Statement has become effective
shall be received by the Representatives not later than 10:00 a.m., Charlotte,
North Carolina time, on the first full business day after the Effective Date
or at such later date and time as shall be consented to in writing by the
Representatives and all filings required by Rule 424, Rule 434, Rule 430A and
Rule 434 of the Rules and Regulations shall have been made.
(b) (i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall be
pending or threatened by the Commission, (ii) no order suspending the
effectiveness of the Registration Statement or the qualification or
registration of the Shares under the securities or Blue Sky laws of any
jurisdiction shall be in effect and no proceeding for such purpose shall be
pending before or threatened or contemplated by the Commission or the
authorities of any such jurisdiction, (iii) any request for additional
information on the part of the staff of the Commission or any such authorities
shall have been complied with to the satisfaction of the staff of the
Commission or such authorities and (iv) after the date hereof no amendment or
supplement to the Registration Statement or the Prospectus shall have been
filed unless a copy thereof was first submitted to the Representatives and made
available to the Underwriters and the Underwriters did not object thereto in
good faith, and the Representatives shall have received certificates, dated the
Closing Date and, with respect to the option shares, the Option Closing Date
and signed by the Chief Executive Officer or the Chairman of the Board of
Directors of the Company and the Chief Financial Officer of the Company (who
may, as to proceedings threatened, rely upon the best of their information and
belief), to the effect of clauses (i), (ii) and (iii).
(c) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, (i) there shall not have been a
material adverse change in the
<PAGE> 15
general affairs, business, properties, management, condition (financial or
otherwise) or results of operations of the Company, taken as a whole, whether or
not arising from transactions in the ordinary course of business, and there
shall have been no material transaction, contract or agreement entered into by
the Company or any of its subsidiaries other than in the ordinary course of
business, in each case other than as set forth in or contemplated by the
Registration Statement and the Prospectus, and (ii) the Company shall not have
sustained any material loss or interference with its business or properties from
fire, explosion, flood or other casualty, whether or not covered by insurance,
or from any labor dispute or any court or legislative or other governmental
action, order or decree, which is not set forth in the Registration Statement
and the Prospectus, if in the Representatives' judgment any such development is
so material as to make it impracticable or inadvisable to consummate the sale
and delivery of the Shares by the Underwriters at the public offering price.
(d) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall have been no litigation
or other proceeding instituted or threatened against the Company, its
subsidiaries or any of the Company's officers or directors in their capacities
as such, before or by any Federal, state or local court, commission, regulatory
body, administrative agency or other governmental body, domestic or foreign, in
which litigation or proceeding an unfavorable ruling, decision or finding would
materially and adversely affect the business, properties, business prospects,
condition (financial or otherwise) or results of operations of the Company or
its subsidiaries.
(e) Each of the representations and warranties of the Company and the
Selling Shareholders contained herein shall be true and correct in all material
respects at the Closing Date and, with respect to the Option Shares, at the
Option Closing Date, as if made at the Closing Date and, with respect to the
Option Shares, at the Option Closing Date, and all covenants and agreements
herein contained to be performed on the part of the Company and the Selling
Shareholders and all conditions herein contained to be fulfilled or complied
with by the Company and the Selling Shareholders at or prior to the Closing
Date and, with respect to the Option Shares, at or prior to the Option Closing
Date, shall have been duly performed, fulfilled or complied with in all
material respects.
(f) The Representatives shall have received an opinion, dated the
Closing Date and, with respect to the Option Shares, the Option Closing Date,
and satisfactory in form and substance to the Representatives' counsel, from
Moore & Van Allen, PLLC, counsel to the Company, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of North Carolina, with corporate power and authority to own its
properties and conduct its business as described in the Prospectus;
(ii) Each of the Company's subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of
<PAGE> 16
its incorporation, with corporate power and authority to own
its properties and conduct its business as described in the Prospectus;
(iii) The Company and each of its subsidiaries is qualified as a
foreign corporation in each jurisdiction in which the ownership of
property or the conduct of business by the Company or such subsidiary
requires such qualification and where the failure to so qualify would
have a material adverse affect on the Company's operations;
(iv) Except as described in the Prospectus, there are no
outstanding (A) securities or obligations of the Company convertible
into or exchangeable for any capital stock of the Company, (B) warrants,
rights or options to subscribe for or purchase from the Company any such
capital stock or any convertible or exchangeable securities or
obligations, or (C) obligations of the Company to issue any such
convertible or exchangeable securities or obligations, or any such
warrants, rights or options;
(v) The Shares delivered on such date have been duly authorized,
executed, authenticated, issued and delivered and conform to the
description thereof contained in the Prospectus and have not been issued
in violation of any preemptive or similar rights of shareholders of the
Company;
(vi) The Company has authorized and outstanding capital stock as
set forth in the Registration Statement; the outstanding shares of Common
Stock of the Company have been duly authorized and validly issued, are
fully paid and nonassessable and conform to the description thereof
contained in the Prospectus; and the shareholders of the Company have no
preemptive or similar rights with respect to the Shares or the Common
Stock;
(vii) There are no contracts, agreements or understandings known
to such counsel between the Company and any person granting such person
the right to require the Company to file a registration statement under
the Act with respect to any securities of the Company owned or to be
owned by such person or to require the Company to include such securities
with the securities registered pursuant to the Registration Statement or
with any securities being registered pursuant to any other registration
statement filed by the Company under the Act;
(viii) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required in
connection with the authorization, issuance, transfer, sale or delivery
of the Shares by the Company, in connection with the execution, delivery
and performance of this Agreement by the Company or in connection with
the taking by the Company of any action contemplated hereby, except such
as have been obtained and made under the Act and such as may be required
under state securities laws;
<PAGE> 17
(ix) The execution, delivery and performance of this Agreement and
the consummation of the transactions herein contemplated, including the
issuance and sale of the Shares and compliance with the provisions
thereof, will not result in a breach or violation of any of the terms or
provisions of, or constitute a default under, (A) any statute, rule,
regulation or, to the knowledge of such counsel after due inquiry, any
order of any governmental agency or body or any court having jurisdiction
over the Company, its subsidiaries or any of their properties, or (B) any
material obligation, agreement, covenant or condition contained in any
agreement or instrument known to such counsel to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the properties of the Company or
any of its subsidiaries is subject, or (C) the respective articles or
certificate of incorporation or bylaws of the Company or any of its
subsidiaries; and the Company has full power and authority to authorize,
issue and sell the Shares as contemplated by this Agreement;
(x) To the best of such counsel's knowledge, neither the Company
or any of its subsidiaries is in violation of any judgment, ruling,
decree, order, franchise, license or permit known to such counsel of any
court or other governmental authority applicable to the business or
properties of the Company or any of its subsidiaries, other than
violations or defaults which, individually or in the aggregate, will not
have a material adverse effect on the financial position, shareholders'
equity or results of operation of the Company;
(xi) The Registration Statement was declared effective under the
Act as of the date and time specified in such opinion, the Prospectus
either was filed with the Commission pursuant to the subparagraph of Rule
424(b) or 434 specified in such opinion on the date specified therein or
was included in the Registration Statement (as the case may be), and, to
the best of the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement or any part thereof has been
issued and no proceedings for that purpose have been instituted or are
pending or contemplated under the Act, and the Registration Statement and
the Prospectus, and each amendment or supplement thereto, as of their
respective effective or issue dates, complied as to form in all material
respects with the requirements of the Act and the Rules and Regulations;
such counsel has no reason to believe that the Registration Statement, or
any amendment thereto, as of its Effective Date, contained any untrue
statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, or that the Prospectus, or any supplement thereto, as of
its issue date, included any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the
statements, in light of the circumstances under which they were made, not
misleading; the descriptions in the Registration Statement and Prospectus
of statutes, legal and governmental proceedings and contracts and other
documents fairly summarize the matters purported to be summarized therein,
and such counsel does not know of any contracts required to be summarized
or disclosed or filed or any legal or governmental proceedings pending or
threatened to which the Company is the subject of such character required
to be disclosed in the Registration Statement or Prospectus that are not
disclosed and properly described therein, it being understood that such
counsel need express no opinion as to the financial statements or other
financial and statistical data contained in the Registration Statement or
the Prospectus or as to the section of the Prospectus entitled
"Underwriting";
<PAGE> 18
(xii) The Company has the full corporate power and authority to
enter into this Agreement, and this Agreement has been duly authorized,
executed and delivered by the Company and constitutes a valid and legally
binding obligation of the Company enforceable in accordance with its
terms, except (A) as such enforceability may be limited by bankruptcy,
insolvency, reorganization, fraudulent conveyance or similar laws now or
hereafter in effect relating to creditors' rights or debtors' obligations
generally; (B) that the remedies of specific performance and injunctive
and other forms of relief are subject to general equitable principles,
whether enforcement is sought at law or in equity, and that such
enforcement may be subject to the discretion of the court before which any
proceedings therefor may be brought; (C) as rights to indemnity and
contribution may be limited by state or Federal laws relating to
securities or the policies underlying such laws; and (D) as such
enforceability may be limited by possible limitations imposed by law (in
addition to those set forth herein) on provisions relating to remedies
(including without limitation any provision whereby any right is waived).
No opinion need be given as to the enforceability of any provision
requiring or in effect requiring that waivers or amendments of any
provision of the Agreement may be effected only in writing or any choice
of law provisions;
(xiii) The Company is not, and will not be as a result of the
consummation of the transactions contemplated by this Agreement, an
"investment company," or an "affiliated person" of, or "promoter" or
"principal underwriter" for, an "investment company," or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940;
(xiv) The offer and sale of shares of Common Stock to be issued
pursuant to that certain Share Exchange Agreement dated August 27, 1996
among the Company and the shareholders of Interknit, Inc. as named therein
(the "Share Exchange Agreement") are exempt from registration under the
Act and the Rules and Regulations and under the various state securities
or Blue Sky laws; and
(xv) The Company has the full corporate power and authority to
enter into the Share Exchange Agreement, and the Share Exchange Agreement
has been duly authorized, executed and delivered by the Company and
constitutes a valid and legally binding obligation of the Company
enforceable in accordance with its terms, except (A) as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance or similar laws now or hereafter in effect relating
to creditors' rights or debtors' obligations generally; (B) that the
remedies of specific performance and injunctive and other forms of relief
are subject to general equitable principles, whether enforcement is sought
at law or in equity, and that such enforcement may be subject to the
discretion of the court before which any proceedings therefor may be
brought; (C) as rights to indemnity and contribution may be limited by
state or Federal laws relating to securities or the policies underlying
such laws; and (D) as such enforceability may be limited by possible
limitations imposed by law (in addition to those set forth herein) on
provisions relating to remedies (including without limitation any
provision whereby any right is waived). No opinion need be given as to the
enforceability of any provision requiring or in effect requiring that
waivers or amendments of any provision of the Share Exchange Agreement may
be effected only in writing or any choice of law provisions.
In rendering such opinion, such counsel may rely as to matters of fact, to the
extent deemed proper, on certificates of executive officers of the Company
and public officials. In rendering the opinions regarding the specific legal
issues covered in Section 7(f)(xiv) of this Agreement, such counsel may render
an explained opinion incorporating the legal analyses supporting and qualifying
the legal conclusions expressed.
(g) The Representatives shall have received an opinion, dated the Closing
Date, satisfactory in form and substance to the Representatives' counsel, from
Moore & Van Allen, PLLC, counsel to the Selling Shareholders, to the effect
that:
(i) Each Selling Shareholder has duly authorized, executed and
delivered a Power of Attorney and Custody Agreement constituting valid
and legally binding agreements of such Selling Shareholder and
enforceable in accordance with their terms, except as enforceability may
be limited to bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights of creditors generally
and the availability of equitable remedies;
<PAGE> 19
(ii) This Agreement has been duly authorized, executed and
delivered by or on behalf of each Selling Shareholder;
(iii) All authorizations, approvals, orders and consents
necessary for the execution and delivery by each Selling Shareholder of
this Agreement, the Power of Attorney and the Custody Agreement have been
duly and validly given, and each Selling Shareholder has full legal
right, power and authority to enter into this Agreement, the Power of
Attorney and the Custody Agreement and to sell, assign, transfer and
deliver to the several Underwriters the Shares to be sold by such Selling
Shareholder hereunder;
(iv) The performance of this Agreement and the consummation of the
transactions contemplated hereby and by the Power of Attorney and the
Custody Agreement will not result in a breach or violation by such
Selling Shareholder of any of the terms or provisions of, or constitute a
default by such Selling Shareholder under, any indenture, mortgage, will,
trust (constructive or other), loan agreement, lease or other agreement
or instrument known to such counsel after due inquiry to which such
Selling Shareholder or any of its properties is bound, any statute,
order, rule, regulation or decree of any government, governmental
instrumentality or court having jurisdiction over such Selling
Shareholder;
(v) Immediately prior to such Closing Date, each Selling
Shareholder was the sole registered owner of the Shares to be sold by
such Selling Shareholder hereunder; and
(vi) The several Underwriters (assuming that they are bona fide
purchasers within the meaning of the Uniform Commercial Code as in effect
in the governing jurisdiction) will, upon payment therefor in accordance
with the terms hereof, acquire all the rights of each Selling Shareholder
in the Shares purchased by them, free and clear of any liens, security
interests, pledges, claims, encumbrances, shareholders' agreements,
voting trusts or other interests.
In rendering such opinion, such counsel may rely as to matters of fact, to
the extent deemed proper, on certificates executed by the Selling
Shareholders. Such opinion may be furnished subject to such stated
assumptions, limitations and qualifications as may be acceptable to counsel for
the Underwriters.
(h) The Representatives shall have received an opinion, dated the
Closing Date and, with respect to the Option Shares, the Option Closing Date,
from Smith Helms Mulliss & Moore, L.L.P., as the Underwriters' counsel, with
respect to the Registration Statement, the Prospectus and this Agreement, which
opinion shall be satisfactory in all respects to the Representatives, and the
Company shall have furnished to such counsel such documents as they request for
the purpose of enabling them to pass upon such matters.
(i) The Representatives shall have received, concurrently with the
execution and delivery of this Agreement, and at the Closing Date and, with
respect to the Option Shares, at the Option Closing Date, a letter from the
Accountants dated the date of its delivery, addressed to the Representatives
and in form and substance satisfactory to them, to the effect that:
(i) with respect to the Company they are independent public
accountants within the meaning of the Act and the Rules and
Regulations and that
<PAGE> 20
they have no interest required to be disclosed in the
Prospectus pursuant to Item 10 of Form S-1;
(ii) in their opinion, the financial statements of the
Company examined by them at all dates and for all periods
referred to in their opinion and included in the Registration
Statement and Prospectus comply in all material respects with the
applicable accounting requirements of the Act and the Rules and
Regulations with respect to registration statements on Form S-1;
(iii) on the basis of certain indicated procedures (but not
an examination in accordance with generally accepted auditing
standards), a reading of the latest available interim unaudited
financial statements of the Company, whether or not appearing in the
Prospectus, inquiries of the officers of the Company or other
persons responsible for its financial and accounting matters
regarding the specific items for which representations are requested
below and a reading of the minute books of the Company, nothing has
come to their attention which would cause them to believe that:
(A) during the period from the last audited balance
sheet included in the Registration Statement to a specified
date not more than five days prior to the date of such letter
there has been any change in the capital stock or other
securities of the Company on a consolidated basis or in the
consolidated long-term debt or other long-term obligations of
the Company or any payment or declaration of any dividend or
other distribution in respect thereof or exchange therefor,
or there have been any material decreases in consolidated net
current assets or consolidated net assets or any increases in
consolidated short-term debt, in each case from that shown on
the last audited balance sheet included in the Registration
Statement or Prospectus, other than as set forth in or
contemplated by the Registration Statement or Prospectus;
(B) from the period from December 31, 1995 to a
specified date not more than five days prior to the date of
such letter there were any decreases in consolidated net
sales or operating income or the total or per share amounts
of consolidated net income, or any decreases in the
consolidated ratios of operating income to net sales or net
income to net sales or the ratio of earnings to fixed
charges, or any increases in the consolidated ratio of
costs and expenses to net sales, in each case as compared
with the comparable periods of the preceding year and the
preceding year to date period; or
(C) the unaudited financial statements and schedules
(including any unaudited condensed pro forma financial
statements), whether or not appearing in the Registration
Statement and Prospectus, do not comply
<PAGE> 21
with the accounting requirements of the Act, or
do not present fairly the financial position and results of
the Company for the periods indicated, in conformity with the
generally accepted accounting principles applied on a
consistent basis with the audited financial statements.
(iv) in addition to the examination referred to in their
report included in the Registration Statement and the
Prospectus and the limited procedures and inspection of minutes
books, inquiries and other procedures referred to in subparagraph
(iii) above, they have carried out certain procedures (which shall
be satisfactory to the Representatives), not constituting an
examination in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and
financial information specified by the Representatives which are
derived from the general accounting records of the Company and its
subsidiaries, or which are derived directly from such records by
analysis or computation, and are set forth in the Prospectus; have
compared certain of those amounts, percentages and financial
information with the accounting records of the Company and its
subsidiaries (in a manner acceptable to the Representatives); and
have found them to be in agreement except as such discrepancies are
described in such letter and are acceptable to you.
