<PAGE>
As filed with the Securities and Exchange Commission on July 22, 1997
REGISTRATION NO. 333-24189
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
GFSI, INC.
(Exact name of registrant as specified in its charter)
----------------
DELAWARE 2396 74-2810748
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Number) Identification Number)
incorporation or
organization)
GFSI, 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
GFSI, 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)
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With a copy to:
JAMES B. CARLSON, ESQ.
MAYER, BROWN & PLATT
1675 BROADWAY
NEW YORK, NEW YORK 10019
(212) 506-2515
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED
OFFERING MAXIMUM
TITLE OF EACH CLASS OF AMOUNT PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED UNIT(1) PRICE(1) FEE
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<S> <C> <C> <C> <C>
9 5/8% Series B Senior Sub-
ordinated Notes Due 2007.. $125,000,000 100% $125,000,000 $37,878.79(2)
</TABLE>
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(1) Estimated solely for the purposes of calculating the registration fee.
(2) Previously paid.
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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 22, 1997
PROSPECTUS
GFSI, INC.
OFFER TO EXCHANGE ITS 9 5/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2007, WHICH
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT, FOR ANY AND ALL OF ITS
OUTSTANDING 9 5/8% SERIES A SENIOR SUBORDINATED NOTES DUE 2007.
NOTWITHSTANDING THE DESIGNATION OF THE NOTES AS SENIOR SUBORDINATED NOTES,
THE COMPANY HAS NOT ISSUED, AND DOES NOT HAVE ANY CURRENT FIRM ARRANGEMENTS TO
ISSUE, ANY SIGNIFICANT INDEBTEDNESS TO WHICH THE NOTES WOULD BE SENIOR, AND THE
NOTES WILL BE EFFECTIVELY SUBORDINATE TO ESSENTIALLY ALL OF THE OUTSTANDING
INDEBTEDNESS OF THE COMPANY AND ITS SUBSIDIARIES. THE COMPANY DOES NOT HAVE ANY
CURRENT OR PENDING ARRANGEMENTS OR AGREEMENTS TO INCUR ANY ADDITIONAL
SIGNIFICANT INDEBTEDNESS TO WHICH THE NOTES WOULD BE SUBORDINATE.
GFSI, Inc., a Delaware corporation ("GFSI" or the "Company") and a direct,
wholly-owned subsidiary of GFSI Holdings, Inc., a Delaware corporation
("Holdings" or "Parent"), 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 $125 million aggregate principal amount of
9 5/8% Series B Senior Subordinated Notes due 2007 (the "New Notes"), of the
Company for a like principal amount of the Company's issued and outstanding 9
5/8% Series A Senior Subordinated Notes due 2007 (the "Old Notes" and
collectively with the New Notes, the "Notes"), with the holders (each holder of
Old Notes, a "Holder") thereof. The New Notes will be fully and unconditionally
guaranteed, jointly and severally, on a senior subordinated basis, by all of
the Company's future Restricted Subsidiaries (as defined). 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 the Notes." The Company will receive no
proceeds in connection with the Exchange Offer. Upon the occurrence of a Change
of Control, the Company will be required, subject to certain conditions, to
make an offer to purchase the Notes at a price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest to the date of purchase. In
the event of a Change of Control, there can be no assurance that the Company
will have, or will have access to, sufficient funds to repurchase the Notes or
to pay the holders of the Notes. See "Risk Factors--Change of Control
Provisions; Limitations on Rights of Repayment," "Description of Securities--
Certain Covenants," "--Certain Definitions" and "Mandatory Offers to Purchase
Senior Notes--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 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)
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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"
ON PAGE 15 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 the Company, subordinated
in right of payment to all existing and future Senior Indebtedness of the
Company, including indebtedness under the New Credit Agreement, and pari passu
or senior in right of payment to any future subordinated indebtedness of the
Company. As of March 28, 1997, the aggregate principal amount of Senior
Indebtedness of the Company to which the Notes would have been subordinated
would have been approximately $68.0 million. The Indenture 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 has agreed to pay
the expenses of the Exchange Offer. There will be no cash proceeds to the
Company from the Exchange Offer. See "Use of Proceeds."
The Old Notes were issued and sold on February 27, 1997 (the "Old Note
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. 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 Purchasers (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 (as defined), 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 (as defined). 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.
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
i
<PAGE>
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 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 (as defined), 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 otherwise indicated, all references in this Prospectus to
the Company's business and pro forma data give effect to the Transactions (as
defined). Unless the context indicates or otherwise requires, references in
this Prospectus to the "Company" are to GFSI, Inc. and its predecessor, Winning
Ways, Inc., and references to a fiscal year are to the twelve months ended June
30 of such year.
THE COMPANY
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. 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.
From fiscal 1991 to fiscal 1996, the Company's net sales increased from $94.7
million to $169.3 million from internal growth, representing a compound annual
growth rate ("CAGR") of 12.3% and an actual annual growth rate of 24.8%, 2.5%,
5.8%, 15.6% and 14.3% for the fiscal years of 1992, 1993, 1994, 1995, and 1996,
respectively. During the same period, the Company's EBITDA (as defined) grew
from $17.9 million to $36.0 million, representing a CAGR of 15.0% and an actual
annual growth rate of 28.5%, 7.7%, 8.7%, 18.2% and 13.5% for the fiscal years
of 1992, 1993, 1994, 1995, and 1996, respectively. The Company's EBITDA margin
for the period increased from 18.9% to 21.3% with an actual annual growth rate
of 2.6%, 5.2% 2.9%, 1.9% and (0.5%) for the fiscal years of 1992, 1993, 1994,
1995, and 1996, respectively. At the same time, the Company's net income
increased from $14.5 million to $30.2 million, representing a CAGR of 15.8% and
an actual annual growth rate of 24.4%, 10.9%, 10.2% 18.6% and 15.3% for the
fiscal years of 1992, 1993, 1994, 1995, and 1996 respectively. The Company's
cash flows from operating activities increased from $14.4 million to $34.0
million for the same periods, representing CAGR of 18.7% and an actual annual
growth rate of (22.6%), 88.4%, 16.4% 2.2% and 42.2% for the fiscal years of
1992, 1993, 1994, 1995, and 1996, 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 salesforce
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 include:
<PAGE>
[ ] The Resort Division (40.0% of fiscal 1996 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."
[ ] The Corporate Division (27.9% of fiscal 1996 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 (22.3% of fiscal 1996 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, 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 (3.7% of fiscal 1996 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 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. See "Business--Sales Divisions--Sports
Specialty Division."
FINANCIAL CHARACTERISTICS. The Company's business has the following financial
characteristics:
[ ] Diverse and Stable Customer Base. The Company sells to its niche markets
through a diverse base of over 13,000 active customer accounts. In fiscal
1996, no single account represented more than 2.5% of net sales, and the
Company's top ten customers which include various large corporations,
major universities and destination resorts, accounted for less than 13%
of net sales. Accordingly, the Company believes that the loss of any
single customer would not have a material adverse effect on the Company
and that none of its customers is, individually, material to the
Company's operations. The number of active customer accounts increased
from approximately 5,600 in fiscal 1991 to over 13,000 in fiscal 1996.
New potential end-users of the Company's products are added each year as
new customers visit
2
<PAGE>
resorts and participate in other leisure activities, corporations
continue to expand their identity and promotional programs and new
students enroll at colleges and universities. See "Business--Financial
Characteristics"
[] Strong Sales and EBITDA Growth. From fiscal 1991 to fiscal 1996, the
Company's net sales increased from $94.7 million to $169.3 million from
internal growth, representing a CAGR of 12.3% and an actual annual growth
rate of 24.8%, 2.5%, 5.8%, 15.6% and 14.3% for the fiscal years of 1992,
1993, 1994, 1995, and 1996, respectively. During the same period, the
Company's EBITDA (as defined) grew from $17.9 million to $36.0 million,
representing a CAGR of 15.0% and an actual annual growth rate of 28.5%,
7.7%, 8.7% 18.2% and 13.5% for the fiscal years of 1992, 1993, 1994,
1995, and 1996, respectively. The Company's EBITDA margin for the period
increased from 18.9% to 21.3% with an actual annual growth rate of 2.6%,
5.2%, 2.9%, 1.9% and (0.5%) for the fiscal years of 1992, 1993, 1994,
1995, and 1996, respectively. The Company believes that this growth can
be attributed to: (i) its focus on niche markets where competition is
generally based on product and service quality rather than price; (ii)
operating leverage resulting from the introduction of new products in
established distribution channels; and (iii) its focus on manufacturing
efficiencies. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition--Results of Operations."
[] Low Capital Expenditures. The Company concentrates on the high value-
added production processes of custom design, embroidery, silk-screening
and other finishing elements at its state-of-the-art manufacturing
facilities. The capital intensive process of manufacturing unfinished
garments ("blanks") and other items is outsourced to a network of foreign
and domestic independent manufacturers who comply with the Company's
stringent specifications. As a result, the Company maintains low fixed
costs and requires limited annual capital expenditures. From fiscal 1992
to fiscal 1996, total annual capital expenditures averaged approximately
$3 million, or an average of 2.2% of net sales and 10.5% of EBITDA for
such years. See "Selected Historical Financial Data."
[] Historically Non-Cyclical Business. The Company has not experienced a
reduction of its business as a result of past general economic downturns.
The Company believes that its record of consistent growth is a result of
the relatively non-cyclical nature of its primary market segments as well
as its competitive position as a supplier of high quality, customized
products that are less susceptible to consumer price sensitivity. The
Company believes that the diversity of its products, distribution
channels and markets also minimizes its exposure to particular customers,
economic cycles and geographic concentration.
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.
3
<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 management team
contributed an aggregate of $13.6 million in exchange for 50% of the
capital stock of the Company's parent, GFSI Holdings, Inc. ("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
that the Company intends to implement.
----------------
The Company was incorporated in the state of Delaware on January 15, 1996. On
February 27, 1997, the Company effected a merger with Winning Ways, Inc.
("Winning Ways"), a Missouri corporation, in which Winning Ways merged with and
into the Company. The Company's principal executive offices are located at 9700
Commerce Parkway, Lenexa, Kansas 66219 and its telephone number is (913) 888-
0445.
THE TRANSACTIONS
Holdings and GFSI, a wholly-owned subsidiary of Holdings, were organized by
affiliates of The Jordan Company ("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,
Martin Becker, Terry Glenn, Kirk Kowalewski, Mark Schimpf, Anthony Gagliano,
David Churchman, Dave Geneens, 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 the Winning Ways'
Existing Indebtedness (as defined) 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 the
4
<PAGE>
Company (the "Equity Contribution"); (ii) the Company consummated the offering
of Old Notes in the aggregate principal amount of $125.0 million (the
"Offering"); and (iii) the Company entered into a credit agreement (the "New
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. The Equity Contribution is
comprised of: (i) a contribution of $13.6 million from the Jordan Investors to
Holdings in exchange for cumulative preferred stock of Holdings due 2009
("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 subordinated notes of Holdings (the
"Holdings Subordinated Notes"). Approximately $0.8 million of the contribution
from the Management Investors was financed by loans from Holdings. Consummation
of the Offering was conditioned upon the concurrent consummation of the
Acquisition, the Equity Contribution and the initial borrowings under the New
Credit Agreement. For additional information, see "The Transactions" and "Use
of Proceeds."
The Company'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 $26.1 million, representing the accumulated and
undistributed S-Corporation earnings of the Company as of February 27, 1997.
The Company 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. The Company does not
anticipate any future material adverse tax liabilities arising from this
distribution.
5
<PAGE>
THE EXCHANGE OFFER
Securities Offered.......... $125,000,000 principal amount of 9 5/8% Series B
Senior Subordinated Notes due 2007. 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 Old Notes;
Registration Rights........ The Old Notes were issued on February 27, 1997 to
Donaldson, Lufkin & Jenrette Securities
Corporation and Jefferies & Company, Inc.
(collectively, the "Initial Purchasers"), which
placed the Old Notes with "qualified
institutional buyers" (as such term is defined in
Rule 144A promulgated under the Securities Act).
In connection therewith, the Company executed and
delivered for the benefit of the holders of Old
Notes a certain 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 90 days after February
27, 1997 with respect to the Exchange Offer and
(ii) to use their best efforts to cause the
Registration Statement to be declared effective
by the Commission on or prior to 150 days after
February 27, 1997. 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
Registration Rights Agreement, it will be
required to pay 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 principal amount 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
6
<PAGE>
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 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 in connection with any
resale for 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 and requests for information should be
directed to the Exchange Agent. See "The Exchange
Offer--Procedures for Tendering Old Notes."
7
<PAGE>
Tenders, Expiration Date;
Withdrawal............... The Exchange Offer will expire the earlier of (i)
5:00 p.m., New York City time, on ,
1997 or (ii) the date when all Old Notes have been
tendered, or such later date and time to which it
is extended, provided it may not be extended
beyond , 1997. 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, financial
condition, operations, results of operations or
prospects of the Company 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 pursuant to the Exchange
8
<PAGE>
Offer will not result in any income, gain or loss
to the Holders or the Company. See "Certain
Federal Income Tax Considerations" for a
dicussion 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.............. Fleet National Bank is serving as Exchange Agent
in connection with the Exchange Offer.
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
Notwithstanding the designation of the Notes as Senior Subordinated Notes,
the Company has not issued, and does not have any current firm arrangements to
issue, any significant indebtedness to which the Notes would be senior, and the
Notes will be effectively subordinate to essentially all of the outstanding
indebtedness of the Company and its subsidiaries. The Company does not have any
current or pending arrangements or agreements to incur any additional
significant indebtedness to which the Notes would be subordinate.
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 1997, 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. 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 bear interest from the most recent date to which interest
has been paid on the Old Notes or, if no interest has been paid on the Old
Notes, from February 27, 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 interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid,
from February 27, 1997. Old Notes accepted for exchange will cease to accrue
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
payment in respect of interest on such Old Notes otherwise payable on any
interest payment date which occurs on or after consummation of the Exchange
Offer.
9
<PAGE>
THE NEW NOTES
Issuer...................... GFSI, Inc.
Securities Offered.......... $125 million aggregate principal amount of 9 5/8%
Series B Senior Subordinated Notes due 2007.
Maturity.................... March 1, 2007.
Interest.................... The Old Notes bear interest and the New Notes
will bear interest at a rate of 9 5/8% per annum,
payable semi-annually in cash in arrears on each
March 1 and September 1, commencing on the first
such date to occur after the Expiration Date.
Optional Redemption......... On or after March 1, 2002, the Notes will be
redeemable at the option of the Company, in whole
or in part, at any time at the redemption prices
set forth herein, plus accrued and unpaid
interest and Liquidated Damages, if any, to the
date of redemption. Notwithstanding the
foregoing, at any time prior to March 1, 2000,
the Company may redeem up to 40% of the original
aggregate principal amount of the Notes with the
net proceeds of one or more Equity Offerings (as
defined) at a redemption price equal to 110% of
the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any,
to the date of redemption. See "Description of
Notes--Redemption of Notes."
Mandatory Redemption........ Except after the passage of certain events, the
Company is not required to make any mandatory
redemption, purchase or sinking fund payments
with respect to the Notes. See "Description of
Notes--Mandatory Offers to Purchase Notes."
Change of Control........... Upon the occurrence of a Change of Control (as
defined), each holder of Notes will have the
right to require the Company to purchase such
holder's Notes pursuant to an Offer (as defined)
at a purchase price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages, if
any, to the date of purchase. Certain
transactions with affiliates of the Company may
not be deemed to be a Change of Control.
Transactions constituting a Change of Control are
not limited to hostile takeover transactions not
approved by the current management of the
Company. Except as described under "Description
of Notes--Mandatory Offers to Purchase Notes,"
the Indenture does not contain provisions that
permit the holders of Notes to require the
Company 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.
Guarantees.................. The Notes will be fully and unconditionally
guaranteed (the "Note Guarantees"), jointly and
severally, on a senior subordinated basis, by all
of the Company's future Restricted Subsidiaries
(the "Guarantors"). As of the date of the
Indenture (as defined), the Company does not have
any Subsidiaries (as defined).
10
<PAGE>
Ranking..................... The Notes will be general unsecured obligations
of the Company, subordinated in right of payment
to all existing and future Senior Indebtedness
(as defined) of the Company, including
Indebtedness (as defined) under the New Credit
Agreement, and pari passu or senior in right of
payment to any future subordinated Indebtedness
of the Company. As of March 28, 1997, the
aggregate principal amount of Senior Indebtedness
of the Company to which the Notes would have been
subordinated would have been approximately $68.0
million. The indenture pursuant to which the
Notes will be issued (the "Indenture") will
permit the Company and its subsidiaries to incur
additional Indebtedness, including Senior
Indebtedness, subject to certain limitations,
including a specified Cash Flow Coverage Ratio
(as defined). See "Description of Notes--Certain
Covenants" and "Description of Certain
Indebtedness."
The Company believes that prepayment of the Notes
pursuant to a Change of Control would constitute
a default under the New Credit Agreement. In the
event a Change of Control occurs, the Company
will likely be required to refinance the
Indebtedness outstanding under the New Credit
Agreement and the Notes. If there is a Change of
Control, any Indebtedness under the New Credit
Agreement could be accelerated, which
Indebtedness is secured and effectively ranks
senior to the Notes. Moreover, there can be no
assurance that sufficient funds will be available
at the time of any Change of Control to make any
required repurchases of the Notes given the
Company's high leverage. See "Risk Factors--
Leverage and Debt Service."
Certain Covenants........... The Indenture contains the following material
covenants which limit the ability of the Company
and its Restricted Subsidiaries 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, the Company is required to offer
to purchase Notes at a price equal to 100% of the
principal amount thereof, 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."
Satisfaction and The Indenture contains provisions which would
Discharge.................. allow the Company to terminate all of its and any
future guarantors obligations under the Notes,
any guarantees of Notes and the Indenture,
including the covenants contained in the
Indenture, except for certain specified
obligations. In order to exercise this option
with respect to the Notes outstanding, the
Company must irrevocably deposit in trust with
the trustee money or U.S. Government obligations
(as defined) for the payment of principal of and
premium and unpaid interest and
11
<PAGE>
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. See "Description of Notes--
Satisfaction and Discharge of the Indenture."
RISK FACTORS
Holders of Old Notes should consider carefully all of the information set
forth in this Prospectus and, in particular, should evaluate the specific
factors set forth under "Risk Factors." Risk factors which Holders of Old Notes
should evaluate include the consequences of exchanging and not exchanging Old
Notes for New Notes, the Company's leverage and coverage, the ranking of the
Notes among other indebtedness of the Company, the Company's dependence on
intercompany transfers to meet its debt service and other obligations, the
Company's limited operating history and the limited relevance of its historical
financial information, the restrictive covenants contained in the Indenture and
the New Credit Agreement, the absence of a market for the New Notes, the
ability of the Company to purchase the Notes upon a Change of Control, the
influence of the Company's principal stockholders and fraudulent transfer
considerations.
12
<PAGE>
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS)
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. Factor's 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.
The following table presents summary: (i) historical operating and other data
of the Company for the fiscal years ended June 30, 1992, 1993, 1994, 1995 and
1996, and the nine months ended March 31, 1996, and March 28, 1997; (ii)
historical balance sheet data of the Company for the fiscal years, ended June
30, 1992, 1993, 1994, 1995 and 1996, and the nine months ended March 28, 1997;
and (iii) pro forma data for fiscal 1996, and the nine months ended March 28,
1997. The historical financial statements of the Company for fiscal 1992, 1993,
1994 and 1995 have been audited by Donnelly Meiners Jordan Kline, and the
historical financial statements for fiscal 1996 have been audited by Deloitte &
Touche LLP. The historical data of the Company for the nine months ended March
31, 1996, and March 28, 1997 have been derived from, and should be read in
conjunction with, the unaudited financial statements of the Company and the
related notes thereto, which are included elsewhere in this Prospectus. In the
opinion of management, such interim financial statements reflect all
adjustments (consisting only of normal recurring adjustments) necessary to
fairly present the information presented for such periods. The results of
operations for the nine months ended March 28, 1997 are not necessarily
indicative of the results of operations to be expected for the full year. The
pro forma income statement data of the Company for the nine months ended March
28, 1997, and the year ended June 30, 1996 have been prepared as if the
Transactions had occurred on the first day of such period. 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 period. 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, Inc., merged with and into GFSI,
Inc., a new entity with no previous operations, with GFSI, Inc. as the
surviving entity. The statements of income data and other data presented below
includes historical information of Winning Ways, Inc. through the merger date
and the merged entity subsequent, thereto.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, NINE MONTHS ENDED
-------------------------------------------- -------------------
MARCH 31, MARCH 28,
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME
DATA:
Net sales............... $118,187 $121,131 $128,171 $148,196 $169,321 $132,068 $ 144,182
Gross profit............ 47,079 50,936 53,724 63,327 72,013 57,347 64,060
Operating expenses...... 25,949 28,201 29,151 34,428 39,179 30,030 33,835
Operating income........ 21,130 22,735 24,573 28,899 32,834 27,317 30,225(/3/)
BALANCE SHEET DATA (AS
OF PERIOD END):
Cash and cash
equivalents............ $ 527 $ 219 $ 132 $ 112 $ 140 $ 5,569
Total assets............ 64,520 67,510 70,176 76,938 78,711 98,446
Long-term debt,
including current
portion................ 22,760 19,157 27,242 24,915 22,276 190,000
Total stockholders'
equity deficiency...... 27,489 27,502 29,429 32,106 34,479 (121,608)
PRO FORMA DATA(5):
Operating Income........ $ 32,980 $ 30,155
Net Income.............. $ 8,368 $ 9,618
</TABLE>
13
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(1)............... $22,960 $24,733 $26,876 $31,759 $36,035 $29,696 $32,769
Cash flows from
operating activities... 11,138 20,985 24,431 23,905 34,000 28,424 25,821
Cash flows from
investing activities... (2,149) (2,163) (2,597) (4,255) (2,480) (1,238) (1,566)
Cash flows from
financing activities... (8,995) (19,130) (21,921) (19,669) (31,493) (25,277) (18,826)
Depreciation and
amortization........... 1,830 1,998 2,303 2,860 3,201 2,379 2,544
Capital expenditures.... 2,149 2,304 2,856 4,989 2,611 1,360 2,512
EBITDA margin(2)........ 19.4% 20.4% 21.0% 21.4% 21.3% 22.5% 22.7%
Ratio of earnings to
fixed charges(4)....... 7.6x 9.1x 10.0x 11.4x 12.6x 13.4x 9.1x
</TABLE>
- --------------------
(1) 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 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.
(2) EBITDA margin represents EBITDA as a percentage of net sales.
(3) The operating income presented for the nine months ended March 28, 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
unaudited statements of income and the related notes thereto included
elsewhere in this prospectus.
(4) The ratio of earnings to fixed charges computed on a pro forma basis would
have been 1.8x and 2.1x for the fiscal year ended June 30, 1996 and the
nine months ended March 28, 1997, respectively. Adjustments to pro forma
fixed charges include the additional interest expense related to the new
indebtedness incurred upon completion of the Acquisition. See "The
Transactions." Adjustments to pro forma pretax income from operations
include a reduction in depreciation expense related to the sale of the
corporate aircraft and reduction of insurance expense due to the
liquidation of officer life insurance policies.
(5) See "GFSI, Inc. Unaudited Pro Forma Statements of Income."
14
<PAGE>
RISK FACTORS
Holders of the Old Notes should carefully consider the following risk
factors, as well as 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.
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 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. See "The Exchange Offer--Purpose of the Exchange Offer."
LEVERAGE AND DEBT SERVICE
Upon consummation of the Transactions, the Company has substantial
indebtedness and debt service obligations. At March 28, 1997, the Company's
total indebtedness, including current portion, was approximately $193.0
million and its net capital deficiency was $121.6 million. In addition,
subject to the restrictions under the New Credit Agreement and the Indenture,
the Company may incur additional indebtedness, including Senior Indebtedness,
from time to time. See "The Transactions," "Capitalization" and "Description
of Notes--Limitation on Incurrence of Indebtedness."
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The level of the Company's indebtedness could have important consequences to
holders of the Notes, including: (i) a substantial portion of the Company's
cash flow from operations must be dedicated to debt service and will not be
available for other purposes; (ii) the Company's ability to obtain additional
debt financing in the future for working capital, capital expenditures,
acquisitions or general corporate purposes may be limited; and (iii) the
Company's level of indebtedness could limit its flexibility to react to
changes in its operating environment and economic conditions generally.
The Company's 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 under the New Credit Agreement or a successor
facility. Additionally, the Company may be required to refinance a portion of
the principal of the Notes prior to their maturity and, if the Company 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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Description of Securities."
SUBORDINATION
The Notes will be subordinated in right of payment to all existing and
future Senior Indebtedness of the Company, including all obligations under the
New Credit Agreement. Upon any acceleration of the maturity of the Notes or
upon any payment or distribution of assets of the Company to creditors upon
any liquidation, dissolution, winding-up, reorganization, assignment for the
benefit of creditors, marshaling of assets or any bankruptcy, insolvency or
similar proceedings of the Company, the holders of all Senior Indebtedness
will be first entitled to receive payment in full in cash or Marketable
Securities (as defined) of all Obligations (as defined) due or to become due
thereon before the Holders of Notes will be entitled to receive any payment
with respect to the Notes. In addition, upon the occurrence of a payment
default or certain other defaults in respect of outstanding Senior
Indebtedness, Holders of Notes may be prevented from receiving payments with
respect to the Notes for an extended period. The Indenture will limit, but not
prohibit, the incurrence by the Company and its Restricted Subsidiaries of
additional Senior Indebtedness. At March 28, 1997, the Company had
approximately $68.0 million in principal amount of Senior Indebtedness
outstanding and had additional availability under the New Credit Agreement of
approximately $47.0 million, subject to certain financial ratios and
compliance with certain other conditions.
CONTROL BY PRINCIPAL STOCKHOLDERS AND CERTAIN TRANSACTIONS
After the consummation of the Transactions, the Company's executive officers
and directors (and their respective affiliates, including TJC) (collectively,
the "Principal Stockholders") will own a majority of the issued and
outstanding capital stock of Holdings. See "Principal Stockholders." The
Principal Stockholders, if voting together, will have sufficient voting power
to elect the entire Board of Directors of each of Holdings and the Company,
exercise control over the business, policies and affairs of Holdings and the
Company, and, in general, determine the outcome of any corporate transaction
or other matters submitted to the 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. Jordan, Zalaznick and Caputo, all directors of Holdings and the
Company, are partners of TJC. In addition, the Company will maintain affiliate
transactions with certain members of senior management and, upon the
consummation of the Offering, the Company and Holdings will enter into certain
affiliate transactions with
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TJC, including the TJC Agreement. While certain of these affiliate
transactions could give rise to conflicts of interest, the Company does not
believe that such conflicts of interest would have a material adverse impact
on the Company. Pursuant to a policy adopted by the Company upon the closing
of the Transactions, future transactions involving such conflicts of interest
must be approved by a majority of the disinterested members of the Board of
Directors. See "Certain Transactions."
In addition, pursuant to the Stockholders Agreement (as defined), all of the
holders of Common Stock of the Company prior to the Exchange Offer (the
"Stockholders"), have agreed to vote all of their shares of Common Stock for
the election of directors designated by certain Stockholders. Further, the
Stockholders Agreement contains prohibitions and restrictions on the transfer
by the Stockholders including certain co-sale rights and rights of first
refusal for the Company and each Stockholder to purchase the shares of Common
Stock prior to transfer by any other Stockholder which could prevent or cause
a change of control of the Company. See "Principal Stockholders" and
"Management--Stockholders Agreement."
RESTRICTIVE COVENANTS
The Indenture contains certain material covenants which will restrict, among
other things, the Company's 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 New Credit Agreement will
contain other and more restrictive covenants and will prohibit the Company
from prepaying other indebtedness, including the Notes.
The indebtedness outstanding under the New Credit Agreement will be secured
by liens on substantially all of the personal property and certain real
property of the Company. The New 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 New Credit Agreement and certain permitted
liens; (iv) mergers, consolidations, and sales of all or a substantial part of
the Company's business or property; (v) the sale of assets; (vi) the making of
capital expenditures; and (vii) operating lease rentals. The New Credit
Agreement also requires the Company to comply with certain financial ratios,
including minimum interest coverage, minimum fixed charge coverage and maximum
leverage ratios. The ability of the Company to comply with these and other
provisions of the New Credit Agreement may be affected by events beyond the
Company's control. The breach of any of these covenants could result in a
default under the New 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 New Credit
Agreement, together with accrued interest, to be due and payable and the
Company could be prohibited from making payments of interest and principal on
the Notes until the default is cured or all Senior Indebtedness is paid or
satisfied in full. If the Company were unable to repay such borrowings, such
lenders could proceed against their collateral. If the indebtedness under the
New 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--New
Credit Agreement."
CHANGE OF CONTROL
In the event of a Change of Control, each holder of Notes will be entitled
to require the Company 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." The Company expects that prepayment of the Notes following a Change
of Control would constitute a default under the New Credit Agreement. In the
event that a Change of Control occurs, the Company would likely be required to
refinance the indebtedness outstanding under the New Credit Agreement and the
Notes. However, because of the change of control and subordination provisions
of the Notes, and the change of control provisions, covenants and default
provisions in the New Credit Agreement, the Company must repay any
indebtedness
17
<PAGE>
outstanding under the New Credit Agreement (or obtain an appropriate waiver)
prior to repurchasing any 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 the Company 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. In addition, because the obligations of the Company with respect to
the Notes are subordinated to Senior Indebtedness of the Company and all
obligations of the Company's future subsidiaries, existing or future Senior
Indebtedness of the Company or obligations of the Company's future
subsidiaries may prohibit the Company from repurchasing or redeeming any of
the Notes upon a Change of Control. Moreover, the ability of the Company to
repurchase or redeem the Notes following a Change of Control will be limited
by the Company's then-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 the
Company or the Trustee 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 the Company and, thus, the removal of
incumbent management.
The Company's Senior Indebtedness may contain prohibitions of certain events
which would constitute a Change of Control. In addition, the exercise by the
holders of the Notes of their right to require the Company to repurchase the
Notes could cause a default under such other indebtedness even if the Change
of Control itself does not. Finally, the Company's ability to pay cash to the
holders of the Notes upon a repurchase may be limited by the Company's then
existing financing resources.
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 February 27, 1997 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
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<PAGE>
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 the
Company, 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.
ENFORCEABILITY OF SUBSIDIARY GUARANTEES
The Company's obligations under the Notes will be fully and unconditionally
guaranteed, jointly and severally, on a senior subordinated basis (the "Note
Guarantees"), by all of the Company's future Restricted Subsidiaries (the
"Guarantors"). The Company believes that the Note Guarantees, when incurred,
will be incurred for proper purposes and in good faith. Notwithstanding the
Company's belief however, if a court of competent jurisdiction in a suit by an
unpaid creditor or representative of creditors (such as a trustee in
bankruptcy or debtor-in-possession) were to find that, at the time of the
incurrence of a Note Guarantee, a Guarantor (i) was insolvent or was rendered
insolvent by reason of such issuance, (ii) was engaged in a business or
transaction for which its remaining assets constituted unreasonably small
capital, (iii) intended to incur, or believe that it would incur, debts beyond
its ability to pay such debts as they matured, or (iv) intended to hinder,
delay or defraud its creditors, and that the indebtedness was incurred for
less than reasonably equivalent value, then such court could among other
things: (a) void all or a portion of such Guarantor's obligations to the
holders of the Notes, the effect of which would be that the holders of the
Notes may not be repaid in full or at all and/or (b) subordinate such
Guarantor's obligations to the holders of the Notes to other existing and
future indebtedness of such Guarantor, 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. Among other things, a legal challenge of a Note Guarantee on
fraudulent conveyance grounds may focus on the benefits, if any, realized by
the Guarantor as a result of the issuance by the Company of the Notes.
SATISFACTION AND DISCHARGE
The Indenture contains provisions which would allow the Company to terminate
all of its and any future Guarantors obligations under the Notes, any Note
Guarantees and the Indenture, including the covenants contained in the
Indenture, except for certain specified obligations. In order to exercise this
option with respect to the Notes outstanding, the Company must irrevocably
deposit in trust with the trustee money or U.S. Government obligations (as
defined in the indenture) for the payment of principal 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. See "Description of Notes--Satisfaction and Discharge of the
Indenture."
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 1996, the Company had 262 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 1996.
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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 market 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, Company 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 1996, 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--New Credit Agreement."
FOREIGN SOURCING
The Company currently sources approximately 85% of its blanks through its
foreign suppliers located in China, Taiwan, Korea, Malaysia, Hong Kong,
Singapore, Indonesia, Pakistan, Honduras, Israel, Fiji and Mexico. Honduras
supplies 16% of the blanks sourced by foreign suppliers, while concentrations
from other countries are insignificant. 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
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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
"Management," "Business--Employees" 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 1997 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 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.
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THE TRANSACTIONS
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
acquired all of the issued and outstanding capital stock of Winning Ways, 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 the Company's Existing
Indebtedness 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 the Company; (ii) the Company consummated the Offering; and (iii) the
Company entered into the New Credit Agreement providing for borrowings of up
to $115.0 million, of which $68.0 million was outstanding and $22.9 million
was utilized to cover outstanding letters of credit at Closing. The Equity
Contribution is 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. Consummation of the Offering was conditioned upon the
concurrent consummation of the Acquisition, the Equity Contribution and the
initial borrowings under the New Credit Agreement.
Consummation of the Acquisition was subject to the satisfaction or waiver of
the following conditions set forth in the Acquisition Agreement, including:
(i) obtaining financing for the Acquisition; (ii) the absence of any material
adverse change in the business of the Company; (iii) the receipt of certain
third party consents and approvals; and (iv) other customary conditions, of
which (i), (ii) and (iii) represented all of the material conditions. None of
these material conditions were waived.
The Company'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 $26.1 million, representing the
accumulated and undistributed S-Corporation earnings of the Company as of
February 27, 1997. The Company 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. The
Company does not anticipate any future material adverse tax liabilities
arising from this distribution and conversion.
The Equity Contribution, the consummation of the Offering, the execution of
the New Credit Agreement, the consummation of the Acquisition and the
repayment of the Company's Existing Indebtedness are collectively referred to
herein as the "Transactions."
The following chart depicts the organizational structure and common equity
interest in Holdings and the Company following consummation of the
Transactions.
[CHART DEPICTING THE ORGANIZATIONAL STRUCTURE
AND COMMON EQUITY INTEREST IN HOLDINGS]
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USE OF PROCEEDS
The Company will not receive any proceeds in connection with the Exchange
Offer. The gross proceeds from the Old Notes Offering of approximately $125.0
million, together with the Equity Contribution of approximately $51.4 million
and borrowings by the Company of approximately $68.0 million under the New
Credit Agreement, were used by the Company to: (i) fund the cash portion of
the purchase price payable in connection with the Acquisition; (ii) repay in
full certain Existing Indebtedness; and (iii) pay fees and expenses in
connection with the Transactions.
The following table sets forth the sources and uses of funds in connection
with the Transactions (in millions).
<TABLE>
<S> <C>
SOURCES OF FUNDS:
New Credit Agreement(1)......................................... $ 68.0
New Senior Subordinated Notes due 2007.......................... 125.0
Equity Contribution from GFSI Holdings, Inc.(2)................. 51.4
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(3)........................... 59.2
Fees and expenses(4)............................................ 11.5
------
Total uses.................................................... $253.8
======
</TABLE>
- ---------------------
(1) At Closing, the Company entered into the New Credit Agreement which
provides for a Term Loan A (as defined) in the principal amount of $40.0
million, a Term Loan B (as defined) in the principal amount of $25.0
million and a Revolver (as defined) in the principal amount of $50.0
million. At Closing, the Company borrowed approximately $68.0 million,
consisting of $65.0 million under the term loans and $3.0 million under
the Revolver. The undrawn amount of $47.0 million under the Revolver is
available for working capital and general corporate purposes, including
the issuance of approximately $22.9 million of letters of credit at
Closing, subject to the achievement of certain financial ratios and
compliance with certain conditions. See "Description of Certain
Indebtedness--New Credit Agreement."
(2) The Equity Contribution is 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 the Holdings
Subordinated Notes. Approximately $0.8 million of the contribution from
the Management Investors will be financed by loans from Holdings.
(3) See "Description of Certain Indebtedness--Existing Indebtedness."
(4) Includes estimated discounts, commissions and fees and expenses incurred
in connection with the Transactions, including fees payable to TJC. See
"Certain Transactions--The Jordan Company."
23
<PAGE>
CAPITALIZATION
(DOLLARS IN THOUSANDS)
The following table sets forth the capitalization of the Company as of March
28, 1997. The table should be read in conjunction with the financial
statements of the Company and related notes thereto included elsewhere in this
Prospectus. See "The Transactions," "Selected Historical Financial Data," the
unaudited pro forma financial statements of the Company and the historical
financial statements of the Company and the related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 28,
1997
---------
<S> <C> <C>
Cash and cash equivalents........................................ $ 5,569
=========
Short-term debt.................................................. $ 3,000
=========
Long-term debt (including current portion):
New Credit Agreement(1)........................................ 65,000
Senior Subordinated Notes due 2007............................. 125,000
---------
Total long-term debt......................................... 190,000
Stockholders' equity (deficit):
Common stock................................................... --
Additional paid in capital..................................... 49,939
Retained earnings (accumulated deficit)(2)..................... (171,547)
---------
Total net capital deficiency(2).............................. (121,608)
---------
Total capitalization......................................... $ 68,392
=========
</TABLE>
- ---------------------
For additional information, see "Description of Certain Indebtedness--Existing
Indebtedness."
(1) At Closing, the Company entered into the New Credit Agreement which
provides for a Term Loan A in the principal amount of $40.0 million, a
Term Loan B in the principal amount of $25.0 million and a Revolver in the
principal amount of $50.0 million. At Closing, the Company borrowed
approximately $68.0 million, consisting of $65.0 million under the term
loans and $3.0 million under the Revolver, and utilized $22.9 million of
the Revolver to cover outstanding letters of credit. Term Loan A matures
in 2002, Term Loan B matures in 2004 and the Revolver matures in 2002. For
additional information, see "Description of Certain Indebtedness--New
Credit Agreement."
(2) The net capital deficiency of $121.6 million is a result of the adjustment
to stockholders' equity for the difference between the book value of the
net assets of the Company at Closing and the $242.3 million purchase price
paid for the Company. For additional information, see "The Transactions"
and the unaudited pro forma financial statements and related notes thereto
included elsewhere in this Prospectus.
24
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents selected: (i) historical operating and other
data of the Company for fiscal 1992, 1993, 1994, 1995 and 1996, and the nine
months ended March 31, 1996 and March 28, 1997; and (ii) historical balance
sheet data of the Company for the fiscal years ended June 30, 1992, 1993,
1994, 1995 and 1996, and as of March 28, 1997. The historical financial
statements for the Company for fiscal 1992, 1993, 1994 and 1995 have been
audited by Donnelly Meiners Jordan Kline, and the historical financial
statements for fiscal 1996 have been audited by Deloitte & Touche LLP. The
historical data of the Company at and for the nine months ended March 31, 1996
and March 28, 1997 have been derived from, and should be read in conjunction
with, the unaudited financial statements of the Company and the related notes
thereto, which are included elsewhere in this Prospectus. In the opinion of
management, such interim financial statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary to fairly present
the information presented for such periods. The results of operations for the
nine months ended March 28, 1997 are not necessarily indicative of the results
of operations to be expected for the full year. The selected financial data
set forth below should be read in conjunction with "The Transactions,"
"Summary 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, Inc. merged with and into GFSI,
Inc., a new entity with no previous operations, with GFSI, Inc. as the
surviving entity. The statements of income data and other data presented below
includes historical information of Winning Ways, Inc. through the merger date
and the merged entity subsequent, thereto.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30, NINE MONTHS ENDED
------------------------------------------------ --------------------
MARCH 31, MARCH 28,
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DA-
TA:
Net sales.............. $118,187 $121,131 $128,171 $148,196 $169,321 $132,068 $144,182
Gross profit........... 47,079 50,936 53,724 63,327 72,013 57,347 64,060
Operating expenses..... 25,949 28,201 29,151 34,428 39,179 30,030 33,835
-------- -------- -------- -------- -------- -------- --------
Operating income....... 21,130 22,735 24,573 28,899 32,834 27,317 30,225
Other income (ex-
pense)................ (3,053) (2,680) (2,468) (2,679) (2,608) (2,047) (3,279)
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes and extraordi-
nary item............. 18,077 20,055 22,105 26,220 30,226 25,270 26,946
Pro forma income tax
expense(1)............ 7,412 8,223 9,063 10,750 12,393 10,361 12,034
Extraordinary item, net
of tax benefit(6)..... 1,484
-------- -------- -------- -------- -------- -------- --------
Pro forma net in-
come(1)............... $ 10,665 $ 11,832 $ 13,042 $ 15,470 $ 17,833 $ 14,909 $ 13,428
======== ======== ======== ======== ======== ======== ========
PRO FORMA DATA(7):
Operating Income....... $ 32,980 $ 30,155
Net income............. 8,368 9,618
BALANCE SHEET DATA (AS
OF PERIOD END):
Cash and cash equiva-
lents ................ $ 527 $ 219 $ 132 $ 112 $ 140 $ 5,569
Total assets........... 64,520 67,510 70,176 76,938 78,711 98,446
Long-term debt, includ-
ing current portion... 22,760 19,157 27,242 24,915 22,276 190,000
Total stockholders' eq-
uity (deficiency)..... 27,489 27,502 29,429 32,106 34,479 (121,608)
OTHER DATA:
Cash flows from operat-
ing activities........ $ 11,138 $ 20,985 $ 24,431 $ 23,905 $ 34,000 $ 28,424 $ 25,821
Cash flows from invest-
ing activities........ (2,149) (2,163) (2,597) (4,255) (2,480) (1,238) (1,566)
Cash flows from financ-
ing activities........ (8,995) (19,130) (21,921) (19,669) (31,493) (25,277) (18,826)
EBITDA(2).............. 22,960 24,733 26,876 31,759 36,035 29,696 32,769
Depreciation and amor-
tization.............. 1,830 1,998 2,303 2,860 3,201 2,379 2,544
Capital expenditures... 2,149 2,304 2,856 4,989 2,611 1,360 2,512
EBITDA margin(3)....... 19.4% 20.4% 21.0% 21.4% 21.3% 22.5% 22.7%
Ratio of earnings to
fixed charges(4)...... 7.6x 9.1x 10.0x 11.4x 12.6x 13.4x 9.1x
Distributions to
shareholders per
share(5).............. $ 10.10 $ 16.91 $ 16.70 $ 19.82 $ 23.37 $ 15.37 $ 167.23
</TABLE>
(footnotes on the following page)
25
<PAGE>
- ---------------------
(1) Prior to the Acquisition, the Company was an S-Corporation and therefore
was not subject to federal and certain state income taxes. The statements
of income data presented includes an unaudited adjustment for income taxes
which represents the approximate income tax expense that would have been
recorded if the Company had been a C-Corporation, assuming a combined
federal and state income tax rate of 41%. Subsequent to the Acquisition,
the Company's combined federal and state income tax rate was 40%.
(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 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.
(3) EBITDA margin represents EBITDA as a percentage of net sales.
(4) The ratio of earnings to fixed charges computed on a pro forma basis would
have been 1.8x and 2.1x for the fiscal year ended June 30, 1996 and the
nine months ended March 28, 1997, respectively. Adjustments to pro forma
fixed charges include the additional interest expense related to the new
indebtedness incurred upon completion of the Acquisition. See "The
Transactions." Adjustments to pro forma pretax income from operations
include a reduction in depreciation expense related to the sale of the
corporate aircraft and reduction of insurance expense due to the
liquidation of officer life insurance policies.
(5) On July 10, 1992, the Company declared a 5-for-1 stock split. All
distributions per share information has been restated to reflect this
stock split.
(6) The statement of income data presented for the nine months ended March 28,
1997 includes an extraordinary loss related to the early extinguishment of
debt in the amount of $2,474 ($1,484 on an after-tax basis). See the
unaudited statements of income and the related notes thereto included
elsewhere in this prospectus.
(7) See "GFSI, Inc. Unauditied Pro Forma Statements of Income."
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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. Factor's 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.
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. 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 salesforce
with a specialized knowledge of its particular markets and customers. The
Company's four divisions include: (i) the Resort division (40.0% of fiscal
1996 net sales); (ii) the Corporate division (27.9% of fiscal 1996 net sales);
(iii) the College Bookstore division (22.3% of fiscal 1996 net sales); and
(iv) the Sport Specialty division (3.7% of fiscal 1996 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. From fiscal 1991 to fiscal 1996, the Company's net
sales increased from $94.7 million to $169.3 million from internal growth,
representing a CAGR of 12.3% and an actual annual growth rate of 24.8%, 2.5%,
5.8%, 15.6% and 14.3% for the fiscal years of 1992, 1993, 1994, 1995, and
1996, respectively. During the same period, the Company's EBITDA (as defined)
grew from $17.9 million to $36.0 million, representing a CAGR of 15.0% and an
actual annual growth rate of 28.5%, 7.7%, 8.7%, 18.2% and 13.5% for the fiscal
years of 1992, 1993, 1994, 1995, and 1996, respectively. The Company's EBITDA
margin for the period increased from 18.9% to 21.3% with an actual annual
growth rate of 2.6%, 5.2%, 2.9%, 1.9% and (0.5%) for the fiscal years of 1992,
1993, 1994, 1995, and 1996, respectively. At the same time,the Company's net
income increased from $14.5 million to $30.2 million, representing a CAGR of
15.8% and an actual annual growth rate of 24.4%, 10.9%, 10.2%, 18.6% and 15.3%
for the fiscal years of 1992, 1993, 1994, 1995, and 1996, respectively. The
Company's cash flows from operating activities increased form $14.4 million to
$34.0 million for the same periods, representing a CAGR of 18.7% and an actual
annual growth rate of (22.6%), 88.4%, 16.4%, 2.2% and 42.2% for the fiscal
years of 1992, 1993, 1994, 1995, and 1996, respectively.
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.
27
<PAGE>
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 1996 NET SALES
----------------------
% OF
DIVISION CUSTOMERS SALES TOTAL
----------------- ---------------------------------- ----------- ----------
<C> <S> <C> <C>
Resort Destination resorts, family $ 67.7 40.0%
entertainment companies, hotel
chains, golf clubs, cruise lines,
and casinos
Corporate Large and small companies serving 47.2 27.9
a variety of industries
College Bookstore Major colleges and universities as 37.7 22.3
well as college bookstore lease
operators
Sports Specialty Sports specialty stores and 6.3 3.7
catalogues, stadium stores, and
professional sports teams and
their staffs
Other Various institutions, 10.3 6.1
organizations and individuals
----------- ----------
$ 169.3 100.0%
=========== ==========
</TABLE>
The following sets forth the amount and percentage of net sales for each of
the periods indicated (dollars in millions):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, NINE MONTHS ENDED
---------------------------------------- --------------------------
MARCH 31, MARCH 31,
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Resort.................. 50,228 39.2% 60,047 40.5% 67,739 40.0% 50,076 37.9% 50,836 35.3%
Corporate............... 30,241 23.6% 38,316 25.9% 47,167 27.9% 36,098 27.3% 42,318 29.4%
Bookstore............... 35,982 28.1% 37,823 25.5% 37,733 22.3% 34,240 25.9% 34,001 23.6%
Sports Specialty........ 1,458 1.1% 3,154 2.1% 6,342 3.7% 4,715 3.6% 7,899 5.5%
Other................... 10,262 8.0% 8,794 5.9% 10,192 6.0% 6,939 5.3% 9,128 6.3%
------- ------- ------- ------- -------
Total................... 128,171 148,134 169,173 132,068 144,182
======= ======= ======= ======= =======
</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 1994, 1995 and
1996 and the nine months ended March 31, 1996, and March 28, 1997:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, NINE MONTHS ENDED
---------------------------- -------------------
MARCH 31, MARCH 28,
1994 1995 1996 1996 1997
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales..................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit.................. 41.9 42.7 42.5 43.4 44.4
EBITDA........................ 21.0 21.4 21.3 22.5 22.7
Operating income.............. 19.2 19.5 19.4 20.7 21.0
</TABLE>
NINE MONTHS ENDED MARCH 28, 1997 COMPARED TO NINE MONTHS ENDED MARCH 31, 1996
Net Sales. Net sales for the nine months ended March 28, 1997 increased 9.2%
to $144.2 million from $132.1 million in the nine months ended March 31, 1996.
The increase in net sales primarily reflects increases in net sales at each of
the Company's Resort, Corporate and Sports Specialty divisions of 1.5%, 17.2%,
and 67.5%, respectively, and was partially offset by a slight decrease in the
net sales at the College Bookstore 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.
28
<PAGE>
Gross Profit. Gross profit for the nine months ended March 28, 1997
increased 11.9% to $64.1 million from $57.3 million in the nine months ended
March 31, 1996, primarily as a result of the net sales increase described
above. Gross profit as a percentage of net sales increased to 44.4% in the
nine months ended March 28, 1997, from 43.4% in the nine months ended March
31, 1996. The increase in margin reflects a decrease in the cost of materials
sold, as a percentage of net sales, from 49.7% in the nine months ended March
31, 1996 to 48.3% in the nine months ended March 28, 1997. These changes were
driven primarily by growth in the Resort and Corporate divisions, which focus
on higher margin, production intensive embroidered products.
Operating Expenses. Operating expenses for the nine months ended March 28,
1997 increased 12.7% to $33.8 million from $30.0 million in the nine months
ended March 31, 1996. Operating expenses as a percentage of net sales
increased to 23.5% for the nine months ended March 28, 1997, from 22.7% in the
nine months ended March 31, 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 $438,000 in the nine months ended March 31, 1996
to $1.8 million in the nine months ended March 28, 1997.
EBITDA. EBITDA for the nine months ended March 28, 1997 increased 10.4% to
$32.8 million from $29.7 million in the nine months ended March 31, 1996,
primarily as a result of the net sales increase described above. EBITDA as a
percentage of net sales increased slightly to 22.7% in the nine months ended
March 28, 1997 from 22.5% in the nine months ended March 31, 1996. This
increase in margin reflects the change in gross profit described above
partially offset by an increase in selling and general and administrative
expenses.
Operating Income. Operating income for the nine months ended March 28, 1997
increased 10.6% to $30.2 million from $27.3 million in the nine months ended
March 31, 1996, primarily as a result of the net sales increase described
above. Operating income as a percentage of net sales increased to 21.0% in the
nine months ended March 28, 1997, from 20.7% in the nine months ended March
31, 1996. This increase in operating income reflects the change in EBITDA
described above.
Other Income (Expense). Other expense for the nine months ended March 28,
1997 increased 65.0% to $3.3 million from $2.0 million in the nine months
ended March 31, 1996, primarily as a result of increased interest expense
associated with the Company's recapitalization and subsequent issuance of the
$125 million Senior Subordinated Notes and borrowings of $68.0 million under
the New Credit Agreement. 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. An income tax provision of $1,319,000 was recorded for the
nine months ended March 28, 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. 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
$993,621 and $325,379 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 the
nine months ended March 28, 1997 of $2.5 million ($1.5 million on an 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 the nine months ended March 28, 1997 was $24.1
million compared to $25.3 million in the nine months ended March 31, 1996. The
decrease in net income is primarily the result of interest expense, income
taxes, and the extraordinary item as all 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 Sport Specialty divisions
29
<PAGE>
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.
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.
FISCAL YEAR ENDED JUNE 30, 1995 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1994
Net Sales. Net sales for fiscal 1995 increased 15.6% to $148.2 million from
$128.2 million in fiscal 1994. The increase in net sales reflects sales
increases at the Company's College Bookstore, Resort, Corporate and Sport
Specialty divisions of 5.5%, 19.7%, 27.0% and 91.3%, respectively. These
increases were primarily driven by unit volume increases at each of the
Company's three existing sales divisions resulting from account expansion,
further penetration of existing accounts and certain new product
introductions. In addition, net sales increased as a result of the completion
of the first full fiscal year of the Sports Specialty division.
Gross Profit. Gross profit for fiscal 1995 increased 17.9% to $63.3 million
from $53.7 million in fiscal 1994 primarily as a result of the net sales
increase described above. Gross profit as a percentage of net sales increased
to 42.7% in fiscal 1995 from 41.9% in fiscal 1994. This increase in profit
reflects a decrease in the cost of materials sold, as a percentage of net
sales, to 49.9% in fiscal 1995 from 51.6% in fiscal 1994. This decrease
30
<PAGE>
was offset by an increase in the cost of production, as a percentage of net
sales, to 7.4% in fiscal 1995 from 6.5% in fiscal 1994. These changes were
driven primarily by growth in the Resort and Corporate divisions, which focus
on higher margin, production intensive embroidered products.
Operating Expenses. Operating expenses for fiscal 1995 increased 17.8% to
$34.4 million from $29.2 million in fiscal 1994. Operating expenses as a
percentage of net sales increased to 23.2% for fiscal 1995, from 22.7% for
fiscal 1994. The increase in operating expenses reflects an increase in
selling expenses due to the Company's continued focus on the Corporate
division, offset by a decrease in general and administrative expenses as a
percentage of net sales.
EBITDA. EBITDA for fiscal 1995 increased 18.2% to $31.8 million from $26.9
million in fiscal 1994 primarily as a result of the net sales increase
described above. EBITDA as a percentage of net sales increased to 21.4% in
fiscal 1995 from 21.0% in fiscal 1994. This increase in margin reflects the
changes in gross profit described above, offset by a slight increase in
operating expenses as a percent of net sales. The increase in operating
expenses reflects an increase in selling expenses due to the Company's
continued focus on the Corporate division, offset by a decrease in general and
administrative expenses as a percentage of net sales.
Operating Income. Operating income for fiscal 1995 increased 17.6% to $28.9
million from $24.6 million in fiscal 1994 primarily as a result of the net
sales increase described above. Operating income as a percentage of net sales
increased to 19.5% in fiscal 1995 from 19.2% in fiscal 1994. This increase in
margin reflects the change in EBITDA described above.
Other Income (Expense). Other expense for fiscal 1995 increased 8.0% to $2.7
million from $2.5 million in fiscal 1994. The increase in expense reflects
increases in both interest expense and losses on disposals of fixed assets
from fiscal 1995 to fiscal 1996. 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 1995 increased 18.6% to $26.2 million from
$22.1 million in fiscal 1994, primarily as a result of the increase in
operating results described above.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities for the nine months ended March 28,
1997 was $25.8 million compared to cash provided of $28.4 million for the nine
months ended March 31, 1996. The decrease in net cash provided by operating
activities was principally the result of a decrease in net income, as
previously discussed, in addition to higher accounts receivable balances
resulting from increased sales. Cash provided by operating activities in
fiscal 1996, 1995 and 1994 was $34.0 million, $23.9 million and $24.4 million,
respectively. Changes in working capital resulted in cash sources (uses) of
$0.9 million, $(4.8) million and $0.7 million in fiscal 1996, 1995 and 1994,
respectively. The increase in cash provided by operating activities to 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 receivable. The increase in cash
provided by operating activities to fiscal 1995 from fiscal 1994 resulted from
increased net income.
Cash used in investing activities for the nine months ended March 28, 1997
was $1.6 million compared to cash used of $1.2 million for the nine months
ended March 31, 1996. The increase in cash used was a result of an increase in
capital expenditures to $2.5 million in the nine months ended March 28, 1997,
compared to $1.4 million for the nine months ended March 31, 1996, partially
offset by proceeds from the sale of the corporate aircraft to a shareholder of
the Company for its fair value of approximately $900,000. The increase in
capital
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<PAGE>
expenditures relates to the purchase of software related to the Company's new
MIS system in the amount of $1.0 million during the nine months ended March
28, 1997 of which no purchases were made in the prior year comparative period.
The Company typically makes capital expenditures related to the maintenance
and improvement of manufacturing facilities and processing equipment. Capital
expenditures in fiscal 1996, 1995 and 1994 were $2.6 million, $5.0 million and
$2.9 million, respectively. Capital expenditures in fiscal 1995 include the
$1.6 million purchase of a corporate aircraft from a non-affiliate of the
Company and were therefore in excess of the Company's normal capital
expenditure requirements.
Cash used in financing activities for the nine months ended March 28, 1997
was $18.8 million compared to cash used of $25.3 million for the nine months
ended March 31, 1996. The cash used in financing activities at March 28, 1997
resulted from the cash used to complete the recapitalization transactions as
previously described net of new borrowings under the New Credit Agreement. See
the "Transactions". Cash used in financing activities in the prior year period
was primarily used to make Subchapter S distributions to the Company's
stockholders and scheduled loan principal payments. Net cash used in financing
activities in fiscal 1996, 1995 and 1994 was $31.5 million, $19.7 million and
$21.9 million, respectively. The cash was used primarily to make Subchapter S
distributions to the Company's stockholders in each of fiscal 1996, 1995 and
1994.
The Company believes that cash flow from operating activities and borrowings
under the New 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 New Credit Agreement, the Revolver provides $50 million of revolving
credit availability (of which $3 million was borrowed as of March 28, 1997 and
approximately $36.7 million was utilized for outstanding commercial and stand-
by letters of credit).
Pursuant to the terms of the acquisition agreement, the purchase price paid
for the Company was subject to a closing date balance sheet adjustment. As a
result of this closing date balance sheet adjustment, the Company paid its
former owners approximately $10.0 million on April 30, 1997, which was paid to
members of current management. The members of current management, including
beneficial owners, who received this payment are Robert Wolff, John Menghini,
Robert Shaw, Larry Graveel, Mike Gary, Barry Golden, Tony Gagliano, Kirk
Kowalewski, Mark Schimpf, Terry Glenn, David Churchman, David Geenens, Steve
Arnold, Lee Ann Stevens, Bill DiRocco, Mary Cimpl, and Jason Krakow. The
closing date balance sheet adjustment was partially funded with proceeds
received by the Company from the surrender value of officer's life insurance
of $5.3 million with the difference funded by a $3.0 million borrowing under
the Revolver and the balance from existing cash in the business.
Following the Closing, the Company anticipates paying dividends to Holdings
to enable Holdings to pay corporate income taxes, interest on Holdings
Subordinated Notes, fees payable under the TJC Agreement and certain other
ordinary course expenses incurred on behalf of the Company. Holdings is
dependent upon the cash flows of the Company to provide funds to service the
indebtedness represented by $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). Additionally, Holdings'
cumulative non-cash preferred stock dividends will total $3.2 million
annually. Holdings Preferred Stock may be redeemed at stated value ($27.0
million) plus accrued dividends with mandatory redemption in 2009.
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.
32
<PAGE>
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 1996, 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.
33
<PAGE>
BUSINESS
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. 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 the nine months ended March 28, 1977, the Company generated net
sales and Adjusted EBITDA of $144.2 million and $32.8 million, respectively.
From fiscal 1991 to fiscal 1996, the Company's net sales increased from
$94.7 million to $169.3 million from internal growth, representing a CAGR of
12.3% and an actual annual growth rate of 24.8%, 2.5%, 5.8%, 15.6% and 14.3%
for the fiscal years of 1992, 1993, 1994, 1995, and 1996, respectively. During
the same period, the Company's EBITDA (as defined) grew from $17.9 million to
$36.0 million, representing a CAGR of 15.0% and an actual annual growth rate
of 28.5%, 7.7%, 8.7%, 18.2% and 13.5% for the fiscal years of 1992, 1993,
1994, 1995, and 1996, respectively. The Company's EBITDA margin for the period
increased from 18.9% to 21.3% with an actual annual growth rate of 2.6%, 5.2%,
2.9%, 1.9% and (0.5%) for the fiscal years of 1992, 1993, 1994, 1995, and
1996, respectively. At the same time, the Company's net income increased from
$14.5 million to $30.2 million, representing a CAGR of 15.8% and an actual
annual growth rate of 24.4%, 10.9%, 10.2%, 18.6% and 15.3% for the fiscal
years of 1992, 1993, 1994, 1995, and 1996, respectively. The Company's cash
flows from operating activities increased from $14.4 million to $34.0 million
for the same periods, representing a CAGR of 18.7% and an actual annual growth
rate of (22.6%), 88.4%, 16.4%, 2.2% and 42.2% for the fiscal years of 1992,
1993, 1994, 1995, and 1996, 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 salesforce
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.
FINANCIAL CHARACTERISTICS
The Company's business has the following financial characteristics:
[] Diverse and Stable Customer Base. The Company sells to its niche markets
through a diverse base of over 13,000 active customer accounts. In
fiscal 1996, no single account represented more than 2.5% of net sales,
and the Company's top ten customers which include various large
corporations, major universities and destination resorts, accounted for
less than 13% of net sales. Accordingly, the Company believes that the
loss of any single customer would not have a material adverse effect on
the Company and that none of its customers is, individually, material to
the Company's operations. The
34
<PAGE>
number of active customer accounts increased from approximately 5,600 in
fiscal 1991 to over 13,000 in fiscal 1996. New potential end-users of
the Company's products are added each year as new customers visit
resorts and participate in other leisure activities, corporations
continue to expand their identity and promotional programs and new
students enroll at colleges and universities.
[] Strong Sales and EBITDA Growth. From fiscal 1991 to fiscal 1996, the
Company's net sales increased from $94.7 million to $169.3 million from
internal growth, representing a CAGR of 12.3% and an actual growth rate
of 24.8%, 2.5%, 5.8%, 15.6% and 14.3% for the fiscal years of 1992,
1993, 1994, 1995, and 1996, respectively. During the same period, the
Company's EBITDA (as defined) grew from $17.9 million to $36.0 million,
representing a CAGR of 15.0% and an actual annual growth rate of 28.5%,
7.7%, 8.7%, 18.2% and 13.5% for the fiscal years of 1992, 1993, 1994,
1995, and 1996, respectively. The Company's EBITDA margin for the period
increased from 18.9% to 21.3% with an actual annual growth rate of 2.6%,
5.2%, 2.9%, 1.9% and (0.5%) for the fiscal years of 1992, 1993, 1994,
1995, and 1996, respectively. The Company believes that this growth can
be attributed to: (i) its focus on niche markets where competition is
generally based on product and service quality rather than price; (ii)
operating leverage resulting from the introduction of new products in
established distribution channels; and (iii) its focus on manufacturing
efficiencies.
[] Low Capital Expenditures. The Company concentrates on the high value-
added production processes of custom design, embroidery, silk-screening
and other finishing elements at its state-of-the-art manufacturing
facilities. The capital intensive process of manufacturing unfinished
garments ("blanks") and other items is outsourced to a network of
foreign and domestic independent manufacturers who comply with the
Company's stringent specifications. As a result, the Company maintains
low fixed costs and requires limited annual capital expenditures. From
fiscal 1992 to fiscal 1996, total annual capital expenditures averaged
approximately $3 million, or an average of 2.2% of net sales and 10.5%
of EBITDA for such years.
[] Historically Non-Cyclical Business. The Company has not experienced a
reduction of its business as a result of past general economic
downturns. The Company believes that its record of consistent growth is
a result of the relatively non-cyclical nature of its primary market
segments as well as its competitive position as a supplier of high
quality, customized products that are less susceptible to consumer price
sensitivity. The Company believes that the diversity of its products,
distribution channels and markets also minimizes its exposure to
particular customers, economic cycles and geographic concentration.
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.
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<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 contributed an aggregate of $13.6 million in exchange for 50% of
the capital stock of the Company's parent, 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 that the Company
intends to implement.
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 1996 NET SALES
----------------------
% OF
DIVISION CUSTOMERS SALES TOTAL
----------------- ---------------------------------- ----------- ----------
<C> <S> <C> <C>
Resort Destination resorts, family $ 67.7 40.0%
entertainment companies, hotel
chains, golf clubs, cruise lines,
and casinos
Corporate Large and small companies serving 47.2 27.9
a variety of industries
College Bookstore Major colleges and universities as 37.7 22.3
well as college bookstore lease
operators
Sports Specialty Sports specialty stores and 6.3 3.7
catalogues, stadium stores, and
professional sports teams and
their staffs
Other Various institutions, 10.3 6.1
organizations and individuals
----------- ----------
$ 169.3 100.0%
=========== ==========
</TABLE>
The following sets forth the amount and percentage of net sales for each of
the periods indicated (dollars in millions):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, NINE MONTHS ENDED
---------------------------------------- --------------------------
MARCH 31, MARCH 31,
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Resort.................. 50,228 39.2% 60,047 40.5% 67,739 40.0% 50,076 37.9% 50,836 35.3%
Corporate............... 30,241 23.6% 38,316 25.9% 47,167 27.9% 36,098 27.3% 42,318 29.4%
Bookstore............... 35,982 28.1% 37,823 25.5% 37,733 22.3% 34,240 25.9% 34,001 23.6%
Sports Specialty........ 1,458 1.1% 3,154 2.1% 6,342 3.7% 4,715 3.6% 7,899 5.5%
Other................... 10,262 8.0% 8,794 5.9% 10,192 6.0% 6,939 5.3% 9,128 6.3%
------- ------- ------- ------- -------
Total................... 128,171 148,134 169,173 132,068 144,182
======= ======= ======= ======= =======
</TABLE>
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<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 1996 net sales of $67.7 million, accounted
for 40.0% of total net sales. The Resort division's net sales have grown from
$50.2 million in fiscal 1994 to $67.7 million in fiscal 1996, representing a
CAGR of 16.1%. The division's net sales have remained relatively constant as a
percentage of total net sales, increasing slightly from 38.9% in fiscal 1994
to 40.0% in fiscal 1996. In fiscal 1996, the top ten accounts of the Resort
division combined for approximately 22% of the division's net sales.
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 1996 net sales of $47.2 million,
accounted for 27.9% of total net sales. The Corporate division's net sales
have grown from $30.2 million in fiscal 1994 to $47.2 million in fiscal 1996,
representing a CAGR of 25.0%. The division's net sales as a percentage of
total net sales have increased from 23.4% in fiscal 1994 to 27.9% in fiscal
1996, 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
37
<PAGE>
on an exclusive basis. In fiscal 1996, approximately 85% of the division's
sales were directly to corporations and the remaining 15% were to jobbers, who
then resold the Company's products to corporations. Jobbers are people who buy
goods in quantity from manufacturers and sell them directly to dealers.
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 1996, Tandem Marketing accounted
for approximately $3.0 million, or 6.4%, of the Corporate division's net
sales, of which approximately 65% 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 1996 net sales of $37.7 million,
accounted for 22.3% of total net sales. The College Bookstore division's net
sales have grown from $35.9 million in fiscal 1994 to $37.7 million in fiscal
1996, representing a CAGR of 2.5%. 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 22.3% in fiscal 1996.
The Company believes that the top five competitors in the College Bookstore
division are Champion Sports, Jansport VF Corp., Cotton Exchange, Russell
Athletic and MV Sports and that they constitute approximately 20.0%, 9.5%
8.6%, 7.6% and 7.1%, respectively, of the market share in the College
Bookstore division in fiscal 1996.
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, and, if so, at such rates.
Sports Specialty Division. The Sports Specialty division, with fiscal 1996
net sales of $6.3 million, accounted for 3.7% 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
38
<PAGE>
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. 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.
39
<PAGE>
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.
HISTORICAL AND PROJECTED COLLEGE AND UNIVERSITY ENROLLMENT
[LOGO OF HISTORICAL AND PROJECTED COLLEGE AND UNIVERSITY ENROLLMENT]
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.
(STUDENTS IN MILLIONS)
40
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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 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 34%
of net sales for fiscal 1996. 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 27% of
net sales for fiscal 1996. 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 22% of net sales for
fiscal 1996. 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 15% of net sales for fiscal 1996. 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 2% of net sales for fiscal 1996.
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
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<PAGE>
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 of the Company's blanks are contract
manufactured in various off-shore plants. The Company's imported items are
currently manufactured in China, Taiwan, Korea, Malaysia, Hong Kong,
Singapore, Indonesia, Pakistan, Honduras, Israel, Fiji and Mexico. No foreign
country has a manufacturing concentration above 20%. Approximately 16% of its
blanks are 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>
Resort Highly fragmented--primarily local and regional
competitors
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 640 people at its two facilities in Lenexa, Kansas,
of which approximately 30 are members of management, 280 are involved in
either product design, customer service, sales support or administration and
330 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.
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<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 Softwear Athletics,
Inc. ("Softwear") to produce and distribute GEAR For Sports(R) 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
expects to renew the license, which is scheduled to expire in fiscal 1998, 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
1996, net sales under the Company's 262 active licensing agreements totalled
$23.8 million, or approximately 14% of the Company's net sales. In fiscal
1996, $20.4 million of College Bookstore division net sales, representing
approximately 54% of the division's net sales and 12% of total net sales, were
recorded under this division's 214 licensing agreements. In addition, in
fiscal 1996, $1.6 million of Sports Specialty division net sales, representing
approximately 25% of the division's net sales and 1% 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.
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<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 the date of this
Prospectus:
<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 Director
John W. Jordan II....... 49 Director
David W. Zalaznick...... 43 Director
</TABLE>
Set forth below is a brief description of the business experience of each
director and executive officer of the Company including each person's
principal occupations and employment during the past five years, the name and
principal business of any corporation or other organization in which such
occupations and employment were carried on and whether such corporation or
organization is a parent, subsidiary or other affiliate of the registrant.
Also set forth below are any other directorships held by each director in any
company with a class of securities registered pursuant to Section 12 of the
Exchange Act or subject to the requirements of Section 15(d) of the Exchange
Act.
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 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.
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<PAGE>
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 Holdings and, indirectly, GFSI.
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 arms-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 Holdings.
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 Holdings
or GFSI, 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 Holdings or GFSI. The provisions described
under "Stockholders Agreement" represent all of the material provisions of
such agreement.
BOARD OF DIRECTORS
Liability Limitation. The Certificate of Incorporation provides that a
director of the Company shall not be personally liable to it or its
stockholders for monetary damages to the fullest extent permitted by the
Delaware General Corporation Law. In accordance with the Delaware General
Corporation Law, the Certificate of Incorporation does not eliminate or limit
the liability of a director for acts or omissions that involve intentional
misconduct by a director or a knowing violation of law by a director for
voting or assenting to an unlawful distribution, or for any transaction from
which the director will personally receive a benefit in money, property, or
services to which the director is not legally entitled. The Delaware General
Corporation Law does not affect the availability of equitable remedies such as
an injunction or rescission based upon a director's breach of his duty of
care. Any amendment to these provisions of the Delaware General Corporation
Law will automatically be incorporated by reference into the Certificate of
Incorporation and the Bylaws, without any vote on the part of its
stockholders, unless otherwise required.
Indemnification Agreements. Simultaneously with the consummation of the
Offering, the Company and each of its directors entered into indemnification
agreements. The indemnification agreements provide that the Company 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
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<PAGE>
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.
Director Compensation. After the consummation of the Offering, each director
of the Company will receive $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. The executive officers include Robert M. Wolff, Chairman, John L.
Menghini, President and Chief Operating Officer, Robert G. Shaw, Senior Vice
President, Finance and Human Resources, Larry D. Graveel, Senior Vice
President, Merchandising and Michael H. Gary, Senior Vice President, Sales
Administration.
<TABLE>
<CAPTION>
FISCAL OTHER ANNUAL
POSITION YEAR SALARY BONUS COMPENSATION(1)
- -------- ------ -------- -------- ---------------
<S> <C> <C> <C> <C>
Robert M. Wolff........................ 1996 $240,000 $ 0 $40,019
Chairman 1995 240,000 288,000 41,518
1994 240,000 600,000 49,337
John L. Menghini....................... 1996 225,000 300,000 31,136
President and Chief 1995 225,000 300,000 32,502
Operating Officer 1994 200,000 300,000 41,244
Robert G. Shaw......................... 1996 150,000 120,000 31,353
Senior Vice President and 1995 125,000 100,000 32,558
Chief Financial Officer 1994 108,000 100,000 37,723
Larry D. Graveel....................... 1996 170,000 120,000 27,416
Senior Vice President 1995 145,000 120,000 28,915
1994 120,000 120,000 37,734
Michael H. Gary........................ 1996 150,000 120,000 28,579
Senior Vice President 1995 125,000 100,000 30,078
1994 100,000 100,000 34,526
</TABLE>
- ----------
(1) Other annual compensation consists of car allowances, profit sharing,
group medical benefits and individual beneficiary life insurance premiums
paid by the Company.
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.
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<PAGE>
Wolff Noncompetition Agreement. Effective upon the consummation of the
Transactions, Holdings 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 or
Holdings for a ten-year period ending on the tenth anniversary of the
Acquisition, (ii) disclose at any time other than to the Company or Holdings
any Confidential Information (as defined in the Wolff Noncompetition
Agreement) and (iii) engage in any business with the Company or Holdings
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 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), Holdings 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.
COMPENSATION PHILOSOPHY
The Board of Directors is responsible for making decisions concerning the
salaries and the annual bonus plan that governs the compensation paid to all
executive officers of the Company. The Board of Directors has devoted
considerable attention to developing the Company's compensation philosophy
which embodies four primary objectives:
1. to provide incentives based on value delivered to the Company's
stockholders and customers;
2. to clearly connect individual executive pay action with performances;
3. to maintain a system of rewards that is competitive with industry
standards and
4. to attract, motivate and retain executives of the highest quality.
The Company's compensation programs reflect the commitment to the mission,
values and performance of the Company. Continuous review and refinement of the
Company's compensation practices in response to the changing business
environment will serve to reinforce this commitment.
The most important performance yardstick in the Company's compensation
program is the Company's ability to deliver long-term value to stockholders
through appreciation in share price, cash flow and earnings. On an ongoing
basis, the compensation program is tested and refined to ensure a high
correlation between the level of compensation and these measures. Achieving
desirable stockholder returns over a sustained period of time requires
management's attention to a number of financial, operational and strategic
elements which enables the Company to focus on the on-going requirements of
the customer. The Company's compensation program, therefore, focuses
executives on actions that directly impact stockholder return in the long-term
and serve the needs of the Company's customers.
Multiple sources of information are used to evaluate and establish
appropriate compensation practices, including data from benchmark companies
within the industry to assess the Company's relative performance and
compensation levels. Benchmark companies are selected by meeting multiple
criteria including product lines, markets served revenue size, revenue source
and comparable operations. Consistent with the Company's compensation
philosophy, the Board of Directors will position its executive compensation
targets competitive with the benchmark companies. Annual executive
compensation will be below, at or above the competitive target depending on
individual and Company performance.
The Company's executive compensation program has two components--base salary
and annual incentives, each of which are primary designed to reward current
performance.
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<PAGE>
DESCRIPTION OF COMPENSATION PROGRAMS
The following briefly describes the role of each element of compensation:
Base Salary
Base Salary are at levels sufficient to attract and retain qualified
executives. To accomplish these goals, the base salaries are generally
targeted within a competitive range of average base salaries for similar
positions in benchmark companies within the industry. Aggregate base salary
increases are intended to parallel increases in the pay levels of industry as
a whole. Individual executive salary increases will strongly reflect the
individual's level of performance and, to a lesser extent, trends with the
industry.
Annual Incentive
The Company's executive annual incentive plan serves to recognize and reward
executives for taking actions that build the value of the Company, by
generating competitive total returns to stockholders, and providing value-
added services to the Company's customers. The annual incentive awards are
awarded in December of each year and are based on the Company's achievement of
certain operating objectives including, among others, sales, net income and
return on equity. The annual incentive for the Chairman of the Company is
based on the above factors and the discretion of the Board of Directors.
COMPENSATION ADMINISTRATION
The Company follows an annual cycle to administer each of the components of
executive compensation. The integrity of the Company's compensation program
relies on a rigorous annual performance evaluation process.
Certain executive officers also serve as Management Directors. The Company
does not believe that this gives rise to conflicts of interest as the Chairman
is responsible for suggesting compensation decisions for the Company's
executive officers, other than himself. At the same time, a majority of the
Board of Directors, which includes three directors who are not executive
officers and whose compensation is not influenced by the Chairman or the other
executive officers, is responsible for making compensation decisions for the
Chairman.
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 EBITA (as defined in the Incentive
Plan), if certain EBITA targets are met.
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<PAGE>
PRINCIPAL STOCKHOLDERS
All of the outstanding common stock of the Company is owned by Parent. The
table below sets forth as of February 27, 1997 certain information regarding
beneficial ownership of the common stock of Parent held by (i) each of its
directors and executive officers who own shares of common stock of Parent,
(ii) all directors and executive officers of Parent as a group and (iii) each
person known by Parent 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 Parent 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).................................... 60.0 3.0%
John L. Menghini(2)(4)................................... 257.0 12.9
Robert G. Shaw(2)(5)..................................... 235.0 11.8
Larry D. Graveel(2)(6)................................... 110.0 5.5
Michael H. Gary(2)(7).................................... 110.0 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)................................ 50.0 2.5
All directors and executive officers as a group (8
persons)................................................ 978.625 48.9%
OTHER PRINCIPAL STOCKHOLDERS:
MCIT PLC(10)............................................. 500.0 25.0%
Leucadia Investors, Inc.(11)............................. 125.0 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 Parent 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, NY 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, NY 10019.
(11) The principal address of Leucadia Investors, Inc. is 315 Park Avenue
South, New York, NY 10010.
49
<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 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 certain
50
<PAGE>
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) within 90 days after the date of the original issue of the Old
Notes, file the Registration Statement with the Commission and (ii) within 150
days after the date of original issuance of the Old Notes, 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 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 Senior 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
51
<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 the earlier
of (i) 5:00 p.m., New York City time, on , 1997 or (ii) the date when all
Old Notes have been tendered; 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, $125,000,000 aggregate principal amount
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
52
<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 Fleet National Bank (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 Instructions" 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
53
<PAGE>
representatives 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.
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 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 a principal amount equal to that of the surrendered
Old Note. 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 interest accruing from the most recent date to
which interest has been paid on the Old Notes, or, if no interest has been
paid on the Old Notes, from February 27, 1997. Old Notes accepted for exchange
will cease to accrue 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 payment in respect of accrued 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.
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
54
<PAGE>
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 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 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.
55
<PAGE>
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 the Company 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 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.
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<PAGE>
EXCHANGE AGENT
Fleet National Bank 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: Fleet National Bank, Exchange Agent:
BY MAIL: By Overnight Courier: By Hand:
Fleet National Bank Fleet National Bank Fleet National Bank
Mail Code: CTOPT06D Mail Code: CTOPT06D Corporate Trust
Corporate Trust Corporate Trust Operations Operations
Operations Department Department
Department 1 Talcott Plaza, 6th Floor Customer Service
P.O. Box 1440 Hartford, Connecticut 06120 Window
Hartford, 1 Talcott Plaza,
Connecticut 06143 5th Floor
By Facsimile:
Hartford,
Connecticut 06120
(860) 986-7908
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 $60,000.
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.
APPRAISAL RIGHTS
HOLDERS OF OLD NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL RIGHTS IN
CONNECTION WITH THE EXCHANGE OFFER.
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<PAGE>
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 required 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 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 jurisdictions 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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<PAGE>
DESCRIPTION OF NOTES
GENERAL
The Notes will be issued pursuant to the Indenture between the Company and
Fleet National Bank, as trustee (the "Trustee"), in a private transaction that
is not subject to the registration requirements of the Securities Act. See
"Notice to Investors." 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."
The Company's obligations under the Indenture and the Notes will be fully
and unconditionally guaranteed jointly and severally, on a senior subordinated
basis (the "Note Guarantees") by any future Restricted Subsidiaries (the
"Guarantors"). See "--Note Guarantees." As of the date of the Indenture, the
Company will not have any Subsidiaries. Under certain circumstances, the
Company will be able to designate any Subsidiaries formed by the Company or
acquired by the Company after the original issuance of the Notes as Non-
Restricted Subsidiaries. Non-Restricted Subsidiaries will not be Guarantors
and will not be subject to many of the restrictive covenants set forth in the
Indenture.
The Notes will be limited to $125,000,000 in aggregate principal amount and
will mature on March 1, 2007. The Notes will bear interest at the rate set
forth on the front cover of this Offering Memorandum. Interest on the Notes is
payable semi-annually in cash in arrears on March 1 and September 1 in each
year, commencing September 1, 1997, to holders of record of Notes at the close
of business on February 15 or August 15 immediately preceding such interest
payment date. 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 the date
of original issuance. Interest will be computed on the basis of a 360-day year
of twelve 30-day months. The Notes will be issued in denominations of $1,000
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 the Company 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 the Company, 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. The Company may
change the Paying Agent or Registrar without prior notice to holders of Notes,
and the Company or any of its Subsidiaries may act as Paying Agent or
Registrar.
SUBORDINATION
The payment of principal of and premium, interest and Liquidated Damages, if
any, on the Notes will be subordinated in right of payment, as set forth in
the Indenture, to the prior payment in full in cash or Marketable Securities
of all Senior Indebtedness, whether outstanding on the date of the Indenture
or thereafter incurred. The Indenture will permit the incurrence of additional
Senior Indebtedness in the future.
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<PAGE>
Upon any acceleration of the maturity of the Notes or upon any payment or
distribution of assets of the Company to creditors upon any liquidation,
dissolution, winding up, reorganization, assignement for the benefit of
creditors, marshalling of assets or any bankruptcy, insolvency or similar
proceeding of the Company, the holders of all Senior Indebtedness will be
first entitled to receive payment in full in cash or Marketable Securities (as
defined) of all Obligations (as defined) due in respect of such Senior
Indebtedness (including interest after the commencement of any such proceeding
at the rate specified in the applicable Senior Indebtedness) before the
Holders of Notes will be entitled to receive any payment with respect to the
Notes, and until all Obligations with respect to Senior Indebtedness are paid
in full in cash or Marketable Securities, any distribution to which the
Holders of Notes would be entitled shall be made to the holders of Senior
Indebtedness (except that Holders of Notes may receive Permitted Junior
Securities and payments made from the trust described under "--Legal
Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the Notes
(except in Permitted Junior Securities or from the trust described under "--
Legal Defeasance and Covenant Defeasance") if (i) a default in the payment of
the principal of or premium, if any, or interest on Designated Senior
Indebtedness occurs and is continuing beyond any applicable period of grace or
(ii) any other default occurs and is continuing with respect to Designated
Senior Indebtedness that permits holders of the Designated Senior Indebtedness
as to which such default relates to accelerate its maturity and the Trustee
receives a written notice (with a copy to the Company) of such other default
(a "Payment Blockage Notice") from the Company or the holders of any
Designated Senior Indebtedness. Payments on the Notes may and shall be resumed
(a) in the case of a payment default, upon the date on which such default is
cured or waived and (b) in case of a nonpayment default, the earlier of the
date on which such nonpayment default is cured or waived or 179 days after the
date on which the applicable Payment Blockage Notice is received by the
Trustee, unless the maturity of any Designated Senior Indebtedness has been
accelerated. No new period of payment blockage may be commenced unless and
until 360 days have elapsed since the date of receipt by the Trustee of the
immediately prior Payment Blockage Notice. No nonpayment default that existed
or was continuing on the date of delivery of any Payment Blockage Notice to
the Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice (it being understood that any subsequent action, or any breach of any
covenant for a period commencing after the date of receipt by the Trustee of
such Payment Blockage Notice, that, in either case, would give rise to such a
default pursuant to any provisions under which a default previously existed or
was continuing shall constitute a new default for this purpose).
The Indenture will further require that the Company promptly notify holders
of Senior Indebtedness if payment of the Notes is accelerated because of an
Event of Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of the Company who are holders of Senior Indebtedness. As of March
28, 1997, the aggregate principal amount of Senior Indebtedness of the Company
to which the Notes would have been subordinated would have been approximately
$68.0 million. The Indenture will limit, subject to certain financial tests,
the amount of additional Indebtedness, including Senior Indebtedness, that the
Company and its subsidiaries can incur. See "--Certain Covenants--Limitation
on Incurrence of Indebtedness."
NOTE GUARANTEES
The Company's payment obligations under the Notes will be fully and
unconditionally guaranteed jointly and severally, on a senior subordinated
basis, (the "Note Guarantees"), by the Company's future Restricted
Subsidiaries (the "Guarantors"). The Note Guarantees will be subordinated to
the prior payment in full in cash or Marketable Securities of all Senior
Indebtedness of each Guarantor (including such Guarantor's guarantee of the
New Credit Agreement) to the same extent that the Notes are subordinated to
Senior Indebtedness of the Company. The obligations of any Guarantor under its
Note Guarantee will be limited so as not to constitute a fraudulent conveyance
under applicable law.
The Indenture will provide that no Guarantor may consolidate with or merge
with or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any
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such consolidation or merger (if other than such Guarantor) assumes all the
obligations of such Guarantor pursuant to a supplemental indenture in form and
substance reasonably satisfactory to the Trustee, under the Notes and the
Indenture; (ii) immediately after giving effect to such transaction, no
Default or Event of Default exists; (iii) such Guarantor, or any Person formed
by or surviving any such consolidation or merger, would have Consolidated Net
Worth (immediately after giving effect to such transaction), equal to or
greater than the Consolidated Net Worth of such Guarantor immediately
preceding the transaction; and (iv) the Company would be permitted by virtue
of the Company's pro forma Cash Flow Coverage Ratio, immediately after giving
effect to such transaction, to incur at least $1.00 of additional Indebtedness
pursuant to the Cash Flow Coverage test set forth in the covenant described
below under the caption "Limitation on Incurrence of Indebtedness." The
requirements of clauses (iii) and (iv) of this paragraph will not apply in the
case of a consolidation with or merger with or into the Company or another
Guarantor.
The Indenture will provide that (a) in the event of a sale or other
disposition of all of the assets of any Guarantor, by way of merger,
consolidation or otherwise, or a sale or other disposition of all of the
capital stock of any Guarantor, or (b) in the event that the Company
designates a Guarantor to be a Non-Restricted Subsidiary, then such Guarantor
(in the event of a sale or other disposition, by way of such a merger,
consolidation or otherwise, of all of the capital stock of such Guarantor or
any such designation) or the corporation acquiring the property (in the event
of a sale or other disposition of all of the assets of such Guarantor) will be
released and relieved of any obligations under its Note Guarantee; provided
that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture. See "Mandatory
Offers to Purchase Notes."
REDEMPTION OF NOTES
Optional Redemption. Except as set forth below, the Notes may not be
redeemed at the option of the Company prior to March 1, 2002. During the 12-
month period beginning on March 1 of the years indicated below, the Notes 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 Notes to be redeemed,
at the redemption prices (expressed as percentages of the principal amount)
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......................................................... 104.813%
2003......................................................... 103.208%
2004......................................................... 101.604%
2005 and thereafter.......................................... 100.000%
</TABLE>
Notwithstanding the foregoing, prior to March 1, 2000, the Company may (but
shall not have the obligation to) redeem up to 40% of the original aggregate
principal amount of the Notes at a redemption price of 110% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages, if
any, to the redemption date, with the net proceeds of one or more Equity
Offerings of the Company or Holdings (to the extent contributed to the
Company); provided that at least 60% of the aggregate principal amount of
Notes originally issued remain outstanding immediately after the occurrence of
any such redemption; and provided, further, that any such redemption shall
occur within 60 days of the date of the closing of any such Equity Offering.
The restrictions on optional redemptions contained in the Indenture do not
limit the Company's 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," the Company is not
required to make any mandatory redemption, purchase or sinking fund payments
with respect to the Notes.
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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 the Company 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 101% of the aggregate
principal amount thereof, plus any accrued and unpaid interest and Liquidated
Damages, if any, to the date of purchase. The Company 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 the Company. Except as
described under "--Change of Control," the Indenture does not contain
provisions that permit the holders of Notes to require the Company 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. In addition, because the obligations of the Company with respect to
the Notes are subordinated to all Senior Indebtedness of the Company and all
obligations of the Company's future subsidiaries, existing or future Senior
Indebtedness of the Company or obligations of the Company's future
subsidiaries may prohibit the Company from repurchasing the Notes upon a
Change of Control. Moreover, the ability of the Company to repurchase Notes
following a Change of Control will be limited by the Company's then-available
resources. The Change of Control provisions may not be waived by the Board of
Directors of the Company or the Trustee without the consent of holders of at
least a majority in principal amount of the Notes. See "--Amendment,
Supplement and Waiver."
The Company expects that prepayment of the Notes following a Change of
Control would, and the exercise by holders of Notes of the right to require
the Company to purchase Notes may, constitute a default under the New Credit
Agreement or other indebtedness of the Company. The Indenture will provide
that, prior to the mailing of the notice referred to below, but in any event
within 30 days following any Change of Control Trigger Date, the Company is
required to (i) repay in full and terminate all commitments under Indebtedness
under the New Credit Agreement and all other Senior Indebtedness the terms of
which require repayment upon a Change of Control or offer to repay in full and
terminate all commitments under all Indebtedness under the New Credit
Agreement and all other such Senior Indebtedness and to repay the Indebtedness
owed to each lender which has accepted such offer or (ii) obtain the requisite
consents under the New Credit Agreement and all such other Senior Indebtedness
to permit the repurchase of the Notes as provided below. The Company shall
first comply with the covenant in the immediately preceding sentence before it
shall be required to repurchase Notes pursuant to the provisions described
below. The Company's failure to comply with this covenant shall constitute an
Event of Default described in clause (c) and not in clause (b) under "--Events
of Default and Remedies" below. In the event a Change of Control occurs, the
Company will likely be required to refinance the Indebtedness outstanding
under the New Credit Agreement and the Notes. If there is a Change of Control,
any Indebtedness under the New Credit Agreement could be accelerated. There is
no limitation in the Indenture which prohibits the Company from using the
proceeds from the offering of the Notes to finance mandatory purchases of
Notes upon a Change of Control. Moreover, there can be no assurance that
sufficient funds will be available at the time of any Change of Control to
repay Senior Indebtedness and make any required repurchases of the Notes given
the Company's high leverage. The financing of the purchases of Notes could
additionally result in a default under the New Credit Agreement or other
indebtedness of the Company. The occurrence of a Change of Control may also
have an adverse impact on the ability of the Company to obtain additional
financing in the future. The ability of holders of Notes to require that the
Company purchase Notes upon a Change of Control may deter persons from
effecting a takeover of the Company. 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 the Company 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 the Company 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
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any Restricted Subsidiary) providing for Net Proceeds in excess of $2.5
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 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 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 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 Indebtedness of the Company or Indebtedness 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 (as defined
herein). The Indenture also provides that the Company 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 the
Company 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 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 Notes) 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."
When the aggregate amount of Excess Proceeds exceeds $10.0 million (such
date being an "Asset Sale Trigger Date"), the Company 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 principal amount thereof plus any
accrued and unpaid interest and Liquidated Damages, if any, to the Purchase
Date 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,
the Company may use such remaining amount for general corporate purposes. If
the aggregate principal amount 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. Upon completion of an Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.
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, the Company 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.
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On the Purchase Date for any Offer, the Company 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 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. The Company will publicly announce the results of the Offer on
or as soon as practicable after the Purchase Date.
The Company will 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 the Company 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, the Company 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 shall cease to accrue on the Notes 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 material
covenants:
Limitation on Restricted Payments. The Indenture provides that the Company
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 the Company's or any Restricted Subsidiary's Equity Interests
(other than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company 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 the Company or
any of its Restricted Subsidiaries, other than any such Equity Interests
purchased from the Company 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, the Company 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
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(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 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 date of original issuance of the Notes and
ended as of the Company's 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 the Company from the
issue or sale of Equity Interests of the Company or Holdings (to the extent
contributed to the Company) 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) $5.0 million; plus (4) the
amount by which the principal amount of and any accrued interest on either
Senior Indebtedness of the Company or any Restricted Subsidiary is reduced
on the Company's 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 the Company or any Restricted
Subsidiary (not held by the Company or any Restricted Subsidiary) for
Equity Interests (other than Disqualified 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 the Company 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 $10.0 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 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
(ii), so that up to $10.0 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 the Company or Holdings from the executives, management,
employees or consultants of the Company or its Restricted Subsidiaries in an
aggregate amount not to exceed $7.5 million;
(iv) 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 case pursuant to intercompany Indebtedness, intercompany management
agreements and other intercompany agreements and obligations;
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(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
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 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 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 (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 the Company or a Subsidiary of the Company) 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
of the Company 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 the Company) of Equity Interests of the
Company (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 the Company) 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 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 the Company
or any Restricted Subsidiary, provided, that if such sale, transfer or
disposition constitutes an Asset Sale, the Company complies with the "Asset
Sale" provisions of the Indenture;
(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 to Holdings in an amount sufficient to permit Holdings to make
required payments on the Holdings Subordinated Notes;
(xii) payments in connection with the Transactions as described under "The
Transactions" and "Use of Proceeds";
(xiii) payments of fees, expenses and indemnities to the directors of
Holdings, the Company and its Restricted Subsidiaries;
(xiv) payments to Holdings in respect of accounting, legal or other
professional or administrative expenses or reimbursements or franchise or
similar taxes and governmental charges incurred by it relating to the
business, operations or finances of the Company and its Restricted
Subsidiaries and in respect of fees and related expenses associated with any
registration statements relating to the Notes filed with the Commission and
subsequent ongoing public reporting requirements with respect to the Notes;
(xv) so long as Holdings files consolidated income tax returns that include
the Company, payments to Holdings pursuant to the Tax Sharing Agreement;
(xvi) payments, if any, relating to any purchase price adjustment pursuant
to the terms of the Acquisition Agreement;
(xvii) payments in respect of the Wolff Noncompetition Agreement; and
(xviii) shareholder loans in an aggregate principal amount not to exceed
$1.0 million.
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In addition, Holdings has agreed, for the benefit of the holders of the
Senior Indebtedness under the New Credit Agreement and the holders of the
Notes, under certain circumstances to repay to the Company amounts received
from the Company in violation of the restricted payments covenants set forth
in the New Credit Agreement and the Indenture.
Limitation on Incurrence of Indebtedness. The Indenture provides that the
Company will not, and will not permit any Restricted Subsidiary to, issue any
Indebtedness (other than the Indebtedness represented by the 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 2.0 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.
The foregoing limitations will not apply to the issuance of:
(i) Indebtedness of the Company and/or its Restricted Subsidiaries under
the New Credit Agreement in an aggregate principal amount outstanding on
such date of issuance not to exceed the greater of (A) $115.0 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 $140.0 million at any one time outstanding (less the amount of any
permanent reductions as set forth under "Asset Sales");
(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 date of
original issuance of the Notes not to exceed $7.5 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 the Company and its Restricted
Subsidiaries in an aggregate principal amount up to $25.0 million (all or
any portion of which may be issued as additional Indebtedness under the New
Credit Agreement) 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 $140.0 million at any one time outstanding (less
the amount of any permanent reductions as set forth under "Asset Sales");
and
(iv) Other Permitted Indebtedness.
No Senior Subordinated Debt. The Indenture will provide that (i) the Company
will not incur, create, issue, assume, guarantee or otherwise become liable
for any Indebtedness that is subordinate or junior in right of payment to any
Senior Indebtedness and senior in any respect in right of payment to the
Notes, and (ii) no Guarantor will incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is subordinate or junior in
right of payment to any Senior Indebtedness and senior in any respect in right
of payment to the Note Guarantees.
Limitation on Liens. The Indenture will provide that 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 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.
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Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture will provide that the Company 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 the
Company or any Restricted Subsidiary, or pay any Indebtedness owed to, the
Company or any Restricted Subsidiary, (b) make loans or advances to the
Company, or (c) transfer any of its properties or assets to the Company,
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," provided that
such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacement or refinancings are no more
restrictive with respect to the items set forth in clauses (a), (b) and (c)
of the first paragraph of this covenant than those contained in the New
Credit Agreement as in effect on the date of the Indenture,
(iii) customary provisions restricting subletting or assignment of any
lease or license of the Company 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 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,
(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 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.
Nothing contained in this covenant 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.
Limitation on Transactions With Affiliates. The Indenture will provide that
neither the Company 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 the
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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.
The Indenture will further provide that the Company will not, and will not
permit any Restricted Subsidiary to, engage in any Affiliate Transaction
involving aggregate payments or other transfers by the Company and its
Restricted Subsidiaries in excess of $5.0 million (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 the Company delivers to the
Trustee:
(i) a resolution of the Board of Directors of the Company 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 the Company 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:
(1) transactions between the Company 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 the
Company or any Restricted Subsidiary as determined in good faith by the
Company's Board of Directors or executives;
(5) payments and transactions in connection with the Transactions and the
application of the net proceeds therefrom as described under "The
Transactions" and "Use of Proceeds;"
(6) the sale of the corporate aircraft owned by the Company on the date
of issuance of the Notes to Robert M. Wolff or his designee; or
(7) 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.
Subsidiary Guarantees. The Indenture will provide that if the Company or any
of its Restricted Subsidiaries shall acquire or create another Restricted
Subsidiary after the date of the Indenture, then such newly acquired or
created Subsidiary shall execute a Subsidiary Guarantee and deliver an opinion
of counsel in accordance with the terms of the Indenture.
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Designation of Restricted and Non-Restricted Subsidiaries. The Indenture
will provide that, subject to the exceptions described below, from and after
the date of original issuance of the Notes, the Company 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) the Company 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 the Company 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 the Company in good faith) of the
Equity Interests of such Subsidiary held by the Company and its Restricted
Subsidiaries on such date, and (ii) the amount of the Investments determined
in accordance with GAAP made by the Company and any of its Restricted
Subsidiaries in such Subsidiary.
A Non-Restricted Subsidiary may be redesignated as a Restricted Subsidiary.
The Company 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) the Company 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 the Company stating that the Board of Directors
has made such designation in accordance with the Indenture, and the Company 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.
MERGER OR CONSOLIDATION
The Indenture will provide that 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 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 the Company, 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 the
Company 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 the Company for such four quarter
period. The limitations in the Indenture on the Company's ability to make a
Disposition described in this paragraph do not restrict the
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Company's 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, the Company 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 the Company is subject
to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the
Company and the Guarantors 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. The Company and the Guarantors 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 Exchange Act. In addition, the Company and the Guarantors have
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 will provide 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 (whether or not prohibited by the subordination provisions of the
Indenture); (b) a default in payment when due of principal or premium, if any,
with respect to the Notes (whether or not prohibited by the subordination
provisions of the Indenture); (c) the failure of the Company 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 the Company 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 the
Company or any Restricted Subsidiary (or the payment of which is guaranteed by
the Company 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
$10.0 million; (e) a failure by the Company or any Restricted Subsidiary to
pay final judgments (not covered by insurance) aggregating in excess of $5.0
million which judgments a court of competent jurisdiction does not rescind,
annul or stay within 45 days after their entry; (f) certain events of
bankruptcy or insolvency involving the Company or any Significant Subsidiary
and (g) except as permitted by the Indenture, any Note Guarantee shall be held
in any judicial proceeding to be unenforceable or invalid or shall cease for
any reason to be in full force and effect or any Guarantor, or any Person
acting on behalf of any Guarantor, shall deny or disaffirm its obligations
under its Note Guarantee. 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 the Company with the
intention of avoiding payment of the premium that the Company 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
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least 25% in principal amount of the Notes then outstanding notify the Company
of the Default and the Company 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 of the then outstanding Notes may declare all
Notes to be due and payable by notice in writing to the Company and the
Trustee specifying the respective Event of Default and that it is a "notice of
acceleration" (the "Acceleration Notice") and the same shall become
immediately due and payable or, if there are any amounts outstanding under the
New Credit Agreement, shall become immediately due and payable upon the first
to occur of acceleration of the New Credit Agreement or five business days
after receipt by the Company of such Acceleration Notice, 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 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.
Upon any payment or distribution of assets of the Company and its
subsidiaries in a total or partial liquidation, dissolution, reorganization or
similar proceeding, including a Default under clause (f) above involving
certain events of bankruptcy or insolvency of the Company or a Significant
Subsidiary, there may not be sufficient assets remaining to satisfy the claims
of any Holders of Notes given the subordination of the Notes to the
obligations of the Company under Senior Indebtedness and to the obligations of
the Subsidiaries of the Company.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and upon an officer of the Company
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 the Company
shall have any liability for any Obligations of the Company 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 the Company's 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.
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Company at any time may terminate all of its and the Guarantors'
obligations under the Notes, the Note Guarantees 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 exchange of the
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Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain a
registrar and paying agent in respect of the Notes). The Company 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").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because
of an Event of Default with respect thereto. If the Company 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 the Company's 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,
the Company 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 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 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 the Company 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
the Company and the date the 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 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 Notes then outstanding under the Indenture. Without
the consent of any holder of Notes, the Company and the Trustee may amend or
supplement the Indenture or the 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 by a successor
corporation of the Company's obligations to the holders of 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 Notes.
Without the consent of each holder of Notes affected, the Company may not
(i) reduce the principal amount of 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 Notes, or alter the
redemption provisions
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with respect thereto (other than the provisions relating to the covenants
described above under the caption "--Mandatory Offers to Purchase Notes--
Change of Control" and "--Asset Sales") or the price at which the Company is
required to offer to purchase the Notes; (iii) reduce the principal of or
change the fixed maturity of the Notes; (iv) make the Notes payable in money
other than stated in the Notes; (v) make any change in the provisions
concerning waiver of Defaults or Events of Default by holders of the Notes, or
rights of holders of the 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 Notes. In addition, any
amendment to the provisions of Article 10 of the Indenture (which relate to
subordination) will require the consent of the Holders of at least 75% in
aggregate principal amount of the Notes then outstanding if such amendment
would adversely affect the rights of Holders of Notes.
CONCERNING THE TRUSTEE
The Indenture will contain certain limitations on the rights of the Trustee,
if it becomes a creditor of the Company, 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 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 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 Depositary 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 exchanged 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") that clear through
or maintain a custodial relationship with a Participant, either directly or
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
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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 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.
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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.
"Acquisition Agreement" means the agreement, dated as of January 24, 1997,
among Holdings, GFSI, Inc. and the shareholders party thereto, relating to the
purchase and sale of the stock of Winning Ways, Inc.
"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.
"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 the
Company 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 the Company, (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 the Company or a
Restricted Subsidiary to the Company 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 the Company 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 the Company 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), (xiii) the sale of the corporate aircraft owned by
the Company on the date of issuance of the Notes to Robert M. Wolff or his
designees or (xiv) 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 the Company's board of directors or any
authorized committee of such board of directors.
"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),
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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 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 Holdings Preferred Stock outstanding on the date of original issuance
of the Notes), 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
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 date of issuance of the Notes 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.
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 the Company's 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 the Company to repurchase such Notes as a result of
a sale, lease, transfer, conveyance or other disposition of less than all of
the assets of the Company and its Subsidiaries to another person may be
uncertain.
"Commission" means the U.S. Securities and Exchange Commission.
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"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 and the
Transactions or any other refinancing of Indebtedness will be excluded. For
purposes of this definition, the Consolidated Interest Expense of the Company
shall include the cash interest expense of Holdings paid in respect of the
Holdings Subordinated Notes.
"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 or 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 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 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 the Company 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.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) any Indebtedness outstanding
under the New Credit Agreement and (ii) any other Senior Indebtedness
permitted under the Indenture the principal amount of which is $10.0 million
or more and that has been designated by the Company as "Designated Senior
Indebtedness."
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"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 the Company 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.
"Guarantors" means each Restricted Subsidiary that executes a Note Guarantee
in accordance with the provisions of the Indenture, and their respective
successors and assigns.
"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.
"Holdings" means GFSI Holdings, Inc., a Delaware corporation.
"Holdings Preferred Stock" means the 12% cumulative preferred stock due 2009
of Holdings, as in effect on the date of issuance of the Notes.
"Holdings Subordinated Notes" means $25.0 million in aggregate principal
amount of Holdings 12% subordinated notes due 2008 as in effect on the date of
the issuance of the Notes or any Indebtedness of Holdings issued or given in
exchange for, or the proceeds of which are used to, extend, refinance, renew,
replace, substitute or refund such Holdings Subordinated Notes; provided that
any such Indebtedness (i) is issued in a principal amount not exceeding the
then outstanding principal amount of the Holdings Subordinated Notes, (ii) has
an interest rate not exceeding 12%, (iii) is subordinated to other
Indebtedness of Holdings to the same extent as the Holdings Subordinated Notes
and (iv) has a Weighted Average Life to Maturity no greater than the Holdings
Subordinated Notes.
"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
the Company or the Restricted Subsidiaries or the retention of consultants,
executives, officers or employees by Holdings, the Company or the Restricted
Subsidiaries.
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"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.
"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 the Company, whether voluntary or
involuntary, or (ii) any assignment for the benefit of creditors or any other
marshaling of assets and liabilities of the Company.
"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.
"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 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 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
to be paid as a result of such Asset Sale (other than the Notes) and legal,
accounting, management and advisory and
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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.
"New Credit Agreement" means that certain credit facility, dated as of
February 27, 1997, among the Company, as borrower, The First National Bank of
Chicago, as contractual representative, and the lenders party thereto,
together with all loan documents and instruments thereunder (including,
without limitation, any guarantee agreements and security documents), in each
case as such agreements may be amended (including any amendment and
restatement thereof), supplemented or otherwise modified from time to time,
including any agreement extending the maturity of, refinancing, replacing or
otherwise restructuring (including, without limitation, increasing the amount
of available borrowings, letters of credit or other financial accommodations
thereunder, all or any portion of the Obligations under any such agreement or
any successor or replacement agreement and whether by the same or any other
agent, lender or group of lenders).
"Non-Restricted Subsidiary" means any Subsidiary of the Company 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 the Company 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 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 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 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 sentence of
the "Limitation on
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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 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 Guarantors of
Indebtedness of the Company or a Restricted Subsidiary of the Company 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 Junior Securities" means Equity Interests in the Company or
subordinated debt securities of the Company that (i) are subordinated to all
Senior Indebtedness (and any debt securities issued in exchange for Senior
Indebtedness) to at least the same extent as the Notes are subordinated to
Senior Indebtedness pursuant to Article 10 of the Indenture, (ii) have a
Weighted Average Life to Maturity no shorter than the Weighted Average Life to
Maturity of the Notes and (iii) if there are any amounts outstanding under the
New Credit Agreement, have a Weighted Average Life to Maturity at least as
long as the sum of (a) the Weighted Average Life to Maturity of the New Credit
Agreement or any debt securities issued in exchange therefor (whichever is
longer) plus (b) the positive difference, if any, between the Weighted Average
Life to Maturity of the Notes and the Weighted Average Life to Maturity of the
New Credit Agreement, in each case measured immediately prior to the issuance
of such Permitted Junior Securities.
"Permitted Liens" means:
(i) Liens securing Senior Indebtedness of the Company or any Guarantor
that was permitted by the terms of the 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 ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security;
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(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
the Company 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 the Company 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 the Company 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 the Company 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 $2.0
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 the Company 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 the Company on
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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 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 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 New Credit Agreement,
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 the Indenture; (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.
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"Restricted Subsidiary" means: (i) any Subsidiary of the Company existing on
the date of original issuance of the Notes, and (ii) any other Subsidiary of
the Company formed, acquired or existing after the date of original issuance
of the Notes that is designated as a "Restricted Subsidiary" by the Company
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 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 "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 the Company 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, with respect to any person, (i) all
Indebtedness of such person outstanding under the New Credit Agreement and all
Hedging Obligations with respect thereto, (ii) any other Indebtedness of such
person permitted to be incurred under the terms of the Indenture, provided,
however, that Senior Indebtedness shall not include any Indebtedness which by
the terms of the instrument creating or evidencing the same is subordinated or
junior in right of payment to any other Senior Indebtedness in any respect,
and (iii) all Obligations (including 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) with respect to the foregoing, in each case
whether outstanding on the date of the Indenture or thereafter incurred.
Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness
will not include (w) any liability for federal, state, local or other taxes
owed or owing by the Company, (x) any Indebtedness of such person to any of
its Subsidiaries or other Affiliates (other than Indebtedness arising under
the New Credit Agreement), (y) any trade payables or other liability to trade
creditors arising in the ordinary course of business (including guarantees
thereof or instruments evidencing such liabilities) or (z) any Indebtedness
that is incurred in violation of the Indenture.
"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 the Company 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 Senior Indebtedness.
"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).
"Tax Sharing Agreement" means the tax sharing agreement between the Company
and Holdings, as in effect on the date of issuance of the Notes.
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"TJC Agreement" means the Management Consulting Agreement, dated the Closing
Date, between the Company 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, dated the Closing
Date, 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
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:
CERTAIN INDEBTEDNESS
The Company's indebtedness (the "Existing Indebtedness") at the closing of
the Transactions included: (i) a $40.0 million line of credit from Boatmen's
First National Bank ("Boatmen's") with floating interest (5.86% at February
27, 1997). Borrowings against this line totaled $23.5 million at February 27,
1997 while letters of credit against the line were $22.5 million at February
27, 1997; (ii) a $20.0 million line of credit from The First National Bank of
Chicago with floating interest (5.92% at February 27, 1997) maturing in July
1997; (iii) a $10.0 million credit agreement from Boatmen's with interest
accruing at 10.125%, payable in monthly installments of $119,048 plus interest
through July 1997 when the remaining unpaid principal and accrued interest is
due; (iv) a $9.5 million mortgage loan from Prudential Insurance Company of
America with interest accruing at 10.28%, payable in monthly installments of
$88,935 through February 2006 when the remaining unpaid principal and accrued
interest is due; and (v) $300,000 of industrial revenue bonds from the City of
Lexena, Kansas with interest accruing at 5.78%, payable in amounts equal to
the principal and interest payments due on the bonds through 1998. The Company
used the net proceeds from the Offering and the New Credit Agreement to repay
the Existing Indebtedness. See "The Transactions" and "Use of Proceeds."
NEW CREDIT AGREEMENT
Concurrently with the completion of the Offering, the Company entered into
the New Credit Agreement with The First National Bank of Chicago ("FNBC"), as
contractual representative, and other lenders thereunder. The New 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 a revolving credit facility
("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 Closing. See "The Transactions."
The Company will pay interest (i) under each of Term Loan A and the Revolver
based on, at the Company's option, either of FNBC's base rate plus 1.25% or
the Eurodollar Rate (as defined in the New Credit Agreement) plus 2.25% and
(ii) under Term Loan B based on, at the Company'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 the Company's Leverage Ratio (as defined in the New
Credit Agreement). A commitment fee of 0.50% will be paid by the Company for
unutilized commitments under the Revolver, subject to reduction based upon the
Company's Leverage Ratio. The Company's obligations under the New Credit
Agreement are secured by a security interest in all of the Company's assets.
In addition, the Company's obligations under the New Credit Agreement are
guaranteed by substantially all of the Company's future subsidiaries.
The New 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 the Notes and incurring additional indebtedness. The New
Credit Agreement also contains customary events of default, including, as
material events of default, without limitation, change of control. The Company
was not in violation of any covenant under any agreement with respect to the
Existing Indebtedness and is currently in compliance with all of the covenants
contained in the New Credit Agreement.
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<PAGE>
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 the Company, 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 the Company, 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 EBITA (as defined in the TJC Agreement),
provided that in years three through five of the 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 the Company and (ii) a
financial consulting fee of up to 1.0% of any debt, equity or other financing
arranged by Holdings or the Company with the assistance of JMC. Both such fees
are subject to Board of Directors approval. In connection with the
Transactions, the Company 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 the Company. 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, the Company 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 and Holdings 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, the Company 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 the Company 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 the
Company. The Tax Sharing agreement does not give rise to any conflicts of
interest as the Company will only pay Holdings to the extent of Holdings' tax
liability attributable to the operations of the Company.
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 past three fiscal years, the Company has
purchased $5.3 million of embroidered products under the Memorandum.
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. Meghini, who are principals
of Kansas Custom Embroidery and Impact Design, Inc., respectively, are also
directors of Holdings. Payments for embroidery services are made from the
Company to
88
<PAGE>
the Affiliates. 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 Holdings, which unanimously, including all disinterested members,
approved the Memorandum. The Memorandum will be subject to the future review
of the Board of Directors of Holdings 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, has a current outstanding balance of $613,500
while the Kansas Loan, which was executed on August 12, 1996, was paid off on
June 17, 1997. The Impact Loan is repayable 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
repayment of principal at maturity. 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, Holdings 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 or Holdings for a ten-year period ending
on the tenth anniversary of the Acquisition, (ii) disclose at any time other
than to the Company or Holdings any Confidential Information (as defined in
the Wolff Noncompetition Agreement) and (iii) engage in any business with the
Company or Holdings 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 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), Holdings 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 Holdings'
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
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<PAGE>
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 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 INTEREST
AMOUNT 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 Company's common stock (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 EBITA (as defined in the Incentive Plan), if
certain EBITA targets are met.
Directors and Officers Indemnification. Upon the consummation of the
Offering, the Company entered into indemnification agreements with each member
of the Board of Directors whereby the Company agreed, subject to certain
exceptions, to indemnify and hold harmless each director from liabilities
incurred as a result of such person's status as a director of the Company. See
"Management--Board of Directors."
Future Transactions. The Company has adopted a policy, effective
simultaneously with the consummation of the 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.
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 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
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<PAGE>
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 or 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.
FEDERAL INCOME TAX CONSEQUENCES
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 the exchanging Holders for 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 and (iii) the basis of the New Note will be
the same as the basis of the Old Note.
The Exchange Offer will result in no Federal income tax consequences to a
nonexchanging Holder.
The preceding discussion reflects the opinion of Mayer, Brown & Platt,
counsel to the Company, as to the material Federal income tax consequences
expected to result from the Exchange Offer. Each Holder should consult its own
tax adviser as to these and any other Federal income tax consequences of the
Exchange Offer as well as any tax consequences to it under state, local or
other law. This summary is based on the current provisions of the Internal
Revenue Code of 1986, as amended, and applicable Treasury regulations,
judicial authority and administrative rulings and practice. Those consequences
could be modified by future changes in the relevant law (which changes could
be applied retroactively).
LEGAL MATTERS
The validity of the Notes will be passed upon for the Company by Mayer,
Brown & Platt, New York, New York. Certain legal matters relating to the Notes
offered hereby will be passed upon for the Initial Purchasers by Latham &
Watkins, New York, New York.
EXPERTS
The financial statements of Winning Ways, Inc. as of June 30, 1996 and for
the fiscal year ended June 30, 1996 included in this Prospectus have been
audited by Deloitte & Touche LLP, 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.
The balance sheet of GFSI, Inc. as of January 23, 1997 included in this
Prospectus has been audited by Deloitte & Touche LLP, 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.
The financial statements of Winning Ways, Inc. as of June 30, 1995 and for
each of the two fiscal years preceding the period 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, the Company, 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 the Company.
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<PAGE>
In connection with its audit for the fiscal year ended June 30, 1995 and
through December 31, 1996, the Company has 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 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.
The Company currently engages Deloitte & Touche LLP as its independent
auditors. During the most recent fiscal year and through the date of this
Offering Memorandum, the Company 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 to 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.
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<PAGE>
GFSI, INC.
UNAUDITED PRO FORMA STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
The following sets forth the Unaudited Pro Forma Statements of Income of
GFSI, Inc. ("GFSI") giving effect to the transactions described in Note 1 of
the Notes to the Unaudited Pro Forma Statements of Income as if such
transactions had consummated at the beginning of the earliest period
presented. The Unaudited Pro Forma Statements of Income of GFSI do not purport
to present the results of operations of GFSI 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 the Company has been accounted for as a leveraged
recapitalization, and accordingly, the accompanying Unaudited Pro Forma
Statements of Income reflect no change in the accounting basis of GFSI's
assets and liabilities for financial accounting purposes.
P-1
<PAGE>
GFSI, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
NINE MONTHS ENDED MARCH 28, 1997
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENT
GFSI, INC. ------------------------ GFSI, INC.
HISTORICAL DR CR PRO FORMA
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales.................... $144,182 $ -- $ -- $144,182
Costs of sales............... 80,122 153(2) -- 80,275
-------- ---------- --------- --------
Gross profit............. 64,060 153 -- 63,907
Operating expenses:
Selling.................... 14,654 -- -- 14,654
General and
administrative............ 19,181 593(3) 676(3) 19,098
-------- ---------- --------- --------
33,835 593 676 33,752
-------- ---------- --------- --------
Operating income......... 30,225 746 676 30,155
Other income/(expense):
Interest expense........... (3,339) 12,687(4) 1,841(4) (14,185)
Other...................... 60 -- -- 60
-------- ---------- --------- --------
(3,279) 12,687 1,841 (14,125)
-------- ---------- --------- --------
Income before income taxes
and extraordinary item...... 26,946 13,433 2,517 16,030
Provision for income
taxes..................... 1,319 6,087(5) 994(5) 6,412
-------- ---------- --------- --------
Net income before
extraordinary item.......... $ 25,627 $ 19,520 $ 3,511 $ 9,618
======== ========== ========= ========
</TABLE>
See Notes to Unaudited Pro Forma Statements of Income.
P-2
<PAGE>
GFSI, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
YEAR ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENT
GFSI, INC. ------------------------ GFSI, INC.
HISTORICAL DR CR PRO FORMA
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales...................... $169,321 $ -- $ -- $169,321
Costs of sales................. 97,308 229(2) -- 97,537
-------- ---------- --------- --------
Gross profit............... 72,013 229 -- 71,784
Operating expenses:
Selling...................... 16,963 -- -- 16,963
General and administrative... 22,216 890(3) 1,265(3) 21,841
-------- ---------- --------- --------
39,179 890 1,265 38,804
-------- ---------- --------- --------
Operating income........... 32,834 1,119 1,265 32,980
Other income/(expense):
Interest expense............. (2,608) 19,033(4) 2,608(4) (19,033)
Other........................ -- -- -- --
-------- ---------- --------- --------
(2,608) 19,033 2,608 (19,033)
-------- ---------- --------- --------
Income before income taxes..... 30,226 20,152 3,873 13,947
Provision for income taxes... -- 5,579(5) -- 5,579
-------- ---------- --------- --------
Net income..................... $ 30,226 $ 25,731 $ 3,873 $ 8,368
======== ========== ========= ========
</TABLE>
See Notes to Unaudited Pro Forma Statements of Income.
P-3
<PAGE>
GFSI, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF INCOME
1. Presentation and Transactions:
The unaudited pro forma statements of income assume the following
transactions occurred at the beginning of the earliest period presented.
Holdings and GFSI, a wholly-owned subsidiary of Holdings, were organized by
affiliates of The Jordan Company and management to effect the acquisition
of the Company. 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 the Company 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 the Company's
Existing Indebtedness 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 the Company (the "Equity
Contribution"); (ii) the Company consummated the Offering of Old Notes; and
(iii) the Company entered into the New 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. 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.
Consummation of the Offering of Old Notes was conditioned upon the
concurrent consummation of the Acquisition, the Equity Contribution and the
initial borrowings under the New Credit Agreement which all occurred on
February 27, 1997.
The Transactions are reflected in the accompanying unaudited pro forma
financial statements of the Company as a leveraged recapitalization under
which the existing basis of accounting was continued for financial
accounting and reporting purposes.
The following summarizes the sources and uses of funds resulting from the
Transactions described above at the Company's level (in millions):
<TABLE>
<S> <C>
SOURCES OF FUNDS:
New Credit Agreement............................................... $ 68.0
New Senior Subordinated Notes due 2007............................. 125.0
Equity Contribution from GFSI Holdings, Inc. ...................... 51.4
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>
Subsequent to the Transactions, Holdings is dependent upon the cash flows
of the Company to provide funds to service $25.0 million of Holdings
Subordinated Notes. The annual cash flow requirements to service
P-4
<PAGE>
GFSI, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF INCOME--(CONTINUED)
Holdings Subordinated Notes is $3 million (principal due in balloon payment
in 2008). Pursuant to the terms of a deferred limited interest guaranty
between the Company and Holdings, the Company is obligated to pay accrued
and unpaid interest on the Holdings Subordinated Notes under certain
limited circumstances. Additionally, Holdings' cumulative non-cash
preferred stock dividends will total $3.2 million annually. Holdings
Preferred Stock may be redeemed at stated value ($27.0 million) plus
accrued dividends with mandatory redemption in 2009. The annual cash flow
requirements relative to the Holdings Subordinated Notes and Holdings
Preferred Stock are not reflected in the accompanying unaudited pro forma
financial statements.
2.The pro forma adjustment to costs of sales represents fees associated
with inventory purchased under letter of credit arrangements in accordance
with the New Credit Agreement.
3. The pro forma adjustment to general and administrative expense (in
thousands):
<TABLE>
<CAPTION>
YEAR
NINE MONTHS ENDED
ENDED JUNE
MARCH 28, 30,
1997 1996
----------- -------
<S> <C> <C>
Additional general and administrative expense related
to:
Consulting fee to The Jordan Company................ $ 333 $ 500
Board of Directors fees............................. 93 140
Wolff non-competition payments...................... 167 250
----- -------
Pro forma adjustment.............................. $ 593 $ 890
===== =======
Elimination of general and administrative expense
related to:
Officers life insurance premiums.................... $(289) $ (718)
Expenses of corporate jet not retained by Company... (153) (195)
Depreciation on corporate jet not retained by
Company............................................ (234) (352)
----- -------
Pro forma adjustment.............................. $(676) $(1,265)
===== =======
</TABLE>
P-5
<PAGE>
GFSI, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF INCOME--(CONTINUED)
4. The pro forma adjustments to interest expense (in thousands):
<TABLE>
<CAPTION>
YEAR
NINE MONTHS ENDED
ENDED JUNE
MARCH 28, 30,
1997 1996
----------- -------
<S> <C> <C>
Elimination of interest expense relating to Winning
Ways, Inc.'s prior debt agreements:
Repay prior 10.125% credit agreement............... $ (255) $ (501)
Repay prior line of credit agreement............... (583) (545)
Repay prior 10.28% mortgage loan................... (647) (998)
Repay prior 5.78% industrial revenue bonds......... (11) (29)
Repay prior short-term borrowings.................. (345) (535)
------- -------
Pro forma adjustment............................. $(1,841) $(2,608)
======= =======
Additional interest expense related to:
Issuance of Notes (9.625%)......................... $ 8,021 $12,031
Amortization of deferred issuance costs related to
the Notes......................................... 428 643
Issuance of Term Loans assuming 8.44% interest
rate.............................................. 3,657 5,486
Issuance of Revolver assuming 8.25% interest rate.. 165 248
Amortization of deferred issuance costs related to
New Credit Agreement.............................. 336 504
Commitment fees related to New Credit Agreement.... 80 121
------- -------
Pro forma adjustment............................. $12,687 $19,033
======= =======
</TABLE>
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 nine months ended March 28, 1997. Such amounts are excluded
from the accompanying pro forma income statement as it is considered a non-
recurring charge.
P-6
<PAGE>
GFSI, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF INCOME--(CONCLUDED)
5. 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. The tax expense
associated with the Company's change in tax status reflecting the
cumulative difference between the book and tax basis of assets and
liabilities as of the date of the conversion was $994,000. Such expense was
charged to operations at the date of conversion, however, it has been
treated as a pro forma adjustment in the accompanying statements of income
as it is considered a nonrecurring charge.
P-7
<PAGE>
GFSI, INC.
(FORMERLY WINNING WAYS, INC.)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
GFSI, Inc. (formerly Winning Ways, Inc.)--Historical Financial Statements:
Independent Auditors' Reports........................................... F-2
Balance Sheets--June 30, 1995 and 1996 and March 28, 1997 (unaudited)... F-4
Statements of Income--Years Ended June 30, 1994, 1995 and 1996 and Nine
Months Ended March 31, 1996 and March 28, 1997 (unaudited)............. F-5
Statements of Changes in Stockholders' Equity--Years Ended June 30,
1994, 1995 and 1996 and Nine Months Ended March 28, 1997 (unaudited)... F-6
Statements of Cash Flows--Years Ended June 30, 1994, 1995 and 1996 and
Nine Months Ended March 31, 1996 and March 28, 1997 (unaudited)........ F-7
Notes to Financial Statements........................................... F-8
GFSI, Inc.--Balance Sheet:
Independent Auditors' Report............................................ F-19
Balance Sheet--January 23, 1997......................................... F-20
Notes to Balance Sheet.................................................. F-21
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
GFSI, Inc. (formerly Winning Ways, Inc.)
Lenexa, Kansas
We have audited the accompanying balance sheet of GFSI, Inc. (formerly
Winning Ways, Inc.) (the "Company") as of June 30, 1996, and the related
statements of income, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform 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 financial statements present fairly, in all material
respects, the financial position of the Company as of June 30, 1996, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
As described in Note 1 to the financial statements, the Company completed
recapitalization transactions on February 27, 1997 which included the merger
of Winning Ways, Inc. with and into GFSI, Inc. with GFSI, Inc. as the
surviving entity.
Deloitte & Touche LLP
Kansas City, Missouri
January 24, 1997
(February 27, 1997 as to Note 1)
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Winning Ways, Inc.
Lenexa, Kansas
We have audited the accompanying balance sheet of Winning Ways, Inc. (the
"Company") as of June 30, 1995, and the related statements of income,
stockholders' equity and cash flows for each of the two years in the period
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 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 financial statements present fairly, in all material
respects, the financial position of the Company as of June 30, 1995, and the
results of its operations and its cash flows for each of the two years in the
period 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, INC.
(FORMERLY WINNING WAYS, INC.)
BALANCE SHEETS
JUNE 30, 1995 AND 1996 AND MARCH 28, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
----------------------- MARCH 28,
1995 1996 1997
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 112,459 $ 139,977 $ 5,568,997
Accounts receivable, net of allowance
for doubtful accounts of $463,270 and
$472,092 at June 30, 1995 and 1996,
$569,936 at March 28, 1997
(unaudited).......................... 18,080,480 22,583,452 25,562,086
Inventories, net...................... 29,484,671 27,782,953 27,886,586
Cash value of life insurance, net of
related policy loans of $90,117 at
March 28, 1997 (unaudited)........... -- -- 5,187,487
Income tax receivable................. -- -- 664,529
Deferred income taxes................. -- -- 515,804
Prepaid expenses and other current
assets............................... 1,463,502 802,311 1,013,413
----------- ----------- -------------
Total current assets................ 49,141,112 51,308,693 66,398,902
Property, plant and equipment, net...... 23,751,206 23,038,589 22,184,789
Other assets:
Deferred financing costs, net of
accumulated amortization of $42,103
and $51,459 at June 30, 1995 and 1996
and $93,656 at March 28, 1997
(unaudited).......................... 98,239 88,883 9,858,480
Cash value of life insurance, net of
related policy loans of $90,117 at
June 30, 1995 and 1996............... 3,935,904 4,267,871 --
Other................................. 12,003 7,269 3,995
----------- ----------- -------------
4,046,146 4,364,023 9,862,475
----------- ----------- -------------
Total assets...................... $76,938,464 $78,711,305 $ 98,446,166
=========== =========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Short-term borrowings................. $ 8,000,000 $ 7,000,000 $ 3,000,000
Accounts payable...................... 7,383,223 9,667,536 8,079,744
Accrued expenses...................... 4,533,584 5,288,998 7,443,306
Distributions payable to Winning Ways,
Inc. stockholders.................... -- -- 10,022,141
Current portion of long-term debt..... 1,639,443 1,658,160 3,375,000
----------- ----------- -------------
Total current liabilities........... 21,556,250 23,614,694 31,920,191
Deferred income taxes................... -- -- 1,509,425
Long-term debt, less current portion.... 23,275,973 20,617,878 186,625,000
Commitments and contingencies (Notes 6)
Stockholders' equity (deficit):
Winning Ways, Inc. Common stock, $.10
par value, 2,000,000 shares
authorized, 1,491,000 shares issued
at June 30, 1995 and 1996............ 149,100 149,100 --
GFSI, Inc. Common Stock, $.10 par
value, 10,000 shares authorized,
10,000 shares issued and outstanding
at March 28, 1997 (unaudited)........ -- -- 100
Additional paid-in capital............ 882,746 1,585,691 49,938,863
Retained earnings (accumulated
deficit)............................. 33,554,728 35,045,220 (171,547,413)
----------- ----------- -------------
34,586,574 36,780,011 (121,608,450)
Less treasury stock, at cost.......... 2,480,333 2,301,278 --
----------- ----------- -------------
Total stockholders' equity
(deficit).......................... 32,106,241 34,478,733 (121,608,450)
----------- ----------- -------------
Total liabilities and
stockholders' equity............. $76,938,464 $78,711,305 $ 98,446,166
=========== =========== =============
</TABLE>
See notes to financial statements.
F-4
<PAGE>
GFSI, INC.
(FORMERLY WINNING WAYS, INC.)
STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1994, 1995 AND 1996 AND
NINE MONTHS ENDED MARCH 31, 1996 AND MARCH 28, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, NINE MONTHS ENDED
---------------------------------------- --------------------------
MARCH 31, MARCH 28,
------------ ------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............... $128,171,107 $148,196,394 $169,320,620 $132,068,220 $144,182,342
Cost of sales........... 74,447,220 84,869,223 97,307,746 74,720,872 80,122,678
------------ ------------ ------------ ------------ ------------
Gross profit........ 53,723,887 63,327,171 72,012,874 57,347,348 64,059,644
Operating expenses:
Selling............... 12,062,795 14,884,100 16,963,137 13,572,654 14,653,988
General and
administrative....... 17,087,995 19,544,325 22,216,193 16,457,752 19,180,991
------------ ------------ ------------ ------------ ------------
29,150,790 34,428,425 39,179,330 30,030,406 33,834,989
------------ ------------ ------------ ------------ ------------
Operating income.... 24,573,097 28,898,746 32,833,544 27,316,942 30,224,675
Other income (expense):
Interest expense...... (2,455,129) (2,522,054) (2,608,154) (2,038,113) (3,338,777)
Other................. (13,054) (156,869) 490 (8,702) 59,959
------------ ------------ ------------ ------------ ------------
(2,468,183) (2,678,923) (2,607,664) (2,046,815) (3,278,818)
------------ ------------ ------------ ------------ ------------
Income before income
taxes and extraordinary
item................... 22,104,914 26,219,823 30,225,880 25,270,127 26,945,857
Provision for income
taxes.................. -- -- -- -- 1,318,726
------------ ------------ ------------ ------------ ------------
Income before
extraordinary item..... 22,104,914 26,219,823 30,225,880 25,270,127 25,627,131
Extraordinary item, net
of tax benefit of
$989,634............... -- -- -- -- 1,484,451
------------ ------------ ------------ ------------ ------------
Net income.............. $ 22,104,914 $ 26,219,823 $ 30,225,880 $ 25,270,127 $ 24,142,680
============ ============ ============ ============ ============
Supplemental
information:
Income before income
taxes and
extraordinary item... $ 22,104,914 $ 26,219,823 $ 30,225,880 $ 25,270,127 $ 26,945,857
Pro forma income tax
provision........... 9,063,000 10,750,000 12,393,000 10,361,000 11,048,000
------------ ------------ ------------ ------------ ------------
Pro forma income before
extraordinary item..... $ 13,041,914 $ 15,469,823 $ 17,832,880 $ 14,909,127 $ 15,897,857
============ ============ ============ ============ ============
</TABLE>
See notes to financial statements.
F-5
<PAGE>
GFSI, INC.
(FORMERLY WINNING WAYS, INC.)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1994, 1995 AND 1996 AND
NINE MONTHS ENDED MARCH 28, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK TOTAL
-------------------- PAID-IN RETAINED --------------------- STOCKHOLDERS'
SHARES AMOUNTS CAPITAL EARNINGS SHARES AMOUNTS EQUITY
---------- -------- ----------- ------------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1993 .. 1,491,000 $149,100 $ 413,246 $ 29,543,853 282,250 $(2,604,250) $ 27,501,949
Reissuance of treasury
stock................. -- -- 7,500 -- (125) 1,875 9,375
Net income............. -- -- -- 22,104,914 -- -- 22,104,914
Dividends declared..... -- -- -- (20,186,975) -- -- (20,186,975)
---------- -------- ----------- ------------- -------- ----------- -------------
Balance, June 30, 1994.. 1,491,000 149,100 420,746 31,461,792 282,125 (2,602,375) 29,429,263
Purchase of treasury
stock................. -- -- -- 125 (3,958) (3,958)
Reissuance of treasury
stock................. -- -- 462,000 -- (8,400) 126,000 588,000
Net income............. -- -- -- 26,219,823 -- -- 26,219,823
Dividends declared..... -- -- -- (24,126,887) -- -- (24,126,887)
---------- -------- ----------- ------------- -------- ----------- -------------
Balance, June 30, 1995.. 1,491,000 149,100 882,746 33,554,728 273,850 (2,480,333) 32,106,241
Reissuance of treasury
stock................. -- -- 702,945 -- (12,600) 179,055 882,000
Net income............. -- -- -- 30,225,880 -- -- 30,225,880
Dividends declared..... -- -- -- (28,735,388) -- -- (28,735,388)
---------- -------- ----------- ------------- -------- ----------- -------------
Balance, June 30, 1996.. 1,491,000 149,100 1,585,691 35,045,220 261,250 (2,301,278) 34,478,733
Reissuance of treasury
stock (unaudited) .... -- -- 1,134,396 -- (19,250) 267,791 1,402,187
Net income (unau-
dited)................ -- -- -- 24,142,680 -- -- 24,142,680
Distributions to share-
holders
(unaudited)........... -- -- -- (48,407,375) -- -- (48,407,375)
Distributions and re-
capitalization of Win-
ning Ways, Inc. (unau-
dited)................ (1,491,000) (149,100) (2,720,087) (182,327,938) (242,000) 2,033,487 (183,163,638)
Issuance of common
stock to GFSI Hold-
ings, Inc. (net of is-
suance costs of
$1,472,637) (unau-
dited)................ 10,000 100 49,938,863 -- -- -- 49,938,963
---------- -------- ----------- ------------- -------- ----------- -------------
Balance at March 28,
1997 (unaudited) ...... 10,000 $ 100 $49,938,863 $(171,547,413) -- $ -- $(121,608,450)
========== ======== =========== ============= ======== =========== =============
</TABLE>
See notes to financial statements.
F-6
<PAGE>
GFSI, INC.
(FORMERLY WINNING WAYS, INC.)
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1994, 1995, AND 1996 AND
NINE MONTHS ENDED MARCH 31, 1996 AND MARCH 28, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, NINE MONTHS ENDED
---------------------------------------- -------------------------
MARCH 31, MARCH 28,
----------- ------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operat-
ing activities:
Net income............. $ 22,104,914 $ 26,219,823 $ 30,225,880 $25,270,127 $ 24,142,680
Adjustments to recon-
cile net income to net
cash provided by oper-
ating activities:
Depreciation and amor-
tization.............. 2,302,955 2,860,190 3,200,951 2,378,965 2,543,823
(Gain) loss on sale or
disposal of property,
plant and equipment... 5,673 156,869 1,009 10,202 (24,567)
Deferred income tax-
es.................... -- -- -- -- 993,621
Increase in cash value
of life insurance..... (638,166) (519,580) (331,967) (242,646) (919,616)
Extraordinary loss on
early extinguishment
of debt............... -- -- -- -- 2,473,192
Changes in operating
assets and liabili-
ties:
Accounts receivable,
net................... 860,105 (4,993,971) (4,502,972) (2,962,248) (2,978,634)
Income tax receiv-
able.................. -- -- -- -- (664,529)
Inventories, net....... (4,017,993) (1,873,099) 1,701,718 4,466,398 (103,633)
Prepaid expenses and
other assets.......... 1,331,544 271,658 665,925 613,996 (207,828)
Accounts payable and
accrued expenses...... 2,481,751 1,783,226 3,039,727 (1,110,425) 566,516
------------ ------------ ------------ ----------- ------------
Net cash provided by
operating activi-
ties................ 24,430,783 23,905,116 34,000,271 28,424,369 25,821,025
------------ ------------ ------------ ----------- ------------
Cash flows from invest-
ing activities:
Proceeds from sales of
property, plant and
equipment............. 259,149 733,698 131,032 121,781 946,153
Purchases of property,
plant and equipment... (2,856,257) (4,988,639) (2,611,019) (1,359,659) (2,511,716)
------------ ------------ ------------ ----------- ------------
Net cash used by in-
vesting activities.. (2,597,108) (4,254,941) (2,479,987) (1,237,878) (1,565,563)
------------ ------------ ------------ ----------- ------------
Cash flows from financ-
ing activities:
Net changes to short-
term borrowings....... (9,829,398) 6,200,000 (1,000,000) (2,000,000) (4,000,000)
Issuance of senior sub-
ordinated notes....... -- -- -- -- 125,000,000
Proceeds from long-term
debt.................. 9,700,000 -- -- 1,000,000 67,000,000
Payments on long-term
debt.................. (1,613,838) (2,326,424) (2,639,378) (6,261,234) (24,276,038)
Cash paid for penalties
related to early ex-
tinguishment of debt.. -- -- -- -- (2,390,546)
Cash paid for financing
costs................. -- -- -- -- (9,952,136)
Distributions to stock-
holders............... (20,186,975) (24,126,887) (28,735,388) (18,897,387) (48,407,375)
Distributions and re-
capitalization of
Winning Ways, Inc..... -- -- -- -- (183,163,638)
Issuance of Common
Stock to GFSI Hold-
ings, Inc. ........... -- -- -- -- 49,938,963
Proceeds from sale of
treasury stock........ 9,375 588,000 882,000 882,000 1,402,187
Purchase of treasury
stock................. -- (3,958) -- -- --
------------ ------------ ------------ ----------- ------------
Net cash used by fi-
nancing activities.. (21,920,836) (19,669,269) (31,492,766) (25,276,621) (18,826,442)
------------ ------------ ------------ ----------- ------------
Net increase (de-
crease) in cash..... (87,161) (19,094) 27,518 1,909,870 5,429,020
Cash and cash equiva-
lents,
Beginning of period.... 218,714 131,553 112,459 112,459 139,977
------------ ------------ ------------ ----------- ------------
End of period.......... $ 131,553 $ 112,459 $ 139,977 $ 2,022,329 $ 5,568,997
============ ============ ============ =========== ============
Supplemental cash flow
information:
Interest paid.......... $ 2,465,752 $ 2,496,989 $ 2,628,291 $ 2,159,201 $ 2,206,562
============ ============ ============ =========== ============
Supplemental schedule of
non-cash financing ac-
tivities:
Distributions payable
to Winning Ways, Inc.
stockholders.......... $ -- $ -- $ -- $ -- $ 10,022,141
============ ============ ============ =========== ============
</TABLE>
See notes to financial statements.
F-7
<PAGE>
GFSI, INC.
(FORMERLY WINNING WAYS, INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1995 AND 1996 AND
NINE MONTHS ENDED MARCH 31, 1996 AND MARCH 28, 1997 (UNAUDITED)
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") and GFSI, Inc. (the "Company"), a wholly owned
subsidiary of Holdings, to effect the acquisition of Winning Ways. On February
27, 1997, pursuant to the acquisition agreement, Holdings and the Company
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 to the
Company 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 the Company (the "Equity
Contribution"); (ii) the Company 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) the Company issued $125.0 million of Senior Subordinates 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 are reflected in the accompanying unaudited financial
statements of the Company as of and for the nine months ended March 28, 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 include
Winning Ways through February 27, 1997 and the merged entity, GFSI, Inc.,
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):
SOURCES OF FUNDS:
<TABLE>
<S> <C>
New Credit Agreement................................................ $ 68.0
New Senior Subordinated Notes due 2007.............................. 125.0
Equity Contribution From GFSI Holdings, Inc......................... 51.4
Existing Cash Balances In The Business.............................. 9.4
------
Total sources.................................................... $253.8
======
USE 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-8
<PAGE>
GFSI, INC.
(FORMERLY WINNING WAYS, INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1995 AND 1996 AND
NINE MONTHS ENDED MARCH 31, 1996 AND MARCH 28, 1997 (UNAUDITED)
Subsequent to the recapitalization transactions described above, the Company
is a wholly-owned subsidiary of Holdings. Holdings is dependent upon the cash
flows of the Company 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 the
Company and Holdings, the Company is obligated to pay accrued and unpaid
interest on the Holdings subordinated Notes under certain limited
circumstances. Additionally, Holdings' cumulative non-cash preferred stock
dividends will total $3.2 million annually. Holdings preferred stock may be
redeemed at stated value ($27.0 million) plus accrued dividends with mandatory
redemption in 2009. The annual cash flow requirements relative to the Holdings
subordinated notes and Holdings preferred stock are not reflected in the
accompanying unaudited financial statements as of March 28, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS--GFSI, Inc. (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. The Company's customer base is spread
throughout the United States.
FISCAL YEAR--On January 1, 1997, the Company converted its fiscal year to a
52/53 week fiscal year which ends on the Friday nearest June 30. Previously,
the Company's fiscal year ended June 30. Due to conversion, the nine month
period ended March 28, 1997 contains 39 weeks. The nine month period ended
March 31, 1996 contains 39 weeks.
CASH AND CASH EQUIVALENTS--The Company 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 $1,570,917 and $1,922,038 at June 30, 1995 and 1996,
respectively and $906,387 (unaudited) at March 28, 1997.
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>
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.
INTEREST RATE SWAP AGREEMENTS--Income or expense resulting from interest
rate swap 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 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 agreements are
recognized as other income (expense) when terminated in conjunction with the
retirement of the associated debt. Gains and losses are deferred and amortized
to interest expense over the remaining life of the associated debt to the
extent such debt remains outstanding. Redesignations which are appropriately
matched against underlying debt instruments will continue to qualify for
settlement accounting.
F-9
<PAGE>
GFSI, INC.
(FORMERLY WINNING WAYS, INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1995 AND 1996 AND
NINE MONTHS ENDED MARCH 31, 1996 AND MARCH 28, 1997 (UNAUDITED)
ADVERTISING COSTS. All costs related to advertising the Company's products
are expensed in the period incurred. Advertising expenses totaled $813,320,
$865,341, and $1,011,784 for the years ended June 30, 1994, 1995 and 1996,
respectively, and $781,865 (unaudited) and $1,108,537 (unaudited) for the nine
months ended March 31, 1996 and March 28, 1997, respectively.
INCOME TAXES--Effective July 1, 1982, the Company 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 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, the Company 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.
In addition upon consummation of the Transactions, the Company became a
party to a tax-sharing agreement with Holdings. As such, the taxable income of
the Company is included in the consolidated federal and state income tax
returns of Holdings. The Company's income tax provision subsequent to February
27, 1997 has been calculated as if the Company would have filed separate
federal and state income tax returns.
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.
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.
UNAUDITED INTERIM FINANCIAL INFORMATION--The unaudited interim financial
information as of March 28, 1997 and for the nine months ended March 31, 1996
and March 28, 1997 has been prepared on the same basis as the audited
financial statements. In the opinion of management, such unaudited information
includes all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of the interim information. Operating
results for the nine months ended March 28, 1997 are not necessarily
indicative of the results that may be expected for the entire year ending June
30, 1997.
NEW ACCOUNTING STANDARDS--Statement of Financial Accounting Standards 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.
F-10
<PAGE>
GFSI, INC.
(FORMERLY WINNING WAYS, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
JUNE 30,
----------------------- MARCH 28,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land....................................... $ 2,442,373 $ 2,442,373 $ 2,442,373
Buildings and improvements................. 17,235,686 18,392,598 19,140,216
Furniture and fixtures..................... 15,851,182 16,722,972 15,848,370
----------- ----------- -----------
35,529,241 37,557,943 37,430,959
Less accumulated depreciation.............. 11,779,797 14,521,591 16,292,088
----------- ----------- -----------
23,749,444 23,036,352 21,138,871
Construction in progress................... 1,762 2,237 1,045,918
----------- ----------- -----------
$23,751,206 $23,038,589 $22,184,789
=========== =========== ===========
</TABLE>
The net book value of assets under capital lease were $1,653,662 and
$1,576,876 at June 30, 1995 and 1996, 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 is based on a 40
basis point spread over bankers acceptance, federal funds, or LIBOR rates
adjusted daily. The line is 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 $8,000,000 and $7,000,000 at June 30, 1995 and 1996, respectively.
Letters of credit against this line for unshipped merchandise aggregated
$18,708,772, and $23,512,080 at June 30, 1995 and 1996, respectively.
As discussed in Note 9 to the financial statements, the floating interest
rate on the above line of credit is 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 fluctuates based on the Company's anticipated
level of short term borrowing with the maximum notional amount equalling
$33,100,000. This interest rate swap agreement was terminated on February 27,
1997 in conjunction with the early retirement of debt. The gain realized by
the Company of $300,000 on the terminated swap was deferred and will be
amortized over the life of the New Credit Agreement.
In conjunction with the recapitalization transactions (see note 1), the
Company replaced the $40,000,000 unsecured line of credit whereby, at March
28, 1997, the Company had a $50,000,000 secured line of credit (the "Line")
with floating interest of 7.81%. The Line is secured by substantially all of
the property of the Company and is subject to general and financial covenants
that place certain restrictions on the Company. The Company 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 (unaudited) at March 28, 1997.
F-11
<PAGE>
GFSI, INC.
(FORMERLY WINNING WAYS, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Letters of credit against this line at March 28, 1997, for unshipped
merchandise aggregated $18,610,609 (unaudited). Stand-by letters of credit
issued against the line at March 28, 1997, aggregated $18,105,686 (unaudited).
5. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
JUNE 30,
----------------------- MARCH 28,
1995 1996 1997
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
10.125% credit agreement with bank to
borrow up to $10,000,000, unsecured,
payable in monthly principal
installments of $119,048 plus interest
through July 1, 1997 when the remaining
unpaid principal and accrued interest
is due (paid off on February 27, 1997-
unaudited).............................. $ 5,714,286 $ 4,285,714 $ --
Floating interest $10,000,000 line of
credit agreement maturing in July 1997.
Interest was 5.71% at June 30, 1996 and
6.00% at December 31, 1996 (paid off on
February 27, 1997-unaudited)............ 9,000,000 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 through February 1, 2006 when
the remaining unpaid principal and
accrued interest is due (paid off on
February 27, 1997-unaudited)............ 9,631,130 9,550,324 --
5.78% Industrial revenue bonds, payable
in amounts equal to the principal and
interest payments due on the bonds
through 1998 (paid off on February 27,
1997-unaudited)......................... 570,000 440,000 --
Senior Subordinated Notes, 9.625%
interest rate, due 2007................. -- -- 125,000,000
Term Loan A, variable interest rate,
7.81% at March 28, 1997, due 2002....... -- -- 40,000,000
Term Loan B, variable interest rate,
8.31% at March 28, 1997, due 2004....... -- -- 25,000,000
----------- ----------- ------------
24,915,416 22,276,038 190,000,000
Less current portion..................... 1,639,443 1,658,160 3,375,000
----------- ----------- ------------
$23,275,973 $20,617,878 $186,625,000
=========== =========== ============
</TABLE>
The above agreements which were in effect at June 30, 1995 and 1996
contained certain restrictions and covenants, 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.
As discussed in Note 9 to the financial statements, the floating interest
rate on the $10,000,000 line of credit agreement is partially converted to
fixed interest rate of 5.62% by a $7,000,000 notional amount interest rate
swap agreement terminating on November 18, 2000. The floating interest rate is
based generally on the higher of the corporate base rate of 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. Accordingly, the unrealized gain of
$173,208 at termination was not recognized.
F-12
<PAGE>
GFSI, INC.
(FORMERLY WINNING WAYS, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Scheduled reduction of long-term debt at June 30, 1996 is as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
--------------------
<S> <C>
1997.......................................................... $ 1,658,160
1998.......................................................... 11,101,387
1999.......................................................... 264,942
2000.......................................................... 121,792
2001.......................................................... 134,919
Thereafter.................................................... 8,994,838
-----------
$22,276,038
===========
</TABLE>
Included in the foregoing schedule of long-term debt as of June 30, 1995 and
1996 is the following capital lease information on the Company's 100,000
square foot manufacturing and distribution facility. At March 28, 1997, no
capital lease obligations were outstanding.
<TABLE>
<CAPTION>
JUNE 30,
----------------- MARCH 28,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Total minimum lease payments..................... $639,326 $479,657 $ --
Less amounts representing interest............... 69,326 39,657 --
-------- -------- --------
Present value of net minimum lease payments...... $570,000 $440,000 $ --
======== ======== ========
</TABLE>
On February 27, 1997 (unaudited), 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 $20,000,000 ("Term Loan B" and collectively, with Term Loan A, the "Term
Loans") and (iii) the $50,000,000 secured line of credit. 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 of
the Company and is subject to general and financial covenants that place
certain restrictions on the Company. The Company 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.
In addition, on February 27, 1997, the Company issued the 9 5/8% Senior
Subordinated Notes due 2007 (the "Subordinated Notes") in the aggregate
principal amount of $125,000,000 in a Regulation 144A private placement.
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 September 1 and March 1, commencing September 1, 1997. The
Subordinated Notes mature on March 1, 2006 and are redeemable, in whole or in
part, at the option of the Company 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>
F-13
<PAGE>
GFSI, INC.
(FORMERLY WINNING WAYS, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
At any time prior to March 1, 2000, the Company may redeem up to 40% of the
original aggregate principal amount of the 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, the Company will be
required, subject to certain conditions, to make an offer to purchase the
Subordinated Notes at a price equal to 101% of the principal amount plus
accrued and unpaid interest to the date of purchase.
The Subordinated Notes are senior unsecured obligations of the Company and
pursuant to the terms of the 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 the Company, including
borrowings under the New Credit Agreement.
At March 28, 1997, the Subordinated Notes estimated fair value approximated
their carrying value.
The 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 March 28, 1997, the Company was
in compliance with all such covenants.
Aggregate maturities of the Company's long-term debt as of March 28, 1997
are as follows assuming a 52/53 week fiscal year:
<TABLE>
<CAPTION>
FISCAL YEAR,
------------
<S> <C>
1998...................................................... $ 3,375,000
1999...................................................... 4,875,000
2000...................................................... 6,125,000
2001...................................................... 7,625,000
2002...................................................... 9,500,000
Thereafter................................................ 158,500,000
------------
Total..................................................... $190,000,000
============
</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 nine months ended March 28, 1997 of $2,474,085 ($1,484,451 on an
after-tax basis). This loss consisted of a $83,538 ($50,123 on an after-tax
basis) of deferred financing costs related to the repayment of the Company's
debt and a prepayment penalty of $2,390,547 ($1,434,328 on an after-tax basis)
incurred in connection with the prepayment of the Company's first mortgage
loan.
6. 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 the Company 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-14
<PAGE>
GFSI, INC.
(FORMERLY WINNING WAYS, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. PROFIT SHARING AND (401K) PLAN
The Company provides a non-contributory defined contribution profit sharing
plan (the "Plan") covering all eligible employees. Contributions are at the
discretion of the Board of Directors of the Company and totaled $1,079,215 and
$875,756 for the years ended June 30, 1995 and 1996, respectively.
On August 1, 1996, the Company amended the Plan to include employee directed
contributions with an annual Company 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
$168,651 (unaudited) and $263,062 (unaudited), respectively, for the nine
months ended March 28, 1997.
8. INCOME TAXES (UNAUDITED)
The provision for income taxes for the nine months ended March 28, 1997
consists of the following.
<TABLE>
<CAPTION>
MARCH 28,
1997
-----------
(UNAUDITED)
<S> <C>
Current income tax benefit........................................ ($ 664,529)
Deferred income tax provision..................................... 993,621
-----------
Total income tax provision........................................ $ 329,092
===========
Allocated to:
Operating activities............................................. $1,318,726
Extraordinary loss............................................... (989,634)
-----------
$ 329,092
===========
</TABLE>
The income tax provision differs from amounts computed at the statutory
federal income tax rate as follows:
<TABLE>
<CAPTION>
MARCH 28, 1997
-----------------
AMOUNT %
---------- -----
(UNAUDITED)
<S> <C> <C>
Income tax provision at the statutory rate................... $9,431,050 35.0%
Income attributable to S-Corporation earnings................ (9,146,583) (33.9)
Change in tax status to C-Corporation........................ 993,621 3.7
Effect of state income taxes, net of federal benefit......... 40,638 0.1
---------- -----
$1,318,726 4.9%
========== =====
</TABLE>
The Company's operating results are included in Holding's consolidated
income tax returns. The provision for current income taxes is based on the
Company's taxable income calculated as if the Company filed a separate tax
return.
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 March 28, 1997, along with
the income tax effect of each, are as follows:
F-15
<PAGE>
GFSI, INC.
(FORMERLY WINNING WAYS, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
MARCH 28, 1997
DEFERRED INCOME TAX
--------------------
CURRENT LONG-TERM
ASSETS LIABILITIES
-------- -----------
(UNAUDITED)
<S> <C> <C>
Accounts receivable........................................ $218,392 $ --
Inventory valuation........................................ 239,666 --
Property, plant, and equipment............................. -- 1,509,425
Accrued expenses........................................... 57,746 --
-------- ----------
Total...................................................... $515,804 $1,509,425
======== ==========
</TABLE>
9. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company engages in transactions which result in off-balance sheet risk.
Interest rate swap 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. 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 agreements only with major financial
institutions.
The fair values of the Company's interest rate swap agreements are not
recognized in the financial statements as they 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>
June 30, 1995....................... $ 7,000,000 $219,000 5.83% 5.62%
June 30, 1996....................... 21,900,000 850,000 5.39 5.62
March 28, 1997 (unaudited).......... 7,000,000 249,000 5.47 5.43
</TABLE>
The Company has entered into two interest rate swap agreements to exchange
fixed interest rates for floating rate debt payments. One interest rate swap
agreement carries a notional amount of $7,000,000 and terminates on November
18, 2000 as further described in Note 5 to the financial statements. The
notional amount of the other interest rate swap agreement fluctuates based on
the Company's anticipated level of short-term borrowing with the maximum
notional amount equalling $33,100,000 as further described in Note 4 to the
financial statements. This agreement was entered into in January 1996 to be
effective July 1, 1996. The interest rate swap agreement was terminated on
February 27, 1997.
10. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statements of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires that the Company 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.
F-16
<PAGE>
GFSI, INC.
(FORMERLY WINNING WAYS, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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--Short-term borrowings 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.
INTEREST RATE SWAP AGREEMENTS--Quoted market prices or dealer quotes are
used to estimate the fair value of interest rate swap agreements.
The following summarizes the estimated fair value of financial instruments,
by type:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------------------------
1995 1996 MARCH 28, 1997
----------------------- ----------------------- -----------------------
(UNAUDITED)
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Assets and liabilities:
Cash and cash
equivalents............ $ 112,459 $ 112,459 $ 139,977 $ 139,977 $ 5,568,997 $ 5,568,997
Accounts receivable..... 18,080,480 18,080,480 22,583,452 22,583,452 25,562,086 25,562,086
Short-term borrowings... 8,000,000 8,000,000 7,000,000 7,000,000 3,000,000 3,000,000
Accounts payable........ 7,383,223 7,383,223 9,667,536 9,667,536 8,079,744 8,079,744
Long-term debt.......... 24,915,416 27,387,454 22,276,038 24,562,702 190,000,000 190,000,000
Off Balance Sheet
Financial Instruments:
Interest rate swap
agreements
(asset/(liability)) ... -- 219,000 -- 850,000 -- 249,000
</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.
11. 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 and $3,080,718 for the years ended June 30,
1995 and 1996, respectively, and $3,443,695 (unaudited) for the nine months
ended March 28, 1997.
F-17
<PAGE>
During the nine months ended March 28, 1997 (unaudited), 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. Each
of the promissory notes is unsecured, has an interest rate of 6.8% per annum
and matures July 1, 2000.
Subsequent to the consummation of the transactions at February 27, 1997, and
prior to March 28, 1997, a shareholder purchased the corporate aircraft from
the Company resulting in no gain or loss to the Company.
Subsequent to March 28, 1997, the cash value of life insurance was
liquidated into cash or transferred to the respective individuals at carrying
value. As a result, cash surrender value of life insurance is included in the
accompanying balance sheet at March 28, 1997, as a current asset.
F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
GFSI, Inc.
Lenexa, Kansas
We have audited the accompanying balance sheet of GFSI, Inc. ("GFSI") as of
January 23, 1997. This financial statement is the responsibility of GFSI's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is 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 balance sheet presents fairly, in all material
respects, the financial position of GFSI as of January 23, 1997 in conformity
with generally accepted accounting principles.
As described in Note 2 to the balance sheet, GFSI, Inc. completed
recapitalization transactions on February 27, 1997 which included the merger
of Winning Wasy, Inc. with and into GFSI, Inc. with GFSI, Inc. as the
surviving entity.
Deloitte & Touche LLP
Kansas City, Missouri
January 24, 1997
[February 27, 1997 as to Note 2]
F-19
<PAGE>
GFSI, INC.
BALANCE SHEET
JANUARY 23, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash.................................................................... $100
----
Total................................................................. $100
====
STOCKHOLDER'S EQUITY
Common Stock, $.01 par value; 10,000 shares authorized; 1 share issued
and outstanding........................................................ $ 1
Additional paid-in-capital.............................................. 99
----
Total................................................................. $100
====
</TABLE>
See notes to balance sheet.
F-20
<PAGE>
GFSI, INC.
NOTES TO BALANCE SHEET
JANUARY 23, 1997
1. FORMATION
GFSI, a Delaware corporation, was formed on January 15, 1997. GFSI for the
sole purpose of becoming a wholly-owned subsidiary of GFSI Holdings, Inc.
("Holdings") concurrent with the consummation of the acquisition of Winning
Ways, Inc. (the "Acquisition"), described below.
GFSI is expected to affect an acquisition of Winning Ways, Inc. for a total
purchase price of $232.9 million, subject to certain post-closing net worth
adjustments, with closing to occur in February 1997. In order to finance the
Acquisition, GFSI intends to offer $125.0 million in aggregate principal
amount of Senior Subordinated Notes in a Rule 144A private placement
transaction.
In addition to the Senior Subordinated Notes, GFSI is expecting to enter
into a new credit facility and receive contributions of capital from Holdings
in order to complete the Acquisition.
GFSI received an initial capital contribution of $100 on January 16, 1997 in
exchange for 1 share of common stock. There have been no other transactions
involving GFSI as of January 23, 1997.
2. SUBSEQUENT EVENT
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") and GFSI, Inc. (the "Company"), a wholly owned
subsidiary of Holdings, to effect the acquisition of Winning Ways. On February
27, 1997, pursuant to the acquisition agreement, Holdings and the Company
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 to the
Company 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: (1) 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 the Company (the "Equity
Contribution"); (ii) the Company 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 commercial and stand-by
letters of credit at Closing; and (iii) the Company issued $125.0 million of
Senior Subordinates 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 form the Jordon 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.
Subsequent to the recapitalization transactions described above, the Company
is a wholly-owned subsidiary of Holdings. Holdings is dependent upon the cash
flows of the Company to provide funds to serve $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).
Additionally, Holdings' cumulative non-cash preferred stock dividends will
total $3.2 million annually. Holdings preferred stock may be redeemed at
stated value ($27.0 million) plus accrued dividends with mandatory redemption
in 2009. The annual cash flow requirements relative to the Holdings
subordinated notes and Holdings preferred stock will not be refected in the
financial statements of the Company.
F-21
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON IS AUTHORIZED IN CONNECTION WITH ANY
OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRE-
SENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR
BY THE INITIAL PURCHASERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN SECURITIES OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION
IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................. 1
Risk Factors............................................................. 15
The Transactions......................................................... 22
Use of Proceeds.......................................................... 23
Capitalization........................................................... 24
Selected Historical Financial Data....................................... 25
Management's Discussion and Analysis of Results of Operations and
Financial Condition..................................................... 27
Business................................................................. 34
Management............................................................... 44
Principal Stockholders................................................... 49
The Exchange Offer....................................................... 50
Description of Notes..................................................... 59
Description of Certain Indebtedness...................................... 87
Certain Transactions..................................................... 88
Plan of Distribution..................................................... 90
Federal Income Tax Consequences.......................................... 91
Legal Matters............................................................ 91
Experts.................................................................. 91
Available Information.................................................... 92
Unaudited Pro Forma Statements of Income................................. P-1
Index to Financial Statements............................................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$125,000,000
GFSI, INC.
9 5/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2007
----------------
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 attorneys' 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 to 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 met 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 if 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 may be entitled under any by-laws, agreement, vote
of stockholders or otherwise.
(b) The Certificate of Incorporation of the registrant requires, and the By-
Laws of the registrant provides for, indemnification of directors, officers,
employees and agents to the full extent permitted by law.
(c) 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
set forth below and in the Exhibit Index that immediately precedes such
exhibits.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION SEQ. #
------- ----------- ------
<C> <S> <C>
1 Purchase Agreement, dated February 27, 1997, by and among *
GFSI, Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and Jefferies & Company, Inc.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION SEQ. #
------- ----------- ------
<C> <S> <C>
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.
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.
2.3 Plan of Merger, dated February 27, 1997, between GFSI, Inc. *
and Winning Ways, Inc.
3.1 Certificate of Incorporation of GFSI, Inc. *
3.2 Bylaws of GFSI, Inc. *
4.1 Indenture, dated February 27, 1997, between GFSI, Inc. and *
Fleet National Bank, as Trustee
4.2 Global Series A Senior Subordinated Note *
4.3 Form of Global Series B Senior Subordinated Note *
4.4 Registration Rights Agreement, dated February 27, 1997, by *
and among GFSI, Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and Jefferies & Company, Inc.
4.5 Subscription and Stockholders Agreement, dated February 27, *
1997, by and among GFSI, Inc. and the investors listed
thereto
4.6 Deferred Limited Interest Guaranty, dated February 27, 1997 *
by GFSI, Inc. to MCIT PLC
5 Opinion of Mayer, Brown & Platt *
8 Tax Opinion *
10.1 Credit Agreement, dated February 27, 1997, by and among GFSI,
Inc., the lenders listed thereto and The First National Bank
of Chicago, as Agent
10.2 Security Agreement, dated February 27, 1997, between GFSI,
Inc. and The First National Bank of Chicago, as Agent
10.3 Trademark Security Agreement, dated February 27, 1997, *
between GFSI, Inc. and The First National Bank of Chicago, as
Agent
10.4 Mortgage, Security Agreement, Financing Statement and
Assignment of Rents and Leases, dated February 27, 1997, by
GFSI, Inc. in favor of The First National Bank of Chicago
10.5(a) Restricted Account Agreement, dated February 27, 1997, *
between GFSI, Inc. and Boatmen's National Bank
10.5(b) Restricted Account Agreement, dated February 27, 1997, *
between GFSI, Inc. and Hillcrest Bank
10.6 Tax Sharing Agreement, dated February 27, 1997, between GFSI, *
Inc. and GFSI Holdings, Inc.
10.7 Management Consulting Agreement, dated February 27, 1997, *
between GFSI Holdings, Inc. and TJC Management Corporation
10.8 Employment Agreement, dated February 27, 1997, between GFSI, *
Inc. and Robert M. Wolff
10.9 Noncompetition Agreement, dated February 27, 1997, between *
GFSI Holdings, Inc. and Robert M. Wolff
10.10 Form of Indemnification Agreement, dated February 27, 1997, *
between GFSI Holdings, Inc. and its director and executive
officers
10.11 Promissory Note, dated August 12, 1996, between Winning Ways, *
Inc. and Impact Design, Inc.
10.12 Promissory Note, dated August 12, 1996, between Winning Ways, *
Inc. and Kansas Custom Embroidery.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION SEQ. #
------- ----------- ------
<C> <S> <C>
10.13 Form of Promissory Note, dated February 27, between GFSI *
Holdings, Inc. and the Management Investors.
10.14 License Agreement, dated April 1, 1994, by and between
Winning Ways, Inc. and Softwear Athletics, Inc.
12 Statement re: Computation of Ratios *
16 Letter re: Change in Certifying Accountant *
Consent of Mayer, Brown & Platt (included in the opinion
23.1 filed as Exhibit 5) *
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Donnelly Meiners Jordan and Kline
Power of Attorney (included on the signature page in Part II
24 of the Registration Statement) *
25 Statement of Eligibility of Trustee *
27 Financial Data Schedule *
99 Form of Letter of Transmittal
</TABLE>
++ The schedules and exhibits to the agreements have not been filed pursuant
to Items 601(b)(2) of Regulation S-K. Such schedules and exhibits will be
filed supplementally upon the request of the Securities and Exchange
Commission.
* Previously filed.
(b) Financial Statement Schedules:
All 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.
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 statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(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 file
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;
II-3
<PAGE>
(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 that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
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.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(e) 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.
(f) The registrant has 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 securityholder 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 registrant acknowledges that such a secondary resale
transaction should be covered by an effective registration statement
containing the selling securityholder information required by Item 507 of
Regulation S-K.
II-4
<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 of New York, on July 22, 1997.
GFSI, INC.
/s/ A. Richard Caputo, Jr.
By __________________________________
A. RICHARD CAPUTO, JR.
VICE PRESIDENT AND DIRECTOR
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 July 22, 1997.
SIGNATURES TITLE
* Chairman and a Director
- -------------------------------------
ROBERT M. WOLFF
* President, Chief Operating Officer
- ------------------------------------- and a Director
JOHN L. MENGHINI (Principal Executive Officer)
* Senior Vice President, Finance and a
- ------------------------------------- Director (Principal Financial and
ROBERT G. SHAW Accounting Officer)
* Senior Vice President, Merchandising
- ------------------------------------- and a Director
LARRY D. GRAVEEL
* Vice President and a Director
- -------------------------------------
A. RICHARD CAPUTO, JR.
* Director
- -------------------------------------
JOHN W. JORDAN II
* Director
- -------------------------------------
DAVID W. ZALAZNICK
/s/ A. Richard Caputo, Jr.
