<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 2, 1997
REGISTRATION NO. 333-24507
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WILLCOX & GIBBS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5085 22-3308457
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
WG APPAREL, INC.
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5085 22-3308458
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
LEADTEC SYSTEMS, INC.
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7373 13-3289318
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
J&E SEWING SUPPLIES, INC.
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NEW YORK 5085 13-3634953
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
W&G DAON, INC.
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5085 13-3629566
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
W&G TENNESSEE IMPORTS, INC.
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5085 13-3552610
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
CLINTON MANAGEMENT CORP.
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 5085 59-2647119
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
CLINTON MACHINERY CORPORATION
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5085 65-0065988
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
CLINTON LEASING CORP.
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 5085 59-261991
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CLINTON EQUIPMENT CORP.
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 5085 65-0457040
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
MACPHERSON MEISTERGRAM, INC.
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NORTH CAROLINA 5085 56-1148914
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
PARADISE COLOR INCORPORATED
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 5085 65-0066199
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
------------------------
900 MILIK STREET
CARTERET, NEW JERSEY 07008
(908) 541-6255
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
JOHN K. ZIEGLER, SR.
WILLCOX & GIBBS, INC.
900 MILIK STREET
CARTERET, NEW JERSEY 07008
(908) 541-6255
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
------------------------
WITH COPIES TO:
JOHN K. HOYNS, ESQ.
HUGHES HUBBARD & REED LLP
ONE BATTERY PARK PLAZA
NEW YORK, NEW YORK 10004
(212) 837-6762
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the Registration Statement becomes
effective.
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
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED UNIT OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
12 1/4% Series B Senior Notes Due 2003 $85,000,000(1) (2) $85,000,000(1) $25,758(3)
Guarantees of the 12 1/4% Series B Senior Notes
Due 2003 -- -- -- None(4)
</TABLE>
(1) Equals the aggregate principal amount of the securities registered.
(2) Pursuant to Rule 457(f)(2), the registration fee has been calculated using
the book value of the securities being registered.
(3) The registration fee was paid by the Company with the original filing of
this Registration Statement on April 3, 1997.
(4) Pursuant to Rule 457(n).
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.
<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.
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION, DATED JUNE 2, 1997
WILLCOX & GIBBS, INC.
OFFER TO EXCHANGE ITS 12 1/4% SERIES B SENIOR NOTES DUE 2003
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, FOR ANY AND ALL OF ITS OUTSTANDING
12 1/4% SERIES A SENIOR NOTES DUE 2003
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1997, UNLESS EXTENDED.
------------------------
Willcox & Gibbs, Inc. ("Willcox & Gibbs" or the "Company") hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus (this
"Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal" and, together with this Prospectus, the "Exchange Offer"), to
exchange $1,000 principal amount of its 12 1/4% Series B Senior Notes due 2003
(the "New Notes") which have been registered under the Securities Act of 1933,
as amended (the "Securities Act") pursuant to a registration statement (the
"Registration Statement") of which this Prospectus is a part, for each $1,000
principal amount of its outstanding 12 1/4% Series A Senior Notes due 2003 (the
"Old Notes"), of which $85,000,000 principal amount is outstanding as of the
date hereof. The Old Notes and the New Notes are sometimes collectively referred
to herein as the "Senior Notes." The Senior Notes are senior unsecured
obligations of the Company (except for the security interest in 65% of the
shares of a non-U.S. subsidiary) and are fully and unconditionally guaranteed on
a senior unsecured basis (the "Subsidiary Guarantees") by the Subsidiary
Guarantors (as defined herein). See "The Exchange Offer."
The Company will accept for exchange any and all validly tendered Old Notes
prior to 5:00 P.M., New York City time, on , 1997, unless extended (such
date, as it may be extended, the "Expiration Date"). Old Notes may be tendered
only in integral multiples of $1,000. 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. In the event the Company terminates the Exchange Offer and
does not accept for exchange any Old Notes, the Company will promptly return the
Old Notes to the holders thereof. The Company will not receive any proceeds from
the Exchange Offer. See "The Exchange Offer."
THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL ARE FIRST BEING MAILED TO
HOLDERS OF OLD NOTES ON , 1997.
SEE "RISK FACTORS" BEGINNING ON PAGE 21 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER.
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 New Notes will be obligations of the Company evidencing the same debt as
the Old Notes, and will be entitled to the benefits of the same indenture (the
"Indenture"). See "Description of Senior Notes." The form and terms of the New
Notes are generally the same as the form and terms of the Old Notes in all
material respects except that the New Notes have been registered under the
Securities Act and hence do not include certain rights to registration
thereunder and do not contain transfer restrictions or terms with respect to
certain special payments applicable to the Old Notes. See "The Exchange Offer."
The New Notes are being offered hereunder in order to satisfy certain
obligations under the Registration Rights Agreement, dated as of December 20,
1996 (the "Registration Rights Agreement"), among the Company, the Subsidiary
Guarantors and Dillon, Read & Co. Inc. (the "Initial Purchaser"), a copy of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The Exchange Offer is intended to satisfy the Company's
obligations under the Registration Rights Agreement to register the New Notes
and exchange them for the Old Notes under the Securities Act. Once the Exchange
Offer is consummated, the Company will have no further obligations to register
any of the Old Notes tendered for exchange, except pursuant to a shelf
registration statement to be filed under certain limited circumstances specified
in "The Exchange Offer--Purpose of the Exchange Offer." See "Risk
Factors--Consequences to Non-Tendering Holders of Old Notes." The Company has
agreed to pay the expenses of the Exchange Offer.
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in several no-action letters issued to
third parties including Exxon Capital Holdings Corporation, SEC No-Action Letter
(available April 13, 1989)(the "Exxon Capital Letter"), Morgan Stanley & Co.
Incorporated, SEC No-Action Letter (available June 5, 1991)(the "Morgan Stanley
Letter") and Shearman & Sterling, SEC No-Action Letter (available July 2,
1993)(the "Shearman & Sterling Letter") (collectively, the "Exchange Offer
No-Action Letters"), 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 holders thereof who are not affiliates of Willcox &
Gibbs (other than a broker-dealer who acquired such Old Notes directly from the
Company for resale pursuant to Rule 144A under the Securities Act or any other
available exemption under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act; PROVIDED
that the holder is acquiring New Notes in its ordinary course of business and
has no arrangement or understanding with any person to participate in any
distribution (within the meaning of the Securities Act) of the New Notes.
Persons wishing to exchange Old Notes in the Exchange Offer must represent to
the Company that such conditions have been met. However, any holder who is an
affiliate of the Company or who tenders in the Exchange Offer with the intention
to participate, or for the purpose of participating, in a distribution of the
New Notes cannot rely on the interpretation by the staff of the Commission set
forth in such no-action letters, including the Exchange Offer No-Action Letters,
and must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. See "The Exchange
Offer-- Purpose of the Exchange Offer." In addition, 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 were acquired by such broker-dealer as a result
of market-making activities or other trading activities (other than acquisitions
directly from the Company). The Company has agreed that, for a period of up to
180 days after the Expiration Date, it will use its reasonable efforts to make
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution." EXCEPT AS DESCRIBED IN THIS PARAGRAPH,
THIS PROSPECTUS MAY NOT BE USED FOR ANY OFFER TO RESELL, RESALE OR OTHER
TRANSFER OF NEW NOTES.
2
<PAGE>
Old Notes initially purchased by "qualified institutional buyers" (as such
term is defined in Rule 144A under the Securities Act) were initially
represented by a single Global Old Note (as defined herein) in fully registered
form, registered in the name of a nominee of The Depository Trust Company
("DTC"), as depositary. Old Notes originally purchased by or transferred to
institutional "accredited investors," within the meaning of Rule 501 (a)(1),
(2), (3) or (7) under the Securities Act, who were not "qualified institutional
buyers" (as defined in Rule 144A under the Securities Act) were issued in
registered certificated form ("Certificated Securities").
Beneficial interests in the Global Old Note and one such Certificated
Security representing the Old Notes have been shown on, and transfers thereof to
institutional "accredited investors" and "qualified institutional buyers" have
been effected through, records maintained by DTC and its participants.
The New Notes exchanged for Old Notes represented by the Global Old Note and
such Certificated Security will be represented by one or more Global New Notes
(as defined herein) in fully registered form, registered in the name of the
nominee of DTC. The Global New Notes will be exchangeable for New Notes in
registered form, in denominations of $1,000 and integral multiples thereof as
described herein. The New Notes in global form will trade in DTC's Same-Day
Funds Settlement System, and secondary market trading activity of such New Notes
will therefore settle in immediately available funds. See "Description of Senior
Notes--Book-Entry, Delivery and Form."
The New Notes will bear interest at a rate equal to 12 1/4% per annum from
the last date on which interest was paid on the Old Notes surrendered in
exchange therefor, or if no interest has been paid, from the date of original
issue of such Old Notes. Interest on the Senior Notes is payable semi-annually
on June 15 and December 15 of each year, commencing June 15, 1997.
The Senior Notes will be redeemable at the option of the Company, in whole
or in part, at any time on or after December 15, 2001, at the redemption price
of 106.125% of principal (declining to 103.063% on or after December 15 of
2002), together with accrued and unpaid interest and Liquidated Damages, if any,
payable pursuant to Section 6 of the Registration Rights Agreement (the "Old
Note Liquidated Damages") thereon to the date of redemption. On or prior to
December 15, 1999, up to 30% of the originally issued principal amount of the
Senior Notes then outstanding will be redeemable at the option of the Company
from the Net Cash Proceeds of a Public Equity Offering (each as defined herein),
at 112 1/4% of the principal amount thereof, together with accrued and unpaid
interest and Old Note Liquidated Damages, if any, to the date of redemption;
PROVIDED that at least $59.5 million of the originally issued principal amount
of Senior Notes remains outstanding immediately after such redemption and that
such redemption occurs within 60 days following the closing of such Public
Equity Offering. Finally, subject to the limitations and qualifications set
forth in the Indenture, in the event of a Change of Control (as defined in
"Description of Senior Notes"), holders of the Senior Notes will have the right
to require the Company to purchase their Senior Notes, in whole or in part, at a
price equal to 101% of the aggregate principal amount thereof, plus accrued and
unpaid interest and Old Note Liquidated Damages, if any, to the date of
purchase. There can be no assurance that the Company will have the financial
resources necessary to purchase the Senior Notes upon the occurrence of a Change
of Control. See "Description of Senior Notes."
The Senior Notes are senior unsecured obligations of Willcox & Gibbs (except
for the security interest in 65% of the shares of non-U.S. subsidiary) and are
fully and unconditionally guaranteed on a senior unsecured basis by the
Subsidiary Guarantors. The Senior Notes and each Subsidiary Guarantee ranks PARI
PASSU with all other unsecured and unsubordinated indebtedness of the Company
and the applicable Subsidiary Guarantor, respectively. The Senior Notes and the
Subsidiary Guarantees are, however, effectively subordinated to secured
indebtedness of the Company and the Subsidiary Guarantors, with respect to the
assets securing such indebtedness. Because the Company is a holding company, the
Senior Notes are effectively subordinated to all existing and future liabilities
of its subsidiaries that are not Subsidiary Guarantors. At March 31, 1997, the
Company and the Subsidiary Guarantors had $4.3 million
3
<PAGE>
of secured indebtedness outstanding. Subject to certain limitations, the Company
and its subsidiaries (including the Subsidiary Guarantors) may incur additional
secured and unsecured indebtedness.
Prior to this offering, there has been no public market for the Senior
Notes. The Company does not intend to list the Senior Notes on a national
securities exchange or to seek approval for quotation through the NASDAQ
National Market. As the Old Notes were issued and the New Notes are being issued
primarily to a limited number of institutions who typically hold similar
securities for investment, the Company does not expect that an active public
market for the Senior Notes will develop. In addition, resales by certain
holders of the Senior Notes of a substantial percentage of the aggregate
principal amount of such notes could constrain the ability of any market maker
to develop or maintain a market for the Senior Notes. To the extent that a
market for the Senior Notes should develop, the market value of the Senior Notes
will depend on prevailing interest rates, the market for similar securities and
other factors, including the financial condition, performance and prospects of
the Company. Such factors might cause the Senior Notes to trade at a discount
from face value. See "Risk Factors--Lack of a Public Market for the Senior
Notes."
THE COMPANY WILL NOT RECEIVE ANY PROCEEDS FROM THE EXCHANGE OFFER. THE
COMPANY HAS AGREED TO PAY THE EXPENSES OF THE EXCHANGE OFFER. NO UNDERWRITER IS
BEING USED IN CONNECTION WITH THE EXCHANGE OFFER.
4
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND HISTORICAL AND PRO FORMA FINANCIAL STATEMENTS, INCLUDING THE
NOTES THERETO, APPEARING IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE
REQUIRES, REFERENCES TO THE "COMPANY" INCLUDE WILLCOX & GIBBS AND ITS DIRECT AND
INDIRECT SUBSIDIARIES. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE
MATTERS SET FORTH UNDER THE HEADING "RISK FACTORS."
THE COMPANY
The Company believes that it is the largest independent distributor in North
America of replacement parts, supplies and specialized equipment to
manufacturers of apparel and other sewn products, offering a broad product line
of over 200,000 items. These products include industrial sewing equipment parts,
such as needles, hooks, motors, tools and other accessories, and specialized
equipment, such as screen printing equipment and supplies and production
planning and control systems. In addition, as a result of the consummation of
the Macpherson Acquisition (as defined herein), the Company became a major
distributor of embroidery equipment and supplies, marketing its products through
22 sales and distribution centers strategically located in the United States,
Canada, Mexico, the Dominican Republic and England. During 1996, the Company's
customer base consisted of over 15,000 manufacturers and dealers.
Since the Company was acquired by management and certain investors in July
1994 (the "Management Buyout"), the Company has expanded through internal growth
of operations and acquisitions. The Company intends to pursue strategic
acquisitions to expand its product lines and to enter into new geographic
markets. The Company believes that the size of its operations and the stable
operating history of its replacement parts and supplies distribution business
have enabled it to carry substantially higher levels of inventory than its
competitors. These investments in inventory provide customers with wide
selection, a high degree of product availability and assurance of prompt
delivery. In addition, the Company believes that it is well positioned to pursue
selected growth opportunities internationally, particularly in Mexico and South
America, based upon the size of its operations, its established inventory
management systems and its growing sales in these markets.
INDUSTRY OVERVIEW
Manufacturers of apparel and other sewn products generally utilize a variety
of modern equipment and supplies in their production processes. Although there
have been advances in the speed of equipment and automation of manufacturing
methods, the basic sewing process has changed very little since the first sewing
machines were introduced over 125 years ago. Accordingly, the basic design of
sewing equipment and replacement parts and supplies used with respect to such
equipment has remained stable for many years, and new generations of sewing
equipment have frequently utilized many parts designed for prior generations. In
addition, since numerous manufacturers of sewn products do not regularly replace
major equipment upon the introduction of new models, substantial numbers of
older machines typically continue to be used for many years after the production
of more advanced units.
The improvements in speed of equipment and the trend toward automation in
apparel and sewn products manufacturing have increased the demand for
replacement parts and supplies by manufacturers, since high speed production
increases the wear and tear on equipment. In addition, automation results in the
utilization of other equipment, such as cutting and finishing devices, that must
be maintained. As a result of the large number of differing replacement parts
and supplies utilized by apparel and sewn products manufacturers and the
relatively small quantity of many items required at varying times, such
manufacturers generally prefer to obtain replacement parts and supplies from
dealers that stock a wide range of products and offer prompt delivery. In
addition, manufacturers of such replacement parts, supplies and specialized
equipment often prefer to sell such products through distributors who can
provide wide market coverage, assume credit risk and stock inventory, thereby
limiting the manufacturers' costs of marketing and distribution.
5
<PAGE>
The market for screen printing equipment and embroidery equipment used to
add decoration to apparel products has grown rapidly over the past several
years. This growth has been propelled by expansion of the market for casual
wear, such as T-shirts, sweatshirts and caps, which frequently feature printed
or embroidered trademarks, slogans or other designs. In addition, improvements
in technology have made screen printing and embroidery equipment less expensive
and more sophisticated. The Company acquired Clinton Management Corp. and
Clinton Machinery Corp. (together, "Clinton"), which distribute screen printing
equipment and supplies, in February 1996, and Macpherson Meistergram, Inc. and
its subsidiary, Geoffrey E. Macpherson Canada, Inc. (together, "Macpherson"),
which principally distribute embroidery equipment and supplies, in January 1997,
in order to take advantage of the growing demand for such equipment and of the
ability to market these complementary product lines to the same end-user group.
The market of apparel manufacturers in the Western Hemisphere has expanded
during the 1990s due to the shifting production of apparel products sold in the
United States from the Far East to Mexico and the rest of Latin America.
According to the U. S. Department of Commerce, in 1990 Asia accounted for 75.4%
of U.S. imports of apparel, while Mexico and the Caribbean Basin Initiative
("CBI") countries accounted for 11.2%. By 1995, Asia's share had dropped to
62.7% of U.S. imports, while Mexico and the CBI countries increased to 23.1%.
The trend towards increasing apparel imports to the United States from Mexico is
expected to accelerate with the implementation of the North American Free Trade
Agreement ("NAFTA"). In addition, the Company anticipates that apparel
manufacturers from around the world who sell their products to the United States
will increase apparel production in Mexico, the CBI countries and the rest of
Latin America due to the improved political and economic climate of many of such
countries and the quick and relatively inexpensive access to the U.S. market
from such region. The Company believes it is well positioned to capitalize on
the shift in apparel production to the southern portion of the Western
Hemisphere due to its broad product line, its existing distribution centers
located nearby and its prior relationships with many of the manufacturers that
are establishing production facilities south of the United States. For example,
the Company is a supplier to one of its major customers, Fruit of the Loom, at
its new Mexican manufacturing facility that began operations in 1996.
COMPETITIVE STRENGTHS
The Company believes that it has a strong competitive position attributable
to a number of factors, including the following:
- MARKET LEADERSHIP. The Company believes that it is the largest independent
distributor of replacement parts, supplies and specialized equipment for
the apparel and other sewn products industry in North America. As a
result, the Company has significant purchasing power and can realize
economies of scale in marketing, distribution and administration. The
Company believes that each of its principal operating units is among the
leaders in its respective market.
- STRONG BRAND NAME RECOGNITION. The Willcox & Gibbs brand name has been
well known in the apparel industry since the Company's predecessor began
operations in the mid-1800s as an apparel equipment manufacturer. Since
that time, the Company's Sunbrand and Unity divisions have developed and
maintained well-recognized brand names in replacement parts distribution
through a long history of comprehensive and high quality product lines and
an emphasis on customer service.
- BROAD LINES OF QUALITY PRODUCTS. The Company believes that it markets the
broadest line of quality replacement parts, supplies and specialized
equipment to manufacturers of apparel and other sewn products in North
America. For example, the Company's Sunbrand division markets over 180,000
items, while the Company believes that its closest competitor offers
approximately 40,000 items. As a result of its broad product offering, the
Company believes that it provides its customers with "one-stop shopping"
for their replacement parts, supplies and specialized equipment
requirements.
6
<PAGE>
- HIGH LEVEL OF CUSTOMER SERVICE. The Company provides its customers with a
comprehensive selection of products, a high degree of product
availability, convenient ordering systems and fast order response time.
The Company's strategically placed distribution facilities and efficient
inventory management systems enable it to achieve high order fill rates
for replacement parts and supplies (in excess of 95% of orders are shipped
within 24 hours), timeliness of delivery and wide geographic coverage. The
Company utilizes a real-time computer inventory management system in its
sewn products replacement parts and supplies businesses that enables it to
search all inventory locations in North America for product availability.
In addition, the Company maintains electronic data interchange ("EDI")
systems that link the Company to selected customers, such as Levi Strauss
and Fieldcrest Cannon. The Company fills substantially all of its orders
of parts and supplies by customers in the United States through next-day
delivery, which is important to assist customers in minimizing operator
downtime.
- STRONG RELATIONSHIPS WITH SUPPLIERS. The Company has developed strong
relationships with many of its suppliers, with some dating back over 30
years. The Company maintains exclusive U.S. distribution rights for
genuine replacement parts for Pfaff AG ("Pfaff") (since 1958), and Pegasus
Sewing Machine Mfg. Co., Ltd. ("Pegasus") (since 1966), two major sewing
equipment suppliers to the U.S. apparel and other sewn products industry,
as well as exclusive distribution rights in certain territories for M&R
Printing Equipment, Inc. ("M&R"), a major manufacturer of screen printing
equipment for the apparel industry in the United States and Barudan
Company, Ltd. ("Barudan"), a major manufacturer of embroidery equipment.
- DIVERSIFIED BASE OF CUSTOMERS. During 1996, the Company sold products to
over 15,000 apparel and sewn products manufacturers and dealers of
replacement parts and supplies, with no single customer representing more
than 5.2% of net sales. The Company has enjoyed long-term relationships
with a number of its major customers, including Levi Strauss, Fruit of the
Loom, Fieldcrest Cannon, Russell Athletic and VF Corporation.
- EXPERIENCED MANAGEMENT TEAM. The Company's officers have an average of 16
years of experience with the Company and the Company's predecessor and an
average of 19 years of industry experience. The Company retained
substantially all of the senior management of the businesses acquired in
the Management Buyout in July 1994, of Clinton in connection with its
acquisition by the Company in February 1996 and of Macpherson following
consummation of the Macpherson Acquisition in January 1997. The Company's
principal managers and employees collectively owned, as of March 31, 1997,
on a fully diluted basis 63.1% of the Company's outstanding common stock.
BUSINESS STRATEGY
The Company's strategy is to enhance its position as a leading distributor
of replacement parts, supplies and specialized equipment to the apparel and
other sewn products industry. In order to achieve this objective, the Company
has developed a business plan that consists of the following key elements:
- MAINTAIN LEADING MARKET POSITION. The Company believes that it is the
leading independent distributor in North America of replacement parts,
supplies and specialized equipment to the apparel and other sewn products
industry. The Company believes that such leadership is based primarily on
the Company's long history of operations, broad line of products and
excellent customer service. The Company intends to enhance its market
leadership by maintaining and expanding its relationships with suppliers
and customers.
- EXPAND PRODUCT LINES. The Company intends to add lines of replacement
parts, supplies and specialized equipment that can be efficiently marketed
through its existing distribution system. Such additions are intended to
strengthen the Company's position as a "one-stop shop" without significant
incremental expenses related to selling, marketing, distribution and
administration.
7
<PAGE>
- INCREASE PENETRATION OF EMERGING MARKETS. The Company believes that it is
well positioned to increase sales by targeting growth opportunities in
emerging markets such as Mexico, the CBI countries and the rest of Latin
America. The Company expects that its comprehensive line of replacement
parts, supplies and specialized equipment and long experience in serving
the apparel and other sewn products industry will provide a competitive
advantage over smaller, local competitors in these regions. The Company
intends to expand its presence in these areas in 1997 by opening a new
sales office in Colombia.
- PURSUE SELECTED ACQUISITIONS. Since the Management Buyout in July 1994,
the Company has pursued a plan of expanding its product offerings through
strategic acquisitions. In February 1996, it acquired Clinton, a leading
distributor of screen printing equipment and supplies (the "Clinton
Acquisition"), in November 1996 it acquired E.C. Mitchell Co., Inc.
("Mitchell"), a manufacturer of abrasive cords and tapes used principally
by apparel manufacturers (the "Mitchell Acquisition"), and in January 1997
it acquired Macpherson, a leading distributor of embroidery equipment and
supplies (the "Macpherson Acquisition"). The Company intends to pursue
other strategic acquisitions to expand its product lines and to enter into
new geographic markets.
HISTORY OF THE COMPANY
The predecessor to the Company, formerly named Willcox & Gibbs, Inc. (the
"Company's Predecessor"), was incorporated in 1866 and began operations as a
sewing equipment manufacturer. In the late 1960s, as sewing equipment
manufacturing migrated overseas, the Company's Predecessor shifted its business
into the distribution of replacement parts and supplies for the apparel and
other sewn products industry. Parts and supply distribution remained the primary
focus of the Company's Predecessor until 1984, when it expanded into the
distribution of electrical parts. Due to the large and fragmented nature of U.S.
electrical parts distribution, this segment grew rapidly and, by 1993,
represented approximately 85% of the net sales of the Company's Predecessor. In
1994, the Board of Directors of the Company's Predecessor decided to focus its
business on electrical parts distribution and divest its other businesses. In
July 1994, management and outside investors acquired the sewn products
replacement parts, supply and specialized equipment distribution businesses of
the Company's Predecessor (the "Distribution Business") for total consideration
of $44.0 million.
The Company currently operates through six principal business units: (i) its
Sunbrand division ("Sunbrand"), which is a distributor of replacement parts,
supplies and specialized equipment to manufacturers of apparel and other sewn
products; (ii) its Unity Sewing Supply Co. division ("Unity"), which is a
wholesale distributor to dealers of replacement parts and supplies for use by
the apparel and other sewn products industry; (iii) its Willcox & Gibbs, Ltd.
("W&G, Ltd.") subsidiary, which is a distributor to manufacturers and dealers in
the United Kingdom and Europe of replacement parts and supplies for use by the
apparel and other sewn products industry; (iv) its Clinton subsidiaries, which
distribute screen printing equipment and supplies for the apparel industry; (v)
its Leadtec Systems, Inc. ("Leadtec") subsidiary, which develops and supplies
computer-based production planning and control systems for the apparel and other
sewn products industry; and (vi) Macpherson, acquired in January 1997 using a
portion of the net proceeds from the sale of the Old Notes, which distributes
embroidery equipment and supplies used in the apparel industry. See "The
Macpherson Acquisition."
8
<PAGE>
THE MACPHERSON ACQUISITION
A portion of the proceeds from the sale on January 3, 1997 by the Company of
the Old Notes was used to finance the acquisition by the Company of Macpherson.
On November 27, 1996, the Company entered into a stock purchase agreement (the
"Stock Purchase Agreement") with Macpherson and its shareholders pursuant to
which the Company agreed to acquire all of the outstanding capital stock of
Macpherson for a cash purchase price of $24.0 million. In connection with the
Macpherson Acquisition, the Company assumed (and repaid immediately using a
portion of the net proceeds from the sale of the Old Notes) approximately $6.1
million of indebtedness of Macpherson and approximately $6.4 million of trade
payables of Macpherson. Macpherson is primarily engaged in the distribution of
embroidery equipment and supplies to the apparel industry.
In connection with the Macpherson Acquisition, the Company acquired
Embroidery Leasing Corporation, a leasing company affiliate of Macpherson (the
"Leasing Company"), for approximately $0.5 million, payable over three years,
plus interest at 6.0% per annum. The Company intends to utilize the Leasing
Company to offer flexible lease financing to its customers to support the
Company's sales of equipment.
The Macpherson Acquisition expanded the Company's product lines to include
the distribution of embroidery equipment and supplies to the apparel industry.
The market for embroidery equipment has grown rapidly over the past ten years.
The Company acquired Macpherson to take advantage of the expanding demand for
such equipment and of the ability to market such equipment and the Company's
complementary line of screen printing equipment to the same end-user group. In
addition, the Company believes that Macpherson's embroidery equipment can be
efficiently marketed through the Company's existing distribution network without
substantial additional expense. The acquisition of the Leasing Company furthered
the Company's objective of being a "one-stop shop" for its customers by enabling
the Company to offer attractive financing options to support the sale of its
equipment.
THE EXCHANGE OFFER
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The Exchange Offer........................... $1,000 principal amount of New Notes in
exchange for each $1,000 principal amount of
Old Notes. As of the date hereof, $85.0
million in aggregate principal amount of Old
Notes were outstanding. The Company will
issue the New Notes to Holders (as defined in
"Description of Senior Notes") on or promptly
after the Expiration Date.
Based on interpretations by the staff of the
Commission set forth in no-action letters
issued to third parties, including the
Exchange Offer No-Action Letters, 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 Holders thereof who
are not affiliates of the Company (other than
a broker-dealer who acquired such Old Notes
directly from the Company for resale pursuant
to Rule 144A under the Securities Act or any
other available exemption under the
Securities Act) without compliance with the
registration and prospectus delivery
provisions of the Securities Act; PROVIDED
that
</TABLE>
9
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<TABLE>
<S> <C>
the Holder is acquiring New Notes in its
ordinary course of business and has no
arrangement or understanding with any person
to participate in any distribution (within
the meaning of the Securities Act) of the New
Notes. Persons wishing to exchange Old Notes
in the Exchange Offer must represent to the
Company that such conditions have been met.
However, any Holder who may be deemed an
"affiliate" (as defined under Rule 405 of the
Securities Act) of the Company or who tenders
in the Exchange Offer with the intention to
participate, or for the purpose of
participating, in a distribution of the New
Notes cannot rely on the interpretation by
the staff of the Commission set forth in such
no-action letters, including the Exchange
Offer No-Action Letters, and must comply with
the registration and prospectus delivery
requirements of the Securities Act in
connection with any resale transaction. See
"The Exchange Offer--Purpose of the Exchange
Offer."
Each broker-dealer that receives New Notes
for its own account pursuant to the Exchange
Offer in exchange for Old Notes where such
Old Notes were acquired by such broker-dealer
for its own account as a result of
market-making activities or other trading
activities (other than acquisitions directly
from the Company) 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 as aforesaid. The
Company has agreed that, for a period of up
to 180 days after the Expiration Date, it
will use its reasonable efforts to make this
Prospectus available to any such
broker-dealer for use in connection with any
such resale. See "Plan of Distribution."
Expiration Date.............................. 5:00 p.m., New York City time, on
, 1997, unless the Exchange Offer
is extended by the Company, in which case the
term "Expiration Date" means the latest date
and time to which the Exchange Offer is
extended.
Accrued Amounts on the Senior Notes.......... The New Notes will bear interest from the
last date on which interest was paid on the
Old Notes surrendered in exchange therefor
or, if no interest has
</TABLE>
10
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<TABLE>
<S> <C>
been paid, from the date of original issuance
of such Old Notes.
Conditions to the Exchange Offer............. The Exchange Offer is subject to certain
customary conditions. The conditions are
limited and relate in general to laws or
Commission policies that might impair the
ability of the Company to proceed with the
Exchange Offer. As of the date of this
Prospectus, none of these events had
occurred, and the Company believes their
occurrence to be unlikely. If any such
conditions do exist prior to the Expiration
Date, the Company may (i) refuse to accept
any Old Notes and return all previously
tendered Old Notes, (ii) extend the Exchange
Offer, or (iii) waive such conditions. See
"The Exchange
Offer--Conditions."
Procedures for Tendering..................... Each Holder of Old Notes wishing to accept
the Exchange Offer must complete, sign and
date the Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein,
and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with
such Old Notes to be exchanged and any other
required documentation to IBJ Schroder Bank &
Trust Company, as Exchange Agent (the
"Exchange Agent"), at the address set forth
herein and therein or effect a tender of such
Old Notes pursuant to the procedures for
book-entry transfer as provided for herein
and therein. By executing the Letter of
Transmittal, 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, that neither the Holder nor any such
other person has an arrangement or
understanding with any person to participate
in the distribution of such New Notes and
that neither the Holder nor any such other
person is an "affiliate," as defined under
Rule 405 of the Securities Act, of the
Company or any of its subsidiaries. Each bro-
ker-dealer that receives New Notes for its
own account in exchange for Old Notes, where
such Old Notes were acquired by such
broker-dealer as a result of market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus
in connection with any resale of such New
Notes. See "The Exchange Offer--Procedures
for Tendering" and "Plan of Distribution."
</TABLE>
11
<PAGE>
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<S> <C>
Special Procedures for Beneficial Owners..... Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee and who wishes to tender such Old
Notes in the Exchange Offer should contact
such registered Holder promptly and instruct
such registered Holder to tender on such
beneficial owner's behalf. If such beneficial
owner wishes to tender on such owner's own
behalf, such owner must, prior to completing
and executing the Letter of Transmittal and
delivering its Old Notes, either make
appropriate arrangements to register
ownership of the Old Notes in such owner's
name or obtain a properly completed bond
power from the registered Holder. The trans-
fer of registered ownership may take
considerable time and it may not be possible
to complete a transfer initiated shortly
before the Expiration Date. See "The Exchange
Offer--Procedures for Tendering."
Guaranteed Delivery Procedures............... Holders of Old Notes who wish to tender their
Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes, the Letter of Transmittal or
any other documents required by the Letter of
Transmittal to the Exchange Agent, or cannot
complete the procedure for book-entry
transfer, prior to 5:00 p.m. on the
Expiration Date, may tender their Old Notes
according to the guaranteed delivery
procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures."
Withdrawal Rights............................ Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the
Expiration Date.
Acceptance of Old Notes and Delivery of New
Notes...................................... The Company will accept for exchange any and
all Old Notes which are properly tendered in
the Exchange Offer prior to 5:00 p.m., New
York City time, on the Expiration Date. The
New Notes issued pursuant to the Exchange
Offer will be delivered promptly following
the Expiration Date. Any Old Notes not
accepted for exchange 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."
Material Federal Income Tax Considerations... The exchange pursuant to the Exchange Offer
should not be a taxable event for federal
income tax purposes. See "Material Federal
Income Tax Considerations."
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
Exchange Agent............................... IBJ Schroder Bank & Trust Company is serving
as Exchange Agent in connection with the
Exchange Offer.
</TABLE>
TERMS OF NEW NOTES
The Exchange Offer applies to the entire $85,000,000 aggregate principal
amount outstanding of the Old Notes. The New Notes will be obligations of the
Company evidencing the same debt as the Old Notes and will be entitled to the
benefits of the same Indenture. See "Description of Senior Notes." The form and
terms of the New Notes are generally the same as the form and terms of the Old
Notes in all material respects except that the New Notes have been registered
under the Securities Act and hence do not include certain rights to registration
thereunder and do not contain transfer restrictions or terms with respect to
certain special payments applicable to the Old Notes. See "Description of Senior
Notes."
<TABLE>
<S> <C>
The New Notes................................ $85,000,000 principal amount of 12 1/4%
Series B Senior Notes due 2003.
Maturity Date................................ December 15, 2003.
Interest Rate and Payment Dates.............. The New Notes will bear interest at a rate of
12 1/4% per annum. Interest on the New Notes
will accrue from the last date on which
interest was paid on the Old Notes
surrendered in exchange therefor, or if no
interest has been paid, from the date of
original issuance of such Old Notes. Interest
on the New Notes is payable semi-annually in
cash in arrears on June 15 and December 15 of
each year, commencing June 15, 1997. For a
discussion summarizing material U.S. federal
income tax consequences to Holders of the
Senior Notes, see "Material Federal Income
Tax Consequences--U.S. Holders--Original
Issue Discount."
Optional Redemption.......................... The Senior Notes will be redeemable at the
option of the Company, in whole or in part,
at any time on or after December 15, 2001, at
the redemption prices set forth herein,
together with accrued and unpaid interest and
Old Note Liquidated Damages, if any, to the
date of redemption. In the event the Company
consummates a Public Equity Offering (as
defined herein) on or prior to December 15,
1999, the Company may at its option use all
or a portion of the proceeds from such
offering to redeem up to 30% of the
originally issued principal amount of the
Senior Notes at a redemption price equal to
112 1/4% of the principal amount thereof,
together with accrued and unpaid interest and
Old Note Liquidated Damages, if any, to the
date of redemption, PROVIDED that at least
$59.5 million of the originally issued
principal amount of Senior Notes remains
outstanding immediately after such redemption
and that such redemption occurs within
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
60 days following the closing of such Public
Equity Offering. See "Description of Senior
Notes--Redemption."
Ranking...................................... The Senior Notes are senior unsecured
obligations of the Company (except for the
security interest in 65% of the shares of a
non-U.S. subsidiary) and rank PARI PASSU in
right of payment with existing and future
unsecured and unsubordinated Indebtedness (as
defined herein) of the Company and senior to
all Subordinated Indebtedness (as defined
herein) of the Company. At March 31, 1997,
the Company and the Subsidiary Guarantors had
$0.5 million of unsecured indebtedness
outstanding other than the Senior Notes. The
Senior Notes, however, are effectively
subordinated to secured Indebtedness of the
Company and the Subsidiary Guarantors (as
defined below) with respect to the assets
securing such Indebtedness. Because the
Company is a holding company, the Senior
Notes are effectively subordinated to all
existing and future liabilities of its
subsidiaries that are not Subsidiary
Guarantors. At March 31, 1997, the Company
and the Subsidiary Guarantors had $4.3
million of secured Indebtedness outstanding.
Subject to certain limitations, the Indenture
permits the Company and its Restricted
Subsidiaries (as defined herein) to incur
additional secured and unsecured
Indebtedness. See "Management's Discussion
and Analysis of Financial Condition and
Results of Operations--The Company" and
"Description of Senior Notes--Ranking" and
"--Certain Covenants--Limitation on Indebt-
edness and Disqualified Capital Stock."
Subsidiary Guarantees........................ The Senior Notes are fully and
unconditionally guaranteed on a senior
unsecured basis by all of the Company's U.S.
subsidiaries existing as of the date of the
Indenture (and any other Subsidiary of the
Company that executes a Subsidiary Guarantee
in accordance with the provisions of the
Indenture) (the "Subsidiary Guarantors"). The
Subsidiary Guarantees are unconditional joint
and several obligations of each Subsidiary
Guarantor, ranking PARI PASSU in right of
payment with all other unsecured and
unsubordinated Indebtedness of such
Subsidiary Guarantor. See "Description of
Senior Notes--Subsidiary Guarantees and Other
Security."
Other Security............................... The Senior Notes are secured by a pledge of
65% of the capital stock of W&G, Ltd., a
wholly owned Restricted Subsidiary of the
Company organized
</TABLE>
14
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<S> <C>
under the laws of the United Kingdom. See
"Description of Senior Notes--Subsidiary
Guarantees and Other Security."
Change of Control............................ Upon the occurrence of a Change of Control,
each holder of Senior Notes will have the
right to require the Company to purchase all
or a portion of such holder's Senior Notes at
a price equal to 101% of the aggregate
principal amount thereof, together with
accrued and unpaid interest and Old Note
Liquidated Damages, if any, to the date of
purchase. See "Description of Senior
Notes--Certain Covenants--Change of Control."
Original Issue Discount...................... The Old Notes were issued with original issue
discount for federal income tax purposes.
Consequently, original issue discount will be
includible by a Holder of New Notes as
interest income annually in such Holder's
gross income for federal income tax purposes
in advance of receipt of the cash payments to
which the income is attributable. See
"Material Federal Income Tax Consequences"
and "Risk Factors--Original Issue Discount."
Certain Covenants............................ The Indenture relating to the Senior Notes
contains certain covenants, including
covenants which limit: (i) indebtedness; (ii)
issuance of preferred stock of subsidiaries;
(iii) restricted payments; (iv) issuances and
sales of capital stock of restricted
subsidiaries; (v) sale/leaseback
transactions; (vi) transactions with
affiliates; (vii) liens; (viii) asset sales;
(ix) dividend and other payment restrictions
affecting restricted subsidiaries; (x)
conduct of business; and (xi) mergers,
consolidations and sales of assets. See
"Description of Senior Notes--Certain
Covenants" and "--Merger, Consolidation and
Sale of Assets."
Exchange Rights.............................. Holders of New Notes are not entitled to any
exchange rights with respect to the New
Notes. Holders of Old Notes are entitled to
certain exchange rights pursuant to the
Registration Rights Agreement. Under the
Registration Rights Agreement, the Company is
required to offer to exchange the Old Notes
for new notes having substantially identical
terms which have been registered under the
Securities Act. The Exchange Offer is
intended to satisfy such obligation. Once the
Exchange Offer is consummated, the Company
will have no further obligations to register
any of the Old Notes not tendered by the
Holders for exchange, except pursuant to a
shelf registration statement to be filed
under certain limited circumstances specified
in "The Exchange Offer--Purpose of the
Exchange
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
Offer." See "Risk Factors--Consequences to
Non-Tendering Holders of Old Notes."
Use of Proceeds.............................. The Company will not receive any proceeds
from the Exchange Offer.
</TABLE>
RISK FACTORS
Prospective investors should consider carefully all of the information set
forth in this Prospectus and, in particular, the information set forth under
"Risk Factors" before making an investment in the Senior Notes or making a
decision to participate in the Exchange Offer.
16
<PAGE>
SUMMARY PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma statement of operations data, other
operating data and selected ratios for the year ended December 31, 1996 give
effect to the Clinton Acquisition, the Mitchell Acquisition, the Macpherson
Acquisition, the acquisition of the Leasing Company, the sale of the Old Notes
and the application of the net proceeds therefrom (collectively, the
"Transactions") as if each had occurred at the beginning of the period
presented, except that Clinton's results of operations for the period after
February 1, 1996 (the effective date of the Clinton Acquisition) are included in
Willcox & Gibbs' results of operations for such period and except that
Mitchell's results of operations for the period after November 27, 1996 (the
effective date of the Mitchell Acquisition) are included in Willcox & Gibbs'
results of operations for such period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MACPHERSON/
WILLCOX & CLINTON/ LEASING
GIBBS MITCHELL(C) COMPANY(D) ADJUSTMENTS PRO FORMA
---------- ----------- ------------ ----------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................... $ 113,851 $ 2,975 $ 67,767 $ -- $ 184,593
Cost of goods sold...................................... 77,623 1,888 50,221 (1,599) 128,133
---------- ----------- ------------ ----------- -----------
Gross profit.......................................... 36,228 1,087 17,546 1,599 56,460
Selling, general and administrative expenses............ 28,969 758 13,542 (629) 42,640
---------- ----------- ------------ ----------- -----------
Operating income...................................... 7,259 329 4,004 2,228 13,820
Interest expense........................................ 4,824 21 781 5,864 11,490
Other income (expense).................................. 15 (14) (1,161) 839 (321)
---------- ----------- ------------ ----------- -----------
Income before income taxes.............................. 2,450 294 2,062 (2,797) 2,009
Income taxes............................................ 1,137 -- 54 (222) 969
---------- ----------- ------------ ----------- -----------
Net income from continuing operations................. $ 1,313 $ 294 $ 2,008 $ (2,575) $ 1,040
---------- ----------- ------------ ----------- -----------
---------- ----------- ------------ ----------- -----------
OTHER OPERATING DATA:
EBITDA(a)............................................... $ 8,635 $ 340 $ 3,161 $ 3,574 $ 15,710
Depreciation and amortization........................... 1,361 25 318 507 2,211
Capital expenditures.................................... 1,247 10 282 -- 1,539
SELECTED RATIOS:
EBITDA/cash interest expense............................ -- -- -- -- 1.47x
EBITDA less capital expenditures/cash interest
expense............................................... -- -- -- -- 1.33x
Total debt/ EBITDA...................................... -- -- -- -- 5.50x
Ratio of earnings to fixed charges(b)................... -- -- -- -- 1.17x
</TABLE>
See Notes to Summary Pro Forma Financial Information.
17
<PAGE>
NOTES TO SUMMARY PRO FORMA FINANCIAL INFORMATION
(a) EBITDA represents income before income taxes plus interest expense,
depreciation and amortization for the applicable company and, in the case of
Willcox & Gibbs, certain other noncash charges included in cost of goods
sold relating to the amortization of the step-up in basis of the inventory
purchased in the Management Buyout. EBITDA should not be considered as an
alternative measure of net income or cash provided by operating activities
(both as determined in accordance with generally accepted accounting
principles), but is presented to provide additional information relating to
the Company's debt service capability. EBITDA should not be considered in
isolation or as a substitute for other measures of financial performance or
liquidity.
(b) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, earnings include pre-tax income from
continuing operations plus fixed charges. Fixed charges include interest,
whether expensed or capitalized, amortization of debt expense and a portion
of rental expense which is representative of the interest factor in these
rentals.
(c) Clinton's results of operations for the period after February 1, 1996 (the
effective date of the Clinton Acquisition) are included in Willcox & Gibbs'
results of operations for the period presented. Mitchell's results of
operations for the period after November 27, 1996 (the effective date of the
Mitchell Acquisition) are included in Willcox & Gibbs' results of operations
for the period presented.
(d) Excludes net sales of $2.9 million, operating loss of $0.5 million and net
loss of $0.5 million attributable to Macpherson's engraving equipment
distribution business, which the Company discontinued upon consummation of
the Macpherson Acquisition.
SUMMARY HISTORICAL FINANCIAL INFORMATION
WILLCOX & GIBBS
The selected data presented below under the captions "Statement of
Operations Data" and "Balance Sheet Data" as of December 31, 1994, 1995 and 1996
and for the years ended December 31, 1995 and 1996 and the period from July 13,
1994 to December 31, 1994, are derived from the consolidated financial
statements of the Company, which financial statements have been audited by KPMG
Peat Marwick LLP, independent certified public accountants. The selected data
presented below under the caption "Statement of Operations Data" for the period
from January 1, 1994 to July 12, 1994, are derived from the consolidated
statement of operations of the Company's Predecessor, which financial statement
has been audited by KPMG Peat Marwick LLP. The "Statement of Operations Data"
for the years ended December 31, 1992 and 1993 are unaudited. The financial
statements of the Company's Predecessor for the years ended December 31, 1992
and 1993 and for the period from January 1, 1994 to July 12, 1994 have been
prepared as if the apparel operations had been operated as a separate entity
during those periods. However, such financial statements do not reflect a
complete allocation of all expenses applicable to the operation of an
independent company. Certain expenses were allocated to the apparel operations
by the Company's Predecessor based on actual usage or other allocation methods
that approximate actual usage. The following table also sets forth selected
consolidated financial information of the Company as of March 31, 1997 and for
the three months ended March 31, 1996 and 1997. Such information was derived
from the unaudited Consolidated Financial Statements of the Company. Such
unaudited Consolidated Financial Statements, in the opinion of the Company's
management, include all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of the financial position and results of
operations for such periods. The results of operations for the three months
ended March 31, 1997 are not necessarily indicative of results that may be
expected for the full year. The consolidated financial statements of the Company
as of December 31, 1995 and 1996, and for the years ended December 31, 1995 and
1996 and the period from July 13, 1994 to December 31, 1994 and of the Company's
Predecessor for the period from January 1, 1994 to July 12, 1994, and the report
thereon, and the unaudited consolidated financial statements of the Company as
of March 31, 1997 and for the three months ended March 31, 1996 and
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<PAGE>
1997, are included elsewhere in this prospectus. The selected consolidated
financial information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--The Company" and the Consolidated Financial Statements and Notes
thereto of the Company and the Company's Predecessor included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
COMPANY'S PREDECESSOR COMPANY
--------------------------------- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 1, JULY 13, 1994 THREE MONTHS ENDED
DECEMBER 31, 1994 TO YEAR ENDED YEAR ENDED MARCH 31,
-------------------- TO JULY 12, DECEMBER 31, DECEMBER 31, DECEMBER 31, ----------------------------
1992 1993 1994 1994 1995 1996 1996 1997
--------- --------- ----------- ------------- ------------- ------------- ------------- -------------
<CAPTION>
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales............ $ 76,048 $ 77,574 $ 41,309 $ 41,644 $ 90,431 $ 113,851 $ 26,320 $ 42,043
Cost of goods sold... 47,821 49,228 26,909 29,162 60,642 77,623 17,976 29,084
--------- --------- ----------- ------------- ------------- ------------- ------------- -------------
Gross profit......... 28,227 28,346 14,400 12,482 29,789 36,228 8,344 12,959
Selling, general and
administrative
expenses........... 20,814 21,315 11,997 11,264 23,606 28,969 6,763 10,974
--------- --------- ----------- ------------- ------------- ------------- ------------- -------------
Income from
operations....... 7,413 7,031 2,403 1,218 6,183 7,259 1,581 1,985
Interest expense..... 1,993 2,307 1,390 1,946 4,249 4,824 1,100 2,882
Other (income)
expense............ (55) 145 224 (86) (18) (15) 14 39
--------- --------- ----------- ------------- ------------- ------------- ------------- -------------
Income (loss)
before income
taxes and
extraordinary
item............. 5,475 4,579 789 (642) 1,952 2,450 495 (858)
Income tax expense
(benefit).......... 272 146 426 (288) 558 1,137 179 (355)
--------- --------- ----------- ------------- ------------- ------------- ------------- -------------
Income (loss)
before
extraordinary
item............. 5,203 4,433 363 (354) 1,394 1,313 316 (503)
Extraordinary item,
net................ -- -- -- -- (152) -- -- (1,557)
--------- --------- ----------- ------------- ------------- ------------- ------------- -------------
Net income (loss).... $ 5,203 $ 4,433 $ 363 $ (354) $ 1,242 $ 1,313 $ 316 $ (2,060)
--------- --------- ----------- ------------- ------------- ------------- ------------- -------------
--------- --------- ----------- ------------- ------------- ------------- ------------- -------------
OTHER OPERATING DATA:
EBITDA (a)........... $ 8,123 $ 7,744 $ 2,580 $ 4,370 $ 8,062 $ 8,635 $ 1,941 $ 2,547
Depreciation and
amortization....... 655 858 401 3,066 1,861 1,361 345 524
Capital
expenditures....... 381 712 346 272 771 1,247 190 477
Ratio of earnings to
fixed charges
(b)................ 3.47x 2.80x 1.52x 0.70x 1.42x 1.46x 1.26x 0.84x
BALANCE SHEET DATA
(AT PERIOD END):
Working capital...... $ 24,563 $ 21,924 $ 18,653 $ $ 55,954
Total assets......... 51,717 52,528 79,728 132,641
Total debt........... 32,224 31,109 41,435 90,025
Common stock subject
to put option...... -- -- 3,000 3,000
Total stockholders'
equity............. 5,967 7,892 12,677 7,445
</TABLE>
(FOOTNOTES TO THE SUMMARY HISTORICAL FINANCIAL INFORMATION ON FOLLOWING PAGE.)
19
<PAGE>
MACPHERSON
The following table sets forth selected consolidated financial information
of Macpherson as of December 31, 1994, 1995 and 1996 and for the years then
ended. Such information was derived from the Consolidated Financial Statements
of Macpherson, which have been audited by Arthur Andersen LLP and are included
elsewhere in this Prospectus. The selected consolidated financial information
set forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Macpherson" and the
Consolidated Financial Statements and Notes thereto of Macpherson included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................................................ $ 68,861 $ 71,667 $ 70,058
Cost of goods sold............................................................... 52,216 53,769 52,610
--------- --------- ---------
Gross profit................................................................... 16,645 17,898 17,448
Operating expenses............................................................... 13,566 13,587 14,211
--------- --------- ---------
Operating income............................................................... 3,079 4,311 3,237
Interest expense................................................................. 390 218 781
Other expense.................................................................... 643 768 1,162
--------- --------- ---------
Income before taxes............................................................ 2,046 3,325 1,294
Income taxes..................................................................... 54 76 54
--------- --------- ---------
Net income..................................................................... $ 1,992 $ 3,249 $ 1,240
--------- --------- ---------
--------- --------- ---------
OTHER OPERATING DATA:
EBITDA (a)....................................................................... $ 2,650 $ 3,715 $ 2,393
Depreciation and amortization.................................................... 214 172 318
Capital expenditures............................................................. 171 178 282
Ratio of earnings to fixed charges (b)........................................... 4.46x 9.37x 2.36x
BALANCE SHEET DATA (AT PERIOD END):
Working capital.................................................................. $ 9,721 $ 10,925 $ 9,965
Total assets..................................................................... 31,458 44,403 38,864
Total debt....................................................................... 2,820 4,947 6,710
Equity........................................................................... 9,794 11,375 10,963
</TABLE>
- ------------------------
(a) EBITDA represents income before income taxes plus interest expense,
depreciation and amortization for the applicable company and, in the case of
Willcox & Gibbs, certain other noncash charges included in cost of goods
sold relating to the amortization of the step-up in basis of the inventory
purchased in the Management Buyout. EBITDA should not be considered as an
alternative measure of net income or cash provided by operating activities
(both as determined in accordance with generally accepted accounting
principles), but is presented to provide additional information relating to
the Company's debt service capability. EBITDA should not be considered in
isolation or as a substitute for other measures of financial performance or
liquidity.
(b) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, earnings include pre-tax income from
continuing operations plus fixed charges. Fixed charges include interest,
whether expensed or capitalized, amortization of debt expense and a portion
of rental expense which is representative of the interest factor in these
rentals.
20
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE SPECIFIC RISK FACTORS
SET FORTH BELOW AS WELL AS THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS
BEFORE DECIDING TO INVEST IN THE SENIOR NOTES OR PARTICIPATE IN THE EXCHANGE
OFFER.
RANKING OF THE SENIOR NOTES AND SUBSIDIARY GUARANTEES; OTHER SECURITY
The Senior Notes and each Subsidiary Guarantee are senior unsecured
obligations of the Company and the applicable Subsidiary Guarantor,
respectively, and rank PARI PASSU in right of payment with all other existing
and future unsecured and unsubordinated Indebtedness of the Company and the
applicable Subsidiary Guarantor, respectively. At March 31, 1997, the Company
and the Subsidiary Guarantors had $0.5 million of unsecured indebtedness
outstanding other than the Senior Notes. The Senior Notes and the Subsidiary
Guarantees are effectively subordinated to secured Indebtedness of the Company
and the Subsidiary Guarantors, respectively, with respect to the assets securing
such Indebtedness. The Indebtedness of the Company under its $18.5 million
working capital facility with NationsBank, N.A. (the "New Credit Facility") is
secured by accounts receivable of the Company, and W&G, Ltd.'s L1.0 million term
loan facility (the "W&G, Ltd. Credit Facility") is secured by substantially all
of the assets of such United Kingdom subsidiary. At March 31, 1997, the Company
and the Subsidiary Guarantors had $4.3 million of secured Indebtedness
outstanding. Although the Indenture contains limitations on the amount of
additional Indebtedness that the Company and its Restricted Subsidiaries
(including certain of the Subsidiary Guarantors) can incur, under certain
circumstances the amount of such Indebtedness could be substantial and may be
secured. See "Description of Senior Notes--Certain Covenants--Limitation on
Indebtedness and Disqualified Capital Stock" and "--Limitation on Liens."
The Senior Notes are secured by a pledge of 65% of the capital stock of W&G,
Ltd., the Company's wholly owned United Kingdom subsidiary. The Senior Notes
effectively rank junior to any indebtedness, secured or unsecured, of W&G, Ltd.
At December 31, 1996, W&G, Ltd. had L1.0 million outstanding Indebtedness.
SUBSTANTIAL LEVERAGE
As a result of the sale of the Old Notes, the Company is highly leveraged
and has significant debt service requirements. At December 31, 1996, on a pro
forma basis assuming that the sale of the Old Notes, the application of the net
proceeds therefrom and the Macpherson Acquisition occurred on such date, the
total Indebtedness of the Company would have been $86.5 million. The degree to
which the Company is leveraged has important consequences to holders of the
Senior Notes, including the following: (i) the ability of the Company to obtain
additional financing in the future, whether for working capital, capital
expenditures, acquisitions or other purposes, may be impaired; (ii) a
substantial portion of the Company's cash flow from operations will be required
to be dedicated to the payment of principal and interest on its indebtedness,
thereby reducing funds available to the Company for other purposes; (iii) the
Company's flexibility in planning for or reacting to changes in market
conditions may be limited; (iv) the Company may be more vulnerable in the event
of a downturn in its business; and (v) to the extent that the Company incurs any
indebtedness under the New Credit Facility, the W&G, Ltd. Credit Facility or any
other Working Capital Agreements (as defined herein), which indebtedness will be
at variable rates, the Company will be vulnerable to increases in interest
rates.
The Company estimates that its debt service requirements in 1997 will
aggregate approximately $11.0 million (which is subject to change if borrowing
levels and floating interest rates under the Working Capital Agreements vary
from current estimates). Based on current operations, the Company expects that
it will be able to service the principal and interest obligations on its
indebtedness as well as its working capital needs and to fund its capital
expenditures and other operating expenses out of cash flow from operations and
available borrowings under any Working Capital Agreements. However, there can be
no assurance that the Company's business will continue to generate cash flow at
levels sufficient to meet these requirements. If the Company is unable to
generate sufficient cash flow from operations in the future to service its debt
and
21
<PAGE>
capital expenditures, it may be required to sell assets, reduce capital
expenditures, refinance all or a portion of its existing debt (including the
Senior Notes) or obtain additional financings. There can be no assurance that
any such asset sales or refinancing would be possible or that any additional
financing would be on terms acceptable to the Company. The Company's ability to
meet its debt service obligations will be dependent upon its future performance
which, in turn, will be subject to future economic conditions and to financial,
business and other factors, many of which are beyond the Company's control.
The terms of the New Credit Facility, the Indenture and the other agreements
governing the Company's indebtedness impose operating and financing restrictions
on the Company and the Restricted Subsidiaries. Such restrictions affect, and in
many respects limit or prohibit, among other things, the ability of the Company
and its Restricted Subsidiaries to incur additional indebtedness, create liens,
sell assets or engage in mergers or acquisitions. These restrictions could limit
the ability of the Company to respond to market conditions or meet extraordinary
capital needs or otherwise could restrict corporate activities. There can be no
assurance that such restrictions will not adversely affect the Company's ability
to finance its future operations or capital needs or to engage in other business
activities which will be in the interest of the Company. See "Description of
Senior Notes--Certain Covenants" and "--Description of Certain Indebtedness."
HOLDING COMPANY STRUCTURE
Willcox & Gibbs is a holding company, the only assets of which are the stock
of its subsidiaries. All of the operations of Willcox & Gibbs are conducted
through its direct and indirect wholly owned subsidiaries. Accordingly, Willcox
& Gibbs' ability to service its indebtedness, including the Senior Notes, is
dependent upon earnings and cash flow of its subsidiaries and the payment of
funds by those subsidiaries to Willcox & Gibbs in the form of loans, dividends
or otherwise. In addition, the ability of Willcox & Gibbs' subsidiaries to pay
dividends, repay intercompany liabilities or makes other advances to Willcox &
Gibbs is subject to restrictions imposed by corporate law and certain United
States, state and foreign tax considerations. One of the Company's subsidiaries
is incorporated outside the United States.
MACPHERSON ACQUISITION
The Macpherson Acquisition was significantly larger than the Company's
previous acquisitions and represented a substantial increase in the scope of the
Company's business. Macpherson's net sales for 1996 were approximately $70.0
million, and the Company's net sales for 1996 were approximately $113.9 million.
In addition, the Macpherson Acquisition represents the addition of a significant
new product line. The success of the Macpherson Acquisition will depend upon,
among other things, the Company's ability to integrate Macpherson's operations
and to successfully expand into such new product line. There can be no assurance
that the Company can successfully integrate Macpherson, and any inability to do
so may have a material adverse effect on the Company's results of operations and
financial condition. In addition, the Company expects to realize certain
benefits as a result of the Macpherson Acquisition. Realization of such benefits
could be affected by a number of factors beyond the Company's control, such as
general economic conditions, increased operating costs, the response of
competitors or customers and regulatory developments. There can be no assurance
that the Company will achieve the expected benefits.
ACQUISITION RISKS
The Company intends to seek additional acquisition opportunities that will
allow it to increase its market penetration, product offerings and distribution
capabilities. There can be no assurance that the Company will be able to
successfully identify suitable acquisition candidates, complete acquisitions,
integrate acquired operations into its existing operations or expand into new
markets. There can also be no assurance that future acquisitions will not have
an adverse effect upon the Company's operating results, particularly in the
fiscal quarters immediately following the completion of such acquisitions while
the operations of the acquired business are being integrated into the Company's
operations. Once integrated, acquired operations may not achieve levels of
revenues, profitability or productivity comparable with those achieved by the
Company's existing operations, or otherwise perform as expected. In addition,
the
22
<PAGE>
Company competes for acquisition and expansion opportunities with companies that
have substantially greater resources.
DEPENDENCE ON SUPPLIERS
The Company derives significant revenues and operating income from certain
lines of replacement parts and equipment distributed under its distribution
agreements with certain suppliers. For example, the Company (including the
Company's Predecessor) has been the exclusive distributor of genuine replacement
parts in the United States for Pfaff, a German sewing equipment manufacturer,
since 1958 and for Pegasus, a Japanese sewing equipment manufacturer, since
1966. In 1996, approximately 5.7% of the Company's total purchases were from
Pfaff and approximately 7.1% from Pegasus (3.5% and 4.4% respectively, on a pro
forma basis assuming the Clinton Acquisition, the Mitchell Acquisition and the
Macpherson Acquisition were consummated on January 1, 1996). In order to
maintain the exclusivity of the Pfaff and Pegasus distribution agreements, the
Company must meet certain performance targets. Historically, the Company has
generally satisfied these requirements, although in certain prior years they
were not satisfied and Pfaff and Pegasus waived such shortfalls.
The Company is the exclusive distributor in certain territories
(non-exclusive in certain other areas) of apparel screen printing equipment
manufactured by M&R, which is a major manufacturer of such equipment in the
United States. The Company's distribution agreements with M&R may be terminated
at the end of any year on not less than 120 days notice. Purchases from M&R
represented 15.7% of the Company's total purchases in 1996 (10.4% of the
Company's total purchases in 1996 on a pro forma basis assuming the Clinton
Acquisition, the Mitchell Acquisition and the Macpherson Acquisition were
consummated on January 1, 1996).
As a result of the Macpherson Acquisition, the Company is the exclusive
distributor in the United States and Canada of embroidery equipment manufactured
by Barudan, which is one of the leading manufacturers of such equipment in the
United States and Canada. The Company's distribution agreement with Barudan
expires in 2003, subject to automatic renewal for a five year period, unless
either party terminates such agreement on not less than 30 days notice.
Macpherson's purchases from Barudan represented 78.0% of its total purchases in
1996 (29.1% of the Company's total purchases in 1996 on a pro forma basis
assuming the Clinton Acquisition, the Mitchell Acquisition and the Macpherson
Acquisition were consummated on January 1, 1996).
The Company's distribution agreements, both exclusive and non-exclusive, and
other supply arrangements with manufacturers are important to enable the Company
to obtain products sought by the Company's customers and to maintain the
Company's broad product selection. Substantially all of such distribution
agreements and other arrangements may be terminated by the supplier for any
reason, although most exclusive distribution agreements require advance written
notice. No assurance can be given that any of the Company's distribution
agreements will be extended beyond their current term or that the Company will
continue to be the distributor for any particular product.
INTERNATIONAL OPERATIONS; IMPACT OF NAFTA
In 1995 and 1996, approximately 25.9% and 34.2%, respectively, of the
Company's revenues were derived from international operations and export sales,
which are subject in varying degrees to risks inherent in doing business abroad.
Such risks include the possibility of unfavorable circumstances arising from
host country laws or regulations. In addition, foreign operations include risks
of partial or total expropriation; currency exchange rate fluctuations and
restrictions on currency repatriation; the disruption of operations from labor
and political disturbances, insurrection or war; and the requirements of partial
local ownership of operations in certain countries.
Any change in the value of the currencies of the foreign countries in which
the Company does business against the U.S. dollar will result in corresponding
changes in the price and affordability of the Company's products, which could
have a material adverse impact on the Company's business, financial condition
and results of operations. The Company purchases a substantial amount of its
inventories with
23
<PAGE>
foreign currencies, and Macpherson purchases a substantial majority of its
products with Japanese yen. Most of the Company's and Macpherson's net sales are
in U.S. dollars. Although the Company enters into forward exchange contracts to
hedge against foreign currency exchange risks, there can be no assurance that
the Company will not experience foreign currency losses. See Note 1(h) of the
Notes to Consolidated Financial Statements of the Company. In addition, the
economies of certain of the Company's target Latin American markets have
experienced significant and in some periods extremely high rates of inflation
over the past few years. Inflation and rapid fluctuation in inflation rates have
had and may continue to have negative effects on these economies and could have
a material adverse impact on the Company's business, financial condition and
results of operations.
NAFTA, implemented on January 1, 1994, removes barriers to free trade among
Canada, the United States and Mexico. The removal of barriers will take place
over a 10 year period between Mexico and the United States and over five years
between Canada and the United States. There can be no assurance that NAFTA will
not result in an increase in apparel imports from Mexico that compete against
products manufactured by the Company's customers in the United States, thereby
adversely affecting the Company's sales in the United States. Historically, a
majority of the Company's net sales has been to customers in the United States.
No assurance can be given that the Company will be able to increase sales
outside of the United States in the event of a decline in sales to customers in
the United States.
COMPETITION
The markets in which the Company competes are subject to intense
competition. In addition, certain of the Company's competitors have greater
financial resources than the Company and are less leveraged than the Company.
DEPENDENCE ON EXISTING MANAGEMENT
The depth of experience in the business represented by the Company's
executive management team, including John K. Ziegler, Chairman and Chief
Executive Officer, Maxwell L. Tripp, President and Chief Operating Officer, and
the managers of the Company's operating divisions and subsidiaries, is a key
component of the Company's competitiveness. Although the Company has entered
into employment contracts with Mr. Ziegler, Mr. Tripp, Alan B. Lee, President of
Unity, Jack Klasky, President of Leadtec, Frank Scannavino, Chuck Nall and Marc
Glazer, managers of Clinton, and Jerry Lee, President of Macpherson, the
continued presence of such persons within the Company's management structure
cannot be assured. The loss of the services of any of the foregoing persons
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company does not maintain any key
person insurance.
CHANGE OF CONTROL
Upon a Change of Control, the Company will be required to offer to
repurchase all of the outstanding Senior Notes at 101% of the principal amount
thereof, plus accrued and unpaid interest to the date of repurchase. There can
be no assurance that the Company will have the financial resources necessary or
be permitted by its other debt agreements to repurchase the Senior Notes upon
the occurrence of a Change of Control. The inability to repurchase all of the
tendered Senior Notes would constitute an Event of Default (as defined herein)
under the Indenture. See "Description of Senior Notes--Certain Covenants--Change
of Control."
LACK OF PUBLIC MARKET FOR THE SENIOR NOTES
There is no existing trading market for the Senior Notes, and there can be
no assurance regarding the future development of a market for the Senior Notes,
or the ability of holders of the Senior Notes to sell their Senior Notes, or the
price at which such holders may be able to sell their Senior Notes. If such a
market were to develop, the Senior Notes could trade at prices that may be
higher or lower than the initial offering price depending on many factors,
including prevailing interest rates, the Company's operating results and the
market for similar securities. The Initial Purchaser has advised the Company
that it
24
<PAGE>
currently intends to make a market in the New Notes. The Initial Purchaser is
not obligated to do so, however, and any market making with respect to the New
Notes may be discontinued at any time without notice. There can be no assurance
as to the liquidity of any trading market for the Senior Notes or that an active
trading market for the Senior Notes will develop. The Company does not intend to
apply for listing or quotation of the Senior Notes on any securities exchange or
stock market.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that the market for the Senior Notes will
not be subject to similar disruptions. Any such disruptions may have an adverse
effect on holders of the Senior Notes.
FRAUDULENT TRANSFER CONSIDERATIONS; UNENFORCEABILITY OF SUBSIDIARY GUARANTEES
The obligations of any Subsidiary Guarantor as a guarantor under the
Indenture may be subject to review under applicable fraudulent transfer or
similar laws, in the event of the bankruptcy or other financial difficulty of
any such Subsidiary Guarantor. In the United States, under such laws, if a court
in a lawsuit by an unpaid creditor or representative of creditors of any such
Subsidiary Guarantor, such as a trustee in bankruptcy or any such person as
debtor in possession, were to find that at the time such Subsidiary Guarantor
incurred its obligations under its guarantee, it (i) received less than fair
consideration or reasonably equivalent value therefor, and (ii) either (a) was
insolvent, (b) was rendered insolvent, (c) was engaged in a business or
transaction for which its remaining unencumbered assets constituted unreasonably
small capital, or (d) intended to incur or believed that it would incur debts
beyond its ability to pay as such debts matured, such court could void all or a
portion of such obligations under its guarantee and direct the return of any
amounts paid with respect thereof. Moreover, regardless of the factors
identified in the foregoing clauses (i) and (ii), a court could take such action
if it found that the guarantee was entered into with actual intent to hinder,
delay or defraud creditors. The measure of insolvency for purposes of the
foregoing will vary depending on the law of the jurisdiction being applied.
Generally, however, an entity would be considered insolvent if the sum of its
debts (including contingent or unliquidated debts) is greater than all of its
property at a fair valuation or if the present fair salable value of its assets
is less than the amount that would be required to pay its probable liability on
its existing debts as they become absolute and matured.
CONSEQUENCES TO NON-TENDERING HOLDERS OF OLD NOTES
Upon consummation of the Exchange Offer, the Company will have no further
obligation to register the Senior Notes except pursuant to a shelf registration
statement to be filed under certain limited circumstance specified in "The
Exchange Offer--Purpose of the Exchange Offer." Thereafter, subject to such
exception, any Holder of Old Notes who does not tender its Old Notes in the
Exchange Offer will continue to hold restricted securities which may not be
offered, sold or otherwise transferred, pledged or hypothecated except pursuant
to Rule 144 and Rule 144A under the Securities Act or pursuant to any other
exemption from registration under the Securities Act relating to the disposition
of securities, in which case, an opinion of counsel must be furnished to the
Company that such an exemption is available.
ORIGINAL ISSUE DISCOUNT
The Old Notes were issued with original issue discount. Consequently,
Holders of the New Notes generally will be required to include amounts in gross
income for federal income tax purposes in advance of receipt of the cash
payments to which the income is attributable. If a bankruptcy petition is filed
by or against the Company under the United States Bankruptcy Code, the claim of
a Holder of Senior Notes with respect to the principal amount thereof may be
limited to an amount equal to the sum of: (i) the initial offering price for the
Senior Notes; and (ii) that portion of the original issue discount that is not
deemed to constitute "unmatured interest" within the meaning of the United
States Bankruptcy Code. Any original issue discount that was not amortized as of
any such bankruptcy filing would constitute "unmatured interest."
25
<PAGE>
USE OF PROCEEDS
THE EXCHANGE OFFER
This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the New Notes offered in the
Exchange Offer. In consideration for issuing the New Notes as contemplated in
this Prospectus, the Company will receive in exchange Old Notes in like
principal amount, the form and terms of which are the same in all material
respects as the form and terms of the New Notes except that the New Notes have
been registered under the Securities Act and hence do not include certain rights
to registration thereunder or contain transfer restrictions or terms with
respect to Old Note Liquidated Damages. The Old Notes surrendered in exchange
for the New Notes will be retired and canceled and cannot be reissued.
Accordingly, issuance of the New Notes will not result in any proceeds to the
Company or increase in the indebtedness of the Company.
THE SALE OF THE OLD NOTES
The net proceeds from the sale of the Old Notes, after deducting the
discount to the Initial Purchaser, the discount to investors and estimated
expenses, were approximately $79.2 million. The Company used the net proceeds as
follows: (i) $24.0 million were used to fund the cash portion of the purchase
price of the Macpherson Acquisition; (ii) approximately $41.0 million were used
by the Company to repay indebtedness existing as of the date of the Macpherson
Acquisition (which included $8.5 million incurred in February 1996 to finance
the purchase price for the Clinton Acquisition and the repayment of indebtedness
of Clinton and $3.0 million incurred in November 1996 to finance the purchase
price for the Mitchell Acquisition); (iii) approximately $3.0 million were used
to redeem a portion of the warrants issued in connection with certain of such
indebtedness; (iv) approximately $6.1 million were used to repay debt assumed in
the Macpherson Acquisition; and (v) approximately $6.4 million were used to
repay trade payables of Macpherson. In addition, as a result of the consummation
of the Macpherson Acquisition, Macpherson was obligated to make payments
aggregating approximately $1.0 million pursuant to its phantom stock plan, and a
company owned by the principal shareholder of Macpherson agreed to pay
Macpherson a receivable aggregating approximately $0.1 million. Accordingly, an
additional $0.9 million was utilized to satisfy the phantom stock plan
obligation.
At December 31, 1996, the indebtedness of the Company that was repaid
referred to above had a weighted average interest rate of 10.17% per annum. The
foregoing indebtedness of the Company that was repaid included borrowings under
the Financing and Security Agreement, dated as of February 1, 1996 (the "Old
Credit Facility"), between the Company and NationsBank, N.A. ("NationsBank"),
which permitted revolving borrowings by the Company through July 2001.
Borrowings under the Old Credit Facility bore interest at a rate per annum equal
to the one month commercial paper rate for dealer-placed commercial paper of
issuers whose corporate bonds are rated "AA" or its equivalent plus 4%, which
rate was 9.57% per annum as of December 31, 1996. For a description of the
interest rates and maturities of such other indebtedness that was repaid, see
Note 5 of the Notes to the Consolidated Financial Statements of the Company and
Note 6 of the Notes to the Consolidated Financial Statements of Macpherson.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Old Notes were sold by the Company on January 3, 1997 through the
Initial Purchaser to "qualified institutional buyers" (as defined in Rule 144A
under the Securities Act) and institutional "accredited investors" within the
meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act. In
connection with the sale of the Old Notes, the Company, the Subsidiary
Guarantors and the Initial Purchaser entered into the Registration Rights
Agreement pursuant to which the Company and the Subsidiary Guarantors agreed to
cause to be filed with the Commission within 180 days of January 3, 1997 (the
date of original issue of the Old Notes), and use their best efforts to cause to
become effective on or prior to 150 days after the date of such filing, a
registration statement with respect to the Exchange Offer.
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However, if (i) because of any change in applicable law or policy thereof by the
Commission, the Company is not permitted to effect the Exchange Offer, (ii) the
Exchange Offer is not consummated within 180 days after the date of original
issue of the Old Notes, (iii) the Initial Purchaser so requests within six
months after consummation of the Exchange Offer with respect to the Old Notes
not eligible to be exchanged for New Notes in the Exchange Offer and held by it
following consummation of the Exchange Offer or (iv) any Holder of Old Notes
notified the Company within 20 days of the consummation of the Exchange Offer
that, for certain specified reasons, such Holder is precluded from participating
in the Exchange Offer or, in the case of any Holder that participates in the
Exchange Offer, such Holder does not receive freely tradeable New Notes on the
date of the exchange and such Holder notifies the Company within six months of
such date, the Company and the Subsidiary Guarantors shall (A) cause to become
effective a shelf registration statement (the "Shelf Registration Statement")
with respect to resales of the Old Notes, (B) keep the Shelf Registration
Statement effective until the earlier of (x) the time when the Senior Notes can
be sold pursuant to Rule 144(k) of the Securities Act, and (y) the date on which
all of the Senior Notes covered by the Shelf Registration Statement have been
sold pursuant thereto, and (C) during such period, upon request of any such
Holder of Old Notes, amend the Shelf Registration Statement to bring current the
information contained therein.
The Exchange Offer is being made by the Company to satisfy its obligations
pursuant to the Registration Rights Agreement. A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. Once the Exchange Offer is consummated, the Company
will have no further obligations to register any of the Old Notes not tendered
by the Holders for exchange, except pursuant to a Shelf Registration Statement
filed under the limited circumstances described in the immediately preceding
paragraph. Thereafter, any Holder of Old Notes who does not tender its Old Notes
in the Exchange Offer and which is not eligible to use such a Shelf Registration
Statement will continue to hold restricted securities which may not be offered,
sold or otherwise transferred, pledged or hypothecated except pursuant to Rule
144 and Rule 144A under the Securities Act or pursuant to any other exemption
from registration under the Securities Act relating to the disposition of
securities (in such case an opinion of counsel must be furnished to the Company
that such an exemption is available).
Based on interpretations by the staff of the Commission set forth in several
no-action letters issued to third parties, including the Exchange Offer
No-Action Letters, the Company believes that New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by Holders thereof who are not affiliates of the Company
(other than a broker-dealer who acquired such Old Notes directly from the
Company for resale pursuant to Rule 144A under the Securities Act or any other
available exemption under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act; PROVIDED
that the Holder is acquiring New Notes in its ordinary course of business and
has no arrangement or understanding with any person to participate in any
distribution (within the meaning of the Securities Act) of the New Notes.
Persons wishing to exchange Old Notes in the Exchange Offer must represent to
the Company that such conditions have been met. However, any Holder who may be
deemed an "affiliate" (as defined under Rule 405 of the Securities Act) of the
Company or who tenders in the Exchange Offer with the intention to participate,
or for the purpose of participating, in a distribution of the New Notes cannot
rely on the interpretation by the staff of the Commission set forth in such
no-action letters, including the Exchange Offer No-Action Letters, and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. In addition, any such
resale transaction should be covered by an effective registration statement
containing the selling security holders information required by Item 507 of
Regulation S-K of the Securities Act.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer in exchange for Old Notes where such Old Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities (other than acquisitions directly from the Company) must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. The Letter
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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 as aforesaid. The Company has agreed that for
a period of up to 180 days after the Expiration Date, it will use its reasonable
efforts to make this Prospectus available to such broker-dealers for use in
connection with any such resale. See "Plan of Distribution."
Except as set forth above, this Prospectus may not be used for an offer to
resell, or for a resale or other transfer of New Notes.
The Registration Rights Agreement provides that if, (a) by the 180th day (or
if such 180th day is not a business day, the first business day thereafter)
after the date of issue of the Old Notes, neither the Exchange Offer is
consummated nor the Shelf Registration Statement is declared effective or (b)
after either the Exchange Offer Registration Statement or the Shelf Registration
Statement is declared effective, such Registration Statement thereafter ceases
to be effective or usable (subject to certain exceptions) in connection with
resales of Old Notes or New Notes in accordance with and during the periods
specified in the Registration Rights Agreement (each such event referred to in
clauses (a) or (b) a "Registration Default"), then the Company will pay Old Note
Liquidated Damages to each Holder of Transfer Restricted Securities, during the
first 90-day period immediately following the occurrence of such Registration
Default, in an amount equal to $.05 per week per $1,000 principal amount of
Senior Notes constituting Transfer Restricted Securities held by such Holder.
The amount of the Old Note Liquidated Damages will increase an additional $.05
per week per $1,000 principal amount of Senior Notes constituting Transfer
Restricted Securities for each subsequent 90-day period until the applicable
Registration Default has been cured, up to a maximum amount of Liquidated
Damages of $.30 per week per $1,000 principal amount of Senior Notes
constituting Transfer Restricted Securities. All accrued Old Note Liquidated
Damages will be paid by the Company on each interest payment date to the Global
Note Holders by wire transfer of immediately available funds or by federal funds
check and to the Holders of certificated securities by mailing a check to such
Holders' registered addresses. Following the cure of all Registration Defaults,
the accrual of Old Note Liquidated Damages will cease. For purposes of the
foregoing, "Transfer Restricted Securities" means each Old Note until (i) the
date on which such Old Note has been exchanged by the person other than a
broker-dealer for a freely transferable New Note in the Exchange Offer, (ii)
following the exchange by a broker-dealer in the Exchange Offer of an Old Note
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
this Prospectus, (iii) the date on which such Old Note has been effectively
registered under the Securities Act and disposed of in accordance with the Shelf
Registration Statement or (iv) the date of which such Old Note is distributed to
the public pursuant to Rule 144 under the Securities Act or is saleable pursuant
to Rule 144(k) under the Securities Act.
TERMS OF THE EXCHANGE OFFER
GENERAL
Upon the terms and subject to the conditions of the Exchange Offer set forth
in this Prospectus and in the Letter of Transmittal, the Company will accept any
and all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New
York City time, on the Expiration Date. The Company will issue $1,000 principal
amount of New Notes in exchange for each $1,000 principal amount of outstanding
Old Notes accepted in the Exchange Offer. Holders may tender some or all of
their Old Notes pursuant to the Exchange Offer. However, Old Notes may be
tendered only in integral multiples of $1,000.
As of , 1997, there was $85.0 million aggregate principal amount of
the Old Notes outstanding. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered holders as of , 1997.
In connection with the issuance of the Old Notes, the Company arranged for
certain of the Old Notes to be issued and transferable in book-entry form
through the facilities of DTC, acting as depositary, and certain of the Old
Notes to be represented by a Certificated Security. The New Notes exchanged for
the
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Old Notes, including Certified Securities, will initially be issued and
transferable in book-entry form through DTC. See "Description of Senior Notes
- --Book-Entry Delivery and Form."
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Holders
of Old Notes for the purpose of receiving the New Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, any such unaccepted Old Notes will be returned (except as described
below with respect to tenders through DTC), without expense, to the tendering
Holder thereof as promptly as practicable after the Expiration Date.
Holders of Old Notes who tender in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay the expenses, other than
certain applicable taxes, of the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Company has the right to extend the Exchange Offer. In order to extend
the Expiration Date, the Company will notify the Exchange Agent of any extension
by oral or written notice, each prior to 9:00 a.m., New York City time, on the
next business day after the previously scheduled expiration date.
The Company reserves the right to delay accepting any Old Notes, to extend
the Exchange Offer, to amend the Exchange Offer or to terminate the Exchange
Offer and not accept Old Notes not previously accepted if the applicable
conditions set forth herein under "--Conditions" shall have occurred and shall
not have been waived by the Company by giving oral or written notice of such
delay, extension, amendment or termination to the Exchange Agent. Any such delay
in acceptance, extension, amendment or termination will be followed as promptly
as practicable by oral or written notice thereof. If the Exchange Offer is
amended in a manner determined by the Company to constitute a material change,
the Company will promptly disclose such amendment in a manner reasonably
calculated to inform the Holders of such amendment and the Company will extend
the Exchange Offer as necessary to provide to such Holders a period of five to
ten business days after such amendment, depending upon the significance of the
amendment and the manner of disclosure to Holders of the Old Notes, if the
Exchange Offer would otherwise expire during such five to ten business day
period.
Without limiting the manner in which the Company may choose to make public
announcement of any extension, amendment or termination of the Exchange Offer,
the Company shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
ACCRUED AMOUNTS ON THE SENIOR NOTES
The New Notes will bear interest at a rate equal to 12 1/4% per annum from
the last date on which interest was paid on the Old Notes surrendered in
exchange therefor or, if no interest has been paid, from the date of original
issuance of such Old Notes. Interest on the Senior Notes is payable
semi-annually on June 15 and December 15 of each year, commencing on June 15,
1997.
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PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a Holder of Old Notes must complete, sign
and date the Letter of Transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the instructions to the Letter of Transmittal,
and mail or otherwise deliver such Letter of Transmittal or such facsimile,
together with the Old Notes and any other required documents, so that it is
received by the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date.
Any financial institution that is a participant in DTC (the "Book-Entry
Transfer Facility") may make book-entry delivery of the Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account in accordance with the Book-Entry Transfer Facility procedure
for such transfer. Although delivery of Old Notes may be effected through
book-entry transfer into the Exchange Agent's account 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 or confirmed by the Exchange Agent at its address
set forth in "--Exchange Agent" below prior to 5:00 p.m., New York City time, on
the Expiration Date. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY
IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
The tender by a Holder will constitute an agreement between such Holder and
the Company in accordance with the terms and subject to the conditions set forth
herein and in the Letter of Transmittal.
Delivery of all documents must be made to the Exchange Agent at its address
set forth below. Holders may also request their respective brokers, dealers,
commercial banks, trust companies or nominees to effect the above transactions
for such Holders.
The method of delivery of the tendered Old Notes, the Letter of Transmittal
and all other required documents to the Exchange Agent is at the election and
risk of the Holder. Instead of delivery by mail, it is recommended that the
Holder use an overnight or hand delivery service. In all cases, sufficient time
should be allowed to assure timely delivery. No Letter of Transmittal or Old
Notes should be sent to the Company.
Only a Holder of Old Notes may tender such Old Notes in the Exchange Offer.
The term "Holder" with respect to the Exchange Offer means any person in whose
name Old Notes are registered on the books of the Company or any other person
who has obtained a properly completed bond power from the registered Holder.
ANY BENEFICIAL HOLDER WHOSE OLD NOTES ARE REGISTERED IN THE NAME OF ITS
BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE AND WHO WISHES
TO TENDER SHOULD CONTACT SUCH REGISTERED HOLDER PROMPTLY AND INSTRUCT SUCH
REGISTERED HOLDER TO TENDER ON ITS BEHALF. IF SUCH BENEFICIAL HOLDER WISHES TO
TENDER ON ITS OWN BEHALF, SUCH BENEFICIAL HOLDER MUST, PRIOR TO COMPLETING AND
EXECUTING THE LETTER OF TRANSMITTAL AND DELIVERING ITS OLD NOTES, EITHER MAKE
APPROPRIATE ARRANGEMENTS TO REGISTER OWNERSHIP OF THE OLD NOTES IN SUCH HOLDER'S
NAME OR OBTAIN A PROPERLY COMPLETED BOND POWER FROM THE REGISTERED HOLDER. THE
TRANSFER OF RECORD OWNERSHIP MAY TAKE CONSIDERABLE TIME.
Signatures on a Letter of Transmittal (or facsimile thereof) or a notice of
withdrawal, as the case may be, must be guaranteed by an Eligible Institution
(as defined below) unless the Old Notes tendered pursuant thereto are tendered
(i) by a registered Holder who has not completed the box entitled "Special
Payment Instructions" or "Special Delivery Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution. In the event
that signatures on a Letter of Transmittal (or facsimile thereof) a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantee
must be by or through a member firm of a registered national securities exchange
or of the National Association of
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Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an institution which falls within the
definition of "Eligible Guarantor Institution" contained in Rule 17Ad-15
promulgated by the Commission under the Exchange Act (each, an "Eligible
Institution").
If the Letter of Transmittal (or facsimile thereof) is signed by a person
other than the registered Holder of the Old Notes tendered thereby, such Old
Notes must be endorsed or accompanied by appropriate bond powers signed as the
name of the registered Holder(s) appear(s) on the Old Notes, with the signatures
on the endorsement or bond power guaranteed by an Eligible Institution.
If the Letter of Transmittal (or facsimile thereof) or any Old Notes or bond
powers are 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, evidence satisfactory to the Company of their
authority to so act must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Old Notes and withdrawal of tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding on all parties. The Company reserves the
absolute right to reject any and all Old Notes not properly tendered or any Old
Notes the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to the Exchange Offer and/or
particular Old Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in the Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be cured within such
time as the Company shall determine. None of the Company, the Exchange Agent nor
any other person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Old Notes, nor shall any of them incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which any defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering
Holder(s) of Old Notes, unless otherwise provided in the Letter of Transmittal,
as soon as practicable following the Expiration Date.
By tendering, each Holder will represent to the Company that, among other
things, the New Notes acquired 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 such New Notes, and that such Holder is not an "affiliate" (as defined under
Rule 405 of the Securities Act) of the Company or any of its subsidiaries. If
the Holder is a broker-dealer that will receive New Notes for its own account in
exchange for Old Notes that were acquired as a result of market-making
activities or other trading activities, such Holder by tendering will
acknowledge that it will deliver a Prospectus in connection with any resale of
such New Notes. See "Plan of Distribution."
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent, or cannot
complete the procedure for book-entry transfer, prior to 5:00 p.m. on the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by facsimile transmission, mail or hand delivery) setting forth the
name and address of the Holder of the Old Notes and the principal amount
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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
date of execution of the Notice of Guaranteed Delivery, the Letter of
Transmittal (or facsimile thereof) together with the certificate(s) representing
the Old Notes to be tendered in proper form for transfer (or a confirmation of a
book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility of Old Notes delivered electronically) and any other documents required
by the Letter of Transmittal will be deposited by the Eligible Institution with
the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or facsimile
thereof), as well as the certificate(s) representing all tendered Old Notes in
proper form for transfer (or a confirmation of a book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility of Old Notes
delivered electronically) and 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 date of execution of the Notice of Guaranteed
Delivery. Upon request to the Exchange Agent, a Notice of Guaranteed Delivery
will be sent to Holders who wish to tender their Old Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, 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
withdraw a tender of Old Notes in the Exchange Offer, a written or facsimile
transmission notice of withdrawal must be received by the Exchange Agent at its
address set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the principal amount of such
Old Notes), (iii) be 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 be accompanied by documents of
transfer sufficient to have the trustee with respect to the Old Notes register
the transfer of such Old Notes into the name of the person withdrawing the
tender, and (iv) specify the name in which any such Old Notes are to be
registered, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, which determination shall be final and binding on
all parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no New Notes will be issued with
respect thereto unless the Old Notes so withdrawn are validly retendered. Any
Old Notes which have been tendered but which are not accepted for payment will
be returned to the Holder thereof without cost to such Holder as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Old Notes may be retendered by 5:00 p.m. on following
one of the procedures described above under "--Procedures for Tendering" at any
time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company may
terminate or amend the Exchange Offer as provided herein and will not be
required to accept for exchange, or exchange New Notes for, any Old Notes not
theretofore accepted for exchange, if any of the following conditions exist:
(a) the Exchange Offer, or the making of any exchange by a Holder,
violates applicable law or any applicable policy of the Commission; or
(b) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Company, might impair the ability
of the Company to proceed with the Exchange Offer; or
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(c) there shall have been adopted or enacted any law, statute, rule or
regulation which, in the reasonable judgment of the Company, might
materially impair the ability of the Company to proceed with the Exchange
Offer.
If any such conditions exist, the Company may (i) refuse to accept any Old
Notes and return all tendered Old Notes to exchanging Holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of the
Exchange Offer, subject, however, to the rights of Holders to withdraw such Old
Notes (see "--Withdrawal of Tenders") or (iii) waive certain of such conditions
with respect to the Exchange Offer and accept all properly tendered Old Notes
which have not been withdrawn. If such waiver constitutes a material change to
the Exchange Offer, the Company will promptly disclose such waiver in a manner
reasonably calculated to inform Holders of Old Notes of such waiver.
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 addition, (i) if, because of any change in applicable law or applicable
policy thereof by the Commission the Company is not permitted to effect the
Exchange Offer, (ii) the Exchange Offer is not consummated within 180 days after
the date of original issue of the Old Notes, (iii) the Initial Purchaser so
requests within six months after consummation of the Exchange Offer with respect
to the Old Notes not eligible to be exchanged for New Notes in the Exchange
Offer and held by it following consummation of the Exchange Offer or (iv) any
Holder of Old Notes notified the Company within 20 days of the consummation of
the Exchange Offer that, for certain specified reasons, such Holder is precluded
from participating in the Exchange Offer or, in the case of any Holder that
participates in the Exchange Offer, such Holder does not receive freely
tradeable New Notes on the date of the exchange and such Holder notifies the
Company within six months of such date, then the Company shall file a Shelf
Registration Statement. Thereafter, the Company's obligation to consummate the
Exchange Offer shall be terminated.
EXCHANGE AGENT
IBJ Schroder Bank & Trust Company has been appointed as Exchange Agent for
the Exchange Offer. 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:
BY REGISTERED OR CERTIFIED MAIL:
IBJ Schroder Bank & Trust Company
Bowling Green Station
P.O. Box 84
New York, New York 10274-0084
Attention: Reorganization Operations Department
BY HAND OR OVERNIGHT COURIER:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Securities Processing Window
Subcellar one, (SC-1)
By facsimile: (212) 858-2611
Attention: Customer Service
Confirm by telephone: (212) 858-2103
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FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. The
Company may also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of the Prospectus and related documents to the beneficial owners of the
Old Notes, and in handling or forwarding tenders for exchange.
The cash expenses incurred in connection with the sale of the Old Notes and
to be incurred in connection with the Exchange Offer will be paid by the
Company, are estimated in the aggregate not to exceed $1.3 million, and include
fees and expenses of the Exchange Agent and Trustee under the Indenture and
accounting and legal fees.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the Holder of the Old Notes tendered, or
if tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the Holder or any
other person(s)) will be payable by the tendering Holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
the Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering Holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
that is, face value less unamortized original issue discount as reflected in the
Company's accounting records on the date of the exchange. Accordingly, no gain
or loss for accounting purposes will be recognized upon the consummation of the
Exchange Offer. The issuance costs incurred in connection with the Exchange
Offer will be capitalized and amortized over the term of the New Notes.
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THE COMPANY
The Company is a leading distributor of replacement parts, supplies and
specialized equipment to the apparel and other sewn products industry. It is a
Delaware corporation with its principal executive offices located at 900 Milik
Street, Carteret, New Jersey 07008 (telephone: (908) 541-6255).
COMPANY HISTORY
Willcox & Gibbs is a holding company which was organized on May 13, 1994
under the name "WG, Inc." by an investor group, which included members of the
Company's current management, to acquire the Distribution Business from the
Company's Predecessor. The Company's Predecessor was incorporated in 1866 as a
manufacturer of sewing equipment. In the late 1960s, as sewing equipment
manufacturing migrated overseas, the Company's Predecessor shifted its business
into the distribution of replacement parts and supplies for the apparel and
other sewn products industry. Parts and supply distribution remained the primary
focus of the Company's Predecessor until 1984, when it expanded into the
distribution of electrical parts. Due to the large and fragmented nature of U.S.
electrical parts distribution, this segment grew rapidly and, by 1993,
represented approximately 85.0% of the net sales of the Company's Predecessor.
In 1994, the Board of Directors of the Company's Predecessor decided to focus on
electrical parts distribution and divest its other businesses.
On July 13, 1994, the Company, through its wholly owned subsidiary, WG
Apparel, Inc. ("WG Apparel"), acquired the assets of Sunbrand and Unity, as well
as the stock of Leadtec and W&G, Ltd., and certain other assets in exchange for
$41.0 million in cash, $3.0 million principal amount of subordinated debt and a
warrant to purchase 122,970 shares of common stock of the Company. The cash
portion of such purchase price was funded through approximately $36.2 million of
borrowings and $4.8 million from the sale of common stock of the Company. On
July 26, 1995, the Company repurchased from the Company's Predecessor such
subordinated debt and warrants, together with certain other assets (including
the name "Willcox & Gibbs, Inc."), for approximately $4.1 million in cash.
Effective January 1, 1996, the Company changed its name to Willcox & Gibbs, Inc.
THE CLINTON ACQUISITION
Effective as of February 1, 1996, the Company acquired all of the
outstanding capital stock of Clinton, a leading distributor of screen printing
equipment and supplies for the apparel industry. See "Business-- Clinton." The
purchase price for Clinton consisted of $4.0 million in cash, 100,000 shares of
the Company's common stock, the assumption of $4.5 million of indebtedness and
payables, which was subsequently repaid, and contingent payments of up to 38.9%
of the operating income of Clinton during each of the five years ending December
31, 2000. Such contingent payments may not exceed $10.5 million in the aggregate
over such five year period. In addition, the former shareholders of Clinton have
the right to require WG Apparel to purchase their shares of Company common stock
at a purchase price of $30 per share on the earliest of (i) the day after the
Senior Notes have become due by occurrence of the scheduled maturity date or
sooner acceleration, (ii) the fourth anniversary of the closing date of the
Clinton Acquisition, (iii) the occurrence of an initial public offering of
equity securities by the Company and (iv) a change of control of the Company,
PROVIDED that in the case of clauses (ii) and (iii) such purchase is then
permitted under the Indenture and the New Credit Facility. The Company's
obligation to make contingent payments and to perform the put right is an
unsecured obligation of the Company.
THE MITCHELL ACQUISITION
Effective November 27, 1996, the Company acquired certain assets of Mitchell
for $3.0 million in cash. The acquired assets relate to the manufacture and sale
of abrasive cords and tapes used principally in the apparel industry.
35
<PAGE>
THE MACPHERSON ACQUISITION
On January 3, 1997, the Company acquired all of the outstanding capital
stock of Macpherson for a cash purchase price of $24.0 million. In connection
with the Macpherson Acquisition, the Company assumed (and repaid immediately
using a portion of the net proceeds from the sale of the Old Notes)
approximately $6.1 million of indebtedness of Macpherson and approximately $6.4
million of trade payables of Macpherson. Macpherson is principally engaged in
the distribution of embroidery equipment and supplies to the apparel industry.
Macpherson also distributes engraving equipment, but the Company intends to
discontinue this business in 1997. Accordingly, this line of business will be
classified as discontinued operations for purposes of the Company's financial
statements. On a pro forma basis assuming the Clinton Acquisition, the Mitchell
Acquisition and the Macpherson Acquisition were consummated on January 1, 1996,
the Company's net sales and income from continuing operations before
extraordinary item for 1996 would have been $184.6 million and $13.8 million,
respectively.
As a result of the Macpherson Acquisition, the Company is the exclusive
distributor in the United States and Canada through 2003 of embroidery equipment
manufactured by Barudan, and Barudan products accounted for approximately 78% of
Macpherson's total purchases in 1996. In connection with the Macpherson
Acquisition, the Company, Macpherson, and Barudan entered into an agreement
providing for a reduction in the prices charged to Macpherson for Barudan
equipment during the year after the consummation of the Macpherson Acquisition
and for Barudan to use its best efforts to maintain pricing after such initial
year that results in gross profit margins for Macpherson comparable to such
first year's pricing. In exchange, Macpherson agreed to pay for the Barudan
equipment it purchases within a shorter time period after invoiced. As a result,
approximately $6.4 million of Macpherson's outstanding payables were paid from
the net proceeds of the sale of the Old Notes in order to comply with the
revised timetable for payments. On a pro forma basis, these agreements would
have increased the Company's gross profit by $1.6 million for 1996, assuming the
effectiveness of the Macpherson Acquisition as of January 1, 1996. See "Pro
Forma Combined Financial Information."
In connection with the Macpherson Acquisition, the Company acquired the
Leasing Company, a leasing company affiliate of Macpherson, for approximately
$0.5 million, payable over three years, plus interest at 6.0% per annum. The
Leasing Company commenced operations in March 1996. The Company intends to
utilize the Leasing Company to offer flexible lease financing to its customers
to support the Company's sales of equipment. The Leasing Company will be an
Unrestricted Subsidiary for purposes of the Indenture.
The Macpherson Acquisition expanded the Company's product line to include
the distribution of embroidery equipment and supplies to the apparel industry.
The market for embroidery equipment has grown rapidly over the past ten years.
The Company acquired Macpherson to take advantage of the expanding demand for
such equipment and of the ability to market such equipment and the Company's
complementary line of screen printing equipment to the same end-user group. In
addition, the Company believes that Macpherson's embroidery equipment can be
efficiently marketed through the Company's existing distribution network without
substantial additional expense. The acquisition of the Leasing Company will
further the Company's objective of being a "one-stop shop" for its customers by
enabling the Company to offer attractive financing options to support the sale
of its equipment.
36
<PAGE>
CAPITALIZATION
The following table sets forth as of December 31, 1996, the consolidated
capitalization of the Company (i) on an historical basis and (ii) on a pro forma
basis assuming that the sale of the Old Notes, the application of the net
proceeds therefrom and the Macpherson Acquisition each had occurred as of such
date. See "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1996(9)
----------------------
<S> <C> <C>
ACTUAL PRO FORMA
--------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term debt, including current maturities(1):
Old Credit Facility, due 2001(2)....................................................... $ 19,347 $ --
New Credit Facility(3)................................................................. -- 1,255
Senior note payable, due 2000(4)....................................................... 12,802 --
Senior note payable, due 2001(5)....................................................... 6,471 --
Senior note payable, due 2001(6)....................................................... 902 --
Senior note payable, due 2001(7)....................................................... 200 --
Variable W&G, Ltd. Credit Facility(8).................................................. 1,713 1,713
Senior Notes, net of debt discount of $1,487........................................... -- 83,513
--------- -----------
Total long-term debt including current maturities.................................... 41,435 86,481
Common stock subject to put option....................................................... 3,000 3,000
Total stockholders' equity............................................................... 12,677 8,210
--------- -----------
Total capitalization..................................................................... $ 57,112 $ 97,691
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) For further description of the Company's long-term debt, see Notes 5 and 6
of Notes to the Consolidated Financial Statements of the Company.
(2) For further description of the Old Credit Facility, see "Use of Proceeds."
(3) For further description of the New Credit Facility, see "Description of
Certain Indebtedness."
(4) Variable interest rate senior note payable, with final installment due July
13, 2000.
(5) 12.95% senior note payable, due July 13, 2001, net of unamortized discount
of $529.
(6) 10.98% senior note payable, due July 13, 2001, net of unamortized discount
of $298.
(7) 11.66% senior note payable, due July 13, 2001.
(8) Variable interest rate note payable, denominated in pound sterling with
final payment due in September 2000.
(NOTES CONTINUED ON THE NEXT PAGE.)
37
<PAGE>
(9) The following table sets forth the estimated sources and uses of funds in
connection with the sale of the Old Notes, the Mitchell Acquisition and the
Macpherson Acquisition, assuming that each had occurred as of December 31,
1996.
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
--------------------
<S> <C>
SOURCES OF FUNDS:
Old Notes............................................................. $ 79,238
New Credit Facility................................................... 1,255
Cash on hand.......................................................... 1,200
-------
Total sources..................................................... $ 81,693
-------
-------
USES OF FUNDS:
Repayment of debt..................................................... $ 39,723
Unamortized discount relating to debt repayment....................... 827
Repurchase of warrants................................................ 3,026
Macpherson Acquisition:
Cash purchase price................................................. 24,000
Repayment of debt................................................... 6,710
Repayment of trade payables......................................... 6,442
Payment of phantom stock plan liability............................. 1,043
Payment of receivable due from affiliate of Macpherson.............. (78)
-------
Total uses........................................................ $ 81,693
-------
-------
</TABLE>
38
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Statement of Operations for the
year ended December 31, 1996 gives effect to the Transactions as if each had
occurred at the beginning of the period presented, except that Clinton's results
of operations for the period after February 1, 1996 (the effective date of the
Clinton Acquisition) and Mitchell's results of operations for the period after
November 27, 1996 (the effective date of the Mitchell Acquisition) are included
in Willcox & Gibbs' results of operations for such period.
The Unaudited Pro Forma Combined Financial Statements have been prepared
using the purchase method of accounting for the Mitchell Acquisition and the
Macpherson Acquisition, whereby the total cost of each acquisition is allocated
to the tangible and intangible assets acquired and liabilities assumed based
upon their respective fair values at the effective date of such acquisition. For
purposes of the Unaudited Pro Forma Combined Financial Statements, such
allocations have been made based upon currently available information and
management's estimates.
The Unaudited Pro Forma Combined Statement of Operations for the year ended
December 31, 1996 is based on the respective audited financial statements for
the year ended December 31, 1996 of the Company and Macpherson and the unaudited
financial statements for the year ended December 31, 1996 of Clinton and
Mitchell. The unaudited financial statements reflect all adjustments, consisting
of normal recurring accruals, which in the opinion of management of the
applicable company are necessary for a fair presentation of results for the
respective periods.
The Unaudited Pro Forma Combined Financial Statements do not purport to
represent what the results of operations of the Company would actually have been
if any of the Transactions had occurred on such date or to project the results
of operations of the Company for any future date or period. The Unaudited Pro
Forma Combined Financial Statements set forth below should be read in
conjunction with the respective Consolidated Financial Statements and Notes
thereto of the Company, Macpherson and Clinton included elsewhere in this
Prospectus, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--The Company" and "--Macpherson."
39
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLINTON/ MACPHERSON/
WILLCOX & MITCHELL LEASING
GIBBS (A) COMPANY (B) ADJUSTMENTS PRO FORMA
---------- ----------- ------------ ----------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales....................................... $ 113,851 $ 2,975 $ 67,767 $ -- $ 184,593
Cost of goods sold.............................. 77,623 1,888 50,221 (1,599)(c) 128,133
---------- ----------- ------------ ----------- -----------
Gross profit.............................. 36,228 1,087 17,546 1,599 56,460
Selling, general and administrative
expenses...................................... 28,969 758 13,542 (629)(d) 42,640
---------- ----------- ------------ ----------- -----------
Operating income.......................... 7,259 329 4,004 2,228 13,820
Interest expense................................ 4,824 21 781 5,864(e) 11,490
Other income (expense).......................... 15 (14) (1,161) 839(f) (321)
---------- ----------- ------------ ----------- -----------
Income before income taxes................ 2,450 294 2,062 (2,797) 2,009
Income taxes.................................... 1,137 -- 54 (222)(g) 969
---------- ----------- ------------ ----------- -----------
Income from continuing operations......... $ 1,313 $ 294 $ 2,008 $ (2,575) $ 1,040
---------- ----------- ------------ ----------- -----------
---------- ----------- ------------ ----------- -----------
OTHER OPERATING DATA:
EBITDA(h)....................................... $ 8,635 $ 340 $ 3,161 $ 3,574 $ 15,710
Depreciation and amortization................... 1,361 25 318 507 2,211
Capital expenditures............................ 1,247 10 282 -- 1,539
SELECTED RATIOS:
EBITDA/cash interest expense.................... -- -- -- -- 1.47x
EBITDA less capital expenditures/cash interest
expense....................................... -- -- -- -- 1.33x
Total debt/EBITDA(i)............................ -- -- -- -- 5.50x
Ratio of earnings to fixed charges(j)........... -- -- -- -- 1.17x
</TABLE>
See Notes to Unaudited Pro Forma Combined Statements of Operations.
40
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(a) Reflects for the year ended December 31, 1996, the historical operating
results of Clinton for one month and Mitchell for eleven months, since
Clinton was acquired by the Company on February 1, 1996 and Mitchell was
acquired on November 27, 1996. Clinton's results of operations for the
period after February 1, 1996 and Mitchell's results of operations for the
period after November 27, 1996 are included in Willcox & Gibbs' results of
operations for the year ended December 31, 1996.
(b) Reflects for the year ended December 31, 1996, the historical operating
results from continuing operations of Macpherson and the Leasing Company for
the period ended December 31, 1996. The Leasing Company commenced operations
in March 1996. Does not reflect net sales of $2.9 million, operating loss of
$0.5 million, and net loss of $0.5 million for the year ended December 31,
1996 attributable to Macpherson's engraving equipment distribution business,
which the Company discontinued upon consummation of the Macpherson
Acquisition.
(c) Reflects the impact of reduction in prices charged to Macpherson for Barudan
equipment. See "The Macpherson Acquisition."
(d) Reflects the net reduction in officers' compensation and other benefits
implemented as a result of the Clinton Acquisition and the Macpherson
Acquisition. The adjustment also reflects changes in goodwill amortization
as a result of the Transactions.
(e) Reflects (i) pro forma interest expense calculated using an interest rate of
12 1/4% per annum on the Senior Notes, 9.0% per annum on the New Credit
Facility and 8.25% on the W&G Ltd. Credit Facility, (ii) the repayment of
all existing indebtedness, (iii) estimated amortization of deferred
financing costs at a rate of $0.6 million per annum, and (iv) amortization
of debt discount at a rate of approximately $0.2 million per annum. See
"Capitalization."
(f) Reflects (i) the reduction in financing costs as a result of the agreement
to shorten the time to pay for purchases of Barudan equipment and (ii) costs
incurred by Macpherson in connection with the Macpherson Acquisition. See
"The Macpherson Acquisition" and Note 12 to the Consolidated Financial
Statements of Macpherson.
(g) Reflects an assumed 38.0% corporate income tax rate for the operations of
Clinton, Mitchell and Macpherson, which have operated as Subchapter S
corporations under the Internal Revenue Code and, accordingly, the income of
such companies was taxed directly to their respective shareholders.
(h) EBITDA represents income before income taxes plus interest expense,
depreciation and amortization for the applicable company and, in the case of
Willcox & Gibbs, certain other noncash charges included in cost of goods
sold relating to the amortization of the step-up in basis of the inventory
purchased in the Management Buyout. EBITDA should not be considered as an
alternative measure of net income or cash provided by operating activities
(both as determined in accordance with generally accepted accounting
principles), but is presented to provide additional information relating to
the Company's debt service capability. EBITDA should not be considered in
isolation or as a substitute for other measures of financial performance or
liquidity.
(i) Total debt includes $85.0 million in Senior Notes, net of discount, plus
$1.3 million of indebtedness incurred under the New Credit Facility and $1.7
million under the W&G Ltd. Credit Facility at the end of the periods
presented.
(j) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, earnings include pre-tax income from
continuing operations plus fixed charges. Fixed charges include interest,
whether expensed or capitalized, amortization of debt expense and a portion
of rental expense which is representative of the interest factor in these
rentals.
41
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
WILLCOX & GIBBS
The selected data presented below under the captions "Statement of
Operations Data" and "Balance Sheet Data" as of the end of December 31, 1994,
1995 and 1996 and for the years ended December 31, 1995 and 1996 and the period
from July 13, 1994 to December 31, 1994, are derived from the consolidated
financial statements of the Company, which financial statements have been
audited by KPMG Peat Marwick LLP, independent certified public accountants. The
selected data presented below under the captions "Statement of Operations Data"
for the period from January 1, 1994 to July 12, 1994, are derived from the
consolidated statement of operations of the Company's Predecessor, which
financial statement has been audited by KPMG Peat Marwick LLP. The "Statement of
Operations Data" for the years ended December 31, 1992 and 1993 are unaudited.
The financial statements of the Company's Predecessor for the years ended
December 31, 1992 and 1993 and for the period from January 1, 1994 to July 12,
1994 have been prepared as if the apparel operations had been operated as a
separate entity during those periods. However, such financial statements do not
reflect a complete allocation of all expenses applicable to the operation of an
independent company. Certain expenses were allocated to the apparel operations
by the Company's Predecessor based on actual usage or other allocation methods
that approximate actual usage. The following table also sets forth selected
consolidated financial information of the Company as of March 31, 1997 and for
the three months ended March 31, 1996 and 1997. Such information was derived
from the unaudited consolidated financial statements of the Company. Such
unaudited consolidated financial statements, in the opinion of the Company's
management, include all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of the financial position and results of
operations for such periods. The results of operations for the three months
ended March 31, 1997 are not necessarily indicative of results that may be
expected for the full year. The consolidated financial statements of the Company
as of December 31, 1995 and 1996, and for the years ended December 31, 1995 and
1996 and the period from July 13, 1994 to December 31, 1994 and of the Company's
Predecessor for the period from January 1, 1994 to July 12, 1994, and the report
thereon and the unaudited consolidated financial statements of the Company as of
March 31, 1997 and for the three months ended March 31, 1996 and 1997, are
included elsewhere in this prospectus. The selected consolidated financial
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations--The
Company" and the Consolidated Financial Statements and Notes thereto of the
Company and the Company's Predecessor included elsewhere in this Prospectus.
42
<PAGE>
<TABLE>
<CAPTION>
COMPANY'S PREDECESSOR
-------------------------------------
YEAR ENDED COMPANY
DECEMBER 31, JANUARY 1, 1994 -----------------------------------------------------------
-------------------- TO JULY 12, JULY 13, 1994 TO YEAR ENDED YEAR ENDED
1992 1993 1994 DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
--------- --------- --------------- ------------------- ------------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................... $ 76,048 $ 77,574 $ 41,309 $ 41,644 $ 90,431 $ 113,851
Cost of goods sold............. 47,821 49,228 26,909 29,162 60,642 77,623
--------- --------- ------- ------- ------- --------
Gross profit................. 28,227 28,346 14,400 12,482 29,789 36,228
Selling, general and
administrative expenses...... 20,814 21,315 11,997 11,264 23,606 28,969
--------- --------- ------- ------- ------- --------
Operating income............. 7,413 7,031 2,403 1,218 6,183 7,259
Interest expense............... 1,993 2,307 1,390 1,946 4,249 4,824
Other (income) expense......... (55) 145 224 (86) (18) (15)
--------- --------- ------- ------- ------- --------
Income (loss) before income
taxes and extraordinary
item....................... 5,475 4,579 789 (642) 1,952 2,450
Income tax expense (benefit)... 272 146 426 (288) 558 1,137
--------- --------- ------- ------- ------- --------
Income (loss) before
extraordinary item......... 5,203 4,433 363 (354) 1,394 1,313
Extraordinary item, net........ -- -- -- -- (152) --
--------- --------- ------- ------- ------- --------
Net income (loss)............ $ 5,203 $ 4,433 $ 363 $ (354) $ 1,242 $ 1,313
--------- --------- ------- ------- ------- --------
--------- --------- ------- ------- ------- --------
OTHER OPERATING DATA:
EBITDA (a)..................... $ 8,123 $ 7,744 $ 2,580 $ 4,370 $ 8,062 $ 8,635
Depreciation and
amortization................. 655 858 401 3,066 1,861 1,361
Capital expenditures........... 381 712 346 272 771 1,247
Ratio of earnings to fixed
charges (b).................. 3.47x 2.80x 1.52x 0.70x 1.42x 1.46x
BALANCE SHEET DATA
(AT PERIOD END):
Working capital................ $ 24,563 $ 21,924 $ 18,653
Total assets................... 51,717 52,528 79,728
Total debt..................... 32,224 31,109 41,435
Common stock subject to put
option....................... 3,000
Total stockholders' equity..... 5,967 7,892 12,677
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------------------
1996 1997
--------- ---------
<S> <C> <C>
(UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................... $ 26,320 $ 42,043
Cost of goods sold............. 17,976 29,084
--------- ---------
Gross profit................. 8,344 12,959
Selling, general and
administrative expenses...... 6,763 10,974
--------- ---------
Operating income............. 1,581 1,985
Interest expense............... 1,100 2,882
Other (income) expense......... 14 39
--------- ---------
Income (loss) before income
taxes and extraordinary
item....................... 495 (858)
Income tax expense (benefit)... 179 (355)
--------- ---------
Income (loss) before
extraordinary item......... 316 (503)
Extraordinary item, net........ - (1,557)
--------- ---------
Net income (loss)............ $ 316 $ (2,060)
--------- ---------
--------- ---------
OTHER OPERATING DATA:
EBITDA (a)..................... $ 1,941 $ 2,547
Depreciation and
amortization................. 345 524
Capital expenditures........... 190 477
Ratio of earnings to fixed
charges (b).................. 1.26x 0.84x
BALANCE SHEET DATA
(AT PERIOD END):
Working capital................ $ 55,954
Total assets................... 132,641
Total debt..................... 90,025
Common stock subject to put
option....................... 3,000
Total stockholders' equity..... 7,445
</TABLE>
(FOOTNOTES TO THE SELECTED HISTORICAL FINANCIAL INFORMATION ON FOLLOWING PAGE.)
43
<PAGE>
MACPHERSON
The following table sets forth selected consolidated financial information
of Macpherson as of December 31, 1994, 1995 and 1996 and for the years then
ended. Such information was derived from the Consolidated Financial Statements
of Macpherson, which have been audited by Arthur Andersen LLP and are included
elsewhere in this Prospectus. The selected consolidated financial information
set forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Macpherson" and the
Consolidated Financial Statements and Notes thereto of Macpherson included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................................................ $ 68,861 $ 71,667 $ 70,058
Cost of goods sold............................................................... 52,216 53,769 52,610
--------- --------- ---------
Gross profit................................................................... 16,645 17,898 17,448
Operating expenses............................................................... 13,566 13,587 14,211
--------- --------- ---------
Operating income............................................................... 3,079 4,311 3,237
Interest expense................................................................. 390 218 781
Other expense.................................................................... 643 768 1,162
--------- --------- ---------
Income before taxes.............................................................. 2,046 3,325 1,294
Income taxes..................................................................... 54 76 54
--------- --------- ---------
Net income..................................................................... $ 1,992 $ 3,249 $ 1,240
--------- --------- ---------
--------- --------- ---------
OTHER OPERATING DATA:
EBITDA(a)........................................................................ $ 2,650 $ 3,715 $ 2,393
Depreciation and amortization.................................................... 214 172 318
Capital expenditures............................................................. 171 178 282
Ratio of earnings to fixed charges(b)............................................ 4.46x 9.37x 2.36x
BALANCE SHEET DATA (AT PERIOD END):
Working capital.................................................................. $ 9,721 $ 10,925 $ 9,965
Total assets..................................................................... 31,458 44,403 38,864
Total debt....................................................................... 2,820 4,947 6,710
Stockholders' equity............................................................. 9,794 11,375 10,963
</TABLE>
- ------------------------
(a) EBITDA represents income before income taxes plus interest expense,
depreciation and amortization for the applicable company and, in the case of
Willcox & Gibbs, certain other noncash charges included in cost of goods
sold relating to the amortization of the step-up in basis of the inventory
purchased in the Management Buyout. EBITDA should not be considered as an
alternative measure of net income or cash provided by operating activities
(both as determined in accordance with generally accepted accounting
principles), but is presented to provide additional information relating to
the Company's debt service capability. EBITDA should not be considered in
isolation or as a substitute for other measures of financial performance or
liquidity.
(b) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, earnings include pre-tax income from
continuing operations plus fixed charges. Fixed charges include interest,
whether expensed or capitalized, amortization of debt expense and a portion
of rental expense which is representative of the interest factor in these
rentals.
44
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--THE COMPANY
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO AND SELECTED HISTORICAL
FINANCIAL INFORMATION INCLUDED ELSEWHERE HEREIN.
GENERAL
Willcox & Gibbs was organized in 1994 by members of the Company's current
management and certain other investors to acquire the Distribution Business,
which occurred on July 13, 1994. As a result, the Company's financial statements
for the period ended December 31, 1994 reflect the Company's results of
operations for the period beginning July 13, 1994 and ending on December 31,
1994. The financial statements of the Distribution Business for the period
January 1, 1994 to July 12, 1994 have been prepared as if the Distribution
Business had been operated as a separate entity during that period. However,
such financial statements do not reflect a complete allocation of all expenses
applicable to the operation of an independent company. Certain expenses were
allocated to the Distribution Business by the Company's Predecessor based on
actual usage or other allocation methods that approximate actual usage. For
purposes of the discussion of the Company's 1994 results of operations below,
the Company has combined the results for such two periods of 1994 (the "Combined
1994"). However, results for 1995 and 1994 are not directly comparable because
of differences arising from the Company's operations as a separate entity
beginning July 13, 1994. In addition, Combined 1994 does not purport to reflect
the results of the Company had the Management Buyout occurred on January 1,
1994.
Effective February 1, 1996, the Company acquired Clinton, a distributor of
screen printing equipment for the apparel industry. Approximately 25.2% of the
Company's net sales for the year ended December 31, 1996, are attributable to
the operations of Clinton. Accordingly, the results of the Company for the year
ended December 31, 1996 are not directly comparable to the results for the year
ended December 31, 1995 due to the inclusion of the operations of Clinton in the
1996 period. Approximately 18.7% of the Company's net sales for the three months
ended March 31, 1997, are attributable to the operations of Clinton.
Accordingly, the results of the Company for the three months ended March 31,
1997 are not directly comparable to the results for the three months ended March
31, 1996 due to the inclusion of the operations of Clinton in the full 1997
period.
In addition, on January 3, 1997, the Company acquired Macpherson.
Approximately 27.4% of the Company's net sales for the three months ended March
31, 1997 are attributable to the operations of Macpherson. Accordingly, the
results of the Company for the first three months of 1997 are not directly
comparable to the results for the same period in 1996 due to the inclusion of
the operations of Macpherson in the 1997 period. See "The Macpherson
Acquisition."
The Company currently operates through six principal business units: (i) its
Sunbrand division, which is a distributor of replacement parts, supplies and
specialized equipment to manufacturers of apparel and other sewn products; (ii)
its Unity division, which is a wholesale distributor to dealers of replacement
parts and supplies for use by the apparel and other sewn products industry;
(iii) its W&G, Ltd. subsidiary, which is a distributor to manufacturers and
dealers in the United Kingdom and Europe of replacement parts and supplies for
use by the apparel and other sewn products industry; (iv) its Clinton
subsidiary, which is a distributor of screen printing equipment and supplies for
the apparel industry; (v) its Leadtec subsidiary, which develops and supplies
computer-based production planning and control systems for the apparel industry
and (vi) Macpherson, which distributes embroidery equipment and supplies used in
the apparel industry. See "The Macpherson Acquisition."
CERTAIN FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS
Inventory management is an important factor that may affect the Company's
results of operations. The carrying value of the Company's inventory increased
significantly in the first quarter of 1997 as a result
45
<PAGE>
of the acquisition of Macpherson. Macpherson distributes embroidery equipment
that is substantially more expensive on a per item basis than the Company's
historic inventory, which was composed principally of replacement parts and
supplies for use in the apparel and sewn products industry. The Company
maintains an inventory of a large number of items, many of which need not be
replaced frequently. In general, the Company's experience over many years of
supplying the apparel and sewn products industries combined with the Company's
technologically advanced inventory control system provide guidance on prudent
inventory levels. However, because demand for the Company's products is
dependent on the needs of the apparel and sewn products industries, a decline in
the operations of the Company's customers will reduce demand for the Company's
products. Any such reduction in demand over an extended period could result in
price reductions and inventory writedowns, which in turn could adversely affect
the Company's gross margins.