(j) The Representatives shall have received, concurrently with the
execution and delivery of this Agreement and at the Closing Date with respect to
the Firm Shares and, with respect to the Option Shares, the Option Closing Date,
a certificate, dated the date of its delivery, signed by each of the Chief
Executive Officer and the Chief Financial Officer of the Company, and in form
and substance satisfactory to the Representatives, to the effect that:
(i) The Registration Statement has become effective, and no order
suspending the effectiveness of the Registration Statement has been
issued and to the best knowledge of the respective signers no proceeding
for that purpose has been initiated or is threatened by the Commission;
(ii) Each signer of such certificate has carefully examined the
Registration Statement and the Prospectus and (A) as of the date of such
certificate, such documents are true and correct in all material respects
and do not omit to state a material fact required to be stated therein or
necessary in order to make the statements therein not untrue or
misleading and (B) in the case of the certificate delivered at the
Closing Date and, with respect to the Option Shares, the Option Closing
Date, since the Effective Date no event has occurred as a result of which
it is necessary to amend or supplement the Prospectus in order to make
the statements therein not untrue or misleading in any material respect;
(iii) Each of the representations and warranties of the Company
contained in this Agreement were, when originally made, and are, at the
time such certificate is delivered, true and correct in all material
respects; and
<PAGE> 22
(iv) Each of the covenants required herein to be performed by the
Company on or prior to the delivery of such certificate has been duly,
timely and fully performed and each condition herein required to be
complied with by the Company on or prior to the date of such certificate
has been duly, timely and fully complied with in all material respects.
(k) On or prior to the Closing Date, the Representatives shall have
received the executed agreements referred to in Section 5(n) hereof.
(l) The Shares shall be qualified for sale in such states as the
Representatives may reasonably request, each such qualification shall be in
effect and not subject to any stop order or other proceeding on the Closing
Date and the Option Closing Date.
(m) Prior to the Closing Date, the Shares shall have been duly
authorized for trading on the Nasdaq National Market.
(n) At the Closing Date, each Selling Shareholder shall have submitted a
certificate to the Representatives stating that the representations and
warranties of such Selling Shareholder in the Agreement are true and correct as
of such date and that such Selling Shareholder has complied with all agreements
and satisfied all conditions on its part to be performed or satisfied hereunder
at or prior to the Closing Date.
(o) The Company and the Selling Shareholders shall have furnished to the
Representatives such certificates, in addition to those specifically mentioned
herein, as the Representatives may have reasonably requested as to the accuracy
and completeness at the Closing Date and, with respect to the Option Shares,
the Option Closing Date of any statement in the Registration Statement or the
Prospectus as to the accuracy at the Closing Date and, with respect to the
Option Shares, the Option Closing Date of the representations and warranties of
the Company or the Selling Shareholders herein, as to the performance by the
Company or the Selling Shareholders of its obligations hereunder, or as to the
fulfillment of the conditions concurrent and precedent to the Underwriters'
obligations hereunder.
(p) All conditions to the exchange of shares of Common Stock
contemplated by the Share Exchange Agreement, and all related transactions
described therein, shall have been satisfied.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each Underwriter,
and each person, if any, who controls any Underwriter within the meaning of the
Act, against any and all losses, claims, damages or liabilities, joint or
several, to which such Underwriter or controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based in whole
or in part upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the registration statement as originally filed, the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or in any Blue Sky application or other written
information furnished by the Company filed in any state or other jurisdiction in
order
<PAGE> 23
to qualify any or all of the Shares under the securities laws thereof (a "Blue
Sky Application"), or (ii) the omission or alleged omission to state in the
registration statement as originally filed, the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto or
any Blue Sky Application a material fact required to be stated therein or
necessary to make the statements therein in light of the circumstances under
which they were made not misleading, and will reimburse each Underwriter and
each such controlling person for any legal or other expenses reasonably incurred
by such Underwriter or such controlling person in connection with investigating
or defending any such loss, claim, damage, liability or action as such expenses
are incurred; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement, any Preliminary Prospectus,
the Prospectus or such amendment or such supplement or any Blue Sky Application
in reliance upon and in conformity with written information furnished to the
Company by any Underwriter specifically for use therein (it being understood
that the only information so provided by the Underwriters is the information
included in the last paragraph on the cover page and under the caption
"Underwriting" in any Preliminary Prospectus and the Prospectus); provided,
further, that the foregoing indemnity agreement with respect to any Preliminary
Prospectus shall not insure to the benefit of any Underwriter from whom the
person asserting any such losses, claims, damages or liabilities purchased
shares, or any person controlling such Underwriter, if a copy of the Prospectus
(as then amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been delivered at or
prior to the written confirmation of the sale of the Shares to such person, and
if the Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such losses, claims, damages or liabilities, unless the failure
to so deliver was a result of noncompliance by the Company with Section 5(e)
hereof. The Company shall be liable for the full amount of all claims pursuant
to this Section and this Agreement.
(b) The Selling Shareholders will severally but not jointly indemnify and
hold harmless each Underwriter, and each person who controls any Underwriter
within the meaning of Section 15 of the Act, against any and all losses, claims,
damages or liabilities to which such Underwriter or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
in whole or in part upon any untrue statement or alleged untrue statement of any
material fact contained in the registration statement as originally filed, the
Registration Statement, any Preliminary Prospectus or the Prospectus, or in any
amendment or supplement thereto, or the omission or alleged omission to state in
the registration statement as originally filed, the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter and each such
controlling person for any legal or other expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action as such expenses are
incurred; provided, however, that a Selling Shareholder will not be liable in
any such case to the extent that any such loss, claim, damage, liability arises
out of or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or such amendment or such supplement in reliance upon
and in conformity with written information furnished to the Company by any
Underwriter specifically for use therein (it being understood that the only
information so provided by the Underwriters is the information included in the
last paragraph on the cover page and under the caption "Underwriting" in any
Preliminary Prospectus and the Prospectus). In no event shall any Selling
Shareholder be liable hereunder for an amount in excess of the proceeds received
by such Selling Shareholder from the Underwriters hereunder; provided, further,
that the foregoing indemnity agreement with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any such losses, claims, damages or liabilities purchased
Shares, or any person controlling such Underwriter, if a copy of the Prospectus
(as then amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been delivered at or
prior to the written confirmation of the sale of the Shares to such person, and
if the Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such losses, claims, damages or liabilities, unless the failure
to so deliver was a result of noncompliance by the Company with Section 5(e)
hereof.
<PAGE> 24
(c) The Underwriters severally but not jointly agree, to the extent of
and only to the extent of their respective commitments pursuant to Schedule II,
to indemnify and hold harmless the Company, each of its directors, each of its
officers who signed the Registration Statement and each person, if any, who
controls the Company within the meaning of the Act, and each Selling
Shareholder, against any and all losses, claims, damages or liabilities to which
the Company or any such director, officer or controlling person or such Selling
Shareholder may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the registration statement as originally filed, the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or any Blue Sky Application, or arise out of or
are based upon the omission or the alleged omission to state in the registration
statement as originally filed, the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto or any Blue
Sky Application a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by any Underwriter specifically for
use therein (it being understood that the only information so provided is the
information included in the last paragraph on the cover page and under the
caption "Underwriting" in any Preliminary Prospectus and in the Prospectus).
(d) Promptly after receipt by an indemnified party under this Section 8
of notice of the commencement of any action, including governmental
proceedings, such indemnified party will, if a claim in respect thereof is to
be made against the indemnifying party under this Section 8, notify the
indemnifying party of the commencement thereof; but the omission so to notify
the indemnifying party will not relieve it from any liability which it may have
to any indemnified party otherwise than under this Section 8. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein, and to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party; and after notice
from the indemnifying party to such indemnified party of its election to so
assume the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation except that the
indemnified party shall have the right to employ separate counsel if, in its
reasonable judgment, it is advisable for the indemnified party and any other
Underwriter to be represented by separate counsel, and in that event the fees
and expenses of separate counsel shall be paid by the indemnifying party.
(e) The Company will not, without prior written consent of the
Representatives, settle or compromise or consent to the entry of any judgment in
any pending or threatened claim, action, suit or proceeding (or related cause of
action or portion thereof) in respect of which indemnification may be sought by
the Underwriters hereunder (whether or not any Underwriter is a party to such
claim, action, suit or proceeding), unless such settlement, compromise or
consent includes an
<PAGE> 25
unconditional release of all Underwriters from all liability arising out of
such claim, action, suit or proceeding (or related cause of action or portion
thereof).
(f) To provide for just and equitable contribution in circumstances in
which the indemnity agreement provided for in the preceding part of this
Section 8 is for any reason held to be unavailable to the Underwriters or the
Company or any Selling Shareholders or is insufficient to hold harmless an
indemnified party, then the Company and the Selling Shareholders shall
contribute to the damages paid by the Underwriters, and the Underwriters shall
contribute to the damages paid by the Company and the Selling Shareholders;
provided, however, that no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. In determining the amount of contribution to which the
respective parties are entitled, there shall be considered the relative
benefits received by each party from the offering of the Shares (taking into
account the portion of the proceeds of the offering realized by each), the
parties' relative knowledge and access to information concerning the matter
with respect to which the claim was asserted, the opportunity to correct and
prevent any statement or omission, and any other equitable considerations
appropriate under the circumstances. The Company, the Selling Shareholders and
the Underwriters agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation (even if the
Underwriters were treated as one entity for such purpose). No Underwriter or
person controlling such Underwriter shall be obligated to make contribution
hereunder which in the aggregate exceeds the Underwriting Discount applicable
to the Shares purchased by such Underwriter under this Agreement, less the
aggregate amount of any damages which such Underwriter and its controlling
persons have otherwise been required to pay in respect of the same or any
similar claim. The Underwriters' obligations to contribute hereunder are
several in proportion to their respective underwriting obligations and not
joint. For purposes of this Section, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the Act shall have the same
rights to contribution as such Underwriter, and each director of the Company,
each officer of the Company who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of
the Act, shall have the same rights to contribution as the Company.
(g) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the obligations of
the Underwriters under this Section 8 shall be in addition to any liability
which the respective Underwriters may otherwise have and shall extend, upon the
same terms and conditions, to each officer and director of the Company and to
each person, if any, who controls the Company within the meaning of the Act.
9. DEFAULT OF UNDERWRITERS.
If any Underwriter defaults in its obligation to purchase Shares hereunder
and if the total number of Shares that such defaulting Underwriter agreed but
failed to purchase is ten percent or less of the total number of Shares to be
sold hereunder, the non-defaulting Underwriters shall
<PAGE> 26
be obligated severally and not jointly to purchase (in the respective
proportions which the number of Shares set forth opposite the name of each
non-defaulting Underwriter in Schedule II hereto bears to the total number of
Shares set forth opposite the names of all the non-defaulting Underwriters or
in such other proportions as you may specify), the Shares that such defaulting
Underwriter or Underwriters agreed but failed to purchase. If any Underwriter
so defaults and the total number of Shares with respect to which such default
or defaults occur is more than ten percent of the total number of Shares to be
sold hereunder, and arrangements satisfactory to the other Underwriters and the
Company and the Selling Shareholders for the purchase of such Shares by other
persons (who may include the non-defaulting Underwriters) are not made within
36 hours after such default, this Agreement, insofar as it relates to the sale
of the Shares, will terminate without liability on the part of the
non-defaulting Underwriters or the Company except for (i) the provisions of
Section 8 hereof, and (ii) the expenses to be paid or reimbursed by the Company
pursuant to Section 5(i) hereof. As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 9. In any such case, you shall have the right to postpone the Closing
Date, or the Option Closing Date, as the case may be, but in no event longer
then seven (7) days, in order that the required changes, if any, in the
Registration Statement and Prospectus or in any other documents or agreements
may be made. Nothing herein shall relieve a defaulting Underwriter from
liability for its default hereunder.
10. SURVIVAL CLAUSE.
The respective representations, warranties, agreements, covenants,
indemnities and other statements of the Company and its officers, the
Underwriters and the Selling Shareholders set forth in this Agreement or made
by or on behalf of them, respectively, pursuant to this Agreement shall remain
in full force and effect, regardless of (i) any investigation made by or on
behalf of the Company, any of its officers or directors, any Underwriter or any
controlling person of an Underwriter, or any Selling Shareholder, (ii) any
termination of this Agreement and (iii) delivery of and payment for the Shares.
11. TERMINATION.
(a) The Underwriters' obligations under this Agreement may be
terminated at any time on or prior to the Closing Date (or, with respect to the
Option Shares, on or prior to the Option Closing Date), by notice to the
Company from the Representatives, without liability on the part of the
Underwriters to the Company, if, prior to delivery and payment for the Shares
(or the Option Shares, as the case may be), in the Representatives' sole
judgment:
(i) there has been since the respective dates as of which
information is given in the Registration Statement or the Prospectus
any materially adverse change in the condition, financial or otherwise,
results of operations, affairs or business prospects of the Company or
its subsidiaries considered as one enterprise, whether or not arising in
the ordinary course of business;
<PAGE> 27
(ii) the Company or any Selling Shareholder shall have failed or
been unable to comply with any of the terms or provisions of this
Agreement on the part of the Company or such Selling Shareholder to be
performed within the respective times herein provided for, unless
compliance therewith or performance thereof shall have been expressly
waived by the Representative in writing;
(iii) trading in any of the equity securities of the Company
shall have been suspended by the Commission, by an exchange that lists
the Shares or by the Nasdaq National Market;
(iv) trading in securities generally on the New York Stock
Exchange or in the over-the-counter market shall have been suspended or
limited or minimum or maximum prices shall have been generally
established on such exchange or market, or additional material
governmental restrictions, not in force on the date of this Agreement,
shall have been imposed upon trading in securities generally by such
exchange or market or by order of the Commission or any court or other
governmental authority;
(v) a general banking moratorium shall have been declared by either
Federal, New York or North Carolina state authorities; or
(vi) any outbreak or material escalation of hostilities or
declaration by the United States of a national emergency or war or
other calamity or crisis shall have occurred the effect of any of which
is such as to make it, in your sole, reasonable judgment, impracticable
or inadvisable to market the Shares on the terms and in the manner
contemplated by the Prospectus.
(b) Any termination of this Agreement pursuant to this Section 11
shall be without liability of any character (including, but not limited to,
loss of anticipated profits or consequential damages) on the part of any party
thereto, except that the Company shall remain obligated to pay the costs and
expenses provided in Section 5(i) hereof and the Company, the Selling
Shareholders and the Underwriters shall remain obligated under Section 8
hereof.
12. MISCELLANEOUS.
(a) Notice given pursuant to any of the provisions of this Agreement
shall be in writing and, unless otherwise specified, shall be mailed, delivered
or telecopied
(i) if to the Company:
Ridgeview, Inc.
2101 North Main Avenue
Newton, North Carolina 28658
Attention: President
<PAGE> 28
with a copy to:
Moore & Van Allen, PLLC
NationsBank Corporate Center
100 North Tryon Street, Floor 47
Charlotte, North Carolina 28202-4003
Attention: Dumont Clarke, IV
(ii) if to the Underwriters:
Interstate/Johnson Lane Corporation
121 West Trade Suite, Suite 1500
Charlotte, North Carolina 28202
Attention: Corporate Finance Department
with a copy to:
Smith Helms Mulliss & Moore, L.L.P.
214 North Church Street
Post Office Box 31247
Charlotte, North Carolina 28231
Attention: R. Douglas Harmon
(iii) if to the Selling Shareholders:
Hugh R. Gaither
2101 North Main Avenue
Newton, North Carolina 28658
(b) This Agreement has been and is made solely for the benefit of the
Underwriters, the Selling Shareholders and the Company and of the controlling
persons, directors and officers referred to in Section 8 hereof, and their
respective successors and assigns, and no other person shall acquire or have any
right under or by virtue of this Agreement. The term "successors and assigns"
as used in this Agreement shall not include a purchaser, as such purchaser, of
Shares from the Underwriters.
(c) This Agreement shall be governed by and construed in accordance
with the laws of the State of North Carolina.
(d) This Agreement may be signed in two or more counterparts with the
same effect as if the signatures thereto and hereto were upon the same
instrument.
(e) In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
<PAGE> 29
(f) The Company, the Underwriters and the Selling Shareholders each
hereby irrevocably waive any right they may have to a trial by jury in respect
of any claim based upon or arising out of this Agreement or the transactions
contemplated hereby.
Please confirm that the foregoing correctly sets forth the agreement among
the Company and the Underwriters.
Very truly yours,
RIDGEVIEW, INC.
By:
------------------------------
Title:
---------------------------
SELLING SHAREHOLDERS
By:
------------------------------
Attorney-in-fact
Confirmed as of the date first above mentioned:
INTERSTATE/JOHNSON LANE CORPORATION
SCOTT & STRINGFELLOW, INC.
(for themselves and as Representatives of the Underwriters named in Schedule I
hereto)
By:
---------------------------------
Title:
-------------------------------
<PAGE> 30
SCHEDULE I
<TABLE>
<CAPTION>
No. of Shares
Selling Shareholders to be Sold
- -------------------- -------------
<S> <C>
Robert E. Cline 25,013
Grace W. Gaither 10,422
Ann Heafner Gaither 10,047
J. Robert Gaither, Jr. 9,380
Robert Macon Yount 8,338
William H. Gaither 5,961
Comer Gaither 5,628
Cole A. Gaither 2,501
Lawson Gaither 1,459
Ernest H. Yount, Jr. 1,251
------
TOTAL 80,000
======
</TABLE>
<PAGE> 31
SCHEDULE II
<TABLE>
<CAPTION>
No. of Shares
Underwriters to be Purchased
------------ ---------------
<S> <C>
Interstate/Johnson Lane Corporation
Scott & Stringfellow, Inc.
---------
TOTAL 1,600,000
=========
</TABLE>
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
RIDGEVIEW, INC.
The undersigned corporation (the "Corporation") hereby executes these
Amended and Restated Articles of Incorporation for the purpose of integrating
into one document its original Articles of Incorporation and all past and
current amendments thereto:
ARTICLE 1
The name of the Corporation is Ridgeview, Inc.
ARTICLE 2
The period of duration of the Corporation shall be perpetual.
