<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 29, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
GFSI HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------
DELAWARE 2396 74-2810744
(STATE OF OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
GFSI HOLDINGS, INC.
9700 COMMERCE PARKWAY
LENEXA, KANSAS 66219
(913) 888-0445
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
JOHN L. MENGHINI, PRESIDENT
GFSI HOLDINGS, INC.
9700 COMMERCE PARKWAY
LENEXA, KANSAS 66219
(913) 888-0445
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------
WITH A COPY TO:
PHILIP J. NIEHOFF
MAYER, BROWN & PLATT
190 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603
(312) 701-7843
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11.375% Series B Senior
Discount Notes Due
2009.................. $108,467,780 46.1% $50,000,000 $15,151.52
</TABLE>
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(1) Estimated solely for the purposes of calculating the registration fee.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 29, 1997
PROSPECTUS
GFSI HOLDINGS, INC.
OFFER TO EXCHANGE ITS 11.375% SERIES B SENIOR DISCOUNT NOTES DUE 2009
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, FOR ANY AND
ALL OF ITS OUTSTANDING 11.375% SERIES A SENIOR DISCOUNT NOTES DUE 2009
---------------
GFSI Holdings, Inc., a Delaware corporation ("Holdings" or the "Company"),
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying letter of transmittal (the "Letter of
Transmittal") (which together constitute the "Exchange Offer"), to exchange up
to $50 million initial Accreted Value of 11.375% Series B Senior Discount
Notes due 2009 (the "New Notes"), of the Company for a like initial Accreted
Value of the Company's issued and outstanding 11.375% Series A Senior Discount
Notes due 2009 (the "Old Notes" and collectively with the New Notes, the
"Notes"), with the holders (each holder of Old Notes, a "Holder") thereof.
Holdings is a holding Company whose principal asset is all of the common stock
of GFSI, Inc., a Delaware company ("GFSI") . The Company will receive no
proceeds in connection with the Exchange Offer. The terms of the New Notes are
substantially identical to the terms of the Old Notes that are to be exchanged
therefor. See "Description of Notes."
The New Notes will be issued at a substantial discount from their principal
amount. See "Description of Notes" and "Certain Federal Income Tax
Considerations." The Notes will accrete at a rate of 11.375%, compounded semi-
annually to an aggregate principal amount of $108,467,780 at September 15,
2004. Thereafter, the Notes will accrue interest at the rate of 11.375% per
annum, payable semi-annually in cash on March 15 and September 15 of each
year, commencing on March 15, 2005. The Notes will be redeemable at the option
of Holdings, in whole or in part, at any time on or after September 15, 2002
in cash at the redemption prices set forth herein, plus accrued and unpaid
interest and Liquidated Damages (as defined), if any, thereon to the date of
redemption. In addition, at any time on or after March 15, 1998 and prior to
September 15, 2002, Holdings, at its option, may redeem the Notes, in whole or
in part, at a redemption price of 105.688% of the Accreted Value (determined
at the date of redemption), upon the occurrence of a Change of Control (as
defined) or with the net cash proceeds of an Equity Offering (as defined) of
Holdings or GFSI. See "Description of Notes--Redemption of Notes." In
addition, upon the occurrence of a Change of Control, each holder of Notes
will have the right to require Holdings to repurchase all or any part of such
holder's Notes at an offer price in cash equal to 100% of the Accreted Value
(determined at the date of redemption) thereof on the date of repurchase (if
such date of repurchase is prior to September 15, 2004) or 100% of the
aggregate principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of repurchase (if such date of
repurchase is on or after September 15, 2004). See "Description of Notes--
Mandatory Offers to Purchase Notes--Change of Control." There can be no
assurance that, in the event of a Change of Control, Holdings would have
sufficient funds to repurchase all Notes tendered. See "Risk Factors--Change
of Control."
Prior to the Exchange Offer, there has been no established trading market
for the Old Notes or the New Notes. The Company does not intend to apply for
listing or quotation of the New Notes on any securities exchange or stock
market. Therefore, there can be no assurance as to the liquidity of any
trading market for the New Notes or that an active public market for the New
Notes will develop. Any Old Notes not tendered and accepted in the Exchange
Offer will remain outstanding. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered, or
tendered but unaccepted, Old Notes could be adversely affected. Following the
consummation of the Exchange Offer, the holders of the Old Notes will continue
to be subject to the existing restrictions on transfer thereof and the Company
will have no further obligations to such holders to provide for the
registration of the Old Notes under the Securities Act. See "The Exchange
Offer--Consequences of Not Exchanging Old Notes."
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 1997, UNLESS EXTENDED.
(Cover continued on following page)
---------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF
OLD NOTES WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER, SEE "RISK FACTORS"
BEGINNING ON PAGE 13 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
---------------
The date of this Prospectus is , 1997
<PAGE>
The Notes will be general unsecured obligations of Holdings, will rank pari
passu in right of payment to all existing and future Senior Indebtedness of
Holdings, and senior in right of payment to any future subordinated
indebtedness of Holdings. As indebtedness of Holdings, however, the Notes will
be effectively subordinated to all indebtedness of GFSI. As of June 27, 1997,
the aggregate principal amount of indebtedness of GFSI to which the Notes
would have been effectively subordinated would have been approximately $193.0
million. The Indenture (as defined) will permit the Company and its
subsidiaries to incur additional indebtedness, including Senior Indebtedness,
subject to certain limitations. See "Description of Notes."
The Company will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn on or prior to 5:00 p.m., New York City time, on
, 1997, unless the Exchange Offer is extended (the "Expiration
Date"). Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date. The Exchange Offer is not
conditioned upon any minimum principal amount of Old Notes being tendered for
exchange. However, the Exchange Offer is subject to certain customary
conditions which may be waived by the Company. The Company will pay the
expenses of the Exchange Offer.
GFSI and Holdings were organized by affiliates of The Jordan Company ("TJC")
and management to acquire Winning Ways, Inc. ("Winning Ways") in February 1997
(the "Acquisition"). The Old Notes were issued and sold as part of an offering
on September 17, 1997 (the "Old Offering"), in a transaction not registered
under the Securities Act of 1933, as amended (the "Securities Act"), in
reliance upon the exemption provided in Section 4(2) of the Securities Act. In
the Old Offering certain holders of Subordinated Discount Notes and Preferred
Stock issued and sold units (the "Units") consisting of 11.375% Subordinated
Discount Notes due 2009 (the "Subordinated Discount Notes") and 11.375% Series
D Preferred Stock due 2009 (the "Preferred Stock") which were exchangeable at
the option of Holdings any time on or after September 29, 1997 into Old Notes.
On October 23, 1997 the Units were exchanged into Old Notes (the "Old
Exchange"). Accordingly, the Old Notes may not be reoffered, resold or
otherwise pledged, hypothecated or transferred in the United States unless so
registered or unless an applicable exemption from the registration
requirements of the Securities Act is available. The New Notes are being
offered for exchange in order to satisfy certain obligations of the Company
under a Registration Rights Agreement (as defined) between the Company and the
Initial Purchaser (as defined). The New Notes will be obligations of the
Company evidencing the same indebtedness as the Old Notes and will be entitled
to the benefits of the same Indenture, which governs both the Old Notes and
the New Notes. The form and terms (including principal amount, interest rate,
maturity and ranking) of the New Notes are the same as the form and terms of
the Old Notes, except that the New Notes (i) will be registered under the
Securities Act and therefore will not be subject to certain restrictions on
transfer applicable to the Old Notes, (ii) will not be entitled to
registration rights and (iii) will not provide for any Liquidated Damages. See
"The Exchange Offer--Registration Rights; Liquidated Damages."
The Company is making the Exchange Offer pursuant to the registration
statement of which this Prospectus is a part in reliance upon the position of
the staff of the Securities and Exchange Commission (the "Commission") set
forth in certain no-action letters addressed to other parties in other
transactions. However, the Company has not sought its own no-action letter and
there can be no assurance that the staff of the Commission would make a
similar determination with respect to the Exchange Offer. Based on these
interpretations by the staff of the Commission, the Company believes that the
New Notes issued pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by Holders thereof (other than (i) any such
Holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act, (ii) an Initial Purchaser who acquired the Old Notes
directly from the Company solely in order to resell pursuant to Rule 144A of
the Securities Act or any other available exemption under the Securities Act
or (iii) a broker-dealer who acquired the Old Notes as a result of market
making or other trading activities) without further compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
Holder's business and such Holder is not participating and has no arrangement
or understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes.
i
<PAGE>
By tendering, each Holder which is not a broker-dealer will represent to the
Company that, among other things, the person receiving the New Notes, whether
or not such person is the Holder, (i) will acquire the New Notes in the
ordinary course of such person's business, (ii) has no arrangement or
understanding with any person to participate in a distribution of the New
Notes and (iii) is not engaged in and does not intend to engage in a
distribution of the New Notes. If any Holder or any such other person has an
arrangement or understanding with any person to participate in a distribution
of such New Notes, is engaged in or intends to engage in a distribution of
such New Notes, is an "affiliate," as defined under Rule 405 of the Securities
Act, of the Company, or acquired the Old Notes as a result of market making or
other trading activities, then such Holder or any such other person (i) can
not rely on the applicable interpretations of the staff of the Commission and
(ii) must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each broker-
dealer that receives New Notes for its own account pursuant to the Exchange
Offer must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. This Prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes are acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company has
agreed that, for a period of 120 days after the Expiration Date, it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution."
ii
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to and should
be read in conjunction with the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus. Unless the context indicates or otherwise requires, references in
this Prospectus to the "Company" are to GFSI Holdings, Inc. and its
subsidiaries and their respective predecessors, including GFSI, Inc.,
references to "Holdings" are to GFSI Holdings, Inc., references to "GFSI" are
to GFSI, Inc., and references to a fiscal year are to the twelve months ended
June 30 of such year, except 1997, which is June 27.
THE COMPANY
Holdings and GFSI, a wholly owned subsidiary of Holdings, were organized by
affiliates of TJC and management to acquire Winning Ways in February 1997.
Holdings' current operations are conducted exclusively through GFSI and
Holdings' only significant asset is the outstanding capital stock of GFSI.
The Company, which operates primarily under the brand name GEAR For Sports(R)
("GEAR"), is a leading designer, manufacturer and marketer of high quality,
custom designed sportswear and activewear bearing names, logos and insignia of
resorts, corporations, colleges and professional sports teams and events. The
Company, which was founded in 1974, custom designs and decorates an extensive
line of high-end outerwear, fleecewear, polo shirts, T-shirts, woven shirts,
sweaters, shorts, headwear and sports luggage. The Company markets its products
to over 13,000 active customer accounts through its well-established and
diversified distribution channels, rather than through the price sensitive mass
merchandise, discount and department store distribution channels. The Company
believes that it has been able to compete successfully because of its ability
to create diverse and innovative designs, provide excellent customer service,
leverage its GEAR brand name and differentiate its products on the basis of
quality. For fiscal 1997, the Company generated net sales and EBITDA of $183.3
million and $39.1 million, respectively.
The Company believes it has achieved a record of strong sales and EBITDA
growth and stable operating margins primarily due to its: (i) leading positions
in niche markets; (ii) diversified and stable customer base; (iii) superior
product quality and customer service; (iv) broad product portfolio; (v) value-
added design and manufacturing capabilities; and (vi) innovative management.
The Company expects to continue to grow by leveraging the strength of the GEAR
brand name to expand its product lines and access underpenetrated segments of
its markets. The Company believes that it is less vulnerable to earnings
fluctuations than typical apparel manufacturers and marketers because: (i) the
Company designs and custom manufactures basic, classic products with low
fashion risk; (ii) consumer demand for sportswear and activewear continues to
increase; and (iii) the Company's products are customized based on firm
customer orders, minimizing its risk of excess inventory.
The Company markets its products primarily through four separate divisions,
each of which serves distinct distribution channels and utilizes a sales force
with a specialized knowledge of its particular markets and customers. The
Company's network of approximately 140 independent sales representatives and
over 70 in-house artists and graphic designers work directly with the Company's
customers to create innovative sportswear and activewear products to meet
customer specifications. The Company's four divisions are:
. The Resort Division (36.5% of fiscal 1997 net sales) is a leading
marketer of custom logoed sportswear and activewear to over 6,100 active
customer accounts, including destination resorts, family entertainment
companies, hotel chains, golf clubs, cruise lines, casinos and United
States military bases. The division's customers include widely
recognized names such as The Walt Disney Company, Universal Studios, The
Ritz Carlton, Pebble Beach, Princess Cruise Lines and The Mirage. The
Company believes that the breadth of its coordinated product line and
its national scope provide it with a distinct competitive advantage in
the resort market. See "Business--Sales Divisions--Resort Division."
1
<PAGE>
. The Corporate Division (30.6% of fiscal 1997 net sales) is a leading
marketer of corporate identity sportswear and activewear for use by a
diverse group of corporations in incentive and promotional programs as
well as for office casual wear and uniforms. The division services over
3,500 active customer accounts, including Toyota, Hershey, Dr.
Pepper/7Up, Anheuser-Busch, MCI and Exxon. The Company believes that it
has an advantage over its competitors because it is one of the few
national brand name suppliers of sportswear and activewear focused on
the corporate market. In addition, the Company recently formed Tandem
Marketing to leverage its existing corporate customer base by developing
and administering corporate fulfillment programs. The Company typically
implements corporate fulfillment programs in conjunction with a
catalogue featuring a full line of both apparel and non-apparel
merchandise customized with the corporate customer's name, logo or
message. See "Business--Sales Divisions--Corporate Division."
. The College Bookstore Division (20.8% of fiscal 1997 net sales) is a
leading marketer of custom-designed, embroidered and silk-screened
sportswear and activewear products to over 2,300 active customer
accounts, including nearly every major college and university in the
United States. The division's largest accounts include each of the major
college bookstore lease operators, such as Barnes & Noble College
Bookstores, Inc. as well as high volume, university-managed bookstores,
such as the University of Notre Dame, the University of Southern
California, Yale University, the University of Michigan and the United
States Air Force and Naval academies. The National Association of
College Stores has selected the Company as "Vendor of the Year" three
times, an honor no other supplier has won more than once. See
"Business--Sales Divisions--College Bookstore Division."
. The Sports Specialty Division (5.8% of fiscal 1997 net sales),
established in 1994, has entered into licensing agreements to design,
manufacture and market sportswear and activewear bearing the names,
logos and insignia of professional sports leagues and teams as well as
major sporting events. The Company's licensors include, among others,
Major League Baseball ("MLB"), the National Basketball Association
("NBA"), the National Hockey League ("NHL"), NASCAR and The Breeder's
Cup. The division targets the upscale adult sports enthusiast through
the Company's existing distribution channels as well as through new
channels such as stadium stores and team retail outlets. The division
marketed its products to over 600 active customer accounts, including
the Indianapolis Motor Speedway, the Chicago Bulls, the Cleveland
Indians, the Boston Bruins and Madison Square Garden. See "Business--
Sales Divisions--Sports Specialty Division."
BUSINESS STRATEGY
The Company's objective is to continue to increase sales, EBITDA and
operating margins, and is based upon the following strategic elements:
. Superior Product Quality and Customer Service. Each of the Company's
divisions focuses on high-end, customized sportswear, activewear and
related products. The Company's products uniquely address each account's
specific requirements, while providing the end-user with a high quality
product. The Company's ability to maintain consistency in product
quality and customer service, regardless of order size, enables it to
effectively service a broad range of customers. With over 70 in-house
artists and graphic designers and state-of-the-art manufacturing and
distribution facilities, the Company believes that it provides products
and service that are superior to those of its competitors in each of its
markets.
. Leading Position in Multiple Niche Markets. The Company has a leading
position in the resort, corporate and college bookstore markets. The
Company's superior service and product customization enable it to more
effectively serve the particular needs of these customers. As a result,
the Company believes that: (i) it is one of the few national competitors
in the highly fragmented resort and leisure market; (ii) it has a
leading share of the corporate identity market, where it competes
primarily with smaller local and regional companies as well as a few
national competitors; and (iii) it has the second largest share of the
college bookstore market.
2
<PAGE>
. Leveraging the GEAR For Sports(R) Brand Name. The Company leverages its
GEAR brand name by introducing new products through its established
distribution channels. For example, the Company recently introduced new
headwear, sports luggage and Baby GEAR product lines. The Company
believes that the GEAR brand name is widely recognized by customers and
end-users in each of its markets and enjoys a reputation for high
quality products. The Company intends to continue to leverage this brand
name recognition through its existing distribution channels as well as
through alternative distribution channels and markets.
. Efficient Operations. The Company uses its state-of-the-art facilities
to design, embroider and screenprint a significant portion of its
products. In addition, the Company uses independent contractors to
manufacture its blanks and, where appropriate, to provide other value-
added manufacturing services in order to maximize sourcing flexibility
while minimizing overhead costs and fixed charges. Only one of these
independent contractors supplies such services exclusively to the
Company. The Company does not have a contract with this independent
contractor. The Company minimizes the risk of excess inventory by
designing and manufacturing its products against firm customer's orders.
. Experienced Management Team with Significant Equity Ownership. The
Company's management team has extensive experience in the sportswear and
activewear business. The top five senior executives have each been with
the Company for at least 13 years and have combined industry experience
of over 115 years. Approximately 20 members of the management team own
an aggregate of 50% of the capital stock of Holdings. See "The
Transactions." The management team has significant incentive to continue
to increase the Company's sales and EBITDA as a result of their
substantial equity ownership and performance based incentive
compensation programs.
----------------
Holdings was incorporated in the state of Delaware on December 23, 1996. On
February 27, 1997, GFSI and Holdings effected the Acquisition, in which Winning
Ways merged with and into GFSI. The principal executive offices of the Company
are located at 9700 Commerce Parkway, Lenexa, Kansas 66219 and their telephone
number is (913) 888-0445.
THE TRANSACTIONS
Holdings and GFSI were organized by affiliates of TJC and management,
including Jordan/Zalaznick Capital Corporation, A. Richard Caputo, Jr., John W.
Jordan II, David W. Zalaznick, MCIT PLC, Leucadia Investors, Inc., Jonathan F.
Boucher, Adam E. Max, John R. Lowden, James E. Jordan, Paul Rodzevik and
Douglas Zych (each of which may be deemed to be affiliates of TJC), John L.
Menghini, Robert G. Shaw, Robert M. Wolff, Larry D. Graveel, Michael H. Gary,
Barry S. Golden, Terry Glenn, Kirk Kowelewski, Mark Schimpf, Anthony Gagliano,
David Churchman, Dave Geenens, Steve Arnold, Frank Pikus, Jason Krakow, Carl
Allard, Howie Ellis, Scott Durham, Tom Martin, John White, Sue Agnitsch, Dave
Hosier and Jim Keaton (each of which are members of management), to effect the
acquisition of Winning Ways. Pursuant to an agreement for the purchase and sale
of stock, dated as of January 24, 1997 (the "Acquisition Agreement"), Holdings
and GFSI acquired all of the issued and outstanding capital stock of Winning
Ways on February 27, 1997, and Winning Ways immediately thereafter merged with
and into GFSI.
The aggregate purchase price for Winning Ways was $242.3 million consisting
of $173.1 million in cash at closing, a post closing payment at April 30, 1997
of $10.0 million and the repayment of $59.2 million of indebtedness of Winning
Ways, including a $2.4 million prepayment penalty. To finance the Acquisition,
including approximately $11.5 million of related fees and expenses: (i) TJC,
its affiliates and MCIT PLC (collectively, the "Jordan Investors") and certain
members of management (the "Management Investors") invested $52.2 million in
Holdings and Holdings contributed $51.4 million of this amount in cash to GFSI
(the "Equity Contribution"); (ii) GFSI consummated its offering (the "GFSI
Offering") of 9 5/8% Senior
3
<PAGE>
Subordinated Notes Due 2007 (the "GFSI Senior Subordinated Notes"); and (iii)
GFSI entered into a credit agreement (the "Credit Agreement") providing for
borrowings of up to $115.0 million. The Equity Contribution was comprised of:
(i) a contribution of $13.6 million from the Jordan Investors to Holdings in
exchange for preferred stock (the "Holdings Preferred Stock") and approximately
50% of the common stock of Holdings; (ii) a contribution of $13.6 million from
the Management Investors to Holdings in exchange for preferred stock and
approximately 50% of the common stock of Holdings; and (iii) a contribution of
$25.0 million from a Jordan Investor to Holdings in exchange for subordinated
notes (the "Holdings Subordinated Notes") . Approximately $0.8 million of the
contribution from the Management Investors was financed by loans from Holdings.
For additional information, see "The Transactions."
The Equity Contribution, the consummation of the GFSI Offering, the execution
of the Credit Agreement, the consummation of the Acquisition and the repayment
of certain indebtedness of GFSI's are collectively referred to herein as the
"Transactions."
GFSI's predecessor, Winning Ways, terminated its income tax reporting status
as an S-Corporation immediately prior to the closing of the Transactions on
February 27, 1997. Immediately prior to the closing, Winning Ways distributed
to its shareholders $20.6 million, representing the accumulated and
undistributed S-Corporation earnings of GFSI as of February 27, 1997. GFSI
recognized, with a post-closing adjustment, approximately $1.0 million in net
deferred income tax liabilities upon the conversion from S-Corporation to C-
Corporation status for income tax reporting purposes. GFSI does not anticipate
any future material adverse tax liabilities arising from this distribution and
conversion.
THE EXCHANGE OFFER
Securities Offered............. $50 million initial Accreted Value of 11.375%
Series B Senior Discount Notes due 2009. The
terms of the New Notes and the Old Notes are
identical in all material respects, except for
certain transfer restrictions and registration
rights relating to the Old Notes and except
for certain Liquidated Damages provisions
relating to the Old Notes described below
under "--Summary Description of the New
Notes."
Issuance of Units and Old
Notes; Registration Rights....
The Units were issued on September 17, 1997 to
Donaldson, Lufkin & Jenrette Securities
Corporation (the "Initial Purchaser"), which
placed the Units with "qualified institutional
buyers" (as such term is defined in Rule 144A
promulgated under the Securities Act). On
October 23, 1997 the Units were exchanged for
the Old Notes. In connection therewith, the
Company executed and delivered for the benefit
of the holders of Old Notes a registration
rights agreement (the "Registration Rights
Agreement"), pursuant to which the Company
agreed (i) to file a registration statement
(the "Registration Statement") on or prior to
November 16, 1997 with respect to the Exchange
Offer and (ii) to use its best efforts to
cause the Registration Statement to be
declared effective by the Commission on or
prior to January 15, 1998. In certain
circumstances, the Company will be required to
provide a shelf registration statement (the
"Shelf Registration Statement") to cover
resales of the Old Notes by the holders
thereof. If the Company does not comply with
its obligations under the
4
<PAGE>
Registration Rights Agreement, it will be
required to pay liquidated damages
("Liquidated Damages") to holders of the Old
Notes under certain circumstances. See "The
Exchange Offer--Registration Rights;
Liquidated Damages." Holders of Old Notes do
not have any appraisal rights in connection
with the Exchange Offer.
The Exchange Offer............. The New Notes are being offered in exchange
for a like Accreted Value of Old Notes. The
issuance of the New Notes is intended to
satisfy the obligations of the Company
contained in the Registration Rights
Agreement. Based upon the position of the
staff of the Commission set forth in no-action
letters issued to third parties in other
transactions substantially similar to the
Exchange Offer, the Company believes that the
New Notes issued pursuant to the Exchange
Offer may be offered for resale, resold and
otherwise transferred by holders thereof
(other than (i) any such holder that is an
"affiliate" of the Company within the meaning
of Rule 405 under the Securities Act; (ii) an
Initial Purchaser who acquired the Old Notes
directly from the Company solely in order to
resell pursuant to Rule 144A of the Securities
Act or any other available exemption under the
Securities Act; or (iii) a broker-dealer who
acquired the Old Notes as a result of market
making or other trading activities) without
further compliance with the registration and
prospectus delivery requirements of the
Securities Act, provided that such New Notes
are acquired in the ordinary course of such
holder's business and such holder is not
participating and has no arrangement or
understanding with any person to participate
in a distribution (within the meaning of the
Securities Act) of such New Notes. By
tendering, each Holder, which is not a broker-
dealer will represent to the Company that,
among other things, the person receiving the
New Notes, whether or not such person is the
Holder, (i) will acquire the New Notes in the
ordinary course of such person's business,
(ii) has no arrangement or understanding with
any person to participate in a distribution of
the New Notes and (iii) is not engaged in and
does not intend to engage in a distribution of
the New Notes. If any Holder or any such other
person has an arrangement or understanding
with any person to participate in a
distribution of such New Notes, is engaged in
or intends to engage in a distribution of such
New Notes, is an "affiliate," as defined under
Rule 405 of the Securities Act, of the
Company, or acquired the Old Notes as a result
of market making or other trading activities,
then such Holder or any such other person (i)
cannot rely on the applicable interpretations
of the staff of the Commission and (ii) must
comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any resale transaction. Each
broker-dealer that receives New Notes for its
own account pursuant to the Exchange Offer
must acknowledge
5
<PAGE>
that it will deliver a prospectus meeting the
requirements of the Securities Act in
connection with any resale of such New Notes.
Although there has been no indication of any
change in the staff's position, there can be
no assurance that the staff of the Commission
would make a similar determination with
respect to the resale of the New Notes. See
"Risk Factors."
Procedures for Tendering....... Tendering Holders of Old Notes must complete
and sign the Letter of Transmittal in
accordance with the instructions contained
therein and forward the same by mail,
facsimile or hand delivery, together with any
other required documents, to the Exchange
Agent, either with the Old Notes to be
tendered or in compliance with the specified
procedures for guaranteed delivery of Old
Notes. Holders of the Old Notes desiring to
tender such Old Notes in exchange for New
Notes should allow sufficient time to ensure
timely delivery. Certain brokers, dealers,
commercial banks, trust companies and other
nominees may also effect tenders by book-entry
transfer. Holders of Old Notes registered in
the name of a broker, dealer, commercial bank,
trust company or other nominee are urged to
contact such person promptly if they wish to
tender Old Notes pursuant to the Exchange
Offer. Letters of Transmittal and certificates
representing Old Notes should not be sent to
the Company. Such documents should only be
sent to the Exchange Agent. Questions
regarding how to tender the requests for
information should be directed to the Exchange
Agent. See "The Exchange Offer--Procedures for
Tendering Old Notes."
Tenders, Expiration Date;
Withdrawal....................
The Exchange Offer will expire at 5:00 p.m.,
New York City time, on , 1997 or such
later date and time to which it is extended.
The tender of Old Notes pursuant to the
Exchange Offer may be withdrawn at any time
prior to the Expiration Date. Any Old Note not
accepted for exchange for any reason will be
returned without expense to the tendering
holder thereof as promptly as practicable
after the expiration or termination of the
Exchange Offer. See "The Exchange Offer--Terms
of the Exchange Offer; Period for Tendering
Old Notes" and "--Withdrawal Rights."
Certain Conditions to the
Exchange Offer................
The Exchange Offer is subject to certain
customary conditions, all of which may be
waived by the Company, including the absence
of (i) threatened or pending proceedings
seeking to restrain the Exchange Offer or
resulting in a material delay to the Exchange
Offer; (ii) a general suspension of trading on
any national securities exchange or in the
over-the-counter market; (iii) a banking
moratorium; (iv) a commencement of war, armed
hostilities or other similar international
calamity directly or indirectly involving the
United States; and (v) change or threatened
change in the business, properties, assets,
liabilities,
6
<PAGE>
financial condition, operations, results of
operations or prospects of Holdings and its
subsidiaries taken as a whole that, in the
sole judgment of the Company, is or may be
adverse to the Company. The Company shall not
be required to accept for exchange, or to
issue New Notes in exchange for, any Old
Notes, if at any time before the acceptance of
such Old Notes for exchange or the exchange of
New Notes for such Old Notes, any of the
foregoing events occurs which, in the sole
judgment of the Company, make it inadvisable
to proceed with the Exchange Offer and/or with
such acceptance for exchange or with such
exchange. In the event the Company asserts or
waives a condition to the Exchange Offer which
constitutes a material change to the terms of
the Exchange Offer, the Company will disclose
such change in a manner reasonably calculated
to inform prospective investors of such
change, and will extend the period of the
Exchange Offer by five business days. If the
Company fails to consummate the Exchange Offer
because the Exchange Offer is not permitted by
applicable law or Commission policy, it will
file with the Commission a Shelf Registration
Statement to cover resales of the Transfer
Restricted Securities (as defined) by the
holders thereof who satisfy certain
conditions. If the Company fails to consummate
the Exchange Offer or file a Shelf
Registration Statement in accordance with the
Registration Rights Agreement, the Company
will pay Liquidated Damages to each holder of
Transfer Restricted Securities until the cure
of all defaults. The Exchange Offer is not
conditioned upon any minimum aggregate
principal amount of Old Notes being tendered
for exchange. See "The Exchange Offer--
Registration Rights; Liquidated Damages" and
"--Certain Conditions to the Exchange Offer."
Federal Income Tax
Consequences..................
In the opinion of Mayer, Brown & Platt, tax
counsel to the Company, for federal income tax
purposes, the exchange of Old Notes for New
Notes pursuant to the Exchange Offer will not
result in any income, gain or loss to the
Holders or the Company. See "Certain Federal
Income Tax Considerations" for a discussion of
the material federal income tax consequences
expected to result from the Exchange Offer.
Use of Proceeds................ There will be no proceeds to the Company from
the exchange pursuant to the Exchange Offer.
Appraisal Rights............... Holders of Old Notes will not have dissenters'
rights or appraisal rights in connection with
the Exchange Offer.
Exchange Agent................. State Street Bank and Trust Company is serving
as Exchange Agent in connection with the
Exchange Offer.
7
<PAGE>
CONSEQUENCES OF NOT EXCHANGING THE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate
that it will register the Old Notes under the Securities Act. See "Risk
Factors--Consequences of Exchange and Failure to Exchange" and "The Exchange
Offer--Consequences of Exchanging Old Notes."
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except for certain transfer restrictions and registration rights
relating to the Old Notes and except that, if the Exchange Offer is not
consummated by February 14, 1998, subject to certain exceptions, with respect
to the first 90-day period immediately following thereafter, the Company will
be obligated to pay liquidated damages to each Holder of Old Notes in an amount
equal to $.05 per week for each $1,000 principal amount of Old Notes, as
applicable, held by such Holder ("Liquidated Damages"). The amount of the
Liquidated Damages will increase by an additional $.05 per week with respect to
each subsequent 90-day period until the Exchange Offer is consummated, or any
other Registration Default (as defined) is cured, up to a maximum of $.40 per
week for each $1,000 principal amount of Old Securities, as applicable.
The New Notes will accrete from the most recent date to which accretion has
been recognized on the Old Notes or, if no accretion has been recognized on the
Old Notes, from September 17, 1997. Accordingly, registered Holders of New
Notes on the relevant record date for the first interest payment date following
the consummation of the Exchange Offer will receive accretion from the most
recent date to which accretion has been recognized or, if no accretion has been
recognized, from September 17, 1997. Old Notes accepted for exchange will cease
to accrete from and after the date of consummation of the Exchange Offer.
Holders of Old Notes whose Old Notes are accepted will not receive any
accretion or payment in respect of interest on such Old Notes otherwise payable
on any interest payment or accretion date which occurs on or after the
consummation of the Exchange Offer.
THE NEW NOTES
Securities Offered............. $50 million initial Accreted Value of 11.375%
Series B Senior Discount Notes due 2009.
Maturity....................... September 15, 2009.
Accretion...................... The New Notes will accrete at a rate of
11.375%, compounded semi-annually to an
aggregate principal amount of $108,467,780 at
September 15, 2004.
Interest....................... The Old Notes were and the New Notes will be
issued at a substantial discount from their
principal amount at maturity, and there will
not be any cash payment of interest prior to
March 15, 2005. Commencing September 15, 2004,
interest on the Notes will accrue at the rate
of 11.375% per annum, payable semi-annually in
cash, on March 15 and September 15 of each
year, commencing March 15, 2005.
8
<PAGE>
Original Issue Discount........ For U.S. federal income tax purposes, the Old
Notes were and the New Notes will be treated
as having been issued with "original issue
discount" ("OID"). Thus, although interest
will not be payable on the Exchange Notes
prior to March 15, 2005, holders of Notes will
be required to include amounts in gross income
for federal income tax purposes in advance of
the receipt of cash payment to which the
income is attributable. See "Certain Federal
Income Tax Considerations."
Optional Redemption............ On or after March 15, 1998 and prior to
September 15, 2002, the Notes will be
redeemable at the option of Holdings, in whole
or in part, at any time in cash at 105.688% of
Accreted Value thereof (determined at the date
of redemption) only (i) in the event of a
Change in Control of Holdings or GFSI and/or
(ii) with the net proceeds of one or more
Equity Offerings of Holdings or GFSI. On or
after September 15, 2002, the Notes will be
redeemable at the option of Holdings, in whole
or in part, at any time in cash at the
redemption prices set forth herein, plus
accrued and unpaid interest and Liquidation
Damages, if any, thereon to the date of
redemption. See "Description of New Notes--
Redemption of Notes--Optional Redemption."
Ranking........................ The Old Notes were and the New Notes will be
general unsecured obligations of Holdings,
will rank pari passu in right of payment with
all existing and all future senior
indebtedness of Holdings and will rank senior
in right of payment with any Subordinated
Indebtedness (as defined) incurred by Holdings
in the future. As indebtedness of Holdings,
however, the Notes will be effectively
subordinated to all indebtedness of GFSI. As
of June 27, 1997, on a pro forma basis, after
giving effect to the Old Offering and the
Exchange, the Exchange Notes would have been
effectively subordinated to approximately
$193.0 million of indebtedness of GFSI. See
"Risk Factors--Holding Company Structure;
Effective Subordination." The Indenture will
permit Holdings and GFSI to incur additional
Indebtedness subject to certain limitations.
See "Description of Notes--Certain Covenants"
and "Description of Certain Indebtedness."
Change of Control.............. Upon the occurrence of a Change of Control,
each holder of Notes will have the right to
require Holdings to repurchase all or any part
of such holder's Notes at a price equal to
100% of the Accreted Value thereof on the date
of repurchase (if such date of repurchase is
prior to September 15, 2004) or 100% of the
aggregate principal amount thereof, plus
accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of
repurchase (if such date of repurchase is on
or after September 15, 2004). See "Description
of Notes--Mandatory Offers to Purchase Notes--
Change of Control" and "--Certain
Definitions." There can be no assurance that,
in the event of a
9
<PAGE>
Change of Control, Holdings would have
sufficient funds to repurchase all Notes
tendered. See "Risk Factors--Change of
Control."
Certain Covenants.............. The Indenture contains covenants that, among
other things, limit the ability of Holdings
and its Restricted Subsidiaries (as defined)
to: (i) pay dividends or make certain other
Restricted Payments (as defined); (ii) incur
additional Indebtedness; (iii) encumber or
sell assets; (iv) enter into certain
guarantees of Indebtedness; (v) enter into
transactions with affiliates; and (vi) merge
or consolidate with any other entity and to
transfer or lease all or substantially all of
their assets. In addition, under certain
circumstances, Holdings will be required to
offer to purchase Notes at a price equal to
100% of the Accreted Value or principal amount
thereof, as applicable, plus accrued and
unpaid interest and Liquidated Damages, if
any, to the date of purchase with the proceeds
of certain Asset Sales (as defined). See
"Description of Notes--Certain Covenants" and
"--Mandatory Offers to Purchase Notes--Asset
Sales."
For a more detailed description of the terms of the New Notes, see
"Description of Notes."
FOR A DISCUSSION OF CERTAIN MATTERS THAT SHOULD BE CONSIDERED BY HOLDERS OF
THE OLD NOTES, SEE "RISK FACTORS."
10
<PAGE>
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS)
Holdings is structured as a holding company whose only significant asset is
the capital stock of GFSI. The following table presents: (i) historical
operating and other data of the Company for fiscal 1993, 1994, 1995, 1996 and
1997; and (ii) pro forma data of the Company as of and for the year ended June
27, 1997. The historical financial statements for the Company for fiscal 1993,
1994 and 1995 have been audited by Donnelly Meiners Jordan Kline, and the
historical financial statements for fiscal 1996 and 1997 have been audited by
Deloitte & Touche LLP. The summary pro forma data does not purport to represent
what the Company's results of operations or financial position would have been
if the Transactions had been completed as of the date or for the periods
presented, nor does such data purport to represent the results of operations
for any future periods. The summary financial data set forth below should be
read in conjunction with "The Transactions," "Selected Historical Financial
Data," "Management's Discussion and Analysis of Results of Operations and
Financial Condition," the unaudited pro forma financial statements and the
historical financial statements of the Company and the related notes thereto
included elsewhere in this Prospectus.
Effective February 27, 1997, Winning Ways merged with and into GFSI, a new
entity with no previous operations, with GFSI as the surviving entity. The
statements of income data and other data presented below includes historical
information of Winning Ways through the merger date and the merged entity,
Holdings, subsequent thereto.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED,
----------------------------------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 27,
1993 1994 1995 1996 1997
-------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME
DATA:
Net sales.............. $121,131 $128,171 $148,196 $ 169,321 $ 183,298
Gross profit........... 50,936 53,724 63,327 72,013 80,691
Operating expenses..... 28,201 29,151 34,428 39,179 44,752
Operating income(1).... 22,735 24,573 28,899 32,834 35,939
OTHER DATA:
EBITDA(2).............. $ 24,733 $ 26,876 $ 31,759 $ 36,035 $ 39,114
Cash flows from
operating activities.. 20,985 24,431 23,905 34,000 26,029
Cash flows from
investing activities.. (2,163) (2,597) (4,255) (2,480) 3,643
Cash flows from
financing activities.. (19,130) (21,921) (19,669) (31,493) (28,695)
Depreciation and
amortization.......... 1,998 2,303 2,860 3,201 3,175
Capital expenditures... 2,304 2,856 4,989 2,611 2,615
EBITDA margin(3)....... 20.4% 21.0% 21.4% 21.3% 21.3%
Ratio of earnings to
fixed charges(4)...... 9.1x 10.0x 11.4x 12.6x 3.5x
PRO FORMA DATA(5):
Operating income(1).... $ 36,022
Income before
extraordinary item.... 6,664
Ratio of earnings to
fixed charges(4)...... 1.4x
<CAPTION>
AS OF JUNE 27, 1997
----------------------
PRO
ACTUAL FORMA
---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents........... $ 1,117 $ 1,147
Total assets........... 96,153 96,114
Long-term debt
(including current
portion) and
redeemable preferred
stock................. 246,080 246,080
Total stockholders'
equity (deficit)...... (174,215) (173,633)
</TABLE>
11
<PAGE>
- --------
(1) Operating income presented for the year ended June 27, 1997 does not
include the extraordinary loss related to the early extinguishment of debt
in the amount of $2,474 ($1,484 on an after-tax basis). See the audited
statements of income and the related notes thereto included elsewhere in
this prospectus.
(2) EBITDA represents operating income plus depreciation and amortization.
While EBITDA should not be construed as a substitute for operating income
or a better indicator of liquidity than cash flow from operating
activities, which are determined in accordance with generally accepted
accounting principles ("GAAP"), it is included herein to provide
additional information with respect to the ability of the Company to meet
its future debt service, capital expenditures and working capital
requirements. In addition, the Company believes that certain investors
find EBITDA to be a useful tool for measuring the ability of the Company
to service its debt. EBITDA is not necessarily a measure of the Company's
ability to fund its cash needs.
(3) EBITDA margin represents EBITDA as a percentage of net sales.
(4) In the computation of the ratio of earnings to fixed charges, earnings
consist of income before income taxes, plus fixed charges. Fixed charges
consist of interest expense on indebtedness, plus that portion of lease
rental expense representative of the interest factor. Adjustments to pro
forma fixed charges include the additional interest expense related to the
new indebtedness and a decrease in redeemable preferred stock dividends
incurred upon completion of the Transactions and the Old Offering. See
"The Transactions."
(5) See the unaudited pro forma financial statements and the related notes
thereto included elsewhere in this Prospectus.
12
<PAGE>
RISK FACTORS
Holders of the Old Notes should consider carefully the risk factors set
forth below as well as the other information set forth in this Prospectus
before tendering their Old Notes in the Exchange Offer. The risk factors set
forth below (other than "Consequences of Exchange and Failure to Exchange")
are generally applicable to the Old Notes as well as the New Notes. This
Prospectus contains certain forward-looking statements, including statements
containing the words "believes," "anticipates," "expects" and words of similar
import. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: adverse changes in national or local economic
conditions, increased competition, changes in availability, cost and terms of
financing, changes in operating expenses and other factors referenced in this
Prospectus, including, without limitation, under the captions "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
"Business." Given these uncertainties, prospective investors are cautioned not
to place undue reliance on such forward-looking statements. The Company
disclaims any obligation to update any such factors or to publicly announce
the results of any revisions to any of the forward-looking statements
contained in this Prospectus to reflect future events or developments.
CONSEQUENCES OF EXCHANGE AND FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon. In general,
the Old Notes may not be offered or sold, unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. The
Company does not currently anticipate that it will register the Old Notes
under the Securities Act. In addition, upon the consummation of the Exchange
Offer holders of Old Notes which remain outstanding will not be entitled to
any rights to have such Old Notes registered under the Securities Act or to
any rights under the Registration Rights Agreement. To the extent that Old
Notes are tendered and accepted in the Exchange Offer, a holder's ability to
sell untendered, or tendered but unaccepted, Old Notes could be adversely
affected. See "The Exchange Offer--Consequences of Not Exchanging Old Notes."
Based on interpretations by the staff of the Commission set forth in no-
action letters issued to third parties in other transactions substantially
similar to the Exchange Offer, the Company believes that the New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by a holder thereof (other than (i)
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act; (ii) an Initial Purchaser who acquired the Old Notes directly
from the Company solely in order to resell pursuant to Rule 144A of the
Securities Act or any other available exemption under the Securities Act; or
(iii) a broker-dealer who acquired the Old Notes as a result of market making
or other trading activities) without further compliance with the registration
and prospectus delivery requirements of the Securities Act, provided that such
New Notes are acquired in the ordinary course of such holder's business and
that such holder is not participating and has no arrangement or understanding
with any person to participate, in a distribution (within the meaning of the
Securities Act) of such New Notes. The Company has not, however, sought its
own no-action letter from the staff of the Commission. Although there has been
no indication of any change in the staff's position, there can be no assurance
that the staff of the Commission would make a similar determination with
respect to the resale of the New Notes. By tendering, each Holder which is not
a broker-dealer will represent to the Company that, among other things, the
person receiving the New Notes, whether or not such person is a Holder, (i)
will acquire the New Notes in the ordinary course of such person's business,
(ii) has no arrangement or understanding with any person to participate in a
distribution of the New Notes and (iii) is not engaged in and does not intend
to engage in a distribution of the New Notes. If any Holder or any such other
person has an arrangement or understanding with any person to participate in a
distribution of such New Notes, is engaged in or intends to engage in a
distribution of such New Notes, is an "affiliate," as defined under Rule 405
of the Securities Act, of the Company, or acquired the Old Notes as a result
of market making or other
13
<PAGE>
trading activities, then such Holder or any such other person (i) can not rely
on the applicable interpretations of the staff of the Commission and (ii) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction, unless such
sale is made pursuant to an exemption from such requirements. See "The
Exchange Offer--Purpose of the Exchange Offer."
HOLDING COMPANY STRUCTURE; EFFECTIVE SUBORDINATION
Holdings is a holding company and does not have any material operations or
assets other than ownership of capital stock of GFSI. Accordingly, the Notes
will be effectively subordinated to all existing and future liabilities of
GFSI, including indebtedness under the Credit Agreement and the GFSI Senior
Subordinated Notes. As of June 27, 1997, on a pro forma basis after giving
effect to the Old Offering and the Exchange Offer, the aggregate amount of
indebtedness of GFSI to which the holders of the Notes would be effectively
subordinated would have been approximately $193.0 million. Holdings and GFSI
may incur additional indebtedness in the future, subject to certain
limitations contained in the instruments governing their indebtedness.
Any right of Holdings to participate in any distribution of the assets of
GFSI upon liquidation, reorganization or insolvency of GFSI (and the
consequent right of the holders of the Notes to participate in distribution of
those assets) will be subject to the prior claims of GFSI's creditors. The
obligations of GFSI under the Credit Agreement are secured by substantially
all of its assets. See "Description of Certain Indebtedness--Credit
Agreement."
RANKING OF NOTES
The Notes will be senior unsecured obligations of Holdings and will rank
pari passu with all Senior Indebtedness of Holdings. In the event of the
insolvency, liquidation, reorganization, dissolution or other winding up of
Holdings, or upon the maturity of any Senior Indebtedness, whether by lapse of
time, acceleration or otherwise, the holders of Senior Indebtedness must be
paid in full in cash before any payment of principal or interest in respect of
the Notes. As a result, holders of Notes may recover ratably less than general
creditors of Holdings. The Notes will effectively rank junior to any secured
Indebtedness of Holdings and to Indebtedness and claims of creditors of
Holdings' subsidiaries, including Indebtedness incurred by GFSI under the
Credit Agreement. At June 27, 1997, the aggregate indebtedness of Holdings'
subsidiaries was approximately $193.0 million on a pro forma basis, after
giving effect to the Old Offering and the Exchange Offer. See "Description of
Notes--Ranking." The Indenture will permit Holdings and its subsidiaries to
incur additional Senior Indebtedness, subject to certain limitations. See
"Description of Certain Indebtedness and Other Obligations" and "Description
of Notes--Certain Covenants."
LIMITATION ON PAYMENT OF FUNDS TO HOLDINGS BY GFSI
Holdings' cash flow, and consequently its ability to pay dividends and debt
service, including its obligations under the Notes, is dependent on the cash
flow of GFSI and the payment of funds by GFSI to Holdings in the form of
loans, dividends or otherwise. GFSI has no obligation, contingent or
otherwise, to pay any amounts due pursuant to the Notes or to make any funds
available therefor. In addition, the Credit Agreement and the indenture
governing the GFSI Senior Subordinated Notes impose, and agreements entered in
the future may impose, significant restrictions on the payment of dividends
and the making of loans by GFSI to Holdings.
ORIGINAL ISSUE DISCOUNT; LIMITATIONS ON HOLDERS' CLAIMS
The Old Notes were and the New Notes will be issued at a substantial
original issue discount from their principal amount at maturity. Consequently,
holders of the New Notes will be required to include amounts in gross income
for federal income tax purposes in advance of receipt of the cash payments to
which the income is attributable. See "Certain Federal Income Tax
Considerations" for a more detailed discussion of the federal income tax
consequences to the holders of the New Notes resulting from the purchase,
ownership or disposition thereof.
14
<PAGE>
Under the Indenture, in the event of an acceleration of the maturity of the
New Notes, upon the occurrence of an Event of Default, the holders of the New
Notes may be entitled to recover only the amount that may be declared due and
payable pursuant to the Indentures, which may be less than the principal
amount at maturity of the New Notes.
If a bankruptcy case is commenced by or against Holdings under the United
States Bankruptcy Code, the claim of a holder of New Notes with respect to the
principal amount thereof may be limited to an amount equal to the sum of (i)
the consideration paid for the New Notes at the time of the Exchange Offer and
(ii) that portion of the OID (as determined on the basis of such issue price)
which is not deemed to constitute "unmatured interest" for purposes of the
United States Bankruptcy Code. Accordingly, holders of the New Notes under
such circumstances may, even if sufficient funds are available, receive a
lesser amount than they would be entitled to under the express terms of the
Indenture. In addition, there can be no assurance as to exactly how a
bankruptcy court would determine the amount of OID on the New Notes, assuming
such a court determines that the Exchange Offer created OID. Thus, there is no
assurance that a bankruptcy court would compute the accrual of interest under
the same rules as those used for the calculation of OID under federal income
tax law and, accordingly, a holder might be required to recognize a gain or
loss in the event of a distribution related to such a bankruptcy case.
LEVERAGE AND DEBT SERVICE
Holdings has substantial consolidated indebtedness and debt service
obligations. At June 27, 1997, Holdings' total indebtedness, including current
portion, would have been approximately $246.1 million (including redeemable
preferred stock) and its net capital deficiency would have been $173.6
million, in each case on a pro forma basis after giving effect to the Old
Offering and the Exchange Offer. In addition, subject to the restrictions
under the Credit Agreement and the indenture governing the GFSI Senior
Subordinated Notes, GFSI may incur additional indebtedness, from time to time,
and, subject to the restrictions under the Indenture, Holdings may incur
additional indebtedness from time to time. As a result of accounting for the
Transactions as a leveraged recapitalization under GAAP, total stockholders'
equity of Holdings changed from $38.7 million at December 31, 1996 to a
deficit of approximately $173.6 million as of June 27, 1997, on a pro forma
basis. See "The Transactions," "Capitalization" and "Description of Notes--
Limitation on Incurrence of Indebtedness."
The level of Holdings' indebtedness could have important consequences to
holders of the Notes including: (i) a substantial portion of GFSI's cash flow
from operations must be dedicated to debt service and will not be available
for other purposes; (ii) Holdings' ability to obtain additional debt financing
in the future for working capital, capital expenditures, acquisitions or
general corporate purposes may be limited; and (iii) Holdings' level of
indebtedness could limit its flexibility to react to changes in its operating
environment and economic conditions generally.
Holdings' ability to pay principal of and interest and Liquidated Damages,
if any, on the Notes and to satisfy its other debt obligations will depend
upon its future operating performance, which will be affected by prevailing
economic conditions and financial, business and other factors, certain of
which are beyond its control, as well as the availability of revolving credit
borrowings for GFSI under the Credit Agreement or a successor facility. If
Holdings is unable to service its indebtedness, it will be forced to take
actions such as reducing or delaying capital expenditures, selling assets,
restructuring or refinancing its indebtedness, or seeking additional equity
capital. There can be no assurance that any of these remedies can be effected
on satisfactory terms, if at all.
CONTROL BY PRINCIPAL STOCKHOLDERS AND CERTAIN TRANSACTIONS
The Company's executive officers and directors (and their respective
affiliates, including TJC) (collectively, the "Principal Stockholders") own a
majority of the issued and outstanding capital stock of Holdings. See
"Principal Stockholders." The Principal Stockholders, if voting together, have
sufficient voting power to elect the entire Board of Directors of the Company,
exercise control over the business, policies and affairs of the Company, and,
in general, determine the outcome of any corporate transaction or other
matters submitted to the
15
<PAGE>
stockholders for approval such as any amendment to the certificate of
incorporation of the Company (the "Certificate of Incorporation"), the
authorization of additional shares of capital stock, and any merger,
consolidation, sale of all or substantially all of the assets of the Company
and could prevent or cause a Change of Control of the Company, all of which
may adversely affect the Company and holders of the Notes. Messrs. Caputo,
Jordan and Zalaznick, all directors of the Company, are partners of TJC. In
addition, the Company will maintain affiliate transactions with certain
members of senior management, and the Company has entered into certain
affiliate transactions with TJC. See "Certain Transactions."
RESTRICTIVE COVENANTS
The Indenture restricts, among other things, Holdings' ability to pay
dividends or make certain other Restricted Payments, to incur additional
Indebtedness, to encumber or sell assets, to enter into transactions with
affiliates, to enter into certain guarantees of Indebtedness, to merge or
consolidate with any other entity and to transfer or lease all or
substantially all of its assets. See "Description of Notes--Certain
Covenants." In addition, the Credit Agreement contains other and more
restrictive covenants and prohibits GFSI from prepaying other indebtedness.
The indebtedness outstanding under the Credit Agreement is secured by liens
on substantially all of the personal property and certain real property of
GFSI. The Credit Agreement includes certain covenants that, among other
things, restrict: (i) the making of investments, loans and advances and the
paying of dividends and other restricted payments; (ii) the incurrence of
additional indebtedness; (iii) the granting of liens, other than liens created
pursuant to the Credit Agreement and certain permitted liens; (iv) mergers,
consolidations, and sales of all or a substantial part of GFSI's business or
property; (v) the sale of assets; (vi) the making of capital expenditures; and
(vii) operating lease rentals. The Credit Agreement also requires GFSI to
comply with certain financial ratios, including minimum interest coverage,
minimum fixed charge coverage and maximum leverage ratios. The ability of GFSI
to comply with these and other provisions of the Credit Agreement may be
affected by events beyond GFSI's control. The breach of any of these covenants
could result in a default under the Credit Agreement, in which case, depending
on the actions taken by the lenders thereunder or their successors or
assignees, such lenders could elect to declare all amounts borrowed under the
Credit Agreement, together with accrued interest, to be due and payable, and
GFSI would be prohibited from making payments to Holdings until the default is
cured or all of the GFSI indebtedness under the Credit Agreement is paid or
satisfied in full. If Holdings were unable to repay such borrowings, such
lenders could proceed against their collateral. If the indebtedness under the
Credit Agreement were to be accelerated, there can be no assurance that the
assets of the Company would be sufficient to repay in full such indebtedness
and the other indebtedness of the Company, including the Notes. See
"Description of Notes" and "Description of Certain Indebtedness--Credit
Agreement."
CHANGE OF CONTROL
In the event of a Change of Control, each holder of Notes will be entitled
to require Holdings to purchase any or all of the Notes held by such holder at
the price stated herein. See "Description of Notes--Mandatory Offers to
Purchase Notes--Change of Control" and "--Certain Definitions--Change of
Control." In the event that a Change of Control occurs, the Company would
likely be required to refinance the indebtedness outstanding under the Credit
Agreement, the GFSI Senior Subordinated Notes and the Notes. There can be no
assurance that the Company would be able to refinance such indebtedness or, if
such refinancing were to occur, that such refinancing would be on terms
favorable to the Company.
The holders of Notes have limited rights to require Holdings to purchase or
redeem the Notes in the event of a takeover, recapitalization or similar
restructuring, including an issuer recapitalization or similar transaction
with management. Consequently, the Change of Control provisions will not
afford any protection in a highly leveraged transaction, including such a
transaction initiated by the Company, management of the Company or an
affiliate of the Company, if such transaction does not result in a Change of
Control. Moreover, the ability of Holdings to repurchase or redeem the Notes
following a Change of Control will be limited by Holdings' then-
16
<PAGE>
available resources. Accordingly, the Change of Control provision is likely to
be of limited usefulness in such situations. The Change of Control provisions
may not be waived by the Board of Directors of Holdings or the Trustee (as
defined) without the consent of holders of at least a majority in principal
amount of the Notes. See "Description of Notes--Mandatory Offers to Purchase
Notes Change of Control." As a result, the Change of Control purchase feature
of the Notes may in certain circumstances discourage or make more difficult a
sale or takeover of Holdings and, thus, the removal of incumbent management.
ABSENCE OF PUBLIC MARKET FOR THE NOTES; RESTRICTIONS ON TRANSFERS
The New Notes are being offered to Holders of the Old Notes. The Old Notes
were issued on October 23, 1997 pursuant to the Old Exchange to a small number
of institutional investors and are eligible for trading in the Private
Offering, Resale and Trading through Automated Linkages (PORTAL) Market, the
National Association of Securities Dealers' screenbased, automated market for
trading of securities eligible for resale under Rule 144A. The New Notes are
new securities for which there currently is no market. Although the Initial
Purchasers have advised the Company that they currently intend to make a
market in the New Notes, they are not obligated to do so and may discontinue
such market making at any time without notice. The Company does not intend to
list the Notes on any national securities exchange or to seek the admission
thereof to trading in the National Association of Securities Dealers Automated
Quotation System. Accordingly, no assurance can be given that an active market
will develop for any of the Notes or as to the liquidity of the trading market
for any of the Notes. If a trading market does not develop or is not
maintained, holders of the Notes may experience difficulty in reselling such
Notes or may be unable to sell them at all. If a market for the Notes
develops, any such market may be discontinued at any time. If a trading market
develops for the Notes, future trading prices of such Notes will depend on
many factors, including, among other things, prevailing interest rates, the
Company's results of operations and the market for similar securities.
Depending on prevailing interest rates, the market for similar securities and
other factors, including the financial condition of the Company, the Notes may
trade at a discount from their principal amount.
FRAUDULENT TRANSFER CONSIDERATIONS
Under fraudulent transfer law, if a court were to find, in a lawsuit by an
unpaid creditor or representative of creditors of the Company, that the
Company received less than fair consideration or reasonable equivalent value
for incurring the indebtedness represented by the Notes, and, at the time of
such incurrence, the Company (i) was insolvent or was rendered insolvent by
reason of such incurrence; (ii) was engaged or about to engage in a business
or transaction for which its remaining property constituted unreasonably small
capital; or (iii) intended to incur, or believed it would incur, debts beyond
its ability to pay as such debts mature, such court could, among other things,
(a) void all or a portion of the Company's obligations to the holders of the
Notes and/or (b) subordinate the Company's obligations to the holders of the
Notes to other existing and future indebtedness of GFSI, the effect of which
would be to entitle such other creditors to be paid in full before any payment
could be made on the Notes. The measure of insolvency for purposes of
determining whether a transfer is avoidable as a fraudulent transfer varies
depending upon the law of the jurisdiction which is being applied. Generally,
however, a debtor would be considered insolvent if the sum of all of its
liabilities were greater than the value of all of its property at a fair
valuation, or if the present fair salable value of the debtor's assets were
less than the amount required to repay its probable liability on its debts as
they become absolute and mature. There can be no assurance as to what standard
a court would apply in order to determine solvency. To the extent that
proceeds from the sale of the Notes are used to repay Existing Indebtedness, a
court may find that the Company did not receive fair consideration or
reasonably equivalent value for the incurrence of the Indebtedness represented
thereby.
On the basis of its historical financial information, its recent operating
history as discussed in "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and other factors, the Company believes
that, after giving effect to the Old Offering and Exchange Offer, the Company
was and
17
<PAGE>
will be solvent, did and will have sufficient capital for the business in
which it is engaged and did not and will not have incurred debts beyond its
ability to pay such debts as they mature. There can be no assurance, however,
that a court would necessarily agree with these conclusions.
DEPENDENCE UPON LICENSING ARRANGEMENTS
The Company's business is dependent, in part, upon licensing agreements
pursuant to which the Company is granted the right to use certain names,
logos, emblems and other proprietary marks of licensors on the Company's
products. In fiscal 1997, the Company had 256 active licensing agreements with
licensors. Products manufactured and sold under the Company's licensing
agreements represented approximately 14% of the Company's total net sales in
fiscal 1997.
The length of the Company's license agreements vary, but typically are one
to three years. In addition, under the licensing agreements with certain
licensors such as MLB, the NBA and the NHL, the licensor may terminate the
agreement in the event of a change in control of the Company. To the extent
that the Company is unable to renew licenses scheduled to expire or to obtain
the consent of certain licensors to the change of control in connection with
the Acquisition, the loss of such licenses could have a material adverse
effect on the business, operating results, cash flows and financial condition
of the Company. See "Business--Licenses."
COMPETITION
The sportswear and activewear industry is highly competitive with respect to
price, product quality and speed and convenience of service. The Company's
ability to compete in each of its markets depends, in part, on its ability to
source quality blanks from suppliers and to recruit and maintain a high
quality sales force. There can be no assurance that the Company will be able
to maintain its current network of suppliers or its sales force or continue to
compete successfully with other competitors, some of which may have greater
resources, including financial resources, than the Company. To the extent that
any of the Company's competitors offer higher quality products, better service
or more attractive pricing, it could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Business--Sales Divisions" and "--Design, Manufacturing and Materials
Sourcing."
SEASONALITY
Historically, the Company's sales have been seasonal with higher sales
during the first half of its fiscal year (July to December) primarily due to
increased sales in the Company's College Bookstore division during this
period. In fiscal 1997, net sales of the Company during the first and second
half of the fiscal year were approximately 57% and 43%, respectively. As a
result, the Company is required to predict appropriate inventory levels for
the upcoming seasonal demand. To the extent that the Company under-orders
inventories, sales and profits could be lost. To the extent that the Company
over-orders inventories, the Company may be forced to sell the inventory at
reduced prices or to write off the excess inventory as obsolete which could
have a material adverse effect on the Company's business, results of
operations and financial condition. Any seasonality problems experienced by
the Company in the past did not have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Management's Discussion and Analysis of Results of Operation and Financial
Condition--Seasonality and Inflation" and "Description of Certain
Indebtedness--Credit Agreement."
FOREIGN SOURCING
In fiscal 1997, the Company sourced approximately 77% of its blanks through
its foreign suppliers located in Taiwan, Korea, Malaysia, Hong Kong,
Singapore, Indonesia, Pakistan, China, Honduras, Israel, Fiji and Sri Lanka.
The Company continually evaluates its sourcing options and strives to maintain
a concentration of no more than 20% sourced product from any one particular
foreign country. During fiscal 1997, approximately 70% of the foreign supplied
product was provided by Malaysia, Taiwan, Honduras and Korea, while
concentrations
18
<PAGE>
from the other named foreign countries made up the remaining 30%. These
foreign suppliers provide supplies to the Company through short term purchase
orders supported by letters of credit. The majority of these foreign suppliers
do not supply such services exclusively to the Company and there are no
contracts between any of the foreign suppliers and the Company. As a result,
the Company may be adversely affected by political instability resulting in
(i) the disruption of trade from foreign countries in which the Company's
suppliers are located; (ii) the imposition of additional regulations relating
to imports, duties, taxes and other charges on imports; (iii) decreases in the
value of the dollar against foreign currencies; or (iv) restrictions on the
transfer of funds. These and other factors could result in the interruption of
production by the Company's foreign suppliers or a delay in the receipt of the
products by the Company in the United States. There have been no material
problems encountered with these foreign suppliers in the past. The Company's
future performance may be subject to such factors, which are beyond the
Company's control, and there can be no assurance that such factors would not
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Design, Manufacturing and Materials
Sourcing."
DEPENDENCE ON KEY PERSONNEL
The Company believes that its success is largely dependent on the abilities
and experience of its senior management team. The loss of services of one or
more of these senior executives could adversely affect the Company's ability
to retain quality suppliers of blanks, maintain tight inventory controls and
effectively manage the overall operations of the Company, any of which could
adversely affect the financial performance of the Company. In addition, the
Company believes that its continued success depends upon its ongoing ability
to attract and retain qualified management and employees, particularly in its
sales and customer service areas. The loss of a key manager could also
adversely affect the financial performance of the Company. The Company does
not currently maintain key man life insurance for any key personnel. The
Company has entered into an employment agreement with Robert M. Wolff, the
Chairman of the Company. See "Business--Employees," "Management" and "Certain
Transactions--Wolff Employment Agreement."
ENVIRONMENTAL MATTERS
The Company's facilities are subject to a broad range of federal, state and
local environmental laws and requirements, including those governing
discharges to the air and water, the handling of disposal of solid and
hazardous substances and wastes and remediation of contamination associated
with the release of hazardous substances at the Company's facilities and
offsite disposal locations. The Company has made, and will continue to make,
expenditures to comply with such laws and requirements. The Company believes,
based upon information currently available to management, that it is currently
in compliance with all applicable environmental laws and requirements and that
the Company will not require material capital expenditures to maintain its
environmental compliance during fiscal 1998 or in the foreseeable future.
However, future events, such as changes in existing laws and regulations or
the discovery of contamination at the Company's facilities, may give rise to
additional compliance or remediation costs which could have a material adverse
effect on the Company's results of operations or financial condition.
Moreover, the nature of the Company's business exposes it to some risk of
claims with respect to environmental matters, and there can be no assurance
that material costs or liabilities will not be incurred in connection with any
such claims.
FACTORS AFFECTING OPERATIONS
The financial performance of the Company is dependent, in part, on the
overall health of the markets it serves. A future downturn in any one market
could reduce demand for, and prices of, customized sportswear and activewear
products, including those manufactured by the Company. As a result, a
significant downturn in any one market could have a material adverse effect on
the Company's business, results of operations and financial conditions.
The Company's College Bookstore division sells sportswear and activewear
primarily through on-campus bookstores, most of which also offer sportswear
and activewear products distributed by one or more of the Company's major
competitors. Historically, on-campus bookstores have been owned and operated
by the
19
<PAGE>
colleges and universities. During the last several years, however, an
increasing number of campus bookstores have been leased to companies engaged
in retail bookstore operations, primarily Barnes & Noble College Bookstores,
Inc., Follett Corporation and Nebraska Book Co. If any of these operators of
campus bookstores were to grant exclusive rights to one of the Company's
competitors, or if for any other reason the Company were unable to continue
selling its products through these college bookstore operators, the Company
would be forced to establish alternative distribution channels such as direct
marketing and off-campus bookstores, which could have a material adverse
effect on the operating results of the Company.
NEW MANAGEMENT INFORMATION SYSTEM
The Company is currently upgrading its existing management information
system ("MIS") with a new system designed to improve the overall efficiency of
the Company's operations and to enable management to more closely track the
financial performance of each of its sales and operating areas. Any difficulty
with the installation or initial operation of the new MIS could interfere with
the Company's inventory purchasing and control, sales or customer service,
which could adversely affect the Company's business, results of operations and
financial condition.
20
<PAGE>
THE TRANSACTIONS
Holdings and GFSI, a wholly-owned subsidiary of Holdings, were organized by
affiliates of TJC and management to acquire Winning Ways. Pursuant to the
Acquisition Agreement, Holdings and GFSI acquired all of the issued and
outstanding capital stock of Winning Ways on February 27, 1997, and Winning
Ways immediately thereafter merged with and into GFSI.
The aggregate purchase price for Winning Ways was $242.3 million, consisting
of $173.1 million in cash at closing, a post-closing payment at April 30, 1997
of $10.0 million and the repayment of $59.2 million of indebtedness of Winning
Ways, including a $2.4 million prepayment penalty. To finance the Acquisition,
including approximately $11.5 million of related fees and expenses: (i) the
Jordan Investors and Management Investors invested $52.2 million in Holdings
and Holdings contributed $51.4 million of this amount in cash to GFSI; (ii)
GFSI consummated the GFSI Offering; and (iii) GFSI entered into the Credit
Agreement providing for borrowings of up to $115.0 million. The Equity
Contribution is comprised of: (i) a contribution of $13.6 million from the
Jordan Investors to Holdings in exchange for preferred stock and approximately
50% of the common stock of Holdings; (ii) a contribution of $13.6 million from
the Management Investors to Holdings in exchange for Holdings Preferred Stock
and approximately 50% of the common stock of Holdings; and (iii) a contribution
of $25.0 million from a Jordan Investor to Holdings in exchange for the
Holdings Subordinated Notes. Approximately $0.8 million of the contribution
from the Management Investors was financed by loans from Holdings. Prior to the
closing of the Old Offering, the holders of Holdings Subordinated Notes and
preferred stock of Holdings exchanged those securities for the Subordinated
Discount Notes and Preferred Stock which constituted the Units.
GFSI's predecessor, Winning Ways, terminated its income tax reporting status
as an S-Corporation immediately prior to the closing of the Transactions on
February 27, 1997. Immediately prior to the closing, Winning Ways distributed
to its shareholders $20.6 million, representing the accumulated and
undistributed S-Corporation earnings of GFSI as of February 27, 1997. GFSI
recognized, with a post-closing adjustment, $1.0 million in net deferred income
tax liabilities upon the conversion from S-Corporation to C-Corporation status
for income tax reporting purposes. GFSI does not anticipate any future material
adverse tax liabilities arising from this distribution and conversion.
The following chart depicts the organizational structure and common equity
interest in Holdings and GFSI following consummation of the Transactions.
LOGO
21
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer.
CAPITALIZATION
(DOLLARS IN MILLIONS)
The following table sets forth the capitalization of Holdings as of June 27,
1997 and the pro forma capitalization of Holdings as of June 27, 1997, as
adjusted to reflect the Old Offering and the Exchange Offer. The table should
be read in conjunction with the financial statements of Holdings and related
notes thereto included elsewhere in the Prospectus. See "The Transactions,"
"Selected Financial Data," the unaudited pro forma financial statements of
Holdings and the historical financial statements of Holdings and the related
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 27,
1997
----------------
PRO
ACTUAL FORMA
------- -------
<S> <C> <C>
Cash and cash equivalents............................... $ 1.1 $ 1.1
======= =======
Long-term debt (excluding current maturities)
GFSI:
Credit Agreement.................................... $ 64.6 $ 64.6
9 5/8% Senior Subordinated Notes due 2007........... 125.0 125.0
------- -------
Total GFSI long-term debt......................... 189.6 189.6
Holdings:
Senior Discount Exchange Notes due 2009............. 0.0 50.0
Subordinated Discount Notes......................... 25.0 0.0
------- -------
Total Holdings long-term debt..................... 25.0 50.0
Total long-term debt.................................... 214.6 239.6
Redeemable preferred stock.............................. 28.1 3.1
Holdings' stockholders' equity (deficit)................ (174.2) (173.6)
------- -------
Total capitalization.................................... $ 68.5 $ 69.1
======= =======
</TABLE>
22
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The discussions set forth within may contain forward-looking comments based
on current expectations that involve a number of risks and uncertainties.
Actual results could differ materially from those projected or suggested in
the forward-looking comments. Factors that could cause the Company's actual
results in future periods to differ materially include, but are not limited
to, those which may be discussed herein, as well as those discussed or
identified from time to time in the Company's filings with the Commission.
Holdings is structured as a holding company whose only significant asset is
the capital stock of GFSI. The following table presents: (i) historical
operating and other data of the Company for fiscal 1993, 1994, 1995, 1996 and
1997; and (ii) balance sheet data as of June 30, 1993, 1994, 1995 and 1996,
and June 27, 1997. The historical financial statements for the Company for
fiscal 1993, 1994 and 1995 have been audited by Donnelly Meiners Jordan Kline,
and the historical financial statements for fiscal 1996 and 1997 have been
audited by Deloitte & Touche LLP. The selected financial data set forth below
should be read in conjunction with "The Transactions," "Management's
Discussion and Analysis of Results of Operations and Financial Condition," the
unaudited pro forma financial statements and the historical financial
statements of the Company and the related notes thereto included elsewhere in
this Prospectus.
Effective February 27, 1997, Winning Ways merged with and into GFSI, a new
entity with no previous operations, with GFSI as the surviving entity. The
statements of income data and other data presented below includes historical
information of Winning Ways through the merger date and the merged entity
Holdings subsequent thereto.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED,
-------------------------------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 27,
1993 1994 1995 1996 1997
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Net sales................. $121,131 $128,171 $148,196 $169,321 $ 183,298
Gross profit.............. 50,936 53,724 63,327 72,013 80,691
Operating expenses........ 28,201 29,151 34,428 39,179 44,752
Operating income(1)....... 22,735 24,573 28,899 32,834 35,939
Income before
extraordinary item....... 20,055 22,105 26,220 30,226 25,500
OTHER DATA(2):
EBITDA(3)................. $ 24,733 $ 26,876 $ 31,759 $ 36,035 $ 39,114
Cash flows from operating
activities............... 20,985 24,431 23,905 34,000 26,029
Cash flows from investing
activities............... (2,163) (2,597) (4,255) (2,480) 3,643
Cash flows from financing
activities............... (19,130) (21,921) (19,669) (31,493) (28,695)
Depreciation and
amortization............. 1,998 2,303 2,860 3,201 3,175
Capital expenditures...... 2,304 2,856 4,989 2,611 2,615
EBITDA margin(4).......... 20.4% 21.0% 21.4% 21.3% 21.3%
Ratio of earnings to fixed
charges(5)............... 9.1x 10.0x 11.4x 12.6x 3.5x
BALANCE SHEET DATA:
Cash and cash equivalents. $ 219 $ 132 $ 112 $ 140 $ 1,117
Total assets.............. 67,510 70,176 76,938 78,711 96,153
Long-term debt (including
current portion)
and redeemable preferred
stock.................... 19,157 27,242 24,915 22,276 246,080
Total stockholders' equity
(deficit)................ 27,502 29,429 32,106 34,479 (174,215)
</TABLE>
23
<PAGE>
- --------
(1) Operating income presented for the year ended June 27, 1997 does not
include the extraordinary loss related to the early extinguishment of debt
in the amount of $2,474 ($1,484 on an after-tax basis). See the audited
statements of income and the related notes thereto included elsewhere in
this prospectus.
(2) Distributions per share totaled $16.91, $16.70, $19.82 and $23.37 for the
years ended June 30, 1993, 1994, 1995 and 1996 respectively. Distributions
per share in fiscal 1997 are not comparable nor meaningful due to the
leveraged recapitalization transactions and the conversion to a C-
corporation from an S-corporation for income tax reporting purposes which
occurred during fiscal 1997. See "The Transactions."
(3) EBITDA represents operating income plus depreciation and amortization.
While EBITDA should not be construed as a substitute for operating income
or a better indicator of liquidity than cash flow from operating
activities, which are determined in accordance with GAAP, it is included
herein to provide additional information with respect to the ability of the
Company to meet its future debt service, capital expenditures and working
capital requirements. In addition, the Company believes that certain
investors find EBITDA to be a useful tool for measuring the ability of the
Company to service its debt. EBITDA is not necessarily a measure of the
Company's ability to fund its cash needs.
(4) EBITDA margin represents EBITDA as a percentage of net sales.
(5) The ratio of earnings to fixed charges computed on a pro forma basis would
have been 1.4x for the fiscal year ended June 27, 1997. In the computation
of the ratio of earnings to fixed charges, earnings consist of income
before income taxes, plus fixed charges. Fixed charges consist of interest
expense on indebtedness, plus that portion of lease rental expense
representative of the interest factor. Adjustments to pro forma fixed
charges include the additional interest expense related to the new
indebtedness and a decrease in redeemable preferred stock dividends
incurred upon completion of the Transactions and the Old Offering. See "The
Transactions."
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
The Company is a leading designer, manufacturer and marketer of high quality,
custom designed sportswear and activewear bearing names, logos and insignia of
resorts, corporations, colleges and professional sports teams and events. The
Company, which was founded in 1974, custom designs and decorates an extensive
line of high-end outerwear, fleecewear, polo shirts, T-shirts, woven shirts,
sweaters, shorts, headwear and sports luggage. The Company markets its products
to over 13,000 active customer accounts through its well-established and
diversified distribution channels, rather than through the price sensitive mass
merchandise, discount and department store distribution channels.
The Company markets its products primarily through four separate divisions,
each of which serves distinct distribution channels and utilizes a sales force
with a specialized knowledge of its particular markets and customers. The
Company's four divisions include: (i) the Resort division (36.5% of fiscal 1997
net sales); (ii) the Corporate division (30.6% of fiscal 1997 net sales); (iii)
the College Bookstore division (20.8% of fiscal 1997 net sales); and (iv) the
Sports Specialty division (5.8% of fiscal 1997 net sales). The Company believes
that it has been able to compete successfully because of its ability to create
diverse and innovative designs, provide excellent customer service, leverage
its GEAR brand name and differentiate its products on the basis of quality.
EBITDA represents operating income plus depreciation and amortization. While
EBITDA should not be construed as a substitute for operating income or a better
indicator of liquidity than cash flow from operating activities, which are
determined in accordance with GAAP, it is included herein to provide additional
information with respect to the ability of the Company to meet its future debt
service, capital expenditure and working capital requirements. In addition, the
Company believes that certain investors find EBITDA to be a useful tool for
measuring the ability of the Company to service its debt. EBITDA is not
necessarily a measure of the Company's ability to fund its cash needs.
SALES DIVISIONS
The Company markets its products, which include custom designed fleecewear,
jackets, polo shirts, T-shirts, woven shirts, sweaters, shorts, headwear and
sports luggage, through four sales divisions (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL 1997
NET SALES
--------------
NET % OF
DIVISION CUSTOMERS SALES TOTAL
-------- --------- ----- -----
<C> <S> <C> <C>
Resort Destination resorts, family entertainment
companies, hotel chains, golf clubs, cruise
lines, and casinos $ 66,906 36.5%
Corporate Large and small companies serving a variety of
industries 56,179 30.6
College Bookstore Major colleges and universities as well as
college bookstore lease operators 38,053 20.8
Sports Specialty Sports specialty stores and catalogues, stadium
stores, and professional sports teams and their
staffs 10,678 5.8
Other Various institutions, organizations and
individuals 11,482 6.3
-------- -----
$183,298 100.0%
======== =====
</TABLE>
25
<PAGE>
The following sets forth the amount and percentage of net sales for each of
the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------
JUNE 30, JUNE 30, JUNE 27,
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Resort............................. $ 60,047 40.5% $ 67,739 40.0% $ 66,906 36.5%
Corporate.......................... 38,316 25.9% 47,167 27.9% 56,179 30.6%
Bookstore.......................... 37,823 25.5% 37,733 22.3% 38,053 20.8%
Sports Specialty................... 3,154 2.1% 6,342 3.7% 10,678 5.8%
Other.............................. 8,856 6.0% 10,340 6.1% 11,482 6.3%
-------- -------- --------
Total.............................. $148,196 $169,321 $183,298
======== ======== ========
</TABLE>
RESULTS OF OPERATIONS
The following table sets forth certain historical financial information of
the Company, expressed as a percentage of net sales, for fiscal 1995, 1996 and
1997:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------
JUNE 30, JUNE 30, JUNE 27,
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales...................................... 100.0% 100.0% 100.0%
Gross profit................................... 42.7 42.5 44.0
EBITDA......................................... 21.4 21.3 21.3
Operating income............................... 19.5 19.4 19.6
</TABLE>
Fiscal Year Ended June 27, 1997 Compared to Fiscal Year Ended June 30, 1996
Net Sales. Net sales for fiscal 1997 increased 8.3% to $183.3 million from
$169.3 million in fiscal 1996. The increase in net sales primarily reflects
increases in net sales at the Company's Corporate and Sports Specialty
divisions of 19.1% and 68.4%, respectively, and was partially offset by a
slight decrease in net sales at the Resort division. These increases were
driven primarily by volume increases due to continued account expansion and the
introduction of new product lines through each distribution channel.
Gross Profits. Gross profit for fiscal 1997 increased 12.1% to $80.7 million
from $72.0 million in fiscal 1996, primarily as a result of the net sales
increase described above. Gross profit as a percentage of net sales increased
to 44.0% in fiscal 1997, from 42.5% in fiscal 1996. The increase in margin
reflects a decrease in the cost of materials sold, as a percentage of net
sales, from 50.0% in fiscal 1996 to 48.4% in fiscal 1997. These changes were
driven primarily by growth in the Corporate division, which focuses on higher
margin, production intensive embroidered products.
Operating Expenses. Operating expenses for fiscal 1997 increased 14.3% to
$44.8 million from $39.2 million in fiscal 1996 due primarily to increased
sales and staffing levels. Operating expenses as a percentage of net sales
increased to 24.4% for fiscal 1997, from 23.1% in fiscal 1996. The increase in
operating expenses, as a percentage of net sales, is primarily due to an
increase in non-recurring MIS consulting charges associated with the
installation of the Company's new MIS system which increased from $625,000 in
fiscal 1996 to $2.2 million in fiscal 1997.
EBITDA. EBITDA for fiscal 1997 increased 8.6% to $39.1 million from $36.0
million in fiscal 1996, primarily as a result of the net sales and related
gross profit increase described above. EBITDA as a percentage of net sales
remained consistent at 21.3% in fiscal 1997 and 21.3% in fiscal 1996. The
consistent margin level reflects the change in gross profit described above
offset by an increase in selling and general and administrative expenses.
26
<PAGE>
Operating Income. Operating income for fiscal 1997 increased 9.5% to $35.9
million from $32.8 million in fiscal 1996, primarily as a result of the net
sales increase described above. Operating income as a percentage of net sales
increased to 19.6% in fiscal 1997, from 19.4% in fiscal 1996. This increase in
operating income reflects the change in EBITDA described above.
Other Income (Expense). Other expense for fiscal 1997 increased 246.2% to
$9.0 million from $2.6 million in fiscal 1996, primarily as a result of
increased interest expense associated with the Company's recapitalization and
subsequent issuance of $125 million Senior Subordinated Notes, borrowings of
$68.0 million under the Credit Agreement and the issuance of the $25 million of
subordinated notes. The effect of derivative financial instruments serve to
minimize unplanned changes in interest expense due to changes in interest
rates. Interest rate fluctuations and their effect were immaterial for the
periods presented. A reasonable likely change in the underlying rate, price or
index would not have a material impact on the financial position of the
Company.
Income Taxes. An income tax provision of $1.4 million was recorded for fiscal
1997 due to the Company's change in tax status from an S-Corporation to a C-
Corporation for income tax reporting purposes which was effective February 27,
1997. The Company earnings subsequent to February 27, 1997 are subject to
corporate income taxes. The effect of the change in income tax reporting status
from an S-Corporation to a C-Corporation was approximately $1.0 million and an
additional $400,000 of the income tax provision was related to operations,
subsequent to the change in tax status.
Extraordinary Item. The Company recognized an extraordinary loss for fiscal
1997 of $2.5 million ($1.5 million on after-tax basis) which consisted of a
penalty incurred in the prepayment of the Company's mortgage and a write-off of
previously capitalized deferred financing costs.
Net Income. Net income for fiscal 1997 was $24.0 million compared to $30.2
million in fiscal 1996. The decrease in net income is primarily the result of
interest expense, income taxes, and the extraordinary item, as mentioned above.
Fiscal Year Ended June 30, 1996 Compared to Fiscal Year Ended June 30, 1995
Net Sales. Net sales for fiscal 1996 increased 14.2% to $169.3 million from
$148.2 million in fiscal 1995. The increase in net sales primarily reflects
sales increases in the Resort, Corporate and Sports Specialty divisions of
12.8%, 23.1% and 101.1%, respectively, and was offset in part by a slight
decrease in net sales in the College Bookstore division. These increases were
primarily driven by unit volume increases resulting from account expansion,
further penetration of existing accounts and certain new product introductions.
Gross Profit. Gross profit for fiscal 1996 increased 13.7% to $72.0 million
from $63.3 million in fiscal 1995 primarily as a result of the net sales
increase described above. Gross profit as a percentage of net sales decreased
slightly to 42.5% in fiscal 1996 from 42.7% in fiscal 1995. This moderate
decline in margin reflects slight increases in the cost of materials sold, as a
percentage of net sales, from 49.9% in fiscal 1995 to 50.0% in fiscal 1996 and
the cost of production, as a percentage of net sales, from 7.4% in fiscal 1995
to 7.5% in fiscal 1996. These slight changes reflect a relatively consistent
product mix from fiscal 1995 to fiscal 1996.
Operating Expenses. Operating expenses for fiscal 1996 increased 14.0% to
$39.2 million from $34.4 million in fiscal 1995. Since certain of these costs
are fixed in nature, operating expenses as percentage of net sales decreased to
23.1% for fiscal 1996, from 23.2% for fiscal 1995.
EBITDA. EBITDA for fiscal 1996 increased 13.2% to $36.0 million from $31.8
million in fiscal 1995 primarily as a result of the net sales increase
described above. EBITDA as a percentage of net sales decreased slightly to
21.3% in fiscal 1996 from 21.4% in fiscal 1995. This moderate decline in margin
reflects the change in gross profit described above and increased operating
expenses, which included $625,000 of non-recurring MIS consulting charges
associated with the installation of the Company's new MIS system.
27
<PAGE>
Operating Income. Operating income for fiscal 1996 increased 13.5% to $32.8
million from $28.9 million in fiscal 1995 primarily as a result of the net
sales increase described above. Operating income as a percentage of net sales
decreased slightly to 19.4% in fiscal 1996 from 19.5% in fiscal 1995. This
moderate decline in margin reflects the change in EBITDA described above.
Other Income (Expense). Other expense for fiscal 1996 decreased 3.7% to $2.6
million from $2.7 million in fiscal 1995. The decrease in expense reflects a
4% increase in interest expense from $2.5 million in fiscal 1995 to $2.6
million in fiscal 1996 offset by gains on disposals of fixed assets in fiscal
1996 as opposed to losses on disposals of fixed assets in fiscal 1995. The
effect of derivative financial instruments serve to minimize savings in
interest rates on floating rate debt. Interest rate fluctuations and their
effect were immaterial for the periods presented. A reasonable likely change
in the underlying rate, price or index would not have a material impact on the
financial position of the Company.
Income Taxes. Due to the Company's tax status during the period as an S-
Corporation under provisions of the Internal Revenue Code, no corporate income
taxes were recorded as the shareholders were taxed individually on the
Company's taxable income.
Net Income. Net income for fiscal 1996 increased 15.3% to $30.2 million from
$26.2 million in fiscal 1995, primarily as a result of the increase in net
operating results described above.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities in fiscal 1997, 1996 and 1995 was
$26.0 million, $34.0 million and $23.9 million, respectively. Changes in
working capital resulted in cash sources (uses) of $(3.2) million, $0.9
million and $(4.8) million in fiscal 1997, 1996 and 1995, respectively. The
decrease in cash provided by operating activities in fiscal 1997 from fiscal
1996 resulted from a decrease in net income, as previously discussed, in
addition to increased inventory levels. The increase in cash provided by
operating activities in fiscal 1996 from fiscal 1995 resulted from increases
in net income and accounts payable and accrued expenses, coupled with a
decrease in inventories which were offset by an increase in accounts
receivables.
Cash provided by investing activities for fiscal 1997 was $3.6 million
compared to cash used of $2.5 million and $4.3 million for fiscal 1996 and
1995, respectively. The decrease in cash used was a result of cash value of
life insurance policy proceeds received of $5.3 million, in addition to
proceeds from the sale of the corporate aircraft to a shareholder of the
Company for its fair value of approximately $900,000. Capital expenditures in
fiscal 1995 were $5.0 million and related to the $1.6 million purchase of a
corporate aircraft from a non-affiliate of the Company. These expenditures
were therefore in excess of the Company's normal capital expenditure
requirements.
Cash used in financing activities for fiscal 1997 was $28.7 million compared
to cash used of $31.5 million and $19.7 million for fiscal 1996 and fiscal
1995, respectively. The cash used in financing activities for fiscal 1997
resulted from the cash used to complete the recapitalization transactions as
previously described net of new borrowings under the Credit Agreement, the
Senior Subordinated Notes and the Subordinated Notes. Cash used in financing
activities in fiscal 1996 and 1995 was primarily used to make Subchapter S
distributions to the Company's stockholders and scheduled loan principal
payments.
The Company believes that cash flow from operating activities and borrowings
under the Credit Agreement will be adequate to meet the Company's short-term
and long-term liquidity requirements prior to the maturity of its credit
facilities in 2007, although no assurance can be given in this regard. The
Company has no material capital commitments over the next twelve months. Under
the Credit Agreement, the revolver provides $50 million of revolving credit
availability (the "Revolver") (of which $3.0 million was borrowed as of June
27, 1997 and approximately $29.8 million was utilized for outstanding
commercial and stand-by letters of credit).
28
<PAGE>
As part of the Company's upgrade of its MIS, the Company believes that its
new MIS will adequately address any concerns related to the year 2000 issue,
without any additional expenditures. See "Risk Factors-- New Management
Information System."
GFSI anticipates paying dividends to Holdings to enable Holdings to pay
corporate income taxes, interest on the Exchange Notes, fees payable under the
TJC Agreement (as defined herein) and certain other ordinary course expenses
incurred on behalf of GFSI. Holdings is dependent upon the cash flows of GFSI
to provide funds to service the indebtedness represented by the Exchange Notes
and will be dependent on the cash flows of GFSI to service the Exchange Notes.
The Company monitors market risk with respect to the derivative instruments
entered into by the Company, including the value of such instruments, by
regularly consulting with its senior financial managers. The Company enters
into such agreements for hedging purposes and not with a view toward
speculating in the underlying instruments. Accordingly, any reasonably likely
change in the level of the underlying rate, price or index would not be likely
to have either a favorable or adverse impact on the Company's business,
operations or financial condition, including with respect to interest expense.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," was implemented on July 1, 1996. The adoption of this statement
did not have a material impact on the Company's financial position or results
of operations.
SFAS No. 128, "Earnings per Share," was issued in February 1997. This
Statement establishes standards for computing and presenting earnings per
share by replacing the presentation of primary earnings per share with a
presentation of basic earnings per share. This Statement is effective for the
Company's fiscal 1998 financial statements, including interim periods; earlier
application is not permitted. The Company does not expect the implementation
of this Statement to have a material impact on the Company's financial
statements.
SFAS No. 130, "Reporting Comprehensive Income," was issued in June 1997.
This Statement established standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general-purpose financial statements. This Statement
is effective for the Company's fiscal 1998 financial statements. The Company
does not expect the implementation of this Statement to have a material impact
on its financial position or results of operations.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was issued in June 1997. This Statement establishes standards
for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. This Statement is effective for the Company's fiscal 1998 financial
statements. The Company does not expect the implementation of the disclosure
requirements of this Statement to have a material impact on the Company's
financial statements.
SEASONALITY AND INFLATION
The Company experiences seasonal fluctuations in its sales and
profitability, with generally higher sales and gross profit in the first and
second quarters of its fiscal year. In fiscal 1997, net sales of the Company
during the first half and second half of the fiscal year were approximately
57% and 43%, respectively. The seasonality of sales and profitability is
primarily due to higher volume at the College Bookstore division during the
first two fiscal quarters. Sales and profitability at the Company's Resorts,
Corporate and Sports Specialty divisions typically show no significant
seasonal variations. As the Company continues to expand into other markets in
its Resorts, Corporate and Sports Specialty divisions, seasonal fluctuations
in sales and profitability are expected to decline.
The impact of inflation on the Company's operations has not been significant
to date. However, there can be no assurance that a high rate of inflation in
the future would not have an adverse effect on the Company's operating
results.
29
<PAGE>
BUSINESS
Holdings and GFSI, a wholly owned subsidiary of Holdings, were organized by
affiliates of TJC and management to effect the acquisition of Winning Ways.
Holdings current operations are conducted exclusively through GFSI and
Holdings' only significant asset is the capital stock of GFSI. The following
is a description of the business of GFSI.
The Company, which operates primarily under the brand name GEAR For
Sports(R), is a leading designer, manufacturer and marketer of high quality,
custom designed sportswear and activewear bearing names, logos and insignia of
resorts, corporations, colleges and professional sports teams and events. The
Company, which was founded in 1974, custom designs and decorates an extensive
line of high-end outerwear, fleecewear, polo shirts, T-shirts, woven shirts,
sweaters, shorts, headwear and sports luggage. The Company markets its
products to over 13,000 active customer accounts through its well-established
and diversified distribution channels, rather than through the price sensitive
mass merchandise, discount and department store distribution channels. The
Company believes that it has been able to compete successfully because of its
ability to create diverse and innovative designs, provide excellent customer
service, leverage its GEAR brand name and differentiate its products on the
basis of quality. For fiscal 1997, the Company generated net sales and EBITDA
of $183.3 million and $39.1 million, respectively.
The Company believes it has achieved a record of strong sales and EBITDA
growth and stable operating margins primarily due to its: (i) leading
positions in niche markets; (ii) diversified and stable customer base; (iii)
superior product quality and customer service; (iv) broad product portfolio;
(v) value-added design and manufacturing capabilities; and (vi) innovative
management. The Company expects to continue to grow by leveraging the strength
of the GEAR brand name to expand its product lines and access underpenetrated
segments of its markets. The Company believes that it is less vulnerable to
earnings fluctuations than typical apparel manufacturers and marketers
because: (i) the Company designs and custom manufactures basic, classic
products with low fashion risk; (ii) consumer demand for sportswear and
activewear continues to increase; and (iii) the Company's products are
customized based on firm customer orders, minimizing its risk of excess
inventory.
The Company markets its products primarily through four separate divisions,
each of which serves distinct distribution channels and utilizes a sales force
with a specialized knowledge of its particular markets and customers. The
Company's network of approximately 140 independent sales representatives and
over 70 in-house artists and graphic designers work directly with the
Company's customers to create innovative sportswear and activewear products to
meet customer specifications.
BUSINESS STRATEGY
The Company's objective is to continue to increase sales, EBITDA and
operating margins, and is based upon the following strategic elements:
. Superior Product Quality and Customer Service. Each of the Company's
divisions focuses on high-end, customized sportswear, activewear and
related products. The Company's products uniquely address each account's
specific requirements, while providing the end-user with a high quality
product. The Company's ability to maintain consistency in product quality
and customer service, regardless of order size, enables it to effectively
service a broad range of customers. With over 70 in-house artists and
graphic designers and state-of-the art manufacturing and distribution
facilities, the Company believes that it provides products and service
that are superior to those of its competitors in each of its markets.
. Leading Position in Multiple Niche Markets. The Company has a leading
position in the resort, corporate and college bookstore markets. The
Company's superior service and product customization enable it to more
effectively serve the particular needs of these customers. As a result,
the Company believes that: (i) it is one of the few national competitors
in the highly fragmented resort and leisure market; (ii) it has a leading
share of the corporate identity market, where it competes primarily with
smaller local and regional companies as well as a few national
competitors; and (iii) it has the second largest share of the college
bookstore market.
30
<PAGE>
. Leveraging the GEAR for Sports(R) Brand Name. The Company leverages its
GEAR brand name by introducing new products through its established
distribution channels. For example, the Company recently introduced new
headwear, sports luggage and Baby GEAR product lines. The Company
believes that the GEAR brand name is widely recognized by customers and
end-users in each of its markets and enjoys a reputation for high quality
products. The Company intends to continue to leverage this brand name
recognition through its existing distribution channels as well as through
alternative distribution channels and markets.
. Efficient Operations. The Company uses its state-of-the-art facilities to
design, embroider and screenprint a significant portion of its products.
In addition, the Company uses independent contractors to manufacture its
blanks and, where appropriate, to provide other value-added manufacturing
services in order to maximize sourcing flexibility while minimizing
overhead costs and fixed charges. Only one of these independent
contractors supplies such services exclusively to the Company. The
Company does not have a contract with this independent contractor. The
Company minimizes the risk of excess inventory by designing and
manufacturing its products against firm customers orders.
. Experienced Management Team with Significant Equity Ownership. The
Company's management team has extensive experience in the sportswear and
activewear business. The top five senior executives have each been with
the Company for at least 13 years and have combined industry experience
of over 115 years. Approximately 20 members of the senior management team
own an aggregate of 50% of the capital stock of Holdings. The management
team will have significant incentive to continue to increase the
Company's sales and EBITDA as a result of their substantial equity
ownership and performance based incentive compensation programs.
SALES DIVISIONS
The Company markets its products, which include custom designed fleecewear,
jackets, polo shirts, T-shirts, woven shirts, sweaters, shorts, headwear and
sports luggage, through four sales divisions (dollars in millions):
<TABLE>
<CAPTION>
FISCAL 1997 NET
SALES
--------------------
DIVISION CUSTOMERS NET SALES % OF TOTAL
-------- --------- --------- ----------
<C> <S> <C> <C>
Resort Destination resorts, family $ 66.9 36.5%
entertainment companies, hotel
chains, golf clubs, cruise lines, and
casinos
Corporate Large and small companies serving a 56.2 30.6
variety of industries
College Bookstore Major colleges and universities as 38.0 20.8
well as college bookstore lease
operators
Sports Specialty Sports specialty stores and 10.7 5.8
catalogues, stadium stores, and
professional sports teams and their
staffs
Other Various institutions, organizations 11.5 6.3
and individuals
------ -----
$183.3 100.0%
====== =====
</TABLE>
The following sets forth the amount and percentage of net sales for each of
the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED,
--------------------------------------------
JUNE 30, 1995 JUNE 30, 1996 JUNE 27, 1997
-------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Resort............................. $ 60,047 40.5% $ 67,739 40.0% $ 66,906 36.5%
Corporate.......................... 38,316 25.9% 47,167 27.9% 56,179 30.6%
Bookstore.......................... 37,823 25.5% 37,733 22.3% 38,053 20.8%
Sports Specialty................... 3,154 2.1% 6,342 3.7% 10,678 5.8%
Other.............................. 8,856 6.0% 10,340 6.1% 11,482 6.3%
-------- -------- --------
Total.............................. $148,196 $169,321 $183,298
======== ======== ========
</TABLE>
31
<PAGE>
The Company believes that it enjoys distinct competitive advantages in each
of its sales divisions because of its ability to quickly deliver high quality,
customized products and provide excellent customer service. The Company
operates state-of-the-art design, embroidery and screenprint manufacturing and
distribution facilities which management believes have set the standard in the
sportswear and activewear industry for product quality and response time to
orders and re-orders. Most orders for new product designs can be filled in
four weeks and re-orders rarely take longer than two weeks. This allows the
Company's retail customers to carry less inventory, increase merchandise
turnover and reduce the risk of obsolete merchandise.
Resort Division. The Resort division is a leading marketer of custom logoed
sportswear and activewear to over 6,100 active customer accounts, including
destination resorts, family entertainment companies, hotel chains, golf clubs,
cruise lines, casinos and United States military bases. The division's
customers include widely recognized names such as The Walt Disney Company,
Universal Studios, The Ritz Carlton, Pebble Beach, Princess Cruise Lines and
The Mirage.
The Resort division, with fiscal 1997 net sales of $66.9 million, accounted
for 36.5% of total net sales. The Resort division's net sales have grown from
$50.2 million in fiscal 1994 to $66.9 million in fiscal 1997. The division's
net sales have remained relatively constant as a percentage of total net
sales, decreasing slightly from 38.9% in fiscal 1994 to 36.5% in fiscal 1997.
The Company distributes its Resort division products through its national
sales force of approximately 70 independent sales agents, of which
approximately 5% represent the Company on an exclusive basis. There are no
contracts with any of the independent sales agents who represent the Company
on an exclusive basis. The Company believes that it is well known and
respected in the resort and leisure industry because of its quick turnaround
for new orders and re-orders along with its product innovation and quality and
high level of service.
The Company believes that future growth in its Resort division will come
from increased penetration of the golf, military, hotel and gaming segments of
the industry, and through new product introductions such as headwear, sports
luggage and Baby GEAR products for infants and toddlers.
Corporate Division. The Corporate division is a leading marketer of
corporate identity sportswear and activewear for use by a diverse group of
corporations in incentive and promotional programs as well as for office
casual wear and uniforms. The division services over 3,500 active customer
accounts, including Toyota, Hershey, Dr Pepper/7Up, Anheuser-Busch, MCI and
Exxon. In addition, the Company recently formed Tandem Marketing, which
develops and administers corporate fulfillment programs on behalf of its major
corporate customers. The Company's corporate fulfillment programs involve
providing its customers with a complete line of branded merchandise which is
marketed to the customer's clients and employees. For example, Toyota may
engage the Company to provide embroidered leisurewear which is then sold or
otherwise provided to Toyota's customers and prospective customers.
The Corporate division, with fiscal 1997 net sales of $56.2 million,
accounted for 30.6% of total net sales. The Corporate division's net sales
have grown from $30.2 million in fiscal 1994 to $56.2 million in fiscal 1997.
The division's net sales as a percentage of total net sales have increased
from 23.4% in fiscal 1994 to 30.6% in fiscal 1997, primarily as a result of
the increased penetration of the underserved corporate identity market and
increased sales by Tandem Marketing.
The Company believes that it has an advantage over its competitors because
it is one of the few brand name suppliers of sportswear and activewear focused
on the corporate market. The Corporate division markets its products to
various segments within the corporate market. Products are sold by the
Company's national sales force of over 50 independent sales agents, of which
approximately 10% represent the Company on an exclusive basis, directly to
corporate customers in connection with corporate incentive programs, employee
pride and recognition initiatives, corporate meetings and outings, company
retail stores and catalogue programs and dealer incentive programs. There are
no contracts with any of the independent sales agents who represent the
Company on an exclusive basis. Approximately 85% of the division's sales are
directly to corporations and the remaining 15% are to jobbers, who then resell
the Company's products to corporations. Jobbers are people who buy goods in
quantity from manufacturers and sell them directly to dealers.
32
<PAGE>
The Company, through Tandem Marketing, leverages its existing corporate
customer base to market a full line of products, including articles of
merchandise imprinted or otherwise customized with the corporation's name,
logo or message. These products include sportswear and activewear designed and
manufactured by the Company, as well as other premium merchandise such as
glassware and stationary items. Currently, Tandem Marketing has active
catalogue programs with Lexus, Visa, Pirelli Tire, State Farm, Principal
Financial and Shelter Insurance. In fiscal 1997, Tandem Marketing accounted
for approximately $4.9 million, or 8.7%, of the Corporate division's net
sales, of which approximately 68% were derived from products designed and
manufactured by the Company.
The Company believes that significant opportunity for future growth exists
within the Corporate division through: (i) further penetration of its existing
corporate customers; (ii) targeting the thousands of unserved corporations
located in the division's key markets; and (iii) growth in the sales of Tandem
Marketing. In addition, the Company believes a specific opportunity exists
within the uniform market, as corporations switch from traditional uniforms to
more casual, higher quality sportswear and activewear.
College Bookstore Division. The College Bookstore division is a leading
marketer of custom designed, embroidered and silk-screened sportswear and
activewear products to over 2,300 active customer accounts, including nearly
every major college and university in the United States. The division's
largest accounts include each of the major college bookstore lease operators,
such as Barnes & Noble College Bookstores, Inc., as well as high volume,
university managed bookstores, such as the University of Notre Dame, the
University of Southern California, Yale University, the University of Michigan
and the United States Air Force and Naval academies. The National Association
of College Stores has selected the Company as "Vendor of the Year" three
times, an honor no other supplier has won more than once.
The College Bookstore division, with fiscal 1997 net sales of $38.0 million,
accounted for 20.8% of total net sales. The College Bookstore division's net
sales have grown from $35.9 million in fiscal 1994 to $38.0 million in fiscal
1997. As the Company has expanded into other markets, the College Bookstore
division's net sales as a percent of total net sales has decreased from 28.0%
in fiscal 1994 to 20.8% in fiscal 1997.
The Company believes that future growth in its College Bookstore division
will come primarily from new product introductions such as headwear, sports
luggage and Baby GEAR products as well as from general demographic trends. The
U.S. Department of Education projects significant growth in the number of
college and university students through 2006, following a modest decline in
enrollment from 1992 to 1996. The Company believes that the projected increase
in college and university enrollment, in the event such increase does in fact
occur, may have a positive effect on the Company's business, results of
operations and financial condition. However, there can be no assurance that
any such projected growth will occur.
Sports Specialty Division. The Sports Specialty division, with fiscal 1997
net sales of $10.7 million, accounted for 5.8% of total net sales. Established
in 1994, the division has entered into licensing agreements to design,
manufacture and market sportswear and activewear bearing the names, logos and
insignia of professional sports leagues and teams as well as major sporting
events. The Company's licensors include, among others, MLB, the NBA, the NHL,
NASCAR and the Breeder's Cup. The division targets the upscale adult sports
enthusiast through The Company's existing distribution channels as well as
through new channels such as stadium stores and team retail outlets. The
division markets its products to over 600 active customer accounts, including
the Indianapolis Motor Speedway, the Chicago Bulls, the Cleveland Indians, the
Boston Bruins and Madison Square Garden.
INDUSTRY OVERVIEW
The sportswear industry in which the Company participates encompasses a
broad assortment of merchandise, including activewear and outerwear products
such as sweatshirts and jackets. While activewear products have traditionally
been associated with athletic-related activities, over the past two decades
such products have been increasingly accepted by consumers for a variety of
leisure and work-related activities.
33
<PAGE>
Activewear products have experienced significant sales growth over this time
period due to both this increased acceptance and consumers' increased pursuit
of physical fitness and active lifestyles. Moreover, activewear products have
registered a number of significant improvements in product characteristics
that have contributed to enhanced consumer appeal, including improvements in
fabric weight, blends, quality of construction, size, style and color
availability.