In the years ended December 31, 1995 and 1996, approximately 25.9%, and
34.2%, respectively, of the Company's revenues were derived from international
operations and export sales, which are subject in varying degrees to risks
inherent in doing business abroad. Such risks include the possibility of
unfavorable circumstances arising from host country laws or regulations. In
addition, foreign operations include risks of partial or total expropriation;
currency exchange rate fluctuations and restrictions on currency repatriation;
the disruption of operations from labor and political disturbances, insurrection
or war; and the requirements of partial local ownership of operations in certain
countries.
The Company purchases products from domestic and foreign suppliers.
Purchases from foreign suppliers may be denominated in a foreign currency. The
Company may enter into forward foreign exchange contracts in order to establish
the dollar cost of purchases from its suppliers payable in a foreign currency.
The terms of these contracts will be less than one year. The Company does not
engage in foreign currency speculation.
Inflation has not affected the Company's results over the last several
years, given its relatively low level in the United States during such period.
RESULTS OF OPERATIONS
The following table sets forth the percentages that certain income and
expense items bear to net sales for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994
(COMBINED) 1995 1996 1996 1997
------------- --------- --------- --------- ---------
Net sales.......................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit....................................................... 32.4 32.9 31.8 31.7 30.8
Selling, general and administrative expenses....................... 28.0 26.1 25.4 25.7 26.1
Operating income................................................... 4.4 6.8 6.4 6.0 4.7
Interest expense................................................... 4.0 4.7 4.2 4.2 6.9
Income taxes....................................................... 0.2 0.6 1.0 0.7 (0.7)
Net income......................................................... 0.0 1.4 1.2 1.2 (4.9)
----- --------- --------- --------- ---------
----- --------- --------- --------- ---------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31,
1996
Net sales were $42.0 million in the first three months of 1997, an increase
of $15.7 million, or 59.7%, as compared to the first three months of 1996. Net
sales increased primarily as a result of the inclusion in the 1997 period of the
results of Macpherson, acquired in January 1997, Clinton, acquired in February
1996, and E.C. Mitchell Co., Inc. ("Mitchell"), a manufacturer of abrasive cords
and tapes used principally
46
<PAGE>
by apparel manufacturers, acquired in November 1996. These acquisitions
contributed an aggregate additional $14.0 million to net sales in the first
three months of 1997, as compared with the first three months of 1996.
Gross profit in the first three months of 1997 was $13.0 million, an
increase of $4.6 million, or 55.3%, as compared with the same period in 1996.
Gross profit increased primarily due to the inclusion of Macpherson, Clinton and
Mitchell in the 1997 period. As a percentage of net sales, gross profit in the
first three months of 1997 was 30.8%, as compared with 31.7% in the same period
of 1996. The decrease in gross profit percentage was attributable to Macpherson
and Clinton. Macpherson's and Clinton's gross profit margins have traditionally
been lower than the gross profit margin associated with the Company's parts and
supplies businesses because a larger percentage of their sales are for
equipment.
Selling, general and administrative expenses in the first three months of
1997 were $11.0 million, an increase of $4.2 million, or 62.3%, as compared to
the first three months of 1996. The increase consisted of the addition of $3.5
million of operating expenses for Macpherson, Clinton and Mitchell. As a
percentage of sales, such expenses increased to 26.1% for the first three months
of 1997, from 25.7% for the same period in 1996, primarily related to the
Macpherson Acquisition.
Operating income in the first three months of 1997 was $2.0 million, an
increase of $0.4 million, or 25.6%, as compared to the first three months of
1996. The increase in operating income resulted from an increase in sales and
the factors discussed above. As a percentage of net sales, operating income was
4.7% in the first three months of 1997, as compared to 6.0% in the first three
months of 1996. The decrease was principally attributable to the lower gross
margins from Macpherson's and Clinton's sales.
Interest expense was $2.9 million in the first three months of 1997, an
increase of $1.8 million, or 162.0%, as compared with the first three months of
1996. The increase in interest expense was a result of the refinancing as of
January 3, 1997, a portion of which was used to finance the acquisition of
Macpherson.
Provision for income taxes for the first three months of 1997 was $0.3
million, a decrease of $0.5 million, as compared to the first three months of
1996. The Company's effective tax rate was 36.5% in the first three months of
1997, as compared to 36.3% in the first three months of 1996.
The Company's results for the first three months of 1997 reflect an
extraordinary loss from the extinguishment of debt (net of income tax benefit)
of $1.6 million owing to the refinancing of the Company's indebtedness in
connection with the Macpherson Acquisition and the issuance by the Company of
$85.0 million aggregate principal amount of the Old Notes.
Net loss in the first three months of 1997 was $2.1 million, compared to net
income of $0.3 million in the first three months of 1996. The decrease was
attributable to the additional cost factors discussed above.
1996 COMPARED TO 1995
Net sales were $113.9 million in 1996, an increase of $23.4 million, or
25.9%, as compared to 1995. Net sales increased primarily as a result of the
Clinton Acquisition, which contributed $28.7 million to net sales in 1996. The
increase was partially offset by a decline in sales by the Company of capital
equipment resulting from general market conditions for apparel manufacturers.
Gross profit in 1996 was $36.2 million, an increase of $6.4 million, or
21.6%, as compared with 1995. As a percentage of net sales, gross profit in 1996
was 31.8% as compared with 32.9% period in 1995. The decrease in gross profit
was primarily attributable to Clinton's contribution to gross profit. Clinton's
gross profit margin has traditionally been lower than the Company's parts and
supplies businesses because a larger percentage of Clinton's sales are
attributable to capital equipment. The decrease in gross profit margin in 1996
was partially offset by a decrease in the percentage of net sales comprised of
capital
47
<PAGE>
equipment and the corresponding increase in the percentage comprised of parts
and supplies, since parts and supplies generally have higher margins than
capital equipment.
Selling, general and administrative expenses in 1996 were $29.0 million, an
increase of $5.4 million, or 22.7%, as compared to 1995. The increase consisted
primarily of the addition of expenses for Clinton, which were $5.5 million. The
increase was partially offset by a reduction of expenses as a result of
management's continued efforts to lower costs of operations, coupled with lower
sales expenses as a result of the decline in capital equipment sales.
Operating income in 1996 was $7.3 million, an increase of $1.1 million, or
17.4%, as compared to 1995. As a percentage of net sales, operating income was
6.4% in 1996 as compared to 6.8% in 1995. The increase in operating income
resulted primarily from an increase in sales and the efforts to reduce costs.
Interest expense was $4.8 million in 1996, an increase of $0.6 million, or
13.6%, as compared with 1995. The increase in interest expense was primarily a
result of the additional borrowings incurred as of February 1, 1996 used to
finance the acquisition of Clinton.
Provision for income taxes for 1996 was $1.1 million, an increase of $0.6
million, as compared to 1995. The Company's effective tax rate was 46.4% in
1996, as compared to 28.6% in 1995.
Net income in 1996 was $1.3 million, an increase of $0.1 million or 5.7%
compared to 1995. The increase was attributable to the factors discussed above.
1995 COMPARED TO COMBINED 1994
Net sales were $90.4 million in 1995, an increase of $7.5 million, or 9.0%,
compared to Combined 1994. Net sales increased primarily as a result of the
introduction by the Company of new product lines, an increase in the purchase of
capital equipment by apparel manufacturers and the completion of significant
sales by the Company's Leadtec subsidiary of its "Satelite Plus" real-time
computerized production control system.
Gross profit in 1995 was $29.8 million, an increase of $2.9 million, or
10.8%, as compared to Combined 1994. As a percentage of net sales, gross profit
in 1995 was 32.9% as compared to 32.4% in Combined 1994. The increase in gross
profit margin was primarily attributable to the increase in sales by Leadtec of
its software products, which command higher margins than the Company's
traditional businesses. The increases in margins in 1995 were partially offset
by an increase in the cost of certain genuine parts distributed by the Company,
which increases became effective October 1, 1994 and January 1, 1995.
Selling, general and administrative expenses in 1995 were $23.6 million, an
increase of $0.3 million, or 1.5%, as compared to Combined 1994. As a percentage
of net sales, selling, general and administrative expenses were 26.1% in 1995
compared to 28.0% in Combined 1994. The increase in such expenses was
principally attributable to increased selling costs arising from higher sales.
However, sales increased at a higher rate than such expenses, resulting in a
decrease in the percentage that such expenses comprised of net sales in 1995. In
addition, 1994 included certain expenses allocated by the Company's Predecessor
to the Distribution Business prior to the Management Buyout, which were
eliminated for periods after July 12, 1994.
Operating income was $6.2 million in 1995, as compared to $3.6 million in
1994, an increase of 70.7%. The increase was principally due to higher net sales
without corresponding increases in operating expenses. In particular, the
increased sales by Leadtec of higher margin software products had a favorable
impact on 1995 operating income.
Interest expense was $4.2 million in 1995, an increase of $0.9 million, or
27.3% as compared to 1994. The increase was principally attributable to the debt
incurred on July 13, 1994 in connection with the Management Buyout.
48
<PAGE>
Provision for income taxes for 1995 was $0.6 million, an increase of $0.4
million. The Company's effective tax rate was 28.6% in 1995. The effective tax
rate for Combined 1994 is not meaningful, since the allocation of income taxes
to the Distribution Business by the Company's Predecessor was not on the same
basis as taxation applicable to an independent company.
The Company's results for 1995 reflect an extraordinary loss from the
extinguishment of debt (net of income tax benefit) of $0.2 million relating to
the repurchase by the Company from the Company's Predecessor of subordinated
debt issued as part of the consideration in the Management Buyout.
Net income for 1995 was $1.2 million, as compared to net income of $9,000 in
Combined 1994. The increase was principally attributable to the factors
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Since its formation in 1994, the Company has funded its working capital
requirements, capital expenditures and acquisitions from net cash provided by
operations, borrowings under its credit facilities and proceeds from the
issuance of equity securities.
The Company used a portion of the net proceeds of the sale of the Old Notes
to repay substantially all of its existing debt, which was incurred to fund the
Management Buyout in July 1994, the Clinton Acquisition in February 1996, the
Mitchell Acquisition in November 1996 and working capital requirements. The
balance of such net proceeds were used to fund the $24.0 million purchase price
for the Macpherson Acquisition, to repay approximately $6.1 million of
indebtedness of Macpherson and to pay approximately $6.4 million of trade
payables of Macpherson.
In connection with the sale of the Old Notes, the Old Credit Facility was
terminated. The Company entered into the New Credit Facility with NationsBank,
as lender, which became effective upon consummation of the sale of the Old
Notes. The New Credit Facility, as amended as of April 23, 1997, provides for
borrowings of up to $18.5 million in the aggregate outstanding at any time,
subject to a borrowing base limitation equal to 85% of the Company's eligible
accounts receivable. Borrowings under the New Credit Facility will bear interest
at a rate per annum, at the Company's option, equal to (i) NationsBank's prime
rate plus 0.25% or (ii) LIBOR plus 2.50%. The New Credit Facility is secured by
all accounts receivable of the Company and include certain covenants applicable
to the Company, including requirements that the Company comply with certain
financial ratios. The New Credit Facility expires on July 13, 2001. As of April
30, 1997, $6.0 million was available to be borrowed by the Company under the New
Credit Facility.
In October 1996, W&G, Ltd. borrowed L1.0 million under the W&G, Ltd. Credit
Facility with Coutts & Co. The loan under the W&G, Ltd. Credit Facility bears
interest at a rate per annum equal to the bank's prevailing Base Rate, which is
currently 6.0% per annum, plus a margin of 2.25% per annum. The loan is payable
in eight semiannual installments of L125,000, commencing April 1997. The W&G,
Ltd. Credit Facility is secured by substantially all of the assets of W&G, Ltd.
The proceeds of this loan were used to repay indebtedness of W&G, Ltd. to the
Company, and the Company used such funds to repay higher cost indebtedness.
Effective February 1, 1996, the Company acquired all of the outstanding
capital stock of Clinton. The purchase price for Clinton consisted of $4.0
million in cash, 100,000 shares of the Company's common stock, the assumption of
$4.5 million of indebtedness and payables, which was subsequently paid, and
contingent payments of up to 38.9% of the operating income of Clinton during
each of the five years ending December 31, 2000. Such contingent payments may
not exceed $10.5 million in the aggregate over such five year period. In
addition the former shareholders of Clinton have the right to require WG Apparel
to purchase their shares of Company common stock at a purchase price of $30 per
share on the earliest of (i) the day after the Senior Notes have become due by
occurrence of the scheduled maturity date or sooner acceleration, (ii) the
fourth anniversary of the closing date of the Clinton Acquisition, (iii) the
occurrence of an initial public offering of equity securities by the Company and
(iv) a change of
49
<PAGE>
control of the Company, PROVIDED that in the case of clauses (ii) and (iii) such
purchase is then permitted under the Indenture and the New Credit Facility. The
Company's obligation to make contingent payments and to perform the put right is
an unsecured obligation of the Company. The Company obtained the cash required
in connection with the Clinton Acquisition through additional borrowings from
its existing lenders and approximately $2.4 million in proceeds from the sale of
Company common stock to existing shareholders.
Effective November 27, 1996, the Company acquired certain assets of Mitchell
for $3.0 million in cash. The Company financed this purchase price through
borrowings under the Old Credit Facility.
In connection with the Macpherson Acquisition, the Company acquired the
Leasing Company, a leasing company affiliate of Macpherson, for approximately
$0.5 million payable over three years, plus interest at 6.0% per annum. The
Company intends to utilize the Leasing Company to offer flexible lease financing
to its customers to support the Company's sales of equipment. The Company
intends to fund its investment in the Leasing Company through borrowings under
the New Credit Facility, which borrowings are expected to aggregate
approximately $3.5 million in 1997. The Company plans for the Leasing Company to
arrange additional borrowings to finance its operations and to sell a portion of
its leases on a nonrecourse basis. The Leasing Company is an Unrestricted
Subsidiary for purposes of the Indenture and, therefore, is not subject to any
of the covenants contained in the Indenture. See "Description of Senior Notes."
The Company's capital expenditures during the first three months of 1997
aggregated approximately $0.5 million. Such expenditures were primarily for
computer, office and warehouse equipment and improvements.
The Company intends to pursue selected acquisitions of other businesses that
will expand the Company's product lines or geographic coverage. The Company is
currently negotiating the terms of investments in certain businesses in
Colombia, which are not expected to involve material investments. Any
acquisition would be funded through cash generated by the Company's operations,
the issuance of additional securities by the Company, the sale of other assets
by the Company or the incurrence of additional indebtedness. The Company's
ability to sell assets and incur indebtedness are restricted under the Indenture
and the New Credit Facility.
Net cash used in the Company's operating activities was $2.5 million during
the first three months of 1997 principally due to working capital changes. The
Company's investing activities during the first three months of 1997 related
principally to $36.7 million utilized in the Macpherson Acquisition. Net cash
provided by financing activities aggregated $40.5 million, reflecting $84.0
million of borrowings from the refinancing used to extinguish debt of $41.1
million, $3.6 million in financing costs and $3.0 million to repurchase and
retire warrants.
Net cash used in the Company's operating activities was $0.3 million during
1996. Principal working capital changes included a $4.7 million increase in
accounts receivable and a $1.4 million increase in inventories. The Company's
investing activities during 1996 related principally to $12.0 million utilized
in the Clinton and Mitchell Acquisitions. Net cash provided by financing
activities aggregated $13.5 million, principally reflecting $10.5 million of
borrowings and $2.3 million from the sale of Company common stock in connection
with the Clinton Acquisition.
Net cash generated by the Company's operations in 1995 was $1.8 million.
Principal working capital changes included a $0.8 million decrease in accounts
receivable and a $0.8 million increase in inventories. Cash used in investing
activities of $0.8 million was principally related to capital expenditures
during the year. Cash used in financing activities in 1995 aggregated $0.8
million, reflecting a net increase in borrowings of $1.0 million, $1.8 million
from the sale of Company common stock to the Company's Savings and Employee
Stock Ownership Plan and the payment to the Company's Predecessor of $3.5
million to retire indebtedness and redeem warrants issued in connection with the
Management Buyout.
The Company believes that the cash generated from operations and borrowings
available under the New Credit Facility will be sufficient to meet the Company's
working capital and liquidity needs for the foreseeable future.
50
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--MACPHERSON
GENERAL
Macpherson is principally engaged in the distribution throughout the United
States and Canada of embroidery equipment used in the apparel industry.
Macpherson also distributes engraving equipment, but this business will be
discontinued in 1997.
On December 31, 1994, Macpherson consummated a business combination in which
it acquired all of the outstanding common stock of Meistergram, Inc. and
Macpherson Monogram, Inc. in exchange for Macpherson common stock, which was
accounted for in a manner similar to pooling-of-interests due to the common
ownership of the three companies. The purpose of the transaction was to combine
the three lines of business of such companies, the distribution of embroidery,
monogram and engraving equipment, to lower overhead costs and combine marketing
efforts.
The former shareholders of Macpherson elected under Subchapter S of the
Internal Revenue Code to have Macpherson's income taxed directly to the
shareholders. Accordingly, prior to the Macpherson Acquisition, Macpherson was
not obligated to pay Federal income taxes or, in some cases, state income taxes.
Rather, Macpherson distributed dividends to its former shareholders each year in
amounts estimated as sufficient to pay the Federal and state income taxes
attributable to the income of Macpherson for such year.
RESULTS OF OPERATIONS
The following table sets forth the percentages that certain income and
expense items bear to net sales for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
Net sales....................................................... 100.0% 100.0% 100.0%
Gross profit.................................................... 24.2 25.0 24.9
Operating expenses.............................................. 19.7 19.0 20.3
Operating income................................................ 4.5 6.0 4.6
Interest expense................................................ 0.6 0.3 1.1
Net income...................................................... 2.9 4.5 1.8
--------- --------- ---------
--------- --------- ---------
</TABLE>
1996 COMPARED TO 1995
Net sales were $70.1 million in 1996, a decrease of $1.6 million, or 2.2%,
as compared to 1995. The decrease was primarily due to a decline in net sales of
embroidery and monogramming equipment due to delays in the introduction of a new
line of Barudan embroidery equipment and the sale of older lines of equipment at
discounts in order to accommodate the new line of inventory.
Gross profit in 1996 was $17.4 million, a decrease of $0.5 million, or 1.0%,
as compared with 1995. As a percentage of net sales, gross profit in 1996 was
24.9% as compared with 25.0% in 1995. The decrease in gross profit was primarily
attributable to the discounting of older lines of equipment in 1996 in
contemplation of the introduction of Barudan's new line and to higher costs of
such older equipment due to the unfavorable exchange rate between Japanese yen
and U.S. dollars at the time of purchase. A majority of Macpherson's purchases
of equipment is payable in Japanese yen, although substantially all of
Macpherson's net sales are in U.S. dollars.
51
<PAGE>
Operating expenses in 1996 were $14.2 million, an increase of $0.6 million,
or 4.6%, as compared to 1995. The increase is principally attributable to
increased marketing expenses, including the establishment of a new computer
software sales and support group and additions to the technical support group.
Operating income in 1996 was $3.2 million, a decrease of $1.1 million, or
24.9%, as compared to 1995. The decrease in operating income was principally
attributable to the increased volume of discounted sales and higher operating
expenses in 1996, as discussed above.
Interest expense was $0.8 million in 1996, an increase of 259.1%, as
compared with 1995. The increase was attributable to additional levels of
borrowings in 1996 required to maintain higher than customary levels of
inventory resulting from the introduction of the new line of Barudan equipment.
The Company expects Macpherson to return to its customary inventory levels
during 1997.
Net income for 1996 was $1.2 million, a decline of $2.0 million or 61.8%, as
compared to 1995. The decrease was principally attributable to the reasons
discussed above.
1995 COMPARED TO 1994
Net sales were $71.7 million in 1995, an increase of $2.8 million, or 4.1%,
as compared to 1994. The increase was principally due to the growth in demand in
1995 for embroidery equipment distributed by Macpherson. The increase was
partially offset by a decline in 1995 of $1.2 million in net sales of
Macpherson's engraving equipment, principally due to the delay in the
introduction of Macpherson's laser equipment and falling demand for Macpherson's
rotary engraving equipment.
Gross profit in 1995 was $17.9 million, an increase of $1.3 million, or
7.5%, as compared to 1994. As a percentage of net sales, gross profit increased
from 24.2% in 1994 to 25.0% in 1995. The improvement in gross profit margin was
primarily due to improved pricing in response to higher customer demand. The
improvement was partially offset by fluctuation in the exchange rate of Japanese
yen and U.S. dollars.
Operating expenses in 1995 were $13.6 million, which was essentially
unchanged from 1994. Macpherson's consolidation of operations into one company
at the end of 1994 enabled it to operate its marketing functions more
efficiently and thereby avoid increased costs.
Operating income in 1995 was $4.3 million, an increase of $1.2 million, or
40.0%, as compared to 1994. The increase was principally due to higher sales
without a related increase in operating expense levels.
Interest expense in 1995 was $0.2 million, a decrease of $0.2 million, or
44.2%, as compared to 1994. The decrease was principally due to lower levels of
borrowings.
Net income in 1995 was $3.3 million, an increase of $1.3 million, or 63.1%,
as compared to 1994. The increase was principally due to the factors discussed
above.
LIQUIDITY AND CAPITAL RESOURCES
Macpherson's principal sources of liquidity have been net cash from
operations and borrowings under Macpherson's credit facility.
Net cash generated by Macpherson's operating activities totaled $0.3 million
in 1996. Principal working capital changes included a $5.4 million decrease in
accounts receivable, a $0.4 million decrease in inventories and a $7.0 million
decrease in accounts payable. Macpherson's investing activities during 1996
consisted of $0.3 million of capital expenditures. Net cash provided in
financing activities aggregated $0.1 million, principally reflecting dividend
payments of $1.7 million, reduced by a net increase in borrowings of $1.8
million.
Net cash used in operating activities in 1995 was $0.1 million. Principal
working capital changes included a $5.0 million increase in accounts receivable,
a $7.8 million increase in inventories and a $9.2
52
<PAGE>
million increase in accounts payable. Net cash used in investing activities in
1995 aggregated $0.1 million, principally reflecting capital expenditures. Net
cash provided by financing activities in 1995 aggregated $0.5 million,
principally attributable to a net increase in borrowings of $2.1 million, and
partially offset by the payment of $1.9 million of dividends.
Macpherson had a revolving credit line that permitted borrowings of up to
$7.0 million. The revolving credit line was due and payable upon expiration on
July 31, 1998, and bore interest, payable monthly on the first day of each
month, at the lower of LIBOR plus the LIBOR margin (2 1/2% prior to December 15,
1996), or the bank's prime rate. Borrowings under the revolving credit line were
limited to specified percentages of eligible inventory and receivables of the
Company. The Company had outstanding borrowings of $4.8 million, with additional
credit of $2.2 million available at December 31, 1996. This revolving credit
line was collateralized by all trade accounts receivable and all inventories of
Macpherson, except for approximately $12.6 million of stitching machine
inventory. The revolving credit line was repaid and terminated in connection
with the consummation of the Macpherson Acquisition.
53
<PAGE>
BUSINESS
GENERAL
The Company believes that it is the largest independent distributor in North
America of replacement parts, supplies and specialized equipment to
manufacturers of apparel and other sewn products, offering a broad product line
of over 200,000 items. These products include industrial sewing equipment parts,
such as needles, hooks, motors, tools and other accessories, and specialized
equipment, such as screen printing equipment and supplies and production
planning and control systems. In addition, following consummation of the
Macpherson Acquisition, the Company became a major distributor of embroidery
equipment and supplies, marketing its products through 22 sales and distribution
centers strategically located in the United States, Canada, Mexico, the
Dominican Republic and England. During 1996, the Company's customer base
consisted of over 15,000 manufacturers and dealers.
Since the Management Buyout, the Company has expanded through internal
growth of operations and acquisitions. The Company intends to pursue strategic
acquisitions to expand its product lines and enter into new geographic markets.
The Company believes that the size of its operations and the stable operating
history of its replacement parts and supplies distribution business have enabled
it to carry substantially higher levels of inventory than its competitors. These
investments in inventory provide customers with wide selection, a high degree of
product availability and assurance of prompt delivery. In addition, the Company
believes that it is well positioned to pursue selected growth opportunities
internationally, particularly in Mexico and South America, based upon the size
of its operations, its established inventory management systems and its growing
sales in these markets.
The Company currently operates through six principal business units: (i) its
Sunbrand division, which is a distributor of replacement parts, supplies and
specialized equipment to manufacturers of apparel and other sewn products; (ii)
its Unity division, which is a wholesale distributor to dealers of replacement
parts and supplies for use by the apparel and other sewn products industry;
(iii) its W&G, Ltd. subsidiary, which is a distributor to manufacturers and
dealers in the United Kingdom and Europe of replacement parts and supplies for
use by the apparel and other sewn products industry; (iv) its Clinton
subsidiary, which is a distributor of screen printing equipment and supplies for
the apparel industry; (v) its Leadtec subsidiary, which develops and supplies
computer-based production planning and control systems for the apparel industry
and (vi) Macpherson, which distributes embroidery equipment and supplies used in
the apparel industry. See "The Macpherson Acquisition."
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The following table sets forth for each of the Company's business units (i)
net sales for the years ended December 31, 1994, 1995 and 1996, and (ii) net
sales for the year ended December 31, 1996 on a pro forma basis assuming that
the Clinton Acquisition, the Mitchell Acquisition and the Macpherson Acquisition
were consummated on January 1, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
<S> <C> <C> <C> <C>
1994 1995 1996
----------- ----------- -------------------------
<CAPTION>
COMBINED HISTORICAL HISTORICAL PRO FORMA(1)
----------- ----------- ---------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Sunbrand.................................... $ 59,794 $ 65,872 $ 60,435 $ 60,435
Unity....................................... 12,566 12,118 10,936 10,936
W & G, Ltd.................................. 6,246 6,535 7,372 7,372
Clinton(2).................................. -- -- 28,682 31,657
Leadtec..................................... 4,347 5,906 6,426 6,426
Macpherson.................................. -- -- -- 67,767
----------- ----------- ---------- -------------
Net sales................................... $ 82,953 $ 90,431 $ 113,851 $ 184,593
----------- ----------- ---------- -------------
----------- ----------- ---------- -------------
</TABLE>
- ------------------------
(1) Gives effect to the Clinton Acquisition, the Mitchell Acquisition and the
Macpherson Acquisition as if each occurred on January 1, 1996. See "Pro
Forma Combined Financial Information."
(2) Clinton was acquired effective February 1, 1996. Sales of Mitchell (0.8
million for 1996) are included with the Clinton pro forma amount for
purposes of this presentation.
INDUSTRY OVERVIEW
Manufacturers of apparel and other sewn products generally utilize a variety
of modern equipment and supplies in their production processes. Although there
have been advances in the speed of equipment and automation of manufacturing
methods, the basic sewing process has changed very little since the first sewing
machines were introduced over 125 years ago. Accordingly, the basic design of
sewing equipment and replacement parts and supplies used with respect to such
equipment has remained stable for many years, and new generations of sewing
equipment have frequently utilized many parts designed for prior generations. In
addition, since numerous manufacturers of sewn products do not regularly replace
major equipment upon the introduction of new models, substantial numbers of
older machines typically continue to be used for many years after the production
of more advanced units.
The improvements in speed of equipment and the trend toward automation in
apparel and sewn products manufacturing have increased the demand for
replacement parts and supplies by manufacturers, since high speed production
increases the wear and tear on equipment. In addition, automation results in the
utilization of other equipment, such as cutting and finishing devices, that must
be maintained. As a result of the large number of differing replacement parts
and supplies utilized by apparel and sewn products manufacturers and the
relatively small quantity of many items required at varying times, such
manufacturers generally prefer to obtain replacement parts and supplies from
dealers that stock a wide range of products and offer prompt delivery. In
addition, manufacturers of such replacement parts, supplies and specialized
equipment often prefer to sell such products through distributors who can
provide wide market coverage, assume credit risk and stock inventory, thereby
limiting the manufacturers' costs of marketing and distribution.
The replacement parts distribution business for sewing equipment involves
both "genuine" and "generic" parts. "Genuine" parts are replacement parts
manufactured by the original equipment manufacturer. "Generic" parts are
non-branded replacement parts manufactured by someone other than the original
equipment manufacturer.
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The market for screen printing equipment and embroidery equipment used to
add decoration to apparel products has grown rapidly over the past several
years. This growth has been propelled by expansion of the market for casual
wear, such as T-shirts, sweatshirts and caps, which frequently feature printed
or embroidered trademarks, slogans or other designs. In addition, improvements
in technology have made screen printing and embroidery equipment less expensive
and more sophisticated. The Company acquired Clinton, which distributes screen
printing equipment and supplies, in February 1996, and Macpherson, which
principally distributes embroidery equipment and supplies, in January 1997, in
order to take advantage of the growing demand for such equipment and of the
ability to market these complimentary product lines to the same end-user group.
The market of apparel manufacturers in the Western Hemisphere has expanded
during the 1990s due to the shifting production of apparel products sold in the
United States from the Far East to Mexico and the rest of Latin America.
According to the U. S. Department of Commerce, in 1990 Asia accounted for 75.4%
of U.S. imports of apparel, while Mexico and the CBI countries accounted for
11.2%. By 1995, Asia's share had dropped to 62.7% of U.S. imports, while Mexico
and the CBI countries increased to 23.1%. The trend towards increasing apparel
imports to the United States from Mexico is expected to accelerate with the
implementation of NAFTA. In addition, the Company anticipates that apparel
manufacturers from around the world who sell their products to the United States
will increase apparel production in Mexico, the CBI countries and the rest of
Latin America due to the improved political and economic climate of many of such
countries and the quick and relatively inexpensive access to the U.S. market
from such region. The Company believes it is well positioned to capitalize on
the shift in apparel production to the southern portion of the Western
Hemisphere due to its broad product line, its existing distribution centers
located nearby and its prior relationships with many of the manufacturers that
are establishing production facilities south of the United States. For example,
the Company is a supplier to one of its major customers, Fruit of the Loom, at
its new Mexican manufacturing facility that began operations in 1996.
The following data compiled by the U.S. Department of Commerce demonstrates
the growth in apparel production by manufacturers located in the United States
and the growth in imports of apparel in the recent past:
<TABLE>
<CAPTION>
VALUE OF VALUE OF U.S.
SHIPMENTS OF IMPORTS OF
U.S. APPAREL
APPAREL PRODUCTS PRODUCTS(1)
---------------- ------------------
<S> <C> <C>
(DOLLARS IN MILLIONS)
1980................................................... $ 45,782
1981................................................... 49,823
1982................................................... 53,388
1983................................................... 55,375
1984................................................... 57,578
1985................................................... 56,993
1986................................................... 57,919
1987................................................... 64,243
1988................................................... 65,032
1989................................................... 63,399 $ 25,372
1990................................................... 64,414 26,602
1991................................................... 65,345 27,230
1992................................................... 71,546 32,462
1993................................................... 74,010 35,278
1994................................................... 76,898 38,343
1995................................................... 77,800 40,998
</TABLE>
- ------------------------
(1) Imports are restricted to goods imported for consumption and are on a
customs value basis. Information for periods prior to 1989 was not
available.
56
<PAGE>
COMPETITIVE STRENGTHS
The Company believes that it has a strong competitive position attributable
to a number of factors, including the following:
- MARKET LEADERSHIP. The Company believes that it is the largest
independent distributor of replacement parts, supplies and specialized
equipment for the apparel and other sewn products industry in North
America. As a result, the Company has significant purchasing power and can
realize economies of scale in marketing, distribution and administration.
The Company estimates that each of its principal operating units is among
the leaders in its respective market.
- STRONG BRAND NAME RECOGNITION. The Willcox & Gibbs brand name has been
well known in the apparel industry since the Company's predecessor began
operations in the mid-1800s as an apparel equipment manufacturer. Since
that time, the Company's Sunbrand and Unity divisions have developed and
maintained well-recognized brand names in replacement parts distribution
through a long history of comprehensive and high quality product lines and
an emphasis on customer service.
- BROAD LINES OF QUALITY PRODUCTS. The Company believes that it markets the
broadest line of quality replacement parts, supplies and specialized
equipment to manufacturers of apparel and other sewn products in North
America. For example, the Company's Sunbrand division markets over 180,000
items, while the Company believes that its closest competitor offers
approximately 40,000 items. As a result of its broad product offering, the
Company believes that it provides its customers with "one-stop shopping"
for their replacement parts, supplies and specialized equipment
requirements.
- HIGH LEVEL OF CUSTOMER SERVICE. The Company provides its customers with a
comprehensive selection of products, a high degree of product
availability, convenient ordering systems and fast order response time.
The Company's strategically placed distribution facilities and efficient
inventory management systems enable it to achieve high order fill rates
for replacement parts and supplies (in excess of 95% of orders are shipped
within 24 hours), timeliness of delivery and wide geographic coverage. The
Company utilizes a real-time computer inventory management system in its
sewn products replacement parts and supplies businesses that enables it to
search all inventory locations in North America for product availability.
In addition, the Company maintains EDI systems that link the Company to
selected customers, such as Levi Strauss and Fieldcrest Cannon. The
Company fills substantially all of its orders of parts and supplies by
customers in the United States through next-day delivery, which is
important to assist customers in minimizing operator downtime.
- STRONG RELATIONSHIPS WITH SUPPLIERS. The Company has developed strong
relationships with many of its suppliers, with some dating back over 30
years. The Company maintains exclusive U.S. distribution rights for
genuine replacement parts for Pfaff (since 1958) and Pegasus (since 1966),
two major sewing equipment suppliers to the U.S. apparel and other sewn
products industry, as well as exclusive distribution rights in certain
territories for M&R, a major manufacturer of screen printing equipment for
the apparel industry in the United States, and Barudan, a major
manufacturer of embroidery equipment for the worldwide apparel industry.
- DIVERSIFIED BASE OF CUSTOMERS. During 1996, the Company sold products to
over 15,000 apparel and sewn products manufacturers and dealers of
replacement parts and supplies, with no single customer representing more
than 5.2% of net sales. The Company has enjoyed long-term relationships
with a number of its major customers, including Levi Strauss, Fruit of the
Loom, Fieldcrest Cannon, Russell Athletic and VF Corporation.
- EXPERIENCED MANAGEMENT TEAM. The Company's officers have an average of 16
years of experience with the Company and the Company's Predecessor and an
average of 19 years of industry experience. The Company retained
substantially all of the senior management of the businesses acquired in
the Management Buyout in July 1994, of Clinton in connection with its
acquisition by
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<PAGE>
the Company in February 1996 and of Macpherson following consummation of
the Macpherson Acquisition in January 1997. The Company's senior
management and employees collectively owned, as of March 31, 1997, on a
fully diluted basis 63.1% of the Company's outstanding common stock.
BUSINESS STRATEGY
The Company's strategy is to enhance its position as a leading distributor
of replacement parts, supplies and specialized equipment to the apparel and
other sewn products industry. In order to achieve this objective, the Company
has developed a business plan that consists of the following key elements:
- MAINTAIN LEADING MARKET POSITION. The Company believes that it is the
leading independent distributor in North America of replacement parts,
supplies and specialized equipment to the apparel and other sewn products
industry. The Company believes that such leadership is based primarily on
the Company's long history of operations, broad line of products and
excellent customer service. The Company intends to enhance its market
leadership by maintaining and expanding its relationships with suppliers
and customers.
- EXPAND PRODUCT LINES. The Company intends to add lines of replacement
parts, supplies and specialized equipment that can be efficiently marketed
through its existing distribution system. Such additions are intended to
strengthen the Company's position as a "one-stop shop" without significant
incremental expenses related to selling, marketing, distribution and
administration.
- INCREASE PENETRATION OF EMERGING MARKETS. The Company believes that it is
well positioned to increase sales by targeting growth opportunities in
emerging markets such as Mexico, the CBI countries and the rest of Latin
America. The Company expects that its comprehensive line of replacement
parts, supplies and specialized equipment and substantial experience in
serving the apparel and other sewn products industry will provide a
competitive advantage over smaller, local competitors in these regions.
The Company intends to expand its presence in these areas in 1997 by
opening a new sales office in Colombia.
- PURSUE SELECTED ACQUISITIONS. Since the Management Buyout in July 1994,
the Company has pursued a plan of expanding its product offerings through
strategic acquisitions. In February 1996, it acquired Clinton, a leading
distributor of screen printing equipment and supplies, in November 1996,
it acquired Mitchell, a manufacturer of abrasive cords and tapes used
principally by apparel manufacturers, and in January 1997 it acquired
Macpherson, a leading distributor of embroidery equipment and supplies.
The Company intends to pursue other strategic acquisitions to expand its
product lines and to enter into new geographic markets.
SUNBRAND
Sunbrand, which has been operating for over 40 years, believes it is the
largest distributor in North America of replacement parts, supplies and
specialized equipment to manufacturers of apparel and other sewn products.
Sunbrand's products are purchased from many of the leading manufacturers of
equipment for the apparel and sewn products industry. The Company believes that
Sunbrand's breadth of product selection makes it the apparel industry's leading
one-stop shop for replacement parts and supplies. On a pro forma basis assuming
the Clinton Acquisition, the Mitchell Acquisition and the Macpherson Acquisition
were consummated on January 1, 1996, Sunbrand's net sales would have accounted
for approximately 32.7% of the Company's 1996 consolidated net sales.
PRODUCTS. Sunbrand carries one of the most extensive lines of replacement
parts and supplies for the apparel and other sewn products industry in North
America. Its product line includes a full range of replacement parts for sewing
machines, spreading and cutting equipment, finishing equipment, and general
supplies. Sunbrand also offers a broad base of manufacturing equipment,
distribution systems, information systems and management services. Sunbrand
offers over 180,000 items, while the Company
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<PAGE>
believes that its closest competitor offers approximately 40,000 items. The
Company believes that Sunbrand's broad product line gives it the advantage of
being the apparel industry's leading one-stop shop for replacement parts and
supplies.
SUPPLIERS. Sunbrand purchases products from 1,200 different vendors,
including many of the leading manufacturers of equipment for the apparel and
sewn products industry. In addition, Sunbrand is the exclusive distributor of
Pfaff and Pegasus genuine replacement parts in the United States. Sunbrand's
five largest suppliers (other than Unity) accounted for 39.6% of its total
purchases in 1996, and Pfaff and Pegasus accounted for approximately 11.0% and
13.9%, respectively, of Sunbrand's purchases for such year. Sunbrand obtains all
of its generic sewing parts and supplies from Unity.
Pfaff, a German company, is a major manufacturer of industrial sewing
equipment for the apparel industry and, in 1995, the Company believes Pfaff had
an estimated 8.0% share of the U.S. "lock-stitch" industrial sewing machine
market. Pegasus is a significant Japanese manufacturer of industrial sewing
equipment, and, in 1995, the Company estimates that Pegasus had a 30.0% share of
the U.S. "chain-stitch" industrial sewing machine market. The Company (including
its predecessor) has been the exclusive distributor in the United States of
Pfaff genuine parts since 1958 and of Pegasus genuine parts since 1966.
Under the Company's distributor agreements with Pfaff and Pegasus, the
Company is the exclusive United States distributor of Pfaff and Pegasus genuine
parts through 1998, which exclusive arrangements automatically renew for
successive two year periods unless notice of termination is given at least one
year prior to December 31, 1998 or the end of any successive two year period of
exclusivity. In order to maintain the exclusivity of the Pfaff and Pegasus
distribution agreements, the Company must meet certain performance targets.
Historically the Company has generally satisfied these requirements, although in
certain prior years they were not satisfied and Pfaff and Pegasus waived such
shortfalls. Although the Company believes that its relationships with Pfaff and
Pegasus have been good, there can be no assurance that the Pfaff or Pegasus
distribution agreement will be extended beyond its current term or that the
Company will continue to be the distributor for Pfaff or Pegasus parts. No
assurance can be given that the failure to extend either the Pfaff or Pegasus
distribution agreement or the loss by the Company of its supplier relationship
with Pfaff or Pegasus would not have a material adverse effect on the Company's
business, financial condition and results of operations. See "Risk
Factors--Dependence on Suppliers."
SALES AND DISTRIBUTION. Sunbrand has its headquarters and principal
warehouse facility in Atlanta, Georgia. In addition, Sunbrand maintains six
strategically located branches that serve as regional sales offices and
distribution points: Fall River, Massachusetts; Miami, Florida; El Paso, Texas;
Mexico City and Gomez Palacio/Torreon, Mexico; and Santo Domingo, Dominican
Republic. All of its branches are connected by a sophisticated computer ordering
system that allows real-time ordering and rapid inventory replenishment. The
Atlanta warehouse provides over 180,000 different items, and the branches stock
the parts ordered most frequently in their particular regions. The typical
branch carries approximately 3,500 items.
Sunbrand is well known for its 1,600 page catalog, which serves as a
reference source for the apparel industry due to the breadth of Sunbrand's
product lines. This catalog, which is published about every three years, is a
valuable marketing tool that is used by many existing and potential buyers of
parts and supplies.
Sunbrand's customers are offered five convenient methods of placing orders:
(i) through the main Atlanta distribution center via a toll-free number printed
at the bottom of each page of Sunbrand's catalog; (ii) through customer service
representatives in the branch closest to them; (iii) through an on-line ordering
system installed at the customer's location linked to Sunbrand's mainframe
computer; (iv) through electronic data interchange; and (v) via facsimile.
As of December 31, 1996, Sunbrand maintained a staff of 25 customer service
representatives, 13 of whom were located in Atlanta. Upon receipt of an order,
customer service relays it either to the Atlanta
59
<PAGE>
warehouse or the closest branch via on-line computer, where the item is packed,
shipped, and automatically re-ordered for inventory. During 1996, over 95% of
Sunbrand's orders were shipped within 24 hours. Most packages are shipped via
U.P.S. overnight and received by customers the following day.
In addition, Sunbrand maintains three groups of specialized personnel to
serve its customers: field sales representatives, product specialists and
service technicians. Field sales representatives, who numbered 40 at December
31, 1996, are based in Atlanta and each of Sunbrand's branch offices. Each field
sales representative is responsible for expanding existing customer
relationships and developing new customers in his or her assigned territory.
Sunbrand's product specialists, who totalled 23 as of December 31, 1996, are
required to maintain thorough technical knowledge about their assigned products.
Product specialists are available to respond to inquiries regarding the
Company's products and often accompany field representatives on customer calls.
They also monitor product lines for profitability. Sunbrand's technical
specialists repair, install, and train plant maintenance staffs in the operation
and maintenance of parts and equipment. The staff of technical specialists
totalled 16 at December 31, 1996.
CUSTOMERS. Sunbrand serviced over 11,400 customers in 1996, the largest of
which accounted for 6.1% of Sunbrand's 1996 net sales. Sunbrand's top ten
customers, which included Levi Strauss, Fruit of the Loom, Fieldcrest Cannon,
Russell Athletic and VF Corporation, represented 20.1% of Sunbrand's net sales
in 1996. Sunbrand's top fifteen customers have all been Sunbrand customers for
more than 15 years.
Historically, a majority of Sunbrand's sales have been to customers in the
United States, although sales to customers in Latin America have increased
significantly in recent years. Approximately 10% of Sunbrand's net sales in 1990
were to Latin America, which increased to 23.8% in 1996. The balance of
Sunbrand's sales were to customers in the United States and Canada. Mexico was
the principal location of Sunbrand's customers outside of the United States in
1996, comprising 12.6% of Sunbrand's net sales, followed by the CBI countries
and other South American countries. The Company may continue to follow important
customers from the U.S. as they pursue opportunities in the CBI and other South
American countries.
COMPETITION. While there is strong competition throughout the markets
served by Sunbrand, Sunbrand believes that it is the largest distributor in
North America of replacement parts and supplies to manufacturers of apparel and
other sewn products. Most of Sunbrand's competitors are small, regional
distributors. In addition, there are three national competitors to Sunbrand,
some of which may have greater financial resources than the Company. Competition
is principally based on product availability, price and speed of delivery.
UNITY
Unity, founded over 50 years ago in New York City, is a leading wholesale
distributor to dealers in North America of replacement parts and supplies for
use in the apparel and sewn products industry. Unity does not sell directly to
manufacturers or other end-users. On a pro forma basis assuming the Clinton
Acquisition, the Mitchell Acquisition and the Macpherson Acquisition were
consummated on January 1, 1996, Unity's net sales would have accounted for
approximately 5.9% of the Company's 1996 consolidated net sales.
PRODUCTS. Unity's product line includes genuine and generic replacement
parts, needles, motors, tables, stands, cleaning guns and sewing lights. Unity
offers over 70,000 items. Since Unity's customers (other than Sunbrand) are
dealers who typically resell to medium-sized and smaller apparel manufacturers,
Unity's sales have generally been substantially comprised of more economical
generic replacement parts rather than genuine parts. In each of the past three
years, generic parts have accounted for over 92% of Unity's net sales.
SUPPLIERS. Unity purchases the majority of its products from the Far East
and Germany. Japanese and German generic parts are generally regarded as the
highest quality. Taiwanese products have a lesser
60
<PAGE>
reputation but are lower priced, and Unity purchases many commodity items from
Taiwan in order to meet customers' low cost needs. In 1996, approximately 41% of
Unity's purchases came from Japan, 9% from Germany and 13% from Taiwan. United
States purchases accounted for approximately 23% of the total in 1996, and the
balance of its purchases came from Sunbrand.
Unity purchases generic parts from hundreds of small manufacturers,
principally through trading houses or similar arrangements. Many parts made in
Japan and Taiwan are available to Unity's competitors through similar
arrangements. However, Unity has exclusive arrangements with some manufacturers
that give it either sole distribution rights or shared rights with a limited
number of other wholesalers.
Unity's largest supplier is Sogawa, located in Osaka, Japan. The primary
products purchased by Unity from Sogawa are hooks used for sewing equipment,
principally Hirose hooks. In 1996, Hirose hooks comprised approximately 19.9% of
Unity's total sales, and Sogawa products accounted for approximately 34.3% of
Unity's purchases.
SALES AND DISTRIBUTION. Unity operates warehouses in Carteret, New Jersey;
Los Angeles, California; and Miami, Florida. The Carteret warehouse serves the
eastern and midwestern United States, from Massachusetts to Georgia, and as far
west as Dallas. The Los Angeles facility serves the western United States and as
far east as Denver. The Miami facility principally serves the Latin American
trade. The Miami office initially collected orders that were filled from the
Company's principal warehouse. Due to a rapid increase in orders, Unity opened a
full stocking warehouse in Miami in April 1993. During 1996, the Miami warehouse
filled approximately 85% of the orders taken by the office, and Unity plans to
expand the Miami product line to improve same-day delivery capability.
Unity utilizes a sophisticated inventory tracking computer system that
closely analyzes inventory turnover for each replacement part. This system
enables Unity to minimize inventory levels, yet maintain a very high service
level.
Unity markets its products through its extensive 700 page catalog, which is
a leading source of information for dealers of replacement parts and supplies.
In addition, Unity currently employs two full-time traveling salesmen who visit
regularly with dealers and eight customer service representatives who regularly
visit with large accounts to assist in service, delivery and new product needs.
Most of Unity's orders are booked via telephone or facsimile due to the time
sensitivity of the typical customer's needs. Both New York and California have
nationwide 800 telephone service, and the Miami office offers 800 telephone
service throughout Latin America.
Approximately half of all of Unity's shipped orders are sent directly to the
end-user, with dealers receiving, and subsequently redistributing, the other
half. Whenever Unity delivers a product directly to an end-user, the dealer's
label is placed on the package. U.P.S. ground deliveries represent approximately
80% of Unity's total deliveries, with overnight service comprising the remaining
20%. In order to reduce delivery time to customers, Unity often direct drop
ships to end-users, thus bypassing inventory and shipping, and reducing the cost
to Unity.
CUSTOMERS. Unity sells to a network of over 1,000 independently owned and
operated dealers, none of which accounted for more than 2.0% of Unity's net
sales in 1996. Historically, a majority of Unity's sales have been to customers
in the United States, although sales to customers in Latin America have
increased significantly in recent years. Approximately 14% of Unity's sales in
1990 were to Latin America, which increased to 25.2% in 1996. The balance of
Unity's sales were to customers in the United States and Canada. To increase the
Company's participation in the Latin American markets, Unity plans to open a new
warehouse in Colombia, and similar plans in two other South American countries
are under negotiation.
COMPETITION. Unity's business is highly competitive. There are four other
significant wholesalers that supply dealers with apparel parts and supplies,
none of which has more than two warehouses, as compared
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to Unity's three distribution centers. In addition, there are numerous smaller,
regional competitors, and in some instances dealers bypass wholesalers and buy
directly from manufacturers or trading companies when purchasing a significant
quantity of parts or supplies or if it is otherwise cost effective. Competition
is principally based on product availability, price and speed of delivery.
W&G, LTD.
W&G, Ltd., a United Kingdom corporation organized in 1908, is a leading
distributor of generic and genuine replacement parts, supplies and specialized
equipment to apparel manufacturers and dealers in the United Kingdom and Europe.
The Company believes that the breadth of W&G, Ltd.'s inventory and its
attainment of certain quality control standards make it a leading one-stop
provider for apparel manufacturers and dealers in the United Kingdom and Europe.
On a pro forma basis assuming the Clinton Acquisition, the Mitchell Acquisition
and the Macpherson Acquisition were consummated January 1, 1996, W&G, Ltd.'s net
sales would have accounted for approximately 4.0% of the Company's 1996
consolidated net sales.
PRODUCTS. W&G, Ltd. maintains an inventory of over 35,000 items, the
majority of which are generic parts for sewing machines from virtually every
manufacturer in the industry. In addition to generic machine parts, W&G, Ltd.
sells two needle lines, sewing equipment, cutting equipment and pressing
equipment.
W&G, Ltd. purchases a majority of its products from the Far East and
Germany, and also purchases a considerable amount of its products from Sunbrand
and Unity. W&G, Ltd. has long standing non-exclusive relationships with its
primary suppliers.
SALES AND DISTRIBUTION. W&G, Ltd. sells the majority of its products
directly to apparel manufacturers through its ten sales representatives. In
addition, W&G, Ltd. currently employs three representatives to service its
wholesale dealer business.
W&G, Ltd.'s central warehouse in Braintree, Essex is located close to major
highways, railways to London and Stanstead Airport. In addition to the Braintree
warehouse, two additional stocking facilities are located in Nottingham and
Leicester. To meet customers' time requirements, W&G, Ltd. often uses Royal Mail
and Parcelforce for next day delivery anywhere in the U.K. Less urgent shipments
are sent via regular mail.
CUSTOMERS. W&G, Ltd. has been servicing its top ten customers for an
average of 16 years. During 1996, approximately 60% of sales were direct to
manufacturers, with the balance generated through dealer accounts. None of W&G,
Ltd.'s customers accounted for more than 9.7% of its 1996 net sales.
COMPETITION. W&G, Ltd.'s business is highly competitive. There are a number
of smaller, local competitors, as well as one major national U.K. competitor
comparable in size to W&G, Ltd. Competition is principally based on product
availability, price and speed of delivery.
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CLINTON
Clinton, founded by its current management in 1985 and acquired by the
Company in February 1996, is a distributor of screen printing equipment and
supplies for the apparel industry. See "The Company-- The Clinton Acquisition."
Screen printing is the process by which designs are applied to fabric or other
material using patterned screens. The Company acquired Clinton pursuant to its
business strategy of expanding the product lines it is able to offer through its
existing distribution network. On a pro forma basis, assuming that the Clinton
Acquisition, the Mitchell Acquisition and the Macpherson Acquisition were
consummated on January 1, 1996, Clinton would have accounted for approximately
17.2% of the Company's 1996 consolidated net sales (including Mitchell, which
would have accounted for approximately 0.5% of such net sales).
PRODUCTS. Clinton sells and services a complete line of automatic and
manual screen printers, gas and electric dryers and other accessory equipment
for the screen printing industry. Clinton also offers a comprehensive line of
textile screen printing supplies, including inks, chemicals, emulsions, screen
frames, screen mesh and other accessory items.
The majority of Clinton's products are used to produce designs on men's,
women's and children's T-shirts and sweatshirts and other apparel items. Other
significant applications include home furnishings, towels, hats, industrial
fabrics and other non-apparel promotional articles made from fabric materials.
Clinton also sells a complete line of equipment to graphics customers primarily
for promotional signs and posters.
Clinton distributes the M&R line of screen printing equipment and dryers.
M&R is a major United States manufacturer of screen printing equipment. Pursuant
to two distribution agreements between Clinton and M&R, Clinton has certain
distribution rights for M&R's screen printing equipment. With respect to M&R's
textile equipment, Clinton has exclusive rights to distribute such equipment in
five southeastern states of the United States and in Latin America, Europe,
Africa, the Middle East, Asia and Australia (the "Worldwide Territory"). Clinton
has nonexclusive rights to distribute M&R's textile equipment in Mississippi and
Kentucky. With respect to M&R's graphics equipment, Clinton has nonexclusive
rights to distribute such equipment in seven southeastern states of the U.S. and
the Worldwide Territory. The M&R agreement governing U.S. territories expires on
December 31, 1998 and continues from year to year thereafter, although it may be
terminated at any year end if written notice is given to the other party on or
before July 1 of such year. The M&R agreement governing international territory
expired on December 31, 1996 but continues from year to year thereafter,
although it may be terminated by either party at any year end if written notice
is given to the other party on or before September 1 of such year. M&R products
comprised 51.2% of Clinton's total purchases in 1996. No other vendor accounted
for more than 18.0% of Clinton's purchases in 1996.
SALES AND DISTRIBUTION. Clinton's marketing strategy has been to align
itself with single manufacturers of major screen printing products, which has
allowed Clinton to secure agreements with leading manufacturers of certain
products. The Company believes that these affiliations have created competitive
advantages for Clinton, including closer working relationships, increased buying
power, opportunities for special terms and prices, increased stocking levels
(which significantly reduces backorders) and enhanced product knowledge by
Clinton personnel.
Clinton believes that it is one of the few companies within the screen
printing industry to carry an extensive inventory of both equipment and
supplies. This has enabled Clinton to serve as a "one-stop source" for
customers, providing them with the convenience of dealing with a single supplier
for all of their screen printing needs. By purchasing an extensive inventory of
equipment and supplies through single sources, Clinton is able to stock a more
targeted inventory, as well as allowing for quicker delivery.
Clinton direct sells to its customers with experienced sales representatives
supported by telemarketing, direct marketing materials and a monthly newsletter.
Clinton has a complete working showroom for
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sales demonstrations, customer seminars and personnel training. Customer classes
are given monthly in both English and Spanish.
Clinton has its headquarters in Miami Lakes, Florida with distribution
warehouses in Miami Lakes, Florida; Charlotte, North Carolina; Los Angeles,
California; Mexico City, Mexico; and Braintree, United Kingdom. Clinton markets
its products in the United States and Latin America through a sales force
currently numbering 17 backed up by a telemarketing department. In addition,
approximately eight distributors are currently used in Latin America. Outside of
the Western Hemisphere, sales are made primarily by approximately 40
distributors located throughout the world.
CUSTOMERS. Clinton sells its products to over 1,000 customers in the screen
printing industry, primarily apparel manufacturers and contract apparel
printers. These customers are located principally in the southeastern United
States, but also in Latin America, Europe, Asia, Africa and the Far East.
Clinton's largest customer accounted or approximately 3.5% of Clinton's 1996 net
sales, and Clinton's top ten customers accounted for approximately 22.2% of 1996
net sales.
COMPETITION. M&R's screen printing equipment has captured a major share of
the U.S. market over the past several years, and Clinton estimates that M&R had
approximately 70% of the U.S. market for such equipment in 1996. Competition
with respect to Clinton's other products is strong, mainly from a variety of
distributors of general printing equipment and supplies.
MACPHERSON
Macpherson, founded in 1976, is principally engaged in the distribution
throughout the United States and Canada of embroidery equipment used in the
apparel industry. Such embroidery equipment is used to create designs on apparel
and other products utilizing one or more needle heads and thread. Embroidery can
add value to a finished product with little incremental expense, and
technological developments in recent years have improved equipment capabilities
and lowered capital costs.
The Company acquired Macpherson in January 1997 using a portion of the net
proceeds from the sale of the Old Notes. On a pro forma basis, assuming that the
Clinton Acquisition, the Mitchell Acquisition and the Macpherson Acquisition
were consummated on January 1, 1996, Macpherson would have accounted for
approximately 36.7% of the Company's 1996 consolidated net sales. The Company
believes that Macpherson's products can be effectively marketed through the
Company's existing sales channels without significant added costs. In addition,
the Company believes that the products distributed by Clinton and Macpherson are
complementary and can be targeted for sale to the same end-user group.
PRODUCTS. Macpherson provides a complete line of technologically advanced
embroidery equipment for the apparel industry, as well as customer service,
support and training, and a comprehensive line of embroidery supplies and
accessories. Macpherson's principal supplier of embroidery machines is Barudan,
a Japanese manufacturer.
Embroidery machines may contain single or multiple sewing heads. Each sewing
head consists of a group of needles that are fed by spools of thread attached to
the equipment. The needles operate in conjunction with each other to embroider
the thread into the cloth or other surface in such configuration as to produce
the intended design. Thread flowing to each needle can be of the same or varying
color. Each head creates a design, and heads operating at the same time create
the same size and shape designs. Thus, a 30 head machine with all heads
operating simultaneously can create an identical-design on thirty surfaces. The
design and production capabilities are enhanced through the integration of
computers and specialized software applications.
Growth in Macpherson's sales of singlehead and multihead machines continues
to be driven by technological advances in the machines and related computer
software. These advances have reduced
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customers' embroidery production costs and created new embroidery applications
and markets. Macpherson collaborates with its suppliers in connection with their
development of new embroidery equipment and develops application software to
enhance the efficiency of producing embroidered designs.
Barudan is one of the world's major manufacturers of embroidery machines.
Under the distribution agreement among Macpherson, Barudan and certain of their
affiliates, Macpherson is the exclusive distributor of new Barudan embroidery
equipment in the United States and Canada until December 31, 2003. The Barudan
Agreement automatically renews for a period of five years unless either party
terminates such agreement on not less than 30 days notice. Purchases of Barudan
products accounted for 78.0% of Macpherson's 1996 total purchases. No other
product accounted for more than 5.3% of Macpherson's 1996 purchases.
SALES AND DISTRIBUTION. Macpherson has been selling embroidery equipment in
the United States and Canada since 1976, and believes that it is one of the
major distributors of Barudan equipment in the world. Macpherson is
headquartered in Greensboro, North Carolina, and has seven additional sales
offices located throughout the United States and in Canada. Each location has
showrooms for the demonstration of equipment and embroidery techniques.
Macpherson markets its products through 13 sales representatives and four
dealers. In addition, the sales force is supported by 37 technical
representatives who travel throughout the sales territory to train, instruct and
offer technical assistance to Macpherson's customer base. Macpherson also
maintains eight technicians at its Greensboro, North Carolina, and Costa Mesa,
California, facilities to offer telephone support to customers in technical
applications.
Macpherson provides a full training facility located in Greensboro, North
Carolina, which conducts technical and application training courses throughout
the year. In addition, a series of regional training sessions are conducted
throughout the year at various trade shows, sales offices, and customer
locations.
CUSTOMERS. The products sold by Macpherson are used primarily by contract
embroiderers, manufacturers of apparel and fashion accessories, retail stores
and embroidery entrepreneurs serving specialized niche markets. Macpherson's
customers include Champion Products, Liberty Embroidery, Antiqua, Russell
Athletic, Things Remembered and other major apparel manufacturers. Macpherson's
largest customer accounted for approximately 4.9% of Macpherson's 1996 net
sales, and its top ten customers accounted for approximately 19.9% of its 1996
net sales.
COMPETITION. Macpherson competes with Hirsch International Corp., a
distributor of Tajima singlehead and multihead embroidery machines. The Company
believes that sales of Tajima machines comprised approximately 55.0% of the U.S.
market in 1996, compared to approximately 40.0% for Barudan. Macpherson also
competes with a number of smaller distributors of competitive embroidery
machines and with original equipment manufacturers, such as Melco Industries,
which distribute products directly into Macpherson's markets. Macpherson
believes it competes on the basis of the quality of the embroidery equipment it
distributes, as well as its knowledge, experience and customer service.
Macpherson's customers are subject to competition from importers of embroidered
products, which could effect Macpherson's operations.
THE LEASING COMPANY
In connection with the Macpherson Acquisition, the Company acquired the
Leasing Company, a leasing company affiliate of Macpherson, for approximately
$0.5 million, payable over three years, plus interest at 6.0% per annum. The
Leasing Company commenced operations in March 1996. The Company intends to
utilize the Leasing Company to offer flexible lease financing to its customers
to support the Company's sales of equipment.
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The Leasing Company intends to sell a portion of its leases to financial
institutions on a non-recourse basis. The selling price of the leases to
financial institutions is expected to equal the sales price of the equipment
leased, plus a portion of the finance charges paid by the lessee. In addition,
at the end of the lease term, the residual value of the equipment will either
revert to the Leasing Company or the Leasing Company will sell the equipment to
the lessee at terms agreed upon in the original lease agreement. Each lease will
generally have a term of 3-5 years.
The Leasing Company will retain a majority of its leases. The Company
intends to make an equity investment in the Leasing Company of approximately
$3.5 million in 1997, and the Leasing Company is expected to arrange for
additional borrowings to finance its operations.
Prior to its acquisition by the Company, substantially all of the assets and
liabilities of the Leasing Company were removed. Accordingly, the principal
benefit of the acquisition was the existing organization of the Leasing Company.
The Leasing Company will be an Unrestricted Subsidiary for purposes of the
Indenture and, therefore, will not be subject to the covenants contained in the
Indenture. See "Description of Senior Notes."
LEADTEC
Leadtec, founded by its current chief executive officer in 1978 and acquired
by the Company's Predecessor in 1985, develops, distributes and supports
computer software and specialized hardware for sewn products manufacturers. On a
pro forma basis assuming the Clinton Acquisition, the Mitchell Acquisition and
the Macpherson Acquisition were consummated January 1, 1996, Leadtec's net sales
would have accounted for approximately 3.5% of the Company's 1996 consolidated
net sales.
PRODUCTS. Leadtec's primary product is "Satelite Plus", which is a
production planning and control system designed to allow apparel factory
operators to monitor production progress and efficiency. The manufacture of sewn
products has unique characteristics like piecework incentives, products defined
by style/color/size and highly engineered labor operations which render generic
manufacturing software unable to deliver satisfactory solutions for the control
and management of production. Leadtec's Satelite Plus-Registered Trademark-
system is specifically designed for the sewn product manufacturing process.
Satelite Plus is available in both "batch" and "real-time" formats. Under
the batch product, production operators clip bar-coded coupons to capture data
for each bundle or lot they produce. At the end of the day, or possibly at
predetermined intervals during the day, coupons are submitted in "batch" for
data input. This data is then processed by the Satelite Plus system to calculate
pay and generate reports for management.
The real-time Satelite Plus product is a computerized system that captures
production events as they occur and provides corresponding up-to-the-minute
information to management. When the real-time system is installed at a factory,
production workers have Satelite Plus proprietary terminals at their
workstations that communicate with the computer system. Operator terminals are
multilingual, and are capable of communicating in English, Spanish and other
languages. The operators use these terminals to report for work, start bundles,
report difficulties, and pace themselves for improved performance. The regular
input of data by operators during the work shift and the processing of that data
by Satelite Plus enables management to monitor the productivity of the factory
on a real-time basis. In addition, Satelite Plus can simulate the factory's
performance after giving effect to changes under consideration by management.
For example, the system predicts production on each job, recommends transfers,
and projects the effects of each transfer on excess costs and daily production.
The Satelite Plus real-time system is a complete package of hardware,
software, installation and training support. The main processing computer is an
IBM AS/400 with display stations for plant managers, supervisors, engineers,
production planners and office/support staff. Production employees have
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individual Satelite Plus terminals with barcode slot readers and displays for
two-way communication with the system. The Network Manager consists of an IBM
compatible PC and specialized communications hardware to complete the link
between the AS/400 and the operator terminals.
SALES AND DISTRIBUTION. Leadtec, through Satelite Plus, believes it has the
world's largest installed base of batch and real-time apparel production control
systems, with 200 installed systems and 44,300 user terminals as of December 31,
1996. To capitalize on its product recognition and the growth of off-shore
apparel production, Leadtec established distribution arrangements in Australia
in 1990, added its multi-lingual capabilities in 1991 and is presently enhancing
its systems for sale in Latin America.
Sales of Satelite Plus factory installations typically require long
lead-times to develop, given the significant capital expenditure and management
resource commitment required. Leadtec's products are sold by a three-person
direct sales force based in Atlanta, as well as by Sunbrand sales
representatives who generate sales opportunities for Leadtec. Typically,
customers commit to implement Satellite Plus in one plant on a trial basis. If
the trial is successful, the customer then rolls-out the product on a plant by
plant basis to the remainder of its manufacturing facilities. Accordingly,
Leadtec's sales may vary significantly from year to year, as an installation of
numerous plants for a single large customer can have a major impact on sales
volume in any single year.
SUPPORT AND DEVELOPMENT. Leadtec provides installation and training support
on-site at the customer's facility. Leadtec also provides software and
proprietary hardware maintenance services on a contract or time and material fee
basis. Support is offered to its real-time customers 24 hours per day, 7 days
per week. Virtually all software support after the installation and training
period is provided over the telephone by voice and/or data linkages.
Approximately once each year, Leadtec distributes software updates to Satelite
Plus customers who have an annual software maintenance contract. Support of
proprietary hardware is provided on a time and material or annual contract basis
using Leadtec's repair center in California or vendors located in Los Angeles
and in Europe. Leadtec also provides software development services to customers
who require added features or customize software modules. Most software
development is provided on a time and material fee basis.
CUSTOMERS. Leadtec's customers include Levi Strauss, Fruit of the Loom, Lee
Apparel, Van Heusen and Healthtex.
COMPETITION. Leadtec is not aware of any system similar to Satelite Plus'
real-time system. However, its real-time system competes with traditional batch
systems. There are numerous competitors with respect to the batch system.
Competition is usually based on price, functionality and support.
PROPERTIES
The Company leases all of its office and warehouse properties at its various
locations, except for the facilities owned by W&G, Ltd. in Braintree, England.
The Company's headquarters are located in approximately 33,000 square feet of
space in Carteret, New Jersey under a lease expiring in 2005, which also serves
as the headquarters and principal warehouse for Unity. Sunbrand's Atlanta
offices and warehouse occupy approximately 88,000 square feet under a lease
expiring in 2001. Clinton operates its headquarters, showroom and warehouse and
shipping facilities out of approximately 40,000 square feet located in Miami
Lakes, Florida under a lease expiring in 1998. The Company's other operations
are located in smaller leased spaces. The Company believes that, if necessary,
it would be able to lease adequate replacement space without material additional
expense.
EMPLOYEES
As of December 31, 1996, the Company employed 433 full time employees,
including 5 by WG Apparel, 237 by Sunbrand, 60 by Unity, 38 by W&G, Ltd., 71 by
Clinton and 22 by Leadtec. The Company's employees are not represented by any
labor union. As a result of the Macpherson Acquisition, approximately 141
employees joined the Company's workforce effective January 3, 1997, none of whom
is represented by a union. The Company considers its employee relations to be
good.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The following table sets forth certain information regarding the Company's
executive officers and directors. Ages are as of January 31, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- --------------------------------- --- -----------------------------------------------------
<S> <C> <C>
John K. Ziegler(1)............... 59 Chairman of the Board, Chief Executive Officer and
Director
Maxwell L. Tripp................. 57 President, Chief Operating Officer and Director
John K. Ziegler, Jr. ............ 29 Chief Financial Officer
Jack Klasky...................... 53 Vice President, President of Leadtec and Director
Alan B. Lee...................... 49 Vice President, President of Unity and Director
Marc Glazer...................... 35 Director
Richard J. Mackey(1)............. 65 Director and Consultant to the Company
Mary-Anne Kieran................. 37 Secretary
Sidney B. Becker(2).............. 86 Director
Christopher W. Roser(2).......... 38 Director
Frank E. Walsh, III(1)(2)........ 30 Director
</TABLE>
- ------------------------
(1) Member of the Compensation and Stock Incentive Committee of the Board of
Directors.
(2) Member of the Audit Committee of the Board of Directors.
JOHN K. ZIEGLER. Mr. Ziegler has been Chairman, Chief Executive Officer and
a Director of the Company since its incorporation in 1994. From 1987 to 1994, he
served as Chairman and Chief Executive Officer of the Company's Predecessor. Mr.
Ziegler joined the Company's Predecessor in 1966 as the Controller and
Treasurer. During his 28 year tenure with the Company's Predecessor, Mr. Ziegler
held the positions of Controller, Treasurer, Executive Vice President, Chief
Operating Officer, President and Director. Prior to joining the Company's
Predecessor, he worked for six years with Coopers & Lybrand. Mr. Ziegler is a
certified public accountant and received a Bachelor of Arts degree from
Lafayette College and a Master of Business Administration from New York
University's Stern School of Business. Mr. Ziegler is on the Board of Directors
of Worldtex, Inc. ("Worldtex"), a manufacturer of covered elastic yarn that is
listed on the New York Stock Exchange.
MAXWELL L. TRIPP. Mr. Tripp has been President, Chief Operating Officer and
a Director of the Company since January 1, 1997. From the date of the Company's
incorporation in 1994 until 1996, he was a Vice President and Director of the
Company and he served as Sunbrand's President from 1985 until 1996. He joined
the Company's Predecessor in 1960 and served as a technical service
representative and a field sales representative. Mr. Tripp became Vice President
of Sales of Sunbrand in 1977 and Executive Vice President of Sales in 1982.
Prior to joining the Company, Mr. Tripp spent five years at Swirl Inc. Mr. Tripp
regularly attends sales and technical workshops and is an active member in
several industry associations. Mr. Tripp is the Chairman of the Associate Member
Congress and the Chairman of the
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Technical Advisory Committee of the American Apparel Machinery Association and
has been honored numerous times in recognition of his contributions to the
apparel industry.
JOHN K. ZIEGLER, JR. Mr. Ziegler has been Chief Financial Officer of the
Company since September 1995. From 1994 until 1996, he also served as Controller
of the Company. From 1990 to 1994, Mr. Ziegler worked as an accountant for
Coopers & Lybrand. Mr. Ziegler is a certified public accountant and received his
Bachelor of Arts degree from Lafayette College. John K. Ziegler, Jr. is the son
of John K. Ziegler.
JACK KLASKY. Mr. Klasky has been a Vice President and Director of the
Company since its incorporation in 1994. He founded Leadtec in 1978 and has
served as its President since that time. His primary responsibilities include
short- and long-range planning, marketing and overall management. Previously, he
had been a Vice President of Lexitron Corporation and a program manager for
Litton Industries, where he was responsible for managing development of large
defense oriented computer systems. Mr. Klasky is a member of the American
Apparel Manufacturers Association and numerous other industry organizations. He
received a Bachelor of Science degree in Engineering in 1965 and a Master of
Business Administration in 1966 from UCLA.
ALAN B. LEE. Mr. Lee has been a Vice President and Director of the Company
since its incorporation in 1994. He has served as Unity's President since 1985.
Previously, Mr. Lee served as Unity's Controller from 1980 to 1985 and as a
staff accountant with the Company's Predecessor from 1975 to 1980. Mr. Lee holds
a Master of Business Administration from the City University of New York and a
Bachelor of Arts degree from Queens College, City University of New York.
RICHARD J. MACKEY. Mr. Mackey has served as a Director and consultant to
the Company since January 1, 1997. From the date of the Company's incorporation
in 1994 until 1996, he was President and a Director of the Company. Mr. Mackey
joined the Company's Predecessor in 1976 as a Vice President and Treasurer.
During his 18 year tenure with the Company's Predecessor, Mr. Mackey served as
Treasurer, Executive Vice President, Director, President and Chief Operating
Officer. Since 1992, Mr. Mackey has served as Chairman and Chief Executive
Officer of Worldtex, in which capacity he devotes a substantial amount of his
business time. Prior to joining the Company's Predecessor, Mr. Mackey worked for
Viewlex, Republic Intermodal Inc., Avis Inc., and Arthur Andersen. Mr. Mackey is
a certified public accountant and received a Bachelor of Science degree from the
University of Illinois.
MARY-ANNE KIERAN. Ms. Kieran has been the Secretary of the Company since
1995. From 1987 until 1994, she was employed at the Company's Predecessor where
she served as Secretary from 1992 until 1994. Ms. Kieran has a Bachelor of Arts
degree from Fordham University.
SIDNEY B. BECKER. Mr. Becker has been a Director of the Company since its
incorporation in 1994. From 1987 until 1992, Mr. Becker was a Director of the
Company's Predecessor. From 1976 until 1987, Mr. Becker served as the Chairman
of the Board of Directors and Chief Executive Officer of the Company's
Predecessor. During the years 1970 through 1976, he was a member of the Board of
Directors of and a consultant to the Company's Predecessor. Prior to such time,
from 1958 until 1970, Mr. Becker first served as Chairman of the Company's
Predecessor, and from 1958 until 1965, he also served as the Chief Executive
Officer of the Company's Predecessor. Mr. Becker also serves on the Board of
Directors of Worldtex.
MARC GLAZER. Mr. Glazer has been Vice President of Operations/Domestic
Sales of Clinton and a Director of the Company since the Company acquired
Clinton effective February 1, 1996. Prior to the Clinton Acquisition, from 1985
to 1996, Mr. Glazer served on the Board of Directors of Clinton and acted as
Clinton's Vice President of Operations/Domestic Sales. Before joining Clinton,
Mr. Glazer served as Corporate Controller for Precision Screen Machines.
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CHRISTOPHER W. ROSER. Mr. Roser has been a Director of the Company since
its incorporation in 1994. Since 1987, Mr. Roser has been a General Partner of
The Roser Partnerships I, II and III, which are venture capital partnerships.
From 1986 until 1987, Mr. Roser worked at Ladenburg Thalmann & Co.
("Ladenburg"), an investment bank listed on the New York Stock Exchange, as an
associate in the corporate finance department. For one year prior to such period
from 1985 to 1986, he was a securities analyst with Equity Research Associates,
a subsidiary of Ladenburg. During the years 1982 through 1984, Mr. Roser was
employed as a staff public accountant with Main Hurdman KMG. Mr. Roser graduated
from the University of Colorado in 1981 with a Bachelor of Arts degree in
economics and received a Master of Business Administration from New York
University's Stern School of Business in 1984. Mr. Roser is also a Director of
Hauser Chemical Research, Inc., a publicly traded chemical company, and the
North American Technology Group, Inc., a publicly traded diversified concern.
FRANK E. WALSH, III. Mr. Walsh has been a Director of the Company since its
incorporation in 1994. He is Vice President of Jupiter Capital Management, a New
Jersey registered investment advisory firm, where he has been employed since
1991. Mr. Walsh also serves on the Board of Directors of Dynamotion/ ATI, a
publicly traded capital goods manufacturer for the printed circuit board
industry.
Each director will hold office for one year or until his or her successor
has been elected and qualified. Officers serve at the pleasure of the Board of
Directors.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION. The following table sets forth certain information
concerning the compensation earned during the year ended December 31, 1996 for
the Chief Executive Officer of the Company and its four other most highly
compensated executive officers (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
--------------------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(2)
- ---------------------------------------------------------------- --------- ---------- ---------- -----------------
<S> <C> <C> <C> <C>
John K. Ziegler................................................. 1996 $ 200,000 $ 100,000 $ 3,000
Chairman of the Board, Chief Executive Officer and Director
Jack Klasky..................................................... 1996 154,908 100,151 3,000
Vice President, President of Leadtec and Director
Maxwell L. Tripp................................................ 1996 124,840 105,910 3,000
Vice President, President of Sunbrand and Director(3)
Alan B. Lee..................................................... 1996 110,000 30,000 3,000
Vice President, President of Unity and Director
Richard J. Mackey............................................... 1996 100,000 0 0
President and Director(4)
</TABLE>
- ------------------------
(1) The aggregate amount of perquisites and other personal benefits, if any, did
not exceed the lesser of $50,000 or 10% of the total annual salary and bonus
reported for each Named Executive Officer and has therefore been omitted.
(2) Amounts shown reflect matching contributions made by the Company to the
Company's Savings and Employee Stock Ownership Plan, a defined contribution
plan, of $3,000 on behalf of the indicated Named Executive Officers.
(3) Effective January 1, 1997, Mr. Tripp became President and Chief Operating
Officer of the Company and remained a Director of the Company.
(4) Effective January 1, 1997, Mr. Mackey became a consultant to the Company and
remained a Director of the Company.
OPTION GRANTS. No stock appreciation rights have been granted by the
Company. The Company granted no stock options during the year ended December 31,
1996.
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AGGREGATED OPTIONS. The table below sets forth certain information with
respect to options held as of December 31, 1996 by each Named Executive Officer.
AGGREGATED OPTIONS TABLE
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES UNDERLYING IN-THE-MONEY OPTIONS
UNEXERCISED OPTIONS AT FISCAL YEAR-END
AT FISCAL YEAR-END (#) ($)
------------------------------- --------------------
<S> <C> <C>
EXERCISABLE (E)/ EXERCISABLE (E)/
NAME UNEXERCISABLE (U) UNEXERCISABLE (U)
- ---------------------------------------- ------------------------------- --------------------
John K. Ziegler......................... 1,600(E) $ 30,400
2,400(U) 45,600
Richard J. Mackey....................... 800(E) 15,200
1,200(U) 22,800
Maxwell L. Tripp........................ 2,000(E) 38,000
3,000(U) 57,000
Jack Klasky............................. 2,000(E) 38,000
3,000(U) 57,000
Alan B. Lee............................. 2,000(E) 38,000
3,000(U) 57,000
</TABLE>
RETIREMENT PLAN. Under the Company's non-contributory retirement plan,
eligible employees will be entitled at the normal retirement age of 65 to an
annual retirement benefit equal to 11/4% of their earnings up to the maximum
earnings subject to Social Security withholding and 1 % of all earnings in
excess of such amount but less than $222,220 (as adjusted annually for cost of
living increases) for each full year of service under the plan. Benefits under
this plan are 100% vested after five years of service. The estimated annual
retirement benefits payable under the plan formula described above at current
Social Security withholding rates, assuming that normal retirement occurs at age
65, to the Named Executive Officers are as follows: to Mr. Ziegler, $107,500; to
Mr. Mackey, $64,455; to Mr. Tripp, $45,619; to Mr. Klasky, $39,729; and to Mr.
Lee, $51,604.
Under the Company's supplemental retirement plan, key employees selected by
the Compensation and Stock Incentive Committee (the "Committee") are entitled to
an amount, payable monthly over a ten-year period following any specified event
of retirement, death, disability or termination of employment, equal to a
percentage (up to 40%) determined by the Committee of the portion (determined by
the Committee) of the employee's base salary for the Company's last full fiscal
year prior to the specified event, multiplied by the employee's years of
participation in the plan (not exceeding 10). Thus, upon normal retirement at
age 65 (or, if later, then years as a participant), an employee receiving the
maximum award possible under the plan will receive a total retirement benefit of
400% of base salary. If death or disability occurs prior to age 65, the employee
will receive a total death or disability benefit of up to 400% of base salary.
After three full years as a plan participant, 30% of the retirement benefit
becomes vested and thereafter an additional 10% of the retirement benefit vests
for each additional full year of service. Upon involuntary termination (other
than for cause, as defined) of any participant's employment or upon voluntary
early retirement of any "designated participant" selected by the Committee, a
portion of the vested retirement benefit will be paid which is in the same ratio
to the full vested benefit as the ratio of the total years worked for the
Company to the total years which would have been worked to age 65. Amounts
representing annual accruals under the plan have not been and cannot be readily
calculated for individual participants. Messrs. Ziegler, Tripp, Klasky and Lee
participate in the plan, and are entitled to benefits of 40%, 37%, 31% and 27%,
respectively, of their base salary per year for 10 years.
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EMPLOYMENT CONTRACTS
The Company has entered into employment contracts with Mr. Ziegler and Mr.
Tripp, Alan B. Lee, President of Unity, Jack Klasky, President of Leadtec and
Jerry Lee, President of Macpherson. The term of each of the Company's employment
contracts with Mr. Ziegler, Mr. Tripp, Mr. A. Lee, Mr. Klasky and Mr. J. Lee is
indefinite, but each employment contract may be terminated by the Company upon
not less than one year written notice. Despite the existence of employment
contracts, the continued employment of such persons cannot be assured. The loss
of the services of any such person could have a material adverse impact on the
Company's business, financial condition and results of operations. See "Risk
Factors-- Dependence on Existing Management."
COMPENSATION OF DIRECTORS
The Company does not compensate the members of its Board of Directors for
their service as directors.
COMPENSATION AND STOCK INCENTIVE COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1996, John K. Ziegler and Richard J. Mackey, Chief Executive
Officer and President of the Company, respectively, served on the Compensation
and Stock Incentive Committee of the Company's Board of Directors. Mr. Ziegler
and Mr. Mackey also serve on the Board of Directors of Worldtex. There are no
other Compensation and Stock Incentive Committee interlocks or insider
participation with respect to such individuals. Effective January 1, 1997, Mr.
Mackey became a consultant to the Company.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 31, 1997
regarding the beneficial ownership of: (i) each class of the Company's voting
securities by each person who is known by the Company to be the beneficial owner
of more than 5% of any class of the Company's voting securities, and (ii) each
class of equity securities of the Company by (a) each director of the Company,
(b) each of the Named Executive Officers (as defined under the heading
"Executive Compensation"), and (c) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES(1) CLASS(2)
- --------------------------------------------------------------------------------- ------------------- -------------
<S> <C> <C>
John K. Ziegler.................................................................. 116,959(3) 11.7%
c/o Willcox & Gibbs, Inc.
900 Milik Street
Carteret, New Jersey 07008
Richard J. Mackey................................................................ 66,558(4) 6.6
104 Crescent Beach Drive
Huntington Bay, New York 11743
The Roser Partnership II, Ltd.................................................... 65,483(5) 6.5
1105 Spruce Street
Boulder, Colorado 80302
Sidney B. Becker................................................................. 26,193(6) 2.6
201 East 79th Street
Apartment 19B
New York, New York 10021
Frank E. Walsh, III.............................................................. 130,965(7) 13.0
330 South Street
Morristown, New Jersey 07962
Marc Glazer...................................................................... 33,657 3.3
c/o Clinton Machinery & Supply Co.
5800 Miami Lakes Drive
Miami Lakes, Florida 33014
Jack Klasky...................................................................... 36,450(8) 3.6
c/o Leadtec Systems, Inc.
6800 Owensmouth Avenue
Suite 320
Canoga Park, California 91303
Alan B. Lee...................................................................... 12,644(9) 1.3
c/o Unity Sewing Supply Co.
900 Milik Street
Carteret, New Jersey 07008
Maxwell L. Tripp................................................................. 43,138(10) 4.3
c/o Sunbrand
3900 Green Industrial Way
Atlanta, Georgia 30341
</TABLE>
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<TABLE>
<CAPTION>
PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES(1) CLASS(2)
- --------------------------------------------------------------------------------- ------------------- -------------
<S> <C> <C>
Company's Savings and Employee Stock Ownership Plan.............................. 167,005 16.6%
Riggs Bank, N.A., as trustee
808 17th St., N.W.
Washington, D.C. 20006
All directors and executive officers of the Company as a group................... 699,052(11) 69.5
</TABLE>
- ------------------------
(1) The persons included in the table had sole voting and investment power with
respect to shares reported as beneficially owned, except as otherwise
indicated in the following notes. The table includes shares beneficially
owned through the Company's Savings and Employee Stock Ownership Plan as of
March 31, 1997.
(2) Percentages are calculated by dividing (x) shares in the "Number of Shares"
column by (y) the sum of shares outstanding on March 31, 1997 and the shares
which a particular owner (or group of owners) has a right to acquire within
60 days of such dates.
(3) Includes 16,730 shares of common stock held by Mr. Ziegler as trustee for
the benefit of his wife, as to which Mr. Ziegler shares voting and
investment power, and 2,000 shares for which options are presently
exercisable.
(4) Includes 800 shares of common stock for which options are presently
exercisable.
(5) Christopher W. Roser, a director of the Company, is a principal of the
general partner of The Roser Partnership II, Ltd.
(6) Includes 26,193 shares of common stock owned by Mr. Becker's wife, as to
which he disclaims beneficial ownership.
(7) Includes 130,965 shares of common stock held by WG Inc. Trust under which an
uncle of Mr. Walsh acts as trustee and holds voting and investment power.
Mr. Walsh is a beneficiary of such trust.
(8) Includes 2,000 shares of common stock for which options are presently
exercisable.
(9) Includes 2,000 shares of common stock for which options are presently
exercisable.
(10) Includes 2,000 shares of common stock for which options are presently
exercisable.
(11) Includes 8,400 shares of common stock for which options are presently
exercisable.
DESCRIPTION OF CERTAIN INDEBTEDNESS
THE NEW CREDIT FACILITY
In connection with the sale of the Old Notes, the Old Credit Facility was
terminated and the Company entered into the New Credit Facility with
NationsBank, as lender. The New Credit Facility provides for borrowings of up to
$18.5 million in the aggregate outstanding at any time, subject to a borrowing
base limitation equal to 80% of the Company's eligible accounts receivable.
Borrowings under the New Credit Facility will bear interest at a rate per annum,
at the Company's option, equal to (i) NationsBank's prime rate plus 0.75% or
(ii) LIBOR plus 2.75%. The New Credit Facility is secured by all accounts
receivable of the Company and includes certain covenants applicable to the
Company, including requirements that the Company comply with certain financial
ratios. The New Credit Facility expires on July 13, 2001.
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THE W&G, LTD. CREDIT FACILITY
In October 1996, W&G, Ltd. borrowed L1.0 million under the W&G, Ltd. Credit
Facility with Coutts & Co. The loan under the W&G, Ltd. Credit Facility bears
interest at a rate per annum equal to the bank's prevailing Base Rate, which is
currently 6.0% per annum, plus a margin of 2.25% per annum. The loan is payable
in eight semiannual installments of L125,000, commencing April 1997. The W&G,
Ltd. Credit Facility is secured by substantially all of the assets of W&G, Ltd.
The proceeds of this loan were used to repay indebtedness of W&G, Ltd. to the
Company, and the Company used such funds to repay higher cost indebtedness.
DESCRIPTION OF SENIOR NOTES
The Senior Notes are issued under the Indenture, dated as of January 3,
1997, among the Company, as issuer, the Subsidiary Guarantors and IBJ Schroder
Bank & Trust Company, as trustee (the "Trustee"). The terms of the Senior 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"). The Senior Notes are subject to all such terms, and Holders of Senior
Notes are referred to the Indenture and the Trust Indenture Act for a statement
thereof. The following summary of certain provisions of the Indenture does not
purport to be complete and is qualified in its entirety by reference to the
Indenture, including the definitions of certain terms contained therein. The
definitions of certain capitalized terms used in the following summary are set
forth below under "--Certain Definitions."
GENERAL
The Senior Notes are senior unsecured obligations of the Company
unconditionally guaranteed by the Subsidiary Guarantors limited to $85.0 million
aggregate principal amount. The Senior Notes are issued only in registered form,
without coupons, in denominations of $1,000 and integral multiples thereof.
Principal of, premium, if any, and interest on the Senior Notes are payable, and
the Senior Notes are transferable, at the office or agency of the Company
maintained for such purposes, which in the case of payments on the Senior Notes
initially is the corporate trust office or agency of the Trustee maintained at
One State Street, New York, New York 10004. No service charge will be made for
any transfer, exchange or redemption of the Senior Notes, but the Company or the
Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge that may be payable in connection therewith.
MATURITY, INTEREST AND PRINCIPAL PAYMENTS
The Senior Notes will mature on December 15, 2003. The New Notes will bear
interest at a rate equal to 12 1/4% per annum from the last date on which
interest was paid on the Old Notes surrendered in exchange therefor, or if no
interest has been paid from the date of the original issuance of such Old Notes.
Interest on the New Notes is payable semiannually in cash arrears on June 15 and
December 15 of each year, commencing June 15, 1997 to the Persons in whose names
the Senior Notes are registered in the Note Register at the close of business on
the June 1 or December 1 next preceding such interest payment date. Interest
will be computed on the basis of a 360-day year comprised of twelve 30-day
months.
REDEMPTION
OPTIONAL REDEMPTION. The Senior Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after December 15, 2001, upon
not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued and
unpaid interest and Old Note Liquidated Damages, if any, to the date of
redemption (subject to the right of Holders of record on the relevant record
date to receive interest due on an interest payment date that is
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<PAGE>
on or prior to the date of redemption), if redeemed during the 12-month period
beginning on December 15 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- --------------------------------------------------------------------------------- -----------
<S> <C>
2001............................................................................. 106.125%
2002............................................................................. 103.063%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to December 15, 1999,
up to 30% of the originally issued principal amount of Senior Notes will be
redeemable, at the option of the Company, from the Net Cash Proceeds of a Public
Equity Offering, at a redemption price equal to 112 1/4% of the principal amount
thereof, together with accrued and unpaid interest and Old Note Liquidated
Damages, if any, to the date of redemption, PROVIDED that at least $59.5 million
of the originally issued principal amount of Senior Notes remains outstanding
immediately after such redemption and that such redemption occurs within 60 days
following the closing of such Public Equity Offering.
In the event that less than all of the Senior Notes are to be redeemed, the
particular Senior Notes (or any portion thereof that is an integral multiple of
$1,000) to be redeemed shall be selected not less than 30 nor more than 60 days
prior to the date of redemption by the Trustee, from the outstanding Senior
Notes not previously called for redemption, PRO RATA, by lot or by any other
method the Trustee shall deem fair and appropriate.
MANDATORY REDEMPTION. The Company will not be required to make mandatory
redemption or sinking fund payments with respect to the Senior Notes.
OFFERS TO PURCHASE. As described below, (a) upon the occurrence of a Change
of Control, the Company will be obligated to make an offer to purchase all
outstanding Senior Notes at a purchase price equal to 101% of the principal
amount thereof, together with accrued and unpaid interest and Old Note
Liquidated Damages, if any, to the date of purchase and (b) upon certain sales
or other dispositions of assets, the Company may be obligated to make offers to
purchase Senior Notes with a portion of the Net Available Proceeds of such sales
or other dispositions at a purchase price equal to 100% of the principal amount
thereof, together with accrued and unpaid interest and Old Note Liquidated
Damages, if any, to the date of purchase. See "--Certain Covenants--Change of
Control" and "--Limitation on Asset Sales."
RANKING
The Senior Notes and each Subsidiary Guarantee are senior unsecured
obligations (except for the security interest in 65% of the shares of W&G, Ltd.)
of the Company, and the applicable Subsidiary Guarantor, respectively, and rank
PARI PASSU in right of payment with all other existing and future unsecured and
unsubordinated Indebtedness of the Company and the applicable Subsidiary
Guarantor, respectively, and senior to all existing and future Subordinated
Indebtedness of the Company and the Subsidiary Guarantors. The Senior Notes and
Subsidiary Guarantees, however, are effectively subordinated to secured
Indebtedness of the Company and the Subsidiary Guarantors with respect to the
assets securing such Indebtedness. At December 31, 1996, on a pro forma basis
assuming that the sale of the Old Notes, the application of the net proceeds
therefrom and the Macpherson Acquisition occurred on such date, the Company and
the Subsidiary Guarantors would have had no unsecured Indebtedness outstanding
other than the Senior Notes and $1.3 million of secured Indebtedness
outstanding. Subject to certain limitations, the Company and its Subsidiaries
(including the Subsidiary Guarantors) may incur additional Indebtedness in the
future. See "--Certain Covenants--Limitation on Indebtedness and Disqualified
Capital Stock."
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<PAGE>
SUBSIDIARY GUARANTEES AND OTHER SECURITY
Each Subsidiary Guarantor fully and unconditionally guarantees (each, a
"Subsidiary Guarantee"), jointly and severally, to each Holder of Senior Notes
and the Trustee, the full and punctual performance of the Company's obligations
under the Indenture and the Senior Notes, including the payment of principal of
and interest and Old Note Liquidated Damages, if any, on the Senior Notes. Each
of the Subsidiary Guarantees is a senior unsecured obligation of the respective
Subsidiary Guarantor and ranks PARI PASSU with all existing and future unsecured
and unsubordinated Indebtedness of such Subsidiary Guarantor. However, each
Subsidiary Guarantee is effectively subordinated to the secured Indebtedness of
the respective Subsidiary Guarantor with respect to the assets securing such
Indebtedness.
The obligations of each Subsidiary Guarantor are limited to the maximum
amount which, after giving effect to any collections from or payments made by or
on behalf of any other Subsidiary Guarantor in respect of the obligations of
such other Subsidiary Guarantor under its Subsidiary Guarantee or pursuant to
its contribution obligations under the Indenture, will result in the obligations
of such Subsidiary Guarantor under the Subsidiary Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal law or state law.
Each Subsidiary Guarantor that makes a payment or distribution under a
Subsidiary Guarantee shall be entitled to a PRO RATA contribution from each
other Subsidiary Guarantor based on the net assets of each Subsidiary Guarantor,
determined in accordance with GAAP.
The Indenture provides that no Subsidiary Guarantor may consolidate with or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person) another corporation, Person or entity whether or not affiliated with
such Subsidiary Guarantor unless (i) subject to the provisions of the following
paragraph, the Person formed by or surviving any such consolidation or merger
(if other than such Subsidiary Guarantor) assumes all of the obligations of such
Subsidiary Guarantor pursuant to a supplemental indenture, in form and substance
satisfactory to the Trustee, under the Senior Notes and the Indenture; (ii)
immediately after giving effect to such transaction, no Default or Event of
Default exists; and (iii) immediately after giving effect to such transaction as
if the same had occurred at the beginning of the most recently ended four full
fiscal quarter period for which internal financial statements are available, the
Company could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in accordance with paragraph (a) of the "--Limitation on
Indebtedness and Disqualified Capital Stock" covenant.
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Subsidiary Guarantor, by way of merger, consolidation
or otherwise, or a sale or other disposition of all of the Capital Stock of any
Subsidiary Guarantor, then such Subsidiary 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 Subsidiary Guarantor) or the corporation acquiring
the property (in the event of a sale or other disposition of all or
substantially all of the assets of such Subsidiary Guarantor) will be released
and relieved of any obligations under its Subsidiary Guarantee, PROVIDED that
the Net Available Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture. See "Certain
Covenants--Limitation on Asset Sales." In addition, any Subsidiary Guarantor
that is designated by the Board of Directors as an Unrestricted Subsidiary in
accordance with the terms of the Indenture may, at such time, at the option of
the Board of Directors at the time of such designation, be released and relieved
of any obligation under its Subsidiary Guarantee.
Pursuant to a Pledge and Security Agreement (the "Pledge Agreement"), the
Senior Notes are secured by a pledge of 65% of the capital stock of W&G, Ltd.
Upon declaration of a default under the Indenture and acceleration of the
Indebtedness thereunder, the Collateral Agent named in the Pledge Agreement may
sell the capital stock of W&G, Ltd. pledged pursuant to the Pledge Agreement.
The Pledge Agreement establishes certain procedures to be followed by the
Collateral Agent that are designed to provide the maximum possible proceeds as a
result of such a sale.
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<PAGE>
CERTAIN COVENANTS
The Indenture contains, among others, the covenants described below.
LIMITATION ON INDEBTEDNESS AND DISQUALIFIED CAPITAL STOCK. (a) The Company
will not, and will not permit any of its Restricted Subsidiaries to, create,
incur, issue, assume, guarantee or in any manner become directly or indirectly
liable for the payment of (collectively, "incur") any Indebtedness (including
any Acquired Indebtedness but excluding any Permitted Indebtedness) or issue any
Disqualified Capital Stock, unless, on a pro forma basis after giving effect to
such incurrence or issuance and the application of the proceeds therefrom, the
Consolidated Fixed Charge Coverage Ratio for the four most recent consecutive
fiscal quarters would have been equal to or greater than 2.0 to 1.0.
(b) Neither the Company nor any Subsidiary Guarantor will incur any
Indebtedness unless such Indebtedness is expressly PARI PASSU with, or
subordinated in right of payment to, in the case of the Company, the Senior
Notes or, in the case of a Subsidiary Guarantor, its Subsidiary Guarantee.
LIMITATION ON PREFERRED STOCK OF SUBSIDIARIES. The Company will not permit
any of its Restricted Subsidiaries to issue any Preferred Stock (other than to
the Company or to a Wholly Owned Subsidiary) or permit any Person (other than
the Company or a Wholly Owned Subsidiary) to own any Preferred Stock of any
Restricted Subsidiary of the Company.
LIMITATION ON RESTRICTED PAYMENTS. (a) The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any other distribution to
holders of, any shares of Capital Stock of the Company (other than dividends
or distributions payable solely in shares of Qualified Capital Stock of the
Company or in options, warrants or other rights to purchase Qualified
Capital Stock of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company or any Affiliate thereof (other than any
Capital Stock owned by a Restricted Subsidiary) or any options, warrants or
other rights to acquire such Capital Stock;
(iii) make any principal payment on or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, scheduled sinking fund payment or maturity, any Subordinated
Indebtedness; or
(iv) make any Restricted Investment;
(such payments or other actions described in clauses (i) through (iv) above
being collectively referred to as "Restricted Payments"), unless at the time of
and after giving effect to the proposed Restricted Payment (the amount of any
such Restricted Payment, if other than cash, shall be the amount determined by
the Board of Directors of the Company, whose determination shall be conclusive
and evidenced by a Board Resolution),
(1) no Default or Event of Default shall have occurred and be continuing,
(2) the Company could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) in accordance with paragraph (a) of the "--Limitation on
Indebtedness and Disqualified Capital Stock" covenant, and
(3) the aggregate amount of all Restricted Payments declared or made after
the date of the Indenture shall not exceed the sum (without duplication) of the
following:
(A) 50% of the Consolidated Net Income of the Company (or, if such
Consolidated Net Income is a loss, minus 100% of such loss) accrued on a
cumulative basis during the period beginning on
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October 1, 1996 and ending on the last day of the Company's last fiscal
quarter for which quarterly or annual financial statements are available
next preceding such proposed Restricted Payment,
(B) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company from the issuance or sale (other than to any of its
Restricted Subsidiaries) of shares of Qualified Capital Stock of the Company
or any options, warrants or rights to purchase such shares of Qualified
Capital Stock of the Company,
(C) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company (other than from any of its Restricted
Subsidiaries) upon the exercise of any options, warrants or rights to
purchase shares of Qualified Capital Stock of the Company,
(D) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company from the issuance or sale (other than to any of its
Restricted Subsidiaries) of Indebtedness or shares of Disqualified Capital
Stock that have been converted into or exchanged for Qualified Capital Stock
of the Company, together with the aggregate cash received by the Company at
the time of such conversion or exchange,
(E) the aggregate Net Cash Proceeds received by the Company from the
issuance or sale of its Qualified Capital Stock subsequent to the date of
original issuance of the Senior Notes to any employee stock ownership plan
or a trust established by the Company or any of its Restricted Subsidiaries
for the benefit of their employees to the extent that any such Net Cash
Proceeds are equal to an increase in the Consolidated Net Worth of the
Company resulting from principal repayments paid by such employee stock
ownership plan or trust with respect to Indebtedness incurred by it to
finance the purchase of such Qualified Capital Stock, and
(F) to the extent not otherwise included in Consolidated Net Income, the
net reduction in Investments by the Company and its Restricted Subsidiaries,
subsequent to the date of the original issuance of the Senior Notes, in any
Person resulting from dividends, repayments of loans or advances, or other
transfers of assets to the Company or a Restricted Subsidiary, or from the
redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary
(valued in each case as provided in the definition of Investment), not to
exceed the total amount of Investments (other than Permitted Investments)
made by the Company and its Restricted Subsidiaries in such Unrestricted
Subsidiary that were previously treated as a Restricted Payment.
(b) Notwithstanding paragraph (a) above, the Company and its Restricted
Subsidiaries may take the following actions so long as (in the case of clauses
(ii), (iii) and (iv) below) no Default or Event of Default shall have occurred
and be continuing:
(i) the payment of any dividend on any Capital Stock of the Company or
any Restricted Subsidiary within 60 days after the date of declaration
thereof, if at such declaration date such declaration complied with the
provisions of paragraph (a) above (and such payment shall be deemed to have
been paid on such date of declaration for purposes of any calculation
required by the provisions of paragraph (a) above);
(ii) the repurchase, redemption or other acquisition or retirement of
any shares of any class of Capital Stock of the Company or any Restricted
Subsidiary, in exchange for, or out of the aggregate Net Cash Proceeds from,
a substantially concurrent issuance and sale (other than to a Restricted
Subsidiary) of shares of Qualified Capital Stock of the Company (other than
Capital Stock issued or sold to a Subsidiary of the Company or an employee
stock ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees);
(iii) the repurchase, redemption, repayment, defeasance or other
acquisition or retirement for value of any Subordinated Indebtedness in
exchange for, or out of the aggregate Net Cash Proceeds
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<PAGE>
from, a substantially concurrent issuance and sale (other than to a
Restricted Subsidiary) of shares of Qualified Capital Stock of the Company;
and
(iv) the repurchase of shares of, or options to purchase shares of,
Capital Stock (other than Preferred Stock) of the Company or any of its
Subsidiaries from employees, former employees, directors or former directors
of the Company or any of its Subsidiaries (or permitted transferees of such
employees, former employees, directors or former directors or their
respective estates), pursuant to the terms of the agreements (including
employment agreements) or plans (or amendments thereto) approved by the
Board of Directors of the Company under which such individuals purchase or
sell or are granted the option or right to purchase or sell such Capital
Stock (other than Preferred Stock); PROVIDED, HOWEVER, that the aggregate
amount of such repurchases shall not exceed $250,000 in any calendar year.
The actions described in clauses (i), (ii), (iii) and (iv) of this paragraph
(b) shall be Restricted Payments that shall be permitted to be made in
accordance with this paragraph (b) but shall reduce the amount that would
otherwise be available for Restricted Payments under clause (3) of paragraph
(a), PROVIDED that any dividend paid pursuant to clause (i) of this paragraph
(b) shall reduce the amount that would otherwise be available under clause (3)
of paragraph (a) when declared, but not also when subsequently paid pursuant to
such clause (i).
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that the Restricted
Payment complies with the Indenture and setting forth in reasonable detail the
basis upon which the required calculations were computed.
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES. The Company (i) will not permit any Restricted Subsidiary to
issue or sell any Capital Stock to any Person other than the Company or a Wholly
Owned Restricted Subsidiary and (ii) will not permit any Person other than the
Company or a Wholly Owned Restricted Subsidiary to own any Capital Stock of any
Restricted Subsidiary, except, in the case of clause (i) or (ii), with respect
to a Wholly Owned Restricted Subsidiary as described in the definition of
"Wholly Owned Restricted Subsidiary." The sale of all of the Capital Stock of
any Restricted Subsidiary is permitted by this covenant but is subject to the
limitations described under "--Limitation on Asset Sales."
LIMITATION ON SALE/LEASEBACK TRANSACTIONS. The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into,
assume, guarantee or otherwise become liable with respect to any Sale/Leaseback
Transaction unless (i) the Company or such Restricted Subsidiary, as the case
may be, would be able to incur Indebtedness (not including the incurrence of
Permitted Indebtedness) pursuant to and in an amount equal to the Attributable
Indebtedness with respect to such Sale/Leaseback Transaction pursuant to the
covenants described in paragraph (a) under "--Limitation on Indebtedness and
Disqualified Capital Stock," (ii) the Company or such Restricted Subsidiary
receives proceeds from such Sales/Leaseback Transaction at least equal to the
fair market value of the property or assets subject thereto (as determined in
good faith by the Company's Board of Directors, whose determination in good
faith and evidenced by a Board Resolution will be conclusive) and (iii) the
Company applies an amount in cash equal to the Net Available Proceeds of the
Sale/Leaseback Transaction in accordance with the provisions of the "Limitation
on Asset Sales" covenant as if such Sale/Leaseback Transaction were an Asset
Sale.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. (a) The Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, enter into
or suffer to exist any transaction or series of related transactions (including,
without limitation, the sale, purchase, exchange or lease of assets or property
or the rendering of any service) with, or for the benefit of, any of their
respective Affiliates (each an "Affiliate Transaction") other than (i) Affiliate
Transactions permitted by clause (b) of this covenant, (ii) Affiliate
Transactions on terms that are no less favorable to the Company or such
Restricted
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Subsidiary, as the case may be, than those that would be available in a
comparable arm's length transaction with an unrelated Person, (iii) with respect
to any one transaction or series of related transactions involving aggregate
payments in excess of $1.0 million but less than $5.0 million in the aggregate,
the Company delivers an Officers' Certificate to the Trustee certifying that (A)
such transaction or series of related transactions complies with clause (i)
above and (B) such transaction or series of related transactions has been
approved by the Board of Directors (including a majority of the Disinterested
Directors) of the Company, and (iv) with respect to any one transaction or
series of related transactions involving aggregate payments in excess of $5.0
million, the Company delivers an Officers' Certificate to the Trustee certifying
to the two matters referred to in clause (iii) above and that the Company has
obtained a written opinion, a copy of which shall be attached to such Officers'
Certificate, from an independent nationally recognized investment banking firm
or appraisal firm specializing or having a speciality in the type and subject
matter of the transaction or series of related transactions at issue, which
opinion shall be to the effect set forth in clause (i) above or shall state that
such transaction or series of related transactions is fair from a financial
point of view to the Company or such Restricted Subsidiary, as the case may be.
(b) The restrictions set forth in clause (a) shall not apply to (i)
transactions exclusively between or among the Company and any of its Restricted
Subsidiaries or exclusively between or among the Restricted Subsidiaries so long
as such transactions are not otherwise prohibited by the Indenture, (ii)
reasonable indemnities of officers, directors and employees of the Company or
any Restricted Subsidiary permitted by bylaw or statutory provisions, (iii) the
payment of reasonable and customary regular fees to directors of the Company or
any of its Restricted Subsidiaries who are employees of the Company or any
Affiliate and (iv) reasonable employee compensation and other benefit
arrangements approved by the Board of Directors of the Company.
LIMITATION ON LIENS. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume, affirm
or suffer to exist or become effective any Lien of any kind, except for
Permitted Liens, upon any of their respective property or assets, whether now
owned or acquired after the date of the Indenture, or any income, profits or
proceeds therefrom, or assign or otherwise convey any right to receive income or
profits therefrom, to secure any Indebtedness of the Company or such Restricted
Subsidiary, unless prior to, or contemporaneously therewith, the Senior Notes
are equally and ratably secured; PROVIDED, HOWEVER, that if such Indebtedness is
expressly subordinated to the Senior Notes, the Lien securing such Indebtedness
will be subordinated and junior to the Lien securing the Senior Notes, with the
same relative priority as such Indebtedness has with respect to the Senior
Notes. The incurrence of additional secured Indebtedness by the Company and its
Restricted Subsidiaries is subject to further limitations on the incurrence of
Indebtedness as described under "--Limitation on Indebtedness and Disqualified
Capital Stock."
CHANGE OF CONTROL. Upon the occurrence of a Change of Control, the Company
will be obligated to make an offer to purchase all of the then outstanding
Senior Notes (a "Change of Control Offer"), and will purchase, on a Business Day
(the "Change of Control Purchase Date"), not more than 60 nor less than 30 days
following the date notice is mailed, as provided below, all of the then
outstanding Senior Notes validly tendered pursuant to such Change of Control
Offer and not withdrawn, at a purchase price (the "Change of Control Purchase
Price") equal to 101% of the principal amount thereof plus accrued and unpaid
interest and Old Note Liquidated Damages, if any, to the Change of Control
Purchase Date. The Change of Control Offer is required to remain open for at
least 20 Business Days and until the close of business on the fifth Business Day
prior to the Change of Control Purchase Date.
In order to effect such Change of Control Offer, the Company will, not later
than the 30th day after the Change of Control, send, by first class mail, to the
Trustee and each Holder a notice of the Change of Control Offer, which notice
shall govern the terms of the Change of Control Offer and shall state, among
other things, the procedures that Holders must follow to accept the Change of
Control Offer.
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There can be no assurance that the Company will have available funds
sufficient to fund the purchase of the Senior Notes that might be delivered by
Holders seeking to accept a Change of Control Offer. In the event a Change of
Control occurs at a time when the Company does not have available funds
sufficient to pay the Change of Control Purchase Price for all of the Senior
Notes delivered by Holders seeking to accept the Change of Control Offer, an
Event of Default would occur under the Indenture. The definition of Change of
Control includes an event by which the Company sells, conveys, transfers, leases
or otherwise disposes of all or substantially all of the properties and assets
of the Company and its Restricted Subsidiaries, taken as a whole; the phrase
"all or substantially all" is subject to applicable legal precedent and, as a
result, in the future there may be uncertainty as to whether or not a Change of
Control has occurred.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if another Person makes the Change of Control Offer at the
same purchase price, at the same time and otherwise in substantial compliance
with the requirements applicable to a Change of Control Offer to be made by the
Company and purchases all Senior Notes validly tendered and not withdrawn under
such Change of Control Offer. The existence of a Holder's right to require,
subject to certain conditions, the Company to repurchase its Senior Notes upon a
Change of Control may deter a third party from acquiring the Company in a
transaction that constitutes, or results in, a Change of Control.
The New Credit Facility also contains a "change of control" provision. Under
the New Credit Facility, any change in the ownership of any borrower thereunder
(which term includes the Company, WG Apparel, Clinton, Leadtec and Macpherson)
such that John K. Ziegler, Sr., the Company's Chairman and Chief Executive
Officer, owns less than ten percent (10%) of the Company, constitutes an event
of default under the New Credit Facility. In addition, the Company's
indebtedness under the New Credit Facility is cross-defaulted to the New Notes
such that certain defaults under the New Notes which accelerate their maturity
or enable a Holder to call the New Notes prior to their stated maturity are also
defaults under the New Credit Facility. The Company has no other Senior
Indebtedness that is subject to a change of control provision similar to the one
applicable to the New Notes or that is cross-defaulted to the New Notes.
The Company will comply with Rule 14e-1 under the Securities Exchange Act of
1934, as amended (the "Exchange Act") and any other securities laws and
regulations thereunder, if applicable, in the event that a Change of Control
occurs and the Company is required to purchase Senior Notes as described above.
LIMITATION ON ASSET SALES. (a) The Company will not, and will not permit
any Restricted Subsidiary to, engage in any Asset Sales unless (i) the Company
or such Restricted Subsidiary, as the case may be, receives consideration at the
time of such Asset Sale at least equal to the fair market value of the assets
and properties sold or otherwise disposed of pursuant to the Asset Sale (as
determined by the Board of Directors of the Company, whose determination in good
faith shall be conclusive and evidenced by a Board Resolution), (ii) at least
80% of the consideration received by the Company or the Restricted Subsidiary,
as the case may be, in respect of such Asset Sale consists of cash or Cash
Equivalents and (iii) the Company delivers to the Trustee an Officers'
Certificate certifying that such Asset Sale complies with clauses (i) and (ii).
The amount (without duplication) of any Indebtedness (other than Subordinated
Indebtedness) of the Company or such Restricted Subsidiary that is expressly
assumed by the transferee in such Asset Sale and with respect to which the
Company or such Restricted Subsidiary, as the case may be, is unconditionally
released by the holder of such Indebtedness, shall be deemed to be cash or Cash
Equivalents for purposes of clause (ii) and shall also be deemed to constitute a
repayment of, and a permanent reduction in, the amount of such Indebtedness for
purposes of the following paragraph (b). If at any time any non-cash
consideration received by the Company or any Restricted Subsidiary of the
Company, as the case may be, in connection with any Asset Sale is converted into
or sold or otherwise disposed of for cash (other than interest received with
respect to any such non-cash consideration), then such conversion or disposition
shall be deemed to constitute an Asset Sale hereunder and the Net Available
Proceeds thereof shall be applied in accordance with this covenant. A transfer
of assets by the
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Company to a Restricted Subsidiary or by a Subsidiary to the Company or to a
Restricted Subsidiary will not be deemed to be an Asset Sale and a transfer of
assets that constitutes a Restricted Investment and that is permitted under
"--Restricted Payments" will not be deemed to be an Asset Sale.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under " --Merger, Consolidation
and Sale of Assets," the successor corporation shall be deemed to have sold the
properties and assets of the Company and its Subsidiaries not so transferred for
purposes of this covenant, and shall comply with the provisions of this covenant
with respect to such deemed sale as if it were an Asset Sale. In addition, the
fair market value of such properties and assets of the Company or its
Subsidiaries deemed to be sold shall be deemed to be Net Available Proceeds for
purposes of this covenant.
(b) If the Company or any Restricted Subsidiary engages in an Asset Sale,
the Company or any Restricted Subsidiary may either, no later than 270 days
after such Asset Sale, (i) apply all or any of the Net Available Proceeds
therefrom to repay Indebtedness (other than Subordinated Indebtedness) of the
Company or any Restricted Subsidiary, PROVIDED, in each case, that the related
loan commitment (if any) is thereby permanently reduced by the amount of such
Indebtedness so repaid or (ii) invest all or any part of the Net Available
Proceeds thereof in properties and assets that replace the properties or assets
that were the subject of such Asset Sale or in other properties or assets that
will be used in the business of the Company and its Restricted Subsidiaries. The
amount of such Net Available Proceeds not applied or invested as provided in
this paragraph will constitute "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds equals or exceeds $5.0
million, the Company will be required to make an offer to purchase, from all
Holders of the Senior Notes, an aggregate principal amount of Senior Notes equal
to such Excess Proceeds as follows:
(i) The Company will make an offer to purchase (a "Net Proceeds Offer")
from all Holders of the Senior Notes in accordance with the procedures set
forth in the Indenture the maximum principal amount (expressed as a multiple
of $1,000) of Senior Notes that may be purchased out of the amount (the
"Payment Amount") of such Excess Proceeds.
(ii) The offer price for the Senior Notes will be payable in cash in an
amount equal to 100% of the principal amount of the Senior Notes tendered
pursuant to a Net Proceeds Offer, plus accrued and unpaid interest and Old
Note Liquidated Damages, if any, to the date such Net Proceeds Offer is
consummated (the "Offered Price"), in accordance with the procedures set
forth in the Indenture. To the extent that the aggregate Offered Price of
Senior Notes tendered pursuant to a Net Proceeds Offer is less than the
Payment Amount relating thereto (such shortfall constituting a "Net Proceeds
Deficiency"), the Company may use such Net Proceeds Deficiency, or a portion
thereof, for general corporate purposes, subject to the limitations of the
"Limitation on Restricted Payments" covenant.
(iii) If the aggregate Offered Price of Senior Notes validly tendered and
not withdrawn by Holders thereof exceeds the Payment Amount, Senior Notes to
be purchased will be selected on a PRO RATA basis.
(iv) Upon completion of such Net Proceeds Offer, the amount of Excess
Proceeds remaining shall be zero.
The Company will not permit any Restricted Subsidiary to enter into or suffer to
exist any agreement that would place any restriction of any kind (other than
pursuant to law or regulation) on the ability of the Company to make a Net
Proceeds Offer following any Asset Sale. The Company will comply with Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder,
if applicable, in the event that an Asset Sale occurs and the Company is
required to purchase Senior Notes as described above.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. The Company will not, and will not cause or permit any Restricted
Subsidiary to, directly or indirectly, create or suffer to exist or allow to
become effective any consensual encumbrance or restriction of any kind on the
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ability of any Restricted Subsidiary (a) to pay dividends, in cash or otherwise,
or make any other distributions on its Capital Stock, or make payments on any
Indebtedness owed, to the Company or any other Restricted Subsidiary, (b) to
make loans or advances to the Company or any other Restricted Subsidiary or (c)
to transfer any of its property or assets to the Company or any other Restricted
Subsidiary (any such restrictions being collectively referred to herein as a
"Payment Restriction"), except in any such case for such encumbrances or
restrictions existing under or by reason of (i) the Indenture or any other
agreement in effect or entered into on the date of the Indenture, or (ii) any
agreement, instrument or charter of or in respect of a Restricted Subsidiary
entered into prior to the date on which such Restricted Subsidiary became a
Restricted Subsidiary and outstanding on such date and not entered into in
connection with or in contemplation of becoming a Restricted Subsidiary,
PROVIDED such consensual encumbrance or restriction is not applicable to any
properties or assets subsequently acquired by such Restricted Subsidiary, or
(iii) pursuant to an agreement effecting a modification, renewal, refinancing,
replacement or extension of any agreement, instrument or charter (other than the
Indenture) referred to in clause (i) or (ii) above, PROVIDED, HOWEVER, that the
provisions relating to such encumbrance or restriction are not materially less
favorable to the Holder of the Senior Notes than those under or pursuant to the
agreement, instrument or charter so modified, renewed, refinanced, replaced or
extended, or (iv) customary provisions restricting the subletting or assignment
of any lease or the transfer of copyrighted or patented material, or (v)
provisions in agreements that restrict the assignment of such agreements or
rights thereunder, or (vi) the sale or other disposition of any properties or
assets subject to a Lien securing Indebtedness.
LIMITATION ON CONDUCT OF BUSINESS. The Company will not, and will not
permit any of its Restricted Subsidiaries to, engage in the conduct of any
business other than any Related Business.
FUTURE DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES. The
foregoing covenants (including calculation of financial ratios and the
determination of limitations on the incurrence of Indebtedness and Liens) may be
affected by the designation by the Company of any existing or future Subsidiary
of the Company as an Unrestricted Subsidiary. The definition of "Unrestricted
Subsidiary" set forth under the caption "--Certain Definitions" describes the
circumstances under which a Subsidiary of the Company may be designated as an
Unrestricted Subsidiary by the Board of Directors of the Company.
ADDITIONAL COVENANTS. The Indenture also contains covenants with respect to
the following matters: (i) payment of principal, premium and interest, if any,
and Old Note Liquidated Damages, if any; (ii) maintenance of an office or agency
in The City of New York; (iii) arrangements regarding the handling of money held
in trust; (iv) maintenance of corporate existence; (v) payment of taxes and
other claims; and (vi) maintenance of properties.
REPORTS. The Company will file on a timely basis with the Commission, to
the extent such filings are accepted by the Commission and whether or not the
Company has a class of securities registered under the Exchange Act, the annual
reports, quarterly reports and other documents that the Company would be
required to file if it were subject to Section 13 or 15 of the Exchange Act. The
Company will also be required (a) to file with the Trustee (with exhibits), and
provide to each Holder of Senior Notes (without exhibits), without cost to such
Holder, copies of such reports and documents within 15 days after the date on
which the Company files such reports and documents with the Commission or the
date on which the Company would be required to file such reports and documents
if the Company were so required and (b) if filing such reports and documents
with the Commission is not accepted by the Commission or is prohibited under the
Exchange Act, to supply at its cost copies of such reports and documents
(including any exhibits thereto) to any Holder of Senior Notes promptly upon
written request.