By __________________________________
NAME: A. RICHARD CAPUTO, JR. AS
ATTORNEY-IN-FACT
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION SEQ. #
------- ----------- ------
<C> <S> <C>
1 Purchase Agreement, dated February 27, 1997, by and among *
GFSI, Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and Jefferies & Company, Inc.
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.
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.
2.3 Plan of Merger, dated February 27, 1997, between GFSI, Inc. *
and Winning Ways, Inc.
3.1 Certificate of Incorporation of GFSI, Inc. *
3.2 Bylaws of GFSI, Inc. *
4.1 Indenture, dated February 27, 1997, between GFSI, Inc. and *
Fleet National Bank, as Trustee
4.2 Global Series A Senior Subordinated Note *
4.3 Form of Global Series B Senior Subordinated Note *
4.4 Registration Rights Agreement, dated February 27, 1997, by *
and among GFSI, Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and Jefferies & Company, Inc.
4.5 Subscription and Stockholders Agreement, dated February 27, *
1997, by and among GFSI, Inc. and the investors listed
thereto
4.6 Deferred Limited Interest Guaranty, dated February 27, 1997 *
by GFSI, Inc. to MCIT PLC
5 Opinion of Mayer, Brown & Platt *
8 Tax Opinion *
10.1 Credit Agreement, dated February 27, 1997, by and among GFSI,
Inc., the lenders listed thereto and The First National Bank
of Chicago, as Agent
10.2 Security Agreement, dated February 27, 1997, between GFSI,
Inc. and The First National Bank of Chicago, as Agent
10.3 Trademark Security Agreement, dated February 27, 1997, *
between GFSI, Inc. and The First National Bank of Chicago, as
Agent
10.4 Mortgage, Security Agreement, Financing Statement and
Assignment of Rents and Leases, dated February 27, 1997, by
GFSI, Inc. in favor of The First National Bank of Chicago
10.5(a) Restricted Account Agreement, dated February 27, 1997, *
between GFSI, Inc. and Boatmen's National Bank
10.5(b) Restricted Account Agreement, dated February 27, 1997, *
between GFSI, Inc. and Hillcrest Bank
10.6 Tax Sharing Agreement, dated February 27, 1997, between GFSI, *
Inc. and GFSI Holdings, Inc.
10.7 Management Consulting Agreement, dated February 27, 1997, *
between GFSI Holdings, Inc. and TJC Management Corporation
10.8 Employment Agreement, dated February 27, 1997, between GFSI, *
Inc. and Robert M. Wolff
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION SEQ. #
------- ----------- ------
<C> <S> <C>
10.9 Noncompetition Agreement, dated February 27, 1997, between *
GFSI Holdings, Inc. and Robert M. Wolff
10.10 Form of Indemnification Agreement, dated February 27, 1997, *
between GFSI Holdings, Inc. and its director and executive
officers
10.11 Promissory Note, dated August 12, 1996, between Winning Ways, *
Inc. and Impact Design, Inc.
10.12 Promissory Note, dated August 12, 1996, between Winning Ways, *
Inc. and Kansas Custom Embroidery.
10.13 Form of Promissory Note, dated February 27, between GFSI *
Holdings, Inc. and the Management Investors.
10.14 License Agreement, dated April 1, 1994, by and between
Winning Ways, Inc. and Softwear Athletics, Inc.
12 Statement re: Computation of Ratios *
16 Letter re: Change in Certifying Accountant *
Consent of Mayer, Brown & Platt (included in the opinion
23.1 filed as Exhibit 5) *
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Donnelly Meiners Jordan and Kline
Power of Attorney (included on the signature page in Part II
24 of the Registration Statement) *
25 Statement of Eligibility of Trustee *
27 Financial Data Schedule *
99 Form of Letter of Transmittal
</TABLE>
++ The schedules and exhibits to the agreements have not been filed pursuant
to Items 601(b)(2) of Regulation S-K. Such schedules and exhibits will be
filed supplementally upon the request of the Securities and Exchange
Commission.
* Previously filed.
<PAGE>
EXECUTION COPY
================================================================================
CREDIT AGREEMENT
Dated as of February 27, 1997
among
GFSI, INC.
THE INSTITUTIONS FROM TIME TO TIME
PARTIES HERETO AS LENDERS
and
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I: DEFINITIONS...........................................................................................1
1.2 References....................................................................................36
1.3 Supplemental Disclosure.......................................................................36
ARTICLE II: THE CREDITS.........................................................................................37
(a) Term Loan A.........................................................................................37
(i) Amount of Term Loan A.....................................................................37
(ii) Borrowing Notice.........................................................................37
(iii) Making of Term Loans....................................................................37
(iv) Repayment of the A Term Loans............................................................37
(b) Term Loan B.........................................................................................39
(i) Amount of Term Loan B.....................................................................39
(ii) Borrowing Notice.........................................................................39
(iii) Making of Term Loans....................................................................39
(iv) Repayment of the B Term Loans............................................................39
2.2 Revolving Loans....................................................................................41
2.3 Swing Line Loans...................................................................................41
2.4 Rate Options for all Advances......................................................................43
2.5 Optional Payments; Mandatory Prepayments...........................................................43
(A) Optional Payments.........................................................................43
(B) Mandatory Prepayments.....................................................................43
2.6 Reduction of Commitments...........................................................................45
2.7 Method of Borrowing................................................................................46
2.8 Method of Selecting Types and Interest Periods for Advances........................................46
2.9 Minimum Amount of Each Advance.....................................................................46
2.10 Method of Selecting Types and Interest Periods for Conversion and
Continuation of Advances.......................................................................46
(A) Right to Convert..........................................................................46
(B) Automatic Conversion and Continuation.....................................................46
(C) No Conversion Post-Default or Post-Unmatured Default......................................47
(D) Conversion/Continuation Notice............................................................47
2.11 Default Rate......................................................................................47
2.12 Collections Account Arrangements..................................................................47
2.13 Method of Payment.................................................................................47
2.14 Notes, Telephonic Notices.........................................................................48
2.15 Promise to Pay; Interest and Fees; Interest Payment Dates; Interest and Fee Basis;
Taxes; Loan and Control Accounts..............................................................48
(A) Promise to Pay............................................................................48
(B) Interest Payment Dates....................................................................48
(C) Commitment Fees...........................................................................49
</TABLE>
- i -
<PAGE>
<TABLE>
<S> <C>
(D) Interest and Fee Basis; Applicable Eurodollar Margin; Applicable Floating
Rate Margin and Applicable Commitment Fee Percentage..................................49
(E) Taxes.....................................................................................51
(F) Loan Account..............................................................................54
(G) Control Account...........................................................................54
(H) Entries Binding...........................................................................54
2.16 Notification of Advances, Interest Rates, Prepayments and Aggregate Revolving
Loan Commitment Reductions....................................................................54
2.17 Lending Installations.............................................................................54
2.18 Non-Receipt of Funds by the Agent.................................................................54
2.19 Termination Date..................................................................................55
2.20 Replacement of Certain Lenders....................................................................55
2.21 Letter of Credit Facility.........................................................................56
2.22 Letter of Credit Participation....................................................................57
2.23 Reimbursement Obligation..........................................................................58
2.24 Cash Collateral...................................................................................58
2.25 Letter of Credit Fees.............................................................................59
2.26 Indemnification; Exoneration......................................................................59
2.27 Issuing Lender Reporting Requirements.............................................................60
ARTICLE III: CHANGE IN CIRCUMSTANCES............................................................................60
3.1 Yield Protection...................................................................................60
3.2 Changes in Capital Adequacy Regulations............................................................61
3.3 Availability of Types of Advances..................................................................62
3.4 Funding Indemnification............................................................................62
3.5 Lenders' Duty to Mitigate; Lender Statements; Survival of Indemnity................................63
ARTICLE IV: CONDITIONS PRECEDENT................................................................................63
4.1 Initial Advances and Letters of Credit.............................................................63
4.2 Each Advance and Letter of Credit..................................................................65
ARTICLE V: REPRESENTATIONS AND WARRANTIES.......................................................................65
5.1 Organization; Corporate Powers....................................................................65
5.2 Authority.........................................................................................66
5.3 No Conflict; Governmental Consents................................................................66
5.4 Financial Statements..............................................................................67
5.5 No Material Adverse Change........................................................................67
5.6 Taxes.............................................................................................68
(A) Tax Examinations..........................................................................68
(B) Payment of Taxes..........................................................................68
5.7 Litigation; Loss Contingencies and Violations.....................................................68
5.8 Subsidiaries......................................................................................69
5.9 ERISA.............................................................................................69
5.10 Accuracy of Information...........................................................................70
5.11 Securities Activities.............................................................................70
5.12 Material Agreements...............................................................................71
</TABLE>
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5.13 Compliance with Laws..............................................................................71
5.14 Assets and Properties.............................................................................71
5.15 Statutory Indebtedness Restrictions...............................................................71
5.16 Post-Retirement Benefits..........................................................................71
5.17 Insurance.........................................................................................71
5.18 Indebtedness of Target; Refinanced Indebtedness; Contingent Obligations...........................72
5.19 Labor Matters.....................................................................................72
5.20 The Stock Acquisition; Minimum Equity Contributions...............................................73
5.21 Environmental Matters.............................................................................73
5.22 Capitalization....................................................................................74
5.23 The Offering and Sale of the Senior Subordinated Notes............................................74
5.24 Solvency..........................................................................................75
ARTICLE VI: COVENANTS...........................................................................................75
6.1 Reporting..........................................................................................75
(A) Financial Reporting.......................................................................75
(B) Notice of Default.........................................................................77
(C) Lawsuits..................................................................................77
(D) Insurance.................................................................................78
(E) ERISA Notices.............................................................................78
(F) Labor Matters.............................................................................79
(G) Other Indebtedness........................................................................79
(H) Other Reports.............................................................................80
(I) Environmental Notices.....................................................................80
(J) Borrowing Base Certificate................................................................80
(K) Other Information.........................................................................80
6.2 Affirmative Covenants..............................................................................81
(A) Corporate Existence, Etc..................................................................81
(B) Corporate Powers; Conduct of Business.....................................................81
(C) Compliance with Laws, Etc.................................................................81
(D) Payment of Taxes and Claims; Tax Consolidation............................................81
(E) Insurance.................................................................................81
(F) Inspection of Property; Books and Records; Discussions....................................82
(G) Insurance and Condemnation Proceeds.......................................................82
(H) ERISA Compliance..........................................................................83
(I) Maintenance of Property...................................................................83
(J) Environmental Compliance..................................................................84
(K) Use of Proceeds...........................................................................84
(L) Hedging Agreements........................................................................84
(M) Separate Corporate Existence..............................................................84
(N) Future Liens on Real Property.............................................................85
(O) Appraisals; Title Policy Endorsements.....................................................86
6.3 Negative Covenants.................................................................................86
(A) Indebtedness..............................................................................86
(B) Sales of Assets...........................................................................88
(C) Liens.....................................................................................90
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(D) Investments...............................................................................91
(E) Contingent Obligations....................................................................92
(F) Restricted Payments.......................................................................93
(G) Conduct of Business; Subsidiaries; Acquisitions...........................................96
(H) Transactions with Shareholders and Affiliates.............................................98
(I) Restriction on Fundamental Changes........................................................99
(J) Sales and Leasebacks; Off Balance Sheet Liabilities.......................................99
(K) Margin Regulations........................................................................99
(L) ERISA.....................................................................................99
(M) Issuance of Capital Stock................................................................100
(N) Corporate Documents......................................................................100
(O) Other Indebtedness.......................................................................101
(P) Fiscal Year..............................................................................102
(Q) Subsidiary Covenants.....................................................................102
(R) Hedging Obligations......................................................................102
(S) Change of Deposit Accounts...............................................................102
6.4 Financial Covenants...............................................................................102
(A) Defined Terms for Financial Covenants....................................................102
(B) Interest Expense Coverage Ratio..........................................................104
(C) Fixed Charge Coverage Ratio..............................................................105
(D) Maximum Leverage Ratio...................................................................106
ARTICLE VII: DEFAULTS..........................................................................................107
7.1 Defaults..........................................................................................107
ARTICLE VIII: ACCELERATION, DEFAULTING LENDERS; WAIVERS,
AMENDMENTS AND REMEDIES................................................................................112
8.1 Termination of Commitments; Acceleration..........................................................112
8.2 Defaulting Lender.................................................................................112
8.3 Amendments........................................................................................114
8.4 Preservation of Rights............................................................................115
ARTICLE IX: GENERAL PROVISIONS.................................................................................115
9.1 Survival of Representations.......................................................................115
9.2 Governmental Regulation...........................................................................115
9.3 Performance of Obligations........................................................................115
9.4 Headings..........................................................................................116
9.5 Entire Agreement..................................................................................116
9.6 Several Obligations; Benefits of this Agreement...................................................116
9.7 Expenses; Indemnification.........................................................................116
(A) Expenses.................................................................................116
(B) Indemnity................................................................................117
(C) Waiver of Certain Claims; Settlement of Claims...........................................118
(D) Survival of Agreements...................................................................118
9.8 Accounting.......................................................................................118
9.9 Severability of Provisions.......................................................................118
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9.10 Nonliability of Lenders...........................................................................118
9.11 GOVERNING LAW.....................................................................................118
9.12 CONSENT TO JURISDICTION; SERVICE OF PROCESS; WAIVER
OF BOND.......................................................................................119
(A) EXCLUSIVE JURISDICTION...................................................................119
(B) OTHER JURISDICTIONS......................................................................119
(C) SERVICE OF PROCESS; WAIVERS..............................................................119
(D) WAIVER OF BOND...........................................................................120
9.13 JURY TRIAL WAIVER; ADVICE OF COUNSEL..............................................................120
(A) WAIVER OF JURY TRIAL.....................................................................120
(B) ADVICE OF COUNSEL........................................................................120
9.14 Subordination of Intercompany Indebtedness.......................................................120
9.15 No Strict Construction...........................................................................121
ARTICLE X: THE AGENT...........................................................................................122
10.1 Appointment; Nature of Relationship.............................................................122
10.2 Powers..........................................................................................122
10.3 General Immunity................................................................................122
10.4 No Responsibility for Loans, Creditworthiness, Collateral, Recitals, Etc........................122
10.5 Action on Instructions of Lenders...............................................................123
10.6 Employment of Agents and Counsel................................................................123
10.7 Reliance on Documents; Counsel..................................................................123
10.8 The Agent's Reimbursement and Indemnification...................................................123
10.9 Rights as a Lender..............................................................................124
10.10 Lender Credit Decision..........................................................................124
10.11 Successor Agent.................................................................................124
10.12 Collateral Documents............................................................................124
ARTICLE XI: SETOFF; RATABLE PAYMENTS...........................................................................125
11.1 Setoff...........................................................................................125
11.2 Ratable Payments.................................................................................125
11.3 Application of Payments..........................................................................126
11.4 Relations Among Lenders..........................................................................127
ARTICLE XII: BENEFIT OF AGREEMENT; ASSIGNMENTS;
PARTICIPATIONS........................................................................................127
12.1 Successors and Assigns...........................................................................127
12.2 Participations...................................................................................128
(A) Permitted Participants; Effect...........................................................128
(B) Voting Rights............................................................................128
(C) Benefit of Setoff........................................................................128
12.3 Assignments......................................................................................129
(A) Permitted Assignments....................................................................129
(B) Effect; Effective Date...................................................................129
(C) The Register.............................................................................130
12.4 Confidentiality..................................................................................130
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12.5 Dissemination of Information.....................................................................130
ARTICLE XIII: NOTICES..........................................................................................131
13.1 Giving Notice....................................................................................131
13.2 Change of Address................................................................................131
ARTICLE XIV: COUNTERPARTS......................................................................................131
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EXHIBITS AND SCHEDULES
Exhibits
EXHIBIT A -- Borrowing Base Certificate
(Definitions)
EXHIBIT B -- Commitments
(Definitions)
EXHIBIT C -- Form of Revolving Note
(Definitions)
EXHIBIT C-1 -- Form of Swing Line Note
(Definitions)
EXHIBIT D -- Stock Purchase Agreement for Stock Acquisition
(Definitions)
EXHIBIT E -- Form of Term Loan A Note
(Definitions)
EXHIBIT F -- Form of Term Loan B Note
(Definitions)
EXHIBIT G -- Form of Assignment Agreement
(ss.ss. 2.19, 12.3)
EXHIBIT H -- Form of Borrower's Counsel's Opinion
(ss. 4.1)
EXHIBIT I -- List of Closing Documents
(ss. 4.1)
EXHIBIT J -- Form of Officer's Certificate
(ss.ss. 4.2, 6.1(A)(iv))
EXHIBIT K -- Pro Forma Financial Statements
(ss. 5.4(A))
EXHIBIT L -- Money Transfer Instructions
(ss. 4.1)
EXHIBIT M -- Deferred Limited Interest Guaranty
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EXHIBIT N -- MCIT Turnover Agreement
EXHIBIT O -- Jordan Management Agreement
EXHIBIT P -- Tax Sharing Agreement
EXHIBIT Q -- Form of Guaranty
EXHIBIT R -- Form of Restricted Subsidiary Security Agreement
EXHIBIT S -- Form of Pledge Agreement
EXHIBIT T -- Holdings Turnover Agreement
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Schedules
Schedule 1.1.1 -- Permitted Existing Contingent Obligations (Definitions)
Schedule 1.1.2 -- Permitted Existing Indebtedness (Definitions)
Schedule 1.1.3 -- Permitted Existing Investments (Definitions)
Schedule 1.1.4 -- Permitted Existing Liens (Definitions)
Schedule 1.1.5 -- Refinanced Indebtedness (Definitions)
Schedule 5.3 -- Conflicts; Governmental Consents (ss.5.3)
Schedule 5.7 -- Litigation; Loss Contingencies (ss.5.7)
Schedule 5.8 -- Subsidiaries (ss.5.8)
Schedule 5.17 -- Insurance (ss.ss.5.17, 6.2(E))
Schedule 5.18 -- Contingent Obligations (ss.ss.5.7, 5.18)
Schedule 5.19 -- Labor Matters; Compensation Agreements
(ss. 5.19)
Schedule 5.21 -- Environmental Matters (ss.5.21)
Schedule 6.3(H) -- Transactions with Shareholders and Affiliates
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CREDIT AGREEMENT
This Credit Agreement dated as of February 27, 1997 is entered into among
GFSI, Inc., a Delaware corporation, the institutions from time to time parties
hereto as Lenders, whether by execution of this Agreement or an assignment and
acceptance pursuant to Section 12.3, and The First National Bank of Chicago, in
its capacity as contractual representative for itself and the other Lenders. The
parties hereto agree as follows:
ARTICLE I: DEFINITIONS
1.1 Certain Defined Terms. In addition to the terms defined elsewhere in
this Agreement, the following terms used in this Agreement shall have the
following meanings, applicable both to the singular and the plural forms of the
terms defined.
As used in this Agreement:
"Accommodation Obligations" is defined in the definition "Contingent
Obligation" below.
"Account Debtor" means the account debtor or obligor with respect to any of
the Receivables and/or the prospective purchaser with respect to any contract
right, and/or any party who enters into or proposes to enter into any contract
or other arrangement with the Borrower.
"Acquisition" means any transaction, or any series of related transactions,
consummated on or after the date of this Agreement, by which the Borrower or any
of its Restricted Subsidiaries (i) acquires any going business or all or
substantially all of the assets of any firm, corporation or division thereof,
whether through purchase of assets, merger or otherwise or (ii) directly or
indirectly acquires (in one transaction or as the most recent transaction in a
series of transactions at least a majority (in number of votes) of the
securities of a corporation which have ordinary voting power for the election of
directors (other than securities having such power only by reason of the
happening of a contingency), a majority (by percentage of voting power), of the
membership, ownership or other equity interests in a limited liability company
or a majority (by percentage of voting power) of the outstanding partnership
interests of a partnership.
"Acquisition Documents" means the Stock Purchase Agreement and all other
documents, instruments and agreements entered into by the Borrower or any of its
Affiliates in connection with the Stock Acquisition.
"Advance" means a borrowing hereunder consisting of the aggregate amount of
the several Loans made by the Lenders to the Borrower of the same Type and, in
the case of Eurodollar Rate Advances, for the same Interest Period.
"Affected Lender" is defined in Section 2.20 hereof.
<PAGE>
"Affiliate" of any Person means any of the following: (i) any other Person
directly or indirectly controlling, controlled by or under direct or indirect
common control with such Person; (ii) any spouse, immediate family member or
other relative who has the same principal residence as such Person or as any
other affiliate of such Person; and (iii) any trust in which any such Persons
described in clauses (i) or (ii) above has a beneficial interest. A Person shall
be deemed to control another Person if the controlling Person is the "beneficial
owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of
greater than fifteen percent (15%) or more of any class of voting securities (or
other voting interests) of the controlled Person or possesses, directly or
indirectly, the power to direct or cause the direction of the management or
policies of the controlled Person, whether through ownership of Capital Stock,
by contract or otherwise.
"Affiliate Notes" means collectively, (i) that certain promissory note in
the original principal amount of $700,000, dated August 12, 1996, between Impact
Design, Inc. and the Target, together with accrued interest thereon, and (ii)
that certain promissory note in the original principal amount of $150,000, dated
August 12, 1996, between Kansas Custom Embroidery and the Target, together with
all accrued interest thereon.
"Agent" means First Chicago in its capacity as contractual representative
for itself and the Lenders pursuant to Article X hereof and any successor Agent
appointed pursuant to Article X hereof.
"Aggregate Acquisition and Investment Basket" means an initial amount equal
to $15,000,000; provided, that if the Borrower shall have a Leverage Ratio of
less than 4.25 to 1.0 for two consecutive fiscal quarters (as reflected in the
financial statements (and corresponding compliance certificate) delivered
pursuant to Section 6.1(A)(ii) or 6.1(A)(iii)), the Aggregate Acquisition and
Investment Basket shall be increased effective as of the date of delivery of
such financial statements to $30,000,000.
"Aggregate Indebtedness Basket" means an initial amount equal to
$7,500,000; provided if the Borrower shall have a Leverage Ratio of less than
4.25 to 1.0 for two consecutive fiscal quarters (as reflected in the financial
statements (and corresponding compliance certificate) delivered pursuant to
Section 6.1(A)(ii) or 6.1(A)(iii)), the Aggregate Indebtedness Basket shall be
increased effective as of the date of delivery of such financial statements to
$20,000,000.
"Aggregate Revolving Loan Commitment" means the aggregate of the Revolving
Loan Commitments of all the Lenders, as reduced from time to time pursuant to
the terms hereof. The initial Aggregate Revolving Loan Commitment is Fifty
Million and 00/100 Dollars ($50,000,000.00).
"Aggregate Term Loan A Commitment" means the aggregate of the Term Loan A
Commitments of all the Lenders. The Aggregate Term Loan A Commitment is Forty
Million and 00/100 Dollars ($40,000,000.00).
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"Aggregate Term Loan B Commitment" means the aggregate of the Term Loan B
Commitments of all the Lenders. The Aggregate Term Loan B Commitment is
Twenty-Five Million and 00/100 Dollars ($25,000,000.00).
"Agreement" means this Credit Agreement, as it may be amended, restated or
otherwise modified and in effect from time to time.
"Agreement Accounting Principles" means generally accepted accounting
principles in effect from time to time, applied in a manner consistent with that
used in preparing the financial statements referred to in Section 5.4(B)(1)
hereof; provided, however, that with respect to the calculation of financial
ratios and other financial tests (and each of the components thereof) utilized
in or required by this Agreement, "Agreement Accounting Principles" means
generally accepted accounting principles as in effect as of the date of this
Agreement, applied in a manner consistent with that used in preparing the
financial statements referred to in Section 5.4(B)(1) hereof.
"Alternate Base Rate" means, for any day, a fluctuating rate of interest
per annum equal to the higher of (i) the Corporate Base Rate for such day and
(ii) the sum of (a) the Federal Funds Effective Rate for such day and (b)
one-half of one percent (0.5%) per annum.
"Applicable Commitment Fee Percentage" means, as at any date of
determination, the rate per annum then applicable in the determination of the
amount payable under Section 2.15(C)(i) hereof determined in accordance with the
provisions of Section 2.15(D)(ii) hereof.
"Applicable Eurodollar Margin" means, as at any date of determination, the
rate per annum then applicable to Eurodollar Rate Loans determined in accordance
with the provisions of Section 2.15(D)(ii) hereof.
"Applicable Floating Rate Margin" means, as at any date of determination,
the rate per annum then applicable to Floating Rate Loans determined in
accordance with the provisions of Section 2.15(D)(ii) hereof.
"Applicable L/C Fee Percentage" means, as at any date of determination, a
rate per annum: (i) for standby Letters of Credit, equal to the Applicable
Eurodollar Margin for Revolving Loans in effect on such date and (ii) for
commercial letters of credit, equal to the lesser of (y) one-half of the
Applicable Eurodollar Margin for Revolving Loans in effect on such date and (z)
one percent (1.00%) per annum.
"Asset Sale" means, with respect to any Person, the sale, lease,
conveyance, assignment, disposition or other transfer by such Person of any of
its assets, whether owned as of the Closing Date or thereafter acquired
(including by way of a sale-leaseback transaction and including the sale or
other transfer of any of the Equity Interests of any Subsidiary of such Person).
"A Term Loans" is defined in Section 2.1(a) hereof.
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"Authorized Officer" means any of the Chairman, President, any Vice
President, Treasurer, Controller and Secretary of the Borrower or, if
applicable, any Restricted Subsidiary , and any other Person designated to the
Agent in writing by any of the foregoing, acting individually on behalf of the
Borrower.
"Backstop Letter of Credit" means that certain Letter of Credit issued by
First Chicago to Boatmen's National Bank on the Closing Date.
"Benefit Plan" means a defined benefit plan as defined in Section 3(35) of
ERISA (other than a Multiemployer Plan) in respect of which the Borrower or any
other member of the Controlled Group is, or within the immediately preceding six
(6) years was, an "employer" as defined in Section 3(5) of ERISA.
"Borrower" means GFSI, Inc., a Delaware corporation, and its successors and
assigns, including a debtor-in-possession on behalf of the Borrower.
"Borrowing Base" means, as of any date of calculation, an amount, as set
forth on the most current Borrowing Base Certificate delivered to the Agent,
equal to: (i) eighty-five percent (85%) of the Gross Amount of Eligible
Receivables; plus (ii) sixty-five percent ( 65%) of the Gross Amount of Eligible
Inventory; minus (iii) such reserves as the Agent reasonably deems appropriate.
The Agent shall give the Borrower commercially reasonable prior written notice,
taking into account all facts and circumstances known by the Agent at such time,
of the establishment by the Agent of any reserves hereunder which, in any such
case, might decrease the amount of the Borrowing Base.
"Borrowing Base Certificate" means a certificate, in substantially the form
of Exhibit A attached hereto and made a part hereof, setting forth the Borrowing
Base and the component calculations thereof.
"Borrowing Date" means a date on which an Advance or Swing Line Loan is
made hereunder.
"Borrowing Notice" is defined in Section 2.8 hereof.
"B Term Loans" is defined in Section 2.1(b) hereof.
"Business Activity Report" means (A) a Notice of Business Activities Report
from the State of Minnesota, Department of Revenue, (B) a Notice of Business
Activities Report from the State of New Jersey, Division of Taxation, or (C) any
similar report required by any other State relating to the ability of the
Borrower or its Subsidiaries to enforce their accounts receivable claims against
account debtors located in any such state.
"Business Day" means (i) with respect to any borrowing, payment or rate
selection of Loans bearing interest at the Eurodollar Rate, a day (other than a
Saturday or Sunday) on which banks are open for business in Chicago, Illinois
and New York, New York and on which dealings in Dollars are carried on in the
London interbank market and (ii) for all other purposes a
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day (other than a Saturday or Sunday) on which banks are open for business in
Chicago, Illinois and New York, New York.
"Capital Expenditures" is defined in Section 6.4(A) hereof.
"Capitalized Lease" of a Person means any lease of property by such Person
as lessee which would be capitalized on a balance sheet of such Person prepared
in accordance with Agreement Accounting Principles.
"Capitalized Lease Obligations" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be capitalized
on a balance sheet of such Person prepared in accordance with Agreement
Accounting Principles.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) marketable direct obligations issued or
unconditionally guaranteed by the United States government and backed by the
full faith and credit of the United States government; (ii) domestic and
Eurodollar certificates of deposit and time deposits, bankers' acceptances and
floating rate certificates of deposit issued by any commercial bank organized
under the laws of the United States, any state thereof, the District of
Columbia, any foreign bank, or its branches or agencies (fully protected against
currency fluctuations for any such deposits with a term of more than ten (10)
days); (iii) shares of money market, mutual or similar funds having assets in
excess of $100,000,000 and the investments of which are limited to investment
grade securities (i.e., securities rated at least Baa by Moody's Investors
Service, Inc. or at least BBB by Standard & Poor's Corporation); (iv) commercial
paper of United States banks and bank holding companies and their subsidiaries
and United States finance, commercial industrial or utility companies which, at
the time of acquisition, are rated A-1 (or better) by Standard & Poor's Ratings
Group or P-1 (or better) by Moody's Investors Services, Inc.; (v) time deposits
maturing no more than thirty (30) days from the date of creation thereof with
commercial banks having membership in the Federal Deposit Insurance Corporation
in amounts not exceeding the lesser of $100,000 or the maximum amount of
insurance applicable to the aggregate amount of Borrower's deposits at such
institution; (vi) repurchase obligations with a term of not more than thirty
days for underlying securities of the types described in clauses (i), (ii) and
(iv) above entered into with any financial institution meeting the
qualifications specified in clause (iv) above; (vii) securities with maturities
of one year or less from the date of acquisition issued or fully guaranteed by
any state, commonwealth or territory of the United States or by any political
subdivision or taxing authority of any such date, commonwealth or territory, the
securities of which states, commonwealth, territory, political subdivision or
taxing authority (as the case may be) are rated at least A by Standard & Poor's
Corporation or A by Moody's Investors Service, Inc.; and (viii) securities with
maturities of one year or less from the date of acquisition backed by standby
letters of credit issued by any Lender or any commercial
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bank satisfying the requirements of clause (iv) above; provided that (other than
as set forth in clause (iii)) the maturities of such Cash Equivalents shall not
exceed 365 days.
"Cash Flow Period" means each 12-month period ending on June 30 of each
calendar year commencing with the year ending June 30, 1998.
"Change" is defined in Section 3.2 hereof.
"Change of Board" means any transaction or event as a result of which any
Person or group (as defined in Section 13(d)(3) of the Securities and Exchange
Act of 1934 and the regulations promulgated thereunder) other than the holders
as of the Closing Date of the Voting Stock of Holdings and their "Permitted
Transferees" (as defined in the Stockholders Agreement) shall be entitled, by
virtue of ownership of voting securities or by agreement or otherwise, to
nominate directors of Holdings having, in the aggregate, at least a majority of
the voting power at the time represented by all members of the Board of
Directors of Holdings.
"Change of Control" means any transaction or event as a result of which (i)
the Jordan Stockholders shall cease to own of record and beneficially, in the
aggregate, at least twenty percent (20%) of the shares of the issued and
outstanding Voting Stock (measured by voting power rather than number of shares)
of Holdings, (ii) the Management Stockholders, collectively, shall cease to own
of record and beneficially , in the aggregate, at least twenty percent (20%) of
the shares of the issued and outstanding Voting Stock (measured by voting power
rather than number of shares) of Holdings, (iii) the Jordan Stockholders and the
Management Stockholders shall cease to own, in the aggregate, more than fifty
percent (50%) of the shares of the issued and outstanding Voting Stock (measured
by voting power rather than number of shares) of Holdings, (iv) after the first
sale of Voting Stock by Holdings pursuant to a registration statement under the
Securities Act of 1933 that results in at least twenty percent (20%) of the then
issued and outstanding Voting Stock of Holdings being held by the public, any
Person or any group of affiliated Persons shall own, of record and beneficially,
in the aggregate, an equal or greater percentage of the total shares of the
issued and outstanding Voting Stock (measured by voting power rather than number
of shares) of Holdings then owned, of record and beneficially, by the Jordan
Stockholders and by the Management Stockholders, (v) a Change of Board shall
have occurred, (vi) Holdings shall cease to own, of record and beneficially,
with sole voting and dispositive power, 100% of the outstanding shares of Voting
Stock of the Borrower or shall cease to have the power, directly or indirectly,
to elect a majority of the board of directors of the Borrower, or (vii) any
other event occurs which would constitute a Change of Control under and as
defined in the Indenture or the Purchase Agreement with respect to the Holdings
Subordinated Notes, each as in effect as of the date hereof or as amended.
"Closing Date" means the date on which the Term Loans and the initial
Revolving Loans are advanced hereunder.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time or any successor statute.
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"Collateral" means all property and interests in property now owned or
hereafter acquired by the Borrower or any of its Restricted Subsidiaries in or
upon which a security interest, lien or mortgage is granted to the Agent, for
the benefit of the Holders of Secured Obligations, or to the Agent, for the
benefit of the Lenders, whether under the Security Agreement, under any of the
other Collateral Documents or under any of the other Loan Documents.
"Collateral Documents" means all agreements, instruments and documents
executed in connection with this Agreement that are intended to create or
evidence Liens to secure the Secured Obligations, including, without limitation,
the Security Agreement, the Collection Account Agreement(s), the Guaranties, the
Restricted Subsidiary Security Agreements, the Pledge Agreements, the
Intellectual Property Agreements, the Mortgage and all other security
agreements, mortgages, deeds of trust, guarantees, subordination agreements,
pledges, assignments, leases and financing statements whether heretofore, now,
or hereafter executed by or on behalf of the Borrower or any of its Restricted
Subsidiaries and delivered to the Agent or any of the Lenders, together with all
agreements and documents referred to therein or contemplated thereby.
"Collection Account" means each lock-box and blocked depository account
maintained by the Borrower, subject to a Collection Account Agreement, for the
collection of Receivables and other proceeds of Collateral.
"Collection Account Agreement" means a written agreement among the
Borrower, the Agent or any Restricted Subsidiary, and, as applicable, each of
the banks at which the Borrower or any Restricted Subsidiary maintains a
Collection Account, in form and substance acceptable to the Agent.
"Collection Account Blockage Date" means the date, following the occurrence
of a Default on which the Agent or the Required Lenders, in the Agent's or the
Required Lenders' sole discretion, instruct(s) any financial institution party
to a Collection Account Agreement as described in the application Collection
Account Agreement to remit, during the continuance of such Default, all amounts
deposited in the Collection Account to the Agent or as the Agent shall direct.
"Commission" means the United States Securities and Exchange Commission and
any Person succeeding to the functions thereof.
"Commitment" means, for each Lender, collectively, such Lender's Revolving
Loan Commitment and Term Loan Commitments.
"Contaminant" means any waste, pollutant, hazardous substance, toxic
substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, asbestos, polychlorinated biphenyls ("PCBs"), or any
constituent of any such substance or waste, and includes but is not limited to
these terms as defined in Environmental, Health or Safety Requirements of Law.
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"Contingent Obligation", as applied to any Person, means any Contractual
Obligation, contingent or otherwise, of that Person with respect to any
Indebtedness of another, including, without limitation, any such Indebtedness of
another directly or indirectly guaranteed, endorsed (otherwise than for
collection or deposit in the ordinary course of business), co-made or discounted
or sold with recourse by that Person, or in respect of which that Person is
otherwise directly or indirectly liable, including Contractual Obligations
(contingent or otherwise) arising through any agreement to purchase, repurchase,
or otherwise acquire such Indebtedness or any security therefor, or to provide
funds for the payment or discharge thereof (whether in the form of loans,
advances or otherwise), or to maintain solvency, assets, level of income, or
other financial condition, or to make payment other than for value received
(such obligations under this definition being sometimes referred to as
"Accommodation Obligations"). The amount of any Contingent Obligation or
Accommodation Obligation with respect to any Person shall be limited to an
amount equal to the stated or determinable amount of such Person's share of the
obligation in respect of such Contingent Obligation or Accommodation Obligation
is made or, if not stated or determinable, the maximum liability in respect
thereof (assuming such Person is required to fully perform thereunder).
"Contractual Obligation", as applied to any Person, means any provision of
any equity or debt securities issued by that Person or any indenture, mortgage,
deed of trust, security agreement, pledge agreement, guaranty, contract,
undertaking, agreement or instrument, in any case in writing, to which that
Person is a party or by which it or any of its properties is bound, or to which
it or any of its properties is subject.
"Controlled Group" means the group consisting of (i) any corporation which
is a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Borrower; (ii) a partnership or other trade
or business (whether or not incorporated) which is under common control (within
the meaning of Section 414(c) of the Code) with the Borrower; and (iii) a member
of the same affiliated service group (within the meaning of Section 414(m) of
the Code) as the Borrower, any corporation described in clause (i) above or any
partnership or trade or business described in clause (ii) above.
"Conversion/Continuation Notice" is defined in Section 2.10(D) hereof.
"Corporate Base Rate" means the corporate base rate of interest announced
by First Chicago from time to time, changing when and as said corporate base
rate changes.
"Cure Loan" is defined in Section 8.2(iii) hereof.
"Customary Permitted Liens" means:
(i) Liens (other than Environmental Liens and Liens in favor of the
IRS or the PBGC) with respect to the payment of taxes, assessments or
governmental charges in all cases which are not yet due or (if foreclosure,
distraint, sale or other similar proceedings shall not have been commenced)
which are being contested in good faith by appropriate proceedings properly
instituted and diligently conducted and with respect to which
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adequate reserves or other appropriate provisions are being maintained in
accordance with Agreement Accounting Principles;
(ii) statutory Liens of landlords and Liens of suppliers, mechanics,
carriers, materialmen, warehousemen or workmen and other similar Liens
imposed by law created in the ordinary course of business for amounts not
yet due or which are being contested in good faith by appropriate
proceedings properly instituted and diligently conducted and with respect
to which adequate reserves or other appropriate provisions are being
maintained in accordance with Agreement Accounting Principles;
(iii) Liens (other than Environmental Liens and Liens in favor of the
IRS or the PBGC) incurred or deposits made in the ordinary course of
business in connection with worker's compensation, unemployment insurance
or other types of social security benefits or to secure the performance of
bids, tenders, sales, contracts (other than for the repayment of borrowed
money), surety, appeal and performance bonds; provided that (A) all such
Liens do not in the aggregate materially detract from the value of the
Borrower's or such Restricted Subsidiary's assets or property taken as a
whole or materially impair the use thereof in the operation of the
businesses taken as a whole, and (B) all Liens securing bonds to stay
judgments or in connection with appeals do not secure at any time an
aggregate amount exceeding $2,500,000;
(iv) Liens arising with respect to zoning restrictions, easements,
licenses, reservations, covenants, rights-of-way, utility easements,
building restrictions and other similar charges or encumbrances on the use
of real property which do not in any case or in the aggregate materially
detract from the value of the property subject thereto or interfere with
the ordinary conduct of the business of the Borrower or any of its
Restricted Subsidiaries;
(v) Liens of attachment or judgment with respect to judgments, writs
or warrants of attachment, or similar process against the Borrower or any
of its Restricted Subsidiaries which do not constitute a Default under
Section 7.1(h);
(vi) any interest or title of the lessor in the property subject to
any operating lease entered into by the Borrower or any of its Restricted
Subsidiaries in the ordinary course of business;
(vii) Liens arising from leases or subleases granted to others which
do not interfere in any material respect with the business of the Borrower
and its Subsidiaries taken as a whole; and
(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.
"Decision Period" is defined in Section 6.2(G) hereof.
"Decision Reserve" is defined in Section 6.2(G) hereof.
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"Default" means an event described in Article VII hereof.
"Deferred Limited Interest Guaranty" means that certain Deferred Limited
Interest Guaranty, dated as of February 27, 1997, executed by the Borrower for
the benefit of the holders of the Holdings Subordinated Notes and to which each
Restricted Subsidiary shall become a party, a copy of which is attached hereto
as Exhibit M.
"Designated Default" means Default under Sections 7.1(a), 7.1(e), 7.1(f),
7.1(g), 7.1(m), 7.1(r), 7.1(t), 7.1(u) or 7.1(v) or any breach by the Borrower
of any of the terms or provisions of Sections 6.3(A) (Indebtedness), 6.3(B)
(Sales of Assets), 6.3(D) (Investments), 6.3(F) (Distributions), 6.3(H)
(Transactions with Affiliates), 6.3(O) (Other Indebtedness) or 6.4 (Financial
Covenants).
"Designated Prepayment" is defined in Section 2.5(B)(i)(e) hereof.
"DOL" means the United States Department of Labor and any Person succeeding
to the functions thereof.
"Dollar" and "$" means dollars in the lawful currency of the United States.
"EBITDA" is defined in Section 6.4(A) hereof.
"Eligible Inventory" means Inventory of the Borrower which is held for sale
or lease or furnished under any contract of service by or under the direction of
the Borrower other than the Inventory described in the next sentence. The
following inventory is not Eligible Inventory: (i) Inventory which is obsolete,
not in good condition, not either currently usable or currently saleable in the
ordinary course of the Borrower's business or does not meet all material
standards imposed by any Governmental Authority having regulatory authority over
such item of Inventory, its use or its sale; (ii) Inventory consisting of
packaging material, supplies, raw materials involved in the embroidery, silk
screening or other finishing of blank items of clothing and work in process;
(iii) Inventory which (a) is consigned to a third party for sale, unless the
Agent shall have received from such consignee a lien waiver agreement in
substantially the form attached to the Security Agreement, or such other
documentation (including UCC-1 financing statements naming such consignee as
debtor/consignee, the Borrower as secured party/consignor and reflecting the
assignment of such UCC to the Agent as secured party) reasonably deemed
necessary by the Agent, so that the Agent has a valid and perfected first
priority security interest in such consigned Inventory, or (b) is on consignment
from a third party to the Borrower for sale; (iv) Inventory which consists of
goods in transit, but only to the extent such Inventory exceeds in the aggregate
$7,500,000; (v) Inventory which is subject to a Lien in favor of any Person
other than the Agent other than Customary Permitted Liens; (vi) Inventory with
respect to which the Agent does not have a first and valid fully-perfected
security interest; (vii) Inventory (other than Inventory which consists of goods
in transit) which is not located either (a) on the Borrower's owned premises in
the United States listed on Schedule 2 to the Security Agreement or (b) in other
owned or leased premises, warehouses or with bailees in the United States not
listed on Schedule 2 to the Security Agreement permitted to be established under
the Security Agreement or in connection with a Permitted Acquisition, in
connection with which the
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Agent shall have received to the extent required by the Security Agreement
landlord, mortgagee, bailee and/or warehousemen's access and lien waiver
agreements, as applicable, in each case in form and substance acceptable to the
Agent, but only to the extent such Inventory exceeds in the aggregate $500,000;
(viii) Inventory which is evidenced by a Receivable; and (ix) Inventory which is
not in conformity in all material respects with the representations and
warranties made by the Borrower to the Agent with respect thereto whether
contained in this Agreement or the Security Agreement.
Without limiting the foregoing, Inventory of the Borrower which is acquired
pursuant to a Permitted Acquisition shall be treated as Eligible Inventory
unless the Agent, after concluding any due diligence it reasonably deems
necessary prior to the closing of the Permitted Acquisition (it being understood
and agreed that the Borrower shall permit the Agent and/or its authorized
representatives to conduct such due diligence no later than thirty (30) days
prior to the closing of any such Permitted Acquisition), shall not be reasonably
satisfied as to the condition thereof and that such Inventory would otherwise be
ineligible under the ineligibility standards set forth herein (including,
without limitation, each of perfection and priority of the Agent's security
interests in such Inventory) but for the fact that they were acquired by the
Borrower outside the ordinary course of business.
"Eligible Receivables" means Receivables created by the Borrower in the
ordinary course of its business arising out of the sale of goods or rendition of
services by the Borrower other than the Receivables described in the next
sentence. The following Receivables are not Eligible Receivables:
(i) Receivables which remain unpaid (a) ninety (90) days after the
date such Receivables are due or (b) one-hundred and twenty (120) days
after the date of the original applicable invoice;
(ii) all Receivables owing by a single Account Debtor (including a
Receivable which remains unpaid fewer than ninety (90) days after the date
such Receivables are due or one-hundred and twenty (120) days after the
date of the original applicable invoice) if thirty percent (30%) of the
balance owing by such Account Debtor calculated without taking into account
any credit balances of such Account Debtor, remains unpaid (a) ninety (90)
days after the date such Receivables are due or (b) one-hundred and twenty
(120) days after the date of the original applicable invoice or has
otherwise become, or has been determined by the Agent to be ineligible, but
only if the aggregate of all such Receivables exceeds $500,000;
(iii) with respect to Receivables from any single Account Debtor and
its Affiliates which otherwise constitute Eligible Receivables, the excess
of such Receivables over twenty percent (20%) of all Eligible Receivables;
(iv) Receivables with respect to which the Account Debtor is a
director, officer, employee, Subsidiary or Affiliate (other than
Receivables arising under an arm's length transaction with an Affiliate) of
the Borrower;
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(v) Receivables with respect to which the Account Debtor is any
federal Governmental Authority, the United States of America, or, in each
case, any department, agency or instrumentality thereof, unless with
respect to any such Account, the Borrower has complied to the Agent's
satisfaction with the provisions of the Federal Assignment of Claims Act or
other applicable statutes, including, without limitation, executing and
delivering to Agent all statements of assignment and/or notification which
are in form and substance acceptable to Agent and which are deemed
necessary by Agent to effectuate the assignment to the Agent of such
Accounts on behalf of the Lenders; provided, however, notwithstanding the
foregoing such Receivables up to an aggregate amount not to exceed
$7,500,000 shall be Eligible Receivables provided no Default has occurred
and is continuing; provided, further, however, after the occurrence and
during the continuance of a Default, all such Receivables in connection
with which the Borrower has not so complied with the Federal Assignment of
Claims Act or other applicable statutes shall not be Eligible Receivables;
(vi) Receivables with respect to which the Account Debtor is any state
or municipal Governmental Authority or any agency or instrumentality
thereof, unless with respect to any such Account, the Borrower has complied
to the Agent's satisfaction with the provisions of any applicable state or
local assignment of claims act or other applicable statutes, including,
without limitation, executing and delivering to Agent all statements of
assignment and/or notification which are in form and substance acceptable
to Agent and which are deemed necessary by Agent to effectuate the
assignment to the Agent of such Accounts on behalf of the Lenders;
provided, however, notwithstanding the foregoing such Receivables up to an
aggregate amount not to exceed $2,500,000 shall be Eligible Receivables
provided no Default has occurred and is continuing; provided, further,
however, after the occurrence and during the continuance of a Default, all
such Receivables in connection with which the Borrower has not so complied
with the applicable state or local assignment of claims act or other
applicable statutes shall not be Eligible Receivables;
(vii) Receivables not denominated in U.S. Dollars or Receivables with
respect to which the Account Debtor is neither a resident of the United
States nor one of the Provinces of Canada other than Quebec (other than
Receivables from Account Debtors located in Quebec up to an aggregate
amount not to exceed $1,000,000), but only to the extent such Receivables
exceed in the aggregate $1,000,000, unless the Account Debtor has supplied
the Borrower with an irrevocable letter of credit, issued by a financial
institution satisfactory to the Agent, sufficient to cover such Receivable
in form and substance satisfactory to the Agent;
(viii) Receivables with respect to which the Account Debtor has (a)
asserted a counterclaim, (b) a right of setoff or (c) a receivable owing
from the Borrower but only to the extent of such counterclaim, setoff or
receivable and only to the extent such counterclaims, setoffs or
receivables exceed, in the aggregate, $250,000;
(ix) Receivables with respect to which the Agent does not have a first
and valid fully perfected and enforceable security interest unless the
Account Debtor has supplied
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the Borrower with an irrevocable standby letter of credit, issued by a
financial institution satisfactory to the Agent, sufficient to cover such
Receivable in form and substance satisfactory to the Agent and such letter
of credit has been delivered to the Agent;
(x) Receivables with respect to which the Account Debtor is the
subject of bankruptcy or a similar insolvency proceeding or has made an
assignment for the benefit of creditors or whose assets have been conveyed
to a receiver, trustee or assignee for the benefit of creditors;
(xi) Receivables with respect to which the Account Debtor's obligation
to pay the Receivable is conditional upon the Account Debtor's approval or
is otherwise subject to any repurchase obligation or return right, as with
sales made on a bill-and-hold, guaranteed sale, sale-and-return, sale on
approval (except with respect to Receivables in connection with which
Account Debtors are entitled to return Inventory on the basis of the
quality of such Inventory) or consignment basis;
(xii) Receivables with respect to which the Account Debtor is located
in New Jersey or Minnesota (or any other jurisdiction which adopts a
statute or other requirement with respect to which any Person that obtains
business from within such jurisdiction or is otherwise subject to such
jurisdiction's tax law requiring such Person to file a Business Activity
Report or make any other required filings in a timely manner in order to
enforce its claims in such jurisdiction's courts or arising under such
jurisdiction's laws); provided, however, such Receivables shall nonetheless
be eligible if the Borrower has filed a Business Activity Report (or other
applicable report) with the applicable state office or is qualified to do
business in such jurisdiction and, within ninety (90) days of the date the
Receivable was created, was qualified to do business in such jurisdiction
or had on file with the applicable state office a current Business Activity
Report (or other applicable report);
(xiii) Receivables with respect to which the Account Debtor's
obligation does not constitute its legal, valid and binding obligation,
enforceable against it in accordance with its terms;
(xiv) Receivables with respect to which the Borrower has not yet
shipped the applicable goods, performed the applicable service or issued
the applicable invoice;
(xv) any Receivable which is not in conformity in all material
respects with the representations and warranties made by the Borrower to
the Agent with respect thereto whether contained in this Agreement or the
Security Agreement;
(xvi) Receivables in connection with which the Borrower has not
complied with all material requirements contained in the charter and
by-laws or other organizational or governing documents of the Borrower, and
any law, rule or regulation, or determination of an arbitrator or a court
or other Governmental Authority, in each case applicable to or binding upon
the Borrower or any of its property or to which the Borrower or any of its
property is subject, including, without limitation, all laws, rules,
regulations and orders of
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any Governmental Authority or judicial authority relating to truth in
lending, billing practices, fair credit reporting, equal credit
opportunity, debt collection practices and consumer debtor protection,
applicable to such Receivable (or any related contracts) or affecting the
collectibility of such Receivables; and
(xvii) Receivables in connection with which the Borrower or any other
party to such Receivable, is in default in the performance or observance of
any of the terms thereof in any material respect.
Without limiting the foregoing, Receivables of the Borrower which are acquired
pursuant to a Permitted Acquisition shall be treated as Eligible Receivables
unless the Agent, after concluding any due diligence it reasonably deems
necessary prior to the closing of the Permitted Acquisition (it being understood
and agreed that the Borrower shall permit the Agent and/or its authorized
representatives to conduct such due diligence no later than thirty (30) days
prior to the closing of any such Permitted Acquisition), shall not be reasonably
satisfied as to the quality and creditworthiness thereof and that such
Receivables would otherwise be ineligible under the ineligibility standards set
forth herein (including, without limitation, lack of perfection and priority of
the Agent's security interests in such Receivables) but for the fact that they
were acquired by the Borrower outside of the ordinary course of business.
"Employment Agreements" means each of (i) that certain Employment
Agreement, dated as of February 27, 1997, between the Borrower and Robert M.
Wolff, and (ii) that certain Noncompetition Agreement, dated as of February 27,
1997, between Holdings and Robert M. Wolff, respectively, as in effect on the
date hereof.
"Environmental, Health or Safety Requirements of Law" means all
Requirements of Law derived from or relating to federal, state and local laws or
regulations relating to or addressing pollution or protection of the
environment, or protection of worker health or safety, including, but not
limited to, the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. ss. 9601 et seq., the Occupational Safety and Health Act of 1970,
29 U.S.C. ss. 651 et seq., and the Resource Conservation and Recovery Act of
1976, 42 U.S.C. ss. 6901 et seq., in each case including any amendments thereto,
any successor statutes, and any regulations or guidance promulgated thereunder,
and any state or local equivalent thereof.
"Environmental Lien" means a lien in favor of any Governmental Authority
for (a) any liability under Environmental, Health or Safety Requirements of Law,
or (b) damages arising from, or costs incurred by such Governmental Authority in
response to, a Release or threatened Release of a Contaminant into the
environment.
"Environmental Property Transfer Act" means any applicable requirement of
law that conditions, restricts, prohibits or requires any notification or
disclosure triggered by the closure of any property or the transfer, sale or
lease of any property or deed or title for any property for environmental
reasons, including, but not limited to, any so-called "Industrial Site Recovery
Act" or "Responsible Property Transfer Act."
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"Equipment" means all of the Borrower's present and future (i) equipment,
including, without limitation, machinery, manufacturing, distribution, selling,
data processing and office equipment, assembly systems, tools, molds, dies,
fixtures, appliances, furniture, furnishings, vehicles, vessels, aircraft,
aircraft engines, and trade fixtures, (ii) other tangible personal property
(other than the Borrower's Inventory), and (iii) any and all accessions, parts
and appurtenances attached to any of the foregoing or used in connection
therewith, and any substitutions therefor and replacements, products and
proceeds thereof.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding (i) any debt security that is
convertible into, or exchangeable for, Capital Stock and (ii) any other
Indebtedness or Obligation); provided, however, that Equity Interests will not
include any Incentive Arrangements or any obligations or payments thereunder.
"Equity Offering" means, with respect to any Person, a public or private
offering by such Person for cash of Equity Interests and all warrants, options
or other rights to acquire Capital Stock, other than an offering of Redeemable
Stock or Incentive Arrangements or obligations or payments thereunder.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time including (unless the context otherwise requires) any
rules or regulations promulgated thereunder.
"Eurodollar Base Rate" means, with respect to a Eurodollar Rate Loan for
the relevant Interest Period, the rate determined by the Agent to be the rate at
which deposits in Dollars are offered by First Chicago to first-class banks in
the London interbank market at approximately 11:00 a.m. (London time) two
Business Days prior to the first day of such Interest Period, in the approximate
amount of First Chicago's relevant Eurodollar Rate Loan and having a maturity
approximately equal to such Interest Period, as adjusted for Reserves.
"Eurodollar Rate" means, with respect to a Eurodollar Rate Loan for the
relevant Interest Period, the Eurodollar Base Rate applicable to such Interest
Period plus the then Applicable Eurodollar Margin, changing when and as the
Applicable Eurodollar Margin changes. The Eurodollar Rate shall be rounded to
the next higher multiple of 1/16 of 1% if the rate is not such a multiple.
"Eurodollar Rate Advance" means an Advance which bears interest at the
Eurodollar Rate.
"Eurodollar Rate Loan" means a Loan, or portion thereof, which bears
interest at the Eurodollar Rate.
"Excess Cash Flow" means, for any Cash Flow Period, an amount, calculated
without duplication, equal to the Borrower's and its Subsidiaries' consolidated
(i) Net Income for such period plus (ii) non-cash amortization expense for such
period, to the extent deducted in computing Net Income, including, without
limitation, amortization of goodwill and other
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intangible assets, plus (iii) depreciation for such period, to the extent
deducted in computing Net Income, plus (iv) all other non-cash charges
(including without limitation, those charges relating to purchase accounting
adjustments), to the extent deducted in computing Net Income for such period,
minus (v) Capital Expenditures, whether paid in cash or accrued during such
period, minus (vi) payments made during such period in connection with Permitted
Acquisitions, minus (vii) Investments during such period permitted pursuant to
Section 6.3(D)(ix), minus (viii) principal payments made on the Term Loans
(excluding mandatory prepayments made from Excess Cash Flow) and principal
payments made on all other Indebtedness of the Borrower and its Subsidiaries
(other than the Obligations) and principal prepayments on all Indebtedness of
the Borrower and its Subsidiaries (except to the extent Net Income is increased
by such prepayment) during such period, plus (ix) the net reduction, if any, in
Working Capital as of the last day of the applicable period from the Working
Capital as of the end of the preceding fiscal year, minus (x) the net increase,
if any, in Working Capital as of the last day of the applicable period from the
Working Capital as of the end of the preceding fiscal year, minus (xi) the
aggregate amount (without duplication) of (y) cash dividends or cash redemptions
paid during such period with respect to the Borrower's Capital Stock, and (z)
Restricted Payments paid during such period pursuant to Section 6.3(F). All such
amounts shall be calculated in accordance with Agreement Accounting Principles
and assuming that the Borrower has conducted its business in the ordinary course
and in accordance with past practices.
"Excluded Asset Sales" means Asset Sales permitted under clauses (i)
through (xv) of Section 6.3(B) and, solely with respect to assets acquired after
the Closing Date which do not constitute replacements or substitutions for
assets existing on the Closing Date, Asset Sales permitted under clause (xvi) of
Section 6.3(B).
"Excluded Proceeds" is defined in Section 6.2(G) hereof.
"Existing First Chicago Hedging Agreement" is defined in Section 6.3(R)
hereof.
"Existing Letters of Credit" is defined in Section 2.21(b).
"Federal Funds Effective Rate" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10:00 a.m. (Chicago
time) on such day on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by the Agent in its sole
discretion.
"Fees" is defined in Section 6.4(A) hereof.
"Financing" means, with respect to any Person, the consummation by such
Person of an Equity Offering or the issuance or sale by such Person of any
Indebtedness consisting of debt securities of such Person pursuant to a
registered offering or private placement.
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"First Chicago" means The First National Bank of Chicago, in its individual
capacity, and its successors.
"Fixed Charge Coverage Ratio" is defined in Section 6.4(C) hereof.
"Floating Rate" means, for any day for any Loan, a rate per annum equal to
(i) the Alternate Base Rate for such day plus (ii) the then Applicable Floating
Rate Margin applicable to such Loan, changing when and as the Alternate Base
Rate and/or Applicable Floating Rate Margin changes.
"Floating Rate Advance" means an Advance which bears interest at the
Floating Rate.
"Floating Rate Loan" means a Loan, or portion thereof, which bears interest
at the Floating Rate.
"Foreign Employee Benefit Plan" means a plan which would be a Benefit Plan
except that such plan is maintained or contributed to by an entity which is not
a U.S. business entity.
"Governmental Acts" is defined in Section 2.26(a) hereof.
"Governmental Authority" means any nation or government, any federal,
state, local or other political subdivision thereof, any self-regulatory
authority and any entity exercising executive, legislative, judicial, regulatory
or administrative functions of or pertaining to government.
"Gross Amount of Eligible Inventory" means Eligible Inventory valued at the
lower of cost determined on a first-in-first-out basis (determined in accordance
with Agreement Accounting Principles, consistently applied) or market value.
"Gross Amount of Eligible Receivables" means the outstanding face amount of
Eligible Receivables, determined in accordance with Agreement Accounting
Principles, consistently applied, less fifty percent (50%) of the amount of all
accrued advertising incentives.
"Gross Negligence" means the absence of care or the disregard of
consequences. Gross Negligence does not mean the absence of ordinary care or
diligence, or an inadvertent act or inadvertent failure to act. If the term
"gross negligence" is used with respect to the Agent or any Lender or any
Indemnitee in any of the other Loan Documents, it shall have the meaning set
forth herein.
"Guaranty" means each of those certain Guaranties executed from time to
time by each of the Restricted Subsidiaries in favor of the Agent for the
benefit of itself and the Holders of Secured Obligations and in favor of the
Trustee for the benefit of itself and the holders of the Senior Subordinated
Notes, pursuant to Section 6.3(G)(ii) of this Agreement as amended, restated or
otherwise modified from time to time in substantially the form of Exhibit P
attached hereto.
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"Hedging Agreements" is defined in Section 6.3(R) hereof.
"Hedging Obligations" of a Person means any and all obligations of such
Person, whether absolute or contingent and howsoever and whensoever created,
arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (i) any and all
agreements, devices or arrangements designed to protect at least one of the
parties thereto from the fluctuations of interest rates, exchange rates or
forward rates applicable to such party's assets, liabilities or exchange
transactions, including, but not limited to, dollar-denominated or
cross-currency interest rate exchange agreements, forward currency exchange
agreements, interest rate cap or collar protection agreements, forward rate
currency, interest rate options, puts and warrants or any similar derivative
agreement, and (ii) any and all cancellations, buy backs, reversals,
terminations or assignments of any of the foregoing.
"Holders of Secured Obligations" means the holders of the Secured
Obligations from time to time and shall refer to (i) each Lender in respect of
its Loans, (ii) the Issuing Lender in respect of Reimbursement Obligations,
(iii) the Agent, the Lenders, the Swing Line Bank and the Issuing Lender in
respect of all other present and future obligations and liabilities of the
Borrower, any of its Subsidiaries or Holdings of every type and description
arising under or in connection with this Agreement or any other Loan Document,
(iv) each Indemnitee in respect of the obligations and liabilities of the
Borrower to such Person hereunder, (v) each Lender (or affiliate thereof), in
respect of all Hedging Obligations of the Borrower to such Lender (or such
affiliate) as exchange party or counterparty under any Hedging Agreement, and
(vi) their respective successors, transferees and assigns.
"Holdings" means GSFI Holdings, Inc., a Delaware corporation, and its
successors and assigns, including a debtor-in-possession on behalf of Holdings.
"Holdings Subordinated Debt" means all indebtedness represented by the
Holdings Subordinated Notes.
"Holdings Subordinated Notes" means the 12.0% Subordinated Notes due April
30, 2008 of Holdings issued as of the date of this Agreement to MCIT in the
original aggregate principal amount of Twenty-Five Million and 00/100 Dollars
($25,000,000.00) issued pursuant to the Purchase Agreement, dated as of February
27, 1997, between Holdings and MCIT, and all substitutions, modifications and
renewals therefor provided such substitutions, modifications or renewals would
be permitted under the terms of Section 6.3(O) as if such Section were
applicable thereto (with all references therein to the Borrower and the
Restricted Subsidiaries being instead to Holdings, the Borrower and the
Restricted Subsidiaries).
"Holdings Turnover Agreement" means the Holdings Turnover Agreement, dated
as of February 27, 1997 executed by Holdings in favor of the Agent and Holders
of Secured Obligations and the Trustee and the holders of the Senior
Subordinated Notes in the form of Exhibit T hereto.
"Incentive Arrangements" means any earn-out agreements, stock appreciation
rights, "phantom" stock plans, employment agreements, non-competition
agreements, subscription and
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stockholders agreements and other incentive and bonus plans and similar
arrangements made in connection with acquisitions of Persons by the Borrower or
the Restricted Subsidiaries or the retention of consultants, executives,
officers or employees by Holdings, the Borrower or any such Restricted
Subsidiary.
"Incentive Compensation Plan" means the incentive compensation plan for
providing annual cash bonuses that the Borrower expects to adopt following
consummation of the Stock Acquisition.
"Indebtedness" of any Person means without duplication: (i) any
indebtedness of such Person, contingent or otherwise, in respect of borrowed
money including all principal, interest, fees and expenses with respect thereto
(whether or not the recourse of the lender is to the whole of the assets of such
Person or only to a portion thereof provided, that if the amount of recourse to
such Person is determinable, such Indebtedness shall be limited to the lesser of
recourse to such Person or the amount of such Indebtedness), or evidenced by
bonds, notes, acceptances, debentures or other instruments or letters of credit
(or reimbursement obligations with respect thereto, including, in the case of
the Borrower, Reimbursement Obligations under the Letters of Credit) or
representing the balance deferred and unpaid of the purchase price of any
property (including pursuant to Capitalized Leases) or services, if and to the
extent any of the foregoing indebtedness would appear as a liability upon a
balance sheet of such Person prepared in accordance with Agreement Accounting
Principles (except that any such balance that constitutes a trade payable and/or
an accrued liability arising in the ordinary course of business shall not be
considered Indebtedness); (ii) to the extent not otherwise included, (a)
interest accruing after the commencement of any bankruptcy, insolvency,
receivership or similar proceedings and other interest that would have accrued
but for the commencement of such proceedings, (b) any Capitalized Lease
Obligations, (c) the maximum fixed repurchase price of any Redeemable Stock, (d)
obligations, whether or not assumed, secured by Liens or payable out of the
proceeds or production from property now or hereafter owned or acquired by such
Person, (e) Contingent Obligations (whether or not such items would appear upon
such balance sheet) and (f) Hedging Obligations. For purposes of the preceding
sentence, the maximum fixed repurchase price of any Redeemable Stock which does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Redeemable Stock as if such Redeemable Stock were repurchased on
any date on which Indebtedness shall be required to be determined pursuant to
this Agreement, provided that if such Redeemable Stock is not then permitted to
be repurchased, the repurchase price shall be the book value of such Redeemable
Stock. The amount of Indebtedness of any Person at any date shall be without
duplication (i) the lesser of (x) the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability of any
such Contingent Obligations, and (y) if determinable, the amount of Indebtedness
for which such Person is liable at such date and (ii) in the case of
Indebtedness of others secured by a Lien to which the property or assets owned
or held by such Person is subject, the lesser of the fair market value at such
date of any asset subject to a Lien securing the Indebtedness of others and the
amount of the Indebtedness secured.
"Indemnified Matters" is defined in Section 9.7(B) hereof.
"Indemnitees" is defined in Section 9.7(B) hereof.
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"Indenture" means that certain Indenture dated as of February 27, 1997,
between the Borrower and Fleet National Bank, as Trustee, as amended,
supplemented or modified in accordance with Section 6.3(O) hereof.
"Intellectual Property Agreements" means the Trademark Security Agreement
of even date herewith executed by the Borrower in favor of the Agent for the
benefit of the Holders of Secured Obligations and each trademark, patent,
copyright or other intellectual property agreement executed from time to time by
any of the Restricted Subsidiaries in favor of the Agent for the benefit of the
Holders of Secured Obligations, in each case as amended, restated or otherwise
modified from time to time.
"Interest Expense" is defined in Section 6.4(A) hereof.
"Interest Expense Coverage Ratio" is defined in Section 6.4(B) hereof.
"Interest Period" means, with respect to a Eurodollar Rate Loan, a period
of one (1), two (2), three (3) months, six (6) months or such other period as
may be agreed to by the Borrower, the Agent and all of the Lenders commencing on
a Business Day selected by the Borrower pursuant to this Agreement; provided,
however, notwithstanding anything in this Agreement to the contrary for the
period from the Closing Date to the earlier of (y) the date that is 90 days
after the Closing Date and (z) the date upon which the Agent confirms that the
loan syndication process has been complete (the "Syndication Period"), "Interest
Period" means, with respect to a Eurodollar Rate Loan, a period of seven (7)
days. Other than during the Syndication Period, such Interest Period shall end
on (but exclude) the day which corresponds numerically to such date one, two,
three, six months or such other agreed upon period thereafter; provided,
however, that if there is no such numerically corresponding day in such next,
second, third or sixth succeeding month, such Interest Period shall end on the
last Business Day of such next, second, third or sixth succeeding month or the
end of such other agreed upon period. If an Interest Period would otherwise end
on a day which is not a Business Day, such Interest Period shall end on the next
succeeding Business Day, provided, however, that if said next succeeding
Business Day falls in a new calendar month, such Interest Period shall end on
the immediately preceding Business Day.
"Inventory" shall mean any and all goods, including, without limitation,
goods in transit, wheresoever located, whether now owned or hereafter acquired
by the Borrower, which are held for sale or lease, furnished under any contract
of service or held as raw materials, work in process or supplies, and all
materials used or consumed in the Borrower's business, and shall include all
right, title and interest of Borrower in any property the sale or other
disposition of which has given rise to Receivables and which has been returned
to or repossessed or stopped in transit by the Borrower.
"Investment" means, with respect to any Person, (i) any purchase or other
acquisition by that Person of any Indebtedness, Equity Interests or other
securities, or of a beneficial interest in any Indebtedness, Equity Interests or
other securities, issued by any other Person, (ii) any purchase by that Person
of all or substantially all of the assets of a business conducted by another
Person, and (iii) any loan, advance (other than deposits with financial
institutions available for
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withdrawal on demand, prepaid expenses, accounts receivable, advances to
employees and similar items made or incurred in the ordinary course of business)
or capital contribution by that Person to any other Person, including all
Indebtedness to such Person arising from a sale of property by such Person other
than in the ordinary course of its business.
"IRS" means the Internal Revenue Service and any Person succeeding to the
functions thereof.
"Issuing Lender" is defined in Section 2.21 hereof.
"Jordan Stockholders" means The Jordan Company, Jordan/Zalaznick Capital
Corporation and MCIT, and their respective affiliates, principals, employees,
and partners, 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.
"Jordan Management Agreement" means that certain Management Consulting
Agreement, dated as of February 27, 1997 between TJC Management Corporation, a
Delaware corporation and Holdings in the form attached hereto as Exhibit O.
"Knowledge" means, at anytime and relative to any matter, knowledge which
the Authorized Officers of Holdings, the Borrower or any Restricted Subsidiary
would reasonably be expected to have regarding such matter.
"L/C Documents" is defined in Section 2.21.
"L/C Draft" means a draft drawn on an Issuing Lender pursuant to a Letter
of Credit.
"L/C Interest" is defined in Section 2.22.
"L/C Obligations" means, without duplication, an amount equal to the sum of
(i) the aggregate of the amount then available for drawing under each of the
Letters of Credit, (ii) the face amount of all outstanding L/C Drafts
corresponding to the Letters of Credit, which L/C Drafts have been accepted by
the applicable Issuing Lender, (iii) the aggregate outstanding amount of all
Reimbursement Obligations at such time and (iv) the aggregate face amount of all
Letters of Credit requested by the Borrower but not yet issued (unless the
request for an unissued Letter of Credit has been denied).
"Lenders" means the lending institutions listed on the signature pages of
this Agreement and their respective successors and assigns.
"Lending Installation" means, with respect to a Lender or the Agent, any
office, branch, subsidiary or affiliate of such Lender or the Agent.
"Letter of Credit" means the letters of credit issued by the Issuing
Lenders pursuant to Section 2.21 hereof.
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"Leverage Ratio" is defined in Section 6.4(D) below.
"Lien" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance or preference,
priority or security agreement or preferential arrangement of any kind or nature
whatsoever (including, without limitation, the interest of a vendor or lessor
under any conditional sale, Capitalized Lease or other title retention
agreement).
"Loan(s)" means, with respect to a Lender, such Lender's portion of any
Advance made pursuant to Section 2.1 or Section 2.2, as applicable, and in the
case of the Swing Line Bank, any Swing Line Loan made pursuant to Section 2.23
hereof, and collectively all Term Loans, Revolving Loans and Swing Line Loans,
whether made or continued as or converted to Floating Rate Loans or Eurodollar
Rate Loans.
"Loan Account" is defined in Section 2.15(F) hereof.
"Loan Documents" means this Agreement, the Notes, the Guaranty, the L/C
Documents, the Collateral Documents and all other documents, instruments and
agreements executed in connection therewith or contemplated thereby, as the same
may be amended, restated or otherwise modified and in effect from time to time.
"Management" means those employees or former employees of the Target
holding Equity Interests of Holdings or the Borrower as of the Closing Date and
from time to time thereafter.
"Management Notes" means those certain promissory notes in the original
aggregate principal amount not to exceed $900,000 and all accrued interest
thereon issued by certain members of Management to Holdings in connection with
the Acquisition.
"Management Stockholders" means the officers, directors and employees of
the Borrower on the Closing Date and their family members and trusts for the
benefit of any of the foregoing.
"Margin Stock" shall have the meaning ascribed to such term in Regulation
U.
"Material Adverse Effect" means a material adverse effect upon (a) the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Borrower, or the Borrower and its Restricted
Subsidiaries, taken as a whole, (b) the ability of the Borrower or any of its
Restricted Subsidiaries to perform their respective obligations under the Loan
Documents in any material respect, or (c) the ability of the Lenders or the
Agent to enforce in any material respect the Obligations or their rights with
respect to the Collateral.
"Maximum Revolving Credit Amount" means, at any particular time: (i) the
lesser of (A) the Aggregate Revolving Loan Commitment at such time minus the
aggregate outstanding L/C Obligations at such time and (B) the Borrowing Base at
such time minus the aggregate outstanding L/C Obligations in respect of standby
Letters of Credit at such time minus (ii) the amount of any Decision Reserve in
effect at such time.
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"MCIT" means MCIT PLC, a public company incorporated in England.
"MCIT Turnover Agreement" means the Turnover Agreement, dated as of
February 27, 1997, executed by the holders of the Holdings Subordinated Debt in
favor of the Agent and Holders of Secured Obligations and the Trustee and the
holders of the Senior Subordinated Notes in the form of Exhibit N hereto.
"Merger" means the merger of the Target with and into the Borrower with the
Borrower as the surviving corporation.
"Minimum Equity Contributions" is defined in Section 5.22 hereof.
"Mortgage" means that certain Mortgage, Security Agreement, Financing
Statement and Assignment of Rents and Leases of even date herewith executed by
the Borrower in favor of the Agent as amended, restated or otherwise modified
from time to time.
"Multiemployer Plan" means a "Multiemployer Plan" as defined in Section
4001(a)(3) of ERISA which is, or within the immediately preceding six (6) years
was, contributed to by either the Borrower or any member of the Controlled
Group.
"Net Cash Proceeds" means, with respect to any Asset Sale of any Person,
(a) cash (freely convertible into U.S. Dollars) received by such Person or any
Subsidiary of such Person from such Asset Sale (including cash received as
consideration for the assumption or incurrence of liabilities incurred in
connection with or in anticipation of such Asset Sale), after (i) provision for
all income or other taxes measured by or resulting from such Asset Sale, (ii)
payment of all reasonable and customary brokerage commissions, sales
commissions, legal, accounting, management, investment banking, advisory and
other fees and expenses related to such Asset Sale, (iii) all amounts used to
repay Indebtedness secured by a Lien on any asset disposed of in such Asset Sale
or which is or may be required (by the express terms of the instrument governing
such Indebtedness) to be repaid in connection with such Asset Sale (including
payments made to obtain or avoid the need for the consent of any holder of such
Indebtedness), (iv) deduction of appropriate amounts to be provided by such
Person or a Subsidiary of such Person as a reserve, determined in good faith in
accordance with Agreement Accounting Principles, against any liabilities
associated with the assets sold or disposed of in such Asset Sale and retained
by such Person or a Subsidiary of such Person after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities and
liabilities related to environmental matters or against any indemnification and
other contractual obligations associated with the assets sold or disposed of in
such Asset Sale, (v) deduction of cash expenses, including the payment of
principal, interest and premium on Indebtedness (other than the Obligations or
the Senior Subordinated Notes) required to be paid as a result of such Asset
Sale, and relocation and other similar expenses incurred in connection with such
Asset Sale and (vi) deduction of amounts payable by such Person with respect to
relocation expenses and pension, severance and shutdown costs incurred as a
result of such Asset Sale; and (b) cash payments in respect of any Indebtedness,
Capital Stock or other consideration received by such Person or any Subsidiary
of such Person from such Asset Sale upon receipt of such cash payments by such
Person or such Subsidiary.
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"Net Income" is defined in Section 6.4(A) hereof.
"New Subsidiary" is defined in Section 6.3(G)(ii) hereof.
"Non Pro Rata Loan" is defined in Section 8.2 hereof.
"Non-Restricted Subsidiary" means any Subsidiary of the Borrower other than
a Restricted Subsidiary.
"Notes" means the Revolving Notes, the Term Notes, and the Swing Line Note.
"Notice of Assignment" is defined in Section 12.3(B) hereof.
"Obligations" means all Loans, advances, debts, liabilities, obligations,
covenants and duties owing by the Borrower to the Agent, any Lender, any
Affiliate of the Agent or any Lender, or any Indemnitee, of any kind or nature,
present or future, arising under this Agreement, the Notes, the L/C Documents,
the Collateral Documents, any other Loan Document, whether or not evidenced by
any note, guaranty or other instrument, whether or not for the payment of money,
whether arising by reason of an extension of credit, loan, guaranty,
indemnification, or in any other manner, whether direct or indirect (including
those acquired by assignment), absolute or contingent, due or to become due, now
existing or hereafter arising and however acquired. The term includes, without
limitation, all interest (including any interest accruing subsequent to the
filing of a petition of bankruptcy at the rate provided for in the documentation
with respect thereto), charges, expenses, fees, attorneys' fees and
disbursements, paralegals' fees (in each case whether or not allowed), and any
other sum chargeable to the Borrower under this Agreement or any other Loan
Document.
"Off Balance Sheet Liabilities" of a Person means (a) any repurchase
obligation or liability of such Person or any of its Subsidiaries with respect
to accounts or notes receivable sold by such Person or any of its Subsidiaries,
(b) any liability under any so-called "synthetic" lease transaction, or (c) any
obligations arising with respect to any other transaction which is the
functional equivalent of or takes the place of borrowing but which does not
constitute a liability on the consolidated balance sheets of such Person and its
Subsidiaries.
"Offering Memorandum" shall mean the Offering Memorandum, dated February
20, 1997, relating to the Borrower's offering and placement of the Senior
Subordinated Notes.
"Officer's Certificate" is defined in Section 6.1(A)(iv) hereof.
"Other Taxes" is defined in Section 2.15(E)(ii) hereof.
"Parent" is defined in Section 6.2(M) hereof.
"Participants" is defined in Section 12.2(A) hereof.
"Payment Date" means the last Business Day of each calendar quarter.
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"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Permitted Acquisition" is defined in Section 6.3(G).
"Permitted Existing Contingent Obligations" means the Contingent
Obligations of the Borrower and its Restricted Subsidiaries identified as such
on Schedule 1.1.1 to this Agreement.
"Permitted Existing Indebtedness" means the Indebtedness of the Borrower
and its Restricted Subsidiaries identified as such on Schedule 1.1.2 to this
Agreement.
"Permitted Existing Investments" means the Investments of the Borrower and
its Restricted Subsidiaries identified as such on Schedule 1.1.3 to this
Agreement.
"Permitted Existing Liens" means the Liens on assets of the Borrower or any
of its Restricted Subsidiaries identified as such on Schedule 1.1.4 to this
Agreement.
"Permitted Holdings Indebtedness" means the following Indebtedness of
Holdings:
(a) the Holdings Subordinated Debt (which, for purposes of this
definition, includes all indebtedness represented by promissory notes
issued by Holdings in favor of the holders of the Holdings Subordinated
Notes in lieu of any payment of accrued interest on the Holding
Subordinated Notes in cash, which promissory notes are in an amount not
exceeding the amount of such accrued interest in the form of the Holdings
Subordinated Notes);
(b) Indebtedness in respect of taxes, assessments, and governmental
charges, to the extent that non-payment thereof does not result in a
Default under Section 7.1(w).
(c) Indebtedness with respect to dividends due on the Preferred Stock
at rates no higher than the rates in effect on the Closing Date;
(d) Indebtedness with respect to directors' fees not to exceed
$150,000 plus out-of-pocket expenses in any fiscal year of Borrower and
other obligations of Holdings under the Jordan Management Agreement;
(e) Indebtedness with respect to Transaction Costs;
(f) Indebtedness with respect to the Employment Agreements as in
effect on the Closing Date;
(g) Indebtedness to any shareholder of Holdings incurred at a time
when no Default has occurred and is continuing in connection with the
repurchase, redemption or other acquisition or retirement for value of any
Equity Interests of Holdings ("Repurchase Indebtedness") owned by any
member of the Borrower's management, pursuant to the Stockholders Agreement
as in effect on the Closing Date or any similar agreement entered into
after the Closing Date with members of the management of the
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Borrower or any Restricted Subsidiary acquired after the Closing Date,
provided, that such Indebtedness shall be subordinated to the Secured
Obligations and Indebtedness evidenced by the Senior Subordinated Notes on
terms and conditions reasonably acceptable to the Agent and the Required
Lenders (it being understood and agreed that the subordination terms
contained in the Non-Negotiable Promissory Notes attached as Exhibit C to
the Stockholders Agreement as in effect as of the date hereof shall be
acceptable);
(h) Indebtedness in respect of Plans maintained by Holdings which are
established and maintained in accordance with the covenants set forth in
this Agreement;
(i) Indebtedness under the Holdings Turnover Agreement; and
(j) other Indebtedness incurred for the purpose of financing amounts
payable in respect of Indebtedness permitted under clauses (a) through (j)
above, the payment of which is subordinated to the payment of the Secured
Obligations to the written satisfaction of the Agent and the Required
Lenders and the terms (including, without limitation, with respect to
amount, maturity, amortization, interest rate, premiums, fees, covenants,
subordination terms, events of default and remedies) of which are
reasonably acceptable to the Agent and the Required Lenders;
provided, however, no such Indebtedness shall constitute Permitted Holdings
Indebtedness unless such Indebtedness is nonrecourse to the Borrower and
its Restricted Subsidiaries and the Borrower and its Restricted
Subsidiaries have no direct or Contingent Obligations with respect to such
Indebtedness.
"Permitted Purchase Money Indebtedness" is defined in Section 6.3(A)(x)
hereof.
"Permitted Refinancing Indebtedness" means any replacement, renewal,
refinancing or extension of any Indebtedness (other than the Senior Subordinated
Notes) permitted by this Agreement that (i) does not exceed the aggregate
principal amount including unused commitments, of the Indebtedness being
replaced, renewed, refinanced or extended (plus accrued interest and any
applicable premium and associated fees and expenses), (ii) does not have a
Weighted Average Life to Maturity at the time of such replacement, renewal,
refinancing or extension that is less than the Weighted Average Life to Maturity
of the Indebtedness being replaced, renewed, refinanced or extended, (iii) does
not rank at the time of such replacement, renewal, refinancing or extension
senior to the Indebtedness being replaced, renewed, refinanced or extended, and
(iv) does not contain terms (including, without limitation, terms relating to
security, amortization, interest rate, premiums, fees, covenants, subordination,
events of default and remedies) materially less favorable to the Borrower, taken
as a whole, or less favorable in any respect to the interests of the Lenders
than those applicable to the Indebtedness being replaced, renewed, refinanced or
extended.
"Permitted Subordinated Indebtedness" means Subordinated Indebtedness
permitted pursuant to Section 6.3(A)(v).
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"Person" means any natural person, corporation, firm, joint venture,
partnership, limited liability company, association, enterprise, trust or other
entity or organization, or any government or political subdivision or any
agency, department or instrumentality thereof.
"Plan" means an employee benefit plan defined in Section 3(3) of ERISA in
respect of which the Borrower or any member of the Controlled Group is, or
within the immediately preceding six (6) years was, an "employer" as defined in
Section 3(5) of ERISA.
"Pledge Agreements" means the Pledge Agreements to be executed by the
Borrower (or if such Restricted Subsidiary is to be acquired or established by
another Restricted Subsidiary, executed by the applicable Restricted Subsidiary)
as of the acquisition or establishment of any Restricted Subsidiary pursuant to
the terms of Section 6.3(G)(ii), in favor of the Agent for the benefit of the
Holders of Secured Obligations as amended, restated or otherwise modified from
time to time, pursuant to which the Borrower and its Restricted Subsidiaries
will pledge to the Agent, for the benefit of the Holders of Secured Obligations,
all of the issued and outstanding Capital Stock of each Restricted Subsidiary of
the Borrower.
"Preferred Stock" means (a) the Series A 12% Cumulative Preferred Stock,
$0.01 par value of Holdings issued to each of the holders of the Series A 12%
Cumulative Preferred Stock listed on Schedule 5.8 attached hereto and (b) the
Series B 12% Cumulative Preferred Stock $0.01 par value of Holdings issued to
each of the holders of the Series B 12% Cumulative Preferred Stock listed on
Schedule 5.8 attached hereto.
"Pro Rata Share" means, with respect to any Lender, (i) at any time prior
to the Closing Date, the percentage obtained by dividing (A) such Lender's
Commitments at such time (in each case, as adjusted from time to time in
accordance with the provisions of this Agreement) by (B) the sum of the
Aggregate Term Loan A Commitments, Aggregate Term Loan B Commitments and the
Aggregate Revolving Loan Commitments at such time and (ii) at any time after the
Closing Date, the percentage obtained by dividing (A) the sum of such Lender's
Term Loans and Revolving Loan Commitment at such time (in each case, as adjusted
from time to time in accordance with the provisions of this Agreement) by (B)
the sum of the aggregate amount of all of the Term Loans and the Aggregate
Revolving Loan Commitment at such time; provided, however, if all of the
Commitments are terminated pursuant to the terms of this Agreement, then "Pro
Rata Share" means the percentage obtained by dividing (x) the sum of such
Lender's Term Loans, Revolving Loans and participations in any outstanding
Letters of Credit and, in the case of the Swing Line Bank, Swing Line Loans, by
(y) the aggregate amount of all Term Loans, Revolving Loans, Swing Line Loans
and L/C Obligations.
"Purchasers" is defined in Section 12.3(A) hereof.
"Rate Option" means the Eurodollar Rate or the Floating Rate.
"Receivable(s)" means and includes all of the Borrower's presently existing
and hereafter arising or acquired accounts, accounts receivable, and all present
and future rights of the Borrower to payment for goods sold or leased or for
services rendered (except those evidenced by instruments or chattel paper),
whether or not they have been earned by performance, and all
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rights in any merchandise or goods which any of the same may represent, and all
rights, title, security and guaranties with respect to each of the foregoing,
including, without limitation, any right of stoppage in transit.
"Redeemable Stock" means any Capital Stock which 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 (other than in connection with an Equity Offering), in whole or in
part, pursuant to a sinking fund obligation or otherwise, prior to the maturity
of the Obligations (including any extensions thereof contemplated by this
Agreement), or is, by its terms or upon the happening of any event, redeemable
pursuant to a sinking fund obligation or otherwise, at the option of the holder
thereof, in whole or in part, prior to the maturity of the Obligations
(including any extensions thereof contemplated by this Agreement).
"Refinanced Indebtedness" means the all of the outstanding Indebtedness of
the Target as of the Closing Date which is being discharged as of the Closing
Date as more specifically set forth on Schedule 1.1.5 hereto.
"Register" is defined in Section 12.3(C) hereof.
"Regulation G" means Regulation G of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by nonbank, nonbroker lenders for the purpose of purchasing
or carrying margin stock (as defined therein).
"Regulation T" means Regulation T of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by and to brokers and dealers of securities for the purpose
of purchasing or carrying margin stock (as defined therein).
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by banks for the purpose of purchasing or carrying Margin
Stock applicable to member banks of the Federal Reserve System.
"Regulation X" means Regulation X of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
obtaining of credit by borrowers for the purpose of purchasing or carrying
margin stock (as defined therein).
"Reimbursement Obligation" is defined in Section 2.23 hereof.
"Release" means any release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the indoor
or outdoor environment,
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including the movement of Contaminants through or in the air, soil, surface
water or groundwater.
"Replacement Lender" is defined in Section 2.20 hereof.
"Reportable Event" means a reportable event as defined in Section 4043 of
ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days after
such event occurs, provided, however, that a failure to meet the minimum funding
standards of Section 412 of the Code and of Section 302 of ERISA shall be a
Reportable Event regardless of the issuance of any such waiver of the notice
requirement in accordance with either Section 4043(a) of ERISA or Section 412(d)
of the Code.
"Repurchase Indebtedness" is defined in the definitions of Permitted
Holdings Indebtedness above.
"Required Lenders" means Lenders whose Pro Rata Shares, in the aggregate,
are equal to or greater than sixty-six and two-thirds percent (66-2/3%);
provided, however, that, if any of the Lenders shall have failed to fund its Pro
Rata Share of any Revolving Loan requested by the Borrower, or any Swing Line
Loan as requested by the Agent, which such Lenders are obligated to fund under
the terms of this Agreement and any such failure has not been cured, then for so
long as such failure continues, "Required Lenders" means Lenders (excluding all
Lenders whose failure to fund their respective Pro Rata Shares of such Revolving
Loans or Swing Line Loans has not been so cured) whose Pro Rata Shares represent
sixty-six and two-thirds percent (66-2/3%) or greater of the aggregate Pro Rata
Shares of such Lenders; provided, further, however, that, if the Commitments
have been terminated pursuant to the terms of this Agreement, "Required Lenders"
means Lenders (without regard to such Lenders' performance of their respective
obligations hereunder) whose ratio of (x) the sum of such Lenders' Term Loans,
Revolving Loans and participations in outstanding Letters of Credit, and, in the
case of the Swing Line Bank, the Swing Line Loans to (y) the aggregate amount of
all Term Loans, Revolving Loans, Swing Line Loans and L/C Obligations is equal
to or greater than sixty-six and two-thirds percent (66-2/3%).
"Requirements of Law" means, as to any Person, the charter and by-laws or
other organizational or governing documents of such Person, and any law, rule or
regulation, or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject including,
without limitation, the Securities Act of 1933, the Securities Exchange Act of
1934, Regulations G, T, U and X, ERISA, the Fair Labor Standards Act, the Worker
Adjustment and Retraining Notification Act, Americans with Disabilities Act of
1990, and any certificate of occupancy, zoning ordinance, building,
environmental or land use requirement or Permit or environmental, labor,
employment, occupational safety or health law, rule or regulation, including
Environmental, Health or Safety Requirements of Law.
"Reserves" shall mean the maximum reserve requirement, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) with respect
to "Eurocurrency
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liabilities" or in respect of any other category of liabilities which includes
deposits by reference to which the interest rate on Eurodollar Rate Loans is
determined or category of extensions of credit or other assets which includes
loans by a non-United States office of any Lender to United States residents.
"Restricted Payment" means:
(i) any dividend or other distribution, direct or indirect, on account
of any now or hereafter outstanding Equity Interests of the Borrower or any
Restricted Subsidiary, except a dividend payable solely in shares of that
class of Equity Interest or in any junior class of Equity Interest to the
holders of that class;
(ii) any redemption, retirement, sinking fund or similar payment,
purchase or other acquisition for value, direct or indirect, of any Equity
Interests of the Borrower or any of its Restricted Subsidiaries now or
hereafter outstanding;
(iii) any payment or prepayment of principal of, premium, if any, or
interest, fees or other charges on or with respect to, and any redemption,
purchase, retirement, defeasance, sinking fund or similar payment and any
claim for rescission with respect to any Permitted Subordinated
Indebtedness and the Indebtedness evidenced by the Senior Subordinated
Notes;
(iv) any payment made to redeem, purchase, repurchase or retire, or to
obtain the surrender of, any outstanding Equity Interests of the Borrower
or any of its Restricted Subsidiaries now or hereafter outstanding;
(v) any payment of a claim for the rescission of the purchase or sale
of, or for material damages arising from the purchase or sale of any
Permitted Subordinated Indebtedness, any Indebtedness evidenced by the
Senior Subordinated Notes, any Holdings Subordinated Debt or any Equity
Interests of Holdings, the Borrower or any of the Borrower's Restricted
Subsidiaries or of a claim for reimbursement, indemnification or
contribution arising out of or related to any such claim for damages or
rescission; and
(vi) any payment of management, consulting or investment banking fees
(or other fees of a similar nature) (A) by the Borrower or any Restricted
Subsidiary to Holdings or (B) by the Borrower to any Jordan Stockholder, or
MCIT, or any of their respective Affiliates, any holder of any Senior
Subordinated Note, any holder of the Holdings Subordinated Debt or Equity
Interests of Holdings or any member of Management or their Affiliates.
"Restricted Subsidiary" means:
(a) any Subsidiary of the Borrower incorporated under the laws of one
of the states of the United States and all of the assets and operations of
which are in the United States or which generated EBITDA during the
immediately preceding twelve months in
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excess of an amount equal to ten percent (10%) of the Borrower's EBITDA
during the immediately preceding twelve months;
(b) any other Subsidiary of the Borrower incorporated under the laws
of one of the states of the United States resulting from a Permitted
Acquisition after the Closing Date substantially all the assets and
operations of which are in the United States and that is designated a
"Restricted Subsidiary" by the Borrower pursuant to a resolution approved
by a majority of the Board of Directors of the Borrower and delivered to
the Agent and the Lenders.
"Restricted Subsidiary Security Agreements" shall mean each of those
certain Security Agreements substantially in the form attached hereto as Exhibit
R executed by each Restricted Subsidiary in favor of the Agent for the benefit
of the Holders of Secured Obligations, executed pursuant to Section 6.3(G)(ii)
of this Agreement, in each case as they may be amended, modified, supplemented
or restated and in effect from time to time.
"Revolving Credit Availability" means, at any particular time, the lesser
of (a) (i) the Aggregate Revolving Loan Commitment at such time minus (ii) the
Revolving Credit Obligations outstanding at such time and (b) (i) the Borrowing
Base at such time, minus (ii) the principal amount of the Revolving Loans
outstanding at such time, minus (iii) the principal amount of Swing Line Loans
outstanding at such time and minus (iv) the L/C Obligations with respect to
standby Letters of Credit (other than the Backstop Letter of Credit) outstanding
at such time.
"Revolving Credit Obligations" means, at any particular time, the sum of
(i) the outstanding principal amount of the Revolving Loans at such time, plus
(ii) the outstanding principal amount of the Swing Line Loans at such time, plus
(iii) the L/C Obligations at such time.
"Revolving Loan" is defined in Section 2.2.
"Revolving Loan Commitment" means, for each Lender, the obligation of such
Lender to make Revolving Loans and to purchase participations in Letters of
Credit not exceeding the amount set forth on Exhibit B to this Agreement
opposite its name thereon under the heading "Revolving Loan Commitment" or on
Schedule 1 to the Assignment and Acceptance by which it became a Lender, as such
amount may be modified from time to time pursuant to the terms of this Agreement
or to give effect to any applicable Assignment and Acceptance.
"Revolving Loan Termination Date" means December 31, 2002.
"Revolving Note" means a promissory note, in substantially the form of
Exhibit C hereto, duly executed by the Borrower and payable to the order of a
Lender in the amount of its Revolving Loan Commitment, including any amendment,
restatement modification, renewal or replacement of such Revolving Note.
"Risk-Based Capital Guidelines" is defined in Section 3.2 hereof.
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<PAGE>
"Sale and Leaseback Transaction" means any sale or other transfer of
Property by any Person with intent to lease such Property as lessee.
"Secured Obligations" means, collectively, (i) the Obligations and (ii) all
Hedging Obligations owing under Hedging Agreements to any Lender or any
affiliate of any Lender.
"Security Agreement" means that certain Security Agreement of even date
herewith executed by the Borrower in favor of the Agent for the benefit of the
Holders of Secured Obligations as amended, restated or otherwise modified from
time to time.
"Sellers" is defined in the definition of Stock Acquisition below.
"Senior Subordinated Notes" means those certain 9 5/8% Senior Subordinated
Notes due 2007, issued by the Borrower in the aggregate principal amount of
$125,000,000 pursuant to the Indenture, as amended, supplemented or modified in
accordance with Section 6.3(O) hereof.
"Single Employer Plan" means a Plan maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group.
"Solvent", when used with respect to any Person, means that at the time of
determina tion: (i) the fair market value (i.e., the value of the consideration
obtainable in a sale of assets on a going-concern basis in the open market,
assuming a sale by a willing seller to a willing purchaser dealing at arm's
length and arranged in an orderly manner over a reasonable period of time, each
having reasonable knowledge of the nature and characteristics of such assets,
neither being under any compulsion to act, determined in good faith) of its
assets is in excess of the total amount of its liabilities (including, without
limitation, contingent liabilities); (ii) the present fair saleable value of its
assets (as determined on a going-concern basis) is greater than its probable
liability on its existing debts as such debts become absolute and matured; (iii)
it is then able and expects to be able to pay its debts (including, without
limitation, contingent debts and other commitments) as they mature; and (iv) it
has capital sufficient to carry on its business as conducted and as proposed to
be conducted.
"Stock Acquisition" means the acquisition by the Borrower of all of the
issued and outstanding Capital Stock of the Target on the terms and conditions
set forth in that certain Agreement for Purchase and Sale of Stock ("Stock
Purchase Agreement") dated as of January 24, 1997 by and among the Borrower,
Holdings and all of the shareholders of the Target (collectively, the "Sellers",
and each individually being sometimes referred to herein as "Seller"), in the
form attached as Exhibit D hereto.
"Stock Purchase Agreement" is defined in the definition of Stock
Acquisition above.
"Stockholders Agreement" means that certain Subscription and Stockholders
Agreement, dated as of February 27, 1997, among Holdings and each of the
"Stockholders" parties thereto, as in effect on the Closing Date.
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"Subordinated Indebtedness" means (a) the Indebtedness evidenced by the
Senior Subordinated Notes and (b) any other Indebtedness of the Borrower or any
Subsidiary of the Borrower, the payment of which is subordinated to payment of
the Secured Obligations to the written satisfaction of the Agent and the
Required Lenders.
"Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, association, joint venture or similar business
organization more than 50% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled. Unless otherwise
expressly provided, all references herein to a "Subsidiary" shall mean a
Subsidiary of the Borrower.
"Swing Line Bank" means the Agent or any successor Agent.
"Swing Line Commitment" means the obligation of the Swing Line Bank to make
Swing Line Loans up to a maximum principal amount of Two Million and 00/100
Dollars ($2,000,000) at any one time outstanding.
"Swing Line Loan" means a loan made available to the Borrower by the Swing
Line Bank pursuant to Section 2.3 hereof.
"Swing Line Note" means a promissory note, in substantially the form of
Exhibit C-1 hereto, duly executed by the Borrower and payable to the order of
the Swing Line Bank in the amount of its Swing Line Commitment, including any
amendment, restatement, modification, renewal or replacement of such Swing Line
Note.
"Syndication Period" is defined in the definition of Interest Period above.
"Target" means Winning Ways, Inc., a Missouri corporation, prior to the
consummation of the Merger.
"Tax Sharing Agreement" means that certain Tax Sharing Agreement, dated as
of February 27, 1997 initially between Holdings and the Borrower and to which
each Restricted Subsidiary shall become a party in the form attached hereto as
Exhibit P.
"Taxes" is defined in Section 2.15(E)(i) hereof.
"Termination Date" means the earlier of (a) the Revolving Loan Termination
Date and (b) the date of termination of the Commitments pursuant to Section 2.6
or Section 8.1.
"Termination Event" means (i) a Reportable Event with respect to any
Benefit Plan; (ii) the withdrawal of the Borrower or any member of the
Controlled Group from a Benefit Plan during a plan year in which the Borrower or
such Controlled Group member was a "substantial employer" as defined in Section
4001(a)(2) of ERISA; (iii) the imposition of an obligation on the Borrower or
any member of the Controlled Group under Section 4041 of ERISA to provide
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affected parties written notice of intent to terminate a Benefit Plan in a
distress termination described in Section 4041(c) of ERISA; (iv) the institution
by the PBGC of proceedings to terminate a Benefit Plan; (v) any event or
condition which constitutes grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Benefit Plan;
or (vi) the partial or complete withdrawal of the Borrower or any member of the
Controlled Group from a Multiemployer Plan.
"Term Loan A" is defined in Section 2.1(a).
"Term Loan A Commitment" means, for each Lender, the obligation of such
Lender to make its Term Loan A pursuant to the terms and conditions of this
Agreement, and which shall not exceed the principal amount set forth on Exhibit
B to this Agreement opposite its name thereon under the heading "Term Loan A
Commitment", as such amount may be modified from time to time pursuant to the
terms hereof.
"Term Loan A Note" means a promissory note, in substantially the form of
Exhibit E hereto, duly executed by the Borrower and payable to the order of a
Lender in the amount of its Term Loan A Commitment, including any amendment,
restatement modification, renewal or replacement of such Term Loan A Note.
"Term Loan A Termination Date" means December 31, 2002.
"Term Loan B" is defined in Section 2.1(b).
"Term Loan B Commitment" means, for each Lender, the obligation of such
Lender to make its Term Loan B pursuant to the terms and conditions of this
Agreement, and which shall not exceed the principal amount set forth on Exhibit
B to this Agreement opposite its name thereon under the heading "Term Loan B
Commitment", as such amount may be modified from time to time pursuant to the
terms hereof.
"Term Loan B Note" means a promissory note, in substantially the form of
Exhibit F hereto, duly executed by the Borrower and payable to the order of a
Lender in the amount of its Term Loan B Commitment, including any amendment,
restatement modification, renewal or replacement of such Term Loan B Note.
"Term Loan B Termination Date" means March 31, 2004.
"Term Loans" means, collectively, the A Term Loans and B Term Loans.
"Term Notes" means collectively the Term Loan A Notes and Term Loan B
Notes, including any amendment, restatement modification, renewal or replacement
of such Term Notes.
"The Jordan Company" means The Jordan Company, a New York general
partnership.
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<PAGE>
"Transaction Costs" means the fees, costs and expenses payable by the
Borrower in connection with the execution, delivery and performance of the
Transaction Documents, the consummation of the Stock Acquisition and the offer
and sale of the Senior Subordinated Notes.
"Transaction Documents" means the Loan Documents, the Indenture, the Senior
Subordinated Notes, the documents evidencing the Holdings Subordinated Debt,
including, without limitation, the Deferred Limited Interest Guaranty, the MCIT
Turnover Agreement, the Holdings Turnover Agreement, the Management Notes, the
Jordan Management Agreement, the Tax Sharing Agreement and the Acquisition
Documents.
"Transferee" is defined in Section 12.5 hereof.
"Type" means, with respect to any Loan, its nature as a Floating Rate Loan
or a Eurodollar Rate Loan.
"Unfunded Liabilities" means (i) in the case of Single Employer Plans, the
amount (if any) by which the present value of all vested nonforfeitable benefits
under all Single Employer Plans exceeds the fair market value of all such Plan
assets allocable to such benefits, all determined as of the then most recent
valuation date for such Plans, and (ii) in the case of Multiemployer Plans, the
withdrawal liability that would be incurred by the Controlled Group if all
members of the Controlled Group completely withdrew from all Multiemployer
Plans.
"Unmatured Default" means an event which, but for the lapse of time or the
giving of notice, or both, would constitute a Default.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have, at the time of determination, the general voting
power under ordinary circumstances to elect the board of directors (or similar
governing body).
"Weighted Average Life to Maturity" means when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Working Capital" means, as at any date of determination, the excess, if
any, of (i) the Borrower's and its Restricted Subsidiaries' consolidated current
assets, except cash and Cash Equivalents, over (ii) the Borrower's and its
Restricted Subsidiaries' consolidated current liabilities, except current
maturities of long-term debt and Revolving Credit Obligations as of such date
and all accrued interest, associated costs and fees in connection therewith as
of such date.
The foregoing definitions shall be equally applicable to both the singular
and plural forms of the defined terms. Any accounting terms used in this
Agreement which are not
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<PAGE>
specifically defined herein shall have the meanings customarily given them in
accordance with Agreement Accounting Principles.
1.2 References. The existence throughout the Agreement of references to the
Borrower's Subsidiaries is for a matter of convenience only. Any references to
Subsidiaries of the Borrower set forth herein shall not shall not in any way be
construed as consent by the Agent or any Lender to the establishment,
maintenance or acquisition of any Subsidiary. All representations and warranties
made on and as of the Closing Date to the Borrower shall also be and be deemed
to include a reference to the Target after taking into effect the consummation
of the Merger.
1.3 Supplemental Disclosure. At any time at the reasonable request of the
Agent and at such additional times as the Borrower determines, the Borrower
shall supplement each schedule or representation herein or in the other Loan
Documents with respect to any matter hereafter arising which, if existing or
occurring at the date of this Agreement, would have been required to be set
forth or described in such schedule or as an exception to such representation or
which is necessary to correct any information in such schedule or representation
which has been rendered inaccurate thereby. Unless any such supplement to such
schedule or representation discloses the existence or occurrence of events,
facts or circumstances which are not prohibited by the terms of this Agreement
or any other Loan Documents, such supplement to such schedule or representation
shall not be deemed an amendment thereof unless expressly consented to in
writing by Agent and the Required Lenders, and no such amendments, except as the
same may be consented to in a writing which expressly includes a waiver, shall
be or be deemed a waiver by the Agent or any Lender of any Default disclosed
therein. Any items disclosed in any such supplemental disclosures shall be
included in the calculation of any baskets, limits or similar restrictions
contained in this Agreement or any other Loan Document.
ARTICLE II: THE CREDITS
2.1. Term Loans. (a) Term Loan A.
(i) Amount of Term Loan A. Subject to the terms and conditions set
forth in this Agreement, each Lender on the Closing Date severally and not
jointly agrees to make on the Closing Date, a term loan, in Dollars, to the
Borrower in an amount equal to such Lender's Term Loan A Commitment (each
individually, a "Term Loan A" and, collectively, the "A Term Loans"). All A
Term Loans shall be made by the Lenders on the Closing Date simultaneously
and proportionately to their respective Pro Rata Shares, it being
understood that no Lender shall be responsible for any failure by any other
Lender to perform its obligation to make any Term Loan A hereunder nor
shall the Term Loan A Commitment of any Lender be increased or decreased as
a result of any such failure.
(ii) Borrowing Notice. The Borrower shall deliver to the Agent a
Borrowing Notice, signed by it, on the Closing Date. Such Borrowing Notice
shall specify (i) the aggregate amount of the A Term Loans and (ii)
instructions for the disbursement of the proceeds of the A Term Loans. The
A Term Loans shall initially be Floating Rate Loans
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<PAGE>
(unless otherwise agreed between the Borrower and the Lenders) and
thereafter may be continued as Floating Rate Loans or converted into
Eurodollar Rate Loans in the manner provided in Section 2.10 and subject to
the other conditions and limitations therein set forth and set forth in
this Article II. Any Borrowing Notice given pursuant to this Section
2.1(a)(ii) shall be irrevocable.
(iii) Making of Term Loans. Promptly after receipt of the Borrowing
Notice under Section 2.1(a)(ii) in respect of the A Term Loans, the Agent
shall notify each Lender by telex or telecopy, or other similar form of
transmission, of the proposed Advance. Each Lender shall deposit an amount
equal to its Pro Rata Share of the A Term Loans with the Agent at its
office in Chicago, Illinois, in immediately available funds, on the Closing
Date specified in the Borrowing Notice. Subject to the fulfillment of the
conditions precedent set forth in Sections 4.1 and 4.2, the Agent shall
make the proceeds of such amounts received by it available to the Borrower
at the Agent's office in Chicago, Illinois on such Closing Date and shall
disburse such proceeds in accordance with the Borrower's disbursement
instructions set forth in such Borrowing Notice. The failure of any Lender
to deposit the amount described above with the Agent on the Closing Date
shall not relieve any other Lender of its obligations hereunder to make its
Term Loan A on the Closing Date.
(iv) Repayment of the A Term Loans.
(A) The A Term Loans shall be repaid in twenty-two (22)
consecutive quarterly installments payable on the last day of each
calendar quarter commencing September 30, 1997 and continuing
thereafter until the Term Loan A Termination Date, and the A Term
Loans shall be permanently reduced by the amount of each installment
on the date payment thereof is required to be made hereunder. The
installments shall be in the aggregate amounts set forth below:
<TABLE>
<CAPTION>
Installment Date Installment Amount
---------------- ------------------
<S> <C>
September 30, 1997 $1,062,500
December 31, 1997 $1,062,500
March 31, 1998 $1,062,500
June 30, 1998 $1,062,500
September 30, 1998 $1,187,500
December 31, 1998 $1,187,500
March 31, 1999 $1,187,500
June 30, 1999 $1,187,500
September 30, 1999 $1,562,500
December 31, 1999 $1,562,500
March 31, 2000 $1,562,500
June 30, 2000 $1,562,500
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
September 30, 2000 $1,937,500
December 31, 2000 $1,937,500
March 31, 2001 $1,937,500
June 30, 2001 $1,937,500
September 30, 2001 $2,437,500
December 31, 2001 $2,437,500
March 31, 2002 $2,437,500
June 30, 2002 $2,437,500
September 30, 2002 $3,625,000
December 31, 2002 $3,625,000
</TABLE>
Notwithstanding the foregoing, the final installment shall be in the
amount of the then outstanding principal balance of the A Term Loans.
In addition, the then outstanding principal balance of the A Term
Loans, if any, shall be due and payable on the Termination Date. No
installment of any Term Loan A shall be reborrowed once repaid.
(B) In addition to the scheduled payments on the A Term Loans,
the Borrower (i) may make the voluntary prepayments described in
Section 2.5(A) for credit against the scheduled payments on the A Term
Loans pursuant to Section 2.5(A) and (ii) shall make the mandatory
prepayments prescribed in Section 2.5(B), for credit against such
scheduled payments on the A Term Loans pursuant to Section 2.5(B).
(b) Term Loan B.
(i) Amount of Term Loan B. Subject to the terms and conditions set
forth in this Agreement, each Lender on the Closing Date severally and not
jointly agrees to make on the Closing Date, a term loan, in Dollars, to the
Borrower in an amount equal to such Lender's Term Loan B Commitment (each
individually, a "Term Loan B" and, collectively, the "B Term Loans"). All B
Term Loans shall be made by the Lenders on the Closing Date simultaneously
and proportionately to their respective Pro Rata Shares, it being
understood that no Lender shall be responsible for any failure by any other
Lender to perform its obligation to make any Term Loan B hereunder nor
shall the Term Loan B Commitment of any Lender be increased or decreased as
a result of any such failure.
(ii) Borrowing Notice. The Borrower shall deliver to the Agent a
Borrowing Notice, signed by it, on the Closing Date. Such Borrowing Notice
shall specify (i) the aggregate amount of the B Term Loans and (ii)
instructions for the disbursement of the proceeds of the B Term Loans. The
B Term Loans shall initially be Floating Rate Loans (unless otherwise
agreed between the Borrower and the Lenders) and thereafter may be
continued as Floating Rate Loans or converted into Eurodollar Rate Loans in
the manner provided in Section 2.10 and subject to the other conditions and
limitations therein set
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forth and set forth in this Article II. Any Borrowing Notice given pursuant
to this Section 2.1(b)(ii) shall be irrevocable.
(iii) Making of Term Loans. Promptly after receipt of the Borrowing
Notice under Section 2.1(b)(ii) in respect of the B Term Loans, the Agent
shall notify each Lender by telex or telecopy, or other similar form of
transmission, of the proposed Advance. Each Lender shall deposit an amount
equal to its Pro Rata Share of the B Term Loans with the Agent at its
office in Chicago, Illinois, in immediately available funds, on the Closing
Date specified in the Borrowing Notice. Subject to the fulfillment of the
conditions precedent set forth in Sections 4.1 and 4.2, the Agent shall
make the proceeds of such amounts received by it available to the Borrower
at the Agent's office in Chicago, Illinois on such Closing Date and shall
disburse such proceeds in accordance with the Borrower's disbursement
instructions set forth in such Borrowing Notice. The failure of any Lender
to deposit the amount described above with the Agent on the Closing Date
shall not relieve any other Lender of its obligations hereunder to make its
Term Loan B on the Closing Date.
(iv) Repayment of the B Term Loans.
(A) The B Term Loans shall be repaid in twenty-seven (27)
consecutive quarterly installments payable on the last day of each
calendar quarter commencing September 30, 1997 and continuing
thereafter until the Term Loan B Termination Date, and the B Term
Loans shall be permanently reduced by the amount of each installment
on the date payment thereof is required to be made hereunder. The
installments shall be in the aggregate amounts set forth below:
<TABLE>
<CAPTION>
Installment Date Installment Amount
---------------- ------------------
<S> <C>
September 30, 1997 $ 62,500
December 31, 1997 $ 62,500
March 31, 1998 $ 62,500
June 30, 1998 $ 62,500
September 30, 1998 $ 62,500
December 31, 1998 $ 62,500
March 31, 1999 $ 62,500
June 30, 1999 $ 62,500
September 30, 1999 $ 62,500
December 31, 1999 $ 62,500
March 31, 2000 $ 62,500
June 30, 2000 $ 62,500
September 30, 2000 $ 62,500
December 31, 2000 $ 62,500
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
March 31, 2001 $ 62,500
June 30, 2001 $ 62,500
September 30, 2001 $ 62,500
December 31, 2001 $ 62,500
March 31, 2002 $ 62,500
June 30, 2002 $ 62,500
September 30, 2002 $ 62,500
December 31, 2002 $ 62,500
March 31, 2003 $ 3,562,500
June 30, 2003 $ 3,562,500
September 30, 2003 $ 4,125,000
December 31, 2003 $ 4,125,000
March 31, 2004 $ 8,250,000
</TABLE>
Notwithstanding the foregoing, the final installment shall be in the
amount of the then outstanding principal balance of the B Term Loans.
In addition, the then outstanding principal balance of the B Term
Loans, if any, shall be due and payable on the Termination Date. No
installment of any Term Loan B shall be reborrowed once repaid.
(B) In addition to the scheduled payments on the B Term Loans,
the Borrower (i) may make the voluntary prepayments described in
Section 2.5(A) for credit against the scheduled payments on the B Term
Loans pursuant to Section 2.5(A) and (ii) shall make the mandatory
prepayments prescribed in Section 2.5(B), for credit against such
scheduled payments on the B Term Loans pursuant to Section 2.5(B).
2.2 Revolving Loans. Upon the satisfaction of the conditions precedent set
forth in Sections 4.1 and 4.2 hereof, from and including the date of this
Agreement and prior to the Termination Date, each Lender severally and not
jointly agrees, on the terms and conditions set forth in this Agreement, to make
revolving loans to the Borrower from time to time, in Dollars, in an amount not
to exceed such Lender's Pro Rata Share of Revolving Credit Availability at such
time (each individually, a "Revolving Loan" and, collectively, the "Revolving
Loans"). Subject to the terms of this Agreement, the Borrower may borrow, repay
and reborrow Revolving Loans at any time prior to the Termination Date. The
Revolving Loans made on the Closing Date shall initially be Floating Rate Loans
(unless otherwise agreed between the Borrower and the Lenders) and thereafter
may be continued as Floating Rate Loans or converted into Eurodollar Rate Loans
in the manner provided in Section 2.10 and subject to the other conditions and
limitations therein set forth and set forth in this Article II. On the
Termination Date, the Borrower shall repay in full the outstanding principal
balance of the Revolving Loans. Each Advance under this Section 2.2 shall
consist of Revolving Loans made by each Lender ratably in proportion to such
Lender's respective Pro Rata Share. Each Advance under this
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Section 2.2 shall consist of Revolving Loans made by each Lender ratably in
proportion to such Lender's respective Pro Rata Share.
2.3 Swing Line Loans. (a) Amount of Swing Line Loans. Upon the satisfaction
of the conditions precedent set forth in Section 4.1 and 4.2, from and including
the date of this Agreement and prior to the Termination Date, the Swing Line
Bank agrees, on the terms and conditions set forth in this Agreement, to make
loans to the Borrower from time to time, in Dollars, in an amount not to exceed
the lesser of (a) the Swing Line Commitment minus the outstanding principal
amount of all Swing Line Loans (after giving effect to any concurrent repayment
of Loans) and (b) Revolving Credit Availability at such time (each,
individually, a "Swing Line Loan" and collectively, the "Swing Line Loans");
provided, however, at no time shall the Revolving Credit Obligations exceed the
Aggregate Revolving Loan Commitment, and, provided, further, that at no time
shall the Revolving Credit Obligations (other than L/C Obligations in respect of
commercial Letters of Credit) exceed the Borrowing Base; and provided, further,
that at no time shall the sum of (a) the outstanding amount of the Swing Line
Loans, plus (b) the outstanding amount of Revolving Loans made by the Swing Line
Bank pursuant to Section 2.2 (after giving effect to any concurrent repayment of
Loans), exceed the Swing Line Bank's Revolving Loan Commitment at such time.
Subject to the terms of this Agreement, the Borrower may borrow, repay and
reborrow Swing Line Loans (including from the proceeds of another Swing Line
Loan) at any time prior to the Termination Date.
(b) Borrowing Notice. The Borrower shall deliver to the Agent and the Swing
Line Bank a Borrowing Notice, signed by it, not later than 11:00 a.m. (Chicago
time) on the Borrowing Date of each Swing Line Loan, specifying (i) the
applicable Borrowing Date (which shall be a Business Day), and (ii) the
aggregate amount of the requested Swing Line Loan. The Swing Line Loans shall at
all times be Floating Rate Loans, which shall be an amount not less than $10,000
(and in multiples of $10,000 if in excess thereof). The Agent shall promptly
notify each Lender of such request.
(c) Making of Swing Line Loans. Promptly after receipt of the Borrowing
Notice under Section 2.3(b) in respect of Swing Line Loans, the Agent shall
notify the Swing Line Lender by telex or telecopy, or other similar form of
transmission, of the requested Swing Line Loan. Not later than 2:00 p.m.
(Chicago time) on the applicable Borrowing Date, the Swing Line Bank shall make
available its Swing Line Loan, in funds immediately available in Chicago to the
Agent at its address specified pursuant to Article XIII. The Agent will promptly
make the funds so received from the Swing Line Bank available to the Borrower at
the Agent's aforesaid address.
(d) Repayment of Swing Line Loans. The Swing Line Loans shall be evidenced
by the Swing Line Note, and each Swing Line Loan shall be paid in full by the
Borrower on or before the fifth Business Day after the Borrowing Date for such
Swing Line Loan. The Borrower may at any time pay, without penalty or premium,
all outstanding Swing Line Loans or, in a minimum amount of $10,000, any portion
of the outstanding Swing Line Loans, upon notice to the Agent and the Swing Line
Bank. In addition, the Agent (i) may at any time in its sole discretion with
respect to any outstanding Swing Line Loan, or (ii) shall on the fifth Business
Day after the Borrowing Date of any Swing Line Loan, require each Lender
(including the
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Swing Line Bank) with a Revolving Loan Commitment greater than zero to make a
Revolving Loan in the amount of such Lender's Pro Rata Share of such Swing Line
Loan, for the purpose of repaying such Swing Line Loan. Not later than 2:00 p.m.
(Chicago time) on the date of any notice received pursuant to this Section
2.3(d), each Lender with a Revolving Loan Commitment greater than zero shall
make available its required Revolving Loan or Revolving Loans, in funds
immediately available in Chicago to the Agent at its address specified pursuant
to Article XIII. Revolving Loans made pursuant to this Section 2.3(d) shall
initially be Floating Rate Loans and thereafter may be continued as Floating
Rate Loans or converted into Eurodollar Rate Loans in the manner provided in
Section 2.10 and subject to the other conditions and limitations therein set
forth and set forth in this Article II. Unless a Lender shall have notified the
Swing Line Bank, prior to its making any Swing Line Loan, that any applicable
condition precedent set forth in Sections 4.1 and 4.2 had not then been
satisfied, such Lender's obligation to make Revolving Loans pursuant to this
Section 2.3(d) to repay Swing Line Loans shall be unconditional, continuing,
irrevocable and absolute and shall not be affected by any circumstances,
including, without limitation, (A) any set-off, counterclaim, recoupment,
defense or other right which such Lender may have against the Agent, the Swing
Line Bank or any other Person, (B) the occurrence or continuance of a Default or
Unmatured Default, (C) any adverse change in the condition (financial or
otherwise) of the Borrower, or (D) any other circumstances, happening or event
whatsoever. In the event that any Lender fails to make payment to the Agent of
any amount due under this Section 2.3(d), the Agent shall be entitled to
receive, retain and apply against such obligation the principal and interest
otherwise payable to such Lender hereunder until the Agent receives such payment
from such Lender or such obligation is otherwise fully satisfied. In addition to
the foregoing, if for any reason any Lender fails to make payment to the Agent
of any amount due under this Section 2.3(d), such Lender shall be deemed, at the
option of the Agent, to have unconditionally and irrevocably purchased from the
Swing Line Bank, without recourse or warranty, an undivided interest and
participation in the applicable Swing Line Loan in the amount of such Revolving
Loan, and such interest and participation may be recovered from such Lender
together with interest thereon at the Federal Funds Effective Rate for each day
during the period commencing on the date of demand and ending on the date such
amount is received. On the Termination Date, the Borrower shall repay in full
the outstanding principal balance of the Swing Line Loans.
2.4 Rate Options for all Advances. The Advances may be Floating Rate
Advances or Eurodollar Rate Advances, or a combination thereof, selected by the
Borrower in accordance with Section 2.10. The Borrower may select, in accordance
with Section 2.10, Rate Options and Interest Periods applicable to portions of
the Revolving Loans and the Term Loans; provided that there shall be no more
than ten (10) Interest Periods in effect with respect to all of the Loans at any
time and; provided, further, however, notwithstanding anything herein to the
contrary, the Borrower may not select Interest Periods for Eurodollar Rate
Advances made during the Syndication Period which exceed seven days and the
Interest Periods with respect to all such Eurodollar Rate Advances made during
the Syndication Period shall be required to expire on the same date. The Swing
Line Loans shall at all times be Floating Rate Loans.
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<PAGE>
2.5 Optional Payments; Mandatory Prepayments.
(A) Optional Payments. The Borrower may from time to time repay or prepay,
without penalty or premium all or any part of outstanding Floating Rate
Advances, provided that the Borrower may not so prepay Floating Rate Advances
consisting of Term Loans unless it shall have provided to the Agent of such
prepayment at least one Business Day prior to the making thereof. Eurodollar
Rate Advances may be voluntarily repaid or prepaid prior to the last day of the
applicable Interest Period, subject to the indemnification provisions contained
in Section 3.4, provided, that the Borrower may not so prepay Eurodollar Rate
Advances unless it shall have provided at least three Business Days' written
notice to the Agent of such prepayment. Unless the aggregate outstanding
principal balance thereof is being paid in full, repayments or prepayments of
Floating Rate Advances (including as a result of any reduction of the Aggregate
Revolving Loan Commitment pursuant to Section 2.6) shall be in an aggregate
minimum amount of $500,000 and integral multiples of $100,000 in excess thereof.
Unless the aggregate outstanding principal balance thereof is being paid in
full, prepayments of Eurodollar Rate Advances (including as a result of any
reduction of the Aggregate Revolving Loan Commitment pursuant to Section 2.6)
shall be in an aggregate minimum amount of $1,000,000 and integral multiples of
$100,000 in excess thereof. Each voluntary prepayment of the Term Loans shall be
applied pro rata to the unpaid installments of the Term Loans, on a ratable
basis based on the respective amounts of such installments.
(B) Mandatory Prepayments.
(i) Mandatory Prepayments of Term Loans.
(a) Within one-hundred and eighty (180) days after the Borrower's or
any Restricted Subsidiary's receipt of any Net Cash Proceeds from any Asset
Sale (other than Excluded Asset Sales) which when aggregated with the Net
Cash Proceeds from other Asset Sales (other than Excluded Asset Sales)
consummated during the preceding twelve-month period are greater than
$500,000, the Borrower shall make or cause to be made a mandatory
prepayment of the Obligations in an amount equal to one hundred percent
(100%) of such Net Cash Proceeds in excess of $500,000 for such
twelve-month period; provided, however, that the Net Cash Proceeds which
the Borrower or such Restricted Subsidiary shall, within one-hundred and
eighty (180) days of the receipt thereof, use to acquire assets of a like
nature to those sold in such Asset Sale in replacement thereof shall not be
included in determining the Net Cash Proceeds for such Fiscal Year.
Notwithstanding the foregoing, during the existence of a Default, if the
Borrower or any Subsidiary shall consummate any Asset Sale (other than an
Excluded Asset Sale) in which the sale price exceeds $100,000, or shall not
have so reinvested proceeds of any such Asset Sale consummated prior to the
occurrence of such a Default, then the Borrower shall immediately make or
cause to be made a mandatory prepayment in an amount equal to 100% of such
Net Cash Proceeds.
(b) Within thirty (30) days after the required date for delivery of
the annual audited financial statements required to be delivered pursuant
to Section 6.1(A)(iii) for each Cash Flow Period, the Borrower shall
calculate Excess Cash Flow for such Cash
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<PAGE>
Flow Period and shall make a mandatory prepayment in an amount equal to (i)
seventy-five percent (75%) of such Excess Cash Flow in excess of $250,000
if Level 1, Level 2 or Level 3 pricing shall be applicable as of the end of
such Cash Flow Period determined by reference to the table set forth in
Section 2.15(D)(ii), and (ii) fifty percent (50%) of such Excess Cash Flow
in excess of $250,000 if Level 4, Level 5 or Level 6 pricing shall be
applicable as of the end of such Cash Flow Period determined by reference
to the table set forth in Section 2.15(D)(ii).
(c) Notwithstanding anything contained in the foregoing Section
2.5(B)(i)(a), upon the consummation of any Financing by any Restricted
Subsidiary, the Borrower shall immediately upon such Restricted
Subsidiary's receipt of Net Cash Proceeds from such Financing, make a
mandatory prepayment of the Obligations in an amount equal to the lesser of
(1) one hundred percent (100%) of such Net Cash Proceeds minus amounts from
such Net Cash Proceeds utilized to repay or prepay Indebtedness of such
Restricted Subsidiary (other than Indebtedness which is subordinated to the
claims of the Lenders with respect to such Restricted Subsidiary) minus the
fair market value of any assets acquired with the proceeds of such
Financing and (2) the amount of the Borrower's Investment in such
Restricted Subsidiary minus the fair market value of any assets acquired
with the proceeds of such Financing.
(d) Nothing in this Section 2.5(B)(i) shall be construed to constitute
the Lenders' consent to any transaction referred to in clause (a) above
which is not expressly permitted by Section 6.3(B).
(e) Each mandatory prepayment required by clauses (a), (b) and (c) of
this Section 2.5(B) and Section 6.2(G) shall be referred to herein as a
"Designated Prepayment". Designated Prepayments shall be allocated and
applied to the Obligations as follows:
(I) the amount of each Designated Prepayment shall be applied pro
rata to the unpaid installments of the Term Loans, on a ratable basis
based upon the respective amounts of such installments; and
(II) following the payment in full of the Term Loans, the amount
of each Designated Prepayment shall be applied to repay all
outstanding Swing Line Loans and then to repay Revolving Loans and
following the payment in full of the Revolving Loans, the amount of
each Designated Prepayment shall be applied first to interest on the
Reimbursement Obligations, then to principal on the Reimbursement
Obligations, then to fees on account of Letters of Credit and then, to
the extent any L/C Obligations are contingent, deposited with the
Agent as cash collateral in respect of such L/C Obligations; and
(III) following the payment in full of the amounts set forth in
clauses (I) and (II) above, the excess remaining amount, if any, shall
be returned to the Borrower.
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<PAGE>
(ii) Mandatory Prepayments of Revolving Loans. In addition to repayments
under Section 2.5(B)(i)(e)(II), if at any time and for any reason (A) the
Revolving Credit Obligations are greater than the Aggregate Revolving Loan
Commitment or (B) the Revolving Credit Obligations (other than L/C Obligations
in respect of commercial Letters of Credit) are greater than the Borrowing Base,
the Borrower shall immediately make a mandatory prepayment of the Obligations in
an amount equal to such excess.
(iii) Subject to the preceding provisions of this Section 2.5(B), all of
the mandatory prepayments made under this Section 2.5(B) shall be applied first
to Floating Rate Loans and to any Eurodollar Rate Loans maturing on such date.
The Agent shall hold the remaining portion of such mandatory prepayment as cash
collateral in an interest bearing deposit account and shall apply funds from
such account to subsequently maturing Eurodollar Rate Loans in order of
maturity.
2.6 Reduction of Commitments. The Borrower may permanently reduce the
Aggregate Revolving Loan Commitment in whole, or in part ratably among the
Lenders, in an aggregate minimum amount of $1,000,000 and integral multiples of
$100,000 in excess of that amount (unless the Aggregate Revolving Loan
Commitment is reduced in whole), upon at least three Business Days' written
notice to the Agent, which notice shall specify the amount of any such
reduction; provided, however, that the amount of the Aggregate Revolving Loan
Commitment may not be reduced below the aggregate principal amount of the
outstanding Revolving Credit Obligations; and provided, further, that in
addition to the minimum amounts and integrals stated above, if as a result of
any such reduction of the Aggregate Revolving Loan Commitment prepayments of the
Revolving Loans must be made then unless all of the Revolving Credit Obligations
are being paid in full, such prepayments of Floating Rate Advances shall be in
an aggregate minimum amount of $500,000 and integral multiples of $100,000 in
excess thereof and such prepayments of Eurodollar Rate Advances shall be in an
aggregate minimum amount of $1,000,000 and integral multiples of $100,000 in
excess thereof.
2.7 Method of Borrowing. Not later than 12:00 p.m. (Chicago time) on each
Borrowing Date, each Lender shall make available its Revolving Loan or Revolving
Loans, in funds immediately available in Chicago to the Agent at its address
specified pursuant to Article XIII hereof. The Agent will promptly make the
funds so received from the Lenders available to the Borrower at the Agent's
aforesaid address.
2.8 Method of Selecting Types and Interest Periods for Advances. The
Borrower shall select the Type of Advance and, in the case of each Eurodollar
Rate Advance, the Interest Period applicable to each Advance from time to time.
The Borrower shall give the Agent irrevocable notice (a "Borrowing Notice") not
later than 11:00 a.m. (Chicago time) on the Borrowing Date of each Floating Rate
Advance and not later than 11:00 a.m. (Chicago time) three Business Days before
the Borrowing Date for each Eurodollar Rate Advance, specifying: (i) the
Borrowing Date (which shall be a Business Day) of such Advance; (ii) the
aggregate amount of such Advance; (iii) the Type of Advance selected; and (iv)
in the case of each Eurodollar Rate Advance, the Interest Period applicable
thereto. Each Floating Rate Advance and all Obligations other than Loans shall
bear interest from and including the date of the making of such Advance to (but
not including) the date of repayment thereof at the Floating Rate, changing when
and as
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such Floating Rate changes. Changes in the rate of interest on that portion of
any Advance maintained as a Floating Rate Loan will take effect simultaneously
with each change in the Alternate Base Rate. Each Eurodollar Rate Advance shall
bear interest from and including the first day of the Interest Period applicable
thereto to (but not including) the last day of such Interest Period at the
interest rate determined as applicable to such Eurodollar Rate Advance, changing
(only as to the Applicable Eurodollar Margin portion thereof) with each change
in the Applicable Eurodollar Margin.
2.9 Minimum Amount of Each Advance. Each Eurodollar Rate Advance shall be
in the minimum amount of $1,000,000 (and in multiples of $100,000 if in excess
thereof), and each Floating Rate Advance (other than an Advance to repay Swing
Line Loans pursuant to Section 2.3(d) or a Reimbursement Obligation pursuant to
Section 2.23) shall be in the minimum amount of $100,000 (and in multiples of
$100,000 if in excess thereof), provided, however, that any Floating Rate
Advance may be in the amount of the unused Revolving Credit Availability.
2.10 Method of Selecting Types and Interest Periods for Conversion and
Continuation of Advances.
(A) Right to Convert. The Borrower may elect from time to time, subject to
the provisions of Section 2.4 and this Section 2.10, to convert all or any part
of a Loan of any Type into any other Type or Types of Loans; provided that any
conversion of any Eurodollar Rate Advance shall be made on, and only on, the
last day of the Interest Period applicable thereto.
(B) Automatic Conversion and Continuation. Floating Rate Loans shall
continue as Floating Rate Loans unless and until such Floating Rate Loans are
converted into Eurodollar Rate Loans. Eurodollar Rate Loans shall continue as
Eurodollar Rate Loans until the end of the then applicable Interest Period
therefor, at which time such Eurodollar Rate Loans shall be automatically
converted into Floating Rate Loans unless the Borrower shall have given the
Agent notice in accordance with Section 2.10(D) requesting that, at the end of
such Interest Period, such Eurodollar Rate Loans continue as a Eurodollar Rate
Loan.
(C) No Conversion Post-Default or Post-Unmatured Default. Notwithstanding
anything to the contrary contained in Section 2.10(A) or Section 2.10(B), no
Loan may be converted into or continued as a Eurodollar Rate Loan (except with
the consent of the Required Lenders) when any Default or Unmatured Default has
occurred and is continuing.
(D) Conversion/Continuation Notice. The Borrower shall give the Agent
irrevocable notice (a "Conversion/Continuation Notice") of each conversion of a
Floating Rate Loan into a Eurodollar Rate Loan or continuation of a Eurodollar
Rate Loan not later than 11:00 a.m. (Chicago time) three Business Days prior to
the date of the requested conversion or continuation, specifying: (1) the
requested date (which shall be a Business Day) of such conversion or
continuation; (2) the amount and Type of the Loan to be converted or continued;
and (3) the amount of Eurodollar Rate Loan(s) into which such Loan is to be
converted or continued and the duration of the Interest Period applicable
thereto.
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2.11 Default Rate. After the occurrence and during the continuance of a
Default, at the option of the Agent or at the direction of the Required Lenders,
the interest rate(s) applicable to any outstanding Loan shall be the greater of
(i) two percent (2.0%) per annum above the Alternate Base Rate in effect from
time to time and (ii) the Eurodollar Rate applicable to such Loans at such time
plus two percent (2.0%) per annum.
2.12 Collections Account Arrangements. All collections of Receivables
included in the Collateral and other proceeds of Collateral shall be deposited
in a Collection Account which is subject to a Collection Account Agreement or
pursuant to another similar arrangement for the collection of such amounts
established by the Borrower and Agent and shall be transferred in accordance
with the provisions of the respective Collection Account Agreements. On or prior
to the Closing Date, the Borrower shall have entered into and shall thereafter
maintain lock-box services agreements with banks which are parties to Collection
Account Agreements and to which lock-boxes Account Debtors shall directly remit
all payments on Receivables. Any of the foregoing collections received by the
Borrower and not so deposited, shall be deemed to have been received by the
Borrower as the Agent's trustee and, upon the Borrower's receipt thereof, the
Borrower shall immediately transfer all such amounts into a Collection Account
in their original form. Such deposits shall be remitted to the Agent, the
Borrower or as the Agent may direct, all in accordance with the provisions of
the Collection Account Agreements; provided, however, that any provision in any
Loan Document (including the Collection Account Agreements) to the contrary
notwithstanding, the Agent shall not give Notice (as defined under the
Collection Account Agreements) or exercise any remedies under the Collection
Account Agreements unless a Designated Default shall have occurred and be
continuing.
2.13 Method of Payment. All payments of principal, interest, and fees
hereunder shall be made, without setoff, deduction or counterclaim, in
immediately available funds to the Agent at the Agent's address specified
pursuant to Article XIII, or at any other Lending Installation of the Agent
specified in writing by the Agent to the Borrower, by 2:00 p.m. (Chicago time)
on the date when due and shall be made ratably among the Lenders (unless such
amount is not to be shared ratably in accordance with the terms hereof).
Payments received by the Agent after such time shall be deemed to have been
received on the next Business Day. Each payment delivered to the Agent for the
account of any Lender shall be delivered promptly by the Agent to such Lender in
the same type of funds which the Agent received at its address specified
pursuant to Article XIII or at any Lending Installation specified in a notice
received by the Agent from such Lender. The Borrower authorizes the Agent to
charge the account of the Borrower maintained with First Chicago for each
payment of principal, interest, fees and other Obligations as it becomes due
hereunder.
2.14 Notes, Telephonic Notices. Each Lender is authorized to record the
principal amount of each of its Loans and each repayment with respect to its
Loans on the schedule attached to its respective Notes; provided, however, that
the failure to so record shall not affect the Borrower's obligations under any
such Note. The Borrower authorizes the Lenders and the Agent to extend Advances,
effect selections of Types of Advances and to transfer funds based on telephonic
notices made by any person or persons the Agent or any Lender in good faith
believes to be acting on behalf of the Borrower. The Borrower agrees to deliver
promptly to the Agent a written confirmation, signed by an Authorized Officer,
if such confirmation is requested by the
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Agent or any Lender, of each telephonic notice. If the written confirmation
differs in any material respect from the action taken by the Agent and the
Lenders, (i) the telephonic notice shall govern absent manifest error and (ii)
the Agent or the Lender, as applicable, shall promptly notify the Authorized
Officer who provided such confirmation of such difference.
2.15 Promise to Pay; Interest and Fees; Interest Payment Dates; Interest
and Fee Basis; Taxes; Loan and Control Accounts.
(A) Promise to Pay. The Borrower unconditionally promises to pay when due
the principal amount of each Loan and all other Obligations incurred by it, and
to pay all unpaid interest accrued thereon, in accordance with the terms of this
Agreement and the Notes.
(B) Interest Payment Dates. Interest shall accrue on each Floating Rate
Loan and shall be payable on each Payment Date, commencing with the first such
date to occur after the date hereof, on any date on which the Floating Rate Loan
is prepaid, whether due to acceleration or otherwise, and at maturity (whether
by acceleration or otherwise). Interest shall accrue on each Eurodollar Rate
Loan and shall be payable on the last day of its applicable Interest Period, on
any date on which the Eurodollar Rate Loan is prepaid, whether by acceleration
or otherwise, and at maturity. Interest accrued on each Eurodollar Rate Loan
having an Interest Period longer than three months shall also be payable on the
last day of each three-month interval during such Interest Period. Interest
accrued on the principal balance of all other Obligations shall be payable in
arrears (i) on the last day of each calendar month, commencing on the first such
day following the incurrence of such Obligation, (ii) upon repayment thereof in
full or in part, and (iii) if not theretofore paid in full, at the time such
other Obligation becomes due and payable (whether by acceleration or otherwise).
(C) Commitment Fees. (i) The Borrower shall pay to the Agent, for the
account of the Lenders in accordance with their Pro Rata Shares, (a) with
respect to the Term Loan A Commitments and Term Loan B Commitments, from and
after the date of this Agreement until the date on which the Term Loans are
funded and (b) with respect to the Aggregate Revolving Loan Commitments, from
and after the date of this Agreement until the date on which the Aggregate
Revolving Loan Commitment shall be terminated in whole, a commitment fee
accruing at the rate of the then Applicable Commitment Fee Percentage, on (1)
the Term Loan A Commitments and Term Loan B Commitments and (2) the amount by
which (A) the Aggregate Revolving Loan Commitment in effect from time to time
exceeds (B) the Revolving Credit Obligations in effect from time to time. All
such commitment fees payable under this clause (C) shall be payable quarterly in
arrears on the last day of each calendar quarter occurring after the Closing
Date.
(ii) The Borrower agrees to pay to the Agent for the sole account of the
Agent and its affiliates the fees set forth in the letter agreement between the
Agent and the Borrower dated January 3, 1997, as amended, payable at the times
and in the amounts set forth therein.
(D) Interest and Fee Basis; Applicable Eurodollar Margin; Applicable
Floating Rate Margin and Applicable Commitment Fee Percentage.
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<PAGE>
(i) All computations of interest based on the Alternate Base Rate which are
computed by reference to the Corporate Base Rate shall be calculated on the
basis of a year of 365 or 366 days, as the case may be, and all other
computations of interest and fees shall be calculated for actual days elapsed on
the basis of a 360-day year. Interest shall be payable for the day an Obligation
is incurred but not for the day of any payment on the amount paid if payment is
received prior to 2:00 p.m. (Chicago time) at the place of payment. If any
payment of principal of or interest on a Loan or any payment of any other
Obligations shall become due on a day which is not a Business Day, such payment
shall be made on the next succeeding Business Day and, in the case of a
principal payment, such extension of time shall be included in computing
interest in connection with such payment.
(ii) The Applicable Eurodollar Margin, Applicable Floating Rate Margin and
Applicable Commitment Fee Percentage shall be determined from time to time by
reference to the table set forth below, on the basis of the then applicable
Leverage Ratio as described in this Section 2.15(D)(ii):
<TABLE>
<CAPTION>
====================================================================================================================================
APPLICABLE MARGINS/FEES FOR OBLIGATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
LEVERAGE RATIO APPLICABLE APPLICABLE APPLICABLE APPLICABLE APPLICABLE
FLOATING EURODOLLAR FLOATING EURODOLLAR COMMITMENT
RATE MARGIN RATE MARGIN RATE RATE MARGIN FEE
FOR FOR MARGIN FOR B TERM PERCENTAGE
OBLIGATIONS OBLIGATIONS FOR B LOANS
OTHER THAN B OTHER THAN B TERM
TERM LOANS TERM LOANS LOANS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LEVEL 1 greater than 5.0 to 1.0 1.25% 2.25% 1.75% 2.75% 0.50%
-
- ------------------------------------------------------------------------------------------------------------------------------------
greater than 4.50 to 1.00
-
LEVEL 2 and less than 5.00 to 1.00% 2.00% 1.50% 2.50% 0.375%
1.00
- ------------------------------------------------------------------------------------------------------------------------------------
greater than 4.00 to 1.00
-
LEVEL 3 and less than 4.50 to 0.75% 1.75% 1.25% 2.25% 0.375%
1.00
- ------------------------------------------------------------------------------------------------------------------------------------
greater than 3.50 to 1.00
-
LEVEL 4 and less than 4.00 to 0.50% 1.50% 1.25% 2.25% 0.25%
1.00
- ------------------------------------------------------------------------------------------------------------------------------------
greater than 3.00 to 1.00
-
LEVEL 5 and less than 3.50 to 0.25% 1.25% 1.25% 2.25% 0.25%
1.00
- ------------------------------------------------------------------------------------------------------------------------------------
LEVEL 6 less than 3.00 to 1.00 0.00% 1.00% 1.25% 2.25% 0.25%
====================================================================================================================================
</TABLE>
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<PAGE>
Except as set forth in clause (iii) below, for purposes of this Section
2.15(D)(ii), the Leverage Ratio shall be determined as of the last day of each
fiscal quarter on a basis consistent with the calculation under Section 6.4.
Upon receipt of the financial statements delivered pursuant to Section
6.1(A)(ii), the Applicable Eurodollar Margin, Applicable Floating Rate Margin
and Applicable Commitment Fee Percentage shall be adjusted, such adjustment
being effective five (5) Business Days following the Agent's receipt of such
financial statements and the Officer's Certificate required to be delivered in
connection therewith pursuant to Section 6.1(A)(iv); provided, that if the
Borrower shall not have timely delivered its financial statements in accordance
with Section 6.1(A)(ii), then commencing on the date upon which such financial
statements should have been delivered and continuing until such financial
statements are actually delivered, it shall be assumed for purposes of
determining the Applicable Eurodollar Margin, Applicable Floating Rate Margin
and Applicable Commitment Fee Percentage that the Leverage Ratio was greater
than 5.0 to 1.0 and the Level 1 pricing shall be applicable.
(iii) Notwithstanding anything herein to the contrary, the initial
Applicable Eurodollar Margin, Applicable Floating Rate Margin and Applicable
Commitment Fee Percentage shall be at the Level 1 pricing level and no
adjustment which would otherwise be made during the period from the Closing Date
through August 27, 1997 shall be made but the Level 1 pricing shall remain in
effect for such period. On August 27, 1997, the Applicable Eurodollar Margin,
Applicable Floating Rate Margin and Applicable Commitment Fee Percentage shall
be based upon the Borrower's Leverage Ratio as at the end of the fiscal quarter
ended June 30, 1997, which Applicable Eurodollar Margin, Applicable Floating
Rate Margin and Applicable Commitment Fee Percentage shall remain in effect
until adjusted pursuant to the provisions of this Section 2.15 set forth above.
(E) Taxes.
(i) Except as provided below, any and all payments by the Borrower
hereunder shall be made free and clear of and without deduction for any and
all present or future taxes, levies, imposts, deductions, charges or
withholdings or any liabilities with respect thereto including those
arising after the date hereof as a result of the adoption of or any change
in any law, treaty, rule, regulation, guideline or determination of a
Governmental Authority or any change in the interpretation or application
thereof by a Governmental Authority but excluding, in the case of each
Lender and the Agent, such taxes (including income taxes, franchise taxes
and branch profit taxes) as are imposed on or measured by such Lender's or
Agent's, as the case may be, net income by the United States of America or
any Governmental Authority of the jurisdiction under the laws of which such
Lender or Agent, as the case may be, is organized (all such non-excluded
taxes, levies, imposts, deductions, charges, withholdings, and liabilities
which the Agent or a Lender determines to be applicable to this Agreement,
the other Loan Documents, the Revolving Loan Commitments, the Loans or the
Letters of Credit being hereinafter referred to as "Taxes"). If the
Borrower shall be required by law to deduct any Taxes from or in respect of
any sum payable hereunder or under the other Loan Documents to any Lender
or the Agent, (i) the sum payable shall be increased as may be necessary so
that after making all required deductions (including deductions applicable
to additional sums payable under this Section 2.15(E)) such Lender or the
Agent (as the case may be)
- 50 -
<PAGE>
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions, and
(iii) the Borrower shall pay the full amount deducted to the relevant
taxation authority or other authority in accordance with applicable law. If
a withholding tax of the United States of America or any other Governmental
Authority shall be or become applicable (y) after the date of this
Agreement, to such payments by the Borrower made to the Lending
Installation or any other office that a Lender may claim as its Lending
Installation, or (z) after such Lender's selection and designation of any
other Lending Installation, to such payments made to such other Lending
Installation, such Lender shall use reasonable efforts to make, fund and
maintain its Loans through another Lending Installation of such Lender in
another jurisdiction so as to reduce the Borrower's liability hereunder, if
the making, funding or maintenance of such Loans through such other Lending
Installation of such Lender does not, in the judgment of such Lender,
otherwise adversely affect such Loans, or obligations under the Revolving
Loan Commitments or such Lender.
(ii) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges,
or similar levies which arise from any payment made hereunder, from the
issuance of Letters of Credit hereunder, or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement, the other
Loan Documents, the Revolving Loan Commitments, the Loans or the Letters of
Credit (hereinafter referred to as "Other Taxes").
(iii) The Borrower indemnifies each Lender and the Agent for the full
amount of Taxes and Other Taxes (including, without limitation, any Taxes
or Other Taxes imposed by any Governmental Authority on amounts payable
under this Section 2.15(E)) paid by such Lender or the Agent (as the case
may be) and any liability (including penalties, interest, and expenses)
arising therefrom or with respect thereto, whether or not such Taxes or
Other Taxes were correctly or legally asserted. This indemnification shall
be made within thirty (30) days after the date such Lender or the Agent (as
the case may be) makes written demand therefor. If the Taxes or Other Taxes
with respect to which an indemnification payment has been made hereunder
are subsequently refunded to the Lenders, the Lenders will return to the
Borrower an amount equal to the lesser of the indemnification payment or
the refunded amount. A certificate as to any additional amount payable to
any Lender or the Agent under this Section 2.15(E) submitted to the
Borrower and the Agent (if a Lender is so submitting) by such Lender or the
Agent shall show in reasonable detail the amount payable and the
calculations used to determine such amount and shall, absent manifest
error, be final, conclusive and binding upon all parties hereto. With
respect to such deduction or withholding for or on account of any Taxes and
to confirm that all such Taxes have been paid to the appropriate
Governmental Authorities, the Borrower shall promptly (and in any event not
later than thirty (30) days after receipt) furnish to each Lender and the
Agent such certificates, receipts and other documents as may be required
(in the judgment of such Lender or the Agent) to establish any tax credit
to which such Lender or the Agent may be entitled.
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<PAGE>
(iv) Within thirty (30) days after the date of any payment of Taxes or
Other Taxes by the Borrower, the Borrower shall furnish to the Agent the
original or a certified copy of a receipt evidencing payment thereof.
(v) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower
contained in this Section 2.15(E) shall survive the payment in full of
principal and interest hereunder, the termination of the Letters of Credit
and the termination of this Agreement.
(vi) Without limiting the obligations of the Borrower under this
Section 2.15(E), each Lender that is not created or organized under the
laws of the United States of America or a political subdivision thereof
shall deliver to the Borrower and the Agent on or before the Closing Date,
or, if later, the date on which such Lender becomes a Lender pursuant to
Section 12.3 hereof, a true and accurate certificate executed in duplicate
by a duly authorized officer of such Lender, in a form satisfactory to the
Borrower and the Agent, to the effect that such Lender is capable under the
provisions of an applicable tax treaty concluded by the United States of
America (in which case the certificate shall be accompanied by two executed
copies of Form 1001 of the IRS) or under Section 1442 of the Code (in which
case the certificate shall be accompanied by two copies of Form 4224 of the
IRS) of receiving payments of interest hereunder without deduction or
withholding of United States federal income tax. Each such Lender further
agrees to deliver to the Borrower and the Agent from time to time a true
and accurate certificate executed in duplicate by a duly authorized officer
of such Lender substantially in a form satisfactory to the Borrower and the
Agent, before or promptly upon the occurrence of any event requiring a
change in the most recent certificate previously delivered by it to the
Borrower and the Agent pursuant to this Section 2.15(E)(vi). Further, each
Lender which delivers a certificate accompanied by Form 1001 of the IRS
covenants and agrees to deliver to the Borrower and the Agent within
fifteen (15) days prior to January 1, 1998, and every third (3rd)
anniversary of such date thereafter on which this Agreement is still in
effect, another such certificate and two accurate and complete original
signed copies of Form 1001 (or any successor form or forms required under
the Code or the applicable regulations promulgated thereunder), and each
Lender that delivers a certificate accompanied by Form 4224 of the IRS
covenants and agrees to deliver to the Borrower and the Agent within
fifteen (15) days prior to the beginning of each subsequent taxable year of
such Lender during which this Agreement is still in effect, another such
certificate and two accurate and complete original signed copies of IRS
Form 4224 (or any successor form or forms required under the Code or the
applicable regulations promulgated thereunder). Each such certificate shall
certify as to one of the following:
(a) that such Lender is capable of receiving payments of interest
hereunder without deduction or withholding of United States of America
federal income tax;
(b) that such Lender is not capable of receiving payments of
interest hereunder without deduction or withholding of United States
of America federal income tax as specified therein but is capable of
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<PAGE>
recovering the full amount of any such deduction or withholding from a
source other than the Borrower and will not seek any such recovery
from the Borrower; or
(c) that, as a result of the adoption of or any change in any
law, treaty, rule, regulation, guideline or determination of a
Governmental Authority or any change in the interpretation or
application thereof by a Governmental Authority after the date such
Lender became a party hereto, such Lender is not capable of receiving
payments of interest hereunder without deduction or withholding of
United States of America federal income tax as specified therein and
that it is not capable of recovering the full amount of the same from
a source other than the Borrower.
To the extent that any Lender shall receive a refund of any Taxes or
Other Taxes, or its shall be determined by such Lender that the amount of
any Taxes or other Taxes paid by the Borrower was greater than the amount
payable by such Lender to the Applicable Governmental Authority, such
Lender shall promptly remit such refund, or such excess, as applicable, to
the Borrower.
Each Lender shall promptly furnish to the Borrower and the Agent such
additional documents as may be reasonably required by the Borrower or the
Agent to establish any exemption from or reduction of any Taxes or Other
Taxes required to be deducted or withheld and which may be obtained without
undue expense to such Lender.
(F) Loan Account. Each Lender shall maintain in accordance with its usual
practice an account or accounts (a "Loan Account") evidencing the Obligations of
the Borrower to such Lender owing to such Lender from time to time, including
the amount of principal and interest payable and paid to such Lender from time
to time hereunder and under the Notes.
(G) Control Account. The Register maintained by the Agent pursuant to
Section 12.3(C) shall include a control account, and a subsidiary account for
each Lender, in which accounts (taken together) shall be recorded (i) the date
and amount of each Advance made hereunder, the type of Loan comprising such
Advance and any Interest Period applicable thereto, (ii) the effective date and
amount of each assignment and acceptance delivered to and accepted by it and the
parties thereto pursuant to Section 12.3, (iii) the amount of any principal or
interest due and payable or to become due and payable from the Borrower to each
Lender hereunder or under the Notes, (iv) the amount of any sum received by the
Agent from the Borrower hereunder and each Lender's share thereof, and (v) all
other appropriate debits and credits as provided in this Agreement, including,
without limitation, all fees, charges, expenses and interest.
(H) Entries Binding. The entries made in the Register and each Loan Account
shall be conclusive and binding for all purposes, absent manifest error, unless
the Borrower objects to information contained in the Register and each Loan
Account within thirty (30) days of the Borrower's receipt of such information.
- 53 -
<PAGE>
2.16 Notification of Advances, Interest Rates, Prepayments and Aggregate
Revolving Loan Commitment Reductions. Promptly after receipt thereof, the Agent
will notify each Lender of the contents of each Aggregate Revolving Loan
Commitment reduction notice, Borrowing Notice, Continuation/Conversion Notice,
and repayment notice received by it hereunder. The Agent will notify each Lender
of the interest rate applicable to each Eurodollar Rate Loan promptly upon
determination of such interest rate and will give each Lender prompt notice of
each change in the Alternate Base Rate.
2.17 Lending Installations. Each Lender may book its Loans at any Lending
Installation selected by such Lender and may change its Lending Installation
from time to time. All terms of this Agreement shall apply to any such Lending
Installation and the Notes shall be deemed held by each Lender for the benefit
of such Lending Installation. Each Lender may, by written or facsimile notice to
the Agent and the Borrower, designate a Lending Installation through which Loans
will be made by it and for whose account Loan payments are to be made.
2.18 Non-Receipt of Funds by the Agent. Unless the Borrower or a Lender, as
the case may be, notifies the Agent prior to the date on which it is scheduled
to make payment to the Agent of (i) in the case of a Lender, the proceeds of a
Loan or (ii) in the case of the Borrower, a payment of principal, interest or
fees to the Agent for the account of the Lenders, that it does not intend to
make such payment, the Agent may assume that such payment has been made. The
Agent may, but shall not be obligated to, make the amount of such payment
available to the intended recipient in reliance upon such assumption. If such
Lender or the Borrower, as the case may be, has not in fact made such payment to
the Agent, the recipient of such payment shall, on demand by the Agent, repay to
the Agent the amount so made available together with interest thereon in respect
of each day during the period commencing on the date such amount was so made
available by the Agent until the date the Agent recovers such amount at a rate
per annum equal to (i) in the case of payment by a Lender, the Federal Funds
Effective Rate for such day or (ii) in the case of payment by the Borrower, the
interest rate applicable to the relevant Loan.
2.19 Termination Date. This Agreement shall be effective until the payment
in full of all Obligations (other than contingent indemnity obligations)
including without limitation, all principal, interest and fees due under this
Agreement. Notwithstanding the termination of this Agreement on the Termination
Date, until all of the Obligations (other than contingent indemnity obligations)
shall have been fully paid and satisfied, all financing arrangements among the
Borrower and the Lenders shall have been terminated and all of the Letters of
Credit shall have expired, been canceled or terminated, all of the rights and
remedies under this Agreement and the other Loan Documents shall survive and the
Agent shall be entitled to retain its security interest in and to all existing
and future Collateral for the benefit of itself and the Holders of Secured
Obligations.
2.20 Replacement of Certain Lenders. In the event a Lender ("Affected
Lender") shall have: (i) failed to fund its Pro Rata Share of any Advance
requested by the Borrower, or to fund a Revolving Loan in order to repay Swing
Line Loans pursuant to Section 2.3(d), which such Lender is obligated to fund
under the terms of this Agreement and which failure has not been cured, (ii)
requested compensation from the Borrower under Sections 2.15(E), 3.1 or 3.2 to
recover Taxes, Other Taxes or other additional costs incurred by such Lender
which are not
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<PAGE>
being incurred generally by the other Lenders, (iii) delivered a notice pursuant
to Section 3.3 claiming that such Lender is unable to extend Eurodollar Rate
Loans to the Borrower for reasons not generally applicable to the other Lenders
or (iv) has invoked Section 9.2, then, in any such case, the Borrower or the
Agent may make written demand on such Affected Lender (with a copy to the Agent
in the case of a demand by the Borrower and a copy to the Borrower in the case
of a demand by the Agent) for the Affected Lender to assign, and such Affected
Lender shall use its best efforts to assign pursuant to one or more duly
executed assignment and acceptance agreements in substantially the form of
Exhibit G five (5) Business Days after the date of such demand, to one or more
financial institutions that comply with the provisions of Section 12.3(A) (and,
if selected by the Borrower is reasonably acceptable to the Agent) which the
Borrower or the Agent, as the case may be, shall have engaged for such purpose
("Replacement Lender"), all of such Affected Lender's rights and obligations
under this Agreement and the other Loan Documents (including, without
limitation, its Revolving Loan Commitment, all Loans owing to it, all of its
participation interests in existing Letters of Credit, and its obligation to
participate in additional Letters of Credit hereunder) in accordance with
Section 12.3. The Agent agrees, upon the occurrence of such events with respect
to an Affected Lender and upon the written request of the Borrower, to use its
reasonable efforts to obtain the commitments from one or more financial
institutions to act as a Replacement Lender. The Agent is authorized to execute
one or more of such assignment agreements as attorney-in-fact for any Affected
Lender failing to execute and deliver the same within five (5) Business Days
after the date of such demand. Further, with respect to such assignment the
Affected Lender shall have concurrently received, in cash, all amounts due and
owing to the Affected Lender hereunder or under any other Loan Document,
including, without limitation, the aggregate outstanding principal amount of the
Loans owed to such Lender, together with accrued interest thereon through the
date of such assignment, amounts payable under Sections 2.15(E), 3.1, and 3.2
with respect to such Affected Lender and compensation payable under Section
2.15(C) in the event of any replacement of any Affected Lender under clause (ii)
or clause (iii) of this Section 2.20; provided that upon such Affected Lender's
replacement, such Affected Lender shall cease to be a party hereto but shall
continue to be entitled to the benefits of Sections 2.15(E), 3.1, 3.2, 3.4, and
9.7, as well as to any fees accrued for its account hereunder and not yet paid,
and shall continue to be obligated under Section 10.8. Upon the replacement of
any Affected Lender pursuant to this Section 2.20, the provisions of Section 8.2
shall continue to apply with respect to Borrowings which are then outstanding
with respect to which the Affected Lender failed to fund its Pro Rata Share and
which failure has not been cured.
2.21 Letter of Credit Facility. (a) Subject to the terms and conditions of
this Agreement and in reliance upon the representations, warranties and
covenants set forth herein, (i) First Chicago shall issue commercial letters of
credit and (ii) First Chicago shall issue or any other Lender, in its sole
discretion, may issue standby letters of credit, in each case for the account of
the Borrower (First Chicago and each such other Lender in such capacity being
referred to as an "Issuing Lender"), on terms as are satisfactory to such
Issuing Lender upon three (3) days' notice and receipt of duly executed
applications for such Letter of Credit, and such other customary documents,
instructions and agreements as may be required pursuant to the terms thereof
(all such applications, documents, instructions, and agreements being referred
to herein as the "L/C Documents") as the applicable Issuing Lender may require;
provided, however, that no Letter of Credit will be issued (or amended) for the
account of the Borrower by an Issuing
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<PAGE>
Lender if on the date of issuance, before or after taking such Letter of Credit
into account, (A) the Revolving Loan Obligations at such time would exceed the
Aggregate Revolving Loan Commitment at such time, (B) the Revolving Loan
Obligations (other than L/C Obligations in respect of commercial Letters of
Credit) at such time would exceed the Borrowing Base at such time, (C) aggregate
outstanding amount of the L/C Obligations in respect of standby Letters of
Credit exceeds $5,000,000 plus the amount outstanding under the Backstop Letter
of Credit only so long as the Backstop Letter of Credit remains outstanding, or
(C) the aggregate outstanding amount of the L/C Obligations in respect of
commercial Letters of Credit exceeds $40,000,000; and provided, further, that no
Letter of Credit shall be issued (or amended) which has an expiration date later
than the date which is the earlier of one (1) year after the date of issuance
thereof or five (5) Business Days immediately preceding the Termination Date.
There shall be no Issuing Lender other than the Agent with respect to commercial
Letters of Credit. The designation of any Lender as an Issuing Lender after the
date hereof with respect to standby Letters of Credit shall be subject to the
prior written consent of the Agent. If the Borrower applies for a standby Letter
of Credit from any Lender other than First Chicago, the Borrower shall
simultaneously notify the Agent of the proposed amount, expiration date and
nature of such Letter of Credit. The Agent shall promptly notify the Lender to
which such application has been made and the Borrower whether the issuance of
such Letter of Credit would comply with the terms of this Section 2.21. Each
Issuing Lender shall be entitled to assume that the applicable conditions set
forth in Article IV hereof have been satisfied unless it shall have received
notice to the contrary from the Agent or such Issuing Lender has knowledge that
the applicable conditions have not been met. To the extent that any provision of
any L/C Document cannot reasonably be construed to be consistent with this
Agreement, requires greater collateral security or imposes additional
obligations not reasonably related to customary letter of credit arrangements,
such provision shall be invalid and this Agreement shall control. All references
in the expense, indemnity and similar provisions of this Agreement to the
Lenders shall include First Chicago and any other Lender in its capacity as an
Issuing Lender. No Issuing Lender shall extend or amend any Letter of Credit
unless the requirements of this Section 2.21 are met as though a new Letter of
Credit was being requested and issued.
(b) Schedule 2.21(b) contains a schedule of certain letters of credit
issued for the account of the Borrower prior to the Closing Date by First
Chicago (the "Existing Letters of Credit"). Subject to the satisfaction of the
conditions contained in Sections 4.1 and 4.2, from and after the Closing Date
the Existing Letters of Credit shall be deemed to be Letters of Credit issued
pursuant to Section 2.21(a).
2.22 Letter of Credit Participation. On the Closing Date with respect to
the Existing Letters of Credit and immediately upon the issuance of each other
Letter of Credit hereunder, each Lender with a Revolving Loan Commitment greater
than zero shall be deemed to have automatically, irrevocably and unconditionally
purchased and received from the applicable Issuing Lender an undivided interest
and participation in and to such Letter of Credit, the obligations of the
Borrower in respect thereof, and the liability of the applicable Issuing Lender
thereunder (collectively, an "L/C Interest") in an amount equal to the amount
available for drawing under such Letter of Credit multiplied by such Lender's
Pro Rata Share. The Agent will notify each Lender (or in the case of an Issuing
Lender other than First Chicago, such Issuing Lender shall notify the Agent who
in turn will notify each Lender) with a Revolving Loan
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<PAGE>
Commitment greater than zero promptly upon presentation to it of an L/C Draft or
upon any other draw under a Letter of Credit. On or before the Business Day on
which the applicable Issuing Lender makes payment of each such L/C Draft or, in
the case of any other draw on a Letter of Credit, on demand of the Agent, each
Lender with a Revolving Loan Commitment greater than zero shall make payment to
the Agent, for the account of the applicable Issuing Bank, in immediately
available funds, in an amount equal to such Lender's Pro Rata Share of the
amount of such payment or draw. Any Issuing Lender may direct the Agent to make
such a request with respect to Letters of Credit issued by such Issuing Lender.
Upon the Agent's receipt of funds as a result of an Issuing Lender's payment on
an L/C Draft or any other draw on a Letter of Credit issued by such Issuing
Lender, the Agent shall promptly pay such funds to the Issuing Lender. If an
Issuing Lender has not directed the Agent to make such a request and the
Borrower fails to repay the amount of any draft in accordance with Section 2.23,
then, upon direction from the Issuing Lender, the Agent shall notify each Lender
with a Revolving Loan Commitment greater than zero of such failure, and each
such Lender shall promptly make payment to the Agent, in immediately available
funds, in an amount equal to such Lender's Pro Rata Share of the amount of such
payment or draw. The obligation of each such Lender to reimburse the Agent under
this Section 2.22 shall be unconditional, continuing, irrevocable and absolute.
In the event that any Lender fails to make payment to the Agent of any amount
due under this Section 2.22, the Agent shall be entitled to receive, retain and
apply against such obligation the principal and interest otherwise payable to
such Lender hereunder until the Agent receives such payment from such Lender or
such obligation is otherwise fully satisfied; provided, however, that nothing
contained in this sentence shall relieve such Lender of its obligation to
reimburse the applicable Issuing Lender for such amount in accordance with this
Section 2.22.
2.23 Reimbursement Obligation. The Borrower agrees unconditionally,
irrevocably and absolutely to pay immediately to the Agent, for the account of
the applicable Issuing Lenders or the account of Lenders, as the case may be,
the amount of each advance which may be drawn under or pursuant to a Letter of
Credit issued for its account or an L/C Draft related thereto (such obligation
of the Borrower to reimburse the Issuing Lender or the Agent for an advance made
under a Letter of Credit or L/C Draft being hereinafter referred to as a
"Reimbursement Obligation" with respect to such Letter of Credit or L/C Draft).
If the Borrower at any time fails to repay a Reimbursement Obligation pursuant
to this Section 2.23, the Borrower shall be deemed to have elected to borrow a
Revolving Loan from the Lenders with a Revolving Loan Commitment greater than
zero, as of the date of the advance giving rise to the Reimbursement Obligation
equal in amount to the amount of the unpaid Reimbursement Obligation. Such
Revolving Loan shall be made as of the date of the payment giving rise to such
Reimbursement Obligation, automatically, without notice and without any
requirement to satisfy the conditions precedent otherwise applicable to an
Advance of Revolving Loans. Such Revolving Loan shall constitute a Floating Rate
Advance, the proceeds of which Advance shall be used to repay such Reimbursement
Obligation. If, for any reason, the Borrower fails to repay a Reimbursement
Obligation on the day such Reimbursement Obligation arises and, for any reason,
the Lenders are unable to make or have no obligation to make a Revolving Loan,
then such Reimbursement Obligation shall bear interest from and after such day,
until paid in full, at the interest rate applicable to a Floating Rate Advance.