The sportswear and activewear market is characterized by a low fashion risk
as compared to other apparel markets. While substantial opportunity exists for
product innovation and differentiation, basic garment styles are not driven by
trends or fads. In those market segments where products have a lower relative
labor cost content, such as fleecewear and outerwear, the industry is also
characterized by barriers to entry as larger capital requirements, sourcing
relationships, brand-name recognition and established customer relationships
limit the entry of new competitors. Foreign competition is limited due to the
short delivery times required for inventory control by retail customers.
Sportswear and activewear is distributed through a wide variety of channels,
including department stores, chain stores, mass merchandisers, discount
retailers and specialty retailers. The Company, however, has avoided many of
these larger mass distribution channels and has instead focused on the
following niche markets, where the competition has been highly fragmented and
generally based more on quality of service and product rather than on price.
Resort Market. The Company has defined the resort market to include products
sold through niche market retailers at destination resorts, family
entertainment companies, hotel chains, cruise lines, casinos and United States
military bases. Products sold in this market are typically adorned with the
name of the resort and include a full range of activewear and related items.
The Company believes that this market is highly fragmented and served
primarily by local and regional competitors. In addition, the Company has
found that national competitors in this market generally focus on specific
market segments, offering a limited range of products.
Corporate Market. The corporate identity market is represented by companies
or large organizations which purchase articles of merchandise imprinted or
otherwise customized with the organization's name, logo or message. These
products are used for building corporate identity, marketing, employee
incentives or development of goodwill for a targeted audience. The Company
believes that future growth in this market will be fueled, in part, by the
continued acceptance of activewear products in the workplace. The Company
believes that it is one of the few brand name suppliers of sportswear and
activewear focused on the corporate market.
College Bookstore Market. The Company believes that the college bookstore
apparel market is relatively mature and stable. The Company estimates that the
top five suppliers to this market have an aggregate market share of
approximately 50%, with the share of each such competitor remaining relatively
constant over the last five years. Demand in this market is driven primarily
by demographic trends such as the number of entering college and university
students. As the following table illustrates, the U.S. Department of Education
projects significant growth in the numbers of college and university students
through 2006, following a modest decline in enrollment from 1992 to 1996.
However, there can be no assurance that any such projected growth will occur,
and, if so, at such rates.
34
<PAGE>
HISTORICAL AND PROJECTED COLLEGE AND UNIVERSITY ENROLLMENT
LOGO
Source:
U.S. Department of Education, National Center for Education Statistics, Fall
Enrollment in Colleges and Universities surveys and Integrated Postsecondary
Education Data System surveys. (November, 1995)
Professional Sports Licensed Apparel Market. Most of the North American
professional sports leagues, including MLB, the NBA, the NFL and the NHL, as
well as other sports organizations and events, license the right to sell
products adorned with the insignia of its leagues, teams or events. These
licensed product sales have grown significantly since the mid-1980's through
aggressive management of the licensing programs and increased marketing
efforts. Much of the growth in demand for licensed sports apparel has been
advanced by increased television programming and sporting event attendance, as
well as introduction of a wide variety of products and styles. Although demand
has been impacted in recent years by labor disputes in the professional sports
leagues, the Company expects this growth to continue with the resolution of
the labor disputes and continued expansion of the professional sports leagues
to new geographic markets.
The number of competitors in the licensed apparel market has expanded with
an increase in the number of licenses granted by the professional sports
leagues in recent years. These licenses represent significant barriers to
entry as the professional leagues appear less likely to enter into licensing
agreements with new entrants. The industry has also been experiencing
consolidation in recent years as larger companies have been acquiring smaller
competitors.
PRODUCTS
The Company's extensive product offerings include: (i) fleecewear; (ii)
outerwear; (iii) polo shirts, woven shirts and sweaters; (iv) T-shirts and
shorts; and (v) other apparel items and accessories. These products are sold
in each of the Company's four markets and are currently offered in over 400
combinations of style and color. While its products are generally
characterized by a low fashion risk, the Company attempts to incorporate the
latest trends in style, color and fabrics with a heavy emphasis on innovative
graphics to create leading-edge fashion looks.
The Company believes that the quality and breadth of its product lines and
its innovative logo designs represent significant competitive advantages in
its markets. In order to further capitalize on these advantages, the
(STUDENTS IN MILLIONS)
35
<PAGE>
Company intends to continue to expand both the depth and breadth of its
product lines. Currently, the Company has major product introductions in
headwear, sports luggage and Baby GEAR products for infants and toddlers.
The following illustrates the attributes of the Company's current product
lines:
Fleecewear. The Company's fleecewear products represented approximately 27%
of net sales for fiscal 1997. Current styles offered by the Company include
classic crew sweatshirts, cowl neck tops, half-zip pullovers, hooded tops,
vests, henleys and bottoms. Products are constructed of a wide range of
quality fabrics including combed cotton, textured fleece, ribbed knit cotton
and inside out fleece. The resulting product line offers customers a variety
of styles ranging from relaxed, functional looks to more sophisticated, casual
looks.
Outerwear. The Company's outerwear products represented approximately 31% of
net sales for fiscal 1997. These products are designed to offer consumers
contemporary styling, functional features and quality apparel. Products
offerings include a variety of weights and styles, including heavy nylon
parkas, denim jackets, corduroy hooded pullovers, nylon windshirts and water-
resistant poplin jackets. The Company also provides a number of functional
features such as adjustable cuffs, windflaps, vented backs, drawstring bottoms
and heavyweight fleece lining.
Polo Shirts, Woven Shirts and Sweaters. The Company's polo shirt, woven
shirt and sweater products represented approximately 25% of net sales for
fiscal 1997. The Company's products in this category are designed to be
suitable for both leisure and work-related activities with full range of
materials and styles.
T-Shirts and Shorts. The Company's T-shirt and shorts products represented
approximately 13% of net sales for fiscal 1997. The Company's products are
designed to address consumer needs for comfort, fit and function while
providing innovative logo designs. The Company offers a full line of T-shirts
and shorts in a variety of styles, fabrics and colors.
Other. The Company also sells headwear, sports luggage, a line of children's
products and a number of other miscellaneous apparel items. In addition,
through its Tandem Marketing division, the Company distributes a full line of
corporate fulfillment products. Sales of "Other" items represented
approximately 4% of net sales for fiscal 1997.
DESIGN, MANUFACTURING AND MATERIALS SOURCING
The Company operates state-of-the-art design, embroidery and screenprint
manufacturing and distribution facilities in Lenexa, Kansas.
The Company's design group consists of more than 70 in-house artists and
graphic designers who work closely with each customer to create the product
offering and customization that fulfills the account's needs. The design group
is responsible for presenting new ideas to each account in order to
continually generate new products. This design function is a key element in
the Company's ability to provide value-added services and maintain superior
relations with its customers. Once the design and logo specifications have
been determined, the Company's in-plant manufacturing process begins. This
manufacturing process consists of embroidery and/or screenprinting
applications to Company-designed non-decorative apparel ("blanks").
Substantially all of the screenprinting and a significant portion of the
embroidery operations are performed by the Company in its Lenexa, Kansas
facilities. In addition, the Company outsources embroidery work to Impact
Design, Inc. and Kansas Custom Embroidery, each an affiliate of the Company,
as well as to independent contractors, when necessary. See "Certain
Transactions." The Company maintains the most updated machinery and equipment
available in order to ensure superior product quality and consistency.
All of the Company's blanks are sourced and manufactured to the Company's
specifications by third party vendors. The Company closely monitors each of
its vendors in order to ensure that its specifications and quality standards
are met. A significant portion (approximately 77%) of the Company's blanks are
contract manufactured
36
<PAGE>
in various off-shore plants. The Company's imported items are currently
manufactured in Taiwan, Korea, Malaysia, Hong Kong, Singapore, Indonesia,
Pakistan, China, Honduras, Israel, Fiji and Sri Lanka. The Company continually
evaluates its sourcing options and strives to maintain a concentration of no
more than 20% sourced product from any one particular foreign country. During
fiscal 1997, approximately 70% of the foreign supplied product was provided by
Malaysia, Taiwan, Honduras and Korea, while concentrations from the other
named foreign countries made up the remaining 30%. In fiscal 1997,
approximately 23% of its blanks were contract manufactured in the United
States. The Company has long-standing contractual relationships with most of
its eight independent buying agents who assist the Company in its efforts to
control garment quality and delivery. None of these agents represent the
Company on an exclusive basis. The Company has independent buying agents in
each foreign country where it purchases blanks. See "Risk Factors--Foreign
Sourcing."
COMPETITION
The Company's primary competitors vary within each of its four distinct
markets. In the resort and leisure market, there are few national competitors
and even fewer that operate in all of the varied segments in which the Company
operates. In the corporate identity market, there are several large
manufacturers of corporate identity products. The Company believes it is one
of the few manufacturers and marketers of corporate identity products that
specializes in the activewear product segment. In the college bookstore
market, the top five competitors hold an aggregate market share of
approximately 50%, and the Company believes the market share of each such
competitor has remained relatively constant over the last five years. In the
sports specialty market, the Company competes with a large number of
manufacturers of licensed sportswear. The Company believes, however, that it
is one of the few manufacturers of sports specialty products with a primary
focus on the adult sports enthusiast.
The following table sets forth the Company's primary competitors in each of
its markets:
<TABLE>
<CAPTION>
MARKET PRIMARY COMPETITORS
------ -------------------
<C> <S>
Highly fragmented--primarily local and regional compet-
Resort itors
Corporate HA-LO Marketing, Hermann Marketing, Swingster (American
Marketing Industries)
College Bookstore Champion Products, Jansport (VF Corp.),
Cotton Exchange, Russell Athletic, M.V. Sports
Sports Specialty Champion Products, Russell Corporation, Starter
</TABLE>
Competition in each of the Company's markets generally is based on product
design and decoration, customer service and overall product quality. The
Company believes that it has been able to compete successfully because of its
ability to create diverse and innovative designs, provide excellent customer
service, leverage its GEAR brand name and differentiate its products on the
basis of quality.
EMPLOYEES
The Company employs over 680 people at its two facilities in Lenexa, Kansas,
of which approximately 35 are members of management, 285 are involved in
either product design, customer service, sales support or administration and
360 are involved in manufacturing. In an effort to adjust employment levels in
accordance with its production schedule and reduce its operating costs, the
Company has instituted a voluntary time off program under which management
occasionally grants a limited number of employees extended time off (typically
four to six weeks). During extended time off periods, employees remain on call
and continue to receive employee benefits such as health insurance, but do not
receive hourly wages. None of the Company's employees is covered by a
collective bargaining agreement. The Company believes that the dedication of
its employees is critical to its success, and that its relations with its
employees are excellent.
37
<PAGE>
TRADEMARKS
The Company markets its products primarily under the GEAR For Sports(R)
trademarked brand name. In addition, the Company markets its products under,
among others, the Pro GEAR(R), Tandem Marketing(R), Big Cotton(R) and Winning
Ways(R) trademarks. The Company is currently applying for a trademark for its
Baby GEAR brand name. However, there can be no assurance that the Company's
application will be approved. Generally, the Company's trademarks will remain
in effect as long as the trademark is used by the Company and the required
renewals are obtained.
The Company licenses its GEAR For Sports(R) trademark to Richmont Apparel
Group f.k.a. Softwear Athletics, Inc. ("Softwear") to produce and distribute
GEAR For Sports(R)J adult sportswear and activewear, headwear and sports
luggage products in Canada in accordance with a license agreement (the
"Softwear License Agreement"). Pursuant to the Softwear License Agreement,
Softwear has obtained an exclusive, non-transferable and non-assignable
license to manufacture, advertise and promote adult apparel, headwear and bags
in Canada. The Softwear License Agreement had an initial term of eighteen
months, ending September 30, 1995, but has been extended by Softwear, at its
option, for two successive one year terms. In consideration for the license
grant, Softwear pays the Company an annual royalty calculated as the greater
of: (i) $300,000 or (ii) 10% of Net Sales (as defined therein) to non-
affiliates. Such royalty payments are made to the Company on a quarterly
basis. In addition, for three years after the termination of the Softwear
License Agreement, Softwear will be prohibited from selling products covered
by the Softwear License Agreement or other similar products to any Softwear
customer who was not a Softwear customer prior to the commencement of the
Softwear License Agreement. The Company has entered into a three-year
extension of the license on terms comparable to those under the Softwear
License Agreement.
LICENSES
The Company markets its products, in part, under licensing agreements,
primarily in its College Bookstore and Sports Specialty divisions. In fiscal
1997, net sales under the Company's 256 active licensing agreements totaled
$25.0 million, or approximately 14% of the Company's net sales. In fiscal
1997, $18.5 million of College Bookstore division net sales, representing
approximately 48.6% of the division's net sales and 10.1% of total net sales,
were recorded under this division's 208 licensing agreements. In addition, in
fiscal 1997, $5.3 million of Sports Specialty division net sales, representing
approximately 50.0% of the division's net sales and 2.9% of total net sales,
were recorded under licensing agreements. The Company's licensing agreements
are mostly with (i) high volume, university managed bookstores such as the
University of Notre Dame, the University of Southern California and the
University of Michigan, (ii) professional sports leagues such as MLB, the NBA
and the NHL and (iii) major sporting events such as the Ryder Cup and the
Indianapolis 500. Such licensing agreements are generally renewable every one
to three years with the consent of the licensor.
PROPERTIES
The Company owns each of its two properties: its 250,000 square foot
headquarters and manufacturing facility in Lenexa, Kansas and its 100,000
square foot manufacturing and distribution facility located approximately two
miles from its headquarters. Approximately 200,000 square feet and 100,000
square feet of the headquarter/manufacturing facility and
manufacturing/distribution facility, respectively, are devoted to the design
and manufacture of the Company's products and to customer service. The Company
believes that the two facilities (along with the embroidery facilities used by
the two affiliate companies) provide the Company with sufficient space to
support its expected expansion over the next several years.
LITIGATION
From time to time, the Company is involved in routine litigation incidental
to its business. The Company is not a party to any pending or threatened legal
proceeding which would have a material adverse effect on the Company's results
of operations, cash flows or financial condition.
38
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth the names and ages of the Company's directors and
executive officers and the positions they hold as of October 1, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
---- --- ---------------------
<S> <C> <C>
Robert M. Wolff......... 62 Chairman
John L. Menghini........ 47 President, Chief Operating Officer and Director
Robert G. Shaw.......... 46 Senior Vice President, Finance and Human Resources and Director
Larry D. Graveel........ 48 Senior Vice President, Merchandising and Director
Michael H. Gary......... 44 Senior Vice President, Sales Administration
A. Richard Caputo, Jr... 31 Vice President and Director
John W. Jordan II....... 49 Director
David W. Zalaznick...... 43 Director
</TABLE>
ROBERT M. WOLFF has served as Chairman of the Company since its inception in
1974.
JOHN L. MENGHINI has served as President, Chief Operating Officer and a
director of the Company since 1984. Prior to that, Mr. Menghini served as a
merchandise manager of the Company since 1977.
ROBERT G. SHAW has served as Senior Vice President, Finance and Human
Resources and a director of the Company since 1993. Prior to that, Mr. Shaw
held several management positions with the Company since 1976, including Vice
President of Finance.
LARRY D. GRAVEEL has served as a director of the Company since February 1997
and as Senior Vice President, Merchandising of the Company since 1993. Prior
to that, Mr. Graveel served as a merchandising manager of the Company since
1984.
MICHAEL H. GARY has served as Senior Vice President, Sales Administration of
the Company since 1993. Prior to that, Mr. Gary held several management
positions in sales administration with the Company since 1982.
A. RICHARD CAPUTO, JR. has served as Vice President and a director of the
Company since February 1997. Mr. Caputo is a managing partner of TJC, a
private merchant banking firm, with which he has been associated since 1990.
Mr. Caputo is also a director of AmeriKing, Inc. as well as other privately
held companies.
JOHN W. JORDAN II has served as a director of the Company since February
1997. Mr. Jordan is a managing partner of TJC, which he founded in 1982. Mr.
Jordan is also a director of Jordan Industries, Inc., Carmike Cinemas, Inc.,
American Safety Razor Company, Apparel Ventures, Inc., AmeriKing, Inc., Motors
and Gears, Inc. and Rockshox, Inc. as well as other privately held companies.
DAVID W. ZALAZNICK has served as a director of the Company since February
1997. Mr. Zalaznick has been a managing partner of TJC since 1982. Mr.
Zalaznick is also a director of Jordan Industries, Inc., Carmike Cinemas,
Inc., American Safety Razor Company, Apparel Ventures, Inc., Marisa Christina,
Inc., AmeriKing, Inc., Motors and Gears, Inc. and The Great American Cookie
Company as well as other privately held companies.
STOCKHOLDERS AGREEMENT
In connection with the Acquisition, Holdings, the Management Investors and
the Jordan Investors entered into a subscription and stockholders agreement
(the "Stockholders Agreement") which sets forth certain rights and
restrictions relating to the ownership of Holdings stock and agreements among
the parties thereto as to the governance of the Company.
39
<PAGE>
The Stockholders Agreement contains material provisions which, among other
things and subject to certain exceptions, including any restrictions imposed
by applicable law or by the Company's debt agreements, (i) provide for put and
call rights in the event a Stockholder (as defined therein) is no longer
employed by the Company, (ii) restrict the ability of all Stockholders to
transfer their respective ownership interests, other than with respect to
transfers to Permitted Transferees (as defined therein), including rights of
first refusal and tag along rights held by each of the remaining stockholders,
(iii) grant drag along rights to Selling Stockholders (as defined therein) in
which the holders of 75% or more of the common stock of Holdings who agree to
transfer their stock in an arm's-length transaction to a nonaffiliated party
may require the remaining stockholders to sell their stock on the same terms
and conditions and (iv) grant each Stockholder piggyback registration rights
to participate in certain registrations initiated by the Company.
The Stockholders Agreement also contains certain material governance
provisions which, among other things, (i) provide for the election of three
directors (the "Management Directors") nominated by the Management Investors,
three directors (the "Jordan Directors") nominated by the Jordan Investors and
one director nominated by the Stockholders, (ii) prohibit the removal of the
Management Directors other than by the Management Investors or the Jordan
Directors other than by the Jordan Investors and (iii) require the approval of
at least five directors of certain fundamental transactions affecting the
Company, including any proposed dissolution, amendment to the Certificate of
Incorporation or by-laws or merger, consolidation or sale of all or
substantially all of the assets of the Company. The provisions described under
"Stockholders Agreement" represent all of the material provisions of such
agreement.
DIRECTOR COMPENSATION
Each director of the Company receives $20,000 per year for serving as a
director of the Company. In addition, the Company reimburses directors for
their travel and other expenses incurred in connection with attending meetings
of the Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the aggregate
compensation paid and accrued to the Company's top five executive officers for
services rendered to the Company during each of the three most recent fiscal
years.
<TABLE>
<CAPTION>
FISCAL OTHER ANNUAL
POSITION YEAR SALARY BONUS COMPENSATION(1)
-------- ------ -------- -------- ---------------
<S> <C> <C> <C> <C>
Robert M. Wolff........................ 1997 $147,498 $ 0 $16,822
Chairman 1996 240,000 0 40,019
1995 240,000 288,000 41,518
John L. Menghini....................... 1997 $249,038 $300,000 $14,773
President and Chief 1996 225,000 300,000 31,136
Operating Officer 1995 225,000 300,000 32,502
Robert G. Shaw......................... 1997 $159,615 $120,000 $14,773
Senior Vice President and 1996 150,000 120,000 31,353
Chief Financial Officer 1995 125,000 100,000 32,558
Larry D. Graveel....................... 1997 $179,615 $120,000 $17,809
Senior Vice President 1996 170,000 120,000 27,416
1995 145,000 120,000 28,915
Michael H. Gary........................ 1997 $185,769 $120,000 $18,973
Senior Vice President 1996 150,000 120,000 28,579
1995 125,000 100,000 30,078
</TABLE>
- --------
(1) Other annual compensation consists of car allowances, profit sharing,
group medical benefits and individual beneficiary life insurance premiums
paid by the Company.
40
<PAGE>
EMPLOYMENT/NONCOMPETITION AGREEMENTS
Wolff Employment Agreement. Effective upon the consummation of the
Transactions, the Company entered into an Employment Agreement with Robert M.
Wolff (the "Wolff Employment Agreement"). Pursuant to the Wolff Employment
Agreement, Mr. Wolff will serve as Chairman of the Company for a ten-year
period ending on the tenth anniversary of the Acquisition. In exchange for his
services, the Company will compensate Mr. Wolff with a base salary of $140,000
per annum, subject to annual increases set forth in the Wolff Employment
Agreement, to provide him with certain employee benefits comparable to that
received by other Company senior executives, including the use of Company
cars, and to reimburse him for expenses incurred in connection with the
performance of his duties as Chairman. In the event that Mr. Wolff no longer
provides services to the Company due to his dismissal for Cause (as defined in
the Wolff Employment Agreement), he will no longer be entitled to any
compensation from the Company as of the date of his dismissal, subject to
certain rights of appeal.
Wolff Noncompetition Agreement. Effective upon the consummation of the
Transactions, the Company entered into a Noncompetition Agreement with Robert
M. Wolff (the "Wolff Noncompetition Agreement"). Pursuant to the Wolff
Noncompetition Agreement, Mr. Wolff will not, directly or indirectly, (i) (a)
engage in or have any active interest in any sportswear or activewear business
comparable to that of the Company or (b) sell to, supply, provide goods or
services to, purchase from or conduct business in any form with the Company
for a ten-year period ending on the tenth anniversary of the Acquisition, (ii)
disclose at any time other than to the Company any Confidential Information
(as defined in the Wolff Noncompetition Agreement) and (iii) engage in any
business with the Company through an affiliate for as long as Mr. Wolff or any
member of his family is the beneficial owner of Holdings' capital stock. In
exchange for his covenant not to compete, the Company will pay Mr. Wolff
$250,000 per annum for a period of ten years. In the event that the Wolff
Noncompetition Agreement is terminated for Cause (as defined in the Wolff
Noncompetition Agreement), the Company will no longer be obligated to make any
payment to Mr. Wolff, but Mr. Wolff will remain obligated to comply with the
covenants set forth in the Wolff Noncompetition Agreement until its expiration
on the tenth anniversary of the Acquisition.
INCENTIVE COMPENSATION PLAN
The Company will adopt, on or prior to January 1, 1998, an incentive
compensation plan (the "Incentive Plan"), which will provide for annual cash
bonuses payable based on a percentage of EBITDA (as defined in the Incentive
Plan), if certain EBITDA targets are met.
41
<PAGE>
PRINCIPAL STOCKHOLDERS
The table below sets forth as of October 1, 1997 certain information
regarding beneficial ownership of the common stock of Holdings held by (i)
each of the Company's directors and executive officers who own shares of
common stock of Holdings, (ii) all directors and executive officers of the
Company as a group and (iii) each person known by Holdings to own beneficially
more than 5% of its common stock. The Company believes that each individual or
entity named has sole investment and voting power with respect to shares of
common stock of Holdings indicated as beneficially owned by them, except as
otherwise noted.
<TABLE>
<CAPTION>
AMOUNT OF
BENEFICIAL
OWNERSHIP(1)
-------------------
NUMBER
OF PERCENTAGE
SHARES OWNED
-------- ----------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
Robert M. Wolff(2)(3)...................................... 60.0000 3.0%
John L. Menghini(2)(4)..................................... 257.0000 12.9
Robert G. Shaw(2)(5)....................................... 235.0000 11.8
Larry D. Graveel(2)(6)..................................... 110.0000 5.5
Michael H. Gary(2)(7)...................................... 110.0000 5.5
John W. Jordan II(8)(9).................................... 78.3125 3.9
David W. Zalaznick(8)...................................... 78.3125 3.9
A. Richard Caputo, Jr.(8).................................. 50.0000 2.5
All directors and executive officers as a group (8
persons).................................................. 978.6300 48.9
OTHER PRINCIPAL STOCKHOLDERS:
MCIT PLC(10)............................................... 500.0000 25.0
Leucadia Investors, Inc.(11)............................... 125.0000 6.3
</TABLE>
- --------
(1) Calculated pursuant to Rule 13d-3(d) under the Exchange Act. Under Rule
13d-3(d), shares not outstanding which are subject to options, warrants,
rights or conversion privileges exercisable within 60 days are deemed
outstanding for the purpose of calculating the number and percentage
owned by such person, but not deemed outstanding for the purpose of
calculating the percentage owned by each other person listed. As of
February 27, 1997, there were 2,000 shares of common stock of Holdings
issued and outstanding.
(2) The address of each of Messrs. Wolff, Menghini, Shaw, Graveel and Gary is
c/o GFSI, Inc., 9700 Commerce Parkway, Lenexa, Kansas 66219.
(3) All shares are held by the Robert M. Wolff Trust, of which Mr. Wolff is a
trustee.
(4) 197 shares are held by the John Leo Menghini Revocable Trust, of which
Mr. Menghini is a trustee. The remaining 60 shares are held in trust for
family members of Mr. Menghini.
(5) 175 shares are held by the Robert Shaw Living Trust, of which Mr. Shaw is
a trustee. The remaining 60 shares are held by Robert Shaw as custodian
of family members.
(6) All shares are held by the Larry D. Graveel Revocable Trust, of which Mr.
Graveel is a trustee.
(7) 90 shares are held by Michael H. Gary Revocable Trust, of which Mr. Gary
is a trustee. The remaining 20 shares are held in trust for family
members of Mr. Gary.
(8) The address of each of Messrs. Jordan, Zalaznick and Caputo is c/o The
Jordan Company, 9 West 57th Street, New York, New York 10019.
(9) All shares are held by the John W. Jordan II Revocable Trust, of which
Mr. Jordan is trustee.
(10) The principal address of MCIT PLC is c/o The Jordan Company, 9 West 57th
Street, New York, New York 10019.
(11) The principal address of Leucadia Investors, Inc. is 315 Park Avenue
South, New York, New York 10010.
42
<PAGE>
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Exchange Offer is being made by the Company to satisfy its obligations
pursuant to the Registration Rights Agreement, which requires the Company to
use its best efforts to effect the Exchange Offer. See "--Registration
Rights."
The Company is making the Exchange Offer in reliance upon the position of
the staff of the Commission set forth in certain no-action letters addressed
to other parties in other transactions. However, the Company has not sought
its own no-action letter and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange
Offer as in such other circumstances. Based on these interpretations by the
Staff of the Commission, the New Notes issued pursuant to the Exchange Offer
may be offered for resale, resold and otherwise transferred by holders thereof
(other than (i) any such holder that is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act; (ii) an Initial Purchaser
who acquired the Old Notes directly from the Company solely in order to resell
pursuant to Rule 144A of the Securities Act or any other available exemption
under the Securities Act; or (iii) a broker-dealer who acquired the Old Notes
as a result of market making or other trading activities) without compliance
with the registration and prospectus delivery requirements of the Securities
Act, provided that such New Notes are acquired in the ordinary course of such
holder's business and such holder is not participating and has no arrangement
or understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes. By tendering, each Holder
which is not a broker dealer will represent to the Company that, among other
things, the person receiving the New Notes, whether or not such person is the
Holder, (i) will acquire the New Notes in the ordinary course of such person's
business, (ii) has no arrangement or understanding with any person to
participate in a distribution of the New Notes and (iii) is not engaged in and
does not intend to engage in a distribution of the New Notes. If any Holder or
any such other person has an arrangement or understanding with any person to
participate in a distribution of such New Notes, is engaged in or intends to
engage in a distribution of such New Notes, is an "affiliate," as defined
under Rule 405 of the Securities Act, of the Company, or acquired the Old
Notes as a result of market making or other trading activities, then such
Holder or any such other person (i) can not rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction, unless such sale is made
pursuant to an exemption from such requirements.
Holders of Old Notes not tendered will not have any further registration
rights and the Old Notes not exchanged will continue to be subject to certain
restrictions on transfer. Accordingly, the liquidity of the markets for the
Old Notes could be adversely affected.
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF OLD NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM
TENDERING ALL OR ANY PORTION OF THEIR OLD NOTES PURSUANT TO THE EXCHANGE
OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH
RECOMMENDATION. HOLDERS OF OLD NOTES MUST MAKE THEIR OWN DECISION WHETHER TO
TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD
NOTES TO TENDER AFTER READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL
AND CONSULTING THEIR ADVISERS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION
AND REQUIREMENTS.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
In connection with the issuance of the Old Notes, the Company entered into
the Registration Rights Agreement with the Initial Purchasers of the Old
Notes.
Holders of the New Notes (other than as set forth below) are not entitled to
any registration rights with respect to the New Notes. Pursuant to the
Registration Rights Agreement, Holders of Old Notes are entitled to
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<PAGE>
certain registration rights. Under the Registration Rights Agreement, the
Company has agreed, for the benefit of the Holders of the Old Notes, that it
will, at its cost, (i) on or before November 16, 1997, file the Registration
Statement with the Commission and (ii) on or before January 15, 1998, use its
best efforts to cause such Registration Statement to be declared effective
under the Securities Act. The Registration Statement of which this Prospectus
is a part constitutes the Registration Statement. If (i) the Company is not
permitted to consummate the Exchange Offer because the Exchange Offer is not
permitted by applicable law or Commission policy or (ii) any Holder of
Transfer Restricted Securities (as defined) notifies the Company within the
specified time period that (A) due to a change in law or policy it is not
entitled to participate in the Exchange Offer, (B) due to a change in law or
policy it may not resell the New Notes acquired by it in the Exchange Offer to
the public without delivering a prospectus and the prospectus contained in the
Registration Statement is not appropriate or available for such resales by
such holder or (C) it is a broker-dealer and acquired the Notes directly from
the Company or an affiliate of the Company, the Company will file with the
Commission a Shelf Registration Statement to cover resales of the Transfer
Restricted Securities by the Holders thereof who satisfy certain conditions
relating to the provision of information in connection with the Shelf
Registration Statement. The Company will use its best efforts to cause the
applicable registration statement to be declared effective as promptly as
possible by the Commission. For purposes of the foregoing, "Transfer
Restricted Securities" means each Note, until (i) the date of which such
Transfer Restricted Security has been exchanged in the Exchange Offer, (ii)
following the exchange by a broker-dealer in the Exchange Offer of a Transfer
Restricted Security for a New Note, the date on which such New Note is sold to
a purchaser who receives from such broker-dealer on or prior to the date of
such sale a copy of the Prospectus contained in the Registration Statement,
(iii) the date on which such security has been effectively registered under
the Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iv) the date on which such security is distributed pursuant to
Rule 144 under the Act.
The Registration Rights Agreement also provides that, (i) unless the
Exchange Offer would not be permitted by applicable law or Commission policy,
the Company will commence the Exchange Offer and use its best efforts to issue
on or prior to 30 business days after the date on which the Registration
Statement was declared effective by the Commission, New Securities in exchange
for all Transfer Restricted Securities tendered prior thereto in the Exchange
Offer and (ii) if obligated to file the Shelf Registration Statement, the
Company will file the Shelf Registration Statement with the Commission on or
prior to 60 days after days after such filing obligation arises and use its
best efforts to cause the Shelf Registration to be declared effective by the
Commission on or prior to 120 days after such obligation arises. The Company
shall use its best efforts to keep such Shelf Registration Statement
continuously effective, supplemented and amended until the third anniversary
of the Closing Date or such shorter period that will terminate when all the
Notes covered by the Shelf Registration Statement have been sold pursuant to
the Shelf Registration Statement. If (a) the Company fails to file any of the
registration statements required by the Registration Rights Agreement on or
before the date specified for such filing, (b) any of such registration
statements are not declared effective by the Commission on or prior to the
date specified for such effectiveness (the "Effectiveness Target Date"), (c)
the Company fails to consummate the Exchange Offer within 30 business days of
the Effectiveness Target Date with respect to the Registration Statement, or
(d) the Shelf Registration Statement or the Registration Statement is declared
effective but thereafter, subject to certain exceptions, ceases to be
effective or usable in connection with resales of Transfer Restricted
Securities during the periods specified in the Registration Rights Agreement
(each such event referred to in clauses (a) through (d) above a "Registration
Default"), then the Company will pay Liquidated Damages to each Holder of
Transfer Restricted Securities, with respect to the first 90-day period
immediately following the occurrence of such Registration Default in an amount
equal to $.05 per week for each $1,000 principal amount of Senior Notes held
by such Holder. The amount of the Liquidated Damages will increase by an
additional $.05 per week with respect to each subsequent 90-day period until
all Registration Defaults have been cured, up to a maximum amount of
Liquidated Damages of $.40 per week for each $1,000 principal amount of Senior
Notes, as applicable. Following the cure of all Registration Defaults, the
accrual of Liquidated Damages will cease.
Holders of Transfer Restricted Securities will be required to deliver
information to be used in connection with the Shelf Registration Statement and
to provide comments on the Shelf Registration Statement within the
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<PAGE>
time periods set forth in the Registration Rights Agreement in order to have
their Transfer Restricted Securities included in the Shelf Registration
Statement and benefit from the provisions regarding Liquidated Damages set
forth above.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus constitutes a part.
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m.,
New York City time, on , 1997; provided, however, that if the
Company, in its sole discretion, has extended the period of time for which the
Exchange Offer is open, the term "Expiration Date" means the latest time and
date to which the Exchange Offer is extended; provided further that in no
event will the Exchange Offer be extended beyond , 1997. The
Company may extend the Exchange Offer at any time and from time to time by
giving oral or written notice to the Exchange Agent and by timely public
announcement. Without limiting the manner in which the Company may choose to
make any public announcement and subject to applicable law, the Company shall
have no obligation to publish, advertise or otherwise communicate any such
public announcement other than by issuing a release to an appropriate news
agency. During any extension of the Exchange Offer, all Old Notes previously
tendered pursuant to the Exchange Offer will remain subject to the Exchange
Offer. The Company intends to conduct the Exchange Offer in accordance with
the applicable requirements of the Exchange Act and the rules and regulations
thereunder.
As of the date of this Prospectus, $50,000,000 initial Accreted Value of the
Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about , 1997, to all Holders of
Old Notes known to the Company. The Company's obligation to accept Old Notes
for exchange pursuant to the Exchange Offer is subject to certain conditions
as set forth under "--Certain Conditions to the Exchange Offer" below.
The terms of the New Notes and the Old Notes are identical in all material
respects, except for certain transfer restrictions and registration rights
relating to the Old Notes and rights to receive Liquidated Damages. See "--
Registration Rights; Liquidated Damages." The Old Notes were, and the New
Notes will be, issued under the Indenture and all such Notes are entitled to
the benefits of the Indenture.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof. Any Old Notes
not accepted for exchange for any reason will be returned without expense to
the tendering Holder thereof as promptly as practicable after the expiration
or termination of the Exchange Offer.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted
for exchange, upon the occurrence of any of the conditions of the Exchange
Offer specified below under "--Certain Conditions to the Exchange Offer." The
Company will give oral or written notice of any amendment, nonacceptance or
termination to the Holders of the Old Notes as promptly as practicable. Any
amendment to the Exchange Offer will not limit the right of Holders to
withdraw tendered Old Notes prior to the Expiration Date. See "--Withdrawal
Rights."
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a Holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering Holder and the Company upon the
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<PAGE>
terms and subject to the conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal. Except as set forth below, a Holder who
wishes to tender Old Notes for exchange pursuant to the Exchange Offer must
transmit a properly completed and duly executed Letter of Transmittal,
including all other documents required by such Letter of Transmittal, to State
Street Bank and Trust Company (the "Exchange Agent") at one of the addresses
set forth below under "Exchange Agent" on or prior to the Expiration Date. In
addition, either (i) certificates for such Old Notes must be received by the
Exchange Agent along with the Letter of Transmittal; or (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such
Old Notes, if such procedure is available, into the Exchange Agent's account
at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant
to the procedure for book-entry transfer described below, must be received by
the Exchange Agent prior to the Expiration Date; or (iii) the Holder must
comply with the guaranteed delivery procedures described below. THE METHOD OF
DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS
IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS
RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE
COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered Holder of the Old Notes who
has not completed the box entitled "Special Issuance Instruction" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust
company having an office or correspondent in the United States (collectively,
"Eligible Institutions"). If Old Notes are registered in the name of a person
other than the Signer of the Letter of Transmittal, the Old Notes surrendered
for exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by the
Company in its sole discretion, duly executed by the registered Holder with
the signature thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined
by the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to
waive any defects or irregularities or conditions of the Exchange Offer as to
any particular Old Notes either before or after the Expiration Date (including
the right to waive the ineligibility of any Holder who seeks to tender Old
Notes in the Exchange Offer). The interpretation of the terms and conditions
of the Exchange Offer as to any particular Old Notes either before or after
the Expiration Date (including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, all defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such reasonable period of time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Old Notes for exchange, nor shall
any of them incur any liability for failure to give such notification. The
Exchange Agent intends to use reasonable efforts to give notification of such
defects and irregularities.
If the Letter of Transmittal is signed by a person or persons other than the
registered Holder or Holders of Old Notes, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly
as the name or names of the registered Holder or Holders that appear on the
Old Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of a corporation or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
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By tendering, each Holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the Holder and such person has no
arrangement or understanding with any person to participate in the
distribution of the New Notes. If any Holder or any such other person is an
"affiliate," as defined under Rule 405 of the Securities Act, of the Company,
is engaged in or intends to engage in or has an arrangement or understanding
with any person to participate in a distribution of such New Notes to be
acquired pursuant to the Exchange Offer, or acquired the Old Notes as a result
of market making or other trading activities, such Holder or any such other
person (i) could not rely on the applicable interpretations of the staff of
the Commission and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with
any resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of
the Old Notes. See "--Certain Conditions to the Exchange Offer". For purposes
of the Exchange Offer, the Company shall be deemed to have accepted properly
tendered Old Notes for exchange when, as and if the Company has given oral or
written notice thereof to the Exchange Agent, with written confirmation of any
oral notice to be given promptly thereafter.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having an Accreted Value equal to that of the surrendered
Old Note. Accordingly, registered Holders of New Notes on the relevant record
date for the first interest accretion date following the consummation of the
Exchange Offer will receive accretion from the most recent date to which
interest has accreted on the Old Notes, or, if no interest has on the Old
Notes, from October 23, 1997. Old Notes accepted for exchange will cease to
accrete interest from and after the date of consummation of the Exchange
Offer. Holders of Old Notes whose Old Notes are accepted for exchange will not
receive any accretion on such Old Notes otherwise recognizable on any interest
accretion date the record date for which occurs on or after consummation of
the Exchange Offer.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of (i) certificates for such Old Notes or a timely Book-
Entry Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility; (ii) a properly completed and duly executed
Letter of Transmittal; and (iii) all other required documents. If any tendered
Old Notes are not accepted for any reason set forth in the terms and
conditions of the Exchange Offer, or if Old Notes are submitted for a greater
amount than the Holder desires to exchange, such unaccepted or nonexchanged
Old Notes will be returned without expense to the tendering Holder thereof
(or, in the case of Old Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry procedures described below, such nonexchanged Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility)
designated by the tendering Holder as promptly as practicable after the
expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through
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<PAGE>
book-entry transfer at the Book-Entry Transfer Facility, the Letter of
Transmittal or facsimile thereof, with any required signature guarantees and
any other required documents, must, in any case, be transmitted to and
received by the Exchange Agent at one of the addresses set forth below under
"--Exchange Agent" on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered Holder of the Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
Holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is
made through an Eligible Institution; (ii) prior to the Expiration Date, the
Exchange Agent has received from such Eligible Institution a properly
completed and duly executed Letter of Transmittal (or a facsimile thereof) and
Notice of Guaranteed Delivery, substantially in the form of the corresponding
exhibit to the Registration Statement of which this Prospectus constitutes a
part (by telegram, telex, facsimile transmission, mail or hand delivery),
setting forth the name and address of the Holder of Old Notes and the amount
of Old Notes tendered, stating that the tender is being made thereby and
guaranteeing that within three New York Stock Exchange ("NYSE") trading days
after the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered Old Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and (iii) the certificates for
all physically tendered Old Notes, in proper form for transfer, or a Book-
Entry Confirmation, as the case may be, and all other documents required by
the Letter of Transmittal, are received by the Exchange Agent within three
NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of the withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes
to be withdrawn (including the amount of such Old Notes), and (where
certificates for Old Notes have been transmitted) specify the name in which
such Old Notes are registered, if different from that of the withdrawing
Holder. If certificates for Old Notes have been delivered or otherwise
identified to the Exchange Agent, then prior to the release of such
certificates the withdrawing Holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such Holder is an
Eligible Institution. If Old Notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal
must specify the name and number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawn Old Notes and otherwise comply with
the procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties.
Any Old Notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the Holder thereof without cost to such Holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Notes will be credited to an account with
such Book-Entry Transfer Facility specified by the Holder) as soon as
practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following
one of the procedures described under "--Procedures for Tendering Old Notes"
above at any time on or prior to the Expiration Date.
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CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the Exchange Offer, if at any time
before the acceptance of such Old Notes for exchange or the exchange of the
New Notes for such Old Notes, any of the following events shall occur:
(a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission, (i) seeking to restrain
or prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, or assessing or seeking any
damages as a result thereof, or (ii) resulting in a material delay in the
ability of the Company to accept for exchange or exchange some or all of
the Old Notes pursuant to the Exchange Offer; or any statute, rule,
regulation, order or injunction shall be sought, proposed, introduced,
enacted, promulgated or deemed applicable to the Exchange Offer or any of
the transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority,
agency or court, domestic or foreign, that in the sole judgment of the
Company might directly or indirectly result in any of the consequences
referred to in clauses (i) or (ii) above or, in the sole judgment of the
Company, might result in the holders of New Notes having obligations with
respect to resales and transfers of New Notes which are greater than those
described in the interpretation of the Commission referred to on the cover
page of this Prospectus, or would otherwise make it inadvisable to proceed
with the Exchange Offer; or
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market; (ii) any limitation
by any governmental agency or authority which may adversely affect the
ability of the Company to complete the transactions contemplated by the
Exchange Offer; (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitation by any governmental agency or authority which adversely affects
the extension of credit; or (iv) a commencement of a war, armed hostilities
or other similar international calamity directly or indirectly involving
the United States, or, in the case of any of the foregoing existing at the
time of the commencement of the Exchange Offer, a material acceleration or
worsening thereof; or
(c) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of Holdings and its subsidiaries taken as a whole that, in the
sole judgment of the Company, is or may be adverse to the Company, or the
Company shall have become aware of facts that, in the sole judgment of the
Company, have or may have an adverse effect on the value of the Old Notes
or the New Notes.
Holders of Old Notes will have registration rights and the right to Liquidated
Damages as described under "--Registration Rights; Liquidated Damages" if the
Company fails to consummate the Exchange Offer.
To the Company's knowledge as of the date of this Prospectus, none of the
above events has occurred.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or in part at any time
and from time to time in its sole discretion. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver
of any such right and each such right shall be deemed an ongoing right which
may be asserted at any time and from time to time. In the event the Company
asserts or waives a condition to the Exchange Offer which constitutes a
material change to the terms of the Exchange Offer, the Company will disclose
such change in a manner reasonably calculated to inform prospective investors
of such change, and will extend the period of the Exchange Offer by five
business days.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes,
if at such time any stop order shall be threatened or in effect with
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respect to the Registration Statement of which this Prospectus constitutes a
part or the qualification of the Indenture under the Trust Indenture Act of
1939.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as the Exchange Agent
for the Exchange Offer. All executed Letters of Transmittal and Notices of
Guaranteed Delivery should be directed to the Exchange Agent at the addresses
set forth below. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notices of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
Deliver to: State Street Bank and Trust Company, Exchange Agent:
By Registered or By Overnight Courier or Hand:
Certified Mail: State Street Bankand Trust Company Two
International Place
*State Street Bankand
Trust Company 61
Broadway, Concourse
Level Corporate Trust
Window New York, New
York 10006 *only
during business hours
State Street Bankand Trust Company P.O. Box 778 Boston, MA 02102-0078 Attn:
Kellie Mullen
or
Boston, MA 02110 Attn: Kellie Mullen
By Facsimile for Eligible Institutions:
(617) 664-5395
For confirmation call:
(617) 664-5587
DELIVERY OF A LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer.
The Company will, however, pay the Exchange Agent reasonable and customary
fees for its services and will reimburse it for reasonable out-of-pocket
expenses in connection therewith. The Company will also pay brokerage houses
and other custodians, nominees and fiduciaries the reasonable out-of-pocket
expenses incurred by them in forwarding copies of this Prospectus and related
documents to the beneficial owners of Old Notes, and in handling tenders for
their customers. The expenses to be incurred in connection with the Exchange
Offer, including the fees and expenses of the Exchange Agent and printing,
accounting, registration, and legal fees, will be paid by the Company and are
estimated to be approximately $100,000.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that holders who instruct
the Company to register New Notes in the name of, or request that Old Notes
not tendered or not accepted in the Exchange Offer be returned to, a person
other than the registered tendering holder will be responsible for the payment
of any applicable transfer tax thereon.
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APPRAISAL RIGHTS
HOLDERS OF OLD NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL RIGHTS IN
CONNECTION WITH THE EXCHANGE OFFER.
CONSEQUENCES OF NOT EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be offered or sold, unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Old Notes under the Securities
Act. Based upon no-action letters issued by the staff of the Commission to
third parties, the Company believes the New Notes issued pursuant to the
Exchange Offer in exchange for the Old Notes may be offered for resale, resold
or otherwise transferred by a Holder thereof (other than any (i) Holder which
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act); (ii) an Initial Purchaser who acquired the Old Notes directly
from the Company solely in order to resell pursuant to Rule 144A of the
Securities Act or any other available exemption under the Securities Act; or
(iii) a broker-dealer who acquired the Old Notes as a result of market making
or other trading activities) without compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business and such
holder is not participating and has no arrangement or understanding with any
person to participate in a distribution (within the meaning of the Securities
Act) of such New Notes. However, the Company has not sought its own no-action
letter and there can be no assurance that the staff of the Commission would
make a similar determination with respect to the Exchange Offer as in such
other circumstances. Each Holder, other than a broker-dealer, must acknowledge
that it is not engaged in, and does not intend to engage in, a distribution of
New Notes, and has no arrangement or understanding to participate in a
distribution of New Notes. If any Holder is an affiliate of the Company, is
engaged in or intends to engage in or has any arrangement or understanding
with respect to the distribution of the New Notes to be acquired pursuant to
the Exchange Offer, or acquired the Old Notes as a result of market making or
other trading activities, such Holder (i) could not rely on the relevant
determinations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes must
acknowledge that such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities and that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes. See "Plan of Distribution." In
addition, to comply with the securities laws of certain jurisdictions, if
applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Company
has agreed to register or qualify the sale of the New Notes in such
jurisdiction only in limited circumstances and subject to certain conditions.
ACCOUNTING TREATMENT
The exchange of the New Notes for the Old Notes will have no impact on the
Company's accounting records on the date of the exchange. Accordingly, no gain
or loss for accounting purposes will be recognized. Expenses of the Exchange
Offer and expenses related to the Old Notes will be amortized, pro rata, over
the term of the New Notes.
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DESCRIPTION OF NOTES
GENERAL
The Old Notes were and the New Notes will be issued pursuant to the
indenture (the "Indenture") between Holdings and State Street Bank and Trust
Company, as trustee (the "Trustee"), in a private transaction that is not
subject to the registration requirements of the Securities Act. The terms of
the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"), as in effect on the date of original issuance of the
Notes. The Notes are subject to all such terms, and holders of the Notes are
referred to the Indenture and the Trust Indenture Act for a statement thereof.
The following summary of the material provisions of the Indenture does not
purport to be complete and is qualified in its entirety by reference to the
Indenture, including the definitions therein of certain terms used below.
Copies of the proposed form of Indenture and Registration Rights Agreement are
available as set forth below under "--Additional Information." The definitions
of certain terms used in the following summary are set forth below under "--
Certain Definitions."
Under certain circumstances, Holdings will be able to designate any of its
Subsidiaries as Non-Restricted Subsidiaries. Non-Restricted Subsidiaries will
not be subject to many of the restrictive covenants set forth in the
Indenture. As of date of the Indenture, none of Holdings' Subsidiaries will be
Non-Restricted Subsidiaries.
The Old Notes were and the New Notes will be general unsecured obligations
of Holdings, will rank pari passu in right of payment to all existing and
future senior indebtedness of Holdings and will rank senior in right of
payment to all subordinated indebtedness of Holdings. As obligations of a
holding company, the Notes will be effectively subordinated to all obligations
of the Subsidiaries of Holdings, including the Senior Subordinated Notes and
the Credit Agreement.
The Old Notes were and the New Notes will be issued at a substantial
discount from their principal amount and will mature on September 15, 2009.
The Notes will accrete from September 17, 1997 at a rate of 11.375%,
compounded semi-annually, to an aggregate principal amount of $108,467,780 on
September 15, 2004. Thereafter, the Notes will accrue interest at the rate of
11.375% per annum, payable semi-annually in cash on March 15 and September 15
of each year, commencing on March 15, 2005, to holders of record on the
immediately preceding September 1 and March 1. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from September 15, 2004. Interest will be computed on
the basis of a 360-day year of twelve 30-day months. All references to the
principal amount of the Notes herein are, unless otherwise indicated,
references to the principal amount at final maturity. The Notes will be issued
in denominations of $1,000 principal amount and integral multiples thereof.
Principal of and premium, interest and Liquidated Damages, if any, on the
Notes will be payable, and the Notes may be presented for registration of
transfer or exchange, at the office of the Paying Agent and Registrar. Holders
of Notes must surrender their Notes to the Paying Agent to collect principal
payments, and Holdings may pay principal and interest by check and may mail
checks to a holder's registered address; provided that all payments with
respect to Global Notes and with respect to Certificated Notes, the holders of
which have given wire transfer instructions to Holdings, will be required to
be made by wire transfer of immediately available funds to the accounts
specified by the holders thereof. The Registrar may require payment of a sum
sufficient to cover any transfer tax or similar governmental charge payable in
connection with certain transfers or exchanges. See "--Transfer and Exchange."
The Trustee will initially act as Paying Agent and Registrar. Holdings may
change the Paying Agent or Registrar without prior notice to holders of Notes,
and Holdings or any of its Subsidiaries may act as Paying Agent or Registrar.
REDEMPTION OF NOTES
Optional Redemption. Except as set forth below, the Notes may not be
redeemed at the option of Holdings prior to September 15, 2002. During the 12-
month period beginning on September 15 of the years indicated below, the Notes
will be redeemable, at the option of Holdings, in whole or in part, on at
least 30 but not more
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than 60 days' notice to each holder of Notes to be redeemed in cash, at the
redemption prices (expressed as percentages of the Accreted Value for all
redemption dates prior to September 15, 2004 and of the principal amount for
all redemption dates including September 15, 2004 and hereafter) set forth
below, plus any accrued and unpaid interest and Liquidated Damages, if any, to
the redemption date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002.......................... 105.688%
2003.......................... 103.792%
2004.......................... 101.896%
2005 and thereafter........... 100.000%
</TABLE>
Notwithstanding the foregoing, on or after March 15, 1998 and prior to
September 15, 2002, Holdings may (but shall not have the obligation to)
redeem, in whole or in part, the outstanding Notes at a redemption price in
cash equal to 105.688% of the of the Accreted Value (determined at the date of
redemption) thereof, with the net proceeds of one or more Equity Offerings of
Holdings or the Company; provided, that any such redemption shall occur within
60 days of the date of the closing of any such Equity Offering.
In addition, upon the occurrence of a Change of Control on or after March
15, 1998 and prior to September 15, 2002, Holdings, at its option, may redeem,
in whole or in part, the outstanding Notes at a redemption price in cash equal
to 105.688% of the Accreted Value (determined at the date of redemption)
thereof. The Company shall give not less than 30 and not more than 60 days'
notice of such redemption within 30 days following a Change of Control.
The restrictions on optional redemptions contained in the Indenture do not
limit Holdings' right to separately make open market, privately negotiated or
other purchases of Notes from time to time.
Mandatory Redemption. Except as set forth below under "--Mandatory Offers to
Purchase Notes--Change of Control" and "--Asset Sales," Holdings is not
required to make any mandatory redemption, purchase or sinking fund payments
with respect to the Notes.
MANDATORY OFFERS TO PURCHASE NOTES
Change of Control. Upon the occurrence of a Change of Control (such date
being the "Change of Control Trigger Date"), each holder of Notes shall have
the right to require Holdings to purchase all or any part (equal to $1,000 or
an integral multiple thereof) of such holder's Notes pursuant to an Offer (as
defined) at a purchase price in cash equal to 100% of the Accreted Value
(determined at the date of redemption) thereof (if such offer is prior to
September 15, 2004) or 100% of the outstanding principal amount thereof (if
such offer is on or after September 15, 2004), plus any accrued and unpaid
interest and Liquidated Damages, if any. Holdings shall furnish to the
Trustee, at least two Business Days before notice of an Offer is mailed to all
holders of Notes pursuant to the procedures described below under "--
Procedures for Offers," notice that the Offer is being made. Transactions
constituting a Change of Control are not limited to hostile takeover
transactions not approved by the current management of Holdings. Except as
described under "--Change of Control," the Indenture does not contain
provisions that permit the holders of Notes to require Holdings to purchase or
redeem the Notes in the event of a takeover, recapitalization or similar
restructuring, including an issuer recapitalization or similar transaction
with management. Consequently, the Change of Control provisions will not
afford any protection in a highly leveraged transaction, including such a
transaction initiated by Holdings, management of Holdings or an affiliate of
Holdings, if such transaction does not result in a Change of Control. In
addition, the ability of Holdings to repurchase Notes following a Change of
Control will be limited by Holdings' then-available resources. The Change of
Control provisions may not be waived by the Board of Directors of Holdings or
the Trustee without the consent of holders of at least a majority in principal
amount of the Notes. See "--Amendment, Supplement and Waiver."
Holdings expects that a Change of Control would constitute a default under
certain indebtedness of Holdings' Subsidiaries. The occurrence of a Change of
Control may also have an adverse impact on the ability of Holdings to obtain
additional financing in the future. The ability of holders of Notes to require
that Holdings
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purchase Notes upon a Change of Control may deter persons from effecting a
takeover of Holdings. Except as described above with respect to a Change of
Control, the Indenture will not contain provisions that permit the holders of
Notes to require that Holdings purchase or redeem the Notes in the event of a
takeover, recapitalization or similar restructuring. See "Risk Factors--
Leverage and Debt Service."
Asset Sales. The Indenture provides that Holdings may not, and may not
permit any Restricted Subsidiary to, directly or indirectly, consummate an
Asset Sale (including the sale of any of the Capital Stock of any Restricted
Subsidiary) providing for Net Proceeds in excess of $4.0 million unless at
least 75% of the Net Proceeds from such Asset Sale are applied (in any manner
otherwise permitted by the Indenture) to one or more of the following purposes
in such combination as Holdings shall elect: (a) an investment in another
asset or business in the same line of business as, or a line of business
similar to that of, the line of business of Holdings and its Restricted
Subsidiaries at the time of the Asset Sale or the making of a capital
expenditure otherwise permitted by the Indenture; provided that such
investment occurs within 365 days of the date of such Asset Sale (the "Asset
Sale Disposition Date"), (b) to reimburse Holdings or its Restricted
Subsidiaries for expenditures made, and costs incurred, to repair, rebuild,
replace or restore property subject to loss, damage or taking to the extent
that the Net Proceeds consist of insurance proceeds received on account of
such loss, damage or taking, (c) to cash collateralize letters of credit;
provided any such cash collateral released to Holdings or its Restricted
Subsidiaries upon the expiration of such letters of credit shall again be
deemed to be Net Proceeds received on the date of such release, (d) the
permanent purchase, redemption or other prepayment or repayment of outstanding
Indebtedness of Holdings' Restricted Subsidiaries (with a corresponding
reduction in any commitment relating thereto) on or prior to the 365th day
following the Asset Sale Disposition Date or (e) an Offer expiring on or prior
to the Purchase Date (as defined herein). The Indenture also provides that
Holdings may not, and may not permit any Restricted Subsidiary to, directly or
indirectly, consummate an Asset Sale unless at least 75% of the consideration
thereof received by Holdings or such Restricted Subsidiary is in the form of
cash or Marketable Securities; provided that, solely for purposes of
calculating such 75% of the consideration, the amount of (x) any liabilities
(as shown on Holdings' or such Restricted Subsidiary's most recent balance
sheet or in the Notes thereto, excluding contingent liabilities and trade
payables) of Holdings or any Restricted Subsidiary (other than liabilities
that are by their terms subordinated to the Notes) that are assumed by the
transferee of any such assets and (y) any Notes or other obligations received
by Holdings or any such Restricted Subsidiary from such transferee that are
promptly, but in no event more than 90 days after receipt, converted by
Holdings or such Restricted Subsidiary into cash (to the extent of the cash
received), shall be deemed to be cash and cash equivalents for purposes of
this provision. Any Net Proceeds from any Asset Sale that are not applied or
invested as provided in the first sentence of this paragraph shall constitute
"Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $15.0 million (such
date being an "Asset Sale Trigger Date"), Holdings shall make an Offer to all
holders of Notes to purchase the maximum principal amount of the Notes then
outstanding that may be purchased out of Excess Proceeds, at an offer price in
cash in an amount equal to 100% of the Accreted Value (determined at the date
of redemption) thereof to the Purchase Date (if such Purchase Date is prior to
September 15, 2004) or 100% of the outstanding principal amount thereof to the
Purchase Date (if such Purchase Date is on or after September 15, 2004), plus
any accrued and unpaid interest and Liquidated Damages, if any, in accordance
with the procedures set forth in the Indenture. Notwithstanding the foregoing,
to the extent that any or all of the Net Proceeds of an Asset Sale is
prohibited or delayed by applicable local law from being repatriated to the
United States, the portion of such Net Proceeds so affected will not be
required to be applied as described in this or the preceding paragraph, but
may be retained for so long, but only for so long, as the applicable local law
prohibits repatriation to the United States.
To the extent that any Excess Proceeds remain after completion of an Offer,
Holdings may use such remaining amount for general corporate purposes. If the
Accreted Value or aggregate principal amount, as the case may be, of Notes
surrendered by holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a pro rata basis based upon
their Accreted Value or principal amount, as applicable, as described below
under "Selection and Notice." Upon completion of an Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.
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Procedures for Offers. Within 30 days following any Change of Control
Trigger Date or Asset Sale Trigger Date, subject to the provisions of the
Indenture, Holdings shall mail a notice to each holder of Notes at such
holder's registered address a notice stating: (a) that an offer (an "Offer")
is being made pursuant to a Change of Control or an Asset Sale Trigger Date,
as the case may be, the length of time the Offer shall remain open and the
maximum principal amount of Notes that will be accepted for payment pursuant
to such Offer, (b) the purchase price, the amount of accrued and unpaid
interest as of the purchase date, and the purchase date (which shall be no
earlier than 30 days and no later than 40 days from the date such notice is
mailed (the "Purchase Date")), and (c) such other information required by the
Indenture and applicable law and regulations.
On the Purchase Date for any Offer, Holdings will, to the extent required by
the Indenture and such Offer, (1) in the case of an Offer resulting from a
Change of Control, accept for payment all Notes or portions thereof tendered
pursuant to such Offer and, in the case of an Offer resulting from an Asset
Sale Trigger Date, accept for payment the maximum principal amount or Accreted
Value, as applicable, of Notes or portions thereof tendered pursuant to such
Offer that can be purchased out of Excess Proceeds, (2) deposit with the
Paying Agent the aggregate purchase price of all Notes or portions thereof
accepted for payment and any accrued and unpaid interest on such Notes as of
the Purchase Date, and (3) deliver or cause to be delivered to the Trustee all
Notes tendered pursuant to the Offer. The Paying Agent shall promptly mail to
each holder of Notes or portions thereof accepted for payment an amount equal
to the purchase price for such Notes plus any accrued and unpaid interest
thereon, and the Trustee shall promptly authenticate and mail (or cause to be
transferred by book-entry) to such holder of Notes accepted for payment in
part a new Note equal in principal amount to any unpurchased portion of the
Notes and any Note not accepted for payment in whole or in part shall be
promptly returned to the holder thereof, provided that each new Note will be
in a principal amount of $1,000 or an integral multiple thereof. Holdings will
publicly announce the results of the Offer on or as soon as practicable after
the Purchase Date.
Holdings will comply with any tender offer rules under the Act which may
then be applicable, including Rule 14e-1, in connection with an offer required
to be made by Holdings to repurchase the Notes as a result of a Change of
Control or an Asset Sale Trigger Date. To the extent that the provisions of
any securities laws or regulations conflict with provisions of the Indenture,
Holdings shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the Indenture by
virtue thereof.
Selection and Notice. In the event of a redemption or purchase of less than
all of the Notes, the Notes to be redeemed or purchased will be chosen by the
Trustee pro rata, by lot or by any other method that the Trustee considers
fair and appropriate and, if the Notes are listed on any securities exchange,
by a method that complies with the requirements of such exchange; provided
that, if less than all of a holder's Notes are to be redeemed or accepted for
payment, only principal amounts of $1,000 or multiples thereof may be selected
for redemption or accepted for payment. On and after any redemption or
purchase date, interest and Liquidated Damages, if any, shall cease to accrue
on the Notes (and the Accreted Value will cease to accrete if prior to
September 15, 2004) or portions thereof called for redemption or accepted for
payment. Notice of any redemption or offer to purchase will be mailed at least
30 days but not more than 60 days before the redemption or purchase date to
each holder of Notes to be redeemed or purchased at such holder's registered
address.
CERTAIN COVENANTS
The Indenture contains, among other things, the following covenants:
Limitation on Restricted Payments. The Indenture provides that Holdings will
not, and will not permit any Restricted Subsidiary to, directly or indirectly,
(i) declare or pay any dividend or make any distribution on account of
Holdings' or any Restricted Subsidiary's Equity Interests (other than
dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of Holdings and dividends or distributions payable by a
Restricted Subsidiary pro rata to its shareholders; (ii) purchase, redeem or
otherwise acquire or retire for value any Equity Interests of Holdings or any
of its Restricted Subsidiaries, other than any such Equity Interests purchased
from Holdings or any Restricted Subsidiary for fair market value determined by
the Board of Directors in good faith; (iii) make any payment on or with
respect to, or purchase, redeem, defease or otherwise acquire or
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retire for value any Subordinated Indebtedness of Holdings, except a payment
of interest or principal at Stated Maturity; or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i)
through (iv) above being collectively referred to as "Restricted Payments"),
if, at the time of such Restricted Payment:
(a) a Default or Event of Default shall have occurred and be continuing
or shall occur as a consequence thereof; or
(b) immediately after such Restricted Payment and after giving effect
thereto on a Pro Forma Basis, Holdings shall not be able to issue $1.00 of
additional Indebtedness pursuant to the first sentence of the "Limitation
on Incurrence of Indebtedness" covenant; or
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made after the date of original issuance of the Notes,
without duplication, exceeds the sum of: (1) 50% of the aggregate
Consolidated Net Income (including, for this purpose, gains from Asset
Sales and, to the extent not included in Consolidated Net Income, any gain
from a sale or disposition of a Restricted Investment) of Holdings (or, in
case such aggregate is a loss, 100% of such loss) for the period (taken as
one accounting period) from the beginning of the first fiscal quarter
commencing immediately after the date of original issuance of the Notes and
ended as of Holdings' most recently ended fiscal quarter at the time of
such Restricted Payment; plus (2) 100% of the aggregate net cash proceeds
and the fair market value of any property or securities, as determined by
the Board of Directors in good faith, received by Holdings from the issue
or sale of Equity Interests of Holdings subsequent to the date of original
issuance of the Notes (other than (x) Equity Interests issued or sold to a
Restricted Subsidiary and (y) Disqualified Stock); plus (3) $7.5 million;
plus (4) the amount by which the principal amount of and any accrued
interest on Indebtedness of any Restricted Subsidiary is reduced on
Holdings' consolidated balance sheet upon the conversion or (other than by
a Restricted Subsidiary) subsequent to the date of original issuance of the
Notes of any Indebtedness of Holdings or any Restricted Subsidiary (not
held by Holdings or any Restricted Subsidiary) for Equity Interests (other
than Disqualified Stock) of Holdings (less the amount of any cash, or the
fair market value of any other property or securities (as determined by the
Board of Directors in good faith), distributed by Holdings or any
Restricted Subsidiary (to persons other than Holdings or any other
Restricted Subsidiary) upon such conversion or exchange); plus (5) if any
Non-Restricted Subsidiary is redesignated as a Restricted Subsidiary, the
value of the Restricted Payment that would result if such Subsidiary were
redesignated as a Non-Restricted Subsidiary at such time, as determined in
accordance with the second sentence of the "Designation of Restricted and
Non-Restricted Subsidiaries" covenant; provided, however, that for purposes
of this clause (5), the value of any redesignated Non-Restricted Subsidiary
shall be reduced by the amount that any such redesignation replenishes or
increases the amount of Restricted Investments permitted to be made
pursuant to clause (ii) of the next sentence.
Notwithstanding the foregoing, the Indenture shall not prohibit as
Restricted Payments:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration, such payment would
comply with all covenants of such Indenture (including, but not limited to,
the "Limitation on Restricted Payments" covenant);
(ii) making Restricted Investments at any time, and from time to time, in
an aggregate outstanding amount of $15.0 million after the date of original
issuance of the Notes (it being understood that if any Restricted
Investment after the date of original issuance of the Notes pursuant to
this clause (ii) is sold, transferred or otherwise conveyed to any person
other than Holdings or a Restricted Subsidiary, the portion of the net cash
proceeds or fair market value of securities or properties paid or
transferred to Holdings and its Restricted Subsidiaries in connection with
such sale, transfer or conveyance that relates or corresponds to the
repayment or return of the original cost of such a Restricted Investment
will replenish or increase the amount of Restricted Investments permitted
to be made pursuant to this clause (ii), so that up to $15.0 million of
Restricted Investments may be outstanding under this clause (ii) at any
given time); provided that, without otherwise limiting this clause (ii),
any Restricted Investment in a Subsidiary made pursuant to this clause (ii)
is made for fair market value (as determined by the Board of Directors in
good faith);
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(iii) the repurchase, redemption, retirement or acquisition of Equity
Interests of Holdings or the Company from the executives, management,
employees or consultants of Holdings or its Restricted Subsidiaries in an
aggregate amount not to exceed $10.0 million;
(iv) any loans, advances, distributions or payments from Holdings to its
Restricted Subsidiaries, or any loans, advances, distributions or payments
by a Restricted Subsidiary to Holdings or to another Restricted Subsidiary,
in each case pursuant to intercompany Indebtedness, intercompany management
agreements and other intercompany agreements and obligations;
(v) the purchase, redemption, retirement or other acquisition of the
Notes pursuant to the "--Change of Control" or "--Asset Sales" provisions
of the Indenture;
(vi) the payment of (a) consulting, financial and investment banking fees
under the TJC Agreement, provided, that no Default or Event of Default
shall have occurred and be continuing or shall occur as a consequence
thereof, and Holdings' Obligations to pay such fees under the TJC Agreement
shall be subordinated expressly to Holdings' Obligations in respect of the
Notes, and (b) indemnities, expenses and other amounts under the TJC
Agreement;
(vii) the redemption, repurchase, retirement or other acquisition of any
Equity Interests of Holdings or any Restricted Subsidiary in for, or out of
the proceeds of, the substantially concurrent sale (other than to a
Subsidiary of Holdings) of other Equity Interests of Holdings (other than
any Disqualified Stock) or the redemption, repurchase, retirement or other
acquisition of any Equity Interests of any Restricted Subsidiary in for, or
out of the proceeds of, the substantially concurrent sale (other than to
Holdings or a Subsidiary of Holdings) of other Equity Interests of such
Restricted Subsidiary; provided that, in each case, any net cash proceeds
that are utilized for any such redemption, repurchase, retirement or other
acquisition, and any Net Income resulting therefrom, shall be excluded from
clauses (c)(1) and (c)(2) of the preceding paragraph;
(viii) the defeasance, redemption or repurchase of Subordinated
Indebtedness with the net cash proceeds from an issuance of permitted
Refinancing Indebtedness or the substantially concurrent sale (other than
to a Subsidiary of Holdings) of Equity Interests of Holdings (other than
Disqualified Stock); provided that, in each case, any net cash proceeds
that are utilized for any such defeasance, redemption or repurchase, and
any Net Income resulting therefrom, shall be excluded from clauses (c)(1)
and (c)(2) of the preceding paragraph;
(ix) Restricted Investments made or received in connection with the sale,
transfer or disposition of any business, properties or assets of Holdings
or any Restricted Subsidiary, provided, that if such sale, transfer or
disposition constitutes an Asset Sale, Holdings complies with the "Asset
Sale" provisions of the Indenture;
(x) any Restricted Investment constituting securities or instruments of a
person issued in for trade or other claims against such person in
connection with a financial reorganization or restructuring of such person;
(xi) payments in connection with the Offering, including, but not limited
to, the expenses of the Offering;
(xii) payments of fees, expenses and indemnities to the directors of
Holdings and its Restricted Subsidiaries;
(xiii) payments in respect of the Wolff Noncompetition Agreement; and
(xiv) shareholder loans in an aggregate principal amount not to exceed
$1.0 million.
Limitation on Incurrence of Indebtedness. The Indenture provides that
Holdings will not, and will not permit any Restricted Subsidiary to, issue
any Indebtedness (other than the Indebtedness represented by the Notes)
unless Holdings' Cash Flow Coverage Ratio for its four full fiscal quarters
next preceding the date such additional Indebtedness is issued would have
been at least 1.5 to 1 determined on a Pro Forma Basis (including, for this
purpose, any other Indebtedness incurred since the end of the applicable
four quarter period) as if such additional Indebtedness and any other
Indebtedness issued since the end of such four quarter period had been
issued at the beginning of such four quarter period.
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The foregoing limitations will not apply to the issuance of:
(i) Indebtedness of Holdings and/or its Restricted Subsidiaries under
Credit Facilities in an aggregate principal amount at any one time
outstanding (with letters of credit being deemed to have a principal amount
equal to the maximum potential liability of Holdings and/or any of its
Restricted Subsidiaries thereunder) not to exceed the greater of (A) $135
million and (B) the sum of: (1) 85% of the book value of accounts
receivable of Holdings and its Restricted Subsidiaries on a consolidated
basis and (2) 65% of the book value of the inventories of Holdings and its
Restricted Subsidiaries; provided that the aggregate principal amount of
Indebtedness outstanding under this clause (i) together with the aggregate
principal amount of Indebtedness outstanding under clause (iii) below shall
not exceed $160 million at any one time outstanding (less the amount of any
permanent reductions as set forth under "Asset Sales");
(ii) Indebtedness of Holdings and its Restricted Subsidiaries in
connection with capital leases, sale and leaseback transactions, purchase
money obligations, capital expenditures or similar financing transactions
relating to: (A) their properties, assets and rights as of the date of
original issuance of the Notes not to exceed $10.0 million in aggregate
principal amount at any one time outstanding, or (B) their properties,
assets and rights acquired after the date of original issuance of the
Notes, provided that the aggregate principal amount of such Indebtedness
under this clause (ii)(B) does not exceed 100% of the cost of such
properties, assets and rights;
(iii) additional Indebtedness of Holdings and its Restricted Subsidiaries
in an aggregate principal amount up to $35 million (all or any portion of
which may be issued as additional Indebtedness under Credit Facilities),
provided that the aggregate principal amount of Indebtedness outstanding
under this clause (iii) together with the aggregate principal amount of
Indebtedness outstanding under clause (i) above shall not exceed $160
million at any one time outstanding (less the amount of any permanent
reductions as set forth under "Asset Sales"); and
(iv) Other Permitted Indebtedness.
Limitation on Liens. The Indenture will provide that Holdings shall not, and
shall not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume or suffer to exist any Lien, other than
Permitted Liens, upon any property or asset now owned or hereafter acquired by
them, or any income or profits therefrom, or assign or convey any right to
receive income therefrom unless all payments due under the Indenture and the
Notes are secured on an equal and ratable basis with the obligations so
secured until such time as such obligations are no longer secured by a Lien.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture will provide that Holdings will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create
or otherwise cause or suffer to exist or become effective, any encumbrance or
restriction on the ability of any Restricted Subsidiary to: (a) pay dividends
or make any other distributions on its Capital Stock or any other interest or
participation in, or measured by, its profits, owned by Holdings or any
Restricted Subsidiary, or pay any Indebtedness owed to, Holdings or any
Restricted Subsidiary, (b) make loans or advances to Holdings, or (c) transfer
any of its properties or assets to Holdings, except for such encumbrances or
restrictions existing under or by reason of:
(i) applicable law;
(ii) Indebtedness permitted (a) under the first sentence of the first
paragraph of the "Limitation on Incurrence of Indebtedness" covenant and
(B) under clauses (i), (ii) and (iii) of the second paragraph of the
"Limitation on Incurrence of Indebtedness" covenant and clauses (iv), (vii)
and (x) of the definition of "Other Permitted Indebtedness;"
(iii) customary provisions restricting subletting or assignment of any
lease or license of Holdings or any Restricted Subsidiary;
(iv) customary provisions of any franchise, distribution or similar
agreement;
(v) any instrument governing Indebtedness or preferred stock or any other
encumbrance or restriction of a person acquired by Holdings or any
Restricted Subsidiary at the time of such acquisition, which
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encumbrance or restriction is not applicable to any person, or the
properties or assets of any person, other than the person, or the property
or assets of the person, so acquired;
(vi) Indebtedness or other agreements existing on the date of original
issuance of the Notes;
(vii) any Refinancing Indebtedness permitted under the "Limitation on
Incurrence of Indebtedness" covenant, provided that the restrictions
contained in the agreements governing such Refinancing Indebtedness are no
more restrictive in any material respect with regard to the interests of
the holders of the Notes than those contained in the agreements governing
the Indebtedness being refinanced;
(viii) any restrictions, with respect to a Restricted Subsidiary, imposed
pursuant to an agreement that has been entered into for the sale or
disposition of the stock, business, assets or properties of such Restricted
Subsidiary;
(ix) the terms of purchase money or capital lease obligations, but only
to the extent such purchase money obligations restrict or prohibit the
transfer of the property so acquired; or
(x) any instrument governing the sale of assets of Holdings or any
Restricted Subsidiary, which encumbrance or restriction applies solely to
the assets of Holdings or such Restricted Subsidiary being sold in such
transaction.
Nothing contained in this covenant shall prevent Holdings or any Restricted
Subsidiary from entering into any agreement or instrument providing for the
incurrence of Permitted Liens or restricting the sale or other disposition of
property or assets of Holdings or any of its Restricted Subsidiaries that are
subject to Permitted Liens.
Limitation on Transactions With Affiliates. The Indenture provides that
neither Holdings nor any of its Restricted Subsidiaries may make any loan,
advance, guarantee or capital contribution to, or for the benefit of, or sell,
lease, transfer or dispose of any properties or assets to, or for the benefit
of, or purchase or lease any property or assets from, or enter into any or
amend any contract, agreement or understanding with, or for the benefit of, an
Affiliate (each such transaction or series of related transactions that are
part of a common plan are referred to as an "Affiliate Transaction"), except
in good faith and on terms that are no less favorable to Holdings or the
relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction on an arm's length basis from an unrelated person.
The Indenture will further provide that Holdings will not, and will not
permit any Restricted Subsidiary to, engage in any Affiliate Transaction
involving aggregate payments or other transfers by Holdings and its Restricted
Subsidiaries in excess of $7.5 million (including cash and non-cash payments
and benefits valued at their fair market value by the Board of Directors of
Holdings in good faith) unless Holdings delivers to the Trustee:
(i) a resolution of the Board of Directors of Holdings stating that the
Board of Directors (including a majority of the disinterested directors, if
any) has, in good faith, determined that such Affiliate Transaction
complies with the provisions of the Indenture; and
(ii) (a) with respect to any Affiliate Transaction involving the
incurrence of Indebtedness, a written opinion of a nationally recognized
investment banking or accounting firm experienced in the review of similar
types of transactions, (B) with respect to any Affiliate Transaction
involving the transfer of real property, fixed assets or equipment, either
directly or by a transfer of 50% or more of the Capital Stock of a
Restricted Subsidiary which holds any such real property, fixed assets or
equipment, a written appraisal from a nationally recognized appraiser,
experienced in the review of similar types of transactions or (C) with
respect to any Affiliate Transaction not otherwise described in (a) and (B)
above, a written certification from a nationally recognized professional or
firm experienced in evaluating similar types of transactions, in each case,
stating that the terms of such transaction are fair to Holdings or such
Restricted Subsidiary, as the case may be, from a financial point of view.
Notwithstanding the foregoing, this Affiliate Transactions covenant will not
apply to:
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(1) transactions between Holdings and any Restricted Subsidiary or
between Restricted Subsidiaries;
(2) payments under the TJC Agreement;
(3) any other payments or transactions permitted pursuant to the
"Limitation on Restricted Payments" covenant;
(4) (a) payments and transactions under Incentive Arrangements and (B)
reasonable compensation paid to officers, employees or consultants of
Holdings or any Restricted Subsidiary as determined in good faith by
Holdings' Board of Directors or executives; or
(5) the sale, transfer and/or termination of the officers' life insurance
policies in effect on the date of issuance of the Notes.
In addition, notwithstanding the foregoing, any Affiliate Transaction
between the Company and Affiliated Embroiderers relating to the provision of
embroidery services in the ordinary course of business shall not be subject to
the provisions of clause (ii) above.
Designation of Restricted and Non-Restricted Subsidiaries. The Indenture
provides that, subject to the exceptions described below, from and after the
date of original issuance of the Notes, Holdings may designate any existing or
newly formed or acquired Subsidiary as a Non-Restricted Subsidiary; provided
that (i) either (a) the Subsidiary to be so designated has total assets of
$1.0 million or less or (B) immediately before and after giving effect to such
designation on a Pro Forma Basis: (1) Holdings could incur $1.00 of additional
Indebtedness pursuant to the first sentence of the "Limitation on Incurrence
of Indebtedness" covenant determined on a Pro Forma Basis; and (2) no Default
or Event of Default shall have occurred and be continuing, and (ii) all
transactions between the Subsidiary to be so designated and its Affiliates
remaining in effect are permitted pursuant to the "Limitation on Transactions
with Affiliates" covenant. Any Investment made by Holdings or any Restricted
Subsidiary which is redesignated from a Restricted Subsidiary to a Non-
Restricted Subsidiary shall be considered a Restricted Payment (to the extent
not previously included as a Restricted Payment) made on the day such
Subsidiary is designated a Non-Restricted Subsidiary in the amount of the
greater of (i) the fair market value (as determined by the Board of Directors
of Holdings in good faith) of the Equity Interests of such Subsidiary held by
Holdings and its Restricted Subsidiaries on such date, and (ii) the amount of
the Investments determined in accordance with GAAP made by Holdings and any of
its Restricted Subsidiaries in such Subsidiary.
A Non-Restricted Subsidiary may be redesignated as a Restricted Subsidiary.
Holdings may not, and may not permit any Restricted Subsidiary to, take any
action or enter into any transaction or series of transactions that would
result in a Person becoming a Restricted Subsidiary (whether through an
acquisition, the redesignation of a Non-Restricted Subsidiary or otherwise,
but not including through the creation of a new Restricted Subsidiary) unless,
immediately before and after giving effect to such action, transaction or
series of transactions on a Pro Forma Basis, (a) Holdings could incur at least
$1.00 of additional Indebtedness pursuant to the first sentence of "Limitation
on Incurrence of Indebtedness" and (b) no Default or Event of Default shall
have occurred and be continuing.
The designation of a Subsidiary as a Restricted Subsidiary or the removal of
such designation is required to be made by a resolution adopted by a majority
of the Board of Directors of Holdings stating that the Board of Directors has
made such designation in accordance with the Indenture, and Holdings is
required to deliver to the Trustee such resolution together with an Officers'
Certificate certifying that the designation complies with the Indenture. Such
designation will be effective as of the date specified in the applicable
resolution, which may not be before the date the applicable Officers'
Certificate is delivered to the Trustee. As of the Closing Date, all
Subsidiaries of Holdings will be Restricted Subsidiaries.
MERGER OR CONSOLIDATION
The Indenture provides that Holdings shall not consolidate or merge with or
into, or sell, lease, convey or otherwise dispose of all or substantially all
of its assets to, any person (any such consolidation, merger or sale
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being a "Disposition") unless: (a) the successor corporation of such
Disposition or the corporation to which such Disposition shall have been made
is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (b) the successor corporation
of such Disposition or the corporation to which such Disposition shall have
been made expressly assumes the Obligations of Holdings, pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee, under
the Indenture and the Notes; (c) immediately after such Disposition, no
Default or Event of Default shall exist; and (d) the corporation formed by or
surviving any such Disposition, or the corporation to which such Disposition
shall have been made, shall (i) have Consolidated Net Worth (immediately after
the Disposition but prior to giving any pro forma effect to purchase
accounting adjustments or Restructuring Charges resulting from the
Disposition) equal to or greater than the Consolidated Net Worth of Holdings
immediately preceding the Disposition, (ii) be permitted immediately after the
Disposition by the terms of the Indenture to issue at least $1.00 of
additional Indebtedness determined on a Pro Forma Basis, and (iii) have a Cash
Flow Coverage Ratio for the four fiscal quarters immediately preceding the
applicable Disposition, determined on a Pro Forma Basis, equal to or greater
than the actual Cash Flow Coverage Ratio of Holdings for such four quarter
period. The limitations in the Indenture on Holdings' ability to make a
Disposition described in this paragraph do not restrict Holdings' ability to
sell less than all or substantially all of its assets, such sales being
governed by the "Asset Sales" provisions of the Indenture as described herein.
Prior to the consummation of any proposed Disposition, Holdings shall
deliver to the Trustee an Officers' Certificate to the foregoing effect and an
opinion of counsel stating that the proposed Disposition and such supplemental
indenture comply with the Indenture.
PROVISION OF FINANCIAL INFORMATION TO HOLDERS OF NOTES
So long as the Notes are outstanding, whether or not Holdings is subject to
the reporting requirements of Section 13 or 15(d) of the Act, Holdings shall
file with the Commission (unless the Commission will not accept such filing)
the annual reports, quarterly reports and other documents relating to Holdings
and its Restricted Subsidiaries that Holdings would have been required to file
with the Commission pursuant to Section 13 or 15(d) if Holdings were subject
to such reporting requirements. Holdings will also provide to all holders of
Notes and file with the Trustee copies of such annual reports, quarterly
reports and other documents required to be furnished to stockholders generally
under the Act. In addition, Holdings has agreed that, for so long as any Notes
remain outstanding, they will furnish to the Holders and to securities
analysts and prospective investors, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that an Event of Default is: (a) a default for 30
days in payment of interest on or Liquidated Damages, if any, with respect to
the Notes; (b) a default in payment when due of principal or premium, if any,
with respect to the Notes; (c) the failure of Holdings to comply with any of
its other agreements or covenants in, or provisions of, such Indenture or the
Notes outstanding under such Indenture and the Default continues for the
period, if applicable, and after the notice specified in the next paragraph;
(d) a default by Holdings or any Restricted Subsidiary under any mortgage,
indenture or instrument under which there may be issued or by which there may
be secured or evidenced any Indebtedness for money borrowed by Holdings or any
Restricted Subsidiary (or the payment of which is guaranteed by Holdings or
any Restricted Subsidiary), whether such Indebtedness or guarantee now exists
or shall be created hereafter, if (1) either (a) such default results from the
failure to pay principal of or interest on any such Indebtedness (after giving
effect to any extensions thereof) or (B) as a result of such default the
maturity of such Indebtedness has been accelerated prior to its expressed
maturity, and (2) the principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness in default for failure to pay
principal or interest thereon, or, because of the acceleration of the maturity
thereof, aggregates in excess of $12.5 million; (e) a failure by Holdings or
any Restricted Subsidiary to pay final judgments (not covered by insurance)
aggregating in excess of $7.5 million which judgments a court of competent
jurisdiction does not rescind, annul or stay within 45 days after their entry;
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and (f) certain events of bankruptcy or insolvency involving Holdings or any
Significant Subsidiary. In the case of any Event of Default pursuant to clause
(a) or (b) above occurring by reason of any willful action (or inactions)
taken (or not taken) by or on behalf of Holdings with the intention of
avoiding payment of the premium that Holdings would have to pay pursuant to a
redemption of Notes as described under "--Redemption of Notes--Optional
Redemption," an equivalent premium shall also become and be immediately, due
and payable to the extent permitted by law.
A Default or Event of Default under clause (c) (other than an Event of
Default arising under the "Merger or Consolidation" covenant which shall be an
Event of Default with the notice but without the passage of time specified in
this paragraph) is not an Event of Default under the Indenture until the
Trustee or the holders of at least 25% in principal amount of the Notes then
outstanding notify Holdings of the Default and Holdings does not cure the
Default within 30 days after receipt of the notice. a Default or Event of
Default under clause (f) of the preceding paragraph will result in the Notes
automatically becoming due and payable without further action or notice.
Upon the occurrence of an Event of Default, the Trustee or the holders of at
least 25% in principal amount at maturity of the then outstanding Notes may
declare all Notes to be due and payable by notice in writing to Holdings and
the Trustee specifying the respective Event of Default and that it is a
"notice of acceleration" (the "Acceleration Notice") and the principal of (or,
if prior to September 15, 2004, the Accreted Value of), premium, if any, and
accrued and unpaid interest and Liquidated Damages, if any, shall become
immediately due and payable, but only if such Event of Default is then
continuing. The holders of a majority in principal amount of the Notes then
outstanding under the Indenture, by notice to the Trustee, may rescind any
declaration of acceleration of such Notes and its consequences (if the
rescission would not conflict with any judgment or decree) if all existing
Events of Default (other than the nonpayment of principal of or interest on
such Notes that shall have become due by such declaration) shall have been
cured or waived. Subject to certain limitations, holders of a majority in
principal amount of the Notes then outstanding under the Indenture may direct
the Trustee in its exercise of any trust or power. Holders of the Notes may
not enforce the Indenture, except as provided therein. The Trustee may
withhold from holders of Notes notice of any continuing Default or Event of
Default (except a Default or an Event of Default in payment of principal,
premium, if any, or interest) if the Trustee determines that withholding
notice is in their interest.
The holders of a majority in aggregate principal amount of the Notes then
outstanding may on behalf of all holders of such Notes waive any existing
Default or Event of Default under the Indenture and its consequences, except a
continuing Default in the payment of the principal of (or, if prior to
September 15, 2004, the Accreted Value), or premium, if any, interest or
Liquidated Damages, if any, on, such Notes, which may only be waived with the
consent of each holder of the Notes affected.
Holdings is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and upon an officer of Holdings
becoming aware of any Default or Event of Default, a statement specifying such
Default or Event of Default.
NO PERSONAL LIABILITY OF OFFICERS, DIRECTORS, EMPLOYEES, STOCKHOLDERS AND
SUBSIDIARIES
No officer, employee, director, stockholder or Subsidiary of Holdings shall
have any liability for any Obligations of Holdings under the Notes or the
Indenture, or for any claim based on, in respect of, or by reason of, such
Obligations or the creation of any such Obligation, except, in the case of a
Subsidiary, for an express guarantee or an express creation of any Lien by
such Subsidiary of Holdings' Obligations under the Notes issued in accordance
with the Indenture. Each holder of the Notes by accepting a Note waives and
releases all such liability, and such waiver and release is part of the
consideration for issuance of the Notes. The foregoing waiver may not be
effective to waive liabilities under the federal securities laws and the
Commission is of the view that such a waiver is against public policy.
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SATISFACTION AND DISCHARGE OF THE INDENTURE
Holdings at any time may terminate all of its obligations under the Notes
and the Indenture ("legal defeasance option"), except for certain obligations
(including those with respect to the defeasance trust (as defined herein) and
obligations to register the transfer or of the Notes, to replace mutilated,
destroyed, lost or stolen Notes and to maintain a registrar and paying agent
in respect of the Notes). Holdings at any time may terminate (1) its
obligations under the "Change of Control" and "Asset Sales" provisions
described herein and the covenants described under "Certain Covenants" and
certain other covenants in the Indenture, (2) the operation of clauses (c),
(d) and (e) contained in the first paragraph of the "Events of Default and
Remedies" provisions described herein and (3) the limitations contained in
clauses (c) and (d) under the "Merger or Consolidation" provisions described
herein (collectively, a "covenant defeasance option").
Holdings may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If Holdings exercises its legal
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default with respect thereto. If Holdings exercises its covenant
defeasance option, payment of the Notes shall not be accelerated because of an
Event of Default specified in clauses (c), (d) or (e) in the first paragraph
under the "Events of Default and Remedies" provisions described herein or
because of Holdings' failure to comply with clauses (c) and (d) under the
"Merger or Consolidation" provisions described herein.
To exercise either defeasance option with respect to the Notes outstanding,
Holdings must irrevocably deposit in trust (the "defeasance trust") with the
Trustee money or U.S. Government Obligations (as defined in the Indenture) for
the payment of principal (or, if prior to September 15, 2004, the Accreted
Value) of and premium and unpaid interest and Liquidated Damages, if any, on
the Notes then outstanding to redemption or maturity, as the case may be, and
must comply with certain other conditions, including the passage of 91 days
and the delivery to the Trustee of an opinion of counsel to the effect that
holders of such Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such deposit and defeasance and will be
subject to federal income tax on the same amount and in the same manner and at
the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such opinion of
counsel must be based on a ruling of the Internal Revenue Service or other
change in applicable federal income tax law).
TRANSFER AND EXCHANGE
Holders of Notes may transfer or exchange their Exchange Notes in accordance
with the Indenture, but the Registrar may require a holder, among other
things, to furnish appropriate endorsements and transfer documents, and to pay
any taxes and fees required by law or permitted by the Indenture, in
connection with any such transfer or exchange. Neither Holdings nor the
Registrar is required to issue, register the transfer of, or exchange (i) any
Note selected for redemption or tendered pursuant to an Offer, or (ii) any
Note during the period between (a) the date the Trustee receives notice of a
redemption from Holdings and the date the Exchange Notes to be redeemed are
selected by the Trustee or (b) a record date and the next succeeding interest
payment date. The registered holder of a Note will be treated as its owner for
all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture may be amended or supplemented
with the consent of the holders of at least a majority in principal amount of
the Exchange Notes then outstanding under the Indenture, and any existing
Default or Event of Default (other than a payment default) or compliance with
any provision may be waived with the consent of the holders of a majority in
principal amount of the Exchange Notes then outstanding under the Indenture.
Without the consent of any holder of Exchange Notes, Holdings and the Trustee
may amend or supplement the Indenture or the Exchange Notes to cure any
ambiguity, defect or inconsistency, to provide for unCertificated Notes in
addition to or in place of Certificated Notes, to provide for the assumption
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by a successor corporation of Holdings' obligations to the holders of Exchange
Notes in the case of a Disposition, to comply with the Trust Indenture Act, or
to make any change that does not adversely affect the legal rights of any
holder of Exchange Notes.
Without the consent of each holder of Exchange Notes affected, Holdings may
not (i) reduce the principal amount at maturity of Exchange Notes whose
holders must consent to an amendment to the Indenture or a waiver under the
Indenture; (ii) reduce the rate of or change the interest payment time of the
Exchange Notes, or alter the redemption provisions with respect thereto (other
than the provisions relating to the covenants described above under the
caption "--Mandatory Offers to Purchase Exchange Notes--Change of Control" and
"--Asset Sales") or the price at which Holdings is required to offer to
purchase the Exchange Notes; (iii) reduce the principal amount at maturity of
or change the fixed maturity of the Exchange Notes; (iv) make the Exchange
Notes payable in money other than stated in the Exchange Notes; (v) make any
change in the provisions concerning waiver of Defaults or Events of Default by
holders of the Exchange Notes, or rights of holders of the Exchange Notes to
receive payment of principal or interest; or (vi) waive any default in the
payment of principal of or premium, or unpaid interest or Liquidated Damages,
if any, on the Exchange Notes.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee, if
it becomes a creditor of Holdings, to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any such claim
as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest (as defined in
the Trust Indenture Act) it must eliminate such conflict or resign.
The holders of a majority in principal amount of the Exchange Notes then
outstanding will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that if an Event of
Default occurs (and has not been cured), the Trustee will be required, in the
exercise of its power, to use the degree of care and skill of a prudent person
in similar circumstances in the conduct of its own affairs. Subject to the
provisions of the Indenture, the Trustee will be under no obligation to
exercise any of its rights or powers under its Indenture at the request of any
of the holders of the Exchange Notes, unless such holders shall have offered
to the Trustee security and indemnity satisfactory to it.
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth in the next paragraph, the New Notes to be exchanged as
set forth herein will initially be issued in the form of one Global New Note
(the "Global New Note"). The Global New Note will be deposited on the
Expiration Date with, or on behalf of, the Depository and registered in the
name of Cede & Co., as nominee of the Depositary (such nominee being referred
to herein as the "Global New Note Holder").
New Notes that are issued as described below under "--Certificated New
Notes" will be issued in the form of registered definitive certificates (the
"Certificated New Notes"). Such Certificated New Notes may, unless the Global
New Note has previously been exchange for Certificated New Notes, be exchanged
for an interest in the Global New Note representing the principal amount of
New Notes being transferred.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. the Depositary's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depositary's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect
Participants" or the "Depositary's Indirect Participants") and to facilitate
the clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies,
clearing corporations and certain other
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organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively,
the "Indirect Participants" or the "Depositary's Indirect Participants") that
clear through or maintain a custodial relationship with a Participant, either
directly ro indirectly. Persons who are not Participants may beneficially own
securities held by or on behalf of the Depositary only through the
Depositary's Participants or the Depositary's Indirect participants.
So long as the Global New Note Holder is the registered owner of any New
Notes, the Global New Note Holder will be considered the sole holder under the
Indenture of any New Notes evidenced by the Global New Note. Beneficial owners
of New Notes evidenced by the Global New Note will not be considered the
owners or holders thereof under the Indenture for any purpose, including with
respect to the giving of any directions, instructions or approvals to the
Trustee thereunder. Neither the Company nor the Trustee will have any
responsibility or liability for any aspect of the records of the Depositary or
for maintaining, supervising or reviewing any records of the Depositary
relating to the New Notes.
Payments in respect of the principal of, premium, if any, and interest on
New Notes registered in the name of the Global New Note Holder on the
applicable record date will be payable by the Trustee to or at the direction
of the Global New Note Holder in its capacity as the registered holder under
the Indenture. Under the terms of the Indenture, the Company and the Trustee
may treat the persons in whose names New Notes, including the global New Note,
are registered as the owners thereof for the purpose of receiving such
payments. Consequently, neither the Company nor the Trustee has or will have
any responsibility or liability for the payment of such amounts to beneficial
owners of New Notes. The Company believes, however, that it is currently the
policy of the Depositary to immediately credit the accounts of the relevant
Participants with such payments, in amounts proportionate to their respective
holdings of beneficial interests in the relevant security as shown on the
records of the Depositary. Payments by the Depositary's participants and the
Depositary's Indirect Participants to the beneficial owners of New Notes will
be governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
CERTIFICATED NEW NOTES
Subject to certain conditions, any person having a beneficial interest in
the Global New Note may, upon request to the Trustee, exchange such beneficial
interest for New Notes in the form of Certificated New Notes. Upon any such
issuance, the Trustee is required to register such Certificated New Notes in
the name of, and cause the same to be delivered to, such person or persons (or
the nominee of any thereof). In addition, if (i) the Company notifies the
Trustee in writing that the Depositary is no longer willing or able to act as
a depositary and the Company is unable to locate a qualified successor within
90 days or (ii) the Company, at its option, notifies the Trustee in writing
that it elects to cause the issuance of New Notes in the form of Certificated
New Notes under the Indenture, then, upon surrender by the Global New Note
Holder of its Global New Note, New Note in such form will be issued to each
person that the Global New Note Holder and the Depositary identify as being
the beneficial owner of the related New Notes.
Neither the Company nor the Trustee will be liable for any delay by the
global New Note Holder or the Depositary in identifying the beneficial owners
of New Notes and the Company and the Trustee may conclusively rely on, and
will protected in relying on, instructions from the global New Note Holder or
the Depositary for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the New Notes represented
by the Global New Note (including principal, premium, if any, and interest) be
made by wire transfer of immediately available funds to the accounts specified
by the Global New Note Holder. with respect to Certificated New Notes, the
Company will make all payments of principal, premium, if any, and interest by
wire transfer of immediately available funds to the accounts specified by the
holders thereof or, if no such account is specified, by mailing a check to
each such holder's registered address. Secondary trading in long-term notes
and debentures of corporate issuers is
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generally settled in clearinghouse or next-day funds. In contrast, new Notes
represented by the Global New note are expected to be eligible to trade in the
PORTAL market and to trade in the Depositary's Same-Day funds Settlement
System, and any permitted secondary market trading activity in such New Notes
will, therefore, be required by the Depositary to be settled in immediately
available funds. The Company expects that secondary trading in the
Certificated New Notes will also be settled in immediately available funds.
CERTAIN DEFINITIONS
Set forth below are certain of the defined terms used in the Indenture.
Reference is made to the Indenture for the definition of all other terms used
in the Indenture.
"Accreted Value" means, as of any date of determination prior to September
15, 2004, the sum of (a) the initial offering price of each Note and (b) that
portion of the excess of the principal amount of each Note over such initial
offering price as shall have been accreted thereon through such date, such
amount to be so accreted on a daily basis at the rate of 11.375% per annum of
the initial offering price of the Notes, compounded semi-annually on each
September 15, and each March 15, from the date of issuance of the Notes
through the date of determination computed on the basis of a 360-day year of
twelve 30-day months. The Accreted Value of any Notes on or after September
15, 2004 shall be 100% of the principal amount thereof.
"Affiliate" means any of the following: (i) any person directly or
indirectly controlling or controlled by or under direct or indirect common
control with Holdings, (ii) any spouse, immediate family member or other
relative who has the same principal residence as any person described in
clause (i) above, (iii) any trust in which any such persons described in
clause (i) or (ii) above has a beneficial interest and (iv) any corporation or
other organization of which any such persons described above collectively own
50% or more of the equity of such entity.
"Affiliated Embroiderers" means the affiliated entities that provide
embroidery services for the Company on the date of issuance of the Notes.
"Asset Sale" means the sale, lease, conveyance or other disposition by
Holdings or a Restricted Subsidiary of assets or property whether owned on the
date of original issuance of the Notes or thereafter acquired, in a single
transaction or in a series of related transactions; provided that Asset Sales
will not include such sales, leases, conveyances or dispositions in connection
with (i) the sale or disposition of any Restricted Investment, (ii) any Equity
Offering by Holdings, (iii) the surrender or waiver of contract rights or the
settlement, release or surrender of contract, tort or other claims of any
kind, (iv) the sale or lease of inventory equipment, accounts receivable or
other assets in the ordinary course of business, (v) a sale-leaseback of
assets within one year following the acquisition of such assets, (vi) the
grant of any license of patents, trademarks, registration therefor and other
similar intellectual property, (vii) a transfer of assets by Holdings or a
Restricted Subsidiary to Holdings or a Restricted Subsidiary, (viii) the
designation of a Restricted Subsidiary as a Non-Restricted Subsidiary pursuant
to the "--Designation of Restricted and Non-Restricted Subsidiaries" covenant,
(ix) the sale, lease, conveyance or other disposition of all or substantially
all of the assets of Holdings as permitted under "--Merger or Consolidation,"
(x) the sale or disposition of obsolete equipment or other obsolete assets,
(xi) Restricted Payments permitted by the "Limitations on Restricted Payments"
covenant, (xii) the exchange of assets for other non-cash assets that (a) are
useful in the business of Holdings and its Restricted Subsidiaries and (b)
have a fair market value at least equal to the fair market value of the assets
being exchanged (as determined by the Board of Directors in good faith) or
(xiii) the sale, transfer and/or termination of the officers' life insurance
policies in effect on the date of issuance of the Notes.
"Board of Directors" means Holdings' board of directors or any authorized
committee of such board of directors.
"Capital Stock" means any and all shares, interests, participation or other
equivalents (however designated) of corporate stock, including any preferred
stock.
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"Cash Flow" means, for any given period and person, the sum of, without
duplication, Consolidated Net Income, plus (a) any provision for taxes based
on income or profits to the extent such income or profits were included in
computing Consolidated Net Income, plus (b) Consolidated Interest Expense, to
the extent deducted in computing Consolidated Net Income, plus (c) the
amortization of all intangible assets, to the extent such amortization was
deducted in computing Consolidated Net Income (including, but not limited to,
inventory write-ups, goodwill, debt and financing costs, and Incentive
Arrangements), plus (d) any non-capitalized transaction costs incurred in
connection with actual or proposed financings, acquisitions or divestitures
(including, but not limited to, financing and refinancing fees, including
those in connection with the Transactions), to the extent deducted in
computing Consolidated Net Income, plus (e) all depreciation and all other
non-cash charges (including, without limitation, those charges relating to
purchase accounting adjustments and LIFO adjustments), to the extent deducted
in computing Consolidated Net Income, plus (f) any interest income, to the
extent such income was not included in computing Consolidated Net Income, plus
(g) all dividend payments on preferred stock (whether or not paid in cash) to
the extent deducted in computing Consolidated Net Income, plus (h) any
extraordinary or nonrecurring charge or expense arising out of the
implementation of SFAS 106 or SFAS 109 to the extent deducted in computing
Consolidated Net Income, plus (i) to the extent not covered in clause (d)
above, fees paid or payable in respect of the TJC Agreement to the extent
deducted in computing Consolidated Net Income, plus (j) the net loss of any
person, other than those of a Restricted Subsidiary, to the extent deducted in
computing Consolidated Net Income, plus (k) net losses in respect of any
discontinued operations as determined in accordance with GAAP, to the extent
deducted in computing Consolidated Net Income, minus (l) the portion of
Consolidated Net Income attributable to the minority interests in other
persons, except the amount of such portion received in cash by Holdings or its
Restricted Subsidiaries; provided, however, that if any such calculation
includes any period during which an acquisition or sale of a person or the
incurrence or repayment of Indebtedness occurred, then such calculation for
such period shall be made on a Pro Forma Basis.
"Cash Flow Coverage Ratio" means, for any given period and person, the ratio
of: (i) Cash Flow to (ii) the sum of Consolidated Interest Expense and all
dividend payments on any series of preferred stock of such person (except
dividends paid or payable in additional shares of Capital Stock (other than
Disqualified Stock)), in each case, without duplication; provided, however,
that if any such calculation includes any period during which an acquisition
or sale of a person or the incurrence or repayment of Indebtedness occurred,
then such calculation for such period shall be made on a Pro Forma Basis.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of Holdings and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the
Exchange Act) other than the Principals or their Related Parties, (ii) the
adoption of a plan relating to the liquidation or dissolution of Holdings,
(iii) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as defined
above), other than the Principals and their Related Parties, becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under
the Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire,
whether such right is currently exercisable or is exercisable only upon the
occurrence of a subsequent condition), directly or indirectly, of more than
50% of the Voting Stock of Holdings (measured by voting power rather than
number of shares), (iv) the consummation of the first transaction (including,
without limitation, any merger or consolidation) the result of which is that
any "person" (as defined above) becomes the "beneficial owner" (as defined
above), directly or indirectly, of more of the Voting Stock of Holdings
(measured by voting power rather than number of shares) than is at the time
"beneficially owned" (as defined above) by the Principals and their Related
Parties in the aggregate, (v) the first day on which a majority of the members
of the Board of Directors of Holdings are not Continuing Directors or (vi) the
first day on which Holdings ceases to be the owner of record of 100% of the
Voting Stock of GFSI. For purposes of this definition, any transfer of an
equity interest of an entity that was formed following the date of issuance of
the Notes for the purpose of acquiring Voting Stock of Holdings will be deemed
to be a transfer of such portion of such Voting Stock as corresponds to the
portion of the equity of such entity that has been so transferred.