MERGER, CONSOLIDATION AND SALE OF ASSETS
The Company will not, in any single transaction or series of related
transactions, merge or consolidate with or into any other Person, or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of the properties and assets of the Company and its Restricted Subsidiaries on a
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consolidated basis to any Person or group of Affiliated Persons, and the Company
will not permit any of its Restricted Subsidiaries to enter into any such
transaction or series of transactions, if, in any event, such transaction or
series of transactions, in the aggregate, would result in the sale, assignment,
conveyance, transfer, lease or other disposition of all or substantially all of
the properties and assets of the Company and its Restricted Subsidiaries on a
consolidated basis to any other Person or group of Affiliated Persons, unless
(i) either (A) if the transaction is a merger or consolidation, the Company
shall be the surviving Person of such merger or consolidation, or (B) the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged or to which the properties and assets of the Company or its
Restricted Subsidiaries, as the case may be, are sold, assigned, conveyed,
transferred, leased or otherwise disposed of (any such surviving Person or
transferee Person being the "Surviving Entity") shall be a corporation organized
and existing under the laws of the United States of America, any state thereof
or the District of Columbia and shall, in either case, expressly assume by a
supplemental indenture to the Indenture executed and delivered to the Trustee,
in form satisfactory to the Trustee, all the obligations of the Company or the
Restricted Subsidiary, as the case may be, with respect to the Senior Notes and
the Indenture, and, in any case, the Indenture shall remain in full force and
effect; and (ii) immediately before and immediately after giving effect to such
transaction or series of transactions on a pro forma basis (and treating any
Indebtedness not previously an obligation of the Company or any of its
Restricted Subsidiaries which becomes an obligation of the Company or any of its
Restricted Subsidiaries in connection with or as a result of such transaction or
transactions as having been incurred at the time of such transaction or
transactions), no Default or Event of Default shall have occurred and be
continuing; (iii) except in the case of the consolidation or merger of any
Restricted Subsidiary with or into the Company, immediately after giving effect
to such transaction or transactions on a pro forma basis, the Consolidated Net
Worth of the Company (or the Surviving Entity if the Company is not the
continuing obligor under the Indenture) is at least equal to the Consolidated
Net Worth of the Company immediately before such transaction or transactions;
(iv) except in the case of the consolidation or merger of the Company with or
into a Restricted Subsidiary or any Restricted Subsidiary with or into the
Company or another Restricted Subsidiary, immediately before and immediately
after giving effect to such transaction or transactions on a pro forma basis
(assuming that the transaction or transactions occurred on the first day of the
period of four fiscal quarters ending immediately prior to the consummation of
such transaction or transactions, with the appropriate adjustments with respect
to the transaction or transactions being included in such pro forma
calculation), the Company (or the Surviving Entity if the Company is not the
continuing obligor under the Indenture) could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the first paragraph
of the "--Limitation on Indebtedness and Disqualified Capital Stock" covenant;
(v) if any of the properties or assets of the Company or any of its Restricted
Subsidiaries would upon such transaction or series of related transactions
become subject to any Lien (other than a Permitted Lien), the creation and
imposition of such Lien shall have been in compliance with the "Limitation on
Liens" covenant; and (vi) the Company (or the Surviving Entity if the Company is
not the continuing obligor under the Indenture) shall have delivered to the
Trustee, in form and substance reasonably satisfactory to the Trustee, an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, transfer, lease or other disposition and any supplemental
indenture in respect thereto comply with the requirements under the Indenture
and that all conditions precedent in the Indenture relating to such transaction
have been satisfied.
Upon any consolidation or merger or any sale, assignment, lease, conveyance,
transfer or other disposition of all or substantially all of the properties and
assets of the Company and its Restricted Subsidiaries on a consolidated basis in
accordance with the foregoing, in which the Company is not the continuing
corporation, the Surviving Entity shall succeed to, and be substituted for, and
may exercise every right and power of, the Company under the Indenture with the
same effect as if the Surviving Entity had been named as the Company therein,
and thereafter the Company, except in the case of a lease, will be discharged
from all obligations and covenants under the Indenture and the Senior Notes and
may be liquidated and dissolved.
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EVENTS OF DEFAULT
The following will be "Events of Default" under the Indenture:
(i) default in the payment of the principal of or premium, if any, on
any of the Senior Notes, whether such payment is due at Stated Maturity,
upon redemption, upon repurchase pursuant to a Change of Control Offer or a
Net Proceeds Offer, upon acceleration or otherwise; or
(ii) default in the payment of any installment of interest and Old Note
Liquidated Damages, if any, on any of the Senior Notes, when due, and the
continuance of such default for a period of 30 days; or
(iii) failure to comply with the "--Limitation on Indebtedness and
Disqualified Capital Stock," "--Limitation on Preferred Stock of
Subsidiaries," "--Limitation on Restricted Payments,"
"--Limitation on Liens" covenants, default in the performance or breach of
the provisions of the "Merger, Consolidation and Sale of Assets" section of
the Indenture, the failure to make or consummate a Change of Control Offer
in accordance with the provisions of the "Change of Control" covenant or the
failure to make or consummate a Net Proceeds Offer in accordance with the
provisions of the "Limitation on Asset Sales" covenant; or
(iv) the Company or the Subsidiary Guarantors shall fail to perform or
observe any other term, covenant or agreement contained in the Senior Notes,
the Indenture (other than a default specified in (i), (ii) or (iii) above)
or the Subsidiary Guarantees, as the case may be, for a period of 30 days
after written notice of such failure stating that it is a "notice of
default" under the Indenture and requiring the Company or the Subsidiary
Guarantors, as the case may be, to remedy the same shall have been given (x)
to the Company or the Subsidiary Guarantors, as the case may be, by the
Trustee or (y) to the Company or the Subsidiary Guarantors, as the case may
be, and the Trustee by the Holders of at least 25% in aggregate principal
amount of the Senior Notes then outstanding; or
(v) the occurrence and continuation beyond any applicable grace period
of any default in the payment of the principal of, premium, if any, or
interest on any Indebtedness of the Company (other than the Senior Notes) or
any Subsidiary for money borrowed when due, or any other default resulting
in acceleration of any Indebtedness of the Company or any Subsidiary for
money borrowed, provided that the aggregate principal amount of such
Indebtedness shall exceed $2.5 million; or
(vi) one or more final judgments or orders rendered against the Company
or any Subsidiary that are unsatisfied and that require the payment in
money, either individually or in an aggregate amount, in excess of $2.5
million, which judgments or orders are not paid, discharged or stayed for a
period of 60 days; or
(vii) certain events of bankruptcy or insolvency with respect to the
Company or any Restricted Subsidiary; or
(viii) except as permitted by the Indenture and the Senior Notes, the
cessation of the effectiveness of any Subsidiary Guarantee or the
repudiation by any Subsidiary Guarantor (or by any Person acting on behalf
of any Subsidiary Guarantor) of its obligations under its Subsidiary
Guarantee; or
(ix) the cessation of the effectiveness of the Pledge Agreement or the
repudiation by the Pledgor thereunder (or by any Person acting on behalf of
such Pledgor) of its obligations under the Pledge Agreement.
If an Event of Default (other than as specified in clause (vii) above) shall
occur and be continuing, the Trustee, by written notice to the Company, or the
Holders of at least 25% in aggregate principal amount of the Senior Notes then
outstanding, by written notice to the Trustee and the Company, may, and the
Trustee upon the request of the Holders of not less than 25% in aggregate
principal amount of the Senior Notes then outstanding shall, declare the
principal of, premium, if any, and accrued and unpaid interest and Old Note
Liquidated Damages, if any, on all of the Senior Notes due and payable
immediately, upon which declaration all amounts payable in respect of the Senior
Notes shall be immediately due and payable. If an
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Event of Default specified in clause (vii) above occurs and is continuing, then
the principal of, premium, if any, and accrued and unpaid interest and Old Note
Liquidated Damages, if any, on all of the Senior Notes shall become and be
immediately due and payable without any declaration, notice or other act on the
part of the Trustee or any Holder of Senior Notes.
After a declaration of acceleration under the Indenture, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the Holders of a majority in aggregate principal amount of the
outstanding Senior Notes, by written notice to the Company and the Trustee, may,
under certain circumstances, rescind and annul such declaration and its
consequences if all Events of Default, other than the non-payment of principal
of, premium, if any, or interest on the Senior Notes that has become due solely
by such declaration of acceleration, have been cured or waived. No such
rescission shall affect any subsequent Default or Event of Default or impair any
right consequent thereto.
No Holder will have any right to institute any proceeding with respect to
the Indenture or any remedy thereunder, unless such Holder has notified the
Trustee of a continuing Event of Default and the Holders of at least 25% in
aggregate principal amount of the outstanding Senior Notes have made written
request, and offered reasonable indemnity, to the Trustee to institute such
proceeding as Trustee under the Senior Notes and the Indenture, the Trustee has
failed to institute such proceeding within 60 days after receipt of such notice
and the Trustee, within such 60-day period, has not received directions
inconsistent with such written request by Holders of a majority in aggregate
principal amount of the outstanding Senior Notes. Such limitations will not
apply, however, to a suit instituted by the Holder of a Senior Note for the
enforcement of the payment of the principal of, premium, if any, or interest on
such Senior Note on or after the respective due dates expressed in such Senior
Note.
The Holders of a majority in principal amount of the Senior Notes may waive
any existing Default or Event of Default under the Indenture, and its
consequences, except a default in the payment of the principal of or interest on
any Senior Notes.
The Company will be required to furnish to the Trustee annual and quarterly
statements as to the performance by the Company of its obligations under the
Indenture and as to any default in such performance. The Company will also be
required to notify the Trustee within 10 days of any Default or Event of
Default.
LEGAL DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, terminate the obligations of
the Company with respect to the outstanding Senior Notes (such action being a
"legal defeasance"). Such legal defeasance means that the Company shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Senior Notes and to have been discharged from all their other
obligations with respect to the Senior Notes, except for (i) the rights of
Holders of outstanding Senior Notes to receive payment in respect of the
principal of, premium, if any, and interest on such Senior Notes when such
payments are due, (ii) the Company's obligations to replace any temporary Senior
Notes, register the transfer or exchange of any Senior Notes, replace mutilated,
destroyed, lost or stolen Senior Notes and maintain an office or agency for
payments in respect of the Senior Notes, (iii) the rights, powers, trusts,
duties and immunities of the Trustee, and (iv) the legal defeasance provisions
of the Indenture. In addition, the Company may, at its option and at any time,
elect to terminate the obligations of the Company with respect to certain
covenants that are set forth in the Indenture, some of which are described under
"--Certain Covenants" above, and any omission to comply with such obligations
shall not constitute a Default or an Event of Default with respect to the Senior
Notes (such action being a "covenant defeasance"). In the event covenant
defeasance occurs, certain events (not including nonpayment, bankruptcy,
insolvency and reorganization events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Senior Notes.
In order to exercise either legal defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Senior Notes, cash in United States
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dollars, U.S. Government Obligations (as defined in the Indenture), or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest and Old Note Liquidated Damages, if
any, on the outstanding Senior Notes to redemption or maturity; (ii) the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the outstanding Senior Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such legal defeasance or covenant
defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such legal
defeasance or covenant defeasance had not occurred (in the case of legal
defeasance, such Opinion must refer to and be based upon a published ruling of
the Internal Revenue Service or a change in applicable federal income tax laws);
(iii) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit or insofar as clauses (vii) and (viii) under the first
paragraph of "Events of Default" are concerned, at any time during the period
ending on the 91st day after the date of deposit; (iv) such legal defeasance or
covenant defeasance shall not cause the Trustee to have a conflicting interest
under the Indenture or the Trust Indenture Act with respect to any securities of
the Company; (v) such legal defeasance or covenant defeasance shall not result
in a breach or violation of, or constitute a default under, any material
agreement or instrument to which the Company or any of its Restricted
Subsidiaries is a party or by which the Company or any of its Restricted
Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of the Senior Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and (viii) the Company shall have delivered
to the Trustee an Officers' Certificate and an Opinion of Counsel satisfactory
to the Trustee, each stating that all conditions precedent under the Indenture
to either legal defeasance or covenant defeasance, as the case may be, have been
complied with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Senior Notes, as expressly provided for in the Indenture) as to all outstanding
Senior Notes when (i) either (a) all the Senior Notes theretofore authenticated
and delivered (except lost, stolen, mutilated or destroyed Senior Notes which
have been replaced or paid and Senior Notes for whose payment money or certain
U.S. Government Obligations have theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Senior Notes not theretofore delivered to the Trustee
for cancellation have become due and payable or will become due and payable at
their Stated Maturity within one year, or are to be called for redemption within
one year under arrangements satisfactory to the Trustee for the serving of
notice of redemption by the Trustee in the name, and at the expense, of the
Company, and the Company has irrevocably deposited or caused to be deposited
with the Trustee funds in an amount sufficient to pay and discharge the entire
Indebtedness on the Senior Notes not theretofore delivered to the Trustee for
cancellation, for principal of, premium, if any, and interest and Old Note
Liquidated Damages, if any, on the Senior Notes to the date of deposit (in the
case of Senior Notes which have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be, together with instructions from
the Company irrevocably directing the Trustee to apply such funds to the payment
thereof at maturity or redemption, as the case may be; (ii) the Company has paid
all other sums payable under the Indenture by the Company; and (iii) the Company
has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel
which, taken together, state that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have been complied
with.
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AMENDMENTS AND WAIVERS
From time to time, the Company and the Trustee may, without the consent of
the Holders of the Senior Notes, amend or supplement the Indenture or the Senior
Notes for certain specified purposes, including, among other things, curing
ambiguities, defects or inconsistencies, qualifying, or maintaining the
qualification of, the Indenture under the Trust Indenture Act or making any
change that does not materially adversely affect the rights of any Holder of
Senior Notes. Other amendments and modifications of the Indenture or the Senior
Notes may be made by the Company and the Trustee with the consent of the Holders
of not less than a majority of the aggregate principal amount of the outstanding
Senior Notes; provided, however, that no such modification or amendment may,
without the consent of the Holder of each outstanding Senior Note affected
thereby, (a) change the Stated Maturity of the principal of, or any installment
of interest on, any Senior Note or alter the provisions with respect to
redemption of the Senior Notes, (b) reduce the principal amount of, premium, if
any, or interest or Old Note Liquidated Damages, if any, on any Senior Note, (c)
change the coin or currency in which principal of, premium, if any, or interest
or Old Note Liquidated Damages, if any, on, any Senior Note is payable, (d)
impair the right to institute suit for the enforcement of any payment on or with
respect to any Senior Note, (e) reduce the above-stated percentage of aggregate
principal amount of outstanding Senior Notes necessary to modify or amend the
Indenture, (f) reduce the percentage of aggregate principal amount of
outstanding Senior Notes necessary for waiver of compliance with certain
provisions of the Indenture or for waiver of certain defaults, (g) modify any
provisions of the Indenture relating to the modification and amendment of the
Indenture or the waiver of past Defaults or covenants, except as otherwise
specified, or the rights of any Holder to receive payments of principal of or
premium, if any, or interest or Old Note Liquidated Damages, if any, on the
Senior Notes, (h) change the ranking of the Senior Notes in a manner adverse to
the Holders or expressly subordinate in right of payment the Senior Notes to any
other Indebtedness, (i) amend, change or modify the obligation of the Company to
make and consummate a Change of Control Offer in the event of a Change of
Control or make and consummate a Net Proceeds Offer with respect to any Asset
Sale or modify any of the provisions or definitions with respect thereto or (j)
release any security that may have been granted in respect of the Senior Notes
except as expressly provided in the Indenture.
The Holders of not less than a majority in aggregate principal amount of the
outstanding Senior Notes may, on behalf of the Senior Holders of all Senior
Notes, waive any past default under the Indenture, except a default in the
payment of principal of, premium, if any, or interest or Old Note Liquidated
Damages, if any, on the Senior Notes, or in respect of a covenant or provision
which under the Indenture cannot be modified or amended without the consent of
the Holder of each Senior Note outstanding.
THE TRUSTEE
IBJ Schroder Bank & Trust Company serves as trustee under the Indenture.
The Indenture (including provisions of the Trust Indenture Act incorporated
by reference therein) contains limitations on the rights of the Trustee
thereunder, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Indenture permits the
Trustee to engage in other transactions; provided, however, if it acquires any
conflicting interest (as defined in the Trust Indenture Act) it must eliminate
such conflict or resign.
GOVERNING LAW
The Indenture and the Senior Notes are governed by the laws of the State of
New York, without regard to the principles of conflicts of law.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means, with respect to any specified Person, (a)
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Restricted Subsidiary of
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such specified Person, including Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person or (b) assumed in connection with
acquisitions of properties or assets from such Person. Acquired Indebtedness
shall be deemed to be incurred on the date the acquired Person becomes a
Restricted Subsidiary or the date of the related acquisition of properties or
assets from such Person.
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of this definition, beneficial ownership of 10% or more of the voting
common equity (on a fully diluted basis) or options or warrants to purchase such
equity (but only if exercisable at the date of determination or within 60 days
thereof) of a Person shall be deemed to constitute control of such Person.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease,
assignment or other disposition to any Person other than the Company or any of
its Restricted Subsidiaries (including, without limitation, by means of a
Sale/Leaseback Transaction or a merger or consolidation) (collectively, for
purposes of this definition, a "transfer"), directly or indirectly, in one or a
series of related transactions, of (a) any Capital Stock of any Restricted
Subsidiary held by the Company or any other Restricted Subsidiary or (b) any
other properties or assets of the Company or any of its Restricted Subsidiaries
other than transfers of cash, Cash Equivalents, accounts receivable or other
properties or assets in the ordinary course of business. For the purposes of
this definition, the term "Asset Sale" also shall not include any of the
following: (i) any transfer of properties or assets (including Capital Stock)
that is governed by, and made in accordance with, the provisions described under
"--Merger, Consolidation and Sale of Assets"; (ii) any transfer of properties or
assets to an Unrestricted Subsidiary, if permitted under the "Limitation on
Restricted
Payments" covenant; (iii) sales of damaged, worn-out or obsolete equipment or
assets that, in the Company's reasonable judgment, are either (x) no longer used
or (y) no longer useful in the business of the Company or its Restricted
Subsidiaries; and (iv) any transfers that, but for this clause (iv), would be
Asset Sales, if after giving effect to such transfers, the aggregate fair market
value of the properties or assets transferred in such transaction or any such
series of related transactions so designated by the Company does not exceed
$500,000.
"Attributable Indebtedness" means, with respect to any particular lease
under which any Person is at the time liable, whether or not accounted for as a
Capitalized Lease Obligation, and at any date as of which the amount thereof is
to be determined, the present value of the total net amount of rent required to
be paid by such Person under the lease during the primary term thereof, without
giving effect to any renewals at the option of the lessee, discounted from the
respective due dates thereof to such date of determination at a rate per annum
equal to the discount rate which would be applicable to a Capitalized Lease
Obligation with a like term in accordance with GAAP. As used in the preceding
sentence, the "net amount of rent" under any such lease for any such period
shall mean the sum of rental and other payments required to be paid with respect
to such period by the lessee thereunder, excluding any amounts required to be
paid by such lessee on account of maintenance and repairs, insurance, taxes,
assessments, water rates or similar charges. In the case of any lease which is
terminable by the lessee upon payment of a penalty, such net amount of rent
shall also include the amount of such penalty, but no rent shall be considered
as required to be paid under such lease subsequent to the first date upon which
it may be so terminated.
"Average Life" means, with respect to any Indebtedness, as at any date of
determination, the quotient obtained by dividing (a) the sum of the products of
(i) the number of years (and any portion thereof) from the date of determination
to the date or dates of each successive scheduled principal payment (including,
without limitation, any sinking fund or mandatory redemption payment
requirements) of such Indebtedness multiplied by (ii) the amount of each such
principal payment by (b) the sum of all such principal payments.
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"Capitalized Lease Obligation" means, with respect to any Person, any
obligation to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) any property (whether real, personal or mixed) that
is required to be classified and accounted for as a capital lease obligation
under GAAP and, for the purpose of the Indenture, the amount of such obligation
at any date shall be the capitalized amount thereof at such date, determined in
accordance with GAAP.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participation, rights or other equivalents in the equity interests
(however designated) in such Person, and any rights (other than debt securities
convertible into an equity interest), warrants or options exercisable for,
exchangeable for or convertible into such an equity interest in such Person.
"Cash Equivalents" means (i) marketable obligations with a maturity of 180
days or less issued or directly and fully guaranteed or insured by the United
States of America or any agency or instrumentality thereof (provided that the
full faith and credit of the United States of America is pledged in support
thereof); (ii) demand and time deposits and certificates of deposit or
acceptances with a maturity of 180 days or less of any financial institution
that is a member of the Federal Reserve System having combined capital and
surplus and undivided profits of not less than $500 million; (iii) commercial
paper maturing no more than 180 days from the date of creation thereof issued by
a corporation that is not an Affiliate of the Company and is organized under the
laws of any state of the United States or the District of Columbia and rated at
least A-1 by S&P or at least P-1 by Moody's; (iv) repurchase obligations with a
term of not more than seven days for underlying securities of the types
described in clause (i) above entered into with any commercial bank meeting the
specifications of clause (ii) above; and (v) investments in money market or
other mutual funds substantially all of whose assets comprise securities of the
types described in clauses (i) through (iv) above.
"Change of Control" means the occurrence of any event or series of events
(whether or not otherwise in compliance with the provisions of the Indenture) by
which: (a) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act) (other than the Principals) is or becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of more than 35% of the total Voting Stock of the Company, (b) the
Company consolidates with or merges into another Person or any Person
consolidates with, or merges into, the Company, in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Company is changed into
or exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of the Company is changed
into or exchanged for Voting Stock of the surviving or resulting Person that is
Qualified Capital Stock and (ii) the holders of the Voting Stock of the Company
immediately prior to such transaction own, directly or indirectly, not less than
a majority of the Voting Stock of the surviving or resulting Person immediately
after such transaction; (c) the Company, either individually or in conjunction
with one or more Restricted Subsidiaries, sells, assigns, conveys, transfers,
leases or otherwise disposes of, or the Restricted Subsidiaries sell, assign,
convey, transfer, lease or otherwise dispose of, all or substantially all of the
properties and assets of the Company and its Restricted Subsidiaries, taken as a
whole (either in one transaction or a series of related transactions), including
Capital Stock of the Restricted Subsidiaries, to any Person (other than the
Company or a Wholly Owned Restricted Subsidiary); (d) during any consecutive
two-year period, individuals who at the beginning of such period constituted the
Board of Directors of the Company (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
stockholders of the Company was approved by a vote of two-thirds of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office; or (e) the approval by the holders of
Capital Stock of the Company of any plan or proposal for liquidation or
dissolution of the Company.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
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"Consolidated Fixed Charge Coverage Ratio" means, with respect to the
Company for any period, the ratio of (a) the sum of Consolidated Net Income,
Consolidated Fixed Charges, Consolidated Income Tax Expense and Consolidated
Non-cash Charges of the Company and its Restricted Subsidiaries, on a
consolidated basis for such period, all determined in accordance with GAAP to
(b) Consolidated Fixed Charges for such period. In making such computations, (i)
the Consolidated Fixed Charge Coverage Ratio shall be calculated on a pro forma
basis assuming that (A) the Indebtedness to be incurred or the Disqualified
Capital Stock to be issued (and all other Indebtedness incurred or Disqualified
Capital Stock issued after the first day of such period of four full fiscal
quarters referred to in the covenant described in paragraph (a) under "--Certain
Covenants--Limitation on Indebtedness and Disqualified Capital Stock" through
and including the date of determination), and (if applicable) the application of
the net proceeds therefrom (and from any other such Indebtedness or Disqualified
Capital Stock), including to refinance other Indebtedness, had been incurred on
the first day of such four quarter period and, in the case of Acquired
Indebtedness, on the assumption that the related transaction (whether by means
of purchase, merger or otherwise) also had occurred on such date with the
appropriate adjustments with respect to such acquisition being included in such
pro forma calculation and (B) any acquisition or disposition by the Company or
any Restricted Subsidiary of any properties or assets outside the ordinary
course of business, or any repayment of any principal amount of any Indebtedness
of the Company or any Restricted Subsidiary prior to the Stated Maturity
thereof, in either case since the first day of such period of four full fiscal
quarters through and including the date of determination, had been consummated
on such first day of such four-quarter period; (ii) the Consolidated Fixed
Charges attributable to interest on any Indebtedness required to be computed on
a pro forma basis in accordance with the covenant described in paragraph (a)
under "--Certain Covenants--Limitation on Indebtedness and Disqualified Capital
Stock" and (A) bearing a floating interest rate shall be computed as if the rate
in effect on the date of computation had been the applicable rate for the entire
period and (B) which was not outstanding during the period for which the
computation is being made but which bears, at the option of the Company, a fixed
or floating rate of interest, shall be computed by applying, at the option of
the Company, either the fixed or floating rate; (iii) the Consolidated Fixed
Charges attributable to interest on any Indebtedness under a revolving credit
facility required to be computed on a pro forma basis in accordance with the
covenant described in paragraph (a) under "--Certain Covenants--Limitation on
Indebtedness and Disqualified Capital Stock" shall be computed based upon the
average daily balance of such Indebtedness during the applicable period,
provided that such average daily balance shall be reduced by the amount of any
repayment of Indebtedness under a revolving credit facility during the
applicable period, which repayment permanently reduced the commitments or
amounts available to be reborrowed under such facility; (iv) notwithstanding
clauses (ii) and (iii) of this proviso, interest on Indebtedness determined on a
fluctuating basis, to the extent such interest is covered by agreements relating
to Interest Rate Protection Obligations, shall be deemed to have accrued at the
rate per annum resulting after giving effect to the operation of such
agreements; and (v) if after the first day of the period referred to in clause
(a) of this definition the Company has permanently retired any Indebtedness out
of the Net Cash Proceeds of the issuance and sale of shares of Qualified Capital
Stock of the Company within 30 days of such issuance and sale, Consolidated
Fixed Charges shall be calculated on a pro forma basis as if such Indebtedness
had been retired on the first day of such period.
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"Consolidated Fixed Charges" means, for any period, without duplication, (i)
the sum of (a) the interest expense of the Company and its Restricted
Subsidiaries for such period as determined on a consolidated basis in accordance
with GAAP, including, without limitation, any amortization of debt discount, the
net cost under Interest Rate Protection Obligations (including any amortization
of discounts), the interest portion of any deferred payment obligation
constituting Indebtedness, all commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers' acceptance financing and all
accrued interest, in each case to the extent attributable to such period, (b) to
the extent any Indebtedness of any Person (other than the Company or a
Restricted Subsidiary) is guaranteed by the Company or any Restricted
Subsidiary, the aggregate amount of interest paid (to the extent not accrued in
a prior period) or accrued by such other Person during such period attributable
to any such Indebtedness, in each case to the extent attributable to that
period, (c) the aggregate amount of the interest component of Capitalized Lease
Obligations paid (to the extent not accrued in a prior period), accrued or
scheduled to be paid or accrued by the Company and its Restricted Subsidiaries
during such period, and (d) the aggregate amount of dividends paid (to the
extent not accrued in a prior period) or accrued on Preferred Stock or
Disqualified Capital Stock of the Company and its Restricted Subsidiaries, to
the extent such Preferred Stock or Disqualified Capital Stock is owned by
Persons other than the Company or any Restricted Subsidiary, less (ii), to the
extent included in clause (i) above, amortization of capitalized debt issuance
costs of the Company and its Restricted Subsidiaries during such period.
"Consolidated Income Tax Expense" means, for any period, the provision for
federal, state, local and foreign income taxes (including state franchise taxes
accounted for as income taxes in accordance with GAAP) of the Company and its
Restricted Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means, for any period, the consolidated net income
(or loss) of the Company and its Restricted Subsidiaries for such period as
determined in accordance with GAAP, adjusted by excluding (a) net after-tax
extraordinary gains or losses (less all fees and expenses relating thereto), (b)
net after-tax gains or losses (less all fees and expenses relating thereto)
attributable to Asset Sales, (c) net income (or net loss) of any Person (other
than the Company or any of its Restricted Subsidiaries), in which the Company or
any of its Restricted Subsidiaries has an ownership interest, except to the
extent of the amount of dividends or other distributions actually paid to the
Company or any of its Restricted Subsidiaries in cash by such other Person
during such period (regardless of whether such cash dividends or distributions
are attributable to net income (or net loss) of such Person during such period
or during any prior period), (d) net income (or net loss) of any Person combined
with the Company or any of its Restricted Subsidiaries on a "pooling of
interests" basis attributable to any period prior to the date of combination,
(e) net income of any Restricted Subsidiary to the extent that the declaration
or payment of dividends or similar distributions by that Restricted Subsidiary
of its net income is not at the date of determination permitted, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders, and (f) income
resulting from transfers of assets received by the Company or any Restricted
Subsidiary from an Unrestricted Subsidiary.
"Consolidated Net Worth" means, at any date, the consolidated stockholders'
equity of the Company less (without duplication) the amount of such
stockholders' equity attributable to Disqualified Capital Stock or treasury
stock of the Company and its Restricted Subsidiaries, as determined in
accordance with GAAP.
"Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, depletion, amortization and other non-cash expenses of the Company
and its Restricted Subsidiaries deducted in computing Consolidated Net Income
for such period, all determined on a consolidated basis in accordance with GAAP
(excluding any such non-cash charge for which an accrual of or reserve for cash
charges for any future period is required).
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"Currency Hedge Obligations" means, at any time as to any Person, the
obligations of such Person at such time which were incurred in the ordinary
course of business pursuant to any foreign currency exchange agreement, option
or futures contract or other similar agreement or arrangement designed to
protect against or manage such Person's or any of its Subsidiaries' exposure to
fluctuations in foreign currency exchange rates.
"Default" means any event, act or condition that is, or after notice or
passage of time or both would become, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series of
transactions in respect of which the Board of Directors of the Company is
required to deliver a resolution of the Board of Directors under the Indenture,
a member of the Board of Directors of the Company who does not have any material
direct or indirect financial interest (other than an interest arising solely
from the beneficial ownership of Capital Stock of the Company) in or with
respect to such transaction or series of transactions.
"Disqualified Capital Stock" means any Capital Stock that, either by its
terms, by the terms of any security into which it is convertible or exchangeable
or by contract or otherwise, is, or upon the happening of an event or passage of
time or both would be, required to be redeemed or repurchased, in whole or in
part, prior to the final Stated Maturity of the Senior Notes or is redeemable at
the option of the holder thereof at any time prior to such final Stated
Maturity, or is convertible into or exchangeable for debt securities at any time
prior to such final Stated Maturity.
"Event of Default" has the meaning set forth above under the caption "Events
of Default."
"GAAP" means generally accepted accounting principles, consistently applied,
that are set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession of the United States of America, which are
applicable as of the date of the Indenture.
"Guarantee" or "guarantee" means, as applied to any obligation, (i) a
guarantee (other than by endorsement of negotiable instruments for collection in
the ordinary course of business), direct or indirect, in any manner, of any part
or all of such obligation and (ii) an agreement, direct or indirect, contingent
or otherwise, the practical effect of which is to assure in any way the payment
or performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down under letters of credit. When used as a verb,
"guarantee" has a corresponding meaning.
"Holder" means a Person in whose name a Senior Note is registered in the
Note Register.
"Indebtedness" means, with respect to any Person, without duplication, (a)
all liabilities of such Person, contingent or otherwise, for borrowed money or
for the deferred purchase price of property or services (excluding any trade
accounts payable and other accrued current liabilities incurred in the ordinary
course of business) and all liabilities of such Person incurred in connection
with any letters of credit, bankers' acceptances or other similar credit
transactions or any agreement to purchase, redeem, exchange, convert or
otherwise acquire for value any Capital Stock of such Person, or any warrants,
rights or options to acquire such Capital Stock, outstanding on the date of the
Indenture or thereafter, if, and to the extent, any of the foregoing would
appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP, (b) all obligations of such Person evidenced by bonds, notes,
debentures or other similar instruments, if, and to the extent, any of the
foregoing would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, (c) all Indebtedness of such Person created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even if the rights and remedies of
the seller or lender under such agreement in the event of a default are limited
to repossession or sale of such property), (d) the Attributable Indebtedness of
any
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Capitalized Lease Obligation of such Persons, (e) all Indebtedness described in
the preceding clauses and all dividends, the payment of which is secured by (or
for which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon property (including, without
limitation, accounts and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Indebtedness
(the amount of such obligation being deemed to be the lesser of the value of
such property or the amount of the obligation so secured), (f) all guarantees by
such Person of Indebtedness referred to in this definition, and (g) all
obligations of such Person under or in respect of Currency Hedge Obligations and
Interest Rate Protection Obligations.
"Interest Rate Protection Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such Person
calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and other similar agreements or arrangements designed to
protect against or manage such Person's or any of its Subsidiaries' exposure to
fluctuations in interest rates.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan, guarantee of Indebtedness or other extension of credit or capital
contribution to (by means of any transfer of cash or other property or assets to
others or any payment for property, assets or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities (including derivatives) or
evidences of Indebtedness issued by, any other Person. In addition, the fair
market value of the net assets of any Restricted Subsidiary at the time that
such Restricted Subsidiary is designated an Unrestricted Subsidiary shall be
deemed to be an "Investment" made by the Company in such Unrestricted Subsidiary
at such time. "Investments" shall exclude (a) extensions of trade credit or
other advances to customers on commercially reasonable terms in accordance with
normal trade practices or otherwise in the ordinary course of business, (b)
Interest Rate Protection Obligations and Currency Hedge Obligations, but only to
the extent that the same constitute Permitted Indebtedness and (c) endorsements
of negotiable instruments and documents in the ordinary course of business.
"Leasing Company" means Embroidery Leasing Corporation.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim or similar type
of encumbrance (including, without limitation, any agreement to give or grant
any lease, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing) upon or with
respect to any property of any kind. A Person shall be deemed to own subject to
a Lien any property which such Person has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement.
"Maturity" means, with respect to any Senior Note, the date on which any
principal of such Senior Note becomes due and payable as therein or in the
Indenture provided, whether at the Stated Maturity with respect to such
principal or by declaration of acceleration, call for redemption or purchase or
otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Available Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the Company or any Restricted Subsidiary), net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of legal
counsel, accountants and investment banks) related to such Asset Sale, (ii)
provisions for all taxes payable as a result of such Asset Sale (after taking
into account
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any available tax credits or deductions and any tax sharing arrangements), (iii)
amounts required to be paid to any Person (other than the Company or any
Restricted Subsidiary) owning a beneficial interest in the properties or assets
subject to the Asset Sale or having a Lien therein and (iv) appropriate amounts
to be provided by the Company or any Restricted Subsidiary, as the case may be,
as a reserve required in accordance with GAAP against any liabilities associated
with such Asset Sale and retained by the Company or any Restricted Subsidiary,
as the case may be, after such Asset Sale, including, without limitation,
pensions and other postemployment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as reflected in an Officers' Certificate;
provided, however, that any amounts remaining after adjustments, revaluations or
liquidations of such reserves shall constitute Net Available Proceeds.
"Net Cash Proceeds," with respect to any issuance or sale of Qualified
Capital Stock or other securities, means the cash proceeds of such issuance or
sale net of attorneys' fees, accountants' fees, underwriters' or placement
agents' fees, discounts or commissions and brokerage, consultant and other fees
and expenses actually incurred in connection with such issuance or sale and net
of taxes paid or payable as a result thereof.
"Note Register" means the register maintained by or for the Company in which
the Company shall provide for the registration of the Senior Notes and the
transfer of the Senior Notes.
"Permitted Indebtedness" means any of the following:
(i) Indebtedness under Working Capital Agreements in an aggregate
principal amount at any time outstanding not to exceed the greater of (A)
$20.0 million or (B) 60% of the book value of the accounts receivable of the
Company and its Restricted Subsidiaries, calculated on a consolidated basis
and in accordance with GAAP,
(ii) Indebtedness under the Senior Notes or the Indebtedness under the
senior notes issued in the Exchange Offer;
(iii) Indebtedness outstanding or in effect on the date of the Indenture
after giving effect to the Offering and the application of the net proceeds
therefrom;
(iv) Indebtedness under Interest Rate Protection Obligations, provided
that (1) such Interest Rate Protection Obligations are related to payment
obligations on Permitted Indebtedness or Indebtedness otherwise permitted by
paragraph (a) of the "Limitation on Indebtedness and Disqualified Capital
Stock" covenant, and (2) the notional principal amount of such Interest Rate
Protection Obligations does not exceed the principal amount of such
Indebtedness to which such Interest Rate Protection Obligations relate;
(v) Indebtedness under Currency Hedge Obligations, provided that (1)
such Currency Hedge Obligations are related to payment obligations on
Permitted Indebtedness or Indebtedness otherwise permitted by paragraph (a)
of the "Limitation on Indebtedness and Disqualified Capital Stock" covenant
or to the foreign currency cash flows reasonably expected to be generated or
required by the Company and its Restricted Subsidiaries, (2) the notional
principal amount of such Currency Hedge Obligations does not exceed the
principal amount of such Indebtedness and the amount of such foreign
currency cash flows to which such Currency Hedge Obligations relate and (3)
such Currency Hedge Obligations are entered into for the purpose of limiting
currency exchange rate risks in connection with transactions entered into in
the ordinary course of business;
(vi) Indebtedness of the Company to a Wholly Owned Restricted Subsidiary
and Indebtedness of any Restricted Subsidiary to the Company or a Wholly
Owned Restricted Subsidiary; provided, however, that upon either (1) the
subsequent issuance (other than directors' qualifying shares), sale,
transfer or other disposition of any Capital Stock or any other event which
results in any such Wholly Owned Restricted Subsidiary ceasing to be a
Wholly Owned Restricted Subsidiary or (2) the transfer
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or other disposition of any such Indebtedness (except to the Company or a
Wholly Owned Restricted Subsidiary), the provisions of this clause (vi)
shall no longer be applicable to such Indebtedness and such Indebtedness
shall be deemed, in each case, to be incurred and shall be treated as an
incurrence for purposes of paragraph (a) of the "Limitation on Indebtedness
and Disqualified Capital Stock" covenant at the time the Wholly Owned
Restricted Subsidiary in question ceased to be a Wholly Owned Restricted
Subsidiary or the time such transfer or other disposition occurred;
(vii) Indebtedness in respect of bid, performance or surety bonds issued
for the account of the Company in the ordinary course of business, including
guaranties or obligations of the Company with respect to letters of credit
supporting such bid, performance or surety obligations (in each case other
than for an obligation for money borrowed);
(viii) Indebtedness in respect of Capitalized Lease Obligations directly
incurred by the Company, provided that such Indebtedness incurred under this
clause (viii) does not exceed $2.5 million at any one time outstanding; and
(ix) any renewals, amendments, extensions, supplements, modifications,
deferrals, substitutions, refinancing or replacements (each, for purpose of
this clause (ix), a "refinancing") by the Company or a Restricted Subsidiary
of any Indebtedness incurred pursuant to paragraph (a) of the "Limitation on
Indebtedness and Disqualified Capital Stock" covenant (without giving effect
to the parenthetical excluding Permitted Indebtedness) or referred to above
in clauses (ii) through (vi) or this clause (ix), so long as (A) any such
new Indebtedness shall be in a principal amount that does not exceed the
principal amount (or, if such Indebtedness being refinanced provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration thereof, such lesser amount as of the date of
determination) so refinanced plus the amount of any premium required to be
paid in connection with such refinancing pursuant to the terms of the
Indebtedness refinanced or the amount of any premium reasonably determined
by the Company or such Restricted Subsidiary as necessary to accomplish such
refinancing, plus the amount of expenses of the Company or such Restricted
Subsidiary incurred in connection with such refinancing, (B) in the case of
any refinancing of Indebtedness (including the Senior Notes) that is PARI
PASSU with or subordinated in right of payment to the Senior Notes, then
such new Indebtedness is PARI PASSU with or subordinated in right of payment
to the Senior Notes at least to the same extent as the Indebtedness being
refinanced and (C) such new Indebtedness has an Average Life equal to or
longer than the Average Life of the Indebtedness being refinanced and a
final Stated Maturity that is at least 91 days later than the final Stated
Maturity of the Indebtedness being refinanced.
"Permitted Investments" means any of the following: (i) Investments in Cash
Equivalents; (ii) Investments in the Company or any of its Wholly Owned
Restricted Subsidiaries; (iii) Investments by the Company or any of its
Restricted Subsidiaries in another Person, if as a result of such Investment (A)
such other Person becomes a Wholly Owned Restricted Subsidiary or (B) such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all of its properties and assets to, the Company or a Wholly Owned
Restricted Subsidiary; (iv) Investments permitted under the "Limitation on Asset
Sales" covenant; (v) Investments made in the ordinary course of business in
prepaid expenses, lease, utility, workers' compensation, performance and other
similar deposits; (vi) Investments in an aggregate amount not to exceed $2.5
million in any Person engaged primarily in a Related Business on the date of any
such Investment; and (vii) Investments in the Leasing Company in an aggregate
amount not to exceed $5.0 million.
"Permitted Liens" means the following types of Liens:
(i) Liens existing as of the date of the Indenture;
(ii) Liens securing the Senior Notes;
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(iii) Liens in favor of the Company or, with respect to a Restricted
Subsidiary, Liens in favor of another Restricted Subsidiary;
(iv) Liens on accounts receivable, notes receivable or chattel paper
securing Indebtedness under one or more Working Capital Agreements that do
not, in the aggregate, exceed the amounts permitted pursuant to clause (i)
of the definition of Permitted Indebtedness;
(v) Liens securing Indebtedness that constitutes Permitted Indebtedness
pursuant to clause (ix) of the definition of "Permitted Indebtedness"
incurred as a refinancing of any Indebtedness secured by Liens described in
clause (i) or (iv) of this definition; provided, however, that such Liens
(x) are not less favorable to the Holders and are not more favorable to the
lienholders with respect to such Liens than the Liens in respect of the
Indebtedness being refinanced and (y) do not extend to or cover any property
or assets of the Company or any of its Restricted Subsidiaries not securing
the Indebtedness so refinanced;
(vi) Liens for taxes, assessments or governmental charges or claims
either (A) not delinquent or (B) contested in good faith by appropriate
proceedings and as to which the Company or a Restricted Subsidiary of the
Company, as the case may be, shall have set aside on its books such reserves
as may be required pursuant to GAAP;
(vii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not delinquent or being
contested in good faith, if such reserve or other appropriate provision, if
any, as shall be required by GAAP shall have been made in respect thereof;
(viii) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, or to secure the payment or performance of
tenders, statutory or regulatory obligations, surety and appeal bonds, bids,
government contracts and leases, performance and return of money bonds and
other similar obligations (exclusive of obligations for the payment of
borrowed money);
(ix) judgment Liens not giving rise to a Default or Event of Default and
so long as any appropriate legal proceedings which may have been duly
initiated for the review of such judgment shall not have been finally
terminated or the period within which such proceeding may be initiated shall
not have expired;
(x) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of business of the Company or any
of its Restricted Subsidiaries;
(xi) any interest or title of a lessor under any Capitalized Lease
Obligation or operating lease; provided that (A) the Attributable
Indebtedness related thereto constitutes Indebtedness permitted to be
incurred under the terms of the Indenture and (B) with respect to any
Capitalized Lease Obligation, such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
(xii) Liens securing Purchase Money Indebtedness; provided, however, that
(A) the Purchase Money Indebtedness shall not be secured by any property or
assets of the Company or any Restricted Subsidiary other than the property
or assets so acquired and any proceeds therefrom and (B) the Lien securing
such Purchase Money Indebtedness shall be created within 90 days of such
acquisition;
(xiii) Liens upon specific items of inventory or other goods of any Person
securing such Person's obligations in respect of bankers acceptances issued
or created for the account of such Person to facilitate the purchase,
shipment or storage of such inventory or other goods;
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(xiv) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property or assets
relating to such letters of credit and products and proceeds thereof;
(xv) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and
setoff;
(xvi) Liens securing Acquired Indebtedness incurred in accordance with
the covenant described under "--Certain Covenants--Limitation on
Indebtedness and Disqualified Capital Stock;" provided that (A) such Liens
secured such Acquired Indebtedness at the time of and prior to the
incurrence of such Acquired Indebtedness by the Company or a Restricted
Subsidiary of the Company and were not granted in connection with, or in
anticipation of, the incurrence of such Acquired Indebtedness by the Company
or a Restricted Subsidiary of the Company and (B) such Liens do not extend
to or cover any property or assets of the Company or of any of its
Restricted Subsidiaries other than the property or assets that secured the
Acquired Indebtedness prior to the time such Indebtedness became Acquired
Indebtedness of the Company or a Restricted Subsidiary of the Company and
are no more favorable to the lienholders than those securing the Acquired
Indebtedness prior to the incurrence of such Acquired Indebtedness by the
Company or a Restricted Subsidiary of the Company; and
(xvii) Liens on substantially all of the assets of W&G, Ltd. under any
Working Capital Agreement.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participation or other equivalents (however designated) of such
Person's preferred or preference stock, whether now outstanding or issued after
the date of the Indenture, including, without limitation, all classes and series
of preferred or preference stock of such Person.
"Principals" means (i) John K. Ziegler, Richard J. Mackey, John K. Ziegler,
Jr., Jack Klasky, Alan B. Lee, Maxwell L. Tripp, and other members of the
Company's principal management or (ii) the Company's Savings and Employee Stock
Ownership Plan and its other retirement plans holding shares of the Company's
Capital Stock.
"Public Equity Offering" means an offer and sale of Common Stock of the
Company pursuant to a registration statement that has been declared effective by
the Commission pursuant to the Securities Act (other than a registration
statement on Form S-8 or otherwise relating to equity securities issuable under
any employee benefit plan of the Company).
"Purchase Money Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries incurred in connection with the purchase of property or
assets for the business of the Company and its Restricted Subsidiaries.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Disqualified Capital Stock.
"Related Business" means the businesses of the Company and the Restricted
Subsidiaries on the date on which the Senior Notes were originally issued and
any business related, ancillary or complementary to the business of the Company
and the Restricted Subsidiaries on such date.
"Restricted Investment" means (without duplication) any Investment other
than a Permitted Investment including without limitation a Subsidiary designated
as an Unrestricted Subsidiary.
"Restricted Subsidiary" means any Subsidiary of the Company, whether
existing on or after the date of the Indenture, unless such Subsidiary of the
Company is an Unrestricted Subsidiary or is designated as
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an Unrestricted Subsidiary in the manner described in the definition of the term
"Unrestricted Subsidiary."
"S&P" means Standard and Poor's Rating Services, a division of The
McGraw-Hill Companies, Inc., and its successors.
"Sale/Leaseback Transaction" means any direct or indirect arrangement
pursuant to which properties or assets are sold or transferred by the Company or
a Restricted Subsidiary and are thereafter leased back from the purchaser or
transferee thereof by the Company or one of its Restricted Subsidiaries.
"Stated Maturity" means, when used with respect to any Indebtedness or any
installment of interest thereon, the date specified in the instrument evidencing
or governing such Indebtedness as the fixed date on which the principal of such
Indebtedness or such installment of interest is due and payable.
"Subordinated Indebtedness" means any Indebtedness of the Company or the
Subsidiary Guarantors which is expressly subordinated in right of payment to the
Senior Notes or Subsidiary Guarantees, respectively.
"Subsidiary" means, with respect to any Person, (i) a corporation a majority
of whose Voting Stock is at the time, directly or indirectly, owned by such
Person, by one or more Subsidiaries of such Person or by such Person and one or
more Subsidiaries thereof or (ii) any other Person (other than a corporation),
including, without limitation, a joint venture, in which such Person, one or
more Subsidiaries thereof or such Person and one or more Subsidiaries thereof,
directly or indirectly, at the date of determination thereof, have at least
majority ownership interest entitled to vote in the election of directors,
managers or trustees thereof (or other Person performing similar functions).
"Subsidiary Guarantors" mean (i) all U.S. subsidiaries of the Company
existing as of the date of the Indenture and (ii) any other Subsidiary of the
Company or a Subsidiary thereof that executes a Subsidiary Guarantee in
accordance with the provisions of the Indenture, and their respective successors
and assigns.
"Unrestricted Subsidiary" means (i) the Leasing Company, (ii) any Subsidiary
of the Company that at the time of determination will be designated an
Unrestricted Subsidiary by the Board of Directors of the Company as provided
below and (iii) any Subsidiary of an Unrestricted Subsidiary. The Board of
Directors of the Company may designate any Subsidiary of the Company as an
Unrestricted Subsidiary so long as (a) neither the Company nor any Restricted
Subsidiary is directly or indirectly liable pursuant to the terms of any
Indebtedness of such Subsidiary; (b) no default with respect to any Indebtedness
of such Subsidiary would permit (upon notice, lapse of time or otherwise) any
holder of any other Indebtedness of the Company or any Restricted Subsidiary to
declare a default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its Stated Maturity; (c) such designation as an
Unrestricted Subsidiary would be permitted under the "Limitation on Restricted
Payments" covenant; (d) such designation shall not result in the creation or
imposition of any Lien on any of the properties or assets of the Company or any
Restricted Subsidiary (other than any Permitted Lien) and (e) the Company could
incur $1.00 of additional Indebtedness (not including the incurrence of
Permitted Indebtedness) under clause (a) of the "Limitation on Indebtedness and
Disqualified Capital Stock" covenant; provided, however, that with respect to
clause (a) above, the Company or a Restricted Subsidiary may be liable for
Indebtedness of an Unrestricted Subsidiary if (x) such liability constituted a
Permitted Investment or a Restricted Payment permitted by the "Limitation on
Restricted Payments" covenant, in each case, at the time of incurrence, or (y)
the liability would be a Permitted Investment in each case at the time of
designation of such Subsidiary as an Unrestricted Subsidiary. Any such
designation by the Board of Directors of the Company shall be evidenced to the
Trustee by filing a Board Resolution with the Trustee giving effect to such
designation along with an Officers' Certificate stating that such designation is
in compliance with the requirements under the Indenture. The Board of Directors
of the Company may designate any Unrestricted Subsidiary as a Restricted
Subsidiary if, immediately after giving effect to such designation on a pro
forma basis, (i) no Default or Event of Default shall have occurred and be
continuing,
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(ii) the Company could incur $1.00 of additional Indebtedness (not including the
incurrence of Permitted Indebtedness) under clause (a) of the "Limitation on
Indebtedness and Disqualified Capital Stock" covenant and (iii) if any of the
properties and assets of the Company or any of its Restricted Subsidiaries would
upon such designation become subject to any Lien (other than a Permitted Lien),
the creation or imposition of such Lien shall have been in compliance with the
"Limitation on Liens" covenant.
"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 at least a majority of the board of directors, managers or trustees of
any Person (irrespective of whether or not, at the time, stock of any other
class or classes shall have, or might have, voting power by reason of the
happening of any contingency).
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary to the
extent (i) all of the Capital Stock or other ownership interests in such
Restricted Subsidiary, other than any directors' qualifying shares mandated by
applicable law, is owned directly or indirectly by the Company or (ii) such
Restricted Subsidiary is organized in a foreign jurisdiction and is required by
the applicable laws and regulations of such foreign jurisdiction to be partially
owned by the government of such foreign jurisdiction or individual or corporate
citizens of such foreign jurisdiction in order for such Restricted Subsidiary to
transact business in such foreign jurisdiction, provided that the Company,
directly or indirectly, owns the remaining Capital Stock or ownership interest
in such Restricted Subsidiary and, by contract or otherwise, controls the
management and business of such Restricted Subsidiary and derives the economic
benefits of ownership of such Restricted Subsidiary to substantially the same
extent as if such Restricted Subsidiary were a wholly owned Subsidiary.
"Working Capital Agreements" mean (i) the New Credit Facility, (ii) the W&G,
Ltd. Credit Facility, (iii) with respect to any Person (including the Company),
without duplication, any agreement or agreements between such Person and a
financial institution or any institutions providing for the making of loans or
advances on a revolving basis, the issuance of letters of credit and/or the
creation of bankers' acceptances to fund such Person's general corporate
requirements, and (iv) any refinancings, renewals, replacements, modification
and extensions of any of the agreements described in clauses (i), (ii) and
(iii).
BOOK ENTRY; DELIVERY AND FORM
The New Notes will be issued in the form of a single, permanent global
certificate in the definitive, fully registered form (the "Global New Note"), to
be deposited with the Trustee as custodian for DTC and registered in the name of
the nominee of DTC. Except as set forth below, the Global New Note may be
transferred, in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee.
DTC has advised the Company as follows: It is a limited-purpose trust
company which was created to hold securities for its participating organizations
(the "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. Participants include
securities brokers and dealers (including the Initial Purchaser), banks, trust
companies, clearing corporations and certain other organizations. Access to the
DTC's book-entry system is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("indirect
participants"). Persons who are not Participants may beneficially own securities
held by DTC only through Participants or indirect participants.
DTC has also advised that pursuant to procedures established by it ownership
of beneficial interests in the Global New Note will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
DTC (with respect to Participants' interest), the Participants and the indirect
participants. The laws of some states require that certain persons take physical
delivery in definitive form of securities which they own. Consequently, the
ability to transfer beneficial interests in the Global New Note is limited to
such extent.
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So long as a nominee of DTC is the registered owner of the Global New Note,
such nominee will be considered the sole owner or holder of the Senior Notes for
all purposes under the Indenture. Except as provided below, owners of beneficial
interests in the Global New Note will not be entitled to have Senior Notes
registered in their names, will not receive or be entitled to receive physical
delivery of Senior Notes in definitive form and will not be considered the
owners or holders thereof under the Indenture.
Neither the Company, the Trustee, the paying agent nor the Senior Notes
registrar will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Global New Note, or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.
Principal, interest payments and payments of Old Note Liquidated Damages, if
any, on the Global New Note registered in the name of DTC's nominee or DTC will
be made by the Company, either directly or through a paying agent, to DTC's
nominee as the registered owner of the Global New Note. Under the terms of the
Indenture, the Company and the Trustee will treat the persons in whose names the
Senior Notes are registered as the owners of such Senior Notes for the purpose
of receiving payments of principal and interest on such Senior Notes and for all
other purposes whatsoever. Therefore, neither the Company, the Trustee nor any
paying agent has any direct responsibility or liability for the payment of
principal or interest on the Senior Notes to owners of beneficial interests in
the Global New Note. DTC has advised the Company and the Trustee that its
present practice is, upon receipt of any payment of principal or interest to
credit immediately the accounts of the Participants with payment in amounts
proportionate to their respective holdings in principal amount of beneficial
interest in the Global New Note as shown on the records of DTC. Payments by
Participants and indirect participants to owners of beneficial interests in the
Global New Note will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of customers
in bearer form or registered in "street name" and will be the responsibility of
such Participants or indirect participants.
As long as the Senior Notes are represented by a Global New Note, DTC's
nominee will be the holder of the Senior Notes and therefore will be the only
entity that can exercise a right to repayment or repurchase of the Senior Notes.
See " --Certain Covenants--Change of Control" and "--Limitation on Asset Sales."
Notice by Participants or indirect participants or by owners of beneficial
interests in a Global New Note held through such Participants or indirect
participants of the exercise of the option to elect repayment of beneficial
interests in Senior Notes represented by a Global New Note must be transmitted
to DTC in accordance with its procedures on a form required by DTC and provided
to Participants. In order to ensure that DTC's nominee will timely exercise a
right to repayment with respect to a particular Senior Note, the beneficial
owner of such Senior Note must instruct the broker or other Participant or
exercise a right to repayment. Different firms have cut-off times for accepting
instructions from their customers and, accordingly, each beneficial owner should
consult the broker or other Participant or indirect participant through which it
holds an interest in a Senior Note in order to ascertain the cut-off time by
which such an instruction must be given in order for timely notice to be
delivered to DTC. The Company will not be liable for any delay in delivery of
notices of the exercise of the option to elect repayment.
CERTIFICATED SECURITIES
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 Senior Notes in the form of Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of, and cause the same to be delivered to, such person or persons (or
the nominee of any thereof).
In addition, the Company will issue Senior Notes in definitive form in
exchange for the Global Note if DTC is at any time unwilling or unable to
continue as depository and a successor depository is not appointed by the
Company within 90 days. In such an instance, an owner of a beneficial interest
in the
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Global Note will be entitled to have Senior Notes equal in principal amount to
such beneficial interest registered in its name and will be entitled to physical
delivery of such Senior Notes in definitive form. Senior Notes so issued in
definitive form will be issued in denominations of $1,000 and integral multiples
thereof and will be issued in registered form only, without coupons.
Neither the Company nor the Trustee will be liable for any delay by DTC or
its nominee in identifying the beneficial owners of Senior Notes and the Company
and the Trustee any conclusively rely on, and will be protected in relying on,
instructions from DTC or its nominee for all purposes.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material generally applicable U.S. federal
income tax consequences resulting from the exchange of Old Notes for New Notes
pursuant to the Exchange Offer and from the beneficial ownership of Senior Notes
by certain persons. This summary does not purport to consider all the possible
U.S. federal tax consequences of the participation in the Exchange Offer or the
ownership or disposition of the Senior Notes and is not intended to reflect the
particular tax position of any beneficial owner. It deals only with Senior Notes
held as capital assets. Moreover, it does not purport to deal with all aspects
of federal taxation that may be relevant to particular investors in light of
their personal investment circumstances and it does not address beneficial
owners that may be subject to special tax rules, such as banks, insurance
companies, tax-exempt organizations, dealers in securities or currencies,
purchasers that hold Senior Notes as part of a hedging transaction or as part of
a straddle with other investments or as part of a "synthetic security" or other
integrated investment (including a "conversion transaction") comprised of a
Senior Note and one or more other investments, or purchasers that have a
"functional currency" other than the U.S. dollar. Except to the extent discussed
below under "Non-U.S. Holders," this summary is addressed only to beneficial
owners of Senior Notes ("U.S. Holders") that are citizens or residents of the
United States, corporations, partnerships, or other business entities created or
organized in or under the laws of the United States or any State (including the
District of Columbia), or estates or trusts the income of which is subject to
U.S. federal income taxation regardless of its source ("U.S. Persons"). This
summary is based upon the U.S. federal tax laws and regulations as now in effect
and as currently interpreted and does not take into account possible changes in
such tax laws or such interpretations, any of which may be applied
retroactively. It does not include any description of estate or gift tax laws or
the tax laws of any state, local or foreign government that may be applicable to
the Senior Notes or the beneficial owners thereof. Persons considering
participating in the Exchange Offer or making an investment in the Senior Notes
should consult their own tax advisors concerning the application of the U.S.
federal tax laws to their particular situations as well as any consequences to
them under the laws of any other taxing jurisdiction.
EXCHANGE
The exchange of the Old Notes for the New Notes pursuant to the Exchange
Offer should not be treated as a taxable transaction for federal income tax
purposes because the New Notes do not differ materially in kind or extent from
the Old Notes. Accordingly, no gain or loss should be recognized by a Holder who
exchanges an Old Note for a New Note pursuant to the Exchange Offer, and each
New Note should be viewed as a continuation of the corresponding Old Note. For
purposes of determining gain or loss upon a subsequent sale or exchange of the
New Notes, a holder's initial basis in the New Notes will be the same as such
holder's adjusted basis in the Old Notes exchanged therefor, and the holding
period of a holder in the New Note should include the period during which such
holder held such corresponding Old Note.
U.S. HOLDERS
PAYMENTS OF INTEREST. In general, interest on a Senior Note will be taxable
to a U.S. Holder as ordinary income at the time it is received or accrued,
depending on the U.S. Holder's method of accounting for tax purposes.
ORIGINAL ISSUE DISCOUNT. The Old Notes were issued with original issue
discount ("OID") for federal income tax purposes. Because the New Notes are
treated as a continuation of the Old Notes, the OID on the Old Notes will carry
over to the New Notes, and continue to be treated in the same manner.
U.S. Holders of Senior Notes are required to include OID as ordinary income
as it accrues in accordance with a constant yield method based on compounding at
the end of each accrual period. The term "accrual period" may be any set of
periods (which may be of varying lengths) selected by the U.S. Holder as long as
(i) no accrual period is longer than one year, and (ii) each scheduled payment
of interest
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or principal on the Senior Note occurs on the first or final day of an accrual
period. In general, the amount of OID required to be included in income will
increase with each successive accrual period.
The Company will report annually to the Internal Revenue Service (the "IRS")
and to each holder other than exempt holders not subject to the information
reporting requirements, the amount of OID and interest accrued with respect to
the Senior Notes.
SALE OR REDEMPTION. A U.S. Holder generally will recognize taxable gain or
loss on the sale or redemption of a Senior Note equal to the difference between
the amount realized from such sale or redemption (other than any amount
attributable to accrued interest) and such U.S. Holder's adjusted tax basis for
such Senior Note. Such gain or loss generally will be capital gain or loss and
will be long-term capital gain or loss if the holding period for such Senior
Notes is more than one year. A U.S. Holder's adjusted tax basis in a Senior Note
is generally equal to the amount paid therefor, increased by accrued OID
previously included in the U.S. Holder's gross income with respect to the Senior
Note.
OLD NOTE LIQUIDATED DAMAGES. The Company intends to take the position that
the Old Note Liquidated Damages, if any, will be taxable to a U.S. Holder as
ordinary income in accordance with the U.S. Holder's method of accounting for
federal income tax purposes. The IRS may take a different view, however, which
could affect the timing of the U.S. Holder's income with respect to the Old Note
Liquidated Damages and possibly could affect the timing of inclusion of interest
income.
NON-U.S. HOLDERS
The following discussion summarizes material U.S. federal income tax
consequences generally applicable to the ownership and disposition of the Senior
Notes by a beneficial owner who is not a U.S. Person ("Non-U.S. Holder"). This
discussion does not purport to deal with all aspects of U.S. federal income
taxation that may be relevant to a Non-U.S. Holder and does not describe any tax
consequences arising out of the laws of any state, locality or foreign
jurisdiction or out of U.S. federal estate and gift tax laws. Non-U.S. Holders
are advised to consult their tax advisors regarding the U.S. federal, state,
local and foreign tax consequences of their participation in the Offering.
Under present U.S. federal income tax law and subject to the discussion of
backup withholding below:
(a) payments of principal and interest (including OID) on the Senior
Notes by the Company or any agent of the Company to any Non-U.S. Holder
whose income from the Senior Notes is not effectively connected with a U.S.
trade or business will not be subject to U.S. federal withholding tax,
provided that (i) the Non-U.S. Holder does not actually or constructively
own 10% or more of the total combined voting power of all classes of stock
of the Company entitled to vote, (ii) the Non-U.S. Holder is not a
controlled foreign corporation (as defined for U.S. federal income tax
purposes) that is related to the Company through stock ownership or a bank
making an extension of credit pursuant to a loan agreement in the ordinary
course of business, and (iii) either (A) the beneficial owner of the Senior
Notes certifies to the Company or its agent, under penalties of perjury,
that he is not a U.S. Person and provides his name and address, or (B) a
securities clearing organization, bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business
(a "financial institution") and holds the Senior Notes on behalf of the
beneficial owner, certifies to the Company or its agent under penalties of
perjury that such statement has been received from the beneficial owner by
it or by another financial institution and furnishes the payor with a copy
thereof; and
(b) a Non-U.S. Holder generally will not be subject to U.S. federal
income tax on gain recognized on a sale or other disposition (including a
redemption) of Senior Notes unless (i) the gain is effectively connected
with the conduct of a trade or business within the United States by the Non-
U.S. Holder or (ii) in the case of a Non-U.S. Holder who is a nonresident
alien individual, such holder is present in the U.S. for 183 or more days in
the taxable year of the sale or disposition and either has
106
<PAGE>
a "tax home" (as defined for U.S. federal income tax purposes) in the United
States or an office or other fixed place of business in the United States to
which the sale or disposition is attributable.
INFORMATION REPORTING AND BACKUP WITHHOLDING
For each calendar year in which the Senior Notes are outstanding, the
Company is required to provide the IRS with certain information, including the
holder's name, address and taxpayer identification number, the aggregate amount
of principal and interest paid to that holder during the calendar year and the
amount of tax withheld, if any. This obligation, however, does not apply with
respect to certain U.S. Holders, including corporations, tax-exempt
organizations, qualified pension and profit sharing trusts and individual
retirement accounts.
In the event that a U.S. Holder subject to the reporting requirements
described above fails to supply its correct taxpayer identification number in
the manner required by applicable law or under reports its tax liability, the
Company, its agents or paying agents or a broker may be required to "backup"
withhold a tax equal to 31% of each payment of interest and principal (and
premium, if any) on the Senior Notes. This backup withholding is not an
additional tax and may be credited against the U.S. Holder's U.S. federal income
tax liability, provided that the required information is furnished to the IRS.
Under current Treasury Regulations, backup withholding and information
reporting will not apply to payments made by the Company or any agent thereof
(in its capacity as such) to a Non-U.S. Holder of a Senior Note if such holder
has provided the required certification that it is not a U.S. Person as set
forth in clause (iii) in paragraph (a) under "--Non-U.S. Holders," or has
otherwise established an exemption (provided that neither the Company nor its
agent has actual knowledge that the holder is a U.S. Person or that the
conditions of any exemption are not in fact satisfied).
Payment of the proceeds from the sale of a Senior Note to or through a
foreign office of a broker will not be subject to information reporting or
backup withholding, except that information reporting may apply to such payments
if the broker is a U.S. Person, a controlled foreign corporation for U.S. tax
purposes or a foreign person 50% or more of whose gross income from all sources
for the three-year period ending with the close of its taxable year preceding
the payment was effectively connected with a United States trade or business.
Payment of the proceeds from a sale of a Senior Note to or through the United
States office of a broker is subject to information reporting and backup
withholding unless the holder or beneficial owner certifies as to its taxpayer
identification number or otherwise establishes an exemption from information
reporting and backup withholding.
107
<PAGE>
PLAN OF DISTRIBUTION
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. This Prospectus as it may be
amended or supplemented 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 their
trading activities. The Company has agreed that for a period of up to 180 days
after the Expiration Date, it will use its reasonable efforts to make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until , 1997 (90 days
after commencement of the Exchange Offer), all dealers effecting transactions in
the New Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/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.
For a period of up to 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay the expenses
incident to the Exchange Offer and will indemnify the Holders of the Old Notes
against certain liabilities, including certain liabilities under the Securities
Act, in connection with the Exchange Offer.
LEGAL MATTERS
The legality of the New Notes offered hereby will be passed upon by Hughes
Hubbard & Reed LLP, New York, New York.
EXPERTS
The consolidated balance sheets of Willcox & Gibbs, Inc. and subsidiaries as
of December 31, 1996 and 1995 and the related consolidated statements of
operations, stockholders' equity, and cash flows for the years ended December
31, 1996 and 1995 and for the period from July 13, 1994 (date of formation) to
December 31, 1994 and the consolidated statements of operations and cash flows
of the Company's Predecessor for the period from January 1, 1994 to July 12,
1994 have been included herein and in the registration statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
The combined balance sheet of Clinton Management Corp. (d/b/a Clinton
Machine & Supply) and Clinton Machinery Corp. as of December 31, 1995 and the
related combined statements of operations, stockholders' equity (deficit) and
cash flows for the year then ended have been included herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified
108
<PAGE>
public accountants appearing elsewhere herein and upon the authority of said
firm as experts in accounting and auditing.
The consolidated balance sheets of Macpherson Meistergram, Inc. and
subsidiary as of December 31, 1996 and 1995, the related consolidated statements
of income, stockholders' investment and cash flows for each of the three years
in the period ended December 31, 1996, and the information set forth in the
selected historical financial information as of December 31, 1996, 1995 and 1994
and each of the three years in the period ended December 31, 1996, included in
this Prospectus, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act for the registration of the New Notes offered
hereby. As permitted by the rules and regulations of the Commission, this
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits thereto. For further information with respect to the
Company and the New Notes offered hereby, reference is made to the Registration
Statement and to the exhibits filed therewith. Statements contained in this
Prospectus concerning the contents of any contract or other document are not
necessarily complete. With respect to each such contract or other document filed
with the Commission 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.
The Company is not currently subject to the periodic reporting and other
informational requirements of the Exchange Act. The Company has agreed that,
whether or not it is required to do so by the rules and regulations of the
Commission, for so long as any of the Senior Notes remain outstanding, it will
furnish to the Holders of the Senior Notes all annual reports, quarterly reports
and other documents that would be required to be filed with the Commission if
the Company were subject to Section 13 or 15 of the Exchange Act. In addition,
whether or not required by the rules and regulations of the Commission,
following consummation of the Exchange Offer, the Company will file a copy of
all such information and reports with the Commission for public availability
(unless the Commission will not accept such a filing) and will make such
information available to any prospective investors upon request. In addition,
for so long as any of the Senior Notes remain outstanding, the Company has
agreed to make available to any prospective purchaser of the Senior Notes or
beneficial owner of the Senior Notes in connection with any sale thereof, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act to the extent required from time to time to enable Transfer
Restricted Notes to be sold without registration under the Securities Act.
109
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Audited Financial Statements:
Independent Auditors' Report............................................................................. F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995............................................. F-3
Consolidated Statements of Operations for the years ended December 31, 1996 and 1995, for the period July F-4
13, 1994 to December 31, 1994 and for the period January 1, 1994 to July 12, 1994......................
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996 and 1995, for the F-5
period July 13, 1994 to December 31, 1994 and for the period January 1, 1994 to July 12, 1994..........
Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1995, for the period July F-6
13, 1994 to December 31, 1994 and for the period January 1, 1994 to July 12, 1994......................
Notes to Consolidated Financial Statements............................................................... F-7
Unaudited Financial Statements:
Consolidated Balance Sheet (Unaudited) as of March 31, 1997.............................................. F-28
Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 1997 and 1996..... F-29
Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 1997 and 1996..... F-30
Notes to Consolidated Financial Statements (Unaudited)................................................... F-31
MACPHERSON MEISTERGRAM, INC. AND SUBSIDIARY
Report of Independent Public Accountants................................................................. F-36
Consolidated Balance Sheets as of December 31, 1996 and 1995............................................. F-37
Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994................... F-38
Consolidated Statements of Stockholders' Investment for the years ended December 31, 1996, 1995 and F-39
1994...................................................................................................
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994............... F-40
Notes to Consolidated Financial Statements............................................................... F-41
CLINTON MANAGEMENT CORP. AND CLINTON MACHINERY CORP.
Independent Auditors' Report............................................................................. F-50
Combined Balance Sheet as of December 31, 1995........................................................... F-51
Combined Statement of Operations for the year ended December 31, 1995.................................... F-52
Combined Statement of Stockholders' Equity (Deficit) for the year ended December 31, 1995................ F-53
Combined Statement of Cash Flows for the year ended December 31, 1995.................................... F-54
Notes to Combined Financial Statements................................................................... F-55
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Willcox & Gibbs, Inc.:
We have audited the accompanying consolidated balance sheets of Willcox &
Gibbs, Inc. and subsidiaries (the "Company") as of December 31, 1996 and 1995,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the years ended December 31, 1996 and 1995 and for the period
from July 13, 1994 (date of formation) to December 31, 1994 and the consolidated
statements of operations and cash flows of the Company's Predecessor (see note
1) for the period from January 1, 1994 to July 12, 1994. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Willcox &
Gibbs, Inc. and subsidiaries at December 31, 1996 and 1995, and the results of
their operations and their cash flows for the years ended December 31, 1996 and
1995 and for the period from July 13, 1994 (date of formation) to December 31,
1994 and the results of operations and cash flows of the Company's Predecessor
(see note 1) for the period from January 1, 1994 to July 12, 1994, in conformity
with generally accepted accounting principles.
As discussed in note 1 to the consolidated financial statements, effective
July 13, 1994, Willcox & Gibbs, Inc. acquired the assets and liabilities of
certain divisions of Rexel, Inc. in a transaction accounted for as a purchase.
As a result of the transaction, the consolidated financial statements for
periods after the transaction are presented on a different cost basis than that
for the period before the acquisition and, therefore, are not comparable.
KPMG Peat Marwick LLP
Atlanta, Georgia
February 26, 1997
F-2
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
COMPANY
----------------------------
<S> <C> <C>
1996 1995
------------- -------------
ASSETS (NOTE 5)
Current assets:
Cash............................................................................. $ 881,500 920,238
Trade accounts receivable, net of allowance for doubtful accounts of $2,419,000
in 1996 and $1,596,000 in 1995................................................. 22,335,977 14,235,751
Inventories (note 3)............................................................. 34,223,674 29,447,999
Prepaid expenses and other current assets........................................ 2,655,412 2,021,276
Deferred income taxes (note 7)................................................... 804,006 563,408
------------- -------------
Total current assets......................................................... 60,900,569 47,188,672
Property and equipment, net (note 4)............................................... 4,400,341 2,811,486
Deferred financing costs, less accumulated amortization of $811,755 in 1996 and
$435,439 in 1995 (notes 2 and 15)................................................ 2,323,168 1,344,706
Intangible assets, less accumulated amortization of $228,622
in 1996 (notes 2 and 10)......................................................... 11,059,878 603,000
Other assets....................................................................... 1,044,532 579,659
------------- -------------
$ 79,728,488 52,527,523
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit (notes 5 and 15)........................................ $ 19,347,392 12,941,374
Book overdrafts.................................................................. 1,499,297 597,110
Current installments of long-term debt (notes 6 and 15).......................... 3,195,401 1,812,500
Trade accounts payable........................................................... 12,806,244 6,230,155
Income taxes payable............................................................. 641,568 308,725
Accrued liabilities and other current liabilities................................ 4,757,983 3,375,362
------------- -------------
Total current liabilities.................................................... 42,247,885 25,265,226
Deferred income taxes (note 7)..................................................... 290,113 154,946
Accrued retirement benefits (note 8)............................................... 2,451,939 2,647,724
Long-term debt, excluding current installments (notes 2, 6, and 15)................ 18,893,332 16,354,787
Other liabilities.................................................................. 168,258 212,890
------------- -------------
Total liabilities............................................................ 64,051,527 44,635,573
------------- -------------
Common stock subject to put option (note 2)........................................ 3,000,000 --
Stockholders' equity (notes 2, 9, 10, and 15):
Common stock:
Class A, $10 stated value. Authorized 1,500,000 shares; issued and outstanding
976,277 shares (including 100,000 shares subject to put option) in 1996 and
658,248 shares in 1995....................................................... 8,762,770 6,582,480
Class B, no par value. Authorized 250,000 shares; none issued.................. -- --
Class C, no par value. Authorized 250,000 shares; none issued.................. -- --
Additional paid-in capital....................................................... 1,904,398 826,612
Subscriptions receivable......................................................... (429,462) (113,881)
Retained earnings................................................................ 2,201,527 888,400
Cumulative translation adjustment................................................ 237,728 (291,661)
------------- -------------
Total stockholders' equity....................................................... 12,676,961 7,891,950
------------- -------------
Commitments (note 14)
$ 79,728,488 52,527,523
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995, FOR THE PERIOD FROM
JULY 13, 1994 (DATE OF FORMATION) TO DECEMBER 31, 1994
AND FOR THE PERIOD FROM JANUARY 1, 1994 TO JULY 12, 1994
<TABLE>
<CAPTION>
COMPANY'S
COMPANY PREDECESSOR
------------------------------------------------ -----------------
PERIOD FROM PERIOD FROM
JULY 13, 1994 TO JANUARY 1,1994
1996 1995 DECEMBER 31, 1994 TO JULY 12, 1994
-------------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net sales........................................ $ 113,851,258 90,431,431 41,643,728 41,308,902
Cost of goods sold............................... 77,623,034 60,642,521 29,161,827 26,908,448
-------------- ------------- ----------------- -----------------
Gross profit................................... 36,228,224 29,788,910 12,481,901 14,400,454
Selling, general, and administrative expenses.... 28,968,827 23,606,126 11,263,508 11,997,834
-------------- ------------- ----------------- -----------------
Operating income............................... 7,259,397 6,182,784 1,218,393 2,402,620
Other income (expense):
Interest expense............................... (4,824,553) (4,248,820) (1,946,071) (1,390,274)
Other, net..................................... 14,968 17,806 85,373 (223,922)
-------------- ------------- ----------------- -----------------
Income (loss) before income taxes and
extraordinary item............................. 2,449,812 1,951,770 (642,305) 788,424
Income tax expense (benefit) (note 7)............ 1,136,685 557,513 (288,022) 425,561
-------------- ------------- ----------------- -----------------
Income (loss) before extraordinary item........ 1,313,127 1,394,257 (354,283) 362,863
Extraordinary loss, net of income tax benefit of
$92,901 (note 10).............................. -- (151,574) -- --
-------------- ------------- ----------------- -----------------
Net income (loss)............................ $ 1,313,127 1,242,683 (354,283) 362,863
-------------- ------------- ----------------- -----------------
-------------- ------------- ----------------- -----------------
Earnings (loss) per common share and common share
equivalent:
Income (loss) before extraordinary item........ $ 1.23 1.85 (.74)
Extraordinary item, net........................ -- (.20) --
-------------- ------------- -----------------
Net income (loss)............................ $ 1.23 1.65 (.74)
-------------- ------------- -----------------
-------------- ------------- -----------------
Weighted average number of common shares and
common share equivalents....................... 1,068,645 754,153 481,250
-------------- ------------- -----------------
-------------- ------------- -----------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995 AND FOR THE PERIOD
FROM JULY 13, 1994 (DATE OF FORMATION) TO DECEMBER 31, 1994
<TABLE>
<CAPTION>
CLASS A COMMON RETAINED CLASS A
STOCK ADDITIONAL EARNINGS COMMON STOCK CUMULATIVE TOTAL
-------------------- PAID-IN (ACCUMULATED SUBSCRIPTIONS TRANSLATION STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT) RECEIVABLE ADJUSTMENTS EQUITY
--------- --------- ----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial capitalization at July 13,
1994............................. 481,250 $4,812,500 -- -- -- -- 4,812,500
Fair value of common stock warrants
issued (note 10)................. -- -- 1,688,000 -- -- -- 1,688,000
Net loss........................... -- -- -- (354,283) -- -- (354,283)
Class A common stock issued to the
Company's Employee Stock
Ownership Plan ("ESOP") relating
to Rexel, Inc.'s ESOP rollover... 101,500 1,015,000 -- -- (1,015,000) -- --
Class A common stock issued to the
Company's ESOP................... 24,827 248,267 -- -- (248,267) -- --
Translation adjustments............ -- -- -- -- -- (179,710) (179,710)
--------- --------- ----------- ------------ ------------ ----------- ------------
Balance at December 31, 1994....... 607,577 6,075,767 1,688,000 (354,283) (1,263,267) (179,710) 5,966,507
Net income......................... -- -- -- 1,242,683 -- -- 1,242,683
Proceeds from subscriptions
receivable....................... -- -- -- -- 1,263,267 -- 1,263,267
Class A common stock issued to the
Company's ESOP................... 50,671 506,713 138,612 -- (113,881) -- 531,444
Repurchase and retirement of
warrants (note 10)............... -- -- (1,000,000) -- -- -- (1,000,000)
Translation adjustments............ -- -- -- -- -- (111,951) (111,951)
--------- --------- ----------- ------------ ------------ ----------- ------------
Balance at December 31, 1995....... 658,248 6,582,480 826,612 888,400 (113,881) (291,661) 7,891,950
Net income......................... -- -- -- 1,313,127 -- -- 1,313,127
Proceeds from subscriptions
receivable....................... -- -- -- -- 113,881 -- 113,881
Class A common stock issued to the
Company's ESOP................... 33,715 337,150 281,781 -- (429,462) -- 189,469
Fair value of common stock warrants
issued (note 9).................. -- -- 357,000 -- -- -- 357,000
Class A common stock issued in
Clinton acquisition (note 2)..... 100,000 -- -- -- -- -- --
Class A common stock sold in
private placement (note 2)....... 184,314 1,843,140 439,005 -- -- -- 2,282,145
Translation adjustments............ -- -- -- -- -- 529,389 529,389
--------- --------- ----------- ------------ ------------ ----------- ------------
Balance at December 31, 1996....... 976,277 $8,762,770 1,904,398 2,201,527 (429,462) 237,728 12,676,961
--------- --------- ----------- ------------ ------------ ----------- ------------
--------- --------- ----------- ------------ ------------ ----------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995, FOR THE PERIOD FROM
JULY 13, 1994 (DATE OF FORMATION) TO DECEMBER 31, 1994
AND FOR THE PERIOD FROM JANUARY 1, 1994 TO JULY 12, 1994
<TABLE>
<CAPTION>
COMPANY
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................................................. $ 1,313,127 1,242,683
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:
Depreciation and amortization............................................................... 651,606 458,514
Provision for losses on accounts receivable................................................. 267,034 580,520
Amortization of deferred financing costs and intangible assets.............................. 604,938 290,292
Amortization of debt discounts.............................................................. 175,929 187,786
Deferred income taxes....................................................................... 271,252 17,424
Extraordinary loss on debt extinguishment, net.............................................. -- 151,574
Changes in operating assets and liabilities, net of effects of business acquisitions:
Trade accounts receivable................................................................. (4,462,574) 723,813
Inventories............................................................................... (1,005,426) (797,067)
Prepaid expenses and other current assets................................................. (363,358) (371,160)
Other assets.............................................................................. (203,064) (652,758)
Income taxes payable...................................................................... 332,843 201,605
Trade accounts payable and other liabilities.............................................. 2,164,304 (191,825)
-------------- --------------
Net cash provided by (used in) operating activities..................................... (253,389) 1,841,401
-------------- --------------
Cash flows from investing activities:
Capital expenditures.......................................................................... (1,247,380) (772,575)
Proceeds from sale of property and equipment.................................................. 76,094 14,716
Payments for business acquisitions, net of cash acquired...................................... (12,012,103) --
-------------- --------------
Net cash used in investing activities....................................................... (13,183,389) (757,859)
-------------- --------------
Cash flows from financing activities:
Net proceeds from (reduction of) revolving line of credit, net of proceeds from debt issued
in business acquisitions.................................................................. 1,738,579 2,327,342
Increase (decrease) in book overdraft....................................................... 902,187 (22,497)
Proceeds from debt issued in business acquisitions.......................................... 9,167,439 --
Proceeds from other debt.................................................................... 1,603,500 --
Principal payments on long-term debt........................................................ (2,110,083) (1,375,000)
Payment of financing costs.................................................................. (530,930) --
Proceeds from common stock sold in private placement........................................ 2,282,145 --
Extinguishment of debt...................................................................... -- (2,500,000)
Repurchase and retirement of warrants....................................................... -- (1,000,000)
Proceeds from common stock issued to the Company's ESOP..................................... 303,350 1,794,711
Net financing transactions with Rexel, Inc.................................................. -- --
-------------- --------------
Net cash provided by (used in) financing activities....................................... 13,356,187 (775,444)
Effect of exchange rate changes in cash................................................... 41,853 (22,162)
-------------- --------------
Net change in cash........................................................................ (38,738) 285,936
Cash at beginning of period..................................................................... 920,238 634,302
-------------- --------------
Cash at end of period........................................................................... $ 881,500 920,238
-------------- --------------
-------------- --------------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest.................................................................................... $ 4,157,170 3,618,429
-------------- --------------
-------------- --------------
Income taxes, net of refunds................................................................ $ 320,277 339,185
-------------- --------------
-------------- --------------
Supplemental disclosure of noncash investing and financing activities:
Issuance of common stock subscriptions receivable............................................. $ 429,462 113,881
-------------- --------------
-------------- --------------
Effects of business acquisitions:
Fair value of assets acquired............................................................... $ 8,875,546 --
-------------- --------------
-------------- --------------
Liabilities assumed......................................................................... $ 4,167,724 --
-------------- --------------
-------------- --------------
<CAPTION>
COMPANY'S
PREDECESSOR
----------------
PERIOD FROM PERIOD FROM
JULY 13, 1994 JANUARY 1, 1994
TO DECEMBER 31, TO JULY 12,
1994 1994
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................................................. (354,283) 362,863
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:
Depreciation and amortization............................................................... 184,421 315,615
Provision for losses on accounts receivable................................................. 320,678 223,551
Amortization of deferred financing costs and intangible assets.............................. 411,498 --
Amortization of debt discounts.............................................................. 110,526 --
Deferred income taxes....................................................................... (425,886) --
Extraordinary loss on debt extinguishment, net.............................................. -- --
Changes in operating assets and liabilities, net of effects of business acquisitions:
Trade accounts receivable................................................................. (2,861,097) (377,517)
Inventories............................................................................... 3,005,525 1,587,496
Prepaid expenses and other current assets................................................. (483,308) (54,322)
Other assets.............................................................................. 121,236 500,650
Income taxes payable...................................................................... (76,125) 134,627
Trade accounts payable and other liabilities.............................................. 3,146,368 (845,704)
---------------- ----------------
Net cash provided by (used in) operating activities..................................... 3,099,553 1,847,259
---------------- ----------------
Cash flows from investing activities:
Capital expenditures.......................................................................... (279,808) (283,864)
Proceeds from sale of property and equipment.................................................. 181,802 --
Payments for business acquisitions, net of cash acquired...................................... (39,089,106) --
---------------- ----------------
Net cash used in investing activities....................................................... (39,187,112) (283,864)
---------------- ----------------
Cash flows from financing activities:
Net proceeds from (reduction of) revolving line of credit, net of proceeds from debt issued
in business acquisitions.................................................................. (4,565,968) --
Increase (decrease) in book overdraft....................................................... 619,607 --
Proceeds from debt issued in business acquisitions.......................................... 36,187,500 --
Proceeds from other debt.................................................................... -- --
Principal payments on long-term debt........................................................ (312,500) (48,245)
Payment of financing costs.................................................................. -- --
Proceeds from common stock sold in private placement........................................ 4,812,500 --
Extinguishment of debt...................................................................... -- --
Repurchase and retirement of warrants....................................................... -- --
Proceeds from common stock issued to the Company's ESOP..................................... -- --
Net financing transactions with Rexel, Inc.................................................. -- (940,955)
---------------- ----------------
Net cash provided by (used in) financing activities....................................... 36,741,139 (989,200)
Effect of exchange rate changes in cash................................................... (19,278) 26,286
---------------- ----------------
Net change in cash........................................................................ 634,302 600,481
Cash at beginning of period..................................................................... -- 1,310,780
---------------- ----------------
Cash at end of period........................................................................... 634,302 1,911,261
---------------- ----------------
---------------- ----------------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest.................................................................................... 1,341,083 1,390,274
---------------- ----------------
---------------- ----------------
Income taxes, net of refunds................................................................ -- --
---------------- ----------------
---------------- ----------------
Supplemental disclosure of noncash investing and financing activities:
Issuance of common stock subscriptions receivable............................................. 1,263,267 --
---------------- ----------------
---------------- ----------------
Effects of business acquisitions:
Fair value of assets acquired............................................................... 52,934,575 --
---------------- ----------------
---------------- ----------------
Liabilities assumed......................................................................... 11,934,575 --
---------------- ----------------
---------------- ----------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(1) OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) OPERATIONS AND PRINCIPLES OF CONSOLIDATION
Willcox & Gibbs, Inc. and subsidiaries (the "Company") are engaged
principally in the distribution of replacement parts, supplies, and specialized
equipment to manufacturers of apparel and other sewn products in the domestic
and export markets. The accompanying consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
The consolidated financial statements of the Company reflect a new basis of
accounting allocating the purchase price to the assets and liabilities acquired
using the purchase method of accounting (note 2). The consolidated financial
statements of the Company's Predecessor for the period from January 1, 1994 to
July 12, 1994 consist of the apparel operations of Rexel, Inc. prior to their
acquisition by Willcox & Gibbs, Inc. on July 13, 1994.
(B) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
primarily by using the first-in, first-out method. Provisions for slow moving
inventories are made based upon management's analysis of current inventory
levels and expected sales in the future.
(C) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided
primarily using the straight-line method over the following estimated useful
lives of the respective assets:
<TABLE>
<S> <C>
Buildings...................................................... 40 years
3 to 7
Machinery and equipment........................................ years
5 to 7
Furniture and fixtures......................................... years
</TABLE>
Leasehold improvements are amortized on a straight-line basis over the
shorter of the lease term or estimated useful life of the asset.
(D) DEFERRED FINANCING COSTS
Deferred financing costs represent origination fees and other related costs
incurred in connection with establishment of the Company's existing credit
agreement. These costs have been deferred and are being amortized using the
straight-line method over the term of the related debt.
(E) INTANGIBLE ASSETS
Intangible assets consist primarily of costs in excess of the fair value of
net assets acquired in business combinations. Intangible assets are amortized on
a straight-line basis over the expected periods to be benefited, generally 40
years. The Company assesses the recoverability of its intangible assets by
determining whether the amortization of such balances over their remaining life
can be recovered through undiscounted future operating cash flows of the
acquired operation. The amount of impairment, if any, is
F-7
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
measured based on projected discounted future operating cash flows using a
discount rate reflecting the Company's average cost of funds. The assessment of
the recoverability of goodwill will be impacted if estimated future operating
cash flows are not achieved.
(F) BOOK OVERDRAFTS
Under the Company's cash management system, checks issued but not presented
to banks frequently result in overdraft balances for accounting purposes and are
classified as book overdrafts in the accompanying consolidated balance sheets.
(G) INCOME TAXES
Income taxes are accounted for using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
The Federal taxable income of the Company's Predecessor was included in
Rexel, Inc.'s consolidated Federal income tax return. The allocation of Federal
income tax expense was provided as if the Company's Predecessor filed a separate
Federal income tax return.
(H) FORWARD EXCHANGE CONTRACTS
The Company enters into forward exchange contracts for foreign currency as a
hedge against accounts payable denominated in a foreign currency. These
contracts are used by the Company to minimize exposure and reduce risk from
exchange rate fluctuations in the normal course of its foreign business. Gains
and losses on forward exchange contracts are deferred and included in the
measurement of foreign currency transaction gains and losses when realized. Cash
provided and used for forward exchange contracts is included in the cash flows
resulting from changes in trade accounts payable. Contracts amounting to $45,514
and $1,123,098, whose contractual amounts approximate market value, were
outstanding at December 31, 1996 and 1995, respectively.
(I) FOREIGN CURRENCY TRANSLATION
The local currency has been used as the functional currency of the Company's
subsidiaries located outside of the United States. Assets and liabilities
denominated in foreign currency are translated from their respective foreign
currencies into U.S. dollars using exchange rates in effect at the balance sheet
date. Revenues and expenses are translated at the average exchange rates in
effect during the period. Translation gains and losses are included as a
separate component of stockholders' equity. Transaction gains and losses
included in results of operations are not material in 1996, 1995, or 1994.
(J) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of the Company's senior notes payable are estimated based
upon cash flows discounted using the interest rate available to the Company for
debt with similar terms and remaining
F-8
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
maturities. The carrying value of the Company's remaining borrowings approximate
fair value due to the variable rate nature of the borrowings and/or the short
maturity of the borrowings. The fair value of the Company's forward exchange
contracts is estimated by obtaining quotes for contracts with similar terms. The
fair value of letters of credit are based on fees currently charged for similar
arrangements. The carrying value of all other financial instruments approximate
fair value due to the short-term nature of such instruments.
(K) EARNINGS PER SHARE
Earnings per share is based on the weighted average number of common shares
and common share equivalents outstanding during the period. Stock options,
warrants, and subscriptions receivable are considered to be common share
equivalents and, accordingly, have been included in the computation of earnings
per share in the accompanying consolidated statements of operations. The
Company's Predecessor operated as divisions of Rexel, Inc. As a result, the
earnings per share for the Company's Predecessor for the period from January 1,
1994 to July 12, 1994 does not provide a meaningful comparison to the earnings
per share of the Company and is, therefore, excluded from the accompanying
consolidated statements of operations.
(L) STOCK OPTIONS
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense is recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted Statement of Financial Accounting Standards
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, Statement 123 also allows entities
to continue to apply the provisions of APB Opinion No. 25 and provide pro forma
net income and pro forma earnings per share disclosures for employee stock
option grants made in 1995 and future years as if the fair-value-based method
defined in Statement 123 had been applied. The Company has elected to continue
to apply the provisions of APB Opinion No. 25. Pro forma disclosure in
accordance with the provisions of Statement 123 is not applicable to the
accompanying consolidated financial statements since no stock options had been
granted by the Company in 1995 or 1996.
(M) USE OF ESTIMATES
Management of the Company and the Company's Predecessor have made a number
of estimates and assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from these estimates.
(N) RECLASSIFICATIONS
Certain reclassifications were made to the 1995 and 1994 accounts to conform
to classifications adopted in 1996.
F-9
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) ACQUISITIONS
On July 13, 1994, the Company was incorporated and entered into a Sale and
Purchase Agreement to acquire the net assets and certain common stock of the
apparel operations of Rexel, Inc. The aggregate purchase price consisted of
$41,000,000 in cash and a $3,000,000 subordinated note with detachable Class B
common stock warrants issued to Rexel, Inc. Concurrent with the acquisition, the
Company sold common stock of the Company totaling $4,812,500 (note 9) and
borrowed $35,680,000 from a lender and $507,500 from two officers of the
Company. As discussed in note 10, the subordinated note and warrants were
retired in 1995.
Effective February 1, 1996, the Company purchased Clinton Machinery
Corporation and Clinton Management Corporation (collectively, "Clinton").
Clinton is a distributor of screen-printing equipment and supplies for the
apparel industry. The aggregate purchase price of $8,600,000 consisted of
$4,000,000 in cash and the issuance of 100,000 shares of the Company's Class A
common stock valued at $30 per share, due to the guarantee of the value by the
Company; the assumption of approximately $4,500,000 of indebtedness and
payables, which were subsequently repaid; and contingent payments of up to
38.87% of the operating income (as defined in the purchase agreement) of Clinton
during each of the five years ending through December 31, 2000. Such contingent
payments shall not exceed $10,500,000 and will be recorded as additional
purchase consideration as such amounts become determinable. In addition, the
shareholders of Clinton received a put option, giving them the right to sell the
Class A common shares to the Company at $30 per share at the earlier of four
years from the acquisition date, the closing date of an initial public offering
by the Company, any accelerated due date of the senior notes described in note
15, or upon a change in control of the Company, as defined. In accordance with
the rules and regulations of the Securities and Exchange Commission, the equity
subject to this put option has been classified as common stock subject to put
option in the accompanying consolidated balance sheet. The acquisition was
financed by the issuance of 184,314 shares of Class A common stock, with
proceeds of a 10.98% senior note payable for $1,200,000, and with proceeds of
increasing the Company's variable rate senior note payable by $1,050,000 (note
6). As a result of the transaction, the Company recorded approximately
$8,531,000 of intangible assets and $463,000 of deferred financing costs.
Effective November 27, 1996, the Company acquired certain assets of E. C.
Mitchell Co., Inc. for $3,000,000 in cash. The acquired assets relate to the
manufacture and sale of abrasive cords and tape used principally in the apparel
industry. The Company financed the acquisition primarily by increasing its
variable rate senior note payable by $2,050,000 and by issuing an 11.66% senior
note payable for $200,000 (note 6). As a result of the transaction, the Company
recorded approximately $1,900,000 of intangible assets and $68,000 of deferred
financing costs.
Each of the acquisitions have been accounted for as a purchase transaction
and, accordingly, the assets acquired and liabilities assumed have been recorded
at their estimated fair market values at the date of acquisition. The results of
operations of the acquired companies have been included in the accompanying
consolidated financial statements as of the respective acquisition dates.
The following represents the summary (unaudited) pro forma results of
operations for the years ended December 31, 1996 and 1995 as if the acquisitions
of Clinton and E. C. Mitchell Co., Inc. had
F-10
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) ACQUISITIONS (CONTINUED)
occurred at the beginning of 1995. The pro forma results are not necessarily
indicative of the results which may occur in the future.
<TABLE>
<CAPTION>
1996 1995
-------------- -------------
<S> <C> <C>
Net sales..................................................... $ 117,003,698 118,104,101
-------------- -------------
-------------- -------------
Income before extraordinary item.............................. $ 1,626,078 1,935,007
-------------- -------------
-------------- -------------
Net income.................................................... $ 1,626,078 1,783,433
-------------- -------------
-------------- -------------
Earnings per share............................................ $ 1.49 1.66
-------------- -------------
-------------- -------------
</TABLE>
(3) INVENTORIES
Inventories consist of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
Parts and supplies............................................... $ 29,501,944 28,470,926
Machinery and equipment.......................................... 4,721,730 977,073
------------- ------------
$ 34,223,674 29,447,999
------------- ------------
------------- ------------
</TABLE>
Cost of goods sold includes an amount related to the Company's step-up of
inventory costs when acquired on July 13, 1994. The amounts expensed were
$480,000 for the year ended December 31, 1996 $1,402,000 for the year ended
December 31, 1995 and $2,616,000 for the period from July 13, 1994 to December
31, 1994. The amounts expensed are based upon sales of the inventory acquired.
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
Buildings and leasehold improvements............................... $ 2,139,416 1,276,506
Machinery and equipment............................................ 3,006,760 1,923,789
Furniture and fixtures............................................. 699,096 245,745
------------ ----------
5,845,272 3,446,040
Less accumulated depreciation and amortization..................... 1,444,931 634,554
------------ ----------
Net property and equipment....................................... $ 4,400,341 2,811,486
------------ ----------
------------ ----------
</TABLE>
(5) REVOLVING LINE OF CREDIT
The Company has a Credit Agreement with its principal lenders which provides
for a revolving credit facility through July 2001 of up to the lesser of (i)
$25,000,000 or (ii) the sum of 80% (85% for certain subsidiaries) of eligible
accounts receivable and 55% of eligible inventory, less outstanding letters of
credit. At December 31, 1996, approximately $3,229,000 was available under the
facility. Under the Credit Agreement, substantially all assets of the Company
are pledged as security. Borrowings under the facility bear interest at 4% plus
the one month commercial paper rate for dealer-placed commercial paper of
F-11
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) REVOLVING LINE OF CREDIT (CONTINUED)
issuers whose corporate bonds are rated "AA" or its equivalent (9.566% at
December 31, 1996 and 9.858% at December 31, 1995). The Company pays an annual
fee of 0.5% of the total unused availability of the facility. The Company also
pays an annual fee of 2% on outstanding letters of credit. Letters of credit
approximating $1,467,000 and $1,972,000 were outstanding at December 31, 1996
and 1995, respectively. The Company has available approximately $3,533,000 and
$3,028,000 in unused letters of credit at December 31, 1996 and 1995,
respectively.
The Credit Agreement includes various covenants, including restrictions on
liens, capital expenditures, debt and lease obligations, dividends, and
requirements that certain financial ratios be maintained. At December 31, 1996,
the Company was not in compliance with a covenant specifying minimum tangible
net worth and with covenants requiring that certain leverage and debt coverage
ratios be maintained. These covenant violations were cured, however, as a result
of the refinancing described in note 15.
(6) LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995 consists of the following:
<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
Variable rate senior notes payable, with final installment due
July 13, 2000................................................ $ 12,802,417 11,812,500
12.95% senior note payable, due July 13, 2001, net of
unamortized discount of $528,784 and $645,213 at December 31,
1996 and 1995, respectively.................................. 6,471,216 6,354,787
10.98% senior note payable, due July 13, 2001, net of
unamortized discount of $297,500 at December 31, 1996........ 902,500 --
11.66% senior note payable, due July 13, 2001.................. 200,000 --
Variable rate UK note payable.................................. 1,712,600 --
------------- ------------
22,088,733 18,167,287
Less current installments...................................... 3,195,401 1,812,500
------------- ------------
Long-term debt, excluding current installments................. $ 18,893,332 16,354,787
------------- ------------
------------- ------------
</TABLE>
The variable rate senior notes payable are included in the Company's Credit
Agreement with its principal lender and are subject to the covenants described
in note 5. The notes accrue interest at 4.25% plus the one month commercial
paper rate for dealer-placed commercial paper of issuers whose corporate bonds
are rated "AA" or its equivalent (9.816% at December 31, 1996 and 10.108% at
December 31, 1995) and are payable in escalating quarterly installments with
interest payable monthly.
Both the 12.95% and 10.98% senior notes payable were issued with detachable
warrants for certain classes of common stock of the Company (note 9). The
proceeds from the issuance of the debt were allocated between the debt and the
warrants based on their relative fair values at the date of issuance. The
F-12
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) LONG-TERM DEBT (CONTINUED)
resulting debt discount is being amortized using the interest method over the
life of the related debt. The fair value of the 12.95% senior note payable, net
of the unamortized discount, is approximately $7,250,000 and $6,900,000 at
December 31, 1996 and 1995, respectively. The fair value of the 10.98% senior
note payable, net of the unamortized discount, is approximately $1,160,000 at
December 31, 1996.
The variable rate UK note payable is denominated in pound sterling and is an
obligation of the Company's United Kingdom subsidiary. The note is subject to
certain financial covenants, accrues interest at 2.25% plus the bank's
prevailing base rate (8.25% at December 31, 1996), and is payable in equal
semiannual installments through September 2000.
The aggregate maturities of long-term debt, excluding debt discount, at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- -------------------------------------------------------------------------------
<S> <C>
1997........................................................................... $ 3,195,401
1998........................................................................... 3,667,400
1999........................................................................... 3,907,900
2000........................................................................... 3,744,316
2001........................................................................... 8,400,000
-------------
$ 22,915,017
-------------
-------------
</TABLE>
The Company's outstanding long-term debt and their contractual maturities,
except for the variable rate UK note payable, changed in connection with the
refinancing described in note 15.
(7) INCOME TAXES
Total income tax expense (benefit) for the years ended December 31, 1996 and
1995, for the period from July 13, 1994 to December 31, 1994, and for the period
from January 1, 1994 to July 12, 1994 was allocated as follows:
<TABLE>
<CAPTION>
COMPANY'S
PREDECESSOR
COMPANY ---------------
------------------------------------------ PERIOD FROM
PERIOD FROM JANUARY 1, 1994
JULY 13, 1994 TO TO JULY 12,
1996 1995 DECEMBER 31, 1994 1994
------------ --------- ----------------- ---------------
<S> <C> <C> <C> <C>
Income (loss) from continuing
operations.................... $ 1,136,685 557,513 (288,022) 425,561
Extraordinary item.............. -- (92,901) -- --
------------ --------- -------- -------
$ 1,136,685 464,612 (288,022) 425,561
------------ --------- -------- -------
------------ --------- -------- -------
</TABLE>
F-13
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) INCOME TAXES (CONTINUED)
Income tax expense (benefit) attributable to continuing operations for the
years ended December 31, 1996 and 1995, for the period from July 13, 1994 to
December 31, 1994, and for the period from January 1, 1994 to July 12, 1994
consists of the following:
<TABLE>
<CAPTION>
COMPANY'S
PREDECESSOR
COMPANY ---------------
------------------------------------------ PERIOD FROM
PERIOD FROM JANUARY 1, 1994
JULY 13, 1994 TO TO JULY 12,
1996 1995 DECEMBER 31, 1994 1994
------------ --------- ----------------- ---------------
<S> <C> <C> <C> <C>
Current:
Federal....................... $ 641,255 240,210 -- 318,647
State......................... 75,442 75,604 -- 31,500
Foreign....................... 148,736 224,275 137,864 75,414
Deferred:
Federal....................... 242,689 15,590 (381,056) --
State......................... 28,563 1,834 (44,830) --
------------ --------- -------- -------
$ 1,136,685 557,513 (288,022) 425,561
------------ --------- -------- -------
------------ --------- -------- -------
</TABLE>
Actual income tax expense (benefit) attributable to continuing operations
differs from expected income tax expense (benefit)--(computed by applying the
U.S. Federal statutory income tax rate of 34% to income (loss) before income
taxes and extraordinary item) for the years ended December 31, 1996 and
F-14
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) INCOME TAXES (CONTINUED)
1995, for the period from July 13, 1994 to December 31, 1994, and for the period
from January 1, 1994 to July 12, 1994 as follows:
<TABLE>
<CAPTION>
COMPANY'S
PREDECESSOR
--------------
COMPANY PERIOD FROM
------------------------------------------- JANUARY 1,
PERIOD FROM 1994
JULY 13, 1994 TO TO JULY 12,
1996 1995 DECEMBER 31, 1994 1994
------------ ---------- ----------------- --------------
<S> <C> <C> <C> <C>
Computed expected income tax expense (benefit)..... $832,936 663,602 (218,384) 268,064
Increase (decrease) in income taxes resulting from:
Effect of lower foreign tax rates................ (100,866) (164,898) (75,737) (41,478)
Nondeductible expenses........................... 70,437 60,862 35,687 30,702
State taxes, net of Federal income tax benefit... 68,643 44,654 (29,588) 31,222
Other, net....................................... 265,535 (46,707) -- 137,051
------------ ---------- -------- --------------
$1,136,685 557,513 (288,022) 425,561
------------ ---------- -------- --------------
------------ ---------- -------- --------------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1996 and 1995 are presented below:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, due to allowance for doubtful accounts......... $ 251,424 235,948
Inventory, due to reserves for obsolescence and costs capitalized
for tax purposes.................................................... 532,466 327,460
Accrued expenses deductible for tax purposes when paid.............. 20,116 --
---------- ----------
Total deferred tax assets......................................... 804,006 563,408
---------- ----------
Deferred tax liabilities:
Accelerated depreciation............................................ (242,074) (94,897)
Costs not yet expensed for book purposes............................ (48,039) (60,049)
---------- ----------
Total deferred tax liabilities.................................... (290,113) (154,946)
---------- ----------
Net deferred tax asset............................................ $ 513,893 408,462
---------- ----------
---------- ----------
</TABLE>
F-15
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) INCOME TAXES (CONTINUED)
Income (loss) before income taxes and extraordinary item for U.S. operations
were $1,715,726, $807,145, $(1,270,539), and $427,929 for the years ended
December 31, 1996 and 1995, for the period from July 13, 1994 to December 31,
1994, and for the period from January 1, 1994 to July 12, 1994, respectively.
Income before income taxes and extraordinary item for non-U.S. operations were
$734,086, $1,144,625, $628,234, and $360,495 for the years ended December 31,
1996 and 1995, for the period from July 13, 1994 to December 31, 1994, and for
the period from January 1, 1994 to July 12, 1994, respectively.
At December 31, 1996 and 1995, there was no valuation allowance recorded for
deferred tax assets. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this
assessment. Based upon the nature of the temporary differences and projections
for future taxable income over the periods which the deferred tax assets are
deductible, management believes it is more likely than not the Company will
realize the benefits of these deductible differences.
(8) PENSION BENEFITS AND OTHER RETIREMENT PLANS
The Company has a qualified noncontributory defined benefit pension plan
covering substantially all of its domestic employees. The benefits are based on
years of service and defined levels of compensation. The Company makes annual
contributions to the plan equal to the maximum amount that can be deducted for
income tax purposes. The Company also has a nonqualified supplemental retirement
plan covering key employees, which is not funded.
The Company also maintains a defined benefit plan for substantially all
employees of its United Kingdom subsidiary. The plan is funded annually for the
maximum amount permitted by local statute. The benefits are based on years of
service and defined levels of compensation.
F-16
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) PENSION BENEFITS AND OTHER RETIREMENT PLANS (CONTINUED)
The following table sets forth the plans' funded status and amounts
recognized in the accompanying consolidated balance sheets at December 31, 1996
and 1995.
<TABLE>
<CAPTION>
1996 1995
-------------------------- ----------------------
UNITED UNITED
DOMESTIC KINGDOM DOMESTIC KINGDOM
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation............................... $ 7,020,864 1,944,989 5,877,756 1,879,312
------------ ------------ ---------- ----------
------------ ------------ ---------- ----------
Accumulated benefit obligation.......................... $ 7,136,559 2,109,029 6,001,744 2,015,609
------------ ------------ ---------- ----------
------------ ------------ ---------- ----------
Projected benefit obligation................................ $ 8,055,925 2,620,021 6,745,972 2,175,990
Plan assets at fair value................................... 6,730,352 2,305,726 5,615,569 1,792,257
------------ ------------ ---------- ----------
Projected benefit obligation in excess of plan assets....... 1,325,573 314,295 1,130,403 383,733
Unrecognized net gain....................................... 11,911 -- 393,023 --
------------ ------------ ---------- ----------
Total accrued pension benefits........................ 1,337,484 314,295 1,523,426 383,733
Supplemental retirement plan accrued liability.............. 800,160 -- 740,565 --
------------ ------------ ---------- ----------
Total accrued retirement benefits..................... $ 2,137,644 314,295 2,263,991 383,733
------------ ------------ ---------- ----------
------------ ------------ ---------- ----------
</TABLE>
For the nonqualified supplemental retirement plan, the assumed discount rate
was 8% at December 31, 1996 and 1995. No salary increase was assumed as the
Company has frozen salaries at specified amounts. Net periodic supplemental
retirement plan expense included in the accompanying consolidated statements of
operations for the years ended December 31, 1996 and 1995, for the period from
July 13, 1994 to December 31, 1994, and for the period from January 1, 1994 to
July 12, 1994 was $59,595, $55,530, $110,420, and $146,592, respectively.
F-17
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) PENSION BENEFITS AND OTHER RETIREMENT PLANS (CONTINUED)
Net pension cost for the years ended December 31, 1996 and 1995 and for the
period from July 13, 1994 to December 31, 1994 include the following components:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ---------------------- -----------------------
UNITED UNITED UNITED
DOMESTIC KINGDOM DOMESTIC KINGDOM DOMESTIC KINGDOM
---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Service cost--benefits earned during the period..... $ 338,182 128,732 264,428 113,766 175,165 45,000
Interest cost on projected benefit obligation....... 548,625 216,485 456,836 199,169 203,753 84,000
Actual return on plan assets........................ (785,405) (190,516) (702,713) (136,114) 42,794 (74,000)
Net amortization and deferral....................... 323,959 -- 321,963 -- (211,731) --
---------- ---------- ---------- ---------- ---------- -----------
Net pension cost................................ $ 425,361 154,701 340,514 176,821 209,981 55,000
---------- ---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- ---------- -----------
</TABLE>
Assumptions used in accounting for the pension plans as of December 31, 1996
and 1995 were as follows:
<TABLE>
<CAPTION>
DOMESTIC UNITED KINGDOM
------------------------------------- -----------------------------------
1996 1995 1994 1996 1995 1994
----- ----- ----- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Discount rates...................................... 7.5% 7.5 8.0 9.0 9.0 10.0
Rates of increase in compensation levels............ 4.5 4.5 4.5 8.0 8.0 9.0
Expected long-term rate of return on assets......... 8.0 8.0 8.0 9.0 9.0 10.0
</TABLE>
The Company also maintains the Willcox & Gibbs, Inc. Savings and Employee
Stock Ownership Plan to provide eligible employees with an opportunity to
purchase the Company's Class A common stock through payroll deductions, which
are matched by the Company, subject to certain limitations. The purchase price
is based on an independent appraisal of the value of the Company's shares at the
subscription date. The Company's matching contributions vest at a rate of 20%
for each year of service by the employee, with 100% vesting after five years of
service. The Company's contribution to the plan, net of forfeitures, was
approximately $305,000, $272,000, and $111,000 for the years ended December 31,
1996 and 1995 and for the period from July 13, 1994 to December 31, 1994,
respectively.
(9) STOCKHOLDERS' EQUITY
On July 13, 1994, the Company authorized 1,500,000 shares of Class A common
stock, no par value; 250,000 shares of Class B common stock, no par value; and
250,000 shares of Class C common stock, no par value. All classes of common
stock have identical rights and privileges. Pursuant to the purchase agreement,
the Company entered into a Stockholders' Agreement to sell 481,250 shares of
Class A common stock at $10 per share to certain investors. Additionally, as
part of the purchase agreement, the Company issued detachable warrants for
122,970 shares of Class B common stock attached to the subordinated note to
Rexel, Inc. and 114,773 shares of Class C common stock attached to the 12.95%
senior note payable to its principal lender (note 6). The warrants for the Class
C shares are convertible at
F-18
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) STOCKHOLDERS' EQUITY (CONTINUED)
any time for nominal consideration, subject to certain redemption provisions. As
discussed in note 10, all of the warrants for the Class B shares were
repurchased and retired by the Company in 1995. As discussed in note 15,
warrants for 110,818 Class C shares were repurchased and retired by the Company
on January 3, 1997.
In February 1996, the Company issued additional detachable warrants for
32,985 shares of Class C common stock attached to the 10.98% senior note payable
to its principal lender (note 6).
(10) TRANSACTION WITH FORMER STOCKHOLDER
On July 26, 1995, the Company retired its 8% subordinated note payable to
Rexel, Inc. and repurchased the associated detachable warrants and certain other
assets for $4,050,000 in cash. The purchase price was allocated as follows:
<TABLE>
<S> <C>
8% subordinated note............................................ $2,500,000
Common stock warrants........................................... 1,000,000
Trademark....................................................... 250,000
Other assets.................................................... 300,000
---------
$4,050,000
---------
---------
</TABLE>
As a result of the transaction, the Company recorded an extraordinary loss
from the extinguishment of debt (net of the income tax benefit of $92,901) of
$151,574 in the accompanying financial statements. The Company funded the
transaction with its revolving line of credit.
The Company also acquired the rights to the Willcox & Gibbs, Inc. name as a
result of this transaction and changed the Company name from WG, Inc. effective
January 1, 1996.
(11) STOCK OPTIONS
On August 15, 1994, the Company adopted the Willcox & Gibbs, Inc. Stock
Incentive Plan. Under the plan, options to purchase 41,250 shares were available
to be granted to key employees of the Company. During 1994, options for 36,500
shares were issued at an exercise price of $10 per share, which the Company
believes approximated fair value at the date of grant. As of December 31, 1996
and 1995, 36,500 options remain outstanding. The options expire after ten years
and vest at a rate of 20% per year of service, with 100% vesting after five
years of service. At December 31, 1996, options for 14,600 shares were
exercisable.
F-19
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) FOREIGN OPERATIONS
Following is a summary of geographic area information, as measured by the
locale of revenue-producing operations, for the years ended December 31, 1996
and 1995, for the period from July 13, 1994 to December 31, 1994, and for the
period from January 1, 1994 to July 12, 1994:
<TABLE>
<CAPTION>
COMPANY'S
PREDECESSOR
COMPANY --------------
----------------------------------------------- PERIOD FROM
JANUARY 1,
YEARS ENDED DECEMBER 31, PERIOD FROM 1994
---------------------------- JULY 13, 1994 TO TO JULY 12,
1996 1995 DECEMBER 31, 1994 1994
-------------- ------------ ----------------- --------------
<S> <C> <C> <C> <C>
Net sales:
United States............................... $ 100,995,604 79,381,846 36,837,194 36,131,154
United Kingdom.............................. 7,371,861 6,535,063 2,953,944 3,726,342
Latin America............................... 5,483,793 4,514,522 1,852,590 1,451,406
-------------- ------------ ----------------- --------------
$ 113,851,258 90,431,431 41,643,728 41,308,902
-------------- ------------ ----------------- --------------
-------------- ------------ ----------------- --------------
Net income (loss):
United States............................... $ 727,777 322,333 (844,653) 77,782
United Kingdom.............................. 301,818 429,264 277,621 212,170
Latin America............................... 283,532 491,086 212,749 72,911
-------------- ------------ ----------------- --------------
$ 1,313,127 1,242,683 (354,283) 362,863
-------------- ------------ ----------------- --------------
-------------- ------------ ----------------- --------------
</TABLE>
<TABLE>
<CAPTION>
COMPANY
----------------------------
<S> <C> <C> <C> <C>
DECEMBER 31,
----------------------------
<CAPTION>
1996 1995
-------------- ------------
<S> <C> <C> <C> <C>
Identifiable assets:
United States............................... $ 69,727,547 44,281,551
United Kingdom.............................. 7,110,908 6,333,340
Latin America............................... 2,890,033 1,912,632
-------------- ------------
$ 79,728,488 52,527,523
-------------- ------------
-------------- ------------
</TABLE>
Export sales from the United States to unaffiliated customers were
approximately $26,100,000, $12,400,000, $4,200,000, and $5,000,000 for the years
ended December 31, 1996 and 1995, for the period from July 13, 1994 to December
31, 1994, and for the period from January 1, 1994 to July 12, 1994,
respectively.
F-20
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) FOREIGN OPERATIONS (CONTINUED)
No provision is made for income taxes which may be payable if undistributed
earnings of foreign subsidiaries were to be paid as dividends to the Company,
since the Company intends that such earnings will continue to be invested in
those countries. Foreign tax credits may be available as a reduction of United
States income taxes in the event of such distributions.
(13) SIGNIFICANT SUPPLIERS
The Company is the exclusive distributor of genuine replacement parts in the
United States for Pfaff AG ("Pfaff"), a German sewing equipment manufacturer,
and for Pegasus Sewing Machine Mfg. Co., Ltd. ("Pegasus"), a Japanese sewing
equipment manufacturer. The Company's distribution agreements with Pfaff and
Pegasus extend through 1998 and automatically renew for successive two-year
periods unless notice of termination is given at least one year prior to
December 31, 1998 or the end of any successive two-year period of exclusivity.
In order to maintain the exclusivity of the Pfaff and Pegasus distribution
agreements, the Company must meet certain performance targets. Historically, the
Company has generally satisfied these requirements, although in certain prior
years they were not satisfied and Pfaff and Pegasus waived such shortfalls.
During the year ended December 31, 1996, approximately 6% of the Company's total
purchases were from Pfaff and approximately 7% of the Company's total purchases
were from Pegasus.
The Company also maintains exclusive distribution rights in certain
territories for M&R Printing Equipment, Inc. ("M&R"), a manufacturer of
screen-printing equipment for the apparel industry. The Company's distribution
agreements with M&R may be terminated by either party at the end of any year on
net less than 120 days' notice. During the year ended December 31, 1996,
approximately 16% of the Company's total purchases were from M&R.
(14) COMMITMENTS
The Company had certain commitments to purchase inventories for
approximately $10,000 and $170,000 at December 31, 1996 and 1995, respectively.
The Company does not expect to incur losses in connection with these purchase
commitments.
The Company has several noncancelable operating leases, primarily for
buildings and equipment. These leases generally contain renewal options for
periods ranging from three to seven years and require the Company to pay most
executory costs such as maintenance and insurance.
F-21
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) COMMITMENTS (CONTINUED)
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1996
are approximately:
<TABLE>
<CAPTION>
Year ending
December 31
- ----------------------------------------------------------------
1997............................................................ $1,126,000
<S> <C>
1998............................................................ 824,000
1999............................................................ 670,000
2000............................................................ 655,000
2001............................................................ 539,000
Thereafter...................................................... 755,000
---------
$4,569,000
---------
---------
</TABLE>
Total rental expense for the years ended December 31, 1996 and 1995, for the
period from July 13, 1994 to December 31, 1994, and for the period from January
1, 1994 to July 12, 1994 was approximately $1,559,000, $1,229,000, $515,000, and
$381,000, respectively.
(15) SUBSEQUENT EVENTS
Effective January 3, 1997, the Company acquired all the outstanding capital
stock of Macpherson Meistergram, Inc. ("Macpherson") for $24,000,000 in cash and
the assumption of approximately $6,100,000 of indebtedness and $6,400,000 of
trade payables. Macpherson is primarily engaged in the distribution of
embroidery equipment and supplies to the apparel industry.
In connection with the acquisition of Macpherson, the Company also acquired
all the outstanding capital stock of Embroidery Leasing Corp., a leasing
affiliate of Macpherson, for approximately $500,000, payable over three years
with interest at 6% per annum.
Effective January 3, 1997, the Company issued $85,000,000 principal amount
of 12.25% Series A senior notes which are due in December 2003. The Company used
the proceeds, in part, to repay approximately $40,952,000 of its indebtedness
($40,550,000 of which existed at December 31, 1996)-- (notes 5 and 6), to redeem
common stock warrants for a total of $3,026,000 (note 9), and to finance the
acquisition of Macpherson.
Set forth below are condensed consolidating financial statements of the
subsidiaries of the Company that have jointly and severally guaranteed the
Company's 12 1/4% Senior Notes (the "Guarantor Subsidiaries") and the
non-guarantor subsidiaries of the Company (the "Non-Guarantor Subsidiaries").
Information with respect to the Company (parent only) is not presented since it
is a holding company with no operations and no assets other than its investments
in its subsidiaries. As of the date of issuance of the 12 1/4% Senior Notes, the
Guarantor Subsidiaries were WG Apparel, Inc., Leadtec Systems, Inc., J&E Sewing
Supplies, Inc., W&G Daon, Inc. W&G Tennessee Imports, Inc., Clinton Management
Corp., Clinton Machinery Corporation, Clinton Leasing Corp., Clinton Equipment
Corp., Macpherson Meistergram, Inc. and Paradise Color Incorporated, and the
Non-Guarantor Subsidiaries were Willcox & Gibbs,
F-22
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(15) SUBSEQUENT EVENTS (CONTINUED)
Ltd., Sunbrand S.A. de C.V., Sunbrand Caribe S.A., Allied Machine Parts Ltd.,
M.E.C. (Sewing Machine Limited), Unity Sewing Supply Company (UK) Limited,
Allide Machine Parts Limited, Matyork Limited, Forest Needle Company Limited,
Morris & Ingram (Textiles) Limited, Eildon Electronics Limited, and Geoffrey E.
Macpherson Canada, Inc. The Guarantor Subsidiaries are wholly owned by the
Company, and there are no restrictions on the ability of the Guarantor
Subsidiaries to make distributions to the Company, except those generally
applicable under relevant corporation laws. Separate financial statements of
each Guarantor Subsidiary and the eliminating entries have not been included
because management has determined that they are not material to investors.