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2.24 Cash Collateral. Notwithstanding anything to the contrary herein or in
any application for a Letter of Credit, after the occurrence and during the
continuance of a Default, the Borrower shall, at the request of the Required
Lenders, deliver to the Agent for the benefit of the Lenders and the Issuing
Lenders, cash, or other collateral of a type satisfactory to the Required
Lenders, having a value, as determined by such Lenders, equal to the aggregate
outstanding L/C Obligations. Any such collateral shall be held by the Agent in a
separate interest bearing account appropriately designated as a cash collateral
account in relation to this Agreement and the Letters of Credit and retained by
the Agent for the benefit of the Lenders and the Issuing Lenders as collateral
security for the Borrower's obligations in respect of this Agreement and each of
the Letters of Credit and L/C Drafts. Such amounts (plus interest which has
accrued thereon) shall be applied to reimburse the Agent or each Issuing Lender,
as the case may be, for drawings or payments under or pursuant to Letters of
Credit or L/C Drafts, or if no such reimbursement is required, to payment of
such of the other Obligations as the Agent shall determine. If no Default shall
be continuing, amounts remaining in any cash collateral account established
pursuant to this Section 2.24 which are not to be applied to reimburse the Agent
for amounts actually paid or to be paid by the Agent in respect of a Letter of
Credit or L/C Draft, shall be returned promptly to the Borrower (after deduction
of the Agent's expenses incurred in connection with such cash collateral
account).
2.25 Letter of Credit Fees. (a) The Borrower shall pay to the Agent, for
the ratable account of the Lenders, based upon the Lenders' respective Pro Rata
Shares, a fee with respect to each Letter of Credit, for the period from the
issuance date thereof to and including the final expiration date thereof, at a
rate per annum equal to the Applicable L/C Fee Percentage on the average daily
outstanding face amount available for drawing under all Letters of Credit during
such period. The Letter of Credit fees shall be due and payable in arrears on
each Payment Date and, to the extent any such fees are then due and unpaid, on
the Termination Date. The Agent shall promptly remit such Letter of Credit fees,
when paid, to the other Lenders in accordance with their Pro Rata Shares
thereof.
(b) The Borrower shall pay to the Agent for the benefit of each Issuing
Lender, all reasonable out-of-pocket costs of issuing and servicing Letters of
Credit, any and all customary fees and other issuance, amendment, document
examination, negotiation and presentment expenses and related charges and
commissions in connection with the issuance, amendment, and presentation of
Letters of Credit (and L/C Drafts related thereto) and the like, customarily
charged by such Issuing Lenders with respect to standby and commercial Letters
of Credit, payable at the time of invoice of such amounts.
2.26 Indemnification; Exoneration. (a) In addition to amounts payable as
elsewhere provided in this Agreement, the Borrower agrees to protect, indemnify,
pay and save harmless the Agent, each Issuing Lender and each Lender from and
against any and all liabilities and costs which the Agent, such Issuing Lender
or any Lender may incur or be subject to as a consequence, direct or indirect,
of (i) the issuance of any Letter of Credit other than, in the case of the
issuer thereof, as a result of its Gross Negligence or willful misconduct, as
determined by the final judgment of a court of competent jurisdiction, or (ii)
the failure of the applicable Issuing Lender to honor a drawing under such
Letter of Credit as a result of any act or omission, whether
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rightful or wrongful, of any present or future de jure or de facto Governmental
Authority (all such acts or omissions herein called "Governmental Acts").
(b) As among the Borrower, the Lenders, the Issuing Lenders and the Agent,
the Borrower assumes all risks of the acts and omissions of, or misuse of such
Letter of Credit by, the beneficiary of any Letter of Credit. In furtherance and
not in limitation of the foregoing, subject to the provisions of the Letter of
Credit applications and Letter of Credit reimbursement agreements executed by
the Borrower at the time of request for any Letter of Credit, neither the Agent,
any Issuing Lenders nor any of the Lenders shall be responsible (in the absence
of Gross Negligence or willful misconduct in connection therewith, as determined
by the final judgment of a court of competent jurisdiction): (i) for the form,
validity, sufficiency, accuracy, genuineness or legal effect of any document
submitted by any party in connection with the application for and issuance of
the Letters of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) for the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign a Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason; (iii) for failure of the beneficiary of a
Letter of Credit to comply duly with conditions required in order to draw upon
such Letter of Credit; (iv) for errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable, telegraph, telex, or
other similar form of teletransmission or otherwise; (v) for errors in
interpretation of technical trade terms; (vi) for any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under any Letter of Credit or of the proceeds thereof; (vii) for the
misapplication by the beneficiary of a Letter of Credit of the proceeds of any
drawing under such Letter of Credit; and (viii) for any consequences arising
from causes beyond the control of the Agent, the Issuing Lenders and the Lenders
including, without limitation, any Governmental Acts. None of the above shall
affect, impair, or prevent the vesting of any Issuing Lenders' rights or powers
under this Section 2.26.
(c) In furtherance and extension and not in limitation of the specific
provisions hereinabove set forth, any action taken or omitted by any Issuing
Lender under or in connection with the Letters of Credit or any related
certificates shall not, in the absence of Gross Negligence or willful
misconduct, as determined by the final judgment of a court of competent
jurisdiction, put the applicable Issuing Lender, the Agent or any Lender under
any resulting liability to the Borrower or relieve the Borrower of any of its
obligations hereunder to any such Person.
(d) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 2.26 shall survive the payment in full of all principal and
interest hereunder, the termination of the Letters of Credit and the termination
of this Agreement.
2.27 Issuing Lender Reporting Requirements. Each Issuing Lender other than
the Agent shall give the Agent written or telex notice, or telephonic notice
confirmed promptly thereafter in writing, of the issuance of any Letter of
Credit, provided, however, that the failure to provide such notice shall not
result in any liability on the part of such Issuing Lender. Each Issuing Lender
shall, no later than the tenth Business Day following the last day of each
month, provide to the Agent, upon the Agent's request, schedules, in form and
substance reasonably satisfactory
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to the Agent, showing the date of issue, account party, amount, expiration date
and the reference number of each Letter of Credit issued by such Issuing Lender
and outstanding at any time during such month and the aggregate amount payable
by the Borrower during such month. In addition, upon the request of the Agent,
each Issuing Lender shall furnish to the Agent copies of any Letter of Credit
and any application for or reimbursement agreement with respect to a Letter of
Credit to which the Issuing Lender is party and such other documentation as may
reasonably be requested by the Agent. Upon the request of any Lender, the Agent
will provide to such Lender information concerning such Letters of Credit.
ARTICLE III: CHANGE IN CIRCUMSTANCES
3.1 Yield Protection. If any law or any governmental or quasi-governmental
rule, regulation, policy, guideline or directive (whether or not having the
force of law) adopted after the date of this Agreement and having general
applicability to all banks within the jurisdiction in which such Lender operates
(excluding, for the avoidance of doubt, the effect of and phasing in of capital
requirements or other regulations or guidelines passed prior to the date of this
Agreement), or any interpretation or application thereof by any Governmental
Authority charged with the interpretation or application thereof, or the
compliance of any Lender therewith,
(i) subjects any Lender or any applicable Lending Installation to any
tax, duty, charge or withholding on or from payments due from the Borrower
(excluding federal taxation of the overall net income of any Lender or
applicable Lending Installation and any state taxation based on the income
of any Lender assessed by the State in which the Lender maintains its
principal office), or changes the basis of taxation of payments to any
Lender in respect of its Loans, its L/C Interests, the Letters of Credit or
other amounts due it hereunder, or
(ii) imposes or increases or deems applicable any reserve, assessment,
insurance charge, special deposit or similar requirement against assets of,
deposits with or for the account of, or credit extended by, any Lender or
any applicable Lending Installation (other than reserves and assessments
taken into account in determining the interest rate applicable to
Eurodollar Rate Loans) with respect to its Loans, L/C Interests or the
Letters of Credit, or
(iii) imposes any other condition the result of which is to increase
the cost to any Lender or any applicable Lending Installation of making,
funding or maintaining the Loans, the L/C Interests or the Letters of
Credit or reduces any amount received by any Lender or any applicable
Lending Installation in connection with Loans or Letters of Credit, or
requires any Lender or any applicable Lending Installation to make any
payment calculated by reference to the amount of Loans or L/C Interests
held or interest received by it or by reference to the Letters of Credit,
by an amount deemed material by such Lender;
and the result of any of the foregoing is to increase the cost to that Lender of
making, renewing or maintaining its Loans, L/C Interests or Letters of Credit or
to reduce any amount received
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under this Agreement, then, within 15 days after receipt by the Borrower of
written demand by such Lender pursuant to Section 3.5, the Borrower shall pay
such Lender that portion of such increased expense incurred or reduction in an
amount received which such Lender determines is attributable to making, funding
and maintaining its Loans, L/C Interests, Letters of Credit and its Revolving
Loan Commitment. A certificate as to an additional amount payable to any Lender
or the Agent under this Section 3.1 submitted to the Borrower and the Agent (if
a Lender is so submitting) by such Lender or the Agent shall show in reasonable
detail the amount payable and the calculations used to determine such amount and
shall, absent manifest error, be final, conclusive and binding upon all parties
hereto.
3.2 Changes in Capital Adequacy Regulations. If a Lender determines (i) the
amount of capital required or expected to be maintained by such Lender, any
Lending Installation of such Lender or any corporation controlling such Lender
is increased as a result of a "Change" (as defined below), and (ii) such
increase in capital will result in an increase in the cost to such Lender of
maintaining its Loans, L/C Interests, the Letters of Credit or its obligation to
make Loans hereunder, then, within 15 days after receipt by the Borrower of
written demand by such Lender pursuant to Section 3.5, the Borrower shall pay
such Lender the amount necessary to compensate for any shortfall in the rate of
return on the portion of such increased capital which such Lender determines is
attributable to this Agreement, its Loans, its L/C Interests, the Letters of
Credit or its obligation to make Loans hereunder (after taking into account such
Lender's policies as to capital adequacy). A certificate as to an additional
amount payable to any Lender or the Agent under this Section 3.2 submitted to
the Borrower and the Agent (if a Lender is so submitting) by such Lender or the
Agent shall show in reasonable detail the amount payable and the calculations
used to determine such amount and shall, absent manifest error, be final,
conclusive and binding upon all parties hereto. "Change" means (i) any change
after the date of this Agreement in the "Risk-Based Capital Guidelines" (as
defined below) excluding, for the avoidance of doubt, the effect of any phasing
in of such Risk-Based Capital Guidelines or any other capital requirements
passed prior to the date hereof, or (ii) any adoption of or change in any other
law, governmental or quasi-governmental rule, regulation, policy, guideline,
interpretation, or directive (whether or not having the force of law) after the
date of this Agreement and having general applicability to all banks and
financial institutions within the jurisdiction in which such Lender operates
which affects the amount of capital required or expected to be maintained by any
Lender or any Lending Installation or any corporation controlling any Lender.
"Risk-Based Capital Guidelines" means (i) the risk-based capital guidelines in
effect in the United States on the date of this Agreement, including transition
rules, and (ii) the corresponding capital regulations promulgated by regulatory
authorities outside the United States implementing the July 1988 report of the
Basle Committee on Banking Regulation and Supervisory Practices Entitled
"International Convergence of Capital Measurements and Capital Standards,"
including transition rules, and any amendments to such regulations adopted prior
to the date of this Agreement.
3.3 Availability of Types of Advances. If (i) any Lender determines that
maintenance of its Eurodollar Rate Loans at a suitable Lending Installation
would violate any applicable law, rule, regulation or directive, whether or not
having the force of law, or (ii) the Required Lenders determine that (x)
deposits of a type and maturity appropriate to match fund Eurodollar Rate
Advances are not available or (y) the interest rate applicable to a Type of
Advance does not
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accurately reflect the cost of making or maintaining such an Advance, then the
Agent shall suspend the availability of the affected Type of Advance and, in the
case of any occurrence set forth in clause (i) require any Advances of the
affected Type to be repaid.
3.4 Funding Indemnification. If any payment of a Eurodollar Rate Advance
occurs on a date which is not the last day of the applicable Interest Period,
whether because of acceleration, prepayment, or otherwise, or a Eurodollar Rate
Advance is not made on the date specified by the Borrower for any reason other
than default by the Lenders, the Borrower indemnifies each Lender for any loss
or cost incurred by it resulting therefrom, including, without limitation, any
loss or cost in liquidating or employing deposits acquired to fund or maintain
the Eurodollar Rate Advance. In connection with any assignment by First Chicago
of any portion of the Loans made during the Syndication Period and if,
notwithstanding the provisions of Section 2.4, the Borrower has requested and
the Agent has consented to the use of an Interest Period in excess of seven days
or the expiration of which does not correspond to expiration date of the other
Eurodollar Rate Advances, then the Borrower shall be deemed to have repaid all
outstanding Eurodollar Rate Advances as of the effective date any such
assignment and reborrowed such amount as a Floating Rate Advance and/or
Eurodollar Rate Advance (chosen in accordance with the provisions of Section
2.4) and the indemnification provisions under this Section 3.4 shall apply.
3.5 Lenders' Duty to Mitigate; Lender Statements; Survival of Indemnity. If
reasonably possible, each Lender shall (subject to overall policy considerations
of such Lender) designate an alternate Lending Installation with respect to its
Eurodollar Rate Loans to reduce any liability of the Borrower to such Lender
under Sections 3.1 and 3.2 or to avoid the unavailability of a Type of Advance
under Section 3.3; provided that such designation is made on such terms that
such Lender and its Lending Installation suffer no economic, legal or regulatory
disadvantage. Each Lender requiring compensation pursuant to Section 2.15(E) or
to this Article III shall use its best efforts to notify the Borrower and the
Agent in writing of any Change, law, policy, rule, guideline or directive giving
rise to such demand for compensation not later than ninety (90) days following
the date upon which the responsible account officer of such Lender knows or
should have known of such Change, law, policy, rule, guideline or directive. Any
demand for compensation pursuant to this Article III shall be in writing and
shall state the amount due, if any, under Section 3.1, 3.2 or 3.4 and shall set
forth in reasonable detail the calculations upon which such Lender determined
such amount. Such written demand shall be rebuttably presumed correct for all
purposes. Notwithstanding anything in this Agreement to the contrary, the
Borrower shall not be obligated to pay any amount or amounts under Section
2.15(E) or this Article III to the extent such amount or amounts result from a
Change, law, policy, rule, guideline or directive which took effect more than
ninety (90) days prior to the date of delivery of the notice described above;
provided, that such ninety (90) day period shall run from the date of passage of
such Change, law, policy, rule, guideline or directive without giving effect to
any retroactive application thereof. Determination of amounts payable under such
Sections in connection with a Eurodollar Rate Loan shall be calculated as though
each Lender funded its Eurodollar Rate Loan through the purchase of a deposit of
the type and maturity corresponding to the deposit used as a reference in
determining the Eurodollar Rate applicable to such Loan, whether in fact that is
the case or not. The obligations of the Borrower under Sections 3.1, 3.2 and 3.4
shall survive payment of the Obligations and termination of this Agreement.
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ARTICLE IV: CONDITIONS PRECEDENT
4.1 Initial Advances and Letters of Credit. The Lenders shall not be
required to make the initial Loans, issue any Letters of Credit or purchase any
participations therein unless:
(a) such Loans are made not later than March 31, 1997;
(b) the Stock Acquisition has been consummated and all documents necessary
to consummate the Merger have been signed and submitted for filing;
(c) all of the conditions precedent set forth in that certain Term Sheet,
dated January 3, 1997 among First Chicago, First Chicago Capital Markets, Inc.,
Holdings and the Borrower shall have been met to the satisfaction of the Agent
and each of the Lenders;
(d) the Senior Subordinated Notes have been issued and the Borrower has
received the net proceeds thereof;
(e) the Holdings Subordinated Notes have been issued and Holdings has
received the net proceeds thereof;
(f) the Borrower shall have received from Holdings a capital contribution
to the common equity of the Borrower in an amount not less than $51,300,000;
(g) the Borrower shall have made all necessary arrangements for the payment
in full of all Indebtedness and liabilities in connection with the Refinanced
Indebtedness and release of all Liens in connection therewith pursuant to
payoff, estoppel and release documentation reasonably acceptable to the Agent;
and
(h) the Borrower has furnished to the Agent each of the following, with
sufficient copies for the Lenders:
(1) Copies of the Certificate of Incorporation for each of Holdings,
the Borrower and the Target (including, without limitation, the proposed
articles of merger with respect to the Merger), together with all
amendments and a certificate of good standing, both certified by the
appropriate governmental officer in its jurisdiction of incorporation;
(2) Copies, certified by the Secretary or Assistant Secretary of
Holdings, the Borrower and the Target, of its By-Laws and of its Board of
Directors' resolutions (and resolutions of other bodies, if any are deemed
necessary by counsel for any Lender) authorizing the execution of the
Transaction Documents;
(3) An incumbency certificate, executed by the Secretary or Assistant
Secretary of Holdings, the Borrower and the Target, which shall identify by
name and title and bear the signature of the officers of such entities
authorized to sign the Transaction Documents and, with respect to the
Borrower, to make borrowings hereunder, upon
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which certificate the Lenders shall be entitled to rely until informed of
any change in writing by the Borrower;
(4) An Officer's Certificate, in form and substance satisfactory to
the Agent, signed by the chief financial officer of the Borrower, stating
that on Closing Date no Default or Unmatured Default has occurred and is
continuing;
(5) A written opinion of the Borrower's counsel, addressed to the
Lenders addressing the issues identified in Exhibit H hereto containing
such assumptions and qualifications and otherwise in form and substance
reasonably acceptable to the Agent and the Lenders;
(6) Notes payable to the order of each of the Lenders;
(7) Written money transfer instructions in substantially the form of
Exhibit L hereto, addressed to the Agent and signed by an Authorized
Officer, together with such other related money transfer authorizations as
the Agent may have reasonably requested; and
(8) Such other documents as the Agent or any Lender or its counsel may
have reasonably requested, including, without limitation all of the
documents reflected on the List of Closing Documents attached as Exhibit I
to this Agreement.
4.2 Each Advance and Letter of Credit. The Lenders shall not be required to
make any Advance, issue any Letter of Credit or purchase any participation
therein, unless on the applicable Borrowing Date, or in the case of a Letter of
Credit, the date on which the Letter of Credit is to be issued:
(i) There exists no Default or Unmatured Default; and
(ii) The representations and warranties contained in Article V are
true and correct as of such Borrowing Date except for changes in the
Schedules to this Agreement reflecting transactions permitted by this
Agreement as set forth in Section 1.3 above.
Each Borrowing Notice with respect to each such Advance and the letter of
credit application with respect to a Letter of Credit shall constitute a
representation and warranty by the Borrower that the conditions contained in
Sections 4.2(i) and (ii) have been satisfied. The Agent may require a duly
completed Officer's Certificate in substantially the form of Exhibit J hereto as
a condition to making an Advance.
ARTICLE V: REPRESENTATIONS AND WARRANTIES
In order to induce the Agent and the Lenders to enter into this Agreement
and to make the Loans and the other financial accommodations to the Borrower and
to issue or participate the Letters of Credit described herein, the Borrower
represents and warrants as follows to each
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Lender and the Agent as of the Closing Date, giving effect to the Stock
Acquisition and the Merger and the consummation of the other transactions
contemplated by the Transaction Documents, and thereafter on each date as
required by Section 4.2:
5.1 Organization; Corporate Powers. The Borrower and each of its Restricted
Subsidiaries (i) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, (ii) is duly
qualified to do business as a foreign corporation and is in good standing under
the laws of each jurisdiction in which failure to be so qualified and in good
standing could reasonably be expected to have a Material Adverse Effect, (iii)
has filed and maintained effective (unless exempt from the requirements for
filing) a current Business Activity Report with the appropriate Governmental
Authority in the States in which it is required to do so and (iv) has all
requisite corporate power and authority to own, operate and encumber its
property and to conduct its business as presently conducted giving effect to the
Stock Acquisition and the Merger and as proposed to be conducted in connection
with and following the consummation of the transactions contemplated by this
Agreement.
5.2 Authority.
(A) The Borrower and each of its Restricted Subsidiaries has the requisite
corporate power and authority (i) to execute, deliver and perform each of the
Transaction Documents which are to be executed by it in connection with the
Stock Acquisition and the Merger or which have been executed by it as required
by this Agreement on or prior to Closing Date and (ii) to file the Transaction
Documents which must be filed by it in connection with the Stock Acquisition and
Merger or which have been filed by it as required by this Agreement on or prior
to the Closing Date with any Governmental Authority.
(B) The execution, delivery, performance and filing, as the case may be, of
each of the Transaction Documents which must be executed or filed by the
Borrower or any of its Restricted Subsidiaries in connection with the Stock
Acquisition or Merger or which have been executed or filed as required by this
Agreement on or prior to the Closing Date and to which the Borrower or any of
its Restricted Subsidiaries is party, and the consummation of the transactions
contemplated thereby, have been duly approved by the respective boards of
directors and, if necessary, the shareholders of the Borrower and its Restricted
Subsidiaries, and such approvals have not been rescinded. No other corporate
action or proceedings on the part of the Borrower or its Restricted Subsidiaries
are necessary to consummate such transactions.
(C) Each of the Transaction Documents to which the Borrower or any of its
Restricted Subsidiaries is a party has been duly executed, delivered or filed,
as the case may be, by it and constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law) or, to the extent
imposed by applicable law, by an implied covenant of good faith and fair
dealing), is in full force and effect and no material term or condition thereof
has been amended, modified or waived from the terms and conditions contained in
the Transaction Documents delivered to the Agent pursuant to Section 4.1 without
the prior written consent of
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the Required Lenders, and the Borrower and its Restricted Subsidiaries have,
and, to the best of the Borrower's and its Restricted Subsidiaries' Knowledge,
all other parties thereto have, performed and complied with all the terms,
provisions, agreements and conditions set forth therein and required to be
performed or complied with by such parties on or before the Closing Date, and no
unmatured default, default or breach of any covenant by any such party exists
thereunder.
5.3 No Conflict; Governmental Consents. The execution, delivery and
performance of each of the Loan Documents and, to the Borrower's Knowledge, the
other Transaction Documents to which the Borrower or any of its Restricted
Subsidiaries is a party do not and will not (i) conflict with the certificate or
articles of incorporation or by-laws of the Borrower or any such Restricted
Subsidiary, (ii) constitute a tortious interference with any Contractual
Obligation of any Person or conflict with, result in a breach of or constitute
(with or without notice or lapse of time or both) a default under any
Requirement of Law (including, without limitation, any Environmental Property
Transfer Act) or Contractual Obligation of the Borrower or any such Restricted
Subsidiary, or require termination of any Contractual Obligation, except such
interference, breach, default or termination which individually or in the
aggregate could not reasonably be expected to have a Material Adverse Effect,
(iii) with respect to the Loan Documents and, to the Borrower's and its
Restricted Subsidiaries' Knowledge with respect to the other Transaction
Documents, result in or require the creation or imposition of any Lien
whatsoever upon any of the property or assets of the Borrower or any such
Restricted Subsidiary, other than Liens permitted by the Loan Documents, or (iv)
require any approval of the Borrower's or any such Subsidiary's shareholders
except such as have been obtained. Except as set forth on Schedule 5.3 to this
Agreement, the execution, delivery and performance of each of the Transaction
Documents to which the Borrower or any of its Restricted Subsidiaries is a party
do not and will not require any registration with, consent or approval of, or
notice to, or other action to, with or by any Governmental Authority, including
under any Environmental Property Transfer Act, except (i) filings, consents or
notices which have been made, obtained or given, or which, if not made, obtained
or given, individually or in the aggregate could not reasonably be expected to
have a Material Adverse Effect, and (ii) filings necessary to create or perfect
security interests in the Collateral.
5.4 Financial Statements.
(A) The pro forma financial statements of the Borrower and its
Subsidiaries, copies of which are attached hereto as Exhibit K, present on a pro
forma basis the financial condition of the Borrower and such Subsidiaries as of
such date, and reflect on a pro forma basis those liabilities reflected in the
notes thereto and resulting from consummation of the Stock Acquisition, the
offer and sale of the Senior Subordinated Notes and the transactions
contemplated by this Agreement, and the payment or accrual of all Transaction
Costs payable on the Closing Date with respect to any of the foregoing. The
projections and assumptions expressed in the pro forma financials referenced in
this Section 5.4(A) were prepared in good faith and represent management's
opinion based on the information available to the Borrower at the time so
furnished.
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(B) Complete and accurate copies of the following financial statements and
the following related information have been delivered to the Agent: (1) the
audited balance sheets of the Target as at the fiscal years ended June 30, 1996
and 1995 and the related statements of income, changes in stockholders' equity
and cash flow of the Target for such fiscal years and the audit report of
Donnelly Meiners Jordan Kline related thereto; and (2) the unaudited balance
sheets of the Target as at the end of the fiscal quarter ended December 31, 1996
and the related statements of income of the Target for such fiscal quarters.
5.5 No Material Adverse Change. Since December 31, 1996 (tested by
reference to the audited financial statements of the Target as of such date)
other than the consummation of the Stock Acquisition, the incurrence of the
Indebtedness under the Indenture and under this Agreement to be incurred in
connection with the Stock Acquisition and the related transactions contemplated
in connection therewith, and the issuance by the Target of cash dividends in an
aggregate amount equal to $20,600,000 to the shareholders of the Target as of
February 25, 1997, there has occurred no change in the business, condition
(financial or otherwise), operations, performance, properties or prospects of
the Target, the Borrower, or the Borrower and its Subsidiaries taken as a whole
which has had or could reasonably be expected to have a Material Adverse Effect.
5.6 Taxes.
(A) Tax Examinations. All deficiencies which have been asserted against the
Holdings, Target, Borrower or any of the Borrower's Subsidiaries as a result of
any federal, state, local or foreign tax examination for each taxable year in
respect of which an examination has been conducted have been fully paid or
finally settled or are being contested in good faith by appropriate proceedings
properly instituted and diligently conducted, and as of the Closing Date no
issue has been raised by any taxing authority in any such examination which, by
application of similar principles, reasonably can be expected to result in
assertion by such taxing authority of a material deficiency for any other year
not so examined which has not been reserved for in Holdings' or the Borrower's
consolidated financial statements to the extent, if any, required by Agreement
Accounting Principles. Except as permitted pursuant to Section 6.2(D), none of
Holdings, the Borrower nor any of the Borrower's Subsidiaries anticipates any
material tax liability with respect to the years which have not been closed
pursuant to applicable law and which have not been reserved for in accordance
with Agreement Accounting Principles in Holdings' or the Borrower's financial
statements.
(B) Payment of Taxes. All tax returns and reports of each of, Holdings, the
Target, the Borrower and the Borrower's Subsidiaries required to be filed have
been timely filed, and all taxes, assessments, fees and other governmental
charges thereupon and upon their respective property, assets, income and
franchises which are shown in such returns or reports to be due and payable have
been paid except those items which are being contested in good faith by
appropriate proceedings properly instituted and diligently conducted and have
been reserved for in accordance with Agreement Accounting Principles. The
Borrower has no Knowledge of any proposed tax assessment against Holdings, the
Borrower or any of the Borrower's Subsidiaries that will have or could
reasonably be expected to have a Material Adverse Effect.
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5.7 Litigation; Loss Contingencies and Violations. Except as set forth in
Schedules 5.7 and 5.18 to this Agreement, there is no action, suit, proceeding,
investigation of which the Borrower has Knowledge or arbitration before or by
any Governmental Authority or private arbitrator pending or, to the Knowledge of
the Borrower or any of its Restricted Subsidiaries, threatened against the
Target, the Borrower or any of its Restricted Subsidiaries or any property of
any of them (i) challenging the validity or the enforceability of any material
provision of the Transaction Documents or (ii) which if resolved in a manner
adverse to the Target, the Borrower or any Restricted Subsidiary of the Borrower
will have or could reasonably be expected to have a Material Adverse Effect.
There is no material loss contingency within the meaning of Agreement Accounting
Principles which has not been reflected in the financial statements delivered
pursuant to Section 5.4 or the consolidated financial statements of the Borrower
prepared and delivered pursuant to Section 6.1(A) for the fiscal period during
which such material loss contingency was incurred. Neither the Borrower nor any
of its Restricted Subsidiaries is (A) in violation of any applicable
Requirements of Law which violation will have or could reasonably be expected to
have a Material Adverse Effect, or (B) subject to or in default with respect to
any final judgment, writ, injunction, restraining order or order of any nature,
decree, rule or regulation of any court or Governmental Authority which will
have or could reasonably be expected to have a Material Adverse Effect.
5.8 Subsidiaries. Schedule 5.8 to this Agreement (i) contains a description
of the corporate structure of Holdings, the Borrower, its Subsidiaries and any
other Person in which Holdings, the Borrower or any of its Subsidiaries holds an
Equity Interest (in flow chart form) after taking into account the consummation
of the Stock Acquisition; and (ii) accurately sets forth (A) the correct legal
name, the jurisdiction of incorporation and the jurisdictions in which each of
the Borrower and the direct and indirect Subsidiaries of the Borrower is
qualified to transact business as a foreign corporation, (B) the authorized,
issued and outstanding shares of each class of Capital Stock of Holdings, the
Borrower and each of its Subsidiaries and the owners of such shares (both as of
the Closing Date and on a fully-diluted basis), and (C) a summary of the direct
and indirect Equity Interests, if any, of Holdings, the Borrower and each
Subsidiary of the Borrower in any Person that is not a corporation. None of the
issued and outstanding Capital Stock of the Borrower or any of its Subsidiaries
is subject to any vesting, redemption, or repurchase agreement, and there are no
warrants or options outstanding with respect to such Capital Stock. The
outstanding Capital Stock of the Borrower and each of its Subsidiaries is duly
authorized, validly issued, fully paid and nonassessable and is not Margin
Stock. The Borrower has no Subsidiaries other than those permitted to be created
pursuant to Section 6.3(G) in connection with a Permitted Acquisition.
5.9 ERISA. No Benefit Plan has incurred any accumulated funding deficiency
(as defined in Sections 302(a)(2) of ERISA and 412(a) of the Code) whether or
not waived. Neither the Borrower nor any member of the Controlled Group has
incurred any liability to the PBGC which remains outstanding other than the
payment of premiums, and there are no premium payments which have become due
which are unpaid. Neither the Borrower nor any member of the Controlled Group
after such member became a part of the Controlled Group has (i) failed to make a
required contribution or payment to a Multiemployer Plan or (ii) made a complete
or partial withdrawal under Sections 4203 or 4205 of ERISA from a Multiemployer
Plan which could subject the Borrower to liability, individually or in the
aggregate, together with all other
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amounts under this Section 5.9, in excess of $2,500,000. Neither the Borrower
nor any member of the Controlled Group has failed to make a required installment
or any other required payment under Section 412 of the Code on or before the due
date for such installment or other payment. Neither the Borrower nor any member
of the Controlled Group (after such member became a part of the Controlled
Group) is required to provide security to a Benefit Plan under Section
401(a)(29) of the Code due to a Plan amendment that results in an increase in
current liability for the plan year. Each Plan which is intended to be qualified
under Section 401(a) of the Code as currently in effect has been determined by
the IRS to be so qualified or an application for determination of tax-qualified
status will be made to the IRS prior to the applicable remedial amendment period
under Section 401(b) of the Code. The Borrower and all Restricted Subsidiaries
are in compliance in all respects with the responsibilities, obligations and
duties imposed on them by ERISA and the Code with respect to all Plans, except
where such noncompliance could not reasonably be expected to subject the
Borrower to liability, individually or in the aggregate, together with all other
amounts under this Section 5.9, in excess of $2,500,000. Neither the Borrower
nor any of its Restricted Subsidiaries nor any fiduciary of any Plan has engaged
in a nonexempt prohibited transaction described in Sections 406 of ERISA or 4975
of the Code which could reasonably be expected to subject the Borrower to
liability, individually or in the aggregate, together with all other amounts
under this Section 5.9, in excess of $2,500,000. Neither the Borrower nor any
member of the Controlled Group has taken or failed to take any action which
would constitute or result in a Termination Event, which could reasonably be
expected to subject the Borrower to liability, individually or in the aggregate,
together with all other amounts under this Section 5.9, in excess of $2,500,000.
Neither the Borrower nor any Restricted Subsidiary is subject to, and no other
member of the Controlled Group is subject to, any liability under Sections 4063,
4064, 4069, 4204 or 4212(c) of ERISA which could reasonably be expected to
subject the Borrower to liability, individually or in the aggregate, together
with all other amounts under this Section 5.9, in excess of $2,500,000. Neither
the Borrower nor any of its Restricted Subsidiaries has, by reason of the
transactions contemplated hereby, any obligation to make any payment to any
employee pursuant to any Plan or existing contract or arrangement which payment,
individually or in the aggregate with all other such payments, together with all
other amounts under this Section 5.9, in excess of $2,500,000.
5.10 Accuracy of Information. (a) All factual information (other than
projections) heretofore or contemporaneously furnished by or on behalf of the
Target or the Borrower in writing to the Agent or to any Lender for purposes or
in connection with the Loan Documents or any transaction contemplated thereby
(including (i) the representations and warranties of the Borrower and its
Subsidiaries contained in the Loan Documents, (ii) all certificates and
documents delivered to the Agent and the Lenders pursuant to the terms thereof
and (iii) the Offering Memorandum) is collectively, and all other such factual
information (other than projections) hereafter furnished by or on behalf of the
Company or any of its Subsidiaries to the Purchaser will be individually, true
and accurate in every material respect on the date as of which such information
is dated or certified, and such information is not, or shall not be, as the case
may be, incomplete by omitting to state any material fact necessary to make such
information not misleading.
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(b) The projections supplied in connection with the factual information
referred to in clause (a) above were or are based on good faith estimates and
assumptions believed to be fair and reasonable at the time made, given
historical financial performance and current and reasonably foreseeable business
conditions, and to the Borrower's knowledge, there are no facts or circumstances
presently existing which singly or in the aggregate, would cause a material
change in such projections, it being recognized and agreed by the Lenders that
such projections as to future events are not to be viewed as facts and that
actual results during the period or periods covered by any such projections may
differ from the projected results and that the differences may be material.
5.11 Securities Activities. Neither the Borrower nor any of its Restricted
Subsidiaries is engaged in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
5.12 Material Agreements. Neither the Borrower nor any Subsidiary is a
party to any agreement or instrument or subject to any charter or other
corporate restriction which will have or could reasonably be expected to have a
Material Adverse Effect. Neither the Borrower nor any of its Subsidiaries has
received notice or has knowledge that (i) it is in default in the performance,
observance or fulfillment of any of the obligations, covenants or conditions
contained in any Contractual Obligation applicable to it, or (ii) any condition
exists which, with the giving of notice or the lapse of time or both, would
constitute a default with respect to any such Contractual Obligation, in each
case, except where such default or defaults, if any, will not have or are not
reasonably likely to have a Material Adverse Effect.
5.13 Compliance with Laws. The Borrower and its Subsidiaries are in
compliance with all Requirements of Law applicable to them and their respective
businesses, in each case where the failure to so comply individually or in the
aggregate will have or could reasonably be expected to have a Material Adverse
Effect.
5.14 Assets and Properties. The Target, the Borrower and each of the
Borrower's Restricted Subsidiaries has good and marketable title to all of its
assets and properties (tangible and intangible, real or personal) owned by it or
a valid leasehold interest in all of its leased assets (except insofar as
marketability may be limited by any laws or regulations of any Governmental
Authority affecting such assets), and all such assets and property are free and
clear of all Liens, except Liens securing the Secured Obligations and Liens
permitted under Section 6.3(C). Substantially all of the assets and properties
owned by, leased to or used by the Target, the Borrower and/or each such
Restricted Subsidiary of the Borrower are in adequate operating condition and
repair, ordinary wear and tear excepted. To the Borrower's and its Restricted
Subsidiary's Knowledge, except for Liens granted to the Agent for the benefit of
the Agent and the Holders of Secured Obligations, neither this Agreement nor any
other Transaction Document, nor any transaction contemplated under any such
agreement, will affect any right, title or interest of the Target, the Borrower
or such Restricted Subsidiary in and to any of such assets in a manner that
would have or could reasonably be expected to have a Material Adverse Effect.
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5.15 Statutory Indebtedness Restrictions. Neither the Borrower, nor any of
its Restricted Subsidiaries is subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act,
or the Investment Company Act of 1940, or any other federal or state statute or
regulation which limits its ability to incur indebtedness or its ability to
consummate the transactions contemplated hereby or in connection with Stock
Acquisition.
5.16 Post-Retirement Benefits. As of the Closing Date the Target, the
Borrower and its Subsidiaries have no expected cost of post-retirement medical
and insurance benefits payable by the Target, the Borrower and its Restricted
Subsidiaries to its employees and former employees, as estimated in accordance
with Financial Accounting Standards Board Statement No. 106.
5.17 Insurance. Schedule 5.17 to this Agreement accurately sets forth as of
the Closing Date all material insurance policies and programs currently in
effect with respect to the respective properties and assets and business of the
Target, the Borrower and its Restricted Subsidiaries, specifying for each such
policy and program, (i) the amount thereof, (ii) the risks insured against
thereby, (iii) the name of the insurer and each insured party thereunder, (iv)
the policy or other identification number thereof, (v) the expiration date
thereof, (vi) the annual premium with respect thereto and (vii) describes any
reserves, relating to any self-insurance program that is in effect. Such
insurance policies and programs reflect coverage that is reasonably consistent
with prudent industry practice.
5.18 Indebtedness of Target; Refinanced Indebtedness; Contingent
Obligations. Schedule 1.1.5 sets forth all Indebtedness of the Target and all
Indebtedness to be discharged in connection with the consummation of the Stock
Acquisition under the heading "Refinanced Indebtedness." The Refinanced
Indebtedness and all accrued and unpaid interest thereon has been paid in full
or provision for payment has been made such that, in accordance with the express
provisions of the instruments governing such Indebtedness. The Target has been
or will be upon payment in full of the Refinanced Indebtedness irrevocably
released from all liability and Contractual Obligations with respect thereto
other than customary continuing indemnities provided for in the Contractual
Obligation evidencing such Refinanced Indebtedness, a copy of which has been
delivered to the Lenders. Any and all Liens securing the Refinanced Indebtedness
have been released or provision for release of such Liens satisfactory to the
Agent has been made. Except as set forth on Schedule 5.18 to this Agreement,
neither the Target, the Borrower nor any of its Subsidiaries has any Contingent
Obligation, contingent liability, long-term lease or commitment, not reflected
in its audited financial statements delivered to the Agent on or prior to the
Closing Date or otherwise disclosed to the Agent and the Lenders in the other
Schedules to this Agreement, which could reasonably be expected to subject the
Borrower to liability, individually or in the aggregate, in excess of $500,000.
5.19 Labor Matters.
(A) Except as listed on Schedule 5.19 to this Agreement, there are on the
Closing Date no collective bargaining agreements, other labor agreements or
Multiemployer Plans covering any of the employees of the Target, the Borrower or
any of its Restricted Subsidiaries. As of the Closing Date, no attempt to
organize the employees of the Target, the Borrower or any of its
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Restricted Subsidiaries, and no labor disputes, strikes or walkouts affecting
the operations of the Target, the Borrower or any of its Restricted
Subsidiaries, is pending, or, to the Borrower's or its Restricted Subsidiaries'
Knowledge, threatened, planned or contemplated.
(B) Set forth in Schedule 5.19 to this Agreement is a list, as of the
Closing Date, of all material consulting agreements, executive compensation
plans, deferred compensation agreements, employee pension plans or retirement
plans, employee profit sharing plans, employee stock purchase and stock option
plans, severance plans, group life insurance, hospitalization insurance or other
plans or arrangements of Holdings, the Borrower and its Restricted Subsidiaries
providing for benefits for employees of Holdings, the Borrower and its
Restricted Subsidiaries.
5.20 The Stock Acquisition; Minimum Equity Contributions.
(A) As of the Closing Date and immediately prior to the making of the
initial Loans:
(i) the Acquisition Documents are in full force and effect, no
material breach, default or waiver of any term or provision of any of the
Acquisition Documents by Holdings, the Borrower or any of its Subsidiaries
or, to the Borrower's Knowledge, the other parties thereto has occurred
(except for such breaches, defaults and waivers, if any, consented to in
writing by the Agent and the Required Lenders) and no action has been taken
by any competent authority which restrains, prevents or imposes any
material adverse condition upon, or seeks to restrain, prevent or impose
any material adverse condition upon, the Stock Acquisition;
(ii) the representations and warranties of each of Holdings, the
Borrower and the Borrower's Subsidiaries contained in the Acquisition
Documents, if any, are true and correct in all material respects;
(iii) all conditions precedent to, and all consents necessary to
permit, the Stock Acquisition pursuant to the Acquisition Documents have
been satisfied or waived with the prior written consent of the Agent and
the Required Lenders, and simultaneously with the funding of the initial
Loan under this Agreement, the Stock Acquisition will be consummated in
accordance with the Acquisition Documents and the Borrower will obtain at
such time good and marketable title to all of the outstanding Equity
Interests of the Target free and clear of any Liens other than Liens
permitted under Section 6.3(C).
(B) As of the Closing Date and immediately prior to the making of the
initial Loans the Minimum Equity Contributions have been made and Holdings and
the Borrower has received the proceeds thereof.
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5.21 Environmental Matters. (a) Except as disclosed on Schedule 5.21 to
this Agreement
(i) the operations of the Target, the Borrower and its Restricted
Subsidiaries comply in all material respects with Environmental, Health or
Safety Requirements of Law;
(ii) the Target, the Borrower and its Restricted Subsidiaries have all
permits, licenses or other authorizations required under Environmental,
Health or Safety Requirements of Law and are in material compliance with
such permits;
(iii) neither the Target, the Borrower, any of its Restricted
Subsidiaries nor any of their respective present property or operations,
or, to the Borrower's or any of its Subsidiaries' Knowledge, any of their
respective past property or operations, are subject to or the subject of,
any investigation of which the Borrower or any of its Subsidiaries has
Knowledge, any judicial or administrative proceeding, order, judgment,
decree, settlement or other agreement respecting: (A) any material
violation of Environmental, Health or Safety Requirements of Law; (B) any
remedial action; or (C) any material claims or liabilities arising from the
Release or threatened Release of a Contaminant into the environment;
(iv) there is not now, nor to the best of the Borrower's or any of its
Restricted Subsidiaries' Knowledge has there ever been on or in the
property of the Target, the Borrower or any of its Subsidiaries any
landfill, waste pile, underground storage tanks, aboveground storage tanks,
surface impoundment or hazardous waste storage facility of any kind, any
polychlorinated biphenyls (PCBs) used in hydraulic oils, electric
transformers or other equipment, or any asbestos containing material; and
(v) neither the Target, the Borrower nor any of its Restricted
Subsidiaries has any material Contingent Obligation in connection with any
Release or threatened Release of a Contaminant into the environment.
(b) For purposes of this Section 5.21 "material" means any noncompliance or
basis for liability which could reasonably be likely to subject the Borrower to
liability, individually or in the aggregate, in excess of $1,000,000.
5.22 Capitalization. As of the Closing Date and immediately prior to the
initial funding of the Loans, (A) the investors listed on Schedule 5.8 have
contributed to the capital of Holdings, in compliance with all applicable
Requirements of Law, not less than $52,200,000 comprised of $27,200,000 with
allocations of cash and non-cash investments for common and preferred stock as
set forth on Schedule 5.8 and $25,000,000 in cash for the Holdings Subordinated
Notes and 11,000 Series B Preferred Shares and 500 Series B Common Shares
purchased by MCIT; and (B) Holdings has contributed to the capital of the
Borrower, in compliance with all applicable Requirements of Law, not less than
$51,300,000 in cash (such contributions, collectively, being referred to herein
as the "Minimum Equity Contributions"). All of the Secured Obligations of the
Borrower to the Lenders (whether in respect of the principal of and interest on
Loans, L/C
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Obligations, Hedging Obligations or reimbursement or indemnity Obligations)
constitute "Senior Indebtedness" as such term is defined in each of the Deferred
Limited Interest Guaranty and the Holdings Subordinated Notes and the
subordination provisions of the Holdings Subordinated Notes are enforceable
against the holders of the Holdings Subordinated Notes.
5.23 The Offering and Sale of the Senior Subordinated Notes.
(a) As of the Closing Date, the offering and sale of the Senior
Subordinated Notes has been consummated in compliance with the provisions of the
Securities Act, as amended, any other federal securities law, state securities
or "Blue Sky" law or applicable general corporation law, and, in each case, the
rules and regulations thereunder.
(b) As of the Closing Date, all conditions precedent to, and all consents
necessary to permit, the offering and sale of the Senior Subordinated Notes have
been satisfied or delivered, or, to the extent material to the Lenders, waived
with the prior written consent of the Agent, and no action has been taken by any
competent authority which restrains, prevents or imposes material adverse
conditions upon, or seeks to restrain, prevent or impose material adverse
conditions upon, the offering or sale of the Senior Subordinated Notes.
(c) As of the Closing Date, the offering and sale of the Senior
Subordinated Notes has been consummated, the Senior Subordinated Notes in an
aggregate original principal amount of $125,000,000 have been issued and the
Borrower has received the proceeds thereof and applied such proceeds as provided
in the Offering Memorandum.
(d) All of the Secured Obligations of the Borrower to the Holders of
Secured Obligations (whether in respect of the principal of and interest on
Loans, L/C Obligations, Hedging Obligations or reimbursement or indemnity
Obligations) constitute "Senior Indebtedness" as such term is defined in the
Indenture.
5.24 Solvency. As of the Closing Date, after giving effect to the (i) Loans
to be made on the Closing Date, (ii) the disbursement of the proceeds of such
Loans pursuant to the instructions of the Borrower, (iii) the proceeds received
and disbursed pursuant to the terms of the Indenture, (iv) the proceeds received
and disbursed in connection with the Minimum Equity Contributions, and (v)
consummation of the Stock Acquisition and the Merger, the Borrower is Solvent.
ARTICLE VI: COVENANTS
The Borrower covenants and agrees that so long as any Commitments are
outstanding and thereafter until payment in full of all of the Obligations
(other than contingent indemnity obligations), unless the Required Lenders shall
otherwise give prior written consent:
6.1 Reporting. The Borrower shall maintain a system of accounting
established and administered in accordance with Agreement Accounting Principles
and shall:
(A) Financial Reporting. Furnish to the Lenders:
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(i) Monthly Reports. As soon as practicable, and in any event within
thirty (30) days after the end of each calendar month, the consolidated and
consolidating balance sheets of the Borrower and its Subsidiaries as at the
end of such period and the related consolidated and consolidating
statements of income and statement of cash flow of the Borrower and its
Subsidiaries for such calendar month, certified by the chief financial
officer of the Borrower on behalf of the Borrower as fairly presenting the
consolidated and consolidating financial position of the Borrower and its
Subsidiaries as at the dates indicated and the results of their operations
and cash flow for the calendar months indicated in accordance with
Agreement Accounting Principles, subject to normal year end adjustments.
(ii) Quarterly Reports. Without in any way limiting the requirements
set forth in Section 6.1(A)(i), as soon as practicable, and in any event
within forty-five (45) days after the end of each of the first three fiscal
quarters in each fiscal year, the consolidated and consolidating balance
sheets of the Borrower and its Subsidiaries as at the end of such period
and the related consolidated and consolidating statements of income, and
cash flow of the Borrower and its Subsidiaries for such fiscal quarter and
for the period from the beginning of the then current fiscal year to the
end of such fiscal quarter, certified by the chief financial officer of the
Borrower and its Restricted Subsidiaries on behalf of the Borrower and its
Restricted Subsidiaries as fairly presenting the consolidated and
consolidating financial position of the Borrower and its Subsidiaries as at
the dates indicated and the results of their operations and cash flow for
the periods indicated in accordance with Agreement Accounting Principles,
subject to normal year end adjustments.
(iii) Annual Reports. As soon as practicable, and in any event within
ninety (90) days after the end of each fiscal year, (a) the consolidated
balance sheets of the Borrower and its Subsidiaries as at the end of such
fiscal year and the related consolidated statements of income,
stockholders' equity and cash flow of the Borrower and its Subsidiaries for
such fiscal year, and in comparative form the corresponding figures for the
previous fiscal year along with consolidating schedules in form and
substance sufficient to calculate the financial covenants set forth in
Section 6.4, (b) a schedule from the Borrower setting forth for each item
in clause (a) hereof, the corresponding figures from the consolidated
financial budget for the current fiscal year delivered pursuant to Section
6.1(A)(v), and (c) an audit report on the items listed in clause (a) hereof
of independent certified public accountants of recognized national
standing, which audit report shall be unqualified and shall state that such
financial statements fairly present the consolidated and consolidating
financial position of the Borrower and its Subsidiaries as at the dates
indicated and the results of their operations and cash flow for the periods
indicated in conformity with Agreement Accounting Principles and that the
examination by such accountants in connection with such consolidated and
consolidating financial statements has been made in accordance with
generally accepted auditing standards. The deliveries made pursuant to this
clause (iii) shall be accompanied by (y) any management letter prepared by
the above-referenced accountants and (z) a certificate of such accountants
that, in the course of their examination necessary for their certification
of the foregoing, they have obtained no knowledge of any Default or
Unmatured Default, or if,
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in the opinion of such accountants, any Default or Unmatured Default shall
exist, stating the nature and status thereof.
(iv) Officer's Certificate. Together with each delivery of any
financial statement (or otherwise if requested pursuant to the terms of
Section 4.2) an officer's certificate substantially in the form of Exhibit
J hereto (an "Officer's Certificate") (a) stating that no Default or
Unmatured Default exists, or if any Default or Unmatured Default exists,
stating the nature and status thereof for each such Officer's Certificate
accompanying the financial statements delivered pursuant to clauses (i),
(ii) and (iii) of this Section 6.1(A), and (b) in addition for each such
Officer's Certificate accompanying the financial statements delivered
pursuant to clauses (ii) and (iii) of this Section 6.1(A), setting forth
calculations for the period then ended for Section 2.5(B), if applicable,
setting forth the Borrower's calculations reflecting the applicable pricing
level under Section 2.15(D) which the Borrower has determined to be the
applicable level, and which demonstrate compliance, when applicable, with
the provisions of Section 6.4, in each case such Officer's Certificate to
be signed by the Borrower's chief financial officer or treasurer.
(v) Budgets; Business Plans; Financial Projections. As soon as
practicable and in any event not later than sixty (60) days after the
beginning of each fiscal year, a copy of the plan and forecast (including a
projected balance sheet, income statement and funds flow statement) of the
Borrower and its Subsidiaries for such fiscal year prepared in such detail
as shall be reasonably satisfactory to the Agent.
(B) Notice of Default. Promptly upon any of the chief executive officer,
chief operating officer, chief financial officer, treasurer, controller or other
Authorized Officer of the Borrower obtaining knowledge (i) of any condition or
event which constitutes a Default or an Unmatured Default which is then
continuing, or becoming aware that any Lender or Agent has given any written
notice with respect to a claimed Default or Unmatured Default under this
Agreement, or (ii) that any Person has given any written notice to the Borrower
or any Restricted Subsidiary of the Borrower or taken any other action with
respect to a claimed default or event or condition of the type referred to in
Section 7.1(e), deliver to the Agent and the Lenders an Officer's Certificate
specifying (a) the nature and period of existence of any such claimed default,
Default, Unmatured Default, condition or event, (b) the notice given or action
taken by such Person in connection therewith, and (c) what action the Borrower
has taken, is taking and proposes to take with respect thereto.
(C) Lawsuits. (i) Promptly upon the Knowledge of the Borrower or any
Restricted Subsidiary of the institution of, or the written threat of, any
action, suit, proceeding, governmental investigation or arbitration against or
affecting the Borrower or any of its Restricted Subsidiaries or any property of
the Borrower or any of its Restricted Subsidiaries not previously disclosed
pursuant to Section 5.7, which action, suit, proceeding, governmental
investigation or arbitration exposes, or in the case of multiple actions, suits,
proceedings, governmental investigations or arbitrations arising out of the same
general allegations or circumstances which expose, in the Borrower's reasonable
judgment, the Borrower or any of its Restricted Subsidiaries to liability,
individually or in the aggregate, in an amount aggregating $1,000,000 or more
(exclusive of claims covered by insurance policies of the Borrower or any of
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its Subsidiaries unless the insurers of such claims have disclaimed coverage or
reserved the right to disclaim coverage on such claims and exclusive of claims
covered by the indemnity of a financially responsible indemnitor in favor of the
Borrower or any of its Restricted Subsidiaries (unless the indemnitor has
disclaimed or reserved the right to disclaim coverage thereof), give written
notice thereof to the Agent and the Lenders and provide such other information
as may be reasonably available to enable each Lender and the Agent and its
counsel to evaluate such matters; and (ii) in addition to the requirements set
forth in clause (i) of this Section 6.1(C), upon request of the Agent or the
Required Lenders, promptly give written notice of the status of any action,
suit, proceeding, governmental investigation or arbitration covered by a report
delivered pursuant to clause (i) above and provide such other information as may
be reasonably available to it that would not violate any attorney-client
privilege by disclosure to the Lenders to enable each Lender and the Agent and
its counsel to evaluate such matters.
(D) Insurance. As soon as practicable and in any event within ninety (90)
days of the end of each fiscal year commencing with fiscal year ending June 30,
1997, deliver to the Agent and the Lenders (i) a report in form and substance
reasonably satisfactory to the Agent and the Lenders outlining all material
insurance coverage maintained as of the date of such report by the Borrower and
its Subsidiaries and the duration of such coverage and (ii) an insurance
broker's statement that all premiums with respect to such coverage have been
paid when due.
(E) ERISA Notices. Deliver or cause to be delivered to the Agent and the
Lenders, at the Borrower's expense, the following information and notices as
soon as reasonably possible, and in any event:
(i) (a) within ten (10) Business Days after the Borrower or any
Restricted Subsidiary obtains Knowledge that a Termination Event has
occurred which could reasonably be expected to subject the Borrower or such
Restricted Subsidiary to a liability, individually or in the aggregate in
excess of $1,000,000, a written statement of the chief financial officer of
the Borrower or such Restricted Subsidiary describing such Termination
Event and the action, if any, which the Borrower has taken, is taking or
proposes to take with respect thereto, and when known, any action taken or
threatened by the IRS, DOL or PBGC with respect thereto and (b) within ten
(10) Business Days after any member of the Controlled Group obtains
Knowledge that a Termination Event has occurred which could reasonably be
expected to subject the Borrower or such Restricted Subsidiary to
liability, individually or in the aggregate, in excess of $1,000,000, a
written statement of the chief financial officer of the Borrower or such
Restricted Subsidiary describing such Termination Event and the action, if
any, which the member of the Controlled Group has taken, is taking or
proposes to take with respect thereto, and when known, any action taken or
threatened by the IRS, DOL or PBGC with respect thereto;
(ii) within ten (10) Business Days after the Borrower or any of its
Subsidiaries obtains Knowledge that a prohibited transaction (defined in
Sections 406 of ERISA and Section 4975 of the Code) has occurred which
could reasonably be expected to subject the Borrower or such Restricted
Subsidiary to a liability, individually or in the aggregate in excess of
$1,000,000, a statement of the chief financial officer of the Borrower
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describing such transaction and the action which the Borrower or such
Restricted Subsidiary has taken, is taking or proposes to take with respect
thereto;
(iii) within ten (10) Business Days after the Borrower or any of its
Subsidiaries receives notice from the IRS that a Plan is being disqualified
under Section 401(a) of the Code, copies of each such letter; and
(iv) within ten (10) Business Days after a request by the Agent,
copies of the most recent annual report (form 5500 series), including
Schedule B thereto, filed with respect to each Benefit Plan;
(v) within ten (10) Business Days after a request by the Agent, copies
of the most recent actuarial report for any Benefit Plan or Multiemployer
Plan or if later ten (10) Business Days after receipt of such report by
Borrower or any member of the Controlled Group;
(vi) within ten (10) Business Days after the filing thereof with the
IRS, a copy of each funding waiver request filed with respect to any
Benefit Plan and thereafter all communications received by the Borrower or
a member of the Controlled Group with respect to such request;
(vii) within ten (10) Business Days after receipt by the Borrower or
any member of the Controlled Group of the PBGC's intention to terminate a
Benefit Plan or to have a trustee appointed to administer a Benefit Plan,
copies of each such notice;
(viii) within ten (10) Business Days after receipt by the Borrower or
any member of the Controlled Group of a notice from a Multiemployer Plan
regarding the imposition of withdrawal liability, copies of each such
notice;
(ix) within ten (10) Business Days after the Borrower or any member of
the Controlled Group fails to make a required installment or any other
required payment under Section 412 of the Internal Revenue Code on or
before the due date for such installment or payment, a notification of such
failure; and
(x) within ten (10) Business Days after the Borrower or any member of
the Controlled Group knows or has reason to know that (a) a Multiemployer
Plan has been terminated, (b) the administrator or plan sponsor of a
Multiemployer Plan intends to terminate a Multiemployer Plan, or (c) the
PBGC has instituted or will institute proceedings under Section 4042 of
ERISA to terminate a Multiemployer Plan.
For purposes of this Section 6.1(E), the Borrower, any of its Restricted
Subsidiaries and any member of the Controlled Group shall be deemed to know all
facts known by the Administrator of any Plan (other than a Multiemployer Plan)
of which the Borrower or any member of the Controlled Group or such Subsidiary
is the plan sponsor.
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(F) Labor Matters. Notify the Agent and the Lenders in writing, promptly
upon the Borrower's learning thereof, of (i) any labor disputes to which the
Borrower or any of its Subsidiaries may become a party, including, without
limitation, any strikes, lockouts or other disputes relating to such Persons'
plants and other facilities which individually, or in the aggregate, could be
reasonably expected to have Material Adverse Effect, and (ii) any Worker
Adjustment and Retraining Notification Act liability incurred with respect to
the closing of any plant or other facility of the Borrower or any of its
Restricted Subsidiaries.
(G) Other Indebtedness. Deliver to the Agent (i) a copy of each regular
report, notice or communication regarding potential or actual defaults
(including any accompanying officers' certificate) delivered by or on behalf of
the Borrower to the holders of or trustee for the holders of funded Indebtedness
(including without limitation the Senior Subordinated Notes) pursuant to the
terms of the agreements governing such Indebtedness, such delivery to be made at
the same time and by the same means as such notice or other communication is
delivered to such holders or trustee, and (ii) a copy of each notice or other
communication received by the Borrower from the holders of or trustee for the
holders of funded Indebtedness (including, without limitation, the Senior
Subordinated Notes) pursuant to the terms of such Indebtedness, such delivery to
be made promptly after such notice or other communication is received by the
Borrower.
(H) Other Reports. Deliver or cause to be delivered to the Agent and the
Lenders copies of all financial statements, reports and notices, if any, sent or
made available generally by the Borrower to its public securities holders
(including without limitation the holders of the Senior Subordinated Notes) or
pursuant to Section 6.1.2(d) of the Purchase Agreement, dated as of February 27,
1997, in respect of the Holdings Subordinated Notes, filed with the Commission
or delivered pursuant to the Indenture by the Borrower, all press releases made
available generally by the Borrower or any of the Borrower's Subsidiaries to the
public concerning material developments in the business of the Borrower or any
such Subsidiary and all notifications received from the Commission by the
Borrower or its Subsidiaries pursuant to the Securities Exchange Act of 1934 and
the rules promulgated thereunder.
(I) Environmental Notices. As soon as possible and in any event within ten
(10) days after receipt by the Borrower, a copy of (i) any notice or claim to
the effect that the Borrower or any of its Restricted Subsidiaries is or may be
liable to any Person as a result of the Release by the Borrower, any of its
Restricted Subsidiaries, or any other Person of any Contaminant into the
environment, and (ii) any notice alleging any violation of any Environmental,
Health or Safety Requirements of Law by the Borrower or any of its Restricted
Subsidiaries if, in either case, such notice or claim relates to an event which
could reasonably be expected to subject the Borrower or any Restricted
Subsidiary to liability, individually or in the aggregate, in excess of
$1,000,000.
(J) Borrowing Base Certificate. As soon as practicable, and in any event
within thirty (30) days after the close of each calendar month (and more often
if reasonably requested by the Agent or the Required Lenders), the Borrower
shall provide the Agent and the Lenders with a Borrowing Base Certificate,
together with such supporting documents as the Agent reasonably deems desirable,
all certified as being true and correct by the chief financial officer or
treasurer of the Borrower. The Borrower may update the Borrowing Base
Certificate and supporting
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documents more frequently than monthly and the most recently delivered Borrowing
Base Certificate shall be the applicable Borrowing Base Certificate for purposes
of determining the Borrowing Base at any time.
(K) Other Information. Promptly upon receiving a request therefor from the
Agent, prepare and deliver to the Agent and the Lenders such other information
with respect to Holdings, the Borrower, any of its Subsidiaries, or the
Collateral, including, without limitation, schedules identifying and describing
the Collateral and any dispositions thereof or any Asset Sale (and the use of
the Net Cash Proceeds thereof), as from time to time may be reasonably requested
by the Agent.
6.2 Affirmative Covenants.
(A) Corporate Existence, Etc. The Borrower shall, and shall cause each of
its Restricted Subsidiaries (if any) to, at all times maintain its corporate
existence and preserve and keep, or cause to be preserved and kept, in full
force and effect its rights and franchises material to its businesses.
(B) Corporate Powers; Conduct of Business. The Borrower shall, and shall
cause each of its Restricted Subsidiaries to, qualify and remain qualified to do
business in each jurisdiction in which the nature of its business requires it to
be so qualified and where the failure to be so qualified will have or could
reasonably be expected to have a Material Adverse Effect. The Borrower will, and
will cause each Restricted Subsidiary to, carry on and conduct its business in
substantially the same manner and in substantially the same fields of enterprise
as it is presently conducted.
(C) Compliance with Laws, Etc. The Borrower shall, and shall cause its
Restricted Subsidiaries to, (a) comply with all Requirements of Law and all
restrictive covenants affecting such Person or the business, properties, assets
or operations of such Person, and (b) obtain as needed all Permits necessary for
its operations and maintain such Permits in good standing unless failure to
comply or obtain could not reasonably be expected to have a Material Adverse
Effect.
(D) Payment of Taxes and Claims; Tax Consolidation. The Borrower shall pay
and the Borrower shall cause each of its Subsidiaries to pay, (i) all taxes,
assessments and other governmental charges imposed upon it or on any of its
properties or assets or in respect of any of its franchises, business, income or
property before any penalty or interest accrues thereon, and (ii) all claims
(including, without limitation, claims for labor, services, materials and
supplies) for sums which have become due and payable and which by law have or
may become a Lien (other than a Lien permitted by Section 6.3(C)) upon any of
the Borrower's or such Restricted Subsidiary's property or assets, prior to the
time when any penalty or fine shall be incurred with respect thereto; provided,
however, that no such taxes, assessments and governmental charges referred to in
clause (i) above or claims referred to in clause (ii) above (and interest,
penalties or fines relating thereto) need be paid if being contested in good
faith by appropriate proceedings diligently instituted and conducted and if such
reserve or other appropriate provision, if any, as shall be required in
conformity with Agreement Accounting Principles shall have been made
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therefor. The Borrower will not, nor will it permit any of its Restricted
Subsidiaries to, file or consent to the filing of any consolidated income tax
return with any Person other than Holdings.
(E) Insurance. The Borrower shall maintain for itself and its Restricted
Subsidiaries, or shall cause each of its Restricted Subsidiaries to maintain in
full force and effect the insurance policies and programs listed on Schedule
5.17 to this Agreement or substantially similar policies and programs or other
policies and programs as reflect coverage that is reasonably consistent with
prudent industry practice. The Borrower shall deliver to the Agent endorsements
(y) to all "All Risk" physical damage insurance policies on all of the
Borrower's' tangible real and personal property and assets and business
interruption insurance policies naming the Agent loss payee, and (z) to all
general liability and other liability policies naming the Agent an additional
insured. In the event the Borrower or any of its Restricted Subsidiaries, at any
time or times hereafter shall fail to obtain or maintain any of the policies or
insurance required herein or to pay any premium in whole or in part relating
thereto, then the Agent, without waiving or releasing any obligations or
resulting Default hereunder, may at any time or times thereafter (but shall be
under no obligation to do so) obtain and maintain such policies of insurance and
pay such premiums and take any other action with respect thereto which the Agent
deems advisable. All sums so disbursed by the Agent shall constitute part of the
Obligations, payable as provided in this Agreement.
(F) Inspection of Property; Books and Records; Discussions. The Borrower
shall permit, and cause each of the Borrower's Restricted Subsidiaries to
permit, any authorized representative(s) designated by either the Agent or any
Lender having a Pro Rata Share that is equal to or greater than five percent
(5%) to visit and inspect any of the properties of the Borrower or any of its
Restricted Subsidiaries, to examine, audit, check and make copies of their
respective financial and accounting records, books, journals, orders, receipts
and any correspondence and other data relating to their respective businesses or
the transactions contemplated hereby and by the Stock Acquisition (including,
without limitation, in connection with environmental compliance, hazard or
liability), and to discuss their affairs, finances and accounts with their
officers and independent certified public accountants, all upon reasonable
notice, at reasonable intervals and at such reasonable times during normal
business hours, as often as may be reasonably requested (unless a Default shall
have occurred and be continuing in which case no such prior notice shall be
required); provided that each Lender shall coordinate such visits through the
Agent. The Borrower shall keep and maintain, and cause Holdings and each of the
Borrower's Subsidiaries to keep and maintain, in all material respects, proper
books of record and account in which entries in conformity with Agreement
Accounting Principles shall be made of all dealings and transactions in relation
to their respective businesses and activities, including, without limitation,
transactions and other dealings with respect to the Collateral.
(G) Insurance and Condemnation Proceeds. The Borrower directs (and, if
applicable, shall cause its Restricted Subsidiaries to direct) all insurers
under policies of property damage, boiler and machinery and business
interruption insurance and payors of any condemnation claim or award relating to
the property to pay all proceeds payable under such policies or with respect to
such claim or award for any loss with respect to the Collateral directly to the
Agent, for the benefit of the Agent and the Holders of the Secured Obligations;
provided, however, so long as
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no Designated Default shall have occurred and be continuing or unless as a
result thereof the Borrower would be required pursuant to the terms of the
Indenture to make an offer to holders of the Senior Subordinated Notes to
purchase any of the outstanding principal thereunder, the Agent shall remit such
proceeds to the Borrower; provided, however, that for up to 180 days from the
date of any loss, the Borrower shall commit such proceeds to restore, rebuild or
replace the property subject to any insurance payment or condemnation award;
and, provided, further, that at the end of such 180 day period the Borrower
shall remit to the Agent any proceeds (other than proceeds that are less than
$2,500,000 in connection with any single insurable event ("Excluded Proceeds"))
not committed according to the preceding proviso, and the Agent shall, upon
receipt of such proceeds and at the Borrower's direction, either apply the same
to the principal amount of the Loans outstanding at the time of such receipt and
create a corresponding reserve against Revolving Credit Availability in an
amount equal to such application (the "Decision Reserve") or hold them as cash
collateral for the Obligations. Each such policy shall contain a long-form
loss-payable endorsement naming the Agent as loss payee, which endorsement shall
be in form and substance acceptable to the Agent. For up to 180 days from the
date of the Borrower remitting such proceeds to the Agent (the "Decision
Period"), the Borrower may notify the Agent that it intends to restore, rebuild
or replace the property subject to any insurance payment or condemnation award
and shall, as soon as practicable thereafter, provide the Agent detailed
information, including a construction schedule and cost estimates. Should a
Default occur at any time during the Decision Period, should the Borrower notify
the Agent that it has decided not to rebuild or replace such property during the
Decision Period, or should the Borrower fail to notify the Agent of the
Borrower's decision during the Decision Period, then the amounts held as cash
collateral pursuant to this Section 6.2(G) or as the Decision Reserve shall upon
the Required Lenders' direction be applied as a Designated Prepayment of the
Obligations pursuant to Section 2.5(B). Proceeds held as cash collateral
pursuant to this Section 6.2(G) or constituting the Decision Reserve shall be
disbursed as payments for restoration, rebuilding or replacement of such
property become due; provided, however, should a Default occur after the
Borrower has notified the Agent that it intends to rebuild or replace the
property, the Decision Reserve or amounts held as cash collateral may, or shall,
upon the Required Lenders' direction, be applied as a Designated Prepayment of
the Obligations pursuant to Section 2.5(B). In the event the Decision Reserve is
to be applied as a mandatory prepayment to the Obligations, the Borrower shall
be deemed to have requested Revolving Loans in an amount equal to the Decision
Reserve, and such Loans shall be made regardless of any failure of the Borrower
to meet the conditions precedent set forth in Article IV. Upon completion of the
restoration, rebuilding or replacement of such property, the unused proceeds
shall constitute Net Cash Proceeds of an Asset Sale and shall be applied as a
Designated Prepayment of the Term Loans pursuant to Section 2.5(B).
(H) ERISA Compliance. The Borrower shall, and shall cause each of the
Borrower's Restricted Subsidiaries to, and, to the extent the Borrower has joint
and several liability therefor, shall cause Holdings to establish, maintain and
operate all Plans to comply in all respects with the provisions of ERISA, the
Code, all other applicable laws, and the regulations and interpretations
thereunder and the respective requirements of the governing documents for such
Plans, except where such noncompliance, individually or in the aggregate, could
not reasonably be expected to subject the Borrower to liability in excess of
$2,500,000.
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(I) Maintenance of Property. The Borrower shall cause all property used or
useful in the conduct of its business or the business of any Restricted
Subsidiary to be maintained and kept in good condition, repair and working order
(ordinary wear and tear excepted) and supplied with all necessary equipment and
shall cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Borrower may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this Section 6.2(I) shall prevent the Borrower from discontinuing the
operation or maintenance of any of such property if such discontinuance is, in
the judgment of the Borrower, desirable in the conduct of its business or the
business of any Restricted Subsidiary and not disadvantageous in any material
respect to the Agent or the Lenders.
(J) Environmental Compliance. The Borrower and its Subsidiaries shall
comply with all Environmental, Health or Safety Requirements of Law, except
where noncompliance will not have or is not reasonably likely to subject the
Borrower or any Restricted Subsidiary to liability, individually or in the
aggregate, in excess of $2,500,000.
(K) Use of Proceeds. The Borrower shall use the proceeds of the Revolving
Loans (i) to effect the Stock Acquisition and the payment of Transaction Costs,
(ii) to provide funds for the repayment of the Refinanced Indebtedness, (iii) to
provide funds for the working capital needs and other general corporate purposes
of the Borrower, (iv) subject to the limitations contained in this Agreement, to
provide funds for the working capital needs and other general corporate purposes
of its Restricted Subsidiaries and (v) to repay outstanding Loans. The Borrower
shall use the proceeds of the Term Loans solely for the purpose of facilitating
the Stock Acquisition and paying Transaction Costs. The Borrower will not, nor
will it permit any Subsidiary to, use any of the proceeds of the Loans to
purchase or carry any "Margin Stock" or to make any Acquisition, other than the
Stock Acquisition and any Permitted Acquisition pursuant to Section 6.3(G).
(L) Hedging Agreements. Within one-hundred and twenty (120) days after the
Closing Date, the Borrower shall enter into, and shall thereafter maintain,
Hedging Agreements on terms and with counterparties determined by the Borrower
and reasonably acceptable to the Agent by which the Borrower is protected
against increases in interest rates from and after the date of such contracts as
to notional amount not less than forty percent (40%) of the aggregate
outstanding amount of the Term Loans (the notional amount which is the subject
of the First Chicago Hedging Agreement being counted toward such amount so long
as such agreement remains in place) for the first two years during the term of
this Agreement. In addition to the Obligations of the Borrower under the
Existing First Chicago Hedging Agreement, in the event a Lender elects to enter
into any Hedging Agreement with the Borrower required under this Section 6.2(L)
or permitted under the terms of Section 6.3(R), the obligations of the Borrower
with respect to such Hedging Agreement shall be Secured Obligations secured by
the Collateral.
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(M) Separate Corporate Existence. The Borrower shall take all reasonable
steps (including, without limitation, all steps which the Agent may from time to
time reasonably request) to maintain its and its Restricted Subsidiaries'
identity as separate legal entities and to make it apparent to third parties
that Borrower and such Restricted Subsidiaries are each an entity with assets
and liabilities distinct from those of Holdings and any of Holdings' Affiliates
(other than the Borrower and its Subsidiaries) (each of Holdings and such of
Holdings' Affiliates are referred to in this Section 6.2(M), as the "Parent").
Without limiting the generality of the foregoing, the Borrower shall:
(i) require that all full-time employees of the Borrower and each of
its Restricted Subsidiaries identify themselves as such and not as
employees of its Parent;
(ii) compensate all employees, consultants, investment bankers,
accountants, lawyers and agents directly, from the Borrower's or such
Restricted Subsidiary's applicable bank accounts, for services provided to
the Borrower or such Restricted Subsidiary by such employees, consultants,
investment bankers and agents and, if any employee, consultant, investment
banker or agent of the Borrower or any of its Restricted Subsidiaries is
also an employee, consultant, investment banker or agent of Parent,
allocate the compensation of such employee, consultant, investment banker
or agent between the Borrower or the Restricted Subsidiary, as applicable,
and the Parent on the basis of actual use of the services so rendered to
the extent practicable and, to the extent such allocation is not practical,
on a basis reasonably related to actual use of such services;
(iii) allocate all overhead expenses (including, without limitation,
telephone and other utility charges and lease and office expenses) for
items shared between the Borrower or any Restricted Subsidiary of the
Borrower and Parent on the basis of actual use to the extent practicable
and, to the extent such allocation is not practicable, on a basis
reasonably related to actual use;
(iv) cause the Borrower and each Restricted Subsidiary of the Borrower
to be named as an insured on the insurance policy covering its property, or
enter into an agreement with the holder of such policy whereby in the event
of a loss in connection with such property, proceeds are paid to the
Borrower or applicable Restricted Subsidiary;
(v) maintain the Borrower's and its Restricted Subsidiaries' books and
records complete and separate from those of the Parent;
(vi) ensure that any of the Borrower's or Parent's consolidated
financial statements or other public information for the Borrower and its
Affiliates on a consolidated basis contain appropriate disclosures
concerning the Borrower's separate existence;
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(vii) not maintain bank accounts or other depository accounts to which
the Parent is an account party, into which the Parent makes deposits or
from which the Parent has the power to make withdrawals;
(viii) not permit the Parent to pay any of the Borrower's operating
expenses (except when paid and charged pursuant to an allocation based upon
actual use, to the extent practicable and, to the extent such allocation is
not practicable, on a basis reasonably related to actual use); and
(ix) not pay dividends or make distributions, loans or other advances
to Parent except to the extent duly authorized by its board of directors
and in accordance with applicable corporate law.
(N) Future Liens on Real Property. Subject to such exceptions as are set
forth in the Security Agreement with respect to leases, the Borrower shall, and
shall cause each of its Restricted Subsidiaries to, execute and deliver to the
Agent for the benefit of the Holders of Secured Obligations, contemporaneously
with its acquisition or leasing of any real property after the Closing Date, a
mortgage, deed of trust, collateral assignment or other appropriate instrument
evidencing a Lien upon any such acquired property, lease or interest, to be in
form and substance reasonably acceptable to the Agent and subject only to such
Liens as otherwise shall be permitted by this Agreement.
(O) Appraisals; Title Policy Endorsements. (i) If requested by the Agent at
any time during the Syndication Period, the Borrower shall cooperate with the
Agent in promptly obtaining (and shall reimburse the Agent for all costs and
expenses in connection therewith) written appraisals of all of the Borrower's
property, plant, equipment and fixed assets, which appraisals shall contain such
information and be in such detail as is satisfactory to the Agent and which
appraisals shall meet the guidelines established by the regulatory institutions
having jurisdiction over banks and other financial institutions and shall be
from an appraiser or appraisers satisfactory to the Agent and who meet the
competency and independence guidelines established by such regulatory
institutions.
(ii) Within thirty (30) days of the Closing Date the Borrower shall
deliver, or cause to be delivered, to the Agent an endorsement to the title
policy in respect of the Mortgage removing any survey exception contained
in such title policy.
6.3 Negative Covenants.
(A) Indebtedness. Neither the Borrower nor any of its Restricted
Subsidiaries shall directly or indirectly create, incur, assume or otherwise
become or remain directly or indirectly liable with respect to any Indebtedness
or Off Balance Sheet Liabilities, except:
(i) the Obligations;
(ii) the Transaction Costs;
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(iii) the Indebtedness evidenced by the Senior Subordinated Notes;
(iv) Permitted Existing Indebtedness and Permitted Refinancing
Indebtedness;
(v) other Subordinated Indebtedness the terms (including, without
limitation, with respect to amount, maturity, amortization, interest rate,
premiums, fees, covenants, subordination terms, events of default and
remedies) of which are acceptable to the Required Lenders when issued and
Permitted Refinancing Indebtedness in respect thereof; provided, however,
the aggregate outstanding principal amount of such Subordinated
Indebtedness together with the aggregate outstanding principal amount of
Indebtedness permitted under clauses (xv) and (xvi) below shall not at any
time exceed the then applicable Aggregate Indebtedness Basket;
(vi) Indebtedness in respect of taxes, assessments, governmental
charges and claims for labor, materials or supplies, to the extent that
payment thereof is not required pursuant to Section 6.2(D);
(vii) Indebtedness constituting Contingent Obligations permitted by
Section 6.3(E);
(viii) Indebtedness arising from intercompany loans (a) from any
Non-Restricted Subsidiary to the Borrower or to any Restricted Subsidiary,
(b) from any Restricted Subsidiary to another Restricted Subsidiary, and
(c) from the Borrower to any Restricted Subsidiary provided the aggregate
amount of such Indebtedness under this clause (c) would constitute an
Investment permitted under the terms of Section 6.3(D);
(ix) Indebtedness in respect of Hedging Agreements permitted under
Section 6.3(R);
(x) secured or unsecured purchase money Indebtedness (including
Capitalized Leases) or Indebtedness or Off Balance Sheet Liabilities in
connection with sale and leaseback transactions, synthetic lease
transactions, capital expenditures or similar financing transactions
incurred by the Borrower or any of its Restricted Subsidiaries after the
Closing Date to finance the acquisition of fixed assets, if (1) at the time
of such incurrence, no Default or Unmatured Default has occurred and is
continuing or would result from such incurrence, (2) such Indebtedness has
a scheduled maturity and is not due on demand, (3) all such Indebtedness of
the Borrower and its Restricted Subsidiaries does not exceed $7,500,000 in
the aggregate outstanding at any time, and (4) any Lien securing such
Indebtedness is permitted under Section 6.3(C) (such Indebtedness being
referred to herein as "Permitted Purchase Money Indebtedness");
(xi) Indebtedness with respect to performance, surety, statutory,
appeal or similar bonds obtained by the Borrower or any of its Restricted
Subsidiaries in the ordinary course of business;
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(xii) Indebtedness incurred for ordinary administrative expenses,
franchise taxes, accounting expenses, legal expenses, employee expenses,
lease and office expenses, consultant expenses, investment banker expenses
incurred by Holdings on behalf of the Borrower or any Restricted Subsidiary
provided the allocation and payment of which complies with the terms of
Section 6.2(M) above and Section 6.3(F) below;
(xiii) unsecured Indebtedness with respect to management fees,
consulting fees or investment banking fees (or other fees of a similar
nature), to the extent that payment thereof would not be prohibited by
Section 6.3(F);
(xiv) Indebtedness in connection with the Deferred Limited Interest
Guaranty;
(xv) Indebtedness incurred by the Borrower or any Restricted
Subsidiary to the Seller in any Permitted Acquisition as part of the
consideration therefor, provided that the aggregate outstanding principal
amount of such Indebtedness (including any Contingent Obligations incurred
in connection therewith) together with the aggregate outstanding principal
amount of Indebtedness permitted under clause (v) above and clause (xvi)
below shall not at any time exceed the then applicable Aggregate
Indebtedness Basket;
(xvi) provided no Default has occurred and is continuing at the time
of the incurrence thereof, any other Indebtedness which when aggregated
with the outstanding principal amount of Indebtedness permitted under
clauses (v) and (xv) above does not exceed the then applicable Aggregate
Indebtedness Basket in the aggregate at any time;
(xvii) Indebtedness incurred by any Non-Restricted Subsidiary so long
as (a) such Indebtedness is nonrecourse to the Borrower and its Restricted
Subsidiaries and the Borrower and its Restricted Subsidiaries have no
direct or Contingent Obligations with respect to such Indebtedness and (b)
the direct or indirect Indebtedness or Contingent Obligation of the
Borrower and its Restricted Subsidiaries in respect thereof is permitted
pursuant to clause (xvi) above;
(xviii) Indebtedness 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; and
(xix) Indebtedness in connection with agreements providing for
indemnification and purchase price adjustments in connection with the sale
or disposition of any of the Borrower's or any Restricted Subsidiary's
business, properties or assets permitted under the terms of Section 6.3(B);
provided, however, neither the Borrower nor any of its Subsidiaries shall
create, incur, assume or otherwise become or remain directly or indirectly
liable with respect to such Indebtedness if all such Indebtedness plus the
unfunded portion of the Aggregate Revolving Loan Commitment, if funded, would
cause the Borrower to exceed the limitation on Indebtedness contained in Section
4.07 of the Indenture (as amended, waived or modified from time to time) or
which would render
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any portion of the Secured Obligations (assuming such Aggregate Revolving Loan
Commitment was fully funded) unqualified as "Senior Indebtedness" as defined in
the Indenture (as amended, waived or modified from time to time).
(B) Sales of Assets. Neither the Borrower nor any of its Restricted
Subsidiaries shall consummate any Asset Sale except:
(i) the sale, lease, conveyance, disposition or other transfer of any
Inventory in the ordinary course of business;
(ii) the sale or other disposition of property in respect of ordinary
course cash management related transactions in the ordinary course of
business with respect to cash and Cash Equivalents;
(iii) sale, lease, conveyance, disposition or other transfer of
Equipment, Receivables or other assets in the ordinary course of the
Borrower's business consistent with past practice (with reference to the
Target's past practices for periods prior to the Closing Date);
(iv) the surrender or waiver of contract rights or the settlement,
release or surrender of contract, tort, or other similar claims of any
kind;
(v) the grant in the ordinary course of business of any non-exclusive
license of patents, trademarks, registration therefor and other similar
intellectual property;
(vi) subject to the limitations set forth in Section 6.3(D), transfer
of assets by the Borrower or any of its Subsidiaries to any of the Borrower
or a Restricted Subsidiary;
(vii) any Equity Offering by any Restricted Subsidiary, provided, that
(a) the proceeds therefrom are used to repay the Obligations or any
Indebtedness of such Restricted Subsidiary and (b) after consummation of
such Equity Offering, the Borrower shall be the beneficial owner of at
least eighty percent (80%) of the shares of the issued and outstanding
Voting Stock (measured by voting power rather than number of shares) of the
applicable Restricted Subsidiary;
(viii) the sale or disposition of obsolete equipment or other obsolete
assets;
(ix) the exchange of assets for other non-cash assets that (A) are
useful in the business of the Borrower 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 of the
Borrower in good faith);
(x) the disposition of obsolete Equipment in the ordinary course of
business;
(xi) transfers of assets (a) from any Non-Restricted Subsidiary to the
Borrower or any Restricted Subsidiary, (b) from any Restricted Subsidiary
to another Restricted
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Subsidiary and (c) from the Borrower to any Restricted Subsidiary provided
the aggregate amount of assets transferred under this clause (c) would
constitute an Investment permitted under the terms of Section 6.3(D);
(xii) transfers of assets constituting Investments permitted by
Section 6.3(D) and Restricted Payments permitted by Section 6.3(F);
(xiii) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of a Restricted Subsidiary in connection
with a transaction permitted under Section 6.3(I);
(xiv) the sale of the corporate aircraft owned by the Company on the
Closing Date to Robert M. Wolff or his designees;
(xv) the sale, transfer and/or termination of the officers' life
insurance policies in effect as of the Closing Date;
(xvi) Sale and Leaseback Transactions or other transactions permitted
pursuant to Section 6.3(J); and
(xvii) sales, assignments, transfers, leases, conveyances or other
dispositions of other assets, provided that any such transaction (a) is for
all cash consideration, (b) is for not less than fair market value (as
determined by the board of directors of the Borrower in good faith, whose
determination shall be conclusive evidence thereof and shall be evidenced
by a resolution of such board of directors set forth in an Authorized
Officer's certificate delivered to the Agent or such other evidence as
shall be reasonably acceptable to the Agent), (c) if applicable, the
provisions of Section 2.5(B)(i) are complied with and (d) when combined
with all such other transactions pursuant to this clause (xvii) (each such
transaction being valued at book value) (1) during the immediately
preceding twelve-month period, represents the disposition of not greater
than ten percent (10.0%) of the Borrower's and its Restricted Subsidiaries'
consolidated fixed assets at the end of the fiscal year immediately
preceding that in which such transaction is proposed to be entered into,
and (2) during the period from the Closing Date to the date of such
proposed transaction, represents the disposition of not greater than twenty
percent (20.0%) of the Borrower's and its Restricted Subsidiaries'
consolidated fixed assets at the end of the fiscal year immediately
preceding that in which such transaction is proposed to be entered into.
Not fewer than five (5) Business Days prior to the consummation of any
transaction permitted by clause (xvi) above, the Borrower shall deliver to the
Agent a certificate of an Authorized Officer certifying compliance with the
requirements of clause (xvi) and showing in reasonable detail the calculations
on which such certification is based.
(C) Liens. Neither the Borrower nor any of its Restricted Subsidiaries
shall directly or indirectly create, incur, assume or permit to exist any Lien
on or with respect to any of their respective property or assets except:
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(i) Liens created by the Loan Documents or otherwise securing the
Secured Obligations;
(ii) Permitted Existing Liens and Liens securing Permitted Refinancing
Indebtedness (provided such Liens are subordinated to the Liens created by
the Loan Documents or otherwise securing the Secured Obligations);
(iii) Customary Permitted Liens;
(iv) purchase money Liens (including the interest of a lessor under a
Capitalized Lease and Liens to which any property is subject at the time of
the Borrower's or any Restricted Subsidiary's acquisition thereof) securing
Permitted Purchase Money Indebtedness; provided that such Liens shall not
apply to any property of the Borrower or its Restricted Subsidiaries other
than that purchased or subject to such Capitalized Lease;
(v) Liens securing Indebtedness permitted under Section 6.3(A)(viii)
provided such Liens are subordinated to the Liens created by the Loan
Documents or otherwise securing the Secured Obligations;
(vi) Environmental Liens and Liens in favor of the IRS or the PBGC
provided the Indebtedness so secured does not at any time exceed $2,500,000
in the aggregate;
(vii) Liens with respect to the property or assets of any Restricted
Subsidiary in favor of the Borrower or any other Restricted Subsidiary; and
(viii) other Liens securing Indebtedness of the Borrower or its
Restricted Subsidiaries provided the Indebtedness so secured does not at
any time exceed $2,000,000 in the aggregate.
In addition, neither the Borrower nor any or its Restricted Subsidiaries shall
become a party to any agreement, note, indenture or other instrument, or take
any other action, which would prohibit the creation of a Lien on any of its
properties or other assets in favor of the Agent for the benefit of itself and
the Holders of Secured Obligations, as additional Collateral for the
Obligations; provided that any agreement, note, indenture or other instrument in
connection with Permitted Purchase Money Indebtedness (including Leases) may
prohibit the creation of a Lien in favor of the Agent for the benefit of itself
and the Holders of the Secured Obligations on the items of property obtained
with the proceeds of such Permitted Purchase Money Indebtedness. Without in any
way limiting the foregoing, other than Liens pursuant to the Pledge Agreement,
no Liens on any Equity Interests of the Restricted Subsidiaries shall be
permitted.
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(D) Investments. Neither the Borrower nor any of its Restricted
Subsidiaries shall directly or indirectly make or own any Investment except:
(i) Investments in Cash Equivalents;
(ii) Permitted Existing Investments in an amount not greater than the
amount thereof on the Closing Date;
(iii) Investments constituting securities or instruments received in
connection with the bankruptcy restructuring or reorganization of suppliers
and customers and in settlement of delinquent trade or other claims of, and
other disputes with, customers and suppliers arising in the ordinary course
of business;
(iv) Investments consisting of deposit accounts maintained by the
Borrower or any Restricted Subsidiary in connection with its cash
management system, provided funds deposited in such deposit accounts (a)
are subject to a Collection Account Agreement or (b) do not exceed $150,000
individually or $250,000 in the aggregate for all such other deposit
accounts;
(v) Investments of the Borrower in the Target pursuant to the
consummation of the Stock Acquisition in an amount not in excess of the
amounts required to be paid pursuant to the Stock Purchase Agreement as in
effect as of the date hereof;
(vi) Investments by any Non-Restricted Subsidiary in the Borrower or
any Restricted Subsidiary;
(vii) Investments by any Restricted Subsidiary in any other Restricted
Subsidiary;
(viii) Investments by any Restricted Subsidiary in the Borrower;
(ix) Investments by the Borrower in any Restricted Subsidiary; and
(x) Investments by the Borrower or any Restricted Subsidiary in other
Persons which do not in the aggregate exceed the applicable Aggregate
Acquisition and Investment Basket at any time.
(E) Contingent Obligations. Neither the Borrower nor any of its Restricted
Subsidiaries shall directly or indirectly create or become or be liable with
respect to any Contingent Obligation, except:
(i) recourse obligations resulting from endorsement of negotiable
instruments for collection in the ordinary course of business;
(ii) Permitted Existing Contingent Obligations and any extensions,
renewals or replacements thereof, provided that any such extension, renewal
or replacement is not greater than the Indebtedness under, and shall be on
terms no less favorable to the
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Borrower or such Restricted Subsidiary than the terms of, the Permitted
Existing Contingent Obligation being extended, renewed or replaced;
(iii) obligations, warranties, and indemnities, not relating to
Indebtedness of any Person, which have been or are undertaken or made in
the ordinary course of business and not for the benefit of or in favor of
an Affiliate of the Borrower or such Restricted Subsidiary;
(iv) Contingent Obligations arising under the Transaction Documents;
(v) Contingent Obligations with respect to surety and performance
bonds obtained by borrower or any subsidiary in the ordinary course of
business;
(vi) Contingent Obligations with respect to the Deferred Limited
Interest Guaranty;
(vii) Contingent Obligations pursuant to the Incentive Compensation
Plan;
(viii) Contingent Obligations of the Restricted Subsidiaries pursuant
to the Guaranties; and
(ix) additional Contingent Obligations, including, without limitation,
Contingent Obligations in respect of Indebtedness permitted pursuant to
Section 6.3(A), which do not exceed an amount in the aggregate at any time
equal to $2,500,000; provided, that if the Borrower shall have a Leverage
Ratio of less than 4.25 to 1.0 for two consecutive fiscal quarters (as
reflected in the financial statements (and corresponding compliance
certificate) delivered pursuant to Section 6.1(A)(ii) or 6.1(A)(iii), such
amount shall be increased effective as of the date of delivery of such
financial statements to $5,000,000.
(F) Restricted Payments. Neither the Borrower nor any of its Restricted
Subsidiaries shall declare or make any Restricted Payment, except:
(i) the Borrower may make (a) payments to Holdings sufficient to fund
Holdings' payments under the Jordan Management Agreement as in effect as of
the Closing Date for (1) consulting, financial, management and investment
banking fees plus (2) out of pocket expenses and indemnities, provided that
the obligations in respect of such fees under the Jordan Management
Agreement shall be subordinated expressly to the Secured Obligations and
(b) distributions to Holdings sufficient to fund Holdings' payment of
directors' fees and indemnities (whether or not Holdings applies the funds
to the payment of such directors' fees) provided that such Restricted
Payments shall not exceed $150,000 plus out of pocket expenses in any
fiscal year of the Borrower;
(ii) so long as Holdings files consolidated income tax returns that
include the Borrower, on the Business Day immediately preceding the date on
which Holdings shall be required to make any tax related payment to any
Governmental Authority, the Borrower may make distributions to Holdings to
fund Holdings' payment of tax
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obligations, from funds legally available for such purpose, in an amount
not to exceed the amount calculated pursuant to the Tax Sharing Agreement
attached hereto as Exhibit P; provided, Holdings shall in turn utilize such
amount thereof as is necessary to pay its consolidated tax obligations;
provided, further, that after the occurrence and during the continuance of
any Default or Unmatured Default, the amount permitted to be paid to
Holdings shall not exceed the lesser of (1) the amount calculated pursuant
to the Tax Sharing Agreement, (2) the "Consolidated Tax" (as defined in the
Tax Sharing Agreement as in effect on the Closing Date) and (3) the
"Calculated Tax" of the "Acquisition Group" (each as defined in the Tax
Sharing Agreement as in effect on the Closing Date); and provided, further,
any amount otherwise permitted to be paid under this clause (ii) shall be
reduced by the amount of any tax related payments made directly by the
Borrower or any Subsidiary to any Governmental Authority.
(iii) the Borrower may make distributions to Holdings to fund (a)
payments required to be made by and actually made by Holdings in respect of
interest due on an unaccelerated basis on the Holdings Subordinated Debt,
unless such payments are prohibited by the subordination terms applicable
to such Indebtedness; provided, however, the Borrower may make such
distributions with respect to the Holdings Subordinated Debt only on March
1 and September 1 of each year (or the Business Day immediately prior
thereto if such date is not a Business Day); (b) (1) payments made by
Holdings to repurchase its common stock made pursuant to Section 7.2, 7.3
or 7.4 of the Stockholders Agreement as in effect on the Closing Date and
(2) payments required to be made by and actually made by Holdings in
respect of amounts due on an unaccelerated basis on the Repurchase
Indebtedness unless such payments are prohibited by the subordination terms
applicable to such Repurchase Indebtedness in an aggregate amount for all
such payments under clauses (1) and (2) not to exceed $4,000,000, such
distributions to be made not earlier than one Business Day prior to the
date on which Holdings is to make such payments; provided, that, Holdings
shall first satisfy any such payment obligation by canceling Indebtedness
under the Management Note, if any, of the Person to whom Holdings is
obligated to make such payment; and (c) mandatory payments of dividends due
on the Preferred Stock to the extent Indebtedness for such payments is
Permitted Holdings Indebtedness under clause (c) of the definition thereof,
such distributions to be made not earlier than one Business Day prior to
the date on which Holdings is required to make such payments;
(iv) the Borrower may make payments to Robert M. Wolff or to Holdings
sufficient to make payment of amounts due under the Employment Agreements
without taking into account any amendment, modification, supplement or
restatement thereof or the adjustment of any such amount pursuant to the
terms thereof resulting from a change of facts and circumstances after the
date of this Agreement (other than increases in base salary approved
pursuant to Section 2 of the Employment Agreement) unless the Agent and the
Required Lenders shall have consented to the terms thereof if the effect of
such amendment, modification, supplement, restatement or adjustment is to
increase the amount or accelerate the time of payment of such amounts;
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(v) the Borrower may make mandatory payments of interest, principal or
premium, if any, when due on the Permitted Subordinated Indebtedness unless
such payments are prohibited by the terms of such Indebtedness or the
subordination agreements related thereto;
(vi) any Restricted Subsidiary may make distributions to the Borrower
or to a Restricted Subsidiary;
(vii) the Borrower or any Restricted Subsidiary may defease, redeem or
repurchase Permitted Subordinated Indebtedness with the net cash proceeds
from an issuance of Permitted Refinancing Indebtedness;
(viii) any Restricted Subsidiary may defease, redeem or repurchase
Permitted Subordinated Indebtedness with the net cash proceeds from the
substantially concurrent sale (other than to the Borrower or any subsidiary
of the Borrower) of Equity Interests of such Restricted Subsidiary (other
than Redeemable Stock);
(ix) payments in connection with the Stock Acquisition and related
financing transactions as described under the "The Transactions" and "Use
of Proceeds" provisions contained in the Offering Memorandum;
(x) payments to Holdings in respect of accounting, legal or other
professional or administrative expenses or reimbursements or franchise or
similar taxes and governmental charges (other than income taxes which shall
be governed by clause (ii) above) incurred by it relating to the business,
operations or finances of the Borrower and its Restricted Subsidiaries and
in respect of fees and related expenses associated with any registration
statements relating to the Senior Subordinated Notes filed with the United
States Securities and Exchange Commission and subsequent ongoing public
reporting requirements with respect to the Notes; and
(xi) mandatory payments, if any, relating to any purchase price
adjustment pursuant to the terms of the Stock Purchase Agreement;
provided, however, that:
(a) the Restricted Payments by the Borrower described in clause
(iii)(a) above shall not be permitted if at the date of declaration or
payment thereof either the Borrower was not in compliance with the
financial covenants set forth in Section 6.4 as of the most recently
completed fiscal quarter or if a Default under Section 7.1(a) shall have
occurred and be continuing as of such date;
(b) the Restricted Payments described in clauses (i)(a)(1), (iii)(b),
(iii)(c) and (v) above shall not be permitted if either a Default or an
Unmatured Default shall have occurred and be continuing at the date of
declaration or payment thereof or would result therefrom;
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(c) if a Restricted Payment described in clause (i) above shall not be
permitted to be made in the period prescribed above, then it cannot be made
thereafter until after the Agent's and the Lenders' subsequent receipt of
the audited financial statements to be delivered pursuant to Section
6.1(A)(iii), which financial statements shall reflect that no Default or
Unmatured Default existed as of the date of such financial statements and
the Agent's and the Lender's receipt of quarterly financial statements
delivered pursuant to Section 6.1(A)(ii), which financial statements shall
reflect that, for two consecutive quarters subsequent to the period in
which the Borrower was not permitted to make the Restricted Payment
described in clause (i) above, no Default or Unmatured Default existed as
of the date of such financial statements; and
(d) if a Restricted Payment described in clause (iii)(a) above with
respect to the Holdings Subordinated Notes shall not be permitted to be
made as of one of the dates prescribed above, but the Borrower is
subsequently in compliance with the financial covenants in Section 6.4 (and
would be in compliance assuming payment of scheduled interest payments on
the Holdings Subordinated Debt) and is not in Default under Section 7.1(a),
then Borrower may distribute to Holdings and Holdings may pay the interest
payments that were not paid when due or a portion of such interest payments
to the extent that after such payment Borrower would not be in Default
under Section 7.1(a) or Section 7.1(b) with respect to Section 6.4.
(G) Conduct of Business; Subsidiaries; Acquisitions.
(i) Neither the Borrower nor any of its Restricted Subsidiaries shall
engage in any business other than the businesses engaged in by the Borrower
on the date hereof and any business or activities which are substantially
similar, related or incidental thereto.
(ii) The Borrower may create, acquire and/or capitalize any Subsidiary
organized under the laws of any state of the United States (a "New
Subsidiary") after the date hereof pursuant to any transaction that is
permitted by or not otherwise prohibited by this Agreement, provided that:
(1) each New Subsidiary (other than any Non-Restricted
Subsidiary) shall execute a Guaranty of the Obligations,
(2) each New Subsidiary (other than any Non-Restricted
Subsidiary) shall grant to the Agent, for the benefit of Holders of
Secured Obligations, Liens on all of its assets, pursuant to
documentation (including, without limitation, a Restricted Subsidiary
Security Agreement, the various agreements referenced in the
Restricted Subsidiary Security Agreement, UCC financing statements
and, to the extent applicable Mortgages and Intellectual Property
Agreements) in each case in form and substance satisfactory to the
Agent,
(3) all of the Equity Interests in each New Subsidiary owned by
the Borrower or any other Restricted Subsidiary shall be pledged to
the Agent, for the
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benefit of Holders of Secured Obligations, pursuant to the Pledge
Agreement and other documentation in form and substance satisfactory
to the Agent,
(4) each New Subsidiary (other than a Non-Restricted Subsidiary)
shall become a party to a contribution agreement among all of the
Restricted Subsidiaries, pursuant to which each party thereto shall be
entitled to contribution and indemnification from, and to be
reimbursed by, each of the other parties thereto for certain amounts,
such contribution agreement to be in form and substance satisfactory
to the Agent,
(5) the Agent and the Lenders shall have been provided with
opinions of counsel to the Borrower and the New Subsidiary in
connection with the Acquisition and the documentation to be executed
and delivered by the New Subsidiary in scope, form and substance
reasonably acceptable to the Agent and the Required Lenders,
(6) each New Subsidiary shall become a party to the Tax Sharing
Agreement,
(7) each New Subsidiary (other than a Non-Restricted Subsidiary)
shall become a party to the Deferred Limited Interest Guaranty,
(8) upon the creation of any such New Subsidiary, the Borrower
shall deliver to the Lenders a revised Schedule 5.8 listing such new
Subsidiary, and such revised Schedule shall replace the old Schedule
and shall be deemed to have become part of the Agreement, and
(9) on and after the date the Borrower or any Restricted
Subsidiary shall create, acquire and/or capitalize any New Subsidiary
(other than a Non-Restricted Subsidiary), the Borrower or any
Restricted Subsidiary shall own of record and beneficially, with sole
voting and dispositive power, at least 80% of the outstanding shares
of Voting Stock of each such New Subsidiary, and shall have the power,
directly or indirectly, to elect a majority of the board of directors
of each such New Subsidiary.
(iii) Neither the Borrower nor any Restricted Subsidiary shall make
any Acquisitions, other than Acquisitions meeting the following
requirements (each such Acquisition constituting a "Permitted
Acquisition"):
(1) no Default or Unmatured Default shall have occurred and be
continuing or would result from such Acquisition or the incurrence of
any Indebtedness in connection therewith;
(2) in the case of an Acquisition of Equity Interests of an
entity, such Acquisition shall be of at least eighty percent (80%) of
the shares of the issued and outstanding Voting Stock (measured by
voting power rather than number of shares) of such entity;
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(3) the businesses being acquired shall be substantially similar,
related or incidental to the businesses or activities engaged in by
the Borrower on the Closing Date;
(4) the aggregate gross purchase price paid (including cash,
non-cash consideration and assumption of Indebtedness) in connection
with all of such Permitted Acquisitions shall not exceed the Aggregate
Acquisitions and Investment Basket;
(5) prior to each such Acquisition, the Borrower shall deliver to
the Agent and the Lenders a certificate from one of the Authorized
Officers, demonstrating to the reasonable satisfaction of the Agent
and the Required Lenders that after giving effect to such Acquisition
and the incurrence of any Indebtedness permitted by Section 6.3(A) in
connection therewith, on a pro forma basis using unadjusted historical
audited and reviewed unaudited financial statements obtained from the
seller, broken down by fiscal quarter in the Borrower's reasonable
judgment, as if the Acquisition and such incurrence of Indebtedness
had occurred on the first day of the twelve-month period ending on the
last day of the Borrower's most recently completed fiscal quarter, the
Borrower would have been in compliance with all of the financial
covenants contained in Section 6.4 for such four fiscal quarters and
the Borrower shall deliver to the Agent consolidating pro forma
projections for the four quarter period including the quarter in which
such Acquisition is to be consummated for the subsequent 3 fiscal
quarters which projections shall indicate that the Borrower shall be
able to meet all of its financial covenants during such period;
(6) the Acquisition is consummated pursuant to a negotiated
acquisition agreement and consummated on a non-hostile basis and is
one for which the board of directors or other governing body of such
Person being acquired has approved the terms of such Acquisition (if
such Acquisition is a tender offer for the securities of a Person that
is required to file periodic reports under the Exchange Act, or if by
the terms of such Acquisition such board or other governing body
approval is required) or for which (in any other case) the board of
directors or other governing body of the Person owning the stock or
assets being acquired (as the case may be) has approved the terms of
such Acquisition;
(7) in the case of the Acquisition by the Borrower or any
Restricted Subsidiary of assets in connection with any Permitted
Acquisition, the Borrower or Restricted Subsidiary shall have provided
to the Agent, prior to the consummation of such Acquisition, updated
schedules to the Security Agreement or Restricted Subsidiary Security
Agreement, as applicable, and all UCC financing statements and other
documentation required pursuant to such Security Agreement or
Restricted Subsidiary Security Agreement in connection with the
perfection and priority of the Agent's Liens;
(8) prior to each such Acquisition, the Borrower shall provide
the Agent and the Lenders with (a) financial information with respect
to the target of such Acquisition (including historical financial
statements, to the extent available) and (b) a description of the
target of such Acquisition; and
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(9) effective as of the date of each such Acquisition (taking
into account the effect of such purchase and any Indebtedness incurred
in connection therewith), the Borrower shall deliver to the Agent a
Borrowing Base Certificate, which Borrowing Base Certificate shall
demonstrate that Revolving Credit Availability shall not be less than
$5,000,000.
(H) Transactions with Shareholders and Affiliates. Except for the
transactions contemplated by the agreements, including performance by the
applicable parties of the Obligations thereunder, set forth on Schedule 6.3(H)
as such agreements are in effect as of the date hereof or any amendment
permitted by the terms of this Agreement(provided any payments thereunder shall
be governed by the terms of Section 6.3(F)) and except as otherwise permitted
herein, neither the Borrower nor any of its Restricted Subsidiaries shall
directly or indirectly (i) pay any management fees, consulting fees, investment
banking fees or other similar fees or compensation to any of the Jordan
Stockholders, Management, MCIT or any other holder or holders of the Borrower's
or Holdings' Equity Securities, other than wages, salaries and bonuses of
employees who are also stockholders of the Borrower in the ordinary course and
consistent with past practices or (ii) enter into or permit to exist any
transaction (including, without limitation, the purchase, sale, lease or
exchange of any property or the rendering of any service) with any Jordan
Stockholder, Management, MCIT or holder or holders of any of its equity
securities of the Borrower or Holdings, or with any Affiliate of the Borrower
(other than Holdings, the Borrower and its Subsidiaries) which is not its
Restricted Subsidiary, on terms that are less favorable to the Borrower or any
of its Restricted Subsidiaries, as applicable, than those that might be obtained
in an arm's length transaction at the time from Persons who are not such a
holder, Affiliate or MCIT (each such transaction or series of related
transactions that are part of a common plan, an "Affiliate Transaction"), except
to the extent that such Affiliate Transactions involve aggregate payments or
other transfers in an aggregate amount not to exceed $2,500,000 for all such
transactions from and after the date hereof. Without in any way limiting the
foregoing, without the prior written consent of the Required Lenders, the
Borrower shall not agree to any modification of, nor shall it permit, any
modification to be made to the Affiliate Notes, nor shall it forgive any amounts
payable thereunder, delay the date for payment of any amounts payable
thereunder, reduce the interest payable thereunder or accept any non-cash
consideration in payment of amounts payable thereunder.
(I) Restriction on Fundamental Changes. Except for transactions permitted
under Sections 6.3(B), 6.3(D) and 6.3(G), neither the Borrower nor any of its
Restricted Subsidiaries shall enter into any merger or consolidation, or
liquidate, wind-up or dissolve (or suffer any liquidation or dissolution), or
convey, lease, sell, transfer or otherwise dispose of, in one transaction or
series of transactions, all or substantially all of the Borrower's or any such
Restricted Subsidiary's business or property, whether now or hereafter acquired,
except that (i) the Borrower and the Target may consummate the Merger, (ii) a
Restricted Subsidiary of the Borrower may be merged into or consolidated with
the Borrower (in which case the Borrower shall be the surviving corporation) or
another Restricted Subsidiary of the Borrower.
(J) Sales and Leasebacks; Off Balance Sheet Liabilities. The Borrower will
not, nor will it permit any Restricted Subsidiary to, enter into or suffer to
exist any (i) Sale and Leaseback Transaction or (ii) any other transaction
pursuant to which it incurs or has incurred Off Balance
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Sheet Liabilities (other than Rate Hedging Obligations permitted to be incurred
under the terms of Section 6.3(R) below) unless the aggregate amount, without
duplication, of Indebtedness and Off Balance Sheet Liabilities incurred in
connection therewith shall be permitted pursuant to Section 6.3(A)(x).
(K) Margin Regulations. Neither the Borrower nor any of its Subsidiaries,
shall use all or any portion of the proceeds of any credit extended under this
Agreement to purchase or carry Margin Stock.
(L) ERISA. The Borrower shall not (i) engage, or permit any of its
Subsidiaries to engage, in any prohibited transaction described in Sections 406
of ERISA or 4975 of the Code for which a statutory or class exemption is not
available or a private exemption has not been previously obtained from the DOL
if such prohibited transaction, could result in liability, individually or in
the aggregate, together with all other amounts under this Section 6.3(L) in
excess of $2,500,000;
(ii) permit to exist any accumulated funding deficiency (as defined in
Sections 302 of ERISA and 412 of the Internal Revenue Code), with respect
to any Benefit Plan, that has not been waived and that could give rise to a
lien under Section 302(f) of ERISA;
(iii) fail, or permit any Controlled Group member to fail, to pay
timely required contributions or annual installments due with respect to
any waived funding deficiency to any Benefit Plan where such failure could
give rise to a lien under Section 302(f) of ERISA;
(iv) terminate, or permit any Controlled Group member to terminate in
a distress termination under Section 4041(c) of ERISA, any Benefit Plan
which would result in any liability of the Borrower or any Controlled Group
member under Title IV of ERISA;
(v) fail to make any contribution or payment to any Multiemployer Plan
which the Borrower or any Controlled Group member may be required to make
under any agreement relating to such Multiemployer Plan, or any law
pertaining thereto if such failure could result in liability, individually
or in the aggregate, together with all other amounts under this Section
6.3(L) in excess of $2,500,000;
(vi) fail, or permit any Controlled Group member to fail, to pay any
required installment or any other payment required under Section 412 of the
Internal Revenue Code on or before the due date for such installment or
other payment where such failure could give rise to a lien under Section
302(f) of ERISA; or
(vii) amend, or permit any Controlled Group member to amend, a Plan
resulting in an increase in current liability for the plan year such that
the Borrower or any Controlled group member is required to provide security
to such Plan under Section 401(a)(29) of the Code.
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(M) Issuance of Capital Stock. Neither the Borrower nor any of its
Restricted Subsidiaries shall issue any Voting Stock other than the issuance of
common stock of a Restricted Subsidiary the Net Cash Proceeds of which are
utilized in accordance with the requirements of Section 2.5 and provided that
the Borrower shall at all times own of record and beneficially, in the
aggregate, at least eighty percent (80%) of the shares of the issued and
outstanding Voting Stock (measured by voting power rather than number of shares)
of each Restricted Subsidiary.
(N) Corporate Documents. Other than in connection with the Merger, neither
the Borrower nor any of its Restricted Subsidiaries shall amend, modify or
otherwise change any of the terms or provisions in any of their respective
corporate documents (other than the by-laws and, in the case of by-laws, any of
the material terms or provisions thereof) as in effect on the date hereof in any
manner adverse to the interests of the Lenders in any material respect without
the prior written consent of the Required Lenders (which consent shall not be
unreasonably withheld).
(O) Other Indebtedness. The Borrower shall not amend, modify or supplement,
or permit any Restricted Subsidiary of the Borrower to amend, modify or
supplement (or consent to any amendment, modification or supplement of), any
document, agreement or instrument evidencing the Senior Subordinated Notes or
any Permitted Subordinated Indebtedness (or any replacements, substitutions or
renewals thereof) or pursuant to which the Senior Subordinated Notes or any
Permitted Subordinated Indebtedness is issued or make any payment required as a
result of such an amendment, modification or supplement, where such amendment,
modification or supplement provides for the following or which has any of the
following effects:
(i) increases the overall principal amount of any such Indebtedness or
increases the amount of any single scheduled installment of principal or
interest or how much of such a payment must be paid in cash instead of
accrued or paid in kind;
(ii) shortens or accelerates the date upon which any installment of
principal or interest becomes due or adds any additional mandatory
redemption provisions;
(iii) shortens the final maturity date of such Indebtedness or
otherwise accelerates the amortization schedule with respect to such
Indebtedness;
(iv) increases the rate of interest accruing on such Indebtedness;
(v) provides for the payment of additional fees or increases existing
fees;
(vi) amends or modifies any financial or negative covenant (or
covenant which prohibits or restricts the Borrower or a Restricted
Subsidiary of the Borrower from taking certain actions), or event of
default, in either case, in a manner which is more onerous or more
restrictive to the Borrower (or any Restricted Subsidiary of the Borrower)
or which is otherwise materially adverse to the Borrower and/or the Lenders
or, in the case of adding covenants, which places additional restrictions
on the Borrower or a Restricted Subsidiary of the Borrower or which
requires the Borrower or any such Restricted Subsidiary to comply with more
restrictive
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financial ratios or which requires the Borrower or any Restricted
Subsidiary of the Borrower to better its financial performance from that
set forth in the existing financial covenants;
(vii) amends, modifies or adds any affirmative covenant in a manner
which, when taken as a whole, is materially adverse to the Borrower and/or
the Lenders;
(viii) amends, modifies or supplements the subordination provisions
thereof; or
(ix) modifies the Persons obligated with respect to such Indebtedness.
Neither Holdings, the Borrower nor any of its Subsidiaries shall make any
payment or prepayment of principal, interest, fees or other charges on or with
respect to, or any redemption, purchase, repurchase, retirement, defeasance,
sinking fund or payment on any claim for damages or rescission with respect to
the Holdings Subordinated Debt, the Indebtedness evidenced by the Senior
Subordinated Notes or any other Permitted Subordinated Debt.
(P) Fiscal Year. Neither Holdings, the Borrower nor any of its consolidated
Subsidiaries shall change its fiscal year for accounting or tax purposes from a
period consisting of the 12- month period ending on June 30 of each calendar
year.
(Q) Subsidiary Covenants. Except as permitted by Section 6.3(G), the
Borrower will not, and will not permit any Restricted Subsidiary to, create or
otherwise become effective any consensual encumbrance or restriction of any kind
on the ability of any Restricted Subsidiary to pay dividends or make any other
distribution on its stock, or make any other Restricted Payment, pay any
Indebtedness or other Obligation owed to the Borrower or any other Restricted
Subsidiary, make loans or advances or other Investments in the Borrower or any
other Restricted Subsidiary, or sell, transfer or otherwise convey any of its
property to the Borrower or any other Restricted Subsidiary.
(R) Hedging Obligations. The Borrower shall not and shall not permit any of
its Restricted Subsidiaries to enter into any interest rate, commodity or
foreign currency exchange, swap, collar, cap or similar agreements other than
interest rate, foreign currency or commodity exchange, swap, collar, cap or
similar agreements entered into by the Borrower pursuant to Section 6.2(L)
hereof or pursuant to which the Borrower has hedged its actual interest rate,
foreign currency or commodity exposure (such hedging agreements are sometimes
referred to herein as "Hedging Agreements"). All references in this Agreement to
Hedging Agreements with the Lenders shall be deemed to include, without
limitation, that certain Confirmation of Interest Rate Swap dated as of November
16, 1993 between the Target and First Chicago, in the notional amount of
$7,000,000 (the "Existing First Chicago Hedging Agreement"), and all references
in such Existing First Chicago Hedging Agreement to the Credit Agreement dated
as of January 28, 1994 among the Target, the lenders parties thereto and First
Chicago as agent for such lenders shall instead be references to this Agreement.
(S) Change of Deposit Accounts. The Borrower shall not, and shall not
permit any Restricted Subsidiary to, establish or maintain any deposit account
with any bank or other financial institution other than those which have entered
into a Collection Account Agreement in
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form and substance acceptable to the Agent or in connection with which the
deposit account constitutes a permitted Investment under Section 6.3(D).
6.4 Financial Covenants. The Borrower shall comply with the following:
(A) Defined Terms for Financial Covenants. The following terms used in this
Agreement shall have the following meanings (such meanings to be applicable,
except to the extent otherwise indicated in a definition of a particular term,
both to the singular and the plural forms of the terms defined):
"Capital Expenditures" means, for any period, the aggregate of all
expenditures (whether paid in cash or accrued as liabilities and including
Capitalized Leases and Permitted Purchase Money Indebtedness) by the Borrower
and its Restricted Subsidiaries during that period that, in conformity with
Agreement Accounting Principles, are required to be included in or reflected by
the property, plant, equipment or similar fixed asset accounts reflected in the
consolidated balance sheet of the Borrower and its Restricted Subsidiaries,
other than Capital Expenditures in connection with Permitted Acquisitions.
"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 Agreement
Accounting Principles; 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 Account 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,
Transaction Costs, debt and financing costs, and Incentive Arrangements), (c)
any non-capitalized transaction costs incurred in connection with actual or
proposed Financings, Acquisitions or Asset Sale (including, but not limited to
financing and refinancing fees), (D) any extraordinary or nonrecurring charges
related to any premium or penalty paid, write-off or deferred financing costs or
other financial recapitalization charges in connection with redeeming or
retiring any Indebtedness prior to its stated maturity and (E) 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 the Borrower
or any Restricted Subsidiary as permitted by Agreement Accounting Principles or
Regulation S-X under the Securities Act of 1933.
"EBITDA" means, for any period, on a consolidated basis for the Borrower
and its consolidated Restricted Subsidiaries, and, for the limited purpose of
calculating the financial covenants set forth in this Section 6.4, on a
consolidated basis for the Target and its consolidated Subsidiaries for any
applicable period prior to the Closing Date, the sum, without duplication, of
the amounts (without duplication) for such period of (i) Consolidated Net
Income, plus (ii) charges against income for foreign, federal, state and local
taxes and, without duplication, Restricted Payments paid in respect of such
taxes pursuant to Section 6.3(F)(ii), plus (iii) Interest Expense to the extent
deducted in computing Consolidated Net Income, plus (iv) Fees to the
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extent deducted in computing Consolidated Net Income, plus (v) depreciation
expense and other non-cash charges, plus (vi) expenses for the applicable period
associated with the Target's corporate aircraft and the Target's shareholder
insurance policies, plus (vii) interest income to the extent not already
included in Consolidated Net Income, plus (viii) to the extent deducted in
computing Consolidated Net Income, all dividend payments on preferred stock,
whether or not paid in cash, plus (ix) to the extent deducted in computing
Consolidated Net Income, any extraordinary or nonrecurring charge or expense
arising out of the implementation of SFAS 106 or SFAS 109, plus (x) to the
extent deducted in computing Consolidated Net Income, accruals in respect of the
Incentive Compensation Plan, minus (xi) the portion of Consolidated Net Income
attributable to the minority investments in other Persons, except the amount of
such portion received in cash by the Company or its Restricted Subsidiaries,
plus or minus (xii) extraordinary losses from Asset Sales to the extent deducted
in computing Consolidated Net Income or extraordinary gains from Asset Sales
(and any unusual gains arising in or outside of the ordinary course of business
not included in extraordinary gains determined in accordance with Agreement
Accounting Principles which have been included in the determination of Net
Income).
"Fees" means fees (including, without limitation, agency and unused
commitment fees) and discounts with respect to (i) Letters of Credit and (ii)
Indebtedness evidenced by this Agreement.
"Interest Expense" means, for any period, (i) the total interest expense of
the Borrower and its consolidated Restricted Subsidiaries, whether paid or
accrued (including the interest component of Capitalized Leases), but excluding
interest expense not payable in cash (including amortization of discount), plus
(ii) any Restricted Payments made to Holdings in accordance with the provisions
of Section 6.3(F)(iii)(a), all as determined in conformity with Agreement
Accounting Principles.
"Net Income" means, for any period, the net earnings (or loss) after taxes
of the Borrower and its Restricted Subsidiaries on a consolidated basis for such
period taken as a single accounting period determined in conformity with
Agreement Accounting Principles 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).
(B) Interest Expense Coverage Ratio. The Borrower shall maintain a ratio
(the "Interest Expense Coverage Ratio") of (i) EBITDA to (ii) Interest Expense
for the applicable period of at least:
(1) 1.20 to 1.00 for each fiscal quarter for the period commencing
with the fiscal quarter ending on June 30, 1997 through the fiscal quarter
ending on December 31, 1997;
(2) 1.30 to 1.00 for the fiscal quarter ended on March 31, 1998;
(3) 1.35 to 1.00 for each fiscal quarter for the period commencing
with the fiscal quarter ending June 30, 1998 through the fiscal quarter
ending December 31, 1998;
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(4) 1.40 to 1.00 for the fiscal quarter ending on March 31, 1999;
(5) 1.45 to 1.00 for each fiscal quarter for the period commencing
with the fiscal quarter ending June 30, 1999 through the fiscal quarter
ending December 31, 1999;
(6) 1.50 to 1.00 for the fiscal quarter ending on March 31, 2000;
(7) 1.55 to 1.00 for each fiscal quarter for the period commencing
with the fiscal quarter ending June 30, 2000 through the fiscal quarter
ending September 30, 2000;
(8) 1.60 to 1.00 for the fiscal quarter ending on December 31, 2000;
(9) 1.65 to 1.00 for each fiscal quarter for the period commencing
with the fiscal quarter ending on March 31, 2001 through the fiscal quarter
ending June 30, 2001;
(10) 1.70 to 1.00 for each fiscal quarter for the period commencing
with the fiscal quarter ending on September 30, 2001 through the fiscal
quarter ending December 31, 2001; and
(11) 1.75 to 1.00 for each fiscal quarter thereafter until the
Termination Date.
In each case the Interest Coverage Ratio shall be determined as of the last day
of each fiscal quarter for the four-quarter period ending on such day (provided,
however, (a) for the fiscal quarter ending June 30, 1997, the Interest Coverage
Ratio shall be calculated using Interest Expense for the fiscal quarter ending
June 30, 1997 multiplied by four (4) and EBITDA of the Target (for the period
prior to the Closing Date) and the Borrower (for the period commencing on the
Closing Date and thereafter) for the four-quarter period ending on June 30,
1997, (b) for the fiscal quarter ending September 30, 1997, the Interest
Coverage Ratio shall be calculated using Interest Expense for the two fiscal
quarters ending September 30, 1997 multiplied by two (2) and EBITDA of the
Target (for the period prior to the Closing Date) and the Borrower (for the
period commencing on the Closing Date and thereafter) for the four-quarter
period ending on September 30, 1997, and (c) for the fiscal quarter ending
December 31, 1997, the Interest Coverage Ratio shall be calculated using
Interest Expense for the three fiscal quarters ending December 31, 1997
multiplied by four-thirds (4/3) and EBITDA of the Target (for the period prior
to the Closing Date) and the Borrower (for the period commencing on the Closing
Date and thereafter) for the four-quarter period ending on December 31, 1997;
provided, further, that the Interest Coverage Ratio shall be calculated with
respect to Permitted Acquisitions, on a pro forma basis using unadjusted
historical audited and reviewed unaudited financial statements obtained from the
seller, broken down by fiscal quarter in the Borrower's reasonable judgement).
(C) Fixed Charge Coverage Ratio. The Borrower shall maintain a ratio
("Fixed Charge Coverage Ratio") of: (i) EBITDA minus Capital Expenditures to
(ii) the sum of the amounts, without duplication of (a) Interest Expense, plus
(b) Fees, plus (c) Taxes, plus (d) Restricted Payments of the type referred to
in clauses (i), (ii), (iii) and (iv) of the definition of Restricted Payments,
plus (e) cash payments under the Incentive Compensation Plan, plus (f) scheduled
amortization of the principal portion of the Term Loans and scheduled
amortization of the
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principal portion of all other Indebtedness of the Borrower and its Restricted
Subsidiaries during such period of at least:
(1) 1.00 to 1.00 for each fiscal quarter for the period commencing
with the fiscal quarter ending on June 30, 1997 through the fiscal quarter
ending on March 31, 1998;
(2) 1.01 to 1.00 for each fiscal quarter for the period commencing
with the fiscal quarter ended on June 30, 1998 through the fiscal quarter
ending September 30, 1998;
(3) 1.02 to 1.00 for each fiscal quarter for the period commencing
with the fiscal quarter ending December 31, 1998 through the fiscal quarter
ending September 30, 1999;
(4) 1.03 to 1.00 for each fiscal quarter for the period commencing
with the fiscal quarter ending December 31, 1999 through the fiscal quarter
ending June 30, 2000;
(5) 1.04 to 1.00 for each fiscal quarter for the period commencing
with the fiscal quarter ended September 30, 2000 through the fiscal quarter
ending December 31, 2000;
(6) 1.05 to 1.00 for the fiscal quarter ending March 31, 2001; and
(7) 1.02 to 1.00 for each fiscal quarter thereafter until the
Termination Date.
In each case the Fixed Charge Coverage Ratio shall be determined as of the last
day of each fiscal quarter for the four-quarter period ending on such day
(provided, however, (a) for the fiscal quarter ending June 30, 1997, the Fixed
Charge Coverage Ratio shall be calculated using Interest Expense, Fees and
schedule amortization for the fiscal quarter ending June 30, 1997 multiplied by
four (4) and Capital Expenditures and EBITDA of the Target (for the period prior
to the Closing Date) and the Borrower (for the period commencing on the Closing
Date and thereafter) for the four-quarter period ending on June 30, 1997, (b)
for the fiscal quarter ending September 30, 1997, the Fixed Charge Coverage
Ratio shall be calculated using Interest Expense, Fees and schedule amortization
for the two fiscal quarters ending September 30, 1997 multiplied by two (2) and
Capital Expenditures and EBITDA of the Target (for the period prior to the
Closing Date) and the Borrower (for the period commencing on the Closing Date
and thereafter) for the four-quarter period ending on September 30, 1997, and
(c) for the fiscal quarter ending December 31, 1997, the Fixed Charge Coverage
Ratio shall be calculated using Interest Expense, Fees and schedule amortization
for the three fiscal quarters ending December 31, 1997 multiplied by four-thirds
(4/3) and Capital Expenditures and EBITDA of the Target (for the period prior to
the Closing Date) and the Borrower (for the period commencing on the Closing
Date and thereafter) for the four-quarter period ending on December 31, 1997;
provided, further, that the Fixed Charge Coverage Ratio shall be calculated with
respect to Permitted Acquisitions, on a pro forma basis using unadjusted
historical audited and reviewed unaudited financial statements obtained from the
seller, broken down by fiscal quarter in the Borrower's reasonable judgement).
(D) Maximum Leverage Ratio. The Borrower shall not permit the ratio
("Leverage Ratio") of (i) Indebtedness and Off Balance Sheet Liabilities
incurred pursuant to Section 6.3(J)
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(other than Indebtedness in respect of commercial Letters of Credit) of the
Borrower and its Restricted Subsidiaries (calculated on a consolidated basis)
for borrowed money to (ii) EBITDA to exceed the ratio set forth below at the end
of the fiscal quarter ending on the corresponding date set forth below:
<TABLE>
<CAPTION>
Period Ending Maximum Leverage Ratio
------------- ----------------------
<S> <C>
June 30, 1997 6.5 to 1.00
September 30, 1997 6.5 to 1.00
December 31, 1997 6.5 to 1.00
March 31, 1998 6.25 to 1.00
June 30, 1998 5.95 to 1.00
September 30, 1998 5.90 to 1.00
December 31, 1998 5.85 to 1.00
March 31, 1999 5.75 to 1.00
June 30, 1999 5.75 to 1.00
September 30, 1999 5.50 to 1.00
December 31, 1999 5.50 to 1.00
March 31, 2000 5.25 to 1.00
June 30, 2000 4.95 to 1.00
September 30, 2000 4.90 to 1.00
December 31, 2000 4.75 to 1.00
March 31, 2001 4.75 to 1.00
June 30, 2001 4.75 to 1.00
September 30, 2001
and each quarter
thereafter 4.50 to 1.00
</TABLE>
The Leverage Ratio shall be calculated, in each case, determined as of the last
day of each fiscal quarter based upon (A) for Indebtedness, Indebtedness as of
the last day of each such fiscal quarter; and (B) for EBITDA, the actual amount
for the four-quarter period ending on such day (provided, however, for the first
four of such calculations, the Leverage Ratio shall be calculated using EBITDA
of the Target (for the period prior to the Closing Date) and the Borrower (for
the period commencing on the Closing Date and thereafter) for the four-quarter
period then ending; provided, further, that EBITDA shall be calculated with
respect to Permitted Acquisitions on a pro forma basis using unadjusted
historical audited and reviewed unaudited financial statements obtained from the
Seller, broken down by fiscal quarter in the Borrower's reasonable judgment).
ARTICLE VII: DEFAULTS
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7.1 Defaults. Each of the following occurrences shall constitute a Default
under this Agreement:
(a) Failure to Make Payments When Due. The Borrower shall (i) fail to pay
when due any of the Obligations consisting of principal with respect to the
Loans or (ii) shall fail to pay within five (5) days of the date when due any of
the other Obligations under this Agreement or the other Loan Documents.
(b) Breach of Certain Covenants. The Borrower shall fail duly and
punctually to perform or observe any agreement, covenant or obligation binding
on the Borrower under:
(i) Sections 6.1(C) (Lawsuits), 6.1(D) (Insurance), 6.1(E) (ERISA
Notices), 6.1(F) (Labor Matters), 6.1(G) (Other Indebtedness), 6.1(H)
(Other Reports), 6.1(I) (Environmental Notices), 6.1(K) (Other
Information), 6.2(B) (Corporate Powers), 6.2(F) (Inspection of Property),
6.3(L) (ERISA), 6.3(M) (Issuance of Capital Stock), 6.3(N) (Corporate
Documents), 6.3(R) (Hedging Obligations) or 6.3(S) (Deposit Accounts) and
such failure shall continue unremedied for thirty (30) days;
(ii) Section 6.1(A) (Financial Reporting), 6.1(B) (Notice of Default)
or 6.1(J) (Borrowing Base Certificate) and such failure shall continue
unremedied for five (5) Business Days; or
(iii) Section 6.3(A) (Indebtedness), 6.3(C) (Liens), 6.3(D)
(Investments), 6.3(E) (Contingent Obligations), 6.3(F) (Restricted
Payments), 6.3(G) (Conduct of Business, Subsidiaries, Acquisitions), 6.3(H)
(Affiliate Transactions), 6.3(I) (Fundamental Changes), 6.3(J)
(Sale/Leaseback), 6.3(K) (Margin Regulations), 6.3(O) (Other Indebtedness),
6.3(P) (Fiscal Year), or 6.3(Q) (Subsidiary Covenants), or 6.4(B) (Interest
Expense Coverage Ratio), 6.4(C) (Fixed Charge Coverage Ratio), or 6.4(D)
(Maximum Leverage Ratio).
(c) Breach of Representation or Warranty. Any representation or warranty
made or deemed made by the Borrower to the Agent or any Lender herein or by the
Borrower or any of its Restricted Subsidiaries in any of the other Loan
Documents or in any statement or certificate at any time given by any such
Person pursuant to any of the Loan Documents shall be false or misleading in any
material respect on the date as of which made (or deemed made).
(d) Other Defaults. The Borrower shall default in the performance of or
compliance with any material term contained in this Agreement (other than as
covered by paragraphs (a), (b) or (c) of this Section 7.1), or the Borrower or
any of its Restricted Subsidiaries shall default in the performance of or
compliance with any material term contained in any of the other Loan Documents,
and such default shall continue for thirty (30) days after the occurrence
thereof.
(e) Default as to Other Indebtedness; Operating Leases. The Borrower or any
of its Restricted Subsidiaries shall fail to make any payment when due (whether
by scheduled maturity, required prepayment, acceleration, demand or otherwise)
with respect to any Indebtedness (other than the Obligations) the outstanding
principal amount of which
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Indebtedness is in excess of $5,000,000; or any breach, default or event of
default shall occur, or any other condition shall exist under any instrument,
agreement or indenture pertaining to any such Indebtedness, if the effect
thereof is to cause an acceleration, mandatory redemption, a requirement that
the Borrower or Restricted Subsidiary, as applicable, offer to purchase such
Indebtedness or other required repurchase of such Indebtedness, or permit the
holder(s) of such Indebtedness to accelerate the maturity of any such
Indebtedness or require a redemption or other repurchase of such Indebtedness;
or any such Indebtedness shall be otherwise declared to be due and payable (by
acceleration or otherwise) or required to be prepaid, redeemed or otherwise
repurchased by the Borrower or any of its Restricted Subsidiaries (other than by
a regularly scheduled required prepayment) prior to the stated maturity thereof.
(f) Involuntary Bankruptcy; Appointment of Receiver, Etc.
(i) An involuntary case shall be commenced against Holdings, the
Borrower or any of the Borrower's Restricted Subsidiaries and the petition
shall not be dismissed, stayed, bonded or discharged within sixty (60) days
after commencement of the case; or a court having jurisdiction in the
premises shall enter a decree or order for relief in respect of Holdings,
the Borrower or any of the Borrower's Restricted Subsidiaries in an
involuntary case, under any applicable bankruptcy, insolvency or other
similar law now or hereinafter in effect; or any other similar relief shall
be granted under any applicable federal, state, local or foreign law.
(ii) A decree or order of a court having jurisdiction in the premises
for the appointment of a receiver, liquidator, sequestrator, trustee,
custodian or other officer having similar powers over Holdings, the
Borrower or any of the Borrower's Restricted Subsidiaries or over all or a
substantial part of the property of Holdings, the Borrower or any of the
Borrower's Restricted Subsidiaries shall be entered; or an interim
receiver, trustee or other custodian of Holdings, the Borrower or any of
the Borrower's Restricted Subsidiaries or of all or a substantial part of
the property of Holdings, the Borrower or any of the Borrower's Restricted
Subsidiaries shall be appointed or a warrant of attachment, execution or
similar process against any substantial part of the property of Holdings,
the Borrower or any of the Borrower's Restricted Subsidiaries shall be
issued and any such event shall not be stayed, dismissed, bonded or
discharged within sixty (60) days after entry, appointment or issuance.
(g) Voluntary Bankruptcy; Appointment of Receiver, Etc. Holdings, the
Borrower or any of the Borrower's Restricted Subsidiaries shall (i) commence a
voluntary case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, (ii) consent to the entry of an order for relief in
an involuntary case, or to the conversion of an involuntary case to a voluntary
case, under any such law, (iii) consent to the appointment of or taking
possession by a receiver, trustee or other custodian for all or a substantial
part of its property, (iv) make any assignment for the benefit of creditors or
(v) take any corporate action to authorize any of the foregoing.
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(h) Judgments and Attachments. Any money judgment(s) (other than a money
judgment covered by insurance as to which the insurance company has not
disclaimed or reserved the right to disclaim coverage), writ or warrant of
attachment, or similar process against the Borrower or any of its Restricted
Subsidiaries or any of their respective assets involving in any single case or
in the aggregate an amount in excess of $2,500,000 is (are) entered and shall
remain undischarged, unvacated, unbonded or unstayed for a period of forty-five
(45) days.
(i) Dissolution. Any order, judgment or decree shall be entered against the
Borrower decreeing its involuntary dissolution or split up and such order shall
remain undischarged and unstayed for a period in excess of sixty (60) days; or
the Borrower shall otherwise dissolve or cease to exist except as specifically
permitted by this Agreement.
(j) Loan Documents; Failure of Security. At any time, for any reason, (i)
any Loan Document as a whole that materially affects the ability of the Agent,
or any of the Lenders to enforce the Obligations or enforce their rights against
the Collateral ceases to be in full force and effect (other than a partial or
full release in accordance with the terms thereof or as a result of any act or
omission of the Agent or any Lender) or the Borrower or any of the Borrower's
Restricted Subsidiaries party thereto seeks to repudiate its obligations
thereunder and the Liens intended to be created thereby are, or the Borrower or
any such Restricted Subsidiary seeks to render such Liens, invalid and
unperfected, or (ii) Liens on Collateral in favor of the Agent contemplated by
the Loan Documents shall, at any time, for any reason, be invalidated or
otherwise cease to be in full force and effect (other than as a result of any
Customary Permitted Lien or a partial or full release in accordance with the
terms thereof or as a result of any act or omission of the Agent or any Lender),
or such Liens shall not have the priority contemplated by this Agreement or the
Loan Documents (other than a partial or full release in accordance with the
terms thereof or as a result of any act or omission of the Agent or any Lender).
(k) Termination Event. Any Termination Event occurs which the Required
Lenders believe could reasonably be expected to subject the Borrower to
liability, individually or in the aggregate, in excess of $2,500,000.
(l) Waiver of Minimum Funding Standard. If the plan administrator of any
Plan applies under Section 412(d) of the Code for a waiver of the minimum
funding standards of Section 412(a) of the Code and any Lender believes the
substantial business hardship upon which the application for the waiver is based
could reasonably be expected to subject either the Borrower or any Controlled
Group member to liability, individually or in the aggregate, in excess of
$2,500,000.
(m) Change of Control. A Change of Control shall occur.
(n) Hedging Agreements. Nonpayment by the Borrower of any obligation within
five (5) Business Days of the date when due under any Hedging Agreements entered
into with any Lender or the breach by the Borrower of any term, provision or
condition contained in any such Hedging Agreements.
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(o) Environmental Matters. The Borrower or any of its Restricted
Subsidiaries shall be the subject of any proceeding or investigation pertaining
to (i) the Release by the Borrower or any of its Restricted Subsidiaries of any
Contaminant into the environment, (ii) the liability of the Borrower or any of
its Restricted Subsidiaries arising from the Release by any other Person of any
Contaminant into the environment, or (iii) any violation of any Environmental,
Health or Safety Requirements of Law which by the Borrower or any of its
Restricted Subsidiaries, which, in any case, has or could reasonably be expected
to subject the Borrower or any Restricted Subsidiary to liability, individually
or in the aggregate, in excess of $2,500,000.
(p) Guarantor Revocation. Any guarantor of the Obligations shall terminate
or revoke any of its obligations under the applicable guarantee agreement or
breach any of the terms of such guarantee agreement.
(q) Failure of Subordination. The subordination provisions of the documents
and instruments evidencing the Senior Subordinated Notes, the Deferred Limited
Interest Guaranty, the MCIT Turnover Agreement, the Holdings Turnover Agreement,
the Jordan Management Agreement, any Permitted Subordinated Indebtedness,
Holdings Subordinated Debt or any other Permitted Holdings Indebtedness shall,
at any time, be invalidated or otherwise cease to be in full force and effect.
(r) Holdings Indebtedness. Holdings shall incur any Indebtedness other than
Permitted Holdings Indebtedness or Holdings shall fail to make any payment when
due (whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise) with respect to any Permitted Holdings Indebtedness the outstanding
principal amount of which Indebtedness is in excess of $5,000,000 or any breach,
default or event of default shall occur, or any other condition shall exist
under any instrument, agreement or indenture pertaining to any such Permitted
Holdings Indebtedness, if the effect thereof is to cause an acceleration,
mandatory redemption, a requirement that Holdings offer to purchase such
Indebtedness or other required repurchase of such Indebtedness, or permit the
holder(s) of such Indebtedness to accelerate the maturity of any such
Indebtedness or require a redemption or other repurchase of such Indebtedness;
or any such Indebtedness shall be otherwise declared to be due and payable (by
acceleration or otherwise) or required to be prepaid, redeemed or otherwise
repurchased by Holdings (other than by a regularly scheduled required
prepayment) prior to the stated maturity thereof.
(s) Holding Company Investments and Activities. Holdings shall (i) make any
Investment other than (w) Investments in the Borrower, (x) Investments in the
Management Notes, (y) other loans to employees and (z) Investments in Cash
Equivalents; (ii) engage directly or indirectly (other than indirectly as a
result of its ownership of the Equity Interests of the Borrower) in any
operating business enterprise or other activities other than the ownership of
the Equity Interests of the Borrower and the activities incidental thereto; or
(iii) create, capitalize or acquire any Subsidiary other than the Borrower and
its Subsidiaries.
(t) Turnover by Holdings of Restricted Payments. In the event that any
Restricted Payments are made by Borrower to Holdings in violation of Section
6.3(F), such Restricted Payment shall not be paid over by Holdings to the Agent
for application to or as collateral for the
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payment of the Obligations promptly but in any event within five (5) days of
request therefor by the Agent or any Lender or any other material default or
breach shall have occurred under the terms of the Holdings Turnover Agreement.
(u) MCIT Turnover. Any material default or breach shall have occurred under
the terms of the MCIT Turnover Agreement.
(v) Pledge of Borrower's Equity Interests. Holdings shall pledge,
hypothecate, encumber or otherwise create, incur, assume or suffer to exist any
Lien (other than any Customary Permitted Lien) upon or with respect to any
Equity Interests of the Borrower.
(w) Holdings shall fail to pay all taxes, assessments and other
governmental charges within thirty (30) days following the imposition thereof
upon it or on any of its properties or assets or in respect of any of its
franchises, business, income or property before any penalty or interest accrues
thereon; provided, however, that no such taxes, assessments and governmental
charges (and interest, penalties or fines relating thereto) need be paid if
being contested in good faith by appropriate proceedings diligently instituted
and conducted and if such reserve or other appropriate provision, if any, as
shall be required in conformity with Agreement Accounting Principles shall have
been made therefor.
(x) Title Policy Endorsement. A Default shall be deemed "continuing" until
cured or until waived in writing in accordance with Section 8.3.
ARTICLE VIII: ACCELERATION, DEFAULTING LENDERS; WAIVERS, AMENDMENTS AND
REMEDIES
8.1 Termination of Commitments; Acceleration. If any Default described in
Section 7.1(f) or 7.1(g) occurs with respect to the Borrower, Holdings or any
Restricted Subsidiary the obligations of the Lenders to make Loans hereunder and
the obligation of the Agent to issue Letters of Credit hereunder shall
automatically terminate and the Obligations shall immediately become due and
payable without any election or action on the part of the Agent or any Lender.
If any other Default occurs and shall be continuing, the Required Lenders may
terminate or suspend the obligations of the Lenders to make Loans hereunder and
the obligation of the Agent to issue Letters of Credit hereunder, or declare the
Obligations to be due and payable, or both, whereupon the Obligations shall
become immediately due and payable, without presentment, demand, protest or
notice of any kind, all of which the Borrower expressly waives; provided that if
such Default is cured or waived by the Required Lenders (or all of the Lenders
if required pursuant to Section 8.3), the obligation of the Lenders to make
Loans shall be reinstated.
8.2 Defaulting Lender. In the event that any Lender fails to fund its Pro
Rata Share of any Advance requested or deemed requested by the Borrower which
such Lender is obligated to fund under the terms of this Agreement (the funded
portion of such Advance being hereinafter referred to as a "Non Pro Rata Loan"),
until the earlier of such Lender's cure of such failure and the termination of
the Revolving Loan Commitments, the proceeds of all amounts thereafter repaid to
the Agent by the Borrower and otherwise required to be applied to such Lender's
share
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of all other Obligations pursuant to the terms of this Agreement shall be
advanced to the Borrower by the Agent on behalf of such Lender to cure, in full
or in part, such failure by such Lender, but shall nevertheless be deemed to
have been paid to such Lender in satisfaction of such other Obligations.
Notwithstanding anything in this Agreement to the contrary:
(i) the foregoing provisions of this Section 8.2 shall apply only with
respect to the proceeds of payments of Obligations and shall not affect the
conversion or continuation of Loans pursuant to Section 2.10;
(ii) any such Lender shall be deemed to have cured its failure to fund
its Pro Rata Share of any Advance at such time as an amount equal to such
Lender's original Pro Rata Share of the requested principal portion of such
Advance is fully funded to the Borrower, whether made by such Lender itself
or by operation of the terms of this Section 8.2, and whether or not the
Non Pro Rata Loan with respect thereto has been repaid, converted or
continued;
(iii) amounts advanced to the Borrower to cure, in full or in part,
any such Lender's failure to fund its Pro Rata Share of any Advance ("Cure
Loans") shall bear interest at the rate applicable to Floating Rate Loans
in effect from time to time, and for all other purposes of this Agreement
shall be treated as if they were Floating Rate Loans;
(iv) regardless of whether or not a Default has occurred or is
continuing, and notwithstanding the instructions of the Borrower as to its
desired application, all repayments of principal which, in accordance with
the other terms of this Agreement, would be applied to the outstanding
Floating Rate Loans shall be applied first, ratably to all Floating Rate
Loans constituting Non Pro Rata Loans, second, ratably to Floating Rate
Loans other than those constituting Non Pro Rata Loans or Cure Loans and,
third, ratably to Floating Rate Loans constituting Cure Loans;
(v) for so long as and until the earlier of any such Lender's cure of
the failure to fund its Pro Rata Share of any Advance and the termination
of the Revolving Loan Commitments, the term "Required Lenders" for purposes
of this Agreement shall mean Lenders (excluding all Lenders whose failure
to fund their respective Pro Rata Shares of such Advance have not been so
cured) whose Pro Rata Shares represent equal to or greater than sixty-six
and two thirds percent (66-2/3%) of the aggregate Pro Rata Shares of such
Lenders; and
(vi) for so long as and until any such Lender's failure to fund its
Pro Rata Share of any Advance is cured in accordance with Section 8.2(ii),
(A) such Lender shall not be entitled to (and the Borrower shall not be
obligated to make any payment in respect of) any commitment fees with
respect to its Revolving Loan Commitment and (B) such Lender shall not be
entitled to (and the Borrower shall not be obligated to make any payment in
respect of) any letter of credit fees.
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8.3 Amendments. Subject to the provisions of this Article VIII, the
Required Lenders (or the Agent with the consent in writing of the Required
Lenders) and the Borrower may enter into agreements supplemental hereto for the
purpose of adding or modifying any provisions to the Loan Documents or changing
in any manner the rights of the Lenders or the Borrower hereunder or waiving any
Default hereunder; provided, however, that no such supplemental agreement shall,
without the consent of each Lender affected thereby:
(i) Postpone or extend the Revolving Loan Termination Date, either
Term Loan Termination Date or any other date fixed for any payment of
principal of, or interest on, the Loans, the Reimbursement Obligations or
any fees or other amounts payable to such Lender (except with respect to
(a) any modifications of the provisions relating to prepayments of Loans
and other Obligations, provided that any modification of the last sentence
of Section 2.5(A) or the provisions of Section 2.5(B)(i)(e) which reduces
the percentage of any prepayment to the Term Loan A Lenders or Term Loan B
Lenders shall require the consent of (1) those Lenders whose aggregate A
Term Loans are greater than or equal to 662/3 of the aggregate A Term
Loans, if the Term Loan A Lenders' prepayment percentage is reduced, or (2)
those Lenders whose aggregate B Term Loans are greater than or equal to
662/3 of the aggregate B Term Loans, if the Term Loan B Lenders' prepayment
percentage is reduced and (b) a waiver of the application of the default
rate of interest pursuant to Section 2.11 hereof).
(ii) Reduce the principal amount of any Loans or L/C Obligations or
the rate of interest thereon or any fees or other amounts payable to such
Lender.
(iii) Reduce the percentage specified in the definition of Required
Lenders or any other percentage of Lenders specified to be the applicable
percentage in this Agreement to act on specified matters.
(iv) Increase the amount of the Revolving Loan Commitment or any Term
Loan Commitment of any Lender hereunder (except with respect to an increase
in the amount, or other modification to the terms or components, of the
Borrowing Base).
(v) Permit the Borrower to assign its rights under this Agreement.
(vi) Amend this Section 8.3.
(vii) Release any guarantor (including without limitation any
Restricted Subsidiary) of the Obligations or all or substantially all of
the Collateral.
No amendment of any provision of this Agreement relating to (a) the Agent shall
be effective without the written consent of the Agent or (b) Swing Line Loans
shall be effective without the written consent of the Swing Line Bank. The Agent
may waive payment of the fee required under Section 12.3(B) without obtaining
the consent of any of the Lenders.
8.4 Preservation of Rights. No delay or omission of the Lenders or the
Agent to exercise any right under the Loan Documents shall impair such right or
be construed to be a waiver of
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any Default or an acquiescence therein, and the making of a Loan or the issuance
of a Letter of Credit notwithstanding the existence of a Default or the
inability of the Borrower to satisfy the conditions precedent to such Loan or
issuance of such Letter of Credit shall not constitute any waiver or
acquiescence. Any single or partial exercise of any such right shall not
preclude other or further exercise thereof or the exercise of any other right,
and no waiver, amendment or other variation of the terms, conditions or
provisions of the Loan Documents whatsoever shall be valid unless in writing
signed by the Lenders required pursuant to Section 8.3, and then only to the
extent in such writing specifically set forth. All remedies contained in the
Loan Documents or by law afforded shall be cumulative and all shall be available
to the Agent and the Lenders until the Obligations have been paid in full.
ARTICLE IX: GENERAL PROVISIONS
9.1 Survival of Representations. All representations and warranties of the
Borrower contained in this Agreement shall only be deemed to be made on the
Closing Date and each Borrowing Date and shall survive delivery of the Notes and
the making of the Loans herein contemplated.
9.2 Governmental Regulation. Anything contained in this Agreement to the
contrary notwithstanding, no Lender shall be obligated to extend credit to the
Borrower in violation of any limitation or prohibition provided by any
applicable statute or regulation.
9.3 Performance of Obligations. The Borrower agrees that the Agent may, but
shall have no obligation to (i) at any time, pay or discharge taxes, liens,
security interests or other encumbrances levied or placed on or threatened
against any Collateral and (ii) after the occurrence and during the continuance
of a Default make any other payment or perform any act required of the Borrower
under any Loan Document or take any other action which the Agent in its
discretion deems necessary or desirable to protect or preserve the Collateral,
including, without limitation, any action to (y) effect any repairs or obtain
any insurance called for by the terms of any of the Loan Documents and to pay
all or any part of the premiums therefor and the costs thereof and (z) pay any
rents payable by the Borrower which are more than 30 days past due, or as to
which the landlord has given notice of termination, under any lease. The Agent
shall use its best efforts to give the Borrower notice of any action taken under
this Section 9.3 prior to the taking of such action or promptly thereafter
provided the failure to give such notice shall not affect the Borrower's
obligations in respect thereof. The Borrower agrees to pay the Agent, upon
demand, the principal amount of all funds advanced by the Agent under this
Section 9.3, together with interest thereon at the rate from time to time
applicable to Floating Rate Loans from the date of such advance until the
outstanding principal balance thereof is paid in full. If the Borrower fails to
make payment in respect of any such advance under this Section 9.3 within one
(1) Business Day after the date the Borrower receives written demand therefor
from the Agent, the Agent shall promptly notify each Lender and each Lender
agrees that it shall thereupon make available to the Agent, in Dollars in
immediately available funds, the amount equal to such Lender's Pro Rata Share of
such advance. If such funds are not made available to the Agent by such Lender
within one (1) Business Day after the Agent's demand therefor, the Agent will be
entitled to recover any such amount from such Lender together with interest
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thereon at the Effective Federal Funds Rate for each day during the period
commencing on the date of such demand and ending on the date such amount is
received. The failure of any Lender to make available to the Agent its Pro Rata
Share of any such unreimbursed advance under this Section 9.3 shall neither
relieve any other Lender of its obligation hereunder to make available to the
Agent such other Lender's Pro Rata Share of such advance on the date such
payment is to be made nor increase the obligation of any other Lender to make
such payment to the Agent. All outstanding principal of, and interest on,
advances made under this Section 9.3 shall constitute Obligations secured by the
Collateral until paid in full by the Borrower.
9.4 Headings. Section headings in the Loan Documents are for convenience of
reference only, and shall not govern the interpretation of any of the provisions
of the Loan Documents.
9.5 Entire Agreement. The Loan Documents embody the entire agreement and
understanding among the Borrower, the Agent and the Lenders and supersede all
prior agreements and understandings among the Borrower, the Agent and the
Lenders relating to the subject matter thereof.
9.6 Several Obligations; Benefits of this Agreement. The respective
obligations of the Lenders hereunder are several and not joint and no Lender
shall be the partner or agent of any other Lender (except to the extent to which
the Agent is authorized to act as such). The failure of any Lender to perform
any of its obligations hereunder shall not relieve any other Lender from any of
its obligations hereunder. This Agreement shall not be construed so as to confer
any right or benefit upon any Person other than the parties to this Agreement
and their respective successors and assigns.
9.7 Expenses; Indemnification.
(A) Expenses. The Borrower shall reimburse the Agent for any reasonable and
documented costs, internal charges and out-of-pocket expenses (including
attorneys' and paralegals' fees and time charges of attorneys and paralegals for
the Agent, which attorneys and paralegals may be employees of the Agent) paid or
incurred by the Agent in connection with the preparation, negotiation,
execution, delivery, syndication, amendment and modification of the Loan
Documents. The Borrower also agrees to reimburse the Agent and the Lenders for
any reasonable and documented costs, internal charges and out-of-pocket expenses
(including attorneys' and paralegals' fees and time charges of attorneys and
paralegals for the Agent and the Lenders, which attorneys and paralegals may be
employees of the Agent or the Lenders) paid or incurred by the Agent or any
Lender in connection with the collection of the Obligations and enforcement
(whether by legal proceedings, negotiation, or otherwise) of the Loan Documents.
In addition to expenses set forth above, the Borrower agrees to reimburse the
Agent, promptly after the Agent's request therefor, for each audit, collateral
analysis or other business analysis performed by the Agent or any of its agents
for the benefit of the Lenders in connection with this Agreement or the other
Loan Documents in an amount equal to the Agent's then customary charges for each
person employed to perform such audit or analysis, plus all costs and expenses
(including without limitation, travel expenses) incurred by the Agent in the
performance of such audit or analysis (provided, however, that the Borrower's
obligation to reimburse the Agent for such expenses incurred at a time when no
Default has occurred and is continuing shall be limited
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in each fiscal year to the audit expense annual cap amount separately agreed to
in the letter dated February 27, 1997 from the Agent to the Borrower). Agent
shall provide the Borrower with a detailed statement of all reimbursements
requested under this Section 9.7(A).
(B) Indemnity. The Borrower further agrees to defend, protect, indemnify,
and hold harmless the Agent and each and all of the Lenders and each of their
respective Affiliates, and each of such Agent's, Lender's, or Affiliate's
respective officers, directors, employees, attorneys and agents (including,
without limitation, those retained in connection with the satisfaction or
attempted satisfaction of any of the conditions set forth in Article IV)
(collectively, the "Indemnitees") from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses of any kind or nature whatsoever (including, without limitation,
the fees and disbursements of counsel for such Indemnitees in connection with
any investigative, administrative or judicial proceeding, whether or not such
Indemnitees shall be designated a party thereto), imposed on, incurred by, or
asserted against such Indemnitees in any manner relating to or arising out of:
(i) this Agreement, the other Loan Documents or any of the Transaction
Documents, or any act, event or transaction related or attendant thereto or
to the Stock Acquisition or Merger, the making of the Loans, and the
issuance of and participation in Letters of Credit hereunder, the
management of such Loans or Letters of Credit, the use or intended use of
the proceeds of the Loans or Letters of Credit hereunder, or any of the
other transactions contemplated by the Transaction Documents; or
(ii) any liabilities, obligations, responsibilities, losses, damages,
personal injury, death, punitive damages, economic damages, consequential
damages, treble damages, intentional, willful or wanton injury, damage or
threat to the environment, natural resources or public health or welfare,
costs and expenses (including, without limitation, attorney, expert and
consulting fees and costs of investigation, feasibility or remedial action
studies), fines, penalties and monetary sanctions, interest, direct or
indirect, known or unknown, absolute or contingent, past, present or future
relating to violation of any Environmental, Health or Safety Requirements
of Law arising from or in connection with the past, present or future
operations of Holdings, the Borrower, its Subsidiaries or any of their
respective predecessors in interest, or, the past, present or future
environmental, health or safety condition of any respective property of the
Borrower or its Subsidiaries, the presence of asbestos-containing materials
at any respective property of the Borrower or its Subsidiaries or the
Release or threatened Release of any Contaminant into the environment
(collectively, the "Indemnified Matters");
provided, however, the Borrower shall have no obligation to an Indemnitee
hereunder with respect to Indemnified Matters caused solely by or resulting
solely from (x) a dispute among the Lenders or a dispute between any Lender and
the Agent, (y) a dispute between the Agent or any Lender and any participant or
among them or (z) the willful misconduct or Gross Negligence of such Indemnitee
or breach of contract by such Indemnitee with respect to the Loan Documents, in
each case, as determined by the final non-appealed judgment of a court of
competent jurisdiction. If the undertaking to indemnify, pay and hold harmless
set forth in the preceding sentence may be unenforceable because it is violative
of any law or public policy, the Borrower
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shall contribute the maximum portion which it is permitted to pay and satisfy
under applicable law, to the payment and satisfaction of all Indemnified Matters
incurred by the Indemnitees.
(C) Waiver of Certain Claims; Settlement of Claims. The Borrower further
agrees to assert no claim against any of the Indemnitees on any theory of
liability for consequential, special, indirect, exemplary or punitive damages.
No settlement shall be entered into by Holdings, the Borrower or any if its
Subsidiaries with respect to any claim, litigation, arbitration or other
proceeding relating to or arising out of the transaction evidenced by this
Agreement, the other Loan Documents or in connection with the Stock Purchase
Acquisition (whether or not the Agent or any Lender or any Indemnitee is a party
thereto) unless such settlement releases all Indemnitees from any and all
liability with respect thereto.
(D) Survival of Agreements. The obligations and agreements of the Borrower
under this Section 9.7 shall survive the termination of this Agreement.
9.8 Accounting. Except as provided to the contrary herein, all accounting
terms used herein shall be interpreted and all accounting determinations
hereunder shall be made in accordance with Agreement Accounting Principles.
9.9 Severability of Provisions. Any provision in any Loan Document that is
held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as
to that jurisdiction, be inoperative, unenforceable, or invalid without
affecting the remaining provisions in that jurisdiction or the operation,
enforceability, or validity of that provision in any other jurisdiction, and to
this end the provisions of all Loan Documents are declared to be severable.
9.10 Nonliability of Lenders. The relationship between the Borrower and the
Lenders and the Agent shall be solely that of borrower and lender. Neither the
Agent nor any Lender shall have any fiduciary responsibilities to the Borrower.
Neither the Agent nor any Lender undertakes any responsibility to the Borrower
to review or inform the Borrower of any matter in connection with any phase of
the Borrower's business or operations.
9.11 GOVERNING LAW. THE AGENT ACCEPTS THIS AGREEMENT, ON BEHALF OF ITSELF
AND THE LENDERS, AT CHICAGO, ILLINOIS BY ACKNOWLEDGING AND AGREEING TO IT THERE.
THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED AND ENFORCED IN ACCORDANCE
WITH THE INTERNAL LAWS (WITHOUT REGARD TO CONFLICTS OF LAWS PROVISIONS) OF THE
STATE OF ILLINOIS. WITHOUT LIMITING ANY OF THE FOREGOING, ANY DISPUTE BETWEEN
THE BORROWER AND THE AGENT, ANY LENDER, OR ANY OTHER HOLDER OF SECURED
OBLIGATIONS ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY
OF THE OTHER LOAN DOCUMENTS, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR
OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS (WITHOUT
REGARD TO THE CONFLICTS OF LAWS PROVISIONS) OF THE STATE OF ILLINOIS.
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9.12 CONSENT TO JURISDICTION; SERVICE OF PROCESS; WAIVER OF BOND.
(A) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION (B), EACH OF
THE PARTIES HERETO AGREES THAT ALL DISPUTES AMONG THEM ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN
CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS WHETHER
ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED EXCLUSIVELY
BY STATE OR FEDERAL COURTS LOCATED IN CHICAGO, ILLINOIS, BUT THE PARTIES HERETO
ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF CHICAGO, ILLINOIS.
(B) OTHER JURISDICTIONS. THE BORROWER AGREES THAT THE AGENT, ANY LENDER OR
ANY HOLDER OF SECURED OBLIGATIONS SHALL HAVE THE RIGHT TO PROCEED AGAINST THE
BORROWER OR ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1)
OBTAIN PERSONAL JURISDICTION OVER THE BORROWER OR (2) REALIZE ON THE COLLATERAL
OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE A JUDGMENT OR OTHER
COURT ORDER ENTERED IN FAVOR OF SUCH PERSON. THE BORROWER AGREES THAT IT WILL
NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY SUCH PERSON
TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH PERSON.
(C) SERVICE OF PROCESS; WAIVERS. THE BORROWER WAIVES PERSONAL SERVICE OF
ANY PROCESS UPON IT AND, IRREVOCABLY APPOINTS THE CORPORATION TRUST COMPANY, THE
BORROWER'S REGISTERED AGENT, WHOSE ADDRESS IS CORPORATION TRUST CENTER, 1209
ORANGE STREET, WILMINGTON, DELAWARE 19801, AS THE BORROWER'S AGENT FOR THE
PURPOSE OF ACCEPTING SERVICE OF PROCESS ISSUED BY ANY COURT. THE BORROWER
IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION
OF THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH
RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH IN ANY JURISDICTION SET FORTH ABOVE
AND EACH OF THE OTHER PARTIES HERETO WAIVES IN ALL DISPUTES BROUGHT PURSUANT TO
SUBSECTION (A) ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT
CONSIDERING THE DISPUTE.
(D) WAIVER OF BOND. THE BORROWER WAIVES THE POSTING OF ANY BOND OTHERWISE
REQUIRED OF ANY PARTY HERETO IN CONNECTION WITH ANY JUDICIAL PROCESS OR
PROCEEDING TO REALIZE ON THE COLLATERAL (INCLUDING, WITHOUT LIMITATION, THE REAL
PROPERTY COLLATERAL) OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE ANY
JUDGMENT OR
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OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PARTY, OR TO ENFORCE BY SPECIFIC
PERFORMANCE, TEMPORARY RESTRAINING ORDER, PRELIMINARY OR PERMANENT INJUNCTION,
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.
9.13 JURY TRIAL WAIVER; ADVICE OF COUNSEL
(A) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY
RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY
SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A
COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(B) ADVICE OF COUNSEL. EACH OF THE PARTIES REPRESENTS TO EACH OTHER PARTY
HERETO THAT IT HAS DISCUSSED THIS AGREEMENT AND, SPECIFICALLY, THE PROVISIONS OF
THIS SECTION 9.13, WITH ITS COUNSEL.
9.14 Subordination of Intercompany Indebtedness. The Borrower agrees that
any and all claims of the Borrower against any Restricted Subsidiary, any
endorser, obligor or any other guarantor of all or any part of the Secured
Obligations, or against any of its properties shall be subordinate and subject
in right of payment to the prior payment, in full and in cash, of all Secured
Obligations. Notwithstanding any right of the Borrower to ask, demand, sue for,
take or receive any payment from any Subsidiary Guarantor all rights, liens and
security interests of the Borrower, whether now or hereafter arising and
howsoever existing, in any assets of any Restricted Subsidiary (whether
constituting part of Collateral given to any Holder of Secured Obligations or
the Agent to secure payment of all or any part of the Secured Obligations or
otherwise) shall be and are subordinated to the rights of the Holders of Secured
Obligations and the Agent in those assets. The Borrower shall have no right to
possession of any such asset or to foreclose upon any such asset, whether by
judicial action or otherwise, unless and until all of the Secured Obligations
(other than contingent indemnity obligations) shall have been fully paid and
satisfied and all financing arrangements among the Borrower and the Holders of
Secured Obligations have been terminated. If all or any part of the assets of
any Restricted Subsidiary, or the proceeds thereof, are subject to any
distribution, division or application to the creditors of any Restricted
Subsidiary, whether partial or complete, voluntary or involuntary, and whether
by reason of liquidation, bankruptcy, arrangement, receivership, assignment for
the benefit of creditors or any other action or proceeding, or if the business
of any Restricted Subsidiary is dissolved or if substantially all of the assets
of any Restricted Subsidiary are sold, then, and in any such event, any payment
or distribution of any kind or character, either in cash, securities or other
property, which shall be payable or deliverable upon or with respect to any
indebtedness of
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any Subsidiary Guarantor to the Borrower ("Intercompany Indebtedness") shall be
paid or delivered directly to the Agent for application on any of the Secured
Obligations, due or to become due, until such Secured Obligations (other than
contingent indemnity obligations) shall have first been fully paid and
satisfied. The Borrower irrevocably authorizes and empowers the Agent to demand,
sue for, collect and receive every such payment or distribution and give
acquittance therefor and to make and present for and on behalf of the Borrower
such proofs of claim and take such other action, in the Agent's own name or in
the name of the Borrower or otherwise, as the Agent may deem necessary or
advisable for the enforcement of this Section 9.14. The Agent may vote such
proofs of claim in any such proceeding, receive and collect any and all
dividends or other payments or disbursements made thereon in whatever form the
same may be paid or issued and apply the same on account of any of the Secured
Obligations. Should any payment, distribution, security or instrument or
proceeds thereof be received by the Borrower upon or with respect to the
Intercompany Indebtedness prior to the satisfaction of all of the Secured
Obligations (other than contingent indemnity obligations) and the termination of
all financing arrangements among the Borrowers and the Holders of Secured
Obligations, the Borrower shall receive and hold the same in trust, as trustee,
for the benefit of the Holders of Secured Obligations and shall forthwith
deliver the same to the Agent, for the benefit of the Holders of Secured
Obligations, in precisely the form received (except for the endorsement or
assignment of the Borrower where necessary), for application to any of the
Secured Obligations, due or not due, and, until so delivered, the same shall be
held in trust by the Borrower as the property of the Holders of Secured
Obligations. If the Borrower fails to make any such endorsement or assignment to
the Agent, the Agent or any of its officers or employees are irrevocably
authorized to make the same. The Borrower agrees that until the Secured
Obligations (other than the contingent indemnity obligations) have been paid in
full (in cash) and satisfied and all financing arrangements among the Borrower
and the Holders of Secured Obligations have been terminated, the Borrower will
not assign or transfer to any Person (other than the Agent) any claim the
Borrower has or may have against any Restricted Subsidiary.
9.15 No Strict Construction. The parties hereto have participated jointly
in the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any provisions of this Agreement.
