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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
Commission File Number: 0-21469
RIDGEVIEW, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
North Carolina 56-0377410
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
2101 North Main Avenue
Newton, North Carolina 28658
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(704) 464-2972
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X].
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The aggregate market value of the Common Stock (its only voting stock)
held by non-affiliates of the Company, as of March 15, 1997, was $20,130,183.
(Reference is made to the final paragraph of Part I herein for a statement of
the assumptions upon which the calculation is based.)
As of March 15, 1997, there were 3,000,000 shares of the Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
In Part II of this report, information is incorporated by reference
from the Company's Annual Report to Shareholders for the year ended December 31,
1996. In Part III of this report, information is incorporated by reference to
the proxy statement for the annual meeting of shareholders to be held May 27,
1997.
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Ridgeview, Inc.
Index to Form 10-K
For the Year Ended December 31, 1996
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Page
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PART I
Item 1 - Business 4
Item 2 - Properties 27
Item 3 - Legal Proceedings 27
Item 4 - Submission of Matters to a Vote of Security Holders 27
PART II
Item 5 - Market for the Registrant's Common Equity and Related Stockholder Matters 28
Item 6 - Selected Financial Data 28
Item 7 - Management's Discussion and Analysis of Financial Condition and Results of
Operations 29
Item 8 - Financial Statements and Supplementary Data 29
Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 29
PART III
Item 10 - Directors and Executive Officers of the Registrant 30
Item 11 - Executive Compensation 30
Item 12 - Security Ownership of Certain Beneficial Owners and Management 30
Item 13 - Certain Relationships and Related Transactions 30
PART IV
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K 31
</TABLE>
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PART I
ITEM 1 - 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 Coleman, Converse, Ellen Tracy, Evan-Picone, and Woolrich. The
Company is currently negotiating licensing terms to produce and sell socks under
the Rockport brand name. 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 March 1,
1997, 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 Knitting Mills Corporation ("Seneca"), which has been engaged
exclusively in designing, manufacturing and marketing rugged outdoor and
heavyweight casual socks since 1954. 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 25% from $6.1 billion in
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1991 to $7.6 billion in 1996. During the same five-year period, total retail
dollar volume of (i) socks increased by 43% from $3.0 to $4.3 billion on a 41%
increase in retail unit volume, (ii) women's sheer hosiery remained unchanged at
$2.7 billion on a 6.5% increase in retail unit volume and (iii) tights increased
66% from $411 million to $681 million on an 65% increase in retail unit volume.
From 1991 to 1996, 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 40% from $619 million to $866 million on a 36.5%
increase in retail unit volume.
According to preliminary statistics compiled by NAHM, in 1996 retail
unit volume of socks increased 7.2%, retail unit volume of sheer hosiery
declined 7.1% and retail unit volume of tights/opaques increased 7.3%.
Production of socks in the United States increased 13% overall in 1996 with the
production of women's socks, including both sports/athletic and casual dress
socks, showing the greatest increase (22%) among the various categories of
socks. Reflecting the decline in retail unit volume, production of women's sheer
hosiery decreased 3% in 1996. Production of tights and opaque products also
decreased 14% overall with the largest decline being in the category of girls
tights/opaques. Production of women's tights/opaques increased slightly.
Preliminary statistics compiled by NAHM regarding United States foreign
trade in hosiery products indicate that the import penetration ratio for total
imports of hosiery (as a percentage of shipments) increased from 9.2% in 1995 to
10.5% in 1996. The import penetration ratio for women's sheer hosiery and tights
alone increased from 14.5% in 1995 to 19.3% in 1996 and for socks alone
increased from 6.2% in 1995 to 6.9% in 1996.
From 1990 to 1996, exports of socks increased almost four-fold from
2,979,000 dozens of pairs to 11,039,408 dozens of pairs with a corresponding
increase in total dollar value of sock exports. The leading countries for United
States exports of socks and women's hosiery in 1996 were Canada, Japan, Mexico
and Germany.
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
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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, Jumbo Sports, which was formerly known as Sports & Recreation and
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 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, pre-pricing 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
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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, Jumbo Sports 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.
Management believes that the Company's expanded customer base of major
retailers resulting from the Seneca acquisition and the Evan-
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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 Coleman, Converse, Ellen Tracy,
Evan-Picone, and Woolrich licensed brand names. Management is currently
negotiating licensing terms to produce and sell socks under the
Rockport brand name.
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 and Evan-Picone brand names and socks under the
Coleman, 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.
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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. As of March 1, 1997,
the Company had commitments to purchase 84 electronic knitting machines
for its women's hosiery division, 20 electronic knitting machines for
its sports sock knitting operation in Ft. Payne, Alabama and 10
electronic knitting machines for Seneca.
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.
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 March 1,
1997, 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 1996 net sales and
is expected to account for more than 10% of the Company's 1997 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.
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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 initial public offering, which was completed in November
1996, contributed 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.
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 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.
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"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 July 1, 1997, under the Rockport
name 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
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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 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
primarily 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 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 did not achieve its 1996 sales target of $5.0 million, selling only
$3.0 million of Ellen Tracy products. Nonetheless, in late 1996, the licensor
agreed to a one-year renewal term ending December 31, 1997 for the
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Ellen Tracy license agreement with a minimum annual sales threshold of $5.0
million. There can be no assurance that the Company will be able to achieve the
minimum sales target in 1997 or that the licensor will renew the Ellen Tracy
license when its current term expires in December 1997.
On May 28, 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
for the 18-month period commencing July 1, 1996 through December 31, 1997, 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 18-month period commencing July 1, 1996 through December 31, 1997,
and increases in each annual period thereafter with net sales requirements of
$14.0 and $20.0 million in the 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.
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 following table provides an overview of the sales and marketing
of the Company's finished products by product category, pricing approach,
selected brand names, market segment, major customers and method of
distribution.
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<PAGE> 14
<TABLE>
<CAPTION>
Selected Percentage
Pricing Brand Distribution Major of 1996
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 25.1%
quality socks with Reebok, Fila, stores, athletic Authority, Jumbo
extra cushioning that Converse, footwear stores, Sports, Champs,
allow an individual IZOD, Head, athletic footwear Oshman's
to match socks to a ASICS, and apparel SuperSports
particular sport Ridgeview, Pro manufacturers USA, SportMart,
activity AM Reebok, Fila
Sports promotional Lightweight, basic Value SportSox, Sporting goods The Sports 23.6%
cushion socks for a GAMEsocks stores, athletic Authority, Jumbo
variety of uses footwear stores, Sports, Champs,
mass market and Oshman's,
discount stores SuperSports USA
Rugged outdoor Heavyweight socks Moderate Woolrich, Mass market Kmart, J.C. 17.0%
and heavyweight with true rib to Oyster Bay, and discount Penney, The Gap,
casual construction made Premium Winchester, stores, outdoor Lands' End,
with wool and cotton Seneca specialty stores, Eddie Bauer,
blends for hiking, department WIX
skiing, hunting and stores, mail Corporation,
other active outdoor order retailers, Wal-Mart Stores,
uses sporting goods SportMart, Target
stores
Active sport Cushion-engineered Premium LINEOne Sporting goods The Sports 2.4%
socks with fiber and stores, athletic Authority, Jumbo
construction elements footwear stores, Sports, Champs,
intended to provide athletic footwear Oshman's
high performance and apparel SuperSports
features for the manufacturers USA, SportMart
serious athlete
WOMEN'S
HOSIERY
Tights and trouser Opaque, durable Moderate Ellen Tracy, Department Target, J.C. 18.4%
socks pantyhose and to Liz Claiborne stores, mass Penney,
trouser socks made Premium market and Mercantile,
with heavy-weight discount stores, Dillard's,
nylon yarns and with women's Federated
spandex in either half fashions (Macy's, Rich's),
or all of the knitted specialty stores Neiman Marcus,
courses Parisian,
Nordstrom
Sheer pantyhose Basic ladies Value to Ellen Tracy, Mass market, Target, J.C. 12.2%
and knee-highs pantyhose and knee- Premium Liz Claiborne, discount and Penney,
highs made with Evan-Picone department Mercantile,
lightweight nylon stores Dillard's,
yarns and Federated
nylon/spandex yarns (Macy's, Rich's),
for everyday and Neiman Marcus,
special uses Parisian,
Nordstrom
</TABLE>
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<PAGE> 15
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, Oshman's Sporting Goods, Sportmart and
Jumbo Sports. 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. 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, the Company, in 1995, 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
rugged outdoor and heavyweight 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 1996 were made by a
nationwide network of more than 65 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
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
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<PAGE> 16
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 1996, approximately 14% of the Company's sock sales 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.
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 began selling Evan-Picone products through a nationwide network of
sales representatives, most of whom sold Evan-Picone products for the company
that previously held the license for the Evan-Picone women's hosiery program. On
January 1, 1997, this group of ten sales representatives became part of the
Company's internal sales force. 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.
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<PAGE> 17
With the addition of the ten sales representatives from the Evan-Picone
women's hosiery program, the Company's internal sales force for women's hosiery
products has grown to sixteen employees. This reorganized sales force is now
responsible for the private label, Ellen Tracy and Evan-Picone hosiery business.
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
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 1996,
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 expected purchase of additional electronic
knitting equipment during the next 12 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.
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<PAGE> 18
MANUFACTURING
The chart set forth below provides an overview of the Company's
manufacturing facilities by geographic location:
<TABLE>
<CAPTION>
Number of
Knitting Approximate
Number Machines Output per
of Installed in Year Approximate Week in Approximate
Location Knitting Last Three Operations Square Dozens of Number of
of Facility Machines Years Commenced Footage Product Categories Pairs Employees
- ----------- ------- ----- --------- ------- ------------------ ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Newton, NC 114 12 1912 100,000 Tights, trouser 18,000 240
(women's hosiery) socks, pantyhose
and knee-highs
Newton, NC 53 53 1976 70,000 Complete range of 15,000 180
(sports socks) sports specific
socks
Tralee, Republic 79 48 1986 45,000 Complete range of 15,000 115
of Ireland sports specific
socks
Ft. Payne, AL 71 71 1992 72,000 Complete range of 35,000 175
sports promotional
socks
Seneca Falls, NY 197 29 1954 180,000 Complete range of 12,000 190
--- -- ------- rugged outdoor and ------ ---
heavyweight casual
socks
Total 514 213 467,000 95,000 900
=== === ======= ====== ===
</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 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.
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<PAGE> 19
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 in response to
customer orders and 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 manufactures women's hosiery products at its 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
changeover or retooling costs. The Evan-Picone hosiery program and certain other
women's hosiery products are outsourced to other manufacturers. As of March 1,
1997, the Company had commitments to purchase 84 electronic knitting machines
for its women's hosiery division to replace the existing mechanical machines
currently in use. These new electronic knitting machines produce hosiery at a
faster rate and reduce change-over and retooling costs, as well as 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
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<PAGE> 20
accomplished by one shift of labor working five 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 which includes an
experienced fashion designer that develops original designs on the
Company's CAD/CAM system.
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 production
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
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<PAGE> 21
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.
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 generally has 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 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.
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<PAGE> 22
With a portion of the net proceeds of the Company's initial public
offering completed in November 1996, the Company plans to construct, within the
next 18 to 24 months, 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 1996, sales of women's hosiery products and socks to Target
accounted for approximately 13% of the Company's total net sales. During such
year, no other single customer accounted for more than 10% of the Company's
consolidated net sales. 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 65% of the
Company's total women's hosiery business in 1996. During the same year, the
Company's five largest sock customers accounted for approximately 30% 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 significant
factor in minimizing the effect on the Company of bankruptcy filings of certain
customers. 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
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<PAGE> 23
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 March 1, 1997, the Company's order book reflected unfilled
customer orders for approximately $7.2 million of products as compared to $9.9
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,
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<PAGE> 24
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 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.
24
<PAGE> 25
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the
executive officers of the Company.
Name Age Position
---- --- --------
Albert C. Gaither 65 Chairman and Director
Hugh R. Gaither 46 President, Chief Executive Officer
and Director
William D. Durrant 59 Executive Vice President and
Director
Walter L. Bost, Jr. 42 Executive Vice President and Chief
Financial Officer
M. Ander Horne 45 Vice President - Sales and
Marketing - Socks
Barry Tartarkin 42 Vice President - Sales and
Marketing - Women's Hosiery
Joseph G. Royall 36 Vice President - Operations
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 a B.A. from Davidson College in
1956 and has been employed with 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 also has served as the
Company's Chief Executive Officer. Mr. Gaither served as Vice President of the
Company from January 1980 to January 1992. He joined the Company in 1975 after
having received a B.A. from Davidson College and a M.B.A. from the University of
North Carolina at Chapel Hill. During 1994 and 1995, Mr. Gaither served as
Chairman of the National Association of Hosiery Manufacturers. 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 division. From
July 1976 until December 1992, he served as Vice President (Sales) for the
sports sock division.
25
<PAGE> 26
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
since 1987, 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 a B.A. in Accounting from the University of North Carolina at Chapel
Hill in 1977.
M. Ander Horne, who was named to his current position in January 1997,
has been employed by the Company since April 1979, serving previously as Eastern
Regional Sales Manager from April 1979 until January 1995 and National Sales
Manager for the Company's sports sock manufacturing operations from January 1995
until January 1997. Mr. Horne received a B.A. in Journalism from the University
of Georgia in 1972.
Barry Tartarkin, who was named to his current position in January 1997,
has been employed by the Company since March 1993, serving as Vice President of
Sales for the Company's women's hosiery division. From 1980 until 1993, Mr.
Tartarkin served as president of two different women's hosiery sales companies.
Mr. Tartarkin received a B.S. in Economics and Finance from the University of
Hartford in 1976.
Joseph G. Royall, who was named to his current position in January
1996, has been employed by the Company since 1989, serving as the Company's cost
accounting manager from October 1989 until June 1992 and as General Manager for
the Company's sports sock operation in Ft. Payne, Alabama from June 1992 until
January 1996. Mr. Royall received a B.S. in Accounting and Business Management
from Tennessee Wesleyan College in 1984.
EMPLOYEES
As of March 1, 1997, the Company employed approximately 900 persons,
169 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
26
<PAGE> 27
family-friendly policies for its employees. Management believes these policies
foster employee morale and loyalty, help the Company attract and retain talented
people and contribute to a stable and productive work force.
ITEM 2 - 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 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.
ITEM 3 - LEGAL PROCEEDINGS
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
* * * * * * *
For the purposes of calculating the aggregate market value of the
shares of Common Stock held by non-affiliates, as shown on the cover page of
this report, the Company has assumed that all outstanding shares are held by
non-affiliates except for shares outstanding that are beneficially owned by
directors or executive officers of the Company. However, this should not be
deemed to constitute an admission that all directors and executive officers of
the Company are, in fact, affiliates of the Company, or that there are not other
persons who may be deemed to be affiliates of the Company. Further information
concerning shareholdings of directors, executive officers and principal
shareholders is included in the Company's proxy statement for the annual meeting
of shareholders to be held May 27, 1997. The Company will file its proxy
statement with the Securities and Exchange Commission not later than April 30,
1997.
27
<PAGE> 28
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) Market Information
The Company's Common Stock is traded on The Nasdaq Stock Market
National Market System ("Nasdaq") under the symbol RIDG. The following
table sets forth for the period indicated the high and low sale prices
for the Company's Common Stock as reported by Nasdaq beginning with the
closing price on the first day of trading, November 1, 1996.
Price Range
-------------------------------------
High Low
---- ---
1996
----
Fourth Quarter $8.25 $7.125
(from November 1, 1996)
(b) Holders
As of March 15, 1997, there were 123 holders of record of the
Company's Common Stock and 1,100 persons or entities holding in
nominee name.
(c) Dividends on the Company's Common Stock.
The Company ceased paying dividends on its Common Stock immediately
prior to the initial public offering in November 1996 and does not
intend to pay any cash dividends in the foreseeable future. In
connection with the initial public offering of its Common Stock, the
Company issued a stock dividend, effective October 8, 1996, of
approximately 129 additional shares of Common Stock for each
outstanding share of Common Stock.
ITEM 6 - SELECTED FINANCIAL DATA
The information required to be furnished in response to this item
appears in and is incorporated by reference from the Company's 1996 Annual
Report to Shareholders. Relevant portions of the Company's 1996 Annual Report to
Shareholders have been filed as Exhibit 13.1 to this report.
28
<PAGE> 29
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
The information required to be furnished in response to this item
appears in and is incorporated by reference from the Company's 1996 Annual
Report to Shareholders. Relevant portions of the Company's 1996 Annual Report to
Shareholders have been filed as Exhibit 13.1 to this report.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required to be furnished in response to this item
appears in and is incorporated by reference from the Company's 1996 Annual
Report to Shareholders. Relevant portions of the Company's 1996 Annual Report to
Shareholders have been filed as Exhibit 13.1 to this report.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OR
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
29
<PAGE> 30
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required to be furnished in response to this item with
respect to directors appears under the heading "Election of Directors" in the
Company's proxy statement for the annual meeting of shareholders to be held May
27, 1997, which information is incorporated by reference. The Company will file
its proxy statement with the Securities and Exchange Commission not later than
April 30, 1997. Information relating to the Company's executive officers is
contained in Part I of this report under the heading "Executive Officers of the
Registrant."
ITEM 11 - EXECUTIVE COMPENSATION
The information required to be furnished in response to this
item appears under the heading "Election of Directors" in the Company's proxy
statement for the annual meeting of shareholders to be held May 27, 1997, which
information is incorporated by reference. The Company will file its proxy
statement with the Securities and Exchange Commission not later than April 30,
1997.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required to be furnished in response to this
item appears under the heading "Security Ownership of Certain Beneficial Owners
and Management" in the Company's proxy statement for the annual meeting of
shareholders to be held May 27, 1997, which information is incorporated by
reference. The Company will file its proxy statement with the Securities and
Exchange Commission not later than April 30, 1997.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required to be furnished in response to this item
appears under the heading "Election of Directors" in the Company's proxy
statement for the annual meeting of shareholders to be held May 27, 1997, which
information is incorporated by reference. The Company will file its proxy
statement with the Securities and Exchange Commission not later than April 30,
1997.
30
<PAGE> 31
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The Company has included the following Consolidated Financial Statements
with this 10-K Report:
- - Consolidated Statements of Income -- For the Years Ended December 31, 1994,
1995 and 1996 are incorporated by reference from the Company's 1996 Annual
Report to Shareholders. Relevant portions of the Company's 1996 Annual
Report to Shareholders have been filed as Exhibit 13.1 to this report.
- - Consolidated Balance Sheets at December 31, 1995 and 1996 are incorporated
by reference from the Company's 1996 Annual Report to Shareholders.
Relevant portions of the Company's 1996 Annual Report to Shareholders have
been filed as Exhibit 13.1 to this report.
- - Consolidated Statements of Shareholders' Equity -- For the Years Ended
December 31, 1994, 1995 and 1996 are incorporated by reference from the
Company's 1996 Annual Report to Shareholders. Relevant portions of the
Company's 1996 Annual Report to Shareholders have been filed as Exhibit
13.1 to this report.
- - Consolidated Statements of Cash Flows -- For the Years Ended December 31,
1994, 1995 and 1996 are incorporated by reference from the Company's 1996
Annual Report to Shareholders. Relevant portions of the Company's 1996
Annual Report to Shareholders have been filed as Exhibit 13.1 to this
report.
- - Notes to Consolidated Financial Statements -- For the Years Ended December
31, 1994, 1995 and 1996 are incorporated by reference from the Company's
1996 Annual Report to Shareholders. Relevant portions of the Company's 1996
Annual Report to Shareholders have been filed as Exhibit 13.1 to this
report.