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
-----------------------------------------
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
----------- -------------- ------------
<S> <C> <C> <C>
Assets
Cash.................................................................. $ 343 539 882
Accounts receivable, net.............................................. 18,941 3,395 22,336
Inventories........................................................... 30,133 4,091 34,224
Other current assets.................................................. 3,133 326 3459
----------- -------------- ------------
Current assets...................................................... 52,550 8,351 60,901
Property and equipment, net........................................... 2,853 1,547 4,400
Intangible assets, net................................................ 13,383 -- 13,383
Other assets.......................................................... 1,025 19 1,044
----------- -------------- ------------
$ 69,811 9,917 79,728
----------- -------------- ------------
----------- -------------- ------------
Liabilities and Stockholders' Equity
Current notes and long-term debt...................................... $ 22,114 428 22,542
Accounts payable...................................................... 13,462 844 14,306
Accrued liabilities................................................... 4,231 1,169 5,400
----------- -------------- ------------
Current liabilities................................................. 39,807 2,441 42,248
Long-term debt........................................................ 17,609 1,284 18,893
Other liabilities..................................................... 2,910 -- 2,910
----------- -------------- ------------
Total liabilities................................................... 60,326 3,725 64,051
Common stock subject to put option.................................... 3,000 -- 3,000
Common stock.......................................................... 8,763 -- 8,763
Other equity.......................................................... (2,278) 6,192 3,914
----------- -------------- ------------
Total equity........................................................ 6,485 6,192 12,677
----------- -------------- ------------
$ 69,811 9,917 79,728
----------- -------------- ------------
----------- -------------- ------------
</TABLE>
F-23
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(15) SUBSEQUENT EVENTS (CONTINUED)
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS)
-----------------------------------------
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
----------- -------------- ------------
<S> <C> <C> <C>
Assets
Cash.................................................................. $ 315 605 920
Accounts receivable, net.............................................. 11,753 2,483 14,236
Inventories........................................................... 25,798 3,650 29,448
Other current assets.................................................. 2,395 190 2,585
----------- -------------- ------------
Current assets...................................................... 40,261 6,928 47,189
Property and equipment, net........................................... 1,479 1,332 2,811
Intangible assets, net................................................ 1,948 -- 1,948
Other assets.......................................................... 561 19 580
----------- -------------- ------------
$ 44,249 8,279 52,528
----------- -------------- ------------
----------- -------------- ------------
Liabilities and Stockholders' Equity
Current notes and long-term debt...................................... $ 14,754 -- 14,754
Accounts payable...................................................... 6,054 743 6,797
Accrued liabilities................................................... 3,112 602 3,714
----------- -------------- ------------
Current liabilities................................................. 23,920 1,345 25,265
Long-term debt........................................................ 16,355 -- 16,355
Other liabilities..................................................... 3,016 -- 3,016
----------- -------------- ------------
Total liabilities................................................... 43,291 1,345 44,636
Common stock.......................................................... 6,582 -- 6,582
Other equity.......................................................... (5,624) 6,934 1,310
----------- -------------- ------------
Total equity........................................................ 958 6,934 7,892
----------- -------------- ------------
$ 44,249 8,279 52,528
----------- -------------- ------------
----------- -------------- ------------
</TABLE>
F-24
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(15) SUBSEQUENT EVENTS (CONTINUED)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
-----------------------------------------
<S> <C> <C> <C>
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
----------- -------------- ------------
Net sales............................................................. $ 100,995 12,856 113,851
Cost of goods sold.................................................... 68,712 8,911 77,623
----------- -------------- ------------
Gross profit........................................................ 32,283 3,945 36,228
Selling, general and administrative expenses.......................... 25,661 3,308 28,969
----------- -------------- ------------
Operating income.................................................... 6,622 637 7,259
Interest expense...................................................... (4,602) (222) (4,824)
Other income, net..................................................... (118) 133 15
----------- -------------- ------------
Income before income taxes.......................................... 1,902 548 2,450
Income tax expense.................................................... 940 197 1,137
----------- -------------- ------------
Net income.......................................................... $ 962 351 1,313
----------- -------------- ------------
----------- -------------- ------------
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS)
-----------------------------------------
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
----------- -------------- ------------
<S> <C> <C> <C>
Net sales............................................................. $ 79,382 11,049 90,431
Cost of goods sold.................................................... 53,287 7,355 60,642
----------- -------------- ------------
Gross profit........................................................ 26,095 3,694 29,789
Selling, general and administrative expenses.......................... 20,862 2,744 23,606
----------- -------------- ------------
Operating income.................................................... 5,233 950 6,183
Interest expense...................................................... (4,066) (183) (4,249)
Other income, net..................................................... (180) 198 18
----------- -------------- ------------
Income before income taxes and extraordinary item................... 987 965 1,952
Income tax expense.................................................... 254 304 558
----------- -------------- ------------
Income before extraordinary item.................................... 733 661 1,394
Extraordinary item, net............................................... (151) -- (151)
----------- -------------- ------------
Net income.......................................................... $ 582 661 1,243
----------- -------------- ------------
----------- -------------- ------------
</TABLE>
F-25
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(15) SUBSEQUENT EVENTS (CONTINUED)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM JULY 13, 1994
TO DECEMBER 31, 1994
(AMOUNTS IN THOUSANDS)
-----------------------------------------
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
----------- -------------- ------------
<S> <C> <C> <C>
Net sales............................................................. $ 36,837 4,807 41,644
Cost of goods sold.................................................... 26,018 3,144 29,162
----------- -------------- ------------
Gross profit........................................................ 10,819 1,663 12,482
Selling, general and administrative expenses.......................... 10,101 1,163 11,264
----------- -------------- ------------
Operating income.................................................... 718 500 1,218
Interest expense...................................................... (1,877) (69) (1,946)
Other income, net..................................................... (43) 129 86
----------- -------------- ------------
Income (loss) before income taxes................................... (1,202) 560 (642)
Income tax expense (benefit).......................................... (498) 210 (288)
----------- -------------- ------------
Net income (loss)................................................... $ (704) 350 (354)
----------- -------------- ------------
----------- -------------- ------------
</TABLE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
-----------------------------------------
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
----------- -------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities.................................. $ 1,209 (1,462) (253)
------------
Cash flows from investing activities:
Payments for business acquisitions, net of assets acquired.......... (12,012) -- (12,012)
Other changes....................................................... (921) (250) (1,171)
----------- -------------- ------------
(12,933) (250) (13,183)
----------- -------------- ------------
Cash flows from financing activities:
Proceeds from debt issuance......................................... 10,906 1,604 12,510
Proceeds from sale of common stock.................................. 2,585 -- 2,585
Other changes....................................................... (1,739) -- (1,739)
----------- -------------- ------------
11,752 1,604 13,356
----------- -------------- ------------
Effect of exchange rates.............................................. -- 42 42
------------
Net change in cash.................................................... 28 (66) (38)
Cash at beginning of period........................................... 315 605 920
-------------- ------------
Cash at end of period................................................. $ 343 539 882
----------- -------------- ------------
----------- -------------- ------------
</TABLE>
F-26
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(15) SUBSEQUENT EVENTS (CONTINUED)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS)
-----------------------------------------
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
----------- -------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities.................................. $ 1,533 308 1,841
----------- -------------- ------------
Cash flows from investing activities.................................. (670) (88) (758)
----------- -------------- ------------
Cash flows from financing activities:
Proceeds from debt issuance......................................... 2,327 -- 2,327
Payments of debt.................................................... (3,875) -- (3,875)
Proceeds from sale of common stock.................................. 1,795 -- 1,795
Other changes....................................................... (1,022) -- (1,022)
----------- -------------- ------------
(775) (775)
----------- -------------- ------------
Effect of exchange rates.............................................. -- (22) (22)
------------
Net change in cash.................................................... 88 198 286
Cash at beginning of period........................................... 227 407 634
----------- -------------- ------------
Cash at end of period................................................. $ 315 605 920
----------- -------------- ------------
----------- -------------- ------------
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD FROM JULY 13, 1994
TO DECEMBER 31, 1994
(AMOUNTS IN THOUSANDS)
-----------------------------------------
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
----------- -------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities.................................. $ 2,584 515 3,099
----------- -------------- ------------
Cash flows from investing activities:
Payments for business acquisitions, net............................. (39,089) -- (39,089)
Other changes....................................................... (9) (89) (98)
----------- -------------- ------------
(39,098) (89) (39,187)
----------- -------------- ------------
Cash flows from financing activities:
Proceeds from debt issuance......................................... 36,188 -- 36,188
Payments of debt...................................................... (4,878) -- (4,878)
Proceeds from sale of common stock.................................. 4,813 -- 4,813
Other changes....................................................... 618 -- 618
----------- -------------- ------------
36,741 -- 36,741
----------- -------------- ------------
Effect of exchange rates.............................................. -- (19) (19)
----------- -------------- ------------
Net change in cash.................................................... 227 407 634
Cash at beginning of period........................................... -- -- --
----------- -------------- ------------
Cash at end of period................................................. $ 227 407 634
----------- -------------- ------------
----------- -------------- ------------
</TABLE>
F-27
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
<TABLE>
<CAPTION>
MARCH 31,
1997
--------------
<S> <C>
(UNAUDITED)
Assets
Current Assets:
Cash............................................................................................ $ 1,667,423
Accounts receivable, less allowance for doubtful accounts of $3,506,318......................... 32,416,181
Inventories..................................................................................... 49,229,003
Prepaid expenses and other current assets....................................................... 4,862,376
Assets held for sale............................................................................ 826,205
Deferred income taxes........................................................................... 938,825
--------------
Total current assets........................................................................ 89,940,013
Property and equipment, net....................................................................... 5,475,048
Deferred financing costs, less accumulated amortization of $152,679............................... 4,122,321
Intangible assets, less accumulated amortization of $431,407...................................... 31,719,302
Other assets...................................................................................... 1,384,295
--------------
$ 132,640,979
--------------
--------------
Liabilities and Stockholders' Equity
Current Liabilities:
Revolving line of credit........................................................................ $ 4,314,082
Book overdrafts................................................................................. 1,494,620
Current installments of long-term debt.......................................................... 609,900
Trade accounts payable.......................................................................... 17,699,844
Accrued liabilities and other current liabilities............................................... 9,867,627
--------------
Total current liabilities................................................................... 33,986,073
Deferred income taxes............................................................................. 422,760
Accrued retirement benefits....................................................................... 2,517,598
Long-term debt, excluding current installments.................................................... 85,101,453
Other liabilities................................................................................. 168,258
--------------
Total liabilities........................................................................... 122,196,142
--------------
Common stock subject to put option................................................................ 3,000,000
Stockholders' Equity:
Common stock:
Class A, $10 stated value. Authorized 1,500,000 shares; issued and outstanding 987,223........ 8,872,234
Class B, no par value. Authorized 250,000 shares; none issued................................. --
Class C, no par value. Authorized 250,000 shares; none issued................................. --
Additional paid in capital...................................................................... --
Subscriptions receivable........................................................................ (637,383)
Retained earnings (accumulated deficit)......................................................... (881,932)
Cumulative translation adjustment............................................................... 91,918
--------------
Total stockholders' equity.................................................................. 7,444,837
--------------
$ 132,640,979
--------------
--------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-28
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
<S> <C> <C>
1997 1996
------------- -------------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
Net sales.......................................................................... $ 42,042,970 $ 26,319,787
Cost of goods sold................................................................. 29,083,575 17,975,883
------------- -------------
Gross profit................................................................... 12,959,395 8,343,904
Selling, general, and administrative expenses...................................... 10,973,947 6,763,393
------------- -------------
Operating income............................................................... 1,985,448 1,580,511
Other income (expense):
Interest expense................................................................... (2,882,745) (1,100,190)
Other income, net.................................................................. 38,940 14,114
------------- -------------
Income (loss) before income taxes and extraordinary item....................... (858,357) 494,435
Income tax expense (benefit)....................................................... (355,395) 178,776
------------- -------------
Income (loss) before extraordinary item........................................ (502,962) 315,659
Extraordinary loss, net of income tax benefit...................................... (1,556,898) --
------------- -------------
Net income (loss).............................................................. $ (2,059,860) $ 315,659
------------- -------------
------------- -------------
Earnings (loss) per common share and common share equivalent:
Income (loss) before extraordinary item........................................ $ (0.53) $ 0.32
Extraordinary item, net........................................................ (1.63) --
------------- -------------
Net income (loss) per share................................................ $ (2.16) $ 0.32
------------- -------------
------------- -------------
Weighted average number of common shares and common share equivalents.......... 953,674 977,196
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-29
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
<S> <C> <C>
1997 1996
-------------- -------------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................................ $ (2,059,860) $ 315,659
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization.................................................... 260,608 151,472
Provision for losses on accounts receivable...................................... 237,563 164,367
Amortization of deferred financing costs......................................... 355,464 123,819
Amortization of debt discount.................................................... 51,717 39,924
Deferred income taxes............................................................ (2,172) --
Extraordinary loss on debt extinguishment, net................................... 1,556,898 --
Changes in operating assets and liabilities, net of effect of business
acquisitions:
Trade accounts receivable...................................................... 3,386,992 (4,021,701)
Inventories.................................................................... 1,192,733 408,309
Prepaid expenses and other current assets...................................... (940,425) 38,640
Other assets................................................................... 22,959 (43,865)
Income taxes payable........................................................... (614,867) 42,222
Trade accounts payable and other liabilities................................... (5,883,994) 244,204
-------------- -------------
Net cash used in operating activities........................................ (2,436,384) (2,536,950)
Cash flows from investing activities:
Capital expenditures............................................................. (538,641) (210,519)
Proceeds from sale of property and equipment..................................... 58,455 10,125
Payment for business acquisitions, net of cash acquired.......................... (36,732,470) (8,219,165)
-------------- -------------
Net cash used in investing activities........................................ (37,212,656) (8,419,559)
Cash flows from financing activities:
Net proceeds from revolving line of credit....................................... 4,248,499 2,440,461
Increase (decrease) in book overdrafts........................................... (4,677) 13,007
Proceeds from debt issued........................................................ 83,980,050 6,167,439
Principal payments on long-term debt............................................. (41,137,297) (437,500)
Payment of financing costs....................................................... (3,605,926) (265,108)
Proceeds from common stock issued in private placement........................... -- 2,282,145
Repurchase and retirement of warrants............................................ (3,026,454) --
-------------- -------------
Net cash provided by financing activities.................................... 40,454,195 10,200,444
-------------- -------------
Effect of exchange rate changes in cash............................................ (19,232) (8,966)
Net increase (decrease) in cash.................................................... 785,923 (765,031)
Cash at beginning of period........................................................ 881,500 920,238
-------------- -------------
Cash at end of period.............................................................. $ 1,667,423 $ 155,207
-------------- -------------
-------------- -------------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest....................................................................... $ 479,327 $ 927,880
-------------- -------------
Income taxes................................................................... $ 261,645 $ 145,305
-------------- -------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-30
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Willcox &
Gibbs, Inc. and subsidiaries (the "Company") have been prepared in accordance
with generally accepted accounting principals for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the quarter ending March 31, 1997 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1997.
The operations of Clinton Management Corp. (d/b/a Clinton Machine & Supply)
and Clinton Machinery Corp. (together, "Clinton") have been included in the
Company's consolidated operations since their February 1, 1996 acquisition date.
The operations of E.C. Mitchell Co., Inc. ("Mitchell") have been included in the
Company's consolidated operations since its November 27, 1996 acquisition date.
The operations of Macpherson Meistergram, Inc. ("Macpherson") have been included
in the Company's consolidated operations since its January 3, 1997 acquisition
date. The operations of Embroidery Leasing Corp. ("ELC") have been included in
the Company's consolidated operations since its January 3, 1997 acquisition
date.
2. ACQUISITIONS
Effective February 1, 1996, the Company acquired Clinton in exchange for
$4,000,000 in cash, assumption of $4,500,000 in debt and payables, 100,000
shares of Company Class A common stock and contingent payments of up to 38.87%
of operating income (as defined in the purchase agreement) of Clinton during
each of the five years ending December 31, 2000. Such contingent payments shall
not exceed $10,500,000. In addition, the former shareholders of Clinton have the
right to require the Company to purchase their shares of Company common stock at
a purchase price of $30 per share upon the occurrence of certain events.
Effective November 27, 1996, the Company acquired certain assets of E.C.
Mitchell, Co., Inc. for $3,000,000 in cash. The acquired assets relate to the
manufacture and sale of abrasive cords and tape used principally in the apparel
industry.
Effective January 3, 1997, the Company acquired all the outstanding capital
stock of Macpherson for $24,000,000 in cash. The acquisition included the
assumption of approximately $6,100,000 of indebtedness and $6,400,000 of trade
payables which were repaid from the proceeds of the refinancing (note 3).
Macpherson is primarily engaged in the distribution of embroidery equipment and
supplies to the apparel industry. The acquisition has been accounted for using
the purchase method of accounting, with the purchase price allocated based on
the fair value of the assets acquired and liabilities assumed, with the
F-31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED (CONTINUED)
2. ACQUISITIONS (CONTINUED)
excess purchase price allocated to goodwill, which is being amortized over 40
years. The amounts used in the purchase price allocation were as follows:
<TABLE>
<CAPTION>
Fair value of:
<S> <C>
Assets acquired....................................................... $33,378,426
Liabilities assumed................................................... (28,506,519)
----------
4,871,907
Excess purchase price, recorded as goodwill........................... 19,128,093
Total purchase price.............................................. $24,000,000
----------
----------
</TABLE>
3. REFINANCING
Effective January 3, 1997, the Company issued $85,000,000 principal amount
of 12.25% Series A senior notes which are due in December 2003. The Company used
the proceeds, in part, to repay approximately $40,952,000 of its indebtedness
($40,550,000 of which existed at December 31, 1996), to redeem common stock
warrants for a total of $3,026,000, and to finance the Macpherson acquisition.
The Company recorded an extraordinary loss of $1,556,898 from the
refinancing (which is net of income tax benefit of $954,228).
4. GUARANTOR SUBSIDIARIES
Set forth below are condensed consolidating financial statements of the
subsidiaries of the Company that have jointly and severally guaranteed the
Company's 12 1/4% Senior Notes (the "Guarantor Subsidiaries") and the
non-guarantor subsidiaries of the Company (the "Non-Guarantor Subsidiaries"). As
of March 31, 1997, the Guarantor Subsidiaries were WG Apparel, Inc., Leadtec
Systems, Inc., J&E Sewing Supplies, Inc., W&G Daon, Inc. W&G Tennessee Imports,
Inc., Clinton Management Corp., Clinton Machinery Corporation, Clinton Leasing
Corp., Clinton Equipment Corp., Macpherson Meistergram, Inc. and Paradise Color
Incorporated, and the Non-Guarantor Subsidiaries were Willcox & Gibbs, Ltd.,
Sunbrand S.A. de C.V., Sunbrand Caribe S.A., Allied Machine Parts Ltd., M.E.C.
(Sewing Machine Limited), Unity Sewing Supply Company (UK) Limited, Allide
Machine Parts Limited, Matyork Limited, Forest Needle Company Limited, Morris &
Ingram (Textiles) Limited, Eildon Electronics Limited, Geoffrey E. Macpherson
Canada, Inc., Embroidery Leasing Corporation, Sunbrand de Colombia, Unity de
Colombia and Clinton de Mexico. The Guarantor Subsidiaries are wholly owned by
the Company, and there are no restrictions on the ability of the Guarantor
Subsidiaries to make distributions to the Company, except those generally
applicable under relevant corporation laws. Separate financial statements of
each Guarantor Subsidiary have not been included because management has
determined that they are not material to investors.
F-32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED (CONTINUED)
4. GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 1997
(AMOUNTS IN THOUSANDS)
-------------------------------------------
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
----------- --------------- -------------
<S> <C> <C> <C>
Assets
- ----------------------------------------------------------------------
Cash.................................................................. $ 1,037 630 1,667
Accounts receivable, net.............................................. 27,803 4,613 32,416
Inventories........................................................... 44,093 5,136 49,229
Other current assets.................................................. 6,300 328 6,628
----------- ------- -------------
Total current assets................................................ 79,233 10,707 89,940
Property and equipment, net........................................... 3,920 1,555 5,475
Intangible assets, net................................................ 35,172 670 35,842
Other assets.......................................................... 1,203 181 1,384
----------- ------- -------------
$ 119,528 13,113 132,641
----------- ------- -------------
----------- ------- -------------
Liabilities and Stockholders' Equity
- ----------------------------------------------------------------------
Current notes and long-term debt...................................... $ 4,496 428 4,924
Accounts payable...................................................... 17,035 2,159 19,194
Accrued liabilities................................................... 9,262 606 9,868
----------- ------- -------------
Current liabilities................................................. 30,793 3,193 33,986
Long-term debt........................................................ 83,816 1,285 85,101
Other liabilities..................................................... 3,109 -- 3,109
----------- ------- -------------
Total liabilities................................................... 117,718 4,478 122,196
Common stock subject to put option.................................... 3,000 -- 3,000
Common stock.......................................................... 8,872 -- 8,872
Other equity (deficit)................................................ (10,062) 8,635 (1,427)
----------- ------- -------------
Total stockholders' equity............................................ (1,190) 8,635 7,445
----------- ------- -------------
$ 119,528 13,113 132,641
----------- ------- -------------
----------- ------- -------------
</TABLE>
F-33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED (CONTINUED)
4. GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
(AMOUNTS IN THOUSANDS)
-------------------------------------------
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
----------- --------------- -------------
<S> <C> <C> <C>
Net sales............................................................. $ 36,777 5,266 42,043
Cost of goods sold.................................................... 25,487 3,597 29,084
----------- ------ -------------
Gross profit........................................................ 11,290 1,669 12,959
Selling, general and administrative expenses.......................... 9,778 1,196 10,974
----------- ------ -------------
Operating income.................................................... 1,512 473 1,985
Interest expense...................................................... (2,708) (174) (2,882)
Other income,net...................................................... 32 7 39
----------- ------ -------------
Income (loss) before income taxes and extraordinary item............ (1,164) 306 (858)
Income tax expense (benefit).......................................... (477) 122 (355)
----------- ------ -------------
Income (loss) before extraordinary item............................. (687) 184 (503)
Extraordinary item, net............................................... (1,557) -- (1,557)
----------- ------ -------------
Net income (loss)................................................... $ (2,244) 184 (2,060)
----------- ------ -------------
----------- ------ -------------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
(AMOUNTS IN THOUSANDS)
-------------------------------------------
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
----------- --------------- -------------
<S> <C> <C> <C>
Net sales............................................................. $ 23,377 2,943 26,320
Cost of goods sold.................................................... 15,976 2,000 17,976
----------- ------ -------------
Gross profit........................................................ 7,401 943 8,344
Selling, general and administrative expenses.......................... 6,005 758 6,763
----------- ------ -------------
Operating income.................................................... 1,396 185 1,581
Interest expense...................................................... (1,071) (29) (1,100)
Other income, net..................................................... (17) 31 14
----------- ------ -------------
Income before income taxes.......................................... 308 187 495
Income tax expense.................................................... 117 62 179
----------- ------ -------------
Net income.......................................................... $ 191 125 316
----------- ------ -------------
----------- ------ -------------
</TABLE>
F-34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED (CONTINUED)
4. GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
(AMOUNTS IN THOUSANDS)
-------------------------------------------
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
----------- --------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities.................................. $ (2,680) 244 (2,436)
----------- -------------
Cash flows from investing activities:
Payments for business acquisitions.................................. (36,732) -- (36,732)
Other changes....................................................... (347) (134) (481)
----------- ------ -------------
(37,079) (134) (37,213)
----------- ------ -------------
Cash flows from financing activities:
Proceeds from debt issuance......................................... 88,228 -- 88,228
Principal payments on debt.......................................... (41,137) -- (41,137)
Payments for financing costs........................................ (3,606) -- (3,606)
Repurchase and retirement of warrants............................... (3,026) -- (3,026)
Other changes....................................................... (5) -- (5)
----------- ------ -------------
40,454 -- 40,454
----------- ------ -------------
Effect of exchange rates............................................ -- (19) (19)
----------- ------ -------------
Net change in cash.................................................. 695 91 786
Cash at beginning of period......................................... 343 539 882
----------- ------ -------------
Cash at end of period............................................... $ 1,038 630 1,668
----------- ------ -------------
----------- ------ -------------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
(AMOUNTS IN THOUSANDS)
---------------------------------------------
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
----------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities.................................. $ (2,634) 97 (2,537)
Cash flows from investing activities:
Payment for business acquisition.................................... (8,219) -- (8,219)
------
Other changes....................................................... (129) (71) (200)
----------- ------ ------
(8,348) (71) (8,419)
----------- ------ ------
Cash flows from financing activities:
Proceeds from debt issuance......................................... 8,608 -- 8,608
Proceeds from sale of common stock.................................. 2,282 -- 2,282
Other changes....................................................... (690) -- (690)
----------- ------ ------
10,200 -- 10,200
----------- ------ ------
Effect of exchange rates............................................ -- (9) (9)
----------- ------ ------
Net change in cash.................................................. (782) 17 (765)
Cash at beginning of period......................................... 315 605 920
----------- ------ ------
Cash at end of period............................................... $ (467) 622 155
----------- ------ ------
----------- ------ ------
</TABLE>
F-35
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Macpherson Meistergram, Inc.:
We have audited the accompanying consolidated balance sheets of Macpherson
Meistergram, Inc. (a North Carolina corporation) and subsidiary as of December
31, 1996 and 1995, and the related consolidated statements of income,
stockholders' investment and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Macpherson Meistergram, Inc.
and subsidiary as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
We have also audited, in accordance with generally accepted auditing
standards, the balance sheet as of December 31, 1994 (which is not presented
herein), and have expressed an unqualified opinion on that balance sheet. In our
opinion, the information set forth in the selected historical financial
information as of December 31, 1996, 1995 and 1994 and for each of the three
years in the period ended December 31, 1996, appearing on pages 20 and 44, is
fairly stated in all material respects in relation to the financial statements
from which it has been derived.
Greensboro, North Carolina,
February 21, 1997. Arthur Andersen LLP
F-36
<PAGE>
MACPHERSON MEISTERGRAM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS -- DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
- ---------------------------------------------------------------------------------- -------------- -------------
<S> <C> <C>
(NOTES 3 AND 6)
CURRENT ASSETS:
Cash............................................................................ $ 470,972 $ 260,297
Trade accounts receivable, less allowances for doubtful accounts of $869,000 and
$778,000...................................................................... 14,921,024 20,322,528
Inventories (Note 2)............................................................ 21,462,266 22,079,873
Prepayments, deposits and other................................................. 587,114 474,158
-------------- -------------
Total current assets...................................................... 37,441,376 43,136,856
-------------- -------------
PROPERTY AND EQUIPMENT:
Leasehold improvements.......................................................... 1,031,489 1,030,241
Machinery and equipment......................................................... 1,658,446 1,348,113
Furniture and fixtures.......................................................... 651,832 641,315
Automobiles..................................................................... 128,259 124,708
-------------- -------------
3,470,026 3,144,377
Less--Accumulated depreciation.................................................. 2,410,186 2,195,230
-------------- -------------
1,059,840 949,147
-------------- -------------
OTHER ASSETS...................................................................... 362,722 316,843
-------------- -------------
$ 38,863,938 $ 44,402,846
-------------- -------------
-------------- -------------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ----------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 6)................................... $ 462,225 $ 424,547
Short-term bank borrowings (Note 6)............................................. 6,247,835 4,060,136
Accounts payable and accrued liabilities (Note 4)............................... 20,765,463 27,726,856
-------------- -------------
Total current liabilities................................................. 27,475,523 32,211,539
-------------- -------------
LONG-TERM DEBT (Note 6)........................................................... 0 461,840
-------------- -------------
DEFERRED COMPENSATION (Note 8).................................................... 425,356 354,747
-------------- -------------
COMMITMENTS AND CONTINGENCIES (Notes 7, 9 and 11)
STOCKHOLDERS' INVESTMENT (Note 2):
Common stock, $1 par value, 300,000 authorized shares; 11,119 shares issued and
outstanding................................................................... 11,119 11,119
Additional paid-in capital...................................................... 1,564,833 1,564,833
Retained earnings............................................................... 9,367,896 9,777,980
Foreign currency translation gain (Note 2)...................................... 19,211 20,788
-------------- -------------
10,963,059 11,374,720
-------------- -------------
$ 38,863,938 $ 44,402,846
-------------- -------------
-------------- -------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-37
<PAGE>
MACPHERSON MEISTERGRAM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
NET SALES:
Machines.......................................................... $ 56,622,534 $ 59,169,340 $ 56,994,446
Parts, supplies and services...................................... 13,435,333 12,497,607 11,866,437
------------- ------------- -------------
70,057,867 71,666,947 68,860,883
------------- ------------- -------------
COST OF GOODS SOLD:
Machines.......................................................... 42,784,499 44,521,220 42,583,772
Parts, supplies and services...................................... 9,825,085 9,247,868 9,631,986
------------- ------------- -------------
52,609,584 53,769,088 52,215,758
------------- ------------- -------------
Gross profit................................................ 17,448,283 17,897,859 16,645,125
OPERATING EXPENSES.................................................. 14,211,038 13,586,510 13,566,538
------------- ------------- -------------
Income from operations...................................... 3,237,245 4,311,349 3,078,587
------------- ------------- -------------
OTHER EXPENSE (INCOME):
Interest expense, net............................................. 781,454 217,615 389,930
Foreign exchange costs (Note 2)................................... 934,618 811,588 683,068
Costs incurred in connection with the sale of the Company (Note
12)............................................................. 242,225 0 0
Other, net........................................................ (15,500) (43,347) (40,201)
------------- ------------- -------------
1,942,797 985,856 1,032,797
------------- ------------- -------------
INCOME BEFORE INCOME TAX PROVISION.................................. 1,294,448 3,325,493 2,045,790
INCOME TAX PROVISION (Note 5)....................................... 54,432 76,600 53,486
------------- ------------- -------------
NET INCOME.......................................................... $ 1,240,016 $ 3,248,893 $ 1,992,304
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-38
<PAGE>
MACPHERSON MEISTERGRAM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(NOTE 2)
<TABLE>
<CAPTION>
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY
-------------------- PAID-IN RETAINED TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS GAIN TOTAL
--------- --------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993.................... 11,119 $ 11,119 $ 499,643 $ 8,533,556 $ 27,205 $ 9,071,523
Net income.................................. 0 0 0 1,992,304 0 1,992,304
Foreign currency translation loss (Note
2)........................................ 0 0 0 0 (5,652) (5,652)
Cash dividends paid to stockholders (Note
5)........................................ 0 0 0 (2,067,908) 0 (2,067,908)
Cash contribution from stockholders......... 0 0 804,033 0 0 804,033
--------- --------- ------------ ------------ ----------- -------------
BALANCE, December 31, 1994.................... 11,119 11,119 1,303,676 8,457,952 21,553 9,794,300
Net income.................................. 0 0 0 3,248,893 0 3,248,893
Foreign currency translation loss (Note
2)........................................ 0 0 0 0 (765) (765)
Cash dividends paid to stockholders (Note
5)........................................ 0 0 0 (1,928,865) 0 (1,928,865)
Cash contribution from stockholders......... 0 0 261,157 0 0 261,157
--------- --------- ------------ ------------ ----------- -------------
BALANCE, December 31, 1995.................... 11,119 11,119 1,564,833 9,777,980 20,788 11,374,720
Net income.................................. 0 0 0 1,240,016 0 1,240,016
Foreign currency translation loss (Note
2)........................................ 0 0 0 0 (1,577) (1,577)
Cash dividends paid to stockholders (Note
5)........................................ 0 0 0 (1,650,100) 0 (1,650,100)
--------- --------- ------------ ------------ ----------- -------------
BALANCE, December 31, 1996.................... 11,119 $ 11,119 $ 1,564,833 $ 9,367,896 $ 19,211 $ 10,963,059
--------- --------- ------------ ------------ ----------- -------------
--------- --------- ------------ ------------ ----------- -------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-39
<PAGE>
MACPHERSON MEISTERGRAM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................ $ 1,240,016 $ 3,248,893 $ 1,992,304
Adjustments to reconcile net income to net cash provided by (used in)
operating activities-
Depreciation and amortization..................................... 317,799 171,895 214,000
Increase in cash surrender value of life insurance................ (77,655) (66,556) (76,757)
Gain on sales of property and equipment, net...................... (13,000) (21,208) (31,753)
Deferred compensation expense..................................... 83,749 59,503 78,336
Payments made under deferred compensation arrangements............ (13,140) (13,140) 0
Changes in current assets and liabilities:
Trade accounts receivable....................................... 5,401,504 (5,085,305) (201,274)
Inventories..................................................... 418,838 (7,803,867) 5,883,863
Prepayments, deposits and other................................. (112,956) 161,642 5,784
Accounts payable and accrued liabilities........................ (6,961,393) 9,243,033 (4,172,488)
Other............................................................. (1,577) 6,469 33,107
------------ ------------ ------------
Net cash provided by (used in) operating activities........... 282,185 (98,641) 3,725,122
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment................................... (281,577) (178,028) (171,067)
Proceeds from sales of property and equipment......................... 64,854 36,737 112,041
Other................................................................. 31,776 0 0
------------ ------------ ------------
Net cash used in investing activities......................... (184,947) (141,291) (59,026)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash contribution received from stockholders.......................... 0 261,157 804,033
Payments of cash dividends............................................ (1,650,100) (1,928,865) (2,067,908)
Increase (decrease) in short-term borrowings, net..................... 2,187,699 2,523,236 (2,712,881)
Payments of long-term debt............................................ (424,162) (396,624) (370,561)
------------ ------------ ------------
Net cash provided by (used in) financing activities........... 113,437 458,904 (4,347,317)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH......................................... 210,675 218,972 (681,221)
CASH, beginning of year................................................. 260,297 41,325 722,546
------------ ------------ ------------
CASH, end of year....................................................... $ 470,972 $ 260,297 $ 41,325
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-40
<PAGE>
MACPHERSON MEISTERGRAM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. DESCRIPTION OF OPERATIONS:
The principal activities of Macpherson Meistergram, Inc. and subsidiary (the
Company) include the distribution, marketing and servicing, throughout the
United States and Canada, of embroidery and monogram machines (stitching
machines), textile machines and engraving machines used primarily in the apparel
industry.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Macpherson Meistergram, Inc. (a North Carolina corporation) and its
majority-owned subsidiary, Geoffrey E. Macpherson Canada, Inc. (an Ontario,
Canada, corporation). All significant intercompany accounts and transactions
have been eliminated in consolidation.
The financial statements of the Canadian subsidiary have been translated
into U.S. dollars at the balance sheet date rate of exchange for asset and
liability accounts and the average rate of exchange for income statement
accounts. Translation gains and losses are reflected in the foreign currency
translation account in the stockholders' investment section of the accompanying
consolidated balance sheets.
On December 31, 1994, Macpherson, Inc. acquired all of the outstanding
common stock of Meistergram, Inc. and Macpherson Monogram, Inc. in exchange for
1,119 shares of common stock of Macpherson, Inc. The Company accounted for the
acquisition in a manner similar to a pooling-of-interests due to the common
ownership of all three companies. As a result, the stockholders' investment
information in the accompanying consolidated financial statements was restated
in 1994 to record the effect of this transaction. In conjunction with this
transaction, the name of Macpherson, Inc. was changed to Macpherson Meistergram,
Inc.
USE OF ESTIMATES
The preparation of consolidated 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 at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
CONCENTRATIONS OF CREDIT RISK IN TRADE ACCOUNTS RECEIVABLE
The Company does not have significant concentrations of credit risk with
respect to trade accounts receivable due to the large number of entities
comprising the Company's customer base and dispersion of the Company's customers
across all segments of the apparel industry and many geographic regions of the
United States and Canada. The Company distributes a portion of its products
through third-party distributors. The Company performs ongoing credit
evaluations of its customers' financial condition. The Company establishes an
allowance for doubtful accounts based upon factors related to credit risk of
specific customers, historical trends and other information.
F-41
<PAGE>
MACPHERSON MEISTERGRAM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994 (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
FOREIGN EXCHANGE COSTS
Gains and losses from foreign exchange transactions that hedge existing
assets or liabilities are included in the carrying amounts of those assets and
liabilities and are ultimately recognized in the consolidated statements of
income as part of those carrying amounts. Gains and losses from foreign exchange
transactions that hedge firm purchase commitments are deferred and recognized as
adjustments to the carrying amounts of the related inventory items when the
inventory items are purchased. Premiums paid for foreign exchange contracts and
contract options are amortized over the lives of the respective contracts. See
Note 9 regarding foreign exchange risk management.
INVENTORIES
Inventories consist of machines, parts and supplies held for sale. Machines
are recorded at the lower of specific cost or market value while parts and
supplies are recorded at the lower of first-in, first-out (FIFO) cost or market.
Inventories also include rental machines held at customer locations under a
"rent-to-own" program. Rental machines are recorded at specific cost and the
specific cost of each machine is reduced to reflect a portion of the rental
revenues earned to date. Reserves are established to record provisions for slow
moving inventories in the period in which it becomes reasonably evident that the
product is not salable or the market value is less than cost. Inventories at
December 31, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Stitching machines (includes $211,043, and $0 of rental
machines at December 31, 1996 and 1995)...................... $ 12,174,002 $ 13,295,211
Textile machines............................................... 662,607 582,631
Engraving machines (includes $16,049 and $113,322 of rental
machines at December 31, 1996 and 1995)...................... 1,487,388 1,637,419
Parts, supplies and other...................................... 7,138,269 6,564,612
------------- -------------
$ 21,462,266 $ 22,079,873
------------- -------------
------------- -------------
</TABLE>
PROPERTY AND EQUIPMENT
All property and equipment is stated at cost. Depreciation is computed using
accelerated methods for both financial and income tax reporting purposes. The
estimated service lives used for calculating depreciation are as follows:
<TABLE>
<S> <C>
7-31.5
Leasehold improvements......................................... years
Machinery and equipment and furniture and fixtures............. 5-7 years
Automobiles.................................................... 5 years
</TABLE>
F-42
<PAGE>
MACPHERSON MEISTERGRAM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994 (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
POSTRETIREMENT BENEFITS
The Company adopted a plan during 1996 whereby it provides certain health
care and life insurance benefits for eligible retired employees and their
eligible dependents. Employees retiring from the Company with 15 consecutive
years of service immediately prior to retirement are eligible for these
benefits, subject to deductibles, copayment provisions and other limitations.
The Company accrues the estimated cost of retiree health and life insurance
benefits over the 15 years that employees render service immediately preceding
retirement age. The initial accumulated liability of approximately $50,000 is
being amortized over 10 years. The Company intends to amend its postretirement
benefits plan in 1997 whereby no new participants will be admitted to the plan
after February 28, 1997.
INCOME TAXES
The stockholders of the Company have elected under Subchapter S of the
Internal Revenue Code (IRC) to have the Company's income taxed directly to the
stockholders. Under this election, the corporate income or loss of the S
Corporation is allocated to its stockholders for inclusion in their personal
federal income tax returns and, accordingly, no provision for federal income
taxes is required in the accompanying consolidated statements of income. In
addition, state income taxes are provided for any income attributable to states
that do not recognize S Corporation status.
Deferred income taxes are provided, when applicable, for timing differences
between the recognition of certain income and expense items for financial
reporting and income tax purposes. These differences relate primarily to certain
accrued expenses not currently deductible for state income tax purposes.
MINORITY INTEREST IN SUBSIDIARY
During 1996, 1995 and 1994, the principal stockholder of Macpherson
Meistergram, Inc. held a 21% interest in Geoffrey E. Macpherson Canada, Inc.
Geoffrey E. Macpherson Canada, Inc. has been in a negative equity position
throughout each of the three years in the period ended December 31, 1996.
Accordingly, the minority stockholder's interest in subsidiary has been reduced
to zero in the accompanying consolidated balance sheets. The minority
stockholder's interest in the cumulative net losses of the Canadian subsidiary
exceeded the minority stockholder's net investment by approximately $99,500 at
December 31, 1996. The minority stockholder's interest in future income, if any,
of Geoffrey E. Macpherson Canada, Inc. will be offset by this amount. Subsequent
to December 31, 1996, the minority interest in Geoffrey E. Macpherson Canada was
acquired by W.G. Apparel Inc. in connection with its acquisition of the Company
(See Note 12).
REVENUE RECOGNITION
The Company distributes embroidery, monogramming, textile and engraving
machines, which it offers for sale or rent. Revenue related to the sale of
equipment is recorded at the time of shipment. Aggregate rental revenue is
recognized over the term of the lease and is included in parts, supplies and
services sales in the accompanying consolidated statements of income.
The Company's customer support services include training, technical support,
warranty and maintenance services. Service revenues and costs are recognized
when services are provided. Sales of computer
F-43
<PAGE>
MACPHERSON MEISTERGRAM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994 (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
hardware and software are recognized when shipped provided that no significant
vendor and postcontract and support obligations remain and collection is
probable. Warranty costs associated with products sold with warranty protection,
as well as other vendor and postcontract support obligations, are estimated
based on the Company's historical experience and recorded in the period the
product is sold.
FAIR VALUES OF FINANCIAL INSTRUMENTS
Financial instruments consist primarily of investments in cash, trade
accounts receivable, accounts payable and debt obligations. At December 31, 1996
and 1995, the fair value of the Company's financial instruments approximated the
carrying value.
CONSOLIDATED STATEMENTS OF CASH FLOWS
During the years ended December 31, 1996, 1995 and 1994, the Company paid
interest of $712,000, $272,000 and $397,000, and income taxes of $78,000,
$76,000 and $69,000, respectively.
RECLASSIFICATIONS
Certain balances in the 1995 and 1994 financial statements have been
reclassified to conform with the current period presentation.
3. MAJOR SUPPLIER AND DISTRIBUTION AGREEMENT:
The Company's principal suppliers of embroidery and monogramming machines
are Barudan America, Inc. and Barudan Co. Ltd. (hereinafter referred to
collectively as Barudan) with manufacturing facilities in Cleveland, Ohio, and
Nagoya, Japan, respectively. The Company made purchases of $38,697,000,
$47,213,000 and $30,563,000 for the years ended December 31, 1996, 1995 and
1994, respectively, representing 78%, 80% and 70% of the Company's total
purchases. Purchases are made through Tekmatex, which is the trading company
through which Barudan sells its machines to the Company. Payment terms on
purchases range from 30 to 150 days. In addition, Tekmatex charges interest on
past due amounts at prime plus 1%. Interest expense related to machine purchases
was $387,000, $0 and $64,000 for the years ended December 31, 1996, 1995 and
1994, respectively. Accounts payable to Tekmatex are collateralized by
approximately $10,044,000 of stitching machine inventory and all other assets
not pledged under the Company's debt arrangement (See Note 6). $6,442,000 of
outstanding accounts payable to Tekmatex was repaid in January 1997 in
connection with the acquisition of the Company by W.G. Apparel, Inc. (See Note
12).
The Company has a distribution agreement with Barudan (Distribution
Agreement) which provides the Company with the exclusive right to distribute
Barudan's products throughout the United States and Canada. The Distribution
Agreement expires December 31, 2003, at which time it automatically renews for a
five-year period unless it has been terminated with prior written notice of 30
days. The Distribution Agreement, among other things, requires the Company to
make certain minimum purchases, which are agreed upon by the parties on an
annual basis. The minimum purchases were met in 1996, 1995 and 1994.
Although management of the Company is of the opinion that the likelihood of
termination of the Distribution Agreement with Barudan is remote, management
believes that it could represent and sell other embroidery and monogramming
machine product lines, if required.
F-44
<PAGE>
MACPHERSON MEISTERGRAM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994 (CONTINUED)
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities at December 31, 1996 and 1995,
consist of the following:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Accounts payable to major supplier--
Domestic currency............................................ $ 7,102,450 $ 7,986,182
Foreign currencies........................................... 8,095,002 14,843,600
All other trade accounts payable--
Domestic currency............................................ 3,085,115 2,207,101
Foreign currencies........................................... 628,184 305,588
Accrued payroll and commissions................................ 1,068,099 1,631,337
Other accrued liabilities...................................... 786,613 753,048
------------- -------------
$ 20,765,463 $ 27,726,856
------------- -------------
------------- -------------
</TABLE>
5. INCOME TAXES:
State income taxes for certain states in which the Company operates are
payable directly by the Company and, as such, the income tax provision included
in the accompanying consolidated statements of income is for these state income
taxes only. The income tax provision does not include federal and certain state
income taxes of approximately $505,000, $1,226,000 and $745,000 for the years
ended December 31, 1996, 1995 and 1994, respectively, which otherwise would have
been payable if the Company had not elected Subchapter S status under the IRC.
Distributions are generally paid in amounts approximating the stockholders'
personal income tax liabilities resulting from the current S Corporation
earnings. No distributions to the stockholders have been made subsequent to
December 31, 1996, to fund their expected S Corporation tax liabilities for the
year ended December 31, 1996.
6. BANK BORROWINGS AND LONG-TERM DEBT:
On September 30, 1996, the Company refinanced its revolving credit line and
term note with a new revolving credit line of $7,000,000 and a term note of
$570,992. The revolving credit line is due and payable upon expiration on July
31, 1998, and bears interest, payable monthly on the first day of each month, at
the lower of the LIBOR rate plus the LIBOR margin (2 1/2% at December 31, 1996),
as defined, or the bank's prime rate less the bank's prime rate margin (0% at
December 31, 1996), as defined. Borrowings under the revolving credit line are
limited to specified percentages of eligible inventory and receivables of the
Company. The Company had outstanding borrowings of $6,247,835, with additional
borrowings of $752,165 available under this agreement at December 31, 1996. This
revolving credit line is collateralized by all trade accounts receivable and all
inventories of the Company, except for approximately $10,044,000 of stitching
machine inventory. The stitching machine inventory and all remaining assets of
the Company are pledged under purchase money agreements with trading companies
of the Company's principal supplier (See Note 3). The term note is due and
payable in 15 equal installments of $39,320 beginning October 15, 1996, with the
final installment due and payable on December 15, 1997. The term note bears
interest at 6.7%. Collateral on the term note is the same as the revolving
credit line above. As of December 31, 1996, the Company had outstanding
borrowings of $462,225 on the term note, all of which
F-45
<PAGE>
MACPHERSON MEISTERGRAM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994 (CONTINUED)
6. BANK BORROWINGS AND LONG-TERM DEBT: (CONTINUED)
mature in 1997. All borrowings outstanding under these credit arrangements were
repaid in January 1997 in connection with the acquisition of the Company by W.G.
Apparel Inc. (See Note 12).
The loan agreements contain various covenants which, among other
requirements, limit acquisitions and dispositions of property and equipment,
require maintenance of insurance coverage satisfactory to the lenders, limit the
payment of cash dividends, prohibit additional debt and require maintenance of
certain financial covenants. At December 31, 1996, there were no events of
noncompliance with these loan agreements.
7. LEASE COMMITMENTS:
The Company leases certain operating assets as well as office and warehouse
space under operating leases, with the primary facilities being leased from the
principal stockholder through November 1998, with options to renew through
November 2018. At December 31, 1996, future minimum payments due under operating
leases with the principal stockholder and unrelated parties are as follows:
<TABLE>
<CAPTION>
PRINCIPAL UNRELATED
STOCKHOLDER PARTIES
----------- ----------
<S> <C> <C>
1997................................................................. $ 399,000 $ 100,000
1998................................................................. 369,000 77,000
1999................................................................. 0 60,000
2000................................................................. 0 25,000
2001................................................................. 0 4,000
Thereafter........................................................... 0 0
----------- ----------
$ 768,000 $ 266,000
----------- ----------
----------- ----------
</TABLE>
Rent expense for the years ended December 31, 1996, 1995 and 1994, by lessor
was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Principal stockholder.................................... $ 379,000 $ 359,000 $ 343,000
Unrelated parties........................................ 129,000 179,000 263,000
---------- ---------- ----------
$ 508,000 $ 538,000 $ 606,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
8. BENEFIT PLANS:
401(K) PLAN
The Company has a 401(k) profit sharing plan covering substantially all
full-time employees. The Company matches 25% of eligible employees'
contributions up to 4% of the eligible employees' compensation for the year. The
Company may make additional contributions to the plan at the discretion of the
Board of Directors. Total contributions to the plan were $41,000, $85,000 and
$64,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
F-46
<PAGE>
MACPHERSON MEISTERGRAM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994 (CONTINUED)
8. BENEFIT PLANS: (CONTINUED)
PHANTOM STOCK PLAN
The Company maintains a phantom stock plan as a means of attracting and
retaining key employees, including officers and directors. Under the provisions
of the plan, "units" are awarded to participants based on the consolidated
operating income of the Company. Unit values are determined annually through the
provisions of the plan. Participants vest in annual awards at 20% per annum, and
become fully vested upon the occurrence of a vesting event, as defined by the
plan. The Company recognized compensation expense of $84,000, $60,000 and
$78,000 in the accompanying consolidated statements of income for the years
ended December 31, 1996, 1995 and 1994, respectively. At December 31, 1996, the
book value of the total units awarded to date under the plan is approximately
$540,000, of which $425,000 is vested.
Under the provisions of the plan, if more than 50% of the voting capital
stock of the Company is sold in any 12-month period, the plan immediately
terminates, all units become 100% vested, are payable within 45 days of the date
of the transaction and are valued based on the average sales price of the stock.
As discussed in Note 12, the Company was sold to W.G. Apparel, Inc. subsequent
to year-end. Based on the terms of the sale, the value of the units issued to
date under the plan is estimated to be approximately $1,043,000, and is payable
in February 1997.
POSTRETIREMENT PLAN
The Company provides certain health care and life insurance benefits for
eligible retired employees and their eligible dependents. The Company does not
fund this benefit arrangement and may modify plan provisions to terminate the
plan at its discretion. Financial information related to the plan was determined
by an independent actuary. At December 31, 1996, the accumulated benefit
obligation was $50,000, none of which is funded. The unrecognized initial
obligation at December 31, 1996, was $45,000 and the net periodic postretirement
benefit expense recorded for the year ended December 31, 1996, was $5,000.
The accumulated postretirement benefit obligation was computed using an
assumed discount rate of 7.0% for 1996. The health care cost trend rate was
assumed to be 11% for 1996 and was assumed to decline by approximately 1% in
each subsequent year to 5.5% where it remains thereafter.
9. FOREIGN EXCHANGE RISK MANAGEMENT:
Because of potential volatile fluctuations in the exchange rate between
Japanese yen and U.S. dollar, the Company enters into forward foreign exchange
contracts in order to establish the dollar cost of purchases and firm purchase
commitments from its Japanese suppliers payable in yen.
The terms of these contracts are less than one year. The Company does not
engage in foreign currency speculation. At December 31, 1996, the Company had
entered into forward foreign exchange contracts to purchase 1,018,622,999
Japanese yen subsequent to December 31, 1996, at a contracted cost of
$9,385,321, including $7,930,200 to hedge accounts payable as of December 31,
1996, and $1,455,121 to cover outstanding commitments to purchase machines and
parts. The difference between the contracted costs and the fair value of the
contracts that hedge the outstanding purchase commitments at December 31, 1996,
based on foreign currency exchange rates at December 31, 1996, was a deferred
loss of $58,299. These deferred losses will be recognized in operations as part
of the purchases that will be made over the next 12 months. The fair market
value of all foreign currency exchange contracts was $8,792,603 at
F-47
<PAGE>
MACPHERSON MEISTERGRAM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994 (CONTINUED)
9. FOREIGN EXCHANGE RISK MANAGEMENT: (CONTINUED)
December 31, 1996. The unamortized premium paid for these contracts at December
31, 1996, of $78,042 is being amortized over the life of the contracts.
The Company's credit risk in these transactions is the cost of replacing, at
current market rates, these contracts in the event of default by the other
party. Management believes the risk of incurring such losses is remote as the
contracts are with major financial institutions.
10. RELATED-PARTY TRANSACTIONS:
LOAN RECEIVABLE FROM PRINCIPAL STOCKHOLDER
At December 31, 1995, the Company had a loan receivable of $54,000 from the
principal stockholder. During the year ended December 31, 1996, this note
receivable was repaid by the principal stockholder. During the year ended
December 31, 1996, the Company made advances of $99,900 to the principal
stockholder. At December 31, 1996, $32,900 remained outstanding.
RECEIVABLE FROM THE CAROLINA DYNAMO
The Company performs certain accounting functions and pays accounts payable
on behalf of the Carolina Dynamo, which is owned by the principal stockholder of
the Company. At December 31, 1996 and 1995, the Company had receivables from the
Carolina Dynamo of $44,684 and $62,762, respectively. These receivables have
been included in prepayments, deposits and other assets in the accompanying
consolidated balance sheets.
LEASING AND MANAGEMENT AGREEMENT
Effective March 1, 1996, the Company entered into a leasing and management
agreement (the Agreement) with Embroidery Leasing Corporation (ELC), which is
50% owned by the principal stockholder of the Company. The Agreement establishes
a contractual arrangement whereby ELC arranges financing for the Company's
domestic customers, at the customer's option, and pays the Company a commission
for each financing transaction completed. The Company's primary
responsibilities, as defined in the Agreement, are delivery and installation of
the equipment, providing support for the leasing program, providing its standard
warranty and certain other administrative tasks. The Agreement expires on March
1, 2001. ELC paid the Company approximately $27,000 in commissions during the
year ended December 31, 1996. Subsequent to year-end, ELC was acquired by W.G.
Apparel Inc. in connection with its acquisition of the Company (See Note 12).
11. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is subject to various claims and actions which arise in the
ordinary course of its business. Although the final outcome of these matters
cannot be determined, based on the facts presently known, it is management's
opinion that the amount of ultimate liability with respect to these actions will
not materially affect the consolidated financial position, results of operations
and cash flows of the Company.
F-48
<PAGE>
MACPHERSON MEISTERGRAM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994 (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
PURCHASE COMMITMENTS
As of year-end, the Company had outstanding purchase commitments for
inventory of approximately $13,601,000.
12. SUBSEQUENT EVENTS:
On January 3, 1997, 100% of the outstanding common stock of the Company was
sold to W.G. Apparel, Inc., a wholly owned subsidiary of Willcox & Gibbs, Inc.,
for $24,000,000 in cash. Concurrent with its acquisition of the Company, Willcox
& Gibbs, Inc. issued $85,000,000 of 12- 1/4% Series A Senior Notes Due 2003. The
Company is a guarantor under these notes.
On January 3, 1997, the Company entered into employment contracts with five
key employees. The Company may terminate these contracts at any time subsequent
to January 2, 1998, by providing not less than one year's advance written notice
to the employee.
F-49
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Boards of Directors
Clinton Management Corp. and Clinton Machinery Corp.:
We have audited the accompanying combined balance sheet of Clinton
Management Corp. (d/b/a Clinton Machine & Supply) and Clinton Machinery Corp.
(together, "Clinton") as of December 31, 1995, and the related combined
statements of operations, stockholders' equity (deficit) and cash flows for the
year then ended. These combined financial statements are the responsibility of
Clinton's management. Our responsibility is to express an opinion on the
combined 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 combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Clinton Management
Corp. (d/b/a Clinton Machine & Supply) and Clinton Machinery Corp. as of
December 31, 1995 and the results of their operations and their cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Atlanta, Georgia
November 2, 1996
F-50
<PAGE>
CLINTON MANAGEMENT CORP.
(D/B/A CLINTON MACHINE & SUPPLY)
AND CLINTON MACHINERY CORP.
COMBINED BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<CAPTION>
ASSETS (NOTE 4)
<S> <C>
Current assets:
Cash.......................................................................... $ --
Accounts receivable, net of allowance for doubtful accounts of $463,884....... 3,802,067
Inventory (note 1 (c))........................................................ 3,437,016
Prepaid expenses.............................................................. 142,940
Notes receivable.............................................................. 36,920
Employee advances............................................................. 101,213
Due from affiliates (note 3).................................................. 523,360
---------
Total current assets........................................................ 8,043,516
Property and equipment, net (note 2)............................................ 342,574
Other receivables............................................................... 71,986
Other assets.................................................................... 35,103
Notes receivable, net of allowance for doubtful accounts of $200,000............ 112,014
---------
$8,605,193
---------
---------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C>
Current liabilities:
Bank overdraft................................................................ $ 43,092
Revolving line of credit (note 4)............................................. 3,436,361
Accounts payable.............................................................. 4,361,965
Accrued expenses and other current liabilities................................ 597,407
Distribution payable to shareholders.......................................... 186,375
Current installments of long-term debt (note 5)............................... 1,910
---------
Total current liabilities................................................... 8,627,110
Long-term debt, excluding current installments (note 5)......................... 5,793
---------
Total liabilities........................................................... 8,632,903
---------
Stockholders' deficit:
Common stock (note 6)......................................................... 600
Additional paid-in capital.................................................... 2,700
Accumulated deficit........................................................... (31,010)
---------
Total stockholders' deficit................................................. (27,710)
Commitments and contingencies (notes 8 and 10)
---------
$8,605,193
---------
---------
</TABLE>
See accompanying notes to combined financial statements.
F-51
<PAGE>
CLINTON MANAGEMENT CORP.
(D/B/A CLINTON MACHINE & SUPPLY)
AND CLINTON MACHINERY CORP.
COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Net sales (note 3)............................................................. $26,764,365
Cost of goods sold (note 9).................................................... 20,267,799
----------
Gross profit............................................................... 6,496,566
Selling, general and administrative expenses................................... 6,304,184
----------
Operating income........................................................... 192,382
Interest expense............................................................... 334,630
Other expense, net............................................................. 65,129
----------
Net loss................................................................... $ 207,377
----------
----------
</TABLE>
See accompanying notes to combined financial statements.
F-52
<PAGE>
CLINTON MANAGEMENT CORP.
(D/B/A CLINTON MACHINE & SUPPLY)
AND CLINTON MACHINERY CORP.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
RETAINED TOTAL
ADDITIONAL EARNINGS STOCKHOLDERS'
COMMON PAID-IN (ACCUMULATED EQUITY
STOCK CAPITAL DEFICIT) (DEFICIT)
----------- ----------- -------------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994......................... $ 600 $ 2,700 $ 1,125,015 $ 1,128,315
Net loss............................................. -- -- (207,377) (207,377)
Distributions to stockholders........................ -- -- (948,648) (948,648)
----- ----------- ----------- -------------
Balance at December 31, 1995......................... $ 600 $ 2,700 $ (31,010) $ (27,710)
----- ----------- ----------- -------------
----- ----------- ----------- -------------
</TABLE>
See accompanying notes to combined financial statements.
F-53
<PAGE>
CLINTON MANAGEMENT CORP.
(D/B/A CLINTON MACHINE & SUPPLY)
AND CLINTON MACHINERY CORP.
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss....................................................................... $(207,377)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization................................................ 73,659
Changes in operating assets and liabilities:
Accounts receivable........................................................ 503,866
Inventory.................................................................. (717,381)
Prepaid expenses........................................................... (2,400)
Notes receivable........................................................... 13,870
Employee advances.......................................................... (33,949)
Due from affiliates........................................................ (144,996)
Other receivables.......................................................... 4,155
Other assets............................................................... 21,152
Accounts payable and other liabilities..................................... 844,655
---------
Net cash provided by operating activities................................ 355,254
---------
Cash flows used in investing activities--capital expenditures.................... (212,253)
---------
Cash flows from financing activities:
Net proceeds from line of credit and other borrowings.......................... 535,934
Distributions to stockholders.................................................. (762,273)
Principal payments on long-term debt........................................... (5,506)
Bank overdraft................................................................. 43,092
---------
Net cash used in financing activities.................................... (188,753)
---------
Net decrease in cash............................................................. (45,752)
Cash, beginning of year.......................................................... 45,752
---------
Cash, end of year................................................................ $ --
---------
---------
</TABLE>
See accompanying notes to combined financial statements.
F-54
<PAGE>
CLINTON MANAGEMENT CORP.
(D/B/A CLINTON MACHINE & SUPPLY)
AND CLINTON MACHINERY CORP.
NOTES TO THE COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION AND OPERATIONS
Clinton Management Corp. (d/b/a Clinton Machine & Supply) distributes screen
printing supplies, printing and drying equipment, accessory equipment and
replacement parts worldwide. Clinton Machinery Corp., under the name of M&R
International, distributes screen printing and drying equipment, accessory
equipment and replacement parts worldwide.
The accompanying combined financial statements include the accounts of
Clinton Management Corp. (d/b/a Clinton Machine & Supply) and Clinton Machinery
Corp. (together, "Clinton"). The companies that comprise Clinton have the same
stockholders whose ownership shares are the same for each company.
(B) ACCOUNTS AND OTHER RECEIVABLES
Clinton has established allowances for doubtful accounts based upon
management's judgment of collectibility of receivables and returns on sales
using factors such as historical experience and past customer payment history.
Other receivables consist of amounts which are retained by third party
creditors financing customers' purchases.
(C) INVENTORY
Inventory is stated at the lower of cost or market using the first-in,
first-out method. Inventory at December 31, 1995 consists of the following:
<TABLE>
<S> <C>
New machines.................................................... $ 587,764
Used machines................................................... 588,980
Parts and supplies.............................................. 2,260,272
---------
$3,437,016
---------
---------
</TABLE>
(D) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization is
calculated using the straight-line method over the shorter of the lease term or
the estimated useful lives of the respective assets. Repairs and maintenance
expenditures are expensed as incurred.
(E) BANK OVERDRAFT
Under Clinton's cash management system, checks issued but not presented to
banks frequently result in overdraft balances for accounting purposes and are
classified as bank overdraft in the accompanying combined balance sheet.
F-55
<PAGE>
CLINTON MANAGEMENT CORP.
(D/B/A CLINTON MACHINE & SUPPLY)
AND CLINTON MACHINERY CORP.
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(F) INCOME TAXES
Clinton, with the consent of its stockholders, elected subchapter S
corporation status under the Internal Revenue Code, effective January 1, 1991
for Clinton Management Corp. and January 1, 1990 for Clinton Machinery Corp. In
lieu of corporation income taxes, the stockholders of an S corporation are taxed
on their proportionate share of each company's taxable income. Therefore, no
liability for federal or state income taxes has been included in these combined
financial statements.
(G) FAIR VALUE OF FINANCIAL INSTRUMENTS
Clinton has determined that the carrying value of all financial instruments
approximate fair value. The carrying value of Clinton's borrowings approximate
fair value due to the nature of the variable interest rate on the borrowings and
their maturity.
(H) USE OF ESTIMATES
Management of Clinton has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these combined financial statements
in conformity with generally accepted accounting principles. Actual results
could differ from these estimates.
(I) NEW ACCOUNTING STANDARD
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which becomes
effective for fiscal years beginning after December 15, 1995. Statement 121
establishes accounting standards for the impairment of long-lived assets and
certain identifiable intangible assets. Clinton does not believe the impact of
Statement 121 will have a material impact on its financial position or results
of operations.
(2) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 consists of the following:
<TABLE>
<S> <C>
Leasehold improvements............................................ $ 77,950
Machinery and equipment........................................... 526,024
---------
603,974
Less accumulated depreciation..................................... 261,400
---------
Net property and equipment........................................ $ 342,574
---------
---------
</TABLE>
(3) RELATED PARTY TRANSACTIONS
The stockholders of Clinton are also stockholders of Clinton Leasing Corp.,
Golden Brush, Clinton Equipment Corp., Equip-Net, Inc., Clinton de Mexico, Citex
and Paradise Color. At December 31, 1995,
F-56
<PAGE>
CLINTON MANAGEMENT CORP.
(D/B/A CLINTON MACHINE & SUPPLY)
AND CLINTON MACHINERY CORP.
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(3) RELATED PARTY TRANSACTIONS (CONTINUED)
due from affiliates represent receivables from sales transactions, payment of
operating expenses and advances to stockholders. During the year ended December
31, 1995, Clinton had sales to these entities of approximately $388,000.
(4) REVOLVING LINE OF CREDIT
At December 31, 1995, $3,436,361 is outstanding under a $3,500,000 revolving
line of credit arrangement with a bank. Under the terms of the line of credit,
interest is payable monthly at the bank's prime rate plus five-eighths percent
(9.125% at December 31, 1995). The line of credit is due on demand and is
secured by inventory, equipment, accounts receivable, assignments of all
insurance policies applicable to insured accounts receivable, and keyman life
insurance policies on each of the stockholder guarantors.
The line of credit contains certain restrictive covenants including
requirements to maintain working capital of $1,500,000 commencing December 31,
1995 ($1,000,000 from December 31, 1994 through December 31, 1995), and limit
capital expenditures to $100,000 annually. At December 31, 1995, Clinton was not
in compliance with the debt covenants. In February 1996, the line of credit was
paid in full by Willcox & Gibbs, Inc. ("Willcox & Gibbs") upon the acquisition
of Clinton (note 10).
(5) LONG-TERM DEBT
Long-term debt at December 31, 1995 consists of the following:
<TABLE>
<S> <C>
Note payable in installments of $261 per month, including interest
at 10% through December 1998, collaterized by equipment........... $ 7,703
Less current maturities............................................. 1,910
---------
Total long-term debt................................................ $ 5,793
---------
---------
</TABLE>
The aggregate annual maturities of long-term debt at December 31, 1995 are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- -------------------------------------------------------------------------------------
<S> <C>
1996................................................................................. $ 1,910
1997................................................................................. 2,732
1998................................................................................. 3,061
---------
$ 7,703
---------
---------
</TABLE>
F-57
<PAGE>
CLINTON MANAGEMENT CORP.
(D/B/A CLINTON MACHINE & SUPPLY)
AND CLINTON MACHINERY CORP.
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(6) COMMON STOCK
At December 31, 1995, common stock consisted of the following:
<TABLE>
<S> <C>
Clinton Management Corp. (d/b/a Clinton Machine & Supply), $1 par
value, 7,500 shares authorized, 300 shares issued and
outstanding........................................................ $ 300
Clinton Machinery Corp., $1 par value, 10,000 shares authorized, 300
shares issued and outstanding...................................... 300
---------
Total common stock................................................... $ 600
---------
---------
</TABLE>
(7) PROFIT SHARING PLAN
Clinton has a qualified profit sharing plan covering all employees who have
attained twenty-one years of age with one year of service. The profit sharing
plan contribution is determined annually by management. A contribution of
$10,000 was accrued for the year ended December 31, 1995.
(8) COMMITMENTS
Clinton has several noncancelable operating leases, primarily for buildings
and equipment. These leases generally contain options for periods ranging from
three to five years and require Clinton to pay most executory costs such as
maintenance and insurance.
Future minimum lease payments under non-cancelable leases (with initial or
remaining base terms in excess of one year) as of December 31, 1995 are
approximately:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- --------------------------------------------------------------------------------------
<S> <C>
1996.................................................................................. $ 162,000
1997.................................................................................. 162,000
1998.................................................................................. 162,000
----------
$ 486,000
----------
----------
</TABLE>
The lease for Clinton's primary operating facility has a five-year option to
renew. Management has not made a decision whether or not to renew the lease.
Total rental expense for the year ended December 31, 1995 was approximately
$212,780.
(9) MAJOR SUPPLIERS
Clinton purchases a majority of the equipment they sell from one vendor.
Clinton Machinery Corp. distributes this vendor's equipment in seven
southeastern states and internationally, exclusive of Canada. For the year ended
December 31, 1995, approximately 55% of combined purchases were from this
vendor.
A majority of printing supplies are purchased from one vendor. For the year
ended December 31, 1995, approximately 17% of combined purchases were from this
vendor.
F-58
<PAGE>
CLINTON MANAGEMENT CORP.
(D/B/A CLINTON MACHINE & SUPPLY)
AND CLINTON MACHINERY CORP.
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(10) ACQUISITION BY WILLCOX & GIBBS, INC.
Effective February 1, 1996, Clinton was purchased by Willcox & Gibbs in
exchange for $4,000,000 in cash, the assumption of $4.5 million in debt and
payables, 100,000 shares of Willcox & Gibbs' Class A common stock, and
contingent payments of up to 38.87% of the operating income (as defined) of
Clinton during each of the five years to December 31, 2000. Such contingent
payments shall not exceed $10,500,000 in the aggregate. In addition, the
stockholders of the Company received a put option, giving them the right to sell
the Class A common shares to Willcox & Gibbs at $30 per share at the earlier of
four years from the acquisition date or such time Willcox & Gibbs has an initial
public offering.
F-59
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE INITIAL PURCHASER. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING
LETTER OF TRANSMITTAL CONSTITUTES AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL
NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS NOT BEEN A CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 5
Risk Factors................................... 21
Use of Proceeds................................ 26
The Exchange Offer............................. 26
The Company.................................... 35
The Macpherson Acquisition..................... 36
Capitalization................................. 37
Pro Forma Combined Financial Information....... 39
Selected Historical Financial Information...... 42
Management's Discussion and Analysis of
Financial Condition and Results of
Operations--The Company....................... 45
Management's Discussion and Analysis of
Financial Condition and Results of
Operations--Macpherson........................ 51
Business....................................... 54
Management..................................... 68
Security Ownership of Certain Beneficial Owners
and Management................................ 74
Description of Certain Indebtedness............ 75
Description of Senior Notes.................... 76
Material Federal Income Tax Consequences....... 105
Plan of Distribution........................... 108
Legal Matters.................................. 108
Independent Public Accountants................. 108
Available Information.......................... 109
Index to Financial Statements.................. F-1
</TABLE>
UNTIL , 199 , ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW
NOTES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OF SUBSCRIPTIONS.
WILLCOX & GIBBS, INC.
---------------
OFFER TO EXCHANGE ITS
12 1/4% SERIES B SENIOR NOTES
DUE 2003 WHICH HAVE BEEN
REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS
AMENDED, FOR ANY AND ALL
OF ITS OUTSTANDING 12 1/4%
SERIES A SENIOR NOTES DUE 2003
---------------------
PROSPECTUS
---------------------
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Certificate of Incorporation provides that the Company shall
indemnify its officers, directors and employees made, or threatened to be made,
a party to any action whether or not such is by or in the right of the Company
by reason of the fact that he is or was a director or officer of the Company
against liabilities and expenses incurred in connection with such action.
The Certificate of Incorporation of the Company limits the liability of
directors of the Company or its stockholders to the fullest extent permitted by
the Delaware General Corporation Law (the "DGCL"). Accordingly, pursuant to the
provisions of the DGCL presently in effect, directors of the Company will not be
personally liable for monetary damages for breach of a director's fiduciary duty
as a director, except for liability: (i) for any breach of the director's duty
of loyalty to the Company or its stockholders; (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law; (iii) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the DGCL; or (iv) for any transaction
from which the director derived an improper personal benefit. In addition, the
bylaws of the Company require the Company to indemnify its directors and
officers to the full extent permitted by the laws of the State of Delaware.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the SEC, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
(Management contracts or compensatory plans are indicated by an asterisk.)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Stock Purchase Agreement, dated November 27, 1996, among WG Apparel, Inc., Willcox & Gibbs, Inc. and
Macpherson Meistergram, Inc., Geoffrey E. Macpherson Canada, Inc., Neil A. Macpherson , Bridget
Macpherson, Bridget Macpherson as Trustee under the Mark Edward Macpherson Trust Agreement, dated
February 1, 1982, Ouida B. Brown as Trustee under the Mark Edward Macpherson Trust No. 2, Bridget M.
Macpherson as Trustee under the Katherine Emma Macpherson Trust Agreement, dated February 1, 1982,
Ouida B. Brown as Trustee under the Katherine Emma Macpherson Trust No. 2, and Neil A. Macpherson as
Trustee under the Nicholas Ian Macpherson Trust Agreement.+
3.1 Second Amended and Restated Certificate of Incorporation of Willcox & Gibbs, Inc.+
3.2 Bylaws of Willcox & Gibbs, Inc.+
</TABLE>
- ------------------------
+ Previously filed
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ----------------------------------------------------------------------------------
<C> <S> <S>
4.1 Indenture, dated as of January 3, 1997, by and among Willcox & Gibbs, Inc., WG Apparel, Inc. Clinton
Management Corp., Clinton Machinery Corporation, Leadtec Systems, Inc., W&G Daon, Inc., J&E Sewing
Supplies, Inc. W&G Tennessee Imports, Inc., Clinton Leasing Corp., Clinton Equipment Corp., Paradise
Color Corp. (collectively, the "Subsidiary Guarantors"), and IBJ Schroder Bank & Trust Company, as
Trustee, with respect to the 12 1/4% Senior Notes due 2003.+
4.2 Supplemental Indenture, dated as of January 3, 1997, by and among Willcox & Gibbs, Inc., the Subsidiary
Guarantors and IBJ Schroder Bank & Trust Company, as Trustee.+
4.3 Purchase Agreement, dated December 20, 1996, by and among Willcox & Gibbs, Inc., the Subsidiary
Guarantors and Dillon, Read & Co., Inc. (the "Initial Purchaser").+
4.4 Registration Rights Agreement, dated as of December 20, 1996, by and among Willcox & Gibbs, Inc., the
Subsidiary Guarantors and the Initial Purchaser.+
4.5 Pledge and Security Agreement, dated January 3, 1997, between WG Apparel, Inc. and IBJ Schroder Bank &
Trust Company, as Trustee.+
4.6 Form of Old Note.+
4.7 Form of New Note.+
5.1 Opinion of Hughes Hubbard & Reed LLP, as to the legality of securities registered hereunder.
10.1 Agreement to Purchase Stock, dated November 27, 1996, of Embroidery Leasing Company, between Michael
Bennett and WG Apparel, Inc.
10.2 Amendment No. 1, dated December 17, 1996, to Merger Agreement among Willcox & Gibbs, Inc., Clinton
Machinery Corporation, WG Apparel, Inc., Frank Scannavino, Charles Nall and Marc Glazer.
10.3 Financing and Security Agreement, dated December 17, 1996, among WG Apparel, Inc., Willcox & Gibbs,
Inc., Leadtec Systems, Inc., Clinton Management Corp., Clinton Machinery Corporation and Macpherson
Meistergram, Inc., as Borrowers, and NationsBank, N.A., as Lender.
10.4 Termination of Security Agreement, dated January 3, 1997, among Willcox & Gibbs, Inc., Clinton
Machinery Corporation, WG Apparel, Inc., Frank Scannavino, Charles Nall and Marc Glazer.
10.5 Employment Agreement, dated February 1, 1996, among Clinton Machinery Corp. and Clinton Management
Corp. and Frank Scannavino.*
10.6 Employment Agreement, dated February 1, 1996, among Clinton Machinery Corp. and Clinton Management and
Marc Glazer.*
10.7 Employment Agreement, dated February 1, 1996, among Clinton Machinery Corp. and Clinton Management
Corp. and Charles Nall.*
10.8 Employment Agreement, dated June 27, 1994, between WG Apparel, Inc. and Alan B. Lee.*
10.9 Employment Agreement, dated June 27, 1994, between WG Apparel, Inc. and John K. Ziegler, Sr.*
10.10 Employment Agreement, dated June 27, 1994, among WG Apparel, Inc., WG Leadtec of Delaware, Inc. and
Jack Klasky.*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------------
<C> <S> <S>
10.11 Employment Agreement, dated June 27, 1994, between WG Apparel, Inc. and Maxwell Tripp.*
10.12 Pegasus Sewing Machine Mfg. Co., Ltd. Distribution Agreement, dated January 1, 1995, between Pegasus
Sewing Machine Mfg. Co., Ltd. and WG, Inc., as amended as of June 8, 1995.+
10.13 GM Pfaff AG Distribution Agreement, dated October 1, 1994, between GM Pfaff AG and WG, Inc.+
10.14 M&R International Distributor Agreement, dated September 16, 1996, between M&R Sales and Service, Inc.
and Clinton Machinery Corp.+
10.15 M&R Distributor Agreement, dated January 10, 1996, between M&R Sales and Service, Inc. and Clinton
Machinery Corp.+
10.16 Distribution Agreement, dated June 27, 1996, among Rhein-Nadel Maschinennadel Gmbh, Muva Maschinennadel
Gmbh, WG, Inc., Unity Sewing Supply Co. and Sunbrand, as amended as of October 4, 1996.+
10.17 Second Revision of Fundamental Barudan Agreements and Contracts, dated November 27, 1996, among Barudan
Company, Ltd., Barudan America, Inc. and Macpherson Meistergram, Inc. as amended by letter agreement
dated December 4, 1996.
10.18 Revision of Fundamental Agreements and Contracts, dated June 1, 1994, among Barudan Company, Ltd.,
Barudan America, Inc. and Macpherson Meistergram, Inc.
10.19 Distribution Agreement, dated November 7, 1985, among Barudan Company, Ltd., Barudan America, Inc. and
Macpherson Meistergram, Inc.
10.20 Asset Purchase Agreement, dated October 1996, between E.C. Mitchell Co. Inc., Everett Mitchell, as
Seller, and WG Apparel, Inc., as Buyer.+
10.21 Loan Agreement, dated October 1996, between W&G, Ltd., as Borrower, and Coutts & Co., as Lender.
10.22 Consulting Agreement, dated January 3, 1997, between Macpherson Meistergram, Inc. and Neil A.
Macpherson.*+
10.23 Employment Agreement, dated January 3, 1997, between Macpherson Meistergram, Inc. and Jerry Lee.*+
10.24 Employment Agreement, dated January 3, 1997, between Macpherson Meistergram, Inc. and Ronald P.
Emerman.*+
10.25 Employment Agreement, dated January 3, 1997, between Macpherson Meistergram, Inc. and Jeffrey L.
Hickman.*+
10.26 Employment Agreement, dated January 3, 1997, between Macpherson Meistergram, Inc. and Jacob G. Bumm.*+
10.27 Employment Agreement, dated January 3, 1997, between Macpherson Meistergram, Inc. and Steven C.
Edwards.*+
10.28 Warrant Redemption Agreement, dated December 17, 1996, among Willcox & Gibbs, Inc., NationsCredit
Commercial Corporation and Bank of America Illinois.
10.29 Fundamental Agreement, dated October 1, 1986, among Barudan Co., Ltd., Geoffrey E. Macpherson Ltd. and
Macpherson Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------------
<C> <S> <S>
10.30 Employment Agreement, dated June 27, 1994, between WG Apparel, Inc. and John K. Ziegler, Jr.*
10.31 Amendment No. 2 to Warrantholders Rights Agreement, dated January 3, 1997, among Willcox & Gibbs, Inc.,
the Stockholders and Warrantholders.
10.32 Amendment No. 1 to Warrantholders Rights Agreement, dated February 1, 1996, among Willcox & Gibbs,
Inc., the Stockholders and Warrantholders.
10.33 Warrantholders Rights Agreement, dated July 13, 1994, among Investors, Stockholders and Warrantholders.
10.34 Form of Warrant.
10.35 First Amendment to Financing and Security Agreement, dated April 23, 1997, among WG Apparel, Inc.,
Willcox & Gibbs, Inc; Leadtec Systems Inc., Clinton Management Corp., Clinton Machinery Corporation,
Macpherson Meistergram, Inc., as Borrowers, and NationsBank, N.A., as Lender.
11.1 Statement re: Computation of Per Share Earnings.
12.1 Computation of ratio of earnings to fixed charges.+
21.1 Subsidiaries of Willcox & Gibbs, Inc.
23.1 Consent of Hughes Hubbard & Reed LLP (contained in Exhibit 5.1).
23.2 Consents of KPMG Peat Marwick LLP.
23.3 Consent of Arthur Andersen LLP.
24.1 Powers of Attorney of certain directors and officers of the Company.
25.1 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939, as amended,
of IBJ Schroder Bank & Trust Company, as Trustee.+
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal with respect to the Exchange Offer.+
99.2 Form of Notice of Guaranteed Delivery.+
99.3 Form of Letter to Brokers, Dealers.
99.4 Form of Letter to Clients.
</TABLE>
(B) FINANCIAL STATEMENT SCHEDULE:
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
Schedule II Valuation and Qualifying Accounts for the years ended December 31, 1996 and 1995 and
for the period from July 13, 1994 to December 31, 1994. S-1
</TABLE>
ITEM 22. UNDERTAKINGS.
1. The undersigned registrant hereby undertakes as follows:
(a) 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; (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,
II-4
<PAGE>
represent a fundamental change in the information set forth in the 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.
(b) That, for the purpose of determining any liability under the Securities
Act, 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.
(c) 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.
2. Insofar as indemnification for liabilities arising under the Securities
Act 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 Securities 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 of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
3. The undersigned registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act of 1939, as amended
("Act") in accordance with the rules and regulations prescribed by the
Securities and Exchange Commission under Section 305(b)(2) of the Act.
4. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 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.
5. 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.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the Registration Statement on Form
S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Carteret, State of New Jersey, on May 30, 1997.
WILLCOX & GIBBS, INC.
By: /s/ JOHN K. ZIEGLER, SR.
-----------------------------------------
John K. Ziegler, Sr.
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND
DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement on Form S-4 has been signed by the
following persons in the capacities indicated on May 30, 1997.
SIGNATURE TITLE
- ------------------------------ ---------------------------
/s/ JOHN K. ZIEGLER, SR. Chairman, Chief Executive
- ------------------------------ Officer, and Director
John K. Ziegler, Sr. (Principal Executive
Officer)
MAXWELL L. TRIPP* President, Chief Operating
- ------------------------------ Officer and Director
Maxwell L. Tripp
JOHN K. ZIEGLER, JR.* Chief Financial Officer
- ------------------------------ (Principal Financial and
John K. Ziegler, Jr. Accounting Officer)
JACK KLASKY* Vice President and Director
- ------------------------------
Jack Klasky
ALAN B. LEE* Vice President and Director
- ------------------------------
Alan B. Lee
RICHARD J. MACKEY* Director
- ------------------------------
Richard J. Mackey
MARC GLAZER* Director
- ------------------------------
Marc Glazer
SIDNEY B. BECKER* Director
- ------------------------------
Sidney B. Becker
CHRISTOPHER W. ROSER* Director
- ------------------------------
Christopher W. Roser
FRANK E. WALSH, III* Director
- ------------------------------
Frank E. Walsh, III
By: /s/ JOHN K. ZIEGLER,
SR.
--------------------
John K. Ziegler, Sr.
(Attorney-in-fact
for persons
indicated by an
asterisk)
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the Registration Statement on Form
S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Carteret, State of New Jersey, on May 30, 1997.
WG APPAREL, INC.
By: /s/ JOHN K. ZIEGLER, SR.
-----------------------------------------
John K. Ziegler, Sr.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement on Form S-4 has been signed by the
following persons in the capacities indicated on May 30, 1997.
SIGNATURE TITLE
- ------------------------------ ---------------------------
/s/ JOHN K. ZIEGLER, SR. Chairman, Chief Executive
- ------------------------------ Officer, and Director
John K. Ziegler, Sr. (Principal
Executive Officer)
MAXWELL L. TRIPP* President and Director
- ------------------------------
Maxwell L. Tripp
JOHN K. ZIEGLER, JR.* Chief Financial Officer
- ------------------------------ (Principal Financial and
John K. Ziegler, Jr. Accounting Officer)
JACK KLASKY* Vice President and Director
- ------------------------------
Jack Klasky
ALAN B. LEE* Vice President and Director
- ------------------------------
Alan B. Lee
RICHARD J. MACKEY* Director
- ------------------------------
Richard J. Mackey
SIDNEY B. BECKER* Director
- ------------------------------
Sidney B. Becker
MARC GLAZER* Director
- ------------------------------
Marc Glazer
CHRISTOPHER W. ROSER* Director
- ------------------------------
Christopher W. Roser
FRANK E. WALSH, III* Director
- ------------------------------
Frank E. Walsh, III
By: /s/ JOHN K. ZIEGLER,
SR.
--------------------
John K. Ziegler, Sr.
(Attorney-in-fact
for persons
indicated by an
asterisk)
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the Registration Statement on Form
S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Carteret, State of New Jersey, on May 30, 1997.
LEADTEC SYSTEMS, INC.
By: /s/ JOHN K. ZIEGLER, SR.
-----------------------------------------
John K. Ziegler, Sr.
VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement on Form S-4 has been signed by the
following persons in the capacities indicated on May 30, 1997.
SIGNATURE TITLE
- ------------------------------ ---------------------------
JACK KLASKY* President and Director
- ------------------------------
Jack Klasky*
/s/ JOHN K. ZIEGLER, SR.* Vice President and Director
- ------------------------------
John K. Zeigler, Sr.
JOHN K. ZIEGLER, JR.* Vice President and Director
- ------------------------------
John K. Ziegler, Jr.
RICHARD J. MACKEY* Director
- ------------------------------
Richard J. Mackey
By: /s/ JOHN K. ZIEGLER,
SR.
--------------------
John K. Ziegler, Sr.
(Attorney-in-fact
for persons
indicated by an
asterisk)
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the Registration Statement on Form
S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Carteret, State of New Jersey, on May 30, 1997.
J&E SEWING SUPPLIES, INC.
By: /s/ JOHN K. ZIEGLER, SR.
-----------------------------------------
John K. Ziegler, Sr.
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement on Form S-4 has been signed by the
following persons in the capacities indicated on May 30, 1997.
SIGNATURE TITLE
- ------------------------------ ---------------------------
/s/ JOHN K. ZIEGLER, SR. President, Vice President
- ------------------------------ and Director
John K. Ziegler, Sr.
JOHN K. ZIEGLER, JR.* Vice President, Secretary
- ------------------------------ and Director
John K. Ziegler, Jr.
RICHARD J. MACKEY* Director
- ------------------------------
Richard J. Mackey
By: /s/ JOHN K. ZIEGLER,
SR.
--------------------
John K. Ziegler, Sr.
(Attorney-in-fact
for persons
indicated by an
asterisk)
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the Registration Statement on Form
S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Carteret, State of New Jersey, on May 30, 1997.
W&G DAON, INC.
By: /s/ JOHN K. ZIEGLER, SR.
-----------------------------------------
John K. Ziegler, Sr.
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement on Form S-4 has been signed by the
following persons in the capacities indicated on May 30, 1997.
SIGNATURE TITLE
- ------------------------------ ---------------------------
/s/ JOHN K. ZIEGLER, SR. President, Vice President
- ------------------------------ and Director
John K. Ziegler, Sr.
JOHN K. ZIEGLER, JR.* Vice President, Secretary
- ------------------------------ and Director
John K. Ziegler, Jr.
By: /s/ JOHN K. ZIEGLER,
SR.
--------------------
John K. Ziegler, Sr.
(Attorney-in-fact
for persons
indicated by an
asterisk)
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the Registration Statement on Form
S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Carteret, State of New Jersey, on May 30, 1997.
W&G TENNESSEE IMPORTS, INC.
By: /s/ JOHN K. ZIEGLER, SR.
-----------------------------------------
John K. Ziegler, Sr.
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement on Form S-4 has been signed by the
following persons in the capacities indicated on May 30, 1997.
SIGNATURE TITLE
- ------------------------------ ---------------------------
/s/ JOHN K. ZIEGLER, SR. President, Vice President
- ------------------------------ and Director
John K. Ziegler, Sr.
JOHN K. ZIEGLER, JR.* Vice President, Secretary
- ------------------------------ and Director
John K. Ziegler, Jr.
RICHARD J. MACKEY* Director
- ------------------------------
Richard J. Mackey
By: /s/ JOHN K. ZIEGLER,
SR.
--------------------
John K. Ziegler, Sr.
(Attorney-in-fact
for persons
indicated by an
asterisk)
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the Registration Statement on Form
S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Carteret, State of New Jersey, on May 30, 1997.
CLINTON MANAGEMENT CORP.
By: /s/ JOHN K. ZIEGLER, SR.
-----------------------------------------
John K. Ziegler, Sr.
VICE PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement on Form S-4 has been signed by the
following persons in the capacities indicated on May 30, 1997.
SIGNATURE TITLE
- ------------------------------ ---------------------------
FRANK SCANNAVINO* President and Director
- ------------------------------
Frank Scannavino
MARC GLAZER* Vice President and Director
- ------------------------------
Marc Glazer
CHARLES NALL* Vice President and Director
- ------------------------------
Charles Nall
/s/ JOHN K. ZIEGLER, SR. Vice President and Director
- ------------------------------
John K. Ziegler, Sr.
JOHN K. ZIEGLER, JR.* Vice President and Director
- ------------------------------
John K. Ziegler, Jr.
/s/ MARY-ANNE KIERAN Secretary and Director
- ------------------------------
Mary-Anne Kieran
MAXWELL L. TRIPP* Director
- ------------------------------
Maxwell L. Tripp
By: /s/ JOHN K. ZIEGLER,
SR.
--------------------
John K. Ziegler, Sr.
(Attorney-in-fact
for persons
indicated by an
asterisk)
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the Registration Statement on Form
S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Carteret, State of New Jersey, on May 30, 1997.
CLINTON MACHINERY CORPORATION
By: /s/ JOHN K. ZIEGLER, SR.
-----------------------------------------
John K. Ziegler, Sr.
VICE PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement on Form S-4 has been signed by the
following persons in the capacities indicated on May 30, 1997.
SIGNATURE TITLE
- ------------------------------ ---------------------------
FRANK SCANNAVINO* President and Director
- ------------------------------
Frank Scannavino
MARC GLAZER* Vice President and Director
- ------------------------------
Marc Glazer
CHARLES NALL* Vice President and Director
- ------------------------------
Charles Nall
/s/ JOHN K. ZIEGLER, SR. Vice President and Director
- ------------------------------
John K. Ziegler, Sr.
JOHN K. ZIEGLER, JR.* Vice President and Director
- ------------------------------
John K. Ziegler, Jr.
/s/ MARY-ANNE KIERAN Secretary and Director
- ------------------------------
Mary-Anne Kieran
MAXWELL L. TRIPP* Director
- ------------------------------
Maxwell L. Tripp
By: /s/ JOHN K. ZIEGLER,
SR.
--------------------
John K. Ziegler, Sr.
(Attorney-in-fact
for persons
indicated by an
asterisk)
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the Registration Statement on Form
S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Carteret, State of New Jersey, on May 30, 1997.
CLINTON LEASING CORP.
By: /s/ JOHN K. ZIEGLER, SR.
-----------------------------------------
John K. Ziegler, Sr.
VICE PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement on Form S-4 has been signed by the
following persons in the capacities indicated on May 30, 1997.
SIGNATURE TITLE
- ------------------------------ ---------------------------
FRANK SCANNAVINO* President and Director
- ------------------------------
Frank Scannavino
MARC GLAZER* Vice President and Director
- ------------------------------
Marc Glazer
CHARLES NALL* Vice President and Director
- ------------------------------
Charles Nall
/s/ JOHN K. ZIEGLER, SR. Vice President and Director
- ------------------------------
John K. Ziegler, Sr.
JOHN K. ZIEGLER, JR.* Vice President and Director
- ------------------------------
John K. Ziegler, Jr.
/s/ MARY-ANNE KIERAN Secretary and Director
- ------------------------------
Mary-Anne Kieran
MAXWELL L. TRIPP* Director
- ------------------------------
Maxwell L. Tripp
By: /s/ JOHN K. ZIEGLER,
SR.
--------------------
John K. Ziegler, Sr.
(Attorney-in-fact
for persons
indicated by an
asterisk)
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the Registration Statement on Form
S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Carteret, State of New Jersey, on May 30, 1997.
CLINTON EQUIPMENT CORP.
By: /s/ JOHN K. ZIEGLER, SR.
-----------------------------------------
John K. Ziegler, Sr.
VICE PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement on Form S-4 has been signed by the
following persons in the capacities indicated, on May 30, 1997.
SIGNATURE TITLE
- ------------------------------ ---------------------------
FRANK SCANNAVINO* President and Director
- ------------------------------
Frank Scannavino
MARC GLAZER* Vice President and Director
- ------------------------------
Marc Glazer
CHARLES NALL* Vice President and Director
- ------------------------------
Charles Nall
/s/ JOHN K. ZIEGLER, SR. Vice President and Director
- ------------------------------
John K. Ziegler, Sr.
JOHN K. ZIEGLER, JR.* Vice President and Director
- ------------------------------
John K. Ziegler, Jr.
/s/ MARY-ANNE KIERAN Secretary and Director
- ------------------------------
Mary-Anne Kieran
MAXWELL L. TRIPP* Director
- ------------------------------
Maxwell L. Tripp
By: /s/ JOHN K. ZIEGLER,
SR.
--------------------
John K. Ziegler, Sr.
(Attorney-in-fact
for persons
indicated by an
asterisk)
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the Registration Statement on Form
S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Carteret, State of New Jersey, on May 30, 1997.
PARADISE COLOR INCORPORATED
By: /s/ JOHN K. ZIEGLER, SR.
-----------------------------------------
John K. Ziegler, Sr.
VICE PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement on Form S-4 has been signed by the
following persons in the capacities indicated on May 30, 1997.
SIGNATURE TITLE
- ------------------------------ ---------------------------
FRANK SCANNAVINO* President and Director
- ------------------------------
Frank Scannavino
MARC GLAZER* Vice President and Director
- ------------------------------
Marc Glazer
CHARLES NALL* Vice President and Director
- ------------------------------
Charles Nall
/s/ JOHN K. ZIEGLER, SR. Vice President and Director
- ------------------------------
John K. Ziegler, Sr.
JOHN K. ZIEGLER, JR.* Vice President and Director
- ------------------------------
John K. Ziegler, Jr.
/s/ MAY-ANNE KIERAN Secretary and Director
- ------------------------------
Mary-Anne Kieran
MAXWELL L. TRIPP* Director
- ------------------------------
Maxwell L. Tripp
By: /s/ JOHN K. ZIEGLER,
SR.
--------------------
John K. Ziegler, Sr.
(Attorney-in-fact
for persons
indicated by an
asterisk)
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the Registration Statement on Form
S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Carteret, State of New Jersey, on May 30, 1997.
MACPHERSON MEISTERGRAM, INC.
By: /s/ JOHN K. ZIEGLER, SR.
-----------------------------------------
John K. Ziegler, Sr.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement on Form S-4 has been signed by the
following persons in the capacities indicated on May 30, 1997.
SIGNATURE TITLE
- ------------------------------ ---------------------------
/s/ JOHN K. ZIEGLER, SR. Chairman, Chief Executive
- ------------------------------ Officer and Director
John K. Ziegler, Sr.
JERRY D. LEE* President, Chief Operating
- ------------------------------ Officer and Director
Jerry D. Lee
JOHN K. ZIEGLER, JR.* Vice President, Assistant
- ------------------------------ Secretary and Director
John K. Ziegler, Jr.
/s/ MAY-ANNE KIERAN Secretary and Director
- ------------------------------
Mary-Anne Kieran
ALLAN B. LEE* Director
- ------------------------------
Allan B. Lee
MAXWELL L. TRIPP* Director
- ------------------------------
Maxwell L. Tripp
By: /s/ JOHN K. ZIEGLER,
SR.
--------------------
John K. Ziegler, Sr.
(Attorney-in-fact
for persons
indicated by an
asterisk)
II-17
<PAGE>
SCHEDULE II
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO ALLOWANCE BALANCE AT
BEGINNING COSTS AND OF ACQUIRED END OF
DESCRIPTION OF PERIOD EXPENSE SUBSIDIARIES DEDUCTIONS PERIOD
- ------------------------------------------------- ------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful accounts................ $ 1,596,000 267,000 746,000 190,000 2,419,000
------------ ----------- ----------- ----------- ----------
------------ ----------- ----------- ----------- ----------
Year ended December 31, 1995:
Allowance for doubtful accounts................ $ 2,002,000 580,000 -- 986,000 1,596,000
------------ ----------- ----------- ----------- ----------
------------ ----------- ----------- ----------- ----------
Period from July 13, 1994 to December 31, 1994:
Allowance for doubtful accounts................ $ 1,699,000 321,000 -- 18,000 2,002,000
------------ ----------- ----------- ----------- ----------
------------ ----------- ----------- ----------- ----------
<CAPTION>
BALANCE AT CHARGED TO RESERVE BALANCE AT
BEGINNING COSTS AND OF ACQUIRED END OF
OF PERIOD EXPENSE SUBSIDIARIES DEDUCTIONS PERIOD
------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Reserve for inventory obsolescence............. $ 6,441,000 531,000 297,000 455,000 6,814,000
------------ ----------- ----------- ----------- ----------
------------ ----------- ----------- ----------- ----------
Year ended December 31, 1995:
Reserve for inventory obsolescence............. $ 6,154,000 707,000 -- 420,000 6,441,000
------------ ----------- ----------- ----------- ----------
------------ ----------- ----------- ----------- ----------
Period from July 13, 1994 to December 31, 1994:
Reserve for inventory obsolescence............. $ 5,928,000 226,000 -- -- 6,154,000
------------ ----------- ----------- ----------- ----------
------------ ----------- ----------- ----------- ----------
</TABLE>
S-1
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
2.1 Stock Purchase Agreement, dated November 27, 1996, among WG Apparel, Inc., Willcox & Gibbs,
Inc. and Macpherson Meistergram, Inc., Geoffrey E. Macpherson Canada, Inc., Neil A. Macpherson
, Bridget Macpherson, Bridget Macpherson as Trustee under the Mark Edward Macpherson Trust
Agreement, dated February 1, 1982, Ouida B. Brown as Trustee under the Mark Edward Macpherson
Trust No. 2, Bridget M. Macpherson as Trustee under the Katherine Emma Macpherson Trust
Agreement, dated February 1, 1982, Ouida B. Brown as Trustee under the Katherine Emma
Macpherson Trust No. 2, and Neil A. Macpherson as Trustee under the Nicholas Ian Macpherson
Trust Agreement.+
3.1 Second Amended and Restated Certificate of Incorporation of Willcox & Gibbs, Inc.+
3.2 Bylaws of Willcox & Gibbs, Inc.+
4.1 Indenture, dated as of January 3, 1997, by and among Willcox & Gibbs, Inc., WG Apparel, Inc.
Clinton Management Corp., Clinton Machinery Corporation, Leadtec Systems, Inc., W&G Daon,
Inc., J&E Sewing Supplies, Inc. W&G Tennessee Imports, Inc., Clinton Leasing Corp., Clinton
Equipment Corp., Paradise Color Corp. (collectively, the "Subsidiary Guarantors"), and IBJ
Schroder Bank & Trust Company, as Trustee, with respect to the 12 1/4% Senior Notes due 2003.+
4.2 Supplemental Indenture, dated as of January 3, 1997, by and among Willcox & Gibbs, Inc., the
Subsidiary Guarantors and IBJ Schroder Bank & Trust Company, as Trustee.+
4.3 Purchase Agreement, dated December 20, 1996, by and among Willcox & Gibbs, Inc., the
Subsidiary Guarantors and Dillon, Read & Co., Inc. (the "Initial Purchaser").+
4.4 Registration Rights Agreement, dated as of December 20, 1996, by and among Willcox & Gibbs,
Inc., the Subsidiary Guarantors and the Initial Purchaser.+
4.5 Pledge and Security Agreement, dated January 3, 1997, between WG Apparel, Inc. and IBJ
Schroder Bank & Trust Company, as Trustee.+
4.6 Form of Old Note.+
4.7 Form of New Note.+
5.1 Opinion of Hughes Hubbard & Reed LLP, as to the legality of securities registered hereunder.
10.1 Agreement to Purchase Stock, dated November 27, 1996, of Embroidery Leasing Company, between
Michael Bennett and WG Apparel, Inc.
10.2 Amendment No. 1, dated December 17, 1996, to Merger Agreement among Willcox & Gibbs, Inc.,
Clinton Machinery Corporation, WG Apparel, Inc., Frank Scannavino, Charles Nall and Marc
Glazer.
10.3 Financing and Security Agreement, dated December 17, 1996, among WG Apparel, Inc., Willcox &
Gibbs, Inc., Leadtec Systems, Inc., Clinton Management Corp., Clinton Machinery Corporation
and Macpherson Meistergram, Inc., as Borrowers, and NationsBank, N.A., as Lender.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
10.4 Termination of Security Agreement, dated January 3, 1997, among Willcox & Gibbs, Inc., Clinton
Machinery Corporation, WG Apparel, Inc., Frank Scannavino, Charles Nall and Marc Glazer.
10.5 Employment Agreement, dated February 1, 1996, among Clinton Machinery Corp. and Clinton
Management Corp. and Frank Scannavino.*
10.6 Employment Agreement, dated February 1, 1996, among Clinton Machinery Corp. and Clinton
Management and Marc Glazer.*
10.7 Employment Agreement, dated February 1, 1996, among Clinton Machinery Corp. and Clinton
Management Corp. and Charles Nall.*
10.8 Employment Agreement, dated June 27, 1994, between WG Apparel, Inc. and Alan B. Lee.*
10.9 Employment Agreement, dated June 27, 1994, between WG Apparel, Inc. and John K. Ziegler, Sr.*
10.10 Employment Agreement, dated June 27, 1994, among WG Apparel, Inc., WG Leadtec of Delaware,
Inc. and Jack Klasky.*
10.11 Employment Agreement, dated June 27, 1994, between WG Apparel, Inc. and Maxwell Tripp.*
10.12 Pegasus Sewing Machine Mfg. Co., Ltd. Distribution Agreement, dated January 1, 1995, between
Pegasus Sewing Machine Mfg. Co., Ltd. and WG, Inc., as amended as of June 8, 1995.+
10.13 GM Pfaff AG Distribution Agreement, dated October 1, 1994, between GM Pfaff AG and WG, Inc.+
10.14 M&R International Distributor Agreement, dated September 16, 1996, between M&R Sales and
Service, Inc. and Clinton Machinery Corp.+
10.15 M&R Distributor Agreement, dated January 10, 1996, between M&R Sales and Service, Inc. and
Clinton Machinery Corp.+
10.16 Distribution Agreement, dated June 27, 1996, among Rhein-Nadel Maschinennadel Gmbh, Muva
Maschinennadel Gmbh, WG, Inc., Unity Sewing Supply Co. and Sunbrand, as amended as of October
4, 1996.+
10.17 Second Revision of Fundamental Barudan Agreements and Contracts, dated November 27, 1996,
among Barudan Company, Ltd., Barudan America, Inc. and Macpherson Meistergram, Inc. as amended
by letter agreement dated December 4, 1996.
10.18 Revision of Fundamental Agreements and Contracts, dated June 1, 1994, among Barudan Company,
Ltd., Barudan America, Inc. and Macpherson Meistergram, Inc.
10.19 Distribution Agreement, dated November 7, 1985, among Barudan Company, Ltd., Barudan America,
Inc. and Macpherson Meistergram, Inc.
10.20 Asset Purchase Agreement, dated October 1996, between E.C. Mitchell Co. Inc., Everett
Mitchell, as Seller, and WG Apparel, Inc., as Buyer.+
10.21 Loan Agreement, dated October 1996, between W&G, Ltd., as Borrower, and Coutts & Co., as
Lender.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
10.22 Consulting Agreement, dated January 3, 1997, between Macpherson Meistergram, Inc. and Neil A.
Macpherson.*+
10.23 Employment Agreement, dated January 3, 1997, between Macpherson Meistergram, Inc. and Jerry
Lee.*+
10.24 Employment Agreement, dated January 3, 1997, between Macpherson Meistergram, Inc. and Ronald
P. Emerman.*+
10.25 Employment Agreement, dated January 3, 1997, between Macpherson Meistergram, Inc. and Jeffrey
L. Hickman.*+
10.26 Employment Agreement, dated January 3, 1997, between Macpherson Meistergram, Inc. and Jacob G.
Bumm.*+
10.27 Employment Agreement, dated January 3, 1997, between Macpherson Meistergram, Inc. and Steven
C. Edwards.*+
10.28 Warrant Redemption Agreement, dated December 17, 1996, among Willcox & Gibbs, Inc.,
NationsCredit Commercial Corporation and Bank of America Illinois.
10.29 Fundamental Agreement, dated October 1, 1986, among Barudan Co., Ltd., Geoffrey E. Macpherson
Ltd. and Macpherson Inc.
10.30 Employment Agreement, dated June 27, 1994, between WG Apparel, Inc. and John K. Ziegler, Jr.*
10.31 Amendment No. 2 to Warrantholders Rights Agreement, dated January 3, 1997, among Willcox &
Gibbs, Inc., the Stockholders and Warrantholders.
10.32 Amendment No. 1 to Warrantholders Rights Agreements, dated February 1, 1996, among Willcox &
Gibbs, Inc., the Stockholders and Warrantholders.
10.33 Warrantholders Rights Agreement, dated July 13, 1994, among Investors, Stockholders and
Warrantholders.
10.34 Form of Warrant.
10.35 First Amendment to Financing and Security Agreement, dated April 23, 1997, among WG Apparel,
Inc., Willcox & Gibbs, Inc., Leadtec Systems Inc., Clinton Management Corp., Clinton Machinery
Corporation, Macpherson Meistergram, Inc., as Borrowers, and NationsBank, N.A., as Lender.
11.1 Statement re: Computation of Per Share Earnings.
12.1 Computation of ratio of earnings to fixed charges.+
21.1 Subsidiaries of Willcox & Gibbs, Inc.
23.1 Consent of Hughes Hubbard & Reed LLP (contained in Exhibit 5.1).
23.2 Consents of KPMG Peat Marwick LLP.
23.3 Consent of Arthur Andersen LLP.
24.1 Powers of Attorney of certain directors and officers of the Company.
25.1 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939, as
amended, of IBJ Schroder Bank & Trust Company, as Trustee.+
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal with respect to the Exchange Offer.+
99.2 Form of Notice of Guaranteed Delivery.+
99.3 Form of Letter to Brokers, Dealers.
99.4 Form of Letter to Clients.
</TABLE>
- ------------------------
+ Previously filed
<PAGE>
EXHIBIT 5.1
May 23, 1997
Willcox & Gibbs, Inc.
900 Milik Street
Carteret, New Jersey 07008
Dear Sirs:
We have acted as counsel to Willcox & Gibbs, Inc., a Delaware corporation
(the "Company"), in connection with the Registration Statement on Form S-4 (No.
333-24507) originally filed with the Securities and Exchange Commission under
the Securities Act of 1933, as amended (the "Act"), on April 3, 1997 (the
"Registration Statement"), relating to the proposed offer by the Company to
exchange its 12 1/4% Series B Senior Notes due 2003 (the "New Notes") for its
outstanding 12 1/4% Series A Senior Notes due 2003 (the "Old Notes"), of which
$85,000,000 aggregate principal amount is outstanding (the "Exchange Offer").
In connection with this opinion letter, we have examined: the Registration
Statement, including the Prospectus which forms a part of the Registration
Statement, the Indenture, dated as of January 3, 1997, as amended by the
Supplemental Indenture, dated as of January 3, 1997 (as so amended, the
"Indenture"), among the Company, the subsidiary guarantors named therein (the
"Subsidiary Guarantors") and IBJ Schroder Bank & Trust Company, as trustee, the
forms of Old Note and New Note, each attached as an exhibit to the Registration
Statement, and originals, or copies certified or otherwise identified to our
satisfaction, of such other documents, records, instruments and certificates of
public officials as we have deemed necessary or appropriate to enable us to
render this opinion. In addition, we have assumed: (i) that all signatures are
genuine, (ii) that all documents submitted to us as originals are genuine, (iii)
that all copies submitted to us conform to the originals, (iv) the Indenture has
been duly authorized, executed and delivered by the Trustee and is a legal,
valid, binding and enforceable agreement of the Trustee and (v) the Old Notes
and the guaranties endorsed thereon and created under the Indenture (the "Old
Guaranties") were duly and validly executed and delivered by the Company and the
Subsidiary Guarantors and that the Old Notes were duly and validly authenticated
by the Trustee pursuant to the terms of the Indenture.
<PAGE>
Page 2
We are members of the bar of the State of New York, and the opinion set
forth below is restricted to matters controlled by federal laws, the laws of the
State of New York and the General Corporation Law of the State of Delaware.
Based on the foregoing, it is our opinion that, when (1) the applicable
provisions of the Act and such "Blue Sky" or other state securities laws as may
be applicable shall have been complied with and (ii) New Notes with the
guaranties of the Subsidiary Guarantors endorsed thereon (the "New Guaranties"),
in the form filed as an Exhibit to the Registration Statement, have been duly
executed and authenticated in accordance with the Indenture and duly issued and
delivered by the Company and the Subsidiary Guarantors in exchange for an equal
principal amount of Old Notes and related Old Guaranties pursuant to the terms
of the Exchange Offer, such New Notes will constitute legal, valid, binding and
enforceable obligations of the Company and the New Guaranties will constitute
legal, valid, binding and enforceable obligations of the Subsidiary Guarantors,
subject to (i) limitations imposed by bankruptcy, reorganization, moratorium,
insolvency, fraudulent conveyance, fraudulent transfer, preferential transfer
and other laws of general application relating to or affecting the
enforceability of creditors' rights and to general principles of equity,
including, without limitation, laches and estoppel as equitable defenses,
concepts of materiality, reasonableness, good faith and fair dealing, and
considerations of impracticability or impossibility or performance and defenses
based upon unconscionability (regardless of whether such enforceability is
considered or applied in a proceeding in equity or at law) and (b) the
qualification that the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the caption "Legal
Matters" in the Registration Statement. In giving this consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Act or the rules and regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
Hughes Hubbard & Reed LLP
<PAGE>
Exhibit 10.1
AGREEMENT TO PURCHASE STOCK OF
EMBROIDERY LEASING CORPORATION
AGREEMENT, made and entered into as of the 27th day of November, 1996, by
and among MICHAEL BENNETT ("Bennett") and WG APPAREL, INC., a Delaware
corporation ("WG"), a wholly owned subsidiary of Willcox & Gibbs, Inc., a
Delaware corporation ("Willcox"), relating the purchase by WG of all of the
outstanding capital stock of Embroidery Leasing Corporation, a Georgia
corporation (the "Company").
WITNESSETH:
WHEREAS, Bennett holds two hundred and fifty (250) shares of common stock,
par value $1.00 per share, of the Company (the "Shares"), and
WHEREAS, after the consummation of the transactions contemplated by a
Redemption Agreement of even date herewith (the Redemption Agreement") between
Neil A. Macpherson ("Macpherson") and the Company, Bennett will own all of the
outstanding capital stock of the Company; and
WHEREAS, subject to the terms and conditions of this Agreement, Bennett
desires to sell all of the Shares, to WG, and WG desires to purchase all of the
Shares;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants hereinafter forth, the parties agree as follows:
1. PURCHASE OF THE SHARES. Subject to the terms and conditions or this
Agreement, Bennett agrees to sell to WG, and WG agrees to purchase from Bennett,
the Shares.
2. PURCHASE PRICE AND PAYMENT. WG agrees to pay to Bennett an aggregate
purchase price of Five Hundred Seven Thousand Three Hundred Fifty Six and 18/100
Dollars ($507,356.18) for all of the Shares. WG shall pay said purchase price by
delivering to Bennett a promissory note bearing interest at the rate of six
percent (6%) per annum (the "Promissory Note") in the form set forth in Exhibit
A hereto at Closing (as defined below). As a additional consideration for the
purchase of the Shares,:
(a) WG shall pay Bennett a cash payment at thie Closing equal to the
total cash held in the Company as of December 31, 1996, net of all
outstanding trade payables and other indebtedness of the Company as of
that date; and
(b) The net income of the Company, after distributions to
shareholders for taxes ("as provided in Section 3(c) of the Redemption
Agreement), attributable to each lease managed by the Company pursuant to
that certain Leasing and Management Agreement, dated as of March 1, 1996
(the "Management Agreement"), among the Company, Nationwide Capital
Corporation ("Nationwide"), and Macpherson Meistergram, Inc. ("Macpherson
Meistergram"), which was approved by funding sources prior to January 1,
1997, but was not funded until after December 31, 1996 and before the
Closing Date, shall be distributed to Bennett at the Closing, and said
distribution shall include an assignment of any purchase option contained
in such lease; and
<PAGE>
(c) the net income of the Company, before taxes, attributable to
each lease managed by the Company pursuant to the Management Agreement,
which was approved by funding sources prior to January 1, 1997, but was
not funded until after the Closing Date, shall be distributed to Bennett
on the day each such lease is funded, and said distribution shall include
an assignment of any purchase option contained in such lease; and
3. CONDITIONS PRECEDENT TO THE CLOSING. The obligations of Bennett and WG
to effect the Closing of the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions:
(a) The sale of all of the outstanding capital stock of Macpherson
Meistergram beneficially owned by Macpherson and the members of his
immediate family to WG, pursuant to a Stock Purchase Agreement, dated as
of November 26, 1996, shall have been consummated (the "Macpherson
Meistergram Closing");
(b) The Company, Nationwide, and Macpherson Meistergram shall have
entered into a First Amendment to the Management Agreement, in
substantially the form of Exhibit B hereto;
(c) The Company shall have acquired all of the shares of capital
stock of the Company owned by Macpherson pursuant to the Redemption
Agreement; and
(d) Pursuant to an agreement entered into prior to December 31,
1996, Southwick Capital, L.L.C. ("Southwick") shall have acquired by
assignment all of the purchase options held by the Company relating to
leases approved and funded prior to January 1, 1997, in exchange for
delivery of that certain promissory note between Southwick as maker and
the Company as holder in the original principal amount of $200,000 (the
"Southwick Note") to the Company, which assignment shall have occurred
only after Bennett becomes the sole shareholder of the Company.
4. CLOSING.
(a) The closing of the transactions provided for in this Agreement
(the "Closing") shall be held at a place, date and time as mutually agreed
by the parties but not later than the later of (i) forty (40) days after
the Macpherson Meistergram Closing or February 14, 1997 (the "Closing
Date"). All references herein to the "Closing" or the "Closing Date" are
references to such terms as defined in this Section 4.
(b) At the Closing, subject to all of the terms and conditions of
this Agreement:
(i) Bennett shall deliver to WG the certificates evidencing
the Shares, duly endorsed to WG or with duty executed stock powers
affixed thereto;
(ii) WG shall deliver the Promissory Note as payment for the
Shares to Bennett, as provided in Section 2 hereof; and
2
<PAGE>
(iii) The parties shall execute such other agreements,
instruments and documents, and shall take such other action, as may
be necessary or appropriate in order to consummate the transactions
provided for herein in accordance with the terms and conditions
hereof.
(c) WG covenants and agrees that it shall cause the Company to make
an election under Section l377(a)(2) of the Internal Revenue Code of
1986, as amended, to close the Company's books on the Closing Date.
5. REPRESENTATIONS AND WARRANTIES OF BENNETT. To induce WG to enter into
this Agreement and to consummate the transactions provided for herein, Bennett
represents and warrants to WG that:
(a) Ownership of Shares. Bennett has, or will have upon consummation
of the transactions contemplated by the Redemption Agreement, good and
marketable title to the Shares to be sold to WG pursuant to this
Agreement, free and clear of all restrictions on transfer, liens, security
interests and other encumbrances, which Shares constitute all of the
issued and outstanding capital stock of the Company;
(b) No Other Shares or Options. Bennett does not own any shares of
the capital stock of the Company other than the Shares to be sold to WG
pursuant to this Agreement, and Bennett is not the holder of, or a party
to, any option, contract, warrant or right, written or otherwise, for the
purchase or other acquisition of any shares of the capital stock of the
Company; and
(c) Power and Authority. Bennett has full right, power, legal
capacity and authority to enter into this Agreement and to consummate the
transactions provided for herein.
6. REPRESENTATIONS AND WARRANTIES OF WG. To induce Bennett to enter into
this Agreement and to consummate the transactions provided for herein, WG
represents and warrants to Bennett that WG has full right, power, legal capacity
and authority to enter into this Agreement and to consummate the transactions
provided for herein.
7. DIVIDENDS AND DISTRIBUTIONS. Bennett hereby agrees that he will not
cause the Company to pay any dividends or make any distributions to its
shareholders prior to Closing other than as contemplated by the Redemption
Agreement, nor will he accept any such dividends or distributions. If the
Company retains its S corporation status after December 31, 1996, WG shall pay
Bennett a cash payment at the Closing in an amount mutually agreed, based On the
parties' best good faith estimate of the "Taxable Income" of the Company as such
term is defined in that certain Shareholders' Agreement among Bennett,
Macpherson and the Company, dated as of March 1, 1996) for the period of January
1, 1997 through the Closing Date, multiplied by an assumed "Applicable Maximum
Tax Rate" of forty two percent (42%).
8. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations,
warranties, and agreements herein contained shall survive the Closing Date and
shall remain operative and in full force and effect thereafter, and shall not be
merged by reason of the consummation of the transactions provided for herein.
3
<PAGE>
9. GENERAL PROVISI0NS.
(a) This Agreement shall be binding upon, and shall inure to the
benefit of, and be enforceable by, the parties hereto and their successors
and assigns; provided, however, that this Agreement shall not be assigned
by any party hereto without the prior written consent of the other
parties.
(b) This Agreement constitutes the entire contract among the parties
with respect to the subject matter hereof, and neither this Agreement nor
any exhibit hereto may be changed, modified or amended, except by an
instrument in writing signed by the party against whom enforcement of any
such change, modification or amendment is asserted. This Agreement may not
be terminated except pursuant to the written consent of each of the
parties hereto.
(c) This Agreement shall be governed by and construed in accordance
with the laws of the State of Georgia
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on a day and year first above written.
/s/ Michael Bennett (SEAL)
-------------------------
Michael Bennett
WG APPAREL. INC
(Corporate Seal)
Attest: By: /s/ [ILLEGIBLE]
---------------------
President
/s/ [ILLEGIBLE]
- ------------------------------
Secretary
4
<PAGE>
PROMISSORY NOTE
$507,356.18 Atlanta, Georgia
__________, 1997
FOR VALUE RECEIVED, the undersigned, WG APPAREL, INC., a Delaware
corporation (hereafter referred to as "Maker"), promises to pay to the order of
MICHAEL F. BENNETT, an individual resident of the State of Georgia (hereinafter
referred to as "Payee"; Payee and any subsequent holder hereof being hereinafter
referred to collectively as "Holder"), without grace, at the office of Payee at
Atlanta, Georgia, or at such other place as Holder may designate to Maker in
writing from time to time, the principal sum of FIVE HUNDRED SEVEN THOUSAND
THREE HUNDRED FIFTY SIX AND 18/100 DOLLARS ($507,356.18), together with interest
thereon or on so much thereof as is from time to time outstanding and unpaid,
from the date hereof, at the rate of six percent (6%) per annum, in lawful money
of the United States of America, which shall at the time of payment be legal
tender in payment of all debts and dues, public and private; and all payments
hereunder shall be made in accordance with the following terms of this Note.
For purpose of this Note, the following terms and phrases shall have the
meanings herein set forth:
"Maturity Date" shall mean September 30, 1999. Notwithstanding the
foregoing, the Maturity Date shall mean such earlier date on which the
indebtedness evidenced hereby shall become due and payable through acceleration
or otherwise.
From and after the date hereof, installments of principal and interest in
the amount of $50,000.00 shall be payable by Maker to Holder, commencing on the
last day of March, 1997, and continuing on the last day of each and every
calendar quarter thereafter (i.e., June 30, September 30, December 31 and March
31) to and including the last day of June, 1999; and the outstanding principal
balance, together with all accrued but unpaid interest shall be due and payable
on September 30, 1999. The installments abovesaid shall be applied, first, to
accrued but unpaid interest and, second, to principal.
The entire, outstanding principal balance of the indebtedness evidenced by
this Note, together with all accrued but unpaid interest thereon, shall be due
and payable on the Maturity Date.
<PAGE>
This Note may be prepaid in whole, but not in part, provided such
prepayment includes a "prepayment penalty" equal to the remaining interest which
would have been paid by Maker had Maker continued to pay all installments due
hereunder until the Maturity Date. Said prepayment penalty shall also be due
Holder in the event Holder exercises its right to accelerate the principal
amount as set forth herein.
It is hereby expressly agreed that, should any default be made in the
payment of principal or interest as stipulated above, and should any such
default continue uncured for a period of ten (10) days after written notice of
nonpayment, or if that certain Leasing and Management Agreement, as amended,
dated as of March 1, 1996, among Macpherson Meistergram, Inc., a North Carolina
corporation, Nationwide Capital Corporation, a Georgia corporation, and
Embroidery Leasing Corporation, a Georgia corporation, terminate for any reason,
then and in such event the principal amount and any other sums advanced
hereunder, together with all unpaid interest accrued thereon, shall, at the
option of Holder and without further notice to Maker, become due and may be
collected forthwith. Interest shall accrue on the outstanding principal amount
from the date of any default hereunder and for so long as such default
continues, regardless of whether or not there has been an acceleration of the
principal amount as set forth herein or a cure of the default, at the rate equal
to four percent (4%) per annum in excess of the interest rate which would
otherwise be applicable to this Note. All such interest shall be paid at the
time of and as a condition precedent to the curing of any such default. If
Holder shall have proceeded to enforce any remedy as a result of a default and,
thereafter, if Holder shall discontinue or abandon its exercise of such remedy
as a result of the curing of such default by Maker or otherwise, then in every
such case Holder and Maker shall be restored to their former positions and
rights; and all rights, powers, and remedies of Holder shall continue as if no
such action had been taken. Time is of the essence of this Note. In the event
this Note or any part thereof is collected by or through an attorney-at-law,
Maker agrees to pay all costs of collection, including, but not limited to,
reasonable attorneys' fees.