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The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of Holdings' assets. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of Notes to require Holdings to repurchase such Notes as a result of a
sale, lease, transfer, conveyance or other disposition of less than all of the
assets of Holdings and its Subsidiaries to another person may be uncertain.
"Closing Date" means the date on which the Units were issued.
"Commission" means the U.S. Securities and Exchange Commission.
"Consolidated Interest Expense" means, for any given period and person, the
aggregate of the interest expense in respect of all Indebtedness of such
person and its Restricted Subsidiaries for such period, on a consolidated
basis, determined in accordance with GAAP (including amortization of original
issue discount on any such Indebtedness, all non-cash interest payments, the
interest portion of any deferred payment obligation and the interest component
of capital lease obligations, but excluding amortization of deferred financing
fees if such amortization would otherwise be included in interest expense);
provided, however, that for the purpose of the Cash Flow Coverage Ratio,
Consolidated Interest Expense shall be calculated on a Pro Forma Basis;
provided further that any premiums, fees and expenses (including the
amortization thereof) payable in connection with the Offering or any other
refinancing of Indebtedness will be excluded.
"Consolidated Net Income" means, for any given period and person, the
aggregate of the Net Income of such person and its Restricted Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that: (i) the Net Income of any person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded and (ii) Consolidated Net Income of any person
will not include, without duplication, any deduction for: (a) any increased
amortization or depreciation resulting from the write-up of assets pursuant to
Accounting Principles Board Opinion Nos. 16 and 17, as amended or supplemented
from time to time, (B) the amortization of all intangible assets (including
amortization attributable to inventory write-ups, goodwill, debt and financing
costs, and Incentive Arrangements), (C) any non-capitalized transaction costs
incurred in connection with actual or proposed financings, acquisitions or
divestitures (including, but not limited to, financing and refinancing fees),
(D) any extraordinary or nonrecurring charges relating to any premium or
penalty paid, write-off of deferred financing costs or other financial
recapitalization charges in connection with redeeming or retiring any
Indebtedness prior to its stated maturity and (E) any Restructuring Charges;
provided, however, that for purposes of determining the Cash Flow Coverage
Ratio, Consolidated Net Income shall be calculated on a Pro Forma Basis.
"Consolidated Net Worth" with respect to any person means, as of any date,
the consolidated equity of the common stockholders of such person (excluding
the cumulated foreign currency translation adjustment), all determined on a
consolidated basis in accordance with GAAP, but without any reduction in
respect of the payment of dividends on any series of such person's preferred
stock if such dividends are paid in additional shares of Capital Stock (other
than Disqualified Stock); provided, however, that Consolidated Net Worth shall
also include, without duplication: (a) the amortization of all write-ups of
inventory, (b) the amortization of all intangible assets (including
amortization of goodwill, debt and financing costs, and Incentive
Arrangements), (c) any non-capitalized transaction costs incurred in
connection with actual or proposed financings, acquisitions or divestitures
(including, but not limited to, financing and refinancing fees), (d) any
increased amortization or depreciation resulting from the write-up of assets
pursuant to Accounting Principles Board Opinion Nos. 16 and 17, as amended and
supplemented from time to time, (e) any extraordinary or nonrecurring charges
or expenses relating to any premium or penalty paid, write-off of deferred
financing costs or other financial recapitalization charges incurred in
connection with redeeming or retiring any Indebtedness prior to its stated
maturity, (f) any Restructuring Charges and (g) any extraordinary or non-
recurring charge arising out of the implementation of SFAS 106 or SFAS 109;
provided, however, that Consolidated Net Worth shall be calculated on a Pro
Forma Basis.
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"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of Holdings who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Credit Facilities" means, with respect to Holdings and its Restricted
Subsidiaries, one or more debt facilities or commercial paper facilities with
banks or other institutional lenders providing for revolving credit loans,
term loans, receivables financing (including through the sale of receivables
to such lenders or to special purpose entities formed to borrow from such
lenders against such receivables) or letters of credit, in each case, as
amended, restated, modified, renewed, refunded, replaced or refinanced in
whole or in part from time to time.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock that by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
redeemable at the option of the holder thereof, in whole or in part on, or
prior to, the maturity date of the Notes.
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500 million or its equivalent
in foreign currency, whose debt is rated "a" (or higher) according to S&P or
Moody's at the time as of which any investment or rollover therein is made.
"Equity Interests" means Capital Stock or partnership interests or warrants,
options or other rights to acquire Capital Stock or partnership interests (but
excluding (i) any debt security that is convertible into, or exchangeable for,
Capital Stock or partnership interests and (ii) any other Indebtedness or
Obligation); provided, however, that Equity Interests will not include any
Incentive Arrangements or obligations or payments thereunder.
"Equity Offering" means a public or private offering by Holdings or GFSI, as
applicable, for cash of Equity Interests and all warrants, options or other
rights to acquire Capital Stock, other than (i) an offering of Disqualified
Stock or (ii) Incentive Arrangements or obligations or payments thereunder.
"GAAP" means generally accepted accounting principles, consistently applied,
as of the date of original issuance of the Notes. All financial and accounting
determinations and calculations under the Indenture will be made in accordance
with GAAP.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Hedging Obligations" means, with respect to any person, the Obligations of
such persons under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements, (ii) foreign exchange
contracts, currency swap agreements or similar agreements and (iii) other
agreements or arrangements designed to protect such person against
fluctuations, or otherwise to establish financial hedges in respect of,
exchange rates, currency rates or interest rates.
"Incentive Arrangements" means any earn-out agreements, stock appreciation
rights, "phantom" stock plans, employment agreements, non-competition
agreements, subscription and stockholders agreements and other incentive and
bonus plans, including the Incentive Compensation Plan, and similar
arrangements made in connection with acquisitions of persons or businesses by
Holdings or the Restricted Subsidiaries or the retention of consultants,
executives, officers or employees by Holdings or the Restricted Subsidiaries.
"Indebtedness" means, with respect to any person, any indebtedness, whether
or not contingent, in respect of borrowed money or evidenced by bonds, Notes,
or similar instruments or letters of credit (or reimbursement agreements in
respect thereof) or representing the deferred and unpaid balance of the
purchase price of any
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property (including pursuant to capital leases), except any such balance that
constitutes an accrued expense or a trade payable, and any Hedging
Obligations, if and to the extent such indebtedness (other than a Hedging
Obligation) would appear as a liability upon a balance sheet of such person
prepared on a consolidated basis in accordance with GAAP and also includes, to
the extent not otherwise included, the guarantee of items that would be
included within this definition; provided, however, that "Indebtedness" will
not include any Incentive Arrangements or obligations or payments thereunder.
"Investment" means any capital contribution to, or other debt or equity
investment in, any Person.
"issue" means create, issue, assume, guarantee, incur or otherwise become
directly or indirectly liable for any Indebtedness or Capital Stock, as
applicable; provided, however, that any Indebtedness or Capital Stock of a
person existing at the time such person becomes a Restricted Subsidiary
(whether by merger, consolidation, acquisition, redesignation of a Non-
Restricted Subsidiary or otherwise) shall be deemed to be issued by such
Restricted Subsidiary at the time it becomes a Restricted Subsidiary. For this
definition, the terms "issuing," "issuer," "issuance" and "issued" have
meanings correlative to the foregoing.
"Issue Date" means the date upon which the Units were exchanged for the Old
Notes.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell and any filing of or
agreement to give any financing statement under the Uniform Commercial Code
(or equivalent statutes) of any jurisdiction).
"Marketable Securities" means (a) Government Securities, (b) any certificate
of deposit maturing not more than 270 days after the date of acquisition
issued by, or time deposit of, an Eligible Institution, (c) commercial paper
maturing not more than 270 days after the date of acquisition of an issuer
(other than an Affiliate of Holdings) with a rating, at the time as of which
any investment therein is made, of "a-2" (or higher) according to S&P or "P-2"
(or higher) according to Moody's or carrying an equivalent rating by a
nationally recognized rating agency if both of the two named rating agencies
cease publishing ratings of investments, (d) any bankers acceptances or money
market deposit accounts issued by an Eligible Institution and (e) any fund
investing exclusively in investments of the types described in clauses (a)
through (d) above.
"Moody's" means Moody's Investors Service, Inc.
"Net Income" means, with respect to any person, the net income (loss) of
such person, determined in accordance with GAAP excluding, however, any gain
or loss, together with any related provision for taxes, realized in connection
with any Asset Sale (including, without limitation, dispositions pursuant to
sale and leaseback transactions).
"Net Proceeds" means, with respect to any Asset Sale, the aggregate amount
of cash proceeds (including any cash received by way of deferred payment
pursuant to a Note receivable issued in connection with such Asset Sale, other
than the portion of such deferred payment constituting interest, and including
any amounts received as disbursements or withdrawals from any escrow or
similar account established in connection with any such Asset Sale, but, in
either such case, only as and when so received) received by Holdings or any of
its Restricted Subsidiaries in respect of such Asset Sale, net of: (i) the
cash expenses of such Asset Sale (including, without limitation, the payment
of principal of, and premium, if any, and interest on, Indebtedness required
to be paid as a result of such Asset Sale (other than the Notes) and legal,
accounting, management and advisory and investment banking fees and sales
commissions), (ii) taxes paid or payable as a result thereof, (iii) any
portion of cash proceeds that Holdings determines in good faith should be
reserved for post-closing adjustments, it being understood and agreed that on
the day that all such post-closing adjustments have been determined, the
amount (if any) by which the reserved amount in respect of such Asset Sale
exceeds the actual post-closing adjustments payable by Holdings or any of its
Restricted Subsidiaries shall constitute Net Proceeds on such date, (iv) any
relocation expenses and pension, severance and shutdown costs incurred as a
result thereof, and (v) any
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deduction or appropriate amounts to be provided by Holdings or any of its
Restricted Subsidiaries as a reserve in accordance with GAAP against any
liabilities associated with the asset disposed of in such transaction and
retained by Holdings or such Restricted Subsidiary after such sale or other
disposition thereof, including, without limitation, pension and other post-
employment benefit liabilities and liabilities related to environmental
matters or against any indemnification obligations associated with such
transaction.
"Non-Restricted Subsidiary" means any Subsidiary of Holdings other than a
Restricted Subsidiary.
"Obligations" means, with respect to any Indebtedness, all principal,
interest, premiums, penalties, fees, indemnities, expenses (including legal
fees and expenses), reimbursement obligations and other liabilities payable to
the holder of such Indebtedness under the documentation governing such
Indebtedness, and any other claims of such holder arising in respect of such
Indebtedness.
"Other Permitted Indebtedness" means:
(i) Indebtedness of Holdings and its Restricted Subsidiaries existing as
of the date of original issuance of the Notes and all related Obligations
as in effect on such date;
(ii) Indebtedness of Holdings and its Restricted Subsidiaries in respect
of bankers acceptances and letters of credit (including, without
limitation, letters of credit in respect of workers' compensation claims)
issued in the ordinary course of business, or other Indebtedness in respect
of reimbursement-type obligations regarding workers' compensation claims;
(iii) Refinancing Indebtedness, provided that: (a) the principal amount
of such Refinancing Indebtedness shall not exceed the outstanding principal
amount of Indebtedness (including unused commitments) extended, refinanced,
renewed, replaced, substituted or refunded plus any amounts incurred to pay
premiums, fees and expenses in connection therewith, (B) the Refinancing
Indebtedness shall have a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of the Indebtedness
being extended, refinanced, renewed, replaced, substituted or refunded;
provided, however, that this limitation in this clause (B) does not apply
to Refinancing Indebtedness of Senior Indebtedness, and (C) in the case of
Refinancing Indebtedness of Subordinated Indebtedness, such Refinancing
Indebtedness shall be subordinated to the Notes at least to the same extent
as the Subordinated Indebtedness being extended, refinanced, renewed,
replaced, substituted or refunded;
(iv) intercompany Indebtedness of and among Holdings and its Restricted
Subsidiaries;
(v) Indebtedness of Holdings and its Restricted Subsidiaries incurred in
connection with making permitted Restricted Payments under clauses (iii),
(iv) (but only to the extent that such Indebtedness is provided by Holdings
or a Restricted Subsidiary) or (x) of the second sentence of the
"Limitation on Restricted Payments" covenant; provided that any
Indebtedness incurred pursuant to this clause (v) is expressly subordinate
in right of payment to the Notes;
(vi) Indebtedness of any Non-Restricted Subsidiary created after the date
of original issuance of the Notes, provided that such Indebtedness is
nonrecourse to Holdings and its Restricted Subsidiaries and Holdings and
its Restricted Subsidiaries have no Obligations with respect to such
Indebtedness;
(vii) Indebtedness of Holdings and its Restricted Subsidiaries under
Hedging Obligations;
(viii) Indebtedness of Holdings and its Restricted Subsidiaries arising
from the honoring by a bank or other financial institution of a check,
draft or similar instrument inadvertently (except in the case of daylight
overdrafts, which will not be, and will not be deemed to be, inadvertent)
drawn against insufficient funds in the ordinary course of business;
(ix) Indebtedness of Holdings and its Restricted Subsidiaries in
connection with performance, surety, statutory, appeal or similar bonds in
the ordinary course of business;
(x) Indebtedness of Holdings and its Restricted Subsidiaries in
connection with agreements providing for indemnification, purchase price
adjustments and similar obligations in connection with the sale or
disposition of any of their business, properties or assets;
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(xi) The guarantee by Holdings or any of the Restricted Subsidiaries of
Indebtedness of Holdings or a Restricted Subsidiary of Holdings that was
permitted to be incurred by another provision of the covenant entitled
"Limitation on Incurrence of Indebtedness;" and
(xii) Indebtedness of any person at the time it is acquired as a
Restricted Subsidiary, provided that such Indebtedness was not issued by
such person in connection with or in anticipation of such acquisition.
"Permitted Liens" means:
(i) Liens securing Indebtedness of Holdings or any Restricted Subsidiary
that was permitted to be incurred pursuant to clauses (i) and (iii) of the
second paragraph of the covenant entitled "Limitation on Incurrence of
Indebtedness;"
(ii) Liens for taxes, assessments, governmental charges or claims which
are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted and if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have
been made therefor;
(iii) statutory Liens of landlords and carriers', warehousemen's,
mechanics', suppliers', materialmen's, repairmen's or other like Liens
arising in the ordinary course of business and with respect to amounts not
yet delinquent or being contested in good faith by appropriate proceedings,
if a reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made therefor;
(iv) Liens incurred on deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security;
(v) Liens incurred on deposits made to secure the performance of tenders,
bids, leases, statutory obligations, surety and appeal bonds, government
contracts, performance and return of money bonds and other obligations of a
like nature incurred in the ordinary course of business (exclusive of
obligations for the payment of borrowed money);
(vi) easements, rights-of-way, zoning or other restrictions, minor
defects or irregularities in title and other similar charges or
encumbrances not interfering in any material respect with the business of
Holdings or any of its Restricted Subsidiaries incurred in the ordinary
course of business;
(vii) Liens (including extensions, renewals and replacements thereof)
upon property acquired (the "Acquired Property") after the date of original
issuance of the Notes, provided that: (a) any such Lien is created solely
for the purpose of securing Indebtedness representing, or issued to
finance, refinance or refund, the cost (including the cost of construction)
of the Acquired Property, (B) the principal amount of the Indebtedness
secured by such Lien does not exceed 100% of the cost of the Acquired
Property, (C) such Lien does not extend to or cover any property other than
the Acquired Property and any improvements on such Acquired Property, and
(D) the issuance of the Indebtedness to purchase the Acquired Property is
permitted by the "Limitation on Incurrence of Indebtedness" covenant;
(viii) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(ix) judgment and attachment Liens not giving rise to an Event of
Default;
(x) leases or subleases granted to others not interfering in any material
respect with the business of Holdings or any of its Restricted
Subsidiaries;
(xi) Liens securing Indebtedness under Hedging Obligations;
(xii) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements;
(xiii) Liens arising out of consignment or similar arrangements for the
sale of goods entered into by Holdings or its Restricted Subsidiaries in
the ordinary course of business;
(xiv) any interest or title of a lessor in property subject to any
capital lease obligation or operating lease;
(xv) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
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(xvi) Liens existing on the date of original issuance of the Notes and
any extensions, refinancings, renewals, replacements, substitutions or
refundings thereof;
(xvii) any Lien granted to the Trustee and any substantially equivalent
Lien granted to any trustee or similar institution under any indenture for
Indebtedness permitted by the terms of the Indenture;
(xviii) Liens in favor of Holdings or any Restricted Subsidiary;
(xix) additional Liens at any one time outstanding in respect of
properties or assets where aggregate fair market value does not exceed $3.0
million (the fair market value to be determined on the date such Lien is
granted on such properties or assets); and
(xx) Liens securing intercompany Indebtedness issued by any Restricted
Subsidiary to Holdings or another Restricted Subsidiary.
"Principals" means (a) The Jordan Company, Jordan/Zalaznick Capital
Corporation and MCIT PLC, and their respective Affiliates, principals,
partners and employees, family members of any of the foregoing and trusts for
the benefit of any of the foregoing, including, without limitation, Leucadia
National Corporation and Jordan Industries, Inc., and their respective
Subsidiaries, (b) the officers, directors and employees of Holdings on the
date of issuance of the Notes and their respective Affiliates and family
members and trusts for the benefit of any of the foregoing. For the purpose of
the definition of "Principals," The Jordan Company, Jordan/Zalaznick Capital
Corporation and MCIT PLC shall be deemed to be Affiliates.
"Pro Forma Basis" means, for purposes of determining Consolidated Net Income
in connection with the Cash Flow Coverage Ratio (including in connection with
the "Limitation on Restricted Payments" covenant, the "Designation of
Restricted and Non-Restricted Subsidiaries" covenant, the "Merger or
Consolidation" covenant, the incurrence of Indebtedness pursuant to the first
sentence of the "Limitation on Incurrence of Indebtedness" covenant and
Consolidated Net Worth for purposes of the "Merger or Consolidation" covenant)
giving pro forma effect to (x) any acquisition or sale of a person, business
or asset, related incurrence, repayment or refinancing of Indebtedness or
other related transactions, including any Restructuring Charges which would
otherwise be accounted for as an adjustment permitted by Regulation S-X under
the Securities Act or on a pro forma basis under GAAP, or (y) any incurrence,
repayment or refinancing of any Indebtedness and the application of the
proceeds therefrom, in each case, as if such acquisition or sale and related
transactions, restructurings, consolidations, cost savings, reductions,
incurrence, repayment or refinancing were realized on the first day of the
relevant period permitted by Regulation S-X under the Securities Act or on a
pro forma basis under GAAP. Furthermore, in calculating the Cash Flow Coverage
Ratio, (1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the determination date and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per annum equal to
the rate of interest on such Indebtedness in effect on the determination date;
(2) if interest on any Indebtedness actually incurred on the determination
date may optionally be determined at an interest rate based upon a factor of a
prime or similar rate, a eurocurrency interbank offered rate, or other rates,
then the interest rate in effect on the determination date will be deemed to
have been in effect during the relevant period; and (3) notwithstanding clause
(1) above, interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by agreements relating to interest rate swaps
or similar interest rate protection Hedging Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements.
"Redeemable Preferred Stock" means preferred stock that by its terms or
otherwise is required to be redeemed or is redeemable at the option of the
holder thereof on, or prior to, the maturity date of the Notes.
"Refinancing Indebtedness" means (i) Indebtedness of Holdings and its
Restricted Subsidiaries issued or given in exchange for, or the proceeds of
which are used to, extend, refinance, renew, replace, substitute or refund any
Indebtedness permitted under this Indenture or any Indebtedness issued to so
extend, refinance, renew, replace, substitute or refund such Indebtedness,
(ii) any refinancings of Indebtedness issued under Credit Facilities, and
(iii) any additional Indebtedness issued to pay premiums and fees in
connection with clauses (i) and (ii).
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"Related Party" with respect to any Principal means (a) any controlling
stockholder, 80% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (B) or trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (a).
"Restricted Investment" means any Investment in any person; provided that
Restricted Investments will not include: (i) Investments in Marketable
Securities and other negotiable instruments permitted by the Indenture; (ii)
any Incentive Arrangements; (iii) Investments in Holdings; or (iv) Investments
in any Restricted Subsidiary (provided that any Investment in a Restricted
Subsidiary was made for fair market value (as determined by the Board of
Directors in good faith)). The amount of any Restricted Investment shall be
the amount of cash and the fair market value at the time of transfer of all
other property (as determined by the Board of Directors in good faith)
initially invested or paid for such Restricted Investment, plus all additions
thereto, without any adjustments for increases or decreases in value of or
write-ups, write-downs or write-offs with respect to, such Restricted
Investment.
"Restricted Subsidiary" means: (i) any Subsidiary of Holdings existing on
the date of original issuance of the Notes, and (ii) any other Subsidiary of
Holdings formed, acquired or existing after the date of original issuance of
the Notes that is designated as a "Restricted Subsidiary" by Holdings pursuant
to a resolution approved a majority of the Board of Directors, provided,
however, that the term Restricted Subsidiary shall not include any Subsidiary
of Holdings that has been redesignated by Holdings pursuant to a resolution
approved by a majority of the Board of Directors as a Non-Restricted
Subsidiary in accordance with the "Designation of Restricted and Non-
Restricted Subsidiaries" covenant unless such Subsidiary shall have
subsequently been redesignated a Restricted Subsidiary in accordance with
clause (ii) of this definition.
"Restructuring Charges" means any charges or expenses in respect of
restructuring or consolidating any business, operations or facilities, any
compensation or headcount reduction, or any other cost savings, of any persons
or businesses either alone or together with Holdings or any Restricted
Subsidiary, as permitted by GAAP or Regulation S-X under the Securities Act.
"S&P" means Standard & Poor's Corporation.
"Senior Indebtedness" means the same thing as it does in "Description of
Units--Certain Definitions."
"SFAS 106" means Statement of Financial Accounting Standards No. 106.
"SFAS 109" means Statement of Financial Accounting Standards No. 109.
"Significant Subsidiary" means any Restricted Subsidiary of Holdings that
would be a "significant subsidiary" as defined in clause (2) of the definition
of such term in Rule 1-02 of Regulation S-X under the Securities Act and the
Exchange Act.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the
date originally scheduled for the payment thereof.
"Subordinated Indebtedness" means all Obligations with respect to
Indebtedness if the instrument created or evidencing the same, or pursuant to
which the same is outstanding, designates such Obligations as subordinated or
junior in right of payment to the Notes.
"Subsidiary" of any person means any entity of which the Equity Interests
entitled to cast at least a majority of the votes that may be cast by all
Equity Interests having ordinary voting power for the election of directors or
other governing body of such entity are owned by such person (regardless of
whether such Equity Interests are owned directly by such person or through one
or more Subsidiaries).
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"TJC Agreement" means the Management Consulting Agreement among Holdings,
GFSI and TJC Management Corporation, as in effect on the date of original
issuance of the Notes.
"Voting Stock" means any class or classes of Capital Stock pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect the board of directors.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the then outstanding
principal amount of such Indebtedness into (ii) the sum of the product(s)
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other requirement payment of principal,
including payment at final maturity, in respect thereof, by (b) the number of
years (calculated to the nearest one-twelfth) which will elapse between such
date and the making of such payment.
"Wolff Noncompetition Agreement" means the agreement between Holdings and
Robert M. Wolff, relating to certain covenants not to compete with the
business of Holdings, as in effect on the date of issuance of the Notes.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of important terms of certain indebtedness of the
Company:
CREDIT AGREEMENT
Concurrently with the completion of the GFSI Offering, GFSI entered into the
Credit Agreement with The First National Bank of Chicago ("FNBC"), as
contractual representative, and other lenders thereunder. The Credit Agreement
provides for borrowings of up to $115.0 million under three credit facilities:
a term loan ("Term Loan a") in the principal amount of $40.0 million which
matures in 2002, a term loan ("Term Loan B") in the principal amount of $25.0
million which matures in 2004 and the Revolver in the principal amount of up to
$50.0 million (based upon availability) which matures in 2002. At the
completion of the Transactions, $40.0 million, $25.0 million and approximately
$3.0 million was outstanding under Term Loan a, Term Loan B and the Revolver,
respectively, leaving approximately $47.0 million available under the Revolver
for future borrowings and letter of credit issuances. Approximately $22.9
million of letters of credit were issued at the Closing of the Transactions.
See "The Transactions."
GFSI will pay interest (i) under each of Term Loan a and the Revolver based
on, at GFSI's option, either of FNBC's base rate plus 1.25% or the Eurodollar
Rate (as defined in the Credit Agreement) plus 2.25% and (ii) under Term Loan B
based on, at GFSI's option, either of FNBC's base rate plus 1.75% or the
Eurodollar Rate plus 2.75%. The interest rate under each of Term Loan a, Term
Loan B and the Revolver is subject to reduction based upon GFSI's Leverage
Ratio (as defined in the New Credit Agreement). a commitment fee of 0.50% will
be paid by GFSI for unutilized commitments under the Revolver, subject to
reduction based upon GFSI's Leverage Ratio. GFSI's obligations under the Credit
Agreement are secured by a security interest in all of GFSI's assets. In
addition, GFSI's obligations under the Credit Agreement are guaranteed by
substantially all of GFSI's future subsidiaries.
The Credit Agreement contains customary covenants, including as material
covenants, covenants relating to minimum interest expense coverage ratio,
minimum fixed charge coverage ratio, maximum leverage ratio and maximum rentals
and restrictions on, among other things, granting of liens, asset sales,
mergers and consolidations, investments and acquisitions, prepayments or
redemptions of Subordinated Discount Notes and incurring additional
indebtedness. The Credit Agreement also contains customary events of default,
including, as material events of default, without limitation, change of
control. Holdings and GFSI were not in violation of any covenant under any
agreement with respect to the Existing Indebtedness and are currently in
compliance with all of the covenants contained in the Credit Agreement.
Concurrently with the closing of the Old Offering, GFSI entered into an
amendment to the Credit Agreement in order to change certain definitions,
obtain consents for the Old Offering and change various representations and
covenants to allow for the Old Offering.
GFSI SENIOR SUBORDINATED NOTES
On February 27, 1997, GFSI issued the GFSI Senior Subordinated Notes pursuant
to an indenture, in a private transaction that was not subject to the
registration requirements of the Securities Act. The GFSI Senior Subordinated
Notes were then exchanged for similar Senior Subordinated Notes which were
registered under the Securities Act on July 24, 1997. The GFSI Senior
Subordinated Notes were limited to $125 million aggregate principal amount and
bear interest at 9 5/8% payable semi-annually in cash in amounts on March 1 and
September 1 in each year. The GFSI Senior Subordinated Notes mature on March 1,
2007. The GFSI Senior Subordinated Notes are subordinated to the prior payment
in full in cash or Marketable Securities (as defined in the indenture) of all
Senior Indebtedness (as defined in the indenture). The GFSI Senior Subordinated
Notes are fully and unconditionally guaranteed by GFSI's Restricted
Subsidiaries (as defined in the indenture). The remaining terms of the
indenture governing the GFSI Senior Subordinated Notes are similar to the
Indenture.
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CERTAIN TRANSACTIONS
The Jordan Company. In connection with the Acquisition, on February 27,
1997, Holdings entered into an agreement (the "TJC Agreement") with TJC
Management Corporation ("JMC"), an affiliate of TJC. Messrs. Jordan, Zalaznick
and Caputo, directors of Holdings, are also managing directors of TJC and
Messrs. Jordan and Zalaznick are the principals of JMC. Under the TJC
Agreement, Holdings retained JMC to render services to GFSI, its financial and
business affairs, its relationships with its lenders and stockholders, and the
operation and expansion of its business. The TJC Agreement expires in 2007,
but is automatically renewed for successive one-year terms, unless either
party provides written notice of termination 60 days prior to the scheduled
renewal date. For the first two years, the TJC Agreement provides for an
annual consulting fee of $500,000 payable on a quarterly basis. For the
remaining term of the TJC Agreement, Holdings will pay JMC an annual
consulting fee payable on a quarterly basis equal to the higher of (a)
$500,000 or (b) 1.5% of EBITDA (as defined in the TJC Agreement), provided
that in years three through five of the TJC Agreement, the annual fee does not
exceed $750,000 and thereafter the annual fee does not exceed $1.0 million. In
addition, the TJC Agreement provides for payment to JMC of (i) an investment
banking and sponsorship fee of up to 2.0% of the purchase price of certain
acquisitions or sales involving Holdings or GFSI and (ii) a financial
consulting fee of up to 1.0% of any debt, equity or other financing arranged
by Holdings or GFSI with the assistance of JMC. Both such fees are subject to
Board of Directors approval. In connection with the Transactions, GFSI paid
JMC consulting and investment banking fees of $3.25 million pursuant to the
terms of the TJC Agreement. The parties involved in the negotiation of the TJC
Agreement included Mr. Caputo on behalf of JMC and TJC and Mr. Shaw on behalf
of GFSI. a conflict of interest could be deemed to exist in that Mr. Jordan
and Mr. Zalaznick, the principals of JMC, the recipient of the consulting and
investment banking fees, are also directors and stockholders of Holdings, the
entity paying the consulting and investment banking fees. This conflict was
fully disclosed to the entire Board of Directors of Holdings, which
unanimously, including the disinterested members, approved the TJC Agreement.
Furthermore, GFSI believes that the terms of the TJC Agreement are comparable
to the terms that it would obtain from disinterested third parties for
comparable services. See "Risk Factors--Control by Principal Stockholders."
Tax Sharing Agreement. In connection with the Transactions, on February 27,
1997, the Company entered into a tax sharing agreement (the "Tax Sharing
Agreement") for purposes of filing a consolidated federal income tax return
and paying federal income taxes on a consolidated basis. Pursuant to the Tax
Sharing Agreement, GFSI and each of its consolidated subsidiaries will pay to
Holdings on an annual basis an amount determined by reference to the separate
tax liability of GFSI as calculated pursuant to Section 1552(a)(1) of the Code
and applicable regulations thereunder.
The parties involved in the negotiation of the Tax Sharing Agreement
included Mr. Caputo on behalf of Holdings and Mr. Shaw on behalf of GFSI. The
Tax Sharing Agreement does not give rise to any conflicts of interest as GFSI
will only pay Holdings to the extent of Holdings' tax liability attributable
to the operations of GFSI.
Embroidery Service. The Company has an ongoing relationship with Kansas
Custom Embroidery and Impact Design, Inc., which are affiliated companies (the
"Affiliates"). Mr. Graveel is a 50% owner and vice president of Kansas Custom
Embroidery and Mr. Menghini and his family own 100% of Impact Design, Inc.
This relationship was memorialized in a memorandum of understanding (the
"Memorandum") on July 1, 1996. The Memorandum has no set time limit or renewal
terms. The Memorandum allows the Company to outsource embroidery work to the
Affiliates in the event that demand for such work exceeds the Company's
manufacturing capacity. Over the three fiscal years ended June 30, 1996, the
Company had purchased $5.3 million of embroidered products under the
Memorandum and the Company purchased $4.6 million during fiscal 1997.
Embroidery work is outsourced only in response to firm customer orders. Under
the Memorandum, the Affiliate embroiders blanks according to designs provided
by the Company and under terms established by the Company with payment terms
based on a combination of the number of units ordered and the stitch range of
the embroidered items. The Memorandum could be deemed to give rise to a
conflict of interest in that Mr. Graveel and Mr. Menghini, who are principals
of Kansas Custom Embroidery and Impact Design, Inc., respectively, are also
directors of the Company. Payments for embroidery services are made from the
Company to the Affiliates.
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The Company believes that the terms of the Memorandum are comparable to the
terms it would obtain from disinterested third parties for comparable
services. This conflict was fully disclosed to the entire Board of Directors
of the Company, which unanimously, including all disinterested members,
approved the Memorandum. The Memorandum will be subject to the future review
of the Board of Directors of the Company regarding affiliate transactions. See
"--Future Transactions."
Affiliate Loans. In March 1996, the Company sold a portion of its embroidery
equipment to Impact Design, Inc. for $181,000. The purchase price for the
equipment was determined by reference to its book value and resulted in no
gain or loss to the Company. To finance the acquisition of embroidery
equipment by the Affiliate and to provide for working capital for both of the
Affiliates, the Company loaned $150,000 to Kansas City Embroidery (the "Kansas
Loan") and $700,000 to Impact Design, Inc. (the "Impact Loan") under separate
promissory notes. Each of the promissory notes is unsecured, has an interest
rate of 6.8% per annum and matures July 1, 2000. The Impact Loan, which was
executed on August 12, 1996, was paid off subsequent to year end while the
Kansas Loan, which was executed on August 12, 1996, was paid off on June 17,
1997. The Impact Loan was repaid through monthly installments of interest,
which commenced on August 31, 1996, and semiannual repayments of principal of
$87,500, which commenced on January 1, 1997, with a final payment of principal
of $525,000 subsequent to year end. The Kansas Loan was repaid in monthly
installments of interest, which commenced on August 31, 1996, a repayment of
principal on January 1, 1997 of $25,000, and a final repayment of principal of
$125,000 on June 17, 1997. The Company believes the terms of the loans and the
sale of the equipment were on terms as favorable as could have been received
from disinterested third parties.
Wolff Employment Agreement. Effective upon the consummation of the
Transactions, the Company entered into the Wolff Employment Agreement. See
"Management." Pursuant to the Wolff Employment Agreement, Mr. Wolff will serve
as Chairman of the Company for a ten-year period ending on the tenth
anniversary of the Acquisition. In exchange for his services, the Company will
compensate Mr. Wolff with a base salary of $140,000 per annum, subject to
annual increases set forth in the Wolff Employment Agreement, to provide him
with certain employee benefits comparable to that received by other Company
senior executives, including the use of Company cars, and to reimburse him for
expenses incurred in connection with the performance of his duties as
Chairman. In the event that Mr. Wolff no longer provides services to the
Company due to his dismissal for Cause (as defined in the Wolff Employment
Agreement), he will no longer be entitled to any compensation from the Company
as of the date of his dismissal, subject to certain rights of appeal.
Wolff Noncompetition Agreement. Effective upon the consummation of the
Transactions, the Company entered into the Wolff Noncompetition Agreement. See
"Management." Pursuant to the Wolff Noncompetition Agreement, Mr. Wolff will
not, directly or indirectly, (i) (a) engage in or have any active interest in
any sportswear or activewear business comparable to that of the Company or (b)
sell to, supply, provide goods or services to, purchase from or conduct
business in any form with the Company for a ten-year period ending on the
tenth anniversary of the Acquisition, (ii) disclose at any time other than to
the Company any Confidential Information (as defined in the Wolff
Noncompetition Agreement) and (iii) engage in any business with the Company
through an affiliate for as long as Mr. Wolff or any member of his family is
the beneficial owner of Holdings' capital stock. In exchange for his covenant
not to compete, Holdings will pay to Mr. Wolff $250,000 per annum for a period
of ten years. In the event that the Wolff Noncompetition Agreement is
terminated for Cause, (as defined in the Wolff Noncompetition Agreement), the
Company will no longer be obligated to make any payment to Mr. Wolff, but Mr.
Wolff will remain obligated to comply with the covenants set forth in the
Wolff Noncompetition Agreement until its expiration on the tenth anniversary
of the Acquisition.
Management Investors Loans. In connection with the consummation of the
Transactions, Holdings loaned approximately $0.8 million to certain Management
Investors to finance a portion of their purchase of capital stock of Holdings.
The aggregate outstanding balances on the loans is $788,500. Each of these
loans was executed on February 27, 1997, is secured by a pledge of the common
stock, has an interest rate of 6.75% per annum and matures on June 30, 2007.
The principal amount of each loan is due and payable on the earlier of June
30, 2007 or within ninety days after the borrower ceases to be employed by the
Company. Interest is due and payable on June 30 of each year at which point
the borrower, at his or her option, may pay one-half of the
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interest accrued from July 1 of the prior year, with the other one-half
continuing to accrue interest at the same rate of interest, or pay all
interest accrued from July 1 of the prior year. The Company believes the terms
of the loans were on terms comparable to terms that could have been received
from disinterested third parties.
The Management Investors who borrowed from Holdings are as follows:
<TABLE>
<CAPTION>
LOAN AMOUNT INTEREST RATE
----------- -------------
<S> <C> <C>
Jason Krakow.................................... $100,000 6.75%
Frank Pikus..................................... 115,600 6.75%
Carl Allard..................................... 173,400 6.75%
Howie Ellis..................................... 144,500 6.75%
Scott Durham.................................... 57,800 6.75%
Tom Martin...................................... 57,800 6.75%
John White...................................... 57,800 6.75%
Sue Agnitsch.................................... 28,900 6.75%
Dave Hosier..................................... 23,800 6.75%
Jim Keaton...................................... 28,900 6.75%
--------
Total........................................... $788,500
========
</TABLE>
Management Stock Purchases. On July 1, 1995, Mr. Gary and Mr. Menghini
purchased 6,000 and 7,000 shares of the common stock of Holdings (at $70.00
per share), respectively, for an aggregate purchase price of $420,000 and
$490,000, respectively.
Incentive Compensation Plan. The Company will adopt on or prior to January
1, 1998, the Incentive Plan, which will provide for annual cash bonuses
payable based on a percentage of EBITDA (as defined in the Incentive Plan), if
certain EBITDA targets are met.
Indemnification Agreements. Simultaneously with the consummation of the GFSI
Offering, the Company and each of its directors entered into indemnification
agreements. The indemnification agreements provide that GFSI will indemnify
the directors against certain liabilities (including settlements) and expenses
actually and reasonably incurred by them in connection with any threatened or
pending legal action, proceeding or investigation (other than actions brought
by or in the right of the Company) to which any of them is, or is threatened
to be, made a party by reason of their status as a director, officer or agent
of the Company, or serving at the request of the Company in any other capacity
for or on behalf of the Company; provided that (i) such director acted in good
faith and in a manner not opposed to the best interest of the Company, (ii)
with respect to any criminal proceedings had no reasonable cause to believe
his or her conduct was unlawful, (iii) such director is not finally adjudged
to be liable for negligence or misconduct in the performance of his or her
duty to the Company, unless the court views in light of the circumstances the
director is nevertheless entitled to indemnification, and (iv) the
indemnification does not relate to any liability arising under Section 16(b)
of the Exchange Act, or the rules or regulations promulgated thereunder. With
respect to any action brought by or in the right of the Company, directors may
also be indemnified to the extent not prohibited by applicable laws or as
determined by a court of competent jurisdiction against expenses actually and
reasonably incurred by them in connection with such action if they acted in
good faith and in a manner they reasonably believed to be in or not opposed to
the best interests of the Company.
Future Transactions. The Company has adopted a policy, effective
simultaneously with the consummation of the GFSI Offering, to provide that
future transactions between the Company and its officers, directors and other
affiliates, including transactions involving conflicts of interest must (i) be
approved by a majority of the members of the Board of Directors and by a
majority of the disinterested members of the Board of Directors and (ii) be on
terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account as a result of
market-making activities or other trading activities in connection with the
Exchange Offer must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of New Notes received
in exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that for a period of 120 days after the Expiration Date, it will make available
a prospectus meeting the requirements of the securities Act to any broker-
dealer for use in connection with any such resale. In addition, until
, 1997, all dealers effecting transactions in the New Notes may be
required to deliver a prospectus.
The Company will receive no proceeds in connection with the Exchange Offer.
New Notes received by broker-dealers for their own account pursuant to the
Exchange Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the New Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers and dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer or the
purchasers of any such New Notes. Any broker-dealer that resells New Notes that
were received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of such New Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of New Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation
under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion is a summary of the material United States federal
income tax considerations relevant to the acquisition, ownership and
disposition of the New Notes acquired in the Exchange Offer by holders of Old
Notes, but does not purport to be a complete analysis of all potential tax
effects. To the extent that it relates to matters of law or legal conclusions,
this summary constitutes the opinion of Mayer, Brown & Platt. The discussion
is based upon the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury Regulations, Internal Revenue Service ("Service") rulings and
pronouncements and judicial decisions all in effect as of the date hereof, all
of which are subject to change at any time, and any such change may be applied
retroactively in a manner that could adversely affect a holder of the New
Notes. The discussion does not address all of the federal income tax
consequences that may be relevant to a holder in light of such holder's
particular circumstances or to holders subject to special rules, such as
certain financial institutions, insurance companies, dealers in securities and
persons holding the New Notes as part of a "straddle," "hedge" or "conversion
transaction." Moreover, the effect of any applicable state, local or foreign
tax laws is not discussed. The discussion deals only with New Notes held as
"capital assets" within the meaning of section 1221 of the Code.
Unless otherwise indicated, the term "Holder" as used herein means a "U.S.
Holders," which is a beneficial owner of a New Note who or which is for U.S.
federal income tax purposes (i) a citizen or resident of the United States,
(ii) a corporation, partnership or other entity created or organized in or
under the laws of the United States or of any political subdivision thereof,
(iii) an estate the income of which is subject to U.S. federal income taxation
regardless of its source, or (iv) a "U.S. Trust." A U.S. Trust is (a) for
taxable years beginning after December 31, 1996, or if the trustee of a trust
elects to apply the following definition to an earlier taxable year ending
after August 20, 1996, any trust if, and only if, (i) a court within the
United States is able to exercise primary supervision over the administration
of the trust and (ii) one or more U.S. persons have the authority to control
all substantial decisions of the trust and (b) for all other taxable years,
any trust whose income is includible in gross income for U.S. federal income
tax purposes regardless of its source. The term U.S. Holder also includes
certain former U.S. citizens whose income and gain on the New Notes will be
subject to U.S. taxation. As used herein, the term "Non-U.S. Holder" means a
beneficial owner of a New Note that is not a U.S. Holder.
Holdings has not sought and will not seek any rulings from the Service with
respect to any position of Holdings discussed below. There can be no assurance
that the Service will not take a different position from Holdings concerning
aspects of the tax consequences of the acquisition, ownership or disposition
of the New Notes or that any such position would not be sustained.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO
THE APPLICATION OF THE TAX CONSIDERATIONS DISCUSSED BELOW TO THEIR PARTICULAR
SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER
TAX LAWS.
CONSEQUENCES OF THE EXCHANGE OFFER TO EXCHANGING AND NONEXCHANGING HOLDERS
The exchange of an Old Note for a New Note pursuant to the Exchange Offer
will not be taxable to an exchanging Holder for U.S. federal income tax
purposes. As a result (i) an exchanging Holder will not recognize any gain or
loss on the exchange; (ii) the holding period for the New Note will include
the holding period for the Old Note; (iii) the basis of the New Note will be
the same as the basis for the Old Note; and (iv) the original issue discount
("OID") on the New Note will be the same as on the Old Note.
The Exchange Offer will result in no federal income tax consequences to a
nonexchanging Holder of Old Notes.
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CLASSIFICATION OF NOTES
Although the characterization of an instrument as debt is a facts and
circumstances determination that cannot be predicted with certainty, the Old
Notes and the New Notes (collectively, the "Notes") should be treated as debt
for federal income tax purposes. Accordingly, Holdings intends to treat the
Notes as debt for federal income tax purposes, and the remainder of this
discussion assumes that such treatment will be respected.
LIQUIDATED DAMAGES
Payments on Registration Default. Because the Notes provide for the payment
of additional amounts of interest under the circumstances described in "The
Exchange Offer--Registration Rights; Liquidated Damages," the Notes will be
subject to the Treasury Regulations that apply to debt instruments that
provide for one or more contingent payments. Under those Treasury Regulations,
however, a payment is not a contingent payment merely because of a contingency
that, as of the issue date, is either "remote" or "incidental." Holdings
intends to take the position that, solely for these purposes, the payment of
such additional interest is a remote or incidental contingency, in which case
the possibility of such payment would not, as of the issue date, cause the
Notes to be treated as having been issued with original issue discount, and
the rules described below under "--Consequences of Holding New Notes" would
apply. Holdings' determination that such payments are a remote or incidental
contingency for these purposes is binding on a Holder, unless such Holder
discloses in the proper manner to the Service that it is taking a different
position.
If Holdings becomes obligated to pay additional interest as a result of a
Registration Default, a Holder would generally be required to include any such
amounts in income as ordinary income when received or accrued, in accordance
with such Holder's method of accounting for federal income tax purposes. In
addition, the Notes would be treated as having been reissued for purposes of
applying the OID rules. If, at the time of such deemed reissuance, the
possibility that Holdings would be required to make additional payments of
interest is not a remote or incidental contingency, a Holder could be required
to accrue all payments on the Notes (including amounts that would otherwise
constitute de minimus OID and projected payments of additional interest) on a
constant yield basis (including Holders who otherwise use a cash method of
accounting for federal income tax purposes), and in certain circumstances to
include market discount in income sooner than otherwise required and to treat
as interest income any gain recognized on the disposition of the debt
instrument (rather than as capital gain).
CONSEQUENCES OF HOLDING NEW NOTES
Original Issue Discount. If the stated redemption price at maturity of the
New Notes exceeds their issue price by more than a de minimis amount, the New
Notes will be treated as having OID equal to the entire amount of such excess.
Holdings intends to treat the Old Exchange attributable to the Subordinated
Note portion of the Unit exchanged for Old Notes as a non-event (i.e., not
resulting in an "exchange") for federal income tax purposes; rather, to that
extent, Holdings will treat such Old Notes as continuations of the
Subordinated Discount Notes. Holdings intends to take the position that the
Old Notes received in the Old Exchange for the Preferred Stock are part of the
same "issue" as the Old Notes exchanged for the Subordinated Discount Notes.
If such treatment is respected, for federal income tax purposes, the Old
Notes, whether exchanged for the Preferred Stock or the Subordinated Discount
Notes, and the New Notes will be treated as having the same issue price as the
Subordinated Discount Notes. Holdings intends to take the position that the
Subordinated Discount Notes have an issue price equal to their Issue Price. In
addition, the original issue discount on Old Notes will be the same as the
original issue discount on the Subordinated Discount Notes exchange for such
Old Notes. Since the portion of the Old Notes received in exchange for the
Preferred Stock will have been acquired in a taxable exchange, however the
holding period of the portion of the Old Notes received for the Preferred
Stock, and hence of the New Notes received in exchange for such Old Notes,
will start on the date following the Old Exchange, and the basis of such
portion of the New Notes will equal the adjusted issue price of the Old Notes
as of the date of the Old Exchange.
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The Service might take a different position, however, as to whether the Old
Notes exchanged for Preferred Stock and the Old Notes exchanged for the
Subordinated Discount Notes are part of the same "issue." If the Service takes
the view that an Old Note exchanged for the Preferred Stock (a "Preferred
Stock Exchange Note") is not part of the same "issue" as an Old Note exchanged
for the Subordinated Discount Notes (a "Subordinated Discount Exchange Note"),
and such view is respected, the tax characteristics of the Preferred Stock
Exchange Notes might be different from those of the Subordinated Discount
Exchange Notes and such Preferred Stock Exchange Notes might trade separately.
In such event, if the Preferred Stock Exchange Notes are deemed to be traded
on an established securities market on or at any time during the 60-day period
ending 30 days after their issue date, the issue price of the Preferred Stock
Exchange Notes would be their fair market value as determined as of their
issue date (the first date on which a substantial amount of the Old Notes is
issued). Subject to certain limitations described in the applicable Treasury
regulations, the Preferred Stock Exchange Notes will be deemed to be traded on
an established securities market if, among other things, price quotations are
readily available from dealers, brokers or traders or the Preferred Stock
Exchange Notes are listed on certain exchanges or interdealer quotation
systems. Similarly, if the Units, but not the Old Notes issued and exchanged
therefor, are deemed to be traded on an established securities market at the
time of the Old Exchange, then the issue price of each Preferred Stock
Exchange Note would be the fair market value of the portion of the Units
exchanged therefor at the time of the Old Exchange. In the event that neither
the Preferred Stock nor the Units are deemed to be traded on an established
securities market, the issue price of the Preferred Stock Exchange Notes would
be determined under the rules of Section 1274. Under Section 1274, the issue
price of the Preferred Stock Exchange Notes generally would be their "stated
principal amount" or, in the event the Preferred Stock Exchange Notes do not
bear "adequate stated interest" within the meaning of Section 1274, their
"imputed principal amount," which is generally the sum of the present values
of all payments due under the Preferred Stock Exchange Notes, discounted from
the date of payment to their issue date at the appropriate "applicable federal
rate."
Payments and Accruals on New Notes. The stated redemption price at maturity
of the New Notes will equal the total of all payments required to be made
thereon, other than payments of qualified stated interest. Qualified stated
interest generally is stated interest that is unconditionally payable in cash
or property (other than debt instruments of the issuer) at least annually at a
single fixed rate. Therefore, because no interest is required to be paid in
cash on the New Notes until March 15, 2005, the New Notes should be treated as
having been issued without any qualified stated interest. Accordingly, the sum
of all interest payable pursuant to the stated interest rate on the New Notes
over the entire term should be treated as part of the stated redemption price
at maturity.
A Holder of a New Note will be required to include OID in income
periodically over the term of an New Note before receipt of the cash or other
payment attributable to such income. In general, a Holder must include in
gross income for federal income tax purposes the sum of the daily portions of
OID with respect to the New Notes for each day during the taxable year or
portion of a taxable year on which such Holder holds the New Note ("Accrued
OID"). The daily portion is determined by allocating to each day of any
accrual period within a taxable year a pro rata portion of an amount equal to
the adjusted issue price of the New Note at the beginning of the accrual
period multiplied by the yield to maturity of the New Note. For purposes of
computing OID, Holdings will use six-month accrual periods which end on the
date in the calendar year corresponding to the maturity date of the New Notes
and the date six months prior to such maturity date, with the exception of a
short initial accrual period. The adjusted issue price of a New Note at the
beginning of any accrual period is the issue price of the New Note increased
by the Accrued OID for all prior accrual periods (less any cash payments on
the New Notes other than qualified stated interest). Under these rules,
Holders will have to include in gross income increasingly greater amounts of
OID in each successive accrual period. Each payment made under a New Note
(except for payments of qualified stated interest) will be treated first as a
payment of OID to the extent of OID that has accrued as of the date of payment
and has not been allocated to prior payments and second as a payment of
principal.
Optional Redemption. Holdings' option to redeem the New Notes at any time on
or after March 15, 1998 should be treated as a "call option" within the
meaning of the OID Regulations. See "Description of Notes--Redemption of
Notes--Optional Redemption." As a result, Holdings would be presumed under the
OID
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Regulations to exercise its option to redeem the New Notes if by utilizing the
date of exercise of a call option as the maturity date and the amount for
which the New Notes could be redeemed in accordance with the terms of the
redemption feature (that is, the principal amount plus redemption premium, if
any, plus accrued interest) as the stated redemption price at maturity, the
yield on the New Notes would be lower than such yield would be if the option
was not exercised. Because the exercise by Holdings of its call option at any
time on or after March 15, 1998 and before September 15, 2005 would result in
a higher yield than if such call option were not exercised, such call option
should be presumed to not be exercised under the OID Regulations.
In addition to the optional redemption described above, a Holder will have
the right to tender New Notes to Holdings for redemption should Holdings
experience a Change of Control. See "Description of Notes--Mandatory Offers to
Purchase Notes." Such additional redemption rights should not affect, and will
be treated by Holdings as not affecting, the determination of the yield or
maturity of the New Notes.
TAXABLE DISPOSITION OF NEW NOTES
Generally, any sale or redemption of New Notes will result in taxable gain
or loss equal to the difference between the amount of cash or other property
received (except to the extent the consideration received is attributable to
qualified stated interest not previously taken into account, which
consideration is treated as interest received) and the Holder's adjusted tax
basis in the New Notes. A Holder's initial tax basis in a New Note will be the
sum of (1) the Holder's basis in the Subordinated Note portion of the Unit for
which the Old Note was issued (and, if the Old Exchange is treated as an
exchange for federal income tax purposes, such basis will be increased by the
amount of gain, if any, recognized by such Holder on the Old Exchange with
respect to such Subordinated Note and reduced by the fair market value of (x)
the excess, if any, of the "principal amount" of the Old Notes received by
such Holder in the Old Exchange for Subordinated Discount Notes over the
"principal amount" of the Subordinated Discount Notes given up in the Old
Exchange, and (2) the issue price of the portion of the Old Note that is
attributable to the Preferred Stock portion of the Unit. A Holder's adjusted
tax basis will be the Holder's initial tax basis, increased by any Accrued OID
with respect to any New Note includable in such Holder's gross income and
decreased by the amount of any cash payments (other than payments of qualified
stated interest) received by such Holder regardless of whether such payments
are denominated as interest. Any gain or loss upon a sale or disposition of an
New Note by an original Holder will generally be capital gain or loss. The
recently enacted Taxpayer Relief Act of 1997 made certain changes to the Code
with respect to taxation of capital gains of taxpayers other than corporations
that are U.S. Holders. In general, the maximum tax rate for non-corporate
taxpayers on long-term capital gains has been lowered to 20% from the previous
28% rate for most capital assets (including the New Notes) held for more than
18 months. For taxpayers in the 15% regular tax bracket, the maximum tax rate
on long-term capital gains is now 10%. Capital gain on such assets having a
holding period of more than one year but not more than 18 months will be
subject to a maximum tax rate of 28%.
Treatment of New Notes Purchased at a Premium or Market Discount. A Holder
that purchases or otherwise acquires an New Note at a premium (defined under
the OID Regulations as an amount paid in excess of all amounts payable on the
instrument after the purchase other than qualified stated interest) will not
be subject to the OID rules, and may elect to amortize the "amortizable bond
premium" (defined generally under the Code as an amount paid in excess of the
amount payable at maturity), in which case the amount required to be included
in the Holder's income each year with respect to interest on the New Note will
be reduced by the amount of amortizable bond premium allocable (based on the
Holder's yield to maturity) to such year. Any such election shall apply to all
bonds (other than bonds the interest on which is excludable from gross income)
held by the Holder at the beginning of the first taxable year to which the
election applies or thereafter acquired by the Holder and is irrevocable
without the consent of the Service.
A Holder that purchases a New Note issued with OID at an acquisition premium
(defined under the OID Regulations as an amount paid in excess of its adjusted
issue price but less than or equal to all amounts payable on the instrument
after the purchase other than qualified stated interest) will be subject to
the OID rules, but will
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proportionately reduce the daily portions of OID includible in income to
reflect the premium paid relative to issue price. In lieu of such offset, the
Holder may compute accruals by treating the purchase price as the issue price
and applying the constant yield method.
If a Holder of a New Note that had an initial tax basis in such New Note
which is less than the issue price of such New Note, subsequently disposes of
such New Note, holds it until maturity or receives a principal payment, any
gain upon a sale or other disposition (including certain nontaxable
dispositions such as a gift and the receipt of principal payments) will be
recognized and treated as ordinary income to the extent of any "market
discount" accrued for the period that such Holder holds the New Note.
Market discount generally will equal the excess, if any, of the adjusted
basis that the New Note would have in the hands of the original Holder (or in
the case of a New Note issued with the original issue discount, the issue
price plus the aggregate amount of original issue discount previously accrued
thereon) over the purchaser's basis in the New Note immediately after such
purchaser acquired the New Note. In general, market discount on a New Note
will be treated as accruing ratably over the term of such New Note, or at the
irrevocable election of the Holder, under a constant yield method.
A Holder of a New Note with market discount may be required to defer, until
the maturity of the New Note or its earlier disposition in a taxable
transaction, the deduction of all or a portion of the interest expense on any
indebtedness incurred or continued to purchase or carry such New Note. Such
Holder may instead elect to include market discount in income as it accrues,
in which case the rule described above regarding deferral of interest
deductions will not apply. This election to include market discount in income
currently, once made, applies to all market discount obligations acquire on or
after the first taxable year to which the election applies, and may not be
revoked without the consent of the Service.
NON-U.S. HOLDERS
Interest and OID on New Notes. Payments of interest and Accrued OID on the
New Notes by Holdings or any paying agent to a beneficial owner of a New Note
that is a Non-U.S. Holder will not be subject to U.S. federal withholding tax,
provided that, (i) such Holder does not own, actually or constructively, 10
percent or more of the total combined voting power of all classes of stock of
Holdings entitled to vote; (ii) such Holder is not, for U.S. federal income
tax purposes, a controlled foreign corporation related, directly or
indirectly, to Holdings through stock ownership; (iii) such Holder is not a
bank receiving interest described in Section 881(c)(3)(A) of the Code; and
(iv) certain certification requirements (summarized below) are met. If a Non-
U.S. Holder of a New Note is engaged in a trade or business in the United
States, and if interest or OID on the New Note is effectively connected with
the conduct of such trade or business (and, if certain tax treaties apply, is
attributable to a U.S. permanent establishment maintained by the Non-U.S.
Holder) the Non-U.S. Holder, although exempt from U.S. withholding tax, will
generally be subject to regular U.S. income tax on such interest or OID in the
same manner as if it were a U.S. Holder. In addition, if such Non-U.S. Holder
is a foreign corporation, it may be subject to a branch profits tax equal to
30% (or such lower rate provided by an applicable treaty) of its effectively
connected earnings and profits for the taxable year, subject to certain
adjustments. For purposes of the branch profits tax, interest or OID on an New
Note will be included in the earnings and profits of such Non-U.S. Holder if
such interest or OID is effectively connected with the conduct by the Non-U.S.
Holder of a trade or business in the United States.
Under current Treasury Regulations, in order to obtain the exemption from
withholding tax described in the first sentence of the preceding paragraph,
either (i) the beneficial owner of a New Note must certify on Internal Revenue
Service Form W-8 or a substitute form that is substantially similar to Form W-
8, under penalties of perjury, to Holdings or a paying agent, as the case may
be, that such owner is a Non-U.S. Holder and must provide such owner's name
and address or (ii) a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course
of its trade or business (a "Financial Institution") and holds the New Note on
behalf of the beneficial owner thereof must certify, under penalties of
perjury, to Holdings or paying agent, as the case may be, that such
certificate has been received from the
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beneficial owner by it or by a Financial Institution between it and the
beneficial owner and must furnish the payor with a copy thereof. A certificate
described in this paragraph is effective only with respect to payments of
interest or Accrued OID made to the certifying Non-U.S. Holder after delivery
of the certificate in the calendar year of its delivery and the two
immediately succeeding calendar years. In lieu of the certificate described in
this paragraph, a Non-U.S. Holder engaged in a trade or business in the United
States (with which interest payments or OID accruals on the New Note are
effectively connected) must provide to Holdings a properly executed Internal
Revenue Service Form 4224 in order to claim an exemption from withholding tax.
On October 14, 1997, the Service published in the Federal Register final
regulations (the "1997 Final Regulations") which affect the United States
taxation of Non-U.S. Holders. The 1997 Final Regulations are effective for
payments after December 31, 1998, regardless of the issue date of the
instrument with respect to which such payments are made, subject to certain
transition rules (see below). The discussion under this heading and under
"Backup Withholding and Information Reporting," below, is not intended to be
complete discussion of the provisions of the 1997 Final Regulations, and
holders of Notes are urged to consult their tax advisors concerning the tax
consequences of their investment in light of the 1997 Final Regulations.
The 1997 Final Regulations provide documentation procedures designed to
simplify compliance by withholding agents. The 1997 Final Regulations
generally do not affect the documentation rules described above, but added
other certification options. Under one such option, a withholding agent will
be allowed to rely on an intermediary withholding certificate furnished by a
"qualified intermediary" (as defined below) on behalf of one or more
beneficial owners (or other intermediaries) without having to obtain the
beneficial owner certificate described above. "Qualified intermediaries"
include: (i) foreign financial institutions or foreign clearing organizations
(other than a U.S. branch or U.S. office of such institution or organization)
or (ii) foreign branches or offices of U.S. financial institutions or foreign
branches or offices of U.S. clearing organizations, which, as to both (i) and
(ii), have entered into withholding agreements with the Service. In addition
to certain other requirements, qualified intermediaries must obtain
withholding certificates, such as revised Internal Revenue Service Form W-8
(see below), from each beneficial owner. Under another option, an authorized
foreign agent of a United States withholding agent will be permitted to act on
behalf of the United States withholding agent, provided certain conditions are
met.
For purposes of the certification requirements, the 1997 Final regulations
generally treat as the beneficial owners of payments on a Note those persons
that, under United States tax principles, are the taxpayers with respect to
such payments rather than persons such as nominees or agents legally entitled
to such payments. In the case of payments to an entity classified as a foreign
partnership under United States tax principles, the partners rather than the
partnership, generally will be required to provide the required certifications
to qualify for the withholding exemption described above. A payment to a
United States partnership, however, is treated for these purposes as payment
to a United States payee, even if the partnership has one or more foreign
partners. The 1997 Final Regulations provide certain presumptions with respect
to withholding for holders not furnishing the required certifications to
qualify for the withholding exemption described above. In addition, the 1997
Final Regulations will replace a number of current tax certification forms
(including Internal Revenue Service Form W-8) with a single, revised Internal
Revenue Service Form W-8 (which, in certain circumstances, requires
information in addition to that previously required). Under the 1997 Final
Regulations, this Form w-8 will remain valid until the last day of the third
calendar year following the year in which the certificate is signed.
Under the 1997 Final Regulations, withholding of United States federal
income tax may apply to payments on a taxable sale or other disposition of a
Note by a Non-U.S. Holder who does not provide appropriate certification to
the withholding agent with respect to such transaction.
The 1997 Final Regulations provide transition rules concerning existing
certificates, such a Internal Revenue Service Form W-8. Valid withholding
certificates that are held on December 31, 1998 will generally remain valid
until the earlier of December 31, 1999 or the date of expiration of the
certificate under the law in effect prior to January 1, 1999. Further,
certificates dated prior to January 1, 1998 will generally remain valid until
the end of 1998, irrespective of the fact that their validity expires during
1998.
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Disposition of New Notes. Under current law, a Non-U.S. Holder of a New Note
generally will not be subject to U.S. federal income tax on any gain
recognized on the sale, exchange or other disposition of such New Note, unless
(i) the gain is effectively connected with the conduct of a trade or business
in the United States of the non-U.S. Holder (and, if certain tax treaties
apply, is attributable to a U.S. permanent establishment maintained by the
Non-U.S. Holder); (ii) the Non-U.S. Holder is an individual who holds the New
Note as a capital asset, is present in the United States for 183 days or more
in the taxable year of the disposition and either (a) such individual has a
U.S. "tax home" (as defined for U.S. federal income tax purposes) or (b) the
gain is attributable to an office or other fixed place of business maintained
in the United States by such individual; or (iii) the non-U.S. Holder is
subject to tax pursuant to the Code provisions applicable to certain U.S.
expatriates. In the case of a Non-U.S. Holder that is described under clause
(i) above, its gain will be subject to the U.S. federal income tax on net
income that applies to U.S. persons and, in addition, if such Non-U.S. Holder
is a foreign corporation, it may be subject to the branch profits tax as
described above. An individual Non-U.S. Holder that is described under clause
(ii) above will be subject to a flat 30% tax on gain on the derived from the
sale, which may be offset by U.S. capital losses (notwithstanding the fact
that he or she is not considered a U.S. resident). Thus, individual Non-U.S.
Holders who have spent 183 days or more in the United States in the taxable
year in which they contemplate a sale of an New Note are urged to consult
their tax advisers as to the tax consequences of such sale.
A New Note held by an individual who is not a U.S. citizen or resident (as
specially defined for United States federal estate tax purposes) at the time
of his death will not be subject to U.S. federal estate tax as a result of
such individual's death, provided that, at the time of such individual's
death, the individual does not own, actually or constructively, 10 percent or
more of the total combined voting power of all classes of stock of Holdings
entitled to vote and payments with respect to such New Note would not have
been effectively connected with the conduct by such individual of a trade or
business in the United States.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO HOLDINGS AND TO CORPORATE HOLDERS
The New Notes will constitute "applicable high yield discount obligations"
("AHYDOs") if the yield to maturity of such New Notes is equal to or greater
than the sum of the relevant applicable federal rate (the "AFR") plus five
percentage points. The relevant AFR for debt instruments issued in September
1997 is 6.45% compounded semi-annually. If the yield to maturity on the New
Notes were to equal or exceed the sum of the AFR plus five percentage points,
such New Notes would constitute AHYDOs. Therefore, a portion of the tax
deductions that would otherwise be available to Holdings in respect of such
New Notes would be deferred, which, in turn, would reduce the after-tax cash
flows of Holdings. If the New Notes were to constitute AHYDOs, Holdings would
not be entitled to deduct OID that accrues with respect to such New Notes
until amounts attributable to OID are paid in cash. If the yield to maturity
of the New Notes were to equal or exceed the sum of the relevant AFR plus six
percentage points (the "Excess Yield"), the "disqualified portion" of the OID
accruing on such New Notes would be characterized as a non-deductible dividend
with respect to Holdings and also may be treated as a dividend distribution
solely for purposes of the dividends received deduction of Sections 243, 246
and 246A of the Code with respect to Holders which are corporations. In
general, the "disqualified portion" of OID for any accrual period will be
equal to the product of (i) as a percentage determined by dividing the Excess
Yield by the yield to maturity; and (ii) the OID for the accrual period.
Subject to otherwise applicable limitations, such a corporate holder would be
entitled to a dividends received deduction with respect to the disqualified
portion of the accrued OID if Holdings has sufficient current or accumulated
"earnings and profits." To the extent that Holdings's earnings and profits are
insufficient, any portion of the OID that otherwise would have been
recharacterized as a dividend for purposes of the dividends-received deduction
will continue to be taxed as ordinary OID income in accordance with the rules
described above in "--Acquisition and Holding of New Notes--Original Issue
Discount." Assuming that Holdings' position with respect to the issue price of
the Old Notes described above in "--Acquisition and Holding of New Notes--
Original Issue Discount" is sustained, the New Notes will be treated as being
issued on the same issue date and at the same issue price as the Subordinated
Discount Notes. Since the yield to maturity of the Subordinated Discount Notes
was less than the AFR plus five percentage points, the yield to maturity on
the New Notes should be less than the AFR plus
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five percentage points. However, if Holdings' position with respect to the
issue price of the Old Notes were not sustained, it would be impossible to
determine at the present time whether the yield to maturity on the New Notes
would equal or exceed the sum of the AFR plus five or six percentage points.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
Under current United States federal income tax law, information reporting
requirements apply to interest (including OID) and principal payments made to,
and to the proceeds of sales before maturity by, certain non-corporate
persons. In addition, a 31% backup withholding tax applies if a non-corporate
person (i) fails to furnish such person's Taxpayer Identification Number
("TIN") (which, for an individual, is his or her Social Security Number) to
the payor in the manner required, (ii) furnishes an incorrect TIN and the
payor is so notified by the Service, (iii) is notified by the Service that
such person has failed properly to report payments of interest and dividends
or (iv) in certain circumstances, fails to certify, under penalties of
perjury, that such person has not been notified by the Service that such
person is subject to the backup withholding for failure properly to report
interest and dividend payments. Backup withholding does not apply with respect
to payments made to certain exempt recipients, such as corporations and tax-
exempt organizations.
In the case of a Non-U.S. Holder, under current United States federal income
tax law backup withholding and information reporting do not apply to payments
of principal and interest (including OID) with respect to a Note, or to
payments on the sale, exchange, redemption or retirement of a Note, if such
Holder has provided the required certification under penalties of perjury that
such Holder is a Non-U.S. Holder or has otherwise established an exemption.
Under current United States federal income tax law, (i) principal or
interest payments (including OID) with respect to a Note collected outside the
United States by a foreign office of a custodian, nominee or broker acting on
behalf of a beneficial owner of a Note and (ii) payments on the sale,
exchange, redemption or retirement of a Note to or through a foreign office of
a broker are not generally subject to backup withholding or information
reporting. However, if such custodian, nominee or broker is a United States
person, a controlled foreign corporation for United States tax purposes, or a
foreign person 50% of more of whose gross income is effectively connected with
the conduct of a United States trade or business for a specified three-year
period, such custodian, nominee or broker may be subject to certain
information reporting (but not backup withholding) requirements with respect
to such payments, unless such custodian, nominee or broker has in its records
documentary evidence that the beneficial owner is not a United States person
and certain conditions are met or the beneficial owner otherwise establishes
an exemption.
In the case of a Non-U.S. Holder, under the 1997 Final Regulations, backup
withholding and information reporting will not apply to payments of principal
and interest (including OID) with respect to a Note if such Holder provides
the required certification to establish an exemption from the withholding of
the United States federal income tax or otherwise establishes an exemption.
In the case of a Non-U.S. Holder, under the 1997 Final Regulations, backup
withholding and information reporting will not apply to payments of principal
and interest (including OID) with respect to a Note if such Holder provides
the required certification to establish an exemption from the withholding of
the United States federal income tax or otherwise establishes an exemption.
Under the 1997 Final Regulations, payments of principal and interest
(including OID) with respect to a Note made to a custodian, nominee or broker
will not be subject to backup withholding or information reporting,
irrespective of the place of payment or the location of the office of the
custodian, nominee or broker, although payments of interest (including OID)
with respect to a Note paid to a foreign intermediary (whether or not a
qualified intermediary) will be subject to withholding of United States
federal income tax at the rate of 30% unless the beneficial owner (whether or
not a United States person) establishes an exemption by furnishing a
withholding certificate or other appropriate documentation. Unless the
beneficial owner establishes an exemption, a payment by a custodian, nominee
or broker may be subject to information reporting and, unless (i) the payment
88
<PAGE>
has been subject to withholding of United States federal income tax at the
rate of 30% or (ii) the payment is made outside the United States to an
offshore account in a financial institution that maintains certain procedure
related to account documentation, to backup withholding as well.
Under the 1997 Final Regulations, payments on the sale, exchange, redemption
or retirement of a Note to or through a broker may be subject to information
reporting and backup withholding unless (i) the transaction is effected
outside the United States and the broker is not a United States person, a
controlled foreign corporation for United States tax purposes, a United States
branch of a foreign back or foreign insurance company, a foreign partnership
controlled by United States persons or engaged in a United States trade or
business or a foreign person 50% or more of whose gross income is effectively
connected with the conduct of a United States trade or business for a
specified three-year period or (ii) the beneficial owner otherwise establishes
an exemption.
Backup withholding tax is not an additional tax. Rather, any amounts
withheld from a payment to a person under the backup withholding rules are
allowed as a refund or a credit against such person's United States federal
income tax, provided that the required information is furnished to the
Service.
INFORMATION REPORTING
Holdings is required to furnish certain information to the Service and will
furnish annually to record holders of the New Notes information with respect
to dividends or interest paid, or OID accruing, as the case may be, on the New
Notes during the calendar year. The information with respect to OID (if any)
accruing on the New Notes will be based on the adjusted issue price of the New
Notes and will be applicable if the holder is an original holder of the New
Notes who acquired the Old Notes in exchange for the Units. Subsequent holders
who purchase New Notes for an amount other than the adjusted issue price
and/or on a date other than the last day of an accrual period will be required
to determine for themselves the amount of OID, if any, they are required to
include in gross income for federal income tax purposes.
LEGAL MATTERS
Certain legal matters with respect to the Notes will be passed upon for the
Company by Mayer, Brown & Platt, Chicago, Illinois. Mayer, Brown & Platt also
represents TJC and its affiliates from time to time in connection with its
various acquisitions and divestitures.
EXPERTS
The financial statements of GFSI Holdings, Inc. and subsidiary as of June
30, 1996 and June 27, 1997 and for the years then ended included in this
Prospectus and the related financial statement schedule included elsewhere in
the Registration Statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein and
elsewhere in the Registration Statement and are included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
The financial statements of Winning Ways as of and for the year ended June
30, 1995 included in this Prospectus have been audited by Donnelly Meiners
Jordan Kline, independent auditors, as stated in their report appearing herein
and are included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
On January 2, 1997, Holdings by resolution of the Board of Directors,
appointed Deloitte & Touche LLP as its independent auditors, effective January
6, 1997, replacing Donnelly Meiners Jordan Kline, the previous independent
auditors of Holdings.
In connection with its audit for the fiscal year ended June 30, 1995 and
through January 2, 1997, Holdings had no disagreements with Donnelly Meiners
Jordan Kline on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements if
not resolved to the
89
<PAGE>
satisfaction of Donnelly Meiners Jordan Kline would have caused them to make
reference thereto in their report on the financial statements for such
periods. Donnelly Meiners Jordan Kline has furnished a letter addressed to the
Commission stating that it agrees with the above statements.
Holdings currently engages Deloitte & Touche LLP as its independent
auditors. During the most recent fiscal year and through the date of this
Registration Statement, Holdings has not consulted with Deloitte & Touche LLP
on items which concerned the subject matter of a disagreement or reportable
event with the former auditor.
AVAILABLE INFORMATION
The Company has filed with the Commission the Registration Statement
pursuant to the Securities Act, and the rules and regulations promulgated
thereunder, covering the New Notes being offered hereby. This Prospectus does
not contain all the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the New Notes, reference is hereby made t the Registration
Statement. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to in the registration
Statement are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. Upon consummation of the Exchange Offer, the Company will
become subject to the periodic and other informational requirements of the
Exchange Act. Periodic reports and other information filed by the Company with
the Commission may be inspected at the public reference facilities maintained
by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20540, or at its regional offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, New
York, New York 10048 at prescribed rates. Such materials may also be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov.
90
<PAGE>
GFSI HOLDINGS, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
The following sets forth the Unaudited Pro Forma Balance Sheet and the
Unaudited Pro Forma Statement of Income of GFSI Holdings, Inc. and subsidiary
(the "Company") giving effect to the transactions described in Note 1 of the
Notes to the Unaudited Pro Forma Financial Statements as if such transactions
had been consummated on June 27, 1997 (in the case of the Unaudited Pro Forma
Balance Sheet) and at the beginning of the earliest period presented (in the
case of the Unaudited Pro Forma Statement of Income). The Unaudited Pro Forma
Financial Statements of the Company do not purport to present the financial
position or results of operations of Holdings had the transactions assumed
herein occurred on the date indicated, nor are they necessarily indicative of
the results of operations which may be expected to occur in the future.
The acquisition of Winning Ways has been accounted for as a leveraged
recapitalization, and accordingly, the accompanying Unaudited Pro Forma
Financial Statements reflect no change in the accounting basis of GFSI's
assets and liabilities for financial accounting purposes.
P-1
<PAGE>
GFSI HOLDINGS, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA BALANCE SHEET
JUNE 27, 1997
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENT
-------------------------------------------
HISTORICAL DR CR PRO FORMA
---------- ------- ------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...... $ 1,117 $ 788(2) $ 758(2) $ 1,147
Accounts receivable............ 23,705 23,705
Inventories.................... 37,562 37,562
Deferred income taxes.......... 927 927
Prepaid expenses and other
current assets................ 1,286 1,286
--------- ------- ------- ---------
Total current assets......... 64,597 788 758 64,627
PROPERTY, PLANT AND EQUIPMENT,
NET............................. 21,548 21,548
OTHER ASSETS:
Deferred financing costs....... 10,004 275(3) 344(3) 9,935
Other.......................... 4 4
--------- ------- ------- ---------
TOTAL............................ $ 96,153 $ 1,063 $ 1,102 $ 96,114
========= ======= ======= =========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable............... $ 12,198 $ 12,198
Accrued interest payable....... 4,720 4,720
Accrued expenses............... 5,543 $ 483(4) 5,060
Income taxes payable........... 200 138(5) 62
Current portion of long-term
debt.......................... 3,375 3,375
--------- ------- ------- ---------
Total current liabilities.... 26,036 621 25,415
DEFERRED INCOME TAXES............ 1,177 1,177
REVOLVING CREDIT AGREEMENT....... 3,000 3,000
LONG-TERM DEBT................... 211,625 25,000(6) $50,000(6) 236,625
OTHER LONG-TERM OBLIGATIONS...... 450 450
REDEEMABLE PREFERRED STOCK....... 28,080 25,000(7) 3,080
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock...................
Additional paid-in-capital..... 200 200
Notes receivable from
stockholders.................. (788) 788(2)
Accumulated deficit............ (173,627) 206(3) (173,833)
--------- ------- ------- ---------
Net stockholders' equity
(deficit)................... (174,215) 206 788 (173,633)
--------- ------- ------- ---------
TOTAL............................ $ 96,153 $50,827 $50,788 $ 96,114
========= ======= ======= =========
</TABLE>
See Notes to Unaudited Pro Forma Financial Statements.
P-2
<PAGE>
GFSI HOLDINGS, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA STATEMENT OF INCOME
YEAR ENDED JUNE 27, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENT
-----------------------------------------
PRO
HISTORICAL DR CR FORMA
---------- ------- ------ --------
<S> <C> <C> <C> <C>
Net Sales........................... $183,297 $183,297
Cost of Sales....................... 102,606 102,606
-------- ------- ------ --------
Gross Profit...................... 80,691 80,691
Operating expenses:
Selling........................... 18,433 18,433
General and administrative........ 26,319 $ 593(8) $ 676(8) 26,236
-------- ------- ------ --------
44,752 593 676 44,669
-------- ------- ------ --------
Operating income.................... 35,939 593 676 36,022
Other income/(expense):
Interest expense.................. (9,098) 18,780(9) 2,863(9) (25,015)
Other............................. 99 99
-------- ------- ------ --------
(8,999) 18,780 2,863 (24,916)
-------- ------- ------ --------
Income before income taxes and
extraordinary item................. 26,940 19,373 3,539 11,106
Provision for income taxes.......... (1,440) 3,002(10) (4,442)
-------- ------- ------ --------
Income before extraordinary item.... $ 25,500 $22,375 $3,539 $ 6,664
======== ======= ====== ========
</TABLE>
See Notes to Unaudited Pro Forma Financial Statements.
P-3
<PAGE>
GFSI HOLDINGS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(IN THOUSANDS)
1. Presentation and Transactions:
The unaudited pro forma financial statements assume the following
transactions occurred on June 27, 1997 for the purpose of the unaudited pro
forma balance sheet and the beginning of the earliest period presented for
purposes of the unaudited pro forma statement of income.
Holdings and GFSI, a wholly-owned subsidiary of Holdings, were organized by
affiliates of The Jordan Company and management to effect the acquisition
of Winning Ways. Pursuant to the Acquisition Agreement, Holdings and GFSI
on February 27, 1997, acquired all of the issued and outstanding capital
stock of the Company, and the Company immediately thereafter merged with
and into GFSI. All of the capital stock of the Company acquired by Holdings
in connection with the Acquisition was contributed to GFSI along with the
balance of the Equity Contribution, as described below.
The aggregate purchase price for Winning Ways was $242.3 million consisting
of $173.2 million in cash at closing, a post closing payment at April 30,
1997, of $10.0 million and the repayment of $59.2 million of indebtedness
of Winning Ways including a $2.4 million prepayment penalty. To finance the
Acquisition, including approximately $11.5 million of related fees and
expenses: (i) TJC, its affiliates and MCIT PLC (collectively, the "Jordan
Investors") and certain members of management (the "Management Investors")
invested $52.2 million in Holdings and Holdings contributed $51.4 million
of this amount in cash to GFSI (the "Equity Contribution"); (ii) GFSI
consummated the GFSI Offering; and (iii) GFSI entered into the Credit
Agreement providing for borrowings of up to $115.0 million, of which
approximately $68.0 million was outstanding and $22.9 million was utilized
to cover outstanding letters of credit at closing of the Acquisition. The
Equity Contribution was comprised of: (i) a contribution of $13.6 million
from the Jordan Investors to Holdings in exchange for Holdings Preferred
Stock and approximately 50% of the Common Stock of Holdings; (ii) a
contribution of $13.6 million from the Management Investors to Holdings in
exchange for Holdings Preferred Stock and approximately 50% of the common
stock of Holdings; and (iii) a contribution of $25.0 million from a Jordan
Investor to Holdings in exchange for Holdings Subordinated Notes.
Approximately $0.8 million of the contribution from the Management
Investors was financed by loans from Holdings.
On September 17, 1997 Holdings completed the offering of Units consisting
of $25.0 million 11.375% Subordinated Notes due 2009 and $25.0 million
11.375% Series D Preferred Stock due 2009. The Units were exchangeable at
the option of Holdings, into 11.375% Series A Senior Discount Notes due
2009. On October 23, 1997 Holdings exercised its option to exchange the
Units for the Series A Discount Notes. Holdings did not receive any
proceeds from the sale or exchange of the Units. The Series A Senior
Discount Notes contained registration rights which Holdings is satisfying
by the Exchange Offer.
2. The pro forma adjustment to cash.
<TABLE>
<S> <C>
Repayment of notes receivable from stockholders, as described in Note
1.................................................................... $788
====
Payment of fees and expenses associated with the transactions......... $275
Payment of accrued interest expense on Holdings Subordinated Notes.... 483
----
Proforma adjustment................................................... $758
====
</TABLE>
3. The pro forma adjustments to deferred financing costs represent the
capitalization of fees and expenses associated with the Exchange using
existing cash in the Company and the write-off of financing costs
allocated to the Holdings Subordinated Notes.
4. The pro forma adjustment to accrued expenses represents the payment of
accrued interest on the Holdings Subordinated Notes.
P-4
<PAGE>
5. The pro forma adjustment to income taxes payable represents the reduction
of income taxes due to write-off of deferred financing costs on the
Holdings Subordinated Notes.
6. The pro forma adjustments to long-term debt represent the issuance of
Subordinated Discount Notes and the elimination of the Holdings
Subordinated Notes with the exchange transactions described in Note 1.
7. The pro forma adjustment to redeemable preferred stock represents the
elimination of Holdings Preferred Stock with the exchange transactions
described in Note 1.
8. The pro forma adjustment to general and administrative expense:
<TABLE>
<CAPTION>
YEAR
ENDED
JUNE
27,
1997
-------
<S> <C>
Additional general and administrative expense related to:
Consulting fee to The Jordan Company............................ $ 333
Board of Directors fees......................................... 93
Wolff non-competition payments.................................. 167
-------
Pro forma adjustment.......................................... $ 593
=======
Elimination of general administrative expense related to:
Officers life insurance premiums................................ $ (289)
Expenses of corporate jet not retained by Company............... (153)
Depreciation on corporate jet not retained by Company........... (234)
-------
Pro forma adjustment.......................................... $ (676)
=======
9. The pro forma adjustments to interest expense:
<CAPTION>
YEAR
ENDED
JUNE
27,
1997
-------
<S> <C>
Elimination of interest expense relating to Winning Ways, Inc.'s
prior debt agreements:
Repay prior 10.125% credit agreement............................ $ (255)
Repay prior line of credit agreement............................ (583)
Repay prior 10.28% mortgage loan................................ (647)
Repay prior 5.78% industrial revenue bonds...................... (11)
Repay prior short-term borrowings............................... (345)
Elimination of interest expense related to the Holdings
Subordinated Notes:
Repayment of the Holdings Subordinated Notes.................... (1,011)
Amortization of deferred issuance costs related to the Holdings
Subordinated Notes............................................. (11)
-------
Pro forma adjustment.......................................... $(2,863)
=======
Additional interest expense related to:
Issuance of the Subordinated Discount Notes (11.375%)........... $ 5,849
Amortization of deferred issuance costs related to the
Subordinated Discount Notes.................................... 133
Issuance of the GFSI Senior Subordinated Notes (9.625%)......... 8,021
Amortization of deferred issuance costs related to the GFSI
Subordinated Notes............................................. 428
Issuance of Term Loans assuming 8.13% interest rate............. 3,549
Issuance of Revolver assuming 7.94% interest rate............... 142
Amortization of deferred issuance costs related to New Credit
Agreement...................................................... 336
Commitment fees related to New Credit Agreement................. 93
Letter of credit fees related to New Credit Agreement........... 229
-------
Pro forma adjustment.......................................... $18,780
=======
</TABLE>
P-5
<PAGE>
The pro forma adjustments to interest expense do not include the
extraordinary item related to the loss on early extinguishment of debt, of
$2.5 million ($1.5 million on an after-tax basis) included in the Statement
of Income for the year ended June 27, 1997. Such amounts are excluded from
the accompanying pro forma income statement as it is considered a non-
recurring charge.
10. The pro forma adjustment to provide income taxes at an effective rate of
40% recognizes that the Company is subject to income tax upon revocation
of the S Corporation status for income tax purposes.
P-6
<PAGE>
GFSI HOLDINGS, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT.............................................. F-2
FINANCIAL STATEMENTS:
Consolidated Balance Sheets--June 30, 1996 and June 27, 1997............ F-4
Consolidated Statements of Income--Years Ended June 30, 1995 and 1996
and June 27, 1997...................................................... F-5
Consolidated Statements of Changes in Stockholders' Equity (Deficit)--
Years Ended June 30, 1995 and 1996 and June 27, 1997................... F-6
Consolidated Statements of Cash Flows--Years Ended June 30, 1995 and
1996 and June 27, 1997................................................. F-7
Notes to Consolidated Financial Statements.............................. F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
GFSI Holdings, Inc. and subsidiary
Lenexa, Kansas
We have audited the accompanying consolidated balance sheet of GFSI
Holdings, Inc. and subsidiary ("Holdings") as of June 27, 1997 and June 30,
1996, and the related consolidated statements of income, stockholders' equity
(deficit) and cash flows for the years then ended. These consolidated
financial statements are the responsibility of Holdings' 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Holdings as of June 27, 1997,
and June 30, 1996, and the results of their operations and their cash flows
for the years then ended in conformity with generally accepted accounting
principles.
As described in Note 1 to the financial statements, GFSI, Inc., a wholly
owned subsidiary of Holdings, completed recapitalization transactions on
February 27, 1997 which included the merger of Winnings Ways, Inc. with and
into GFSI, Inc., with GFSI, Inc. as the surviving entity.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
August 22, 1997
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Winning Ways, Inc.
Lenexa, Kansas
We have audited the accompanying statements of income, stockholders' equity
and cash flows of Winning Ways, Inc. (the "Company") for the year ended June
30, 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 audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such 1995 financial statements present fairly, in all
material respects, the results of operations and cash flows of the Company for
the year ended June 30, 1995 in conformity with generally accepted accounting
principles.
Donnelly Meiners Jordan Kline
Kansas City, Missouri
July 26, 1996
F-3
<PAGE>
GFSI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND JUNE 27, 1997
<TABLE>
<CAPTION>
JUNE 30, JUNE 27,
ASSETS 1996 1997
------ ----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................ $ 139,977 $ 1,116,512
Accounts receivable net of allowance for doubtful
accounts of $472,092 and $579,093 at June 30, 1996
and June 27, 1997................................... 22,583,452 23,705,589
Inventories, net..................................... 27,782,953 37,561,766
Deferred income taxes................................ 926,606
Prepaid expenses..................................... 802,311 1,286,646
----------- -----------
Total current assets............................... 51,308,693 64,597,119
Property, plant and equipment, net..................... 23,038,589 21,547,857
Other assets:
Deferred financing costs, net of accumulated
amortization of $51,459 and $394,264 at June 30,
1996 and June 27, 1997.............................. 88,883 10,004,390
Cash value of life insurance, net of related policy
loans of $90,117 at June 30, 1996................... 4,267,871
Other................................................ 7,269 3,995
----------- -----------
4,364,023 10,008,385
----------- -----------
Total.............................................. $78,711,305 $96,153,361
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
GFSI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND JUNE 27, 1997
<TABLE>
<CAPTION>
JUNE 30, JUNE 27,
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 1996 1997
---------------------------------------------- ----------- -------------
<S> <C> <C>
Current liabilities:
Short-term borrowings............................ $ 7,000,000 $ --
Accounts payable................................. 9,667,536 12,199,032
Accrued interest expense......................... 22,908 4,719,282
Accrued expenses................................. 5,266,090 5,543,206
Income taxes payable............................. 200,000
Current portion of long-term debt................ 1,658,160 3,375,000
----------- -------------
Total current liabilities...................... 23,614,694 26,036,520
Deferred income taxes.............................. 1,176,972
Revolving credit agreement......................... 3,000,000
Long-term debt..................................... 20,617,878 211,625,000
Other long-term obligations........................ 450,000
Redeemable preferred stock:
Series A 12% Cumulative Preferred Stock, $0.1 par
value, 13,500 shares issued and outstanding,
entitled in liquidation to $14,040,000.......... 14,040,000
Series B 12% Cumulative Preferred Stock, $0.1 par
value, 11,000 shares issued and outstanding,
entitled in liquidation to $11,440,000.......... 11,440,000
Series C 12% Cumulative Preferred Stock, $0.1 par
value, 2,500 shares issued and outstanding,
entitled in liquidation to $2,600,000........... 2,600,000
Stockholders' equity (deficit):
Winning Ways, Inc. Common stock $.10 par value,
2,000,000 shares authorized, 1,491,000 shares
issued at June 30, 1996......................... 149,100
Series A Common Stock, $0.01 par value, 1,000
shares authorized, 1,000 shares issued and
outstanding at June 27, 1997.................... 10
Series B Common Stock, $.01 par value, 1,000
shares authorized, 1,000 shares issued and
outstanding at June 27, 1997.................... 10
Additional paid-in capital....................... 1,585,691 200,080
Notes receivable from stockholders............... (788,500)
Retained earnings (accumulated deficit).......... 35,045,220 (173,626,731)
----------- -------------
36,780,011 (174,215,131)
Less treasury stock, at cost 261,250 shares at June
30, 1996.......................................... (2,301,278)
----------- -------------
Total stockholders' equity (deficit)........... 34,478,733 (174,215,131)
----------- -------------
Total.......................................... $78,711,305 $ 96,153,361
=========== =============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
GFSI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1995 AND 1996 AND JUNE 27, 1997
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, JUNE 27,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net sales............................ $148,196,394 $169,320,620 $183,297,733
Cost of sales........................ 84,869,223 97,307,746 102,606,239
------------ ------------ ------------
Gross profit..................... 63,327,171 72,012,874 80,691,494
Operating expenses
Selling............................ 14,884,100 16,963,137 18,432,943
General and administrative......... 19,544,325 22,216,193 26,319,209
------------ ------------ ------------
34,428,425 39,179,330 44,752,152
------------ ------------ ------------
Operating income................. 28,898,746 32,833,544 35,939,342
Other income (expense):
Interest expense................... (2,522,054) (2,608,154) (9,098,218)
Other.............................. (156,869) 490 99,326
------------ ------------ ------------
(2,678,923) (2,607,664) (8,998,892)
------------ ------------ ------------
Income before income taxes and
extraordinary item.................. 26,219,823 30,225,880 26,940,450
Provision for income taxes........... (1,440,000)
------------ ------------ ------------
Income before extraordinary item..... 26,219,823 30,225,880 25,500,450
Extraordinary item, net of tax
benefit of $989,634................. (1,484,451)
------------ ------------ ------------
Net income........................... 26,219,823 30,225,880 24,015,999
Preferred stock dividends............ (1,080,000)
------------ ------------ ------------
Net income attributable to common
shareholders........................ $ 26,219,823 $ 30,225,880 $ 22,935,999
============ ============ ============
Supplemental information:
Income before income taxes and
extraordinary item................ $ 26,219,823 $ 30,225,880 $ 26,940,450
Pro forma income tax provision..... 10,750,000 12,393,000 11,045,000
------------ ------------ ------------
Pro forma income before extraordinary
item................................ $ 15,469,823 $ 17,832,880 $ 15,895,450
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
GFSI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED JUNE 30, 1995 AND 1996 AND JUNE 27, 1997
<TABLE>
<CAPTION>
GFSI GFSI
HOLDINGS, HOLDINGS,
INC. INC. WINNING RETAINED NOTES
SERIES A SERIES B WAYS, INC. ADDITIONAL EARNINGS RECEIVABLE
COMMON COMMON COMMON PAID-IN (ACCUMULATED TREASURY FROM
STOCK STOCK STOCK CAPITAL DEFICIT) STOCK STOCKHOLDERS TOTAL
--------- --------- ---------- ----------- ------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1,
1994................ $ 149,100 $ 420,746 $ 31,461,792 $(2,602,375) $ 29,429,263
Purchase of treasury
stock.............. (3,958) (3,958)
Reissuance of
treasury stock..... 462,000 126,000 588,000
Net income.......... 26,219,823 26,219,823
Dividends declared.. (24,126,887) (24,126,887)
--- --- ---------- ----------- ------------- ----------- --------- -------------
Balance, June 30,
1995................ 149,100 882,746 33,554,728 (2,480,333) 32,106,241
Reissuance of
treasury stock..... 702,945 179,055 882,000
Net income.......... 30,225,880 30,225,880
Dividends declared.. (28,735,388) (28,735,388)
--- --- ---------- ----------- ------------- ----------- --------- -------------
Balance, June 30,
1996................ 149,100 1,585,691 35,045,220 (2,301,278) 34,478,733
Reissuance of
treasury stock..... 1,134,396 267,791 1,402,187
Net income.......... 24,015,999 24,015,999
Distributions to
Winning Ways, Inc.
shareholders....... (47,807,375) (47,807,375)
Distributions and
recapitalization of
Winning Ways, Inc.. (149,100) (2,720,087) (182,327,938) 2,033,487 (183,163,638)
Issuance of GFSI
Holdings, Inc.
Series A and B
Common Stock (net
of issuance costs
of $1,472,637)..... $10 $10 200,080 (1,472,637) $(788,500) (2,061,037)
Accrued dividends on
redeemable
preferred stock.... (1,080,000) (1,080,000)
--- --- ---------- ----------- ------------- ----------- --------- -------------
Balance, June 27,
1997................ $10 $10 $ $ 200,080 $(173,626,731) $ $(788,500) $(174,215,131)
=== === ========== =========== ============= =========== ========= =============
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
GFSI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995 AND 1996 AND JUNE 27, 1997
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, JUNE 27,
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $26,219,823 $30,225,880 $ 24,015,999
Adjustments to reconcile net income to
net cash
provided by operating activities:
Depreciation.......................... 2,850,834 3,191,595 3,174,863
Amortization of deferred financing
costs................................ 9,356 9,356 394,264
(Gain) loss on sale or disposal of
property, plant and equipment........ 156,869 1,009 (11,659)
Deferred income taxes................. 250,366
Increase in cash value of life
insurance............................ (519,580) (331,967) (1,041,343)
Extraordinary loss on early
extinguishment of debt............... 2,473,192
Changes in operating assets and
liabilities:
Accounts receivable, net............. (4,993,971) (4,502,972) (1,122,137)
Inventories, net..................... (1,873,099) 1,701,718 (9,778,813)
Prepaid expenses, other current
assets and other assets............. 271,658 665,925 (481,061)
Income taxes payable................. 200,000
Accounts payable, accrued expense,
and other long-term obligations..... 1,783,226 3,039,727 7,954,986
----------- ----------- ------------
Net cash provided by operating
activities......................... 23,905,116 34,000,271 26,028,657
----------- ----------- ------------
Cash flows from investing activities:
Proceeds from sales of property, plant
and equipment........................ 733,698 131,032 948,993
Proceeds from surrender or transfer of
cash value of life insurance......... 5,309,214
Purchases of property, plant and
equipment............................ (4,988,639) (2,611,019) (2,615,228)
----------- ----------- ------------
Net cash provided by (used in)
investing activities................ (4,254,941) (2,479,987) 3,642,979
----------- ----------- ------------
Cash flows from financing activities:
Issuance of revolving credit
agreement............................ 3,000,000
Net changes to short-term borrowings.. 6,200,000 (1,000,000) (7,000,000)
Issuance of senior subordinated
notes................................ 125,000,000
Issuance of subordinated notes........ 25,000,000
Issuance of New Credit Agreement...... 67,000,000
Payments on long-term debt............ (2,326,424) (2,639,378) (24,276,038)
Cash paid for penalties related to
early extinguishment of debt......... (2,390,546)
Cash paid for financing costs......... (10,398,654)
Distributions to Winning Ways, Inc.
shareholders......................... (24,126,887) (28,735,388) (47,807,375)
Distribution and recapitalization of
Winning Ways, Inc.................... (183,163,638)
Issuance of GFSI Holdings, Inc.
Common Stock......................... (1,272,537)
Issuance of redeemable preferred
stock................................ 26,211,500
Proceeds from sale of treasury stock.. 588,000 882,000 1,402,187
Purchase of treasury stock............ (3,958)
----------- ----------- ------------
Net cash used by financing
activities.......................... (19,669,269) (31,492,766) (28,695,101)
----------- ----------- ------------
Net increase (decrease) in cash...... (19,094) 27,518 976,535
Cash and cash equivalents:
Beginning of period................... 131,553 112,459 139,977
----------- ----------- ------------
End of period......................... $ 112,459 $ 139,977 $ 1,116,512
=========== =========== ============
Supplemental cash flow information:
Interest paid......................... $ 2,496,989 $ 2,628,291 $ 4,074,961
=========== =========== ============
Supplemental schedule of non-cash
financing activities:
Notes receivable from sale of stock... $ 788,500
============
Accrual of preferred stock dividends.. $ 1,080,000
============
</TABLE>
F-8
<PAGE>
GFSI HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1996 AND JUNE 27, 1997
1. RECAPITALIZATION TRANSACTION
On October 31, 1996, the Board of Directors of Winning Ways, Inc. ("Winning
Ways") executed a letter of intent to enter into a transaction with The Jordan
Company. The transaction included the formation of a holding company, GFSI
Holdings, Inc. ("Holdings" or the "Company") and GFSI, Inc. ("GFSI"), a wholly
owned subsidiary of Holdings, to effect the acquisition of Winning Ways. On
February 27, 1997, pursuant to the acquisition agreement, Holdings and GFSI
acquired all of the issued and outstanding capital stock of Winning Ways, and
immediately thereafter merged Winning Ways with and into GFSI, Inc. with GFSI,
Inc. as the surviving entity. All of the capital stock of Winning Ways
acquired by Holdings in connection with the acquisition was contributed by
Holdings to GFSI, along with the balance of the equity contribution, as
described below.
The aggregate purchase price for Winning Ways was $242.3 million, consisting
of $173.1 million in cash at closing, a post-closing payment at April 30, 1997
of $10.0 million and the repayment of $59.2 million of Winning Ways' existing
indebtedness. To finance the Acquisition, including approximately $11.5
million of related fees and expenses: (i) the Jordan Company, its affiliates
and MCIT PLC (collectively the "Jordan Investors") and certain members of
management (the "Management Investors") invested $52.2 million in Holdings and
Holdings contributed $51.4 million of this amount to GFSI (the "Equity
Contribution"); (ii) GFSI entered into a credit agreement (the "New Credit
Agreement") which provides for borrowings of up to $115.0 million, of which
approximately $68.0 million was outstanding at closing and approximately $22.9
million was utilized to cover outstanding letters of credit at Closing; and
(iii) GFSI issued $125.0 million of Senior Subordinated Notes (the "Senior
Subordinated Notes") which were purchased by institutional investors through a
Regulation 144A private placement. The Equity Contribution was comprised of
(i) a contribution of $13.6 million from the Jordan Investors to Holdings in
exchange for Holdings Preferred Stock and approximately 50% of the Common
Stock of Holdings; (ii) a contribution of $13.6 million from the Management
Investors to Holdings in exchange for Holdings Preferred Stock and
approximately 50% of the Common Stock of Holdings, and (iii) a contribution of
$25.0 million from a Jordan Investor to Holdings in exchange for Holdings
Subordinated Notes. Approximately $0.8 million of the contribution from the
Management Investors was financed by loans from Holdings.
The transactions above are reflected in the accompanying audited financial
statements of Holdings as of and for the year ended June 27, 1997 as a
leveraged recapitalization under which the existing basis of accounting for
Winning Ways was continued for financial accounting and reporting purposes.
The historical financial information presented herein includes the operations
and activities of Winning Ways through February 27, 1997 and the merged entity
subsequent thereto as a result of the merger and the leveraged
recapitalization.
The following summarizes the sources and uses of funds by the transactions
described above (in millions):
<TABLE>
<S> <C>
SOURCES OF FUNDS:
New Credit Agreement............................................ $ 68.0
New Senior Subordinated Notes due 2007.......................... 125.0
Subordinated notes to a Jordan Investor......................... 25.0
Issuance of GFSI Holdings, Inc. preferred and common stock...... 26.4
Existing cash balances in the business.......................... 9.4
------
Total sources................................................. $253.8
======
USES OF FUNDS:
Cash purchase price of the Acquisition.......................... 183.1
Repayment of Existing Indebtedness.............................. 59.2
Fees and expenses............................................... 11.5
------
Total uses.................................................... $253.8
======
</TABLE>
F-9
<PAGE>
GFSI HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Subsequent to the recapitalization transactions described above, GFSI is a
wholly-owned subsidiary of Holdings. Holdings is dependent upon the cash flows
of GFSI to provide funds to service $25.0 million of Holdings Subordinated
Notes. The annual cash flow requirements to service Holdings Subordinated
Notes is $3 million (principal due in balloon payment in 2008). Pursuant to
the terms of a deferred limited interest guarantee between GFSI and Holdings,
GFSI is obligated to pay accrued and unpaid interest on the Holdings
Subordinated Notes under certain limited circumstances. Additionally,
Holdings' cumulative preferred stock dividends will total $3.2 million
annually.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS--Holdings' through its wholly-owned subsidiary,
GFSI, is a leading designer, manufacturer and marketer of high quality, custom
designed sports wear and active wear bearing names, logos and insignia of
resorts, corporations, colleges and professional sports. The Company's
customer base is spread throughout the United States.
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of Holdings and its wholly-owned subsidiary, GFSI, Inc. All
significant intercompany accounts and transactions have been eliminated.
FISCAL YEAR--During 1997, Holdings converted its fiscal year to a 52/53 week
fiscal year which ends on the Friday nearest June 30. Previously, Holdings'
fiscal year ended June 30. The twelve month periods ended June 30, 1995 and
1996 and June 27, 1997 contain 52 weeks, respectively.
CASH AND CASH EQUIVALENTS--Holdings considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents.
INVENTORIES--Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method. Included in inventories are
markdown allowances of $1,922,038 and $305,608 at June 27, 1997 and June 30,
1996, respectively.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are recorded at
cost. Major renewals and betterments that extend the life of the asset are
capitalized; other repairs and maintenance are expensed when incurred.
Depreciation and amortization are provided for on the straight-line method
over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements..................................... 40 years
Furniture and fixtures......................................... 3-10 years
</TABLE>
LONG-LIVED ASSETS--During fiscal 1997, Holdings adopted Statement of
Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. Under SFAS
No. 121, impairment losses are recognized when information indicates the
carrying amount of long-lived assets, identifiable intangibles and goodwill
related to those assets will not be recovered through future operations or
disposal based upon a review of expected undiscounted cash flows. The adoption
of this statement had no effect on Holdings' consolidated financial
statements.
DEFERRED FINANCING COSTS--Deferred financing costs are amortized using the
straight line method over the shorter of the terms of the related loans or the
period such loans are expected to be outstanding. Amortization of deferred
financing costs is included in interest expense.
F-10
<PAGE>
GFSI HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS--Holdings is a party to an interest rate
swap agreement and an interest rate cap agreement. Income or expense resulting
from interest rate swap and cap agreements used in conjunction with on-balance
sheet liabilities are accounted for on an accrual basis and recorded as an
adjustment to expense on the matched instrument. Interest rate swap and cap
agreements that are not matched with specific liabilities are recorded at fair
value, with changes in the fair value recognized in current operations.
Gains and losses on terminations of interest rate swap and cap agreements
are recognized as other income (expense) when terminated in conjunction with
the retirement of the associated debt. Gains and losses on terminated
agreements are deferred and amortized in those cases where the underlying debt
is not retired. Redesignations which are appropriately matched against
underlying debt instruments will continue to qualify for settlement
accounting.
ADVERTISING COSTS--All costs related to advertising Holdings' products are
expensed in the period incurred. Advertising expenses totaled $865,341,
$1,011,784 and $1,383,261 for the years ended June 30, 1995 and 1996 and June
27, 1997, respectively.