(a)(2) The Company has included the following Consolidated Financial Statement
schedules with this 10-K Report:
- - Report of Independent Auditors on Supplemental Schedule (included in
Consent of BDO Seidman, LLP, independent auditors, filed as Exhibit 23.1 to
this report)
- - Schedule
31
<PAGE> 32
We have omitted all other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission
because they are either not required under the related instructions or are
inapplicable.
(b) Reports on Form 8-K
None.
(c) Exhibits
- --------------------------------------------------------------
Previously Filed and
Incorporated Herein by
Reference
- --------------------------------------------------------------
<TABLE>
<CAPTION>
Document With Which As
Exhibit Exhibit Was Exhibit
No. Previously Filed No. Exhibit Description
--- ---------------- --- -------------------
<C> <C> <C> <S>
3.1 (1) 3.1 Articles of Incorporation of Ridgeview, Inc., as
amended and restated.
3.2 (1) 3.2 Bylaws of Ridgeview, Inc., as amended and
restated.
4.1 (1) 4.1 Form of Common Stock Certificate.
10.1 (1) 10.1 License Agreement dated as of January 1, 1994 by
and between Ellen Tracy, Inc. and Company
10.1(a) Form of letter dated October 22, 1996 from Ellen
Tracy Inc. extending license agreement until
December 31, 1997
10.2 (1) 10.2 License Agreement dated May 28, 1996 between
Jones Investment Co., Inc. and Ridgeview, Inc.
10.3 Amended and Restated Loan and Security
Agreement (Term Loan and Revolving Loan)
dated as of December 20, 1996 by and among
Ridgeview, Inc. Seneca Knitting Mills
Corporation, Interknit, Inc. and NationsBank,
N.A. (South).
10.4 First Amendment to Amended and Restated Loan
and Security Agreement (Term Loan and
Revolving Loan) dated as of January 31, 1997 by
and among Ridgeview, Inc., Seneca Knitting Mills
Corporation, Interknit, Inc. and NationsBank,
N.A. (South)
</TABLE>
32
<PAGE> 33
<TABLE>
<C> <C> <C> <S>
10.5 Second Amendment to Amended and Restated
Loan and Security agreement (Term Loan and
Revolving Loan) dated March 13, 1997, by and
among Ridgeview, Inc., Seneca Knitting Mills
Corporation, Interknit, Inc. and NationsBank N.A.
(South)
10.6 (1) 10.11 Form of Loan and Security Agreement for
outstanding loans from MetLife Capital
Corporation to Interknit, Inc.
10.7 (1) 10.12 Mortgage and Security Agreement dated June 28,
1995 between Ridgeview, Inc. and NationsBank of
Georgia, N.A.
10.8 (1) 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 of Georgia, N.A.
10.9 (1) 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.
10.10 (1) 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, N.A. (South).
10.11 (1) 10.16 Security Agreement dated as of June 28, 1995 by
and between Seneca Knitting Mills Corporation
and NationsBank of Georgia, N.A.
10.12 (1) 10.17 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.
10.13 (1) 10.18 Agreement for Sale of Stock Amendment No. 1
dated June 28, 1995, between George G. Souhan,
Susan C. Souhan, Geb F. Souhan, Elizabeth M.
Souhan and Timothy J.J. Souhan and Ridgeview,
Inc.
10.14 (1) 10.19 Salary Continuation Agreement dated March 1,
1983 by and between Ridgeview Mills, Inc. and
Albert C. Gaither.*
10.15 (1) 10.20 Salary Continuation Agreement dated March 1,
1983 by and between Ridgeview, Mills, Inc. and
Hugh R. Gaither.*
10.16 (1) 10.21 First Amendment to Salary Continuation
Agreement by and between Ridgeview, Inc. and
Hugh R. Gaither dated June 8, 1992.*
10.17 (1) 10.22 Salary Continuation Agreement dated March 1,
</TABLE>
33
<PAGE> 34
<TABLE>
<C> <C> <C> <S>
1983 by and between Ridgeview Mills, Inc. and
William D. Durrant.*
10.18 (1) 10.23 First Amendment to Salary Continuation
Agreement by and between Ridgeview, Inc. and
William D. Durrant dated June 8, 1992.*
10.19 (1) 10.24 Salary Continuation Agreement dated June 8, 1992
by and between Ridgeview, Inc. and Susan Gaither
Jones.*
10.20 (1) 10.25 Salary Continuation Agreement dated July 1, 1996
by and between Ridgeview, Inc. and Walter L.
Bost, Jr.*
10.21 (1) 10.26 Split Dollar Life Insurance Agreement dated
January 1, 1992 between Ridgeview, Inc. and
Albert C. Gaither.*
10.22 (1) 10.27 Ridgeview, Inc. 1995 Omnibus Stock Option Plan
as amended and restated.*
10.23 (1) 10.28 Description of Incentive Bonus Arrangement for
Named Executive Officers.*
10.24 (1) 10.29 Ridgeview, Inc. Stock Option Plan for Outside
Directors.*
10.25 First Modification to Mortgage and Security
Agreement dated December 20, 1996 between
Ridgeview, Inc. and NationsBank, N.A. (South)
10.26 First Modification to Mortgage and Security
Agreement dated December 20, 1996 between
GPM Corporation and NationsBank, N.A. (South)
10.27 Amended, Restated and Consolidated First
Assignment of Lessee's Interest in Lease dated
December 20, 1996 by Ridgeview, Inc. and
NationsBank, N.A. (South)
10.28 Amended, Restated and Consolidated Deed of
Trust and Security Agreement dated December 20,
1996, by and among Ridgeview, Inc., John B.
Miller, Jr. And NationsBank, N.A. (South)
13.1 The portions of the Company's 1996 Annual
Report to Shareholders that have been incorporated
by reference into the Company's Annual Report on
Form 10-K.
21 Subsidiaries of Ridgeview, Inc.
23 (1) 23 Consent of BDO Seidman, LLP, independent
auditors.
27 Financial Data Schedule (included in the EDGAR
filing only.)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report pursuant to Item 14(c) of Form 10-K.
34
<PAGE> 35
(1) Registration Statement on Form S-1, file No. 333-11111 filed August 30,
1996.
35
<PAGE> 36
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
RIDGEVIEW, INC.
By: /s/ Hugh R. Gaither
-------------------------------
Hugh R. Gaither, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
the following persons signed this report in the capacities indicated on the 25th
day of March, 1997.
SIGNATURE TITLE
- --------- -----
/s/ Hugh R. Gaither President, Chief Executive
- ----------------------------- Officer and Director
Hugh R. Gaither (Principal Executive Officer)
/s/ Albert C. Gaither Chairman and Director
- -----------------------------
Albert C. Gaither
/s/ Walter L. Bost, Jr. Executive Vice President and
- ----------------------------- Chief Financial Officer
Walter L. Bost, Jr.
/s/ P. Douglas Yoder Corporate Controller
- ----------------------------- (Principal Accounting Officer)
P. Douglas Yoder
/s/ William D. Durrant Executive Vice President and Director
- -----------------------------
William D. Durrant
/s/ Susan Gaither Jones Vice President and Director
- -----------------------------
Susan Gaither Jones
/s/ J. Michael Gaither Director
- -----------------------------
J. Michael Gaither
/s/ Claude S. Abernethy, Jr. Director
- -----------------------------
Claude S. Abernethy, Jr.
/s/ George Watts Carr, III Director
- -----------------------------
George Watts Carr, III
36
<PAGE> 37
/s/ Joseph D. Hicks Director
- -----------------------------
Joseph D. Hicks
/s/ Charles M. Snipes Director
- -----------------------------
Charles M. Snipes
37
<PAGE> 1
[ELLEN TRACY LETTERHEAD]
October 22nd, 1996
Mr. Hugh Gaither
President
Ridgeview Inc.
2101 N. Main Avenue
Newton, North Carolina 28658
Dear Hugh,
This letter confirms our agreement to extend our present contract which expires
December 31st, 1996, to December 31st, 1997. As we discussed, this agreement
binds both parties to the terms of the previous contract. The projected volume
for the next year will be $5,000,000, and the minimum guaranty of $350,000 to be
paid in quarterly installments.
We hope that you will surpass your expectations in the upcoming year, and we
would be happy to meet so that we can discuss the best way to utilize your
marketing and advertising dollars.
Sincerely,
/s/ Howard Rosenberger
Howard Rosenberger
Executive Vice President
cc: Mr. Gallen
L. Allard
B. Burbank
B. Tartarkin
<PAGE> 1
[EXECUTION COPY]
AMENDMENT NO. 1
to
Amended and Restated
Loan and Security Agreement
dated as of December 20, 1996
AMENDMENT NO. 1 entered into as of January 31, 1997 among RIDGEVIEW, INC.,
a North Carolina corporation, SENECA KNITTING MILLS CORPORATION, a New York
corporation, INTERKNIT, INC., an Alabama corporation (collectively, the
"Borrowers"), and NATIONSBANK, N.A. (SOUTH), a national banking association (the
"Lender").
Preliminary Statement
The Borrowers and the Lender are parties to that certain Amended and
Restated Loan and Security Agreement dated as of December 20, 1996 (the "Loan
Agreement"; terms defined therein, unless otherwise defined herein, being used
herein as therein defined).
The Borrower has requested an adjustment to the amortization schedule of
the Term Loan and the Lender has agreed to such request, subject to all of the
terms, conditions and provisions hereinafter set forth.
NOW, THEREFORE, in consideration of the Loan Agreement, the mutual
covenants set forth therein and herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
Section 1. Amendment to Loan Agreement. Subject to the provisions of
Section 2, the Loan Agreement is hereby amended by amending Section 2B.2 thereof
in its entirety to read as follows:
Section 2B.2 Repayment of Term Loan. The Term Loan is due and payable,
and shall be repaid in full by the Borrowers, in twenty-seven (27)
installments as follows: the first three installments, payable on January
1, February 1 and March 1, 1997, shall be in the amount of $53,667 each,
the fourth installment, payable on March 31, 1997, shall be in the amount
of $3,916,658, the next 22 installments, payable on April 1 and the first
day of each calendar month thereafter, shall be in the amount of $12,000
each and the final installment payable on January 10, 1999 shall be in the
amount of the then unpaid balance of the Term Loan.
Section 2. Effectiveness. The provisions of Section 1 shall become
effective as of the date hereof on the date (the "Amendment Effective Date") on
which
(a) the Lender shall have received counterparts of this Amendment duly
executed by the Borrower, together with the Consent and Confirmation attached
hereto duly executed by the Guarantor;
(b) a certificate of the chief operating officer or president of each
Borrower stating that, to the best of his knowledge and based on an examination
sufficient to enable him to make an
<PAGE> 2
informed statement,
(i) all of the representations and warranties made or deemed to be
made under the Loan Agreement are true and correct as of the Amendment
Effective Date, and
(ii) after giving effect to this Amendment, no Default or Event of
Default exists; and
(c) such other documents and instruments as the Lender may reasonably
request;
Section 3. Effect of Amendment. Upon and after the effectiveness of this
Amendment as provided in Section 2 hereof, all references to the Loan Agreement
in the Loan Agreement or in any other Loan Document shall mean the Loan
Agreement as amended by this Amendment. Except as expressly provided in this
Amendment, the execution and delivery of this Amendment does not, and will not,
amend, modify or supplement any provision of or con stitute a consent to or a
waiver of any noncompliance with the provisions of the Loan Agreement and,
except as specifically provided in this Amendment, the Loan Agreement shall
remain in full force and effect.
Section 4. Representations and Warranties. Each Borrower hereby makes the
following representations and warranties to the Lender, which representations
and warranties shall survive the delivery of this Amendment and the making of
Loans under the Loan Agreement as amended hereby:
(a) Organization; Power; Qualification. Each Borrower is a corporation,
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own
its properties and to carry on its business as now being and hereafter proposed
to be conducted and is duly qualified and authorized to do business in each
jurisdiction in which failure to be so qualified and authorized would have a
Materially Adverse Effect.
(b) Authorization of Agreements. Each Borrower has the right and power and
has taken all necessary action to authorize it to execute, deliver and perform
this Amendment in accordance with its terms. This Amendment has been duly
executed and delivered by the duly authorized officers of each Borrower and is a
legal, valid and binding obligation of such Borrower, enforceable in accordance
with its terms.
(c) Compliance of Agreements with Laws. The execution, delivery and
performance of this Amendment in accordance with its terms do not and will not,
by the passage of time, the giving of notice or otherwise,
(i) require any Governmental Approval or violate any applicable law
relating to such Borrower or any of its Affiliates,
(ii) conflict with, result in a breach of or constitute a default
under (i) the articles of incorporation or by-laws or any shareholders'
agreement of such Borrower, (ii) any indenture, agreement or other
instrument to which such Borrower is a party or by which any of its
property may be bound or (iii) any Governmental Approval relating to such
Borrower, or
2
<PAGE> 3
(iii) result in or require the creation or imposition of any Lien upon
or with respect to any property now owned or hereafter acquired by such
Borrower other than the Security Interest.
Section 5. General Provisions.
(a) Governing Law. This Amendment shall be construed in accordance with and
governed by the law of the State of Georgia.
(b) Counterpart Execution. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and shall be binding
upon all parties, their successors and assigns, and all of which taken together
shall constitute one and the same agreement.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
RIDGEVIEW, INC.
[CORPORATE SEAL]
Attest: By: ______________________________
Hugh R. Gaither
By: _________________________ President
Name: ____________________
Title: ___________________
SENECA KNITTING MILLS
CORPORATION
[CORPORATE SEAL]
Attest: By: ______________________________
Hugh R. Gaither
By: _________________________ President
Name: ____________________
Title: ___________________
INTERKNIT, INC.
[CORPORATE SEAL]
Attest: By: ______________________________
Hugh R. Gaither
By: _________________________ President
Name: ____________________
Title: ___________________
NATIONSBANK, N.A. (SOUTH)
By: ______________________________
Scott K. Goldstein
Vice President
4
<PAGE> 5
CONSENT AND CONFIRMATION
The undersigned, GPM Corporation, as the maker of the Subsidiary Guaranty,
hereby acknowledges receipt of the foregoing Amendment No. 1 and confirms, for
the benefit of the Borrowers and the Lender, that the Subsidiary Guaranty
remains in full force and effect, in accordance with its terms, as to Secured
Obligations of the Borrower under the Loan Agreement as amended by the said
Amendment No. 1 and is hereby in all respects ratified and confirmed.
Dated: As of January 31, 1997
GPM CORPORATION
By: ______________________________
Hugh R. Gaither
President
<PAGE> 1
[EXECUTION COPY]
AMENDMENT NO. 1
to
Amended and Restated
Loan and Security Agreement
dated as of December 20, 1996
AMENDMENT NO. 1 entered into as of January 31, 1997 among RIDGEVIEW, INC.,
a North Carolina corporation, SENECA KNITTING MILLS CORPORATION, a New York
corporation, INTERKNIT, INC., an Alabama corporation (collectively, the
"Borrowers"), and NATIONSBANK, N.A. (SOUTH), a national banking association (the
"Lender").
Preliminary Statement
The Borrowers and the Lender are parties to that certain Amended and
Restated Loan and Security Agreement dated as of December 20, 1996 (the "Loan
Agreement"; terms defined therein, unless otherwise defined herein, being used
herein as therein defined).
The Borrower has requested an adjustment to the amortization schedule of
the Term Loan and the Lender has agreed to such request, subject to all of the
terms, conditions and provisions hereinafter set forth.
NOW, THEREFORE, in consideration of the Loan Agreement, the mutual
covenants set forth therein and herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
Section 1. Amendment to Loan Agreement. Subject to the provisions of
Section 2, the Loan Agreement is hereby amended by amending Section 2B.2 thereof
in its entirety to read as follows:
Section 2B.2 Repayment of Term Loan. The Term Loan is due and payable,
and shall be repaid in full by the Borrowers, in twenty-seven (27)
installments as follows: the first three installments, payable on January
1, February 1 and March 1, 1997, shall be in the amount of $53,667 each,
the fourth installment, payable on March 31, 1997, shall be in the amount
of $3,916,658, the next 22 installments, payable on April 1 and the first
day of each calendar month thereafter, shall be in the amount of $12,000
each and the final installment payable on January 10, 1999 shall be in the
amount of the then unpaid balance of the Term Loan.
Section 2. Effectiveness. The provisions of Section 1 shall become
effective as of the date hereof on the date (the "Amendment Effective Date") on
which
(a) the Lender shall have received counterparts of this Amendment duly
executed by the Borrower, together with the Consent and Confirmation attached
hereto duly executed by the Guarantor;
(b) a certificate of the chief operating officer or president of each
Borrower stating that, to the best of his knowledge and based on an examination
sufficient to enable him to make an
<PAGE> 2
informed statement,
(i) all of the representations and warranties made or deemed to be
made under the Loan Agreement are true and correct as of the Amendment
Effective Date, and
(ii) after giving effect to this Amendment, no Default or Event of
Default exists; and
(c) such other documents and instruments as the Lender may reasonably
request;
Section 3. Effect of Amendment. Upon and after the effectiveness of this
Amendment as provided in Section 2 hereof, all references to the Loan Agreement
in the Loan Agreement or in any other Loan Document shall mean the Loan
Agreement as amended by this Amendment. Except as expressly provided in this
Amendment, the execution and delivery of this Amendment does not, and will not,
amend, modify or supplement any provision of or con stitute a consent to or a
waiver of any noncompliance with the provisions of the Loan Agreement and,
except as specifically provided in this Amendment, the Loan Agreement shall
remain in full force and effect.
Section 4. Representations and Warranties. Each Borrower hereby makes the
following representations and warranties to the Lender, which representations
and warranties shall survive the delivery of this Amendment and the making of
Loans under the Loan Agreement as amended hereby:
(a) Organization; Power; Qualification. Each Borrower is a corporation,
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own
its properties and to carry on its business as now being and hereafter proposed
to be conducted and is duly qualified and authorized to do business in each
jurisdiction in which failure to be so qualified and authorized would have a
Materially Adverse Effect.
(b) Authorization of Agreements. Each Borrower has the right and power and
has taken all necessary action to authorize it to execute, deliver and perform
this Amendment in accordance with its terms. This Amendment has been duly
executed and delivered by the duly authorized officers of each Borrower and is a
legal, valid and binding obligation of such Borrower, enforceable in accordance
with its terms.
(c) Compliance of Agreements with Laws. The execution, delivery and
performance of this Amendment in accordance with its terms do not and will not,
by the passage of time, the giving of notice or otherwise,
(i) require any Governmental Approval or violate any applicable law
relating to such Borrower or any of its Affiliates,
(ii) conflict with, result in a breach of or constitute a default
under (i) the articles of incorporation or by-laws or any shareholders'
agreement of such Borrower, (ii) any indenture, agreement or other
instrument to which such Borrower is a party or by which any of its
property may be bound or (iii) any Governmental Approval relating to such
Borrower, or
2
<PAGE> 3
(iii) result in or require the creation or imposition of any Lien upon
or with respect to any property now owned or hereafter acquired by such
Borrower other than the Security Interest.
Section 5. General Provisions.
(a) Governing Law. This Amendment shall be construed in accordance with and
governed by the law of the State of Georgia.
(b) Counterpart Execution. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and shall be binding
upon all parties, their successors and assigns, and all of which taken together
shall constitute one and the same agreement.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
RIDGEVIEW, INC.