ARTICLE X: THE AGENT
10.1 Appointment; Nature of Relationship. The First National Bank of
Chicago is appointed by the Lenders as the Agent hereunder and under each other
Loan Document, and each of the Lenders irrevocably authorizes the Agent to act
as the contractual representative of such Lender with the rights and duties
expressly set forth herein and in the other Loan Documents. The Agent agrees to
act as such contractual representative upon the express conditions contained in
this Article X. Notwithstanding the use of the defined term "Agent," it is
expressly understood and agreed that the Agent shall not have any fiduciary
responsibilities to any Holder of Secured Obligations by reason of this
Agreement and that the Agent is merely
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acting as the representative of the Holders of Secured Obligations with only
those duties as are expressly set forth in this Agreement and the other Loan
Documents. In its capacity as the contractual representative of the Holders of
Secured Obligations, the Agent (i) does not assume any fiduciary duties to any
of the Holders of Secured Obligations, (ii) is a "representative" of the Holders
of Secured Obligations within the meaning of Section 9-105 of the Uniform
Commercial Code and (iii) is acting as an independent contractor, the rights and
duties of which are limited to those expressly set forth in this Agreement and
the other Loan Documents. Each of the Lenders, for itself and on behalf of its
affiliates as Holders of Secured Obligations, agrees to assert no claim against
the Agent on any agency theory or any other theory of liability for breach of
fiduciary duty, all of which claims each Holder of Secured Obligations waives.
10.2 Powers. The Agent shall have and may exercise such powers under the
Loan Documents as are specifically delegated to the Agent by the terms of each
thereof, together with such powers as are reasonably incidental thereto. The
Agent shall have no implied duties or fiduciary duties to the Lenders, or any
obligation to the Lenders to take any action hereunder or under any of the other
Loan Documents except any action specifically provided by the Loan Documents
required to be taken by the Agent.
10.3 General Immunity. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Borrower, the Lenders or
any Lender for any action taken or omitted to be taken by it or them hereunder
or under any other Loan Document or in connection herewith or therewith except
to the extent such action or inaction is found in a final judgment by a court of
competent jurisdiction to have arisen solely from (i) the Gross Negligence or
willful misconduct of such Person or (ii) breach of contract by such Person with
respect to the Loan Documents.
10.4 No Responsibility for Loans, Creditworthiness, Collateral, Recitals,
Etc. Neither the Agent nor any of its directors, officers, agents or employees
shall be responsible for or have any duty to ascertain, inquire into, or verify
(i) any statement, warranty or representation made in connection with any Loan
Document or any borrowing hereunder; (ii) the performance or observance of any
of the covenants or agreements of any obligor under any Loan Document; (iii) the
satisfaction of any condition specified in Article IV, except receipt of items
required to be delivered solely to the Agent; (iv) the existence or possible
existence of any Default or (v) the validity, effectiveness or genuineness of
any Loan Document or any other instrument or writing furnished in connection
therewith. The Agent shall not be responsible to any Lender for any recitals,
statements, representations or warranties herein or in any of the other Loan
Documents, for the perfection or priority of any of the Liens on any of the
Collateral, or for the execution, effectiveness, genuineness, validity,
legality, enforceability, collectibility, or sufficiency of this Agreement or
any of the other Loan Documents or the transactions contemplated thereby, or for
the financial condition of any guarantor of any or all of the Obligations,
Holdings, the Borrower or any of their respective Subsidiaries.
10.5 Action on Instructions of Lenders. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, hereunder and under any
other Loan Document in accordance with written instructions signed by the
Required Lenders, and such instructions and any action taken or failure to act
pursuant thereto shall be binding on all of the Lenders and on
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all holders of Notes. The Agent shall be fully justified in failing or refusing
to take any action hereunder and under any other Loan Document unless it shall
first be indemnified to its satisfaction by the Lenders pro rata against any and
all liability, cost and expense that it may incur by reason of taking or
continuing to take any such action.
10.6 Employment of Agents and Counsel. The Agent may execute any of its
duties as the Agent hereunder and under any other Loan Document by or through
employees, agents, and attorney-in-fact and shall not be answerable to the
Lenders, except as to money or securities received by it or its authorized
agents, for the default or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. The Agent shall be entitled to advice of
counsel concerning the contractual arrangement between the Agent and the Lenders
and all matters pertaining to the Agent's duties hereunder and under any other
Loan Document.
10.7 Reliance on Documents; Counsel. The Agent shall be entitled to rely
upon any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or persons, and, in respect to
legal matters, upon the opinion of counsel selected by the Agent, which counsel
may be employees of the Agent.
10.8 The Agent's Reimbursement and Indemnification. The Lenders agree to
reimburse and indemnify the Agent ratably in proportion to their respective Pro
Rata Shares (i) for any amounts not reimbursed by the Borrower for which the
Agent is entitled to reimbursement by the Borrower under the Loan Documents,
(ii) for any other expenses incurred by the Agent on behalf of the Lenders, in
connection with the preparation, execution, delivery, administration and
enforcement of the Loan Documents and (iii) for any liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind and nature whatsoever which may be imposed on,
incurred by or asserted against the Agent in any way relating to or arising out
of the Loan Documents or any other document delivered in connection therewith or
the transactions contemplated thereby, or the enforcement of any of the terms
thereof or of any such other documents, provided that no Lender shall be liable
for any of the foregoing to the extent any of the foregoing is found in a final
non-appealable judgment by a court of competent jurisdiction to have arisen
solely from the Gross Negligence or willful misconduct of the Agent.
10.9 Rights as a Lender. With respect to its Revolving Loan Commitment, its
Term Loan Commitment, Loans made by it and the Notes issued to it, the Agent
shall have the same rights and powers hereunder and under any other Loan
Document as any Lender and may exercise the same as through it were not the
Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise
indicates, include the Agent in its individual capacity. The Agent may accept
deposits from, lend money to, and generally engage in any kind of trust, debt,
equity or other transaction, in addition to those contemplated by this Agreement
or any other Loan Document, with the Borrower or any of its Subsidiaries in
which such Person is not prohibited hereby from engaging with any other Person.
10.10 Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and based
on the financial statements
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prepared by Holdings and the Borrower and such other documents and information
as it has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement and the other Loan Documents. Each Lender also acknowledges
that it will, independently and without reliance upon the Agent or any other
Lender and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under this Agreement and the other Loan Documents.
10.11 Successor Agent. The Agent may resign at any time by giving written
notice thereof to the Lenders and the Borrower, and the Agent may be removed at
any time with or without cause by written notice received by the Agent from the
Required Lenders. Upon any such resignation or removal, the Required Lenders
shall have the right to appoint, on behalf of the Borrower and the Lenders, a
successor Agent. If no successor Agent shall have been so appointed by the
Required Lenders and shall have accepted such appointment within thirty days
after the retiring Agent's giving notice of resignation, then the retiring Agent
may appoint, on behalf of the Borrower and the Lenders, a successor Agent.
Notwithstanding anything herein to the contrary, so long as no Default has
occurred and is continuing, each such successor Agent shall be subject to
approval by the Borrower, which approval shall not be unreasonably withheld.
Such successor Agent shall be a commercial bank having capital and retained
earnings of at least $500,000,000. Upon the acceptance of any appointment as the
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations hereunder and under the other Loan Documents. After any
retiring Agent's resignation hereunder as Agent, the provisions of this Article
X shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as the Agent hereunder and under
the other Loan Documents.
10.12 Collateral Documents. (a) Each Lender authorizes the Agent to enter
into each of the Collateral Documents to which it is a party and to take all
action contemplated by such documents. Each Lender agrees that no Holder of
Secured Obligations other than the Agent shall have the right individually to
seek to realize upon the security granted by any Collateral Document, it being
understood and agreed that such rights and remedies may be exercised solely by
the Agent for the benefit of the Holders of Secured Obligations upon the terms
of the Collateral Documents.
(b) In the event that any Collateral is hereafter pledged by any
Person as collateral security for the Obligations, the Agent is hereby
authorized to execute and deliver on behalf of the Holders of Secured
Obligations any Loan Documents necessary or appropriate to grant and
perfect a Lien on such Collateral in favor of the Agent on behalf of the
Holders of Secured Obligations.
(c) The Lenders hereby authorize the Agent, at its option and in its
discretion, to release any Lien granted to or held by the Agent upon any
Collateral (i) upon termination of the Commitments and payment and
satisfaction of all of the Obligations (other than contingent indemnity
obligations) at any time arising under or in respect of this Agreement or
the Loan Documents or the transactions contemplated hereby or thereby; (ii)
as permitted by, but only in accordance with, the terms of the applicable
Loan Document; or (iii) if approved, authorized or
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ratified in writing by the Required Lenders, unless such release is
required to be approved by all of the Lenders hereunder. Upon request by
the Agent at any time, the Lenders will confirm in writing the Agent's
authority to release particular types or items of Collateral pursuant to
this Section 10.12(c).
(d) Upon any sale or transfer of assets constituting Collateral which
is permitted pursuant to the terms of any Loan Document, or consented to in
writing by the Required Lenders or all of the Lenders, as applicable, and
upon at least five Business Days' prior written request by the Borrower,
the Agent shall (and is hereby irrevocably authorized by the Lenders to)
execute such documents as may be necessary to evidence the release of the
Liens granted to the Agent for the benefit of the Holders of Secured
Obligations herein or pursuant hereto upon the Collateral that was sold or
transferred; provided, however, that (i) the Agent shall not be required to
execute any such document on terms which, in the Agent's opinion, would
expose the Agent to liability or create any obligation or entail any
consequence other than the release of such Liens without recourse or
warranty, and (ii) such release shall not in any manner discharge, affect
or impair the Secured Obligations or any Liens upon (or obligations of the
Borrower or any Subsidiary in respect of) all interests retained by the
Borrower or any Subsidiary, including (without limitation) the proceeds of
the sale, all of which shall continue to constitute part of the Collateral.
ARTICLE XI: SETOFF; RATABLE PAYMENTS
11.1 Setoff. In addition to, and without limitation of, any rights of the
Lenders under applicable law, if any Designated Default occurs and is
continuing, any indebtedness from any Lender to the Borrower (including all
account balances, whether provisional or final and whether or not collected or
available) may be offset and applied toward the payment of the Obligations owing
to such Lender, whether or not the Obligations, or any part hereof, shall then
be due.
11.2 Ratable Payments. If any Lender, whether by setoff or otherwise, has
payment made to it upon its Loans (other than payments received pursuant to
Sections 3.1, 3.2 or 3.4) in a greater proportion than that received by any
other Lender, such Lender agrees, promptly upon demand, to purchase a portion of
the Loans held by the other Lenders so that after such purchase each Lender will
hold its ratable proportion of Loans. If any Lender, whether in connection with
setoff or amounts which might be subject to setoff or otherwise, receives
collateral or other protection for its Obligation or such amounts which may be
subject to setoff, such Lender agrees, promptly upon demand, to take such action
necessary such that all Lenders share in the benefits of such collateral ratably
in proportion to the obligations owing to them. In case any such payment is
disturbed by legal process, or otherwise, appropriate further adjustments shall
be made.
11.3 Application of Payments. Subject to the provisions of Section 2.5 and
Section 8.2, the Agent shall, unless otherwise specified at the direction of the
Required Lenders which direction shall be consistent with the last sentence of
this Section 11.3, apply all payments and prepayments in respect of any
Obligations and all proceeds of Collateral in the following order:
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(A) first, to pay interest on and then principal of any portion of the
Loans which the Agent may have advanced on behalf of any Lender for which
the Agent has not then been reimbursed by such Lender or the Borrower;
(B) second, to pay interest on and then principal of any advance made
under Section 9.3 for which the Agent has not then been paid by the
Borrower or reimbursed by the Lenders;
(C) third, to pay Obligations in respect of any fees, expense
reimbursements or indemnities then due to the Agent;
(D) fourth, to pay Obligations in respect of any fees, expenses,
reimbursements or indemnities then due to the Lenders and the issuer(s) of
Letters of Credit;
(E) fifth, to pay interest due in respect of Swing Line Loans;
(F) sixth, to pay interest due in respect of Loans (other than Swing
Line Loans) and L/C Obligations;
(G) seventh, to the ratable payment or prepayment of principal
outstanding on Swing Line Loans;
(H) eighth, to the ratable payment or prepayment of principal
outstanding on Loans (other than Swing Line Loans), Reimbursement
Obligations and Hedging Obligations under Hedging Agreements with any
Lender (or affiliate thereof) in such order as the Agent may determine in
its sole discretion;
(I) ninth, to provide required cash collateral if any pursuant to
Section 2.24; and
(J) tenth, to the ratable payment of all other Obligations.
Unless otherwise designated (which designation shall only be applicable prior to
the occurrence of a Default) by the Borrower, all principal payments in respect
of Loans (other than Swing Line Loans) shall be applied first, to the
outstanding Revolving Loans and, second, to the outstanding Term Loans, in each
case, first, to repay outstanding Floating Rate Loans, and then to repay
outstanding Eurodollar Rate Loans with those Eurodollar Rate Loans which have
earlier expiring Interest Periods being repaid prior to those which have later
expiring Interest Periods. The order of priority set forth in this Section 11.3
and the related provisions of this Agreement are set forth solely to determine
the rights and priorities of the Agent, the Lenders, the issuer(s) of Letters of
Credit and other Holders of Secured Obligations as among themselves. The order
of priority set forth in clauses (D) through (H) of this Section 11.3 may at any
time and from time to time be changed by the Required Lenders without necessity
of notice to or consent of or approval by the Borrower, or any other Person;
provided, that the order of priority of payments in respect of Swing Line Loans
may be changed only with the prior written consent of the Swing Line Bank. The
order of priority set forth in clauses (A) through (C) of this Section 11.3 may
be changed only with the prior written consent of the Agent.
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11.4 Relations Among Lenders.
(a) Except with respect to the exercise of set-off rights of any Lender in
accordance with Section 11.1, the proceeds of which are applied in accordance
with this Agreement each Lender agrees that it will not take any action, nor
institute any actions or proceedings, against the Borrower or any other obligor
hereunder or with respect to any Collateral or Loan Document, without the prior
written consent of the Required Lenders or, as may be provided in this Agreement
or the other Loan Documents, at the direction of the Agent.
(b) The Lenders are not partners or co-venturers, and no Lender shall be
liable for the acts or omissions of, or (except as otherwise set forth herein in
case of the Agent) authorized to act for, any other Lender. Notwithstanding the
foregoing, and subject to Section 11.2, any Lender shall have the right to
enforce on an unsecured basis the payment of the principal of and interest on
any Loan made by it after the date such principal or interest has become due and
payable pursuant to the terms of this Agreement.
ARTICLE XII: BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
12.1 Successors and Assigns. The terms and provisions of the Loan Documents
shall be binding upon and inure to the benefit of the Borrower and the Lenders
and their respective successors and assigns, except that (i) the Borrower shall
not have the right to assign its rights or obligations under the Loan Documents
and (ii) any assignment by any Lender must be made in compliance with Section
12.3 hereof. Notwithstanding clause (ii) of this Section 12.1, any Lender may at
any time, without the consent of the Borrower or the Agent, assign all or any
portion of its rights under this Agreement and its Notes to a Federal Reserve
Bank; provided, however, that no such assignment shall release the transferor
Lender from its obligations hereunder. The Agent may treat the payee of any Note
as the owner thereof for all purposes hereof unless and until such payee
complies with Section 12.3 hereof in the case of an assignment thereof or, in
the case of any other transfer, a written notice of the transfer is filed with
the Agent. Any assignee or transferee of a Note agrees by acceptance thereof to
be bound by all the terms and provisions of the Loan Documents. Any request,
authority or consent of any Person, who at the time of making such request or
giving such authority or consent is the holder of any Note, shall be conclusive
and binding on any subsequent holder, transferee or assignee of such Note or of
any Note or Notes issued in exchange therefor.
12.2 Participations.
(A) Permitted Participants; Effect. Subject to the terms set forth in this
Section 12.2, any Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time sell to one or more banks or other
entities ("Participants") participating interests in any Loan owing to such
Lender, any Note held by such Lender, any Revolving Loan Commitment of such
Lender, any L/C Interest of such Lender or any other interest of such Lender
under the Loan Documents on a pro-rata or non pro-rata basis; provided that
without the prior consent of the Agent the amount of such participation shall
not be for less than $5,000,000. Notice of such participation to the Borrower
and the Agent shall be required prior to any participation becoming
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effective with respect to a Participant which is not a Lender or an Affiliate
thereof. In the event of any such sale by a Lender of participating interests to
a Participant, such Lender's obligations under the Loan Documents shall remain
unchanged, such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, such Lender shall remain the
holder of any such Note for all purposes under the Loan Documents, all amounts
payable by the Borrower under this Agreement shall be determined as if such
Lender had not sold such participating interests, and the Borrower and the Agent
shall continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under the Loan Documents except that, for
purposes of Section 2.15(E) and Article III hereof, the Participants shall be
entitled to the same rights and duties as if they were Lenders. Any provision
hereof to the contrary notwithstanding, no Participant shall be entitled to
receive any greater payment under Section 2.15(E) or Article III than the Lender
from which such Participant purchased its participation would have been entitled
to receive had no such participation taken place.
(B) Voting Rights. Each Lender shall retain the sole right to approve,
without the consent of any Participant, any amendment, modification or waiver of
any provision of the Loan Documents other than any amendment, modification or
waiver with respect to any Loan or Revolving Loan Commitment in which such
Participant has an interest which forgives principal, interest or fees or
reduces the interest rate or fees payable pursuant to the terms of this
Agreement with respect to any such Loan or Revolving Loan Commitment, postpones
any date fixed for any regularly-scheduled payment of principal of, or interest
or fees on, any such Loan or Revolving Loan Commitment, or releases all or
substantially all of the Collateral, if any, securing any such Loan.
(C) Benefit of Setoff. The Borrower agrees that each Participant shall be
deemed to have the right of setoff provided in Section 11.1 hereof in respect to
its participating interest in amounts owing under the Loan Documents to the same
extent as if the amount of its participating interest were owing directly to it
as a Lender under the Loan Documents, provided that each Lender shall retain the
right of setoff provided in Section 11.1 hereof with respect to the amount of
participating interests sold to each Participant except to the extent such
Participant exercises its right of set off. The Lenders agree to share with each
Participant, and each Participant, by exercising the right of setoff provided in
Section 11.1 hereof, agrees to share with each Lender, any amount received
pursuant to the exercise of its right of setoff, such amounts to be shared in
accordance with Section 11.2 as if each Participant were a Lender.
12.3 Assignments.
(A) Permitted Assignments. Any Lender may, in the ordinary course of its
business and in accordance with applicable law, at any time assign to one or
more banks or other entities ("Purchasers") all or a portion of its rights and
obligations under this Agreement (including, without limitation, its Revolving
Loan Commitment, all or any portion of the Loans owing to it, all or any portion
of its participation interests in existing Letters of Credit, and its obligation
to participate in additional Letters of Credit hereunder) in accordance with the
provisions of this Section 12.3 on a pro rata or non-pro rata basis; provided,
however that no such assignment to a Purchaser which is not a Lender or
Affiliate thereof shall be permitted without the Borrower's prior written
consent (which consent shall not be unreasonably withheld provided it shall be
- 127 -
<PAGE>
deemed reasonable grounds for denying such consent, without limitation, if the
Borrower determines that such assignment may reasonably be expected to result in
the payment by the Borrower of amounts under Section 2.15(E) or Article III
greater than would be payable if such assignment were not consummated and the
proposed assignee is not willing to waive such amounts). Each assignment shall
be of a constant, and not a varying, ratable percentage of all of the assigning
Lender's rights and obligations under this Agreement. Such assignment shall be
substantially in the form of Exhibit G hereto and shall not be permitted
hereunder unless such assignment is either for all of such Lender's rights and
obligations under the Loan Documents or, without the prior written consent of
the Agent, involves Loans and Commitments in an aggregate amount of at least
$5,000,000. Notice to the Agent and consent of the Agent (which consent shall
not be unreasonably withheld) shall be required prior to an assignment becoming
effective with respect to a Purchaser which is not a Lender or an Affiliate
thereof.
(B) Effect; Effective Date. Upon (i) delivery to the Agent of a notice of
assignment, substantially in the form attached as Appendix I to Exhibit G hereto
(a "Notice of Assignment"), together with any consent required by Section
12.3(A) hereof, and (ii) payment of a $3,500 fee by the assignee or assignor (as
agreed) to the Agent for processing such assignment, such assignment shall
become effective on the effective date specified in such Notice of Assignment.
The Notice of Assignment shall contain a representation by the Purchaser to the
effect that none of the consideration used to make the purchase of the
Commitment, Loans and L/C Obligations under the applicable assignment agreement
are "plan assets" as defined under ERISA and that the rights and interests of
the Purchaser in and under the Loan Documents will not be "plan assets" under
ERISA. On and after the effective date of such assignment, such Purchaser, if
not already a Lender, shall for all purposes be a Lender party to this Agreement
and any other Loan Documents executed by the Lenders and shall have all the
rights and obligations of a Lender under the Loan Documents, to the same extent
as if it were an original party hereto, and no further consent or action by the
Borrower, the Lenders or the Agent shall be required to release the transferor
Lender with respect to the percentage of the Aggregate Revolving Loan
Commitment, Loans and Letter of Credit participations assigned to such
Purchaser. Upon the consummation of any assignment to a Purchaser pursuant to
this Section 12.3(B), the transferor Lender, the Agent and the Borrower shall
make appropriate arrangements so that replacement Notes are issued to such
transferor Lender and new Notes or, as appropriate, replacement Notes, are
issued to such Purchaser, in each case in principal amounts reflecting their
Revolving Loan Commitment and their Term Loans, as adjusted pursuant to such
assignment.
(C) The Register. The Agent shall maintain at its address referred to in
Section 13.1 a copy of each assignment delivered to and accepted by it pursuant
to this Section 12.3 and a register (the "Register") for the recordation of the
names and addresses of the Lenders and the Revolving Loan Commitment of and
principal amount of the Loans owing to, each Lender from time to time and
whether such Lender is an original Lender or the assignee of another Lender
pursuant to an assignment under this Section 12.3. The entries in the Register
shall be conclusive and binding for all purposes, absent manifest error, and the
Borrower and each of its Subsidiaries, the Agent and the Lenders may treat each
Person whose name is recorded in the Register as a Lender hereunder for all
purposes of this Agreement. The Register shall be available for inspection by
the Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
- 128 -
<PAGE>
12.4 Confidentiality. Subject to Section 12.5, the Agent and the Lenders
shall hold all nonpublic information obtained pursuant to the requirements of
this Agreement in accordance with such Person's customary procedures for
handling confidential information of this nature and in accordance with safe and
sound banking practices, it being agreed that such confidential information and
other information are intended to be used solely in connection with evaluation
of the performance of the Borrower and its Restricted Subsidiaries by the
Lenders under the Loan Documents and the enforcement of rights and obligations
under the Loan Documents, and are not to be used for any other purpose,
including in connection with extending of credit to, analyzing or advising any
competitor of the Borrower; provided, however, any Lender may make disclosure as
required or requested by any Governmental Authority or representative thereof or
pursuant to legal process. In no event shall the Agent or any Lender be
obligated or required to return any materials furnished by the Borrower.
12.5 Dissemination of Information. The Borrower authorizes each Lender to
disclose to any Participant or Purchaser or any other Person acquiring an
interest in the Loan Documents by operation of law (each a "Transferee") and any
prospective Transferee any and all information in such Lender's possession
concerning the Holdings, the Borrower and its Subsidiaries and the Collateral;
provided that prior to any such disclosure, such prospective Transferee shall
agree to preserve in accordance with Section 12.4 the confidentiality of any
confidential information described therein; and provided, further, each
prospective Transferee shall be required to agree that if it does not become a
participant or assignee it shall return all materials furnished to it in
connection with this Agreement..
ARTICLE XIII: NOTICES
13.1 Giving Notice. Except as otherwise permitted by Section 2.14 with
respect to borrowing notices, all notices and other communications provided to
any party hereto under this Agreement or any other Loan Documents shall be in
writing or by facsimile and addressed or delivered to such party at its address
set forth below its signature hereto or at such other address as may be
designated by such party in a notice to the other parties; provided, however,
that borrowing notices shall be delivered to the Agent at One First National
Plaza, Suite 0173, Chicago, Illinois 60670-0088, Attention: Nathan L. Bloch,
Telephone No.: 312/732-2243, Facsimile No.: 312/732-1117. Any notice, if mailed
and properly addressed with postage prepaid, shall be deemed given when
received; any notice, if transmitted by facsimile, shall be deemed given when
transmitted.
13.2 Change of Address. The Borrower, the Agent and any Lender may each
change the address for service of notice upon it by a notice in writing to the
other parties hereto.
- 129 -
<PAGE>
ARTICLE XIV: COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one agreement, and any of the parties hereto may
execute this Agreement by signing any such counterpart. This Agreement shall be
effective when it has been executed by the Borrower, the Agent and the Lenders
and each party has notified the Agent by telex or telephone, that it has taken
such action.
[Remainder of This Page Intentionally Blank]
- 130 -
<PAGE>
IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have executed
this Agreement as of the date first above written.
GFSI, INC.,
as the Borrower
By: /s/ A. Richard Caputo, Jr.
--------------------------------------------
Name: A. Richard Caputo, Jr.
Title: Vice President
Address:
9700 Commerce Parkway
Lenexa, KS 66219
Attention: Robert Shaw
Telephone No.: 913/888-0445
Facsimile No.: 913/752-3346
with a copy to:
The Jordan Company
9 West 57th Street, 40th Floor
New York, New York 10019
Attention: A. Richard Caputo, Jr.
Telephone: 212/572-0800
Facsimile No.: 212/755-5263
THE FIRST NATIONAL BANK OF
CHICAGO, as Agent, as the Swing Line Bank
and as a Lender
By: /s/ Nathan L. Bloch
--------------------------------------------
Name: Nathan L. Bloch
Title: First Vice President
Address:
One First National Plaza
Suite 0088
Chicago, Illinois 60670-0173
Attention: Nathan L. Bloch
Telephone No.: 312/732-2243
Facsimile No.: 312/732-1117
Signature Page to GFSI Credit Agreement
dated as of February 27, 1997
<PAGE>
EXHIBIT A
TO
CREDIT AGREEMENT
Form of Borrowing Base Certificate
----------------------------------
Attached
<PAGE>
BORROWING BASE CERTIFICATE
TO: The First National Bank of Chicago, as Agent
One First National Plaza
Suite 0173
Chicago, IL 60670-0173
<TABLE>
<CAPTION>
I. GROSS AMOUNT OF ELIGIBLE RECEIVABLES
<S> <C> <C>
1. Face Amount of All Receivables $
----------
2. Less: Receivables aged over
90 days from due date
or 120 days after date
of original invoice ($
----------
3. Cross-aged Receivables ($
----------
a. Aggregate of Cross-aged Receivables $
----------
b. If amount in (a) exceeds $500,00 ($
----------
4. Less: Receivables owing from one
Account Debtor in excess
of 20% of Eligible
Receivables ($
----------
5. Less: Affiliate Receivables ($
----------
6. Less: Non-Complying Federal
Governmental Receivables ($
----------
7. Less: Non-complying State and
Municipal Receivables ($
----------
8. Less: Non-U.S. or Canadian (other
than Quebec) Receivables
(except up to $1,000,000
of Quebec Receivables) in
excess of $1,000,000 ($ )
----------
9. Less: Receivables subject to
offset or counterclaim ($ )
----------
10. Less: Other Ineligible Receivables ($ )
----------
11. Total of Ineligible Receivables and
Reserves (Sum of Lines 2 through 10) ($ )
----------
12. Outstanding face amount of Eligible
Receivables (Line 1, minus Line 11) $
----------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
13. Less: 50% of all accrued advertising
incentives $
----------
14. Gross Amount of Eligible Receivables
(Line 12 minus Line 13) $
----------
15. Availability from Eligible Receivables
(85% of Line 14) = $
----------
II. GROSS AMOUNT OF ELIGIBLE INVENTORY
16. Total Amount of Inventory ($ )
(Lower of FIFO or Market) ---------
17. Less: Obsolete and not ($ )
currently saleable ----------
Inventory
18. Less: Packaging material, ($ )
supplies, raw ----------
materials, and work
in process
19. Less: Consigned Inventory ($ )
----------
20. Less: Goods in transit in ($ )
excess of $7,500,000 ---------
21. Less: Inventory subject to ($ )
a third party Lien ----------
22. Less: Inventory not ($ )
subject to first and ----------
perfected security
interest of the
Agent
23. Less: Inventory at non-permissible third ($ )
party locations ---------
24. Less: Inventory evidenced ($ )
by a Receivable ----------
25. Less: Other Ineligibles ($ )
----------
26. Total of Ineligible Inventory ($ )
and Reserves (sum of Lines 17 ----------
through 25)
27. Gross Amount of Eligible ($ )
Inventory (Line 16 minus ----------
Line 26) x .65
</TABLE>
----------
<PAGE>
<TABLE>
<S> <C> <C>
28. Inventory Availability from
Eligible Inventory By
Reference to Gross Amount of
Eligible Inventory (65% of
Line 27) $
----------
III. OTHER ITEMS
29. Less: Other Reserves ($
----------
30. Borrowing Base (sum of lines 15 and 28
minus 29) $
----------
IV. CALCULATION OF MAXIMUM AVAILABLE AMOUNT
31. Aggregate Revolving Loan Commitments $
----------
32. Less: Commercial and Standby
Letter of Credit Obligations ($
----------
33. Less: Outstanding Revolving Loans ($
----------
34. Amount available as measured by the
commitment level (Line 28 minus
the sum of Lines 32 and 33) $
----------
35. Borrowing Base (Line 30) $
----------
36. Less: Outstanding Revolving Loans ($
----------
37. Less: Standby Letter of
Credit Obligations ($
----------
38. Maximum Available Amount available
as measured by the Borrowing Base
(Line 35 minus the sum of Lines 36
-----
and 37) $
===========
39. Unused Availability (Lesser of
Line 34 and Line 38) $
----------
</TABLE>
Pursuant to, and in accordance with, the terms and provisions of that
certain Credit Agreement ("Credit Agreement") dated as of February 27, 1997
among GFSI, Inc. ("Borrower"), the financial institutions from time to time
parties thereto (the "Lenders"), and The First National Bank of Chicago, as
contractual representative on behalf of itself and the other Lenders (the
"Agent"), as amended, restated, supplemented or otherwise modified from time to
time, Borrower is executing and delivering to Agent this Borrowing Base
Certificate [accompanied by supporting data] (collectively referred to as
"Certificate"). Borrower warrants and represents to the Agent and the
-3-
<PAGE>
Lenders that this Certificate is true, correct, and based on information
contained in Borrower's own records. Borrower, by the execution of this
Certificate, hereby ratifies, conforms and affirms all of the terms, conditions
and provisions of the Credit Agreement, and further certifies on the date of
this certificate, that the Borrower is in compliance with said Credit Agreement.
Dated: ____________________
GFSI, INC.
By:
----------------------------
Name:
Title:
-4-
<PAGE>
EXHIBIT B
TO
CREDIT AGREEMENT
Revolving Loan Commitments
--------------------------
Amount of Revolving % of Revolving
Lender Loan Commitment Loan Commitment
- ------ ------------------- ---------------
The First National
Bank of Chicago $50,000,000 100.00%
TOTAL $50,000,000 100.00%
Term Loan Commitments
---------------------
Amount of Term % of Term
Lender Loan A Commitment Loan A Commitment
- ------ ------------------- -----------------
The First National
Bank of Chicago $40,000,000 100.00%
TOTAL $40,000,000 100.00%
Amount of Term % of Term
Loan B Commitment Loan B Commitment
----------------- -----------------
The First National
Bank of Chicago $25,000,000 100.00%
TOTAL $25,000,000 100.00%
<PAGE>
EXHIBIT C
TO
CREDIT AGREEMENT
Form of Revolving Note
----------------------
REVOLVING LOAN NOTE
U.S.$[ ] Chicago, Illinois
--------- February __, 1997
FOR VALUE RECEIVED, the undersigned, GFSI, INC., a Delaware corporation
(the "Borrower"), HEREBY UNCONDITIONALLY PROMISES TO PAY to the order of [NAME
OF LENDER] (the "Lender") the principal sum of [_______] AND NO/100 DOLLARS
($[____]), or, if less, the aggregate unpaid amount of all "Revolving Loans" (as
defined in the Credit Agreement referred to below) made by the Lender to the
Borrower pursuant to the "Credit Agreement" (as defined below) on the "Revolving
Loan Termination Date" (as defined in the Credit Agreement), or on such earlier
date as may be required by the terms of the Credit Agreement. Capitalized terms
used herein and not otherwise defined herein are as defined in the Credit
Agreement.
The Borrower promises to pay interest on the unpaid principal amount of
each Revolving Loan from the date of such Revolving Loan until such principal
amount is paid in full at a rate or rates per annum determined in accordance
with the terms of the Credit Agreement. Interest hereunder is due and payable
at such times and on such dates as set forth in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to the Agent (as defined below), to such domestic account as
the Agent may designate, in same day funds. At the time of each Revolving Loan,
and upon each payment or prepayment of principal of each Revolving Loan, the
Lender shall make a notation either on the schedule attached hereto and made a
part hereof, or in such Lender's own books and records, in each case specifying
the amount of such Revolving Loan, the respective Interest Period thereof, in
the case of Eurodollar Rate Loans, or the amount of principal paid or prepaid
with respect to such Revolving Loan, as the case may be; provided that the
--------
failure of the Lender to make any such recordation or notation shall not affect
the Obligations of the Borrower hereunder or under the Credit Agreement.
This Revolving Loan Note is one of the "Revolving Notes" referred to in,
and is entitled to the benefits of, the Credit Agreement dated as of February
27, 1997 (as amended, restated,
<PAGE>
supplemented or modified from time to time, the "Credit Agreement") among the
Borrower, the financial institutions from time to time parties thereto (such
financial institutions being herein referred to collectively as the "Lenders")
and The First National Bank of Chicago, as one of the Lenders and as the
contractual representative for the Lenders (the "Agent"). The Credit Agreement,
among other things, (i) provides for the making of Revolving Loans by the Lender
to the Borrower from time to time in an aggregate amount not to exceed at any
time outstanding the U.S. Dollar amount first above mentioned, the indebtedness
of the Borrower resulting from each such Revolving Loan being evidenced by this
Revolving Loan Note and (ii) contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events and also for
prepayments of the principal hereof prior to the maturity hereof, without
penalty or premium, upon the terms and conditions therein specified.
Demand, presentment, protest and notice of nonpayment are hereby waived by
the Borrower.
Whenever in this Revolving Loan Note reference is made to the Agent, the
Lender or Borrower, such reference shall be deemed to include, as applicable, a
reference to their respective successors and assigns permitted pursuant to the
Credit Agreement. The provisions of this Revolving Loan Note shall be binding
upon and shall inure to the benefit of said successors and assigns. Borrower's
successors and assigns shall include, without limitation, a receiver, trustee or
debtor in possession of or for Borrower.
This Revolving Loan Note shall be governed by, interpreted and enforced,
and the rights and liabilities of the parties hereto determined, in accordance
with the internal laws (without regard to the conflicts of law provisions) of
the State of Illinois.
GFSI, INC.
By:_________________________
Name:
Title:
-2-
<PAGE>
SCHEDULE OF REVOLVING LOANS AND PAYMENTS OR PREPAYMENTS
-------------------------------------------------------
Amount of
Principal Unpaid
Amount of Type of Interest Paid or Principal Notation
Date Loan Loan Period/Rate Prepaid Balance Made By
- ---- --------- ------ ----------- --------- ---------- ---------
<PAGE>
EXHIBIT C-1
TO
CREDIT AGREEMENT
FORM OF SWING LINE NOTE
-----------------------
SWING LINE NOTE
U.S. $2,000,000 Chicago, Illinois
February 27, 1997
FOR VALUE RECEIVED, the undersigned, GFSI, INC., a Delaware corporation
(the "Borrower"), HEREBY UNCONDITIONALLY PROMISES TO PAY to the order of THE
FIRST NATIONAL BANK OF CHICAGO (the "Lender") the principal sum of TWO MILLION
AND NO/100 DOLLARS ($2,000,000), or, if less, the aggregate unpaid amount of all
"Swing Line Loans" (as defined in the Credit Agreement referred to below) made
by the Lender to the Borrower pursuant to the "Credit Agreement" (as defined
below) on the "Termination Date" (as defined in the Credit Agreement), or on
such earlier date as may be required by the terms of the Credit Agreement.
Capitalized terms used herein and not otherwise defined herein are as defined in
the Credit Agreement.
The Borrower promises to pay interest on the unpaid principal amount of
each Swing Line Loan from the date of such Swing Line Loan until such principal
amount is paid in full at a rate or rates per annum determined in accordance
with the terms of the Credit Agreement. Interest hereunder is due and payable
at such times and on such dates as set forth in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to the Agent (as defined below), to such domestic account as
the Agent may designate, in same day funds. At the time of each Swing Line
Loan, and upon each payment or prepayment of principal of each Swing Line Loan,
the Lender shall make a notation either on the schedule attached hereto and made
a part hereof, or in such Lender's own books and records, in each case
specifying the amount of such Swing Line Loan, or the amount of principal paid
or prepaid with respect to such Swing Line Loan, as the case may be; provided
--------
that the failure of the Lender to make any such recordation or notation shall
not affect the Obligations of the Borrower hereunder or under the Credit
Agreement.
This Swing Line Note is the "Swing Line Note" referred to in, and is
entitled to the benefits of, the Credit Agreement dated as of February 27, 1997
(as amended, restated, supplemented or modified from time to time, the "Credit
Agreement") among the Borrower, the financial institutions from time to time
parties thereto (such financial institutions being herein referred to
collectively as the "Lenders") and The First National Bank of Chicago, as one of
the Lenders and as the contractual representative for the Lenders (the "Agent").
The Credit Agreement, among other things, (i) provides for the making of Swing
Line Loans by the Lender to the Borrower from time to time in an aggregate
amount not to exceed at any time outstanding the U.S. Dollar amount first above
mentioned, the indebtedness of the Borrower resulting from each such Swing Line
Loan being evidenced by this Swing Line Note and (ii) contains provisions for
acceleration of the maturity hereof upon the happening of certain stated events
and also for
<PAGE>
prepayments of the principal hereof prior to the maturity hereof upon the terms
and conditions therein specified.
Demand, presentment, protest and notice of nonpayment are hereby waived by
the Borrower.
Whenever in this Swing Line Note reference is made to the Agent, the Lender
or Borrower, such reference shall be deemed to include, as applicable, a
reference to their respective successors and assigns permitted pursuant to the
Credit Agreement. The provisions of this Swing Line Note shall be binding upon
and shall inure to the benefit of said successors and assigns. Borrower's
successors and assigns shall include, without limitation, a receiver, trustee or
debtor in possession of or for Borrower.
This Swing Line Note shall be governed by and interpreted and enforced in
accordance with the internal laws (without regard to the conflicts of law
provisions) of the State of Illinois.
GFSI, INC.
By: _______________________________
Name: ____________________________
Title: _____________________________
-2-
<PAGE>
SCHEDULE OF SWING LINE LOANS AND PAYMENTS OR PREPAYMENTS
--------------------------------------------------------
Amount of
Principal Unpaid
Amount of Paid or Principal Notation
Date Loan Prepaid Balance Made By
- ---- --------- --------- --------- --------
-3-
<PAGE>
EXHIBIT D
TO
CREDIT AGREEMENT
Stock Purchase Agreement for Stock Acquisition
----------------------------------------------
Attached
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF STOCK
----------------------------------------
AMONG
-----
GFSI HOLDINGS, INC.,
--------------------
GFSI, INC.
----------
AND
---
ALL THE SHAREHOLDERS OF
-----------------------
WINNING WAYS, INC.
------------------
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF STOCK
----------------------------------------
THIS AGREEMENT FOR PURCHASE AND SALE or STOCK (this "AGREEMENT"),
dated as of the 24th day of January, 1997, is made by and among the individuals
and entities listed on Schedule X attached hereto, being the holders of all of
the outstanding shares of stock of Winning Ways, Inc., a Missouri corporation
(the "COMPANY"), all of said individuals being hereinafter collectively
referred to as the "Sellers," GFSI HOLDINGS, INC., a Delaware corporation
("HOLDINGS"), and GFSI, INC., a Delaware corporation ("Acquisition").
ARTICLE 1
---------
PURCHASE AND SALE: PRICE
------------------------
1.1 Effectiveness of Agreement; Purchase and Sale of the Shares.
-----------------------------------------------------------
1.1.1 This Agreement shall become effective and enforceable against the
parties hereto only upon the satisfaction of each of the conditions precedent
set forth in Section 6.6 of this Agreement. Once this Agreement becomes
-----------
effective, (i) Holdings' and Acquisition's obligations to consummate the
transactions contemplated hereby shall be conditioned upon satisfaction of the
conditions set forth in Article 7 and (ii) the Sellers' obligations to
consummate the transactions contemplated hereby shall be conditioned upon
satisfaction of the conditions set forth in Article 8.
1.1.2 At the Closing (as hereinafter defined) and in the manner herein
provided, the Sellers shall sell and deliver all of the shares of capital stock
of the Company (hereinafter collectively called the "SHARES") to Acquisition and
Holdings, and Acquisition and Holdings shall purchase the Shares from the
Sellers on the terms and conditions set forth herein.
1.2 Definitions. For purposes of this Agreement, the following terms
-----------
shall have the meanings set forth below:
"ADJUSTED NET WORTH" shall mean the sum of (i) the Company's Net
Stockholders' Equity, as reflected on the Closing Balance Sheet (after the
accrual and/or payment of any distributions, dividends or bonuses declared
and/or paid under Section 4.4 hereof), plus (ii) the principal amount of the
-----------
Company's Closing Debt (excluding all interest and fees related to such debt).
"CLOSING BALANCE SHEET" shall mean the statement of financial position
of the Company as of the Closing, without giving
<PAGE>
effect to the transactions contemplated by this Agreement, as prepared
by the Company in accordance with GAAP (as defined in Section 12.5),
------------
consistently applied.
"CLOSING DEBT" shall mean, as of the Closing, the amount
of any indebtedness of the Company for (i) borrowed money, whether due
to banks, financial institutions or any other party, including all
accrued interest and fees related to such indebtedness, or (ii)
capital leases.
"CLOSING DEBT DEFICIENCY" shall mean the amount by which
the Closing Debt, as finally determined pursuant to Section. 1.4.3,
--------------
exceeds the Estimated Closing Debt.
"CLOSING DEBT SURPLUS" shall mean the amount by which the
Estimated Closing Debt exceeds the Closing Debt, as finally
determined pursuant to Section 1.4.3.
-------------
"CLOSING FINANCIALS AND COMPUTATIONS" shall mean the
Closing Balance Sheet and the calculations of the amounts of Closing
Debt and Adjusted Net Worth based on the Closing Balance Sheet.
"DURABLE POWER OF ATTORNEY" shall mean an instrument in
the form of a Durable Power of Attorney to be executed by each of
the Sellers (other than those Sellers executing this Agreement
personally) and by the Sellers' Agents which, among other things,
shall appoint the Sellers' Agents as the agents of Sellers and
define the responsibilities of the Sellers' Agents.
"ESCROW AGENT" shall mean the law firm of Rose,
Brouillette & Shapiro, P.C.
"ESCROW AGREEMENT" shall mean the escrow agreement to be
executed immediately prior to the Closing by the Escrow Agent
Acquisition and the Sellers' Agents (as defined below), the form of
which is attached hereto as Exhibit 1.2.1.
-------------
"ESTIMATED CLOSING DEBT" shall mean the Company's good
faith written estimate of the Closing Debt, which shall be delivered
to Acquisition no more than five (5) nor less than two (2) business
days prior to the Closing Date.
"NET WORTH DEFICIENCY" shall mean, the amount, if any, by
which (i) $63,800,000 exceeds (ii) the Adjusted Net Worth, as
finally determined pursuant to Section 1.4.3 hereof.
-------------
"NET WORTH SURPLUS" shall mean, the amount, if any, by
which (i) the Adjusted Net Worth, as finally determined pursuant to
Section 1.4.3 hereof, exceeds (ii) $63,800,000.
-------------
2
<PAGE>
"SELLERS' AGENTS" shall mean any of Wolff, Robert Shaw,
John Menghini, Larry D. Graveel and Michael H. Gary, as agents for
each of the Sellers, and any successor Sellers' Agents. Any
reference to the Sellers' Agents shall be deemed to be a reference
to any one of such individuals, any three of whom shall have the
power and authority to bind those Sellers executing a Durable Power
of Attorney.
"WOLFF" shall mean Robert M. Wolff, individually.
1.3 Preliminary Purchase Price. Subject to the terms and
--------------------------
conditions of this Agreement and in reliance on the covenants,
representations and warranties of the Sellers herein contained
(including, without limitation,, the sale, conveyance, transfer and
delivery of the Shares to Holdings and Acquisition), Acquisition
and Holdings, collectively, shall pay to the Sellers at the Closing
an amount equal to (x) $232,900,000 less (y) the Estimated Closing
Debt subject to adjustment as of the Closing Date pursuant to
Section 1.4 hereof, to be paid as follows:
-----------
1.3.1 Holdings shall pay $100,000 to the Sellers by
delivery of an aggregate of 100,000 shares of Holdings' Class A
Common Stock, par value $0.01 per share, in an exchange that is
intended to qualify as a tax-free exchange pursuant to the
provisions of Section 351 of the Internal Revenue Code of 1986, as
amended (the Code");
1.3.2 Holdings shall pay $13,500,000 to the Sellers by
delivery of an aggregate of 13,500,000 shares of Holdings' Class A
Preferred Stock, par value $0.01 per share, in an exchange that is
intended to qualify as a tax-free exchange pursuant to the
provisions of Section 351 of the Code;
1.3.3 Subject to the provisions of the following
sentence, Acquisition shall pay to the Sellers' Agents, for the
benefit of all of the Sellers, an aggregate amount of $219,300,000
minus the amount of the Estimated Closing Debt, the resulting
-----
amount of which is hereinafter referred to as the "PRELIMINARY CASH
PURCHASE PRICE." Six hundred thousand dollars ($600,000) of the
Preliminary Cash Purchase Price shall be paid to the Escrow Agent
for the benefit of the Sellers, to be held pursuant to the terms of
the Escrow Agreement and distributed in accordance with the terms
of section 1.4. The balance of the Preliminary Cash Purchase Price
-----------
shall be paid to the Sellers' Agents, for the benefit of the
Sellers, by wire transfer of immediately available funds to the
account designated by the Sellers' Agents in writing to Acquisition
no less than five (5) days prior to the Closing.
3
<PAGE>
1.4 Post-Closing Adjustments.
------------------------
1.4.1 No later than sixty (60) days after the Closing Date, the Company
shall prepare, or cause to be prepared, and deliver to the parties hereto the
Closing Financials and Computations.
1.4.2 Acquisition, the Sellers' Agents and their respective accountants
shall, within fifteen (15) days following receipt of the Closing Financials and
Computations (the "REVIEW PERIOD"), complete their review of the Closing
Financials and Computations. On or before the last day of the Review Period,
Acquisition or the Sellers' Agents (the "OBJECTING PARTY") shall inform the
other (the "NON-OBJECTING PARTY") in writing of any objections to the
calculation of the Closing Debt and/or Adjusted Net Worth as shown in the
Closing Financials and Computations (the "OBJECTIONS"), setting forth detailed
written explanations of the Objections and the adjustments which the Objecting
Party believes should be made to the Closing Debt and/or Adjusted Net Worth. The
amount of the Preliminary Cash Purchase Price, Closing Debt and/or Adjusted Net
Worth not affected by the Objections will be deemed to be final as set forth in
the Closing Financials and Computations. Following its receipt of the
Objections, the Non-Objecting Party shall have 10 days to review and respond in
writing to the Objections. Acquisition and the Sellers' Agents will then have an
additional fifteen (15) days at the end of such period to attempt to resolve in
good faith the Objections.
1.4.3 If Acquisition and the Sellers' Agents are unable to resolve all
of their disagreements with respect to the Objections within the time periods
specified in Section 1.4.2 above, they shall refer any unresolved Objections to
-------------
Deloitte & Touche LLP or to such other nationally-recognized firm of independent
certified public accountants as to which the parties mutually agree (the
"ARBITRATOR"), who shall determine, based on the information submitted by
Acquisition and the Sellers' Agents (and not by independent review), and only
with respect to the remaining differences so submitted, whether and to what
extent the Closing Debt and/or Adjusted Net Worth, as shown in the Closing
Financials and Computations, require adjustment. The Arbitrator's determination
shall be conclusive and binding upon the Sellers and Acquisition. The cost of
such Arbitrator's review shall be borne equally by the Sellers and Acquisition.
Unless the Sellers' Agents and Acquisition otherwise agree in writing, "CLOSING
DEBT" and "ADJUSTED NET WORTH" shall be (i) the amount of Closing Debt and/or
Adjusted Net Worth, respectively, set forth in the Closing Financials and
Computations in the event that neither Acquisition or the Sellers' Agents
deliver any Objections within the Review Period or (ii) the amount of Closing
Debt and/or Adjusted Net Worth as adjusted by the Arbitrator.
4
<PAGE>
1.4.4 If, as a result of such computations, there is a Closing Debt
Deficiency, the amount of the Closing Debt Deficiency shall be paid to
Acquisition, first from the funds held by the Escrow Agent and, to the extent
such funds are not adequate to pay Acquisition for all of the Closing Debt
Deficiency, then Sellers shall pay the remaining amount of such deficiency to
Acquisition as a post-Closing purchase price adjustment.
1.4.5 If, as a result of such computations, there is a Closing Debt
Surplus, Acquisition shall pay the amount of such surplus to Sellers' Agents,
for the benefit of the Sellers, as a post-Closing purchase price adjustment.
1.4.6 It, as a result of such computations, there is a Net Worth
Deficiency, the amount of the Net Worth Deficiency shall be paid to Acquisition,
first from the funds held by the Escrow Agent and, to the extent such funds are
not adequate to pay Acquisition for all of the Net Worth Deficiency (including
any payment that may be required pursuant to Section 1.4.4 above), then Sellers
-------------
shall pay the remaining amount of such deficiency to Acquisition as a post-
Closing purchase price adjustment.
1.4.7 If, as a result of such computations, there is a Net Worth
Surplus, Acquisition shall pay the amount of such surplus to the Sellers'
Agents, for the benefit of the Sellers, as a post-Closing purchase price
adjustment.
1.4.8 Any amounts owed to the Sellers or Acquisition, as the case may
be, under Sections 1.4.4, 1.4.5, 1.4.6 or 1.4.7 hereof shall be paid within ten
-------------- ----- ----- -----
(10) days following the final determination of the Closing Debt and/or Adjusted
Net Worth, as the case may be. Any amount not paid within such time period shall
bear interest from the due date until paid at a rate of 12k per annum.
1.5 Accounts and Notes Receivable. The Sellers' Agents will deliver to
-----------------------------
Acquisition a schedule of all accounts and notes receivable (and the face
amounts thereof) which are outstanding on the Closing Date (as hereinafter
defined). All accounts and notes receivable listed on the schedule delivered at
the Closing will constitute valid claims against third parties not affiliated
with the Company arising in the ordinary course of business of the Company. The
parties hereto agree that Acquisition may assign to the Sellers any accounts and
notes receivable which are outstanding on the Closing Date, and which are
uncollected as of the date six (6) months after the Closing Date, and
concurrently with such assignment the Sellers shall pay to Acquisition in cash
an amount equal to the aggregate value of such accounts and notes receivable to
the extent the same exceeds the reserve for doubtful accounts on the Closing
Balance Sheet. All amounts which are collected from an account or note debtor
after the Closing Date shall be first
5
<PAGE>
applied to reduce the oldest outstanding balance on such account or with such
note debtor.
ARTICLE 2
---------
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
---------------------------------------------
The Sellers hereby jointly and severally represent and warrant to
Holdings and Acquisition, as follows:
2.1 Corporate Organization. etc. The Company is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the state of
Missouri with all requisite corporate power and authority to carry on its
business as it is now being conducted and to own, operate and lease its
properties and assets. Exhibit 2.1.1 lists each of the states where the Company
-------------
is qualified as a foreign corporation. The conduct of its business and its
ownership or use of property do not require the Company to be qualified or
licensed to do business as a foreign corporation in any state except those
listed in Exhibit 2.1.1. Exhibit 2.1.2 contains complete and correct copies of
------------- -------------
the Company's (i) articles or certificate of incorporation; (ii) bylaws; and
(iii) certificates of authority for the states listed in Exhibit 2.1.1, each
-------------
amended to date. The Company has all federal, state, local and foreign licenses,
permits or other approvals required for the operation of its business as now
being conducted.
2.2 Capital Stock; Options. The authorized capital stock of the Company
----------------------
and the shares of capital stock of the Company issued and outstanding, of all
classes, and the respective holdings of each of the Sellers, are as set forth in
Exhibit 2.2. The Shares represent all of the issued and, except for 242,125
- -----------
shares of treasury stock, outstanding capital stock of the Company. All of the
Shares are validly issued, fully paid and nonassessable and are owned by the
Sellers, free and clear of all encumbrances or claims, except as set forth on
Exhibit 2.2. There are no issued and outstanding options, warrants, rights,
- -----------
securities, contracts, commitments, understandings or arrangements by which the
Company is bound to issue any additional shares of its capital stock or options
to purchase shares of its capital stock.
2.3 Subsidiaries and Affiliates. The Company has no subsidiaries.
---------------------------
Except as set forth in Exhibit 2.3, the Company has no Affiliates or investments
-----------
in any other entity or business operation. The term "AFFILIATES" includes each
shareholder, director, officer and employee of the Company, the family members
of each Seller, and any director, officer or employee of the Company, and any
corporation, partnership or other entity in which the Company, any Seller, any
family member of a Seller or director or officer of the Company has any
financial interest or is a controlling person, as that term is used in
connection with the
6
<PAGE>
federal securities laws, if such person or entity has, or in the past had, a
contractual relationship with or is transacting, or has in the past transacted,
business with the Company. All of the outstanding shares of all classes of
capital stock of each subsidiary of the Company are owned by the Company free of
any liens, security interests, claims or encumbrances. The Company has no
Affiliate whose liabilities or obligations will be assumed by Holdings or
acquisition.
2.4 Authorization. etc. The Sellers have full power and authority to
------------------
enter into this Agreement and to carry out the transactions contemplated hereby.
None of the Sellers are residents of any state that has enacted community
property statutes nor are any of the Sellers subject to any community property
statutes.
2.5 No Violation. Except as set forth in Exhibit 2.5, the Company is
------------ -----------
not subject to or obligated under any article or certificate of incorporation,
bylaw, Law (as defined in Section 12.5), or any-agreement or instrument, or any
------------
license, franchise or permit, which would be breached or violated by the
Sellers' execution, delivery and performance of this Agreement. The Sellers will
comply with all applicable Laws in connection with their execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby.
2.6 Governmental Authorities. Except as set forth in Exhibit 2.6,
------------------------ -----------
neither the Sellers nor the Company are required to submit any notice, report or
other filing with, and no consent, approval or authorization is required, by any
governmental or regulatory authority in connection with their execution,
delivery, consummation or performance of this Agreement or the transactions
contemplated hereby.
2.7 Financial Statements. Exhibit 2.7 contains the Company's audited
-------------------- -----------
statements of financial position as of June 30 for each of the years 1992
through 1996 and audited statements of income and retained earnings for the
fiscal years then ended, each such statement being prepared by Donnelly Meiners
Jordan Kline PC. All such statements of financial position and the notes thereto
are complete and accurate and fairly present the financial position of the
Company as of the respective dates thereof, and such statements of income and
retained earnings and the notes thereto fairly present the results of operations
for the periods therein referred to, all in accordance with GAAP consistently
applied throughout the periods indicated (except as stated therein or in the
notes thereto). The statement of financial position as of June 30, 1996 and the
notes thereto are referred to as the "BALANCE SHEET." June 30, 1996 is referred
to as the "FINANCIAL STATEMENT DATE."
2.8 No Undisclosed Liabilities. Claims etc. Except for (i) liabilities
--------------------------------------
fully reflected or reserved against in the Balance
7
<PAGE>
Sheet; (ii) regular and usual liabilities and obligations incurred
in the ordinary course of business consistent with past practices
after the Financial Statement Date (which shall in no event include
any liabilities resulting from breach of contract, any negligent
or intentional acts or omissions or any strict liability claim), and
(iii) the items listed on Exhibit 2.8, the Company has no liabilities,
-----------
obligations or claims (absolute, accrued, fixed or contingent, matured
or unmatured, or otherwise), including liabilities, obligations or
claims which may become known or which arise only after the Closing
and which result from actions, omissions or occurrences of the
Company prior to the Closing.
2.9 Absence of Certain Changes. Except as set forth on
--------------------------
Exhibit 2.9 or the certificate to be delivered pursuant to Section
- ----------- -------
4.4 and 7.15, since the Financial Statement Date, there has not been
- ------------
(i) any adverse change in the business, prospects, financial
condition, earnings or operations of the Company's business; (ii)
any damage, destruction or loss, whether covered by insurance or not,
adversely affecting the Company's properties and business; (iii) any
declaration, setting aside or payment of any dividend whether in
cash, stock or property with respect to the Company's capital stock,
or any redemption or other acquisition of such stock by the Company;
(iv) any increase in the compensation payable or to become payable
by the Company to its directors, officers, key employees, Affiliates
or any of the Sellers or any adoption of or increase in any bonus,
insurance, pension or other employee benefit plan, payment or
arrangement made to, for or with any such party; (v) any entry by
the Company into any commitment or transaction, including, without
limitation, any borrowing or capital expenditure other than in
accordance with the Schedule of Capital Expenditures (Exhibit 2.25);
------------
(vi) any change by the Company in accounting methods, practices or
principles; (vii) any adoption of any statute, rule, regulation or
order which adversely affects the Company; (viii) any termination or
waiver of any rights of value to the business of the Company; (ix)
any other transaction or event other than in the ordinary course of
the Company's business; (x) any transaction or conduct inconsistent
with the Company's past business practices; (xi) any adoption or
amendment of any collective bargaining, bonus, profit sharing,
compensation, stock option, pension, retirement, deferred
compensation, or other plan, agreement, trust, fund or arrangement
for the benefit of employees; or (xii) any agreement or
understanding made or entered into to do any of the foregoing.
2.10 Contracts. Exhibit 2.10 contains a schedule of, and
--------- ------------
copies of, all Contracts to which the Company is a party. The term
"CONTRACTS" shall include, but shall not be limited to, all oral
(which shall be summarized in Exhibit 2.10) and written contracts,
------------
agreements, agency agreements, loan agreements, mortgages,
indentures, deeds of trust, guarantees, commitments, joint venture
agreements, purchase and/or sale agreements, collective bargaining,
union, consulting and/or employment contracts, leases of real or
8
<PAGE>
personal property, easements, distribution or dealer agreements,
service agreements, license agreements and advertising agreements
(except there shall not be included agreements which do no. exceed,
in the case of any one agreement, an annual obligation of 550,000,
and in the case of all agreements, an annual aggregate obligation of
$500,000). The Company is not in default or alleged to be in
default under any Contract nor are any of the Sellers aware of any
default by any other party to any Contract, and there exists no
event, condition or occurrence which, after notice or lapse of time,
or both, would constitute a default under any Contract. All of the
Contracts are in full force and effect and constitute legal, valid
and binding obligations of the parties thereto in accordance with
their terms, and will remain in full force and effect after the
Closing without any notice to or consent by any other party.
2.11 True and Complete Copies. Copies of all agreements,
------------------------
contracts and documents delivered and to be delivered hereunder by
the Sellers or the Company are and will be true and complete copies
of such agreements, contracts and documents. All written summaries
of oral agreements will be true and complete.
2.12 Title and Related Matters. Except as set forth in
-------------------------
Exhibit 2.12, the Company has good and marketable title to all of
- ------------
the properties and assets reflected in the Balance Sheet or acquired
after the date thereof (except properties sold or otherwise disposed
of since the date thereof in the ordinary course of business and
consistent with past practices), including without limitation, the
specific assets referred to in Sections 2.12.1. 2.12.2 and 2.12.3
----------------------- ------
below, free and clear of all mortgages, security interests, liens,
pledges, claims, escrows, options, rights of first refusal,
indentures, easements, licenses, security agreements or other
agreements, arrangements, contracts, commitments, understandings,
obligations, charges or encumbrances of any kind or character,
except as reflected on the Balance Sheet. The Company owns or
leases, directly or indirectly, all of the assets and properties,
and is a party to all licenses and other agreements, presently used
or necessary to carry on the business or operations of the Company
as presently conducted.
2.12.1 Real Property.
-------------
2.12.1.1 The Company has good and marketable title in fee
simple to the land, including buildings and improvements thereon,
shown on the Balance Sheet. All such land, buildings and
improvements of the Company are owned free and clear of all
encumbrances, restrictions and charges of every kind and character,
including, without limitation, any of the various types listed
above, except as set forth on Exhibit 2.12.
------------
2.12.1.2 The Company is not a tenant under any lease(s) of
real property used by the Company except as described on Exhibit
-------
2.10. With respect to the leased real property described on
- ----
9
<PAGE>
Exhibit 2.10 and except as set forth on Exhibit 2.12: (i) all such leases are in
- ------------ ------------
full force and effect and constitute valid and binding obligations of the
respective parties thereto; (ii) there have not been and there currently are
not any defaults thereunder by any party thereto; (iii) no event has occurred
which (whether with or without notice, lapse of time or the happening or
occurrence of any other event) would constitute a default thereunder entitling
the lessor to terminate the lease; and (a) the continuation, validity and
effectiveness of all such leases under the current rentals and other current
terms thereof will ln no way be affected by the transactions contemplated by
this Agreement or, if any would be affected, the Sellers shall use all necessary
means at their disposal to cause an appropriate consent to such transactions to
be delivered to Holdings and Acquisition prior to the Closing Date at no cost
or other adverse consequences to the Company ((i) through (iv) are hereinafter
collectively referred to as "LEASE RESTRICTIONS").
2.12.1.3 Except as shown on Exhibit 2.12, each parcel of real
------------
property, building, structure and improvement owned, leased or otherwise
utilized by the Company (collectively the "PREMISES") conforms to all
applicable Laws, including zoning regulations, none of which will, upon the sale
of the Shares to Holdings and Acquisition, prohibit the use of such properties,
buildings, structures or improvements, for the purposes for which they are now
utilized. The Premises are of good quality construction throughout, are in good
condition and working order, are adequate for their intended purposes, have no
structural or other substantial deficiencies, and are free from deferred
maintenance.
2.12.1.4 The Company does not currently have, and in the past has not
had, any interest (as owner, tenant or otherwise) in any real property except
as disclosed on Exhibit 2.12.
------------
2.12.2 Personal Property. The Company has good and marketable title to
-----------------
all the personal property and assets, tangible or intangible, shown on the
Balance Sheet, except to the extent sold or disposed of in transactions entered
into in the ordinary course of business consistent with past practices since the
Financial Statement Date. The personal property in the aggregate is in good
condition and working order, and each individual item of personal property which
would cost in excess of $25,000 to replace is in good condition and working
order. None of such assets are subject to any (i) contracts of sale or lease,
except contracts for the sale of inventory in the ordinary and regular course of
business; or (ii) security interests, encumbrances, liens or charges of any kind
or character, except as set forth in Exhibit 2.12. Except as set forth in
------------
Exhibit 2.12, there are no Lease Restrictions with respect to the personal
- ------------
property leased by the Company.
10
<PAGE>
2.12.3 Inventories. In addition to Section 2.12.2, the inventories of
----------- --------------
the Company included on the Balance Sheet, to be included on interim balance
sheets provided pursuant to Section 4.8 and owned by the Company on the Closing
-----------
Date: (i) are valued with respect to each category of inventory at the lower of
cost (on a FIFO basis) or market; and (ii) excluding the amount of any
inventories included in any reserves on the Balance Sheet or the Closing Balance
Sheet, do not include any items which are not usable or saleable in the normal
course of the business of the Company as currently conducted within normal
inventory "turn" experience, the value of which has not been fully written
down, or with respect to which adequate reserves have not been provided. The
Company has the proper amount of inventories to conduct its business consistent
with past practices. There has not been since the Financial Statement Date any
provision for markdowns shrinkage with respect to inventories other than in the
ordinary and regular course of business consistent with past practices or as
otherwise consented to by Holdings and Acquisition.
2.12.4 No Disposition of Assets. There has not been since the Financial
------------------------
Statement Date any sale, lease or any other disposition or distribution by the
Company of any of its assets or properties and any other assets now or hereafter
owned by it, except transactions in the ordinary and regular course of business
consistent with past practices or as otherwise consented to by Holdings and
Acquisition.
2.13 Litiqation. Except as set forth in Exhibit 2.13, there is no suit,
---------- ------------
action, investigation or proceeding pending or, to the knowledge of the Sellers,
threatened against the Company or any of the Sellers which, if adversely
determined, would adversely affect the business, prospects, operations,
earnings, properties or the condition, financial or otherwise, of the Company,
nor is there any judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or arbitrator
outstanding against the Company having, or which, insofar as can be reasonably
foreseen, in the future may have, any such effect.
2.14 Tax Matters. The term "TAXES" means all net income, capital gains,
-----------
gross income, gross receipts, sales, use, transfer, ad valorem, franchise,
profits, license, capital, withholding, payroll, employment, excise, goods and
services, severance, stamp, occupation, premium, property, windfall profits,
customs, duties or other taxes, fees or assessments, or other governmental
charges of any kind whatsoever, together with any interest, fines and any
penalties, additions to tax or additional amounts incurred or accrued under
applicable Law or assessed, charged or imposed by any governmental authority,
domestic or foreign, provided that any interest, penalties, additions to tax or
additional amounts that relate to Taxes for any taxable period (including any
portion of any taxable period ending on or before the Closing Date) shall be
11
<PAGE>
deemed to be Taxes for such period, regardless of when such items
are incurred, accrued, assessed or imposed. For the purposes of
this Section 2.14 and Section 6.4, the Company shall be deemed to
------------ -----------
include any predecessor of the Company or any person or entity from
which the Company incurs a liability for Taxes as a result of any
transferee liability. Except as stated in Exhibit 2.14.:
------------
2.14.1 The Company has duly and timely filed (and prior to
the Closing Date will duly and timely file) true, correct complete
tax returns, reports or estimates, all prepared in accordance with
applicable Laws, for all years and periods (and portions thereof)
and for all jurisdictions (whether federal, state, local or foreign)
in which any such returns, reports or estimates were due. All Taxes
shown as due and payable on such returns, reports and estimates have
been paid, and there is no current liability for any Taxes due and
payable in connection with any such returns. All Taxes not yet due
and payable have been fully accrued on the books of the Company and
adequate reserves have been established therefor; the charges,
accruals and reserves for Taxes provided for on the financial
statements delivered or to be delivered pursuant to Section 2.7 and
-----------
Section 4.8 are adequate; and there are no unpaid assessments for
- -----------
additional Taxes for any period nor is there any basis therefor.
Attached hereto as Exhibit 2.14.2 are copies of all federal, state
--------------
and foreign tax returns filed by the Company for the past five (5)
years.
2.14.2 The Company is not, and never has been, a member of
any consolidated, combined or unitary group for federal, state,
local or foreign tax purposes. The Company is not a party to any
joint venture, partnership or other arrangement that could be
treated as a partnership for federal income tax purposes.
2.14.3 The Company has (i) withheld all required amounts
from its employees, agents, contractors and nonresidents and
remitted such amounts to the proper agencies; (ii) paid all employer
contributions and premiums and (iii) filed all federal, state, local
and foreign returns and reports with respect to employee income tax
withholding, and social security and unemployment taxes and
premiums, all in compliance with the withholding tax provisions of
the Code, as in effect for the applicable year or any prior
provision thereof and other applicable Laws.
2.14.4 The federal income tax returns of the Company have
been examined by the Internal Revenue Service (the "IRS"), or have
been closed by the applicable statute of limitations, for all
periods through June 30, 1991; the state tax returns of the Company
have been examined by the relevant state agencies or such returns
have been closed by the applicable statute of limitations for all
periods through June 30, 1991; no deficiencies or reassessments for
any Taxes have been proposed, asserted or assessed against the
Company by any federal, state, local or foreign taxing authority.
12
<PAGE>
Exhibit 2.14.1 describes the status of any federal, state, local
- --------------
or foreign tax audits or other administrative proceedings, discussions
or court proceedings that are presently pending with regard to any
Taxes or tax returns of the Company (including a description of all
issues raised by the taxing authorities in connection with any such
audits or proceedings), and no additional issues are being asserted
against the Company in connection with any existing audits or
proceedings.
2.14.5 The Company has not executed or filed any agreement
or other document extending the period for assessment, reassessment
or collection of any Taxes, and no power of attorney granted by the
Company with respect to any Taxes is currently in force; provided,
--------
however, the Company currently is contesting and has appealed
- -------
certain personal property taxes and has retained Brian Darcy as a
consultant to advise the Company on methods of (i) applying for Tax
refunds for prior periods and (ii) reducing its future Tax
obligations, in either such case, by obtaining the benefits of all
statutes and regulations available to the Company.
2.14.6 The Company has not entered into any closing or
other agreement with any taxing authority which affects any taxable
year of the Company ending after the Closing Date. The Company is
not a party to any tax sharing agreement or similar arrangement for
the sharing of tax liabilities or benefits.
2.14.7 The Company has not agreed to and is not required
to make any adjustment by reason of a change in accounting methods
that affects any taxable year ending after the Closing Date. The IRS
has not proposed to the Company any such adjustment or change in
accounting methods that affects any taxable year ending after the
Closing Date. The Company has no application pending with any taxing
authority requesting permission for any changes in accounting
methods that relate to its business or operations and that affects
any taxable year ending after the Closing Date.
2.14.8 The Company has not consented to the application of
Code Section 341(f).
2.14.9 There is no contract, agreement, plan or
arrangement covering any employee or former employee of the Company
that, individually or collectively, could give rise to the payment
by the Company of any amount that would not be deductible by reason
of Code Section 280G.
2.14.10 No asset of the Company is tax exempt use property
under Code Section 168(h). Except for the real property of the
Company located at 16002 W. 110th Street, Lenexa, Kansas, no portion
of the cost of any asset of the Company has been financed directly
or indirectly from the proceeds of any tax exempt state or local
government obligation described in Code Section 103(a).
13
<PAGE>
2.14.11 None of the assets of the Company is property
that the Company is required to treat as being owned by any other
person pursuant to the safe harbor lease provision of former Code
Section 168(f)(8).
2.14.12 The Company does not have and has not had a
permanent establishment in any foreign country and does not and has
not engaged in a trade or business in any foreign country. Neither
the Sellers nor the Company is a foreign person within the meaning
of Code Section 1445.
2.14.13 None of Holdings, Acquisition or the Company will
be liable for any federal, state, local, foreign and other sales,
use, documentary, recording, stamp, transfer or similar Taxes
applicable to, imposed upon or arising out of the transfer of
the Shares to Holdings and Acquisition and the transactions
contemplated by this Agreement.
2.15 Government Contracts. Except as disclosed in Exhibit
-------------------- -------
2.15; no Contract or other aspect of the business of the Company is
- -----
subject to the Armed Services Procurement Regulations or other
regulations of any governmental agency. The Company has not bid on
or been awarded any "small business set aside contract," any other
"set aside contract" or other order or contract requiring small
business or other special status at any time during the last three
(3) years. None of the Company's expected sales will be lost, and
the Company's customer relations will not be damaged, as a result
of the Company's continuing the operations of an entity that does
not qualify as a small business.
2.16 Compliance with Law.
-------------------
2.16.1 Except as disclosed on Exhibit 2.13, the Company
------------
has not previously failed and is not currently failing to comply
with any applicable Laws relating to the business of the Company or
the operation of its assets where such failure or failures would
individually or in the aggregate have an adverse effect on the
financial condition, business, operations or prospects of the
Company. In particular, but without limiting the generality of the
foregoing, the Company is in compliance with all applicable Laws
relating to (i) anti-competitive practices, (ii) price fixing,
(iii) health and safety, (iv) environmental and (v) except as
disclosed on Exhibit 2.13, employment and discrimination matters.
------------
Except as disclosed on Exhibit 2.13, there are no proceedings of
------------
record and no proceedings are pending or threatened, nor has the
Company or any of the Sellers received any written notice regarding
any violation of any Law, including, without limitation, any
requirement of OSHA or any pollution or environmental control
agency (including air and water).
2.16.2 Exhibit 2.16 contains copies of all reports of
------------
inspections by representatives of any federal, state or local
14
<PAGE>
governmental entity or agency of the business and properties of the
Company from January 1, 1991 through the date hereof under OSHA
and under all other applicable health and safety Laws. The
deficiencies, if any, noted on such reports or any deficiencies
noted by such inspections through the Closing Date shall be
corrected by the Closing Date. Except as disclosed on Exhibit 2.13,
------- ----
neither the Company or any of the Sellers know or have reason to
know of any other safety, health, environmental, anti-competitive or
discrimination problems relating to the financial condition,
business, assets, operations, prospects, earnings or employment
practices of the Company.
2.17 Absence of Certain Business Practices. None of the
-------------------------------------
Sellers, any person or entity related to or affiliated with any of
the Sellers, any officer, employee or agent of the Company or any
of the Sellers, any other person or entity acting on behalf of or
associated with the Company or any of the Sellers, nor any
other entity directly or indirectly owned or controlled by any of the
Sellers or the Company, acting alone or together, has (i) received,
directly or indirectly, any rebates, payments, commissions,
promotional allowances or any other economic benefit, regardless of
its nature or type, from any customer, supplier, trading company,
shipping company, governmental employee or other entity or
individual with whom the Company has done business directly or
indirectly; or (ii) directly or indirectly, given or agreed to give
any gift or similar benefit to any customer, supplier, trading
company, shipping company, governmental employee or other person or
entity who is or may be in a position to help or hinder the
business of the Company (or assist the Company in connection with
any actual or proposed transaction) which (1) might subject the
Company to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, (2) if not given in the
past, might have had an adverse effect on the assets, business or
operations of the Company as reflected in the financial statements
set forth as Exhibit 2.7 or (3), if not continued in the future,
-----------
might adversely affect the assets, business, operations or
prospects of the Company or which might subject the Company to suit
or penalty in any private or governmental litigation or proceeding.
2.18 ERISA and Related Employee Benefit Matters.
------------------------------------------
2.18.1 Welfare Benefit Plans. Exhibit 2.18.1 lists each
--------------------- --------------
"employee welfare benefit plan" (within the meaning of Section 3(1)
of the Employee Retirement Income Security Act of 1974 ("ERISA"))
maintained by the Company or to which the Company contributes or is
required to contribute, including any multiemployer PLAN ("WELFARE
BENEFIT PLAN") and sets forth as of the most recent valuation date
(i) the amount of any liability of the Company for payments due
with respect to any Welfare Benefit Plan, (ii) the amount of any
payment made and to be made, stated separately, by the Company with
respect to any Welfare Benefit Plan for the plan year during which
the Closing is to occur, and (iii)
15
<PAGE>
with respect to any Welfare Benefit Plan to which Section 505 of
the Code applies, a statement of assets and liabilities for such
Welfare Benefit Plan as of tie most recent valuation date. Without
limiting the foregoing, Exhibit 2.18.1 discloses any obligations of
--------------
the Company to provide retiree health benefits to current or former
employees of the Company.
2.18.2 Pension Benefit Plans. Exhibit. 2.18.2 lists each
--------------------- ---------------
"employee pension benefit plan" (within the meaning of Section 3(2)
of ERISA) maintained by the Company or to which the Company
contributes or is required to contribute, including any
multiemployer plan ("PENSION BENEFIT PLAN"). All costs of the
Pension Benefit Plans have been provided for on the basis of
consistent methods and, if applicable, in accordance with sound
actuarial assumptions and practices that are acceptable under ERISA.
With respect to each Pension Benefit Plan that is subject to Title
I, Part 3 of ERISA (concerning "funding"), Exhibit 2.18.2 sets forth
--------------
as of the valuation date (i) the unfunded liability for all accrued
benefits, (ii) the funding method, (iii) the actuarially computed
value of vested benefits, (iv) the fair market value of the assets
held for funding purposes, (v) the amount and plan year of any
"accumulated funding deficiency," as defined in Section 302(a)(2) of
ERISA (arising for any reason whatever) that exists with respect to
any plan year, and (vi) the amount of any contribution by the
Company paid and to be paid, stated separately, for the plan year
during which the Closing is to occur. With respect to each Pension
Benefit Plan that is not subject to Title I, Part 3 of ERISA,
Exhibit 2.18.2 sets forth as of the valuation date (i) the amount of
- --------------
any liability of the Company for any contributions due with respect
to such Pension Benefit Plan and (ii) the amount of any contribution
paid and to be paid, stated separately, by the Company with respect
to such Pension Benefit Plan for the plan year during which the
Closing is to occur.
2.18.3 Compliance with Applicable Law. Each of the
------------------------------
Pension Benefit Plans, Welfare Benefit Plans, any related trust
agreements, annuity contracts, and other funding instruments, comply
with the provisions of ERISA and the Code and all other statutes,
orders, governmental rules and regulations applicable to such
Welfare Benefit Plans and Pension Benefit Plans. The Company has
performed all of its obligations currently required to have been
performed under all Welfare Benefit Plans and Pension Benefit Plans.
There are no actions, suits or claims (other than routine claims for
benefits) pending or threatened against or with respect to any
Welfare Benefit Plans, Pension Benefit Plans or the assets of such
plans, and no facts exist that could give rise to any actions, suits
or claims (other than routine claims for benefits) against such
plans or the assets of such plans. There have been no written or
oral communications with the Internal Revenue Service, Department of
Labor or any other federal, state or local government entity. Each
Pension Benefit Plan is qualified in form and operation under
Section 401(a) of the Code, the Internal Revenue
16
<PAGE>
Service has issued a favorable determination letter with respect to
each Pension Benefit Plan, and no event has occurred that will
or could give rise to a disqualification of any Pension Benefit Plan
under Code section 401(a). No event has occurred that will or could
subject any Welfare Benefit Plan or Pension Benefit Plan to tax
under Section 511 of the Code.
2.18.4 Administration of Plans. Each Welfare Benefit Plan
-----------------------
and each Pension Benefit Plan has been administered to date in
compliance with the requirements of ERISA and the Code. No assets of
any Pension Benefit Plan or Welfare Benefit Plan are invested,
directly or indirectly, in any obligation or security of the Company
or its Affiliates or in any real or personal property of the Company
or its Affiliates. No plan fiduciary of any Welfare Benefit Plan or
Pension Benefit Plan has engaged in (i) any transaction in violation
of Section 406(a) or (b) of ERISA, or (ii) any "prohibited
transaction" (within the meaning of Section 4975(c)(1) of the Code)
for which no exemption exists under Section 408 of ERISA or Section
4975(d) of the Code.
2.18.5 Title IV Plans. With respect to each Pension
--------------
Benefit Plan which is subject to the provisions of Title IV of ERISA
in which the Company (for purposes of this subsection the Company
shall include each trade or business, whether or not incorporated,
which is a member of a group of which the Company is a member and
which is under common control within the meaning of Section 414 of
the Code and the regulations thereunder) participates or has
participated, (i) the Company has not withdrawn from such Pension
Benefit Plan during a plan year in which it was a "substantial
employer" (as defined in Section 4001(a)(2) of ERISA), (ii) the
Company has not completely or partially withdrawn from a Pension
Benefit Plan that is a multiemployer plan, and the liability to
which the Company would become subject under ERISA if the Company
were to withdraw completely from all multiemployer plans in which it
currently participates is not in excess of $10,000 as of the most
recent valuation date applicable thereto, (iii) the Company has not
filed a notice of intent to terminate any such Pension Benefit Plan
or adopted any amendment to treat such Pension Benefit Plan as
terminated, (iv) the Pension Benefit Guaranty Corporation has not
instituted proceedings to terminate any such Pension Benefit Plan,
(v) no other event or condition has occurred that might constitute
grounds under Section 4042 of ERISA for the termination of, or the
appointment of a Trustee to administer, any such Pension Benefit
Plan, (vi) all required premium payments to the Pension Benefit
Guaranty Corporation have been paid when due, and (vii) no
"reportable event" (as described in Section 4043 of ERISA and the
regulations thereunder) has occurred with respect to said Pension
Benefit Plan.
2.18.6 Other Employee Benefit Plans and Agreements.
-------------------------------------------
Exhibit 2.18.3 lists each cafeteria, fringe benefit, profit sharing,
- --------------
deferred compensation, bonus, stock option, stock
17
<PAGE>
purchase, pension, retainer, consulting, retirement, welfare,
or other incentive plan or agreement, employment agreement not
terminable on thirty (30) days or less written notice, and any
other employee benefit plan, agreement, arrangement, or commitment
not previously listed on the Exhibits to this Section that is
maintained by the Company or to which the Company contributes or is
required to contribute.
2.18.7 Copies of Plans. Exhibit 2.18.4 includes true and
--------------- --------------
complete copies of: each Welfare Benefit Plan; each Pension Benefit
Plan; related service agreements, trust agreements, annuity
contracts, insurance contracts and other funding instruments; each
plan, agreement, arrangement, and commitment referred to in Section
-------
2.18.6; favorable determination letters; annual reports (Form
- ------
5500 series) required to be filed with any governmental agency for
each Welfare Benefit Plan, Pension Benefit Plan, and fringe benefit
plan for the three most recent plan years, including, without
limitation, all schedules thereto and all financial statements with
attached opinions of independent accountants; current summary plan
descriptions and actuarial reports as of the last valuation date
for each Pension Benefit Plan that is subject to Title IV of ERISA.
2.18.8 Continuation Coveraqe Requirements for Health
---------------------------------------------
Plans. All group health plans of the Company (including any plans of
- -----
affiliates of the Company that must be taken into account under
Section 498OB of the Code) have been operated in compliance with the
group health plan continuation coverage requirements of Section
4980B of the Code and Title I, Part 6 of ERISA.
2.18.9 Valid Obligations. All Welfare Benefit Plans,
-----------------
Pension Benefit Plans, related trust agreements, annuity contracts
or other funding instruments, and all plans, agreements,
arrangements and commitments referred to in Section. 2.18.6 are
---------------
legal, valid and binding and in full force and effect, and there are
no defaults thereunder. No insurance contract, annuity contract or
other funding instrument with any financial entity or other
organization would impose a penalty, discount, market value
adjustment, or other reduction on account of the withdrawal of
assets from such organization or the change in investment of such
assets. Except as specified in Exhibit 2.18.5, none of the rights of
--------------
the Company thereunder will be impaired by the consummation of the
transactions contemplated by this Agreement, and all of the rights
of the Company thereunder will be enforceable by Holdings and
Acquisition, as the case may be, at and after the Closing without
the consent or agreement of any other party other than consents and
agreements specifically listed in Exhibit 2.18.5.
--------------
2.19 Intellectual Property. The Company has good and
---------------------
marketable title to, owns all right, title, and interest in the
United States in, to, and under, and Exhibit 2.19 contains a
------------
detailed listing of, each copyright, trademark, trade name, service
mark, trade dress, patent, franchise, trade secret, product
18
<PAGE>
designation, formula, process, know-how, right of publicity, design,
registration of any of the foregoing, and application for any patent
or registration, and other similar rights (collectively
"Intellectual Property Rights") used in, or necessary for, the
operation of its business as currently conducted. Except as
otherwise set forth on Exhibit 2.19, all of said Intellectual
------------
Property Rights, the right to use them, and the right to convey them
are free and clear of all royalty and other obligations, security
interests, liens and encumbrances. The Company has the right to use
all Intellectual Property Rights used in, or necessary for, the
operation of its business as currently conducted. The Company has
taken all action necessary to protect against and defend against,
and neither the Company nor any of the Sellers has any knowledge of,
any conflicting use of any such Intellectual Property Rights. The
Company has not utilized, nor does it utilize, any Intellectual
Property Rights, except those which are set forth in Exhibit 2.19.
------------
Except as set forth in Exhibit 2.19, the Company is not a party in
------------
any capacity to any franchise, license, royalty or other agreement
respecting or restricting any Intellectual Property Rights, and,
except as set forth on Exhibit 2.19, the Intellectual Property
------- ----
Rights of the Company do not conflict with the Intellectual Property
Rights or other rights of any third party. No product, including
final and intermediate products, made, imported, offered for sale,
sold or distributed by the Company, or service provided by the
Company, or process used by the Company, violates any license or
infringes any Intellectual Property Rights or other rights of any
third party, and, except as set forth on Exhibit 2.19, there are no
------------
pending claims or demands by any third party to the contrary.
Neither the Company nor the Sellers are aware that any such claim or
demand will be or is likely to be made or of any fact or
circumstance that could reasonably give rise to such a claim or
demand. The Intellectual Property Rights are valid and enforceable.
2.20 Labor Relations. Except as set forth in Exhibit 2.20,
--------------- ------- ----
there have been no strikes, work stoppages or any demands for
collective bargaining by any union or labor organization since
January 1, 1993; there is no collective bargaining relationship
between the Company and any union; there is no dispute or
controversy with any union or other organization of the Company's
employees and there are no arbitration proceedings pending or
threatened involving a dispute or controversy. The Company is in
full compliance with all Laws respecting employment and employment
practices, terms and conditions of employment and wages and hours
including, without limitation, the Fair Labor Standards Act, the
Family and Medical Leave Act of 1993, the Americans with
Disabilities Act of 1990, the Veterans Reemployment Rights Act, the
Equal Employment Opportunities Act, as amended by the Civil Rights
Act of 1991, the Occupational Safety and Health Act, the Employee
Retirement Income Security Act of 1974, the Immigration Reform and
Control Act of 1986, the Age Discrimination in Employment Act, Title
VII of the Civil Rights Act of 1964, the Older Workers
19
<PAGE>
Benefit Protection Act, and all other Laws, each as amended to date, relating
to employer/employee rights and obligations. The Company currently has
satisfactory relationships with its employees. Except as disclosed in Exhibit
-------
2.20 and since January 1, 1993, no officers of the Company have resigned,
- ----
advised the Company of an intention to resign from such employment or refused to
continue employment with the Company. Exhibit 2.20 lists each former employee
------------
and/or officer of the Company whose aggregate annualized compensation exceeded
$200,000 and whose employment by the Company has ceased for any reasons since
January 1, 1993. Set forth opposite the name of each such employee and/or
officer are: the positions held; the beginning and ending employment dates; and
the reason for the cessation of employment.
2.21 Insurance. Exhibit 2.21 lists and includes copies of all
--------- ------------
certificates of coverage regarding all of the Company's existing insurance
policies, the premiums therefor and the coverage of each policy. Such policies
and the amount of coverage and the risks insured are, in the aggregate,
sufficient to protect and insure the Company against perils which good business
practice demands be insured against or which are normally insured against by
other industry members similarly situated, and will remain in full force and
effect after the Closing.
2.22 Suppliers. No suppliers of goods or services to the Company that
---------
has made sales or provided services representing, individually or in the
aggregate, more than $200,000 in payments or commitments by the Company within
the last 12 months has (i) ceased, or indicated any intention to cease, doing
business with the Company, or (ii) changed or indicated any intention to change
any terms or conditions for future supply or sale of products or services from
the terms or conditions that existed with respect to the supply or sale of such
products or services during the 12-month period ending on the date hereof.
2.23 Environmental.
-------------
2.23.1 For purposes of this Section:
2.23.1.1 "HAZARDOUS MATERIALS" means any hazardous, infectious or toxic
substance, chemical, pollutant, contaminant, emission or waste which is or
becomes regulated by any local, state, federal or foreign authority. Hazardous
Materials include, without limitation, anything which is: (i) defined as a
"pollutant" pursuant to 33 U.S.C. (S) 1362(6); (ii) defined as a "hazardous
waste" pursuant to 42 U.S.C. (S) 6921; (iii) defined as a "regulated substance"
pursuant to 42 U.S.C. (S) 6991; (iv) defined as a "hazardous substance" pursuant
to 42 U.S.C. (S) 9601(14); (v) defined as a "pollutant or contaminant" pursuant
to 42 U.S.C. (S) 9601(33); (vi) petroleum; (vii) asbestos; and (viii)
polychlorinated biphenyl.
20
<PAGE>
2.23.1.2 "ENVIRONMENTAL LAWS AND REGULATIONS" means all limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any Laws relating to pollution, nuisance,
or the environment including, without limitation, (i) the Federal Clean Air Act,
42 U.S.C. (S)(S) 7401 et seg.; (ii) the Comprehensive Environmental Response,
-- ---
Compensation, and Liability Act, 42 U.S.C. (S)(S) 9601 et seg.; (iii) the
-- ---
Federal Emergency Planning and Community Right-to-Know Act, 42 U.S.C. (S)(S)
1101 et seg.; (iv) the Federal Insecticide, Fungicide and Rodenticide Act, 7
-- ---
U.S.C. (S)(S) 136 et seg:; (v) the Federal Water Pollution Control Act, 33
-- ---
U.S.C. (S)(S) 1251 et seg.; (vi) the Solid Waste Disposal Act, 42 U.S.C. (S)(S)
-- ---
6901 et seg.; (vii) the Toxic Substances Control Act, 15 U.S.C. (S)(S) 2601
et seg.; (viii) Laws relating in whole or part to emissions, discharges,
- -- ---
releases, or threatened releases of any Hazardous Material; and (ix) Laws
relating in whole or part to the manufacture, processing, distribution, use,
coverage, disposal, transportation, storage or handling of any Hazardous
Material.
2.23.2 The operations and activities of the Company comply, and have
in the past complied, in all respects, with all Environmental Laws and
Regulations. There are no pending or currently proposed changes to any
Environmental Laws and Regulations which, when implemented or effective, may
affect the operations of the Company.
2.23.3 The Company has obtained and is and has been in full compliance
with all requirements, permits, licenses and other authorizations which are
required with respect to the Company's operations, as well as the transactions
contemplated hereby under all Environmental Laws and Regulations. Exhibit 2.23
------------
lists each such permit, license or other authorization. There are no other such
permits, licenses or other authorizations which are required by any
Environmental Laws and Regulations to be obtained after the Closing.
2.23.4 There is no civil, criminal, administrative or other action,
suit, demand, claim, hearing, notice of violation, proceeding, investigation,
notice or demand pending, received, or, to the best knowledge of the Company,
threatened against the Company relating in any way to any Environmental Laws and
Regulations.
2.23 .5 The Company has not caused or experienced any past or present
events, conditions, circumstances, plans or other matters which: (i) are not in
compliance with all Environmental Laws and Regulations; (ii) may give rise to
any statutory, common law, or other legal liability, or otherwise form the basis
of any claim, action, demand, suit, proceeding, hearing, notice of violation or
investigation based on or relating to Hazardous Materials including, without
limitation, such matters relating to any property owned, leased or utilized by
the Company at any time;
21
<PAGE>
(iii) arise from inventory of or waste from Hazardous Materials;
or (iv) arise from any off-site disposal, release or threatened
release of Hazardous Materials.
2.23.6 No asbestos, polychlorinated biphenyls, leadbased
paints, or radon are on any real property or in any building now or
previously owned, operated, leased or utilized by the Company.
2.23.7 No employee or former employee of the Company has
been exposed to any Hazardous Material owned, produced or utilized
by the Company or any former subsidiary.
2.23.8 The Company has not received any notice or
indication from any governmental agency or private or public entity
advising it that it is or may be responsible for any investigation
or response costs with respect to a release, threatened release or
cleanup of chemicals or materials produced by or resulting from any
business, commercial or industrial activities, operations or
processes, including, without limitation, any Hazardous Materials.
The Company is not aware of any facts which might give rise to such
notices.
2.23.9 Except for the concrete vault located at 9700
Commerce Parkway, Lenexa, Kansas which is used to store mineral
spirits, no underground tanks, piping or subsurface structures of
any type exist or have existed on any real property now or
previously owned, operated, leased or utilized by the Company.
2.23.10 Exhibit 2.23 contains complete copies of all
------------
environmental investigations, assessments, audits, studies, tests
and related materials in possession of the Company, or known to the
Company to exist, which relate to the current or prior operations of
the Company or any real property now or previously owned, operated,
leased or utilized by the Company.
2.24 Capital Expenditures. The Company has outstanding
--------------------
commitments for capital expenditures as set forth in Exhibit 2.24
------------
which includes a schedule of substantially all monies disbursed on
account of capital expenditures made by the Company between the
Financial Statement Date and the date hereof. After the date hereof,
no capital expenditures or commitments in excess of $200,000 in the
aggregate will be made by the Company, except as set forth in
Exhibit 2.24 or with Holdings' and Acquisition's prior written
- --------
consent.
2.25 Warranties. Except as set forth in Exhibit 2.25,
---------- ------------
there are no claims existing or threatened under or pursuant to any
warranty, whether expressed or implied, on products or services sold
by the Company and the Balance Sheet reserves, if any, for
anticipated claims are adequate to cover any such claims. Exhibit
-------
2.25 includes a copy of the form of all written warranties
- ----
22
<PAGE>
furnished by the Company to purchasers of any product since January
1, 1993.
2.26 Dealings with Affiliates. Exhibit 2.26 sews forth a
------------------------ ------------
complete list (including the parties) and copies (or a detailed
summary in the case of an oral agreement) of all oral or writ,en
contracts, arrangements or other agreements to which the Company
or any Affiliate is, will be or has been a party at any time from
January 1, 1993, to the Closing Date, and to which any other
Affiliate or the Company was or is also a party.
2.27 Business Generally. Since July 1, 1996, here have
------------------
been no events, transactions or information which have come to the
attention of the Sellers (other than matters in the public domain)
which could be expected to have an adverse effect on the business
and operations of the Company, and the Company is not a party to any
agreement, contract or covenant limiting the Company from competing
in any line of business or with any person or other entity in any
geographic area.
2.28 Bank Accounts. Exhibit 2.28 is a list of all bank
------------- ------------
accounts, lock boxes, post office boxes and safe deposit boxes
maintained in the name of or controlled by the Company and the names
of the persons having access thereto.
2.29 Disclosure. No representation or warranty made by the
----------
Sellers in this Agreement or in any agreement, instrument, document,
certificate, statement or letter furnished to Holdings or
Acquisition, by or on behalf of the Sellers in connection with any
of the transactions contemplated by this Agreement contains any
untrue statement of fact or omits to state a fact necessary in order
to make the statements herein or therein not misleading in light of
the circumstances in which they are made.
ARTICLE 3
---------
REPRESENTATIONS AND WARRANTIES OF HOLDINGS AND ACQUISITION
----------------------------------------------------------
Holdings and Acquisition hereby represent and warrant to
the Sellers, as follows:
3.1 Corporate Organization. etc. Acquisition is a
-----------------------
corporation duly organized, validly existing and in good standing
under the laws of the state of Delaware and will be qualified to do
business in Kansas on the Closing Date. Holdings is a corporation
duly organized, validly existing and in good standing under the laws
of the state of Delaware.
3 .2 Capitalization. Holdings has authorized capital stock
--------------
consisting of 100,000 shares of Common Stock, par value $.01
23
<PAGE>
per share. Acquisition has authorized capital stock consisting of
100,000 shares of Common Stock, par value $.01 per shares.
3.3 Authorization etc. Each of Holdings and Acquisition
-----------------
has full corporate power and authority to enter into this Agreement
and to carry out the transactions contemplated hereby. The Board of
Directors of each of Holdings and Acquisition has duly authorized
the execution and delivery of this Agreement and the transactions
contemplated hereby, and no other corporate proceedings on its part
are necessary to authorize this Agreement and the transactions
contemplated hereby.
3.4 No Violation. Neither Holdings nor Acquisition is
------------
subject to or obligated under any certificate of incorporation,
bylaw, Law, or any agreement or instrument, or any license,
franchise or permit, which would be breached or violated by its
execution, delivery or performance of this Agreement. Each of
Holdings and Acquisition will comply with all Laws in connection
with its execution, delivery and performance of this Agreement and
the transactions contemplated hereby.
3.5 Governmental Authorities. Neither Holdings nor
------------------------
Acquisition is required to submit any notice, report or other
filing with and no consent, approval or authorization is required
by any governmental or regulatory authority in connection with
Holdings' and Acquisition's execution or delivery of this Agreement
or the consummation of the transactions contemplated hereby.
ARTICLE 4
-------
COVENANTS OF THE SELLERS
------------------------
Except as otherwise consented to or approved by Holdings
and Acquisition in writing, until the Closing, the Sellers jointly
and severally covenant and agree (and will cause the Company to act
or refrain from acting where required hereinafter) as follows:
4.1 Regular Course of Business. The Company will operate
--------------------------
its business in the ordinary course, diligently and in good faith,
consistent with past management practices; will maintain all of its
properties in customary repair, order and condition, reasonable
wear and tear excepted; will maintain (except for expiration due to
lapse of time) all leases and contracts described herein in effect
without change except as expressly provided herein; will comply
with the provisions of all Laws applicable to the conduct of its
business; will not engage in any significant or unusual
transaction; will not cancel, release, waive or compromise any
debt, claim or right in its favor having a value in excess of
$25,000; will maintain insurance coverage up to the Closing Date in
amounts adequate to protect and insure the Company against perils
which good business practice demands be insured against or which
24
<PAGE>
are normally insured against by other industry members similarly
situated.
4.2 Amendments. Except as required for the transactions
----------
contemplated in this Agreement, no change or amendment shall be made
in the Company's articles or certificate of incorporation or bylaws.
The Company will not merge into or consolidate with any other
corporation or person, or change the character of its business.
4.3 Capital Changes. The Company will not issue or sell
---------------
any shares of its capital stock of any class or issue or sell any
securities convertible into, or options, warrants to purchase or
rights to subscribe to, any shares of its capital stock of any
class.
4.4 Redemptions; Distributions: Bonuses. The Company will
-----------------------------------
not acquire any shares of its capital stock and will not declare or
pay any dividend or other distribution in respect of its capital
stock without delivering written notice of such declaration or
payment to Holdings and Acquisition within five (5) days after the
declaration or payment, as the case may be, of such dividend or
other distribution (but in no event later than two (2) days prior to
Closing). Concurrently with the execution of this Agreement, the
Chief Financial Officer of the Company shall deliver to Holdings and
Acquisition a certificate which sets forth the bonuses to be paid to
Sellers and the employees of the Company. Except for the payment of
bonuses in accordance with such certificate, the Company will not
pay, set aside, accrue, agree to or become liable in any manner for
any bonus, of any nature or type, to the Sellers or to any employee
or officer of the Company.
4.5 Capital Expenditures. The Company will not make any
--------------------
capital expenditures, or commitments with respect thereto, except as
set forth in Exhibit 2.24.
------------
4.6 Borrowing. The Company will not (i) incur, assume or
---------
guarantee any indebtedness or capital leases, (ii) create or permit
to become effective any mortgage, pledge, lien, encumbrance or
charge of any kind upon its assets other than in the ordinary course
of business or (iii) prepay any debt or obligation in excess of
$500,000 in the aggregate (except for prepaying trade accounts
payable in the normal course of business to take advantage of cash
discounts and for paying down the Company's seasonal working capital
revolver).
4.7 Other Commitments. Except in the ordinary course of
-----------------
business consistent with past practices, the Company will not enter
into any transaction, make any commitment or incur any obligation.
4.8 Interim Financial Information. The Company will supply
-----------------------------
Holdings and Acquisition with unaudited monthly financial
25
<PAGE>
statements on the earlier of (i) fifteen (15) days following the
end of each month ending between the Financial Statement. Date and
the Closing Date or (ii) the date such unaudited monthly financial
statements are prepared, in either case, certified by its President
and chief financial officer as having been prepared in accordance
with procedures employed by the Company in preparing prior monthly
financial statements. All such financial statements shall be
accompanied by a certificate of the Company's President and chief
financial officer certifying that such financial statements were
prepared in accordance with GAAP applied on a basis consistent with
the unaudited financial statements for the preceding months and such
unaudited statements include all adjustments (all of which were
normal recurring adjustments) necessary to fairly present the
financial position, results of operations and changes in financial
position at and for such period.
4.9 Full Access and Disclosure.
--------------------------
4.9.1 The Company shall afford to Holdings, Acquisition
and their counsel, accountants and other authorized representatives
access during business hours to the Company's plants, properties,
books and records in order that Holdings and Acquisition may have
full opportunity to make such reasonable investigations as it shall
desire to make of the affairs of the Company and the Company will
cause its officers and employees to furnish such additional
financial and operating data and other information as Holdings and
Acquisition shall from time to time reasonably request.
4.9.2 From time to time prior to the Closing Date, the
Company will promptly supplement or amend in writing information
previously delivered to Holdings or Acquisition with respect to any
matter hereafter arising which, if existing or occurring at the date
of this Agreement, would have been required to be set forth or
disclosed.
4.10 Consents. The Company will use its best efforts to
--------
obtain on or prior to the Closing Date all consents necessary to the
consummation of the transactions contemplated hereby. The use of
best efforts shall not require the expenditure of money.
4.11 Breach of Agreement. Neither the Sellers nor the
-------------------
Company will take any action which, if taken prior to the Closing
Date, would constitute a breach of this Agreement.
4.12 Further Assurances. The Company, the Sellers and the
------------------
Company's counsel will furnish Holdings or Acquisition with such
other and further documents, certificates, opinions, consents and
information as either Holdings or Acquisition shall reasonably
request to enable Holdings or Acquisition to attempt to borrow funds
from a bank or other lending entity or individual(s) for the
purchase of the Shares and to evidence compliance with the terms
26
<PAGE>
and conditions of any credit agreement to be entered into between
Holdings or Acquisition and a bank and/or other lending entity on
individuals.
4.13 Fulfillment of Conditions. The Sellers and the
-------------------------
Company will take all commercially reasonable steps necessary or
desirable, and proceed diligently and in good faith, to satisfy each
condition to the obligations of Holdings and Acquisition contained
in this Agreement and will not take or fail to take any action that
could reasonably be expected to result in the nonfulfillment of any
such condition.
ARTICLE 5
---------
COVENANTS OF HOLDINGS AND ACQUISITION
-------------------------------------
Holdings and Acquisition hereby covenant and agree with
the Sellers that:
5.1 Confidentiality. Each of Holdings and Acquisition will
---------------
hold in strict confidence and not disclose to any other party (other
than its counsel and other advisors), without the prior consent of the
Sellers' Agents, all information received by Holdings or Acquisition
from any of the Sellers or the Company, any of the Company's
officers, directors, employees, agents, counsel or auditors in
connection with the transactions contemplated hereby, except as may
be required by applicable law or as otherwise contemplated herein.
5.2 Books and Records. Each of Holdings and Acquisition
-----------------
shall preserve and keep the Company's books and records delivered
hereunder for a period of three (3) years from the date hereof and
shall, during such period, make such books and records available to
former officers and directors of the Company for any reasonable
purpose.
ARTICLE 6
---------
OTHER AGREEMENTS
----------------
Holdings, Acquisition and the Sellers covenant and agree
that:
6.1 Agreement to Defend. In the event any action, suit,
-------------------
proceeding or investigation of the nature specified in Section 7.5
-----------
or Section 8.2 hereof is commenced, whether before or after the
-----------
Closing Date, all the parties hereto agree to cooperate and use
their best efforts to defend against and respond thereto.
27
<PAGE>
6.2 Consultants, Brokers and Finders. Except for
--------------------------------
Associates, whose fees and commissions shall be paid by Acquisition
at or promptly after the Closing, the Sellers, Holdings and
Acquisition each represent and warrant to the other that they have
not retained any consultant, broker or finder in connection with
the transactions contemplated by this Agreement. Except for the
Assumed Expenses (as defined in Section 12.3), the Sellers, Holdings
------------
and Acquisition each hereby agree to indemnify, defend and hold the
other party and its officers, directors, employees and affiliates,
harmless from and against any and all claims, liabilities or
expenses for any brokerage fees, commissions or finders fees due to
any consultant, broker or finder retained by the indemnifying party.
6.3 Wolff Noncompetition Agreement. At the Closing, Wolff
------------------------------
will enter into a Noncompetition Agreement with Acquisition, in
substantially the form set forth as Exhibit 6.3.
-----------
6.4 Taxes.
-----
6.4.1 The Sellers shall be liable and indemnify Holdings,
Acquisition and the Company for all Taxes of the Company to the
extent such Taxes are not adequately provided for as current Taxes
on the Balance Sheet (i) for taxable periods ending on or before the
Closing Date and (ii) for any period not ending on or before the
Closing Date, for the portion of any Taxes attributable to the
period ending on the Closing Date.
6.4.2 All Taxes attributable to the operations of the
Company for periods after the Closing Date shall be borne by the
Company. For any period that includes but does not end on the
Closing Date, (i) liability for any Taxes determined by reference to
income, capital gains, gross income, gross receipts, sales, net
profits, windfall profits or similar items or resulting from a
transfer of assets shall be allocated between the Sellers and the
Company based on the date on which such items accrued; and (ii)
liability for all other Taxes shall be allocated between the Sellers
and the Company, pro rata based on the number of days in the taxable
period for which each party is liable for Taxes hereunder. With
respect to the Subchapter S Corporation tax year of the Company that
ends on the Closing Date, the tax liability of the Sellers for items
described in Code Section 1366(a) shall be determined as provided in
Code Section 1362(e)(3) and an appropriate election shall be made
thereunder. The Sellers agree that the Sellers will not permit the
Subchapter S Corporation status of the Company to terminate prior to
the Closing Date.
6.4.3 The Sellers shall cause the Company to prepare and
file all tax returns and reports of the Company due on or prior to
the Closing Date, which returns and reports shall be prepared and
filed timely and on a basis consistent with existing procedures for
preparing such returns and reports and in a manner consistent
28
<PAGE>
with prior practice with respect to the treatment of specific ieems
on the returns or reports; provided, however, that if the treatment.
-------- -------
of any item on any such return or report has not been provided by
prior practice, the Sellers shall cause the Company to report such
items in a manner that would result in the least amount of tax
liability to the Company, Holdings and Acquisition for periods
ending after the Closing Date. Holdings and Acquisition shall cause
the Company to prepare and file all tax returns and reports of the
Company due after the Closing Date, which returns and reports, to
the extent they relate to taxable periods beginning prior to, but
including the Closing Date, and for the purpose of determining the
Sellers' liability for Taxes, shall be prepared and filed timely
and on a basis consistent with existing procedures for preparing
such returns and in a manner consistent with prior practice with
respect to the treatment of specific items on the returns and
reports, unless such treatment does not have sufficient legal
support to avoid the imposition of penalties. In the event the
Sellers are liable under Section 6.4.1 hereof for Taxes due in
-------------
connection with the returns described in the preceding sentence,
the Sellers shall pay the amount of such liability to the Company
immediately upon request or at least three (3) business days prior
to the filing of such returns, whichever is later.
6.4.4 Holdings, Acquisition, the Company and the Sellers
shall provide each other with such assistance as may reasonably be
requested by the others in connection with the preparation of any
return or report of Taxes, any audit or other examination by any
taxing authority, or any judicial or administrative proceedings
relating to liabilities for Taxes. Holdings, Acquisition, the
Company and the Sellers will retain for the full period of any
statute of limitations and provide the others with any records or
information which may be relevant to such preparation, audit,
examination, proceeding or determination.
6.4.5 If in connection with any examination,
investigation, audit or other proceeding in respect of any tax
return covering the operations of the Company on or before the
Closing Date, any governmental body or authority issues to the
Company a written notice of deficiency, a notice of reassessment, a
proposed adjustment, an assertion of claim or demand concerning the
taxable period covered by such return, Holdings, Acquisition or the
Company shall notify the Sellers' Agents of its receipt of such
communication from the governmental body or authority within thirty
(30) business days after receiving such notice of deficiency,
reassessment, adjustment or assertion of claim or demand. No
failure or delay of Holdings, Acquisition or the Company in the
performance of the foregoing shall reduce or otherwise affect the
obligations or liabilities of the Sellers pursuant to this
Agreement, except to the extent that such failure or delay shall
have adversely affected the Sellers' ability to defend against any
liability or claim for Taxes that the Sellers are obligated to pay
hereunder. Except as provided below, the Sellers shall, at his,
29
<PAGE>
her or its expense, have the nonexclusive right to participate in
the contest of any such assessment, proposal, claim, reassessment,
demand or other proceedings in connection with any tax return
covering taxable periods of the Company ending on or before the
Closing Date. Holdings, Acquisition and the Company will not be
obligated to settle or resolve any issue related to Taxes for such
a period, which, if so settled or resolved, could have an effect on
the Company, Holdings or Acquisition for periods after the Closing
Date, unless the Sellers' Agents agree in writing with Holdings,
Acquisition and the Company, in terms reasonably satisfactory to
Holdings, Acquisition and the Company, to indemnify Holdings,
Acquisition and the Company from any cost, damage, loss or expense
relating to such settlement or resolution. Notwithstanding anything
in this Agreement to the contrary, if any examination,
investigation, audit or other proceeding relates to a tax return
for a period that begins before and ends after the Closing Date,
Holdings, Acquisition and the Company shall solely participate in,
control and resolve such examination, investigation, audit or other
proceeding, provided that Holdings and Acquisition shall
communicate with the Sellers' Agents regarding the status of such
examination, investigation, audit or proceeding.
6.4.6 If the Company receives any refund for Taxes
attributable to the period prior to the Closing, such refund shall
be paid promptly to the Sellers by the Company, pro rata according
to each Seller's ownership interest in the Company immediately
prior to the Closing. Any amounts to be paid to the Sellers
pursuant to this paragraph shall be deemed to be a post-Closing
purchase price adjustment.
6.5 Life Insurance. Provided the Closing occurs, the
--------------
parties agree that in connection with the Closing Wolff, Barry
Golden, John Menghini and Robert Shaw shall each have the
individual option to require that the Company (i) assign to such
individual the entire life insurance policy owned by the Company
which insures the respective life of such individual (including any
cash values thereon if requested by any of such individuals), or
(ii) assign to such individual just the life insurance portion of
such policy, excluding any cash values on such policies. Such
options shall be exercised by delivering written notice thereof to
the Company no later than the Closing Date. The cash value of any
life insurance policy assigned by the Company to any of such
individuals shall be paid to the Company or its successor no later
than the time of delivery of the Closing Financials and
Computations. At the time such policies are renewed, such
individuals shall have the option of paying the premiums for such
policies or letting the policies lapse.
30
<PAGE>
6.6 Conditions Precedent. The Sellers, Holdings and
--------------------
Acquisition each agree that the following conditions precedent must
be satisfied before this Agreement shall be effective and binding
upon any party to this Agreement:
6.6.1 Wolff Employment Agreement. No later than January
--------------------------
31, 1997, Wolff and Acquisition shall have agreed upon the form of
an Employment Agreement to be executed by Wolff and Acquisition at
Closing (the "WOLFF EMPLOYMENT AGREEMENT"). Wolff and Acquisition
shall each indicate their agreement to the form other Wolff
Employment Agreement by initialling the form of such document no
later than January 31, 1997 and attaching the initialled document to
this Agreement as Exhibit 6.6.1.
-------------
6.6.2 Subscrition and Stockholders Aqreement. No later
--------------------------------------
than January 31, 1997, the Sellers' Agents and Holdings shall have
agreed upon the form of a Subscription and Stockholders Agreement to
be executed by all the stockholders of Holdings at Closing (the
"SUBSCRIPTION AGREEMENT"). Sellers' Agents and Holdings shall each
indicate their agreement to the form of the Subscription Agreement
by initialling the form of such document no later than January 31,
1997 and attaching the initialled document to this Agreement as
Exhibit 6.6.2.
-------------
6.6.3 Consulting Fees. No later than January 31, 1997, the
---------------
Sellers' Agents and Holdings shall have agreed upon the fees to be
paid to TJC Management Corporation ("TJC") pursuant to the
consulting agreement to be executed between Holdings and TJC at
Closing. Sellers' Agents and Holdings shall each indicate their
agreement to the amount of such fees by executing a letter agreement
regarding same no later than January 31, 1997.
6.6.4 Approval of Exhibits. No later than January 31,
--------------------
1997, the Sellers' Agents shall have delivered to Holdings and
Acquisition all of the materials to be included in the Exhibits to
Article 2 of this Agreement. Holdings and Acquisition shall have
until February 15, 1997 to review and accept same. If prior to
February 15, 1997, neither Holdings nor Acquisition delivers to the
Sellers' Agents a written letter indicating that such party does not
wish to proceed with the transactions contemplated by this
Agreement, then the materials delivered to Holdings and Acquisition
shall be deemed to be the Exhibits to this Agreement by all of the
parties to this Agreement; provided, however, Holdings' and
-------- -------
Acquisition's acceptance and review of such materials as the
Exhibits to this Agreement shall not be deemed to waive or otherwise
affect their rights under Article 11 of this Agreement.
6.6.5 Failure to Satisfy Conditions. If each of the
-----------------------------
conditions precedent set forth in Sections 6.7.1, 6.7.2 6.7.3 and
-------------------------------
6.7.4 of this Agreement is not satisfied by the dates required
-----
therein, then this Agreement shall be deemed void ab initio and of
---------
31
<PAGE>
no force or effect and no party to this Agreement shall have any
obligation or liability to any other party to this Agreement.
6.7 Durable Power of Attorney. Concurrently with the
-------------------------
execution of this Agreement, the Sellers' Agents shall deliver to
Holdings and Acquisition an executed copy of the Durable Power of
Attorney for those Sellers who are executing this Agreement by power
of attorney.
6.8 Transfer of Hawker: Provided the Closing occurs, the
------------------
parties agree that in connection with the Closing Wolff shall have
the option to require the Company to assign to him title to the
Hawker 1000 aircraft upon payment to the Company from Wolff of the
book value of such aircraft as shown on the general ledger of the
Company as of the Closing Date.
ARTICLE 7
---------
CONDITIONS TO THE OBLIGATIONS OF HOLDINGS AND ACQUISITION
---------------------------------------------------------
Each and every obligation of Holdings and Acquisition
under this Agreement shall be subject to the satisfaction, on or
before the Closing Date, of each of the following conditions unless
waived in writing by Holdings and Acquisition:
7.1 Representations and Warranties; Performance. The
-------------------------------------------
representations and warranties made by the Sellers herein shall be
true and correct on the date of this Agreement and on the Closing
Date with the same effect as though made on such date; the Sellers
shall have performed and complied with all agreements, covenants and
conditions required by this Agreement to be performed and complied
with by them prior to the Closing Date; the Sellers shall have, and
shall have caused the President and chief financial officer of the
Company to have delivered to Holdings and Acquisition a certificate,
dated the Closing Date, in the form designated Exhibit 7.1 hereto,
-----------
certifying to such matters and the other conditions contained in
this Article 7.
7.2 Consents and Approvals. All consents from and filings
----------------------
with third parties, regulators and governmental agencies required to
consummate the transactions contemplated hereby, or which, either
individually or in the aggregate, if not obtained, would cause an
adverse effect on the Company's financial condition or business
shall have been obtained and delivered to Holdings and Acquisition.
7.3 Opinion of the Sellers' Counsel. Holdings and
-------------------------------
Acquisition shall have received an opinion of the Sellers' counsel,
dated the Closing Date, substantially in the form attached hereto as
Exhibit 7.3.
- -----------
32
<PAGE>
7.4 No Adverse Change. There shall have been no adverse
-----------------
change since the Financial Statement Date in the business,
prospects, financial condition, earnings of operations of the
Company's business.
7.5 No Proceeding or Litigation. No action, suit
---------------------------
or proceeding before any court or any governmental or regulatory
authority shall have been commenced or threatened, and no
investigation by any governmental or regulatory authority shall have
been commenced or threatened against any of the Sellers, the
Company, Holdings, Acquisition or any of their respective
principals, officers or directors seeking to restrain, prevent or
change the transactions contemplated hereby or questioning the
validity or legality of any of such transactions or seeking damages
in connection with any of such transactions.
7.6 Comfort Letter and Solvency Certificate. Holdings and
---------------------------------------
Acquisition shall have received (i) a "comfort" letter from the
Company's independent certified public accountants, dated the
Closing Date. based upon a limited review (but not an audit)
conducted no earlier than five (5) business days preceding the
Closing Date and (ii) a "solvency" certificate from the Company's
President and chief financial officer substantially in the forms of
Exhibits 7.6.1 and 7.6.2 hereto, respectively, which documents shall
- -------------- -----
relate to the operations and financial conditions of the Company and
the interim financial statements delivered pursuant to Section 4.8
-----------
hereof.
7.7 Financial Condition at Closing.
------------------------------
7.7.1 Except for liabilities set forth in the Balance
Sheet and accounts payable incurred in the ordinary course of
business of the Company consistent with past practices, the Company
shall not owe any debt at the Closing Date. The term "debt" includes
notes payable and the short-term and long-term portions of any and
all debt or obligations, including capitalized lease obligations.
7.7.2 The mix and composition of the assets and
liabilities of the Company on the Closing Date will not be
materially different than those indicated on the Balance Sheet.
7.7.3 The Company's Adjusted Net Worth as of the Closing
shall be at least $63,800,000.
7.7.4 The Company's adjusted earnings (excluding all
extraordinary items and non-recurring expenses) before provision for
interest, income taxes, depreciation and amortization for the fiscal
year ended June 30, 1996, calculated in accordance with GAAP, shall
have been at least $36,600,000.
33
<PAGE>
7.7.5 The Company's net revenues for the fiscal year ended
June 30, 1996, calculated in accordance with GAAP, shall have been
at least $169,200,000.
7.8 Audit Review. Deloitte & Touche LLP shall conduct a
------------
review of the audit of the Company as at June 30, 1996, the results
of which shall be satisfactory to Holdings and Acquisition in their
sole and absolute discretion.
7.9 Review. A full due diligence review of the Company's
------
business shall be completed by Holdings, Acquisition, their legal
counsel, their outside consultants, or others appointed by Holdings
or Acquisition. Holdings and Acquisition shall be satisfied in their
sole and absolute discretion with the results of their due diligence
review of the Company and its business operations, prospects and
assets. Holdings and Acquisition shall bear the costs of this
review.
7.10 Other Documents. The Sellers will furnish or cause
---------------
the Company to furnish Holdings and Acquisition with such other and
further documents and certificates of its officers and others as
Holdings or Acquisition shall reasonably request to evidence
compliance with the conditions set forth in this Agreement.
7.11 Other Agreements. The Agreements described in Article
----------------
6 shall have been entered into and delivered.
7.12 Estoppel Certificate. The Sellers shall have
--------------------
furnished Holdings and Acquisition with an estoppel certificate in
the form attached hereto as Exhibit 7.12, which shall have been
------------
executed by the lessor under the lease described on Exhibit 2.12.
------------
7.13 Withholding Certificate. The Seller shall have
-----------------------
executed and delivered to Holdings and Acquisition a certificate,
substantially in the form of Exhibit 7.13 attached hereto.
------------
7.14 Financing. Holdings and Acquisition shall have
---------
obtained funds in an aggregate amount sufficient to consummate the
transactions hereunder on terms and conditions satisfactory to
Holdings and Acquisition.
7.15 Compensation. Concurrently with the execution of this
------------
Agreement the Chief Financial Officer of the Company shall execute
and deliver to Holdings and Acquisition a certificate listing the
current job title and total remuneration (including, without
limitation, salary, commissions and bonuses) for each of the Sellers
and for each officer, director, employee or consultant of the
Company who received total remuneration in excess of $200,000 from
the Company during any of the past three (3) fiscal years or who is
expected to receive total remuneration in excess of such amount
during the current fiscal year. Except as disclosed on such
certificate, the Company shall not increase or commit to
34
<PAGE>
increase the base compensation, commission; bonus or the rate (or any
other component) of total compensation payable or to become payable
by the Company to any employee (including any director officer),
whether such person is listed on such certificate or not, and no
extraordinary compensation or bonus shall be paid by the Company.
ARTICLE 8
---------
CONDITIONS TO THE OBLIGATIONS OF THE SELLERS
--------------------------------------------
Each and every obligation of the Sellers under this
Agreement shall be subject to the satisfaction, on or before the
Closing Date, of each of the following conditions unless waived in
writing by the Sellers' Agents:
8.1 Representations and Warranties: Performance. The
-------------------------------------------
representations and warranties made by Holdings and Acquisition
herein shall be true and correct on the date of this Agreement and
on the Closing Date with the same effect as though made on such
date; each of Holdings and Acquisition shall have performed and
complied with all agreements, covenants and conditions required by
this Agreement to be performed and complied with by it prior to the
Closing Date; each of Holdings and Acquisition shall have delivered
to the Sellers' Agents a certificate of its President, dated the
Closing Date, certifying to the fulfillment of the conditions set
forth herein, in the form designated as Exhibit 8.1 and the other
-----------
conditions contained in this Article 8.
8.2 No Proceeding or Litigation. No action, suit or
---------------------------
proceeding before any court or any governmental or regulatory
authority shall have been commenced, or threatened, and no
investigation by any governmental or regulatory authority shall have
been commenced, or threatened, against the Company, Holdings,
Acquisition, any of the Sellers, or any of their respective
principals, officers or directors, seeking to restrain, prevent or
change the transactions contemplated hereby or questioning the
validity or legality of any of such transactions or seeking damages
in connection with any of such transactions.
8.3 Opinion of Counsel. The Sellers' Agents shall have
------------------
received an opinion of counsel to Holdings and Acquisition dated the
Closing Date substantially in the form of Exhibit 8.3.
-----------
8.4 Consents and Approvals. All consents from and filings
----------------------
with third parties, regulators and governmental agencies required to
consummate the transactions contemplated hereby, or which, either
individually or in the aggregate, if not obtained, would cause an
adverse effect on the Company's financial condition or business
shall have been obtained and delivered to Holdings and Acquisition.
35
<PAGE>
8.5 Payment. The payment(s) described in Section 1.3
------- -----------
shall have been made.
8.6 Other Documents. Holdings and Acquisition will
---------------
furnish the Sellers' Agents with such other documents and
certificates to evidence compliance with the condition set forth
in this Article as may be reasonably requested by the Sellers'
Agents.
8.7 Other Agreements. The agreements described in Article
----------------
6 shall have been entered into and delivered.
8.8 Financing. No later than February 17, 1996, Holdings
---------
and Acquisition shall have obtained and delivered to the Sellers'
Agents commitment letters or "highly confident" letters from lenders
that propose to loan funds to Holdings and Acquisition in an
aggregate amount sufficient to consummate the transactions
hereunder.
8.9 Review. No later than January 31, 1997, Holdings and
------
Acquisition shall have delivered to the Sellers' Agents a letter
indicating that Holdings and Acquisition have completed their due
diligence review of the Company's business.
ARTICLE 9
---------
CLOSING
-------
9.1 Closing Unless this Agreement shall have been
-------
terminated or abandoned pursuant to the provisions of Article 10
hereof, a closing (the "CLOSING") shall be held on February 28,
1997, or on such other date (the "CLOSING DATE") MUTUALLY agreed
upon in New York, New York or at such other place or places as
Holdings and Acquisition shall designate. Each party has the right
at any time to extend the Closing Date for a period of up to thirty
(30) business days from the date stated above, by written notice to
the other party or parties.
9.2 Deliveries at Closing.
---------------------
9.2.1 At the Closing, the Sellers shall transfer and
assign to Holdings and Acquisition, as the case may be, all of the
Shares by delivering certificates representing each of the Shares,
duly endorsed for transfer to Holdings and Acquisition, as the case
may be, with signatures guaranteed, and the cash consideration,
securities and the other agreements, certifications and other
documents required to be executed and delivered hereunder at the
Closing shall be duly and validly executed and delivered.
9.2.2 From time to time after the Closing, at Holdings'
and Acquisition's request and without further
36
<PAGE>
consideration from Holdings or Acquisition, the Sellers shall
execute and deliver such other instruments of conveyance and
transfer and take such other action as Holdings or Acquisition
reasonably may require to convey, transfer to and vest in Holdings
and Acquisition and to put Holdings and Acquisition in possession
the Shares to be sold, conveyed, transferred and delivered
hereunder.
9.3 Legal Actions. If, prior to the Closing Date, any
-------------
action or proceeding shall have been instituted by any third party
before any court or governmental agency to restrain or prohibit this
Agreement or the consummation of the transactions contemplated
herein, the Closing shall be adjourned at the option of any party
hereto for a period of up to one hundred twenty (120) days. If, at
the end of such one hundred twenty (120) day period, the action or
proceeding shall not have been favorably resolved, any party hereto
may, by written notice thereof to the other party or parties,
terminate its obligation hereunder.
9.4 Specific Performance. The parties agree that if any
--------------------
party hereto is obligated to, but nevertheless does not, consummate
this transaction, then any other party, in addition to all other
rights or remedies, shall be entitled to the remedy of specific
performance mandating that the other party or parties consummate this
transaction. In an action for specific performance by any party
hereto against any other party, the other party shall not plead
adequacy of damages at law.
ARTICLE 10
----------
TERMINATION AND ABANDONMENT
---------------------------
10.1 Methods of Termination. This Agreement may be terminated
----------------------
and the transactions herein contemplated may be abandon at any time
(notwithstanding approval by the Board of Directors of each of Holdings
and Acquisition):
10.1.1 by mutual consent of Holdings, Acquisition and the
Sellers' Agents; or
10.1.2 by either Holdings or Acquisition on the one hand
or the Sellers' Agents on the other hand, if (i) in the case of
Holdings and Acquisition, neither party is in breach hereunder and
the Sellers are in breach hereunder or, in the case of the Sellers
Agents, none of the Sellers is in breach hereunder and Holdings or
Acquisition is in breach hereunder, and (ii) this Agreement is not
consummated on or before the Closing Date, including extensions.
10.2 Procedure Upon Termination. In the event of
--------------------------
termination and abandonment pursuant to Section 10.1 hereof, this
------------
37
<PAGE>
Agreement shall terminate and shall be abandoned, without
further action by any of the parties hereto. If this Agreement
is terminated as provided herein:
10.2.1 each party will upon request redeliver
all documents and other materials of any other party relating
to the transactions contemplated hereby, whether so obtained
before or after the execution hereof, to the party furnishing
the same;
10.2.2 no party hereto shall have any liability or
further obligation to any other party to this Agreement; and
10.2.3 each party shall bear its own expenses.
ARTICLE 11
----------
INDEMNIFICATION
---------------
11.1 Indemnification by the Sellers. The Sellers, jointly
------------------------------
and severally, shall indemnify Holdings, Acquisition and each of
their respective shareholders, officers and directors against any
loss, damage, or expense, (including but not limited to reasonable
attorneys' fees) ("DAMAGES"), incurred or sustained by Holdings,
Acquisition or any of their respective shareholders, officers or
directors as a result of (i) any breach of any term, provision,
covenant or agreement contained in this Agreement by the Sellers;
(ii) any inaccuracy in any of the representations or warranties
made by the Sellers in Article 2 of this Agreement; (iii) any
inaccuracy or misrepresentation in any certificate or other
document or instrument delivered by the Sellers or the Company in
accordance with any provision of this Agreement and (iv) any of the
matters disclosed in Exhibit 2.13. The obligations of the Sellers
------------
as set forth in Section 11.1(ii) and 11.1(iv) shall be subject to
---------------- --------
and limited by the following:
11.1.1 No claim for Damages shall be made until the
cumulative amount of such Damages shall equal or exceed $1,500,000;
provided, however, that such limitation shall not apply to any
- -------- -------
Damages resulting from violations under Sections 2.2 and 2.4 hereof,
------------ ---
or from intentional or fraudulent actions, misrepresentations or
breaches;
11.1.2 Holdings and Acquisition shall give written notice to
the Sellers' Agents stating specifically the basis for the claim
for Damages, the amount thereof and, provided the amount of such
claim for Damages exceeds $1,500,000, shall tender defense thereof
38
<PAGE>
to the Sellers' Agents, on behalf of the Sellers, as provided in
Section 11.4; and
------------
11.1.3 To the extent of any claim for Damages that exceeds
$1,500,000, either alone or in aggregate, and in addition to any
other remedy, each of Holdings and Acquisition shall be entitled,
but shall not be obligated, to offset all such claims for Damages
against any obligation of Holdings or Acquisition to the Sellers
now or hereafter existing.
11.2 Investigations; Survival of Warranties. The
--------------------------------------
respective representations and warranties of the Sellers, Holdings
and Acquisition contained herein or in any certificates
other documents delivered prior to or at the Closing are true,
accurate and correct and shall not be deemed waived or otherwise
affected by any investigation made by any party hereto or by the
occurrence of the Closing. Each and every such representation and
warranty shall survive until sixty (60) days following the delivery
of the Company's (or its successor's) audited financial statements
for the fiscal year ending June, 1998; Provided, however, all
-------- -------
representations and warranties made pursuant to Sections 2.2, 2.4,
------------ ---
2.14 and 2.18 hereof, and all claims for Damages based on
- ---- ----
intentional or fraudulent actions, misrepresentations or breaches,
shall survive for the applicable statute of limitations and
provided further, all claims for Damages based on a breach of
- -------- -------
warranty or misrepresentation under Section 2.23 shall expire on
------------
the third anniversary of the Closing Date.
11.3 Indemnification by Holdings and Acquisition.
-------------------------------------------
Acquisition, jointly and severally, shall indemnify each Seller
against any Damages incurred or sustained by such Seller personally
as a result of any liability or obligation of the Company that
accrues after the Closing; Provided, however, nothing
-------- -------
contained in this section shall create any obligation for Holdings
or Acquisition to indemnify any Seller in any instance in which
such Seller would not be entitled to indemnification under the
Certificate of Incorporation or Bylaws of Holdings or Acquisition
and Provided further, nothing contained in this section shall
-------- ------
create any obligation for Holdings or Acquisition to indemnify any
Seller in any instance in which the liability of such Seller
accrues as a result of a misrepresentation or breach of warranty
under Article 2 of this Agreement.
11.4 Tender of Defense for Damages. Promptly upon receipt
-----------------------------
by Holdings or Acquisition of a notice of a claim by a third party
which may give rise to a claim for damages, holdings and
Acquisition shall give written notice thereof to the Sellers'
Agents. No failure or delay of Holdings or Acquisition in the
performance of the foregoing shall relieve, reduce or otherwise
affect the Sellers' obligations and liability to indemnify Holdings
and Acquisition pursuant to this Agreement, except to the extent
39
<PAGE>
that such failure or delay shall have adversely affected the
Sellers' ability to defend against such claim for Damages. If the
Sellers' Agents give to Holdings and Acquisition an agreement in
writing, in a form reasonably satisfactory to Holdings' and
Acquisition's counsel, to defend such claim for Damages, the
Sellers may, at their sole expense, undertake the defense against
such claim and may contest or settle such claim on such terms, at
such time and in such manner as the Sellers' Agents, in their sole
discretion, shall elect and Holdings and Acquisition shall execute
such documents and take such steps as may be reasonably necessary
in the reasonable opinion of counsel for the Sellers to enable the
Sellers to conduct the defense of such claim for Damages. If the
Sellers fail or refuse to defend any claim for Damages, the Sellers
may nevertheless, at their own expense, participate in the defense
of such claim by Holdings and Acquisition and in any and all
settlement negotiations relating thereto. In any and all events,
the Sellers' Agents shall have such access to the records and files
of Holdings and Acquisition relating to any claim for Damages as
may be reasonably necessary to effectively defend or participate in
the defense thereof.
ARTICLE 12
----------
MISCELLANEOUS PROVISIONS
------------------------
12.1 Amendment and Modification. This Agreement may be
--------------------------
amended, modified and supplemented only by written agreement of the
Sellers' Agents, on behalf of all the Sellers, Holdings and
Acquisition.
12.2 Waiver of Compliance; Consents. Any failure of the
------------------------------
Sellers on the one hand, or Holdings and Acquisition on the other
hand, to comply with any obligation, covenant, agreement or
condition herein may be waived in writing by Holdings, Acquisition
or the Sellers' Agents, on behalf of the Sellers, respectively, but
such waiver or failure to insist upon strict compliance with such
obligation, covenant, agreement or condition shall not operate as a
waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or
on behalf of any party hereto, such consent shall be given in
writing in a manner consistent with the requirements for a waiver
of compliance as set forth in this Section 12.2.
------------
12.3 Expenses. Each party will pay its own legal,
--------
accounting and other expenses incurred by such party or on its
behalf in connection with this Agreement and the transactions
contemplated herein; provided, however, if the Closing occurs,
-------- -------
Acquisition shall reimburse the Sellers for all reasonable legal,
accounting and other expenses related to the transactions
contemplated by this Agreement (the "ASSUMED EXPENSES").
40
<PAGE>
12.4 Notices. Any notice, request, consent communication
-------
(collectively a "NOTICE") under this Agreement shall be effective
only if it is in writing and (i) personally delivered, (ii) sent by
certified or registered mail, return receipt requested, postage
prepaid, (iii) sent by a nationally recognized overnight delivery
service, with delivery confirmed, or (iv) telecopied, with receipt
confirmed, addressed as follows:
(a) If to the Sellers, to each of:
Robert M. Wolff
9700 Commerce Parkway
Lenexa, Kansas 66219
Telecopier 913-752-3336
Robert Shaw
9700 Commerce Parkway
Lenexa, Kansas 66219
Telecopier 913-752-3336
John Menghini
9700 Commerce Parkway
Lenexa, Kansas 66219
Telecopier 913-752-3336
with a copy to:
Leonard Rose, Esq.
Rose, Brouillette & Shapiro, P.C.
4900 Main Street, 11th Floor
Kansas City, MO 64112
Telecopier: 816-756-1639
or to such other person or address as the Sellers' Agents shall
furnish to Holdings and Acquisition in writing.
(b) If to Holdings or Acquisition, to:
GFSI Holdings, Inc.
c/o The Jordan Company
9 West 57th Street, Suite 4000
New York, NY 10019
Telecopier: 212-755-5263
Attention: A. Richard Caputo, Jr.
41
<PAGE>
with a copy to:
G. Robert Fisher, Esq.
Michael J. Beal, Esq.
Bryan Cave LLP
1200 Main, Suite 3500
Kansas City, MO 64105
Telecopier: 816-391-7600
or such other persons or addresses as shall be furnished in writing
by any party to the other party. A Notice shall be deemed to have
been given as of the date when (i) personally delivered, (ii) five
(5) days after the date when deposited with the United States mail
properly addressed, (iii) when receipt of a Notice sent by an
overnight delivery service is confirmed by such overnight delivery
service, or (iv) when receipt of the telecopy is confirmed, as the
case may be, unless the sending party has actual knowledge that a
Notice was not received by the intended recipient.
12.5 Definitions. For the purpose of this Agreement,
-----------
"LAWS" shall include, without limitation, all foreign, federal,
state and local laws, statutes, rules, regulations, codes,
ordinances, plans, orders, judicial decrees, writs, injunctions,
notices, decisions or demand letters issued, entered or promulgated
pursuant to any foreign, federal, state or local law. For the
purpose of this Agreement, "generally accepted accounting
principles" or "GAAP" shall mean such principles, applied on a
consistent basis, as set forth in Opinions of the Accounting
Principles Board of the American Institute of Certified Public
Accountants and/or in statements of the Financial Accounting
Standards Board which are applicable in the circumstances as of the
date in question, and the requirement that such principles be
applied on a "consistent basis" means that accounting principles
observed in the current period are comparable in all material
respects to those applied in the preceding periods, except as
change is permitted or required under or pursuant to such
accounting principles.
12.6 Assignment. This Agreement and all of the provisions
----------
hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, successors and permitted
assigns, but neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any party
without the prior written consent of all other parties; provided,
--------
however, Holdings and Acquisition may assign their respective
- -------
rights under this Agreement to any lender that provides financing
to such entity in connection with the transactions contemplated by
this Agreement.
12.7 Termination of Stock Redemption Agreement. Each
-----------------------------------------
Seller hereby agrees that, effective immediately upon the Closing,
42
<PAGE>
the Restated Stock Redemption Agreement executed by the Company and
each of the Sellers shall be deemed terminated without further action
by any party thereto.
12.8 Governing Law. This Agreement shall be governed by
-------------
the laws of the state of Missouri (regardless of the laws that might
otherwise govern under applicable principles of conflicts of law of
the state of Missouri as to all matters including, but not limited
to, matters of validity, construction, effect, performance and
remedies.
12.9 Counterparts. This Agreement may be executed in two
------------
(2) or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same
instrument.
12.10 Neutral Interpretation. This Agreement constitutes
----------------------
the product of the negotiation of the parties hereto and the
enforcement hereof shall be interpreted in a neutral manner, and
not more strongly for or against any party based upon the source of
the draftsmanship hereof.
12.11 Headings. The article and section headings contained
--------
in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
12.12 Entire Agreement. This Agreement, which term as used
----------------
throughout includes the Exhibits hereto, embodies the entire
agreement and understanding of the parties hereto in respect of the
subject matter contained herein. There are no restrictions,
promises, representations, warranties, covenants or undertakings
other than those expressly set forth or referred to herein. This
Agreement supersedes all prior agreements and understandings between
the parties with respect to such subject matter.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
43
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement
as of the date first hereinabove set forth.
HOLDINGS:
GFSI HOLDINGS, INC.
By /s/ A. Richard Caputo, Jr.
-----------------------------------
A. Richard Caputo, Jr.,
President
ACQUISITON:
GFSI, INC.
By /s/ A. Richard Caputo, Jr.
-----------------------------------
President
SELLERS:
Robert M. Wolff, Trustee under that
certain Trust Agreement dated 5/17/79,
by and between Robert M. Wolff, as
Grantor, and Robert M. Wolff, as Trustee
By /s/ Robert M. Wolff
-----------------------------------
Robert M. Wolff Trustee under that
certain Trust Agreement dated 5/17/79,
by and between Robert M. Wolff, as
Trustee
Marcia W. Wolff, Trustee of the Marcia
W. Wolff Trust under Trust Agreement
dated 6/22/83
By /s/ John Menghini
-----------------------------------
John Menghini, attorney-in-fact for
Marcia W. Wolff, Trustee of the Marcia
W. Wolff Trust under Trust Agreement
dated 6/22/83
<PAGE>
By /s/ Robert Shaw
----------------------------------------
Robert Shaw, Attorney-in-fact for
Marchia W. Wolff, Trustee of the Marcia
W. Wolff Trust under Trust Agreement
dated 6/22/83
By /s/ Larry D. Graveel
----------------------------------------
Larry D. Graveel, attorney-in-fact for
Marcia W. Wolff, Trustee of the Marcia
W. Wolff Trust under Trust Agreement
dated 6/22/83
Robert Shaw, Trustee of the Charles A.
Wolff Trust under Trust Agreement dated
9/29/82
By /s/ Robert Shaw
----------------------------------------
Robert Shaw, Trustee of the Charles A.
Wolff Trustee under Trust Agreement
dated 9/29/82
Scott M. Wolff
By /s/ John Menghini
---------------------------------------
John Menghini, attorney-in-fact for
Scott M. Wolff
By /s/ Robert Shaw
---------------------------------------
Robert Shaw, attorney-in-fact for
Scott M. Wolff
By /s/ Larry D. Graveel
---------------------------------------
Larry D. Graveel, attorney-in-fact for
Scott M. Wolff
<PAGE>
Laura W. Greenbaum, Trustee of the Laura
M. Wolff Trust dated 9/20/78
By /s/ John Menghini
---------------------------------------
John Menghini, attorney-in-fact for
Laura W. Greenbaum, Trustee of the
Laura M. Wolff Trust dated 9/20/78
By /s/ Robert Shaw
---------------------------------------
Robert Shaw, attorney-in-fact for
Laura W. Greenbaum, Trustee of the
Laura M. Wolff Trust dated 9/20/78
By /s/ Larry D. Graveel
---------------------------------------
Larry D. Graveel, attorney-in-fact
Laura W. Greenbaum, Trustee of the
Laura M. Wolff Trust dated 9/20/78
Mark Golden and Martin Becker, as
Trustees of the Barry S. Golden
Discretionary Trust for Mark Golden
under Agreement dated 6/20/83
By /s/ John Menghini
---------------------------------------
John Menghini, attorney-in-fact for
Mark Golden and Martin Becker, as
Trustees of the Barry S. Golden
Discretionary Trust for Mark Golden
under Agreement dated 6/20/83
By /s/ Robert Shaw
---------------------------------------
Robert Shaw, attorney-in-fact for
Mark Golden and Martin Becker, as
Trustees of the Barry S. Golden
Discretionary Trust for Mark Golden
under Agreement dated 6/20/83
<PAGE>
By /s/ Larry D. Graveel
---------------------------------------
Larry D. Graveel, attorney-in-fact for
Mark Golden and Martin Becker, as
Trustees of the Barry S. Golden
Discretionary Trust for Mark Golden
under Agreement dated 6/20/83
Michael Golden and Martin Becker, as
Trustees of the Barry S. Golden
Discretionary Trust for Michael Golden
under Agreement dated 6/20/83
By /s/ John Menghini
---------------------------------------
John Menghini, attorney-in-fact for
Michael Golden and Martin Becker, as
Trustees of the Barry S. Golden
Discretionary Trust for Mark Golden
under Agreement dated 6/20/83
By /s/ Robert Shaw
---------------------------------------
Robert Shaw, attorney-in-fact for
Michael Golden and Martin Becker, as
Trustees of the Barry S. Golden
Discretionary Trust for Mark Golden
under Agreement dated 6/20/83
By /s/ Larry D. Graveel
---------------------------------------
Larry D. Graveel, attorney-in-fact for
Michael Golden and Martin Becker, as
Trustees of the Barry S. Golden
Discretionary Trust for Mark Golden
under Agreement dated 6/20/83
Barry S. Golden, as Trustee of the Barry
S. Golden Revocable Trust dated 11/11/77
By /s/ John Menghini
---------------------------------------
John Menghini, attorney-in-fact for
Barry S. Golden, as Trustee of the
Barry S. Golden Revocable Trust dated
11/11/77
<PAGE>
By /s/ Robert Shaw
---------------------------------------
Robert Shaw, attorney-in-fact for
Barry S. Golden, as Trustee of the
Barry S. Golden Revocable Trust dated
11/11/77
By /s/ Larry D. Graveel
---------------------------------------
Larry D. Graveel, attorney-in-fact for
Barry S. Golden, as Trustee of the
Barry S. Golden Revocable Trust dated
11/11/77
John Leo Menghini, Trustee of the John
Leo Menghini Revocable Trust dated
11/18/92
By /s/ John Menghini
---------------------------------------
John Menghini, Trustee of the
John Leo Menghini Revocable Trust dated
11/18/92
Lisa Menghini
By /s/ John Menghini
---------------------------------------
John Menghini, attorney-in-fact for
Lisa Menghini
By /s/ Robert Shaw
---------------------------------------
Robert Shaw, attorney-in-fact for
Lisa Menghini
By /s/ Larry D. Graveel
---------------------------------------
Larry D. Graveel, attorney-in-fact for
Lisa Menghini
<PAGE>
Robert Shaw, Trustee of the John L.
Menghini, Jr. Trust
/s/ Robert Shaw
By ______________________________________
Robert Shaw, Trustee of the John L.
Menghini, Jr. Trust
Robert Shaw, Trustee of the Michael J.
Menghini Trust
/s/ Robert Shaw
By ______________________________________
Robert Shaw, Trustee of the Michael J.
Menghini Trust
Larry Douglas Graveel, Trustee of the
Larry D. Graveel Trust dated 8/30/91
/s/ Larry D. Graveel
By ______________________________________
Larry Graveel, Trustee of the Larry
D. Graveel Trust dated 8/30/91
Michael H. Gary, Trustee of The Michael
H. Gary Revocable Trust dated 3/10/93
By _____________________________________
Michael H. Gary, Trustee of The
Michael H. Gary Revocable Trust dated
3/10/93
Robert Shaw, Trustee of The Robert Shaw
Living Trust dated 2/7/89
/s/ Robert Shaw
By _____________________________________
Robert Shaw, Trustee of The Robert
Shaw Living Trust dated 2/7/89
Robert Shaw, Cusdodian of Andrew Shaw
/s/ Robert Shaw
By _____________________________________
Robert Shaw, Custodian of Andrew Shaw
<PAGE>
Robert Shaw, Custodian of Laura Shaw
/s/ Robert Shaw
By _____________________________________
Robert Shaw, Custodian of Laura Shaw
Robert Shaw, Custodian of Stacey Shaw
/s/ Robert Shaw
By _____________________________________
Robert Shaw, Custodian of Stacey Shaw
Anthony Gagliano
/s/ John Menghini
By _____________________________________
John Menghini, attorney-in-fact for
Anthony Gagliano
/s/ Robert Shaw
By _____________________________________
Robert Shaw, attorney-in-fact for
Anthony Gagliano
/s/ Larry D. Graveel
By _____________________________________
Larry D. Graveel, attorney-in-fact for
Anthony Gagliano
Lee Ann Stevens
/s/ John Menghini
By _____________________________________
John Menghini, attorney-in-fact for
Lee Ann Stevens
/s/ Robert Shaw
By _____________________________________
Robert Shaw, attorney-in-fact for
Lee Ann Stevens
<PAGE>
William DiRocco Trust
/s/ John Menghini
By _____________________________________
John Menghini, attorney-in-fact for
William DiRocco Trust
/s/ Robert Shaw
By _____________________________________
Robert Shaw, attorney-in-fact for
William DiRocco Trust
/s/ Larry D. Graveel
By _____________________________________
Larry D. Graveel, attorney-in-fact for
William DiRocco Trust
Terry V. Glenn
/s/ John Menghini
By _____________________________________
John Menghini, attorney-in-fact for
Terry V. Glenn
/s/ Robert Shaw
By _____________________________________
Robert Shaw, attorney-in-fact for
Terry V. Glenn
/s/ Larry D. Graveel
By _____________________________________
Larry D. Graveel, attorney-in-fact for
Terry V. Glenn
Mary Cimpl
/s/ John Menghini
By _____________________________________
John Menghini, attorney-in-fact for
Mary Cimpl
<PAGE>
/s/ Robert Shaw
By _____________________________________
Robert Shaw, attorney-in-fact for
Mary Cimpl
/s/ Larry D. Graveel
By _____________________________________
Larry D. Graveel, attorney-in-fact for
Mary Cimpl
Dave Geenens
/s/ John Menghini
By _____________________________________
John Menghini, attorney-in-fact for
Dave Geenens
/s/ Robert Shaw
By _____________________________________
Robert Shaw, attorney-in-fact for
Dave Geenens
/s/ Larry D. Graveel
By _____________________________________
Larry D. Graveel, attorney-in-fact for
Dave Geenens
David Churchman
/s/ John Menghini
By _____________________________________
John Menghini, attorney-in-fact for
David Churchman
/s/ Robert Shaw
By _____________________________________
Robert Shaw, attorney-in-fact for
David Churchman
/s/ Larry D. Graveel
By _____________________________________
Larry D. Graveel, attorney-in-fact for
David Churchman
<PAGE>
Steve Arnold
By /s/ John Menghini
---------------------------------
John Menghini, attorney-in-fact for
Steve Arnold
By /s/ Robert Shaw
----------------------------------
Robert Shaw, attorney-in-fact for
Steve Arnold
By /s/ Larry D. Graveel
---------------------------------
Larry D. Graveel, attorney-in-fact for
Steve Arnold
Jason Krakow
By /s/ John Menghini
----------------------------------
John Menghini, attorney-in-fact for
Jason Krakow
By /s/ Robert Shaw
----------------------------------
Robert Shaw, attorney-in-fact for
Jason Krakow
By /s/ Larry D. Graveel
__________________________________
Larry D. Graveel, attorney-in-fact for
Jason Krakow
Martin Becker, Trustee of the Barry S.
Golden Trust UTA dated 10/7/96
By /s/ John Menghini
----------------------------------
John Menghini, attorney-in-fact for Martin
Becker, Trustee of the Barry S. Golden Trust UTA
dated 10/7/96
<PAGE>
/s/ Larry D. Graveel
By _____________________________________
Larry D. Graveel, attorney-in-fact for
Lee Ann Stevens
Kirk Kowalewski
/s/ John Menghini
By _____________________________________
John Menghini, attorney-in-fact for
Kirk Kowalewski
/s/ Robert Shaw
By _____________________________________
Robert Shaw, attorney-in-fact for
Kirk Kowalewski
/s/ Larry D. Graveel
By _____________________________________
Larry D. Graveel, attorney-in-fact for
Kirk Kowalewski
Mark Schimpf
/s/ John Menghini
By _____________________________________
John Menghini, attorney-in-fact for
Mark Schimpf
/s/ Robert Shaw
By _____________________________________
Robert Shaw, attorney-in-fact for
Mark Schimpf
/s/ Larry D. Graveel
By _____________________________________
Larry D. Graveel, attorney-in-fact for
Mark Schimpf
<PAGE>
/s/ Robert Shaw
By _____________________________________
Robert Shaw, attorney-in-fact for
Martin Becker, Trustee of the Barry S.
Golden Trust UTA dated 10/7/96
/s/ Larry D. Graveel
By _____________________________________
Larry D. Graveel, attorney-in-fact for
Martin Becker, Trustee of the Barry S.
Golden Trust UTA dated 10/7/96
<PAGE>
EXHIBIT E
TO
CREDIT AGREEMENT
Form of Term Loan A Note
------------------------
TERM LOAN A NOTE
U.S.$[____________] Chicago, Illinois
February __, 1997
FOR VALUE RECEIVED, the undersigned, GFSI, INC., a Delaware corporation
("Borrower"), hereby unconditionally promises to pay to the order of [NAME OF
LENDER] (the "Lender"), the principal sum of [_____________] AND NO/100 DOLLARS
($[_______]), such amount representing the original aggregate principal amount
of the Lender's "Term Loan A" (as defined in the Credit Agreement referred to
below) made by the Lender to the Borrower pursuant to the "Credit Agreement" (as
defined below). Capitalized terms used herein and not otherwise defined herein
are as defined in the Credit Agreement.
Unless otherwise required to be paid sooner pursuant to the provisions of
the Credit Agreement, the principal indebtedness evidenced hereby shall be
payable in installments as set forth in the Credit Agreement with a final
installment payable on the Term Loan A Termination Date.
The Borrower promises to pay interest on the unpaid principal amount of the
Lender's Term Loan A from the date of such Term Loan A until such principal
amount is paid in full at a rate or rates per annum determined in accordance
with the terms of the Credit Agreement. Interest hereunder is due and payable
at such times and on such dates as set forth in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to the Agent (as defined below), to such domestic account as
the Agent may designate, in same day funds. At the time of each payment or
prepayment of principal of the Lender's Term Loan A, the Lender shall make a
notation either on the schedule attached hereto and made a part hereof, or in
such Lender's own books and records, in each case specifying the amount of
principal paid or prepaid with respect to such Term Loan A; provided that the
--------
failure of the Lender to make any such recordation or notation shall not affect
the Obligations of the Borrower hereunder or under the Credit Agreement.
This Term Loan A Note is one of the "Term Notes" referred to in, and is
entitled to the benefits of, the Credit Agreement
<PAGE>
dated as of February 27, 1997 (as amended, restated, supplemented or modified
from time to time, the "Credit Agreement") among the Borrower, the financial
institutions from time to time parties thereto (such financial institutions
being herein referred to collectively as the "Lenders") and The First National
Bank of Chicago, as one of the Lenders and as the contractual representative for
the Lenders (the "Agent"). The Credit Agreement, among other things, (i)
provides for the making of the Lender's Term Loan A, the indebtedness of the
Borrower resulting therefrom being evidenced by this Term Loan A Note and (ii)
contains provisions for acceleration of the maturity hereof upon the happening
of certain stated events and also for prepayments of the principal hereof prior
to the maturity hereof, without penalty or premium, upon the terms and
conditions therein specified.
Demand, presentment, protest and notice of nonpayment are hereby waived by
the Borrower.
Whenever in this Term Loan A Note reference is made to the Agent, the
Lender or Borrower, such reference shall be deemed to include, as applicable, a
reference to their respective successors and assigns permitted pursuant to the
Credit Agreement. The provisions of this Term Loan A Note shall be binding upon
and shall inure to the benefit of said successors and assigns. Borrower's
successors and assigns shall include, without limitation, a receiver, trustee or
debtor in possession of or for Borrower.
This Term Loan A Note shall be governed by, interpreted and enforced, and
the rights and liabilities of the parties hereto determined, in accordance with
the internal laws (without regard to the conflicts of law provisions) of the
State of Illinois.
GFSI, INC.
By:_________________________
Name:
Title:
-2-
<PAGE>
SCHEDULE OF TERM LOAN A AND PAYMENTS OR PREPAYMENTS
---------------------------------------------------
Amount of
Principal Unpaid
Type of Interest Paid or Principal Notation
Date Loan Period/Rate Prepaid Balance Made By
- ------ ------ ----------- --------- ---------- ----------
<PAGE>
EXHIBIT F
TO
CREDIT AGREEMENT
Form of Term Loan B Note
------------------------
TERM LOAN B NOTE
U.S.$[__________] Chicago, Illinois
February __, 1997
FOR VALUE RECEIVED, the undersigned, GFSI, INC., a Delaware corporation
("Borrower"), hereby unconditionally promises to pay to the order of [NAME OF
LENDER] (the "Lender"), the principal sum of [____________] AND NO/100 DOLLARS
($[______]), such amount representing the original aggregate principal amount of
the Lender's "Term Loan B" (as defined in the Credit Agreement referred to
below) made by the Lender to the Borrower pursuant to the "Credit Agreement" (as
defined below). Capitalized terms used herein and not otherwise defined herein
are as defined in the Credit Agreement.
Unless otherwise required to be paid sooner pursuant to the provisions of
the Credit Agreement, the principal indebtedness evidenced hereby shall be
payable in installments as set forth in the Credit Agreement with a final
installment payable on the Term Loan B Termination Date.
The Borrower promises to pay interest on the unpaid principal amount of the
Lender's Term Loan B from the date of such Term Loan B until such principal
amount is paid in full at a rate or rates per annum determined in accordance
with the terms of the Credit Agreement. Interest hereunder is due and payable
at such times and on such dates as set forth in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to the Agent (as defined below), to such domestic account as
the Agent may designate, in same day funds. At the time of each payment or
prepayment of principal of the Lender's Term Loan B, the Lender shall make a
notation either on the schedule attached hereto and made a part hereof, or in
such Lender's own books and records, in each case specifying the amount of
principal paid or prepaid with respect to such Term Loan B; provided that the
--------
failure of the Lender to make any such recordation or notation shall not affect
the Obligations of the Borrower hereunder or under the Credit Agreement.
This Term Loan B Note is one of the "Term Notes" referred to in, and is
entitled to the benefits of, the Credit Agreement
-2-
<PAGE>
dated as of February 27, 1997 (as amended, restated, supplemented or modified
from time to time, the "Credit Agreement") among the Borrower, the financial
institutions from time to time parties thereto (such financial institutions
being herein referred to collectively as the "Lenders") and The First National
Bank of Chicago, as one of the Lenders and as the contractual representative for
the Lenders (the "Agent"). The Credit Agreement, among other things, (i)
provides for the making of the Lender's Term Loan B, the indebtedness of the
Borrower resulting therefrom being evidenced by this Term Loan B Note and (ii)
contains provisions for acceleration of the maturity hereof upon the happening
of certain stated events and also for prepayments of the principal hereof prior
to the maturity hereof, without penalty or premium, upon the terms and
conditions therein specified.
Demand, presentment, protest and notice of nonpayment are hereby waived by
the Borrower.
Whenever in this Term Loan B Note reference is made to the Agent, the
Lender or Borrower, such reference shall be deemed to include, as applicable, a
reference to their respective successors and assigns. The provisions of this
Term Loan B Note shall be binding upon and shall inure to the benefit of said
successors and assigns permitted pursuant to the Credit Agreement. Borrower's
successors and assigns shall include, without limitation, a receiver, trustee or
debtor in possession of or for Borrower.
This Term Loan B Note shall be governed by, interpreted and enforced, and
the rights and liabilities of the parties hereto determined, in accordance with
the internal laws (without regard to the conflicts of law provisions) of the
State of Illinois.
GFSI, INC.
By:_________________________
Name:
Title:
-3-
<PAGE>
SCHEDULE OF TERM LOAN B AND PAYMENTS OR PREPAYMENTS
---------------------------------------------------
Amount of
Principal Unpaid
Type of Interest Paid or Principal Notation
Date Loan Period/Rate Prepaid Balance Made By
- ----- ------ ----------- --------- ---------- ----------
<PAGE>
EXHIBIT G
TO
CREDIT AGREEMENT
Form of Assignment Agreement
----------------------------
<PAGE>
FORM OF ASSIGNMENT AGREEMENT
----------------------------
This Assignment Agreement (this "ASSIGNMENT AGREEMENT") between
(the ASSIGNOR) and (the "ASSIGNEE")
- ---------------- ----------------
is dated as of , . The parties hereto agree as follows:
---------- ----
1. PRELIMINARY STATEMENT. The Assignor is a party to a Credit
---------------------
Agreement (which, as it may be amended, modified, renewed or
extended from time to time is herein called the "CREDIT AGREEMENT")
described in Item 1 of Schedule 1 attached hereto ("SCHEDULE 1").
Capitalized terms used herein and not otherwise defined herein shall
have the meanings attributed to them in the Credit Agreement.
2. ASSIGN1SIENT AND ASSUMPTION. The Assignor hereby sells and
---------------------------
assigns to the Assignee, and the Assignee hereby purchases and
assumes from the Assignor, an interest in and to the Assignor's
rights and obligations under the Credit Agreement such that after
giving effect to such assignment the Assignee shall have purchased
pursuant to this Assignment Agreement the percentage interest
specified in Item 3 of Schedule 1 of all outstanding rights and
obligations under the Credit Agreement relating to the facilities
listed in Item 3 of Schedule 1 and the other Loan Documents. The
aggregate Commitment (or Loans, if the applicable Commitment has
been terminated) purchased by the Assignee hereunder is set forth in
Item 4 of Schedule 1.
3. EFFECTIVE DATE. The effective date of this Assignment
--------------
Agreement (the "EFFECTIVE DATE") shall be the later of the date
specified in Item 5 of Schedule 1 or two Business Days (or such
shorter period agreed to by the Agent) after a Notice of Assignment
substantially in the form of Appendix I (attached hereto) has been
----------
delivered to the Agent. Such Notice of Assignment must include the
consents, if any, required to be delivered to the Agent and the
Borrower by Section 12.3(A) of the Credit Agreement. In no event
---------------
will the Effective Date occur if the payments required to be made by
the Assignee to the Assignor on the Effective Date under Sections 4
----------
and 5 hereof are not made on the proposed Effective Date. The
-----
Assignor will notify the Assignee of the proposed Effective Date no
later than the Business Day prior to the proposed Effective Date. As
of the Effective Date, (i) the Assignee shall have the rights and
obligations of a Lender under the Loan Documents with respect to the
rights and obligations assigned to the Assignee hereunder and (ii)
the Assignor shall relinquish its rights and be released from its
corresponding obligations under the Loan Documents with respect to
the rights and obligations assigned to the Assignee hereunder.
<PAGE>
4. PAYMENTS OBLIGATIONS. On and after the Effective Date, the
--------------------
Assignee shall be entitled to receive from the Agent all payments of
principal, interest and fees with respect to the interest assigned
hereby. The Assignee shall advance funds directly to the Agent with
respect to all Loans and reimbursement payments made on or after the
Effective Date with respect to the interest assigned hereby. [In
consideration for the sale and assignment of Loans hereunder, (i)
the Assignee shall pay the Assignor, on the Effective Date, an
amount equal to the principal amount of the portion of all Floating
Rate Loans assigned to the Assignee hereunder and (ii) with respect
to each Eurodollar Rate Loan made by the Assignor and assigned to
the Assignee hereunder which is outstanding on the Effective Date,
(a) on the last day of the Interest Period therefor or (b) on such
earlier-date agreed to by the-Assignor and the Assignee or (c) on
the date on which any such Eurodollar Rate Loan either becomes due
(by acceleration or otherwise) or is prepaid (the date as described
in the foregoing clauses (a), (b) or (c) being hereinafter referred
to as the "PAYMENT DATE"), the Assignee shall pay the Assignor an
amount equal to the principal amount of the portion of such
Eurodollar Rate Loan assigned to the Assignee which is outstanding
on the Payment Date. If the Assignor and the Assignee agree that the
Payment Date for such Eurodollar Rate Loan shall be the Effective
Date, they shall agree to the interest rate applicable to the
portion of such Loan assigned hereunder for the period from the
Effective Date to the end of the existing Interest Period applicable
to such Eurodollar Rate Loan (the "AGREED INTEREST RATE") and any
interest received by the Assignee in excess of the Agreed Interest
Rate shall be remitted to the Assignor. In the event interest for
the period from the Effective Date to but not including the Payment
Date is not paid by the Borrower with respect to any Eurodollar Rate
Loan sold by the Assignor to the Assignee hereunder, the Assignee
shall pay to the Assignor interest for such period on the portion of
such Eurodollar Rate Loan sold by the Assignor to the Assignee
hereunder at the applicable rate provided by the Credit Agreement.
In the event a prepayment of any Eurodollar Rate Loan which is
existing on the Payment Date and assigned by the Assignor to the
Assignee hereunder occurs after the Payment Date but before the end
of the Interest Period applicable to such Eurodollar Rate Loan, the
Assignee shall remit to the Assignor the excess of the prepayment
penalty paid with respect to the portion of such Eurodollar Rate
Loan assigned to the Assignee hereunder over the amount which would
have been paid if such prepayment penalty was calculated based on
the Agreed Interest Rate. The Assignee will also promptly remit to
the Assignor (i) any principal payments received from the Agent with
respect to Eurodollar Rate Loans prior to the Payment Date and (ii)
any amounts of interest on Loans and fees received from the Agent
which relate to the portion of the Loans assigned to the Assignee
hereunder for periods prior to the Effective Date, in the case of
Floating Rate Loans or fees, or the Payment Date, in the case of
Eurodollar Rate Loans, and not previously paid by the Assignee to
the Assignor.]/1/ In the event that either party hereto receives any
payment to which the other party hereto is entitled under this
Assignment Agreement, then the party receiving such amount shall
promptly remit it to the other party hereto.
- --------------------
/1/ Each Assignor may insert its standard payment provisions in
lieu of the payment terms included in this Exhibit.
-2-
<PAGE>
5. FEES PAYABLE E BY THE ASSIGNEE. The [Assignee shall pay to
------------------------------
the Assignor a fee on each day on which a payment of interest or
commitment fees is made under the Credit AGREEMENT WITH respect to
the amounts assigned to the Assignee hereunder (other than a payment
of interest or commitment fees for the period prior to the Effective
Date or, in the case of Eurodollar Rate Loans, the Payment Date,
which the Assignee is obligated to deliver to the Assignor pursuant
to Section 4 hereof). The amount of such fee shall be the difference
between (i) the interest or fee, as applicable, paid with respect to
the amounts assigned to the Assignee hereunder and (ii) the interest
or fee, as applicable, which would have been paid with respect to
the amounts assigned to the Assignee hereunder if each interest rate
was of 1% less than the interest rate paid by the Borrower or
-----
if the commitment fee was of 1% less than the commitment fee
-----
paid by the Borrower, as applicable. In addition, the] [Assignee]
[Assignor] agrees to pay a $3500 processing fee required to be
paid to the Agent in connection with this Assignment Agreement.
6. REPRESENTATIONS OF THE ASSIGNOR; LIMITATIONS ON THE
----------------------------------------------------
ASSIGNOR'S LIABILITY. The Assignor represents and warrants that it
- --------------------
is the legal and beneficial owner of the interest being assigned by
it hereunder and that such interest is free and clear of any adverse
claim created by the Assignor. It is understood and agreed that the
assignment and assumption hereunder are made without recourse to the
Assignor and that the Assignor makes no other representation or
warranty of any kind to the Assignee. Neither the Assignor, the
Agent, nor any other Lender, nor any of its officers, directors,
employees, agents or attorneys shall be responsible for (i) the due
execution, legality, validity, enforceability, genuineness,
sufficiency or collectability of any Loan Document, including
without limitation, documents granting the Assignor, Agent and the
other Lenders a security interest in assets of the Borrower or any
guarantor, (ii) any representation, warranty or statement made in or
in connection with any of the Loan Documents, (iii) the financial
condition or creditworthiness of the Borrower or any guarantor, (iv)
the performance of or compliance with any of the terms or provisions
of any of the Loan Documents, (v) inspecting any of the Property,
books or records of the Borrower, (vi) the validity, enforceability,
perfection, priority, condition, value or sufficiency of any
collateral securing or purporting to secure the Loans or (vii) any
mistake, error of judgment, or action taken or omitted to be taken
in connection with the Loans or the Loan Documents.
7. REPRESENTATIONS OF THE ASSIGNEE. The Assignee (i) confirms
-------------------------------
that it has received a copy of the Credit Agreement, together with
copies of the financial statements requested by the Assignee and
such other documents and information as it has deemed appropriate to
make its own credit analysis and decision to enter into this
Assignment Agreement, (ii) agrees that it will, independently and
without reliance upon the Agent, the Assignor or any other Lender
and based on such documents and information at it shall deem
appropriate at the time, continue to make its own credit decisions
in taking or not taking action
- ------------------
/2/ Assignor and Assignee to insert applicable payment terms.