INCOME TAXES--Effective July 1, 1982, GFSI's predecessor, Winning Ways,
Inc., elected to be taxed under the S-Corporation provisions of the Internal
Revenue Code which provide that, in lieu of corporate income taxes, the
shareholders are taxed on the Company's taxable income. Therefore, no
provision or liability for income taxes is reflected in the accompanying
financial statements through February 27, 1997. Upon consummation of the
recapitalization transactions (described in Note 1) on February 27, 1997, the
Company converted from S-Corporation to C-Corporation status for income tax
reporting purposes. In conjunction with this change in tax status, GFSI began
accounting for income taxes using the liability method in accordance with SFAS
No. 109. The liability method provides that deferred tax assets and
liabilities are recorded based on the difference between tax bases of assets
and liabilities and their carrying amount for financial reporting purposes, as
measured by the enacted tax rates which will be in effect when these
differences are expected to reverse.
Supplemental information relative to the Statements of Income has been
provided which reflects a provision for income taxes assuming a 41% effective
income tax rate for all periods.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING STANDARDS--SFAS No. 128, Earnings per Share was issued in
February 1997. This Statement establishes standards for computing and
presenting earnings per share by replacing the presentation of primary
earnings per share with a presentation of basic earnings per share. The
Statement is effective for Holding's fiscal 1998 financial statements,
including interim periods; earlier application is not permitted. Management
does not expect the implementation of this Statement to have a material impact
on its financial statements.
SFAS No. 130, Reporting Comprehensive Income was issued in June 1997. This
Statement established standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. This Statement is effective for
Holding's fiscal 1998 financial statements. Management does not expect the
implementation of this Statement to have a material impact on its financial
position of results of operations.
SFAS No. 131, Disclosure about Segments of an Enterprise and Related
Information was issued in June 1997. This Statement establishes standards for
the way that public business enterprises report information about
F-11
<PAGE>
GFSI HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. This Statement is effective for Holding's fiscal 1998 financial
statements. Management does not expect the implementation of the disclosure
requirements of this Statement to have a material impact on its financial
statements.
3. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
JUNE 30, JUNE 27,
1996 1997
----------- -----------
<S> <C> <C>
Land............................................. $ 2,442,373 $ 2,442,373
Buildings and improvements....................... 18,392,598 19,108,548
Furniture and fixtures........................... 16,722,972 14,150,193
----------- -----------
37,557,943 35,701,114
Less accumulated depreciation.................... 14,521,591 15,186,104
----------- -----------
23,036,352 20,515,010
Construction in progress......................... 2,237 1,032,847
----------- -----------
$23,038,589 $21,547,857
=========== ===========
</TABLE>
The net book value of assets under capital lease were and $1,576,876 and $0
at June 30, 1996 and June 27, 1997, respectively.
4. SHORT-TERM BORROWINGS
At June 30, 1996, the Company had a $40,000,000 unsecured line of credit
with floating interest of 5.37%. The floating interest rate was based on a 40
basis point spread over bankers acceptance, federal funds, or LIBOR rates
adjusted daily. The line was subject to certain restrictions and covenants,
among them being the maintenance of certain financial ratios, the most
restrictive of which require the Company to maintain a current ratio of
greater than 1.3 to 1.0, a cash flow coverage ratio of greater than 1.5 to 1.0
and a leverage ratio of less than 3.3 to 1.0. Borrowings against this line
totaled $7,000,000 at June 30, 1996.
Letters of credit against this line for unshipped merchandise aggregated
$23,512,080 at June 30, 1996.
As discussed in Note 11 to the financial statements, the floating interest
rate on the above line of credit was partially converted to a fixed interest
rate of 5.30% by an interest rate swap agreement. The notional amount of the
interest rate swap agreement fluctuated based on the Company's anticipated
level of short term borrowings with the maximum notional amount equaling
$19,900,000. This interest rate swap agreement was terminated on February 27,
1997 in conjunction with the recapitalization transactions and related early
retirement of debt. The $300,000 gain realized on the terminated swap was
deferred and will be amortized over the life of the New Credit Agreement.
5. REVOLVING CREDIT AGREEMENT
In conjunction with the recapitalization transactions (see Note 1), the
Company replaced the $40,000,000 unsecured line of credit described in Note 4
with a $50,000,000 secured line of credit (the "Line") with floating interest
of 7.938% at June 30, 1997. The Line is secured by substantially all of GFSI's
property, plant and equipment and matures in December of 2002. The Line is
subject to certain restrictions and covenants, among them being the
maintenance of certain financial ratios, the most restrictive of which require
GFSI to maintain a
F-12
<PAGE>
GFSI HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
fixed charge coverage ratio greater than 1.0 to 1.0, an interest expense
coverage ratio of greater than 1.2 to 1.0 and a maximum leverage ratio of less
than 6.5 to 1.0. GFSI is limited with respect to the making of payments
(dividends and distributions); the incurrence of certain liens; the sale of
assets under certain circumstances; certain transactions with affiliates;
certain consolidations, mergers, and transfers; and the use of loan proceeds.
Borrowings against this Line totaled $3,000,000 at June 27, 1997.
Letters of credit against this line at June 27, 1997, for unshipped
merchandise aggregated $27,234,109. Stand-by letters of credit issued against
the Line at June 27, 1997, aggregated $2,541,257.
6. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
JUNE 30, JUNE 27,
1996 1997
----------- ------------
<S> <C> <C>
Senior Subordinated Notes, 9.625% interest rate, due
2007................................................. $125,000,000
Term Loan A, variable interest rate, 7.938% at June
27, 1997, due 2002................................... 40,000,000
Term Loan B, variable interest rate, 8.438% at June
27, 1997, due 2004................................... 25,000,000
Subordinated Notes to Affiliate, 12.0% interest rate,
due 2008............................................. 25,000,000
10.125% credit agreement with bank to borrow up to
$10,000,000, unsecured, payable in monthly principal
installments of $119,048 plus interest (paid off
February 27, 1997)................................... $ 4,285,714
Floating interest $10,000,000 line of credit
agreement, interest was 5.71% at June 30, 1996 (paid
off February 27, 1997)............................... 8,000,000
10.28% first mortgage loan, secured by building and
equipment (with a carrying value of $9,556,710 at
June 30, 1996), payable in monthly installments of
$88,935 (paid off February 27, 1997)................. 9,550,324
Capital lease obligation securing 5.78% industrial
revenue bonds, payable in amounts equal to the
principal and interest payments due on the bonds
(paid off February 27, 1997)......................... 440,000
----------- ------------
22,276,038 215,000,000
Less current portion.................................. 1,658,160 3,375,000
----------- ------------
$20,617,878 $211,625,000
=========== ============
</TABLE>
On February 27, 1997, the Company entered into the New Credit Agreement with
a group of financial institutions to provide for three credit facilities: (i)
a term loan of $40,000,000 ("Term Loan A"), (ii) a term loan of $25,000,000
("Term Loan B" and collectively, with Term Loan A, the "Term Loans") and (iii)
the $50,000,000 secured line of credit (see Note 5). At closing of the
recapitalization transaction, $68,000,000 was borrowed under the New Credit
Agreement to finance the transactions described in Note 1 to the financial
statements.
The New Credit Agreement is secured by substantially all of the property,
plant and equipment of Holding's wholly-owned subsidiary, GFSI, and is subject
to general and financial covenants that place certain restrictions on GFSI.
GFSI is limited with respect to the making of payments (dividends and
distributions) to Holdings; the incurrence of certain liens; the sale of
assets under certain circumstances; certain transactions with affiliates;
certain consolidations, mergers, and transfers; and the use of loan proceeds.
As discussed in Note 11 to the financial statements, the floating interest
rate on the $10,000,000 line of credit agreement was partially converted to a
fixed interest rate of 5.62% by a $7,000,000 notional amount
F-13
<PAGE>
GFSI HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
interest rate swap agreement terminating on November 18, 2000. The floating
interest rate was based generally on the higher of the corporate base rate or
the federal funds rate plus 50 basis points adjusted daily. This interest rate
swap agreement was not terminated at February 27, 1997 in conjunction with the
early extinguishment of the debt. Such interest rate swap has been
redesignated to the new Term Loan A debt agreement. As also discussed in Note
11 to the financial statements, a portion of the floating interest rate on the
Term Loans has been capped at 7.50% by a $19,000,000 notional amount interest
rate cap agreement maturing in March of 1999.
On February 27, 1997, GFSI issued the 9.625% Senior Subordinated Notes due
2007 (the "Senior Subordinated Notes") in the aggregate principal amount of
$125,000,000 in a Regulation 144A private placement. Proceeds from the Senior
Subordinated Notes were also used to finance the transactions described in
Note 1 to the financial statements. GFSI's Registration Statement on Form S-4
was declared effective on July 24, 1997, providing for the exchange of the
Senior Subordinated Notes registered under the Securities Act, for the
Regulation 144A private placement Senior Subordinated Notes.
Interest on the Senior Subordinated Notes is payable semi-annually in cash
in arrears on September 1 and March 1, commencing September 1, 1997. The
Senior Subordinated Notes mature on March 1, 2007 and are redeemable, in whole
or in part, at the option of GFSI at any time on or after March 1, 2002 at the
redemption prices listed below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002........................................................... 104.813%
2003........................................................... 103.208%
2004........................................................... 101.604%
2005 and thereafter............................................ 100.000%
</TABLE>
At any time prior to March 1, 2000, GFSI may redeem up to 40% of the
original aggregate principal amount of the Senior Subordinated Notes with the
net proceeds of one or more equity offerings at a redemption price equal to
110% of the principal amount plus any accrued and unpaid interest to the date
of redemption. Upon the occurrence of a change of control, GFSI will be
required, subject to certain conditions, to make an offer to purchase the
Senior Subordinated Notes at a price equal to 101% of the principal amount
plus accrued and unpaid interest to the date of purchase.
The Senior Subordinated Notes are senior unsecured obligations of GFSI and
pursuant to the terms of the Senior Subordinated Notes indenture, rank pari
passu in right of payment to any future subordinated indebtedness of the
Company, and effectively rank junior to secured indebtedness of GFSI,
including borrowings under the New Credit Agreement.
The Senior Subordinated Notes Indenture includes covenants that, among other
things, limit payments of dividends and other restricted payments and the
incurrence of additional indebtedness. As of June 27, 1997, the Company was in
compliance with all such covenants.
On February 27, 1997, Holdings issued the 12% Subordinated Notes due 2009
(the "Subordinated Notes") in the aggregate principal amount of $25,000,000 to
an affiliate of the Jordan Company. Proceeds from the Subordinated Notes were
also used to finance the transactions described in Note 1 to the financial
statements.
Interest on the Subordinated Notes is payable semi-annually in cash in
arrears on October 31 and April 30, commencing April 30, 1997. As mentioned on
Note 1 to the financial statements, GFSI is obligated to pay accrued and
unpaid interest on the Subordinated Notes. The Subordinated Notes mature on
April 30, 2008; prepayments may be made at any time in multiples of $1,000.
Prepayment is required upon a change in control of Holdings, as defined in the
agreement.
F-14
<PAGE>
GFSI HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Subordinated Notes are unsecured obligations of Holdings and pursuant to
the terms of the Subordinated Notes purchase agreement, effectively rank
junior to the other unsecured debt of GFSI, including the Senior Subordinated
Notes, and the secured indebtedness of GFSI, including borrowings under the
New Credit Agreement.
The Subordinated Notes purchase agreement includes certain affirmative and
negative covenants. As of June 27, 1997, the Company was in compliance with
all such covenants.
Aggregate maturities of the Holdings' long-term debt as of June 27, 1997 are
as follows assuming a 52/53 week fiscal year:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- ------------
<S> <C>
1998......................................................... $ 3,375,000
1999......................................................... 4,875,000
2000......................................................... 6,125,000
2001......................................................... 7,625,000
2002......................................................... 9,500,000
Thereafter................................................... 183,500,000
------------
Total.................................................... $215,000,000
============
</TABLE>
In connection with the early extinguishment of debt existing at February 27,
1997, the Company recognized an extraordinary loss in the statement of income
for the fiscal year ended June 27, 1997 of $2,474,085 ($1,484,451 on an after-
tax basis). This loss consisted of $83,538 ($50,123 on an after-tax basis) of
deferred financing costs charged off related to the repayment of GFSI's debt
and a prepayment penalty of $2,390,546 ($1,434,328 on an after-tax basis)
incurred in connection with the prepayment of GFSI's then existing first
mortgage loan.
Included in the foregoing schedule of long-term debt is the following
capital lease information on the Company's manufacturing and distribution
facility. At June 27, 1997, no capital lease obligations were outstanding.
<TABLE>
<CAPTION>
JUNE 30,
1996
--------
<S> <C>
Total minimum lease payments.................................... $479,657
Less amounts representing interest.............................. 39,657
--------
Present value of net minimum lease payments..................... $440,000
========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
Prior to February 27, 1997, the Company was obligated under stock redemption
agreements to repurchase all shares owned upon the death of any stockholder
and termination of key employee stockholders. The price to be paid was
determined annually by the Board of Directors, and GFSI could elect a ten year
installment payment plan. The majority of the commitment arising from these
agreements was funded by life insurance contracts.
The Company, in the normal course of business, is threatened with or named
as a defendant in various lawsuits. It is not possible to determine the
ultimate disposition of these matters, however, management is of the opinion
that there are no known claims or known contingent claims that are likely to
have a material adverse effect on the results of operations, financial
condition, or cash flows of the Company.
F-15
<PAGE>
GFSI HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. REDEEMABLE PREFERRED STOCK
In connection with the recapitalization transactions described in Note 1 to
the financial statements, the Company issued 27,000 shares of Cumulative
Preferred Stock, 13,500 shares as Series A 12% Cumulative Preferred Stock,
11,000 shares as Series B 12% Cumulative Preferred Stock, and 2,500 shares as
Series C 12% Cumulative Preferred Stock (which along with the Series A and
Series B Preferred Stock shall be collectively referred to as the "Preferred
Stock"). The holders of Preferred Stock are entitled to annual cash dividends
of $120 per share, payable on March 1 of each year, in accordance with the
terms set forth in the Articles of Incorporation. The liquidation preference
for each share of Preferred Stock is $1,000 plus any accrued and unpaid
dividends. Mandatory redemption of the liquidation preference plus any accrued
and unpaid dividends occurs on March 1, 2009.
9. PROFIT SHARING PLAN
During fiscal 1996, the Company provided a non-contributory defined
contribution profit sharing plan (the "Plan") covering all eligible employees.
Contributions were at the discretion of the Board of Directors and totaled
$875,756 for the year ended June 30, 1996.
On August 1, 1996, the Plan was amended to include employee directed
contributions with an annual discretionary matching contribution and renamed
the Plan the Winning Ways, Inc. Profit Sharing and 401(k) Plan. Participants
exercise control over the assets of his or her account and choose from a broad
range of investment alternatives. Contributions made by the Company to the
plan related to the 401(k) and profit sharing portions totaled $131,843 and
$443,624, respectively, for the year ended June 27, 1997.
10. INCOME TAXES
The provision for income taxes for the year ended June 27, 1997 consists of
the following:
<TABLE>
<CAPTION>
JUNE 27,
1997
----------
<S> <C>
Current income tax provision.................................. $ 200,000
Deferred income tax provision................................. 250,366
----------
Total income tax provision................................ $ 450,366
==========
Allocated to:
Operating activities........................................ $1,440,000
Extraordinary loss.......................................... (989,634)
----------
Total income tax provision $ 450,366
==========
</TABLE>
The income tax provision differs from amounts computed at the statutory
federal income tax rate as follows:
<TABLE>
<CAPTION>
JUNE 27, 1997
------------------
AMOUNT %
----------- -----
<S> <C> <C>
Income tax provision at the statutory rate.......... $ 9,429,158 35.0%
Income attributable to S-Corporation earnings....... (9,146,583) (34.0)%
Change in tax status to C-Corporation............... 993,621 3.7%
Effect of state income taxes, net of federal
benefit............................................ 163,804 0.6%
----------- -----
$1,440,000 5.3%
=========== =====
</TABLE>
F-16
<PAGE>
GFSI HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and income tax purposes. The sources of the differences that give rise to the
deferred income tax assets and liabilities as of June 27, 1997, along with the
income tax effect of each, are as follows:
<TABLE>
<CAPTION>
JUNE 27, 1997
DEFERRED INCOME TAX
----------------------
ASSETS LIABILITIES
---------- -----------
<S> <C> <C>
Accounts receivable................................ $ 247,215
Inventory valuation................................ 244,624
Property, plant, and equipment..................... $1,611,484
Accrued expenses................................... 547,449
Net operating loss carry forward................... 259,271
Other.............................................. 62,559
Valuation allowance................................
---------- ----------
Total.......................................... $1,361,118 $1,611,484
========== ==========
</TABLE>
11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company engages in transactions which result in off-balance sheet risk.
Interest rate swap and cap agreements are primarily used in conjunction with
on-balance sheet liabilities to reduce the impact of changes in interest
rates. Interest rate swap agreements are contractual agreements to exchange,
or "swap", a series of interest rate payments over a specified period, based
on an underlying notional amount but differing interest rate indices, usually
fixed and floating. Interest rate cap agreements are contractual agreements in
which a premium is paid to reduce the impact of rising interest rates on
floating rate debt. The notional principal amount does not represent a cash
requirement, but merely serves as the amount used, along with the reference
rate, to calculate contractual payments. Because the instrument is a contract
or agreement rather than a cash market asset, the financial derivative
transactions described above are referred to as "off-balance sheet"
instruments.
The Company attempts to minimize its credit exposure to counterparties by
entering into interest rate swap and cap agreements only with major financial
institutions.
The Company's interest rate swap agreements are used in conjunction with on-
balance sheet liabilities and were as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
CONTRACT OR ESTIMATED INTEREST RATE
NOTIONAL FAIR ------------------
AMOUNT VALUE RECEIVABLE PAYABLE
----------- --------- ---------- -------
<S> <C> <C> <C> <C>
Swaps:
June 30, 1996.................. $21,900,000 $850,000 5.39% 5.62%
June 27, 1997.................. 7,000,000 156,000 5.55 5.62
Cap:
June 27, 1997.................. $19,000,000 >7.50
</TABLE>
GFSI has entered into two swap agreements to exchange fixed interest rates
for floating rate debt payments. One agreement carries a notional amount of
$7,000,000 and terminates on November 18, 2000, as further described in Note 6
to the financial statements. The notional amount of the other interest rate
swap agreement fluctuates based on GFSI's anticipated level of short-term
borrowing with the maximum notional amount equaling $19,900,000, as further
described in Note 4 to the financial statements. This agreement was entered
into in January 1995 to be effective July 1, 1996; however, this agreement was
terminated on February 27, 1997.
F-17
<PAGE>
GFSI HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
GFSI has a 7.50% interest rate cap agreement which is used to effectively
cap the interest rate on a portion of GFSI's floating rate term loans. The
interest rate cap agreement has a notional amount of $19,000,000 as of June
27, 1997. The cap matures March 31, 1999.
12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires that GFSI disclose estimated fair
values for its financial instruments which include cash and cash equivalents,
accounts receivables, short-term borrowings, accounts payables, long-term debt
and interest rate swap agreements.
CASH AND CASH EQUIVALENTS--The carrying amount reported on the balance sheet
represents the fair value of cash and cash equivalents.
ACCOUNTS RECEIVABLE--The carrying amount of accounts receivable approximates
fair value because of the short-term nature of the financial instruments.
SHORT-TERM BORROWINGS AND REVOLVING CREDIT AGREEMENT--Short-term borrowings
and revolving credit agreement have variable interest rates which adjust
daily. The carrying value of these borrowings is a reasonable estimate of
their fair value.
ACCOUNTS PAYABLE--The carrying amount of accounts payable approximates fair
value because of the short-term nature of the financial instruments.
LONG-TERM DEBT--Interest rates that are currently available to the Company
for issuance of debt with similar terms and remaining maturities are used to
estimate fair value of debt issues with fixed rates. The carrying value of
floating rate debt is a reasonable estimate of their fair value.
DERIVATIVE FINANCIAL INSTRUMENTS--Quoted market prices or dealer quotes are
used to estimate the fair value of interest rate swap and cap agreements.
The following summarizes the estimated fair value of financial instruments,
by type:
<TABLE>
<CAPTION>
JUNE 30, 1996 JUNE 27, 1997
----------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Assets and Liabilities:
Cash and cash equivalents.. $ 139,977 $ 139,977 $ 1,116,512 $ 1,116,512
Accounts receivable........ 22,583,452 22,583,452 23,705,589 23,705,589
Short-term borrowings...... 7,000,000 7,000,000
Accounts payable........... 9,667,536 9,667,536 12,199,032 12,199,032
Revolving credit agreement. 3,000,000 3,000,000
Long-term debt............. 22,276,038 24,562,702 215,000,000 215,000,000
Off-balance sheet financial
instruments:
Interest Rate Swap
Agreements
(Asset/(Liability))....... 850,000 156,000
Interest Rate Cap Agreement
(Asset/(Liability))....... --
</TABLE>
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instruments. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision.
F-18
<PAGE>
GFSI HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
13. RELATED PARTY TRANSACTIONS
The Company has entered into supply agreements with several affiliated
companies controlled by certain members of Company management. The agreements
allow the Company to outsource embroidery work to the affiliates in the event
that demand exceeds the Company's manufacturing capacity. Amounts paid to
these entities were $2,262,967, $3,080,718 and $4,566,713 for the years ended
June 30, 1995 and 1996 and June 27, 1997, respectively.
During the year ended June 27, 1997, the Company loaned the affiliates
$150,000 and $700,000 under separate promissory notes to finance the
affiliates' purchase of embroidery equipment from the Company and to provide
for working capital. The equipment was sold at net book value which
approximated market value. As of June 27, 1997, the remaining balance
outstanding on the notes was $525,000. All outstanding balances were paid
subsequent to year end.
During fiscal 1997, the cash value of life insurance on officers was
liquidated into cash or transferred to the respective individuals at carrying
value. The net proceeds to the Company totaled $5,309,214 for the year ended
June 27, 1997. Prior to June 27, 1997, a shareholder purchased the corporate
aircraft from the Company for approximately $898,000 in cash, resulting in no
gain or loss to the Company.
In connection with the recapitalization transactions on February 27, 1997,
Holdings entered into an agreement with an affiliate to render services to the
Company, including consultation on its financial and business affairs, its
relationship with its lenders and stockholders, and the operation and
expansion of the business. In connection with the recapitalization
transactions, the Company paid the affiliate $3.25 million pursuant to the
terms of the agreement. These fees are included as deferred financing costs in
the accompanying financial statements. In addition, the Company incurred
consulting fees total $166,667 for the year ended June 27, 1997, which are
included in general and administrative expenses in the accompanying financial
statements.
Effective upon the consummation of the recapitalization transactions on
February 27, 1997, Holdings entered into a noncompete agreement with a
shareholder. In exchange for the covenant not to compete, the shareholder will
be paid $250,000 per annum for a period of ten years. At June 27, 1997,
$83,333 of expense related to this agreement is included in general and
administrative expenses in the accompanying financial statements.
The Subordinated Notes, as described in Note 6 to the financial statements,
have been issued to an affiliate of the Jordan Company. Interest expense paid
and accrued to the Jordan Company affiliate totaled $517,000 and $493,000,
respectively, as of and for the year ended June 27, 1997.
F-19
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURI-
TIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPEC-
TUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IM-
PLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUB-
SEQUENT TO THE DATE HEREOF.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................... 1
Risk Factors.............................................................. 13
The Transactions.......................................................... 21
Use of Proceeds........................................................... 22
Capitalization............................................................ 22
Selected Historical Financial Data........................................ 23
Management's Discussion and Analysis of Results of Operations and
Financial Condition...................................................... 25
Business.................................................................. 30
Management................................................................ 39
Principal Stockholders.................................................... 42
The Exchange Offer........................................................ 43
Description of Notes...................................................... 52
Description of Certain Indebtedness....................................... 76
Certain Transactions...................................................... 77
Plan of Distribution...................................................... 80
Certain Federal Income Tax Consideration.................................. 81
Legal Matters............................................................. 89
Auditors.................................................................. 89
Available Information..................................................... 90
Unaudited Pro Forma Combined Financial Statements......................... P-1
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
GFSI HOLDINGS,
INC.
11.375% SERIES B
SENIOR DISCOUNT NOTES
DUE 2009
-----------------
PROSPECTUS
-----------------
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) the Delaware General Corporation Law (Section 145) gives Delaware
corporations broad powers to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
by reason of the fact that the person is or was a director, officer, employee
or agent of the registrant, or is or was serving at the request of the
registrant as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding, so long as such person acted in good faith and in
a manner such person reasonably believed to be in or not opposed to the best
interests of the registrant. For actions, or suits by or in the right of the
registrant, no indemnification is permitted in respect of any claim, issue or
matter as to which such person is adjudged to be liable to the registrant,
unless, and only to the extent that, the Delaware Court of Chancery or the
court in which such action or suit was brought determines upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnify for such expenses which the Court of Chancery or such other court
deems proper.
Section 145 also authorizes the registrant to buy directors' and officers'
liability insurance and gives a director, officer, employee or agent of the
registrant who has been successful on the merits or otherwise in defense of
any action, suit or proceeding of a type referred in the preceding paragraph
the right to be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith. Any
indemnification (unless ordered by a court) will be made by the registrant
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because the person has note the applicable standard of conduct
set forth above. Such determination shall be made (1) by a majority vote of
the directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (2) if there are no such directors, or is such
directors so direct, by independent legal counsel in a written opinion, or (3)
by the stockholders. Such indemnification is not exclusive of any other rights
to which those indemnified my be entitled under any by-laws, agreement, vote
of stockholders or otherwise.
(b) The Purchase Agreement and the Registration Rights Agreement (the Forms
of which are included as Exhibits 1 and 4.4 to this registration statement)
provide for the indemnification under certain circumstances of the registrant,
its directors and certain of its officers by the Underwriters.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
A list of the exhibits included as part of this registration statement is
Contained on the Exhibit Index and is incorporated herein by reference.
(b) Financial Statement Schedules:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report on Schedule S-1
Schedule I Parent Company Condensed Balance Sheet as of June 27, 1997
and
Condensed Income Statement and Condensed Statement of Cash Flows for
the period
from February 27, 1997 (date operations commenced) to June 27, 1997 S-2
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted
because they are not required, are inapplicable or the required information
has already been provided elsewhere in the registration statement.
II-1
<PAGE>
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration:
(i) To include any prospectus in which offers or sales are being
made, a post-effective amendment to this registration statement:
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant, will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) The registrant had not entered into any arrangement or understanding
with any person to distribute the securities to be received in the Exchange
Offer and to the best of the registrant's information and belief, each person
participating in the Exchange Offer is acquiring the securities in its
ordinary course of business and has no arrangement or understanding with any
person to participate in the distribution of the securities to be received in
the Exchange Offer. In this regard, the registrant will make each person
participating in the Exchange Offer aware (through the Exchange Offer
Prospectus or otherwise) that if the Exchange Offer is being registered for
the purpose of secondary resales, any security holder using the exchange offer
to participate in a distribution of the securities to be acquired in the
registered exchange offer (1) could not rely on the staff position enunciated
in Exxon Capital Holdings Corporation (available April 13, 1989) or similar
letters and (2) must comply with registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. The registration acknowledges that such a secondary resale
transaction should be covered by an effective registration statement
containing the selling securityholder information required by Item 4\507 of
Regulation S-K.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK,
STATE NEW YORK, ON OCTOBER 27, 1997.
GFSI Holdings, Inc.
/s/ A. Richard Caputo, Jr.
By: _________________________________
A. Richard Caputo, Jr.
Vice President and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS A. RICHARD CAPUTO, JOHN L. MENGHINI AND ROBERT
G. SHAW, AND EACH OF THEM SINGLY, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND
AGENTS, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN
THIS NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL
AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION
STATEMENT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND ANY AND ALL
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM,
FULL POWER AND AUTHORITY TO DO AND PERFORM ANY AND ALL ACTS AND THINGS
REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL
INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND
CONFORMING ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS, OR ANY OF THEM, OR HIS
SUBSTITUTE OR NOMINEE, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON OCTOBER 27, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Robert M. Wolff Chairman and a Director
___________________________________________
Robert M. Wolff
/s/ John L. Menghini President, Chief Operating Officer and a
___________________________________________ Director (Principal Executive Officer)
John L. Menghini
/s/ Robert G. Shaw Senior Vice President, Finance and a
___________________________________________ Director (Principal Financial and
Robert G. Shaw Accounting Officer)
/s/ Larry D. Graveel Senior Vice President, Merchandising and a
___________________________________________ Director
Larry D. Graveel
/s/ A. Richard Caputo, Jr. Vice President and a Director
___________________________________________
A. Richard Caputo, Jr.
/s/ John W. Jordan II Director
___________________________________________
John W. Jordan II
/s/ David W. Zalaznick Director
___________________________________________
David W. Zalaznick
</TABLE>
II-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
GFSI Holdings, Inc. and subsidiary
Lenexa, Kansas
We have audited the consolidated financial statements of GFSI Holdings,
Inc., and subsidiary as of the June 27, 1997 and June 30, 1996, and for the
years then ended, and have issued our report thereon August 22, 1997. Our
audit also included the financial statement schedule which follows. The
financial statement schedule is the responsibility of management. Our
responsibility is to express an opinion based on our audit. In our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information therein set forth.
Deloitte & Touche LLP
Kansas City, Missouri
August 22, 1997
S-1
<PAGE>
SCHEDULE I
GFSI HOLDINGS, INC. AND SUBSIDIARY
PARENT COMPANY ONLY
CONDENSED BALANCE SHEET
JUNE 27, 1997
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
Current assets:
Accounts receivable, net....................................... $ 18,185
Income tax receivables......................................... 137,750
-------------
155,935
Deferred tax assets.............................................. 259,271
Deferred financing costs......................................... 343,583
-------------
$ 758,789
=============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
<S> <C>
Current liabilities--accrued expenses............................ $ 483,333
Negative investment in GFSI, Inc................................. 121,410,587
Long-term debt................................................... 25,000,000
Redeemable preferred stock....................................... 28,080,000
Stockholders' deficit:
Common stock................................................... 20
Accumulated deficit............................................ (173,426,651)
Notes receivable from stockholders............................. (788,500)
-------------
Total stockholders' deficit.................................. (174,215,131)
-------------
$ 758,789
=============
</TABLE>
S-2
<PAGE>
SCHEDULE I
GFSI HOLDINGS, INC. AND SUBSIDIARY
PARENT COMPANY ONLY
CONDENSED INCOME STATEMENT
PERIOD FROM FEBRUARY 27, 1997 (DATE OPERATIONS COMMENCED)
TO JUNE 27, 1997
<TABLE>
<S> <C>
Other income (expense)............................................. $ 18,185
Interest expense................................................... (1,010,737)
-----------
Loss before income taxes and equity in net income of GFSI, Inc..... (992,552)
Income tax benefit................................................. 397,021
-----------
Loss before equity in net income of GFSI, Inc...................... (595,531)
Equity in net income of GFSI, Inc.................................. 24,611,530
-----------
Net income......................................................... 24,015,999
Preferred stock dividends ......................................... (1,080,000)
-----------
Net income attributable to common shareholders..................... $22,935,999
===========
</TABLE>
S-3
<PAGE>
SCHEDULE I
GFSI HOLDINGS, INC. AND SUBSIDIARY
PARENT COMPANY ONLY
CONDENSED STATEMENT OF CASH FLOWS
PERIOD FROM FEBRUARY 27, 1997 (DATE OPERATIONS COMMENCED)
TO JUNE 27, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income...................................................... $ 24,015,999
Adjustments to reconcile net income to net cash provided by
operating activities:
Deferred tax provision......................................... (259,271)
Equity in net income of GFSI, Inc.............................. (24,611,530)
Distributions received from GFSI, Inc.......................... 870,987
Changes in:
Accounts receivable........................................... (18,185)
Income tax receivable......................................... (137,750)
Accrued expenses.............................................. 483,333
------------
Net cash provided by operating activities.................... 343,583
------------
Cash flows from investing activities--Equity contribution to
GFSI, Inc....................................................... (49,938,963)
------------
Net cash used in investing activities........................ (49,938,963)
------------
Cash flows from financing activities:
Issuance of subordinated notes.................................. 25,000,000
Issuance of redeemable preferred stock.......................... 27,000,000
Issuance of common stock, net of offering costs................. (2,061,037)
Cash paid for financing costs................................... (343,583)
------------
Net cash provided by financing activities.................... 49,595,380
------------
Net change in cash............................................... --
------------
Cash, beginning of period........................................ --
------------
Cash, end of period.............................................. $ --
------------
</TABLE>
S-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
<C> <S> <C>
1 Purchase Agreement, dated September 17, 1997, by and
among GFSI Holdings, Inc., and Donaldson, Lufkin &
Jenrette Securities Corporation
2.1 Agreement for Purchase and Sale of Stock, dated January
24, 1997, among GFSI Holdings, Inc., GFSI, Inc. and the
Shareholders of Winning Ways, Inc. (incorporated by
reference to Exhibit 2.1 to GFSI, Inc.'s Form S-4
Registration Statement (File No. 333-24189, the "GFSI S-
4")
2.2 Amendment No. 1 to Agreement for Purchase and Sale of
Stock, dated February 27, 1997, among GFSI Holdings,
Inc., GFSI, Inc. and the Shareholders of Winning Ways,
Inc. (incorporated by reference to Exhibit 2.2 to the
GFSI S-4)
3.1 Certificate of Incorporation of GFSI Holdings, Inc.
3.2 Bylaws of GFSI Holdings, Inc.
4.1 Indenture, dated September 17, 1997, between GFSI
Holdings, Inc. and State Street Bank and Trust Company,
as Trustee
4.2 Global Series A Senior Discount Note
4.3 Form Global Series B Senior Discount Note
4.4 Registration Rights Agreement, dated September 17, 1997,
by and among GFSI Holdings, Inc. and Donaldson, Lufkin &
Jenrette Securities Corporation
5 Opinion of Mayer, Brown & Platt
8 Tax Opinion (included as part of Exhibit 5)
10.1 Credit Agreement, dated February 27, 1997, between GFSI,
Inc., the lenders listed thereto and The First National
Bank of Chicago, as Agent (incorporated by reference to
Exhibit 10.1 to the GFSI S-4)
10.2 Amendment No. 1 to Credit Agreement, dated September 17,
1997, by and among GFSI, Inc., the lenders listed thereto
and The First National Bank of Chicago, as Agent
10.3 Tax Sharing Agreement, dated February 27, 1997, between
GFSI, Inc. and GFSI Holdings, Inc. (incorporated by
reference to Exhibit 10.6 to the GFSI S-4)
10.4 Management Consulting Agreement, dated February 27, 1997,
between GFSI Holdings, Inc. and TJC Management
Corporation (incorporated by reference to Exhibit 10.7 to
the GFSI S-4)
10.5 Employment Agreement, dated February 27, 1997, between
GFSI, Inc. and Robert M. Wolff (incorporated by reference
to Exhibit 10.8 to the GFSI S-4)
10.6 Noncompetition Agreement, dated February 27, 1997,
between GFSI Holdings, Inc. and Robert M. Wolff
(incorporated by reference to Exhibit 10.9 to the GFSI S-
4)
10.7 Form of Indemnification Agreement, dated February 27,
1997, between GFSI Holdings, Inc. and its director and
executive officers (incorporated by reference to Exhibit
10.10 to the GFSI S-4)
10.8 Form of Promissory Note, dated February 27, 1997, between
GFSI Holdings, Inc. and the Management Investors
(incorporated by reference to Exhibit 10.13 to the GFSI
S-4)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
<C> <S> <C>
12 Statement re: Computation of Ratios
23.1 Consent of Mayer, Brown & Platt (included in the opinion
filed as Exhibit 5)
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Donnelly Meiners Jordan and Kline
24 Power of Attorney (included on the signature page in Part
II of the Registration Statement)
25 Statement of Eligibility of Trustee
27 Financial Data Schedule
99 Form of Letter of Transmittal
</TABLE>
<PAGE>
Exhibit 1
Execution Copy
================================================================================
GFSI HOLDINGS, INC.
THE SELLING SECURITYHOLDERS NAMED HEREIN
________________________________________
50,000 Exchangeable Units Consisting of
$25,000,000 Aggregate Principal Amount of
11 3/8% Subordinated Discount Notes due 2009
and
25,000 Shares of 11 3/8% Series D Preferred Stock due 2009
________________________________________
___________________
PURCHASE AGREEMENT
DATED AS OF SEPTEMBER 12, 1997
___________________
Donaldson, Lufkin & Jenrette
Securities Corporation
================================================================================
<PAGE>
September 12, 1997
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
277 Park Avenue
New York, New York 10172
Ladies and Gentlemen:
GFSI Holdings, Inc., a Delaware corporation ("HOLDINGS"), MCIT PLC, as
holder of the 11 3/8% Subordinated Discount Notes due 2009 (the "HOLDINGS
SUBORDINATED NOTES") of Holdings and the holders (together with MCIT PLC, the
"SELLING SECURITYHOLDERS") of all of the outstanding shares of Holdings' 11 3/8%
Cumulative Preferred Stock due 2009, par value $0.01 per share (the "HOLDINGS
PREFERRED STOCK"), propose to issue and sell 50,000 Exchangeable Units (the
"UNITS"), each consisting of $500.00 principal amount upon issue of the Holdings
Subordinated Notes and 0.50 of a share of the Holdings Preferred Stock, to
Donaldson, Lufkin & Jenrette Securities Corporation (the "INITIAL PURCHASER").
The Holdings Subordinated Notes will be issued pursuant to an Indenture (the
"SUBORDINATED NOTE INDENTURE"), dated September 17, 1997, between Holdings and
Fleet National Bank, as trustee (the "TRUSTEE"). Each Unit will, at the option
of Holdings, be exchangeable for 11 3/8% Senior Discount Notes due 2009 (the
"SERIES A NOTES") of Holdings no earlier than ten days after the issuance of the
Units. The Series A Notes and the Series B Notes (as defined) will be issued
pursuant to an indenture (the "INDENTURE") between Holdings and the Trustee,
dated September 17, 1997.
1. ISSUANCE OF SECURITIES. The Units will be offered and sold to the
Initial Purchaser pursuant to an exemption from the registration requirements
under the Securities Act of 1933, as amended (the "ACT"). Holdings has prepared
a preliminary offering memorandum, dated September 12, 1997 (the "PRELIMINARY
OFFERING MEMORANDUM"), and a final offering memorandum, dated September 12, 1997
(the "OFFERING MEMORANDUM" and, together with the Preliminary Offering
Memorandum, the "OFFERING DOCUMENTS"), relating to Holdings and the Units.
Upon original issuance thereof, and until such time as the same is no
longer required under the applicable requirements of the Act, the Units, the
Holdings Subordinated Notes, the Holdings Preferred Stock and the Series A Notes
(and all securities issued in exchange therefor or in substitution thereof)
shall bear the following legend:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF
THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND
THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY
IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION
PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED
HEREBY AGREES FOR THE BENEFIT OF HOLDINGS THAT (A) SUCH SECURITY MAY
BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) (a) INSIDE THE
UNITED STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (b) IN A TRANSACTION MEETING THE
1
<PAGE>
REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE
UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF HOLDINGS SO
REQUESTS), (2) TO HOLDINGS OR (3) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE
SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A)
ABOVE."
2. AGREEMENTS TO SELL AND PURCHASE. On the basis of the representations
and warranties contained in, and subject to the terms and conditions of, this
Agreement, Holdings and the Selling Securityholders agree to issue and sell to
the Initial Purchaser, and the Initial Purchaser agrees to purchase from
Holdings and the Selling Securityholders, 50,000 Units at a purchase price of
$972.50 per Unit (the "PURCHASE PRICE") as set forth on Schedule I hereto.
3. TERM OF OFFERING. The Initial Purchaser has advised Holdings that the
Initial Purchaser will make offers (the "EXEMPT RESALES") of the Units purchased
by the Initial Purchaser hereunder on the terms set forth in the Offering
Memorandum, as amended or supplemented, solely to (i) persons (each, a "144A
PURCHASER") whom the Initial Purchaser reasonably believes to be "qualified
institutional buyers" as defined in Rule 144A under the Act ("QIBs") and (ii)
non-U.S. persons outside the United States in reliance upon Regulation S
("REGULATION S") under the Act (such persons specified in clauses (i) and (ii)
being referred to herein as the "ELIGIBLE PURCHASERS"). The Initial Purchaser
will offer the Units to Eligible Purchasers initially at a price equal to $1,000
per Unit. Such price may be changed at any time without notice.
Holders (including subsequent transferees) of the Units or the Series A
Notes, as applicable, will have the registration rights regarding the Series A
Notes set forth in the registration rights agreement (the "REGISTRATION RIGHTS
AGREEMENT"), to be dated the Closing Date (as defined), in substantially the
form of Exhibit A hereto, for so long as such Series A Notes constitute
"TRANSFER RESTRICTED SECURITIES" (as defined in the Registration Rights
Agreement). Pursuant to the Registration Rights Agreement, Holdings will agree
to file with the Securities and Exchange Commission (the "COMMISSION"), under
the circumstances set forth therein, (i) a registration statement under the Act
(the "EXCHANGE OFFER REGISTRATION STATEMENT") relating to (A) Holdings' 11 3/8%
Series B Senior Discount Notes due 2009 (the "SERIES B NOTES" and, together with
the Series A Notes, the "NOTES") to be offered in exchange for the Series A
Notes (such offer to exchange being referred to as the "REGISTERED EXCHANGE
OFFER") and/or (ii) a shelf registration statement pursuant to Rule 415 under
the Act (the "SHELF REGISTRATION STATEMENT" and together with the Exchange Offer
Registration Statement, the "REGISTRATION STATEMENTS") relating to the resale by
certain holders of the Series A Notes, and to use their best efforts to cause
such Registration Statements to be declared effective. The Holdings Preferred
Stock, the Holdings Subordinated Notes and the Units are hereinafter referred to
collectively as the Securities. This Agreement, the Subordinated Note Indenture,
the Indenture and the Registration Rights Agreement are hereinafter referred to
collectively as the "OPERATIVE DOCUMENTS."
4. DELIVERY AND PAYMENT. Delivery to the Initial Purchaser by Holdings
and the Selling Securityholders of, and payment by the Initial Purchaser for,
the Units shall be made at 9:00 A.M., New York City time, on September 17, 1997
(or such other date as Holdings, the Selling Securityholders and the Initial
Purchaser may agree) (the "CLOSING DATE") at the offices of Mayer, Brown &
Platt, 1675 Broadway, New York, New York 10019.
2
<PAGE>
One or more Units in definitive form (the "GLOBAL UNIT"), registered in the
name of Cede & Co., as nominee of the Depository Trust Company ("DTC"),
representing all of the Units sold pursuant to Exempt Resales, shall be
delivered by Holdings and the Selling Securityholders to the Initial Purchaser,
against payment by the Initial Purchaser of the purchase price thereof by wire
transfer of immediately available funds to an account designated by Holdings and
the Selling Securityholders at least one business day prior to the Closing Date.
The Global Unit shall be made available to the Initial Purchaser for inspection
at the offices of DLJ not later than 9:30 a.m. on the business day immediately
preceding the Closing Date.
5. AGREEMENTS OF HOLDINGS. Holdings agrees with the Initial Purchaser:
(a) To advise the Initial Purchaser promptly and, if requested by the
Initial Purchaser, to confirm such advice in writing, (i) of receipt of any
notification with respect to the issuance by any state securities
commission of any stop order suspending the qualification or exemption from
qualification of any of the Securities for offering or sale in any
jurisdiction designated by the Initial Purchaser pursuant to Section 5(f),
or the initiation of any proceeding for such purpose by any state
securities commission or other regulatory authority, and (ii) of the
happening of any event that makes any statement of a material fact made in
the Offering Documents (or any amendment or supplement thereto) untrue or
that requires the making of any additions to or changes in the Offering
Documents (or any amendment or supplement thereto) in order to make the
statements therein, in the light of the circumstances in which they are
made, not misleading. Holdings shall use its best efforts to prevent the
issuance of any stop order or order suspending the qualification or
exemption from qualification of the Securities under any state securities
or Blue Sky laws, and, if at any time any state securities commission or
other regulatory authority shall issue any stop order or order suspending
the qualification or exemption from qualification of any of the Securities
under any state securities or Blue Sky laws, Holdings shall use its best
efforts to obtain the withdrawal or lifting of such order at the earliest
possible time.
(b) To furnish to the Initial Purchaser, without charge, as many
copies of the Offering Documents, and any amendments or supplements
thereto, as the Initial Purchaser may reasonably request. Holdings consents
to the use of the Offering Documents, and any amendments or supplements
thereto, by the Initial Purchaser in connection with Exempt Resales.
(c) Not to amend or supplement the Offering Memorandum, whether
before or after the Closing Date, unless (i) the Initial Purchaser has been
previously advised thereof, and (ii) the Initial Purchaser has not
reasonably objected thereto (unless in the opinion of counsel to Holdings
such amendment or supplement is necessary, in the judgment of counsel to
Holdings, to make the statements made in the Offering Memorandum not
misleading); and to prepare, promptly upon the Initial Purchaser's request,
any amendment or supplement to the Offering Memorandum that the Initial
Purchaser deems necessary or advisable in connection with Exempt Resales
(except to the extent any such amendment or supplement requested would, in
the judgment of counsel to Holdings, render the statements made in the
Offering Memorandum, as proposed to be amended or supplemented,
misleading).
(d) If, after the date hereof, in the opinion of counsel for the
Initial Purchaser, any event shall occur as a result of which it becomes
necessary to amend or supplement the Offering Memorandum to comply with any
law or to make the statements therein, in the light of the circumstances at
the time that the Offering Memorandum are delivered to an Eligible
Purchaser which is a prospective purchaser, not misleading, to promptly (i)
prepare an appropriate amendment or supplement to the Offering Memorandum
so that the statements in the Offering Memorandum, as so amended or
supplemented, will comply with all applicable laws and will not, in the
light of the circumstances at the time it is so delivered, be misleading,
and (ii) furnish the
3
<PAGE>
Initial Purchaser with such number of copies of the Offering Memorandum, as
amended or supplemented, as the Initial Purchaser may reasonably request.
(e) Prior to the earlier of consummation of the Exchange Offer or the
effectiveness of a Shelf Registration Statement if, in the reasonable
judgment of the Initial Purchaser, the Initial Purchaser or any of its
affiliates (as such term is defined in the rules and regulations under the
Act) are required to deliver an offering memorandum in connection with
sales of, or market-making activities with respect to, the Securities or
the Notes, (A) to periodically amend or supplement the Offering Memorandum
so that the information contained in the Offering Memorandum complies with
the requirements of Rule 144A of the Act, (B) to amend or supplement the
Offering Memorandum when necessary to reflect any material changes in the
information provided therein so that the Offering Memorandum will not
contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light
of the circumstances existing as of the date the Offering Memorandum are so
delivered, not misleading and (C) to provide the Initial Purchaser with
copies of each such amended or supplemented Offering Memorandum, as the
Initial Purchaser may reasonably request.
Following the consummation of the Exchange Offer or the effectiveness
of a Shelf Registration Statement and for so long as the Notes are
outstanding if, in the reasonable judgment of the Initial Purchaser, the
Initial Purchaser or any of its affiliates (as such term is defined in the
rules and regulations under the Act) are required to deliver a prospectus
in connection with sales of, or market-making activities with respect to,
the Notes, (A) to periodically amend the applicable registration statement
so that the information contained therein complies with the requirements of
Section 10(a) of the Act, (B) to amend the applicable registration
statement or supplement the related prospectus or the documents
incorporated therein when necessary to reflect any material changes in the
information provided therein so that the registration statement and the
prospectus will not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements
therein, in the light of the circumstances existing as of the date the
prospectus is so delivered, not misleading and (C) to provide the Initial
Purchaser with copies of each amendment or supplement filed and such other
documents as the Initial Purchaser may reasonably request.
The Selling Securityholders, Holdings, and GSFI, Inc., a Delaware
corporation and wholly owned Subsidiary of Holdings (the "COMPANY"), hereby
expressly acknowledge that the indemnification and contribution provisions
of Section 9 hereof are specifically applicable and relate to each offering
document, registration statement, prospectus, amendment or supplement
referred to in this Section 5(e).
(f) To (i) cooperate with the Initial Purchaser and counsel for the
Initial Purchaser in connection with the qualification of the Securities
for offer and sale by the Initial Purchaser under the state securities or
Blue Sky laws of such jurisdictions as the Initial Purchaser may request,
(ii) continue such qualification in effect so long as required for Exempt
Resales of the Securities and (iii) file such consents to service of
process or other documents as may be necessary in order to effect such
qualification; provided that in no event shall Holdings be obligated to
qualify to do business in any jurisdiction where it is not now so
qualified, or take any action which would subject it to general service of
process in any jurisdiction where it is not now so subject.
(g) So long as any of the Securities or the Notes are outstanding, to
file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT"), and, during the period of three
years following the date of this Agreement, to deliver to the Initial
Purchaser, promptly upon their becoming available, (i) copies of all
4
<PAGE>
current, regular and periodic reports filed by Holdings and the Company
with any securities exchange or with the Commission or any governmental
authority succeeding to any of the Commission's functions, and (ii) copies
of each report or other publicly available information of Holdings and the
Company mailed to the holders of the Securities or Notes, as applicable,
and such other publicly available information concerning Holdings and its
subsidiaries as the Initial Purchaser may request.
(h) To use the proceeds from the sale of the Units in the manner
specified in the Offering Documents (and any amendments or supplements
thereto) under the caption "Use of Proceeds."
(i) Not to claim voluntarily, and to resist actively any attempts to
claim, the benefit of any usury laws against the holders of the Securities
or the Notes.
(j) Except as otherwise agreed to by the parties hereto, to pay all
costs, expenses, fees and taxes incident to:
(1) the preparation, printing, filing and distribution under the
Act of the Offering Documents (including financial statements and
exhibits) and all amendments and supplements to any of them;
(2) the printing and delivery of the Operative Documents, the
Securities, the Notes, the preliminary and supplemental Blue Sky
memoranda and all other agreements, memoranda, correspondence and
other documents printed and delivered in connection herewith and with
the Exempt Resales (including in each case any disbursements of
counsel to the Initial Purchaser relating to such printing and
delivery);
(3) the issuance and delivery of the Securities and the Notes;
(4) the registration or qualification of the Securities and the
Notes for offer and sale under the securities or Blue Sky laws of the
several states (including in each case the fees and disbursements of
counsel to the Initial Purchaser relating to such registration or
qualification and memoranda relating thereto);
(5) furnishing such copies of the Offering Documents (including
all documents incorporated by reference therein) and all amendments
and supplements thereto as may be requested for use in connection with
the Exempt Resales;
(6) the rating of the Securities and the Notes by rating
agencies, if any;
(7) all expenses and listing fees in connection with the
application for quotation of the Securities and the Notes in the
National Association of Securities Dealers, Inc. Automated Quotation
System - PORTAL ("PORTAL");
(8) all fees and expenses (including fees and expenses of
counsel) of Holdings in connection with approval of the Securities and
the Notes by DTC for "book-entry" transfer; and
(9) the performance by Holdings of its other obligations under
this Agreement.
(k) If this Agreement shall be terminated pursuant to any of the
provisions hereof
5
<PAGE>
(otherwise than a default by the Initial Purchaser) or if for any reason
Holdings or the Selling Securityholders shall be unable or unwilling to
perform their respective obligations hereunder, Holdings shall, except as
otherwise agreed by the parties hereto, reimburse the Initial Purchaser for
the fees and expenses to be paid or reimbursed pursuant to Section 5(j)
above, and reimburse the Initial Purchaser for all reasonable out-of-pocket
expenses (including the reasonable fees and expenses of counsel to the
Initial Purchaser) incurred by the Initial Purchaser in connection with the
transactions contemplated by this Agreement.
(l) Prior to the Closing Date, to furnish to the Initial Purchaser,
as soon as they have been prepared by Holdings, a copy of any consolidated
financial statements of Holdings for any period subsequent to the period
covered by the financial statements appearing in the Offering Documents.
(m) Not to distribute prior to the Closing Date any offering material
in connection with the offering and sale of the Units other than the
Offering Documents.
(n) Not to sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in the Act) that would be
integrated with the sale of the Units in a manner that would require the
registration under the Act of the sale to the Initial Purchaser or the
Eligible Purchasers of Units.
(o) For so long as any of the Securities or the Notes remain
outstanding and during any period in which Holdings is not subject to
Section 13 or 15(d) of the Exchange Act, to make available to any Eligible
Purchaser or beneficial owner of the Securities or the Notes in connection
with any sale thereof and any prospective purchaser of such Securities or
such Notes from such Eligible Purchaser or beneficial owner, the
information required by Rule 144A(d)(4) under the Act.
(p) To comply with its agreements in the Registration Rights
Agreement, and all agreements set forth in the representation letters of
Holdings to DTC relating to the approval of the Securities and the Notes by
DTC for "book-entry" transfer.
(q) To cause the Registered Exchange Offer, if available, to be made
in the appropriate form, as contemplated by the Registration Rights
Agreement, to permit registration of the Series B Notes to be offered in
exchange for the Series A Notes and to comply with all applicable federal
and state securities laws in connection with the Registered Exchange Offer.
(r) To use its best efforts to effect the inclusion of the Securities
and the Notes in PORTAL.
(s) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by Holdings prior
to the Closing Date and to satisfy all conditions precedent to the delivery
of the Units.
(t) During the period beginning from the date hereof and continuing
to and including the date that is 180 days after the Closing Date, not to
offer, sell, contract to sell or otherwise dispose of, except as provided
hereunder, any securities of Holdings (other than the Series B Notes) that
are substantially similar to the Units or the Notes including but not
limited to any securities (other than the Units) that are convertible into
or exchangeable for, or that represent the right to receive, Units or Notes
or any such substantially similar securities (other than pursuant to
employee stock option plans existing on, or upon the conversion or exchange
of convertible or exchangeable securities outstanding as of, the date of
this Agreement), without the prior written
6
<PAGE>
consent of the Initial Purchaser.
(u) Not to cause any advertisement of the Units to be published in
any newspaper or periodical or posted in any public place and not to issue
any circular relating to the Units, except such advertisements that include
the statements required by Regulation S.
(v) If Holdings elects to exchange the Units for the Notes, to comply
with all applicable federal and state securities laws in connection with
such exchange.
6. REPRESENTATIONS AND WARRANTIES OF HOLDINGS. Holdings represents and
warrants to the Initial Purchaser that:
(a) The Offering Documents have been prepared in connection with the
Exempt Resales. The Preliminary Offering Memorandum as of its date did not,
and the Offering Memorandum as of its date does not and as of the Closing
Date will not, and any amendment or supplement thereto will not, contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties contained in this paragraph (a) shall not
apply to statements or omissions in the Offering Documents (or any
amendment or supplement thereto) based upon information relating to the
Initial Purchaser furnished to Holdings in writing by or on behalf of the
Initial Purchaser expressly for use therein. No stop order preventing the
use of the any of the Offering Documents, or any amendment or supplement
thereto, or any order asserting that any of the transactions contemplated
by this Agreement are subject to the registration requirements of the Act,
have been issued.
(b) Each of Holdings and the Company has been duly organized and is
validly existing and in good standing under the laws of its jurisdiction of
incorporation, and has full corporate power and authority to carry on its
business as it is currently being and is proposed to be conducted and to
own, lease and operate its properties, and has been duly qualified and is
in good standing as a foreign corporation registered to do business in each
jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the failure
to be so qualified would not be reasonably likely to have a material
adverse effect on the condition (financial or other), business, property,
prospects, net worth or results of operations of Holdings and the Company,
taken as a whole (a "MATERIAL ADVERSE EFFECT"). All of the outstanding
shares of capital stock of Holdings have been duly authorized and validly
issued, and are fully paid and nonassessable and not subject to preemptive
or similar rights other than as set forth in the Operative Documents. The
Company is the only subsidiary, direct or indirect, of Holdings. All of the
outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable, and are
owned by Holdings free and clear of any security interest, claim, lien,
encumbrance or adverse interest of any nature (each, a "Lien"). Holdings
has all necessary corporate power and authority to enter into and perform
its obligations under the Operative Documents and to issue, sell and
deliver the Securities. The Company has all necessary corporate power and
authority to enter into and perform its obligations under this Agreement.
(c) Neither Holdings nor the Company is in violation of its charter
or bylaws or in default in any material respect in the performance of any
obligation, agreement or condition contained in any bond, Note, note or any
other evidence of indebtedness or in any other agreement, indenture or
instrument material to the conduct of the business of Holdings and the
Company, taken as a whole, to which Holdings or the Company is a party or
by which Holdings or the Company or their respective property is bound.
7
<PAGE>
(d) The execution, delivery and performance of the Operative
Documents by Holdings, compliance by Holdings with the provisions of the
Operative Documents and the Securities, the execution, delivery and
performance of this Agreement by the Company and the consummation of the
transactions contemplated by the Operative Documents does not conflict with
or constitute a breach of any of the terms or provisions of, or a default
under, or result in the imposition of a lien or encumbrance on any
properties of Holdings or the Company or an acceleration of indebtedness
pursuant to, (i) the charter or bylaws of Holdings or the Company, (ii) any
bond, debenture, note, indenture, mortgage, deed of trust or other
agreement or instrument to which Holdings or the Company is a party or by
which Holdings, the Company or their respective property is bound, or (iii)
any law or administrative regulation applicable to Holdings, the Company or
any of their respective assets or properties, or any judgment, order or
decree of any court or governmental agency or authority entered in any
proceeding to which Holdings or the Company was or is now a party or to
which Holdings, the Company or their respective properties may be subject,
except, in the case of clauses (ii) and (iii), for any such conflict,
breach, default or imposition of a lien that would not be reasonably likely
to have a Material Adverse Effect. No consent, approval, authorization or
order of, or filing or registration with, any regulatory body,
administrative agency, or other governmental agency (except as securities
or Blue Sky laws of the various states may require) that has not been made
or obtained is required for the execution, delivery and performance of the
Operative Documents and the valid issuance and sale of the Securities. No
consents or waivers from any person are required to consummate the
transactions contemplated by the Operative Documents and the Offering
Documents other than such consents and waivers as have been or, prior to
the Closing Date, will be obtained, except where the failure to obtain any
such consents or waivers, individually or in the aggregate, would not be
reasonably likely to have a Material Adverse Effect.
(e) This Agreement has been duly authorized and validly executed by
each of Holdings and the Company and (assuming the due execution and
delivery thereof by the Initial Purchaser) is a legally valid and binding
obligation of Holdings and the Company, enforceable against each of them in
accordance with its terms, except as the enforceability thereof may be (i)
subject to applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws in effect which affect the enforcement of creditors rights
generally, (ii) limited by general principles of equity (whether considered
in a proceeding at law or in equity) and (iii) limited by securities laws
prohibiting or limiting the availability of, and public policy against,
indemnification or contribution.
(f) The Units have been duly and validly authorized by Holdings and,
when issued in accordance with their terms and delivered to and paid for by
the Initial Purchaser in accordance with the terms hereof, the Units will
conform to the description thereof in the Offering Memorandum, and will be
legally valid and binding obligations of Holdings, enforceable against
Holdings in accordance with their terms, except as the enforceability
thereof may be (i) subject to applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws in effect which affect the
enforcement of creditors rights generally and (ii) limited by general
principles of equity (whether considered in a proceeding at law or in
equity).
(g) The Holdings Preferred Stock has been duly authorized and is fully
paid, nonassessable and entitled to the rights, privileges and preferences
set forth in the Certificate of Incorporation, as amended, of Holdings. The
Holdings Preferred Stock conforms with the description thereof contained in
the Offering Memorandum.
(h) Holdings has duly authorized the Subordinated Note Indenture, and
when Holdings has duly executed and delivered it (assuming the due
authorization, execution and delivery thereof by the Trustee), the
Subordinated Note Indenture will be a legally valid and binding obligation
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of Holdings, enforceable against Holdings in accordance with its terms,
except as the enforceability thereof may be (i) subject to applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws in
effect which affect the enforcement of creditors rights generally and (ii)
limited by general principles of equity (whether considered in a proceeding
at law or in equity).
(i) Holdings has duly authorized the Holdings Subordinated Notes and,
when issued and authenticated in accordance with the terms of the
Subordinated Note Indenture and delivered by Holdings in accordance with
the terms of the Subordinated Note Indenture, the Holdings Subordinated
Notes will conform to the description thereof in the Offering Memorandum,
and will be legally valid and binding obligations of Holdings, enforceable
against Holdings in accordance with their terms, except as the
enforceability thereof may be (i) subject to applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws in effect which
affect the enforcement of creditors rights generally and (ii) limited by
general principles of equity (whether considered in a proceeding at law or
in equity).
(j) Holdings has duly authorized the Indenture, and when Holdings has
duly executed and delivered it (assuming the due authorization, execution
and delivery thereof by the Trustee), the Indenture will be a legally valid
and binding obligation of Holdings, enforceable against Holdings in
accordance with its terms, except as the enforceability thereof may be (i)
subject to applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws in effect which affect the enforcement of creditors rights
generally and (ii) limited by general principles of equity (whether
considered in a proceeding at law or in equity).
(k) Holdings has duly authorized the Series A Notes and, when issued
and authenticated in accordance with the terms of the Indenture and
delivered in exchange for the Units in accordance with the terms of such
Units, the Series A Notes will conform to the description thereof in the
Offering Memorandum, and will be legally valid and binding obligations of
Holdings, enforceable against Holdings in accordance with their terms,
except as the enforceability thereof may be (i) subject to applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws in
effect which affect the enforcement of creditors rights generally and (ii)
limited by general principles of equity (whether considered in a proceeding
at law or in equity).
(l) Holdings has duly authorized the Series B Notes and, when issued
and authenticated in accordance with the terms of the Registration Rights
Agreement and the Indenture, the Series B Notes will conform to the
description thereof in the Offering Memorandum, and will be legally valid
and binding obligations of Holdings, enforceable against Holdings in
accordance with their terms, except as the enforceability thereof may be
(i) subject to applicable bankruptcy, insolvency, moratorium,
reorganization or similar laws in effect which affect the enforcement of
creditors rights generally and (ii) limited by general principles of equity
(whether considered in a proceeding at law or in equity).
(m) Holdings has duly authorized the Registration Rights Agreement,
and when Holdings has executed and delivered it (assuming the due execution
and delivery thereof by the Initial Purchaser), the Registration Rights
Agreement will be a legally valid and binding obligation of Holdings,
enforceable against Holdings in accordance with its terms, except as the
enforceability thereof may be (i) subject to applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws in effect which
affect the enforcement of creditors rights generally, (ii) limited by
general principles of equity (whether considered in a proceeding at law or
in equity) and (iii) limited by securities laws prohibiting or limiting the
availability of, and public policy against, indemnification or
contribution.
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(n) There is (i) no action, suit or proceeding before or by any
court, arbitrator or governmental agency, body or official, domestic or
foreign, now pending or, to the knowledge of Holdings, threatened or
contemplated to which Holdings or the Company is or may be a party or to
which the business or property of Holdings or the Company is or may be
subject, (ii) no statute, rule, regulation or order that has been enacted,
adopted or issued by any governmental agency or, to the best knowledge of
Holdings or the Company, proposed by any governmental body and (iii) no
injunction, restraining order or order of any nature issued by a federal or
state court of competent jurisdiction to which Holdings or the Company is
or may be subject that, in the case of clauses (i), (ii) and (iii) above,
(A) is required to be disclosed in the Offering Memorandum and that is not
so disclosed, (B) would be reasonably likely to have a Material Adverse
Effect, (C) would interfere with or adversely affect the issuance and sale
of the Securities or (D) in any manner draw into question the validity of
the Operative Documents or the Securities.
(o) No holder of any security of Holdings has any right to require
registration of any security of Holdings.
(p) Neither Holdings nor the Company is involved in any material
labor dispute nor, to the knowledge of Holdings, is any material dispute
threatened which, if such dispute were to occur, would be reasonably likely
to have a Material Adverse Effect.
(q) Neither Holdings nor the Company has violated any safety or
similar law applicable to its business, nor any federal or state law
relating to discrimination in the hiring, promotion or pay of employees nor
any applicable federal or state wages and hours laws, nor any provisions of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
or the rules and regulations promulgated thereunder, except for such
instances of noncompliance that, either singly or in the aggregate, would
not be reasonably likely to have a Material Adverse Effect.
(r) Except as set forth in the Offering Memorandum, each of Holdings
and the Company is in compliance with all applicable existing federal,
state, local and foreign laws and regulations (collectively, "ENVIRONMENTAL
LAWS") relating to protection of human health or the environment or
imposing liability or standards of conduct concerning any Hazardous
Material (as defined below), except for such instances of noncompliance
that, either singly or in the aggregate, would not be reasonably likely to
have a Material Adverse Effect. The term "HAZARDOUS MATERIAL" means (i)
any "hazardous substance" as defined by the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, (ii) any
"hazardous waste" as defined by the Resource Conservation and Recovery Act,
as amended, (iii) any petroleum or petroleum product, (iv) any
polychlorinated biphenyl and (v) any pollutant or contaminant or hazardous,
dangerous or toxic chemical, material, waste or substance regulated under
or within the meaning of any other Environmental Law. Except as set forth
in the Offering Memorandum, there is, to the best knowledge and information
of Holdings, no alleged or potential liability (including, without
limitation, alleged or potential liability for investigatory costs, cleanup
costs, governmental response costs, natural resources damages, property
damages, personal injuries, or penalties) of Holdings or the Company
arising out of, based on, or resulting from (1) the presence or release
into the environment of any Hazardous Material at any location currently or
previously owned by Holdings or the Company or at any location currently or
previously used or leased by Holdings or the Company, or (2) any violation
or alleged violation of any Environmental Law, except in each case with
respect to clause (1) and (2), alleged or potential liabilities that,
singly or in the aggregate, would not be reasonably likely to have a
Material Adverse Effect.
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(s) Each of Holdings and the Company owns or possesses the patents,
patent rights, licenses, inventions, copyrights, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service marks
and trade names (collectively, "INTELLECTUAL PROPERTY") presently or
proposed to be employed by it in connection with the businesses now or
proposed to be operated by it, except where the failure to own or possess
such Intellectual Property would not, either singly or in the aggregate, be
reasonably likely to have a Material Adverse Effect, and neither Holdings
nor the Company has received any notice that its use of any Intellectual
Property allegedly infringes upon, or conflicts with, rights asserted by
others, except for such instances that, singly or in the aggregate, would
not be reasonably likely to have a Material Adverse Effect if an
unfavorable decision, judgment, ruling or finding is rendered against
Holdings or the Company.
(t) All income tax returns required to be filed by Holdings or the
Company in any jurisdiction have been filed, and all material taxes
(including, but not limited to, withholding taxes, penalties and interest,
assessments, fees and other charges due or claimed to be due from any
taxing authority) have been paid other than those (i) being contested in
good faith and for which adequate reserves have been provided, or (ii)
currently payable without penalty or interest.
(u) Except as set forth in the Offering Memorandum or that, singly or
in the aggregate, would not be reasonably likely to have a Material Adverse
Effect, (i) each of Holdings and the Company has (1) such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("PERMITS") as are necessary to own, lease and operate its
respective properties and to conduct its business as presently conducted,
and (2) fulfilled and performed all of its material obligations with
respect to the Permits, and (ii) no event has occurred that would allow, or
after notice or lapse of time would allow, revocation or termination of any
Permit or that would result in any other material impairment of the rights
granted to Holdings or the Company under any Permit, and Holdings has no
reason to believe that any governmental body or agency is considering
limiting, suspending or revoking any Permit.
(v) Except as set forth in the Offering Memorandum or that, singly or
in the aggregate, would not be reasonably likely to have a Material Adverse
Effect, (i) each of Holdings and the Company has good and marketable title,
free and clear of all liens, claims, encumbrances and restrictions except
liens for taxes not yet due and payable, to all property and assets
described in the Offering Memorandum as being owned by it, (ii) each lease
to which Holdings or the Company is a party is valid and binding and no
default has occurred or is continuing thereunder and (iii) each of Holdings
and the Company enjoys peaceful and undisturbed possession under all such
leases to which it is a party as lessee.
(w) Each of Holdings and the Company maintains adequate insurance for
its businesses and the value of its properties (including, without
limitation, public liability insurance, third party property damage
insurance and replacement value insurance), and all such insurance is
outstanding and in force as of the date hereof.
(x) The financial statements, together with related schedules and
notes forming part of the Offering Documents (and any amendment or
supplement thereto), present fairly the consolidated financial position,
results of operations and changes in financial position of Holdings on the
basis stated in the Offering Documents at the respective dates or for the
respective periods to which they apply, and such financial statements and
related schedules and notes have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved, except as disclosed in the Offering Documents. The other
financial and statistical information and data set forth in the Offering
Documents (and any amendment or supplement thereto) is, in all material
respects, accurately presented and prepared
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on a basis consistent with such financial statements and the books and
records of Holdings.
(y) Each of Holdings and the Company maintains a system of internal
accounting controls sufficient to provide assurance that: (1) transactions
are executed in accordance with management's general or specific
authorizations; (2) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; and (3)
the recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect
thereto.
(z) Subsequent to the dates for which information is given in the
Offering Documents and up to the Closing Date, unless set forth in the
Offering Memorandum: (1) neither Holdings nor the Company has incurred any
liabilities or obligations, direct or contingent, which are material,
individually or in the aggregate, to Holdings, nor entered into any
material transactions not in the ordinary course of business; (2) there has
not been any decrease in Holdings' capital stock or any increase in
consolidated long-term indebtedness to meet working capital requirements or
any material increase in consolidated short-term indebtedness of Holdings
or any payment of or declaration to pay any dividends or any other
distribution with respect to Holdings' capital stock, as the case may be;
and (3) there has not been any event or series of events that would be
reasonably likely to have a Material Adverse Effect.
(aa) Prior to the issuance of the Units, (i) the present fair salable
value of the assets of Holdings exceeded and will exceed the amount that
will be required to be paid on, or in respect of, its debts and other
liabilities (including contingent liabilities) as they become absolute and
matured, (ii) the assets of Holdings do not constitute and will not
constitute unreasonably small capital to carry out its businesses as
conducted or as proposed to be conducted, and (iii) Holdings does not
intend to, or believe that it will, incur debts or other liabilities beyond
its ability to pay such debts and liabilities as they mature. Upon
consummation of the Offering, (x) the present fair salable value of the
assets of Holdings will exceed the amount that will be required to be paid
on, or in respect of, its debts and other liabilities (including contingent
liabilities) as they become absolute and matured, (y) the assets of
Holdings will not constitute unreasonably small capital to carry out its
businesses as conducted or as proposed to be conducted, and (iii) Holdings
does not intend to, or believe that it will, incur debts or other
liabilities beyond its ability to pay such debts and liabilities as they
mature.
(bb) None of Holdings, nor any agent thereof acting on its behalf, has
taken, and none of them will take, any action that might cause this
Agreement or the issuance or sale of the Units to violate Regulation G (12
C.F.R. Part 207), Regulation T (12 C.F.R. Part 220), Regulation U (12
C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of the Board of
Governors of the Federal Reserve System, in each case as in effect now or
as the same may hereafter be in effect on the Closing Date.
(cc) Holdings is not an "investment company" or a company "controlled"
by an "investment company" within the meaning of the Investment Company Act
of 1940, as amended.
(dd) Each of Deloitte & Touche LLP and Donnelly Meiners Jordan Kline
are independent public accountants with respect to Holdings and the Company
as required by the Act.
(ee) When the Units are issued and delivered pursuant to this
Agreement, such Units, the Holdings Preferred Stock and the Holdings
Subordinated Notes will not be of the same class (within the meaning of
Rule 144A under the Act) as securities of Holdings that are listed on a
national securities exchange registered under Section 6 of the Exchange Act
or that are quoted in
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a United States automated inter-dealer quotation system.
(ff) Assuming (i) that the representations and warranties of the
Initial Purchaser in Section 8 hereof are true, (ii) compliance by the
Initial Purchaser with its covenants set forth in Section 8 hereof and
(iii) that each of the Eligible Purchasers is a QIB or a non-U.S. person
outside the United States, the purchase and resale of the Units pursuant
hereto (including pursuant to the Exempt Resales) is exempt from the
registration requirements of the Act. No form of general solicitation or
general advertising was used by Holdings or any of its representatives
(other than the Initial Purchaser, as to whom Holdings makes no
representation) in connection with the offer and sale of the Units,
including, but not limited to, articles, notices or other communications
published in any newspaper, magazine, or similar medium or broadcast over
television or radio, or any seminar or meeting whose attendees have been
invited by any general solicitation or general advertising. No securities
of the same class as the Securities have been issued and sold by Holdings
within the six-month period immediately prior to the date hereof.
(gg) The execution and delivery of this Agreement and the other
Operative Documents and the sale of the Units to be purchased by the
Eligible Purchasers will not involve any prohibited transaction within the
meaning of Section 406 of ERISA or Section 4975 of the Code. The
representation made by Holdings in the preceding sentence is made in
reliance upon and subject to the accuracy of, and compliance with, the
representations and covenants made or deemed made by the Eligible
Purchasers as set forth in the Offering Documents under the section
entitled "Notice to Investors."
7. REPRESENTATIONS AND WARRANTIES OF THE SELLING SECURITYHOLDERS. Each
of the Selling Securityholders represents and warrants to the Initial Purchaser
as follows:
(a) This Agreement has been duly authorized, executed and delivered
by such Selling Securityholder.
(b) Upon delivery of and payment for the Securities to be sold by
such Selling Securityholder pursuant to this Agreement, good and clear
title to such Securities will pass to the Initial Purchaser, free of all
restrictions on transfer, liens, encumbrances, security interests, equities
and claims whatsoever.
(c) The execution, delivery and performance of this Agreement by such
Selling Shareholder, the compliance by such Selling Shareholder with all
the provisions hereof and the consummation of the transactions contemplated
hereby will not (i) require any consent, approval, authorization or other
order of, or qualification with, any court or governmental body or agency
(except such as may be required under the securities or Blue Sky laws or
the various states), (ii) conflict with or constitute a breach of any of
the terms or provisions of, or a default under, the organizational
documents of such Selling Securityholder, if such Selling Securityholder is
not an individual, or any indenture, loan agreement, mortgage, lease or
other agreement or instrument to which such Selling Securityholder is a
party or by which such Selling Securityholder or any property of such
Selling Securityholder is bound or (iii) violate or conflict with any
applicable law or any rule, regulation, judgement, order or decree of any
court of any governmental body or agency having jurisdiction over such
Selling Securityholder or any property of such Selling Securityholder.
(d) Neither the Selling Securityholders nor anyone acting on their
behalf has offered or sold any of the Securities by means of any "general
solicitation" or "general advertising," as
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such terms are defined in Regulation D under the Securities Act.
(e) Neither the Selling Securityholders nor anyone acting on their
behalf has offered any of the Securities to any person other than the
Initial Purchaser.
8. REPRESENTATIONS AND WARRANTIES OF THE INITIAL PURCHASER. The Initial
Purchaser represents and warrants to Holdings as follows:
(a) The Initial Purchaser is a QIB with such knowledge and experience
in financial and business matters as are necessary in order to evaluate the
merits and risks of an investment in the Units.
(b) The Initial Purchaser (i) is not acquiring the Units with a view
to any distribution thereof or with any present intention of offering or
selling any of the Units in a transaction that would violate the Act or the
securities laws of any State of the United States or any other applicable
jurisdiction, (ii) will be reoffering and reselling the Units only to QIBs
in reliance on the exemption from the registration requirements of the Act
provided by Rule 144A and to non-U.S. persons outside the United States in
reliance on the exemption from the registration requirements of the Act
provided by Regulation S and (iii) has not solicited and, unless and until
the Units are registered under the Act, will not solicit any offer to buy
or offer to sell the Units by means of any form of general solicitation or
general advertising (as such terms are defined in Regulation D under the
Act) or in any manner involving a public offering within the meaning of the
Act.
(c) The Initial Purchaser also understands that Holdings and, for
purposes of the opinions to be delivered to the Initial Purchaser pursuant
hereto, counsel to Holdings and counsel to the Initial Purchaser will rely
upon the accuracy and truth of the foregoing representations and the
Initial Purchaser hereby consents to such reliance.
(d) The Initial Purchaser further agrees that, in connection with the
Exempt Resales, it will solicit offers to buy the Units only from, and will
offer to sell the Units only to, the Eligible Purchasers. The Initial
Purchaser further agrees that it will offer to sell the Units only to, and
will solicit offers to buy the Units only from, persons who in purchasing
such Units will be deemed to have represented and agreed (1) if such
Eligible Purchaser is a QIB, that it is purchasing the Units for its own
account or an account with respect to which it exercises sole investment
discretion and that its or such accounts are QIBs, (2) that such Units will
not have been registered under the Act and may be resold, pledged or
otherwise transferred, only (A) (I) inside the United States to a person
who the seller reasonably believes is a "qualified institutional buyer"
within the meaning of Rule 144A under the Act in a transaction meeting the
requirements of Rule 144A, (II) in a transaction meeting the requirements
of Rule 144 under the Act, (III) outside the United States to a foreign
person in a transaction meeting the requirements of Rule 904 under the Act
or (IV) in accordance with another exemption from the registration
requirements of the Act (and based upon an opinion of counsel if Holdings
so requests), (B) to Holdings or (C) pursuant to an effective registration
statement under the Act, in each case, in accordance with any applicable
securities laws of any State of the United States or any other applicable
jurisdiction, and (3) that the holder will, and each subsequent holder is
required to, notify any purchaser from it of the security evidenced thereby
of the resale restrictions set forth in (2) above. Accordingly, the Initial
Purchaser represents and agrees that neither it, its affiliates nor any
persons acting on its or their behalf has engaged or will engage in any
directed selling efforts within the meaning of Rule 901(b) of Regulation S
with respect to the Units, and it, its affiliates and all persons acting on
its or their behalf have complied and will comply with the offering
restrictions requirements of Regulation S.
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(e) The Initial Purchaser represents and agrees that the Units
offered and sold in reliance on Regulation S have been and will be offered
and sold only in offshore transactions and that such securities have been
and will be represented upon issuance by a global security that may not be
exchanged for definitive securities until the expiration of the restricted
period (as defined in Regulation S) (except to the extent of any beneficial
owners thereof who acquired an interest therein pursuant to another
exemption from registration under the Act and who will take delivery of a
beneficial ownership interest in a Rule 144A Global Note (as defined in the
Indenture), as contemplated by the Indenture) and only upon certification
of beneficial ownership of the securities by a non-U.S. person or a U.S.
person who purchased such securities in a transaction that was exempt from
the registration requirements of the Act.
(f) The Initial Purchaser agrees that, at or prior to confirmation of
a sale of Units (other than a sale pursuant to Rule 144A or pursuant to
Paragraph (i) of this Section 8), it will have sent to each distributor,
dealer or person receiving a selling concession, fee or other remuneration
that purchases Units from it during the Restricted Period a confirmation or
notice to substantially the following effect:
"The Securities covered hereby have not been registered under the Act
and may not be offered and sold within the United States or to, or for
the account or benefit of, U.S. persons (i) as part of their
distribution at any time or (ii) otherwise until 40 days after the
later of the commencement of the offering and the closing date, except
in either case in accordance with Regulation S (or Rule 144A if
available) under the Act. Terms used above have the meaning given to
them by Regulation S."
(g) The Initial Purchaser further agrees that it has not entered and
will not enter into any contractual arrangement with respect to the
distribution or delivery of the Units, except with its affiliates or with
the prior written consent of Holdings.
(h) Notwithstanding the foregoing, Units in registered form may be
offered, sold and delivered by the Initial Purchaser in the United States
and to U.S. persons pursuant to Section 3 of this Agreement without
delivery of the written statement required by paragraph (f) of this Section
8.
(i) The Initial Purchaser further represents and agrees that (i) it
has not offered or sold and will not offer or sell any Units to persons in
the United Kingdom prior to the expiry of the period of six months from the
issue date of the Units, except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments
(as principal or agent) for the purposes of their businesses or otherwise
in circumstances which have not resulted and will not result in an offer to
the public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995, (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Units in, from or otherwise
involving the United Kingdom, and (iii) it has only issued or passed on and
will only issue or pass on in the United Kingdom any document received by
it in connection with the issuance of the Units to a person who is of a
kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or is a person to whom
the document may otherwise lawfully be issued or passed on.
(j) The Initial Purchaser agrees that it will not offer, sell or
deliver any of the Units in any jurisdiction outside the United States
except under circumstances that will result in compliance with the
applicable laws thereof, and that it will take at its own expense whatever
action is required to permit its purchase and resale of the Units in such
jurisdictions. The Initial
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Purchaser understands that no action has been taken to permit a public
offering in any jurisdiction outside the United States where action would
be required for such purpose.
(k) The Initial Purchaser agrees not to cause any advertisement of
the Units to be published in any newspaper or periodical or posted in any
public place and not to issue any circular relating to the Units, except
such advertisements that include the statements required by Regulation S.
(l) The sale of the Units in offshore transactions pursuant to
Regulation S is not part of a plan or scheme to evade the registration
provisions of the Act.
Terms used in this Section 8 that have meanings assigned to them in
Regulation S are used herein as so defined.
9. INDEMNIFICATION.
(a) The Selling Securityholders, to the extent of each such Selling
Securityholder's pro rata share of the proceeds from the Offering as set
forth on Schedule I hereto, Holdings and the Company, jointly and
severally, agree to indemnify and hold harmless the Initial Purchaser and
each person, if any, who controls the Initial Purchaser within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages, liabilities and judgments
caused by any untrue statement or alleged untrue statement of a material
fact contained in the Offering Documents (as amended or supplemented if
Holdings shall have furnished any amendments or supplements thereto), or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading, except insofar as such losses, claims, damages, liabilities or
judgments are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information relating to the Initial
Purchaser furnished in writing to Holdings by the Initial Purchaser
expressly for use therein; provided, however, that the indemnification
provided by each of the Selling Securityholders shall only be with
reference to information relating to each such Selling Securityholder
furnished in writing by such Selling Securityholder expressly for use in
the Offering Documents; provided further, however, that the indemnification
contained in this paragraph (a) with respect to the Preliminary Offering
Memorandum shall not inure to the benefit of the Initial Purchaser (or to
the benefit of any person controlling the Initial Purchaser) on account of
any such loss, claim, damage, liability or judgment (i) arising from the
sale of the Units by the Initial Purchaser to any person if a copy of the
Offering Memorandum shall not have been delivered or sent to such person,
at or prior to the written confirmation of such sale, and the untrue
statement or alleged untrue statement or omission or alleged omission of a
material fact contained in the Preliminary Offering Memorandum was
corrected in the Offering Memorandum, provided that Holdings has delivered
the Offering Memorandum to the Initial Purchaser in requisite quantity on a
timely basis to permit such delivery or sending or (ii) resulting from the
use by the Initial Purchaser of any offering memorandum, registration
statement or prospectus, or any amendment or supplement thereto, referred
to in Section 5(e) hereof when, under Section 11 hereof, the Initial
Purchaser was not permitted to do so.
(b) In case any action shall be brought against the Initial Purchaser
or any person controlling the Initial Purchaser, based upon any Offering
Document or any amendment or supplement thereto and with respect to which
indemnity may be sought against the Selling Securityholders, Holdings and
the Company, the Initial Purchaser shall promptly notify Holdings in
writing, and the Selling Securityholders, Holdings and the Company shall
assume the defense thereof, including the employment of counsel reasonably
satisfactory to such indemnified party
16
<PAGE>
and payment of all fees and expenses. The Initial Purchaser or any such
controlling person shall have the right to employ separate counsel in any
such action and participate in the defense thereof, but the reasonable fees
and expenses of such counsel shall be at the expense of the Initial
Purchaser or such controlling person unless (i) the employment of such
counsel has been specifically authorized in writing by Holdings, (ii)
neither the Selling Securityholders, Holdings nor the Company has assumed
the defense and employed counsel or (iii) the named parties to any such
action (including any impleaded parties) include both the Initial Purchaser
or such controlling person and the Selling Securityholders, Holdings or the
Company, and the Initial Purchaser or such controlling person shall have
been advised by such counsel that there may be one or more legal defenses
available to it which are different from or additional to those available
to the Selling Securityholders, Holdings or the Company (in which case the
Selling Securityholders, Holdings and the Company shall not have the right
to assume the defense of such action on behalf of the Initial Purchaser or
such controlling person, it being understood, however, that the Selling
Securityholders, Holdings and the Company shall not, in connection with any
one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one
separate firm of attorneys (in addition to any local counsel) for the
Initial Purchaser and all such controlling persons, which firm shall be
designated in writing by the Initial Purchaser, and that all such fees and
expenses shall be reimbursed as they are incurred). The Selling
Securityholders, Holdings and the Company shall not be liable for any
settlement of any such action effected without the written consent of the
Selling Securityholders, Holdings or the Company, but if settled with the
Selling Securityholders', Holdings' or the Company's written consent, the
Selling Securityholders, Holdings and the Company jointly and severally
agree to indemnify and hold harmless the Initial Purchaser and any such
controlling person from and against any loss or liability by reason of such
settlement. Neither the Selling Securityholders, Holdings nor the Company
shall, without the prior written consent of the Initial Purchaser effect
any settlement of any pending or threatened proceeding in respect of which
the Initial Purchaser is or could have been a party and indemnity could
have been sought hereunder by the Initial Purchaser unless such settlement
includes an unconditional release of the Initial Purchaser and each person
controlling the Initial Purchaser from all liability on claims that are the
subject matter of such proceeding.
(c) The Initial Purchaser agrees to indemnify and hold harmless
Holdings and the Selling Securityholders, each of their respective
directors and officers, and any person controlling either of them within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act
(collectively the "ISSUER INDEMNIFIED PARTIES"), to the same extent as the
foregoing indemnity from the Selling Securityholders, Holdings, and the
Company to the Initial Purchaser but only with reference to information
relating to the Initial Purchaser furnished in writing by the Initial
Purchaser expressly for use in the Offering Documents. In case any action
shall be brought against any Issuer Indemnified Party in respect of which
indemnity may be sought against the Initial Purchaser, the Initial
Purchaser shall have the rights and duties given to the Selling
Securityholders, Holdings and the Company (except that if the Selling
Securityholders, Holdings or the Company shall have assumed the defense
thereof, the Initial Purchaser shall not be required to do so, but may
employ separate counsel therein and participate in the defense thereof but
the fees and expenses of such counsel shall be at the expense of the
Initial Purchaser), and the Issuer Indemnified Parties shall have the
rights and duties given to the Initial Purchaser by Section 9(b) hereof.
(d) If the indemnification provided for in this Section 9 is
unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a
result of such losses,
17
<PAGE>
claims, damages, liabilities and judgments (i) in such proportion as is
appropriate to reflect the relative benefits received by the Selling
Securityholders, Holdings and the Company on the one hand and the Initial
Purchaser on the other hand from the offering of the Units or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Selling Securityholders, Holdings and the Company on the one hand and the
Initial Purchaser on the other hand in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The
relative benefits received by the Selling Securityholders, Holdings and the
Company on the one hand and the Initial Purchaser on the other hand shall
be deemed to be in the same proportion as the total proceeds from the
offering of the Units (before deducting expenses) received by Holdings and
the Selling Securityholders, and the total discounts and commissions
received by the Initial Purchaser, bear to the total price to investors of
the Units, in each case as set forth in the table on the cover page of the
Offering Memorandum. The relative fault of the Selling Securityholders,
Holdings and the Company on the one hand and the Initial Purchaser on the
other hand shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission
to state a material fact relates to information supplied by the Selling
Securityholders, Holdings or the Company on the one hand or the Initial
Purchaser on the other hand and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement
or omission.
The Selling Securityholders, Holdings, the Company and the Initial
Purchaser agree that it would not be just and equitable if contribution
pursuant to this paragraph were determined by pro rata allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The
losses, claims, damages, liabilities or judgments of an indemnified party
referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 9, the Initial Purchaser shall not be required
to contribute any amount in excess of the amount by which the discounts and
commissions received by it exceeds the amount of any damages which the
Initial Purchaser has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
(e) Each of the Selling Securityholders, Holdings and the Company
hereby designates The Jordan Company, 9 West 57th Street, New York, New
York 10019, as its authorized agent, upon which process may be served in
any action, suit or proceeding which may be instituted in any state or
federal court in the State of New York by the Initial Purchaser or person
controlling the Initial Purchaser asserting a claim for indemnification or
contribution under or pursuant to this Section 9, and the Selling
Securityholders, Holdings and the Company will accept the jurisdiction of
such court in such action, and waive, to the fullest extent permitted by
applicable law, any defense based upon lack of personal jurisdiction or
venue. A copy of any such process shall be sent or given to the Selling
Securityholders, Holdings and the Company, at the address for notices
specified in Section 11(a) hereof.
(f) The indemnity and contribution agreements contained in this
Section 9 are in addition to any liability which the indemnifying persons
may otherwise have to the indemnified persons referred to above.
10. CONDITIONS OF THE INITIAL PURCHASER'S OBLIGATIONS. The obligation
18
<PAGE>
of the Initial Purchaser to purchase the Units under this Agreement is subject
to the satisfaction of each of the following conditions:
(a) All the representations and warranties of Holdings and the
Selling Securityholders contained in this Agreement shall be true and
correct on the Closing Date with the same force and effect as if made on
and as of the Closing Date. Holdings shall have performed or complied with
all of the agreements and satisfied all conditions to be performed,
complied with or satisfied by it under this Agreement on or prior to the
Closing Date.
(b) (1) The Offering Memorandum shall have been printed and copies
distributed to the Initial Purchaser not later than 9:00 a.m., New York
City time, on the second business day following the date of this Agreement,
or at such later date and time as the Initial Purchaser may approve in
writing;
(2) no injunction, restraining order or order of any nature by a
federal or state court of competent jurisdiction shall have been
issued as of the Closing Date which would prevent the issuance of the
Units or the sale of the Holdings Preferred Stock or the Holdings
Subordinated Notes; and
(3) at the Closing Date, (i) no stop order preventing the use of
the Offering Documents, or any amendment or supplement thereto, or
suspending the qualification or exemption from qualification of the
Securities for sale in any jurisdiction designated by the Initial
Purchaser pursuant to Section 5(f) hereof shall have been issued and
no proceedings for that purpose shall have been commenced or shall be
pending before or, to the knowledge of Holdings be contemplated.
(c) (1) Since the date of the latest balance sheet included in the
Offering Documents, there shall not have been any event that had a Material
Adverse Effect, or any development involving a prospective change that
would be reasonably likely to have a Material Adverse Effect, whether or
not arising in the ordinary course of business;
(2) since the date of the latest balance sheet included in the
Offering Documents, there has not been any change, or any development
involving a prospective change, in the capital stock or in the long-
term debt of Holdings or the Company from that set forth in the
Offering Documents;
(3) neither Holdings nor the Company shall have material
liability or obligation, direct or contingent, other than those
reflected in the Offering Memorandum; and
(4) on the Closing Date, the Initial Purchaser shall have
received a certificate dated the Closing Date, signed on behalf of
Holdings by the undersigned officers of Holdings, confirming all
matters set forth in Sections 9(a), (b), and (c) hereof.
(d) The Initial Purchaser shall have received on the Closing Date an
opinion (satisfactory to the Initial Purchaser and counsel to the Initial
Purchaser) dated the Closing Date, of Mayer, Brown & Platt, counsel for
Holdings, to the effect that:
(1) Holdings has all necessary corporate power and authority to
enter into and perform its obligations under the Operative Documents
and to issue, sell and deliver the Units to the Initial Purchaser to
be sold by the Initial Purchaser pursuant hereto;
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<PAGE>
(2) The Company and each of the Selling Securityholders has all
necessary power and authority to enter into and perform its
obligations under this Agreement;
(3) No consent, approval, authorization or order of, or filing
or registration with, any regulatory body, administrative agency, or
other governmental agency (except as securities or Blue Sky laws of
the various states may require) which has not been made or obtained is
required for the execution, delivery and performance of the Operative
Documents and the valid issuance and sale of the Securities to the
Initial Purchaser as contemplated by this Agreement or the offering of
the Securities as contemplated by the Offering Memorandum, except
where the failure to obtain any such consents or waivers, individually
or in the aggregate, would not be reasonably likely to have a Material
Adverse Effect or adversely effect the ability to consummate the
Offering;
(4) To the best of such counsel's knowledge, no consents or
waivers from any person are required to consummate the transactions
contemplated by the Operative Documents or the Offering Documents
other than such consents and waivers as have been or will be obtained;
(5) This Agreement has been duly authorized and validly executed
by each of Holdings, the Company and the Selling Securityholders and
(assuming the due execution and delivery thereof by the Initial
Purchaser) is a legally valid and binding obligation of each of
Holdings, the Company and the Selling Securityholders, enforceable
against each of them in accordance with its terms, except as the
enforceability thereof may be (i) subject to applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws in effect which
affect the enforcement of creditors rights generally, (ii) limited by
general principles of equity (whether considered in a proceeding at
law or in equity) and (iii) limited by securities laws prohibiting or
limiting the availability of, and public policy against,
indemnification or contribution;
(6) The Units have been duly and validly authorized by Holdings
and, when issued in accordance with their terms and delivered to and
paid for by the Initial Purchaser in accordance with the terms of this
Agreement, the Units will conform to the description thereof in the
Offering Memorandum, and will be legally valid and binding obligations
of Holdings, enforceable against Holdings in accordance with their
terms, except as the enforceability thereof may be (i) subject to
applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws in effect which affect the enforcement of creditors
rights generally, (ii) limited by general principles of equity
(whether considered in a proceeding at law or in equity) and (iii)
limited by securities laws prohibiting or limiting the availability
of, and public policy against, indemnification or contribution;
(7) The Holdings Preferred Stock has been duly authorized and is
full paid, nonassessable and entitled to the rights, priviledges and
preferences set forth in the Certificate of Designations. The Holdings
Preferred Stock conforms with the description thereof contained in the
Offering Memorandum.
(8) Holdings has duly authorized, executed and delivered the
Subordinated Note Indenture, and (assuming the due authorization,
execution and delivery thereof by the Trustee) the Subordinated Note
Indenture is a legally valid and binding obligation of Holdings,
enforceable against Holdings in accordance with its terms, except as
the enforceability thereof may be (i) subject to applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws in
effect which affect the enforcement of
20
<PAGE>
creditors rights generally and (ii) limited by general principles of
equity (whether considered in a proceeding at law or in equity);
(9) The Holdings Subordinated Notes have been duly authorized,
issued and authenticated in accordance with the Subordinated Note
Indenture and conform to the description thereof in the Offering
Memorandum, and are legally valid and binding obligations of Holdings,
enforceable against Holdings in accordance with their terms, except as
the enforceable thereof may be (i) subject to applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws in effect which
affect the enforcement of creditors rights generally and (ii) limited
by general principles of equity (whether considered in a proceeding at
law or in equity);
(10) Holdings has duly authorized, executed and delivered the
Indenture, and (assuming due authorization, execution and delivery
thereof by the Trustee) the Indenture is a legally valid and binding
obligation of Holdings, enforceable against Holdings in accordance
with its terms, except as the enforceability thereof may be (i)
subject to applicable bankruptcy, insolvency, moratorium,
reorganization or similar laws in effect which affect the enforcement
of creditors rights generally and (ii) limited by general principles
of equity (whether considered in a proceeding at law or in equity);
(11) Holdings has duly authorized the Series A Notes and, when
issued and authenticated in accordance with the terms of the Indenture
and delivered in exchange for the Units in accordance with the terms
of such Units, the Series A Notes will conform to the description
thereof in the Offering Memorandum, and will be the legally valid and
binding obligations of Holdings, enforceable against Holdings in
accordance with their terms, except as the enforceability thereof may
be (i) subject to applicable bankruptcy, insolvency, moratorium,
reorganization or similar laws in effect which affect the enforcement
of creditors rights generally and (ii) limited by general principles
of equity (whether considered in a proceeding at law or in equity);
(12) Holdings has duly authorized the Series B Notes and, when
issued and authenticated in accordance with the terms of the
Registration Rights Agreement and the Indenture, the Series B Notes
will conform to the description thereof in the Offering Memorandum,
and will be the legally valid and binding obligations of Holdings,
enforceable against Holdings in accordance with their terms, except as
the enforceability thereof may be (i) subject to applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws in
effect which affect the enforcement of creditors rights generally and
(ii) limited by general principles of equity (whether considered in a
proceeding at law or in equity);
(13) Holdings has duly authorized, executed and delivered the
Registration Rights Agreement, and (assuming the due execution and
delivery thereof by the Initial Purchaser) the Registration Rights
Agreement is a legally valid and binding obligation of Holdings,
enforceable against Holdings in accordance with its terms, except as
the enforceability thereof may be (i) subject to applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws in
effect which affect the enforcement of creditors rights generally,
(ii) limited by general principles of equity (whether considered in a
proceeding at law or in equity) and (iii) limited by securities laws
prohibiting or limiting the availability of, and public policy
against, indemnification or contribution;
(14) The statements under the captions "Certain Transactions,"
"Description of Units," "Description of Exchange Notes," "Description
of Capital Stock," "Description of
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<PAGE>
Certain Indebtedness," and "Certain U.S. Federal Income Tax
Considerations" in the Offering Memorandum, insofar as such statements
constitute a summary of legal matters, documents or proceedings
referred to therein, are correct in all material respects;
(15) Neither Holdings nor the Company is an "investment company"
or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended;
(16) When the Units are issued and delivered pursuant to this
Agreement, such Units, the Holdings Preferred Stock and the Holdings
Subordinated Notes will not be of the same class (within the meaning
of Rule 144A under the Act) as securities of Holdings that are listed
on a national securities exchange registered under Section 6 of the
Exchange Act or that are quoted in a United States automated inter-
dealer quotation system;
(17) The Subordinated Note Indenture is not required to be
qualified under the Trust Indenture Act;
(18) The Indenture is not required to be qualified under the
Trust Indenture Act prior to the first to occur of (i) the Registered
Exchange Offer and (ii) the effectiveness of the Shelf Registration
Statement;
(19) No registration under the Act of the Units is required for
the sale of the Units to the Initial Purchaser as contemplated hereby
or for the Exempt Resales (assuming (i) that the Eligible Purchasers
who buy the Units in the Exempt Resales are QIBs or a non-U.S. person
outside the United States and (ii) the accuracy of, and compliance
with, the representations of the Initial Purchaser and those of
Holdings and the Selling Securityholders contained in Sections 6, 7
and 8 hereof.
In addition, such counsel shall state that it has participated in
conferences with officers and other representatives of Holdings,
representatives of the independent public accountants for Holdings, the
Initial Purchaser's representatives and counsel for the Initial Purchaser,
at which conferences the contents of the Offering Memorandum and related
matters were discussed, and, although such counsel is not passing upon and
assumes no responsibility for the accuracy, completeness or fairness of the
statements contained in the Offering Memorandum, and have not made any
independent check or verification thereof, during the course of such
participation (relying as to materiality to the extent such counsel deemed
appropriate upon the statements of officers and other representatives of
Holdings), no facts came to such counsel's attention that caused such
counsel to believe that the Offering Memorandum, as of its date, contained
an untrue statement of material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading; it being understood that such counsel expresses no belief
with respect to the financial statements, schedules and other financial and
statistical data included in the Offering Memorandum or incorporated
therein.
(e) The Initial Purchaser shall have received on the Closing Date an
opinion (satisfactory to the Initial Purchaser and counsel to the Initial
Purchaser) dated the Closing Date of Rose, Brouillette & Shapiro, counsel
for Holdings, to the effect that:
(1) Each of Holdings and the Company is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, has full corporate power and authority
to carry on its respective business as it is currently being conducted
and to own, lease and operate its respective properties, and, to the
best
22
<PAGE>
of such counsel's knowledge, is duly qualified and is in good standing
as a foreign corporation registered to do business in each
jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the
failure to be so qualified would not be reasonably likely to have a
Material Adverse Effect;
(2) All of the outstanding capital stock of Holdings has been
duly authorized and validly issued and is fully paid and nonassessable
and is not subject to preemptive or similar rights;
(3) All of the outstanding capital stock of the Company has been
duly authorized and validly issued and is fully paid and
nonassessable, and is owned by Holdings free and clear of any Lien;
(4) Neither Holdings nor the Company is in violation of its
charter or bylaws, and, to the best knowledge of such counsel after
due inquiry, neither Holdings nor the Company is in default in the
performance of any obligation, agreement or condition contained in any
bond, debenture, note or any other evidence of indebtedness or in any
other agreement, indenture or instrument material to the conduct of
the business of Holdings or the Company, to which Holdings or the
Company is a party or by which Holdings, the Company or their
respective property is bound;
(5) The execution, delivery and performance of the Operative
Documents by Holdings, compliance by Holdings with the provisions
thereof and the Securities, the execution, delivery and performance of
this Agreement by the Company and the consummation of the transactions
contemplated hereby and thereby does not conflict with or constitute a
breach of any of the terms or provisions of, or a default under, or
result in the imposition of a lien or encumbrance on any properties of
Holdings or the Company, or an acceleration of indebtedness pursuant
to, (1) the charter or bylaws of Holdings or the Company, (2) any
bond, debenture, note, indenture, mortgage, deed of trust or other
agreement or instrument known to such counsel after due inquiry to
which Holdings or the Company is a party or by which Holdings, the
Company or any of their respective property is bound, or (3) to the
best of such counsel's knowledge, any law or administrative regulation
applicable to Holdings, the Company or any of their respective assets
or properties, or any judgment, order or decree of any court or
governmental agency or authority entered in any proceeding to which
Holdings or the Company was or is now a party or to which Holdings,
the Company or any of their respective property may be subject;
(6) To the best knowledge of such counsel, after due inquiry,
there is (i) no action, suit or proceeding before or by any court,
arbitrator or governmental agency, body or official, domestic or
foreign, now pending, threatened or contemplated to which Holdings or
the Company is or may be a party or to which the business or property
of Holdings or the Company is or may be subject, (ii) no statute,
rule, regulation or order that has been enacted, adopted or issued by
any governmental agency or proposed by any governmental body, or (iii)
no injunction, restraining order or order of any nature by a federal
or state court of competent jurisdiction applicable to Holdings or the
Company has been issued that, in the case of clauses (i), (ii) and
(iii) above, (a) is required to be disclosed in the Offering
Memorandum and that is not so disclosed, (b) would interfere with or
adversely affect the issuance of the Securities, or (c) might
invalidate any provision or the validity of the Operative Documents or
the Securities;
23
<PAGE>
(7) To the best knowledge of such counsel, there is no contract
or document concerning Holdings or the Company of a character required
to be described in the Offering Memorandum that is not so described or
filed in a registration statement on Form S-4 if the Units were
registered pursuant to the Act;
(8) To the best knowledge of such counsel, after due inquiry,
following consummation of the Offering, no holder of any security of
Holdings has any right to require registration of any of Holdings'
securities;
(f) The Initial Purchaser shall have received on the Closing Date an
opinion, dated the Closing Date, of Latham & Watkins, in form and substance
satisfactory to the Initial Purchaser, and Holdings shall have provided
Latham & Watkins such papers and information as it requests to enable it to
pass upon the matters contained in such opinion.
(g) The Initial Purchaser shall have received letters from Deloitte &
Touche LLP and Donnelly Meiners Jordan Kline, independent public
accountants, on the date hereof and from Deloitte & Touche LLP on the
Closing Date, in form and substance satisfactory to the Initial Purchaser,
with respect to the financial statements and certain financial information
contained in the Offering Documents.