Presentment for payment, protest, notices of demand, protest and
non-payment, and all other notices are hereby waived by Maker. No failure to
accelerate the debt evidenced hereby by reason of default hereunder, acceptance
of a past due installment, or indulgences granted from time to time shall be
construed as a novation of this Note or as a reinstatement of the indebtedness
evidenced hereby or as a waiver of such right of acceleration or of the right of
Holder thereafter to insist upon
-2-
<PAGE>
strict compliance with the terms of this Note or to prevent the exercise of such
right of acceleration or any other right granted hereunder or by the laws of the
State of Georgia; and Maker hereby expressly waives, to the extent possible, the
benefit of any statute or rule of law or equity now provided or which may
hereafter be provided which would produce a result contrary to or in conflict
with the foregoing. No extension of the time for the payment of this Note or any
installment due hereunder made by agreement with any person now or hereafter
liable for the payment of this Note or any installment due hereunder made by
agreement with any person now or hereafter liable for the payment of this Note
shall operate to release, discharge, modify, change, or affect the original
liability of Maker under this Note, either in whole or in part, unless Holder
specifically and expressly agrees otherwise in writing. This Note may not be
changed orally, but only by an agreement in writing signed by the party against
whom enforcement of any waiver, change, modification, or discharge is sought.
Maker hereby waives and renounces, to the extent same may be waived and
renounced, for itself, its legal representatives, successors, and assigns, all
rights to the benefits of any statute of limitations and any moratorium,
reinstatement, marshaling, forbearance, valuation, stay, extension, redemption,
appraisement, exemption, and homestead now provided or which may hereafter be
provided by the Constitution and laws of the United States of America and of any
state thereof, both as to itself and in and to all of its property, real and
personal, against the enforcement and collection of the obligations evidenced by
this Note. To the extent Maker has the power to do so, Maker hereby transfers,
conveys, and assigns to Holder a sufficient amount of such homestead or
exemption as may be set apart in bankruptcy, to pay this Note in full, with all
costs of collection, and does hereby direct any trustee in bankruptcy having
possession of such homestead or exemption to deliver to Holder a sufficient
amount of property or money set apart as exempt to pay the indebtedness
evidenced hereby or any renewal thereof and does, to the extent possible, hereby
appoint Holder the attorney-in-fact for Maker to claim any and all homestead
exemptions allowed by law.
This Note is executed and delivered in the State or Georgia and is
intended as a contract under and shall be construed and enforceable in
accordance with the laws of the State of Georgia.
As used herein, the terms "Maker," "Payee," and "Holder" shall be deemed
to include their respective successors, legal representatives, and assigns,
whether by voluntary action of the parties or by operation of law.
-3-
<PAGE>
If from any circumstances whatsoever fulfillment of any provision of this
Note or of any other instrument evidencing or securing the indebtedness
evidenced hereby, at the time performance of such provision shall be due, shall
involve transcending the limit of validity presently prescribed by any
applicable usury statute or any other applicable law, with regard to obligations
of like character and amount, then, ipso facto, the obligation to be fulfilled
shall be reduced to the limit of such validity, so that in no event shall any
exaction that is in excess of the current limit of such validity be possible
under this Note or under any other instrument evidencing or securing the
indebtedness evidenced hereby, but such obligation shall be fulfilled to the
limit of such validity.
IN WITNESS WHEREOF, Maker has executed this Note under seal on the date
first above written.
WG APPAREL, INC.
By:
------------------------
President
ATTEST:
- -----------------
Corporate Secretary
(CORPORATE SEAL)
-4-
<PAGE>
EXHIBIT B
FIRST AMENDMENT
TO
LEASING AND MANAGEMENT AGREEMENT
This First Amendment, dated as of January 3, 1997, to that certain Leasing
and Management Agreement, by and by and among Macpherson Meistergram, Inc., a
North Carolina corporation ("Macpherson"), Nationwide Capital Corporation, a
Georgia corporation ("Nationwide"), and Embroidery Leasing Corporation, a
Georgia corporation ("ELC"), dated as of March 1, 1996 (the "Original
Agreement").
W I T N E S S E T H:
WHEREAS, Macpherson, Nationwide and ELC are parties to the Original
Agreement, which establishes a contractual relationship among them pursuant to
which Macpherson sells certain equipment to ELC or one of its designated funding
sources, ELC or its designated funding source leases such equipment to
Macpherson's customers and Nationwide manages ELC's leasing operations and
remarket ELC's interests in such leases and the purchase options, if any,
associated with such leases, all in accordance with the terms and conditions set
forth in the Original Agreement; and
WHEREAS, all of the outstanding capital stock of Macpherson has been sold
to WG Apparel, Inc., a Delaware corporation ( "WG"), which is a wholly owned
subsidiary of Willcox & Gibbs, Inc., a Delaware corporation ("Willcox"),
pursuant to a Stock Purchase Agreement, dated as of November 27, 1996 (the
"Macpherson/WG Agreement"); and
WHEREAS, all of the outstanding capital stock of ELC owned by Neil A.
Macpherson has been redeemed by ELC, pursuant to a Stock Redemption Agreement,
dated as of November 27, 1996 (the "Redemption Agreement"); and
WHEREAS, Michael Bennett, the sole remaining shareholder of ELC
("Bennett"), and WG have entered into an agreement, dated as of November 27,
1996 (the "Bennett/WG Agreement"), which provides for a sale of all of the
capital stock of ELC from Bennett to WG effective as of the date of this
Agreement; and
WHEREAS, in view of the change in ownership of Macpherson and ELC effected
by the Macpherson/WG Agreement, the Redemption Agreement, and the Bennett/WG
Agreement, the parties to the Original Agreement desire to amend the Original
Agreement as provided herein;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereby agree that the Original Agreement
shall be amended as follows:
1. Add a new Section 1.10 to the Agreement, which reads as follows:
"1.10 TFC Reserve Account. ELC acknowledges that ELC has no
right, title or interest in any monies presently held in that
certain reserve account maintained by Textron Financial Corporation
("TFC"), and that to the extent any sums are refunded to ELC,
Nationwide or Macpherson from the Reserve Account, twenty five
percent (25 %) of such refund shall be disbursed to Nationwide and
<PAGE>
seventy five (75%) of such refund shall be disbursed to Macpherson.
In the event that further monies are paid into such reserve account
after the date hereof as a result of a charge to such account for a
defaulted lease, the amounts to be refunded shall be adjusted
proportionately to take into account the relative contributions to
such account by ELC, Nationwide and Macpherson. In the event TFC
inadvertently pays any monies from the Reserve Account to ELC, ELC
covenants that it will distribute the proportionate share of such
monies to the appropriate party immediately upon ELC's receipt of
same."
2. Add the following sentence to the end of Section 2.1(c) of the Original
Agreement:
"In the event that ELC ceases to be treated as an S
corporation under the Internal Revenue Code of 1986, as amended,
ELC's accounting records will be kept on an accrual basis."
3. Section 2.7(a) of the Original Agreement shall be deleted in its
entirety and the following substituted therefore:
"(a) Nationwide Management Fee. For its services under this
Agreement, Nationwide shall receive from ELC and ELC shall pay to
Nationwide, the following:
(i) a monthly management fee of Thirty Four Thousand
Dollars ($34,000) to be payable out of the ELC's Net Revenues.
For the purposes of this Agreement, Net Revenues of ELC shall
mean total revenues of ELC, including without limitation, all
lease payments, proceeds from resale of leases and other
revenue derived in anyway from operation of ELC, less all
operating expenses of ELC; and
(ii) An annual management bonus, to be determined and
paid by March 31st of each year, for the prior calendar year,
equal to one percent (1 %) of the total dollar value of leases
funded by ELC as of the end of such calendar year in excess of
fifteen million dollars ($15,000,000); and
(iii) An annual profitability bonus, to be determined
and paid by March 31st of each year, for the prior calendar
year, equal to two percent ( 2%) of the net income of ELC for
such prior year, as calculated by ELC's regular independent
public accountants, based on generally accepted accounting
principles, consistently applied. For purposes of this
Section, the term "net income" shall mean the gross revenues
of ELC for the relevant period, reduced by the following
amounts: (A) management fees payable to Nationwide for the
relevant period, (B) commissions payable to sales
representatives and sales managers of Macpherson, and (C)
expenses payable to unrelated third parties for the relevant
period; and
(iv) Upon receipt of the principal payment under that
certain nonnegotiable promissory note between Southwick
Capital, L.L.C. ("Southwick") as maker and the Company as
holder in the original principal amount of $200,000 (the
"Southwick Note"), the Company shall pay such amount to
Nationwide as an additional management bonus (the "Additional
2
<PAGE>
Management Bonus"). In order to secure the full and prompt
payment of the Additional Management Bonus, ELC does hereby
grant Nationwide a lien upon, security interest in and
security title to and hereby assigns, transfers and
contemporaneously herewith will pledge to Nationwide the
Southwick Note, and any and all renewals, replacements,
extensions, modifications or substitutions thereof or
therefor.
The management fee set forth above shall be the responsibility of
ELC, and in no event shall Macpherson be liable for any portion of the
management fee. ELC acknowledges that the monthly management fee set out
in subsection 2.7(a)(i) hereof is based upon the assumption that
Nationwide shall be responsible for managing an annual volume of business
in the range of fifteen million dollars ($15,000,000). In the event the
value of leases funded by ELC exceeds fifteen million dollars
($15,000,000) in any calendar year, ELC agrees to negotiate in good faith
an increase in Nationwide's monthly management fee which will fairly
compensate Nationwide for the additional costs it incurs in managing a
larger volume of business. In the event the parties are unable to agree on
a revised monthly management fee, Nationwide shall have the right to
terminate this Agreement upon one hundred and eighty (180) days' advance
written notice."
4. Section 3.1(a) and (b) of the Original Agreement shall be deleted in
its entirety and the following substituted therefore:
"4.1 TERM OF AGREEMENT.
(a) This Agreement shall become effective as of the day
and year first above written and, unless earlier terminated in
accordance with the terms and provisions hereof, shall
continue in effect until December 31, 1999. All lease
applications relating to Equipment, dated as of February 19,
1996, or thereafter, procured by Nationwide, shall be deemed
to be covered by this Agreement and shall be ELC leases. After
expiration of the original term, this Agreement shall be
automatically renewed for successive three (3) year periods
unless any party hereto shall give written notice to the other
party hereto, not less than twelve (12) months prior to the
end of such period." No termination of this Agreement shall
effect Nationwide's entitlement to management fees owed by ELC
for any period prior to such termination pursuant to Sections
2.7(a)(ii) and 2.7(a)(iii) hereof, or for any and all payments
due under Section 2.7(a)(iv) hereof.
(b) Upon any of the following events prior to the
termination of this Agreement as provided in this Section,
without notice to ELC, Nationwide shall have the right to
immediately terminate this Agreement and shall be entitled to
"Liquidated Damages" as hereinafter defined:
(i) ELC fails to pay any amount due hereunder
within ten (10) days after ELC and the Parent
Corporation receives notice of nonpayment from
Nationwide;
(ii) Fifty percent or more of the voting capital
stock of ELC is transferred to any person or persons
other than the Parent
3
<PAGE>
Corporation, or a wholly owned subsidiary of the Parent
Corporation; or
(iii) All or substantially all of the assets of
ELC are sold or transferred.
For purposes of this Section, the term "Liquidated
Damages" shall mean an amount equal to the product obtained by
multiplying the number of months remaining under the then
current term of the Agreement by thirty three thousand dollars
($33,000.00)".
5. Add a new Article III to the Agreement, which provides as follows:
"III. COMMITMENT OF PARENT CORPORATION.
3.1 PARENT CORPORATION AS PARTY TO AGREEMENT. Pursuant to an
agreement dated as of November 27, 1996, by and among Michael
Bennett ("Bennett") and WG Apparel, Inc., a Delaware corporation (
"WG"), WG has purchased all of the outstanding capital stock of ELC
from Bennett. Willcox & Gibbs, Inc., a Delaware corporation ("Parent
Corporation"), as the parent corporation of WG, hereby joins in this
Agreement for the sole purpose of making the commitments in support
of WG and ELC set forth in this Article III.
3.2 FINANCIAL INVESTMENT IN ELC. Parent Corporation hereby
agrees that it will make a capital investment in ELC, not later than
December 31, 1997, of not less than Five Million Dollars
($5,000,000), contingent upon the requirements of ELC for the cash
infusion and the successful completion and closing of a Rule 144A
securities offering to, among other things, raise a minimum of
$85,000,000 in cash through the issuance of Senior Unsecured Notes
to refinance the existing debt of Parent Corporation and to finance
the transactions contemplated herein and in a certain Stock Purchase
Agreement, dated as of November 27, 1996, providing for the purchase
of all of the outstanding capital stock of Macpherson by WG (the
"Rule 144A Financing"). The terms, provisions and requirements of
such Rule 144A Financing and the securities offering in connection
with same shall be exclusively determined by Parent Corporation, WG,
their attorneys, accountants and underwriters in their sole
discretion. Such capital investment shall not be used by ELC for any
purpose other than the funding of leases pursuant to this Agreement
without the prior approval of a majority of the Board of Directors
of ELC.
3.3 ADDITIONAL LEASING PROGRAMS. Parent Corporation hereby
agrees that it will take such action as is necessary to cause its
wholly owned subsidiary corporations, namely the Sun brand Division
of WG Apparel, Inc., Lattice Systems, Inc. and Clinton Machinery
Corp., to join in this Agreement and to utilize the leasing program
established pursuant to this Agreement as the leasing program for
equipment sold by such subsidiaries. In addition, Parent Corporation
hereby agrees to use its best efforts to obtain the agreement of its
affiliated corporations, if and when created, to join in this
Agreement and to utilize the leasing program established pursuant to
this Agreement as the leasing program for equipment sold by such
affiliates."
4
<PAGE>
3.4 GUARANTY OF PARENT CORPORATION. The Parent Corporation
hereby agrees to guaranty the payment of obligations of ELC to
Nationwide pursuant to the Contract of Guaranty attached hereto as
Schedule 3.4 hereto."
6. Renumber Article III of the Original Agreement as "Article IV" and
renumber Sections 3.1, 3.2 and 3.3 of the Original Agreement as Sections 4.1,
4.2 and 4.3.
7. Add to the end of Section 3.3(e) of the Original Agreement (Section 4.3
of the Agreement, as amended) the following:
"If to WG or the Parent Corporation:
Willcox & Gibbs, Inc.
900 Milik Street
Chartered, New Jersey 07008
Attention: John K. Ziegler
Telephone: (908) 541-6255
Facsimile: (908) 541-6249
with copy (which will not constitute notice) to:
Waters, McPherson, McNeill, P.C.
300 Lighting Way
Secaucus, New Jersey 07096
Attention: Charles J. Harriman, Esq.
Telephone: (201) 863-4400
Facsimile: (201) 863-2866"
8. Effect of Amendment. Except as expressly amended hereby, all terms and
conditions of the Original Agreement shall be and remain in full force and
effect.
9. Successors and Assigns. This First Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the date first stated above.
MACPHERSON MEISTERGRAM, INC.
By:
-----------------------------------
Its:
-----------------------------------
NATIONWIDE CAPITAL CORPORATION
By:
-----------------------------------
Its:
-----------------------------------
5
<PAGE>
EMBROIDERY LEASING CORPORATION
By:
-----------------------------------
Its:
-----------------------------------
Willcox & Gibbs, Inc., hereby executes this First Amendment for the sole
purpose of acknowledging its agreement to be bound by the provisions of Article
III of the Agreement, as added by this First Amendment.
WILLCOX & GIBBS, INC.
By: /s/ John K. Ziegler
-----------------------------------
Its: Chairman & Chief Executive Officer
6
<PAGE>
Exhibit 10.2
AMENDMENT NO. 1 TO MERGER AGREEMENT
THIS AGREEMENT, dated as of December __, 1996 ("Amendment No. 1 to Merger
Agreement") is made among WILLCOX & GIBBS, INC. (formerly "WG, Inc.") ("WG"),
CLINTON MACHINERY CORPORATION, a Delaware Corporation ("Clinton"), WG APPAREL,
INC., a Delaware Corporation ("WG Apparel"), FRANK SCANNAVINO, CHARLES NALL AND
MARC GLAZER (collectively the "Stockholders").
W I T N E S S E T H:
WHEREAS, pursuant to the terms of a certain Agreement and Plan of Merger,
dated December 15, 1995 ("Merger Agreement"), among WG, Clinton Machinery
Corporation, a Florida Corporation (the "Company"), Clinton and the
Stockholders, Company merged with and into Clinton; and
WHEREAS, as part of the consideration to the Stockholders in connection
with the Merger, the Stockholders received 100,000 shares of WG and received an
option to put those shares to WG Apparel at a price equal to Thirty Dollars
($30.00) per share in accordance with and subject to the terms and conditions of
the Merger Agreement ( the "Put Option"); and
WHEREAS, pursuant to a certain Security Agreement ("Security Agreement")
dated February 1, 1996, and in order to secure, among other things, payment of
the purchase price in the event the Put Option was exercised and the "Annual
Payments" under the "Stock Purchase Agreement" (as those terms are defined in
the Security Agreement), the Stockholders were granted a security interest in
the "Collateral" as that term is defined in the Security Agreement; and
WHEREAS, WG plans to offer certain Series A Senior Notes (the "Notes") to
raise approximately $85,000,000 cash to be used to pay off existing
institutional revolver and term debt, fund the acquisition of Macpherson
Meistergram Corporation and for general corporate purposes; and
WHEREAS, WG intends to offer to exchange the Series A Senior Notes for its
Series B Senior Notes (together with the Series A Senior Notes, and any other
security from time to time issued under the Indenture, as hereinafter defined,
the "Senior Notes" ), and the Indenture under which the Senior Notes will be
issued (the "Indenture") will, among other things, restrict WG's and WG
Apparel's ability to make certain "Restricted Payments" (as that term will be
defined in the Indenture); and
<PAGE>
WHEREAS, WG plans to obtain bank financing in the amount of approximately
$18,500,000.00 ("Bank Financing") from NationsBank, N.A. ("NationsBank") to be
used for general corporate purposes; and
WHEREAS, In connection with the issuance of the Senior Notes and the
consummation of the Bank Financing, WG has been requested to amend the Merger
Agreement so as to change the rights of the Stockholders as respects the Put
Option and Stockholders have also been requested to release all of their
security interests created by the Security Agreement; and
WHEREAS, Stockholders will benefit from the issuance of the Senior Notes,
and therefore Stockholders have agreed to so amend the terms of the Put Option
and release all of their rights set forth under the Security Agreement, as
further set forth in this Agreement; and
NOW THEREFORE in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
each Stockholder agrees as follows:
ARTICLE 1
1.1 Amendment to Put Option. Section 4.1 of the Merger Agreement is
amended and restated to read as follows:
"4.1 Put Option. (a) Each Stockholder shall have the right, subject
to the requirements set forth in this Section 4.1, to sell his WG, Inc.
Common stock to WG Apparel, Inc. at a price of thirty ($30) dollars per
share (the "Put Option"). Exercise by a Shareholder of his option shall be
by written notice (the "Exercise Notice") to WG Apparel, Inc. or the other
shareholders of WG, Inc. pursuant to subparagraph 4.1(a)(iv) below. The
Exercise Notice shall not be effective, and the Put Option shall not be
exercisable except to the extent set forth in Section 4.1(e) below,
unless, at the time of delivery of the Exercise Notice and at the time of
closing of the Put Option:
(i) the Exercise Notice shall have been delivered during the "Option
Period" as hereafter defined. The Option Period shall commence on
the earlier to occur of (w) the day after the due date of the Senior
Notes whether by occurrence of the scheduled maturity date or sooner
acceleration of the due date (provided that if the Senior Notes
become due on a date other than the scheduled maturity date, the
Option Period shall not terminate until thirty (30) days after
Stockholders receive written notice
- 2 -
<PAGE>
of the accelerated maturity date); (x) the fourth (4th) anniversary
of the Closing Date; (y) the closing date of an Initial Public
Offering with respect to WG (by which is meant the date WG, Inc. or
any of it stockholders receives the cash proceeds from the sale of
common stock pursuant to the first effective registration statement
filed under the Securities Act of 1933 and the rules and regulations
thereunder, other than a registration on Form S-4 or S-8 or any
successor form); (z) the date of a Change of Control (as hereinafter
defined) of WG, Inc.; provided that the events described in
subparagraph (z) above shall not be deemed a triggering event unless
the cash portion of the consideration paid for or to WG, Inc. at the
closing is at least fifty one percent (51%) of the total
consideration. The Option Period shall end thirty (30) days after
the occurrence of any of the events described in clauses (w), (x),
(y) or (z) of this subparagraph 4(a)(i). WG, Inc. shall provide each
Stockholder at least thirty (30) days prior written notice before
any event which could result in the exerciseability of the Put
Option under subparagraphs (y) or (z) above.
(ii) Except in the event of a Change of Control (as to which this
subparagraph shall not apply), no Default or Event of Default exists
under the Indenture or with respect to the terms, covenants or
provisions of any Senior Notes or the Bank Financing on the part of
WG, Inc. or WG Apparel, Inc. to be kept, performed and observed; nor
would any such Default or Event of Default occur under the
Indenture, the Senior Notes or the Bank Financing upon payment of
the purchase price for the number of shares designated in the
Exercise Notice.
(iii) Except in the event of a Change of Control (as to which this
subparagraph shall not apply), WG, Inc. and/or WG Apparel, Inc.
would have available after payment of the purchase price for the
number of shares designated in the Exercise Notice, cash, cash
equivalents, and/or available borrowing facilities in an aggregate
amount of at least One Million ($1,000,000) Dollars.
(iv) Stockholders shall have first offered to sell their WG, Inc.
Shares to the other Shareholders of WG, Inc. pursuant to the
provisions of paragraph 1 of the WG, Inc. Investors Shareholders
Agreement
- 3 -
<PAGE>
dated as of June 17, 1994, as amended (the "Investors Shareholder
Agreement"), and there remains any unsold shares.
(b) Stockholders shall have the option to reduce the number of WG,
Inc. Shares which are subject to any Exercise Notice, in order to
effectuate an effective Put Option which satisfies the conditions set
forth in subparagraphs 4.1(a)(ii) and 4.1(a)(iii) above.
(c) The closing of the Put Option shall occur at the offices of the
attorneys for WG, Inc. at such time as shall be mutually agreeable to
Stockholders and WG, Inc. provided that such date shall not be later than
thirty (30) days following the closing date, if applicable, for purchases
of WG, Inc. Shares under the right of first refusal provisions of the
Investors Shareholder Agreement and if the Put Option is exercised by
reason of a Change of Control the closing of the Put Option shall occur
prior to or simultaneous with the Change of Control closing.
(d) WG Apparel, Inc. shall have the option to pay the purchase price
for the WG, Inc. Shares which are subject to the Put Option, in either of
the following manners: (a) payment of the entire purchase price in
immediately available funds at closing, or (b) fifty (50%) percent of the
purchase price at closing in immediately available funds and fifty (50%)
percent of the purchase price due on the first (1st) anniversary of the
first payment together with interest at twelve (12%) percent per annum on
the principal amount of said note. If an Exercise Notice is properly given
and effective and all applicable conditions to same set forth in this
Section 4.1 have been met, such that the entire (100%) purchase price for
the shares referenced in the Exercise Notice may be paid by WG Apparel at
the time of the Exercise Notice, and notwithstanding same WG Apparel
elects to pay fifty (50%) percent of the said purchase price one year
later as above provided, then in such event the conditions for the
effectiveness of the Exercise Notice in subparagraphs 4.1(a)(ii) and
4.1(a)(iii) above, shall not apply to payment of the deferred portion
(50%) of the purchase price referenced above.
(e) In the event that the Put Option cannot be exercised pursuant to
the provisions of Section 4.1 hereof, payment of the entire purchase price
shall be due on the date that the restrictions contained in Section
4.1(a)(ii) and 4.1(a)(iii) hereof are no longer
- 4 -
<PAGE>
applicable, together with interest thereon at twelve percent (12%) per
annum on the principal amount due from the date of the Exercise Notice to
the payment date.
4.2 Adjustments. In the event of any increase or decrease in the
number of issued shares of WG, Inc. common stock effected without receipt
of consideration by WG, Inc., including, without limitation,
recapitalizations, stock splits or stock dividends, the Put Option Price
shall be proportionately adjusted to reflect such increase or decrease. In
the event of a proposed sale of all or substantially all of the assets of
WG, Inc. or the merger or consolidation of WG, Inc. with or into another
corporation and any such transaction is effected in a manner that holders
of WG, Inc. common stock will be entitled to receive stock or other
securities in exchange for such stock, then, as a condition to such
transaction, lawful and adequate provision shall be made whereby the terms
of the Put Option, including, without limitation, the Put Option Price,
shall thereafter be applicable, as nearly equivalent as may be
practicable, in relation to any shares of stock or securities thereafter
deliverable with respect to the WG, Inc. Shares. However, the foregoing
shall not result in any acceleration of the date on which the Put Option
may be exercised except as herein otherwise provided.
4.3 Expiration of Put Option. If an Exercise Notice is not properly
delivered during the Option Period, the put option under Section 4.1 shall
expire and terminate on the expiration of the Option Period date. All
rights of the Stockholders as respects the Put Option shall forever
terminate on such date, unless the Put Option was properly exercised prior
to such date. "
ARTICLE 2
Stockholders agree that on or prior to the date of issuance and delivery
of the Series A Senior Notes, Stockholders shall execute and deliver all
documents necessary to release their security interests in all of the Collateral
under the Security Agreement (whether securing payment of the purchase price
upon exercise of the Put Option, payment of the Annual Payments, or otherwise)
and to terminate the Security Agreement, including but not limited to UCC-3
termination statements and any other documents requested by WG. Each Stockholder
will, promptly from time to time upon the reasonable request by WG, NationsBank
or any Senior Holder, execute and deliver, or cause to be executed and
delivered, or use its best efforts to procure and deliver, any UCC-3 financing
- 5 -
<PAGE>
statements, instruments or documents to WG and take any other actions that are
reasonably necessary or desirable to release (or evidence the release of) the
security interest in the Collateral and/or to terminate the Security Agreement.
WG, NationsBank, and each Senior Holder is hereby irrevocably authorized to
execute any such termination statements or any other instruments or documents in
the event of the failure of any Stockholder to execute any of the foregoing.
Each Stockholder agrees that it will execute and deliver such other and further
powers of attorney or other instruments as WG, NationsBank or any Senior Holder
may reasonably request in order to accomplish the foregoing. Neither NationsBank
nor any Senior Holder shall have any liability to any Stockholder, nor shall any
Stockholder have any liability to either NationsBank or any Senior Holder
(except to the extent of their obligations set forth herein), in connection with
any such filing, instrument or document. WG shall pay all fees and costs
incurred in connection with any of the foregoing.
ARTICLE 3
Except as specifically amended hereby, the Merger Agreement and all the
documents executed and delivered in connection therewith shall remain in full
force and effect. Nothing herein is intended nor is to be construed to effect
the continued right of the Stockholders to receive the Annual Payments under the
Stock Purchase Agreement.
ARTICLE 4
This Amendment No. 1 to the Merger Agreement shall become effective only
upon the issuance and delivery of the Series A Senior Notes. If the issuance and
delivery of the Series A Senior Notes shall not occur on or before February 28,
1997, then this Amendment No. 1 to the Merger Agreement shall be void and of no
effect, and all of the original provisions of the Merger Agreement and the
Security Agreement shall remain in full force and effect as if this Amendment
No. 1 to the Merger Agreement had never been executed.
- 6 -
<PAGE>
IN WITNESS WHEREOF, the parties have affixed their signatures on the date
first above written in the presence of the undersigned witnesses.
WILLCOX & GIBBS, INC.
By: /s/ [ILLEGIBLE]
--------------------------------
Title:
WG APPAREL, INC.
By: /s/ [ILLEGIBLE]
--------------------------------
Title:
CLINTON MACHINERY CORPORATION
By: /s/ FRANK SCANNAVINO
--------------------------------
Title:
/s/ FRANK SCANNAVINO
-----------------------------------
FRANK SCANNAVINO
/s/ CHARLES NALL
-----------------------------------
CHARLES NALL
/s/ MARC GLAZER
-----------------------------------
MARC GLAZER
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<PAGE>
Exhibit 10.3
FINANCING AND SECURITY AGREEMENT
By and Among
WG APPAREL, INC., a Delaware corporation
WILLCOX & GIBBS, INC., a Delaware corporation
LEADTEC SYSTEMS INC., a Delaware corporation
CLINTON MANAGEMENT CORP., a Florida corporation
CLINTON MACHINERY CORPORATION, a Delaware corporation
MACPHERSON MEISTERGRAM, INC., a North Carolina corporation
as Borrowers
and
NATIONSBANK, N.A., a National Banking Association
as Lender
Dated December 17 , 1996
<PAGE>
ARTICLE 1
DEFINITIONS
SECTION 1.1 Certain Defined Terms.................................... 1
SECTION 1.2 Accounting Terms and Other Definitional Provisions....... 27
ARTICLE 2
THE CREDIT FACILITIES
SECTION 2.1 The Revolving Credit Facility............................ 28
2.1.1 Revolving Credit Facility................................ 28
2.1.2 Procedure for Making Advances Under the Revolving
Loan; Lender Protection Loans............................ 28
2.1.3 Borrowing Base........................................... 29
2.1.4 Borrowing Base Report.................................... 30
2.1.5 Revolving Credit Note.................................... 31
2.1.6 Mandatory Prepayments of Revolving Loan.................. 31
2.1.7 Optional Prepayments of Revolving Loan................... 31
2.1.8 The Collateral Account................................... 32
2.1.9 Revolving Loan Account................................... 33
2.1.10 Revolving Credit Unused Line Fee......................... 33
2.1.11 Early Termination Fee.................................... 34
2.1.12 Required Availability under the Revolving Credit
Facility................................................. 34
2.1.13 Right of Lender to Demand Payment and Terminate
Revolving Credit Facility................................ 34
SECTION 2.2 The Letter of Credit Facility............................ 35
2.2.1 Letters of Credit........................................ 35
2.2.2 Letter of Credit Fees.................................... 35
2.2.3 Terms of Letters of Credit............................... 35
2.2.4 Procedure for Letters of Credit.......................... 36
SECTION 2.3 The Foreign Exchange Facility............................ 36
2.3.1 Foreign Exchange Agreements.............................. 36
2.3.2 Foreign Exchange Reserves................................ 37
2.3.3 Terms of Foreign Exchange Agreements..................... 37
2.3.4 Procedure for Foreign Exchange Agreements................ 37
SECTION 2.4 Applicable Interest Rates................................ 38
2.4.1 Selection of Interest Rates.............................. 38
2.4.2 Inability to Determine LIBOR Base Rate................... 40
2.4.3 Indemnity................................................ 41
2.4.4 Payment of Interest...................................... 42
SECTION 2.5 General Financing Provisions............................. 43
-i-
<PAGE>
2.5.1 Borrrowers' Representatives.............................. 43
2.5.2 Use of Proceeds.......................................... 45
2.5.3 Origination Fee.......................................... 45
2.5.4 Field Examination Fees................................... 45
2.5.5 Computation of Interest and Fees......................... 45
2.5.6 Payments................................................. 45
2.5.7 Liens; Setoff............................................ 46
2.5.8 Requirements of Law...................................... 46
ARTICLE 3
THE COLLATERAL
SECTION 3.1 Debt and Obligations Secured............................. 47
SECTION 3.2 Grant of Liens........................................... 47
SECTION 3.3 Collateral Disclosure List............................... 47
SECTION 3.4 Personal Property........................................ 48
3.4.1 Chattel Paper, Promissory Notes, etc..................... 48
SECTION 3.5 Record Searches.......................................... 48
SECTION 3.6 Costs.................................................... 49
SECTION 3.7 Release.................................................. 49
SECTION 3.8 Inconsistent Provisions.................................. 50
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
SECTION 4.1 Representations and Warranties........................... 50
4.1.1 Subsidiaries............................................. 50
4.1.2 Good Standing............................................ 50
4.1.3 Power and Authority...................................... 50
4.1.4 Binding Agreements....................................... 51
4.1.5 No Conflicts............................................. 51
4.1.6 No Defaults, Violations.................................. 51
4.1.7 Compliance with Laws..................................... 51
4.1.8 Margin Stock............................................. 52
4.1.9 Investment Company Act; Margin Securities................ 52
4.1.10 Litigation............................................... 52
4.1.11 Financial Condition...................................... 53
4.1.12 Full Disclosure.......................................... 53
4.1.13 Indebtedness for Borrowed Money.......................... 53
4.1.14 Taxes.................................................... 54
4.1.15 ERISA.................................................... 54
4.1.16 Title to Properties...................................... 54
4.1.17 Patents, Trademarks, Etc. .............................. 55
4.1.18 Presence of Hazardous Materials or Hazardous Materials
Contamination............................................ 55
4.1.19 Perfection and Priority of Collateral.................... 55
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<PAGE>
4.1.20 Places of Business and Location of Collateral............ 56
4.1.21 Business Names and Addresses............................. 56
4.1.22 Accounts................................................. 56
4.1.23 Compliance with Eligibility Standards.................... 57
4.1.24 Purchase Agreement Transaction........................... 57
SECTION 4.2 Survival; Updates of Representations and Warranties...... 57
ARTICLE 5
CONDITIONS PRECEDENT
SECTION 5.1 Conditions to the Initial Advance, Initial Letter
of Credit and Initial Foreign Exchange Agreement......... 58
5.1.1 Good Standing etc. ..................................... 58
5.1.2 Corporate Proceedings of the Borrowers................... 58
5.1.3 Consents, Licenses, Approvals, Etc....................... 59
5.1.4 Collateral Disclosure List............................... 59
5.1.5 Note..................................................... 59
5.1.6 Financing Documents and Collateral....................... 59
5.1.7 Recordings and Filings................................... 59
5.1.8 Opinion of Borrowers' Counsel............................ 60
5.1.9 Other Documents, Etc. .................................. 60
5.1.10 Payment of Fees.......................................... 60
5.1.11 Additional Matters....................................... 60
5.1.12 Other Financing Documents................................ 60
5.1.13 Insurance Certificate.................................... 60
5.1.14 Credit Insurance......................................... 60
5.1.15 Landlord's Waivers....................................... 60
5.1.16 Field Examination........................................ 60
5.1.17 Proforma Balance Sheet and Projections................... 61
5.1.18 Purchase Agreement Transaction........................... 61
5.1.19 Reliance Letters; Opinions............................... 61
5.1.20 Senior Notes............................................. 62
5.1.21 Reduction of Revolving Credit Committed Amount........... 62
5.1.22 Delivery of Documents.................................... 62
5.1.23 Completion of Schedules.................................. 62
SECTION 5.2. Conditions to all Extensions of Credit................... 62
5.2.1 Compliance............................................... 62
5.2.2 Borrowing Base........................................... 62
5.2.3 Default.................................................. 63
5.2.4 Representations and Warranties........................... 63
5.2.5 Adverse Change........................................... 63
5.2.6 Legal Matters............................................ 63
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ARTICLE 6
COVENANTS OF THE BORROWERS
SECTION 6.1 Affirmative Covenants.................................... 63
6.1.1 Financial Statements..................................... 63
6.1.2 Reports to SEC and to Stockholders....................... 66
6.1.3 Recordkeeping, Rights of Inspection, Field
Examination, Etc. ....................................... 66
6.1.4 Corporate Existence...................................... 67
6.1.5 Compliance with Laws..................................... 67
6.1.6 Preservation of Properties............................... 67
6.1.7 Line of Business......................................... 68
6.1.8 Insurance................................................ 68
6.1.9 Taxes.................................................... 68
6.1.10 ERISA.................................................... 69
6.1.11 Notification of Events of Default and Adverse
Developments............................................. 69
6.1.12 Hazardous Materials; Contamination....................... 70
6.1.13 Disclosure of Casualty................................... 71
6.1.14 Collection of Receivables................................ 72
6.1.15 Assignments of Receivables............................... 72
6.1.16 Government Accounts...................................... 73
6.1.17 Notice of Returned Goods, etc............................ 73
6.1.18 Credit Insurance......................................... 73
6.1.19 Maintenance of the Collateral............................ 74
6.1.20 Defense of Title and Further Assurances.................. 74
6.1.21 Business Names; Locations................................ 75
6.1.22 Subsequent Opinion of Counsel as to Recording
Requirements............................................. 75
6.1.23 Use of Premises and Equipment............................ 75
6.1.24 Protection of Collateral................................. 76
SECTION 6.2 Negative Covenants....................................... 76
6.2.1 Capital Structure, Merger, Acquisition or Sale of
Assets................................................... 76
6.2.2 Subsidiaries............................................. 77
6.2.3 Purchase or Redemption of Securities, Dividend
Restrictions............................................. 77
6.2.4 Indebtedness............................................. 78
6.2.5 Investments, Loans and Other Transactions................ 79
6.2.6 Financial Covenants...................................... 80
6.2.7 Stock of Subsidiaries.................................... 82
6.2.8 Subordinated Indebtedness................................ 82
6.2.9 Liens; Confessed Judgment................................ 83
6.2.10 Transactions with Affiliates............................. 83
6.2.11 Other Businesses......................................... 83
6.2.12 ERISA Compliance......................................... 83
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6.2.13 Prohibition on Hazardous Materials....................... 84
6.2.14 Amendments............................................... 84
6.2.15 Method of Accounting; Fiscal Year........................ 84
6.2.16 Compensation............................................. 84
6.2.17 Transfer of Collateral................................... 85
6.2.18 Sale and Leaseback....................................... 85
6.2.19 Disposition of Collateral................................ 85
ARTICLE 7
DEFAULT AND RIGHTS AND REMEDIES
SECTION 7.1 Events of Default........................................ 85
7.1.1 Failure to Pay........................................... 85
7.1.2 Breach of Representations and Warranties................. 86
7.1.3 Failure to Comply with Covenants......................... 86
7.1.4 Default Under Other Financing Documents or
Obligations.............................................. 86
7.1.5 Receiver; Bankruptcy..................................... 86
7.1.6 Involuntary Bankruptcy, etc. ........................... 87
7.1.7 Judgment................................................. 87
7.1.8 Execution; Attachment.................................... 88
7.1.9 Default Under Other Borrowings........................... 88
7.1.10 Challenge to Agreements.................................. 88
7.1.11 Material Adverse Change.................................. 88
7.1.12 Impairment of Position................................... 88
7.1.13 Change in Ownership...................................... 88
7.1.14 Liquidation, Termination, Dissolution, Change in
Management, etc.......................................... 89
SECTION 7.2 Remedies................................................. 89
7.2.1 Acceleration............................................. 89
7.2.2 Further Advances......................................... 89
7.2.3 Uniform Commercial Code.................................. 89
7.2.4 Specific Rights With Regard to Collateral................ 91
7.2.5 Application of Proceeds.................................. 92
7.2.6 Performance by Lender.................................... 92
7.2.7 Other Remedies........................................... 93
ARTICLE 8
MISCELLANEOUS
SECTION 8.1 Notices.................................................. 93
SECTION 8.2 Amendments; Waivers...................................... 94
SECTION 8.3 Cumulative Remedies...................................... 95
SECTION 8.4 Severability............................................. 96
SECTION 8.5 Assignments by Lender.................................... 97
SECTION 8.6 Successors and Assigns................................... 97
SECTION 8.7 Continuing Agreements.................................... 97
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SECTION 8.8 Enforcement Costs........................................ 99
SECTION 8.9 Applicable Law; Jurisdiction............................. 99
SECTION 8.10 Duplicate Originals and Counterparts..................... 100
SECTION 8.11 Headings................................................. 100
SECTION 8.12 No Agency................................................ 100
SECTION 8.13 Date of Payment.......................................... 100
SECTION 8.14 Entire Agreement......................................... 100
SECTION 8.15 Waiver of Trial by Jury.................................. 102
SECTION 8.16 Liability of the Lender.................................. 102
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<PAGE>
FINANCING AND SECURITY AGREEMENT
THIS FINANCING AND SECURITY AGREEMENT (this "Agreement") is made this 17th
day of December, 1996, by and among
WG APPAREL, INC., a Delaware corporation ("Apparel"), WILLCOX & GIBBS,
INC., a Delaware corporation ("Holdings"), LEADTEC SYSTEMS INC., a
Delaware corporation ("Leadtec"), CLINTON MANAGEMENT CORP., a Florida
corporation ("Clinton Management") CLINTON MACHINERY CORPORATION, a
Delaware corporation ("Clinton Machinery"), following the closing of the
Purchase Agreement and execution of the Joinder, (as those terms are
defined in Section 1.1 of this Agreement), MACPHERSON MEISTERGRAM, INC. a
North Carolina corporation ("Macpherson"), jointly and severally (each of
Apparel, Holdings, Leadtec, Clinton Management, Clinton Machinery, and
Macpherson a "Borrower;" Apparel, Holdings, Leadtec, Clinton Management,
and Clinton Machinery, collectively, the "Borrowers"), and
NATIONSBANK, N.A., a national banking association (the "Lender").
RECITALS
A. The Borrowers have applied to the Lender for credit facilities
consisting of a revolving credit facility, with a letter of credit and foreign
exchange subfacilities, in the maximum principal amount of $18,500,000 to be
used by the Borrowers for the Permitted Uses described in this Agreement.
B. The Lender is willing to make those credit facilities available to the
Borrowers upon the terms and subject to the conditions set forth in this
Agreement.
ARTICLE 1
DEFINITIONS
SECTION 1.1 Certain Defined Terms. As used in this Agreement, the terms
defined in the Preamble and Recitals hereto shall have the respective meanings
specified therein, and the following terms shall have the following meanings:
"Account" individually and "Accounts" collectively mean all
presently existing or hereafter acquired or created accounts, accounts
receivable, contract rights, notes, drafts, instruments, acceptances, chattel
paper, leases and writings evidencing a monetary obligation or a security
interest in or a lease of goods, all rights to receive the payment of money or
other consideration under present or future contracts (including, without
limitation,
<PAGE>
all rights to receive payments under presently existing or hereafter acquired or
created letters of credit), or by virtue of merchandise sold or leased, services
rendered, loans and advances made or other considerations given, by or set forth
in or arising out of any present or future chattel paper, note, draft, lease,
acceptance, writing, bond, credit insurance policy, other insurance policy,
instrument, document or general intangible, and all extensions and renewals of
any thereof, all rights under or arising out of present or future contracts,
agreements or general interest in merchandise which gave rise to any or all of
the foregoing, including all goods, all claims or causes of action now existing
or hereafter arising in connection with or under any agreement or document or by
operation of law or otherwise, all collateral security of any kind (including
real property mortgages) and letters of credit given by any person with respect
to any of the foregoing, all books and records in whatever media (paper,
electronic or otherwise) recorded or stored, with respect to any or all of the
foregoing and all equipment and general intangibles necessary or beneficial to
retain, access and/or process the information contained in those books and
records, and all proceeds (cash and non-cash) of the foregoing.
"Account Debtor" means any Person who is obligated on a Receivable
and "Account Debtors" mean all Persons who are obligated on the Receivables.
"Adjusted EBITDA" means, for any period EBITDA for such period less,
to the extent not already deducted in determining net income for such period,
the amount accrued by the Company for such period (whether or not paid during
such period) in respect of its obligations to make "First Tier Annual Payments"
and "Second Tier Annual Payments" to the Clinton Sellers pursuant to Section
1.2(b) of the Clinton Stock Purchase Agreement.
"Affiliate" means, with respect to designated Person, any other
Person, directly or indirectly controlling, directly or indirectly controlled
by, or under direct or indirect common control with the Person designated, as
the case may be.
"Agreement" means this Financing and Security Agreement and all
amendments, modifications and supplements hereto which may from time to time
become effective.
"Applicable Interest Rate" means (i) the LIBOR Rate, or (ii) the
Base Rate.
"Applicable Margin" means the applicable rate per annum added, as
set forth in Section 2.4, to LIBOR or the Prime Rate.
"Assets" means at any date all assets that, in accordance with GAAP
consistently applied, should be classified as assets on a consolidated balance
sheet of any one or more of the Borrowers.
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"Asset Sale" means any sale, lease or other disposition (including
any such transaction effected by way of merger or consolidation) by the
Borrowers or any of their Subsidiaries of any asset, but excluding (i)
dispositions of inventory in the ordinary course of business, and (ii)
dispositions of Temporary Cash Investments and cash payments otherwise permitted
under this Agreement; provided that a disposition of assets not excluded by
clauses (i) or (ii) above during any Fiscal Year shall not constitute an Asset
Sale unless and until (and only to the extent that) the aggregate Net Cash
Proceeds from such disposition, when combined with all other such dispositions
previously made during such Fiscal Year, exceeds $150,000.
"Bankruptcy Code" means the United States Bankruptcy Code, as
amended from time to time.
"Base Rate" means the sum of (i) the Prime Rate plus (ii) the
Applicable Margin.
"Base Rate Loan" means any Loan for which interest is to be computed
with reference to the Base Rate.
"Borrowing Base" has the meaning described in Section 2.1.3
(Borrowing Base).
"Borrowing Base Deficiency" has the meaning described in Section
2.1.3 (Borrowing Base).
"Borrowing Base Report" has the meaning described in Section 2.1.4
(Borrowing Base Report).
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in the State are authorized or required to close.
"Capital Expenditures" means, for any period, the aggregate amount
of expenditures by the Borrowers and their Subsidiaries for plant, property and
equipment during such period (including any such expenditure by way of
acquisition of a Person or by way of assumption of indebtedness or other
obligations of a Person, to the extent reflected as plant, property and
equipment), but excluding any such expenditures made for the replacement or
restoration of assets to the extent financed by condemnation awards or proceeds
of insurance received with respect to the loss or taking of or damage to the
asset or assets being replaced or restored.
"Capital Lease" of any Person means any lease of any property
(whether real, personal or mixed) by such Person as lessee which would, in
accordance with GAAP, be required to be accounted for as a capital lease on the
balance sheet of such Person.
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"Chattel Paper" means a writing or writings with respect to an
Account or Accounts which evidence both a monetary obligation and a security
interest in or lease of specific goods; any returned, rejected or repossessed
goods covered by any such writing or writings and all proceeds (in any form
including, without limitation, accounts, contract rights, documents, chattel
paper, instruments and general intangibles) of such returned, rejected or
repossessed goods; and all proceeds (cash and non-cash) of the foregoing.
"Closing Date" means the Business Day, in any event not later than
January 30, 1997, on which the Lender shall be satisfied that the conditions
precedent set forth in Section (Conditions) have been fulfilled.
"Collateral" means all Accounts and Chattel Paper of the Borrowers'
with any and all cash and non-cash proceeds and products thereof.
"Collateral Account" has the meaning described in Section 2.1.8
(Collateral Account).
"Collateral Disclosure List" has the meaning described in Section
3.3 (Collateral Disclosure List).
"Commitment" means the Revolving Credit Commitment.
"Commonly Controlled Entity" means an entity, whether or not
incorporated, which is under common control with the Borrower within the meaning
of Section 414(b) or (c) of the Internal Revenue Code.
"Consolidated Capital Expenditures" means, for any period, the
aggregate amount of expenditures by the Borrowers and their Subsidiaries for
plant, property and equipment during such period (including any such expenditure
by way of acquisition of a Person or by way of assumption of indebtedness or
other obligations of a Person, to the extent reflected as plant, property and
equipment), but excluding any such expenditures made for the replacement or
restoration of assets to the extent financed by condemnation awards or proceeds
of insurance received with respect to the loss or taking of or damage to the
asset or assets being replaced or restored.
"Consolidated Free Cash Flow" means, for any period, Adjusted EBITDA
for such period minus the following amounts:
(a) the current portion of the provision for income taxes by
the Borrowers and their Subsidiaries for such period;
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(b) Consolidated Capital Expenditures for such period, to the
extent that such Consolidated Capital Expenditures are permitted by
Section 6.2.6(a) and are not financed during such period (and will
not be financed in any future period) with the proceeds of
Indebtedness for Borrowed Money of the Borrowers permitted by
Section 6.2.4; and
(c) any net gain in respect of Asset Sales during such period.
"Consolidated Total Debt" means at any date the Indebtedness for
Borrowed Money of the Borrowers and their Subsidiaries, determined on a
consolidated basis at such date and without giving effect to any amount
attributable to (ii) original issue discount in connection with the issuance of
the Warrants or (ii) the Warrant Notes and excluding any contingent liability of
the Borrower and its Subsidiaries.
"Copyrights" means and includes, in each case whether now existing
or hereafter arising, all of each Borrower's rights, title and interest in and
to (a) all copyrights, rights and interests in copyrights, works protectable by
copyright, copyright registrations copyright applications, and all renewals of
any of the foregoing, (b) all income, royalties, damages and payments now or
hereafter due and/or payable under any of the foregoing, including, without
limitation, damages or payments for past, current or future infringements of any
of the foregoing, (c) the right to sue for past, present and future
infringements of any of the foregoing, and (d) all rights corresponding to any
of the foregoing throughout the world.
"Credit Facility" means the Revolving Credit Facility, the Letter of
Credit Facility, or the Foreign Exchange Facility as the case may be, and
"Credit Facilities" means collectively the Revolving Credit Facility, the Letter
of Credit Facility, or the Foreign Exchange Facility and any and all other
credit facilities now or hereafter extended under or secured by this Agreement.
"Default" means an event which, with the giving of notice or lapse
of time, or both, could or would constitute an Event of Default under the
provisions of this Agreement.
"Documents" means all documents of title, whether now existing or
hereafter acquired or created, and all proceeds (cash and non-cash of the
foregoing).
"Early Termination Fee" has the meaning described in Section (Early
Termination Fee).
"EBITDA" means, for any period, the consolidated net income of the
Borrowers and their Subsidiaries for such period,
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after all expenses and other proper charges except depreciation, interest,
amortization, income taxes, amortization or write off of any step up in the
basis of the Inventory as of July 13, 1994, any step up in the basis of
Inventory associated with the Purchase Agreement Transaction and those mergers
or acquisitions of the Borrowers, or any of them, during Fiscal Year 1996, and
transaction costs associated with the transactions contemplated by the Purchase
Agreement Transaction, determined in accordance with GAAP eliminating (i) all
intercompany items, (ii) all earnings attributable to equity interests in
Persons that are not Subsidiaries unless actually received by the Borrowers,
(iii) all income arising from the forgiveness, adjustment, or negotiated
settlement of any indebtedness, (iv) any extraordinary items of income or
expense, (v) any increase or decrease of income arising from any change in the
Borrowers' method of accounting, and (vi) items of income or expense arising
from changes in the "LIFO Reserve."
"Eligible Receivable" and "Eligible Receivables" mean the collective
reference to, at any time of determination thereof, the unpaid portion of each
Receivable payable (net of any returns, discounts, claims, credits, charges or
other allowances, offsets, deductions, counterclaims, disputes or other defenses
and reduced by the aggregate amount of all limits and deductions provided for in
this definition and elsewhere in this Agreement) in United States Dollars to
each Borrower, provided each Receivable conforms and continues to conform to the
following criteria to the satisfaction of the Lender:
(i) the Receivable arose in the ordinary course of the Borrower's
business from a bona fide outright sale of goods by the Borrower or from
services performed by the Borrower;
(ii) the Receivable is a valid, legally enforceable obligation of
the Account Debtor and requires no further act under any circumstances to
make the Receivable payable by the Account Debtor;
(iii) the Receivable is based upon an enforceable order or contract,
written or oral, for goods delivered or for services performed, and the
same were shipped or performed in accordance with such order or contract;
(iv) if the Receivable arises from the sale of goods, the goods the
sale of which gave rise to the Receivable have been shipped or delivered
to the Account Debtor on an absolute sale basis and not on a bill and hold
sale basis, a consignment sale basis, a guaranteed sale basis, a sale or
return basis, or on the basis of any other similar understanding;
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(v) if the Receivable arises from the performance of services, such
services have been fully rendered and do not relate to any warranty claim
or obligation;
(vi) the Receivable is evidenced by an invoice or other
documentation in form acceptable to the Lender, dated no later than the
date of shipment or performance and containing only terms normally offered
by the Borrower;
(vii) the amount shown on the books of the Borrower and on any
invoice, certificate, schedule or statement delivered to the Lender is
owing to the Borrower and no partial payment has been received unless
reflected with that delivery;
(viii) the Receivable is not outstanding more than ninety (90) days
from the date of the invoice therefor or past due more than 60 days after
its due date, which shall not be later than 30 days after the invoice
date;
(ix) the Receivable is not owing by any Account Debtor for which the
Lender has deemed fifty percent (50%) or more of such Account Debtor's
other Receivables (or any portion thereof) due to the Borrower to be
non-Eligible Receivables;
(x) such Receivable is not owing by an Account Debtor or a group of
affiliated Account Debtors whose then-existing Receivables owing to the
Borrower exceed in face amount fifteen percent 15% of the Borrower's total
Eligible Receivables;
(xi) the Account Debtor has not returned, rejected or refused to
retain, or otherwise notified the Borrower of any dispute concerning, or
claimed nonconformity of, any of the goods or services from the sale or
furnishing of which the Receivable arose;
(xii) the Receivable is not subject to any present or contingent
(and no facts exist which are the basis for any future) offset, claim,
deduction or counterclaim, dispute or defense in law or equity on the part
of such Account Debtor, or any claim for credits, allowances, or
adjustments by the Account Debtor because of returned, inferior, or
damaged goods or unsatisfactory services, or for any other reason
including, without limitation, those arising on Receivable of a breach of
any express or implied representation or warranty;
(xiii) the Account Debtor is not a Subsidiary or Affiliate of the
Borrower;
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(xiv) the Account Debtor is not incorporated or primarily conducting
business or otherwise located in any jurisdiction outside of the United
States of America, unless, and only to the extent, that the Lender has
determined in the exercise of its discretion in good faith that the
payment to the Borrower of each Receivable so included is supported by (A)
an irrevocable letter of credit or bank guarantee issued or confirmed by a
bank or trust company organized or licensed under the laws of the United
States or any State thereof and having capital, surplus and undivided
profits aggregating at least $500,000,000, or (B) by credit insurance from
an issuer, in an amount, subject to terms and conditions, and meeting the
requirements of Section 61.18 in a manner satisfactory to the Lender in
the exercise of its good faith discretion, or (C) a guaranty of a
corporation domiciled in the United States, the form and substance of any
such guaranty and any such guarantor being satisfactory to the Lender in
the exercise of its sole and absolute discretion;
(xv) the Account Debtor with respect to such Receivable is not
insolvent or the subject of any bankruptcy or insolvency proceedings of
any kind or of any other proceeding or action, threatened or pending;
(xvi) the Account Debtor is not a Governmental Authority;
(xvii) the Borrower is not indebted in any manner to the Account
Debtor (as creditor, lessor, supplier otherwise), with the exception of
customary credits, adjustments and/or discounts given to an Account Debtor
by the Borrower in the ordinary course of its business;
(xviii) the Receivable does not arise from services under or related
to any warranty obligation of the Borrower or out of service charges,
finance charges or other fees or compensation for the time value of money;
(xix) the Receivable is not evidenced by chattel paper or an
instrument of any kind and is not secured by any letter of credit, unless
the chattel paper, instrument or letter of credit is in the Lender's
possession;
(xx) the title of the Borrower to the Receivable is absolute and is
not subject to any prior assignment, claim, Lien, or security interest,
except Permitted Liens;
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(xxi) no bond or other undertaking by a surety been obtained,
supporting the Borrower's obligations to the Account Debtor in respect of
the Receivable;
(xxii) the Borrower has the full and unqualified right and power to
assign and grant a security interest in the Receivable to the Lender as
security and collateral for the payment of the Obligations;
(xxiii) the Receivable does not arise out of a contract with, or
order from, an Account Debtor that, by its terms, forbids or makes void or
unenforceable the assignment by the Borrower to the Lender of the
Receivable arising with respect thereto;
(xxiv) the Receivable is subject to the Lien in favor of the Lender,
which Lien is perfected as to the Receivable by the filing of financing
statements;
(xxv) the goods giving rise to the Receivable were not, at the time
of the sale thereof, subject to any Lien, except those in favor of the
Lender;
(xxvi) the Lender in the good faith exercise of its discretion has
not deemed the Receivable ineligible because of uncertainty as to the
creditworthiness of the Account Debtor or because the Lender otherwise
considers the collateral value thereof to the Lender to be impaired or its
ability to realize such value to be insecure; and
(xxvii) as to the Receivables of Macpherson, such Receivables shall
not be considered Eligible Receivables unless and until (a) the Lender has
completed its field examination and other due diligence review of
Macpherson and (b) such Receivables meet all of the foregoing eligibility
criteria.
In the event of any dispute, under the foregoing criteria, as to whether an
account is, or has ceased to be, an Eligible Receivable, the decision of the
Lender in the good faith exercise of its discretion shall control.
"Enforcement Costs" means all expenses, charges, costs and fees
whatsoever (including, without limitation, reasonable attorney's fees and
expenses) of any nature whatsoever paid or incurred by or on behalf of the
Lender in connection with (a) any or all of the Obligations, this Agreement
and/or any of the other Financing Documents, (b) the creation, perfection,
collection, maintenance, preservation, defense, protection, realization upon,
disposition, sale or enforcement of all or any part of the Collateral, this
Agreement or any of the other Financing Documents, including, without
limitation, those costs and expenses more
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specifically enumerated in Section 3.7 (Costs) and/or Section (Enforcement
Costs), and (c) the monitoring, administration, processing and/or servicing of
any or all of the Obligations, the Financing Documents, and/or the Collateral.
"Equipment" means, for each Borrower, all equipment, machinery,
computers, chattels, tools, parts, machine tools, furniture, furnishings,
fixtures and supplies of every nature, presently existing or hereafter acquired
or created and wherever located, whether or not the same shall be deemed to be
affixed to real property, together with all accessions, additions, fittings,
accessories, special tools, and improvements thereto and substitutions therefor
and all parts and equipment which may be attached to or which are necessary or
beneficial for the operation, use and/or disposition of such personal property,
all licenses, warranties, franchises and general intangibles related thereto or
necessary or beneficial for the operation, use and/or disposition of the same,
together with all Accounts, Chattel Paper, Instruments and other consideration
received on account of the sale, lease or other disposition of all or any part
of the foregoing, and together with all rights under or arising out of present
or future Documents and contracts relating to the foregoing and all proceeds
(cash and non-cash) of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Event of Default" has the meaning described in Article 7.
"Eurodollar Business Day" means any Business Day on which dealings
in United States Dollar deposits are carried out on the London interbank market
and on which commercial banks are open for domestic and international business
(including dealings in Dollar deposits) in London, England.
"Eurodollar Lending Office" means with respect to the Lender such
branch or office of the Lender designated by the Lender, as applicable, from
time to time as the branch or office at which the LIBOR Loans are to be made or
maintained.
"Execution Date" means the date on which this Agreement and the
other Financing Documents, other than the Joinder by Macpherson, are signed, if
and as applicable, by the Lender and the Borrowers.
"Facilities" means the collective reference to the loan and other
credit facilities now or hereafter provided to the Borrowers by the Lender
whether under this Agreement or otherwise.
"Fees" means the collective reference to each fee payable to the
Lender under the terms of this Agreement or under the terms
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of any of the other Financing Documents, including, without limitation, the
following: Revolving Credit Unused Line Fees, Letter of Credit Fees, Early
Termination Fee, Origination Fee, and Field Examination Fees.
"Field Examination Fee" and "Field Examination Fees" have the
meanings described in Section (Field Examination Fees).
"Financing Documents" means at any time collectively this Agreement,
the Notes, the Security Documents, the Letter of Credit Documents, the Foreign
Exchange Documents, and any other instrument, agreement or document previously,
simultaneously or hereafter executed and delivered by any one or more of the
Borrowers, any guarantor and/or any other Person, singly or jointly with another
Person or Persons, evidencing, securing, guarantying or in connection with this
Agreement, any Note, any of the Security Documents, any of the Facilities,
and/or any of the Obligations.
"Fiscal Year" means a fiscal year of a Borrower.
"Fixed or Capital Assets" of a Person at any date means all assets
which would, in accordance with GAAP consistently applied, be classified on the
balance sheet of such Person as property, plant or equipment at such date.
"Foreign Exchange Agreement" means the collective reference to any
currency swap agreements, currency spot and forward contracts and other similar
agreements and arrangements (which need not be written) entered into between the
Lender, any Affiliate of the Lender, and any Borrower.
"Foreign Exchange Documents" means the collective reference to each
Foreign Exchange Agreement, each application therefor, and any other instrument,
document, certificate, or agreement executed and/or delivered by any one or more
of the Borrowers or any other Person under, pursuant to or in connection with
any Foreign Exchange Agreement.
"Foreign Exchange Facility" means the facility established by the
Lender pursuant to Section (Foreign Exchange Facility) of this Agreement.
"Foreign Exchange Obligations" means the Foreign Exchange Reserve
and all other Obligations of the Borrowers with respect to the Foreign Exchange
Agreements.
"Foreign Exchange Reserves" means the collective reference to the
aggregate reserves which are established by the Lender from time to time with
respect to the aggregate United States dollars which are the subject of Foreign
Exchange Agreements.
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"GAAP" means generally accepted accounting principles in the United
States of America in effect from time to time.
"General Intangibles" means all general intangibles of every nature,
whether presently existing or hereafter acquired or created, and without
implying any limitation of the foregoing, further means all books and records,
claims (including without limitation all claims for income tax and other
refunds), choses in action, claims, causes of action in tort or equity, contract
rights, judgments, customer lists, Patents, Trademarks, licensing agreements,
rights in intellectual property, goodwill (including goodwill symbolized by and
associated with any and all trademarks, trademark licenses, copyrights and/or
service marks), royalty payments, licenses, contractual rights, rights as lessee
under any lease of real or personal property, literary rights, Copyrights,
service names, service marks, logos, trade secrets, amounts received as an award
in or settlement of a suit in damages, deposit accounts, interests in joint
ventures or general or limited partnerships, rights in applications for any of
the foregoing, books and records in whatever media (paper, electronic or
otherwise) recorded or stored, with respect to any or all of the foregoing and
all equipment and general intangibles necessary or beneficial to retain, access
and/or process the information contained in those books and records, and all
proceeds (cash and non-cash) of the foregoing.
"Governmental Authority" means any nation or government, any state
or other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government and any department, agency or instrumentality thereof.
"Hazardous Materials" means (a) any "hazardous waste" as defined by
the Resource Conservation and Recovery Act of 1976, as amended from time to
time, and regulations promulgated thereunder; (b) any "hazardous substance" as
defined by the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended from time to time, and regulations promulgated
thereunder; (c) any substance the presence of which on any property, whether now
or hereafter owned or acquired, is prohibited by any Law similar to those set
forth in this definition; and (d) any other substance which by Law requires
special handling in its collection, storage, treatment or disposal.
"Hazardous Materials Contamination" means the contamination (whether
presently existing or occurring after the date of this Agreement) by Hazardous
Materials, including, without limitation, improvements, facilities, soil, ground
water, air or other elements on, or of, any property now or hereafter owned or
acquired.
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"Indebtedness" of a Person means at any date the total liabilities
of such Person at such time determined in accordance with GAAP consistently
applied.
"Indebtedness for Borrowed Money" of a Person means at any time the
sum at such time of (a) indebtedness of such Person for borrowed money or for
the deferred purchase price of property or services, (b) any obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments; (c)
any obligations of such Person in respect of letters of credit, banker's or
other acceptances or similar obligations issued or created for the account of
such Person, (d) Lease Obligations of such Person with respect to Capital
Leases, (e) all liabilities secured by any Lien on any property owned by such
Person, to the extent attached to such Person's interest in such property, even
though such Person has not assumed or become personally liable for the payment
thereof, (f) obligations of third parties which are being guarantied or
indemnified against by such Person or which are secured by the property of such
Person; (g) any obligation of such Person under a employee stock ownership plan
or other similar employee benefit plan; and (h) any obligations, liabilities or
indebtedness, contingent or otherwise, under or in connection with, any interest
rate or currency swap agreements, cap, floor, and collar agreements, currency
spot and forward contracts and other similar agreements and arrangements; but
excluding trade and other accounts payable in the ordinary course of business in
accordance with customary trade terms and which are not overdue (as determined
in accordance with customary trade practices) or which are being disputed in
good faith by such Person and for which adequate reserves are being provided on
the books of such Person in accordance with GAAP.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time, and the Income Tax Regulations issued and proposed to
be issued thereunder.
"Instrument" means a negotiable instrument (as defined under Article
3 of the Uniform Commercial Code), a "certificated security" (as defined under
Article 8 of the Uniform Commercial Code), or any other writing which evidences
a right to payment of money and is not itself a security agreement or lease and
is of a type which is in the ordinary course of business transferred by delivery
with any necessary endorsement.
"Interest Period" means as to any LIBOR Loan, the period commencing
on and including the date such LIBOR Loan is made (or on the effective date of
the Borrowers' election to convert any Base Rate Loan to a LIBOR Loan in
accordance with the provisions of this Agreement) and ending on and including
the day which is 30, 60, or 90 days thereafter, as selected by the Borrowers in
accordance with the provisions of this Agreement, and thereafter, each period
commencing on the last day of the then preceding Interest Period
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for such LIBOR Loan and ending on and including the day which is 30, 60, or 90
days thereafter, as selected by the Borrowers in accordance with the provisions
of this Agreement; provided, however that:
(a) the first day of any Interest Period shall be a Eurodollar
Business Day;
(b) if any Interest Period would end on a day that shall not be a
Eurodollar Business Day, such Interest Period shall be extended to the
next succeeding Eurodollar Business Day unless such next succeeding
Eurodollar Business Day would fall in the next calendar month, in which
case, such Interest Period shall end on the next preceding Eurodollar
Business Day; and
(c) no Interest Period shall extend beyond the Revolving Credit
Expiration Date or the scheduled maturity date, of the Term Loan, as
appropriate.
"Interest Rate Election Notice" has the meaning described in
Section 2.4.1(e).
"Inventory" means all inventory of each Borrower held by the
Borrower for sale in the ordinary course of business and all right, title and
interest of the Borrower in and to all of its now owned and hereafter acquired
goods, merchandise and other personal property furnished under any contract of
service or intended for sale or lease, including, without limitation, all raw
materials, work-in-progress, finished goods and materials and supplies of any
kind, nature or description which are used or consumed in the Borrower's
business or are or might be used in connection with the manufacture, packing,
shipping, advertising, selling or finishing of such goods, merchandise and other
licenses, warranties, franchises, general intangibles, personal property and all
documents of title or documents relating to the same and all proceeds (cash and
non-cash) of the foregoing.
"Investment" means any investment in any Person, whether by means of
share purchase, capital contribution, loan, time deposit or otherwise.
"Item of Payment" means each check, draft, cash, money, instrument,
item, and other remittance in payment or on account of payment of the
Receivables or otherwise with respect to any Collateral, including, without
limitation, cash proceeds of any returned, rejected or repossessed goods, the
sale or lease of which gave rise to a Receivable, and other proceeds of
Collateral; and "Items of Payment" means the collective reference to all of the
foregoing.
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"Joinder" means the joinder attached hereto pursuant to which
Macpherson becomes a party hereto following the closing of the Purchase
Agreement Transaction on the Closing Date.
"Laws" means all ordinances, statutes, rules, regulations, orders,
injunctions, writs, or decrees of any Governmental Authority or political
subdivision or agency thereof, or any court or similar entity established by any
thereof.
"Lease Obligations" of a Person means for any period the rental
commitments of such Person for such period under leases for real and/or personal
property (net of rent from subleases thereof, but including taxes, insurance,
maintenance and similar expenses which the lessee is obligated to pay under the
terms of said leases, except to the extent that such taxes, insurance,
maintenance and similar expenses are payable by sublessees), including rental
commitments under Capital Leases.
"Letter of Credit" and "Letters of Credit" shall have the meanings
described in Section 2.2.1 hereof.
"Letter of Credit Agreement" means the collective reference to each
letter of credit application and agreement substantially in the form of the
Lender's then standard form of application for letter of credit or such other
form as may be approved by the Lender, executed and delivered by any one or more
of the Borrowers in connection with the issuance of a Letter of Credit, as the
same may from time to time be amended, restated, supplemented or modified and
"Letter of Credit Agreements" means all of the foregoing in effect at any time
and from time to time.
"Letter of Credit Documents" means any and all drafts under or
purporting to be under a Letter of Credit, any Letter of Credit Agreement, and
any other instrument, document or agreement executed and/or delivered by any one
or more of the Borrowers or any other Person under, pursuant to or in connection
with a Letter of Credit or any Letter of Credit Agreement.
"Letter of Credit Facility" means the facility established by the
Lender pursuant to Section 2.2 (Letter of Credit Facility) of this Agreement.
"Letter of Credit Fee" and "Letter of Credit Fees" have the meanings
described in Section 2.2.2 hereof.
"Letter of Credit Obligations" means all Obligations of the
Borrowers with respect to the Letters of Credit and the Letter of Credit
Agreements.
"Liabilities" means at any date all liabilities that in accordance
with GAAP consistently applied should be classified as
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liabilities on a consolidated balance sheet of any one or more of the Borrowers.
"LIBOR Base Rate" means for any Interest Period with respect to any
LIBOR Loan, the per annum interest rate (rounded upward, if necessary, to the
nearest next 1/10 of 1%) quoted to the Lender, on an immediately available funds
basis, at or about 11:00 a.m. (London time) on the date that is two (2)
Eurodollar Business Days prior to the first day of such Interest Period, for the
offering by leading banks in the London interbank Eurodollar market of Dollar
deposits with the Lender for a period comparable in time to the duration of such
Interest Period and in amounts comparable to the amount of such LIBOR Loan as to
which the LIBOR Base Rate is to be determined. If the Lender shall be unable or
shall otherwise fail to so obtain the LIBOR Base Rate, the LIBOR Base Rate shall
be the average of those rates quoted on the REUTERS "LIBO" page for a period
comparable to the applicable Interest Period (rounded upward, if necessary, to
the nearest next 1/10 of 1%).
"LIBOR Loan" means any Loan for which interest is to be computed
with reference to the LIBOR Rate.
"LIBOR Rate" means for any Interest Period with respect to any LIBOR
Loan, (i) the Applicable Margin, plus (ii) the per annum rate of interest
calculated pursuant to the following formula:
LIBOR Rate = LIBOR Base Rate
-------------------------
1.00 - Reserve Percentage
"Lien" means any mortgage, deed of trust, deed to secure debt,
grant, pledge, security interest, assignment, encumbrance, judgment, lien,
hypothecation, provision in any instrument or other document for confession of
judgment, cognovit or other similar right or remedy, claim or charge of any
kind, whether perfected or unperfected, avoidable or unavoidable, including,
without limitation, any conditional sale or other title retention agreement, any
lease in the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code of any jurisdiction,
excluding the precautionary filing of any financing statement by any lessor in a
true lease transaction, by any bailor in a true bailment transaction or by any
consignor in a true consignment transaction under the Uniform Commercial Code of
any jurisdiction or the agreement to give any financing statement by any lessee
in a true lease transaction, by any bailee in a true bailment transaction or by
any consignee in a true consignment transaction.
"Loan" means the Revolving Loan.
"Loan Notice" has the meaning described in Section (Procedure for
Making Advances).
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"Lockbox" has the meaning described in Section (The Collateral
Account).
"Multiemployer Plan" means a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Net Cash Proceeds" means, with respect to any transaction, an
amount equal to the cash proceeds received by a Borrowers or any of its
Subsidiaries from or in respect of such transaction (including any cash proceeds
received as income or other proceeds of any non-cash proceeds of such
transaction), less (x) any expenses (including commissions) reasonably incurred
by such Person in respect of such transaction and (y) in the case of an Asset
Sale, the amount of any Indebtedness for Borrowed Money secured by a Lien on the
related asset and discharged from the proceeds of such Asset Sale and any taxes
paid or payable by such Person (as estimated by the chief financial officer of
the Borrower) in respect of such Asset Sale.
"Net Worth" means as to the Borrowers and their Subsidiaries at any
date the excess of (a) the Assets, over (b) the Liabilities.
"Note" means the Revolving Credit Note, and "Notes" means
collectively the Revolving Credit Note and any other promissory note which may
from time to time evidence the Obligations.
"Obligations" means all present and future indebtedness, duties,
obligations, and liabilities, whether now existing or contemplated or hereafter
arising, of the Borrowers to the Lender under, arising pursuant to, in
connection with and/or on account of the provisions of this Agreement, each
Note, each Security Document, and any of the other Financing Documents, the
Loan, and any of the Credit Facilities including, without limitation, the
principal of, and interest on, each Note, late charges, the Fees, Enforcement
Costs, and prepayment penalties (if any), letter of credit fees or fees charged
with respect to any guaranty of any letter of credit; also means all other
present and future indebtedness, liabilities and obligations, whether now
existing or contemplated or hereafter arising, of the Borrowers to the Lender of
any nature whatsoever regardless of whether such debts, obligations and
liabilities be direct, indirect, primary, secondary, joint, several, joint and
several, fixed or contingent; and also means any and all renewals, extensions,
substitutions, amendments, restatements and rearrangements of any such debts,
obligations and liabilities.
"Origination Fee" has the meaning described in Section (Origination
Fee).
"Outstanding Foreign Exchange Obligations" has the meaning described
in Section 2.3.3 hereof.
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"Outstanding Letter of Credit Obligations" has the meaning described
in Section 2.2.3 hereof.
"Patents" means and includes, in each case whether now existing or
hereafter arising, all rights, title and interest in and to (a) any and all
patents and patent applications, (b) any and all inventions and improvements
described and claimed in such patents and patent applications, (c) reissues,
divisions, continuations, renewals, extensions and continuations-in-part of any
patents and patent applications, (d) income, royalties, damages, claims and
payments now or hereafter due and/or payable under and with respect to any
patents or patent applications, including, without limitation, damages and
payments for past and future infringements, (e) rights to sue for past, present
and future infringements of patents, and (f) all rights corresponding to any of
the foregoing throughout the world.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Liens" means: (a) Liens for Taxes which are not
delinquent or which the Lender has determined in the exercise of its sole and
absolute discretion (i) are being diligently contested in good faith and by
appropriate proceedings, (ii) the Borrower affected has the financial ability to
pay, with all penalties and interest, at all times without materially and
adversely affecting the Borrower, and (iii) are not, and will not be with
appropriate filing, the giving of notice and/or the passage of time, entitled to
priority over any Lien of the Lender; (b) deposits or pledges to secure
obligations under workers' compensation, social security or similar laws, or
under unemployment insurance in the ordinary course of business; (c) Liens in
favor of the Lender; (d) judgment Liens to the extent the entry of such judgment
does not constitute a Default or an Event of Default under the terms of this
Agreement or result in the sale of, or levy of execution on, any of the
Collateral; and (e) such other Liens, if any, as are set forth on
Schedule 4.1.19 attached hereto and made a part hereof.
"Permitted Uses" means (a) on the Closing Date, the payment of
reasonable costs and expenses (including without limitation, reasonable
attorneys fees) related to this Agreement, and to the Purchase Agreement (and
ancillary agreements referenced therein), (b) the Purchase Agreement (Clinton
Management), (c) other uses permitted pursuant to Section 6.2.5 hereof, and (d)
the working capital purposes of the Borrowers.
"Person" means and includes an individual, a corporation, a
partnership, a joint venture, a limited liability company, a trust, an
unincorporated association, a government or political subdivision or agency
thereof or any other organization or entity.
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"Plan" means any pension plan which is covered by Title IV of ERISA
and in respect of which any one or more of the Borrowers or a Commonly
Controlled Entity is an "employer" as defined in Section 3 of ERISA.
"Post-Default Rate" means the Base Rate plus 200 basis points per
annum.
"Prepayment" means a Revolving Loan Mandatory Prepayment or a
Revolving Loan Optional Prepayment as the case may be, and "Prepayments" mean
collectively Revolving Loan Mandatory Prepayments and the Revolving Loan
Optional Prepayments.
"Prime Rate" means the floating and fluctuating per annum prime
commercial lending rate of interest of the Lender, as established and declared
by the Lender at any time or from time to time. The Prime Rate shall be adjusted
automatically, without notice, as of the effective date of any change in such
prime commercial lending rate. The Prime Rate does not necessarily represent the
lowest rate of interest charged by the Lender to borrowers.
"Purchase Agreement" means that certain Stock Purchase Agreement
dated as of November 27, 1996 by and among Apparel and Holdings and the Sellers,
together with any and all amendments, modifications, and supplements thereto,
restatements thereof, and substitutes therefor.
"Purchase Agreement (Clinton Management)" means that certain Stock
Purchase Agreement (Clinton Management) dated as of December 15, 1995 by and
among Apparel, Holdings, Clinton Management and certain sellers, together with
any and all amendments, modifications, and supplements thereto, restatements
thereof, and substitutes therefor.
"Purchase Agreement Documents" means collectively the Purchase
Agreement and any and all other agreements, documents or instruments,
previously, now or hereafter executed and delivered by Apparel, Holdings, the
Sellers, or any other Person in connection with the Purchase Agreement
Transaction.
"Purchase Agreement Transaction" means the stock purchase agreement
transaction under the provisions of the Purchase Agreement.
"Receivable" means, as at any date of determination thereof, the
unpaid portion of the obligation, as stated in the respective invoice, of an
Account Debtor of a Borrower in respect of Inventory or services rendered in the
ordinary course of business, which amount has been earned by performance under
the terms of the related contract and recognized as revenue on the books of the
Borrower, net of any credits, rebates or offsets owed
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to the customer and also net of any commissions payable to Persons other than
employees of the Borrowers or their Subsidiaries.
"Reportable Event" means any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder.
"Reserve Percentage" means, at any time, the then current maximum
rate for which reserves (including any basic, supplemental, marginal and
emergency reserves) are required to be maintained by member banks of the Federal
Reserve System under Regulation D of the Board of Governors of the Federal
Reserve System against "Eurocurrency liabilities", as that term is defined in
Regulation D. The LIBOR Rate shall be adjusted automatically on and as of the
effective date of any change in the Reserve Percentage.
"Responsible Officer" means with respect to each Borrower the chief
executive officer of the Borrower or the president of the Borrower or, with
respect to financial matters, the chief financial officer of the Borrower.
"Revolving Credit Commitment" means the agreement of the Lender
relating to the making of the Revolving Loan and advances thereunder subject to
and in accordance with the provisions of this Agreement.
"Revolving Credit Commitment Period" means the period of time from
the Closing Date to the Business Day preceding the Revolving Credit Termination
Date.
"Revolving Credit Committed Amount" has the meaning described in
Section 2.1 (Revolving Credit Facility).
"Revolving Credit Expiration Date" means July 13, 2001.
"Revolving Credit Facility" means the facility established by the
Lender pursuant to Section 2.1 (Revolving Credit Facility) of this Agreement.
"Revolving Credit Note" has the meaning described in Section 2.15
(Revolving Credit Note).
"Revolving Credit Termination Date" means the earlier of (a) the
Revolving Credit Expiration Date, or (b) the date on which the Revolving Credit
Commitment is terminated pursuant to Section 7.2 or otherwise.
"Revolving Credit Unused Line Fee" and "Revolving Credit Unused Line
Fees" have the meanings described in Section 2.1.10 (Revolving Credit Unused
Line Fee).
"Revolving Loan" has the meaning described in Section 2.1.1
(Revolving Credit Facility).
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"Revolving Loan Account" has the meaning described in Section 2.1.9 (Revolving
Loan Account).
"Revolving Loan Mandatory Prepayment" and "Revolving Loan Mandatory
Prepayments" have the meanings described in Section 2.1.6 (Mandatory
Prepayments).
"Revolving Loan Optional Prepayment" and "Revolving Loan Optional
Prepayments" have the meanings described in Section 2.1.7 (Revolving Loan
Optional Prepayment).
"Securities" means the collective reference to each and every
certificated or uncertificated security which constitutes a "security" under the
provisions of Title 8 of the Uniform Commercial Code, and all proceeds (cash and
non-cash) of the foregoing.
"Security Documents" means collectively any assignment, pledge
agreement, security agreement, mortgage, deed of trust, deed to secure debt,
financing statement and any similar instrument, document or agreement under or
pursuant to which a Lien is now or hereafter granted to, or for the benefit of,
the Lender on any real or personal property to secure all or any portion of the
Obligations, all as the same may from time to time be amended, restated,
supplemented or otherwise modified, including, without limitation, this
Agreement and the following:
"Sellers" means collectively Neil A. Macpherson, Bridget Macpherson,
Bridget M. Macpherson as Trustee under the Mark Edward Macpherson Trust
Agreement dated February 1, 1982, Ouida B. Brown as Trustee under the Mark
Edward Macpherson Trust No. 2, Bridget M. Macpherson as Trustee under the
Katherine Emma Macpherson Trust Agreement dated February 1, 1982, Ouida B. Brown
as Trustee under the Katherine Emma Macpherson Trust No. 2, Neil A. Macpherson
as Trustee under the Nicholas Ian Macpherson Trust Agreement dated March 18,
1983, and Ouida B. Brown as Trustee under the Nicholas Ian Macpherson Trust No.
2.
"Senior Notes" means those promissory notes issued by Holdings and
one or more Subsidiaries evidencing unsecured Indebtedness for Borrowed money in
the aggregate face amount of $85,000,000 due and payable in the year 2003.
"State" means the State of Maryland.
"Subordinated Indebtedness" means all Indebtedness incurred at any
time by any one or more of the Borrowers which is in amount, repayment terms and
subordinated to the Obligations by a written agreement, all in form and
substance satisfactory to the Lender in its sole and absolute discretion.
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"Subsidiary" means any corporation the majority of the voting shares
of which at the time are owned directly by a Borrower and/or by one or more
Subsidiaries of a Borrower.
"Taxes" means all taxes and assessments whether general or special,
ordinary or extraordinary, or foreseen or unforeseen, of every character
(including all penalties or interest thereon), which at any time may be
assessed, levied, confirmed or imposed by any Governmental Authority on any one
or more of the Borrowers or any of their properties or assets or any part
thereof or in respect of any of their franchises, businesses, income or profits.
"Temporary Cash Investment" means any Investment in (i) direct
obligations of the United States or any agency thereof, or obligations
guaranteed by the United States or any agency thereof, (ii) commercial paper
rated at least A-1 by Standard & Poor's Corporation and P-1 by Moody's Investors
Service, Inc., (iii) time deposits with, including certificates of deposit
issued by, any office located in the United States of any bank or trust company
which is organized under the laws of the United States or any State thereof and
has capital, surplus and undivided profits aggregating at least $500,000,000 and
which issues (or the parent of which issues) certificates of deposit or
commercial paper with a rating described in clause (ii) above, or (iv)
repurchase agreements with respect to securities described in clause (i) above
entered into with an office of a bank or trust company meeting the criteria
specified in clause (iii) above, provided in each case that such Investment
matures within one year from the date of acquisition thereof by the Borrowers or
any of their Subsidiaries.
"Total Debt Service" means, for any period, the sum of the aggregate
interest charges incurred by the Borrowers and their Subsidiaries for such
period, whether expenses or capitalized, including the portion of any obligation
under Capital Leases allocable to interest expense in accordance with GAAP and
the portion of any debt discount or premium if such results in the reduction of
cash (but not expenses of issuance) that shall be amortized in such period, but
excluding any such interest charges allocable to any of the Warrant Notes and
all other scheduled principal payments on all other Indebtedness for Borrowed
Money, including the portion of any payments under Capital Leases that is
allocable to principal.
"Trademarks" means and includes in each case whether now existing or
hereafter arising, all of right, title and interest in and to (a) any and all
trademarks (including service marks), trade names and trade styles, and
applications for registration thereof and the goodwill of the business
symbolized by any of the foregoing, (b) any and all licenses of trademarks,
service marks, trade names and/or trade styles, whether as licensor or licensee,
(c) any renewals of any and all trademarks, service marks, trade names, trade
styles and/or licenses of any of the foregoing, (d)
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income, royalties, damages and payments now or hereafter due and/or payable with
respect thereto, including, without limitation, damages, claims, and payments
for past, present and future infringements thereof, (e) rights to sue for past,
present and future infringements of any of the foregoing, including the right to
settle suits involving claims and demands for royalties owing, and (f) all
rights corresponding to any of the foregoing throughout the world.
"Uniform Commercial Code" means, unless otherwise provided in this
Agreement, the Uniform Commercial Code as adopted by and in effect from time to
time in the State or in any other jurisdiction, as applicable.
"Wholly Owned Subsidiary" means any corporation all the shares of
stock of all classes of which (other than directors' qualifying shares) at the
time are owned directly or indirectly by a Borrower and/or by one or more Wholly
Owned Subsidiaries of a Borrower.
SECTION 1.2 Accounting Terms and Other Definitional Provisions.
Unless otherwise defined herein, as used in this Agreement and in any
certificate, report or other document made or delivered pursuant hereto,
accounting terms not otherwise defined herein, and accounting terms only partly
defined herein, to the extent not defined, shall have the respective meanings
given to them under GAAP. Unless otherwise defined herein, all terms used herein
which are defined by the Uniform Commercial Code shall have the same meanings as
assigned to them by the Uniform Commercial Code unless and to the extent varied
by this Agreement. The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and article,
section, subsection, schedule and exhibit references are references to articles,
sections or subsections of, or schedules or exhibits to, as the case may be,
this Agreement unless otherwise specified. As used herein, the singular number
shall include the plural, the plural the singular and the use of the masculine,
feminine or neuter gender shall include all genders, as the context may require.
Without implying any limitation on the foregoing, any reference to the
"Borrowers," the "Borrower," "each Borrower," "each of the Borrowers," or "a
Borrower" in provision of this Agreement or any of the other Financing Documents
shall be deemed to refer to each and any one or more of the Borrowers, jointly
and severally. Reference to any one or more of the Financing Documents shall
mean the same as the foregoing may from time to time be amended, restated,
substituted, extended, renewed, supplemented or otherwise modified.
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ARTICLE 2
THE CREDIT FACILITIES
SECTION 2.1 The Revolving Credit Facility.
2.1.1 Revolving Credit Facility. Subject to and upon the provisions
of this Agreement, the Lender establishes a revolving credit facility in favor
of the Borrowers. The aggregate of all advances under the Revolving Credit
Facility are sometimes referred to in this Agreement collectively as the
"Revolving Loan".
The principal amount of Eighteen Million Five Hundred Thousand Dollars
($18,500,000) is the "Revolving Credit Committed Amount".
During the Revolving Credit Commitment Period, the Lender agrees to make
advances under the Revolving Loan requested by Apparel on behalf of the
Borrowers from time to time provided that after giving effect to the request,
the outstanding principal balance of the Revolving Loan, of the Letter of Credit
Obligations and of the Foreign Exchange Obligations, would not exceed the lesser
of (a) the Revolving Credit Committed Amount, or (b) the most current Borrowing
Base.
2.1.2 Procedure for Making Advances Under the Revolving Loan; Lender
Protection Loans.
(a) The Borrowers may borrow under the Revolving Credit
Commitment on any Business Day. Advances under the Revolving Loan shall be
deposited to a demand deposit account of a Borrower with the Lender or shall be
otherwise applied as directed by the Borrowers, which direction the Lender may
require to be in writing. No later than 10:00 a.m. (Baltimore time) on the date
of the requested borrowing, the Borrowers shall give the Lender oral or, if
requested by the Lender from time to time, written notice (a "Loan Notice") of
the amount and (if requested by the Lender) the purpose of the requested
borrowing.
(b) In addition, each Borrower hereby irrevocably authorizes
the Lender at any time and from time to time, without further request from or
notice to the Borrowers, to make advances under the Revolving Loan which the
Lender, in its sole and absolute discretion, deems necessary or appropriate to
protect the Lender's interests under this Agreement, including, without
limitation, advances under the Revolving Loan made to cover debit balances in
the Revolving Loan Account, principal of, and/or interest on, the Loan, the
Obligations, and/or Enforcement Costs, prior to, on, or after the termination of
other advances under this Agreement, regardless of whether the outstanding
principal amount of the Revolving Loan which the Lender may make hereunder
exceeds the Revolving Credit Committed Amount.
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2.1.3 Borrowing Base.
(a) As used in this Agreement, the term "Borrowing Base" means
at any time, an amount equal to the aggregate of (a) eighty percent (80%) of the
amount of Eligible Receivables of all Borrowers other than Macpherson, plus (b)
such advance rate as the Lender shall determine in its sole discretion for the
Eligible Receivables of Macpherson, at such time as Macpherson's Receivables
become Eligible Receivables.
(b) The Borrowing Base shall be computed based on the
Borrowing Base Report most recently delivered to and accepted by the Lender in
its sole and absolute discretion. In the event the Borrower shall fail to
furnish a Borrowing Base Report required by Section 2.1.4 below, or in the event
a Borrowing Base Report is no longer accurate, the Lender may, in its sole and
absolute discretion exercised from time to time and without limiting its other
rights and remedies under this Agreement, suspend the making of or limit
advances under the Revolving Loan. The Borrowing Base shall be subject to
reduction by the amount of any Receivable which was included in the Borrowing
Base but which the Lender determines fails to meet the respective criteria
applicable from time to time for Eligible Receivables.
(c) If at any time the total of the aggregate principal amount
of the Revolving Loan, Outstanding Letter of Credit Obligations and Foreign
Exchange Obligations exceeds the Borrowing Base, a borrowing base deficiency
("Borrowing Base Deficiency") shall exist. Each time a Borrowing Base Deficiency
exists, the Borrowers at the sole and absolute discretion of the Lender
exercised from time to time shall pay the Borrowing Base Deficiency ON DEMAND to
the Lender from time to time.
(d) Without implying any limitation on the Lender's discretion
with respect to the Borrowing Base, the criteria for Eligible Receivables
contained in the definition of Eligible Receivables are in part based upon the
business operations of the Borrowers existing on or about the Closing Date and
upon information and records furnished to the Lender by the Borrowers. If at any
time or from time to time hereafter, the business operations of any one or more
of the Borrowers change or such information and records furnished to the Lender
is incorrect or misleading, the Lender in its good faith discretion, may at any
time and from time to time during the duration of this Agreement change such
criteria or add new criteria. The Lender shall communicate such changed or
additional criteria to the Borrowers from time to time either orally or in
writing.
2.1.4 Borrowing Base Report. The Borrowers will furnish to the
Lender no less frequently than monthly and at such other times as may be
requested by the Lender a report of the Borrowing Base (each a "Borrowing Base
Report"; collectively, the
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"Borrowing Base Reports") in the form required from time to time by the Lender,
appropriately completed and duly signed. The Borrowing Base Report shall contain
the amount and payments on the Receivables, and the calculations of the
Borrowing Base, all in such detail, and accompanied by such supporting and other
information, as the Lender may from time to time request. Upon the Lender's
request and upon the creation of any Receivables, or at such intervals as the
Lender may require, the Borrowers will provide the Lender with: (a) confirmatory
assignment schedules; (b) copies of Account Debtor invoices; (c) evidence of
shipment or delivery; and (d) such further schedules, documents and/or
information regarding the Receivables as the Lender may reasonably require. The
items to be provided under this subsection shall be in form satisfactory to the
Lender, and certified as true and correct by a Responsible Officer, and
delivered to the Lender from time to time solely for the Lender's convenience in
maintaining records of the Collateral. The failure of the Borrowers to deliver
any of such items to the Lender shall not affect, terminate, modify, or
otherwise limit the Lender's security interests in the Collateral.
2.1.5 Revolving Credit Note. The obligation of the Borrowers to pay
the Revolving Loan with interest shall be evidenced by a promissory note (as
from time to time extended, amended, restated, supplemented or otherwise
modified, the "Revolving Credit Note") substantially in the form of EXHIBIT
"A-1" attached hereto and made a part hereof, with appropriate insertions. The
Revolving Credit Note shall be dated as of the Closing Date, shall be payable to
the order of the Lender at the times provided in the Revolving Credit Note, and
shall be in the principal amount of the Revolving Credit Committed Amount. Each
of the Borrowers acknowledges and agrees that, if the outstanding principal
balance of the Revolving Loan outstanding from time to time exceeds the face
amount of the Revolving Credit Note, the excess shall bear interest at the rates
provided from time to time for advances under the Revolving Loan evidenced by
the Revolving Credit Note and shall be payable, with accrued interest, ON
DEMAND. The Revolving Credit Note shall not operate as a novation of any of the
Obligations or nullify, discharge, or release any such Obligations or the
continuing contractual relationship of the parties hereto in accordance with the
provisions of this Agreement.
2.1.6 Mandatory Prepayments of Revolving Loan. The Borrowers shall
make the mandatory prepayments (each a "Revolving Loan Mandatory Prepayment" and
collectively, the "Revolving Loan Mandatory Prepayments") of the Revolving Loan
at any time and from time to time in such amounts requested by the Lender
pursuant to Section 2.1.3 (Borrowing Base) of this Agreement in order to cover
any Borrowing Base Deficiency.
2.1.7 Optional Prepayments of Revolving Loan. Each of the Borrowers
may, at its option, at any time and from time to time prepay (each a "Revolving
Loan Optional Prepayment" and
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collectively the "Revolving Loan Optional Prepayments") the Revolving Loan, in
whole or in part without premium or penalty. Revolving Loan Optional Prepayments
shall be made following a timely and proper written notice to the Lender with
respect thereto specifying the date and amount of any intended Revolving Loan
Optional Prepayment. The amount to be prepaid shall be paid by the Borrowers to
the Lender on the date specified for such prepayment.
2.1.8 The Collateral Account.
(a) The Borrowers will deposit, or cause to be deposited, all
Items of Payment to a bank account designated by the Lender and from which the
Lender alone has power of access and withdrawal (such bank account, whether one
or more than one, collectively, the "Collateral Account"). Each deposit shall be
made not later than the next Business Day after the date of receipt of the Items
of Payment. The Items of Payment shall be deposited in precisely the form
received, except for the endorsements of any one or more of the Borrowers where
necessary to permit the collection of any such Items of Payment, which
endorsement each Borrower hereby agrees to make. In the event the Borrower fails
to do so, the Borrower hereby authorizes the Lender to make the endorsement in
the name of the Borrower. Prior to such a deposit, the Borrowers will not
commingle any Items of Payment with any of the other funds or property of the
Property of the Borrowers, but will hold them separate and apart in trust and
for the account of the Lender.
(b) In addition, if so directed by the Lender, each of the
Borrowers shall direct the mailing of all Items of Payment from its Account
Debtors to a post-office box designated by the Lender, or to such other
additional or replacement post-office boxes pursuant to the request of the
Lender from time to time (collectively, the "Lockbox"). The Lender shall have
unrestricted and exclusive access to the Lockbox.
(c) Each Borrower authorizes the Lender to inspect all Items
of Payment, endorse all Items of Payment in the name of the Borrower, and
deposit such Items of Payment in the Collateral Account. The Lender reserves the
right, exercised in its sole and absolute discretion from time to time, to
provide to the Collateral Account credit prior to final collection of an Item of
Payment and to disallow credit for any Item of Payment which is unsatisfactory
to the Lender. In the event Items of Payment are returned to the Lender for any
reason whatsoever, the Lender may, in the exercise of its discretion from time
to time, forward such Items of Payment a second time. Any returned Items of
Payment shall be charged back to the Collateral Account, the Revolving Loan
Account, or other account, as appropriate.
(d) The Lender will apply the whole or any part of the
collected funds credited to the Collateral Account
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against the Revolving Loan (or with respect to Items for Payments which are not
proceeds of accounts or inventory or after a Default or Event of Default,
against any of the Obligations) or credit such collected funds to the depository
account of the Apparel with the Lender, the order and method of such application
to be in the sole discretion of the Lender. It is understood and agreed,
however, that, absent an Event of Default, the Lender shall cause collected
funds in the Collateral Account pertaining to Leadtec to be transferred for
application to the Revolving Loan no more frequently than weekly.
2.1.9 Revolving Loan Account. The Lender will establish and maintain
a loan account on its books (the "Revolving Loan Account") to which the Lender
will (a) debit (i) the principal amount of each Revolving Loan made by the
Lender hereunder as of the date made, (ii) the amount of any interest accrued on
the Revolving Loan as and when due, and (iii) any other amounts due and payable
by the Borrowers to the Lender from time to time under the provisions of this
Agreement in connection with the Revolving Loan, including, without limitation,
Enforcement Costs, Fees, late charges, and service, collection and audit fees,
as and when due and payable, and (b) credit all payments made by the Borrowers
to the Lender on account of the Revolving Loan as of the date made including,
without limitation, funds credited to the Revolving Loan Account from the
Collateral Account. The Lender may debit the Revolving Loan Account for the
amount of any Item of Payment which is returned to the Lender unpaid. All credit
entries to the Revolving Loan Account are conditional and shall be readjusted as
of the date made if final and indefeasible payment is not received by the Lender
in cash or solvent credits.
2.1.10 Revolving Credit Unused Line Fee. Effective as of the Closing
Date, the Borrowers shall pay to the Lender a quarterly revolving credit
facility fee (collectively, the "Revolving Credit Unused Line Fees" and
individually, a "Revolving Credit Unused Line Fee") in an amount equal to
one-half percent (1/2%) per annum of the average daily unused and undisbursed
portion of the Revolving Credit Committed Amount (the face amount of Letters of
Credit being treated as a used and disbursed portion) in effect from time to
time accruing during each calendar quarter. The accrued and unpaid portion of
the Revolving Credit Unused Line Fee shall be paid by the Borrowers to the
Lender on the first day of the next calendar quarter, commencing on the first
such date following the date hereof, and on the Revolving Credit Termination
Date.
2.1.11 Early Termination Fee. In the event of the termination by, or
on behalf of, the Borrowers, of the Revolving Credit Commitment with replacement
senior secured debt financing (other than senior secured debt financing,
obtained after the Lender has exercised its discretionary rights as permitted
hereunder with respect to the Borrowing Base or any component
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thereof and/or established additional criteria for Eligible Receivables which
exercise of discretionary rights and/or establishment of additional criteria
result in an aggregate reduction of $1,000,000 in availability under the
Borrowing Base and which criteria are not imposed by the replacement lender),
the Borrowers shall pay a fee (the "Early Termination Fee") equal to 1% of the
Revolving Credit Committed Amount.
2.1.12 Required Availability under the Revolving Credit Facility.
(a) The Borrowers shall not at any time permit the aggregate
outstanding principal amount of the Revolving Loan, Outstanding Letter of Credit
Obligations, and the Outstanding Foreign Exchange Obligations to exceed an
amount equal to the lesser of (i) the Borrowing Base, minus One Million Five
Hundred Thousand Dollars ($1,500,000), and (ii) the Revolving Credit Committed
Amount.
(b) The Borrowers shall make a Revolving Loan Mandatory
Prepayment pursuant to the provisions of Section 2.1.6 to the extent necessary
to achieve compliance with this Section.
2.1.13 Right of Lender to Demand Payment and Terminate Revolving
Credit Facility.
Notwithstanding any of the provisions of this Agreement, the Revolving
Credit Note or any of the other Financing Documents, following an Event of
Default, the Lender may at any time, in its sole and absolute discretion
following an Event of Default, demand payment of the Revolving Loan in whole or
in part and/or terminate, suspend or limit the Revolving Credit Commitment. Upon
termination of the Revolving Credit Facility, the outstanding principal balance
under the Revolving Loan, and any accrued and unpaid interest thereon, shall be
immediately due and payable, and the Lender shall not make any further advances
under the Revolving Loan, unless it elects to do so in the exercise of its sole
and absolute discretion.
SECTION 2.2 The Letter of Credit Facility.
2.2.1 Letters of Credit. Subject to and upon the provisions of this
Agreement, and as a part of the Revolving Credit Commitment, the Borrowers may
obtain documentary letters of credit and related bankers acceptances or standby
letters of credit (as the same may from time to time be amended, supplemented or
otherwise modified, each a "Letter of Credit" and collectively the "Letters of
Credit") from the Lender from time to time from the Closing Date until the
Business Day preceding the Revolving Credit Termination Date. The Borrowers will
not be entitled to obtain a Letter of Credit
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hereunder unless (a) after giving effect to the request, the Borrowers would be
in compliance with Section 2.1.12 (a) and (b), and (b) the sum of the aggregate
face amount of the then outstanding Letters of Credit plus the aggregate of all
Foreign Exchange Reserves then outstanding does not exceed Seven Million Dollars
($7,000,000).
2.2.2 Letter of Credit Fees. The Borrowers shall pay to the Lender,
a letter of credit fee (each a "Letter of Credit Fee" and collectively the
"Letter of Credit Fees") at a rate equal to two percent (2%) per annum of the
amount of the face amount of Letters of Credit outstanding from time to time,
payable on the first day of each month in arrears. Such Letter of Credit Fees
shall be paid upon the opening of the Letter of Credit and upon each anniversary
thereof, if any. In addition, the Borrowers shall pay to the Lender any and all
additional issuance, negotiation, processing, transfer or other fees to the
extent and as and when required by the provisions of any Letter of Credit
Agreement; such additional fees are included in and a part of the "Fees" payable
by the Borrowers under the provisions of this Agreement.
2.2.3 Terms of Letters of Credit. Each Letter of Credit shall (a) be
opened pursuant to a Letter of Credit Agreement, and (b) expire on a date not
later than the Business Day preceding the Revolving Credit Expiration Date;
provided, however, if any Letter of Credit does have an expiration date later
than the Business Day preceding the Revolving Credit Termination Date, as of the
Business Day preceding the Revolving Credit Termination Date an advance of the
Revolving Loan Credit Facility shall be made by the Lender in the face amount of
such Letter of Credit (or Letters of Credit) and the proceeds thereof shall be
deposited in an account titled in the name of the Lender as trustee for the
Borrowers. The proceeds of the trustee account referred to in the immediately
preceding sentence shall be held as collateral for the Letter of Credit (or
Letters of Credit) and in the event of a draw under the Letter of Credit (or
Letters of Credit), used to pay any such draw. The aggregate face amount of all
Letters of Credit at any one time outstanding and issued by the Lender pursuant
to the provisions of this Agreement, plus the amount of any unpaid Letter of
Credit Fees accrued or scheduled to accrue thereon, and less the aggregate
amount of all drafts issued under or purporting to have been issued under such
Letters of Credit that have been paid by the Lender and not reimbursed by the
Borrowers, is herein called the "Outstanding Letter of Credit Obligations".
2.2.4 Procedure for Letters of Credit. The Borrowers shall give the
Lender written notice at least three (3) Business Days prior to the date on
which a Letter of Credit is requested to be opened. Such notice shall be
accompanied by a duly executed and delivered Letter of Credit Agreement. Upon
receipt of the Letter of Credit Agreement and the Letter of Credit Fee, the
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Lender shall process such Letter of Credit Agreement in accordance with its
customary procedures and open such Letter of Credit on the Business Day
specified in such notice.
SECTION 2.3 The Foreign Exchange Facility.
2.3.1 Foreign Exchange Agreements. Subject to and upon the
provisions of this Agreement, and as a part of the Revolving Credit Commitment,
to cover the risks of currency fluctuations with respect to those Letters of
Credit and Existing Letters of Credit which are drawable in a currency other
than U.S. dollars, the Borrowers may, upon the prior approval of the Lender,
enter into Foreign Exchange Agreements from time to time from the Closing Date
until the Business Day preceding the Revolving Credit Termination Date. The
Borrowers will not be entitled to obtain a Foreign Exchange Agreement hereunder
unless (a) after giving effect to the request, the Borrowers would be in
compliance with Section 2.1.12 (a) and (b), and (b) the sum of the aggregate
face amount of the then outstanding Letters of Credit plus the aggregate of all
Foreign Exchange Reserves then outstanding does not exceed Seven Million Dollars
($7,000,000). In addition, in no event shall the outstanding Foreign Exchange
Reserves exceed $750,000.
2.3.2 Foreign Exchange Reserves. The Borrowers shall pay to the
Lender any and all issuance, processing, transfer or other fees to the extent
and as and when required by the provisions of the Foreign Exchange Agreement and
any Foreign Exchange Documents; such additional fees are included in and a part
of the "Fees" payable by the Borrowers under the provisions of this Agreement.
2.3.3 Terms of Foreign Exchange Agreements. Each Foreign Exchange
Agreement shall (a) be opened pursuant to an application and agreement
substantially in the form of the Lender's then standard form of application for
foreign exchange agreements of the type applicable, or such other form as may be
required or approved by the Lender, and be accompanied by such other Foreign
Exchange Documents as the Lender may require, all executed and delivered by any
one or more of the Borrowers, and (b) expire on a date not later than the
Business Day preceding the Revolving Credit Expiration Date; provided, however,
if any Foreign Exchange Agreement does have an expiration date later than the
Business Day preceding the Revolving Credit Termination Date, as of the Business
Day preceding the Revolving Credit Termination Date an advance of the Revolving
Loan Credit Facility shall be made by the Lender in the face amount of such
Foreign Exchange Agreement (or Foreign Exchange Agreements) and the proceeds
thereof shall be deposited in an account titled in the name of the Lender as
trustee for the Borrowers. The proceeds of the trustee account referred to in
the immediately preceding sentence shall be held as collateral for the Foreign
Exchange Obligations. The aggregate face amount of all Foreign Exchange Reserves
at any one time outstanding and issued by
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the Lender pursuant to the provisions of this Agreement, plus the amount of any
unpaid fees accrued or scheduled to accrue thereon, is herein called the
"Outstanding Foreign Exchange Agreement Obligations".
2.3.4 Procedure for Foreign Exchange Agreements.
The Borrowers shall give the Lender written notice at least three (3)
Business Days prior to the date on which a Foreign Exchange Agreement is
requested. Such notice shall be accompanied by a duly executed and delivered
Foreign Exchange Agreement and other Foreign Exchange Documents as the Lender
may require. Upon receipt of the Foreign Exchange Agreement, the Foreign
Exchange Documents, and the required fees, the Lender shall process such Foreign
Exchange Documents in accordance with its customary procedures and open such
Foreign Exchange Agreement on the Business Day specified in such notice.
SECTION 2.4 Applicable Interest Rates.
(a) The Loan shall bear interest until maturity (whether by
acceleration, declaration, extension or otherwise) at either the Base Rate or
the LIBOR Rate, as selected and specified by the Borrowers in an Interest
Rate Election Notice furnished to the Lender in accordance with the
provisions of Section 2.4.1, or as otherwise determined in accordance with
the provisions of this Section 2.4 and as may be adjusted from time to time
in accordance with the provisions of Section 2.4.2.
(b) Notwithstanding the foregoing, following the occurrence
and during the continuance of an Event of Default, at the option of the Lender,
all Loans and all other Obligations shall bear interest at the Post-Default
Rate.
(c) The Applicable Margin for (i) LIBOR Loans shall be two and
three-quarters percent (2.75%) per annum, and (ii) Base Rate Loans shall be
three quarters of one percent (.75%) per annum.
2.4.1 Selection of Interest Rates.
(a) The Borrowers may select the initial Applicable Interest
Rate or Applicable Interest Rates to be charged on the Loan.
(b) From time to time after the date of this Agreement as
provided in this Section, by a proper and timely Interest Rate Election Notice
furnished to the Lender in accordance with the provisions of Section 2.4.1(e),
the Borrowers may select an initial Applicable Interest Rate or Applicable
Interest Rates for the Loan or may convert the Applicable Interest Rate and,
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when applicable, the Interest Period, for the Loan to any other Applicable
Interest Rate or, when applicable, any other Interest Period.
(c) The Borrowers' selection of an Applicable Interest Rate
and/or an Interest Period, the Borrowers' election to convert an Applicable
Interest Rate and/or an Interest Period to another Applicable Interest Rate or
Interest Period, and any other adjustments in an interest rate are subject to
the following limitations:
(i) the Borrowers shall not at any time select or change
to an Interest Period that extends beyond the Revolving Credit Expiration
Date,
(ii) except as otherwise provided in Section 2.4.3, no
change from the LIBOR Rate to the Base Rate shall become effective on a
day other than a Business Day and on a day which is the last day of then
current Interest Period, no change of an Interest Period shall become
effective on a day other than the last day of the then current Interest
Period, and no change from the Base Rate to the LIBOR Rate shall become
effective on a day other than a day which is a Eurodollar Business Day.
(iii) any Applicable Interest Rate change for any Loan
to be effective on a date on which any principal payment on account of
such Loan is scheduled to be paid shall be made only after such payment
shall have been made,
(iv) no more than three (3) different LIBOR Rates may be
outstanding at any time and from time to time with respect to the
Revolving Loan,
(v) the first day of each Interest Period shall be a
Eurodollar Business Day,
(vi) as of the effective date of a selection, there
shall not exist a Default or an Event of Default, and
(vii) the minimum principal amount of a LIBOR Loan shall
be One Million Dollars ($1,000,000).
(d) If a request for an advance under the Loan is not
accompanied by an Interest Rate Election Notice or does not otherwise include a
selection of an Applicable Interest Rate and, if applicable, an Interest Period,
or if, after having made a selection of an Applicable Interest Rate and, if
applicable, an Interest Period, the Borrowers fail or are not otherwise entitled
under the provisions of this Agreement to continue such Applicable Interest Rate
or Interest Period, the Borrowers shall be deemed to
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have selected the Base Rate as the Applicable Interest Rate until such time as
the Borrowers have selected a different Applicable Interest Rate and specified
an Interest Period in accordance with, and subject to, the provisions of this
Section.
(e) The Lender will not be obligated to make advances under
the Loan, to convert the Applicable Interest Rate on Loans to another Interest
Rate, or to change Interest Periods, unless the Lender shall have received an
irrevocable written or telephonic notice (an "Interest Rate Election Notice")
from the Borrowers specifying the following information:
(i) the amount to be borrowed or converted,
(ii) a selection of the Base Rate or the LIBOR Rate,
(iii) the length of the Interest Period if the
Applicable Interest Rate selected is the LIBOR Rate, and
(iv) the requested date on which such election is to be
effective.
Any telephonic notice must be confirmed in writing within three (3) Business
Days. Each Interest Rate Election Notice must be received by the Lender not
later than 10:00 a.m. (Baltimore City time) on the Business Day of any requested
borrowing or conversion in the case of a selection of the Base Rate and not
later than 10:00 a.m. (Baltimore City time) on the third Business Day before the
effective date of any requested borrowing or conversion in the case of a
selection of the LIBOR Rate.
2.4.2 Inability to Determine LIBOR Base Rate. In the event
that (i) the Lender shall have determined that, by reason of circumstances
affecting the London interbank eurodollar market, adequate and reasonable means
do not exist for ascertaining the LIBOR Base Rate for any requested Interest
Period the Borrowers have requested to be made or to be converted to a LIBOR
Loan or (ii) the Lender shall determine that the LIBOR Base Rate for any
requested Interest Period the Borrowers have requested to be made or to be
converted to a LIBOR Loan does not adequately and fairly reflect the cost to the
Lender of funding or converting such Loan, the Lender shall give telephonic or
written notice of such determination to the Borrowers at least one (1) day prior
to the proposed date for funding or converting such Loan. If such notice is
given, any request for a LIBOR Loan shall be made or converted to a Base Rate
Loan. Until such notice has been withdrawn by the Lender, the Borrowers will not
request that any Loan be made or converted to a LIBOR Loan.
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2.4.3 Indemnity. The Borrowers agree to indemnify and
reimburse the Lender and to hold the Lender harmless from any loss, cost
(including administrative costs) or expense which the Lender may sustain or
incur as a consequence of (a) a default by the Borrowers in payment when due of
the principal amount of or interest on any LIBOR Loan, (b) the failure of the
Borrowers to make, or convert the Applicable Interest Rate of, a Loan after the
Borrowers has given a Loan Notice or an Interest Rate Election Notice, (c) the
failure of the Borrowers to make any prepayment of a LIBOR Loan after the
Borrowers have given notice of such intention to make such a prepayment, and/or
(d) the making by the Borrowers of a prepayment of a LIBOR Loan on a day which
is not the last day of the Interest Period for such LIBOR Loan, calculated as
provided in the following paragraph. This agreement and covenant of the
Borrowers shall survive termination or expiration of this Agreement and payment
of the other Obligations.
Contemporaneously with any prepayment of principal of a LIBOR
Loan, a prepayment fee shall be due and payable to the Lender in an amount equal
to the product of
(A) the amount so prepaid
multiplied by
(B) the difference (but not less than zero) of
(i) the constant maturity 360-day interest yield (as of the
first day of the then effective Interest Period and expressed as a
decimal) for a United States Treasury bill, note, or bond (a
"Treasury obligation") selected by the Lender, in an aggregate
amount comparable to the amount prepaid, and having, as of the first
day of the then effective Interest Period, a remaining term
approximately equal to the original Interest Period,
minus
(ii) the 360-day interest yield (as of the Business Day
immediately preceding the prepayment date and expressed as a
decimal) on such Treasury obligation and having, as of the Business
Day immediately preceding the prepayment date, a remaining term
until maturity approximately equal to the unexpired portion of the
Interest Period,
multiplied by
(C) the quotient of
(y) the number of calendar days in the unexpired portion of
the Interest Period, divided by
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(x) 360.
The applicable yields on the Treasury obligations described above shall be
determined based upon the Federal Reserve statistical release H.15 published for
the applicable determination dates set forth above. Any Treasury obligation
selected when the related Interest Period is one year or less shall be United
States Treasury Bills. The Lender shall not be obligated or required to have
actually reinvested the prepaid amount of the LIBOR Loan in any such Treasury
obligation as a condition precedent to the Borrowers' being obligated to pay a
prepayment fee as outlined above. The Lender shall not be obligated to accept
any prepayment of principal unless it is accompanied by the prepayment fee, if
any, due in connection therewith as calculated pursuant to the provisions of
this paragraph. No prepayment fee payable in connection herewith shall in any
event or under any circumstances be deemed or construed as a penalty.
2.4.4 Payment of Interest.
(a) Unpaid and accrued interest on any advance of the
Revolving Loan and on any portion of the Loan which consists of a Base Rate Loan
shall be paid monthly, in arrears, on the first day of each calendar month,
commencing on the first such date after the date of this Agreement, and on the
first day of each calendar month thereafter, and at maturity (whether by
acceleration, declaration, extension or otherwise).
(b) Notwithstanding the foregoing, any and all unpaid and
accrued interest on any Base Rate Loan converted to a LIBOR Loan or prepaid
shall be paid immediately upon such conversion and/or prepayment, as
appropriate.
(c) Unpaid and accrued interest on any LIBOR Loan shall be
paid on the last Business Day of each Interest Period for such LIBOR Loan and at
maturity (whether by acceleration, declaration, extension or otherwise);
provided, however that any and all unpaid and accrued interest on any LIBOR Loan
prepaid prior to expiration of the then current Interest Period for such LIBOR
Loan shall be paid immediately upon prepayment.
SECTION 2.5 General Financing Provisions.
2.5.1 Borrowers' Representatives.
(a) The Borrowers hereby represent and warrant to the Lender
that each of the Borrowers will derive benefits, directly and indirectly, from
each Letter of Credit, each Foreign Exchange Agreement and from each advance
under the Loan, both in their separate capacity and as a member of the
integrated group to which each of the Borrowers belong, because the successful
operation of the integrated group is dependent upon the continued
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successful performance of the functions of the integrated group as a whole. The
Borrowers in the discretion of their respective managements are to agree among
themselves as to the allocation of the benefits of Letters of Credit and Foreign
Exchange Agreements and the proceeds of Revolving Loan, and the purposes for
which such benefits and proceeds will be used so long as any such allocation or
purpose is not in violation of this Agreement.
(b) For administrative convenience, Apparel is hereby
irrevocably appointed by each of the Borrowers as agent for each of the
Borrowers for the purpose of requesting Letters of Credit, Foreign Exchange
Agreements and advances under the Loan, receiving the benefits of such Letters
of Credits and Foreign Exchange Agreements and the proceeds of the Revolving
Loan, and disbursing the proceeds of the Revolving Loan as between the
Borrowers. By reason thereof, Apparel is hereby irrevocably appointed by each of
the Borrowers as the attorney-in-fact of each of the Borrowers with power and
authority through its duly authorized officer or officers to (i) endorse any
check (if any) for the proceeds of any Loan for and on behalf of each of the
Borrowers and in the name of each of the Borrowers and (ii) instruct the Lender
to credit the proceeds of any advance under the Loan directly to an account of
any of the Borrowers which shall evidence the making of such Loan and shall
constitute the acknowledgement by each of the Borrowers of the receipt of the
proceeds of such Loan. All actions taken by Apparel in connection with the
Revolving Loan and the Financing Documents shall be conclusively presumed to be
the joint and several actions of the Borrowers even though Apparel may act from
time to time in its name alone.
(c) Each of the Borrowers hereby irrevocably authorizes the
Lender at the direction of Apparel to make advances under the Revolving Loan to
any or all of the Borrowers, and hereby irrevocably authorizes the Lender at the
direction of Apparel to issue Letters of Credit and to enter into Foreign
Exchange Agreements for the account of any or all of the Borrowers, pursuant to
the provisions of this Agreement upon the written, oral or telephone request of
any one of the Persons who is from time to time a Responsible Officer of Apparel
under the provisions of the most recent "Certificate" of corporate resolutions
of Apparel on file with the Lender.
(d) The Lender assumes no responsibility or liability for any
errors, mistakes, and/or discrepancies in the oral, telephonic, written or other
transmissions of any instructions, orders, requests and confirmations between
the Lender and the Borrowers in connection with the Credit Facilities, any Loan
or any other transaction in connection with the provisions of this Agreement.
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(e) Without implying any limitation on the joint and several
nature of the Obligations, the Lender agrees that, notwithstanding any other
provision of this Agreement, the Borrowers may create reasonable inter-company
indebtedness between or among the Borrowers with respect to the allocation of
the benefits and proceeds of the advances under this Agreement. The Borrowers
agree among themselves, and the Lender consents to that agreement, that each
Borrower shall have rights of contribution from all of the other Borrowers to
the extent a Borrower incurs Obligations in excess of the proceeds of the
Revolving Loan received by, or allocated to purposes for the direct benefit of,
the Borrower. All such indebtedness and rights shall be, and is hereby agreed by
the Borrowers to be, subordinate in priority and payment to the indefeasible
repayment in full of the Obligations, and, unless the Lender agrees in writing
otherwise, shall not be exercised or repaid in whole or in part until all of the
Obligations have been satisfied. The Borrowers agree that all of such
indebtedness and rights are part of the Collateral of a Borrower who is the
creditor and secures the Obligations. Each Borrower hereby waives all rights of
counterclaim, recoupment and offset between or among themselves arising on
account of that indebtedness and otherwise. Each Borrower shall not evidence
that indebtedness or rights by note or other instrument, and shall not secure
that indebtedness with any mortgages, security interests or otherwise, even
though any such instrument and security shall be part of the Collateral.
2.5.2 Use of Proceeds. The proceeds of each advance under the
Revolving Loan shall be used by the Borrowers for Permitted Uses, and for no
other purposes except as may otherwise be agreed by the Lender in writing. The
Borrowers shall use the proceeds of the Revolving Loan promptly.
2.5.3 Origination Fee. The Borrowers shall pay to the Lender on or
before the Closing Date a loan origination fee (the "Origination Fee") in the
amount of Twenty-Five Thousand Dollars ($25,000), which fee has been fully
earned and is non-refundable.
2.5.4 Field Examination Fees. The Borrowers shall pay to the Lender
a field examination fee (collectively, the "Field Examination Fees" and
individually a "Field Examination Fee"), which Field Examination Fees shall be
payable quarterly on the first day of each April, July, October, and January of
each year commencing on the first such date following the Closing Date, and
continuing until the last such date prior to which all Obligations arising out
of, or under, the Credit Facilities then outstanding have been paid in full.
Each Field Examination Fee shall be in the amount of $6,250.
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2.5.5 Computation of Interest and Fees. All applicable Fees and
interest shall be calculated on the basis of a year of 360 days for the actual
number of days elapsed.