ARTICLE 3
The purpose for which the Corporation is organized is to engage in any
lawful act or activity for which corporations may be organized under Chapter 55
of the General Statutes of North Carolina.
ARTICLE 4
The aggregate number of shares which the Corporation shall have authority
to issue is 22,000,000 divided into Twenty Million (20,000,000) Common Shares
and Two Million (2,000,000) Preferred Shares, all of which shares shall have a
par value of $.01. The preferences, limitations and relative rights of each
class and series of shares are as follows:
Common Shares
The Common Shares shall be entitled to one vote per share and to all
other rights of shareholders subject to any rights granted to the
Preferred Shares.
Preferred Shares
The Preferred Shares may be issued in one or more series with such
designations, preferences, limitations, and
<PAGE> 2
relative rights as the Board of Directors may determine from time to time
in accordance with applicable law.
ARTICLE 5
Except as may otherwise be provided herein, the shareholders of the
Corporation shall have no preemptive right to acquire additional shares of the
Corporation.
ARTICLE 6
Shareholders shall not have the right of cumulative voting at an election
of directors.
ARTICLE 7
The address of the registered office of the Corporation is 2101 North Main
Avenue, Newton, Catawba County, North Carolina 28658, and the name of the
registered agent at such address is Hugh R. Gaither. The mailing address of
the registered office is P. O. Box 8, Newton, NC 28658.
ARTICLE 8
To the fullest extent permitted by the North Carolina Business Corporation
Act, as the same exists or may hereafter be amended, or other law, a director
of the Corporation shall not be personally liable to the Corporation, its
shareholders or otherwise for monetary damage for breach of duty as a director.
Any repeal or modification of this Article shall be prospective only and shall
not adversely affect any limitation on the personal liability of a director of
the Corporation existing at the time of such repeal or modification.
ARTICLE 9
The provisions of the North Carolina Shareholders Protection Act, as set
forth in Article 9, "Shareholders Protection Act," of the North Carolina
Business Corporation Act shall not be applicable to the Corporation.
ARTICLE 10
The provisions of the North Carolina Control Share Acquisition Act, as set
forth in Article 9A, "Control Share Acquisition Act," of the North Carolina
Business Corporation Act shall not be applicable to the Corporation.
- 2 -
<PAGE> 3
ARTICLE 11
(a) Any purchase by the Corporation of shares of Voting Stock (as
hereinafter defined) from an Interested Shareholder (as hereinafter
defined) who has beneficially owned such securities for less than two
years prior to the date of such purchase or any agreement in respect
thereof, other than pursuant to an offer to the holders of all of the
outstanding shares of the same class as those so purchased, at a per share
price in excess of the Market Price (as hereinafter defined), at the time
of such purchase, of the shares so purchased, shall require the
affirmative vote of the holders of a majority of the voting power of the
Voting Stock not beneficially owned by the Interested Shareholder, voting
together as a single class.
(b) In addition to any affirmative vote required by law or the
Articles of Incorporation:
(i) Any merger or consolidation of the Corporation or
any Subsidiary (as hereinafter defined) with (i) any
Interested Shareholder or (ii) any other corporation
(whether or not itself an Interested Shareholder) which
is, or after such merger or consolidation would be, an
Affiliate (as hereinafter defined) of an Interested
Shareholder;
(ii) Any sale, lease, exchange, mortgage, pledge,
transfer, or other disposition (in one transaction or
a series of transactions) to or with any Interested
Shareholder or any Affiliate of any Interested
Shareholder of any assets of the Corporation or any
Subsidiary having an aggregate Fair Market Value (as
hereinafter defined) of $10,000,000 or more;
(iii) The issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of
transactions) of any equity securities (including any
securities that are convertible into equity securities)
of the Corporation or any Subsidiary having an aggregate
Fair Market Value of $10,000,000 or more to any
Interested Shareholder or any affiliate of any Interested
Shareholder in exchange for cash, securities, or other
property (or combination thereof);
(iv) The adoption of any plan or proposal for the liquidation
or dissolution of the Corporation proposed by or on
behalf of an Interested Shareholder or any Affiliate of
any Interested Shareholder; or
- 3 -
<PAGE> 4
(v) Any reclassification of securities (including any reverse
reverse stock split), or recapitalization of the
Corporation, or any merger or consolidation of the
Corporation with any of its Subsidiaries, or any other
transaction (whether or not with or into or otherwise
involving an Interested Shareholder) which has the
effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any
class of equity (including any securities that are
convertible into equity securities) securities of the
Corporation or any Subsidiary which is directly or
indirectly owned by any Interested Shareholder or any
Affiliate of any Interested Shareholder
shall require the affirmative vote of the holders of a majority
of the voting power of the Voting Stock not beneficially owned by
any Interested Shareholder, voting together as a single class;
provided, however, that no such vote shall be required for (A)
the purchase by the Corporation of shares of Voting Stock from an
Interested Shareholder unless such vote is required by
Subparagraph (a) of this Article 11, (B) any transaction approved
by a majority of the Disinterested Directors (as hereinafter
defined), or (C) any transaction with an Interested Shareholder
who has beneficially owned his shares of Voting Stock for two
years or more.
(c) For the purpose of this Article 11:
(i) A "person" shall mean any individual, firm, corporation,
partnership, or other entity.
(ii) "Voting Stock" shall mean all outstanding shares of the
the Corporation entitled to vote generally in the
election of directors and each reference to a proportion
of shares of Voting Stock shall refer to such
proportion of the votes entitled to be cast by such
shares.
(iii) "Interested Shareholder" shall mean any person (other
than a person or entity who or which as of October 1,
1996, beneficially owned 10% or more of the outstanding
Voting Stock, the Corporation or any Subsidiary of the
Corporation or any employee benefit plan maintained by
the Corporation or any Subsidiary of the Corporation) who
or which:
(A) is the beneficial owner, directly or indirectly, of
10% or more of the outstanding Voting Stock;
- 4 -
<PAGE> 5
(B) is an Affiliate of the Corporation and at any time
within the two-year period immediately prior to the
date as of which a determination is being made was
the beneficial owner, directly or indirectly, of 10%
or more of the outstanding Voting Stock; or
(C) is an assignee of or has otherwise succeeded to any
shares of Voting Stock which were at any time within
the two-year period immediately prior to the date as
of which a determination is being made beneficially
owned by any person described in subparagraphs
(c)(iii)(A) or (B) of this Article 11 if such
assignment or succession shall have occurred in the
course of a transaction or series of transactions not
involving a public offering within the meaning of the
Securities Act of 1933.
(iv) A person shall be a "beneficial owner" of any Voting
Stock:
(A) which such person or any of its Affiliates or
Associates (as hereinafter defined) beneficially
owns, directly or indirectly;
(B) which such person or any of its Affiliates or
Associates has (a) the right to acquire (whether such
right is exercisable immediately or only after the
passage of time) pursuant to any agreement,
arrangement, or understanding, or upon the exercise
of conversion rights, exchange rights, warrants or
options, or otherwise, or (b) the right to vote
pursuant to any agreement, arrangement, or
understanding; or
(C) which are beneficially owned, directly or indirectly,
by any other person with which such person or any of
its Affiliates or Associates has any agreement,
arrangement, or understanding for the purpose of
acquiring, holding, voting, or disposing of any
shares of Voting Stock.
(v) For the purposes of determining whether a person
is an Interested Shareholder, the number of shares of
Voting Stock deemed to be outstanding shall include
shares deemed owned
- 5 -
<PAGE> 6
through application of subparagraph (c)(iv) of this
Article 11, but shall not include any other shares of
Voting Stock which may be issuable pursuant to any
agreement, arrangement, or understanding, or upon exercise
of conversion rights, warrants or options, or otherwise.
(vi) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the
General Rules and Regulations under the Securities
Exchange Act of 1934, as in effect on October 1, 1996.
(vii) "Subsidiary" shall mean any corporation of which
a majority of the shares thereof entitled to vote
generally in the election of directors is owned, directly
or indirectly, by the Corporation.
(viii) "Market Price" shall mean: the last closing sale price
immediately preceding the time in question of a share of
the stock in question on the Nasdaq National Market, or if
such stock is not listed on such market, on the principal
United States securities exchange registered under the
Securities Exchange Act of 1934 on which such stock is
listed, or if such stock is not listed on any such
exchange, the last closing bid quotation with respect to a
share of such stock immediately preceding the time in
question on the National Association of Securities
Dealers, Inc. Automated Quotations System or any system
then in use (or any other system of reporting or
ascertaining quotations then available), or if such stock
is not so quoted, the Fair Market Value at the time in
question of a share of such stock as determined by the
Board of Directors in good faith.
(ix) "Fair Market Value shall mean:
(A) in the case of stock, the Market Price, and
(B) in the case of property other than cash or stock,
the fair market value of such property on the date
in question as determined by the Board of Directors
in good faith.
(x) "Disinterested Director" shall mean any member of the
the Board of Directors of the Corporation who is not an
Affiliate or Associate of an Interested Shareholder and
was a member of the Board of Directors prior to the time
that the
- 6 -
<PAGE> 7
Interested Shareholder became an Interested Shareholder,
and any successor of a Disinterested Director who is not
an affiliate or associate of an Interested Shareholder as
is recommended to succeed a Disinterested Director by
a majority of Disinterested Directors then on the Board of
Directors.
(d) A majority of the Disinterested Directors shall have the power
and duty to determine for the purposes of this Article 11, on the basis of
information known to them after reasonable inquiry, whether a person is an
Interested Shareholder or a transaction or series of transactions
constitutes one of the transactions described in subparagraph (b) of this
Article 11.
(e) Notwithstanding any other provisions of the Articles of
Incorporation (and notwithstanding the fact that a lesser percentage may
be specified by law, the Articles of Incorporation, or the Bylaws of the
Corporation), the affirmative vote of at least sixty-six and two thirds
percent (66 2/3%) of the outstanding Voting Stock, voting together as a
single class, shall be required to amend, repeal, or adopt any provisions
inconsistent with this Article 11.
IN WITNESS WHEREOF, these Amended and Restated Articles of Incorporation
are signed by the President and Secretary of the Corporation this 9th day of
October, 1996.
RIDGEVIEW, INC.
By: /s/ Hugh R. Gaither
--------------------------------
Hugh R. Gaither, President
By: /s/ J. Michael Gaither
--------------------------------
J. Michael Gaither, Secretary
- 7 -
<PAGE> 1
EXHIBIT 3.2
RIDGEVIEW, INC.
AMENDED AND RESTATED BYLAWS
(Effective October 9, 1996)
<PAGE> 2
TABLE OF CONTENTS
AMENDED AND RESTATED BYLAWS
OF
RIDGEVIEW, INC.
<TABLE>
<S> <C>
ARTICLE I OFFICES . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01.PRINCIPAL OFFICE . . . . . . . . . . . . . . 1
Section 1.02.REGISTERED OFFICE. . . . . . . . . . . . . . 1
Section 1.03.OTHER OFFICES. . . . . . . . . . . . . . . . 2
ARTICLE II SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . 2
Section 2.01.ANNUAL MEETINGS. . . . . . . . . . . . . . . 2
Section 2.02.SPECIAL MEETINGS . . . . . . . . . . . . . . 2
Section 2.03.PLACE OF MEETINGS. . . . . . . . . . . . . . 2
Section 2.04.NOTICE OF MEETINGS . . . . . . . . . . . . . 2
Section 2.05.WAIVER OF NOTICE . . . . . . . . . . . . . . 2
Section 2.06.PRESIDING OFFICER AND SECRETARY AT MEETINGS. 3
Section 2.07.QUORUM . . . . . . . . . . . . . . . . . . . 3
Section 2.08.PROXIES. . . . . . . . . . . . . . . . . . . 3
Section 2.09.VOTING OF SHARES . . . . . . . . . . . . . . 3
Section 2.10.SHAREHOLDERS' LIST . . . . . . . . . . . . . 4
Section 2.11.INSPECTORS OF ELECTION . . . . . . . . . . . 4
Section 2.12.ADVANCE NOTICE OF DIRECTOR NOMINATIONS . . . 5
Section 2.13. ADVANCE NOTICE OF SHAREHOLDER BUSINESS. . . 5
Section 2.14.EXEMPTION FROM SHAREHOLDER PROTECTION ACT. . 6
Section 2.15.CONTROL SHARE ACQUISITION ACT. . . . . . . . 6
ARTICLE III BOARD OF DIRECTORS . . . . . . . . . . . . . . . . 6
Section 3.01.POWERS . . . . . . . . . . . . . . . . . . . 6
Section 3.02.NUMBER OF DIRECTORS, TERM, AND
QUALIFICATIONS. . . . . . . . . . . . . . . . . 6
Section 3.03.ELECTION OF DIRECTORS. . . . . . . . . . . . 6
Section 3.04.REMOVAL. . . . . . . . . . . . . . . . . . . 7
Section 3.05.VACANCIES. . . . . . . . . . . . . . . . . . 7
Section 3.06.REGULAR MEETINGS . . . . . . . . . . . . . . 7
Section 3.07.SPECIAL MEETINGS . . . . . . . . . . . . . . 7
Section 3.08.NOTICE OF MEETINGS . . . . . . . . . . . . . 7
Section 3.09.WAIVER OF NOTICE . . . . . . . . . . . . . . 8
Section 3.10.TELEPHONE MEETING. . . . . . . . . . . . . . 8
Section 3.11.ACTION WITHOUT MEETING . . . . . . . . . . . 8
Section 3.12.PRESIDING OFFICER AND SECRETARY AT MEETINGS. 8
Section 3.13.QUORUM AND VOTING. . . . . . . . . . . . . . 8
Section 3.14.PRESUMPTION OF ASSENT. . . . . . . . . . . . 9
Section 3.15.COMPENSATION . . . . . . . . . . . . . . . . 9
i
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE IV COMMITTEES. . . . . . . . . . . . . . . . . . . . . 9
Section 4.01.EXECUTIVE COMMITTEE. . . . . . . . . . . . . 9
Section 4.02.FINANCE COMMITTEE. . . . . . . . . . . . . . 9
Section 4.03.AUDIT COMMITTEE. . . . . . . . . . . . . . 10
Section 4.04.COMPENSATION COMMITTEE . . . . . . . . . . 11
Section 4.05.NOMINATING COMMITTEE . . . . . . . . . . . 11
Section 4.06.OTHER COMMITTEES . . . . . . . . . . . . . 12
Section 4.07.MEETINGS OF COMMITTEES . . . . . . . . . . 12
ARTICLE V OFFICERS. . . . . . . . . . . . . . . . . . . . . 12
Section 5.01.OFFICERS OF THE CORPORATION. . . . . . . . 12
Section 5.02.APPOINTMENT AND TERM . . . . . . . . . . . 13
Section 5.03.CHAIRMAN . . . . . . . . . . . . . . . . . 13
Section 5.04.PRESIDENT. . . . . . . . . . . . . . . . . 13
Section 5.05. VICE-PRESIDENTS . . . . . . . . . . . . . 13
Section 5.06.SECRETARY. . . . . . . . . . . . . . . . . 13
Section 5.07.TREASURER. . . . . . . . . . . . . . . . . 14
Section 5.08.ASSISTANT SECRETARIES AND ASSISTANT
TREASURERS. . . . . . . . . . . . . . . . . . 14
Section 5.09.OFFICERS HOLDING TWO OR MORE OFFICES . . . 14
Section 5.10.COMPENSATION OF OFFICERS . . . . . . . . . 14
Section 5.11.RESIGNATIONS . . . . . . . . . . . . . . . 14
Section 5.12.REMOVAL. . . . . . . . . . . . . . . . . . 14
Section 5.13.BONDS. . . . . . . . . . . . . . . . . . . 14
ARTICLE VI CONTRACTS, LOANS AND DEPOSITS . . . . . . . . . . 15
Section 6.01.CONTRACTS. . . . . . . . . . . . . . . . . 15
Section 6.02.LOANS. . . . . . . . . . . . . . . . . . . 15
Section 6.03.CHECKS AND DRAFTS. . . . . . . . . . . . . 15
Section 6.04.DEPOSITS . . . . . . . . . . . . . . . . . 15
ARTICLE VII SHARES . . . . . . . . . . . . . . . . . . . . . 15
Section 7.01.CERTIFICATES . . . . . . . . . . . . . . . 15
Section 7.02.TRANSFER OF SHARES . . . . . . . . . . . . 16
Section 7.03.TRANSFER AGENTS AND REGISTRARS . . . . . . 16
Section 7.04.RECORD DATES . . . . . . . . . . . . . . . 16
Section 7.05.NEW CERTIFICATES . . . . . . . . . . . . . 16
ARTICLE VIII INDEMNIFICATION . . . . . . . . . . . . . . . . 16
ARTICLE IX MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . 17
Section 9.01.ANNUAL REPORT. . . . . . . . . . . . . . . 17
Section 9.02.SEAL . . . . . . . . . . . . . . . . . . . 18
Section 9.03.VOTING OF SHARES IN OTHER CORPORATIONS . . 18
Section 9.04.FISCAL YEAR . . . . . . . . . . . . . . . 18
Section 9.05.AMENDMENTS . . . . . . . . . . . . . . . . 18
</TABLE>
ii
<PAGE> 4
AMENDED AND RESTATED
BYLAWS
OF
RIDGEVIEW, INC.
ARTICLE I
OFFICES
SECTION 1.01. PRINCIPAL OFFICE. The principal office of Ridgeview, Inc.
(hereinafter referred to as the "Corporation" shall be located at such place,
within or without the State of North Carolina, as shall be determined from time
to time by the Board of Directors and as shall have been so designated most
recently in the annual report of the Corporation or amendment thereto, filed
with the North Carolina Secretary of State pursuant to the North Carolina
Business Corporation Act.