[CORPORATE SEAL]
Attest: By: ______________________________
Hugh R. Gaither
By: _________________________ President
Name: ____________________
Title: ___________________
SENECA KNITTING MILLS
CORPORATION
[CORPORATE SEAL]
Attest: By: ______________________________
Hugh R. Gaither
By: _________________________ President
Name: ____________________
Title: ___________________
INTERKNIT, INC.
[CORPORATE SEAL]
Attest: By: ______________________________
Hugh R. Gaither
By: _________________________ President
Name: ____________________
Title: ___________________
NATIONSBANK, N.A. (SOUTH)
By: ______________________________
Scott K. Goldstein
Vice President
4
<PAGE> 5
CONSENT AND CONFIRMATION
The undersigned, GPM Corporation, as the maker of the Subsidiary Guaranty,
hereby acknowledges receipt of the foregoing Amendment No. 1 and confirms, for
the benefit of the Borrowers and the Lender, that the Subsidiary Guaranty
remains in full force and effect, in accordance with its terms, as to Secured
Obligations of the Borrower under the Loan Agreement as amended by the said
Amendment No. 1 and is hereby in all respects ratified and confirmed.
Dated: As of January 31, 1997
GPM CORPORATION
By: ______________________________
Hugh R. Gaither
President
<PAGE> 1
[EXECUTION COPY]
AMENDMENT NO. 2 AND WAIVER
to
Amended and Restated
Loan and Security Agreement
dated as of December 20, 1996
AMENDMENT NO. 2 AND WAIVER entered into as of March ___, 1997 among
RIDGEVIEW, INC., a North Carolina corporation, SENECA KNITTING MILLS
CORPORATION, a New York corporation, INTERKNIT, INC., an Alabama corporation
(collectively, the "Borrowers"), and NATIONSBANK, N.A. (SOUTH), a national
banking association (the "Lender").
Preliminary Statement
The Borrowers and the Lender are parties to that certain Amended and
Restated Loan and Security Agreement dated as of December 20, 1996, as amended
by Amendment No. 1 dated as of January 31, 1997 (as so amended, the "Loan
Agreement"; terms defined therein, unless otherwise defined herein, being used
herein as therein defined).
The Borrower has requested an adjustment to the amortization schedule
of the Term Loan and the waiver of certain financial covenant defaults and the
Lender has agreed to such requests, subject to all of the terms, conditions and
provisions hereinafter set forth.
NOW, THEREFORE, in consideration of the Loan Agreement, the mutual
covenants set forth therein and herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
Section 1. Amendment to Loan Agreement. Subject to the provisions of
Section 3, the Loan Agreement is hereby amended as follows:
(a) by amending Section 2B.2 thereof in its entirety to read as
follows:
Section 2B.2 Repayment of Term Loan. The Term Loan is due and
payable, and shall be repaid in full by the Borrowers, in twenty-six
(26) installments as follows: the first twenty-five (25) installments,
payable commencing on January 1, 1997 and the first day of each
calendar month thereafter, shall be in the amount of $53,667 each and
the final installment payable on January 10, 1999 shall be in the
amount of the then unpaid balance of the Term Loan.
(b) by amending Section 10.5 thereof by adding prior to the final
punctuation thereof the following "; provided that Capital Expenditures made or
incurred by Ridgeview and its
<PAGE> 2
Subsidiaries during the fiscal year of the Borrowers ending December 31, 1997
shall not exceed, in the aggregate, $3,500,000".
Section 2. Waiver. Subject to the provisions of Section 3 hereof, the
Lender hereby waives compliance, and the effects of noncompliance, by the
Borrowers with the provisions of (a) Sections 10.1(a)(iii) and 10.1(b)(iii) of
the Loan Agreement for the 12-month period ended December 31, 1996 to the extent
that such noncompliance results solely from the inclusion in the calculation
thereof of more than $644,004 of the outstanding principal balance of the Term
Loan as current maturities of Funded Debt, and (b) Section 10.6(ii) of the Loan
Agreement to the extent that dividends paid during the fiscal year of the
Borrowers ending December 31, 1996 did not exceed $85,000.
Section 3. Effectiveness. The provisions of Sections 1 and 2 shall
become effective as of the date hereof on the date (the "Amendment Effective
Date") on which
(a) the Lender shall have received counterparts of this Amendment duly
executed by the Borrower, together with the Consent and Confirmation attached
hereto duly executed by the Guarantor;
(b) a certificate of the chief operating officer or president of each
Borrower stating that, to the best of his knowledge and based on an examination
sufficient to enable him to make an informed statement, in each case after
giving effect to this Amendment:
(i) all of the representations and warranties made or deemed
to be made under the Loan Agreement are true and correct as of the
Amendment Effective Date, and
(ii) no Default or Event of Default exists; and
(c) such other documents and instruments as the Lender may reasonably
request.
Section 4. Effect of Amendment. Upon and after the effectiveness of
this Amendment as provided in Section 3 hereof, all references to the Loan
Agreement in the Loan Agreement or in any other Loan Document shall mean the
Loan Agreement as amended by this Amendment. Except as expressly provided in
this Amendment, the execution and delivery of this Amendment does not, and will
not, amend, modify or supplement any provision of or con stitute a consent to or
a waiver of any noncompliance with the provisions of the Loan Agreement and,
except as specifically provided in this Amendment, the Loan Agreement shall
remain in full force and effect.
Section 5. Representations and Warranties. Each Borrower hereby makes
the following representations and warranties to the Lender, which
representations and warranties shall survive the delivery of this Amendment and
the making of Loans under the Loan Agreement as amended hereby:
2
<PAGE> 3
(a) Organization; Power; Qualification. Each Borrower is a corporation,
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own
its properties and to carry on its business as now being and hereafter proposed
to be conducted and is duly qualified and authorized to do business in each
jurisdiction in which failure to be so qualified and authorized would have a
Materially Adverse Effect.
(b) Authorization of Agreements. Each Borrower has the right and power
and has taken all necessary action to authorize it to execute, deliver and
perform this Amendment in accordance with its terms. This Amendment has been
duly executed and delivered by the duly authorized officers of each Borrower and
is a legal, valid and binding obligation of such Borrower, enforceable in
accordance with its terms.
(c) Compliance of Agreements with Laws. The execution, delivery and
performance of this Amendment in accordance with its terms do not and will not,
by the passage of time, the giving of notice or otherwise,
(i) require any Governmental Approval or violate any
applicable law relating to such Borrower or any of its Affiliates,
(ii) conflict with, result in a breach of or constitute a
default under (i) the articles of incorporation or by-laws or any
shareholders' agreement of such Borrower, (ii) any indenture, agreement
or other instrument to which such Borrower is a party or by which any
of its property may be bound or (iii) any Governmental Approval
relating to such Borrower, or
(iii) result in or require the creation or imposition of any
Lien upon or with respect to any property now owned or hereafter
acquired by such Borrower other than the Security Interest.
Section 6. General Provisions.
(a) Governing Law. This Amendment shall be construed in accordance with
and governed by the law of the State of Georgia.
(b) Counterpart Execution. This Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and shall be binding
upon all parties, their successors and assigns, and all of which taken together
shall constitute one and the same agreement.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
RIDGEVIEW, INC.
[CORPORATE SEAL]
Attest: By: ______________________________
Hugh R. Gaither
By: __________________________ President
Name: ____________________
Title: ___________________
SENECA KNITTING MILLS CORPORATION
[CORPORATE SEAL]
Attest: By: ______________________________
Hugh R. Gaither
By: __________________________ President
Name: ____________________
Title: ___________________
INTERKNIT, INC.
[CORPORATE SEAL]
Attest: By: ______________________________
Hugh R. Gaither
By: __________________________ President
Name: ____________________
Title: ___________________
NATIONSBANK, N.A. (SOUTH)
By: ______________________________
Scott K. Goldstein
Vice President
4
<PAGE> 5
CONSENT AND CONFIRMATION
The undersigned, GPM Corporation, as the maker of the Subsidiary
Guaranty, hereby acknowledges receipt of the foregoing Amendment No. 2 and
Waiver and confirms, for the benefit of the Borrowers and the Lender, that the
Subsidiary Guaranty remains in full force and effect, in accordance with its
terms, as to Secured Obligations of the Borrower under the Loan Agreement as
amended by the said Amendment No. 2 and Waiver and is hereby in all respects
ratified and confirmed.
Dated: As of March ___, 1997
GPM CORPORATION
By: ______________________________
Hugh R. Gaither
President
<PAGE> 1
DRAWN BY AND RETURN TO:
Hunton & Williams
600 Peachtree Street
Suite 4100
Atlanta, Georgia 30308
STATE OF NEW YORK
COUNTY OF SENECA
FIRST MODIFICATION TO
MORTGAGE AND SECURITY AGREEMENT
(COLLATERAL IS OR INCLUDES FIXTURES)
THIS FIRST MODIFICATION TO MORTGAGE AND SECURITY AGREEMENT made as of
the ____ day of December 1996 between RIDGEVIEW, INC., a North Carolina
corporation having a mailing address of P.O. Box 8, 2101 North Main Street,
Newton, North Carolina ("Mortgagor"), and NATIONSBANK, N.A. (SOUTH) (as
successor-by merger to NationsBank of Georgia, N.A.), a national banking
association with its principal offices in Atlanta, Georgia ("Mortgagee").
1. The Mortgagor is party to (a) that certain Loan and Security
Agreement (Revolving Loans) dated as of January 10, 1995 between the Mortgagor
and the Mortgagee, as amended by First Amendment to Loan and Security Agreement
dated as of June 28, 1995, Second Amendment to Loan and Security Agreement dated
as of October __, 1995, Third Amendment to Loan and Security Agreement dated as
of June 11, 1996 and Fourth Amendment to Loan and Security Agreement dated as of
September 6, 1996 (as so amended, the "Revolver Agreement"), and (b) that
certain Loan and Security Agreement (Term Loan) dated as of January 10, 1995
between the Mortgagor and the Mortgagee as amended by First Amendment to Loan
and Security Agreement dated as of June 28, 1995, Second Amendment to Loan and
Security Agreement dated as of October __, 1995, Third Amendment to Loan and
Security Agreement dated as of June 11, 1996 and Fourth Amendment to Loan and
Security Agreement dated as of September 6, 1996 (as so amended, the "Term
Agreement").
<PAGE> 2
2. As security for its obligations under the Revolver Agreement and the
Term Agreement, up to a maximum principal amount equal to $635,000, the
Mortgagor has previously executed that certain Mortgage and Security Agreement
dated as of June 28, 1995 in favor of Mortgagee, recorded at Liber 0512, Page
106, Seneca County, New York real estate records (the "Mortgage").
3. The Mortgagor and the Mortgagee have now agreed to amend, restate
and consolidate the Revolver Agreement and the Term Agreement in the form of
that certain Amended and Restated Loan and Security Agreement dated as of
December __, 1996 (as amended, modified, supplemented or restated from time to
time, the "Loan Agreement") among the Mortgagor and certain of its subsidiaries
as borrowers and the Mortgagee as lender.
4. In connection with the execution and delivery of the Loan Agreement,
the Mortgagor and Mortgagee have agreed to amend the Mortgage as hereinafter set
forth.
NOW, THEREFORE, the Mortgagor and Mortgagee hereby agree as follows:
1. The Mortgage is hereby amended as follows:
(a) by amending the first two introductory paragraphs in their
entirety to read as follows:
THIS MORTGAGE AND SECURITY AGREEMENT made as of the 28th day
of June 1995, as amended by a modification thereto dated as of December
___, 1996, between Ridgeview, Inc., a North Carolina corporation having
a mailing address of Post Office Box 8, 2101 North Main Street, Newton,
North Carolina ("Mortgagor"), and NationsBank, N.A. (South) (as
successor by merger to NationsBank of Georgia, N.A.), a national
banking association with its principal offices in Atlanta, Georgia
("Mortgagee").
1. Mortgagor owns one hundred percent (100%) of the stock of
Seneca Knitting Mills Corporation. GPM Corporation, a wholly-owned
subsidiary of Seneca Knitting Mills Corporation (the "Guarantor"), has
entered into a Mortgage and Security Agreement dated as of June 28,
1995, as amended by a modification thereto dated as of December __,
1996, with the Mortgagee (as so amended, the "GPM Mortgage"). The GPM
Mortgage secures the obligations and duties of the Guarantor under that
certain Subsidiary Guaranty dated as of June 28, 1995 (the "Guaranty"),
which Guaranty secures up to $635,000 of the indebtedness of Mortgagor
secured by this Mortgage.
2. By amending the first paragraph following the phrase
"WITNESSETH:" in its entirety to read as follows:
- 2 -
<PAGE> 3
To secure the payment of the indebtedness of the
Mortgagor to the Mortgagee up to a maximum principal sum of
FOURTEEN MILLION AND NO/100 DOLLARS ($14,000,000.00) lawful
money of the United States of America, to be paid with
interest and evidenced by promissory notes executed by the
Mortgagor in favor of the Mortgagee (such promissory notes and
all amendments, modifications, renewals or replacements
thereof being referred to collectively as the "Note"), issued
under that certain Amended and Restated Loan and Security
Agreement dated as of December __, 1996 between the Mortgagor
and certain of its subsidiaries as borrowers and the Mortgagee
as lender, as the same may be amended, modified, supplemented
or restated from time to time (said indebtedness, interest and
all other sums that may or shall become due hereunder being
hereinafter referred to collectively as the "Debt") and for
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Mortgagor has
mortgaged, granted, conveyed, hypothecated and assigned, and
by these presents does mortgage, grant a security interest in,
grant, hypothecate, convey and assign unto Mortgagee all
right, title and interest of Mortgagor in and to the property
described in Schedule A attached hereto (hereinafter referred
to as the "Premises") and the buildings and improvements now
or hereafter located thereon (hereinafter referred to as the
"Improvements");
3. Except as hereby modified, the terms and conditions of the
Mortgage, including, without limitation, any exhibits thereto, shall
remain in full force and effect. The parties hereto do not intend this
Modification or the transactions contemplated hereby to be, and this
Modification and the transactions contemplated hereby shall not be
construed to be, a novation of any of the Debt, including, without
limitation, under the Note as defined in the Mortgage. Further, the
parties do not intend this Modification or the transactions
contemplated hereby to affect the priority of any of the Mortgagee's
liens in any collateral securing the Debt in any way including, but not
limited to, the liens, security interests and encumbrances created by
the Mortgage.
4. This Modification 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 New York.
- 3 -
<PAGE> 4
IN WITNESS WHEREOF, the undersigned Mortgagor and Mortgagee have duly
executed this Modification as of the day and year first above written.
RIDGEVIEW, INC., a North Carolina
corporation
By:___________________________
Hugh R. Gaither
President
NATIONSBANK, N.A. (SOUTH)
By:___________________________
Scott K. Goldstein
Vice President
- 4 -
<PAGE> 5
STATE OF ___________________
COUNTY OF __________________
On this ____ day of December 1996, before me personally came Hugh R.
Gaither, to me known, who, being by me duly sworn, did depose and say that he
resides in North Carolina, that he is the President of Ridgeview, Inc., a North
Carolina corporation, the corporation described in and which executed the
foregoing instrument, and he signed his name thereto by order of the Board of
Directors of said corporation.
---------------------------
Notary Public
[NOTARIAL SEAL]
My commission expires: _______________
STATE OF ___________________
COUNTY OF __________________
On this ____ day of December 1996, before me personally came Scott K.
Goldstein, to me known, who, being by my duly sworn, did depose and say that he
resides in Georgia, that he is a Vice President of NationsBank, N.A. (South), a
national banking association, the national banking association described in and
which executed the foregoing instrument, and he signed his name thereto by order
of said national banking association.
---------------------------
Notary Public
[NOTARIAL SEAL]
My commission expires: _______________
- 5 -
<PAGE> 1
DRAWN BY AND RETURN TO:
Hunton & Williams
600 Peachtree Street
Suite 4100
Atlanta, Georgia 30308
STATE OF NEW YORK
COUNTY OF SENECA
FIRST MODIFICATION TO
MORTGAGE AND SECURITY AGREEMENT
(COLLATERAL IS OR INCLUDES FIXTURES)
THIS FIRST MODIFICATION TO MORTGAGE AND SECURITY AGREEMENT made as of
the ____ day of December 1996 between GPM CORPORATION, a New York corporation
having a mailing address of c/o Ridgeview, Inc., P.O. Box 8, 2101 North Main
Street, Newton, North Carolina ("Mortgagor"), and NATIONSBANK, N.A. (SOUTH) (as
successor-by merger to NationsBank of Georgia, N.A.), a national banking
association with its principal offices in Atlanta, Georgia ("Mortgagee").
1. The Mortgagor is a wholly-owned subsidiary of Seneca Knitting Mills
Corporation, a New York corporation ("Seneca"), which is a wholly-owned
subsidiary of Ridgeview, Inc., a North Carolina corporation ("Ridgeview").
2. The Mortgagor is the maker of that certain Subsidiary Guaranty dated
as of June 28, 1995 (the "Guaranty") in favor of the Mortgagee, pursuant to
which the Mortgagor guarantees obligations of Ridgeview to the Mortgagee
pursuant to (a) that certain Loan and Security Agreement (Revolving Loans) dated
as of January 10, 1995 between Ridgeview and the Mortgagee, as amended by First
Amendment to Loan and Security Agreement dated as of June 28, 1995, Second
Amendment to Loan and Security Agreement dated as of October __, 1995, Third
Amendment to Loan and Security Agreement dated as of June 11, 1996 and Fourth
Amendment to Loan and Security Agreement dated as of September 6, 1996 (as so
amended, the "Revolver Agreement"), and (b) that certain Loan and Security
Agreement (Term Loan) dated as of January 10, 1995 between Ridgeview and the
Mortgagee as
<PAGE> 2
amended by First Amendment to Loan and Security Agreement dated as of June 28,
1995, Second Amendment to Loan and Security Agreement dated as of October __,
1995, Third Amendment to Loan and Security Agreement dated as of June 11, 1996
and Fourth Amendment to Loan and Security Agreement dated as of September 6,
1996 (as so amended, the "Term Agreement"), up to a maximum amount equal to
$635,000.
3. As security for its obligations under the Guaranty, the Mortgagor
has previously executed that certain Mortgage and Security Agreement dated as of
June 28, 1995 in favor of Mortgagee, recorded at Liber 0512, Page 130, Seneca
County, New York real estate records (the "Mortgage").
4. Ridgeview and the Mortgagee have now agreed to amend, restate and
consolidate the Revolver Agreement and the Term Agreement in the form of that
certain Amended and Restated Loan and Security Agreement dated as of December
__, 1996 (as amended, modified, supplemented or restated from time to time, the
"Loan Agreement") among Ridgeview, Seneca and [Interknit] as borrowers and the
Mortgagee as lender.
5. In connection with the execution and delivery of the Loan Agreement,
the Mortgagor and Mortgagee have agreed to amend the Mortgage as hereinafter set
forth.
NOW, THEREFORE, the Mortgagor and Mortgagee hereby agree as follows:
1. The Mortgage is hereby amended by amending the first four
introductory paragraphs in their entirety to read as follows:
THIS MORTGAGE AND SECURITY AGREEMENT made as of the 28th day
of June 1995, as amended by a modification thereto dated as of December
___, 1996, between GPM Corporation, a New York corporation having a
mailing address of c/o Ridgeview, Inc., Post Office Box 8, 2101 North
Main Street, Newton, North Carolina ("Mortgagor"), and NationsBank,
N.A. (South) (as successor by merger to NationsBank of Georgia, N.A.),
a national banking association with its principal offices in Atlanta,
Georgia ("Mortgagee").