2.5.6 Payments. All payments of the Obligations, including, without
limitation, principal, interest, Prepayments, and Fees, shall be paid by the
Borrowers without setoff, recoupment or counterclaim to the Lender in
immediately available funds not later than 12:00 noon, Baltimore, Maryland time
on the due date of such payment. All such payments shall be made to the Lender's
principal office in Baltimore, Maryland or at such other location as the Lender
may at any time and from time to time notify the Borrowers. Alternatively, at
its sole discretion, the Lender may charge any deposit account any one or more
of the Borrowers at the Lender or any Affiliate thereof with all or any part of
any amount due hereunder to the extent that the Borrowers shall not have
otherwise tendered payment to the Lender. All payments shall be applied first to
any unpaid Fees, second to any and all accrued and unpaid late charges and
Enforcement Costs, third to any and all accrued and unpaid interest on the
Obligations, and then to principal, all in such order and manner as shall be
determined by the Lender in its sole and absolute discretion.
2.5.7 Liens; Setoff. Each Borrower hereby grants to the Lender a
continuing Lien for all of the Obligations of the Borrowers upon any and all
monies, securities, and other property of the Borrower and the proceeds thereof,
now or hereafter held or received by or in transit to, the Lender from or for
the Borrowers, and also upon any and all deposit accounts (general or special)
and credits of the Borrower, if any, with the Lender or any Affiliate of the
Lender, at any time existing, excluding any deposit accounts held by the
Borrower in its capacity as trustee for Persons who are not Affiliates of the
Borrower. Without implying any limitation on any other rights the Lender may
have under the Financing Documents or applicable Laws, during the continuance of
an Event of Default, the Lender is hereby authorized by each Borrower at any
time and from time to time, without notice to the Borrowers, to set off,
appropriate and apply any or all items hereinabove referred to against all
Obligations then outstanding (whether or not then due), all in such order and
manner as shall be determined by the Lender in its sole and absolute discretion.
2.5.8 Requirements of Law. In the event that the Lender shall have
determined in good faith that (a) the adoption of any Laws regarding capital
adequacy, or (b) any change therein or in the interpretation or application
thereof or (c) compliance by the Lender or any corporation controlling the
Lender with any request or directive regarding capital adequacy (whether or not
having the force of law) from any central bank or Governmental Authority, does
or shall have the effect of reducing the rate of return on the Lender's or such
corporation's capital as
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a consequence of its obligations hereunder to a level below that which the
Lender or such corporation would have achieved but for such adoption, change or
compliance (taking into consideration the Lender's or such corporation's
policies with respect to capital adequacy) by an amount deemed by the Lender to
be material, then from time to time, after submission by the Lender to the
Borrowers of a written request therefor and a statement of the basis for such
determination, the Borrowers shall pay to the Lender such additional amount or
amounts in order to compensate for such reduction.
ARTICLE 3
THE COLLATERAL
SECTION 3.1 Debt and Obligations Secured. All property and Liens assigned,
pledged or otherwise granted under or in connection with this Agreement
(including, without limitation, those under Section 3.2 (Grant of Liens) below)
or any of the Financing Documents shall secure (a) the payment of all of the
Obligations, and (b) the performance, compliance with and observance by the
Borrowers of the provisions of this Agreement and all of the other Financing
Documents or otherwise under the Obligations.
SECTION 3.2 Grant of Liens.
3.2.1 Each of the Borrowers hereby assigns, pledges and grants to
the Lender, and agrees that the Lender shall have a perfected and continuing
security interest in, and first priority Lien on, (a) all of the Collateral,
whether now owned or existing or hereafter acquired or arising, (b) all
returned, rejected or repossessed goods, the sale or lease of which shall have
given or shall give rise to an Account or to Chattel Paper, (c) all insurance
policies relating to the foregoing, (d) all books and records in whatever media
(paper, electronic or otherwise) recorded or stored, with respect to the
foregoing and all equipment and general intangibles necessary or beneficial to
retain, access and/or process the information contained in those books and
records, and (e) all cash and non-cash proceeds and products of the foregoing.
3.2.2 The Borrower further agrees that the Lender shall have in
respect of the Collateral described in the foregoing subsections, all of the
rights and remedies of a secured party under the Uniform Commercial Code as well
as those provided in this Agreement, under each of the other Financing Documents
and under applicable Laws.
SECTION 3.3 Collateral Disclosure List. On or prior to the Closing Date,
Macpherson shall deliver to the Lender a list (the "Collateral Disclosure List")
which shall contain such information with respect to Macpherson's business and
real and personal
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property as the Lender may require and shall be certified by a Responsible
Officer of Macpherson, all in the form provided to the Borrowers by the Lender.
Promptly after demand by the Lender, each Borrower shall furnish to the Lender
an update of the information contained in the Collateral Disclosure List for
Macpherson or any such lists previously provided for any of the Borrowers at any
time and from time to time as may be requested by the Lender.
SECTION 3.4 Personal Property. The Borrower acknowledges and agrees that
it is the intention of the parties to this Agreement that the Lender shall have
a perfected Lien, in form and substance satisfactory to the Lender and its
counsel, on all of the Borrower's Accounts and Chattel Paper of any kind and
nature whatsoever, whether now owned or hereafter acquired, and the Lender's
Lien shall be a first priority Lien subject only to the Permitted Liens. In
furtherance of the foregoing:
3.4.1 Chattel Paper, Promissory Notes, etc.
(a) On the Closing Date and without implying any limitation on
the scope of Section 3.2 (Grant of Liens) above, the Borrower shall deliver to
the Lender all originals of all of the Borrower's letters of credit, Chattel
Paper, Documents (as defined under the Uniform Commercial Code and to the extent
included in Accounts or Chattel Paper) and Instruments (as defined under the
Uniform Commercial Code and to the extent included in Accounts or Chattel Paper)
and, if the Lender so requires, shall execute and deliver to the Lender separate
pledges, assignments and security agreements in form and content acceptable to
the Lender, which pledges, assignments and security agreements shall assign,
pledge and grant a Lien to the Lender on all letters of credit, Securities
(other than those covered by the Stock Pledge Agreement), Chattel Paper,
Documents, and Instruments.
(b) In the event that the Borrower shall acquire after the
Closing Date any letters of credit, Chattel Paper, Documents, or Instruments,
the Borrower shall promptly so notify the Lender and deliver the originals of
all of the foregoing to the Lender promptly and in any event within ten (10)
days of each acquisition.
(c) All letters of credit, Chattel Paper, Documents and
Instruments shall be delivered to the Lender endorsed and/or assigned as
required by any pledge, assignment and security agreement and/or as the Lender
may require and, if applicable, shall be accompanied by blank irrevocable and
unconditional stock or bond powers and/or notices as the Lender may require.
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SECTION 3.5 Record Searches. As of the Closing Date and thereafter at the
time any Financing Document is executed and delivered by any one or more of the
Borrowers pursuant to this Section, the Lender shall have received, in form and
substance satisfactory to the Lender, such Lien or record searches with respect
to the Borrowers and/or any other Person, as appropriate, and the property
covered by such Financing Document showing that the Lien of such Financing
Document will be a perfected first priority Lien on the property covered by such
Financing Document subject only to Permitted Liens or to such other matters as
the Lender may approve.
SECTION 3.6 Costs. Each of the Borrowers agrees to pay, as part of the
Enforcement Costs and to the fullest extent permitted by applicable Laws, on
demand all costs, fees and expenses incurred by the Lender in connection with
the taking, perfection, preservation, protection and/or release of a Lien on the
Collateral, including, without limitation:
(a) customary fees and expenses incurred in preparing
Financing Documents from time to time (including, without limitation,
reasonable attorneys' fees incurred in connection with preparing the
Financing Documents);
(b) all filing and/or recording taxes or fees;
(c) all title insurance premiums and costs;
(d) all costs of Lien and record searches;
(e) reasonable attorneys' fees in connection with all
legal opinions required;
(f) appraisal and/or survey costs; and
(g) all related costs, fees and expenses.
SECTION 3.7 Release. Upon the payment and performance of all Obligations
of the Borrowers and all obligations and liabilities of each other Person, other
than the Lender, under this Agreement and all other Financing Documents, the
termination and/or expiration of the Commitment and the Outstanding Letter of
Credit Obligations and Foreign Exchange Obligations, upon the Borrowers' request
and at the Borrowers' sole cost and expense, the Lender shall release and/or
terminate any Financing Document but only if and provided that there is no
commitment or obligation (whether or not conditional) of the Lender to
re-advance amounts which would be secured thereby.
SECTION 3.8 Inconsistent Provisions. In the event that the provisions of
any Financing Document directly conflict with any
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provision of this Agreement, the provisions of this Agreement govern.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
SECTION 4.1 Representations and Warranties. Each of the Borrowers
represents and warrants to the Lender and shall be deemed to represent and
warrant at the time of each request for an advance under the Revolving Loan or
request for a Letter of Credit or Foreign Exchange Agreement under the terms of
this Agreement and again at the time of the making of any advance under the
Revolving Loan or the issuance of any Letter of Credit or the entering into of
any Foreign Exchange Agreement, as follows:
4.1.1 Subsidiaries. The Borrowers have the Subsidiaries listed on
the Collateral Disclosure List supplied by the Borrowers and no others. Each of
the Subsidiaries is a Wholly Owned Subsidiary except as shown on any Collateral
Disclosure List, which correctly indicates the nature and amount of the
Borrower's ownership interests therein.
4.1.2 Good Standing. Each of the Borrowers and its Subsidiaries (a)
is a corporation duly organized, existing and in good standing under the laws of
the jurisdiction of its incorporation, (b) has the corporate power to own its
property and to carry on its business as now being conducted, and (c) is duly
qualified to do business and is in good standing in each jurisdiction in which
the character of the properties owned by it therein or in which the transaction
of its business makes such qualification necessary.
4.1.3 Power and Authority. Each of the Borrowers has full corporate
power and authority to execute and deliver this Agreement and the other
Financing Documents to which it is a party, to make the borrowings under this
Agreement, and to incur and perform the Obligations whether under this
Agreement, the other Financing Documents or otherwise, all of which have been
duly authorized by all proper and necessary corporate action. No consent or
approval of shareholders or any creditors of Borrower, and no consent, approval,
filing or registration with or notice to any Governmental Authority on the part
of any Borrower, is required as a condition to the execution, delivery, validity
or enforceability of this Agreement or the other Financing Documents or the
performance by the Borrower of the Obligations.
4.1.4 Binding Agreements. This Agreement and the other Financing
Documents executed and delivered by any of the Borrowers have been properly
executed and delivered and constitute the valid and legally binding obligations
of such Borrower and are
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fully enforceable against such Borrower in accordance with their respective
terms.
4.1.5 No Conflicts. Neither the execution, delivery and performance
of the terms of this Agreement or of any of the other Financing Documents
executed and delivered by any of the Borrowers nor the consummation of the
transactions contemplated by this Agreement will conflict with, violate or be
prevented by (a) each such Borrower's charter or bylaws, (b) any existing
mortgage, indenture, contract or agreement binding on such Borrower or affecting
its property, or (c) any Laws.
4.1.6 No Defaults, Violations.
(a) No Default or Event of Default has occurred and is
continuing.
(b) Neither the Borrowers nor any of their Subsidiaries is in
default under or with respect to any obligation under any existing mortgage,
indenture, contract or agreement binding on it or affecting its property in any
respect which could be materially adverse to the business, operations, property
or financial condition of the Borrowers, or which could materially adversely
affect the ability of the Borrowers to perform their obligations under this
Agreement or the other Financing Documents, to which any of the Borrowers is a
party.
4.1.7 Compliance with Laws. Neither the Borrowers nor any of their
Subsidiaries is in violation of any applicable Laws (including, without
limitation, any Laws relating to employment practices, to environmental,
occupational and health standards and controls) or order, writ, injunction,
decree or demand of any court, arbitrator, or any Governmental Authority
affecting the Borrowers or any of their properties, the violation of which,
considered in the aggregate, could materially adversely affect the business,
operations or properties of the Borrowers and/or their Subsidiaries.
4.1.8 Margin Stock. None of the proceeds of the Revolving Loan will
be used, directly or indirectly, by any of the Borrowers or any Subsidiary for
the purpose of purchasing or carrying, or for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or carry,
any "margin security" within the meaning of Regulation G (12 CFR Part 207), or
"margin stock" within the meaning of Regulation U (12 CFR Part 221), of the
Board of Governors of the Federal Reserve System or for any other purpose which
might make the transactions contemplated in this Agreement a "purpose credit"
within the meaning of said Regulation G or Regulation U, or cause this Agreement
to violate any other regulation of the Board of Governors of the Federal Reserve
System or the Securities Exchange Act of
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1934 or the Small Business Investment Act of 1958, as amended, or any rules or
regulations promulgated under any of such statutes.
4.1.9 Investment Company Act; Margin Securities.
Neither the Borrowers nor any of their Subsidiaries is an investment
company within the meaning of the Investment Company Act of 1940, as amended,
nor is it, directly or indirectly, controlled by or acting on behalf of any
Person which is an investment company within the meaning of said Act. Neither
the Borrowers nor any of their Subsidiaries is engaged principally, or as one of
its important activities, in the business of extending credit for the purpose of
purchasing or carrying "margin security" within the meaning of Regulation G (12
CFR Part 207), or "margin stock" within the meaning of Regulation U (12 CFR Part
221), of the Board of Governors of the Federal Reserve System.
4.1.10 Litigation. Except as otherwise disclosed to the Lender on
Schedule 4.1.10 attached to and made a part of this Agreement, there are no
proceedings, actions or investigations pending or, so far as the Borrower knows,
threatened before or by any court, arbitrator any Governmental Authority which,
in any one case or in the aggregate, if determined adversely to the interests of
the Borrower or any Subsidiary, would have a material adverse effect on the
business, properties, condition (financial or otherwise) or operations, present
or prospective, of the Borrower.
4.1.11 Financial Condition. The consolidated financial statements of
Holdings, Apparel and their Subsidiaries dated October 31, 1996, are complete
and correct and fairly present the financial position of Holdings, Apparel and
their Subsidiaries and the results of their operations and transactions in their
surplus accounts as of the date and for the period referred to and have been
prepared in accordance with GAAP applied on a consistent basis throughout the
period involved. There are no liabilities, direct or indirect, fixed or
contingent, of the Borrowers or their Subsidiaries as of the date of such
financial statements which are not reflected therein or in the notes thereto.
There has been no adverse change in the financial condition or operations of the
Borrowers or their Subsidiaries since the date of such financial statements and
to the Borrowers' knowledge no such adverse change is pending or threatened.
Neither the Borrowers nor any Subsidiary has guaranteed the obligations of, or
made any investment in or advances to, any Person, except as disclosed in such
financial statements. The representations and warranties contained in this
Section shall also cover financial statements furnished from time to time to the
Lender pursuant to Section 6.1.1 (Financial Statements) of this Agreement.
4.1.12 Full Disclosure. The financial statements referred to in
Section 4.1.11 (Financial Condition) of this
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Agreement, the Financing Documents (including, without limitation, this
Agreement), and the statements, reports or certificates furnished by any
Borrower in connection with the Financing Documents (a) do not contain any
untrue statement of a material fact and (b) when taken in their entirety, do not
omit any material fact necessary to make the statements contained therein not
misleading. There is no fact known to the Borrowers which the Borrowers have not
disclosed to the Lender in writing prior to the date of this Agreement with
respect to the transactions contemplated by the Financing Documents which
materially and adversely affects or in the future could, in the reasonable
opinion of the Borrowers materially adversely affect the condition, financial or
otherwise, results of operations, business, or assets of any of the Borrowers or
of any Subsidiary.
4.1.13 Indebtedness for Borrowed Money. Except for the Obligations
and except as set forth in Schedule 4.1.13 attached to and made a part of this
Agreement including but not limited to the Senior Notes, as of the Closing Date,
the Borrowers have no Indebtedness for Borrowed Money. The Lender has received
photocopies of all promissory notes evidencing any Indebtedness for Borrowed
Money set forth in Schedule 4.1.13, together with any and all subordination
agreements, other agreements, documents, or instruments securing, evidencing,
guarantying or otherwise executed and delivered in connection therewith.
4.1.14 Taxes. Each of the Borrowers and its Subsidiaries has filed
all returns, reports and forms for Taxes which, to the knowledge of the
Borrowers, are required to be filed, and has paid all Taxes as shown on such
returns or on any assessment received by it, to the extent that such Taxes have
become due, unless and to the extent only that such Taxes, assessments and
governmental charges are currently contested in good faith and by appropriate
proceedings by the Borrowers, such Taxes are not the subject of any Liens other
than Permitted Liens, and adequate reserves therefor have been established as
required under GAAP. All tax liabilities of the Borrowers were as of the date of
audited financial statements referred to in Section 4.1.11 (Financial Condition)
above, and are now, adequately provided for on the books of the Borrowers or its
subsidiaries, as appropriate. No tax liability has been asserted by the Internal
Revenue Service or any state or local authority against the Borrowers for taxes
in excess of those already paid.
4.1.15 ERISA. With respect to any "pension plan" as defined in
SECTION 3(2) of ERISA, which plan is now or previously has been maintained or
contributed to by the Borrower and/or by any commonly controlled entity: (a) no
"accumulated funding deficiency" as defined in Code ss.412 or ERISA ss.302 has
occurred, whether or not that accumulated funding deficiency has been waived;
(b) no Reportable Event has occurred; (c) no termination of any plan subject to
Title IV of ERISA has occurred;
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(d) neither the Borrower nor any commonly controlled entity (as defined under
ERISA) has incurred a "complete withdrawal" within the meaning of ERISA ss.4203
from any Multiemployer Plan; (e) neither any of the Borrowers nor any commonly
controlled entity has incurred a "partial withdrawal" within the meaning of
ERISA ss.4205 with respect to any Multiemployer Plan; (f) no Multiemployer Plan
to which the Borrower or any commonly controlled entity has an obligation to
contribute is in "reorganization" within the meaning of ERISA ss.4241 nor has
notice been received by any Borrower or any commonly controlled entity that such
a Multiemployer Plan will be placed in "reorganization".
4.1.16 Title to Properties. Each of the Borrowers has good and
marketable title to all of its properties, including, without limitation, the
Collateral and the properties and assets reflected in the balance sheets
described in Section 4.1.11 (Financial Condition) above. The Borrowers have
legal, enforceable and uncontested rights to use freely such property and
assets. All of such properties, including, without limitation, the Collateral
which were purchased, were purchased for fair consideration and reasonably
equivalent value in the ordinary course of business of both the seller and such
Borrower and not, by way of example only, as part of a bulk sale.
4.1.17 Patents, Trademarks, Etc. Each of the Borrowers and its
Subsidiaries owns, possesses, or has the right to use all necessary patents,
patent rights, licenses, trademarks, trademark rights, trade names, trade name
rights, logos, copyrights, permits and franchises to own its properties conduct
its business as now conducted, without known conflict with the rights of any
other Person. Any and all obligations to pay royalties or other charges with
respect to such properties and assets are properly reflected on the financial
statements described in Section 4.1.11 (Financial Condition) above.
4.1.18 Presence of Hazardous Materials or Hazardous Materials
Contamination.
To the best of the Borrowers' knowledge, (a) no Hazardous Materials are
located on any real property owned, controlled or operated by any of the
Borrowers or for which any Borrower is, or is claimed to be, responsible, except
for reasonable quantities of necessary supplies for use by the Borrowers in the
ordinary course of the its current line of business and stored, used and
disposed in accordance with applicable Laws; (b) no property owned, controlled
or operated by the Borrowers or for which the Borrowers have, or are claimed to
have, responsibility has ever been used as a manufacturing or storage of
Hazardous Materials, except for reasonable quantities of necessary supplies for
use by the Borrower in the ordinary course of their current line of business and
stored, used and disposed in accordance with applicable Laws and (c) no property
owned, controlled or operated by the Borrowers or
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for which the Borrowers have, or are claimed to have, responsibility has ever
been used as a dump site for Hazardous Materials nor is affected by Hazardous
Materials Contamination at any other property.
4.1.19 Perfection and Priority of Collateral. The Lender has, or
upon execution and recording of this Agreement and the Security Documents will
have, and will continue to have as security for the Obligations, a valid and
perfected Lien on and security interest in all Collateral, free of all other
Liens, claims and rights of third parties whatsoever except Permitted Liens,
including, without limitation, any set forth on Schedule 4.1.19.
4.1.20 Places of Business and Location of Collateral.
The information contained in the Collateral Disclosure List is complete
and correct. The Collateral Disclosure List completely and accurately identifies
the address of (a) each of the Borrowers' chief executive office, (b) any and
each other place of business of the Borrowers, (c) the location of all books and
records pertaining to the Collateral, and (d) each location, other than the
foregoing, where any of the Collateral is located. The proper and only places to
file financing statements with respect to the Collateral within the meaning of
the Uniform Commercial Code are the filing offices for those jurisdictions in
which any of the Borrowers maintains a place of business as identified on the
Collateral Disclosure List.
4.1.21 Business Names and Addresses. In the twelve years preceding
the date hereof, none of the Borrowers has changed its name, identity or
corporate structure, has not conducted business under any name other than its
current name, and has not conducted its business in any jurisdiction other than
those disclosed on the Collateral Disclosure List.
4.1.22 Accounts. With respect to all Accounts and to the best of the
Borrowers' knowledge (a) they are genuine, and in all respects what they purport
to be, and are not evidenced by a judgment, an Instrument, or Chattel Paper
(unless such judgment has been assigned and such Instrument or Chattel Paper has
been endorsed and delivered to the Lender); (b) they represent bona fide
transactions completed in accordance with the terms and provisions contained in
the invoices, purchase orders and other contracts relating thereto, and the
underlying transaction therefor is in accordance with all applicable Laws; (c)
the amounts shown on the applicable Borrower's books and records, with respect
thereto are actually and absolutely owing to the Borrower and are not contingent
or subject to reduction for any reason other than regular discounts, credits or
adjustments allowed by the Borrower in the ordinary course of its business; (d)
no payments have been or shall be made thereon except payments turned over to
the Lender
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by the Borrowers; (e) all Account Debtors thereon have the capacity to contract;
and (f) the goods sold, leased or transferred or the services furnished giving
rise thereto are not subject to any Liens except the security interest granted
to the Lender by this Agreement and Permitted Liens.
4.1.23 Compliance with Eligibility Standards.
Each Account included in the calculation of the Borrowing Base does and
will at all times meet and comply with all of the standards for Eligible
Receivables. With respect to those Accounts which the Lender has deemed Eligible
Receivables (a) there are no facts, events or occurrences which in any way
impair the validity, collectibility or enforceability thereof or tend to reduce
the amount payable thereunder; and (b) there are no proceedings or actions known
to the Borrowers which are threatened or pending against any Account Debtor
which might result in any material adverse change in the Borrowing Base.
4.1.24 Purchase Agreement Transaction.
On or before the Execution Date, the Lender has received true and correct
photocopies of the Purchase Agreement and each of the Purchase Agreement
Documents, executed, delivered and/or furnished on or before the Closing Date in
connection with the Purchase Agreement Transaction. Neither the Purchase
Agreement nor any of the Purchase Agreement Documents have been modified,
changed, supplemented, canceled, amended or otherwise altered or affected,
except as otherwise disclosed to the Lender in writing on or before the Closing
Date. The Purchase Agreement Transaction has been effected, closed and
consummated pursuant to, and in accordance with, the terms and conditions of the
Purchase Agreement on or before the Closing Date.
SECTION 4.2 Survival; Updates of Representations and Warranties.
All representations and warranties contained in or made under or in
connection with this Agreement and the other Financing Documents shall survive
the Closing Date, the making of any advance under the Revolving Loan and
extension of credit made hereunder, and the incurring of any other Obligations.
ARTICLE 5
CONDITIONS PRECEDENT
SECTION 5.1 Conditions to the Initial Advance, Initial Letter of Credit
and Initial Foreign Exchange Agreement.
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The making of the initial advance under the Revolving Loan and the
issuance of the initial Letter of Credit and the entering into of each Foreign
Exchange Agreement is subject to the fulfillment of the following conditions
precedent in a manner satisfactory to the Lender on or before the Closing Date:
5.1.1 Good Standing etc. The Lender shall have received a
certificate of good standing for each Borrower certified by the Secretary of
State, or other appropriate Governmental Authority, of the state of
incorporation for such Borrower. The Lender shall have received a Certificate of
Qualification to do business for each Borrower certified by the Secretary of
State or other Governmental Authority of each state in which such Borrower
conducts business.
5.1.2 Corporate Proceedings of the Borrowers. The Lender shall have
received a certificate dated as of the Closing Date by the Secretary or an
Assistant Secretary of each Borrower covering:
(a) true and complete copies of such Borrower's
corporate charter, bylaws, and all amendments thereto;
(b) true and complete copies of the resolutions of its
Board of Directors authorizing (i) the execution, delivery and performance
of the Purchase Agreement Documents and the Financing Documents to which
such Borrower is a party, (ii) the borrowings by the Borrower hereunder,
(iii) the granting of the Liens contemplated by this Agreement and the
Financing Documents to which such Borrower is a party, and (iv), for
Apparel and Holdings, the Purchase Agreement Transaction;
(c) the incumbency, authority and signatures of the
officers of such Borrower authorized to sign this Agreement and the other
Financing Documents to which such Borrower is a party; and
(d) the identity of such Borrower's current directors,
common stock holders and other equity holders, as well as their respective
percentage ownership interests.
5.1.3 Consents, Licenses, Approvals, Etc.
The Lender shall have received copies of all consents, licenses and
approvals, required in connection with the execution, delivery, performance,
validity and enforceability of the Financing Documents and the Purchase
Agreement Documents, and such consents, licenses and approvals shall be in full
force and effect.
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5.1.4 Collateral Disclosure List. Macpherson shall have delivered
the Collateral Disclosure List required under the provisions of Section
(Collateral Disclosure List) hereof duly executed by a Responsible Officer of
such Borrower.
5.1.5 Note. The Lender shall have received the Revolving Credit
Note, conforming to the requirements hereof and executed by a Responsible
Officer of each Borrower and attested by a duly authorized representative of the
Borrower.
5.1.6 Financing Documents and Collateral. Each Borrower shall have
executed and delivered the Financing Documents to be executed by it, and shall
have delivered original Chattel Paper, Instruments, Securities, and related
collateral and all opinions, title insurance, and other documents contemplated
by Article 3 hereof, all the foregoing to be in form and substance satisfactory
to the Lender.
5.1.7 Recordings and Filings. Each Borrower shall have: (a) executed
and delivered all Financing Documents (including, without limitation, UCC-1 and
UCC-3 statements) required to be filed, registered or recorded in order to
create, in favor of the Lender, a perfected Lien in the Collateral (subject only
to the Permitted Liens) in form and in sufficient number for filing,
registration, and recording in each office in each jurisdiction in which such
filings, registrations and recordations are required, and (b) delivered such
evidence as the Lender may deem satisfactory that all necessary filing fees and
all recording and other similar fees, and all Taxes and other expenses related
to such filings, registrations and recordings will be or have been paid in full.
5.1.8 Opinion of Borrowers' Counsel. The Lender shall have received
the favorable opinion of counsel for the Borrowers addressed to the Lender in
form satisfactory to the Lender.
5.1.9 Other Documents, Etc. The Lender shall have received such
other certificates, opinions, documents and instruments confirmatory of or
otherwise relating to the transactions contemplated hereby as may have been
reasonably requested by the Lender.
5.1.10 Payment of Fees. The Lender shall have received payment of
any Fees due on or before the Closing Date.
5.1.11 Additional Matters. All other documents and legal matters in
connection with the transactions contemplated by this Agreement and the other
Financing Documents shall be satisfactory in form and substance to the Lender
and its counsel.
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5.1.12 Other Financing Documents. In addition to the Financing
Documents to be delivered by the Borrowers, the Lender shall have received the
Financing Documents duly executed and delivered by Persons other than the
Borrowers.
5.1.13 Insurance Certificate. The Lender shall have received an
insurance certificate in accordance with the provisions of Section 6.1.8
(Insurance) of this Agreement.
5.1.14 Credit Insurance. The Lender shall have received copies of
any and all credit insurance policies and an insurance certificate with respect
to each such policy in accordance with the provisions of Section 6.1.18.
5.1.15 Landlord's Waivers. Except solely with respect to the
premises described in Schedule 5.1.15, the Lender shall have received a
landlord's waiver from each landlord of each and every business premise leased
by the Borrowers and on which any of the Collateral is or may hereafter be
located, which landlords' waivers must be reasonably acceptable to the Lender
and its counsel in the good faith exercise of their discretion.
5.1.16 Field Examination. The Lender shall have completed a field
examination of the business, operations and income of Macpherson, the results of
which audit shall be in all respects acceptable to the Lender in its sole and
absolute discretion.
5.1.17 Proforma Balance Sheet and Projections.
The Lender shall have received and approved the Proforma Balance Sheet and
Proforma Financial Projections, which Proforma Balance Sheet and Proforma
Financial Projections must be in form and content acceptable to the Lender in
its sole and absolute discretion.
5.1.18 Purchase Agreement Transaction.
The Purchase Agreement Transaction shall have been completed and closed
prior to or on the Closing Date upon terms and conditions satisfactory to the
Lender. The Lender shall have received photocopies of all Purchase Agreement
Documents executed, delivered and/or furnished in connection with the Purchase
Agreement Transaction, together with a certificate signed by a Responsible
Officer of Apparel and Holdings certifying that (a) the Purchase Agreement
Documents furnished to the Lender are true, correct, in full force and effect
and the provisions thereof have not been in any way modified, amended or waived,
and (b) the Purchase Agreement Transaction has been closed and completed in
accordance with the Purchase Agreement Documents furnished to the Lender and in
accordance with all applicable Laws.
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5.1.19 Reliance Letters; Opinions.
(a) The Lender shall have received a reliance letter in form
and substance acceptable to the Lender in its sole and absolute discretion,
executed and delivered by the Sellers, which reliance letter shall grant to the
Lender the benefit of all of the rights, warranties, and indemnifications
benefiting Apparel under and in connection with the Purchase Agreement and the
Purchase Agreement Transaction.
(b) In addition, the Lender shall have received all opinions
of counsel for the Sellers and Apparel required under or in connection with the
Purchase Agreement and the Purchase Agreement Transaction, which opinions must
be addressed to the Lender and in form and content reasonably acceptable to the
Lender and its counsel and which permit the Lender to rely on the opinions
expressed therein.
5.1.20 Senior Notes.
The Borrowers shall have completed the sale and 100% subscription of the
Senior Notes which Senior Notes shall have substantially the same terms as set
forth in the "Description of Senior Notes" dated November 29, 1996.
5.1.21 Reduction of Revolving Credit Committed Amount.
With the proceeds of the sale of the Senior Notes, the Borrowers shall
have paid down Revolving Credit Note dated February 1, 1996 to an amount not to
exceed the lesser of the Revolving Credit Committed Amount or the Borrowing
Base.
5.1.22 Delivery of Documents. The Borrowers and the Lender shall
have executed and delivered a clean, fully typed version of this Agreement and
any other Financing Documents, if this Agreement or said Financing Documents
were previously signed and initialed with hand-written changes.
5.1.23 Completion of Schedules. The Lender shall have received and
approved all Schedules to this Agreement fully completed.
SECTION 5.2. Conditions to all Extensions of Credit. The making of all
advances under the Revolving Loan, the issuance of all Letters of Credit and the
entering into of each Foreign Exchange Agreement is subject to the fulfillment
of the following conditions precedent in a manner satisfactory to the Lender:
5.2.1 Compliance. Each Borrower shall have complied and shall then
be in compliance with all terms, covenants,
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conditions and provisions of this Agreement and the other Financing Documents
which are binding upon it.
5.2.2 Borrowing Base. The Borrowers shall have furnished all
Borrowing Base Reports required by Section 2.1.4 (Borrowing Base Report) of this
Agreement, there shall exist no Borrowing Base Deficiency, and as evidence
thereof, the Borrowers shall have furnished to the Lender such reports,
schedules, certificates, records and other papers as may be requested by the
Lender.
5.2.3 Default. There shall exist no Event of Default or Default
hereunder.
5.2.4 Representations and Warranties. The Borrowers' representations
and warranties contained among the provisions of this Agreement shall be true
and with the same effect as though such representations and warranties had been
made at the time of the making of each advance under the Revolving Loan or the
issuance of each Letter of Credit or the entering into of each Foreign Exchange
Agreement, except that the representation and warranty pertaining to balance
sheets, financial statements and other financial condition information or data
shall refer to the latest balance sheets, financial statements, and financial
condition information and data furnished to the Lender pursuant to the
provisions of this Agreement.
5.2.5 Adverse Change. No adverse change shall have occurred in the
financial condition of any one or more of the Borrowers which would, in the good
faith judgment of the Lender, materially impair the ability of any one or more
of the Borrowers (other than Leadtec) to pay or perform any of the Obligations.
5.2.6 Legal Matters. All legal documents incident to each advance
under the Revolving Loan and each of the Letters of Credit and each Foreign
Exchange Agreement shall be reasonably satisfactory to counsel for the Lender.
ARTICLE 6
COVENANTS OF THE BORROWERS
SECTION 6.1 Affirmative Covenants. So long as any of the Obligations or
the Commitments shall be outstanding hereunder, each of the Borrowers agrees
with the Lender as follows:
6.1.1 Financial Statements.
(a) Annual Statements and Certificates. The Borrowers shall
furnish to the Lender as soon as available, but in no event more than ninety
(90) days after the close of the Borrowers' fiscal years, (i) a copy of the
annual financial
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statement in reasonable detail satisfactory to the Lender relating to Holdings
and its Subsidiaries, prepared in accordance with GAAP and examined and
certified by independent certified public accountants satisfactory to the
Lender, which financial statement shall include a consolidated balance sheet of
Holdings and its Subsidiaries as of the end of such fiscal year and consolidated
statements of income, cash flows and changes in shareholders equity of Holdings
and its Subsidiaries for such fiscal year, and (ii) a Compliance Certificate, in
substantially the form attached to this Agreement as EXHIBIT B, containing a
detailed computation of each financial covenant in which is applicable for the
period reported, a certification that no change has occurred to the information
contained in the Collateral Disclosure Lists for any Borrower (except as set
forth any schedule attached to the certification), and a cash flow projection
report, each prepared by a Responsible Officer of Holdings in a format
acceptable to the Lender, and (iii) the management letter, if any, in the form
prepared by the Borrowers' independent certified public accountants.
(b) Annual Opinion of Accountant. The Borrowers shall furnish
to the Lender as soon as available, but in no event more than ninety (90) days
after the close of the Borrowers' fiscal years, a letter or opinion of the
accountant who examined and certified the annual financial statement relating to
each Borrower and its Subsidiaries stating whether anything in such accountant's
examination has revealed the occurrence of a Default or an Event of Default
hereunder, and, if so, stating the facts with respect thereto.
(c) Quarterly Statements and Certificates. The Borrowers shall
furnish to the Lender as soon as available, but in no event more than forty-five
(45) days after the close of the Borrowers' fiscal quarters (including, without
limitations, the fourth fiscal quarter), consolidated and consolidating balance
sheets of each Borrower and its Subsidiaries as of the close of such period,
consolidated and consolidating income, cash flows and changes in shareholders
equity statements for such period, and a Compliance Certificate, in
substantially the form attached to this Agreement as EXHIBIT B, containing a
detailed computation of each financial covenant which is applicable for the
period reported, a certification that no change has occurred to the information
contained in the Collateral Disclosure List (except as set forth any schedule
attached to the certification), each prepared by a Responsible Officer of the
Borrower in a format acceptable to the Lender, all as prepared and certified by
a Responsible Officer of the Borrower and accompanied by a certificate of that
officer stating whether any event has occurred which constitutes a Default or an
Event of Default hereunder, and, if so, stating the facts with respect thereto.
(d) Monthly Statements and Certificates. The Borrowers shall
furnish to the Lender as soon as available, but in
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no event more than thirty (30) days after the close of the Borrowers' fiscal
months, consolidated balance sheets of each Borrower and its Subsidiaries as of
the close of such period, consolidated income, cash flows and changes in
shareholders equity statements for such period, and a detailed computation of
each financial covenant in this Agreement which is applicable for the period
reported, all as prepared and certified by a Responsible Officer of the Borrower
and accompanied by a certificate of that officer stating whether any event has
occurred which constitutes a Default or an Event of Default hereunder, and, if
so, stating the facts with respect thereto.
(e) Monthly reports. The Borrowers shall furnish to the Lender
within fifteen (15) days after the end of each fiscal month, a report containing
the following information:
(i) a detailed aging schedule of all Receivables by
Account Debtor, in such detail, and accompanied by such supporting
information, as the Lender may from time to time reasonably request;
(ii) a detailed aging of all accounts payable by
supplier, in such detail, and accompanied by such supporting information,
as the Lender may from time to time reasonably request;
(iii) such other information as the Lender may
reasonably request.
(f) Annual Budget and Projections. The Borrowers shall furnish
to the Lender as soon as available, but in no event later than the 10th day
before the end of each fiscal year:
(i) a consolidated budget for the Borrowers and for each
Borrower and pro forma financial statements on a quarter-to-quarter basis
for the following fiscal year, and
(ii) five year projections.
(g) Additional Reports and Information. The Borrowers shall
furnish to the Lender promptly, such additional information, reports or
statements as the Lender may from time to time reasonably request.
6.1.2 Reports to SEC and to Stockholders. Each Borrower will furnish
to the Lender, promptly upon the filing or making thereof, at least one (l) copy
of all financial statements and proxy statements sent by the Borrower to its
stockholders, and of all regular and other reports filed by the Borrowers with
any securities exchange or with the Securities and Exchange Commission.
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6.1.3 Recordkeeping, Rights of Inspection, Field Examination, Etc.
(a) Each Borrower shall, and shall cause each of its
Subsidiaries to, maintain (i) a standard system of accounting in accordance with
GAAP, and (ii) proper books of record and account in which full, true and
correct entries are made of all dealings and transactions in relation to its
properties, business and activities.
(b) Each Borrower shall, and shall cause each of its
Subsidiaries to, permit authorized representatives of the Lender to visit and
inspect the properties of the Borrower and its Subsidiaries, to review, audit,
check and inspect the Collateral at any time with or without notice, to review,
audit, check and inspect the Borrower's other books of record at any time with
or without notice and to make abstracts and photocopies thereof, and to discuss
the affairs, finances and accounts of the Borrower and its Subsidiaries, with
the officers, directors, employees and other representatives of the Borrower and
its Subsidiaries and their respective accountants, all at such times during
normal business hours and other reasonable times and as often as the Lender may
reasonably request.
(c) Each Borrower hereby irrevocably authorizes and directs
all accountants and auditors employed by the Borrower and its Subsidiaries at
any time prior to the repayment in full of the Obligations to exhibit and
deliver to the Lender copies of any and all of the financial statements and
other accounting records of any nature of the Borrower and its Subsidiaries in
the accountant's or auditor's possession, and to disclose to the Lender any
information they may have concerning the financial status and business
operations of the Borrower and its Subsidiaries. Further, each Borrower hereby
authorizes all Governmental Authorities to furnish to the Lender copies of
reports or examinations relating to the Borrower and Subsidiaries, whether made
by the Borrower or otherwise.
(d) Any and all reasonable costs and expenses incurred by, or
on behalf of, the Lender in connection with the conduct of any of the foregoing
shall be part of the Enforcement Costs and shall be payable to the Lender upon
demand. The Borrowers acknowledges and agrees that such expenses may include,
but shall not be limited to, any and all out-of-pocket reasonable costs and
expenses of the Lender's employees and agents in, and when, traveling to the
Borrowers' facilities.
6.1.4 Corporate Existence. Each Borrower shall maintain, and cause
each of its Subsidiaries to maintain, its corporate existence in good standing
in the jurisdiction in which it is incorporated and in each other jurisdiction
where it is required to register or qualify to do business if the failure to do
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so in such other jurisdiction might have a material adverse effect on the
ability of the Borrower to perform the Obligations, on the conduct of the
Borrower's operations, on the Borrower's financial condition, or on the value
of, or the ability of the Lender to realize upon, the Collateral.
6.1.5 Compliance with Laws. Each Borrower shall comply, and cause
each of its Subsidiaries to comply, with all applicable Laws and observe the
valid requirements of Governmental Authorities, the noncompliance with or the
nonobservance of which might have a material adverse effect on the ability of
the Borrower to perform the Obligations, on the conduct of the Borrower's
operations, on the Borrower's financial condition, or on the value of, or the
ability of the Lender to realize upon, the Collateral.
6.1.6 Preservation of Properties. Each Borrower will, and will cause
each of its Subsidiaries to, at all times (a) maintain, preserve, protect and
keep its properties, whether owned or leased, in good operating condition,
working order and repair (ordinary wear and tear excepted), and from time to
time will make all proper repairs, maintenance, replacements, additions and
improvements thereto needed to maintain such properties in good operating
condition, working order and repair, and (b) do or cause to be done all things
necessary to preserve and to keep in full force and effect its material
franchises, leases of real and personal property, trade names, patents,
trademarks and permits which are necessary for the orderly continuance of its
business.
6.1.7 Line of Business. The Borrowers will continue to engage
substantially only in the business of the distribution of sewing and silk screen
equipment, parts and supplies manufacture and sale of abrasive cords and tapes
used principally in the apparel industry and the sale and distribution of
embroidery and engraving and monogramming machines and parts.
6.1.8 Insurance. Each Borrower will, and will cause each of its
Subsidiaries to, at all times maintain with A-or better rated insurance
companies such insurance as is required by applicable Laws and such other
insurance, in such amounts, of such types and against such risks, hazards,
liabilities, casualties and contingencies as are usually insured against in the
same geographic areas by business entities engaged in the same or similar
business. Without limiting the generality of the foregoing, each Borrower will,
and will cause each of its Subsidiaries to, keep adequately insured all of its
property against loss or damage resulting from fire or other risks insured
against by extended coverage and maintain public liability insurance against
claims for personal injury, death or property damage occurring upon, in or about
any properties occupied or controlled by it, or arising in any manner out of the
businesses carried on by it, all in such amounts not less than the Lender shall
reasonably determine from time to time. Each Borrower shall deliver to the
Lender on the Closing Date (and
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thereafter on each date there is a material change in the insurance coverage) a
certificate of a Responsible Officer of the Borrower containing a detailed list
of the insurance then in effect and stating the names of the insurance
companies, the types, the amounts and rates of the insurance, dates of the
expiration thereof and the properties and risks covered thereby. Within thirty
(30) days after notice in writing from the Lender, each Borrower will obtain
such additional insurance as the Lender may reasonably request.
6.1.9 Taxes. Except to the extent that the validity or amount
thereof is being contested in good faith and by appropriate proceedings, each
Borrower will, and will cause each of its Subsidiaries to, pay and discharge all
Taxes prior to the date when any interest or penalty would accrue for the
nonpayment thereof. The Borrowers shall furnish to the Lender at such times as
the Lender may require proof satisfactory to the Lender of the making of
payments or deposits required by applicable Laws including, without limitation,
payments or deposits with respect to amounts withheld by the Borrowers from
wages and salaries of employees and amounts contributed by the Borrowers on
account of federal and other income or wage taxes and amounts due under the
Federal Insurance Contributions Act, as amended.
6.1.10 ERISA. Each Borrower will, and will cause each of its
Subsidiaries and Affiliates to, comply with the funding requirements of ERISA
with respect to employee pension benefit plans for its respective employees. The
Borrower will not permit with respect to any employee benefit plan or plans
covered by Title IV of ERISA (a) any prohibited transaction or transactions
under ERISA or the Internal Revenue Code, which results, or may result, in any
material liability of the Borrower and its Subsidiaries and Affiliates, or (b)
any Reportable Event if, upon termination of the plan or plans with respect to
which one or more such Reportable Events shall have occurred, there is or would
be any material liability of the Borrower and its Subsidiaries and Affiliates to
the PBGC. Upon the Lender's request, the Borrower will deliver to the Lender a
copy of the most recent actuarial report, financial statements and annual report
completed with respect to any "defined benefit plan", as defined in ERISA.
6.1.11 Notification of Events of Default and Adverse Developments.
Each Borrower shall promptly notify the Lender upon obtaining knowledge of
the occurrence of:
(a) any Event of Default;
(b) any Default;
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(c) any litigation instituted or threatened against a
Borrower or its Subsidiaries and of the entry of any judgment or Lien
(other than any Permitted Liens) against any of the assets or properties
of the Borrowers or any Subsidiary where the claims against the Borrower
or Subsidiary exceed One Hundred Thousand Dollars ($100,000) and are not
covered by insurance;
(d) any event, development or circumstance whereby the
financial statements furnished hereunder fail in any material respect to
present fairly, in accordance with GAAP, the financial condition and
operational results of any Borrower or its Subsidiaries;
(e) any judicial, administrative or arbitral proceeding
pending against any Borrower or any of its Subsidiaries and any judicial
or administrative proceeding known by the Borrowers to be threatened
against it or any of its Subsidiaries which, if adversely decided, could
materially adversely affect its financial condition or operations (present
or prospective);
(f) the receipt by the Borrower or any Subsidiary of any
notice, claim or demand from any Governmental Authority which alleges that
the Borrower or any Subsidiary is in violation of any of the terms of, or
has failed to comply with any applicable Laws regulating its operation and
business, including, but not limited to, the Occupational Safety and
Health Act and the Environmental Protection Act; and
(g) any other development in the business or affairs of
the Borrower and any of its Subsidiaries which may be materially adverse;
in each case describing in detail satisfactory to the Lender the nature thereof
and the action the Borrower proposes to take with respect thereto.
6.1.12 Hazardous Materials; Contamination. Each Borrower agrees to:
(a) give notice to the Lender immediately upon the
Borrowers' acquiring knowledge of the presence of any Hazardous Materials
and of any Hazardous Materials Contamination on any property owned or
controlled by the Borrower or for which the Borrower is, or is claimed to
be, responsible (provided that such notice shall not be required for
Hazardous Materials placed or stored on such property in accordance with
applicable Laws in the ordinary course (including, without limitation,
quantity)
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of the Borrowers' line of business expressly described in this Agreement),
with a full description thereof;
(b) promptly comply with any Laws requiring the removal,
treatment or disposal of Hazardous Materials or Hazardous Materials
Contamination and provide the Lender with satisfactory evidence of such
compliance;
(c) provide the Lender, within thirty (30) days after a
demand by the Lender, with a bond, letter of credit or similar financial
assurance evidencing to the Lender's satisfaction that the necessary funds
are available to pay the cost of removing, treating, and disposing of such
Hazardous Materials or Hazardous Materials Contamination and discharging
any Lien which may be established as a result thereof on any property
owned or controlled by the Borrower or for which the Borrower is, or is
claimed to be, responsible; and
(d) as part of the Obligations, defend, indemnify and
hold harmless the Lender and its agents, employees, trustees, successors
and assigns from any and all claims which may now or in the future
(whether before or after the termination of this Agreement) be asserted as
a result of the presence of any Hazardous Materials or of any Hazardous
Materials Contamination on any property owned or controlled by the
Borrower or for which the Borrower is, or is claimed to be, responsible.
Each of the Borrowers acknowledges and agrees that this indemnification
shall survive the termination of this Agreement and the Commitment and the
payment and performance of all of the other Obligations.
6.1.13 Disclosure of Casualty. The Borrowers shall deliver to the
Lender a written notice describing in detail each transaction by it involving
the loss or casualty to Fixed or Capital Assets which exceeds One Hundred
Thousand Dollars ($100,000.00), said notices to be delivered to the Lender
within thirty (30) days of the occurrence of each such transaction.
6.1.14 Collection of Receivables. Until such time that the Lender
shall notify the Borrowers of the revocation of such privilege, each Borrower
and each of the Subsidiaries shall at its own expense have the privilege for the
account of, and in trust for, the Lender of collecting its Receivables and
receiving in respect thereto all Items of Payment and shall otherwise completely
service all of the Receivables including (a) the billing, posting and
maintaining of complete records applicable thereto, (b) the taking of such
action with respect to the Receivables as the Lender may request or in the
absence of such
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request, as each Borrower and each of the Subsidiaries may deem advisable; and
(c) the granting, in the ordinary course of business, to any Account Debtor, any
rebate, refund or adjustment to which the Account Debtor may be lawfully
entitled, and may accept, in connection therewith, the return of goods, the sale
or lease of which shall have given rise to a Receivable and may take such other
actions relating to the settling of any Account Debtor's claim as may be
commercially reasonable. The Lender may, at its option, at any time or from time
to time after and during the continuance of an Event of Default hereunder,
revoke the collection privilege given in this Agreement to each Borrower and
each of the Subsidiaries by either giving notice of its assignment of, and lien
on the Collateral to the Account Debtors or giving notice of such revocation to
the Borrowers. The Lender shall not have any duty to, and the Borrowers hereby
releases the Lender from all claims of loss or damage caused by the delay or
failure to collect or enforce any of the Receivables or to preserve any rights
against any other party with an interest in the Collateral. The Lender shall be
entitled at any time and from time to time to confirm and verify Receivables.
6.1.15 Assignments of Receivables. The Borrowers will promptly, upon
request, execute and deliver to the Lender written assignments, in form and
content acceptable to the Lender, of specific Receivables or groups of
Receivables; provided, however, the Lien and/or security interest granted to the
Lender under this Agreement shall not be limited in any way to or by the
inclusion or exclusion of Receivables within such assignments. Receivables so
assigned shall secure payment of the Obligations and are not sold to the Lender
whether or not any assignment thereof, which is separate from this Agreement, is
in form absolute. Each Borrower agrees that neither any assignment to the Lender
nor any other provision contained in this Agreement or any of the other
Financing Documents shall impose on the Lender any obligation or liability of
the Borrower with respect to that which is assigned and the Borrowers shall
indemnify the Lender and hold the Lender harmless from any and all claims,
actions, suits, losses, damages, costs, expenses, fees, obligations and
liabilities which may be incurred by or imposed upon the Lender by virtue of the
assignment of and Lien on the Borrowers' rights, title and interest in, to, and
under the Collateral.
6.1.16 Government Accounts. The Borrowers will immediately notify
the Lender if any of the Receivables arise out of contracts with the United
States or with any other Governmental Authority, and execute any instruments and
take any steps required by the Lender in order that all moneys due and to become
due under such contracts shall be assigned to the Lender and notice thereof
given to the Governmental Authority under the Federal Assignment of Claims Act
or any other applicable Laws.
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6.1.17 Notice of Returned Goods, etc. The Borrowers will promptly
notify, and will cause the Subsidiaries to promptly notify, the Lender of the
return, rejection or repossession of any goods sold or delivered in respect of
any Receivables, and of any claims made in regard thereto to the extent that the
aggregate purchase price of any such goods in any given calendar month exceeds
in the aggregate One Hundred Thousand Dollars ($100,000.00) for such month.
6.1.18 Credit Insurance.
The Borrowers will (a) maintain and cause each of its Subsidiaries to
maintain credit insurance with respect to the Receivables from foreign Account
Debtors included in the Eligible Receivables on the basis of credit insurance in
form and substance satisfactory to the Lender and naming the Lender as an
additional insured with loss payable to the Lender as its respective interest
may appear in amounts satisfactory to the Lender and with a specific endorsement
to each such insurance policy pursuant to which the insurer agrees to give the
Lender at least thirty (30) days written notice before any alteration or
cancellation of such insurance policy and that no act or default of the
Borrowers shall affect the right of the Lender to recover under such policy in
the event of loss; (b) file, and cause each of its Subsidiaries to file, with
the Lender, upon its request, a detailed list of the credit insurance then in
effect and stating the names of the insurance companies, the amounts and rates
of the insurance, dates of the expiration thereof and the risks covered thereby;
and (c) within thirty (30) days after notice in writing from the Lender, obtain,
and cause each of its Subsidiaries to obtain, such additional credit insurance
as the Lender may reasonably request.
6.1.19 Maintenance of the Collateral. The Borrowers will maintain
the Collateral in good working order, saving and excepting ordinary wear and
tear, and will not permit anything to be done to the Collateral which may
materially impair the value thereof. The Lender, or an agent designated by the
Lender, shall be permitted to enter the premises of the Borrowers and the
Subsidiaries and examine, audit and inspect the Collateral at any reasonable
time and from time to time without notice. The Lender agrees to act in a
commercially reasonable manner when inspecting the premises of the Borrowers and
the Subsidiaries and when examining, auditing and/or inspecting the Collateral.
The Lender shall not have any duty to, and the Borrowers hereby releases the
Lender from all claims of loss or damage caused by the delay or failure to
collect or enforce any of the Receivables or to, preserve any rights against any
other party with an interest in the Collateral.
6.1.20 Defense of Title and Further Assurances.
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At its expense the Borrowers will defend the title to the Collateral (and
any part thereof), and will immediately execute, acknowledge and deliver any
financing statement, renewal, affidavit, deed, assignment, continuation
statement, security agreement, certificate or other document which the Lender
may require in order to perfect, preserve, maintain, continue, protect and/or
extend the Lien granted to the Lender under this Agreement, under any of the
other Financing Documents and the first priority of that Lien subject only to
the Permitted Liens. The Borrowers will from time to time do whatever the Lender
may require by way of obtaining, executing, delivering, and/or filing financing
statements, landlords' or mortgagees' waivers, notices of assignment and other
notices and amendments and renewals thereof and the Borrowers will take any and
all steps and observe such formalities as the Lender may require, in order to
create and maintain a valid Lien upon, pledge of, or paramount security interest
in, the Collateral, subject to the Permitted Liens. The Borrowers shall pay to
the Lender on demand all taxes, costs and expenses incurred by the Lender in
connection with the preparation, execution, recording and filing of any such
document or instrument. To the extent that the proceeds of any of the Accounts
or Receivables of the Borrowers are expected to become subject to the control
of, or in the possession of, a party other than the Borrowers or the Lender, the
Borrowers shall cause all such parties to execute and deliver on the Closing
Date security documents, financing statements or other documents as requested by
the Lender and as may be necessary to evidence and/or perfect the security
interest of the Lender in those proceeds. Each Borrower agrees that a copy of a
fully executed security agreement and/or financing statement shall be sufficient
to satisfy for all purposes the requirements of a financing statement as set
forth in Article 9 of the applicable Uniform Commercial Code. Each Borrower
hereby irrevocably appoints the Lender as the Borrower's attorney-in-fact, with
power of substitution, in the name of the Lender or in the name of the Borrower
or otherwise, for the use and benefit of the Lender, but at the cost and expense
of the Borrower and without notice to the Borrower, to execute and deliver any
and all of the instruments and other documents and take any action which the
Lender may require pursuant the foregoing provisions of this Section 6.1.20.
6.1.21 Business Names; Locations. The Borrowers will notify and
cause each of the Subsidiaries to notify the Lender not less than thirty (30)
days prior to (a) any change in the name under which the Borrowers or the
applicable Subsidiary conducts its business, (b) any change of the location of
the chief executive office of the Borrowers or the applicable Subsidiary, and
(c) the opening of any new place of business or the closing of any existing
place of business, and any change in the location of the places where the
Collateral, or any part thereof, or the books and records, or any part thereof,
are kept.
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6.1.22 Subsequent Opinion of Counsel as to Recording Requirements.
In the event that any Borrower or any Subsidiary shall transfer its
principal place of business or the office where it keeps its records pertaining
to the Collateral, upon the Lender's request, the Borrower will provide to the
Lender a subsequent opinion of counsel as to the filing, recording and other
requirements with which the Borrower and the Subsidiaries have complied to
maintain the Lien and security interest in favor of the Lender in the
Collateral.
6.1.23 Use of Premises and Equipment. Each Borrower agrees that
until the Obligations are fully paid and this Agreement has been terminated, the
Lender (a) after and during the continuance of a Default or an Event of Default,
may use any of the Borrower's owned or leased lifts, hoists, trucks and other
facilities or equipment for handling or removing the Collateral; and (b) shall
have, and is hereby granted, a right of ingress and egress to the places where
the Collateral is located, and may proceed over and through any of the
Borrower's owned or leased property.
6.1.24 Protection of Collateral. The Borrower agrees that the Lender
may at any time following an Event of Default take such steps as the Lender
deems reasonably necessary to protect the Lender's interest in, and to preserve
the Collateral, including, the hiring of such security guards or the placing of
other security protection measures as the Lender deems appropriate, may employ
and maintain at any of the Borrower's premises a custodian who shall have full
authority to do all acts necessary to protect the Lender's interests in the
Collateral and may lease warehouse facilities to which the Lender may move all
or any part of the Collateral to the extent commercially reasonable. Each
Borrower agrees to cooperate fully with the Lender's efforts to preserve the
Collateral and will take such actions to preserve the Collateral as the Lender
may reasonably direct. All of the Lender's expenses of preserving the
Collateral, including any reasonable expenses relating to the compensation and
bonding of a custodian, shall be part of the Enforcement Costs.
SECTION 6.2 Negative Covenants. So long as any of the Obligations or the
Commitment shall be outstanding hereunder, each of the Borrowers agrees with the
Lender as follows:
6.2.1 Capital Structure, Merger, Acquisition or Sale of Assets.
The Borrower will not alter or amend its capital structure, authorize any
additional class of equity, issue any stock or equity of any class, enter into
any merger or consolidation or amalgamation, windup or dissolve itself (or
suffer any liquidation or
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dissolution) or acquire all or substantially all the assets of any Person, or
sell, lease or otherwise dispose of any of its assets (except Inventory disposed
of in the ordinary course of business prior to an Event of Default). Any consent
of the Lender to the disposition of any assets may be conditioned on a specified
use of the proceeds of disposition.
6.2.2 Subsidiaries. The Borrower will not create or acquire any
Subsidiaries other than the Subsidiaries identified on any Collateral Disclosure
List, except in connection with the Purchase Agreement Transaction and except in
connection with any transaction permitted under Section 6.2.5.
6.2.3 Purchase or Redemption of Securities, Dividend Restrictions.
The Borrower will not purchase, redeem or otherwise acquire any shares of
its capital stock or warrants now or hereafter outstanding, declare or pay any
dividends thereon (other than stock dividends), apply any of its property or
assets to the purchase, redemption or other retirement of, set apart any sum for
the payment of any dividends on, or for the purchase, redemption, or other
retirement of, make any distribution by reduction of capital or otherwise in
respect of, any shares of any class of capital stock of the Borrower, or any
warrants, permit any Subsidiary to purchase or acquire any shares of any class
of capital stock of, or warrants issued by, the Borrower, make any distribution
to stockholders or set aside any funds for any such purpose, provided that the
foregoing shall not restrict or prohibit payments of dividends or distributions
to Holdings at such times as there shall exist no Default or Event of Default
and in such amounts as are necessary to permit:
(i) purchases of shares of (or options to purchase shares of) or
employees of the Apparel or Sidney Becker upon their death, termination or
retirement, or as required by the Borrowers' existing ESOP plans, so long
as, (x) before and after giving effect to any such dividend or
distribution for such purpose, no Default shall have occurred and be
continuing and (y) such purchases or payments after the date hereof do not
in the aggregate exceed $500,000; provided that such purchases or payments
shall not exceed $200,000 during any one Fiscal Year;
(ii) payment of taxes and de minimis administrative expenses payable
by Holdings in the ordinary course, so long as before and after giving
effect to any such dividend or distribution for such purpose;
(iii) the performance by Holdings of its obligations under the
Warrantholders Rights Agreement as amended by Amendment No. 1 to such
agreement dated February 1, 1996 and Amendment
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No. 2 to such agreement dated as of the Closing Date (such Amendment No. 2
to be in substantially the form submitted to the Lender as attached to
that certain Letter Agreement dated December 17, 1996), so long as before
and after giving effect to any such dividend or distribution for such
purpose no Default or Event of Default shall have accrued and be
continuing; and
(iv) redemption of the Warrants in accordance with their terms.
6.2.4 Indebtedness. The Borrower will not, and will not permit any
Subsidiary to, create, incur, assume or suffer to exist any Indebtedness for
Borrowed Money, or permit any Subsidiary so to do, except:
(a) the Obligations;
(b) current accounts payable arising in the ordinary
course;
(c) the Senior Notes;
(d) Indebtedness secured by Permitted Liens;
(e) Subordinated Indebtedness;
(f) Indebtedness for Borrowed Money to another Borrower;
(g) Indebtedness under the Purchase Agreement (Clinton
Management) and other documents executed in connection therewith;
(h) Indebtedness of the Borrower existing on the date
hereof and reflected on the financial statements furnished pursuant to
Section 4.1.11 (Financial Condition) and on Schedule 4.1.13; and
(i) Indebtedness for Borrowed Money of Embroidery
Leasing Corporation, a Georgia corporation.
6.2.5 Investments, Loans and Other Transactions.
Except as otherwise provided in this Agreement, the Borrower will not, and
will not permit any of its Subsidiaries to, (a) make, assume, acquire or
continue to hold any investment in any real property (unless used in connection
with its business and treated as a Fixed or Capital Asset of the Borrower or the
Subsidiary) or any Person, whether by stock purchase, capital contribution,
acquisition of indebtedness of such Person or otherwise (including,
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without limitation, investments in any joint venture or partnership), (b)
guaranty or otherwise become contingently liable for the indebtedness or
obligations of any Person, other than guaranties of the obligations, incurred in
the ordinary course of business, of Subsidiaries which are Borrowers, or (c)
make any loans or advances, or otherwise extend credit to any Person, except:
(i) any advance to an officer of the Borrower or of any
Subsidiary for travel or other business expenses in the ordinary course of
business, provided that the aggregate amount of all such advances by the
Borrower and its Subsidiaries (taken as a whole) outstanding at any time
shall not exceed ten thousand dollars ($10,000.00);
(ii) the endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of
business;
(iii) any investment in Temporary Investments, which are
pledged to the Lender as collateral and security for the Obligations;
(iv) trade credit extended to customers in the ordinary
course of business; and
(v) without waiving any other provision of this
Agreement and provided there shall exist no Default or Event of Default,
investments after the date of this Agreement in Affiliates not to exceed
$500,000 in the aggregate;
(vi)investments in Embroidery Leasing Corporation, a
Subsidiary formed or to be formed by Apparel not to exceed $5,000,000 in
the aggregate.
(vii) any other investment, including entering into one
or more joint ventures, which shall not exceed $1,000,000 individually or
$5,000,000 in the aggregate in any fiscal year.
6.2.6 Financial Covenants.
(a) The aggregate amount of Consolidated Capital Expenditures
for any Fiscal Year shall not exceed $1,500,000.
(b) Apparel shall not permit the ratio on the last day of any
fiscal quarter of (i) Consolidated Free Cash Flow to (ii) Total Debt Service in
each case for the four consecutive fiscal quarters then ended (or, in the case
of any fiscal quarter ending prior to March 31, 1997, for the period commencing
on the Closing Date and ending on the last day of such fiscal quarter) to
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be less than the ratio set forth below opposite the Fiscal Year in which such
last day occurs:
Fiscal Year
Ending
December 31 Ratio
----------- -----
1997 1.10 = 1.00
1998 1.10 = 1.00
1999 1.10 = 1.00
2000 1.10 = 1.00
2001 1.10 = 1.00
(c) Commencing December 31, 1996, at no time during the Fiscal
Years set forth below shall the ratio of (i) Consolidated Total Debt at such
time to (ii) Adjusted EBITDA for the four consecutive fiscal quarters then most
recently ended, exceed the ratio set forth below opposite such Fiscal Year:
Fiscal Year
Ending
December 31 Ratio
----------- -----
1997 6.25 = 1.00
1998 5.75 = 1.00
1999 5.25 = 1.00
2000 4.75 = 1.00
2001 4.25 = 1.00
(d) For each period specified below Adjusted EBITDA for such
period shall not be less than the corresponding amount set forth below:
Adjusted EBITDA
Four Consecutive Fiscal Quarters Ended:
3/31/97 $2,500,000
6/30/97 $5,000,000
9/30/97 $7,500,000
12/31/97 $13,000,000
Four Consecutive Fiscal Quarters Ended:
3/31/98 $16,000,000
6/30/98 $16,000,000
9/30/98 $16,000,000
12/31/98 $16,000,000
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Four Consecutive Fiscal Quarters Ended:
3/31/99 $19,000,000
6/30/99 $19,000,000
9/30/99 $19,000,000
12/31/99 $19,000,000
Four Consecutive Fiscal Quarters Ended:
3/31/2000 $21,000,000
6/30/2000 $21,000,000
9/30/2000 $21,000,000
12/31/2000 $21,000,000
On the last day of any fiscal quarter ending after December 31, 2000, Adjusted
EBITDA for the four consecutive fiscal quarters then ended shall not be less
than $23,000,000.
(e) Net Worth will not at any date be less than the
corresponding amount set forth opposite such date in the table below:
Date Minimum Amount
---- --------------
3/31/97 $10,500,000
6/30/97 $10,500,000
9/30/97 $10,500,000
12/31/97 $10,500,000
3/31/98 $11,500,000
6/30/98 $11,500,000
9/30/98 $11,500,000
12/31/98 $11,500,000
3/31/99 $13,500,000
6/30/99 $13,500,000
9/30/99 $13,500,000
12/31/99 $13,500,000
3/31/2000 $16,000,000
6/30/2000 $16,000,000
9/30/2000 $16,000,000
12/31/2000 and thereafter $20,000,000
6.2.7 Stock of Subsidiaries. The Borrower will not sell or
otherwise dispose of any shares of capital stock of any Subsidiary (except in
connection with a merger or consolidation of a domestic Wholly Owned Subsidiary
into the Borrower or another domestic Wholly Owned Subsidiary or with the
dissolution of any Subsidiary) or permit any Subsidiary to issue any additional
shares of its capital stock except pro rata to its stockholders.
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6.2.8 Subordinated Indebtedness. The Borrower will not, and
will not permit any Subsidiary to make:
(a) any Subordinated Indebtedness, if a Default or an
Event of Default then exists hereunder or would result from such payment;
(b) any payment of the principal or interest due on the
Subordinated Indebtedness as a result of acceleration thereunder or a
mandatory prepayment thereunder, except for mandatory prepayments
expressly allowed by the Subordination Agreement;
(c) any amendment or modification of or supplement to
the documents evidencing or securing the Subordinated Indebtedness; or
(d) payment of principal or interest on the Subordinated
Indebtedness other than when due (without giving effect to any
acceleration of maturity or mandatory prepayment).
6.2.9 Liens; Confessed Judgment. The Borrower (a) will not create,
incur, assume or suffer to exist any Lien upon any of its properties or assets,
whether now owned or hereafter acquired, or permit any Subsidiary so to do,
except for Liens securing the Obligations and Permitted Liens, (b) will not
agree to, assume or suffer to exist any provision in any instrument or other
document for confession of judgment, cognovit or other similar right or remedy,
(c) will not allow or suffer to exist any Permitted Liens to be superior to
Liens securing the Obligations and Permitted Liens, (d) will not enter into any
contracts for the consignment of goods to the Borrower, will not execute or
suffer the filing of any financing statements or the posting of any signs giving
notice of consignments to the Borrower, and will not, as a material part of its
business, engage in the sale of goods belonging to others, and (e) will not
allow or suffer to exist the failure of any Lien described in the Security
Documents to attach to, and/or remain at all times perfected on, any of the
property described in the Security Documents.
6.2.10 Transactions with Affiliates. The Borrower and its
Subsidiaries will not enter into or participate in any transaction with any
Affiliate other than in the ordinary course of business and on terms available
in an arm's-length transaction with third parties.
6.2.11 Other Businesses. The Borrower and its Subsidiaries will not
engage directly or indirectly in any business other than its current line of
business described elsewhere in this Agreement.
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6.2.12 ERISA Compliance. Neither the Borrower nor any Commonly
Controlled Entity shall: (a) engage in or permit any "prohibited transaction"
(as defined in ERISA); (b) cause any "accumulated funding deficiency" as defined
in ERISA and/or the Internal Revenue Code; (c) terminate any pension plan in a
manner which could result in the imposition of a lien on the property of the
Borrower pursuant to ERISA; (d) terminate or consent to the termination of any
Multiemployer Plan; or (e) incur a complete or partial withdrawal with respect
to any Multiemployer Plan.
6.2.13 Prohibition on Hazardous Materials. The Borrower shall not
place, manufacture or store or permit to be placed, manufactured or stored any
Hazardous Materials on any property owned or controlled by the Borrower or for
which the Borrower is responsible other than Hazardous Materials placed or
stored on such property in accordance with applicable Laws in the ordinary
course.
6.2.14 Amendments. The Borrowers will not amend or terminate or
agree to amend or terminate the Purchase Agreement Documents or the Purchase
Agreement Documents on net terms which are materially less favorable than those
currently existing, or consent to any amendment or waive any material provisions
thereof, other than in the normal course of business or terminate or agree to
terminate the distribution agreement of Macpherson with Baradun Company Ltd. and
Baradun America, Inc.
6.2.15 Method of Accounting; Fiscal Year.
(a) The Borrowers shall not change the method of accounting
employed in the preparation of any financial statements furnished to the Lender
under the provisions of Section (Financial Statements) of this Agreement, unless
required to conform to GAAP and on the condition that the Borrowers' accountants
shall furnish such information as the Lender may request to reconcile the
changes with the Borrowers' prior financial statements.
(b) The Borrowers will not change the fiscal year of the
Borrowers from a year ending on December 31.
6.2.16 Compensation. Neither the Borrower nor any of its
Subsidiaries will pay any bonuses, fees, compensation, commissions, salaries,
drawing accounts, or other payments (cash and non-cash), whether direct or
indirect, to any stockholders of the Borrower or its Subsidiaries, or any
Affiliate of the Borrower or its Subsidiaries, other than reasonable
compensation for actual services rendered by stockholders in their capacity as
officers or employees of the Borrower.
6.2.17 Transfer of Collateral. The Borrower and the Subsidiaries
will not transfer, or permit the transfer, to
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another location of any of the Collateral or the books and records related to
any of the Collateral.
6.2.18 Sale and Leaseback. Neither the Borrower nor the Subsidiaries
will directly or indirectly enter into any arrangement to sell or transfer all
or any substantial part of its fixed assets and thereupon or within one year
thereafter rent or lease the assets so sold or transferred.
6.2.19 Disposition of Collateral. The Borrower will not sell,
discount, allow credits or allowances, transfer, assign, extend the time for
payment on, convey, lease, assign, transfer or otherwise dispose of the
Collateral, except, prior to an Event of Default, dispositions expressly
permitted elsewhere in this Agreement, the sale of unnecessary or obsolete
Equipment, (but only if the proceeds of the sale of such Equipment are (a) used
to purchase similar Equipment to replace the unnecessary or obsolete Equipment
or (b) immediately turned over to the Lender for application to the Obligations)
and sales of accounts to factors provided (i) the Lender shall have received no
less than five (5) Business Days notice thereof, (ii) the sales proceeds for the
factored accounts shall be no less than 90% of the face thereof, (iii) the
factored accounts shall be immediately upon sale be excluded from the
calculation of the Borrowing Base, and (iv) the proceeds of the sale shall be
payable simultaneously with the sale and all proceeds shall be forwarded by
federal wire transfer or other payment form acceptable to the Lender from time
to time for application to the Obligations.
ARTICLE 7
DEFAULT AND RIGHTS AND REMEDIES
SECTION 7.1 Events of Default. The occurrence of any one or more of the
following events shall constitute an "Event of Default" under the provisions of
this Agreement:
7.1.1 Failure to Pay. The failure of the Borrower to pay any of the
Obligations as and when due and payable in accordance with the provisions of
this Agreement, the Notes and/or any of the other Financing Documents, and,
except in the case of the failure make any payment of principal and in the case
of the failure to pay any Obligation at its maturity (whether by acceleration or
otherwise) or when due on demand, such failure continues uncured for a period of
three (3) Business Days.
7.1.2 Breach of Representations and Warranties.
Any representation or warranty made in this Agreement or in any report,
statement, schedule, certificate, opinion (including any opinion of counsel for
the Borrowers), financial statement or other document furnished in connection
with this Agreement, any of
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the other Financing Documents, or the Obligations, shall prove to have been
false or misleading when made (or, if applicable, when reaffirmed) in any
material respect.
7.1.3 Failure to Comply with Covenants. The failure of the Borrower
to perform, observe or comply with any covenant, condition or agreement
contained in this Agreement and, (i) only with respect to a failure under
Section 6.1.1(a) through (f), such failure continues uncured for a period of
five (5) days after notice thereof from the Lender, or (ii) only with respect to
a failure under Sections 6.1.3(a) (Recordkeeping), 6.1.4 (Corporate Existence),
6.1.6(a) (Preservation of Properties), Section 6.1.9 (Taxes) which does not
relate to Taxes due or claimed to be due in excess of $100,000 in the aggregate,
or 6.1.19(a) (Maintenance of Collateral), if the Borrower after discovering such
failure, fails to diligently and continuously pursue the cure of such failure or
such failure continues uncured thirty (30) days after discovery.
7.1.4 Default Under Other Financing Documents or Obligations.
A default shall occur under any of the other Financing Documents or under
any other Obligations, and such default is not cured within any applicable grace
period provided therein.
7.1.5 Receiver; Bankruptcy. Any Borrower or any Subsidiary shall (a)
apply for or consent to the appointment of a receiver, trustee or liquidator of
itself or any of its property, (b) admit in writing its inability to pay its
debts as they mature, (c) make a general assignment for the benefit of
creditors, (d) be adjudicated a bankrupt or insolvent, (e) file a voluntary
petition in bankruptcy or a petition or an answer seeking or consenting to
reorganization or an arrangement with creditors or to take advantage of any
bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or
liquidation law or statute, or an answer admitting the material allegations of a
petition filed against it in any proceeding under any such law, or take
corporate action for the purposes of effecting any of the foregoing, or (f) by
any act indicate its consent to, approval of or acquiescence in any such
proceeding or the appointment of any receiver of or trustee for any of its
property, or suffer any such receivership, trusteeship or proceeding to continue
undischarged for a period of sixty (60) days, or (g) by any act indicate its
consent to, approval of or acquiescence in any order, judgment or decree by any
court of competent jurisdiction or any Governmental Authority enjoining or
otherwise prohibiting the operation of a material portion of the Borrowers' or
any Subsidiary's business or the use or disposition of a material portion of the
Borrowers' or any Subsidiary's assets.
7.1.6 Involuntary Bankruptcy, etc. (a) An order for relief shall be
entered in any involuntary case brought
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against any Borrower or any Subsidiary under the Bankruptcy Code, or (b) any
such case shall be commenced against any Borrower or any Subsidiary and shall
not be dismissed within sixty (60) days after the filing of the petition, or (c)
an order, judgment or decree under any other Law is entered by any court of
competent jurisdiction or by any other Governmental Authority on the application
of a Governmental Authority or of a Person other than any Borrower or any
Subsidiary (i) adjudicating the Borrower, or any Subsidiary bankrupt or
insolvent, or (ii) appointing a receiver, trustee or liquidator of the Borrower
or of any Subsidiary, or of a material portion of the Borrower's or any
Subsidiary's assets, or (iii) enjoining, prohibiting or otherwise limiting the
operation of a material portion of the Borrower's or any Subsidiary's business
or the use or disposition of a material portion of the Borrower's or any
Subsidiary's assets, and such order, judgment or decree continues unstayed and
in effect for a period of thirty (30) days from the date entered.
7.1.7 Judgment. Unless adequately insured in the opinion of the
Lender, the entry of a final judgment for the payment of money involving more
than $10,000 against any Borrower or any Subsidiary, and the failure by the
Borrower or such Subsidiary to discharge the same, or cause it to be discharged,
within thirty (30) days from the date of the order, decree or process under
which or pursuant to which such judgment was entered, or to secure a stay of
execution pending appeal of such judgment.
7.1.8 Execution; Attachment. Any execution or attachment shall be
levied against the Collateral, or any part thereof, and such execution or
attachment shall not be set aside, discharged or stayed within thirty (30) days
after the same shall have been levied.
7.1.9 Default Under Other Borrowings. Default shall be made with
respect to any Indebtedness for Borrowed Money (other than the Revolving Loan),
including but not limited to the Senior Notes if the effect of such default is
to accelerate the maturity of such Indebtedness for Borrowed Money or to permit
the holder or obligee thereof or other party thereto to cause any such
Indebtedness for Borrowed Money to become due prior to its stated maturity.
7.1.10 Challenge to Agreements. Any Borrower or any guarantor of all
or any part of the Obligations shall challenge the validity and binding effect
of any provision of any of the Financing Documents or shall state its intention
to make such a challenge of any of the Financing Documents or any of the
Financing Documents shall for any reason (except to the extent permitted by its
express terms) cease to be effective or to create a valid and perfected first
priority Lien (except for Permitted Liens) on, or security interest in, any of
the Collateral purported to be covered thereby.
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7.1.11 Material Adverse Change. The Lender in its sole discretion
determines in good faith that a material adverse change has occurred in the
financial condition of the Borrowers.
7.1.12 Impairment of Position. The Lender in its sole discretion
determines in good faith that an event has occurred which impairs the prospect
of payment of the Obligations and/or the value of the Collateral.
7.1.13 Change in Ownership. Any change shall occur in the ownership
of any Borrower, such that John Ziegler, Sr. owns less than 10% (less any
dilution caused by any existing qualified employee stock ownership plan) of
Holdings.
7.1.14 Liquidation, Termination, Dissolution, Change in Management,
etc.
Any Borrower shall liquidate, dissolve or terminate its existence or shall
suspend or terminate a substantial portion of its business operations or any
change occurs in the management or control of a Borrower without the prior
written consent of the Lender.
SECTION 7.2 Remedies. Upon the occurrence of any Default or Event of
Default, the Lender may at any time thereafter exercise any one or more of the
following rights, powers or remedies:
7.2.1 Acceleration. The Lender may declare the Obligations to be
immediately due and payable, notwithstanding anything contained in this
Agreement or in any of the other Financing Documents to the contrary, without
presentment, demand, protest, notice of protest or of dishonor, or other notice
of any kind, all of which each Borrower hereby waives.
7.2.2 Further Advances. The Lender may from time to time without
notice to the Borrowers suspend, terminate or limit any further loans or other
extensions of credit under this Agreement and under any of the other Financing
Documents. Further, upon the occurrence of an Event of Default or Default
specified in Sections 7.1.5 (Receiver; Bankruptcy) or 7.1.6 (Involuntary
Bankruptcy, etc.) above, the Revolving Credit Commitment and any agreement in
any of the Financing Documents to provide additional credit shall immediately
and automatically terminate and the unpaid principal amount of the Notes (with
accrued interest thereon) and all other Obligations then outstanding, shall
immediately become due and payable without further action of any kind and
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived by the Borrowers.
7.2.3 Uniform Commercial Code. The Lender shall have all of the
rights and remedies of a secured party under
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the applicable Uniform Commercial Code and other applicable Laws. Upon demand by
the Lender, the Borrowers shall assemble the Collateral and make it available to
the Lender, at a place designated by the Lender. The Lender or its agents may
without notice from time to time enter upon the Borrowers' premises to take
possession of the Collateral, to remove it, to render it unusable, to process it
or otherwise prepare it for sale, or to sell or otherwise dispose of it.
Any written notice of the sale, disposition or other intended action by
the Lender with respect to the Collateral which is sent by regular mail, postage
prepaid, to the Borrowers at the address set forth in Section 8.1 of this
Agreement, or such other address of the Borrowers which may from time to time be
shown on the Lender's records, at least ten (10) days prior to such sale,
disposition or other action, shall constitute commercially reasonable notice to
the Borrowers. The Lender may alternatively or additionally give such notice in
any other commercially reasonable manner. Nothing in this Agreement shall
require the Lender to give any notice not required by applicable Laws.
If any consent, approval, or authorization of any state, municipal or
other governmental department, agency or authority or of any person, or any
person, corporation, partnership or other entity having any interest therein,
should be necessary to effectuate any sale or other disposition of the
Collateral, each Borrower agrees to execute all such applications and other
instruments, and to take all other action, as may be required in connection with
securing any such consent, approval or authorization.
Each Borrower recognizes that the Lender may be unable to effect a public
sale of all or a part of the Collateral consisting of securities by reason of
certain prohibitions contained in the Securities Act of 1933, as amended, and
other applicable federal and state Laws. The Lender may, therefore, in its
discretion, take such steps as it may deem appropriate to comply with such Laws
and may, for example, at any sale of the Collateral consisting of securities
restrict the prospective bidders or purchasers as to their number, nature of
business and investment intention, including, without limitation, a requirement
that the Persons making such purchases represent and agree to the satisfaction
of the Lender that they are purchasing such securities for their account, for
investment, and not with a view to the distribution or resale of any thereof.
Each Borrower covenants and agrees to do or cause to be done promptly all such
acts and things as the Lender may request from time to time and as may be
necessary to offer and/or sell the securities or any part thereof in a manner
which is valid and binding and in conformance with all applicable Laws. Upon any
such sale or disposition, the Lender shall have the right to deliver, assign and
transfer to the purchaser thereof the Collateral consisting of securities so
sold.
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7.2.4 Specific Rights With Regard to Collateral.
In addition to all other rights and remedies provided hereunder or as
shall exist at law or in equity from time to time, the Lender may (but shall be
under no obligation to), without notice to the Borrowers, and each of the
Borrowers hereby irrevocably appoints the Lender as its attorney-in-fact, with
power of substitution, in the name of the Lender or in the name of the Borrower
or otherwise, for the use and benefit of the Lender, but at the cost and expense
of the Borrowers and without notice to the Borrowers:
(a) request any account debtor obligated on any of the
Accounts to make payments thereon directly to the Lender, with the Lender
taking control of the cash and non-cash proceeds thereof;
(b) compromise, extend or renew any of the Collateral or
deal with the same as it may deem advisable;
(c) make exchanges, substitutions or surrenders of all
or any part of the Collateral;
(d) copy, transcribe, or remove from any place of
business of the Borrowers or any Subsidiary all books, records, ledger
sheets, correspondence, invoices and documents, relating to or evidencing
any of the Collateral or without cost or expense to the Lender, make such
use of the Borrowers' or any Subsidiary's place(s) of business as may be
reasonably necessary to administer, control and collect the Collateral;
(e) repair, alter or supply goods if necessary to
fulfill in whole or in part the purchase order of any account debtor;
(f) demand, collect, receipt for and give renewals,
extensions, discharges and releases of any of the Collateral;
(g) institute and prosecute legal and equitable
proceedings to enforce collection of, or realize upon, any of the
Collateral;
(h) settle, renew, extend, compromise, compound,
exchange or adjust claims in respect of any of the Collateral or any legal
proceedings brought in respect thereof;
(i) endorse or sign the name of the Borrowers upon any
items of payment, certificates of title,
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instruments, securities, stock powers, documents, documents of title,
financing statements, assignments, notices, or other writing relating to
or part of the Collateral and on any Proof of Claim in Bankruptcy against
an account debtor;
(j) notify the Post Office authorities to change the
address for the delivery of mail to the Borrowers to such address or Post
Office Box as the Lender may designate and receive and open all mail
addressed to the Borrowers; and
(k) take any other action necessary or beneficial to
realize upon or dispose of the Collateral or to carry out the terms of
this Agreement.
7.2.5 Application of Proceeds. Any proceeds of sale or other
disposition of the Collateral will be applied by the Lender to the payment of
the Enforcement Costs, and any balance of such proceeds will be applied by the
Lender to the payment of the balance of the Obligations in such order and manner
of application as the Lender may from time to time in its sole and absolute
discretion determine. If the sale or other disposition of the Collateral fails
to fully satisfy the Obligations, the Borrowers shall remain liable to the
Lender for any deficiency.
7.2.6 Performance by Lender. If the Borrowers shall fail to pay the
Obligations or otherwise fail to perform, observe or comply with any of the
conditions, covenants, terms, stipulations or agreements contained in this
Agreement or any of the other Financing Documents, the Lender without notice to
or demand upon the Borrowers and without waiving or releasing any of the
Obligations or any Default or Event of Default, may (but shall be under no
obligation to) at any time thereafter make such payment or perform such act for
the account and at the expense of the Borrowers, and may enter upon the premises
of the Borrowers for that purpose and take all such action thereon as the Lender
may consider necessary or appropriate for such purpose and each of the Borrowers
hereby irrevocably appoints the Lender as its attorney-in-fact to do so, with
power of substitution, in the name of the Lender or in the name of the Borrower
or otherwise, for the use and benefit of the Lender, but at the cost and expense
of the Borrowers and without notice to the Borrowers. All sums so paid or
advanced by the Lender together with interest thereon from the date of payment,
advance or incurring until paid in full at the Post-Default Rate and all costs
and expenses, shall be deemed part of the Enforcement Costs, shall be paid by
the Borrowers to the Lender on demand, and shall constitute and become a part of
the Obligations.
7.2.7 Other Remedies. The Lender may from time to time proceed to
protect or enforce its rights by an action or actions at law or in equity or by
any other appropriate
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proceeding, whether for the specific performance of any of the covenants
contained in this Agreement or in any of the other Financing Documents, or for
an injunction against the violation of any of the terms of this Agreement or any
of the other Financing Documents, or in aid of the exercise or execution of any
right, remedy or power granted in this Agreement, the Financing Documents,
and/or applicable Laws. The Lender is authorized to offset and apply to all or
any part of the Obligations all moneys, credits and other property of any nature
whatsoever of the Borrowers now or at any time hereafter in the possession of,
in transit to or from, under the control or custody of, or on deposit with, the
Lender.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1 Notices. All notices, requests and demands to or upon the
parties to this Agreement shall be in writing and shall be deemed to have been
given or made when delivered by hand on a Business Day, or two (2) days after
the date when deposited in the mail, postage prepaid by registered or certified
mail, return receipt requested, or when sent by overnight courier, on the
Business Day next following the day on which the notice is delivered to such
overnight courier, addressed as follows:
Borrowers: c/o WG Apparel, Inc.
900 Milik Street
Carteret, New Jersey 07008
Attention: Mr. John K. Ziegler
Lender: NationsBank, N.A.
NationsBank Business Credit
100 South Charles Street
MD4-325-04-14
Baltimore, Maryland 21201
Attention: David B. Thayer
with a copy to:
Frederick W. Runge, Jr., Esquire
Miles & Stockbridge
10 Light Street
Baltimore, Maryland 21202
By written notice, each party to this Agreement may change the address to which
notice is given to that party, provided that such changed notice shall include a
street address to which notices may be delivered by overnight courier in the
ordinary course on any Business Day.
SECTION 8.2 Amendments; Waivers. This Agreement and the other Financing
Documents may not be amended, modified, or changed
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in any respect except by an agreement in writing signed by the Lender and the
Borrowers. No waiver of any provision of this Agreement or of any of the other
Financing Documents, nor consent to any departure by the Borrowers therefrom,
shall in any event be effective unless the same shall be in writing. No course
of dealing between the Borrowers and the Lender and no act or failure to act
from time to time on the part of the Lender shall constitute a waiver, amendment
or modification of any provision of this Agreement or any of the other Financing
Documents or any right or remedy under this Agreement, under any of the other
Financing Documents or under applicable Laws.
Without implying any limitation on the foregoing:
(a) Any waiver or consent shall be effective only in the
specific instance, for the terms and purpose for which given, subject to such
conditions as the Lender may specify in any such instrument.
(b) No waiver of any Default or Event of Default shall extend
to any subsequent or other Default or Event of Default, or impair any right
consequent thereto.
(c) No notice to or demand on the Borrowers in any case shall
entitle the Borrowers to any other or further notice or demand in the same,
similar or other circumstance.
(d) No failure or delay by the Lender to insist upon the
strict performance of any term, condition, covenant or agreement of this
Agreement or of any of the other Financing Documents, or to exercise any right,
power or remedy consequent upon a breach thereof, shall constitute a waiver,
amendment or modification of any such term, condition, covenant or agreement or
of any such breach or preclude the Lender from exercising any such right, power
or remedy at any time or times.
(e) By accepting payment after the due date of any amount
payable under this Agreement or under any of the other Financing Documents, the
Lender shall not be deemed to waive the right either to require prompt payment
when due of all other amounts payable under this Agreement or under any of the
other Financing Documents, or to declare a default for failure to effect such
prompt payment of any such other amount.
SECTION 8.3 Cumulative Remedies. The rights, powers and remedies provided
in this Agreement and in the other Financing Documents are cumulative, may be
exercised concurrently or separately, may be exercised from time to time and in
such order as the Lender shall determine and are in addition to, and not
exclusive of, rights, powers and remedies provided by existing or future
applicable Laws. In order to entitle the Lender to exercise any remedy reserved
to it in this Agreement, it shall not be
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necessary to give any notice, other than such notice as may be expressly
required in this Agreement. Without limiting the generality of the foregoing,
the Lender may:
(a) proceed against any one or more of the Borrowers
with or without proceeding against any Person (including, without
limitation, any one or more guarantors) who may be liable (by endorsement,
guaranty, indemnity or otherwise) for all or any part of the Obligations;
(b) proceed against any one or more of the Borrowers
with or without proceeding under any of the other Financing Documents or
against any Collateral or other collateral and security for all or any
part of the Obligations;
(c) without reducing or impairing the obligation of the
Borrowers and without notice, release or compromise with any guarantor or
other Person liable for all or any part of the Obligations under the
Financing Documents or otherwise;
(d) without reducing or impairing the obligations of the
Borrowers and without notice thereof: (i) fail to perfect the Lien in any
or all Collateral or to release any or all the Collateral or to accept
substitute Collateral, (ii) approve the making of advances under the
Revolving Loan under this Agreement, (iii) waive any provision of this
Agreement or the other Financing Documents, (iv) exercise or fail to
exercise rights of set-off or other rights, or (v) accept partial payments
or extend from time to time the maturity of all or any part of the
Obligations.
SECTION 8.4 Severability. In case one or more provisions, or part thereof,
contained in this Agreement or in the other Financing Documents shall be
invalid, illegal or unenforceable in any respect under any Law, then without
need for any further agreement, notice or action:
(a) the validity, legality and enforceability of the
remaining provisions shall remain effective and binding on the parties
thereto and shall not be affected or impaired thereby;
(b) the obligation to be fulfilled shall be reduced to
the limit of such validity;
(c) if such provision or part thereof pertains to
repayment of the Obligations, then, at the sole and absolute discretion of
the Lender, all of the
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Obligations of the Borrowers to the Lender shall become immediately due
and payable; and
(d) if the affected provision or part thereof does not
pertain to repayment of the Obligations, but operates or would
prospectively operate to invalidate this Agreement in whole or in part,
then such provision or part thereof only shall be void, and the remainder
of this Agreement shall remain operative and in full force and effect.
SECTION 8.5 Assignments by Lender. The Lender may, without notice to, or
consent of, the Borrowers, sell, assign or transfer to or participate with any
Person or Persons all or any part of the Obligations, and each such Person or
Persons shall have the right to enforce the provisions of this Agreement and any
of the other Financing Documents as fully as the Lender, provided that the
Lender shall continue to have the unimpaired right to enforce the provisions of
this Agreement and any of the other Financing Documents as to so much of the
Obligations that the Lender has not sold, assigned or transferred. In connection
with the foregoing, the Lender shall have the right to disclose to any such
actual or potential purchaser, assignee, transferee or participant all financial
records, information, reports, financial statements and documents obtained in
connection with this Agreement and any of the other Financing Documents or
otherwise.
SECTION 8.6 Successors and Assigns. This Agreement and all other Financing
Documents shall be binding upon and inure to the benefit of the Borrowers and
the Lender and their respective heirs, personal representatives, successors and
assigns, except that the Borrowers shall not have the right to assign its rights
hereunder or any interest herein without the prior written consent of the
Lender.
SECTION 8.7 Continuing Agreements. All covenants, agreements,
representations and warranties made by the Borrowers in this Agreement, in any
of the other Financing Documents, and in any certificate delivered pursuant
hereto or thereto shall survive the making by the Lender of the Revolving Loan
and the execution and delivery of the Notes, shall be binding upon the Borrowers
regardless of how long before or after the date hereof any of the Obligations
were or are incurred, and shall continue in full force and effect so long as any
of the Obligations are outstanding and unpaid. From time to time upon the
Lender's request, and as a condition of the release of any one or more of the
Security Documents, the Borrowers and other Persons obligated with respect to
the Obligations shall provide the Lender with such acknowledgments and
agreements as the Lender may require to the effect that there exists no
defenses, rights of setoff or recoupment, claims, counterclaims, actions or
causes of action of any kind or nature whatsoever against the Lender, its agents
and
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others, or to the extent there are, the same are waived and released.
SECTION 8.8 Enforcement Costs. The Borrowers shall pay to the Lender on
demand all Enforcement Costs, together with interest thereon from the date
incurred or advanced until paid in full at a per annum rate of interest equal at
all times to the Post-Default Rate. Enforcement Costs shall be immediately due
and payable at the time advanced or incurred, whichever is earlier. Without
implying any limitation on the foregoing, the Borrowers shall pay, as part of
the Enforcement Costs, upon demand any and all stamp and other Taxes and fees
payable or determined to be payable in connection with the execution and
delivery of this Agreement and the other Financing Documents and to save the
Lender harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay any Taxes or fees referred
to in this Section. The provisions of this Section shall survive the execution
and delivery of this Agreement, the repayment of the other Obligations and shall
survive the termination of this Agreement.
SECTION 8.9 Applicable Law; Jurisdiction.
8.9.1 As a material inducement to the Lender to enter into this
Agreement, each Borrowers acknowledges and agrees that the Financing Documents,
including, this Agreement, shall be governed by the Laws of the State, as if
each of the Financing Documents and this Agreement had each been executed,
delivered, administered and performed solely within the State even though for
the convenience and at the request of the Borrowers, one or more of the
Financing Documents may be executed elsewhere. The Lender acknowledges, however,
that remedies under certain of the Financing Documents which relate to property
outside the State may be subject to the laws of the state in which the property
is located.
8.9.2 Each Borrower irrevocably submits to the jurisdiction of any
state or federal court sitting in the State over any suit, action or proceeding
arising out of or relating to this Agreement or any of the other Financing
Documents. Each Borrower irrevocably waives, to the fullest extent permitted by
law, any objection that it may now or hereafter have to the laying of the venue
of any such suit, action or proceeding brought in any such court and any claim
that any such suit, action or proceeding brought in any such court has been
brought in an inconvenient forum. Final judgment in any such suit, action or
proceeding brought in any such court shall be conclusive and binding upon the
Borrower and may be enforced in any court in which the Borrower is subject to
jurisdiction, by a suit upon such judgment, provided that service of process is
effected upon the Borrower in one of the manners specified in this Section or as
otherwise permitted by applicable Laws.
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8.9.3 Each Borrowers hereby irrevocably designates and appoints The
Corporation Trust, Incorporated, 32 South Street, Baltimore, Maryland 21202, as
the Borrower's authorized agent to receive on the Borrower's behalf service of
any and all process that may be served in any suit, action or proceeding of the
nature referred to in this Section in any state or federal court sitting in the
State. If such agent shall cease so to act, the Borrower shall irrevocably
designate and appoint without delay another such agent in the State satisfactory
to the Lender and shall promptly deliver to the Lender evidence in writing of
such other agent's acceptance of such appointment and its agreement that such
appointment shall be irrevocable.
8.9.4 Each Borrower hereby consents to process being served in any
suit, action or proceeding of the nature referred to in this Section by (i) the
mailing of a copy thereof by registered or certified mail, postage prepaid,
return receipt requested, to the Borrower at the Borrowers' address designated
in or pursuant to Section 8.1 hereof, and (ii) serving a copy thereof upon the
agent, if any, designated and appointed by the Borrower as the Borrower's agent
for service of process by or pursuant to this Section. Each Borrower irrevocably
agrees that such service (i) shall be deemed in every respect effective service
of process upon the Borrower in any such suit, action or proceeding, and (ii)
shall, to the fullest extent permitted by law, be taken and held to be valid
personal service upon the Borrower. Nothing in this Section shall affect the
right of the Lender to serve process in any manner otherwise permitted by law or
limit the right of the Lender otherwise to bring proceedings against the
Borrower in the courts of any jurisdiction or jurisdictions.
SECTION 8.10 Duplicate Originals and Counterparts.
This Agreement may be executed in any number of duplicate originals or
counterparts, each of such duplicate originals or counterparts shall be deemed
to be an original and all taken together shall constitute but one and the same
instrument.
SECTION 8.11 Headings. The headings in this Agreement are included herein
for convenience only, shall not constitute a part of this Agreement for any
other purpose, and shall not be deemed to affect the meaning or construction of
any of the provisions hereof.
SECTION 8.12 No Agency. Nothing herein contained shall be construed to
constitute the Borrowers as the Lender's agent for any purpose whatsoever or to
permit the Borrowers to pledge any of the Lender's credit. The Lender shall not
be responsible nor liable for any shortage, discrepancy, damage, loss or
destruction of any part of the Collateral wherever the same may be located and
regardless of the cause thereof. The Lender shall not, by anything herein or in
any of the Financing Documents or otherwise, assume any of the Borrowers'
obligations under any contract or agreement
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assigned to the Lender, and the Lender shall not be responsible in any way for
the performance by the Borrowers of any of the terms and conditions thereof.
SECTION 8.13 Date of Payment. Should the principal of or interest on the
Notes become due and payable on other than a Business Day, the maturity thereof
shall be extended to the next succeeding Business Day and in the case of
principal, interest shall be payable thereon at the rate per annum specified in
the Notes during such extension.
SECTION 8.14 Entire Agreement. This Agreement is intended by the Lender
and the Borrowers to be a complete, exclusive and final expression of the
agreements contained herein. Neither the Lender nor the Borrowers shall
hereafter have any rights under any prior agreements pertaining to the matters
addressed by this Agreement but shall look solely to this Agreement for
definition and determination of all of their respective rights, liabilities and
responsibilities under this Agreement.
SECTION 8.15 Waiver of Trial by Jury. THE BORROWERS AND THE LENDER HEREBY
JOINTLY AND SEVERALLY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH
ANY ONE OR MORE OF THE BORROWERS AND THE LENDER MAY BE PARTIES, ARISING OUT OF
OR IN ANY WAY PERTAINING TO (A) THIS AGREEMENT, (B) ANY OF THE FINANCING
DOCUMENTS, OR (C) THE COLLATERAL. THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY
JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING
CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS AGREEMENT.
This waiver is knowingly, willingly and voluntarily made by the
Borrowers and the Lender, and the Borrowers and the Lender hereby represent that
no representations of fact or opinion have been made by any individual to induce
this waiver of trial by jury or to in any way modify or nullify its effect. The
Borrowers and the Lender further represent that they have been represented in
the signing of this Agreement and in the making of this waiver by independent
legal counsel, selected of their own free will, and that they have had the
opportunity to discuss this waiver with counsel.
SECTION 8.16 Liability of the Lender. Each Borrower hereby agrees that the
Lender shall not be chargeable for any negligence, mistake, act or omission of
any accountant, examiner, agency or attorney employed by the Lender in making
examinations, investigations or collections, or otherwise in perfecting,
maintaining, protecting or realizing upon any lien or security interest or any
other interest in the Collateral or other security for the Obligations.
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By inspecting the Collateral or any other properties of the
Borrowers or by accepting or approving anything required to be observed,
performed or fulfilled by the Borrowers or to be given to the Lender pursuant to
this Agreement or any of the other Financing Documents, the Lender shall not be
deemed to have warranted or represented the condition, sufficiency, legality,
effectiveness or legal effect of the same, and such acceptance or approval shall
not constitute any warranty or representation with respect thereto by the
Lender.
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IN WITNESS WHEREOF, each of the parties hereto have executed and
delivered this Agreement under their respective seals as of the day and year
first written above.
WITNESS OR ATTEST: WG APPAREL, INC.
/s/ John K. Ziegler, Jr. By: /s/ John K. Ziegler (Seal)
- --------------------------- ----------------------
John K. Ziegler, Jr. John K. Ziegler
Assistant Secretary Chairman and Chief Executive
Officer
WITNESS OR ATTEST: WILLCOX & GIBBS, INC.
/s/ John K. Ziegler, Jr. By: /s/ John K. Ziegler (Seal)
- --------------------------- ----------------------
John K. Ziegler, Jr. John K. Ziegler
Assistant Secretary Chairman and Chief Executive
Officer
WITNESS OR ATTEST: LEADTEC SYSTEMS INC.
/s/ John K. Ziegler, Jr. By: /s/ John K. Ziegler (Seal)
- --------------------------- ----------------------
John K. Ziegler, Jr. John K. Ziegler
Assistant Secretary Vice President
WITNESS OR ATTEST: CLINTON MANAGEMENT CORP.
/s/ John K. Ziegler, Jr. By: /s/ John K. Ziegler (Seal)
- --------------------------- ----------------------
John K. Ziegler, Jr. John K. Ziegler
Assistant Secretary Vice President
WITNESS OR ATTEST: CLINTON MACHINERY CORPORATION
/s/ John K. Ziegler, Jr. By: /s/ John K. Ziegler (Seal)
- --------------------------- ----------------------
John K. Ziegler, Jr. John K. Ziegler
Assistant Secretary Vice President
-88-
<PAGE>
WITNESS: NATIONSBANK, N.A.
/s/ Margaret Ann Brown By: /s/ David B. Thayer (Seal)
- --------------------------- ----------------------
David B. Thayer
Vice President
-89-
<PAGE>
Additional Borrower Joinder Supplement
(Macpherson)
January __, 1997
TO: NATIONSBANK, N.A.
Reference is hereby made to the Financing and Security Agreement dated as
of December __, 1996 (the "Financing Agreement") by and among WG APPAREL, INC.,
a Delaware corporation ("Apparel"), WG, INC., a Delaware corporation
("Holdings"), LEADTEC SYSTEMS INC., a Delaware corporation ("Leadtec"), CLINTON
MANAGEMENT CORP., a Florida corporation, CLINTON MACHINERY CORPORATION, a
Delaware corporation and NATIONSBANK, N.A., as the "Lender." Capitalized terms
not otherwise defined in this Additional Borrower Joinder Supplement (this
"Joinder Supplement") shall have the meanings given to them in the Financing
Agreement.
MACPHERSON MEISTERGRAM, INC., a North Carolina corporation ("Macpherson";
the "Additional Borrower") hereby acknowledges, confirms and agrees that on and
as of the date of this Joinder Supplement, the Additional Borrower has become,
and is, a "Borrower" under the Financing Agreement and the other Financing
Documents for all purposes thereof, and as such shall be jointly and severally
liable, as provided in the Financing Documents, for all Obligations thereunder
(whether incurred or arising prior to, on, or subsequent to the date hereof) and
otherwise bound by all of the terms, provisions and conditions thereof.
Without in any way implying any limitation on any of the provisions of
this Agreement, the Financing Agreement, or any of the other Financing
Documents, the Additional Borrower hereby assigns, pledges and grants to the
Lender, and agrees that the Lender shall have a perfected and continuing
security interest in, and Lien on, (a) all of the Additional Borrower's
Accounts, Chattel Paper, Documents, Instruments, Securities, and General
Intangibles, whether now owned or existing or hereafter acquired or arising, (b)
all returned, rejected or repossessed goods, the sale or lease of which shall
have given or shall give rise to an Account or Chattel Paper, (c) all insurance
policies relating to the foregoing, (d) all books and records in whatever media
(paper, electronic or otherwise) recorded or stored, with respect to the
foregoing and all equipment and general intangibles necessary or beneficial to
retain, access and/or process the information contained in those books and
records, and (e) all cash and non-cash proceeds and products of the foregoing.
The Additional Borrower further agrees that the Lender shall have in respect
thereof all of the rights and remedies of a secured party under the Uniform
Commercial Code as well as those provided in this Agreement, under each of the
other Financing Documents and under applicable Laws.
The Additional Borrower hereby represents and warrants that all of the
representations and warranties contained in the
-90-
<PAGE>
Financing Documents are true and correct on and as of the date hereof as if made
on and as of such date, both before and after giving effect to this Joinder
Supplement, and that no Event of Default or Default has occurred and is
continuing or exists or would occur or exist after giving effect to this Joinder
Supplement.
This Joinder Supplement shall be governed by and construed and enforced in
accordance with the laws of the State of Maryland, without regard to principles
of choice of law.
WITNESS the due execution hereof as of the day and year first
above-written.
WITNESS: MACPHERSON MEISTERGRAM, INC.
By: (SEAL)
- ------------------------- ---------------------
John K. Ziegler, Jr.
Vice President
WITNESS: NATIONSBANK, N.A.
By: (SEAL)
- ------------------------- ---------------------
David B. Thayer
Vice President
-91-
<PAGE>
LIST OF EXHIBITS
A-1. Revolving Credit Note
B. Form of Compliance Certificate
-92-
<PAGE>
EXHIBIT B
FINANCING AGREEMENT
COMPLIANCE CERTIFICATE
THIS CERTIFICATE is made as of __________________, 199_ , by
____________________________________, a ________________ organized under the
laws of the State of ___________________ (the "Borrowers"), to
_______________________________, a national banking association (the "Lender"),
pursuant to Section of the Financing and Security Agreement dated
______________, 199_, (as amended, modified, restated, substituted, extended and
renewed at any time and from time to time, the "Financing Agreement") by and
between the Borrowers and the Lender.
I, ____________________, hereby certify that I am the ______________ of
the Borrowers and am a Responsible Officer (as that term is defined in the
Financing Agreement) authorized to certify to the Lender on behalf the Borrowers
as follows:
1. This Certificate is given to induce the Lender to make advances to the
Borrowers under the Financing Agreement.
2. This Certificate accompanies the _____________ financial statements for
the period ended ___________________, 199__ (the "Current Financials") which the
Borrowers is furnishing to the Lender pursuant to Section 6.1.1(__) of the
Financing Agreement. The Current Financials have been prepared in accordance
with GAAP (as that term is defined in the Financing Agreement).
3. As required by Section 6.1.1(__) of the Financing Agreement, I have set
forth on Schedule 1 a detailed computation of each financial covenant in
Financing Agreement and a cash flow projection report.
4. No change has occurred to the information contained in the Collateral
Disclosure List except as set forth on Schedule 2 to this Certificate. By way of
example and not limitation, the Collateral Disclosure List, together with
Schedule 2, contains a listing of all of the Borrowers' Patents, Trademarks,
Copyrights (as those terms are defined in the Financing Agreement), all
locations (owned, leased, warehouses or otherwise) where any Collateral (as that
term is defined in the Financing Agreement) is located, all Subsidiaries (as
that term is defined in the Financing Agreement).
5. As of the date hereof, there exists no Default or Event of Default, as
defined in the Article 7 of the Financing Agreement,
-93-
<PAGE>
nor any event which, upon notice or the lapse of time, or both, would constitute
such an Event of Default.
6. On the date hereof, the representations and warranties contained in
Article 5 of the Financing Agreement are true with the same effect as though
such representations and warranties had been made on the date hereof.
WITNESS my signature this _____ day of December, 1996.
-------------------------------
Name:
Title:
-94-
<PAGE>
Schedule 1 to Compliance Certificate
-95-
<PAGE>
Schedule 2 to Compliance Certificate
-96-
<PAGE>
LIST OF SCHEDULES
Schedule 4.1.10 Litigation
Schedule 4.1.13 Other Indebtedness
Schedule 4.1.19 Permitted Liens
Schedule 4.1.19(a) Existing Letters of Credit
Schedule 5.1.15 Landlord's Lien Waivers
-97-
<PAGE>
SCHEDULE 4.1.10
OUTSTANDING LITIGATION
Current Lawsuits
1. Doris Jones vs. Baruden Company, Ltd.,
Macpherson, Inc., et all
This is a personal injury case. Employee of a customer was injured running a
machine and is seeking compensation claiming a product liability cause.
This is manufacturer's responsibility and is also covered by our insurance.
2. Compucon
The company has entered into an agreement to distribute certain software and
related hardware products produced by Compucon SA ("Compucon") for use in
association with embroidery machines. Both the Company and Compucon have been
contacted by Wilcom Pty. Ltd. ("Wilcom"), concerning a claim by Wilcom that
Compucon's product incorporates Stitch Processor technology covered by a Wilcom
patent. The Company and Compucon entered into an indemnification agreement,
dated as of May 1, 1996, pursuant to which Compucon represents that its products
do not infringe any patents or other intellectual property rights. This
agreement also provides that Compucon will indemnify the Company for any losses
related to a claim that the products infringe any patent or other proprietary
rights.
Other Concerns:
Needle Guards: Embroidery machines do not have needle guards on them. In one
case in the past OSHA had ruled it was unnecessary. Recently several OSHA
inspectors have served notices on customers that their machine would require
needle guards.
Since this affects the whole embroidery industry as well as the general apparel
industry, a committee was developed to consider setting standards on needle
guard requirements. This review is currently taking place and we are actively
involved.
No litigation is pending.
Gangshaft Covers: On Baruden embroidery machines there is a gangshaft. This
gangshaft is protected from exposure to an operator by way of a gangshaft cover.
The current machines and the majority of machines shipped have a cover that
snaps together for
<PAGE>
increased protection. The older model machines did not. Thus the older guards
are not as safe as the new guards.
There is one personal injury case filed against Baruden Co. Ltd. regarding these
older guards.
Baruden Co. Ltd. also is preparing replacement guards to forward to all
customers who have the old guards.
<PAGE>
Schedule 4.1.13
Willcox & Gibbs, Inc.
Other Indebtedness
(Other than Debt Owed to NationsBank, N.A.)
(dollars in thousands)
Lenders:
Senior Notes $85,000,000.00
Other $ -0-
Total debt outstanding $85,000,000.00
Total letters of credit $ 1,556,528.00
(List of all existing letters
of credit attached as Schedule 4.1.13(a))
Total Standby Letters of Credit $ 4,535,179.64
Total Letters of Credit $ 6,091,706.00
-98-
<PAGE>
Schedule 4.1.19
PERMITTED LIENS
None other than liens in favor of NationsBank, N.A. as described in this
Agreement.
-99-
<PAGE>
Schedule 4.1.19(a)
EXISTING LETTERS OF CREDIT
Number Beneficiary Amount
- ------ ----------- ------
<PAGE>
Schedule 5.1.15
No Landlord Lien Waivers for the following premises:
Sunbrand
1. 3900 Green Industrial Way
Chamblee, Georgia 30341
2. 5354-5360 El Paso Drive,
El Paso, Texas 79905
3. 476 Woodcrest Avenue
Nashville, Tennessee 37210
4. One West Street
Fall River, Mass.
5. Bulevar Gonzales de la Vega No. 203
Parque Industrial Lagunero
Gomez Palacio Durango
Mexico, C.P. 35078
6. 450 N.W. 27th Street
Miami, Florida 33127
7. Ribera de San Cosme #22
Despacho 403
Colonia San Rafel
Mexico, D.F.C.P. 06470
8. Zona Franca Industries Las Americas
Autopista, Las Americas, KM 22, Santo Domingo
Dominican Republic
Unity
9. 7225 N.W. 44th Street
Miami, Florida 33166
10. 824 East 8th Street
Los Angeles, California 90021
Leadtec
11. 6800 Owensmouth Avenue
Canoga Park, California
Clinton Machinery and Clinton Management
12. 4740M Dwight Evans Road
Charlotte, North Carolina
<PAGE>
WG Apparel, Inc.
13. 900 Milik Street
Carteret, New Jersey 07008
Macpherson Meistergram, Inc.
14. 5350 Transportation Boulevard
Suite 14
Carfield Heights, Ohio
15. 14th East 38th Street
New York, New York
16. 3505 Cadillac Avenue
Costa Mesa, California
17. 6632 South 191st Place
Kent, Washington 98032
18. 2244 Drew Road, Unit 4
Mississauga, Ontario, Canada
19. 2244 West Wendow Avenue
Greensboro, North Carolina 27407
20. 3706 Boren Drive
Greensboro, North Carolina
<PAGE>
Exhibit 10.4
TERMINATION OF SECURITY AGREEMENT
THIS AGREEMENT, dated as of January 3, 1997 is made among WILLCOX & GIBBS,
INC. (formerly "WG, Inc.") ("WG"), CLINTON MACHINERY CORPORATION, a Delaware
Corporation ("Clinton"), WG APPAREL, INC., a Delaware Corporation ("WG
Apparel"), FRANK SCANNAVINO, CHARLES NALL AND MARC GLAZER (collectively the
"Stockholders").
W I T N E S S E T H:
WHEREAS, pursuant to the terms of a certain Agreement and Plan of Merger,
dated December 15, 1995 ("Merger Agreement"), the Stockholders received 100,000
shares of common stock of WG and received an option to put those shares to WG
Apparel in accordance with and subject to the terms and conditions of the Merger
Agreement (the "Put Option"); and
WHEREAS, pursuant to a certain Security Agreement ("Security Agreement")
dated February 1, 1996, and in order to secure, among other things, payment of
the purchase price in the event the Put Option was exercised and certain "Annual
Payments" (as defined in the Security Agreement), the Stockholders were granted
a security interest in the "Collateral" as defined in the Security Agreement;
and
WHEREAS, WG plans to offer certain Series A Senior Notes ("Notes") to
raise approximately $85,000,000 cash to be used to pay off existing
institutional revolver and term debt, fund the acquisition of Macpherson
Meistergram Corporation and for general corporate purposes; and
WHEREAS, WG plans to obtain bank financing in the amount of approximately
$18,500,000.00 ("Bank Financing") from NationsBank, N.A. ("NationsBank") to be
used for general corporate purposes; and
WHEREAS, in connection with the issuance of the Senior Notes and the
consummation of the Bank Financing, WG, WG Apparel and Stockholders have entered
into an Amendment No.1 to Merger Agreement wherein Stockholders have agreed,
among other things, to release all of their security interests created by the
Security Agreement; and
WHEREAS, Stockholders will benefit from the issuance of the Senior Notes
and the consummation of the Bank Financing, and therefore Stockholders have
agreed to release all of their rights under the Security Agreement.
NOW THEREFORE in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
each Stockholder agrees as follows:
1. The Security Agreement, and all past, present and future interests
created thereby, shall be and hereby are terminated on
<PAGE>
the date hereof.
2. Each Stockholder acknowledges their continuing obligation to execute
and deliver UCC-3 termination statements and other documents pursuant to and in
accordance with Article 2 of the Amendment No.1 to the Merger Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective on the date first above written.
WILLCOX & GIBBS, INC.
By: /s/ JOHN ZIEGLER
---------------------------
Title:
WG APPAREL, INC.
By: /s/ JOHN ZIEGLER
---------------------------
Title:
CLINTON MACHINERY CORPORATION
By: /s/ FRANK SCANNAVINO
---------------------------
Title: President
/s/ CHARLES NALL
--------------------------------
CHARLES NALL
/s/ FRANK SCANNAVINO
--------------------------------
FRANK SCANNAVINO
/s/ MARC GLAZER
--------------------------------
MARC GLAZER
- 2 -
<PAGE>
UNIFORM COMMERCIAL CODE-FINANCING STATEMENT CHANGE
APPROVED FOR USE IN NORTH CAROLINA
72790 UCC-3
REORDER FROM
Registre, Inc.
514 PIERCE ST.
P.O. BOX 218
ANOKA, MN 55303
(612) 421-1713
- --------------------------------------------------------------------------------
This STATEMENT is presented to a filing officer for No. of Additional
filing pursuant the Uniform Commercial Code: Sheets Presented:
- --------------------------------------------------------------------------------
1. Debtor(s) (Last Name First) 2. Secured Party(ies) Name(s)
and Address(es): And Address(es):
CLINTON MACHINERY CORPORATION MARC GLAZER; CHARLES NALL:
5800 Miami Lakes Drive FRANK SCANNAVINO
Miami Lakes, Florida 33015 5800 Miami Lakes Drive
Miami Lakes, Florida 33015
- --------------------------------------------------------------------------------
3. (a) This statement refers to original Financing Statement bearing
File No. 1312009 Filed with SECRETARY OF STATE Date Filed 2-22
1996
(b) If the original Financing Statement has previously been
continued list the Filing No. of the last continuation filled.
(C) If the original filing was a fixture filing or covered timber For
or accounts subject to G.S. 25-9-103, (5) mark this block |_| Filing
Officer
- --------------------------------------------------------------------------------
4. |_| Continuation. The original financing statement between the foregoing
debtor and secured party, bearing the number shown above
is still effective.
5. |_| Assignment. The secured party's rights under the financing statement
bearing file number shown above to the property described
in item 9 have been assigned to the assignee whose name
and address appear in item 9.
6. |_| Amendment. Financing statement bearing file number shown above is
amended as set forth in item 9. Signatures are required
of both debtor and secured party per G.S. #25-9-4.
7. |_| Release. Secured party releases the collateral described in item
9 from the financing statement bearing the number shown
above.
8. |X| Termination. Secured Party no longer claims a security interest under
the financing statment bearing file number shown above.
(A termination statement signed by a person other than
the secured party of record must include or be
accompanied by the assignment or a statement by the
secured party of record that he has assinged interest to
the signer of the termination statement.)
- --------------------------------------------------------------------------------
9.
- --------------------------------------------------------------------------------
10. Signatures:
/s/ [Signature Illegible]
- ----------------------------- ----------------------------------------------
By /s/ [Signature Illegible] By MARC GLAZER; CHARLES NALL; FRANK SCANNAVINO
- ----------------------------- ----------------------------------------------
Debtor(s) (necessary only Secured Party(ies)
if item 6 is applicable) Standard Form Approved by
N.C. Sec. of State
FINANCING STATEMENT CHANGE
(1) Filing Officer Copy Numerical UCC-3
- --------------------------------------------------------------------------------
<PAGE>
[Logo] THE UNITED STATES
CORPORATION
-----------------
COMPANY
DEBTOR NAME: CLINTON MACHINERY CORP.
JURISDICTION: STATE OF NC
- --------------------------------------------------------------------------------
FILE NUMBER: 1307096
FILE DATE: 02-07-96
SECURED PARTY: NATIONSCREDIT COMMERCIAL CORPORATION, AS AGENT
FILE NUMBER: 1312009
FILE DATE: 02-22-96
SECURED PARTY: FRANK SCANNAVINO, MARC GLAZER, CHARLES NALL
RP
<PAGE>
UNIFORM COMMERCIAL CODE-FINANCING STATEMENT CHANGE
APPROVED FOR USE IN NORTH CAROLINA
72792 UCC-3
REORDER FROM
Registre, Inc.
514 PIERCE ST.
P.O. BOX 218
ANOKA, MN 55303
(612) 421-1713
- --------------------------------------------------------------------------------
This STATEMENT is presented to a filing officer for No. of Additional
filing pursuant the Uniform Commercial Code: Sheets Presented:
- --------------------------------------------------------------------------------
1. Debtor(s) (Last Name First) 2. Secured Party(ies) Name(s)
and Address(es): And Address(es):
CLINTON MANAGEMENT CORP. MARC GLAZER; CHARLES NALL;
5800 Miami Lakes Drive FRANK SCANNAVINO
Miami Lakes, Florida 33015 5800 Miami Lakes Drive
Miami Lakes, Florida 33015
- --------------------------------------------------------------------------------
3. (a) This statement refers to original Financing Statement bearing
File No. 1312008 Filed with SECRETARY OF STATE Date Filed 2-22
1996
(b) If the original Financing Statement has previously been
continued list the Filing No. of the last continuation filied.
(C) If the original filing was a fixture filing or covered timber For
or accounts subject to G.S. 25-9-103, (5) mark this block |_| Filing
Officer
- --------------------------------------------------------------------------------
4. |_| Continuation. The original financing statement between the foregoing
debtor and secured party, bearing the number shown above
is still effective.
5. |_| Assignment. The secured party's rights under the financing statement
bearing file number shown above to the property described
in item 9 have been assigned to the assignee whose name
and address appear in item 9.
6. |_| Amendment. Financing statement bearing file number shown above is
amended as set forth in item 9. Signatures are required
of both debtor and secured party per G.S. #25-9-4.
7. |_| Release. Secured party releases the collateral described in item
9 from the financing statement bearing the number shown
above.
8. |X| Termination. Secured Party no longer claims a security interest under
the financing statment bearing file number shown above.
(A termination statement signed by a person other than
the secured party of record must include or be
accompanied by the assignment or a statement by the
secured party of record that he has assigned interest to
the signer of the termination statement.)
- --------------------------------------------------------------------------------
9.
- --------------------------------------------------------------------------------
10. Signatures:
By /s/ [Signature Illegible]
- ----------------------------- ----------------------------------------------
By /s/ [Signature Illegible] By MARC GLAZER; CHARLES NALL; FRANK SCANNAVINO
- ----------------------------- ----------------------------------------------
Debtor(s) (necessary only Secured Party(ies)
if item 6 is applicable) Standard Form Approved by
N.C. Sec. of State
FINANCING STATEMENT CHANGE
(1) Filing Officer Copy Numerical UCC-3
- --------------------------------------------------------------------------------
<PAGE>
[Logo] THE UNITED STATES
CORPORATION
-----------------
COMPANY
DEBTOR NAME: CLINTON MACHINERY CORP.