SECTION 1.02. REGISTERED OFFICE. The Corporation shall maintain a
registered office in the State of North Carolina as required by law, which may
be, but need not be, identical with the principal office.
SECTION 1.03. OTHER OFFICES. The Corporation may have offices at such
other places, either within or without the State of North Carolina, as the
Board of Directors may from time to time determine, or as the affairs of the
Corporation may require.
ARTICLE II
SHAREHOLDERS
SECTION 2.01. ANNUAL MEETINGS. The Corporation shall hold an annual
meeting of the shareholders for the election of directors and the transaction
of any business within the powers of the Corporation on the third Tuesday in
March at 10:00 a.m. in each year as shall be determined by the Board of
Directors or at such other time during the year as the Board of Directors may
prescribe. Subject to Section 2.12 of these bylaws, any business of the
Corporation may be transacted at such annual meeting. However, failure to hold
an annual meeting at the designated time shall not invalidate the corporate
existence or affect otherwise valid corporate acts.
SECTION 2.02. SPECIAL MEETINGS. At any time in the interval between
annual meetings, special meetings of the shareholders may be called by the
Chairman, President or the Board of Directors by vote at a meeting or in
writing with or without a meeting. It shall be the duty of the President to
promptly call such meetings whenever so requested.
<PAGE> 5
SECTION 2.03. PLACE OF MEETINGS. All meetings of shareholders shall be
held at such place within the United States as may be designated in the Notice
of Meeting.
SECTION 2.04. NOTICE OF MEETINGS. Not less than ten (10) days nor more
than sixty (60) days before the date of every shareholders' meeting, the
Secretary shall give to each shareholder entitled to vote at such meeting and
each other shareholder entitled to notice of the meeting, written or printed
notice stating the time and place of the meeting and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, either by
mail or by presenting it to him or her personally or by leaving it at his or
her residence or usual place of business. If mailed, such notice shall be
deemed to be given when deposited in the United States mail addressed to the
shareholder at his or her post office address as it appears on the records of
the Corporation, with postage thereon prepaid. Any meeting of shareholders,
annual or special, may adjourn from time to time without further notice to a
date not more than 120 days after the original record date at the same or some
other place.
SECTION 2.05. WAIVER OF NOTICE. Any shareholder may waive notice of any
meeting before or after the meeting. The waiver must be in writing, signed by
the shareholder and delivered to the Corporation for inclusion in the minutes
or filing with the corporate records. A shareholder's attendance, in person or
by proxy, at a meeting (a) waives objection to lack of notice or defective
notice of the meeting, unless the shareholder or his proxy at the beginning of
the meeting objects to holding the meeting or transacting business at the
meeting; and (b) waives objection to consideration of a particular matter at
the meeting that is not within the purpose or purposes described in the meeting
notice, unless the shareholder or his proxy objects to considering the matter
before it is voted upon.
SECTION 2.06. PRESIDING OFFICER AND SECRETARY AT MEETINGS.
At each meeting of shareholders, the Chairman or in his or her absence the
President, or in their absence the person designated in writing by the
Chairman, or if no person is so designated, then a person designated by the
Board of Directors, shall preside as chairman of the meeting. If no person is
so designated, then the meeting shall choose a chairman by a majority of all
votes cast at a meeting at which a quorum is present. The Secretary or, in the
absence of the Secretary, a person designated by the chairman of the meeting
shall act as secretary of the meeting.
SECTION 2.07. QUORUM. Except as otherwise provided by law or by the
Articles of Incorporation of the Corporation shares entitled to vote as a
separate voting group (as defined in Section 2.09) may take action on a matter
at the meeting only if a quorum of those shares exists. A majority of the
votes entitled to be cast on the matter by the voting group constitutes a
quorum of that voting group for action on that matter.
Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
In the absence of a quorum at the opening of any meeting of shareholders,
such meeting may be adjourned from time to time by the vote of a majority of
the votes cast on the motion to adjourn. Subject to the provisions of Section
2.04, at any subsequent session
2
<PAGE> 6
of a meeting that has been adjourned, any business may be transacted that might
have been transacted at the original meeting if a quorum exists with respect to
the matter proposed.
SECTION 2.08. PROXIES. Shares may be voted either in person or by one or
more proxies authorized by a written appointment of proxy signed by the
shareholder or by his duly authorized attorney in fact. An appointment of
proxy is valid for eleven (11) months from the date of its execution unless a
different period is expressly provided in the appointment form.
SECTION 2.09. VOTING OF SHARES. Subject to the provisions of the
Articles of Incorporation, each outstanding share shall be entitled to one vote
on each matter voted on at the meeting of shareholders.
Except in the election of directors as governed by the provisions of
Section 3.03, if a quorum exists, action on a matter by a voting group is
approved if the votes cast within the voting group favoring the action exceed
the votes cast opposing the action unless a greater vote is required by law,
the Articles of Incorporation, or these bylaws.
Absent special circumstances, shares of the Corporation are not entitled
to vote if they are owned, directly or indirectly, by another corporation in
which the Corporation owns, directly or indirectly, a majority of the shares
entitled to vote for directors of the second corporation; provided, however,
that this provision does not limit the power of the Corporation to vote its own
shares held by it in a fiduciary capacity.
Voting on all matters, including the election of directors, shall be by
voice vote or by a show of hands unless, as to any matter, the holders of
shares entitled to at least twenty-five percent (25%) of the votes of shares
represented at the meeting and entitled to vote on that matter shall demand,
prior to the voting on such matter, a ballot vote on such matter.
As used in these bylaws, the term "voting group" means all shares of one
or more classes or series that, under the Articles of Incorporation or
applicable law, are entitled to vote and be counted together collectively on a
matter at a meeting of shareholders. All shares entitled by the Articles of
Incorporation or applicable law to vote generally on the matter are for that
purpose a single voting group. So long as the Corporation shall have only one
class of shares outstanding and the voting rights of all shares of such class
are identical, then all such outstanding shares shall constitute a voting group
and the sole voting group, except to the extent that applicable law or the
Articles of Incorporation requires that any of such shares be treated as a
separate voting group.
SECTION 2.10. SHAREHOLDERS' LIST. Before each meeting of
shareholders, the Secretary of the Corporation shall prepare an alphabetical
list of the shareholders entitled to notice of such meeting. The list shall be
arranged by voting group (and within each voting group by class or series of
shares) and show the address of and number of shares held by each shareholder.
The list shall be kept on file at the principal office of the Corporation, or
at a place identified in the meeting notice in the city where the meeting will
be held, for the period beginning two business days after notice of the meeting
is given and continuing through the meeting, and shall be available for
inspection by any shareholder, his agent or
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attorney, at any time during regular business hours. The list shall
also be available at the meeting and shall be subject to inspection by any
shareholder, his agent or attorney, at any time during the meeting or any
adjournment thereof.
SECTION 2.11. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the Board of Directors may appoint Inspectors of Election to act
at such meeting or at any adjournment or adjournments thereof. If Inspectors
of Election are not so appointed or fail or refuse to act, the chairman of any
such meeting may (and shall upon the request of shareholders entitled to cast a
majority of all the votes entitled to be cast at the meeting) make such
appointments. No Inspector of Election need be a shareholder of the
Corporation.
If there are three (3) or more Inspectors of Election, the decision, act
or certificate of a majority shall be effective in all respects as the
decision, act or certificate of all. The Inspectors of Election shall
determine the number of shares outstanding, the voting power of each, the
shares represented at the meeting, the existence of a quorum, and the
authenticity, validity and effect of proxies. In addition, Inspectors of
Election shall receive votes, ballots, assents or consents, hear and determine
all challenges and questions in any way arising in connection with the vote,
count and tabulate all votes, assents and consents, and determine the result,
and do such acts as may be proper to conduct the election and the vote with
fairness to all shareholders. On request, the Inspectors shall make a report
in writing of any challenge, question or matter determined by them, and shall
make and execute a certificate of any fact found by them.
SECTION 2.12. ADVANCE NOTICE OF DIRECTOR NOMINATIONS. Only
persons who are nominated in accordance with the provisions set forth in these
bylaws shall be eligible to be elected as directors at an annual or special
meeting of shareholders. Nomination for election to the Board of Directors
shall be made by the Board of Directors or a Nominating Committee appointed by
the Board of Directors.
Nomination for election of any person to the Board of Directors may also
be made by a shareholder if written notice of the nomination of such person
shall have been delivered to the Secretary of the Corporation at the principal
office of the Corporation not later than the close of business on the fifth
business day following the date on which notice is first given to shareholders
of the meeting at which such election is to be held. Each such notice shall
set forth: (a) the name and address of the shareholder who intends to make the
nomination and of the person or persons to be nominated; (b) a representation
that the shareholder is a holder of record of shares of the Corporation
entitled to vote at such meeting and intends to appear in person or by proxy at
the meeting to nominate the person or persons specified in the notice; (c) a
description of all arrangements or understandings between the shareholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
shareholder; (d) such other information regarding each nominee proposed by such
shareholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission if the
nominee had been nominated by the Board of Directors; and (e) the written
consent of each nominee to serve as a director of the Corporation if so
elected.
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The chairman of the meeting may refuse to acknowledge the nomination of any
person not made in compliance with the foregoing procedure.
SECTION 2.13. ADVANCE NOTICE OF SHAREHOLDER BUSINESS. No
business shall be transacted at an annual meeting of shareholders, except such
business as shall be (a) specified in the notice of meeting given as provided
in Section 2.04, (b) otherwise brought before the meeting by or at the
direction of the Board of Directors, or (c) otherwise brought before the
meeting by a shareholder of record entitled to vote at the meeting, in
compliance with the procedure set forth in this Section 2.13. For business to
be brought before an annual meeting by a shareholder pursuant to (c) above, the
shareholder must have given timely notice in writing to the Secretary. To be
timely, a shareholder's notice must be delivered to, or mailed to and received
at, the principal executive offices of the Corporation not less than ten (10)
days prior to the meeting; provided, however, that if less than twenty (20)
days' notice or prior public disclosure of the meeting is given or made to
shareholders, notice by the shareholder will be timely if received not later
than the close of business on the fifth business day following the day on which
such notice of the date of the meeting or such public disclosure was given or
made. Notice of actions to be brought before the annual meeting pursuant to
(c) above shall set forth as to each matter the shareholder proposes to bring
before the annual meeting, including: (i) a brief description of the business
desired to be brought before the annual meeting and the reasons for bringing
such business before the annual meeting, (ii) the name and address, as they
appear on the Corporation's books, of each shareholder proposing such business,
(iii) the classes and number of shares of the Corporation that are owned of
record and beneficially by such shareholder, and (iv) any material interest of
such shareholder in such business other than his interest as a shareholder of
the Corporation. Notwithstanding anything in these bylaws to the contrary, no
business shall be conducted at an annual meeting except in accordance with the
provisions set forth in this Section 2.13. If the chairman of the annual
meeting determines that any business was not properly brought before the
meeting in accordance with provisions prescribed by these bylaws, he shall so
declare to the meeting and, to the extent permitted by law, any such business
not properly brought before the meeting shall not be transacted.
SECTION 2.14. EXEMPTION FROM SHAREHOLDER PROTECTION ACT.
The provisions of the North Carolina Business Corporation Act Article 9
entitled "The North Carolina Shareholder Protection Act" shall not be
applicable to the Corporation.
SECTION 2.15.CONTROL SHARE ACQUISITION ACT. The provisions of the North
Carolina Business Corporation Act entitled "The North Carolina Share
Acquisition Act" (as of the date hereof located in Article 9A) shall not apply
to the Corporation.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.01. POWERS. The business and affairs of the Corporation shall
be managed under the direction of its Board of Directors. The Board of
Directors may exercise
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all the powers of the Corporation, except such as are by statute, or the
Articles of Incorporation or the bylaws conferred upon or reserved to the
shareholders.
SECTION 3.02. NUMBER OF DIRECTORS, TERM, AND
QUALIFICATIONS. The number of directors of the Corporation shall be not less
than five (5) nor more than fifteen (15). By a majority vote of the Board of
Directors, the number of directors may be increased or decreased, or fixed,
from time to time, within the limits above specified; provided, however, that
the tenure of office of a director shall not be affected by any decrease in the
number of directors so made by the Board of Directors.
Except as provided in Section 3.03 regarding the staggered election of
directors, the term of each director shall be the period from the effective
date of his or her election until the next annual meeting of shareholders.
Notwithstanding the stated terms of directors, a director shall continue to
serve after expiration of his or her stated term until: (a) his or her
successor is elected and qualifies or (b) there is a decrease in the number of
directors eliminating his or her position. A director shall cease to serve as
director and his or her position shall be deemed vacant upon his or her death,
resignation, removal, or disqualification.
Directors need not be residents of the State of North Carolina or
shareholders of the Corporation.
SECTION 3.03. ELECTION OF DIRECTORS. Except as provided in Section 3.06,
directors shall be elected at the annual meeting of shareholders. Those
persons who receive the highest number of votes at a meeting at which a quorum
is present shall be deemed to have been elected.
At any time after the number of directors is fixed at nine (9) or more,
the Board of Directors may divide the directors into three classes, as nearly
equal in number as may be, to serve in the first instance for terms of one, two
or three years, respectively, and thereafter the successors in each class of
directors shall be elected to serve for terms of three years. In the event of
any increase or decrease in the authorized number of directors, the additional
or eliminated directorships shall be so classified or chosen that all classes
of directors shall remain or become as nearly equal in number as may be
reasonable; provided, however, that if the authorized number of directors is
decreased below nine (9) the directors shall no longer be divided into classes.
SECTION 3.04. REMOVAL. Any director may be removed at any time with or
without cause by a vote of the shareholders if the number of votes cast to
remove such director exceeds the number of votes cast not to remove him. If a
director is elected by a voting group of shareholders, only the shareholders of
that voting group may participate in the vote to remove him. A director may
not be removed by the shareholders at a meeting unless the notice of the
meeting states that the purpose, or one of the purposes, of the meeting is
removal of the director. If any directors are so removed, new directors may be
elected at the same meeting.
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SECTION 3.05. VACANCIES. Vacancies in the Board of Directors, including
vacancies resulting from an increase in the number of directors, shall be
filled only by a majority vote of the remaining directors then in office,
though less than a quorum; provided, however, that vacancies resulting from
removal from office by a vote of the shareholders may be filled by the
shareholders at the same meeting at which such removal occurs. All directors
elected by the Board of Directors to fill vacancies shall, in accordance with
applicable law, stand for election at the next annual meeting of shareholders,
provided, however, that if the directors shall have been divided into classes
as provided in Section 3.03 regarding the staggered election of directors, a
director elected to fill a vacancy shall not be required to stand for election
until the annual meeting of shareholders at which the terms of the other
directors in the same class shall expire. No decrease in the number of
directors constituting the Board of Directors shall affect the tenure of any
incumbent director.
SECTION 3.06. REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held immediately after the annual meeting of shareholders.
In addition, the Board of Directors may provide the time and place, either
within or without the State of North Carolina, for the holding of additional
regular meetings.
SECTION 3.07. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called at any time, at any place, and for any purpose by the
Chairman, the President, the Chairman of the Executive Committee, or upon the
request of a majority of the Board by any officer of the Corporation.
SECTION 3.08. NOTICE OF MEETINGS. Regular meetings of the Board of
Directors may be held without notice. Notice of the place, day, and hour of
every special meeting of the Board of Directors shall be given to each director
at least twenty-four (24) hours before the meeting by telephoning the notice to
such director, delivering the notice to him or her personally, sending the
notice to him or her by telegram or facsimile, or leaving the notice at his or
her residence or usual place of business. In the alternative, notice of the
special meeting of the Board of Directors may be given to each director by
mailing such notice three (3) days (or more) before the meeting, postage
prepaid, and addressed to him or her at his or her last known post office
address, according to the records of the Corporation. If mailed, such notice
shall be deemed to be given when deposited in the United States mail, properly
addressed, with postage thereon prepaid. If notice is given by telegram or
facsimile, such notice shall be deemed to be given when the telegram is
delivered to the telegraph company or when the facsimile is transmitted. If
the notice is given by telephone or by personal delivery, such notice shall be
deemed to be given at the time of the communication or delivery. Unless
required by law, the bylaws, or resolution of the Board of Directors, no notice
of any meeting of the Board of Directors need state the business to be
transacted at such meeting. Any meeting of the Board of Directors, regular or
special, may adjourn from time to time to reconvene at the same or some other
place, and no further notice need be given of any such adjourned meeting.
SECTION 3.09. WAIVER OF NOTICE. Any director may waive notice of any
meeting before or after the meeting. The waiver must be in writing, signed by
the director entitled to the notice, and delivered to the Corporation for
inclusion in the minutes or filing with the corporate records. A director's
attendance at or participation in a meeting waives
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any required notice of such meeting unless the director at the beginning of the
meeting, or promptly upon arrival, objects to holding the meeting or to
transacting business at the meeting and does not thereafter vote for or assent
to action taken at the meeting.
SECTION 3.10. TELEPHONE MEETING. Members of the Board, or of any
committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time.
Participation in this manner shall constitute presence in person at the
meeting.
SECTION 3.11. ACTION WITHOUT MEETING. Action required or permitted to be
taken at a meeting of the Board of Directors may be taken without a meeting if
the action is taken by all members of the Board. The action must be evidenced
by one or more written consents signed by each director before or after such
action, describing the action taken, and included in the minutes or filed with
the corporate records.
SECTION 3.12. PRESIDING OFFICER AND SECRETARY AT MEETINGS.
Each meeting of the Board of Directors shall be presided over by the Chairman
or, in his or her absence, by the President or, if neither is present, by such
member of the Board of Directors as shall be chosen at the meeting. The
Secretary or, in his or her absence, an Assistant Secretary shall act as
secretary of the meeting. If no such officer is present, a secretary of the
meeting shall be designated by the person presiding over the meeting.