1. The Mortgagor is a wholly-owned subsidiary of Seneca
Knitting Mills Corporation, a New York corporation ("Seneca"), which is
a wholly-owned subsidiary of Ridgeview, Inc., a North Carolina
corporation ("Ridgeview").
2. The Mortgagor has entered into that certain Subsidiary
Guaranty dated as of June 28, 1995, as confirmed by a confirmation
thereof dated as of December ___, 1996 (as so confirmed and as the same
may be amended, modified, supplemented or restated from time to time,
the "Guaranty"), in favor of the Mortgagee. The Guaranty secures the
indebtedness of Ridgeview
- 2 -
<PAGE> 3
and Seneca, among others, to the Mortgagee up to a maximum amount equal
to Six Hundred Thirty-Five Thousand Dollars ($635,000).
3. In addition, Ridgeview has entered into a Mortgage and
Security Agreement dated as of June 28, 1995 in favor of the Mortgagee,
as amended by a modification thereto dated as of December ___, 1996 (as
so modified, the "Ridgeview Mortgage"). The Ridgeview Mortgage secures
the full amount of indebtedness of Ridgeview to the Mortgagee under
that certain Amended and Restated Loan and Security Agreement dated as
of December ___, 1996 among Ridgeview, Seneca and [Interknit] as
borrowers and the Mortgagee as lender, including, without limitation,
the portion of such indebtedness guaranteed by the Mortgagor pursuant
to the Guaranty and secured by this Mortgage.
2. Except as hereby modified, the terms and conditions of the Mortgage,
including, without limitation, any exhibits thereto, shall remain in full force
and effect.
3. This Modification 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 New York.
IN WITNESS WHEREOF, the undersigned Mortgagor and Mortgagee have duly
executed this Modification as of the day and year first above written.
GPM CORPORATION, a New York
corporation
By:___________________________
Hugh R. Gaither
President
NATIONSBANK, N.A. (SOUTH)
By:___________________________
Scott K. Goldstein
Vice President
- 3 -
<PAGE> 4
STATE OF ___________________
COUNTY OF __________________
On this ____ day of December 1996, before me personally came Hugh R.
Gaither, to me known, who, being by me duly sworn, did depose and say that he
resides in North Carolina, that he is the President of GPM Corporation, a New
York corporation, the corporation described in and which executed the foregoing
instrument, and he signed his name thereto by order of the Board of Directors of
said corporation.
---------------------------
Notary Public
[NOTARIAL SEAL]
My commission expires: _______________
STATE OF ___________________
COUNTY OF __________________
On this ____ day of December 1996, before me personally came Scott K.
Goldstein, to me known, who, being by my duly sworn, did depose and say that he
resides in Georgia, that he is a Vice President of NationsBank, N.A. (South), a
national banking association, the national banking association described in and
which executed the foregoing instrument, and he signed his name thereto by order
of said national banking association.
---------------------------
Notary Public
[NOTARIAL SEAL]
My commission expires: _______________
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<PAGE> 1
DRAWN BY AND RETURN TO:
Hunton & Williams
600 Peachtree Street
Suite 4100
Atlanta, Georgia 30308
STATE OF ALABAMA
COUNTY OF DEKALB
AMENDED, RESTATED AND CONSOLIDATED
FIRST ASSIGNMENT OF LESSEE'S INTEREST IN LEASE
THIS AMENDED, RESTATED AND CONSOLIDATED FIRST ASSIGNMENT OF LESSEE'S
INTEREST IN LEASE (this "Assignment"), made this 20th day of December 1996 by
RIDGEVIEW, INC., a North Carolina corporation (hereinafter referred to as
"Assignor") to NATIONSBANK, N.A. (SOUTH) (hereinafter referred to as
"Assignee").
Assignor has previously executed and delivered (1) that certain First
Assignment of Lessee's Interest in Lease dated January 10, 1995 in favor of
NationsBank, N.A. (Carolinas), as predecessor-in-interest of Assignee, recorded
at Misc. Book 410, Page 68 and UCC file number 180270, DeKalb County, Alabama
records (the "First Assignment"), and (2) that certain Second Assignment of
Lessee's Interest in Lease dated January 10, 1995 in favor of NationsBank of
Georgia, N.A., as predecessor-in-interest of Assignee, recorded in Misc. Book
410, Page 81 and UCC file number 180271, DeKalb County, Alabama records, as
modified by First Amendment to Second Assignment of Lessee's Interest in Lease
dated June 11, 1996, recorded at Misc. Book 102, Page 141 and UCC file number
199371, aforesaid records, and by Second Amendment to Second Assignment of
Lessee's Interest in Lease dated September 6, 1996, recorded at Misc. Book 104,
Page 4 and UCC file number 100714, aforesaid records (as so amended, the "Second
Assignment").
In connection with the amendment and restatement of the Loan Agreement
(as defined in the First Assignment) and the Loan Agreement (as defined in the
Second Assignment) in the form of that certain Amended and Restated Loan and
Security Agreement dated as of December 20, 1996 between Assignor and certain of
its subsidiaries as borrowers and
<PAGE> 2
Assignee as lender and the issuance thereunder of an Amended, Restated and
Consolidated Term Note in exchange for, but not in extinguishment of the
indebtedness evidenced by, the Note (as defined in the First Assignment) and
that certain Term Note dated June 28, 1995 made by Assignor in favor of
NationsBank of Georgia, N.A., as predecessor-in-interest of Assignee, in the
original principal amount of $1,000,000 and of an Amended and Restated Revolving
Credit Note in exchange for, but not in extinguishment of the indebtedness
evidenced by, the Note (as defined in the Second Assignment), the parties hereto
have agreed to amend, restate and consolidate the First Assignment and the
Second Assignment in the form of this Assignment; PROVIDED that the parties do
not intend this Assignment and the transactions contemplated hereby, and this
Assignment and the transaction contemplated hereby shall not be deemed, to
constitute a novation of any of the obligations secured by the First Assignment
or the Second Assignment.
W I T N E S S E T H:
FOR VALUE RECEIVED, and as additional security for the indebtedness
hereinafter mentioned, Assignor does hereby assign, set over, transfer, convey
and deliver unto Assignee, and does hereby grant to Assignee a security interest
in, all of Assignor's right, title and interest in and to that certain Lease
dated as of November 1, 1978 by and between the Industrial Development Board of
the City of Fort Payne, as Lessor, and Niota Textile Mills, Company,
Incorporated, as Lessee, as recorded in the Office of Judge of Probate of DeKalb
County, Alabama in Deed Book 267 at Pages 291-345 (the "Lease"), the Assignor's
leasehold interest in said Lease having been assigned by Niota Textile Mills,
Company, Incorporated to Assignor as of the 13th day of August, 1992, said
assignment being recorded in said Probate Office in Misc. Book 52 at Page 50. It
is the intention of Assignor to hereby assign to Assignee all right, title and
interest of Assignor in and to the Lease, whether or not the same have been
exercised, and whether or not the same are presently exercisable, including but
not limited to the following:
(1) The right of occupation and enjoyment of the demised
premises for the remaining term of the Lease;
(2) The right to exercise the options granted in Article IX of
the Lease;
(3) The right to assign or sublease all or any part of the
demised premises for or during the remaining term of the Lease in
accordance with Section 6.1 of the Lease; and
(4) Any and all rights of Assignor as Lessee of the Lease
contained or implied therein and not hereinbefore specifically
enumerated.
The term of this Assignment shall be until (i) that certain Term Note
and Revolving Credit Note, each as defined under that certain Amended and
Restated Loan and Security
- 2 -
<PAGE> 3
Agreement dated as of December 20, 1996 between Assignor and certain of its
Subsidiaries as borrowers and Assignee as Lender (as amended, modified,
supplemented or restated from time to time, the "Loan Agreement", unless
otherwise defined herein, terms defined in the Loan Agreement being used herein
as therein defined), shall have been fully paid and satisfied and all other
Secured Obligations shall have been satisfied, and (ii) the Revolving Credit
Facility has been terminated, at which time this Assignment is to be canceled
and released.
AND TO THAT END, Assignor does hereby further assign, set over,
transfer and convey and deliver unto Assignee all of Assignor's right, title and
interest in the Lease and all lease agreements, addenda and amendments thereto
and ratification and modifications thereof.
And Assignor does hereby authorize and empower Assignee, at the option
of Assignee: (1) to exercise any option to renew or purchase granted to the
lessee of the Lease and inuring to the benefit of Assignor, and (ii) to collect
any rents payable by any subtenant of Assignor under all of the said subleases
as they shall become due, and Assignor does hereby direct each and all of the
subtenants of the aforesaid premises, if any, to pay such rents as may now be
due or shall hereafter become due to Assignee upon demand for payment therefor
by Assignee.
It is understood and agreed, however, that no such demand shall be made
unless and until a Default or Event of Default shall have occurred and be
continuing; and, until such demand is made, Assignor is authorized to collect or
continue collecting rent from any and all subtenants, as aforesaid by Assignor,
its successors and assigns, and Assignor will not collect, demand or receive any
installments of rent in advance of the date prescribed in said sublease or
subleases for the payment thereof.
The authority and power of Assignee to collect said rents from said
property as set forth herein may be exercised and said rents collected with or
without the taking of possession of said real property, or any part thereof, and
without the necessity of any action upon any Note or the Loan Agreement or an
action upon this Assignment directly against any subleases assigned herewith.
And in furtherance of this Assignment, Assignor does hereby
specifically authorize and empower Assignee, by its employees, agents or
representatives, at the option of Assignee, upon the occurrence of any Default
or Event of Default as aforesaid, to enter upon the aforesaid premises and, upon
such entry, to take over and assume the tenancy of Assignor and the management,
operation and maintenance of said premises and to perform all acts necessary and
proper in its sole discretion and to expend such sums as may be necessary in
connection therewith. Assignor does hereby release all claims against Assignee
arising out of such assumption of the tenancy or management, operation and
maintenance, excepting the liability of Assignee to account as hereinafter set
forth.
- 3 -
<PAGE> 4
Assignor hereby covenants with Assignee that, in the event Assignor
exercises any option contained in the Lease to purchase the demised premises, or
any part thereof, such that Assignor becomes the owner of the fee ownership, or
any lesser possessory interest in said property not limited in time, of the real
property described on Exhibit "A" hereto or any portion thereof, that Assignor
will execute and deliver in favor of Assignee a mortgage encumbering said
property and securing the payment of the Secured Obligations according to the
terms of the Notes and the Loan Agreement.
This Assignment is given as additional security for the performance of
each and all of the Secured Obligations.
Assignee shall, after payment of all proper charges and expenses,
including reasonable compensation to such agents, employees or representatives
as shall be selected or employed, and after the accumulation of a reasonable
reserve to meet taxes, assessments, utility rents, and fire and extended
coverage and liability insurance in requisite amounts, credit the next amount of
income received by Assignee from the premises by virtue of this Assignment to
any amounts due and owing to Assignee by Assignor under the terms of any Note or
the Loan Agreement, but the manner of the application of such net income and
what items shall be credited shall be determined in the sole discretion of the
Assignee.
It is further covenanted and agreed that Assignor and its successors
and assigns shall have no right, power or authority to (and Assignor covenants
and agrees with the Assignee that Assignor will not) alter, modify, or amend the
terms of the Lease without first obtaining the advance consent of Assignee in
writing to such alteration, modification or amendment.
Assignee shall not be obligated to perform or discharge any obligation
or duty to be performed or discharged by Assignor under the Lease, and Assignor
hereby agrees to indemnify Assignee for, and to save it harmless from, any and
all liability arising from said Lease, or from this Assignment, and this
Assignment shall not place any responsibility for the control, care, management
or repair of said premises upon Assignee, or make Assignee responsible or liable
for any negligence in the management, operation, upkeep, repair or control of
said premises resulting in loss or injury or death to any tenant, licensee,
employee or stranger.
It is further covenanted and agreed that Assignor shall keep, observe
and perform all of the covenants on the part of the Lessee to be kept, observed
and performed under the Lease affecting any portion of the premises. If Assignor
fails to keep, observe and perform any covenant of the Lease, Assignee shall
have the right, at its option, to keep, observe and perform such covenant on
behalf of Assignor, or to declare with or without notice, the entire principal
balance of the Notes and the other Secured Obligations, plus accrued interest
thereon, immediately due and payable and avail itself of any and all remedies at
law, in equity or provided for in the Loan Agreement, in the event of a Default
or Event of Default. In the event that Assignee should exercise its option to
keep, observe or perform any of the Assignor's obligations under this Lease, it
shall be entitled to recover from Assignor
- 4 -
<PAGE> 5
immediately upon demand any expenses incurred or amounts advanced in performing
such covenants. Should Assignor fail to repay Assignee any such expenses or
advances as herein provided, Assignee may, at its option, with or without
notice, exercise any of the foregoing remedies available in the event of a
Default or Event of Default.
IT IS UNDERSTOOD AND AGREED that neither the existence of this
Assignment nor the exercise of its privileges hereunder, shall be construed as a
waiver by Assignee or its successors and assigns of the right to enforce payment
of the indebtedness evidenced by the Notes and the other Secured Obligations in
strict accordance with the terms and provisions of the Notes and the Loan
Agreement, for which this Assignment is given as security.
IT IS FURTHER UNDERSTOOD AND AGREED that the parties hereto have
entered into this Assignment solely to amend, restate and consolidate the First
Assignment and the Second Assignment. The parties do not intend this Assignment
or the transactions contemplated hereby to be, and this Assignment and the
transactions contemplated hereby shall not be construed to be, a novation of any
of the Secured Obligations, including, without limitation, under the Note under
and as defined in the First Assignment or the Note under and as defined in the
Second Assignment. Further, the parties do not intend this Assignment or the
transactions contemplated hereby to affect priority of any of Assignee's liens
in any collateral securing the Secured Obligations in any way, including but not
limited to the liens, security interests and encumbrances created by the First
Assignment or the Second Assignment.
The provisions hereof shall inure to the benefit of and be binding upon
the parties hereto, their permitted successors and assigns.
This Assignment shall be governed by, and construed in accordance with,
the laws of the State of Alabama.
- 5 -
<PAGE> 6
IN WITNESS WHEREOF, Assignor and Assignee have caused this Assignment
to be duly executed under seal as of the date first above written.
ATTEST: RIDGEVIEW, INC., a North
Carolina corporation
By:__________________________ By:__________________________
Name:________________________ Hugh R. Gaither
Title:_______________________ President
NATIONSBANK, N.A. (SOUTH)
By:__________________________
Scott K. Goldstein
President
- 6 -
<PAGE> 7
STATE OF ____________________
COUNTY OF ___________________
I, the undersigned authority, a Notary Public in and for said county in
said state, hereby certify that Hugh R. Gaither, whose name as President of
RIDGEVIEW, INC., a North Carolina corporation, is signed to the foregoing
Amended, Restated and Consolidated Assignment of Lessee's Interest in Lease, and
who is known to me, acknowledged before me on this day that, being informed of
the contents of same, he executed the same, with full authority for and as the
act of said corporation on the day same bears date.
Given under my hand and official seal this ___ day of December, 1996.
-----------------------------
Notary Public
STATE OF ____________________
COUNTY OF ___________________
I, the undersigned authority, a Notary Public in and for said county in
said state, hereby certify that Scott K. Goldstein, whose name as Vice President
of NATIONSBANK, N.A. (SOUTH), a national banking association, is signed to the
foregoing Amended, Restated and Consolidated Assignment of Lessee's Interest in
Lease, and who is known to me, acknowledged before me on this day that, being
informed of the contents of same, he executed the same, with full authority for
and as the act of said national banking association on the day same bears date.
Given under my hand and official seal this ___ day of December, 1996.
-----------------------------
Notary Public
- 7 -
<PAGE> 1
Drawn By and Return To:
Hunton & Williams
600 Peachtree Street, N.E.
Atlanta, Georgia 30308 AMENDED, RESTATED
AND
CONSOLIDATED
STATE OF NORTH CAROLINA DEED OF TRUST
AND
COUNTY OF CATAWBA SECURITY AGREEMENT
COLLATERAL IS OR INCLUDES FIXTURES
THIS AMENDED, RESTATED AND CONSOLIDATED DEED OF TRUST AND SECURITY
AGREEMENT (this "Deed of Trust") is made and entered into as of the ______ day
of December, 1996, by and among
RIDGEVIEW, INC., a North Carolina corporation (the "Grantor"); and
JOHN B. MILLER, JR., a resident of Georgia (the "Trustee"); and
NATIONSBANK, N.A. (SOUTH), a national banking association organized and
existing under the laws of the United States, having its principal place of
business in Atlanta, Georgia (the "Lender").
RECITALS:
A. The Grantor has previously executed a Deed of Trust and Security
Agreement, dated January 10, 1995, in favor of the Lender (as assignee of
NationsBank, N.A. (Carolinas)), recorded in Book 1914, Page 1217, of the Catawba
County, North Carolina Registry (the "First Deed of Trust"), securing
obligations of the Grantor to the Lender pursuant to that certain Loan and
Security Agreement (Term Loan) dated as of January 10, 1995 between the Grantor
and the Lender (as amended, the "Term Loan Agreement").
B. The Grantor has previously executed a Deed of Trust and Security
Agreement, dated January 10, 1995, in favor of the Lender (as successor by
merger to NationsBank of Georgia, N.A.), recorded in Book 1914, Page 1234, of
the Catawba County, North Carolina Registry, as modified by First Amendment to
Deed of Trust and Security Agreement dated as of June 11, 1996, recorded in Book
1991, Page 718 aforesaid records, and by Second Amendment to Deed of Trust and
Security Agreement dated as of September 6, 1996, recorded in Book 2003, Page
973 aforesaid records (as so amended, the "Second Deed of
<PAGE> 2
Trust"), securing obligations of the Grantor to the Lender pursuant to that
certain Loan and Security Agreement (Revolving Loans) dated as of January 10,
1995 between the Grantor and the Lender (as amended, the "Revolving Agreement").
C. In connection with the amendment and restatement of the Term Loan
Agreement and the Revolving Agreement in the form of that certain Amended and
Restated Loan and Security Agreement dated as of December __, 1996 between the
Grantor and certain of its Subsidiaries as borrowers and the Lender as lender,
the Grantor and the Lender have agreed to amend, restate and consolidate the
First Deed of Trust and the Second Deed of Trust in the form of this Amended,
Restated and Consolidated Deed of Trust; PROVIDED that the parties do not intend
this Amended, Restated and Consolidated Deed of Trust, and the transactions
contemplated hereby, and this Amended, Restated and Consolidated Deed of Trust
and the transactions contemplated hereby shall not be deemed, to constitute a
novation of any of the obligations secured by the First Deed of Trust or the
Second Deed of Trust.