-3-
<PAGE>
under the Loan Documents, (iii) appoints and authorizes the Agent
to take such action as agent on its behalf and to exercise such
powers under the Loan Documents as are delegated to the AGENT BY
the terms thereof, together with such power as are reasonably
incidental thereto, (iv) agrees that it will perform in accordance
with their terms all of the obligations which by the terms of the
loan documents are required to be performed by it as a lender, (v)
agrees that its payment instructions and notice instructions are as
set forth in the attachment to Schedule 1, (vi) confirms that none
of the funds, monies, assets or other consideration being used to
make the purchase and assumption hereunder are "plan assets" as
defined under ERISA and that its rights, benefits and interests in
and under the Loan Documents will not be "plan assets" under ERISA,
land (vii) attaches the forms-prescribed by the Internal Revenue
Service of the United States certifying that the Assignee is
entitled to receive payments under the Loan Documents without
deduction or withholding of any United States federal income
taxes]./3/
8. INDEMNITY. The Assignee agrees to indemnify and hold the
---------
Assignor harmless against any and all losses, costs and expenses
(including, without limitation, reasonable attorneys' fees) and
liabilities incurred by the Assignor in connection with or arising
in any manner from the Assignee's non-performance of the
obligations assumed under this Assignment Agreement.
9. SUBSEQUENT ASSIGNMENTS. After the Effective Date, the
----------------------
Assignee shall have the right pursuant to Section 12.3(A) of the
---------------
Credit Agreement to assign the rights which are assigned to the
Assignee hereunder to any entity or person, provided that (i) any
such subsequent assignment does not violate any of the terms and
conditions of the Loan Documents or any law, rule, regulation,
order, writ, judgment, injunction or decree and that any consent
required under the terms of the Loan Documents has been obtained
and (ii) unless the prior written consent of the Assignor is
obtained, the Assignee is not thereby released from its obligations
to the Assignor hereunder, if any remain unsatisfied, including,
without limitation, its obligations under [Sections 4. 5 and 8]
-------------------
hereof.
10. REDUCTIONS OF AGGREGATE COMMITMENT. If any reduction in
----------------------------------
the Aggregate Revolving Loan Commitment occurs between the date of
this Assignment Agreement and the Effective Date, the percentage
interest specified in Item 3 of Schedule 1 shall remain the same,
but the dollar amount purchased shall be recalculated based on the
reduced Aggregate Revolving Loan Commitment.
11. ENTIRE AGREEMENT. This Assignment Agreement and the
----------------
attached Notice of Assignment embody the entire agreement and
understanding between the parties hereto and
- --------------------
/3/ To be inserted if the Assignee is not incorporated under the laws
of the United States, or a state thereof
-4-
<PAGE>
prior agreements and understandings between the parties hereto relating
supercede all to the subject matter hereof.
12. GOVERNING LAW. This Assignment Agreement shall be governed by
-------------
and interpreted and enforced in accordance with the internal laws
(without regard to conflicts of law provisions) of the State of Illinois.
13. NOTICES. Notices shall be given under this Assignment Agreement
-------
in the manner set forth in the Credit Agreement. For the purpose hereof,
the addresses of the parties hereto (until notice of a change is delivered)
shall be the address set forth in the attachment to Schedule 1.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment
Agreement by their duly authorized officers as of the date first above written.
[NAME OF ASSIGNOR]
By: ______________________
Name: ____________________
Title: ___________________
[NAME OF ASSIGNOR]
By: ______________________
Name: ____________________
Title: ___________________
-5-
<PAGE>
SCHEDULE 1
to Assignment Agreement
1. Description and Date of Credit Agreement:
Credit Agreement dated as of February , 1997 among GFSI, Inc., as
Borrower, the institutions from time to time party thereto as lenders,
and The First National Bank of Chicago, as contractual representative of
the lenders.
2. Date of Assignment Agreement: ________, ___
3. Amounts (As of Date of Item 2 above):
<TABLE>
<S> <C> <C> <C> <C>
Revolving Term Loan Term Loans Outstanding
Loan A Facility B Facility Term Loans
Facility4
TOTAL OF COMMITMENTS
(Loans Under the $________ $_________ $_________ $___________
Credit Agreement)
Assignees Percentage of
Each Facility
Purchased under the ___ % ___% ___% ___%
Assignment Agreement
Amount of Assigned
Share of Each Facility $________ $_________ $_______ $__________
Under the Assignment
Agreement
</TABLE>
4. Assignee's Aggregate (Loan
Amount)** Commitment Amount
Purchased Hereunder: $_____________
5. Proposed Effective Date: ______ __, ___
Accepted and Agreed:
___________________
4 Including letter of credit and swing line sub-facilities.
-6-
<PAGE>
[NAME OF ASSIGNOR] [NAME OF ASSIGNEE]
By: _________________________ By: ____________________________
Name: _______________________ Name: __________________________
Title: ______________________ Title: _________________________
-7-
<PAGE>
Attachment to SCHEDULE 1 to ASSIGNMENT AGREEMENT
Attach Assignor's Administrative Information Sheet, which must
include notice address for the Assignor and the Assignee
-8-
<PAGE>
APPENDIX I
to Assignment Agreement
NOTICE
OF ASSIGNMENT
-------------
___________,19__
To: The First National Bank of
Chicago, As Agent
One First National Plaza
Suite 0088
Chicago, Illinois 60670-0088
Attention: Nathan L. Bloch
Telecopy: 312/732-1117
Confirmation: 312/732-2243
GFSI, Inc.
9700 Commerce Parkway
Lenexa, KS 66219
Attention: ______________________
Telecopy: _______________________
Confirmation: ___________________
From: [NAME OF ASSIGNOR] (the "Assignor")
[NAME OF ASSIGNEE] (the "Assignee")
l. We refer to that Credit Agreement (the "Credit Agreement")
described in Item 1 of Schedule 1 attached hereto ("Schedule 1").
Capitalized terms used herein and not otherwise defined herein shall
have the meanings attributed to them in the Credit Agreement.
2. This Notice of Assignment (this "Notice") is given and
delivered to the Borrower and the Agent pursuant to Section l2.3(A)
--------------
of the Credit Agreement.
3. The Assignor and the Assignee have entered into an Assignment
Agreement, dated as of _____ , 19__ (the "Assignment"), pursuant to which,
among other things, the Assignor has sold, assigned, delegated and transferred
to the Assignee, and the Assignee has purchased, accepted and assumed from
the Assignor the percentage interest specified in Item 3 of Schedule 1 of all
outstandings, rights and obligations under the Credit
-9-
<PAGE>
Agreement relating to the facilities listed in Item 3 of Schedule 1.
The effective date of the assignment shall be the later of the date
specified in Item 5 of Schedule 1 or two Business Days (or such
shorter period as agreed to by the Agent) after this notice of
assignment and any consents and fees required by Sections 12.3(A)
----------------
and 12.3(B) of the Credit AGREEMENT HAVE been delivered to the
----------
Agent, provided that the Effective Date shall not occur if any
condition precedent agreed to by the Assignor and the Assignee has not been
satisfied.
4. The Assignor and the Assignee hereby give to the
Borrower and the Agent notice of the assignment and delegation
referred to herein. The Assignor will confer with the Agent before
the date specified in Item 5 of Schedule 1 to determine if the
Assignment Agreement will become effective on such date pursuant to
Section 3 hereof, and will confer with the Agent to determine the
Effective Date pursuant to Section 3 hereof if it occurs thereafter.
The Assignor shall notify the Agent if the Assignment Agreement does
not become effective on any proposed Effective Date as a result of
the failure to satisfy the conditions precedent agreed to by the
Assignor and the Assignee. At the request of the Agent, the Assignor
will give the Agent written confirmation of the satisfaction of the
conditions precedent.
5. The Assignor or the Assignee shall pay to the Agent on
or before the Effective Date the processing fee of $3,500 required
by Section 12.3(B) of the Credit Agreement.
---------------
6. If Notes are outstanding on the Effective Date, the
Assignor and the Assignee request and direct that the Agent prepare
and cause the Borrower to execute and deliver new Notes or, as
appropriate, replacements notes, to the Assignor and the Assignee.
The Assignor and, if applicable, the Assignee each agree to deliver
to the Agent the original Note received by it from the Borrower upon
its receipt of a new Note in the appropriate amount.
7. The Assignee advises the Agent that notice and payment
instructions are set forth in the attachment to Schedule 1.
8. The Assignee hereby represents and warrants that none of
the funds, monies, assets or other consideration being used to make
the purchase pursuant to the Assignment are "plan assets" as defined
under ERISA and that its rights, benefits, and interests in and
under the Loan Documents will not be "plan assets" under ERISA.
9. The Assignee authorizes the Agent to act as its agent
under the Loan Documents in accordance with the terms thereof. The
Assignee acknowledges that the Agent has no duty to supply
information with respect to the Borrower or the Loan Documents to
the Assignee until the Assignee becomes a party to the Credit
Agreement.5
- ---------------------
/5/ May be eliminated if Assignee is a party to the Credit Agreement
prior to the Effective Date.
-10-
<PAGE>
NAME OF ASSIGNOR NAME OF ASSIGNEE
By: __________________________ By: _________________________
Name:_________________________ Name: _______________________
Title: _______________________ Title: ______________________
ACKNOWLEDGED AND CONSENTED TO:
THE FIRST NATIONAL BANK
OF CHICAGO, As Agent
By: ___________________________
Name: _________________________
Title: ________________________
GFSI, INC.
By: ___________________________
Name: _________________________
Title: ________________________
___________________________
6 Borrower consent to be included if required by Credit Agreement.
11
<PAGE>
[Attach photocopy of Schedule 1 to Assignment]
12
<PAGE>
EXHIBIT H
TO
CREDIT AGREEMENT
Form of Borrower's Counsel's Opinion
------------------------------------
Attached
<PAGE>
[LETTERHEAD OF MAYER, BROWN & PLATT]
February 27, 1997
The First National Bank of Chicago, as Agent
One First National Plaza
Chicago, Illinois 60670
Re: GFSI, Inc.
----------
Ladies and Gentlemen:
We have acted as special counsel to GFSI, Inc., a Delaware corporation (the
"Borrower") and GFSI Holdings, Inc., a Delaware corporation ("Holding"; together
--------
with the Borrower, the "Companies" and individually a "Company") in connection
with the preparation, execution, and delivery of that certain Credit Agreement,
dated as of February 27, 1997 (the "Credit Agreement"), among the Borrower, the
----------------
financial institutions from time to time party to the Credit Agreement (the
"Lenders"), and The First National Bank of Chicago, as contractual
-------
representative for the Lenders (in such capacity, the "Agent"). This letter is
-----
furnished to you pursuant to Section 4.1(h) (5) of the Credit Agreement and at
the request of the Companies. Capitalized terms used but not defined herein
shall have the meanings given them in the Credit Agreement.
In connection with this opinion we have examined and are familiar with
originals or copies of (i) the Credit Agreement, the Notes, the Security
Agreement and the Trademark Security Agreement, in each case as executed and
delivered on the date hereof and (ii) the Holdings Turnover Agreement as
executed and delivered on the date hereof (collectively, the "Subject
-------
Documents"); (ii) the charter and bylaws of the Companies, each as amended to
- ---------
date; and (iii) the corporate proceedings of the Companies and such other
records, documents and other instruments as we have deemed necessary to render
the opinions set forth below. We have been furnished with, and with your consent
have
<PAGE>
MAYER, BROWN & PLATT
relied solely and without independent investigation upon, certificates of the
Companies with respect to certain factual matters. In addition, we have relied,
solely and without independent investigation, as to all other factual matters,
upon (a) the representations of the Companies set forth in the Credit Agreement,
the other Loan Documents and other agreement and instruments furnished to you
on the date hereof in connection with the transactions contemplated bye the
Credit Agreement and the other Loan Documents, and (b) certificates and
assurances, including telephonic advice, from public officials, in each case, as
we have deemed necessary for purposes of expressing the opinions set forth
herein.
Whenever our opinion with respect to the existence or absence of facts is
indicated to be based on our knowledge or awareness, we are referring solely to
the actual knowledge of the particular Mayer, Brown & Platt attorneys who have
represented the Companies in connection with the Subject Documents. Except as
expressly set forth herein, we have not undertaken any independent investigation
to determine the existence or absence of any factual matters and no inference as
to our knowledge concerning such facts should be drawn.
In our examination, and for all purposes of the opinions expressed in this
letter, we have assumed, with your permission, and without independent
investigation, that:
(a) the signatures of individuals (other than individuals signing on behalf
of the Companies) signing all documents in connection with which this opinion is
rendered are genuine and authorized;
(b) all documents submitted to us as copies, whether certified or not,
conform to authentic original documents;
(c) all parties (other than the Companies) to the documents reviewed by us
have full power and authority to execute, deliver and perform thereunder and
under the documents required or permitted to be delivered and performed
thereunder, and all such documents have been duly authorized by all necessary
corporate or other actions on the part of such parties and others, have been
duly executed by such parties, have been duly delivered by such parties and, as
to all such parties, constitute the legal, valid and binding obligations of such
parties;
(d) no consent, approval, authorization, declaration or filing by or with
any governmental commission, board or agency is required for the valid execution
and delivery by the Agent or any of the Lenders of the Subject Documents;
-2-
<PAGE>
MAYER, BROWN & PLATT
(e) none of the Collateral (as defined in paragraph 7 below) consists or
-----------
will consist of consumer goods, equipment used in farming operations, farm
products, crops, timber or minerals and the like (including oil and gas) or
accounts resulting from the sale thereof, any beneficial interest in a trust or
a decedent's estate or letters of credit;
(f) the Borrower has rights in the Collateral;
(g) Collateral consisting of goods constitutes and will hereafter
constitute items which are moveable in nature and, if they are installed on any
property, will not constitute fixtures;
(h) credit extensions have been made pursuant to the Credit Agreement as of
the date hereof; and
(i) there are no agreements (other than the fee agreements dated January 3,
1996 and February 27, 1997, between the Borrower and the Agent) between any of
the parties to the Subject Documents that would alter the agreements set forth
therein.
Based on the foregoing, and subject to the limitations, qualifications, and
exceptions set forth below, we are of the opinion that:
1. Each of the Companies is a corporation validly existing and in good
standing under the laws of the jurisdiction of its organization and (b) has
adequate corporate power and authority to own its assets and to transact the
businesses in which it is currently engaged. Each of the Companies is duly
qualified as a foreign corporation in each jurisdiction, where its property,
whether leased or owned, or the nature of the business conducted by it, makes
such qualifications necessary, except where failure to so qualify would not have
a material adverse effect on the business, results of operations or financial
condition of the Borrower.
2. Each of the Companies has adequate corporate power and authority to
execute and deliver the Subject Documents and to perform its obligations under
the Subject Documents.
3. (a) The execution and delivery by each of the Companies of the Subject
Documents, and the performance by each of the Companies of all of its agreements
and obligations thereunder have been duly authorized by all requisite corporate
action. Each of the Companies has executed and delivered the Subject Documents
to which it is a party. (b) The Subject Documents constitute the legal, valid
and binding obligations of the Companies and are enforceable against the Company
in accordance with their respective terms.
-3-
<PAGE>
MAYER, BROWN & PLATT
4. The execution and delivery by each of the Companies of the Subject
Documents, and the performance by each of the Companies of the Subject Documents
to which it is a party and the transactions contemplated thereby, do not and
will not, as of the date hereof, (a) contravene any provision of either
Company's charter or bylaws, (b) conflict with, or result in a breach of, any
material term, condition or provision of, or constitute a material default under
or result in the creation of any material mortgage, lien, pledge, charge,
security interest or other encumbrance upon any of either of the Companies'
property under, any material agreement, trust deed, indenture, mortgage or other
instrument which has been identified to us by either Company and to which either
Company is a party or by which it or any of its property is bound, other than
(i) as permitted by the Credit Agreement or (ii) as would not have a material
adverse effect on the business, results of operations or financial condition of
the Borrower, or (c) to the best of our knowledge, require any consent or
approval of any United States Federal or Illinois regulatory or other
governmental authority, other than (i) as may be necessary under county, city,
municipal or other local ordinances, rules, or regulations of any state
(collectively, "Local Ordinances"), or (ii) where the failure to obtain such
consent or approval would not have a material adverse effect on the business,
results of operations, or financial condition of the Borrower.
5. Based upon our review of those statutes, rules, regulations and
judicial decisions which in our experience are normally applicable to or
normally relevant in connection with transactions of the type provided for in
the Subject Documents, the execution and delivery by each of the Companies of
the Subject Documents and the performance, as of the date hereof, of their
respective obligations thereunder (a) do not and will not, as of the date
hereof, contravene any provision of the Delaware General Corporation Law or any
United States Federal or Illinois State law or regulation applicable to or
binding on the Company or its properties and (b) except with respect to the
Collateral, do not result in, or require the creation or imposition of, any lien
on any of the property or revenues of the Borrower, except as contemplated by
the Credit Agreement.
6. Based solely and without independent investigation on the opinion of
Bryan Cave LLP attached hereto, and except as set forth in the schedules to the
Credit Agreement, to the best of our knowledge there is no pending or written
threatened action, suit, arbitration or proceeding before any court,
governmental or regulatory authority, agency, commission or board, by or against
the Borrower, which we believe has a reasonable likelihood of having a
materially adverse effect on the business, results of operations or financial
condition of the Borrower.
-4-
<PAGE>
MAYER, BROWN & PLATT
7. The Security Agreement creates a valid security interest in all
personal property of the Borrower covered by the Security Agreement and to which
Article 9 of the UCC applies and in which a security interest can be perfected
by the filing of Uniform Commercial Code Financing Statements other than, in any
event, any such property constituting money, instruments or securities
(collectively, the "Collateral").
----------
8. All obligations in respect of indebtedness for borrowed money of the
Company under the Credit Agreement constitute (a) "Senior Indebtedness" as such
term is defined under the Indenture and (b) "Senior GFSI Indebtedness" under
clause (a) of the definition of such term contained in the Purchase Agreement
relating to the Holdings Subordinated Notes.
9. The making of the Loans and the application of the proceeds thereof
as provided in the Credit Agreement do not violate Regulations G, T, U or X of
the Board of Governors of the Federal Reserve Board. In rendering the opinion
set forth in this paragraph 9 we have assumed that the proceeds of the Loans
will be used in a manner consistent with the requirements of Section 6.2(K) of
the Credit Agreement.
The opinions set forth above are subject to the following qualifications:
(A) Our opinions expressed herein are limited to the laws of the
State of Illinois, the Federal law of the United States, the General
Corporation Law of the State of Delaware and, solely for purposes of our
opinion in paragraph 8 above, the laws of the State of New York, and we do
not express any opinion concerning any other law.
(B) Our opinions above are subject to the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium, or similar laws
affecting creditors' rights generally.
(C) Our opinions above are further subject to the effect of general
principles of equity, including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing (regardless of
whether considered in a proceeding in equity or at law.)
(D) Certain of the remedial and waiver provisions contained in the
Subject Documents may be unenforceable in whole or in part, but the
inclusion of such provisions does not render such Subject Documents
invalid, and each such Subject Document contains, in our opinion, adequate
remedial provisions for the practical realization of the rights and
benefits purported to be afforded by such Subject Documents;
-5-
<PAGE>
MAYER, BROWN & PLATT
provided, however, that rights to indemnification and contribution may be
- -------- -------
limited by Federal or state securities laws or regulations or the public policy
underlying such laws or regulations.
(E) our opinions in paragraph 7 above are subject to the following
-----------
qualifications:
(1) the enforcement of the Security Agreement may be subject to rights
of lessees or account debtors, the terms of leases or other contracts
between the Borrower and such lessees or account debtors or other contracts
between the Borrower and such lessees or account debtors arising under or
outside such leases or other contracts;
(2) in the case of property which becomes Collateral after the date
hereof, section 552 of the Federal Bankruptcy Code limits the extent to
which property acquired by a debtor after the commencement of a case under
the Federal Bankruptcy Code may be subject to a security interest arising
from a security agreement entered into by the debtor before the
commencement of such case.
(F) We have not been requested to render, and with your permission we do
not express, any opinion as to (i) the applicability of Section 548 of the
Bankruptcy Code, or any other law relating to fraudulent conveyances, transfers
and obligations, or to fraudulent transfers and conveyances generally, to the
transactions and documents referred to herein or (ii) the applicability or
effect of any preference or similar law on any Collateral security provided
under any of the Subject Documents.
(G) We express no opinion as to:
(1) the existence of, any Person's ownership rights in or title to, or
the perfection or priority of any lien on or with respect to, any property
or assets, including the Collateral;
(2) the validity, perfection or priority of any liens subject to our
opinion in paragraph 7 above as they relate to any interest in or claim in
-----------
or under any policy of insurance, except a claim to proceeds payable by
reason of loss or damage under insurance policies maintained with respect
to inventory as required by and in compliance with the Security Agreement
and the Credit Agreement;
<PAGE>
MAYER, BROWN & PLATT
(3) the validity, perfection or priority of any liens with respect to any
property or assets, including the Collateral, which are subject to (x) a statute
or treaty of the United States which provides for a national or international
registration or a national or international certificate of title for the
perfection or recordation of a lien therein or which specifies a place of filing
different from that specified in the UCC for filing to perfect or record such
lien or (y) a certificate of title statute;
(4) the enforceability of any lien in:
(a) any Collateral consisting of goods as against a consignor which has
delivered or may hereafter deliver such goods to the Company under a true
consignment (as distinguished from a consignment intended as security);
(b) any Collateral consisting of goods as against a "buyer in the
ordinary course of business" (as such term is defined in the UCC) of such
Collateral;
(c) any Collateral consisting of goods covered by a document or
certificate of title;
(d) any Collateral consisting of goods which are installed in or
affixed to, or become a part of a product or mass with, goods which are not
items of Collateral; and
(e) any inventory of the Borrower in the event of any failure by the
Borrower to have complied or to comply fully with the Fair Labor Standards
Act of 1932, as amended, including Sections 206 and 207 thereof;
(5) the validity, perfection, priority or enforceability of any lien in
respect of real estate, real estate leases or other real property;
(6) Collateral consisting of claims against any government or governmental
agency (including without limitation the United States of America or any state
thereof or any agency or department of the United States of America or any state
thereof);
(7) the enforceability of (a) any provision relating to jurisdiction or
service of process other than in respect of the courts of the State of Illinois,
-7-
<PAGE>
MAYER, BROWN & PLATT
(b) any forum selection or waiver of venue or waiver of jury trial
provision, or (c) any waiver or other provision contained in a
Subject Document which is against public policy;
(8) enforcement of the Subject Documents as to instruments,
licenses, leases, contracts or other agreements constituting
Collateral, may be subject to the terms of such instruments,
licenses, leases, contracts or other agreements between the Borrower
and the other parties to such agreements, and the rights of such
other parties and any claims of defenses of such other parties
against the Borrower arising under or outside such instruments,
licenses, leases, contracts or other agreements;
(9) any provisions of the Subject Documents which authorize or
permit any party to any Subject Document or any purchaser of a
participant's interest from any party to set-off or apply any deposit
or property or any indebtedness with respect to any such party's or
participant's interest;
(10) compliance by the Borrower with any Local Ordinance;
(11) (a) any Federal or state securities laws, (b) any Federal or
state environmental laws, (c) any state or Federal antitrust laws,
(d) any Federal or state taxation laws, (e) any Federal or state
worker health or safety, zoning or permitting or land use matters,
(f) any Federal or state patent, trademark or copyright statutes,
rules or regulations, (g) statutory or other requirements relating to
the disposition of hazardous waste or environmental protection, (h)
any Federal or state receivership or conservatorship laws, or (i) any
statutes, rules, regulations and judicial proceedings of any county,
municipality or similar political entity or any agency or
instrumentality;
(12) whether any court outside of the State of Illinois would
honor the choice of Illinois law to govern any Subject Document; and
(13) the effect of the law of any jurisdiction other than the
State of Illinois wherein any Lender may be located or wherein the
enforcement of any document may be sought that limits the rates of
interest legally chargeable or collectible.
-8-
<PAGE>
MAYER, BROWN & PLATT
(J) We call to your attention that in the case of licenses or permits
issued by governmental authorities, the Borrower may not have sufficient
rights therein for the security interest of the Agent for its benefit and
the benefit of the Lenders to attach and even if the Borrower has
sufficient rights for the security interest to attach, exercise of remedies
may be limited by the terms of the license or permit or require the
consent of the governmental authority issuing such license or permit.
The opinions expressed herein shall be effective only as of the date of
this opinion letter. We do not assume responsibility for updating this opinion
letter as of any date subsequent to the date of this opinion letter, and assume
no responsibility for advising you of any changes with respect to any matters
described in this opinion letter that may occur subsequent to the date of this
opinion letter or from the discovery subsequent to the date of this opinion
letter of information not previously known to us pertaining to the events
occurring prior to the date of this opinion letter.
In rendering our opinions set forth in paragraphs 1,2, 3(a) and 6 with
respect to the Borrower, we have relied solely and without independent
investigation upon the opinion of Bryan Cave LLP, dated the date hereof,
attached hereto as Exhibit A, addressed to the Agent and the Lenders.
---------
-9-
<PAGE>
MAYER, BROWN & PLATT
The foregoing opinions are being furnished to you for your benefit and the
benefit of Lenders pursuant to the terms of the Credit Agreement, including
(subject expressly to the second preceding paragraph) any Lenders that
subsequently become parties to the Credit Agreement, and are not to be used,
referred to, furnished to any person or relied upon by any other person without
our prior written consent (except for the furnishing of copies of this opinion
to regulatory authorities having jurisdiction over the Lenders).
Very truly yours,
/s/ Mayer, Brown & Platt JBC
MAYER, BROWN & PLATT
-10-
<PAGE>
MAYER, BROWN & PLATT
EXHIBIT A
Opinion of Bryan Cave LLP
-11-
<PAGE>
[LETTERHEAD OF BRYAN CAVE LLP APPEARS HERE]
February 27, 1997
The First National Bank of Chicago, as Agent
One First National Plaza
Chicago, Illinois 60670
and
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Re: GFSI, Inc.
Ladies and Gentleman:
We have acted as special counsel to GFSI, Inc., a Delaware corporation
(the "Company"), in connection with the preparation, execution and delivery of
-------
that certain Credit Agreement, dated as of February 27, 1997 (the "Credit
------
Agreement"), among the Company, the financial institutions from time to time
- ---------
party to the Credit Agreement (the "Lenders"), and The First National Bank of
Chicago, as contractual representative for the Lenders (in such capacity, the
"Agent"). This letter is furnished to you pursuant to Section 4.1(h)(5) of the
-----
Credit Agreement and at the request of the Company. Capitalized terms used but
not defined herein shall have the meanings given them in the Credit Agreement.
In connection with this opinion, we have examined and are familiar with
originals or copies of (i) the Credit Agreement, the Notes, the Security
Agreement and the Trademark Security Agreement, in each case as executed and
delivered on the date hereof (collectively, the "Subject Documents"); (ii) the
-----------------
UCC Financing Statements executed by the Company, copies of which are attached
hereto as Exhibit A (the "Financing Statements"); (iii) the charter and bylaws
--------- --------------------
of the Company, each as amended to date; and (iv) the corporate proceedings of
the Company and such other records, documents and other instruments as we have
deemed necessary to render the opinions set forth below. We have been furnished
with, and with your consent have relied solely and without independent
investigation upon, certificates of the Company with respect to certain factual
matters. In addition, we have relied, solely and without independent
investigation, as to all other factual matters, upon (a) the representations of
the Company set forth in the Credit Agreement, the other Loan Documents and
other agreements and instruments furnished to you on the date hereof in
connection with the transactions contemplated by the Credit Agreement and
<PAGE>
BRYAN CAVE LLP
The First National Bank of Chicago, as Agent
Sidley & Austin
February 27, 1997
Page 2
the other Loan Documents, and (b) certificates and assurances, including
telephonic advice, from public officials, in each case, as we have deemed
necessary for purposes of expressing the opinions set forth herein.
Whenever our opinion with respect to the existence or absence or facts is
indicated to be based on our knowledge or awareness, we are referring solely to
the actual knowledge of the particular Bryan Cave LLP attorney who have
represented the Company in connection with the Subject Documents. Except as
expressly set forth herein,we have not undertaken any independent investigation
to determine the existence or absence of any factual matters and no inference as
to our knowledge concerning such facts should be drawn.
In our examination, and for all purposes of the opinions expressed in this
letter, we have assumed, with your permission, and without independent
investigation, that:
(a) the signatures of individuals (other than individuals signing on behalf
of the Company) signing all documents in connection with which this opinion is
rendered are genuine and authorized;
(b) all documents submitted to us as copies, whether certified or not,
conform to authentic original documents;
(c) all parties (other than the Company) to the documents reviewed by us
have full power and authority to execute, deliver and perform thereunder and
under the documents required or permitted to be delivered and performed
thereunder, and all such documents have been duly authorized by all necessary
corporate or other actions on the part of such parties and others, have been
duly executed by such parties, have been duly delivered by such parties and, as
to all such parties, constitute the legal, valid and binding obligations of such
parties;
(d) no consent, approval, authorization, declaration of filing by or with
any governmental commission, board or agency is required for the valid execution
and delivery by the Agent or any of the Lenders of the Subject Documents;
(e) credit extensions have been made pursuant to the Credit Agreement as of
the date hereof; and
(f) there are no agreements (other than the fee letter referred to in
Section 2.15(C)(ii) of the Credit Agreement and the letter agreement referred to
in Section 9.7(A) of the Credit Agreement) between any of the parties to the
Subject Documents that would alter the agreements set forth therein.
<PAGE>
BRYAN CAVE LLP
The First National Bank of Chicago, as Agent
Sidley & Austin
February 27, 1997
Page 3
Based on foregoing, and subject to the limitations; qualifications and
exceptions set forth below, we are of the opinion that:
1. The Company (a) is a corporation duly organized, validly existing and
in good standing under the laws of the state of Delaware and (b) has adequate
corporate power and authority to own its assets and to transact the businesses
in which it is currently engaged. The Company is duly qualified as a foreign
corporation in each jurisdiction where its property, whether leased or owned, or
the nature of the business conducted by it, makes such qualification necessary,
except where the failure to so qualify would not have a material adverse effect
on the business, results of operations or financial condition of the Company.
2. The Company has adequate corporate power and authority to execute and
deliver the Financing Statements and Subject Documents to which it is a party
and to perform its obligation under the Subject Documents.
3. The execution and delivery by the Company of the Financing Statements
and Subject Documents to which it is a party and the performance by the Company
of all of its agreements and obligations thereunder have been duly authorized by
all requisite corporate action. The Company has duly executed and delivered the
Financing Statements.
4. The execution and delivery by the Company of the Financing Statements
does not and will not, as of the date hereof, (a) contravene any provision of
the Company's charter or bylaws, (b) conflict with, or result in a breach
of, any material term, condition or provision of, or constitute a material
default under or result in the creation of any material mortgage, lien, pledge,
charge, security interest or other encumbrance upon any of the Company's
property under, any material agreement, trust deed, indenture, mortgage or other
instrument which has been identified to us by the Company and to which the
Company is a party or by which it or any of its property is bound, other than
(i) as permitted by the Credit Agreement or (ii) as would not have a material
adverse effect on the business, results of operations or financial condition of
the Company, or (c) to the best of our knowledge, require any consent or
approval of any Federal regulatory or other governmental authority, other than
(i) as may be necessary under county, city, municipal or other local ordinances,
rules or regulations of any state (collectively, "Local Ordinances"), or (ii)
----- ----------
where the failure to obtain such consent or approval would not have a material
adverse effect on the business, results of operations or financial condition of
the Company.
5. Except as set forth in the schedules to the Credit Agreement, to the
best of our knowledge, there is no pending or written threatened action, suit,
arbitration or proceeding before any court, governmental or regulatory
authority, agency, commission or board, by or against the
<PAGE>
BRYAN CAVE LLP
The First National Bank of Chicago, as Agent
Sidley & Austin
February 27, 1997
Page 4
Company, which we believe has a reasonable likelihood of having a materially
adverse effect on the business, results of operations or financial condition of
the Company.
6. The merger of Winning Ways, Inc., a Missouri corporation, with and into
the Company has become effective in accordance with the laws of the states of
Delaware and Missouri.
The opinions set forth above are subject to the following qualifications:
(A) Our opinions expressed herein are limited to the laws of the state
of Missouri, Federal law of the United States and the General Corporation
Law of the State of Delaware, and we do not express any opinion concerning
any other law.
(B) Our opinions above are subject to the effect of general principles
of equity, including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing (regardless whether
considered in a proceeding in equity or at law).
(C) We have not been requested to render, and with your permission we
do not express, any opinion as to (i) the applicability of Section 548 of
the Bankruptcy Code or any other law relating to fraudulent conveyances,
transfers and obligations, or to fraudulent transfers and conveyances
generally, to the transactions and documents referred to herein or (ii) the
applicability or effect of any preference or similar law on any Collateral
security provided under any of the Subject Documents.
(D) We express no opinion as to:
(1) the existence of any Person's ownership rights in or title to,
or the validity, perfection or priority of any lien on or with respect
to, any property or assets, including the Collateral;
(2) compliance by the Company with any Local Ordinance; and
(3) (a) any Federal or state securities laws, (b) any Federal or
state environmental laws, (c) any Federal or state antitrust laws, (d)
any Federal or state taxation laws, (e) any Federal or state worker
health or safety, zoning or permitting or land use matters, (f) any
Federal or state patent, trademark or copyright statutes, rules or
regulations, (g) any statutory or other requirements relating to the
disposition of hazardous waste or environmental protection, (h) any
Federal or state receivership or conservatorship laws, or (i) any
statutes, rules,
<PAGE>
BRYAN CAVE LLP
The First National Bank of Chicago, as Agent
Sidley & Austin
February 27, 1997
Page 5
regulations and judicial proceedings of any county, municipality or
similar political entity or any agency or instrumentality.
The opinions expressed herein shall be effective only as of the date of
this opinion letter. We do not assume responsibility for updating this opinion
letter as of any date subsequent to the date of this opinion letter, and assume
no responsibility for advising you of any changes with respect to any matters
described in this opinion letter that may occur subsequent to the date of this
opinion letter or from the discovery subsequent to the date of this opinion
letter of information not previously known to us pertaining to events occurring
prior to the date of this opinion letter.
The foregoing opinions are being furnished to you for your benefit and the
benefit of the Lenders pursuant to the terms of the Credit Agreement, including
(subject expressly to the preceding paragraph) any Lenders that subsequently
become parties to the Credit Agreement, and are not to be used, referred to,
furnished to any person or relied upon by any other person without our prior
written consent, except that Mayer, Brown & Platt may rely hereon for purposes
of their opinion to you of even date herewith and that copies of this opinion
may be furnished to regulatory authorities having jurisdiction over the Lenders.
Very truly yours,
BRYAN CAVE LLP
/s/ Bryan Cave LLP
<PAGE>
BRYAN CAVE LLP
EXHIBIT A
---------
Financing Statements
--------------------
<PAGE>
STATE OF KANSAS - SEND THREE PARTS TO FILING OFFICER WITH CARBON
Uniform Commercial Code - Financing Statement - Form UCC-1
1. Type form. 2. If space is inadequate continue on additional sheet.
3. Enclose filing fee. 4. Filings in the Secretary of State's Office
must contain either the debtor's federal employer identification
number or social security number.
"When the debtor is a sole proprietor, only the debtor's
social security number is authorized to be filed".
Prepaid account number ________
- --------------------------------------------------------------------------------
1. Debtor (if individual, last name first) and address:
GFSI, INC.
9700 Commerce Parkway
Lenexa, KS 66219
FEIN 74-2810748 or SSN - -
-- ---------- --- -- ----
- --------------------------------------------------------------------------------
Debtor (if individual, last name first) and address:
FEIN - or SSN - -
-- ---------- --- -- ----
- --------------------------------------------------------------------------------
----------------------
For filing officer
2. Secured Party and address (there may be more than one):
(Type information inside gray area)
-----------------------------------------------------
The First National Bank of Chicago,
as Agent
One First National Plaza
Chicago, Illinois 60670
-----------------------------------------------------
- ----------------------------------------------------------
3. Assignee and address if applicable
- --------------------------------------------------------- ----------------------
4. Mark, if applicable: [X] Products of collateral are also covered
[_] The debtor is a transmitting utility
5. (a) This financing statement covers the following types (or items) of
property: (Describe)
All of Debtor's now owned or existing and hereafter acquired or arising
accounts, machinery, equipment, fixtures, inventory, investment property,
goods, chattel paper, general intangibles, contract rights, instruments and
documents, as more particularly described on Exhibit A attached hereto and
made a part hereof.
(b) If collateral is crops, the above described crops are growing or are to be
grown on: (Describe real estate)
(c) If applicable, the above (goods are to become fixtures on:) (timber is
standing on:) (minerals or the like, including oil and gas, or accounts will
be financed at the wellhead or minehead of the well or mine located on:)
(Legal description of real estate)
Name of record owner:
----------------------------------------------------------
6. If filing without debtor signature items a, b, c or d must be marked:
a. [_] Collateral already subject to a security interest in another
jurisdiction when it was brought into this state, or when
the debtor's location is changed to this state.
b. [_] Collateral is proceeds of the original collateral in which
a security interest was perfected
c. [_] Collateral as to which the filing has lapsed.
d. [_] The filing covers collateral acquired after a change of
name identity or corporate structure of debtor.
- --------------------------------------------------------------------------------
GFSI, INC.
---------------------------------- ----------------------------------------
Signature of Debtor Signature of Secured Party (or assignee)
BY: [SIGNATURE APPEARS HERE]
---------------------------------- ----------------------------------------
Signature of Debtor Signature of Secured Party (or assignee)
Form UCC-1 Form approved by Kansas Secretary of State
FILING OFFICER Rev 6-93
<PAGE>
EXHIBIT A
TO
FINANCING STATEMENT
DEBTOR: SECURED PARTY:
GFSI, Inc. The First National Bank of Chicago, as Agent
9700 Commerce Parkway One First National Plaza
Lenexa, Kansas 66219 Chicago, Illinois 60670
DESCRIPTION OF COLLATERAL:
- -------------------------
All of the following property, and interests in property, of Debtor, whether now
owned and existing or hereafter acquired or arising and wheresoever located:
accounts, inventory, investment property, goods, furniture, machinery,
equipment, fixtures, general intangibles (including, without limitation,
goodwill, inventions, designs, patents, patent application, trademarks,
trademark applications, service marks, service mark application, trade names,
copyrights, copyright applications, licenses under which Debtor is the licensor,
leasehold interests in real and personal property, franchises, tax refund
claims, and guarantee claims, security interests or other security held by or
granted to Debtor to secure payment of Debtor's accounts), deposit accounts, tax
refunds, chattel paper, contract rights, instruments, documents, notes, returned
and repossessed goods and all other personal property or interests in personal
property; together with all accessions to, substitutions for, and all
replacements, products and proceeds of the foregoing (including, without
limitation, proceeds of insurance policies insuring any of the foregoing), all
books and records (including, without limitation, customer lists, credit files,
computer programs, printouts and other computer materials and records)
pertaining to any of the foregoing, and all insurance policies insuring any of
the foregoing.
GFSI, INC.
BY: [SIGNATURE APPEARS HERE]
----------------------------
<PAGE>
EXHIBIT A
TO
FINANCING STATEMENT
DEBTOR: SECURED PARTY:
GFSI, Inc. The First National Bank of Chicago, as Agent
9700 Commerce Parkway One First National Plaza
Lenexa, Kansas 66219 Chicago, Illinois 60670
DESCRIPTION OF COLLATERAL:
- --------------------------
All of the following property, and interests in property, of Debtor, whether now
owned and existing or hereafter acquired or arising and wheresoever located:
accounts, inventory, investment property, goods, furniture, machinery,
equipment, fixtures, general intangibles (including, without limitation,
goodwill, inventions, designs, patents, patent applications, trademarks,
trademark applications, service marks, service mark applications, trade names,
copyrights, copyright applications, licenses under which Debtor is the licensor,
leasehold interests in real and personal property, franchises, tax refund
claims, and guarantee claims, security interests or other security held by or
granted to Debtor to secure payment of Debtor's accounts), deposit accounts, tax
refunds, chattel paper, contract rights, instruments, documents, notes, returned
and repossessed goods and all other personal property or interests in personal
property; together with all accessions to, substitutions for, and all
replacements, products and proceeds of the foregoing (including, without
limitation, proceeds of insurance policies insuring any of the foregoing), all
books and records (including, without limitation, customer lists, credit files,
computer programs, printouts and other computer materials and records)
pertaining to any of the foregoing, and all insurance policies insuring any of
the foregoing.
GFSI, INC.
BY: [SIGNATURE APPEARS HERE]
--------------------------
<PAGE>
STATE OF KANSAS - SEND THREE PARTS TO FILING OFFICER WITH CARBON
Uniform Commercial Code - Financing Statement - Form UCC-1
1. Type form. 2. If space is inadequate continue on additional sheet. 3. Enclose
filing fee. 4. Filings in the Secretary of State's Office must contain either
the debtor's federal employer identification number or social security number.
"When the debtor is a sole proprietor, only the debtor's social security number
is authorized to be filed."
Prepaid account number ________________
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Debtor (if individual, last name first) and address: Debtor (if individual, last name first) and address:
GEAR FOR SPORTS
9700 Commerce Parkway
Lenexa, KS 66219
FEIN 74 - 2810748 or SSN - - FEIN - or SSN - -
---- --------- --- -- ---- ---- --------- --- -- ----
- ------------------------------------------------------------------------------------------------------------------------------------
For filing officer
2. Secured Party and address (there may be more than one):
(Type information inside gray area)
The First National Bank of Chicago,
as Agent
One First National Plaza
Chicago, Illinois 60670
- ----------------------------------------------------------------
3. Assignee and address if applicable
- ----------------------------------------------------------------
4. Mark if applicable: [X] Products of collateral are also covered [ ] The debtor is a transmitting utility
</TABLE>
5.(a) This financing statement covers the following types (or items) of
property: (Describe)
All of Debtor's now owned or existing and hereafter acquired or arising
accounts, machinery, equipment, fixtures, inventory, investment property, goods,
chattel paper, general intangibles, contract rights, instruments and documents,
as more particularly described on Exhibit A attached hereto and made a part
hereof.
(b) If collateral is crops, the above described crops are growing or are to be
grown on: (Describe real estate)
(c) If applicable, the above (goods are to be come fixtures on:)(timber is
standing on:)(minerals or the like, including oil and gas, or accounts will be
financed at the wellhead or minehead of the well or mine located on:)(Legal
description of real estate)
Name of record owner:
-----------------------------------------------------------
6. If filing without debtor signature items a, b, c or d must be marked:
a.[ ] Collateral already subject to a security interest: in another
jurisdiction when it was brought into this state, or when the
debtor's location is changed to this state.
b.[ ] Collateral is proceeds of the original collateral in which a security
interest was perfected.
c.[ ] Collateral as to which the filing has lapsed.
d.[ ] The filing covers collateral acquired after a change of name identity
or corporate structure of debtor
- --------------------------------------------------------------------------------
GEAR FOR SPORTS
- ------------------------------------- ----------------------------------------
Signature of Debtor Signature of Secured Party (or assignee)
BY: [SIGNATURE APPEARS HERE]
- ------------------------------------- ----------------------------------------
Signature of Debtor Signature of Secured Party (or assignee)
Form UCC-1 Form approved by Kansas Secretary of State
FILING OFFICER
<PAGE>
EXHIBIT A
TO
FINANCING STATEMENT
DEBTOR: SECURED PARTY:
Gear for Sports The First National Bank of Chicago, as Agent
9700 Commerce Parkway One First National Plaza
Lenexa, Kansas 66219 Chicago, Illinois 60670
DESCRIPTION OF COLLATERAL:
- -------------------------
All of the following property, and interests in property, of Debtor, whether now
owned and existing or hereafter acquired or arising and wheresoever located:
accounts, inventory, investment property, goods, furniture, machinery,
equipment, fixtures, general intangibles (including, without limitation,
goodwill, inventions, designs, patents, patent applications, trademarks,
trademark applications, service marks, service mark applications, trade names,
copyrights, copyright applications, licenses under which Debtor is the licensor,
leasehold interests in real and personal property, franchises, tax refund
claims, and guarantee claims, security interests or other security held by or
granted to Debtor to secure payment of Debtor's accounts), deposit accounts, tax
refunds, chattel paper, contract rights, instruments, documents, notes, returned
and repossessed goods and all other personal property or interests in personal
property; together with all accessions to, substitutions for, and all
replacements, products and proceeds of the foregoing (including, without
limitation, proceeds of insurance policies insuring any of the foregoing), all
books and records (including, without limitation, customer lists, credit files,
computer programs, printouts and other computer materials and records)
pertaining to any of the foregoing, and all insurance policies insuring any of
the foregoing.
GEAR FOR SPORTS
BY: [SIGNATURE APPEARS HERE]
---------------------------
<PAGE>
EXHIBIT A
TO
FINANCING STATEMENT
DEBTOR: SECURED PARTY:
Gear for Sports The First National Bank of Chicago, as Agent
9700 Commerce Parkway One First National Plaza
Lenexa, Kansas 66219 Chicago, Illinois 60670
DESCRIPTION OF COLLATERAL:
- --------------------------
All of the following property, and interests in property, of Debtor, whether now
owned and existing or hereafter acquired or arising and wheresoever located:
accounts, inventory, investment property, goods, furniture, machinery,
equipment, fixtures, general intangibles (including, without limitation,
goodwill, inventions, designs, patents, patent applications, trademarks,
trademark applications, service marks, service mark applications, trade names,
copyrights, copyright applications, licenses under which Debtor is the licensor,
leasehold interests in real and personal property, franchises, tax refund
claims, and guarantee claims, security interests or other security held by or
granted to Debtor to secure payment of Debtor's accounts), deposit accounts, tax
refunds, chattel paper, contract rights, instruments, documents, notes, returned
and repossessed goods and all other personal property or interests in personal
property; together with all accessions to, substitutions for, and all
replacements, products and proceeds of the foregoing (including without
limitation, proceeds of insurance policies insuring any of the foregoing), all
books an records (including without limitation, customer lists, credit files,
computer programs, printouts and other computer materials and records)
pertaining to any of the foregoing, and all insurance policies insuring any of
the foregoing.
GEAR FOR SPORTS
BY: [SIGNATURE APPEARS HERE]
----------------------------
<PAGE>
STATE OF KANSAS - SEND THREE PARTS TO FILING OFFICER WITH CARBON
Uniform Commercial Code - Financing Statement - Form UCC-1
1. Type form. 2. If space is inadequate continue on additional sheet. 3. Enclose
filing fee. 4. Filings in the Secretary of State's Office must contain either
the debtor's federal employer identification number or social security number.
"When the debtor is a sole proprietor, only the debtor's social security number
is authorized to be filed."
Prepaid account number ________________
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Debtor (if individual, last name first) and address: Debtor (if individual, last name first) and address:
WINNING WAYS
9700 Commerce Parkway
Lenexa, KS 66219
FEIN 74 - 2810748 or SSN - - FEIN - or SSN - -
---- --------- --- -- ---- ---- --------- --- -- ----
- ------------------------------------------------------------------------------------------------------------------------------------
For filing officer
2. Secured Party and address (there may be more than one):
(Type information inside gray area)
The First National Bank of Chicago,
as Agent
One First National Plaza
Chicago, Illinois 60670
- ----------------------------------------------------------------
3. Assignee and address if applicable
- ----------------------------------------------------------------
4. Mark, if applicable: [X] Products of collateral are also covered [ ] The debtor is a transmitting utility
</TABLE>
5.(a) This financing statement covers the following types (or items) of
property: (Describe)
All of Debtor's now owned or existing and hereafter acquired or arising
accounts, machinery, equipment, fixtures, inventory, investment property, goods,
chattel paper, general intangibles, contract rights, instruments and documents,
as more particularly described on Exhibit A attached hereto and made a part
hereof.
(b) If collateral is crops, the above described crops are growing or are to be
grown on: (Describe real estate)
(c) If applicable, the above (goods are to be come fixtures on:)(timber is
standing on:)(minerals or the like, including oil and gas, or accounts will be
financed at the wellhead or minehead of the well or mine located on:)(Legal
description of real estate)
Name of record owner:
-----------------------------------------------------------
6. If filing without debtor signature items a, b, c or d must be marked:
a.[ ] Collateral already subject to a security interest: in another
jurisdiction when it was brought into this state, or when the
debtor's location is changed to this state.
b.[ ] Collateral is proceeds of the original collateral in which a security
interest was perfected.
c.[ ] Collateral as to which the filing has lapsed.
d.[ ] The filing covers collateral acquired after a change of name identity
or corporate structure of debtor
- --------------------------------------------------------------------------------
WINNING WAYS
- ------------------------------------- ----------------------------------------
Signature of Debtor Signature of Secured Party (or assignee)
BY: [SIGNATURE APPEARS HERE]
- ------------------------------------- ----------------------------------------
Signature of Debtor Signature of Secured Party (or assignee)
Form UCC-1 Form approved by Kansas Secretary of State
FILING OFFICER
<PAGE>
EXHIBIT A
TO
FINANCING STATEMENT
DEBTOR: SECURED PARTY:
Winning Ways The First National Bank of Chicago, as Agent
9700 Commerce Parkway One First National Plaza
Lenexa, Kansas 66219 Chicago, Illinois 60670
DESCRIPTION OF COLLATERAL:
- -------------------------
All of the following property, and interests in property, of Debtor, whether now
owned and existing or hereafter acquired or arising and wheresoever located:
accounts, inventory, investment property, goods, furniture, machinery,
equipment, fixtures, general intangibles (including, without limitation,
goodwill, inventions, designs, patents, patent applications, trademarks,
trademark applications, service marks, service mark applications, trade names,
copyrights, copyright applications, licenses under which Debtor is the licensor,
leasehold interests in real and personal property, franchises, tax refund
claims, and guarantee claims, security interests or other security held by or
granted to Debtor to secure payment of Debtor's accounts), deposit accounts, tax
refunds, chattel paper, contract rights, instruments, documents, notes, returned
and repossessed goods and all other personal property or interests in personal
property; together with all accessions to, substitutions for, and all
replacements, products and proceeds of the foregoing), (including, without
limitation, proceeds of insurance policies insuring any of the foregoing), all
books and records (including, without limitation, customer lists, credit files,
computer programs, printouts and other computer materials and records)
pertaining to any of the foregoing, and all insurance policies insuring any of
the foregoing.
WINNING WAYS
BY: [SIGNATURE APPEARS HERE]
----------------------------
<PAGE>
EXHIBIT A
TO
FINANCING STATEMENT
DEBTOR: SECURED PARTY:
Winning Ways The First National Bank of Chicago, as Agent
9700 Commerce Parkway One First National Plaza
Lenexa, Kansas 66219 Chicago, Illinois 60670
DESCRIPTION OF COLLATERAL:
- -------------------------
All of the following property, and interests in property, of Debtor, whether now
owned and existing or hereafter acquired or arising and wheresoever located:
accounts, inventory, investment property, goods, furniture, machinery,
equipment, fixtures, general intangibles (including, without limitation,
goodwill, inventions, designs, patents, patent applications, trademarks,
trademark applications, service marks, service mark applications, trade names,
copyrights, copyright applications, licenses under which Debtor is the licensor,
leasehold interests in real and personal property, franchises, tax refund
claims, and guarantee claims, security interests or other security held by or
granted to Debtor to secure payment of Debtor's accounts), deposit accounts, tax
refunds, chattel paper, contract rights, instruments, documents, notes, returned
and repossessed goods and all other personal property or interests in personal
property; together with all accessions to, substitutions for, and all
replacements, products and proceeds of the foregoing (including, without
limitation, proceeds of insurance policies insuring any of the foregoing), all
books and records (including without limitation, customer lists, credit files,
computer programs, printouts and other computer materials and records)
pertaining to any of the foregoing, and all insurance policies insuring any of
the foregoing.
WINNING WAYS
BY: [SIGNATURE APPEARS HERE]
----------------------------
<PAGE>
STATE OF KANSAS - SEND THREE PARTS TO FILING OFFICER WITH CARBON
Uniform Commercial Code - Financing Statement - Form UCC-1
1. Type form. 2. If space is inadequate continue on additional sheet. 3. Enclose
filing fee. 4. Filings in the Secretary of State's Office must contain either
the debtor's federal employer identification number or social security number.
"When the debtor is a sole proprietor, only the debtor's social security number
is authorized to be filed."
Prepaid account number ________________
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Debtor (if individual, last name first) and address: Debtor (if individual, last name first) and address:
GFSI, INC.
9700 Commerce Parkway
Lenexa, KS 66219
FEIN 74 - 2810748 or SSN - - FEIN - or SSN - -
---- --------- --- -- ---- ---- --------- --- -- ----
- ------------------------------------------------------------------------------------------------------------------------------------
For filing officer
2. Secured Party and address (there may be more than one):
(Type information inside gray area)
---------------------------------------------------------
The First National Bank of Chicago,
as Agent
One First National Plaza
Chicago, Illinois 60670
---------------------------------------------------------
- ----------------------------------------------------------------
3. Assignee and address if applicable
- ----------------------------------------------------------------
4. Mark, if applicable: [X] Products of collateral are also covered [ ] The debtor is a transmitting utility
</TABLE>
5.(a) This financing statement covers the following types (or items) of
property: (Describe)
All of Debtor's now owned or existing and hereafter acquired or arising
accounts, machinery, equipment, fixtures, inventory, investment property, goods,
chattel paper, general intangibles, contract rights, instruments and documents,
as more particularly described on Exhibit A and located on the real properties
described on Schedules 1 and 2 attached hereto and made a part hereof.
(b) If collateral is crops, the above described crops are growing or are to be
grown on: (Describe real estate)
THIS STATEMENT TO BE INDEXED IN REAL ESTATE RECORDS
(c) If applicable, the above (goods are to be come fixtures on:)(timber is
standing on:)(minerals or the like, including oil and gas, or accounts will be
financed at the wellhead or minehead of the well or mine located on:)(Legal
description of real estate)
SEE SCHEDULES 1 AND 2 ATTACHED HERETO
Name of record owner: GFSI, INC.
-----------------------------------------------------------
6. If filing without debtor signature items a, b, c or d must be marked:
a.[ ] Collateral already subject to a security interest: in another
jurisdiction when it was brought into this state, or when the
debtor's location is changed to this state.
b.[ ] Collateral is proceeds of the original collateral in which a security
interest was perfected.
c.[ ] Collateral as to which the filing has lapsed.
d.[ ] The filing covers collateral acquired after a change of name identity
or corporate structure of debtor
- --------------------------------------------------------------------------------
GFSI, INC.
- ------------------------------------- ----------------------------------------
Signature of Debtor Signature of Secured Party (or assignee)
BY: [SIGNATURE APPEARS HERE]
- ------------------------------------- ----------------------------------------
Signature of Debtor Signature of Secured Party (or assignee)
Form UCC-1 Form approved by Kansas Secretary of State
FILING OFFICER
<PAGE>
EXHIBIT A
TO
FINANCING STATEMENT
DEBTOR: SECURED PARTY:
GFSI, Inc. The First National Bank of Chicago, as Agent
9700 Commerce Parkway One First National Plaza
Lenexa, Kansas 66219 Chicago, Illinois 60670
DESCRIPTION OF COLLATERAL:
- --------------------------
All of the following property, and interests in property, of Debtor, whether now
owned and existing or hereafter acquired or arising and wheresoever located:
accounts, inventory, investment property, goods, furniture, machinery,
equipment, fixtures, general intangibles (including, without limitation,
goodwill, inventions, designs, patents, patent applications, trademarks,
trademark applications, service marks, service mark applications, trade names,
copyrights, copyright applications, licenses under which Debtor is the licensor,
leasehold interests in real and personal property, franchises, tax refund
claims, and guarantee claims, security interests or other security held by or
granted to Debtor to secure payment of Debtor's accounts), deposit accounts, tax
refunds, chattel paper, contract rights, instruments, documents, notes, returned
and repossessed goods and all other personal property or interests in personal
property; together with all accessions to, substitutions for, and all
replacements, products and proceeds of the foregoing (including without
limitation, proceeds of insurance policies insuring any of the foregoing), all
books an records (including without limitation, customer lists, credit files,
computer programs, printouts and other computer materials and records)
pertaining to any of the foregoing, and all insurance policies insuring any of
the foregoing.
GFSI, INC.
BY: [SIGNATURE APPEARS HERE]
----------------------------
<PAGE>
SCHEDULE 1
Name of Record Owner:
GFSI, Inc. Commercial
9700 Commerce Parkway Johnson County, Kansas
Lenexa, KS 66219
Legal Description
-----------------
All of Lot 9 and part of Lot 13 and 15, 'KANSAS COMMERCE CENTER', a subdivision
in Lenexa, Johnson County, Kansas, all being more particularly described as
follows: Beginning at the Southerlymost corner of said Lot 9; thence North 56
degrees 00 minutes 00 seconds East along the Southeasterly line of said Lot 9, a
distance of 175.00 feet; thence in a Northeasterly and Northerly direction,
continuing along said Southeasterly line and along a curve to the left, tangent
to the last described course, having a radius of 420.00 feet and a central angle
of 58 degrees 15 minutes 44 seconds, an arc distance of 427.08 feet; thence
North 2 degrees 15 minutes 44 seconds West along the East line of said Lot 9 and
tangent to said curve, a distance of 135.00 feet; thence in a Northerly,
Northwesterly and Westerly direction along the Northeasterly line of said Lot 9
and along a curve to the left, tangent to the last described course, having a
radius of 320.00 feet and a central angle of 89 degrees 56 minutes 05 seconds,
an arc distance of 502.29 feet; thence South 87 degrees 48 minutes 11 seconds
West, along the Northerly line of said Lot 9, and tangent to the last said
curve, a distance of 60.00 feet; thence in a Westerly, Southwesterly and
Southerly direction along the Northwesterly line of said Lot 9 and along a curve
to the left, tangent to the last described course, having a radius of 320.00
feet and a central angle of 80 degrees 06 minutes 00 seconds, an arc distance of
447.36 feet; thence South 7 degrees 42 minutes 11 seconds West along the
Westerly line of said Lot 9 and tangent to the last described curve, a distance
of 60.79 feet; thence in a Southerly and Southwesterly direction along the
Westerly line of said Lot 9 and along the Northwesterly line of said Lot 13 and
along a curve to the right, tangent to the last described course, have a radius
of 380.00 feet and a central angle of 54 degrees 17 minutes 38 seconds, an arc
distance of 360.09 feet; thence South 2 degrees 18 minutes 17 seconds East, a
distance of 149.44 feet; thence North 87 degrees 48 minutes 11 seconds East, a
distance of 375.21 feet to a point on the Northeasterly line of said Lot 15 that
is South 66 degrees 05 minutes 00 seconds East, a distance of 95.00 feet from
the Northerlymost corner thereof; thence South 66 degrees 05 minutes 00 seconds
East along the last said Northeasterly line, a distance of 155.00 feet to an
angle point therein; thence South 34 degrees 00 minutes 00 seconds East along
the Northeasterly line of said Lot 15, a distance of 100.00 feet to the point of
beginning.
<PAGE>
SCHEDULE 2
Name of Record Owner: 110th Street
Johnson County, Kansas
CFSI, Inc.
9700 Commerce Parkway
Lenexa, KS 66219
Legal Description
-----------------
A tract of land in the South 1/2 of Section 8, Township 13, Range 24, City of
Lenexa, Johnson County, Kansas said tract being more particularly described as
follows:
Commencing at the Southeast corner of the Southeast 1/4 of Section 8, Township
13, Range 24, City of Lenexa, Johnson County, Kansas; thence North 02(degrees)
13-25" West on the East line of the Southeast 1/4 of Section 8, Township 13,
Range 24, 614.97 feet to a point; thence South 88(degrees) 02' 50" West, 2460.01
East on the existing Northerly Right-of-Way Line of 110th Street and its
Westerly prolongation to a point, said point being on the existing Westerly
Right-of-Way Line of Lakeview Avenue and also being the True Point of Beginning,
thence continuing South 88(degrees) 02' 50" West, 726.00 feet to a point; thence
North 02(degrees) 13' 25" West, 360.00 feet to a point, thence North 88(degrees)
02' 50" East, 726.00 feet to a point on the existing Westerly Right-of-Way Line
of Lakeview Avenue, thence South 02(degrees) 13' 25" East, on the existing
Westerly Right-of-Way Line of Lakeview Avenue, 360.00 feet to the True Point of
Beginning.
<PAGE>
[LETTERHEAD OF BRYAN CAVE LLP APPEARS HERE]
February 27, 1997
The First National Bank of Chicago,
as Agent for itself and the other Lenders
One First National Plaza
Chicago, Illinois 60670
and
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Re: Mortgage Security Agreement, Financing Statement and Assignment
of Rents and Leases (the "Mortgage"), dated as of February 27,
1997, from GFSI, Inc., a Delaware corporation (the "Borrower"),
in favor of The First National Bank of Chicago, as Agent (the
"Agent") for itself and the other Lenders.
Ladies and Gentlemen:
We have acted as counsel to the Borrower in the state of Kansas (the
"State") in connection with the making of certain term and revolving loans
(collectively, the "Loan") pursuant to that certain Credit Agreement, dated as
of February 27, 1997 (the "Credit Agreement"), by and between the Borrower and
The First National Bank of Chicago, in its capacity as contractual
representative for itself and the other Lenders. Terms used herein which are
defined in the Credit Agreement shall have the respective meanings set forth in
the Credit Agreement, unless otherwise defined herein.
In connection with this opinion, we have examined drafts of the
following loan documents (the "Loan Documents"):
(i) an execution copy of the Credit Agreement;
(ii) an execution copy of the Mortgage, covering the real property
located in Johnson County, Kansas, which is legally described on Exhibit A
attached hereto (the "Premises");
(iii) an execution copy of the Security Agreement;
(iv) execution copies of the form of Uniform Commercial Code
("UCC") Financing Statements which are attached hereto as Exhibit B (the
"Financing Statements"); and
<PAGE>
BRYAN CAVE LLP
February 27, 1997
Page 2
(v) execution copies of the form of UCC Fixture Filings which are
attached hereto as Exhibit C (the "Fixture Filings").
In connection with the rendering of this opinion, we have assumed
that:
(a) The Mortgage, Credit Agreement, Security Agreement and other
Loan Documents have been properly authorized, executed and delivered by the
appropriate parties;
(b) Borrower has title to the Premises and rights in the
Equipment, the Inventory, the accounts, the general intangibles and the other
property being secured;
(c) Each of the Loan Documents has been executed and delivered,
in all material respects, in the respective form submitted to us as the
execution form thereof;
(d) the loan transaction described in and contemplated by the
Loan Documents is not made primarily for personal, family or household purposes;
(e) the mortgage registration fee in the amount of $34,320, based
on a secured indebtedness of $13,200,000, has been paid in connection with the
recording of the Mortgage;
(f) neither the Agent nor any of the other Lenders maintains an
office or a place of business in the State;
(g) the security interest in the collateral covered by the
Security Agreement has been validly created under the UCC as adopted by the
state of Illinois; and
(h) the instruments evidencing the indebtedness described in the
Loan Documents have been duly issued for value.
Based upon the foregoing, we are of the opinion that:
1. The Mortgage is in proper form:
(a) for the creation of the mortgage lien contemplated thereby
against the interest of the Borrower in the Premises; and
(b) for recording in the real property records of the Office of
the Register of Deeds for Johnson County, Kansas (the "Recorder's Office").
2. The Mortgage, when executed and delivered by the Borrower,
shall constitute the valid and binding obligation of the Borrower, enforceable
in accordance with its terms. However, you should be aware that under the
current laws and judicial decisions of the State, the Mortgage may be
foreclosed only by the judicial foreclosure proceeding.
<PAGE>
Bryan Cave LLP
February 27, 1997
Page 3
3. The Mortgage contains the terms and provisions necessary to
enable the Agent, following an event of default under the Mortgage, to exercise
the remedies which are customarily available to a real estate lienholder under
the laws of the State.
4. A mortgage registration fee in the amount of $34,320 must be
paid in connection with the recordation of the Mortgage in the Recorder's
Office.
5. The priority of the lien of the Mortgage as to advances made
by the Lenders under the Credit Agreement on or before the date on which the
Mortgage is recorded in the Recorder's Office will be determined by the date and
time of such recording. However, pursuant to K.S.A. (S) 58-2336, the priority
of the lien of the Mortgage as to future advances made by the Lenders under the
Credit Agreement after the date the Mortgage is so recorded, up to the maximum
principal amount advanced of $13,200,000 will be determined by the date and time
the Mortgage is recorded.
6. Except as hereinafter provided, the foreclosure of the
Mortgage, in and of itself, shall not restrict, affect or impair the liability
of the Borrower with respect to the indebtedness secured thereby and the laws of
the State do not require a lienholder to elect to pursue its remedies against
either mortgaged realty or personalty where such lienholder holds security
interests and liens on both real and personal property of a debtor. However, we
wish to point out to you that the Agent may not bring separate actions to
foreclose the lien of the Mortgage and the security interest granted by the
Mortgage, may not sue to enforce the debt obligation in the State and later
institute a separate action for foreclosure of the lien and security interest
granted by the Mortgage or, conversely, may not institute an action in rem under
the Mortgage and later institute a separate action to enforce the payment of the
instruments which evidence the indebtedness secured by the Mortgage due to
Kansas common law prohibiting the splitting of causes of action. In addition,
while we have been unable to locate any Kansas cases dealing with multi-state
loan transactions, if the Agent seeks to enforce the payment of the debt in a
jurisdiction other than Kansas, we wish to point out that, in order to preserve
the lien and security interest granted by the Mortgage and the right of the
Agent to foreclose the same, and in order to address such prohibition in Kansas
of the splitting of causes of action, it may be necessary to institute such
actions in Kansas concurrently with or prior to the commencement of the action
in such other jurisdiction.
7. If the law of the State were to apply to the Loan, the
interest secured by the Mortgage would not be usurious under the laws of the
State.
8. The waiver by the Borrower in the Mortgage of the Borrower's
redemption rights under the laws of the State is enforceable against the
Borrower.
9. The Financing Statements are in proper form for filing and,
assuming that the Financing Statements have been duly executed and delivered by
the Borrower and have been filed in the recording offices noted on such
Financing Statements, the security interests intended to be created pursuant to
the Security Agreement in the Borrower's (i) Equipment located in the State
(other than any of such Equipment which is fixtures or mobile goods), (ii)
Inventory located in the State, (iii) accounts, and (iv) general intangibles
constitute perfected security interests
<PAGE>
Bryan Cave LLP
February 27, 1997
Page 4
under the UCC as adopted in the State to the extent that a security interest may
be perfected in such items by the filing of financing statements under the UCC
as adopted by the State. The items set forth in (i) through (iv) above, are
hereinafter sometimes referred to collectively as the "Collateral". We call to
your attention that the perfection of the security interests referenced in this
paragraph to the extent perfection requires the filing of financing statements
under the UCC of the State, will be terminated (1) as to Collateral acquired by
the Borrower more than four months after the Borrower changes its name, identity
or corporate structure so as to make the Financing Statements seriously
misleading, unless new appropriate financing statements indicating the new name,
identity or corporate structure of the Borrower are properly filed before the
expiration of such four month period, and (2) as to any Collateral consisting of
accounts or general intangibles, four months after the Borrower changes its
chief executive office to a new jurisdiction unless such security interests are
perfected in such new jurisdiction before that termination. Further, in the
case of proceeds, continuation of perfection of the Agent's security interest
therein is limited to the extent set forth in section 9-306 of the UCC of the
State.
10. The Fixture Filings are in proper form for filing and,
assuming that the Fixture Filings have been duly executed and delivered by the
Borrower and have been filed in the recording offices noted on such Fixture
Filings, the security interest intended to be created pursuant to the Mortgage
in the Borrower's fixtures constitute perfected security interests under the UCC
as adopted in the State.
11. Section 9-103 of the UCC as adopted in the State provides
that the laws (including the conflict of law rules) of the jurisdiction in which
the debtor is "located" govern the perfection, and the effect of perfection or
non-perfection, of a security interest in the accounts, general intangibles and
mobile goods (each as defined in the UCC) of such debtor. A debtor is deemed
located, under section 9-103(3)(d) of the UCC, "at the debtor's place of
business if the debtor has one, at the debtor's chief executive office if the
debtor has more than one place of business, otherwise at the debtor's
residence."
12. Under the law of the State, there is no statutory or
regulatory lien in favor of any governmental entity for (a) liability under the
environmental laws or regulations of the State, or (b) damages arising from
(including natural resource damages) or costs incurred by such governmental
entity in response to the release of a hazardous or toxic waste, substance,
pollutant, constituent, or other substance into the environment.
13. Under the law of the State, there are no statutory or
regulatory requirements arising from that transfer of ownership or operation, or
sale of the Premises which require (a) notification to the State of such
transfer or sale, (b) certification that there has been no discharge of toxic or
hazardous wastes or other substances, (c) in the event of such a certification
of a discharge, responsibility for the undertaking of remedial measures to
alleviate environmental contamination resulting form such discharge, or (d) any
other pre-transaction environmental review and/or cleanup.
14. Other than the recording of the Mortgage and the filing of
the Financing Statements and Fixture Filings as hereinbefore provided, no
approval by, authorization of, or filing with the State, or any municipal or
other governmental commission, board, agency or other
<PAGE>
BRYAN CAVE LLP
February 27, 1997
Page 5
governmental authority that is a subdivision of the State is necessary in
connection with the execution and delivery of the Loan Documents and the
performance of the obligations thereunder. However, in order to continue the
perfection of the security interest in the collateral described in the
Financing Statements and the Fixture Filings, continuation statements must be
filed in the appropriate places within six (6) months before the expiration of
each consecutive five (5) year period from the date of the original filing of
the Financing Statements and the Fixture Filings.
15. Under the laws of the State, there is no requirement that the
Agent or the other Lenders solely and exclusively as a result of their capacity
as Agent or Lenders, respectively, under the Credit Agreement and as mortgagee
or as secured party under the Mortgage or the Security Agreement, or as a result
of taking action to sue upon, foreclose or otherwise enforce the Mortgage or of
taking action to sell, assign or transfer the Mortgage, (a) qualify to do
business in the State, (b) file a designation for service of process or any
other similar filing in the State, or (c) obtain a license, certificate or other
form of permission or consent from any State agency. We express no opinion
concerning whether the making of the Loan pursuant to the Credit Agreement or
the receipt, holding and ownership of the Mortgage by the Agent, for and on
behalf of itself and the other Lenders, provides the State with jurisdiction to
subject the Agent or the other Lenders to taxation solely as a result of the
foregoing transactions and activities, or, if the State has jurisdiction to tax,
whether taxation solely with respect to such transactions and activities would
be constitutionally permissable under the federal commerce clause. However, if
the Agent or the other Lenders were under the taxing jurisdiction of the State,
and if the State were levying a constitutionally-permissible tax, the Agent and
the other Lenders would not incur a Kansas state or local sales, use, gross
receipts, property, intangibles, earnings, franchise, license, net income, or
bank tax liability on interest, revenue, or principal paid in respect of the
Mortgage, or on the receipt or holding of the Mortgage, solely as a result of
the foregoing transactions or activities.
Our opinions set forth above are subject to the following
qualifications:
A. We have made no examination of title to the Premises or any other
property and, therefore, we express no opinion (either expressed or implied) as
to any matter relating to title in any real or personal property nor as to the
creation, perfection or priority of any lien or security interest granted by the
Mortgage. We are expressing no opinion as to the sufficiency or correctness of
the description of the Mortgaged Property contained in the Mortgage.
B. Certain rights, remedies and waivers contained in the Loan
Documents may be limited or rendered ineffective by applicable State laws or
judicial decisions governing such provisions, but such laws and judicial
decisions do not render the Loan Documents invalid as a whole, and there exists
in the Loan Documents or pursuant to applicable law legally adequate remedies
for a realization of the principal benefits and/or security intended to be
provided by the Loan Documents.
<PAGE>
Bryan Cave LLP
February 27, 1997
Page 6
C. We specifically express no opinion as to the enforceability
of: (i) any choice of law provisions set forth in the Loan Documents; (ii) any
right to the appointment of a receiver provided for in the Loan Documents;
(iii) any right to specific performance, liquidated damages or injunctive
relief set forth in the Loan Documents; (iv) any right to obtain possession of
the property covered by the Loan Documents (or to exclude Borrower from
possession) without judicial process; (v) any waiver of trial by jury set forth
in the Loan Documents;(vi) any waiver or limitation concerning mitigation of
damages set forth in the Loan Documents; (vii) any provision of the Loan
Documents purporting to modify applicable law concerning bankruptcy or
creditors' rights in the event of insolvency; (viii) any waivers, indemnities or
powers of attorney contained in the Loan Documents; (ix) any provision of the
Loan Documents pertaining to a power of sale foreclosure; (x) any provision of
the Loan Documents permitting or authorizing the Agent or any other party to
make unilateral amendments or modifications to or subordinations of the Loan
Documents or other documents; (xi) any provisions of the Loan Documents
pertaining to (a) the submission by the Borrower to the jurisdiction of any
particular court, or (b) the designation of the manner in which service of
process will be obtained with respect to the Borrower, (xii) any provisions of
the Loan Documents permitting the Lenders or Agent to execute documents for or
on behalf of the Borrower, (xiii) any provision of the Mortgage which purports
to automatically extend the lien of the Mortgage to after-acquired property; or
(xiv) any provisions of the Mortgage which provide for multiple foreclosure
actions against the Borrower.
D. The opinions expressed herein are qualified to the extent
that enforcement of the Loan Documents may be limited by: (i) bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other laws of
general application relating to or affecting the enforcement of the rights of
creditors or for the relief of debtors; and (ii) the exercise of judicial
discretion in accordance with general equitable principles.
E. In the event of default by the Borrower under the Loan
Documents, the rights of the Agent to the rents, income and profits from the
Premises or any other "self help" remedies contained in the Loan Documents may
depend upon the appointment of a receiver by a court of competent jurisdiction
or the consummation of foreclosure, obtaining possession of the Premises and the
expiration of any applicable redemption rights.
F. We are expressing no opinion as to zoning, subdivision,
building or other laws, ordinances or regulations which are or might be
applicable to the Premises or the use, occupation or operation thereof.
G. We are expressing no opinion as to compliance of the Borrower
or the Premises with any environmental law, statute, ordinance, rule or
regulation of any governmental or quasi-governmental authority.
H. We are expressing no opinion as to the creation of a lien or
security interest on water, water rights, air rights, oil, gas, coal, mineral
rights or the like, or on trademarks, copyrights, trade names or the like.
<PAGE>
Bryan Cave LLP
February 27, 1997
Page 7
I. Default, acceleration, foreclosure and repossession are all
subject to judicial supervision and, accordingly, accelerations, repossessions
or foreclosures may be limited by a court of competent jurisdiction to material
defaults.
J. In the event of a foreclosure of the Mortgage, the rights,
titles and interests of any purchaser will be subject to any applicable
redemption laws.
K. We are expressing no opinion as to the validity or
enforceability of any provision in the Loan Documents preventing, penalizing or
requiring the payment of any amount as a condition to the prepayment of any
amounts thereby secured or evidenced.
We are licensed to practice law in the state of Kansas. Accordingly,
the foregoing opinion applies only with respect to the laws of the state of
Kansas (and not the statutes, rules, regulations and judicial proceedings of any
county, municipality or similar political entity or agency of the State) as of
the date hereof and we express no opinion with respect to the laws of any other
jurisdiction. The foregoing opinions are limited to the matters stated herein
and no opinion is inferred or may be implied beyond the matters expressly
stated. In addition, the opinions expressed herein are given as of the date set
forth above. We assume no obligation to update or supplement our opinions to
reflect any facts or circumstances which may hereafter arise or come to our
attention or changes in law which may hereafter occur.
This opinion may not be relied upon by any person or entity other
than the Lenders, Mayer, Brown & Pratt, the parties to whom this opinion is
addressed and to regulatory authorities having jurisdiction over the Lenders,
nor may copies be delivered or furnished to any other person or entity nor may
all or portions of this opinion be quoted, circulated or referred to in any
other document without our prior written consent.
Very truly yours,
/s/ Bryan Cave LLP
<PAGE>
EXHIBIT A
THE PREMISES
------------
<PAGE>
110th Street
Johnson County, Kansas
Legal Description
-----------------
A tract of land in the South 1/2 of Section 8, Township 13, Range 24, City of
Lenexa, Johnson County, Kansas said tract being more particularly described as
follows:
Commencing at the Southeast corner of the Southeast 1/4 of Section 8, Township
13, Range 24, City of Lenexa, Johnson County, Kansas; thence North 02(degrees)
13' 25" west on the East line of the Southeast 1/4 of Section 8, Township 13,
Range 24, 514.97 feet to a point; thence South 88(degrees) 02' 50" West, 2460.01
feet on the existing Northerly Right-of-Way Line of 110th Street and its
Westerly prolongation to a point; said point being on the existing Westerly
Right-of-Way Line of Lakeview Avenue and also being the True Point of Beginning;
thence continuing South 88(degrees) 02' 50" West, 726.00 feet to a point; thence
North 02(degrees) 13' 25" West, 360.00 feet to a point; thence North 88(degrees)
02' 50" East, 726.00 feet to a point on the existing Westerly Right-of-Way Line
of Lakeview Avenue; thence South 02(degrees) 13' 25" East, on the existing
Westerly Right-of-Way Line of Lakeview Avenue, 360.00 feet to the True Point of
Beginning.
<PAGE>
Commercial
Johnson County, Kansas
Legal Description
-----------------
All of Lot 9 and part of Lot 13 and 15, 'KANSAS COMMERCE CENTER', a subdivision
in Lenexa, Johnson County, Kansas, all being more particularly described as
follows: Beginning at the Southerlymost corner of said Lot 9; thence North 56
degrees 00 minutes 00 seconds East along the Southeasterly line of said Lot 9, a
distance of 175.00 feet; thence in a Northeasterly and Northerly direction,
continuing along said Southeasterly line and along a curve to the left, tangent
to the last described course, having a radius of 420.00 feet and a central angle
of 58 degrees 15 minutes 44 seconds, an arc distance of 427.08 feet; thence
North 2 degrees 15 minutes 44 seconds West along the East line of said Lot 9 and
tangent to said curve, a distance of 135.00 feet; thence in a Northerly,
Northwesterly and Westerly direction along the Northeasterly line of said Lot 9
and along a curve to the left, tangent to the last described course, having a
radius of 320.00 feet and a central angle of 89 degrees 56 minutes 05 seconds,
an arc distance of 502.29 feet; thence South 87 degrees 48 minutes 11 seconds
West, along the Northerly line of said Lot 9, and tangent to the last said
curve, a distance 60.00 feet; thence in a Westerly, Southwesterly and Southerly
direction along the Northwesterly line of said Lot 9 and along a curve to the
left, tangent to the last described course, having a radius of 320.00 feet and a
central angle of 80 degrees 05 minutes 00 seconds, an arc distance of 447.36
feet; thence South 7 degrees 42 minutes 11 seconds West along the Westerly line
of said Lot 9 and tangent to the last described curve, a distance of 60.79 feet;
thence in a Southerly and Southwesterly direction along the Westerly line of
said Lot 9 and along the Northwesterly line of said Lot 13 and along a curve to
the right, tangent to the last described course, have a radius of 380.00 feet
and a central angle of 54 degrees 17 minutes 38 seconds, an arc distance of
360.09 feet; thence South 2 degrees 18 minutes 17 seconds East, a distance of
149.44 feet; thence North 87 degrees 48 minutes 11 seconds East, a distance of
375.21 feet to a point on the Northeasterly line of said lot 15 that is South 66
degrees 05 minutes 00 seconds East, a distance of 95.00 feet from the
Northerlymost corner thereof; thence South 66 degrees 05 minutes 00 seconds East
along the last said Northeasterly line, a distance of 155.00 feet to an angle
point therein; thence South 34 degrees 00 minutes 00 seconds East along the
Northeasterly line of said Lot 15, a distance of 100.00 feet to the point of
beginning.
<PAGE>
EXHIBIT B
FINANCING STATEMENTS
--------------------
<PAGE>
STATE OF KANSAS - SEND THREE PARTS TO FILING OFFICER WITH CARBON
Uniform Commercial Code - Financing Statement - Form UCC-1
1. Type form. 2. If space is inadequate continue on additional sheet. 3. Enclose
filing fee. 4. Filings in the Secretary of State's Office must contain either
the debtor's federal employer identification number or social security number.
"When the debtor is a sole proprietor, only the debtor's social security number
is authorized to be filed."
Prepaid account number ________________
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Debtor (if individual, last name first) and address: Debtor (if individual, last name first) and address:
GFSI, INC.
9700 Commerce Parkway
Lenexa, KS 66219
FEIN 74 - 2810748 or SSN - - FEIN - or SSN - -
---- --------- --- -- ---- ---- --------- --- -- ----
- ------------------------------------------------------------------------------------------------------------------------------------
For filing officer
2. Secured Party and address (there may be more than one):
(Type information inside gray area)
The First National Bank of Chicago,
as Agent
One First National Plaza
Chicago, Illinois 60670
- ----------------------------------------------------------------
3. Assignee and address if applicable
- ----------------------------------------------------------------
4. Mark if applicable: [X] Products of collateral are also covered [ ] The debtor is a transmitting utility
</TABLE>
5.(a) This financing statement covers the following types (or items) of
property: (Describe)
All of Debtor's now owned or existing and hereafter acquired or arising
accounts, machinery, equipment, fixtures, inventory, investment property, goods,
chattel paper, general intangibles, contract rights, instruments and documents,
as more particularly described on Exhibit A attached hereto and made a part
hereof.
(b) If collateral is crops, the above described crops are growing or are to be
grown on: (Describe real estate)
(c) If applicable, the above (goods are to be come fixtures on:)(timber is
standing on:)(minerals or the like, including oil and gas, or accounts will be
financed at the wellhead or minehead of the well or mine located on:)(Legal
description of real estate)
Name of record owner:
-----------------------------------------------------------
6. If filing without debtor signature items a, b, c or d must be marked:
a.[ ] Collateral already subject to a security interest: in another
jurisdiction when it was brought into this state, or when the
debtor's location is changed to this state.
b.[ ] Collateral is proceeds of the original collateral in which a security
interest was perfected.
c.[ ] Collateral as to which the filing has lapsed.
d.[ ] The filing covers collateral acquired after a change of name identity
or corporate structure of debtor
- --------------------------------------------------------------------------------
GFSI, INC.
- ------------------------------------- ----------------------------------------
Signature of Debtor Signature of Secured Party (or assignee)
BY: [SIGNATURE APPEARS HERE]
- ------------------------------------- ----------------------------------------
Signature of Debtor Signature of Secured Party (or assignee)
Form UCC-1 Form approved by Kansas Secretary of State
FILING OFFICER
<PAGE>
EXHIBIT A
TO
FINANCING STATEMENT
DEBTOR: SECURED PARTY:
GFSI, Inc. The First National Bank of Chicago, as Agent
9700 Commerce Parkway One First National Plaza
Lenexa, Kansas 66219 Chicago, Illinois 60670
DESCRIPTION OF COLLATERAL:
All of the following property, and interests in property, of Debtor, whether now
owned and existing or hereafter acquired or arising and wheresoever located:
accounts, inventory, investment property, goods, furniture, machinery,
equipment, fixtures, general intangibles (including, without limitation,
goodwill, inventions, designs, patents, patent applications, trademarks,
trademark applications, service marks, service mark applications, trade names,
copyrights, copyright applications, licenses under which Debtor is the licensor,
leasehold interests in real and personal property, franchises, tax refund
claims, and guarantee claims, security interests or other security held by or
granted to Debtor to secure payment of Debtor's accounts), deposit accounts, tax
refunds, chattel paper, contract rights, instruments, documents, notes, returned
and repossessed goods and all other personal property or interests in personal
property; together with all accessions to, substitutions for, and all
replacements, products and proceeds of the foregoing (including without
limitation, proceeds of insurance policies insuring any of the foregoing), all
books and records (including without limitation, customer lists, credit files,
computer programs, printouts and other computer materials and records)
pertaining to any of the foregoing, and all insurance policies insuring any of
the foregoing.
GSFI, INC.
BY:/s/
----------------------------
<PAGE>
EXHIBIT A
TO
FINANCING STATEMENT
DEBTOR: SECURED PARTY:
GFSI, Inc. The First National Bank of Chicago, as Agent
9700 Commerce Parkway One First National Plaza
Lenexa, Kansas 66219 Chicago, Illinois 60670
DESCRIPTION OF COLLATERAL:
All of the following property, and interests in property, of Debtor, whether now
owned and existing or hereafter acquired or arising and wheresoever located:
accounts, inventory, investment property, goods, furniture, machinery,
equipment, fixtures, general intangibles (including, without limitation,
goodwill, inventions, designs, patents, patent applications, trademarks,
trademark applications, service marks, service mark applications, trade names,
copyrights, copyright applications, licenses under which Debtor is the licensor,
leasehold interests in real and personal property, franchises, tax refund
claims, and guarantee claims, security interests or other security held by or
granted to Debtor to secure payment of Debtor's accounts), deposit accounts, tax
refunds, chattel paper, contract rights, instruments, documents, notes, returned
and repossessed goods and all other personal property or interests in personal
property; together with all accessions to, substitutions for, and all
replacements, products and proceeds of the foregoing (including without
limitation, proceeds of insurance policies insuring any of the foregoing), all
books and records (including without limitation, customer lists, credit files,
computer programs, printouts and other computer materials and records)
pertaining to any of the foregoing, and all insurance policies insuring any of
the foregoing.
GFSI, Inc.
BY:/s/ [SIGNATURE APPEARS HERE]
----------------------------
<PAGE>
STATE OF KANSAS - SEND THREE PARTS TO FILING OFFICER WITH CARBON
Uniform Commercial Code - Financing Statement - Form UCC-1
1. Type form. 2. If space is inadequate continue on additional sheet. 3. Enclose
filing fee. 4. Filings in the Secretary of State's Office must contain either
the debtor's federal employer identification number or social security number.
"When the debtor is a sole proprietor, only the debtor's social security number
is authorized to be filed."
Prepaid account number ________________
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Debtor (if individual, last name first) and address: Debtor (if individual, last name first) and address:
GEAR FOR SPORTS
9700 Commerce Parkway
Lenexa, KS 66219
FEIN 74 - 2810748 or SSN - - FEIN - or SSN - -
---- --------- --- -- ---- ---- --------- --- -- ----
- ------------------------------------------------------------------------------------------------------------------------------------
For filing officer
2. Secured Party and address (there may be more than one):
(Type information inside gray area)
The First National Bank of Chicago,
as Agent
One First National Plaza
Chicago, Illinois 60670
- ----------------------------------------------------------------
3. Assignee and address if applicable
- ----------------------------------------------------------------
4. Mark if applicable: [X] Products of collateral are also covered [ ] The debtor is a transmitting utility
</TABLE>
5.(a) This financing statement covers the following types (or items) of
property: (Describe)
All of Debtor's now owned or existing and hereafter acquired or arising
accounts, machinery, equipment, fixtures, inventory, investment property, goods,
chattel paper, general intangibles, contract rights, instruments and documents,
as more particularly described on Exhibit A attached hereto and made a part
hereof.
(b) If collateral is crops, the above described crops are growing or are to be
grown on: (Describe real estate)
(c) If applicable, the above (goods are to become fixtures on:)(timber is
standing on:)(minerals or the like, including oil and gas, or accounts will be
financed at the wellhead or minehead of the well or mine located on:)(Legal
description of real estate)
Name of record owner:
-----------------------------------------------------------
6. If filing without debtor signature items a, b, c or d must be marked:
a.[ ] Collateral already subject to a security interest: in another
jurisdiction when it was brought into this state, or when the
debtor's location is changed to this state.
b.[ ] Collateral is proceeds of the original collateral in which a security
interest was perfected.
c.[ ] Collateral as to which the filing has lapsed.
d.[ ] The filing covers collateral acquired after a change of name identity
or corporate structure of debtor
- --------------------------------------------------------------------------------
GEAR FOR SPORTS
- ------------------------------------- ----------------------------------------
Signature of Debtor Signature of Secured Party (or assignee)
BY: [SIGNATURE APPEARS HERE]
- ------------------------------------- ----------------------------------------
Signature of Debtor Signature of Secured Party (or assignee)
Form UCC-1 Form approved by Kansas Secretary of State
FILING OFFICER
<PAGE>
EXHIBIT A
TO
FINANCING STATEMENT
DEBTOR: SECURED PARTY:
Gear for Sports The First National Bank of Chicago, as Agent
9700 Commerce Parkway One First National Plaza
Lenexa, Kansas 66219 Chicago, Illinois 60670
DESCRIPTION OF COLLATERAL:
All of the following property, and interests in property, of Debtor, whether now
owned and existing or hereafter acquired or arising and wheresoever located:
accounts, inventory, investment property, goods, furniture, machinery,
equipment, fixtures, general intangibles (including, without limitation,
goodwill, inventions, designs, patents, patent applications, trademarks,
trademark applications, service marks, service mark applications, trade names,
copyrights, copyright applications, licenses under which Debtor is the licensor,
leasehold interests in real and personal property, franchises, tax refund
claims, and guarantee claims, security interests or other security held by or
granted to Debtor to secure payment of Debtor's accounts), deposit accounts, tax
refunds, chattel paper, contract rights, instruments, documents, notes, returned
and repossessed goods and all other personal property or interests in personal
property; together with all accessions to, substitutions for, and all
replacements, products and proceeds of the foregoing (including without
limitation, proceeds of insurance policies insuring any of the foregoing), all
books and records (including without limitation, customer lists, credit files,
computer programs, printouts and other computer materials and records)
pertaining to any of the foregoing, and all insurance policies insuring any of
the foregoing.
GEAR FOR SPORTS
BY: /s/ [SIGNATURE APPEARS HERE]
----------------------------
<PAGE>
EXHIBIT A
TO
FINANCING STATEMENT
DEBTOR: SECURED PARTY:
Gear for Sports The First National Bank of Chicago, as Agent
9700 Commerce Parkway One First National Plaza
Lenexa, Kansas 66219 Chicago, Illinois 60670
DESCRIPTION OF COLLATERAL:
All of the following property, and interests in property, of Debtor, whether now
owned and existing or hereafter acquired or arising and wheresoever located:
accounts, inventory, investment property, goods, furniture, machinery,
equipment, fixtures, general intangibles (including, without limitation,
goodwill, inventions, designs, patents, patent applications, trademarks,
trademark applications, service marks, service mark applications, trade names,
copyrights, copyright applications, licenses under which Debtor is the licensor,
leasehold interests in real and personal property, franchises, tax refund
claims, and guarantee claims, security interests or other security held by or
granted to Debtor to secure payment of Debtor's accounts), deposit accounts, tax
refunds, chattel paper, contract rights, instruments, documents, notes, returned
and repossessed goods and all other personal property or interests in personal
property; together with all accessions to, substitutions for, and all
replacements, products and proceeds of the foregoing (including without
limitation, proceeds of insurance policies insuring any of the foregoing), all
books and records (including without limitation, customer lists, credit files,
computer programs, printouts and other computer materials and records)
pertaining to any of the foregoing, and all insurance policies insuring any of
the foregoing.
GEAR FOR SPORTS
BY: /s/ [SIGNATURE APPEARS HERE]
----------------------------
<PAGE>
STATE OF KANSAS - SEND THREE PARTS TO FILING OFFICER WITH CARBON
Uniform Commercial Code - Financing Statement - Form UCC-1
1. Type form. 2. If space is inadequate continue on additional sheet. 3. Enclose
filing fee. 4. Filings in the Secretary of State's Office must contain either
the debtor's federal employer identification number or social security number.
"When the debtor is a sole proprietor, only the debtor's social security number
is authorized to be filed."
Prepaid account number ________________
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Debtor (if individual, last name first) and address: Debtor (if individual, last name first) and address:
WINNING WAYS
9700 Commerce Parkway
Lenexa, KS 66219
FEIN 74 - 2810748 or SSN - - FEIN - or SSN - -
---- --------- --- -- ---- ---- --------- --- -- ----
- ------------------------------------------------------------------------------------------------------------------------------------
For filing officer
2. Secured Party and address (there may be more than one):
(Type information inside gray area)
-------------------------------------------------------
The First National Bank of Chicago,
as Agent
One First National Plaza
Chicago, Illinois 60670
-------------------------------------------------------
- ----------------------------------------------------------------
3. Assignee and address if applicable
- ----------------------------------------------------------------
4. Mark, if applicable: [X] Products of collateral are also covered [ ] The debtor is a transmitting utility
</TABLE>
5.(a) This financing statement covers the following types (or items) of
property: (Describe)
All of Debtor's now owned or existing and hereafter acquired or arising
accounts, machinery, equipment, fixtures, inventory, investment property, goods,
chattel paper, general intangibles, contract rights, instruments and documents,
as more particularly described on Exhibit A attached hereto and made a part
hereof.
(b) If collateral is crops, the above described crops are growing or are to be
grown on: (Describe real estate)
(c) If applicable, the above (goods are to be come fixtures on:)(timber is
standing on:)(minerals or the like, including oil and gas, or accounts will be
financed at the wellhead or minehead of the well or mine located on:)(Legal
description of real estate)
Name of record owner:
-----------------------------------------------------------
6. If filing without debtor signature items a, b, c or d must be marked:
a.[ ] Collateral already subject to a security interest: in another
jurisdiction when it was brought into this state, or when the
debtor's location is changed to this state.
b.[ ] Collateral is proceeds of the original collateral in which a security
interest was perfected.
c.[ ] Collateral as to which the filing has lapsed.
d.[ ] The filing covers collateral acquired after a change of name identity
or corporate structure of debtor
- --------------------------------------------------------------------------------
WINNING WAYS
- ------------------------------------- ----------------------------------------
Signature of Debtor Signature of Secured Party (or assignee)
BY: [SIGNATURE APPEARS HERE]
- ------------------------------------- ----------------------------------------
Signature of Debtor Signature of Secured Party (or assignee)
Form UCC-1 Form approved by Kansas Secretary of State
FILING OFFICER
<PAGE>
EXHIBIT A
TO
FINANCING STATEMENT
DEBTOR: SECURED PARTY:
Winning Ways The First National Bank of Chicago, as Agent
9700 Commerce Parkway One First National Plaza
Lenexa, Kansas 66219 Chicago, Illinois 60670
DESCRIPTION OF COLLATERAL:
- --------------------------
All of the following property, and interests in property, of Debtor, whether now
owned and existing or hereafter acquired or arising and wheresoever located:
accounts, inventory, investment property, goods, furniture, machinery,
equipment, fixtures, general intangibles (including, without limitation,
goodwill, inventions, designs, patents, patent applications, trademarks,
trademark applications, service marks, service mark applications, trade names,
copyrights, copyright applications, licenses under which Debtor is the licensor,
leasehold interests in real and personal property, franchises, tax refund
claims, and guarantee claims, security interests or other security held by or
granted to Debtor to secure payment of Debtor's accounts), deposit accounts, tax
refunds, chattel paper, contract rights, instruments, documents, notes, returned
and repossessed goods and all other personal property or interests in personal
property; together with all accessions to, substitutions for, and all
replacements, products and proceeds of the foregoing (including, without
limitation, proceeds of insurance policies insuring any of the foregoing), all
books and records (including, without limitation, customer lists, credit files,
computer programs, printouts and other computer materials and records)
pertaining to any of the foregoing, and all insurance policies insuring any of
the foregoing.
WINNING WAYS
BY:/s/ [SIGNATURE APPEARS HERE]
----------------------------
<PAGE>
EXHIBIT A
TO
FINANCING STATEMENT
DEBTOR: SECURED PARTY:
Winning Ways The First National Bank of Chicago, as Agent
9700 Commerce Parkway One First National Plaza
Lenexa, Kansas 66219 Chicago, Illinois 60670
DESCRIPTION OF COLLATERAL:
- -------------------------
All of the following property, and interests in property, of Debtor, whether now
owned and existing or hereafter acquired or arising and wheresoever located:
accounts, inventory, investment property, goods, furniture, machinery,
equipment, fixtures, general intangibles (including, without limitation,
goodwill, inventions, designs, patents, patent applications, trademarks,
trademark applications, service marks, service mark applications, trade names,
copyrights, copyright applications, licenses under which Debtor is the licensor,
leasehold interests in real and personal property, franchises, tax refund
claims, and guarantee claims, security interests or other security held by or
granted to Debtor to secure payment of Debtor's accounts), deposit accounts, tax
refunds, chattel paper, contract rights, instruments, documents, notes, returned
and repossessed goods and all other personal property or interests in personal
property; together with all accessions to, substitutions for, and all
replacements, products and proceeds of the foregoing (including, without
limitation, proceeds of insurance policies insuring any of the foregoing), all
books and records (including, without limitation, customer lists, credit files,
computer programs, printouts and other computer materials and records)
pertaining to any of the foregoing, and all insurance policies insuring any of
the foregoing.
WINNING WAYS
BY:/s/ [SIGNATURE APPEARS HERE]
----------------------------
<PAGE>
EXHIBIT C
FIXTURE FILINGS
---------------
<PAGE>
STATE OF KANSAS - SEND THREE PARTS TO FILING OFFICER WITH CARBON
Uniform Commercial Code - Financing Statement - Form UCC-1
1. Type form. 2. If space is inadequate continue on additional sheet. 3. Enclose
filing fee. 4. Filings in the Secretary of State's Office must contain either
the debtor's federal employer identification number or social security number.
"When the debtor is a sole proprietor, only the debtor's social security number
is authorized to be filed."
Prepaid account number ________________
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Debtor (if individual, last name first) and address: Debtor (if individual, last name first) and address:
GFSI, INC.
9700 Commerce Parkway
Lenexa, KS 66219
FEIN 74 - 2810748 or SSN - - FEIN - or SSN - -
---- --------- --- -- ---- ---- --------- --- -- ----
- ------------------------------------------------------------------------------------------------------------------------------------
For filing officer
2. Secured Party and address (there may be more than one):
(Type information inside gray area)
-------------------------------------------------------
The First National Bank of Chicago,
as Agent
One First National Plaza
Chicago, Illinois 60670
-------------------------------------------------------
- ----------------------------------------------------------------
3. Assignee and address if applicable
- ----------------------------------------------------------------
4. Mark, if applicable: [X] Products of collateral are also covered [ ] The debtor is a transmitting utility
</TABLE>
5.(a) This financing statement covers the following types (or items) of
property: (Describe)
All of Debtor's now owned or existing and hereafter acquired or arising
accounts, machinery, equipment, fixtures, inventory, investment property, goods,
chattel paper, general intangibles, contract rights, instruments and documents,
as more particularly described on Exhibit A and located on the real properties
described on Schedule 1 and 2 attached hereto and made a part hereof.
(b) If collateral is crops, the above described crops are growing or are to be
grown on: (Describe real estate)
THIS STATEMENT TO BE INDEXED IN REAL ESTATE RECORDS
(c) If applicable, the above (goods are to be come fixtures on:)(timber is
standing on:)(minerals or the like, including oil and gas, or accounts will be
financed at the wellhead or minehead of the well or mine located on:)(Legal
description of real estate)
SEE SCHEDULES 1 AND 2 ATTACHED HERETO
Name of record owner: GFSI, INC.
-----------------------------------------------------------
6. If filing without debtor signature items a, b, c or d must be marked:
a.[ ] Collateral already subject to a security interest: in another
jurisdiction when it was brought into this state, or when the
debtor's location is changed to this state.
b.[ ] Collateral is proceeds of the original collateral in which a security
interest was perfected.
c.[ ] Collateral as to which the filing has lapsed.
d.[ ] The filing covers collateral acquired after a change of name identity
or corporate structure of debtor
- --------------------------------------------------------------------------------
GFSI, INC.
- ------------------------------------- ----------------------------------------
Signature of Debtor Signature of Secured Party (or assignee)
BY: [SIGNATURE APPEARS HERE]
- ------------------------------------- ----------------------------------------
Signature of Debtor Signature of Secured Party (or assignee)
Form UCC-1 Form approved by Kansas Secretary of State
FILING OFFICER
<PAGE>
EXHIBIT A
TO
FINANCING STATEMENT
DEBTOR: SECURED PARTY:
GFSI, Inc. The First National Bank of Chicago, as Agent
9700 Commerce Parkway One First National Plaza
Lenexa, Kansas 66219 Chicago, Illinois 60670
DESCRIPTION OF COLLATERAL:
All of the following property, and interests in property, of Debtor, whether now
owned and existing or hereafter acquired or arising and wheresoever located:
accounts, inventory, investment property, goods, furniture, machinery,
equipment, fixtures, general intangibles (including, without limitation,
goodwill, inventions, designs, patents, patent applications, trademarks,
trademark applications, service marks, service mark applications, trade names,
copyrights, copyright applications, licenses under which Debtor is the licensor,
leasehold interests in real and personal property, franchises, tax refund
claims, and guarantee claims, security interests or other security held by or
granted to Debtor to secure payment of Debtor's accounts), deposit accounts, tax
refunds, chattel paper, contract rights, instruments, documents, notes, returned
and repossessed goods and all other personal property or interests in personal
property; together with all accessions to, substitutions for, and all
replacements, products and proceeds of the foregoing (including, without
limitation, proceeds of insurance policies insuring any of the foregoing), all
books an records (including without limitation, customer lists, credit files,
computer programs, printouts and other computer materials and records)
pertaining to any of the foregoing, and all insurance policies insuring any of
the foregoing.
GFSI, INC.
BY: [SIGNATURE APPEARS HERE]
----------------------------
<PAGE>
SCHEDULE I
Name of Record Owner:
GFSI, Inc. Commercial
9700 Commerce Parkway Johnson County, Kansas
Lenexa, KS 66219
Legal Description
-----------------
All of Lot 9 and part of Lot 13 and 15, 'KANSAS COMMERCE CENTER', a subdivision
in Lenexa, Johnson County, Kansas, all being more particularly described as
follows: Beginning at the Southerlymost corner of said Lot 9; thence North 56
degrees 00 minutes 00 seconds East along the Southeasterly line of said Lot 9, a
distance of 175.00 feet; thence in a Northeasterly and Northerly direction,
continuing along said Southeasterly line and along a curve to the left, tangent
to the last described course, having a radius of 420.00 feet and a central angle
of 58 degrees 15 minutes 44 seconds, an arc distance of 427.08 feet; thence
North 2 degrees 15 minutes 44 seconds West along the East line of said Lot 9 and
tangent to said curve, a distance of 135.00 feet; thence in a Northerly,
Northwesterly and Westerly direction along the Northeasterly line of said Lot 9
and along a curve to the left, tangent to the last described course, having a
radius of 320.00 feet and a central angle of 89 degrees 56 minutes 05 seconds,
an arc distance of 502.29 feet; thence South 87 degrees 48 minutes 11 seconds
West, along the Northerly line of said Lot 9, and tangent to the last said
curve, a distance of 60.00 feet; thence in a Westerly, Southwesterly and
Southerly direction along the Northwesterly line of said Lot 9 and along a curve
to the left, tangent to the last described course, having a radius of 320.00
feet and a central angle off 80 degrees 06 minutes 00 seconds, an arc distance
of 447.36 feet; thence South 7 degrees 42 minutes 11 seconds West along the
Westerly line of said Lot 9 and tangent to the last described curve, a distance
of 60.79 feet; thence in a Southerly and Southwesterly direction along the
Westerly line of said Lot 9 and along the Northwesterly line of said Lot 13 and
along a curve to the right, tangent to the last described course, have a radius
of 380.00 feet and a central angle of 54 degrees 17 minutes 38 seconds, an arc
distance of 360.09 feet; thence South 2 degrees 18 minutes 17 seconds East, a
distance of 149.44 feet; thence North 87 degrees 48 minutes 11 seconds East, a
distance of 375.21 feet to a point on the Northeasterly line of said Lot 15 that
is South 66 degrees 05 minutes 00 seconds East, a distance of 95.00 feet from
the Northerlymost corner thereof; thence South 66 degrees 05 minutes 00 seconds
East along the last said Northeasterly line, a distance of 155.00 feet to an
angle point therein; thence South 34 degrees 00 minutes 00 seconds East along
the Northeasterly line of said Lot 15, a distance of 100.00 feet to the point of
beginning.
<PAGE>
SCHEDULE 2
Name of Record Owner: 110th Street
Johnson County, Kansas
GFSI, Inc.
9700 Commerce Parkway
Lenexa, KS 66219
Legal Description
-----------------
A tract of land in the South 1/2 of Section 8, Township 13, Range 24, City of
Lenexa, Johnson County, Kansas said tract being more particularly described as
follows:
Commencing at the Southeast corner of the Southeast 1/4 of Section 8, Township
13, Range 24, City of Lenexa, Johnson County, Kansas; thence North 02 degrees 13
minutes 23 seconds West on the East line of the Southeast 1/4 of Section 8,
Township 13, Range 24, 614.97 feet to a point; thence South 88 degrees 02
minutes 50 seconds West, 2460.01 feet on the existing Northerly Right-of-Way
Line of 110th Street and its Westerly prolongation to a point; said point being
on the existing Westerly Right-of-Way Line of Lakeview Avenue and also being the
True Point of Beginning; thence continuing South 68 degrees 02 minutes 50
seconds West, 726.00 feet to a point; thence North 02 degrees 13 minutes 25
seconds West, 360.00 feet to a point; thence North 88 degrees 02 minutes 50
seconds East, 726.00 feet to a point on the existing Westerly Right-of-Way Line
of Lakeview Avenue; thence South 02 degrees 13 minutes 25 seconds East, on the
existing Westerly Right-of-Way Line of Lakeview Avenue, 360.00 feet to the True
Point of Beginning.
<PAGE>
EXHIBIT I
TO
CREDIT AGREEMENT
List of Closing Documents
-------------------------
Attached
<PAGE>
$115,000,000
CREDIT FACILITY
TO
GEAR FOR SPORTS, INC.
FEBRUARY 27, 1997
LIST OF CLOSING DOCUMENTS1/2
-------------------------
A. LOAN AND SECURITY DOCUMENTS
---------------------------
1. Credit Agreement ("Credit Agreement") among GFSI, Inc., a
Delaware corporation (the "Borrower"), the financial institutions from time to
time party thereto (collectively, the "Lenders"), The First National Bank of
Chicago in its capacity as contractual representative (the "Agent") for itself
and the other Lenders, evidencing a $115,000,000 credit facility to the Borrower
from the Lenders.
EXHIBITS
--------
Exhibit A -- Borrowing Base Certificate
Exhibit B -- Commitments
Exhibit C -- Form of Revolving Note
Exhibit C-1 -- Form of Swingline Note
Exhibit D -- Stock Purchase Agreement for Stock Acquisition
Exhibit E -- Form of Term Loan A Note
Exhibit F -- Form of Term Loan B Note
Exhibit G -- Form of Assignment Agreement
Exhibit H -- Form of Borrower's Counsel's Opinion
Exhibit I -- List of Closing Documents
Exhibit J -- Form of Officer's Certificate
- ----------
1 This Closing List does not contemplate that the Borrower has any
subsidiaries or will lend any proceeds of the Loans to its subsidiaries.
2 All items list in bold and italics are to be prepared by, or arranged
for, by Borrower or its counsel.
<PAGE>
EXHIBIT K -- PRO FORMA FINANCIAL STATEMENTS
Exhibit L -- Money Transfer Instructions
EXHIBIT M -- DEFERRED LIMITED INTEREST GUARANTY
EXHIBIT N -- MCIT TURNOVER AGREEMENT
EXHIBIT O -- JORDAN MANAGEMENT AGREEMENT
EXHIBIT P -- TAX SHARING AGREEMENT
Exhibit Q -- Form of Guaranty
Exhibit R -- Form of Restricted Subsidiary Security Agreement
Exhibit S -- Form of Pledge Agreement
Exhibit T -- Holdings Turnover Agreement
SCHEDULES
- ---------
SCHEDULE 1.1.1 -- PERMITTED EXISTING CONTINGENT OBLIGATIONS
SCHEDULE 1.1.2 -- PERMITTED EXISTING INDEBTEDNESS
SCHEDULE 1.1.3 -- PERMITTED EXISTING INVESTMENTS
SCHEDULE 1.1.4 -- PERMITTED EXISTING LIENS
SCHEDULE 1.1.5 -- REFINANCED INDEBTEDNESS
SCHEDULE 5.3 -- CONFLICTS; GOVERNMENTAL CONSENTS
SCHEDULE 5.7 -- LITIGATION; LOSS CONTINGENCIES
SCHEDULE 5.8 -- SUBSIDIARIES
SCHEDULE 5.17 -- INSURANCE
SCHEDULE 5.18 -- CONTINGENT OBLIGATIONS
SCHEDULE 5.19 -- LABOR MATTERS; COMPENSATION AGREEMENTS
SCHEDULE 5.21 -- ENVIRONMENTAL MATTERS
- 2 -
<PAGE>
SCHEDULE 6.3(H) -- TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES
2. Revolving Notes executed by the Borrower in favor of the Lenders
in the aggregate principal amount of $50,000,000.
3. Term Loan A Notes executed by the Borrower in favor of the
Lenders in the aggregate principal amount of $40,000,000.
4. Term Loan B Notes executed by the Borrower in favor of the
Lenders in the aggregate principal amount of $25,000,000.
5. Swing Line Note executed by the Borrower in favor of the Swing
Line Lender in the aggregate principal amount of $2,000,000.
6. Security Agreement executed by the Borrower in favor of the
Agent, evidencing the Borrower's grant of a security interest in substantially
all of the Borrower's personal property for the benefit of the Holders of
Secured Obligations.
Exhibit A-1 Form of Landlord Agreement
Exhibit A-2 Form of Mortgage Agreement
Exhibit B Form of Bailee Letter
Exhibit C Form of Restricted Account Agreement
SCHEDULE 1 PLEDGED DEBT
SCHEDULE 2 LOCATIONS OF COLLATERAL
SCHEDULE 2-A THIRD PARTY LOCATIONS
SCHEDULE 2-B FINANCING STATEMENT FILING LOCATIONS
SCHEDULE 3 TRADE NAMES
SCHEDULE 4 DEPOSIT ACCOUNTS
7. Trademark Security Agreement executed by the Borrower in favor
of the Agent, evidencing the Borrower's grant of a security interest in
Borrower's trademarks and related collateral for the benefit of the Holders of
Secured Obligations.
SCHEDULE A TRADEMARK AND SERVICE MARKS AND TRADEMARK AND SERVICE
MARK APPLICATIONS
SCHEDULE B LICENSE AGREEMENTS
8. Mortgage executed by the Borrower in favor of Agent evidencing
the grant by Borrower to the Agent of a mortgage lien on Borrower's real
property in Kansas (the "Mortgage"), together with a title insurance commitment
satisfactory to the Agent, and a letter from Chicago Title & Trust Company
undertaking to effect the filing of the Mortgage within 10 days of the Closing
Date.
9. Assignment executed by each of the Borrower and Holdings in
favor of the Agent with respect to the representations, warranties and
covenants contained in the Acquisition Agreement (as defined below) and the
Borrower's interest in any other acquisition documents.
- 3 -
<PAGE>
B. CORPORATE DOCUMENTS
-------------------
10. Certificate of the Secretary of the Borrower certifying (i)
resolutions of the members of the Borrower approving and authorizing the
execution, delivery and performance of each document to which it is a party,
(ii) that there have been no changes in the Certificate of Incorporation of the
Borrower since the date of the most recent certification thereof by the
Secretary of State of Delaware delivered to the Agent, (iii) the names and true
signatures of the incumbent officers of the Borrower authorized to sign the
documents to which it is a party, and (iv) the By-Laws (attached thereto) of the
Borrower as in effect on the date of such certification.
11. Certificate of Incorporation of the Borrower certified by the
Secretary of State of Delaware.
12. Good Standing Certificate for the Borrower from the office of
the Secretaries of State of Delaware, Kansas, New Jersey and Minnesota.
13. Certificate of the Secretary of Holdings certifying (i)
resolutions of the Board of Directors of Holdings approving and authorizing the
execution, delivery and performance of each document to which it is a party,
(ii) that there have been no changes in the Certificate of Incorporation of
HOldings since the date of the most recent certification thereof by the
Secretary of State of Delaware delivered to the Agent, (iii) the names and true
signatures of the incumbent officers of Holdings authorized to sign the
documents to which it is a party, and (iv) the By-laws (attached thereto) of
Holdings as in effect on the date of such certification.
14. Certificate of Incorporation of Holdings certified by the
Secretary of State of Delaware.
15. Good Standing Certificates of Holdings from the office of the
Secretary of State of Delaware.
16. Certificate of the Secretary of Winning Ways, Inc. ("Winning
Ways") certifying (i) resolutions of the Board of Directors of Winning Ways
approving and authorizing the execution, delivery and performance of each
document to which it is a party, (ii) that there have been no changes in the
Articles of Incorporation of Winning Ways since the date of the most recent
certification thereof by the Secretary of State of Missouri delivered to the
Agent, (iii) the names and true signatures of the incumbent officers of Winning
Ways authorized to sign the documents to which it is a party, and (iv) the
By-laws (attached thereto) of Winning Ways as in effect on the date of such
certification.
17. Articles of Incorporation of Winning Ways certified by the
Secretary of State of Missouri.
18. Good Standing Certificates for Winning Ways from the offices of
the Secretaries of State of Missouri and Kansas.
19. Evidence of the Winning Ways Merger satisfactory to the Agent
from each of the officers of the Secretaries of State of Missouri and Delaware.
- 4 -
<PAGE>
C. UCC DOCUMENTS AND OTHER LIEN FILINGS
------------------------------------
20. Pre-Filing UCC Lien Search Reports of Filings against Winning
Ways, Gear For Sports, Impact Design and the Borrower in the offices listed on
Schedule I hereto.
- ----------
21. Pre-Filing Tax Lien and Judgment Search Reports of filings
against the Winning Ways, Gear For Sports, Impact Design and the Borrower in the
offices listed on Schedule II hereto.
-----------
22. UCC Financing Statements filed against Winning Ways, Gear For
Sports, and the Borrower, as Debtors respectively, and the Agent as Secured
Party in the offices listed on Schedule III hereto.
------------
23. Post-Filing UCC Search Reports of Filings against Wining Ways,
Gear For Sports, and the Borrower in the offices set forth in the immediately
preceding two items.
D. ACQUISITION DOCUMENTS
--------------------
24. Agreement for Purchase and Sale of Stock ("Acquisition
Agreement") dated as of January 24, 1997 by and among the Shareholders of
Winning Ways, Holdings and the Borrower, together with Amendment No. 1, dated as
of February 27, 1997.
25. The other documents, instruments and agreements executed in
connection with the Acquisition Agreement and set forth on Schedule IV hereto,
including, without limitation all of the documents, instruments or agreements
required pursuant to the Acquisition Agreement.
E. SUBORDINATED DEBT DOCUMENTS
---------------------------
26. Indenture (the "Indenture"), dated as of February 27, 1997,
between the Borrower and Fleet National Bank, as Trustee.
27. Senior Subordinated Promissory Notes issued by the Borrower
pursuant to the Indenture in an aggregate principal amount of $125,000,000 (the
"Borrower Subordinated Notes").
28. Purchase Agreement (the "Holdings Note Purchase Agreement"),
dated as of February 27, 1997, between Holdings and MCIT PLC.
29. Subordinated Promissory Notes of Holdings issued to MCIT PLC in
the aggregate original principal amount of $25,000,000 (the "Holdings
Subordinated Notes").
30. Deferred Limited Interest Guaranty, executed by the Borrower in
favor of MCIT.
- 5 -
<PAGE>
31. Turnover Agreement, executed by the Borrower and MCIT.
32. Turnover Agreement, executed by the Borrower and Holdings.
F. EQUITY DOCUMENTS
----------------
33. Subscription and Stockholders Agreement ("Stockholders Agreement")
dated February 27, 1997 among the stockholders of Holdings (collectively, the
"Holdings Stockholders") and Holdings.
34. Certificate of Borrower evidencing receipt of (a) $51,300,000 cash
equity investment from Holdings and (b) $125,000,000 from the issuance of the
Borrower Subordinated Notes.
35. Certificate of Holdings evidencing receipt of (a) $27,200,000 cash
equity investment from the Holdings Subordinated Notes.
G. PAYOUT DOCUMENTATION
--------------------
36. Pay-off and estoppel letter evidencing the termination of the
credit facilities between Winning Ways and the parties listed below:
a. Boatmen's National Bank
b. The Prudential Insurance Company of America
c. The First National Bank of Chicago
d. The City of Lenexa, Kansas and UMB Bank, N.A., in connection with
certain Industrial Revenue Bonds
37. Letter of Credit to be issued by First Chicago to backstop any
outstanding letters of credit.
38. Application for the Letter of Credit referenced in the preceding
item.
39. Releases of all recorded liens and security interests under the
loan documents and related documents, instruments and agreements between
Prudential, the City of Lenexa and UMB Bank, N.A. and Winning Ways.
40. Evidence of discharge of any other indebtedness of the Sellers
required pursuant to the terms of the Acquisition Agreement.
- 6 -
<PAGE>
H. LEGAL OPINIONS
-----------------
41. Opinion of counsel to Borrower and its affiliates: Mayer, Brown &
Platt, with respect to the Transaction Documents.
42. Opinion of counsel to Borrower and its affiliates: Bryan Cave, with
respect to corporate matters.
43. Opinion of counsel, Bryan Cave, with respect to the Collateral.
44. Opinion of counsel to the Sellers, Rose Broulette & Shapiro,
providing for reliance on such opinion by the Agent and the Lenders.
I. THIRD PARTY AND MISCELLANEOUS COLLATERAL DOCUMENTS.
--------------------------------------------------
45. Evidence of Property and Business Interruption Insurance together
with long-form loss payable endorsements (mortgagee form) in favor of the Agent.
46. Evidence of Liability Insurance together with evidence of the
naming of the Agent as an additional insured.
47. Restricted Account Agreement(s) executed by each of Boatmen's
National Bank of Hillcrest Bank and acknowledged by each of the Borrower or its
affiliates, as applicable, and the Agent.
48. Bailee Letters executed by each of the Affiliates of the Borrower
that own warehouse locations in which the Borrower stores any of its personal
property, each such Bailee Letter in form and substance acceptable to the Agent.
J. CLOSING CERTIFICATE AND MISCELLANEOUS
-------------------------------------
49. Funds Flow Memorandum and disbursement direction letter executed by
the Borrower and addressed to the Agent and the Lenders. (3)
50. Notice of Borrowing and initial Borrowing Base Certificate.
51. Officer's No-Default Certificate.
52. Money Transfer Instructions.
- ---------------
(3) To be included only in the closing binders of the Agent and the Borrower.
- 7 -
<PAGE>
53. LETTER AGREEMENT REGARDING THE APPOINTMENT OF THE PRENTICE HALL
CORPORATION SYSTEM, INC. AS AGENT FOR THE BORROWER AND HOLDINGS FOR THE PURPOSE
OF ACCEPTING SERVICE OF PROCESS IN ILLINOIS.
54. Financial Condition Certificate delivered by an authorized
officer of the Borrower.
55. Phase I Environmental investigation report.
56. Letter Agreement regarding reimbursement for breakage costs,
dated as of February 24, 1997, between the Borrower and the Agent.
57. Confidential Letter Agreement regarding audit expenses, dated as
of February 27, 1997, between the Borrower and the Agent./4/
K. POST-CLOSING ITEMS
------------------
58. APPRAISAL, IF REQUESTED BY THE AGENT, OF ALL OF THE BORROWER'S
PROPERTY, PLANTS AND EQUIPMENT.
59. CLOSING BALANCE SHEET AND WORKING CAPITAL STATEMENT TO BE
DELIVERED PURSUANT TO THE ACQUISITION AGREEMENT.
- ---------------
/4/ To be included only in the closing binders of the Agent and the Borrower.
-8-
<PAGE>
SCHEDULE I
Pre-Closing UCC Searches
------------------------
A. UCC Lien Search Reports of Filings in the following offices:
<TABLE>
<CAPTION>
Name Searched Jurisdiction Searched
------------- ---------------------
<S> <C>
I. Corporate Names
---------------
Winning Ways, Inc. Missouri, Jackson County
Missouri, Sec. of State
Kansas, Johnson County
Kansas, Sec. of State
Kansas, Miami County
II. Trade Names
-----------
GEAR (all entities with Missouri, Jackson County
GEAR as first word) Missouri, Sec. of State
Kansas, Johnson County
Kansas, Sec. of State
Kansas, Miami County
III. Affiliate Names:
---------------
Impact Design, Inc. Kansas, Sec. of State
Kansas Custom Embroiderers Kansas, Miami County
Kansas, Sec. of State
Kansas, Miami County
</TABLE>
- 9 -
<PAGE>
SCHEDULE II
Pre-Closing Tax Lien and Judgment Searches
------------------------------------------
Tax Liens and Judgment Search Reports of filings in the following offices:
<TABLE>
<CAPTION>
Name Searched Jurisdiction Searched
------------- ---------------------
<S> <C>
I. Corporate Names
---------------
Winning Ways, Inc. Missouri, Jackson County
Missouri, Sec. of State
Kansas, Johnson County
Kansas, Sec. of State
Kansas, Miami County
II. Trade Names
-----------
GEAR (all entities with Missouri, Jackson County
GEAR as first word) Missouri, Sec. of State
Kansas, Johnson County
Kansas, Sec. of State
Kansas, Miami County
III. Affiliate Names
---------------
Impact Design, Inc. Kansas, Sec. of State
Kansas Custom Embroiderers Kansas, Miami County
Kansas, Sec. of State
Kansas, Miami County
</TABLE>
- 10 -
<PAGE>
SCHEDULE III
Location of UCC Filings
UCC-1 Financing Statements filed in the following offices:
<TABLE>
<CAPTION>
DEBTOR FILING OFFICE
------ -------------
<C> <S>
GFSI, Inc. Secretary of State of Kansas
Johnson County, Kansas
Winning Ways Secretary of State of Kansas
Gear for Sports Secretary of State of Kansas
</TABLE>
- 11 -
<PAGE>
SCHEDULE IV
LIST OF CLOSING DOCUMENTS FROM THE ACQUISITION AND
AND CAPITALIZATION OF BORROWER AND HOLDINGS
ATTACHED.
- 12 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GEAR FOR SPORTS
ACQUISITION OF WINNING WAYS, INC.,
OFFERING OF
$125,000,000
SENIOR SUBORDINATED NOTES DUE 2007
AND
$115,000,000 NEW CREDIT AGREEMENT
----------------
FEBRUARY 27, 1997
----------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
GEAR FOR SPORTS
ACQUISITION OF WINNING WAYS, INC.,
OFFERING OF
$125,000,000
SENIOR SUBORDINATED NOTES DUE 2007
AND
$115,000,000 NEW CREDIT AGREEMENT
----------------
TABLE OF CONTENTS
----------------
FEBRUARY 27, 1997
I. DEFINITIONS
The following is a list of the names of certain of the parties mentioned and
of certain terms used in this Closing Memorandum together with the definitions
used herein:
DEFINITION MEANING
Accredited Investor Note A security evidencing a $685,000 Note
issued to an accredited investor in its
own name
Acquirors GFSI Holdings, Inc. and GFSI, Inc.
Act Securities Act of 1933, as amended
Bank Lenders FNBC and the other lenders party to the
New Credit Agreement
Closing Closing held on the Closing Date
Closing Date February 27, 1997
Commission Securities and Exchange Commission
Counsel for the Acquirors Bryan Cave, LLP
<PAGE>
<TABLE>
<CAPTION>
DEFINITION MEANING
---------- -------
<C> <S>
Counsel for the Bank Lenders Sidley & Austin
Counsel for the Initial Purchasers Latham & Watkins
Counsel for the Issuer Mayer, Brown & Platt
Counsel for MCIT Mayer, Brown & Platt
Counsel for the Sellers Rose, Brouillette & Shapiro
DTC The Depository Trust Company
Equity Contribution The investment by the Jordan Investors and the
Management Investors of $52,200,000 in Holdings and
capital contribution of $51,300,000 by Holdings to GFSI
Final Offering Memorandum Final Offering Memorandum, dated February 20, 1997,
relating to the Notes
FNBC The First National Bank of Chicago
Funds Flow Memorandum Written instruction from the Issuer to the Initial
Purchasers, the Bank Lenders, the Jordan Investors and
the Management Investors, regarding the flow of funds
for payment of the Notes
GFSI GFSI, Inc., a Delaware corporation
Global Notes Securities evidencing $124,315,000 of Notes issued to
DTC in the name of its nominee, Cede & Co.
Holdings GFSI Holdings, Inc., a Delaware corporation
Holdings Notes A security evidencing $25,000,000 of notes issued by
Holdings to MCIT
Indenture Indenture governing the Notes dated as of the Closing
Date between GFSI and the Trustee
Independent Accountants Deloitte & Touche LLP and Donnelly Meiners Jordan Kline
Initial Purchasers Donaldson, Lufkin & Jenrette Securities Corporation and
Jefferies & Company, Inc.
Issuer GFSI
Jordan Investors Affiliates of The Jordan Company and MCIT listed in the
Stockholders Agreement as investors in Holdings
Management Investors The members of WWI management listed in the
Stockholders Agreement as investors in Holdings
</TABLE>
- 2 -
<PAGE>
Definition Meaning
MCIT MCIT PLC, a British public company
MCIT Purchase Agreement Purchase Agreement, dated as of the
Closing Date, between Holdings and MCIT
relating to the Holdings Notes
Merger The merger of WWI with and into GFSI,
with GFSI as the surviving entity
New Credit Agreement The Credit Agreement, dated as of the
Closing Date, among GFSI, the Bank
Lenders and FNBC, as contractual
representative
Notes $125,000,000 aggregate principal amount
of GFSI's Senior Subordinated Notes due
2007
Offering The offering of the Notes
PORTAL Private Offerings, Resale and Trading
through Automatic Linkages
Preliminary Offering Preliminary Offering Memorandum, dated
Memorandum February 3, 1997, relating to the Notes
Purchase Agreement The Purchase Agreement, dated as of the
Closing Date, by and among GFSI and the
Initial Purchasers, relating to the
Offering
Registration Rights The Registration Rights Agreement, dated
Agreement as of the Closing Date, among GFSI and
the Initial Purchasers, relating to the
Notes
Sellers Each of the parties listed as selling
stockholders under the Stock Purchase
Agreement
Stockholders Agreement The Subscription and Stockholders
Agreement, dated as of the Closing Date,
among the Jordan Investors and the
Management Investors
Stock Purchase Agreement The Agreement for Purchase and Sale of
Stock, dated January 24, 1997, by and
among the Acquirors and Sellers
Transactions The transactions occurring in connection
with the Stock Purchase Agreement, the
Merger, the Equity Contribution, the New
Credit Agreement and the Purchase
Agreement
Trustee
Fleet National Bank, as trustee under the
Indenture
WWI
Winning Ways, Inc., a Missouri
corporation
- 3 -
<PAGE>
II. NOTE OFFERING AND RELATED DOCUMENTS
Item
----
A. Offering Documents
------------------
Preliminary Offering Memorandum ................................ 1
Final Offering Memorandum...................................... 2
B. Documents Delivered under the Purchase Agreement
------------------------------------------------
Purchase Agreement............................................. 3
Certificate of the Secretary of GFSI certifying:............... 4
* Resolution of the Board of directors (re: Transactions)
(see 125)
* Certificate of Incorporation (see 120)
* Bylaws (see 121)
* Specimen Note (see 18)
Officer's Certificate of GFSI delivered pursuant to Section
9(c) of the Purchase Agreement................................. 5
Opinion of Counsel for the Issuer pursuant to Section 9(d)
of the Purchase Agreement...................................... 6
Opinions of Counsel for the Acquirors pursuant to Section
9(e) of the Purchase Agreement................................. 7
Opinion of Counsel for the Initial Purchasers pursuant to
Section 9(g) of Purchase Agreement............................. 8
Representation Letter of Initial Purchasers to the Independent
Accountants.................................................... 9
Comfort Letter from each of the Independent Accountants
pursuant to Section 9(h) of the Purchase Agreement............. 10
Standard & Poor's credit rating letter for the Notes........... 11
Moody's credit rating letter for the Notes..................... 12
Cross receipt for the Notes.................................... 13
Preliminary Blue Sky Memorandum................................ 14
Final Blue Sky Memorandum...................................... 15
Correspondence with Blue Sky Commissioners..................... 16
- 4 -
<PAGE>
Item
C. Documents Related to the Indenture and the Registration Agreement
-----------------------------------------------------------------
Indenture...................................................... 17
Accredited Investor Note and Global Notes issued to DTC in the
name of its nominee, Cede & Co. ............................... 18
Authentication Order to Trustee to deliver Global Notes........ 19
Compliance with Authentication Order and delivery of Global
Notes.......................................................... 20
Acknowledgment of delivery of Global Notes..................... 21
Letter of Representations to DTC............................... 22
Officer's Certificate of Trustee relating to the Indenture and
the Global Notes.............................................. 23
Application to NASD to have the Notes designated as PORTAL
securities..................................................... 24
PORTAL approval letter form NASD............................... 25
Registration Rights Agreement.................................. 26
III. NEW CREDIT AGREEMENT AND RELATED DOCUMENTS
A. Basic Documents
---------------
New Credit Agreement........................................... 27
Schedules to New Credit Agreement.............................. 28
* Schedule 1.1.1 - Permitted Existing Contingent Obligations
* Schedule 1.1.2 - Permitted Existing Indebtedness
* Schedule 1.1.3 - Permitted Existing Investments
* Schedule 1.1.4 - Permitted Existing Liens
* Schedule 5.3 - Conflicts; Governmental Consents
* Schedule 5.7 - Litigation; Loss Contingencies
* Schedule 5.8 - Subsidiaries
* Schedule 5.16 - Post-Retirement Benefits
* Schedule 5.17 - Insurance
* Schedule 5.18 - Contingent Obligations
* Schedule 5.20 - Labor Matters; Compensation Agreements
* Schedule 5.22 - Environmental Matters
* Schedule 6l.3(B) - Transactions with Shareholders and
Affiliates
Revolving Loan Notes.......................................... 29
Term Loan A Notes............................................. 30
- 5 -
<PAGE>
Item
----
Term Loan B Notes.............................................. 31
Swing Line Note................................................ 32
Security Agreement............................................. 33
Schedules to Security Agreement................................ 34
* Annex A - Schedule of Chief Executive Officers/Record Locations
* Schedule 1 - Pledged Debt
* Schedule 2 - Locations of Collateral
* Schedule 2-A - Third Party Locations
* Schedule 2-B - Financing Statement Filing Locations
* Schedule 3 - Trade Names
* Schedule 4 - Deposit Accounts
Trademark Security Agreement................................... 35
* Schedule A - Trademarks and Service Marks and Trademark and
Service Mark Applications
* Schedule B - License Agreement
Mortgage to be executed after Closing by GFSI in favor of FNBC,
as contractual representative................................... 36
Survey.......................................................... 37
Title Insurance................................................. 38
Assignment by GFSI to FNBC of representations, warranties and
covenants contained in Stock Purchase Agreement................ 39
B. Corporate Documents for the New Credit Agreement
------------------------------------------------
Certificate of the Secretary of GFSI certifying:............... 40
* Resolutions of the Board of Directors (re: Transactions)
(see 125)
* Certificate of Incorporation (see 120)
* Bylaws (see 121)
* Incumbency
Certificate of Incorporation of GFSI certified by the Secretary
of State of Delaware (see 120)................................. 41
Good Standing Certificate for GFSI from the Office of the
Secretaries of State of Delaware and Kansas.................... 42
Certificate of the Secretary of Holdings certifying............ 43
* Resolutions of the Board of Directors re: Transactions
(see 119)
* Certificate of Incorporation (see 112)
* Incumbency
* Bylaws (see 114)
- 6 -
<PAGE>
Item
----
Certificate of Incorporation of Holdings certified by the
Secretary of State of Delaware (see 112)........................... 44
Good Standing Certificate for Holdings from the Office of the
Secretary of State of Delaware..................................... 45
Certificate of the Secretary of WWI certifying..................... 46
* Resolutions of the Board of Directors (re: Merger) (see 128)
* Certificate of Incorporation (see 126)
* Incumbency
* Bylaws (see 127)
Certificate of Incorporation of WWI certified by the Secretary
of State of Missouri (see 126)...................................... 47
Good Standing Certificates for WWI from the offices of the
Secretaries of State of Kansas and Missouri......................... 48
C. UCC Documents and Other Lien Filings for the New Credit Agreement
-----------------------------------------------------------------
Pre-filing UCC lien search reports of filings against WWI, GFSI
and Gear For Sports................................................. 49
Pre-filing tax lien and judgment search reports of filings against
WWI, GSFI and Gear For Sports....................................... 50
UCC financing statements filed against GFSI, Winning Ways and Gear
for Sports.......................................................... 51
D. Payout Documentation for the New Credit Agreement
-------------------------------------------------
Payoff and estoppel letters......................................... 52
* Boatmen's Bank
* Prudential
* FNBC
* Industrial Revenue Bonds
* KPRS Realty Holding Co.
* Stockholder Loans
Letter of Credit issued by FNBC..................................... 53
Application for FNBC Letter of Credit............................... 54
Releases of all recorded liens and security interests under the loan
documents and related documents, instruments and agreements between
Prudential and WWI.................................................. 55
Evidence of discharge of any other indebtedness of the Sellers
required pursuant to the terms of the Stock Purchase Agreement...... 56
- 7 -
<PAGE>
Item
----
E. Equity Receipt Documents for the New Credit Agreement
-----------------------------------------------------
GFSI Certificate evidencing receipt of (a) $51,300,000
capital contribution and (b) $121,250,000 subordinated
debt investment (addressed to FNBC & MCIT).................... 57
Holdings Certificate evidencing (a) receipt of $27,200,000
equity investment, (b) issuance of approximately $900,000
of management promissory notes and (c) receipt of
$25,000,000 subordinated debt investment (addressed to
FNBC & MCIT).................................................. 58
F. Legal Opinions for the New Credit Agreement
-------------------------------------------
Opinion of MBP, as counsel for the borrower................... 59
Opinion of Counsel for the Sellers, together with a
reliance letter in favor of FNBC and the Lenders.............. 60
Opinion of Counsel for the Acquirors.......................... 61
G. Third Party and Miscellaneous Collateral Documents
--------------------------------------------------
for the New Credit Agreement
----------------------------
Licensor consents to transfer of license agreements........... 62
Evidence of property and business interruption insurance
together with long-form loss payable endorsements
(mortgagee form) in favor of FNBC............................. 63
Evidence of liability insurance together with evidence
of the naming of FNBC as an additional insured................ 64
Restricted Account Agreement(s)............................... 65
H. Closing Certificates and Miscellaneous for the New
--------------------------------------------------
Credit Agreement
----------------
Disbursement direction letter executed by GFSI and addressed
to FNBC and Bank Lenders...................................... 66
Notice of Borrowing and initial Borrowing Base Certificate.... 67
Bailee Letter re: Kansas Custom Embroidery.................... 68
Bailee Letter re: Impact Design, Inc.......................... 69
Officer's No-Default Certificate ............................. 70
Letter agreement regarding the appointment of CT
Corporation/Bryan Cave, as agents for GFSI and Holdings....... 71
Financial certificate delivered by GFSI's chief
financial officer............................................. 72
Summary of environmental issues and environmental
investigations report......................................... 73
Agent Fees Side Letter........................................ 74
- 8 -
<PAGE>
Item
----
Side letter re: break funding fees................................. 75
IV. HOLDINGS NOTE
MCIT Purchase Agreement............................................. 76
Holdings Note....................................................... 77
Schedules to MCIT Purchase Agreement................................ 78
* Schedule 3.4 - Stockholders
* Schedule 5.4 - Contingent Liabilities
* Schedule 5.6 - Ongoing Indebtedness
* Schedule 5.7 - Litigation
* Schedule 5.9 - Repurchase Agreements
* Schedule 5.12 - Patents, Trademarks
* Schedule 5.14 - Employee Benefit Plans
* Schedule 5.15 - Enviornmental Matters
* Schedule 5.17 - Subsidiaries
* Schedule 5.18 - Non-Stockholder Offerees
Certificate of Secretary of Holdings, cetifying..................... 79
* Certificate of Incorporation (see 112)
* Resolution of the Board of Directors (re: Transaction)(see 119)
* Incumbency
Certificate of Secretary of GFSI certifying......................... 80
* Certificate of Incorporation (see 120)
* Resolution of the Board of Directors (re: Transaction)(see 125)
* Incumbency
Deferred Limited Interest Guaranty from GFSI to Holdings............ 81
Certificate of Stockholder Purchases................................ 82
Preemption Letter................................................... 83
Certificate as to consummation of Stock Purchase Agreemen........... 84
Certificate as to the Merger........................................ 85
Certificate as to execution of each of Intercompany Agreements...... 86
Certificate as to consummation of New Credit Agreement.............. 87
Certificate as to execution of Purchase Agreement and consummation
of Offering......................................................... 88
9-
<PAGE>
Item
----
Certificate as to Compliance (no default, no litigation)...... 89
Solvency Certificate.......................................... 90
Opinion of Counsel for the Acquirors.......................... 91
Wire Instructions............................................. 92
MCIT Turnover Agreement....................................... 93
Holdings Turnover Agreement................................... 94
V. EQUITY ARRANGEMENTS
Stockholders Agreement........................................ 95
Exhibits to Stockholders Agreement............................ 96
* Exhibit A - Holdings Bylaws (see 114)
* Exhibit B - Holdings Certificate of Incorporation
(see 112)
* Exhibit C - Holdings Note (see 77)
* Exhibit D - TJC Consulting Agreement (see 100)
* Exhibit E - List of Management Investors
* Exhibit F - Manager Noncompetition Agreement
* Exhibit G - Certain Permitted Transferees
* Exhibit H - Tax Sharing Agreement (see 99)
* Exhibit I - Holdings Stock Subscriptions
Promissory Notes from certain Management Investors to
Holdings...................................................... 97
* Frank Pikus
* Jason Krakow
* Carl Allard
* Howie Ellis
* Scott Durham
* Tom Martin
* John White
* Sue Agnitch
* Dave Hoster
* Jim Keaton
Stock certificates issued by Holdings to the Management
Investors and the Jordan Investors............................ 98
VI. INTERCOMPANY AGREEMENTS
Tax Sharing Agreement......................................... 99
TJC Consulting Agreement...................................... 100
- 10 -
<PAGE>
Item
----
Intercompany Management Consulting Agreement................... 101
VII. WINNING WAYS ACQUISITION
Stock Purchase Agreement...................................... 102
Amendment No. 1 to Stock Purchase Agreement.................... 103
Exhibits to Stock Purchase Agreement........................... 104
* Escrow Agreement
* Certificate of Fulfillment of Conditions by Sellers
* Opinion of Counsel for the Sellers
* Comfort Letter
* Solvency Certificate
* Estoppel Certificate
* Withholding Certificate
* Certificate of Fulfillment of Conditions by Acquirors
* Opinion of Counsel for the Acquirors
Wolff Employment Agreement..................................... 105
Wolff Noncompetition Agreement................................. 106
Director and Officer Indemnification Agreement................. 107
* Wolff
* Menghini
* Shaw
* Graveel
* Gary
* Caputo
* Zalaznick
* Jordan
Cross receipts................................................. 108
* WWI Stockholders
* GFSI
Sellers" wire transfer instructions........................... 109
VIII. MERGER
Plan of Merger................................................. 110
Certificate of Merger, certified by the Secretaries of State of
Delaware and Missouri......................................... 111
- 11 -
<PAGE>
Item
----
IX. GENERAL CORPORATE DOCUMENTS
A. Corporate Documents for Holdings
--------------------------------
Certificate of Incorporation certified by the Secretary
of State of Delaware.......................................... 112
Amendment to Certificate of Incorporation..................... 113
Bylaws........................................................ 114
Resolutions of the Board of Directors
(re: corporate organization).................................. 115
Long-Form Good Standing Certificate from the Secretary
of State of Delaware.......................................... 116
Common stock certificates issued to........................... 117
. Jordan Investors
. Management Investors
Preferred stock certificates issued to........................ 118
. Jordan Investors
. Management Investors
Resolutions of the Board of Directors of Holdings
(re: Transactions)............................................ 119
B. Corporate Documents for GFSI
----------------------------
Certificate of Incorporation certified by the Secretary
of State of Delaware.......................................... 120
Bylaws........................................................ 121
Resolutions of the Board of Directors
(re: corporate organization).................................. 122
Long-Form Good Standing Certificate from the Secretary
of State of Delaware.......................................... 123
Common stock certificate for one share issued to Holdings..... 124
Resolutions of the Board of Directors of GFSI
(re: Transactions & Merger)................................... 125
C. Corporate Documents for WWI
---------------------------
Certificate of Incorporation certified by Secretary of
State of Missouri............................................. 126
Bylaws........................................................ 127
Resolutions of the Board of Directors of WWI (re: Merger)..... 128
- 12 -
<PAGE>
Item
----
X. MISCELLANEOUS
Funds Flow Memorandum......................................... 129
Closing Memorandum............................................ 130
Post-Closing Checklist........................................ 131
Working Group List............................................ 132
- 13 -
<PAGE>
EXHIBIT J TO CREDIT AGREEMENT
Form of Compliance Certificate
Pursuant to Section 4.2 and/or Section 6.1(A) (iv) of the Credit Agreement
(the "Credit Agreement"), dated as of February 27, 1997, by and among GFSI,
Inc. ("Borrower"), The First National Bank of Chicago as contractual
representative ("Agent") and the Lenders which may from time to time become
parties thereto (the "Lenders"), Borrower, through its , hereby
delivers to Agent [, together with the financial statements being delivered to
Agent pursuant to Section 6.1 (A) of the Credit Agreement,] this Compliance
Certificate (the "Certificate") for the accounting period from , to
, . Capitalized terms used herein shall have the meanings set forth
in the Credit Agreement. Subsection references herein relate to subsections of
the Credit Agreement.
I. MANDATORY PREPAYMENTS (Section 2.5 (B))
A. Section 2.5(B) (i) (a):
(1) State whether upon the consummation of any
Asset Sale by the Borrower or any Subsidiary of
Borrower any Net Cash Proceeds in excess of
$500,000 have arisen.
Yes/No
(2) If the answer to question (1) is yes, state the
date of and the nature of the transaction
giving rise to the Net Cash Proceeds, the
aggregate principal amount of such Net Cash
Proceeds, and the amount, if required, of any
mandatory prepayment on Schedule A.
B. Section 2.5(B) (i) (b):
(1) The Borrower's calculation of Excess Cash Flow
for the Cash Flow Period ended June 30, is
as follows:
Net Income $
- --------
1 To be included for the Compliance Certificate accompanying the annual
audited financial statements.
<PAGE>
<TABLE>
<C> <S> <C> <C>
+ Amortization expense + __
+ Depreciation + __
+ Non-cash charges + __
- Capital Expenditures - __
- Payments in connection with Permitted Acquisitions - __
- Investments permitted pursuant to Section 6.3 (D) (ix) - __
- Principal payments (including prepayments) in respect of the
Term Loans and other Indebtedness - __
+/- Net change in Working Capital +/- _
- Cash dividends/redemptions, (S)6.3(F) Restricted Payments
during such period - __
Excess Cash Flow = __
<CAPTION>
<S> <C>
C. Section 2.5 (B) (i) (c)
(1) State whether any Net Cash Proceeds from any Financing by a
Restricted Subsidiary have been received. Yes/No
(2) If the answer to question (1) is yes, state the date of such
Financing, the original amount and the amount of any
mandatory prepayment on Schedule A.
II. FINANCIAL COVENANTS
A. MINIMUM INTEREST EXPENSE COVERAGE RATIO
(Section 6.4 (B) )
The ratio of EBITDA to Interest Expense for the period from
to to 1.0
B. MINIMUM FIXED CHARGE COVERAGE RATIO
(Section 6.4 (C) )
The ratio of (1) EBITDA - Capital Expenditures to (2)
Interest Expense + Fees +
</TABLE>
- 2 -
<PAGE>
Taxes + Restricted Payments permitted under clauses (i), (ii), (iii)
and (iv) of the definition of Restricted Payments + cash payments under
the Incentive Compensation Plan + scheduled amortization of Term Loans
and other Indebtedness for the period from to to 1.0
C. MAXIMUM LEVERAGE RATIO (Section 6.4 (D))
The ratio of (1) Indebtedness for borrowed money and Off Balance Sheet
Liabilities to (2) EBITDA for the period from to to 1.0
I, the undersigned, hereby certify that I am the of the Borrower. I
further certify that, pursuant to Section 4.2 and Section 6.1 (A) of the
Credit Agreement, as of the date hereof no Default or Unmatured Default
exists.
I further certify that the information set forth above is accurate as of
, 19 , to the best of such officer's knowledge, after diligent inquiry,
and that the financial statements delivered herewith present fairly the
financial position of the Borrower and its Subsidiaries at the dates indicated
and the results of their operations and changes in their financial position
for the periods indicated in conformity with Agreement Accounting Principles,
consistently applied.
Dated: ,
GFSI, INC.
By: ________________________________
Name:
Title:
- 3 -
<PAGE>
EXHIBIT K
TO
CREDIT AGREEMENT
PRO FORMA FINANCIAL STATEMENTS
(Attached)
<PAGE>
GFSI, INC.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(Dollars In thousands)
The following sets forth the Unaudited Pro Forma Balance Sheet and the
Unaudited Pro Forma Statements of Income of GFSI, Inc. ("GFSI") in each case
giving effect to the transactions described in Note I of the Notes to the
Unaudited Pro Forma Financial Statements as if such transactions had been
consummated on December 31, 1996 (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 Statements of Income). The Unaudited Pro Forma
Financial Statements of GFSI do not purport to present the financial position or
results of operations of GFSI had the transactions assumed herein occurred on
the dates indicated, nor are they necessarily indicative of the results of
operations which may be expected to occur in the future.
The proposed acquisition of the Company will be accounted for as a leveraged
recapitalization, and accordingly, the accompanying Unaudited Pro Forma
Financial Statements reflect no change in the accounting basis of GFSl's assets
and liabilities for financial accounting purposes.
P-1
<PAGE>
GFSI, INC.
UNAUDITED PRO FORMA BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
WINNING PRO FORMA ADJUSTMENT
WAYS, INC. -------------------- GFSI, INC.
HISTORICAL DR CR PRO FORMA
---------- ---- ---- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 727 $ 22(2) $ $ 749
Accounts receivable.......................... 26,152 26,152
Inventories.................................. 28,074 28,074
Prepaid expenses and other current assets.... 909 4,986(3)
943(4) 6,838
Deferred income taxes........................ 563(7) 563
------- -------- -------- ----------
Total current assets....................... 55,862 6,514 62,376
Property, plant and equipment, net............. 23,480 943(4) 22,537
Other assets:
Cash value of life insurance................. 4,986 4,986(3)
Deferred financing costs..................... 84 9,225(5) 84(5) 9,225
Other........................................ 5 5
------- -------- -------- ---------
Total...................................... $84,417 $ 15,739 $ 6,013 $ 94,143
======= ======== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings........................ $ 6,000 $ 6,000(6) $ $
Accounts payable............................. 10,708 10,708
Accrued expenses............................. 5,584 5,584
Current portion of long-term debt........... 13,819 13,819(6) 2,250(6) 2,250
------- --------- --------- ---------
Total current liabilities.................. 36,111 19,819 2,250 18,542
Deferred income taxes.......................... 1,681(7) 1,681
Long-term debt................................ 9,559 9,559(6) 190,450(6) 190,450
Stockholders' equity:
Common stock................................. 149 149(8)
Additional paid-in capital................... 2,720 2,720(8) 51,300(8) 51,300
Retained earnings............................ 37,911 203,500(8)
1,118(7)
84(5)
1,875(5)
836(8) (167,830)
------- -------- -------- ---------
40,780 209,446 52,136 (116,530)
Less treasury stock.......................... 2,033 2,033(8)
------- -------- -------- ---------
Total stockholders' equity (deficit)....... 38,747 209,446 54,169 (116,530)
------- -------- -------- ---------
Total.................................... $84,417 $238,824 $ 248,550 $ 94,143
======= ======== ========= =========
</TABLE>
P-2
<PAGE>
GFSI, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
TWELVE MONTHS ENDED DECEMBER 31,1996
<TABLE>
<CAPTION>
WINNING PRO FORMA ADJUSTMENT
WAYS, INC. -------------------- GFSI, INC.
HISTORICAL DR CR PRO FORMA
---------- ---- ---- ----------
<S> <C> <C> <C> <C>
Net sales..................................... $177,124 $ -- $ -- $177,124
Costs of sales................................ 101,569 -- -- 101,569
-------- ------- ------- --------
Gross profit.............................. 75,555 75,555
Operating expenses:
Selling..................................... 17,625 -- -- 17,625
General and administrative.................. 23,709 890(11) 1,205(11) 23,394
-------- ------- ------- --------
41,334 890 1,205 41,019
-------- ------- ------- --------
Operating income.......................... 34,221 890 1,205 34,536
Other income/(expense):
Interest expense............................ (2,597) 19,040(10) 2,597(10) (19,040)
Other....................................... 96 -- -- 96
-------- ------- ------- --------
(2,501) 19,040 2,597 (18,944)
-------- ------- ------- --------
Income before income taxes.................... 31,720 19,930 3,802 15,592
Income tax expense.......................... -- 6,237(9) -- 6,237
-------- ------- ------- --------
Net income.................................... $ 31,720 $26,167 $ 3,802 $ 9,355
======== ======= ======= ========
Other data
EBITDA (as defined)(12)..................... $ 37,520 $ 890 $ 829 $ 37,459
Depreciation and amortization(l2)........... 3,299 -- 376 2,923
Cash interest expense(l3)................... 2,597 18,082 2,597 18,082
</TABLE>
P-3
<PAGE>
GFSI, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
SIX MONTHS ENDED DECEMBER 31,1996
<TABLE>
<CAPTION>
WINNING PRO FORMA ADJUSTMENT
WAYS, INC. -------------------- GFSI, INC.
HISTORICAL DR CR PRO FORMA
---------- ---- ----- ----------
<S> <C> <C> <C> <C>
Net sales..................................... $104,811 $ -- $ -- $104,811
Costs of sales................................ 59,848 -- -- 59,848
-------- ------- ------- --------
Gross profit.............................. 45,353 -- -- 45,353
Operating expenses:
Selling..................................... 10,406 -- -- 10,406
General and administrative.................. 12,828 445(11) 757(11) 12,516
-------- ------- ------- --------
23,234 445 757 22,922
-------- ------- ------- --------
Operating income.......................... 22,119 445 757 22,431
Other income/(expense):
Interest expense............................ (1,465) 9,525(10) 1,465(10) (9,525)
Other....................................... 43 -- -- 43
-------- ------- ------- --------
(1,422) 9,525 1,465 (9,482)
-------- ------- ------- --------
Income before income taxes.................... 20,697 9,970 2,222 12,949
Income tax expense.......................... -- 5,180(9) -- 5,180
-------- ------- ------- --------
Net income.................................... $ 20,697 $15,150 $ 2,222 $ 7,769
======== ======= ======= ========
Other data<S>
EBITDA (as defined)(12)..................... $ 23,791 $ 445 $ 568 $ 23,914
Depreciation and amortization(l2)........... 1,672 -- 189 1,483
Cash interest expense(l3)................... 1,465 9,045 1,465 9,045
</TABLE>
P-4
<PAGE>
GFSI, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
YEAR ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
WINNING PRO FORMA ADJUSTMENT
WAYS, INC. -------------------- GFSI, INC.
HISTORICAL DR CR PRO FORMA
---------- ---- ----- ----------
<S> <C> <C> <C> <C>
Net sales..................................... $169,321 $ -- $ -- $169,321
Costs of sales................................ 97,308 -- -- 97,308
-------- ------- ------- --------
Gross profit.............................. 72,013 -- -- 72,013
Operating expenses:
Selling..................................... 16,963 -- -- 16,963
General and administrative.................. 22,216 890(11) 1,265(11) 21,841
-------- ------- ------- --------
39,179 890 1,265 33,209
-------- ------- ------- --------
Operating income.......................... 32,834 890 1,265 33,209
Other income/(expense):
Interest expense............................ (2,608) 19,034(10) 2,608(10) (19,034)
Other....................................... -- -- -- --
-------- ------- ------- --------
(2,608) 19,034 2,608 (19,034)
-------- ------- ------- --------
Income before income taxes.................... 30,226 19,924 3,873 14,175
Income tax expense.......................... -- 5,670(9) -- 5,670
-------- ------- ------- --------
Net income.................................... $ 30,226 $25,594 $ 3,873 $ 8,505
======== ======= ======= ========
Other data<S>
EBITDA (as defined)(12)..................... $ 36,035 $ 890 $ 913 $ 36,058
Depreciation and amortization(l2)........... 3,201 -- 352 2,849
Cash interest expense(l3)................... 2,608 18,076 2,608 18,076
</TABLE>
P-5
<PAGE>
GFSI, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. Presentation and Transactions:
The unaudited pro forma financial statements assume the following
transactions occurred on December 31, 1996 for purposes of the unaudited pro
forma balance sheet and the beginning of the earliest period presented for
purposes of the unaudited pro forma statements 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
the Company. Pursuant to the Acquisition Agreement, Holdings and GFSI will
acquire all of the issued and outstanding capital stock of the Company, and
the Company will immediately thereafter merge with and into GFSI. All of the
capital stock of the Company acquired by Holdings in connection with the
Acquisition will be contributed to GFSI along with the balance of the Equity
Contribution, as described below.
The aggregate purchase price for the Company is $232.9 million, subject to
adjustment following the Closing, consisting of $203.5 million in cash and
the repayment of $29.4 of the Company's Existing Indebtedness. To finance
the Acquisition, including approximately $11.1 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")
will invest $52.2 million in Holdings and Holdings will contribute $51.3
million of this amount in cash to the Company (the "Equity Contribution");
(ii) the Company will consummate the Offering; and (iii) the Company will
enter into the New Credit Agreement providing for borrowings of up to $115.0
million, of which approximately $67.7 million is expected to be outstanding
and $22.0 million is expected to be utilized to cover outstanding letters of
credit at Closing. The Equity Contribution will be 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 $0.9 million of the contribution from the
Management Investors will be financed by loans from Holdings. Consummation
of the Offering is conditioned upon the concurrent consummation of the
Acquisition, the Equity Contribution and the initial borrowings under the
New Credit Agreement.
The Transactions are reflected in the accompanying unaudited pro forma
financial statements of the Company as a leveraged recapitalization under
which the existing basis of accounting will be continued for financial
accounting and reporting purposes.
The following summarizes the sources and uses of funds contemplated by the
Transactions described above at the Company's level (in millions):
<TABLE>
<S> <C>
SOURCES OF FUNDS:
New Credit Agreement........................................ $ 67.7
Senior Subordinated Notes due 2007.......................... 125.0
Equity Contribution......................................... 51.3
------
Total sources............................................. $244.0
======
Uses of Funds:
Cash purchase price of the Acquisition...................... $203.5
Repayment of Existing Indebtedness.......................... 29.4
Fees and expenses........................................... 11.1
------
Total uses................................................ $244.0
======
</TABLE>
P-6
<PAGE>
GFSI, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
Upon completion of the Transactions, Holdings will be dependent upon the
cash flows of the Company 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). Additionally, Holdings' cumulative non-cash preferred stock
dividends will total $3.2 million annually. Holdings Preferred Stock may be
redeemed at stated value ($27.0 million) plus accrued dividends with
mandatory redemption in 2009. The annual cash flow requirements relative to
the Holdings Subordinated Notes and Holdings Preferred Stock are not
reflected in the accompanying unaudited pro forma financial statements.
2. The pro forma adjustment to cash recognizes additional funds
generated by the Transactions.
3. The pro forma adjustments to prepaid expense and other current assets and
cash value of life insurance recognizes the liquidation of officer life
insurance policies. Such policies will be cashed out or purchased by and
transferred to the related individuals upon closing of the Transactions.
4. The pro forma adjustment to property, plant and equipment represents fixed
assets that will be purchased by a previous shareholder upon closing of the
Transactions.
5. The pro forma adjustment to other assets (in thousands):
<TABLE>
<CAPTION>
December 31,
1996
------------
<S> <C>
Fees and expenses related to the Transactions................. $11,100
Less costs not capitalized.................................... 1,875
-------
Pro forma adjustment.......................................... $ 9,225
=======
Eliminate deferred issuance costs on Existing Indebtedness.... $ (84)
=======
</TABLE>
The $1.875 million of costs not capitalized will be expensed upon completion
of the Transactions. Such expense is excluded from the accompanying pro
forma statements of income as it is considered a nonrecurring charge.
6. The pro forma adjustments to debt (in thousands):
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------
Current Short-Term
Long-Term Maturities Borrowings Total
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Record the issuance of Notes offered hereby $125,000 -- -- $ l,000
Record the issuance of new Revolver.............. 2,700 -- -- 2,700
Record the issuance of new Term Loans............ 62,750 2,250 -- 65,000
-------- -------- ------- --------
Pro forma adjustment......................... $190.450 $ 2,250 $ -- $192,700
======== ======== ======= ========
Eliminate existing long-term debt and short-term
borrowings with proceeds of the Transactions... $ (9,559) $(13,819) $(6,000) $(29,378)
======== ======== ======= ========
</TABLE>
7. The pro forma adjustment to recognize the Company's change in tax status
from an S Corporation to a C Corporation for income tax purposes which will
occur concurrent with the Closing.
8. The pro forma adjustment to stockholders' equity recognizes the distribution
of $203.5 million to previous shareholders for the acquisition of Winning
Ways, Inc. common stock and the equity contribution of $51.3 million from
Holdings in accordance with the Acquisition Agreement.
P-7
<PAGE>
GFSI, INC.
NOTES TO UNAUDITED PRO FORMA FlNANCIAL STATEMENTS--(Continued)
9. The pro forma adjustment to provide income taxes at an effective rate of 40%
recognizes that the Company will become subject to income tax upon
revocation of the S Corporation status for income tax purposes. The change
associated with the Company's change in tax status reflecting the cumulative
difference between the book and tax basis of assets and liabilities as of
the date of the conversion is estimated to be $l.l million. Such expense
will be charged to operations at the date of conversion, however, it has not
been reflected in the accompanying statements of income as it is considered
a nonrecurring charge.
10. The pro forma adjustments to interest expense (in thousands):
<TABLE>
<CAPTION>
TWELVE
MONTHS SIX MONTHS YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1996 1996 1996
------------ ------------ --------
<S> <C> <C> <C>
Elimination of interest expense relating to Winning Ways, Inc.'s
existing debt agreements:
Repay existing 10.125% credit agreement........................ $ (428) $ (197) $ (501)
Repay existing line of credit agreement........................ (627) (482) (545)
Repay existing 10.28% mortgage loan............................ (996) (496) (998)
Repay existing 5.72% industrial revenue bonds.................. (23) (10) (29)
Repay existing short-term borrowings........................... (523) (280) (535)
------- ------- -------
Pro forma adjustment.......................................... $(2,597) $(1,465) $(2,608)
======= ======= =======
Additional interest expense related to:
Issuance of Notes.............................................. $12,031 $ 6,016 $l2,031
Amortization of deferred issuance costs related to the
Notes......................................................... 400 200 400
Issuance of Term Loans assuming 8.44% interest rate............ 5,486 2.743 5,486
Issuance of Revolver assurning 8.25% interest rate............. 223 112 223
Amortization of deferred issuance costs related to
New Credit Agreement.......................................... 263 132 263
Amortization of deferred issuance costs related to Holdings'
subordinated notes............................................ 295 148 295
Annual administrative agent's fee for New Credit
Agreement..................................................... 25 13 25
Commitment fees related to New Cttdit Agreement................ 127 61 131
Letter of credit fees related to New Credit Agreement.......... 190 100 180
------- ------- -------
Pro forma adjustment.......................................... $19,040 $ 9,525 $19 034
======= ======= =======
</TABLE>
P-8
<PAGE>
GFSI, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Concluded)
11. The pro forma adjustment to general and administrative expense (in
thousands):
<TABLE>
<CAPTION>
TWELVE
MONTHS SIX MONTHS YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1996 1996 1996
------------ ------------ --------
<S> <C> <C> <C>
Additional general and administrative expense related to:
Consulting fee toThe Jordan Company........................ $ 500 $ 250 $ 500
Board of Directors fees.................................... 140 70 140
Wolff non-competition payments............................. 250 125 250
-------- -------- -------
Pro forma adjustment..................................... $ 890 $ 445 $ 890
======== ======== =======
Elimination of general and administrative expense related to:
Officers life insurance premiums........................... $ (621) $ (477) $ (718)
Expenses of corporate jet not retained by Company.......... (208) (91) (195)
Depreciation on corporate jet not retained by Company...... (376) (189) (352)
-------- -------- -------
Pro forma adjustment..................................... $ (1,205) $ (757) $(1,265)
======== ======== =======
</TABLE>
12. The pro forma adjustments to EBITDA recognize all adjustments to general and
administrative expenses noted in footnote 11, except for the elimination of
depreciation on the corporate jet not retained by the Company.
13. The pro forma cash interest expense calculated as follows (in thousands):
<TABLE>
<CAPTION>
TWELVE
MONTHS SIX MONTHS YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1996 1996 1996
------------ ------------ --------
<S> <C> <C> <C>
Issuance of Notes........................................... S 12,031 $ 6,016 $12,031
Issuance of Term Loans assuming 8.44% interest rate......... 5,486 2,743 5,486
Issuance of Revolver assuming 8.25% interest rate........... 223 112 223
Annual administrative agent's fee for New Credit Agreement.. 25 13 25
Commitment fees related to New Credit Agreement............. 127 61 131
Letter of credit fees related to New Credit Agreement....... 190 100 180
-------- ------- -------
Total..................................................... S 18,082 $ 9,045 $18,076
======== ======= =======
</TABLE>
P-9
<PAGE>
EXHIBIT L
TO
CREDIT AGREEMENT
Money Transfer Instructions
---------------------------
(Attached)
<PAGE>
LOAN/CREDIT RELATED MONEY TRANSFER INSTRUCTION
February 27, 1997
To: The First National Bank of Chicago,
as Agent (the "Agent"), under the
Credit Agreement described below.
Re: Credit Agreement dated as of February 27, 1997 (as the same may
be amended, restated, supplemented or otherwise modified from
time to time, the "Credit Agreement"), among GFSI, Inc. (the
"Borrower"), the financial institutions from time to time party
thereto (the "Lenders") and the Agent.
Capitalized terms used herein and not otherwise defined shall
have the meanings assigned thereto in the Credit Agreement.
The Agent is specifically authorized and directed to act upon the following
money transfer instructions with respect to the proceeds of Advances or other
extensions of credit on the date hereof, provided, however, that the Agent may
-------- -------
otherwise transfer funds as hereafter directed in writing by either Borrower in
accordance with Section 13.1 of the Credit Agreement or based on any telephonic
------------
notice made in accordance with Section 2.14 of the Credit Agreement.
------------
Facility Identification Number(s) ___________________________________
Customer/Account Name _______________________________________________
Transfer Funds To ___________________________________________________
___________________________________________________
___________________________________________________
___________________________________________________
For Account No. _____________________________________________________
Reference/Attention To ______________________________________________
<PAGE>
Authorized Officer (Customer
Representative) Date____________________
- ------------------------------ ------------------------
(Please Print) Signature
Bank Officer Name Date ___________________
- ------------------------------ ------------------------
(Please Print) Signature
(Deliver Completed Form to Credit Support Staff For
Immediate Processing)
<PAGE>
EXHIBIT M
TO
CREDIT AGREEMENT
Deferred Limited Interest Guaranty
----------------------------------
(Attached)
<PAGE>
[EXECUTION]
DEFERRED LIMITED INTEREST GUARANTY
----------------------------------
THIS GUARANTY AGREEMENT, dated as of February 27, 1997, by
GFSI, INC., a Delaware corporation (the "Guarantor"), to MCIT PLC
---------
(the "Purchaser"), for the benefit of itself, its Nominees and all
---------
other holders of Notes (such and all other capitalized terms being
used herein with the meanings set forth in Article I) issued
---------
pursuant to the Purchase Agreement,
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Guarantor was organized and is being capitalized
by, and is a direct wholly-owned Subsidiary of, GFSI Holdings, Inc.,
a Delaware corporation (the "Company"); and
WHEREAS, the Company has on the date hereof
(a) pursuant to a purchase agreement, dated as of February 27,
1997 (together with all amendments and other modifications, if any,
from time to time hereafter made thereto, the "Purchase Agreement"),
------------------
between the Company and the Purchaser, obtained $36,050,000 in cash
in the aggregate representing the proceeds from the sale by the
Company to the Purchaser of the Notes for a purchase price of
$25,000,000, Preferred Shares for a purchase price of $11,000,000
and Common Shares for a purchase price of $50,000, and
(b) contributed all of such $36,050,000 in the aggregate of
proceeds to the Guarantor as capital; and
WHEREAS, as a condition to the Purchaser's making such
purchases under the Purchase Agreement, the Guarantor is required to
execute and deliver this Guaranty; and
WHEREAS, the Guarantor has, in consideration of, among other
things, receiving such capital contribution, duly authorized the
execution, delivery and performance of this Guaranty;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the Guarantor hereby agrees as follows:
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.1. Certain Terms. Except as otherwise provided herein
-------------
or as the context otherwise requires, the following terms (whether
or not underscored) when used in this Guaranty shall have the
following meanings (such definitions to be equally applicable to the
singular and plural forms thereof):
"Company" is defined in the first recital hereto.