SECTION 3.13. QUORUM AND VOTING. At all meetings of the Board of
Directors a majority of the Board of Directors shall constitute a quorum for
the transaction of business. Except as otherwise provided by statute, the
Articles of Incorporation, or the bylaws, the vote of a majority of such quorum
at a duly constituted meeting shall be sufficient to pass any measure. In the
absence of a quorum, the directors present may adjourn the meeting by majority
vote and without notice other than by announcement until such time as a quorum
shall be present. At any meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the adjourned
meeting as originally notified.
SECTION 3.14. PRESUMPTION OF ASSENT. A director who is present at a
meeting of the Board of Directors or a committee of the Board of Directors when
corporate action is taken is deemed to have assented to the action taken
unless: (a) at the beginning of the meeting or promptly upon his arrival at the
meeting, the director objects to holding the meeting or to transacting business
at the meeting, or (b) the director's dissent or abstention from the action
taken is entered in the minutes of the meeting, or (c) the director files
written notice of his dissent or abstention with the presiding officer of the
meeting before its adjournment or with the Corporation immediately after the
adjournment of the meeting. Such right of dissent or abstention is not
available to a director who votes in favor of the action taken.
SECTION 3.15. COMPENSATION. The Board of Directors may provide by
resolution for the compensation of directors for their services as directors
and may provide for the payment of all expenses reasonably incurred by
directors in attending meetings of the Board of Directors, or any committee
thereof, or in the performance of their other duties as
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directors. However, nothing herein contained shall be construed to preclude
any director from serving the Corporation in any other capacity and receiving
compensation therefor.
ARTICLE IV
COMMITTEES
SECTION 4.01. EXECUTIVE COMMITTEE. By resolution adopted by a
majority of the Board of Directors, the Board of Directors may provide for an
Executive Committee of three (3) or more directors. If provision be made for
an Executive Committee, the members thereof shall be elected by the Board of
Directors to serve at the pleasure of the Board of Directors. Unless a
chairman for the Executive Committee was selected by the Board of Directors,
the President shall act as the chairman of the Executive Committee. During the
intervals between the meetings of the Board of Directors, the Executive
Committee may possess and exercise such powers in the management of the
business and affairs of the Corporation as may be authorized by the Board of
Directors, subject to applicable law. All actions by the Executive Committee
shall be reported to the Board of Directors at the next Board of Directors
meeting following such action, and shall be subject to revision and alteration
by the Board of Directors. Vacancies in the Executive Committee shall be
filled by the Board of Directors.
SECTION 4.02. FINANCE COMMITTEE. By resolution adopted by a majority of
the Board of Directors, the Board of Directors may provide for a Finance
Committee of three (3) or more directors. If provision is made for a Finance
Committee, the members of the Finance Committee shall be elected by the Board
of Directors to serve at the pleasure of the Board of Directors. The Board of
Directors shall designate a chairman of the Finance Committee from among the
committee's membership. Except when such powers are by statute, the Articles
of Incorporation, or the bylaws either reserved to the full Board of Directors
or delegated to another committee of the Board of Directors, during the
intervals between the meetings of the Board of Directors, the Finance Committee
may possess and exercise all of the powers of the Board of Directors in the
management of the financial affairs of the Corporation, including but not
limited to establishing lines of credit or other short-term borrowing
arrangements and investing excess working capital funds on a short- term basis.
The Finance Committee will review all proposed changes to the capital structure
of the Corporation, including the incurrence of long-term indebtedness and the
issuance of additional equity securities, and will make suitable
recommendations to the Board of Directors. The Finance Committee will review
annually the proposed capital expenditure and contributions budgets of the
Corporation and make recommendations to the Board of Directors for their
adoption. The Finance Committee will also review the financial impact of the
implementation of all compensation and employee benefit plans and of any
amendments or modifications thereto, approve the actuarial assumptions and
financial policies pertaining to the investment of funds related to such plans,
and further review such plans to ensure that they are operated in accordance
with existing legal requirements and sound financial principles. All actions
by the Finance Committee shall be reported to the Board of Directors at the
next Board of Directors meeting following such action and shall be subject to
revision
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and alteration by the Board of Directors. Vacancies in the Finance Committee
shall be filled by the Board of Directors.
SECTION 4.03. AUDIT COMMITTEE. By resolution adopted by a majority of
the Board of Directors, the Board of Directors shall provide for an Audit
Committee, including three (3) or more directors that are not officers or
employees of the Corporation and that are otherwise independent of management
and free from any relationship that, in the opinion of the Board of Directors,
would interfere with the exercise of the independent judgment of such member as
a Committee member. The members of the Audit Committee shall be elected by the
Board of Directors to serve at the pleasure of the Board of Directors. The
Board of Directors shall designate a chairman of the Audit Committee from among
the membership of the committee. Except when such powers are by statute, the
Articles of Incorporation, or the bylaws either reserved to the full Board of
Directors or delegated to another committee of the Board of Directors, the
Audit Committee may possess and exercise the powers of the Board of Directors
relating to all accounting and auditing matters of this Corporation. The Audit
Committee shall: (a) recommend to the Board of Directors the selection of, and
monitor the independence of, the independent public accountants selected by the
Board; (b) review with the Corporation's management and the independent public
accountants the financial accounting and reporting principles appropriate for
the Corporation, the policies and procedures concerning audits, accounting and
financial controls, and any recommendations to improve existing practices, and
the qualifications and work of the Corporation's internal auditing staff; (c)
review with the Corporation's independent public accountants the results of
their audit and their report including any changes in accounting principles and
any significant amendments; and (d) meet with the Corporation's internal audit
department representative to review the plan and scope of work of the internal
auditing staff. The Audit Committee shall hold meetings at such times as the
Chairman thereof deems necessary and at least once each year, shall separately
meet in executive session, with the Corporation's independent public
accountants to review all matters of concern presented to the Audit Committee.
The Audit Committee shall also: (a) review and monitor the adequacy of the
Corporation's policies and procedures, as well as the organizational structure,
for ensuring compliance with environmental laws and regulations; (b) review at
least annually the Corporation's record of compliance with environmental laws
and regulations and the policies and procedures relating thereto; (c) review
with the Corporation's management significant environmental litigation and
regulatory proceedings in which the Corporation is or may become involved; and
(d) review the accounting and financial reporting issues, including the
adequacy of disclosure, for all environmental matters. The Audit Committee
shall have the power to investigate any matter falling within its jurisdiction,
and it shall also perform such other functions and exercise such other powers
as may be delegated to it from time to time by the Board of Directors. All
action by the Audit Committee shall be reported to the Board of Directors at
the Board of Directors meeting following such action. Vacancies in the Audit
Committee shall be filled by the Board of Directors.
SECTION 4.04. COMPENSATION COMMITTEE. By resolution adopted by a
majority of the Board of Directors, the Board of Directors may provide for a
Compensation Committee of three (3) or more directors of whom none shall be an
officer or employee of the Corporation. If provision is made for a
Compensation Committee, the members of the
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Compensation Committee shall be elected by the Board of Directors to serve at
the pleasure of the Board of Directors. The Board of Directors shall designate
a chairman for the Compensation Committee from among the membership of the
committee. The Compensation Committee may recommend to the Board of Directors
the compensation to be paid for services of elected officers of the
Corporation. The Compensation Committee may also have the power to fix the
compensation of all employees, except elected officers. The compensation of
elected officers shall be at such rate as may be established by resolution of
the Board of Directors from time to time. Except for such powers as are by
statute, the Articles of Incorporation, or the bylaws reserved to the full
Board of Directors, the Compensation Committee may have the power to approve
the benefits provided by any bonus, supplemental, and special compensation
plans, including pension, insurance, health, and stock plans. Except as
otherwise required by law, all action by the Compensation Committee shall be
reported to the Board of Directors at the next Board of Directors meeting
following such action. Vacancies in the Compensation Committee shall be filled
by the Board of Directors.
SECTION 4.05. NOMINATING COMMITTEE. By resolution adopted by a
majority of the Board of Directors, the Board of Directors may provide for a
Nominating Committee of three (3) or more directors who are not officers or
employees of the Corporation. If provision is made for a Nominating Committee,
the members of the Nominating Committee shall be elected by the Board of
Directors to serve at the pleasure of the Board of Directors. The Board of
Directors shall designate a chairman of the Nominating Committee from among the
membership of the committee. The Nominating Committee may make recommendations
to the Board of Directors concerning the composition of the Board including
its size and the qualifications for membership. The Nominating Committee may
also recommend to the Board of Directors nominees for election to fill any
vacancy occurring in the Board and to fill new positions created by an increase
in the authorized number of directors of the Corporation. Annually, the
Nominating Committee may recommend to the Board of Directors a slate of
directors to serve as management's nominees for election at the annual meeting
of shareholders. Vacancies in the Nominating Committee shall be filled by the
Board of Directors.
SECTION 4.06. OTHER COMMITTEES. By resolution adopted by a majority of
the Board of Directors, the Board of Directors may provide for such other
standing or special committees, composed of three (3) or more directors, or
discontinue the same. Each such committee shall have such powers and perform
such duties, not inconsistent with law, as may be assigned to it by the Board
of Directors; provided, however, that no such committee shall have authority
to: (a) authorize dividends or other distributions not permitted by applicable
law to be authorized by a committee; (b) approve or propose to shareholders
action that applicable law requires to be approved by shareholders; (c) fill
vacancies on the Board of Directors or on any committee thereof; (d) amend the
Articles of Incorporation; (e) adopt, amend or repeal bylaws; (f) approve a
plan of merger; (g) authorize or approve reacquisition of shares, except
according to a formula or method prescribed by the Board of Directors; (h)
authorize or approve the issuance or sale or contract for sale of shares, or
determine the designation and relative rights, preferences and limitations of a
class or series of shares (except that the Board of Directors may authorize a
committee of the Board of Directors or a senior executive officer to do so
within limits specifically prescribed by the Board of
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Directors); or (i) amend or repeal any resolution of the Board of Directors
that by its terms provides that it is not so amendable or repealable.
SECTION 4.07. MEETINGS OF COMMITTEES. Each committee of the Board of
Directors shall fix its own rules of procedure consistent with the provisions
of the Board of Directors governing such committee and shall meet as provided
by such rules or by resolution of the Board of Directors. Each committee shall
also meet at the call of its chairman or any two (2) members of such committee.
Unless otherwise provided by such rules or by such resolution, the provisions
of Article 3 of the bylaws shall govern the place of holding and notice
required for meetings of committees of the Board of Directors. A majority of
each committee shall constitute a quorum thereof; provided, however, that in
the absence of any member of such committee, the members present at such
meeting, whether or not they constitute a quorum, may appoint a member of the
Board of Directors, not otherwise prohibited by the bylaws from serving on such
committee, to act in the place of such absent member. Except in cases in which
it is otherwise provided by the rules of such committee or by resolution of the
Board of Directors, the vote of a majority of such quorum at a duly constituted
meeting shall be sufficient to pass any measure.
ARTICLE V
OFFICERS
SECTION 5.01. OFFICERS OF THE CORPORATION. The officers of the
Corporation shall consist of a Chairman, a President, a Secretary, a Treasurer
and such Vice-Presidents, Assistant Secretaries, Assistant Treasurers, and
other officers as may from time to time be appointed by or under the authority
of the Board of Directors. Any two or more offices may be held by the same
person; provided, however, no officer may act in more than one capacity where
action of two or more officers is required. The title of any officer may
include any additional designation, descriptive of such officer's duties as the
Board of Directors may prescribe including, but not limited to, Chief Executive
Officer, Chief Operating Officer, Chief Financial Officer and Principal
Accounting Officer.
SECTION 5.02. APPOINTMENT AND TERM. The officers of the Corporation
shall be appointed from time to time by the Board of Directors; provided,
however, that the Board of Directors may authorize a duly appointed officer to
appoint one or more officers or assistant officers, other than appointment of
the President. Each officer shall serve at the pleasure of the Board of
Directors.
SECTION 5.03. CHAIRMAN. The Chairman shall have such powers and perform
such duties as the Board of Directors may from time to time prescribe, and
shall perform such other duties as may be prescribed in these Bylaws.
SECTION 5.04. PRESIDENT. The President shall be the chief executive
officer of the Corporation and, while serving as the Chairman, shall preside at
all meetings of the shareholders. Subject to the authority of the Board of
Directors, he or she shall have general charge and supervision of the business
and affairs of the Corporation. With the Secretary or
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an Assistant Secretary, he or she may sign certificates of shares of the
Corporation. He or she shall have the authority to sign and execute in the
name of the Corporation all deeds, mortgages, bonds, contracts or other
instruments. He or she shall have the authority to vote stock in other
corporations and shall perform such other duties of management as may be
prescribed by a resolution or resolutions or as otherwise may be assigned to
him or her by the Board of Directors. He or she shall have the authority to
delegate such authorization and power as vested in him or her by these bylaws
to some other officer or employee or agent of the Corporation as he or she
shall deem appropriate.
SECTION 5.05. VICE-PRESIDENTS. In the absence of the President or in the
event of his or her death, inability or refusal to act, the Vice-Presidents in
the order of their length of service as such, unless otherwise determined by
the Board of Directors, shall perform the duties of the President. When acting
as President, the Vice-Presidents shall have all the powers of and be subject
to all the restrictions upon the President. With the Secretary or an Assistant
Secretary and in the absence of the Chairman or the President, any
Vice-President may sign certificates for shares of the Corporation. The
Vice-Presidents shall perform such other duties as from time to time may be
prescribed by the President or Board of Directors.
SECTION 5.06. SECRETARY. The Secretary shall keep the minutes of the
meetings of the shareholders and of the Board of Directors, in books provided
for the purpose and shall see that all notices of such meetings are duly given
in accordance with the provisions of the bylaws of the Corporation, or as
required by law. The Secretary may sign certificates of shares of the
Corporation with the Chairman, the President, or a Vice- President, as provided
in the bylaws. The Secretary shall be custodian of the corporate seal and
shall see that the corporate seal is affixed to all documents, the execution of
which, on behalf of the Corporation, under its seal, is duly authorized, and
when so affixed may attest the same. In general, the Secretary shall perform
all duties incident to the office of a secretary of a corporation, and such
other duties as from time to time may be assigned to the Secretary by the
President or the Board of Directors.
SECTION 5.07. TREASURER. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation and shall deposit, or cause to be deposited, in the name of the
Corporation, all monies or other valuable effects in such banks, trust
companies, or other depositories as shall, from time to time, be selected by
the Board of Directors. In general, the Treasurer shall perform all the duties
incident to the office of a treasurer of a corporation, and such other duties
as from time to time may be assigned to him or her by the President or the
Board of Directors.
SECTION 5.08. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
Assistant Secretaries and Assistant Treasurers, if any, shall, in the absence
or disability of the Secretary or the Treasurer, respectively, have all the
powers and perform all of the duties of those offices and such other duties as
shall be assigned to them by the Secretary or the Treasurer, respectively, or
by the President or the Board of Directors.
SECTION 5.09. OFFICERS HOLDING TWO OR MORE OFFICES. Any two (2) or more
of the above mentioned offices, except those of President and Vice-President,
may be held by the same person; provided, however, no officer shall execute,
acknowledge or
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verify any instrument in more than one capacity, if such instrument is required
by law, the Articles of Incorporation, or the bylaws, to be executed,
acknowledged or verified by any two (2) or more officers.
SECTION 5.10. COMPENSATION OF OFFICERS. The compensation of all elected
officers of the Corporation shall be fixed by or under the authority of the
Board of Directors and no officer shall serve the Corporation in any other
capacity and receive compensation therefor unless such additional compensation
shall be duly authorized. The appointment of an officer does not by itself
create contract rights.
SECTION 5.11. RESIGNATIONS. An officer may resign at any time by
communicating his or her resignation to the Corporation, orally or in writing.
A resignation is effective when communicated unless the resignation specifies
in writing a later effective date. If a resignation is made effective at a
later date and accepted by the Corporation, the Board of Directors may fill the
pending vacancy before the effective date if the Board provides that the
successor does not take office until the effective date.
SECTION 5.12. REMOVAL. Any officer of the Corporation may be removed,
with or without cause, by the Board of Directors, if such removal is determined
in the judgment of the Board of Directors to be in the best interests of the
Corporation, and any officer of the Corporation duly appointed by another
officer may be removed, with or without cause, by such officer.
SECTION 5.13. BONDS. By resolution, the Board of Directors may require
any officer, agent, or employee of the Corporation to give bond to the
Corporation, with sufficient sureties, conditioned on the faithful performance
of the duties of his respective office or position and to comply with such
other conditions as may from time to time be required by the Board of
Directors.
ARTICLE VI
CONTRACTS, LOANS AND DEPOSITS
SECTION 6.01. CONTRACTS. The Board of Directors may authorize any
officer or officers, agent or agents, to enter into any contract or execute and
deliver any document or instrument on behalf of the Corporation, and such
authority may be general or confined to specific instances. Any resolution of
the Board of Directors authorizing the execution of documents by the proper
officers of the Corporation or by the officers generally and not specifying
particular officers shall be deemed to authorize such execution by the
President, or any Vice President, or by any other officer if such execution is
within the scope of the duties of such other office. The Board of Directors
may by resolution authorize such execution by means of one or more facsimile
signatures.
SECTION 6.02. LOANS. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized by the Board of Directors. Such authority may be general or
confined to specific instances.
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SECTION 6.03. CHECKS AND DRAFTS. All checks, drafts or other orders for
the payment of money issued in the name of the Corporation shall be signed by
such officer or officers, agent or agents of the Corporation, and in such
manner, as shall from time to time be determined by resolution of the Board of
Directors.