W I T N E S S E T H:
The Grantor, in consideration of the indebtedness herein recited,
irrevocably grants and conveys to the Trustee and the Trustee's successors and
assigns, all of the following described land, real property interests,
buildings, improvements, fixtures, furniture and appliances and other personal
property (all hereafter referred to collectively as the "Property"):
(a) All those tracts or parcels of land and other real property
interests in Catawba County, North Carolina more particularly described in
Exhibit A attached hereto and made a part hereof; and
(b) All buildings and improvements of every kind and description now or
hereafter erected or placed on the aforesaid land and all materials intended for
construction, reconstruction, alteration and repair of such improvements now or
hereafter erected thereon, all of which materials shall be deemed to be included
within the premises hereby conveyed immediately upon the delivery thereof to the
aforesaid land, and all fixtures now or hereafter owned by the Grantor and
attached to or contained in and used in connection with the aforesaid land and
improvements including, but not limited to, all furniture, furnishings,
apparatus, machinery, motors, elevators, fittings, radiators, ranges,
refrigerators, awnings, shades, screens, blinds, carpeting, office equipment and
other furnishings and all plumbing, heating, lighting, cooking, laundry,
ventilating, refrigerating, incinerating, air conditioning and sprinkler
equipment and fixtures and appurtenances thereto and all renewals or
replacements thereof or articles in substitution thereof, whether or not the
same are or shall be attached to said land and improvements in any manner;
TO HAVE AND HOLD the same, together with all privileges,
hereditaments, easements and appurtenances thereunto belonging, to the Trustee
and the Trustee's successors and assigns to secure the indebtedness herein
recited and upon this special trust: that should
- 2 -
<PAGE> 3
the indebtedness secured hereby be paid according to the tenor and effect
thereof when the same shall be due and payable and should the Grantor timely and
fully discharge its obligations secured hereunder, then the Property shall be
reconveyed to the Grantor or the title thereto shall be revested according to
the provisions of law;
And, as additional security for said indebtedness, the Grantor hereby
conditionally assigns to the Lender all the security deposits, rents, issues,
profits and revenues of the Property from time to time accruing reserving only
the right to the Grantor to collect and use the same as long as the Grantor is
not in default hereunder.
All the fixtures which comprise a part of the Property shall, as far as
permitted by law, be deemed to be affixed to the aforesaid land and conveyed
therewith. As to the balance of the fixtures, this Deed of Trust shall be
considered a security agreement which creates a security interest in such
fixtures for the benefit of Lender. In that regard, the Grantor grants to the
Lender all of the rights and remedies of a secured party under the North
Carolina Uniform Commercial Code.
As additional collateral and further security for the indebtedness, the
Grantor does hereby assign to the Lender the interest of the Grantor in and to
any and all leases, rental agreements, management contracts, construction
contracts, licenses and permits now or hereafter affecting the Property, or any
part thereof, and the Grantor agrees to execute and deliver to the Lender such
additional instruments, in form and substance satisfactory to the Lender, as may
hereafter be reasonably requested by the Lender to evidence and confirm said
assignment; provided, however, that acceptance of any such assignment shall not
be construed as a consent by the Lender to any lease, rental agreement,
franchise agreement, management contract, construction contract, or other
contract, license or permit, or to impose upon the Lender any obligation with
respect thereto. Without first obtaining on each occasion the written approval
of the Lender (which approval shall not be unreasonably withheld), the Grantor
shall not cancel or permit the cancellation of any such lease, rental agreement,
franchise agreement, management contract, construction contract, or other
contract, license or permit, or modify any of said instruments, or accept or
permit to be made, any prepayment of any installment of rent or fees thereunder
except to the extent permitted in Section 2.15 hereof. The Grantor shall
faithfully keep and perform, or cause to be kept and performed, all of the
covenants, conditions, and agreements contained in each of said instruments, now
or hereafter existing, on the part of the Grantor to be kept and performed and
shall at all times do all things reasonably necessary and reasonably appropriate
to compel performance by each other party to said instruments of all
obligations, covenants and agreements by such other party to be performed
thereunder.
The Grantor, the Trustee and the Lender covenant, represent and agree
as follows:
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<PAGE> 4
ARTICLE 1.
The Loans
1.1 The indebtedness secured by this Deed of Trust is the result of
revolving loans of up to $14,000,000.00 (the "Revolving Loans") made from time
to time by the Lender to the Grantor and the term loan in the principal amount
of $4,969,659.00 (the "Term Loan") made by the Lender to the Grantor, all
pursuant to that certain Amended and Restated Loan and Security Agreement, dated
as of December __, 1996 (as the same may be amended, modified, supplemented or
restated from time to time, the "Loan Agreement") and as evidenced by the terms
of the Amended and Restated Revolving Credit Note dated December __, 1996 made
by the Grantor in favor of the Lender in the principal amount of $14,000,000.00
and the Amended, Restated and Consolidated Term Note dated December __, 1996
made by the Grantor in favor of the Lender in the principal amount of
$4,969,659.00 (collectively, the "Note") (the obligations of the Grantor to the
Lender under the Loan Agreement and the Note being referred to hereinafter 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 and herein.
1.3 This Deed of Trust secures the obligations of the Grantor to repay
the Revolving Loans and the Term Loan 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 disbursement secured hereby as of December
__, 1996 is FOUR MILLION NINE HUNDRED SIXTY-NINE THOUSAND SIX HUNDRED FIFTY-NINE
AND NO/100 DOLLARS ($4,969,659.00) and the maximum amount which may be secured
hereby at any one time is FOURTEEN MILLION AND NO/100 DOLLARS ($14,000,000.00).
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 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.
ARTICLE 2.
Grantor's Covenants, Representations and Agreements
2.1 The Grantor represents and covenants that it is seised of the
Property in fee and has the right to convey the same, that the title to the
Property is free and clear of all
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<PAGE> 5
encumbrances except for liens and encumbrances in favor of the Lender and
any matters shown as specific exceptions in the policy of title insurance
accepted by the Lender in connection with this Deed of Trust, and that it will
warrant and defend the title to the Property against the claims of all persons
or parties except for the matters shown as specific exceptions in the policy of
title insurance accepted by the Lender in connection with this Deed of Trust or
any endorsement thereto.
2.2 The Grantor will punctually pay all sums secured hereby at the time
and place and in the manner specified in the Loan Agreement and the Note.
2.3 The Grantor will pay as they become due all taxes, general and
special assessments, insurance premiums, permit fees, inspection fees, license
fees and all water and sewer charges against it or the Property, and the
Grantor, upon request of the Lender, will submit to the Lender receipts
evidencing said payments.
2.4 The Grantor covenants to keep the Property insured against loss or
damage by fire and the risks embraced within the term "extended coverage" and
insured against such other hazards and risks as may be reasonably required by
the Lender.
2.5 The Grantor covenants to maintain or cause to be maintained general
accident and public liability insurance against all claims for bodily injury,
death or property damage occurring upon, in or about any part of the Property.
2.6 Upon the request of the Lender, the Grantor shall, at its own cost,
keep the value of all buildings now or hereafter comprising a part of the
Property insured against loss or damage by fire and such other insurable risks,
casualties and hazards as the Lender may from time to time specify.
2.7 The Grantor agrees to deliver to the Lender, as additional security
hereto, copies of the original policies of such insurance as is required by the
Lender pursuant to Sections 2.4, 2.5 and 2.6 hereof and of any additional
insurance which shall be taken out upon the Property while any part of the
Obligations shall remain unpaid. Renewals of such policies shall be so delivered
at least ten (10) days before any such insurance shall expire. The insurance
policies are to designate the Lender as mortgagee in a standard mortgagee
endorsement, provided that such policies may not be cancelled without thirty
(30) days prior written notice to the Lender, and are to be for such amounts and
from such insurance companies as are reasonably satisfactory to the Lender. The
Grantor hereby assigns the proceeds of any such insurance policies to the Lender
and hereby directs and authorizes each insurance company to make payment for
such loss directly to the Lender as its interests may appear. The proceeds of
any insurance or any part thereof may be applied by the Lender, at its option,
either to the reduction of the Obligations, in such order as the Lender may
determine in its sole discretion, or to restoration or repair of the property
damaged.
- 5 -
<PAGE> 6
2.8 Upon the request of the Lender, the Grantor shall submit to the
Lender such receipts and other statements which shall evidence, to the
satisfaction of Lender, that all taxes, assessments and insurance premiums have
been paid in full.
2.9 The Grantor agrees that if it shall fail to pay when due any tax,
assessment or charge levied or assessed against the Property or any utility
charge, whether public or private, or any insurance premium or if it shall fail
to procure the insurance coverage and the delivery of the insurance certificates
required hereunder, then the Lender, at its option, may pay or procure the same.
The Grantor will reimburse the Lender immediately and without demand for any
sums of money paid by the Lender pursuant to this Section, together with
interest on each such payment at the default rate set forth in the Loan
Agreement and all such sums and interest thereon shall be secured hereby.
2.10 The Grantor agrees to execute and deliver to the Lender,
concurrently with the execution of this Deed of Trust and upon the request of
the Lender from time to time hereafter, all financing statements and other
documents reasonably required to perfect and maintain the security interest
created hereby. The Grantor hereby irrevocably (as long as any of the
Obligations remain unpaid) makes, constitutes and appoints the Lender as the
true and lawful attorney of the Grantor to sign the name of the Grantor (after
the Grantor has failed or refused to timely execute such documents upon request
of the Lender) on any financing statements, continuations of financing
statements or similar document required to perfect or continue such security
interests.
2.11 The Grantor will not sell, encumber or otherwise dispose of the
fixtures and articles of personal property comprising part of the Property
except to incorporate such into the improvements on the land or replace such
with goods of quality and value at least equal to that replaced.
2.12 The Grantor assigns to the Lender any proceeds or awards which may
become due by reason of any condemnation or other taking for public use of the
whole or any part of the Property or any rights appurtenant thereto, and the
Lender may, at its option, either apply the same to the Obligations secured
hereby or release the same to the Grantor without thereby incurring any
liability to any other person. The Grantor agrees to execute such further
assignments and agreements as may be reasonably required by the Lender to assure
the effectiveness of this Section.
2.13 The Grantor will pay or reimburse the Lender for all reasonable
attorneys' fees, costs and expenses incurred by the Lender in any action, legal
proceeding or dispute of any kind which affects any of the Obligations, the
interest created herein, or the Property, including but not limited to, any
foreclosure of this Deed of Trust, enforcement of payment of amounts due under
the Loan Agreement and the Note, any condemnation action involving the Property
or any action to protect the security hereof. Any such amounts paid by the
Lender shall be added to the indebtedness secured hereby and shall bear interest
at the default rate specified in the Loan Agreement.
- 6 -
<PAGE> 7
2.14 The Grantor shall perform all covenants to be performed by the
lessor under any and all leases of the Property or any part thereof and shall
not, without the written consent of the Lender (which consent shall not be
unreasonably withheld), cancel, surrender or modify any lease in which the
Grantor has assigned any rights or interest to the Lender. Upon demand the
Grantor will furnish the Lender with copies of any lease of the Property or any
part thereof.
2.15 The Grantor will not accept any prepayment of rent or installments
of rent for more than one month in advance without the prior written consent of
the Lender (which consent shall not be unreasonably withheld).
2.16 The Grantor will abstain from and will not permit the commission
of waste by the Grantor in or about the Property and will maintain the Property
in good condition and repair, reasonable wear and tear excepted.
2.17 The Grantor covenants and agrees with the Lender that the Grantor
shall not sell, transfer, convey, mortgage (except for mortgages permitted by
the Loan Agreement), encumber (except for encumbrances permitted by the Loan
Agreement), lease or otherwise dispose of the Property or any part thereof or
any interest therein or engage in secondary financing with respect thereto
during the term of this Deed of Trust without the prior written consent of the
Lender.
2.18 The Grantor will do, or cause to be done, all such things as may
be required by law in order fully to protect the security and all rights of the
Lender under this Deed of Trust. The Grantor shall not cause or permit the lien
of this Deed of Trust to be impaired in any way provided the foregoing is within
the control of the Grantor.
2.19 The Grantor will permit the Lender, or its agents, at all
reasonable times and with advance notice to enter and pass through or over the
Property for the purpose of inspecting same.
2.20 The Grantor agrees that no release by the Lender of any of the
Grantor's successors in title from liability on any of the Obligations secured
hereby, no release by the Lender of any portion of the Property, no
subordination of lien, no forbearance on the part of the Lender to collect on
the Obligations, or any part thereof, no waiver of any right granted or remedy
available to the Lender and no action taken or not taken by the Lender shall in
any way diminish the Grantor's obligation to the Lender or have the effect of
releasing the Grantor or any successor to the Grantor from full responsibility
to the Lender for the complete discharge of each and every of the Grantor's
obligations hereunder, or under the Loan Agreement or the Note or under any
other document submitted by the Grantor to the Lender in connection with the
Obligations.
2.21 The Grantor will maintain full and correct books and records
showing in detail the earnings and expenses of the Property and will permit the
Lender and its
- 7 -
<PAGE> 8
representatives to examine said books and records and all supporting vouchers
and data at any time and from time to time during normal business hours upon
reasonable prior request by the Lender. When so requested, the Grantor will also
submit to the Lender statements of income and expenses accurately setting forth
the operation of its interest in the Property for each fiscal year. Such
statements shall be in such form and forms as are acceptable to the Lender.
2.22 (a) The Grantor represents that it is in compliance with all
federal, state, and local requirements relating to protection of health or the
environment in connection with the operation of the Grantor's business on the
Property;
(b) The Grantor represents and warrants that (i) Grantor has not, and
(ii) to the best of Grantor's knowledge no third party has disposed of Hazardous
Materials on, under or about the Property in such a manner as would give rise to
a liability which would have a material adverse effect on the Grantor, and that
to the best of the Grantor's knowledge, to the extent that the Grantor
generated, stored or transported Hazardous Materials, such activities were done
in such a manner as would not give rise to a liability for failure to comply
with any applicable federal, state and local laws, ordinances and regulations
which would have a material adverse effect on the Grantor. For purposes hereof,
"Hazardous Materials" shall be defined as "hazardous substances" or "toxic
substances" in the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 41 U.S.C. ss. 9601 et seq.; Hazardous
Materials Transportation Act, 42 U.S.C. ss. 6901 et seq.; and those substances
defined as "hazardous substances" or "hazardous wastes" in any state or local
laws, rules or regulations applicable to the Grantor.
(c) The Grantor covenants that it will (i) comply with or contest in
good faith all statutes and governmental regulations, specifically including,
without limitation, all federal, state and local environmental laws, rules and
regulations, the noncompliance with which would have a material adverse effect
on the financial condition of the Grantor; and (ii) pay all taxes, assessments,
governmental charges, claims for labor, supplies, rent and any other obligation
which, if unpaid, might become a lien against any of its properties except
liabilities being contested in good faith and against which, if reasonably
requested by the Lender, reserves satisfactory to the Lender will be
established;
(d) The Grantor covenants and agrees that it will (i) conduct and
complete all investigations, studies, sampling, and testing and all remedial,
removal, and other actions necessary to clean up and remove all Hazardous
Materials on, from, or affecting the Property (A) in accordance with all
applicable federal, state, and local laws, regulations, rules, and policies, (B)
to the reasonable satisfaction of the Lender, and (C) in accordance with the
orders and directives of all federal, state and local governmental authorities,
and (ii) defend, indemnify, and hold harmless the Lender, its employees, agents,
officers, and directors, from and against any claims, demands, penalties, fines,
liabilities, settlements, damages, costs, or expenses (including, without
limitation, attorneys and consultants fees, investigation and laboratory fees,
court costs, and litigation expenses) of whatever kind or
- 8 -
<PAGE> 9
nature, known or unknown, contingent or otherwise, arising out of or in any way
related to (A) the presence, disposal, release, or threatened release of any
Hazardous Materials which are on, from, or affecting the soil, water,
vegetation, buildings, personal property, persons, animals, or otherwise; (B)
any personal injury (including wrongful death) or property damage (real or
personal) arising out of or related to such Hazardous Materials; (C) any lawsuit
brought or threatened, settlement reached, or government order relating to such
Hazardous Materials, and/or (D) any violation of laws, orders, regulations,
requirements, or demands of government authorities, or any policies or
requirements of the Lender, which are based upon or in any way related to such
Hazardous Materials; provided, however, the foregoing indemnity shall not be
applicable to liabilities incurred by the Lender as a result of the Lender's
actions.
2.23 Upon the reasonable request of the Lender, provide the Lender (at
the Grantor's expense) with a current environmental assessment of the Property
within a reasonable time after such request. Such assessment shall be in a form
reasonably satisfactory to the Lender and from any environmental engineer or
consultant satisfactory to the Lender. If the Lender requests any such
environmental assessment on account of a directive received by any governmental
agency having regulatory authority over the Lender, the Grantor agrees that such
request shall be deemed to be reasonable.
2.24 Upon the reasonable request of the Lender, provide the Lender (at
the Grantor's expense) with a current appraisal of the Property within a
reasonable time after such request. Such appraisal shall be by a qualified
appraiser reasonably satisfactory to the Lender and must be reasonably
satisfactory to the Lender in form and substance. If the Lender requests any
such appraisal on account of a directive received by any governmental agency
having regulatory authority over the Lender, the Grantor agrees that such
request shall be deemed to be reasonable.
ARTICLE 3.
Events of Default
An "Event of Default" shall exist under the terms of this Deed of Trust
upon the existence of an Event of Default under the terms of the Note, the Loan
Agreement or any other documents executed in connection with the Obligations,
including, without limitation, any default by the Grantor in respect of its
obligations and agreements pursuant to this Deed of Trust.
ARTICLE 4.
Foreclosure
4.1 Upon the occurrence of an Event of Default, all of the Obligations
secured hereby, including all accrued interest, shall, at the option of the
Lender, become
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<PAGE> 10
immediately due and payable. Thereupon the Lender may foreclose
the lien of this Deed of Trust pursuant to the power of sale hereby granted or
by judicial proceeding.
4.2 The Trustee is hereby granted a power of sale and may sell the
Property, or such part or parts thereof or interests therein as the Lender may
select after having first given such notice of hearing as to commencement of
foreclosure proceedings and obtained such findings or leave of court as may then
be required by law and giving such notice and advertising the time and place of
such sale in such manner as may be then provided by law, and upon such and any
resale and upon compliance with the then law relating to foreclosure
proceedings, to convey title to the purchaser in fee simple.
4.3 Following a foreclosure sale, the Trustee shall deliver to the
purchaser the Trustee's deed conveying the property so sold without any covenant
or warranty, expressed or implied. The recitals in the Trustee's deed shall be
prima facie evidence of the statements made therein. The Trustee shall apply the
proceeds of such sale in the following order: (a) to all costs and expenses of
the sale, including but not limited to, reasonable Trustee's fees of not more
than three percent (3%) of the gross sales price and costs of title evidence;
(b) to all sums secured by this Deed of Trust; and (c) the excess, if any, to
the person or persons legally entitled thereto.
4.4 If a foreclosure proceeding is commenced by the Trustee but
terminated prior to its completion, the Trustee's fees will be reasonable but
not more than one percent (1%) of the Obligations if the termination occurs
prior to the first public auction sale and not more than two percent (2%) of the
Obligations if the termination occurs after the first public auction sale.
ARTICLE 5.
Additional Rights and Remedies of the Lender
5.1 Upon the occurrence of an Event of Default, the Lender, immediately
and without additional notice and without liability therefor to the Grantor,
except for gross negligence or willful misconduct, may do or cause to be done
any or all of the following: (a) take physical possession of the Property; (b)
exercise its right to collect the rents and profits derived from the Property;
(c) enter into contracts for the completion, repair and maintenance of the
improvements thereon; (d) expend funds under the Revolving Loans and any rents,
income and profits derived from the Property for payment of any taxes, insurance
premiums, assessments and charges for completion, repair and maintenance of the
improvements, preservation of the lien of this Deed of Trust and satisfaction
and fulfillment of any liabilities or obligations of the Grantor arising out of
or in any way connected with the construction of improvements on the Property
whether or not such liabilities and obligations in any way affect, or may
affect, the lien of this Deed of Trust; (e) enter into leases demising the
Property or any part thereof; (f) take such steps to protect and enforce the
specific performance of any covenant, condition or agreement in the Note, this
Deed of
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<PAGE> 11
Trust, the Loan Agreement or any other document executed in connection with the
Obligations, or to aid the execution of any power herein granted; and (g)
generally, supervise, manage, and contract with reference to the Property as if
the Lender were equitable owner of the Property. The Lender shall also have the
continuing right to pay money for the purposes described in Section 2.2, 2.3,
2.4, 2.5 and 2.6 hereof, and all such sums and interest thereon shall be secured
hereby. The Grantor also agrees that any of the foregoing rights and remedies of
the Lender may be exercised at any time independently of the exercise of any
other such rights and remedies, and the Lender may continue to exercise any or
all such rights and remedies until the default or defaults of the Grantor are
cured with the consent of the Lender or until foreclosure and the conveyance of
the Property to the high bidder or until the Obligations are otherwise satisfied
or paid in full.