------- -------------
"Guarantor" is defined in the Preamble hereto.
--------- --------
"Interest Obligations" means all obligations of the Company to
--------------------
make payment of interest accrued from time to time on the Notes in
accordance with the terms of the Purchase Agreement.
"Note" shall mean each Note executed and delivered pursuant to
----
the Purchase Agreement and each other promissory note of the Company
accepted from time to time in substitution or replacement therefor.
"Payment Default" is defined in of Section 2.2.2.
--------------- -------------
"Performance Default" is defined in Section 2.2.3.
------------------- -------------
"Performance Default Notice" is defined in Section 2.2.3.
-------------------------- -------------
"Post-Petition Interest" means, relative to any Senior
----------------------
Indebtedness, all interest accrued or accruing on such Senior
Indebtedness after the commencement of any insolvency or liquidation
proceeding against the obligor under such Senior Indebtedness in
accordance with and at the contract rate, including any rate
applicable upon default, specified in the Instrument creating,
evidencing or governing such Senior Indebtedness, whether or not,
pursuant to applicable law or otherwise, the claim for such interest
is allowed as a claim in such insolvency or liquidation proceeding.
"Purchase Agreement" is defined in the second recital hereto.
------------------ --------------
"Purchaser" is defined in the Preamble hereto.
--------- --------
"Senior Aqent" means The First National Bank of Chicago (or
------------
any other financial institution succeeding to its responsibilities) as
the contractual representative for the Senior Lenders pursuant to the
Senior Credit Agreement.
2
<PAGE>
"Senior Credit Agreement" means the credit agreement, dated as of
-----------------------
February 27, 1997, among the Guarantor, the Senior Lenders and the Senior Agent
as so originally executed. At all times after the date hereof, "Senior Credit
-------------
Agreement" also means the Senior Credit Agreement as originally executed and
- ---------
delivered, together with
(a) each successor Instrument pursuant to which the Guarantor obtains
from other financial institutions loans to refinance Indebtedness outstanding
and commitments to lend existing under the Senior Credit Agreement as in
effect on the date of such refinancing; and
(b) all amendments, supplements, modifications, extensions and renewals
hereafter made to the Senior Credit Agreement or such successor Instrument;
provided, however, that without the consent of the Required Noteholders, no
- -------- -------
such amendment or modification shall be made which
(c) increases the maximum principal amount of Indebtedness permitted to
be incurred pursuant thereto above the maximum principal amount of
Indebtedness permitted by clause (c) of Section 6.2.2 of the Purchase
---------- -------------
Agreement to be outstanding pursuant thereto;
(d) amends Section 6.2(M) or 6.3(F) of the Senior Credit Agreement or
any other provision thereof as in effect on the date hereof in a manner
adversely affecting the Guarantor's ability to make payments to the Company
or adds any provisions thereto of a substantially duplicative nature;
(e) extends the stated maturity of the Senior Loans or the effectiveness
of the Senior Credit Agreement to a date less than 90 days prior to April 30,
2008 without amending Section 6.3(F) of the Senior Credit Agreement so that
the Company may receive in accordance therewith "Restricted Payments" (as
defined therein) in an amount sufficient to make all payments of principal of
the Notes when due on such date; or
(f) amends, supplements or otherwise modifies any other agreement,
covenant or undertaking of the Senior Credit Agreement or any other Senior
Loan Document applicable to the Company if the cumulative effect of such
amendment or modification and all other such amendments and modifications, if
any, becoming effective concurrently therewith shall make the Senior Credit
Agreement or such
3
<PAGE>
other Senior Loan Document materially more burdensome to the Company.
"Senior Indebtedness" means all indebtedness, obligations and
-------------------
liabilities of the Guarantor
(a) to the Senior Lenders, whether now existing or hereafter created
arising out of or under the Senior Credit Agreement, including (x) all
principal, interest (including Post-Petition Interest) and other amounts
payable under any letter of credit reimbursement agreement, bankers
acceptance, note or instrument issued thereunder and (y) all Hedging
Liabilities owing to a Senior Lender or an Affiliate thereof; provided,
--------
however, that the aggregate principal amount of Senior Indebtedness under or
-------
in respect of the Senior Credit Agreement (excluding, however, the amount of
all such Hedging Liabilities owing to a Senior Lender or an Affiliate
thereof) shall not at any time exceed the maximum principal amount of
Indebtedness permitted by clause (c) of Section 6.2.2 of the Purchase
---------- -------------
Agreement to be outstanding pursuant thereto; and
(b) to the Senior Noteholders, whether now existing or hereafter
created, arising out of or under the Senior Indenture, including all
principal of and interest (including Post-Petition Interest) on the Notes and
other amounts payable under the Senior Indenture; crovided, however, that the
aggregate principal amount of Senior Indebtedness under or in respect of the
Senior Indenture shall not at any time exceed the maximum principal amount of
Indebtedness permitted by clause (d) of Section 6.2.2 of the Purchase
---------- -------------
Agreement to be outstanding pursuant thereto.
"Senior Indenture" means the indenture, dated as of February 20, 1997,
----------------
between the Guarantor and the Senior Indenture Trustee. At all times after the
date hereof, "Senior Indenture" also means the Senior Indenture as so originally
----------------
executed and delivered, together with all amendments, supplements,
modifications, extensions, and renewals; provided, however, that without the
-------- -------
consent of the Required Noteholders, no such amendment or modification shall be
made which
(a) increases the maximum principal amount of Indebtedness permitted to
be incurred and at any time be outstanding pursuant thereto above the maximum
aggregate principal amount of Indebtedness then permitted to be outstanding
thereunder by clause (d) of Section 6.2.2 of the Purchase Agreement;
---------- -------------
4
<PAGE>
(b) amends Section 4.05 of the Senior Indenture in a manner adversely
affecting the Guarantor's ability to make payments to the Company; or
(c) extend the stated maturity of the Senior Notes to a date less than
365 days prior to April 30, 2008 without amending Section 4.05 of the Senior
Indenture so that the Company may receive in accordance therewith "Restricted
Payments" (as defined therein) in an amount sufficient to make all payments
of principal of the Notes when due on such date.
"Senior Lender" means collectively all of the lending institutions which
-------------
are or become parties to the Senior Credit Agreement.
"Senior Indenture Trustee" means Fleet National Bank, as trustee under
------------------------
the Senior Indenture.
"Senior Note" means each 9Ysk note of the Guarantor issued pursuant to
-----------
the Senior Indenture and each other note of the Guarantor accepted from time to
time in substitution or replacement therefor.
"Senior Noteholder" means each Person registered pursuant to the Senior
-----------------
Indenture as the holder of a Senior Note.
SECTION 1.2. Purchase Agreement Terms. Except as otherwise provided
------------------------
herein or as the context otherwise requires, terms for which meanings are
provided in the Purchase Agreement (including "Required Noteholders") shall have
the same meanings when used in this Guaranty.
ARTICLE II
GUARANTY
SECTION 2.1. Guaranty of Payment. The Guarantor hereby absolutely,
-------------------
unconditionally and irrevocably guarantees the full and prompt payment and
performance on demand and all times thereafter of all Interest Obligations.
The Guarantor also agrees to reimburse the Purchaser and the Noteholders
for all costs and expenses, including reasonable attorneys' fees and
disbursements, which the Purchaser expends or incurs in collecting, compromising
or enforcing this Guaranty, whether or not suit is filed, expressly including
all costs, expenses, reasonable attorneys' fees and other charges incurred in
connection with any insolvency, bankruptcy, reorganization, liquidation,
dissolution, arrangement or other similar
5
<PAGE>
proceedings involving the Guarantor which in any way affect the exercise of
rights, powers, remedies and privileges with respect to this Guaranty or the
interest accrued and unpaid on the outstanding principal amount of the Notes.
SECTION 2.2. Subordination. All indebtedness and liability of the
-------------
Guarantor pursuant to this Guaranty shall be subordinate and junior in right of
payment to Senior Indebtedness in the manner and with the effect provided in
Sections 2.2.1 through 2.2.11, and each holder of a Note, by its acceptance
- -------------- ------
thereof, agrees to be bound by such terms of subordination.
SECTION 2.2.1. Payment Over Upon Dissolution etc. In the event of any
---------------------------------
distribution, division or application, partial or complete, voluntary or
involuntary, by operation of law or otherwise, of all or any part of the
property, assets or business of the Guarantor, or the proceeds thereof, to any
creditor or creditors of the Guarantor or upon any indebtedness of the
Guarantor, by reason of any liquidation, dissolution or other winding up of the
Guarantor or its business or by reason of any sale, receivership, insolvency or
bankruptcy proceedings or assignment for the benefit of creditors or any
proceeding by or against the Guarantor for any relief under any bankruptcy,
reorganization or insolvency law or laws, federal or state, or any law, federal
or state, relating to the relief of debtors, readjustment of indebtedness,
reorganization, composition or extension, then, and in any such event, any
payment or distribution of any kind or character, whether in cash, property or
securities which, but for the subordination provisions of this Guaranty, would
otherwise be payable or deliverable upon or in respect of this Guaranty, shall
instead be paid over or delivered (x) if any Senior Indebtedness is outstanding
under the Senior Credit Agreement, to the Senior Agent for APPLICATION TO SUCH
Senior Indebtedness (y) after the payment in full of the Senior Indebtedness
under the Senior Credit Agreement, to the Senior Agent and Senior Indenture
Trustee for application to Senior Indebtedness in respect of the Senior Notes,
and until the Senior Indebtedness has been repaid in full in cash, the Purchaser
and the Noteholders shall not receive any such payment or distribution or
benefit therefrom. The Senior Agent (and, in the event that the Senior Agent
shall fail to file a proof of claim relating to the Interest Obligations within
five days of the date required to be filed, the Senior Indenture Trustee) may in
the name of the Noteholders or otherwise file, prove and vote in any such
proceedings with respect to any and all claims of the Noteholders relating to
the Interest Obligations.
SECTION 2.2.2. Payment Block Upon Payment Defaults. Upon a default (a
-----------------------------------
"Payment Default") in the payment of principal of, interest on, premium of or
---------------
any other amount due under or in respect of any Senior Indebtedness referred to
in clause (a) of
----------
6
<PAGE>
the definition thereof (or, after the payment in full in cash of any such Senior
Indebtedness, the Senior Indebtedness referred to in clause (b) of the
----------
definition thereof) when the same becomes due and payable, whether at maturity
or at a date fixed for prepayment or otherwise, then, no direct or indirect
payment in cash, property or securities by set-off or otherwise, shall be made
or agreed to be made by the Guarantor on account of the Interest Obligations;
provided, however, that if the maturity of the applicable Senior Indebtedness
- -------- -------
has not been accelerated prior to the expiration of the 180 day period referred
to in clause (a) below (or if any such acceleration has been rescinded or
----------
annulled), such payments may be made on account of the Interest Obligations on
or after
(a) a date which is 180 consecutive days following the date on which
such Payment Default shall have occurred (and without regard to whether one
or more other Payment Defaults or any Performance Default shall have occurred
and be continuing); or
(b) if earlier, such Payment Default shall have been cured or waived or
shall have ceased to exist.
SECTION 2.2.3. Payment Block Upon Performance Defaults. Upon a default
---------------------------------------
(a "Performance Default") by the Guarantor in the performance of any obligation
-------------------
(other than a Payment Default) with respect to any Senior Indebtedness under the
Senior Credit Agreement as the result of which the holders thereof are entitled
to accelerate the maturity thereof, then, if written notice of such Performance
Default is given in the manner provided in the Senior Credit Agreement by the
Senior Agent to the Guarantor (a "Performance Default Notice"), no direct or
--------------------------
indirect payment in cash, property or securities, by set-off or otherwise, shall
be made or agreed to be made by the Guarantor on account of any Interest
Obligation unless and until
(a) a date which is 180 consecutive days following the date on which
such Performance Default shall have occurred (and without regard to whether
one or more other Performance Defaults or any Payment Default shall have
occurred and be continuing); or
(b) if earlier, such Performance Default shall have been cured or waived
or shall have ceased to exist.
SECTION 2.2.4. Standstill. Upon the occurrence and during the
----------
continuation of any Performance Default with respect to any Senior Indebtedness
as to which a Performance Default Notice shall have been given in accordance
with Section 2.2.3 or of any Payment Default, neither the Purchaser nor any
-------------
other Noteholder shall be entitled to
7
<PAGE>
(a) demand payment of any Interest Obligation under this Guaranty, or
(b) commence, pursue or participate in any judicial proceeding or take
any other action to enforce any obligations of the Guarantor under or in
respect of this Guaranty
unless and until
(c) a date which is 180 consecutive days following the date on which
such Performance Default Notice shall have been given or 180 consecutive days
following the date on which such Payment Default shall have occurred, or
(d) if earlier, such Performance Default or Payment Default shall have
been cured or waived or shall have ceased to exist, or
(e) if earlier, the maturity of all or any part of the principal
amount of any Senior Indebtedness shall have been accelerated in accordance
with its terms.
SECTION 2.2.5. Turnover. In the event that, notwithstanding the
--------
provisions of Section 2.2.1, 2.2.2 or 2.2.3, any such direct or indirect payment
------------- ----- -----
or distribution shall be received by the Purchaser, its Nominees or any other
Noteholder from the Guarantor in contravention of the provisions of any such
Section, such payments and distributions shall be held in trust for the benefit
of, and upon receipt by such holder of written notice that such payment of
distribution has been made in violation of such Section, shall be immediately
paid over to, the holders of all Senior Indebtedness at the time outstanding or
their representative for application to the pro rata payment of all such Senior
Indebtedness until all such Senior Indebtedness shall have been paid in full in
cash, after giving effect to any concurrent payment or distribution to the
holders of such Senior Indebtedness.
SECTION 2.2.6. Unconditional Obligation. etc. Nothing contained in this
------------------------
Section 2.2 or elsewhere in this Guaranty is intended to or shall impair, as
- -----------
between the Guarantor, its creditors (other than the holders of Senior
Indebtedness) and the Purchaser, its Nominees and the other Noteholders, the
obligation of the Guarantor, which is absolute and unconditional, to pay to the
Purchaser, its Nominees and the other Noteholders all amounts owing under this
Guaranty as and when such amounts become due and payable in accordance with the
terms hereof, or to in any way affect the relative rights of the Purchaser, its
Nominees or the other Noteholders and creditors of the Guarantor other than the
holders of Senior Indebtedness. Subject to the payment in full
8
<PAGE>
of all Senior Indebtedness, the Purchaser, its Nominees and the other
Noteholders shall be subrogated to the rights of the holder of Senior
Indebtedness to receive payments or distributions of assets of the Guarantor
made on the Senior Indebtedness until all Interest Obligations shall be paid in
full; and, for the purposes of such subrogation, no payments or distributions to
the Senior Lenders of any cash, property or securities to which the Purchaser,
its Nominees and the other Noteholders would be entitled except for these
provisions shall, as between the Guarantor, its creditors (other than the Senior
Lenders and the Purchaser, its Nominees and the other Noteholders, be deemed to
be a payment by the Guarantor to or on account of Senior Indebtedness, it being
understood that these provisions are and are intended solely for the purpose of
defining the relative rights of the Purchaser, its Nominees and the other
Noteholders, on the one hand, and the Senior Lenders on the other hand.
SECTION 2.2.7. Waivers, etc. The Purchaser hereby waives any and all
------------
notice of renewal, extension or accrual of any of Senior Indebtedness, present
or future, and agrees and consents that without notice to or assent by the
Purchaser, its Nominees and the other Noteholders:
(a) subject to the provisions of Sections 6.2.7 and 6.2.8 of the
-------------- -----
Purchase Agreement, the obligations and liabilities of the Guarantor or any
other party or parties for or upon the Senior Indebtedness (and/or any
promissory note(s), security document or guaranty evidencing or securing the
same) may, from time to time, in whole or in part, be renewed, extended,
modified, amended, accelerated, compromised, supplemented, terminated, sold,
exchanged, waived or released,
(b) the Senior Lenders and Senior Noteholders may exercise or refrain
from exercising any right, remedy or power granted by the applicable Senior
Indebtedness Instrument or any other document creating, evidencing or
otherwise related to Senior Indebtedness or at law, in equity or otherwise,
with respect to Senior Indebtedness or any collateral security or lien (legal
or equitable) held, given or intended to be given therefor (including the
right to perfect any lien or security interest created in connection
therewith),
(c) subject to the provisions of Sections 6.2.7 and 6.2.8 of the
-------------- -----
Purchase Agreement, any and all collateral security and/or liens (legal or
equitable) at any time, present or future, held, given or intended to be
given for Senior Indebtedness, and any rights or remedies of the Senior
Lenders in respect thereof, may, from time to time, in whole or in part, be
exchanged, sold, surrendered,
9
<PAGE>
released, modified, waived or extended by the Senior Lenders or Senior
Noteholders, and
(d) any balance or balances of funds with the Senior Lenders at any time
standing to the credit of the Guarantor or any guarantor of any Senior
Indebtedness may, from time to time, in whole or in part, be surrendered or
released,
all as the Senior Lenders may deem advisable and all without impairing,
abridging, diminishing, releasing or affecting the subordination to Senior
Indebtedness provided for herein. Neither the Senior Lenders nor the Senior
Noteholders shall be prejudiced in their right to enforce the subordination
contained herein in accordance with the terms hereof by any act or failure to
act on the part of the Guarantor.
SECTION 2.2.8. Amendment of Subordination Provisions. The subordination
-------------------------------------
provisions contained herein are for the benefit of the holders of Senior
Indebtedness and may not b~e rescinded, cancelled, amended or modified in any
way without the prior written consent thereto of the Senior Agent and Senior
Indenture Trustee.
SECTION 2.2.9. Notice to the Noteholders. The Guarantor shall prompt
-------------------------
written notice to the Purchaser, its Nominees and each other Noteholder of any
fact known to the Guarantor which would prohibit the making of any payment to
the Purchaser, its Nominees or any other Noteholder under this Guaranty.
Notwithstanding the provisions of this Section 2.2 or any other provision of
-----------
this Guaranty, the Purchaser
(a) shall not be charged with knowledge of the existence of any facts
which would prohibit the making of any payment to the Purchaser, its
Nominees or any other Noteholder under this Guaranty in respect of this
Guaranty, unless and until the Purchaser, its Nominees or any other
Noteholder shall have received written notice thereof from the Guarantor,
the Senior Agent or a holder of Senior Indebtedness or from any trustee
therefor (and, prior to the receipt of any such written notice, the
Purchaser, its Nominees and each other Noteholder shall be entitled in all
respects to assume that no such facts exist); and
(b) shall be entitled to receive and retain all payments made by or on
behalf of the Guarantor prior to receipt by the Purchaser under this
Guaranty of any such written notice.
All notices and other communications provided to the Purchaser under this
Guaranty shall be in writing or by telecopy and addressed or delivered to it c/o
Jordan/Zalaznick Advisers, Inc.,
10
<PAGE>
at 9 West 57th Street, New York, New York, 10019, Attn: James E. Jordan, Jr., or
at such other address as may be designated by the Purchaser. Any notice, if
mailed and properly addressed with postage prepaid, shall be deemed given when
received; any notice, if transmitted by telecopy, shall be deemed given when
transmitted.
SECTION 2.2.10. Reliance on Judicial Order or Certificate of Liquidating
--------------------------------------------------------
Agent. Upon any payment or distribution of assets of the Guarantor referred to
- -----
in this Section 2.2, the Purchaser, its Nominees and each other Noteholder shall
-----------
be entitled to rely upon any order or decree entered by any court of competent
jurisdiction in which such insolvency, bankruptcy, receivership, liquidation,
reorganization, dissolution, winding up or similar case or proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee for the benefit of creditors, agent or other Person
making such payment or distribution, delivered to the Purchaser, its Nominees
and each other Noteholder, for the purpose of ascertaining the Persons entitled
to participate in such payment or distribution, the holders of Senior
Indebtedness and other Indebtedness of the Guarantor, the amount thereof or
payable therein, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Section 2.2.
-----------
SECTION 2.3. Obligations Absolute, Unconditional, etc. The Guarantor
----------------------------------------
agrees that its obligations hereunder shall be absolute, unconditional and
irrevocable, irrespective of the genuineness, validity, legality or
enforceability of the Interest Obligations, the Notes, the Purchase Agreement or
any other Purchase Document, or any other Instrument or collateral relating to
or securing the payment, performance or observance thereof or any other
circumstance which could otherwise constitute a legal or equitable discharge of
a surety or guarantor, and the Purchaser may, in its discretion or at the
direction of the Required Noteholders, proceed to enforce this Guaranty in
respect of any Interest Obligations as and to the extent provided in Section
-------
2.1. Neither the Purchaser, its Nominees nor any other Noteholder shall have any
- ---
obligation to protect, secure, perfect or insure any collateral security
document or property subject thereto at any time held as security for the
Interest Obligations or this Guaranty. Except as herein otherwise expressly
provided, the Guarantor hereby absolutely, unconditionally and irrevocably
waives and agrees not to assert or take advantage of:
(a) any right to require the Purchaser, its Nominees or any other
Noteholder to proceed against the Company or any other Person, or to proceed
against or exhaust any other security or collateral for the payment,
performance or observance of the Interest Obligations, or to pursue any
11
<PAGE>
other remedy whatsoever before proceeding against the Guarantor hereunder;
(b) any defense that may arise by reason of the incapacity, lack of
authority, death or disability of any Person, or the failure of the Purchaser,
its Nominees or any other Noteholder to file or enforce a claim against any
estate (in administration, bankruptcy or any other proceedings) of any Person;
(c) any defense based upon an election of remedies by the Purchaser, its
Nominees or any other Noteholder, including an election to proceed by non-
judicial rather than judicial foreclosure, which destroys or impairs any right
of subrogation of the Guarantor or the right of the Guarantor to proceed against
the Company or any other Person for reimbursement or both;
(d) any other defense of the Company, or the cessation of the liability
of the Company for any cause whatsoever, with respect to any Interest
Obligations;
(e) any other defense of any kind, whether now existing or arising
hereafter, of the Guarantor to any action, suit or judicial or legal proceeding
that may be instituted with respect to this Guaranty;
(f) presentment, demand, protest and notice of any kind, including
notice of the creation or non-payment or non-performance of all or any Interest
Obligations, notice of dishonor or protest, notice of acceptance by the
Purchaser, its Nominees or any other Noteholder of this Guaranty, notice of the
existence, creation or incurrence of any new or additional indebtedness,
obligation or other liability, and notice of action or non-action on the part of
the Purchaser, its Nominees or any other Noteholder, the Company or the
Guarantor or any other Person in connection with the Interest Obligations or
otherwise; and
(g) any duty on the part of the Purchaser, its Nominees or any other
Noteholder or other Person to disclose to the Guarantor any facts or information
any such Person may now or hereafter know or possess regarding the Company, the
Interest Obligations or any other matter whatsoever, regardless of whether such
Person has reason to believe that such facts or other information may materially
increase the risk which the Guarantor intends to assume or has reason to believe
that such facts or other information are unknown to the Guarantor or has a
reasonable opportunity to communicate such facts or other information, it being
understood and agreed that the Guarantor is fully and solely responsible
12
<PAGE>
for being and keeping informed of the financial condition of
the Company and of all other circumstances bearing on the risk
of non-payment of any Interest Obligations.
This Guaranty shall in all respects be a continuing, absolute,
unconditional and irrevocable Guaranty of payment, and shall remain
in full force and effect until all Interest Obligations have been
fully paid, and may not be amended, modified or supplemented except
in accordance with Section 8.1 of the Purchase Agreement and Section
----------- -------
2.2.8. This Guaranty shall continue to be effective, or to be
- -----
reinstated, as the case may be, if at any time any payment, in whole
or in part, of any Interest Obligations is rescinded or must
otherwise be restored or returned by the Purchaser, its Nominees or
any other Noteholder upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of the Guarantor or the Company, or
upon or as a result of the appointment of a custodian, receiver,
trustee or other officer with similar powers with respect to the
Guarantor or the Company or any part of either of its property, or
otherwise, all as though such payments had never been made.
SECTION 2.4. Waiver of All Defenses. Except as otherwise
----------------------
specified herein, the Purchaser, its Nominees or any other
Noteholder may, from time to time, in their sole discretion and
without notice to the Guarantor, take any or all of the following
actions, all without in any way diminishing, impairing, releasing or
affecting the liability or obligations of the Guarantor under or
with respect to this Guaranty, and the Guarantor hereby irrevocably
consents to any or all of the following actions by the Purchaser,
its Nominees or any other Noteholder:
(a) retain or obtain a security interest in any property to
secure any Interest Obligation or any obligation hereunder;
(b) retain or obtain the primary or secondary obligations with
respect to any Interest Obligation;
(c) extend or renew for one or more periods (whether or not
longer than the original period), or alter or exchange, any Interest
Obligation, or release or compromise any obligation of the Guarantor
hereunder or any obligation of any nature of any other Person with
respect to any Interest Obligation or amend or modify in any respect
the Purchase Agreement or any Purchase Document;
(d) waive, modify, subordinate, compromise or release its
security interest in, or surrender, release or permit any
substitution or exchange for, all or any part of any property
securing any Interest Obligation or any obligation hereunder, or
extend or renew for one or more periods
13
<PAGE>
(whether or not longer than the original period) or waive, release,
subordinate, compromise, modify, alter or exchange any guaranty or
other obligations of any nature of any obligor with respect to any
such property; and
(e) resort to the Guarantor for payment of any Interest
Obligation, whether or not the Purchaser, its Nominees or any other
Noteholder shall have resorted to or exhausted any other remedy or
any other security or collateral for any obligation hereunder or
shall have proceeded against the Company or any other Person
primarily or secondarily obligated with respect to any Interest
Obligation.
The Guarantor absolutely, unconditionally and irrevocably
agrees that, as long as any Interest Obligation has not been paid in
full, the Guarantor shall not have and shall not enforce any right
of subrogation, and the Guarantor waives any right to enforce any
remedy which the Purchaser, its Nominees or any other Noteholder now
has or may hereafter have against the Company or any other Person
hereunder or pursuant hereto or under or pursuant to the Purchase
Agreement, the Notes or any other Purchase Document, and any benefit
of, and any right to participate in, any security for any Interest
Obligation now or hereafter held by the Purchaser, its Nominees or
any other Noteholder, as the case may be.
The Guarantor absolutely, unconditionally and irrevocably
agrees that the liability of the Guarantor hereunder, and the
remedies for the enforcement of such liability, shall in no way be
diminished or affected by:
(f) the release or discharge of the Company or any other Person
responsible for the payment, performance or observance of any
Interest Obligation in any creditors', receivership, bankruptcy,
reorganization, insolvency or other proceeding;
(g) the rejection or disaffirmance in any such proceeding of
any Instrument evidencing, securing, or executed in connection with,
any Interest Obligation; or
(h) the impairment, limitation or modification of any Interest
Obligation resulting from the operation of any present or future
provision of the federal bankruptcy code or any other statute or law
of any kind or from the decision or order of any court.
The Guarantor absolutely, unconditionally and irrevocably
further agrees that the creation from time to time of any Interest
Obligation and the application or allocation of amounts
14
<PAGE>
received by the Purchaser, its Nominees or any Noteholder or any
other Person to the payment of such Interest obligation, and the
creation, existence or enforcement from time to time of any security
for the Interest Obligation, and the application and allocation of
the proceeds of such security, shall in no way affect or impair the
rights, remedies, powers and privileges of the Purchaser, its
Nominees or any other Noteholder or the holder of any Note or the
obligation of the Guarantor under this Guaranty.
The Guarantor hereby expressly waives notice of the creation of
all Interest Obligations and all diligence in collection or
protection of or realization upon the Interest Obligations or any
thereof, any obligation hereunder, or any security for or guaranty
of any of the foregoing.
ARTICLE III
THE MEZZANINE AGENT
SECTION 3.1. Actions. Each Noteholder authorizes the Mezzanine
-------
Agent to act at the direction of the Required Noteholders on behalf
of such Noteholder under this Agreement, and to exercise such powers
hereunder and thereunder as are specifically delegated to or
required of the Mezzanine Agent by the terms hereof and thereof,
together with such powers as may be reasonably incidental thereto.
Each Noteholder agrees to reimburse the Mezzanine Agent ratably for
all reasonable out-of-pocket expenses (including attorneys' fees)
incurred by the Mezzanine Agent hereunder or in connection herewith
or therewith or in enforcing the obligations of the Company
hereunder and for which the Mezzanine Agent is not reimbursed by the
Company. The Mezzanine Agent shall not be required to take any
action hereunder, or to prosecute or defend any suit in respect
hereof, unless indemnified to its satisfaction by each Noteholder
against loss, costs, liability and expense. If any indemnity
furnished to the Mezzanine Agent shall become impaired, it may call
for additional indemnity and cease to do the acts indemnified
against until such additional indemnity is given.
SECTION 3.2. Exculpation. Neither the Mezzanine Agent nor any
-----------
of its directors, officers, employees or agents shall be liable to
any Noteholder for any action taken or omitted to be taken by it or
them under this Agreement, or in connection herewith or therewith,
except for its own willful misconduct or gross negligence, nor
responsible for any recitals or warranties herein or therein, nor
for the effectiveness, enforceability, validity or due authorization,
execution or delivery of this Agreement, nor to make any inquiry
respecting the performance by the Guarantor of its obligations
hereunder. The Mezzanine Agent
15
<PAGE>
shall be entitled to rely upon advice of counsel concerning legal
matters and upon any notice, consent, certificate, statement or
writing which it believes to be genuine and to have been presented
by a proper Person.
SECTION 3.3. Status as Purchaser. The Mezzanine Agent shall
-------------------
have the same rights and powers with respect to the Notes held by it
as any Noteholder and may exercise the same as if it were not the
Mezzanine Agent, and the term "Noteholder" shall include the
Mezzanine Agent in its individual capacity.
SECTION 3.4. Credit Decisions. Each Noteholder acknowledges
----------------
that it has, independently of the Mezzanine Agent and each other
Noteholder and based on the financial information referred to in
Section 5.4 of the Purchase Agreement and such other documents,
- -----------
information and investigations as it has deemed appropriate, made
its own credit decision to purchase its Notes. Each Noteholder also
acknowledges that it will, independently of the Mezzanine Agent and
each other Noteholder and based on such other documents, information
and investigations as it shall deem appropriate at any time,
continue to make its own credit decisions as to exercising or not
exercising from time to time any rights and privileges available to
it under this Agreement, any Note or any other Purchase Document.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1. Purchase Document. This Guaranty is a Purchase
-----------------
Document for purposes of the Purchase Agreement and shall (unless
otherwise expressly indicated herein) be construed, administered and
applied in accordance with the terms and provisions thereof,
including Article VIII thereof.
------------
SECTION 4.2. Successors and Assiqns; Assignment. This Guaranty
----------------------------------
shall be binding upon the Guarantor and its successors and assigns
and shall inure to the benefit of the Purchaser, its Nominees and
each other Noteholder and their respective successors and assigns,
including any assignee of any Note and be enforceable by the
Purchaser at the direction of the Required Noteholders; provided,
--------
however, that the Guarantor may not assign any of its obligations
- -------
hereunder without the prior written consent of all Noteholders. Each
Noteholder may, subject to the
provisions of Section 4.6 of the Purchase Agreement, from time to
-----------
time, without notice to the Guarantor assign or transfer any note
or any interest therein, and, notwithstanding any such transfer
or assignment or any subsequent transfer or assignment thereof,
such Note shall be and remain a Note for purposes of this
Guaranty, and each and every immediate and successive transferee
16
<PAGE>
or assignee of any Note or any interest therein shall, to the extent
of the interest of such transferee or assignee in the Note, be
entitled to the benefits of this Guaranty.
17
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be
executed and delivered by its authorized officer as of the date first above
written.
GFSI, INC.
By /s/ A. Richard Caputo, Jr.
--------------------------
A. Richard Caputo, Jr.
Vice President
In connection with the merger of the
Guarantor with Winning Ways, Inc., an
Missouri, on this 27th day of
February, 1997, GFSI Inc., the Delaware
corporation surviving such merger,
hereby absolutely and unconditionally
assumes and agrees to pay, perform,
observe and discharge all of the
obligations of the Guarantor under
the foregoing Guaranty.
GFSI, INC.
By /s/ A. Richard Caputo, Jr.
--------------------------
A. Richard Caputo, Jr.
Vice President
<PAGE>
EXHIBIT N
TO
CREDIT AGREEMENT
MCIT Turnover Agreement
-----------------------
(Attached)
<PAGE>
MCIT TURNOVER AGREEMENT
-----------------------
This MCIT Turnover Agreement (as the same may from time to time be
amended, modified or restated, the "AGREEMENT") is executed by MCIT PLC, a
public company incorporated in England in its capacity as agent for the
"Noteholders" (as defined below) (in such capacity, together with its successors
and assigns, "MCIT") for the benefit of The First National Bank of Chicago, as
contractual representative (the "AGENT") for itself and the other "Lenders" (as
defined below), the Lenders, Fleet National Bank, as trustee (the "TRUSTEE") for
itself and the "Senior Noteholders" (as defined below) and the Senior
Noteholders.
W I T N E S S E T H:
WHEREAS, MCIT PLC (together with its nominees, successors and assigns,
individually, a "NOTEHOLDER" and collectively, the "NOTEHOLDERS"), is interested
in the "Borrower" (as defined below), in that Borrower's parent, "HOLDINGS" (as
defined below), is now indebted to the Noteholders, pursuant to that certain
Purchase Agreement ("SUBORDINATED NOTE AGREEMENT") dated as of February 27,
1997, pursuant to which 12.0% Subordinated Notes in the total amount of
Twenty-Five Million and no/100 Dollars ($25,000,000) were issued (which 12.0%
Subordinated Notes, together with any instrument which may hereafter be
substituted therefor under the terms of the Subordinated Note Agreement or any
other agreement between Holdings and the Noteholder, are hereinafter referred to
as the "HOLDINGS SUBORDINATED NOTES");
WHEREAS, the Borrower entered into that certain Credit Agreement dated
as of February 27, 1997 (as the same may from time to time be amended, modified,
supplemented or restated, in whole or in part and without limitation as to
amount, terms, conditions or covenants, the "CREDIT AGREEMENT") with the Agent
on behalf of itself and the other financial institutions from time to time party
thereto;
WHEREAS, Borrower is presently indebted to the lenders under the
Credit Agreement (the "LENDERS") as a result of the advance of monies and other
extensions of credit by the Lenders to Borrower pursuant to the Credit
Agreement;
WHEREAS, the Borrower entered into that certain Indenture dated as of
February 27, 1997 (as the same may from time to time be amended, modified,
supplemented or restated, in whole or in part and without limitation as to
amount, terms, conditions or covenants, the "INDENTURE") with the Trustee on
behalf of itself and the holders of the Senior Subordinated Notes issued
thereunder (the "SENIOR NOTEHOLDERS");
WHEREAS, Borrower is presently indebted to the Senior Noteholders as a
result of the advance of monies and other extension of credit by the Senior
Noteholders to Borrower pursuant to the Indenture;
<PAGE>
WHEREAS, MCIT on behalf of itself and the other Noteholders acknowledges that
the loan or advance of monies or other extensions of any financial accommodation
or credit to Borrower by the Lenders and the Senior Noteholders is of value to
the Noteholders;
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged by MCIT on behalf of itself and the other Noteholders,
and in order to induce the Lenders and the Senior Noteholders, at their option,
now or from time to time hereafter, to make loans or extend credit or any other
financial accommodations to or for the benefit to Borrower; or to grant such
renewals, increases or extensions thereof as the Lenders or Senior Noteholders
may deem advisable; and to better secure the Lenders and the Senior Noteholders
in respect of the foregoing, MCIT on behalf of itself and the other Noteholders
hereby agrees with the Agent, the Lenders, the Trustee and the Senior
Noteholders as hereinafter set forth.
1. CERTAIN DEFINED TERMS. In addition to the terms defined above and
---------------------
elsewhere in this Agreement, the following terms used in this Agreement shall
have the following meanings, applicable both to the singular and the plural
forms of the terms defined:
As used in this Agreement:
"BORROWER" shall mean GFSI, Inc., a Delaware corporation, or any
--------
successor or assign of GFSI, Inc., including, without limitation, a receiver,
trustee or debtor-in-possession.
"DEFERRED LIMITED INTEREST GUARANTY" means that certain Deferred
----------------------------------
Limited Interest Guaranty executed by the Borrower of even date herewith as in
effect as of the date hereof.
"HOLDINGS" shall mean GFSI Holdings, Inc., a Delaware corporation, and
--------
its successors and assigns, including without limitation, a receiver, trustee or
debtor-in-possession on behalf of Holdings.
"SENIOR LENDERS' shall mean (i) each of the Lenders from time to time
--------------
party to the Credit Agreement (or any refinancing or refunding Credit
Agreement), (ii) each of the Senior Noteholders from time to time holding
"Senior Indenture Debt" (as defined below) and (iii) each other holder of the
Senior Debt.
"SENIOR DEBT" shall mean (i) all "Secured Obligations" (as defined in
-----------
the Credit Agreement) whether such indebtedness arises or accrued before or
after the commencement of any bankruptcy, insolvency or receivership
proceedings, including, without limitation, interest thereon accruing
pre-petition or post-petition at the rate or rates specified in the Credit
Agreement and costs, expenses and attorneys' and paralegals' fees, whenever
incurred (and whether or not such interest, costs, expenses or fees are allowed
or allowable in any such case or proceeding) as provided in the Credit Agreement
and shall include indebtedness, obligations and liabilities under and pursuant
to any agreement providing for the refunding or refinancing of the Obligations
under the Credit Agreement (in which event the term "Lenders" and "Agent" shall
refer to the lenders and the agent under such refunding/refinancing facilities)
if such refunding and refinancing is permitted by the terms of the Subordinated
Note Agreement as in effect on the date hereof (the "SENIOR CREDIT DEBT") and
(ii) all "Obligations" (as defined in the Indenture)
-2-
<PAGE>
with respect to the Indebtedness evidenced thereby, whether such indebtedness
arises or accrued before or after the commencement of any bankruptcy, insolvency
or receivership proceedings, including, without limitation, interest thereon
accruing pre-petition or post-petition at the rate or rates specified in the
Indenture and costs, expenses and attorneys' and paralegals' fees, whenever
incurred (and whether or not such interest, costs, expenses or fees are allowed
or allowable in any such case or proceeding) as provided in the Indenture and
shall include indebtedness, obligations and liabilities under and pursuant to
any agreement providing for the refunding or refinancing of the Obligations
under the Indenture (in which event the term "Senior Noteholders" and "Trustee"
shall refer to the lenders and the agent under such refunding\refinancing
facilities) if such refunding and refinancing is permittted by the terms of the
Subordinated Note Agreement as in effect on the date hereof (the "SENIOR
INDENTURE DEBT"). Senior Debt shall be considered outstanding whenever any
Lender has an outstanding commitment therefor.
"SUBORDINATED DEBT" shall mean (a) all principal of, and premium, if
-----------------
any, and interest on, the Holdings Subordinated Notes and (b) all other
indebtedness, fees, expenses, obligations and liabilities of Holdings (or any
other person, firm, partnership or corporation for the benefit of Holdings) to
any Noteholders, whether now existing or hereafter incurred or created, under or
with respect to the Subordinated Note Agreement or the Holdings Subordinated
Notes, in each case, whether such amounts are due or not due, direct or
indirect, absolute or contingent.
"SUBSTANTIVE CONSOLIDATION" shall mean the entry of any order by a
-------------------------
court of competent jurisdiction by which the assets and liabilities of Holdings
and the Borrower are treated on a consolidated basis, whether under Section 105
of the Bankruptcy Code, 11 U.S.C. (S)105, or under any other applicable
bankruptcy, insolvency or other law now or hereinafter in effect.
Capitalized terms used but otherwise not defined herein shall have the
same meaning as in the Credit Agreement.
2. SEPARATE CORPORATE EXISTENCE: SUBORDINATION. Each holder of the
-------------------------------------------
Subordinated Debt has purchased or acquired the Subordinated Debt held by it
with the express understanding that Holdings is a separate legal entity from the
Borrower, and that the assets of the Borrower are not available to the creditors
of Holdings, including the holders of the Subordinated Debt, to meet the
liabilities of Holdings (except in the case of the Holdings Subordinated Notes
pursuant to the Deferred Limited Interest Guaranty and except generally through
the equity ownership interest of Holdings in the Borrower). In purchasing and/or
acquiring the Subordinated Debt, the holders hereby acknowledge that Holdings'
interest in Borrower is expressly limited to an equity interest therein. Each
holder of the Subordinated Debt, by purchasing or accepting the Subordinated
Debt held by it, irrevocably and forever waives and agrees, in favor of each
holder of the Senior Debt, not to initiate or prosecute or encourage any other
person to initiate or prosecute any claim, action or other proceeding seeking
any Substantive Consolidation. Each of the Noteholders, by its execution of this
Agreement or by the acceptance after the date hereof of any Holdings
Subordinated Noted, agrees that in the
-3-
<PAGE>
event of Substantive Consolidation, all claims of the Noteholders under the
Subordinated Note Agreement and the Holdings Subordinated Notes with respect to
the estate so consolidated shall be subordinate and subject in right of payment
to the claims of the Senior Lenders with respect to the Senior Debt to the same
extent and in the same manner as provided in Section 2.2 of the Deferred Limited
-----------
Interest Guaranty with respect to the subordination to "Senior Indebtedness" (as
defined in the Deferred Limited Interest Guaranty") of the indebtedness and
liability of the Borrower under the Deferred Limited Interest Guaranty.
3. NOTICES. In the event that the Borrower is prohibited from making
-------
certain distributions to Holdings pursuant to Section 6.3(F)(iii)(a) of the
----------------------
Credit Agreement or Section 4.05(b)(xi) of the Indenture, then the Agent, on
- ---------------------------------------
behalf of the Lenders or the Trustee, on behalf of the Senior Noteholders, may
give MCIT written notice of such prohibition. Any such notice may (and, at the
request of Holdings, the Borrower or any Noteholder when such prohibition is no
longer effective, shall) be rescinded by the Agent or Trustee, as applicable.
4. TURNOVER. In the even that, notwithstanding the limitations in
--------
Section 6.3(F) of the Credit Agreement or Section 4.05 of the Indenture, any of
- -------------- ------------
the Noteholders shall have received any payment or distribution or consideration
in respect of the Subordinated Debt funded by payments or distributions made by
Borrower to Holdings in violation of Section 6.3(F) of the Credit Agreement or
--------------
Section 4.05 of the Indenture, which payment or distribution is received by
- ------------
Holdings from Borrower after such Noteholders have received a written notice
described in Section 3 above, which shall not have been rescinded, then and in
---------
such event such payment or distribution or consideration shall be paid over or
delivered to the (i) to the Agent for application to or as collateral for the
payment or prepayment of all Senior Credit Debt or (ii) if all Senior Credit
Debt has been paid in full in cash and the Credit Agreement has been terminated,
to the Trustee for application to or as collateral for the payment or prepayment
of the Senior Indenture Debt. Notwithstanding any other provision of this
Agreement, the Noteholders shall not be charged with knowledge of the existence
of any facts which would prohibit the Borrower from making any distribution to
Holdings pursuant to Section 6.3(F)(iii)(a) of the Credit Agreement or Section
4.05(b)(xi) of the Indenture, unless and until the Noteholders shall have
received written notice thereof from the Agent or the Trustee pursuant to this
Section; and prior to the receipt of any such written notice, the Noteholders
shall be entitled in all respects to assume that no such facts exist.
5. ASSIGNMENT OF CLAIMS. MCIT on behalf of the Noteholders agree
--------------------
that until the Senior Debt has been paid in full in cash and satisfied and all
financing arrangements among Borrower, the Agent and the Senior Lenders have
been terminated, the Noteholders will not assign or transfer to others any claim
the Noteholders have or may have against Holdings, unless such assignment or
transfer is made expressly subject to this Agreement.
6. NOTICES. Except as otherwise expressly provided below, any notice
-------
required or desired to be served, given or delivered hereunder (and any
rescission thereof) shall be in writing, and shall be deemed to have been
validly served, given or delivered (i) three (3) days after deposit in the
United States Mail, with proper postage prepaid or provided for; (ii) when
-4-
<PAGE>
sent after receipt of confirmation or answerback if sent by telecopy or other
similar facsimile transmission, (iii) one(1) business day after deposited with a
reputable overnight courier with all charges prepaid or (iv) when delivered, if
hand-delivered by messenger, all of which shall be properly addressed to the
party to be notified and sent to the address or number indicated as follows:
(i) If to the Agent or any Lender at:
The First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670-0173
Attention: Nathan L. Bloch
Telephone No.: 312/732-2243
Facsimile No.: 312/732-1117
(ii) If to the Trustee at:
Fleet National Bank
777 Main Street
Hartford, CT 06115
Attn:Corporate Trust Department
Telecopy: 860/986-7220
Confirmation: 860/986-4236
(iii) If to any Noteholders:
c/o Jordan/Zalaznick Advisors, Inc.
9 West 57th Street
New York, NY 10019
Attn: Mr. James E. Jordan
Telecopy: 212-755-5263
Confirmation: 212-572-0820
with a copy to:
Mayer Brown & Platt
1675 Broadway
New York, NY 10019-6018
Attn: Jay Parry Monge
Telecopy: 212/262-1910
Confirmation: 212/506-2500
or to such other address as any party designates to the other parties in the
manner herein prescribed.
-5-
<PAGE>
7. Governing Law. This Agreement has been delivered and accepted at
-------------
and shall be deemed to have been made at Chicago, Illinois, and shall be
interpreted, and the rights and obligations of the parties hereto determined, in
accordance with the laws and decisions of the State of Illinois, shall be
immediately binding upon the Noteholders and their successors and assigns, and
shall inure to the benefit of the successors and assigns of the Agent and the
Senior Lenders.
-6-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been signed as of this 27th
day of March, 1995.
MCIT PLC, as agent
By: /s/ James E Jordan
---------------------
Name: JAMES E JORDAN
--------------------
Title: DIRECTOR/MCIT
--------------------
Acknowledged and accepted in
Chicago, Illinois as of this
27th day of February 1997.
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
By: _______________________________
Name: Nathan L. Bloch
Title: Vice President
Acknowledged and accepted
as of this
27th day of February 1997.
FLEET NATIONAL BANK
By: ___________________________
Name:__________________________
Title:_________________________
<PAGE>
IN WITNESS WHEREOF, this Agreement has been signed this 27th day of
February, 1997.
MCIT PLC, as agent
By:_________________________
Name:_______________________
Title:______________________
Acknowledged and accepted in
Chicago, Illinois as of this
27th day of February 1997.
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
By: /s/ Nathan L. Bloch
-----------------------------
Name: __________________________
Title: _________________________
Acknowledged and accepted in
Chicago, Illinois as of this
27th day of February 1997.
FLEET NATIONAL BANK
By: /s/ Michael M. Hopkins
-------------------------
Name: MICHAEL M. HOPKINS
-----------------------
Title: VICE PRESIDENT
----------------------
Signature Page to MCIT Turnover Agreement
dated as of February 27, 1997
<PAGE>
EXHIBIT O
TO
CREDIT AGREEMENT
Jordan Management Agreement
---------------------------
(Attached)
<PAGE>
MANAGEMENT CONSULTING AGREEMENT
THIS MANAGEMENT CONSULTING AGREEMENT ("Agreement"), is executed as of
---------
the 27th day of February, 1997, by and between TJC MANAGEMENT CORPORATION, a
Delaware corporation (the "Consultant"), and GFSI HOLDINGS, INC., a Delaware
----------
corporation (the "Company").
-------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Consultant has and/or has access to personnel who are
highly skilled in the field of rendering advice to business concerns such as the
Company; and
WHEREAS, the Company desires to retain the Consultant to provide
business and financial advice to the Company;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein set forth, the parties hereto agree as follows:
1. The Company hereby retains the Consultant, through the
Consultant's own personnel or through personnel available to the Consultant, to
render consulting services from time to time to the Company and its subsidiaries
(whether now existing or hereafter acquired) in connection with their financial
and business affairs, their relationships with their lenders, stockholders and
other third-party associates or affiliates and the expansion of their
businesses. The term of this Agreement shall commence on the date hereof and
continue until February 28, 2007 unless extended, or sooner terminated, as
provided in Section 5 below. The Consultant's personnel shall be reasonably
---------
available to the Company's managers, auditors and other personnel for
consultation and advice, subject to the Consultant's reasonable convenience and
scheduling. Services may be rendered at the Consultant's offices or at such
other locations selected by the Consultant as the Company and the Consultant
shall from time to time agree.
2. During the term of this Agreement, the Company shall pay the
Consultant:
(i) an annual fee equal to, (x) during the first two (2) years of this
Agreement, $500,000, (y) during the third, fourth and fifth years of
this Agreement, the greater of $500,000 or one and one-half percent
(1.5%) of the Company's earnings before extraordinary income or
losses, interest expense, interest income, other non-operating income
and expense, income taxes, and transaction-related amortization for
the preceding fiscal year ("EBITA"), but in no event more than
------
$750,000 in any year, and (z) after the fifth anniversary of this
Agreement, the greater of $500,000 or one and one-half percent (1.5%)
of the
<PAGE>
Company's EBITA, but in no event more than $1,000,000 in any year,
with such fee being payable in quarterly installments each year
commencing on March 31, 1997;
(ii) an investment banking an sponsorship fee of up to two percent (2%) of
the aggregate consideration paid (including noncompetition and similar
payments) by the Company and/or its subsidiaries in connection with
the acquisition by the Company and/or its subsidiaries of all or
substantially all of the outstanding capital stock, warrants, options
or other rights to acquire capital stock, or all or substantially all
of the assets of another individual, corporation, partnership or other
business entity; and
(iii) a financial consulting fee not to exceed one percent (1%) of the
amount of money obtained or made available pursuant to any financing
(including, without limitation, any refinancing) by the Company with
the assistance of the Consultant;
provided, however, if in connection with any transaction the Consultant has
- -------- -------
earned a fee under clause (ii) above, the Consultant shall not be entitled to a
fee under clause (iii) for the same transaction. All fees and expenses payable
under clauses (ii) and (iii) above shall be subject to the approval of the
Company's Board of Directors. Notwithstanding the foregoing to the contrary, the
Company shall pay the Consultant a fee under clauses (ii) and (iii) above in the
aggregate amount of $3,250,00 in connection with the acquisition of all the
capital stock of Winning Ways, Inc., a Missouri corporation, such amount to be
paid to the Consultant on the date hereof.
3. Reasonable out-of-pocket expenses incurred by the Consultant and
its personnel in performing services hereunder to the Company and its
subsidiaries shall be promptly reimbursed to it by the Company upon the
Consultant's rendering of a statement therefor, together with such supporting
data as the Company shall reasonably require.
4. Notwithstanding the foregoing, the Company shall not be required
to pay the fees under Section 2 (without limiting the fees, reimbursements and
---------
payments provided under Sections 3, 8 and 9 of this Agreement which shall be due
-------- - - -
and payable in all events) (a) if and to the extent expressly prohibited by the
provisions of any credit, stock, financing or other agreements or instruments
binding upon the Company, its subsidiaries or properties, (b) if the Company has
not paid interest on any interest payment date or has postponed or not made any
principal payments with respect to any of its indebtedness on any scheduled
payment dates, or (c) if the Company has not paid dividends on any dividend
payment date as set forth in its certificate of incorporation (unless such
2
<PAGE>
dividends are accrued) or as declared by its Board of Directors, or has
postponed or not made any redemptions on any redemption date as set forth in its
certificate of incorporation or any certificate of designation with respect to
its preferred stock, if any. Any payments otherwise owed hereunder, which are
not made for any of the above-mentioned reasons, shall not be cancelled but
rather shall accrue, and shall be payable by the Company promptly when, and to
the extent that, the Company is no longer prohibited from making such payments,
the Company has become current with respect to such principal or interest
payments, the Company has become current with respect to such dividends and has
made such redemptions with respect to such preferred stock, if any. Any payment
required hereunder which is not paid when due shall bear interest at the rate of
six percent (6.0%) per annum.
5. This Agreement shall be automatically renewed for successive
one-year terms unless either party hereto, within sixty (60) days prior to the
scheduled renewal date, notifies the other party as to its election to terminate
this Agreement. Notwithstanding the foregoing, this Agreement may be terminated
by not less than ninety (90) days' prior written notice from the Company to the
Consultant at any time after (i) substantially all of the stock or substantially
all of the assets of the Company or all of its subsidiaries are sold, or (ii)
the Company is merged or consolidated into another entity unaffiliated with the
Consultant and/or a majority of the Company's stockholders immediately prior to
such merger and the Company is not the survivor of such transaction.
6. The Consultant shall have no liability to the Company on account
of (i) any advice which it renders to the Company, provided the Consultant
believed in good faith that such advice was useful or beneficial to the Company
at the time it was rendered, (ii) the Consultant's inability to obtain financing
or achieve other results desired by the Company or the Consultant's failure to
render services to the Company at any particular time or from time to time, or
(iii) the failure of any acquisition to meet the financial, operating or other
expectations of the Company.
7. Notwithstanding anything contained in this Agreement to the
contrary, the Company agrees and acknowledges that the Consultant and its
shareholders, employees, directors and affiliates intend to engage and
participate in acquisitions and business transactions outside the scope of the
relationship created by this Agreement and neither the Consultant nor any of its
shareholders, employees, directors or affiliates shall be under any obligation
whatsoever to make such acquisitions or business transactions through the
Company or offer such acquisitions or business transactions to the Company.
3
<PAGE>
8. The Company will, to the fullest extent permitted by applicable
law, indemnify and hold harmless the Consultant, its affiliates and associates,
and each of the respective owners, partners, officers, directors, employees and
agents of each of the respective owners, partners, officers, directors,
employees and agents of each of the foregoing, from and against any loss,
liability, damage, claim or expenses (including the fees and expenses of
counsel) (collectively "Damages") arising as a result of or in connection with
this Agreement, the Consultant's services hereunder or other activities on
behalf of the Company and its subsidiaries, unless such Damages resulted from
Consultant's lack of good faith at the time it rendered any advice to the
Company.
9. a. This Agreement sets forth the entire understanding of the
parties with respect to the Consultant's rendering of services to the Company.
This Agreement may not be modified, waived, terminated or amended except
expressly by an instrument in writing signed by the Consultant and the Company.
b. This Agreement may not be assigned by either party without
the consent of the other party, but shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns upon such
permitted assignment.
c. In the event that any provision of this Agreement shall be
held to be void or unenforceable in whole or in part, the remaining provisions
of this Agreement and the remaining portion of any provision held void or
unenforceable in part shall continue in full force and effect.
d. Except as otherwise specifically provided herein, notice
given hereunder shall be deemed sufficient if delivered personally or sent by
registered or certified mail to the address of the party for whom intended at
the principal executive offices of such party, or at such other address as such
party may hereinafter specify by written notice to the other party.
e. No waiver by either party of any breach of any provision of
this Agreement shall be deemed a continuing waiver or a waiver of any preceding
or succeeding breach of such provision or of any other provision herein
contained.
f. The Consultant and its personnel shall, for purposes of this
Agreement, be independent contractors with respect to the Company.
g. This Agreement shall be governed by the internal laws (and
not the law of conflicts) of the state of New York.
(SIGNATURES ON NEXT PAGE)
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CONSULTANT:
TJC MANAGEMENT CORPORATION, a Delaware
corporation
By: /s/ David W. Zalaznick
-----------------------------
David W. Zalaznick
President
COMPANY:
GFSI HOLDINGS, INC., a Delaware
corporation
By: /s/ A. Richard Caputo, Jr.
-------------------------------
A. Richard Caputo, Jr.
Vice President
5
<PAGE>
TAX SHARING AGREEMENT
---------------------
THIS TAX SHARING AGREEMENT (this "Agreement"), made as of the 27th day
---------
of February, 1997, is entered into by and between GFSI HOLDINGS, INC., a
Delaware corporation ("Holdings"), and GFSI, INC., a Delaware corporation
--------
("Acquisition").
-----------
W I T N E S S E T H :
WHEREAS, Holdings is the parent corporation of an affiliated group or
groups of corporations, including Acquisition;
WHEREAS, both parties desire to file consolidated federal income tax
returns pursuant to the Internal Revenue Code of 1986, as amended, and any
successor thereto; and
WHEREAS, the parties hereto desire to provide that Acquisition shall
pay to Holdings with respect to taxable years commencing on or after February
27, 1997, the amounts which Acquisition and/or the Acquisition Group (as defined
below) would have been required to pay as federal income taxes if the
Acquisition Group had not been included in a consolidated federal income tax
return filed for an affiliated group of which Holdings is the parent corporation
for the taxable year under consideration;
NOW, THEREFORE, intending to be legally bound, the parties hereto
agree as follows:
1. Definitions. The following terms shall have the following
-----------
meanings when used herein:
(a) "Acquisition Group" means Acquisition and all corporations which
-----------------
would be includible in an Affiliated Group of which Acquisition would be the
parent corporation were Acquisition not included in the Holdings Affiliated
Group. If there is no other corporation part of an Affiliated Group of which
Acquisition is the common parent, "Acquisition Group" shall mean Acquisition.
(b) "Affiliated Group" has the meaning set forth in Section 1504 of
----------------
the Code.
(c) "Agreement" has the meaning set forth in the Preamble hereto.
---------
(d) "Bank" means The First National Bank of Chicago.
----
(e) "Calculated Tax" means the amount of federal income tax
--------------
(including alternate minimum tax and any interest, penalties and additions to
tax) which the Holdings Group or the Acquisition Group, as the case may be,
would have been required to pay had it not been included in the Consolidated
Return of the Holdings
<PAGE>
Affiliated Group. Such Calculated Tax shall be computed in accordance with the
methods of tax accounting utilized by the Holdings Affiliated Group for federal
income tax purposes by:
(1) allowing each Group its proportionate share of the Holdings
Affiliated Group's bracket amount under Section 11(b) of the Code and tax
credits, if any, which such Group would have been entitled to were it
filing its own (i) Consolidated Return and were such Group a separate and
distinct controlled group with no member a member of another controlled
group or (ii) Separate Return;
(2) allowing each Group its net operating loss, capital loss, and
tax credit carryforwards, if any, which such Group would have been entitled
to were it filing its own Consolidated Return (or, if applicable, its own
Separate Return); and
(3) treating all intercompany dividends received as qualifying
dividends within the meaning of Code Section 243(a) (3).
(f) "Code" means the Internal Revenue Code of 1986, as amended, and
----
any successor thereto.
(g) "Consolidated Return" means the consolidated federal income tax
-------------------
return or amended consolidated federal income tax return filed by an Affiliated
Group pursuant to Section 1501 of the Code.
(h) "Consolidated Tax" means the amount of federal income tax
----------------
(including alternate minimum tax and any interest, penalties and additions to
tax) due and payable by the Holdings Affiliated Group for a taxable year, shown
on the Consolidated Return as filed with respect to a taxable year or as
readjusted due to a Final Determination.
(i) "Credit Agreement" means the Credit Agreement between Acquisition
----------------
and The First National Bank of Chicago, dated the date hereof.
(j) "Final Determination" means any agreement reached with the
-------------------
Internal Revenue Service under which Holdings and the Internal Revenue Service
agree to the Consolidated Tax for the Holdings Affiliated Group or any final
administrative or judicial decision determining the amount of such Consolidated
Tax which is either non-appealable or which Acquisition and Holdings have
agreed to in writing that Holdings should no longer dispute.
(k) "Group" means the Holdings Group or the Acquisition Group, as
-----
the context requires.
2
<PAGE>
(l) "Holdings Affiliated Group" means the Holdings Group and the
-------------------------
Acquisition Group.
(m) "Holdings Group" means Holdings and all corporations includible
--------------
in the Holdings Affiliated Group other than members of the Acquisition Group.
If there is no other corporation part of the Affiliated Group of which Holdings
is the common parent (excluding any member of the Acquisition Group for this
purpose), then the "Holdings Group" shall mean Holdings.
(n) "Reference Rate" means the rate of interest publicly announced by
--------------
the Bank in Chicago, Illinois as its "reference rate."
(o) "Separate Return" means an income tax return filed by a C
---------------
corporation without including another corporation that is part of an Affiliated
Group.
2. Consolidated Returns. Holdings and Acquisition shall both be
--------------------
included in Consolidated Returns filed for the Holdings Affiliated Group for so
long as they remain members of the Holdings Affiliated Group.
3. Consolidated Tax. If in any taxable year commencing on or after
----------------
February 27, 1997, there is Consolidated Tax for the Holdings Affiliated Group,
Holdings shall be responsible for payment of the Consolidated Tax.
4. Allocation of Tax. The Consolidated Tax, including estimated
-----------------
Consolidated Tax payments, shall be apportioned among the members of the
Holdings Affiliated Group under the applicable provisions of Section 1552(a) (1)
of the Code and the income tax regulations thereunder. The chief financial
officer of Holdings shall determine the amount of the estimated Consolidated
Tax or the Consolidated Tax and his determination shall be final and
conclusive, provided such determination of Consolidated Tax or estimated
Consolidated Tax is not arbitrary or unreasonable. Acquisition shall pay to
Holdings the Acquisition Group's allocated portion of Consolidated Tax or
estimated Consolidated Tax under the provisions of this paragraph and such
payment shall be made within ten (10) business days of the date upon which it
has been notified of such allocated portion.
5. Additional Tax Payments. In addition to amounts payable by
---------------------
Acquisition to Holdings pursuant to Paragraph 4 hereof, Acquisition shall also
pay to Holdings pursuant to Paragraph 6 the difference between (i) the
Acquisition Group's Calculated Tax and (ii) amounts paid pursuant to Paragraph 4
hereof for taxable years commencing on or after February, 1997. If the
difference between (i) and (ii) is negative, Holdings shall pay to Acquisition
the amount of such difference. The intent of this provision is that Acquisition
shall pay to Holdings, in the aggregate, an amount
3
<PAGE>
equal to the Acquisition Group's Calculated Tax for the taxable year at issue.
6. Calculation of Tax. As soon as reasonably possible after the end
------------------
of each taxable year, the chief financial officer of Holdings shall determine
the Calculated Tax for that taxable year and his determination shall be final
and conclusive, provided such determination of Calculated Tax has been reviewed
by an independent public accountant, including the independent public accountant
regularly used by Holdings, in connection with the annual audit of the Holdings
Affiliated Group and provided such determination of reduction in tax liability
is not arbitrary or unreasonable. Within thirty (30) days after such chief
financial officer's determination, one hundred percent (100%) of the amount
determined under Paragraph 5 for the taxable year shall be paid to Holdings.
7. Adjustments. The Consolidated Tax, the apportionment of such
-----------
Consolidated Tax, the Calculated Tax, and the amounts due under Paragraph 5
shall be subject to further adjustment from time to time in accordance with any
Final Determination of Consolidated Tax or any filing of an amended consolidated
return. If as a result of such adjustment there is an increase or decrease in
Acquisition Group's allocated portion of Consolidated Tax or the amounts due
under Paragraph 5, the amount of such increase or decrease shall be paid by
Acquisition to Holdings, or Holdings to Acquisition, as the case may be, within
thirty (30) days of the date of such Final Determination or filing of an amended
Consolidated Return.
8. Losses. If for any taxable year the Acquisition Group sustains a
------
net operating loss or becomes entitled to a tax credit which could otherwise be
applied to reduce the Calculated Tax of a prior taxable year beginning on or
after February 27, 1997, during which the Acquisition Group was a member of the
Holdings Affiliated Group, the Acquisition Group's Calculated Tax for such prior
taxable year shall be adjusted in accordance with Paragraph 7 to reflect such
carryback. To the extent that Holdings receives a refund for such prior taxable
year as a result of the application of such carryback, the amount of such
refund, including interest thereon, shall be paid by Holdings to Acquisition
within thirty (30) days of the receipt of such refund by Holdings. If the
application of such carryback results in a decrease in Acquisition Group's
Calculated Tax for such prior taxable year but Holdings does not receive a
refund equal to such decrease, the amount of such decrease, less any payments to
Acquisition on account of such decrease under the previous sentence, shall be
treated as an indebtedness of Holdings to Acquisition and may be used to offset
any future amounts Acquisition is required to pay under this Agreement.
9. Refunds. If Holdings receives a tax refund or credit in respect
-------
of any taxable year commencing on or after
4
<PAGE>
February 27, 1997, in which the Acquisition Group was a member of the Holdings
Affiliated Group, such refund or credit, including interest thereon , if any,
shall be allocated to the member of the Holdings Affiliated Group in a manner
consistent with the adjustments made pursuant to Paragraphs 7 and 8. The portion
of the amount of the tax refund or credit, including interest thereon, if any,
allocable to the Acquisition Group in conformity with such recomputation shall
be paid to Acquisition by Holdings within thirty (30) days of the receipt of
such refund.
10. Interest on Payments. In the event Acquisition or Holdings fails
--------------------
to remit an amount required to be paid under Paragraphs 4 through 9, such amount
shall be due with interest determined each month using the Reference Rate in
effect at the close of business on the bank day immediately preceding the first
day of that month.
11. Allocation of Liability. As between Holdings and Acquisition,
-----------------------
the provisions of this Agreement shall fix the liability of-Acquisition to
Holdings or Holdings to Acquisition, as the case may be, as to the matters
covered, even if such provisions are not controlling for federal income tax or
other purposes.
12. Other Taxes. To the extent state, local and other income taxes
-----------
of jurisdictions within and outside the United States in which the Holdings
Affiliated Group (and/or a member thereof) files income tax returns on a
combined, consolidated or unitary basis or based on principles of income tax
reporting consistent with the principles of income tax reporting contained in
Sections 1501 through 1504 of the Code and regulations thereunder, this
Agreement shall apply to the payment of such state, local and other income
taxes. This Agreement shall apply by modifying its terms only so as to permit
this Agreement to account for such income taxes.
13. Suspension of Payments. No payments shall be made or due under
----------------------
this Agreement for any tax period commencing on or after the occurrence of any
of the following:
(a) The date with respect to which Acquisition gives notice of
termination of this Agreement to Holdings pursuant to authorization of
Acquisition's Board of Directors, which notice may be given at any time, if (i)
Holdings shall have been adjudicated a bankrupt, (ii) a receiver or trustee of
Holdings or of all or substantially all of its property shall have been
appointed and not discharged within sixty (60) days of such appointment, (iii)
Holdings shall have voluntarily filed a petition in bankruptcy under the
provisions of 11 U.S.C. (S)(S) 101 et. seq. (the "Federal Bankruptcy Act") or
-- ---
any other law for the relief of debtors, (iv) Holdings shall have made a general
assignment for the benefit of creditors or shall have admitted in writing its
inability to pay its debts generally as they become due, (v)
5
<PAGE>
Holdings shall have consented to the appointment of a receiver or a trustee of
Holdings or of all or substantially all of its property, or (vi) at any time the
affairs of Holdings shall have been placed in the hands of a creditors committee
or similar group; or
(b) The date with respect to which Holdings gives notice of
termination of this Agreement to Acquisition pursuant to authorization of
Holdings' Board of Directors, which notice may be given at any time, if (i)
Acquisition shall have been adjudicated a bankrupt, (ii) a receiver or trustee
of Acquisition or of all or substantially all of its property shall have been
appointed and not discharged within sixty (60) days of such appointment, (iii)
Acquisition shall have voluntarily filed a petition in bankruptcy under the
provisions of the Federal Bankruptcy Act or any other law for the relief of
debtors, (iv) Acquisition shall have made a general assignment for the benefit
of creditors or shall have admitted in writing its inability to pay its debts
generally as they become due, (v) Acquisition shall have consented to the
appointment of a receiver or a trustee of Acquisition or of all or substantially
all of its property, or (vi) at any time the affairs of Acquisition shall have
been placed in the hands of a creditors committee or similar group.
14. Right to Suspend Payments. During any period when an involuntary
-------------------------
petition under the Federal Bankruptcy act or any similar act for the relief of
debtors is pending against either Holdings or Acquisition, Acquisition or
Holdings, respectively, may, at its option, suspend payments to the other party
without terminating this Agreement.
15. Credit Agreement Restrictions. Except for payments under
-----------------------------
Paragraph 3 of this Agreement, to the extent any payments due hereunder are not
permitted to be made under the terms of the Credit Agreement, such amounts shall
be suspended and paid when permitted under the Credit Agreement.
16. Governing Law. This Agreement is made under the laws of the
-------------
state of New York, which law shall be controlling in all matters relating to the
interpretation, construction or enforcement hereof.
17. Termination of Agreement. This Agreement shall terminate on the
------------------------
date Acquisition is no longer included as a member of the Holdings Affiliated
Group; provided, however, such termination shall not relieve any party of its
-------- -------
obligation hereunder with respect to taxable years ending on or before such
termination.
18. Amendment. This Agreement may be amended, at any time and from
---------
time to time hereafter, by the written agreement of the parties hereto at the
time of such amendment, and may also be
6
<PAGE>
terminated at any time by the mutual written consent by the parties hereto.
19. Notices. All notices, requests, demands and other communications
-------
which are required or may be given under this Agreement shall be given in
writing and shall be given by personal delivery or certified or registered mail,
return receipt requested, postage prepaid, addressed as follows:
If Holdings, at:
GFSI, Holdings Inc.
Suite 4000
9 West 57th Street
New York, New York 10019
Attention: A. Richard Caputo, Jr.
If Acquisition, at:
GFSI, Inc.
Suite 4000
9 West 57th Street
New York, New York 10019
Attention: A. Richard Caputo,Jr.
[THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers, all as of the day and year first
written above.
HOLDINGS:
GFSI HOLDINGS, INC; A Delaware
Corporation
By: /s/ A. Richard Caputo, Jr.,
-----------------------------------
A. Richard Caputo, Jr.,
Vice President
ACQUISITION:
GFSI, INC., a Delaware Corporation
By: /s/ A. Richard Caputo, Jr.,
-----------------------------------
A. Richard Caputo, Jr.,
Vice President
8
<PAGE>
EXHIBIT Q
TO
CREDIT AGREEMENT
Form of Guaranty
----------------
(Attached)
<PAGE>
GUARANTY
This GUARANTY ("Guaranty") is made as of the [___] day of February,
1997, by GFSI HOLDINGS, INC., a [_______________] corporation (the "Guarantor"),
in favor of the "Lenders" under that certain Credit Agreement, of even date
herewith, by and among GFSI, Inc. (the "Borrower"), the financial institutions
from time to time parties thereto (collectively the "Lenders") and The First
National Bank of Chicago, in its capacity as contractual representative for the
Holders of Secured Obligations (the "Agent"). Such Credit Agreement, as it may
be amended, modified or supplemented from time to time, is hereinafter referred
to as the "Credit Agreement." Unless otherwise defined herein, capitalized terms
used herein shall have the meanings ascribed to them in the Credit Agreement.
1. Guaranty. (i) For value received and in consideration of any
--------
loan, advance or financial accommodation of any kind whatsoever heretofore, now
or hereafter made, given or granted to the Borrower by the Lenders, the
Guarantor unconditionally guarantees for the benefit of each of the Holders of
Secured Obligations the full and prompt payment when due, whether at maturity or
earlier, by reason of acceleration or otherwise, and at all times thereafter, of
all of the Secured Obligations (including, without limitation, interest accruing
following the filing of a bankruptcy petition by or against the Borrower, at the
applicable rate specified in the Credit Agreement, whether or not such interest
is allowed as a claim in bankruptcy).
(ii) At any time after the occurrence of a Default, the Guarantor
shall pay to the Agent, for the benefit of the Holders of Secured Obligations,
on demand and in immediately available funds, the full amount of the Secured
Obligations (including any portion thereof which is not yet due and payable).
The Guarantor further agrees to pay to the Agent and reimburse the Agent for, on
demand and in immediately available funds, (a) all losses (including, without
limitation, lost profits), fees, costs and expenses (including, without
limitation, all court costs and attorneys' and paralegals' fees, costs and
expenses) paid or incurred by the Agent or any of the Holders of Secured
Obligations in: (1) endeavoring to collect all or any part of the Secured
Obligations from, or in prosecuting any action against, the Borrower or the
Guarantor relating to the Credit Agreement, this Guaranty or the transactions
contemplated thereby; (2) taking any action with respect to any security or
collateral securing the Secured Obligations or the Guarantor's obligations
hereunder; and (3) preserving, protecting or defending the enforceability of, or
enforcing, this Guaranty or their respective rights hereunder (all such costs
and expenses are hereinafter referred to as the "Expenses") and (b) interest on
(1) the Secured Obligations which do not constitute interest, (2) to the extent
permitted by applicable law, the Secured Obligations which constitute interest,
and (3) the Expenses, from the date of demand under this Guaranty until paid in
full at the per annum rate of interest described in Section 2.11 of the Credit
------------
Agreement (the "Interest Rate"). The Guarantor hereby agrees that this Guaranty
is an absolute guaranty of payment and is not a guaranty of collection.
<PAGE>
2. Obligations Unconditional. The Guarantor hereby agrees that its
-------------------------
obligations under this Guaranty shall be unconditional, irrespective of:
(i) the validity, enforceability, avoidance, novation or subordination
of any of the Secured Obligations or any of the Loan Documents;
(ii) the absence of any attempt by, or on behalf of, any Holder of
Secured Obligations or the Agent to collect, or to take any other action to
enforce, all or any part of the Secured Obligations whether from or against
the Borrower, any other guarantor of the Secured Obligations or any other
Person;
(iii) the election of any remedy by, or on behalf of, any Holder of
Secured Obligations or the Agent with respect to all or any part of the
Secured Obligations;
(iv) the waiver, consent, extension, forbearance or granting of any
indulgence by, or on behalf of, any Holder of Secured Obligations or the
Agent with respect to any provision of any of the Loan Documents;
(v) the failure of the Agent to take any steps to perfect and maintain
its security interest in, or to preserve its rights to, any security or
collateral for the Secured Obligations;
(vi) the election by, or on behalf of, any one or more of the Holders
of Secured Obligations, in any proceeding instituted under Chapter 11 of
Title 11 of the United States Code (11 U.S.C. 101 et seq.) (the "Bankruptcy
Code"), of the application of Section 1111(b)(2) of the Bankruptcy Code;
(vii) any borrowing or grant of a security interest by the Borrower,
as debtor-in-possession, under Section 364 of the Bankruptcy Code;
(viii) the disallowance under Section 502 of the Bankruptcy Code, of
all or any portion of the claims of any of the Holders of Secured
Obligations or the Agent for repayment of all or any part of the Secured
Obligations or any Expenses; or
(ix) any other circumstance which might otherwise constitute a legal
or equitable discharge or defense of the Borrower or the Guarantor.
3. Enforcement; Application of Payments. Upon the occurrence of a
------------------------------------
Default, the Agent may proceed directly and at once, without notice, against the
Guarantor to obtain performance of and to collect and recover the full amount,
or any portion, of the Secured Obligations, without first proceeding against the
Borrower or any other Person, or against any security or collateral for the
Secured Obligations. Subject only to the terms and provisions of the Credit
Agreement, the Agent shall have the exclusive right to determine the application
of payments and credits, if any, from the Guarantor, the Borrower or from any
other Person on
-2-
<PAGE>
account of the Secured Obligations or any other liability of the Guarantor to
any Holder of Secured Obligations.
4. Representations and Warranties. The Guarantor represents and
------------------------------
warrants as follows to each Lender and the Agent as of the date hereof:
(i) The Guarantor (a) is a corporation duly organized, validly
existing and in good standing under the laws of the
jurisdiction of its organization, (b) is duly qualified to do
business as a foreign corporation and is in good standing under
the laws of each jurisdiction-in-which-failure-to be so
qualified and in good standing could reasonably be expected to
have a Material Adverse Effect, and (c) has all requisite
corporate power and authority to own, operate and encumber its
property;
(ii) The Guarantor has the requisite corporate power and authority
to execute, deliver and perform this Guaranty and any other
document required to be delivered by it under the Credit
Agreement, and this Guaranty has been duly executed and
delivered and constitutes the legal, valid and binding
obligation of the Guarantor enforceable against the Guarantor
in accordance with its terms; and
(iii) The execution, delivery and performance of this Guaranty do not
and will not (a) conflict with the Articles of Incorporation or
by-laws of the Guarantor, (b) require any approval of the
Guarantor's shareholders except such as has been obtained, (c)
require any approval or consent of any Person or Governmental
Authority, or under the terms of any material agreement, and
(d) will not result in or require the creation of any lien or
security interest upon or with respect to any of the properties
or assets of the Guarantor other than pursuant to the Loan
Documents.
5. Waivers. (i) The Guarantor hereby waives diligence, presentment,
-------
demand of payment, filing of claims with a court in the event of receivership or
bankruptcy of the Borrower, protest or notice with respect to the Secured
Obligations, all setoffs and counterclaims and all presentments, demands for
performance, notices of nonperformance, protests, notices of protest, notices of
dishonor and notices of acceptance of this Guaranty, the benefits of all
statutes of limitation, and all other demands whatsoever (and shall not require
that the same be made on the Borrower as a condition precedent to the
Guarantor's obligations hereunder), and covenants that this Guaranty will not be
discharged, except by complete payment (in cash) and performance of the Secured
Obligations and any other obligations contained herein. The Guarantor further
waives all notices of the existence, creation or incurring of new or additional
indebtedness, arising either from additional loans extended to the Borrower or
otherwise, and also waives all notices that the principal amount, or any portion
thereof, and/or any interest on any instrument or document evidencing all or any
part of the Secured Obligations is due, notices of any and all proceedings to
collect from the maker, any endorser or any other guarantor of all or any part
of the Secured Obligations, or from any other Person, and, to the extent
permitted by law, notices of
-3-
<PAGE>
exchange, sale, surrender or other handling of any security or collateral given
to the Agent to secure payment of all or any part of the Secured Obligations.
(ii) The Guarantor understands that it shall be liable for the full
amount of its liability under this Guaranty, notwithstanding foreclosure of any
real property securing all or any part of the Secured Obligations by trustee
sale or any other reason impairing the right of the Guarantor, the Agent or any
of the Holders of Secured Obligations to proceed against the Borrower, any other
guarantor or the Borrower's or such guarantor's property. The Guarantor agrees
that all of its obligations under this Guaranty (including its obligation to pay
in full all indebtedness evidenced by or arising under-the-Credit-Agreement)
shall remain in full force and effect without defense, offset or counterclaim of
any kind, notwithstanding that the Guarantor's rights against the Borrower may
be impaired, destroyed or otherwise affected by reason of any action or inaction
on the part of the Agent or any Holder of Secured Obligations. By way of example
and without limiting the foregoing, if the Agent shall release or foreclose by
private power of sale any real property that secures the Secured Obligations,
then notwithstanding that the Borrower may be entitled thereby to assert a
defense against such Secured Obligations (and thus also against its obligations
to the Guarantor to the extent that the Guarantor may be subrogated to the
rights of the Holders of Secured Obligations) based upon the applicability of
California Code of Civil Procedure Section 580d or other antideficiency laws,
the Guarantor nonetheless shall remain fully obligated hereunder. The Guarantor
waives all defenses, protections and benefits of Sections 580a, 580d and 726 of
the California Code of Civil Procedure, and all judicial decisions construing or
pertaining to the same, and all rules and principles of like kind or similar
effect (including, without limitation, the so-called one-action rule, the one-
form-of-action rule and the security-first rule), in each case as applicable to
or in favor of the Guarantor, the Borrower or otherwise. The Guarantor waives,
in accordance with Section 2856 of the California Civil Code, (A) all rights and
defenses arising out of an election of remedies by the creditor (the Agent, or
any Holder of Secured Obligations) even though the election of remedies, such as
non-judicial foreclosure with respect to security for a guaranteed obligation,
has destroyed the Guarantor's rights of subrogation and reimbursement against
the principal (the Borrower) by the operation of Section 580d of the California
Code of Civil Procedure or otherwise, and (B) without limiting the generality of
the foregoing or any other provision hereof, all rights and benefits under
Calfornia Civil Code Sections 2787 to 2855, inclusive, 2899, and 3433 (or any
similar law in any other jurisdiction).
(iii) The Guarantor hereby expressly waives the benefits of Section
2815 of the California Civil Code (or any similar law in any other jurisdiction)
purporting to allow a guarantor to revoke a continuing guaranty with respect to
any transactions occurring after the date of the guaranty.
(iv) The Holders of Secured Obligations, either themselves or acting
through the Agent, may from time to time in their sole discretion, without
notice or demand and without affecting the liability of the Guarantor hereunder,
(a) renew, extend, accelerate or otherwise change the time for payment of, or
other terms relating to, all or any part of the Secured Obligations, or
otherwise, modify, amend or change the terms of any of the Loan Documents; (b)
accept partial payments on all or any part of the Secured Obligations; (c) take
and hold
-4-
<PAGE>
security or collateral for the payment of all or any part of the Secured
Obligations, this Guaranty, or any other guaranties of all or any part of the
Secured Obligations or other liabilities of the Borrower, (d) exchange, enforce,
waive and release any such security or collateral; (e) apply such security or
collateral and direct the order or manner of sale thereof as in their discretion
they may determine; (f) settle, release, exchange, enforce, waive, compromise or
collect or otherwise liquidate all or any part of the Secured Obligations, this
Guaranty, any other guaranty of all or any part of the Secured Obligations, and
any security or collateral for the Secured Obligations or for any such guaranty;
and/or (g) otherwise deal with the Borrower or any other Person that may become
liable for all or any part of the Secured Obligations. Any of the foregoing may
be done in any manner, without-affecting or impairing the obligations-of-the-
Guarantor hereunder.
6. Setoff. At any time after all or any part of the Secured
------
Obligations have become due and payable (by acceleration or otherwise), each
Holder of Secured Obligations and the Agent may, without notice to the Guarantor
and regardless of the acceptance of any security or collateral for the payment
hereof, appropriate and apply toward the payment of all or any part of the
Secured Obligations (i) any indebtedness due or to become due from such Holder
of Secured Obligations or the Agent to the Guarantor, and (ii) any moneys,
credits or other property belonging to the Guarantor, at any time held by or
coming into the possession of such Holder of Secured Obligations or the Agent or
any of their respective affiliates.
7. Financial Information. The Guarantor hereby assumes responsibility
----------------------
for keeping itself informed of the financial condition of the Borrower and any
and all endorsers and/or other guarantors of all or any part of the Secured
Obligations, and of all other circumstances bearing upon the risk of nonpayment
of the Secured Obligations, or any part thereof, that diligent inquiry would
reveal, and the Guarantor hereby agrees that none of the Holders of Secured
Obligations nor the Agent shall have any duty to advise the Guarantor of
information known to any of them regarding such condition or any such
circumstances. In the event any Holder of Secured Obligations, in its sole
discretion, undertakes at any time or from time to time to provide any such
information to the Guarantor, such Holder of Secured Obligations shall be under
no obligation (i) to undertake any investigation not a part of its regular
business routine, (ii) to disclose any information which such Holder of Secured
Obligations, pursuant to accepted or reasonable commercial finance or banking
practices, wishes to maintain confidential or (iii) to make any other or future
disclosures of such information or any other information to the Guarantor.
8. No Marshalling; Reinstatement. The Guarantor consents and agrees
-----------------------------
that none of the Holders of Secured Obligations nor the Agent nor any Person
acting for or on behalf of the Holders of Secured Obligations or the Agent shall
be under any obligation to marshal any assets in favor of the Guarantor or
against or in payment of any or all of the Secured Obligations. The Guarantor
further agrees that, to the extent that the Borrower, the Guarantor or any other
guarantor of all or any part of the Secured Obligations makes a payment or
payments to any Holder of Secured Obligations or the Agent, or any Holder of
Secured Obligations or the Agent receives any proceeds of Collateral, which
payment or payments or any part thereof are subsequently invalidated, declared
to be fraudulent or preferential, set aside and/or required to be repaid to the
Borrower, the Guarantor, such other guarantor or any other Person, or their
-5-
<PAGE>
respective estates, trustees, receivers or any other party, including, without
limitation, the Guarantor, under any bankruptcy law, state or federal law,
common law or equitable cause, then, to the extent of such payment or repayment,
the part of the Secured Obligations which has been paid, reduced or satisfied by
such amount shall be reinstated and continued in full force and effect as of the
time immediately preceding such initial payment, reduction or satisfaction.
14. Waiver of Subrogation. THE GUARANTOR HEREBY IRREVOCABLY WAIVES ALL
---------------------
RIGHTS OF SUBROGATION (WHETHER CONTRACTUAL, UNDER SECTION 509 OF THE BANKRUPTCY
CODE, UNDER COMMON LAW, OR OTHERWISE) TO THE CLAIMS OF THE LENDERS AND THE AGENT
AGAINST BORROWER AND ALL CONTRACTUAL, STATUTORY OR COMMON LAW RIGHTS OF
CONTRIBUTION, REIMBURSEMENT, INDEMNIFICATION AND SIMILAR RIGHTS AND "CLAIMS" (AS
SUCH TERM IS DEFINED IN THE BANKRUPTCY CODE) AGAINST BORROWER WHICH ARISE IN
CONNECTION WITH, OR AS A RESULT OF, THIS GUARANTY.
10. Subordination. The Guarantor agrees that any and all claims of the
-------------
Guarantor against the Borrower, any endorser or any other guarantor of all or
any part of the Secured Obligations, or against any of their respective
properties, shall be subordinate and subject in right of payment to the prior
payment, in full and in cash, of all Secured Obligations. Notwithstanding any
right of the Guarantor to ask, demand, sue for, take or receive any payment from
the Borrower, all rights, liens and security interests of the Guarantor, whether
now or hereafter arising and howsoever existing, in any assets of the Borrower
(whether constituting part of the security or collateral given to any Holder of
Secured Obligations or the Agent to secure payment of all or any part of the
Secured Obligations or otherwise) shall be and hereby are subordinated to the
rights of the Holders of Secured Obligations and the Agent in those assets. The
Guarantor shall have no right to possession of any such asset or to foreclose
upon any such asset, whether by judicial action or otherwise, unless and until
all of the Secured Obligations shall have been fully paid and satisfied and all
financing arrangements between the Borrower and the Holders of Secured
Obligations have been terminated. If all or any part of the assets of the
Borrower, or the proceeds thereof, are subject to any distribution, division or
application of the creditors of the Borrower, whether partial or complete,
voluntary or involuntary, and whether by reason of liquidation, bankruptcy,
arrangement, receivership, assignment for the benefit of creditors or any other
action or proceeding, or if the business of the Borrower is dissolved or if
substantially all of the assets of the Borrower are sold, then, and in any such
event, any payment or distribution of any kind or character, either in cash,
securities or other property, which shall be payable or deliverable upon or with
respect to any indebtedness of the Borrower to the Guarantor ("Borrower
Indebtedness") shall be paid or delivered directly to the Agent for application
on any of the Secured Obligations, due or to become due, until such Secured
Obligations shall have first been fully paid and satisfied. The Guarantor
irrevocably authorizes and empowers the Agent to demand, sue for, collect and
receive every such payment or distribution and give acquittance therefor and to
make and present for and on behalf of the Guarantor such proofs of claim and
take such other action, in the Agent's own name or in the name of the Guarantor
or otherwise, as the Agent may deem necessary or advisable for the enforcement
of this Guaranty. The Agent may vote such proofs of claim in any such
proceeding, receive and collect any and all dividends or
-6-
<PAGE>
other payments or disbursements made thereon in whatever form the same may be
paid or issued and apply the same on account of any of the Secured Obligations.
Should any payment, distribution, security or instrument or proceeds thereof be
received by the Guarantor upon or with respect to the Borrower Indebtedness
prior to the satisfaction of all the Secured Obligations and the termination of
all financing arrangements between the Borrower and the Holders of Secured
Obligations, the Guarantor shall receive and hold the same in trust, as trustee,
for the benefit of the Holders of Secured Obligations and shall forthwith
deliver the same to the Agent, for the benefit of the Holders of Secured
Obligations, in precisely the form received (except for the endorsement or
assignment of the Guarantor where necessary), for application to any of the
Secured Obligations, due or not due, and, until so delivered, the same shall be
held in trust by the Guarantor as the property of the Holders of Secured
Obligations. If the Guarantor fails to make any such endorsement or assignment
to the Agent, the Agent or any of its officers or employees are hereby
irrevocably authorized to make the same. The Guarantor agrees that until the
Secured Obligations have been paid in full (in cash) and satisfied and all
financing arrangements between the Borrower and the Holders of Secured
Obligations have been terminated, the Guarantor will not assign or transfer to
any Person any claim the Guarantor has or may have against the Borrower.
11. Enforcement; Amendments; Waivers. No delay on the part of any of the
--------------------------------
Holders of Secured Obligations or the Agent in the exercise of any right or
remedy arising under this Guaranty, the Credit Agreement, any of the other Loan
Documents or otherwise with respect to all or any part of the Secured
Obligations, the Collateral or any other guaranty of or security for all or any
part of the Secured Obligations shall operate as a waiver thereof, and no single
or partial exercise by any such Person of any such right or remedy shall
preclude any further exercise thereof. No modification or waiver of any of the
provisions of this Guaranty shall be binding upon the Holders of Secured
Obligations or the Agent, except as expressly set forth in a writing duly signed
and delivered by the party making such modification or waiver. Failure by any of
the Holders of Secured Obligations or the Agent at any time or times hereafter
to require strict performance by the Borrower, the Guarantor, any other
guarantor of all or any part of the Secured Obligations or any other Person of
any of the provisions, warranties, terms and conditions contained in any of the
Loan Documents now or at any time or times hereafter executed by such Persons
and delivered to the Agent or any Holder of Secured Obligations shall not waive,
affect or diminish any right of the Agent or such Holder of Secured Obligations
at any time or times hereafter to demand strict performance thereof and such
right shall not be deemed to have been waived by any act or knowledge of the
Agent or any Holder of Secured Obligations, or their respective agents, officers
or employees, unless such waiver is contained in an instrument in writing,
directed and delivered to the Borrower or the Guarantor, as applicable,
specifying such waiver, and is signed by the party or parties necessary to give
such waiver under the Credit Agreement. No waiver of any Default by the Agent or
any Holder of Secured Obligations shall operate as a waiver of any other Default
or the same Default on a future occasion, and no action by the Agent or any
Holder of Secured Obligations permitted hereunder shall in any way affect or
impair the Agent's or any Holder of Secured Obligations's rights and remedies or
the obligations of the Guarantor under this Guaranty. Any determination by a
court of competent jurisdiction of the amount of any principle and/or interest
owing by the Borrower to any of the Holders of
-7-
<PAGE>
Secured Obligations shall be conclusive and binding on the Guarantor
irrespective of whether the Guarantor was a party to the suit or action in which
such determination was made.
12. Effectiveness; Termination. This Guaranty shall become effective upon
--------------------------
its execution by the Guarantor and shall continue in full force and effect and
may not be terminated or otherwise revoked until the Secured Obligations shall
have been fully paid (in cash) and discharged and the Credit Agreement and all
financing arrangements between the Borrower and the Holders of Secured
Obligations shall have been terminated. If, notwithstanding the foregoing, the
Guarantor shall have any right under applicable law to terminate or revoke this
Guaranty, the Guarantor agrees that such termination or revocation shall not be
effective until a written notice of such revocation or termination, specifically
referring hereto, signed by the Guarantor, is actually received by the Agent.
Such notice shall not affect the right and power of any of the Holders of
Secured Obligations or the Agent to enforce rights arising prior to receipt
thereof by the Agent. If any Holder of Secured Obligations grants loans or takes
other action after the Guarantor terminates or revokes this Guaranty but before
the Agent receives such written notice, the rights of such Holder of Secured
Obligations with respect thereto shall be the same as if such termination or
revocation had not occurred.
13. Successors and Assigns. This Guaranty shall be binding upon the
----------------------
Guarantor and upon its successors and assigns and shall inure to the benefit of
the Holders of Secured Obligations and the Agent and their respective successors
and assigns; all references herein to the Borrower and to the Guarantor shall be
deemed to include their respective successors and assigns. The successors and
assigns of the Guarantor and the Borrower shall include, without limitation,
their respective receivers, trustees or debtors-in-possession. All references to
the singular shall be deemed to include the plural where the context so
requires.
14. Officer Authority. The Guarantor authorizes its President, Vice
-----------------
President-Finance and Treasurer, from time to time, severally and not jointly,
on behalf and in the name of the Guarantor from time to time in the discretion
of such officer, to take or omit to take any and all action and to execute and
deliver any and all documents and instruments which such officer may determine
to be necessary or desirable in relation to, and perform any obligations arising
in connection with, this Guaranty and any of the transactions contemplated
hereby, and, without limiting the generality of the foregoing, hereby gives to
each such officer severally the power and right on behalf of the Guarantor,
without notice to or assent by the Guarantor, to do all or any of the following:
(i) to execute and deliver any amendment, waiver, consent, supplement, other
modification or reaffirmation of this Guaranty or any document relating hereto,
and to perform any obligation arising in connection herewith or therewith; (ii)
to sell, transfer, assign, encumber or otherwise deal in or with any security
for this Guaranty or any part thereof; (iii) to grant liens, security interests
or other encumbrances on or in respect of any property or assets of the
Guarantor, whether now owned or hereafter acquired, in favor of the Holders of
Secured Obligations and the Agent; (iv) to send notices, directions, orders and
other communications to any Person relating to this Guaranty, or any security
for all or any part of the Secured Obligations; (v) to take or omit to take any
other action contemplated by or referred to in this Guaranty or any document
covering any security for all or any part of the Secured Obligations; and (vi)
to take or omit respect to this Guaranty, any security for all any part of the
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<PAGE>
Secured Obligations or any document covering any such security, all as such
officer may determine in his or her sole discretion. The undersigned hereby
certifies that he/she has all necessary authority to grant and execute this
Guaranty on behalf of the Guarantor.
15. GOVERNING LAW. THIS GUARANTY HAS BEEN EXECUTED AND DELIVERED BY THE
-------------
PARTIES HERETO IN CHICAGO, ILLINOIS. THIS GUARANTY SHALL BE GOVERNED BY AND
INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS (WITHOUT REGARD TO
CONFLICTS OF LAW PROVISIONS) OF THE STATE OF ILLINOIS. WITHOUT LIMITING THE
FOREGOING, ANY DISPUTE BETWEEN THE AGENT AND THE GUARANTOR ARISING OUT OF OR
RELATED TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS
GUARANTY, -AND WHETHER-ARISING-IN-CONTRACT, -TORT, -EQUITY, OR OTHERWISE, SHALL
BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS, AND NOT THE CONFLICTS OF LAW
PROVISIONS, OF THE STATE OF ILLINOIS.
16. Consent to Jurisdiction; Counterclaims; Forum Non CONVENIENS. (a)
-------------------------------------------------------------
Exclusive Jurisdiction. Except as provided in subsection (b) of this Section 16
- ----------------------- ------------- ----------
the Agent, on behalf of itself and the Holders of Secured Obligations, and the
Guarantor agree that all disputes between them arising out of or related to the
relationship established between them in connection with this Guaranty, whether
arising in contract, tort, equity, or otherwise, shall be resolved only by state
or federal courts located in Chicago, Illinois, but the parties acknowledge
that any appeals from those courts may have to be heard by a court located
outside of Chicago, Illinois.
(b) Other Jurisdictions. The Agent shall have the right to proceed against
--------------------
the Guarantor or its real or personal property in a court in any location to
enable the Agent to obtain personal jurisdiction over the Guarantor or to
enforce a judgment or other court order entered in favor of the Agent. The
Guarantor shall not assert any permissive counterclaims in any proceeding
brought by the Agent under this clause (b) arising out of or relating to this
Guaranty.
(c) Venue; Forum Non Conveniens. Each of the Guarantor and the Agent waives
----------------------------
any objection that it may now or hereafter have (including, without limitation,
any objection to the laying of venue or based on forum non conveniens) to the
----- --- ----------
location of the court in which any proceeding with respect to this Guaranty or
any other document executed or delivered in connection herewith is commenced in
accordance with this Section 16.
----------
17. Service of Process. The Guarantor waives personal service of any
------------------
process upon it and, as security for the Secured Obligations, irrevocably
appoints [The Prentice Hall Corporation Systems Inc] the Guarantor's registered
agent, whose address is [33 North LaSalle Street, Suite 1925, Chicago, Illinois
60602], as the Guarantor's agent for the purpose of accepting service of process
issued by any court.
18. WAIVER OF JURY TRIAL. EACH OF THE GUARANTOR AND THE AGENT WAIVES ANY
--------------------
RIGHT TO TRIAL BY JURY IN ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE, BETWEEN THE AGENT AND THE GUARANTOR ARISING OUT OF OR RELATED TO THE
TRANSACTIONS CONTEMPLATED BY THIS GUARANTY OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH. EITHER THE GUARANTOR
OR THE AGENT MAY FILE AN
-9-
<PAGE>
ORIGINAL COUNTERPART OR A COPY OF THIS GUARANTY WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
19. Waiver of Bond. The Guarantor waives the posting of any bond
--------------
otherwise required of the Agent in connection with any judicial process or
proceeding to realize on the Collateral (including, without limitation, the real
property Collateral) or any other security for the Obligations or to enforce any
judgment or other court order entered in favor of the Agent, or to enforce by
specific performance, temporary restraining order, or preliminary or permanent
injunction, this Guaranty or any other agreement or document between the Agent
and the Guarantor.
20. Advice of Counsel. The Guarantor represents and warrants that it
-----------------
has consulted with its legal counsel regarding all waivers under this Guaranty,
including without limitation those under Section 5 and Sections 15 through 19
--------- ----------- --
hereof, that it believes that it fully understands all rights that it is waiving
and the effect of such waivers, that it assumes the risk of any misunderstanding
that it may have regarding any of the foregoing, and that it intends that such
waivers shall be a material inducement to the Agent and the Holders of Secured
Obligations to extend the indebtedness guaranteed hereby.
21. Notices. All Notices and other communications required or
-------
desired to be served, given or delivered hereunder shall be in writing or by a
telecommunications device capable of creating a printed record and shall be
addressed to the party to be notified as follows:
if to the Guarantor, at:
GFSI, Inc.
[________________________
_________________________]
Attention: [_____________]
Telecopy: [_____________]
if to the Agent, at
The First National Bank of Chicago
One First National Plaza
Suite 0088
Chicago, Illinois 60670-0088
Attention: Nathan L. Bloch
Telecopy: 312/732-5161
or, as to each party, at such other address as designated by such party in a
written notice to the other party. All such notices and communications shall be
deemed to be validly served, given or delivered (i) three (3) days following
deposit in the United States mails, with proper postage prepaid; (ii) upon
delivery thereof if delivered by hand to the party to be notified; (iii) upon
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<PAGE>
delivery thereof to a reputable overnight courier service, with delivery charges
prepaid; or (iv) upon confirmation of receipt thereof if transmitted by a
telecommunications device.
22. Severability. Wherever possible, each provision of this Guaranty
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Guaranty shall be prohibited by or
invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Guaranty.
23. Merger. This Guaranty represents the final agreement of the
------
Guarantor with respect to the matters contained herein and may not be
contradicted by evidence of prior or contemporaneous agreements, or subsequent
oral agreements, between the Guarantor and the Agent or any Holder of Secured
Obligations.
24. Execution in Counterparts. This Guaranty may be executed in any
-------------------------
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
25. No Strict Construction. The parties hereto have participated
----------------------
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement.
-11-
<PAGE>
IN WITNESS WHEREOF, this Guaranty has been duly executed by the
Guarantor as of the day and year first set forth above.
GFSI HOLDINGS, INC.
By:______________________________
Name:__________________________
Title:_________________________
Acknowledged and agreed to
as of the [___] day of February, 1997.
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
By:____________________________
Name:________________________
Title: Vice President
SIGNATURE PAGE TO HOLDINGS GUARANTY
<PAGE>
EXHIBIT R
TO
CREDIT AGREEMENT
Form of Restricted Subsidiary Security Agreement
------------------------------------------------
(Attached)
<PAGE>
================================================================================
SECURITY AGREEMENT
DATED AS OF _______, ___
between
[Restricted Subsidiary]
---------------------
AND
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
SECTION 1. Defined Terms......................................................... 1
SECTION 2. Grant of Security...................................................... 2
SECTION 3. Authorization.......................................................... 4
SECTION 4. Grantor Remains Liable................................................. 4
SECTION 5. Representations and Warranties......................................... 5
SECTION 6. Perfection and Maintenance of Security Interest and Lien............... 6
SECTION 7. Financing Statements................................................... 7
SECTION 8. Filing Costs........................................................... 7
SECTION 9. Schedule of Collateral................................................. 7
SECTION 10. Equipment and Inventory................................................ 7
SECTION 11. Accounts............................................................... 8
SECTION 12. Leased Real Property................................................... 8
SECTION 13. General Covenants...................................................... 9
SECTION 14. Agent Appointed Attorney-in-Fact....................................... 9
SECTION 15. Agent May Perform...................................................... 10
SECTION 16. Agent's Duties......................................................... 10
SECTION 17. Remedies............................................................... 10
SECTION 18. Exercise of Remedies................................................... 11
SECTION 19. License................................................................ 11
SECTION 20. Injunctive Relief...................................................... 12
SECTION 21. Interpretation and Inconsistencies; Merger; No Strict Construction..... 12
SECTION 22. Expenses............................................................... 12
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 23. Amendments, Etc............................................... 12
SECTION 24. Notices....................................................... 12
SECTION 25. Continuing Security Interest; Termination..................... 12
SECTION 26. Severability.................................................. 13
SECTION 27. GOVERNING LAW................................................. 13
SECTION 28. CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL....... 13
(A)EXCLUSIVE JURISDICTION..................................... 13
(B)OTHER JURISDICTIONS........................................ 13
(C)SERVICE OF PROCESS......................................... 14
(D)WAIVER OF JURY TRIAL....................................... 14
(E)WAIVER OF BOND............................................. 14
(F)ADVICE OF COUNSEL.......................................... 14
</TABLE>
<PAGE>
EXHIBITS AND SCHEDULES
----------------------
EXHIBITS
--------
EXHIBIT A-1 -- Form of Landlord Agreement
EXHIBIT A-2 -- Form of Mortgagee Agreement
EXHIBIT B-1 -- Form of Landlord Lien Waiver Agreement
EXHIBIT B-2 -- Form of Bailee Letter
EXHIBIT C -- Form of Restricted Account Agreement
<PAGE>
SCHEDULES
---------
Schedule 1 -- Pledged Debt
Schedule 2 -- Locations of Collateral
Schedule 2-A -- Third Party Locations
Schedule 2-B -- Financing Statement Filing Locations
Schedule 3 -- Trade Names
Schedule 4 -- Deposit Accounts
<PAGE>
SECURITY AGREEMENT
This SECURITY AGREEMENT ("Agreement"), dated as of ______________, ___
---------
is made by [RESTRICTED SUBSIDIARY], a Delaware corporation ("Grantor"), in favor
-------
of THE FIRST NATIONAL BANK OF CHICAGO (the "Agent"), for its benefit and for
-----
the benefit of the "Holders of Secured Obligations" (as defined below) who are,
or may hereafter become, parties to the Credit Agreement referred to below. All
references in this agreement to Grantor shall include its successors and
assigns, including a debtor-in-possession on behalf of Grantor.
PRELIMINARY STATEMENT
WHEREAS, GFSI, INC., a Delaware corporation (the "Borrower") has
entered into a certain Credit Agreement of even date herewith among the
Borrower, the institutions from time to time party thereto as lenders (the
"Lenders") and the Agent, as the contractual representative for the Lenders (as
-------
the same may be amended, restated, supplemented or otherwise modified from time
to time, the "Credit Agreement"), providing for the making of loans, advances
----------------
and other financial accommodations (including, without limitation issuing
letters of credit) (all such loans, advances and other financial accommodations
being hereinafter referred to collectively as the "Loans") to or for the benefit
-----
of the Borrower. It is a condition precedent to continuing to make the Loans
under the Credit Agreement that Grantor shall have granted the security interest
contemplated by this Agreement; and
WHEREAS, the Borrower owns [____%] of all of the issued and
outstanding capital stock of the Grantor, and the Grantor shall drive benefits,
both direct and indirect, by the issuance of the Loans and other financial
accommodations to the Borrower under the Credit Agreement.
NOW, THEREFORE, in consideration of the premises set forth herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Defined Terms. Unless otherwise defined herein, terms
-------------
defined in the Credit Agreement are used herein as therein defined, and the
following terms shall have the following meanings (such meanings being equally
applicable to both the singular and the plural forms of the terms defined):
"Agreement" shall mean this Security Agreement, as the same may from
---------
time to time be amended, restated, modified or supplemented, and shall refer to
this Agreement as the same may be in effect at the time such reference becomes
operative.
"Collateral" shall mean all property and rights in property now owned
----------
or hereafter at any time acquired by Grantor in or upon which a Lien is granted
in favor of the Agent by Grantor or a Subsidiary of Grantor under this
Agreement, including, without limitation, the property described in Section 2.
---------
Notwithstanding any provision to the contrary contained in this Agreement or any
other Loan Document, license agreements under which Grantor is licensee shall be
excluded from the Collateral.
<PAGE>
"Restricted Account" shall mean (i) any deposit account that is maintained
------------------
with the Agent, or (ii) any deposit account listed on Schedule 4 with respect
----------
to which the Grantor has entered into a Restricted Accounted Agreement in the
form of Exhibit C hereto with the financial institution at which such deposit
---------
account is maintained.
"UCC" shall mean the Uniform Commercial Code as the same may, from time to
---
time, be in effect in the State of Illinois, provided, however, in the event
-------- -------
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of the Agent's and the Holders of Secured Obligations'
security interest in any Collateral is governed by the Uniform Commercial Code
as in effect in a jurisdiction other than the State of Illinois, the term "UCC"
shall mean the Uniform Commercial Code as in effect in such other jurisdiction
for purposes of the provisions hereof relating to such attachment, perfection or
priority and for purposes of definitions related to such provisions.
SECTION 2. Grant of Security. To secure the prompt and complete payment,
-----------------
observance and performance of the Secured Obligations, Grantor hereby assigns
and pledges to Agent, for the benefit of itself and the Holders of Secured
Obligations, and hereby grants to Agent, for the benefit of itself and the
Holders of Secured Obligations, a security interest in all of Grantor's right,
title and interest in and to the following whether now owned or existing or
hereafter arising or acquired and wheresoever located:
ACCOUNTS: All "accounts" as such term is defined in Section 9-106 of the
UCC, whether now owned or hereafter acquired or arising; Grantor intends that
the term "accounts", as used herein, be construed in its broadest sense, and
such term shall include, without limitation, all present and future accounts,
accounts receivable and other rights of Grantor to payment for goods sold or
leased or for services rendered (except those evidenced by instruments or
chattel paper), whether now existing or hereafter arising or wherever arising,
and whether or not they have been earned by performance (collectively,
"Accounts");
--------
INVENTORY: All "inventory" as defined in Section 9-109(4) of the UCC,
whether now owned or hereafter acquired or arising; Grantor intends that the
term "inventory", as used herein, be construed in its broadest sense, and such
term shall include, without limitation, all goods now owned or hereafter
acquired by Grantor (whether located, whether in the possession of Grantor or of
a bailee or other person for sale, storage, transit, processing use or otherwise
and whether consisting of whole goods, spare parts, components, supplies,
materials, or consigned, returned or repossessed goods) which are held for sale
or lease, which are to be furnished (or have been furnished) under any contract
of service or which are raw materials, work in process or materials used or
consumed in Grantor's business (collectively, "Inventory");
---------
EQUIPMENT: All "equipment" as such term is defined in Section 9-109(2) of
the UCC, whether now owned or hereafter acquired or arising; Grantor intends
that the term "equipment", as used herein, be construed in its broadest sense,
and such term shall include, without limitation, all machinery, all
manufacturing, distribution, selling, data processing and office equipment, all
furniture, furnishings, appliances, fixtures and trade fixtures, tools, toolong
molds, dies, vehicles, vessels, trucks, buses, motor vehicles and all other
goods of every type and description (other than Inventory), in each instance
whether now owned or hereafter acquired by Grantor and wherever located
(collectively, "Equipment");
---------
GENERAL INTANGIBLES: All "general intangibles" as defined in Section 9-106
of the UCC, whether now owned or hereafter acquired or arising; Grantor intends
that the term "general intangibles", as used herein, be construed in its
broadest sense, and such term shall include, without limitation, all rights,
interests, choses in action, causes of actions, claims and all other intangible
property of Grantor of every
-2-
<PAGE>
kind and nature (other than Accounts), in each instance whether now owned or
hereafter acquired by Grantor and however and whenever arising, including,
without limitation, all corporate and other business records; all loans,
royalties, and other obligations receivable; customer lists, credit files,
correspondence, and advertising materials; firm sale orders, other contracts and
contract rights; all interests in partnerships and joint ventures; all tax
refunds and tax refund claims; all right, title and interest under leases,
subleases, licenses and concessions and other agreements relating to real or
personal property; all payments due or made to Grantor in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of any property
by any person or governmental authority; all deposit accounts (general or
special) with any bank or other financial institution, including, without
limitation, any deposits or other sums at any time credited by or due to Grantor
from any of the Holders of Secured Obligations or any of their respective
Affiliates with the same rights therein as if the deposits or other sums were
credited by or due from such Holder of Secured Obligations; all credits with and
other claims against carriers and shippers; all rights to indemnification; all
patents, and patent applications (including all reissues, divisions,
continuations and extensions); all service marks and service mark applications;
all trade secrets and inventions; all copyrights and copyright applications
(including all computer software and related documentation); all rights and
interests in and to trademarks, trademark registrations and applications
therefor, trade names, corporate names, brand names, slogans, all goodwill
associated with the foregoing; all license agreements and franchise agreements,
all reversionary interests in pension and profit sharing plans and reversionary,
beneficial and residual interest in trusts; all proceeds of insurance of which
Grantor is beneficiary; and all letters of credit, guaranties, liens, security
interests and other security held by or granted to Grantor; and all other
intangible property, whether or not similar to the foregoing;
LAB PROCESSING AND ENGINEERING INFORMATION: All rights and interests in and
to processes, lab journals, and notebooks, data, trade secrets, know-how,
product formulae and information, manufacturing, engineering and other drawings
and manuals, technology, blueprints, research and development reports, agency
agreements, technical information, technical assistance, engineering data,
design and engineering specifications, and similar materials recording or
evidencing expertise used in or employed by Grantor (including any license for
the foregoing);
CONTRACT RIGHTS: All rights and interest in and to any pending or executory
contracts, requests for quotations, invitations for bid, agreements, leases and
arrangements of which Grantor is a party to or in which Grantor has an interest,
excluding any license agreement under which the Grantor is the licensee, but
including, without limitation, all right and interest to receive monies due, or
to become due, under that certain Agreement for Purchase and Sale of Stock dated
as of January 24,1997 made by and among GFSI Holdings, Inc., the Grantor and
certain parties thereto as "Sellers";
CHATTEL PAPER, INSTRUMENTS AND DOCUMENTS: All chattel paper, leases, all
instruments, including, without limitation, the notes and debt instruments
described in Schedule 1 (the "Pledged Debt"), and all payments thereunder and
---------- ------------
instruments and other property from time to time delivered in respect thereof or
in exchange therefor, and all bills of sale, bills of lading, warehouse receipts
and other documents of title, in each instance whether now owned or hereafter
acquired by Grantor;
INTEREST AND CURRENCY CONTRACTS: Any and all interest rate, commodity or
currency exchange agreements or derivative agreements, including without
limitation, cap, collar, floor, forward or similar agreements or other rate,
currency or price protection arrangements: and
OTHER PROPERTY: All property or interests in property now owned or
hereafter acquired by Grantor which now may be owned or hereafter may come into
the possession, custody or control of Agent
-3-
<PAGE>
or any of the Holders of Secured Obligations or any agent or Affiliate of any of
them in any way and for any purpose (whether for safekeeping, deposit,
custody, pledge, transmission, collection or otherwise): and all rights and
interests of Grantor, now existing or hereafter arising and however and wherever
arising, in respect of any and all (i) notes, drafts, letters of credit, stocks,
bonds, and debt and equity securities, whether or not certificated, investment
property (as defined in Section 9-II5(I(f) of the UCC) and warrants, options,
puts and calls and other rights to acquire or otherwise relating to the same;
(ii) money; (iii) proceeds of loans, including, without limitation, loans made
under the Credit Agreement; and (iv) insurance proceeds and books and records
relating to any of the property covered by this Agreement; together, in each
instance, with all accessions and additions thereto, substitutions therefor, and
replacements, proceeds and products thereof.
SECTION 3. Authorization. Grantor hereby authorizes Agent to retain and
-------------
each Holder of Secured Obligations, and each Affiliate of Agent and of each
Holder of Secured Obligations, to pay or deliver to Agent, for the benefit of
the Holders of Secured Obligations, without any necessity on any Holder of
Secured Obligation's part to resort to other security or sources of
reimbursement for the Secured Obligations, at any time following the occurrence
and during the continuance of any Designated Default, and without further notice
to Grantor (such notice being expressly waived), any of the deposits referred to
in Section 2 (whether general or special, time or demand, provisional or final)
---------
or other sums or property held by such Person, for application against any
portion of the Secured Obligations, irrespective of whether any demand has been
made or whether such portion of the Secured Obligations is mature. Agent will
promptly notify Grantor of Agent's receipt of such funds or other property for
application against the Secured Obligations, but failure to do so will not
affect the validity or enforceability thereof. Agent may give notice of the
above grant of security interest and assignment of the aforesaid deposits and
other sums, and authorization, to, and make any suitable arrangements with, any
such Holder of Secured Obligations for effectuation thereof, and Grantor hereby
irrevocably appoints Agent as its attorney to collect, following the occurrence
and during the continuance of a Designated Default, any and all such deposits or
other sums to the extent any such payment is not made to Agent by such Holder of
Secured Obligations or Affiliate thereof.
SECTION 4. Grantor Remains Liable. Anything herein to the contrary
----------------------
notwithstanding, (a) Grantor shall remain solely liable under the contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of its duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by Agent of any of its rights
hereunder shall not release Grantor from any of its duties or obligations under
the contracts and agreements included in the Collateral, and (c) neither Agent
nor the Holders of Secured Obligations shall have any responsibility, obligation
or liability under the contracts and agreements included in the Collateral by
reason of this Agreement, not shall Agent or the Holders of Secured Obligations
be required or obligated, in any manner, to (i) perform or fulfill any of the
obligations or duties of Grantor thereunder, (ii) make any payment, or make any
inquiry as to the nature or sufficiency of any payment received by Grantor or
the sufficiency of any performance by any party under any such contract or
agreement or (iii) present or file any claim, or take any action to collect or
enforce any claim for payment assigned hereunder.
SECTION 5. Representations and Warranties. Grantor represents and warrants,
------------------------------
as of the date of this Agreement and as of each date hereafter (except for
changes permitted or contemplated by this Agreement) until termination of this
Agreement pursuant to Section 25:
----------
(a) The correct corporate name of Grantor is set forth in the first
paragraph of this Agreement. The locations listed on Schedule 2 constitute all
----------
locations at which Inventory and/or Equipment is located
-4-
<PAGE>
and Grantor has exclusive possession and control of such Equipment and
Inventory, except in each case for such Inventory and Equipment which is (i)
temporarily in transit between such locations, or (ii) temporarily stored with
third parties or held by third parties for storage, processing, manufacturing,
engineering, evaluation, or repair, the value of which does not exceed in the
aggregate at any one time $500,000, the proper corporate names of which third
parties, the location of such Inventory and/or Equipment, and the nature of the
relationship between Grantor and such third parties is set forth in Schedule
--------
2-A. Schedule 2-A may be amended to reflect additional locations. The chief
- ----------------------------------------------------------------
place of business and chief executive office of Grantor are located at the
address of Grantor set forth below the Grantor's signature on the Credit
Agreement. All records concerning any Accounts and all originals of all chattel
paper which evidence any Account are located at the addresses listed on Schedule
--------
2 and none of the Accounts is evidenced by a promissory note or other instrument
- -
except for such notes and other instruments delivered to Agent as Pledged Debt
listed on Schedule 1.
----------
(b) Grantor is the legal and beneficial owner of the Collateral free and
clear of all Liens except for Liens permitted by the Credit Agreement. Grantor
currently conducts business under the name GFSI, Inc. and, in certain areas and
for certain operations, the trade names listed on Schedule 3. The Grantor uses
----------
no trade names or fictitious names, except as set forth on Schedule 3.
----------
(c) This agreement creates in favor of Agent a legal, valid and
enforceable security interest in the Collateral. When financing statements
have been filed in the appropriate offices against Grantor in the locations
listed on Schedule 2-B, Agent will have a fully perfected first priority
------------
lien on, and security interest in, the Collateral in which a security interest
may be perfected by such filing, subject only to Liens permitted by the Credit
Agreement.
(d) No authorization, approval or other action by, and no notice to or
filing with, any Governmental Authority that has not already been taken or made
and which is in full force and effect, is required (i) for the grant by Grantor
of the security interest in the Collateral granted hereby; (ii) for the
execution, delivery or performance of this Agreement by Grantor; or (iii) for
the exercise by Agent of any of its rights or remedies hereunder.
(e) The Pledged Debt issued by any Affiliate of Grantor, and to the best
of Grantor's knowledge, all other Pledged Debt, has been duly authorized,
issued and delivered, and is the legal, valid, binding and enforceable
obligation of the respective issuer thereof.
(f) Schedule 4 contains a complete list of all of the deposit accounts
----------
of Grantor as of the Closing Date and Grantor will amend and update Schedule 4
----------
by delivering supplemental reports to Agent promptly following the establishment
of any additional deposit accounts in accordance with the terms of Section
-------
6.3(D)(iv) and 6.3(S) of the Credit Agreement, and at any time requested by
- ---------- ------
Agent. Each deposit account so scheduled is a Restricted Account or a deposit
account permitted by the terms of the Credit Agreement.
SECTION 6. Perfection and Maintenance of Security Interest and Lien.
--------------------------------------------------------
Grantor agrees that until all of the Secured Obligations (other than contingent
indemnity Obligations) have been fully satisfied and the Credit Agreement has
been terminated, Agent's security interests in and Liens on and against the
Collateral and all proceeds and products thereof, shall continue in full force
and effect. Grantor shall perform any and all steps reasonably requested by
Agent to perfect, maintain and protect Agent's security interests in and Liens
on and against the Collateral granted or purported to be granted hereby or to
enable Agent to exercise its rights and remedies hereunder with respect to
any Collateral, including, without limitation, (i) executing and filing
financing or continuation statements, or amendments thereof, in form
-5-
<PAGE>
and substance reasonably satisfactory to Agent, (ii) executing and filing all
Intellectual Property Agreements in form and substance reasonably satisfactory
to the Agent, (iii) delivering to Agent all certificates, notes and other
instruments (including, without limitation, all letters of credit on which
Grantor is named as a beneficiary) representing or evidencing Collateral,
which certificates, notes and other instruments have been duly endorsed and
are accompanied by duly executed instruments of transfer or assignment,
including, but not limited to, note powers, all in form and substance
satisfactory to Agent, (iv) delivering to Agent warehouse receipts covering that
portion of the Collateral, if any, located in warehouses and for which warehouse
receipts are issued, (v) after the occurrence and during the continuance of a
Designated Default, transferring Inventory and Equipment to warehouses
designated by Agent or taking such other steps as are reasonably deemed
necessary by Agent to maintain Agent's control of the Inventory and Equipment,
(vi) obtaining with respect to clauses (a),(b) and (c) below, and using
commercially reasonable efforts to obtain with respect to clause (d) below:
(a) waivers of Liens and access agreements in substantially the form of
Exhibit A-1 hereto (or such other form as may be agreed to by Agent) from
- -----------
landlords with respect to Grantor's leased premises where the Agent reasonably
determines that the value of the leasehold in respect of the premises leased
by Grantor from such landlord is material to the operations of Grantor or (2)
deem such leased premises to be integral to the Grantor's day-to-day operations,
(b) mortgagee agreements in substantially the form of Exhibit A-2 hereto (or
-----------
such other form as may be agreed to by Agent) from mortgagees with respect to
all leases executed after the Closing Date where the Agent reasonably determines
such leasehold to be material based on the value of the leasehold or such leased
premises is integral to Grantor's day-to-day operations, (c) waivers of Liens
and access agreements in substantially the form of Exhibit B-1 hereto (or such
-----------
other form as may be agreed to by Agent) from landlords and waivers of Liens and
access agreements in substantially the form of Exhibit B-2 hereto (or such other
-----------
form as may be agreed to by Agent) from the appropriate Person with respect to
all arrangements pursuant to which Inventory will be temporarily held by third
parties for storage, processing, engineering, evaluation, or repair after the
Closing Date (in connection with which Grantor shall be permitted to and hereby
required to update Schedule 2-A) where: (1) the Equipment located at any one
premises owned or operated by any such Person has a value in the aggregate of
$500,000 or greater or (2) the aggregate value of the Equipment located at all
premises owned or operated by any such Person is $2,500,000 or greater, and (d)
waivers of Liens and access agreements in substantially the form of Exhibit B-1
hereto (or such other form as may be agreed to by Agent) from the appropriate
Person with respect to all agreements in substantially the form of Exhibit B-2
hereto (or such other form as may be agreed to by Agent) from landlords and
waivers of Liens and access agreements in substantially the form of Exhibit B-2
hereto (or such other form as may be agreed to by Agent) from the appropriate
Person with respect to all arrangements pursuant to which Inventory will be
temporarily held by third parties for storage, processing, engineering,
evaluation, or repair after the Closing Date (in connection with which Grantor
shall be permitted to and hereby required to update Schedule 2-A) where: (1) the
------------
Inventory and Equipment located at any one premises owned or operated by any
such Person has a value in the aggregate of $500,000 or greater or (2) the
aggregate value of the Equipment located at all premises owned or operated by
any such Person is $2,500,000 or greater, and (vii) executing delivering all
further instruments and documents, and taking all further action, as Agent may
reasonably request.
SECTION 7. Financing Statements. To the extent permitted by applicable
--------------------
law, Grantor hereby authorizes Agent to file one or more financing or
continuation statements and amendments thereto, disclosing the security interest
granted to Agent under this Agreement without Grantor's signature appearing
thereon and Agent agrees to notify Grantor when such a filing has been made.
Grantor agrees that a carbon, photographic, photostatic, or other reproduction
of this Agreement or of a financing statement is sufficient as a financing
statement. If any Inventory or Equipment is in the possession or control of
any warehouseman or Grantor's agents or processors, Grantor shall, upon Agent's
written
-6-
<PAGE>
request, notify such warehouseman, agent or processor of Agent's security
interest in such Inventory and Equipment and, upon Agent's request, instruct
them to hold all such Inventory or Equipment for Agent's account and subject
to Agent's instructions.
SECTION 8. Filing Costs. Grantor shall pay the costs of, or incidental
------------
to, all recordings or filings of all financing statements, including, without
limitation, any filing expenses incurred by Agent pursuant to Section 7.
---------
SECTION 9. Schedule of Collateral. Grantor shall, at the written request
----------------------
of the Agent, furnish to Agent from time to time statements and schedules
further identifying and describing the Collateral and such other reports in
connection with the Collateral as Agent may reasonably request, all in
reasonable detail.
SECTION 10. Equipment and Inventory. Grantor covenants and agrees with
-----------------------
Agent that from the date of this Agreement and until termination of this
Agreement, including pursuant to Section 25, Grantor shall:
----------
(a) Keep the Equipment and Inventory (other than Equipment or Inventory
sold or disposed of as permitted by the Credit Agreement or in the ordinary
course of business) at the places specified in Section 5(a), except for
------------
Equipment and Inventory (i) temporarily in transit between such locations or
(ii) temporarily held by third parties for storage, processing, engineering,
manufacturing, evaluation, or repair and set forth on Schedule 2-A in
------------
amounts not in excess of $500,000 and in connection with which the Grantor has
complied with the requirements set forth in Section 6, and deliver written
---------
notice to Agent at least thirty (30) days prior to establishing any other
location at which or third party with which it reasonably expects to maintain
Inventory and/or Equipment in which location or with which third party all
action required by this Agreement shall have been taken with respect to all such
Equipment and Inventory;
(b) Maintain or cause to be maintained in good repair, working order and
condition, excepting ordinary wear and tear and damage due to casualty, all of
the Equipment, and make or cause to be made all appropriate repairs, renewals
and replacements thereof, as quickly as practicable after the occurrence of any
loss or damage thereto which are necessary or desirable to such end; and
(c) Comply with the terms of the Credit Agreement with respect to such
Equipment and Inventory, including, without limitation, the maintenance and
insurance provisions set forth in Section 62(E), (G) and (I) of the Credit
------------- --- ---
Agreement.
SECTION 11. Accounts. Grantor convenants and agrees with Agent that from
--------
and after the date of this Agreement and until termination of this Agreement,
including pursuant to Section 25, Grantor shall:
----------
(a) Keep its chief place of business and chief executive office and
the office where it keeps its records concerning the Accounts at its address
set forth below the Grantor's signature on the Credit Agreement, and keep
the offices where it keeps all original of all chattel paper which evidence
Accounts at the locations therefor specified in Section 5(a) or, upon thirty
-----------
(30) days' prior written notice to Agent, at such other locations within the
United States in a jurisdiction where all actions required by Section 6 shall
---------
have been taken with respect to the Accounts. Grantor will hold and preserve
such records (in accordance with Grantor's usual document retention practices)
and chattel paper and will permit representatives of
-7-
<PAGE>
Agent, during normal business hours and on reasonable notice, to inspect and
make abstracts from such records and chattel paper in accordance with the
provisions of Section 6.3(F) of the Credit Agreement; and
(b) In any suit, proceeding or action brought by Agent under any Account
comprising part of the Collateral, Grantor will save, indemnify and keep each of
the Holders of Secured Obligations harmless from and against all reasonable and
documented expenses, loss or damage suffered by reason of any defense, setoff,
counterclaim, recoupment or reduction of liability whatsoever of the obligor
thereunder, arising out of a breach by Grantor of any obligation or arising out
of any other agreement, indebtedness or liability at any time owing to or in
favor of such Holder of Secured Obligations from Grantor, and all such
obligations of Grantor shall be and shall remain enforceable against and only
against Grantor and shall not be enforceable against any of the Holders of
Secured Obligations.
(c) When Grantor or any of its Subsidiaries (or any Affiliates,
shareholders, directors, officers, employees, agents or those Persons acting for
or in concert with Grantor or a Subsidiary of Grantor) shall receive or come
into the possession or control of any monies, checks, notes, drafts or any other
payment relating to, or proceeds of, Grantor's Accounts or other property
constituting Collateral hereunder (individually, a "Payment Item", and,
------------
collectively, "Payment Items"), then, except as otherwise permitted in a writing
-------------
signed by Agent, Grantor shall, or shall cause such Subsidiary or such other
Person to, deposit the same, in kind in precisely the form in which such Payment
Item was received (with all Payment Items endorsed if necessary for collection)
into a Restricted Account except as permitted by the Credit Agreement. The
Grantor further agrees that it will not, during the term of this Agreement,
without the written consent of the Agent, transfer any from a Restricted Account
to any deposit account that is not a Restricted Account or other deposit account
permitted by the Credit Agreement.
SECTION 12. Leased Real Property. Grantor covenants and agrees with Agent
--------------------
that from and after the date of this Agreement and until termination of this
Agreement, including pursuant to Section 25, that:
----------
(a) Promptly following, but not later than ninety (90) days after entering
into any leases meeting the criteria set forth in Section 6(vi). Grantor will
-------------
furnish to Agent a report certified to be true and correct by Grantor setting
forth a description of the leased premises related thereto; the name or names of
all owners; rentals being paid: and whether Grantor has obtained waivers of
Liens and access agreements from landlords and mortgages with respect to such
premises in accordance with Section 6:
---------
(b) Grantor agrees that, from and after the occurrence and continuance of a
Designated Default, Agent may, but need not, make any payment or perform any act
hereinbefore required of Grantor with respect to the Grantor's leased premises
in any form and manner deemed expedient. All money paid for any of the purposes
herein authorized and all other moneys advanced by Agent to protect the lien
hereof shall be additional Secured Obligations secured hereby and shall become
immediately due and payable without notice and shall bear interest thereon at
the then applicable default interest rate with respect to Floating Rate Loans as
provided in Section 2.11 of the Credit Agreement until paid to Agent in full;
------------
and
(c) Grantor agrees that it will not amend any lease in a manner that
materially adversely affects the interests of the Holders of Secured Obligations
without the Agent's prior written consent (such consent not to be unreasonably
withheld).
SECTION 13. General Covenants. Grantor covenants and agrees with Agent that
-----------------
from and after the date of this Agreement and until termination of this
Agreement, including pursuant to Section 25, Grantor shall:
----------
-8-
<PAGE>
(a) Keep and maintain at Grantor's own cost and expense reasonably
satisfactory and reasonably complete records of Grantor's Collateral in a manner
consistent with Grantor's current business practice, including, without
limitation, a record of all payments received and all credits granted with
respect to such Collateral. Grantor shall, for Agent's further security, deliver
and turn over to Agent or Agent's designated representatives at any time
following the occurrence and during the continuation of a Designated Default,
any such books and records (including, without limitation, any and all computer
tapes, programs and source and object codes relating to such Collateral in which
Grantor has an interest or any part or parts thereof): and
(b) Grantor will not create, permit or suffer to exist, and will defend the
Collateral against, and take such other action as is necessary to remove, any
Lien on such Collateral other than Liens permitted under the Credit Agreement,
and will defend the right, title and interest of Agent in and to Grantor's
rights to such Collateral, including, without limitation, the proceeds and
products thereof, against the claims and demands of all Persons whatsoever.
(c) Grantor will not, and will not permit any Restricted Subsidiary to,
create or otherwise become effective any consensual encumbrance or restriction
of any kind on or in respect of (i) any license agreement to which Grantor is a
licensee, (ii) the Management Notes or (iii) the Embroidery Affiliate Notes.
SECTION 14. Agent Appointed Attorney-In-Fact. Upon the occurrence and
--------------------------------
during the continuance of a Designated Default, Grantor hereby irrevocably
appoints Agent as Grantor's attorney-in-fact, with full authority in the
place and stead of Grantor and in the name Grantor or otherwise, from time
to time in Agent's discretion to take any action and to execute any
instrument which Agent may reasonably deem necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation (a)
following the occurrence and during the continuance of a Designated
Default, to:
(i) obtain and adjust insurance required to be paid to the
Agent or any Holders of Secured Obligations pursuant to the Credit
Agreement:
(ii) ask, demand, collect, sue for, recover, compromise, receive
and give acquittance and receipts for moneys due and to become due
under or in respect of any of the Collateral;
(iii) receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with clause
------
(i) or (ii) above: and
- --
(iv) file any claims or take any action or institute any
proceedings which Agent may deem necessary or desirable for the
collection of any of the Collateral, or otherwise to enforce the
rights of Agent with respect to any of the Collateral;
provided, however, that the Grantor irrevocably appoints Agent as Grantor's
attorney-in-fact, with full authority in place and stead of Grantor and in the
name of the Grantor or otherwise, from time to time in Agent's discretion, at
any time, to take any reasonable action and to execute any instrument which the
Agent may reasonably deem necessary or advisable, to:
(i) obtain access to records maintained for Grantor by computer
services companies and other service companies or bureaus;
-9-
<PAGE>
(ii) send requests under Grantor's, the Agent's or a fictitious
name to Grantor's customers or account debtors for verification of
Accounts provided that the Agent gives the Grantor written notice
prior to initiating any such verifications; and
(iii) do all other things consistent with the terms of this
Agreement as may be reasonably necessary to carry out the terms
hereof.
SECTION 15. Agent May Perform. If Grantor fails to perform any agreement
-----------------
contained herein or in the Credit Agreement, Agent may, upon three days prior
written notice to the Grantor, perform, or cause performance of, such
agreement, and the reasonable and documented expenses of Agent incurred in
connection therewith shall be payable by Grantor under Section 22.
----------
SECTION 16. Agent's Duties. The powers conferred an Agent hereunder are
------------
solely to protect its interest in the Collateral and shall not impose any duty
upon it to exercise any such powers. Except for the safe custody of any
Collateral in its possession and the accounting for moneys actually received by
it hereunder, Agent shall not have any duty as to any Collateral. Agent shall be
deemed to have exercised reasonable care in the custody and preservation of the
Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which Agent accords its own property, it being
understood that Agent shall be under no obligation to take any necessary steps
to preserve rights against prior parties or any other rights pertaining to any
Collateral, but may do so at its option, and all reasonable expenses incurred in
connection therewith shall be for the sole account of Grantor and shall be added
to the Secured Obligations.
SECTION 17. Remedies. (a) If any Designated Default shall have occurred and
--------
and be continuing:
(i) Agent shall have, in addition to other rights and remedies provided
for herein or otherwise available to it, all the rights and remedies of a
secured party upon default under the UCC ( whether or not the UCC applies to the
affected Collateral) and further, Agent may, without notice, demand or legal
process of any kind (except as may be required by law), all of which Grantor
waives, at any time or times, (x) enter Grantor's owned or leased premises and
take physical possession of the Collateral and maintain such possession on
Grantor's owned or leased premises at no cost to Agent or any of the Holders of
Secured Obligations, or remove the Collateral, or any part thereof, to such
other place(s) as Agent may desire,(y) require Grantor to, and Grantor hereby
agrees that it will at its expense and upon request of Agent forthwith, assemble
all or any part of the Collateral as directed by Agent and make it available to
Agent at a place to be designated by Agent which is reasonably convenient to
Agent and (z) without notice except as specified below, sell, lease, assign,
grant an option or options to purchase or otherwise dispose of the Collateral or
any part thereof at public or private sale, at any exchange, broker's board or
at any of the offices of Agent or elsewhere, for cash, on credit or future
delivery, and upon such other terms as Agent may deem commercially reasonable.
Grantor agrees that, to the extent notice of sale shall be required by law, at
least ten (10) days' notice to Grantor of the time and place of any public sale
or the time after which any private sale is to be made shall constitute
reasonable notification. Agent shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. Agent may adjourn any
public or private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at time and
place to which it was so adjourned:
(ii) Agent shall apply all cash proceeds received by Agent in respect of
any sale of, collection from, or other realization upon all or any part of the
Collateral (after payment of any amounts payable to Agent pursuant to Section
-------
22), for the benefit of the Holders of Secured Obligations, against all or any
- ---
part of the
-10-
<PAGE>
Secured Obligations in such order as may be required by the Credit Agreement
or, to the extent not specified therein, as is determined by the Required
Lenders. Any surplus of such cash or cash proceeds held by Agent and remaining
after payment in full of all the Secured Obligations shall be paid over to
Grantor or to whomsoever may be lawfully entitled to receive such surplus;
(b) Grantor waives all claims, damages and demands against Agent arising
out of the repossession, retention or sale of any of the Collateral or any part
or parts thereof, except any such claims, damages and awards arising out of the
Gross Negligence or willful misconduct of Agent or any of the Holders of Secured
Obligations, as the case may be, as determined in a final non-appealed judgment
of a court of competent jurisdiction; and
(c) The rights and remedies provided under this Agreement are cumulative
and may be exercised singly or concurrently and are not exclusive of any rights
and remedies provided by law or equity.
SECTION 18. Exercise of Remedies. In connection with the exercise of its
--------------------
remedies pursuant to Section 17, Agent may, (i) exchange, enforce, waive or
----------
release any portion of the Collateral and any other security for the Secured
Obligations; (ii) apply such Collateral or security and direct the order or
manner of sale thereof as Agent may, from time to time, determine; and (iii)
settle, compromise, collect or otherwise liquidate any such Collateral or
security in any manner following the occurrence of a Designated Default,
without affecting or impairing Agent's right to take any other further action
with respect to any Collateral or security or any part thereof.
SECTION 19. License. Agent is hereby granted a license or other right to
-------
use, following the occurrence and during the continuance of a Designated
Default, without charge, (a) Grantor's labels, patents, copyrights, trade
secrets, trade names, trademarks, service marks, customer lists and advertising
matter, or any property of a similar nature, as it pertains to the Collateral,
in completing production of, advertising for sale, and selling any Collateral,
provided that Agent uses quality standards at least substantially equivalent to
those of Grantor for the manufacture, advertising, sale and distribution of
Grantor's products and services and (b) Grantor's rights under all licenses
where Grantor is licensor, except to the extent such licenses by their terms
prohibit the granting of such rights, and all franchise agreements shall inure
to Agent's benefit. Notwithstanding any provision to the contrary contained in
this Agreement or any other Loan Document, license agreements under which
Grantor is licensee shall be excluded from the Collateral.
SECTION 20. Injunctive Relief. Grantor recognizes that in the event Grantor
-----------------
fails to perform, observe or discharge any of its obligations or liabilities
under this Agreement, any remedy of law may prove to be inadequate relief to the
Holders of Secured Obligations; therefore, Grantor agrees that the Holders of
Secured Obligations, if Agent so determines and requests, shall be entitled to
temporary and permanent injunctive relief in any such case without the necessity
of proving actual damages.
SECTION 21. Interpretation and Inconsistencies: Merger: No Strict
----------------------------------------------------
Construction.
- ------------
(a) The rights and duties created by this Agreement shall, in all cases, be
interpreted consistently with, and shall be in addition to (and not in lieu of),
the rights and duties created by the Credit Agreement and the other Loan
Documents. In the event that any provision of this Agreement shall be
inconsistent with any provision of any other Loan Document, such provision of
the other Loan Document shall govern.
-11-
<PAGE>
(b) Except as provided in subsection (a) above, this Agreement represents
the final agreement of the Grantor and the Agent with respect to the matters
contained herein and may not be contradicted by evidence of prior or
contemporaneous agreements, or subsequent oral agreements, between the Grantor
and the Agent or any other Holder of Secured Obligations.
(c) The parties hereto have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties hereto and no presumption or burden of proof shall arise favoring
or disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
SECTION 22. Expenses. Grantor will upon demand pay to Agent and/or the
--------
Holders of Secured Obligations the amount of any and all reasonable and
documented expenses, including the reasonable fees and disbursements of their
counsel and of any experts and agents, as provided in Section 9.7 of the Credit
-----------
Agreement.
SECTION 23. Amendments Etc. No amendment or waiver of any provision of this
---------------
Agreement nor consent to any departure by Grantor herefrom shall in any event be
effective unless the same shall be in writing and signed by Agent and Grantor,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
SECTION 24. Notices. All notices and other communications provided for
-------
hereunder shall be delivered in the manner set forth in Section 13.1 of the
------------
Credit Agreement.
SECTION 25. Continuing Security Interest; Termination. (a) Except as
-----------------------------------------
provided in Section 25(b), this Agreement shall create a continuing security
-------------
interest in the Collateral and shall (i) remain in full force and effect until
the later of the payment or satisfaction in full of the Secured Obligations
(other than contingent indemnity obligations) and the termination of the Credit
Agreement, (ii) be binding upon Grantor, its successors and assigns and (iii)
except to the extent that the rights of any transferor, or assignor are limited
by the terms of the Credit Agreement, inure, together with the rights and
remedies of Agent hereunder, to the benefit of Agent and any of the Holders of
Secured Obligations. Nothing set forth herein or in any other Loan Document is
intended or shall be construed to give any other Person any right, remedy or
claim under, to or in respect of this Agreement or any other Loan Document or
any Collateral. Grantor's successors and assigns shall include, without
limitation, a receiver, trustee or debtor-in-possession thereof or therefor.
(b) Upon the payment in full in cash of the Secured Obligations (other than
contingent indemnity obligations) and the termination of the Credit Agreement,
this Agreement and the security interest granted hereby shall automatically
terminate and all rights to the Collateral shall revert to Grantor. Upon any
such termination of security interest, Grantor shall be entitled to the return,
upon its request and at its expense, of such of the Collateral held by Agent as
shall not have been sold or otherwise applied pursuant to the terms hereof and
Agent will, at Grantor's expense, promptly execute and deliver to Grantor such
other documents as Grantor shall reasonably request to evidence such
termination. In connection with any sales of assets permitted under the Credit
Agreement, the liens and security interests granted under this Agreement will
automatically release and terminate with respect to such assets and the Agent
shall promptly make all filings necessary to reflect such release and
termination.
SECTION 26. Severability. It is the parties' intention that this Agreement
------------
be interpreted in such a way that it is valid and effective under applicable
law. However, if one or more of the provisions of this
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<PAGE>
Agreement shall for any reason be found to be invalid or unenforceable, the
remaining provisions of this Agreement shall be unimpaired.
SECTION 27. GOVERNING LAW. THE AGENT ACCEPTS THIS AGREEMENT, ON BEHALF OF
-------------
ITSELF AND THE LENDERS, AT CHICAGO, ILLINOIS BY ACKNOWLEDGING AND AGREEING TO IT
THERE. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL LAWS (WITHOUT REGARD TO CONFLICTS OF LAW
PROVISIONS) OF THE STATE OF ILLINOIS. WITHOUT LIMITING THE FOREGOING, ANY
DISPUTE BETWEEN THE GRANTOR AND THE AGENT, ANY LENDER, OR ANY OTHER HOLDER OF
SECURED OBLIGATIONS ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO
THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS AGREEMENT,
AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED
IN ACCORDANCE WITH THE INTERNAL LAWS (WITHOUT REGARD TO THE CONFLICTS OF LAWS
PROVISIONS) OF THE STATE OF ILLINOIS.
SECTION 28. CONSENT TO JURISDICTION: SERVICES OF PROCESS: JURY TRIAL
--------------------------------------------------------
(A) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED AS PROVIDED IN SUBSECTION
---------------------- ----------
(B), EACH OF THE PARTIES HERETO AGREES THAT ALL DISPUTES BETWEEN THEM ARISING
- ---
OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, WHETHER ARISING IN
CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED EXCLUSIVELY BY STATE OR
FEDERAL COURTS LOCATED IN CHICAGO, ILLINOIS, BUT THE PARTIES HERETO ACKNOWLEDGE
THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED
OUTSIDE OF CHICAGO, ILLINOIS.
(B) OTHER JURISDICTIONS. GRANTOR AGREES THAT THE AGENTS, ANY LENDER OR
-------------------
ANY HOLDER OF SECURED OBLIGATIONS SHALL HAVE THE RIGHT TO PROCEED AGAINST
GRANTOR OR ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1)
OBTAIN PERSONAL JURISDICTION OVER THE GRANTOR OR (2) REALIZE ON THE COLLATERAL
OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE A JUDGMENT OR OTHER
COURT ORDER ENTERED IN FAVOUR OF SUCH PERSON. GRANTOR AGREES THAT IT WILL NOT
ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY SUCH PERSON TO
REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH PERSON.
(C) SERVICE OF PROCESS. GRANTOR WAIVES PERSONAL SERVICE OF ANY PROCESS
-------------------
UPON IT AND, AS ADDITIONAL SECURITY FOR THE OBLIGATIONS, IRREVOCABLY APPOINTS
THE CORPORATION TRUST COMPANY, THE GRANTOR'S REGISTERED AGENT, WHOSE ADDRESS IS
CORPORATION TRUST CENTER 1209 ORANGE STREET, WILMINGTON, DELAWARE 19801, AS
GRANTOR'S AGENT FOR THE PURPOSE OF ACCEPTING SERVICE OF PROCESS ISSUED BY ANY
COURT. GRANTOR IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING, WITHOUT LIMITATION,
ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
---------
CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH
- ----------
ACTION OR PROCEEDING WITH
-13-
<PAGE>
RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH IN ANY JURISDICTION SET FORTH ABOVE
AND EACH OF THE OTHER PARTIES HERETO WAIVES IN ALL DISPUTES BROUGHT PURSUANT TO
SUBSECTION (A) ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT
CONSIDERING THE DISPUTE.
(D) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES
--------------------
ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING
IN CONTRACT, TORT OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY
SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A
COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(E) WAIVER OF BOND. GRANTOR WAIVES THE POSTING OF ANY BOND OTHERWISE
--------------
REQUIRED OF ANY PARTY HERETO IN CONNECTION WITH ANY JUDICIAL PROCESS OR
PROCEEDING TO REALIZE ON THE COLLATERAL (INCLUDING, WITHOUT LIMITATION, THE REAL
PROPERTY COLLATERAL) OR ANY OTHER SECURITY FOR THE SECURED OBLIGATIONS OR TO
ENFORCE ANY JUDGEMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PARTY, OR TO
ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER, PRELIMINARY OR
PERMANENT INJUNCTION, THIS AGREEMENT OR ANY LOAN OTHER LOAN DOCUMENT.
(F) ADVICE OF COUNSEL. EACH OF THE PARTIES REPRESENTS TO EACH OTHER PARTY
-----------------
HERETO THAT IT HAS DISCUSSED THIS AGREEMENT AND, SPECIFICALLY, THE PROVISIONS OF
THIS SECTION 28, WITH ITS COUNSEL.
----------
IN WITNESS WHEREOF, Grantor has caused this Agreement to be duly executed
and delivered by its officer thereunto duly authorized as of the date first
above written.
[GRANTOR]
By:______________________________
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO,
as AGENT
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<PAGE>
By:________________________________
Name:
Title:
Signature Page to Subsidiary Security Agreement
dated February 27, 1997
<PAGE>
EXHIBIT A-1
To
Security Agreement
Form of Landlord Agreement
--------------------------
The First National Bank
of Chicago, as Agent
One First National Plaza
Suite 0173
Chicago, Illinois 60670-0173
Attention: Nathan L. Bloch
Ladies and Gentlemen:
[Restricted Subsidiary], a _____________ corporation ("Lessee"), is the
---------------------
lessee under that certain lease dated ________ between the Lessee, and the
undersigned, covering certain premises owned by the undersigned and located at
____________ (the "Premises") more fully described in the lease attached hereto
as Exhibit A (the "Lease"). Lessee has certain of its assets located on the
---------
Premises.
GFSI, Inc., a Delaware corporation, (the "Borrower") has entered into
certain financing arrangements with a group of lenders ("Lenders") including The
First National Bank of Chicago, as contractual representative for the Lenders
(the "Agent") and the Agent and the Lenders require, among other things, that
Lessee grant liens in favor of the Agent for the benefit of itself and the
Lenders on all of Lessee's property located on the Premises ("Collateral") [and
that the Lessee grant a mortgage ("Leasehold Mortgage") in favor of the Agent
covering the Lessee's leasehold estate created under the Lease].
[To induce the Agent and the Lenders (together with their respective
agents, successors and assigns) to enter into said financing arrangements, [and
for other good and valuable consideration,] the undersigned hereby agrees] [By
its signature below, the undersigned agrees] that:
(i) the Lease is in full force and effect in the form attached
hereto as Exhibit A and represents the full and complete agreement between
Lessee and the undersigned concerning the Premises [and the Lease shall not
be amended or modified in any material respect without Agent's prior
written consent, which consent shall not be unreasonably withheld];
(ii) it will not assert against any of Lessee's assets any statutory
or possessory liens, including, without limitation, rights of levy or
distraint for rent, all of which it hereby waives [and hereby subordinates
to the lien of the Leasehold Mortgage];
(iii) none of the Collateral located on the Premises shall be deemed
to be fixtures;
(iv) it will allow Agent thirty (30) days from the Agent's receipt
of notice in which to cure or cause Lessee to cure any defaults on Lessee's
lease obligations to the undersigned; provided if such default cannot
--------
reasonably be cured within the thirty (30) day period, and provided the
Agent is diligently pursuing a cure, then Agent shall have a reasonable
period to cure such default;
<PAGE>
[(v) if, for any reason whatsoever, the undersigned either deems
itself entitled to redeem or to take possession of the Premises during the
term of Lessee's lease or intends to sell or otherwise transfer all or any
part of its interest in the Premises, the undersigned will notify Agent
five (5) days before taking such action;]
(vi) if Lessee defaults on its obligations to the Agent or any
Lender and, as a result, the Agent undertakes to enforce its security
interest in the Collateral, the undersigned will cooperate with the Agent
in its efforts to assemble all of the Collateral located on the Premises,
will permit Agent to remain on the Premises for ninety (90) days after the
Agent gives the undersigned notice of default, provided Agent pays the
rental payments due under the Lease for the period of time Agent uses the
Premises, or, at Agent's option, to remove the Collateral from the Premises
within a reasonable time, not to exceed ninety (90) days after the Agent
gives the undersigned notice of default, provided Agent pays the rental
payments due under the Lease for the period of time Agent uses the
Premises, and will not hinder Agent's actions in enforcing its liens on the
Collateral;
(vii) the undersigned shall accept performance by the Agent of the
Lessee's obligations under the Lease as though the same had been performed
by the holder of the Lessee's interest therein at the time of such
performance. Upon the cure of any such default, any notice of Landlord
advising of any default or any action of the undersigned to terminate the
Lease or to interfere with the occupancy, use or enjoyment of the Premises
by reason thereof, which action has not been completed, shall be deemed
rescinded and the Lease shall continue in full force and effect. The
undersigned shall not be required to continue any possession or continue
any action to obtain possession upon the cure of any such default;
[(viii) if Lessee defaults on its obligations to the Lenders and the
Agent undertakes to enforce its security interest in the Collateral [and/or
to foreclose on Lessee's leasehold estate pursuant to the Leasehold
Mortgage], the Agent may, at its option and by written notice to the
undersigned, (1) lease the Premises from the undersigned on the same terms
as set forth in the Lease and exercise the other rights as lessee
thereunder as described therein and/or (2) assign the Lease and/or the
attornment rights hereunder to, or enter into a sublease with, a purchaser
of the Collateral which purchaser is reasonably acceptable to the
undersigned, and the undersigned shall cooperate with any such enforcement
action or foreclosure and consent to the assumption of the Lease, the
sublet of the Premises or foreclosure sale of the leasehold estate]; and
[(ix) in the event that Lessee shall become a debtor under the
Federal Bankruptcy Code (or any similar state law proceeding) and, in
connection therewith, Borrower shall reject the Lease as an executory
contact, then within thirty (30) days following such rejection, upon the
written request by the Agent, the undersigned shall enter into a new lease
of the Premises with the Agent or its designee (who shall be reasonably
acceptable to the undersigned), for the benefit of the Lenders which new
lease (1) shall be effective as of the date of the termination of the
Lease, (2) shall be for a term expiring as of the last day of the term of
the Lease, and (3) shall be on substantially the same terms and conditions
as the Lease (including any provisions for renewal or extension of the term
of the Lease); provided that the Lender or such designee, as the case may
--------
be, shall be required, as a condition to the effectiveness of such new
lease, to pay the Lessor any amount equal to any rent remaining unpaid by
Lessee under the Lease.]
<PAGE>
Any notice(s) required or desired to be given hereunder shall be directed
to the party to be notified at the address stated herein.
The agreements contained herein shall continue in force until all of
Borrower's obligations and liabilities to the Agent and the Lenders are paid and
satisfied in full and all financing arrangements among the Agent, the Lenders
and Borrower have been terminated.
The undersigned will notify all successor owners, transferees, purchasers
and mortgagees of the existence of this waiver. The agreements contained herein
may not be modified or terminated orally and shall be binding upon the
successors, assigns and personal representatives of the undersigned, upon any
successor owner or transferee of the Premises, and upon any purchasers,
including any mortgagee, from the undersigned.
[The undersigned consents to the granting of the Leasehold Mortgage to the
Agent and to the liens, security interest and encumbrances created by and
resulting from the Leasehold Mortgage or other documents collateral thereto in
the form attached hereto as Exhibit B.]
---------
The undersigned agrees that nothing contained in this waiver shall be
construed as an assumption by the Agent or any of the other lenders of any
obligations of Lessee contained in the Lease.
Executed and delivered this __ day of ____, 199_, at __________________.
THIS WAIVER SHALL NOT IMPAIR OR OTHERWISE AFFECT LESSEE'S OBLIGATIONS
TO PAY RENT AND ANY OTHER SUMS PAYABLE BY LESSEE OR TO OTHERWISE PERFORM ITS
OBLIGATIONS TO THE LESSOR PURSUANT TO THE TERMS OF THE LEASE.
[Name of Lessor]
By:________________________
Title:_____________________
Address:
______________________
______________________
______________________
AGREED & ACKNOWLEDGED:
[Lessee]
<PAGE>
By:______________________
Title:___________________
Address: ______________________
_________________________
<PAGE>
[ACKNOWLEDGMENT (CORPORATE)
STATE OF _______________ )
) SS.
COUNTY OF ______________ )
Before me, a Notary Public in and for said County, personally appeared
______________, a _____________ corporation, by the _________________ of such
corporation, who acknowledged that (s)he did sign the foregoing instrument on
behalf of said corporation and that said instrument is the voluntary act and
deed of said corporation and his/her voluntary act and deed as such officer of
said corporation.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed
my official seal this __ day of __________, 199_ at ___________, ______________.
__________________________________
Notary Public
My Commission Expires:]
(Notarial Seal)
<PAGE>
[ACKNOWLEDGMENT (CORPORATE)
STATE OF _______________ )
) SS.
COUNTY OF ______________ )
Before me, a Notary Public in and for said County, personally appeared
[Restricted Subsidiary], a _____________ corporation, by the ___________________
of such corporation, who acknowledged that (s)he did sign the foregoing
instrument on behalf of said corporation and that said instrument is the
voluntary act and deed of said corporation and his/her voluntary act and deed as
such officer of said corporation.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed
my official seal this __ day of __________, 199_ at _________, ________________.
__________________________________
Notary Public
My Commission Expires:]
(Notarial Seal)
<PAGE>
EXHIBIT A
to
Landlord Agreement
Lease
-----
(attached hereto)
<PAGE>
[EXHIBIT B
to
Landlord Agreement
Leasehold Mortgage
------------------
(attached hereto)]
<PAGE>
EXHIBIT A-2
To
Security Agreement
Form of Mortgagee Agreement
---------------------------
The First National Bank
of Chicago, as Agent
One First National Plaza
Suite 0173
Chicago, Illinois 60670-0173
Attention: Nathan L. Bloch
Ladies and Gentlemen:
[Restricted Subsidiary], a _______ corporation ("Lessee"), is the lessee
under that certain lease dated ______ between the Lessee and ___________________
(the "Landlord[s]"), covering certain premises located at ________________ (the
"Premises") as more fully described on Exhibit A /1/ attached hereto (the
---------
"Lease"). The undersigned is the mortgagee under a mortgage between the
Landlord[s] and the undersigned covering the Premises (the "Mortgage"). The
undersigned is the sole mortgagee of the Premises. Lessee has certain of its
assets located on the Premises.
GFSI, Inc., a Delaware corporation has entered into certain financing
arrangements with a group of lenders ("Lenders") including The First National
Bank of Chicago, as contractual representative for the Lenders (the "Agent") and
the Agent and the Lenders require, among other things, that Lessee grant liens
in favor of the Agent for the benefit of itself and the Lenders on all of
Lessee's property located on the Premises ("Collateral") [and that the Lessee
grant a mortgage ("Leasehold Mortgage") in favor of the Agent covering the
Lessee's leasehold estate created under the Lease].
[To induce the Agent and the Lenders (together with their respective
agents, successors and assigns) to enter into said financing arrangements, and
for other good and valuable consideration, the undersigned hereby agrees] [By
its signature below, the undersigned agrees] that:
[(i) it consents to the merger referred to in the first paragraph
hereof and agrees that such merger shall not in any way be deemed to be a
default under the Mortgage;]
(ii) it will not assert against any of the Collateral any statutory or
possessory liens, including, without limitation, rights of levy or
distraint for rent, all of which it hereby waives;
(iii) none of the Collateral located on the Premises shall be deemed
to be fixtures;
(iv) it will allow Agent thirty (30) days from the Agent's receipt of
notice in which to cure or cause Lessee to cure any such defaults on its
mortgage obligations; provided if such default cannot reasonably be cured within
the thirty (30) day period, and provided the
_______________________
/1/ Please attach legal description of premises for recordation purposes.
<PAGE>
Agent is diligently pursuing a cure, then Agent shall have a reasonable
period to cure such default;
[(v) if, for any reason whatsoever, the undersigned either deems itself
entitled to take possession of the Premises during the term of the Mortgage
or intends to sell or otherwise transfer all or any part of its interest in
the Premises, the undersigned will notify Agent five (5) days before taking
such actions;]
(vi) if Lessee defaults on its obligations to the Agent or any Lender
and, as a result, the Agent undertakes to enforce its security interest in
the Collateral, the undersigned will cooperate with the Agent in its
efforts to assemble all of the Collateral located on the Premises, will
permit Agent to remain on the Premises for ninety (90) days after Agent
gives the undersigned notice of default, provided Agent pays the Lease
payments to the Landlord[s] due under the Lease for the period of time
Agent uses the Premises, or, at Agent's option, to remove the Collateral
from the Premises within a reasonable time, not to exceed ninety (90) days
after Agent gives the undersigned notice of default, provided Agent pays
the rental payments to the Landlord[s] due under the Lease for the period
of time Agent uses the Premises, and will not hinder Agent's actions in
enforcing its liens on the Collateral; and
Any notice(s) required or desired to be given hereunder shall be directed
to the party to be notified at the address stated herein.
The agreements contained herein shall continue in force until all of
Borrower's obligations and liabilities to the Agent and the Lenders are paid and
satisfied in full and and all financing arrangements among the Agent, the
Lenders and Borrower have been terminated.
The undersigned will notify all successor owners, transferees, purchasers
and mortgagees of the existence of this waiver. The agreements contained herein
may not be modified or terminated orally and shall be binding upon the
successors, assigns and personal representatives of the undersigned, upon any
successor owner or transferee of the Premises, and upon any purchasers,
including any mortgagee, from the undersigned.
[The undersigned consents to the granting of the Leasehold Mortgage to the
Agent and to the liens, security interests and encumbrances created by and
resulting from the Leasehold Mortgage or other documents collateral thereto in
the form attached hereto as Exhibit B.]
---------
The undersigned agrees that nothing contained in this waiver shall be
construed as an assumption by the agent or any of the other lenders of any
obligations of the landlord contained in the mortgage.
Executed and delivered this ___ day of _________, 199_, at _____________.
<PAGE>
THIS WAIVER SHALL NOT IMPAIR OR OTHERWISE AFFECT LESSEE'S OBLIGATIONS
TO PAY RENT AND ANY OTHER SUMS PAYABLE BY LESSEE OR TO OTHERWISE PERFORM ITS
OBLIGATIONS TO THE LANDLORD PURSUANT TO THE TERMS OF THE LEASE.
[Name of Mortgagee]
By:_______________________________
Title:__________________________
Address:
__________________________
__________________________
__________________________
AGREED & ACKNOWLEDGED:
[RESTRICTED SUBSIDIARY]
By:_______________________
Title:____________________
Address:______________________
_____________________
<PAGE>
[STATE OF __________)
) SS
COUNTY OF __________)
The foregoing letter agreement was acknowledged before me this ____
day of ___________, 199_, by _______________, a ____________ of _____________, a
__________________, on behalf of such ____________________.
______________________________
Nortary Public
__________ County, ___________
My commission expires:_______]
<PAGE>
EXHIBIT A
to
Mortgagee Agreement
Lease
-----
(attached hereto)
<PAGE>
[EXHIBIT B
to
Mortgagee Agreement
Leasehold Mortgage
------------------
(attached hereto)]
<PAGE>
EXHIBIT B
TO
SECURITY AGREEMENT
Form of Bailee Letter
---------------------
The First National Bank
of Chicago, as Agent
One First National Plaza
Suite 0173
Chicago, Illinois 60670-0173
Attention: Nathan L. Bloch
Ladies and Gentlemen:
[Restricted Subsidiary], a _______ corporation (the "Bailee"), now does or
hereafter may store certain of its merchandise, inventory, or other of its
personal property at premises located at _____________ (the "Premises") owned or
leased by the undersigned.
GFSI, Inc., a Delaware corporation (the "Borrower") has entered into
certain financing arrangements with a group of lenders (the "Lenders") including
The First National Bank of Chicago, as contractual representative for the
Lenders (the "Agent") and the Agent and the Lenders require, among other things,
that Bailee grant liens in favor of the Agent for the benefit of itself and the
Lenders on all of Bailee's property located on the Premises ("Collateral").
[To induce the Agent and the Lenders (together with their respective
agents, successors and assigns) to enter into said financing arrangements, [and
for other good and valuable consideration,] the undersigned hereby agrees] [By
its signature below, the undersigned agrees] that:
(i) it will not assert against any of Bailee's assets any statutory or
possessory liens, including, without limitation, rights of levy or
distraint for rent, all of which it hereby waives;
(ii) the Collateral shall be identifiable as being owned by Bailee's
and kept reasonably separate and distinct from other property in our
possession;
(iii) if Bailee defaults on its obligations to the Lenders or the
Agent and, as a result, the Agent undertakes to enforce its security
interest in the Collateral, the undersigned will cooperate with the Agent
in its efforts to assemble all of the Collateral located on the Premises
and will permit the Agent to either remain on the Premises for ninety (90)
days after the Agent gives the undersigned notice of default or, at the
Agent's option, to remove the Collateral from the Premises within a
reasonable time, not to exceed ninety (90) days after the Agent gives the
undersigned notice of default, provided that the Agent leaves the Premises
in the same condition as existed immediately prior to such ninety (90) day
period, and shall indemnify the undersigned for any damages arising
<PAGE>
solely out of its occupancy of the Premises, and this will not hinder the
Agent's actions in enforcing its liens on the Collateral.
Any notice(s) required or desired to be given hereunder shall be directed
to the party to be notified at the address stated herein.
The agreements contained herein shall continue in force until all of
Borrower's obligations and liabilities to the Agent and Lenders are paid and
satisfied in full and all financing arrangements among the Agent, the Lenders
and Borrower have been terminated.
The undersigned will notify all successor owners, transferees, purchasers
and mortgagees of the existence of this agreement. The agreements contained
herein may not be modified or terminated orally and shall be binding upon the
successors, assigns and personal representatives of the undersigned, upon any
successor owner or transferee of any of the Premises, and upon any purchasers,
including any mortgagee, from the undersigned.
Executed and delivered this ____ day of _________, 199__, at _____________.
[Name and Address of Warehouseman/Bailee/Consignee]
(By)_______________________
<PAGE>
EXHIBIT C
To
Security Agreement
Form of Restricted Account Agreement
------------------------------------
TO: The First National Bank of Chicago
as contractual representative (the "Agent")
-----
under that certain Credit Agreement, dated as of
February 27, 1997 (the "Credit Agreement"),
----------------
among GFSI, Inc., a Delaware corporation
(the "Borrower"), the Agent and those financial
--------
institutions from time to time parties thereto
(the "Holders of Secured Obligations").
------------------------------
Ladies and Gentlemen:
You have advised us that the Borrower has entered or will enter into the
Credit Agreement and that in connection therewith the Borrower and [Restricted
Subsidiary] a ____________ corporation (the "Subsidiary") has granted to the
Agent, for its benefit and the benefit of the Holders of Secured Obligations, a
lien on and security interest in substantially all of the assets of the
Borrower, including all of the accounts receivable and inventory of the
Subsidiary.
This will confirm that the Subsidiary and the undersigned collection bank
(the "Bank") have agreed as follows with respect to (i) the account[s]
----
identified on Schedule 1 attached hereto (the "Account[s]") [and (ii) the lock
---------- ----------
box[es] identified on Schedule 2 attached hereto, to which the Subsidiary's
----------
customers and other persons and entities obligated to the Subsidiary deliver
checks and other items of payment (said [lock box is][lock boxes are]hereinafter
referred to [collectively] as the "Lock Box[es]")]:
------------
1. The Subsidiary and the Bank acknowledge and confirm that although the
Account[s][and Lock Box[es]] shall remain in the name of the Subsidiary, all
funds now or at any time hereafter deposited to the Account[s] [and Lock
Box[es]] and all of the Subsidiary's right regarding such Account[s][and Lock
Box[es]] constitute part of the collateral in which the Subsidiary has granted a
security interest to the Agent, to secure the Subsidiary's obligations under the
Credit Agreement and the other instruments, documents and agreements executed in
connection therewith, and that during a "Notification Period" (as defined
-------------------
below), the Bank shall not be permitted to follow the Subsidiary's directions as
to disbursements and deposits with respect thereto. [The Bank's authorized
representatives will have access to the Lock Box[es], under the authority given
by the Subsidiary to the appropriate Post Office, and will make regular pick-ups
from the Lock Box[es] timed to gain the maximum benefit of early presentation
and availability of funds. Upon the Bank's receipt thereof, checks and other
items of payment so received will be processed and, where possible, started on
their way through the regular channels for payment upon receipt by the Bank.
Subject to final collection, credit for such items will be given in total on the
Bank's books relating to the [appropriate] Account. The Bank will supply the
Subsidiary's endorsement on checks received by it by endorsing them "Credited to
the account of the
<PAGE>
within payee" and will present them for payment through the customary collection
procedures and subject to the terms of the Bank's by-laws covering the handling
of items deposited with it]/2/
2. The Bank will not exercise, and hereby releases, any banker's lien
upon and any right of set off against checks or other items of payment
[remitted to the Lock Box[es]] and/or deposited in the Account[s] except (i)
with respect to the Bank's normal fees and charges for operating the Account[s]
and (ii) for amounts previously credited to Subsidiary's Account[s] which the
Bank subsequently determines are uncollectible items. Checks returned unpaid
because of uncollected or insufficient funds shall be redeposited without
advice.