SECTION 6.04. DEPOSITS. All funds of the Corporation not otherwise
employed or invested shall be deposited from time to time to the credit of the
Corporation in such depositories as the Board of Directors shall direct.
ARTICLE VII
SHARES
SECTION 7.01. CERTIFICATES. Each shareholder shall be entitled to a
certificate or certificates which shall represent and certify the number and
kind of shares owned by such shareholder in the Corporation. Such certificates
shall be signed by the Chairman, the President, or in his or her absence any
Vice-President, and countersigned by the Secretary or an Assistant Secretary,
and sealed with the seal of the Corporation or a facsimile of such seal.
Shares certificates shall be in such form, not inconsistent with law or with
the charter, as shall be approved by the Board of Directors. When certificates
for stock of any class are countersigned by a transfer agent, other than the
Corporation or its employee, or by a registrar, other than the Corporation or
its employee, any other signature on such certificates may be a facsimile. In
the event that any officer of the Corporation who has signed any certificate
ceases to be an officer of the Corporation, whether because of death,
resignation or otherwise, before such certificate is issued, the certificate
may nevertheless be issued and delivered by the Corporation as if the officer
had not ceased to be an officer as of the date of its issue.
SECTION 7.02. TRANSFER OF SHARES. Shares shall be transferable only on
the books of the Corporation by the holder thereof, in person or by duly
authorized attorney, and upon the surrender of the certificate representing the
shares to be transferred, properly endorsed. The Board of Directors shall have
power and authority to make such other rules and regulations concerning the
issue, transfer and registration of certificates of stock as it may deem
expedient.
SECTION 7.03. TRANSFER AGENTS AND REGISTRARS. The Corporation
may have one or more transfer agents and one or more registrars of its stock,
whose respective duties the Board of Directors may, from time to time, define.
No certificate of stock shall be valid until countersigned by a transfer agent,
if the Corporation has a transfer agent, or until registered by a registrar, if
the Corporation has a registrar. The duties of transfer agent and registrar
may be combined.
SECTION 7.04. RECORD DATES. The Board of Directors is hereby
empowered to fix, in advance, a date as the record date for the purpose of
determining shareholders entitled to notice of, or to vote at, any meeting of
shareholders, or shareholders entitled to receive payment of any dividend or
the allotment of any rights, or in order to make a determination
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of shareholders for any other proper purpose. Such date in any case shall be
not more than seventy (70) days and, in case of a meeting of shareholders, not
less than ten (10) days, prior to the date on which the particular action,
requiring such determination of shareholders, is to be taken. If a record date
is not set and the transfer books are not closed, the record date for the
purpose of making any proper determination with respect to shareholders shall
be fixed in accordance with applicable law.
SECTION 7.05. NEW CERTIFICATES. In case any certificate of stock is
lost, stolen, mutilated or destroyed, the Board of Directors may authorize the
issue of a new certificate in place thereof upon such terms and conditions as
it may deem advisable. In the alternative, the Board of Directors may delegate
such power to any officer or officers or agents of the Corporation; provided,
however, the Board of Directors or such officer or officers, in their
discretion, may refuse to issue such new certificate save upon the order of
some court having jurisdiction in the premises.
ARTICLE VIII
INDEMNIFICATION
Any person who at any time serves or has served as an officer, employee or
a director of the Corporation, or who, while serving as an officer, employee or
a director of the Corporation, serves or has served at the request of the
Corporation as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise, or
as a trustee or administrator under an employee benefit plan, shall have a
right to be indemnified by the Corporation to the fullest extent permitted by
law against: (a) expenses, including attorneys' fees, incurred by him or her
in connection with any threatened, pending or completed civil, criminal,
administrative, investigative or arbitrative action, suit or proceeding (and
any appeal therein), whether or not brought by or on behalf of the Corporation,
seeking to hold him or her liable by reason of the fact that such person is or
was acting in such capacity; and (b) payments made by such person in
satisfaction of any liability, judgment, money decree, fine (including an
excise tax assessed with respect to an employee benefit plan), penalty or
settlement for which he or she may have become liable in any such action, suit
or proceeding. From time to time and to the fullest extent permitted by law,
the Corporation agrees to pay the indemnitee's expenses, including attorney's
fees and expenses incurred in defending any such action, suit, or proceeding in
advance of the final disposition of such action, suit, or proceeding. The
foregoing rights of the indemnitee hereunder shall inure to the benefit of the
indemnitee, whether or not he or she is an officer, director, employee, or
agent at the time such liabilities or expenses are imposed or incurred.
The Board of Directors of the Corporation shall take all such action as
may be necessary and appropriate to authorize the Corporation to pay the
indemnification required by this bylaw, including without limitation, making a
determination that indemnification is permissible in the circumstances, a good
faith evaluation of the manner in which the claimant for indemnity acted, and
of the reasonable amount of indemnity due. The Board of Directors may appoint
a committee or special counsel to make such determination and evaluation. The
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<PAGE> 20
Board of Directors may give notice to, and obtain approval by, the shareholders
of the Corporation for any decision to indemnify.
At any time after the adoption of this bylaw, any person who serves or has
served in the aforesaid capacity for or on behalf of the Corporation shall be
deemed to be doing or to have done so in reliance upon and as consideration for
the right of indemnification provided herein. Such right shall inure to the
benefit of the legal representatives of any such person and shall not be
exclusive of any other rights to which such person may be entitled apart from
the provision of this bylaw, including a right of indemnification under any
statute, agreement or insurance policy.
Notwithstanding the foregoing, no indemnity offered under this Bylaw shall
be granted for liability or litigation expenses incurred on account of any
activities that were known or believed by the director, officer or employee who
undertook them to be clearly in conflict with the best interests of the
Corporation when they occurred.
ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 9.01. ANNUAL REPORT. The Corporation shall prepare and deliver
to the North Carolina Secretary of State for filing each year the annual report
required by the North Carolina Business Corporation Act. Such annual report
shall be filed each year within 60 days after the end of the month in which
Corporation was incorporated, or at such other time as is then required by
applicable law. The Corporation may, and when required by law shall, file all
necessary or appropriate corrections and amendments to such annual report, and
shall promptly file an amendment to its annual report to reflect any change in
the location of the principal office of the Corporation.
SECTION 9.02. SEAL. The corporate seal of the Corporation shall consist
of two concentric circles between which is the name of the Corporation and in
the center of which is inscribed SEAL; and such seal, as impressed or affixed
on the margin hereof, is hereby adopted as the corporate seal of the
Corporation. The seal may be used by causing it or a facsimile thereof to be
impressed, affixed, stamped or reproduced by any means.
SECTION 9.03. VOTING OF SHARES IN OTHER CORPORATIONS. Any shares in other
corporations or associations, which may from time to time be held by the
Corporation, may be represented and voted at any of the shareholders' meetings
thereof by the Chairman or President of the Corporation or by proxy or proxies
appointed by the Chairman or President of the Corporation. However, the Board
of Directors or Chairman may by resolution or delegation appoint some other
person or persons to vote such shares, in which case such person or persons
shall be entitled to vote such shares upon the production of a certified copy
of such resolution or delegation.
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SECTION 9.04. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors. Until further resolution, the
fiscal year shall be from January 1st to December 31st.
SECTION 9.05. AMENDMENTS. Except as otherwise provided in the Articles of
Incorporation or by law, these bylaws, including any bylaws adopted by the
shareholders, may be amended or repealed and new bylaws may be adopted by the
Board of Directors. At all meetings of the shareholders, unless otherwise
provided by law or by the Articles of Incorporation, an affirmative vote of the
holders of sixty-six and two-third's percent (66- 2/3%) of the voting shares
issued and outstanding shall be required to amend the Articles of Incorporation
or these Bylaws.
18
<PAGE> 1
EXHIBIT 4
Ridgeview logo, three partial ellipses around a circle
Common Stock RIDGEVIEW, INC. Common Stock
Number Shares
Incorporated Under the Laws See Reverse for Certain
of the State of North Carolina Definitions
RIDGEVIEW, INC.
CUSIP 765905 10 4
THIS CERTIFIES THAT:
IS THE OWNER OF:
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK,
PAR VALUE $0.01 PER SHARE, OF
RIDGEVIEW, INC.
(the "Corporation") transferable on the books of the Corporation by the holder
hereof in person or by duly authorized attorney upon the surrender of this
Certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be subject to all the provisions of the Amended and
Restated Articles of Incorporation and the Bylaws of the Corporation and any
amendments thereto, to all of which the holder of this certificate, by
acceptance hereof, assents. This certificate is not valid until countersigned
and registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
/s/ J. Michael Gaither /s/ Albert C. Gaither
SECRETARY CHAIRMAN OF THE BOARD
SEAL OF RIDGEVIEW, INC.
Countersigned and Registered:
First Union National Bank of North Carolina
(Charlotte, North Carolina) Transfer Agent and Registrar
Authorized officer
<PAGE> 2
RIDGEVIEW, INC.
The Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional, or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations
TEN COM-- as tenants in common UNIF TRANS. MIN ACT-- Custodian
TEN ENT-- As tenants by the entireties (Cust) (Minor)
JT TEN-- as joint tenants with under Uniform Transfers to Minors Act
right of survivorship and
not as tenants in common (State)
Additional abbreviations may also be used though not in the above list.
For Value received hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
shares of the common stock represented by the within Certificate and do hereby
irrevocably constitute and appoint
Attorney to transfer the said shares on the books of the within named
corporation with full power of substitution.
Dated, X
X
NOTICE: The signatures to this assignment must correspond with the name(s) as
written upon the face of the certificate in every particular, without
alteration or enlargement or any change whatsoever.
SIGNATURE(S) GUARANTEED:
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS, AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT TO
S.E.C. RULE 17Ad-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE, IF IT IS LOST, STOLEN, OR DESTROYED, THE
CORPORATION MAY REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF A
REPLACEMENT CERTIFICATE.
<PAGE> 1
EXHIBIT 10.33
RIDGEVIEW INC.
1996 STOCK OPTION PLAN FOR
OUTSIDE DIRECTORS
<PAGE> 2
RIDGEVIEW, INC.
1996 STOCK OPTION PLAN
FOR OUTSIDE DIRECTORS
TABLE OF CONTENTS
Section Page
------- ----
1 Purpose 1
2 Definitions 1
3 Administration 4
4 Amount of Stock 4
5 Eligibility 5
6 Terms and Conditions of Options 5
7 Effect of Certain Transactions 7
8 Terminating Events 8
9 Amendment of Plan 8
10 Termination 8
11 Miscellaneous Provisions 9
12 Effectiveness of Plan 10
<PAGE> 3
RIDGEVIEW, INC.
1996 STOCK OPTION PLAN
FOR OUTSIDE DIRECTORS
Ridgeview, Inc. does hereby establish the Ridgeview, Inc. 1996 Stock
Option Plan for Outside Directors subject to the following provisions:
SECTION 1. PURPOSE. The purpose of the Plan is to secure for the Company
and its shareholders the benefits of the incentive inherent in increased Common
Stock ownership by the Outside Directors of the Company.
SECTION 2. DEFINITIONS. For the purpose of this Plan as well as for any
Option Agreement, unless the context clearly requires otherwise, the following
words shall have the meanings indicated:
(a) "BOARD" shall mean the Board of Directors of the Company as it
may be comprised from time to time.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time, or any successor statutes, and applicable regulations.
(c) "COMMITTEE" shall mean the committee appointed by the Board of
the Company to administer this Plan, if one is appointed. The Committee
shall consist of members of the Board and have not less than two (2)
persons. A member of the Committee must satisfy Rule 16b-3 with respect
to grants to executive officers and directors. Unless and until
otherwise appointed, the Committee shall be the Board, exclusive of the
Outside Directors participating or eligible to participate hereunder.
(d) "COMMON STOCK" shall mean the common stock of the Company,
subject to the right of the Company to change the authorized number of
shares of such class and to provide no par or a change in par value for
such stock.
(e) "COMPANY" shall mean Ridgeview, Inc., a North Carolina
corporation, and any successor corporation.
(f) "EFFECTIVE DATE" means the date, following adoption of the Plan
by the Board, on which the Company first has a class of shares
registered under Section 12 of the Securities Exchange Act of 1934, as
amended (15 U.S.C. Section 781).
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<PAGE> 4
(g) "EMPLOYEE" means any individual who is a common law employee of
the Company or any Subsidiary, whether or not he is a director of the
Company or a Subsidiary.
(h) "FAIR MARKET VALUE" in reference to the Common Stock of the
Company means as of a given date
(i) the closing price of a share of Common Stock on the
National Market System or national securities exchange on which the
Common Stock is then trading as of the day immediately prior to
such date, or if Common Stock was not traded on that day, then on
the next preceding trading day during which a sale occurred; or
(ii) if the Common Stock is not traded on the National Market
System or listed on a national securities exchange, the mean
between the bid and asked prices per share last reported by the
National Association of Securities Dealers, Inc., for the
over-the-counter market on the day immediately prior to such date,
or in the absence of any bid and asked prices on that day, the mean
of the bid and asked prices per share of such Stock quoted on the
next preceding day for which there were such quotations; or
(iii) if the Common Stock is not traded on the National
Market System or listed on a national securities exchange, and
quotations for the Stock are not reported by the National
Association of Securities Dealers, Inc., the fair market value
determined by the Committee on the day immediately preceding such
date on the basis of available prices for the Stock or in such
manner as the Committee shall agree.
The Committee shall determine the Fair Market Value of any security that
is not publicly traded, using such criteria as it shall determine, in
its sole discretion, to be appropriate for such valuation.
(i) "OPTION" shall mean a non-qualified stock option to which
section 422 of the Code does not apply, which shall be granted by the
Company to Optionees pursuant to the terms of this Plan.
(j) "OPTION AGREEMENT" shall mean the written instrument executed by
the Company and the Optionee which sets forth the terms of the Option
pursuant to which Common Stock may be issued to the Optionee, upon the
satisfaction of any conditions stated therein.
(k) "OPTIONEE" shall mean an Outside Director who has been granted
an Option pursuant to the terms of this Plan.
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<PAGE> 5
(l) "OPTION STOCK" shall mean shares of Common Stock issued to an
Optionee upon the exercise of an Option granted under the Plan.
(m) "OUTSIDE DIRECTOR" shall mean any member of the Board who is not
an Employee or officer of the Company or any Subsidiary and who is
considered independent under Schedule G of the by-laws of the National
Association of Securities Dealers, Inc.
(n) "PLAN" shall mean the Ridgeview, Inc. 1996 Stock Option Plan for
Outside Directors, as amended from time to time in accordance herewith.
(o) "RULE 16B-3" means Rule 16b-3 as promulgated by the Securities
and Exchange commission on May 31, 1996, effective August 15, 1996, or as
such regulation or successor regulation shall be hereafter amended.
(p) "SECTION 16" means section 16 of the Securities Exchange Act of
1934 or any successor regulation and the rules promulgated thereunder as
they may be amended from time to time.
(q) "SUBSIDIARY" is any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company in which each
of the corporations owns stock possessing 50 percent or more of the total
combined voting power of all classes of stock in one of the other
corporations in that chain.
(r) "TERMINATING EVENT" means the earliest date on which any one of
the following events shall occur:
(i) an individual, entity, or group (other than lineal
descendants of Joseph Albert Gaither, the founder of the Company,
or entities controlled by his lineal descendants) shall acquire
after the Effective Date, otherwise than directly from the Company,
beneficial ownership of 25% or more of the outstanding common stock
or voting power of the Company, provided that no such individual,
entity or group shall be deemed to beneficially own any securities
held by:
(A) the Company or any Subsidiary, or
(B) any employee benefit plan of the Company or any
Subsidiary;
(ii) the Company shall be merged into another corporation and
shall not be the surviving corporation or shall be consolidated
with another corporation;
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<PAGE> 6
(iii) the Company shall sell substantially all of its assets to
another corporation which is not a wholly-owned subsidiary; or
(iv) the persons who were directors of the Company on the
date 30 days after the Effective Date, together with those who
subsequently became directors of the Company and whose election, or
nomination for election by the Company's shareholders, was approved
by the vote of at least a majority of the directors of the Company
who were directors of the Company on the date 30 days after the
Effective Date, or directors whose nomination or election was
approved as provided above (the "CONTINUING DIRECTORS"), shall
cease to constitute a majority of the Board or of its successor by
merger, consolidation or sale of assets.
However, a majority of the Continuing Directors may approve any
event described in Section 2(s)(i), (ii), or (iii) and determine that, for
purposes of this Plan, a Terminating Event has not occurred.
(s) "TERM-YEAR" means (i), with respect to an initial Option under
Section 6, that period from the grant of the Option to the next Annual
Meeting of shareholders of the Company (other than an Annual Meeting at
which the Outside Director is first elected or appointed) and (ii), for
all other purposes, that period (other than the period described in (i)
with respect to an initial Option) from one Annual Meeting of
shareholders of the Company to the subsequent Annual Meeting of
shareholders for the Company.
SECTION 3. ADMINISTRATION. The Plan shall be administered by the
Committee. The Committee shall have all the powers vested in it by the terms
of the Plan, such powers to include authority (within the limitations described
herein) to prescribe the form of the Option Agreement embodying awards of
Options made under the Plan. The Committee shall, subject to the provisions of
the Plan, have the power to construe the Plan, to determine all questions
arising thereunder and to adopt and amend such rules and regulations for the
administration of the Plan as it may deem desirable. Any decision of the
Committee in the administration of the Plan, as described herein, shall be
final and conclusive. The Committee may act only by a majority of its members
in office, except that the members thereof may authorize any one or more of
their number or the Secretary or any other officer of the Company to execute
and deliver documents on behalf of the Committee. No member of the Committee
shall be liable for anything done or omitted to be done by such member or by
any other member of the Board in connection with the Plan, except for such
member's own willful misconduct or as expressly provided by statute. If the
Board shall not have appointed a Committee to administer the Plan, the Board
shall have the responsibilities appointed to the Committee herein.