5.2 Upon the occurrence of an Event of Default, the Lender shall be
entitled, without additional notice and without regard to the adequacy of any
security for the Obligations and the solvency of any party bound for its
payment, to seek the appointment of a receiver to take possession of and to
operate the Property, and to collect the rents, issues, profits, and income
thereof, all expenses of which shall be added to the Obligations and secured
hereby.
5.3 No waiver of any Event of Default shall at any time thereafter be
held to be a waiver of any rights of the Lender stated anywhere in the Note, the
Loan Agreement, this Deed of Trust, or any other document executed in connection
with the Obligations, nor shall any waiver of a prior Event of Default operate
to waive any subsequent Event or Events of Default. All remedies provided in
this Deed of Trust, the Note, the Loan Agreement, or in any other document
executed in connection with the Obligations are cumulative and may, at the
election of the Lender, be exercised alternatively, successively, or in any
manner and are in addition to any other rights provided by law.
ARTICLE 6.
General Conditions
6.1 If, for any reason, the Lender shall elect to substitute for the
trustee herein named (or for any successor to said trustee), the Lender shall
have the right to appoint successor Trustee(s) by duly acknowledged written
instruments, and each new Trustee immediately upon recordation of the instrument
so appointing him shall become successor in title to the Property for the uses
and purposes of this Deed of Trust, with all the powers, duties and obligations
conferred on the Trustee in the same manner and to the same effect as though he
were named herein as the Trustee.
6.2 The singular used herein shall be deemed to include the plural; the
masculine deemed to include the feminine and neuter; and the named parties
deemed to include their heirs, successors and assigns. The term "Lender" shall
include any payee of
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<PAGE> 12
the indebtedness hereby secured or any transferee thereof whether by operation
of law or otherwise.
6.3 All notices required to be given hereunder shall be in writing and
shall be deemed served twenty-four (24) hours after deposit in registered,
certified or first-class United States mail, postage prepaid, and addressed to
the parties at the following addresses, or such other addresses as may from time
to time be designated by written notice given as herein required:
to the Grantor:
Ridgeview, Inc.
Post Office Box 8
2101 North Main Street
Newton, North Carolina 28658
Attn: Mr. Walter Bost
to the Trustee:
John B. Miller, Jr.
Hunton & Williams
600 Peachtree Street
Suite 4100
Atlanta, Georgia 30308
to the Lender:
NationsBank, N.A. (South)
c/o NationsBank Business Credit
600 Peachtree Street, 13th Floor
Atlanta, Georgia 30308
ATTN: Scott K. Goldstein
6.4 Invalidation of any one or more of the provisions of this Deed of
Trust shall in no way affect any of the other provisions hereof, which shall
remain in full force and effect.
6.5 The captions and headings herein are inserted only as a matter of
convenience and for reference and in no way define, limit, or describe the scope
of this Deed of Trust nor the intent of any provision hereof.
[SIGNATURES APPEARS ON FOLLOWING PAGE]
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<PAGE> 13
IN WITNESS WHEREOF, the Grantor hereto has executed this Deed
of Trust under seal as of the day and year first above written.
RIDGEVIEW, INC.
ATTEST:
By:________________________________
By:__________________________ ________________________President
_________________ Secretary
(Corporate Seal)
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<PAGE> 14
STATE OF NORTH CAROLINA
COUNTY OF CATAWBA
I, __________________________________, a Notary Public of the
County and State aforesaid, certify that __________________________________
personally came before me this day and acknowledged that (s)he is ____________
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 ______________ President, sealed with its
corporate seal and attested by __________________________ as its
__________________ Secretary.
WITNESS my hand and official stamp or seal, this ____ day of
December, 1996.
--------------------------------------
Notary Public
My Commission Expires:
- -----------------------------
(Notary Public)
NORTH CAROLINA
CATAWBA COUNTY
The foregoing certificate of ____________________, a Notary Public of Catawba
County, North Carolina, is certified to be correct. This instrument was
presented for registration this ___ day of December, 1996 and recorded in the
office of the Register of Deeds of Catawba Co., North Carolina, in Book _____,
Page _____.
This December, 1996.
By:____________________
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<PAGE> 15
EXHIBIT A
FIRST TRACT: BEGINNING at a point in the middle of the Southern Railroad right
of way, the same being the northern edge of the right of way for East 20th
Street in Newton; and thence with that line North 74(degree) 30' West 524.21
feet to an iron pin in the corner of the Eastern edge of North Main Avenue and
the Northern edge of the right of way of East 20th Street; and thence with the
Eastern edge of the sidewalk along the Eastern edge of North Main Avenue North
1(degree) 59' 20" West 157.48 feet to an iron pin and continuing North 4(degree)
57' 20" West 110 feet to an iron pin; and thence North 1(degree) 54' 20" West
264.5 feet to an iron pin; and thence North 1(degree) 51' 20" West 400 feet to
an iron pin, the corner of North Main Avenue and East 22nd Street in Newton; and
thence following the South edge of the sidewalk on the south side of East 22nd
Street, Newton, North 80(degree) 20' 40" East 646.03 feet to a point in the
middle of the Southern Railroad right of way and continuing along said right of
way of the following courses and distances: South 4(degree) 24' 20" East 100.5
feet; South 2(degree) 47' East 100 feet; South 1(degree) 05' East 100 feet;
South 0(degree) 33' West 100 feet; South 2(degree) 18' West 100 feet; South
3(degree) 59' West 100 feet; South 5(degree) 38' West 100.5 feet; South
7(degree) 16' 30" West 100 feet; South 8(degree) 56' 30" West 100 feet; South
10(degree) 33' 30" West 100.5 feet; South 12(degree) 02' West 100 feet; and
South 13(degree) 21' West 87.05 feet to the point of Beginning, containing
approximately 14.79 acres. Taken from a plat of Ridgeview Hosiery Mill property
by Sam Rowe, Jr., dated the 7th day of December, 1977, which plat is hereby made
reference to.
The above described property being a portion of the property conveyed to
Ridgeview Hosiery Mill Company by Newton Land and Loan Company in a Deed dated
December 2, 1912, and recorded in Book 105 at Page 579, Catawba County Registry.
SECOND TRACT: BEGINNING at an iron stake on the Northeast bank of McLin's Creek
on Abernethy and Yount's line and runs along said line South 48-3/4(degree) West
36-1/2 poles crossing the creek and a branch to an iron stake on a line, a new
corner; thence a new line South 81-1/4(degree) East 19-1/4 poles to an iron
stake on Norah Holler's line, a new corner; thence along her line North
42-1/2(degree) East 24 poles to an iron stake on the North bank of McLin's
Creek; thence up the Northeast bank of the creek as it meanders to the
Beginning, containing 2-96/160 acres, more or less. Surveyed April 2, 1923.
The above described property being the identical property conveyed to Ridgeview
Hosiery Mill Company by Laura J. Campbell and husband, R.F. Campbell by Deed
dated the 12th day of April, 1923, and recorded in Book 162 at Page 596, Catawba
County Registry.
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<PAGE> 16
EXHIBIT A
(cont.)
TRACT THREE: BEGINNING at a nail found in the centerline of Anderson Avenue
(formerly Ridgeview Street), a corner of Troy Setzer (now or formerly) and
Hutchens Hosiery Mills, Inc.; and running thence with the line of Troy Setzer
property (now or formerly) and Hutchens Hosiery Mills, Inc., North 88(degree)
47' East 311.25 feet to a cap and nail found in the center of the Southern
Railway main line track, another corner of Troy Setzer (now or formerly) and
Hutchens Hosiery Mills, Inc.; thence with the center of said main line track,
South 6(degree) 28' East 311.9 feet to a hub and tack found in the centerline of
said main line track, which hub and tack is the northernmost corner of that
certain lot or parcel of land owned by William Flake Robinson; thence with the
line of William Robinson and Hutchens Hosiery Mills, Inc., South 48(degree) 13'
West 132.1 feet to a steel post; thence with same line, South 71(degree) 15'
West 77.7 feet to a steel post; thence with another line of William Robinson and
Hutchens Hosiery Mills, Inc., North 89(degree) 46' West 167.9 feet to a nail
found in Anderson Avenue (formerly Ridgeview Street), a corner of William
Robinson, E. L. Lowie (now or formerly), and Hutchens Hosiery Mills, Inc.;
thence in Anderson Avenue (formerly Ridgeview Street) North 2(degree) 13' West
48.45 feet to a nail in Anderson Avenue (formerly Ridgeview Street); thence with
the line of E.L. Lowie (now or formerly) property and Hutchens Hosiery Mills,
Inc., South 88(degree) 08' West 145.10 feet to an old iron found, a corner of
the land of Joe McComb (now or formerly), E.L. Lowie and wife, Mittie Brown
Lowie, (now or formerly), Hutchens Hosiery Mills, Inc., and Mrs. Carl T. Eades
(now or formerly); thence with a line of Mrs. Carl T. Eades (now or formerly)
and Hutchens Hosiery Mills, Inc., North 2(degree) 16' West 100.37 feet to a
concrete monument found, corner of Hutchens Hosiery Mills, Inc., and Mrs. Carl
T. Eades (now or formerly); thence with a line of Mrs. Carl T. Eades (now or
formerly) and Hutchens Hosiery Mills, Inc., South 88(degree) 11' West 130.3 feet
to a concrete monument found at the Eastern right of way line of North Main
Avenue, North 1(degree) 45' West 175 feet to a concrete monument found, a corner
of Marshall Furr property (now or formerly) and Hutchens Hosiery Mills, Inc.;
thence with the line of Marshall Furr (now or formerly), Hutchens Hosiery Mills,
Inc., and the line of Edgar Blackmon (now or formerly), North 88(degree) 12'
East 280.8 feet to a nail found in Anderson Avenue (formerly Ridgeview Street),
a corner of Edgar Blackmon (now or formerly) and Hutchens Hosiery Mills, Inc.;
thence a line in Anderson Avenue (formerly Ridgeview Street) and the line of
Edgar Blackmon (now or formerly), North 0(degree) 17' West 92.25 feet to the
point and place of Beginning, together with all buildings, fencing and other
improvements thereon and together with all easements, rights and appurtenances
thereunto belonging, according to a map or plat thereof entitled "A & H Company,
Inc., Property, Newton, North Carolina", dated January 26, 1962, prepared by G.
Sam Rowe, Jr., Registered Surveyor.
- 16 -
<PAGE> 17
EXHIBIT A
(cont.)
TRACT FOUR: BEGINNING at an iron pipe, the corner of Joe McCombs (now or
formerly) and Newknit, Inc. (formerly Newton Knitting Mills, Inc.) and running
thence with the line of Joe McCombs (now or formerly) and Newknit, Inc.
(formerly Newton Knitting Mills, Inc.) North 1(degree) 45' West 75 feet to a
point in said line; thence North 88(degree) 15' East approximately 146 feet,
more or less, to a point in the centerline of Anderson Avenue (formerly
Ridgeview Street); thence with the centerline of Anderson Avenue (formerly
Ridgeview Street) South 2(degree) 25' East 48.45 feet to a stake in the
centerline of Anderson Avenue (formerly Ridgeview Street), a corner of Newknit,
Inc. (formerly Newton Knitting Mills, Inc.) and Catawba Ice and Fuel Company;
thence with the line of Catawba Ice and Fuel Company and the centerline of
Anderson Avenue (formerly Ridgeview Street) South 2(degree) 25' East 26.55 feet
to a stake in the centerline of Anderson Avenue (formerly Ridgeview Street),
another corner of Catawba Ice and Fuel Company and Newknit, Inc. (formerly
Newton Knitting Mills, Inc.); thence South 88(degree) 15' West with the line of
Joe McCombs 144.8 feet, more or less, to the Beginning corner; being a lot of
land fronting 75 feet on the westerly margin of Anderson Avenue (formerly
Ridgeview Street) and extending back with that width to a depth of approximately
144.8 feet, more or less, on the southerly margin of said lot and to a depth of
approximately 146 feet, more or less, on the northerly margin of said lot to the
property of Joe McCombs (now or formerly) and being a part of the property
conveyed to Newton Knitting Mills, Inc. (now Newknit, Inc.) by Horace J.
Isenhower, trading as Newton Knitting Mills, and Horace J. Isenhower
(individually) and his wife, Christine S. Isenhower, by deed dated the 7th day
of September, 1948, and recorded in Book 391 at Page 123, in the office of the
Register of Deeds for Catawba County, North Carolina.
This conveyance is made subject to any and all rights of way and easements
appearing in instruments constituting the chain of title and particularly the
right of way and easement of Anderson Avenue (formerly Ridgeview Street).
- 17 -
<PAGE> 1
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data and other
operating information of the Company for each of the last five years ended
December 31, 1996, which are derived from the consolidated financial statements
of the Company. On June 28, 1995, the Company acquired Seneca Knitting Mills
Corporation ("Seneca") in a transaction accounted for as a purchase. The
accounts of Seneca are included from the date of acquisition. On November 5,
1996, the Company acquired Interknit, Inc. in a transaction accounted for as a
pooling-of-interests. Accordingly, the financial statements of the Company, and
the selected financial data presented below, were restated to include the
accounts and the results of operations of Interknit for all periods presented.
All information contained in the following table should be read in conjunction
with the consolidated financial statements and related notes of the Company
included herein.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
STATEMENT OF OPERATIONS DATA: 1992 1993 1994 1995 (2) 1996
- ------------------------------------- -------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales $ 32,438 $ 35,605 $ 39,828 $ 54,833 $ 76,839
Gross profit 6,259 7,792 9,302 10,695 15,473
Operating income 944 1,760 2,467 2,001 4,877
Interest expense (630) (661) (887) (1,668) (2,235)
Income before income taxes 610 1,433 1,634 451 2,750
Net income 533 1,084 1,039 241 1,758
Earnings per share 0.40 0.80 0.65 0.15 0.96
Cash dividends per share (3) 0.09 0.09 0.09 0.10 0.05
Weighted average common and common
equivalent shares outstanding 1,359 1,353 1,590 1,590 1,832
OTHER DATA:
Gross profit margin 19.3% 21.9% 23.4% 19.5% 20.2%
Operating income margin 2.9% 5.0% 6.2% 3.6% 6.4%
Operating income before depreciation
and amortization (1) $ 1,768 $ 2,661 $ 3,510 $ 3,372 $ 6,621
Depreciation and amortization 824 901 1,043 1,371 1,744
Capital expenditures 1,512 840 2,169 4,384 1,089
</TABLE>
Page 1
<PAGE> 2
<TABLE>
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 6,885 $ 7,616 $ 11,664 $ 11,718 $ 23,350
Total assets 19,145 21,614 25,578 40,465 48,785
Long-term debt (less current portion) 5,859 5,771 10,420 15,991 15,668
Total debt 9,651 10,918 12,349 23,244 18,111
Shareholders' equity 6,119 6,690 7,827 7,982 19,357
</TABLE>
(1) Operating income before depreciation and amortization is net sales minus
cost of goods sold, selling, general and administrative expenses plus
depreciation and amortization expense. The measure does not represent cash
generated from operating activities determined in accordance with
generally accepted accounting principles, is not necessarily indicative of
cash available to fund 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.
(2) Reflects charges for the write-off of obsolete, unfinished women's hosiery
products in excess of normal reserves in the amount of $621,000 and the
recognition of a supplemental retirement obligation in the amount of
$500,000 to the Company's former chairman.
(3) The Company ceased paying dividends on its Common Stock prior to the
initial public offering in November 1996 and does not intend to pay
any cash dividends in the foreseeable future.
Page 2
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 Coleman, Converse, Ellen Tracy, Evan-Picone and
Woolrich. The Company is currently negotiating to produce and sell socks under
the Rockport brand name beginning July 1, 1997.
The Company's net sales have increased over the past three years, from
$39.8 million in 1994 to $76.8 million in 1996, a compounded annual growth rate
of 24.5%. 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, sports specific socks, 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 socks resulted from the acquisition of Seneca Knitting Mills
Corporation ("Seneca") in June 1995. Over the past three years, the Company
invested a significant portion of its capital resources in modernizing its sock
manufacturing operations, with aggregate capital improvements during such years
totaling $7.6 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.
The table below presents the Company's net sales by product
category for the most recent three years, expressed in thousands of dollars and
as a percentage of total net sales.
<PAGE> 4
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------
Product Category * 1994 1995 1996
- ------------------ ------------------------------------------------------------------------
Amount % Amount % Amount %
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SOCKS:
Sports specific $13,947 35.1% $14,878 27.1% $19,226 25.1%
Sports promotional 12,035 30.2 13,344 24.3 18,161 23.6
Active sport 1,879 4.7 1,846 3.4 1,869 2.4
Rugged outdoor and
heavyweight casual -- -- 9,178 16.7 13,049 17.0
Greige goods -- -- 425 0.8 984 1.3
------------------------------------------------------------------------
Total socks $27,861 70.0% $39,671 72.3% $53,289 69.4%
------------------------------------------------------------------------
WOMEN'S HOSIERY:
Sheer pantyhose and knee-highs $ 5,782 14.5% $ 6,047 11.1% $ 9,366 12.2%
Tights and trouser socks 6,185 15.5 9,115 16.6 14,184 18.4
------------------------------------------------------------------------
Total women's hosiery $11,967 30.0% $15,162 27.7% $23,550 30.6%
------------------------------------------------------------------------
Total net sales $39,828 100.0% $54,833 100.0% $76,839 100.0%
========================================================================
</TABLE>
* For a detailed description of each finished product category, see
"Business - Sales and Marketing."
As illustrated by the table, socks have accounted for greater than
two-thirds of the Company's total net sales during each year in the most recent
three-year period. Within the sock product categories, the percentage of total
net sales attributable to rugged outdoor and heavyweight casual socks, which
were not sold by the Company prior to the acquisition of Seneca in June 1995,
was 16.7% for six months in 1995 and 17.0% for 1996. Sales of sports promotional
and sports specific socks have grown at a faster rate than sales of heavier
weight active sport socks due primarily to customer preferences. Within the
women's hosiery product categories, the percentage of net sales attributable to
tights and trouser socks increased from 15.5% in 1994 to 18.4% in 1996 due to
customer preferences, the success of the Ellen Tracy program, which began in
1994, and the introduction of a number of private label tight programs with
Target, the Company's largest customer, and other customers. Sales under the
licensed Evan-Picone program, which began in July 1996, account for the growth
in the sheer pantyhose category for 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. 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.