(h) Holdings shall have entered into the Registration Rights Agreement
on or prior to the Closing Date.
(i) Holdings shall have performed or complied in all material respects
with any of the agreements herein contained and required to be performed or
complied with by it on or prior to the Closing Date.
11. EFFECTIVE DATE OF AGREEMENT AND TERMINATION. This Agreement shall
become effective at the time that the Selling Securityholders, Holdings, the
Company and the Initial Purchaser execute this Agreement.
The Initial Purchaser may terminate this Agreement at any time prior to the
Closing Date by written notice to Holdings if any of the following has occurred:
(a) since the respective dates as of which information is given in the
Offering Documents, any adverse change or development involving a
prospective adverse change, whether or not arising in the ordinary course
of business, which would, in the Initial Purchaser's judgment, make it
impracticable to market the Units on the terms and in the manner
contemplated in the Offering Documents;
(b) any outbreak or escalation of hostilities or other national or
international calamity or crisis or material change in economic conditions,
if the effect of such outbreak, escalation, calamity, crisis or change on
the financial markets of the United States or elsewhere would, in the
Initial Purchaser's judgment, make it impracticable to market the Units on
the terms and in the manner contemplated in the Offering Documents;
(c) the suspension or material limitation of trading in securities on
the New York Stock Exchange, the American Stock Exchange or the Nasdaq
National Market or limitation on prices for securities on any such
exchange;
(d) the enactment, publication, decree or other promulgation of any
federal or state statute, regulation, rule or order of any court or other
governmental authority which in the Initial
24
<PAGE>
Purchaser's opinion causes or could cause a Material Adverse Effect;
(e) the declaration of a banking moratorium by either federal or New
York State authorities;
(f) the taking of any action by any federal, state or local government
or agency in respect of its monetary or fiscal affairs which in the Initial
Purchaser's opinion has a material adverse effect on the financial markets
in the United States; or
(g) any of Holdings' or the Company's securities shall have been
downgraded or placed on any "watch list" for possible downgrading by any
nationally recognized statistical rating organization, provided that in the
case of such "watch list" placement, termination shall be permitted only if
such placement would, in the judgment of the Initial Purchaser, make it
impracticable or inadvisable to market the Units or to enforce contracts
for the sale of the Units or materially impair the investment quality of
the Units.
12. MISCELLANEOUS.
(a) Notices given pursuant to any provision of this Agreement shall be
addressed as follows: (i) if to the Selling Securityholders, the Company
or Holdings, The Jordan Company, 9 West 57th Street, 40th Floor, New York,
New York 10019, Attention: A. Richard Caputo, Jr. and (ii) if to the
Initial Purchaser, Donaldson, Lufkin & Jenrette Securities Corporation, 277
Park Avenue, New York, New York 10172, Attention: Syndicate Department, or
in any case to such other address as the person to be notified may have
requested in writing.
(b) The respective indemnities, contribution agreements,
representations, warranties and other statements of Holdings, the Selling
Securityholders and the Initial Purchaser set forth in or made pursuant to
this Agreement shall remain operative and in full force and effect, and
will survive delivery of and payment for the Units, regardless of (i) any
investigation, or statement as to the results thereof, made by or on behalf
of any such person, (ii) acceptance of the Units and payment for them
hereunder and (iii) termination of this Agreement.
(c) Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Selling
Securityholders, Holdings, the Company, the Initial Purchaser, any
controlling persons referred to herein and their respective successors and
assigns, all as and to the extent provided in this Agreement, and no other
person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser
of any of the Units from the Initial Purchaser merely because of such
purchase.
(d) This Agreement shall be construed, interpreted and the rights of
the parties determined in accordance with the laws of the State of New York
without reference to its choice of law provisions.
(e) This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument.
SIGNATURE PAGE IS THE NEXT PAGE
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Please confirm that the foregoing correctly sets forth the agreement among
Holdings, the Company, the Selling Securityholders and the Initial Purchaser.
Very truly yours,
GFSI HOLDINGS, INC.
By: /s/ Richard Caputo
---------------------------------
Name: A. Richard Caputo, Jr.
Title: Vice President
GSFI, INC.
By: /s/ Richard Caputo
-----------------------------
Name: A. Richard Caputo, Jr.
Titile: Vice President
THE SELLING SECURITYHOLDERS LISTED
ON SCHEDULE I HERETO
By: /s/ Richard Caputo
-----------------------------
Name: A Richard Caputo, Jr.
Title: Attorney-in-Fact
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Tyler Wolfram
--------------------------------------------
Name: Tyler Wolfram
Title: Vice President
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Exhibit 3.1
GFSI HOLDINGS, INC.
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
-------------------------------------------------
1. The Certificate of Incorporation of GFSI HOLDINGS, INC. (the
"Corporation") was filed in the Office of the Secretary of State of the state of
Delaware on December 23, 1996.
2. In the manner prescribed by Sections 241 and 245 of the General
Corporation Law of the State of Delaware, resolutions were duly adopted by the
sole director of the Corporation approving this Amended and Restated Certificate
of Incorporation. The Corporation has not received any payment for any of its
stock.
3. The text of the Certificate of Incorporation, as amended and
restated herein, shall read as follows:
FIRST: The name of the Corporation is
GFSI HOLDINGS, INC.
SECOND: The address of the Corporation's initial registered office in
the state of Delaware is Corporation Trust Center, 1209 Orange Street, in the
City of Wilmington, County of New Castle, Delaware 19801. The name of the
Corporation's initial registered agent at such address is The Corporation Trust
Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 29,105 shares of which (i) 1,105
shares shall be Series A Common Stock, par value $0.01 per share ("Series A
Common Stock"); (ii) 1,000 shares shall be Series B Common Stock, par value
$0.01 per share (the "Series B Common Stock," which along with the Series A
Common Stock shall be referred to collectively as the "Common Stock"); (iii)
13,500 shares shall be Series A 12% Cumulative Preferred Stock, par value $0.01
per share ("Series A Preferred Stock"); (iv)
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11,000 shares shall be Series B 12% Cumulative Preferred Stock, par value $0.01
per share ("Series B Preferred Stock"); and (v) 2,500 shares shall be Series C
12% Cumulative Preferred Stock, par value $0.01 per share ("Series C Preferred
Stock," which along with the Series A Preferred Stock and the Series B Preferred
Stock shall be referred to collectively as the "Preferred Stock").
The following provisions respecting the powers, preferences, rights
and the qualifications, limitations or restrictions in respect of the
Corporation's Common Stock and Preferred Stock are hereby adopted:
1. Common Stock. The Common Stock shall be subject to the following
provisions:
a. Dividends. The holders of Common Stock shall be entitled to
receive, subject to any preferential dividend rights applicable to the
Preferred Stock, such dividends as may be declared by the Board of
Directors of the Corporation from time to time. No dividends shall be paid
on shares of Common Stock unless and until all dividends accrued but not
paid on the Preferred Stock as of such date have been paid in cash.
b. Voting Rights. The holders of the Common Stock shall be
entitled to one vote per share in voting on or consenting to the election
of directors and for all other corporate purposes.
2. Preferred Stock. Each share of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock shall be identical in all respects.
The Preferred Stock shall be subject to the following provisions:
a. Annual Dividends.
(1) Subject to the provisions of Paragraph d. below, the
holders of Preferred Stock shall be entitled to receive, when, as and
if declared by the Board of Director of the Corporation, annual cash
dividends at the rate of $120.00 per share, per annum, payable on
March 1 of each year (the "Preferred Stock Dividends"). The first such
dividend payment shall be made on March 1, 1998. Such dividends shall
be cumulative and shall accrue, whether or not earned or declared,
from and after
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the date of issue of the Preferred Stock.
(2) The Preferred Stock Dividends shall be accrued, but not
paid, if the payment thereof would result directly or indirectly in a
default under any obligation of the Corporation or any of its
subsidiaries for borrowed money or if, in the good faith opinion of
the Board of Directors of the Corporation, the Corporation does not
have available funds.
b. Liquidation.
-----------
(1) Upon any liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, the holders of all
shares of Preferred Stock shall be entitled, before any distribution
or payment is made upon any shares of Common Stock, to be paid an
amount equal to the sum of $1,000.00 per share, plus all accrued but
unpaid dividends thereon (the total amount of such sum being referred
to herein as the "Preferred Stock Liquidation Payment") and the
holders of Preferred Stock shall not be entitled to any further
distribution or payment in respect of the Preferred Stock. If upon
such liquidation, dissolution or winding-up of the Corporation,
whether voluntary or involuntary, the assets of the Corporation to be
distributed among the holders of the capital stock of the Corporation
shall be insufficient to permit payment to the holders of Preferred
Stock of the entire amount of the Preferred Stock Liquidation Payment,
then the entire assets of the Corporation to be distributed to the
holders of the capital stock of the Corporation shall be distributed
ratably among the holders of Preferred Stock in proportion to the
Preferred Stock Liquidation Payment due under this subparagraph (1) to
each such holder. Upon any such liquidation, dissolution or winding-up
of the Corporation, but only after each holder of Preferred Stock
shall have been paid the full Preferred Stock Liquidation Payment to
which such holder is entitled, the remaining assets of the Corporation
shall be distributed to the holders of Common Stock.
(2) Written notice of such liquidation, dissolution or
winding-up, stating the payment date, the amount of the Preferred
Stock Liquidation Payment and the place where the amounts distributed
shall be payable,
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shall be given by mail, postage prepaid, not less than 10 days prior
to the payment date stated therein, to the holders of record of the
Preferred Stock, such notice to be addressed to each stockholder at
his, her or its post office address as shown by the records of the
Corporation. Neither the consolidation nor merger of the Corporation
with or into any other corporation or corporations, nor the sale or
transfer by the Corporation of all or any part of its assets, nor the
reduction of the capital stock of the Corporation, shall be deemed to
be a liquidation, dissolution or winding-up of the Corporation within
the meaning of any of the provisions of this Paragraph b.
c. Redemptions.
-----------
(1) Optional Redemptions. The Preferred Stock shall be
redeemable from time to time by paying for each share in cash on the
redemption date(s) the sum of $1,000.00 plus all accrued but unpaid
dividends thereon, such sum being called the "Redemption Price."
(2) Mandatory Redemptions. All shares of Preferred Stock
not theretofore redeemed shall be redeemed by the Corporation by
payment of the Redemption Price applicable to such shares in cash on
March 1, 2009.
(3) Priority. In case of a redemption of only part of the
outstanding shares of any series of Preferred Stock, the shares to be
redeemed will be redeemed on a pro rata basis among the holders of all
the Preferred Stock.
(4) Notice. In the event of a redemption under subparagraph
(1) above, the Corporation shall cause to be mailed to each of the
holders of the Preferred Stock to be redeemed, at the last address of
the holder appearing on the records of the Corporation, at least 15
days, but no more than 60 days, prior to the date of such redemption,
a notice stating the date on which such redemption shall take place.
(5) Restrictions. Redemption payments (whether optional or
mandatory) shall be accrued, but not paid, if the payment thereof
would result directly or indirectly in a default under any obligation
of the
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Corporation or any of its subsidiaries for borrowed money or if, in
the good faith opinion of the Board of Directors of the Corporation,
the Corporation does not have available funds.
d. Dividends After Redemption Date. Unless there is a default
in the payment of the Redemption Price for any shares of Preferred Stock to
be redeemed, (1) the shares of Preferred Stock designated for redemption
shall not be entitled to any dividends accruing after the redemption date
specified, (2) on such redemption date all rights of the respective holders
of such shares, as stockholders of the Corporation by reason of the
ownership of such shares, shall cease, except the right to receive the
Redemption Price for such shares without interest upon presentation, and
(3) such shares shall not be deemed to be outstanding after such redemption
date.
e. Voting Rights. None of the shares of Preferred Stock shall
have voting rights except as expressly required by law and except on any
amendment to the Corporation's Certificate of Incorporation to alter or
change the powers, designations, preferences or special rights of any
shares of Preferred Stock and on any amendments to the Bylaws of the
Corporation which would effect such change.
FIFTH: The name and mailing address of the incorporator are Michael
J. Beal, 1200 Main Street, Suite 3500, Kansas City, Missouri 64105.
SIXTH: The name of the person who is to serve as the sole director
until the first annual meeting of stockholders, or until his successor is
elected and shall qualify, is A. Richard Caputo, Jr., whose mailing address is 9
West 57th Street, 40th Floor, New York, New York 10019.
SEVENTH: The duration of the Corporation is perpetual.
EIGHTH: 1. Elimination of Certain Liability of Directors. A
director of the Corporation shall not be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the General
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Corporation Law of the State of Delaware, or (iv) for any transaction from which
the director derived an improper personal benefit. If the General Corporation
Law of the State of Delaware is amended subsequent to the date hereof to
authorize corporate action further limiting or eliminating the personal
liability of directors, then the liability of a director of the Corporation
shall be limited or eliminated to the fullest extent permitted by the General
Corporation Law of the State of Delaware, as so amended. Any repeal or
modification of the foregoing paragraph by the stockholders of the Corporation
shall not adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification.
2. Indemnification and Insurance.
a. Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "Proceeding"), by reason of the fact that
he or she, or a person of whom he or she is the legal representative,
is or was a director or officer of the Corporation or is or was
serving, at the request of the Corporation, as a director, officer,
employee or agent of another corporation, a partnership, joint
venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such Proceeding is
alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the
General Corporation Law of the State of Delaware, as the same exists
or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than said law permitted the
Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in
connection therewith and such indemnification shall continue as to a
person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of his
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or her heirs, executors and administrators; provided, however, that,
except as provided in Paragraph b. of this Section 2, the Corporation
shall indemnify any such person seeking indemnification in connection
with a Proceeding (or part thereof) initiated by such person only if
such Proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation. The right to indemnification conferred
in this Section 2 shall be a contract right and shall include the
right to be paid by the Corporation the expenses incurred in defending
any such Proceeding in advance of its final disposition; provided,
however, that, if the General Corporation Law of the State of Delaware
requires, the payment of such expenses incurred by a director or
officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including without
limitation, service to an employee benefit plan) in advance of the
final disposition of a Proceeding, shall be made only upon delivery to
the Corporation of an undertaking, by or on behalf of such director or
officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be
indemnified under this Section 2 or otherwise. The Corporation may,
by action of its Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect
as the foregoing indemnification of directors and officers.
b. Right of Claimant to Bring Suit. If a claim under Paragraph
a. of this Section 2 is not paid in full by the Corporation within 30
days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation
to recover the unpaid amount of the claim and, if successful in whole
or in part, the claimant shall be entitled to be paid also the expense
of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred
in defending any Proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct
which make it permissible under the General Corporation Law of the
State of Delaware to indemnify the claimant for the
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<PAGE>
amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its
Board of Directors, independent legal counsel or its stockholders) to
have made a determination prior to the commencement of such action
that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth
in the General Corporation Law of the State of Delaware, nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel or its stockholders) that the claimant has
not met such applicable standard or conduct, shall be a defense to the
action or create a presumption that the claimant has not met the
applicable standard of conduct.
c. Non-Exclusivity of Rights. The right to indemnification and
the payment of expenses incurred in defending a Proceeding in advance
of its final disposition conferred in this Section 2 shall not be
exclusive of any other right which any person may have or hereafter
acquire under any statute, provision of the Certificate of
Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
d. Insurance. The Corporation may, at its option and expense,
maintain insurance to protect itself and any director, officer,
employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise against any such
expense, liability or loss, whether or not the Corporation would have
the power to indemnify such person against such expense, liability or
loss under the General Corporation Law of the State of Delaware.
NINTH: The Board of Directors of the Corporation is authorized and
empowered to make, alter, amend or repeal any or all of the Bylaws of the
Corporation, subject to the power of the stockholders of the Corporation to
make, alter, amend or repeal any or all of the Bylaws of the Corporation.
TENTH: The Corporation reserves the right at any time and from time
to time to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, in the manner now or hereafter prescribed by law;
and all rights conferred upon stockholders, directors or any other persons
whomsoever by and
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pursuant to this Certificate of Incorporation in its present form or as
hereafter amended are granted subject to this reservation.
IN WITNESS WHEREOF, GFSI Holdings, Inc. has caused this Amended and
Restated Certificate of Incorporation to be signed by Michael J. Beal, its Vice
President, and Jacob C. Young III, its Assistant Secretary, this 22nd day of
February, 1997.
GFSI HOLDINGS, INC.
a Delaware corporation
By: /s/ Michael J. Beal
-------------------------------
Michael J. Beal, Vice President
ATTEST:
By: /s/ Jacob C. Young
---------------------------------------
Jacob C. Young III, Assistant Secretary
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CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
----------------------------
GFSI HOLDINGS, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That the Board of Directors of said corporation by the unanimous
written consent of its members adopted resolutions proposing and declaring
advisable the following amendment to the Certificate of Incorporation of this
corporation:
RESOLVED that the Restated Certificate of Incorporation of GFSI
Holdings, Inc. be amended by changing the first paragraph of Article FOURTH
thereof so that, as amended, said paragraph of said Article shall be and
read as follows:
"FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 54,105 shares of which (i)
1,105 shares shall be Series A Common Stock, par value $0.01 per share
("Series A Common Stock"); (ii) 1,000 shares shall be Series B Common
Stock, par value $0.01 per share ("Series B Common Stock," which along with
the Series A Common Stock shall be referred to collectively as the "Common
Stock"); (iii) 13,500 shares shall be Series A 12% Cumulative Preferred
Stock, par value $0.01 per share ("Series A Preferred Stock"); (iv) 11,000
shares shall be Series B 12% Cumulative Preferred Stock, par value $0.01
per share ("Series B Preferred Stock"); (v) 2,500 shares shall be Series C
12% Cumulative Preferred Stock, pare value $0.01 per share ("Series C
Preferred Stock"); and (vi) 25,000 shares shall be Series D Preferred
Stock, par value $0.01 per share ("Series D Preferred Stock," which along
with the Series A Preferred Stock, the Series B Preferred Stock and the
Series C Preferred Stock shall be referred to collectively as the
"Preferred Stock")."
FURTHER RESOLVED, that the Restated Certificate of Incorporation of
GFSI Holdings, Inc. be amended by changing the Article FOURTH thereof by
adding a new section at the end of such Article so that, as amended, said
new paragraph of said Article shall be and read as follows:
"3. Series D Preferred Stock. The Board of Directors is
authorized, to the extent permitted by this Certificate of Incorporation
and applicable law, to provide for the issuance of the Series D Preferred
Stock, and by filing a certificate pursuant to the applicable law of the
State of Delaware, to establish from time to time the designation, powers,
preferences and rights of the shares and the qualifications, limitations or
restrictions thereof. Except for any difference so provided by the Board of
Directors, the shares of all Series D Preferred Stock will rank on a parity
with respect to the payment of dividends and the distribution of assets
upon liquidation, dissolution or winding-up of the affairs of the
Corporation.
The authority of the Board of Directors with respect to the Series D
Preferred Stock shall include, but not be limited to, determination of the
following:
<PAGE>
(i) The rate of dividends, and whether (and if so, on what terms and
conditions) dividends shall be cumulative (and if so, whether unpaid
dividends shall compound or accrue interest) or shall be payable in
preference or in any other relation to the dividends payable on any other
class or classes of capital stock or any other series of Preferred Stock;
(ii) Whether the Series D Preferred Stock shall have voting rights in
addition to the voting rights provided by law and, if so, the terms and
extent of such voting rights;
(iv) Whether the shares must or may be redeemed and, if so, the terms
and conditions of such redemption (including, without limitation, the dates
upon or after which the shares of the series must or may be redeemed and
the price or prices at which they must or may be redeemed, which price or
prices may be different in different circumstances or at different
redemption dates);
(v) Whether the shares shall be issued with the privilege of
conversion or exchange and, if so, the terms and conditions of such
conversion or exchange (including without limitation the price or prices or
the rate or rates of conversion or exchange or any terms for adjustment
thereof);
(vi) The amounts, if any, payable upon the shares in the event of
voluntary liquidation, dissolution or winding up of the affairs of the
Corporation in preference of shares of any other class or series and
whether the shares shall be entitled to participate generally in
distributions on the Common Stock under such circumstances;
(vii) The amounts, if any, payable upon the shares in the event of
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation in preference of shares of any other class or series and
whether the shares shall be entitled to participate generally in
distributions in the Common Stock under such circumstances;
(viii) Whether the shares shall be entitled to the benefits of a
sinking fund for the redemption or purchase of the shares (the term
"sinking fund" being understood to include any similar fund, however
designated); and
(ix) Any other relative rights, preferences, limitations and powers
of the Series D Preferred Stock."
SECOND: That in lieu of a meeting and vote of stockholders, the
stockholders have given unanimous written consent to said amendment in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Sections 242 and 228 of the General Corporation Law
of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, said GFSI Holdings, Inc. has caused this certificate to
be signed by its Assistant Secretary this 17th day of September, 1997.
GFSI HOLDINGS, INC.
By /s/ Richard Caputo
---------------------------------
Name: A. Richard Caputo, Jr.
Title: Assistant Secretary
<PAGE>
GFSI HOLDINGS, INC.
CERTIFICATE OF DESIGNATIONS OF THE POWERS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL AND OTHER
SPECIAL RIGHTS OF 11.375% SERIES D PREFERRED STOCK
AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
GFSI Holdings Inc. (the "Company"), a corporation organized and existing
under the General Corporation Law of the State of Delaware, does hereby certify
that, pursuant to authority conferred upon the board of directors of the Company
(the "Board of Directors") by its Certificate of Incorporation (hereafter
referred to as the "Certificate of Incorporation"), and pursuant to the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, said Board of Directors, pursuant to a meeting held on September 12,
1997, duly approved and adopted the following resolution (the "Resolution"):
RESOLVED, that, pursuant to the authority vested in the Board of
Directors by its Certificate of Incorporation, the Board of Directors does
hereby create, authorize and provide for the issue of 11.375% Series D
Preferred Stock, par value $0.01 per share, with a liquidation preference
of $1,000.00 per share, consisting of 25,000 shares, having the
designations, preferences, relative, participating, optional and other
special rights and the qualifications, limitations and restrictions thereof
that are set forth in the Certificate of Incorporation and in this
Resolution as follows:
(a) Designation. There is hereby created out of the authorized and
unissued shares of Series D Preferred Stock of the Company a series of preferred
stock, designated as the "11.375% Series D Preferred Stock" (the "Series D
Preferred Stock"). The number of shares of Series D Preferred Stock shall be
25,000 shares, consisting an initial issuance of 25,000 shares of Series D
Preferred Stock. The initial liquidation preference of the Series D Preferred
Stock shall be $ 1,000.00 per share.
(b) Rank. The Series D Preferred Stock shall, with respect to dividend
distributions and distributions upon the liquidation, winding-up or dissolution
of the Company, rank (i) senior to all classes of common stock and to each other
series of preferred stock existing on the Series D Preferred Stock Issue Date
of the Company and each other class of capital stock or series of preferred
stock issued by the Company after the Series D Preferred Stock Issue Date the
terms of which do not expressly provide that such class or series will rank
senior to or on a parity with the Series D Preferred Stock as to dividend
distributions and distribution upon the liquidation, winding-up or dissolution
of the Company (collectively referred to, with the common stock of the Company,
as "Junior Securities"); (ii) subject to certain conditions, on a parity with
any class of capital stock
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or series of preferred stock issued by the Company, which is established after
the Series D Preferred Stock Issue Date by the Board of Directors, the terms of
which expressly provide that such class or series will rank on a parity with the
Series D Preferred Stock as to dividend distributions and distributions upon the
liquidation, winding-up or dissolution of the Company (collectively referred to
as "Parity Securities"); and (iii) subject to certain conditions, junior to each
class of capital stock or series of preferred stock issued by the Company, which
is established after the Series D Preferred Stock Issue Date by the Board of
Directors, the terms of which expressly provide that such class or series will
rank senior to the Series D Preferred Stock as to dividend distributions and
distributions upon liquidation, winding-up or dissolution of the Company
(collectively referred to as "Senior Securities"). In addition, creditors and
stockholders of the Company's Subsidiaries will have priority over the Series D
Preferred Stock with respect to claims on the assets of such Subsidiaries. The
Preferred Stock will be subject to the issuance of series of Junior Securities,
Parity Securities and Senior Securities, provided that the Company may not issue
any new class of Parity Securities or Senior Securities without the approval of
the holders of at least 50% of the shares of Series D Preferred Stock then
outstanding, voting or consenting, as the case may be, together as one class,
except that without the approval of the holders of Series D Preferred Stock, the
Company may issue and have outstanding shares of Parity Securities issued from
time to time in exchange for, or the proceeds of which are used to redeem or
repurchase, any or all of the shares of Series D Preferred Stock or other Parity
Securities.
(c) Dividends.
(i) Beginning on the Series D Preferred Stock Issue Date, the
Holders of the outstanding shares of Series D Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors, out
of funds legally available therefor, dividends on each share of Series D
Preferred Stock, at a rate per annum equal to 11.375% of the liquidation
preference per share of the Series D Preferred Stock. All dividends shall be
cumulative, whether or not earned or declared, compounded on a semi-annual
basis on March 15 and September 15 of each year (the "Dividend Payment
Dates") from the Series D Preferred Stock Issue Date. Dividends will accrue
additional value to the liquidation preference but will not be payable
before September 15, 2004, at which time they will be payable in cash,
semi-annually on March 15 and September 15 of each year, commencing March
15, 2005. Each distribution in the form of a dividend shall be payable to
Holders of record as they appear on the stock books of the Company on such
record dates, not less than 10 nor more than 60 days preceding the related
Dividend Payment Date, as shall be fixed by the Board of Directors.
Dividends shall cease to accumulate in respect of shares of the Series D
Preferred Stock on the Exchange Date or on the date of their earlier
redemption unless the Company shall have failed to issue the appropriate
aggregate principal amount of Exchange Notes in respect of the Series D
Preferred Stock on the Exchange Date or shall have failed to pay the
relevant redemption price on the date fixed for redemption.
(ii) All dividends paid with respect to shares of the Series D
Preferred Stock pursuant to paragraph (c)(i) shall be paid pro rata to the
Holders entitled thereto.
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(iii) Nothing herein contained shall in any way or under any
circumstances be construed or deemed to require the Board of Directors to
declare, or the Company to pay or set apart for payment, any dividends on
shares of the Series D Preferred Stock at any time.
(iv) Dividends on account of arrears for any past dividend period and
dividends in connection with any optional redemption pursuant to paragraph
(e)(i) may be declared and paid at any time, without reference to any
regular Dividend Payment Date, to Holders of record on such date, not more
than 45 days prior to the payment thereof, as may be fixed by the Board of
Directors.
(v) No full dividends may be declared or paid or funds set apart for
the payment of dividends on any Parity Securities for any period unless
full cumulative dividends shall have been or contemporaneously are declared
and paid in full or declared and, if payable in cash, a sum in cash set
apart for such payment on the Series D Preferred Stock. If full dividends
are not so paid, the Series D Preferred Stock will share dividends pro rata
with the Parity Securities. No dividends may be paid or set apart for such
payment on Junior Securities (except dividends on Junior Securities in
additional shares of Junior Securities) and no Junior Securities or Parity
Securities may be repurchased, redeemed or otherwise retired nor may
funds be set apart for payment with respect thereto, if full cumulative
dividends have not been paid on the Series D Preferred Stock.
(vi) Dividends payable on shares of Series D Preferred Stock for any
period less than a year shall be computed on the basis of a 360-day year of
twelve 30-day months. If any Dividend Payment Date occurs on a day that is
not a Business Day, any accrued dividends otherwise payable on such
Dividend Payment Date shall be paid on the next succeeding Business Day.
(d) Liquidation Preference.
(i) Upon any voluntary or involuntary liquidation, dissolution or
winding-up of the affairs of the Company, the Holders of shares of Series D
Preferred Stock then outstanding shall be entitled to be paid, out of the
assets of the Company available for distribution to its stockholders, the
liquidation preference per share of Series D Preferred Stock, plus all
accumulated and unpaid dividends thereon to the date fixed for liquidation,
dissolution or winding-up (including an amount equal to a prorated dividend
for the period from the last Dividend Payment Date to the date fixed for
liquidation, dissolution or winding-up), before any distribution is made on
any Junior Securities, including, without limitation, the common stock of
the Company. If, upon any voluntary or involuntary liquidation, dissolution
or winding-up of the Company, the amounts payable with respect to the
Series D Preferred Stock and all other Parity Securities are not paid in
full, the holders of the Series D Preferred Stock and the Parity Securities
will share equally and ratably in any distribution of assets of the Company
in proportion to the full liquidation preference and accumulated and unpaid
dividends to which each is entitled.
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<PAGE>
(ii) After payment of the full amount of the liquidation preferences
and all accumulated and unpaid dividends to which they are entitled, the
holders of shares of the Series D Preferred Stock shall not be entitled to
any further participation in any distribution of assets of the Company.
(iii) For the purposes of this paragraph (d), neither the sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or
other consideration) of all or substantially all of the property or assets
of the Company nor the consolidation or merger of the Company with or into
one or more corporations shall be deemed to be a liquidation, dissolution
or winding-up of the affairs of the Company (unless such sale, conveyance,
exchange or transfer is in connection with a dissolution or winding-up of
the business of the Company).
(e) Redemption.
(i) Optional Redemption. (A) Except as provided in paragraph
(e)(i)(B) the Series D Preferred Stock may not be redeemed at the option of
the Company prior to September 15, 2002. During the twelve-month period
beginning on September 15 of the years indicated below, the Series D
Preferred Stock will be redeemable at the option of the Company, in whole
or in part, on at least 30 but not more than 60 days' notice to each holder
of Series D Preferred Stock to be redeemed, at the redemption prices
(expressed as percentages of the liquidation preference thereof) set forth
below, plus any accumulated and unpaid dividends to the redemption date:
<TABLE>
<CAPTION>
Year Percentage
---- -----------
<S> <C>
2002............................... 105.688
2003............................... 103.792
2004............................... 101.896
2005 and thereafter................ 100.000%
</TABLE>
(B) Notwithstanding the foregoing, on or after March 15, 1998 and
prior to September 15, 2002, the Company may (but shall not have the
obligation to) redeem, in whole or in part, the outstanding Series D
Preferred Stock at a redemption price in cash equal to 105.688% of the
liquidation preference (determined at the date of redemption) thereof, with
the net proceeds of one or more Equity Offerings of the Company or GFSI,
Inc.; provided, that any such redemption shall occur within 60 days of the
date of the closing of any such Equity Offering. In addition, upon the
occurrence of a Change of Control on or after March 15, 1998 and prior to
September 15, 2002, the Company, at its option, may redeem, in whole or in
part, the outstanding Series D Preferred Stock at a redemption price in
cash equal to 105.688% of the liquidation preference (determined at the
date of redemption) thereof. The Company shall give not less than 30 and
not more than 60 days' notice of such redemption within 30 days following a
Change of Control.
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<PAGE>
(C) Upon the occurrence of a Change of Control on or after March
15, 1998 and prior to September 15, 2002, the Company, at its option, may
redeem, in whole or in part, the outstanding Series D Preferred Stock at a
redemption price in cash equal to 105.688% of the liquidation preference
(determined at the date of redemption) thereof. The Company shall give not
less than 30 and not more than 60 days' notice of such redemption within 30
days following a Change of Control.
(ii) Mandatory Offers to Purchase. (A) Change of Control. Upon the
occurrence of a Change of Control (such date being the "Change of Control
Trigger Date"), each Holder of Series D Preferred Stock shall have the
right to require the Company to purchase all or any part (equal to $500 or
an integral multiple thereof) of such Holder's Series D Preferred Stock
pursuant to an Offer (as defined below) at a purchase price in cash equal
to 100% of the liquidation preference (determined at the date of
redemption) thereof, plus any accumulated and unpaid dividends to the date
of purchase.
(B) Asset Sales.
(1) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, consummate an Asset Sale
(including the sale of any of the Capital Stock of any Restricted
Subsidiary) providing for Net Proceeds in excess of $4.0 million
unless at least 75% of the Net Proceeds from such Asset Sale are
applied to one or more of the following purposes in such combination
as the Company shall elect: (a) an investment in another asset or
business in the same line of business as, or a line of business
similar to that of, the line of business of the Company and its
Restricted Subsidiaries at the time of the Asset Sale or the making of
a capital expenditure otherwise permitted by this Indenture; provided
that such investment occurs within 365 days of the date of such Asset
Sale (the "Asset Sale Disposition Date"), (b) to reimburse the Company
or its Restricted Subsidiaries for expenditures made, and costs
incurred, to repair, rebuild, replace or restore property subject to
loss, damage or taking to the extent that the Net Proceeds consist of
insurance proceeds received on account of such loss, damage or
taking, (c) to cash collateralize letters of credit; provided any such
cash collateral released to the Company or its Restricted Subsidiaries
upon the expiration of such letters of credit shall again be deemed to
be Net Proceeds received on the date of such release, (d) the
permanent purchase, redemption or other prepayment or repayment of
outstanding Senior Securities of the Company or of the Company's
Restricted Subsidiaries (with a corresponding reduction in any
commitment relating thereto) on or prior to the 365th day following
the Asset Sale Disposition Date or (e) an Offer expiring on or prior
to the Purchase Date.
(2) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, consummate an Asset Sale unless
at least 75% of the consideration thereof received by the Company or
such Restricted Subsidiary is in the form of cash or Marketable
Securities; provided that, solely for purposes of
-5-
<PAGE>
calculating such 75% of the consideration, the amount of (x) any
liabilities (as shown on the Company's or such Restricted Subsidiary's
most recent balance sheet or in the notes thereto, excluding
contingent liabilities and trade payables) of the Company or any
Restricted Subsidiary (other than liabilities that are by their terms
subordinated to the Series D Preferred Stock) that are assumed by the
transferee of any such assets and (y) any notes or other obligations
received by the Company or any such Restricted Subsidiary from such
transferee that are promptly, but in no event more than 90 days after
receipt, converted by the Company or such Restricted Subsidiary into
cash (to the extent of the cash received), shall be deemed to be cash
and cash equivalents for purposes of this provision. Any Net Proceeds
from any Asset Sale that are not applied or invested as provided in
the first sentence of this paragraph shall constitute "Excess
Proceeds."
(3) When the aggregate amount of Excess Proceeds exceeds $15.0
million (such date being an "Asset Sale Trigger Date"), the Company
shall make an Offer to all holders of Series D Preferred Stock to
purchase the maximum liquidation preference of the Series D Preferred
Stock then outstanding that may be purchased out of Excess Proceeds,
at an offer price in cash in an amount equal to 100% of liquidation
preference (determined at the date of redemption) thereof to the
Purchase Date plus any accumulated and unpaid dividends to the
Purchase Date in accordance with the procedures set forth in this
Certificate of Designation.
(4) If the liquidation preference of Series D Preferred Stock
surrendered by holders thereof exceeds the amount of Excess Proceeds,
the Company shall select the Series D Preferred Stock to be purchased
on a pro rata basis, by lot or by a method that complies with the
requirements of any stock exchange on which the Series D Preferred
Stock are listed.
(5) Upon completion of an Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero.
(6) Notwithstanding the foregoing, to the extent that any or all
of the Net Proceeds of an Asset Sale is prohibited or delayed by
applicable local law from being repatriated to the United States, the
portion of such Net Proceeds so affected will not be required to be
applied as described in paragraph (e)(ii)(B), but may be retained for
so long, but only for so long, as the applicable local law prohibits
repatriation to the United States. The Company shall promptly take
all reasonable actions required by the applicable local law to permit
such repatriation, and once such repatriation of any affected Net
Proceeds is not prohibited under applicable local law, such
repatriation will be immediately effected and such repatriated Net
Proceeds will be applied in the manner set forth above as if such
Asset Sale have occurred on the date of repatriation
-6-
<PAGE>
(iii) Procedures for Redemption. (A) Within 30 days after any Change
of Control Trigger Date or Asset Sale Trigger Date, Holdings shall mail a
notice to each holder of Series D Preferred Stock at such holder's
registered address stating (i) that an offer ("Offer") is being made
pursuant to paragraph (e)(ii)(A) or (e)(ii)(B), as the case may be, the
length of time the Offer shall remain open and the maximum aggregate
liquidation preference of Series D Preferred Stock that will be accepted
for purchase pursuant to such Offer; (ii) the purchase price for the Series
D Preferred Stock (as set forth in paragraph (e)(ii)(A) or (e)(ii)(B), as
the case may be), the amount of accumulated and unpaid dividends on such
Series D Preferred Stock as of the purchase date, and the purchase date
(which shall be no earlier than 30 days and no later than 40 days from the
date such notice is mailed (the "Purchase Date")); (iii) that any Series D
Preferred Stock not accepted for payment will continue to accumulate
dividends; (iv) that, unless the Company fails to deposit on the Purchase
Date an amount sufficient to purchase all Series D Preferred Stock accepted
by the Company for purchase, dividends shall cease to accrue on such Series
D Preferred Stock after the Purchase Date; (v) that Holders electing to
tender any Series D Preferred Stock or portion thereof will be required to
surrender their Series D Preferred Stock Certificate, with a form entitled
"Option of Holder to Elect Purchase" completed, to the paying agent at the
address specified in the notice prior to the close of business on the
Business Day preceding the Purchase Date, provided that holders electing to
tender only a portion of any Series D Preferred Stock must tender a
liquidation preference of $500 or integral multiples thereof; (vi) that
Holders will be entitled to withdraw their election to tender Series D
Preferred Stock, if the paying agent receives, not later than the close of
business on the third Business Day preceding the Purchase Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the liquidation preference of Series D Preferred Stock delivered
for purchase, and a statement that such holder is withdrawing his election
to have such Series D Preferred Stock purchased; and (vii) that Holders
whose Series D Preferred Stock is accepted for payment in part will be
issued new shares of Series D Preferred Stock equal in liquidation
preference to the unpurchased portion of Series D Preferred Stock
surrendered; provided that only Series D Preferred Stock with a liquidation
preference of $500 or integral multiples thereof will be accepted for
payment in part.
(B) On the Purchase Date for any Offer, the Company shall, to the
extent required by this Certificate of Designation and such Offer, (i) in
the case of an Offer resulting from a Change of Control, accept for payment
all Series D Preferred Stock or portions thereof tendered pursuant to such
Offer and, in the case of an Offer resulting from an Asset Sale, accept for
payment the maximum liquidation preference of Series D Preferred Stock or
portions thereof tendered pursuant to such Offer that can be purchased out
of Excess Proceeds from such Asset Sale, and (ii) deposit with the paying
agent the aggregate purchase price of all Series D Preferred Stock or
portions thereof accepted for payment and any accumulated and unpaid
dividends on such Series D Preferred Stock as of the Purchase Date.
(C) With respect to any Offer, if less than all of the Series D
Preferred Stock tendered pursuant to an Offer are to be purchased by the
Company, the Company shall select on the Purchase Date the Series D
Preferred Stocks or portions thereof to be accepted for
-7-
<PAGE>
payment pro rata, by lot or by a method that complies with the requirements
of any stock exchange on which the Series D Preferred Stock are listed.
(D) Promptly after consummation of an Offer, (i) the paying agent
shall mail (or cause to be transferred by book entry) to each Holder of
Series D Preferred Stock or portions thereof accepted for payment an amount
equal to the purchase price for, plus any accumulated and unpaid dividends
with respect to such Series D Preferred Stock, (ii) with respect to any
tendered Series D Preferred Stock not accepted for payment in whole or in
part, the Company shall return such Series D Preferred Stock to the Holder
thereof, and (iii) with respect to any Series D Preferred Stock accepted
for payment in part, the Company shall authenticate and mail to each such
Holder a new Series D Preferred Stock equal in liquidation preference to
the unpurchased portion of the tendered Series D Preferred Stock.
(E) The Company shall publicly announce the results of the Offer
on or as soon as practicable after the Purchase Date.
(F) The Company shall comply with any tender offer rules under
the Exchange Act which may then be applicable to the Company in connection
with an Offer required to be made by the Company to repurchase the Series
D Preferred Stock as a result of a Change of Control or an Asset Sale. To
the extent that the provisions of any securities laws or regulations
conflict with provisions of this certificate, the Company shall comply with
the applicable securities laws and regulations.
(G) With respect to any Offer, if the Company deposits prior to
l0 a.m. New York City time with the paying agent on the Purchase Date an
amount in available funds sufficient to purchase all Series D Preferred
Stock accepted by the Company for payment, dividends shall cease to
accumulate on such Series D Preferred Stock after the Purchase Date;
provided, however, that if the Company fails to deposit such amount on the
Purchase Date, dividends shall continue to accumulate on such Series D
Preferred Stock until such deposit is made.
(f) Voting Rights.
(i) The Holders of shares of the Series D Preferred Stock, except
as otherwise required under Delaware law or as set forth in paragraphs (ii)
and (iii) below, shall not be entitled or permitted to vote on any matter
required or permitted to be voted upon by the stockholders of the Company.
(ii) (A) Except as set forth in paragraph (b) above, so long as
any shares of the Series D Preferred Stock are outstanding, the Company
shall not authorize any class of Senior Securities or Parity Securities
without the affirmative vote or consent of Holders of at least a majority
of the outstanding shares of Series D Preferred Stock, voting or
consenting, as the case may be, as one class.
-8-
<PAGE>
(B) So long as any shares of the Series D Preferred Stock are
outstanding, the Company shall not amend this Certificate of Designation so
as to affect adversely the specified rights, preferences, privileges or
voting rights of Holders of shares of Series D Preferred Stock or to
authorize the issuance of any additional shares of Series D Preferred Stock
without the affirmative vote or consent of Holders of at least a majority
of the outstanding shares of Series D Preferred Stock, voting or
consenting, as the case may be, separately as one class, given in person or
by proxy, either in writing or by resolution adopted at an annual or
special meeting.
(C) Except as set forth in paragraphs (f)(ii)(A) and (f)(ii)(B)
above, (1) the creation, authorization or issuance of any shares of any
Junior Securities, Parity Securities or Senior Securities, or (2) the
increase or decrease in the amount of authorized capital stock of any
class, including any preferred Stock, shall not require the consent of
holders of Series D Preferred Stock and shall not, unless not complying
with paragraphs (f)(ii)(A) and (f)(ii)(B) above, be deemed to affect
adversely the rights, preferences, privileges or voting rights of holders
of shares of Series D Preferred Stock.
(iii) (A) If (1) dividends on the Series D Preferred Stock are in
arrears and unpaid for two consecutive semi-annual periods; (2) the Company
fails to discharge any redemption obligation of the Series D Preferred
Stock when required; (3) the Company breaches or violates one of the
provisions set forth in paragraph (l) hereof and the breach or violation
continues for a period of 30 days or more; or (4) a default occurs on the
obligation to pay principal of, interest on or any other payment obligation
when due at final maturity on one or more classes of Indebtedness of the
Company or any Subsidiary of the Company, whether such Indebtedness exists
on the Series D Preferred Stock Issue Date or is incurred thereafter,
having individually or in the aggregate an outstanding principal amount of
$10,000,000 or more, or any other Payment Default occurs on one or more
such classes of Indebtedness having individually or in the aggregate an
outstanding principal amount of $10,000,000 or more, and such class or
classes of Indebtedness are declared due and payable prior to their
respective maturities, then, in any such case, the number of directors
constituting the Board of Directors shall be adjusted to permit the Holders
of the majority of the then outstanding Series D Preferred Stock, voting
separately as one class, to elect two directors.
(B) The approval of holders of a majority of the outstanding shares
of Series D Preferred Stock, voting as a separate class, will be required
for any merger, consolidation or sale of assets of the Company, except as
permitted pursuant to paragraph (l)(i) below. Each such event described in
clause (A) above is referred to herein as a "Voting Rights Triggering
Event." Voting rights arising as a result of a Voting Rights Triggering
Event will continue until such time as all dividends in arrears on the
Series D Preferred Stock are paid in full and any failure, breach or
default referred to in clause (A) is remedied.
(g) Exchange. The Company may, at its option, exchange the Series D
Preferred Stock for the Exchange Notes, pursuant to the terms set forth in the
Units. On and after the date of any
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<PAGE>
such exchange, dividends will cease to accrue on the outstanding shares of
Series D Preferred and all rights of the holders of Series D Preferred Stock
(except the right to receive the Exchange Notes) will terminate. The person
entitled to receive the Exchange Notes issuable upon such exchange will be
treated for all purposes as the registered holder of such Exchange Notes.
(h) Conversion or Exchange. The Holders of shares of Series D Preferred
Stock shall not have any rights hereunder to convert such shares into or
exchange such shares for shares of any other class or classes or of any other
series of any class or classes of Capital Stock of the Company.
(i) Preemptive Rights. No shares of Series D Preferred Stock shall have
any rights of preemption whatsoever as to any securities of the Company, or any
warrants, rights or options issued or granted with respect thereto, regardless
of how such securities or such warrants, rights or options may be designated,
issued or granted.
(j) Reissuance of Series D Preferred Stock. Shares of Series D Preferred
Stock that have been issued and reacquired in any manner, including shares
purchased or redeemed or exchanged, shall (upon compliance with any applicable
provisions of the laws of Delaware) have the status of authorized but unissued
shares of preferred stock of the Company undesignated as to series and may be
designated or redesignated and issued or reissued, as the case may be, as part
of any series of preferred stock of the Company, provided that any issuance of
such shares as Series D Preferred Stock must be in compliance with the terms
hereof.
(k) Business Day. If any payment, redemption or exchange shall be required
by the terms hereof to be made on a day that is not a Business Day, such
payment, redemption or exchange shall be made on the immediately succeeding
Business Day.
(1) Certain Additional Provisions.
(i) Merger or Consolidation. Without the consent of Holders of a
majority of the outstanding shares of Series D Preferred Stock, voting as a
separate class, the Company shall not consolidate or merge with or into, or
sell, lease, convey or otherwise dispose of all or substantially all of its
assets to, any Person (any such consolidation, merger or sale being a
"Disposition") unless: (a) the successor corporation of such Disposition or
the Person to which such Disposition shall have been made is a corporation
organized or existing under the laws of the United States, any state
thereof or the District of Columbia; (b) the Series D Preferred Stock shall
be converted into or exchanged for and shall become shares of such
successor, transferee or resulting corporation, having in respect of such
successor, transferee or resulting corporation substantially the same
powers, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereon, that
the Series D Preferred Stock had immediately prior to such Disposition; (c)
immediately after such Disposition, no Voting Rights Triggering Event shall
have occurred and be continuing; (d) the corporation formed by or surviving
any such Disposition, or the corporation to which such Disposition shall
have been made, shall have Consolidated Net Worth (immediately after the
Disposition but prior to giving any pro forma
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<PAGE>
effect to purchase accounting adjustments or Restructuring Charges
resulting from the Disposition) equal to or greater than the Consolidated
Net Worth of the Company immediately preceding the Disposition; and (e)
prior to the consummation of any proposed Disposition, the Company shall
have delivered to the transfer agent and registrar an officers' certificate
and an opinion of counsel to the effect that such Disposition complies with
the terms of this Certificate of Designation and that all conditions
precedent to such Disposition have been satisfied.
(ii) Junior Payments. The Company shall not, directly or indirectly,
(i) declare or pay any dividend or make any distribution on account of any
Junior Securities (other than dividends or distributions payable in Junior
Securities), (ii) purchase, redeem or otherwise acquire or retire for value
any Junior Securities or (iii) make any Restricted Investment (all such
dividends, distributions, purchases, redemptions, acquisitions, retirements
and Restricted Investments being collectively referred to as "Junior
Payments"), if, at the time of such Junior Payment:
(A) a Voting Rights Triggering Event shall have occurred and be
continuing or would occur as a consequence thereof;
(B) immediately after such Junior Payment and after giving
effect thereto on a Pro Forma Basis, the Company shall not be able to
issue $l.00 of additional Indebtedness pursuant to paragraph
(l)(v)(A); or
(C) such Junior Payment, together with the aggregate of all
other Junior Payments made after the Series D Preferred Stock Issue
Date, without duplication, exceeds the sum of: (1) 50% of the
aggregate Consolidated Net Income (including, for this purpose, gains
from Asset Sales and, to the extent not included in Consolidated Net
Income, any gain from a sale or disposition of a Restricted
Investment) of the Company (or, in case such aggregate is a loss, 100%
of such loss) for the period (taken as one accounting period) from the
beginning of the first fiscal quarter commencing immediately after the
Series D Preferred Stock Issue Date and ended as of the Company's most
recently ended fiscal quarter at the time of such Junior Payment; plus
(2) 100% of the aggregate net cash proceeds and the fair market value
of any property or securities, as determined by the Board of Directors
in good faith, received by the Company from the issue or sale of
Equity Interests of the Company or GFSI, Inc. (to the extent
contributed to the Company) subsequent to the Series D Preferred Stock
Issue Date (other than (x) Equity Interests issued or sold to a
Restricted Subsidiary and (y) Disqualified Stock); plus (3) $7.5
million; plus (4) the amount by which the principal amount of and any
accrued interest on either Senior Securities of the Company or any
Restricted Subsidiary is reduced on Holdings' consolidated balance
sheet upon the conversion or exchange (other than by a Restricted
Subsidiary) subsequent to the Series D Preferred Stock Issue Date of
any Indebtedness of the Company or any Restricted Subsidiary (not held
by the Company or any Restricted Subsidiary) for Equity Interests
(other than Disqualified
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<PAGE>
Stock) of the Company (less the amount of any cash, or the fair market
value of any other property or securities (as determined by the Board
of Directors in good faith), distributed by the Company or any
Restricted Subsidiary (to Persons other than GFSI, Inc. or any other
Restricted Subsidiary) upon such conversion or exchange); plus (5) if
any Non-Restricted Subsidiary is redesignated as a Restricted
Subsidiary, the value of the Junior Payment that would result if such
Subsidiary were redesignated as a Non-Restricted Subsidiary at such
time, as determined in accordance with paragraph (l)(v)(A); provided,
however, that for purposes of this clause (5), the value of any
redesignated Non-Restricted Subsidiary shall be reduced by the amount
that any such redesignation replenishes or increases the amount of
Restricted Investments permitted to be made pursuant to clause (B) of
the second paragraph of paragraph (l)(iv).
Notwithstanding the foregoing, this Certificate of Designation shall
not prohibit as Junior Payments:
(A) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would
comply with all of the provisions hereof (including, but not limited
to, this paragraph (l)(ii));
(B) making Restricted Investments at any time, and from time to
time, in an aggregate outstanding amount of $15,000,000 after the
Series D Preferred Stock Issue Date (it being understood that if any
Restricted Investment made after the Series D Preferred Stock Issue
Date pursuant to this clause (B) is sold, transferred or otherwise
conveyed to any Person other than the Company or a Restricted
Subsidiary, the portion of the net cash proceeds or fair market value
of securities or properties paid or transferred to the Company and its
Restricted Subsidiaries in connection with such sale, transfer or
conveyance that relates or corresponds to the repayment or return of
the original cost of such a Restricted Investment will replenish or
increase the amount of Restricted Investments permitted to be made
pursuant to this clause (B), so that up to $15,000,000 of Restricted
Investments may be outstanding under this clause (B) at any given
time); provided that, without otherwise limiting this clause (B), any
Restricted Investment in a Subsidiary made pursuant to this clause (B)
is made for fair market value (as determined by the Board of Directors
in good faith);
(C) the repurchase, redemption or acquisition of the Company's
Stock from the executives, management and employees or consultants of
the Company of its Subsidiaries pursuant to the terms of any
subscription, stockholder or other agreement or plan, up to an
aggregate amount not to exceed $10,000,000;
(D) any loans, advances, distributions or payments from the
Company to its Restricted Subsidiaries, or any loans, advances,
distributions or payments by a Restricted Subsidiary to the Company or
to another Restricted Subsidiary, in each
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<PAGE>
case pursuant to intercompany Indebtedness, intercompany management
agreements, intercompany tax sharing agreements, and other
intercompany agreements and obligations;
(E) the purchase, redemption, retirement or other acquisition
of the Series D Preferred Stock pursuant to paragraph (e) above;
(F) the payment of (a) consulting, financial and investment
banking fees under the TJC Agreement, provided, that no Voting Rights
Triggering Event shall have occurred and be continuing or shall occur
as a consequence thereof, and the Company's obligations to pay such
fees under the TJC Agreement shall be subordinated expressly to the
Company's obligations in respect of the Series D Preferred Stock, and
(b) indemnities, expenses and other amounts under the TJC Agreement;
(G) the redemption, repurchase, retirement or other acquisition
of any equity interests of the Company or any Restricted Subsidiary in
exchange for, or out of the proceeds of, the substantially concurrent
sale (other than to a Subsidiary of the Company) of other equity
interests of the Company or the redemption, repurchase, retirement or
other acquisition of any equity interests of any Restricted Subsidiary
in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to the Company or a Subsidiary of the
Company) of other equity interests of such Restricted Subsidiary;
(H) the defeasance, redemption or repurchase of subordinated
Indebtedness with the net cash proceeds from an issuance of permitted
Refinancing Indebtedness or the substantially concurrent sale (other
than to a Subsidiary of the Company) of equity interests of the
Company;
(I) Restricted Investments received in consideration for the
sale, transfer or disposition of the Company or any Restricted
Subsidiary; provided that the Company complies with paragraph
(e)(ii)(B);
(J) any Restricted Investment constituting securities or
instruments of a person issued in exchange for trade or other claims
against such person in connection with a financial reorganization or
restructuring of such person;
(K) payments and transactions in connection with the Offering,
including, but not limited to the expenses of the Offering;
(L) payments of fees, expenses and indemnities to the directors
of the Company and its Subsidiaries;
(M) payments in respect of the Wolff Noncompetition Agreement;
and
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<PAGE>
(N) shareholder loans in an aggregate principal amount not to
exceed $1.0 million.
(iii) Transactions with Affiliates.
(A) Except as otherwise set forth herein, neither the Company
nor any of its Restricted Subsidiaries shall make any loan, advance,
guarantee or capital contribution to, or for the benefit of, or sell,
lease, transfer or dispose of any properties or assets to, or for the
benefit of, or purchase or lease any property or assets from, or enter
into or amend any contract, agreement or understanding with, or for
the benefit of, an Affiliate (each such transaction or series of
related transactions that are part of a common plan are referred to as
an "Affiliate Transaction"), except in good faith and on terms that
are no less favorable to the Company or the relevant Restricted
Subsidiary than those that would have been obtained in a comparable
transaction on an arm's length basis from an unrelated Person.
(B) The Company shall not, and shall not permit any Restricted
Subsidiary to, engage in any Affiliate Transactions involving
aggregate payments or other transfers by the Company and its
Restricted Subsidiaries in excess of $7,500,000 (including cash and
non-cash payments and benefits valued at their fair market value by
the Board of Directors of the Company in good faith) unless (i) the
Board of Directors of the Company (including a majority of the
disinterested directors, if any) determines, in good faith, that such
Affiliate Transaction complies with the provisions hereof; and (ii)(A)
with respect to any Affiliate Transaction involving the incurrence of
Indebtedness, the company receives a written opinion of
a nationally recognized investment banking or accounting firm
experienced in the review of similar types of transactions, (B) with
respect to any Affiliate Transaction involving the transfer of real
property, fixed assets or equipment, either directly or by a transfer
of 50% or more of the Capital Stock of a Restricted Subsidiary which
holds any such real property, fixed assets or equipment, the Company
receives a written appraisal from a nationally recognized appraiser
experienced in the review of similar types of transactions or (C) with
respect to any Affiliate Transaction not otherwise described in (A)
and (B) above, the Company receives a written certification from a
nationally recognized professional or firm experienced in evaluating
similar types of transactions, in each case, stating that the terms
of such transaction are fair to the Company or such Restricted
Subsidiary, as the case may be, from a financial point of view.
(C) Notwithstanding subparagraphs (iii)(A) and (iii)(B) above,
this paragraph (l)(iii) shall not apply to: (i) transactions between
the Company and any Restricted Subsidiary or between Restricted
Subsidiaries; (ii) payments under the TJC Agreement; (iii) any other
payments or transactions permitted pursuant to paragraph (l)(ii)
above; (iv) (A) payments and transactions under Incentive
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Arrangements and (B) reasonable compensation paid to officers,
employees or consultants of the Company or any Restricted Subsidiary
as determined in good faith by the Company's Board of Directors or
executives; (v) payments and transactions in connection with the
Offering; and (vi) the sale, transfer and/or termination of the
officers' life insurance policies in effect on the Series D Preferred
Stock Issue Date.
(iv) Reports.
(A) So long as Series D Preferred Stock is outstanding, whether
or not the Company is subject to the reporting requirements of Section
13 or 15(d) of the Exchange Act, the Company shall file with the
Commission (unless the Commission will not accept such filing) the
annual reports, quarterly reports and other documents relating to the
Company and its Restricted Subsidiaries that the Company would have
been required to file with the Commission pursuant to Section 13 or
15(d) if the Company were subject to such reporting requirements.
(B) The Company shall provide to the Holders, within 15 days
after it files them with the Commission, copies of the annual
reports, quarterly reports and other documents (or copies of such
portions of any of the foregoing as the Commission may by rules and
regulations prescribe) that the Company is required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act. If the
Company is not subject to the requirements of Section 13 or 15(d) of
the Exchange Act and the Commission will not accept such filing as is
prescribed in Section 4.02(a), the Company shall provide to the
Holders, within 15 days after it would have been required or
permitted, as the case may be, to file with the Commission, financial
statements, including any notes thereto (and with respect to annual
reports, an auditor's report by a firm of established national
reputation), and a "Management's Discussion and Analysis of Financial
Condition and Results of Operations," both comparable to that which
the Company would have been required to include in such annual
reports, quarterly reports and other documents relating to the Company
and its Restricted Subsidiaries if the Company were subject to the
requirements of Section 13 or 15(d) of the Exchange Act.
(C) If the Company is not required to furnish annual or
quarterly reports to its stockholders pursuant to the Exchange Act,
the Company shall cause its financial statements referred to in
paragraph (l)(iv)(A), including any notes thereto (and with respect to
annual reports, an auditors' report by a firm of established national
reputation), and a "Management's Discussion and Analysis of Financial
Condition and Results of Operations," to be so mailed to the Holders
within 120 days after the end of each of the Company's fiscal years
and within 60 days after the end of each of the first three fiscal
quarters of each year. The Company shall cause to be disclosed in a
statement accompanying any annual report or comparable information as
of the date of the most recent financial statements in each such
report or
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comparable information the amount available for payments pursuant to
paragraph (l)(ii).
(D) If the Company is not subject to the requirements of Section
13 or 15(d) of the Exchange Act, for so long as Series D Preferred
Stock remains outstanding, the Company shall furnish to the Holders,
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under
the Securities Act.
(v) Limitation on Incurrence of Indebtedness.
(A) The Company shall not, and shall not permit any Restricted
Subsidiary to, issue any Indebtedness (other than the Indebtedness
represented by the Exchange Notes) unless the Company's Cash Flow
Coverage Ratio for its four full fiscal quarters next preceding the
date such additional Indebtedness is issued would have been at least
1.5 to 1 determined on a Pro Forma Basis (including, for this purpose,
any other Indebtedness incurred since the end of the applicable four
quarter period) as if such additional Indebtedness and any other
Indebtedness issued since the end of such four quarter period had been
issued at the beginning of such four quarter period.
(B) Subparagraph (A) above shall not apply to the issuance of:
(i) Indebtedness of the Company and/or its Restricted Subsidiaries
under the Company's credit facilities in an aggregate principal amount
outstanding on the date of such issuance not to exceed the greater of
(A) $135.0 million and (B) the sum of: (1) 85% of the book value of
accounts receivable of the Company and its Restricted Subsidiaries on
a consolidated basis and (2) 65% of the book value of the inventories
of the Company and its Restricted Subsidiaries; provided that the
aggregate principal amount of Indebtedness outstanding under this
clause (i) together with the aggregate principal amount of
Indebtedness outstanding under clause (iii) below shall not exceed
$160.0 million at any one time outstanding (less the amount of any
permanent reductions as set forth in paragraph (e)(ii)(B)); (ii)
Indebtedness of the Company and its Restricted Subsidiaries in
connection with capital leases, sale and leaseback transactions,
purchase money obligations, capital expenditures or similar financing
transactions relating to: (A) their properties, assets and rights as
of the Series D Preferred Stock Issue Date not to exceed $10.0 million
in aggregate principal amount at any one time outstanding, or (B)
their properties, assets and rights acquired after the Series D
Preferred Stock Issue Date, provided that the aggregate principal
amount of such Indebtedness under this clause (ii)(B) does not exceed
100% of the cost of such properties, assets and rights; (iii)
additional Indebtedness of the Company and its Restricted Subsidiaries
in an aggregate principal amount up to $35.0 million (all or any
portion of which may be issued as additional Indebtedness under the
Company's credit facilities) provided that the aggregate principal
amount of Indebtedness outstanding under this clause (iii)
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together with the aggregate principal amount of Indebtedness
outstanding under clause (i) above shall not exceed $160.0 million at
any one time outstanding (less the amount of any permanent reductions
as set forth in paragraph (e)(ii)(B)); and (iv) Other Permitted
Indebtedness.
(vi) Limitation on Liens. The Company shall not, and shall not
permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur, assume or suffer to exist any Lien, other than Permitted
Liens, upon any property or asset now owned or hereafter acquired by them,
or any income or profits therefrom, or assign or convey any right to
receive income therefrom unless all payments due to the Series D Preferred
Stock are secured on an equal and ratable basis with the obligations so
secured until such time as such obligations are no longer secured by a
Lien.
(vii) Limitation on Dividends and Other Payment Restrictions
Affecting Restricted Subsidiaries.
(A) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective, any
encumbrance or restriction on the ability of any Restricted Subsidiary
to: (i) pay dividends or make any other distributions on its Capital
Stock or any other interest or participation in, or measured by, its
profits, owned by the Company or any Restricted Subsidiary, or pay any
Indebtedness owed to, the Company or any Restricted Subsidiary, (ii)
make loans or advances to the Company, or (iii) transfer any of its
properties or assets to the Company, except for such encumbrances or
restrictions existing under or by reason of: (A) applicable law, (B)
Indebtedness permitted (1) under paragraph (1)(v)(A) and (2) under
clauses (i), (ii) and (iii) of paragraph (1)(v)(B) and clauses (iv),
(vii) and (x) of the definition of "Other Permitted Indebtedness," (C)
customary provisions restricting subletting or assignment of any lease
or license of the Company or any Restricted Subsidiary, (D) customary
provisions of any franchise, distribution or similar agreement, (E)
any instrument governing Indebtedness or preferred stock or any other
encumbrance or restriction of a Person acquired by the Company or any
Restricted Subsidiary at the time of such acquisition, which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, (F) Indebtedness or
other agreements existing on the Series D Preferred Stock Issue Date,
(G) any Refinancing Indebtedness permitted under paragraph (l)(v),
provided that the restrictions contained in the agreements governing
such Refinancing Indebtedness are no more restrictive in any material
respect with regard to the interests of the Holders than those
contained in the agreements governing the Indebtedness being
refinanced, (H) any restrictions, with respect to a Restricted
Subsidiary, imposed pursuant to an agreement that has been entered
into for the sale or disposition of the stock, business, assets or
properties of such Restricted Subsidiary, (I) the terms of purchase
money or capital lease obligations, but only to the extent such
purchase money obligations
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restrict or prohibit the transfer of the property so acquired, or (J)
any instrument governing the sale of assets of the Company or any
Restricted Subsidiary, which encumbrance or restriction applies solely
to the assets of the Company or such Restricted subsidiary being sold
in such transaction.
(B) Nothing contained in this paragraph shall prevent the
Company from entering into any agreement or instrument providing for
the incurrence of Permitted Liens or restricting the sale or other
disposition of property or assets of the Company or any of its
Restricted Subsidiaries that are subject to Permitted Liens.
(viii) Corporate Existence. Subject to paragraphs (e)(ii)(B) and
(l)(i), the Company shall do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence and the
corporate, partnership or other existence of each of its Restricted
Subsidiaries in accordance with the respective organizational documents of
each of its Restricted Subsidiaries and the rights (charter and statutory),
licenses and franchises of the Company and each of its Restricted
Subsidiaries; provided, however, that the Company shall not be required to
preserve any such right, license or franchise, or the corporate,
partnership or other existence of any Restricted Subsidiary, if the Board
of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its Restricted
Subsidiaries taken as a whole, and that the loss thereof is not adverse in
any material respect to the Holders.
(ix) Compliance With Laws, Taxes. The Company shall, and shall cause
each of its Restricted Subsidiaries to, comply with all statutes, laws,
ordinances, or government rules and regulations to which it is subject, the
non-compliance with which would materially adversely affect the business,
prospects, earnings, properties, assets or condition, financial or
otherwise, of the Company and its Restricted Subsidiaries taken as a whole.
The Company shall, and shall cause each of its Restricted Subsidiaries
to, pay prior to delinquency all taxes, assessments and governmental
levies, except those contested in good faith by appropriate proceedings.
(m) Definitions. As used in this Certificate of Designation, the following
terms shall have the following meanings (with terms defined in the singular
having comparable meanings when used in the plural and vice versa), unless the
context otherwise requires:
"Affiliate" means any of the following: (i) any Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Company, (ii) any spouse, immediate family member or other
relative who has the same principal residence as any Person described in clause
(i) above, (iii) any trust in which any such Persons described in clause (i) or
(ii) above has a beneficial interest, and (iv) any corporation or other
organization of which any such Persons described above collectively own 50% or
more of the equity of such entity.
"Business Day" means any day other than a Legal Holiday.
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"Capital Stock" means any and all shares, interests, participations or
other equivalents (however designated) of corporate stock, including any
preferred stock.
"Cash Flow" means, for any given period and Person, the sum of,
without duplication, Consolidated Net Income, plus (a) any provision for taxes
based on income or profits to the extent such income or profits were included in
computing Consolidated Net Income, plus (b) Consolidated Interest Expense, to
the extent deducted in computing Consolidated Net Income, plus (c) the
amortization of all intangible assets, to the extent such amortization was
deducted in computing Consolidated Net Income (including, but not limited to,
inventory write-ups, goodwill, debt and financing costs, and Incentive
Arrangements), plus (d) any non-capitalized transaction costs incurred in
connection with actual or proposed financings, acquisitions or divestitures
(including, but not limited to, financing and refinancing fees, including those
in connection with the transactions contemplated by the Offering), to the extent
deducted in computing Consolidated Net Income, plus (e) all depreciation and all
other non-cash charges (including, without limitation, those charges relating to
purchase accounting adjustments and LIFO adjustments), to the extent deducted in
computing Consolidated Net Income, plus (f) any interest income, to the extent
such income was not included in computing Consolidated Net Income, plus (g) all
dividend payments on preferred stock (whether or not paid in cash) to the extent
deducted in computing Consolidated Net Income, plus (h) any extraordinary or
nonrecurring charge or expense arising out of the implementation of SFAS 106 or
SFAS 109 to the extent deducted in computing Consolidated Net Income, plus (i)
to the extent not covered in clause (d) above, fees paid or payable in respect
of the TJC Agreement to the extent deducted in computing Consolidated Net
Income, plus (j) the net loss of any Person, other than those of a Restricted
Subsidiary, to the extent deducted in computing Consolidated Net Income, plus
(k) net losses in respect of any discontinued operations as determined in
accordance with GAAP, to the extent deducted in computing Consolidated Net
Income, minus (l) the portion of Consolidated Net Income attributable to
minority interests in other Persons, except the amount of such portion received
in cash by the Company or its Restricted Subsidiaries; provided, however, that
if any such calculation includes any period during which an acquisition or sale
of a Person or the incurrence or repayment of Indebtedness occurred, then such
calculation for such period shall be made on a Pro Forma Basis.
"Cash Flow Coverage Ratio" means, for any given period and Person, the
ratio of: (i) Cash Flow to (ii) the sum of Consolidated Interest Expense and all
dividend payments on any series of preferred stock of such Person (except
dividends paid or payable in additional shares of Capital Stock (other than
Disqualified Stock) and except for accrued and unpaid dividends with respect to
the preferred stock outstanding on the Series D Preferred Stock Issue Date), in
each case, without duplication; provided, however, that if any such calculation
includes any period during which an acquisition or sale of a Person or the
incurrence or repayment of Indebtedness occurred, then such calculation for such
period shall be made on a Pro Forma Basis.
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the
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Exchange Act) other than the Principals or their Related Parties, (ii) the
adoption of a plan relating to the liquidation or dissolution of the Company,
(iii) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as defined
above), other than the Principals and their Related Parties, becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under
the Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all Securities that such person has the right to acquire, whether
such right is currently exercisable or is exercisable only upon the occurrence
of a subsequent condition), directly or indirectly, of more than 50% of the
Voting Stock of the Company (measured by voting power rather than number of
shares), (iv) the consummation of the first transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above) becomes the "beneficial owner" (as defined above),
directly or indirectly, of more of the Voting Stock of the Company (measured by
voting power rather than number of shares) than is at the time "beneficially
owned" (as defined above) by the Principals and their Related Parties in the
aggregate, or (v) the first day on which a majority of the members of the Board
of Directors of the Company are not Continuing Directors. For purposes of this
definition, any transfer of an equity interest of an entity that was formed
following the Series D Preferred Stock Issue Date for the purpose of acquiring
Voting Stock of the Company will be deemed to be a transfer of such portion of
such Voting Stock as corresponds to the portion of the equity of such entity
that has been so transferred.
"Commission" means the Securities and Exchange Commission.
"Consolidated Interest Expense" means, for any given period and
Person, the aggregate of the interest expense in respect of all Indebtedness of
such Person and its Restricted Subsidiaries for such period, on a consolidated
basis, determined in accordance with GAAP (including amortization of original
issue discount on any such Indebtedness, all non-cash interest payments, the
interest portion of any deferred payment obligation and the interest component
of capital lease obligations, but excluding amortization of deferred financing
fees if such amortization would otherwise be included in interest expense);
provided, however, that for the purpose of the Cash Flow Coverage Ratio,
Consolidated Interest Expense shall be calculated on a Pro Forma Basis; provided
further that any premiums, fees and expenses (including the amortization
thereof) payable in connection with the Transactions or any other refinancing of
Indebtedness shall be excluded.
"Consolidated Net Income" means, for any given period and Person, the
aggregate of the Net Income of such Person and its Restricted Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that: (a) the Net Income of any Person acquired in a pooling
of interests transaction for any period prior to the date of such acquisition
shall be excluded and (b) Consolidated Net Income of any Person will not
include, without duplication, any deduction for: (i) any increased amortization
or depreciation resulting from the write-up of assets pursuant to Accounting
Principles Board Opinion Nos. 16 and 17, as amended or supplemented from time
to time, (ii) the amortization of all intangible assets (including amortization
attributable to inventory write-ups, goodwill, debt and financing costs, and
Incentive Arrangements), (iii) any non-capitalized transaction costs incurred
in connection with actual or proposed financings, acquisitions or divestitures
(including, but not limited to, financing and
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refinancing fees), (iv) any extraordinary or nonrecurring charges relating to
any premium or penalty paid, write-off of deferred financing costs or other
financial recapitalization charges in connection with redeeming or retiring any
Indebtedness prior to its stated maturity and (v) any Restructuring Charges;
provided, however, that for purposes of determining the Cash Flow Coverage
Ratio, Consolidated Net Income shall be calculated on a Pro Forma Basis.
"Consolidated Net Worth" with respect to any Person means, as of any
date, the consolidated equity of the common stockholders of such Person
(excluding the cumulated foreign currency translation adjustment), all
determined on a consolidated basis in accordance with GAAP, but without any
reduction in respect of the payment of dividends on any series of such Person's
preferred stock if such dividends are paid in additional shares of Capital Stock
(other than Disqualified Stock); provided, however, that Consolidated Net Worth
shall also include, without duplication: (a) the amortization of all write-ups
of inventory, (b) the amortization of all intangible assets (including
amortization of goodwill, debt and financing costs, and Incentive Arrangements),
(c) any non-capitalized transaction costs incurred in connection with
financings, acquisitions or divestitures (including, but not limited to,
financing and refinancing fees), (d) any increased amortization or depreciation
resulting from the write-up of assets pursuant to Accounting Principles
Board Opinion Nos. 16 and 17, as amended and supplemented from time to time, (e)
any extraordinary or nonrecurring charges or expenses relating to any premium or
penalty paid, write-off or deferred financing costs, or other financial
recapitalization charges incurred in connection with redeeming or retiring any
Indebtedness prior to its stated maturity, (f) any Restructuring Charges, and
(g) any extraordinary or non-recurring charge arising out of the implementation
of SFAS 106 or SFAS lO9; provided, however, that Consolidated Net Worth shall
be calculated on a Pro Forma Basis.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the Series D Preferred Stock Issue Date or (ii) was
nominated for election or elected to such Board of Directors with the approval
of a majority of the Continuing Directors who were members of such Board at the
time of such nomination or election.
"Disqualified Stock" means any Capital Stock that by its terms (or by
the terms of any Security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part on, or prior to, the
mandatory redemption date of the Series D Preferred Stock.
"Equity Interests" means Capital Stock or partnership interests or
warrants, options or other rights to acquire Capital Stock or partnership
interests (but excluding (i) any debt Security that is convertible into, or
exchangeable for, Capital Stock or partnership interests, and (ii) any other
Indebtedness or Obligation) provided, however, that Equity Interests will not
include any Incentive Arrangements or obligations or payments thereunder.
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"Equity Offering" means a public or private offering by the Company
and/or its Subsidiaries for cash of Equity Interests and all warrants, options
or other rights to acquire Capital Stock, other than (i) an offering of
Disqualified Stock or (ii) Incentive Arrangements or obligations or payments
thereunder.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Date" means a date on which the Units are exchanged by the
Company for Exchange Notes.
"Exchange Notes" means the Exchange Notes described in
the Offering.
"Hedging Obligations" means, with respect to any Person, the
Obligations of such Persons under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, (ii) foreign exchange
contracts, currency swap agreements or similar agreements, and (iii) other
agreements or arrangements designed to protect such Person against fluctuations,
or otherwise to establish financial hedges in respect of, exchange rates,
currency rates or interest rates.
"Holder" means a holder of shares of Series D Preferred Stock.
"Incentive Arrangements" means any earn-out agreements, stock
appreciation rights, "phantom" stock plans, employment agreements, non-
competition agreements, subscription and stockholders agreements and other
incentive and bonus plans and similar arrangements made in connection with
acquisitions of Persons or businesses by the Company or the Restricted
Subsidiaries or the retention of executives, officers or employees by the
Company or the Restricted Subsidiaries.
"Indebtedness" means, with respect to any Person, any indebtedness,
whether or not: contingent, in respect of borrowed money or evidenced by bonds,
notes, debentures or similar instruments or letters of credit (or reimbursement
agreements in respect thereof) or representing the deferred and unpaid balance
of the purchase price of any property (including pursuant to capital leases),
except any such balance that constitutes an accrued expense or a trade payable,
and any Hedging Obligations, if and to the extent such indebtedness (other than
a Hedging Obligation) would appear as a liability upon a balance sheet of such
Person prepared on a consolidated basis in accordance with GAAP, and also
includes, to the extent not otherwise included, the guarantee of items that
would be included within this definition; provided, however, that "Indebtedness"
will not include any Incentive Arrangements or obligations or payments
thereunder.
"Indenture" means (i) the indenture governing the Company's 11.375%
Subordinated Discount Notes due 2009 and (ii) the indenture governing the
Exchange Notes.
"Investment" means any capital contribution to, or other debt or
equity investment in, any Person.
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"Issue" means create, issue, assume, guarantee, incur or otherwise
become directly or indirectly liable for any Indebtedness or Capital Stock, as
applicable; provided, however, that any Indebtedness or Capital Stock of a
Person existing at the time such Person becomes a Restricted Subsidiary (whether
by merger, consolidation, acquisition or otherwise) shall be deemed to be issued
by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary.
For this definition, the terms "issuing," "issuer," "issuance" and "issued" have
meanings correlative to the foregoing.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, Security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell and any filing of or
agreement to give any financing statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction).
"Marketable Securities" means (a) Government Securities, (b) any
certificate of deposit maturing not more than 270 days after the date of
acquisition issued by, or time deposit of, an Eligible Institution, (c)
commercial paper maturing not more than 270 days after the date of acquisition
of an issuer (other than an Affiliate of the Company) with a rating, at the time
as of which any investment therein is made, of "A-2" (or higher) according to
S&P or "P-2" (or higher) according to Moody's Investors Service, Inc. or
carrying an equivalent rating by a nationally recognized rating agency if both
of the two named rating agencies cease publishing ratings of investments, (d)
any bankers acceptances or money market deposit accounts issued by an Eligible
Institution and (e) any fund investing exclusively in investments of the types
described in clauses (a) through (d) above.
"Net Income" means, with respect to any person, the net income (loss)
of such person, determined in accordance with GAAP excluding, however, any gain
or loss, together with any related provision for taxes, realized in connection
with any Asset Sale (including, without limitation, dispositions pursuant to
sale and leaseback transactions).
"Net Proceeds" means, with respect to any Asset Sale, the aggregate
amount of cash proceeds (including any cash received by way of deferred payment
pursuant to a note receivable issued in connection with such Asset Sale, other
than the portion of such deferred payment constituting interest, and including
any amounts received as disbursements or withdrawals from any escrow or similar
account established in connection with any such Asset Sale, but, in either such
case, only as and when so received) received by the Company or any of its
Restricted Subsidiaries in respect of such Asset Sale, net of: (i) the cash
expenses of such Asset Sale (including, without limitation, the payment of
principal of, and premium, if any, and interest on, Indebtedness required
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to be paid as a result of such Asset Sale (other than the Series D Preferred
Stock) and legal, accounting, management and advisory and investment banking
fees and sales commissions), (ii) taxes paid or payable as a result thereof,
(iii) any portion of cash proceeds that the Company determines in good faith
should be reserved for post-closing adjustments, it being understood and agreed
that on the day that all such post-closing adjustments have been determined, the
amount (if any) by which the reserved amount in respect of such Asset Sale
exceeds the actual post-closing adjustments payable by the Company or any of its
Restricted Subsidiaries shall constitute Net Proceeds on such date, (iv) any
relocation expenses and pension, severance and shutdown costs incurred as a
result thereof, and (v) any deduction or appropriate amounts to be provided by
the Company or any of its Restricted Subsidiaries as a reserve in accordance
with GAAP against any liabilities associated with the asset disposed of in such
transaction and retained by the Company or such Restricted Subsidiary after such
sale or other disposition thereof, including, without limitation, pension and
other post-employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated with
such transaction.
"Non-Restricted Subsidiary" means any Subsidiary of the Company, other
than a Restricted Subsidiary.
"Obligations" means, with respect to any Indebtedness, all principal,
interest, premium, penalties, fees, indemnities, expenses (including legal fees
and expenses), reimbursement obligations and other liabilities payable to the
holder of such Indebtedness under the documentation governing such Indebtedness,
and any other claims of such holder arising in respect of such Indebtedness.
"Offering Circular" means the Offering Circular, dated September 11,
1997, relating to the Offering by the Company.
"Offering" means the Offering of 50,000 exchangeable units consisting
of 11.375% Subordinated Discount Notes due 2009 and Series D Preferred Stock.
"Other Permitted Indebtedness" means: (i) Indebtedness of the Company
and its Restricted Subsidiaries existing as of the Series D Preferred Stock
Issue Date and all related Obligations as in effect on such date; (ii)
Indebtedness of the Company and its Restricted Subsidiaries in respect of
bankers acceptances and letters of credit (including, without limitation,
letters of credit in respect of workers' compensation claims) issued in the
ordinary course of business, or other Indebtedness in respect of reimbursement-
type obligations regarding workers' compensation claims; (iii) Refinancing
Indebtedness, provided that: (A) the principal amount of such Refinancing
Indebtedness shall not exceed the outstanding principal amount of Indebtedness
(including unused commitments) extended, refinanced, renewed, replaced,
substituted or refunded plus any amounts incurred to pay premiums, fees and
expenses in connection therewith, (B) the Refinancing Indebtedness shall have a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of the Indebtedness being extended, refinanced, renewed,
replaced, substituted or refunded; provided, however, that this limitation in
this clause (B) does not apply to Refinancing Indebtedness of Senior Securities,
and (C) in the case of Refinancing
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<PAGE>
Indebtedness of Junior Securities, such Refinancing Indebtedness shall be
subordinated to the Notes at least to the same extent as the Junior Securities
being extended, refinanced, renewed, replaced, substituted or refunded; (iv)
intercompany Indebtedness of and among the Company and its Restricted
Subsidiaries; (v) Indebtedness of the Company and its Restricted Subsidiaries
incurred in connection with making permitted Restricted Payments under clauses
(iii), (iv) (but only to the extent that such Indebtedness is provided by the
Company or a Restricted Subsidiary) or (x) of the second paragraph of paragraph
(1)(ii); (vi) Indebtedness of any Non-Restricted Subsidiary created after the
Series D Preferred Stock Issue Date; provided that such Indebtedness is
nonrecourse to the Company and its Restricted Subsidiaries and the Company and
its Restricted Subsidiaries have no Obligations with respect to such
Indebtedness; (vii) Indebtedness of the Company and its Restricted Subsidiaries
under Hedging Obligations; (viii) Indebtedness of the Company and its Restricted
Subsidiaries arising from the honoring by a bank or other financial institution
of a check, draft or similar instrument inadvertently (except in the case of
daylight overdrafts, which will not be, and will not be deemed to be,
inadvertent) drawn against insufficient funds in the ordinary course of
business; (ix) Indebtedness of the Company and its Restricted Subsidiaries in
connection with performance, surety, statutory, appeal or similar bonds in the
ordinary course of business; (x) Indebtedness of the Company and its Restricted
Subsidiaries in connection with agreements providing for indemnification,
purchase price adjustments and similar obligations in connection with the sale
or disposition of any of their business, properties or assets; (xi) the
guarantee by the Company or any of the Restricted Subsidiaries of Indebtedness
of the Company or a Restricted Subsidiary that was permitted to be incurred by
paragraph (l)(v); and (xii) Indebtedness of any Person at the time it is
acquired as a Restricted Subsidiary, provided that such Indebtedness was not
issued by such Person in connection with or in anticipation of such acquisition.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Principals" means (a) The Jordan Company, Jordan/Zalaznick Capital
Corporation and MCIT PLC, and their respective Affiliates, principals, partners
and employees, family members of any of the foregoing and trusts for the benefit
of any of the foregoing, including, without limitation, Leucadia National
Corporation and Jordan Industries, Inc., and their respective Subsidiaries, (b)
the officers, directors and employees of Holdings on the date of issuance of the
Exchange Notes and their respective Affiliates and family members and trusts for
the benefit of any of the foregoing. For the purpose of the definition of
"Principals," The Jordan Company, Jordan/Zalaznick Capital Corporation and MCIT
PLC shall be deemed to be Affiliates.
"Pro Forma Basis" means, for purposes of determining Consolidated Net
Worth for purposes of paragraph (m)(i) hereof, giving pro forma effect to (x)
any acquisition or sale of a Person, business or asset, related incurrence,
repayment or refinancing of Indebtedness or other related transactions,
including any Restructuring Charges which would otherwise be accounted for as an
adjustment permitted by Regulation S-X under the Securities Act or on a pro
forma basis under GAAP, or (y) any incurrence, repayment or refinancing of any
Indebtedness and the application of the proceeds therefrom, in each case, as if
such acquisition or sale and related transactions,
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<PAGE>
restructurings, consolidations, cost savings, reductions, incurrence, repayment
or refinancing were realized on the first day of the relevant period permitted
by Regulation S-X under the Securities Act or on a pro forma basis under GAAP.
"Redemption Date" with respect to any shares of Series D Preferred
Stock, means the date on which such shares of Series D Preferred Stock are
redeemed by the Company.
"Refinancing Indebtedness" means (i) Indebtedness of the Company
and its Restricted Subsidiaries issued or given in exchange for, or the proceeds
of which are used to, extend, refinance, renew, replace, substitute or refund
any Indebtedness permitted under the Indentures or any Indebtedness issued to so
extend, refinance, renew, replace, substitute or refund such Indebtedness; (ii)
any refinancings of Indebtedness issued under the Company's credit facilities;
and (iii) any additional Indebtedness issued to pay premiums and fees in
connection with clauses (i) and (ii).
"Related Party" with respect to any Principal means (A) any
controlling stockholder, 80% (or more) owned Subsidiary, or spouse or immediate
family member (in the case of an individual) of such Principal or (B) or trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
"Restricted Investment" means any Investment in any Person, provided
that Restricted Investments will not include: (i) Investments in marketable
Securities and other negotiable instruments permitted by this Certificate of
Designation; (ii) any Incentive Arrangements; (iii) Investments in the Company;
or (iv) Investments in any Restricted Subsidiary (provided that any Investment
in a Restricted Subsidiary was made for fair market value (as determined by the
Board of Directors in good faith). The amount of any Restricted Investment shall
be the amount of cash and the fair market value at the time of transfer of all
other property (as determined by the Board of Directors in good faith) initially
invested or paid for such Restricted Investment, plus all additions thereto,
without any adjustments for increases or decreases in value of, or write-ups,
write-downs or write-offs with respect to, such Restricted Investment.
"Restricted Subsidiary" means: (i) any Subsidiary of the Company
existing on the Series D Preferred Stock Issue Date, and (ii) any other
Subsidiary of the Company formed, acquired or existing after the Series D
Preferred Stock Issue Date that is designated as a "Restricted Subsidiary" by
the Company pursuant to a resolution approved by a majority of the Board of
Directors, provided, however, that the term Restricted Subsidiary shall not
include any Subsidiary of the Company that has been redesignated by the Company
pursuant to a resolution approved by a majority of the Board of Directors as a
Non-Restricted Subsidiary in accordance with the terms of the Indenture unless
such Subsidiary shall have subsequently been redesignated a Restricted
Subsidiary in accordance With clause (ii) of this definition.
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<PAGE>
"Series D Preferred Stock Issue Date" means the date on which the
Series D Preferred Stock is originally issued by the Company under this
Certificate of Designation.
"SFAS 106" means Statement of Financial Accounting Standards No. 106.
"SFAS 109" means Statement of Financial Accounting Standards No. 109.
"Stated Maturity" means, with respect to any installment of interest
or principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" of any Person means any entity of which the Equity
Interests entitled to cast at least a majority of the votes that may be cast by
all Equity Interests having ordinary voting power for the election of directors
or other governing body of such entity are owned by such Person (regardless of
whether such Equity Interests are owned directly by such Person or through one
or more Subsidiaries).
"TJC Agreement" means the Management Consulting Agreement among the
Company, GFSI, Inc. and TJC Management Corporation, as in effect on the Series D
Preferred Stock Issue Date.
"Units" means the exchangeable units of the Company consisting of the
11.375% Subordinated Discount Notes due 2009 and Series D Preferred Stock.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect the board of directors.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the then
outstanding principal amount of such Indebtedness into (ii) the sum of the
product(s) obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other requirement payment of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wolff Noncompetition Agreement" means the agreement between the
Company and Robert M. Wolff, relating to certain covenants not to compete with
the business of the Company, as in effect on the Series D Preferred Stock Issue
Date.
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<PAGE>
IN WITNESS WHEREOF, GFSI Holdings, Inc. has caused this Certificate of
Designation to be signed by Douglas Zych, in his capacity as Vice President and
attested to by A. Richard Caputo, Jr. in his capacity as Vice President and
Assistant Secretary, on this 17th day of September 1997.
GFSI HOLDINGS, INC.
By: /s/ Douglas Zych
---------------------
Name: Douglas Zych
Title: Vice President
Attest:
By: /s/ Richard Caputo
-------------------------------
Name: A. Richard Caputo, Jr.
Title: Assistant Secretary
<PAGE>
Exhibit 3.2
BYLAWS
OF
GFSI HOLDINGS, INC.
Offices
-------
1. Registered Office and Registered Agent. The location of the
registered office and the name of the registered agent of the corporation in the
State of Delaware shall be such as shall be determined from time to time by the
board of directors and on file in the appropriate public offices of the State of
Delaware pursuant to applicable provisions of law.
2. Corporate Offices. The corporation may have such other corporate
offices and places of business anywhere within or without the State of Delaware
as the board of directors may from time to time designate or the business of the
corporation may require.
Seal
----
3. Corporate Seal. The corporate seal shall have inscribed thereon
the name of the corporation and the words "Corporate Seal, Delaware". The
corporate seal may be used by causing it or a facsimile thereof to be impressed,
affixed, reproduced or otherwise.
Meeting of Stockholders
-----------------------
4. Place of Meetings. All meetings of the stockholders shall be held
at the offices of the corporation or at such other place either within or
without the State of Delaware as shall be designated from time to time by the
board of directors and stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
5. Annual Meeting. An annual meeting of the stockholders of the
corporation shall be held on the first Tuesday in December of each year,
commencing in 1997, if not a legal holiday, and if a legal holiday, then on the
next secular day follow-
<PAGE>
ing, at 10:00 a.m., or at such other date and time as shall be determined from
time to time by the board of directors and stated in the notice of the meeting.
At the annual meeting the stock holders shall elect directors to serve until the
next annual meeting of the stockholders and until their successors are elected
and qualified, or until their earlier resignation or removal, and shall transact
such other business as may properly be brought before the meeting. The
stockholders may transact such other business as may be desired, whether or not
the same was specified in the notice of the meeting, unless the consideration of
such other business without its having been specified in the notice of the
meeting as one of the purposes thereof is prohibited by law.
6. Special Meetings. Special meetings of the stockholders may be
held for any purpose or purposes, unless otherwise prescribed by statute or by
the certificate of incorporation, and may be called by any officer, by the board
of directors, or by the holders of, or by any officer or stockholder upon the
written request of the holders of, not less than 25 percent of the outstanding
stock entitled to vote at such meeting, and shall be called by any officer
directed to do so by the board of directors or requested to do so in writing by
a majority of the board of directors. Any such written request shall state the
purpose or purposes of the proposed meeting. The "call" and the "notice" of any
such meeting shall be deemed to be synonymous.
7. Voting. At all meetings of stockholders, every stockholder having
the right to vote shall be entitled to vote in person, or by proxy appointed by
an instrument in writing subscribed by such stockholder and bearing a date not
more than three years prior to said meeting, unless said instrument shall
provide for a longer period. Unless otherwise provided by the certificate of
incorporation, each stockholder shall have one vote for each share of stock
entitled to vote at such meeting registered in his name on the books of the
corporation. At all meetings of stockholders, the voting may be by voice vote,
except that, unless otherwise provided by the certificate of incorporation, any
qualified voter may demand a vote by ballot on any matter, in which event such
vote shall be taken by ballot.
8. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of any business, except as otherwise provided by law, by the
certificate of incorporation or by these bylaws. Every decision of a majority in
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<PAGE>
the amount of stock of such quorum shall be valid as a corporate act, except in
those specific instances in which a larger vote is required by law or by the
certificate of incorporation or by these bylaws.
At any meeting at which a quorum shall not be present, the holders of
a majority of the stock present in person or by proxy at such meeting shall have
power successively to adjourn the meeting from time to time to a specified time
and place, without notice to anyone other than announcement at the meeting,
until a quorum shall be present in person or by proxy. At such adjourned meeting
at which a quorum shall be present in person or by proxy, any business may be
transacted which might have been transacted at the original meeting which was
adjourned. If the adjournment is for more than 30 days, or if after adjournment
a new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
9. Stock Ledger. The original or duplicate stock ledger shall be the
only evidence as to who are the stockholders entitled to examine the list
required under Section 10 of these bylaws or the books of the corporation, or to
vote in person or by proxy at any meeting of the stockholders.
10. Stockholders List. The secretary or assistant secretary, who
shall have charge of the stock ledger, shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder
for any purpose germane to the meeting during ordinary business hours for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
11. Notice. Written or printed notice of each meeting of the
stockholders, whether annual or special, stating the place, date, and hour of
the meeting, and, in the case of a special meeting, the purpose or purposes
thereof, shall be given, either personally or by mail, to each stockholder of
record of the corporation entitled to vote at such meeting not less than 10 days
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<PAGE>
nor more than 60 days prior to the meeting. The board of directors may fix in
advance a date, which shall not be more than 60 nor less than 10 days preceding
the date of any meeting of the stockholders, as a record date for the
determination of the stockholders entitled to notice of, and to vote at, any
such meeting and any adjournment thereof; provided, however, that the board of
directors may fix a new record date for any adjourned meeting.
12. Action by Stockholders Without Meeting. Any action required by
law to be taken at any annual or special meeting of stockholders of the
corporation, or any other action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice, and without a vote, if a consent in writing setting forth the action so
taken shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of any taking of corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
Board of Directors
------------------
13. Powers; Number; Term; Qualification. The management of all the
affairs, property, and business of the corporation shall be vested in a board of
directors. Unless required by the certificate of incorporation, directors need
not be stockholders. In addition to the powers and authorities these bylaws and
the certificate of incorporation have expressly conferred upon it, the board of
directors may exercise all such powers of the corporation, and do all such
lawful acts and things as are not by statute or by the certificate of
incorporation or by these bylaws directed or required to be exercised or done by
the stockholders. The number of directors shall be as provided from time to time
by resolution duly adopted by the holders of a majority of the outstanding
shares entitled to vote thereon or by a majority of the whole board of
directors. Each director shall hold office until his successor shall have been
elected and qualified or until his earlier resignation and removal. Each
director, upon his election, shall be deemed to have qualified by filing with
the corporation his written acceptance of such office, which shall be placed in
the minute book, or by his attendance at, or consent to action in lieu of, any
regular or special meeting of directors. Any director may resign at any time by
filing a written resignation with the
4
<PAGE>
secretary of the corporation and, unless a later date is fixed by its terms,
said resignation shall be effective from the filing thereof.
14. Vacancies. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, unless it is otherwise provided in the certificate of
incorporation or bylaws, and the directors so chosen shall hold office until the
next annual election and until their successors are duly elected and qualified,
unless sooner displaced. If there are no directors in office, then an election
of directors may be held in the manner provided by statute.
15. Meetings of the Newly Elected Board. The first meeting of the
members of each newly elected board of directors shall be held (i) at such time
and place either within or without the State of Delaware as shall be suggested
or provided by resolution of the stockholders at the meeting at which such newly
elected board was elected, and no notice of such meeting shall be necessary to
the newly elected directors in order legally to constitute the meeting, provided
a quorum shall be present; or (ii) if not so suggested or provided for by
resolution of the stockholders or if a quorum shall not be present, at such time
and place as shall be consented to in writing by a majority of the newly elected
board of directors, provided that written or printed notice of such meeting
shall be given to each of the other directors in the same manner as provided in
Section 17 of these bylaws with respect to the giving of notice for special
meetings of the board, except that it shall not be necessary to state the
purpose of the meeting in such notice; or (iii) regardless of whether the time
and place of such meeting shall be suggested or provided for by resolution of
the stockholders, at such time and place as shall be consented to in writing by
all of the newly elected directors.
16. Regular Meeting. Regular meetings of the board of directors may
be held without notice at such times and places either within or without the
State of Delaware as shall from time to time be fixed by resolution adopted by
the full board of directors. Any business may be transacted at a regular
meeting.
17. Special Meeting. Special meetings of the board of directors may
be called at any time by the president, any vice president, or the secretary, or
by any two or more of the
5
<PAGE>
directors. The place may be within or without the State of Delaware as
designated in the notice.
18. Notice of Special Meeting. Written or printed notice of each
special meeting of the board of directors, stating the place, day, and hour of
the meeting and the purpose or purposes thereof, shall be mailed to each
director addressed to him at his residence or usual place of business at least
two days before the day on which the meeting is to be held, or shall be sent to
him by telegram, or delivered personally, at least one day before the day on
which the meeting is to be held. The notice may be given by any officer having
authority to call the meeting. "Notice" and "call" with respect to such meetings
shall be deemed to be synonymous. Any meeting of the board of directors shall be
a legal meeting without any notice thereof having been given if all directors
shall be present thereat.
19. Quorum. Unless otherwise required by law, the certificate of
incorporation or these bylaws, a majority of the total number of directors shall
be necessary at all meetings to constitute a quorum for the transaction of
business, and except as may be otherwise provided by law, the certificate of
incorporation or these bylaws, the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the board of
directors.
If at least one-third of the whole board of directors is present at
any meeting at which a quorum is not present, a majority of the directors
present at such meeting shall have power successively to adjourn the meeting
from time to time to a subsequent date, without notice to any director other
than announcement at the meeting. At such adjourned meeting at which a quorum is
present, any business may be transacted which might have been transacted at the
original meeting which was adjourned.
20. Attendance by Telephone. Unless otherwise restricted by the
certificate of incorporation, members of the board of directors, or any
committee designated by the board of directors, may participate in a meeting of
such board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
provision shall constitute presence in person at such meeting.
21. Committees. The board of directors may, by
6
<PAGE>
resolution or resolutions passed by a majority of the whole board, designate one
or more committees, each committee to consist of one or more directors of the
corporation. The board of directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. Any such committee, to the extent
provided in said resolution or resolutions or in these bylaws, shall have and
may exercise all of the powers of the board of directors in the management of
the corporation, and may authorize the seal of the corporation to be affixed to
all papers which may require it; provided, however, that in the absence or
disqualification of any member of such committee or committees, the member or
members thereof present at any meeting and not disqualified from voting, whether
he or they constitute a quorum, may unanimously appoint another member of the
board of directors to act at the meeting in the place of any such absent or
disqualified member. Such committee or committees shall have such name or names
as may be determined from time to time by resolution adopted by the board of
directors. All committees so appointed shall, unless otherwise provided by the
board of directors, keep regular minutes of the transactions of their meetings
and shall cause them to be recorded in books kept for that purpose in the office
of the corporation and shall report the same to the board of directors at its
next meeting. The secretary or an assistant secretary of the corporation may act
as secretary of the committee if the committee so requests.
22. Compensation. The board of directors may, by resolution, fix a
sum to be paid directors for serving as directors of this corporation and may,
by resolution, fix a sum which shall be allowed and paid for attendance at each
meeting of the board of directors and in each case may provide for reimbursement
of expenses incurred by directors in attending each meeting; provided that
nothing herein contained shall be construed to preclude any director from
serving this corporation in any other capacity and receiving his regular
compensation therefor, Members of special or standing committees may be allowed
like compensation for attending committee meetings.
23. Resignation. Any director may resign at any time by giving a
written notice to the chairman of the board of directors, the president, or the
secretary of the corporation. Such resignation shall take effect at the time
specified therein; and unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
7
<PAGE>
24. Indemnification of Directors and Officers. Each person who is or
was a director or officer of the corporation or is or was serving at the request
of the corporation as a director or officer of another corporation (including
the heirs, successors, executors or administrators, or estate of such persons)
shall be indemnified by the corporation as of right to the full extent permitted
or authorized by the laws of the State of Delaware, as now in effect and as
hereafter amended, against any liability, judgment, fine, amount paid in
settlement, cost, and expense (including attorneys' fees) asserted or threatened
against and incurred by such person in his capacity as or arising out of his
status as a director or officer of the corporation or, if serving at the request
of the corporation, as a director or officer of another corporation. The
indemnification provided by this bylaw provision shall not be exclusive of any
other rights to which those indemnified may be entitled under any other bylaws
or under any agreement, vote of stockholders or disinterested directors or
otherwise, and shall not limit in any way any right which the corporation may
have to make different or further indemnification with respect to the same or
different persons or classes of persons.
25. Action by Directors without Meeting. Unless otherwise restricted
by the certificate of incorporation or these bylaws, any action required or
permitted to be taken at any meeting of the board of directors or any committee
thereof may be taken without a meeting if all members of the board of directors
or of such committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the board or
committee.
Officers
--------
26. (a) Officers - Who Shall Constitute. The officers of the
corporation shall consist of a chairman of the board of directors, a president,
one or more vice presidents, a secretary, and a treasurer, each of whom shall be
elected by the board of directors at their first meeting after the annual
meeting of the stockholders. The board of directors may also designate
additional assistant secretaries and assistant treasurers. In the discretion of
the board of directors, the office of chairman of the board of directors may
remain unfilled. The chairman of the board of directors (if any) shall at all
times be, and other officers may be, members of the board of directors. Any
number of offices may be held by the same person.
8
<PAGE>
An officer shall be deemed qualified when he enters upon the duties of
the office to which he has been elected or appointed and furnishes any bond
required by the board; but the board may also require of such person his written
acceptance and promise faithfully to discharge the duties of such office.
(b) Term. Each officer of the corporation shall hold his office at
the pleasure of the board of directors or for such other period as the board may
specify at the time of his election or appointment, or until his death,
resignation, or removal by the board, whichever first occurs. In any event, each
officer of the corporation who is not re-elected or re-appointed at the annual
meeting of the board of directors next succeeding his election or appointment
and at which any officer of the corporation is elected or appointed shall be
deemed to have been removed by the board, unless the board provides otherwise at
the time of his election or appointment.
(c) Other Officers and Agents. The board of directors from time to
time may also appoint such other officers and agents for the corporation as it
shall deem necessary or advisable, each of whom shall serve at the pleasure of
the board or for such period as the board may specify, and shall exercise such
powers, have such titles, and perform such duties as shall be determined from
time to time by the board or by an officer empowered by the board to make such
determinations.
27. President. The president shall be the chief executive officer of
the corporation with such general executive powers and duties of supervision and
management as are usually vested in the office of the chief executive officer of
a corporation and he shall carry into effect all directions and resolutions of
the board of directors. The president shall preside at all meetings of the
stockholders and directors.
The president may execute all bonds, notes, debentures, mortgages, and
other instruments for and in the name of the corporation, and may cause the
corporate seal to be affixed thereto.
Unless the board of directors otherwise provides, the president, or
any person designated in writing by him, shall have full power and authority on
behalf of this corporation (i) to attend and to vote or take action at any
meeting of the holders of securities of corporations in which this corporation
may hold securities, and at such meetings shall possess and may exercise any
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<PAGE>
and all rights and powers incident to being a holder of such securities and
which as the holder thereof this corporation may have possessed and exercised if
present, and (ii) to execute and deliver waivers of notice and proxies for and
in the name of the corporation with respect to any such securities held by this
corporation.
He shall, unless the board of directors otherwise provides, be ex
officio a member of all standing committees.
He shall have such other or further duties and authority as may be
prescribed elsewhere in these bylaws or from time to time by the board of
directors.
28. Vice President. In the absence of the president or in the event
of his disability, inability, or refusal to act, the vice president (or in the
event there be more than one vice president, the vice presidents in the order
designated by the board, or in the absence of any designation, then in the order
of their election) shall perform the duties and exercise the powers of the
president, and shall perform such other duties as the board of directors may
from time to time prescribe.
29. Secretary and Assistant Secretaries. The secretary may attend all
sessions of the board of directors and all meetings of the stockholders, and
shall record or cause to be recorded all votes taken and the minutes of all
proceedings in a minute book of the corporation to be kept for that purpose. He
shall perform like duties for committees when requested to do so by the board of
directors or any such committee.
It shall be the principal responsibility of the secretary to give, or
cause to be given, notice of all meetings of the stockholders and of the board
of directors, but this shall not lessen the authority of others to give such
notice as is authorized elsewhere in these bylaws.
The secretary shall see that all books, records, lists, and
information, or duplicates, required to be maintained in the State of Delaware
or elsewhere, are so maintained.
The secretary shall keep in safe custody the seal of the corporation
and shall have the authority to affix the seal to any instrument requiring it,
and when so affixed, he shall attest the seal by his signature. The board of
directors may give general authority to any other officer to affix the seal of
the corporation
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<PAGE>
and to attest the affixing by his signature.
The secretary shall perform such other duties and have such other
authority as may be prescribed elsewhere in these bylaws or from time to time by
the board of directors or the chief executive officer of the corporation, under
whose direct supervision he shall be.