SECTION 4. AMOUNT OF STOCK. The stock which may be issued and sold under
the Plan will be Common Stock, of a total number not exceeding 15,000 shares,
subject to adjustment as provided in Section 7. The stock to be issued may be
either authorized and unissued shares or issued shares acquired by the Company
or any Subsidiary. In the event that
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<PAGE> 7
Options granted under the Plan shall terminate or expire without being
exercised in whole or in part, new Options may be granted covering the shares
not purchased under such lapsed Options.
SECTION 5. ELIGIBILITY. Each Outside Director shall receive an Option or
Options in accordance with Section 6 on or after the Effective Date. The
adoption of this Plan shall not give any director any right to be granted an
option to purchase Common Stock of the Company beyond the rights expressly set
forth herein.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS. On or after the Effective
Date, the Committee shall commence to grant Options hereunder. Each Option
granted under the Plan shall be evidenced by an Option Agreement in such form
as the Committee shall prescribe from time to time in accordance with the Plan.
Each Option shall comply with and be subject to the following terms and
conditions:
(a) Each Outside Director serving as such as of the Effective Date
shall automatically receive an Option for five hundred (500) shares of
Common Stock.
(b) An Outside Director not referred to in (a), as of the date of
his first election or appointment as a director of the Company, shall
automatically receive an Option for five hundred (500) shares of Common
Stock.
(c) Each year, as of the date of the Annual Meeting of shareholders
of the Company, each Outside Director described in (a) or (b) who has
been re-elected as a director of the Company or who is continuing as a
director of the Company as of the adjournment of the Annual Meeting
(other than an Annual Meeting at which the director is first elected or
appointed as a director) shall automatically receive an additional Option
for five hundred (500) shares of Common Stock.
(d) The Option exercise price shall be the Fair Market Value of the
shares subject to such Option on the date the Option is granted.
(e) Each Option shall not be transferable by the Optionee
otherwise than by will or the laws of descent and distribution, and shall
be exercisable during his lifetime only by him unless (i) the terms of
the Option, as prescribed by the Committee, specifically permit transfer
thereof and (ii) such transfer is not prohibited by law or applicable
regulation.
(f) Each Option or part of that Option shall become vested and
exercisable in accordance with this schedule:
(i) one-third (1/3) on or after expiration of one Term-Year
from the date of grant of the Option;
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<PAGE> 8
(ii) one third (1/3) on or after expiration of two Term-Years
from the date of grant of the Option; and
(iii) one-third (1/3) on or after expiration of three
Term-years from the date of grant of the Option.
The Optionee may cumulate each installment and exercise the same, in
whole or in part, after it vests and becomes exercisable, at any time
prior to expiration of the term of the Option.
(g) No Option or any part of an Option small be exercisable:
(i) for a period of six (6) months following the date of the grant;
(ii) after expiration of ten (10) years from the date the
Option was granted;
(iii) unless written notice of the exercise is delivered to
the Company specifying the number of shares to be purchased
accompanied by payment in full for the shares of Common Stock
being acquired thereunder; such payment shall be made
(A) in United States dollars by registered check or bank
draft, or
(B) at the discretion of the Committee (which may be
expressed in the Option Agreement), by tendering to the
Company Common Stock shares owned by the person exercising
the Option and having a Fair Market Value as of the date of
exercise equal to the cash exercise price applicable to such
Option, or through a combination of United States dollars and
Common Stock shares as aforesaid, or through other means as
the Committee determines are consistent with the Plan's
purpose and applicable law, but no fractional shares of
Common Stock will be issued or accepted; or
(C) at the discretion of the Committee (which may be
expressed in the Option Agreement), by delivery to the
Company or its designated agent of an irrevocable written
notice of exercise form together with irrevocable
instructions to a broker-dealer to sell or margin a
sufficient portion of the shares of Common Stock and deliver
the sale or margin loan proceeds directly to the Company to
pay the exercise price.
(h) At the time of exercise of an Option the person exercising the
Option must have been, at all times during the period beginning with the
date of grant of the
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<PAGE> 9
Option and ending on the date of such exercise, an Outside Director of
the Company with these exceptions:
(i) With respect to an Optionee who ceases to be an Outside
Director for any reason other than death, while holding an Option
that has not expired and has not been fully exercised, the Optionee
or his transferee may, at any time after the date he ceases to be
such an Outside Director (but in no event after the Option has
expired under the provisions of Section 6(g)(ii)), exercise the
Option with respect to any Common Stock shares as to which such
person has not exercised the Option on the date the person ceased
to be such an Outside Director.
(ii) With respect to an Optionee who ceases to be an Outside
Director by reason of death while holding an Option that has not
expired and has not been fully exercised, the executors,
administrators, heirs, distributees, or transferee, as the case may
be, may, at any time within one year after the date the Optionee
died (but in no event after the Option has expired under the
provisions of Section 6(g)(ii)), exercise the Option with respect
to any shares of Common Stock as to which the Optionee has not
exercised the Option on the date the Optionee died.
(iii) With respect to an Optionee who ceases to be an
Outside Director for a reason other than death, but dies holding an
Option that has not been fully exercised, that Optionee's executor,
administrator, heirs, distributees, or transferee, as the case may
be, may, at any time within the greater of (x) one year after the
date of death or (y) the remainder of the period in which such
person could have exercised the Option had the person not died (but
in no event under either (x) or (y) after the Option has expired
under the provisions of Section 6(g)(ii)), exercise the Option with
respect to any shares as to which the decedent could have exercised
the Option at the time of death.
Each reference to "transferee" is operable if the Option
Agreement specifically permits a transfer of the Option, as
provided in Section 6(e).
(i) If any Option is exercised by the executor, administrator,
heirs, or distributees of the estate of a deceased Optionee, or a person
purporting to be the transferee of the Optionee, the Company shall be
under no obligation to issue stock thereunder unless and until the
Company is satisfied that the person or persons exercising the Option are
the duly appointed legal representatives of the deceased Optionee's
estate or the proper heirs or distributees thereof, or the actual
transferee of the Option.
(j) No further vesting of these exercise rights shall occur under
Section 6(f) after an Optionee ceases to be an Outside Director.
SECTION 7. EFFECT OF CERTAIN TRANSACTIONS. The number of shares of Common
Stock reserved for the Plan, the maximum number of shares of Common Stock an
Optionee may
7
<PAGE> 10
purchase pursuant to an outstanding Option, and the determination of the
exercise price of an outstanding Option shall be appropriately adjusted by the
Committee, whose determination shall be conclusive, to reflect any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, a consolidation or shares, the payment of a stock dividend, or any other
capital adjustment affecting the number of issued shares of Common Stock. In
the event that the outstanding shares of Common Stock shall be changed into or
exchanged for a different number or kind of shares of stock or other securities
of the Company or another corporation, whether through reorganization,
recapitalization, merger, consolidation, of otherwise, then there shall be
substituted for each share of Common Stock reserved for issuance under the
Plan, but not yet purchased by Optionees, the number and kind of shares of
stock or other securities into which each outstanding share of Common Stock
shall be so changed or for which each such share shall be exchanged.
SECTION 8. TERMINATING EVENTS. Not less than thirty (30) nor more than
sixty (60) days prior to a Terminating Event, the Committee or the Board shall
notify each Optionee of a pending Terminating Event. At any time during a
period of thirty (30) days following delivery of such notice, an Optionee may,
notwithstanding the vesting provisions of Section 6 (f) exercise an Option in
whole or in part in accordance with the exercise provisions of the remainder of
Section 6. Upon the date thirty (30) days after delivery of said notice, any
Option or portion thereof not exercised shall terminate, and upon the effective
date of the Terminating Event, the Plan shall terminate, unless provision is
made in connection with the Terminating Event for assumption of Options
previously granted, or substitution for such Options of new options covering
stock of a successor employer corporation, or a parent or subsidiary
corporation thereof, with appropriate adjustments as to number and kind of
shares and prices. If a Terminating Event for which notice is given does not
occur within 90 days after the date specified in the notice, a new notice must
be given and a new exercise period given in accordance with this Section 8.
SECTION 9. AMENDMENT OF PLAN. The Company expressly reserves the right,
at any time and from time to time, to amend in whole or in part any of the
terms and provisions of the Plan and any or all Options to the extent permitted
by law for whatever reason(s) the Company may deem appropriate; provided,
however, no amendment may be effective, without the approval of the
shareholders of the Company, if approval of such amendment is required in order
that transactions in Company securities under the Plan be exempt from the
operation of Section 16(b) of the Securities Exchange Act of 1934.
SECTION 10. TERMINATION. The Company reserves the right to, at any time,
suspend or terminate the Plan and any Option Agreement to the extent permitted
by law, for whatever reason(s) the Company may deem appropriate, including,
without limitation, suspension or termination as to any Subsidiary. In any
event, the Plan shall terminate ten years from the Effective Date.
8
<PAGE> 11
SECTION 11. MISCELLANEOUS PROVISIONS.
(a) Except as expressly provided for in the Plan, no Outside
Director or other person shall have any claim or right to be granted an
Option. Neither the Plan nor any action taken hereunder shall be
construed as giving any Outside Director any right to be retained in the
service of the Company.
(b) An Optionee's right and interest under the Plan may not be
assigned or transferred in whole or in part either directly or by
operation of law or otherwise, including, but not by way of limitation,
execution, levy, garnishment, attachment, pledge, bankruptcy, or in any
other manner, and no such right or interest of any Optionee shall be
subject to any obligation or liability of such Optionee. An Optionee's
right and interest in a granted Option may be transferred to the extent
prescribed by the terms of the Option, as described in Section 6(e), and,
in the event of an Optionee's death, by will or by the laws of descent
and distribution, unless prohibited by the terms of the Option or this
Plan.
(c) No Common Stock shares shall be issued hereunder unless counsel
for the Company shall be satisfied that such issuance will be in
compliance with applicable federal, state, and other securities laws and
regulations.
(d) It shall be a condition to the obligation of the Company to
issue Common Stock shares upon exercise of an Option, that the Optionee
(or any beneficiary or person entitled to act under Section 6(h)) pay to
the Company, upon its demand, such amount as may be requested by the
Company for the purpose of satisfying any liability to withhold federal,
state, local income or other taxes. If the amount requested is not paid,
the Company may refuse to issue Common Stock shares. With the approval
of the Committee, shares of Common Stock may be deducted from the
distribution to the Optionee to satisfy the obligation in full or in part
as long as such withholding of shares does not violate any applicable
laws, rules, or regulations of federal, state, or local authorities. The
number of shares to be deducted shall be determined by reference to the
Fair Market Value of such shares on the applicable date (the "given" date
of Section 2(h)).
(e) The expenses of the Plan shall be borne by the Company.
(f) The Plan shall be unfunded. The Company shall not be required
to establish any special or separate fund or to make any other
segregation of assets to assure the issuance of shares upon exercise of
any Option under the Plan and issuance of shares upon exercise of Options
shall be subordinate to the claims of the Company's general creditors.
(g) By accepting any Option or other benefit under the Plan, each
Optionee and each person claiming under or through such person shall be
conclusively deemed to
9
<PAGE> 12
have indicated his acceptance and ratification of, and consent to, any
action taken under the Plan by the Company or the Board.
(h) All section references herein refer to sections of this Plan
unless specifically noted otherwise.
(i) Any notice or other communication provided for herein shall be
given in writing by registered or certified mail, return receipt
requested, or by facsimile, telecopy, or other means of electronic
communication, reasonably calculated in any instance to be received by
the receiving party or his or its authorized agent at the receiving
party's last-known address. The notice or communication shall be deemed
as delivered when it arrives at such address.
(j) It is the intent of the Company that the Plan and Options
hereunder satisfy and be interpreted in a manner, that, in the case of
Optionees, satisfies the applicable requirements of Rule 16b-3, so that
such persons will be entitled to the benefits of Rule 16b-3 or other
exemptive rules under Section 16 and will not be subjected to avoidable
liability thereunder. If any provision of the Plan or of any Option
Agreement would otherwise frustrate or conflict with the intent expressed
in this Section, that provision to the extent possible shall be
interpreted and deemed amended so as to avoid such conflict. To the
extent of any remaining irreconcilable conflict with such intent, the
provision shall be deemed void as applicable to any person who is subject
to Section 16.
SECTION 12. EFFECTIVENESS OF PLAN. The Plan shall become effective on the
Effective Date.
RIDGEVIEW, INC.
By /s/ Hugh R. Gaither
------------------------------
Title President and
Chief Executive Officer
----------------------------
10
<PAGE> 1
EXHIBIT 10.34
CONFORMED COPY
FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (Term Loan)
THIS FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Fourth
Amendment"), dated as of September 6, 1996, is made by and between
RIDGEVIEW, INC., a corporation organized and existing under the laws of
the State of North Carolina (the "Borrower"); and
NATIONSBANK, N.A. (SOUTH), a national banking association organized and
existing under the laws of the United States (the "Lender").
RECITALS:
A. The Borrower and the Lender entered into that certain Loan and
Security Agreement (Term Loan), dated January 10, 1995, as amended (the "Loan
Agreement").
B. The Borrower and the Lender have agreed to modify and amend the Loan
Agreement as set forth herein.
NOW THEREFORE, the parties hereto agree as follows:
1. The Loan Agreement is hereby amended as follows:
(a) Section 2.3 of the Loan Agreement is amended in its entirety so
that such Section now reads as follows:
Section 2.3 Repayment of Term Loan. The outstanding principal
balance of the Term Loan as of September 6, 1996 is $4,166,660.00.
Such outstanding principal balance shall be paid as follows:
Payment Date Payment Amount
------------ --------------
October 1, 1996 $41,667.00
November 1, 1996 $41,667.00
December 1, 1996 $41,667.00
January 1, 1997 $41,667.00
January 31, 1997 the then outstanding
principal balance of
the Term Loan
1
<PAGE> 2
(b) Section 10B.1 of the Loan Agreement is amended in its entirety
so that such Section now reads as follows:
Section 10B.1 Domestic Business Financial Ratios.
(a) Maximum Liabilities to Tangible Net Worth. Permit the
ratio of total Liabilities of the Domestic Business of the Borrower
and its U.S. Subsidiaries to Tangible Net Worth of the Domestic
Business of the Borrower and its U.S. Subsidiaries to be greater than
(i) 9.5 to 1.0 during the period commencing on September 6, 1996
through and including December 30, 1996, (ii) 8.0 to 1.0 during the
period commencing on and including December 31, 1996 through and
including March 30, 1997, (iii) 8.25 to 1.0 during the period
commencing on and including March 31, 1997 through and including June
29, 1997, (iv) 8.0 to 1.0 during the period commencing on and
including June 30, 1997 through and including September 29, 1997, (v)
7.25 to 1.0 during the period commencing on and including September
30, 1997 through and including December 30, 1997 and (vi) 6.25 to 1.0
during the period commencing on December 31, 1997 and thereafter;
(b) Minimum Tangible Net Worth. Permit the Tangible Net Worth
of the Domestic Business of the Borrower and its U.S. Subsidiaries to
be less than the following amounts at any time during the following
periods:
Minimum Domestic Business
Period Tangible Net Worth
------ -------------------------
September 6, 1996
through December 30, 1996 $3,500,000
December 31, 1996
through June 29, 1997 $4,350,000
June 30, 1997
through December 30, 1997 $4,800,000
December 31, 1997 and
thereafter $6,500,000
(c) Minimum Fixed Charge Ratio. Permit the Fixed Charge Ratio
of the Domestic Business of the Borrower and its U.S. Subsidiaries to
be less than 1.25 to 1.0 as of the last day of each fiscal year
(commencing with the month ending December 31, 1996), in each case
computed for the twelve monthly periods then ending.
2
<PAGE> 3
(d) Minimum Current Ratio. Permit the ratio of current assets
of the Domestic Business of the Borrower and its U.S. Subsidiaries to
the current Liabilities of the Domestic Business of the Borrower and
its U.S. Subsidiaries to be equal to or less than .95 to 1.0 as of
the last day of each month during the period commencing on September
6, 1996 through December 30, 1996 and 1.10 to 1.0 as of the last day
of each month thereafter (for purposes of the foregoing, outstanding
Revolving Credit Loans shall be included within current Liabilities).
2. Except as hereby modified, all the terms and provisions of the Loan
Agreement remain in full force and effect.
3. The Borrower will execute such additional documents as are reasonably
requested by the Lender to reflect the terms and conditions of this Fourth
Amendment and will cause to be delivered such certificates, legal opinions and
other documents as are reasonably required by the Lender. In addition, the
Borrower will pay all costs and expenses in connection with the preparation,
execution and delivery of the documents executed in connection with this
transaction, including, without limitation, the reasonable fees and
out-of-pocket expenses of special counsel to the Lender as well as any and all
filing and recording fees and stamp and other taxes with respect thereto and to
save the Lender harmless from any and all such costs, expenses and liabilities.
4. This Fourth Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original, and
it shall not be necessary in making proof of this Fourth Amendment to produce
or account for more than one counterpart.
5. This Fourth Amendment and all other documents executed pursuant to
the transactions contemplated herein shall be deemed to be contracts made
under, and for all purposes shall be construed in accordance with, the internal
laws and judicial decisions of the State of Georgia and shall be subject to the
provisions of Section 12.5 and 12.6 of the Loan Agreement.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment
to be executed by their fully authorized officers as of the day and year first
above written.
RIDGEVIEW, INC.