JURISDICTION: STATE OF NC
- --------------------------------------------------------------------------------
FILE NUMBER: 1303628
FILE DATE: 01-29-96
SECURED PARTY: NATIONSBANK, N.A.
FILE NUMBER: 1307097
FILE DATE: 02-07-96
SECURED PARTY: NATIONSCREDIT COMMERCIAL CORPORATION, AS AGENT
FILE NUMBER: 1312008
FILE DATE: 02-22-96
SECURED PARTY: CHARLES NALL, MARC GLAZER, FRANK SCANNAVINO
RP
<PAGE>
[Logo] THE UNITED STATES
CORPORATION
-----------------
COMPANY
DEBTOR NAME: CLINTON MACHINERY CORPORATION
JURISDICTION: STATE OF FL
- --------------------------------------------------------------------------------
FILE NUMBER: 960000019322
FILE DATE: 1-29-96
SECURED PARTY: NATIONSBANK, NA
FILE NUMBER: 960000026405
FILE DATE: 2-07-96
SECURED PARTY: NAITONSCREDIT COMMERCIAL CORPORATION
FILE NUMBER: 960000033465
FILE DATE: 2-16-96
SECURED PARTY: NALL, CHARLES ET AL
DAC
<PAGE>
REORDER FROM
Registre, Inc.
72337 514 PIERCE ST.
P.O. BOX 218
ANOKA, MN 55303
(612) 421-1713
NOTE: This is a two-part form. Send both parts to the Department of State for
filing. If a copy of this form is needed prior to filing, make photocopies for
your records.
IMPORTANT: Read instructions on back before filling out form.
- --------------------------------------------------------------------------------
STATE OF FLORIDA
UNIFORM COMMERCIAL CODE STATEMENT OF CHANGE FORM UUC-3 (REV. 1993)
This Statement of Change is presented to a filing officer pursuant to the
Uniform Commercial Code:
================================================================================
1. Debtor (Last Name First if an Individual) 1a. Date of Birth or FEI#
CLINTON MACHINERY CORPORATION
- --------------------------------------------------------------------------------
1b. Mailing Address 1c. City, State 1d. Zip Code
5800 Miami Lakes Drive Miami Lakes, Florida 33015
- --------------------------------------------------------------------------------
2. Additional debtor or Trade Name 2a. Date of Birth or FEI#
(Last Name First if an Individual)
- --------------------------------------------------------------------------------
2b. Mailing Address 2c. City, State 2d. Zip Code
- --------------------------------------------------------------------------------
3. Secured Party (Last Name First if an Individual)
NALL, CHARLES; SCANNAVINO, FRANK; GLAZER, MARC
- --------------------------------------------------------------------------------
3a. Mailing Address 3b. City, State 3c. Zip Code
5800 Miami Lakes Drive Miami Lakes, Florida 33015
- --------------------------------------------------------------------------------
4. Additional Secured Party (Last Name First if an Individual)
- --------------------------------------------------------------------------------
4a. Mailing Address 4b. City, State 4c. Zip Code
================================================================================
5. This Statement refers to original Financing Statement bearing file number:
960000033465 filed on 2-16-96.
6.
A. |_| Continuation - The original Financing Statement between the
Debtor and Secured Party bearing the file number
shown above is continued.
B. |_| Release - The Secured Party releases the collateral
described in Block 7 below from the Financing
Statement bearing the file number shown above.
RELEASE DOES NOT TERMINATE LIEN AGAINST DEBTOR.
C. |_| Full Assignment - All of the Secured Party's rights under the
Financing Statement have been assigned to the
assignee whose name and address is shown in Block
7 below.
D. |_| Partial Assignment- Some of Secured Party's rights under the Financing
Statement have been assigned to the assignee whose
name and address is shown in Block 7. A
description of the collateral subject to the
assignment is also shown in Block 7.
E. |_| Amendment - The Financing Statement bearing file number shown
above is amended as set forth in Block 7. (See
instructions for signature requirements.)
F. |X| Termination - The Secured Party no longer claims an interest
under the Financing Statement bearing file number
shown above.
G. |_| Other - --------------------------------------------------
================================================================================
7. Description of collateral released or assigned, Assignee name and address, or
amendment. Use additional sheet(s) if necessary.
- --------------------------------------------------------------------------------
This space for use of Filing Officer
- --------------------------------------------------------------------------------
8. Signature(s) of Debtor(s): (only if amendment - see instructions)
/s/ [Signature Illegible]
- -------------------------
/s/ [Signature Illegible]
- -------------------------
- --------------------------------------------------------------------------------
9. Signature(s) of Secured party(ies):
/s/ [Signature Illegible]
- --------------------------------------------------------------------------------
NALL, CHARLES; SCANNAVINO, FRANK; GLAZER, MARC
- --------------------------------------------------------------------------------
10. Number of Additional Sheets Presented -0-
- --------------------------------------------------------------------------------
11. Return Copy to:
Name Michael I. Keyes, Esq.
Stearns Weaver Miller Weissler et al
Address 150 West Flagler Street, Suite 2200
Address Miami, Florida 33130
<PAGE>
REORDER FROM
Registre, Inc.
72338 514 PIERCE ST.
P.O. BOX 218
ANOKA, MN 55303
(612) 421-1713
NOTE: This is a two-part form. Send both parts to the Department of State for
filing. If a copy of this form is needed prior to filing, make photocopies for
your records.
IMPORTANT: Read instructions on back before filling out form.
- --------------------------------------------------------------------------------
STATE OF FLORIDA
UNIFORM COMMERCIAL CODE STATEMENT OF CHANGE FORM UUC-3 (REV. 1993)
This Statement of Change is presented to a filing officer pursuant to the
Uniform Commercial Code:
================================================================================
1. Debtor (Last Name First if an Individual) 1a. Date of Birth or FEI#
CLINTON MANAGEMENT CORP.
- --------------------------------------------------------------------------------
1b. Mailing Address 1c. City, State 1d. Zip Code
5800 Miami Lakes Drive Miami Lakes, Florida 33015
- --------------------------------------------------------------------------------
2. Additional Debtor or Trade Name 2a. Date of Birth or FEI#
(Last Name First if an Individual)
- --------------------------------------------------------------------------------
2b. Mailing Address 2c. City, State 2d. Zip Code
- --------------------------------------------------------------------------------
3. Secured Party (Last Name First if an Individual)
NALL, CHARLES; SCANNAVINO, FRANK; GLAZER, MARC
- --------------------------------------------------------------------------------
3a. Mailing Address 3b. City, State 3c. Zip Code
5800 Miami Lakes Drive Miami Lakes, Florida 33015
- --------------------------------------------------------------------------------
4. Additional Secured Party (Last Name First if an Individual)
- --------------------------------------------------------------------------------
4a. Mailing Address 4b. City, State 4c. Zip Code
================================================================================
5. This Statement refers to original Financing Statement bearing file number:
960000033464 filed on 2-16-96.
6.
A. |_| Continuation - The original Financing Statement between the
Debtor and Secured Party bearing the file number
shown above is continued.
B. |_| Release - The Secured Party releases the collateral
described in Block 7 below from the Financing
Statement bearing the file number shown above.
RELEASE DOES NOT TERMINATE LIEN AGAINST DEBTOR.
C. |_| Full Assignment - All of the Secured Party's rights under the
Financing Statement have been assigned to the
assignee whose name and address is shown in Block
7 below.
D. |_| Partial Assignment- Some of Secured Party's rights under the Financing
Statement have been assigned to the assignee whose
name and address is shown in Block 7. A
description of the collateral subject to the
assignment is also shown in Block 7.
E. |_| Amendment - The Financing Statement bearing file number shown
above is amended as set forth in Block 7. (See
instructions for signature requirements.)
F. |X| Termination - The Secured Party no longer claims an interest
under the Financing Statement bearing the file
number shown above.
G. |_| Other - --------------------------------------------------
================================================================================
7. Description of collateral released or assigned, Assignee name and address, or
amendment. Use additional sheet(s) if necessary.
- --------------------------------------------------------------------------------
This space for use of Filing Officer
- --------------------------------------------------------------------------------
8. Signature(s) of Debtor(s); (only if amendment - see instructions)
/s/ [Signature Illegible]
- -------------------------
/s/ [Signature Illegible]
- -------------------------
- --------------------------------------------------------------------------------
9. Signature(s) of Secured party(ies):
/s/ [Signature Illegible]
- --------------------------------------------------------------------------------
NALL, CHARLES; SCANNAVINO, FRANK; GLAZER, MARC
- --------------------------------------------------------------------------------
10. Number of Additional Sheets Presented -0-
- --------------------------------------------------------------------------------
11. Return Copy to:
Name Michael I. Keyes, Esq.
Stearns Weaver Miller Weissler et al
Address 150 West Flagler Street, Suite 2200
Address Miami, Florida 33130
<PAGE>
[Logo] THE UNITED STATES
CORPORATION
-----------------
COMPANY
DEBTOR NAME: CLINTON MANAGEMENT CORP.
JURISDICTION: STATE OF FL
- -----------------------------------------------------------------
FILE NUMBER: 960000123607
FILE DATE:
SECURED PARTY: THE CIT GROUP/EQUIPMENT FINANCING INC.
FILE NUMBER: 960000123608
FILE DATE: 6-17-96
SECURED PARTY: THE CIT GROUP/EQUIPMENT FINANCING INC.
FILE NUMBER: 960000011166
FILE DATE: 1-14-94
SECURED PARTY: NATIONAL LIFT TRUCK SERVICE
FILE NUMBER: 960000020710
FILE DATE: 1-30-96
SECURED PARTY: NATIONSBANK NA
FILE NUMBER: 960000026407
FILE DATE: 2-07-96
SECURED PARTY: NATIONSCREDIT COMMERCIAL CORPORATION AS AGENT
FILE NUMBER: 960000033464
FILE DATE: 2-16-96
SECURED PARTY: NALL, CHARLES, ET AL
DAC
<PAGE>
EMPLOYMENT CONTRACT
EMPLOYMENT CONTRACT dated February 1, 1996 among Clinton Machinery
Corporation, a Delaware corporation and Clinton Management Corp., a Florida
corporation (collectively referred to as "Company" or the "Employer") and Frank
Scannavino whose business address is 5800 Miami Lakes Drive, Miami Lakes,
Florida ("Employee").
The Company desires to engage Employee to perform services as an executive
officer of the Company and Employee desires to perform such services, on the
terms and conditions hereinafter set forth.
Accordingly, the Company and Employee agree as follows:
1. TERM.
The Company agrees to employ Employee to perform services as an executive
officer for the period commencing with the date of this Agreement and ending on
December 31, 2000 or such shorter period as may be provided herein (the
"Employment Period").
2. NATURE OF SERVICES
During the Employment Period, Employee shall be employed as
President of the Company and Employee hereby accepts such employment upon the
terms and conditions hereafter set forth. Employee's duties shall be
substantially equivalent to his duties conducted on behalf of the Company
immediately prior to the date hereof. In the performance of his duties,
Employee shall be subject to the policy direction of the Board of Directors of
the Company and the Chief Executive Officer of Willcox & Gibbs, Inc.,
<PAGE>
2
or his designee, which policies shall be consistent with the requirements of the
Acquisition Documents (as hereinafter defined). For the purposes hereof,
"Acquisition Documents" shall mean the Agreement and Plan of Merger dated as of
December 15, 1995 by and among Frank Scannavino, Charles Nall, Marc Glazer,
Clinton Management Corp., a Florida Corporation, Clinton Machinery Corporation,
a Delaware Corporation and WG, Inc. and the Stock Purchase Agreement dated as of
December 15, 1995, by and among Frank Scannavinno, Charles Nall, Marc Glazer,
Clinton Management Corp., WG Apparel, Inc., and WG, Inc. (the "Stock Purchase
Agreement").
3. AGREEMENT TO SERVE
Employee agrees to his employment as described in Section 2, and agrees to
devote substantially all his business time and efforts (except immaterial time
and effort devoted to personal business affairs and investments) to the
performance of his duties under this Employment Contract. Employee agrees
that, in the course of his employment, he will faithfully observe and carry out
all of the duties and responsibilities customarily owed by an employee to his
employer. In no event shall the Company directly or indirectly require
Employee to relocate his principal residence outside of South Florida.
4. COMPENSATION
In consideration of his services hereunder, the Company shall pay Employee,
for the period in which he renders services pursuant to this Employment Contract
a salary at the rate of
<PAGE>
3
$150,000 per annum payable in equal installments no less frequently than
monthly.
5. EXPENSES, VACATIONS, FRINGE BENEFITS
Employee shall be entitled to: (i) reimbursement for all reasonable
expenses incurred in the performance of his duties hereunder upon submission and
approval of written statements in accordance with the Company's standard
policies as in effect from time to time; (ii) reasonable vacations in accordance
with the Company's then current regular procedures governing executives,
provided that Employee shall be entitled to a minimum of four weeks paid
vacation per year; and (iii) medical insurance benefits, group insurance
benefits and retirement and other group benefits comparable to those provided by
the Company immediately prior to the date of this Employment Contract.
6. NON-COMPETITION
(a) Employee agrees that he will not, directly or indirectly, whether in
the capacity of director, officer, employee, agent, advisor or otherwise,
individually or for, with or through any other person, firm or corporation, by
equity ownership or otherwise, compete with the Company or any subsidiary of the
Company, or any successors or assigns of their businesses (collectively the
"Protected Parties") with respect to the business conducted by the Protected
Parties (the "Prohibited Business") during the Covenant Term (hereinafter
defined) during the time period commencing with the date hereof and expiring on
the second anniversary date of the date Employee's employment with the Company,
is terminated (for any reason other than "For Cause" reasons under this
Agreement) or on the seventh (7th) anniversary date of the date hereof if the
Employee's employment with the company is terminated "For
<PAGE>
4
Cause" as defined in this Agreement (the "Covenant Term") (x) in the United
States and (y) in any area outside the United States where the Prohibited
Businesses are conducted during the Covenant Term.
(b) Notwithstanding the foregoing, during the Covenant Term Employee shall
be permitted to own not in excess of three percent (3%) of any class of
securities of any public company which is engaged in the Prohibited Business.
(c) During the Covenant Term the Employee agrees not to induce any person
who is an employee or officer of the Protected Parties to terminate said
relationship, except where such action is taken in the course of carrying out
Employee's duties for the Company;
(d) During the Covenant Term the Employee agrees not to disclose or use,
in any manner in competition with or contrary to the interests of the Protected
Parties, the customer lists, business methods, product research, or other trade
secrets of the Protected Parties relating to the Prohibited Business, it being
acknowledged that all such information regarding the Prohibited Businesses, is
confidential information and the exclusive property of the Protected Parties;
provided, however, that the foregoing restrictions shall not restrict the use or
disclosure of such confidential information (i) to any government entity to the
extent required by law or (ii) which is or becomes publicly known and available
through no wrongful act of Employee.
<PAGE>
5
(e) It is the intention of the parties that if any of the restrictions or
covenants contained herein is held to cover a geographic area or to be for a
length of time which is not permitted by applicable law, or in any way
construed to be too broad or to any extent invalid, such provision shall not be
construed to be null, void and of no effect, but to the extent such provision
would be valid or enforceable under applicable law, a court of competent
jurisdiction shall construe and interpret or reform this Section 6 to provide
for a covenant having the maximum enforceable geographic area, time period and
other provisions (not greater than those contained herein) as shall be valid
and enforceable under such applicable law. Employee acknowledges that any
breach of the terms, conditions or covenants set forth in this Section 6 shall
be competitively unfair and may cause irreparable damage to the Protected
Parties because of the special, unique, unusual and extraordinary and character
of their business and the Protected Parties recovery of damages at law will not
be an adequate remedy. Accordingly, Employee agrees that for any breach of the
terms, covenants or agreements of this Section 6 a restraining order or an
injunction or both may be issued against such person, in addition to any other
rights or remedies the Protected Parties may have.
7. PATENTS, INVENTIONS
All of Employee's interest in patents, patent applications, inventions,
technological innovations, copyrights, developments and processes developed by
Employee during the Employment Period relating to the business of the Company or
any subsidiary of
<PAGE>
6
either of them shall belong to the Company, and without further compensation,
but at the Company's expense, forthwith upon request of the Company, Employee
shall execute any and all such assignments and other documents and take any and
all such other action as the Company may reasonably request in order to vest in
the Company all Employee's right, title and interest in and to such patents,
patent applications, inventions, technological innovations, copyrights,
developments or processes, free and clear of any liens, charges and encumbrances
originated by Employee.
8. TERMINATION
(a) The employment and benefits of Employee under this Employment Contract
may be terminated only as follows: (i) If Employee shall, during the Employment
Period, (a) die or (b) become physically or mentally incapacitated or disabled
for a period of six consecutive months (the "Disability Period"), then the
Company shall have the right to give immediate notice of termination of
Employee's services hereunder; (ii) If, during the Employment Period, Employee
shall materially breach any of the terms hereof then the Company shall have the
right to give notice of termination of Employee's services hereunder as of a
date (not earlier than 30 days from such notice) to be specified in such notice;
provided, however, that Employee shall have the right during such 30-day period
to correct such breach (if capable of being corrected) or pay compensation
deemed reasonable by the Company which does not exceed the Company's reasonable
estimate of its aggregate loss, damage, deficiency or expense attributable
<PAGE>
7
to such breach (if not capable of being corrected) and thereby avoid
termination; (iii) If Employee is convicted of a felony or any other such
serious crime involving dishonesty and directly related to the performance by
Employee of the duties of his position, then the Company shall have the right to
give immediate notice of termination of Employee's services hereunder; (iv) If
Employee commits acts of fraud or dishonesty not directly related to the
performance by Employee of the duties of his position, but the affect of which
materially and adversely impair his ability to perform the duties of his
position, then the Company shall have the right to give immediate notice of
termination of Employee's services hereunder. The parties agree and acknowledge
that a termination "for cause" for purposes hereunder and under the Stock
Purchase Agreement shall only consist of a termination pursuant to Section 8(a)
(ii), (iii) or (iv), effective only after applicable required notice has been
given to Employee to the extent as provided in Section 8(a)(ii) and only to the
extent not cured within any applicable cure period, if any, provided hereunder.
Employee shall continue to be entitled to receive his full salary and benefits
during the Disability Period and thereafter; provided, however, that Company's
obligation to pay salary to Employee after the Disability Period shall be
released to the extent that disability insurance maintained for Employee's
benefit begins making required payments to Employee.
(b) In the event of termination pursuant to Section 8(a), Employee (or his
estate) shall be entitled to receive his salary
<PAGE>
8
at the rate provided in Section 4 to the end of the calendar month in which
termination occurs.
(c) If any legal action or other proceeding is brought for the enforcement
of this Employment Contract or because of a dispute regarding an alleged breach,
default or misrepresentation in connection herewith, the prevailing party in
such action or other proceeding shall be entitled to recover reasonable
attorneys' fees and other litigation costs (including cost of appeal) and all
reasonable related costs and expenses thereby incurred, in addition to any other
relief to which such prevailing party may be entitled.
(d) In the event that Employee's employment is terminated for any reason
whatsoever, and Employee holds a position as an officer and/or director of the
Company, Employee will have effectively resigned his position as an officer
and/or director upon said termination and will send a writing acknowledging same
upon the Company's request.
9. ENTIRE AGREEMENT
This Employment Contract sets forth the entire understanding of the parties
with respect to the subject matter herein and may be modified only by a written
instrument duly executed by each party.
10. NOTICES
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by registered mail, return
receipt requested, or delivered against receipt to the party to which it is to
be given at the address of
<PAGE>
9
such party first above set forth or to such other address as the party shall
have furnished in writing in accordance with the provisions of this Section 10.
Any notice or other communication mailed by registered mail shall be deemed
given at the time of mailing or transmission thereof.
11. ASSIGNMENT
In the event of a future disposition of (or including) the properties and
business of the Company, substantially as an entirety, by merger, consolidation,
sale of stock or assets or otherwise, then the Company may elect to assign the
Employment Contract and all of its rights and obligations hereunder to the
acquiring or surviving corporation (which shall acquire such obligations subject
to any claims or defenses of Employee), provided that such corporation shall
assume in writing all of the obligations of the Company hereunder and provided
further that the Company and any guarantor shall remain liable for the
performance of its obligations hereunder.
12. BINDING EFFECT, INUREMENT
This Employment Contract shall be binding upon and inure to the benefit of
the Company and (in each case) its successors and those who are its assigns
under Section 11. The obligations of Clinton Management Corporation and Clinton
Machinery Corporation hereunder shall be joint and several.
13. GOVERNING LAW
This Employment Contract shall be governed by and construed in accordance
with the laws of the State of New Jersey, without giving effect to conflict of
laws. Any and all suits, legal
<PAGE>
10
actions or proceedings arising out of this Agreement shall be brought in any
United States Federal Court sitting in New Jersey or if such court shall not
have jurisdiction, any other court of appropriate jurisdiction in New Jersey.
14. SEVERABILITY. The provisions of this Employment Contract shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof. If
any provision of this Employment Contract, or the application thereof to any
person or entity or any circumstance, is found to be invalid or unenforceable in
any jurisdiction, (a) a suitable and equitable provision shall be substituted
therefore in order to carry out, so far as may be valid and enforceable, the
intent and purpose of such invalid or unenforceable provision and (b) the
remainder of this Agreement and the application of such provision to other
persons, entities or circumstances shall not be affected by such invalidity or
unenforceability.
<PAGE>
11
IN WITNESS WHEREOF, the parties have duly executed this Employment Contract
as of the date first above written.
EMPLOYER:
Clinton Machinery Corporation
/s/ JOHN K. ZIEGLER
-----------------------------------
By: John K. Ziegler
Title: Vice President
Clinton Management Corporation
/s/ JOHN K. ZIEGLER
-----------------------------------
By: John K. Ziegler
Title: Vice President
EMPLOYEE:
/s/ FRANK SCANNAVINO
Frank Scannavino
For good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, Willcox & Gibbs, Inc., unconditionally guarantees the
prompt payment and performance of all obligations of Clinton Machinery
Corporation and Clinton Management Corporation under this Employment Agreement.
Willcox & Gibbs, Inc.
By: /s/ JOHN K. ZIEGLER
John K. Ziegler
Chief Executive Officer
<PAGE>
EMPLOYMENT CONTRACT
EMPLOYMENT CONTRACT dated February 1, 1996 among Clinton Machinery
Corporation, a Delaware corporation and Clinton Management Corp., a Florida
corporation (collectively referred to as "Company" or the "Employer") and Marc
Glazer whose business address is 5800 Miami Lakes Drive, Miami Lakes, Florida
("Employee").
The Company desires to engage Employee to perform services as an executive
officer of the Company and Employee desires to perform such services, on the
terms and conditions hereinafter set forth.
Accordingly, the Company and Employee agree as follows:
1. TERM.
The Company agrees to employ Employee to perform services as an executive
officer for the period commencing with the date of this Agreement and ending on
December 31, 2000 or such shorter period as may be provided herein (the
"Employment Period").
2. NATURE OF SERVICES
During the Employment Period, Employee shall be employed as
Vice President of the Company and Employee hereby accepts such employment upon
the terms and conditions hereafter set forth. Employee's duties shall be
substantially equivalent to his duties conducted on behalf of the Company
immediately prior to the date hereof. In the performance of his duties,
Employee shall be subject to the policy direction of the Board of Directors of
the Company and the Chief Executive Officer of Willcox & Gibbs, Inc.,
<PAGE>
2
or his designee, which policies shall be consistent with the requirements of the
Acquisition Documents (as hereinafter defined). For the purposes hereof,
"Acquisition Documents" shall mean the Agreement and Plan of Merger dated as of
December 15, 1995 by and among Frank Scannavino, Charles Nall, Marc Glazer,
Clinton Management Corp., a Florida Corporation, Clinton Machinery Corporation.,
a Delaware Corporation and WG, Inc. and the Stock Purchase Agreement dated as of
December 15, 1995, by and among Frank Scannavinno, Charles Nall, Marc Glazer,
Clinton Management Corp., WG Apparel, Inc., and WG, Inc. (the "Stock Purchase
Agreement").
3. AGREEMENT TO SERVE
Employee agrees to his employment as described in Section 2, and agrees to
devote substantially all his business time and efforts (except immaterial time
and effort devoted to personal business affairs and investments) to the
performance of his duties under this Employment Contract. Employee agrees
that, in the course of his employment, he will faithfully observe and carry out
all of the duties and responsibilities customarily owed by an employee to his
employer. In no event shall the Company directly or indirectly require
Employee to relocate his principal residence outside of South Florida.
4. COMPENSATION
In consideration of his services hereunder, the Company shall pay Employee,
for the period in which he renders services pursuant to this Employment Contract
a salary at the rate of
<PAGE>
3
$150,000 per annum payable in equal installments no less frequently than
monthly.
5. EXPENSES, VACATIONS, FRINGE BENEFITS
Employee shall be entitled to: (i) reimbursement for all reasonable
expenses incurred in the performance of his duties hereunder upon submission and
approval of written statements in accordance with the Company's standard
policies as in effect from time to time; (ii) reasonable vacations in accordance
with the Company's then current regular procedures governing executives,
provided that Employee shall be entitled to a minimum of four weeks paid
vacation per year; and (iii) medical insurance benefits, group insurance
benefits and retirement and other group benefits comparable to those provided by
the Company immediately prior to the date of this Employment Contract.
6. NON-COMPETITION
(a) Employee agrees that he will not, directly or indirectly, whether in
the capacity of director, officer, employee, agent, advisor or otherwise,
individually or for, with or through any other person, firm or corporation, by
equity ownership or otherwise, compete with the Company or any subsidiary of the
Company, or any successors or assigns of their businesses (collectively the
"Protected Parties") with respect to the business conducted by the Protected
Parties (the "Prohibited Business") during the Covenant Term (hereinafter
defined) during the time period commencing with the date hereof and expiring on
the second anniversary date of the date Employee's employment with the Company,
is terminated (for any reason other than "For Cause" reasons under this
Agreement) or on the seventh (7th) anniversary date of the date hereof if the
Employee's employment with the company is terminated "For
<PAGE>
4
Cause" as defined in this Agreement (the "Covenant Term") (x) in the United
States and (y) in any area outside the United States where the Prohibited
Businesses are conducted during the Covenant Term.
(b) Notwithstanding the foregoing, during the Covenant Term Employee shall
be permitted to own not in excess of three percent (3%) of any class of
securities of any public company which is engaged in the Prohibited Business.
(c) During the Covenant Term the Employee agrees not to induce any person
who is an employee or officer of the Protected Parties to terminate said
relationship, except where such action is taken in the course of carrying out
Employee's duties for the Company;
(d) During the Covenant Term the Employee agrees not to disclose or use,
in any manner in competition with or contrary to the interests of the Protected
Parties, the customer lists, business methods, product research, or other trade
secrets of the Protected Parties relating to the Prohibited Business, it being
acknowledged that all such information regarding the Prohibited Businesses, is
confidential information and the exclusive property of the Protected Parties;
provided, however, that the foregoing restrictions shall not restrict the use or
disclosure of such confidential information (i) to any government entity to the
extent required by law or (ii) which is or becomes publicly known and available
through no wrongful act of Employee.
<PAGE>
5
(e) It is the intention of the parties that if any of the restrictions or
covenants contained herein is held to cover a geographic area or to be for a
length of time which is not permitted by applicable law, or in any way
construed to be too broad or to any extent invalid, such provision shall not be
construed to be null, void and of no effect, but to the extent such provision
would be valid or enforceable under applicable law, a court of competent
jurisdiction shall construe and interpret or reform this Section 6 to provide
for a covenant having the maximum enforceable geographic area, time period and
other provisions (not greater than those contained herein) as shall be valid
and enforceable under such applicable law. Employee acknowledges that any
breach of the terms, conditions or covenants set forth in this Section 6 shall
be competitively unfair and may cause irreparable damage to the Protected
Parties because of the special, unique, unusual and extraordinary and character
of their business and the Protected Parties recovery of damages at law will not
be an adequate remedy. Accordingly, Employee agrees that for any breach of the
terms, covenants or agreements of this Section 6 a restraining order or an
injunction or both may be issued against such person, in addition to any other
rights or remedies the Protected Parties may have.
7. PATENTS, INVENTIONS
All of Employee's interest in patents, patent applications, inventions,
technological innovations, copyrights, developments and processes developed by
Employee during the Employment Period relating to the business of the Company or
any subsidiary of
<PAGE>
6
either of them shall belong to the Company, and without further compensation,
but at the Company's expense, forthwith upon request of the Company, Employee
shall execute any and all such assignments and other documents and take any and
all such other action as the Company may reasonably request in order to vest in
the Company all Employee's right, title and interest in and to such patents,
patent applications, inventions, technological innovations, copyrights,
developments or processes, free and clear of any liens, charges and encumbrances
originated by Employee.
8. TERMINATION
(a) The employment and benefits of Employee under this Employment Contract
may be terminated only as follows: (i) If Employee shall, during the Employment
Period, (a) die or (b) become physically or mentally incapacitated or disabled
for a period of six consecutive months (the "Disability Period"), then the
Company shall have the right to give immediate notice of termination of
Employee's services hereunder; (ii) If, during the Employment Period, Employee
shall materially breach any of the terms hereof then the Company shall have the
right to give notice of termination of Employee's services hereunder as of a
date (not earlier than 30 days from such notice) to be specified in such notice;
provided, however, that Employee shall have the right during such 30-day period
to correct such breach (if capable of being corrected) or pay compensation
deemed reasonable by the Company which does not exceed the Company's reasonable
estimate of its aggregate loss, damage, deficiency or expense attributable
<PAGE>
7
to such breach (if not capable of being corrected) and thereby avoid
termination; (iii) If Employee is convicted of a felony or any other such
serious crime involving dishonesty and directly related to the performance by
Employee of the duties of his position, then the Company shall have the right to
give immediate notice of termination of Employee's services hereunder; (iv) If
Employee commits acts of fraud or dishonesty not directly related to the
performance by Employee of the duties of his position, but the affect of which
materially and adversely impair his ability to perform the duties of his
position, then the Company shall have the right to give immediate notice of
termination of Employee's services hereunder. The parties agree and acknowledge
that a termination "for cause" for purposes hereunder and under the Stock
Purchase Agreement shall only consist of a termination pursuant to Section 8(a)
(ii), (iii) or (iv), effective only after applicable required notice has been
given to Employee to the extent as provided in Section 8(a)(ii) and only to the
extent not cured within any applicable cure period, if any, provided hereunder.
Employee shall continue to be entitled to receive his full salary and benefits
during the Disability Period and thereafter; provided, however, that Company's
obligation to pay salary to Employee after the Disability Period shall be
released to the extent that disability insurance maintained for Employee's
benefit begins making required payments to Employee.
(b) In the event of termination pursuant to Section 8(a), Employee (or his
estate) shall be entitled to receive his salary
<PAGE>
8
at the rate provided in Section 4 to the end of the calendar month in which
termination occurs.
(c) If any legal action or other proceeding is brought for the enforcement
of this Employment Contract or because of a dispute regarding an alleged breach,
default or misrepresentation in connection herewith, the prevailing party in
such action or other proceeding shall be entitled to recover reasonable
attorneys' fees and other litigation costs (including cost of appeal) and all
reasonable related costs and expenses thereby incurred, in addition to any other
relief to which such prevailing party may be entitled.
(d) In the event that Employee's employment is terminated for any reason
whatsoever, and Employee holds a position as an officer and/or director of the
Company, Employee will have effectively resigned his position as an officer
and/or director upon said termination and will send a writing acknowledging same
upon the Company's request.
9. ENTIRE AGREEMENT
This Employment Contract sets forth the entire understanding of the parties
with respect to the subject matter herein and may be modified only by a written
instrument duly executed by each party.
10. NOTICES
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by registered mail, return
receipt requested, or delivered against receipt to the party to which it is to
be given at the address of
<PAGE>
9
such party first above set forth or to such other address as the party shall
have furnished in writing in accordance with the provisions of this Section 10.
Any notice or other communication mailed by registered mail shall be deemed
given at the time of mailing or transmission thereof.
11. ASSIGNMENT
In the event of a future disposition of (or including) the properties and
business of the Company, substantially as an entirety, by merger, consolidation,
sale of stock or assets or otherwise, then the Company may elect to assign the
Employment Contract and all of its rights and obligations hereunder to the
acquiring or surviving corporation (which shall acquire such obligations subject
to any claims or defenses of Employee), provided that such corporation shall
assume in writing all of the obligations of the Company hereunder and provided
further that the Company and any guarantor shall remain liable for the
performance of its obligations hereunder.
12. BINDING EFFECT, INUREMENT
This Employment Contract shall be binding upon and inure to the benefit of
the Company and (in each case) its successors and those who are its assigns
under Section 11. The obligations of Clinton Management Corporation and Clinton
Machinery Corporation hereunder shall be joint and several.
13. GOVERNING LAW
This Employment Contract shall be governed by and construed in accordance
with the laws of the State of New Jersey, without giving effect to conflict of
laws. Any and all suits, legal
<PAGE>
10
actions or proceedings arising out of this Agreement shall be brought in any
United States Federal Court sitting in New Jersey or if such court shall not
have jurisdiction, any other court of appropriate jurisdiction in New Jersey.
14. SEVERABILITY. The provisions of this Employment Contract shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof. If
any provision of this Employment Contract, or the application thereof to any
person or entity or any circumstance, is found to be invalid or unenforceable in
any jurisdiction, (a) a suitable and equitable provision shall be substituted
therefore in order to carry out, so far as may be valid and enforceable, the
intent and purpose of such invalid or unenforceable provision and (b) the
remainder of this Agreement and the application of such provision to other
persons, entities or circumstances shall not be affected by such invalidity or
unenforceability.
<PAGE>
10
IN WITNESS WHEREOF, the parties have duly executed this Employment Contract
as of the date first above written.
EMPLOYER:
Clinton Machinery Corporation
/s/ JOHN K. ZIEGLER
-----------------------------------
By: John K. Ziegler
Title: Vice President
Clinton Management Corporation
/s/ JOHN K. ZIEGLER
By: John K. Ziegler
Title: Vice President
EMPLOYEE:
/s/ MARC GLAZER
Marc Glazer
For good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, Willcox & Gibbs, Inc., unconditionally guarantees the
prompt payment and performance of all obligations of Clinton Machinery
Corporation and Clinton Management Corporation under this Employment Agreement.
Willcox & Gibbs, Inc.
By: /s/ JOHN K. ZIEGLER
John K. Ziegler
Chief Executive Officer
<PAGE>
EMPLOYMENT CONTRACT
EMPLOYMENT CONTRACT dated February 1, 1996 among Clinton Machinery
Corporation, a Delaware corporation and Clinton Management Corp., a Florida
corporation (collectively referred to as "Company" or the "Employer") and
Charles Nall whose business address is 5800 Miami Lakes Drive, Miami Lakes,
Florida ("Employee").
The Company desires to engage Employee to perform services as an executive
officer of the Company and Employee desires to perform such services, on the
terms and conditions hereinafter set forth.
Accordingly, the Company and Employee agree as follows:
1. TERM.
The Company agrees to employ Employee to perform services as an executive
officer for the period commencing with the date of this Agreement and ending on
December 31, 2000 or such shorter period as may be provided herein (the
"Employment Period").
2. NATURE OF SERVICES
During the Employment Period, Employee shall be employed as
Vice President of the Company and Employee hereby accepts such employment upon
the terms and conditions hereafter set forth. Employee's duties shall be
substantially equivalent to his duties conducted on behalf of the Company
immediately prior to the date hereof. In the performance of his duties,
Employee shall be subject to the policy direction of the Board of Directors of
the Company and the Chief Executive Officer of Willcox & Gibbs, Inc.,
<PAGE>
2
or his designee, which policies shall be consistent with the requirements of the
Acquisition Documents (as hereinafter defined). For the purposes hereof,
"Acquisition Documents" shall mean the Agreement and Plan of Merger dated as of
December 15, 1995 by and among Frank Scannavino, Charles Nall, Marc Glazer,
Clinton Management Corp., a Florida Corporation, Clinton Machinery Corporation,
a Delaware Corporation and WG, Inc. and the Stock Purchase Agreement dated as of
December 15, 1995, by and among Frank Scannavinno, Charles Nall, Marc Glazer,
Clinton Management Corp., WG Apparel, Inc., and WG, Inc. (the "Stock Purchase
Agreement").
3. AGREEMENT TO SERVE
Employee agrees to his employment as described in Section 2, and agrees to
devote substantially all his business time and efforts (except immaterial time
and effort devoted to personal business affairs and investments) to the
performance of his duties under this Employment Contract. Employee agrees
that, in the course of his employment, he will faithfully observe and carry out
all of the duties and responsibilities customarily owed by an employee to his
employer. In no event shall the Company directly or indirectly require
Employee to relocate his principal residence outside of South Florida.
4. COMPENSATION
In consideration of his services hereunder, the Company shall pay Employee,
for the period in which he renders services pursuant to this Employment Contract
a salary at the rate of
<PAGE>
3
$150,000 per annum payable in equal installments no less frequently than
monthly.
5. EXPENSES, VACATIONS, FRINGE BENEFITS
Employee shall be entitled to: (i) reimbursement for all reasonable
expenses incurred in the performance of his duties hereunder upon submission and
approval of written statements in accordance with the Company's standard
policies as in effect from time to time; (ii) reasonable vacations in accordance
with the Company's then current regular procedures governing executives,
provided that Employee shall be entitled to a minimum of four weeks paid
vacation per year; and (iii) medical insurance benefits, group insurance
benefits and retirement and other group benefits comparable to those provided by
the Company immediately prior to the date of this Employment Contract.
6. NON-COMPETITION
(a) Employee agrees that he will not, directly or indirectly, whether in
the capacity of director, officer, employee, agent, advisor or otherwise,
individually or for, with or through any other person, firm or corporation, by
equity ownership or otherwise, compete with the Company or any subsidiary of the
Company, or any successors or assigns of their businesses (collectively the
"Protected Parties") with respect to the business conducted by the Protected
Parties (the "Prohibited Business") during the Covenant Term (hereinafter
defined) during the time period commencing with the date hereof and expiring on
the second anniversary date of the date Employee's employment with the Company,
is terminated (for any reason other than "For Cause" reasons under this
Agreement) or on the seventh (7th) anniversary date of the date hereof if the
Employee's employment with the company is terminated "For
<PAGE>
4
Cause" as defined in this Agreement (the "Covenant Term") (x) in the United
States and (y) in any area outside the United States where the Prohibited
Businesses are conducted during the Covenant Term.
(b) Notwithstanding the foregoing, during the Covenant Term Employee shall
be permitted to own not in excess of three percent (3%) of any class of
securities of any public company which is engaged in the Prohibited Business.
(c) During the Covenant Term the Employee agrees not to induce any person
who is an employee or officer of the Protected Parties to terminate said
relationship, except where such action is taken in the course of carrying out
Employee's duties for the Company;
(d) During the Covenant Term the Employee agrees not to disclose or use,
in any manner in competition with or contrary to the interests of the Protected
Parties, the customer lists, business methods, product research, or other trade
secrets of the Protected Parties relating to the Prohibited Business, it being
acknowledged that all such information regarding the Prohibited Businesses, is
confidential information and the exclusive property of the Protected Parties;
provided, however, that the foregoing restrictions shall not restrict the use or
disclosure of such confidential information (i) to any government entity to the
extent required by law or (ii) which is or becomes publicly known and available
through no wrongful act of Employee.
<PAGE>
5
(e) It is the intention of the parties that if any of the restrictions or
covenants contained herein is held to cover a geographic area or to be for a
length of time which is not permitted by applicable law, or in any way
construed to be too broad or to any extent invalid, such provision shall not be
construed to be null, void and of no effect, but to the extent such provision
would be valid or enforceable under applicable law, a court of competent
jurisdiction shall construe and interpret or reform this Section 6 to provide
for a covenant having the maximum enforceable geographic area, time period and
other provisions (not greater than those contained herein) as shall be valid
and enforceable under such applicable law. Employee acknowledges that any
breach of the terms, conditions or covenants set forth in this Section 6 shall
be competitively unfair and may cause irreparable damage to the Protected
Parties because of the special, unique, unusual and extraordinary and character
of their business and the Protected Parties recovery of damages at law will not
be an adequate remedy. Accordingly, Employee agrees that for any breach of the
terms, covenants or agreements of this Section 6 a restraining order or an
injunction or both may be issued against such person, in addition to any other
rights or remedies the Protected Parties may have.
7. PATENTS, INVENTIONS
All of Employee's interest in patents, patent applications, inventions,
technological innovations, copyrights, developments and processes developed by
Employee during the Employment Period relating to the business of the Company or
any subsidiary of
<PAGE>
6
either of them shall belong to the Company, and without further compensation,
but at the Company's expense, forthwith upon request of the Company, Employee
shall execute any and all such assignments and other documents and take any and
all such other action as the Company may reasonably request in order to vest in
the Company all Employee's right, title and interest in and to such patents,
patent applications, inventions, technological innovations, copyrights,
developments or processes, free and clear of any liens, charges and encumbrances
originated by Employee.
8. TERMINATION
(a) The employment and benefits of Employee under this Employment Contract
may be terminated only as follows: (i) If Employee shall, during the Employment
Period, (a) die or (b) become physically or mentally incapacitated or disabled
for a period of six consecutive months (the "Disability Period"), then the
Company shall have the right to give immediate notice of termination of
Employee's services hereunder; (ii) If, during the Employment Period, Employee
shall materially breach any of the terms hereof then the Company shall have the
right to give notice of termination of Employee's services hereunder as of a
date (not earlier than 30 days from such notice) to be specified in such notice;
provided, however, that Employee shall have the right during such 30-day period
to correct such breach (if capable of being corrected) or pay compensation
deemed reasonable by the Company which does not exceed the Company's reasonable
estimate of its aggregate loss, damage, deficiency or expense attributable
<PAGE>
7
to such breach (if not capable of being corrected) and thereby avoid
termination; (iii) If Employee is convicted of a felony or any other such
serious crime involving dishonesty and directly related to the performance by
Employee of the duties of his position, then the Company shall have the right to
give immediate notice of termination of Employee's services hereunder; (iv) If
Employee commits acts of fraud or dishonesty not directly related to the
performance by Employee of the duties of his position, but the affect of which
materially and adversely impair his ability to perform the duties of his
position, then the Company shall have the right to give immediate notice of
termination of Employee's services hereunder. The parties agree and acknowledge
that a termination "for cause" for purposes hereunder and under the Stock
Purchase Agreement shall only consist of a termination pursuant to Section 8(a)
(ii), (iii) or (iv), effective only after applicable required notice has been
given to Employee to the extent as provided in Section 8(a)(ii) and only to the
extent not cured within any applicable cure period, if any, provided hereunder.
Employee shall continue to be entitled to receive his full salary and benefits
during the Disability Period and thereafter; provided, however, that Company's
obligation to pay salary to Employee after the Disability Period shall be
released to the extent that disability insurance maintained for Employee's
benefit begins making required payments to Employee.
(b) In the event of termination pursuant to Section 8(a), Employee (or his
estate) shall be entitled to receive his salary
<PAGE>
8
at the rate provided in Section 4 to the end of the calendar month in which
termination occurs.
(c) If any legal action or other proceeding is brought for the enforcement
of this Employment Contract or because of a dispute regarding an alleged breach,
default or misrepresentation in connection herewith, the prevailing party in
such action or other proceeding shall be entitled to recover reasonable
attorneys' fees and other litigation costs (including cost of appeal) and all
reasonable related costs and expenses thereby incurred, in addition to any other
relief to which such prevailing party may be entitled.
(d) In the event that Employee's employment is terminated for any reason
whatsoever, and Employee holds a position as an officer and/or director of the
Company, Employee will have effectively resigned his position as an officer
and/or director upon said termination and will send a writing acknowledging same
upon the Company's request.
9. ENTIRE AGREEMENT
This Employment Contract sets forth the entire understanding of the parties
with respect to the subject matter herein and may be modified only by a written
instrument duly executed by each party.
10. NOTICES
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by registered mail, return
receipt requested, or delivered against receipt to the party to which it is to
be given at the address of
<PAGE>
9
such party first above set forth or to such other address as the party shall
have furnished in writing in accordance with the provisions of this Section 10.
Any notice or other communication mailed by registered mail shall be deemed
given at the time of mailing or transmission thereof.
11. ASSIGNMENT
In the event of a future disposition of (or including) the properties and
business of the Company, substantially as an entirety, by merger, consolidation,
sale of stock or assets or otherwise, then the Company may elect to assign the
Employment Contract and all of its rights and obligations hereunder to the
acquiring or surviving corporation (which shall acquire such obligations subject
to any claims or defenses of Employee), provided that such corporation shall
assume in writing all of the obligations of the Company hereunder and provided
further that the Company and any guarantor shall remain liable for the
performance of its obligations hereunder.
12. BINDING EFFECT, INUREMENT
This Employment Contract shall be binding upon and inure to the benefit of
the Company and (in each case) its successors and those who are its assigns
under Section 11. The obligations of Clinton Management Corporation and Clinton
Machinery Corporation hereunder shall be joint and several.
13. GOVERNING LAW
This Employment Contract shall be governed by and construed in accordance
with the laws of the State of New Jersey, without giving effect to conflict of
laws. Any and all suits, legal
<PAGE>
10
actions or proceedings arising out of this Agreement shall be brought in any
United States Federal Court sitting in New Jersey or if such court shall not
have jurisdiction, any other court of appropriate jurisdiction in New Jersey.
14. SEVERABILITY. The provisions of this Employment Contract shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof. If
any provision of this Employment Contract, or the application thereof to any
person or entity or any circumstance, is found to be invalid or unenforceable in
any jurisdiction, (a) a suitable and equitable provision shall be substituted
therefore in order to carry out, so far as may be valid and enforceable, the
intent and purpose of such invalid or unenforceable provision and (b) the
remainder of this Agreement and the application of such provision to other
persons, entities or circumstances shall not be affected by such invalidity or
unenforceability.
<PAGE>
11
IN WITNESS WHEREOF, the parties have duly executed this Employment Contract
as of the date first above written.
EMPLOYER:
Clinton Machinery Corporation
/s/ JOHN K. ZIEGLER
------------------------------
By: John K. Ziegler
Title: Vice President
Clinton Management Corporation
/s/ JOHN K. ZIEGLER
------------------------------
By: John K. Ziegler
Title: Vice President
EMPLOYEE:
/s/ CHARLES NALL
------------------------------
Charles Nall
For good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, Willcox & Gibbs, Inc., unconditionally guarantees the
prompt payment and performance of all obligations of Clinton Machinery
Corporation and Clinton Management Corporation under this Employment Agreement.
Willcox & Gibbs, Inc.
By: /s/ JOHN K. ZIEGLER
-------------------------
John K. Ziegler
Chief Executive Officer
<PAGE>
EMPLOYMENT CONTRACT
EMPLOYMENT CONTRACT dated June 27, 1994 among WG APPAREL, INC., a Delaware
corporation ("WG"), whose business address is 43 Huron Drive, Chatham, New
Jersey 07928, and ALAN LEE, whose business address is 85 Inip Drive, Inwood,
New York, ("Employee").
WG desires to engage Employee to perform services as an executive officer
of WG and Employee desires to perform such services, on the terms and conditions
hereinafter set forth.
Accordingly, WG and Employee agree as follows:
1. TERM.
WG agrees to employ Employee to perform services as an executive
officer for a period which will commence with the closing of the transaction
between WG and Willcox & Gibbs, Inc. or such shorter period as may be provided
herein and which shall continue indefinitely, subject to termination by WG upon
not less than one year written notice given by WG (the "Employment Period").
2. NATURE OF SERVICES.
During the Employment Period, Employee shall be employed in an
executive capacity in the business of WG and the Unity Division (the
"Company"). Employee shall serve as a Vice President of WG and as President of
the Company upon commencement of the Employment Period and thereafter for so
long as requested by WG's Board of Directors. In the performance of his
duties,
<PAGE>
2
Employee shall have general management of the day-to-day operations of the
Company, subject to the policy direction of the Board of Directors and the chief
executive officer of WG or his designate.
3. AGREEMENT TO SERVE.
Employee agrees to his employment as described in Section 2 and agrees
to devote all his business time and efforts (except immaterial time and effort
devoted to personal business affairs and investments) to the performance of his
duties under this Employment Contract. Employee agrees that in the course of
his employment, he will faithfully observe and carry out all of the duties and
responsibilities customarily owed by an employee to his employer.
4. COMPENSATION.
Employee's salary during the Employment Period shall be fixed from
time to time by the Compensation Committee of the Board of Directors of WG, Inc.
(the "Committee") but shall not be less than $110,000 per annum, payable in
equal installments no less frequently than monthly.
5. INCENTIVE COMPENSATION.
Employee shall be entitled to receive bonus or bonuses during the
Employment Period as may be provided by the Committee pursuant to (i) WG's
Incentive Compensation Plan for Key Employees ("WG Plan"), and (ii) the
Company's Incentive Compensation Plan ("Company Plan"), or any successor,
replacement
<PAGE>
3
or additional incentive plan, provided, however, that with respect to each
annual amount available for distribution, if any, pursuant to the WG Plan,
Employee shall receive no less than eight percent (8%) and from the Company
Plan, Employee shall receive no less than one and three quarters percent
(1.75%). Awards from the plans will be paid no later than March 31 following
the end of the year.
6. EXPENSES; VACATIONS; FRINGE BENEFITS.
During the Employment Period, Employee shall be entitled to: (i)
reimbursement for reasonable travel, entertainment and other expenses
necessarily incurred in the performance of his duties hereunder upon submission
and approval of written statements in accordance with WG's standard policies as
in effect from time to time; (ii) reasonable vacations in accordance with WG's
then current regular procedures governing executives; (iii) participation in
such group insurance, retirement and other group benefit programs as from time
to time may be extended generally to WG executives; (iv) continued participation
in WG's Supplemental Death and Retirement Plan; (v) continued medical and
hospital insurance benefits, which shall be at least equal to those benefits in
effect on the date hereof; (vi) use of an automobile comparable to that
presently being used by him in the business of the Company; (vii) participation
in all coverage under all compensation, pension, welfare and fringe benefit
plans, programs and policies of WG applicable to senior executives of WG; and
(viii) such additional compensation, in the
<PAGE>
4
form of incentive compensation or otherwise, and such participation in WG stock
option, stock award, stock purchase or other stock plans, as the Committee may
from time to time provide.
7. NON-COMPETITION.
Employee agrees that he will not, directly or indirectly (individually
or for, with or through any other person, firm or corporation, by equity
ownership or otherwise), (i) compete with WG, the Company or any subsidiary or
other affiliate of either of them or any successors or assigns of their
businesses during the Employment Period with respect to any business carried on
by WG, the Company or any such subsidiary or other affiliate, successor or
assign, or (ii) for a period of three years after the end of the Employment
Period, compete with WG, the Company or any subsidiary or other affiliate of
either of them or any of their successors or assigns of the businesses conducted
by the Company and its subsidiaries at the date hereof, with respect to such
business, either (x) in the United States or (y) in any area outside the United
States where such businesses are now conducted.
(A) If, however, WG terminates the Employment Period or wrongfully
terminates the Employment Period, the foregoing provisions of this Section 7
shall cease to apply from and after such wrongful termination.
(B) Notwithstanding the foregoing, Employee shall be permitted to own not
in excess of one percent of any class of securities of any public company which,
at the time of Employee's
<PAGE>
5
acquisition of the securities, is not engaged in competition with WG, the
Company or any subsidiary or other affiliate of either of them or any such
successor or assign notwithstanding the fact that such company thereafter
(without assistance from Employee) becomes engaged in such competition, provided
Employee is not part of any controlling group and is solely a passive investor.
8. PATENTS; INVENTIONS.
All of Employee's interest in patents, patent applications,
inventions, technological innovations, copyrights, developments and processes
now or hereafter during the Employment Period owned or developed by Employee
relating to the business of
WG, the Company or any subsidiary or other affiliate of either of them shall
belong to the Company, and without further compensation, but at the Company's
expense, forthwith upon request of the Company, Employee shall execute any and
all such assignments and other documents and take any and all such other action
as the Company may reasonably request in order to vest in the Company all
Employee's right, title and interest in and to such patents, patent
applications, inventions, technological innovations, copyrights, developments or
processes, free and clear of liens, charges and encumbrances.
9. CONFIDENTIAL INFORMATION.
All confidential information which Employee may now have or may obtain
during the Employment Period relating to the business of WG, the Company or any
subsidiary or other affiliate
<PAGE>
6
of either of them shall not be disclosed to any other persons either during or
after the termination of the Employment Period without the prior written
permission of WG, and Employee shall return all tangible evidence of such
confidential information to WG prior to or at the termination of the Employment
Period. Such information shall not include any information otherwise publicly
known.
10. TERMINATION
Notwithstanding anything herein contained:
(A) If Employee shall, during the Employment Period, die or become
physically or mentally incapacitated or disabled for a period of six (6)
consecutive months, then WG and the Company shall have the right to give
immediate notice of termination of Employee's services hereunder; and, if,
during the Employment Period, Employee shall materially breach any of the terms
hereof or it shall be determined that Employee has materially breached any
representation and warranty contained in the Guaranty and Indemnity Agreement of
even date to which WG and Employee are parties, WG and the Company shall have
the right to give notice of termination of Employee's services hereunder as of a
date (not earlier than thirty [30] days from such notice) to be specified in
such notice; provided, however, that Employee shall have the right during such
30-day period to correct such breach (if capable of being corrected) or pay
compensation deemed reasonable by WG which does not exceed WG's reasonable
estimate of its and the Company's aggregate loss, damage, deficiency or
<PAGE>
7
expense attributable to such breach (if not capable of being corrected) and
thereby avoid termination.
(B) In the event of termination pursuant to Section 10(a): (i)
Employee (or his estate) shall be entitled to receive his salary at the rate
provided in Section 4 to the end of the calendar month in which termination
occurs; and (ii) if the effective date of such termination is other than the
last day of a year, Employee (or his estate) shall be entitled to incentive
compensation for portions of the year prior to termination which is in the same
ratio to the amount of incentive compensation that would have been payable for
the full year as the ratio of the portions of the year prior to termination to
the full year (such incentive compensation to be determined and paid at the time
provided for in Section 4 for the full year).
(C) If any legal action or other proceeding is brought for the
enforcement of this Employment Contract or because of a dispute regarding an
alleged breach, default or misrepresentation in connection herewith, the
prevailing party in such action or other proceeding shall be entitled to recover
reasonable attorneys' fees and other litigation costs (including cost of appeal)
and all reasonable related costs and expenses thereby incurred, in addition to
any other relief to which such prevailing party may be entitled.
11. ENTIRE AGREEMENT; SEVERABILITY.
This Employment Contract sets forth the entire understanding of the
parties with respect to the subject matter
<PAGE>
8
herein and may be modified only by a written instrument duly executed by each
party. The invalidity or unenforceability of any provision of this Employment
Contract shall not affect the validity or enforceability of any other provision.
12. NOTICES.
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by registered mail, return
receipt requested, or delivered against receipt to the party to which it is to
be given at the address of such party first above set forth or to such other
address as the party shall have furnished in writing in accordance with the
provisions of Section 12. Any notice or other communication mailed by
registered mail shall be deemed given at the time of mailing or transmission
thereof.
13. ASSIGNMENT.
In the event of a future disposition of (or including) the properties
and business of WG or the Company, substantially as an entirety, by merger,
consolidation, sale of stock or assets or otherwise, then WG may elect to assign
this Employment Contract and all of its and the Company's rights and obligations
hereunder to the acquiring or surviving corporation, provided that such
corporation shall assume in writing all of the obligations of WG and the Company
hereunder and provided further that WG shall remain liable for the performance
of its obligations hereunder in the event of unjustified failure of the
<PAGE>
9
acquiring corporation to perform it s obligation. Employee's rights under this
Employment Contract shall not be transferrable by assignment or otherwise, shall
not be subject to commutation or encumbrance and shall not be subject to the
claims of Employee's creditors.
14. BINDING EFFECT; INUREMENT
This Employment Contract shall be binding upon and inure to the
benefit of WG, the Company and (in each case) its successors and those who are
its assigns under Section 13.
15. GOVERNING LAW
This Employment Contract shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflict of laws.
IN WITNESS WHEREOF, the parties have duly executed this Employment Contract
as of the date first above written.
WG. APPAREL, INC.
BY: /s/ JOHN K. ZIEGLER
--------------------------
JOHN K. ZIEGLER, CHAIRMAN
/s/ ALAN LEE
-------------------------
ALAN LEE
<PAGE>
EMPLOYMENT CONTRACT
EMPLOYMENT CONTRACT dated June 27, 1994 among WG APPAREL, INC., a Delaware
corporation ("WG"), whose business address is 43 Huron Drive, Chatham, New
Jersey 07928, and JOHN ZIEGLER, whose address is 43 Huron Drive, Chatham, New
Jersey, 07928 ("Employee").
WG desires to engage Employee to perform services as an executive officer
of WG and Employee desires to perform such services, on the terms and conditions
hereinafter set forth.
Accordingly, WG and Employee agree as follows:
1. TERM.
WG agrees to employ Employee to perform services as an executive
officer for a period which will commence with the closing of the transaction
between WG and Willcox & Gibbs, Inc. or such shorter period as may be provided
herein and which shall continue indefinitely, subject to termination by WG upon
not less than one year written notice given by WG (the "Employment Period").
2. NATURE OF SERVICES.
During the Employment Period, Employee shall be employed in an
executive capacity in the business of WG. Employee shall serve as Chairman of
the Board and Chief Executive Officer of WG upon commencement of the Employment
Period and thereafter for so long as requested by WG's Board of Directors. In
the performance of his duties, Employee shall be subject to the
<PAGE>
2
policy direction of the Board of Directors of the Company and the chief
executive officer of WG or his designate.
3. AGREEMENT TO SERVE.
Employee agrees to his employment as described in Section 2 and agrees
to devote all his business time and efforts (except immaterial time and effort
devoted to personal business affairs and investments) to the performance of his
duties under this Employment Contract. Employee agrees that in the course of
his employment, he will faithfully observe and carry out all of the duties and
responsibilities customarily owed by an employee to his employer.
4. COMPENSATION.
Employee's salary during the Employment Period shall be fixed from
time to time by the Compensation Committee of the Board of Directors of WG, Inc.
(the "Committee") but shall not be less than $200,000 per annum, payable in
equal installments no less frequently than monthly.
5. INCENTIVE COMPENSATION.
Employee shall be entitled to receive bonus or bonuses during the
Employment Period as may be provided by the Committee pursuant to WG's Incentive
Compensation Plan for Key Employees ("WG Plan"), or any successor, replacement
or additional incentive plan, provided, however, that with respect to each
annual amount available for distribution, if any, pursuant to the WG Plan,
Employee shall receive no less than eight percent (8%). Awards from the plan
will be paid no later than March 31 following the end of the year.
<PAGE>
3
6. EXPENSES; VACATIONS; FRINGE BENEFITS.
During the Employment Period, Employee shall be entitled to: (i)
reimbursement for reasonable travel, entertainment and other expenses
necessarily incurred in the performance of his duties hereunder upon submission
and approval of written statements in accordance with WG's standard policies as
in effect from time to time; (ii) reasonable vacations in accordance with WG's
then current regular procedures governing executives; (iii) participation in
such group insurance, retirement and other group benefit programs as from time
to time may be extended generally to WG executives; (iv) participation in WG's
Supplemental Death and Retirement Plan; (v) medical and hospital insurance
benefits, which shall be at least equal to those benefits in effect on the date
hereof; (vi) use of an automobile comparable to that presently being used by
executives in the business of the Company; (vii) participation in all coverage
under all compensation, pension, welfare and fringe benefit plans, programs and
policies of WG applicable to senior executives of WG; and (viii) such additional
compensation, in the form of incentive compensation or otherwise, and such
participation in WG stock option, stock award, stock purchase or other stock
plans, as the Committee may from time to time provide.
7. NON-COMPETITION.
Employee agrees that he will not, directly or indirectly (individually
or for, with or through any other person, firm or corporation, by equity
ownership or otherwise),
<PAGE>
4
(i) compete with WG or any subsidiary or other affiliate or any successors or
assigns of their businesses during the Employment Period with respect to any
business carried on by WG, or any such subsidiary or other affiliate, successor
or assign, or (ii) for a period of three years after the end of the Employment
Period, compete with WG or any subsidiary or other affiliate or any of their
successors or assigns of the businesses conducted by WG and its subsidiaries at
the date hereof, with respect to such business, either (x) in the United States
or (y) in any area outside the United States where such businesses are now
conducted.
(A) If, however, WG terminates the Employment Period or wrongfully
terminates the Employment Period, the foregoing provisions of this Section 7
shall cease to apply from and after such wrongful termination.
(B) Notwithstanding the foregoing, Employee shall be permitted to own not
in excess of one percent of any class of securities of any public company which,
at the time of Employee's acquisition of the securities, is not engaged in
competition with WG or any subsidiary or other affiliate or any such successor
or assign notwithstanding the fact that such company thereafter (without
assistance from Employee) becomes engaged in such competition, provided Employee
is not part of any controlling group and is solely a passive investor.
8. PATENTS; INVENTIONS.
All of Employee's interest in patents, patent applications,
inventions, technological innovations, copyrights,
<PAGE>
5
developments and processes now or hereafter during the Employment Period owned
or developed by Employee relating to the business of WG, or any subsidiary or
other affiliate shall belong to WG, and without further compensation, but at
WG's expense, forthwith upon request of WG, Employee shall execute any and all
such assignments and other documents and take any and all such other action as
WG may reasonably request in order to vest in WG all Employee's right, title and
interest in and to such patents, patent applications, inventions, technological
innovations, copyrights, developments or processes, free and clear of liens,
charges and encumbrances.
9. CONFIDENTIAL INFORMATION.
All confidential information which Employee may now have or may obtain
during the Employment Period relating to the business of WG or any subsidiary or
other affiliate shall not be disclosed to any other persons either during or
after the termination of the Employment Period without the prior written
permission of WG, and Employee shall return all tangible evidence of such
confidential information to WG prior to or at the termination of the Employment
Period. Such information shall not include any information otherwise publicly
known.
10. TERMINATION
Notwithstanding anything herein contained:
(A) If Employee shall, during the Employment Period, die or become
physically or mentally incapacitated or disabled for a period of six (6)
consecutive months, then WG shall have the right to give immediate notice of
termination of Employee's services hereunder; and, if, during the Employment
Period, Employee shall materially breach any of the terms hereof and WG shall
have the right to give notice of termination of Employee's
<PAGE>
6
services hereunder as of a date (not earlier than thirty [30] days from such
notice) to be specified in such notice; provided, however, that Employee shall
have the right during such 30-day period to correct such breach (if capable of
being corrected) or pay compensation deemed reasonable by WG which does not
exceed WG's reasonable estimate of its aggregate loss, damage, deficiency or
expense attributable to such breach (if not capable of being corrected) and
thereby avoid termination.
(B) In the event of termination pursuant to Section 10(a): (i)
Employee (or his estate) shall be entitled to receive his salary at the rate
provided in Section 4 to the end of the calendar month in which termination
occurs; and (ii) if the effective date of such termination is other than the
last day of a year, Employee (or his estate) shall be entitled to incentive
compensation for portions of the year prior to termination which is in the same
ratio to the amount of incentive compensation that would have been payable for
the full year as the ratio of the portions of the year prior to termination to
the full year (such incentive compensation to be determined and paid at the time
provided for in Section 4 for the full year).
(C) If any legal action or other proceeding is brought for the
enforcement of this Employment Contract or because of a dispute regarding an
alleged breach, default or misrepresentation in connection herewith, the
prevailing party in such action or
<PAGE>
7
other proceeding shall be entitled to recover reasonable attorneys' fees and
other litigation costs (including cost of appeal) and all reasonable related
costs and expenses thereby incurred, in addition to any other relief to which
such prevailing party may be entitled.
11. ENTIRE AGREEMENT; SEVERABILITY.
This Employment Contract sets forth the entire understanding of the
parties with respect to the subject matter herein and may be modified only by a
written instrument duly executed by each party. The invalidity or
unenforceability of any provision of this Employment Contract shall not affect
the validity or enforceability of any other provision.
12. NOTICES.
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by registered mail, return
receipt requested, or delivered against receipt to the party to which it is to
be given at the address of such party first above set forth or to such other
address as the party shall have furnished in writing in accordance with the
provisions of Section 12. Any notice or other communication mailed by
registered mail shall be deemed given at the time of mailing or transmission
thereof.
13. ASSIGNMENT.
In the event of a future disposition of (or including) the properties
and business of WG, substantially as an entirety, by merger, consolidation, sale
of stock or assets or otherwise, then WG may elect to assign this Employment
Contract and all of
<PAGE>
8
its rights and obligations hereunder to the acquiring or surviving corporation,
provided that such corporation shall assume in writing all of the obligations of
WG hereunder and provided further that WG shall remain liable for the
performance of its obligations hereunder in the event of unjustified failure of
the acquiring corporation to perform it s obligation. Employee's rights under
this Employment Contract shall not be transferrable by assignment or otherwise,
shall not be subject to commutation or encumbrance and shall not be subject to
the claims of Employee's creditors.
14. BINDING EFFECT; INUREMENT
This Employment Contract shall be binding upon and inure to the
benefit of WG and its successors and those who are its assigns under Section 13.
15. GOVERNING LAW
This Employment Contract shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflict of laws.
<PAGE>
9
IN WITNESS WHEREOF, the parties have duly executed this Employment Contract
as of the date first above written.
WG APPAREL, INC.
BY: /s/ RICHARD MACKEY
-------------------------
RICHARD MACKEY, PRESIDENT
/s/ JOHN K. ZIEGLER
-------------------------
JOHN K. ZIEGLER
<PAGE>
EMPLOYMENT CONTRACT
EMPLOYMENT CONTRACT dated June 27, 1994 among WG APPAREL, INC., a Delaware
corporation ("WG"), whose business address is 43 Huron Drive, Chatham, New
Jersey 07928, WG LEADTEC OF DELAWARE, INC., a Delaware corporation (the
"Company"), whose business address is 43 Huron Drive, Chatham, New Jersey
07928, and JACK KLASKY, whose business address is 6800 Owensmouth Avenue, Canoga
Park, California 91303 ("Employee").
WG and the Company desire that the Company engage Employee to perform
services as an executive officer of WG and the Company and Employee desires to
perform such services, on the terms and conditions hereinafter set forth.
Accordingly, WG, the Company and Employee agree as follows:
1. TERM.
WG and the Company agree to employ Employee to perform services as an
executive officer for a period which will commence with the closing of the
transaction between WG and Willcox & Gibbs, Inc. or such shorter period as may
be provided herein and which shall continue indefinitely, subject to termination
by WG and the Company upon not less than one year written notice given by WG and
the Company (the "Employment Period").
2. NATURE OF SERVICES.
During the Employment Period, Employee shall be employed in an
executive capacity in the business of WG and the Company. Employee shall serve
as a Vice President of WG and as President of the Company upon commencement of
the Employment
<PAGE>
2
Period and thereafter for so long as requested by WG's and the Company's Board
of Directors. In the performance of his duties, Employee shall have general
management of the day-to-day operations of the Company, subject to the policy
direction of the Board of Directors of the Company and the chief executive
officer of WG or his designate.
3. AGREEMENT TO SERVE.
Employee agrees to his employment as described in Section 2 and agrees
to devote all his business time and efforts (except immaterial time and effort
devoted to personal business affairs and investments) to the performance of his
duties under this Employment Contract. Employee agrees that in the course of
his employment, he will faithfully observe and carry out all of the duties and
responsibilities customarily owed by an employee to his employer.
4. COMPENSATION.
Employee's salary during the Employment Period shall be fixed from
time to time by the Compensation Committee of the Board of Directors of WG, Inc.
(the "Committee") but shall not be less than $150,000 per annum, payable in
equal installments no less frequently than monthly.
5. INCENTIVE COMPENSATION.
Employee shall be entitled to receive bonus or bonuses during the
Employment Period as may be provided by the Committee pursuant to (i) WG's
Incentive Compensation Plan for Key Employees ("WG Plan"), and (ii) the
Company's Incentive Compensation Plan ("Company Plan"), or any successor,
replacement
<PAGE>
3
or additional incentive plan, provided, however, that with respect to each
annual amount available for distribution, if any, pursuant to the WG Plan,
Employee shall receive no less than eight percent (8%) and from the Company
Plan, Employee shall receive no less than twenty percent (20%). Awards from the
plans will be paid no later than March 31 following the end of the year.
6. EXPENSES; VACATIONS; FRINGE BENEFITS.
During the Employment Period, Employee shall be entitled to: (i)
reimbursement for reasonable travel, entertainment and other expenses
necessarily incurred in the performance of his duties hereunder upon submission
and approval of written statements in accordance with WG's standard policies as
in effect from time to time; (ii) reasonable vacations in accordance with WG's
then current regular procedures governing executives; (iii) participation in
such group insurance, retirement and other group benefit programs as from time
to time may be extended generally to WG executives; (iv) continued participation
in WG's Supplemental Death and Retirement Plan; (v) continued medical and
hospital insurance benefits, which shall be at least equal to those benefits in
effect on the date hereof; (vi) use of an automobile comparable to that
presently being used by him in the business of the Company; (vii) participation
in all coverage under all compensation, pension, welfare and fringe benefit
plans, programs and policies of WG applicable to senior executives of WG; and
(viii) such additional compensation, in the form of incentive compensation or
otherwise, and such
<PAGE>
4
participation in WG stock option, stock award, stock purchase or other stock
plans, as the Committee may from time to time provide.
7. NON-COMPETITION.
Employee agrees that he will not, directly or indirectly (individually
or for, with or through any other person, firm or corporation, by equity
ownership or otherwise), (i) compete with WG, the Company or any subsidiary or
other affiliate of either of them or any successors or assigns of their
businesses during the Employment Period with respect to any business carried on
by WG, the Company or any such subsidiary or other affiliate, successor or
assign, or (ii) for a period of three years after the end of the Employment
Period, compete with WG, the Company or any subsidiary or other affiliate of
either of them or any of their successors or assigns of the businesses conducted
by the Company and its subsidiaries at the date hereof, with respect to such
business, either (x) in the United States or (y) in any area outside the United
States where such businesses are now conducted.
(A) If, however, WG terminates the Employment Period or wrongfully
terminates the Employment Period, the foregoing provisions of this Section 7
shall cease to apply from and after such wrongful termination.
(B) Notwithstanding the foregoing, Employee shall be permitted to own not
in excess of one percent of any class of securities of any public company which,
at the time of Employee's acquisition of the securities, is not engaged in
competition with
<PAGE>
5
WG, the Company or any subsidiary or other affiliate of either of them or any
such successor or assign notwithstanding the fact that such company thereafter
(without assistance from Employee) becomes engaged in such competition, provided
Employee is not part of any controlling group and is solely a passive investor.
8. PATENTS; INVENTIONS.
All of Employee's interest in patents, patent applications,
inventions, technological innovations, copyrights, developments and processes
now or hereafter during the Employment Period owned or developed by Employee
relating to the business of
WG, the Company or any subsidiary or other affiliate of either of them shall
belong to the Company, and without further compensation, but at the Company's
expense, forthwith upon request of the Company, Employee shall execute any and
all such assignments and other documents and take any and all such other action
as the Company may reasonably request in order to vest in the Company all
Employee's right, title and interest in and to such patents, patent
applications, inventions, technological innovations, copyrights, developments or
processes, free and clear of liens, charges and encumbrances.
9. CONFIDENTIAL INFORMATION.
All confidential information which Employee may now have or may obtain
during the Employment Period relating to the business of WG, the Company or any
subsidiary or other affiliate of either of them shall not be disclosed to any
other persons either during or after the termination of the Employment Period
without the prior written permission of WG, and Employee shall
<PAGE>
6
return all tangible evidence of such confidential information to WG prior to or
at the termination of the Employment Period. Such information shall not include
any information otherwise publicly known.
10. TERMINATION
Notwithstanding anything herein contained:
(A) If Employee shall, during the Employment Period, die or become
physically or mentally incapacitated or disabled for a period of six (6)
consecutive months, then WG and the Company shall have the right to give
immediate notice of termination of Employee's services hereunder; and, if,
during the Employment Period, Employee shall materially breach any of the terms
hereof or it shall be determined that Employee has materially breached any
representation and warranty contained in the Guaranty and Indemnity Agreement of
even date to which WG and Employee are parties, WG and the Company shall have
the right to give notice of termination of Employee's services hereunder as of a
date (not earlier than thirty [30] days from such notice) to be specified in
such notice; provided, however, that Employee shall have the right during such
30-day period to correct such breach (if capable of being corrected) or pay
compensation deemed reasonable by WG which does not exceed WG's reasonable
estimate of its and the Company's aggregate loss, damage, deficiency or expense
attributable to such breach (if not capable of being corrected) and thereby
avoid termination.
(B) In the event of termination pursuant to Section 10(a): (i)
Employee (or his estate) shall be entitled to receive
<PAGE>
7
his salary at the rate provided in Section 4 to the end of the calendar month in
which termination occurs; and (ii) if the effective date of such termination is
other than the last day of a year, Employee (or his estate) shall be entitled to
incentive compensation for portions of the year prior to termination which is in
the same ratio to the amount of incentive compensation that would have been
payable for the full year as the ratio of the portions of the year prior to
termination to the full year (such incentive compensation to be determined and
paid at the time provided for in Section 4 for the full year).
(C) If any legal action or other proceeding is brought for the
enforcement of this Employment Contract or because of a dispute regarding an
alleged breach, default or misrepresentation in connection herewith, the
prevailing party in such action or other proceeding shall be entitled to recover
reasonable attorneys' fees and other litigation costs (including cost of appeal)
and all reasonable related costs and expenses thereby incurred, in addition to
any other relief to which such prevailing party may be entitled.
11. ENTIRE AGREEMENT; SEVERABILITY.
This Employment Contract sets forth the entire understanding of the
parties with respect to the subject matter herein and may be modified only by a
written instrument duly executed by each party. The invalidity or
unenforceability of any provision of this Employment Contract shall not affect
the validity or enforceability of any other provision.
<PAGE>
8
12. NOTICES.
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by registered mail, return
receipt requested, or delivered against receipt to the party to which it is to
be given at the address of such party first above set forth or to such other
address as the party shall have furnished in writing in accordance with the
provisions of Section 12. Any notice or other communication mailed by
registered mail shall be deemed given at the time of mailing or transmission
thereof.
13. ASSIGNMENT.
In the event of a future disposition of (or including) the properties
and business of WG or the Company, substantially as an entirety, by merger,
consolidation, sale of stock or assets or otherwise, then WG may elect to assign
this Employment Contract and all of its and the Company's rights and obligations
hereunder to the acquiring or surviving corporation, provided that such
corporation shall assume in writing all of the obligations of WG and the Company
hereunder and provided further that WG shall remain liable for the performance
of its obligations hereunder in the event of unjustified failure of the
acquiring corporation to perform it s obligation. Employee's rights under this
Employment Contract shall not be transferrable by assignment or otherwise, shall
not be subject to commutation or encumbrance and shall not be subject to the
claims of Employee's creditors.
<PAGE>
9
14. BINDING EFFECT; INUREMENT
This Employment Contract shall be binding upon and inure to the
benefit of WG, the Company and (in each case) its successors and those who are
its assigns under Section 13.
15. GOVERNING LAW
This Employment Contract shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflict of laws.
IN WITNESS WHEREOF, the parties have duly executed this Employment Contract
as of the date first above written.
WG. APPAREL, INC.
BY: /s/ JOHN K. ZIEGLER
-------------------------
JOHN K. ZIEGLER, CHAIRMAN
WG LEADTEC OF DELAWARE, INC.
BY: __________________________
-------------------------
(VICE) PRESIDENT
/s/ JACK KLASKY
-------------------------
JACK KLASKY
<PAGE>
EMPLOYMENT CONTRACT
EMPLOYMENT CONTRACT dated June 27, 1994 among WG APPAREL, INC., a Delaware
corporation ("WG"), whose business address is 43 Huron Drive, Chatham, New
Jersey 07928, and MAXWELL TRIPP, whose business address is 3900 Green
Industrial Way, Chamblee, Georgia, 30341, ("Employee").
WG desires to engage Employee to perform services as an executive officer
of WG and Employee desires to perform such services, on the terms and conditions
hereinafter set forth.
Accordingly, WG and Employee agree as follows:
1. TERM.
WG agrees to employ Employee to perform services as an executive
officer for a period which will commence with the closing of the transaction
between WG and Willcox & Gibbs, Inc. or such shorter period as may be provided
herein and which shall continue indefinitely, subject to termination by WG upon
not less than one year written notice given by WG (the "Employment Period").
2. NATURE OF SERVICES.
During the Employment Period, Employee shall be employed in an
executive capacity in the business of WG and the Sunbrand Division (the
"Company"). Employee shall serve as a Vice President of WG and as President of
the Company upon commencement of the Employment Period and thereafter for so
long as requested by WG's Board of Directors. In the performance of
<PAGE>
2
his duties, Employee shall have general management of the day-to-day operations
of the Company, subject to the policy direction of the Board of Directors and
the chief executive officer of WG or his designate.
3. AGREEMENT TO SERVE.
Employee agrees to his employment as described in Section 2 and agrees
to devote all his business time and efforts (except immaterial time and effort
devoted to personal business affairs and investments) to the performance of his
duties under this Employment Contract. Employee agrees that in the course of
his employment, he will faithfully observe and carry out all of the duties and
responsibilities customarily owed by an employee to his employer.
4. COMPENSATION.
Employee's salary during the Employment Period shall be fixed from
time to time by the Compensation Committee of the Board of Directors of WG, Inc.
(the "Committee") but shall not be less than $115,000 per annum, payable in
equal installments no less frequently than monthly.
5. INCENTIVE COMPENSATION.
Employee shall be entitled to receive bonus or bonuses during the
Employment Period as may be provided by the Committee pursuant to (i) WG's
Incentive Compensation Plan for Key Employees ("WG Plan"), and (ii) the
Company's Incentive
<PAGE>
3
Compensation Plan ("Company Plan"), or any successor, replacement or additional
incentive plan, provided, however, that with respect to each annual amount
available for distribution, if any, pursuant to the WG Plan, Employee shall
receive no less than eight percent (8%) and from the Company Plan, Employee
shall receive no less than thirty percent (30%) or such lessor amount as
provided for under the Company Plan. Awards from the plans will be paid no
later than March 31 following the end of the year.
6. EXPENSES; VACATIONS; FRINGE BENEFITS.
During the Employment Period, Employee shall be entitled to: (i)
reimbursement for reasonable travel, entertainment and other expenses
necessarily incurred in the performance of his duties hereunder upon submission
and approval of written statements in accordance with WG's standard policies as
in effect from time to time; (ii) reasonable vacations in accordance with WG's
then current regular procedures governing executives; (iii) participation in
such group insurance, retirement and other group benefit programs as from time
to time may be extended generally to WG executives; (iv) continued participation
in WG's Supplemental Death and Retirement Plan; (v) continued medical and
hospital insurance benefits, which shall be at least equal to those benefits in
effect on the date hereof; (vi) use of an automobile comparable to that
presently being used by him in the business of the Company; (vii) participation
in all coverage under all compensation, pension, welfare and fringe
<PAGE>
3
benefit plans, programs and policies of WG applicable to senior executives of
WG; and (viii) such additional compensation, in the form of incentive
compensation or otherwise, and such participation in WG stock option, stock
award, stock purchase or other stock plans, as the Committee may from time to
time provide.
7. NON-COMPETITION.
Employee agrees that he will not, directly or indirectly (individually
or for, with or through any other person, firm or corporation, by equity
ownership or otherwise), (i) compete with WG, the Company or any subsidiary or
other affiliate of either of them or any successors or assigns of their
businesses during the Employment Period with respect to any business carried on
by WG, the Company or any such subsidiary or other affiliate, successor or
assign, or (ii) for a period of three years after the end of the Employment
Period, compete with WG, the Company or any subsidiary or other affiliate of
either of them or any of their successors or assigns of the businesses conducted
by the Company and its subsidiaries at the date hereof, with respect to such
business, either (x) in the United States or (y) in any area outside the United
States where such businesses are now conducted.
(A) If, however, WG terminates the Employment Period or wrongfully
terminates the Employment Period, the foregoing provisions of this Section 7
shall cease to apply from and after such wrongful termination.
<PAGE>
5
(B) Notwithstanding the foregoing, Employee shall be permitted to own not
in excess of one percent of any class of securities of any public company which,
at the time of Employee's acquisition of the securities, is not engaged in
competition with WG, the Company or any subsidiary or other affiliate of either
of them or any such successor or assign notwithstanding the fact that such
company thereafter (without assistance from Employee) becomes engaged in such
competition, provided Employee is not part of any controlling group and is
solely a passive investor.
8. PATENTS; INVENTIONS.
All of Employee's interest in patents, patent applications,
inventions, technological innovations, copyrights, developments and processes
now or hereafter during the Employment Period owned or developed by Employee
relating to the business of
WG, the Company or any subsidiary or other affiliate of either of them shall
belong to the Company, and without further compensation, but at the Company's
expense, forthwith upon request of the Company, Employee shall execute any and
all such assignments and other documents and take any and all such other action
as the Company may reasonably request in order to vest in the Company all
Employee's right, title and interest in and to such patents, patent
applications, inventions, technological innovations, copyrights, developments or
processes, free and clear of liens, charges and encumbrances.
<PAGE>
6
9. CONFIDENTIAL INFORMATION.
All confidential information which Employee may now have or may obtain
during the Employment Period relating to the business of WG, the Company or any
subsidiary or other affiliate of either of them shall not be disclosed to any
other persons either during or after the termination of the Employment Period
without the prior written permission of WG, and Employee shall return all
tangible evidence of such confidential information to WG prior to or at the
termination of the Employment Period. Such information shall not include any
information otherwise publicly known.
10. TERMINATION
Notwithstanding anything herein contained:
(A) If Employee shall, during the Employment Period, die or become
physically or mentally incapacitated or disabled for a period of six (6)
consecutive months, then WG and the Company shall have the right to give
immediate notice of termination of Employee's services hereunder; and, if,
during the Employment Period, Employee shall materially breach any of the terms
hereof or it shall be determined that Employee has materially breached any
representation and warranty contained in the Guaranty and Indemnity Agreement of
even date to which WG and Employee are parties, WG and the Company shall have
the right to give notice of termination of Employee's services hereunder as of a
date (not earlier than thirty [30] days from such notice) to be specified in
such notice; provided, however, that Employee shall
<PAGE>
7
have the right during such 30-day period to correct such breach (if capable of
being corrected) or pay compensation deemed reasonable by WG which does not
exceed WG's reasonable estimate of its and the Company's aggregate loss, damage,
deficiency or expense attributable to such breach (if not capable of being
corrected) and thereby avoid termination.
(B) In the event of termination pursuant to Section 10(a): (i)
Employee (or his estate) shall be entitled to receive his salary at the rate
provided in Section 4 to the end of the calendar month in which termination
occurs; and (ii) if the effective date of such termination is other than the
last day of a year, Employee (or his estate) shall be entitled to incentive
compensation for portions of the year prior to termination which is in the same
ratio to the amount of incentive compensation that would have been payable for
the full year as the ratio of the portions of the year prior to termination to
the full year (such incentive compensation to be determined and paid at the time
provided for in Section 4 for the full year).
(C) If any legal action or other proceeding is brought for the
enforcement of this Employment Contract or because of a dispute regarding an
alleged breach, default or misrepresentation in connection herewith, the
prevailing party in such action or other proceeding shall be entitled to recover
reasonable attorneys' fees and other litigation costs (including cost of appeal)
and all reasonable related costs and expenses thereby incurred, in addition to
any other relief to which such prevailing party may be entitled.
<PAGE>
7
11. ENTIRE AGREEMENT; SEVERABILITY.
This Employment Contract sets forth the entire understanding of the
parties with respect to the subject matter herein and may be modified only by a
written instrument duly executed by each party. The invalidity or
unenforceability of any provision of this Employment Contract shall not affect
the validity or enforceability of any other provision.
12. NOTICES.
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by registered mail, return
receipt requested, or delivered against receipt to the party to which it is to
be given at the address of such party first above set forth or to such other
address as the party shall have furnished in writing in accordance with the
provisions of Section 12. Any notice or other communication mailed by
registered mail shall be deemed given at the time of mailing or transmission
thereof.
13. ASSIGNMENT.
In the event of a future disposition of (or including) the properties
and business of WG or the Company, substantially as an entirety, by merger,
consolidation, sale of stock or assets or otherwise, then WG may elect to assign
this Employment Contract and all of its and the Company's rights and obligations
hereunder to the acquiring or surviving corporation, provided
<PAGE>
9
that such corporation shall assume in writing all of the obligations of WG and
the Company hereunder and provided further that WG shall remain liable for the
performance of its obligations hereunder in the event of unjustified failure of
the acquiring corporation to perform it s obligation. Employee's rights under
this Employment Contract shall not be transferrable by assignment or otherwise,
shall not be subject to commutation or encumbrance and shall not be subject to
the claims of Employee's creditors.
14. BINDING EFFECT; INUREMENT
This Employment Contract shall be binding upon and inure to the
benefit of WG, the Company and (in each case) its successors and those who are
its assigns under Section 13.
15. GOVERNING LAW
This Employment Contract shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflict of laws.
<PAGE>
10
IN WITNESS WHEREOF, the parties have duly executed this Employment Contract
as of the date first above written.
WG. APPAREL, INC.
BY: /s/ JOHN K. ZIEGLER
-------------------------
JOHN K. ZIEGLER, CHAIRMAN
/s/ MAXWELL TRIPP
-------------------------
MAXWELL TRIPP
<PAGE>
SECOND
REVISION OF FUNDAMENTAL AGREEMENTS AND CONTRACTS BETWEEN
BARUDAN COMPANY, LTD., BARUDAN AMERICA, INC.
AND MACPHERSON MEISTERGRAM, INC.
This Second Amendment is to serve as a confirmation, amendment and
revision of: (i) the Agreement dated November 7, 1985 between and among BARUDAN
COMPANY, LTD., BARUDAN AMERICA, INC. and BARUDAN COMPANY, LTD., and (ii)
Amendment to said Agreement dated June 1, 1994 between and among BARUDAN
COMPANY, LTD., BARUDAN AMERICA, INC., MACPHERSON, INC., MACPHERSON MONOGRAM,
INC. and MEISTERGRAM, INC., the Agreement as amended by the Amendment
collectively (the "Distribution Agreement").
RECITALS
A. The parties hereto acknowledge and agree that Macpherson, Inc.,
Macpherson Monogram, Inc. and Meistergram, Inc. were consolidated on or about
December 31, 1994, and the single successor entity is known as "Macpherson
Meistergram, Inc.".
B. Neil Macpherson, the principal shareholder of Macpherson Meistergram,
Inc. and all other shareholders of Macpherson Meistergram, Inc. have reached an
agreement in principle to sell the Macpherson Meistergram, Inc. company to
Willcox & Gibbs, Inc. The agreement in principle is subject to, among other
things, the execution of a formal legally binding agreement (the "Sale
Agreement") and the execution of this Second Amendment to the Distribution
Agreement.
C. Barudan Company, Ltd. and Barudan America, Inc. and Macpherson
Meistergram, Inc. have agreed to make certain amendments and revisions to the
Distribution Agreement, as set forth herein, effective upon the closing under
the Sale Agreement (the "Effective Date").
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, receipt of which is hereby acknowledged, the parties
hereto hereby agree as follows:
1. CONSENT TO CHANGE IN OWNERSHIP. The Distribution Agreement as amended
by this Second Amendment shall continue in full force and effect notwithstanding
the sale of the Macpherson Meistergram, Inc. company to Willcox & Gibbs, Inc. by
Neil Macpherson and the other shareholders.
2. DISCOUNTED PRICING. For a period of one (1) year, commencing with the
Effective Date, the prices charged by Tekmatex, Inc., Barudan America, Inc.
and/or Barudan Company, Ltd. to Macpherson Meistergram, Inc. (or any of its
subsidiaries) under the Distribution Agreement, shall be at the yen and dollar
amounts set
<PAGE>
forth on the price list annexed hereto as Exhibit A. After such one (1) year
period, Tekmatex, Inc., Barudan America, Inc. and/or Barudan Company, Ltd. will
use their best efforts to maintain pricing which shall enable Macpherson
Meistergram, Inc. to achieve on a comparable basis the gross profit margins
achieved from the price list annexed hereto as Exhibit A during the one (1) year
period.
3. CREDIT TERMS. Tekmatex, Inc., Barudan America, Inc. and/or Barudan
Company, Ltd. shall be paid by Macpherson Meistergram, Inc. for all products
which are purchased under the Distribution Agreement, within sixty (60) days
following the date of invoice by Tekmatex, Inc., Barudan America, Inc. and/or
Barudan Company, Ltd. However, in each case, the date of the invoice shall not
be earlier than the date of shipment of the product(s) referred to in such
invoice.
4. INVESTMENT IN MACPHERSON MEISTERGRAM. Willcox & Gibbs, Inc. will
purchase sufficient common stock of Macpherson Meistergram, Inc. at the Closing
to enable Macpherson Meistergram, Inc. to repay all debts for borrowed money and
reduce the accounts payable to Tekmatex, Inc. to no more than 60 days
outstanding. It is intended that the investment will approximate $16 million.
5. FORMATION OF LEASING COMPANY. Willcox & Gibbs, Inc. will form a wholly
owned leasing subsidiary with an initial capitalization of $5 million within 90
days of the Closing.
6. EFFECTIVE DATE. This Second Amendment to the Distribution Agreement
shall be effective upon the Effective Date, namely the Closing under the Sale
Agreement.
7. ELIMINATION OF GEOFFREY E. MACPHERSON, LTD. The Fundamental Agreements
dated September 1, 1981 and October 1, 1986, reference "Geoffrey E. Macpherson,
Ltd." of Nottingham, England as a party to such Fundamental Agreements. Geoffrey
E. Macpherson, Ltd. no longer has a relationship with Macpherson Meistergram,
Inc. or with the Distribution Agreement. Therefore, the aforesaid Fundamental
Agreements are specifically modified and amended to eliminate all name and
subject matter references to Geoffrey E. Macpherson, Ltd.
8. BINDING AGREEMENT. This Second Amendment is agreed to by the parties
hereto and shall be binding on the parties hereto, and their successors and
assigns.
9. FURTHER AMENDMENTS AND REVISIONS. This Second Amendment may not be
amended, changed or revised without the mutual written consent of all parties to
this Second Amendment.
10. CONTINUATION OF DISTRIBUTION AGREEMENT. Except as specifically amended
hereby, the terms and conditions of the Distribution Agreement shall continue in
full force and effect.
- 2 -
<PAGE>
The parties hereto acknowledge, represent and agree that as of the date hereof
there exists no defaults on the part of any party to the Distribution Agreement.
WILLCOX & GIBBS, INC. MACPHERSON MEISTERGRAM, INC.
By: /s/ John K. Ziegler By: /s/ Neil Macpherson
--------------------------- -----------------------------
MR. JOHN K. ZIEGLER MR. NEIL MACPHERSON
Chief Executive Officer Chief Executive Officer
BARUDAN COMPANY, LTD.
By: /s/ Yoshio Shibata
-----------------------------
MR. YOSHIO SHIBATA
President
BARUDAN AMERICA, INC.
By: /s/ Tetsuji Yamaue
-----------------------------
MR. TETSUJI YAMAUE
President
Accepted and Agreed:
TEKMATEX, INC.
By: /s/ Yoichi Ishii
-----------------------------------
MR. YOICHI ISHII
President
MARUBENI TEKMATEX, INTERNATIONAL, LTD.
By: /s/ Shozo Wani
-----------------------------------
MR. SHOZO WANI
President
- 3 -
<PAGE>
EXHIBIT A
PRICE LIST FOR BARUDAN COMPANY, LTD. (JAPAN)
BARUDAN AMERICA, INC. (U.S.A.)
AND
TEKMATEX, INC.
(See Attached)
<PAGE>
Exhibit 10.18
REVISION OF FUNDAMENTAL AGREEMENTS AND CONTRACTS BETWEEN
BARUDAN COMPANY, LTD., BARUDAN AMERICA, INC., MACPHERSON, INC.,
MACPHERSON MONOGRAM, INC., MEISTERGRAM, INC.
This letter is to serve as a confirmation, amendment and revision of the
Agreement between Barudan Co., Ltd., Barudan America, Inc., Macpherson, Inc.,
and Meistergram, Inc., dated as of November 7, 1985 (hereafter known as the
"1985 Agreement"; attached as Exhibit I):
REVISE TERRITORY
1. The territory of Macpherson Inc. and Macpherson Monogram Inc. as it relates
to the sales of Barudan's product will be the United States and its territories
and Canada and its territories.
2. Meistergram, Inc., will retain its exclusive right to sell all products made
with the Meistergram name affixed to it on a worldwide basis.
EFFECTIVE DATE OF THIS AGREEMENT
3. This agreement must be agreed to, evidenced in writing, and signed by all
parties by June 1, 1994, and all the terms of this agreement will be effective
as of June 1, 1994.
DISTRIBUTOR'S DUTIES
4. For annual planning purposes, Barudan Co., Ltd. and Barudan America, Inc.
(hereafter collectively referred to as "Manufacturer") and Macpherson, Inc.,
Macpherson Monogram, Inc., and Meistergram Inc. (hereafter collectively referred
to as "Distributor") shall meet and mutually agree by August 1st of each year on
a sales forecasts for the next calendar year.
5. The Distributor shall submit its purchase orders for product to the
Manufacturer at least four months in advance of the first day of the fiscal
quarter in which such product is to be delivered by the Manufacturer. Once
Distributor's purchase order has been accepted by the Manufacturer, it shall be
a binding obligation of the Distributor, subject to the terms and conditions of
the purchase order.
MANUFACTURER'S DUTIES
6. Barudan America Inc. and Barudan Co. Ltd. agree that their duties under this
agreement shall include the duties of the 1985 Agreement and the following
specific duties:
<PAGE>
A) To manufacture and develop competitive monogramming and embroidery
machinery and support to meet the needs within Distributor's territorial
markets in a timely manner at a competitive price.
B) Comply with all applicable laws, regulations, ordinances and rules
related to the manufacturer, assembly and distribution of Manufacturer's
products in Distributor's territories.
TERMS OF CONTRACT
7. The parties to this letter agreement hereby agree that the 1985 Agreement is
extended through December 31, 2003.
8. This letter agreement and the terms of the 1985 Agreement as they apply to
the parties to this letter agreement, including, without limitation, the
designation of territory granted Macpherson, Inc., Meistergram, Inc., and/or
Macpherson Monogram, Inc., by the 1985 Agreement, may not be amended, changed or
reduced without the mutual written consent of all parties to this letter
agreement; provided, however, that the parties hereto specifically acknowledge
the validity of this letter agreement among Barudan America Inc., Macpherson,
Inc., and Macpherson Monogram, Inc. dated as of June 1st, 1994.
9. Except as expressly amended hereby, the terms and conditions of the 1985
Agreement are hereby confirmed and shall continue in full force and effect. The
1985 Agreement, as amended by this letter agreement, contains the entire
agreement among the parties hereto with respect to their business relationship,
and supersedes all other agreements designated as fundamental agreements except
for those specifically incorporated in the 1985 Agreement, and except as noted
below:
The parties hereto specifically confirm the working relationship between
the parties and Marubeni Corporation and Tekmatex, Inc., as originally
defined in the provisions of that certain agreement, dated as of October 1,
1986 (attached as Exhibit II), by and among Marubeni Corporation, Barudan
Co., Ltd., Geoffrey E. Macpherson Ltd., and Macpherson, Inc., as amended
from time to time by the mutual agreement and course of dealing among the
parties to such agreement, which working relationship shall be deemed to
continue through the term of the 1985 Agreement, unless otherwise amended
by the parties.
The parties further confirm and agree that the right and obligation of
Marubeni Corporation under that certain agreement dated as of
<PAGE>
October 1, 1986 had been assigned to Marubeni Tekmatex International, Ltd.
as of April 1, 1993.
10. This letter agreement shall be binding on the parties hereto, and their
successors and assigns.
THIS REVISION OF THE 1985 AGREEMENT AGREED TO BY THE PARTIES AS OF JUNE 01,
1994.
BARUDAN COMPANY, LTD. MACPHERSON, INC.
by /s/ Yoshio Shibata by /s/ Neil Macpherson
--------------------- ----------------------
Mr. Yoshio Shibata Mr. Neil Macpherson
President Chief Executive Officer
BARUDAN AMERICA, INC. MACPHERSON MONOGRAM, INC.
by /s/ Tetsuji Yamaue by /s/ Neil Macpherson
--------------------- ----------------------
Mr. Tetsuji Yamaue Mr. Neil Macpherson
President Chief Executive Officer
MEISTERGRAM, INC.
by /s/ Neil Macpherson
----------------------
Mr. Neil Macpherson
Chief Executive Officer
Also accepting these changes of the Fundamental Agreement are:
MARUBENI TEKMATEX INTERNATIONAL, Ltd.
by /s/ Shozo Wani
---------------------
Mr. Shozo Wani
President
TEKMATEX, INC.
by /s/ Yoichi Ishii
---------------------
Mr. Yoichi Ishii
President
<PAGE>
Exhibit 10.19
AGREEMENT dated as of November 7, 1985 between and among Macpherson, Inc.,
a North Carolina corporation ("Macpherson"), Meistergram, Inc., a Missouri
corporation ("Meistergram"), Barudan America, Inc., a North Carolina corporation
("Barudan-America"), and Barudan Co., Ltd., a Japanese
corporation ("Barudan-Japan").
WITNESSETH:
WHEREAS, Macpherson currently has a distributor relationship with
Barudan-Japan; and
WHEREAS, Meistergram is selling certain manufacturing assets to
Barudan-America; and
WHEREAS, the parties hereto desire to establish their future
relationships.
NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereto and other good and valuable consideration, receipt of which
is hereby acknowledged, the parties hereto hereby agree as follows:
1. This Agreement shall continue for a term of ten (10) years following
the date hereof, and shall automatically renew for an additional term of five
(5) years thereafter, unless any party hereto shall give notice to the other
parties at least thirty (30) days in advance of the termination of the initial
ten year term that such party does not desire to continue the Agreement.
2. It is hereby confirmed that Macpherson and Barudan-Japan shall continue
in their existing relationship for the full term of this Agreement, subject to
the terms and conditions set forth in the Fundamental Agreement dated September
1, 1981 and the Memorandum Agreement thereto, copies of which are attached as
Exhibits A and B hereto, and the course of dealings between the parties
<PAGE>
thereunder. Such agreements shall remain in full force and effect for the term
of this Agreement, and except that to the extent such agreements conflict with
this Agreement, the terms of this Agreement shall control.
3. Barudan-America and Barudan-Japan hereby grant Macpherson the exclusive
right to sell in the North American Continent (the "Macpherson Territory") all
products manufactured, assembled or otherwise produced by Barudan-America or
Barudan-Japan (other than products with the Meistergram name affixed thereto as
provided in Paragraph 4 hereof), subject to the terms and conditions of this
Agreement.
4. Meistergram hereby grants to Barudan-America the exclusive right
worldwide to manufacture, assemble and otherwise produce Products and to affix
thereto the Meistergram name. In return therefor, Meistergram shall have the
exclusive right to sell all such products with the Meistergram name in all areas
of the world (the "Meistergram Territory"). The Macpherson Territory and the
Meistergram Territory are herein sometimes collective referred to as the
"Territories". Barudan-America hereby agrees that the Meistergram name will be
affixed by it to all Products listed in Exhibit C hereto and Exhibit D Hereto;
provided, however, that Barudun-America may manufacture, assemble or otherwise
product the Products listed in Exhibit D without affixing the Meistergram name
if such Products are sold only outside the Macpherson Territory to Geoffrey E.
Macpherson, Ltd. or to Macpherson. As to Products manufactured, assembled or
otherwise produced by Barudan-America other than as listed in Exhibits C or D,
or as to Products developed by Barudan-America or by Barudun-America and
Meistergram
2
<PAGE>
after the date of this Agreement, the parties will determine by mutual agreement
if such Products must bear the Meistergram name.
5. The Meistergram name may be affixed to Products manufactured, assembled
or otherwise produced by Baradun-Japan only upon the prior express written
consent of Meistergram, which consent may restrict, among other things, the
number and type of Barudan-Japan Products which may bear the Meistergram name.
Such consent may be withdrawn at any time and may be withheld by Meistergram in
its sole discretion.
6. As used in this Agreement, the term "Products" shall include all
monogramming and embroidery machinery and related devices and all other products
now or hereafter offered for sale by the parties hereto (including, without
limitation, punching machines and repeating machines) and all parts for such
machinery and devices. As used in this Agreement, the term "exclusive right to
sell" shall mean that the grantor of such right shall refrain from selling from
any location in the Territories or to any purchaser located in the Territories
and shall take all commercially reasonable steps to ensure that no person or
entity other than the holder of such "exclusive right to sell" pursuant to this
Agreement shall sell from any location in the Territories or to any purchaser
located in the Territories.
7. (a) Barudan-America and Barudan-Japan shall not permit any other person
to use the Meistergram name, or any part thereof, either alone or as part
of any other name without the express written consent of Meistergram.
(b) Barudan-America and Barudan-Japan shall affix the Meistergram
name and otherwise use such name only in
3
<PAGE>
connection with products that meet the quality standards that Meistergram
shall reasonably prescribe, consistent with the current quality standards
of the products of Meistergram.
(c) Barudan-America and Barudan-Japan shall conduct their business
in such a manner as shall maintain the value of the Meistergram name.
(d) Barudan-America and Barudan-Japan shall use the Meistergram name
only in such manner as shall protect Meistergram's ownership and exclusive
right to use the Meistergram name.
(e) Use of the Meistergram name shall be subject to such
restrictions, approvals, and investigations and other actions by
Barudan-America, Barudan-Japan and Meistergram as shall be necessary or
appropriate under the laws of the various jurisdictions in which such name
is used to protect Meistergram's ownership and sole and exclusive right to
use such name worldwide. Any action by Barudan-America or Barudan-Japan
which may reasonably be viewed as jeopardizing Meistergram's rights to
such name shall constitute irreparable damage to Meistergram and shall be
grounds for enabling Meistergram to obtain an injunction against such
acts.
(f) It is agreed that Meistergram remains the sole owner of the
Meistergram name and retains the right to use that name during the term of
this Agreement and thereafter. Barudan-America and Barudan-Japan shall
furnish Meistergram upon request by Meistergram from time to time with
such information as Meistergram shall reasonably determine it requires to
4
<PAGE>
ascertain that Barudan-America and Barudum-Japan are complying with the
provisions of this Paragraph 7.
(g) In the event Barudan-America or Barudan-Japan shall fail to
comply with this Paragraph 7 in any manner or in the event of the
termination of this Agreement on or prior to the term set forth in
Paragraph 1 hereof, Barudan-America and Barudan-Japan shall cease to have
any right to use the Meistergram name in any manner whatsoever and all
rights to the Meistergram name granted hereunder shall revert to
Meistergram.
8. Barudan-America and Barudan-Japan hereby separately agree that they
shall:
(a) supply such technical training and assistance to Macpherson,
Meistergram and their personnel as shall be reasonably appropriate to
enable them to sell the Products in their respective territories;
(b) supply Products to Macpherson and Meistergram in such amounts
and within such delivery times as shall be commercially reasonable under
the circumstances;
(c) supply to Macpherson and Meistergram all such varieties of
Products as are then in their product line;
(d) provide Macpherson and Meistergram with such sales brochures,
technical manuals and other materials describing the Products as shall be
reasonably appropriate to enable them to sell the Products in their
respective Territories;
(e) reimburse Macpherson and Meistergram for 50% of their expenses
involved in participating in the Bobbin Show which is currently held each
year in Atlanta, Georgia;
5
<PAGE>
(f) take all commercially reasonable steps to ensure that Products
are not sold to or into the Territories by persons other than Macpherson
and Meistergram;
(g) sell the Products to Macpherson and Meistergram at prices
equal to the lowest price such Products are sold to others worldwide;
(h) stock a sufficient supply of spare parts for Products as shall
be reasonably appropriate to enable them to satisfy the requirements of
the clients of Macpherson and Meistergram.
9. Macpherson and Meistergram hereby separately agree as follows:
(a) they shall use their best efforts to promote sales of the
Products in their respective Territories;
(b) they shall report to Barudan-America and Barudan-Japan their
sales targets, sales results and sales prices every six months to the
extent such reports are permitted under applicable law;
(c) they shall provide their customers with such technical support,
installation assistance and training as shall be reasonably appropriate to
promote sales of the Products in their respective Territories.
10. All Products subject to this Agreement shall be fully warranted by
Barudan-America and Barudan-Japan for all defects of any nature whatsoever
discovered before installation or within three months after installation.
11. Barudan-America shall be paid for Products and spare parts on which
the Meistergram name is affixed within sixty (60)
6
<PAGE>
days following the date of invoice by Barudan-America therefor and shall be paid
for all other Products and spare parts within ninety (90) days of invoice;
provided in each case that the date of invoice shall not be earlier than the
date of shipment.
12. Barudan-Japan shall be paid for Products within one hundred and eighty
(180) days following the date of the invoice by Barudan-Japan therefor, except
that in the case of parts, payment shall be made within one hundred and twenty
(120) days following the date of invoice; provided in each case that the date of
invoice shall not be earlier than the date of shipment.
13. Barudan-Japan and Barudan-America hereby agree to indemnify and hold
harmless Macpherson and Meistergram from any and all expenses and costs arising
out of any claim of infringement of a patent or similar right by the Products
sold by Macpherson or Meistergram hereunder.
14. In the event of any default of any provision of this Agreement, this
Agreement may not be terminated unless the party seeking to terminate shall
provide the defaulting party with written notice of the nature of the default
and the default shall remain uncured for a period of thirty (30) days after such
notice is given; provided, however, that if the defaulting party is using all
reasonable commercial efforts to cure the default but the default is not curable
within thirty (30) days through the use of reasonable commercial efforts, the
defaulting party may cure the default within such period as the default can be
cured by reasonable commercial efforts.
15. In the event any term of the relationship between the parties hereto
have not been included in this Agreement then the
7
<PAGE>
parties hereto agree to discuss that term and negotiate in good faith using
their best efforts to reach agreement thereon; provided, however, that failure
to reach agreement shall not entitle any party hereto to terminate this
Agreement.
16. All disputes arising out of or in connection with the terms of this
Agreement or performance thereof shall be submitted to arbitration in the City
of Greensboro, North Carolina under the commercial arbitration rules of the
American Arbitration Association. The decision of the arbitrators in any such
proceeding shall be final and binding upon all parties.
17. If any provision of this Agreement is declared invalid then such
provision shall be deemed to be amended so as to conform to the requirements for
validity as declared at such time, and as so changed shall be deemed to be a
provision of this Agreement as though originally included herein. In the event
that the provision invalidated is of such a nature that it cannot be so
adjusted, the provision shall be deleted from this Agreement. In either case,
the remaining provisions of this Agreement shall remain in full force and
effect.
18. Any notice, requires or demand required or permitted to be given
pursuant to this Agreement shall be made in writing and shall be deemed given
when it is delivered to the address of the parties hereto set forth beneath
their respective names on the execution page of this Agreement.
19. This Agreement shall be subject to and interpreted in accordance with
the laws of the State of North Carolina without regard to its rules of conflicts
of laws.
20. This Agreement may not be assigned by any party hereto without the
prior written consent of the other parties.
8
<PAGE>
21. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
MACPHERSON, INC.
By: /s/ Neil Macpherson
--------------------------
Title:
--------------------------
Address:
--------------------------
Attest
MEISTERGRAM, INC.
By: /s/ Neil Macpherson
--------------------------
Title:
--------------------------
Address:
--------------------------
[ILLEGIBLE]
- -------------------
Attest
BARUDAN CO., LTD.
By: /s/ Yoshio Shibata
--------------------------
Title:
--------------------------
Address:
--------------------------
Attest
BARUDAN AMERICA, INC.
By: /s/ Yoshio Shibata
--------------------------
Title:
--------------------------
Address:
--------------------------
Attest
9
<PAGE>
Exhibit 10.21
FLOATING CHARGE DEBENTURE (Scotland) (5th Revision March 1995)
THIS DEBENTURE is made by Eildon Electronics Limited (Reg No SC74971) whose
Registered Office is situate at 5 Lime Grove Lenzie Glasgow (the "Company") in
favour of Coutts & Company whose Registered Office is situate at 15 Lombard
Street London EC3V 9AV ("the Bank").
1 This Debenture shall be a continuing security to the Bank for the payment
and discharge and the Company binds and obliges itself to pay and
discharge to the Bank on demand:
i) all present and future indebtedness of the Company to the Bank on
any current or other account with interest and bank charges and
ii) all other liabilities whatsoever of the Company to the Bank present
future actual or contingent and
iii) all costs charges and expenses howsoever incurred by the Bank in
relation to this Debenture or such indebtedness or liabilities on a
full indemnity basis and
iv) interest on the foregoing day by day from demand until full payment
or discharge (as well after as before judgment) at the rate payable
or deemed to be payable by the Company and as calculated and
compounded in such manner as the Bank may from time to time
determine.
The costs and expenses referred to herein shall include (for
avoidance of doubt) all amounts the Bank may from time to time
require to compensate it for its internal management and
administrative costs and expenses incurred in connection with the
enforcement of this Debenture and recovery of the liabilities
secured by it. A certificate signed by an officer of the Bank as to
the amount of such costs and expenses incurred by the Bank from time
to time shall for all purposes be conclusive evidence against and
binding upon the Company.
2 The Company as beneficial owner and to the intent that the security
created shall rank as a continuing security for all the said indebtedness
liabilities costs charges expenses and interest hereinbefore in Clause 1
of this Debenture described Does Hereby in security thereof as aforesaid
Grant in favour of the Bank a Floating Charge over the whole of the
property which may from time to time while this security is in force be
comprised in the property and undertaking of the Company; Provided and
Declaring Always that the Floating Charge hereby created shall except as
may otherwise be previously agreed in writing by the Bank and subject to
Sub-Section (2) of Section 464 of the Companies Act 1985 as the same shall
from time to time be amended or re-enacted (which Act as so amended or
re-enacted is hereinafter referred to as the "the 1985 Act") rank in
priority to any fixed security within the meaning of Sub-Section (1) of
Section 486 of the 1985 Act (other than a fixed security in favour of the
Bank) which shall have been or may after the execution hereof be created
by the Company and to any other Floating Charge which shall have been or
may be so created.
3 A certificate signed by a Manager of the Bank shall be sufficient to fix
and ascertain the whole or any part of the said indebtedness liabilities
costs charges expenses and interest hereinbefore in Clause 1 hereof
described and to constitute a balance and charge against us and no
suspension of a charge or of a threatened charge for payment of the
balance
<PAGE>
so constituted shall pass nor any ____ of execution thereon be granted
except on consignation.
4 The Company will keep all its heritable real and leasehold property in a
good state of repair and condition and insured against such risks and in
such office and for such amounts as the Bank may require or approve and
failure to do so will entitle the Bank to do so at the expense of the
Company and the Company will in addition effect and maintain such
insurances as are normally maintained by prudent companies carrying on
similar business.
5 The Company shall not be at liberty without the consent in writing of the
Bank to:
i) create any fixed security or floating charge ranking in priority to
or pari passu with the Floating Charge hereby created or
ii) sell the whole or (except in the ordinary course of business) any
part of the Company's undertaking or deal with its books or other
debts or securities for money otherwise than in the ordinary course
of getting in and realising the same which expression shall not
authorise the selling factoring or discounting by the Company of its
book debts or
iii) enter into any lease or sublease or accept the surrender of any
lease or sublease of any of the heritable real or leasehold
properties of the Company.
For the purpose of this Clause 5, it is hereby declared for the avoidance
of doubt that the date of creation of a fixed security over heritable
property in Scotland shall be the date of its recording in the Register of
Sasines or registration in the Land Register of Scotland and the date of
creation of a floating charge shall be the date of its execution by the
Company.
6 Whenever required by the Bank the Company shall grant in favour of the
Bank or as the Bank shall direct and at the expense of the Company such
specific or fixed security or charge over the whole or any part of the
property and undertaking of the Company as shall be required by the Bank.
7 Immediately upon or at any time after the presentation of a petition
applying for an administration order to be made in relation to the Company
or in the event that notice demanding payment of any moneys hereby secured
shall be served by the Bank on the Company or that the Bank shall be
requested by the Company so to do the Bank shall subject always to the
provisions of Section 51 of the Insolvency Act 1986 as the same shall from
time to time be amended or re-enacted (which Act as so amended or
re-enacted is hereinafter referred to as the 1986 Act) be entitled at any
time thereafter by instrument in writing and without further notice to the
Company to appoint any person to be a Receiver of the property hereby
charged; and in addition and without prejudice to the foregoing provisions
of this Clause in the event that any person appointed in pursuance thereof
to be a Receiver as aforesaid shall be removed by the Court or shall
otherwise cease to act as such then the Bank shall be entitled so to
appoint another person as Receiver in his place.
8 A Receiver so appointed shall have and be entitled to exercise all powers
conferred upon a Receiver by the 1986 Act.
<PAGE>
9 The Company shall be solely responsible for the acts and defaults of any
Receiver so appointed and for his remuneration costs charges and expenses
including the costs charges and expenses of and incidental to his
appointment.
10 If the Bank receives notice of any subsequent charge or other interest
affecting any part of the property hereby charged the Bank may open a new
account or accounts with the Company; if the Bank does not open a new
account it shall nevertheless be treated as if it had done so at the time
when it received notice and as from that time all payments made by the
Company to the Bank shall be credited or be treated as having been
credited to the new account and shall not operate to reduce the amount due
from the Company to the Bank at the time when it received notice.
11 The Company hereby irrevocably appoints the Bank and any person nominated
in writing under the hand of any officer of the Bank including every
Receiver appointed hereunder as Attorney of the Company for the Company
and in its name and on its behalf as its act and deed to execute seal and
deliver and otherwise perfect any deed assurance agreement instrument or
act which may be required or deemed proper for any of the purposes of this
security.
12 In the exercise of the powers hereby conferred any Receiver may sever and
sell plant machinery or other fixtures separately from the property to
which they may be annexed.
13 The Company shall from time to time supply to the Bank such accounts or
other information concerning the assets liabilities and affairs of the
Company and its subsidiary or associated companies as the Bank may
require.
14 In case the Company shall have more than one account with the Bank it
shall be lawful for the Bank at any time and without any prior notice in
that behalf forthwith to transfer all or any part of any balance standing
to the credit of any such account to any other such account which may be
in debit but the Bank shall notify the Company of the transfer having been
made.
15 Nothing herein contained shall prejudice or affect any other securities or
charges which the Bank already holds or may hereafter hold for any sum or
sums due or which may after the date hereof become due by the Company to
the Bank over any other property belonging to the Company it being always
in the power of the Bank to allow all or any part of such securities or
charges of the property to which they relate to be disposed of sold or
abandoned without applying the same or the proceeds thereof towards
payment of any sum to be hereby secured and the whole obligations hereby
undertaken by the Company shall remain in full force and effect in the
same manner and to the same extent as if no such securities or charges had
ever existed.
16 The Bank may without prejudice to its rights under these presents and at
its discretion grant to the Company or to any other persons or person
liable with or for the Company any time or other indulgence and compound
with it or them accede to trust deeds and draw dividends and that all
without notice to the Company or to any other person concerned.
17 A demand or notice hereunder shall be in writing signed by an officer or
agent of the Bank and may be served on the Company by hand or by post and
either by delivering the same as to any officer of the Company at any
place or by addressing the same to the Company at its registered office or
a place of business last known to the Bank; if such
<PAGE>
demand or notice is sent by post it shall be deemed to have been received
on the day following the day on which it was posted and shall be effective
notwithstanding it be returned undelivered.
18 It is hereby certified that this Debenture does not contravene any of the
provision of the Company's Memorandum and Articles of Association and has
been executed in accordance therewith.
19 This Debenture shall be interpreted and receive effect according to the
law of Scotland; and the Company consents to the registration hereof and
of the aforesaid certificate for preservation and execution.
These presents were subscribed for and on behalf of the said
Eildon Electronics Limited
* and the Common Seal thereof was hereunto fixed
at
on the 10 day of Oct 1996
Director
Director/Secretary
Received a completed copy of the within written Debenture Dated
this 10 day of Oct 1996
Director/Secretary
* Delete if Company does not use Seal
<PAGE>
Branch _____________________
Account ____________________
Dated _____________________
to
COUTTS & COMPANY
Debenture (Floating Charge) for all moneys by Company incorporated in Scotland
<PAGE>
NBW 1014 (Revised May 1995) Mortgage Debenture
This Mortgage Debenture is dated __________, 19__
and is made between
- --------------------------------------------------------------------------------
WILLCOX AND GIBBS LIMITED REGISTERED NUMBER 99209
whose registered office is at 44 SPRINGWOOD DRIVE SPRINGWOOD INDUSTRIAL ESTATE
BRAINTREE ESSEX CM7 2YN
- --------------------------------------------------------------------------------
("the Company") of the one part and Coutts & Company ("the Bank") of the other
part whose address for service of any documents relating to this Mortgage
Debenture is its Branch at
- ------------------------------------
COMMERCIAL BANKING
15 LOMBARD STREET
LONDON
EC3V 9AU
- ------------------------------------ or such other address as the Bank may
notify the Company of in writing from time to time.
1. The Company hereby covenants to pay to the Bank on demand the sum of One
pound ((pound)1) and to pay and discharge on demand all moneys obligations and
liabilities (whether present or future actual or contingent) which may now or at
any time hereafter be or become due owing or incurred by the Company to the Bank
on any account or otherwise howsoever (whether solely or jointly with any other
person and whether as principal or surety) together with interest and other bank
charges so that interest shall be calculated and compounded in accordance with
the practice of the Bank from time to time as well after as before any demand
made or judgment obtained hereunder.
2. The Company with full title guarantee and to the intent that the security
created shall rank as a continuing security hereby charges with the payment or
discharge of all moneys obligations and liabilities hereby covenanted to be paid
or discharged (together with all costs and expenses howsoever incurred by the
Bank in connection with this Mortgage Debenture on a full indemnity basis):
(i) by way of legal mortgage any property referred to in the Schedule
hereto (the legally mortgaged property) and the proceeds of sale
thereof
(ii) by way of specific equitable charge all estates or interests in any
freehold and leasehold property (except the legally mortgaged
property) now and at any time during the continuance of this
security belonging to or charged to the Company (the equitably
charged property) and the proceeds of sale thereof
(iii) by way of specific charge all plant machinery vehicles computers and
office and other equipment both present and future (excluding all
stock in trade) and the full benefit of all warrants and maintenance
contracts for any of the same
(iv) by way of specific charge all stock shares and other securities now
and at any time during the continuance of this security belonging to
the Company either in or issued by any of its subsidiary companies
or any other company and all dividends and other rights in relation
thereto
(v) by way of specific charge all book debts and other debts (including
without limitation rents) now and from time to time due or owing to
the Company
(vi) by way of specific charge its goodwill and the benefit of any
licenses and all patents patent applications inventions trade marks
trade names registered designs copyrights know-how and any other
intellectual property rights
(vii) by way of floating security its undertaking and all its property
assets and rights whatsoever and wheresoever present and/or future
including those for the time being charged by way of specific charge
pursuant to the foregoing paragraphs if and to the extent that such
charges as aforesaid shall fail as specific charges but without
prejudice to any such specific charges as shall continue to be
effective.
The costs and expenses referred to above shall include (for avoidance of doubt)
all amounts the Bank may from time to time require to compensate it for its
internal management and administrative costs and expenses incurred in connection
with the enforcement of this Mortgage Debenture and recovery of the liabilities
secured by it. A certificate signed by an officer of the Bank as to the amount
of such costs and expenses incurred by the Bank from time to time shall for all
purposes be conclusive evidence against and binding upon the Company.