In the absence of the secretary or in the event of his disability,
inability, or refusal to act, the assistant secretary (or in the event there be
more than one assistant secretary, the assistant secretaries in the order
designated by the board of directors, or in the absence of any designation, then
in the order of their election) may perform the duties and exercise the powers
of the secretary, and shall perform such other duties as the board of directors
may from time to time prescribe.
30. Treasurer and Assistant Treasurers. The treasurer shall have
responsibility for the safekeeping of the funds and securities of the
corporation, shall keep or cause to be kept full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall keep,
or cause to be kept, all other books of account and accounting records of the
corporation. He shall deposit or cause to be deposited all moneys and other
valuable effects in the name and to the credit of the corporation in such
depositories as may be designated by the board of directors or by any officer of
the corporation to whom such authority has been granted by the board of
directors.
He shall disburse, or permit to be disbursed, the funds of the
corporation as may be ordered, or authorized generally, by the board of
directors, and shall render to the chief executive officer of the corporation
and the directors whenever they may require it, an account of all his
transactions as treasurer and of those under his jurisdiction, and of the
financial condition of the corporation.
He shall perform such other duties and shall have such other
responsibility and authority as may be prescribed elsewhere in these bylaws or
from time to time by the board of directors.
He shall have the general duties, powers, and responsibilities of a
treasurer of a corporation.
If required by the board of directors, he shall give the corporation a
bond in a sum and with one or more sureties
11
<PAGE>
satisfactory to the board, for the faithful performance of the duties of his
office, and for the restoration to the corporation, in the case of his death,
resignation, retirement, or removal from office, of all books, papers, vouchers,
money, and other property of whatever kind in his possession or under his
control which belong to the corporation.
In the absence of the treasurer or in the event of his disability,
inability, or refusal to act, the assistant treasurer (or in the event there be
more than one assistant treasurer, the assistant treasurers in the order
designated by the board of directors, or in the absence of any designation, then
in the order of their election) may perform the duties and exercise the powers
of the treasurer, and shall perform such other duties and have such other
authority as the board of directors may from time to time prescribe.
31. Duties of Officers May be Delegated. If any officer of the
corporation be absent or unable to act, or for any other reason that the board
of directors may deem sufficient, the board may delegate for the time being some
or all of the functions, duties, powers, and responsibilities of any officer to
any other officer, or to any other agent or employee of the corporation or other
responsible person, provided a majority of the whole board of directors concurs
therein.
32. Removal. Any officer or agent elected or appointed by the board
of directors, and any employee, may be removed or discharged, with or without
cause, at any time by the affirmative vote of a majority of the board of
directors, but such removal or discharge shall be without prejudice to the
contract rights, if any, of the person so removed or discharged.
33. Salaries. Salaries and other compensation of all elected officers
of the corporation shall be fixed, increased or decreased by the board of
directors, but this power, except as to the salary or compensation of the
president, may, unless prohibited by law, be delegated by the board to the
president, or may be delegated to a committee. Salaries and compensation of all
other appointed officers, agents, and employees of the corporation may be fixed,
increased or decreased by the board of directors, but until action is taken with
respect thereto by the board of directors, the same may be fixed, increased or
decreased by the president or such other officer or officers as may be
designated by the board of directors to do so.
12
<PAGE>
34. Delegation of Authority. The board of directors from time to time
may delegate to the president or other officer or executive employee of the
corporation, authority to hire, discharge, fix, and modify the duties, salary,
or other compensation of employees of the corporation under their jurisdiction,
and the board may delegate to such officer or executive employee similar
authority with respect to obtaining and retaining for the corporation the
services of attorneys, accountants, and other experts.
Stock
-----
35. Certificates. Certificates of stock shall be issued in numerical
order, and each stockholder shall be entitled to a certificate signed by the
president or a vice president, and by the treasurer or an assistant treasurer or
the secretary or an assistant secretary, certifying to the number of shares
owned by the stockholder. Any or all of the signatures on the certificate may be
a facsimile. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, such certificate may nevertheless be issued by the corporation with the
same effect as if such officer, transfer agent, or registrar who signed such
certificate, or whose facsimile signature shall have been placed thereon, had
not ceased to be such officer, transfer agent, or registrar of the corporation.
36. Transfer. Transfers of stock shall be made only upon the transfer
books of the corporation, kept at the office of the corporation or respective
transfer agents designated to transfer the several classes of stock, and before
a new certificate is issued the old certificate shall be surrendered for
cancellation. Until and unless the board of directors appoints some other
person, firm, or corporation as its transfer agent or transfer clerk (and upon
the revocation of any such appointment, thereafter until a new appointment is
similarly made) the secretary of the corporation shall be the transfer agent or
transfer clerk of the corporation without the necessity of any formal action of
the board, and the secretary, or any person designated by him, shall perform all
of the duties thereof.
37. Registered Stockholders. Registered stockholders only shall be
entitled to be treated by the corporation as the holders and owners in fact of
the shares standing in their
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<PAGE>
respective names and the corporation shall not be bound to recognize any
equitable or other claim to or interest in such shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
expressly provided by the laws of the State of Delaware.
38. Lost Certificates. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation, alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate or certificates to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificate or
certificates, or his legal representative, to give the corporation and its
transfer agents and registrars, if any, a bond in such sum as it may direct to
indemnify it against any claim that may be made against it with respect to the
certificate or certificates alleged to have been lost, stolen, or destroyed.
39. Regulations. The board of directors shall have power and
authority to make all such rules and regulations as it may deem expedient
concerning the issue, transfer, conversion, and registration of certificates for
shares of the capital stock of the corporation, not inconsistent with the laws
of the State of Delaware, the certificate of incorporation of the corporation
and these bylaws.
40. Fixing Record Date. In order that the corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion, or exchange of stock or for the purpose of
any other lawful action, the board of directors may fix, in advance, a record
date, which shall not be more than 60 nor less than 10 days before the date of
such meeting, nor more than 60 days prior to any other action. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting except that the board
of directors may fix a new record date for the adjourned meeting.
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Dividends and Finance
---------------------
41. Dividends. Dividends upon the outstanding shares of the
corporation, subject to the provisions of the certificate of incorporation and
of any applicable law and of these bylaws, may be declared by the board of
directors at any meeting. Subject to such provisions, dividends may be paid in
cash, in property, or in shares of the capital stock of the corporation.
42. Moneys. The moneys of the corporation shall be deposited in the
name of the corporation in such bank or banks or trust company or trust
companies as the board of directors shall designate, and shall be drawn out only
by check signed by persons designated by resolution adopted by the board of
directors, except that the board of directors may delegate said powers in the
manner hereinafter provided in this Section 42 of these bylaws. The board of
directors may by resolution authorize an officer or officers of the corporation
to designate any bank or banks or trust company or trust companies in which
moneys of the corporation may be deposited, and to designate the person or
persons who may sign checks drawn on any particular bank account or bank
accounts of the corporation, whether created by direct designation of the board
of directors or by an authorized officer or officers as aforesaid.
43. Fiscal Year. The board of directors shall have power to fix and
from time to time change the fiscal year of the corporation. In the absence of
action by the board of directors, however, the fiscal year of the corporation
shall end each year on the date which the corporation treated as the close of
its first fiscal year, until such time, if any, as the fiscal year shall be
changed by the board of directors.
Books and Records
-----------------
44. Books, Accounts, and Records. The books, accounts, and records of
the corporation, except as may be otherwise required by the laws of the State of
Delaware, may be kept outside the State of Delaware, at such place or places as
the board of directors from time to time determine. The board of directors shall
determine whether, to what extent and the conditions upon which the accounts and
books of the corporation, or any of them, shall be open to the inspection of the
stockholders, and no stockholder shall have any right to inspect any account or
book or document of the corporation, except as conferred by law or by resolution
of the stockholders.
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Notice
------
45. Provisions. Whenever the provisions of the statutes of the State
of Delaware, the certificate of incorporation or these bylaws require notice to
be given to any director, officer, or stockholder, they shall not be construed
to required actual personal notice. Notice by mail may be given in writing by
depositing the same in a post office or letter box, in a post paid, sealed
wrapper, addressed to such director, officer, or stockholder at his or her
address as the same appears in the books of the corporation, and the time when
the same shall be mailed shall be deemed to be the time of the giving of such
notice. If notice be given by telegraph, such notice shall be deemed to be given
when the same is delivered to the telegraph company.
46. Waiver. Whenever any notice is required to be given under the
provisions of the statutes of the State of Delaware or of the certificate of
incorporation or of these bylaws, a waiver thereof in writing, signed by the
person or persons entitled to said notice whether before or after the time
stated therein, shall be deemed equivalent to notice. Attendance of a person at
a meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting need be specified in any written
waiver of notice unless so required by the certificate of incorporation or the
bylaws.
Amendments
----------
47. Amendments. These bylaws may be altered, amended or repealed by
the affirmative vote of a majority of the shares of stock issued and outstanding
and entitled to vote thereon, or, if the certificate of incorporation so
provides, by the board of directors at any meeting thereof.
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Exhibit 4.1
Execution Copy
================================================================================
GFSI Holdings, Inc.
________________________________________
Series A and Series B
11-3/8% Senior Discount Notes due 2009
________________________________________
___________________
INDENTURE
DATED AS OF SEPTEMBER 17, 1997
___________________
State Street Bank and Trust Company
Trustee
================================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
<TABLE>
<S> <C>
Section 1.01. Definitions........................................ 1
Section 1.02. Other Definitions.................................. 12
Section 1.03. Incorporation by Reference of Trust Indenture Act.. 13
Section 1.04. Rules of Construction.............................. 13
ARTICLE 2
THE NOTES
Section 2.01. Form and Dating.................................... 13
Section 2.02. Execution and Authentication....................... 14
Section 2.03. Registrar and Paying Agent......................... 14
Section 2.04. Paying Agent to Hold Money in Trust................ 15
Section 2.05. Holder Lists....................................... 15
Section 2.06. Transfer and Exchange.............................. 15
Section 2.07. Replacement Notes.................................. 21
Section 2.08. Outstanding Notes.................................. 21
Section 2.09. Treasury Notes..................................... 21
Section 2.10. Temporary Notes.................................... 22
Section 2.11. Cancellation....................................... 22
Section 2.12. Defaulted Interest................................. 22
Section 2.13. Record Date........................................ 22
Section 2.14. CUSIP Number....................................... 22
ARTICLE 3
OPTIONAL REDEMPTION AND MANDATORY OFFERS TO PURCHASE
Section 3.01. Notices to Trustee................................. 23
Section 3.02. Selection of Notes to be Redeemed or Purchased..... 23
Section 3.03. Notice of Redemption............................... 24
Section 3.04. Effect of Notice of Redemption..................... 25
Section 3.05. Deposit of Redemption Price........................ 25
Section 3.06. Notes Redeemed in Part............................. 25
Section 3.07. Optional Redemption Provisions..................... 25
Section 3.08. Mandatory Purchase Provisions...................... 26
ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes................................... 27
Section 4.02. SEC Reports........................................ 28
Section 4.03. Compliance Certificate............................. 29
Section 4.04. Stay, Extension and Usury Laws..................... 29
Section 4.05. Limitation on Restricted Payments.................. 29
Section 4.06. Corporate Existence................................ 32
Section 4.07. Limitation on Incurrence of Indebtedness........... 32
Section 4.08. Limitation on Transactions With Affiliates......... 33
Section 4.09. Limitation on Liens................................ 33
Section 4.10. Compliance With Laws, Taxes........................ 34
</TABLE>
i
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<TABLE>
<CAPTION>
<S> <C>
Section 4.11. Limitation on Dividends and Other Payment
Restrictions Affecting Restricted Subsidiaries............... 34
Section 4.12. Maintenance of Office or Agencies............................ 34
Section 4.13. Change of Control............................................ 35
Section 4.14. Limitation on Asset Sales.................................... 35
Section 4.15. Designation of Restricted and Non-Restricted Subsidiaries.... 36
ARTICLE 5
SUCCESSORS
Section 5.01. Merger or Consolidation...................................... 37
Section 5.02. Successor Corporation Substituted............................ 38
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default............................................ 38
Section 6.02. Acceleration................................................. 40
Section 6.03. Other Remedies............................................... 40
Section 6.04. Waiver of Past Defaults...................................... 41
Section 6.05. Control by Majority.......................................... 41
Section 6.06. Limitation on Suits.......................................... 41
Section 6.07. Rights of Holders to Receive Payment......................... 41
Section 6.08. Collection Suit by Trustee................................... 41
Section 6.09. Trustee May File Proofs of Claim............................. 42
Section 6.10. Priorities................................................... 42
Section 6.11. Undertaking for Costs........................................ 42
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee............................................ 43
Section 7.02. Rights of Trustee............................................ 44
Section 7.03. Individual Rights of Trustee................................. 44
Section 7.04. Trustee's Disclaimer......................................... 44
Section 7.05. Notice to Holders of Defaults and Events of Default.......... 44
Section 7.06. Reports by Trustee to Holders................................ 45
Section 7.07. Compensation and Indemnity................................... 45
Section 7.08. Replacement of Trustee....................................... 46
Section 7.09. Successor Trustee by Merger, Etc............................. 46
Section 7.10. Eligibility; Disqualification................................ 47
Section 7.11. Preferential Collection of Claims Against Holdings........... 47
ARTICLE 8
DISCHARGE OF INDENTURE
Section 8.01. Discharge of Liability on Notes; Defeasance.................. 47
Section 8.02. Conditions to Defeasance..................................... 48
Section 8.03. Application of Trust Money................................... 49
Section 8.04. Repayment to Holdings........................................ 49
Section 8.05. Indemnity for Government Obligations......................... 49
Section 8.06. Reinstatement................................................ 49
</TABLE>
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<TABLE>
ARTICLE 9
AMENDMENTS
<S> <C>
Section 9.01. Amendments and Supplements Permitted Without Consent of Holders... 50
Section 9.02. Amendments and Supplements Requiring Consent of Holders........... 50
Section 9.03. Compliance with TIA............................................... 51
Section 9.04. Revocation and Effect of Consents................................. 51
Section 9.05. Notation on or Exchange of Notes.................................. 51
Section 9.06. Trustee Protected................................................. 52
ARTICLE 10
MISCELLANEOUS
Section 10.01. Trust Indenture Act Controls...................................... 52
Section 10.02. Notices........................................................... 52
Section 10.03. Communication by Holders with Other Holders....................... 53
Section 10.04. Certificate and Opinion as to Conditions Precedent................ 53
Section 10.05. Statements Required in Certificate or Opinion..................... 53
Section 10.06. Rules by Trustee and Agents....................................... 54
Section 10.07. Legal Holidays.................................................... 54
Section 10.08. No Recourse Against Others........................................ 54
Section 10.09. Counterparts...................................................... 54
Section 10.10. Variable Provisions............................................... 54
Section 10.11. Governing Law..................................................... 55
Section 10.12. No Adverse Interpretation of Other Agreements..................... 55
Section 10.13. Successors........................................................ 55
Section 10.14. Severability...................................................... 55
Section 10.15. Table of Contents, Headings, Etc.................................. 55
EXHIBITS
Exhibit A Form of Note...................................................... A-1
Exhibit B Certificate of Transferor......................................... B-1
Exhibit C Certificate of Regulation S Transferor............................ C-1
</TABLE>
iii
<PAGE>
This Indenture, dated as of September 17, 1997, is between GFSI Holdings,
Inc., a Delaware corporation ("Holdings"), and State Street Bank and Trust
Company, as trustee (the "Trustee").
Each party agrees as follows for the benefit of the other party and for the
equal and ratable benefit of the holders of Holding's 11 3/8% Series A Senior
Discount Notes due 2009 (the "Series A Notes") and Holdings' 11 3/8% Series B
Senior Discount notes due 2009 (the "Series B Notes" and, together with the
Series A Notes, the "Notes").
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01 Definitions
"Accreted Value" means, as of any date of determination prior to September
15, 2004, the sum of (a) the initial offering price of each Note and (b) that
portion of the excess of the principal amount of each Note over such initial
offering price as shall have been accreted thereon through such date, such
amount to be so accreted on a daily basis at the rate of 11 3/8% per annum of
the initial offering price of the Notes, compounded semi-annually on each
September 15, and each March 15, from the date of issuance of the Notes through
the date of determination computed on the basis of a 360-day year of twelve
30-day months. The Accreted Value of any Notes on or after September 15, 2004
shall be 100% of the principal amount thereof.
"Affiliate" means any of the following: (i) any Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with Holdings, (ii) any spouse, immediate family member or other
relative who has the same principal residence as any Person described in clause
(i) above, (iii) any trust in which any such Persons described in clause (i) or
(ii) above has a beneficial interest and (iv) any corporation or other
organization of which any such Persons described above collectively own 50% or
more of the equity of such entity, provided, however that MCIT PLC shall not be
deemed an Affiliate of Holdings.
"Affiliated Embroiderers" means the affiliated entities that provide
embroidery services for the Company as of the date of this Indenture.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Asset Sale" means the sale, lease, conveyance or other disposition by
Holdings or a Restricted Subsidiary of assets or property whether owned on the
date of original issuance of the Notes or thereafter acquired, in a single
transaction or in a series of related transactions; provided that Asset Sales
will not include such sales, leases, conveyances or dispositions in connection
with (i) the sale or disposition of any Restricted Investment, (ii) any Equity
Offering by Holdings, (iii) the surrender or waiver of contract rights or the
settlement, release or surrender of contract, tort or other claims of any kind,
(iv) the sale or lease of inventory, equipment, accounts receivable or other
assets in the ordinary course of business, (v) a sale-leaseback of assets within
one year following the acquisition of such assets, (vi) the grant of any license
of patents, trademarks, registration therefor and other similar intellectual
property, (vii) a transfer of assets by Holdings or a Restricted Subsidiary to
Holdings or a Restricted Subsidiary, (viii) the designation of a Restricted
Subsidiary as a Non-Restricted Subsidiary pursuant to Section 4.15, (ix) the
sale, lease, conveyance or other disposition of all or substantially all of the
assets of Holdings as permitted under Section 5.01, (x) the sale or disposition
of obsolete equipment or other obsolete assets, (xi) Restricted Payments
permitted by Section 4.05, (xii) the exchange of assets for other non-cash
assets that (a) are useful in the business of Holdings and its Restricted
Subsidiaries and (b) have a fair market value at least equal to the fair market
value of the assets being exchanged (as determined by the Board
<PAGE>
of Directors in good faith), or (xiii) the sale, transfer and/or termination of
the officers' life insurance policies in effect on the date of this Indenture.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state
law for the relief of debtors.
"Board of Directors" means Holdings' board of directors or any authorized
committee of such board of directors.
"Business Day" means any day other than a Legal Holiday.
"Capital Stock" means any and all shares, interests, participations or
other equivalents (however designated) of corporate stock, including any
preferred stock.
"Cash Flow" means, for any given period and Person, the sum of, without
duplication, Consolidated Net Income, plus (a) any provision for taxes based on
income or profits to the extent such income or profits were included in
computing Consolidated Net Income, plus (b) Consolidated Interest Expense, to
the extent deducted in computing Consolidated Net Income, plus (c) the
amortization of all intangible assets, to the extent such amortization was
deducted in computing Consolidated Net Income (including, but not limited to,
inventory write-ups, goodwill, debt and financing costs, and Incentive
Arrangements), plus (d) any non-capitalized transaction costs incurred in
connection with actual or proposed financings, acquisitions or divestitures
(including, but not limited to, financing and refinancing fees, including those
in connection with the Transactions), to the extent deducted in computing
Consolidated Net Income, plus (e) all depreciation and all other non-cash
charges (including, without limitation, those charges relating to purchase
accounting adjustments and LIFO adjustments), to the extent deducted in
computing Consolidated Net Income, plus (f) any interest income, to the extent
such income was not included in computing Consolidated Net Income, plus (g) all
dividend payments on preferred stock (whether or not paid in cash) to the extent
deducted in computing Consolidated Net Income, plus (h) any extraordinary or
nonrecurring charge or expense arising out of the implementation of SFAS 106 or
SFAS 109 to the extent deducted in computing Consolidated Net Income, plus (i)
to the extent not covered in clause (d) above, fees paid or payable in respect
of the TJC Agreement to the extent deducted in computing Consolidated Net
Income, plus (j) the net loss of any Person, other than those of a Restricted
Subsidiary, to the extent deducted in computing Consolidated Net Income, plus
(k) net losses in respect of any discontinued operations as determined in
accordance with GAAP, to the extent deducted in computing Consolidated Net
Income, minus (l) the portion of Consolidated Net Income attributable to
minority interests in other Persons, except the amount of such portion received
in cash by Holdings or its Restricted Subsidiaries; provided, however, that if
any such calculation includes any period during which an acquisition or sale of
a Person or the incurrence or repayment of Indebtedness occurred, then such
calculation for such period shall be made on a Pro Forma Basis.
"Cash Flow Coverage Ratio" means, for any given period and Person, the
ratio of: (i) Cash Flow to (ii) the sum of Consolidated Interest Expense and all
dividend payments on any series of preferred stock of such Person (except
dividends paid or payable in additional shares of Capital Stock (other than
Disqualified Stock) and except for accrued and unpaid dividends with respect to
the Holdings Preferred Stock outstanding on the date of this Indenture), in each
case, without duplication; provided, however, that if any such calculation
includes any period during which an acquisition or sale of a Person or the
incurrence or repayment of Indebtedness occurred, then such calculation for such
period shall be made on a Pro Forma Basis.
2
<PAGE>
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of Holdings and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act) other than the Principals or their Related Parties, (ii) the adoption of a
plan relating to the liquidation or dissolution of Holdings, (iii) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" (as defined above),
other than the Principals and their Related Parties, becomes the "beneficial
owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
currently exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or indirectly, of more than 50% of the Voting Stock of
Holdings (measured by voting power rather than number of shares), (iv) the
consummation of the first transaction (including, without limitation, any merger
or consolidation) the result of which is that any "person" (as defined above)
becomes the "beneficial owner" (as defined above), directly or indirectly, of
more of the Voting Stock of Holdings (measured by voting power rather than
number of shares) than is at the time "beneficially owned" (as defined above) by
the Principals and their Related Parties in the aggregate, (v) the first day on
which a majority of the members of the Board of Directors of Holdings are not
Continuing Directors or (vi) the first day on which Holdings ceases to be the
owner of record of 100% of the Voting Stock of the Company. For purposes of this
definition, any transfer of an equity interest of an entity that was formed
following the date of issuance of the Notes for the purpose of acquiring Voting
Stock of Holdings will be deemed to be a transfer of such portion of such Voting
Stock as corresponds to the portion of the equity of such entity that has been
so transferred.
"Company" means GFSI, Inc. a Delaware corporation and a wholly owned
Subsidiary of Holdings.
"Consolidated Interest Expense" means, for any given period and Person, the
aggregate of the interest expense in respect of all Indebtedness of such Person
and its Restricted Subsidiaries for such period, on a consolidated basis,
determined in accordance with GAAP (including amortization of original issue
discount on any such Indebtedness, all non-cash interest payments, the interest
portion of any deferred payment obligation and the interest component of capital
lease obligations, but excluding amortization of deferred financing fees if such
amortization would otherwise be included in interest expense); provided,
however, that for the purpose of the Cash Flow Coverage Ratio, Consolidated
Interest Expense shall be calculated on a Pro Forma Basis; provided further that
any premiums, fees and expenses (including the amortization thereof) payable in
connection with the Transactions or any other refinancing of Indebtedness shall
be excluded.
"Consolidated Net Income" means, for any given period and Person, the
aggregate of the Net Income of such Person and its Restricted Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that: (a) the Net Income of any Person acquired in a pooling
of interests transaction for any period prior to the date of such acquisition
shall be excluded and (b) Consolidated Net Income of any Person will not
include, without duplication, any deduction for: (i) any increased amortization
or depreciation resulting from the write-up of assets pursuant to Accounting
Principles Board Opinion Nos. 16 and 17, as amended or supplemented from time to
time, (ii) the amortization of all intangible assets (including amortization
attributable to inventory write-ups, goodwill, debt and financing costs, and
Incentive Arrangements), (iii) any non-capitalized transaction costs incurred in
connection with actual or proposed financings, acquisitions or divestitures
(including, but not limited to, financing and refinancing fees), (iv) any
extraordinary or nonrecurring charges relating to any premium or penalty paid,
write-off of deferred financing costs or other financial recapitalization
charges
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in connection with redeeming or retiring any Indebtedness prior to its stated
maturity and (v) any Restructuring Charges; provided, however, that for purposes
of determining the Cash Flow Coverage Ratio, Consolidated Net Income shall be
calculated on a Pro Forma Basis.
"Consolidated Net Worth" with respect to any Person means, as of any date,
the consolidated equity of the common stockholders of such Person (excluding the
cumulated foreign currency translation adjustment), all determined on a
consolidated basis in accordance with GAAP, but without any reduction in respect
of the payment of dividends on any series of such Person's preferred stock if
such dividends are paid in additional shares of Capital Stock (other than
Disqualified Stock); provided, however, that Consolidated Net Worth shall also
include, without duplication: (a) the amortization of all write-ups of
inventory, (b) the amortization of all intangible assets (including amortization
of goodwill, debt and financing costs, and Incentive Arrangements), (c) any non-
capitalized transaction costs incurred in connection with actual or proposed
financings, acquisitions or divestitures (including, but not limited to,
financing and refinancing fees), (d) any increased amortization or depreciation
resulting from the write-up of assets pursuant to Accounting Principles Board
Opinion Nos. 16 and 17, as amended and supplemented from time to time, (e) any
extraordinary or nonrecurring charges or expenses relating to any premium or
penalty paid, write-off of deferred financing costs or other financial
recapitalization charges incurred in connection with redeeming or retiring any
Indebtedness prior to its stated maturity, (f) any Restructuring Charges and (g)
any extraordinary or non-recurring charge arising out of the implementation of
SFAS 106 or SFAS 109; provided, however, that Consolidated Net Worth shall be
calculated on a Pro Forma Basis.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of Holdings who (i) was a member of such Board of
Directors on the date of this Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Corporate Trust Office" of the Trustee means, the corporate trust
administration office of the Trustee at which the trust created by this
Indenture is administered.
"Credit Facilities" means, with respect to Holdings and its Restricted
Subsidiaries, one or more debt facilities or commercial paper facilities with
banks or other institutional lenders providing for revolving credit loans, term
loans, receivables financing (including through the sale of receivables to such
lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Definitive Notes" means Notes that are in the form of Exhibit A attached
hereto (but without including the text referred to in footnotes 1 and 2
thereto).
"Depositary" means, with respect to the Notes issuable or issued in whole
or in part in global form, the Person specified in Section 2.03 hereof as the
Depositary with respect to the Notes, until a successor shall have been
appointed and become such pursuant to Section 2.06 of this Indenture, and,
thereafter, "Depositary" shall mean or include such successor.
"Disqualified Stock" means any Capital Stock that by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures
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or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the option of the holder thereof, in whole or in
part on, or prior to, the maturity date of the Notes.
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500,000,000 or its equivalent in
foreign currency, whose debt is rated "A" (or higher) according to S&P or
Moody's at the time as of which any investment or rollover therein is made.
"Equity Interests" means Capital Stock or partnership interests or
warrants, options or other rights to acquire Capital Stock or partnership
interests (but excluding (i) any debt security that is convertible into, or
exchangeable for, Capital Stock or partnership interests and (ii) any other
Indebtedness or Obligation); provided, however, that Equity Interests will not
include any Incentive Arrangements or obligations or payments thereunder.
"Equity Offering" means a public or private offering by Holdings or the
Company, as applicable, for cash of Equity Interests and all warrants, options
or other rights to acquire Capital Stock, other than (i) an offering of
Disqualified Stock or (ii) Incentive Arrangements or obligations or payments
thereunder.
"Exchange Offer" means the offer by Holdings to Holders to exchange Series
B Notes for Series A Notes.
"GAAP" means generally accepted accounting principles, consistently
applied, as of the date of original issuance of the Notes. All financial and
accounting determinations and calculations under the Indenture will be made in
accordance with GAAP.
"Global Note" means a Note that contains the paragraph referred to in
footnote 1 and the additional schedule referred to in footnote 2 to the form of
the Note attached hereto as Exhibit A.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Hedging Obligations" means, with respect to any Person, the Obligations of
such Persons under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements, (ii) foreign exchange contracts,
currency swap agreements or similar agreements and (iii) other agreements or
arrangements designed to protect such Person against fluctuations, or otherwise
to establish financial hedges in respect of, exchange rates, currency rates or
interest rates.
"Holder" means a Person in whose name a Note is registered.
"Incentive Arrangements" means any earn-out agreements, stock appreciation
rights, "phantom" stock plans, employment agreements, non-competition
agreements, subscription and stockholders agreements and other incentive and
bonus plans, including the Incentive Compensation Plan, and similar arrangements
made in connection with acquisitions of Persons or businesses by Holdings or the
Restricted Subsidiaries or the retention of consultants, executives, officers or
employees by Holdings or its Restricted Subsidiaries.
"Indebtedness" means, with respect to any Person, any indebtedness, whether
or not contingent, in respect of borrowed money or evidenced by bonds, notes,
debentures or similar instruments or letters of credit (or reimbursement
agreements in respect thereof) or representing the deferred and unpaid balance
of the purchase price of any property (including pursuant to capital leases),
except any such
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balance that constitutes an accrued expense or a trade payable, and any Hedging
Obligations, if and to the extent such indebtedness (other than a Hedging
Obligation) would appear as a liability upon a balance sheet of such Person
prepared on a consolidated basis in accordance with GAAP and also includes, to
the extent not otherwise included, the guarantee of items that would be included
within this definition; provided, however, that "Indebtedness" will not include
any Incentive Arrangements or obligations or payments thereunder.
"Indenture" means this Indenture, as amended or supplemented from time to
time.
"Initial Purchaser" means Donaldson, Lufkin & Jenrette Securities
Corporation.
"Insolvency or Liquidation Proceeding" means (i) any insolvency or
bankruptcy or similar case or proceeding, or any reorganization, receivership,
liquidation, dissolution or winding up of Holdings, whether voluntary or
involuntary, or (ii) any assignment for the benefit of creditors or any other
marshaling of assets and liabilities of Holdings.
"Investment" means any capital contribution to, or other debt or equity
investment in, any Person.
"issue" means create, issue, assume, guarantee, incur or otherwise become
directly or indirectly liable for any Indebtedness or Capital Stock, as
applicable; provided, however, that any Indebtedness or Capital Stock of a
Person existing at the time such Person becomes a Restricted Subsidiary (whether
by merger, consolidation, acquisition, redesignation of a Non-Restricted
Subsidiary or otherwise) shall be deemed to be issued by such Restricted
Subsidiary at the time it becomes a Restricted Subsidiary. For this definition,
the terms "issuing," "issuer," "issuance" and "issued" have meanings correlative
to the foregoing.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York, the city in which the Corporate Trust
Office of the Trustee is located or at a place of payment are authorized by law,
regulation or executive order to remain closed. If a payment date is a Legal
Holiday at a place of payment, payment may be made at that place on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue for the
intervening period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell and any filing of or
agreement to give any financing statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction).
"Liquidated Damages" means all liquidated damages then owing pursuant to
Section 5 of the Registration Rights Agreement.
"Marketable Securities" means (a) Government Securities, (b) any
certificate of deposit maturing not more than 270 days after the date of
acquisition issued by, or time deposit of, an Eligible Institution, (c)
commercial paper maturing not more than 270 days after the date of acquisition
of an issuer (other than an Affiliate of Holdings) with a rating, at the time as
of which any investment therein is made, of "A-2" (or higher) according to S&P
or "P-2" (or higher) according to Moody's or carrying an equivalent rating by a
nationally recognized rating agency if both of the two named rating agencies
cease publishing ratings of investments, (d) any bankers acceptances or money
market deposit accounts issued by an Eligible Institution and (e) any fund
investing exclusively in investments of the types described in clauses (a)
through (d) above.
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"Moody's" means Moody's Investors Services, Inc.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP, excluding, however, any gain or
loss, together with any related provision for taxes, realized in connection with
any Asset Sale (including, without limitation, dispositions pursuant to sale and
leaseback transactions).
"Net Proceeds" means, with respect to any Asset Sale, the aggregate amount
of cash proceeds (including any cash received by way of deferred payment
pursuant to a note receivable issued in connection with such Asset Sale, other
than the portion of such deferred payment constituting interest, and including
any amounts received as disbursements or withdrawals from any escrow or similar
account established in connection with any such Asset Sale, but, in either such
case, only as and when so received) received by Holdings or any of its
Restricted Subsidiaries in respect of such Asset Sale, net of: (i) the cash
expenses of such Asset Sale (including, without limitation, the payment of
principal of, and premium, if any, and interest on, Indebtedness required to be
paid as a result of such Asset Sale (other than the Notes) and legal,
accounting, management and advisory and investment banking fees and sales
commissions), (ii) taxes paid or payable as a result thereof, (iii) any portion
of cash proceeds that Holdings determines in good faith should be reserved for
post-closing adjustments, it being understood and agreed that on the day that
all such post-closing adjustments have been determined, the amount (if any) by
which the reserved amount in respect of such Asset Sale exceeds the actual post-
closing adjustments payable by Holdings or any of its Restricted Subsidiaries
shall constitute Net Proceeds on such date, (iv) any relocation expenses and
pension, severance and shutdown costs incurred as a result thereof, and (v) any
deduction or appropriate amounts to be provided by Holdings or any of its
Restricted Subsidiaries as a reserve in accordance with GAAP against any
liabilities associated with the asset disposed of in such transaction and
retained by Holdings or such Restricted Subsidiary after such sale or other
disposition thereof, including, without limitation, pension and other post-
employment benefit liabilities and liabilities related to environmental matters
or against any indemnification obligations associated with such transaction.
"Non-Restricted Subsidiary" means any Subsidiary of Holdings other than a
Restricted Subsidiary.
"Obligations" means, with respect to any Indebtedness, all principal,
interest, premiums, penalties, fees, indemnities, expenses (including legal fees
and expenses), reimbursement obligations and other liabilities payable to the
holder of such Indebtedness under the documentation governing such Indebtedness,
and any other claims of such holder arising in respect of such Indebtedness.
"Offering" means the offer and sale of the Units as contemplated by the
Offering Memorandum.
"Offering Memorandum" means the Offering Memorandum, dated September 12,
1997, relating to Holdings' offering and placement of the Units.
"Officer" means, with respect to any Person, the Chairman of the Board, the
Chief Executive Officer, the President, the Chief Operating Officer, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the
Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of Holdings by
two Officers of Holdings, one of whom must be the principal executive officer,
the principal financial officer, the treasurer or the principal accounting
officer of Holdings, that meets the requirements of Section 10.05 hereof.
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"Opinion of Counsel" means an opinion from legal counsel who is reasonably
acceptable to the Trustee, that meets the requirements of Section 10.05 hereof.
The counsel may be an employee of or counsel to Holdings, any Subsidiary of
Holdings or the Trustee.
"Other Permitted Indebtedness" means: (i) Indebtedness of Holdings and its
Restricted Subsidiaries existing as of the date of original issuance of the
Notes and all related Obligations as in effect on such date; (ii) Indebtedness
of Holdings and its Restricted Subsidiaries in respect of bankers acceptances
and letters of credit (including, without limitation, letters of credit in
respect of workers' compensation claims) issued in the ordinary course of
business, or other Indebtedness in respect of reimbursement-type obligations
regarding workers' compensation claims; (iii) Refinancing Indebtedness, provided
that: (A) the principal amount of such Refinancing Indebtedness shall not exceed
the outstanding principal amount of Indebtedness (including unused commitments)
extended, refinanced, renewed, replaced, substituted or refunded plus any
amounts incurred to pay premiums, fees and expenses in connection therewith, (B)
the Refinancing Indebtedness shall have a Weighted Average Life to Maturity
equal to or greater than the Weighted Average Life to Maturity of the
Indebtedness being extended, refinanced, renewed, replaced, substituted or
refunded; provided, however, that this limitation in this clause (B) does not
apply to Refinancing Indebtedness of Senior Indebtedness, and (C) in the case of
Refinancing Indebtedness of Subordinated Indebtedness, such Refinancing
Indebtedness shall be subordinated to the Notes at least to the same extent as
the Subordinated Indebtedness being extended, refinanced, renewed, replaced,
substituted or refunded; (iv) intercompany Indebtedness of and among Holdings
and its Restricted Subsidiaries; (v) Indebtedness of Holdings and its Restricted
Subsidiaries incurred in connection with making permitted Restricted Payments
under clauses (iii), (iv) (but only to the extent that such Indebtedness is
provided by Holdings or a Restricted Subsidiary) or (x) of Section 4.05(b);
provided that any Indebtedness incurred pursuant to this clause (v) is expressly
subordinate in right of payment to the Notes; (vi) Indebtedness of any Non-
Restricted Subsidiary created after the date of original issuance of the Notes,
provided that such Indebtedness is nonrecourse to Holdings and its Restricted
Subsidiaries and Holdings and its Restricted Subsidiaries have no Obligations
with respect to such Indebtedness; (vii) Indebtedness of Holdings and its
Restricted Subsidiaries under Hedging Obligations; (viii) Indebtedness of
Holdings and its Restricted Subsidiaries arising from the honoring by a bank or
other financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts, which will not be, and
will not be deemed to be, inadvertent) drawn against insufficient funds in the
ordinary course of business; (ix) Indebtedness of Holdings and its Restricted
Subsidiaries in connection with performance, surety, statutory, appeal or
similar bonds in the ordinary course of business; (x) Indebtedness of Holdings
and its Restricted Subsidiaries in connection with agreements providing for
indemnification, purchase price adjustments and similar obligations in
connection with the sale or disposition of any of their business, properties or
assets; (xi) the guarantee by Holdings or any of the Restricted Subsidiaries of
Indebtedness of Holdings or a Restricted Subsidiary of Holdings that was
permitted to be incurred by Section 4.07; and (xii) Indebtedness of any Person
at the time it is acquired as a Restricted Subsidiary, provided that such
Indebtedness was not issued by such Person in connection with or in anticipation
of such acquisition.
"Permitted Liens" means: (i) Liens securing Senior Indebtedness of Holdings
that was permitted by the terms of this Indenture to be incurred; (ii) Liens for
taxes, assessments, governmental charges or claims which are being contested in
good faith by appropriate proceedings promptly instituted and diligently
conducted and if a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made therefor; (iii) statutory
Liens of landlords and carriers', warehousemen's, mechanics', suppliers',
materialmen's, repairmen's or other like Liens arising in the ordinary course of
business and with respect to amounts not yet delinquent or being contested in
good faith by appropriate proceedings, if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made therefor; (iv) Liens incurred on deposits made in the
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ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security; (v) Liens incurred on
deposits made to secure the performance of tenders, bids, leases, statutory
obligations, surety and appeal bonds, government contracts, performance and
return of money bonds and other obligations of a like nature incurred in the
ordinary course of business (exclusive of obligations for the payment of
borrowed money); (vi) easements, rights-of-way, zoning or other restrictions,
minor defects or irregularities in title and other similar charges or
encumbrances not interfering in any material respect with the business of
Holdings or any of its Restricted Subsidiaries incurred in the ordinary course
of business; (vii) Liens (including extensions, renewals and replacements
thereof) upon property acquired (the "Acquired Property") after the date of
original issuance of the Notes, provided that: (A) any such Lien is created
solely for the purpose of securing Indebtedness representing, or issued to
finance, refinance or refund, the cost (including the cost of construction) of
the Acquired Property, (B) the principal amount of the Indebtedness secured by
such Lien does not exceed 100% of the cost of the Acquired Property, (C) such
Lien does not extend to or cover any property other than the Acquired Property
and any improvements on such Acquired Property, and (D) the issuance of the
Indebtedness to purchase the Acquired Property is permitted by Section 4.07;
(viii) Liens in favor of customs and revenue authorities arising as a matter of
law to secure payment of customs duties in connection with the importation of
goods; (ix) judgment and attachment Liens not giving rise to an Event of
Default; (x) leases or subleases granted to others not interfering in any
material respect with the business of Holdings or any of its Restricted
Subsidiaries; (xi) Liens securing Indebtedness under Hedging Obligations; (xii)
Liens encumbering deposits made to secure obligations arising from statutory,
regulatory, contractual or warranty requirements; (xiii) Liens arising out of
consignment or similar arrangements for the sale of goods entered into by
Holdings or its Restricted Subsidiaries in the ordinary course of business;
(xiv) any interest or title of a lessor in property subject to any capital lease
obligation or operating lease; (xv) Liens arising from filing Uniform Commercial
Code financing statements regarding leases; (xvi) Liens existing on the date of
original issuance of the Notes and any extensions, refinancings, renewals,
replacements, substitutions or refundings thereof; (xvii) any Lien granted to
the Trustee and any substantially equivalent Lien granted to any trustee or
similar institution under any indenture for Senior Indebtedness permitted by the
terms of the Indenture; (xviii) Liens in favor of Holdings or any Restricted
Subsidiary; (xix) additional Liens at any one time outstanding in respect of
properties or assets where aggregate fair market value does not exceed $3.0
million (the fair market value to be determined on the date such Lien is granted
on such properties or assets); and (xx) Liens securing intercompany Indebtedness
issued by any Restricted Subsidiary to Holdings or another Restricted
Subsidiary.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Post-Petition Interest" means any interest accruing subsequent to the
filing of a petition of bankruptcy at the rate provided for in the documentation
with respect thereto, whether or not such interest is an allowed claim under
applicable law.
"Preferred Stock" means the 11 3/8% Series D Preferred Stock of Holdings
due 2009.
"Principals" means (a) The Jordan Company, Jordan/Zalaznick Capital
Corporation and MCIT PLC, and their respective Affiliates, principals, partners
and employees, family members of any of the foregoing and trusts for the benefit
of any of the foregoing, including, without limitation, Leucadia National
Corporation and Jordan Industries, Inc., and their respective Subsidiaries, (b)
the officers, directors and employees of Holdings on the date of issuance of the
Notes and their respective Affiliates and family members and trusts for the
benefit of any of the foregoing. For the purpose of the definition
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of "Principals," The Jordan Company, Jordan/Zalaznick Capital Corporation and
MCIT PLC shall be deemed to be Affiliates.
"Pro Forma Basis" means, for purposes of determining Consolidated Net
Income in connection with the Cash Flow Coverage Ratio (including in connection
with Sections 4.05, 4.16 and 5.01, the incurrence of Indebtedness pursuant to
Section 4.07(a) and Consolidated Net Worth for purposes of Section 5.01), giving
pro forma effect to (x) any acquisition or sale of a Person, business or asset,
related incurrence, repayment or refinancing of Indebtedness or other related
transactions, including any Restructuring Charges which would otherwise be
accounted for as an adjustment permitted by Regulation S-X under the Securities
Act or on a pro forma basis under GAAP, or (y) any incurrence, repayment or
refinancing of any Indebtedness and the application of the proceeds therefrom,
in each case, as if such acquisition or sale and related transactions,
restructurings, consolidations, cost savings, reductions, incurrence, repayment
or refinancing were realized on the first day of the relevant period permitted
by Regulation S-X under the Securities Act or on a pro forma basis under GAAP.
Furthermore, in calculating the Cash Flow Coverage Ratio, (1) interest on
outstanding Indebtedness determined on a fluctuating basis as of the
determination date and which will continue to be so determined thereafter shall
be deemed to have accrued at a fixed rate per annum equal to the rate of
interest on such Indebtedness in effect on the determination date; (2) if
interest on any Indebtedness actually incurred on the determination date may
optionally be determined at an interest rate based upon a factor of a prime or
similar rate, a eurocurrency interbank offered rate, or other rates, then the
interest rate in effect on the determination date will be deemed to have been in
effect during the relevant period; and (3) notwithstanding clause (1) above,
interest on Indebtedness determined on a fluctuating basis, to the extent such
interest is covered by agreements relating to interest rate swaps or similar
interest rate protection Hedging Obligations, shall be deemed to accrue at the
rate per annum resulting after giving effect to the operation of such
agreements.
"Redeemable Preferred Stock" means preferred stock that by its terms or
otherwise is required to be redeemed or is redeemable at the option of the
holder thereof on, or prior to, the maturity date of the Notes.
"Refinancing Indebtedness" means (i) Indebtedness of Holdings and its
Restricted Subsidiaries issued or given in exchange for, or the proceeds of
which are used to, extend, refinance, renew, replace, substitute or refund any
Indebtedness permitted under this Indenture or any Indebtedness issued to so
extend, refinance, renew, replace, substitute or refund such Indebtedness, (ii)
any refinancings of Indebtedness issued under the Credit Facilities, and (iii)
any additional Indebtedness issued to pay premiums and fees in connection with
clauses (i) and (ii).
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of September 17, 1997, by and between Holdings and the Initial
Purchaser.
"Related Party" with respect to any Principal means (a) any controlling
stockholder, 80% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (b) or trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (a).
"Restricted Investment" means any Investment in any Person; provided that
Restricted Investments will not include: (i) Investments in Marketable
Securities; (ii) any Incentive Arrangements; (iii) Investments in Holdings; or
(iv) Investments in any Restricted Subsidiary (provided that any Investment in a
Restricted Subsidiary was made for fair market value (as determined by the Board
of Directors in
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good faith)). The amount of any Restricted Investment shall be the amount of
cash and the fair market value at the time of transfer of all other property (as
determined by the Board of Directors in good faith) initially invested or paid
for such Restricted Investment, plus all additions thereto, without any
adjustments for increases or decreases in value of or write-ups, write-downs or
write-offs with respect to, such Restricted Investment.
"Restricted Subsidiary" means: (i) any Subsidiary of Holdings existing on
the date of original issuance of the Notes, and (ii) any other Subsidiary of
Holdings formed, acquired or existing after the date of original issuance of the
Notes that is designated as a "Restricted Subsidiary" by Holdings pursuant to a
resolution approved a majority of the Board of Directors, provided, however,
that the term Restricted Subsidiary shall not include any Subsidiary of Holdings
that has been redesignated by Holdings pursuant to a resolution approved by a
majority of the Board of Directors as a Non-Restricted Subsidiary in accordance
with Section 4.15 unless such Subsidiary shall have subsequently been
redesignated a Restricted Subsidiary in accordance with clause (ii) of this
definition.
"Restructuring Charges" means any charges or expenses in respect of
restructuring or consolidating any business, operations or facilities, any
compensation or headcount reduction, or any other cost savings, of any Persons
or businesses either alone or together with Holdings or any Restricted
Subsidiary, as permitted by GAAP or Regulation S-X under the Securities Act.
"S&P" means Standard & Poor's Rating Services, a division of McGraw-Hill
Companies, Inc.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"SFAS 106" means Statement of Financial Accounting Standards No. 106.
"SFAS 109" means Statement of Financial Accounting Standards No. 109.
"Significant Subsidiary" means any Restricted Subsidiary of Holdings that
would be a "significant subsidiary" as defined in clause (2) of the definition
of such term in Rule 1-02 of Regulation S-X under the Securities Act and the
Exchange Act.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subordinated Indebtedness" means all Obligations with respect to
Indebtedness if the instrument creating or evidencing the same, or pursuant to
which the same is outstanding, designates such Obligations as subordinated or
junior in right of payment to the Notes.
"Subsidiary" of any Person means any entity of which the Equity Interests
entitled to cast at least a majority of the votes that may be cast by all Equity
Interests having ordinary voting power for the election of directors or other
governing body of such entity are owned by such Person (regardless of whether
such Equity Interests are owned directly by such Person or through one or more
Subsidiaries).
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"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-
77bbbb), as amended, as in effect on the date of original issuance of the Notes.
"TJC Agreement" means the Management Consulting Agreement, dated February
27, 1997, among the Company, Holdings and TJC Management Corporation, as in
effect on the date of this Indenture.
"Transfer Restricted Notes" means securities that bear or are required to
bear the legend set forth in Section 2.06.
"Trust Officer" means any officer in the corporate trust administration
department of the Trustee or any other officer of the Trustee to which a matter
relating to this Indenture or any Note has been referred by an officer in such
corporate trust administration department.
"Trustee" means State Street Bank and Trust Company until a successor
replaces it in accordance with the applicable provisions of this Indenture, and
thereafter means the successor.
"U.S. Government Obligations" means direct obligations of the United States
of America for the payment of which the full faith and credit of the United
States of America is pledged, provided that no U.S. Government Obligation shall
be callable at the issuer's option.
"Units" means the units of Holdings consisting of the Notes and the
Preferred Stock.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect the board of directors.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the then outstanding
principal amount of such Indebtedness into (ii) the sum of the product(s)
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other requirement payment of principal,
including payment at final maturity, in respect thereof, by (b) the number of
years (calculated to the nearest one-twelfth) which will elapse between such
date and the making of such payment.
"Wolff Noncompetition Agreement" means the agreement, dated the date of
this Indenture, between Holdings and Robert M. Wolff, relating to certain
covenants not to compete with the business of the Company, as in effect on the
date of this Indenture.
Section 1.02. Other Definitions.
Defined in
Term Section
"Acceleration Notice"........................... 6.02
"Affiliate Transaction"......................... 4.09
"Asset Transfer Trigger Date"................... 4.15
"Asset Sale Disposition Date"................... 4.15
"Change of Control Trigger Date"................ 4.14
"covenant defeasance option".................... 8.01
"Disposition"................................... 5.01
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"DTC"........................................... 2.03
"Event of Default".............................. 6.01
"Excess Proceeds"............................... 4.15
"legal defeasance option"....................... 8.01
"Notice of Default"............................. 6.01
"Offer"......................................... 3.08
"Paying Agent".................................. 2.03
"Purchase Date"................................. 3.08
"Registrar"..................................... 2.03
"Restricted Payments"........................... 4.05
"Successor Corporation"......................... 5.01
"Trustee Expenses".............................. 6.08
Section 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in, and made a part of, this Indenture. Any terms
incorporated by reference in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by SEC rule under the TIA have
the meanings so assigned to them therein.
Section 1.04 Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it herein;
(2) an accounting term not otherwise defined herein has the meaning
assigned to it under GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural include
the singular; and
(5) provisions apply to successive events and transactions.
ARTICLE 2
THE NOTES
Section 2.01. Form and Dating.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A, which is part of this Indenture. The
Notes may have notations, legends or endorsements required by law, stock
exchange rule or usage. Each Note shall be dated the date of its
authentication. The Notes shall be in denominations of $500.00 and integral
multiples thereof.
The terms and provisions contained in the Notes shall constitute, and are
hereby expressly made, a part of this Indenture and, to the extent applicable,
Holdings and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby.
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Each Global Note shall represent such of the outstanding Notes as shall be
specified therein and each shall provide that it shall represent the aggregate
amount of outstanding Notes from time to time endorsed thereon and that the
aggregate amount of outstanding Notes represented thereby may from time to time
be reduced or increased, as appropriate, to reflect exchanges and redemptions.
Any endorsement of a Global Note to reflect the amount of any increase or
decrease in the amount of outstanding Notes represented thereby shall be made by
the Trustee or the Note Custodian, at the direction of the Trustee, in
accordance with instructions given by the Holder thereof as required by Section
2.06.
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Section 2.02. Execution and Authentication.
One Officer shall sign the Notes for Holdings by manual or facsimile
signature. Holdings' seal shall be reproduced on the Notes and may be in
facsimile form.
If an Officer whose signature is on a Note no longer holds that office at
the time a Note is authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature of an
authorized signatory of the Trustee, and the Trustee's signature shall be
conclusive evidence that the Note has been authenticated under this Indenture.
The form of Trustee's certificate of authentication to be borne by the Notes
shall be substantially as set forth in Exhibit A.
The Trustee shall, upon a written order of Holdings signed by two Officers
directing the Trustee to authenticate the Notes and certifying that all
conditions precedent to the issuance of the Notes contained herein have been
complied with, authenticate Notes for original issuance up to an aggregate
principal amount stated in paragraph 4 of the Notes (the aggregate principal
amount of outstanding Notes may not exceed that amount at any time, except as
provided in Section 2.07).
The Trustee may appoint an authenticating agent acceptable to Holdings to
authenticate Notes. Unless limited by the terms of such appointment, an
authenticating agent may authenticate Notes whenever the Trustee may do so. Each
reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as an
Agent to deal with Holdings or an Affiliate of Holdings.
Section 2.03. Registrar and Paying Agent.
Holdings shall maintain an office or agency (the "Registrar") where Notes
may be presented for registration of transfer or for exchange and an office or
agency (the "Paying Agent") where Notes may be presented for payment. The
Registrar shall keep a register of the Notes and of their transfer and exchange.
Holdings may appoint one or more co-registrars and one or more additional paying
agents. The term "Registrar" includes any co-registrar, and the term "Paying
Agent" includes any additional paying agent. Holdings may change any Paying
Agent or Registrar without prior notice to any Holder. Holdings shall notify in
writing the Trustee and the Trustee shall notify the Holders in writing of the
name and address of any Agent not a party to this Indenture. If Holdings fails
to appoint or maintain another entity as Registrar or Paying Agent, the Trustee
shall act as such. Holdings shall enter into an appropriate agency agreement
with any Agent not a party to this Indenture, and such agreement shall
incorporate the TIA's provisions and implement the provisions of this Indenture
that relate to such Agent.
Holdings initially appoints The Depository Trust Company ("DTC") to act as
Depository with respect to the Global Notes.
Holdings initially appoints the Trustee as Registrar, Paying Agent and
agent for service of notices and demands in connection with the Notes and as
Note Custodian with respect to the Global Notes. Holdings or any of its
Subsidiaries may act as Paying Agent, Registrar or co-registrar. If Holdings
fails to appoint or maintain a Registrar and Paying Agent, the Trustee shall act
as such, and shall be entitled to appropriate compensation in accordance with
Section 7.07.
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Section 2.04. Paying Agent to Hold Money in Trust.
Holdings shall require each Paying Agent other than the Trustee to agree in
writing that the Paying Agent will hold in trust for the Holders' benefit or the
Trustee all money the Paying Agent holds for redemption or purchase of the Notes
or for the payment of principal of, or premium, if any, or interest on, or
Liquidated Damages, if any, with respect to the Notes, and will promptly notify
the Trustee of any Default by Holdings in providing the Paying Agent with
sufficient funds to (i) purchase Notes tendered pursuant to an Offer arising
under Section 4.13, (ii) redeem Notes called for redemption, or (iii) make any
payment of principal, premium, interest or Liquidated Damages due on the Notes.
While any such Default continues, the Trustee may require the Paying Agent to
pay all money it holds to the Trustee and to account for any funds disbursed.
Holdings at any time may require the Paying Agent to pay all money it holds to
the Trustee and to account for any funds disbursed. Upon payment over to the
Trustee, the Paying Agent (if other than Holdings or any of its Subsidiaries)
shall have no further liability for the money it delivered to the Trustee. If
Holdings or any of its Subsidiaries acts as Paying Agent, it shall segregate and
hold in a separate trust fund for the Holders' benefit or the Trustee all money
it holds as Paying Agent.
Section 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA (S) 312(a). If the Trustee is
not the Registrar, Holdings shall furnish to the Trustee at least seven Business
Days before each interest payment date and at such other times as the Trustee
may request in writing, a list in such form and as of such date as the Trustee
may reasonably require that sets forth the names and addresses of, and the
aggregate principal amount of Notes held by, each Holder, and Holdings shall
otherwise comply with Section 312(a) of the TIA.
Section 2.06. Transfer and Exchange.
(a) Transfer and Exchange of Definitive Notes. When Definitive Notes are
presented by a Holder to the Registrar with a request:
(x) to register the transfer of the Definitive Notes; or
(y) to exchange such Definitive Notes for an equal principal amount
of Definitive Notes of other authorized denominations,
the Registrar shall register the transfer or make the exchange as requested if
its requirements for such transactions are met; provided, however, that the
Definitive Notes presented or surrendered for register of transfer or exchange:
(i) shall be duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by
such Holder or by his attorney, duly authorized in writing; and
(ii) in the case of a Definitive Note that is a Transfer Restricted
Note, such request shall be accompanied by the following
additional information and documents, as applicable:
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(A) if such Transfer Restricted Note is being delivered to the
Registrar by a Holder for registration in the name of such
Holder, without transfer, a certification to that effect
from such Holder (in substantially the form of Exhibit B
hereto); or
(B) if such Transfer Restricted Note is being transferred (1) to
a "qualified institutional buyer" (as defined in Rule 144A
under the Securities Act) in accordance with Rule 144A under
the Securities Act or (2) pursuant to an exemption from
registration in accordance with Rule 144 under the
Securities Act (and based on an opinion of counsel if
Holdings so requests) or (3) pursuant to an effective
registration statement under the Securities Act, a
certification to that effect from such Holder (in
substantially the form of Exhibit B hereto);
(C) if such Transfer Restricted Note is being transferred
pursuant to an exemption from registration in accordance
with Rule 904 under the Securities Act (and based on an
opinion of counsel if Holdings so requests), certifications
to that effect from such Holder (in substantially the form
of Exhibits B and C hereto); or
(D) if such Transfer Restricted Note is being transferred in
reliance on another exemption from the registration
requirements of the Securities Act (and based on an opinion
of counsel if Holdings so requests), a certification to that
effect from such Holder (in substantially the form of
Exhibit B hereto).
(b) Transfer of a Definitive Note for a Beneficial Interest in a Global
Note. A Definitive Note may not be exchanged for a beneficial interest in a
Global Note except upon satisfaction of the requirements set forth below. Upon
receipt by the Trustee of a Definitive Note, duly endorsed or accompanied by
appropriate instruments of transfer, in form satisfactory to the Trustee,
together with:
(i) if such Definitive Note is a Transfer Restricted Note, a
certification from the Holder thereof (in substantially the form
of Exhibit B hereto) to the effect that such Definitive Note is
being transferred by such Holder to a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act) in
accordance with Rule 144A under the Securities Act; and
(ii) whether or not such Definitive Note is a Transfer Restricted
Note, written instructions from the Holder thereof directing the
Trustee to make, or to direct the Note Custodian to make, an
endorsement on the Global Note to reflect an increase in the
aggregate principal amount of the Notes represented by the Global
Note,
the Trustee shall cancel such Definitive Note in accordance with Section 2.11
and cause, or direct the Note Custodian to cause, in accordance with the
standing instructions and procedures existing between the Depository and the
Note Custodian, the aggregate principal amount of Notes represented by the
Global Note to be increased accordingly. If no Global Notes are then
outstanding, Holdings shall issue and, upon receipt of an authentication order
in accordance with Section 2.02, the Trustee shall authenticate a new Global
Note in the appropriate principal amount.
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(c) Transfer and Exchange of Global Notes. The transfer and exchange of
Global Notes or beneficial interests therein shall be effected through the
Depository, in accordance with this Indenture and the procedures of the
Depository therefor, which shall include restrictions on transfer comparable to
those set forth herein to the extent required by the Securities Act.
(d) Transfer of a Beneficial Interest in a Global Note for a Definitive
Note.
(i) Any Person having a beneficial interest in a Global Note may upon
request exchange such beneficial interest for a Definitive Note.
Upon receipt by the Trustee of written instructions or such other
form of instructions as is customary for the Depository, from the
Depository or its nominee on behalf of any Person having a
beneficial interest in a Global Note, and, in the case of a
Transfer Restricted Note, the following additional information
and documents (all of which may be submitted by facsimile):
(A) if such beneficial interest is being transferred to the
Person designated by the Depository as being the beneficial
owner, a certification to that effect from such Person (in
substantially the form of Exhibit B hereto); or
(B) if such beneficial interest is being transferred (1) to a
"qualified institutional buyer" (as defined in Rule 144A
under the Securities Act) in accordance with Rule 144A under
the Securities Act or (2) pursuant to an exemption from
registration in accordance with Rule 144 under the
Securities Act (and based on an opinion of counsel if
Holdings so requests) or (3) pursuant to an effective
registration statement under the Securities Act, a
certification to that effect from the transferor (in
substantially the form of Exhibit B hereto); or
(C) if such beneficial interest is being transferred pursuant to
an exemption from registration in accordance with Rule 904
under the Securities Act (and based on an opinion of counsel
if Holdings so requests), certifications to that effect from
such Holder (in substantially the form of Exhibits B and C
hereto); or
(D) if such beneficial interest is being transferred in reliance
on another exemption from the registration requirements of
the Securities Act (and based on an opinion of counsel if
Holdings so requests), a certification to that effect from
such Holder (in substantially the form of Exhibit B hereto).
the Trustee or the Note Custodian, at the direction of the
Trustee, shall, in accordance with the standing instructions and
procedures existing between the Depository and the Note
Custodian, cause the aggregate principal amount of Global Notes
to be reduced accordingly and, following such reduction, Holdings
shall execute and, upon receipt of an authentication order in
accordance with Section 2.02 hereof, the Trustee shall
authenticate and deliver to the transferee a Definitive Note in
the appropriate principal amount.
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(ii) Definitive Notes issued in exchange for a beneficial interest in
a Global Note pursuant to this Section 2.06(d) shall be
registered in such names and in such authorized denominations as
the Depository, pursuant to instructions from its direct or
indirect participants or otherwise, shall instruct the Trustee.
The Trustee shall deliver in accordance with the standard
procedures of the Depository such Definitive Notes to the Persons
in whose names such Notes are so registered.
(e) Restrictions on Transfer and Exchange of Global Notes.
Notwithstanding any other provision of this Indenture (other than the provisions
set forth in subsection (f) of this Section 2.06), a Global Note may not be
transferred as a whole except by the Depository to a nominee of the Depository
or by a nominee of the Depository to the Depository or another nominee of the
Depository or by the Depository or any such nominee to a successor Depository or
a nominee of such successor Depository.
(f) Authentication of Definitive Notes in Absence of Depository. If at
any time:
(i) the Depository for the Notes notifies Holdings that the
Depository is unwilling or unable to continue as Depository for
the Global Notes and a successor Depository for the Global Notes
is not appointed by Holdings within 90 days after delivery of
such notice; or
(ii) Holdings, at its sole discretion, notifies the Trustee in writing
that it elects to cause the issuance of Definitive Notes under
this Indenture,
then Holdings shall execute, and the Trustee shall, upon receipt of an
authentication order in accordance with Section 2.02, authenticate and deliver,
Definitive Notes in an aggregate principal amount equal to the principal amount
of the Global Notes in exchange for such Global Notes and registered in such
names as the Depository shall instruct the Trustee or Holdings in writing.
(g) Legends.
(i) Except for any Transfer Restricted Note sold or transferred
(including any Transfer Restricted Note represented by a Global
Note) as described in (ii) below, each Note certificate
evidencing Global Notes and Definitive Notes (and all Notes
issued in exchange therefor or substitution thereof) shall bear
legends in substantially the following form:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER
SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933 (THE
"SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED
THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE
144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY
AGREES FOR THE BENEFIT OF HOLDINGS THAT (A) SUCH SECURITY MAY BE
RESOLD, PLEDGED OR
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OTHERWISE TRANSFERRED, ONLY (1)(a) INSIDE THE UNITED STATES TO A
PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b)
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE
SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED
UPON AN OPINION OF COUNSEL IF HOLDINGS SO REQUESTS), (2) TO
HOLDINGS OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE
JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER
IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY
EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A)
ABOVE."
(ii) Upon any sale or transfer of a Transfer Restricted Note
(including any Transfer Restricted Note represented by a Global
Note) pursuant to an effective registration statement under the
Securities Act, pursuant to Rule 144 under the Securities Act or
pursuant to an opinion of counsel reasonably satisfactory to
Holdings and the Registrar that no legend is required:
(A) in the case of any Transfer Restricted Note that is a
Definitive Note, the Registrar shall permit the Holder
thereof to exchange such Transfer Restricted Note for a
Definitive Note that does not bear the legend set forth in
(i) above and rescind any restriction on the transfer of
such Transfer Restricted Note; and
(B) in the case of any Transfer Restricted Note represented by a
Global Note, such Transfer Restricted Note shall not be
required to bear the legend set forth in (i) above if all
other interests in such Global Note have been or are
concurrently being sold or transferred pursuant to Rule 144
under the Securities Act or pursuant to an effective
registration statement under the Securities Act, but such
Transfer Restricted Note shall continue to be subject to the
provisions of Section 2.06(c); provided, however, that with
respect to any request for an exchange of a Transfer
Restricted Note that is represented by a Global Note for a
Definitive Note that does not bear the legend set forth in
(i) above, which request is made in reliance upon Rule 144,
the Holder thereof shall certify in writing to the Registrar
that such request is being made pursuant to Rule 144 (such
certification to be substantially in the form of Exhibit B
hereto).
(iii) Notwithstanding the foregoing, upon consummation of the Exchange
Offer, Holdings shall issue and, upon receipt of an
authentication order in accordance with Section 2.02, the Trustee
shall authenticate, Series B Notes in exchange for
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Series A Notes accepted for exchange in the Exchange Offer, which
Series B Notes shall not bear the legend set forth in (i) above,
and the Registrar shall rescind any restriction on the transfer
of such Notes, in each case unless the Holder of such Series A
Notes is either (A) a broker-dealer, (B) a Person participating
in the distribution of the Series A Notes or (C) a Person who is
an affiliate (as defined in Rule 144A) of Holdings. Holdings
shall identify to the Trustee such Holders of the Notes in a
written certification signed by an Officer of Holdings and,
absent certification from Holdings to such effect, the Trustee
shall assume that there are no such Holders.
(iv) Original Issue Discount Legend. Each Note shall bear a legend in
substantially the following form:
"FOR THE PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED, THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE
DISCOUNT; FOR EACH $1,000 PRINCIPAL AMOUNT OF THIS SECURITY, THE ISSUE
PRICE IS $_____, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $______, THE
ISSUE DATE IS ____________ AND THE YIELD TO MATURITY IS 11 3/8% PER ANNUM."
(h) Cancellation and/or Adjustment of Global Notes. At such time as all
beneficial interests in Global Notes have been exchanged for Definitive Notes,
redeemed, repurchased or canceled, all Global Notes shall be returned to or
retained and canceled by the Trustee in accordance with Section 2.11. At any
time prior to such cancellation, if any beneficial interest in a Global Note is
exchanged for Definitive Notes, redeemed, repurchased or canceled, the principal
amount of Notes represented by such Global Note shall be reduced accordingly and
an endorsement shall be made on such Global Note, by the Trustee or the Notes
Custodian, at the direction of the Trustee, to reflect such reduction.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, Holdings
shall execute and the Trustee shall authenticate Definitive Notes
and Global Notes at the Registrar's request.
(ii) No service charge shall be made to a Holder for any registration
of transfer or exchange, but Holdings may require payment of a
sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such
transfer taxes or similar governmental charge payable upon
exchange or transfer pursuant to Sections 3.07, 4.14, 4.15 and
9.05).
(iii) Neither Holdings nor the Registrar shall be required to register
the transfer of or exchange any Note selected for redemption in
whole or in part, except the unredeemed portion of any Note being
redeemed in part.
(iv) All Definitive Notes and Global Notes issued upon any
registration of transfer or exchange of Definitive Notes or
Global Notes in accordance with this Indenture (including any
increase in the aggregate principal amount of the Notes
represented by the Global Note pursuant to subsection (b) above)
shall be the valid obligations of Holdings, evidencing the same
debt, and entitled to the same
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benefits under this Indenture, as the Definitive Notes or
Global Notes surrendered upon such registration of transfer
or exchange.
(v) Holdings shall not be required to issue Notes and the
Registrar shall not be required to register the transfer of
or to exchange Notes during a period beginning at the
opening of business 15 days before the day of any selection
of Notes for redemption under Section 3.02 and ending at the
close of business on the day of selection, or to register
the transfer of or to exchange a Note between a record date
and the next succeeding interest payment date.
(vi) Prior to due presentment for the registration of a transfer
of any Note, the Trustee, any Agent and Holdings may deem
and treat the Person in whose name any Note is registered as
the absolute owner of such Note for the purpose of receiving
payment of principal of, premium, if any, accrued and unpaid
interest, and Liquidated Damages, if any, on such Notes, and
neither the Trustee, any Agent nor Holdings shall be
affected by notice to the contrary.
(vii) The Trustee shall authenticate Definitive Notes and Global
Notes in accordance with the provisions of Section 2.02.
Section 2.07. Replacement Notes.
If any mutilated Note is surrendered to the Trustee, or Holdings and the
Trustee receive evidence to their satisfaction of the destruction, loss or theft
of any Note, Holdings shall issue and the Trustee, upon Holdings' written order
signed by two Officers, shall authenticate a replacement Note if the Trustee's
requirements are met. If the Trustee or Holdings requires it, the Holder must
supply an indemnity bond that is sufficient in the judgment of the Trustee and
Holdings to protect Holdings, the Trustee, any Agent or any authenticating agent
from any loss that any of them may suffer if a Note is replaced. Holdings and
the Trustee may charge for their expenses in replacing a Note. Every
replacement Note is an additional Obligation of Holdings.
Section 2.08. Outstanding Notes.
The Notes outstanding at any time are all the Notes the Trustee has
authenticated except for those it has canceled, those delivered to it for
cancellation, those representing reductions in the interest in a Global Note
effected by the Trustee in accordance with the provisions hereof, and those
described in this Section as not outstanding.
If a Note is replaced pursuant to Section 2.07, it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that a bona fide purchaser
holds the replaced Note.
If the entire principal of, and premium, if any, and accrued interest on,
and Liquidated Damages, if any, with respect to any Note is considered paid
under Section 4.01, it ceases to be outstanding and interest and Liquidated
Damages on it cease to accrue.
Subject to Section 2.09, a Note does not cease to be outstanding because
Holdings or an Affiliate holds the Note.
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Section 2.09. Treasury Notes.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by
Holdings or an Affiliate shall be considered as though not outstanding, except
that for the purposes of determining whether the Trustee shall be protected in
relying on any such direction, waiver or consent, only Notes that a Trust
Officer of the Trustee knows are so owned shall be so disregarded.
Notwithstanding the foregoing, Notes that Holdings or an Affiliate offers to
purchase or acquires pursuant to an Offer, exchange offer, tender offer or
otherwise shall not be deemed to be owned by Holdings or an Affiliate until
legal title to such Notes passes to Holdings or such Affiliate, as the case may
be.
Section 2.10. Temporary Notes.
Until Definitive Notes are ready for delivery, Holdings may prepare and the
Trustee shall authenticate temporary Notes. Temporary Notes shall be
substantially in the form of Definitive Notes but may have variations that
Holdings considers appropriate for temporary Notes. Without unreasonable delay,
Holdings shall prepare and the Trustee, upon receipt of Holdings' written order
signed by two Officers which shall specify the amount of temporary Notes to be
authenticated and the date on which the temporary Notes are to be authenticated,
shall authenticate Definitive Notes and deliver them in exchange for temporary
Notes. Until such exchange, Holders of temporary Notes shall be entitled to the
same rights, benefits and privileges as Definitive Notes.
Section 2.11. Cancellation.
Holdings at any time may deliver Notes to the Trustee for cancellation.
The Registrar and the Paying Agent shall forward to the Trustee any Notes
surrendered to them for registration of transfer, exchange, replacement, payment
(including all Notes called for redemption and all Notes accepted for payment
pursuant to an Offer) or cancellation, and the Trustee shall cancel all such
Notes and shall destroy all canceled Notes (subject to the Exchange Act's record
retention requirements) and deliver a certificate of their destruction to
Holdings unless by written order, signed by two Officers of Holdings, Holdings
shall direct that canceled Notes be returned to it. Holdings may not issue new
Notes to replace any Notes that have been canceled by the Trustee or that have
been delivered to the Trustee for cancellation. If Holdings or an Affiliate
acquires any Notes (other than by redemption or pursuant to an Offer), such
acquisition shall not operate as a redemption or satisfaction of the
Indebtedness represented by such Notes unless and until such Notes are delivered
to the Trustee for cancellation.
Section 2.12. Defaulted Interest.
If Holdings defaults in a payment of interest on the Notes, it shall pay
the defaulted interest in any lawful manner plus, to the extent lawful, interest
payable on the defaulted interest, to Holders on a subsequent special record
date, in each case at the rate provided in the Notes and in Section 4.01.
Holdings shall fix or cause to be fixed each such special record date and
payment date. As early as practicable prior to the special record date,
Holdings (or the Trustee, in the name of and at the expense of Holdings) shall
mail a notice that states the special record date, the related payment date and
the amount of interest to be paid.
Section 2.13. Record Date.
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The record date for purposes of determining the identity of Holders of
Notes entitled to vote or consent to any action by vote or consent authorized or
permitted under this Indenture shall be determined as provided for in section
316(c) of the TIA.
Section 2.14. CUSIP Number.
A "CUSIP" number shall be printed on the Notes, and the Trustee shall use
the CUSIP number in notices of redemption, purchase or exchange as a convenience
to Holders, provided that any such notice may state that no representation is
made as to the correctness or accuracy of the CUSIP number printed in the notice
or on the Notes and that reliance may be placed only on the other identification
numbers printed on the Notes. Holdings shall promptly notify the Trustee of any
change in the CUSIP number.
ARTICLE 3
OPTIONAL REDEMPTION AND MANDATORY OFFERS TO PURCHASE
Section 3.01. Notices to Trustee.
If Holdings elects to redeem Notes pursuant to Section 3.07, it shall
furnish to the Trustee, at least 40 days prior to the redemption date and at
least 10 days prior to the date that notice of the redemption is to be mailed by
Holdings to Holders, an Officers' Certificate stating that Holdings has elected
to redeem Notes pursuant to Section 3.07(a) or 3.07(b), as the case may be, the
date notice of redemption is to be mailed to Holders, the redemption date, the
aggregate principal amount (or, if prior to September 15, 2004, the Accreted
Value) of Notes to be redeemed, the redemption price for such Notes and the
amount of accrued and unpaid interest on and Liquidated Damages, if any, with
respect to such Notes as of the redemption date. If the Trustee is not the
Registrar, Holdings shall, concurrently with delivery of its notice to the
Trustee of a redemption, cause the Registrar to deliver to the Trustee a
certificate (upon which the Trustee may rely) setting forth the name of, and the
aggregate principal amount (or, if prior to September 15, 2004, the Accreted
Value) of Notes held by, each Holder.
If Holdings is required to offer to purchase Notes pursuant to Section 4.13
or 4.14, it shall furnish to the Trustee, at least two Business Days before
notice of the Offer is to be mailed to Holders, an Officers' Certificate setting
forth that the Offer is being made pursuant to Section 4.13 or 4.14, as the case
may be, the Purchase Date, the maximum principal amount (or, if prior to
September 15, 2004, the Accreted Value) of Notes Holdings is offering to
purchase pursuant to the Offer, the purchase price for such Notes, and the
amount of accrued and unpaid interest on and Liquidated Damages, if any, with
respect to such Notes as of the Purchase Date.
Holdings will also provide the Trustee with any additional information that
the Trustee reasonably requests in connection with any redemption or Offer.
Section 3.02. Selection of Notes to be Redeemed or Purchased.
If less than all outstanding Notes are to be redeemed or if less than all
Notes tendered pursuant to an Offer are to be accepted for payment, the Trustee
shall select the outstanding Notes to be redeemed or accepted for payment pro
rata, by lot or by a method that complies with the requirements of any stock
exchange on which the Notes are listed and that the Trustee considers fair and
appropriate. If Holdings elects to mail notice of a redemption to Holders, the
Trustee shall at least five Business Days prior to the date notice of redemption
is to be mailed, (i) select the Notes to be redeemed from Notes outstanding not
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<PAGE>
previously called for redemption and (ii) notify Holdings of the names of each
Holder of Notes selected for redemption, the principal amount (or, if prior to
September 15, 2004, the Accreted Value) of Notes held by each such Holder and
the principal amount (or, if prior to September 15, 2004, the Accreted Value) of
such Holder's Notes that are to be redeemed. If less than all Notes tendered
pursuant to an Offer on the Purchase Date are to be accepted for payment, the
Trustee shall select on or promptly after the Purchase Date the Notes to be
accepted for payment. The Trustee shall select for redemption or purchase Notes
or portions of Notes in principal amounts of $500 or integral multiples of $500;
except that if all of the Notes of a Holder are selected for redemption or
purchase, the aggregate principal amount (or, if prior to September 15, 2004,
the Accreted Value) of the Notes held by such Holder, even if not a multiple of
$500, shall be redeemed or purchased. Except as provided in the preceding
sentence, provisions of this Indenture that apply to Notes called for redemption
or tendered pursuant to an Offer also apply to portions of Notes called for
redemption or tendered pursuant to an Offer. The Trustee shall notify Holdings
promptly of the Notes or portions of Notes to be called for redemption or
selected for purchase.
Section 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a redemption date,
Holdings shall mail a notice of redemption to each Holder of Notes or portions
thereof that are to be redeemed.
The notice shall identify the Notes or portions thereof to be redeemed and
shall state:
(1) the redemption date;
(2) the redemption price for the Notes and separately stating the
amount of unpaid and accrued interest on, and Liquidated Damages,
if any, with respect to, such Notes as of the date of redemption;
(3) if any Note is being redeemed in part, the portion of the
principal amount (or, if prior to September 15, 2004, the
Accreted Value) of such Notes to be redeemed and that, after the
redemption date, upon surrender of such Note, a new Note or Notes
in principal amount at maturity equal to the unredeemed portion
will be issued;
(4) the name and address of the Paying Agent;
(5) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price for, and any accrued
and unpaid interest on, and Liquidated Damages, if any, with
respect to such Notes;
(6) that, unless Holdings defaults in making such redemption payment,
interest on Notes called for redemption ceases to accrue on and
after the redemption date;
(7) the paragraph of the Notes pursuant to which the Notes called for
redemption are being redeemed; and
(8) the CUSIP number; provided that no representation is made as to
the correctness or accuracy of the CUSIP number listed in such
notice and printed on the Notes.
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At Holdings' request, the Trustee shall (at Holdings' expense) give the
notice of redemption in Holdings' name at least 30 but not more than 60 days
before a redemption; provided, however, that Holdings shall deliver to the
Trustee, at least 45 days prior to the redemption date and at least 10 days
prior to the date that notice of the redemption is to be mailed to Holders, an
Officers' Certificate that (i) requests the Trustee to give notice of the
redemption to Holders, (ii) sets forth the information to be provided to Holders
in the notice of redemption, as set forth in the preceding paragraph, (iii)
states that Holdings has elected to redeem Notes pursuant to Section 3.07(a) or
3.07(b), as the case may be, and (iv) sets forth the aggregate principal amount
(or, if prior to September 15, 2004, the Accreted Value) of Notes to be redeemed
and the amount of accrued and unpaid interest and Liquidated Damages, if any,
thereon as of the redemption date. If the Trustee is not the Registrar,
Holdings shall, concurrently with any such request, cause the Registrar to
deliver to the Trustee a certificate (upon which the Trustee may rely) setting
forth the name of, the address of, and the aggregate principal amount (or, if
prior to September 15, 2004, the Accreted Value) of Notes held by, each Holder.
Section 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed, Notes called for redemption become due
and payable on the redemption date at the price set forth in the Notes. Upon
surrender to the Trustee or Paying Agent, such Notes called for redemption shall
be paid at the redemption price (which shall include accrued interest thereon to
the redemption date) but installments of interest, the maturity of which is on
or prior to the redemption date, shall be payable to Holders of record at the
close of business on the relevant record dates.
Section 3.05. Deposit of Redemption Price.
Prior to 10 a.m. on any redemption date, Holdings shall deposit with the
Trustee or with the Paying Agent money sufficient to pay the redemption price
of, and accrued interest on, and Liquidated Damages, if any, with respect to all
Notes to be redeemed on that date. The Trustee or the Paying Agent shall return
to Holdings any money that Holdings deposited with the Trustee or the Paying
Agent in excess of the amounts necessary to pay the redemption price of, and
accrued interest on, and Liquidated Damages, if any, with respect to all Notes
to be redeemed.
If Holdings complies with the preceding paragraph, interest on the Notes to
be redeemed will cease to accrue on such Notes on the applicable redemption
date, whether or not such Notes are presented for payment. If a Note is
redeemed on or after an interest record date but on or prior to the related
interest payment date, then any accrued and unpaid interest and Liquidated
Damages, if any, shall be paid to the Person in whose name such Note was
registered at the close of business on such record date. If any Note called for
redemption shall not be so paid upon surrender for redemption because of the
failure of Holdings to comply with the preceding paragraph, interest will be
paid on the unpaid principal, premium, if any, interest and Liquidated Damages,
if any, from the redemption date until such principal, premium, interest and
Liquidated Damages, if any, is paid, at the rate of interest provided in the
Notes and Section 4.01.
Section 3.06. Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part, Holdings shall issue and
the Trustee shall authenticate for the Holder at Holdings' expense a new Note
equal in principal amount to the unredeemed portion of the Note surrendered.
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Section 3.07. Optional Redemption Provisions.
(a) Except as provided in Section 3.07(b), the Notes may not be redeemed at
the option of Holdings prior to September 15, 2002. During the twelve-month
period beginning on September 15 of the years indicated below, the Notes will be
redeemable at the option of Holdings, in whole or in part, on at least 30 but
not more than 60 days' notice to each Holder of Notes to be redeemed, at the
redemption prices (expressed as percentages of the Accreted Value for all
redemption dates prior to September 15, 2004 and of the principal amount for all
redemption dates including September 15, 2004 and thereafter) set forth below,
plus any accrued and unpaid interest and Liquidated Damages, if any, to the
redemption date:
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<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002.......................................................105.688
2003.......................................................103.792
2004.......................................................101.896
2005 and thereafter........................................100.000%
</TABLE>
(b) Notwithstanding the foregoing, on or after March 15, 1998 and prior to
September 15, 2002, Holdings may (but shall not have the obligation to) redeem,
in whole or in part, the outstanding Notes at a redemption price in cash equal
to 105.688% of the Accreted Value (determined at the date of redemption)
thereof, with the net proceeds of one or more Equity Offerings of Holdings or
the Company; provided, that any such redemption shall occur within 60 days of
the date of the closing of any such Equity Offering. In addition, upon the
occurrence of a Change of Control on or after March 15, 1998 and prior to
September 15, 2002, Holdings, at its option, may redeem, in whole or in part,
the outstanding Notes at a redemption price in cash equal to 105.688% of the
Accreted Value (determined at the date of redemption) thereof. Holdings shall
give not less than 30 and not more than 60 days' notice of such redemption
within 30 days following a Change of Control.
Section 3.08. Mandatory Purchase Provisions.
(a) Within 30 days after any Change of Control Trigger Date or Asset Sale
Trigger Date, Holdings shall mail a notice to each Holder at such Holder's
registered address stating (i) that an offer ("Offer") is being made pursuant to
Section 4.13 or Section 4.14, as the case may be, the length of time the Offer
shall remain open and the maximum aggregate principal amount of Notes that will
be accepted for payment pursuant to such Offer; (ii) the purchase price for the
Notes (as set forth in Section 4.13 or Section 4.14, as the case may be), the
amount of accrued and unpaid interest on, and Liquidated Damages, if any, with
respect to, such Notes as of the purchase date, and the purchase date (which
shall be no earlier than 30 days and no later than 40 days from the date such
notice is mailed (the "Purchase Date")); (iii) that any Note not accepted for
payment will continue to accrue interest and Liquidated Damages, if any; (iv)
that, unless Holdings fails to deposit with the Paying Agent on the Purchase
Date an amount sufficient to purchase all Notes accepted by Holdings for
payment, interest shall cease to accrue on such Notes after the Purchase Date;
(v) that Holders electing to tender any Note or portion thereof will be required
to surrender their Note, with a form entitled "Option of Holder to Elect
Purchase" completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the Business Day preceding the Purchase Date,
provided that Holders electing to tender only a portion of any Note must tender
a principal amount of $500 or integral multiples thereof; (vi) that Holders will
be entitled to withdraw their election to tender Notes, if the Paying Agent
receives, not later than the close of business on the third Business Day
preceding the Purchase Date, a telegram, telex, facsimile transmission (receipt
of which a Trust Officer has acknowledged) or letter setting forth the name of
the Holder, the principal amount (or, if prior to September 15, 2004, the
Accreted Value) of Notes delivered for purchase, and a statement that such
Holder is withdrawing his election to have such Note purchased; and (vii) that
Holders whose Notes are accepted for payment in part will be issued new Notes
equal in principal amount at maturity to the unpurchased portion of Notes
surrendered; provided that only Notes in a principal amount of $500 or integral
multiples thereof will be accepted for payment in part.
(b) On the Purchase Date for any Offer, Holdings shall, to the extent
required by this Indenture and such Offer, (i) in the case of an Offer resulting
from a Change of Control, accept for payment all Notes or portions thereof
tendered pursuant to such Offer and, in the case of an Offer resulting from an
Asset Sale, accept for payment the maximum principal amount (or, if prior to
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September 15, 2004, the Accreted Value) of Notes or portions thereof tendered
pursuant to such Offer that can be purchased out of Excess Proceeds from such
Asset Sale Trigger Date, (ii) deposit with the Paying Agent the aggregate
purchase price of all Notes or portions thereof accepted for payment and any
accrued and unpaid interest and Liquidated Damages, if any, on such Notes as of
the Purchase Date, and (iii) deliver or cause to be delivered to the Trustee all
Notes tendered pursuant to the Offer.
(c) With respect to any Offer, if less than all of the Notes tendered
pursuant to an Offer are to be purchased by Holdings, the Trustee shall select
on the Purchase Date the Notes or portions thereof to be accepted for payment
pursuant to Section 3.02.
(d) Promptly after consummation of an Offer, (i) the Paying Agent shall
mail (or cause to be transferred by book entry) to each Holder of Notes or
portions thereof accepted for payment an amount equal to the purchase price for,
plus any accrued and unpaid interest on, and Liquidated Damages, if any, with
respect to such Notes, (ii) with respect to any tendered Note not accepted for
payment in whole or in part, the Trustee shall return such Note to the Holder
thereof, and (iii) with respect to any Note accepted for payment in part, the
Trustee shall authenticate and mail to each such Holder a new Note equal in
principal amount at maturity to the unpurchased portion of the tendered Note.
(e) Holdings shall publicly announce the results of the Offer on or as soon
as practicable after the Purchase Date.
(f) Holdings shall comply with any tender offer rules under the Exchange
Act which may then be applicable to Holdings, including Rule 14e-1, in
connection with an Offer required to be made by Holdings to repurchase the Notes
as a result of a Change of Control Trigger Date or an Asset Sale Trigger Date.
To the extent that the provisions of any securities laws or regulations conflict
with provisions of this Indenture, Holdings shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this Indenture by virtue thereof.
(g) With respect to any Offer, if Holdings deposits prior to 10 a.m. New
York City time with the Paying Agent on the Purchase Date an amount in available
funds sufficient to purchase all Notes accepted by Holdings for payment,
interest shall cease to accrue on such Notes after the Purchase Date; provided,
however, that if Holdings fails to deposit such amount on the Purchase Date,
interest shall continue to accrue on such Notes until such deposit is made.
ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes.
(a) Holdings shall pay the principal of, and premium, if any, and accrued
and unpaid interest on the Notes on the dates and in the manner provided in the
Notes. Holders of Notes must surrender their Notes to the Paying Agent to
collect principal payments. Principal of, premium, if any, and accrued and
unpaid interest, and Liquidated Damages, if any, shall be considered paid on the
date due if the Paying Agent (other than Holdings or any of its Subsidiaries),
the Global Note Holder or each Holder that has specified an account, holds, as
of 10:00 a.m. New York City time, money Holdings deposited in immediately
available funds designated for and sufficient to pay in cash all principal,
premium, if any, and accrued and unpaid interest on, and Liquidated Damages, if
any, then due; provided that, to the extent that the Holders have not specified
accounts, such amounts shall be considered paid on the date due if Holdings
mails a check for such amounts on such date. The Paying Agent shall return to
Holdings, no later than five (5) days following the date of payment, any money
(including accrued
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interest) that exceeds the amount of principal, premium, if any, accrued and
unpaid interest, and Liquidated Damages, if any, paid on the Notes. Holdings
shall pay all Liquidated Damages, if any, in the same manner on the dates and in
the amounts set forth in the Registration Rights Agreement. If any Liquidated
Damages become payable, Holdings shall not later than three (3) Business Days
prior to the date that any payment of Liquidated Damages is due (i) deliver an
Officers' Certificate to the Trustee setting forth the amount of Liquidated
Damages payable to Holders and (ii) instruct the Paying Agent to pay such amount
of Liquidated Damages to Holders entitled to receive such Liquidated Damages.
(b) To the extent lawful, Holdings shall pay interest (including Post-
Petition Interest) on (i) overdue principal and premium at the then applicable
interest rate on the Notes, compounded semiannually and (ii) overdue
installments of interest and Liquidated Damages (without regard to any
applicable grace period) at the same rate as set forth in clause (i), compounded
semiannually.
Section 4.02. SEC Reports.
(a) So long as the Notes are outstanding, whether or not Holdings is
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, Holdings shall file with the SEC (unless the SEC will not accept such
filing) the annual reports, quarterly reports and other documents relating to
Holdings and its Restricted Subsidiaries that Holdings would have been required
to file with the SEC pursuant to Section 13 or 15(d) if Holdings were subject to
such reporting requirements.
(b) Holdings shall provide to the Holders and file with the Trustee,
within 15 days after it files them with the SEC, copies of the annual reports,
quarterly reports and other documents (or copies of such portions of any of the
foregoing as the SEC may by rules and regulations prescribe) that Holdings is
required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange
Act. If Holdings is not subject to the requirements of Section 13 or 15(d) of
the Exchange Act and the SEC will not accept such filing as is prescribed in
Section 4.02(a), Holdings shall provide to the Holders and file with the
Trustee, within 15 days after it would have been required or permitted, as the
case may be, to file with the SEC, financial statements, including any notes
thereto (and with respect to annual reports, an auditor's report by a firm of
established national reputation), and a "Management's Discussion and Analysis of
Financial Condition and Results of Operations," both comparable to that which
Holdings would have been required to include in such annual reports, quarterly
reports and other documents relating to Holdings and its Restricted Subsidiaries
if Holdings were subject to the requirements of Section 13 or 15(d) of the
Exchange Act. Subsequent to the qualification of this Indenture under the TIA,
Holdings also shall comply with the provisions of section 314(a) of the TIA.
(c) If Holdings is required to furnish annual or quarterly reports to its
stockholders pursuant to the Exchange Act, Holdings shall cause any annual
report furnished to its stockholders generally and any quarterly or other
financial reports it furnishes to its stockholders generally to be filed with
the Trustee, and Holdings shall mail such reports to the Holders at their
addresses appearing in the register of Notes maintained by the Registrar. If
Holdings is not required to furnish annual or quarterly reports to its
stockholders pursuant to the Exchange Act, Holdings shall cause its financial
statements referred to in Section 4.02(a), including any notes thereto (and with
respect to annual reports, an auditors' report by a firm of established national
reputation), and a "Management's Discussion and Analysis of Financial Condition
and Results of Operations," to be so mailed to the Holders within 120 days after
the end of each of Holdings' fiscal years and within 60 days after the end of
each of the first three fiscal quarters of each year. Holdings shall cause to
be disclosed in a statement accompanying any annual report or comparable
information as of the date of the most recent financial statements in each such
report or comparable information the amount available for payments pursuant to
Section 4.05.
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(d) If Holdings is not subject to the requirements of Section 13 or 15(d)
of the Exchange Act, for so long as any Notes remain outstanding, Holdings shall
furnish to the Holders, securities analysts and prospective investors, upon
their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
Section 4.03. Compliance Certificate.
Holdings shall deliver to the Trustee, within 120 days after the end of
each fiscal year of Holdings, an Officers' Certificate stating that a review of
the activities of Holdings and its Subsidiaries during the preceding fiscal year
has been made under the supervision of the signing Officers with a view to
determining whether Holdings has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, that, to the best of his or her knowledge, Holdings
has kept, observed, performed and fulfilled each and every covenant contained in
this Indenture and is not in default in the performance or observance of any of
the terms, provisions and conditions hereof (or, if a Default or Event of
Default shall have occurred, describing all such Defaults or Events of Default
of which he or she may have knowledge and what action Holdings has taken or
proposes to take with respect thereto) and that, to the best of his or her
knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of, premium, if any, and accrued and unpaid
interest on, and Liquidated Damages, if any, with respect to the Notes are
prohibited or if such event has occurred, a description of the event and what
action Holdings is taking or proposes to take with respect thereto.
So long as not contrary to the then current recommendations of the American
Institute of Certified Public Accountants, the financial statements delivered
pursuant to Section 4.02 shall be accompanied by a written statement of
Holdings' independent public accountants (who shall be a firm of established
national reputation reasonably satisfactory to the Trustee) that in making the
examination necessary for certification of such financial statements nothing has
come to their attention that would lead them to believe that Holdings has
violated any provisions of Section 4.01, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10,
4.11, 4.12, 4.13, 4.14 or 4.15 or of Article 5 or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
Holdings shall, so long as any of the Notes are outstanding, deliver to the
Trustee, forthwith upon any Officer becoming aware of any Default or Event of
Default, an Officers' Certificate specifying such Default or Event of Default
and what action Holdings is taking or proposes to take with respect thereto.
Section 4.04. Stay, Extension and Usury Laws.
Holdings covenants (to the extent that it may lawfully do so) that it will
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law wherever enacted,
now or at any time hereafter in force, that might affect the covenants or the
performance of this Indenture; and Holdings (to the extent it may lawfully do
so) hereby expressly waives all benefit or advantage of any such law, and
covenants that it will not, by resort to any such law, hinder, delay or impede
the execution of any power herein granted to the Trustee, but will suffer and
permit the execution of every such power as though no such law has been enacted.
Section 4.05. Limitation on Restricted Payments.
(a) Holdings shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, (i) declare or pay any dividend or make any distribution
on account of Holdings' or any
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Restricted Subsidiary's Equity Interests (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of Holdings and
dividends or distributions payable by a Restricted Subsidiary pro rata to its
shareholders); (ii) purchase, redeem or otherwise acquire or retire for value
any Equity Interests of Holdings or any of its Restricted Subsidiaries, other
than any such Equity Interests purchased from Holdings or any Restricted
Subsidiary for fair market value determined by the Board of Directors in good
faith; (iii) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Subordinated Indebtedness,
except a payment of interest or principal at Stated Maturity; or (iv) make any
Restricted Investment (all such payments and other actions set forth in clauses
(i) through (iv) above being collectively referred to as "Restricted Payments")
if, at the time of such Restricted Payment:
(A) a Default or Event of Default shall have occurred and be continuing or
shall occur as a consequence thereof; or
(B) immediately after such Restricted Payment and after giving effect
thereto on a Pro Forma Basis, Holdings shall not be able to issue
$1.00 of additional Indebtedness pursuant to Section 4.07(a); or
(C) such Restricted Payment, together with the aggregate of all other
Restricted Payments made after the date of original issuance of the
Notes, without duplication, exceeds the sum of: (1) 50% of the
aggregate Consolidated Net Income (including, for this purpose, gains
from Asset Sales and, to the extent not included in Consolidated Net
Income, any gain from a sale or disposition of a Restricted
Investment) of Holdings (or, in case such aggregate is a loss, 100% of
such loss) for the period (taken as one accounting period) from the
beginning of the first fiscal quarter commencing immediately after the
date of original issuance of the Notes and ended as of Holdings' most
recently ended fiscal quarter at the time of such Restricted Payment;
plus (2) 100% of the aggregate net cash proceeds and the fair market
value of any property or securities, as determined by the Board of
Directors in good faith, received by Holdings from the issue or sale
of Equity Interests of Holdings or Holdings (to the extent contributed
to Holdings) subsequent to the date of original issuance of the Notes
(other than (x) Equity Interests issued or sold to a Restricted
Subsidiary and (y) Disqualified Stock); plus (3) $7.5 million; plus
(4) the amount by which the principal amount of and any accrued
interest on either Senior Indebtedness of Holdings or any Restricted
Subsidiary is reduced on Holdings' consolidated balance sheet upon the
conversion or exchange (other than by a Restricted Subsidiary)
subsequent to the date of original issuance of the Notes of any
Indebtedness of Holdings or any Restricted Subsidiary (not held by
Holdings or any Restricted Subsidiary) for Equity Interests (other
than Disqualified Stock) of Holdings (less the amount of any cash, or
the fair market value of any other property or securities (as
determined by the Board of Directors in good faith), distributed by
Holdings or any Restricted Subsidiary (to Persons other than Holdings
or any other Restricted Subsidiary) upon such conversion or exchange);
plus (5) if any Non-Restricted Subsidiary is redesignated as a
Restricted Subsidiary, the value of the Restricted Payment that would
result if such Subsidiary were redesignated as a Non-Restricted
Subsidiary at such time, as determined in accordance with Section
4.15(a); provided, however, that for purposes of this clause (5), the
value of any redesignated Non-Restricted Subsidiary shall be reduced
by the amount that any such redesignation replenishes or increases the
amount of Restricted Investments permitted to be made pursuant to
clause (ii) of Section 4.05(b).
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(b) Notwithstanding the foregoing, the following Restricted Payments may
be made: (i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration, such payment would comply
with all covenants of this Indenture (including, but not limited to, Section
4.05); (ii) making Restricted Investments at any time, and from time to time, in
an aggregate outstanding amount of $15.0 million after the date of original
issuance of the Notes (it being understood that if any Restricted Investment
after the date of original issuance of the Notes pursuant to this clause (ii) is
sold, transferred or otherwise conveyed to any Person other than Holdings or a
Restricted Subsidiary, the portion of the net cash proceeds or fair market value
of securities or properties paid or transferred to Holdings and its Restricted
Subsidiaries in connection with such sale, transfer or conveyance that relates
or corresponds to the repayment or return of the original cost of such a
Restricted Investment will replenish or increase the amount of Restricted
Investments permitted to be made pursuant to this clause (ii), so that up to
$15.0 million of Restricted Investments may be outstanding under this clause
(ii) at any given time); provided that, without otherwise limiting this clause
(ii), any Restricted Investment in a Subsidiary made pursuant to this clause
(ii) is made for fair market value (as determined by the Board of Directors in
good faith); (iii) the repurchase, redemption, retirement or acquisition of
Equity Interests of Holdings or Holdings from the executives, management,
employees or consultants of Holdings or its Restricted Subsidiaries in an
aggregate amount not to exceed $10.0 million; (iv) any loans, advances,
distributions or payments from Holdings to its Restricted Subsidiaries, or any
loans, advances, distributions or payments by a Restricted Subsidiary to
Holdings or to another Restricted Subsidiary, in each case pursuant to
intercompany Indebtedness, intercompany management agreements and other
intercompany agreements and obligations; (v) the purchase, redemption,
retirement or other acquisition of the Notes pursuant to Sections 3.08, 4.14 or
4.15; (vi) the payment of (a) consulting, financial and investment banking fees
under the TJC Agreement, provided, that no Default or Event of Default shall
have occurred and be continuing or shall occur as a consequence thereof, and
Holdings' Obligations to pay such fees under the TJC Agreement shall be
subordinated expressly to Holdings' Obligations in respect of the Notes, and (b)
indemnities, expenses and other amounts under the TJC Agreement; (vii) the
redemption, repurchase, retirement or other acquisition of any Equity Interests
of Holdings or any Restricted Subsidiary in exchange for, or out of the proceeds
of, the substantially concurrent sale (other than to a Subsidiary of Holdings)
of other Equity Interests of Holdings (other than any Disqualified Stock) or the
redemption, repurchase, retirement or other acquisition of any Equity Interests
of any Restricted Subsidiary in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to Holdings or a Subsidiary of
Holdings) of other Equity Interests of such Restricted Subsidiary; provided
that, in each case, any net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition, and any Net Income
resulting therefrom, shall be excluded from Sections 4.05(a)(iv)(C)(1) and (2);
(viii) the defeasance, redemption or repurchase of Subordinated Indebtedness of
Holdings or any Restricted Subsidiary with the net cash proceeds from an
issuance of permitted Refinancing Indebtedness or the substantially concurrent
sale (other than to a Subsidiary of Holdings) of Equity Interests of Holdings
(other than Disqualified Stock) or the defeasance, redemption or repurchase of
Subordinated Indebtedness of any Restricted Subsidiary with the net cash
proceeds from the substantially concurrent sale (other than to a Subsidiary of
Holdings) of Equity Interests of such Restricted Subsidiary (other than
Disqualified Stock); provided that, in each case, any net cash proceeds that are
utilized for any such defeasance, redemption or repurchase, and any Net Income
resulting therefrom, shall be excluded from Sections 4.05(a)(iv)(C)(1) and (2);
(ix) Restricted Investments made or received in connection with the sale,
transfer or disposition of any business, properties or assets of Holdings or any
Restricted Subsidiary, provided, that if such sale, transfer or disposition
constitutes an Asset Sale, Holdings complies with Section 4.14; (x) any
Restricted Investment constituting securities or instruments of a Person issued
in exchange for trade or other claims against such Person in connection with a
financial reorganization or restructuring of such person; (xi) payments in
connection with the Offering, including, but not limited to, the expenses of the
Offering; (xii) payments of fees, expenses and indemnities to the directors of
Holdings and its Restricted Subsidiaries; (xiii) payments in respect of the
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Wolff Noncompetition Agreement; and (xiv) shareholder loans in an aggregate
principal amount not to exceed $1.0 million.
Section 4.06. Corporate Existence.
Subject to Section 4.14 and Article 5, Holdings shall do or cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence and the corporate, partnership or other existence of each of
its Restricted Subsidiaries in accordance with the respective organizational
documents of each of its Restricted Subsidiaries and the rights (charter and
statutory), licenses and franchises of Holdings and each of its Restricted
Subsidiaries; provided, however, that Holdings shall not be required to preserve
any such right, license or franchise, or the corporate, partnership or other
existence of any Restricted Subsidiary, if the Board of Directors shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of Holdings and its Restricted Subsidiaries taken as a whole, and
that the loss thereof is not adverse in any material respect to the Holders.
Section 4.07. Limitation on Incurrence of Indebtedness.
(a) Holdings shall not, and shall not permit any Restricted Subsidiary to,
issue any Indebtedness (other than the Indebtedness represented by the Notes)
unless Holdings' Cash Flow Coverage Ratio for its four full fiscal quarters next
preceding the date such additional Indebtedness is issued would have been at
least 1.5 to 1 determined on a Pro Forma Basis (including, for this purpose, any
other Indebtedness incurred since the end of the applicable four quarter period)
as if such additional Indebtedness and any other Indebtedness issued since the
end of such four quarter period had been issued at the beginning of such four
quarter period.
(b) Section 4.07(a) shall not apply to the issuance of: (i) Indebtedness
of Holdings and/or its Restricted Subsidiaries under the Credit Facilities in an
aggregate principal amount outstanding on such date of issuance (with letters of
credit being deemed to have a principal amount equal to the maximum potential
liability of Holdings and/or any of its Restricted Subsidiaries thereunder) not
to exceed the greater of (A) $135.0 million and (B) the sum of: (1) 85% of the
book value of accounts receivable of Holdings and its Restricted Subsidiaries on
a consolidated basis and (2) 65% of the book value of the inventories of
Holdings and its Restricted Subsidiaries; provided that the aggregate principal
amount of Indebtedness outstanding under this clause (i) together with the
aggregate principal amount of Indebtedness outstanding under clause (iii) below
shall not exceed $160.0 million at any one time outstanding (less the amount of
any permanent reductions as set forth in Section 4.14); (ii) Indebtedness of
Holdings and its Restricted Subsidiaries in connection with capital leases, sale
and leaseback transactions, purchase money obligations, capital expenditures or
similar financing transactions relating to: (A) their properties, assets and
rights as of the date of original issuance of the Notes not to exceed $10.o
million in aggregate principal amount at any one time outstanding, or (B) their
properties, assets and rights acquired after the date of original issuance of
the Notes, provided that the aggregate principal amount of such Indebtedness
under this clause (ii)(B) does not exceed 100% of the cost of such properties,
assets and rights; (iii) additional Indebtedness of Holdings and its Restricted
Subsidiaries in an aggregate principal amount up to $35.0 million (all or any
portion of which may be issued as additional Indebtedness under the Credit
Facilities) provided that the aggregate principal amount of Indebtedness
outstanding under this clause (iii) together with the aggregate principal amount
of Indebtedness outstanding under clause (i) above shall not exceed $160.0
million at any one time outstanding (less the amount of any permanent reductions
as set forth in Section 4.14); and (iv) Other Permitted Indebtedness.