<PAGE> 5
The Company's success depends in part on its ability to anticipate and
respond to changing customer demands and fashion trends. Recent fashion trends
toward more casual dress and active wear have had a favorable impact on the
Company. Socks typically are an integral part of a more casual, sports-oriented
wardrobe, and as a result, sales of the Company's socks have increased. While
existing retailers have modified their sales strategies to emphasize casual
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 "casualization of America" by shifting the emphasis from traditional sheer
products to more durable, heavier weight 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, because heavier weight product lines generally
carry higher margins than sheer products. Selling, general and 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 certain licensing agreements to use designer brand names such as Ellen
Tracy and Evan-Picone in its women's hosiery product lines, Coleman and Woolrich
in its rugged outdoor and heavyweight casual product lines and Converse in its
sports sock product lines. Beginning in July 1997, the Company expects to sell
sports socks and rugged outdoor and heavyweight casual socks under the licensed
Rockport brand name. 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 agreements 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. This trend has been
particularly prevalent among the sporting goods retailers and discount
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 chains also expect manufacturers to play a significant 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,
<PAGE> 6
developed outsourcing relationships with other manufacturers, invested more than
$500,000 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.
Management 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 manufacturers, such as the Company, 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 acquisition of Seneca, 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 costs
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 acquisition of Interknit, Inc.
("Interknit") in November 1996 was 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 were already closely coordinated, management expects that the
administrative expenses associated with the integration of Interknit into the
Company's operations will be minimal.
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 expected negative manufacturing variance (direct manufacturing
costs in excess of budget) incurred as a result of the downtime associated with
personnel training and the installation of and break-in period for the new
knitting machinery. The anticipated replacement over the next 12 months of more
than 100 mechanical knitting machines currently used by the Company to
manufacture women's hosiery products with 84 new electronic knitting machines
is expected to produce similar results in future periods. This replacement
program for the women's hosiery division will be effected over a
<PAGE> 7
period of several months in order to minimize the manufacturing disruptions
experienced in 1995 with the replacement program for the sock division.
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.
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 net sales in the last six months of 1995 by
$9.2 million and $12.9 million in 1996, expenses attributable to the acquisition
and integration efforts had an adverse effect on the Company's operating results
for the last six months in 1995 and the first six months of 1996. Due to
seasonal trends, Seneca's net sales and profitability generally experience
stronger performance in the third and fourth quarters.
The Interknit Acquisition
In connection with the Company's initial public offering in November
1996, the Company acquired 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 also are shareholders of the Company,
including the Company's five executive officers (four of whom are members of
the Company's Board of Directors). 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. From January to October 1996,
approximately 75% of Interknit's output of greige goods was sold to the
Company. The Interknit acquisition was accounted for as a "pooling of
interests," and accordingly, the Company's financial statements have been
restated to reflect the acquisition.
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.
<PAGE> 8
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 76.6 80.5 79.8
----- ----- -----
Gross profit 23.4 19.5 20.2
Selling, general and administrative expenses 17.2 15.9 13.8
----- ----- -----
Operating income 6.2 3.6 6.4
Interest expense (2.2) (3.0) (2.9)
Other income, net 0.1 0.2 0.1
----- ----- -----
Income before income taxes 4.1 0.8 3.6
Income tax expense 1.5 0.4 1.3
----- ----- -----
Net income 2.6% 0.4% 2.3%
===== ===== =====
</TABLE>
Comparison of 1996 to 1995
Net sales for 1996 were $76.8 million, compared to $54.8 million in
1995, an increase of $22.0 million, or 40.1%. Sales of rugged outdoor and
heavyweight casual socks, which the Company did not sell during the first six
months of 1995, accounted for $3.9 million of the net sales growth in 1996. The
Company's subsidiary in the Republic of Ireland experienced an increase in net
sales of 75.5% in 1996 primarily as the result of sales of sports socks bearing
the adidas brand name to European distributors of adidas products. Prior to
1996, the Company did not sell adidas products. Domestically, the Company's two
sports sock operations combined for a 20.2% increase in net sales while sales of
women's hosiery products increased by 56.2% over the prior year. Contributing to
the increase in sock sales was internal sales growth and continued growth of the
Company's customer base among large sporting goods retailers. The introduction
of numerous private label tight programs to many of the Company's customers,
including Target, the Company's largest customer, fueled the sales growth in the
women's hosiery product categories. Also contributing to this growth were net
sales of women's sheer hosiery under the licensed Evan-Picone brand name, which
began in July 1996.
Gross profit for 1996 was $15.5 million compared to $10.7 million for
1995, an increase of $4.8 million, or 44.9%. As a percentage of net sales, gross
profit increased to 20.2% in 1996 from 19.5% in 1995. Included in cost of goods
sold in 1995 is a charge of $621,000 that was 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 for 1995, as a percentage of net sales, by 1.1%. Although the Company
experienced substantial growth in net sales in 1996 compared to 1995, the growth
came from products that generally carried gross profit margins lower than the
gross profit margins of products sold in the prior year. Moreover, the pricing
of a significant private label program for Target in the women's hosiery
division was reduced early in 1996 to increase sales volume. The Company's
subsidiary in the Republic of Ireland began a program to manufacture sport socks
bearing the adidas brand name in late 1995. These products carried gross profit
<PAGE> 9
margins of less than 10% during the introductory phase of the program. Price
increases during the latter half of 1996 improved the margins realized on the
products in this program. 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.
Selling, general and administrative expenses for 1996 were $10.6
million, compared to $8.7 million for 1995, an increase of $1.9 million, or
21.8%. This increase was primarily attributable to the integration of Seneca's
operations and additional selling costs associated with the introduction of the
licensed Evan-Picone women's hosiery program. As a percentage of net sales,
selling, general and administrative expenses decreased from 15.9% in 1995, to
13.8% in 1996. This reduction is due to net sales increasing at a faster rate
than selling, general and administrative expenses.
Operating income increased from $2.0 million in 1995 to $4.9 million in
1996. Operating income in 1995, however, reflects the recognition of a
supplemental retirement obligation in the amount of $500,000 to the Company's
former chairman. As a percentage of net sales, operating income was 6.4% in
1996, compared to 3.6% in 1995. Increased profitability resulting from net sales
growth and relatively lower selling, general and administrative expenses are the
primary reasons for the increase in operating income.
Interest expense increased from $1.7 million in 1995 to $2.2 million in
1996, an increase of 29.4%. Debt incurred to finance the Seneca acquisition in
June 1995 and additional interest expense associated with a temporary increase
in the Company's revolving credit facility earlier in 1996 contributed to this
increase.
Other income for 1996 was $108,000, compared to $118,000 in 1995. Net
gains on the sale or disposal of equipment and foreign currency transactions
typically comprise other income.
Income tax expense for 1996 was $992,000 compared to $210,000 in 1995.
The effective tax rate for 1996 was 36.1%, compared to 46.6% in 1995. The
decrease in the effective tax rate from 1995 to 1996 is the result of an
increase in the percentage of the Company's total income attributable to
operations in the Republic of Ireland, which is not subject to United States
income tax.
Net income increased from $241,000 in 1995, to $1.8 million in 1996.
Net income in the prior year was negatively impacted, however, by the one-time
charges incurred for the write-off of obsolete inventory in excess of normal
reserves and the recognition of the Company's future obligation to pay a
supplemental retirement benefit to its former chairman.
<PAGE> 10
Comparison of 1995 to 1994
Net sales for 1995 were $54.8 million, compared to $39.8 million in
1994, an increase of $15.0 million, or 37.7%. 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 19.5% of net sales, as
compared to $9.3 million, or 23.4% 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%.
Selling, general and administrative expenses increased $1.9 million in
1995 to $8.7 million, 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. As
a percentage of net sales, selling, general and administrative expenses
nonetheless decreased in 1995 to 15.9% compared to 17.2% 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 $2.5 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 24.0% increase in operating income over the prior year.
Interest expense in 1995 was $1.7 million compared to $887,000 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 91.7%
increase in interest expense.
Other income for 1995 was $118,000, compared to $54,000 for 1994. The
lower amount of other income in 1994 was primarily due to losses incurred on the
sale
<PAGE> 11
or disposal of equipment 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 $385,000 from 1994. The effective
tax rate in 1995 was 46.6% compared to 36.4% 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 attributable to the Company's operations in the
Republic of Ireland, which is not subject to United States income tax.
Net income for 1995 was $241,000 compared to $1.0 million in 1994. The
decrease was primarily the result 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 obligation to pay a supplemental retirement
benefit to a former executive officer. Without these charges, income before
income taxes for 1995 would have been $1.6 million and net income would have
been $840,000. The Company's net income for 1995 was also adversely impacted by
the 91.7% increase in interest expense over the prior year described above.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities for the years ended December 31,
1994, 1995 and 1996 were $880,000, $2.2 million and $(3.3 million),
respectively. The negative cash flows for 1996 resulted from increases of $3.3
million in accounts receivable and $5.6 million in inventories for the year
ended December 31, 1996. The increase in accounts receivable and inventories
reflect the levels of such assets necessary to support higher levels of sales in
each of the Company's operating 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") (the "Revolving
Credit Facility"). Borrowings under the Revolving Credit Facility also were used
to partially fund the Seneca acquisition in June 1995. The Revolving Credit
Facility provides for borrowings up to $14.0 million through January 1999. As of
March 1, 1997, $9.7 million was outstanding under the Revolving Credit Facility,
and there was $4.3 million available for additional borrowings. Funds borrowed
under the Revolving Credit Facility bear interest at a rate based on London
Interbank Offered Rates ("LIBOR"). The LIBOR-based rate available to the Company
ranges from LIBOR plus 2% to LIBOR plus 33%, depending upon the Company's
leverage ratio (as defined) (7.4375% at March 1, 1997). The Revolving Credit
Facility is secured by the Company's accounts receivable, inventory, equipment
and certain real property. Amounts borrowed under the Revolving Credit Facility
may not exceed the sum of specified percentages of the Company's accounts
receivable and inventory.
<PAGE> 12
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 retained earnings of the
Company's Irish subsidiary are subject to certain restrictions based upon the
amount of government grants received to date.
In addition to the Revolving Credit Facility, the Company has two term
loans outstanding with NationsBank. As of March 1, 1997, the term loans had an
aggregate principal balance of approximately $4.9 million. The first loan, which
was entered into as a source of permanent financing for the Company's capital
equipment modernization program, had an outstanding principal balance of $4.0
million at March 1, 1997, and bears interest at the LIBOR-based rate applicable
to the Revolving Credit Facility (7.4375% at March 1, 1997). This loan is
payable in monthly installments of $41,667 with a balloon payment of
approximately $3.9 million due March 31, 1997. The second term loan with
NationsBank, which at March 1, 1997 had an outstanding principal balance of
$904,000, was obtained in connection with the Seneca acquisition in June 1995.
This loan also bears the same LIBOR-based rate as the Company's other
obligations with NationsBank. This loan is payable in monthly installments of
$12,000 each, with a balloon payment of approximately $640,000 due in January
1999. On March 13, 1997, NationsBank amended the loan agreement, combining
both term loans outstanding with NationsBank into one loan. The new loan, which
at March 31, 1997, is expected to have an outstanding principal balance of $4.8
million, will be payable in 22 monthly installments of $53,667 each, with a
final balloon payment due in January 1999. The new loan bears interest at the
LIBOR-based rates previously mentioned, will be secured by the same collateral
as the Revolving Credit Facility and will impose similar restrictive covenants
on the Company.
As a result of the Interknit acquisition, the Company's total debt
increased by approximately $1.7 million during the fourth quarter of 1996. The
outstanding balance of this debt was $1.6 million at March 1, 1997, bears
interest at rates ranging from 6.9% to 9.8% and is payable in monthly
installments through 2003.
The proceeds of the Company's initial public offering, which was
completed in November 1996, reduced borrowings under the Revolving Credit
Facility by $8.7 million. The Company used an additional $850,000 of the net
proceeds to pay indebtedness incurred in connection with the Seneca acquisition.
As of March 1, 1997, the Company had commitments of approximately
$2.0 million to purchase 84 electronic knitting machines for its women's hosiery
division (to replace 100 existing mechanical machines), 20 additional
electronic knitting machines for its sports sock knitting operation in Ft.
Payne, Alabama and 10 additional electronic knitting machines at
<PAGE> 13
Seneca. These expenditures represent the final phase of the Company's knitting
equipment modernization program, which began in 1994. The source of funding for
these planned capital expenditures is expected to be the proceeds of the
Company's recently completed initial public offering and an additional term loan
from NationsBank, bearing the same LIBOR-based interest rate under which the
Company currently is borrowing from NationsBank.
During the next 18 to 24 months, the Company also plans to construct,
on property the Company currently owns, a distribution facility at an estimated
cost of approximately $1.5 million. As of March 1, 1997, the Company had just
begun to examine the logistical and physical requirements necessary for planning
this project, and had no firm commitments regarding this planned capital
expenditure. The Company has no other plans or material commitments to make any
other material capital expenditures for the next 24 months.
Management believes that the Company's improved capitalization
following its initial public offering, combined with the Revolving Credit
Facility, 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 24
months. There can be no assurance, however, that 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 generally
has higher net sales and greater profitability in the third and fourth quarters.
<PAGE> 14
RIDGEVIEW, INC.
AND SUBSIDIARIES
December 31, 1994, 1995 and 1996
<PAGE> 15
RIDGEVIEW, INC. AND SUBSIDIARIES
Index To Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of BDO Seidman, LLP 2
Report of KPMG 3-4
Report of Mengel, Metzger, Barr & Co. LLP 5
Consolidated Financial Statements:
Consolidated balance sheets as of December 31, 1995
and 1996 6
Consolidated statements of income for the years ended
December 31, 1994, 1995 and 1996 7
Consolidated statements of shareholders' equity for the
years ended December 31, 1994, 1995 and 1996 8
Consolidated statements of cash flows for the years ended
December 31, 1994, 1995 and 1996 9-10
Notes to consolidated financial statements 11-22
</TABLE>
1
<PAGE> 16
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, 1995 and 1996, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1996. 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 $7,038,000 and $7,122,000
as of December 31, 1995 and 1996, respectively, and total revenues of
$4,065,000, $4,724,000 and $8,290,000 for each of the three years in the period
ended December 31, 1996, 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 and $9,614,000
as of December 31, 1995 and 1996, and total revenues of $9,178,000 for the
period from date of acquisition (June 28, 1995) through December 31, 1995 and
$13,049,000 for the year ended December 31, 1996. 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, 1995 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
Greensboro, North Carolina
February 24, 1997, except for Note 6
which is as of March 13, 1997
2
<PAGE> 17
[Mengel, Metzger, Barr & Co. LLP Letterhead]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Seneca Knitting Mills Corporation
We have audited the accompanying consolidated balance sheets of Seneca Knitting
Mills Corporation (a wholly-owned subsidiary of Ridgeview, Inc.) as of December
31, 1996 and 1995, and the related consolidated statements of operations and
(accumulated deficit) retained earnings and cash flows for year ended December
31, 1996 and the six months 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 conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Seneca Knitting
Mills Corporation as of December 31, 1996 and 1995, and the consolidated
results of its operations and its consolidated cash flows for the year ended
December 31, 1996 and the six months ended December 31, 1995, in conformity
with generally accepted accounting principles.
/s/ Mengel, Metzger, Barr & Co. LLP
Rochester, New York
February 18, 1997
<PAGE> 18
[KPMG Chartered Accountants (Ireland) Letterhead]
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 1996
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.
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 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,
<PAGE> 19
whether caused by fraud or other irregularity or error. In forming our opinion
we also evaluated the overall adequacy of the presentation of the 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 1994, 31 December 1995 and 31 December 1996 and of
the profit for the branch for the years ended 31 December 1994, 31 December
1995 and 31 December 1996.
/s/ KPMG
Chartered Accountants
Registered Auditors
Date: 5 March 1997
<PAGE> 20
RIDGEVIEW, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1996
------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 262 $ 316
Accounts receivable (less allowance for doubtful
accounts of $371 and $502) (Note 8) 10,153 13,272
Inventories (Note 3) 14,961 20,624
Prepaid expenses 301 128
------- -------
Total current assets 25,677 34,340
PROPERTY, PLANT AND EQUIPMENT, less accumulated
depreciation and amortization (Note 4) 11,794 11,499
OTHER ASSETS 1,133 1,215
EXCESS OF COST OVER FAIR VALUE OF NET
ASSETS ACQUIRED, less accumulated amortization
of $80 and $210 (Note 2) 1,861 1,731
------- -------
Total assets (Note 6) $40,465 $48,785
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 21
RIDGEVIEW, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands, Except Share Amounts)
<TABLE>
<CAPTION>
December 31,
-----------------------
1995 1996
------- -------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings (Note 5) $ 1,410 $ 1,094
Accounts payable 5,084 5,905
Accrued expenses and other liabilities 899 1,632
Income taxes payable (Note 7) -- 465
Deferred income taxes (Note 7) 579 444
Current portion of long-term debt (Note 6) 5,843 1,349
Current portion of deferred compensation (Note 11) 144 101
------- -------
Total current liabilities 13,959 10,990
LONG-TERM DEBT, less current portion (Note 6) 15,991 15,668
DEFERRED COMPENSATION, less current portion
(Note 11) 1,433 1,534
DEFERRED CREDIT (Note 11) 1,064 1,020
DEFERRED INCOME TAXES (Note 7) 36 216
------- -------
Total liabilities 32,483 29,428
------- -------
COMMITMENTS AND CONTINGENCIES (Notes 9 and 11)
SHAREHOLDERS' EQUITY (Notes 10 and 11)
Common stock - authorized 20,000,000 shares of
$.01 par value; issued 1,589,698 shares and 3,000,000
shares, respectively 16 30
Additional paid-in capital 1,100 10,650
Retained earnings, including amounts reserved of $475
and $1,003 6,777 8,450
Foreign currency translation adjustments 89 227
------- -------
Total shareholders' equity 7,982 19,357
------- -------
Total liabilities and shareholders' equity $40,465 $48,785
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 22
RIDGEVIEW, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
NET SALES (Note 8) $ 39,828 $ 54,833 $ 76,839
COST OF SALES 30,526 44,138 61,366
-------- -------- --------
GROSS PROFIT 9,302 10,695 15,473
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 6,835 8,194 10,596
SUPPLEMENTAL RETIREMENT
BENEFIT (Note 11) -- 500 --
-------- -------- --------
OPERATING INCOME 2,467 2,001 4,877
-------- -------- --------
OTHER INCOME (EXPENSE)
Interest expense (887) (1,668) (2,235)
Foreign currency exchange gains -- -- 12
Grant income 117 75 92
Other, net (63) 43 4
-------- -------- --------
Total other income (expense) (833) (1,550) (2,127)
-------- -------- --------
INCOME BEFORE INCOME TAXES 1,634 451 2,750
PROVISION FOR INCOME TAXES
(Note 7) 595 210 992
-------- -------- --------
NET INCOME $ 1,039 $ 241 $ 1,758
======== ======== ========
EARNINGS PER SHARE $ .65 $ .15 $ .96
======== ======== ========
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING 1,590 1,590 1,832
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 23
RIDGEVIEW, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
For the Years Ended December 31, 1994, 1995 and 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, 1993 1,590,216 $ 16 $ 1,101 $ 5,810 $ (212) $ 6,715
Net income 1,039 1,039
Cash dividends ($.09 per share) (145) (145)
Redemption of common stock (129)
Foreign currency
translation adjustment 218 218
--------- --------- --------- ---------- --------- ---------
Balance at December 31, 1994 1,590,087 16 1,101 6,704 6 7,827
Net income 241 241
Cash dividends ($.10 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 1,589,698 16 1,100 6,777 89 7,982
Net income 1,758 1,758
Cash dividends ($.05 per share) (85) (85)
Issuance of common stock, net
of offering costs of $1,666 1,410,302 14 9,550 9,564
Foreign currency
translation adjustment 138 138
--------- --------- --------- ---------- --------- ---------
Balance at December 31, 1996 3,000,000 $ 30 $ 10,650 $ 8,450 $ 227 $ 19,357
========= ========= ========= ========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE> 24
RIDGEVIEW, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------
1994 1995 1996
-----------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Cash received from customers $ 38,500 $ 53,499 $ 73,423
Cash paid to suppliers and employees (36,340) (48,698) (73,849)
Interest paid (789) (1,483) (2,220)
Income taxes paid, net of refunds (373) (941) (476)
Other cash receipts 17 16 62
Other cash disbursements (135) (174) (228)
-------- -------- --------
Net cash provided by (used in)
operating activities 880 2,219 (3,288)
-------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES
Payments for organizational costs -- (133) --
Payments for investments in subsidiaries (13) (76) (161)
Payments for purchase of 100% of
Seneca capital stock, net
of cash acquired -- (2,097) --
Proceeds from sale of property and
equipment 435 309 49
Payments for purchase of property,
plant and equipment (2,169) (4,384) (1,089)
-------- -------- --------
Net cash used in investing activities (1,747) (6,381) (1,201)
-------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES
Net short-term borrowings 1,057 254 (334)
Proceeds from long-term debt 334 63,205 73,697
Repayment of long-term debt (854) (59,208) (78,590)
Dividends paid (146) (168) (84)
Proceeds from issuance of common stock -- 15 11,230
Payments for stock issuance costs -- (282) (1,384)
Payments for stock redemption -- (16) --
Proceeds from government grants 56 490 --
-------- -------- --------
Net cash provided by financing
activities 447 4,290 4,535
-------- -------- --------
EFFECT OF EXCHANGE RATE ON
CASH 20 4 8
-------- -------- --------
Net increase (decrease) in cash (400) 132 54
CASH, beginning of period 530 130 262
-------- -------- --------
CASH, end of period $ 130 $ 262 $ 316
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE> 25
RIDGEVIEW, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Continued)
(In Thousands)
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------
1994 1995 1996
-------------------------------------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME
TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES
Net income $ 1,039 $ 241 $ 1,758
------- ------- -------
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,043 1,371 1,744
Provision for doubtful accounts
receivable 163 125 177
Capital grants recognized (117) (75) (92)
Decrease in government grants -- (43) --
(Gain) loss on sale of assets 66 (28) 26
Increase in deferred compensation
liability 139 557 57
Decrease in deferred income taxes (41) (267) 44
Changes in operating assets and
liabilities, net of effects from
purchase of Seneca:
(Increase) decrease in accounts
receivable (1,329) (1,277) (3,255)
(Increase) decrease in inventories (918) 798 (5,566)
(Increase) decrease in prepaid expenses
and other assets (135) (70) (152)
Increase (decrease) in accounts
payable 549 1,592 769
Increase (decrease) in income taxes
payable 264 (463) 472
Increase (decrease) in accrued expenses
and other liabilities 157 (242) 730
------- ------- -------
Total adjustments to net income (159) 1,978 (5,046)
------- ------- -------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ 880 $ 2,219 $(3,288)
======= ======= =======
</TABLE>
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
<TABLE>
<CAPTION>
Year ended
December 31, 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.