3. From and after the date on which the Agent notifies the Bank, in
writing, that it is exercising its rights under this Collection Account
Agreement (the "Notice") until the date on which the Agent notifies the Bank
------
that it is withdrawing such Notice (such period being referred to herein as a
"Notification Period"), the Bank, the Subsidiary and the Agent agree that,
-------------------
unless the Agent otherwise instructs the Bank in writing;
A. The Bank will not honor drafts, demands, withdrawal requests
or remittance instructions by the Subsidiary.
B. The Bank will hold solely for account of the Agent all
funds which may be on deposit in the Account[s] and the Agent shall have
the exclusive right to direct the Bank as to the disposition of all checks,
other items of payment and amounts deposited in the Account[s] and remitted
to the Lock Box[es]].
C. The Bank will remit all such funds directly to the Agent, as
soon as the funds are collected, by electronic transfer of immediately
available funds in accordance with the Agent's written wire-transfer
instructions given from time to time to the Bank.
D. The Bank shall be entitled to rely upon any notice or other
writing received from the Agent and the Subsidiary waives any claim of, and
releases the Bank from any liability for, complying with the terms of this
Collection Account Agreement.
4. [The Subsidiary will receive a receipted copy of the activity relating
to the Lock Box[es] for its records.] The Bank will not close the Account[s]
without giving the Agent at least thirty (30) days' prior written notice at the
address set forth below or such other address as the Agent may from time to time
indicate by written notice to the Bank, the Bank will send to the Agent at such
address a copy of each periodic statement for the Account, as and when the
statement is sent to the Borrower.
5. Any notice (including, without limitation, any Notice) required or
desired to be served, given or delivered hereunder shall be in writing and shall
be deemed to have been validly served, given or delivered (i) three(3) business
days after deposit in the United States mails, with proper postage prepaid, (ii)
when sent after receipt of confirmation if sent by telecopy, (iii) one(1)
business day after deposit with a reputable overnight courier with all charges
prepaid, or (iv) when delivered, if hand delivered by messenger.
________________________
/2/The last three sentences of this Section and the last sentence of the
following Section may be substituted with a cross reference to the applicable
cash-management or lock-box services agreement, if one exists.
<PAGE>
6. This Collection Account Agreement shall be binding upon the Bank and
the Subsidiary and their respective successors and assigns and shall inure to
the benefit of the Agent, each of the Holders of Secured Obligations and their
respective successors and assigns. This Collection Account Agreement may not be
modified without the Agent's prior written consent, but may be terminated by the
Agent or the Bank upon thirty (30) days' prior written notice to the other
parties hereto.
This Collection Account Agreement shall be deemed effective as of [____________,
1997] upon execution hereof by the Bank.
[Insert full name of Bank]:
By:________________
Name:
Title:
Address:
_________________
_________________
Attn:______________
Telecopy No:_________
Confirmation No:_______
<PAGE>
Acknowledged and agreed to as of this
___ day of _______, ___:
[Restricted Subsidiary]
By:______________
Name:
Title:
Address:
[___________
____________]
Attn: [_________]
Telecopy No.: [_________]
Confirmation No.: [_________]
Acknowledged and agreed to as of this
___ day of _____, ___
THE FIRST NATIONAL BANK
OF CHICAGO, as Agent
By:__________________________
Name:
Title:
Address:
One First National Plaza
Suite 0173
Chicago, Illinois 60670-0173
Attn: Nathan L. Bloch
Telecopy No.: 312-732-5161
Confirmation No.: 312-732-1117
<PAGE>
SCHEDULE 1
TO
SECURITY AGREEMENT
Pledged Debt:
------------
<PAGE>
SCHEDULE 2
TO
SECURITY AGREEMENT
Locations of Collateral:
-----------------------
<PAGE>
SCHEDULE 2-A
TO
SECURITY AGREEMENT
Third Party Locations:
---------------------
Corporate Name of Description Maximum
Third Party Address of Relationship Amount
- ----------- ------- --------------- ------
<PAGE>
SCHEDULE 2-B
TO
SECURITY AGREEMENT
Financing Statement Filing Locations:
------------------------------------
<PAGE>
SCHEDULE 3
TO
SECURITY AGREEMENT
Trade Names:
-----------
<PAGE>
SCHEDULE 4
TO
SECURITY AGREEMENT
Deposit Accounts:
----------------
<PAGE>
Exhibit S
to
CREDIT AGREEMENT
Form of Pledge Agreement
------------------------
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (the "Pledge Agreement"), dated as of ________,
19 ___, is executed by and between [GFSI, INC., a Delaware corporation]
[_______, a _________ corporation] (the "Pledgor"), and The First National Bank
of Chicago, as contractual representative (the "Agent") for itself and for the
"Holders of Secured Obligations" under the Credit Agreement defined below.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings ascribed to such terms in the "Credit Agreement" (as defined
below).
WITNESSETH:
WHEREAS, [the Pledgor] [GFSI, Inc., a Delaware corporation (the
"Borrower")], the Agent and certain financial institutions from time to time
parties thereto (the "Lenders") have entered into a certain Credit Agreement,
dated as of February 27, 1997 (as amended, restated, supplemented or otherwise
modified from time to time, the "Credit Agreement"), pursuant to which the
Lenders have agreed, subject to certain conditions precedent, to make loans and
other financial accommodations to the Borrower from time to time;
[ WHEREAS, the Pledgor owns all of the issued and outstanding capital
stock of [Restricted Subsidiary, a ________ corporation]; and]
[WHEREAS, the Borrower owns [__%] of the issued and outstanding
capital stock of the Pledgor, and the Pledgor owns [___%] of the issued and
outstanding capital stock of [Restricted Subsidiary, a ________ corporation] and
the Pledgor derives direct and indirect economic benefits from the Loans and
other financial accommodations made to the Borrower under the Credit Agreement;]
WHEREAS, the Agent and the Lenders have required, as a condition to
their continuing to make the Loans and certain other extensions of credit
provided for in the Credit Agreement, that the Pledgor execute and deliver this
Pledge Agreement in favor of the Agent for the benefit of the Holders of Secured
Obligations;
NOW, THEREFORE, for and in consideration of the foregoing and of any
financial accommodations or extensions of credit (including, without
limitation, any loan or advance by renewal, refinancing or extension of the
agreements described hereinabove or otherwise) heretofore, now or hereafter
made to or for the benefit of [the Pledgor] [the Borrower] pursuant to
<PAGE>
the Credit Agreement or any other agreement, instrument or document executed
pursuant to or in connection therewith, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Pledgor and the Agent hereby agree as follows:
1. Pledge. The Pledgor hereby pledges and assigns to the Agent, for
------
the benefit of the Holders of Secured Obligations, and grants to the Agent for
the benefit of the Holders of Secured Obligations, a security interest in, the
following (collectively, the "Pledged Collateral"):
(a) The shares of the capital stock of the [Restricted Subsidiary],
now or at any time or times hereafter owned by the Pledgor, and the
certificates representing the shares of such capital stock (such now-owned
shares being identified on Exhibit A attached hereto and made a part
---------
hereof), all options and warrants for the purchase of shares of the stock
of the [Restricted Subsidiary] now or hereafter held in the name of the
Pledgor (all of said capital stock, options and warrants and all capital
stock held in the name of the Pledgor as a result of the exercise of such
options or warrants being hereinafter collectively referred to as the
"Pledged Stock"), herewith delivered to the Agent accompanied by stock
powers in the form of Exhibit B attached hereto and made a part hereof (the
---------
"Powers") duly executed in blank, and all dividends, cash, instruments and
other property from time to time received, receivable or otherwise
distributed in respect of, or in exchange for, any or all of the Pledged
Stock;
(b) All additional shares of stock of the [Restricted Subsidiary]
from time to time acquired by the Pledgor in any manner, and the
certificates representing such additional shares (any such additional
shares shall constitute part of the Pledged Stock and the Agent is
irrevocably authorized to amend Exhibit A from time to time to reflect such
---------
additional shares), and all options, warrants, dividends, cash, instruments
and other rights and options from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
shares;
(c) The property and interests in property described in Section 3 and
---------
Section 7 below; and
---------
(d) All proceeds of the foregoing.
2. Security for [Obligations] [Liabilities]. The Pledged Collateral
---------------------------------------
secures the prompt payment, performance and observance of [(i)] the Borrower's
Obligations under the Credit Agreement and the Loan Documents [and (ii) the
Pledgor's obligations and liabilities under this Pledge Agreement and each
agreement, document or instrument executed pursuant to or in connection with
this Pledge Agreement (all such obligations and liabilities of the Pledgor and
the Borrower's Obligations now or hereafter existing being hereinafter referred
to as the "Liabilities"].
3. Pledged Collateral Adjustments. If, during the term of this
------------------------------
Pledge Agreement:
(a) Any stock dividend, reclassification, readjustment or other
change is declared or made in the capital structure of the [Restricted
Subsidiary], or any option included within the Pledged Collateral is
exercised, or both, or
-2-
<PAGE>
(b) Any subscription warrants or any other rights or options shall be
issued in connection with the Pledged Collateral,
then all new, substituted and additional shares, warrants, rights, options or
other securities, issued by reason of any of the foregoing, shall be immediately
delivered to and held by the Agent under the terms of this Pledge Agreement and
shall constitute Pledged Collateral hereunder; provided, however, that nothing
--------- -------
contained in this Section 3 shall be deemed to permit any stock dividend,
---------
issuance of additional stock, warrants, rights or options, reclassification,
readjustment or other change in the capital structure of the Borrower which is
not expressly permitted in the Credit Agreement.
4. Subsequent Changes Affecting Pledged Collateral. The Pledgor
-----------------------------------------------
represents and warrants that it has made its own arrangements for keeping itself
informed of changes or potential changes affecting the Pledged Collateral
(including, but not limited to, rights to convert, rights to subscribe, payment
of dividends, reorganization or other exchanges, tender offers and voting
rights), and the Pledgor agrees that neither the Agent nor any of the Holders of
Secured Obligations shall have any obligation to inform the Pledgor of any such
changes or potential changes or to take any action or omit to take any action
with respect thereto. The Agent may, after the occurrence of a Default, without
notice and at its option, transfer or register the Pledged Collateral or any
part thereof into its or its nominee's name with or without any indication that
such Pledged Collateral is subject to the security interest hereunder. In
addition, the Agent may at any time exchange certificates or instruments
representing or evidencing Pledged Shares for certificates or instruments of
smaller or larger denominations.
5. Representations and Warranties. The Pledgor represents and
------------------------------
warrants as follows:
(a) The Pledgor is the sole legal and beneficial owner of [___%] of
the issued and outstanding common stock of [Restricted Subsidiary], free
and clear of any Lien except for Customary Permitted Liens and the security
interest created by this Pledge Agreement;
(b) The Pledgor has full corporate power and authority to enter into
this Pledge Agreement;
(c) There are no restrictions upon the voting rights associated with,
or upon the transfer of, any of the Pledged Collateral;
(d) The Pledgor has the right to vote, pledge and grant a security
interest in or otherwise transfer such Pledged Collateral free of any Liens
(other than Customary Permitted Liens);
(e) No authorization, approval, or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required
either (i) for the pledge of the Pledged Collateral pursuant to this Pledge
Agreement or for the execution, delivery or performance of this Pledge
Agreement by the Pledgor or (ii) for the exercise by the Agent of the
voting or other rights provided for in this Pledge Agreement or the
remedies in respect of the Pledged Collateral pursuant to this Pledge
Agreement (except as may be
-3-
<PAGE>
required in connection with such disposition by laws affecting the offering
and sale of securities generally);
(f) The pledge of the Pledged Collateral pursuant to this Pledge
Agreement creates a valid and perfected first priority security interest in
the Pledged Collateral, in favor of the Agent for the benefit of the
Holders of Secured Obligations, securing the payment and performance of the
[Obligations][Liabilities]; and
(g) The Powers are duly executed and give the Agent the authority
they purport to confer.
6. Voting Rights. During the term of this Pledge Agreement, and
-------------
except as provided in this Section 6 below, the Pledgor shall have the right to
---------
vote the Pledged Stock on all corporate questions in a manner not inconsistent
with the terms of this Pledge Agreement, the Credit Agreement and any other
agreement, instrument or document executed pursuant thereto or in connection
therewith. After the occurrence and during the continuance of a Designated
Default, the Agent or the Agent's nominee may, at the Agent's or such nominee's
option and following written notice from the Agent to the Pledgor, exercise all
voting powers pertaining to the Pledged Collateral, including the right to take
action by shareholder consent. Such authorization shall constitute an
irrevocable voting proxy from the Pledgor to the Agent or, at the Agent's
option, to the Agent's nominee.
7. Dividends and Other Distributions. (a) So long as [Restricted
---------------------------------
Subsidiary] is permitted to make distributions or other payments to the Pledgor
pursuant to the terms of the Credit Agreement (the failure to which shall
constitute a "Blocking Default"):
(i) The Pledgor shall be entitled to receive and retain any and all
dividends and interest paid in respect of the Pledged Collateral, provided,
--------
however, that any and all dividends and interest paid or payable other than
-------
in cash with respect to, and instruments and other property received,
receivable or otherwise distributed with respect to, or in exchange for,
any of the Pledged Collateral shall be Pledged Collateral, and shall be
forthwith delivered to the Agent to hold, for the benefit of the Holders of
Secured Obligations, as Pledged Collateral and shall, if received by the
Pledgor, be received in trust for the Agent, for the benefit of the Holders
of Secured Obligations, be segregated from the other property or funds of
the Pledgor, and be delivered immediately to the Agent as Pledged
Collateral in the same form as so received (with any necessary
endorsement); and
(ii) The Agent shall execute and deliver (or cause to be executed and
delivered) to the Pledgor all such proxies and other instruments as the
Pledgor may reasonably request for the purpose of enabling the Pledgor to
receive the dividends or interest payments which it is authorized to
receive and retain pursuant to clause (i) above.
----------
(b) After the occurrence and during the continuance of a Blocking Default:
(i) All rights of the Pledgor to receive the dividends and interest
payments which it would otherwise be authorized to receive and retain
pursuant to Section 7(a)(i) hereof shall
---------------
-4-
<PAGE>
be governed by Section 6.3(F) of the Credit Agreement, and following a
--------------
Default under Section 7.1(a) of the Credit Agreement all such rights shall
--------------
thereupon become vested in the Agent, for the benefit of the Holders of
Secured Obligations, which shall thereupon have the sole right to receive
and hold as Pledged Collateral such dividends and interest payments; and
(ii) All dividends and interest payments which are received by the
Pledgor contrary to the provisions of clause (i) of this Section 7(b) shall
---------- ------------
be received in trust for the Agent, for the benefit of the Holders of
Secured Obligations, shall be segregated from other funds of the Pledgor
and shall be paid over immediately to the Agent as Pledged Collateral in
the same form as so received (with any necessary endorsements).
8. Transfers and Other Liens. The Pledgor agrees that it will not
-------------------------
(i) sell or otherwise dispose of, or grant any option with respect to, any of
the Pledged Collateral without the prior written consent of the Agent, or (ii)
create or permit to exist any Lien upon or with respect to any of the Pledged
Collateral, except for Customary Permitted Liens and the security interest under
this Pledge Agreement.
9. Remedies. (a) The Agent shall have, in addition to any other
--------
rights given under this Pledge Agreement or by law, all of the rights and
remedies with respect to the Pledged Collateral of a secured party under the
Uniform Commercial Code as in effect in the State of Illinois. After the
occurrence and during the continuance of a Designated Default and following
written notice to the Pledgor, the Agent (personally or through an agent) is
hereby authorized and empowered to transfer and register in its name or in the
name of its nominee the whole or any part of the Pledged Collateral, to exercise
all voting rights with respect thereto and to otherwise act with respect to the
Pledged Collateral as though the Agent were the outright owner thereof, the
Pledgor hereby irrevocably constitutes and appoints the Agent as the proxy and
attorney-in-fact of the Pledgor, with full power of substitution to do so, such
proxy becoming effective upon the occurrence and during the continuance of a
Designated Default and following written notice thereof; provided, however, that
-------- -------
the Agent shall have no duty to exercise any such right or to preserve the same
and shall not be liable for any failure to do so or for any delay in doing so.
In addition, after the occurrence and during the continuance of a Designated
Default, the Agent shall have such powers of sale and other powers as may be
conferred by applicable law. With respect to the Pledged Collateral or any part
thereof which shall then be in or shall thereafter come into the possession or
custody of the Agent or which the Agent shall otherwise have the ability to
transfer under applicable law, the Agent may, in its sole discretion, without
notice except as specified below, after the occurrence and during the
continuance of a Designated Default, sell or cause the same to be sold at any
exchange, broker's board or at public or private sale, in one or more sales or
lots, at such price as the Agent reasonably deems best, for cash or on credit or
for future delivery, without assumption of any credit risk, and the purchaser of
any or all of the Pledged Collateral so sold shall thereafter own the same,
absolutely free from any claim, encumbrance or right of any kind whatsoever. The
Agent and each of the Holders of Secured Obligations may, in its own name, or in
the name of a designee or nominee, buy the Pledged Collateral at any public
sale. The Pledgor will pay to the Agent all reasonable expenses (including,
without limitation, court costs and reasonable attorneys' and paralegals' fees
and expenses) of, or incidental to, the enforcement of any of the provisions
hereof. The Agent agrees to distribute any proceeds of the sale of the Pledged
-5-
<PAGE>
Collateral in accordance with the Credit Agreement and the Pledgor shall remain
liable for any deficiency following the sale of the Pledged Collateral.
(b) Unless any of the Pledged Collateral threatens to decline
speedily in value or is or becomes of a type sold on a recognized market, the
Agent will give the Pledgor reasonable notice of the time and place of any
public sale thereof, or of the time after which any private sale or other
intended disposition is to be made. Any sale of the Pledged Collateral conducted
in conformity with reasonable commercial practices of banks, commercial finance
companies, insurance companies or other financial institutions dispositing of
property similar to the Pledged Collateral shall be deemed to be commercially
reasonable. Notwithstanding any provision to the contrary contained herein, the
Pledgor agrees that any requirements of reasonable notice shall be met if such
notice is received by the Pledgor as provided in Section 25 below at least ten
----------
(10) Business Days before the time of the sale or disposition; provided,
however, that Agent may give any shorter notice that is commercially reasonable
under the circumstances. Any other requirement of notice, demand or
advertisement for sale is waived, to the extent permitted by law.
(c) In view of the fact that federal and state securities laws may
impose certain restrictions on the method by which a sale of the Pledged
Collateral may be effected after a Designated Default, the Pledgor agrees that
after the occurrence and during the continuance of a Designated Default, the
Agent may from time to time, attempt to sell all or any part of the Pledged
Collateral by means of a private placement restricting the bidders and
prospective purchasers to those who are qualified and will represent and agree
that they are purchasing for investment only and not for distribution. The
Pledgor further agrees that the Agent's compliance with such restrictions shall
not result in such sale being considered or deemed not to have been made in a
commercially reasonable manner.
10. Security Interest Absolute. All rights of the Agent and the
--------------------------
Holders of Secured Obligations and security interests hereunder, and all
obligations of the Pledgor hereunder, shall be absolute and unconditional
irrespective of:
(i) Any lack of validity or enforceability of the Credit Agreement
or any other agreement or instrument relating thereto;
(ii) Any change in the time, manner or place of payment of, or in any
other term of, all or any part of the [Obligations] [Liabilities], or any
other amendment or waiver of or any consent to any departure from the
Credit Agreement;
(iii) Any exchange, release or non-perfection of any other collateral,
or any release or amendment or waiver of or consent to departure from any
guaranty, for all or any part of the [Obligations] [Liabilities]; or
(iv) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, the Pledgor in respect of the
[Obligations] [Liabilities] or of this Pledge Agreement.
11. Agent Appointed Attorney-in-Fact. Upon the occurrence and
--------------------------------
during the continuance of a Designated Default, the Pledgor hereby appoints the
Agent its attorney-in-fact,
-6-
<PAGE>
with full authority, in the name of the Pledgor or otherwise, after the
occurrence and during the continuance of a Default, from time to time in the
Agent's sole discretion, to take any action and to execute any instrument which
the Agent reasonably deems necessary or advisable to accomplish the purposes of
this Pledge Agreement, including, without limitation, to receive, endorse and
collect all instruments made payable to the Pledgor when such Default shall be
a Blocking Default representing any dividend, interest payment or other
distribution in respect of the Pledged Collateral or any part thereof and to
give full discharge for the same and to arrange for the transfer of all or any
part of the Pledged Collateral on the books of the Borrower to the name of the
Agent or the Agent's nominee.
12. Waivers. (i) The Pledgor waives presentment and demand for
-------
payment of any of the [Obligations] [Liabilities], protest and notice of
dishonor or Default with respect to any of the [Obligations] [Liabilities] and
all other notices to which the Pledgor might otherwise be entitled except as
otherwise expressly provided herein or in the Credit Agreement.
(ii) The Pledgor understands and agrees that its obligations and
liabilities under this Pledge Agreement shall remain in full force and effect,
notwithstanding foreclosure of any real property securing all or any part of the
Secured Obligations by trustee sale or any other reason impairing the right of
the Pledgor, the Agent or any of the Holders of Secured Obligations to proceed
against the Borrower, any other guarantor or the Borrower's or such guarantor's
property. The Pledgor agrees that all of its obligations under this Pledge
Agreement shall remain in full force and effect without defense, offset or
counterclaim of any kind, notwithstanding that the Pledgor's rights against the
Borrower may be impaired, destroyed or otherwise affected by reason of any
action or inaction on the part of the Agent or any Holder of Secured
Obligations. By way of example and without limiting the foregoing, if the Agent
shall release or foreclose by private power of sale any real property that
secures the Secured Obligations, then notwithstanding that the Borrower may be
entitled thereby to assert a defense against such Secured Obligation (and thus
also against its obligations to the Pledgor to the extent that the Pledgor may
be subrogated to the rights of the Holders of Secured Obligations) based upon
the applicability of California Code of Civil Procedure Section 580d or other
antideficiency laws, the Pledgor nonetheless shall remain fully obligated
hereunder. The Pledgor waives all defenses, protections and benefits of Sections
580a, 580b, 580d and 726 of the California Code of Civil Procedure, and all
judicial decisions construing or pertaining to the same, and all rules and
principals of like kind or similar effect (including, without limitation, the
so-called one-action rule, the one-form-of-action rule and the security-first
rule), in each case as applicable to or in favor of the Pledgor, the Borrower or
otherwise. In addition, the Pledgor hereby waives, to the fullest extent
permitted by law, without limiting the generality of the foregoing or any other
provision hereof, all rights and benefits under California Civil Code Section
2810, 2819, 2839, 2845, 2849, 2850, 2899, and 3433 (or any similar law in any
other jurisdiction).
(iii) The Pledgor hereby expressly waives the benefits of Section
2815 of the California Civil Code (or any similar law in any other jurisdiction)
purporting to allow a guarantor or pledgor to revoke a continuing guaranty or
pledge with respect to any transactions occurring after the date of the guaranty
or pledge.
13. Term. This Pledge Agreement shall remain in full force and effect
----
until the [Obligations] [Liabilities] (other than [Obligations] [Liabilities]
consisting of contingent indemnity
-7-
<PAGE>
obligations) have been fully and indefeasibly pain in cash and the Credit
Agreement has terminated pursuant to its terms. Upon the termination of this
Pledge Agreement as provided above (other than as a result of the sale of the
Pledged Collateral), the Agent will release the security interest created
hereunder and, if it then has possession of the Pledged Stock, will deliver the
Pledged Stock and the Powers to the Pledgor.
14. Definitions. The singular shall include the plural and vice versa
-----------
and any gender shall include any other gender as the context may require.
15. Successors and Assigns. This Pledge Agreement shall be binding
----------------------
upon and inure to the benefit of the Pledgor, the Agent, for the benefit of the
Holders of Secured Obligations, and their respective successors and assigns
permitted under the Credit Agreement. The Pledgor's successors and assigns shall
include, without limitation, a receiver, trustee or debtor-in-possession of or
for the Pledgor.
16. GOVERNING LAW. THIS PLEDGE AGREEMENT HAS BEEN EXECUTED AND
-------------
DELIVERED BY THE PARTIES HERETO IN CHICAGO, ILLINOIS. ANY DISPUTE BETWEEN THE
AGENT AND THE PLEDGOR ARISING OUT OF OR RELATED TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS PLEDGE AGREEMENT OR ANY OTHER LOAN DOCUMENT
TO WHICH THE PLEDGOR IS A PARTY, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY,
OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS, AND NOT
THE CONFLICTS OF LAW PROVISIONS, OF THE STATE OF ILLINOIS.
17. Consent to Jurisdictions; Counterclaims: Forum Non Conveniens.
-------------------------------------------------------------
(a) Exclusive Jurisdiction. Except as provided in subsection (b) of this Section
----------------------- -------------- -------
17, the Agent, on behalf of itself and the Holders of Secured Obligations, and
- --
the Pledgor agree that all disputes between them arising out of or related to
the relationship established between them in connection with this Pledge
Agreement or any other Loan Document to which the Pledgor is a Party, whether
arising in contract tort, equity or otherwise, shall be resolved only by state
or federal courts located in Chicago, Illinois, but the parties acknowledge that
any appeals from those courts may have to be heard by a court located outside of
Chicago, Illinois.
(b) Other Jurisdictions. The Agent shall have the right to proceed
-------------------
against the Pledgor or its real or personal property in a court in any location
to enable the Agent to obtain personal jurisdiction over the Pledgor, to realize
on the Pledged Collateral or any other security for the [Obligations]
[Liabilities] or to enforce a judgement or other court order entered in favour
of the Agent. The Pledgor shall not assert in permissive counterclaims in any
proceeding brought by the Agent arising out of or relating to this Pledge
Agreement.
(c) Venue; Forum Non Conveniens. Each of the Pledgor and the Agent
---------------------------
waives any objection that it may have (including, without limitation, any
objection to the laying of venue or based on forum non conveniens) to the
----- --- ----------
location of the court in which any proceeding is commenced in accordance with
this Section 17.
----------
-8-
<PAGE>
18. Service of Process. The Pledgor waives personal service of any
------------------
process upon it and, consents to service by United States Mail as security for
the [Obligations] [Liabilities], irrevocably appoints The Corporation Trust
Company, Corporation Trust Center 1209 Orange Street, Wilmington, DE 19801 as
its registered agent for the purpose of accepting service of process issued by
any court in connection with any dispute between the Pledgor and the Agent
arising out of or related to the relationship established between them in
connection with this Pledge Agreement or any other Loan Document to which the
Pledgor is a party.
19. WAIVER OF JURY TRIAL. EACH OF THE PLEDGOR AND THE AGENT WAIVES
--------------------
ANY RIGHT TO TRIAL BY JURY IN ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT,
OR OTHERWISE, BETWEEN THE AGENT AND THE PLEDGOR ARISING OUT OF OR RELATED TO THE
TRANSACTIONS CONTEMPLATED BY THIS PLEDGE AGREEMENT, ANY LOAN DOCUMENT TO WHICH
THE PLEDGOR IS A PARTY OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED
OR DELIVERED IN CONNECTION THEREWITH. EITHER THE PLEDGOR OR THE AGENT MAY FILE
AN ORIGINAL COUNTERPART OR A COPY OF THIS PLEDGE AGREEMENT WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR
RIGHT TO TRIAL BY JURY.
20. Waiver of Bond. The Pledgor waives the posting of any bond
--------------
otherwise required of the Agent in connection with any judicial process or
proceeding to realize on the Collateral or any other security for the
[Obligations] [Liabilities].
21. Advice of Counsel. The Pledgor represents and warrants to the
-----------------
Agent and the Holders of Secured Obligations that it has consulted with its
legal counsel regarding all waivers under this Pledge Agreement, including
without limitation those under Section 12 and Sections 16 through 20 hereof,
---------- ----------- --
that it believes that it fully understands all rights that it is waiving and the
effect of such waivers, that it assumes the risk of any misunderstanding that it
may have regarding any of the foregoing, and that it intends that such waivers
shall be a material inducement to the Agent and the Holders of Secured
Obligations to extend the indebtedness secured hereby.
22. Severability. Whenever possible, each provision of this Pledge
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but, if any provision of this Pledge Agreement shall be held to
be prohibited or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Pledge Agreement.
23. Further Assurances. The Pledgor agrees that it will cooperate
------------------
with the Agent and will execute and deliver, or cause to be executed and
delivered, all such other stock powers, proxies, instruments and documents, and
will take all such other actions, including, without limitation, the execution
and filing of financing statements, as the Agent may reasonably request from
time to time in order to carry out the provisions and purposes of this Pledge
Agreement.
24. The Agent's Duty of Care. The Agent shall not be liable for any
------------------------
acts, omissions, errors of judgment or mistakes of fact or law including,
without limitation, acts, omissions, errors or mistakes with respect to the
Pledged Collateral, except for those arising out of
-9-
<PAGE>
or in connection with the Agent's (i) gross negligence or willful misconduct, or
(ii) failure to use reasonable care with respect to the safe custody of the
Pledged Collateral in the Agent's possession. Without limiting the generality of
the foregoing, the Agent shall be under no obligation to take any steps
necessary to preserve rights in the Pledged Collateral against any other parties
but may do so at its option. All expenses incurred in connection therewith shall
be for the sole account of the Pledgor, and shall constitute part of the
[Obligations] [Liabilities] secured hereby.
25. Notices. All notices and other communications required or desired
-------
to be served, given or delivered hereunder shall be made in writing or by a
telecommunications device capable of creating a written record and shall be
addressed to the party to be notified as follows:
if to the Pledgor, at
[GFSI, Inc.] [Restricted Subsidiary]
9700 Commerce Bankway
Lenexa, KS 66219
Attention: Robert Shaw
Telecopy: 913/752-3346
with a copy to:
The Jordan Company
9 West 57th Street, 40th Floor
New York, New York 10019
Attention:______________________
Telecopy: 212/755-5263
if to the Agent, at
The First National Bank of Chicago
One First National Plaza
Suite 0088
Chicago, Illinois 60670-0088
Attention: Nathan Bloch
Telecopy: 312/732-5161
or, as to each party, at such other address as designated by such party in a
written notice to the other party. All such notices and communications shall be
deemed to be validly served, given or delivered (i) three (3) days following
deposit in the United States mails, with proper postage prepaid; (ii) upon
delivery thereof if delivered by hand to the party to be notified; (iii) upon
delivery thereof to a reputable overnight courier service, with delivery charges
prepaid; or (iv) upon transmission thereof with confirmation of successful
transmission from the sending telecommunications device, if sent by
telecommunications device.
26. Amendments, Waivers and Consents. No amendment or waiver of any
--------------------------------
provision of this Pledge Agreement nor consent to any departure by the Pledgor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Agent pursuant to the
-10-
<PAGE>
terms of the Credit Agreement, and then such amendment, waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given.
27. Section Headings. The section headings herein are for convenience
----------------
of reference only, and shall not affect in any way the interpretation of any of
the provisions hereof.
28. Execution in Counterparts. This Pledge Agreement may be executed
-------------------------
in any number of counterparts, each of which shall be an original, but all of
which shall together constitute one and the same agreement.
29. Merger. This Pledge Agreement represents the final agreement of
------
the Pledgor with respect to the matters contained herein and may not be
contradicted by evidence of prior or contemporaneous agreements, or subsequent
oral agreements, between the Pledgor and the Agent or any Holder of Secured
Obligations.
30. No Strict Construction. The parties hereto have participated
----------------------
jointly in the negotiation and drafting of this Pledge Agreement. In the event
an ambiguity or question of intent or interpretation arises, this Pledge
Agreement shall be construed as if drafted jointly by the parties hereto and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Pledge Agreement.
-11-
<PAGE>
IN WITNESS WHEREOF, the Pledgor and the Agent have executed this
Pledge Agreement as of the date set forth above.
[GFSI, INC.] [RESTRICTED SUBSIDIARY]
By:___________________________
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
By:___________________________
Name:
Title:
-12-
<PAGE>
ACKNOWLEDGMENT
The undersigned hereby acknowledges receipt of a copy of the foregoing
Pledge Agreement, agrees promptly to note on its books the security interests
granted under such Pledge Agreement, and waives any rights or requirement at any
time hereafter to receive a copy of such Pledge Agreement in connection
with the registration of any Pledged Collateral in the name of the Agent or its
nominee. The undersigned waives all rights it may have under Section 8-402 of
the Uniform Commercial Code or other applicable law as to the genuineness and
efgfectyiveness of each instruction or indorsement with respect to the Pledged
Collateral, including, without limitation, for any guarantee of the signature on
the stock power(s) or other documents executed in connection with the foregoing
Pledge Agreement. The undersigned agrees that all additional Stock and other
Pledged Collateral issued by the undersigned to the Pledgor shall be delivered
directly to the Agent in accordance with the foregoing Pledge Agreement.
[RESTRICTED SUBSIDIARY]
By:________________________
Name:
Title:
-13-
<PAGE>
EXHIBIT A
to
PLEDGE AGREEMENT
dated as of ____
Pledged Stock Certificates
--------------------------
Percentage of Shares of Common
Issued and Outstanding Stock owned by
Common Stock owned the Pledgor Subject
Name by the Pledgor to Pledge
- ---- ------------------ -------------------
[Restricted Subsidiary] [_%] [_]
<PAGE>
EXHIBIT B
to
PLEDGE AGREEMENT
dated as of ____
Form of Stock Power
-------------------
STOCK POWER
-----------
FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer
to _____________________________ Shares of Common Stock of ______________, a
__________________ corporation, represented by Certificate No._ (the "Stock"),
standing in the name of the undersigned on the books of said corporation and
does hereby irrevocably constitute and appoint _______________________ as the
undersigned's true and lawful attorney, for it and in its name and stead, to
sell, assign and transfer all or any of the Stock, and for that purpose to make
and execute all necessary acts of assignment and transfer thereof; and to
substitute one or more persons with like full power, hereby ratifying and
confirming all that said attorney or substitute or substitutes shall lawfully do
by virtue hereof.
Dated:____________
[GFSI,INC.] [RESTRICTED SUBSIDIARY]
By:___________________________
Name:
Title:
<PAGE>
EXHIBIT T
TO
CREDIT AGREEMENT
Holdings Turnover Agreement
---------------------------
(Attached)
<PAGE>
HOLDINGS TURNOVER AGREEMENT
---------------------------
This Holdings Turnover Agreement (as the same may from time to time be
amended, modified or restated, the "AGREEMENT") is executed by "HOLDINGS" (as
defined below) for the benefit of The First National Bank of Chicago, as
contractual representative (the "AGENT") for itself and the other "LENDERS" (as
defined below), the Lenders, Fleet National Bank, as trustee (the "TRUSTEE") for
itself and the "Senior Noteholders" (as defined below) and the Senior
Noteholders.
WITNESSETH:
WHEREAS, the "Borrower" (as defined below), Holdings' wholly-owned
subsidiary, entered into that certain Credit Agreement dated as of February 27,
1997 (as the same may from time to time be amended, modified, supplemented or
restated, in whole or in part and without limitation as to amount, terms,
conditions or covenants, the "CREDIT AGREEMENT") with the Agent on behalf of
itself and the other financial institutions from time to time party thereto;
WHEREAS, Borrower is presently indebted to the lenders under the
Credit Agreement (the "LENDERS") as a result of the advance of monies and other
extensions of credit by the Lenders to Borrower pursuant to the Credit
Agreement;
WHEREAS, the Borrower entered into that certain Indenture dated as of
February 27, 1997 (as the same may from time to time be amended, modified,
supplemented or restated, in whole or in part and without limitation as to
amount, terms, conditions or covenants, the "INDENTURE") with the Trustee on
behalf of itself and the holders of the Senior Subordinated Notes issued
thereunder (the "SENIOR NOTEHOLDERS");
WHEREAS, Borrower is presently indebted to the Senior Noteholders as a
result of the advance of monies and other extensions of credit by the Senior
Noteholders to Borrower pursuant to the Indenture;
WHEREAS, Holdings acknowledges that the loan or advance of monies or
other extensions of any financial accommodation or credit to Borrower by the
Lenders and the Senior Noteholders is of value to Holdings;
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged by Holdings, and in order to induce the Lenders and the
Senior Noteholders, at their option, now or from time to time hereafter, to make
loans or extend credit or any other financial accommodations to or for the
benefit of Borrower; or to grant such renewals, increases or extensions thereof
as the Lenders or Senior Noteholders may deem advisable; and to better secure
the Lenders and the Senior Noteholders in respect of the foregoing. Holdings
hereby agrees with the Agent, the Lenders, the Trustee and the Senior
Noteholders as hereinafter set forth.
<PAGE>
1. CERTAIN DEFINED TERMS. In addition to the terms defined above
---------------------
and elsewhere in this Agreement, the following terms used in this Agreement
shall have the following meanings, applicable both to the singular and the
plural forms of the terms defined:
As used in this Agreement:
"BORROWER" shall mean GFSI, Inc., a Delaware corporation, or any
--------
successor or assign of GFSI, Inc., including, without limitation, a receiver,
trustee or debtor-in-possession.
"HOLDINGS" shall mean GFSI Holdings, Inc., a Delaware corporation, and
--------
its successors and assigns, including without limitation, a receiver, trustee or
debtor-in-possession on behalf of Holdings.
"SENIOR LENDERS" shall mean (i) each of the Lenders from time to time
--------------
party to the Credit Agreement (or any refinancing or refunding Credit
Agreement), (ii) each of the Senior Noteholders from time to time holding
"Senior Indenture Debt" (as defined below) and (iii) each other holder of the
Senior Debt.
"SENIOR DEBT" shall mean (i) all "Secured Obligations" (as defined in
-----------
the Credit Agreement) whether such indebtedness arises or accrued before or
after the commencement of any bankruptcy, insolvency or receivership
proceedings, including, without limitation, interest thereon accruing pre-
petition or post-petition at the rate or rates specified in the Credit Agreement
and costs, expenses and attorneys' and paralegals' fees, whenever incurred (and
whether or not such interest, costs, expenses or fees are allowed or allowable
in any such case or proceeding) as provided in the Credit Agreement and shall
include indebtedness, obligations and liabilities under and pursuant to any
agreement providing for the refunding or refinancing of the Obligations under
the Credit Agreement (in which event the term "Lenders" and "Agent" shall refer
to the lenders and the agent under such refunding/refinancing facilities) if
such refunding and refinancing is permitted by the terms of the Surbordinated
Note Agreement as in effect on the date hereof (the "SENIOR CREDIT DEBT") and
(ii) all "Obligations" (as defined in the Indenture) with respect to the
Indebtedness evidenced thereby whether such indebtedness arises or accrued
before or after the commencement of any bankruptcy, insolvency or receivership
proceedings, including, without limitation, interest thereon accruing pre-
petition or post-petition at the rate or rates specified in the Indenture and
costs, expenses and attorneys' and paralegals' fees, whenever incurred (and
whether or not such interest, cost, expenses or fees are allowed or allowable in
any such case or proceeding) as provided in the Indenture and shall include
indebtedness, obligations and liabilities under and pursuant to any agreement
providing for the refunding or refinancing of the [Obligations] under the
Indenture (in which event the term "Senior Noteholders" and "Trustee" shall
refer to the lenders and the agent under such refunding/refinancing facilities)
if such refunding and refinancing is permitted by the terms of the Subordinated
Note Agreement as in effect on the date hereof (the "SENIOR INDENTURE DEBT").
Senior Debt shall be considered outstanding whenever any Lender has an
outstanding commitment therefor.
Capitalized terms used but otherwise not defined herein shall have the
same meaning as in the Credit Agreement.
-2-
<PAGE>
2. TURNOVER. In the event that, notwithstanding the limitations in
--------
Section 6.3(F) of the Credit Agreement or Section 4.05 of the Indenture,
- -------------- ------------
Holdings shall have received any payment or distribution or consideration from
the Borrower in violation of Section 6.3(F) of the Credit Agreement or Section
-------------- -------
4.05 of the Indenture, such payment or distribution or consideration shall be
- ----
paid over or delivered to the (i) to the Agent for application to or as
collateral for the payment or prepayment of all Senior Credit Debt or (ii) if
all Senior Credit Debt has been paid in full in cash and the Credit Agreement
has been terminated, to the Trustee for application to or as collateral for the
payment or prepayment of the Senior Indenture Debt; provided, however,
-------- -------
notwithstanding anything herein to the contrary, any such payments,
distributions or other consideration received by Holdings during any fiscal year
of the Borrower (the "Payment Year") shall not be required to be so paid over or
delivered to the Agent or Trustee, as applicable, unless the Agent or Trustee
shall have made written request therefor within a period of one year following
the date of receipt by the Agent or the Trustee of the audited financial
statements of the Borrower required under the Credit Agreement or Indenture, as
applicable, for the applicable Payment Year.
3. ASSIGNMENT OF CLAIMS. Holdings agrees that until the Senior Debt
--------------------
has been paid in full in cash and satisfied and all financing arrangements among
Borrower, the Agent and the Senior Lenders have been terminated, Holdings will
not assign or transfer to others any claim Holdings has or may have against the
Borrower, unless such assignment or transfer is made expressly subject to this
Agreement.
4. NOTICES. Except as otherwise expressly provided below, any notice
-------
required or desired to be served, given or delivered hereunder (and any
rescission thereof) shall be in writing, and shall be deemed to have been
validly served, given or delivered (i) three (3) days after deposit in the
United States Mail, with proper postage prepaid or provided for: (ii) when sent
after receipt of confirmation or answerback if sent by telecopy or other similar
facsimile transmission, (iii) one (1) business day after deposited with a
reputable overnight courier with all charges prepaid or (iv) when delivered, if
hand-delivered by messenger, all of which shall be properly addressed to the
party to be notified and sent to the address or number indicated as follows:
(i) If to the Agent or any Lender at:
The First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670-0173
Attention: Nathan L. Bloch
Telephone No.: 312/732-2243
Facsimile No.: 312/732-5161
-3-
<PAGE>
(ii) If to the Trustee at:
Fleet National Bank
777 Main Street
Hartford, CT 06115
Attn: Corporate Trust Department
Telecopy: 860/986-7220
Confirmation: 860/986-4236
(iii) If to Holdings at:
The Jordan Company
9 West 57th street
New York, NY 10019
Attn: A. Richard Caputo, Jr.
Telecopy: 212/755-5263
Confirmation: 212/572-0820
with a copy to:
Mayer Brown & Platt
1675 Broadway
New York, NY 10019-6018
Attn: James B. Carlson
Telecopy: 212/262-1910
Confirmation: 212/506-2500
(iv) If to any Noteholders:
c/o Jordan/Zalaznick Advisors, Inc.
9 West 57th Street
New York, NY 10019
Attn: Mr. James E. Jordan
Telecopy: 212-755-5263
Confirmation: 212-572-0820
with a copy to:
Mayer Brown & Platt
1675 Broadway
New York, NY 10019-6018
Attn: Jay Parry Monge
Telecopy: 212/262-1910
Confirmation: 212/506-2500
-4-
<PAGE>
or to such other address as any party designates to the other parties in the
manner herein prescribed.
7. Governing Law. This Agreement has been delivered and accepted at
-------------
and shall be deemed to have been made at Chicago, Illinois, and shall be
interpreted, and the rights and obligations of the parties hereto determined, in
accordance with the laws and decisions of the State of Illinois, shall be
immediately binding upon the Noteholders and their successors and assigns, and
shall inure to the benefit of the successors and assigns of the Agent and the
Senior Lenders.
-5-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been signed this 27th day of
February, 1997.
GFSI Holdings, Inc.
By: [SIGNATURE ILLEGIBLE]
----------------------
Name: ______________________
Title: ______________________
Acknowledged and accepted in
Chicago, Illinois as of this
27th day of February 1997.
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
By: /s/ Nathan ? Bloch
--------------------------------
Name:______________________________
Title:_____________________________
Signature Page to Holdings Turnover Agreement
dated as of February 27, 1997
<PAGE>
Acknowledged and accepted
as of this
27th day of February 1997.
FLEET NATIONAL BANK
By: /s/ Michael M. Hopkins
-----------------------
Name: MICHAEL M. HOPKINS
---------------------
Title: VICE PRESIDENT
--------------------
Signature Page Holdings Turnover Agreement
dated as of February 27,1997
<PAGE>
Schedule 1.1.1 - Permitted Existing Contingent Obligations
----------------------------------------------------------
1. Target, through an assignment, was a tenant of certain real property
pursuant to a Lease, dated as of September 1, 1978, by and between the City of
Lenexa, Kansas and William Volker & Company (the "Lease"). Section 14.1 of the
------------
Lease provides that the Borrower, as successor to Target, shall indemnify and
hold harmless the City from all claims, demands, liabilities and costs incurred
by the City that occurred on or about such real property during the term of the
Lease.
2. Pursuant to Section 3.11 of the Mortgage and Security Agreement (the
------------
"Mortgage"), dated as of January 17, 1991, by and between Target and The
Prudential Insurance Company of America ("Prudential"), the Borrower, as the
successor to Target, is required to indemnify and hold harmless Prudential from
and against any claim, loss, liability, judgement, cost, damage and expense that
Prudential may incur as a result of the Borrower's failure to comply with the
terms of such Section 3.11.
------------
3. Pursuant to Section 3.12 of the Mortgage, the Borrower, as successor to
------------
Target, is required to indemnify and hold harmless Prudential from and against
any claim, loss, liability, judgement, cost, damage and expense that Prudential
may incur as a result of or in connection with the assertion against Prudential
of any claim relating to:
(a)(i) the presence or removal of any hazardous waste or
substance referred to in such Section 3.12(a) on or from the property
---------------
subject to the Mortgage or (ii) compliance with any federal, state or local
laws, rules, regulations, or orders relating thereto; and
(b)(i) the presence or removal of any asbestos substance referred
to in such Section 3.12(b) on or from the property subject to the Mortgage
---------------
or (ii) compliance with any federal, state or local laws, rules,
regulations, or orders relating thereto.
4. The Deferred Limited Interest Guaranty, dated as of the date hereof, by and
between the Borrower and MCIT PLC.
5. International Swap Dealers Association Master Agreement, dated November 16,
1993, by and between Borrower, as successor to Target, and The First National
Bank of Chicago ("FNBC").
6. Credit Agreement, dated as of the date hereof, by and among, the Borrower,
the lending institutions that from time to time become a party thereto (the
"Lenders") and FNBC, as agent for the
<PAGE>
Lenders, and any Notes and all Loan Documents that are executed in connection
therewith.
7. Indemnity Agreement, dated as of the date hereof, by and between Borrower
and Chicago Title Insurance Company regarding the pending suit filed by Deborah
Louise Ervin against the Borrower (see item no.5 of Schedule 5.7).
------------
8. Indemnity Agreement, dated as of the date hereof, by and between Borrower
and Chicago Title Insurance Company regarding the pending suit filed by Deborah
Louise Ervin against the Borrower (see item no. 5 of Schedule 5.7).
------------
9. See Schedule 5.7.
------------
10. Breeder's Cup Limited Merchandise Agreement, dated as of June 7, 1996, by
and between Breeders Cup Limited and Borrower, as successor to Target.
11. Renewal Revocable Nonexclusive License to Use Certain Licensed Indicia of
Member Universities, dated as of March 1, 1993, by and between Borrower, as
successor to Target, and Collegiate Concepts, Incorporated, a Delaware
corporation, as amended to date.
12. The Collegiate Licensing Company Bowl License Agreement, dated as of
October 29, 1996, by and between The Collegiate Licensing Company and Borrower,
as successor to Target.
13. East Coast Hockey League ("ECHL") Retail License Agreement, dated as of
January 23, 1996, by and between NHL Enterprises, Inc, as agent for ECHL, and
Borrower, a successor to Target.
14. IMSP License Agreement, dated as of January 7, 1996, by and between IMS
Properties, Inc. and Borrower, as successor to Target.
15. License Agreement, dated as of July 31, 1996, by and between Brian P. Hakan
& Associates, Inc., as exclusive licensing agent for the International Hockey
League, and Borrower, as successor to Target.
16. Licensing Resource Group Standard License Agreement, dated as of February
17, 1995, by and between Licensing Resource Group, Inc. and Borrower, as
successor to Target.
17. Major League Baseball Properties, Inc. Professional Baseball Minor League
License Agreement, dated as of August 12, 1995, by and between Major League
Baseball Properties, Inc., as agent for The National Association of Professional
Baseball Leagues, Inc. and its member Clubs and Borrower, as successor to
Target, thereafter renewed or November 20, 1996.
<PAGE>
18. Major League Baseball Properties, Inc. License Agreement, dated as of
August 6, 1996, by and between Major League Baseball Properties, Inc. and
Borrower, as successor to Target.
19. Major League Baseball Properties, Inc. License Agreement, dated on or about
August 1, 1996, by and between Major League Baseball Properties, Inc. and
Borrower, as successor to Target.
20. License Agreement, dated as of May 10, 1996, by and between National
Association for Stock Car Auto Racing, Inc. and Borrower, as successor to
Target.
21. Retail Product License Agreement, dated as of February 16, 1996 by and
between NBA Properties, Inc. ("NBAP") and Borrower, as successor to Target, as
amended by that certain Letter Agreement, dated as of July 24, 1996.
22. NBC Retail Licensing Agreement, dated as of August 5, 1996, by and between
NBAP, as agent for National Broadcasting Company, Inc. ("NBC"), and Borrower, as
successor to Target, and consented to by NBC, as amended.
23. Licensing Resource Group NCAA Standard License Agreement, dated as of
August 18, 1996, by and between Licensing Resource Group, Inc., and Borrower, as
successor to Target.
24. Retail License Agreement, dated as of April 18, 1996, by and between NHL
Enterprises, Inc. and Borrower, as successor to Target.
25. Retail License Agreement, dated as of May 1, 1996, by and between NHL
Enterprises, Inc. and Borrower, as successor to Target (this contract for the
production of infant and toddler apparel).
26. University of Notre Dame Du Lac License Agreement, dated as of January 1,
1994, by and between The University of Notre Dame Du Lac and Borrower, as
successor to Target.
27. 1997 Ryder Cup License Agreement, dated as of September 30, 1996, by and
between PGA Tournament Corporation, Inc., and Borrower, as successor to Target.
28. 1996 Manufacturer's Agreement, dated as of October 15, 1993, by and between
the United States Golf Association and Borrower, as successor to Target.
29. 1997 Manufacturer's Agreement, dated as of May 31, 1995, by and between the
United States Golf Association and Borrower, as successor to Target.
<PAGE>
30. 1998 Manufacturer's Agreement, dated as of October 16, 1995, by and
between the United States Golf Association and Borrower, as successor to Target.
31. 1999 Manufacturer's Agreement, dated as of April 25, 1996, by and between
the United States Golf Association and Borrower, as successor to Target.
<PAGE>
Schedule 1.1.2 - Permitted Existing Indebtedness
------------------------------------------------
1. See Schedule 1.1.1 hereof.
--------------
2. Lease Agreement, dated as of October __, 1993, by and between KPERS Realty
Holding #1, Inc. d/b/a Kansas Commerce Center and Borrower, as successor to
Target.
3. General Business Lease Agreement, dated as of September 3, 1996, by and
between IBM Credit Corporation and Borrower, as successor to Target.
4. Loan Agreement, dated as of December 15, 1996, by and between Borrower, as
successor to Target, and Concurrent Computer Corporation, as amended as of the
Closing Date.
5. Term Lease Master Agreement, dated as of October 17, 1994, by and between
IBM Credit Corporation and Borrower, as successor to Target, as amended as of
the Closing Date.
6. IBM Customer Agreement, dated as of February 11, 1993, by and between IBM
Credit Corporation and Borrower, as successor to Target.
7. Oracle Network Service Option Order Form, dated as of May 24, 1996, by and
between Borrower, as successor to Target, and Oracle.
8. Software License and Services Agreement, dated as of May 27, 1996, by and
between Oracle and Borrower, as successor to Borrower, as successor to Target.
9. Time and Materials Engagement Contract, dated as of May 27, 1996 and
effective as of May 31, 1996, by and between Oracle Corporation and Borrower, as
successor to Target.
<PAGE>
Schedule 1.1.3 - Permitted Existing Investments
-----------------------------------------------
1. Revolving Promissory Note, dated as of August 12, 1996, in the principal
amount of $150,000 issued to Borrower, as successor to Target, by Kansas Custom
Embroidery.
2. Revolving Promissory Note, dated as of August 12, 1996, in the principal
amount of $700,000 issued to Borrower, as successor to Target, by Impact Design,
Inc.
<PAGE>
Schedule 1.1.4 - Permitted Existing Liens
-----------------------------------------
Johnson County Register of Deeds
- --------------------------------
1. Debtor - Borrower, as successor to Target
------
Secured Party - Rainen Rents
-------------
UCC Number - 92-5274
----------
Date Filed - 10/16/92
----------
2. Debtor - Borrower, as successor to Target
------
Secured Party - Momentum Graphics, Inc.
-------------
UCC Number - 93-534
----------
Date Filed - 1/29/93
----------
(subsequently assigned to PrimeSource Corporation on 10/12/94)
3. Pending Suits
-------------
(1) Deborah Louise Ervin v. Target
------------------------------
Filed - 3/1/96
File No. - 96C02637
(2) Water District No. 1 of Johnson County, Kansas v. Target
--------------------------------------------------------
Filed - 3/19/96
File No. - 96C03282
Kansas Secretary of State
- -------------------------
1. Debtor - Borrower, as successor to Target
------
Secured Party - Momentum Graphics, Inc.
-------------
UCC Number - 1874694
----------
Date Filed - 1/28/93
----------
(subsequently assigned to PrimeSource Corporation on 4/20/95)
2. Debtor - Borrower, as successor to Target
------
Secured Party - Fuji Photo Film USA Inc.
-------------
UCC Number - 2048042
----------
Date Filed - 8/1/94
----------
3. Debtor - Borrower, as successor to Target
------
Secured Party - IBM Credit Corp.
-------------
UCC Number - 2086262
----------
Date Filed - 12/7/94
----------
4. Debtor - Borrower, as successor to Target
------
Secured Party - Rainen Rents
-------------
<PAGE>
UCC Number - 1841380
----------
Date Filed - 10/9/92
----------
5. Debtor - Borrower, as successor to Target
------
Secured Party - IBM Credit Corp.
-------------
UCC Number - 2286624
----------
Date Filed - 10/2/96
----------
Real Estate - 16002 West 110th Street, Lenexa, Kansas (the "110th Street
- ------------------------------------------------------------------------
Property")
- ----------
1. General taxes and special assessments for the first half of the year 1996,
and prior years, have been paid.
Total taxes assessed for 1996 are $62,970.01, which amount includes
$620.00 as special assessment for WASTEWATER CAP, which is non-expiring.
2. A Railroad Track Easement granted to St. Louis-San Francisco Railway
Company by the document filed July 28, 1969 in Book of Misc. 198 Page 192,
affecting a portion of the North 25 feet of the 110th Street Property.
3. Utility easement granted to the City of Lenexa, Kansas by document filed
January 8, 1970 in Book of Misc. 203 Page 169, and assigned to Kansas City Power
and Light Company by the document filed June 22, 1979 in Volume 1475 Page 587,
affecting the East 15 feet of the 110th Street Property.
4. A Railroad Lead Track Extension Easement granted to St. Louis-San Francisco
Railway Company by the document filed July 2, 1970 in Book of Misc. 208 Page
612, affecting a portion of the North 25 feet of the 110th Street Property.
5. The 110th Street Property is subject to: Supplemental Declaration of
Protective Covenants and Restrictions July 12, 1972 in Volume 847 Page 335;
Second Supplemental Declaration of Protective Covenants and Restrictions file
April 27, 1973 in Volume 902 Page 460; Third Supplemental Declaration of
Protective Covenants and Restrictions filed May 25, 1977 in Volume 1215 Page
698, but omitting any covenant or restriction based on race, color, religion,
sex, handicap, familial status or national origin.
6. Trackage Easement granted to St. Louis-San Francisco Railway Company by the
document filed June 19, 1978 in Volume 1349 Page 911, affecting a portion of the
North 25 feet of the 110th Street Property.
<PAGE>
7. Utility easement granted to City of Lenexa, Kansas by the document filed
June 19, 1978 in Volume 1349 Page 983, affecting the South 15 feet of the 110th
Street Property.
8. Terms and conditions of the Shared Parking Agreement filed March 15, 1993
in Volume 3868 Page 909, executed by and between Performance Contracting, Inc.
and Borrower.
Real Estate - 9700 Commerce Parkway, Lenexa, Kansas (the "Commerce Parkway
- --------------------------------------------------------------------------
Property")
- ----------
1. General Taxes for the year 1997, due November 1, 1997.
2. General Taxes of the year 1996, in the amount of $309,961.88, first half
paid, last half due and unpaid, which include the following installments for
special assessments:
- Lenexa City 95th Street - $5,898.10, expires 1997
- Lenexa City Loiret Blvd. - $1,779.16, expires 1997
- Wastewater Capital Charge - assessment for 1996, in the amount of
$62.00, included in 1996 general taxes.
3. Terms and Provisions of the Subordination Agreement filed January 17, 1991,
as File No. 1997580, in Volume 3292, at Page 825.
4. Building lines, utility, drainage, storm sewer, sanitary sewer, and
waterline easements as shown on the recorded plat in Plat Book 65, at Page 7,
and as amended by the instrument filed in Volume 3040, at Page 416.
5. Right of way granted to Lateral Sewer District No. 12 of Mill Creek Sewer
Sub-District No. 1 by the instrument filed in Volume 2366, at Page 983.
6. Easement granted to Kansas City Power & Light Company by the instrument
filed in Volume 2573, at Page 2, Volume 3157, at Page 870, and Volume 3385, at
Page 286.
7. Easement granted to Southwestern Bell Telephone Company by the instrument
filed in Volume 3792, at Page 925.
8. Storm Water Drainage Easement by and between KPERS Realty Holding #1, Inc.
and Target, filed in Volume 3299, at Page 671.
9. Jogging/Fitness Course Easement Agreement by and between the Target and
Kansas Commerce Partners filed in Volume 3079, at Page 47, Kansas Commerce
Partners having assigned their interest to KPERS Realty Holding #1, in Volume
3128, at page 689.
10. Supplementary Agreement providing for but not limited to restrictions,
assessments, right to repurchase and right of first offer filed in Volume 3079,
at Page 36.
<PAGE>
By instrument filed January 17, 1991, as File No. 1997680, in Volume 3292, at
Page 825, the Right of First Offer and Right of Repurchase contained in said
Supplementary Agreement were subordinated to the lien of the mortgage at No. 9
hereof.
The lien of assessments levied under the aforesaid instrument, which may be due
and unpaid at the date hereof.
11. Kansas Commerce Center Protective Covenants and Building Standards
providing for but limited to restrictions, easements, building lines, and
assessments filed as File No. 16777924, in Volume 2515, at Page 186, and as
amended as File No. 1905451, in Volume 3074, at Page 703, and as File No.
2555824, in Volume 4762, at Page 209, and as assigned as File No. 1928445, in
Volume 3128, at Page 694.
The lien of assessments levied under the aforesaid instrument, which may be due
and unpaid at the date hereof.
12. Encroachment of underground electric line and transformer outside of the
easement and onto Lot 15, filed in Volume 3157, at Page 870, as depicted on the
survey dated December 18, 1990, by George Butler and Associates, Inc., No.
90-6177.
<PAGE>
Schedule 1.1.5 - Refinanced Indebtedness
----------------------------------------
1. Unsecured Revolving Promissory Note, dated November 1, 1996, in the
principal amount of $40,000,000 issued to Boatmen's National Bank by the Target.
2. Unsecured Revolving Promissory Note, dated November 1, 1996, in the
principal amount of $10,000,000 issued to Boatmen's National Bank by the Target.
3. Term Note, dated June 5, 1990, in the principal amount of $10,000,000
issued to Boatman's First National Bank of Kansas City by the Target.
4. International Swap Dealers Association Master Agreement, dated January 31,
1996, by and between Boatman's National Bank of St. Louis and the Target.
5. Promissory Note, dated as of January 17, 1991, in the principal amount of
$9,900,000 issued to Prudential Insurance Company of America by the Target (the
"Note"). The Note is secured by a Mortgage and Security Agreement, dated as of
January 17, 1991, and there will be a prepayment premium of $2,510,546.35
incurred by the Target in connection with the prepayment of the Note.
6. The Target leases real property from the City of Lenexa, Kansas (the
"City") pursuant to an assignment of that certain Lease, dated as of September
1, 1978, by and between the City and William Volker & Company. Such real
property secures an Industrial Revenue Bond, dated as of September 1, 1978,
issued by the City and the purchase price for such real property is $309,069.70.
7. Credit Agreement, dated as of January 28, 1994, by and among the Target,
FNBC, as agent, and the Lenders that are party thereto and any promissory notes
that are executed in connection therewith.
<PAGE>
Schedule 5.3 - Conflicts; Governmental Consents
-----------------------------------------------
1. Breeder's Cup Limited Merchandise Agreement, dated as of June 7, 1996, by
and between Breeders Cup Limited and the Borrower, as successor to Target.
2. Renewal Revocable Nonexclusive License to Use Certain Licensed Indicia of
Member Universities, dated as of March 1, 1993, by and between Borrower, as
successor to Target, and Collegiate Concepts, Incorporated, a Delaware
corporation, as amended to date.
3. The Collegiate Licensing Company Bowl License Agreement, dated as of
October 29, 1996, by and between The Collegiate Licensing Company and Borrower,
as successor to Target.
4. East Coast Hockey League ("ECHL") Retail License Agreement, dated as of
January 23, 1996, by and between NHL Enterprises, Inc, as agent for ECHL, and
Borrower, as successor to Target.
5. IMSP License Agreement, dated as of January 7, 1996, by and between IMS
Properties, Inc. and Borrower, as successor to Target.
6. License Agreement, dated as of July 31, 1996, by and between Brian P. Hakan
& Associates, Inc., as exclusive licensing agent for the International Hockey
League, and Borrower, as successor to Target.
7. Licensing Resource Group Standard License Agreement, dated as of February
17, 1995, by and between Licensing Resource Group, Inc. and Borrower, as
successor to Target.
8. Major League Baseball Properties, Inc. Professional Baseball Minor League
License Agreement, dated as of August 12, 1995, by and between Major League
Baseball Properties, Inc., as agent for The National Association of Professional
Baseball Leagues, Inc. and its member Clubs, and Borrower, as successor to
Target, thereafter renewed on November 20, 1996.
9. Major League Baseball Properties, Inc. License Agreement, dated as of
August 6, 1996, by and between Major League Baseball Properties, Inc. and
Borrower, as successor to Target.
10. Major League Baseball Properties, Inc. License Agreement, dated on or about
August 1, 1996, by and between Major League Baseball Properties, Inc. and
Borrower, as successor to Target (this contract for the production of infant and
toddler apparel).
<PAGE>
11. License Agreement, dated as of May 10, 1996, by and between National
Association for Stock Car Auto Racing, Inc. and Borrower, as successor to
Target.
12. Retail Product License Agreement, dated as of February 16, 1996, by and
between NBA Properties, Inc. ("NBAP") and Borrower, as successor to Target, as
amended by that certain Letter Agreement, dated as of July 24, 1996.
13. NBC Retail Licensing Agreement, dated as of August 5, 1996, by and between
NBAP, as agent for National Broadcasting Company, Inc. ("NBC"), and Borrower, as
successor to Target, and consented to by NBC, as amended.
14. Licensing Resource Group NCAA Standard License Agreement, dated as of
August 18, 1996, by and between Licensing Resource Group, Inc. and Borrower, as
successor to Target.
15. Retail License Agreement, dated as of April 18, 1996, by and between NHL
Enterprises, Inc. and Borrower, as successor to Target.
16. Retail License Agreement, dated as of May 1, 1996, by and between NHL
Enterprises, Inc. and Borrower, as successor to Target.
17. University of Notre Dame Du Lac License Agreement, dated as of January 1,
1994, by and between The University of Notre Dame Du Lac and Borrower, as
successor to Target.
18. 1997 Ryder Cup License Agreement, dated as of September 30, 1996, by and
between PGA Tournament Corporation, Inc., and Borrower, as successor to Target.
19. 1996 Manufacturer's Agreement, dated as of October 15, 1993, by and
between the United States Golf Association and Borrower, as successor to Target.
20. 1997 Manufacturer's Agreement, dated as of May 31, 1995, by and between
the United States Golf Association and Borrower, as successor to Target.
21. 1998 Manufacturer's Agreement, dated as of October 16, 1995, by and
between the United States Golf Association and Borrower, as successor to Target.
22. 1999 Manufacturer's Agreement, dated as of April 25, 1996, by and between
the United States Golf Association and Borrower, as successor to Target.
<PAGE>
23. Lease Agreement, dated as of October, 1993, by and between KPERS Realty
Holding #1, Inc. d/b/a Kansas Commerce Center and Borrower, as successor to
Target.
<PAGE>
Schedule 5.7 - Litigation; Loss Contingencies
---------------------------------------------
1. Vanessa Clark v. Borrower, as successor to Target - involves a charge of
-------------------------------------------------
discrimination filed with the Equal Employment Opportunity Commission ("EEOC")
on December 7, 1995 alleging discrimination based on sex, race and retaliation.
Target has filed response detailing its position and denying liability. The
EEOC is investigating.
2. Lucinda Petty v. Borrower, as successor to Target - EEOC charge no.
-------------------------------------------------
281941127. Ms. Petty, a 49 year-old African American employee has filed a
charge with the EEOC alleging race and age discrimination by Target. She
alleges that she was not promoted to a position she was qualified for as a
digitizer because of her race and age. Target filed a formal response to such
allegations of February 7, 1996. At this time, the EEOC has not ruled on this
claim.
3. Doug Cahalan v. Borrower, as successor to Target - EEOC charge no.
------------------------------------------------
281940627. Mr. Cahalan has alleged that Target has not accommodated his
disability in violation of the Americans with Disabilities Act. Mr. Cahalan had
sought, but was denied permission to wear a prosthesis for several weeks after
surgery and lost pay during that period. Target made certain accommodations and
Mr. Cahalan subsequently resigned. Target submitted a position statement in
October 1996 denying liability to the EEOC, but to date, the EEOC has not ruled
on this case.
4. Vincent O. Lam v. Borrower, as successor to Target - EEOC Charge No.
--------------------------------------------------
281950775. On February 13, 1995, Mr. Lam filed an EEOC charge alleging he was
denied a lateral transfer to the position of scheduling specialist, and that
this denial of a transfer was due to his race, Vietnamese, in violation of Title
VII of the Civil Rights Act of 1964. On May 3, 1995, old Winning Ways filed its
position statement with the EEOC denying any discrimination. The EEOC has taken
no action in response to Target's position statement.
5. Deborah Louise Ervin v. Borrower, as successor to Target - Case No.
--------------------------------------------------------
96C2637 in the District Court of Johnson County was filed on March 29, 1996.
This claim alleges plaintiff's discharge was in breach of an implied employment
contract, in breach of public policy and that Target negligently or
intentionally inflicted emotional distress on the plaintiff. Plaintiff seeks
compensatory damages in excess of $50,000 and punitive damages. Only preliminary
discovery has been conducted in this case.
6. Janine Chadwell v. Borrower, as successor to Target - This case is a
---------------------------------------------------
charge of discrimination with the Kansas Commission on
<PAGE>
Civil Rights and the EEOC alleging discrimination based on sex. This charge was
filed on November 5, 1996.
7. Demand Letter of Lee Ann Stevens - On February 25, 1997, Borrower and
--------------------------------
Target received notice of a potential claim from Lee Ann Stevens (see attached).
8. Water District No. 1 of Johnson County v. Borrower, as successor to the
-----------------------------------------------------------------------
Target - Case No. 96C03282. The Water District files suit against Target on
- ------
March 19, 1996 (see attached).
<PAGE>
[LETTERHEAD OF HUDEK & ASSOCIATES APPEARS HERE]
February 25, 1997
John L. Menghini, President
Winning Ways, Inc.
9700 Commerce Parkway
Lenexa, KS 66219
Re: Lee Ann Stevens
Dear Mr. Menghini:
This law firm represents Lee Ann Stevens. Based upon our preliminary
review, we believe Ms. Stevens may have very serious legal claims against
Winning Ways. Those claims include, but are not necessarily limited to, claims
of sex discrimination with regard to promotional opportunities and stock option
purchase opportunities. Additional claims may very well become apparent as our
investigation continues.
The purpose of this letter is to satisfy any notice obligations Ms. Stevens
may have in connection with the impending stock purchase agreement between
Winning Ways and ASFI Holdings, Inc. Please contact me immediately to discuss
whether these claims can be resolved without affecting the stock purchase, and
without resort to litigation.
As you know, Ms. Stevens has discussed her concerns of unequal treatment
with you and Mr. Wolf on a number of occasions, to no avail. Consequently,
please take any necessary steps to ensure that Ms. Stevens is not contacted
directly regarding these matters, and that all discussions are conducted through
legal counsel.
Yours truly,
/s/ Gail M. Hudek
Gail M. Hudek
GMH/bf
208 Nichols Road
Kansas City, Missouri 64112
Telephone (816) 561-2288
Fax (816) 561-2292
<PAGE>
IN THE DISTRICT COURT OF JOHNSON COUNTY, KANSAS
CIVIL COURT DEPARTMENT
WATER DISTRICT NO. 1
OF JOHNSON COUNTY (KANSAS),
Petitioner, Case No. 96 C3282
Court No. 11
v. Proceedings Pursuant to
K.S.A. 26-501, et seq.
KPERS REALTY HOLDING #1, INC.,
COMMERCIAL NATIONAL BANK, KC,
KACIKA CORPORATION,
ONE HOLDINGS, INC.,
CHEMICAL BANK,
LENEXA INDUSTRIAL PARK, INC.,
KANSAS CITY POWER & LIGHT COMPANY,
CITY OF LENEXA,
LATERAL SEWER DISTRICT NO. 12 OF
MILL CREEK SEWER SUB DISTRICT NO. 1,
WINNING WAYS, INC.,
SOUTHWESTERN BELL TELEPHONE COMPANY,
JOHNSON COUNTY WASTEWATER DISTRICT,
UNITED CITIES GAS COMPANY,
formerly known as Union Gas System, Inc.,
JOHNSON COUNTY, KANSAS,
Respondents.
PETITION
--------
TO THE ASSIGNED JUDGE OF THE DISTRICT COURT OF JOHNSON COUNTY, KANSAS:
COMES NOW Water District No. 1 of Johnson County (Kansas) and for its
Petition in the exercise of the power of eminent domain states:
1. Petitioner is a quasi-municipal corporation of the State of Kansas
created and operating under Article 35 of Chapter 19 of the laws of the State of
1
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Kansas (K.S.A. 19-3501, et seq.) with its administrative office located at 5930
Beverly Street, Mission, Kansas.
2. Petitioner is empowered by legislative grant of authority consistent
with K.S.A. 19-3511 to acquire suitable ground by purchase or by appropriate
proceedings in condemnation for the construction, extension, expansion,
operation or maintenance of any mains, water works or plants as herein
contemplated.
3. The Water District Board has approved a project as prepared and
submitted by the Petitioner's consulting engineers, which project includes the
construction of a forty-two inch (42") transmission main extending from 87th and
Loiret to 111th and Kansas City Road in Lenexa, Johnson County, Kansas. This
Petition refers to that portion of the project which begins at 87th and Loiret
Boulevard in Lenexa, Johnson County, Kansas and terminates at 111th and Kansas
City Road in Lenexa, Johnson County, Kansas.
4. On August 10, 1993, the Water District Board specifically determined
by resolution the necessity for acquiring easements or rights of way for said
treated water transmission main and authorized the acquisition thereof by
eminent domain. Petitioner has otherwise performed all of the acts required of
it by the applicable laws of the State of Kansas pertaining to the acquisition
of property by eminent domain. The pipeline transmission main and appurtenant
facilities and activities must be located in part upon the tracts and parcels
herein described in paragraph 6 of this Petition.
2
<PAGE>
5. In order to carry out the objectives and functions of the
Petitioner as set out above, the Petitioner must acquire with respect to each
tract and parcel of land hereinafter described permanent and temporary easements
or rights of way.
(A) With respect to permanent easements, the rights that the
DISTRICT, as the Petitioner herein, may exercise, and the
rights reserved to the owners, tenants, lienholders and
easement holders are as follow, to wit:
The DISTRICT, its successors and assigns, shall have the
right to perpetually survey and test soil conditions; to
excavate, fill, regrade, reduce embankment slopes, and
otherwise restore eroded areas; to construct, install,
operate, maintain, flush and drain into improved or natural
drainage courses, repair, inspect, patrol, rebuild, relocate
and remove within said easement one forty-two inch (42")
water transmission main and all related equipment and
connection mains as designated in Subparagraph (C) herein.
The DISTRICT, its successors and assigns shall have the
right of ingress and egress to and from the easement from
intersecting property lines for its employees, contractors,
vehicles and equipment, and shall have the right to relocate
any parallel fence to a position outside and adjacent to the
easement if feasible, to remove, trim and clear away any
fence not capable of relocation and any trees, rocks,
shrubs, roots, limbs, or surfacing materials which now or at
any future time are located on, overhang, or extend onto the
easement and which interfere with or jeopardize the
activities or structures authorized to be conducted or
installed by the terms of this taking. Such logs, limbs,
roots, rock, brush and unreusable surfacing materials
removed or cut shall be reasonably disposed of by the
DISTRICT. Within a reasonable time following the completion
of any activity by the DISTRICT, all excavation shall be
completely filled and sufficiently tamped to an appropriate
elevation to prevent settling, with grass areas reseeded or
cultivated established lawns resodded without the obligation
of maintenance, and paving restored to its former elevation
and condition without the obligation of
3
<PAGE>
maintenance, and all surplus soil, rock and debris completely removed
from the premises.
The owners, their tenants, lienholders and other easement holders,
their heirs, successors and assigns, may cultivate and fully use and
enjoy the land within the easement, provided that such use shall not
interfere with or jeopardize the construction, installation,
maintenance, repair, operation or other activities of the DISTRICT
granted or authorized by the terms of this taking which shall be
subject to their right of reasonable access for pedestrians and
vehicles over and across such areas of activity, and further provided
that no permanent above ground or subterranean structures or buildings
(except roads, drives, parking lots paved or otherwise surfaced,
curbs, walks, overhead utility wires, non-conflicting underground
utility conduit and sewers, and fence crossing at approximately right
angles with gates to be installed by the DISTRICT where needed for
purposes of DISTRICT access) shall be erected or constructed on the
easement. After completion of the initial construction, the DISTRICT
in exercising any right whatsoever herein acquired, may temporarily
excavate or cut through any road, drive, surface, fence, curb or walk
permitted herein, but shall as soon as reasonably possible replace and
repair such fence or improved surface to its former condition without
the obligation of maintenance, reseed grass areas, or resod
cultivated, established lawns without the obligation of maintenance,
and shall pay to the owners or tenants compensation for any damage
caused to growing crops. The DISTRICT may also require any other
future structure or conduit, whether existing above or below the
ground surface within the easement, to be adjusted, moved, supported
or protected to permit the DISTRICT to exercise its rights herein
acquired, but free of expense to the DISTRICT.
(B) With respect to temporary easements, the rights that the DISTRICT, as the
Petitioner herein, may exercise, and the rights reserved to the owners,
tenants, lienholders and easement holders are as follows, to wit:
The DISTRICT, its successors and assigns, shall have the temporary
right to survey, occupy, excavate, fill, regrade and
4
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otherwise restore or correct the grading in areas previously eroded or
subject to future erosion; and to construct, store, patrol and
generally use for construction activities for the period of time from
the commencement to completion of all construction activities relating
to the installation of one treated water transmission pipeline on the
series of connecting permanent easements for Project 111th extending
from 87th and Loiret in Lenexa, Johnson County, Kansas to 111th and
Kansas City Road in Lenexa, Johnson County, Kansas as set out in
paragraph 3 of this Petition, as a part of the DISTRICT's supply and
distribution system. Such rights to be temporarily exercised by the
DISTRICT shall include that of ingress and egress; removal, trimming
and clearing away of any trees, fence, rocks, shrubs, roots, limbs or
surfacing material located on or overhanging or extending onto the
temporary easement and which interfere with or jeopardize the
construction activity; and the storage of materials and equipment.
Within a reasonable time after the completion of the pipeline
installation upon the adjoining permanent easement, the DISTRICT shall
cause any logs, limbs, roots, rock, brush, unreusable surfacing
materials, and all construction and maintenance materials to be
removed and disposed of, and shall also cause all excavation to be
completely filled and sufficiently tamped to an appropriate elevation
to prevent settling, with grass areas reseeded, and cultivated,
established lawns resodded without obligation of maintenance, and
paving restored to its former elevation and condition without the
obligation of maintenance, and all surplus soil, rock and debris
completely removed from the premises. Any re-entry upon the temporary
easement for corrective construction prior to the completion of all
construction activities for the entire transmission main as described
in paragraph 3 of this Petition shall be subject to the same
requirements for clearing and restoration.
During the existence of the temporary construction easement, the
owners, their tenants, heirs, successors and assigns may cultivate and
fully use and enjoy the land within the temporary construction
easement and shall have reasonable pedestrian and vehicular access
over and across the temporary construction easement during periods of
actual construction activity or occupancy at points designated by the
DISTRICT, provided that no improvements shall be placed thereon and
such uses and
5
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activities shall not interfere with or jeopardize the
construction activities of the DISTRICT granted or
authorized herein. The DISTRICT shall not be responsible for
damage to any crops or other plantings in the event of its
re-entry for further construction activity.
The DISTRICT, its successors and assigns, in removing any
fence on temporary easements, shall have the obligation to
restore or replace any such permanent fence upon completion
of construction and to erect temporary substituted fencing
to confine livestock until restoration or replacement of the
permanent fence.
(C) The DISTRICT, its successors and assigns, in removing or
dismantling any permanent boundary wall or entry marker on either
the temporary or permanent easements, shall have the obligation
to rebuild or construct a comparable wall or marker in the same
position on a temporary easement, and where removed or dismantled
on a permanent easement shall be rebuilt or constructed within
such easement as close to the original location as will avoid or
minimize interference with future maintenance or repair
activities of the DISTRICT.
(D) All temporary easements shall terminate at the date all
construction activities for the entire transmission main project
as described in paragraph 3 of this Petition are completed.
Notwithstanding that any aspect of the construction is not
completed by December 31, 1997, all temporary easements herein
taken shall absolutely terminate and expire on said date of
December 31, 1997.
(E) The extent of the main to be constructed and operated by the
DISTRICT shall be limited to one (1) transmission main with such
6
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connection mains at approximately right angles as are required
for area service and development, together with all related
couplings, connectors, reinforcements, supports, protective
devices, fittings, valve boxes, fire hydrants, meter pits, air
release manholes, vent piping, drainage outlet structures, stream
crossings, erosion protective devices and materials, manhole
entrances, pipeline marker posts and other equipment appurtenant
to such water main.
(F) The rights acquired herein by Petitioner shall be subordinate and
subject to the existing facilities, streets and roads of Johnson
County, Kansas, and also subordinate and subject to the easements
or rights-of-way of other utilities as are included and
identified in the Parcel Descriptions as listed in paragraph 6
and collectively designated as follows:
Kansas City Power & Light Company,
Lateral Sewer District No. 12 of
Mill Creek Sewer Sub District No. 1,
Southwestern Bell Telephone Company,
Johnson County Wastewater District,
United Cities Gas Company,
formerly known as Union Gas System, Inc.,
Johnson County, Kansas,
City of Lenexa
Such other utilities, the City of Lenexa and Johnson County,
Kansas, may continue to exercise their respective rights under
their existing easements or rights-of-way and add facilities
provided that in the event of any resulting conflict or
interference with the facilities previously installed by the
Petitioner that advance notice
7
<PAGE>
be given to the Petitioner to allow a reasonable time for
Petitioner's accommodation by installation of protective devices
or facilities or relocation to permit Petitioner's continuing
use of the easement rights hereby acquired.
(G) The rights and obligations of the DISTRICT, owners, tenants,
lienholders and easement holders as set out in paragraphs 5(A)
through 5(F) above are defined more fully in the Contract
Specifications and Contract Drawings which are herein
incorporated by reference and made a part of this Petition. Said
Contract Specifications and Contract Drawings are available for
inspection at the office of the undersigned attorney.
6. The name of the owners, the identity of any lienholders of
record, and the name of any other parties claiming an interest in the parcels
affected, and a description of the permanent and temporary easements to be
taken are as follows:
8
<PAGE>
PARCEL 55
---------
OWNER: KPERS REALTY HOLDING #1, INC.
- ----- c/o Kessinger/Hunter Co., Inc.
2600 Grand Avenue
Kansas City, Missouri 64108
MORTGAGE: None
- --------
LEGAL
DESCRIPTION: Lot 2, KANSAS COMMERCE CENTER, a subdivision in the City of
- ----------- Lenexa, Johnson County, Kansas, according to the recorded plat
thereof.
EXCEPT the following described tract:
All of Lot 9 and part of Lots 13 and 15, KANSAS COMMERCE CENTER,
a subdivision in Lenexa, Johnson County, Kansas, all being more
particularly described as follows: Beginning at the
southerlymost corner of said Lot 9; thence North
56(degrees)00'00" East along the southeasterly line of said Lot
9, a distance of 175.00 feet; thence in a northeasterly and
northerly direction, continuing along said southeasterly line
and along a curve to the left, tangent to the last described
course, having a radius of 420.00 feet and a central angle of
58(degrees)15'44", an arc distance of 427.08 feet; thence North
2(degrees)15'44" West along the East line of said Lot 9 and
tangent to said curve, a distance of 135.00 feet; thence in a
northerly, northwesterly and westerly direction along the
northeasterly line of said Lot 9 and along a curve to the left,
tangent to the last described course, having a radius of 320.00
feet and a central angle of 89(degrees)56'05", an arc distance
of 502.29 feet; thence South 87(degrees)48'11" West, along the
northerly line of said Lot 9, and tangent to the last said
curve, a distance of 60.00 feet; thence in a westerly,
southwesterly and southerly direction along the northwesterly
line of said Lot 9 and along a curve to the left, tangent to the
last described course, having a radius of 320.00 feet and a
central angle of
1
<PAGE>
80(degrees)06'00", an arc distance of 447.36 feet; thence South
7(degrees)42'11" West along the westerly line of said Lot 9 and
tangent to the last described curve, a distance of 60.79 feet;
thence in a southerly and southwesterly direction along the
westerly line of said Lot 9 and along the northwesterly line of
said Lot 13 and along a curve to the right, tangent to the last
described course, having a radius of 380.00 feet and a central
angle of 54(degrees)17'38", an arc distance of 360.09 feet;
thence South 2(degrees)18'17" East, a distance of 149.44 feet;
thence North 87(degrees)48'11" East, a distance of 375.21 feet
to a point on the northeasterly line of said Lot 15 that is
South 66(degrees)05'00" East, a distance of 95.00 feet from the
notherlymost corner thereof; thence South 66(degrees)05'00" East
along the last said northeasterly line, a distance of 155.00
feet to an angle point therein; thence South 34(degrees)00'00"
East along the northeasterly line of said Lot 15, a distance of
100.00 feet to the point of beginning.
EASEMENTS AND
RIGHTS-OF-WAY: Easement granted to Kansas City Power & Light Company in Book 34
- ------------- Misc., at Page 264, Partial Disclaimer in Volume 1280 at Page
517; Volume 2428 at Page 522; Volume 2573 at Page 2; eminent
domain granted in Volume 1100 at Page 811.
Kansas City Power & Light Company
Attn; Patrick K. O'Malley
P.O. Box 418679
Kansas City, Missouri 64141-9679
Street right of way granted to City of Lenexa in Volume 1832 at
Page 146.
City of Lenexa
P.O. Box 14888
Lenexa, Kansas 66285-488
Right of way granted to Lateral Sewer District No. 12 of Mill
Creek Sewer Sub District No. 1 in Volume 2366 at Page 983.
Johnson County Wastewater District
10881 Lowell, Suite 100
Overland Park, Kansas 66210
2
<PAGE>
EASEMENT
DESCRIPTIONS: See attached Exhibits A and B for permanent and temporary
- ------------ easement descriptions.
3
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PROJECT 177
EXHIBIT A
August 24, 1994
Parcel No. 55
Owner: KPERS Holding #1, Inc.
Permanent Easement
All that part of Lot 2, Kansas Commerce Center, a subdivision of land in
the Northeast Quarter of Section 5, Township 13, Range 24, in the City of
Lenexa, Johnson County, Kansas, more particularly described as follows:
COMMENCING at the Southwest corner of said Lot 2; thence South 88(degrees)
11'54" East, along the South line of said Lot 2, a distance of 20.00 feet
to the POINT OF BEGINNING; thence North 1(degree)41'38" East, parallel
with, and 20.00 feet East of the West line of said Lot 2, a distance of
545.14 feet; thence North 33(degrees)23'11" West, a distance of 16.53
feet to a point on the West line of said Lot 2; thence North 1(degree)41'
38" East, along said West line of Lot 2, said line also being the East
right of way of Loiret Blvd., as it presently exits, a distance of 27.29
feet to a point of curvature; thence continuing along said right of way,
being on a curve to the right, having a radius of 34.00 feet, and being
tangent to the last described course, an arc distance of 53.47 feet to a
point of tangency; thence South 88(degrees)11'54" East, along the North
line of said Lot 2, said line also being the South right of way of 95th
Street, as it presently exists, a distance of 35.44 feet; thence South 1
(degree)41'38" East, a distance of 50.00 feet; thence North 88(degrees)
11'54" West, a distance of 30.00 feet; thence South 1(degree)41'38" West,
a distance of 570.00 feet to the POINT OF BEGINNING, containing 20,498
square feet, more or less.
By: /s/ Martin K. Hough
------------------------------
Martin K. Hough August 29, 1994
[LAND SURVEYOR SEAL OF MARTIN K. HOUGH APPEARS HERE]
<PAGE>
PROJECT 177
EXHIBIT B
August 24, 1994
Parcel No. 55
Owner: KPERS Holding #1, Inc.
Temporary Easement
All that part of Lot 2, Kansas Commerce Center, a subdivision of land in the
Northeast Quarter of Section 5, Township 13, Range 24, in the City of Lenexa,
Johnson County, Kansas, according to the recorded plat thereof, more
particularly described as follows:
BEGINNING at the Southwest corner of said Lot 2; thence North 1(degrees)41'38"
East, along the West line of said Lot 2, said line also being the East right of
way line of Loiret Blvd., as it presently exists, a distance of 471.06 feet;
thence North 12(degrees)30'08" East, continuing along said West lot line, a
distance of 55.99 feet; thence North 1(degrees)41'38" East, continuing along
said West lot line, a distance of 32.57 feet; thence South 33(degrees) 23'11"
East, a distance of 16.53 feet; thence South 1(degree)41'38" West, parallel
with, and 20.00 feet East of the West line of said Lot 2, a distance of 545.14
feet to a point on the South line of said Lot 2; thence North 88(degrees)11'54"
West, along the South line of said Lot 2, a distance of 20.00 feet to the POINT
OF BEGINNING, containing 10,478 square feet, more or less.
AND ALSO COMMENCING at the Southwest corner of said Lot 2; thence South
88(degrees)11'54" East, along the South line of said Lot 2, a distance of 50.00
feet to the POINT OF BEGINNING; thence North 1(degrees)41'38" East, parallel
with, and 50.00 feet East of the West line of said Lot 2, a distance of 570.00
feet; thence South 88(degrees)11'54" East, parallel with, and 50.00 feet South
of the North line of said Lot 2, a distance of 30.00 feet; thence North
1(degrees)41'38" East, a distance of 50.00 feet to a point on the South right of
way of 95th Street, as it presently exists; thence South 88(degrees)11'54" East,
along said right of way, a distance of 20.00 feet, thence South 1(degrees)41'38"
West, a distance of 620.00 feet to a point on the South line of said Lot 2;
thence North 88(degrees)11'54" West, along the South line of said Lot 2; a
distance of 50.00 feet to the POINT OF BEGINNING, containing 29,550 square feet
more or less.
By: /s/ Martin K. Hough
----------------------------------
Martin K. Hough LS 8-95 August 29, 1994
[SEAL OF MARTIN K. HOUGH LAND SURVEYOR APPEARS HERE]
<PAGE>
PARCEL 56
---------
OWNER: KPERS REALTY HOLDING #1, INC.
- ----- c/o Kessinger/Hunter Co., Inc.
2600 Grand Avenue
Kansas City, Missouri 64108
MORTGAGE: None
- --------
LEGAL
DESCRIPTION: Lot 8, KANSAS COMMERCE CENTER, a subdivision in the City of
- ----------- Lenexa, Johnson County, Kansas, according to the recorded plat
thereof.
EXCEPT the following described tract:
All of Lot 9 and part of Lots 13 and 15, KANSAS COMMERCE
CENTER, a subdivision in Lenexa, Johnson County, Kansas, all
being more particularly described as follows: Beginning at the
southerlymost corner of said Lot 9; thence North
56(degrees)00'00" East along the southeasterly line of said Lot
9, a distance of 175.00 feet; thence in a northeasterly and
northerly direction, continuing along said southeasterly line
and along a curve to the left, tangent to the last described
course, having a radius of 420.00 feet and a central angle of
58(degrees)15'44", an arc distance of 427.08 feet; thence North
2(degrees)15'44" West along the East line of said Lot 9 and
tangent to said curve, a distance of 135.00 feet; thence in a
northerly, northwesterly and westerly direction along the
northeasterly line of said Lot 9 and along a curve to the left,
tangent to the last described course, having a radius of 320.00
feet and a central angle of 89(degrees)56'05", an arc distance
of 502.29 feet; thence South 87(degrees)48'11" West, along the
northerly line of said Lot 9, and tangent to the last said
curve, a distance of 60.00 feet; thence in a westerly,
southwesterly and southerly direction along the northwesterly
line of said Lot 9 and along a curve to the left, tangent to
the last described course, having a radius of 320.00 feet and a
central angle of
1
<PAGE>
80(degrees)06'00", an arc distance of 447.36 feet; thence
South 7(degrees)42'11" West along the westerly line of said
Lot 9 and tangent to the last described curve, a distance of
60.79 feet; thence in a southerly and southwesterly direction
along the westerly line of said Lot 9 and along the
northwesterly line of said Lot 13 and along a curve to the
right, tangent to the last described course, having a radius
of 380.00 feet and a central angle of 54(degrees)17'38", an
arc distance of 360.09 feet; thence South 2(degrees)18'17"
East, a distance of 149.44 feet; thence North
87(degrees)48'11" East, a distance of 375.21 feet to a point
on the northeasterly line of said Lot 15 that is South
66(degrees)05'00" East, a distance of 95.00 feet from the
northerlymost corner thereof; thence South 66(degrees)05'00"
East along the last said northeasterly line, a distance of
155.00 feet to an angle point therein; thence South
34(degrees)00'00" East along the northeasterly line of said
Lot 15, a distance of 100.00 feet to the point of the
beginning.
EASEMENTS AND
RIGHTS-OF-WAY: Eminent domain granted to Kansas City Power & Light Company in
- ------------- Volume 1100 at Page 811; easement granted in Volume 2573 at
Page 2.
Kansas City Power & Light Company
Attn: Patrick K. O'Malley
P.O. Box 418679
Kansas City, Missouri 64141-9679
EASEMENT
DESCRIPTIONS: See attached Exhibits A and B for permanent and temporary
- ------------ easement descriptions.
2
<PAGE>
PROJECT 177
EXHIBIT A
August 24, 1994
Parcel No. 56
Owner: KPERS Holding #1, Inc.
Permanent Easement
The East 25.00 feet of the West 50.00 feet of Lot 8, Kansas Commerce Center, a
subdivision of land in the Northeast Quarter of Section 5, Township 13, Range
24, in the City of Lenexa, Johnson County, Kansas, according to the recorded
plat thereof, containing 14,749 square feet, more or less.
By: /s/ Martin K. Hough
------------------------
Martin K. Hough LS-895 August 29, 1994
[SEAL OF MARTIN K. HOUGH
APPEARS HERE]
<PAGE>
PROJECT 177
EXHIBIT B
August 24, 1994
Parcel No. 56
Owner: KPERS Holding #1, Inc.
Temporary Easement
The West 25.00 feet of Lot 8, Kansas Commerce Center, a subdivision of land
in the Northeast Quarter of Section 5, Township 13, Range 24, in the City of
Lenexa, Johnson County, Kansas, according to the recorded plat thereof,
containing 14,439 square feet, more or less.
AND ALSO the East 50.00 feet of the West 100.00 feet of said Lot 8, containing
29,828 square feet, more or less.
By: /s/ Martin K. Hough
------------------------
Martin K. Hough LS-895 August 29, 1994
[SEAL OF MARTIN K. HOUGH
APPEARS HERE]
<PAGE>
PARCEL 57
---------
OWNER: KPERS REALTY HOLDING #1, INC.
- ------ c/o Kessinger/Hunter Co., Inc.
2600 Grand Avenue
Kansas City, Missouri 64108
MORTGAGE: None
- ---------
LEGAL
DESCRIPTION: Lot 12, KANSAS COMMERCE CENTER, a subdivision in the City of
- ------------ Lenexa, Johnson County, Kansas, according to the recorded plat
thereof.
EXCEPT the following described tract:
All of Lot 9 and part of Lots 13 and 15, KANSAS COMMERCE CENTER,
a subdivision in Lenexa, Johnson County, Kansas, all being more
particularly described as follows: Beginning at the
southerlymost corner of said Lot 9; thence North
56(degrees)00'00" East along the southeasterly line of said Lot
9, a distance of 175.00 feet; thence in a northeasterly and
northerly direction, continuing along said southeasterly line
and along a curve to the left, tangent to the last described
course, having a radius of 420.00 feet and a central angle of
58(degrees)15'44", an arc distance of 427.08 feet; thence North
2(degrees)15'44" West along the East line of said Lot 9 and
tangent to said curve, a distance of 135.00 feet; thence in a
northerly, northwesterly and westerly direction along the
northeasterly line of said Lot 9 and along a curve to the left,
tangent to the last described course, having a radius of 320.00
feet and a central angle of 89(degrees)56'05", an arc distance
of 502.29 feet; thence South 87(degrees)48'11" West, along the
northerly line of said Lot 9, and tangent to the last said
curve, a distance of 60.00 feet; thence in a westerly,
southwesterly and southerly direction along the northwesterly
line of said Lot 9 and along a curve to the left, tangent to the
last described course, having a radius of 320.00 feet and a
central angle of
1
<PAGE>
80(degrees)06'00", an arc distance of 447.36 feet; thence South
7(degrees)42'11" West along the westerly line of said Lot 9 and
tangent to the last described curve, a distance of 60.79 feet;
thence in a southerly and southwesterly direction along the
westerly line of said Lot 9 and along the northwesterly line of
said Lot 13 and along a curve to the right tangent to the last
described course, having a radius of 380.00 feet and a central
angle of 54(degrees)17'38", an arc distance of 360.09 feet;
thence South 2(degrees)18'17" East, a distance of 149.44 feet;
thence North 87(degrees)48'11" East, a distance of 375.21 feet
to a point on the northeasterly line of said Lot 15 that is
South 66(degrees)05'00" East, a distance of 95.00 feet from the
northerlymost corner thereof; thence South 66(degrees)05'00"
East along the last said northeasterly line, a distance of
155.00 feet to an angle point therein; thence South
34(degree)00'00" East along the northeasterly line of said Lot
15, a distance of 100.00 feet to the point of beginning.
EASEMENTS AND
RIGHTS-OF-WAY Easement granted to Kansas City Power & Light Company Volume
- ------------- 2573 at Page 2 and in Volume 2824 at Page 950.
Kansas City Power & Light Company
Attn: Patrick K. O'Malley
P.O. Box 418679
Kansas City, Missouri 64141-9679
Drainage easement granted to Winning Ways, Inc. in Volume 3299
at Page 671.
Winning Ways, Inc.
9700 Commerce Parkway
Lenexa, Kansas 66219
Easement granted to Southwestern Bell Telephone Company in
Volume 3792 at Page 934 and in Volume 3792 at Page 937.
Southwestern Bell Telephone Company
Manager - Engineering Right of Way
Wayne White
500 E. 8th, Room 598
Kansas City, Missouri 64106
2
<PAGE>
EASEMENT
DESCRIPTIONS: See attached Exhibits A and B for permanent and temporary
- ------------ easement descriptions.
3
<PAGE>
EXHIBIT A
August 24, 1994
Parcel No. 57
Owner: KPERS Holding #1, Inc.
Permanent Easement
The East 25.00 feet of the West 50.00 feet of Lot 12, Kansas Commerce Center, a
subdivision of land in the Northeast Quarter of Section 5, Township 13, Range
24, in the City of Lenexa, Johnson County, Kansas, according to the recorded
plat thereof, containing 10,663 square feet, more or less.
By:/s/ Martin K. Hough
------------------------
Martin K. Hough LS-895 August 29, 1994
[SEAL OF MARTIN K. HOUGH
APPEARS HERE]
<PAGE>
PROJECT 177
EXHIBIT B
August 24, 1994
Parcel No. 57
Owner: KPERS Holding #1, Inc.
Temporary Easement
The East 20.00 feet of the West 70.00 feet of Lot 12, Kansas Commerce Center, a
subdivision of land in the Northeast Quarter of Section 5, Township 13, Range
24, in the City of Lenexa, Johnson County, Kansas, according to the recorded
plat thereof, containing 8,482 square feet, more or less.
By: /s/ Martin K. Hough
-----------------------------
Martin K. Hough KS LS-895 August 29, 1994
[SEAL APPEARS HERE]
<PAGE>
PARCEL 58
---------
OWNER: KPERS REALTY HOLDING #1, INC.
- ----- c/o Kessinger/Hunter Co., Inc.
2600 Grand Avenue
Kansas City, Missouri 64108
MORTGAGE: None
- --------
LEGAL
DESCRIPTION: Lot 14, KANSAS COMMERCE CENTER, a subdivision in the City of
- ----------- Lenexa, Johnson County, Kansas, according to the recorded plat
thereof.
EXCEPT the following described tract:
All of Lot 9 and part of Lots 13 and 15, KANSAS COMMERCE
CENTER, a subdivision in Lenexa, Johnson County, Kansas, all
being more particularly described as follows: Beginning at the
southerlymost corner of said Lot 9; thence North
56(degrees)00'00" East along the southeasterly line of said
Lot 9, a distance of 175.00 feet; thence in a northeasterly
and northerly direction, continuing along said southeasterly
line and along a curve to the left, tangent to the last
described course, having a radius of 420.00 feet and a central
angle of 58(degrees)15'44", an arc distance of 427.08 feet;
thence North 2(degrees)15'44" West along the East line of said
Lot 9 and tangent to said curve, a distance of 135.00 feet;
thence in a northerly, northwesterly and westerly direction
along the northeasterly line of said Lot 9 and along a curve
to the left, tangent to the last described course, having a
radius of 320.00 feet and a central angle of
89(degrees)56'05", an arc distance of 502.29 feet; thence
South 87(degrees)48'11" West, along the northerly line of said
Lot 9, and tangent to the last said curve, a distance of 60.00
feet; thence in a westerly, southwesterly and southerly
direction along the northwesterly line of said Lot 9 and along
a curve to the left, tangent to the last described course,
having a radius of 320.00 feet and a central angle of
1
<PAGE>
80(degrees)06'00", an arc distance of 447.36 feet; thence
South 7(degrees)42'11" West along the westerly line of said
Lot 9 and tangent to the last described curve, a distance of
60.79 feet; thence in a southerly and southwesterly
direction along the westerly line of said Lot 9 and along
the northwesterly line of said Lot 13 and along a curve to
the right, tangent to the last described course, having a
radius of 380.00 feet and a central angle of
54(degrees)17'38", an arc distance of 360.09 feet; thence
South 2(degrees)18'17" East, a distance of 149.44 feet;
thence North 87(degrees)48'11" East, a distance of 375.21
feet to a point on the northeasterly line of said Lot 15
that is South 66(degrees) 05'00" East, a distance of 95.00
feet from the northerlymost corner thereof; thence South
66(degrees)05'00" East along the last said northeasterly
line, a distance of 155.00 feet to an angle point therein;
thence South 34(degrees)00'00' East along the northeasterly
line of said Lot 15, a distance of 100.00 feet to the point
of beginning.
EASEMENTS AND
RIGHTS-OF-WAY: Easement granted to Kansas City Power & Light Company in
- ------------- Volume 2573 at Page 2.
Kansas City Power & Light Company
Attn: Patrick K. O'Malley
P.O. Box 418679
Kansas City, Missouri 64141-9679
EASEMENT
DESCRIPTIONS: See attached Exhibits A and B for permanent and temporary
- ------------ easement descriptions.
2
<PAGE>
PROJECT 177
EXHIBIT A
August 24, 1994
Parcel No. 58
Owner: KPERS Holding #1, Inc.
Permanent Easement
The East 25.00 feet of the West 50.00 feet of Lot 14, Kansas Commerce Center,
a subdivision of land in the Northeast Quarter of Section 5, Township 13,
Range 24, in the City of Lenexa, Johnson County, Kansas, according to the
recorded plat thereof, containing 5,500 square feet, more or less.
By: /s/ Martin K. Hough
------------------------------
Martin K. Hough KS. LS-895 August 29, 1994
[SEAL APPEARS HERE]
<PAGE>
PROJECT 177
EXHIBIT B
August 24, 1994
Parcel No. 58
Owner: KPERS Holding #1, Inc.
Temporary Easement
The East 20.00 feet of the West 70.00 feet of Lot 14, Kansas Commerce Center,
a subdivision of land in the Northeast Quarter of Section 5, Township 13,
Range 24, in the City of Lenexa, Johnson County, Kansas, according to the
recorded plat thereof, containing 4,400 square feet, more or less.
By: /s/ Martin K. Hough
------------------------------
Martin K. Hough KS. LS-895 August 29, 1994
[SEAL APPEARS HERE]
<PAGE>
PARCEL 59
---------
OWNER: KPERS REALTY HOLDING#1, INC.
- ----- c/o Kessinger/Hunter Co., Inc.
2600 Grand Avenue
Kansas City, Missouri 64108
MORTGAGE: None
- --------
LEGAL
DESCRIPTION: Lot 18, KANSAS COMMERCE CENTER, a subdivision in the City of
- ----------- Lenexa, Johnson County, Kansas, according to the recorded plat
thereof.
EXCEPT the following described tract:
All of Lot 9 and part of Lots 13 and 15, KANSAS COMMERCE CENTER,
a subdivision in Lenexa, Johnson County, Kansas, all being more
particularly described as follows: Beginning at the
southerlymost corner of said Lot 9; thence North
56(degrees)00'00" East along the southeasterly line of said Lot
9, a distance of 175.00 feet; thence in a northeasterly and
northerly direction continuing along said southeasterly line and
along a curve to the left, tangent to the last described
course, having a radius of 420.00 feet and a central angle of
58(degrees)15'44", an arc distance of 427.08 feet; thence North
2 (degrees) 15'44" West along the East line of said Lot 9 and
tangent to said curve, a distance of 135.00 feet; thence in a
northerly, northwesterly and westerly direction along the
northeasterly line of said Lot 9 and along a curve to the left,
tangent to the last described course, having a radius of 320.00
feet and a central angle of 89(degrees)56'05", an arc distance
of 502.29 feet; thence South 87(degrees)48'11" West, along the
northerly line of said Lot 9, and tangent to the last said
curve, a distance of 60.00 feet: thence in a westerly,
southwesterly and southerly direction along the northwesterly
line of said Lot 9 and along a curve to the left, tangent to the
last described course, having a radius of 320.00 feet and a
central angle of
1
<PAGE>
80(degrees)06'00", an arc distance of 447.36 feet: thence
South 7(degrees)42'11" West along the westerly line of said
Lot 9 and tangent to the last described curve, a distance of
60.79 feet; thence in a southerly and southwesterly direction
along the westerly line of lot 9 and along the northwesterly
line of said Lot 13 and along a curve to the right, tangent
to the last described course, having a radius of 380.00 feet
and a central angle of 54(degrees)17'38", an arc distance of
360.09 feet; thence South 2(degrees)18'11" East, a distance
of 149.44 feet; thence North 87(degrees)48'11" East, a
distance of 375.21 feet to a point on the northeasterly line
of said Lot 15 that is South 66(degrees)05'00" East, a
distance of 95.00 feet from the northerlymost corner thereof;
thence South 66(degrees) 05'00" East along the last said
northeasterly line, a distance of 155.00 feet to an angle
point therein; thence South 34(degrees)00'00" East along the
northeasterly line of said Lot 15, a distance of 100.00 feet
to the point of beginning.
EASEMENTS AND
RIGHTS-OF-WAY; Easement granted to Kansas City Power & Light Company in
- ------------- Volume 2573 at Page 2.
Kansas City Power & Light Company
Attn: Patrick K. O'Malley
P.O. Box 418679
Kansas City, Missouri 64141-9679
EASEMENT
DESCRIPTIONS: See attached Exhibits A and B for permanent and temporary
- ------------ easement descriptions.
2
<PAGE>
PROJECT 177
EXHIBIT A
August 24, 1994
Parcel No. 59
Owner: KPERS Holding #1, Inc.
Permanent Easement
The East 25.00 feet of the West 50.00 feet of Lot 18, Kansas Commerce Center, a
subdivision of land in the Northeast Quarter of Section 5, Township 13, Range
24, in the City of Lenexa, Johnson County, Kansas, according to the recorded
plat thereof, containing 8,000 square feet, more or less.
BY: /s/ Martin K. Hough
-----------------------
Martin K. Hough August 29, 1994
[NOTARY SEAL APPEARS HERE]
<PAGE>
PROJECT 177
EXHIBIT B
August 24, 1994
Parcel No. 59
Owner: KPERS Holding #1, Inc.
Temporary Easement
The West 25.00 feet of Lot 18, Kansas Commerce Center, a subdivision of land in
the Northeast Quarter of Section 5, Township 13, Range 24, in the City of
Lenexa, Johnson County, Kansas, according to the recorded plat thereof,
containing 8,000 square feet, more or less.
AND ALSO the East 50.00 feet of the West 100.00 feet of said Lot 18, containing
16,000 square feet, more or less.
By: /s/ Martin K. Hough
------------------------------
Martin K. Hough August 29, 1994
[NOTARY SEAL APPEARS HERE]
<PAGE>
PARCEL 60
---------
OWNER: KPERS REALTY HOLDING #1, INC.
- ----- c/o Kessinger/Hunter Co., Inc.
2600 Grand Avenue
Kansas City, Missouri 64108
MORTGAGE: None
- --------
LEGAL
DESCRIPTION: Lot 20, KANSAS COMMERCE CENTER, a subdivision in
- ----------- the City of Lenexa, Johnson County, Kansas,
according to the recorded plat thereof.
EXCEPT the following described tract:
All of Lot 9 and part of Lots 13 and 15, KANSAS
COMMERCE CENTER, a subdivision in Lenexa, Johnson
County, Kansas, all being more particularly
described as follows: Beginning at the
southerlymost corner of said Lot 9; thence North
56(degrees)00'00" East along the southeasterly line
of said Lot 9, a distance of 175.00 feet; thence in
a northeasterly and northerly direction, continuing
along said southeasterly line and along a curve to
the left, tangent to the last described course,
having a radius of 420.00 feet and a central angle
of 58(degrees)15'44", an arc distance of 427.08
feet; thence North 2(degrees)15'44" West along the
East line of said Lot 9 and tangent to said curve,
a distance of 135.00 feet; thence in a northerly,
northwesterly and westerly direction along the
northeasterly line of said Lot 9 and along a curve
to the left, tangent to the last described course,
having a radius of 320.00 feet and a central angle
of 89(degrees)56'05", an arc distance of 502.29
feet; thence South 87(degrees)48'11" West, along
the northerly line of said Lot 9, and tangent to
the last said curve, a distance of 60.00 feet;
thence in a westerly, southwesterly and southerly
direction along the northwesterly line of said Lot
9 and along a curve to the left, tangent to the
last described course, having a radius of 320.00
feet and a central angle of
1
<PAGE>
80(degrees)06'00", an arc distance of 447.36 feet;
thence South 7(degrees)42'11" West along the
westerly line of said Lot 9 and tangent to the last
described curve, a distance of 60.79 feet; thence
in a southerly and southwesterly direction along
the westerly line of said Lot 9 and along the
northwesterly line of said Lot 13 and along a curve
to the right, tangent to the last described course,
having a radius of 380.00 feet and a central angle
of 54(degrees)17'38", an arc distance of 360.09
feet; thence South 2(degrees)18'17", East, a
distance of 149.44 feet; thence North
87(degrees)48'11" East, a distance of 375.21 feet
to a point on the northeasterly line of said Lot 15
that is South 66(degrees)05'00" East, a distance of
95.00 feet from the northerlymost corner thereof;
thence South 65(degrees)05'00" East along the last
said northeasterly line, a distance of 155.00 feet
to an angle point therein; thence South
34(degrees)00'00" East along the northeasterly line
of said Lot 15, a distance of 100.00 feet to the
point of beginning.
EASEMENT AND
RIGHTS-OF-WAY: Easement granted to Kansas City Power & Light
- ------------- Company in Volume 2573 at Page 2.
Kansas City Power & Light Company
Attn: Patrick K. O'Malley
P. O. Box 418679
Kansas City, Missouri 64141-9679
EASEMENT
DESCRIPTIONS: See attached Exhibits A and B for permanent and
- ------------ temporary easement descriptions.
2
<PAGE>
PROJECT 177
EXHIBIT A
August 29, 1994
Parcel No. 60
Owner: KPERS Holding #1, Inc.
Permanent Easement
A part of Lot 20, Kansas Commerce Center, a subdivision of land in the Northeast
Quarter of Section 5, Township 13, Range 24, in the City of Lenexa, Johnson
County, Kansas, more particularly described as follows:
COMMENCING at the Northwest corner of said Lot 20; thence South
87(degrees)49'19" East, along the North line of said Lot 20, a distance of 20.00
feet to the POINT OF BEGINNING; thence continuing South 87(degrees)49'19" East,
a distance of 30.00 feet; thence South 1(degrees)41'38" West, parallel with, and
50.00 feet East of the West line of said Lot 20, a distance of 286.67 feet;
thence South 43(degrees)03'51" East, a distance of 11.85 feet; thence South
87(degrees)49'19" East, parallel with, and 30.00 feet North of the South line of
said Lot 20, a distance of 227.36 feet to a point on the East line of said Lot
20; thence South 2(degrees)10'41" West, along the East line of said Lot 20, a
distance of 30.00 feet to the Southeast corner of said Lot 20; thence North
87(degrees)49'19" West, along the South line of said Lot 20, a distance of
247.77 feet to a point of curvature; thence along a curve to the right, having a
radius of 38.00 feet, and being tangent to the last described course, an arc
distance of 18.43 feet; thence North 1(degrees)41'38" East, parallel with, and
20.00 feet East of the West line of said Lot 20, a distance of 320.63 feet to
the POINT OF BEGINNING, containing 16,828 square feet, more or less.
By: /s/ Martin K. Hough
---------------------------
Martin K. Hough, KS. LS-895 August 29, 1994
[SEAL OF MARTIN K. HOUGH
LAND SURVEYOR APPEARS HERE]
<PAGE>
PROJECT 177
EXHIBIT B
August 24, 1994
Parcel No. 60
Owner: KPERS Holding #1, Inc.
Temporary Easement
A part of Lot 20, Kansas Commerce Center, a subdivision of land in the Northeast
Quarter of Section 5, Township 13, Range 24, in the City of Lenexa, Johnson
County, Kansas, according to the recorded plat thereof, more particularly
described as follows:
BEGINNING at the Northwest corner of said Lot 20; thence South 87(degrees)49'19"
East, along the North line of said Lot 20, a distance of 20.00 feet; thence
South 1(degrees)41'38" West, parallel with, and 20.00 feet East of the West line
of said Lot 20, a distance of 320.63 feet to a point on the Southwesterly right
of way of Loiret Blvd., as it presently exists; thence Northwesterly along said
right of way, being on a curve to the right, having a radius of 38.00 feet, and
whose initial tangent bearing is North 60(degrees)01'57" West, an arc distance
of 40.94 feet to a point of tangency; thence North 1(degrees)41'38" East, along
said right of way, a distance of 287.33 feet to the POINT OF BEGINNING,
containing 6,222 square feet, more or less.
AND ALSO COMMENCING at the Northwest corner of said Lot 20; thence South
87(degrees)49'19" East, along the North line of said Lot 20, a distance of 50.00
feet to the POINT OF BEGINNING; thence continuing South 87(degrees)49'19" East,
a distance of 50.00 feet; thence South 1(degrees)41'38" West, parallel with, and
100.00 feet East of the West line of said Lot 20, a distance of 225.01 feet;
thence South 43(degrees)03'51" East, a distance of 28.40 feet; thence South
87(degrees)49'19" East, parallel with, and 80.00 feet North of the South line of
said Lot 20, a distance of 166.12 feet to a point on the East line of said Lot
20; thence South 2(degrees)10'41" West, along the East line of said Lot 20, a
distance of 50.00 feet; thence North 87(degrees)49'19" West, parallel with, and
30.00 feet North of the South line of said Lot 20, a distance of 227.36 feet;
thence North 43(degrees)03'51" West, a distance of 11.85 feet; thence North
1(degrees)41'38" East, parallel with, and 50.00 feet East of the West line of
said Lot 20, a distance of 286.67 feet to the POINT OF BEGINNING, containing
24,212 square feet, more or less.
By: /s/ Martin K. Hough
--------------------------------
Martin K. Hough August 29, 1994
[NOTARY SEAL APPEARS HERE]
<PAGE>
PARCEL 61
---------
OWNER: KPERS REALTY HOLDING #1, INC.
- ----- c/o Kessinger/Hunter Co., Inc.
2600 Grand Avenue
Kansas City, Missouri 64108
MORTGAGE: None:
- --------
LEGAL
DESCRIPTION: Lot 21, KANSAS COMMERCE CENTER, a subdivision in a
- ----------- City of Lenexa, Johnson County, Kansas, according
to the recorded plat thereof.
EXCEPT the following described tract:
All of Lot 9 and part of Lots 13 and 15, KANSAS COMMERCE
CENTER, a subdivision in Lenexa, Johnson County, Kansas,
all being more particularly described as follows:
Beginning at the southerlymost corner of said Lot 9;
thence North 56(degrees)00'00" East along the
southeasterly line of said Lot 9, a distance of 175.00
feet; thence in a northeasterly and northerly direction,
continuing along said southeasterly line and along a
curve to the left, tangent to the last described course,
having a radius of 420.00 feet and a central angle of
58(degrees)15'44", an arc distance of 427.08 feet; thence
North 2(degrees)15'44" West along the East line of said
Lot 9 and tangent to said curve, a distance of 135.00
feet; thence in a northerly, northwesterly and westerly
direction along the northeasterly line of said Lot 9 and
along a curve to the left, tangent to the last described
course, having a radius of 320.00 feet and a central
angle of 89(degrees)56'05", an arc distance of 502.29
feet; hence South 87(degrees)48'11" West, along the
northerly line of said Lot 9, and tangent to the last
said curve, a distance of 60.00 feet; thence in a
westerly, southwesterly and southerly direction along the
northwesterly line of said Lot 9 and along a curve to the
left, tangent to the last described course, having a
radius of 320.00 feet and a central angle of
1
<PAGE>
80(degrees)06'00", an arc distance of 447.36 feet;
thence South 7(degrees)42'11" West along the
westerly line of said Lot 9 and tangent to the last
described curve, a distance of 60.79 feet; thence
in a southerly and southwesterly direction along
the westerly line of said Lot 9 and along the
northwesterly line of said Lot 13 and along a curve
to the right, tangent to the last described course,
having a radius of 380.00 feet and a central angle
of 54(degrees)17'38", an arc distance of 360.09
feet; thence South 2(degrees)18'17" East, a
distance of 149.44 feet; thence North
87(degrees)48'11" East, a distance of 375.21 feet
to a point on the northeasterly line of said Lot 15
that is South 66(degrees)05'00" East, a distance of
95.00 feet from the northerlymost corner thereof;
thence South 66(degrees)05'00" East along the last
said northeasterly line, a distance of 155.00 feet
to an angle point therein; thence South
34(degrees)00'00" East along the northeasterly line
of said Lot 15, a distance of 100.00 feet to the
point of beginning.
EASEMENTS AND
RIGHTS-OF-WAY: Easement granted to Kansas City Power & Light
- ------------- Company in Volume 2741 at Page 201.
Kansas City Power & Light Company
Attn: Patrick K. O'Malley
P.O. Box 418679
Kansas City, Missouri 64141-9679
Easement granted to Southwestern Bell Telephone
Company in Volume 3143 at Page 145 and in Volume
3792 at Page 948.
Southwestern Bell Telephone Company
Manager - Engineering Right of Way
Wayne White
500 E. 8th, Room 598
Kansas City, Missouri 64106
EASEMENT
DESCRIPTIONS: See attached Exhibits A and B for permanent and
- ------------ temporary easement descriptions.
2
<PAGE>
EXHIBIT A
February 8, 1996
Parcel No. 61
Owner: KPERS Holding #1, Inc.
Permanent Basement
A part of Lot 21, Kansas Commerce Center, a subdivision of land in the Northeast
Quarter of Section 5, Township 13, Range 24, in the City of Lenexa, Johnson
County, Kansas, according to the recorded plat thereof, more particularly
described as follows:
BEGINNING at the Southwest corner of said Lot 21; thence North 2(degrees)10'41"
East, along the West line of said Lot 21, a distance of 30.00 feet; thence South
87(degrees)49'19" East, parallel with, and 30.00 feet North of the South line of
said Lot 21, a distance of 85.00 feet; thence South 2(degrees)10'41" West, a
distance of 30.00 feet, to the South line of said Lot 21; thence North
87(degrees)49'19" West, along said South line, a distance of 85.00 feet to the
POINT OF BEGINNING, containing 2,550 square feet, more or less.
By: /s/ Martin K. Hough
-------------------------
Martin K. Hough February 8, 1996
[NOTARY SEAL APPEARS HERE]
<PAGE>
EXHIBIT B
February 8, 1996
Parcel No. 61
Owner: KPERS Holding #1, Inc.
Temporary Easement
A part of Lot 21, Kansas Commerce Center, a subdivision of land in the
Northeast Quarter of Section 5, Township 13, Range 24, in the City of Lenexa,
Johnson County, Kansas, more particularly described as follows:
COMMENCING at the Southwest corner of said Lot 21; thence North 2(degrees)10'41"
East, along the West line of said Lot 21, a distance of 30.00 feet to the POINT
OF BEGINNING; thence continuing North 2(degrees)10'41" East, along said West
line, a distance of 50.00 feet; thence South 87(degrees)49'19" East, parallel
with, and 80.00 feet North of the South line of said Lot 21, a distance of 85.00
feet; thence South 2(degrees)10'41" West, a distance of 50.00 feet; thence North
87(degrees)49'19' West, parallel with, and 30.00 feet North of the South line of
said Lot 21, a distance of 85.00 feet to the POINT OF BEGINNING, containing
4,250 square feet, more or less.
By: /s/ Martin K. Hough
------------------------------
Martin K. Hough KS. LS-895 February 8, 1996
[SEAL APPEARS HERE]
<PAGE>
PARCEL 63
---------
OWNER: COMMERCIAL NATIONAL BANK, KC
- ----- c/o Stanley Hardware Division
480 Myrtle Street
New Britain, Connecticut 06053
MORTGAGE: None
- --------
LEGAL
DESCRIPTION: All of Lots 24 and 25 and part of Lot 23, BEDFORD
- ----------- BUSINESS PARK EAST, a subdivision of land in the City
of Lenexa, Johnson County, Kansas, and all that part of
the Southeast Quarter of Section 5, Township 13 South,
Range 24 East, in said city, county and state, all
being more particularly described as follows:
Beginning at the Northeast corner of said Lot 25;
thence South 2(degrees)17'04" East, along the East line
of said BEDFORD BUSINESS PARK EAST, a distance of 5.00
feet; thence North 88(degrees)12'15" East, along the
South right-of-way line 99th Street, as now
established, a distance of 304.50 feet; thence South
1(degreess)47'45" East, a distance of 504.98 feet;
thence South 88(degrees)12'15" West, a distance of
300.19 feet, to the East line of said BEDFORD BUSINESS
PARK EAST; thence South 2(degrees)17'04" East, along
said East line, a distance of 50.00 feet; thence South
88(degrees)12'15" West, a distance of 305.03 feet, to
the East right-of-way line of Lakeview Avenue, as now
established; thence North 1(degrees)47'45" West, along
said East right-of-way line, a distance of 521.98 feet
to a point of curvature; thence Northerly,
Northeasterly and Easterly, along the Southeasterly
right-of-way line of the intersection of said Lakeview
Avenue and 99th Street, as now established, along a
curve to the right having a radius of 38.00 feet and a
central angle of 90(degrees)00'00", a distance of 59.69
feet, to a point of tangency; thence North
88(degrees)12'15" East, along the South right-of-way
line of 99th Street, a distance
1
<PAGE>
of 262.26 feet to the point of beginning, subject to any part
thereof in streets, roads or public rights of way.
EASEMENTS AND
RIGHTS-OF-WAY: Right of way for street and storm sewers granted to City of
- ------------- Lenexa in Volume 1299 at Page 128; drainage easement granted in
Volume 3289 at Page 734.
City of Lenexa
P.O. Box 14888
Lenexa, Kansas 66285-4888
Easement for sewer, water, gas, power and railroad granted to
Lee H. Greif in Volume 1653 at Page 116, assigned to Johnson
County Unified Wastewater District in Volume 1665 at Page 449;
right of way granted in Volume 1665 at Page 445.
Johnson County Wastewater District
10881 Lowell, Suite 100
Overland Park, Kansas 66210
EASEMENT
DESCRIPTIONS: See attached Exhibits A and B for permanent and temporary
- ------------- easement descriptions.
2
<PAGE>
EXHIBIT A
February 8, 1996
Parcel No. 63
Owner: Commercial National Bank, K.C.
Permanent Easement
All that part of Lots 24 and 25, BEDFORD BUSINESS PARK EAST, a subdivision now
located in part of the West One-Half of the Northwest Quarter of the Southeast
Quarter of Section 5, Township 13, Range 24, in the City of Lenexa, Johnson
County, Kansas, more particularly described as follows:
COMMENCING at the Southeast corner of Lot 24, said BEDFORD BUSINESS PARK EAST;
thence North 1(degrees)41'22" East, along the East line of said Lot 24, a
distance of 15.00 feet to the POINT OF BEGINNING; thence North 87(degrees)49'19"
West, a distance of 304.90 feet, to the West line of Lots 24 and 25, said
BEDFORD BUSINESS PARK EAST; thence North 2(degrees)10'41" East, along said West
line of Lots 24 and 25, a distance of 506.98 feet, to a point of curvature;
thence Northerly and Easterly, continuing along said West line and along a curve
to the right having a radius of 38.00 feet and a central angle of
77(degrees)50'48", an arc distance of 51.63 feet; thence South 2(degrees)10'41"
West, parallel with and 30.00 feet East of the West line of said Lots 24 and 25,
a distance of 541.13 feet; thence South 87(degrees)49'19" East, a distance of
274.65 feet to the East line of said Lot 24; thence South 1(degrees)41'22" West,
along said East line, a distance of 30.00 feet, to the POINT OF BEGINNING,
containing 24,285 square feet, more or less.
By: /s/ Martin K. Hough
-------------------------------
Martin K. Hough KS. LS-895 February 8, 1996
[SEAL APPEARS HERE]
<PAGE>
EXHIBIT B
February 8, 1996
Parcel No. 63
Owner: Commercial National Bank, K.C.
Temporary Easement
All that part of Lots 24 and 25, BEDFORD BUSINESS PARK EAST, a subdivision now
located in part of the West One-Half of the Northwest Quarter of the Southeast
Quarter of Section 5, Township 13, Range 24, in the City of Lenexa, Johnson
County, Kansas, more particularly described as follow:
COMMENCING at the Southeast corner of Lot 24, said BEDFORD BUSINESS PARK EAST,
thence North 1(degrees)41'22'' East, along the East line of said Lot 24, a
distance of 45.00 feet to the POINT OF BEGINNING; thence North
87(degrees)49'19'' West a distance of 274.65 feet; thence North
2(degrees)10'41'' East, a distance of 514.13 feet to the North line of Lot 25,
said BEDFORD BUSINESS PARK EAST; thence Easterly, along said North line of Lot
25 and along a curve to the right having a radius of 38.00 feet, a central angle
of 12(degrees)09'12'', and whose initial tangent bearing is North
80(degrees)01'29'' East, an arc distance of 8.06 feet, to a point of tangency;
thence South 87(degrees)49'19'' East, continuing along said North line of Lot
25, a distance of 42.00 feet; thence South 2(degrees)10'41'' West, a distance of
479.99 feet; thence South 87(degrees)49'19'' East, a distance of 224.35 feet to
the East line of said Lot 24; thence South 1(degrees)41'22'' West, along said
East line, a distance of 35.00 feet to the POINT OF BEGINNING, containing 33,601
square feet, more or less.
AND ALSO BEGINNING at the Southeast corner of Lot 24, said BEDFORD BUSINESS PARK
EAST; thence North 87(degrees)49'49'' West, a distance of 305.03 feet, to the
West line of lot 24, said BEDFORD BUSINESS PARK EAST; thence North
2(degrees)10'41'' East, along said West line of Lot 24, a distance of 15.05
feet; thence South 87(degrees)49'19'' East, a distance of 304.90 feet to the
East line of said Lot 24; thence South 1(degrees)41'22'' West, along said East
line, a distance of 15.00 feet to the POINT OF BEGINNING, containing 4,581
square feet, more or less.
By:-------------------------- February 8, 1996
Martin K. Hough KS. LS-895
[SEAL APPEARS HERE]
<PAGE>
PARCEL 67
---------
OWNER: KACIKA CORPORATION
- ----- P. O. Box 88259
Atlanta, Georgia 30356
MORTGAGE: None
- --------
LEGAL
DESCRIPTION: All that part of the SW 1/4 of Section 9, Township 13 South,
- ----------- Range 24 East, in the City of Lenexa, Johnson County, Kansas
more particularly described as follows: Commencing at the
Southwest corner of said SW 1/4 thence North 0(degrees)29'15"
East, along the West line of said SW 1/4, a distance of 1327.01
feet; thence South 89(degrees)30'45" East, a distance of 30
feet, to a point on the Easterly right-of-way line of Lackman
Road, as now established, and to the point of beginning; thence
North 0(degrees)29'15" East, along said Easterly right-of-way
line, a distance of 1298.03 feet, to a point on the Southerly
right-of-way line of 107th Street, as now established; thence
North 45(degrees)14'38" East, a distance of 28.40 feet; thence
North 90(degrees) East, along said Southerly line, a distance of
2243.55 feet; thence South 46(degrees)59'32" East, along said
Southerly line, a distance of 32.59 feet, to a point on the
Westerly right-of-way line of Santa Fe Drive; thence
Southwesterly, along said Westerly right-of-way line and along a
curve to the right having a radius of 1789.39 feet, a central
angle of 5(degrees)02'25" and whose initial tangent bearing is
South 29(degrees)07'55" West, a distance of 157.41 feet, to a
point of tangency; thence South 34(degrees)10'08" West, along
said Westerly right-of-way line, a distance of 1406.69 feet, to
a point of the North line of the South one-half of said SW 1/4;
thence South 89(degrees)55'13" West, along said North line, a
distance of 1426.03 feet, to the point of beginning.
1
<PAGE>
EASEMENTS AND
RIGHTS-OF-WAY: Right of way granted to United Cities Gas Company, Formerly
- ------------- known as Union Gas System, Inc., in Book 149 Misc., at Page 491.
United Cities Gas Company
Attn: Matt Frihart
9401 Indian Creek Parkway, Suit 450
Overland Park, Kansas 66210
Public utilities easement granted to City of Lenexa in Book 163
Misc., at Page 672; temporary construction easement granted in
Book 186 Misc., at Page 246; utility easement granted in Volume
1739 at Page 34; and street right of way granted in Volume 1739
at Page 38 and in Book 163 Misc., at Page 671.
City of Lenexa
P.O. Box 14888
Lenexa, Kansas 66285-4888
Easement granted to Kansas City Power & Light Company in Volume
2100 at Page 36 and in Volume 2179 at Page 528.
Kansas City Power & Light Company
Attn: Patrick K. O'Malley
P.O. Box 418679
Kansas City, Missouri 64141-9679
EASEMENT
DESCRIPTIONS: See attached Exhibits A and B for permanent and temporary
- ------------ easement descriptions.
2
<PAGE>
EXHIBIT A
February 8, 1886
Parcel No. 67
Owner: Kacika Corporation
Permanent Easement
A tract of land in the Southwest Quarter of Section 9, Township 13, Range 24, in
the City of Lenexa, Johnson County, Kansas, more particularly described as
follows:
COMMENCING at the Northwest corner of the Southwest Quarter of said Section 9;
thence South 88(degrees)36'10' East, along the North line of said Southwest
Quarter Section, a distance of 49.91 feet; thence South 1(degrees)23'50'' West,
perpendicular to the last described course, a distance of 10.20 feet to a point
on the South right of way line of 107th Street, as it presently exists, said
point being the POINT OF BEGINNING; thence South 88(degrees)36'10'' East, along
said South right of way, a distance of 50.01 feet; thence South
1(degrees)53'05'' West, parallel with, and 100.00 feet East of the West line of
said Southwest Quarter Section, a distance of 1223.74 feet; thence South
20(degrees)50'46'' West, a distance of 99.93 feet; thence North
88(degrees)40'57'' West, a distance of 31.83 feet; thence North
20(degrees)50'46'' East, a distance of 105.56 feet; thence North
1(degrees)53'05'' East, parallel with, and 70.00 feet East of the West line of
said Southwest Quarter Section, a distance of 1178.48 feet; thence North
88(degrees)36'10'' West, a distance of 40.00 feet to a point on the East right
of way of Lackman Road, as it presently exists; thence North 1(degrees)53'05''
East, continuing along said East right of way, a distance of 20.00 feet; thence
North 46(degrees)38'28'' East along said right of way, a distance of 28.40 feet,
to the POINT OF BEGINNING, containing 41,134 square feet, more or less.
By: /s/ Martin K. Hough
--------------------------
Martin K. Hough KS. LS-895 February 8, 1996
[SEAL OF MARTIN K. HOUGH
LAND SURVEYOR APPEARS HERE]
<PAGE>
EXHIBIT B
February 8, 1996
Parcel No. 67
Owner: Kacika Corporation
Temporary Easement
A tract of land in the Southwest Quarter of Section 9, Township 13, Range 24, in
the City of Lenexa, Johnson County, Kansas, more particularly described as
follows:
COMMENCING at the Northwest corner of the Southwest Quarter of said Section 9;
thence South 88(degrees)36'10" East, along the North line of said Southwest
Quarter Section, a distance of 99.01 feet; thence South 1(degrees)23'50" West,
perpendicular to the last described course, a distance of 10.20 feet to a point
on the West right of way line of 107th Street, as it presently exists, said
point being the POINT OF BEGINNING; thence South 88(degrees)36'10" East,
parallel with, and 10.20 feet South of the North line of said Southwest Quarter
Section, a distance of 40.00 feet; thence South 1(degrees)53'05" West, parallel
with, and 140.00 feet East of the West line of said Southwest Quarter Section, a
distance of 1317.87 feet; thence North 88(degrees)40'57 West, a distance of
72.47 feet; thence North 20(degrees)50'46" East, a distance of 99.93 feet;
thence North 1(degrees)53'05 East, parallel with, and 100.00 feet East of the
West line of said Southwest Quarter Section, a distance of 1223.74 feet to the
POINT OF BEGINNING, containing 54,245 square feet, more or less.
AND ALSO COMMENCING at the Northwest corner of said Southwest Quarter Section;
thence South 1(degrees)53'05" West, along the West line of said Southwest
Quarter Section, a distance of 49.95 feet; thence South 88(degrees)06'55" East,
perpendicular to the last described course, a distance of 30.00 feet to a point
on the East right of way line of Lackman Road, as it presently exists, said
point being the POINT OF BEGINNING; thence South 88(degrees)36'10" East, a
distance of 40.00 feet; thence South 1(degrees)53'05" West, parallel with, and
70.00 feet East of the West line of said Southwest Quarter Section, a distance
of 1178.48 feet; thence South 20(degrees)50'46" West, a distance of 105.56 feet;
thence North 88(degrees)40'57" West, a distance of 5.70 feet to a point on said
East right of way of Lackman Road; thence North 1(degrees)53'05" East, along
said right of way, a distance of 1278.03 feet to the POINT OF BEGINNING,
containing 49,414 square feet, more or less.
By: /s/ Martin K. Hough
-----------------------------------------
Martin K. Hough LS-895 February 8,1996
[NOTARY SEAL APPEARS HERE]
<PAGE>
PARCEL 68
---------
OWNER: ONE HOLDINGS, INC.
- ----- 813 Carew Tower
Cincinnati, Ohio 45202
MORTGAGE: Secured Finance, Inc., in Volume 3102 at Page 469, assigned to
- -------- Chemical Bank in Volume 3102 at Page 548.
Chemical Bank
55 Water Street
New York, New York 10805
LEGAL
DESCRIPTION: All that part of the Southwest Quarter of Section 9, Township
- ----------- 13, Range 24, Lenexa, Johnson County, Kansas, more particularly
described as follows:
Commencing at the Southwest corner of said Southwest Quarter;
thence North 02(degrees)13'25" West on the West line of Section
9, a distance of 329.00 feet; thence North 87(degrees)46'35"
East, a distance of 30.00 feet to a point on the existing
Easterly right-of-way of Lackman Road, said point also being the
point of beginning; thence North 02(degrees)13'25" West along
the existing Easterly right-of-way of Lackman Road, a distance
of 998.23 feet; thence North 87(degrees)22'07" East along the
North line of the South half of said Southwest Quarter, a
distance of 933.60 feet to a point; thence South
31(degrees)34'17" West, a distance of 943.12 feet to a point of
curvature; thence on a curve to the right having a radius of
458.59 feet, a distance of 306.15 feet to a point of tangency;
thence South 69(degrees)49'17" West, a distance of 7.20 feet to
a point of curvature; thence on a curve to the right having a
radius of 1910.08 feet, a distance of 75.68 feet to a point of
compound curvature; thence on a curve to the right having a
radius of 458.59 feet, a distance of 91.50 feet to the point of
beginning.
1
<PAGE>
EASEMENTS AND
RIGHTS-OF-WAY: Easement granted to Kansas City Power & Light Company in
- ------------- Volume 1529 at Page 959; in Volume 2868 at Page 18; and in
Volume 2868 at Page 19.
Kansas City Power & Light Company
Attn: Patrick K. O'Malley
P.O. Box 418679
Kansas City, Missouri 64141-9679
Easement granted to United Cities Gas Company, formerly
known as Union Gas System, Inc., in Volume 2868 at Page 20,
refiled in Volume 2884 at Page 178.
United Cities Gas Company
Attn: Matt Frihart
9401 Indian Creek Parkway, Suite 450
Overland Park, Kansas 66210
Temporary construction easement granted to Johnson County,
Kansas, in Volume 4524 at Page 982.
Johnson County, Kansas
Attn: Robert A. Ford
111 S. Cherry, Suite 3200
Olathe, Kansas 66061-3441
EASEMENT
DESCRIPTIONS: See attached Exhibits A and B for permanent and temporary
- ------------ easement descriptions.
2
<PAGE>
EXHIBIT A
February 21, 1996
Parcel No. 68
Owner: One Holdings, Inc.
Permanent Easement
A tract of land in the Southwest Quarter of Section 9, Township 13, Range 24, in
the City of Lenexa, Johnson County, Kansas, more particularly described as
follows:
COMMENCING at the Southwest corner of the Southwest Quarter of said Section 9;
thence North 1(degrees)53'05" East, along the West line of said Southwest
Quarter Section, a distance of 840.87 feet; thence South 88(degrees)06'55" East,
perpendicular to the last described course, a distance of 30.00 feet to a point
on the East right of way line of Lackman Road, as it presently exists, said
point being the POINT OF BEGINNING; thence North 1(degrees)53'05" East, along
the East right of way line of said Lackman Road, a distance of 486.14 feet;
thence South 88(degrees)40'57" East, a distance of 45.00 feet; thence South
1(degrees)53'05" West, parallel with, and 75.00 feet East of the West line of
said Southwest Quarter Section, a distance of 429.24 feet; thence South
25(degrees)26'34" West, a distance of 62.55 feet; thence North 88(degrees)06'55"
West, a distance of 20.00 feet to the POINT OF BEGINNING, containing 21,170
square feet, more or less.
By: /s/ Martin K. Hough
---------------------------------------
Martin K. Hough, KS LS-895 February 21, 1996
[SEAL APPEARS HERE]
<PAGE>
EXHIBIT B
February 21, 1996
Parcel No. 68
Owner: One Holdings, Inc.
Temporary Easement
A tract of land in the Southwest Quarter of Section 9, Township 13, Range 24, in
the City of Lenexa, Johnson County, Kansas, more particularly described as
follows:
COMMENCING at the Southwest corner of the Southwest Quarter of said Section 9;
thence North 1(degrees)53'05" East, along the West line of said Southwest
Quarter Section, a distance of 840.87 feet; thence South 88(degrees)06'55" East,
perpendicular to the last described course, a distance of 30.00 feet to a point
on the East right of way line of Lackman Road, as it presently exists; thence
continuing South 88(degrees)06'55" East, a distance of 20.00 feet, to the POINT
OF BEGINNING; thence North 25(degrees)26'34" East, a distance of 62.55 feet;
thence North 1(degrees)53'05" East, parallel with, and 75.00 feet East of the
West line of said Southwest Quarter Section, a distance of 429.24 feet; thence
South 88(degrees)40'57" East, a distance of 40.00 feet; thence South
1(degrees)53'05" West, parallel with, and 115.00 feet East of the West line of
said Southwest Quarter Section, a distance of 486.98 feet; thence North
88(degrees)06'55" West, a distance of 65.00 feet to the POINT OF BEGINNING,
containing 20,198 square feet, more or less.
BY: /s/ Martin K. Hough
-------------------
Martin K. Hough LS-895 February 21, 1996
[NOTARY SEAL APPEARS HERE]
<PAGE>
PARCEL 71
---------
OWNER: LENEXA INDUSTRIAL PARK, INC.
- ----- P.O. Box 411299
Kansas City, Missouri 64141-1299
MORTGAGE: None
- --------
LEGAL
DESCRIPTION: All that part of the Northeast 1/4 of Section 16, Township
- ----------- 13, Range 24, in the City of Lenexa, Johnson County, Kansas,
lying Northwesterly of the right of way line of the St.
Louis and San Francisco Railroad and the Missouri and Kansas
Interurban Railway Company, except any part thereof in
streets, roads or public rights of way.
EASEMENTS AND
RIGHTS-OF-WAY: Street right of way granted to City of Lenexa in Volume 2770
- ------------- at Page 11; permanent grading easement granted in Volume
2770 at Page 13.
City of Lenexa
P.O. Box 14888
Lenexa, Kansas 66285-4888
Right of way granted to United Cities Gas Company, formerly
known as Union Gas System, Inc., in Volume 2770 at Page 18.
United Cities Gas Company
Attn: Matt Frihart
9401 Indian Creek Parkway, Suite 450
Overland Park, Kansas 66210
EASEMENT
DESCRIPTIONS: See attached Exhibits A and B for permanent and temporary
- ------------ easement descriptions.
<PAGE>
EXHIBIT A
February 8, 1996
Parcel No. 71
Owner: Lenexa Industrial Park, Inc.
Permanent Easement
A tract of land in the Northwest Quarter of Section 16, Township 13, Range 24,
in the City of Lenexa, Johnson County, Kansas, more particularly described as
follows:
COMMENCING at the Northwest corner of the Northwest Quarter of said Section 16,
thence South 2(degrees)40'50" West, along the West line of said Southwest
Quarter Section, a distance of 75.01 feet; thence South 88(degrees)23'55" East,
a distance of 45.00 feet to a point of intersection to the East Right of way of
Lackman Road and the South right of way to College Blvd., as they presently
exists, said point being the POINT OF BEGINNING; thence continuing South
88(degrees)23'55" East, along said South right of way of College Blvd., a
distance of 29.24 feet, thence South 1(degrees)53'05" West , a distance of
62,24 feet; thence South 43(degrees)15'19" East, a distance of 18.00 feet;
thence South 88(degrees)23'55" East, parallel with, and 75.00 feet South of said
South right of way of College Blvd., a distance of 342.85 feet; thence South
35(degrees)41'05" West, a distance of 36.22 feet; thence North 88(degrees)23'55"
West, parallel with, and 105.00 feet South of said South right of way of College
Blvd., a distance of 335.02 feet; thence North 43(degrees)15'19" West, a
distance of 43.33 feet to a point on the East right of way of said Lackman Road;
thence North 2(degrees)40'50" East, along said right of way, a distance of 74.30
feet to the POINT OF BEGINNING, containing 13,117 square feet, more or less.
BY: /s/ Martin K. Hough
-------------------
Martin K. Hough LS-895 February 8,1996
[NOTARY SEAL APPEARS HERE]
<PAGE>
EXHIBIT B
February 8, 1996
Parcel No. 71
Owner: Lenexa Industrial Park, Inc.
Temporary Easement
A tract of land in the Northwest Quarter of Section 16, Township 13, Range 24,
in the City of Lenexa, Johnson County, Kansas, more particularly described as
follows:
COMMENCING at the Northwest corner of the Northwest Quarter of said Section 16;
thence South 2(degrees)40'50" West, along the West line of said Northwest
Quarter Section, a distance of 75.01 feet; thence South 88(degrees)23'55" East,
a distance of 45.00 feet to a point of intersection of the East right of way of
Lackman Road and the South right of way of College Blvd., as they presently
exists, said point also hereinafter referred to as Point "A"; thence continuing
South 88(degrees)23'55" East, along said right of way of College Blvd., a
distance of 29.24 feet to the POINT OF BEGINNING; thence continuing South
88(degrees)23'55" East, along said right of way, a distance of 15.00 feet;
thence South 1(degrees)53'05" West, a distance of 56.08 feet; thence South
43(degrees)15'19" East, a distance of 5.23 feet; thence South 88(degrees)23'55"
East, parallel with, and 60.00 feet South of said South right of way of College
Blvd., a distance of 339.59 feet to a point on the Westerly right of way line of
said College Blvd.; thence South 10(degrees)07'34" East, along said right of
way, a distance of 8.29 feet; thence South 35(degrees)41'03" West, a distance of
8.31 feet; thence North 88(degrees)23'55" West, parallel with, and 75.00 feet
South of said South right of way of College Blvd., a distance of 342.85 feet;
thence North 43(degrees)15'19" West, a distance of 18.00 feet; thence North
1(degrees)53'05" East, a distance of 62.24 feet to the POINT OF BEGINNING,
containing 6,207 square feet, more or less.
AND ALSO COMMENCING at Point "A"; thence South 2(degrees)40'50" West, along the
East right of way of Lackman Road, a distance of 74.30 feet to the POINT OF
BEGINNING; thence South 40(degrees)15'19" East, a distance of 43.33 feet; thence
South 88(degrees)23'55" East, a distance of 335.02 feet; thence South
35(degrees)41'03" West, a distance of 60.37 feet; thence North 88(degrees)23'55"
West, a distance of 333.27 feet to a point on the East right of way of said
Lackman Road; thence North 2(degrees)40'50" East, along said right of way, a
distance of 80.73 feet to the POINT OF BEGINNING, containing 17,964 square feet,
more or less.
By: /s/ Martin K. Hough
------------------------------
Martin K. Hough, KS LS-895 February 8, 1996
[SEAL OF MARTIN K. HOUGH
LAND SURVEYOR APPEARS HERE]
<PAGE>
VERIFICATION
------------
STATE OF KANSAS )
) SS.
COUNTY OF JOHNSON )
BYRON N. JOHNSON, of lawful age, being first duly sworn, upon his oath
states that he is the General Manager of Water District No. 1 of Johnson County,
the Petitioner herein, and is authorized to make this verification in its
behalf; that he has read the above Petition, knows the contents thereof, and
declares that all of the statements therein contained are true according to his
knowledge and belief.
/s/ Byron N. Johnson
-----------------------------------------
Byron N. Johnson
Subscribed and sworn to before me this 1st day of March, 1996.
[NOTARIAL SEAL APPEARS HERE] [SIGNATURE APPEARS HERE]
----------------------------------------
Notary Public
My Commission Expires:
- ----------------------
10
<PAGE>
WHEREFORE, Petitioner prays:
(A) That the court set a time for consideration of this Petition; and
(B) That the court upon consideration of the Petition find that the
Petitioner has the power of eminent domain and that the easements to be taken
are necessary for the Petitioner to carry out its lawful functions and
responsibilities; and
(C) That the court thereafter appoint three disinterested householders
of Johnson County, Kansas to view and appraise the value of such easements to be
taken and assess the damages done by such appropriation to the owners,
lienholders and easement holders of the tracts to be affected by such taking as
provided by law and in such cases, and to make return thereof to be filed with
the Clerk of the court on such date as the court may set.
SPEER, AUSTIN, HOLLIDAY & ZIMMERMAN
By: [ILLEGIBLE SIGNATURE]
---------------------------------
Wilson E. Speer. #04915
Marty T. Jackson. #14188
201 N. Cherry, P.O. Box 1000
Olathe, Kansas 66051-1000
Phone: (913) 782-1000
FAX (913) 782-0852
ATTORNEYS FOR PETITIONER
9
<PAGE>
Schedule 5.8 - Subsidiaries
---------------------------
(i) HOLDINGS
--------
BORROWER
--------
(ii) (A) Name - GFSI, Inc.
----
Jurisdiction of Incorporation - Delaware
-----------------------------
Foreign Qualifications - Kansas
----------------------
(ii) (B) HOLDINGS
--------
Preferred Stock
---------------
- Series A Preferred Stock, par value $0.01 per share
- 13,500 shares authorized, all of which are issued and outstanding
- Series B Preferred Stock, par value $0.01 per share
- 11,000 shares authorized, all of which are issued and outstanding
- Series C Preferred Stock, par value $0.01 per share
- 2,500 shares authorized, all of which are issued and outstanding
Common Stock
------------
- Series A Common Stock, par value $0.01 per share - 1,105 shares
authorized, 1000 of which are issued and outstanding on the Closing
Date. The remaining 105 shares have been reserved for issuance to
members of management pursuant to stock options.
- Series B Common Stock, par value $0.01 per share - 1,000 shares
authorized, 1,000 of which are issued and outstanding
Ownership
---------
See attached.
BORROWER
--------
Common Stock
------------
- Common Stock, par value $0.01 per share - 10,000 shares
authorized, one of which is issued and outstanding
<PAGE>
Ownership
---------
Holdings owns the one issued and outstanding share of common
stock of the Borrower.
(ii) (C) OWNERSHIP INTERESTS IN NONCORPORATE ENTITIES
--------------------------------------------
None
<PAGE>
WINNING WAYS, INC.
Shareholders Summary
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
Investment Amounts
--------------------------------------------------------------------------------------------
Preferred Stock Common Stock
Shareholder Series A Series B Series C Series A Series B
- ---------------- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management
- ----------
Bob Wolff $810,000.00 $0.00 $0.00 $6,000.00 $0.00
Barry Golden 405,000.00 0.00 0.00 3,000.00 0.00
John Menghini 2,659,500.00 0.00 0.00 19,700.00 0.00
Lisa Menghini 270,000.00 0.00 0.00 2,000.00 0.00
John Menghini, Jr. 270,000.00 0.00 0.00 2,000.00 0.00
Michael Menghini 270,000.00 0.00 0.00 2,000.00 0.00
Bob Shaw 2,362,500.00 0.00 0.00 17,500.00 0.00
Andrew Shaw 270,000.00 0.00 0.00 2,000.00 0.00
Laura Shaw 270,000.00 0.00 0.00 2,000.00 0.00
Stacey Shaw 270,000.00 0.00 0.00 2,000.00 0.00
Larry Graveel 1,485,000.00 0.00 0.00 11,000.00 0.00
Mike Gary 1,485,000.00 0.00 0.00 9,000.00 0.00
Michael Gary, Jr. 0.00 0.00 0.00 1,000.00 0.00
Matthew Gary 0.00 0.00 0.00 1,000.00 0.00
Terry Glenn 405,000.00 0.00 0.00 3,000.00 0.00
Kirk Kowelewski 337,500.00 0.00 0.00 2,500.00 0.00
Mark Schimpf 337,500.00 0.00 0.00 2,500.00 0.00
Tony Gagliano 202,500.00 0.00 0.00 1,500.00 0.00
Dave Churchman 202,500.00 0.00 0.00 1,500.00 0.00
Dave Geenens 175,500.00 0.00 0.00 1,300.00 0.00
Steve Arnold 67,500.00 0.00 0.00 500.00 0.00
Frank Pikus 135,000.00 0.00 0.00 1,000.00 0.00
Jason Krakow 135,000.00 0.00 0.00 1,000.00 0.00
Carl Allard 202,500.00 0.00 0.00 1,500.00 0.00
Howie Ellis 168,750.00 0.00 0.00 1,250.00 0.00
Scott Durham 67,500.00 0.00 0.00 500.00 0.00
Tom Martin 67,500.00 0.00 0.00 500.00 0.00
John White 67,500.00 0.00 0.00 500.00 0.00
Sue Agnitch 33,750.00 0.00 0.00 250.00 0.00
Dave Hosier 33,750.00 0.00 0.00 250.00 0.00
Jim Keaton 33,750.00 0.00 0.00 250.00 0.00
Lee Ann Stevens 0.00 0.00 0.00 0.00 0.00
William DiRocco 0.00 0.00 0.00 0.00 0.00
Mary Cimpl 0.00 0.00 0.00 0.00 0.00
--------------------------------------------------------------------------------------------
Total Management $13,500,000.00 $0.00 $0.00 $100,000.00 $0.00
JZCC $0.00 $0.00 $1,875,000.00 $0.00 $37,500.00
Leucadia Investors, Inc. $0.00 $0.00 $625,000.00 $0.00 $12,500.00
MCIT $0.00 $11,000,000.00 $0.00 $0.00 $50,000.00
--------------------------------------------------------------------------------------------
Total $13,500,000.00 $11,000,000.00 $2,500,000.00 $100,000.00 $100,000.00
--------------------------------------------------------------------------------------------
<CAPTION>
-------------------------------------------
Investment Amounts
-------------------------------------------
Loans Outstanding
Shareholder Received Loans
- ---------------- -------------------------------------------
<S> <C> <C>
Management
- ----------
Bob Wolff $0.00 $0.00
Barry Golden 0.00 0.00
John Menghini 0.00 0.00
Lisa Menghini 0.00 0.00
John Menghini, Jr. 0.00 0.00
Michael Menghini 0.00 0.00
Bob Shaw 0.00 0.00
Andrew Shaw 0.00 0.00
Laura Shaw 0.00 0.00
Stacey Shaw 0.00 0.00
Larry Graveel 0.00 0.00
Mike Gary 0.00 988,749.52
Michael Gary, Jr. 0.00 0.00
Matthew Gary 0.00 0.00
Terry Glenn 0.00 284,351.73
Kirk Kowelewski 0.00 222,436.58
Mark Schimpf 0.00 274,310.51
Tony Gagliano 0.00 65,734.59
Dave Churchman 0.00 118,753.01
Dave Geenens 0.00 126,126.87
Steve Arnold 0.00 133,943.03
Frank Pikus 115,600.00 0.00
Jason Krakow 100,000.00 35,395.55
Carl Allard 173,400.00 0.00
Howie Ellis 144,500.00 0.00
Scott Durham 57,800.00 0.00
Tom Martin 57,800.00 0.00
John White 57,800.00 0.00
Sue Agnitch 28,900.00 0.00
Dave Hosier 23,800.00 0.00
Jim Keaton 28,900.00 0.00
Lee Ann Stevens 0.00 184,403.40
William DiRocco 0.00 218,373.34
Mary Cimpl 0.00 33,301.06
-------------------------------------------
Total Management $788,500.00 $2,685,879.19
JZCC $0.00 $0.00
Leucadio Investors, Inc. $0.00 $0.00
MCIT $0.00 $0.00
-------------------------------------------
Total $788,500.00 $2,685,879.19
-------------------------------------------
</TABLE>
<PAGE>
Schedule 5.17 - Insurance
-------------------------
BORROWER
- --------
None
TARGET (prior to the merger)
- ----------------------------
See attached
<PAGE>
GSFI, INC.
SUMMARY OF INSURANCE POLICIES
FEBRUARY 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
COVERAGE COMPANY NUMBER EXP DATE PREMIUM
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PACKAGE POLICY CHUBB GROUP 3530-82-47 7/1/97 $63,578
PROPERTY GREAT NORTHERN
BUSINESS INCOME
CRIME
INLAND MARINE
BOILER & MACHINERY
GENERAL LIABILITY
EMPLOYEE BENEFIT LIABILITY
EXCESS CRIME POLICY CHUBB GROUP 81256209-B 7/1/97 $2,680
FEDERAL
AUTO POLICY CHUBB GROUP 7320-06-62 7/1/97 $14,573
FEDERAL
EXCESS WORK COMP EMPLOYERS REINSURANCE 0564880 7/1/97 $27,472
CORPORATION
MISC WORK COMP CHUBB GROUP 7162-41-41 10/27/97 $4,126
FEDERAL
INTERNATIONAL COVERAGE CHUBB GROUP 7322-41-35 7/1/97 $2,500
GREAT NORTHERN
UMBRELLA CHUBB GROUP 7973-90-31 7/1/97 $17,630
FEDERAL
OCEAN CARGO ST PAUL 312JM1013 9/1/97 95/96 $20,453*
*Determined by actual
shipments
</TABLE>
<PAGE>
02/27/97
WINNING WAYS, INC.
WORKERS COMPENSATION INSURANCE
NAME OF INSURED- WINNING WAYS, INC.
MONTHLY PREMIUM - $27,472
POLICY # - 0564880
INSURER - EMPLOYERS REINSURANCE CORP.
STOP LOSS - $200,000
<PAGE>
INSURANCE SUMMARY
FOR
WINNING WAYS, INC.
Gear for Sports
Sports Apparel
All a division of Winning Ways, Inc.
Prepared by:
Fred E. Hand
Area Vice President
Carolyn Bradley
Account Manager
Gallagher Woodsmall, Inc.
2345 Grand Boulevard, Suite 800
Kansas City, Missouri 64108
(816) 395-8548
July 1, 1996
[LOGO APPEARS HERE]
<PAGE>
SCHEDULE OF EXHIBITS
PROPERTY
BUSINESS INCOME
CRIME
INLAND MARINE
BOILER & MACHINERY
GENERAL LIABILITY - OCCURRENCE FORM
EMPLOYEE BENEFITS LIABILITY
AUTOMOBILE LIABILITY
AUTOMOBILE PHYSICAL DAMAGE
WORKERS' COMPENSATION
WORKERS' COMPENSATION (GA, IL, IN, CA, MA)
INTERNATIONAL COVERAGE
UMBRELLA LIABILITY
PREMIUM SUMMARY
PAYMENT SCHEDULE
ITEMS TO CONSIDER
The insurance coverages outlined in this summary are for illustration purposes
only. While every effort has been made to ensure the accuracy of the
information presented, all coverages are subject to the actual policy terms,
conditions, limitations, and exclusions.
<PAGE>
BUSINESS INCOME
AND
EXTRA EXPENSE
Coverage:
- --------
Business Income provides coverage for actual loss of business income you sustain
as a result of necessary suspension of your business caused by direct physical
loss to your property by an insured peril. Business income means your net (NET
PROFIT OR LOSS) before income taxes to the extent that it would have been earned
had there been no loss plus all continuing normal operating expenses, including
ordinary payroll, incurred.
The coverage will also pay any extra expenses necessary during "the period of
restoration" that would not have been incurred if there had been no interruption
of your business to the extent that such extra expense minimizes or avoids the
suspension of your business.
LOCATIONS COVERED: See schedule attached
- -----------------
LIMITS: $18,275,000 - Combined Including EDP BI/EE
- ------ $250,000 - Contingent Business Income/Worldwide
$250,000 - Off Premises Power
COINSURANCE: Agreed Amount
- -----------
CAUSES OF LOSS: Special Form
- --------------
DEDUCTIBLE: 24 hours for Loss caused by:
- ----------
Electrical Arcing
Mechanical Breakdown
Stream Boiler
<PAGE>
PROPERTY
COVERAGE:
- --------
Building means the actual building or structure described in the declarations
and also includes completed additions; Permanently Installed Fixtures,
Machinery and Equipment; Outdoor Fixtures; and Personal Property owned by you
that is used to maintain or service the building or structure (including Fire
Extinguishing Equipment, Floor Coverings and Appliances).
Personal Property includes Furniture and Fixtures; Machinery and Equipment;
"Stock"; Other Personal Property owned by you and used in the business; and your
use Interest as Tenant in Improvements and Betterments, which are located in or
on the building described in the declarations or in the open within 1,000 feet
of the premises.
CAUSES OF LOSS:
- --------------
Building and Personal Property Coverage is written on the Chubb Customary form
insuring against virtually all Risk of Direct Physical Loss, unless excluded or
limited. Coverage includes flood and earthquake.
Personal Property is on a monthly reporting form basis and is adjusted at the
end of the Policy term. Incorrect or late reporting can cause problems in
adjusting claims. Reports are due the 15th of the month following the reporting
period.
LOCATIONS COVERED:
- -----------------
LIMIT: See attached schedule
A. Building, Contents, Blanket Limit $20,733,500
Furniture and Fixtures,
Signs, Personal Property of Others
B. Stock Blanket Limit $28,000,000
C. Flood $5,000,000
D. Earthquake $5,000,000
E. Unnamed Locations $250,000
COINSURANCE: Buildings - AA
- ----------- Personal Property - 100%
DEDUCTIBLE: Buildings and Personal Property - $1,000
- ---------- Flood and Earthquake - $50,000 each occurrence
LOSS ADJUSTMENT: Replacement Cost on Personal Property
- --------------- Agreed Amount on Buildings
Manufacturing Selling Price on Finished Goods
<PAGE>
CRIME
COVERAGE:
- --------
A. EMPLOYEE DISHONESTY - Covers loss of Money, Securities and other property
-------------------
resulting directly from dishonest acts committed by an Employee.(*)
Limit $500,000
Deductible $ 1,000
(*) Includes pension and profit sharing plans
B. FORGERY OR ALTERATION - Covers loss you sustain through forgery or
---------------------
alteration of checks, drafts and promissory notes.
Limit $250,000
Deductible $ 1,000
C. THEFT, DISAPPEARANCE AND DESTRUCTION
------------------------------------
Section 1 - Premises Coverage - Covers loss of Money and Securities
occurring within your premises or within any Banking premises. Includes
damage to the premises.
Limit $20,000
Deductible $ 1,000
Section 2 - Messenger Coverage - Covers loss of Money and Securities
occurring outside the Premises while being conveyed by a messenger or any
armored motor vehicle company.
Limit $10,000
Deductible $ 1,000
================================================================================
Notice must be given to Increase limits to $500,000 during
month of November to accommodate warehouse sale.
================================================================================
ADDITIONAL INSURED:
- ------------------
Winning Ways, Inc. Group Life Health and Disability Insurance Plan,
Profit-Sharing Retirement Plan of Winning Ways, Inc.,
Winning Ways, Inc. Profit Sharing and 401(k) Plan
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
STATEMENT OF VALUES
- -------------------------------------------------------------------------------------------------------
16002 West 110th 9700 Commerce Parkway 9950 Lackman
Location Lenexa, Kansas Lenexa, Kansas Lenexa, Kansas Total
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Building $2,500,000 $10,200,000 $12,700,000
- -------------------------------------------------------------------------------------------------------
Contents $2,035,000 $5,900,000 $65,000 $ 8,000,000
- -------------------------------------------------------------------------------------------------------
Signs Included Included Included $ 13,500
- -------------------------------------------------------------------------------------------------------
Personal Property of Others Included Included Included $ 20,000
- -------------------------------------------------------------------------------------------------------
Inventory $4,700,000 $23,250,000 $50,000 $28,000,000
- -------------------------------------------------------------------------------------------------------
Business Income $3,000,000 $15,025,000 $250,000 $18,275,000
- -------------------------------------------------------------------------------------------------------
EDP Property 300,000 Property-- $930,000 Property 20,000 $ 1,250,000
EE-- Included EE-- Included EE-- Included Included
BI-- Included BI-- Included BI-- Included Included
- -------------------------------------------------------------------------------------------------------
Accounts Receivable Included $300,000 $ 300,000
- -------------------------------------------------------------------------------------------------------
Valuable Papers Included $300,000 $ 300,000
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
INLAND MARINE
COVERAGE: Ocean Marine (Cargo) Policy
PERILS INSURED: All Risk subject to policy exclusions.
--------------
LIMITS: $2,000,000
------
DEDUCTIBLE: $50,000 Annual Aggregate
----------
* Renewal date 9/1/96
-----------------------------------------------------------------------------
COVERAGE: Transportation
PERILS INSURED: All Risk subject to policy exclusion
--------------
LIMITS: $50,000
------ $5,000 per salesman's vehicle
DEDUCTIBLE: $1,000
----------
-----------------------------------------------------------------------------
COVERAGE: Sign
LOCATIONS COVERED: 9700 Commerce Parkway
----------------- 16002 West 110th Street
PERILS INSURED: Special form
--------------
LIMITS: Included in Blanket, Bldg., CTS, F&F
------
DEDUCTIBLE: $1,000
----------
<PAGE>
INLAND MARINE
COVERAGE: Electronic Data Processing
LOCATIONS COVERED: 9700 Commerce Parkway, Lenexa, Kansas
-----------------
16002 West 110th Street, Lenexa, Kansas
9950 Lackman, Lenexa, Kansas
PERILS INSURED: Special form including mechanical breakdown -
--------------
subject to policy exclusions.
LIMITS: Property - $1,250,000
------
Business Interruption - Included in Business Income
Extra Expense - Included in Business Income
DEDUCTIBLE: $1,000
----------
------------------------------------------------------------------------
COVERAGE: Valuable Papers
LOCATIONS COVERED: 9700 Commerce Parkway
-----------------
16002 West 110th Street
PERILS INSURED: Special form
--------------
LIMITS: $300,000
------
DEDUCTIBLE: $1,000
----------
------------------------------------------------------------------------
COVERAGE: Accounts Receivable
LOCATIONS COVERED: 9700 Commerce Parkway
-----------------
16002 West 110th Street
PERILS INSURED: Special form
--------------
LIMITS: $300,000
------
DEDUCTIBLE: $500
----------
------------------------------------------------------------------------
<PAGE>
BOILER AND MACHINERY
Machinery Insurance provides coverage that is normally excluded in your Property
Program, which pertains to your electrical, mechanical, and pressure machinery.
1. Loss by explosion of steam boilers and pipes.
2. Loss due to mechanical breakdown.
3. Loss due to centrifugal force.
4. Loss due to electrical arcing.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
YOUR PROGRAM COVERS
- --------------------------------------------------------------------------------
Comprehensive Excluding Ordinary Payroll Including Production Machines
Description of Objects Covered
- --------------------------------------------------------------------------------
<S> <C>
Property Damage
Limit per accident Subject to Property Limit
Deductible 1,000
Expediting Expense Included in Business Income Limit
Additional Expense Included in Business Income Limit
Hazardous Substance Limitation Included in Pollution Clean-Up
Ammonia Contamination Included in Pollution Clean-Up
Water Damage Included in Property Limit
- --------------------------------------------------------------------------------
Business Interruption and Extra Expense
Limit of Loss Actual Loss Sustained
Deductible 24 Hours
- --------------------------------------------------------------------------------
</TABLE>
LOCATIONS COVERED: 9700 Commerce Parkway
- ----------------- 16002 West 110th Street
9950 Lackman Road
<PAGE>
GENERAL LIABILITY
(OCCURRENCE FORM)
COVERAGE:
- --------
Liability which the insured becomes legally obligated to pay resulting from
Personal Injury, Advertising Liability, Bodily Injury or Property Damage arising
out of premises, operations, completed operations or products occurrences. This
coverage responds to claims which occur during the policy period.
LIMIT:
- -----
<TABLE>
<S> <C>
General Aggregate $2,000,000
Products Liability Aggregate $2,000,000
Personal Injury-Advertising Liability $1,000,000
Each Occurrence $1,000,000
Premises Medical Payments $10,000
</TABLE>
INCLUDES THE FOLLOWING COVERAGES:
- --------------------------------
Fire Legal Liability included in the per occurrence
Blanket Contractual Liability
Broad Form Property Damage Liability
Employees as Additional Insureds
Limited World-Wide Coverage
Host Liquor Liability
Vendors Liability (Broad Form)
Incidental Medical Malpractice Liability
Non-Owned Water Liability Under 55' in Length
Automatic Coverage for Newly Acquired Organizations - 90 days
Lessor's of Leased Equipment As Insured
Stop Gap Liability - $500,000
SALES: $185,000,000
- -----
EXCLUSIONS INCLUDE:
- ------------------
Breach of Contract
Personnel Practices
Nuclear Energy
Aircraft
Owned Watercraft
Product Recall
The coverage is subject to standard policy exclusions, including pollution and
asbestos liability.