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Section 4.08. Limitation on Transactions With Affiliates.
(a) Except as otherwise set forth herein, neither Holdings nor any of its
Restricted Subsidiaries shall make any loan, advance, guarantee or capital
contribution to, or for the benefit of, or sell, lease, transfer or dispose of
any properties or assets to, or for the benefit of, or purchase or lease any
property or assets from, or enter into or amend any contract, agreement or
understanding with, or for the benefit of, an Affiliate (each such transaction
or series of related transactions that are part of a common plan are referred to
as an "Affiliate Transaction"), except in good faith and on terms that are no
less favorable to Holdings or the relevant Restricted Subsidiary than those that
would have been obtained in a comparable transaction on an arm's length basis
from an unrelated Person.
(b) Holdings shall not, and shall not permit any Restricted Subsidiary to,
engage in any Affiliate Transaction involving aggregate payments or other
transfers by Holdings and its Restricted Subsidiaries in excess of $10.0 million
(including cash and non-cash payments and benefits valued at their fair market
value by the Board of Directors of Holdings in good faith) unless Holdings
delivers to the Trustee: (i) a resolution of the Board of Directors of Holdings
stating that the Board of Directors (including a majority of the disinterested
directors, if any) has, in good faith, determined that such Affiliate
Transaction complies with the provisions of this Indenture, and (ii) (A) with
respect to any Affiliate Transaction involving the incurrence of Indebtedness, a
written opinion of a nationally recognized investment banking or accounting firm
experienced in the review of similar types of transactions, (B) with respect to
any Affiliate Transaction involving the transfer of real property, fixed assets
or equipment, either directly or by a transfer of 50% or more of the Capital
Stock of a Restricted Subsidiary which holds any such real property, fixed
assets or equipment, a written appraisal from a nationally recognized appraiser,
experienced in the review of similar types of transactions or (C) with respect
to any Affiliate Transaction not otherwise described in (A) and (B) above, a
written certification from a nationally recognized professional or firm
experienced in evaluating similar types of transactions, in each case, stating
that the terms of such transaction are fair to Holdings or such Restricted
Subsidiary, as the case may be, from a financial point of view.
(c) Notwithstanding Sections 4.08(a) and (b), Section 4.08 will not apply
to: (i) transactions between Holdings and any Restricted Subsidiary or between
Restricted Subsidiaries; (ii) payments under the TJC Agreement; (iii) any other
payments or transactions permitted pursuant to Section 4.05; (iv) (A) payments
and transactions under Incentive Arrangements and (B) reasonable compensation
paid to officers, employees or consultants of Holdings or any Restricted
Subsidiary as determined in good faith by Holdings' Board of Directors or
executives; or (v) or the sale, transfer and/or termination of the officers'
life insurance policies in effect on the date of issuance of the Notes.
(d) Notwithstanding Sections 4.08(a) and (b), any Affiliate Transaction
between the Company and Affiliated Embroiderers relating to the provision of
embroidery services in the ordinary course of business shall not be subject to
the provisions of clause (ii) of Section 4.08(b).
Section 4.09. Limitation on Liens.
Holdings shall not, and shall not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, assume or suffer to exist any Lien,
other than Permitted Liens, upon any property or asset now owned or hereafter
acquired by them, or any income or profits therefrom, or assign or convey any
right to receive income therefrom unless all payments due under this Indenture
and the Notes are secured on an equal and ratable basis with the obligations so
secured until such time as such obligations are no longer secured by a Lien.
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Section 4.10. Compliance With Laws, Taxes.
Holdings shall, and shall cause each of its Restricted Subsidiaries to,
comply with all statutes, laws, ordinances, or government rules and regulations
to which it is subject, the non-compliance with which would materially adversely
affect the business, prospects, earnings, properties, assets or condition,
financial or otherwise, of Holdings and its Restricted Subsidiaries taken as a
whole.
Holdings shall, and shall cause each of its Restricted Subsidiaries to, pay
prior to delinquency all taxes, assessments and governmental levies, except
those contested in good faith by appropriate proceedings.
Section 4.11. Limitation on Dividends and Other Payment Restrictions Affecting
Restricted Subsidiaries.
(a) Holdings shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective, any encumbrance or restriction on the ability of any
Restricted Subsidiary to: (i) pay dividends or make any other distributions on
its Capital Stock or any other interest or participation in, or measured by, its
profits, owned by Holdings or any Restricted Subsidiary, or pay any Indebtedness
owed to, Holdings or any Restricted Subsidiary, (ii) make loans or advances to
Holdings, or (iii) transfer any of its properties or assets to Holdings, except
for such encumbrances or restrictions existing under or by reason of: (A)
applicable law, (B) Indebtedness permitted (1) under Section 4.07(a) and (2)
under clauses (i), (ii) and (iii) of Section 4.07(b) and clauses (iv), (vii) and
(x) of the definition of "Other Permitted Indebtedness," (C) customary
provisions restricting subletting or assignment of any lease or license of
Holdings or any Restricted Subsidiary, (D) customary provisions of any
franchise, distribution or similar agreement, (E) any instrument governing
Indebtedness or preferred stock or any other encumbrance or restriction of a
Person acquired by Holdings or any Restricted Subsidiary at the time of such
acquisition, which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, (F) Indebtedness or other
agreements existing on the date of original issuance of the Notes, (G) any
Refinancing Indebtedness permitted under Section 4.07, provided that the
restrictions contained in the agreements governing such Refinancing Indebtedness
are no more restrictive in any material respect with regard to the interests of
the holders of the Notes than those contained in the agreements governing the
Indebtedness being refinanced, (H) any restrictions, with respect to a
Restricted Subsidiary, imposed pursuant to an agreement that has been entered
into for the sale or disposition of the stock, business, assets or properties of
such Restricted Subsidiary, (I) the terms of purchase money or capital lease
obligations, but only to the extent such purchase money obligations restrict or
prohibit the transfer of the property so acquired, or (J) any instrument
governing the sale of assets of Holdings or any Restricted Subsidiary, which
encumbrance or restriction applies solely to the assets of Holdings or such
Restricted subsidiary being sold in such transaction.
(b) Nothing contained in Section 4.11 shall prevent Holdings from entering
into any agreement or instrument providing for the incurrence of Permitted Liens
or restricting the sale or other disposition of property or assets of Holdings
or any of its Restricted Subsidiaries that are subject to Permitted Liens.
Section 4.12. Maintenance of Office or Agencies.
Holdings shall maintain in the Borough of Manhattan, the City of New York
an office or an agency (which may be an office of any Agent or any Affiliate
thereof) where Notes may be surrendered
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for registration of transfer or exchange and where notices and demands to or
upon Holdings in respect of the Notes and this Indenture may be served.
Holdings shall give prompt written notice to the Trustee of any change in the
location of such office or agency. If at any time Holdings shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office.
Holdings may also from time to time designate one or more other offices or
agencies where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; provided, however,
that no such designation or rescission shall in any matter relieve Holdings of
its obligation to maintain an office or agency in the Borough of Manhattan, the
City of New York for such purposes. Holdings shall give prompt written notice
to the Trustee of any such designation or rescission and of any change in the
location of any such other office or agency.
Holdings hereby designates the Corporate Trust Office of State Street Bank
and Trust Company, N.A., 61 Broadway, Concourse Level, Corporate Trust Window,
New York, New York 10006 as one such office or agency of Holdings in accordance
with Section 2.03.
Section 4.13. Change of Control.
(a) Upon the occurrence of a Change of Control (such date being the
"Change of Control Trigger Date"), each Holder of Notes shall have the right to
require Holdings to purchase all or any part (equal to $500 or an integral
multiple thereof) of such Holder's Notes pursuant to an Offer at a purchase
price in cash equal to 100% of the Accreted Value (determined at the date of
redemption) thereof (if such Offer is prior to September 15, 2004) or the
aggregate principal amount thereof (if such Offer is on or after September 15,
2004), plus any accrued and unpaid interest and Liquidated Damages, if any, to
the date of purchase. Although the failure of Holdings to purchase all Notes
tendered in such an Offer shall be a Default, if Holdings is unable to purchase
all Notes tendered in such an Offer, Holdings shall nevertheless purchase the
maximum principal amount of Notes that it is able to purchase at that time.
(b) In the event of a Change of Control, Holdings shall not offer to
purchase or redeem any Subordinated Indebtedness required or entitled by its
terms to be redeemed or purchased until the Change of Control Offer for the
Notes has been consummated and all Notes tendered pursuant to such Offer have
been accepted for payment.
Section 4.14. Limitation on Asset Sales.
(a) Holdings shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, consummate an Asset Sale (including the sale of any of
the Capital Stock of any Restricted Subsidiary) providing for Net Proceeds in
excess of $4.0 million unless at least 75% of the Net Proceeds from such Asset
Sale are applied (in any manner otherwise permitted by this Indenture) to one or
more of the following purposes in such combination as Holdings shall elect: (a)
an investment in another asset or business in the same line of business as, or a
line of business similar to that of, the line of business of Holdings and its
Restricted Subsidiaries at the time of the Asset Sale or the making of a capital
expenditure otherwise permitted by this Indenture; provided that such investment
occurs within 365 days of the date of such Asset Sale (the "Asset Sale
Disposition Date"), (b) to reimburse Holdings or its Restricted Subsidiaries for
expenditures made, and costs incurred, to repair, rebuild, replace or restore
property subject to loss, damage or taking to the extent that the Net Proceeds
consist of insurance proceeds received on account of such loss, damage or
taking, (c) to cash collateralize letters of credit; provided any such cash
collateral released to Holdings or its Restricted Subsidiaries upon the
expiration of such letters of credit shall again be deemed to be Net Proceeds
received on the date of such release,
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(d) the permanent purchase, redemption or other prepayment or repayment of
outstanding Senior Indebtedness of Holdings or Indebtedness of Holdings'
Restricted Subsidiaries (with a corresponding reduction in any commitment
relating thereto) on or prior to the 365th day following the Asset Sale
Disposition Date or (e) an Offer expiring on or prior to the Purchase Date.
(b) Holdings shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, consummate an Asset Sale unless at least 75% of the
consideration thereof received by Holdings or such Restricted Subsidiary is in
the form of cash or Marketable Securities; provided that, solely for purposes of
calculating such 75% of the consideration, the amount of (x) any liabilities (as
shown on Holdings' or such Restricted Subsidiary's most recent balance sheet or
in the notes thereto, excluding contingent liabilities and trade payables) of
Holdings or any Restricted Subsidiary (other than liabilities that are by their
terms subordinated to the Notes) that are assumed by the transferee of any such
assets and (y) any notes or other obligations received by Holdings or any such
Restricted Subsidiary from such transferee that are promptly, but in no event
more than 90 days after receipt, converted by Holdings or such Restricted
Subsidiary into cash (to the extent of the cash received), shall be deemed to be
cash and cash equivalents for purposes of this provision. Any Net Proceeds from
any Asset Sale that are not applied or invested as provided in the first
sentence of this paragraph shall constitute "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $15.0 million
(such date being an "Asset Sale Trigger Date"), Holdings shall make an Offer to
all Holders of Notes to purchase the maximum principal amount of the Notes then
outstanding that may be purchased out of Excess Proceeds, at an offer price in
cash in an amount equal to 100% of Accreted Value (determined at the date of
redemption) thereof to the Purchase Date (if such Purchase Date is prior to
September 15, 2004) or 100% of the aggregate principal amount thereof (if such
Purchase Date is on or after September 15, 2004) plus any accrued and unpaid
interest and Liquidated Damages, if any, to the Purchase Date in accordance with
the procedures set forth in this Indenture.
(d) To the extent that any Excess Proceeds remain after completion of an
Offer, Holdings may use such remaining amount for general corporate purposes.
(e) If the Accreted Value or the aggregate principal amount, as the case
may be, of Notes surrendered by Holders thereof exceeds the amount of Excess
Proceeds, the Trustee shall select the Notes to be purchased on a pro rata
basis, by lot or by a method that complies with the requirements of any stock
exchange on which the Notes are listed and that the Trustee considers fair and
appropriate.
(f) Upon completion of an Asset Sale Offer, the amount of Excess Proceeds
shall be reset at zero.
(g) Notwithstanding the foregoing, to the extent that any or all of the
Net Proceeds of an Asset Sale is prohibited or delayed by applicable local law
from being repatriated to the United States, the portion of such Net Proceeds so
affected will not be required to be applied as described in Section 4.14, but
may be retained for so long, but only for so long, as the applicable local law
prohibits repatriation to the United States. Holdings shall promptly take all
reasonable actions required by the applicable local law to permit such
repatriation, and once such repatriation of any affected Net Proceeds is not
prohibited under applicable local law, such repatriation will be immediately
effected and such repatriated Net Proceeds will be applied in the manner set
forth above as if such Asset Sale have occurred on the date of repatriation.
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Section 4.15. Designation of Restricted and Non-Restricted Subsidiaries.
(a) From and after the date of original issuance of the Notes, Holdings
may designate any existing or newly formed or acquired Subsidiary as a Non-
Restricted Subsidiary; provided that (i) either (A) the Subsidiary to be so
designated has total assets of $1.0 million or less or (B) immediately before
and after giving effect to such designation on a Pro Forma Basis: (1) Holdings
could incur $1.00 of additional Indebtedness pursuant to Section 4.07(a)
determined on a Pro Forma Basis; and (2) no Default or Event of Default shall
have occurred and be continuing, and (ii) all transactions between the
Subsidiary to be so designated and its Affiliates remaining in effect are
permitted pursuant to Section 4.08. Any Investment made by Holdings or any
Restricted Subsidiary that is redesignated from a Restricted Subsidiary to a
Non-Restricted Subsidiary shall be considered a Restricted Payment (to the
extent not previously included as a Restricted Payment) made on the day such
Subsidiary is designated a Non-Restricted Subsidiary in the amount of the
greater of (i) the fair market value (as determined by the Board of Directors of
Holdings in good faith) of the Equity Interests of such Subsidiary held by
Holdings and its Restricted Subsidiaries on such date, and (ii) the amount of
the Investments determined in accordance with GAAP made by Holdings and any of
its Restricted Subsidiaries in such Subsidiary.
(b) A Non-Restricted Subsidiary may be redesignated as a Restricted
Subsidiary. Holdings shall not, and shall not permit any Restricted Subsidiary
to, take any action or enter into any transaction or series of transactions that
would result in a Person becoming a Restricted Subsidiary (whether through an
acquisition, the redesignation of a Non-Restricted Subsidiary or otherwise, but
not including through the creation of a new Restricted Subsidiary) unless,
immediately before and after giving effect to such action, transaction or series
of transactions on a Pro Forma Basis, (i) Holdings could incur at least $1.00 of
additional Indebtedness pursuant to Section 4.07(a) and (ii) no Default or Event
of Default shall have occurred and be continuing.
(c) The designation of a Subsidiary as a Restricted Subsidiary or the
removal of such designation is required to be made by a resolution adopted by a
majority of the Board of Directors of Holdings stating that the Board of
Directors has made such designation in accordance with this Indenture, and
Holdings is required to deliver to the Trustee such resolution together with an
Officers' Certificate certifying that the designation complies with this
Indenture. Such designation will be effective as of the date specified in the
applicable resolution, which may not be before the date the applicable Officers'
Certificate is delivered to the Trustee.
ARTICLE 5
SUCCESSORS
Section 5.01. Merger or Consolidation.
(a) Holdings shall not consolidate or merge with or into, or sell, lease,
convey or otherwise dispose of all or substantially all of its assets to, any
Person (any such consolidation, merger or sale being a "Disposition") unless (i)
the successor corporation of such Disposition or the corporation to which such
Disposition shall have been made is a corporation organized or existing under
the laws of the United States, any state thereof or the District of Columbia;
(ii) the successor corporation of such Disposition or the corporation to which
such Disposition shall have been made expressly assumes the Obligations of
Holdings, pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee, under the Indenture and the Notes; (iii) immediately after such
Disposition, no Default or Event of Default shall exist; and (iv) the
corporation formed by or surviving any such Disposition, or the corporation to
which such Disposition shall have been made, shall (A) have Consolidated Net
Worth (immediately after the
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Disposition but prior to giving any pro forma effect to purchase accounting
adjustments or Restructuring Charges resulting from the Disposition) equal to or
greater than the Consolidated Net Worth of Holdings immediately preceding the
Disposition, (B) be permitted immediately after the Disposition by the terms of
this Indenture to issue at least $1.00 of additional Indebtedness determined on
a Pro Forma Basis, and (C) have a Cash Flow Coverage Ratio, for the four fiscal
quarters immediately preceding the applicable Disposition, and determined on a
Pro Forma Basis, equal to or greater than the actual Cash Flow Coverage Ratio of
Holdings for such four quarter period.
(b) Prior to the consummation of any proposed Disposition, Holdings shall
deliver to the Trustee an Officers' Certificate to the foregoing effect and an
Opinion of Counsel stating that the proposed Disposition and such supplemental
indenture comply with this Indenture.
Section 5.02. Successor Corporation Substituted.
Upon any Disposition, the Successor Corporation resulting from such
Disposition shall succeed to, and be substituted for, and may exercise every
right and power of, Holdings under this Indenture with the same effect as if
such Successor has been named as Holdings herein; provided, however, that
neither Holdings nor any Successor Corporation shall be released from its
Obligation to pay the principal of, premium, if any, and accrued and unpaid
interest on, and Liquidated Damages, if any, with respect to the Notes.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
(a) An Event of Default is:
(i) a default for 30 days in payment of interest on, or Liquidated
Damages, if any, with respect to, the Notes;
(ii) a default in payment when due of principal or premium, if any,
with respect to, the Notes;
(iii) the failure of Holdings to comply with any of its other
agreements or covenants in, or provisions of, this Indenture or
the Notes outstanding and the Default continues for the period,
if applicable, and after the notice specified in Section
6.01(b);
(iv) a default by Holdings or any Restricted Subsidiary under any
mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by Holdings or any Restricted
Subsidiary (or the payment of which is guaranteed by Holdings
or any Restricted Subsidiary), whether such Indebtedness or
guarantee now exists or shall be created hereafter, if (A)
either (1) such default results from the failure to pay
principal of or interest on any such Indebtedness at or after
the final maturity thereof (after giving effect to any
extensions thereof) or (2) as a result of such default the
maturity of such Indebtedness has been accelerated prior to its
expressed maturity, and (B) the principal amount of such
Indebtedness,
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together with the principal amount of any other such Indebtedness in
default for failure to pay principal or interest thereon, or because
of the acceleration of the maturity thereof, aggregates in excess of
$12.5 million;
(v) a failure by Holdings or any Restricted Subsidiary to pay final
judgments (not covered by insurance) aggregating in excess of
$7.5 million, which judgments a court of competent jurisdiction
does not rescind, annul or stay within 45 days after their entry;
and
(vi) in existence when Holdings or any Significant Subsidiary pursuant
to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in
an involuntary case,
(C) consents to the appointment of a Custodian of it or for
all or substantially all of its property, or
(D) makes a general assignment for the benefit of its
creditors; and
(vii) in existence when a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that:
(A) is for relief against Holdings or any Significant
Subsidiary in an involuntary case,
(B) appoints a Custodian of Holdings or any Significant
Subsidiary or for all or substantially all of the property
of Holdings or any Significant Subsidiary, or
(C) orders the liquidation of Holdings or any Significant
Subsidiary,
and any such order or decree remains unstayed and in effect for
60 days.
(b) A Default or Event of Default under Section 6.01(a)(iii) (other than
an Event of Default arising under Section 5.01, which shall be an Event of
Default with the notice but without the passage of time specified in this
Section 6.01(b)) is not an Event of Default under this Indenture until the
Trustee or the Holders of at least 25% in principal amount at maturity of the
Notes then outstanding notify Holdings of the Default, and Holdings does not
cure the Default within 30 days after receipt of the notice. The notice must
specify the Default, demand that it be remedied, and state that the notice is a
"Notice of Default."
(c) In the case of any Event of Default pursuant to Sections 6.01(a)(i)
and (ii) occurring by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of Holdings with the intention of avoiding payment of the
premium that Holdings would have to pay if Holdings then had elected to redeem
the Notes pursuant to paragraph 5 of the Notes, an equivalent premium shall also
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become and be immediately due and payable to the extent permitted by law,
anything in this Indenture or in the Notes contained to the contrary
notwithstanding.
(d) The Trustee shall not be charged with knowledge of any Default or
Event of Default unless written notice thereof shall have been given to a Trust
Officer at the Corporate Trust Office of the Trustee by Holdings or any other
Person.
(e) The Trustee may withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a Default or an Event of Default
pursuant to Sections 6.01(a)(i) and (ii)) if the Trustee determines that
withholding notice is in their interest.
Section 6.02. Acceleration.
(a) Upon the occurrence of an Event of Default (other than an Event of
Default under clause Sections 6.01(a)(vi) and (vii)), the Trustee or the holders
of at least 25% in principal amount at maturity of the then outstanding Notes
may declare all Notes to be due and payable immediately by notice in writing to
Holdings and the Trustee specifying the respective Event of Default and that it
is a "notice of acceleration" (the "Acceleration Notice") and, upon receipt by
Holdings of such Acceleration Notice, the principal of (or, if prior to
September 15, 2004, the Accreted Value of), premium, if any, and any accrued and
unpaid interest on, and Liquidated Damages, if any, with respect to all Notes
shall be due and payable immediately, but only if such Event of Default is then
continuing; provided, however, that if an Event of Default arises under Section
6.01(a)(vi) or (vii), the principal of (or, if prior to September 15, 2004, the
Accreted Value of), premium, if any, and any accrued and unpaid interest on, and
Liquidated Damages, if any, with respect to all Notes, shall ipso facto become
and be immediately due and payable without any declaration or other act on the
part of the Trustee or any Holders of Notes.
(b) The holders of a majority in principal amount at maturity of the Notes
then outstanding, by notice to the Trustee, may rescind any declaration of
acceleration of such Notes and its consequences (if the rescission would not
conflict with any judgment or decree) if all existing Events of Default (other
than the nonpayment of principal of (or, if prior to September 15, 2004, the
Accreted Value of) or interest on such Notes that shall have become due by such
declaration) shall have been cured or waived.
(c) If there has been a declaration of acceleration of the Notes because
an Event of Default under Section 6.01(a)(iv) has occurred and is continuing,
such declaration of acceleration shall be automatically annulled if the holders
of the Indebtedness described in Section 6.01(a)(iv) have rescinded the
declaration of acceleration in respect of such Indebtedness within 30 Business
Days thereof and if (i) the annulment of such acceleration would not conflict
with any judgment or decree of a court of competent jurisdiction, (ii) all
existing Events of Default, except non-payment of principal (or, if prior to
September 15, 2004, the Accreted Value), premium, interest or Liquidated Damages
that shall have become due solely because of the acceleration, have been cured
or waived, and (iii) Holdings has delivered an Officers' Certificate to the
Trustee to the effect of clauses (i) and (ii) above.
Section 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy to collect the payment of principal of, premium, if any, or any
accrued and unpaid interest on, or Liquidated Damages, if any, with respect to
the Notes or to enforce the performance of any provision of the Notes or this
Indenture.
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The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding. A delay or omission
by the Trustee or any Holder in exercising any right or remedy accruing upon an
Event of Default shall not impair the right or remedy or constitute a waiver of
or acquiescence in the Event of Default. All remedies are cumulative to the
extent permitted by law.
Section 6.04. Waiver of Past Defaults.
The holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of all Holders of Notes waive
any existing Default or Event of Default under this Indenture and its
consequences, except a continuing Default in the payment of the principal of,
premium, if any, and interest on, and Liquidated Damages, if any, with respect
to such Notes, which may only be waived with the consent of each Holder of Notes
affected. Upon any such waiver, such Default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured for every
purpose of this Indenture; provided that no such waiver shall extend to any
subsequent or other Default or impair any right consequent thereon.
Section 6.05. Control by Majority.
Subject to Section 7.01(e), the Holders of a majority in principal amount
at maturity of the then outstanding Notes may direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on it by this Indenture. However, the
Trustee may refuse to follow any direction that conflicts with law or this
Indenture, that the Trustee determines may be unduly prejudicial to the rights
of other Holders or would involve the Trustee in personal liability.
Section 6.06. Limitation on Suits.
A Holder may pursue a remedy with respect to this Indenture or the Notes
only if (i) the Holder gives to the Trustee notice of a continuing Event of
Default; (ii) the Holders of at least 25% in principal amount at maturity of the
then outstanding Notes make a request to the Trustee to pursue the remedy; (iii)
such Holder or Holders offer to the Trustee indemnity satisfactory to the
Trustee against any loss, liability or expense; (iv) the Trustee does not comply
with the request within 60 days after receipt of the request and the offer of
indemnity; and (v) during such 60-day period the Holders of a majority in
principal amount at maturity of the then outstanding Notes do not give the
Trustee a direction inconsistent with the request.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over another Holder.
Holders of the Notes may not enforce this Indenture, except as provided
herein.
Section 6.07. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder to receive payment of principal of, premium, if any, and any accrued and
unpaid interest on, and Liquidated Damages, if any, with respect to a Note, on
or after a respective due date expressed in the Note, or to bring suit for the
enforcement of any such payment on or after such respective date, shall not be
impaired or affected without the consent of the Holder.
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Section 6.08. Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(a)(i) or (ii) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name and
as trustee of an express trust against Holdings for (i) the principal, premium
and Liquidated Damages, if any, and interest remaining unpaid on the Notes, (ii)
interest on overdue principal and premium, if any, and, to the extent lawful,
interest, and (iii) such further amount as shall be sufficient to cover the
costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel
("Trustee Expenses").
Section 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or documents as
may be necessary or advisable to have the claims of the Trustee (including any
claim for Trustee Expenses) and the Holders allowed in any Insolvency or
Liquidation Proceeding or other judicial proceeding relative to Holdings (or any
other obligor upon the Notes), its creditors or its property and shall be
entitled and empowered to collect, receive and distribute to Holders any money
or other property payable or deliverable on any such claims and each Holder
authorizes any Custodian in any such Insolvency or Liquidation Proceeding or
other judicial proceeding to make such payments to the Trustee, and if the
Trustee shall consent to the making of such payments directly to the Holders any
such Custodian is hereby authorized to make such payments directly to the
Holders, and to pay to the Trustee any amount due to it hereunder for Trustee
Expenses, and any other amounts due the Trustee under Section 7.07. To the
extent that the payment of any such Trustee Expenses, and any other amounts due
the Trustee under Section 7.07 out of the estate in any such proceeding, shall
be denied for any reason, payment of the same shall be secured by a Lien on, and
shall be paid out of, any and all distributions, dividends, money, securities
and other properties which the Holders may be entitled to receive in such
proceeding, whether in liquidation or under any plan of reorganization or
arrangement or otherwise. Nothing herein contained shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder, or to authorize the Trustee to
vote in respect of the claim of any Holder in any Insolvency or Liquidation
Proceeding.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article, it shall pay
out the money in the following order:
First: to the Trustee for Trustee Expenses due under Section 6.08 or for
other amounts due under Section 7.07;
Second: to Holders for amounts due and unpaid on the Notes for principal,
premium and Liquidated Damages, if any, and interest, ratably,
without preference or priority of any kind, according to the
amounts due and payable on the Notes for principal, premium and
Liquidated Damages, if any, and interest, respectively; and
Third: to Holdings or to such party as a court of competent jurisdiction
shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders.
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Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as a
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section does
not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07,
or a suit by Holders of more than 10% in principal amount at maturity of the
then outstanding Notes.
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee.
(a) If an Event of Default occurs (and has not been cured) the Trustee
shall (i) exercise the rights and powers vested in it by this Indenture, and
(ii) use the same degree of care and skill in exercising such rights and powers
as a prudent person would exercise or use under the circumstances in the conduct
of its own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Trustee's duties shall be determined solely by the express
provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture
and no others, and no implied covenants or obligations shall be
read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture. However, the
Trustee shall examine the certificates and opinions to
determine whether they conform to this Indenture's
requirements.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own wilful
misconduct, except that:
(i) this paragraph does not limit the effect of Section
7.01(b);
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved
that the Trustee was negligent in ascertaining the
pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with
a direction it receives pursuant to Section 6.05.
(d) Whether or not expressly so provided, every provision of this
Indenture that in any way relates to the Trustee is subject to paragraphs (a),
(b),(c) and (e) of this Section.
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(e) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at the
request of any Holders unless such Holders shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money it receives
except as the Trustee may agree in writing with Holdings. Money the Trustee
holds in trust need not be segregated from other funds except to the extent
required by law.
Section 7.02. Rights of Trustee.
(a) The Trustee may rely on any document it believes to be genuine and to
have been signed or presented by the proper Person. The Trustee shall not be
obligated to investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may reasonably
require an Officers' Certificate or an Opinion of Counsel, or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may
consult with counsel and advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and in reliance
thereon.
(c) The Trustee may act through agents and shall not be responsible for
the misconduct or negligence of any Agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take, except to the extent that such action or omission to act constitutes
negligence or wilful misconduct on the part of the Trustee.
(e) Unless otherwise specifically provided in this Indenture, any demand,
request, direction or notice from Holdings shall be sufficient if signed by an
Officer.
Section 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Notes and may otherwise deal with Holdings or an Affiliate with the
same rights it would have if it were not Trustee. However, if the Trustee
acquires any conflicting interest it must eliminate such conflict within 90
days, apply to the SEC for permission to continue as Trustee or resign. Any
Agent may do the same with like rights. The Trustee is also subject to Sections
7.10 and 7.11.
Section 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for Holdings' use of the proceeds from the Notes or for any money
paid to Holdings or upon Holdings' direction under any provisions hereof, it
shall not be responsible for the use or application of any money any Paying
Agent other than the Trustee receives, and it shall not be responsible for any
statement or recital herein or any statement in the Notes or any other document
furnished or issued in connection with the sale of the Notes or pursuant to this
Indenture, other than its certificate of authentication.
Section 7.05. Notice to Holders of Defaults and Events of Default.
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If a Default or Event of Default occurs and is continuing and if it is
actually known to the Trustee, the Trustee shall mail to Holders a notice of the
Default or Event of Default within 90 days after it occurs. Except in the case
of a Default or Event of Default in payment on any Note (including any failure
to redeem Notes called for redemption or any failure to purchase Notes tendered
pursuant to an Offer that are required to be purchased by the terms of this
Indenture), the Trustee may withhold the notice if and so long as a committee of
its Trust Officers in good faith determines that withholding the notice is in
the Holders' interests.
Section 7.06. Reports by Trustee to Holders.
Within 60 days after each February 15 beginning with February 15, 1998, the
Trustee shall mail to Holders a brief report dated as of such reporting date
that complies with section 313(a) of the TIA (but if no event described in
section 313(a) of the TIA has occurred within the twelve months preceding the
reporting date, no report need be transmitted). The Trustee also shall comply
with section 313(b)(2) of the TIA. The Trustee shall also transmit by mail all
reports as required by section 313(c) of the TIA.
Commencing at the time this Indenture is qualified under the TIA, a copy of
each report at the time of its mailing to Holders shall be filed with the SEC
and each national securities exchange on which the Notes are listed. Holdings
shall notify the Trustee when the Notes are listed on any national securities
exchange.
Section 7.07. Compensation and Indemnity.
Holdings shall pay to the Trustee (in its capacities as Trustee, Paying
Agent and/or Registrar) from time to time reasonable compensation for its
services hereunder. The Trustee's compensation shall not be limited by any law
on compensation of a trustee of an express trust. Holdings shall reimburse the
Trustee upon request for all reasonable disbursements, advances, fees and
expenses it incurs or makes in addition to the compensation for its services.
Such expenses shall include the reasonable compensation, disbursements and
expenses of the Trustee's agents and counsel.
Holdings shall indemnify and hold harmless the Trustee (in its capacities
as Trustee, Paying Agent and/or Registrar) against any and all losses,
liabilities or expenses the Trustee incurs arising out of or in connection with
the acceptance or administration of its duties under this Indenture, except as
set forth below. The Trustee shall notify Holdings promptly of any claim for
which it may seek indemnity. Failure by the Trustee to so notify Holdings shall
not relieve Holdings of its Obligations hereunder. Holdings shall defend the
claim and the Trustee shall reasonably cooperate in the defense. The Trustee may
have separate counsel and Holdings shall pay the reasonable fees and expenses of
such counsel. Holdings need not pay for any settlement made without its consent,
which consent shall not be unreasonably withheld.
Holdings' Obligations under this Section 7.07 shall survive the
satisfaction and discharge of this Indenture.
Holdings need not reimburse any expense or indemnify against any loss or
liability the Trustee incurs through the Trustee's negligence or bad faith.
To secure Holdings' payment of its Obligations in this Section and the
payment of Trustee Expenses payable pursuant to Section 6.08 the Trustee shall
have a Lien prior to the Notes on all money or property the Trustee holds or
collects. Such Lien shall survive the satisfaction and discharge of this
Indenture.
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When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(a)(vii) or (viii) occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute administrative expenses under any Bankruptcy
Law.
Section 7.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign and be discharged from the trust hereby created by
so notifying Holdings. The Holders of a majority in principal amount at maturity
of the then outstanding Notes may remove the Trustee by so notifying the Trustee
and Holdings. Holdings may remove the Trustee if:
(i) the Trustee fails to comply with Section 7.10;
(ii) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy
Law;
(iii) a Custodian or public officer takes charge of the Trustee or its
property; or
(iv) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, Holdings shall promptly appoint a successor Trustee,
provided that the Holders of a majority in principal amount at maturity of the
then outstanding Notes may appoint a successor Trustee to replace any successor
Trustee appointed by Holdings.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, Holdings or the
Holders of at least 10% in principal amount at maturity of the then outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder may petition
any court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to Holdings. Thereupon, the resignation or removal
of the retiring Trustee shall become effective and the successor Trustee shall
have all the rights, powers and duties of the Trustee under this Indenture. The
successor Trustee shall mail a notice of its appointment to Holders. The
retiring Trustee shall promptly transfer all property it holds as Trustee to the
successor Trustee, provided all sums owing to the retiring Trustee hereunder
have been paid and subject to the Lien provided for in Section 7.07.
Notwithstanding replacement of the Trustee pursuant to this Section 7.08,
Holdings' obligations under Section 7.07 shall continue for the retiring
Trustee's benefit with respect to expenses and liabilities it incurred prior to
being replaced.
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Section 7.09. Successor Trustee by Merger, Etc.
If the Trustee consolidates, merges or converts into, or transfers all or
substantially all of its corporate trust business (including the trust created
by this Indenture) to, another corporation, the successor corporation without
any further act shall be the successor Trustee.
Section 7.10. Eligibility; Disqualification.
The Trustee shall at all times (i) be a corporation organized and doing
business under the laws of the United States of America, of any state thereof,
or the District of Columbia authorized under such laws to exercise corporate
trustee power, (ii) be subject to supervision or examination by federal or state
authority, (iii) have a combined capital and surplus of at least $100,000,000 as
set forth in its most recent published annual report of condition, and (iv)
satisfy the requirements of sections 310(a)(1), (2) and (5) of the TIA. The
Trustee is subject to section 310(b) of the TIA.
Section 7.11. Preferential Collection of Claims Against Holdings.
The Trustee is subject to section 311(a) of the TIA, excluding any creditor
relationship listed in section 311(b) of the TIA. A Trustee who has resigned or
been removed shall be subject to section 311(a) of the TIA to the extent
indicated therein.
ARTICLE 8
DISCHARGE OF INDENTURE
Section 8.01. Discharge of Liability on Notes; Defeasance.
(a) When (i) Holdings delivers to the Trustee all outstanding Notes (other
than Notes replaced pursuant to Section 2.07) for cancellation, or (ii) all
outstanding Notes have become due and payable and Holdings irrevocably deposits
with the Trustee funds sufficient to pay at maturity all outstanding Notes,
including interest, premium and Liquidated Damages thereon (other than Notes
replaced pursuant to Section 2.07), and if in either case Holdings pays all
other sums payable under this Indenture by Holdings, then this Indenture shall,
subject to Sections 8.01(c) and 8.06, cease to be of further effect.
(b) Subject to Sections 8.01(c), 8.02, and 8.06, Holdings at any time may
terminate (i) all its obligations under the Notes and this Indenture ("legal
defeasance option") or (ii) its obligations under Sections 4.02, 4.03, 4.05,
4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, and 4.16 and the
operation of Sections 5.01(a)(iii), 5.01(a)(iv), or 6.01(a)(iii) through (a)(v)
("covenant defeasance option"). Holdings may exercise its legal defeasance
option notwithstanding its prior exercise of its covenant defeasance option.
If Holdings exercises its legal defeasance option, payment of the Notes may
not be accelerated because of an Event of Default. If Holdings exercises its
covenant defeasance option, payment of the Notes shall not be accelerated
because of an Event of Default specified in Sections 6.01(a)(iii) through (a)(v)
or because of Holdings' failure to comply with Section 5.01(a)(iii) and
5.01(a)(iv).
Upon satisfaction of the conditions set forth herein and upon Holdings'
request (and at Holdings' expense), the Trustee shall acknowledge in writing the
discharge of those obligations that Holdings has terminated.
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(c) Notwithstanding clauses (a) and (b) above, Holdings' obligations in
Sections 2.03, 2.04, 2.05, 2.06, 2.07, 4.01, 4.04, 7.07, 7.08, 8.04, 8.05 and
8.06, and the Trustee's and the Paying Agent's obligations in Section 8.04 shall
survive until the Notes have been paid in full. Thereafter, Holdings'
obligations in Sections 7.07 and 8.05 and Holdings', the Trustee's and the
Paying Agent's obligations in Section 8.04 shall survive.
Section 8.02. Conditions to Defeasance.
Holdings may exercise its legal defeasance option or its covenant
defeasance option only if:
(1) Holdings irrevocably deposits in trust (the "defeasance trust") with
the Trustee money or U.S. Government Obligations sufficient for the
payment in full of the principal of (or, if prior to September 15,
2004, the Accreted Value of), premium, if any, and any accrued and
unpaid interest on, and Liquidated Damages, if any, with respect to
the Notes then outstanding, as of the maturity date, the redemption
date or the Purchase Date, as the case may be;
(2) Holdings delivers to the Trustee a certificate from a nationally
recognized firm of independent accountants or an investment bank
expressing its opinion that the payments of principal and interest
when due and without reinvestment of the deposited U.S. Government
Obligations plus any deposited money without investment will provide
cash at such times and in such amounts as will be sufficient to pay
when due principal of, premium, if any, and any accrued and unpaid
interest on, and Liquidated Damages, if any, with respect to all the
Notes to maturity or redemption, as the case may be;
(3) since Holdings' irrevocable deposit provided for in Section 8.02(1),
91 days have passed;
(4) no Default has occurred and is continuing on the date of such deposit
and after giving effect to it;
(5) the deposit does not constitute a default under any other agreement
binding on Holdings;
(6) Holdings delivers to the Trustee an Opinion of Counsel to the effect
that the trust resulting from the deposit does not constitute, or is
qualified as, a regulated investment company under the Investment
Company Act of 1940, as amended;
(7) in the case of the legal defeasance option, Holdings shall have
delivered to the Trustee an Opinion of Counsel stating that (i)
Holdings has received from, or there has been published by, the
Internal Revenue Service a ruling or (ii) under applicable federal
income tax law, in either case, to the effect that, and based thereon
such Opinion of Counsel shall confirm that, the Holders will not
recognize income, gain or loss for federal income tax purposes as a
result of such deposit and defeasance and will be subject to federal
income tax on the same amount, in the same manner and at the same
times as would have been the case if such defeasance had not occurred;
(8) in the case of the covenant defeasance option, Holdings shall have
delivered to the Trustee an Opinion of Counsel to the effect that the
Holders will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit and covenant defeasance and will
be subject to federal income tax on the same amount, in the same
manner and at the same times as would have been the case if such
covenant defeasance
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had not occurred (and, in the case of legal defeasance only, such
opinion of counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable federal income tax law); and
(9) Holdings delivers to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Notes contemplated by this Article 8
have been satisfied.
Before or after a deposit, Holdings may make arrangements satisfactory to
the Trustee for the redemption or purchase of Notes at a future date in
accordance with Article 3.
Section 8.03. Application of Trust Money.
The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to this Article 8. It shall apply the deposited money
and the money from U.S. Government Obligations through the Paying Agent and in
accordance with this Indenture to the payment of principal of, premium, if any,
and any accrued and unpaid interest on, and Liquidated Damages, if any, with
respect to the Notes.
Section 8.04. Repayment to Holdings.
After the Notes have been paid in full, the Trustee and the Paying Agent
shall promptly turn over to Holdings any excess money or securities they hold.
The Trustee and the Paying Agent shall pay to Holdings upon written request
by Holdings any money they hold for the payment of principal, premium, interest
or Liquidated Damages that remains unclaimed for one year after the date upon
which such payment shall have become due; provided, however, that Holdings shall
have either caused notice of such payment to be mailed to each Holder entitled
thereto no less than 30 days prior to such repayment or within such period shall
have published such notice in a financial newspaper of widespread circulation
published in The City of New York (including, without limitation, The Wall
Street Journal). After payment to Holdings, Holders entitled to the money must
look to Holdings for payment as general creditors unless an applicable abandoned
property law designates another Person, and all liability of the Trustee and
such Paying Agent with respect to such money shall cease.
Section 8.05. Indemnity for Government Obligations.
Holdings shall pay and shall indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against deposited U.S. Government
Obligations or the principal and interest received on such U.S. Government
Obligations.
Section 8.06. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with this Article 8 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application,
Holdings' obligations under this Indenture and the Notes shall be revived and
reinstated as though no deposit had occurred pursuant to this Article 8 until
such time as the Trustee or Paying Agent is permitted to apply all such money or
U.S. Government Obligations in accordance with this Article 8; provided,
however, that, if Holdings has made any payment of principal of, premium, if
any, and any accrued and
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unpaid interest on, and Liquidated Damages, if any, with respect to any Notes
because of the reinstatement of its Obligations, Holdings shall be subrogated to
the Holders' rights to receive such payment from the money or U.S. Government
Obligations the Trustee or Paying Agent holds.
ARTICLE 9
AMENDMENTS
Section 9.01. Amendments and Supplements Permitted Without Consent of Holders.
Notwithstanding Section 9.02, Holdings and the Trustee may amend or
supplement this Indenture or the Notes without the consent of any Holder (a) to
cure any ambiguity, defect or inconsistency; (b) to provide for uncertificated
Notes in addition to or in place of certificated Notes; (c) to provide for the
assumption by a Successor Corporation of Holdings' Obligations to the Holders in
the event of a Disposition pursuant to Article 5; (d) to comply with SEC's
requirements to effect or maintain the qualification of this Indenture under the
TIA; or (e) to make any change that does not adversely affect any Holder's legal
rights under this Indenture.
Upon Holdings' request, after receipt by the Trustee of a resolution of the
Board of Directors authorizing the execution of any amended or supplemental
indenture, the documents described in Section 9.06, the Trustee shall join with
Holdings in the execution of any amended or supplemental indenture authorized or
permitted by the terms of this Indenture and to make any further appropriate
agreements and stipulations that may be contained in any such amended or
supplemental indenture, but the Trustee shall not be obligated to enter into an
amended or supplemental indenture that affects its own rights, duties or
immunities under this Indenture or otherwise.
Section 9.02. Amendments and Supplements Requiring Consent of Holders.
Subject to Section 6.07, Holdings and the Trustee may amend or supplement
this Indenture or the Notes with the written consent of the Holders of at least
a majority in principal amount at maturity of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange offer
for the Notes). Subject to Sections 6.04 and 6.07, the Holders of a majority in
principal amount at maturity of the Notes then outstanding (including consents
obtained in connection with a tender offer or exchange offer for the Notes) may
also waive any existing Default or Event of Default (other than a payment
Default) and its consequences or compliance in a particular instance by Holdings
with any provision of this Indenture or the Notes.
Upon Holdings' request and after receipt by the Trustee of a resolution of
the Board of Directors authorizing the execution of any supplemental indenture,
evidence of the Holders' consent, and the documents described in Section 9.06,
the Trustee shall join with Holdings in the execution of such amended or
supplemental indenture unless such amended or supplemental indenture affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise, in
which case the Trustee may in its discretion, but not be obligated to, enter
into such amended or supplemental indenture.
It shall not be necessary for the consent of the Holders under this Section
to approve the particular form of any proposed amendment or waiver, but it shall
be sufficient if such consent approves the substance thereof.
After an amendment or waiver under this Section becomes effective, Holdings
shall mail to each Holder affected thereby a notice briefly describing the
amendment, supplement or waiver. Any failure
52
<PAGE>
of Holdings to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
indenture or waiver. Without the consent of each Holder affected, an amendment,
supplement or waiver under this Section may not (1) reduce the principal amount
of Notes whose Holders must consent to an amendment, supplement or waiver; (2)
reduce the rate of or change the time for payment of interest, including
interest as set forth in Section 4.01, or Liquidated Damages on any Note or
alter the redemption or purchase provisions with respect thereto or the price at
which Holdings is required to offer to purchase any Note; (3) reduce the
principal of or change the fixed maturity of any Note; (4) make any Note payable
in money other than that stated in the Note; (5) make any change in Section 6.04
or 6.07 or in this sentence of this Section 9.02; or (6) waive a default in the
payment of the principal of, or premium, if any, or any accrued and unpaid
interest on, or Liquidated Damages, if any, with respect to, or redemption or
purchase payment with respect to, any Note (except a rescission of acceleration
of the Notes by the Holders of at least a majority in aggregate principal amount
of the then outstanding Notes and a waiver of the payment default that resulted
from such acceleration).
Section 9.03. Compliance with TIA.
Every amendment or supplement to this Indenture or the Notes shall be set
forth in an amended supplemental indenture that complies with the TIA as then in
effect.
Section 9.04. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent to it
by a Holder of a Note is a continuing consent by the Holder and every subsequent
Holder of a Note or portion of a Note that evidences the same Indebtedness as
the consenting Holder's Note, even if notation of the consent is not made on any
Note. However, any such Holder or subsequent Holder may revoke the consent as to
his or her Note or portion of a Note if the Trustee receives the notice of
revocation before the date on which the Trustee receives an Officer's
Certificate certifying that the Holders of the requisite principal amount of
Notes have consented to the amendment or waiver.
Holdings may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders of Notes entitled to consent to any amendment
or waiver. If a record date is fixed, then, notwithstanding the provisions of
the immediately preceding paragraph, those Persons who were Holders of Notes at
such record date (or their duly designated proxies), and only those Persons,
shall be entitled to consent to such amendment or waiver or to revoke any
consent previously given, whether or not such Persons continue to be Holders of
Notes after such record date. No consent shall be valid or effective for more
than 90 days after such record date unless consents from Holders of the
principal amount of Notes required hereunder for such amendment or waiver to be
effective shall have also been given and not revoked within such 90-day period.
After an amendment or waiver becomes effective it shall bind every Holder,
unless it is of the type described in any of clauses (1) through (6) of Section
9.02. In such case, the amendment or waiver shall bind each Holder who has
consented to it and every subsequent Holder of a Note that evidences the same
debt as the consenting Holder's Note.
Section 9.05. Notation on or Exchange of Notes.
The Trustee may (at Holdings' expense) place an appropriate notation about
an amendment, supplement or waiver on any Note thereafter authenticated.
Holdings in exchange for all Notes may issue and the Trustee shall authenticate
new Notes that reflect the amendment, supplement or waiver.
53
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Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
Section 9.06. Trustee Protected.
The Trustee shall sign any amendment or supplemental indenture authorized
pursuant to this Article 9 if the amendment does not adversely affect the
rights, duties, liabilities or immunities of the Trustee. If it does, the
Trustee may, but need not, sign it. In signing such amendment or supplemental
indenture, the Trustee shall be entitled to receive and, subject to Section
7.01, shall be fully protected in relying upon, an Officers' Certificate and
Opinion of Counsel as conclusive evidence that such amendment or supplemental
indenture is authorized or permitted by this Indenture, that it is not
inconsistent herewith, and that it will be valid and binding upon Holdings in
accordance with its terms. Holdings may not sign an amendment or supplemental
indenture until the Board of Directors approves it.
ARTICLE 10
MISCELLANEOUS
Section 10.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies, or conflicts with the
duties imposed by operation of section 318(c) of the TIA, the imposed duties
shall control.
Section 10.02. Notices.
Any notice or communication by Holdings or the Trustee to the other is duly
given if in writing and delivered in person, mailed by registered or certified
mail, postage prepaid, return receipt requested or delivered by telecopier or
overnight air courier guaranteeing next day delivery to the other's address:
If to Holdings:
GFSI Holdings, Inc.
9700 Commerce Parkway
Lenexa, Kansas 66219
Attention: director of finance
Telecopier: (913) 752-3336
with copies to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603-3441
Attention: Phil Niehoff, Esq.
Telecopier No.: (312) 701-7711
The Jordan Company
9 West 57th Street, 40th Floor
New York, New York 10019
Attention: A. Richard Caputo, Jr.
Telecopier No.: (212) 755-5263
54
<PAGE>
If to the Trustee:
State Street Bank and Trust Company
225 Asylum Street
Hartford, Connecticut 06105
Attention: Corporate Trust Administration
Telecopier No.: (860) 244-1889
Holdings or the Trustee by notice to the other may designate additional or
different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) shall be
deemed to have been duly given: at the time delivered by hand, if personally
delivered; the date receipt is acknowledged, if mailed by registered or
certified mail; when answered back, if telecopied; and the next Business Day
after timely delivery to the courier, if sent by overnight air courier
guaranteeing next day delivery. Notwithstanding the foregoing, deliveries to the
Trustee shall be effective only upon receipt.
Any notice or communication to a Holder shall be mailed by first-class mail
to his or her address shown on the register kept by the Registrar. Failure to
mail a notice or communication to a Holder or any defect in it shall not affect
its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above within
the time prescribed, it is duly given, whether or not the addressee receives it.
If Holdings mails a notice or communication to Holders, it shall mail a
copy to the Trustee and each Agent at the same time.
Section 10.03. Communication by Holders with Other Holders.
Holders may communicate pursuant to section 312(b) of the TIA with other
Holders with respect to their rights under this Indenture or the Notes.
Holdings, the Trustee, the Registrar and any other Person shall have the
protection of section 312(c) of the TIA.
Section 10.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by Holdings to the Trustee to take any
action under this Indenture, Holdings shall furnish to the Trustee:
(a) an Officers' Certificate (which shall include the statements set forth
in Section 10.05) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(b) an Opinion of Counsel (which shall include the statements set forth in
Section 10.05) stating that, in the opinion of such counsel, all such
conditions precedent provided for in this Indenture relating to the
proposed action have been complied with.
Section 10.05. Statements Required in Certificate or Opinion.
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Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than a certificate provided
pursuant to section 314(a)(4) of the TIA) shall include:
(1) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has made such
examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether, in such Person's opinion, such condition or
covenant has been complied with.
Section 10.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 10.07. Legal Holidays.
If a payment date is a Legal Holiday at a place of payment, payment may be
made at that place on the next succeeding day that is not a Legal Holiday, and
no interest shall accrue for the intervening period.
Section 10.08. No Recourse Against Others.
No officer, employee, director, stockholder or Subsidiary of Holdings shall
have any liability for any Obligations of Holdings under the Notes or this
Indenture, or for any claim based on, in respect of, or by reason of, such
Obligations or the creation of any such Obligation, except, in the case of a
Subsidiary, for an express guarantee or an express creation of any Lien by such
Subsidiary of Holdings' Obligations under the Notes. Each Holder by accepting a
Note waives and releases all such liability, and such waiver and release is part
of the consideration for the issuance of the Notes. The foregoing waiver may
not be effective to waive liabilities under the Federal securities law and the
SEC is of the view that such a waiver is against public policy.
Section 10.09. Counterparts.
This Indenture may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
Section 10.10. Variable Provisions.
Holdings initially appoints the Trustee as Paying Agent, Registrar and
authenticating agent.
The first compliance certificate to be delivered by Holdings to the Trustee
pursuant to Section 4.03 shall be for the fiscal year ending on June 30, 1998.
56
<PAGE>
Section 10.11. Governing Law.
The internal laws of the State of New York shall govern this Indenture and
the Notes, without regard to the conflict of laws provisions thereof.
Section 10.12. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or debt
agreement of Holdings or any of its Subsidiaries, and no other indenture, loan
or debt agreement may be used to interpret this Indenture.
Section 10.13. Successors.
All agreements of Holdings in this Indenture and the Notes shall bind its
successor. All agreements of the Trustee in this Indenture shall bind its
successor.
Section 10.14. Severability.
If any provision in this Indenture or in the Notes shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
Section 10.15. Table of Contents, Headings, Etc.
The Table of Contents, Cross-Reference Table, and headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part hereof, and shall in no way modify or
restrict any of the terms or provisions hereof.
[NEXT PAGE IS SIGNATURE PAGE]
57
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Dated as of September 17, 1997 GFSI HOLDINGS, INC.
By: /s/ Richard Caputo
-----------------------------------
Name: A. Richard Caputo, Jr.
Title: Vice President
Dated as of September 17, 1997 STATE STREET BANK
AND TRUST COMPANY,
as Trustee
By: /s/ Jacqueline Connor
-----------------------------------
Name: Jacqueline Connor
Title: Assistant Vice President
58
<PAGE>
EXHIBIT A
(Face of Note)
11 3/8% Series [A/B] Senior Discount Note due 2009
No. $__________
CUSIP No.
GFSI HOLDINGS, INC.
promises to pay to
or registered assigns,
the principal sum of
Dollars on _________, 2009.
Interest Payment Dates:
Record Dates:
Dated:
GFSI HOLDINGS, INC.
By:______________________________
Name:
Title:
Trustee's Certificate of Authentication
Dated:
This is one of the
Notes referred to in the
within-mentioned Indenture:
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By:
---------------------------------
(Authorized Signatory)
A-1
<PAGE>
[Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Subordinated Discount Note may not be transferred except
as a whole by the Depository to a nominee of the Depository or by a nominee of
the Depository to the Depository or another nominee of the Depository or by the
Depository or any such nominee to a successor Depository or a nominee of such
successor Depository. The Depository Trust Company shall act as the Depository
until a successor shall be appointed by Holdings and the Registrar. Unless this
certificate is presented by an authorized representative of The Depository Trust
Company (55 Water Street, New York, New York) ("DTC"), to the issuer or its
agent for registration of transfer, exchange or payment, and any certificate
issued is registered in the name of Cede & Co. or such other name as may be
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or such other entity as may be requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY Person IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.]/1/
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN
A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED
HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF
THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE
RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES
ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED
HEREBY AGREES FOR THE BENEFIT OF HOLDINGS THAT (A) SUCH SECURITY MAY BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) INSIDE THE UNITED
STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE
THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
(AND BASED UPON AN OPINION OF COUNSEL IF HOLDINGS SO REQUESTS), (2) TO
HOLDINGS OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN
EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE
OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE.
Additional provisions of this Senior Discount Note are set forth on the
other side of this Senior Discount Note.
- ------------------------
1. This paragraph should be included only if the Senior Discount Note is issued
in global form.
A-2
<PAGE>
(Back of Note)
11 3/8% SERIES [A/B] SENIOR DISCOUNT NOTES DUE 2009
1. Interest. No interest will accrue on the Notes until September 15,
2004, but the Accreted Value (as defined in the Indenture) will accrete
(representing the amortization of original issue discount) between the date of
original issuance and such date, on a semi-annual basis using a 360-day year of
twelve 30-day months such that the Accreted Value shall be equal to the full
principal amount of the Notes on September 15, 2004. GFSI Holdings, Inc.
("Holdings") promises to pay interest on the principal amount of the Notes at
the rate and in the manner specified below. Interest on the Notes will accrue
at 11 3/8% per annum from September 15, 2004 until maturity. Interest if any,
will be payable semiannually in cash in arrears on March 15 and September 15 of
each year, or if any such day is not a Business Day on the next succeeding
Business Day (each, an "Interest Payment Date"). Interest on the Notes will
accrue from the most recent date on which interest has been paid or, if no
interest has been paid, from September 15, 2004; provided that the first
Interest Payment Date shall be March 15, 2005. Holdings shall pay interest on
overdue principal and premium, if any, from time to time on demand at the
interest rate then in effect and shall pay interest on overdue installments of
interest and Liquidated Damages, if any, (without regard to any applicable grace
periods) from time to time on demand at the same rate to the extent lawful.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
2. Method of Payment. Holdings will pay interest on the Notes (except
defaulted interest) and Liquidated Damages to the Persons who are registered
holders of Notes at the close of business on the record date for the next
Interest Payment Date even if such Notes are canceled after such record date and
on or before such Interest Payment Date. Holders must surrender Notes to a
Paying Agent to collect principal payments on such Notes. Holdings will pay
principal, premium, if any, interest and Liquidated Damages, if any, in money of
the United States that at the time of payment is legal tender for payment of
public and private debts. Holdings will pay principal, premium, if any,
interest and Liquidated Damages, if any, by wire transfer of immediately
available funds by 11 a.m. New York City time to the accounts specified by the
Holders or, if no such account is specified, by mailing a check to each such
Holder's registered address; provided that payment by wire transfer of
immediately available funds will be required with respect to principal, premium,
if any, interest and Liquidated Damages, if any, on all Global Notes.
3. Paying Agent and Registrar. State Street Bank and Trust Company (the
"Trustee") will initially act as the Paying Agent and Registrar. Holdings may
appoint additional paying agents or co-registrars, and change the Paying Agent,
any additional paying agent, the Registrar or any co-registrar without prior
notice to any Holder. Holdings or any of its Subsidiaries may act in any such
capacity.
4. Indenture. Holdings issued the Notes under an Indenture, dated as of
September 17, 1997 (the "Indenture"), among Holdings and the Trustee. The terms
of the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code (S)(S)
77aaa-77bbbb) as in effect on the date of the original issuance of the Notes
(the "Trust Indenture Act"). The Notes are subject to, and qualified by, all
such terms, certain of which are summarized herein, and Holders are referred to
the Indenture and the Trust Indenture Act for a statement of such terms (all
capitalized terms not defined herein shall have the meanings assigned them in
the Indenture). The Notes are unsecured senior obligations of Holdings.
A-3
<PAGE>
5. Optional Redemption. (a) Except as described in paragraph 5(b)
below, the Notes may not be redeemed at the option of Holdings prior to March
15, 1998. During the twelve-month period beginning September 15 of the years
indicated below, the Notes will be redeemable at the option of Holdings, in
whole or in part, on at least 30 but not more than 60 days' notice to each
Holder of Notes to be redeemed, at the redemption prices (expressed as
percentages of the Accreted Value for all redemption dates prior to September
15, 2004 and of the principal amount for all redemption dates including
September 15, 2004 and thereafter) set forth below, plus any accrued and unpaid
interest and Liquidated Damages, if any, to the date of redemption:
Year Percentage
---- ----------
2002................................................. 105.688%
2003................................................. 103.792%
2004................................................. 101.986%
2005 and thereafter.................................. 100.000%
(b) Notwithstanding the foregoing, on or after March 15, 1998 and prior to
September 15, 2002, Holdings may (but shall not have the obligation to) redeem,
in whole or in part, the outstanding Notes at a redemption price in cash equal
to 105.688% of the Accreted Value (determined at the date of redemption)
thereof, with the net proceeds of one or more Equity Offerings of Holdings or
Holdings; provided, that any such redemption shall occur within 60 days of the
date of the closing of any such Equity Offering. In addition, upon the
occurrence of a Change of Control on or after March 15, 1998 and prior to
September 15, 2002, Holdings, at its option, may redeem, in whole or in part,
the outstanding Notes at a redemption price in cash equal to 105.688% of the
Accreted Value (determined at the date of redemption) thereof. Holdings shall
give not less than 30 and not more than 60 days' notice of such redemption
within 30 days following a Change of Control.
6. Mandatory Redemption. Subject to Holdings' obligation to make an
offer to purchase Notes under certain circumstances pursuant to Sections 4.14
and 4.15 of the Indenture (as described in paragraph 7 below), Holdings is not
required to make any mandatory redemption, purchase or sinking fund payments
with respect to the Notes.
7. Mandatory Offers to Purchase Notes. (a) Upon the occurrence of a
Change of Control (such date being the "Change of Control Trigger Date"), each
Holder of Notes shall have the right to require Holdings to purchase all or any
part (equal to $500 or an integral multiple thereof) of such Holder's Notes
pursuant to an offer (a "Change of Control Offer") at a purchase price in cash
equal to 100% of the Accreted Value (determined at the date of redemption)
thereof (if such Offer is prior to September 15, 2004) to the date of purchase,
or 100% of the aggregate principal amount thereof (if such Offer is on or after
September 15, 2004), plus any accrued and unpaid interest and Liquidated
Damages, if any, to the date of purchase.
(b) If Holdings or any Restricted Subsidiary consummates one or more Asset
Sales and does not use all of the Net Proceeds from such Asset Sales as provided
in the Indenture, Holdings will be required, under certain circumstances, to
utilize the Excess Proceeds from such Asset Sales to offer (an "Asset Sale
Offer") to purchase Notes at a purchase price equal to 100% of the Accreted
Value (determined at the date of redemption) thereof to the date of purchase (if
such date of purchase is prior to September 15, 2004), or 100% of the principal
amount of the Notes (if such date of purchase is on or after September 15,
2004), plus any accrued and unpaid interest and Liquidated Damages, if any, to
the date of purchase. If the Excess Proceeds are insufficient to purchase all
Notes tendered pursuant to
A-4
<PAGE>
any Asset Sale Offer, the Trustee shall select the Notes to be purchased in
accordance with the terms of the Indenture.
(c) Holders may tender all or, subject to paragraph 8 below, any portion of
their Notes in a Change of Control Offer or Asset Sale Offer (collectively, an
"Offer") by completing the form below entitled "OPTION OF HOLDER TO ELECT
PURCHASE."
(d) Holdings shall comply with any tender offer rules under the Exchange
Act which may then be applicable, including Rule 14e-1, in connection with an
offer required to be made by Holdings to repurchase the Notes as a result of a
Change of Control or an Asset Sale Trigger Date. To the extent that the
provisions of any securities laws or regulations conflict with provisions of
this Indenture, Holdings shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Indenture by virtue thereof.
8. Notice of Redemption or Purchase. Notice of an optional redemption or
an Offer will be mailed to each Holder at its registered address at least 30
days but not more than 60 days before the date of redemption or purchase. Notes
may be redeemed or purchased in part, but only in whole multiples of $500 unless
all Notes held by a Holder are to be redeemed or purchased. On or after any
date on which Notes are redeemed or purchased, interest ceases to accrue on the
Notes or portions thereof called for redemption or accepted for purchase on such
date.
9. Denominations, Transfer, Exchange. The Notes are in registered form
without coupons in denominations of $500 and integral multiples thereof. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. Holders seeking to transfer or exchange their Notes may be
required, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not exchange or register the transfer of any Note
or portion of a Note selected for redemption or tendered pursuant to an Offer.
Also, it need not exchange or register the transfer of any Notes for a period of
15 Business Days before a selection of Notes to be redeemed or between a record
date and the next succeeding Interest Payment Date.
10. Persons Deemed Owners. The registered Holder of a Note may be treated
as its owner for all purposes.
11. Amendments and Waivers. Subject to certain exceptions, the Indenture
or the Notes may be amended or supplemented with the consent of the Holders of
at least a majority in principal amount at maturity of the then outstanding
Notes, and any existing Default (except a payment Default) may be waived with
the consent of the Holders of a majority in principal amount at maturity of the
then outstanding Notes. Without the consent of any Holder, the Indenture or the
Notes may be amended to: cure any ambiguity, defect or inconsistency; provide
for uncertificated Notes in addition to or in place of certificated Notes;
provide for the assumption by another corporation of Holdings' obligations to
Holders in the event of a merger or consolidation of Holdings in which Holdings
is not the surviving corporation or a sale of substantially all of Holdings'
assets to such other corporation; comply with the SEC's requirements to effect
or maintain the qualification of the Indenture under the Trust Indenture Act;
provide for additional Guarantees with respect to the Notes; or, make any change
that does not materially adversely affect any Holder's rights under the
Indenture.
12. Defaults and Remedies. Events of Default include: default for 30
days in payment of interest on, or Liquidated Damages, if any, with respect to,
the Notes; default in payment of principal of, or premium, if any, on the Notes;
failure by Holdings for 30 days after notice to it to comply with
A-5
<PAGE>
any of its other agreements or covenants in, or provisions of, the Indenture or
the Notes; certain defaults under and acceleration prior to maturity of, or
failure to pay at maturity, certain other Indebtedness; certain final judgments
that remain undischarged; and certain events of bankruptcy or insolvency
involving Holdings or any Restricted Subsidiary that is a Significant
Subsidiary. If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount at maturity of the Notes may declare
all the Notes to be immediately due and payable in an amount equal to the
principal of, premium, if any, and any accrued and unpaid interest on, and
Liquidated Damages, if any, with respect to such Notes; provided, however, that
in the case of an Event of Default arising from certain events of bankruptcy or
insolvency, the principal of, premium, if any, and any accrued and unpaid
interest on, and Liquidated Damages, if any, with respect to the Notes becomes
due and payable immediately without further action or notice. Subject to
certain exceptions, Holders of a majority in principal amount at maturity of the
then outstanding Notes may direct the Trustee in its exercise of any trust or
power, provided that the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of Holders unless such
Holders have offered to the Trustee security and indemnity satisfactory to it.
Holders may not enforce the Indenture or the Notes except as provided in the
Indenture. The Trustee may withhold from Holders notice of any continuing
default (except a payment Default) if it determines that withholding notice is
in their interests. Holdings must furnish an annual compliance certificate to
the Trustee.
13. Trustee Dealings with Holdings. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for Holdings or any Affiliate, and may otherwise deal with Holdings or any
Affiliate, as if it were not Trustee.
14. No Recourse Against Others. No officer, employee, director,
stockholder or Subsidiary of Holdings shall have any liability for any
Obligations of Holdings under the Notes or the Indenture, or for any claim based
on, in respect of, or by reason of, such Obligations or the creation of any such
Obligation, except, in the case of a Subsidiary, for an express guarantee or an
express creation of any Lien by such Subsidiary of Holdings' Obligations under
the Notes. Each Holder by accepting a Note waives and releases all such
liability, and such waiver and release is part of the consideration for the
issuance of the Notes. The foregoing waiver may not be effective to waive
liabilities under the Federal securities law and the SEC is of the view that
such a waiver is against public policy.
15. Successor Substituted. Upon the consolidation or merger by Holdings
with or into another corporation, or upon the sale, lease, conveyance or other
disposition of all or substantially all of its assets to another corporation, in
accordance with the Indenture, the corporation surviving any such merger or
consolidation (if not Holdings) or the corporation to which such assets were
sold or transferred to shall succeed to, and be substituted for, and may
exercise every right and power of Holdings under the Indenture with the same
effect as if such surviving or other corporation had been named as Holdings in
the Indenture.
16. Governing Law. This Note shall be governed by and construed in
accordance with the internal laws of the State of New York without regard to the
conflict of laws provisions thereof.
17. Authentication. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
18. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST ( =Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
A-6
<PAGE>
19. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Note Identification Procedures, Holdings has caused CUSIP
numbers to be printed on the Notes and have directed the Trustee to use CUSIP
numbers in notices of redemption as a convenience to Holders. No representation
is made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers printed on the Notes.
16. Additional Rights of Holders of Transfer Restricted Notes. In
addition to the rights provided to Holders of Notes under the Indenture, Holders
of Transfer Restricted Notes shall have all the rights set forth in the
Registration Rights Agreement, dated as of September 17, 1997 between Holdings,
and Donaldson, Lufkin & Jenrette Securities Corporation (the "Registration
Rights Agreement").
Holdings will furnish to any Holder upon written request and without charge
a copy of the Indenture, which has in it the text of this Note in larger type.
Request may be made to:
GFSI Holdings, Inc.
9700 Commerce Parkway
Lenexa, Kansas 66219
Attention: director of finance
Telecopier: (913) 752-3336
A-7
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to:
(Insert assignee's soc. sec. or tax I.D. no.)
(Print or type assignee's name, address and zip code)
and irrevocably appoint
as agent to transfer this Note on the
books of Holdings. The agent may substitute another to act for him.
Date: Your Signature:
----------------------------------------
(Sign exactly as your name appears on the
other side of this Note)
Signature must be guaranteed by an eligible guarantor institution (bank, stock
broker, savings and loan association or credit union) with membership in an
approved signature guarantee program pursuant to Securities and Exchange
Commission Rule 17Ad-15.
Signature Guarantee:
----------------------------
A-8
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you elect to have this Note purchased by Holdings pursuant to Section
4.13 of the Indenture, check the box: [_]
If you elect to have this Note purchased by Holdings pursuant to Section
4.14 of the Indenture, check the box: [_]
If you elect to have only part of this Note purchased by Holdings pursuant
to Section 4.13 or 4.14 of the Indenture, state the amount (multiples of $500
only):
$
Date: Your Signature:_________________________________
(Sign exactly as your name appears
on the other side of this Note)
Signature must be guaranteed by an eligible guarantor institution (bank, stock
broker, savings and loan association or credit union) with membership in an
approved signature guarantee program pursuant to Securities and Exchange
Commission Rule 17Ad-15.
Signature Guarantee:
----------------------------
A-9
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE NOTES/2/
The following exchanges of a part of this Global Note for Definitive
Notes have been made:
<TABLE>
<CAPTION>
Principal Amount of this Signature of
Amount of decrease in Amount of increase in Global Note authorized officer of
Principal Amount of this Principal Amount of following such decrease Trustee or Note
Date of Exchange Global Note this Global Note (or increase) Custodian
- ------------------ ------------------------ --------------------- ------------------------- ---------------------
<S> <C> <C> <C> <C>
</TABLE>
- ------------------------
2. This should be included only if the Note is issued in global form.
A-10
<PAGE>
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF NOTES
_________________, _______
Re: 11-3/8% Series [A/B] Senior Discount Notes due 2009 of GFSI Holdings, Inc.
This Certificate relates to $_____ principal amount of Notes held in *
________ book-entry or *_______ definitive form by ________________ (the
"Transferor").
The Transferor*:
[_] has requested the Trustee by written order to deliver in exchange for
its beneficial interest in the Global Note held by the Depository a Note or
Notes in definitive, registered form equal to its beneficial interest in such
Global Note (or the portion thereof indicated above); or
[_] has requested the Trustee by written order to exchange or register the
transfer of a Note or Notes.
[_] In connection with such request and in respect of each such Note, the
Transferor does hereby certify that the Transferor is familiar with the
Indenture relating to the above captioned Notes and that the transfer of this
Note does not require registration under the Securities Act (as defined below)
because:*
[_] Such Note is being acquired for the Transferor's own account without
transfer (in satisfaction of Section 2.06(a)(ii)(A) or Section 2.06(d)(i)(A) of
the Indenture).
[_] Such Note is being transferred (i) to a "qualified institutional buyer"
(as defined in Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act")), in reliance on Rule 144A or (ii) pursuant to an exemption
from registration in accordance with Rule 904 under the Securities Act (and in
the case of clause (ii), based on an opinion of counsel if Holdings so requests
and together with a certification in substantially the form of Exhibit C to the
Indenture).
[_] Such Note is being transferred (i) in accordance with Rule 144 under
the Securities Act (and based on an opinion of counsel if Holdings so requests)
or (ii) pursuant to an effective registration statement under the Securities
Act.
- ------------------
*Check applicable box.
B-1
<PAGE>
[_] Such Note is being transferred in reliance on and in compliance with
another exemption from the registration requirements of the Securities Act (and
based on an opinion of counsel if Holdings so requests).
[INSERT NAME OF TRANSFEROR]
By:
---------------------------------
Name:
Title:
Address:
- ---------------
*Check applicable box.
B-2
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION
WITH TRANSFERS PURSUANT TO REGULATION S
_________________, ______
______________________, as Registrar
Attention: Corporate Trust Department
Ladies and Gentlemen:
In connection with our proposed sale of certain 11 3/8% Series [A/B] Senior
Discount Notes due 2009 (the "Notes") of GFSI Holdings, Inc., a Delaware
corporation (the "Company"), we represent that:
(i) the offer of the Notes was not made to a person in the United
States;
(ii) at the time the buy order was originated, the transferee was outside
the United States or we and any person acting on our behalf reasonably believed
that the transferee was outside the United States;
(iii) no directed selling efforts have been made by us in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable; and
(iv) the transaction is not part of a plan or scheme to evade the
registration requirements of the U.S. Securities Act of 1933.
You and Holdings are entitled to rely upon this letter and you are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
----------------------------------
[Name of Transferor]
By:
------------------------------
Name:
Title:
Address:
C-1
<PAGE>
Exhibit 4.2
11 3/8% Series A Senior Discount Note due 2009
No. G-1 $108,467,780
CUSIP No. 36169L AA 2
GFSI HOLDINGS, INC.
promises to pay to Cede & Co.
or registered assigns,
the principal sum of One Hundred Eight Million, Four Hundred Sixty Seven
Thousand, Seven Hundred Eighty and xx/100 Dollars
on September 15, 2009.
Interest Payment Dates: March 15 and September 15
Record Dates: March 1 and September 1
Dated: October 23, 1997
GFSI HOLDINGS, INC.
By: /s/ Richard Caputo
-----------------------------
Name: A. Richard Caputo, Jr.
Title: Vice President
Trustee's Certificate of Authentication
Dated: October 23, 1997
This is one of the
Notes referred to in the
within-mentioned Indenture:
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By: /s/ Jacqueline Connor
-----------------------------------
(Authorized Signatory)
<PAGE>
Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Senior Discount Note may not be transferred except as a
whole by the Depository to a nominee of the Depository or by a nominee of the
Depository to the Depository or another nominee of the Depository or by the
Depository or any such nominee to a successor Depository or a nominee of such
successor Depository. The Depository Trust Company shall act as the Depository
until a successor shall be appointed by Holdings and the Registrar. Unless this
certificate is presented by an authorized representative of The Depository Trust
Company (55 Water Street, New York, New York) ("DTC"), to the issuer or its
agent for registration of transfer, exchange or payment, and any certificate
issued is registered in the name of Cede & Co. or such other name as may be
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or such other entity as may be requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY Person IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN
A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED
HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF
THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE
RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES
ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED
HEREBY AGREES FOR THE BENEFIT OF HOLDINGS THAT (A) SUCH SECURITY MAY BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) INSIDE THE UNITED
STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE
THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
(AND BASED UPON AN OPINION OF COUNSEL IF HOLDINGS SO REQUESTS), (2) TO
HOLDINGS OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN
EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE
OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE.
FOR THE PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED, THIS SECURITY IS BEING ISSUED
-2-
<PAGE>
WITH ORIGINAL ISSUE DISCOUNT; FOR EACH $1,000 PRINCIPAL AMOUNT OF THIS
SECURITY, THE ISSUE PRICE IS $487.20, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT
IS $512.80, THE ISSUE DATE IS SEPTEMBER 17, 1997 AND THE YIELD TO MATURITY
IS 11 3/8% PER ANNUM.
Additional provisions of this Senior Discount Note are set forth on the other
side of this Senior Discount Note.
-3-
<PAGE>
(Back of Note)
11 3/8% SERIES A SENIOR DISCOUNT NOTES DUE 2009
1. Interest. No interest will accrue on the Notes until September 15,
2004, but the Accreted Value (as defined in the Indenture) will accrete
(representing the amortization of original issue discount) between the date of
original issuance and such date, on a semi-annual basis using a 360-day year of
twelve 30-day months such that the Accreted Value shall be equal to the full
principal amount of the Notes on September 15, 2004. GFSI Holdings, Inc.
("Holdings") promises to pay interest on the principal amount of the Notes at
the rate and in the manner specified below. Interest on the Notes will accrue
at 11 3/8% per annum from September 15, 2004 until maturity. Interest if any,
will be payable semiannually in cash in arrears on March 15 and September 15 of
each year, or if any such day is not a Business Day on the next succeeding
Business Day (each, an "Interest Payment Date"). Interest on the Notes will
accrue from the most recent date on which interest has been paid or, if no
interest has been paid, from September 15, 2004; provided that the first
Interest Payment Date shall be March 15, 2005. Holdings shall pay interest on
overdue principal and premium, if any, from time to time on demand at the
interest rate then in effect and shall pay interest on overdue installments of
interest and Liquidated Damages, if any, (without regard to any applicable grace
periods) from time to time on demand at the same rate to the extent lawful.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
2. Method of Payment. Holdings will pay interest on the Notes (except
defaulted interest) and Liquidated Damages to the Persons who are registered
holders of Notes at the close of business on the record date for the next
Interest Payment Date even if such Notes are canceled after such record date and
on or before such Interest Payment Date. Holders must surrender Notes to a
Paying Agent to collect principal payments on such Notes. Holdings will pay
principal, premium, if any, interest and Liquidated Damages, if any, in money of
the United States that at the time of payment is legal tender for payment of
public and private debts. Holdings will pay principal, premium, if any,
interest and Liquidated Damages, if any, by wire transfer of immediately
available funds by 11 a.m. New York City time to the accounts specified by the
Holders or, if no such account is specified, by mailing a check to each such
Holder's registered address; provided that payment by wire transfer of
immediately available funds will be required with respect to principal, premium,
if any, interest and Liquidated Damages, if any, on all Global Notes.
3. Paying Agent and Registrar. State Street Bank and Trust Company (the
"Trustee") will initially act as the Paying Agent and Registrar. Holdings may
appoint additional paying agents or co-registrars, and change the Paying Agent,
any additional paying agent, the Registrar or any co-registrar without prior
notice to any Holder. Holdings or any of its Subsidiaries may act in any such
capacity.
4. Indenture. Holdings issued the Notes under an Indenture, dated as of
September 17, 1997 (the "Indenture"), among Holdings and the Trustee. The terms
of the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code (S)(S)
77aaa-77bbbb) as in effect on the date of the original issuance of the Notes
(the "Trust Indenture Act"). The Notes are subject to, and qualified by, all
such terms, certain of which are summarized herein, and Holders are referred to
the Indenture and the Trust Indenture Act for a statement of such terms (all
capitalized terms not defined herein shall
-4-
<PAGE>
have the meanings assigned them in the Indenture). The Notes are unsecured
senior obligations of Holdings.
5. Optional Redemption. (a) Except as described in paragraph 5(b) below,
the Notes may not be redeemed at the option of Holdings prior to March 15, 1998.
During the twelve-month period beginning September 15 of the years indicated
below, the Notes will be redeemable at the option of Holdings, in whole or in
part, on at least 30 but not more than 60 days' notice to each Holder of Notes
to be redeemed, at the redemption prices (expressed as percentages of the
Accreted Value for all redemption dates prior to September 15, 2004 and of the
principal amount for all redemption dates including September 15, 2004 and
thereafter) set forth below, plus any accrued and unpaid interest and Liquidated
Damages, if any, to the date of redemption:
Year Percentage
---- ----------
2002................................................. 105.688%
2003................................................. 103.792%
2004................................................. 101.986%
2005 and thereafter.................................. 100.000%
(b) Notwithstanding the foregoing, on or after March 15, 1998 and prior to
September 15, 2002, Holdings may (but shall not have the obligation to) redeem,
in whole or in part, the outstanding Notes at a redemption price in cash equal
to 105.688% of the Accreted Value (determined at the date of redemption)
thereof, with the net proceeds of one or more Equity Offerings of Holdings or
Holdings; provided, that any such redemption shall occur within 60 days of the
date of the closing of any such Equity Offering. In addition, upon the
occurrence of a Change of Control on or after March 15, 1998 and prior to
September 15, 2002, Holdings, at its option, may redeem, in whole or in part,
the outstanding Notes at a redemption price in cash equal to 105.688% of the
Accreted Value (determined at the date of redemption) thereof. Holdings shall
give not less than 30 and not more than 60 days' notice of such redemption
within 30 days following a Change of Control.
6. Mandatory Redemption. Subject to Holdings' obligation to make an offer
to purchase Notes under certain circumstances pursuant to Sections 4.13 and 4.14
of the Indenture (as described in paragraph 7 below), Holdings is not required
to make any mandatory redemption, purchase or sinking fund payments with respect
to the Notes.
7. Mandatory Offers to Purchase Notes. (a) Upon the occurrence of a Change
of Control (such date being the "Change of Control Trigger Date"), each Holder
of Notes shall have the right to require Holdings to purchase all or any part
(equal to $500 or an integral multiple thereof) of such Holder's Notes pursuant
to an offer (a "Change of Control Offer") at a purchase price in cash equal to
100% of the Accreted Value (determined at the date of redemption) thereof (if
such Offer is prior to September 15, 2004) to the date of purchase, or 100% of
the aggregate principal amount thereof (if such Offer is on or after September
15, 2004), plus any accrued and unpaid interest and Liquidated Damages, if any,
to the date of purchase.
(b) If Holdings or any Restricted Subsidiary consummates one or more Asset
Sales and does not use all of the Net Proceeds from such Asset Sales as provided
in the Indenture, Holdings will be required, under certain circumstances, to
utilize the Excess Proceeds from such Asset Sales to offer (an "Asset Sale
Offer") to purchase Notes at a purchase price equal to 100% of the Accreted
Value (determined at the date of redemption) thereof to the date of purchase (if
such date of purchase is prior to September 15, 2004), or 100% of the principal
amount of the Notes (if
-5-
<PAGE>
such date of purchase is on or after September 15, 2004), plus any accrued and
unpaid interest and Liquidated Damages, if any, to the date of purchase. If the
Excess Proceeds are insufficient to purchase all Notes tendered pursuant to any
Asset Sale Offer, the Trustee shall select the Notes to be purchased in
accordance with the terms of the Indenture.
(c) Holders may tender all or, subject to paragraph 8 below, any portion of
their Notes in a Change of Control Offer or Asset Sale Offer (collectively, an
"Offer") by completing the form below entitled "OPTION OF HOLDER TO ELECT
PURCHASE."
(d) Holdings shall comply with any tender offer rules under the Exchange
Act which may then be applicable, including Rule 14e-1, in connection with an
offer required to be made by Holdings to repurchase the Notes as a result of a
Change of Control or an Asset Sale Trigger Date. To the extent that the
provisions of any securities laws or regulations conflict with provisions of
this Indenture, Holdings shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Indenture by virtue thereof.
8. Notice of Redemption or Purchase. Notice of an optional redemption or an
Offer will be mailed to each Holder at its registered address at least 30 days
but not more than 60 days before the date of redemption or purchase. Notes may
be redeemed or purchased in part, but only in whole multiples of $500 unless all
Notes held by a Holder are to be redeemed or purchased. On or after any date on
which Notes are redeemed or purchased, interest ceases to accrue on the Notes or
portions thereof called for redemption or accepted for purchase on such date.
9. Denominations, Transfer, Exchange. The Notes are in registered form
without coupons in denominations of $500 and integral multiples thereof. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. Holders seeking to transfer or exchange their Notes may be
required, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not exchange or register the transfer of any Note
or portion of a Note selected for redemption or tendered pursuant to an Offer.
Also, it need not exchange or register the transfer of any Notes for a period of
15 Business Days before a selection of Notes to be redeemed or between a record
date and the next succeeding Interest Payment Date.
10. Persons Deemed Owners. The registered Holder of a Note may be treated
as its owner for all purposes.
11. Amendments and Waivers. Subject to certain exceptions, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount at maturity of the then outstanding Notes,
and any existing Default (except a payment Default) may be waived with the
consent of the Holders of a majority in principal amount at maturity of the then
outstanding Notes. Without the consent of any Holder, the Indenture or the Notes
may be amended to: cure any ambiguity, defect or inconsistency; provide for
uncertificated Notes in addition to or in place of certificated Notes; provide
for the assumption by another corporation of Holdings' obligations to Holders in
the event of a merger or consolidation of Holdings in which Holdings is not the
surviving corporation or a sale of substantially all of Holdings' assets to such
other corporation; comply with the SEC's requirements to effect or maintain the
qualification of the Indenture under the Trust Indenture Act; provide for
additional Guarantees with respect to the Notes; or, make any change that does
not materially adversely affect any Holder's rights under the Indenture.
-6-
<PAGE>
12. Defaults and Remedies. Events of Default include: default for 30 days
in payment of interest on, or Liquidated Damages, if any, with respect to, the
Notes; default in payment of principal of, or premium, if any, on the Notes;
failure by Holdings for 30 days after notice to it to comply with any of its
other agreements or covenants in, or provisions of, the Indenture or the Notes;
certain defaults under and acceleration prior to maturity of, or failure to pay
at maturity, certain other Indebtedness; certain final judgments that remain
undischarged; and certain events of bankruptcy or insolvency involving Holdings
or any Restricted Subsidiary that is a Significant Subsidiary. If an Event of
Default occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount at maturity of the Notes may declare all the Notes to be
immediately due and payable in an amount equal to the principal of, premium, if
any, and any accrued and unpaid interest on, and Liquidated Damages, if any,
with respect to such Notes; provided, however, that in the case of an Event of
Default arising from certain events of bankruptcy or insolvency, the principal
of, premium, if any, and any accrued and unpaid interest on, and Liquidated
Damages, if any, with respect to the Notes becomes due and payable immediately
without further action or notice. Subject to certain exceptions, Holders of a
majority in principal amount at maturity of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power, provided that the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request of Holders unless such Holders have offered
to the Trustee security and indemnity satisfactory to it. Holders may not
enforce the Indenture or the Notes except as provided in the Indenture. The
Trustee may withhold from Holders notice of any continuing default (except a
payment Default) if it determines that withholding notice is in their interests.
Holdings must furnish an annual compliance certificate to the Trustee.
13. Trustee Dealings with Holdings. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for Holdings or any Affiliate, and may otherwise deal with Holdings or any
Affiliate, as if it were not Trustee.
14. No Recourse Against Others. No officer, employee, director,
stockholder or Subsidiary of Holdings shall have any liability for any
Obligations of Holdings under the Notes or the Indenture, or for any claim based
on, in respect of, or by reason of, such Obligations or the creation of any such
Obligation, except, in the case of a Subsidiary, for an express guarantee or an
express creation of any Lien by such Subsidiary of Holdings' Obligations under
the Notes. Each Holder by accepting a Note waives and releases all such
liability, and such waiver and release is part of the consideration for the
issuance of the Notes. The foregoing waiver may not be effective to waive
liabilities under the Federal securities law and the SEC is of the view that
such a waiver is against public policy.
15. Successor Substituted. Upon the consolidation or merger by Holdings
with or into another corporation, or upon the sale, lease, conveyance or other
disposition of all or substantially all of its assets to another corporation, in
accordance with the Indenture, the corporation surviving any such merger or
consolidation (if not Holdings) or the corporation to which such assets were
sold or transferred to shall succeed to, and be substituted for, and may
exercise every right and power of Holdings under the Indenture with the same
effect as if such surviving or other corporation had been named as Holdings in
the Indenture.
16. Governing Law. This Note shall be governed by and construed in
accordance with the internal laws of the State of New York without regard to the
conflict of laws provisions thereof.
17. Authentication. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
-7-
<PAGE>
18. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
19. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Note Identification Procedures, Holdings has caused CUSIP
numbers to be printed on the Notes and have directed the Trustee to use CUSIP
numbers in notices of redemption as a convenience to Holders. No representation
is made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers printed on the Notes.
16. Additional Rights of Holders of Transfer Restricted Notes. In
addition to the rights provided to Holders of Notes under the Indenture, Holders
of Transfer Restricted Notes shall have all the rights set forth in the
Registration Rights Agreement, dated as of September 17, 1997 between Holdings,
and Donaldson, Lufkin & Jenrette Securities Corporation (the "Registration
Rights Agreement").
Holdings will furnish to any Holder upon written request and without charge
a copy of the Indenture, which has in it the text of this Note in larger type.
Request may be made to:
GFSI Holdings, Inc.
9700 Commerce Parkway
Lenexa, Kansas 66219
Attention: director of finance
Telecopier: (913) 752-3336
-8-
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to:
(Insert assignee's soc. sec. or tax I.D. no.)
(Print or type assignee's name, address and zip code)
and irrevocably appoint
as agent to transfer this Note on the books
of Holdings. The agent may substitute another to act for him.
Date: Your
Signature:_______________________________________
(Sign exactly as your name appears on the
other side of this Note)
Signature must be guaranteed by an eligible guarantor institution (bank, stock
broker, savings and loan association or credit union) with membership in an
approved signature guarantee program pursuant to Securities and Exchange
Commission Rule 17Ad-15.
Signature Guarantee:_____________________________
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<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you elect to have this Note purchased by Holdings pursuant to Section
4.13 of the Indenture, check the box: [_]
If you elect to have this Note purchased by Holdings pursuant to Section
4.14 of the Indenture, check the box: [_]
If you elect to have only part of this Note purchased by Holdings pursuant
to Section 4.13 or 4.14 of the Indenture, state the amount (multiples of $500
only):
$
Date: Your
Signature:_______________________________________
(Sign exactly as your name appears
on the other side of this Note)
Signature must be guaranteed by an eligible guarantor institution (bank, stock
broker, savings and loan association or credit union) with membership in an
approved signature guarantee program pursuant to Securities and Exchange
Commission Rule 17Ad-15.
Signature Guarantee:_____________________________
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<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE NOTES
The following exchanges of a part of this Global Note for Definitive Notes
have been made:
<TABLE>
<CAPTION>
Principal Amount of this Signature of
Amount of decrease in Amount of increase in Global Note authorized officer of
Principal Amount of this Principal Amount of following such decrease Trustee or Note
Date of Exchange Global Note this Global Note (or increase) Custodian
---------------- ------------------------ --------------------- ------------------------ ---------------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
Exhibit 4.3
11 3/8% Series B Senior Discount Note due 2009
No. G-1 $108,467,780
CUSIP No. 36169L AA 2
GFSI HOLDINGS, INC.
promises to pay to Cede & Co.
or registered assigns,
the principal sum of One Hundred Eight Million, Four Hundred Sixty Seven
Thousand, Seven Hundred Eighty and xx/100 Dollars
on September 15, 2009.
Interest Payment Dates: March 15 and September 15
Record Dates: March 1 and September 1
Dated: _____________, 1997
GFSI HOLDINGS, INC.
By: ____________________________
Name: A. Richard Caputo, Jr.
Title: Vice President
Trustee's Certificate of Authentication
Dated: ____________, 1997
This is one of the
Notes referred to in the
within-mentioned Indenture:
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By: ___________________________________
(Authorized Signatory)
<PAGE>
Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Senior Discount Note may not be transferred except as a
whole by the Depository to a nominee of the Depository or by a nominee of the
Depository to the Depository or another nominee of the Depository or by the
Depository or any such nominee to a successor Depository or a nominee of such
successor Depository. The Depository Trust Company shall act as the Depository
until a successor shall be appointed by Holdings and the Registrar. Unless this
certificate is presented by an authorized representative of The Depository Trust
Company (55 Water Street, New York, New York) ("DTC"), to the issuer or its
agent for registration of transfer, exchange or payment, and any certificate
issued is registered in the name of Cede & Co. or such other name as may be
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or such other entity as may be requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY Person IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.
FOR THE PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED, THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE
DISCOUNT; FOR EACH $1,000 PRINCIPAL AMOUNT OF THIS SECURITY, THE ISSUE
PRICE IS $487.20, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $512.80, THE
ISSUE DATE IS SEPTEMBER 17, 1997 AND THE YIELD TO MATURITY IS 11 3/8% PER
ANNUM.
Additional provisions of this Senior Discount Note are set forth on the
other side of this Senior Discount Note.
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<PAGE>
(Back of Note)
11 3/8% SERIES A SENIOR DISCOUNT NOTES DUE 2009
1. Interest. No interest will accrue on the Notes until September 15,
2004, but the Accreted Value (as defined in the Indenture) will accrete
(representing the amortization of original issue discount) between the date of
original issuance and such date, on a semi-annual basis using a 360-day year of
twelve 30-day months such that the Accreted Value shall be equal to the full
principal amount of the Notes on September 15, 2004. GFSI Holdings, Inc.
("Holdings") promises to pay interest on the principal amount of the Notes at
the rate and in the manner specified below. Interest on the Notes will accrue at
11 3/8% per annum from September 15, 2004 until maturity. Interest if any, will
be payable semiannually in cash in arrears on March 15 and September 15 of each
year, or if any such day is not a Business Day on the next succeeding Business
Day (each, an "Interest Payment Date"). Interest on the Notes will accrue from
the most recent date on which interest has been paid or, if no interest has been
paid, from September 15, 2004; provided that the first Interest Payment Date
shall be March 15, 2005. Holdings shall pay interest on overdue principal and
premium, if any, from time to time on demand at the interest rate then in effect
and shall pay interest on overdue installments of interest (without regard to
any applicable grace periods) from time to time on demand at the same rate to
the extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
2. Method of Payment. Holdings will pay interest on the Notes (except
defaulted interest) to the Persons who are registered holders of Notes at the
close of business on the record date for the next Interest Payment Date even if
such Notes are canceled after such record date and on or before such Interest
Payment Date. Holders must surrender Notes to a Paying Agent to collect
principal payments on such Notes. Holdings will pay principal, premium, if any,
and interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. Holdings will pay principal,
premium, if any, and interest by wire transfer of immediately available funds by
11 a.m. New York City time to the accounts specified by the Holders or, if no
such account is specified, by mailing a check to each such Holder's registered
address; provided that payment by wire transfer of immediately available funds
will be required with respect to principal, premium, if any, and interest on all
Global Notes.
3. Paying Agent and Registrar. State Street Bank and Trust Company (the
"Trustee") will initially act as the Paying Agent and Registrar. Holdings may
appoint additional paying agents or co-registrars, and change the Paying Agent,
any additional paying agent, the Registrar or any co-registrar without prior
notice to any Holder. Holdings or any of its Subsidiaries may act in any such
capacity.
4. Indenture. Holdings issued the Notes under an Indenture, dated as of
September 17, 1997 (the "Indenture"), among Holdings and the Trustee. The terms
of the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code (S)(S)
77aaa-77bbbb) as in effect on the date of the original issuance of the Notes
(the "Trust Indenture Act"). The Notes are subject to, and qualified by, all
such terms, certain of which are summarized herein, and Holders are referred to
the Indenture and the Trust Indenture Act for a statement of such terms (all
capitalized terms not defined herein shall have the meanings assigned them in
the Indenture). The Notes are unsecured senior obligations of Holdings.
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<PAGE>
5. Optional Redemption. (a) Except as described in paragraph 5(b)
below, the Notes may not be redeemed at the option of Holdings prior to March
15, 1998. During the twelve-month period beginning September 15 of the years
indicated below, the Notes will be redeemable at the option of Holdings, in
whole or in part, on at least 30 but not more than 60 days' notice to each
Holder of Notes to be redeemed, at the redemption prices (expressed as
percentages of the Accreted Value for all redemption dates prior to September
15, 2004 and of the principal amount for all redemption dates including
September 15, 2004 and thereafter) set forth below, plus any accrued and unpaid
interest to the date of redemption:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002.............................................. 105.688%
2003.............................................. 103.792%
2004.............................................. 101.986%
2005 and thereafter............................... 100.000%
</TABLE>
(b) Notwithstanding the foregoing, on or after March 15, 1998 and prior to
September 15, 2002, Holdings may (but shall not have the obligation to) redeem,
in whole or in part, the outstanding Notes at a redemption price in cash equal
to 105.688% of the Accreted Value (determined at the date of redemption)
thereof, with the net proceeds of one or more Equity Offerings of Holdings or
Holdings; provided, that any such redemption shall occur within 60 days of the
date of the closing of any such Equity Offering. In addition, upon the
occurrence of a Change of Control on or after March 15, 1998 and prior to
September 15, 2002, Holdings, at its option, may redeem, in whole or in part,
the outstanding Notes at a redemption price in cash equal to 105.688% of the
Accreted Value (determined at the date of redemption) thereof. Holdings shall
give not less than 30 and not more than 60 days' notice of such redemption
within 30 days following a Change of Control.
6. Mandatory Redemption. Subject to Holdings' obligation to make an offer
to purchase Notes under certain circumstances pursuant to Sections 4.13 and 4.14
of the Indenture (as described in paragraph 7 below), Holdings is not required
to make any mandatory redemption, purchase or sinking fund payments with respect
to the Notes.
7. Mandatory Offers to Purchase Notes. (a) Upon the occurrence of a
Change of Control (such date being the "Change of Control Trigger Date"), each
Holder of Notes shall have the right to require Holdings to purchase all or any
part (equal to $500 or an integral multiple thereof) of such Holder's Notes
pursuant to an offer (a "Change of Control Offer") at a purchase price in cash
equal to 100% of the Accreted Value (determined at the date of redemption)
thereof (if such Offer is prior to September 15, 2004) to the date of purchase,
or 100% of the aggregate principal amount thereof (if such Offer is on or after
September 15, 2004), plus any accrued and unpaid interest to the date of
purchase.
(b) If Holdings or any Restricted Subsidiary consummates one or more Asset
Sales and does not use all of the Net Proceeds from such Asset Sales as provided
in the Indenture, Holdings will be required, under certain circumstances, to
utilize the Excess Proceeds from such Asset Sales to offer (an "Asset Sale
Offer") to purchase Notes at a purchase price equal to 100% of the Accreted
Value (determined at the date of redemption) thereof to the date of purchase (if
such date of purchase is prior to September 15, 2004), or 100% of the principal
amount of the Notes (if such date of purchase is on or after September 15,
2004), plus any accrued and unpaid interest to the date of purchase. If the
Excess Proceeds are insufficient to purchase all Notes tendered
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<PAGE>
pursuant to any Asset Sale Offer, the Trustee shall select the Notes to be
purchased in accordance with the terms of the Indenture.
(c) Holders may tender all or, subject to paragraph 8 below, any portion
of their Notes in a Change of Control Offer or Asset Sale Offer (collectively,
an "Offer") by completing the form below entitled "OPTION OF HOLDER TO ELECT
PURCHASE."
(d) Holdings shall comply with any tender offer rules under the Exchange
Act which may then be applicable, including Rule 14e-1, in connection with an
offer required to be made by Holdings to repurchase the Notes as a result of a
Change of Control or an Asset Sale Trigger Date. To the extent that the
provisions of any securities laws or regulations conflict with provisions of
this Indenture, Holdings shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Indenture by virtue thereof.
8. Notice of Redemption or Purchase. Notice of an optional redemption or
an Offer will be mailed to each Holder at its registered address at least 30
days but not more than 60 days before the date of redemption or purchase. Notes
may be redeemed or purchased in part, but only in whole multiples of $500 unless
all Notes held by a Holder are to be redeemed or purchased. On or after any date
on which Notes are redeemed or purchased, interest ceases to accrue on the Notes
or portions thereof called for redemption or accepted for purchase on such date.
9. Denominations, Transfer, Exchange. The Notes are in registered form
without coupons in denominations of $500 and integral multiples thereof. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. Holders seeking to transfer or exchange their Notes may be
required, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not exchange or register the transfer of any Note
or portion of a Note selected for redemption or tendered pursuant to an Offer.
Also, it need not exchange or register the transfer of any Notes for a period of
15 Business Days before a selection of Notes to be redeemed or between a record
date and the next succeeding Interest Payment Date.
10. Persons Deemed Owners. The registered Holder of a Note may be treated
as its owner for all purposes.
11. Amendments and Waivers. Subject to certain exceptions, the Indenture
or the Notes may be amended or supplemented with the consent of the Holders of
at least a majority in principal amount at maturity of the then outstanding
Notes, and any existing Default (except a payment Default) may be waived with
the consent of the Holders of a majority in principal amount at maturity of the
then outstanding Notes. Without the consent of any Holder, the Indenture or the
Notes may be amended to: cure any ambiguity, defect or inconsistency; provide
for uncertificated Notes in addition to or in place of certificated Notes;
provide for the assumption by another corporation of Holdings' obligations to
Holders in the event of a merger or consolidation of Holdings in which Holdings
is not the surviving corporation or a sale of substantially all of Holdings'
assets to such other corporation; comply with the SEC's requirements to effect
or maintain the qualification of the Indenture under the Trust Indenture Act;
provide for additional Guarantees with respect to the Notes; or, make any change
that does not materially adversely affect any Holder's rights under the
Indenture.
12. Defaults and Remedies. Events of Default include: default for 30 days
in payment of interest on the Notes; default in payment of principal of, or
premium, if any, on the
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<PAGE>
Notes; failure by Holdings for 30 days after notice to it to comply with any of
its other agreements or covenants in, or provisions of, the Indenture or the
Notes; certain defaults under and acceleration prior to maturity of, or failure
to pay at maturity, certain other Indebtedness; certain final judgments that
remain undischarged; and certain events of bankruptcy or insolvency involving
Holdings or any Restricted Subsidiary that is a Significant Subsidiary. If an
Event of Default occurs and is continuing, the Trustee or the Holders of at
least 25% in principal amount at maturity of the Notes may declare all the Notes
to be immediately due and payable in an amount equal to the principal of,
premium, if any, and any accrued and unpaid interest on such Notes; provided,
however, that in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, the principal of, premium, if any, and any accrued and
unpaid interest on the Notes becomes due and payable immediately without further
action or notice. Subject to certain exceptions, Holders of a majority in
principal amount at maturity of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power, provided that the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of Holders unless such Holders have offered to the Trustee
security and indemnity satisfactory to it. Holders may not enforce the Indenture
or the Notes except as provided in the Indenture. The Trustee may withhold from
Holders notice of any continuing default (except a payment Default) if it
determines that withholding notice is in their interests. Holdings must furnish
an annual compliance certificate to the Trustee.
13. Trustee Dealings with Holdings. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for Holdings or any Affiliate, and may otherwise deal with Holdings or any
Affiliate, as if it were not Trustee.
14. No Recourse Against Others. No officer, employee, director,
stockholder or Subsidiary of Holdings shall have any liability for any
Obligations of Holdings under the Notes or the Indenture, or for any claim based
on, in respect of, or by reason of, such Obligations or the creation of any such
Obligation, except, in the case of a Subsidiary, for an express guarantee or an
express creation of any Lien by such Subsidiary of Holdings' Obligations under
the Notes. Each Holder by accepting a Note waives and releases all such
liability, and such waiver and release is part of the consideration for the
issuance of the Notes. The foregoing waiver may not be effective to waive
liabilities under the Federal securities law and the SEC is of the view that
such a waiver is against public policy.
15. Successor Substituted. Upon the consolidation or merger by Holdings
with or into another corporation, or upon the sale, lease, conveyance or other
disposition of all or substantially all of its assets to another corporation, in
accordance with the Indenture, the corporation surviving any such merger or
consolidation (if not Holdings) or the corporation to which such assets were
sold or transferred to shall succeed to, and be substituted for, and may
exercise every right and power of Holdings under the Indenture with the same
effect as if such surviving or other corporation had been named as Holdings in
the Indenture.
16. Governing Law. This Note shall be governed by and construed in
accordance with the internal laws of the State of New York without regard to the
conflict of laws provisions thereof.