10
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS. Ridgeview, Inc. (the "Company") and its
subsidiaries design, manufacture and market a complete range of sports and
rugged outdoor and heavy weight casual socks as well as a wide variety of
woman's hosiery products, including, tights, trouser socks, pantyhose and
knee-highs. The Company sells its products in both domestic and international
retail markets. Ridgeview, Ltd., a wholly-owned subsidiary of the Company,
operates a manufacturing facility in Tralee, Co. Kerry, Republic of Ireland and
sells its products in European markets.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of Ridgeview, Inc. and its wholly-owned subsidiaries,
Seneca Knitting Mills Corporation and subsidiaries ("Seneca"), Ridgeview, Ltd.
("Limited"), a Cayman Islands corporation and Interknit, Inc. All significant
intercompany accounts and transactions are eliminated in consolidation.
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. The Company has adopted
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Assets to be Disposed of," in
assessing the carrying value of property, plant and equipment. Adoption of this
new standard did not have a material effect on the Company.
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:
Years
-----
Buildings and improvements 8-39
Machinery and equipment 5-12
Automobiles and trucks 5
Office furniture and equipment 5-10
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.
11
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME TAXES. The Company calculates income taxes using the asset and
liability method specified by SFAS No. 109, "Accounting 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 laws and rates that apply to the periods in which they are
expected to affect taxable income.
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 $629,000, $852,000
and $914,000 for the years ended December 31, 1994, 1995, and 1996,
respectively.
FOREIGN CURRENCY TRANSLATION. 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.
STOCK-BASED COMPENSATION. The Financial Accounting Standards Board
recently issued SFAS No. 123, "Accounting for Stock-Based Compensation". 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 statement requires pro forma disclosure of
net income and earnings per share as if the fair-value based method had been
adopted. The Company has adopted the pro forma disclosure requirements of SFAS
No. 123. Although the Company granted options to purchase 1,500 shares of common
stock to three outside members of its board of directors, such grants are not
material and there were no other options or stock awards in 1996. Accordingly,
the pro forma disclosure has not been made.
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) and the exchange of 240,000
shares for all of the issued and outstanding shares of Interknit (see Note 2).
Additionally, earnings per share, after giving retroactive effect to the
reduction in debt through the use of proceeds from the Company's initial public
offering as if such public offering had occurred at the beginning of 1996, would
have been $.77.
RECLASSIFICATIONS. Financial statements for 1994 and 1995 have been
reclassified, where applicable, to conform to financial statement presentation
used in 1996.
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 $1,917,000 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.
12
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2 - ACQUISITIONS (Continued)
In November 1996, the Company acquired all of the issued and
outstanding shares of capital stock of Interknit, Inc. ("Interknit"), a
corporation affiliated through common ownership, in exchange for 240,000 shares
of the Company's common stock in a transaction accounted for as a pooling of
interests. The consolidated financial statements have been restated to include
the accounts of Interknit with those of the Company for all periods presented
prior to the combination.
Net sales and net income (loss) of the separate companies for the periods
preceding the combination were as follows:
<TABLE>
<CAPTION>
For the Nine
For the Year Ended Month Period
December 31, Ended
------------------- September 30,
(In thousands, except per share amounts) 1994 1995 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales
Ridgeview, Inc. $ 40,094 $ 54,408 $ 54,554
Interknit, Inc. 2,338 3,876 5,182
Eliminations (2,604) (3,451) (3,790)
- -----------------------------------------------------------------------------------------
Combined $ 39,828 $ 54,833 $ 55,946
=========================================================================================
Net income (loss)
Ridgeview, Inc. $ 1,014 $ 296 $ 729
Interknit, Inc. 25 (55) 376
Eliminations -- -- (58)
- -----------------------------------------------------------------------------------------
Combined $ 1,039 $ 241 $ 1,047
=========================================================================================
</TABLE>
NOTE 3 - INVENTORIES
A summary of inventories by major classification, is as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1996
-----------------------------
(In Thousands)
<S> <C> <C>
Raw materials $ 3,557 $ 4,114
Work-in-process 4,916 6,127
Finished goods 6,538 10,523
(LIFO allowance) (50) (140)
-------- --------
$ 14,961 $ 20,624
======== ========
</TABLE>
13
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1996
--------------------------
(In Thousands)
<S> <C> <C>
Land $ 313 $ 313
Buildings and improvements 6,257 6,449
Machinery and equipment 14,352 15,013
Automobiles and trucks 119 140
Office furniture and equipment 2,083 2,343
------- -------
23,124 24,258
Less accumulated depreciation and amortization 11,330 12,759
------- -------
Net property, plant and equipment $11,794 $11,499
======= =======
</TABLE>
Depreciation expense amounted to $1,019,000, $1,260,000 and $1,501,000,
for the years ended December 31, 1994, 1995 and 1996, respectively.
NOTE 5 - SHORT-TERM BORROWINGS
Short-term borrowings consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1996
-----------------------
(In Thousands)
<S> <C> <C>
$200 line of credit, interest payable
monthly at prime plus 1%; secured by
certain assets of Interknit $ 155 $ 155
Bank drafts issued, not yet presented
for payment 1,255 939
------ ------
$1,410 $1,094
====== ======
</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.
14
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1995 1996
---------------------
(In Thousands)
<S> <C> <C>
Revolving line of credit (see discussion below) $12,553 $ 8,574
Term loan payable to bank (see discussion below) 4,542 4,042
Term loan payable to bank in 32 monthly installments of $12, plus
interest at prime plus 1% through November 5, 1996 and subsequently
amended, due January 1999 (see discussion below) 1,000 928
Note payable to bank in annual installments of $351, beginning in
1997, plus interest at fixed and variable rates (approximating
8.5% at December 31, 1996) with a final payment due in 2001,
collateralized by the assets of Limited and guaranteed by the
Company 800 1,593
Notes payable to finance companies in monthly installments
aggregating $22 including interest at 6.9% and 8.35%,
collateralized by equipment, due variously through
December 2002 1,254 1,091
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 and
guaranteed by the Company 354 305
Note payable to former principal shareholder of Seneca, with
interest only payable monthly at 7% per annum;
paid November, 1996 500 --
Note payable, with interest payable monthly at 9% per
annum; paid November, 1996 350 --
Various notes payable in installments through July, 2003, including
interest at rates ranging up to 13.2%;
collateralized by a building and various equipment 481 484
------- -------
21,834 17,017
Less current portion 5,843 1,349
------- -------
Total long-term debt $15,991 $15,668
======= =======
</TABLE>
15
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 6 - LONG-TERM DEBT (Continued)
On December 20, 1996 the Company restructured its existing bank loan
agreements. The restructured agreement provides a $14,000,000 revolving line of
credit due January 10, 1999 and temporarily extends the due date on the
$5,000,000 term loan ($4,204,000 outstanding at December 31, 1996) until
March 31, 1997, and consolidates the second term loan payable to bank ($928,000
outstanding at December 31, 1996) under one agreement. On March 13, 1997 the
bank amended the loan agreement, combining the term loans into one loan and
extending the due date to January 10, 1999. Accordingly, the term loan is
classified as long-term as of December 31, 1996. At the option of the Company,
borrowings under these loans bear interest based on the bank's prime rate or
the London InterBank Offered Rates ("LIBOR"). The rates vary based on
achievement of certain ratios of total liabilities to tangible net assets,
calculated monthly, and range from prime to prime plus 1%, or LIBOR plus 2% to
LIBOR plus 3.25% (7.35% at December 31, 1996 under the LIBOR option). These
loans are collateralized by substantially all assets of the Company.
The provisions of the restructured agreement relating to the revolving
credit facility and the combined 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, 1996, the Company was in
violation of certain of these loan covenants, which the lender has subsequently
waived.
Approximate maturities of long-term debt for the next five years are as
follows:
<TABLE>
<CAPTION>
Year Ending December 31:
------------------------
<S> <C> <C>
1997 $ 1,349,000
1998 893,000
1999 13,447,000
2000 709,000
2001 438,000
Thereafter 181,000
-----------
$17,017,000
===========
</TABLE>
16
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 7 - INCOME TAXES
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
1994 1995 1996
-------------------------------
(In Thousands)
<S> <C> <C> <C>
Current:
Federal $554 $ 444 $797
State 60 53 125
Foreign 23 (20) 26
---- ----- ----
637 477 948
---- ----- ----
Deferred:
Federal (35) (247) 37
State (1) (34) 5
Foreign (6) 14 2
---- ----- ----
(42) (267) 44
---- ----- ----
Provision for income taxes $595 $ 210 $992
==== ===== ====
</TABLE>
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>
For the Year Ended December 31,
--------------------------------
1994 1995 1996
--------------------------------
(In Thousands)
<S> <C> <C> <C>
Income before income taxes $1,634 $451 $2,750
====== ==== ======
Computed "expected" tax expense 556 153 935
Increase (decrease) in taxes
resulting from:
Foreign income with no U.S.
income tax effect (64) 20 (85)
State income taxes, net of
federal income tax 39 21 85
Nondeductible expenses 14 28 50
Foreign tax 17 (6) 28
Other 33 (6) (21)
------ ---- ------
$ 595 $210 $ 992
====== ==== ======
</TABLE>
17
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 7 - INCOME TAXES (Continued)
Net deferred tax assets and net deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1995 1996
-----------------------
(In Thousands)
<S> <C> <C>
Deferred tax assets:
Receivable and inventory reserves $ 196 $ 302
Operating loss carryover 52 --
Accrued expenses 73 84
Alternative minimum tax credit -- 89
Deferred compensation liability 578 605
------- -------
Total deferred tax assets $ 899 $ 1,080
======= =======
Deferred tax liabilities:
Accumulated depreciation $ (666) $ (910)
LIFO reserve (848) (830)
------- -------
Total deferred tax liabilities (1,514) (1,740)
------- -------
Net deferred tax liabilities $ (615) $ (660)
======= =======
</TABLE>
The Company does not accrue income taxes on the undistributed earnings
of its foreign subsidiary Limited that are intended to be invested in Limited
indefinitely. At December 31, 1996, the amount of undistributed earnings for
which taxes have not been accrued was $1,941,000.
NOTE 8 - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMER
The Company sells products to retail customers in both the United
States and Europe. The Company performs ongoing credit evaluations of 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, 1994, 1995 and 1996, sales to one
customer, Target Stores, Inc., accounted for 18%, 13%, and 13%, respectively, of
the Company's net sales. Accounts receivable from this same customer were 19%
and 17% of total accounts receivable at December 31, 1995 and 1996.
NOTE 9 - BENEFIT PLANS
The Company has an employee savings plan which covers participating
employees who have completed one year of employment and 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 $87,000, $85,000 and $89,000 for the years ended December 31, 1994, 1995 and
1996, respectively.
18
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 9 - BENEFIT PLANS (Continued)
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 (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 year ended December 31, 1996, contribution expense under
this collective bargaining agreement amounted to approximately $243,000 and
$471,000, respectively. The Company's applicable portion of total plan benefits
and net assets of the plans are not separately identifiable.
NOTE 10 - CAPITAL STOCK
On November 5, 1996, the Company completed an initial public offering
of the Company's common stock. In preparation for the public offering, the
Company's board of directors and shareholders approved amended and restated
Articles of Incorporation that increased 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. Effective October 8, 1996, the board of
directors declared a stock dividend 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 initial public offering, the board of
directors and the shareholders approved an omnibus stock award and incentive
plan (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 Plan, but no longer than ten years after the date they are
granted. Under the terms of the 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.
The board has also authorized an employee stock purchase plan that 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 the employee
stock purchase plan. The board of directors has not yet activated the employee
stock purchase plan.
19
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10 - CAPITAL STOCK (continued)
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 Directors' election, an 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 10 years
after the date they are granted. In November 1996, options to purchase 500
shares each were granted to three new members of the Company's board of
directors at an exercise price of $8.00 per share. All of such options are
outstanding and unexercised.
NOTE 11 - 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 $402,000,
$491,000 and $654,000 for the years ended December 31, 1994, 1995 and 1996,
respectively.
LOAN GUARANTEE. The Company holds a 25% 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, 1996, this loan had an outstanding balance of $2,764,000,
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 $175,000, $176,000 and $205,000 for the years ended December 31,
1994, 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, 1994 and 1996. 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, 1996, and the
Company intends to remain in compliance throughout the ten-year period.
20
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 11 - COMMITMENTS AND CONTINGENCIES (Continued)
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, 1995 and 1996, $475,000 and $1,003,000 of retained
earnings, respectively, have been reserved for this purpose. 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 five years. Total rental expense amounted to $123,000, $210,000
and $338,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
Future minimum lease payments under noncancellable operating leases are
as follows: 1997 - $297,000; 1998 - $185,000; 1999 - $110,000, 2000 - $104,000;
2001 - $88,000.
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 license agreement provides for payment of minimum
royalties for each annual period during the term of the license agreement. On
May 28, 1996, the Company signed a license agreement for the Evan-Picone
trademark, which calls for minimum guaranteed royalty payments of $450,000
($75,000 paid in 1996), $500,000 and $600,000 for the 18-month period commencing
July 1, 1996 through December 31, 1997 and the years ending December 31, 1998
and 1999, respectively.
Aggregate minimum guaranteed royalty payments under all license
agreements are as follows:
<TABLE>
<S> <C>
Year Ending:
1997 $ 970,000
1998 769,500
1999 765,000
----------
Total minimum royalty payments $2,504,500
==========
</TABLE>
Total royalty expense for license agreements amounted to $169,000,
$270,000 and $598,000 for the years ended December 31, 1994, 1995 and 1996,
respectively.
PURCHASE COMMITMENTS. The Company has commitments outstanding at
December 31, 1996 to purchase equipment used in manufacturing which aggregate
$1,707,000.
NOTE 12 - INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one principal industry segment, the manufacture
and sale of hosiery products and accessories. The Company's products are sold
primarily to the retail markets.
21
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 12 - INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION (Continued)
Geographic financial information is as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------
1994 1995 1996
--------------------------------------
(In Thousands)
<S> <C> <C> <C>
Net Sales To Unaffiliated Customers:
United States $ 35,763 $ 50,109 $ 68,568
Europe 4,065 4,724 8,271
-------- -------- --------
Total net sales $ 39,828 $ 54,833 $ 76,839
======== ======== ========
Transfers Between Geographic Areas
(Elimination in consolidation):
United States $ 84 $ 144 $ 394
Europe -- -- 19
-------- -------- --------
Total transfers $ 84 $ 144 $ 413
======== ======== ========
Operating income (loss):
United States $ 2,399 $ 2,119 $ 4,641
Europe 140 (118) 236
Eliminations (72) -- --
Other income (expense), net (833) (1,550) (2,127)
-------- -------- --------
Income before income taxes $ 1,634 $ 451 $ 2,750
======== ======== ========
Identifiable Assets:
United States $ 22,330 $ 34,456 $ 42,531
Europe 4,211 7,038 7,122
Eliminations (963) (1,029) (868)
-------- -------- --------
Total assets $ 25,578 $ 40,465 $ 48,785
======== ======== ========
</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.
22
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF RIDGEVIEW, INC.
Name Jurisdiction of Incorporation
Ridgeview Ltd. Cayman Island
Interknit, Inc. Alabama
Seneca Knitting Mills Corporation New York
GPM Corporation New York
Seneca Knitting Mills, International United States Virgin
Sales, Inc. Islands
A Child's View, Inc. North Carolina
Ridgeview Foundation, Inc. North Carolina
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 316,000
<SECURITIES> 0
<RECEIVABLES> 13,774,000
<ALLOWANCES> 502,000
<INVENTORY> 20,624,000
<CURRENT-ASSETS> 34,340,000
<PP&E> 24,258,000
<DEPRECIATION> 12,759,000
<TOTAL-ASSETS> 48,785,000
<CURRENT-LIABILITIES> 10,990,000
<BONDS> 0
0
0
<COMMON> 30,000
<OTHER-SE> 19,327,000
<TOTAL-LIABILITY-AND-EQUITY> 19,357,000
<SALES> 76,839,000
<TOTAL-REVENUES> 76,839,000
<CGS> 61,366,000
<TOTAL-COSTS> 10,596,000
<OTHER-EXPENSES> 108,000
<LOSS-PROVISION> 177,000
<INTEREST-EXPENSE> 2,235,000
<INCOME-PRETAX> 2,750,000
<INCOME-TAX> 992,000
<INCOME-CONTINUING> 1,758,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,758,000
<EPS-PRIMARY> .96
<EPS-DILUTED> 0
</TABLE>