The policy premium may be adjusted at the end of the year,
based upon an audit of your payroll and/or receipts.
<PAGE>
AUTOMOBILE LIABILITY
LIMITS: $1,000,000 Per Accident
$1,000,000 Uninsured/Underinsured Motorist
$1,000 Medical Payments on Scheduled Units
Maximum Personal Injury PROTECTION Limits on Required Units
=======================
COMPOSITE RATED
=======================
COVERAGES:
- ---------
Owned Auto Liability
This covers your legal liability for Bodily Injury or Property Damage caused by
an occurrence and arising from the ownership, maintenance or use of owned
automobiles anywhere in the United States, its territories, possessions or
Canada. This also insures vehicles operated under a long term lease, where you,
the lessee, must provide the primary insurance and the lessor is named as an
additional insured.
Hired Auto Liability
This covers you, the named insured and not the lessor, for Bodily Injury or
Property Damage caused by an occurrence arising from the use of a hired vehicle.
All short term lease agreements automatically come under this coverage.
Non-owned Auto Liability
This covers you, the named insured, for the business use of automobiles directly
owned by others, resulting in Bodily Injury or Property Damage caused by an
occurrence. This protects you, the employer, if owner doesn't have insurance or
his limits are not adequate.
Deletion of Fellow Employee Exclusion for Executive Officers
This covers executive officers for suits brought against them by fellow
employees for accidents for which they may be liable. Normally these suits are
excluded so that Worker' Compensation is the injured employee's sole remedy.
This coverage extension protects and defends your executive officers against law
suits from your other employees.
Drive Other Car Coverage
This extends liability coverage to those individuals named in the endorsement
for suits arising from claims where they are driving a vehicle lent to them by
others where these individuals have no personal automobile insurance coverage.
This coverage can be appropriate for those individuals furnished company-owned
cars, i.e., executive officers and salesmen.
Mr. & Mrs. Robert Wolff Andrew Wolff
The coverage is subject to standard policy exclusions.
The policy premium may be adjustable at the end of the year,
based upon an audit of owned vehicles.
<PAGE>
EMPLOYEE BENEFIT LIABILITY
Employee Benefit Liability protects you against claims made by your employees,
families or estates that are the result of errors or omissions of your staff in
the administration of your employee benefit programs. The policy applies to
claims made during the policy period which occurred on or after the retroactive
date.
LIMIT: $1,000,000 Each Claim
- ----- $1,000,000 Aggregate
DEDUCTIBLE: $1,000
- ----------
RETRO DATE: July 1, 1994
- ----------
<PAGE>
WORKERS' COMPENSATION
GEORGIA, ILLINOIS, INDIANA, CALIFORNIA, MASSACHUSETTS
COVERAGE:
- --------
This policy provides benefits in accordance with State law for employees
(including executive officers) injured or killed in accidents arising out of and
in course of their employment. Benefits include medical payments, disability and
death.
POLICY INCLUDES:
- ---------------
Other States Coverages:
Except coverage is not available in Ohio, Washington, Nevada, West Virginia,
Wyoming, and North Dakota. In these states, coverage must be purchased directly
from the State Fund.
Employers' Liability:
$500,000 Each Person
$500,000 Disease Each Accident
$500,000 Disease Each Person
Experience Modification of 1.26
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
EXPOSURES
- --------------------------------------------------------------------------------
STATE CLASSIFICATION CODE PAYROLL
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Georgia Salespersons 8742 89,000
-------------------------------------------------------------
Clerical 8810 10,674
- --------------------------------------------------------------------------------
Illinois Salespersons 8742 84,000
- --------------------------------------------------------------------------------
Indiana Salespersons 8742 89,000
-------------------------------------------------------------
Clerical 8810 1,598
- --------------------------------------------------------------------------------
California Salespersons 8742 80,000
- --------------------------------------------------------------------------------
Massachusetts Salespersons 8742 80,000
- --------------------------------------------------------------------------------
</TABLE>
INSURER: Chubb
- -------
TERM: October 27, 1995 to 1996
- ----
Higher liability limits may be available upon request.
This policy premium is adjustable at the end of the year, based upon a payroll
audit.
<PAGE>
AUTOMOBILE PHYSICAL DAMAGE
COVERAGE:
- --------
Comprehensive:
This provides coverage for all owned or long term leased units for damage to the
vehicle other than that caused by collision with a $250 deductible.
Collision:
This provides coverage for all owned or long term leased units for Collision or
Upset with a $500 deductible.
Hired Car Physical Damage:
Limit $25,000
Comprehensive Deductible $250
Collision Deductible $500
VEHICLE SCHEDULE:
- ----------------
1. 1995 BMW 740i
2. 1994 Mercedes E320A
3. 1994 Jeep Grand Cherokee
4. 1991 Mercedes 300SL
5. 1994 Toyota 4-Runner
6. 1995 BMW 740il
7. 1994 Lexus GS300
8. 1997 BMW 740i
9. 1997 BMW 940Cl Coupe
10. 1991 Saab
11. 1989 Chevrolet Truck
12. 1991 International S4700 Truck
13. 1992 Ford E250 Van
-------------------
COMPOSITE RATED
-------------------
All Coverages are subject to standard policy exclusions.
The policy premium may be adjustable at the end of the year,
based upon an audit of owned vehicles.
<PAGE>
UMBRELLA LIABILITY
COVERAGE: (Umbrella Form)
- --------
This policy provides additional liability coverage, over and above the limits
provided in the primary liability policies. This provides additional protection
against the large, "catastrophic" lawsuit which might exceed primary policy
limits. This policy may also provide a measure of protection against certain
types of liability exposures not covered in the basic policies, subject to a
retention of -0-.
LIMIT OF LIABILITY: $20,000,000
EXCLUSIONS: (Other than standard policy exclusions)
- ----------
ERISA
Pollution and Asbestos
Employee Related Practices
Care, Custody and Control for Real and Personal Property
<PAGE>
INTERNATIONAL COVERAGE
INTERNATIONAL GENERAL LIABILITY:
- -------------------------------
Coverage protects you for any covered occurrence overseas for premises of
products liability regardless of where suit is brought or the number of suits.
LIMIT OF LIABILITY -- $1,000,000
AMENDMENTS Fire Legal $50,000
Medical Payments $1,000/Person -- $2,500/Accident
INTERNATIONAL AUTOMOBILE LIABILITY:
- ----------------------------------
Provides difference in conditions (DIC) and excess coverage for damages and
injuries sustained while using, owning, hiring or maintaining vehicles.
Coverage is always excess over any compulsory or voluntary admitted coverage
and serves to broaden protection for U.S. and Canadian employees and principals
to provide them customary limits and coverage.
Coverage also protects you in the event a lawsuit is brought against your firm
in the United States or Canada as a result of an overseas incident.
LIMIT OF LIABILITY -- $1,000,000
AMENDMENTS Medical Payments $1,000/Person -- $2,500/Accident
FOREIGN VOLUNTARY WORKERS COMPENSATION:
- --------------------------------------
Provides primary 24-hour work and travel coverage for U.S. and Canadian
employees as well as international employees ("foreign nationals") traveling to
or temporarily stationed in countries other than the country to which they are
assigned.
There are no exclusions for terrorism, civil war, endemic and epidemic disease
and war.
Repatriation expenses are also included automatically (whether or not the
sickness, accident or injury is employment-related) to cover the costs of
transporting employees elsewhere for medical treatment or funeral services.
Employer's liability coverage protects you against both suit and in the United
States and Canada.
LIMIT OF LIABILITY -- $100,000
AMENDMENTS Repatriation $25,000
Employees receive the same state/country of hire benefits while overseas as when
they return to U.S. or Canadian soil.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PAYMENT SCHEDULE
- ------------------------------------------------------------------------------------------------------------------------------------
JUL AUG SEP OCT NOV DEC JAN FEB MAR APR TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Excess Workers Compensation $ 27,472 $ 27,472
- ------------------------------------------------------------------------------------------------------------------------------------
Administration Fee 10,750 10,750
- ------------------------------------------------------------------------------------------------------------------------------------
Assigned Risk Workers Compensation 3,301* 3,301
- ------------------------------------------------------------------------------------------------------------------------------------
Package 16,783 5,200 5,200 5,200 5,200 5,200 5,200 5,200 5,200 5,200 63,583
- ------------------------------------------------------------------------------------------------------------------------------------
Auto 3,773 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 14,573
- ------------------------------------------------------------------------------------------------------------------------------------
Excess Crime 2,680 2,680
- ------------------------------------------------------------------------------------------------------------------------------------
International 2,500 2,500
- ------------------------------------------------------------------------------------------------------------------------------------
Umbrella 4,490 1,460 1,460 1,460 1,460 1,460 1,460 1,460 1,460 1,460 17,630
- ------------------------------------------------------------------------------------------------------------------------------------
Total $68,448 $7,860 $7,860 $11,161 $7,860 $7,860 $7,860 $7,860 $7,860 $7,860 $142,489
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* October 27, 1995/1996
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PREMIUM SUMMARY
- --------------------------------------------------------------------------------
95/96 96/97
- --------------------------------------------------------------------------------
<S> <C> <C>
PROPERTY $49,150 $47,950
- --------------------------------------------------------------------------------
BUSINESS INCOME Included Included
- --------------------------------------------------------------------------------
EXCESS CRIME 2,680 2,680
- --------------------------------------------------------------------------------
INLAND MARINE Included Included
- --------------------------------------------------------------------------------
BOILER AND MACHINERY Included Included
- --------------------------------------------------------------------------------
GENERAL LIABILITY 13,939 15,633
- --------------------------------------------------------------------------------
EMPLOYEE BENEFIT LIABILITY Included Included
- --------------------------------------------------------------------------------
AUTOMOBILE COVERAGES 15,078 14,573
- --------------------------------------------------------------------------------
UMBRELLA LIABILITY 17,500 17,630
- --------------------------------------------------------------------------------
SUBTOTAL 98,347 98,466
- --------------------------------------------------------------------------------
INTERNATIONAL COVERAGE N/A 2,500
- --------------------------------------------------------------------------------
GEORGIA, ILLINOIS, INDIANA WORKERS' COMPENSATION* 3,301 3,301
- --------------------------------------------------------------------------------
EXCESS WORKERS' COMPENSATION 27,472 27,472
- --------------------------------------------------------------------------------
ADMINISTRATION FEES 9,000 10,750
- --------------------------------------------------------------------------------
TOTAL $138,120 $142,489
- --------------------------------------------------------------------------------
</TABLE>
*October 27, 1995/1996
The Chubb premium for 1996-97 is virtually unchanged from the 1995-96 premium.
However, the 1996-97 premium includes $3,600,000 more in inventory and
$20,000,000 more in revenue which should have made the premium $3,058 higher
representing slightly more than a 3% savings.
- --------------------------------------------------------------------------------
<PAGE>
INSURANCE COMPANY RATING SUMMARY
Insured: Winning Ways, Inc.
Woodsmall Risk Services recommends coverage be placed with insurance companies
carrying a "Best Rating" of A- VI or higher. We suggest this because the future
financial ability or inability of insurance companies to either pay their
claims, or refund any return premium in the event the policy is canceled cannot
be guaranteed.
A rating of A- VI or higher represents companies rated "excellent" with a
minimum Policyholder Surplus of $25,000,000. "Best Ratings" are published by
A.M. Best Company, Inc. of Oldwick, New Jersey, an insurance industry rating
organization which evaluates companies as to their performance and financial
strength.
The insurance companies quoting and/or writing your coverages are listed below
with their current "Best Ruling."
<TABLE>
<CAPTION>
--------------------------------------------------
COMPANY BEST RATING
--------------------------------------------------
<S> <C>
Chubb A + + XIV
--------------------------------------------------
St. Paul A + XIV
--------------------------------------------------
</TABLE>
<PAGE>
ITEMS TO CONSIDER
1. Higher Limits on Valuable Papers Declined
2. Fine Arts Declined
3. Fiduciary Liability Declined
4. Directors and Officers Liability Declined
5. Employee Practice Liability Declined
6. Higher Limits -- Excess Crime Coverage
Employee Theft
Depositors Forgery $1,000,000
Money and Securities
Premises and Transit $250,000
Deducible $10,000
Additional Premium $2,270
<PAGE>
Schedule 5.18 - Contingent Obligations
--------------------------------------
See Schedule 5.7
------------
<PAGE>
Schedule 5.21 - Environmental Matters
-------------------------------------
1. Section 5.21 (a) (ii) - Borrower does not have any permits issued by either
---------------------
the State of Kansas of the United States under the Clean Air Act.
2. Section 5.21 (a) (iv) - There is a registered underground storage tank used
---------------------
by Borrower on the Commerce Parkway Property.
3. Section 5.21 (v) - See item no. 2 and item no. 3 on Schedule 1.1.1.
---------------- --------------
<PAGE>
Schedule 5.19 - Labor Matters; Compensation Agreements
------------------------------------------------------
1. Profit Sharing & 401(k) Plan
2. Group Medical Plan
3. Employee Assistance Program
4. Dental Care Plan
5. Group Term Life Insurance
6. Group Long Term Disability Income Insurance Plan
7. Cafeteria Plan
8. Tuition Reimbursement Plan
<PAGE>
Schedule 6.3(H) - Transactions with
-----------------------------------
Shareholders and Affiliates
---------------------------
1. Tax Sharing Agreement, dated the date hereof, by and between Holdings and
Borrower.
2. Management Consulting Agreement, dated the date hereof, by and between,
Holdings and TJC Management Corporation.
3. Noncompetition Agreement, dated as of the date hereof, by and between Robert
Wolff and the Borrower.
4. Revolving Promissory Note, dated as of August 12, 1996, in the principal
amount of $150,000 issued to Borrower by Kansas Custom Embroidery.
5. Revolving Promissory Note, dated as of August 12, 1996, in the principal
amount of $700,000 issued to Borrower by Impact Design, Inc.
6. Employment Agreement, dated the date hereof, by and between Robert Wolff and
Borrower.
7. Embroidery Design Sourcing Partner Agreement, dated on or about July, 1996,
by and between Borrower, as successor to Target, and Kansas Custom Embroidery.
8. Embroidery Design Sourcing Partner Agreement, dated on or about July, 1996,
by and between Borrower, as successor to Target, and Impact Design.
9. See item no. 4 of Schedule 1.1.1.
--------------
10. Intercompany Consulting Agreement by and between Borrower and its Restricted
Subsidiaries.
11. MCIT PLC Purchase Agreement, dated as of the date hereof, by and between
MCIT PLC and Holdings.
<PAGE>
================================================================================
SECURITY AGREEMENT
Dated as of February 27, 1997
between
GFSI, INC.
AND
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C> <C>
SECTION 1. Defined Terms...................................................................................... 1
SECTION 2. Grant of Security.................................................................................. 2
SECTION 3. Authorization...................................................................................... 4
SECTION 4. Grantor Remains Liable............................................................................. 4
SECTION 5. Representations and Warranties..................................................................... 4
SECTION 6. Perfection and Maintenance of Security Interest and Lien........................................... 5
SECTION 7. Financing Statements............................................................................... 6
SECTION 8. Filing Costs....................................................................................... 6
SECTION 9. Schedule of Collateral............................................................................. 6
SECTION 10. Equipment and Inventory............................................................................ 6
SECTION 11. Accounts........................................................................................... 7
SECTION 12. Leased Real Property............................................................................... 8
SECTION 13. General Covenants.................................................................................. 8
SECTION 14. Agent Appointed Attorney-in-Fact................................................................... 8
SECTION 15. Agent May Perform................................................................................... 9
SECTION 16. Agent's Duties...................................................................................... 9
SECTION 17. Remedies............................................................................................ 9
SECTION 18. Exercise of Remedies............................................................................... 10
SECTION 19. License............................................................................................ 10
SECTION 20. Injunctive Relief.................................................................................. 11
SECTION 21. Interpretation and Inconsistencies; Merger; No Strict Construction................................. 11
SECTION 22. Expenses........................................................................................... 11
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 23. Amendments, Etc.................................................................................... 11
SECTION 24. Notices............................................................................................ 11
SECTION 25. Continuing Security Interest; Termination.......................................................... 11
SECTION 26. Severability....................................................................................... 12
SECTION 27. GOVERNING LAW...................................................................................... 12
SECTION 28. CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL............................................ 12
(A) EXCLUSIVE JURISDICTION................................................................... 12
(B) OTHER JURISDICTIONS...................................................................... 12
(C) SERVICE OF PROCESS....................................................................... 13
(D) WAIVER OF JURY TRIAL..................................................................... 13
(E) WAIVER OF BOND........................................................................... 13
(F) ADVICE OF COUNSEL........................................................................ 13
</TABLE>
EXHIBITS AND SCHEDULES
----------------------
Exhibits
--------
EXHIBIT A-1 -- Form of Landlord Agreement
EXHIBIT A-2 -- Form of Mortgagee Agreement
EXHIBIT B-1 -- Form of Landlord Lien Waiver Agreement
EXHIBIT B-2 -- Form of Bailee Letter
EXHIBIT C -- Form of Restricted Account Agreement
<PAGE>
Schedules
---------
Schedule 1 -- Pledged Debt
Schedule 2 -- Locations of Collateral
Schedule 2-A -- Third Party Locations
Schedule 2-B -- Financing Statement Filing Locations
Schedule 3 -- Trade Names
Schedule 4 -- Deposit Accounts
<PAGE>
SECURITY AGREEMENT
This SECURITY AGREEMENT ("Agreement"), dated as of February 27, 1997 is
made by GFSI, INC., a Delaware corporation ("Grantor"), in favor of THE FIRST
NATIONAL BANK OF CHICAGO (the "Agent"), for its benefit and for the benefit of
the "Holders of Secured Obligations" (as defined below) who are, or may
hereafter become, parties to the Credit Agreement referred to below. All
references in this agreement to Grantor shall include its successors and
assigns, including a debtor-in-possession on behalf of Grantor.
PRELIMINARY STATEMENT
Grantor has entered into a certain Credit Agreement of even date herewith
among Grantor, the institutions from time to time party thereto as lenders (the
"Lenders") and the Agent, as the contractual representative for the Lenders (as
the same may be amended, restated, supplemented or otherwise modified from time
to time, the "Credit Agreement"), providing for the making of loans, advances
and other financial accommodations (including, without limitation issuing
letters of credit) (all such loans, advances and other financial accommodations
being hereinafter referred to collectively as the "Loans") to or for the benefit
of Grantor. It is a condition precedent to the making of the Loans under the
Credit Agreement that Grantor shall have granted the security interest
contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises set forth herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Defined Terms. Unless otherwise defined herein, terms defined in
the Credit Agreement are used herein as therein defined, and the following terms
shall have the following meanings (such meanings being equally applicable to
both the singular and the plural forms of the terms defined):
"Agreement" shall mean this Security Agreement, as the same may from time
to time be amended, restated, modified or supplemented, and shall refer to this
Agreement as the same may be in effect at the time such reference becomes
operative.
"Collateral" shall mean all property and rights in property now owned or
hereafter at any time acquired by Grantor in or upon which a Lien is granted in
favor of the Agent by Grantor or a Subsidiary of Grantor under this Agreement,
including, without limitation, the property described in Section 2.
Notwithstanding any provision to the contrary contained in this Agreement or any
other Loan Document, license agreements under which Grantor is licensee shall be
excluded from the Collateral.
"Embroidery Affiliate Notes" shall mean, collectively, that certain
promissory note in the original principal amount of $700,000 dated August 12,
1996 between Impact Design, Inc. and Winning Ways, Inc. and that certain
promissory note in the original principal amount of $150,000 dated August 12,
1996 between Kansas Custom Embroidery and Winning Ways, Inc.
<PAGE>
"Restricted Account" shall mean (i) any deposit account that is maintained
with the Agent, or (ii) any deposit account listed on Schedule 4 with respect to
which the Grantor has entered into a Restricted Account Agreement in the form of
Exhibit C hereto with the financial institution at which such deposit account is
maintained.
"UCC" shall mean the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of Illinois; provided, however, in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of the Agent's and the Holders of Secured Obligations'
security interest in any Collateral is governed by the Uniform Commercial Code
as in effect in a jurisdiction other than the State of Illinois, the term "UCC"
shall mean the Uniform Commercial Code as in effect in such other jurisdiction
for purposes of the provisions hereof relating to such attachment, perfection or
priority and for purposes of definitions related to such provisions.
SECTION 2. Grant of Security. To secure the prompt and complete payment,
observance and performance of the Secured Obligations, Grantor hereby assigns
and pledges to Agent, for the benefit of itself and the Holders of Secured
Obligations, and hereby grants to Agent, for the benefit of itself and the
Holders of Secured Obligations, a security interest in all of Grantor's right,
title and interest in and to the following, whether now owned or existing or
hereafter arising or acquired and wheresoever located:
ACCOUNTS: All "accounts" as such term is defined in Section 9-106 of the
UCC, whether now owned or hereafter acquired or arising; Grantor intends that
the term "accounts", as used herein, be construed in its broadest sense, and
such term shall include, without limitation, all present and future accounts,
accounts receivable and other rights of Grantor to payment for goods sold or
leased or for services rendered (except those evidenced by instruments or
chattel paper), whether now existing or here after arising and wherever arising,
and whether or not they have been earned by performance (collectively,
"Accounts");
INVENTORY: All "inventory" as defined in Section 9-109(4) of the UCC,
whether now owned or hereafter acquired or arising; Grantor intends that the
term "inventory", as used herein, be construed in its broadest sense, and such
term shall include, without limitation, all goods now owned or hereafter
acquired by Grantor (wherever located, whether in the possession of Grantor or
of a bailee or other person for sale, storage, transit, processing, use or
otherwise and whether consisting of whole goods, spare parts, components,
supplies, materials, or consigned, returned or repossessed goods) which are held
for sale or lease, which are to be furnished (or have been furnished) under any
contract of service or which are raw materials, work in process or materials
used or consumed in Grantor's business (collectively, "Inventory");
EQUIPMENT: All "equipment" as such term is defined in Section 9-109(2) of
the UCC, whether now owned or hereafter acquired or arising; Grantor intends
that the term "equipment", as used herein, be construed in its broadest sense,
and such term shall include, without limitation, all machinery, all
manufacturing, distribution, selling, data processing and office equipment, all
furniture, furnishings, appliances, fixtures and trade fixtures, tools, tooling,
molds, dies, vehicles, vessels, trucks, buses, motor vehicles and all other
goods of every type and description (other than Inventory), in each instance
whether now owned or hereafter acquired by Grantor and wherever located
(collectively, "Equipment");
GENERAL INTANGIBLES: All "general intangibles" as defined in Section 9-106
of the UCC, whether now owned or hereafter acquired or arising; Grantor intends
that the term "general intangibles", as used herein, be construed in its
broadest sense, and such term shall include, without limitation, all rights,
interests, choses in action, causes of actions, claims and all other intangible
property of Grantor of every
-2-
<PAGE>
kind and nature (other than Accounts), in each instance whether now owned or
hereafter acquired by Grantor and however and whenever arising, including,
without limitation, all corporate and other business records; all loans,
royalties, and other obligations receivable; customer lists, credit files,
correspondence, and advertising materials; firm sale orders, other contracts and
contract rights; all interests in partnerships and joint ventures; all tax
refunds and tax refund claims; all right, title and interest under leases,
subleases, licenses and concessions and other agreements relating to real or
personal property; all payments due or made to Grantor in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of any property
by any person or governmental authority; all deposit accounts (general or
special) with any bank or other financial institution, including, without
limitation, any deposits or other sums at any time credited by or due to Grantor
from any of the Holders of Secured Obligations or any of their respective
Affiliates with the same rights therein as if the deposits or other sums were
credited by or due from such Holder of Secured Obligations; all credits with and
other claims against carriers and shippers; all rights to indemnification; all
patents, and patent applications (including all reissues, divisions,
continuations and extensions); all service marks and service mark applications;
all trade secrets and inventions; all copyrights and copyright applications
(including all computer software and related documentation); all rights and
interests in and to trademarks, trademark registrations and applications
therefor, trade names, corporate names, brand names, slogans, all goodwill
associated with the foregoing; all license agreements and franchise agreements,
all reversionary interests in pension and profit sharing plans and reversionary,
beneficial and residual interest in trusts; all proceeds of insurance of which
Grantor is beneficiary; and all letters of credit, guaranties, liens, security
interests and other security held by or granted to Grantor; and all other
intangible property, whether or not similar to the foregoing;
LAB PROCESSING AND ENGINEERING INFORMATION: All rights and interests in and
to processes, lab journals, and notebooks, data, trade secrets, know-how,
product formulae and information, manufacturing, engineering and other drawings
and manuals, technology, blueprints, research and development reports, agency
agreements, technical information, technical assistance, engineering data,
design and engineering specifications, and similar materials recording or
evidencing expertise used in or employed by Grantor (including any license for
the foregoing);
CONTRACT RIGHTS: All rights and interests in and to any pending or
executory contracts, requests for quotations, invitations for bid, agreements,
leases and arrangements of which Grantor is a party to or in which Grantor has
an interest, excluding any license agreement under which the Grantor is the
licensee, but including, without limitation, all right and interest to receive
monies due, or to become due, under that certain Agreement for Purchase and Sale
of Stock dated as of January 24, 1997 made by and among GFSI Holdings, Inc., the
Grantor and certain parties thereto as "Sellers";
CHATTEL PAPER, INSTRUMENTS AND DOCUMENTS: All chattel paper, leases, all
instruments, including, without limitation, the notes and debt instruments
described in Schedule 1 (the "Pledged Debt"), but excluding the Management Notes
and the Embroidery Affiliate Notes, and all payments thereunder and instruments
and other property from time to time delivered in respect thereof or in exchange
therefor, and all bills of sale, bills of lading, warehouse receipts and other
documents of title, in each instance whether now owned or hereafter acquired by
Grantor;
INTEREST AND CURRENCY CONTRACTS: Any and all interest rate, commodity or
currency exchange agreements or derivative agreements, including without
limitation, cap, collar, floor, forward or similar agreements or other rate,
currency or price protection arrangements; and
-3-
<PAGE>
OTHER PROPERTY: All property or interests in property now owned or
hereafter acquired by Grantor which now may be owned or hereafter may come into
the possession, custody or control of Agent or any of the Holders of Secured
Obligations or any agent or Affiliate of any of them in any way and for any
purpose (whether for safekeeping, deposit, custody, pledge, transmission,
collection or otherwise); and all rights and interests of Grantor, now existing
or hereafter arising and however and wherever arising, in respect of any and all
(i) notes, drafts, letters of credit, stocks, bonds, and debt and equity
securities, whether or not certificated, investment property (as defined in
Section 9-115(1)(f) of the UCC) and warrants, options, puts and calls and other
rights to acquire or otherwise relating to the same; (ii) money; (iii) proceeds
of loans, including, without limitation, loans made under the Credit Agreement;
and (iv) insurance proceeds and books and records relating to any of the
property covered by this Agreement; together, in each instance, with all
accessions and additions thereto, substitutions therefor, and replacements,
proceeds and products thereof.
SECTION 3. Authorization. Grantor hereby authorizes Agent to retain and
each Holder of Secured Obligations, and each Affiliate of Agent and of each
Holder of Secured Obligations, to pay or deliver to Agent, for the benefit of
the Holders of Secured Obligations, without any necessity on any Holder of
Secured Obligation's part to resort to other security or sources of
reimbursement for the Secured Obligations, at any time following the occurrence
and during the continuance of any Designated Default, and without further notice
to Grantor (such notice being expressly waived), any of the deposits referred to
in Section 2 (whether general or special, time or demand, provisional or final)
or other sums or property held by such Person, for application against any
portion of the Secured Obligations, irrespective of whether any demand has been
made or whether such portion of the Secured Obligations is mature. Agent will
promptly notify Grantor of Agent's receipt of such funds or other property for
application against the Secured Obligations, but failure to do so will not
affect the validity or enforceability thereof. Agent may give notice of the
above grant of security interest and assignment of the aforesaid deposits and
other sums, and authorization, to, and make any suitable arrangements with, any
such Holder of Secured Obligations for effectuation thereof, and Grantor hereby
irrevocably appoints Agent as its attorney to collect, following the occurrence
and during the continuance of a Designated Default, any and all such deposits or
other sums to the extent any such payment is not made to Agent by such Holder of
Secured Obligations or Affiliate thereof.
SECTION 4. Grantor Remains Liable. Anything herein to the contrary
notwithstanding, (a) Grantor shall remain solely liable under the contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of its duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by Agent of any of its rights
hereunder shall not release Grantor from any of its duties or obligations under
the contracts and agreements included in the Collateral, and (c) neither Agent
nor the Holders of Secured Obligations shall have any responsibility, obligation
or liability under the contracts and agreements included in the Collateral by
reason of this Agreement, nor shall Agent or the Holders of Secured Obligations
be required or obligated, in any manner, to (i) perform or fulfill any of the
obligations or duties of Grantor thereunder, (ii) make any payment, or make any
inquiry as to the nature or sufficiency of any payment received by Grantor or
the sufficiency of any performance by any party under any such contract or
agreement or (iii) present or file any claim, or take any action to collect or
enforce any claim for payment assigned hereunder.
SECTION 5. Representations and Warranties. Grantor represents and warrants,
as of the date of this Agreement and as of each date hereafter (except for
changes permitted or contemplated by this Agreement) until termination of this
Agreement pursuant to Section 25:
-4-
<PAGE>
(a) The correct corporate name of Grantor is set forth in the first
paragraph of this Agreement. The locations listed on Schedule 2 constitute all
locations at which Inventory and/or Equipment is located and Grantor has
exclusive possession and control of such Equipment and Inventory, except in each
case for such Inventory and Equipment which is (i) temporarily in transit
between such locations, or (ii) tem porarily stored with third parties or held
by third parties for storage, processing, manufacturing, engineering,
evaluation, or repair, the value of which does not exceed in the aggregate at
any one time $500,000, the proper corporate names of which third parties, the
location of such Inventory and/or Equipment, and the nature of the relationship
between Grantor and such third parties is set forth in Schedule 2-A. Schedule
2-A may be amended to reflect additional locations. The chief place of business
and chief executive office of Grantor are located at the address of Grantor set
forth below the Grantor's signature on the Credit Agreement. All records
concerning any Accounts and all originals of all chattel paper which evidence
any Account are located at the addresses listed on Schedule 2 and none of the
Accounts is evidenced by a promissory note or other instrument except for such
notes and other instru ments delivered to Agent as Pledged Debt listed on
Schedule 1.
(b) Grantor is the legal and beneficial owner of the Collateral free and
clear of all Liens except for Liens permitted by the Credit Agreement. Grantor
currently conducts business under the name GFSI, Inc. and, in certain areas and
for certain operations, the trade names listed on Schedule 3. The Grantor uses
no trade names or fictitious names, except as set forth on Schedule 3.
(c) This Agreement creates in favor of Agent a legal, valid and enforceable
security interest in the Collateral. When financing statements have been filed
in the appropriate offices against Grantor in the locations listed on Schedule
2-B, Agent will have a fully perfected first priority lien on, and security
interest in, the Collateral in which a security interest may be perfected by
such filing, subject only to Liens permitted by the Credit Agreement.
(d) No authorization, approval or other action by, and no notice to or
filing with, any Governmental Authority that has not already been taken or made
and which is in full force and effect, is required (i) for the grant by Grantor
of the security interest in the Collateral granted hereby; (ii) for the
execution, delivery or performance of this Agreement by Grantor; or (iii) for
the exercise by Agent of any of its rights or remedies hereunder.
(e) The Pledged Debt issued by any Affiliate of Grantor, and to the best of
Grantor's knowledge, all other Pledged Debt, has been duly authorized, issued
and delivered, and is the legal, valid, binding and enforceable obligation of
the respective issuer thereof.
(f) Schedule 4 contains a complete list of all of the deposit accounts of
Grantor as of the Closing Date and Grantor will amend and update Schedule 4 by
delivering supplemental reports to Agent promptly following the establishment of
any additional deposit accounts in accordance with the terms of Section
6.3(D)(iv) and 6.3(S) of the Credit Agreement, and at any time requested by
Agent. Each deposit account so scheduled is a Restricted Account or a deposit
account permitted by the terms of the Credit Agreement.
SECTION 6. Perfection and Maintenance of Security Interest and Lien.
Grantor agrees that until all of the Secured Obligations (other than contingent
indemnity Obligations) have been fully satisfied and the Credit Agreement has
been terminated, Agent's security interests in and Liens on and against the
Collateral and all proceeds and products thereof, shall continue in full force
and effect. Grantor shall perform any and all steps reasonably requested by
Agent to perfect, maintain and protect Agent's security interests in and Liens
on and against the Collateral granted or purported to be granted hereby or to
enable
-5-
<PAGE>
Agent to exercise its rights and remedies hereunder with respect to any
Collateral, including, without limitation, (i) executing and filing financing or
continuation statements, or amendments thereof, in form and substance reasonably
satisfactory to Agent, (ii) executing and filing all Intellectual Property
Agreements in form and substance reasonably satisfactory to the Agent, (iii)
delivering to Agent all certificates, notes and other instruments (including,
without limitation, all letters of credit on which Grantor is named as a
beneficiary) representing or evidencing Collateral, which certificates, notes
and other instruments have been duly endorsed and are accompanied by duly
executed instruments of transfer or assignment, including, but not limited to,
note powers, all in form and substance satisfactory to Agent, (iv) delivering to
Agent warehouse receipts covering that portion of the Collateral, if any,
located in warehouses and for which warehouse receipts are issued, (v) after the
occurrence and during the continuance of a Designated Default, transferring
Inventory and Equipment to warehouses designated by Agent or taking such other
steps as are reasonably deemed necessary by Agent to maintain Agent's control of
the Inventory and Equipment, (vi) obtaining with respect to clauses (a), (b) and
(c) below, and using commercially reasonable efforts to obtain with respect to
clause (d) below:
(a) waivers of Liens and access agreements in substantially the form of
Exhibit A-1 hereto (or such other form as may be agreed to by Agent) from
landlords with respect to Grantor's leased premises where the Agent reasonably
determines that the value of the leasehold in respect of the premises leased by
Grantor from such landlord is material to the operations of Grantor or (2) deem
such leased premises to be integral to the Grantor's day-to-day operations, (b)
mortgagee agreements in substantially the form of Exhibit A-2 hereto (or such
other form as may be agreed to by Agent) from mortgagees with respect to all
leases executed after the Closing Date where the Agent reasonably determines
such leasehold to be material based on the value of the leasehold or such leased
premises is integral to Grantor's day-to-day operations, (c) waivers of Liens
and access agreements in substantially the form of Exhibit B-1 hereto (or such
other form as may be agreed to by Agent) from landlords and waivers of Liens and
access agreements in substantially the form of Exhibit B-2 hereto (or such other
form as may be agreed to by Agent) from the appropriate Person with respect to
all arrangements pursuant to which Inventory will be temporarily held by third
parties for storage, processing, engineering, evaluation, or repair after the
Closing Date (in connection with which Grantor shall be permitted to and hereby
required to update Schedule 2-A ) where: (1) the Equipment located at any one
premises owned or operated by any such Person has a value in the aggregate of
$500,000 or greater or (2) the aggregate value of the Equipment located at all
premises owned or operated by any such Person is $2,500,000 or greater, and (d)
waivers of Liens and access agreements in substantially the form of Exhibit B-1
hereto (or such other form as may be agreed to by Agent) from landlords and
waivers of Liens and access agreements in substantially the form of Exhibit B-2
hereto (or such other form as may be agreed to by Agent) from the appropriate
Person with respect to all arrangements pursuant to which Inventory will be
temrporarily held by third parties for storage, processing, engineering,
evaluation, or repair after the Closing Date (in connection with which Grantor
shall be permitted to and hereby required to update Schedule 2-A) where: (1) the
Inventory and Equipment located at any one premises owned or operated by any
such Person has a value in the aggregate of $500,000 or greater or (2) the
aggregate value of the Equipment located at all premises owned or operated by
any such Person is $2,500,000 or greater, and (vii) executing and delivering all
further instruments and documents, and taking all further action, as Agent may
reasonably request.
SECTION 7. Financing Statements. To the extent permitted by applicable law,
Grantor hereby authorizes Agent to file one or more financing or continuation
statements and amendments thereto, disclosing the security interest granted to
Agent under this Agreement without Grantor's signature appearing thereon and
Agent agrees to notify Grantor when such a filing has been made. Grantor agrees
that a carbon, photographic, photostatic, or other reproduction of this
Agreement or of a financing
-6-
<PAGE>
statement is sufficient as a financing statement. If any Inventory or Equipment
is in the possession or control of any warehouseman or Grantor's agents or
processors, Grantor shall, upon Agent's written request, notify such
warehouseman, agent or processor of Agent's security interest in such Inventory
and Equipment and, upon Agent's request, instruct them to hold all such
Inventory or Equipment for Agent's account and subject to Agent's instructions.
SECTION 8. Filing Costs. Grantor shall pay the costs of, or incidental to,
all recordings or filings of all financing statements, including, without
limitation, any filing expenses incurred by Agent pursuant to Section 7.
SECTION 9. Schedule of Collateral. Grantor shall, at the written request of
the Agent, furnish to Agent from time to time statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as Agent may reasonably request, all in reasonable detail.
SECTION 10. Equipment and Inventory. Grantor covenants and agrees with
Agent that from the date of this Agreement and until termination of this
Agreement, including pursuant to Section 25, Grantor shall:
(a) Keep the Equipment and Inventory (other than Equipment or Inventory
sold or disposed of as permitted by the Credit Agreement or in the ordinary
course of business) at the places specified in Section 5(a), except for
Equipment and Inventory (i) temporarily in transit between such locations or
(ii) temporarily held by third parties for storage, processing, engineering,
manufacturing, evaluation, or repair and set forth on Schedule 2-A in amounts
not in excess of $500,000 and in connection with which the Grantor has complied
with the requirements set forth in Section 6, and deliver written notice to
Agent at least thirty (30) days prior to establishing any other location at
which or third party with which it reasonably expects to maintain Inventory
and/or Equipment in which location or with which third party all action required
by this Agreement shall have been taken with respect to all such Equipment and
Inventory;
(b) Maintain or cause to be maintained in good repair, working order and
condition, excepting ordinary wear and tear and damage due to casualty, all of
the Equipment, and make or cause to be made all appropriate repairs, renewals
and replacements thereof, as quickly as practicable after the occurrence of any
loss or damage thereto which are necessary or desirable to such end; and
(c) Comply with the terms of the Credit Agreement with respect to such
Equipment and Inventory, including, without limitation, the maintenance and
insurance provisions set forth in Section 6.2(E), (G) and (I) of the Credit
Agreement.
SECTION 11. Accounts. Grantor covenants and agrees with Agent that from and
after the date of this Agreement and until termination of this Agreement,
including pursuant to Section 25, Grantor shall:
(a) Keep its chief place of business and chief executive office and the
office where it keeps its records concerning the Accounts at its address set
forth below the Grantor's signature on the Credit Agreement, and keep the
offices where it keeps all originals of all chattel paper which evidence
Accounts at the locations therefor specified in Section 5(a) or, upon thirty
(30) days' prior written notice to Agent, at such other locations within the
United States in a jurisdiction where all actions required by Section 6 shall
have been taken with respect to the Accounts. Grantor will hold and preserve
such records (in accordance
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<PAGE>
with Grantor's usual document retention practices) and chattel paper and will
permit representatives of Agent, during normal business hours and on reasonable
notice, to inspect and make abstracts from such records and chattel paper in
accordance with the provisions of Section 6.3(F) of the Credit Agreement; and
(b) In any suit, proceeding or action brought by Agent under any Account
comprising part of the Collateral, Grantor will save, indemnify and keep each of
the Holders of Secured Obligations harmless from and against all reasonable and
documented expenses, loss or damage suffered by reason of any defense, setoff,
counterclaim, recoupment or reduction of liability whatsoever of the obligor
thereunder, arising out of a breach by Grantor of any obligation or arising out
of any other agreement, indebtedness or liability at any time owing to or in
favor of such Holder of Secured Obligations from Grantor, and all such
obligations of Grantor shall be and shall remain enforceable against and only
against Grantor and shall not be enforceable against any of the Holders of
Secured Obligations.
(c) When Grantor or any of its Subsidiaries (or any Affiliates,
shareholders, directors, officers, employees, agents or those Persons acting for
or in concert with Grantor or a Subsidiary of Grantor) shall receive or come
into the possession or control of any monies, checks, notes, drafts or any other
payment relating to, or proceeds of, Grantor's Accounts or other property
constituting Collateral hereunder (individually, a "Payment Item", and,
collectively, "Payment Items"), then, except as otherwise permitted in a writing
signed by Agent, Grantor shall, or shall cause such Subsidiary or such other
Person to, deposit the same, in kind in precisely the form in which such Payment
Item was received (with all Payment Items endorsed if necessary for collection)
into a Restricted Account except as permitted by the Credit Agreement. The
Grantor further agrees that it will not, during the term of this Agreement,
without the written consent of the Agent, transfer any funds from a Restricted
Account to any deposit account that is not a Restricted Account or other deposit
account permitted by the Credit Agreement.
SECTION 12. Leased Real Property. Grantor covenants and agrees with Agent
that from and after the date of this Agreement and until termination of this
Agreement, including pursuant to Section 25, that:
(a) Promptly following, but not later than ninety (90) days after entering
into any leases meeting the criteria set forth in Section 6(vi), Grantor will
furnish to Agent a report certified to be true and correct by Grantor setting
forth a description of the leased premises related thereto; the name or names of
all owners; rentals being paid; and whether Grantor has obtained waivers of
Liens and access agreements from landlords and mortgagees with respect to such
premises in accordance with Section 6;
(b) Grantor agrees that, from and after the occurrence and continuance of a
Designated Default, Agent may, but need not, make any payment or perform any act
hereinbefore required of Grantor with respect to the Grantor's leased premises
in any form and manner deemed expedient. All money paid for any of the purposes
herein authorized and all other moneys advanced by Agent to protect the lien
hereof shall be additional Secured Obligations secured hereby and shall become
immediately due and payable without notice and shall bear interest thereon at
the then applicable default interest rate with respect to Floating Rate Loans as
provided in Section 2.11 of the Credit Agreement until paid to Agent in full;
and
(c) Grantor agrees that it will not amend any lease in a manner that
materially adversely affects the interests of the Holders of Secured Obligations
without the Agent's prior written consent (such consent not to be unreasonably
withheld).
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SECTION 13. General Covenants. Grantor covenants and agrees with Agent that
from and after the date of this Agreement and until termination of this
Agreement, including pursuant to Section 25, Grantor shall:
(a) Keep and maintain at Grantor's own cost and expense reasonably
satisfactory and reasonably complete records of Grantor's Collateral in a manner
consistent with Grantor's current business practice, including, without
limitation, a record of all payments received and all credits granted with
respect to such Collateral. Grantor shall, for Agent's further security, deliver
and turn over to Agent or Agent's designated representatives at any time
following the occurrence and during the continuation of a Designated Default,
any such books and records (including, without limitation, any and all computer
tapes, programs and source and object codes relating to such Collateral in which
Grantor has an interest or any part or parts thereof); and
(b) Grantor will not create, permit or suffer to exist, and will defend the
Collateral against, and take such other action as is necessary to remove, any
Lien on such Collateral other than Liens permitted under the Credit Agreement,
and will defend the right, title and interest of Agent in and to Grantor's
rights to such Collateral, including, without limitation, the proceeds and
products thereof, against the claims and demands of all Persons whatsoever.
(c) Grantor will not, and will not permit any Restricted Subsidiary to,
create or otherwise become effective any consensual encumbrance or restriction
of any kind on or in respect of (i) any license agreement to which Grantor is a
licensee, (ii) the Management Notes or (iii) the Embroidery Affiliate Notes.
SECTION 14. Agent Appointed Attorney-in-Fact. Upon the occurrence and
during the continuance of a Designated Default, Grantor hereby irrevocably
appoints Agent as Grantor's attorney-in-fact, with full authority in the place
and stead of Grantor and in the name of Grantor or otherwise, from time to time
in Agent's discretion, to take any action and to execute any instrument which
Agent may reasonably deem necessary or advisable to accomplish the purposes of
this Agreement, including, without limitation, (a) following the occurrence and
during the continuance of a Designated Default, to:
(i) obtain and adjust insurance required to be paid to the Agent or
any Holders of Secured Obligations pursuant to the Credit Agreement;
(ii) ask, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral;
(iii) receive, endorse, and collect any drafts or other instruments,
documents and chattel paper, in connection with clause (i) or (ii) above;
and
(iv) file any claims or take any action or institute any proceedings
which Agent may deem necessary or desirable for the collection of any of
the Collateral, or otherwise to enforce the rights of Agent with respect to
any of the Collateral;
provided, however, that the Grantor irrevocably appoints Agent as Grantor's
attorney-in-fact, with full authority in place and stead of Grantor and in the
name of the Grantor or otherwise, from time to time in
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<PAGE>
Agent's discretion, at any time, to take any reasonable action and to execute
any instrument which the Agent may reasonably deem necessary or advisable, to:
(i) obtain access to records maintained for Grantor by computer
services companies and other service companies or bureaus;
(ii) send requests under Grantor's, the Agent's or a fictitious name
to Grantor's customers or account debtors for verification of Accounts
provided that the Agent gives the Grantor written notice prior to
initiating any such verifications; and
(iii) do all other things consistent with the terms of this Agreement
as may be reasonably necessary to carry out the terms hereof.
SECTION 15. Agent May Perform. If Grantor fails to perform any agreement
contained herein or in the Credit Agreement, Agent may, upon three days prior
written notice to the Grantor, perform, or cause performance of, such agreement,
and the reasonable and documented expenses of Agent incurred in connection
therewith shall be payable by Grantor under Section 22.
SECTION 16. Agent's Duties. The powers conferred on Agent hereunder are
solely to protect its interest in the Collateral and shall not impose any duty
upon it to exercise any such powers. Except for the safe custody of any
Collateral in its possession and the accounting for moneys actually received by
it hereunder, Agent shall not have any duty as to any Collateral. Agent shall be
deemed to have exercised reasonable care in the custody and preservation of the
Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which Agent accords its own property, it being
understood that Agent shall be under no obligation to take any necessary steps
to preserve rights against prior parties or any other rights pertaining to any
Collateral, but may do so at its option, and all reasonable expenses incurred in
connection therewith shall be for the sole account of Grantor and shall be added
to the Secured Obligations.
SECTION 17. Remedies. (a) If any Designated Default shall have occurred and
be continuing:
(i) Agent shall have, in addition to other rights and remedies provided for
herein or otherwise available to it, all the rights and remedies of a secured
party upon default under the UCC (whether or not the UCC applies to the affected
Collateral) and further, Agent may, without notice, demand or legal process of
any kind (except as may be required by law), all of which Grantor waives, at any
time or times, (x) enter Grantor's owned or leased premises and take physical
possession of the Collateral and maintain such possession on Grantor's owned or
leased premises, at no cost to Agent or any of the Holders of Secured
Obligations, or remove the Collateral, or any part thereof, to such other
place(s) as Agent may desire, (y) require Grantor to, and Grantor hereby agrees
that it will at its expense and upon request of Agent forthwith, assemble all or
any part of the Collateral as directed by Agent and make it available to Agent
at a place to be designated by Agent which is reasonably convenient to Agent and
(z) without notice except as specified below, sell, lease, assign, grant an
option or options to purchase or otherwise dispose of the Collateral or any part
thereof at public or private sale, at any exchange, broker's board or at any of
the offices of Agent or elsewhere, for cash, on credit or for future delivery,
and upon such other terms as Agent may deem commercially reasonable. Grantor
agrees that, to the extent notice of sale shall be required by law, at least ten
(10) days' notice to Grantor of the time and place of any public sale or the
time after which any private sale is to be made shall constitute reasonable
notification. Agent shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. Agent may adjourn any public or
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<PAGE>
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned;
(ii) Agent shall apply all cash proceeds received by Agent in respect of
any sale of, collection from, or other realization upon all or any part of the
Collateral (after payment of any amounts payable to Agent pursuant to Section
22), for the benefit of the Holders of Secured Obligations, against all or any
part of the Secured Obligations in such order as may be required by the Credit
Agreement or, to the extent not specified therein, as is determined by the
Required Lenders. Any surplus of such cash or cash proceeds held by Agent and
remaining after payment in full of all the Secured Obligations shall be paid
over to Grantor or to whomsoever may be lawfully entitled to receive such
surplus;
(b) Grantor waives all claims, damages and demands against Agent arising
out of the repossession, retention or sale of any of the Collateral or any part
or parts thereof, except any such claims, damages and awards arising out of the
Gross Negligence or willful misconduct of Agent or any of the Holders of Secured
Obligations, as the case may be, as determined in a final non-appealed judgment
of a court of competent jurisdiction; and
(c) The rights and remedies provided under this Agreement are cumulative
and may be exercised singly or concurrently and are not exclusive of any rights
and remedies provided by law or equity.
SECTION 18. Exercise of Remedies. In connection with the exercise of its
remedies pursuant to Section 17, Agent may, (i) exchange, enforce, waive or
release any portion of the Collateral and any other security for the Secured
Obligations; (ii) apply such Collateral or security and direct the order or
manner of sale thereof as Agent may, from time to time, determine; and (iii)
settle, compromise, collect or otherwise liquidate any such Collateral or
security in any manner following the occurrence of a Designated Default, without
affecting or impairing Agent's right to take any other further action with
respect to any Collateral or security or any part thereof.
SECTION 19. License. Agent is hereby granted a license or other right to
use, following the occurrence and during the continuance of a Designated
Default, without charge, (a) Grantor's labels, patents, copyrights, trade
secrets, trade names, trademarks, service marks, customer lists and advertising
matter, or any property of a similar nature, as it pertains to the Collateral,
in completing production of, advertising for sale, and selling any Collateral,
provided that Agent uses quality standards at least substantially equivalent to
those of Grantor for the manufacture, advertising, sale and distribution of
Grantor's products and services and (b) Grantor's rights under all licenses
where Grantor is licensor, except to the extent such licenses by their terms
prohibit the granting of such rights, and all franchise agreements shall inure
to Agent's benefit. Notwithstanding any provision to the contrary contained in
this Agreement or any other Loan Document, license agreements under which
Grantor is licensee shall be excluded from the Collateral.
SECTION 20. Injunctive Relief. Grantor recognizes that in the event Grantor
fails to perform, observe or discharge any of its obligations or liabilities
under this Agreement, any remedy of law may prove to be inadequate relief to the
Holders of Secured Obligations; therefore, Grantor agrees that the Holders of
Secured Obligations, if Agent so determines and requests, shall be entitled to
temporary and permanent injunctive relief in any such case without the necessity
of proving actual damages.
SECTION 21. Interpretation and Inconsistencies; Merger; No Strict
Construction.
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(a) The rights and duties created by this Agreement shall, in all cases, be
interpreted consistently with, and shall be in addition to (and not in lieu of),
the rights and duties created by the Credit Agreement and the other Loan
Documents. In the event that any provision of this Agreement shall be
inconsistent with any provision of any other Loan Document, such provision of
the other Loan Document shall govern.
(b) Except as provided in subsection (a) above, this Agreement represents
the final agreement of the Grantor and the Agent with respect to the matters
contained herein and may not be contradicted by evidence of prior or
contemporaneous agreements, or subsequent oral agreements, between the Grantor
and the Agent or any other Holder of Secured Obligations.
(c) The parties hereto have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties hereto and no presumption or burden of proof shall arise favoring
or disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
SECTION 22. Expenses. Grantor will upon demand pay to Agent and/or the
Holders of Secured Obligations the amount of any and all reasonable and
documented expenses, including the reasonable fees and disbursements of their
counsel and of any experts and agents, as provided in Section 9.7 of the Credit
Agreement.
SECTION 23. Amendments, Etc. No amendment or waiver of any provision of
this Agreement nor consent to any departure by Grantor herefrom shall in any
event be effective unless the same shall be in writing and signed by Agent and
Grantor, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 24. Notices. All notices and other communications provided for
hereunder shall be delivered in the manner set forth in Section 13.1 of the
Credit Agreement.
SECTION 25. Continuing Security Interest; Termination. (a) Except as
provided in Section 25(b), this Agreement shall create a continuing security
interest in the Collateral and shall (i) remain in full force and effect until
the later of the payment or satisfaction in full of the Secured Obligations
(other than contingent indemnity obligations) and the termination of the Credit
Agreement, (ii) be binding upon Grantor, its successors and assigns and (iii)
except to the extent that the rights of any transferor, or assignor are limited
by the terms of the Credit Agreement, inure, together with the rights and
remedies of Agent hereunder, to the benefit of Agent and any of the Holders of
Secured Obligations. Nothing set forth herein or in any other Loan Document is
intended or shall be construed to give any other Person any right, remedy or
claim under, to or in respect of this Agreement or any other Loan Document or
any Collateral. Grantor's successors and assigns shall include, without
limitation, a receiver, trustee or debtor-in-possession thereof or therefor.
(b) Upon the payment in full in cash of the Secured Obligations (other than
contingent indemnity obligations) and the termination of the Credit Agreement,
this Agreement and the security interest granted hereby shall automatically
terminate and all rights to the Collateral shall revert to Grantor. Upon any
such termination of security interest, Grantor shall be entitled to the return,
upon its request and at its expense, of such of the Collateral held by Agent as
shall not have been sold or otherwise applied pursuant to the terms hereof and
Agent will, at Grantor's expense, promptly execute and deliver to Grantor such
other documents as Grantor shall reasonably request to evidence such
termination. In connection with any sales of assets permitted under the Credit
Agreement, the liens and security interests granted under this
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Agreement will automatically release and terminate with respect to such assets
and the Agent shall promptly make all filings necessary to reflect such release
and termination.
SECTION 26. Severability. It is the parties' intention that this Agreement
be interpreted in such a way that it is valid and effective under applicable
law. However, if one or more of the provisions of this Agreement shall for any
reason be found to be invalid or unenforceable, the remaining provisions of this
Agreement shall be unimpaired.
SECTION 27. GOVERNING LAW. THE AGENT ACCEPTS THIS AGREEMENT, ON BEHALF OF
ITSELF AND THE LENDERS, AT CHICAGO, ILLINOIS BY ACKNOWLEDGING AND AGREEING TO IT
THERE. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL LAWS (WITHOUT REGARD TO CONFLICTS OF LAW
PROVISIONS) OF THE STATE OF ILLINOIS. WITHOUT LIMITING THE FOREGOING, ANY
DISPUTE BETWEEN THE GRANTOR AND THE AGENT, ANY LENDER, OR ANY OTHER HOLDER OF
SECURED OBLIGATIONS ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO
THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS AGREEMENT,
AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED
IN ACCORDANCE WITH THE INTERNAL LAWS (WITHOUT REGARD TO THE CONFLICTS OF LAWS
PROVISIONS) OF THE STATE OF ILLINOIS.
SECTION 28. CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL.
(A) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION (B), EACH OF
THE PARTIES HERETO AGREES THAT ALL DISPUTES BETWEEN THEM ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, WHETHER ARISING IN CONTRACT,
TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED EXCLUSIVELY BY STATE OR FEDERAL
COURTS LOCATED IN CHICAGO, ILLINOIS, BUT THE PARTIES HERETO ACKNOWLEDGE THAT ANY
APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF
CHICAGO, ILLINOIS.
(B) OTHER JURISDICTIONS. GRANTOR AGREES THAT THE AGENT, ANY LENDER OR ANY
HOLDER OF SECURED OBLIGATIONS SHALL HAVE THE RIGHT TO PROCEED AGAINST GRANTOR OR
ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1) OBTAIN
PERSONAL JURISDICTION OVER THE GRANTOR OR (2) REALIZE ON THE COLLATERAL OR ANY
OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER
ENTERED IN FAVOR OF SUCH PERSON. GRANTOR AGREES THAT IT WILL NOT ASSERT ANY
PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY SUCH PERSON TO REALIZE ON
THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH PERSON.
(C) SERVICE OF PROCESS. GRANTOR WAIVES PERSONAL SERVICE OF ANY PROCESS UPON
IT AND, AS ADDITIONAL SECURITY FOR THE OBLIGATIONS, IRREVOCABLY APPOINTS THE
CORPORATION TRUST COMPANY, THE GRANTOR'S REGISTERED AGENT, WHOSE ADDRESS IS
CORPORATION TRUST CENTER 1209 ORANGE STREET, WILMINGTON,
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DELAWARE 19801, AS GRANTOR'S AGENT FOR THE PURPOSE OF ACCEPTING SERVICE OF
PROCESS ISSUED BY ANY COURT. GRANTOR IRREVOCABLY WAIVES ANY OBJECTION
(INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON
THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH IN ANY JURISDICTION SET FORTH ABOVE AND EACH OF THE OTHER PARTIES
HERETO WAIVES IN ALL DISPUTES BROUGHT PURSUANT TO SUBSECTION (A) ANY OBJECTION
THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE.
(D) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY
RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY
SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A
COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(E) WAIVER OF BOND. GRANTOR WAIVES THE POSTING OF ANY BOND OTHERWISE
REQUIRED OF ANY PARTY HERETO IN CONNECTION WITH ANY JUDICIAL PROCESS OR
PROCEEDING TO REALIZE ON THE COLLATERAL (INCLUDING, WITHOUT LIMITATION, THE REAL
PROPERTY COLLATERAL) OR ANY OTHER SECURITY FOR THE SECURED OBLIGATIONS OR TO
ENFORCE ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PARTY, OR TO
ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER, PRELIMINARY OR
PERMANENT INJUNCTION, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.
(F) ADVICE OF COUNSEL. EACH OF THE PARTIES REPRESENTS TO EACH OTHER PARTY
HERETO THAT IT HAS DISCUSSED THIS AGREEMENT AND, SPECIFICALLY, THE PROVISIONS OF
THIS SECTION 28, WITH ITS COUNSEL.
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IN WITNESS WHEREOF, Grantor has caused this Agreement to be duly executed
and delivered by its officer thereunto duly authorized as of the date first
above written.
GFSI, INC.
By: /s/ Illegible
---------------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO,
as AGENT
By: /s/ Illegible
---------------------------------
Name:
Title:
Signature Page to Security Agreement
dated February 27, 1997
<PAGE>
EXHIBIT A-1
To
Security Agreement
Form of Landlord Agreement
--------------------------
The First National Bank
of Chicago, as Agent
One First National Plaza
Suite 0173
Chicago, Illinois 60670-0173
Attention: Nathan L. Bloch
Ladies and Gentlemen:
GFSI, Inc., a Delaware corporation ("Borrower"), as successor by merger in
interest to Winning Ways, Inc., a Missouri corporation (the "Original Lessee"),
is the lessee under that certain lease dated _____ between the Original Lessee,
and the undersigned, covering certain premises owned by the undersigned and
located at _____________ (the "Premises") more fully described in the lease
attached hereto as Exhibit A (the "Lease"). Borrower has certain of its assets
--------
located on the Premises.
Borrower has entered into certain financing arrangements with a group of
lenders ("Lenders") including The First National Bank of Chicago, as contractual
representative for the Lenders (the "Agent") and the Agent and the Lenders
require, among other things, that Borrower grant liens in favor of the Agent
for the benefit of itself and the Lenders on all of Borrower's property located
on the Premises ("Collateral") [and that the Borrower grant a mortgage
("Leasehold Mortgage") in favor of the Agent covering the Borrower's leasehold
estate created under the Lease].
[To induce the Agent and the Lenders (together with their respective
agents, successors and assigns) to enter into said financing arrangements, [and
for other good and valuable consideration,] the undersigned hereby agrees] [By
its signature below, the undersigned agrees] that:
[(i) the undersigned has consented to the assignment (by operation of
merger) of the Lease from the Original Lessee to the Borrower;]
(ii) the Lease is in full force and effect in the form attached
hereto as Exhibit A and represents the full and complete agreement between
Borrower and the undersigned concerning the Premises [and the Lease shall
not be amended or modified in any material respect without Agent's prior
written consent, which consent shall not be unreasonably withheld];
(iii) it will not assert against any of Borrower's assets any
statutory or possessory liens, including, without limitation, rights of
levy or distraint for rent, all of which it hereby waives [and hereby
subordinates to the lien of the Leasehold Mortgage];
(iv) none of the Collateral located on the Premises shall be deemed
to be fixtures;
<PAGE>
(v) it will allow Agent thirty (30) days from the Agent's receipt of
notice in which to cure or cause Borrower to cure any defaults on Borrower's
lease obligations to the undersigned; provided if such default cannot reasonably
--------
be cured within the thirty (30) day period, and provided the Agent is diligently
pursuing a cure, then Agent shall have a reasonable period to cure such default;
[(vi) if, for any reason whatsoever, the undersigned either deems itself
entitled to redeem or to take possession of the Premises during the term of
Borrower's lease or intends to sell or otherwise transfer all or any part of its
interest in the Premises, the undersigned will notify Agent five (5) days before
taking such action;]
(vii) if Borrower defaults on its obligations to the Agent or any Lender
and, as a result, the Agent undertakes to enforce its security interest in the
Collateral, the undersigned will cooperate with the Agent in its efforts to
assemble all of the Collateral located on the Premises, will permit Agent to
remain on the Premises for ninety (90) days after the Agent gives the
undersigned notice of default, provided Agent pays the rental payments due under
the Lease for the period of time Agent uses the Premises, or, at Agent's option,
to remove the Collateral from the Premises within a reasonable time, not to
exceed ninety (90) days after the Agent gives the undersigned notice of default,
provided Agent pays the rental payments due under the Lease for the period of
time Agent uses the Premises, and will not hinder Agent's actions in enforcing
its liens on the Collateral;
(viii) the undersigned shall accept performance by the Agent of the
Borrower's obligations under the Lease as though the same had been performed by
the holder of the Borrower's interest therein at the time of such performance.
Upon the cure of any such default, any notice of Landlord advising of any
default or any action of the undersigned to terminate the Lease or to interfere
with the occupancy, use or enjoyment of the Premises by reason thereof, which
action has not been completed, shall be deemed rescinded and the Lease shall
continue in full force and effect. The undersigned shall not be required to
continue any possession or continue any action to obtain possession upon the
cure of any such default;
[(ix) if Borrower defaults on its obligations to the Lenders and the Agent
undertakes to enforce its security interest in the Collateral [and/or to
foreclose on Borrower's leasehold estate pursuant to the Leasehold Mortgage],
the Agent may, at its option and by written notice to the undersigned, (1) lease
the Premises from the undersigned on the same terms as set forth in the Lease
and exercise the other rights as lessee thereunder as described therein and/or
(2) assign the Lease and/or the attornment rights hereunder to, or enter into a
sublease with, a purchaser of the Collateral which purchaser is reasonably
acceptable to the undersigned, and the undersigned shall cooperate with any such
enforcement action or foreclosure and consent to the assumption of the Lease,
the sublet of the Premises or foreclosure sale of the leasehold estate]; and
[(x) in the event that Borrower shall become a debtor under the Federal
Bankruptcy Code (or any similar state law proceeding) and, in connection
therewith, Borrower shall reject the Lease as an executory contract, then within
thirty (30) days following such rejection, upon the written request by the
Agent, the undersigned shall enter into a new lease of the Premises with the
Agent or its designee (who shall be reasonably acceptable to the
<PAGE>
undersigned), for the benefit of the Lenders which new lease (1) shall be
effective as of the date of the termination of the Lease, (2) shall be for
a term expiring as of the last day of the term of the Lease, and (3) shall
be on substantially the same terms and conditions as the Lease (including
any provisions for renewal or extension of the term of the Lease); provided
--------
that the Lender or such designee, as the case may be, shall be required, as
a condition to the effectiveness of such new lease, to pay the Lessor any
amount equal to any rent remaining unpaid by Borrower under the Lease.]
Any notice(s) required or desired to be given hereunder shall be directed
to the party to be notified at the address stated herein.
The agreements contained herein shall continue in force until all of
Borrower's obligations and liabilities to the Agent and the Lenders are paid and
satisfied in full and all financing arrangements among the Agent, the Lenders
and Borrower have been terminated.
The undersigned will notify all successor owners, transferees, purchasers
and mortgagees of the existence of this waiver. The agreements contained herein
may not be modified or terminated orally and shall be binding upon the
successors, assigns and personal representatives of the undersigned, upon any
successor owner or transferee of the Premises, and upon any purchasers,
including any mortgagee, from the undersigned.
[The undersigned consents to the granting of the Leasehold Mortgage to the
Agent and to the liens, security interests and encumbrances created by and
resulting from the Leasehold Mortgage or other documents collateral thereto in
the form attached hereto as Exhibit B.]
---------
The undersigned agrees that nothing contained in this waiver shall be
construed as an assumption by the Agent or any of the other lenders of any
obligations of Borrower contained in the Lease.
Executed and delivered this __ day of ______, 199_, at ________________.
THIS WAIVER SHALL NOT IMPAIR OR OTHERWISE AFFECT BORROWER'S
OBLIGATIONS TO PAY RENT AND ANY OTHER SUMS PAYABLE BY BORROWER OR TO OTHERWISE
PERFORM ITS OBLIGATIONS TO THE LESSOR PURSUANT TO THE TERMS OF THE LEASE.
[Name of Lessor]
By:
-------------------------
Title:
----------------------
Address:
---------------------
---------------------
---------------------
<PAGE>
AGREED & ACKNOWLEDGED:
GFSI, INC.
By:
----------------------
Title:
-------------------
Address:
-----------------------
-----------------------
<PAGE>
[ACKNOWLEDGMENT (CORPORATE)
STATE OF ______________ )
) SS.
COUNTY OF _____________ )
Before me, a Notary Public in and for said County, personally appeared
_______________, a ________________ corporation, by the _______________ of such
corporation, who acknowledged that (s)he did sign the foregoing instrument on
behalf of said corporation and that said instrument is the voluntary act and
deed of said corporation and his/her voluntary act and deed as such officer of
said corporation.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed
my official seal this ___ day of _______________, 199_ at _____________________,
_________.
-------------------------------
Notary Public
My Commission Expires:]
(Notarial Seal)
<PAGE>
[ACKNOWLEDGMENT (CORPORATE)
STATE OF ______________ )
) SS.
COUNTY OF _____________ )
Before me, a Notary Public in and for said County, personally appeared
GFSI, Inc., a Delaware corporation, by the _______________ of such corporation,
who acknowledged that (s)he did sign the foregoing instrument on behalf of said
corporation and that said instrument is the voluntary act and deed of said
corporation and his/her voluntary act and deed as such officer of said
corporation.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed
my official seal this ___ day of _______________, 199_ at _____________________,
_________.
-------------------------------
Notary Public
My Commission Expires:]
(Notarial Seal)
<PAGE>
EXHIBIT A
to
Landlord Agreement
Lease
-----
(attached hereto)
<PAGE>
[EXHIBIT B
to
Landlord Agreement
Leasehold Mortgage
------------------
(attached hereto)]
<PAGE>
EXHIBIT A-2
To
Security Agreement
Form of Mortgagee Agreement
---------------------------
The First National Bank
of Chicago, as Agent
One First National Plaza
Suite 0173
Chicago, Illinois 60670-0173
Attention: Nathan L. Bloch
Ladies and Gentlemen:
GFSI, Inc., a Delaware corporation ("Borrower"), as successor by merger
in interest to Winning Ways, Inc., a [________] corporation (the "Original
Lessee"), is the lessee under that certain lease dated _______ between the
Original Lessee, and ________________ (the "Landlord[s]"), covering certain
premises located at ______________ (the "Premises") as more fully described on
Exhibit A/1/ attached hereto (the "Lease"). The undersigned is the mortgagee
- ---------
under a mortgage between the Landlord[s] and the undersigned covering the
Premises (the "Mortgage"). The undersigned is the sole mortgagee of the
Premises. Borrower has certain of its assets located on the Premises.
Borrower has entered into certain financing arrangements with a group of
lenders ("Lenders") including The First National Bank of Chicago, as contractual
representative for the Lenders (the "Agent") and the Agent and the Lenders
require, among other things, that Borrower grant liens in favor of the Agent for
the benefit of itself and the Lenders on all of Borrower's property located on
the Premises ("Collateral")[and that the Borrower grant a mortgage ("Leasehold
Mortgage") in favor of the Agent covering the Borrower's leasehold estate
created under the Lease].
[To induce the Agent and the Lenders (together with their respective
agents, successors and assigns) to enter into said financing arrangements, and
for other good and valuable consideration, the undersigned hereby agrees][By its
signature below, the undersigned agrees] that:
[(i) it consents to the merger referred to in the first
paragraph hereof and agrees that such merger shall not in any way be
deemed to be a default under the Mortgage;]
(ii) it will not assert against any of the Collateral any
statutory or possessory liens, including, without limitation, rights of
levy or distraint for rent, all of which it hereby waives;
(iii) none of the Collateral located on the Premises shall be
deemed to be fixtures;
(iv) it will allow Agent thirty (30) days from the Agent's
receipt of notice in which to cure or cause Borrower to cure any such
defaults on its mortgage obligations; provided
- -----------------
/1/ Please attach legal description of premises for recordation purposes.
<PAGE>
if such default cannot reasonably be cured within the thirty (30) day
period, and provided the Agent is diligently pursuing a cure, then Agent
shall have a reasonable period to cure such default;
[(v) if, for any reason whatsoever, the undersigned either deems
itself entitled to take possession of the Premises during the term of the
Mortgage or intends to sell or otherwise transfer all or any part of its
interest in the Premises, the undersigned will notify Agent five (5) days
before taking such action;]
(vi) if Borrower defaults on its obligations to the Agent or any
Lender and, as a result, the Agent undertakes to enforce its security
interest in the Collateral, the undersigned will cooperate with the Agent
in its efforts to assemble all of the Collateral located on the Premises,
will permit Agent to remain on the Premises for ninety (90) days after
Agent gives the undersigned notice of default, provided Agent pays the
Lease payments to the Landlord[s] due under the Lease for the period of
time Agent uses the Premises, or, at Agent's option to remove the
Collateral from the Premises within a reasonable time, not to exceed ninety
(90) days after Agent gives the undersigned notice of default, provided
Agent pays the rental payments to the Landlord[s] due under the Lease for
the period of time Agent uses the Premises, and will not hinder Agent's
actions in enforcing its liens on the Collateral; and
Any notice(s) required or desired to be given hereunder shall be directed
to the party to be notified at the address stated herein.
The agreements contained herein shall continue in force until all of
Borrower's obligations and liabilities to the Agent and the Lenders are paid and
satisfied in full and all financing arrangements among the Agent, the Lenders
and Borrower have been terminated.
The undersigned will notify all successor owners, transferees, purchasers
and mortgagees of the existence of the waiver. The agreements contained herein
may not be modified or terminated orally and shall be binding upon the
successors, assigns and personal representatives of the undersigned, upon any
successor owner or transferee of the Premises, and upon any purchasers,
including any mortgagee, from the undersigned.
[The undersigned consents to the granting of the Leasehold Mortgage to the
Agent and to the liens, security interests and encumbrances created by and
resulting from the Leasehold Mortgage of other documents collateral thereto in
the form attached hereto as Exhibit B.]
---------
The undersigned agrees that nothing contained in this waiver shall be
construed as an assumption by the agent or any of the other lenders of any
obligations of the landlord contained in the mortgage.
Executed and delivered this __ day of ____, 199_, at _______.
THIS WAIVER SHALL NOT IMPAIR OR OTHERWISE AFFECT BORROWER'S
OBLIGATIONS TO PAY RENT AND ANY OTHER SUMS PAYABLE BY BORROWER OR TO OTHERWISE
PERFORM ITS OBLIGATIONS TO THE LANDLORD PURSUANT TO THE TERMS OF THE LEASE.
<PAGE>
[Name of Mortgagee]
By:
--------------------------
Title:
-----------------------
Address:
---------------------
---------------------
---------------------
AGREED & ACKNOWLEDGED:
GFSI, INC.
By:
--------------------------
Title:
-----------------------
Address:
---------------------
---------------------
<PAGE>
[STATE OF _______)
) SS
COUNTY OF _______)
The foregoing letter agreement was acknowledged before me this ____ day of
____________, 199_, by __________________, a ______________ of ______________, a
_______________, on behalf of such _______________.
------------------------------
Notary Public
County,
---------- -----------
My commission expires:________]
<PAGE>
EXHIBIT A
to
Mortgagee Agreement
Lease
-----
(attached hereto)
<PAGE>
[EXHIBIT B
to
Mortgagee Agreement
Leasehold Mortgage
------------------
(attached hereto)]
<PAGE>
EXHIBIT B
TO
SECURITY AGREEMENT
Form of Bailee Letter
---------------------
The First National Bank
of Chicago, as Agent
One First National Plaza
Suite 0173
Chicago, Illinois 60670-0173
Attention: Nathan L. Bloch
Ladies and Gentlemen:
GFSI, Inc., a Delaware corporation and the successor by merger to Winning
Ways, Inc., a [_____________] corporation ("Borrower"), now does or hereafter
may store certain of its merchandise, inventory, or other of its personal
property at premises location at __________ (the "Premises") owned or leased by
the undersigned.
Borrower has entered into certain financing arrangements with a group of
lenders (the "Lenders") including The First National Bank of Chicago, as
contractual representative for the Lenders (the "Agent") and the Agent and the
Lenders require, among other things, that Borrower grant liens in favor of the
Agent for the benefit of itself and the Lenders on all of Borrower's property
located on the Premises ("Collateral").
[To induce the Agent and the Lenders (together with their respective
agents, successors and assigns) to enter into said financing arrangements, [and
for other good and valuable consideration,] the undersigned hereby agrees] [By
its signature below, the undersigned agrees]that:
(i) it will not assert against any of Borrower's assets any statutory
or possessory liens, including, without limitation, rights of levy or
distraint for rent, all of which it hereby waives;
(ii) the Collateral shall be identifiable as being owned by Borrower
and kept reasonably separate and distinct from other property in our
possession;
(iii) if Borrower defaults on its obligations to the Lenders or the
Agent and, as a result, the Agent undertakes to enforce its security
interest in the Collateral, the undersigned will cooperate with the Agent
in its efforts to assemble all of the Collateral located on the Premises
and will permit the Agent to either remain on the Premises for ninety (90)
days after the Agent gives the undersigned notice of default or, at the
Agent's option, to remove the Collateral from the Premises within a
reasonable time, not to exceed ninety (90) days after the Agent gives the
undersigned notice of default, provided that the Agent leaves the Premises
in the same condition as existed immediately prior to such ninety (90) day
period, and shall indemnify the undersigned for any damages arising
<PAGE>
solely out of its occupancy of the Premises, and this will not hinder
the Agent's actions in enforcing its liens on the Collateral.
Any notice(s) required or desired to be given hereunder shall be
directed to the party to be notified at the address stated herein.
The agreements contained herein shall continue in force until all of
Borrower's obligations and liabilities to the Agent and Lenders are paid and
satisfied in full and all financing arrangements among the Agent, the Lenders
and Borrower have been terminated.
The undersigned will notify all successor owners, transferees,
purchasers and mortgagees of the existence of this agreement. The agreements
contained herein may not be modified or terminated orally and shall be binding
upon the successors, assigns and personal representatives of the undersigned,
upon any successor owner or transferee of any of the Premises, and upon any
purchasers, including any mortgagee, from the undersigned.
Executed and delivered this __ day of _________, 199_, at _____________.
[Name and Address of Warehouseman/Bailee/Consignee]
(By)
--------------------------
<PAGE>
EXHIBIT C
To
Security Agreement
Form of Restricted Account Agreement
------------------------------------
TO: The First National Bank of Chicago
as contractual representative (the "Agent")
-----
under that certain Credit Agreement, dated as of
February 27, 1997 (the "Credit Agreement"),
----------------
among GFSI, Inc., a Delaware corporation
(the "Borrower"), the Agent and those financial
--------
institutions from time to time parties thereto
(the "Holders of Secured Obligations").
------------------------------
Ladies and Gentlemen:
You have advised us that the Borrower has entered or will enter into the
Credit Agreement and that in connection therewith the Borrower has granted to
the Agent, for its benefit and the benefit of the Holders of Secured
Obligations, a lien on and security interest in substantially all of the assets
of the Borrower, including all of the accounts receivable and inventory of the
Borrower.
This will confirm that the Borrower and the undersigned collection bank
(the "Bank") have agreed as follows with respect to (i) the account[s]
----
identified on Schedule 1 attached hereto (the "Account[s]") [and (ii) the lock
---------- ----------
box[es] identified on Schedule 2 attached hereto, to which the Borrower's
----------
customers and other persons and entities obligated to the Borrower deliver
checks and other items of payment (said [lock box is] [lock boxes are]
hereinafter referred to [collectively] as the "Lock Box[es]")]:
------------
1. The Borrower and the Bank acknowledge and confirm that although the
Account[s] [and Lock Box[es]] shall remain in the name of the Borrower, all
funds now or at any time hereafter deposited to the Account[s] [and Lock
Box[es]] and all of the Borrower's rights regarding such Account[s] [and Lock
Box[es]] constitute part of the collateral in which the Borrower has granted a
security interest to the Agent, to secure the Borrower's obligations under the
Credit Agreement and other instruments, documents and agreements executed in
connection therewith, and that during a "Notification Period" (as defined
-------------------
below), the Bank shall not be permitted to follow the Borrower's directions as
to disbursements and deposits with respect thereto. [The Bank's authorized
representatives will have access to the Lock Box[es], under the authority given
by the Borrower to the appropriate Post Office, and will make regular pick-ups
from the Lock Box[es] timed to gain the maximum benefit of early presentation
and availability of funds. Upon the Bank's receipt thereof, checks and other
items of payment so received will be processed and, where possible, started on
their way through the regular channels for payment upon receipt by the Bank.
Subject to final collection, credit for such items will be given in total on the
Bank's books relating to the [appropriate] Account. The Bank will supply the
Borrower's endorsement on checks received by it by endorsing them "Credited to
the account of the
<PAGE>
within payee" and will present them for payment through the customary collection
procedures and subject to the terms of the Bank's by-laws covering the handling
of items deposited with it.]/2/
2. The Bank will not exercise, and hereby releases, any banker's lien upon
and any right of set off against checks or other items of payment [remitted to
the Lock Box[es]] and/or deposited in the Account[s], except (i) with respect to
the Bank's normal fees and charges for operating the Account[s] and (ii) for
amounts previously credited to Borrower's Account[s] which the Bank subsequently
determines are uncollectible items. Checks returned unpaid because of
uncollected or insufficient funds shall be redeposited without advice.
3. From and after the date on which the Agent notifies the Bank, in
writing, that it is exercising its rights under this Collection Account
Agreement (the "Notice") until the date on which the Agent notifies the Bank
------
that it is withdrawing such Notice (such period being referred to herein as a
"Notification Period"), the Bank, the Borrower and the Agent agree that, unless
-------------------
the Agent otherwise instructs the Bank in writing:
A. The Bank will not honor drafts, demands, withdrawal requests or
remittance instructions by the Borrower.
B. The Bank will hold solely for account of the Agent all funds which
may be on deposit in the Account[s] and the Agent shall have the exclusive
right to direct the Bank as to the disposition of all checks, other items
of payment and amounts deposited in the Account[s] [and remitted to the
Lock Box[es]].
C. The Bank will remit all such funds directly to the Agent, as soon
as the funds are collected, by electronic transfer of immediately available
funds in accordance with the Agent's written wire-transfer instructions
given from time to time to the Bank.
D. The Bank shall be entitled to rely upon any notice or other
writing received from the Agent and the Borrower waives any claim of, and
releases the Bank from any liability for, complying with the terms of this
Collection Account Agreement.
4. [The Borrower will receive a receipted copy of the activity relating to
the Lock Box[es] for its records.] The Bank will not close the Account[s]
without giving the Agent at least thirty (30) days' prior written notice at the
address set forth below or such other address as the Agent may from time to time
indicate by written notice to the Bank, the Bank will send to the Agent at such
address a copy of each periodic statement for the Account, as and when the
statement is sent to the Borrower.
5. Any notice (including, without limitation, any Notice) required or
desired to be served, given or delivered hereunder shall be in writing and shall
be deemed to have been validly served, given or delivered (i) three (3) business
days after deposit in the United States mails, with proper postage prepaid, (ii)
when sent after receipt of confirmation if sent by telecopy, (iii) one (1)
business day after deposit with a reputable overnight courier with all charges
prepaid, or (iv) when delivered, if hand delivered by messenger.
- --------------------------
/2/The last three sentences of this Section and the last sentence of the
following Section may be substituted with a cross reference to the applicable
cash-management or lock-box services agreement, if one exists.
<PAGE>
6. This Collection Account Agreement shall be binding upon the Bank and
the Borrower and their respective successors and assigns and shall inure to the
benefit of the Agent, each of the Holders of Secured Obligations and their
respective successors and assigns. This Collection Account Agreement may not be
modified without the Agent's prior written consent, but may be terminated by the
Agent or the Bank upon thirty (30) days' prior written notice to the other
parties hereto.
This Collection Account Agreement shall be deemed effective as of [____________,
1997] upon execution hereof by the Bank.
[Insert full name of Bank]:
By:
----------------
Name:
Title:
Address:
-------------------
-------------------
Attn:
-------------
Telecopy No.:
---------
Confirmation No.:
-------
<PAGE>
Acknowledged and agreed to as of this
___ day of _______, 1997:
GFSI, Inc.
By:
-------------------------
Name:
Title:
Address:
[_______________
________________]
Attn: [_____________]
Telecopy No: [___________]
Confirmation No: [____________]
Acknowledged and agreed to as of this
___ day of _______, 1997
THE FIRST NATIONAL BANK
OF CHICAGO, as Agent
By:
----------------------
Name:
Title:
Address;
One First National Plaza
Suite 0173
Chicago, Illinois 60670-0173
Attn: Nathan L. Bloch
Telecopy No.: 312-732-5161
Confirmation No.: 312-732-1117
<PAGE>
SCHEDULE 1
TO
SECURITY AGREEMENT
Pledged Debt:
------------
None
<PAGE>
SCHEDULE 2
TO
SECURITY AGREEMENT
Locations of Collateral:
-----------------------
1. 16002 West 110th Street
Lenexa, Johnson County, Kansas 66219
2. 9700 Commerce Parkway
Lenexa, Johnson County, Kansas 66219
3. 9550 Lackman Road
Lenexa, Johnson County, Kansas 66219
4. Lansing Prison
Lansing, Kansas
<PAGE>
SCHEDULE 2-A
TO
SECURITY AGREEMENT
Third Party Locations:
---------------------
<TABLE>
<CAPTION>
Corporate Name Description of
of Third Party Address Relationship
- -------------- ------- ------------
<S> <C> <C>
Kansas Custom 1705 Industrial Park Road Affiliate
Embroidery Paola, Kansas 66071
Impact Design, Inc. 101 North Broadway Street Affiliate
P.O. Box 969
Louisberg, Kansas 66053
Lansing Prison
Lansing, Kansas
</TABLE>
<PAGE>
SCHEDULE 2-B
TO
SECURITY AGREEMENT
Financing Statements Filing Locations:
-------------------------------------
1. Secretary of State of the State of Kansas, Topeka, Kansas.
2. Office of Recorder, Johnson County, Kansas.
<PAGE>
SCHEDULE 3
TO
SECURITY AGREEMENT
Trade Names:
-----------
1. Gear For Sports
2. Gear
3. Winning Ways
<PAGE>
SCHEDULE 4
TO
SECURITY AGREEMENT
Deposit Accounts:
----------------
<TABLE>
<CAPTION>
Account
-------
<C> <S> <C>
1. Boatman's First National Bank of Kansas City 20100035123
2. Boatman's First National Bank of Kansas City 20100053510
3. Boatman's First National Bank of Kansas City 10161025057
4. Boatman's First National Bank of Kansas City 20100051737
5. Boatman's First National Bank of Kansas City 390103001032
6. Boatman's First National Bank of Kansas City 10161049320
7. Hillcrest Bank, formerly known as Oak Park Bank 5021618
8. Hillcrest Bank, formerly known as Oak Park Bank 5021731
9. The First National Bank of Chicago 5262070
</TABLE>
<PAGE>
Kansas
MORTGAGE, SECURITY AGREEMENT,
FINANCING STATEMENT AND
ASSIGNMENT OF RENTS AND LEASES
THIS MORTGAGE, SECURITY AGREEMENT, FINANCING STATEMENT AND ASSIGNMENT OF
RENTS AND LEASES ("Mortgage") entered into as of the 27th day of February, 1997,
by GFSI, INC., a Delaware corporation ("Mortgagor"), having its chief executive
office at 9700 Commerce Parkway, Lenexa, Kansas 66219 in favor of THE FIRST
NATIONAL BANK OF CHICAGO ("Mortgagee"), having an office at One First National
Plaza, Chicago, Illinois 60670, as contractual representative for its benefit
and for the benefit of the "Holders of Secured Obligations" as defined in that
certain Credit Agreement (as amended, restated, modified, supplemented or
substituted from time to time, the "Credit Agreement"), dated of even date
herewith, by and among Mortgagor, Mortgagee and the institutions from time to
time a party thereto as Lenders. The term "Holders of Secured Obligations" shall
include those who are, and those who may hereafter become, parties to the Credit
Agreement in such capacity. Except as otherwise provided herein, all capitalized
terms used but not defined herein shall have the respective meanings given to
them in the Credit Agreement, which is hereby incorporated herein by reference.
WITNESSETH:
WHEREAS, pursuant to and upon satisfaction of the conditions set forth in
the Credit Agreement, the Lenders have agreed to make certain A Term Loans, B
Term Loans, Revolving Loans and Swing Line Loans and Mortgagee and Lenders have
agreed to extend certain other financial accommodations from time to time to
Mortgagor, all in an aggregate principal amount not to exceed One Hundred
Fifteen Million and no/100 Dollars ($115,000,000.00); and
WHEREAS, pursuant to the provisions of the Credit Agreement, Mortgagor has
executed and delivered to Lenders, to further evidence the Loans, (i) those
certain Term Loan A Notes, dated of even date herewith, in the aggregate
principal amount of
This document was prepared by
and after recording should be
returned to:
James L. Marovitz
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
<PAGE>
Forty Million and no/100 Dollars ($40,000,000.00), (ii) those certain Term Loan
B Notes, dated of even date herewith, in the aggregate principal amount of
Twenty Five Million and no/100 Dollars ($25,000,000.00), (iii) those certain
Revolving Notes, dated of even date herewith, in the aggregate principal amount
of Fifty Million and no/100 Dollars ($50,000,000.00) and (iv) that certain Swing
Line Note, dated of even date herewith, in the aggregate principal amount of One
Million and no/100 Dollars ($1,000,000)(the Term Loan A Notes, the Term Loan B
Notes, the Revolving Notes and the Swing Line Note, and any and all renewals,
extensions for any period, increases or rearrangements thereof are jointly
referred to as the "Notes"); and
WHEREAS, as a condition to Mortgagee's and Lenders' extension of such
credit and financial accommodations to Mortgagor including, without limitation,
the extension of credit evidenced by the Notes and pursuant to the Credit
Agreement, Mortgagee and Lenders have required that Mortgagor enter into this
Mortgage and grant to Mortgagee, for itself and as Agent, the liens and security
interests referred to herein to secure, subject to the limitation as to amount
as hereinafter provided, (i) the payment of the principal amount evidenced by
the Notes together with interest thereon; (ii) payment of all L/C Obligations;
(iii) payment of the principal amount, together with interest thereon, of all
present and future advances of money made by Mortgagee or Holders of Secured
Obligations to Mortgagor, including without limitation, the reborrowing of
principal previously repaid pursuant to the Credit Agreement, as well as all
other Secured Obligations of Mortgagor to Mortgagee or Holders of Secured
Obligations; and (iv) other payment and performance obligations related to this
Mortgage (the aforesaid Secured Obligations of Mortgagor to Mortgagee, together
with the obligations evidenced by the Notes plus interest and other payment and
performance obligations being hereinafter referred to collectively as the
"Liabilities"); and
WHEREAS, the Liabilities secured hereby shall not exceed an aggregate
principal amount, at any one time outstanding of Thirteen Million Two Hundred
Thousand and no/100 Dollars ($13,200,000.00), provided, that the foregoing
limitation shall apply only to the lien upon the real property created by this
Mortgage, and it shall not in any manner limit, affect or impair any grant of a
security interest or other right in favor of the Mortgagee under the provisions
of the Credit Agreement or under any other security agreement at any time
executed by Mortgagor;
NOW, THEREFORE, in consideration of the premises contained herein and to
secure payment of the Liabilities and in consideration of One Dollar ($1.00) in
hand paid, the receipt and
- 2 -
<PAGE>
sufficiency whereof are hereby acknowledged, Mortgagor does hereby grant,
remise, release, alien, convey, mortgage and warrant to Mortgagee, its
successors and assigns, the following described real estate (the "Land") in
Johnson County, Kansas, and does further grant a security interest to Mortgagee
in all Mortgaged Property (as defined below) as may be secured under the Uniform
Commercial Code (the "Code") in effect in the State of Kansas (the "State"):
See Exhibit A attached hereto and by this reference made a part hereof for
the legal description of the Land
which Land, together with all right, title and interest, if any, which Mortgagor
may now have or hereafter acquire in and to all improvements, buildings and
structures now or hereafter located thereon of every nature whatsoever, is
herein called the "Premises".
TOGETHER WITH all right, title and interest, if any, including any
after-acquired right, title and interest, and including any right of use or
occupancy, which Mortgagor may now have or hereafter acquire in and to (a) all
easements, rights of way, gores of land or any lands occupied by streets, ways,
alleys, passages, sewer rights, water courses, water rights and powers, and
public places adjoining said Land, and any other interests in property
constituting appurtenances to the Premises, or which hereafter shall in any way
belong, relate or be appurtenant thereto, and (b) all hereditaments, gas, oil,
minerals (with the right to extract, sever and remove such gas, oil and
minerals), and easements, of every nature whatsoever, located in or on the
Premises and all other rights and privileges thereunto belonging or appertaining
and all extensions, additions, improvements, betterments, renewals,
substitutions and replacements to or of any of the rights and interests
described in subparagraphs (a) and (b) above (hereinafter the "Property
Rights").
TOGETHER WITH all right, title and interest, if any, including any
after-acquired right, title and interest, and including any right of use or
occupancy, which Mortgagor may now or hereafter acquire in and to all fixtures
and appurtenances of every nature whatsoever now or hereafter located in, on or
attached to, and used or intended to be used in connection with, or with the
operation of, the Premises, including, but not limited to (a) all apparatus,
machinery and equipment of Mortgagor and (b) all extensions, additions,
improvements, betterments, renewals, substitutions and replacements to or of any
of the foregoing (the items described in the foregoing
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<PAGE>
clauses (a) and (b) being the "Fixtures"). It is mutually agreed, intended and
declared that the Premises and all of the Property Rights and Fixtures owned by
Mortgagor (referred to collectively herein as the "Real Property") shall, so far
as permitted by law, be deemed to form a part and parcel of the Land and for the
purpose of this Mortgage to be real estate and covered by this Mortgage. It is
also agreed that if any of the property herein mortgaged is of a nature so that
a security interest therein can be perfected under the Code in effect in the
State, this instrument shall constitute a security agreement, fixture filing and
financing statement, and Mortgagor agrees to execute, deliver and file or refile
any financing statement, continuation statement, or other instruments Mortgagee
may reasonably require from time to time to perfect or renew such security
interest under the Code. To the extent permitted by law, (i) all of the Fixtures
are or are to become fixtures on the Land and (ii) this instrument, upon
recording or registration in the real estate records of the proper office, shall
constitute a "fixture-filing" within the meaning of Sections 9-313 and 9-402 of
the Code. Subject to the terms and conditions of the Credit Agreement, the
remedies for any violation of the covenants, terms and conditions of the
agreements herein contained shall be as prescribed herein or by general law, or,
as to that part of the security in which a security interest may be perfected
under the Code, by the specific statutory consequences now or hereafter enacted
and specified in the Code, all at Mortgagee's sole election.
TOGETHER WITH all the estate, right, title and interest of the Mortgagor in
and to (i) all judgments, insurance proceeds, awards of damages and settlements
resulting from condemnation proceedings or the taking of the Real Property, or
any part thereof, under the power of eminent domain or for any damage (whether
caused by such taking or otherwise) to the Real Property, or any part thereof,
or to any rights appurtenant thereto, and all proceeds of any sales or other
dispositions of the Real Property or any part thereof; and (except as otherwise
provided herein or in the Credit Agreement) the Mortgagee is hereby authorized
to collect and receive said awards and proceeds and to give proper receipts and
acquittances therefor, and to apply the same as provided in the Credit
Agreement; and (ii) all contract rights, general intangibles, actions and rights
in action relating to the Real Property including, without limitation, all
rights to insurance proceeds and unearned premiums arising from or relating to
damage to the Real Property; and (iii) all proceeds, products, replacements,
additions, substitutions, renewals and accessions of and to the Real Property.
(The rights and interests described in this paragraph shall hereinafter be
called the "Intangibles".)
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<PAGE>
As additional security for the Liabilities secured hereby, Mortgagor (i)
does hereby pledge and assign to Mortgagee from and after the date hereof
(including any period of redemption), primarily and on a parity with the Real
Property, and not secondarily, all the rents, issues and profits of the Real
Property and all rents, issues, profits, revenues, royalties, bonuses, rights
and benefits due, payable or accruing (including all deposits of money as
advance rent, for security or as earnest money or as down payment for the
purchase of all or any part of the Real Property) (the "Rents") under any and
all present and future leases, contracts or other agreements relative to the
ownership or occupancy of all or any portion of the Real Property, and (ii)
except to the extent such a transfer or assignment is not permitted by the terms
thereof, does hereby transfer and assign to Mortgagee all such leases and
agreements (including all Mortgagor's rights under any contracts for the sale of
any portion of the Mortgaged Property and all revenues and royalties under any
oil, gas and mineral leases relating to the Real Property) (the "Leases").
Mortgagee hereby grants to Mortgagor the right to collect and use the Rents as
they become due and payable under the Leases, but not more than one (1) month in
advance thereof, unless a Designated Default shall have occurred provided that
the existence of such right shall not operate to subordinate this assignment to
any subsequent assignment, in whole or in part, by Mortgagor, and any such
subsequent assignment shall be subject to the rights of the Mortgagee under this
Mortgage. Mortgagor further agrees to execute and deliver such assignments of
leases or assignments of land sale contracts as Mortgagee may from time to time
request. In the event of a Designated Default (1) the Mortgagor agrees, upon
demand, to deliver to the Mortgagee all of the Leases with such additional
assignments thereof as the Mortgagee may request and agrees that the Mortgagee
may assume the management of the Real Property and collect the Rents, applying
the same upon the Liabilities in the manner provided in the Credit Agreement,
and (2) the Mortgagor hereby authorizes and directs all tenants, pur chasers or
other persons occupying or otherwise acquiring any interest in any part of the
Real Property to pay the Rents due under the Leases to the Mortgagee upon
request of the Mortgagee. Mortgagor hereby appoints Mortgagee as its true and
lawful attorney in fact to manage said property and collect the Rents, with full
power to bring suit for collection of the Rents and possession of the Real
Property, giving and granting unto said Mortgagee and unto its agent or attorney
full power and authority to do and perform all and every act and thing
whatsoever requisite and necessary to be done in the protection of the security
hereby conveyed; provided, however, that (i) this power of attorney and
assignment of rents shall not be construed as an obligation upon said Mortgagee
to make or cause to be made any
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<PAGE>
repairs that may be needful or necessary and (ii) Mortgagee agrees that until
such Designated Default as aforesaid, Mortgagee shall permit Mortgagor to
perform the aforementioned management responsibilities. Upon Mortgagee's receipt
of the Rents, at Mortgagee's option, it may use the proceeds of the Rents to
pay: (1) reasonable charges for collection thereof, costs of necessary repairs
and other costs requisite and necessary during the continuance of this power of
attorney and assignment of rents, (2) general and special taxes, insurance
premiums, and (3) any or all of the Liabilities pursuant to the provisions of
the Credit Agreement. This power of attorney and assignment of rents shall be
irrevocable until this Mortgage shall have been satisfied and released of record
and the releasing of this Mortgage shall act as a revocation of this power of
attorney and assignment of rents. Mortgagee shall have and hereby expressly
reserves the right and privilege (but assumes no obligation) to demand, collect,
sue for, receive and recover the Rents, or any part thereof, now existing or
hereafter made, and apply the same in accordance with the provisions of the
Credit Agreement.
All of the property described above, and each item of property therein
described, not limited to but including the Land, the Premises, the Property
Rights, the Fixtures, the Real Property, the Intangibles, the Rents and the
Leases, is herein referred to as the "Mortgaged Property."
Nothing herein contained shall be construed as constituting the Mortgagee a
mortgagee-in-possession in the absence of the taking of actual possession of the
Mortgaged Property by the Mortgagee. Nothing contained in this Mortgage shall be
construed as imposing on Mortgagee any of the obligations of the lessor under
any Lease of the Mortgaged Property in the absence of an explicit assumption
thereof by Mortgagee. In the exercise of the powers herein granted the
Mortgagee, except as provided in the Credit Agreement, no liability shall be
asserted or enforced against the Mortgagee, all such liability being expressly
waived and released by Mortgagor.
TO HAVE AND TO HOLD the Mortgaged Property, properties, rights and
privileges hereby conveyed or assigned, or intended so to be, unto Mortgagee,
its beneficiaries, successors and assigns, forever for the uses and purposes
herein set forth. Mortgagor hereby releases and waives all rights under and by
virtue of the Homestead Exemption Laws, if any, of the State and Mortgagor
hereby covenants, represents and warrants that, at the time of the ensealing and
delivery of these presents, Mortgagor is well seised of the Mortgaged Property
in fee simple and with lawful authority to sell, assign, convey and mortgage the
Mortgaged
- 6 -
<PAGE>
Property, and that the title to the Mortgaged Property is free and clear of all
encumbrances, except as described on Exhibit B attached hereto and made a part
hereof, and that, except for the encumbrances set forth on Exhibit B, Mortgagor
will forever defend the same against all lawful claims.
The following provisions shall also constitute an integral part of this
Mortgage:
1. Payment of Taxes on the Mortgage. Without limiting any of the provisions
of the Credit Agreement, Mortgagor agrees that, if the United States or any
department, agency or bureau thereof or if the State or any of its subdivisions
having jurisdiction shall at any time require documentary stamps to be affixed
to this Mortgage or shall levy, assess, or charge any tax, assessment or
imposition upon this Mortgage or the credit or indebtedness secured hereby or
the interest of Mortgagee in the Premises or upon Mortgagee by reason of or as
holder of any of the foregoing then, Mortgagor shall pay for such documentary
stamps in the required amount and deliver them to Mortgagee or pay (or reimburse
Mortgagee for) such taxes, assessments or impositions. Mortgagor agrees to
exhibit to Mortgagee, at any time upon request, official receipts showing
payment of all taxes, assessments and charges which Mortgagor is required or
elects to pay under this paragraph. Mortgagor agrees to indemnify Mortgagee
against liability on account of such documentary stamps, taxes, assessments or
impositions, whether such liability arises before or after payment of the
Liabilities and regardless of whether this Mortgage shall have been released.
2. Leases Affecting the Real Property. Mortgagor agrees faithfully to
perform all of its obligations under all present and future Leases at any time
assigned to Mortgagee as additional security, and to refrain from any action or
inaction which would result in termination of any such Leases or in the
diminution of the value thereof or of the Rents due thereunder. All future
lessees under any Lease made after the date of recording of this Mortgage shall,
at Mortgagee's option and without any further documentation, attorn to Mortgagee
as lessor if for any reason Mortgagee becomes lessor thereunder, and, upon
demand, pay rent to Mortgagee, and Mortgagee shall not be responsible under such
Lease for matters arising prior to Mortgagee becoming lessor thereunder.
3. Use of the Real Property. Mortgagor agrees that it shall not permit the
public to use the Real Property in any manner that might tend, in Mortgagee's
reasonable judgment, to impair Mortgagor's title to such property or any portion
thereof,
- 7 -
<PAGE>
or to make possible any claim or claims of easement by prescription or of
implied dedication to public use.
4. Indemnification. Mortgagor shall not use or permit the use of any part
of the Real Property for an illegal purpose, including, without limitation, the
violation of any environmental laws, statutes, codes, regulations or practices.
Without limiting any indemnification Mortgagor has granted in the Credit
Agreement, Mortgagor agrees to indemnify and hold harmless Mortgagee from and
against any and all losses, suits, liabilities, fines, damages, judgments,
penalties, claims, charges, costs and expenses (including reasonable attorneys'
and paralegals' fees, court costs and disbursements) which may be imposed on,
incurred or paid by or asserted against the Real Property by reason or on
account of or in connection with (i) the construction, reconstruction or
alteration of the Real Property, (ii) any negligence or misconduct of Mortgagor,
any lessee of the Real Property, or any of their respective agents, contractors,
subcontractors, servants, employees, licensees or invitees, (iii) any accident,
injury, death or damage to any person or property occurring in, on or about the
Real Property or any street, drive, sidewalk, curb or passageway adjacent
thereto, or (iv) any other transaction arising out of or in any way connected
with the Mortgaged Property.
5. Insurance. Mortgagor shall, at its sole expense, obtain for, deliver to,
assign and maintain for the benefit of Mortgagee, until the Liabilities are paid
in full, insurance policies as specified in the Credit Agreement. In the event
of a casualty loss, the net insurance proceeds from such insurance policies
shall be paid and applied as specified in the Credit Agreement.
6. Condemnation Awards. Mortgagor hereby assigns to Mortgagee, as
additional security, all awards of damage resulting from condemnation
proceedings or the taking of or injury to the Real Property for public use, and
Mortgagor agrees that the proceeds of all such awards shall be paid and applied
as specified in the Credit Agreement.
7. Remedies. Subject to the provisions of the Credit Agreement, upon the
occurrence of a Designated Default under the terms of the Credit Agreement, in
addition to any rights and remedies provided for in the Credit Agreement, and to
the extent permitted by applicable law, the following provisions shall apply:
(a) Mortgagee's Power of Enforcement. It shall be lawful for Mortgagee to
(i) immediately sell the Mortgaged
- 8 -
<PAGE>
Property either in whole or in separate parcels, as prescribed by the State law,
under power of sale, which power is hereby granted to Mortgagee to the full
extent permitted by the State law, and thereupon, to make and execute to any
purchaser(s) thereof deeds of conveyance pursuant to applicable law or (ii)
immediately foreclose this Mortgage by judicial action. The court in which any
proceeding is pending for the purpose of foreclosure of this Mortgage may, at
once or at any time thereafter, either before or after sale, without notice and
without requiring bond, and without regard to the solvency or insolvency of any
person liable for payment of the Liabilities secured hereby, and without regard
to the then value of the Mortgaged Property or the occupancy thereof as a
homestead, appoint a receiver (the provisions for the appointment of a receiver
and assignment of rents being an express condition upon which the Loan hereby
secured is made) for the benefit of Mortgagee, with power to collect the Rents,
due and to become due, during such foreclosure suit and the full statutory
period of redemption notwithstanding any redemption. The receiver, out of the
Rents when collected, may pay costs incurred in the management and operation of
the Real Property, prior and subordinate liens, if any, and taxes, assessments,
water and other utilities and insurance, then due or thereafter accruing, and
may make and pay for any necessary repairs to the Real Property, and may pay all
or any part of the Liabilities or other sums secured hereby or any deficiency
decree entered in such foreclosure proceedings. Upon or at any time after the
filing of a suit to foreclose this Mortgage, the court in which such suit is
filed shall have full power to enter an order placing Mortgagee in possession of
the Real Property with the same power granted to a receiver pursuant to this
subparagraph and with all other rights, privileges and obligations of a
mortgagee-in-possession under applicable law.
(b) Mortgagee's Right to Enter and Take Possession, Operate and Apply
Income. Mortgagee shall, at its option, have the right, acting through its
agents or attorneys, either with or without process of law, forcibly or
otherwise, to enter upon and take possession of the Real Property, expel and
remove any persons, goods, or chattels occupying or upon the same, to collect or
receive all the Rents, and to manage and control the same, and to lease the same
or any part thereof, from time to time, and, after deducting all reasonable
attorneys' fees and expenses, and all reasonable expenses incurred in the
protection, care, maintenance, management and operation of the Real Property,
distribute and apply the remaining net income in accordance with the terms of
the Credit Agreement or upon any deficiency decree entered in any foreclosure
proceedings.
- 9 -
<PAGE>
8. Application of the Rents or Proceeds from Fore closure or Sale. In any
foreclosure of this Mortgage by judicial action, or any sale of the Mortgaged
Property by advertisement, in addition to any of the terms and provisions of the
Credit Agreement, there shall be allowed (and included in the decree for sale in
the event of a foreclosure by judicial action) to be paid out of the Rents or
the proceeds of such foreclosure proceeding and/or sale:
(a) Liabilities. All of the Liabilities and other sums secured hereby which
then remain unpaid; and
(b) Other Advances. All other items advanced or paid by Mortgagee pursuant
to this Mortgage; and
(c) Costs, Fees and Other Expenses. All court costs, reasonable and
documented attorneys' and paralegals' fees and expenses, appraiser's fees,
advertising costs, filing fees and transfer taxes, notice expenses, expenditures
for documentary and expert evidence, stenographer's charges, publication costs,
and costs (which may be estimated as to items to be expended after entry of the
decree) of procuring all abstracts of title, title searches and examinations,
title guarantees, title insurance policies, Torrens certificates and similar
data with respect to title which Mortgagee in the reasonable exercise of its
judgment may deem necessary. All such expenses shall become additional
Liabilities secured hereby when paid or incurred by Mortgagee in connection with
any proceedings, including but not limited to probate and bankruptcy
proceedings, to which Mortgagee shall be a party, either as plaintiff, claimant
or defendant, by reason of this Mortgage or any indebtedness hereby secured or
in connection with the preparations for the commencement of any suit for the
foreclosure, whether or not actually commenced, or sale by advertisement. The
proceeds of any sale (whether through a foreclosure proceeding or Mortgagee's
exercise of the power of sale) shall be distributed and applied in accordance
with the terms of the Credit Agreement.
9. Cumulative Remedies; Delay or Omission Not a Waiver. Each remedy or
right of Mortgagee shall not be exclusive of but shall be in addition to every
other remedy or right now or hereafter existing at law or in equity. No delay in
the exercise or omission to exercise any remedy or right accruing on the
occurrence or existence of any Default shall impair any such remedy or right or
be construed to be a waiver of any such Default or acquiescence therein, nor
shall it affect any subsequent Default of the same or different nature. Every
such remedy or right may be exercised concurrently or independently and when and
as often as may be deemed expedient by Mortgagee.
- 10 -
<PAGE>
10. Mortgagee's Remedies against Multiple Parcels. If more than one
property, lot or parcel is covered by this Mortgage, and if this Mortgage is
foreclosed upon, or judgment is entered upon any Liabilities secured hereby, or
if Mortgagee exercises its power of sale, execution may be made upon or
Mortgagee may exercise its power of sale against any one or more of the
properties, lots or parcels and not upon the others, or upon all of such
properties or parcels, either together or separately, and at different times or
at the same time, and execution sales or sales by advertisement may likewise be
conducted separately or concurrently, in each case at Mortgagee's election.
11. No Merger. In the event of a foreclosure of this Mortgage or any other
mortgage or deed of trust securing the Liabilities, the Liabilities then due the
Mortgagee shall not be merged into any decree of foreclosure entered by the
court, and Mortgagee may concurrently or subsequently seek to foreclose one or
more mortgages or deeds of trust which also secure said Liabilities.
12. Notices. All notices and other communications provided to any party
hereto under this Mortgage shall be in writing or by telex or by facsimile and
addressed or delivered to such party at its address set forth below or at such
other address as may be designated by such party in a notice to the other
parties. Any notice, if mailed and properly addressed with postage prepaid,
shall be deemed given when received; any notice, if transmitted by telex or
facsimile, shall be deemed given when transmitted (answerback confirmed in the
case of telexes).
if to Mortgagor:
GFSI, Inc.
9700 Commerce Parkway
Lenexa, Kansas 66219
Attn: Robert Shaw
Telecopy No.: 913/752-3346
with copies to:
The Jordan Company
9 West 57th Street
40th Floor
New York, New York 10019
Attn: A. Richard Caputo, Jr.
Telecopy No.: 212/755-5263
and
- 11 -
<PAGE>
Commercial
Johnson County, Kansas
EXHIBIT A
Local Description
-----------------
All of Lot 9 and part of Lot 13 and 15, 'KANSAS COMMERCE CENTER', a subdivision
in Lenexa, Johnson County, Kansas, all being more particularly described as
follows: Beginning at the Southerlymost corner of said Lot 9; thence North 56
degrees 00 minutes 00 seconds East along the Southeasterly line of said Lot 9,
a distance of 175.00 feet; thence in a Northeasterly and Northerly direction,
continuing along said Southeasterly line and along a curve to the left, tangent
to the last described course, having a radius of 420.00 feet and a central angle
of 58 degrees 15 minutes 44 seconds, an arc distance of 427.08 feet; thence
North 2 degrees 15 minutes 44 seconds West along the East line of said Lot 9 and
tangent to said curve, a distance of 135.00 feet; thence in a Northerly,
Northwesterly and Westerly direction along the Northeasterly line of said Lot 9
and along a curve to the left, tangent to the last described course, having a
radius of 320.00 feet and a central angle of 89 degrees 56 minutes 05 seconds,
an arc distance of 502.29 feet; thence South 87 degrees 48 minutes 11 seconds
West, along the Northerly line of said Lot 9, and tangent to the last said
curve, a distance of 60.00 feet; thence in a Westerly, Southwesterly and
Southerly direction along the Northwesterly line of said Lot 9 and along a curve
to the left, tangent to the last described course, having a radius of 320.00
feet and a central angle of 80 degrees 06 minutes 00 seconds, an arc distance of
447.36 feet; thence South 7 degrees 42 minutes 11 seconds West along the
Westerly line of said Lot 9 and tangent to the last described curve, a distance
of 60.79 feet; thence in a Southerly and Southwesterly direction along the
Westerly line of said Lot 9 and along the Northwesterly line of said Lot 13 and
along a curve to the right, tangent to the last described course, have a radius
of 380.00 feet and a central angle of 54 degrees 17 minutes 28 seconds, an arc
distance of 360.09 feet; thence South 2 degrees 18 minutes 17 seconds East, a
distance of 149.44 feet; thence North 87 degrees 48 minutes 11 seconds East, a
distance of 375.21 feet to a point on the Northeasterly line of said Lot 15 that
is South 66 degrees 05 minutes 00 seconds East, a distance of 95.00 feet from
the Northerlymost corner thereof; thence South 66 degrees 05 minutes 00 seconds
East along the last said Northeasterly line, a distance of 155.00 feet to an
angle point therein; thence South 34 degrees 00 minutes 00 seconds East along
the Northeasterly line of said Lot 15, a distance of 100.00 feet to the point of
beginning.
<PAGE>
110th Street
Johnson County, Kansas
EXHIBIT A
Legal Description
-----------------
A tract of land in the South 1/2 of Section 8, Township 13, Range 24, City of
Lenexa, Johnson County, Kansas said tract being more particularly described as
follows:
Commencing at the Southeast corner of the Southeast 1/4 of Section 8, Township
13, Range 24, City of Lenexa, Johnson County, Kansas; then North 02 degrees
13' 25" West on the East line of the Southeast 1/4 of Section 8, Township 13,
Range 24, 614.97 feet to a point; thence South 88 degrees 02' 50" West, 2460.01
feet on the existing Northerly Right-of-Way Line of 110th Street and its
Westerly prolongation to a point; said point being on the existing Westerly
Right-of-Way Line of Lakeview Avenue and also being the True Point of Beginning;
thence continuing South 88 degrees 02' 50" West, 726.00 feet up to a point;
thence North 02 degrees 13' 25" West, 360.00 feet to a point; thence North
88 degrees 02' 50" East, 726.00 feet to a point on the existing Westerly
Right-of Way Line of Lakeview Avenue; thence South 02 degrees 13' 25" East, on
the existing Westerly Right-of-Way Line of Lakeview Avenue, 360.00 East to the
True Point of Beginning.
<PAGE>
Commercial
EXHIBIT B
Permitted Exceptions
--------------------
Those title exceptions listed on that certain "marked-up" title
commitment/policy no. 97-1233, dated __________, issued by Chicago Title
Insurance Company for the property described on Exhibit A hereto.
---------
<PAGE>
Commercial
EXHIBIT B
Permitted Exceptions
--------------------
Those title exceptions listed on that certain "marked-up" title
commitment/policy no. 97-1233, dated _________________, issued by Chicago Title
Insurance Company for the property described on Exhibit A hereto.
---------
<PAGE>
EXHIBIT 10.14
LICENSE AGREEMENT
THIS AGREEMENT is made effective as of the 1st day of April, 1994, by and
between Winning Ways, Inc., a Missouri corporation, with offices at 9700
Commerce Parkway, Shawnee Mission, Kansas 66219, (hereinafter "Licensor"), and
Softwear Athletics, Inc., a Canada corporation, with offices located at 523
Cleveland Cres S.E., Calgary, Alberta, Canada T2G4RB (hereinafter "Licensee").
WHEREAS, Licensor is the owner of certain trademarks identified in Schedule
A hereto (the "Trademarks"), and any copyrights or other proprietary rights
associated with said Trademarks (hereinafter the "Rights"); and
WHEREAS, Licensee desires to use the Rights and/or the Trademarks on or in
association with the manufacture, offering for sale, sale, advertising,
promotion and distribution of certain products identified in Schedule B (the
"Licensed Products") in the countries identified in Schedule B (the "Licensed
Territory"); and
WHEREAS, Licensor is willing to grant Licensee such right to use the
Rights and/or the Trademarks on the Licensed Products in the Licensed Territory
in accordance with the terms and conditions recited herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions herein contained, it is hereby agreed as follows:
1. GRANT.
-----
(a) Licensor hereby grants to Licensee and Licensee hereby accepts the
exclusive, non-transferable, non-assignable license, without the right to grant
sublicenses, to use the Rights and Trademarks solely within the Licensed
Territory on the Licensed Products and/or in association with the manufacture,
advertising and promotion of the Licensed Products and the
<PAGE>
offering for sale, sale, shipment and distribution of the Licensed Products: (i)
to retail stores and merchants for sale, shipment and distribution direct to the
public; and/or (ii) direct to the public. Licensee shall not knowingly permit
the Licensed Products to be sold or distributed outside of the Licensed
Territory.
(b) Licensor represents and warrants that it has the authority to
grant the Rights licensed herein. Licensor makes no representation that it has
the authority to grant, nor does it grant herein, the right to utilize the name,
symbol, or logo of any other licensee of Licensor, or reproductions of any
products produced by or for any other licensee of Licensor. Accordingly, it is
understood by the parties hereto that if any of the foregoing are to be utilized
in connection with the exercise of the license granted hereunder, it will be the
responsibility of Licensee to obtain all necessary permissions for the use of
such material.
(c) The license granted by Licensor to Licensee hereunder does not
include the right to, and Licensee shall not in any manner, use (or purport to
grant others the right to use) the Trademarks or the Rights for the purpose, in
whole or in part, of promoting any service or product other than the Licensed
Products. The license granted by Licensor to Licensee herein does not include,
and shall not be used by Licensee so as to imply, a testimonial or endorsement
of the Licensed Products or any other product or service by the Licensor.
(d) Nothing contained in Section 1(c) above shall prevent Licensee
from utilizing the Trademarks or the Rights in a non-endorsement and/or non-
testimonial manner in connection with the packages, cartons, advertising, point-
of-sale and/or promotional materials for the Licensed Products (the "Promotional
and Packaging Material") or require any separate payment in connection
therewith.
(e) All rights not expressly granted to Licensee in this Agreement
are specifically reserved to Licensor.
2
<PAGE>
2. TERM AND OPTIONS.
----------------
(a) This Agreement shall be effective and shall continue for an
initial term (the "First License Period") set forth on Schedule B, unless sooner
terminated pursuant to a provision of this Agreement.
(b) Licensor hereby grants to Licensee two (2) separately
exercisable options to extend the term of this Agreement for additional one-year
periods ("Second and Third License Periods, respectively). In order to exercise
each of the two options, Licensee must provide Licensor with written notice of
its intention to exercise each such option and such written notice must be
received by Licensor no earlier than one hundred twenty (120) days and no later
than ninety (90) days prior to the expiration of the License Period then in
effect. The attempted exercise of any option shall be void and of no effect if
Licensee (i) has breached or is then in breach of any of its obligations under
this Agreement, or (ii) fails during any License Period to make Net Sales
sufficient to generate Actual Royalties equal to or greater than the Guaranteed
Minimum Royalties as defined herein, or (iii) fails to make full and timely
royalty payments as provided herein. Licensee's performance in each License
Period shall be pursuant to the same terms and conditions recited in this
Agreement.
3. ROYALTIES.
---------
(a) Licensee agrees to pay Licensor a royalty at the percentage set
forth on Schedule B based on Net Sales (as defined in Subsection 3(b) below) of
the Licensed Products employing the Rights and/or the Trademarks by Licensee
(the "Actual Royalty"). Such Actual Royalty shall accrue when the Licensed
Products are sold, shipped, distributed, billed and/or paid for, whichever
occurs earlier, to a third party not affiliated with Licensee. For purposes of
this Agreement, "affiliated" means related in any manner through direct or
indirect ownership or control and includes joint venture arrangements.
3
<PAGE>
(b) "Net Sales" shall mean gross sales to third parties not
affiliated with Licensee at Licensee's regular price, less returns actually
credited. No other deductions shall be permitted. For example, there shall be no
deductions made for discounts, allowances, commissions, royalties, uncollectible
accounts, taxes, fees, assessments, impositions, payments or expenses of any
kind which may be incurred or paid by Licensee in connection with the royalty
payments due to Licensor hereunder, or for any costs incurred in the
manufacture, offering for sale, sale, advertising, promotion, shipment,
handling, distribution and/or exploitation of the Licensed Products. Licensee's
regular price shall include the royalty amount. Notwithstanding the foregoing,
Licensee shall be permitted to deduct the Canadian 10% withholding tax from the
royalties payable to Licensor.
(c) Actual Royalty payments shall be made by Licensee to Licensor
on all Licensed Products sold, shipped and/or distributed by Licensee, even if
not billed (such as in the case of introductory offers, promotions and the like
and sales, shipments and/or distributions to individuals and/or companies which
are affiliates or subsidiaries of Licensee), or if billed at less than
Licensee's regular price for such Licenced Products, based upon Licensee's
regular price for such Licensed Products sold to third parties not affiliated
with Licensee in the course of Licensee's normal distribution, shipment and
sales activities. Notwithstanding the foregoing, samples sold to salesmen shall
be subject to a royalty based on the price charged to the salesman.
(d) For each License Period of this Agreement, Licensee agrees to
pay Licensor a non-refundable guaranteed minimum royalty in the amount(s) and in
the manner set forth on Schedule B (the "Guaranteed Minimum Royalty"). Such
Guaranteed Minimum Royalty shall be paid as set forth on Schedule B. If, upon
termination or expiration of this Agreement or any License Period thereof, the
total royalties paid and/or payable by Licensee to Licensor
4
<PAGE>
during each such License Period is less than the Guaranteed Minimum Royalty,
Licensee shall immediately pay the amount of such difference to Licensor. Actual
Royalty payments based on Net Sales made during any License Period of this
Agreement shall be credited against the Guaranteed Minimum Royalty due for the
License Period in which such Net Sales were made.
4. STATEMENTS AND PAYMENTS.
-----------------------
(a) Licensee shall deliver to Licensor, at its offices, or to such
other address as Licensor may direct, on the fifteenth (15th) day following the
end of each calendar month during any License Period of this Agreement, and on
the fifteenth (15th) day of the month following termination or expiration of
this Agreement, a complete and accurate statement of its Net Sales of Licensed
Products, differentiated by product, for the immediately preceding calendar
month (or portion thereof) (the "Royalty Period"). Said statement shall be
certified as accurate by an officer of Licensee and shall include information
for gross sales of each product classification of the Licensed Products shipped,
distributed and/or sold by Licensee during the Royalty Period, returns actually
credited, computation of Net Sales and royalty due, and any other information
Licensor may from time to time reasonably request. Such statements shall be
furnished to Licensor whether or not any Licensed Products have been shipped,
distributed and/or sold, and whether or not Actual Royalties have been earned
during the Royalty Period. Statements shall be in a form acceptable to Licensor
and consistent with Schedule C hereto.
(b) The amount in United States dollars shown in Licensee's royalty
statements as being due Licensor shall be paid simultaneously with the
submission of such statements. In the event that the amount credited for returns
during any Royalty Period exceeds Licensee's royalty obligation to Licensor for
such period, Licensee may use such amount as a credit against future royalty
obligations of Licensee during the License Periods of this Agreement. In no
event, however, shall the amount credited for returns during any Royalty Period
be used upon
5
<PAGE>
termination or expiration of this Agreement as a credit against past royalty
obligations of or royalty payments made by Licensee. In no circumstances shall
Licensor be obligated to pay any amount to Licensee upon termination or
expiration of this Agreement on account of credits accrued by Licensee for
returns.
(c) Licensee's royalty statements and all amounts payable to Licensor by
Licensee shall be submitted to:
Winning Ways, Inc.
9700 Commerce Parkway
Lenexa, Kansas 66219
Attn: Larry Graveel
or such other address as the Licensor may direct.
(d) The receipt and/or acceptance by Licensor of any of the statements
furnished or royalties paid hereunder to Licensor (or the cashing of any royalty
checks paid hereunder) shall not preclude Licensor from questioning the
correctness thereof at any time and, in the event that any inconsistencies or
mistakes are discovered in such statements or payments, they shall immediately
be rectified by Licensee and the appropriate payment shall be made by Licensee.
(e) All payments made hereunder shall be in United States dollars,
unless otherwise specifically agreed upon by the parties. The exchange rate for
converting foreign currencies into United States dollars shall be the exchange
rate of the Royal Bank of Canada in effect on the royalty due date.
(f) Time is of the essence with respect to all payments to be made
hereunder by Licensee. Interest at a rate of the lesser of one and one-half
percent (1 1/2%) per month or the maximum rate allowed by law, compounded daily,
shall accrue on any amount due Licensor hereunder from and after the date upon
which the payment is due until the date of receipt of
6
<PAGE>
payment. Collection of interest by Licensor shall be without prejudice to any
other rights and remedies available to Licensor.
5. AUDIT.
-----
(a) Licensee agrees to keep accurate books of account and records
at its principal place of business covering all transactions relating to the
license granted herein and pertaining to the items required to be shown in the
Licensee's royalty statements to be submitted pursuant hereto, including without
limitation, invoices, correspondence, banking, financial and other records.
Licensor and its duly authorized representatives shall have the right, upon
reasonable notice, at all reasonable hours of the day, to audit Licensee's books
of account and records, and all other documents and material in the possession
or under the control of Licensee, with respect to the subject matter and the
terms of this Agreement and to make copies and extracts thereof. In the event
that any such audit reveals an underpayment by Licensee, Licensee shall
immediately upon demand remit payment to Licensor in the amount of such
underpayment plus interest calculated at the rate of the lesser of one and one-
half percent (1 1/2%) per month or the maximum rate allowed by law, compounded
daily, calculated from the date such payment(s) were actually due until the date
such payment is actually made. Collection of interest by Licensor shall be
without prejudice to any other rights and remedies available to Licensor. In the
event that any such underpayment is greater than Five Thousand Dollars ($5,000),
or two percent (2%) of the royalties due for the period audited, whichever is
less, Licensee shall reimburse Licensor for the costs and expenses of such
audit.
(b) All books of account and records of Licensee covering all
transactions relating to the license granted herein shall be retained by
Licensee for at least two (2) years after the expiration or termination of this
Agreement for possible inspection by Licensor.
7
<PAGE>
6. QUALITY, NOTICES, APPROVALS AND SAMPLES
---------------------------------------
(a) The Licensed Products and the Promotional and Packaging
Material: shall be of high quality in design, material and workmanship so as to
be suited to the favorable advantage, protection and enhancement of the
Trademarks and the Rights; in no event shall be of lesser quality than the best
quality of similar products and promotional, advertising, and packaging material
presently shipped, distributed, sold and/or used by Licensee in the Licensed
Territory; shall be safe and suitable for their intended purpose; and shall be
manufactured, sold and/or distributed in full conformance with all applicable
laws and regulations.
(b) Licensee may not manufacture, use, offer for sale, sell,
advertise, promote, ship and/or distribute any Licensed Products, or any
Promotional and Packaging Material relating to the Licensed Products, until it
has received written approval of same in the manner provided herein from
Licensor. Such approval shall not be unreasonably withheld. Should Licensor fail
to approve in writing any of the submissions furnished it by Licensee within
fourteen (14) business days from the date of submission thereof, such failure
shall be considered to be a disapproval thereof.
(c) Before commencing or authorizing third parties to commence the
design or development of Licensed Products or Promotional and Packaging Material
which have not been previously approved in writing by Licensor, Licensee shall
submit at its own cost to Licensor, for approval, a written description of the
concept of such Licensed Product and/or Promotional and Packaging Material,
including full information on the nature and function of the proposed item and a
general description of how the Rights and/or the Trademarks and other material
will be used thereon. Licensee shall next submit at its own cost to Licensor,
for approval, complete layouts and descriptions of the proposed Licensed
Products and/or Promotional and Packaging Material showing exactly how and where
the Rights and the
8
<PAGE>
Trademarks and all other art work and wording will be used. Thereafter,
Licensee shall submit at its own cost to Licensor, for approval, pre-production
models or prototype samples of the proposed Licensed Products and/or Promotional
and Packaging Material, if not adopted from Licensor's designs. Finally,
Licensee shall submit at its own cost to Licensor, for approval, actual proofs
or final pre-production samples of the proposed Licensed Products and/or
Promotional and Packaging Material. Licensee shall not proceed beyond any of
the above stages where approval is required without first securing the express
written approval of Licensor.
(d) Upon commencement of manufacture, shipment and distribution of
the Licensed Products and/or Promotional and Packaging Material relating to the
Licensed Products after all required approvals have been given by Licensor,
Licensee shall submit, at its own cost, to Licensor an additional twelve (12)
sets of the Licensed Products and two (2) sets of the Promotional and Packaging
Material.
(e) Licensor may periodically during any License Period of this
Agreement require that Licensee submit to Licensor, at no cost to Licensor, up
to twelve (12) additional sets of the Licensed Products, and the Promotional and
Packaging Material relating to the Licensed Products, for subsequent review of
the quality of and copyright and trademark usage and notice on same and for any
other purpose that Licensor deems appropriate.
(f) After the required approval has been secured from Licensor
pursuant to Section 6(c) above, Licensee shall not depart from the
specifications, quality or appearance thereof in any respect without first
obtaining the express prior written approval of Licensor. Licensee shall make
submissions to Licensor and obtain approvals in the manner required above each
time new or revised concepts, layouts, descriptions, art work, models, prototype
samples and/or production samples are created, developed and/or adopted by
and/or for Licensee.
9
<PAGE>
(g) Subject to reasonable obligations of confidentiality by
Licensor, Licensee agrees that to assure that the provisions of this Agreement
are being observed, it will allow Licensor or its designees to enter Licensee's
premises and/or the premises where the Licensed Products are being manufactured
and the facilities in which the Licensed Products are being packaged, during
regular business hours, and upon reasonable notice, for the purpose of
inspecting the Licensed Products and the Promotional and Packaging Material
relating to the Licensed Products.
(h) In order to ensure that the Licensed Products and the
Promotional and Packaging Materials are manufactured, offered for sale, sold,
advertised, promoted, shipped and/or distributed as set forth herein, in the
event that the quality standards and/or trademark and copyright usage and notice
requirements herein referred to are not met, or in the event that said quality
standards and/or trademark and copyright usage and notice requirements are not
maintained throughout the period of manufacture, offering for sale, sale,
advertising, promotion, shipment and/or distribution of any Licensed Products
hereunder, then, in addition to any other rights available to Licensor under
this Agreement or otherwise, upon receipt of written notice from Licensor,
Licensee shall immediately discontinue any and all manufacture, offering for
sale, sale, advertising, promotion, shipment and distribution of such Licensed
Products and/or Promotional and Packaging Material in connection with which the
said quality standards and/or trademark and copyright usage and notice
requirements have not been met.
7. ARTWORK.
-------
(a) The form and content of all artwork for use in any media shall
be subject to the express written approval of Licensor prior to its use by
Licensee in connection with the Licensed Products or the Promotional and
Packaging Material. If Licensee desires to use artwork previously approved by
Licensor on a different Licensed Product or on different
10
<PAGE>
Promotional and Packaging Material, Licensee shall first submit samples of such
proposed use to Licensor for approval thereof. Any artwork or graphics provided
to Licensee by Licensor may only be used by Licensee on the Licensed Products
which utilize Licensor's Trademarks.
(b) Except as provided in Section 18(c) of this Agreement,
notwithstanding any rights otherwise granted to Licensee by state or federal
trademark or copyright laws or otherwise, Licensee shall not without express
prior written permission of Licensor directly or indirectly use, or authorize
others to use, in any manner whatsoever, any of the artwork or designs or other
material involving the Rights and/or Trademarks, or any reproductions thereof,
following the expiration or termination of this Agreement, notwithstanding their
invention or use by Licensee, and Licensee shall destroy all such artwork and/or
designs and/or other material and furnish to Licensor satisfactory evidence of
their destruction, or deliver the same to Licensor. All artwork shall be deemed
created as a work made for hire in favor of Licensor and, to the extent it is
not, all rights in the artwork shall be assigned to Licensor. Licensee shall
represent that it has equivalent agreements in place for all personnel who are
not full-time employees of Licensee.
8. OWNERSHIP OF RIGHTS.
-------------------
(a) It is understood and agreed that Licensor is the sole and
exclusive holder of all right, title and interest in and to the Rights and/or
the Trademarks for the duration of this Agreement.
(b) Nothing contained in this Agreement shall be construed as an
assignment to Licensee of any right, title and/or interest in or to the Rights
and/or to the Trademarks, it being understood that all right, title and interest
relating thereto are expressly reserved by Licensor except for the Rights being
licensed hereunder.
11
<PAGE>
(c) No license is being granted hereunder as to any products other
than the Licensed Products and only in the Licensed Territory. Licensor reserves
for such use as it may determine all rights of any kind other than the Rights
herein licensed to Licensee.
(d) Licensee shall not use the Rights and/or the Trademarks other
than as permitted herein and, in particular, shall not incorporate the Rights
and/or the Trademarks in Licensee's corporate or business name or in any of
Licensee's other trademarks or service marks, in any manner whatsoever. Licensee
agrees that in using the Rights and Trademarks, it will in no way represent that
it has any rights, title and/or interest in and/or to the Rights and/or the
Trademarks other than those expressly granted under the terms of this Agreement.
Licensee further agrees that it will not use and/or authorize the use, either
during or after the term of this Agreement, of any configuration, trademark,
trade name or other designation confusingly similar to the Rights and/or any of
the Trademarks.
9. GOODWILL AND PROMOTIONAL VALUE.
------------------------------
(a) Licensee recognizes the value of the goodwill associated with the
Rights and/or the Trademarks and acknowledges that the Rights and/or the
Trademarks, and all rights therein and the goodwill pertaining thereto, belong
exclusively to Licensor. Licensee further recognizes and acknowledges that the
Rights and/or the Trademarks have acquired secondary meaning in the mind of the
public. Licensee agrees that during any License Period of this Agreement, or
thereafter, it will not dispute or attack the title or any rights of Licensor in
and to the Rights and/or the Trademarks or the validity of the license granted
herein.
(b) Licensee agrees that its use of the Rights and/or the Trademarks
shall inure to the benefit of Licensor and that Licensee shall not, at any time,
acquire any rights in the Rights and/or the Trademarks by virtue of any use it
may make of the Rights and/or of the Trademarks. Licensee hereby assigns to
Licensor any and all trademarks and trademark rights
12
<PAGE>
in the Trademarks and/or Rights created by such use, together with the goodwill
of the business in connection with which such Trademarks are used.
(c) Licensee acknowledges that Licensor is entering into this
Agreement not only in consideration of the royalties paid hereunder but also in
recognition of the intrinsic benefit to proper maintenance of the reputation of
Licensor as a result of the manufacture, offering for sale, sale, advertising,
promotion, shipment and distribution of the Licensed Products by Licensee in
accordance with the provisions of this Agreement. Licensee therefore
acknowledges that its failure to manufacture, offer for sale, sell, advertise,
promote, ship and distribute the Licensed Products in accordance with the
provisions of this Agreement, including without limitation its obligations to
protect and enhance the value of the Trademarks and the Rights, will result in
immediate and irreparable damage to Licensor in connection with promotion of the
Rights and/or the Trademarks, and that there will be no adequate remedy at law
for the failure by Licensee to abide by such provisions of this Agreement.
Accordingly, Licensee agrees that in the event of any breach by Licensee, in
addition to all other remedies available to it hereunder, Licensor may at its
sole option commence an action in any court having jurisdiction or an
arbitration proceeding, and shall be entitled to injunctive relief against any
such breach as well as such other relief as any arbitrator(s) or court with
jurisdiction may deem just and proper. Licensee waives all requirements of a
bond in connection therewith.
10. TRADEMARK AND COPYRIGHT PROTECTION.
----------------------------------
(a) The license granted herein is conditioned upon Licensee's full
and complete compliance with the provisions of the trademark and copyright laws
of the United States and any foreign country or countries in the Licensed
Territory.
(b) Licensee agrees to permanently affix to all Licensed Products and
all Promotional and Packaging Material the appropriate legends, markings and/or
notices as
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<PAGE>
required by Licensor, to give appropriate notice to the consuming public of
Licensor's right, title and interest therein.
(c) Licensee agrees that it will not use, distribute or sell any
Licensed Products or distribute any Promotional or Packaging Materials which do
not carry notices meeting the requirements of this Agreement.
(d) Licensee shall use no other markings, legends and/or notices on
or in association with the Licensed Products or on or in association with the
Promotional and Packaging Material other than those specified above and such
other markings, legends and/or notices as may be specified by Licensor, without
first obtaining Licensor's express written approval.
(e) Licensor has the right, but not the obligation, to obtain at
its own cost, appropriate trademark and copyright protection for the Rights
and/or the Trademarks in association with the Licensed Products in any and all
countries of the Licensed Territory, in the name of Licensor or in the name of
any third party selected by Licensor.
(f) Licensee shall keep appropriate records (including copies of
pertinent invoices and correspondence), and advise Licensor, relating to the
dates when each of the Licensed Products is first placed on sale or sold in each
country of the Licensed Territory, and the dates of first use in each country of
each different Trademark and/or of the Rights on the Licensed Products and
Promotional and Packaging Material. If requested to do so by Licensor, Licensee
also agrees to supply Licensor with samples, facsimiles or photographs of the
trademark usages in question and other information which will enable Licensor to
complete and obtain trademark applications or registrations, or to evaluate or
oppose any trademark or design applications, registrations, or uses of third
parties.
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<PAGE>
(g) Licensee agrees that it shall not at any time within the
Licensed Territory or anywhere else in the world apply for any copyright or
trademark protection which would affect Licensor's ownership of any rights in
the Rights and/or the Trademarks, nor file any document with any governmental
authority or assert directly or indirectly any right or take any other action
which could affect Licensor's ownership of the Rights and/or the Trademarks, or
aid or abet anyone else in doing so.
(h) Licensee agrees to cooperate in all reasonable respects with
Licensor in protecting and defending the Rights and/or the Trademarks. In the
event that any claim or problem arises with respect to the protection of the
Rights and/or the Trademarks in the Licensed Territory, Licensee shall promptly
advise Licensor on in writing of the nature and extent of same. Licensor has no
obligation to take any action whatsoever in the event that any claim or problem
arises with respect to the protection of the Rights and/or the Trademarks.
11. INFRINGEMENTS.
-------------
(a) Licensee agrees to cooperate with Licensor in the enforcement
of Licensor's right in the Rights and/or the Trademarks. Licensee agrees to
promptly notify Licensor in writing of any infringements or imitations by third
parties of the Rights, the Trademarks, the Licensed Products and/or the
Promotional and Packaging Material which may come to Licensee's attention.
Licensor shall have sole right to determine whether or not any action shall be
taken on account of any such infringement or imitation. Licensor, if it so
desires, may commence or prosecute any claims or suits in its own name or in the
name of Licensee, or join Licensee as a party thereto; provided, however, that
Licensee shall not be required to incur more than nominal out-of-pocket expense
as a consequence of being joined as a party by Licensor. Licensee agrees not to
contact any third party, not to make any demands
15
<PAGE>
or claims, and not to institute any suit or take any other action on account of
such infringements or imitations without obtaining the prior express written
permission of Licensor.
(b) With respect to all claims and suits involving the Rights and/or
the Trademarks, including suits in which Licensee is joined as a party, Licensor
shall have the sole right to employ counsel of its choosing and to direct the
handling of the litigation and any settlement thereof. Licensor shall be
entitled to receive and retain all amounts awarded to Licensor as damages,
profits or otherwise in connection with such suits.
12. INDEMNIFICATION
---------------
Licensee hereby agrees to defend, indemnify and hold harmless
Licensor, its officers, directors, employees, partners and agents, from and
against any and all claims, demands, causes of action and judgments ("Claims")
arising out of or in connection with: (a) Licensee's design, manufacture,
distribution, shipment, advertising, promotion, offering for sale and/or sale of
the Licensed Products and/or the Promotional and Packaging Material, including
but not limited to any allegedly unauthorized use by Licensee of any trademark,
copyright, patent, process, idea, method, device, logo, symbol, insignia, name,
term or material other than those licensed herein; and (b) any alleged defect(s)
of the Licensed Products and/or the Promotional and Packaging Material.
With respect to the foregoing indemnity, Licensee agrees to defend and
hold Licensor harmless at no cost or expense to Licensor whatsoever, including,
but not limited to, attorneys' fees and court costs. Licensor shall have
approval over Licensee's selection of counsel and be kept apprised of all
developments. Under no circumstances shall Licensee have the right to settle or
otherwise compromise any claim without the prior written consent of Licensor.
Licensor shall have the right to defend itself in any such action or proceeding
with attorneys of Licensor's selection.
16
<PAGE>
13. INSURANCE.
---------
Licensee shall, throughout the License Period(s) of this Agreement
and for three (3) years after the expiration of this Agreement, obtain and
maintain at its own cost and expense from a qualified insurance company
acceptable to Licensor, comprehensive general liability insurance, the form of
which must be acceptable to Licensor, naming Licensor as an additional insured.
Such policy shall provide protection against any and all claims, demands and
causes of action arising out of any defects or failure to perform, alleged or
otherwise, of the Licensed Products or any material used in connection therewith
or any use thereof. The amount of coverage shall be a minimum of One Million
Dollars ($1,000,000) combined single limit. The policy shall provide for twenty
(20) days' notice to Licensor from the insurer by Registered or Certified Mail,
return receipt requested, in the event of any modification, cancellation or
termination. Licensee agrees to furnish Licensor a certificate of insurance
evidencing same within thirty (30) days after execution of this Agreement, and
in no event shall Licensee manufacture, offer for sale, sell, advertise,
promote, distribute, ship and/or distribute the Licensed Products or Promotional
and Packaging Material prior to receipt by Licensor of such evidence of
insurance.
14. EXPLOITATION BY LICENSEE.
------------------------
(a) Licensee agrees to commence distribution, shipment and sale of
all of the Licensed Products in sufficient quantities to meet the reasonably
anticipated demand therefor throughout the Licensed Territory within six (6)
months after the commencement of the First License Period of this Agreement. In
the event of Licensee's failure to comply with this requirement, in addition to
all other remedies available to it, Licensor shall have the option to terminate
this Agreement upon mailing notice of such termination to Licensee.
17
<PAGE>
(b) Licensee agrees that during all License Periods of this
Agreement, Licensee will continue to diligently and continuously distribute,
ship and sell each of the Licensed Products throughout the Licensed Territory
and that it will use its best efforts to make and maintain adequate arrangements
for the distribution, shipment and sale necessary to meet the demand for all
such Licensed Products throughout the Licensed Territory. Licensee further
agrees to exercise all reasonable efforts to advertise and promote the Licensed
Products at its own expense throughout the term of this Agreement as widely as
practicable within the Licensed Territory, to the best advantage and enhancement
of the Trademarks and the Rights.
(c) Licensee will not discriminate against the Licensed Products by
granting commissions/discounts to salesmen, dealers and/or distributors in favor
of Licensee's other similar products.
15. PREMIUMS, PROMOTIONS, COMBINATION PROGRAMS AND SECONDS.
------------------------------------------------------
(a) Under no circumstances shall Licensee have any right to sell or
otherwise utilize the Licensed Products as premiums or promotional items.
Licensor shall have and retain the sole and exclusive right to utilize or
license third parties to utilize any of the Trademarks and Rights granted herein
in connection with any premium, giveaway, mail order, fund raising, promotional
arrangement or fan club (collectively referred to as "Promotional Products"),
which retained right may be exercised by Licensor concurrently with the Rights
granted to Licensee hereunder.
(b) Licensee agrees not to sell the Licensed Products in
combination with other products ("Combination Program") for one total
combination price without the prior written consent of Licensor. If such consent
is granted, the royalty shall be based upon the total combination price paid for
all of the products included in the Combination Program.
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<PAGE>
(c) Licensee agrees not to offer for sale, sell, ship, advertise,
promote, distribute and/or use for any purpose whatsoever, and/or to permit any
third party to offer for sale, sell, ship, advertise, promote, distribute and/or
use for any purpose whatsoever, any Licensed Products and/or Promotional and
Packaging Material relating to the Licensed Products which are damaged,
defective, seconds or otherwise fail to meet the specifications and/or quality
standards and/or trademark and copyright usage and notice requirements of this
Agreement.
16. ASSIGNABILITY AND SUBLICENSING.
------------------------------
The license granted hereunder is and shall be personal to Licensee
and shall not be assigned by any act of Licensee or by operation of law or
otherwise encumbered. A change in the stock ownership of Licensee representing
fifty percent (50%) or more of the stock shall be deemed to be an assignment of
this License. Licensee shall not have the Licensed Products or any portion
thereof manufactured for Licensee by a third party unless Licensee first obtains
the express written approval of Licensor, and such manufacturer shall have
signed an agreement in the form attached hereto as Schedule D. Licensee shall
have no right to grant any sublicenses without Licensor's prior express written
approval. Any attempt on the part of Licensee to arrange for manufacture by a
third party or to sublicense (except as provided herein), assign, encumber or
alter its rights under this Agreement by operation of law or otherwise,
including without limitation entry by Licensee into any joint venture
arrangement or any material change in the ownership or key management of
Licensee, without reasonable notice to and prior written approval by Licensor
shall result in the automatic termination of this Agreement, and all rights
granted hereunder shall immediately revert to Licensor.
19
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17. TERMINATION.
-----------
(a) Licensor's Right of Termination.
-------------------------------
(i) Immediate Right of Termination. In addition to the
------------------------------
automatic termination provisions and/or termination rights provided elsewhere in
this Agreement, and notwithstanding any attempts by Licensee to cure defaults,
Licensor shall have the right immediately to terminate this Agreement by giving
written notice to Licensee if Licensee does any of the following:
a. Manufactures, offers for sale, sells, advertises,
promotes, ships, distributes and/or uses in any way any Licensed Product and/or
Promotional and Packaging Material without having the prior written approval of
Licensor as provided for in this Agreement;
b. Continues to manufacture, offer for sale, sell,
advertise, promote, ship, distribute and/or use in any way any Licensed Product
and/or Promotional and Packaging Material after receipt of notice from Licensor
disapproving same;
c. Fails to carry on the Licensed Products or
Promotional or Packaging Material the notices specified by Licensor, as required
herein;
d. Becomes subject to any voluntary or involuntary order
of any governmental agency involving the recall or citation of any of the
Licensed Products and/or Promotion and Packaging Material because of safety,
health or other hazards or risks to the public;
e. Directly or indirectly through its controlling
shareholders or any of its officers, directors or employees, takes any action in
connection with the manufacture, offering for sale, sale, advertising,
promotion, shipment and/or distribution of the
20
<PAGE>
Licensed Products and/or the Promotional and Packaging Material which damages or
reflects adversely upon Licensor, the Rights and/or the Trademarks;
f. Breaches any of the provisions of this Agreement relating
to the unauthorized assertion of rights in the Rights and/or the Trademarks;
g. Two or more times during a twelve-month period fails to
make timely payment of royalties when due or fails to make timely submission of
royalty statements when due;
h. Uses the Trademarks or the Rights for the purpose, in
whole or in part, of promoting any service or product other than the Licensed
Products without the express prior consent of Licensor in writing; or
i. Fails to obtain or maintain insurance as required by the
provisions of this Agreement.
(ii) Curable Breaches by Licensee. If Licensee: commits a material
----------------------------
breach of any other terms of this Agreement; or files a petition in bankruptcy
or is adjudicated a bankrupt or insolvent, or makes an assignment for the
benefit of creditors, or an arrangement pursuant to any bankruptcy law, or
discontinues its business, or if a receiver is appointed for it or its business
and is not discharged within thirty (30) days; and Licensee fails to cure such
breach or event and furnish reasonable proof of its cure to Licensor within
fifteen (15) days after receiving written notice of breach and a demand to cure
from Licensor, Licensor shall then have the right to terminate this Agreement by
giving written notice to Licensee.
(b) Licensee's Right of Termination. If Licensor commits a
-------------------------------
material breach of any of the terms of this Agreement and fails to cure such
breach and furnish reasonable proof of its cure to Licensee within fifteen (15)
days after receiving written notice of breach, Licensee shall have the right to
terminate this Agreement by giving written notice to Licensor.
21
<PAGE>
Termination of this Agreement shall not relieve Licensee of any royalty
obligations which have accrued prior to termination.
18. POST-TERMINATION AND EXPIRATION RIGHTS AND OBLIGATIONS.
------------------------------------------------------
(a) Except as provided in Section 18(c) below, upon termination of
this Agreement, Licensee and its receivers, representatives, trustees, agents,
administrators, successors and/or permitted assigns shall have no right to
manufacture, offer for sale, sell, ship, advertise, promote and/or distribute
Licensed Products or to use in any way the Rights, the Trademarks, or any
Promotional and Packaging Material relating to the Licensed Products.
(b) Upon expiration of this Agreement or termination by Licensor,
notwithstanding anything to the contrary herein, all royalties on sales,
shipments and/or distributions theretofor made shall become immediately due and
payable and no Guaranteed Minimum Royalty paid to Licensor shall be refunded.
(c) Upon expiration of this Agreement, or upon termination of this
Agreement for any reason except those set forth in Section 16 or Section 17(a)
above, subject to the requirements of this Agreement with respect to payment and
reporting of royalties, Licensee may, for a period of six (6) months, dispose of
all finished Licensed Products which are on hand upon the expiration of the
License Period then in effect, and all Licensed Products which are in production
and in transit, provided that the royalties with respect to that period are paid
and the appropriate statements are furnished for that period. Licensee shall not
accelerate or increase the manufacture or production of Licensed Products in
anticipation of expiration of this Agreement. During such six (6) month period,
Licensor itself may use or license the use of the Rights and/or the Trademarks
in any manner at any time anywhere in the world as Licensor sees fit.
22
<PAGE>
(d) Subject to Section 18(c) above, after the expiration or
termination of this Agreement, Licensee shall refrain from further use of the
Rights and/or the Trademarks or any further reference to them, either directly
or indirectly, in connection with the manufacture, offering for sale, sale,
advertising, promotion, shipment and/or distribution of Licensee's products.
Licensee shall destroy all artwork, films, transparencies, separations, printing
plates, molds and other materials which reproduce the Licensed Products and/or
Promotional and Packaging Material relating to the Licensed Products, and shall
give evidence satisfactory to Licensor of their destruction or, at Licensor's
option, deliver the same to Licensor). Licensee shall be responsible to
Licensor for any damages caused by the unauthorized use by Licensee or by others
of all such materials which are not destroyed pursuant to this Agreement.
(e) Licensee acknowledges that its failure to cease the manufacture,
offering for sale, sale, advertising, promotion, shipment and/or distribution of
the Licensed Products and/or use in any way of the Promotional and Packaging
Material relating to the Licensed Products at the termination or expiration of
this Agreement will result in immediate and irreparable damage to Licensor and
to the rights of other licensees of Licensor. Licensee acknowledges and admits
that there is no adequate remedy at law for failure to cease such activities and
Licensee agrees that in the event of such failure, in addition to all other
remedies available to it hereunder, Licensor at its sole option may commence an
action in any court having jurisdiction or an arbitration proceeding, and shall
be entitled to equitable relief by way of injunctive relief and such other
relief as any arbitrator(s) or court with jurisdiction may deem just and proper.
Licensee waives all requirement of a bond in connection with Licensor's pursuit
of injunctive relief.
23
<PAGE>
19. FINAL STATEMENT UPON TERMINATION OR EXPIRATION.
----------------------------------------------
Within thirty (30) days after termination or expiration of this
Agreement, as the case may be, Licensee shall deliver to Licensor a statement
indicating the number and description of the finished Licensed Products which it
had on hand as of the expiration or termination date. Licensor shall have the
option upon prior written notice to Licensee of conducting a physical inventory
at the time of expiration or termination and/or at a later date in order to
ascertain or verify such statement. In the event that Licensee refuses to
permit Licensor or its agent to conduct such physical inventory, Licensee shall
forfeit any rights hereunder to dispose of such inventory. In addition to such
forfeiture, Licensor shall have recourse to all other remedies available to it.
20. NOTICES.
-------
All notices or other communications required or desired to be sent to
either party shall be in writing and sent by Registered or Certified Mail,
postage prepaid, return receipt requested, or by facsimile or telegram, charges
prepaid. Such notices, including facsimile or telegram, shall be effective on
the date sent, provided that any notice sent by facsimile also shall be sent by
regular mail. The addresses for Licensor and Licensee shall be as set forth on
Schedule B. Either party may change its address by notice in writing to the
other party.
21. RELATIONSHIP OF THE PARTIES.
---------------------------
This Agreement does not create a partnership or joint venture between
the parties and neither party shall have any power to obligate or bind the other
in any manner whatsoever.
22. APPLICABLE LAW AND ATTORNEY'S FEES.
----------------------------------
This Agreement shall be governed by the law of the state of Kansas
and any claims arising hereunder shall, at Licensor's election, be prosecuted in
the appropriate court of said state or in the United States District Court
having jurisdiction for causes of action arising
24
<PAGE>
in the District in which the Licensor is located. In the event of any legal
dispute between the parties regarding this Agreement, the prevailing party shall
be entitled to recover reasonable attorney's fees and costs.
23. CAPTIONS.
--------
The captions used in connection with the Sections and Subsections of
this Agreement are inserted only for purpose of reference. Such captions shall
not be deemed to govern, limit, modify or in any other manner affect the scope,
meaning or intent of the provisions of this Agreement or any part thereof, nor
shall such captions otherwise be given any legal effect.
24. WAIVER.
------
(a) No waiver by either party of a breach or a default hereunder
shall be deemed a waiver by such party of a subsequent breach or default of a
like or similar nature.
(b) Resort by either party to any remedies referred to in this
Agreement or arising by reason of a breach of this Agreement by the other party
shall not be construed as a waiver by such party of its right to resort to any
and all other legal and equitable remedies available to it.
25. SURVIVAL OF THE RIGHTS.
----------------------
Any rights and obligations created by this Agreement and which by
necessary implication continue after its expiration or termination shall survive
such expiration or termination.
26. SEVERABILITY.
------------
In the event that any term or provision of this Agreement shall for
any reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other term or
provision, and this Agreement shall be
25
<PAGE>
interpreted and construed as if such term or provision, to the extent the same
shall have been held to be invalid, illegal or unenforceable, had never been
contained herein.
27. INTEGRATION.
-----------
This Agreement represents the entire understanding between the
parties hereto with respect to the subject matter hereof and supersedes all
previous representations, understandings or agreements, oral or written, between
the parties with respect to the subject matter hereof. This Agreement cannot
be modified except by a written instrument signed by the parties hereto.
28. NONCOMPETE.
----------
(a) For a period of three years immediately following the
termination of this Agreement, Licensee shall not sell Licensed products or
products similar to the Licensed Products to the customers that purchased
Licensed Products from Licensee during the term of this Agreement, unless such
customer was a customer of Licensee prior to the effective date of this
Agreement.
(b) During the term of this Agreement and for a period of three
years immediately following the termination of this Agreement, Licensee shall
not sell any products in the United States in the markets served by Licensor at
the time of termination, including, but not limited to, college bookstores,
resorts and corporate markets. Notwithstanding the foregoing, this restriction
shall not apply to sales by Licensee of products under the Softwear Athletics
brand to (i) the Richmont Corporation or its subsidiaries or affiliated
companies, or (ii) other customers that are not customers of Licensor.
26
<PAGE>
By their execution below, the parties hereto have agreed to all of
the terms and conditions of this Agreement.
WINNING WAYS, INC. SOFTWEAR ATHLETICS, INC.
By: /s/ John L. Munglin By: /s/ [SIGNATURE APPEARS HERE]
------------------- -----------------------------
[BOTH PARTIES MUST ALSO SIGN SCHEDULE B]
27
<PAGE>
SCHEDULE A
----------
TRADEMARKS: GEAR FOR SPORTS
BIG COTTON
28
<PAGE>
SCHEDULE B
----------
LICENSED PRODUCTS: Adult Apparel, Headwear, Bags
FIRST LICENSE PERIOD: April 1, 1994 to September 30, 1995
SECOND LICENSE PERIOD: October 1, 1995 to September 30, 1996
THIRD LICENSE PERIOD: October 1, 1996 to September 30, 1997
LICENSED TERRITORY: Canada
ROYALTY PERCENTAGE: 10%
GUARANTEED MINIMUM ROYALTY
FIRST LICENSE PERIOD:
AMOUNT: $100,000 (US Dollars)
DUE DATE: April 1, 1994 -$25,000
January 15, 1995 -$18,750
April 15, 1995 -$18,750
July 15, 1995 -$18,750
October 15, 1995 -$18,750
SECOND LICENSE PERIOD:
AMOUNT: $200,000 (US Dollars)
DUE DATE: January 15, 1996 -$50,000
April 15, 1996 -$50,000
July 15, 1996 -$50,000
October 15, 1996 -$50,000
THIRD LICENSE PERIOD:
AMOUNT: $300,000 (US Dollars)
DUE DATE: January 15, 1997 -$75,000
April 15, 1997 -$75,000
July 15, 1997 -$75,000
October 15, 1997 -$75,000
ADDRESSES FOR NOTICES
LICENSOR: LICENSEE:
WINNING WAYS, INC. SOFTWEAR ATHLETICS, INC.
9700 Commerce Parkway 523 Cleveland Cres S.E.
Lenexa, Kansas 66212 Calgary, Alberta
Attn: Larry Graveel Canada T2G 4RB
ACKNOWLEDGED AND APPROVED:
WINNING WAYS, INC. SOFTWEAR ATHLETICS, INC.
By: /s/ [SIGNATURE APPEARS HERE] By: /s/ [SIGNATURE APPEARS HERE]
----------------------------- ------------------------------
29
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement
No. 333-24189 of GFSI, Inc. of our report dated January 24, 1997 (February 27,
1997 as to Note 1) on the financial statements of GFSI, Inc. (formerly Winning
Ways, Inc.) as of and for the year ended June 30, 1996, appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the use in this Amendment No. 2 to Registration Statement of
GFSI, Inc. on Form S-4 of our report dated January 24, 1997 (February 27, 1997
as to Note 2) on the balance sheet of GFSI, Inc as of Janaury 23, 1997,
appearing in the Prospectus, which is part of 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
July 22, 1997
<PAGE>
EXHIBIT 23.3
DONNELLY MEINERS JORDAN KLINE
A PROFESSIONAL CORPORATION
- -------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Amendment No. 2 to the Registration
Statement No.333-24189 of GFSI, Inc. of our report dated July 26,
1996 on the financial statements of Winning Ways, Inc. as of and
for each of the two years in the period ended June 30, 1995
appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us under the headings "Summary
Financial Data", "Selected Financial Data" and "Experts" in such
Prospectus.
Kansas City, Missouri
July 22, 1997
<PAGE>
LETTER OF TRANSMITTAL
FOR TENDERS OF
$125,000,000 Aggregate Principal Amount of
95/8% Series A Senior Subordinated Notes due 2007
GFSI, INC.
Pursuant to the Prospectus dated
________ __, 1997 of GFSI, Inc.
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON THE EARLIER
OF ________ __, 1997 (UNLESS EXTENDED) OR THE DATE ON WHICH 100% OF THE OLD
NOTES ARE VALIDLY TENDERED AND NOT WITHDRAWN (THE "EXPIRATION DATE"). TENDERED
OLD NOTES MAY BE WITHDRAWN AT ANY TIME ON OR PRIOR TO THE EXPIRATION DATE OF THE
EXCHANGE OFFER.
- --------------------------------------------------------------------------------
Deliver to: Fleet National Bank, Exchange Agent:
<TABLE>
<CAPTION>
By Mail: By Overnight Courier: By Hand:
<S> <C> <C>
Fleet National Bank Fleet National Bank Fleet National Bank
Mail Code: CTOPT06D Mail Code: CTOPT06D Corporate Trust Operations
Corporate Trust Operations Corporate Trust Operations Department
Department Department Customer Service Window
P.O. Box 1440 1 Talcott Plaza, 6th Floor 1 Talcott Plaza, 5th Floor
Hartford, Connecticut 06143 Hartford, Connecticut 06120 Hartford, Connecticut 06120
By Facsimile:
(860) 986-7908
</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.
The undersigned (the "Holder") acknowledges that he or she has received the
Prospectus,
<PAGE>
dated ________ __, 1997 (the "Prospectus"), of GFSI, 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 an aggregate principal amount
of up to $125,000,000 of its 95/8% Series B Senior Subordinated Notes due 2007
(the "New Notes") for a like principal amount of the issued and outstanding
95/8% Series A Senior Subordinated Notes due 2007 (the "Old Notes") of the
Company from the holders thereof.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. The New Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid on the
Old Notes, from February 27, 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 interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid,
from February 27, 1997. Old Notes accepted for exchange will cease to accrue
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
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
agreement dated February 27, 1997 among the Company and the original purchasers
of Old Notes (the "Registration Rights Agreement"), 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 the earlier of _________ __, 1997 (unless the Exchange Offer
is extended by the Company) or the date on which 100% of the Old Notes are
validly tendered and not withdrawn (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 principal amount 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 $1,000 principal amount of Old Notes designated
herein held by the undersigned and tendered hereby for $1,000 principal amount
of the New Notes. New Notes will be issued only in integral multiples of $1,000
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 incapacity
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 Agreement 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 Notes" 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 (ii) 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 New Notes issued in consideration of
Old Notes accepted for exchange, and/or any Old Notes for any principal
-4-
<PAGE>
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 Indentures.
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 Agreement,
the term "Expiration Date" means 5:00 p.m., New York City time, on the earlier
of _________ __, 1997 (or such later date to which the Company may, in its sole
discretion, extend the Exchange Offer) or the date on which 100% of the Old
Notes are validly tendered and not withdrawn. 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 of 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,
-6-
<PAGE>
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 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 $1,000. 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"
-7-
<PAGE>
below. The entire 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
-8-
<PAGE>
irregularities. Tenders 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 thereon on the date of exchange.
Instead, interest accruing from November 7, 1996 through the Expiration Date
will be payable on the New Notes on May 15, 1997, 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 Senior Notes."
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.
IMPORTANT TAX INFORMATION
Under Federal income tax laws, a registered Holder of Old Notes or New
Notes is required to provide the Trustee (as payer) with such Holder's correct
TIN on Substitute Form W-9 below or otherwise establish a basis for exemption
from backup withholding. If such Holder is an individual, the TIN is his social
security number. If the Trustee is not provided with the correct TIN, a $50
penalty may be imposed by the Internal Revenue Service, and payments made to
such Holder with respect to Old Notes or New Notes may be subject to backup
withholding.
Certain Holders (including, among others, all corporations and certain
foreign persons) are not subject to these backup withholding and reporting
requirements. Exempt Holders should indicate their exempt status on Substitute
Form W-9. A foreign person may qualify as an exempt recipient by submitting to
the Trustee a properly completed Internal Revenue Service Form W-8, signed under
penalties of perjury, attesting to that Holder's exempt status. A Form W-8 can
be obtained from the Trustee.
If backup withholding applies, the Trustee is required to withhold 31% of
any payments made to the Holder or other payee. Backup withholding is not an
additional Federal income tax. Rather, the Federal income tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.
Purpose of Substitute Form W-9
To prevent backup withholding on payments made with respect to Old Notes or
New Notes the Holder is required to provide the Trustee with: (i) the Holder's
correct TIN by completing the form below, certifying that the TIN provided on
Substitute Form W-9 is correct (or that such Holder is awaiting a TIN) and that
(A) such Holder is exempt from backup withholding, (B) the Holder has not been
notified by the Internal Revenue Service that the Holder is subject to backup
withholding as a result of failure to report all interest or dividends or (C)
the Internal Revenue Service has notified the Holder that the Holder is no
longer subject to backup withholding; and (ii) if applicable, an adequate basis
for exemption.
-9-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PAYER'S NAME: FLEET NATIONAL BANK
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUBSTITUTE Part 1 - PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND Social Security Number
CERTIFY BY SIGNING AND DATING BELOW
Form W-9
Department of the
Treasury-Internal OR______________________
Revenue Service Employer Identification Number
- ------------------------------------------------------------------------------------------------------------------------
Part 2 - Certification - Under penalties of perjury, I certify that:
Payer's Request for (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting
Taxpayer for a number to be issued to me); and
Identification (2) I am not subject to backup withholding because (i) I am exempt from backup withholding,
Number ("TIN") (ii) I have not been notifiedby the Internal Revenue Service ("IRS") that I am subject to
backup withholding as a result of failure to report all interest or dividends, or (iii) the IRS
has notified me that I am no longer subject to backup withholding.
Certificate instruction -- You must cross out item 2) in Part 2 above if you have been notified
by the IRS that you are subject to backup withholding because of under reporting interest or
dividends on your tax return. However, if after being notified by the IRS that you were subject
to backup withholding you received another notification from the IRS stating that you are no
longer subject to backup withholding, do not cross out item (2).
---------------------------------------------------------------------------------------------------
Part 3
SIGNATURE....................................DATE........., 1997
Awaiting TIN |_|
NAME (Please Print).......................................
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART
3 OF SUBSTITUTE FORM W-9.
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (i) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (ii) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number within 60 days, 31% of all reportable
payments made to me thereafter will be withheld until I provide a number.
Signature................................................Date...................
Name (Please Print).............................................................
- --------------------------------------------------------------------------------
-10-
<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)
================================================================================
<TABLE>
<CAPTION>
DESCRIPTION OF OLD NOTES
(See Instructions 2 and 7)
====================================================================================================================================
Name(s) and Address(es) of Certificate(s)
Registered Holder(s) (Attach additional signed list, if necessary)
(Please fill in, in blank)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Aggregate Principal Amount of Principal Amount of Old
Certificate Number(s)(1) Old Notes Evidenced by Notes Tendered(2) (must be
Certificate(s) integral multiples of $1,000)
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
Total
====================================================================================================================================
</TABLE>
- --------
(1) Need not be completed if Old Notes are being tendered by book-entry
transfer.
(2) Unless otherwise indicated, the entire principal amount of Old Notes
evidenced by any certificate will be deemed to have been tendered.
-11-
<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
-12-
<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
Address
Area Code and Telephone Number
Dated
- --------------------------------------------------------------------------------
-13-
<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--
----------------------------------------------------------------- --------------------------------------------------------
<C> <S> <C> <C> <C>
1. Individual The individual 6. Sole proprietorship The owner(1)
2. Two or more individuals (joint The actual owner of the account 7. A valid trust, estate, or pens Legal entity (3)
account) or, if combined funds, the first trust
individual on the account.(2)
8. Corporate The corporation
3. Custodian account of a minor The minor(4) 9. Association, club, religious, The organization
(Uniform Gift to Minors Act) charitable, educational or
other tax-exempt organization
10. Partnership The partnership
4.a. The usual revocable savings The grantor-trustee 11. A broker or registered nominee The broker or nominee
trust (grantor is also trustee)
b. So-called trust account that is The actual owner 12. Account with the Department of The public entity
not a legal or valid trust Agriculture in the name of a
under State law public entity (such as a State
or local government, school
5. Sole proprietorship The owner(1) district, or prison) that
receives agricultural program
payments
</TABLE>
- --------
(1) You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your SSN or EIN.
(2) List first and circle the name of the person whose number you furnish.
(3) List first and circle the name of the legal trust, estate, or pension
trust. (Do not furnish the identifying number of the personal
representative or trustee unless the legal entity itself is not designated
in the account title.)
(4) Circle the minor's name and furnish the minor's social security number.
-14-
<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 U.C. 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:
o Payments to nonresident aliens subject to withholding under section 1441.
o Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
o Payments of patronage dividends not paid in money.
o Payments made by certain foreign organizations.
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.
o Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
o Payments described in section 6049(b)(5) to nonresident aliens.
o Payments on tax-free covenant bonds under section 1451.
o 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.
-15-