ATTEST:
By: /s/ Susan Gaither Jones By: /s/ Hugh R. Gaither
Title: Asst. Secretary Title: President & CEO
(Corporate Seal)
NATIONSBANK, N.A. (SOUTH)
By: /s/ Scott Goldstein
Title: VP
4
<PAGE> 1
EXHIBIT 10.35
CONFORMED COPY
FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
(Revolving Loans)
THIS FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Fourth
Amendment"), dated as of September 6, 1996, is made by and between
RIDGEVIEW, INC., a corporation organized and existing under the laws of
the State of North Carolina (the "Borrower"); and
NATIONSBANK, N.A. (SOUTH), a national banking association organized and
existing under the laws of the United States (the "Lender").
RECITALS:
A. The Borrower and the Lender entered into that certain Loan and
Security Agreement (Revolving Loans), dated January 10, 1995, as amended (the
"Loan Agreement").
B. The Borrower and the Lender have agreed to modify and amend the Loan
Agreement as set forth herein.
NOW THEREFORE, the parties hereto agree as follows:
1. The Loan Agreement is hereby amended as follows:
(a) Section 1.1 is amended by amending in its entirety the
definition of "Revolving Credit Facility" so that such definition now
reads as follows:
"Revolving Credit Facility" means the principal sum of
$20,000,000.
(b) Section 2.4 is amended in its entirety so that such Section now
reads as follows:
Section 2.4 Revolving Credit Note. The Lender's Revolving
Credit Loans and the obligation of the Borrower to repay such Loans
shall also be evidenced by a single Revolving Credit Note payable to
the order of the Lender. Such Note shall be dated September 6, 1996
and be duly and validly executed and delivered by the Borrower.
(c) Section 10B.1 of the Loan Agreement is amended in its entirety
so that such Section now reads as follows:
1
<PAGE> 2
Section 10B.1 Domestic Business Financial Ratios.
(a) Maximum Liabilities to Tangible Net Worth. Permit the
ratio of total Liabilities of the Domestic Business of the Borrower
and its U.S. Subsidiaries to Tangible Net Worth of the Domestic
Business of the Borrower and its U.S. Subsidiaries to be greater than
(i) 9.5 to 1.0 during the period commencing on September 6, 1996
through and including December 30, 1996, (ii) 8.0 to 1.0 during the
period commencing on and including December 31, 1996 through and
including March 30, 1997, (iii) 8.25 to 1.0 during the period
commencing on and including March 31, 1997 through and including June
29, 1997, (iv) 8.0 to 1.0 during the period commencing on and
including June 30, 1997 through and including September 29, 1997, (v)
7.25 to 1.0 during the period commencing on and including September
30, 1997 through and including December 30, 1997 and (vi) 6.25 to 1.0
during the period commencing on December 31, 1997 and thereafter;
(b) Minimum Tangible Net Worth. Permit the Tangible Net Worth
of the Domestic Business of the Borrower and its U.S. Subsidiaries to
be less than the following amounts at any time during the following
periods:
Minimum Domestic Business
Period Tangible Net Worth
------ -------------------------
September 6, 1996
through December 30, 1996 $3,500,000
December 31, 1996
through June 29, 1997 $4,350,000
June 30, 1997
through December 30, 1997 $4,800,000
December 31, 1997 and
thereafter $6,500,000
(c) Minimum Fixed Charge Ratio. Permit the Fixed Charge Ratio
of the Domestic Business of the Borrower and its U.S. Subsidiaries to
be less than 1.25 to 1.0 as of the last day of each fiscal year
(commencing with the month ending December 31, 1996), in each case
computed for the twelve monthly periods then ending.
(d) Minimum Current Ratio. Permit the ratio of current assets
of the Domestic Business of the Borrower
2
<PAGE> 3
and its U.S. Subsidiaries to the current Liabilities of the Domestic
Business of the Borrower and its U.S. Subsidiaries to be equal to or
less than .95 to 1.0 as of the last day of each month during the
period commencing on September 6, 1996 through December 30, 1996 and
1.10 to 1.0 as of the last day of each month thereafter (for purposes
of the foregoing, outstanding Revolving Credit Loans shall be
included within current Liabilities).
2. Except as hereby modified, all the terms and provisions of the Loan
Agreement remain in full force and effect.
3. Subject to the qualification set forth below, the Borrower agrees to
pay the Lender a fee of $30,000.00. Such fee shall be payable in two
installments. The first installment shall be in the amount of $7,500.00 and
shall be due and payable on October 1, 1996. The second installment shall be
in the amount of $22,500.00 and shall be due and payable on January 1, 1997;
provided, however, the Bank agrees to waive the payment of such second
installment if, on or before January 1, 1997, the Borrower repays no less than
$12,000,000.00 of its existing indebtedness to the Lender with the proceeds of
the Borrower's initial public offering.
4. The Borrower will execute such additional documents as are reasonably
requested by the Lender to reflect the terms and conditions of this Fourth
Amendment and will cause to be delivered such certificates, legal opinions and
other documents as are reasonably required by the Lender. In addition, the
Borrower will pay all costs and expenses in connection with the preparation,
execution and delivery of the documents executed in connection with this
transaction, including, without limitation, the reasonable fees and
out-of-pocket expenses of special counsel to the Lender as well as any and all
filing and recording fees and stamp and other taxes with respect thereto and to
save the Lender harmless from any and all such costs, expenses and liabilities.
The Borrower agrees that the Lender may charge the revolving loan balance for
such fees and expenses.
5. This Fourth Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original, and
it shall not be necessary in making proof of this Fourth Amendment to produce
or account for more than one counterpart.
6. This Fourth Amendment and all other documents executed pursuant to
the transactions contemplated herein shall be deemed to be contracts made
under, and for all purposes shall be construed in accordance with, the internal
laws and judicial decisions of the State of Georgia and shall be subject to the
provisions of Section 12.5 and 12.6 of the Loan Agreement.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment
to be executed by their fully authorized officers as of the day and year first
above written.
RIDGEVIEW, INC.
ATTEST:
By: /s/ Susan Gaither Jones By: /s/ Hugh R. Gaither
Title: Asst. Secretary Title: President & CEO
(Corporate Seal)
NATIONSBANK, N.A. (SOUTH)
By: /s/ Scott Goldstein
Title: VP
4
<PAGE> 1
EXHIBIT 10.36
Drawn By and Return To: CONFORMED COPY
Moore & Van Allen (CCK)
100 North Tryon Street, Floor 47
Charlotte, North Carolina 28202-4003
SECOND AMENDMENT
STATE OF NORTH CAROLINA TO
DEED OF TRUST
COUNTY OF CATAWBA AND
SECURITY AGREEMENT
THIS SECOND AMENDMENT TO DEED OF TRUST AND SECURITY AGREEMENT, is made and
entered into as of September 6, 1996, by and among
RIDGEVIEW, INC., a North Carolina corporation (the "Grantor");
CHRISTOPHER C. KUPEC, a resident of Charlotte, North Carolina (the
"Trustee"); and
NATIONSBANK, National Association (SOUTH), a national banking association
organized and existing under the laws of the United States, having an office in
Atlanta, Georgia (hereinafter the "Lender").
RECITALS:
A. The Grantor has previously executed a Deed of Trust and Security
Agreement, dated January 10, 1995, as amended June 11, 1996, in favor of the
Lender, recorded in Book 1914, Page 1234, of the Catawba County, North Carolina
Registry (the "Deed of Trust").
B. The Grantor has agreed to amend the Deed of Trust as set forth
herein.
NOW, THEREFORE, the Grantor, the Trustee and the Lender hereby agree as
follows:
1. The Deed of Trust is hereby amended in the following respects:
a. The first four introductory paragraphs are amended to read in
their entirety as follows:
THIS DEED OF TRUST AND SECURITY AGREEMENT (the "Deed of
Trust"), made and entered into as of
<PAGE> 2
the 10th day of January, 1995, as amended as of June 11, 1996
and September 6, 1996, by and among
RIDGEVIEW, INC., a North Carolina corporation (the
"Grantor");
CHRISTOPHER C. KUPEC, a resident of Charlotte, North
Carolina (the "Trustee"); and
NATIONSBANK, National Association (SOUTH), a national
banking association organized and existing under the laws of the
United States, having an office in Atlanta, Georgia (the
"Lender").
b. Sections 1.1, 1.2 and 1.3 are amended in their entirety so that
such Sections now read as follows:
1.1 The indebtedness secured by this Deed of Trust is the
result of revolving loans of up to $20,000,000.00 (the "Revolving
Loans") made from time to time by the Lender to the Grantor pursuant
to that certain Loan and Security Agreement, dated January 10, 1995,
as amended (the "Loan Agreement") and as evidenced by the terms of
the Revolving Credit Promissory Note, dated September 6, 1996,
executed by Grantor in favor of the Lender in the principal amount of
$20,000,000.00 (the "Note") (hereinafter the obligations of the
Grantor to the Lender under the Loan Agreement and the Note may be
referred to as the "Obligations").
1.2 Payment by the Grantor of the Obligations will be in
accordance with the Loan Agreement, the Note and this Deed of Trust
which require payment on the terms set forth therein.
1.3 This Deed of Trust secures the obligations of the Grantor
to repay the Revolving Loans to the Lender under the Loan Agreement
and the Note and all other obligations from time to time owing to the
Lender under the Loan Agreement. The amount of the present
disbursement secured hereby is Zero Dollars ($0) and the maximum
amount which may be secured hereby at any one time is Twenty Million
Dollars ($20,000,000.00). The time period within which future
disbursements under the Loan Agreement are to be made is the period
between the date hereof and the date fifteen (15) years from the date
hereof. The making of future disbursements under the Loan Agreement
is non-obligatory within the
- 2 -
<PAGE> 3
meaning of such term in Section 45-70(a), North Carolina General
Statutes. Disbursements secured hereby shall not be required to be
evidenced by a "written instrument or notation" as described in
Section 45-68(2) of the North Carolina General Statutes, it being the
intent of the parties that the requirements of Section 45-68(2) for a
"written instrument or notation" for each advance shall not be
applicable to disbursements made under the Loan Agreement and the
Note.
2. Except as hereby modified, the terms and conditions of the Deed of
Trust (and Exhibit) remain in full force and effect.
3. This Second Amendment shall be deemed to be a contract under, and for
all purposes construed in accordance with, the internal laws and judicial
decisions of the State of North Carolina.
IN WITNESS WHEREOF, the undersigned Grantor, Trustee and Lender have
caused these presents to be executed under seal as of the day and year first
above written.
RIDGEVIEW, INC.
ATTEST:
By: /s/ Susan Gaither Jones By: /s/ Hugh R. Gaither
Title: Asst. Secretary Title: President & CEO
(Corporate Seal)
/s/ Christopher C. Kupec (SEAL)
Christopher C. Kupec
NATIONSBANK, National Association
(SOUTH)
ATTEST:
By: /s/ Brian R. O'Fallon By: /s/ Scott Goldstein
Title: Asst. Secretary Title: VP
(Corporate Seal)
- 3 -
<PAGE> 4
STATE OF NORTH CAROLINA
COUNTY OF CATAWBA
I, Jamie O. Hoyle, a Notary Public of the State and County aforesaid,
certify that Susan Gaither Jones personally came before me this day and
acknowledged that (s)he is the Asst. Secretary of RIDGEVIEW, INC., a North
Carolina corporation, and that by authority duly given and as the act of the
corporation, the foregoing instrument was signed in its name by its CEO &
President, sealed with its corporate seal and attested by Susan Gaither Jones
as its Asst. Secretary.
Witness my hand and official stamp or seal, this 16th day of September,
1996.
/s/ Jamie O. Hoyle
Notary Public
My Commission Expires:
2-3-97
(Notary Public)
- 4 -
<PAGE> 5
STATE OF NORTH CAROLINA
COUNTY OF MECKLENBURG
I, Martha Jane Swetka, a Notary Public of the aforesaid County and State,
do hereby certify that Christopher C. Kupec, Trustee, personally appeared
before me this day and acknowledged the execution of the foregoing instrument.
Witness my hand and notarial seal this 23rd day of September, 1996.
/s/ Martha Jane Swetka
Notary Public
My Commission Expires:
14 March 1998
- 5 -
<PAGE> 6
STATE OF GEORGIA
COUNTY OF FULTON
I, Ellen D. Black, a Notary Public of the State and County aforesaid,
certify that Brian R. O'Fallon personally came before me this day and
acknowledged that (s)he is the Asst. Secretary of NATIONSBANK, National
Association (SOUTH), a national banking association and that by authority duly
given and as the act of the national bank, the foregoing instrument was signed
in its name by its Vice President, sealed with its corporate seal and attested
by Brian R. O'Fallon as its Asst. Secretary.
Witness my hand and official stamp or seal, this 19th day of September,
1996.
/s/ Ellen D. Black
Notary Public
My Commission Expires:
5/5/00
(Notary Public)
- 6 -
<PAGE> 1
EXHIBIT 10.37
[NATIONSBANK LETTERHEAD]
October 3, 1996
Mr. Walter Bost
Ridgeview, Inc.
2101 North Main Ave.
Newton, North Carolina 28658
Re: Loan and Security Agreement (Revolving Loans) dated as of January 10,
1995, between Ridgeview, Inc. ("Ridgeview"), and NationsBank N.A. (the
"Bank"), as amended, ("Revolving Loan Agreement") and Loan and
Security Agreement (Term Loan) dated as of January 10, 1995, between
Ridgeview and the Bank as amended, ("Term Loan Agreement").
Dear Walter:
You have requested that, upon completion of Ridgeview's initial public
offering of its common stock and subsequent repayment of a large portion of its
Revolving Credit Loans to the Bank, the Bank consider improving the pricing on
the Revolving Credit Loans and the Term Loan. All capitalized terms not defined
herein shall have the meanings ascribed to them in either the Revolving Loan
Agreement or Term Loan Agreement.
In response to your request, the Bank hereby commits to change the rate at
which interest is charged on both the Revolving Credit Loans and the Term Loans
for any given month to a rate equal to the amount set forth in the following
chart opposite the leverage of Ridgeview's domestic business as of the last day
of the prior month:
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Pricing
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Leverage Prime-based option Libor-based option
- ---------------------------------------------------------------------------
<S> <C> <C>
< 1.50:1 Prime L + 2.00%
> 1.50:1, < 2.00:1 Prime L + 2.25%
> 2.00:1, < 2.50:1 Prime + 0.25% L + 2.50%
> 2.50:1, < 3.00:1 Prime + 0.5 % L + 2.75%
> 3.00:1, < 3.50:1 Prime + 0.75% L + 3.00%
> 3.50:1 Prime + 1.00% L + 3.25%
- ---------------------------------------------------------------------------
</TABLE>
In addition, the Bank will reduce the Administration Fee from $10,000 per
year to $5,000 per year unless you request LIBOR options be made available
daily on the Revolving Credit Loan, in which case the fee will remain at
$10,000. The length of periods for which LIBOR options shall be available will
total not less than 14 days for the Term Loan.
These modifications of the Revolving Loan Agreement will be subject to
documentation satisfactory to the Bank in its sole discretion and the
completion of your initial public offering.
Sincerely,
NATIONSBANK, N.A.
/s/ Scott K. Goldstein
- --------------------------------
Scott K. Goldstein
Vice President
SKG/dbm
cc: credit / chrono
<PAGE> 1
EXHIBIT 16
October 8, 1996
Securities and Exchange Commission
450 5th Street N.W.
Washington, D.C. 20549
We have been furnished with a copy of the disclosure included under the
caption "Experts" in the prospectus constituting a part of the Registration
Statement on Form S-1 for the event that occurred on September 15, 1995, to be
filed by our former client, Ridgeview, Inc. We agree with the statements made
under that caption insofar as they relate to our Firm.
Very truly yours,
/s/ Whisnant & Company
<PAGE> 1
EXHIBIT 23.1
<TABLE>
<S> <C> <C>
BDO BDO SEIDMAN, LLP 510 First Citizens Bank Building
Accountants and Consultants 100 South Elm Street
Greensboro, North Carolina 27401-2643
Telephone: (910) 275-0931
Fax: (910) 379-8397
</TABLE>
Ridgeview, Inc.
Newton, North Carolina
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated February 2, 1996, except for Note 10
which is as of October 8, 1996, relating to the consolidated financial
statements of Ridgeview, Inc., which is contained in that Prospectus, and of our
report dated February 2, 1996, relating to the schedule, which is contained in
Part II of the Registration Statement.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO SEIDMAN, LLP
Greensboro, North Carolina
October 8, 1996
<PAGE> 1
EXHIBIT 23.2
[KPMG letterhead]
7 October 1996
BDO Seidman LLP
Greensboro
North Carolina
USA
Dear Sirs
Ridgeview Limited (Irish Branch)
We consent to the inclusion in the registration statement and prospectus to be
filed on Form S-1 with the Securities and Exchange Commission (SEC) of our
report on the audits of the Irish Branch of Ridgeview Limited for the years
ended 31 December 1993, 1994 and 1995 and of references thereto and to ourselves
as KPMG in the form and context in which they appear.
Yours faithfully
/s/ KPMG
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We have issued our reports dated May 11, 1995 and January 31, 1996 on the
consolidated balance sheets of Seneca Knitting Mills Corporation (a wholly-owned
subsidiary of Ridgeview, Inc. for the six months ended December 31, 1995) as of
April 1, 1995 and April 2, 1994, and as of December 31, 1995 and the related
consolidated statements of income and retained earnings and cash flows for each
of the three fiscal years in the period ended April 1, 1995 and the six months
ended December 31, 1995, contained in the Registration Statement and Prospectus.
We consent to the use of the aforementioned reports in the Registration
Statement and Prospectus, and to the use of our name as it appears under the
caption "Experts."
/s/ Mengel, Metzger, Barr & Co. LLP
Rochester, New York
October 7, 1996