17. Authentication. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
18. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties),
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<PAGE>
JT TEN (= joint tenants with right of survivorship and not as tenants in
common), CUST (=Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
19. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Note Identification Procedures, Holdings has caused CUSIP
numbers to be printed on the Notes and have directed the Trustee to use CUSIP
numbers in notices of redemption as a convenience to Holders. No representation
is made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers printed on the Notes.
Holdings will furnish to any Holder upon written request and without charge
a copy of the Indenture, which has in it the text of this Note in larger type.
Request may be made to:
GFSI Holdings, Inc.
9700 Commerce Parkway
Lenexa, Kansas 66219
Attention: director of finance
Telecopier: (913) 752-3336
-7-
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to:
(Insert assignee's soc. sec. or tax I.D. no.)
(Print or type assignee's name, address and zip code)
and irrevocably appoint
as agent to transfer this Note on the books
of Holdings. The agent may substitute another to act for him.
Date: Your
Signature:__________________________
(Sign exactly as your name appears on the
other side of this Note)
Signature must be guaranteed by an eligible guarantor institution (bank, stock
broker, savings and loan association or credit union) with membership in an
approved signature guarantee program pursuant to Securities and Exchange
Commission Rule 17Ad-15.
Signature Guarantee:_____________________________
-8-
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you elect to have this Note purchased by Holdings pursuant to Section
4.13 of the Indenture, check the box: [ ]
If you elect to have this Note purchased by Holdings pursuant to Section
4.14 of the Indenture, check the box: [ ]
If you elect to have only part of this Note purchased by Holdings pursuant
to Section 4.13 or 4.14 of the Indenture, state the amount (multiples of $500
only):
$
Date: Your
Signature:___________________________________
(Sign exactly as your name appears
on the other side of this Note)
Signature must be guaranteed by an eligible guarantor institution (bank, stock
broker, savings and loan association or credit union) with membership in an
approved signature guarantee program pursuant to Securities and Exchange
Commission Rule 17Ad-15.
Signature Guarantee:_________________________
-9-
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE NOTES
The following exchanges of a part of this Global Note for Definitive Notes
have been made:
<TABLE>
<CAPTION>
Principal Amount of this Signature of
Amount of decrease in Amount of increase in Global Note authorized officer of
Principal Amount of this Principal Amount of following such decrease Trustee or Note
Date of Exchange Global Note this Global Note (or increase) Custodian
---------------- ------------------------ --------------------- ----------------------- ---------------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
Exhibit 4.4
GFSI HOLDINGS, INC.
________________________________________
11-3/8% Senior Discount Notes due 2009
________________________________________
___________________
REGISTRATION RIGHTS AGREEMENT
dated as of september 17, 1997
___________________
Donaldson, Lufkin & Jenrette
Securities Corporation
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and
entered into as of September 17, 1997 by and between GFSI Holdings, Inc., a
Delaware corporation ("Holdings"), and Donaldson, Lufkin & Jenrette Securities
Corporation (the "Initial Purchaser"), which has agreed to purchase Holdings'
Units (the "Units") consisting of Holdings' 11-3/8% Subordinated Discount Notes
due 2009 and Holdings' 11-3/8% Preferred Stock due 2009 and exchangeable, at
Holdings' option, for Holdings' 11-3/8% Senior Discount Notes due 2009 (the
"Series A Notes") pursuant to the Purchase Agreement (as defined).
This Agreement is made pursuant to the Purchase Agreement, dated
September 12, 1997 (the "Purchase Agreement"), by and among Holdings, GFSI,
Inc., a Delaware corporation, the Selling Securityholders (as such term is
defined in the Purchase Agreement) and the Initial Purchaser. In order to
induce the Initial Purchaser to purchase the Units, Holdings has agreed to
provide the registration rights set forth in this Agreement. The execution and
delivery of this Agreement is a condition to the obligations of the Initial
Purchaser set forth in the Purchase Agreement.
The parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have the
following meanings:
Act: The Securities Act of 1933, as amended.
Business Day: Any day except a Saturday, Sunday or other day in the City
of New York, or in the city of the corporate trust office of the Trustee, on
which banks are authorized to close.
Broker-Dealer: Any broker or dealer registered under the Exchange Act.
Broker-Dealer Transfer Restricted Notes: Series B Notes that are acquired
by a Broker-Dealer in the Exchange Offer in exchange for Series A Notes that
such Broker-Dealer acquired for its own account as a result of market-making
activities or other trading activities (other than Series A Notes acquired
directly from Holdings or any of its affiliates).
Closing Date: The date hereof.
Commission: The Securities and Exchange Commission.
Consummate: An Exchange Offer shall be deemed "Consummated" for purposes
of this Agreement upon the occurrence of (a) the filing and effectiveness under
the Act of the Exchange Offer Registration Statement relating to the Series B
Notes to be issued in the Exchange Offer, (b) the maintenance of such
Registration Statement continuously effective and the keeping of the Exchange
Offer open for a period not less than the minimum period required pursuant to
Section 3(b) hereof and (c) the delivery by Holdings to the Registrar under the
Indenture of Series B Notes in the same aggregate principal amount as the
aggregate principal amount of Series A Notes tendered by Holders thereof
pursuant to the Exchange Offer.
Damages Payment Date: Each Interest Payment Date.
Effectiveness Target Date: As defined in Section 5.
<PAGE>
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer: The registration by Holdings under the Act of the Series B
Notes pursuant to the Exchange Offer Registration Statement pursuant to which
Holdings shall offer the Holders of all outstanding Transfer Restricted Notes
the opportunity to exchange all such outstanding Transfer Restricted Notes for
Series B Notes in an aggregate principal amount equal to the aggregate principal
amount of the Transfer Restricted Notes tendered in such exchange offer by such
Holders.
Exchange Offer Registration Statement: The Registration Statement relating
to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchaser proposes
to sell the Series A Notes to certain "qualified institutional buyers," as such
term is defined in Rule 144A under the Act, and to certain "accredited
investors," as such term is defined in Rule 501(a)(1), (2), (3), (5) and (7) of
Regulation D under the Act.
Holders: As defined in Section 2 hereof.
Indemnified Holder: As defined in Section 8(a) hereof.
Indenture: The Indenture, dated the Closing Date, between Holdings and
State Street Bank and Trust Company, as trustee (the "Trustee"), pursuant to
which the Notes are to be issued, as such Indenture is amended or supplemented
from time to time in accordance with the terms thereof.
Interest Payment Date: As defined in the Indenture and the Notes.
NASD: National Association of Securities Dealers, Inc.
Notes: The Series A Notes and the Series B Notes.
Person: An individual, partnership, corporation, trust, unincorporated
organization, or a government or agency or political subdivision thereof.
Prospectus: The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
Record Holder: With respect to any Damages Payment Date, each Person who
is a Holder of Notes on the record date with respect to the Interest Payment
Date on which such Damages Payment Date shall occur.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of Holdings relating to
(a) an offering of Series B Notes pursuant to an Exchange Offer or (b) the
registration for resale of Transfer Restricted Notes pursuant to the Shelf
Registration Statement, in each case, (i) which is filed pursuant to the
provisions of this Agreement and (ii) including the Prospectus included therein,
all amendments and supplements thereto
<PAGE>
(including post-effective amendments) and all exhibits and material incorporated
by reference therein.
Restricted Broker-Dealer: Any Broker-Dealer which holds Broker-Dealer
Transfer Restricted Notes.
Series B Notes: Holdings' 11-3/8% Series B Senior Discount Notes due 2009
to be issued pursuant to the Indenture (i) in the Exchange Offer or (ii) upon
the request of any Holder of Series A Notes covered by a Shelf Registration
Statement, in exchange for such Series A Notes.
Shelf Registration Statement: As defined in Section 4 hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as
in effect on the date of the Indenture.
Transfer Restricted Notes: Each Note, until the earliest to occur of (a)
the date on which such Note is exchanged in the Exchange Offer and entitled to
be resold to the public by the Holder thereof without complying with the
prospectus delivery requirements of the Act, (b) the date on which such Note has
been disposed of in accordance with a Shelf Registration Statement, (c) the date
on which such Note is disposed of by a Broker-Dealer pursuant to the "Plan of
Distribution" contemplated by the Exchange Offer Registration Statement
(including delivery of the Prospectus contained therein) or (d) the date on
which such Note is distributed to the public pursuant to Rule 144 under the Act.
Underwritten Registration or Underwritten Offering: A registration in
which securities of Holdings are sold to an underwriter for reoffering to the
public.
2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Notes (each, a
"Holder") whenever such Person owns Transfer Restricted Notes.
3. REGISTERED EXCHANGE OFFER
a. Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i)
below have been complied with), Holdings shall (i) cause to be
filed with the Commission as soon as practicable after the
Closing Date, but in no event later than 60 days after the
Closing Date, the Exchange Offer Registration Statement, (ii) use
their best efforts to cause such Exchange Offer Registration
Statement to become effective at the earliest possible time, but
in no event later than 120 days after the Closing Date, (iii) in
connection with the foregoing, (A) file all pre-effective
amendments to such Exchange Offer Registration Statement as may
be necessary in order to cause such Exchange Offer Registration
Statement to become effective, (B) file, if applicable, a post-
effective amendment to such Exchange Offer Registration Statement
pursuant to Rule 430A under the Act and (C) cause all necessary
filings, if any, in connection with the registration and
qualification of the Series B Notes to be made under the Blue Sky
laws of such jurisdictions as are necessary to permit
Consummation of the Exchange Offer, and (iv) upon the
effectiveness of such
<PAGE>
Exchange Offer Registration Statement, commence and Consummate
the Exchange Offer. The Exchange Offer shall be on the
appropriate form permitting registration of the Series B Notes to
be offered in exchange for the Series A Notes that are Transfer
Restricted Notes and to permit sales of Broker-Dealer Transfer
Restricted Notes by Restricted Broker-Dealers as contemplated by
Section 3(c) below.
b. Holdings shall use its best efforts to cause the Exchange Offer
Registration Statement to be effective continuously, and shall
keep the Exchange Offer open, for a period of not less than the
minimum period required under applicable federal and state
securities laws to Consummate the Exchange Offer; provided,
however, that in no event shall such period be less than 20
Business Days. Holdings shall cause the Exchange Offer to comply
with all applicable federal and state securities laws. No
securities other than the Notes shall be included in the Exchange
Offer Registration Statement. Holdings shall use its best
efforts to cause the Exchange Offer to be Consummated on the
earliest practicable date after the Exchange Offer Registration
Statement has become effective, but in no event later than 30
Business Days thereafter.
(c) Holdings shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Restricted Broker-Dealer who holds Series A Notes that are
Transfer Restricted Notes and that were acquired for the account of such Broker-
Dealer as a result of market-making activities or other trading activities, may
exchange such Series A Notes (other than Transfer Restricted Notes acquired
directly from Holdings) pursuant to the Exchange Offer; however, such Broker-
Dealer may be deemed to be an "underwriter" within the meaning of the Act and
must, therefore, deliver a prospectus meeting the requirements of the Act in
connection with its initial sale of each Series B Note received by such Broker-
Dealer in the Exchange Offer, which prospectus delivery requirement may be
satisfied by the delivery by such Broker-Dealer of the Prospectus contained in
the Exchange Offer Registration Statement. Such "Plan of Distribution" section
shall also contain all other information with respect to such sales of Broker-
Dealer Transfer Restricted Notes by Restricted Broker-Dealers that the
Commission may require in order to permit such sales pursuant thereto, but such
"Plan of Distribution" shall not name any such Broker-Dealer or disclose the
amount of Notes held by any such Broker-Dealer except to the extent required by
the Commission as a result of a change in policy after the date of this
Agreement.
Holdings shall use its reasonable best efforts to keep the Exchange Offer
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) below to the extent necessary to
ensure that it is available for sales of Broker-Dealer Transfer Restricted Notes
by Restricted Broker-Dealers, and to ensure that such Registration Statement
conforms with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, for a
period of 120 days from the date on which the Exchange Offer is Consummated.
Holdings shall promptly provide sufficient copies of the latest version of
such Prospectus to such Restricted Broker-Dealers upon such Restricted Broker-
Dealers' reasonable request, and in no event later than two Business Days after
such request, at any time during such 120-day period in order to facilitate such
sales.
<PAGE>
4. SHELF REGISTRATION
a. Shelf Registration. If (i) Holdings is not required to file an
Exchange Offer Registration Statement with respect to the Series
B Notes because the Exchange Offer is not permitted by applicable
law (after the procedures set forth in Section 6(a)(i) below have
been complied with) or (ii) if any Holder of Transfer Restricted
Notes shall notify Holdings in writing within 20 Business Days
following the Consummation of the Exchange Offer that (A) such
Holder is prohibited by law or Commission policy from
participating in the Exchange Offer or (B) such Holder may not
resell the Series B Notes acquired by it in the Exchange Offer to
the public without delivering a prospectus and the Prospectus
contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales by such Holder or (C)
such Holder is a Broker-Dealer and holds Series A Notes acquired
directly from Holdings or one of its affiliates, then Holdings
shall (x) cause to be filed on or prior to the earliest of (1) 45
days after the date on which Holdings is notified by the
Commission or otherwise determines that it is not required to
file the Exchange Offer Registration Statement pursuant to clause
(i) above and (2) 45 days after the date on which Holdings
receives the notice specified in clause (ii) above, a shelf
registration statement pursuant to Rule 415 under the Act, (which
may be an amendment to the Exchange Offer Registration Statement
(in either event, the "Shelf Registration Statement")), relating
to all Transfer Restricted Notes the Holders of which shall have
provided the information required pursuant to Section 4(b)
hereof, and (y) use their best efforts to cause such Shelf
Registration Statement to become effective at the earliest
possible time, but in no event later than 120 days after the date
on which Holdings becomes obligated to file such Shelf
Registration Statement. If, after Holdings has filed an Exchange
Offer Registration Statement which satisfies the requirements of
Section 3(a) above, Holdings is required to file and make
effective a Shelf Registration Statement solely because the
Exchange Offer shall not be permitted under applicable federal
law, then the filing of the Exchange Offer Registration Statement
shall be deemed to satisfy the requirements of clause (x) above.
Such an event shall have no effect on the requirements of clause
(y) above, or on the Effectiveness Target Date as defined in
Section 5 below. Holdings shall use its reasonable best efforts
to keep the Shelf Registration Statement discussed in this
Section 4(a) continuously effective, supplemented and amended as
required by and subject to the provisions of Sections 6(b) and
(c) hereof to the extent necessary to ensure that it is available
for sales of Transfer Restricted Notes by the Holders thereof
entitled to the benefit of this Section 4(a), and to ensure that
it conforms with the requirements of this Agreement, the Act and
the policies, rules and regulations of the Commission as
announced from time to time, for a period of at least three years
(as extended pursuant to Section 6(c)(i)) following the date on
which such Shelf Registration Statement first becomes effective
under the Act or such shorter period that will terminate when all
Transfer Restricted Notes covered by the Shelf Registration
Statement have been sold pursuant thereto.
<PAGE>
b. Provision by Holders of Certain Information in Connection with
the Shelf Registration Statement. No Holder of Transfer
Restricted Notes may include any of its Transfer Restricted Notes
in any Shelf Registration Statement pursuant to this Agreement
unless and until such Holder furnishes to Holdings in writing,
within 20 days after receipt of a request therefor, such
information specified in item 507 of Regulation S-K under the Act
for use in connection with any Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein. No Holder
of Transfer Restricted Notes shall be entitled to Liquidated
Damages pursuant to Section 5 hereof unless and until such Holder
shall have used its best efforts to provide all such information.
Each Holder as to which any Shelf Registration Statement is being
effected agrees to furnish promptly to Holdings all information
required to be disclosed in order to make the information
previously furnished to Holdings by such Holder not materially
misleading.
5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not filed
with the Commission on or prior to the date specified for such filing in this
Agreement, (ii) any such Registration Statement has not been declared effective
by the Commission on or prior to the date specified for such effectiveness in
this Agreement (the "Effectiveness Target Date"), (iii) the Exchange Offer has
not been Consummated within 30 Business Days after the Effectiveness Target Date
with respect to the Exchange Offer Registration Statement or (iv) subject to the
provisions of Section 6(c)(i) below, any Registration Statement required by this
Agreement is filed and declared effective but shall thereafter cease to be
effective or fail to be usable for its intended purpose without being succeeded
immediately (but in any event within five Business Days thereafter) by a post-
effective amendment to such Registration Statement that cures such failure and
that is itself declared effective within such five Business Day period, other
than, in the case of clause (iv) above, for such period in which such
Registration Statement shall cease to be effective as a result of post-
effective amendments to incorporate annual filings which Holdings is required to
file with the Commission or post-effective amendments not otherwise covered by
Section 6(c)(i) hereof, provided that Holdings in good faith attempts to cause
such Registration Statement to be declared effective as soon as reasonably
practicable (each such event referred to in clauses (i) through (iv), a
"Registration Default"), Holdings hereby agrees to pay to each Holder of
Transfer Restricted Notes (or, if the Notes have not been issued, the Units),
for the first 90-day period immediately following the occurrence of such
Registration Default, liquidated damages in an amount equal to $.05 per week per
$1,000 principal amount at maturity of Notes (or, if the Notes have not been
issued, the Units) constituting Transfer Restricted Notes (or if the Notes have
not been issued, the Units) held by such Holder for so long as the Registration
Default continues. The amount of liquidated damages payable to each Holder
shall increase by an additional $.05 per week per $1,000 in principal amount of
Transfer Restricted Notes (or, if the Notes have not been issued, the Units)
held by such Holder for each subsequent 90-day period up to a maximum of $.40
per week per $1,000 in principal amount of Notes (or, if the Notes have not been
issued, the Units) constituting Transfer Restricted Notes (or, if the Notes have
not been issued, the Units) held by such Holder; provided, however, that (1)
upon filing of the Exchange Offer Registration Statement (and/or, if applicable,
the Shelf Registration Statement), in the case of (i) above, (2) upon the
effectiveness of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (ii) above, (3)
upon Consummation of the Exchange Offer, in the case of (iii) above, or (4) upon
the filing of a post-effective amendment to the Registration Statement or an
additional Registration Statement that causes the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf
<PAGE>
Registration Statement) to again be declared effective or made usable in the
case of (iv) above, the liquidated damages payable with respect to such Transfer
Restricted Notes (or, if the Notes have not been issued, the Units) as a result
of such clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued liquidated damages shall be paid by Holdings to the Global Note
Holder (or, if the Notes have not been issued, the Global Unit Holder) by wire
transfer of immediately available funds or by federal funds check and to Holders
of Certificated Securities by wire transfer to the accounts specified by them or
by mailing checks to their registered addresses if no such accounts have been
specified on each Damages Payment Date. All obligations of Holdings set forth
in the preceding paragraph that are outstanding with respect to any Transfer
Restricted Note at the time such security ceases to be a Transfer Restricted
Note shall survive until such time as all such obligations with respect to such
security shall have been satisfied in full.
6. REGISTRATION PROCEDURES
a. Exchange Offer Registration Statement. In connection with the
Exchange Offer, Holdings shall comply with all applicable
provisions of Section 6(c) below, shall use their best efforts to
effect such exchange and to permit the sale of Broker-Dealer
Transfer Restricted Notes being sold in accordance with the
intended method or methods of distribution thereof, and shall
comply with all of the following provisions:
i. If, following the date hereof there has been published a
change in Commission policy with respect to exchange offers
such as the Exchange Offer, such that in the reasonable
opinion of counsel to Holdings there is a substantial
question as to whether the Exchange Offer is permitted by
applicable federal law or Commission policy, Holdings hereby
agrees to seek a no-action letter or other favorable
decision from the Commission allowing Holdings to Consummate
an Exchange Offer for such Series A Notes. Holdings hereby
agrees to pursue the issuance of such a decision to the
Commission staff level but shall not be required to take
commercially unreasonable action to effect a change of
Commission policy. In connection with the foregoing,
Holdings hereby agrees, however, to take all such other
actions as are requested by the Commission or otherwise
required in connection with the issuance of such decision,
including without limitation (A) participating in telephonic
conferences with the Commission, (B) delivering to the
Commission staff an analysis prepared by counsel to Holdings
setting forth the legal bases, if any, upon which such
counsel has concluded that such an Exchange Offer should be
permitted and (C) diligently pursuing a resolution (which
need not be favorable) by the Commission staff of such
submission.
ii. As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of
Transfer Restricted Notes shall furnish, upon the request of
Holdings, prior to the Consummation of the Exchange Offer, a
written representation to Holdings (which may be contained
in the letter of transmittal contemplated by the Exchange
Offer Registration Statement) to the effect that (A) it is
not an affiliate of Holdings, (B) it is not engaged in, and
does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a
distribution of the Series B Notes to be issued in the
Exchange Offer and (C) it is acquiring the Series B
<PAGE>
Notes in its ordinary course of business. Each Holder
hereby acknowledges and agrees that any Broker-Dealer and
any such Holder using the Exchange Offer to participate in a
distribution of the securities to be acquired in the
Exchange Offer (1) could not under Commission policy as in
effect on the date of this Agreement rely on the position of
the Commission enunciated in Morgan Stanley and Co., Inc.
(available June 5, 1991) and Exxon Capital Holdings
Corporation (available May 13, 1988), as interpreted in the
Commission's letter to Shearman & Sterling dated July 2,
1993, and similar no-action letters (including, if
applicable, any no-action letter obtained pursuant to clause
(i) above), and (2) must comply with the registration and
prospectus delivery requirements of the Act in connection
with a secondary resale transaction and that such a
secondary resale transaction must be covered by an effective
registration statement containing the selling security
holder information required by Item 507 or 508, as
applicable, of Regulation S-K if the resales are of Series B
Notes obtained by such Holder in exchange for Series A Notes
acquired by such Holder directly from Holdings or an
affiliate thereof.
iii. To the extent required by the Commission, prior to
effectiveness of the Exchange Offer Registration Statement,
Holdings shall provide a supplemental letter to the
Commission (A) stating that Holdings is registering the
Exchange Offer in reliance on the position of the Commission
enunciated in Exxon Capital Holdings Corporation (available
May 13, 1988), Morgan Stanley and Co., Inc. (available June
5, 1991) and, if applicable, any no-action letter obtained
pursuant to clause (i) above, (B) including a representation
that Holdings has not entered into any arrangement or
understanding with any Person to distribute the Series B
Notes to be received in the Exchange Offer and that, to the
best of Holdings' information and belief, each Holder
participating in the Exchange Offer is acquiring the Series
B Notes in its ordinary course of business and has no
arrangement or understanding with any Person to participate
in the distribution of the Series B Notes received in the
Exchange Offer and (C) any other undertaking or
representation required by the Commission as set forth in
any no-action letter obtained pursuant to clause (i) above.
b. Shelf Registration Statement. In connection with the Shelf
Registration Statement, Holdings shall comply with all the
provisions of Section 6(c) below and shall use its best efforts
to effect such registration to permit the sale of the Transfer
Restricted Notes being sold in accordance with the intended
method or methods of distribution thereof (as indicated in the
information furnished to Holdings pursuant to Section 4(b)
hereof), and pursuant thereto Holdings will prepare and file with
the Commission a Registration Statement relating to the
registration on any appropriate form under the Act, which form
shall be available for the sale of the Transfer Restricted Notes
in accordance with the intended method or methods of distribution
thereof within the time periods and otherwise in accordance with
the provisions hereof.
<PAGE>
c. General Provisions. In connection with any Registration
Statement and any related Prospectus required by this Agreement
to permit the sale or resale of Transfer Restricted Notes
(including, without limitation, any Exchange Offer Registration
Statement and the related Prospectus, to the extent that the same
are required to be available to permit sales of Broker-Dealer
Transfer Restricted Notes by Restricted Broker-Dealers), Holdings
shall:
i. use its reasonable efforts to keep such Registration
Statement continuously effective and provide all requisite
financial statements for the period specified in Section 3
or 4 of this Agreement, as applicable. Upon the occurrence
of any event that would cause any such Registration
Statement or the Prospectus contained therein (A) to contain
a material misstatement or omission or (B) not to be
effective and usable for resale of Transfer Restricted Notes
during the period required by this Agreement, Holdings shall
file promptly an appropriate amendment to such Registration
Statement, (1) in the case of clause (A), correcting any
such misstatement or omission, and (2) in the case of either
clause (A) or (B), use its reasonable efforts to cause such
amendment to be declared effective and such Registration
Statement and the related Prospectus to become usable for
their intended purpose(s) as soon as practicable thereafter.
Notwithstanding the foregoing, if (A) the Board of Directors
of Holdings determines in good faith that it is in the best
interests of Holdings not to disclose the existence of or
facts surrounding any proposed or pending material corporate
transaction involving Holdings or its subsidiaries and (B)
Holdings notifies the Holders within two Business Days after
the Board of Directors makes such determination, Holdings
may allow the Shelf Registration Statement to fail to be
effective and usable as a result of such nondisclosure for
up to 60 days during the three-year period of effectiveness
required by Section 4 hereof, but in no event for any period
in excess of 30 consecutive days; provided, however, that
the three-year period referred to in Section 4 hereof during
which the Shelf Registration Statement is required to be
effective and usable shall be extended by the number of days
during which such registration statement was not effective
or usable pursuant to the foregoing provisions.
ii. prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as
may be necessary to keep the Registration Statement
effective for the applicable period set forth in Section 3
or 4 hereof, or such shorter period as will terminate when
all Transfer Restricted Notes covered by such Registration
Statement have been sold; cause the Prospectus to be
supplemented by any required Prospectus supplement, and as
so supplemented to be filed pursuant to Rule_424 under the
Act, and to comply fully with Rules 424 and 430A, as
applicable, under the Act in a timely manner; and comply
with the provisions of the Act with
<PAGE>
respect to the disposition of all securities covered by such
Registration Statement during the applicable period in
accordance with the intended method or methods of
distribution by the sellers thereof set forth in such
Registration Statement or supplement to the Prospectus;
iii. advise the underwriter(s), if any, and selling Holders
promptly upon becoming aware and, if requested by such
Persons, confirm such advice in writing, (A) when the
Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to any
Registration Statement or any post-effective amendment
thereto, when the same has become effective, (B) of any
request by the Commission for amendments to the Registration
Statement or amendments or supplements to the Prospectus or
for additional information relating thereto, (C) of the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement under the Act or
of the suspension by any state securities commission of the
qualification of the Transfer Restricted Notes for offering
or sale in any jurisdiction, or the initiation of any
proceeding for any of the preceding purposes, (D) of the
existence of any fact or the happening of any event that
makes any statement of a material fact made in the
Registration Statement, the Prospectus, any amendment or
supplement thereto or any document incorporated by reference
therein untrue, or that requires the making of any additions
to or changes in the Registration Statement in order to make
the statements therein not misleading, or that requires the
making of any additions to or changes in the Prospectus in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement,
or any state securities commission or other regulatory
authority shall issue an order suspending the qualification
or exemption from qualification of the Transfer Restricted
Notes under state securities or Blue Sky laws, Holdings
shall use its reasonable efforts to obtain the withdrawal or
lifting of such order at the earliest possible time;
iv. in the case of a Shelf Registration Statement, use
reasonable efforts to furnish to the Initial Purchaser, each
selling Holder named in any Registration Statement or
Prospectus and each of the underwriter(s) in connection with
such sale, if any, before filing with the Commission, copies
of any Registration Statement or any Prospectus included
therein or any amendments or supplements to any such
Registration Statement or Prospectus (including all
documents incorporated by reference after the initial filing
of such Registration Statement) prior to filing, reasonably
respond to comments received from such persons, and make
Holdings' representatives available for discussion of such
documents and other customary due diligence matters.
v. subject to execution of confidentiality agreements that are
reasonably
<PAGE>
satisfactory to Holdings as to the disclosure of any non-
public information obtained pursuant to this Section 6(c)(v)
and upon reasonable notice and at reasonable times, make
available for inspection at Holdings' offices located in
Lenexa, Kansas by the selling Holders, any managing
underwriter participating in any disposition pursuant to
such Registration Statement and any attorney or accountant
retained by such selling Holders or any of such
underwriter(s), all financial and other records, pertinent
corporate documents and properties of Holdings and cause
Holdings' officers, directors and employees to supply all
information reasonably requested by any such Holder,
underwriter, attorney or accountant in connection with such
Registration Statement or any post-effective amendment
thereto subsequent to the filing thereof and prior to its
effectiveness;
vi. in the case of a Shelf Registration Statement, if requested
by any selling Holders or the underwriter(s) in connection
with such sale, if any, promptly include in any Registration
Statement or Prospectus, pursuant to a supplement or post-
effective amendment if necessary, such information as such
selling Holders and underwriter(s), if any, may reasonably
request to have included therein, including, without
limitation, information relating to the "Plan of
Distribution" of the Transfer Restricted Notes, information
with respect to the principal amount of Transfer Restricted
Notes being sold to such underwriter(s), the purchase price
being paid therefor and any other terms of the offering of
the Transfer Restricted Notes to be sold in such offering;
and make all required filings of such Prospectus supplement
or post-effective amendment as soon as practicable after
Holdings is notified of the matters reasonably requested to
be included in such Prospectus supplement or post-effective
amendment;
vii. in the case of a Shelf Registration Statement, furnish to
each selling Holder and each of the underwriter(s) in
connection with such sale, if any, without charge, at least
one copy of the Registration Statement, as first filed with
the Commission, and of each amendment thereto, including all
documents incorporated by reference therein and all exhibits
(including exhibits incorporated therein by reference);
viii. deliver to each selling Holder and each of the
underwriter(s), if any, without charge, as many copies of
the Prospectus (including each preliminary prospectus) and
any amendment or supplement thereto as such Persons
reasonably may request; Holdings hereby consents to the use
(in accordance with law) of the Prospectus and any amendment
or supplement thereto by each of the selling Holders and
each of the underwriter(s), if any, in connection with the
offering and the sale of the Transfer Restricted Notes
covered by the Prospectus or any amendment or supplement
thereto;
ix. enter into such customary agreements and make such customary
<PAGE>
representations and warranties and take all such other
customary actions in connection therewith in order to
expedite or facilitate the disposition of the Transfer
Restricted Notes pursuant to any Registration Statement
contemplated by this Agreement as may be reasonably
requested by any Holder of Transfer Restricted Notes or
underwriter in connection with any sale or resale pursuant
to any Registration Statement contemplated by this
Agreement, and in such connection, whether or not an
underwriting agreement is entered into and whether or not
the registration is an Underwritten Registration, Holdings
shall:
(A) furnish (or in the case of paragraphs (2) and (3), use
its best efforts to furnish) to each selling Holder and each
underwriter, if any, upon the effectiveness of the Shelf Registration
Statement and to each Restricted Broker-Dealer upon Consummation of
the Exchange Offer:
(1) a certificate, dated the date of Consummation of
the Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, signed on behalf of
Holdings by (x) the President or any Vice President and (y) a
principal financial or accounting officer of Holdings confirming,
as of the date thereof, the matters set forth in paragraphs (a)
through (c) of Section 9 of the Purchase Agreement and such other
similar matters as the Holders and/or underwriter(s) may
reasonably request;
(2) an opinion, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, of counsel for
Holdings, covering matters customarily covered in opinions
requested in Underwritten Offerings and dated the date of
effectiveness of the Shelf Registration Statement or the date of
Consummation of the Exchange Offer, as the case may be; and
(3) a customary comfort letter, dated as of the date of
effectiveness of the Shelf Registration Statement or the date of
Consummation of the Exchange Offer, as the case may be, from
Holdings' independent accountants, in the customary form and
covering matters of the type customarily covered in comfort
letters to underwriters in connection with Underwritten
Offerings, and affirming the matters set forth in the comfort
letters delivered pursuant to Section 9(g) of the Purchase
Agreement, without exception;
(B) set forth in full or incorporate by reference in the
underwriting agreement, if any, in connection with any sale or resale
pursuant to any Shelf Registration Statement the indemnification
provisions and procedures of Section_8 hereof with respect to all
parties to be indemnified pursuant to said Section; and
(C) deliver such other documents and certificates as may be
reasonably requested by the selling Holders or the underwriter(s), if
any, to evidence compliance with clause_(A) above and with any
customary conditions contained in the underwriting agreement or other
agreement entered into by Holdings pursuant to this
<PAGE>
clause (x)._
The above shall be done at each closing under such underwriting
or similar agreement, as and to the extent required thereunder, and if at
any time the representations and warranties of Holdings contemplated in
(A)(1) above cease to be true and correct, Holdings shall so advise the
underwriter(s), if any, and selling Holders promptly and if requested by
such Persons, shall confirm such advice in writing;
x. prior to any public offering of Transfer Restricted Notes,
cooperate with the selling Holders, the underwriter(s), if
any, and their respective counsel in connection with the
registration and qualification of the Transfer Restricted
Notes under the securities or Blue Sky laws of such
jurisdictions as the selling Holders or underwriter(s), if
any, may request and do any and all other acts or things
necessary or advisable to enable the disposition in such
jurisdictions of the Transfer Restricted Notes covered by
the applicable Registration Statement; provided, however,
that Holdings shall not be required to register or qualify
as a foreign corporation where it is not now so qualified or
to take any action that would subject it to the service of
process in suits or to taxation, other than as to matters
and transactions relating to the Registration Statement, in
any jurisdiction where it is not now so subject;
xi. issue, upon the request of any Holder of Series A Notes
covered by any Shelf Registration Statement contemplated by
this Agreement, Series B Notes, having an aggregate
principal amount equal to the aggregate principal amount of
Series A Notes surrendered to Holdings by such Holder in
exchange therefor or being sold by such Holder; such Series
B Notes to be registered in the name of such Holder or in
the name of the purchaser(s) of such Notes, as the case may
be; in return, the Series A Notes held by such Holder shall
be surrendered to Holdings for cancellation;
xii. in connection with any sale of Transfer Restricted Notes
that will result in such securities no longer being Transfer
Restricted Notes, cooperate with the selling Holders and the
underwriter(s), if any, to facilitate the timely preparation
and delivery of certificates representing Transfer
Restricted Notes to be sold and not bearing any restrictive
legends; and to register such Transfer Restricted Notes in
such denominations and such names as the Holders or the
underwriter(s), if any, may request at least two Business
Days prior to such sale of Transfer Restricted Notes;
xiii. use its reasonable efforts to cause the disposition of the
Transfer Restricted Notes covered by the Registration
Statement to be registered with or approved by such other
U.S. governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof or the
underwriter(s), if any, to consummate the disposition of
such
<PAGE>
Transfer Restricted Notes, subject to the proviso contained
in clause (xi) above;
xiv. subject to Section 6(c)(i), if any fact or event
contemplated by Section 6(c)(iii)(D) above shall exist or
have occurred, prepare a supplement or post-effective
amendment to the Registration Statement or related
Prospectus or any document incorporated therein by reference
or file any other required document so that, as thereafter
delivered to the purchasers of Transfer Restricted Notes,
the Prospectus will not contain an untrue statement of a
material fact or omit to state any material fact necessary
to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
xv. provide a CUSIP number for all Transfer Restricted Notes not
later than the effective date of a Registration Statement
covering such Transfer Restricted Notes and provide the
Trustee under the Indenture with printed certificates for
the Transfer Restricted Notes that are in a form eligible
for deposit with the Depository Trust Company;
xvi. cooperate and assist in any filings required to be made with
the NASD and in the performance of any due diligence
investigation by any underwriter (including any "qualified
independent underwriter") that is required to be retained in
accordance with the rules and regulations of the NASD, and
use its reasonable efforts to cause such Registration
Statement to become effective and approved by such
governmental agencies or authorities as may be necessary to
enable the Holders selling Transfer Restricted Notes to
consummate the disposition of such Transfer Restricted
Notes;
xvii. otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the Commission, and make
generally available to its security holders with regard to
any applicable Registration Statement, as soon as
practicable, a consolidated earnings statement meeting the
requirements of Rule 158 (which need not be audited)
covering a twelve-month period beginning after the effective
date of the Registration Statement (as such term is defined
in paragraph (c) of Rule 158 under the Act);
xviii. cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement
required by this Agreement and, in connection therewith,
cooperate with the Trustee and the Holders of Notes to
effect such changes to the Indenture as may be required for
such Indenture to be so qualified in accordance with the
terms of the TIA; and execute and use its reasonable efforts
to cause the Trustee to execute, all documents that may be
required to effect such changes and all other forms and
documents required to be filed with the Commission to enable
such Indenture to be so qualified in a timely manner; and
<PAGE>
xix. provide promptly to each Holder upon request each document
filed with the Commission pursuant to the requirements of
Section 13 or Section 15(d) of the Exchange Act.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Note that, upon receipt of the notice referred to in Section
6(c)(i) or any notice from Holdings of the existence of any fact of the kind
described in Section 6(c)(iii)(D) hereof, such Holder will forthwith discontinue
disposition of Transfer Restricted Notes pursuant to the applicable Registration
Statement until such Holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 6(c)(xv) hereof, or until it is
advised in writing by Holdings that the use of the Prospectus may be resumed,
and has received copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus (the "Advice"). If so directed by
Holdings, each Holder will deliver to Holdings (at Holdings' expense) all
copies, other than permanent file copies then in such Holder's possession, of
the Prospectus covering such Transfer Restricted Notes that was current at the
time of receipt of either such notice._ In the event Holdings shall give any
such notice, the time period regarding the effectiveness of such Registration
Statement set forth in Section_3 or 4 hereof, as applicable, shall be extended
by the number of days during the period from and including the date of the
giving of such notice pursuant to Section 6(c)(i) or Section 6(c)(iii)(D) hereof
to and including the date when each selling Holder covered by such Registration
Statement shall have received the copies of the supplemented or amended
Prospectus contemplated by Section 6(c)(xv) hereof or shall have received the
Advice.
7. REGISTRATION EXPENSES
a. All expenses incident to Holdings' performance of or compliance
with this Agreement will be borne by Holdings, regardless of
whether a Registration Statement becomes effective, including
without limitation: (i)_all registration and filing fees and
expenses (including filings made with the NASD and counsel fees
in connection therewith); (ii) all fees and expenses of
compliance with federal securities and state Blue Sky or
securities laws; (iii) all printing expenses of printing
(including printing certificates for the Series B Notes and
printing of Prospectuses); (iv) all fees and disbursements of
counsel for Holdings and, in accordance with Section 7(b) below,
the Holders of Transfer Restricted Notes; and (v) all fees and
disbursements of independent certified public accountants of
Holdings (including the expenses of any special audit and comfort
letters required by or incident to such performance).
Holdings will, in any event, bear its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the expenses of any annual audit and the fees and
expenses of any Person, including special experts, retained by Holdings.
b. In connection with any Shelf Registration Statement required by
this Agreement, Holdings will reimburse the Holders of Transfer
Restricted Notes the distribution of which is being registered
pursuant to the Shelf Registration Statement for the reasonable
fees and disbursements of not more than one counsel chosen by the
Holders of a majority of the principal amount of such Transfer
Restricted Notes, which counsel shall be satisfactory to Holdings
in its sole discretion.
<PAGE>
8. INDEMNIFICATION
(a) Holdings agrees to indemnify and hold harmless (i) each Holder and
(ii) each person, if any, who controls (within the meaning of Section_15 of the
Act or Section 20 of the Exchange Act) any Holder (any of the persons referred
to in this clause (ii) being hereinafter referred to as a "controlling person")
and (iii) the respective officers, directors, partners, employees,
representatives and agents of any Holder or any controlling person (any person
referred to in clause (i), (ii) or (iii) may hereinafter be referred to as an
"Indemnified Holder"), from and against any and all losses, claims, damages,
liabilities and judgments caused by any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or
Prospectus (or any amendment or supplement thereto), or caused by any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except insofar as such
losses, claims, damages, liabilities or judgments (i) are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
information relating to any of the Holders furnished in writing to Holdings by
or on behalf of any of the Holders expressly for use therein, (ii) with respect
to the preliminary prospectus, result from the fact that the Holder sold
Transfer Restricted Notes to a person to whom there was not sent or given, at or
prior to the written confirmation of such sale, a copy of the prospectus, as
amended or supplemented, if Holdings shall have previously furnished copies
thereof to the Holder in accordance with this Agreement and the prospectus, as
amended or supplemented, would have corrected such untrue statement or omission
or (iii) are a result of the use by the Indemnified Holder of any prospectus,
when, upon receipt of a notice from Holdings of the existence of any fact of the
kind described in Section 6(c)(iii)(D) hereof contemplated by the last paragraph
of Section 6 hereof, the Indemnified Holder was not permitted to do so.
In case any action or proceeding shall be brought against any of the
Indemnified Holders with respect to which indemnity may be sought against
Holdings, such Indemnified Holder (or the Indemnified Holder controlled by such
controlling person) shall promptly notify Holdings in writing (provided, that
the failure to give such notice shall not relieve Holdings of its obligations
pursuant to this Agreement). Such Indemnified Holder shall have the right to
employ its own counsel in any such action but the fees and expenses of such
counsel shall be at the expense of the Indemnified Holder or such controlling
person unless (i) the employment of such counsel shall have been specifically
authorized in writing by Holdings, (ii) Holdings shall have failed to assume the
defense and employ counsel or (iii) the named parties to any such action
(including any impleaded parties) include both the Indemnified Holder or such
controlling person and Holdings and the Indemnified Holder or such controlling
person shall have been advised in writing by such counsel that there may be one
or more legal defenses available to it which are different from or additional to
those available to Holdings (in which case Holdings shall not have the right to
assume the defense of such action on behalf of the Indemnified Holder or such
controlling person), it being understood, however, that Holdings shall not, in
connection with any one such action or proceeding or separate but substantially
similar or related actions or proceedings in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the reasonable
fees and expenses of more than one separate firm of attorneys (in addition to
any local counsel) at any time for such Indemnified Holders, which firm shall be
designated by the Holders and be reasonably satisfactory to Holdings. Holdings
shall not be liable for any settlement of any such action or proceeding effected
without Holdings' prior written consent, which consent shall not be withheld
unreasonably, but if settled with Holdings' written consent, and Holdings agrees
to indemnify and hold harmless any Indemnified Holder from and against any loss
or liability by reason of such settlement. Holdings shall not, without the
prior written consent of each Indemnified Holder effect any settlement of any
pending or threatened proceeding in
<PAGE>
respect of which any Indemnified Holder is or could have been a party and
indemnity could have been sought hereunder by such Indemnified Holder, unless
such settlement includes an unconditional release of such Indemnified Holder
from all liability on claims that are the subject matter of such proceeding.
(b) Each Holder of Transfer Restricted Notes agrees, severally and not
jointly, to indemnify and hold harmless (i) Holdings, (ii) any person
controlling Holdings (within the meaning of Section 15 of the Act or Section 20
of the Exchange Act) and (iii) the directors, officers, partners, employees,
representatives, and agents of Holdings to the same extent as the foregoing
indemnity from Holdings to each of the Indemnified Holders, but only with
respect to information relating to such Holder furnished in writing by such
Holder expressly for use in any Registration Statement. In case any action or
proceeding shall be brought against Holdings or its directors or officers or any
such controlling person in respect of which indemnity may be sought against a
Holder of Transfer Restricted Notes, such Holder shall have the rights and
duties given Holdings, and Holdings or its directors or officers or such
controlling person shall have the rights and duties given to each Holder by the
preceding paragraph. In no event shall the liability of any selling Holder
hereunder be greater in amount than the dollar amount of the proceeds received
by such Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
(c) If the indemnification provided for in this Section 8 is unavailable to
an indemnified party under Section 8(a) or Section 8(b) hereof (other than by
reason of exceptions provided in those Sections) in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
applicable indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by
Holdings on the one hand and the Holders on the other hand from their sale of
Transfer Restricted Notes or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect the relative fault of Holdings on the one hand and of the Indemnified
Holder on the other in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or judgments, as well as
any other relevant equitable considerations. The relative fault of Holdings on
the one hand and of the Indemnified Holder on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by Holdings or by the Indemnified Holder and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable by a party as a
result of the losses, claims, damages, liabilities and judgments referred to
above shall be deemed to include, subject to the limitations set forth in the
second paragraph of Section 8(a), any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any action
or claim.
Holdings and each Holder of Transfer Restricted Notes agree that it would
not be just and equitable if contribution pursuant to this Section 8(c) were
determined by pro rata allocation (even if the Holders were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The losses, claims, damages, liabilities or judgments
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 8, none of the Holders (and their related Indemnified Holders) shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the dollar amount of proceeds received by any such Holder upon the sale of
Transfer Restricted Notes
<PAGE>
exceeds the amount of any damages that such Holder has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The Holders'
obligations to contribute pursuant to this Section 8(c) are several in
proportion to the respective principal amount of Series A Notes held by each of
the Holders hereunder and not joint.
9. RULE 144A
Holdings hereby agrees with each Holder, for so long as any Transfer
Restricted Notes remain outstanding and during any period in which Holdings is
not subject to Section 13 or 15(d) of the Securities Exchange Act, to make
available, upon request of any Holder of Transfer Restricted Notes, to any
Holder or beneficial owner of Transfer Restricted Notes in connection with any
sale thereof and any prospective purchaser of such Transfer Restricted Notes
designated by such Holder or beneficial owner, the information required by Rule
144A(d)(4) under the Act in order to permit resales of such Transfer Restricted
Notes pursuant to Rule 144A.
10. UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder unless
such Holder (a) agrees to sell such Holder's Transfer Restricted Notes on the
basis provided in customary underwriting arrangements entered into in connection
therewith and (b) completes and executes all reasonable questionnaires, powers
of attorney, lock-up letters and other documents required under the terms of
such underwriting arrangements.
11. SELECTION OF UNDERWRITERS
Subject to Holdings' consent, for any Underwritten Offering, the investment
banker or investment bankers and manager or managers for any Underwritten
Offering that will administer such offering will be selected by the Holders of a
majority in aggregate principal amount of the Transfer Restricted Notes included
in such offering. Such investment bankers and managers are referred to herein
as the "underwriters."
12. MISCELLANEOUS
a. Remedies. Each Holder, in addition to being entitled to exercise
all rights provided herein, in the Indenture, the Purchase
Agreement or granted by law, including recovery of liquidated or
other damages, will be entitled to specific performance of its
rights under this Agreement. Holdings agrees that monetary
damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of this Agreement
and hereby agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.
b. No Inconsistent Agreements. Holdings will not, on or after the
date of this Agreement, enter into any agreement with respect to
its securities that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Holdings has not previously
<PAGE>
entered into any agreement granting any registration rights with
respect to its securities to any Person. The rights granted to
the Holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of Holdings'
securities under any agreement in effect on the date hereof.
c. Adjustments Affecting the Notes. Holdings will not take any
action, or voluntarily permit any change to occur, with respect
to the Notes that would materially and adversely affect the
ability of the Holders to Consummate any Exchange Offer.
d. Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to
or departures from the provisions hereof may not be given unless
Holdings has obtained the written consent of Holders of a
majority of the outstanding principal amount of Transfer
Restricted Notes. Notwithstanding the foregoing, a waiver or
consent to departure from the provisions hereof that relates
exclusively to the rights of Holders whose securities are being
tendered pursuant to the Exchange Offer and that does not affect
directly or indirectly the rights of other Holders whose
securities are not being tendered pursuant to such Exchange Offer
may be given by the Holders of a majority of the outstanding
principal amount of Transfer Restricted Notes subject to such
Exchange Offer.
e. Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery,
first-class mail (registered or certified, return receipt
requested), telex, telecopier, or air courier guaranteeing
overnight delivery:
(i) if to a Holder, at the address set forth on the records of
the Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to Holdings:
GFSI Holdings, Inc.
9700 Commerce Parkway
Lenexa, KS 66219
Telecopier No.: (913) 752-3346
Attention: Director of Finance
With copies to:
The Jordan Company
9 West 57th Street
40th Floor
New York, NY 10019
Telecopier No.: (212) 755-5263
Attention: Richard Caputo, Jr.
<PAGE>
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Telecopier No.: (312) 701-7711
Attention: Phil Niehoff
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
f. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each
of the parties, including without limitation and without the need
for an express assignment, subsequent Holders of Transfer
Restricted Notes; provided, however, that this Agreement shall
not inure to the benefit of or be binding upon a successor or
assign of a Holder unless and to the extent such successor or
assign acquired Transfer Restricted Notes directly from such
Holder at a time when such Holder could not transfer such
Transfer Restricted Notes pursuant to a Shelf Registration
Statement.
g. Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same
agreement.
h. Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the
meaning hereof.
i. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO THE CONFLICT OF LAW RULES THEREOF.
j. Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any
circumstance, is held invalid, illegal or unenforceable, the
validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
k. Entire Agreement. This Agreement together with the other
Operative Documents (as defined in the Purchase Agreement) is
intended by the parties as a final expression of their agreement
and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions,
<PAGE>
promises, warranties or undertakings, other than those set forth
or referred to herein with respect to the registration rights
granted by Holdings with respect to the Transfer Restricted
Notes. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject
matter
[NEXT PAGE IS SIGNATURE PAGE]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
GFSI HOLDINGS, INC.
By: /s/ Richard Caputo
-------------------------------
Name: A. Richard Caputo, Jr.
Title: Vice President
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Tyler Wolfram
--------------------
Name: Tyler Wolfram
Title: Vice President
<PAGE>
Exhibit 5
October 27, 1997
GFSI Holdings, Inc.
9700 Commerce Parkway
Lenexa, Kansas 66219
Re: $50 million initial Accreted Value 11 3/8% Series B Senior
----------------------------------------------------------
Discount Notes due 2009
-----------------------
Ladies and Gentlemen:
We have acted as counsel to GFSI Holdings, Inc., a Delaware corporation
(the "Company"), in connection with the registration under the Securities Act of
1933, as amended (the "Act") of an exchange offer (the "Exchange Offer")
relating to $50 million initial Accreted Value of Series A 11 3/8% Senior
Discount Notes due 2009 (the "Series A Notes"). The Series A Notes were issued
under an indenture (the "Indenture") between the Company and State Street Bank
and Trust Company, as trustee. We have also participated in the preparation and
filing with the Securities and Exchange Commission under the Act of a
registration statement on Form S-4 (the "Registration Statement") relating to
$50 million initial Accreted Value of Series B 11 3/8% Senior Discount Notes due
2009 (the "Series B Notes"), with respect to the proposed Exchange Offer for the
Series A Notes. In this connection, we have examined such corporate and other
records, instruments, certificates and documents as we considered necessary to
enable us to express this opinion.
Based on the foregoing, it is our opinion that, upon completion of the
Exchange Offer, the Series B Notes will have been duly authorized for issuance
and, when the Series B Notes are duly executed, authenticated, issued and
delivered, such notes will constitute valid and legally binding obligations of
the Company entitled to the benefits of the Indenture, subject to bankruptcy,
insolvency, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditor's rights and to general equity principles
(whether considered in a proceeding at law or in equity).
<PAGE>
GFSI Holdings, Inc.
October 27, 1997
Page 2
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to us under the caption "Legal Matters." We
further confirm our opinion as to certain matters set forth in the section
"Certain Federal Income Tax Considerations" and consent to the reference to us
under such section.
Very truly yours,
/s/ Mayer Brown & Platt
-------------------------------
MAYER, BROWN & PLATT
<PAGE>
Exhibit 10.2
AMENDMENT NO. 1
Dated as of September 17, 1997
to
CREDIT AGREEMENT
Dated as of February 27, 1997
THIS AMENDMENT NO. 1 ("Amendment") is made as of September 17, 1997 by
and among GFSI, INC. (the "Borrower"), the financial institutions listed on the
signature pages hereof (the "Lenders") and THE FIRST NATIONAL BANK OF CHICAGO,
in its individual capacity as a Lender and in its capacity as agent ("Agent")
under that certain Credit Agreement dated as of February 27, 1997 by and among
the Borrower, the Lenders and the Agent (the "Credit Agreement"). Defined terms
used herein and not otherwise defined herein shall have the respective meanings
given to them in the Credit Agreement.
WHEREAS, the Borrower, the Lenders and the Agent are parties to the
Credit Agreement; and
WHEREAS, GFSI Holdings, Inc. ("Holdings") intends to (i) issue $25.0
million in aggregate principal amount of 11.375% Subordinated Discount Notes due
2009 (the "New Holdings Subordinated Notes") and (ii) amend its Certificate of
Incorporation to provide for a new Series D Preferred Stock (the "Series D
Preferred Stock"); and
WHEREAS, the Holders of the Holdings Subordinated Notes and the
Preferred Stock intend to exchange their Holdings Subordinated Notes for New
Holdings Subordinated Notes and approximately 86.9% of their Series A, B and C
Preferred Stock for Series D Preferred Stock and to sell, in a private
placement, the New Holdings Subordinated Notes and the Series D Preferred Stock
as units ("Units") to unaffiliated third parties (the "Offering"); and
WHEREAS, the Units sold in the Offering will be exchangeable, at the
option of the Holdings, after 30 days from the closing of the Offering, for
11.375% Senior Discount Notes of Holdings (the "Holdings Senior Notes"); and
WHEREAS, the Borrower, the Lenders and the Agent have agreed to amend
the Credit Agreement on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises set forth above, the
terms and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Borrower, the Lenders and the Agent have agreed to the following amendments to
the Credit Agreement.
1. Amendment to Credit Agreement. Effective as of the Effective Date
(as defined below) and subject to the satisfaction of the condition precedent
set forth in Section 3 below, the Credit Agreement is hereby amended as follows:
-1-
<PAGE>
1.1 Section 1.1 of the Credit Agreement is amended (a) by adding
thereto the following defined terms:
"Exchange Date" means the date on which the Exchangeable Units
are exchanged for Holdings Senior Notes.
"Exchangeable Units" means the 50,000 exchangeable units, each
unit consisting of $500 principal amount of Holdings Subordinated
Notes and $500 liquidation preference of 11.375% Series D Preferred
Stock of Holdings, having the terms described in and offered pursuant
to the Offering Memorandum.
"Holdings Senior Notes" means the 11.375% Senior Discount Notes
due 2009 of Holdings in the aggregate principal amount (at maturity)
of $50,000,000 to be issued by Holdings in exchange for the
Exchangeable Units and having the terms described in the Offering
Memorandum, and all substitutions, modifications and renewals thereof,
provided such substitutions, modifications or renewals would be
permitted under the terms of Section 6.3(O) as if such Section (other
than clause (viii) thereof with respect to subordination provisions)
were applicable thereto (with all references therein to the Borrower
and the Restricted Subsidiaries being instead to Holdings, the
Borrower and the Restricted Subsidiaries).
"L/C Trigger Event" means the giving of notice by the Swing Line
Bank to the Lenders of its election to cause them to purchase
participations in all Swing Line Letters of Credit, whether such
notice is given before or after the occurrence, or during the
continuance, of a Default or Unmatured Default. An L/C Trigger Event
shall be deemed to occur on the date such notice is given.
"Offering Memorandum" means the Preliminary Offering Memorandum
dated September 12, 1997, prepared by Holdings with respect to the
Exchangeable Units, copies of which the Borrower has delivered to the
Lenders.
"Swing Line Letter of Credit" means each Letter of Credit issued
by the Swing Line Bank as an Issuing Lender pursuant to Section 2.21
and designated in the Borrower's notice referred to in such Section as
a "Swing Line Letter of Credit" if, immediately after giving effect to
such issuance, the aggregate amount of L/C Obligations in respect of
such Letter of Credit and all then outstanding Swing Line Letters of
Credit would not exceed $5,000,000, provided, however, that the status
of a Swing Line Letter of Credit as such shall automatically terminate
upon the occurrence of an L/C Trigger Event, after which time such
Letter of Credit shall remain a Letter of Credit but shall not be a
Swing Line Letter of Credit.
and (b) by amending the following defined terms:
(i) the definition of "Holdings Subordinated Notes" is amended in
its entirety to read as follows:
-2-
<PAGE>
"Holdings Subordinated Notes" means the 11.375% Subordinated
Discount Notes due 2009 of Holdings in the aggregate principal amount
of $25,000,000, having the terms described in the Offering Memorandum.
(ii) the definition of "Permitted Holdings Indebtedness" is amended by
deleting clause (a) thereof in its entirety and substituting therefor the
following:
(a) prior to the Exchange Date, the Holdings Subordinated Debt,
and from and after the Exchange Date, the Holdings Senior Notes;
and by amending clause (c) thereof to add after the words "Preferred Stock"
the parenthetical phrase "(other than Series D thereof)".
(iii) the definition of "Preferred Stock" is amended in its entirety
to read as follows:
"Preferred Stock" means the Series A, B and C 12% Cumulative
Preferred Stock, par value $0.01 per share, of Holdings issued to each
of the holders thereof listed on Schedule 5.8 attached hereto, and,
prior to the Exchange Date, the 11.375% Series D Preferred Stock, par
value $0.01 per share, of Holdings, having the terms described in the
Offering Memorandum.
(iv) the definition of "Pro Rata Share" is amended by adding in clause
(x) thereof immediately after the words "Swing Line Loans" and before the
comma the words "and Swing Line Letters of Credit";
(v) the definition of "Swing Line Bank" is amended in its entirety to
read as follows:
"Swing Line Bank" means First Chicago and its successors and
assigns.
and
(vi) the definition of "Swing Line Commitment" is amended in its
entirety to read as follows:
"Swing Line Commitment" means, (a) with respect to Swing Line
Loans, the obligation of the Swing Line Bank to make Swing Line Loans
up to a maximum aggregate principal amount of $2,000,000 at any one
time outstanding, and (b) with respect to Swing Line Letters of Credit
(in addition to the obligation to make Swing Line Loans), the
obligation of the Swing Line Bank to issue Swing Line Letters of
Credit up to a maximum
-3-
<PAGE>
aggregate amount of L/C Obligations with respect thereto not to
exceed $5,000,000 at any one time outstanding.
1.2 Section 2.22 of the Credit Agreement is amended by designating
the existing Section 2.22 as clause (a), by adding after the words "Letter of
Credit" the first place such words appear therein, the parenthetical phrase "(or
upon the occurrence of an L/C Trigger Event, in the case of a Swing Line Letter
of Credit)", and by adding thereto a new clause (b) to read as follows:
(b) No Lender shall purchase or be deemed to have purchased an
L/C Interest in any Swing Line Letter of Credit unless and until an
L/C Trigger Event shall have occurred with respect to such Swing Line
Letter of Credit, at which time each Lender with a Revolving Loan
Commitment greater than zero shall be deemed to have purchased an L/C
Interest in such Swing Line Letter of Credit pursuant to Section
2.22(a).
1.3 Section 2.25 of the Credit Agreement is amended by adding thereto
after the words "Pro Rata Shares," the first place such words appear therein the
phrase "or for the sole account of the Swing Line Bank, in the case of a Swing
Line Letter of Credit".
1.4 Schedule 5.8 to the Credit Agreement is amended by deleting
therefrom the description of the Preferred Stock of Holdings and substituting
therefor the description of Preferred Stock set forth on Schedule 5.8 Amendment
attached hereto and by deleting therefrom in its entirety the "Shareholder
Summary" attached to Schedule 5.8 and substituting therefor the "Shareholder
Summary" attached to Schedule 5.8 Amendment.
1.5 Section 6.3(F) of the Credit Agreement is amended (a) by amending
clause (iii)(a) thereof in its entirety to read as follows:
(a) payments required to be made by and actually made by Holdings in
respect of interest due on an unaccelerated basis on the Holdings
Senior Notes; provided, however, the Borrower may make such
distributions with respect to the Holdings Senior Notes only on March
15 and September 15 of each year (or the Business Day immediately
prior thereto if such date is not a Business Day), commencing March
15, 2005; and
(b) by amending clause (d) of the proviso thereto to delete the words "Holdings
Subordinated Notes" and "Holdings Subordinated Debt" therein and to substitute
for such words in each case the words "Holdings Senior Notes".
1.6 Schedule 6.3(H) to the Credit Agreement is amended by adding
thereto the agreements set forth on Schedule 6.3(H) Supplement attached hereto.
1.7 Section 6.3(O) of the Credit Agreement is amended by adding after
the words "Holdings Subordinated Debt" therein the words "the Holdings Senior
Notes".
-4-
<PAGE>
1.8 Section 7.1 of the Credit Agreement is amended by adding a new
clause (y) thereto as follows:
(y) Exchange of Securities. Holdings shall fail to effect the
exchange of the Holdings Senior Notes for the Exchangeable Units on or
prior to November 30, 1997.
2. Consent. Effective as of the Effective Date and subject to the
satisfaction of the condition precedent set forth in Section 3 below, the
Lenders hereby consent to (i) the issuance by Holdings of the New Holdings
Subordinated Notes in exchange for the Holdings Subordinated Notes, (ii) the
amendment by Holdings of its Certificate of Incorporation to authorize the
Series D Preferred Stock and the issuance by Holdings of the Series D Preferred
Stock in exchange for a portion of the Preferred Stock, (iii) the issuance by
Holdings of the Holdings Senior Notes in exchange for the Exchangeable Units,
and (iv) the payment in cash to MCIT on the Effective Date of accrued interest
on the Holdings Subordinated Notes through the Effective Date in an amount not
to exceed $1,500,000.
3. Conditions of Effectiveness. The effectiveness of this Amendment
is subject to the condition precedent that the Agent shall have received
counterparts of this Amendment duly executed by the Borrower, the Required
Lenders and the Agent and the Consent attached hereto duly executed by Holdings.
Upon the satisfaction of the foregoing condition precedent, this Amendment shall
become effective on the date of the closing of the Offering and the issuance of
the New Holdings Subordinated Notes and the Series D Preferred Stock in
connection therewith (the "Effective Date").
4. Representations and Warranties of the Borrower. The Borrower
hereby represents and warrants as follows:
(a) This Amendment and the Credit Agreement as previously executed
and as amended hereby, constitute legal, valid and binding obligations of the
Borrower and are enforceable against the Borrower in accordance with their
terms.
(b) Upon the effectiveness of this Amendment, the Borrower hereby
reaffirms all covenants, representations and warranties made in the Credit
Agreement, as amended hereby, and agrees that all such covenants,
representations and warranties shall be deemed to have been remade as of the
Effective Date of this Amendment.
5. Reference to and Effect on the Credit Agreement.
(a) Upon the effectiveness of Section 1 hereof, each reference to the
Credit Agreement in the Credit Agreement and each other Loan Document shall mean
and be a reference to the Credit Agreement as amended hereby.
-5-
<PAGE>
(b) Except as specifically amended above, the Credit Agreement and
all other documents, instruments and agreements executed and/or delivered in
connection therewith shall remain in full force and effect and are hereby
ratified and confirmed.
(c) The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of the Agent or the Lenders, nor constitute a waiver of any
provision of the Credit Agreement or any other documents, instruments and
agreements executed and/or delivered in connection therewith.
6. Governing Law. This Amendment shall be governed by and construed
in accordance with the internal laws (as opposed to the conflict of law
provisions) of the State of Illinois.
7. Headings. Section headings in this Amendment are included herein
for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
8. Counterparts. This Amendment may be executed by one or more of
the parties to the Amendment on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument.
-6-
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and
year first above written.
GFSI, INC.
By
----------------------------
Title:
------------------------
THE FIRST NATIONAL BANK OF
CHICAGO, as Agent
By
----------------------------
Title:
------------------------
LENDERS:
THE FIRST NATIONAL BANK OF
CHICAGO, as a Lender
By
----------------------------
Title:
------------------------
THE BANK OF NOVA SCOTIA,
as a Lender
By
----------------------------
Title:
------------------------
BANQUE PARIBAS,
as a Lender
By
----------------------------
Title:
------------------------
CAISSE NATIONALE DE CREDIT AGRICOLE,
as a Lender
By
----------------------------
Title:
------------------------
-7-
<PAGE>
DLJ CAPITAL FUNDING, INC.,
as a Lender
By
----------------------------
Title:
------------------------
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY, as a Lender
By
----------------------------
Title:
------------------------
MERCANTILE BANK NATIONAL ASSOCIATION,
as a Lender
By
----------------------------
Title:
------------------------
SENIOR DEBT PORTFOLIO, as a Lender
By: Boston Management and Research as
Investment Advisor
By
-----------------------
Title:
-------------------
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST, as a Lender
By
----------------------------
Title:
------------------------
IMPERIAL BANK, as a Lender
By
----------------------------
Title:
------------------------
-8-
<PAGE>
SCHEDULE 5.8 AMENDMENT
Subsidiaries
------------
Preferred Stock
- ---------------
- - Series A Preferred Stock, par value $0.01 per share
- - 13,500 shares authorized, 1,773.92120 of which are issued and outstanding
- - Series B Preferred Stock, par value $0.01 per share
- - 11,000 shares authorized, 1,445.41727 of which are issued and outstanding
- - Series C Preferred Stock, par value $0.01 per share
- - 2,500 shares authorized, 328.50393 of which are issued and outstanding
- - Series D Preferred Stock, par value $0.01 per share
- - 25,000 shares authorized, all of which are issued and outstanding
Ownership
- ---------
See attached.
-9-
<PAGE>
SCHEDULE 6.3(H) SUPPLEMENT
Transactions with Shareholders and Affiliates
---------------------------------------------
12. Exchange Solicitation Statement dated September 12, 1997, made by
Holdings with respect to the exchange of 12% Subordinated Notes due 2008 for
11.375% Subordinated Discount Notes due 2009, and related Tender executed by
MCIT.
13. Exchange and Consent Solicitation dated September 12, 1997, made
by Holdings with respect to the Preferred Stock, and related Tender and Consent
executed by the holders thereof.
-10-
<PAGE>
CONSENT
The undersigned, as Guarantor under the Guaranty dated as of February
27, 1997 (the "Guaranty") in favor of the Lenders and the Agent parties to the
Credit Agreement referred to in the foregoing Amendment, hereby consents to said
Amendment and hereby confirms and agrees that, notwithstanding the effectiveness
of said Amendment, the Guaranty is, and shall continue to be, in full force and
effect and is hereby confirmed and ratified in all respects.
Dated: September 17, 1997 GFSI HOLDINGS, INC.
By __________________________
Title:________________________
-11-
<PAGE>
EXHIBIT 12
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
FISCAL YEARS ENDED JUNE 30,
- ------------------------------------------------------------------------------
1993 1994 1995 1996 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
HISTORICAL
- ------------------------------------------------------------------------------
Registrant's pretax income $20,055 $22,105 $26,220 $30,226 $26,940
from continuing operations
- ------------------------------------------------------------------------------
Interest 2,473 2,455 2,522 2,608 8,704
- ------------------------------------------------------------------------------
Amortization of debt 9 9 9 9 394
expense and discount on
premium
- ------------------------------------------------------------------------------
Total fixed charges 2,482 2,464 2,531 2,617 9,098
- ------------------------------------------------------------------------------
Total earnings and fixed $22,537 $24,569 $28,751 $32,843 $36,038
charges
- ------------------------------------------------------------------------------
Preferred stock dividends 1,080
- ------------------------------------------------------------------------------
Total fixed charges and $ 2,482 $ 2,464 $ 2,531 $ 2,617 $10,178
preferred stock dividends
- ------------------------------------------------------------------------------
Ratio 9.1x 10.0x 11.4x 12.5x 3.5x
- ------------------------------------------------------------------------------
PRO FORMA
- ------------------------------------------------------------------------------
Pretax income from $11,106
continuing operations
- ------------------------------------------------------------------------------
Interest 25,015
- ------------------------------------------------------------------------------
Total earnings and fixed 36,121
charges
- ------------------------------------------------------------------------------
Preferred stock dividends 228
- ------------------------------------------------------------------------------
Total fixed charges 25,243
- ------------------------------------------------------------------------------
Pro forma ratio 1.4x
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of GFSI Holdings, Inc. on
Form S-4 of our report dated August 22, 1997, appearing in the Prospectus, which
is part of this Registration Statement, and of our report dated August 22,
1997 relating to the financial statement schedule appearing elsewhere in this
Registration Statement.
We also consent to the reference to us under the headings, "Selected Financial
Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
October 27, 1997
<PAGE>
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of GFSI Holdings, Inc. on
Form S-4 of our report dated July 26, 1996, appearing in the Prospectus, which
is part of this Registration Statement, on the financial statements of Winning
Ways, Inc. for the year ended June 30, 1995, in this Registration Statement.
We also consent to the reference to us under the headings, "Selected Financial
Data" and "Experts" in such Prospectus.
Donnelly Meiners Jordan Kline
Kansas City, Missouri
October 27, 1997
<PAGE>
EXHIBIT 25
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM T-1
----------------------------
STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE
TRUST INDENTURE ACT OF l939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
[_] CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)
STATE STREET BANK AND TRUST COMPANY
------------------------------------------------------------
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
- ------------------------------ -------------------------
(State of incorporation if (I.R.S. Employer
not a national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
John R. Towers, Executive Vice President and General Counsel,
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
------------------------------------------------------------
(Name, address and telephone number of agent for service)
GFSI HOLDINGS, INC.
------------------------------------------------------------
(Exact name of obligor as specified in its charter)
Delaware 74-2810744
- ------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9700 Commerce Parkway, Lenexa Kansas 66219
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
11.375% Series B Senior Discount Notes Due 2009
------------------------------------------------------------
(Title of the indenture securities)
<PAGE>
Item l. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which it
is subject:
Department of Banking and Insurance of
The Commonwealth of Massachusetts
100 Cambridge Street
Boston, Massachusetts
Board of Governors of the Federal Reserve System
Washington, D.C.
Federal Deposit Insurance Corporation
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers:
The trustee is so authorized.
Item 2. Affiliations with obligor. If the obligor is an affiliate of the
trustee, describe each such affiliation.
None with respect to the trustee or its parent, State Street
Corporation.
Item l6. List of exhibits. List below all exhibits filed as a part of this
statement of eligibility and qualification.
1. A copy of the Articles of Association of the trustee as now in
effect.
A copy of the Articles of Association of the trustee, as now in
effect, is on file with the Securities and Exchange Commission as
Exhibit 1 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and is
incorporated herein by reference thereto.
2. A copy of the Certificate of Authority of the trustee to do
Business.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee to
commence business was necessary or issued is on file with the
Securities
-2-
<PAGE>
and Exchange Commission as Exhibit 2 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form T-1)
filed with Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
3. A copy of the Certification of Fiduciary Powers of the Trustee.
A copy of the authorization of the trustee to exercise corporate
trust powers is on file with the Securities and Exchange Commission
as Exhibit 3 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and is
incorporated herein by reference thereto.
4. A copy of the By-laws of the trustee as now in effect.
A copy of the By-Laws of the trustee, as now in effect, is on file
with the Securities and Exchange Commission as Exhibit 4 to the
Statement of Eligibility and Qualification of Trustee (Form T-1)
filed with Registration Statement of Eastern Edison Company (File
No. 33-37823) and is incorporated herein by reference thereto.
5. Consent of the trustee required by Section 32l(b) of the Act.
6. A copy of the latest Consolidated Reports of Condition of the
trustee, published pursuant to law or the requirements of its
supervising or examining authority.
A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority is annexed hereto as Exhibit 6 and made a part hereof.
-3-
<PAGE>
NOTES
Inasmuch as this Form T-l is filed prior to the ascertainment by the
trustee of all facts on which to base its answer to Item 2, the answer to said
Item is based upon incomplete information. Said Item may, however, be
considered correct unless amended by an amendment to this Form T-l.
-4-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of l939, the
trustee, State Street Bank and Trust Company, a Massachusetts trust company, has
duly caused this statement of eligibility and qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Hartford, and State of Connecticut, on the 24th day of October, 1997.
STATE STREET BANK AND TRUST
COMPANY,
Trustee
By /s/ Jacqueline Connor
-----------------------------------
Name: Jacqueline Connor
Title: Assistant Vice President
-5-
<PAGE>
EXHIBIT 5
CONSENT OF THE TRUSTEE
REQUIRED BY SECTION 321(b)
OF THE TRUST INDENTURE ACT OF 1939
----------------------------------
The undersigned, as Trustee under an Indenture to be entered into between
GFSI Holdings, Inc. and State Street Bank and Trust Company, Trustee, does
hereby consent that, pursuant to Section 321(b) of the Trust Indenture Act of
1939, reports of examinations with respect to the undersigned by Federal, State,
Territorial or District authorities may be furnished by such authorities to the
Securities and Exchange Commission upon request therefor.
STATE STREET BANK AND TRUST
COMPANY,
Trustee
By /s/ Jacqueline Connor
-----------------------------------
Name: Jacqueline Connor
Title: Assistant Vice President
Dated: October 24, 1997
<PAGE>
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business March 31, 1997,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
<TABLE>
<CAPTION>
ASSETS Thousands of Dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin............................................ 1,665,142
Interest-bearing balances..................................................................... 8,193,292
Securities....................................................................................... 10,238,113
Federal funds sold and securities purchased under agreements to resell
in domestic offices of the bank and of its Edge subsidiary.................................... 5,863,144
Loans and lease financing receivables:
Loans and leases, net of unearned income.............................................4,936,454
Allowance for loan and lease losses.....................................................70,307
Loans and leases, net of unearned income and allowance........................................ 4,866,147
Assets held in trading accounts.................................................................. 957,478
Premises and fixed assets........................................................................ 380,117
Other real estate owned.......................................................................... 884
Investments in unconsolidated subsidiaries....................................................... 26,835
Customers' liability to this bank on acceptances outstanding..................................... 45,548
Intangible assets................................................................................ 158,080
Other assets..................................................................................... 1,066,957
----------
TOTAL ASSETS..................................................................................... 33,450,737
==========
LIABILITIES
Deposits:
In domestic offices........................................................................... 8,270,845
Noninterest-bearing................................................................6,318,360
Interest-bearing...................................................................1,952,485
In foreign offices and Edge subsidiary........................................................ 12,760,086
Noninterest-bearing...................................................................53,052
Interest-bearing..................................................................12,707,034
Federal funds purchased and securities sold under agreements to
repurchase in domestic offices of the bank and of its Edge subsidiary......................... 8,216,641
Demand notes issued to the U.S. Treasury and Trading Liabilities................................. 926,821
Other borrowed money............................................................................. 671,164
Subordinated notes and debentures................................................................ 0
Bank's liability on acceptances executed and outstanding......................................... 46,137
Other liabilities................................................................................ 745,529
----------
TOTAL LIABILITIES................................................................................ 31,637,223
==========
EQUITY CAPITAL
Perpetual preferred stock and related surplus.................................................... 0
Common Stock..................................................................................... 29,931
Surplus.......................................................................................... 360,717
Undivided profits and capital reserves/Net unrealized holding gains (losses)..................... 1,426,881
Cumulative foreign currency translation adjustments.............................................. (4,015)
TOTAL EQUITY CAPITAL............................................................................. 1,813,514
----------
TOTAL LIABILITIES AND EQUITY CAPITAL............................................................. 33,450,737
==========
</TABLE>
I, Rex S. Schuette, Senior Vice President and Comptroller of the above-named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Charles F. Kaye
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the GFSI
Holdings, Inc. Audited Financial Statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> JUN-30-1996 JUN-27-1997
<PERIOD-START> JUL-01-1995 JUL-01-1996
<PERIOD-END> JUN-30-1996 JUN-27-1997
<CASH> 139,977 1,116,512
<SECURITIES> 0 0
<RECEIVABLES> 23,055,544 24,284,682
<ALLOWANCES> 472,092 579,093
<INVENTORY> 27,782,953 37,561,766
<CURRENT-ASSETS> 51,308,693 64,597,119
<PP&E> 37,560,280 36,733,961
<DEPRECIATION> 14,521,591 15,186,104
<TOTAL-ASSETS> 78,711,305 96,153,361
<CURRENT-LIABILITIES> 23,614,694 26,036,520
<BONDS> 20,617,878 214,625,000
0 28,080,000
0 0
<COMMON> 149,100 20
<OTHER-SE> 34,329,633 (174,215,151)
<TOTAL-LIABILITY-AND-EQUITY> 78,711,305 96,153,361
<SALES> 169,320,620 183,297,733
<TOTAL-REVENUES> 169,320,620 183,297,733
<CGS> 97,307,746 102,606,239
<TOTAL-COSTS> 136,487,076 147,358,391
<OTHER-EXPENSES> 490 99,326
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,608,154 9,098,218
<INCOME-PRETAX> 30,225,880 26,940,450
<INCOME-TAX> 0 1,440,000
<INCOME-CONTINUING> 30,225,880 25,500,450
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 (1,484,451)
<CHANGES> 0 0
<NET-INCOME> 30,225,880 24,015,999
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<PAGE>
Exhibit 99
LETTER OF TRANSMITTAL
FOR TENDERS OF
$50,000,000 Initial Accreted Value of
11 3/8% Series A Senior Discount Notes due 2009
GFSI HOLDINGS, INC.
Pursuant to the Prospectus
dated ________, 1997 of GFSI Holdings, Inc.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
_____________, 1997 (UNLESS EXTENDED) (THE "EXPIRATION DATE"). TENDERED OLD
SECURITIES MAY BE WITHDRAWN AT ANY TIME ON OR PRIOR TO THE EXPIRATION DATE OF
THE EXCHANGE OFFER.
Deliver to: State Street Bank and Trust Company, Exchange Agent:
<TABLE>
<CAPTION>
By Registered or Certified Mail: By Overnight Courier or Hand:
<S> <C> <C>
State Street Bank State Street Bank *State Street Bank
and Trust Company and Trust Company and Trust Company
P.O. Box 778 Two International Place or 61 Broadway, Concourse Level
Boston, MA 02102-0078 Boston, MA 02110 Corporate Trust Window
Attn: Kellie Mullen Attn: Kellie Mullen New York, New York 10006
*only during business hours
By Facsimile for Eligible
Institutions:
(617) 664-5395
For confirmation call:
(617) 664-5587
</TABLE>
Delivery of this instrument to an address other than as set forth
above, or transmission of instructions via facsimile other than as set forth
above, will not constitute a valid delivery.
<PAGE>
The undersigned acknowledges that he or she has received the Prospectus,
dated ________, 1997 (the "Prospectus"), of GFSI Holdings, Inc., a Delaware
corporation (the "Company"), and this Letter of Transmittal, which may be
amended from time to time (this "Letter"), which together constitute the
Company's offer (the "Exchange Offer") to exchange up to $50 million Intial
Accreted Value of 11 3/8% Series B Senior Discount Notes due 2009 (the "New
Notes") of the Company for a like principal amount of the Company's issued and
outstanding 11 3/8% Series A Senior Discount Notes due 2009 (the "Old Notes" and
together with the New Notes, are sometimes referred to as the "Notes"), with the
holders (each holder of Old Notes, a "Holder") thereof.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having an initial Accreted Value equal to that of the
surrendered Old Note. The New Notes will accrete interest from the most recent
date to which interest has accreted on the Old Notes or, if no interest has
accreted on the Old Notes, from October 23, 1997. Old Notes accepted for
exchange will cease to accrete interest from and after the date of consummation
of the Exchange Offer. Holders of Old Notes whose Old Notes are accepted for
exchange will not receive any accretion or payment in respect of interest on
such Old Notes otherwise payable on any interest payment date the record date
for which occurs on or after consummation of the Exchange Offer.
This Letter is to be used: (i) by all Holders who are not members of the
Automated Tender Offering Program ("ATOP") at the Depository Trust Company
("DTC"); (ii) by Holders who are ATOP members but choose not to use ATOP; or
(iii) if the Old Notes are to be tendered in accordance with the guaranteed
delivery procedures set forth in "The Exchange Offer--Guaranteed Delivery
Procedures" section of the Prospectus. See Instruction 2. Delivery of this
Letter to DTC does not constitute delivery to the Exchange Agent.
Notwithstanding anything to the contrary in the registration rights
agreements dated September 17, 1997 among the Company and the original
purchasers of Old Notes (the "Registration Rights Agreements"), the Company will
accept for exchange any and all Old Notes validly tendered on or prior to 5:00
p.m., New York City time, on _________, 1997 (unless the Exchange Offer is
extended by the Company) (the "Expiration Date"). Tenders of Old Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
IMPORTANT: HOLDERS WHO WISH TO TENDER OLD NOTES IN THE EXCHANGE OFFER MUST
COMPLETE THIS LETTER OF TRANSMITTAL AND TENDER THE OLD NOTES TO THE EXCHANGE
AGENT AND NOT TO THE COMPANY.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange. However, the Exchange Offer is subject to
certain conditions. Please see the Prospectus under the section titled "The
Exchange Offer--Conditions to the Exchange Offer."
The Exchange Offer is not being made to, nor will tenders be accepted from
or on behalf of, Holders of Old Notes in any jurisdiction in which the making or
acceptance of the Exchange Offer would not be in compliance with the laws of
such jurisdiction.
The instructions included with this Letter of Transmittal must be followed
in their entirety. Questions and request for assistance or for additional copies
of the Prospectus or this Letter of Transmittal may be directed to the Exchange
Agent at the address listed above.
-2-
<PAGE>
APPROPRIATE SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
LADIES AND GENTLEMEN:
The undersigned hereby tenders to the Company the initial Accreted Value of
Old Notes indicated below under "Description of Old Notes," in accordance with
and upon the terms and subject to the conditions set forth in the Prospectus,
receipt of which is hereby acknowledged, and in this Letter of Transmittal, for
the purpose of exchanging each $500 face amount of Old Notes designated herein
held by the undersigned and tendered hereby for $500 face amount of the New
Notes. New Notes will be issued only in integral multiples of $500 to each
tendering Holder of Old Notes whose Old Notes are accepted in the Exchange
Offer. Holders may tender all or a portion of their Old Notes pursuant to the
Exchange Offer.
Subject to, and effective upon, the acceptance for exchange of the Old
Notes tendered herewith in accordance with the terms of the Exchange Offer, the
undersigned hereby sells, assigns and transfers to, or upon the order of, the
Company all right, title and interest in and to all such Old Notes that are
being tendered hereby and that are being accepted for exchange pursuant to the
Exchange Offer. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent as the true and lawful agent and attorney-in-fact of the
undersigned (with full knowledge that the Exchange Agent also acts as the agent
of the Company), with respect to the Old Notes tendered hereby and accepted for
exchange pursuant to the Exchange Offer with full power of substitution (such
power of attorney being deemed to be an irrevocable power coupled with an
interest) to deliver the Old Notes tendered hereby to the Company (together with
all accompanying evidences of transfer and authenticity) for transfer or
cancellation by the Company.
All authority conferred or agreed to be conferred in this Letter of
Transmittal shall not be affected by, and shall survive, the death or incapacit
y of the undersigned and any obligation of the undersigned hereunder shall be
binding upon the heirs, executors, administrators, legal representatives,
successors and assigns of the undersigned. Any tender of Old Notes hereunder may
be withdrawn only in accordance with the procedures set forth in the
instructions contained in this Letter of Transmittal. See Instruction 4 hereto.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, exchange, assign and transfer the Old Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim. The undersigned will, upon request, execute
and deliver any additional documents deemed by the Company to be necessary or
desirable to complete the assignment and transfer of the Old Notes tendered. The
undersigned has read and agrees to all of the terms of the Exchange Offer.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer--Withdrawal Rights" section
of the Prospectus.
The name(s) and address(es) of the registered Holder(s) should be printed
herein under "Description of Old Notes" (unless a label setting forth such
information appears thereunder), exactly as they appear on the Old Notes
tendered hereby. The certificate number(s) and the principal amount of Old Notes
to which this Letter of Transmittal relates, together with the principal amount
of such Old Notes that the undersigned wishes to tender, should be indicated in
the appropriate boxes herein under "Description of Old Notes."
-3-
<PAGE>
The undersigned agrees that acceptance of any tendered Old Notes by the
Company and the issuance of New Notes in exchange therefor shall constitute
performance in full by the Company of its obligations under the Registration
Rights Agreements and that, upon the issuance of the New Notes the Company will
have no further obligations or liabilities thereunder.
The undersigned understands that the tender of Old Notes pursuant to one
of the procedures described in the Prospectus under "The Exchange Offer--
Procedures for Tendering Old Securities" and the Instructions hereto will
constitute the tendering Holder's acceptance of the terms and the conditions of
the Exchange Offer. The undersigned hereby represents and warrants to the
Company that the New Notes to be acquired by such Holder pursuant to the
Exchange Offer are being acquired in the ordinary course of such Holder's
business, that such Holder has no arrangement or understanding with any person
to participate in the distribution of the New Notes. The Company's acceptance
for exchange of Old Notes tendered pursuant to the Exchange Offer will
constitute a binding agreement between the tendering Holder and the Company upon
the terms and subject to the conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT IT IS NOT ENGAGED IN,
AND DOES NOT INTEND TO ENGAGE IN, A DISTRIBUTION OF THE NEW NOTES.
The undersigned also acknowledges that this Exchange Offer is being made
based on interpretations by the staff of the Securities and Exchange Commission
(the "Commission") set forth in no-action letters issued to third parties in
other transactions substantially similar to the Exchange Offer, which lead the
Company to believe that the New Notes issued in exchange for the Old Notes
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by holders thereof (other than (i) any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act, (ii) an Initial Purchaser who acquired the Old Notes directly from the
Company solely in order to resell pursuant to Rule 144A of the Securities Act or
any other available exemption under the Securities Act, or (iii) a broker-dealer
who acquired the Old Notes as a result of market making or other trading
activities), without further compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes are
acquired in the ordinary course of such holders' business and such holders are
not participating and have no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
such New Notes. If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of New Notes and has no arrangement or understanding to participate
in a distribution of New Notes. If any holder is an affiliate of the Company or
is engaged in or has any arrangement or understanding with respect to the
distribution of the New Notes to be acquired pursuant to the Exchange Offer,
such holder (i) could not rely on the applicable interpretations of the staff of
the Commission and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act. If the undersigned is a broker-
dealer that will receive New Notes for its own account in exchange of Old Notes,
it represents that the Old Notes to be exchanged for the New Notes were acquired
by it as a result of market-making activities or other trading activities and
acknowledges that it will deliver a prospectus in connection with any resale of
such New Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of Section 2(11) of the Securities Act.
The undersigned understands that the New Notes issued in consideration of
Old Notes accepted for exchange, and/or any principal amount of Old Notes not
tendered or not accepted for exchange, will only be issued in the name of the
Holder(s) appearing herein under "Description of Old Notes." Unless otherwise
indicated under "Special Delivery Instructions," please mail the New Notes
issued in consideration of Old Notes accepted for exchange, and/or any principal
amount of Old Notes not tendered or not accepted for exchange (and accompanying
documents, as appropriate), to the Holder(s) at the address(es) appearing herein
under "Description of Old Notes." In the event that the Special Delivery
Instructions are completed, please mail the
-4-
<PAGE>
New Notes issued in consideration of Old Notes accepted for exchange, and/or any
Old Notes for any principal amount not tendered or not accepted for exchange, in
the name of the Holder(s) appearing herein under "Description of Old Notes," and
send such New Notes and/or Old Notes to the address(es) so indicated. Any
transfer of Old Notes to a different holder must be completed, according to the
provisions on transfer of Old Notes contained in the Indenture.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
BELOW AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS
SET FORTH IN SUCH BOX BELOW.
-5-
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions
of the Exchange Offer
1. Guarantee of Signatures. Signatures on this Letter of Transmittal or
notice of withdrawal, as the case may be, must be guaranteed by an institution
which falls within the definition of "eligible guarantor institution" contained
in Rule 17Ad-15 as promulgated by the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended (hereinafter, an "Eligible
Institution") unless (i) the Old Notes tendered hereby are tendered by the
Holder(s) of the Old Notes who has (have) not completed the box entitled
"Special Delivery Instructions" on this Letter of Transmittal or (ii) the Old
Notes are tendered for the account of an Eligible Institution.
2. Delivery of this Letter of Transmittal and Old Notes; Guaranteed
Delivery Procedures. This Letter of Transmittal is to be used: (i) by all
Holders who are not ATOP members, (ii) by Holders who are ATOP members but
choose not to use ATOP or (iii) if the Old Notes are to be tendered in
accordance with the guaranteed delivery procedures set forth in the Prospectus
under "The Exchange Offer--Guaranteed Delivery Procedures." To validly tender
Old Notes, a Holder must physically deliver a properly completed and duly
executed Letter of Transmittal (or facsimile thereof) with any required
signature guarantees and all other required documents to the Exchange Agent at
its address set forth on the cover of this Letter of Transmittal prior to the
Expiration Date (as defined below) or the Holder must properly complete and duly
execute an ATOP ticket in accordance with DTC procedures. Otherwise, the Holder
must comply with the guaranteed delivery procedures set forth in the next
paragraph. Notwithstanding anything to the contrary in the Registration Rights
Agreements, the term "Expiration Date" means 5:00 p.m., New York City time, on
___________, 1997 (or such later date to which the Company may, in its sole
discretion, extend the Exchange Offer). If this Exchange Offer is extended, the
term "Expiration Date" shall mean the latest time and date to which the Exchange
Offer is extended. The Company expressly reserves the right, at any time or
from time to time, to extend the period of time during which the Exchange Offer
is open by giving oral (confirmed in writing) or written notice of such
extension to the Exchange Agent and by making a public announcement of such
extension prior to 9:00 a.m., New York City time, on the next business day after
the previously scheduled Expiration Date.
LETTERS OF TRANSMITTAL SHOULD NOT BE SENT TO THE COMPANY OR TO DTC.
If a Holder of the Old Notes desires to tender such Old Notes and time will
not permit such Holder's required documents to reach the Exchange Agent before
the Expiration Date, a tender may be effected if (a) the tender is made through
an Eligible Institution; (b) on or prior to the Expiration Date, the Exchange
Agent receives from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery (by telegram, facsimile transmission, mail or hand delivery) setting
forth the name and address of the Holder of the Old Notes and the principal
amount Old Notes tendered, stating that the tender is being made thereby and
guaranteeing that within three New York Stock Exchange trading days after the
Expiration Date, any documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent; and (c) all other
documents required by the Letter of Transmittal are received by the Exchange
Agent within three New York Stock Exchange trading days after the Expiration
Date. See "The Exchange Offer--Guaranteed Delivery Procedures" as set forth in
the Prospectus.
Only a Holder of Old Notes may tender Old Notes in the Exchange Offer. The
term "Holder" as used herein with respect to the Old Notes means any person in
whose name Old Notes are registered on the books of the Trustee. If the Letter
of Transmittal or any Old Notes are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity,
-6-
<PAGE>
such persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
so submitted.
Any beneficial Holder whose Old Notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to validly surrender those Old Notes in the Exchange Offer should contact such
registered Holder promptly and instruct such registered Holder to tender on his
behalf. If such beneficial Holder wishes to tender on his own behalf, such
beneficial Holder must, prior to completing and executing the Letter of
Transmittal, make appropriate arrangements to register ownership of the Old
Notes in such beneficial holder's name. It is the responsibility of the
beneficial holder to register ownership in his own name if he chooses to do so.
The transfer of record ownership may take considerable time.
The method of delivery of this Letter of Transmittal (or facsimile hereof)
and all other required documents is at the election and risk of the exchanging
Holder, but, except as otherwise provided below, the delivery will be deemed
made only when actually received or confirmed by the Exchange Agent. If sent by
mail, registered mail with return receipt requested, properly insured, is
recommended. In all cases, sufficient time should be allowed to assure timely
delivery to the Exchange Agent before the Expiration Date. No Letters of
Transmittal or Old Notes should be sent to the Company.
No alternative, conditional or contingent tenders will be accepted.
All tendering Holders, by execution of this Letter of Transmittal (or facsimile
hereof), waive any right to receive notice of acceptance of their Old Notes for
exchange.
3. Inadequate Space. If the space provided herein is inadequate, the
certificate numbers and principal amount of the Old Notes to which this Letter
of Transmittal relates should be listed on a separate signed schedule attached
hereto.
4. Withdrawal of Tender. Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date.
To be effective, a written or facsimile transmission notice of withdrawal
must (i) be received by the Exchange Agent at the address set forth herein prior
to 5:00 p.m., New York City time, on the Expiration Date: (ii) specify the name
of the person having tendered the Old Notes to be withdrawn; (iii) identify the
Old Notes to be withdrawn; and (iv) be (a) signed by the Holder in the same
manner as the original signature on the Letter of Transmittal by which such Old
Notes were tendered (including any required signature guarantees) or (b)
accompanied by evidence satisfactory to the Company that the Holder withdrawing
such tender has succeeded to beneficial ownership of such Old Notes. If Old
Notes have been tendered pursuant to the ATOP procedure with DTC, any notice of
withdrawal must otherwise comply with the procedures of DTC. Old Notes properly
withdrawn will thereafter be deemed not validly tendered for purposes of the
Exchange Offer; provided, however, that withdrawn Old Notes may be retendered by
again following one of the procedures described herein at any time prior to 5:00
p.m., New York City time, on the Expiration Date. All questions as to the
validity, form and eligibility (including time of receipt) of notice of
withdrawal will be determined by the Company, whose determinations will be final
and binding on all parties. Neither the Company, the Exchange Agent, nor any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification. The Exchange Agent intends to use reasonable efforts
to give notification of such defects and irregularities.
5. Partial Tenders; Pro Rata Effect. Tenders of the Old Notes will be
accepted only in integral multiples of $500. If less than the entire principal
amount evidenced by any Old Notes is to be tendered, fill in the principal
amount that is to be tendered in the box entitled "Principal Amount Tendered"
below. The entire
-7-
<PAGE>
principal amount of all Old Notes delivered to the Exchange Agent will be deemed
to have been tendered unless otherwise indicated.
6. Signatures on this Letter of Transmittal; Bond Powers and
Endorsements. If this Letter of Transmittal is signed by the registered
Holder(s) of the Old Notes tendered hereby, the signature must correspond with
the name as written on the face of the certificate representing such Old Notes
without alteration, enlargement or any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If any of the Old Notes tendered hereby are registered in different names,
it will be necessary to complete, sign and submit as many separate copies of
this Letter of Transmittal and any necessary accompanying documents as there are
different registrations.
When this Letter of Transmittal is signed by the Holder(s) of Old Notes
listed and tendered hereby, no endorsements or separate bond powers are
required.
If this Letter of Transmittal is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority to so act must be submitted.
7. Special Delivery Instructions. Tendering Holders should indicate in
the applicable box the name and address to which New Notes issued in
consideration of Old Notes accepted for exchange, or Old Notes for principal
amounts not exchanged or not tendered, are to be sent, if different from the
name and address of the person signing this Letter of Transmittal.
8. Waiver of Conditions. The Company reserves the absolute right to
waive any of the specified conditions in the Exchange Offer, in whole at any
time or in part from time to time, in the case of any Old Notes tendered hereby.
See "The Exchange Offer--Conditions to the Exchange Offer" in the Prospectus.
9. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, New Notes and/or substitute Old Notes for principal amounts not
exchanged are to be delivered to any person other than the Holder of the Old
Notes or if a transfer tax is imposed for any reason other than the exchange of
Old Notes pursuant to the Exchange Offer, the amount of any such transfer taxes
(whether imposed on the registered Holder or any other persons) will be payable
by the tendering Holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted, the amount of such transfer taxes will be
billed directly to such tendering Holder.
10. Irregularities. All questions as to validity, form, eligibility
(including time of receipt), acceptance and withdrawal of tendered Old Notes
will be resolved by the Company, in its sole discretion, whose determination
shall be final and binding. The Company reserves the absolute right to reject
any or all tenders of any particular Old Notes that are not in proper form, or
the acceptance of which would, in the opinion of the Company or its counsel, be
unlawful. The Company also reserves the absolute right to waive any defect,
irregularity or condition of tender with regard to any particular Old Notes. The
Company's interpretation of the terms of, and conditions to, the Exchange Offer
(including the instructions herein) will be final and binding. Unless waived,
any defects or irregularities in connection with tenders must be cured within
such time as the Company shall determine. Neither the Company nor the Exchange
Agent shall be under any duty to give notification of defects in such tenders or
shall incur any liability for failure to give such notification. The Exchange
Agent intends to use reasonable efforts to give notification of such defects and
irregularities. Tenders
-8-
<PAGE>
of Old Notes will not be deemed to have been made until all defects and
irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the irregularities
have not been cured or waived will be returned by the Exchange Agent to the
tendering Holder, unless otherwise provided by this Letter of Transmittal, as
soon as practicable following the Expiration Date.
11. Interest on Exchanged Old Notes. Holders whose Old Notes are accepted
for exchange will not receive accrued interest or dividends thereon on the date
of exchange. Instead, interest accreting from October 23, 1997 through the
Expiration Date will be recognized on the New Notes on March 15, 1998, in
accordance with the terms of the New Notes. See "The Exchange Offer--Acceptance
of Old Notes for Exchange; Delivery of New Notes" and "Description of Notes" as
set forth in the Prospectus.
12. Mutilated, Lost, Stolen or Destroyed Certificates. Holders whose
certificates for Old Notes have been mutilated, lost, stolen or destroyed should
contact the Exchange Agent at the address indicated above for further
instructions.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF), TOGETHER
WITH ALL REQUIRED DOCUMENTS, OR A NOTICE OF GUARANTEED DELIVERY, MUST BE
RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
-9-
<PAGE>
PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1 and 7)
To be completed ONLY if the New Notes issued in consideration of Old
Notes exchanged, or certificates for Old Notes in a principal amount not
surrendered for exchange are to be mailed to someone other than the
undersigned or to the undersigned at an address other than that below.
Mail to:
Name:_________________________________________________________
_____________
(Please Print)
Address:_______________________________________________________
______________
(Zip Code)
DESCRIPTION OF OLD NOTES
(See Instructions 2 and 7)
<TABLE>
<CAPTION>
Name(s) and Certificate(s)
Address(es) of (Attach additional signed list, if necessary)
Registered Holder(s)
(Please fill in, in blank)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
----------------------------------------------------------------------
Certificate Number(s)/1/ Aggregate Principal Principal Amount of
Amount of Old Notes Old Notes Tendered/2/
Evidenced by (must be integral
Certificate(s) multiples of $1,000)
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
Total
====================================================================================================
</TABLE>
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<PAGE>
(Boxes below to be checked by Eligible Institutions only)
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ___________________________________________
DTC Account Number ______________________________________________________
Transaction Code Number _________________________________________________
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s)__________________________________________
Window Ticket Number (if any)____________________________________________
Date of Execution of Notice of Guaranteed Delivery_______________________
Name of Institution which Guaranteed Delivery____________________________
If Guaranteed Delivery is to be made by Book-Entry Transfer:_____________
Name of Tendering Institution____________________________________________
DTC Account Number_______________________________________________________
Transaction Code Number__________________________________________________
[ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD NOTES
ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE.
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name _________________________________________________________________________
Address ______________________________________________________________________
-11-
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
PLEASE SIGN HERE
WHETHER OR NOT OLD NOTES ARE BEING
PHYSICALLY TENDERED HEREBY
X __________________________________________ ____________
X __________________________________________ ____________
Signature(s) of Owner(s) Dated
of Authorized Signatory
Area Code and Telephone Number:_______________________________________________
This box must be signed by registered holder(s) of Old Notes as their name(s)
appear(s) on certificate(s) for Old Notes hereby tendered or on a security
position listing, or by any person(s) authorized to become registered holder(s)
by endorsement and documents transmitted with this Letter (including such
opinions of counsel, certifications and other information as may be required by
the Company or the Trustee for the Old Notes to comply with the restrictions on
transfer applicable to the Old Notes). If signature is by an attorney-in-fact,
trustee, executor, administrator, guardian, officer or other person acting in a
fiduciary or representative capacity, such person must set forth his or her
full title below.
Name(s)_______________________________________________________________________
______________________________________________________________________________
(Please Print)
Capacity (full title)__________________________________________________________
Address _______________________________________________________________________
______________________________________________________________________________
(Include Zip Code)
Tax Identification or Social Security Number(s)________________________________
Guarantee of Signature(s)
(See Instructions 1 and 6 to determine if required)
Authorized Signature___________________________________________________________
Name___________________________________________________________________________
Name of Firm___________________________________________________________________
Title__________________________________________________________________________
________________________________________________________________________________
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<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the Payer.
Social Security numbers have nine digits separated by two hyphens: i.e., 000-00-
0000. Employer identification numbers have nine digits separated by only one
hyphen: i.e., 00-0000000. The table below will help determine the number to give
the payer.
<TABLE>
<CAPTION>
----------------------------------------------------------- -----------------------------------------------
For this type Give the SOCIAL For this type Give the EMPLOYER
of account: SECURITY number of account: IDENTIFICATION
of-- number of--
---------------------------------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C>
1. Individual The individual 6. Sole proprietorship The owner/3/
2. Two or more individuals The actual owner of the 7. A valid trust, estate, or Legal entity /5/
(joint account) account or, if combined pension trust
funds, the first individual
on the account. /4/
8. Corporate The corporation
3. Custodian account of a The minor /6/ 9. Association, club, The organization
minor (Uniform Gift to religious, charitable,
Minors Act) educational or other tax-
exempt organization
10. Partnership The partnership
4.a. The usual revocable The grantor-trustee 11. A broker or registered The broker or nominee
savings trust (grantor is nominee
also trustee)
b. So-called trust account The actual owner 12. Account with the The public entity
that is not a legal or valid Department of
trust under State law Agriculture in the name
of a public entity (such as
5. Sole proprietorship The owner 1/ a State or local
government, school
district, or prison) that
receives agricultural
program payments
</TABLE>
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<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
Obtaining a Number
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
Payees Exempt from Backup Withholding
The following is a list of payees exempt from backup withholding and for which
no information reporting is required. For interest and dividends, all listed
payees are exempt except item (9). For broker transactions, payees listed in
items (1) through (13) and a person registered under the Investment Advisers Act
of 1940 who regularly acts as a broker are exempt. Payments subject to
reporting under sections 6041 and 6041A are generally exempt from backup
withholding only if made to payees described in items (1) through (7), except a
corporation that provides medical and health care services or bills and collects
payments for such services is not exempt from backup withholding or information
reporting. Only payees described in items (2) through (6) are exempt from backup
withholding for barter exchange transactions, patronage dividends, and payments
by certain fishing boat operators.
(1) A corporation.
(2) An organization exempt from tax under section 501(a), or an individual
retirement plan or custodial account under section 403(b)(7).
(3) The United States or any agency or instrumentality thereof.
(4) A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
(5) A foreign government, a political subdivision of a foreign government, or
an agency or instrumentality thereof.
(6) An international organization or any agency or instrumentality thereof.
(7) A foreign central bank of issue.
(8) A dealer in securities or commodities required to register in the U.S. or a
possession of the U.S.
(9) A futures commission merchant registered with the Commodity Futures Trading
Commission.
(10) A real estate investment trust.
(11) An entity registered at all times under the Investment Company Act of 1940.
(12) A common trust fund operated by a bank under section 584(a).
(13) A financial institution.
(14) A middleman known in the investment community as a nominee or listed in the
most recent publication of the American Society of Corporate Secretaries,
Inc. Nominee List.
(15) An exempt charitable remainder trust, or a non-exempt trust described in
section 4947.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
. Payments of patronage dividends not paid in money.
. Payments made by certain foreign organizations.
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<PAGE>
Note: You may be subject to backup withholding if this interest is $600 or
more and is paid in the course of the payer's trade or business and you have
not provided your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
. Payments described in section 6049(b)(5) to nonresident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER. WRITE "EXEMPT" ON THE FACE OF THE FORM AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS,
ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, royalties, and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
Privacy Act Notice. Section 6109 requires most recipients of dividend, interest,
or other payments to give taxpayer identification numbers to payers who must
report the payments to IRS. IRS uses the numbers for identification purposes.
Payers must be given the numbers whether or not recipients are required to file
tax returns. Payers must generally withhold 31% of taxable interest, dividend,
and certain other payments to a payee who does not furnish a taxpayer
identification number to a payer. Certain penalties may also apply.
Penalties
(1) Penalty for Failure to Furnish Taxpayer Identification Number. If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) Failure to Report Certain Dividend and Interest Payments. If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an under-
payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) Civil Penalty for False Information with Respect to Withholding. If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) Criminal Penalty for Falsifying Information. Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
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