Page 1
<PAGE>
3. With reference to the equitably charged property and the property charged
pursuant to Clause 2(iv):
(a) The Company undertakes
(i) to deposit with the Bank the deeds and documents of title or share
certificates relating thereto
(ii) at any time upon request to execute over all or any part thereof a
charge by way of legal mortgage and any appropriate transfer or
other forms instruments or instructions in the case of the stocks
and shares in favour of the Bank or its nominee in such form as the
Bank shall require
(b) The Bank shall not be entitled to exercise or control the exercise of any
voting rights of any relevant shares (as defined below) comprised therein
unless and until notice demanding payment of any moneys hereby secured
shall have been served by the Bank on the Company. "Relevant shares" are
any shares which are comprised in a public company's relevant share
capital within the meaning of Section 198 of the Companies Act 1985. This
restriction shall also apply to any relevant shares forming part of this
security which may be registered in the name of the Bank or any nominee.
4. With reference to the legally mortgaged property and the equitably charged
property the Company agrees:
(i) to keep it in a good state of repair and condition and insured
against such risks and in such office and for such amounts as the
Bank may require or approve and that failure to do so will entitle
the Bank to do so at the expense of the Company and as agent of the
Company without thereby becoming a mortgagee in possession
(ii) that the statutory power of leasing and/or accepting surrenders of
leases conferred on mortgagors shall not be exercised by the Company
without the consent in writing of the Bank but the Bank may grant or
accept surrenders of leases without restriction
(iii) not to part with the possession of it or any part thereof nor confer
upon any person firm company or body whatsoever any license right or
interest to occupy it or any part thereof without the consent in
writing of the Bank.
5. With reference to the book debts and other debts hereby specifically charged
the Company shall pay into the Company's account with the Bank all moneys which
it may receive in respect to such debts and shall not without the prior consent
in writing of the Bank sell factor discount or otherwise charge or assign the
same in favour of any other person or purport to do so and the Company shall if
called upon to do so by the Bank from time to time exercise legal assignments of
such book debts and other debts to the Bank.
6. With reference to the property assets and rights subject to the floating
charge:
(i) the Company shall not be at liberty without the consent in writing
of the Bank to:
(a) create any mortgage or charge ranking in priority to or pari
passu with that charge and/or
(b) sell the whole or except in the ordinary course of business
any part of the Company's undertaking; and
(ii) the Company agrees to effect and maintain such insurances as are
normally maintained by prudent companies carrying on similar
businesses; and
(iii) the Bank may by notice to the Company convert the floating charge
into a specific charge as regards any assets specified in the notice
which the Bank shall consider to be in danger of being seized or
sold under any form of distress or execution levied or threatened
and may appoint a receiver thereof.
7. Section 103 of the Law of Property Act 1925 ("the 1925 Act") shall not apply
to this security which shall immediately become enforceable and the power of
sale and other powers conferred by section 101 of the 1925 Act as varied or
extended by this security shall be immediately exercisable at any time after
notice demanding payment of any moneys hereby secured shall have been served by
the Bank on the Company.
8. At any time after this security shall have become enforceable and in any
event immediately upon or at any time after the presentation of a petition
applying for an administration order to be made in relation to the Company the
Bank may by writing under the hand of any Manager of the Bank appoint any person
(or persons) to be receiver of the property hereby charged or any part thereof.
Where two or more persons are appointed to be receivers the Bank will in the
appointment declare whether any act required or authorised to be done by such
receivers is to be done by any one or more of such receivers for the time being
holding office. Any receiver shall be the agent of the Company and the Company
shall be solely responsible for his acts or defaults and for his remuneration.
Where any receiver is appointed by the Bank as an administrative receiver (as
that term is used in the Insolvency Act 1986) such administrative receiver shall
have all the powers of an administrative receiver specified in Schedule 1 of the
Insolvency Act 1986 or any statutory modification or re-enactment thereof. Any
references in this security to receiver shall, except where the context does not
permit include a reference to any such administrative receiver. Where any
receiver is appointed by the Bank to be a receiver of part only of the property
hereby charged and is not therefore an administrative receiver (as that term is
used in the Insolvency Act 1986) such receiver shall have all the powers
specified in Schedule 1 to the Insolvency Act 1986 which he would have were he
an administrative receiver insofar as such powers are or might be appropriate to
the receivership of the property of the Company in respect of which he has been
appointed.
Page 2
<PAGE>
9. All moneys received by any receiver shall be applied by him in the following
order:
(i) in payment of the costs charges and expenses of and incidental to
the appointment of the receiver and the exercise of all or any of
his powers and of all outgoings paid by him
(ii) in payment of remuneration of the receiver at such rates as may be
agreed between him and the Bank at or at any time after his
appointment
(iii) in or towards discharge of the liabilities hereby secured in such
order as the Bank may from time to time require
(iv) the surplus (if any) shall be paid to the Company or other person
entitled to it.
10. The powers conferred on mortgagees or receivers by the 1925 Act shall apply
to this security except in so far as they are expressly or impliedly excluded
and where there is any ambiguity or conflict between the powers contained in the
1925 Act and those contained in this security the terms of this security shall
prevail.
11. If the Bank receives or is deemed to be affected by notice whether actual or
constructive of any subsequent charge or other interest affecting any part of
the property hereby charged or the proceeds of sale thereof the Bank may open a
new account or accounts with any person for whose liabilities this Mortgage
Debenture is available as security. If the Bank does not open a new account it
shall nevertheless be treated as if it had done so at the time when it received
or was deemed to have received notice and as from that time all payments made to
the Bank shall be credited or be treated as having been credited to the new
account and shall not operate to reduce the amount for which this Mortgage
Debenture is security.
12. The Company hereby irrevocably appoints each of the Bank and any person
nominated in writing under the hand of any officer of the Bank including every
receiver hereunder as Attorney of the Company with full power of substitution
for the Company and in its name and on its behalf and its act and deed to
execute seal and deliver and otherwise perfect or do any deed assurance
agreement instrument or act which may be required or deemed proper for any of
the purposes of this security.
13. In the exercise of the powers hereby conferred the Bank or any receiver may
sever and sell plant machinery or other fixtures separately from the property to
which they may be annexed.
14. The Company shall from time to time supply to the Bank such accounts or
other information concerning the assets liabilities and affairs of the Company
its subsidiary or associated companies as the Bank may require.
15. In case the Company shall have more than one account with the Bank it shall
be lawful for the Bank at any time and without any prior notice forthwith to
transfer all or any part of any balance standing to the credit of any such
account (whether current or otherwise or subject to notice or not) to any other
such account which may be in debit but the Bank shall notify the Company of the
transfer having been made. If any credit balance is in a different currency from
any debit balance the Bank shall be entitled to utilise currency of the credit
balance for the purchase at its spot rate of exchange of an amount in the
currency of the debit balance not exceeding the amount of such debit balance and
also to pay out of the credit balance any additional sum which the Bank may be
required to pay for such currency.
16. The security from time to time constituted by or pursuant to this Mortgage
Debenture shall be in addition to and shall be independent of any other security
which the Bank may now or at any time hold on all or any part of the assets of
the Company for or in respect of all or any part of the moneys obligations and
liabilities hereby covenanted to be paid or discharged and it is hereby declared
that no prior security held by the Bank over the property hereby charged or any
part of it shall merge in the security created hereby or pursuant hereto.
17. A demand or notice hereunder shall be in writing signed by an officer or
agent of the Bank and may be served on the Company by hand or by post or by
facsimile machine (fax) and in the case of service by hand either by delivering
the same to any officer of the Company at any place or leaving the same
addressed to the Company at its registered office or a place of business last
known to the Bank. If such demand or notice is sent by post or by fax it shall
be deemed to have been received if posted on the day following the day on which
it was posted and if sent by fax at the time of transmission and shall be
effective notwithstanding it be returned undelivered. The Bank may use the last
fax number of the Company known to it and transmission may be proved by
production of an activity or transmission report which purports to indicate the
transmission of a message to such a number.
18. It is hereby certified that this Mortgage Debenture does not contravene any
of the provisions of the Company's Memorandum and Articles of Association and
has been executed in accordance therewith.
19. This Mortgage Debenture shall be governed by and construed in accordance
with the Laws of England.
In Witness whereof this Deed has been executed by the Company the day and year
first before written.
Page 3
<PAGE>
The Schedule
- --------------------------------------------------------------------------------
LAND CERTIFICATE OF THE FOLLOWING PROPERTY:
DISTRICT OF
LONDON BOROUGH: BRAINTREE
TITLE NUMBERS: EX 378685
EX 392996
PROPERTY: PLOT 12 SPRINGWOOD INDUSTRIAL ESTATE BRAINTREE (ALSO KNOWN AS 44
SPRINGWOOD DRIVE) AND LAND LYING SOUTH EAST OF SPRINGWOOD DRIVE
BRAINTREE
- --------------------------------------------------------------------------------
Page 4
<PAGE>
- --------------------------------------------------------------------------------
Executed as a Deed by the Company acting by
_______________________________________________ Director
Name in full
(in block letters)____________________________
______________________________________________ *Director/Secretary
Name in full
(in block letters)____________________________
*delete as applicable
or alternatively:
The Common Seal of
WILLCOX AND GIBBS LIMITED
was hereunto affixed
in the presence of
______________________________________________ Director
______________________________________________ Secretary
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For and on behalf of the Bank
Authorised Signatory
- -------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We acknowledge receipt of a complete copy of this document
-----------------------------------
Signature
- --------------------------------------------------------------------------------
Page 5
<PAGE>
This Mortgage Debenture is dated __________, 19__
and is made between
- --------------------------------------------------------------------------------
FOREST NEEDLE COMPANY LIMITED REGISTERED NUMBER 2322017
whose registered office is at 44 SPRINGWOOD DRIVE SPRINGWOOD INDUSTRIAL ESTATE
BRAINTREE ESSEX CM7 2YN
- --------------------------------------------------------------------------------
("the Company") of the one part and Coutts & Company ("the Bank") of the other
part whose address for service of any documents relating to this Mortgage
Debenture is its Branch at
- ----------------------------------------
COMMERCIAL BANKING
15 LOMBARD STREET
LONDON
EC3V 9AU
- ----------------------------------------or such other address as the Bank may
notify the Company of in writing from time to time.
1. The Company hereby covenants to pay to the Bank on demand the sum of One
pound ((pound)1) and to pay and discharge on demand all moneys obligations and
liabilities (whether present or future actual or contingent) which may now or at
any time hereafter be or become due owing or incurred by the Company to the Bank
on any account or otherwise howsoever (whether solely or jointly with any other
person and whether as principal or surety) together with interest and other bank
charges so that interest shall be calculated and compounded in accordance with
the practice of the Bank from time to time as well after as before any demand
made or judgment obtained hereunder.
2. The Company with full title guarantee and to the intent that the security
created shall rank as a continuing security hereby charges with the payment or
discharge of all moneys obligations and liabilities hereby covenanted to be paid
or discharged (together with all costs and expenses howsoever incurred by the
Bank in connection with this Mortgage Debenture on a full indemnity basis):
(i) by way of legal mortgage any property referred to in the Schedule
hereto (the legally mortgaged property) and the proceeds of sale
thereof
(ii) by way of specific equitable charge all estates or interests in any
freehold and leasehold property (except the legally mortgaged
property) now and at any time during the continuance of this
security belonging to or charged to the Company (the equitably
charged property) and the proceeds of sale thereof
(iii) by way of specific charge all plant machinery vehicles computers and
office and other equipment both present and future (excluding all
stock in trade) and the full benefit of all warrants and maintenance
contracts for any of the same
(iv) by way of specific charge all stock shares and other securities now
and at any time during the continuance of this security belonging to
the Company either in or issued by any of its subsidiary companies
or any other company and all dividends and other rights in relation
thereto
(v) by way of specific charge all book debts and other debts (including
without limitation rents) now and from time to time due or owing to
the Company
(vi) by way of specific charge its goodwill and the benefit of any
licenses and all patents patent applications inventions trade marks
trade names registered designs copyrights know-how and any other
intellectual property rights
(vii) by way of floating security its undertaking and all its property
assets and rights whatsoever and wheresoever present and/or future
including those for the time being charged by way of specific charge
pursuant to the foregoing paragraphs if and to the extent that such
charges as aforesaid shall fail as specific charges but without
prejudice to any such specific charges as shall continue to be
effective.
The costs and expenses referred to above shall include (for avoidance of doubt)
all amounts the Bank may from time to time require to compensate it for its
internal management and administrative costs and expenses incurred in connection
with the enforcement of this Mortgage Debenture and recovery of the liabilities
secured by it. A certificate signed by an officer of the Bank as to the amount
of such costs and expenses incurred by the Bank from time to time shall for all
purposes be conclusive evidence against and binding upon the Company.
Page 1
<PAGE>
3. With reference to the equitably charged property and the property charged
pursuant to Clause 2(iv):
(a) The Company undertakes
(i) to deposit with the Bank the deeds and documents of title or share
certificates relating thereto
(ii) at any time upon request to execute over all or any part thereof a
charge by way of legal mortgage and any appropriate transfer or
other forms instruments or instructions in the case of the stocks
and shares in favour of the Bank or its nominee in such form as the
Bank shall require.
(b) The Bank shall not be entitled to exercise or control the exercise of any
voting rights of any relevant shares (as defined below) comprised therein
unless and until notice demanding payment of any moneys hereby secured
shall have been served by the Bank on the Company. "Relevant shares" are
any shares which are comprised in a public company's relevant share
capital within the meaning of Section 198 of the Companies Act 1985. This
restriction shall also apply to any relevant shares forming part of this
security which may be registered in the name of the Bank or any nominee.
4. With reference to the legally mortgaged property and the equitably charged
property the Company agrees:
(i) to keep it in a good state of repair and condition and insured
against such risks and in such office and for such amounts as the
Bank may require or approve and that failure to do so will entitle
the Bank to do so at the expense of the Company and as agent of the
Company without thereby becoming a mortgagee in possession
(ii) that the statutory power of leasing and/or accepting surrenders of
leases conferred on mortgagors shall not be exercised by the Company
without the consent in writing of the Bank but the Bank may grant or
accept surrenders of leases without restriction
(iii) not to part with the possession of it or any part thereof nor confer
upon any person firm company or body whatsoever any license right or
interest to occupy it or any part thereof without the consent in
writing of the Bank.
5. With reference to the book debts and other debts hereby specifically charged
the Company shall pay into the Company's account with the Bank all moneys which
it may receive in respect to such debts and shall not without the prior consent
in writing of the Bank sell factor discount or otherwise charge or assign the
same in favour of any other person or purport to do so and the Company shall if
called upon to do so by the Bank from time to time exercise legal assignments of
such book debts and other debts to the Bank.
6. With reference to the property assets and rights subject to the floating
charge:
(i) the Company shall not be at liberty without the consent in writing
of the Bank to:
(a) create any mortgage or charge ranking in priority to or pari
passu with that charge and/or
(b) sell the whole or except in the ordinary course of business
any part of the Company's undertaking; and
(ii) the Company agrees to effect and maintain such insurances as are
normally maintained by prudent companies carrying on similar
businesses; and
(iii) the Bank may by notice to the Company convert the floating charge
into a specific charge as regards any assets specified in the notice
which the Bank shall consider to be in danger of being seized or
sold under any form of distress or execution levied or threatened
and may appoint a receiver thereof.
7. Section 103 of the Law of Property Act 1925 ("the 1925 Act") shall not apply
to this security which shall immediately become enforceable and the power of
sale and other powers conferred by section 101 of the 1925 Act as varied or
extended by this security shall be immediately exercisable at any time after
notice demanding payment of any moneys hereby secured shall have been served by
the Bank on the Company.
8. At any time after this security shall have become enforceable and in any
event immediately upon or at any time after the presentation of a petition
applying for an administration order to be made in relation to the Company the
Bank may by writing under the hand of any Manager of the Bank appoint any person
(or persons) to be receiver of the property hereby charged or any part thereof.
Where two or more persons are appointed to be receivers the Bank will in the
appointment declare whether any act required or authorised to be done by such
receivers is to be done by any one or more of such receivers for the time being
holding office. Any receiver shall be the agent of the Company and the Company
shall be solely responsible for his acts or defaults and for his remuneration.
Where any receiver is appointed by the Bank as an administrative receiver (as
that term is used in the Insolvency Act 1986) such administrative receiver shall
have all the powers of an administrative receiver specified in Schedule 1 of the
Insolvency Act 1986 or any statutory modification or re-enactment thereof. Any
references in this security to receiver shall, except where the context does not
permit include a reference to any such administrative receiver. Where any
receiver is appointed by the Bank to be a receiver of part only of the property
hereby charged and is not therefore an administrative receiver (as that term is
used in the Insolvency Act 1986) such receiver shall have all the powers
specified in Schedule 1 to the Insolvency Act 1986 which he would have were he
an administrative receiver insofar as such powers are or might be appropriate to
the receivership of the property of the Company in respect of which he has been
appointed.
Page 2
<PAGE>
9. All moneys received by any receiver shall be applied by him in the following
order:
(i) in payment of the costs charges and expenses of and incidental to
the appointment of the receiver and the exercise of all or any of
his powers and of all outgoings paid by him
(ii) in payment of remuneration of the receiver at such rates as may be
agreed between him and the Bank at or at any time after his
appointment
(iii) in or towards discharge of the liabilities hereby secured in such
order as the Bank may from time to time require
(iv) the surplus (if any) shall be paid to the Company or other person
entitled to it.
10. The powers conferred on mortgagees or receivers by the 1925 Act shall apply
to this security except in so far as they are expressly or impliedly excluded
and where there is any ambiguity or conflict between the powers contained in the
1925 Act and those contained in this security the terms of this security shall
prevail.
11. If the Bank receives or is deemed to be affected by notice whether actual or
constructive of any subsequent charge or other interest affecting any part of
the property hereby charged or the proceeds of sale thereof the Bank may open a
new account or accounts with any person for whose liabilities this Mortgage
Debenture is available as security. If the Bank does not open a new account it
shall nevertheless be treated as if it had done so at the time when it received
or was deemed to have received notice and as from that time all payments made to
the Bank shall be credited or be treated as having been credited to the new
account and shall not operate to reduce the amount for which this Mortgage
Debenture is security.
12. The Company hereby irrevocably appoints each of the Bank and any person
nominated in writing under the hand of any officer of the Bank including every
receiver hereunder as Attorney of the Company with full power of substitution
for the Company and in its name and on its behalf and its act and deed to
execute seal and deliver and otherwise perfect or do any deed assurance
agreement instrument or act which may be required or deemed proper for any of
the purposes of this security.
13. In the exercise of the powers hereby conferred the Bank or any receiver may
sever and sell plant machinery or other fixtures separately from the property to
which they may be annexed.
14. The Company shall from time to time supply to the Bank such accounts or
other information concerning the assets liabilities and affairs of the Company
its subsidiary or associated companies as the Bank may require.
15. In case the Company shall have more than one account with the Bank it shall
be lawful for the Bank at any time and without any prior notice forthwith to
transfer all or any part of any balance standing to the credit of any such
account (whether current or otherwise or subject to notice or not) to any other
such account which may be in debit but the Bank shall notify the Company of the
transfer having been made. If any credit balance is in a different currency from
any debit balance the Bank shall be entitled to utilise currency of the credit
balance for the purchase at its spot rate of exchange of an amount in the
currency of the debit balance not exceeding the amount of such debit balance and
also to pay out of the credit balance any additional sum which the Bank may be
required to pay for such currency.
16. The security from time to time constituted by or pursuant to this Mortgage
Debenture shall be in addition to and shall be independent of any other security
which the Bank may now or at any time hold on all or any part of the assets of
the Company for or in respect of all or any part of the moneys obligations and
liabilities hereby covenanted to be paid or discharged and it is hereby declared
that no prior security held by the Bank over the property hereby charged or any
part of it shall merge in the security created hereby or pursuant hereto.
17. A demand or notice hereunder shall be in writing signed by an officer or
agent of the Bank and may be served on the Company by hand or by post or by
facsimile machine (fax) and in the case of service by hand either by delivering
the same to any officer of the Company at any place or leaving the same
addressed to the Company at its registered office or a place of business last
known to the Bank. If such demand or notice is sent by post or by fax it shall
be deemed to have been received if posted on the day following the day on which
it was posted and if sent by fax at the time of transmission and shall be
effective notwithstanding it be returned undelivered. The Bank may use the last
fax number of the Company known to it and transmission may be proved by
production of an activity or transmission report which purports to indicate the
transmission of a message to such a number.
18. It is hereby certified that this Mortgage Debenture does not contravene any
of the provisions of the Company's Memorandum and Articles of Association and
has been executed in accordance therewith.
19. This Mortgage Debenture shall be governed by and construed in accordance
with the Laws of England.
In Witness whereof this Deed has been executed by the Company the day and year
first before written.
Page 3
<PAGE>
The Schedule
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Page 4
<PAGE>
- --------------------------------------------------------------------------------
Executed as a Deed by the Company acting by
_______________________________________________ Director
Name in full
(in block letters)____________________________
______________________________________________ *Director/Secretary
Name in full
(in block letters)____________________________
*delete as applicable
or alternatively:
The Common Seal of
FOREST NEEDLE COMPANY LIMITED
was hereunto affixed
in the presence of
______________________________________________ Director
______________________________________________ Secretary
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For and on behalf of the Bank
Authorised Signatory
- -------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We acknowledge receipt of a complete copy of this document
-----------------------------------
Signature
- --------------------------------------------------------------------------------
Page 5
<PAGE>
Certificate of the Registration of a Mortgage or Charge
Pursuant to Section 401 (2) of the Companies Act 1985
I hereby certify that a Mortgage or Charge dated the __________ day of
__________________ One Thousand nine hundred and __________ and enacted by
___________________________ ______________________________________________ for
securing all moneys now due, or hereafter to become due, or from time to time
accruing due from the Company to Coutts & Company on any account whatsoever was
registered pursuant to Section 395 of the
Companies Act 1985 on the __________ day of ___________________________________
One thousand nine hundred and ________________________________
Given under my hand at Cardiff this ______________ day of _____________________
One Thousand nine hundred and ________________________________
Registrar of Companies
This Release made the _____________________ day of ____________________________
One thousand nine hundred and __________________________________________ between
the within-named Coutts & Company ("the Bank") of the one part and the
within-named
of the other part Witnesses that the Bank as Mortgagee hereby releases all and
singular the property now comprised in or charged by the within-written Deed
from all moneys secured by and from all claims and demands under the within
written Deed.
In Witness whereof this Deed has been executed by the Bank the day and year
first before written.
The Common Seal of
Coutts & Company
was hereunto affixed
in the presence of
Authorised Sealing Officer
Page 6
<PAGE>
This Mortgage Debenture is dated __________, 19__
and is made between
- --------------------------------------------------------------------------------
MORRIS & INGRAM (TEXTILES) LIMITED REGISTERED NUMBER 2728664
whose registered office is at 44 SPRINGWOOD DRIVE SPRINGWOOD INDUSTRIAL ESTATE
BRAINTREE ESSEX CM7 2YN
- --------------------------------------------------------------------------------
("the Company") of the one part and Coutts & Company ("the Bank") of the other
part whose address for service of any documents relating to this Mortgage
Debenture is its Branch at
- -----------------------------------------
COMMERCIAL BANKING
15 LOMBARD STREET
LONDON
EC3V 9AU
- ----------------------------------------- or such other address as the Bank may
notify the Company of in writing from time to time.
1._______The Company hereby covenants to pay to the Bank on demand the sum of
One pound ((pound)1) and to pay and discharge on demand all moneys obligations
and liabilities (whether present or future actual or contingent) which may now
or at any time hereafter be or become due owing or incurred by the Company to
the Bank on any account or otherwise howsoever (whether solely or jointly with
any other person and whether as principal or surety) together with interest and
other bank charges so that interest shall be calculated and compounded in
accordance with the practice of the Bank from time to time as well after as
before any demand made or judgment obtained hereunder.
2._______The Company with full title guarantee and to the intent that the
security created shall rank as a continuing security hereby charges with the
payment or discharge of all moneys obligations and liabilities hereby covenanted
to be paid or discharged (together with all costs and expenses howsoever
incurred by the Bank in connection with this Mortgage Debenture on a full
indemnity basis):
(i) by way of legal mortgage any property referred to in the Schedule
hereto (the legally mortgaged property) and the proceeds of sale
thereof
(ii) by way of specific equitable charge all estates or interests in any
freehold and leasehold property (except the legally mortgaged
property) now and at any time during the continuance of this
security belonging to or charged to the Company (the equitably
charged property) and the proceeds of sale thereof
(iii) by way of specific charge all plant machinery vehicles computers and
office and other equipment both present and future (excluding all
stock in trade) and the full benefit of all warrants and maintenance
contracts for any of the same
(iv) by way of specific charge all stock shares and other securities now
and at any time during the continuance of this security belonging to
the Company either in or issued by any of its subsidiary companies
or any other company and all dividends and other rights in relation
thereto
(v) by way of specific charge all book debts and other debts (including
without limitation rents) now and from time to time due or owing to
the Company
(vi) by way of specific charge its goodwill and the benefit of any
licenses and all patents patent applications inventions trade marks
trade names registered designs copyrights know-how and any other
intellectual property rights
(vii) by way of floating security its undertaking and all its property
assets and rights whatsoever and wheresoever present and/or future
including those for the time being charged by way of specific charge
pursuant to the foregoing paragraphs if and to the extent that such
charges as aforesaid shall fail as specific charges but without
prejudice to any such specific charges as shall continue to be
effective.
The costs and expenses referred to above shall include (for avoidance of doubt)
all amounts the Bank may from time to time require to compensate it for its
internal management and administrative costs and expenses incurred in connection
with the enforcement of this Mortgage Debenture and recovery of the liabilities
secured by it. A certificate signed by an officer of the Bank as to the amount
of such costs and expenses incurred by the Bank from time to time shall for all
purposes be conclusive evidence against and binding upon the Company.
Page 1
<PAGE>
3. With reference to the equitably charged property and the property charged
pursuant to Clause 2(iv):
(a) The Company undertakes
(i) to deposit with the Bank the deeds and documents of title or share
certificates relating thereto
(ii) at any time upon request to execute over all or any part thereof a
charge by way of legal mortgage and may appropriate transfer or
other forms instruments or instructions in the case of the stocks
and shares in favour of the Bank or its nominee in such form as the
Bank shall require.
(b) The Bank shall not be entitled to exercise or control the exercise of any
voting rights of any relevant shares (as defined below) comprised therein
unless and until notice demanding payment of any moneys hereby secured
shall have been served by the Bank on the Company. "Relevant shares" are
any shares which are comprised in a public company's relevant share
capital within the meaning of Section 198 of the Companies Act 1985. This
restriction shall also apply to any relevant shares forming part of this
security which may be registered in the name of the Bank or any nominee.
4. With reference to the legally mortgaged property and the equitably charged
property the Company agrees:
(i) to keep it in a good state of repair and condition and insured
against such risks and in such office and for such amounts as the
Bank may require or approve and that failure to do so will entitle
the Bank to do so at the expense of the Company and as agent of the
Company without thereby becoming a mortgagee in possession
(ii) that the statutory power of leasing and/or accepting surrenders of
leases conferred on mortgagors shall not be exercised by the Company
without the consent in writing of the Bank but the Bank may grant or
accept surrenders of leases without restriction
(iii) not to part with the possession of it or any part thereof nor confer
upon any person firm company or body whatsoever any license right or
interest to occupy it or any part thereof without the consent in
writing of the Bank.
5. With reference to the book debts and other debts hereby specifically charged
the Company shall pay into the Company's account with the Bank all moneys which
it may receive in respect to such debts and shall not without the prior consent
in writing of the Bank sell factor discount or otherwise charge or assign the
same in favour of any other person or purport to do so and the Company shall if
called upon to do so by the Bank from time to time exercise legal assignments of
such book debts and other debts to the Bank.
6. With reference to the property assets and rights subject to the floating
charge:
(i) the Company shall not be at liberty without the consent in writing
of the Bank to:
(a) create any mortgage or charge ranking in priority to or pari
passu with that charge and/or
(b) sell the whole or except in the ordinary course of business
any part of the Company's undertaking; and
(ii) the Company agrees to effect and maintain such insurances as are
normally maintained by prudent companies carrying on similar
businesses; and
(iii) the Bank may by notice to the Company convert the floating charge
into a specific charge as regards any assets specified in the notice
which the Bank shall consider to be in danger of being seized or
sold under any form of distress or execution levied or threatened
and may appoint a receiver thereof.
7. Section 103 of the Law of Property Act 1925 ("the 1925 Act") shall not apply
to this security which shall immediately become enforceable and the power of
sale and other powers conferred by section 101 of the 1925 Act as varied or
extended by this security shall be immediately exercisable at any time after
notice demanding payment of any moneys hereby secured shall have been served by
the Bank on the Company.
8. At any time after this security shall have become enforceable and in any
event immediately upon or at any time after the presentation of a petition
applying for an administration order to be made in relation to the Company the
Bank may by writing under the hand of any Manager of the Bank appoint any person
(or persons) to be receiver of the property hereby charged or any part thereof.
Where two or more persons are appointed to be receivers the Bank will in the
appointment declare whether any act required or authorised to be done by such
receivers is to be done by any one or more of such receivers for the time being
holding office. Any receiver shall be the agent of the Company and the Company
shall be solely responsible for his acts or defaults and for his remuneration.
Where any receiver is appointed by the Bank as an administrative receiver (as
that term is used in the Insolvency Act 1986) such administrative receiver shall
have all the powers of an administrative receiver specified in Schedule 1 of the
Insolvency Act 1986 or any statutory modification or re-enactment thereof. Any
references in this security to receiver shall, except where the context does not
permit include a reference to any such administrative receiver. Where any
receiver is appointed by the Bank to be a receiver of part only of the property
hereby charged and is not therefore an administrative receiver (as that term is
used in the Insolvency Act 1986) such receiver shall have all the powers
specified in Schedule 1 to the Insolvency Act 1986 which he would have were he
an administrative receiver insofar as such powers are or might be appropriate to
the receivership of the property of the Company in respect of which he has been
appointed.
Page 2
<PAGE>
9. All moneys received by any receiver shall be applied by him in the following
order:
(i) in payment of the costs charges and expenses of and incidental to
the appointment of the receiver and the exercise of all or any of
his powers and of all outgoings paid by him
(ii) in payment of remuneration of the receiver at such rates as may be
agreed between him and the Bank at or at any time after his
appointment
(iii) in or towards discharge of the liabilities hereby secured in such
order as the Bank may from time to time require
(iv) the surplus (if any) shall be paid to the Company or other person
entitled to it.
10. The powers conferred on mortgagees or receivers by the 1925 Act shall apply
to this security except in so far as they are expressly or impliedly excluded
and where there is any ambiguity or conflict between the powers contained in the
1925 Act and those contained in this security the terms of this security shall
prevail.
11. If the Bank receives or is deemed to be affected by notice whether actual or
constructive of any subsequent charge or other interest affecting any part of
the property hereby charged or the proceeds of sale thereof the Bank may open a
new account or accounts with any person for whose liabilities this Mortgage
Debenture is available as security. If the Bank does not open a new account it
shall nevertheless be treated as if it had done so at the time when it received
or was deemed to have received notice and as from that time all payments made to
the Bank shall be credited or be treated as having been credited to the new
account and shall not operate to reduce the amount for which this Mortgage
Debenture is security.
12. The Company hereby irrevocably appoints each of the Bank and any person
nominated in writing under the hand of any officer of the Bank including every
receiver hereunder as Attorney of the Company with full power of substitution
for the Company and in its name and on its behalf and its act and deed to
execute seal and deliver and otherwise perfect or do any deed assurance
agreement instrument or act which may be required or deemed proper for any of
the purposes of this security.
13. In the exercise of the powers hereby conferred the Bank or any receiver may
sever and sell plant machinery or other fixtures separately from the property to
which they may be annexed.
14. The Company shall from time to time supply to the Bank such accounts or
other information concerning the assets liabilities and affairs of the Company
its subsidiary or associated companies as the Bank may require.
15. In case the Company shall have more than one account with the Bank it shall
be lawful for the Bank at any time and without any prior notice forthwith to
transfer all or any part of any balance standing to the credit of any such
account (whether current or otherwise or subject to notice or not) to any other
such account which may be in debit but the Bank shall notify the Company of the
transfer having been made. If any credit balance is in a different currency from
any debit balance the Bank shall be entitled to utilise currency of the credit
balance for the purchase at its spot rate of exchange of an amount in the
currency of the debit balance not exceeding the amount of such debit balance and
also to pay out of the credit balance any additional sum which the Bank may be
required to pay for such currency.
16. The security from time to time constituted by or pursuant to this Mortgage
Debenture shall be in addition to and shall be independent of any other security
which the Bank may now or at any time hold on all or any part of the assets of
the Company for or in respect of all or any part of the moneys obligations and
liabilities hereby covenanted to be paid or discharged and it is hereby declared
that no prior security held by the Bank over the property hereby charged or any
part of it shall merge in the security created hereby or pursuant hereto.
17. A demand or notice hereunder shall be in writing signed by an officer or
agent of the Bank and may be served on the Company by hand or by post or by
facsimile machine (fax) and in the case of service by hand either by delivering
the same to any officer of the Company at any place or leaving the same
addressed to the Company at its registered office or a place of business last
known to the Bank. If such demand or notice is sent by post or by fax it shall
be deemed to have been received if posted on the day following the day on which
it was posted and if sent by fax at the time of transmission and shall be
effective notwithstanding it be returned undelivered. The Bank may use the last
fax number of the Company known to it and transmission may be proved by
production of an activity or transmission report which purports to indicate the
transmission of a message to such a number.
18. It is hereby certified that this Mortgage Debenture does not contravene any
of the provisions of the Company's Memorandum and Articles of Association and
has been executed in accordance therewith.
19. This Mortgage Debenture shall be governed by and construed in accordance
with the Laws of England.
In Witness whereof this Deed has been executed by the Company the day and year
first before written.
<PAGE>
The Schedule
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Page 4
<PAGE>
- --------------------------------------------------------------------------------
Executed as a Deed by the Company acting by
_______________________________________________ Director
Name in full
(in block letters)____________________________
______________________________________________ *Director/Secretary
Name in full
(in block letters)____________________________
*delete as applicable
or alternatively:
The Common Seal of
MORRIS & INGRAM (TEXTILES) LIMITED
was hereunto affixed
in the presence of
______________________________________________ Director
______________________________________________ Secretary
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For and on behalf of the Bank
Authorised Signatory
- -------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We acknowledge receipt of a complete copy of this document
-----------------------------------
Signature
- --------------------------------------------------------------------------------
Page 5
<PAGE>
Certificate of the Registration of a Mortgage or Charge
Pursuant to Section 401 (2) of the Companies Act 1985
I hereby certify that a Mortgage or Charge dated the __________ day of
__________________ One Thousand nine hundred and __________ and enacted by
___________________________ ______________________________________________ for
securing all moneys now due, or hereafter to become due, or from time to time
accruing due from the Company to Coutts & Company on any account whatsoever was
registered pursuant to Section 395 of the
Companies Act 1985 on the __________ day of ___________________________________
One Thousand nine hundred and ________________________________
Given under my hand at Cardiff this ______________ day of _____________________
One thousand nine hundred and ________________________________
Registrar of Companies
This Release made the _____________________ day of ____________________________
One Thousand nine hundred and __________________________________________ between
the within-named Coutts & Company ("the Bank") of the one part and the
within-named
of the other part Witnesses that the Bank as Mortgagee hereby releases all and
singular the property now comprised in or charged by the within-written Deed
from all moneys secured by and from all claims and demands under the within
written Deed.
In Witness whereof this Deed has been executed by the Bank the day and year
first before written.
The Common Seal of
Coutts & Company
was hereunto affixed
in the presence of
Authorised Sealing Officer
Page 6
<PAGE>
Exhibit 10.28
WILLCOX & GIBBS, INC.
900 Milik Street
Carteret, NJ 07008
December 17, 1996
NationsCredit Commercial Corporation
One Canterbury Green
Stamford, Connecticut 06901
Bank of America Illinois
231 South LaSalle Street
Chicago, Illinois 60697
Re: Warrant Redemption Agreement
Ladies and Gentlemen:
Reference is made to the Amended and Restated Credit Agreement dated as of
July 13, 1994, as amended and restated as of February 1, 1996 among WG Apparel,
Inc., Willcox & Gibbs, Inc. ("W & G"), the Lenders referred to therein and
NationsCredit Commercial Corporation (formerly known as Nations Financial
Capital Corporation), as Agent (as amended from time to time) (the "Credit
Agreement") pursuant to which W & G issued (i) the Warrant to Purchase 70,629.58
Shares of Class C Common Stock ("Common Stock") of W & G dated as of July 13,
1994 to NationsCredit Commercial Corporation (formerly known as Nations
Financial Capital Corporation) (the "Original NCCC Warrant"); (ii) the Warrant
to Purchase 32,985 Shares of Common Stock of W & G dated as of February 1, 1996
to NationsCredit Commercial Corporation (the "Additional NCCC Warrant"); and
(iii) the Warrant to Purchase 44,143.42 Shares of Common Stock of W & G dated as
of July 13, 1994 to Bank of America Illinois (formerly known as Continental
Bank) (the "B of A Warrant"). The Original NCCC Warrant or the Additional NCCC
Warrant or both are herein referred to as the "NCCC Warrants". The NCCC Warrants
or the B of A Warrant or both are herein referred to as the "Warrants".
W & G intends to issue $85,000,000 aggregate principal amount of its
Series A Senior Notes due 2003 (the "Senior Notes") on or about January 3, 1997.
Subject to, and contemporaneously with the receipt by W & G of the proceeds
therefrom, W & G intends to repay the loans under the Credit Agreement, and to
redeem 75% of the Warrants for cash and on a pro rata basis.
The parties hereto therefore agree as follows:
1. NationsCredit Commercial Corporation ("NCCC") and W & G agree that W &
G shall redeem 75% of the NCCC Warrants in accordance with the terms and subject
to the conditions of this Agreement.
<PAGE>
2
2. Bank of America Illinois ("B of A") and the Company agree that W & G
shall redeem 75% of the B of A Warrant in accordance with the terms and subject
to the conditions of this Agreement.
3. The redemption of the Warrants shall take place upon satisfaction of
the following conditions:
(a) the Senior Notes shall have been issued and W & G shall have received
the net proceeds therefrom;
(b) all principal, interest, fees and other amounts owing to the Agent and
the Lender under the Credit Agreement shall have been paid in full;
(c) NCCC shall have delivered the warrant certificate representing the
Original NCCC Warrant to W & G in exchange for (i) cash in the amount of
$1,446,670.37 constituting the redemption price for 75% of the Original
NCCC Warrant (representing the right to purchase 52,972.185 shares of
Common Stock) and (ii) a new warrant certificate representing the portion
of the Original NCCC Warrant not being redeemed, substantially in the form
of Exhibit A hereto registered in the name of NCCC representing the right
to purchase 17,657.395 shares of Common Stock;
(d) NCCC shall have delivered the warrant certificate representing the
Additional NCCC Warrant to W & G in exchange for (i) cash in the amount of
$675,615.26 constituting the redemption price for 75% of the Additional
NCCC Warrant (representing the right to purchase 24,738.75 shares of
Common Stock) and (ii) a new warrant certificate representing the portion
of the Additional NCCC Warrant not being redeemed, substantially in the
form of Exhibit A hereto, registered in the name of NCCC representing the
right to purchase 8,246.25 shares of Common Stock;
(e) B of A shall have delivered the warrant certificate representing the B
of A Warrant to W & G in exchange for (i) cash in the amount of
$904,167.60 constituting the redemption price of 75% of the B of A Warrant
(representing the right to purchase 33,107.565 shares of Common Stock) and
(ii) a new warrant certificate representing the portion of the Warrant not
being redeemed, substantially in the form of Exhibit A hereto, registered
in the name of B of A representing the right to purchase 11,035.855 shares
of Common Stock;
(f) the execution by the parties thereto of Amendment No. 2 to the
Warrantholders Rights Agreement dated as of July 13, 1994 among W & G, the
Investors (as defined therein) and the Warrantholders (as defined therein)
(as amended) substantially in the form of Exhibit B hereto;
(g) the foregoing conditions shall have been satisfied and the redemptions
shall occur no earlier than January 1, 1997 and no later than January 31,
1997; and
<PAGE>
3
(h) the receipt by NCCC and B of A of all documents that each of them may
reasonably request relating to the existence of W & G and the corporate
authority for this Agreement, the new warrant certificates to be issued,
and Amendment No. 2 to the Warrantholders Rights Agreement, all in form
and substance satisfactory to NCCC and B of A.
4. W & G represents and warrants that on the date hereof and on the date
on which the redemption of the Warrants occurs, the execution and delivery of
this Agreement, the new warrant certificates to be issued, and Amendment No. 2
to the Warrantholders Rights Agreement, and the redemption of the Warrants
hereunder, the issuance of the new warrant certificates to be issued, and the
compliance by W & G with the terms and provisions hereof and of the new warrant
certificates to be issued and of Amendment No. 2 to the Warrantholders Rights
Agreement, have been duly authorized by all necessary corporate action on the
part of W & G and do not conflict with, or result in a breach of, the terms,
conditions or provisions of, or constitute a default under, the certificate of
incorporation of W & G or any material contract or material agreement to which W
& G is a party, and this Agreement, the new warrant certificates to be issued
and Amendment No. 2 to the Warrantholders Rights Agreement when executed and
delivered by W & G shall constitute legal, valid and binding agreements of W & G
enforceable against W & G in accordance with their terms.
5. The parties hereto agree that if the conditions set forth in Section 3
hereof have not been satisfied on or before January 31, 1997, this Agreement
shall terminate and cease to be binding on any party hereto.
6. The parties hereto agree that the execution, delivery and performance
of this Agreement in accordance with the terms and conditions hereof shall not
constitute a default under the Credit Agreement.
7. This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the State of New York.
8. This Agreement may be executed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Agreement constitutes the entire
agreement among the parties hereto and supersedes any and all prior agreements
and understandings, oral or written, relating to the subject matter hereof.
9. All representations, warranties and agreements contained in this
Agreement shall survive the redemption of the Warrants as herein provided.
10. This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the parties hereto.
<PAGE>
5
Please indicate your acceptance of, and agreement with, the terms of this
Agreement by signing it in the space below
Very truly yours,
WILLCOX & GIBBS, INC.
By: /s/ John K. Ziegler
-------------------------------
John K. Ziegler
Chairman and
Chief Executive Officer
Accepted and agreed by:
NATIONSCREDIT COMMERCIAL
CORPORATION
By: /s/ Ronald S. Cohn
-------------------------
Name: Ronald S. Cohn
Title:
BANK OF AMERICA ILLINOIS
By: /s/ Barry R. Dunn
-------------------------
Name: Barry R. Dunn
Title: Vice President
<PAGE>
WILLCOX & GIBBS, INC.
900 Milik Street
Carteret, NJ 07008
December 17, 1996
NationsCredit Commercial Corporation
One Canterbury Green
Stamford, Connecticut 06901
Bank of America Illinois
231 South LaSalle Street
Chicago, Illinois 60697
Re: Warrant Redemption Agreement
Ladies and Gentlemen:
Reference is made to the Amended and Restated Credit Agreement dated as of
July 13, 1994, as amended and restated as of February 1, 1996 among WG Apparel,
Inc., Willcox & Gibbs, Inc. ("W & G"), the Lenders referred to therein and
NationsCredit Commercial Corporation (formerly known as Nations Financial
Capital Corporation), as Agent (as amended from time to time) (the "Credit
Agreement") pursuant to which W & G issued (i) the Warrant to Purchase 70,629.58
Shares of Class C Common Stock ("Common Stock") of W & G dated as of July 13,
1994 to NationsCredit Commercial Corporation (formerly known as Nations
Financial Capital Corporation) (the "Original NCCC Warrant"); (ii) the Warrant
to Purchase 32,985 Shares of Common Stock of W & G dated as of February 1, 1996
to NationsCredit Commercial Corporation (the "Additional NCCC Warrant"); and
(iii) the Warrant to Purchase 44,143.42 Shares of Common Stock of W & G dated as
of July 13, 1994 to Bank of America Illinois (formerly known as Continental
Bank) (the "B of A Warrant"). The Original NCCC Warrant or the Additional NCCC
Warrant or both are herein referred to as the "NCCC Warrants". The NCCC Warrants
or the B of A Warrant or both are herein referred to as the "Warrants".
W & G intends to issue $85,000,000 aggregate principal amount of its
Series A Senior Notes due 2003 (the "Senior Notes") on or about January 3, 1997.
Subject to, and contemporaneously with the receipt by W & G of the proceeds
therefrom, W & G intends to repay the loans under the Credit Agreement, and to
redeem 75% of the Warrants for cash and on a pro rata basis.
<PAGE>
The parties hereto therefore agree as follows:
1. NationsCredit Commercial Corporation ("NCCC") and W & G agree that W &
G shall redeem 75% of the NCCC Warrants in accordance with the terms and subject
to the conditions of this Agreement.
2. Bank of America Illinois ("B of A") and the Company agree that W & G
shall redeem 75% of the B of A Warrant in accordance with the terms and subject
to the conditions of this Agreement.
3. The redemption of the Warrants shall take place upon satisfaction of
the following conditions:
(a) the Senior Notes shall have been issued and W & G shall have received
the net proceeds therefrom;
(b) all principal, interest, fees and other amounts owing to the Agent and
the Lender under the Credit Agreement shall have been paid in full;
(c) NCCC shall have delivered the warrant certificate representing the
Original NCCC Warrant to W & G in exchange for (i) cash in the amount of
$1,446,670.37 constituting the redemption price for 75% of the Original
NCCC Warrant (representing the right to purchase 52,972.185 shares of
Common Stock) and (ii) a new warrant certificate representing the portion
of the Original NCCC Warrant not being redeemed, substantially in the form
of Exhibit A hereto registered in the name of NCCC representing the right
to purchase 17,657.395 shares of Common Stock;
(d) NCCC shall have delivered the warrant certificate representing the
Additional NCCC Warrant to W & G in exchange for (i) cash in the amount of
$675,615.26 constituting the redemption price for 75% of the Additional
NCCC Warrant (representing the right to purchase 24,738.75 shares of
Common Stock) and (ii) a new warrant certificate representing the portion
of the Additional NCCC Warrant not being redeemed, substantially in the
form of Exhibit A hereto, registered in the name of NCCC representing the
right to purchase 8,246.25 shares of Common Stock;
(e) B of A shall have delivered the warrant certificate representing the B
of A Warrant to W & G in exchange for (i) cash in the amount of
$904,167.60 constituting the redemption price of 75% of the B of A Warrant
(representing the right to purchase 33,107.565 shares of Common Stock) and
(ii) a new warrant certificate representing the portion of the Warrant not
being redeemed, substantially in the form of Exhibit A hereto,
2
<PAGE>
registered in the name of B of A representing the right to purchase
11,035.855 shares of Common Stock;
(f) the execution by the parties thereto of Amendment No. 2 to the
Warrantholders Rights Agreement dated as of July 13, 1994 among W & G, the
Investors (as defined therein) and the Warrantholders (as defined therein)
(as amended) substantially in the form of Exhibit B hereto;
(g) the foregoing conditions shall have been satisfied and the redemptions
shall occur no earlier than January 1, 1997 and no later than January 31,
1997; and
(h) the receipt by NCCC and B of A of all documents that each of them may
reasonably request relating to the existence of W & G and the corporate
authority for this Agreement, the new warrant certificates to be issued,
and Amendment No. 2 to the Warrantholders Rights Agreement, all in form
and substance satisfactory to NCCC and B of A.
4. W & G represents and warrants that on the date hereof and on the date
on which the redemption of the Warrants occurs, the execution and delivery of
this Agreement, the new warrant certificates to be issued, and Amendment No. 2
to the Warrantholders Rights Agreement, and the redemption of the Warrants
hereunder, the issuance of the new warrant certificates to be issued, and the
compliance by W & G with the terms and provisions hereof and of the new warrant
certificates to be issued and of Amendment No. 2 to the Warrantholders Rights
Agreement, have been duly authorized by all necessary corporate action on the
part of W & G and do not conflict with, or result in a breach of, the terms,
conditions or provisions of, or constitute a default under, the certificate of
incorporation of W & G or any material contract or material agreement to which W
& G is a party, and this Agreement, the new warrant certificates to be issued
and Amendment No. 2 to the Warrantholders Rights Agreement when executed and
delivered by W & G shall constitute legal, valid and binding agreements of W & G
enforceable against W & G in accordance with their terms.
5. The parties hereto agree that if the conditions set forth in Section 3
hereof have not been satisfied on or before January 31, 1997, this Agreement
shall terminate and cease to be binding on any party hereto.
6. The parties hereto agree that the execution, delivery and performance
of this Agreement in accordance with the terms and conditions hereof shall not
constitute a default under the Credit Agreement.
3
<PAGE>
7. This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the State of New York.
8. This Agreement may be executed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Agreement constitutes the entire
agreement among the parties hereto and supersedes any and all prior agreements
and understandings, oral or written, relating to the subject matter hereof.
7. All representations, warranties and agreements contained in this
Agreement shall survive the redemption of the Warrants as herein provided.
8. This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the parties hereto.
4
<PAGE>
Please indicate your acceptance of, and agreement with, the terms of this
Agreement by signing it in the space below.
Very truly yours,
WILLCOX & GIBBS, INC.
By: /s/ John K. Ziegler
-------------------------------
John K. Ziegler
Chairman and
Chief Executive Officer
Accepted and agreed by:
NATIONSCREDIT COMMERCIAL
CORPORATION
By:
-------------------------
Name:
Title:
BANK OF AMERICA ILLINOIS
By:
-------------------------
Name:
Title:
5
<PAGE>
Please indicate your acceptance of, and agreement with, the terms of this
Agreement by signing it in the space below.
Very truly yours,
WILLCOX & GIBBS, INC.
By:
-------------------------
John K. Ziegler
Chairman and
Chief Executive Officer
Accepted and agreed by:
NATIONSCREDIT COMMERCIAL
CORPORATION
By: /s/ Ronald S. Cohn
-------------------------
Name: Ronald S. Cohn
Title: Authorized Signatory
BANK OF AMERICA ILLINOIS
By:
-------------------------
Name:
Title:
5
<PAGE>
Please indicate your acceptance of, and agreement with, the terms of this
Agreement by signing it in the space below.
Very truly yours,
WILLCOX & GIBBS, INC.
By:
-------------------------
John K. Ziegler
Chairman and
Chief Executive Officer
Accepted and agreed by:
NATIONSCREDIT COMMERCIAL
CORPORATION
By:
-------------------------
Name:
Title:
BANK OF AMERICA ILLINOIS
By: /s/ Barry R. Dunn
-------------------------
Name: Barry R. Dunn
Title: Vice President
5
<PAGE>
Exhibit 10.29
FUNDAMENTAL AGREEMENT
---------------------
Entered into between Barudan Co, Ltd. Ichinomiya, Japan (hereinafter referred to
as Barudan), Geoffrey E., Macpherson Ltd. Nottingham, England (hereinafter
referred to as Macpherson U.K.) and Macpherson, Inc. Greensboro, N.C., U.S.A.
(hereinafter referred to as Macpherson U.S.A.).
In this agreement, Macpherson U.K. and Macpherson U.S.A. are to be treated as
one party and hereinafter referred to as Macpherson therefore Macpherson
represent Macpherson U.K. and Macpherson U.S.A.
This fundamental agreement stipulate only the basic clauses which shall last for
longer period and "MEMORANDUM AGREEMENT" shall be provided separately as an
integral part of this fundamental agreement to cover the clause which are not
stipulated in this fundamental agreement and may be varied in a short period on
Barudan and Macpherson's mutual and amicable discussion.
Witness: In consideration of mutual convenience and agreement, Barudan and
Macpherson hereby agree by and between each other as follows:
First: Barudan hereby constitute and appoint Macpherson as their sole
distributors of Barudan products (multi head embroidery machineries and the
related machineries i.e. punching machine and repeating machine and parts) in
the territories mentioned in the separate "MEMORANDUM AGREEMENT".
Second: Function of each party.
A) Barudan: Proper supply of Barudan products and guarantee of the qualities.
B) Macpherson: Sales and after service of Barudan products to all territories
which is stipulated in "MEMORANDUM AGREEMENT".
Third: Macpherson agree that they will establish proper agents in their
territories when they are required and conduct all operations to help those
agents such as
A) Technical guidance required for their proper after service
B) Supply of data required for their sales promotions
C) Supply of parts required for their repairing.
Fourth: Barudan agree that they will guarantee for the settlement of the
troubles caused by the faults of machineries when they are found within three
months, in principle, after installation of machineries with the replacement of
the parts etc. Even after three months, Barudan may guarantee the same if
Barudan judge that the faults are to be bear the fitting and traveling expenses
for the settlement.
Fifth: Macpherson agree that they will give proper "after-sales-service" for
machineries they delivered after guarantee terms expired.
Sixth: Macpherson agree that they will purchase and take up Barudan embroidery
machineries of the quantities agreed in the separate "MEMORANDUM AGREEMENT".
Seventh: Barudan agree that they will not sell the Barudan products which are
stipulated in this agreement, to other dealers nor agents nor customers other
than Macpherson in the territories agreed each other in "MEMORANDUM AGREEMENT".
<PAGE>
- page 2nd -
Eighth: Macpherson agree that they will submit price list of Barudan products
in all their territories and such prices shall be, in principle, discussed and
fired by two parties.
Nineth: Macpherson agree that they will not purchase the similar products from
other suppliers than Barudan unless they receive written consent.
Tenth: Macpherson agree that they will submit sales and market report of each
territories to Barudan at least twice a year (January and July).
Eleventh: The respective contract shall be confirmed between Barudan and
Macpherson consequently the order confirmation shall be exchanged among
themselves.
Twelve: The terms of this fundamental agreement shall be five years from
September 1st 1981 to August 31st 1985 and previous agreements shall be canceled
automatically when this agreement become effective and before three months of
the termination of this agreement, Barudan and Macpherson shall discuss mutually
the renewal of this agreement.
The terms of "MEMORANDUM AGREEMENT" shall be determined separately.
Thirteenth: Any alteration agreed each other on this agreement shall be
confirmed in writing. Any matter which is not mentioned in this agreement or
any matter which may be found to be not clear shall be discussed with faith and
sincerity and be settled amicably by Barudan and Macpherson.
Fourteenth: After conclude this agreement, Macpherson agree that they will
never purchase or sales other competitor's new machineries same kind of Barudan
producer which they are marketing.
Fifteenth: After conclude this agreement, herein agree that they will never
sell their machineries indirectly to the territories of Macpherson stipulated in
[ ] but except purchase for secondhand machineries for
resale.
To prove this agreement, the three copies of the original shall be made and each
party (Barudan, Macpherson U.K. and Macpherson U.S.A.) shall have one copy.
BARUDAN CO., INC. GEOFFREY F. MACPHERSON LTD.
- ------------------------- ----------------------------------
Yoshio Sibato, President. Geoffrey F. Macpherson, President.
MACPHERSON, INC.
------------------------------
Neil A. Macpherson, President.
<PAGE>
(This is an integral part of the fundamental agreement between Barudan and
Macpherson dated September 1, 1981.)
Barudan and Macpherson hereby agree by and between each other as follows:
First: Barudan hereby constitute and appoint Macpherson U.S.A. and Macpherson
U.K. as their sole distributors of Barudan products (multi-head embroidery
machineries and the related machineries, i.e. punching machine and repeating
machine and parts) in the following territories:
Macpherson U.S.A.
A) Whole territories of North and Central America
Macpherson U.K.
B) United Kingdom, Ireland, Iceland, West Germany, France, Italy, Austria,
Switzerland, Spain, Portugal, Holland, Belgium, Luxembourg, Norway, Sweden,
Denmark, Finland, Greece, Turkey, Cyprus, Malta and Gibraltar,
C) The continent of Africa and Mauritius
D) South America
Second: To analyze and understand each market situation, Agreement for annual
sales is to be exchanged between Barudan and Macpherson U.S.A. for territories
A) and between Barudan and Macpherson U.K. for territories B), C) and D).
The annual sales are stated hereunder.
Third: Macpherson agree that they will purchase Barudan embroidery machineries
excluding monogram machineries at least 264 units (U.S.A.=144, U.K.=120) by
their every best possible effort per year starting from October 1, 1985 until
September 30, 1986.
Fourth: Macpherson agree that they will purchase Barudan monogram machineries
(BEAT-101-UF and BEAT-102-UF) at least 180 units (U.S.A.=120, U.K.=60) by their
every best possible effort per year starting from October 1, 1985 until
September 30, 1986.
Fifth: Macpherson agree that they will purchase Barudan monogram machineries
(BEAT-106-UF) at least 170 units (U.S.A.=120, U.K.=50) by their every best
possible effort per year starting from October 1, 1985 until September 30, 1986.
Sixth: Macpherson agree that they will purchase Barudan monogram machineries
(BEAT-Junior) at least 144 units (U.S.A.=84, U.K.=60) by their every best
possible effort per year starting from October 1, 1985 until September 30, 1986.
Seventh: Fundamental Agreement for August 31, 1986 onwards between Barudan and
Macpherson will be discussed three months before August 31, 1986.
Eighth: Barudan agree that all the payment are made by Macpherson and the term
of payment is settled by D/A 150 days sign after B/I date by Macpherson U.K. and
by D/A 180 days sight after B/I date by Macpherson U.S.A.
Nineth: Regarding Canadian market, Barudan agree to communicate and contract
for Barudan products with Geoffrey L. Macpherson Canada, Inc., Ontario, Canada
and that the payment is settled by D/A 180 days sight after B/I date.
Macpherson U.K. agree to take a full responsibility for payment made by Geoffrey
E. Macpherson Canada, Inc.
Tenth: In case of there will be occurred any alteration with the territories
which was stipulated above, Barudan and Macpherson shall discuss again when they
have a discussion for the minimum quantity to be purchased for every year.
To prove this agreement, the three copies of the original shall be made and each
party (Barudan, Macpherson U.K. and Macpherson U.S.A.) shall have one copy.
Barudan Co., Ltd. Geoffrey E. Macpherson Ltd.
/s/ Yoshio Shibata /s/ Geoffrey F. Macpherson
- -------------------------- ----------------------------------
Yoshio Shibata, President. Geoffrey F. Macpherson, President.
<PAGE>
EXHIBIT C
Products that must bear the Meistergram name:
M80
M100
M700
M/00XL
<PAGE>
EXHIBIT D
Products that may be produced without the Meistergram name only if sold
outside the Macpherson Territory to Geoffrey E. Macpherson, Ltd. or to
Macpherson:
BEAT 3
(PROSPERITY)
BEAT 101
TEACH-IN
<PAGE>
EXHIBIT II
FUNDAMENTAL AGREEMENT
---------------------
This fundamental agreement is entered into on this 1st day of October, 1986 by
and between Marubeni Corporation of 4-2, Ohtemachi 1-chome, Chiyoda-ku, Tokyo,
Japan ("Marubeni"), Barudan Co., Ltd. of 906 Josuiji, Ichinomiya-city,
Aichiprefecture, Japan ("Barudan"), Geoffrey F. Macpherson Ltd. of Lenton Lane
Last, Clifton Boulevard, Nottingham NG7 2NT, England ("Macpherson U.K.") and
Macpherson Inc. of 3517 W. Wendover Ave., Greensboro, N.C. 27402, U.S.A.
("Macpherson U.S.A.").
First: 1) Contracts for Barudan products (i.e. multi-head embroidery machines,
monogram machines, the related machines excluding punching and repeating
machine, etc.) and other products which Barudan handle shall be made between
Marubeni and Macpherson U.K. and between Marubeni and Macpherson U.S.A. The
copies shall be sent to Barudan by Macpherson U.K. and Macpherson U.S.A. 2)
Contracts for parts shall be made between Barudan and Macpherson U.K. and
between Barudan and Macpherson U.S.A.
Second: Contracts between Marubeni and Macpherson U.S.A. and between Marubeni
and Macpherson U.K. shall be made on the basis of C&T amount in the price list
attached hereto. In case Barudan's products are shipped to Macpherson U.S.A.
for account of Macpherson U.K., C&F prices for Macpherson U.S.A. shall be
applied.
Third: 1) All shipments of Barudan products and other products which Barudan
handle to Macpherson U.K. and Macpherson U.S.A. shall be made through Marubeni.
Payment terms for shipment to Macpherson U.S.A. shall be D/A 180 days after B/L
date and for shipment to Macpherson U.K., shall be D/A 150 days after B/L date.
Fourth: Marubeni have an option to ship Barudan's products to Macpherson U.S.A.
for account of Macpherson U.K. or directly to Macpherson U.S.A. when the total
drafts' amounts exceed MITI credit limit for Macpherson U.S.A. In the former
case, the payment terms shall be D/A 180 days after B/L date and Marubeni agree
to pay two (2) percent of FOB invoice amount to Macpherson U.K. as a commission
for this transaction.
Fifth: Marubeni have no obligation regarding all kinds of technical troubles
and claims for quality, workmanship, performance, after-service, warranty,
technical guarantee of Barudan's products in the contracts.
Sixth: Marubeni's responsibility and any obligations for execution of the [ ]
to Macpherson U.S.A. and Macpherson U.K. shall be released when Barudan [ ]
unable to deliver Barudan's product to Marubeni after the contract between
Marubeni and Macpherson U.S.A. and between Marubeni and Macpherson U.K. are
made.
Seventh: Responsibilities for quotation of sales prices of Barudan's products
to Macpherson U.S.A. and Macpherson U.K. belong to Barudan. And Barudan shall
take all responsibilities for any kinds of troubles and claims including
[ ] related to import prices to U.S.A. and European countries.
<PAGE>
- page 2nd -
Eighth: The terms of this fundamental agreement shall be five years from
October 1st, 1986 to September 30th, 1991. Marubeni, Barudan, Macpherson U.K.
and Macpherson U.S.A. shall discuss mutually the renewal of this agreement three
months before the termination of this agreement.
Nineth: Any serious alteration on this agreement and any matter which is not
mentioned in this agreement shall be discussed mutually among Marubeni, Barudan,
Macpherson U.K. and Macpherson U.S.A.
Marubeni Corporation Geoffrey E. Macpherson Ltd.
/s/ Sadao Nukina /s/ Geoffrey E. Macpherson
- ----------------------------- ---------------------------------
Sadao Nukina, General Manager Geoffrey E. Macpherson, President
Textile Machinery Dept.
Barudan Co., Ltd. Macpherson Inc.
/s/ Yoshio Shibata /s/ Neil A. Macpherson
- ------------------------- -----------------------------
Yoshio Shibata, President Neil A. Macpherson, President
<PAGE>
Exhibit 10.30
EMPLOYMENT CONTRACT
EMPLOYMENT CONTRACT dated June 27, 1994 among WG Apparel, Inc., a Delaware
corporation ("WG"), whose business address is 43 Huron Drive, Chatham, New
Jersey 07928, and John K. Ziegler, Jr., whose address is 619 Willow Avenue,
Apt. 4L, Hoboken, New Jersey 07030 ("Employee").
WG desires to engage Employee to perform services as an executive officer
of WG and Employee desires to perform such services, on the terms and conditions
hereinafter set forth.
Accordingly, WG and Employee agree as follows:
1. Term.
WG agrees to employ Employee to perform services as an executive
officer for a period which will commence with the closing of the transaction
between WG and Willcox & Gibbs, Inc. or such shorter period as may be provided
herein and which shall continue indefinitely, subject to termination by WG upon
not less than one year written notice given by WG (the "Employment Period").
2. Nature of Services.
During the Employment Period, Employee shall be employed in an
executive capacity in the business of WG. Employee shall serve as Controller
and Secretary of WG upon commencement of the Employment Period and thereafter
for so long as requested by WG's Board of Directors. In the performance of
his duties, Employee shall be subject to the policy direction of
<PAGE>
2
the Board of Directors of WG and the chief executive officer of WG or
his designate.
3. Agreement to Serve.
Employee agrees to his employment as described in Section 2 and
agrees to devote a minimum of twenty-five percent (25%) of his business time
and efforts (except immaterial time and effort devoted to personal business
affairs and investments) to the performance of his duties under this
Employment Contract. Employee agrees that in the course of his employment,
he will faithfully observe and carry out all of the duties and
responsibilities customarily owed by an employee to his employer.
4. Compensation.
Employee's salary during the Employment Period shall be fixed from
time to time by the Compensation Committee of the Board of Directors of WG, Inc.
(the "Committee") but shall not be less than $60,000 per annum, payable in
equal installments no less frequently than monthly.
5. Incentive Compensation.
Employee shall be entitled to receive bonus or bonuses during the
Employment Period as may be provided by the Committee pursuant to WG's Incentive
Compensation Plan for Key Employees ("WG Plan"), or any successor, replacement
or additional incentive plan, provided, however, that with respect to each
annual amount available for distribution, if any, pursuant to the WG Plan,
Employee shall receive no less than three percent (3%). Awards from the plan
will be paid no later than March 31 following the end of the year.
<PAGE>
3
6. Expenses; Vacations; Fringe Benefits.
During the Employment Period, Employee shall be entitled to: (i)
reimbursement for reasonable travel, entertainment and other expenses
necessarily incurred in the performance of his duties hereunder upon submission
and approval of written statements in accordance with WG's standard policies as
in effect from time to time; (ii) reasonable vacations in accordance with WG's
then current regular procedures governing executives; (iii) participation in
such group insurance, retirement and other group benefit programs as from time
to time may be extended generally to WG executives; (iv) participation in WG's
Supplemental Death and Retirement Plan; (v) medical and hospital insurance
benefits, which shall be at least equal to those benefits in effect on the date
hereof; (vi) use of an automobile comparable to that presently being used by
executives in the business of WG; (vii) participation in all coverage
under all compensation, pension, welfare and fringe benefit plans, programs and
policies of WG applicable to senior executives of WG; and (viii) such additional
compensation, in the form of incentive compensation or otherwise, and such
participation in WG stock option, stock award, stock purchase or other stock
plans, as the Committee may from time to time provide.
7. Non-Competition.
Employee agrees that he will not, directly or indirectly
(individually or for, with or through any other person, firm or corporation, by
equity ownership or otherwise), (i) compete with WG or any subsidiary or other
affiliate or any
<PAGE>
4
successors or assigns of their businesses during the Employment Period with
respect to any business carried on by WG, or any such subsidiary or other
affiliate, successor or assign, or (ii) for a period of three years after the
end of the Employment Period, compete with WG or any subsidiary or other
affiliate or any of their successors or assigns of the businesses conducted by
WG and its subsidiaries at the date hereof, with respect to such business,
either (x) in the United States or (y) in any area outside the United States
where such businesses are now conducted.
(A) If, however, WG terminates the Employment Period or wrongfully
terminates the Employment Period, the foregoing provisions of this Section 7
shall cease to apply from and after such wrongful termination.
(B) Notwithstanding the foregoing, Employee shall be permitted to own not
in excess of one percent of any class of securities of any public company which,
at the time of Employee's acquisition of the securities, is not engaged in
competition with WG or any subsidiary or other affiliate or any such successor
or assign notwithstanding the fact that such company thereafter (without
assistance from Employee) becomes engaged in such competition, provided Employee
is not part of any controlling group and is solely a passive investor.
8. Patents; Inventions.
All of Employee's interest in patents, patent applications,
inventions, technological innovations, copyrights,
<PAGE>
5
developments and processes now or hereafter during the Employment Period owned
or developed by Employee relating to the business of WG, or any subsidiary or
other affiliate shall belong to WG, and without further compensation, but at
WG's expense, forthwith upon request of WG, Employee shall execute any and all
such assignments and other documents and take any and all such other action as
WG may reasonably request in order to vest in WG all Employee's right, title and
interest in and to such patents, patent applications, inventions, technological
innovations, copyrights, developments or processes, free and clear of liens,
charges and encumbrances.
9. Confidential Information.
All confidential information which Employee may now have or may
obtain during the Employment Period relating to the business of WG or any
subsidiary or other affiliate shall not be disclosed to any other persons either
during or after the termination of the Employment Period without the prior
written permission of WG, and Employee shall return all tangible evidence of
such confidential information to WG prior to or at the termination of the
Employment Period. Such information shall not include any information otherwise
publicly known.
10. Termination
Notwithstanding anything herein contained:
(A) If Employee shall, during the Employment Period, die or become
physically or mentally incapacitated or disabled for a period of six (6)
consecutive months, then WG shall have the right to give immediate notice of
termination of Employee's
<PAGE>
6
services hereunder; and, if, during the Employment Period, Employee shall
materially breach any of the terms hereof and WG shall have the right to give
notice of termination of Employee's services hereunder as of a date (not earlier
than thirty [30] days from such notice) to be specified in such notice;
provided, however, that Employee shall have the right during such 30-day period
to correct such breach (if capable of being corrected) or pay compensation
deemed reasonable by WG which does not exceed WG's reasonable estimate of its
aggregate loss, damage, deficiency or expense attributable to such breach (if
not capable of being corrected) and thereby avoid termination.
(B) In the event of termination pursuant to Section 10(a): (i)
Employee (or his estate) shall be entitled to receive his salary at the rate
provided in Section 4 to the end of the calendar month in which termination
occurs; and (ii) if the effective date of such termination is other than the
last day of a year, Employee (or his estate) shall be entitled to incentive
compensation for portions of the year prior to termination which is in the same
ratio to the amount of incentive compensation that would have been payable for
the full year as the ratio of the portions of the year prior to termination to
the full year (such incentive compensation to be determined and paid at the time
provided for in Section 4 for the full year).
(C) If any legal action or other proceeding is brought for the
enforcement of this Employment Contract or because of a dispute regarding an
alleged breach, default or misrepresentation in connection herewith, the
prevailing party in such action or
<PAGE>
7
other proceeding shall be entitled to recover reasonable attorneys' fees and
other litigation costs (including cost of appeal) and all reasonable related
costs and expenses thereby incurred, in addition to any other relief to which
such prevailing party may be entitled.
11. Entire Agreement; Severability.
This Employment Contract sets forth the entire understanding of the
parties with respect to the subject matter herein and may be modified only by a
written instrument duly executed by each party. The invalidity or
unenforceability of any provision of this Employment Contract shall not affect
the validity or enforceability of any other provision.
12. Notices.
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by registered mail, return
receipt requested, or delivered against receipt to the party to which it is to
be given at the address of such party first above set forth or to such other
address as the party shall have furnished in writing in accordance with the
provisions of Section 12. Any notice or other communication mailed by registered
mail shall be deemed given at the time of mailing or transmission thereof.
13. Assignment.
In the event of a future disposition of (or including) the
properties and business of WG, substantially as an entirety, by merger,
consolidation, sale of stock or assets or otherwise, then WG may elect to assign
this Employment Contract and all of
<PAGE>
8
its rights and obligations hereunder to the acquiring or surviving corporation,
provided that such corporation shall assume in writing all of the obligations of
WG hereunder and provided further that WG shall remain liable for the
performance of its obligations hereunder in the event of unjustified failure of
the acquiring corporation to perform it s obligation. Employee's rights under
this Employment Contract shall not be transferrable by assignment or otherwise,
shall not be subject to commutation or encumbrance and shall not be subject to
the claims of Employee's creditors.
14. Binding Effect; Inurement
This Employment Contract shall be binding upon and inure to the
benefit of WG and its successors and those who are its assigns under Section 13.
15. Governing Law
This Employment Contract shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflict of laws.
<PAGE>
9
IN WITNESS WHEREOF, the parties have duly executed this Employment
Contract as of the date first above written.
WG APPAREL, INC.
BY: /s/ John K. Ziegler
--------------------------------
JOHN K. ZIEGLER, CHAIRMAN
/s/ John K. Ziegler, Jr.
--------------------------------
JOHN K. ZIEGLER, JR.
<PAGE>
Exhibit 10.31
AMENDMENT NO. 2 TO WARRANTHOLDERS RIGHTS AGREEMENT
AMENDMENT dated as of January 3, 1997 among Willcox & Gibbs, Inc.
(formerly known as WG, Inc.), a Delaware corporation (together with its
successors, "Holdings"), the stockholders of Holdings listed on the signature
pages hereof and the holders of the Warrants listed on the signature pages
hereof.
WHEREAS, the parties hereto have heretofore entered into a
Warrantholders Rights Agreement dated as of July 13, 1994 (as amended by
Amendment No. 1 thereto dated as of February 1, 1996, the "Agreement"); and
WHEREAS, the parties hereto desire to amend the Agreement to provide
for the redemption by Holdings of Warrants exercisable for 110,818.5 shares of
Class C Common Stock;
NOW THEREFORE the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Agreement shall
have the meaning assigned such term in the Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference to
"this Agreement" and each other similar reference contained in the Agreement
shall from and after the effectiveness hereof refer to the Agreement as amended
hereby.
SECTION 2. Amendment of Section 1.1 of the Agreement. (a) The
definition of "Restricted Securities" in Section 1.1 of the Agreement is amended
by deleting the following parenthetical: "(including any notes issued upon
redemption of the Warrants pursuant to Section 5.2(c) thereof)."
1
<PAGE>
(b) The definition of "Substantial Sale" in Section 1.1 of the
Agreement is amended to replace the reference therein to the "Closing Date (as
such term is defined in the Credit Agreement)" with "July 13, 1994".
(c) The Definition of "Warrant" appearing in Section 1.1 of the
Agreement is amended to read as follows:
"Warrants" means the Warrant or Warrants initially exercisable for
36,939.5 shares of Class C Common Stock represented by the warrant certificates
issued on January 3, 1997, pursuant to the Warrant Redemption Agreement dated as
of December 17, 1997 among Holdings, NationsCredit Commercial Corporation and
Bank of America Illinois, (which represent the unredeemed portion of the
warrants originally issued pursuant to the Credit Agreement, initially
exercisable for 147,758 shares of Class C Common Stock and of which warrants
exercisable for 110,818.5 shares of Class C Common Stock were redeemed pursuant
to the Warrant Redemption Agreement) as such Warrants may be transferred or
otherwise assigned, but only to the extent not theretofore exercised, redeemed
or expired in accordance with their respective terms.
SECTION 3. Amendment of Section 2.8 of the Agreement. Clause (ii) of
Section 2.8 of the Agreement is amended to read as follows: "(ii) a Change of
Control (as defined in the 12.25% Series A Senior Notes of Holdings issued on
January 3, 1997) shall have occured."
SECTION 4. Addition of Section 4.12 to the Agreement. Article 4 of
the Agreement is amended by adding a new Section 4.12 to read in its entirety as
follows:
Provision of Information. Holdings shall send to each of the
Warrantholders each financial statement, report, notice or proxy sent by it or
by any of its subsidiaries to the Stockholders or creditors of Holdings
generally.
SECTION 5. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
2
<PAGE>
SECTION 6. Counterparts; Effectiveness. This Amendment may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Amendment shall become effective when each of the parties hereto shall have
received counterparts hereof executed by each of the parties hereto.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed and delivered as of the date first above written.
WILLCOX & GIBBS, INC.
By /s/ John K. Ziegler
-------------------------
Name: John K. Ziegler
Title: Chairman
900 Milik St.
Carteret, NJ 07008
4
<PAGE>
STOCKHOLDERS
/s/ Richard J. Mackey
----------------------------
Name: Richard J. Mackey
/s/ Jack Klasky
----------------------------
Name: Jack Klasky
/s/ Maxwell Tripp
----------------------------
Name: Maxwell Tripp
/s/ Frank Walsh, Trustee
----------------------------
Name: Frank Walsh, as Trustee
of the __________
/S/ John K. Ziegler
----------------------------
Name: John K. Ziegler
/S/ John K. Ziegler
----------------------------
Name: John K. Ziegler, as
Trustee of the John
K. Ziegler Trust
5
<PAGE>
WARRANTHOLDERS
NATIONSCREDIT COMMERCIAL
CORPORATION
By
--------------------------
Title:
BANK OF AMERICA ILLINOIS
By
--------------------------
Title:
6
<PAGE>
Exhibit 10.32
AMENDMENT NO. 1 TO WARRANTHOLDERS RIGHTS AGREEMENT
AMENDMENT dated as of February 1, 1996 among Willcox & Gibbs, Inc.
(formerly known as WG, Inc.), a Delaware corporation (together with its
successors, "Holdings"), the stockholders of Holdings listed on the signature
pages hereof and the holders of the Warrants listed on the signature pages
hereof.
WHEREAS, the parties hereto have heretofore entered into a
Warrantholders Rights Agreement dated as of July 13, 1994 (the "Agreement"); and
WHEREAS, the parties hereto desire to amend the Agreement to provide
for the issuance by Holdings of additional Warrants exercisable for 32,985
shares of Class C Common Stock;
NOW THEREFORE the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1. Definitions; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Agreement shall
have the meaning assigned such term in the Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference to
"this Agreement" and each other similar reference contained in the Agreement
shall from and after the effectiveness hereof refer to the Agreement as amended
hereby.
SECTION 2. Amendment of Section 1.1 of the Agreement. The Definition
of "Warrant" appearing in Section 1.1 of the Agreement is amended to read as
follows:
<PAGE>
"Warrants" means the Warrant or Warrants initially exercisable for
114,773 shares of Class C Common Stock issued on July 13, 1994 pursuant to the
Credit Agreement and the Warrant or Warrants initially exercisable for 32,985
shares of Class C Common Stock issued on February 1, 1996 pursuant to the Credit
Agreement, as such Warrants may be transferred or otherwise assigned, but only
to the extent not theretofore exercised, redeemed or expired in accordance with
their respective terms.
SECTION 3. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 4. Counterparts; Effectiveness. This Amendment may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Amendment shall become effective when each of the parties hereto shall have
received counterparts hereof executed by each of the parties hereto.
2
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed and delivered as of the date first above written.
WILLCOX & GIBBS, INC.
By /s/ [ILLEGIBLE]
------------------------
Title: Vice President
900 Milik St.
Carteret, NJ 07008
<PAGE>
STOCKHOLDERS
---------------------------------
Name: Richard J. Mackey
Address:
---------------------------------
Name: Jack Klasky
Address:
---------------------------------
Name: Maxwell Tripp
Address:
---------------------------------
Name: Frank Walsh
Address:
---------------------------------
Name: John K. Ziegler
Address:
---------------------------------
Name: John K. Ziegler, as Trustee
of the John K. Ziegler Trust
Address:
<PAGE>
STOCKHOLDERS
---------------------------------
Name: Richard J. Mackey
Address:
/s/ Jack Klasky
---------------------------------
Name: Jack Klasky
Address:
---------------------------------
Name: Maxwell Tripp
Address:
---------------------------------
Name: Frank Walsh
Address:
---------------------------------
Name: John K. Ziegler
Address:
---------------------------------
Name: John K. Ziegler, as Trustee
of the John K. Ziegler Trust
Address:
<PAGE>
STOCKHOLDERS
---------------------------------
Name: Richard J. Mackey
Address:
---------------------------------
Name: Jack Klasky
Address:
/s/ Maxwell Tripp
---------------------------------
Name: Maxwell Tripp
Address:
---------------------------------
Name: Frank Walsh
Address:
---------------------------------
Name: John K. Ziegler
Address:
---------------------------------
Name: John K. Ziegler, as Trustee
of the John K. Ziegler Trust
Address:
<PAGE>
STOCKHOLDERS
---------------------------------
Name: Richard J. Mackey
Address:
---------------------------------
Name: Jack Klasky
Address:
---------------------------------
Name: Maxwell Tripp
Address:
/s/ Jeffrey R. Walsh, Trustee
---------------------------------
Name: WG TRUST
Jeffrey R. Walsh, TRUSTEE
Address:
---------------------------------
Name: John K. Ziegler
Address:
---------------------------------
Name: John K. Ziegler, as Trustee
of the John K. Ziegler Trust
Address:
<PAGE>
STOCKHOLDERS
---------------------------------
Name: Richard J. Mackey
Address:
---------------------------------
Name: Jack Klasky
Address:
---------------------------------
Name: Maxwell Tripp
Address:
---------------------------------
Name: Frank Walsh
Address:
/s/ John K. Ziegler
---------------------------------
Name: John K. Ziegler
Address:
/s/ John K. Ziegler
---------------------------------
Name: John K. Ziegler, as Trustee
of the John K. Ziegler Trust
Address:
<PAGE>
WARRANTHOLDERS
NATIONSCREDIT COMMERCIAL
CORPORATION
By [ILLEGIBLE]
-------------------------------
Title:
One Canterbury Green
Stamford, CT 06901
Telefax: 203-352-4171
BANK OF AMERICA ILLINOIS
By
-------------------------------
Title:
231 South LaSalle Street
Chicago, IL 60697
<PAGE>
WARRANTHOLDERS
NATIONSCREDIT COMMERCIAL
CORPORATION
By
-------------------------------
Title:
BANK OF AMERICA ILLINOIS
By [ILLEGIBLE]
-------------------------------
Title: Vice President
<PAGE>
Exhibit 10.33
EXECUTION COPY
WARRANTHOLDERS RIGHTS AGREEMENT
WARRANTHOLDERS RIGHTS AGREEMENT dated as of July 13, 1994 among WG,
Inc., a Delaware corporation (together with its successors, "Holdings"), the
stockholders of Holdings listed on the signature pages hereof (collectively, the
"Investors") (the Investors together with any holder of Conversion Shares (as
defined herein) and such other stockholders of Holdings as may, from time to
time, become parties to this Agreement in accordance with the provisions hereof,
the "Stockholders") and the holders of the Warrants (as defined herein) listed
on the signature pages hereof (such Warrantholders and such other warrantholders
of Holdings as may, from time to time, become parties to this Agreement in
accordance with the provisions hereof, the "Warrantholders").
WHEREAS on the date hereof, the Investors purchased from Holdings
and are the beneficial owners of 481,250 shares of Class A Common Stock (as
defined herein), and the Warrantholders listed on the signature pages hereof
purchased and are the beneficial owner of the Warrants (as defined herein) to
purchase 114,773 shares of Class C Common Stock; and
WHEREAS Holdings and each Stockholder (other than the holders of the
Conversion Shares) wish to provide to the Warrantholders and the holders of the
Conversion Shares the rights described herein;
NOW THEREFORE the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. Unless otherwise defined herein, the
following terms used in this Agreement shall have the meanings specified below.
<PAGE>
"Affiliate" means, with respect to any Person, any of (i) a director
or executive officer of such Person, (ii) a spouse, parent, sibling or
descendant of such Person (or a spouse, parent, sibling or descendant of any
director or executive officer of such Person) and (iii) any other Person (other
than Holdings or any Subsidiary of Holdings) that, directly or indirectly,
controls, or is controlled by or is under common control with such Person. For
the purpose of this definition, "control" (including the terms "controlling",
"controlled by" and "under common control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities or by contract or agency or
otherwise.
"BHC Act" means the Bank Holding Company Act of 1956, as amended.
"Class A Common Stock" means the Class A common stock of Holdings,
no par value per share.
"Class B Common Stock" means the Class B common stock of Holdings,
no par value per share.
"Class C Common Stock" means the Class C common stock of Holdings,
no par value per share .
"Commission" means the Securities and Exchange Commission or any
other Federal agency at the time administering the Securities Act.
"Common Stock" means the Class A Common Stock, the Class B Common
Stock or the Class C Common Stock, or any combination of the foregoing, as the
context may require.
"Conversion Shares" means (i) any shares of Class C Common Stock or
other securities issued or issuable upon the exercise of any Warrants and (ii)
any securities issued or issuable with respect to any of such shares or other
securities referred to in clause (i) upon the conversion thereof into other
securities (including Class A Common Stock) or by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise; provided that any of such
securities shall cease to be Conversion Shares when such securities shall have
(x) been disposed of pursuant to a Public Sale or (y) ceased to be outstanding.
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<PAGE>
"Credit Agreement" means the Credit Agreement dated as of July 13,
1994 among WG Apparel, Inc., Holdings, the lenders named therein and Nations
Financial Capital Corporation, as Agent, as amended from time to time.
"Exchange Act" means the Securities Exchange Act of 1934, or any
successor Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Securities Exchange Act of 1934 shall include a
reference to the comparable section, if any, of any such successor Federal
statute.
"Fair Market Value" as at any date of determination means the price
of as of such date that would be obtained in an arm's length free market
transaction between a willing seller and a willing and able buyer, neither of
whom is under undue pressure to complete the transaction.
"Initial Public Offering" means the first registration of an
offering of shares of Common Stock under the Securities Act which becomes
effective (other than by a registration on Form S-4 or S-8 or any successor or
similar forms).
"Initiating Holders" has the meaning set forth in Section 3.1
hereof.
"Investors Shareholder Agreement" means the Investors Shareholder
Agreement dated as of July 13, 1994 among Holdings and the stockholders of
Holdings named therein, including the Investors.
"Other Shares" has the meaning set forth in Section 3.1.
"Person" means a corporation, an association, a partnership, an
organization, a business, an individual, a government or a subdivision thereof
or a governmental agency.
"Public Sale" means any sale of Common Stock to the public pursuant
to an offering registered under the Securities Act or to the public through a
broker, dealer or market maker pursuant to the provisions of Rule 144 (or any
successor provision then in effect) adopted under the Securities Act.
"Qualified IPO" means an Initial Public Offering,
3
<PAGE>
the net proceeds to Holdings of which equal or exceed $20,000,000.
"Registrable Securities" means any Conversion Shares until the date
(if any) on which such Conversion Shares shall have been transferred or
exchanged and new certificates for them not bearing a legend restricting further
transfer shall have been delivered by Holdings and subsequent disposition of
them shall not require registration or qualification of them under the
Securities Act or any similar state law then in force.
"Registration Expenses" means all expenses incident to Holdings'
performance of or compliance with Sections 3.1 through 3.5 hereof, including (i)
all registration, filing and NASD fees, (ii) all fees and expenses of complying
with securities or blue sky laws, (iii) all word processing, duplicating and
printing expenses, (iv) all messenger and delivery expenses, (v) the fees and
disbursements of counsel for Holdings and of its independent public accountants,
including the expenses of any special audits or "cold comfort" letters required
by or incident to such performance and compliance, (vi) premiums and other costs
of policies of insurance (if any) against liabilities arising out of the public
offering of the Registrable Securities being registered if Holdings desires such
insurance and (vii) any fees and disbursements of underwriters customarily paid
by issuers or sellers of securities, but not including underwriting discounts
and commissions and transfer taxes, if any, provided that, in any case where
Registration Expenses are not to be borne by Holdings, such expenses shall not
include (1) salaries of Holdings personnel or general overhead expenses of
Holdings, (2) auditing fees, (3) premiums or other expenses relating to
liability insurance required by underwriters of Holdings or (4) other expenses
for the preparation of financial statements or other data, to the extent that
any of the foregoing (1) through (4) is normally prepared by Holdings in the
ordinary course of its business or would have been incurred by Holdings had no
public offering taken place.
"Regulation Y Holder" means any Warrant Securityholder that is a
bank holding company within the meaning of the BHC Act, or a subsidiary thereof
subject to Regulation Y under the BHC Act.
"Regulatory Change" means, with respect to any Regulation Y Holder,
(i) any change on or after the date hereof in United States federal or state or
foreign laws or regulations (including the BHC Act and Regulation Y
4
<PAGE>
thereunder); (ii) the adoption on or after the date hereof of any interpretation
or ruling applying to a class of Persons including such Regulation Y Holder
under any United States federal or state or foreign laws or regulations by any
court or governmental or regulatory authority charged with the interpretation or
administration thereof; or (iii) the modification on or after the date hereof of
any agreement or commitment of any such governmental or regulatory authority
that is applicable to or binding upon such Regulation Y Holder.
"Restricted Securities" means the Warrants, the Conversion Shares
and any securities obtained upon exchange for or upon conversion or transfer of
or as a distribution on Warrants, the Conversion Shares or any such securities
(including any notes issued upon redemption of the Warrants pursuant to Section
5.2(c) thereof); provided that particular securities shall cease to be
Restricted Securities when such securities shall have (x) been disposed of
pursuant to a Public Sale, (y) been otherwise transferred or exchanged and new
certificates for them not bearing a legend restricting further transfer shall
have been delivered by Holdings and subsequent disposition of them shall not
require registration or qualification of them under the Securities Act or any
similar state law then in force or (z) ceased to be outstanding. Whenever any
particular securities cease to be Restricted Securities, the holder thereof
shall be entitled to receive from the issuer thereof or its transfer agent,
without expense (other than transfer taxes, if any), new securities of like
tenor not bearing a legend of the character set forth in Section 2.2.
"Securities Act" means the Securities Act of 1933, or any similar
Federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time. Reference to a particular section of
the Securities Act of 1933 shall include a reference to the comparable section,
if any, of any such similar Federal statute.
"Stockholder" has the meaning set forth in the introductory
paragraph.
"Substantial Sale" means a transfer of Common Stock by Transferor
(as defined in Section 2.4) or its Affiliates if, after giving effect thereto,
such Transferor and its Affiliates will be the beneficial owners of less than
50% of the equity interest in the Company beneficially owned by such Transferor
and its Affiliates as of the "Closing Date" (as such term is defined in the
Credit
5
<PAGE>
Agreement).
"Warrant Securityholder" means at any time any Warrantholder or any
holder of Conversion Shares.
"Warrantholders" has the meaning set forth in the introductory
paragraph (and for purposes of Section 2.8 shall include any Person that held
Warrants that were redeemed pursuant to Section 5.3 of the Warrants).
"Warrants" means the Warrant or Warrants originally issued pursuant
to the Credit Agreement, as such Warrants may be transferred or otherwise
assigned, but only to the extent not theretofore exercised, redeemed or expired
in accordance with their respective terms.
"WGI Shareholder Agreement" means the Stockholders Agreement dated
as of July 13, 1994 among Holdings, the Seller and John K. Ziegler, Richard J.
Mackey, Jack Klasky, Maxwell Tripp and Frank Walsh.
All references herein to "days" shall mean calendar days unless
otherwise specified.
ARTICLE II
TRANSFER OF SHARES;
PAYMENTS TO WARRANT SECURITYHOLDERS
SECTION 2.1 General. Except as otherwise provided in this Agreement
or by law and subject to Section 2.6 hereof, each Stockholder may transfer its
shares of Common Stock at any time to any Person.
SECTION 2.2 Restrictions on Transfer; Legend on Certificates. (a)
Except as otherwise provided in this Agreement, Restricted Securities shall not
be transferable except (i) pursuant to an effective registration statement under
the Securities Act, (ii) pursuant to Rule 144 or 144A (or any successor
provisions) under the Securities Act or (iii) pursuant to a transaction that is
otherwise exempt from the registration requirements of the Securities Act.
(b) Unless otherwise expressly provided herein, each certificate for
Restricted Securities and each certificate issued in exchange for or upon
transfer of any thereof shall be stamped or otherwise imprinted with a
6
<PAGE>
legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OFFERED FOR SALE
UNLESS REGISTERED UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS
OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO AND HAVE THE BENEFIT
OF A WARRANTHOLDERS RIGHTS AGREEMENT DATED AS OF JULY 13, 1994 AMONG WG,
INC. AND THE STOCKHOLDERS AND WARRANTHOLDERS PARTIES THERETO, COPIES OF
WHICH ARE ON FILE WITH WG, INC."
(c) Any other provision of this Agreement to the contrary
notwithstanding, no transfer of any Restricted Securities other than pursuant to
a Public Sale may be made to any Person unless such Person shall have agreed in
writing that such Person, as a holder of Restricted Securities, and the
Restricted Securities it acquires shall be bound by and be entitled to the
benefits of all the provisions of this Agreement applicable to such Restricted
Securities (and upon such agreement such Person shall be entitled to such
benefits). Any purported transfer of Restricted Securities without compliance
with the applicable provisions of this Agreement shall be void and of no effect,
and the purported transferee shall have no rights as a Warrantholder or
Shareholder (as applicable) or under this Agreement. In the event of such
non-complying transfer, Holdings shall not transfer any such Restricted
Securities on its books or recognize the purported transferee as a shareholder
or warrantholder, as the case may be, for any purpose, until all applicable
provisions of this Agreement have been complied with.
SECTION 2.3 Permitted Transfers. The restrictions on transfer
provided in Section 2.2(a) shall not be applicable to (i) any transfer in
compliance with federal and all applicable state securities laws to an Affiliate
of the holder of Restricted Securities, from an Affiliate of such holder to such
holder or between Affiliates of such holder (if any such Affiliate to whom
shares of Restricted Securities have been transferred by a holder thereof ceases
to be an Affiliate of such holder of Restricted Securities, such Restricted
Securities shall immediately be transferred back to the transferor thereof),
(ii) any transfer upon the death of any holder of Restricted Securities to such
holder's executors, administrators or testamentary trustees or (iii) any
transfer to a trust the
7
<PAGE>
beneficiaries of which include only the holder of such Restricted Securities or
such holder's spouse, parents, siblings or descendants (any transferee referred
to in (i), (ii) or (iii) above being referred to herein as a "Permitted
Transferee"); provided that no such transfer shall be made to any Permitted
Transferee unless such Permitted Transferee shall have agreed in writing that
such Permitted Transferee, as a Stockholder or Warrantholder (as the case may
be), and the shares of Common Stock or Warrants it acquires shall be bound by
and be entitled to the benefits of all the provisions of this Agreement
applicable to Common Stock or Warrants (as the case may be), and upon such
agreement such Permitted Transferee shall be entitled to such benefits.
SECTION 2.4 Tag-Along Rights. If at any time or from time to time
prior to a Qualified IPO, any Investor or any Affiliate of such Investor (any
such Person for purposes of this Section 2.4, the "Transferor") wishes to
transfer its shares of Common Stock or any portion thereof to any Person (the
"Transferee"), the Transferor shall first give to Holdings and each Warrant
Securityholder (pursuant to a list provided by Holdings) a written notice (a
"Transfer Notice"), executed by it and the Transferee and containing (i) the
number of shares of Common Stock that the Transferee proposes to acquire from
the Transferor, (ii) the name and address of the Transferee, (iii) the proposed
purchase price, terms of payment and other material terms and conditions of such
proposed transfer, (iv) an estimate, in the Transferor's reasonable judgment, of
the fair market value of any non-cash consideration offered by the Transferee
and (v) an offer by the Transferee or Transferor to purchase, upon the purchase
by the Transferee of any shares of Common Stock owned by the Transferor and for
the same per share consideration, that number of Conversion Shares (or if such
number is not an integral number, the next integral number which is greater than
such number) of each Warrant Securityholder which shall be the product of (x)
the aggregate number of Conversion Shares either then owned, or issuable upon
exercise of Warrants then owned, by such Warrant Securityholder and (y) a
fraction, the numerator of which shall be the number of shares of Common Stock
indicated in the Transfer Notice as subject to purchase by the Transferee and
the denominator of which shall be the sum of (A) the total number of shares of
Common Stock then owned by the Transferor and its Affiliates plus (B) the total
number of Conversion Shares either then owned, or issuable upon exercise of
Warrants then owned, by each Warrant Securityholder, provided that if such
Transfer Notice relates to a Substantial Sale by such Transferor, such offer
shall be to purchase (x) all shares of Conversion
8
<PAGE>
Shares then owned, or issuable upon exercise of the Conversion Shares then
owned, or issuable upon exercise of the Warrants then owned, by such Warrant
Securityholder at the same per share consideration (subject to Section 2.5).
Each Warrant Securityholder shall have the right, for a period of 20 days after
the Transfer Notice is given, to accept such offer in whole or in part,
exercisable by delivering a written notice to the Transferor and Holdings within
such 20-day period (an "Acceptance Notice"), stating therein the number of
shares of Common Stock (which may be the number of shares set forth in the offer
by the Transferor or Transferee, as the case may be, or a portion thereof) to be
sold by such Warrant Securityholder to the Transferor or Transferee, as the case
may be. Prior to the earlier of (x) the end of such 20-day period (such period,
the "Waiting Period") or (y) the acceptance or rejection by each Warrant
Securityholder of the Transferee's or Transferor's offer, as the case may be, or
if, the provisions of Section 2.5 shall apply, prior to the determination of the
Fair Market Value of the non-cash consideration pursuant to such Section 2.5,
neither the Transferor nor its Affiliates will complete any sale of shares of
Common Stock to the Transferee. Thereafter, for a period of 60 days after the
prohibition under the preceding sentence shall have terminated, the Transferor
may sell to the Transferee for the consideration stated and on the terms set
forth in the Transfer Notice the shares of Common Stock stated in the Transfer
Notice as subject to purchase by the Transferee, provided that the Transferor or
Transferee, as the case may be, shall simultaneously purchase the number of
shares of Common Stock as calculated above from those Warrant Securityholders
who have accepted the Transferor's or Transferee's offer, as the case may be.
The provisions of this Section 2.4 shall not apply to (i) transfers between the
Transferor and any of its Affiliates or between Affiliates of the Transferor;
provided that if any such Affiliate to which a transfer is made in reliance on
this clause (i) ceases to be an Affiliate, the Common Stock so transferred shall
be immediately transferred back to the Transferor or (ii) to the sale by the
trustee of the Holdings ESOP of Common Stock to Holdings pursuant to the
Holdings ESOP.
SECTION 2.5 Non-Cash Consideration. If a Transfer Notice relating to
a Substantial Sale indicates that the purchase price for the Transferor's stock
is to be paid, in whole or in part, other than in cash, then the Warrant
Securityholders that submit Acceptance Notices (the "Selling Holders") may elect
to be paid cash in lieu of, and in an amount equal to the cash Fair Market Value
of, such
9
<PAGE>
non-cash consideration. In the event that the Selling Holders who have elected
to sell a majority of the shares of Common Stock, as indicated in the Acceptance
Notices (the "Majority Sellers"), and the Transferor fail to agree on the cash
Fair Market Value of any such non-cash consideration within five days after the
end of the Waiting Period, then within a further five days the Transferor and
the Majority Sellers shall deliver to the other its final estimate of such cash
Fair Market Value; provided, that if either of them shall fail to deliver such
an estimate, the estimate made by the other shall be conclusive and binding. If
the higher determination of such two is not greater than 110% of the lower
determination, then the cash Fair Market Value of any such non-cash
consideration shall be the average of such two determinations. If the higher
determination of such two is greater than 110% of the lower determination, then
the Transferor and the Majority Sellers shall, within five Business Days,
jointly select a nationally recognized investment banking firm which shall,
within ten Business Days of its appointment, select the determination of cash
Fair Market Value which it considers to be most accurate, provided, that if the
Transferor and the Majority Sellers cannot agree on such investment banking
firm, each of them shall, within such five Business Day period, select a
nationally recognized investment banking firm that is not an Affiliate of the
Transferor, any Selling Holder or the Transferee and such two investment banking
firms shall jointly select, within a further five Business Day period, a third
nationally recognized investment banking firm that is not an Affiliate of the
Transferor, any Selling Holder or the Transferee, which firm shall make such
determination, provided further, however, that if either the Transferor or the
Majority Sellers shall fail to select such an investment banking firm, such
determination shall be made by the investment baking firm selected by the other.
The Majority Sellers, jointly and severally, or the Transferor, depending on
whose estimate of cash Fair Market Value is not selected as most accurate, shall
pay the fees of any such investment baking firm that is chosen to make the
determination of cash Fair Market Value. Any determination of the cash Fair
Market Value pursuant to this Section, including by agreement of the Majority
Sellers and the Company, failure to take action as aforesaid or determination of
an investment baking firm, shall be final and binding on the Company and all
Selling Holders.
SECTION 2.6 Common Stockholders' Agreements. In addition to any
other restrictions on transfer provided for herein, the transfer of shares of
Common Stock owned by the Investors shall be subject to the terms and provisions
of
10
<PAGE>
the Investors Shareholders Agreement and the WGI Shareholder Agreement.
SECTION 2.7. Restrictions on Transfer by Regulation Y Holders. (a)
No Regulation Y Holder may transfer any Warrant or any Conversion Shares;
provided that such Regulation Y Holder may transfer such Warrant or Conversion
Shares, (i) to Holdings; (ii) to the public in an offering registered under the
Securities Act; (iii) in a transaction pursuant to Rule 144 or Rule 144A (or any
successor provisions) under the Securities Act or otherwise exempt from the
registration requirements of the Securities Act in which no single purchaser
receives an interest (treating any such Warrant as exercised and any Class C
Common Stock as converted to Class A Common Stock) equivalent to more than two
percent of the outstanding Class A Common Stock; or (iv) in a single transaction
to a third party who acquires at least a majority of the Common Stock without
regard to the transfer of such Warrant or Conversion Shares. In the event of a
Regulatory Change, the effect of which is to permit such Regulation Y Holder to
transfer such Warrant or Conversion Shares in any other manner, the foregoing
proviso shall be deemed modified to permit a transfer of such Warrant or
Conversion Shares in such other manner.
(b) Nothing in Sections 2.4, 2.5 or 2.6 of this Agreement shall
require any Regulation Y Holder to make a transfer of Warrants or Conversion
Shares in a manner not permitted by Section 2.7(a) (an "Impermissible
Transfer"). If Sections 2.4, 2.5 or 2.6 of this Agreement would otherwise
require any Regulation Y Holder to make an Impermissible Transfer as a condition
precedent to making a transfer of Warrants or Conversion Shares in a manner
permitted by Section 2.7(a) (a "Permissible Transfer"), then such Regulation Y
Holder shall not be required to make such Impermissible Transfer as a condition
precedent to making such Permissible Transfer.
SECTION 2.8 Adjustment Event Fee. If on or prior to the date nine
months after the redemption of the outstanding Warrants pursuant to Section 5.3
thereof, (i) Holdings completes an Initial Public Offering, (ii) an event
described in clause (k) of Section 9.01 of the Credit Agreement resulting from
the sale of Common Stock shall have occurred and be continuing or (iii) Common
Stock constituting more than 25% of the Common Stock (on a Fully Diluted Basis
(as defined in the Warrants)) is sold to any Person or Persons (other than a
Person that is an Affiliate of Holdings prior to the consummation of such sale
of sales)
11
<PAGE>
as part of a single sale or series of sales (each of the foregoing events being
herein called an "Adjustment Event"), then Holdings shall pay to each Warrant
Securityholder as additional compensation an amount equal to (a) the product of
(x) the difference between the weighted average price per share paid or to be
paid by Persons purchasing Common Stock in connection with such Adjustment Event
(less underwriting commissions and other appropriate costs and expenses) less
the Optional Redemption Price (as defined in the Warrants) (determined on a per
share basis) paid to such holder multiplied by (y) the number of shares of
Non-Voting Common Stock that such Warrant Securityholder would have been
entitled to purchase upon exercise of such Warrants less (b) the interest earned
by such Warrant Securityholder on the aggregate Optional Redemption Price
received by it from the date of receipt of such Optional Redemption Price to and
including the date of receipt of such additional compensation, determined at a
rate per annum announced by NationsBank of North Carolina, N.A. from time to
time as its prime rate (calculated on the basis of a 360-day year for the actual
number of days elapsed).
ARTICLE III
REGISTRATION RIGHTS
SECTION 3.1 Registration on Request. (a) At any time or from time to
time after the date of consummation of an Initial Public Offering, upon the
written request of the holder or holders of a majority of all outstanding
Conversion Shares and Warrants (such majority determined, for purposes of this
Section 3.1, by calculating the number of Conversion Shares for which such
Warrants are then exercisable) (the "Initiating Holders"), requesting that
Holdings effect the registration under the Securities Act of all or part of such
Initiating Holders' Registrable Securities and specifying the intended method of
disposition thereof, Holdings will promptly give written notice of such
requested registration to all holders of Warrants and Registrable Securities,
and thereupon Holdings will use its best efforts to effect the registration
under the Securities Act of:
(i) the Registrable Securities which Holdings has been so requested
to register by such Initiating Holders for disposition in accordance with
the intended method of disposition stated in such request;
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<PAGE>
(ii) all other Registrable Securities the holders of which shall have
made a written request to Holdings for registration thereof within 30 days
after the giving of such written notice by Holdings (which request by the
holder of such other Registrable Securities shall specify the intended
method of disposition of such Registrable Securities); and
(iii) all shares of Common Stock which Holdings may elect to register
in connection with the offering of Registrable Securities pursuant to this
Section 3.1, whether for its own account or for the account of a holder of
Common Stock,
all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities and the
additional shares of Common Stock, if any, to be so registered, provided that
the Warrant Securityholders as a class shall be entitled to not more than one
registration upon request pursuant to this Section 3.1.
(b) Registrations under this Section 3.1 shall be on such
appropriate registration form of the Commission (i) as shall be selected by
Holdings and (ii) as shall permit the disposition of such Registrable Securities
in accordance with the intended method or methods of disposition specified in
their request for such registration. Holdings agrees to include in any such
registration statement all information which holders of Registrable Securities
being registered shall reasonably request.
(c) Holdings will pay all Registration Expenses in connection with
one registration requested pursuant to this Section 3.1, provided that no
registration upon request pursuant to which less than 50% of the Registrable
Shares requested to be registered by such Initiating Holders are registered and
sold shall be counted as a requested registration for purposes of this Section
3.1. The Registration Expenses (and underwriting discounts and commissions and
transfer taxes, if any allocable to the Registrable Shares requested to be
registered by the Initiating Holders) in connection with each other registration
requested under this Section 3.1 shall be paid for by the Initiating Holders
requesting such registration.
(d) A registration requested pursuant to this Section 3.1 shall not
be deemed to have been effected (i) unless a registration statement with respect
thereto has become effective; provided that a registration which does
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not become effective after Holdings has filed a registration statement with
respect thereto solely by reason of the refusal to proceed by the Initiating
Holders (other than a refusal to proceed based upon the advice of counsel
relating to a matter with respect to Holdings) shall be deemed to have been
effected by Holdings at the request of the Initiating Holders unless the
Initiating Holders shall have elected to pay all Registration Expenses in
connection with such registration, (ii) if, after it has become effective, such
registration is interfered with by any stop order, injunction or other order or
requirement of the Commission or other governmental agency or court for any
reason, other than by reason of some act or omission by any Warrantholder or
Warrant Securityholder, or (iii) the conditions to closing specified in the
purchase agreement or underwriting agreement entered into in connection with
such registration are not satisfied, other than by reason of some act or
omission by any Warrantholder or Warrant Securityholder.
(e) If a requested registration pursuant to this Section 3.1
involves an underwritten offering, the underwriter or underwriters thereof shall
be selected by the holders of at least a majority (by a number of shares) of the
Registrable Securities as to which registration has been requested and shall be
reasonably acceptable to Holdings.
(f) If a requested registration pursuant to this Section 3.1
involves an underwritten offering, and the managing underwriter shall advise
Holdings (with a copy of any such notice to each holder of Registrable
Securities requesting registration) that, in its opinion, the number of
securities requested to be included in such registration (including securities
proposed to be sold for the account of Holdings) exceeds the number which can be
sold in such offering within a price range acceptable to the Initiating Holders,
Holdings will include in such registration, to the extent of the number which
Holdings is so advised can be sold in such offering, (i) first, Registrable
Securities requested to be included in such registration by the holder or
holders of Registrable Securities, pro rata among such holders requesting such
registration on the basis of the number of such securities requested to be
included by such holders, (ii) second, all shares proposed to be included by
Holdings in such registration and (iii) third, all shares other than Registrable
Shares (any such shares with respect to any registration, "Other Shares")
requested to be included in such registration by the holder or holders thereof.
SECTION 3.2 Incidental Registration. (a) If
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Holdings at any time proposes to register any of its securities under the
Securities Act (other than (x) by a registration on Form S-4 or S-8 or any
successor or similar forms or (y) pursuant to Section 3.1) whether for its own
account or for the account of the holder or holders of any Other Shares, it will
each such time give prompt written notice to all Warrant Securityholders of its
intention to do so and of such holders' rights under this Section 3.2. Upon the
written request of any such holder made within 20 days after the receipt of any
such notice (which request shall specify the Registrable Securities intended to
be disposed of by such holder and the intended method of disposition thereof),
Holdings will use its best efforts to effect the registration under the
Securities Act of all Registrable Securities which Holdings has been so
requested to register by the holders thereof, to the extent requisite to permit
the disposition (in accordance with the intended methods thereof as aforesaid)
of the Registrable Securities so to be registered, by inclusion of such
Registrable Securities in the registration statement which covers the securities
which Holdings proposes to register; provided that if, at any time after giving
written notice of its intention to register any securities and prior to the
effective date of the registration statement filed in connection with such
registration, Holdings shall determine for any reason either not to register or
to delay registration of such securities, Holdings may, at its election, give
written notice of such determination to each holder of Registrable Securities
and, thereupon, (i) in the case of a determination not to register, shall be
relieved of its obligation to register any Registrable Securities in connection
with such registration (but not from its obligation to pay the Registration
Expenses in connection therewith), without prejudice, however, to the rights of
any Warrant Securityholder or Warrant Securityholders entitled to do so to
request that such registration be effected as a registration under Section 3.1,
and (ii) in the case of a determination to delay registering, shall be permitted
to delay registering any Registrable Securities, for the same period as the
delay in registering such other securities. No registration effected under this
Section 3.2 shall relieve Holdings of its obligation to effect any registration
upon request under Section 3.1, nor shall any such registration hereunder be
deemed to have been effected pursuant to Section 3.1. Holdings will pay all
Registration Expenses in connection with each registration of Registrable
Securities pursuant to this Section 3.2.
(b) If Holdings at any time proposes to register any of its
securities under the Securities Act as
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contemplated by Section 3.2 and such securities are to be distributed by or
through one or more underwriters, Holdings will, if requested by any holder of
Registrable Securities as provided in this Section 3.2, use its best efforts to
arrange for such underwriters to include all the Registrable Securities to be
offered and sold by such holder among the securities to be distributed by such
underwriters, provided that if the managing underwriter of such underwritten
offering shall inform Holdings and holders of the Registrable Securities
requesting such registration and all other holders of any other shares of Common
Stock which shall have exercised, in respect of such underwritten offering,
registration rights comparable to the rights under this Section 3.2 by letter of
its belief that inclusion in such distribution of all or a specified number of
such securities proposed to be distributed by such underwriters would interfere
with the successful marketing of the securities being distributed by such
underwriters (such letter to state the basis of such belief and the approximate
number of such Registrable Securities and such Other Shares proposed so to be
registered which may be distributed without such effect), then Holdings may,
upon written notice to all holders of such Registrable Securities and holders of
such Other Shares, reduce pro rata (if and to be extent stated by such managing
underwriter to be necessary to eliminate such effect) the number of such
Registrable Securities and Other Shares the registration of which shall have
been requested by each holder thereof so that the resultant aggregate number of
such Registrable Securities and Other Shares so included in such registration,
together with the number of securities to be included in such registration for
the account of Holdings, shall be equal to the number of shares stated in such
managing underwriter's letter.
SECTION 3.3 Registration Procedures. (a) If and whenever Holdings is
required to effect the registration of any Registrable Securities under the
Securities Act as provided in Sections 3.1 and 3.2, Holdings shall, as
expeditiously as possible:
(i) prepare and (within 90 days after the end of the period within
which requests for registration may be given to Holdings or in any event
as soon thereafter as possible; provided that, in the case of a
registration pursuant to Section 3.1, such filing to be made within 90
days after the initial request of an Initiating Holder of Registrable
Securities or in any event as soon thereafter as possible) file with the
Commission the requisite registration statement to
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effect such registration (including such audited financial statements as
may be required by the Securities Act) and thereafter use its best efforts
to cause such registration statement to become and remain effective;
provided further that Holdings may discontinue any registration of its
securities which are not Registrable Securities at any time prior to the
effective date of the registration statement relating thereto; provided
further that before filing such registration statement or any amendments
thereto, Holdings will furnish to the counsel selected by the holders of
Registrable Securities which are to be included in such registration
copies of all such documents proposed to be filed, which documents will be
subject to the timely review of such counsel;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement until the earlier of (x) in the case of a
registration pursuant to Section 3.1, the expiration of 120 days after
such registration statement becomes effective, or (y) in the case of a
registration pursuant to Section 3.2, the expiration of 90 days after such
registration statement becomes effective;
(iii) furnish to each seller of Registrable Securities covered by
such registration statement and each underwriter, if any, of the
securities being sold by such seller such number of conformed copies of
such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of
the prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, in conformity
with the requirements of the Securities Act, and such other documents, as
such seller and underwriter, if any, may reasonably request in order to
facilitate the public sale or other disposition of the Registrable
Securities owned by such seller;
(iv) use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement
under blue sky or
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similar laws of such jurisdictions as any seller thereof and any
underwriter of the securities being sold by such seller shall reasonably
request, to keep such registrations or qualifications in effect for so
long as such registration statement remains in effect, and take any other
action which may be reasonably necessary or advisable to enable such
seller and underwriter to consummate the disposition in such jurisdictions
of the securities owned by such seller, except that Holdings shall not for
any such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction wherein it would not but for the
requirements of this subdivision (iv) be obligated to be so qualified, to
subject itself to taxation in any such jurisdiction or to consent to
general service of process in any such jurisdiction;
(v) use its best efforts to cause all Registrable Securities covered
by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof to consummate the disposition of such
Registrable Securities;
(vi) furnish to each seller of Registrable Securities a signed
counterpart, addressed to such seller and the underwriters, if any, of
(x) an opinion of counsel for Holdings, dated the effective
date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date
of the closing under the underwriting agreement), reasonably
satisfactory in form and substance to such seller, and
(y) on a best efforts basis, a "cold comfort" letter in
customary form, dated the effective date of such registration
statement (and, if such registration includes an underwritten public
offering, a letter dated the date of the closing under the
underwriting agreement), signed by the independent public
accountants who have certified Holdings' financial statements
included in such registration statement,
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of the
accountants'
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letter, with respect to events subsequent to the date of such financial
statements, as are customarily covered in opinions of issuer's counsel and
in accountants' letters delivered to the underwriters in underwritten
public offerings of securities;
(vii) notify the holders of Registrable Securities and the managing
underwriter or underwriters, if any, promptly and confirm such advice in
writing promptly thereafter:
(A) when the registration statement, the prospectus or any
prospectus supplement related thereto or post-effective amendment to
the registration statement has been filed, and, with respect to the
registration statement or any post-effective amendment thereto, when
the same has become effective;
(B) of any request by the Commission for amendments or
supplements to the registration statement or the prospectus or for
additional information;
(C) of the issuance by the Commission of any stop order
suspending the effectiveness of the registration or the initiation
of any proceedings by any Person for that purpose; and
(D) of the receipt by Holdings of any notification with
respect to the suspension of the qualification of any Registrable
Securities for sale under the securities or blue sky laws of any
jurisdiction or the initiation or threat of any proceeding for such
purpose;
(viii) notify each seller of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, upon Holdings'
discovery that, or upon the happening of any event as a result of which,
the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, and at the request of any such seller promptly prepare and
furnish to such seller and each underwriter, if any, a reasonable number
of copies of a supplement to or an
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amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;
(ix) make every reasonable effort to obtain the withdrawal of any
order of which Holdings has knowledge suspending the effectiveness of the
registration statement at the earliest possible moment;
(x) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first full calendar quarter after the effective
date of such registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act;
(xi) make available for inspection by a representative of the
holders of Registrable Securities participating in the offering, any
underwriter participating in any disposition pursuant to the registration
and any attorney or accountant retained by such selling holders or
underwriter (each, an "Inspector"), all financial and other records,
pertinent corporate documents and properties of Holdings (the "Records"),
and cause Holdings' officers, directors and employees to supply all
information reasonably requested by any such Inspector in connection with
such registration; provided that Holdings shall not be required to comply
with this subdivision (xi) if there is a reasonable likelihood, in the
judgment of Holdings, that such delivery could result in the loss of any
attorney-client privilege related thereto; and provided further that
Records which Holdings determines, in good faith, to be confidential and
which it notifies the Inspectors are confidential shall not be disclosed
by the Inspectors (other than to any holder of Registrable Securities
participating in the offering) unless (x) such Records have become
generally available to the public or (y) the disclosure of such Records
may be necessary or appropriate (A) to comply with any law, rule,
regulation or order applicable to any such Inspectors or holder of
Registrable Securities, (B) in response to
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any subpoena or other legal process or (C) in connection with any
litigation to which such Inspectors or any holder of Registrable
Securities is a party (provided that Holdings is provided with reasonable
notice of such proposed disclosure and a reasonable opportunity to seek a
protective order or other appropriate remedy with respect to such
Records);
(xii) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of such
Registration Statement;
(xiii) use its best efforts to list all Registrable Securities
covered by such registration statement on any securities exchange on which
any of the Common Stock is then listed and, if not so listed, to be listed
on the NASD automated quotation system and, if listed on the NASD
automated quotation system, use its best efforts to secure designation of
all such Registrable Securities covered by such registration statement as
a NASDAQ "national market system security" within the meaning of Rule
11Aa2-1 of the Securities and Exchange Commission or, failing that, to
secure NASDAQ authorization for such Registrable Securities and, without
limiting the generality of the foregoing, to arrange for at least two
market makers to register as such with respect to such Registrable
Securities with the NASD; and
(xiv) use its best efforts to provide a CUSIP number for the
Registrable Securities, not later than the effective date of the
registration.
Holdings may require each seller of Registrable Securities as to which any
registration is being effected to furnish Holdings such information regarding
such seller and the distribution of such securities as Holdings may from time to
time reasonably request in writing for purposes of preparing the relevant
registration statement and amendments and supplements thereto.
(b) Each holder of Registrable Securities agrees by acquisition of
such Registrable Securities that, upon receipt of any notice from Holdings of
the occurrence of any event of the kind described in subdivision (viii) of
Section 3.3(a), such holder will forthwith discontinue such holder's disposition
of Registrable Securities pursuant to the registration statement relating to
such Registrable
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Securities until such holder's receipt of the copies of the supplemented or
amended prospectus contemplated by subdivision (viii) of Section 3.3(a). In the
event Holdings shall give any such notice, the periods specified in subdivision
(ii) of Section 3.3(a) shall be extended by the length of the period from and
including the date when each seller of any Registrable Securities covered by
such registration statement shall have received such notice to the date on which
each such seller has received the copies of the supplemented or amended
prospectus contemplated by subdivision (viii) of Section 3.3(a).
(c) If any such registration or comparable statement refers to any
holder of Registrable Securities by name or otherwise as the holder of any
securities of Holdings, then such holder shall have the right to require, in the
event that such reference to such holder by name or otherwise is not required by
the Securities Act or any similar federal statute then in force, the deletion of
the reference to such holder.
SECTION 3.4 Underwritten Offerings. (a) If requested by the
underwriters for any underwritten offering by holders of Registrable Securities
pursuant to a registration requested under Section 3.1, Holdings will enter into
an underwriting agreement with such underwriters for such offering, such
agreement to be satisfactory in substance and form to Holdings, each such holder
and the underwriters, and to contain such representations and warranties by
Holdings and such other terms as are generally prevailing in agreements of such
type, including, without limitation, indemnities to the effect and to the extent
provided in Section 3.5 or otherwise acceptable to Holdings and the underwriters
for such offering. The holders of the Registrable Securities will cooperate with
Holdings in the negotiation of the underwriting agreement.
(b) Each holder of Registrable Securities agrees by acquisition of
such Registrable Securities not to sell, make any short sale of, loan, grant any
option for the purchase of, effect any public sale or distribution of or
otherwise dispose of any equity securities of Holdings, during the ten days
prior to and the 90 days after the effective date of any underwritten
registration pursuant to Section 3.1 or 3.2 has become effective, except as part
of such underwritten registration, whether or not such holder participates in
such registration, and except as otherwise permitted by the managing underwriter
of such underwriting (if any). Each holder of Registrable Securities agrees that
Holdings may instruct its transfer agent to place stop
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transfer notations in its records to enforce this Section 3.4(b).
(c) Holdings agrees (x) not to sell, make any short sale of, loan,
grant any option for the purchase of, effect any public sale or distribution of
or otherwise dispose of its equity securities or securities convertible into or
exchangeable or exercisable for any of such securities during the ten days prior
to and the 90 days after the effective date of any registration pursuant to
Section 3.1 or 3.2 has become effective, except (i) as part of such
registration, (ii) pursuant to registrations on Form S-4 or S-8 or any successor
or similar forms thereto or (iii) as otherwise permitted by the managing
underwriter of such offering (if any), and (y) to use all reasonable efforts to
cause each holder of its equity securities or any securities convertible into or
exchangeable or exercisable for any of such securities, in each case purchased
from Holdings at any time after the date of this Agreement (other than in a
public offering) to agree not to sell, make any short sale of, loan, grant any
option for the purchase of, effect any public sale or distribution of or
otherwise dispose of such securities during such period except as part of such
underwritten registration.
(d) No Person may participate in any underwritten offering hereunder
unless such Person (i) agrees to sell such Person's securities on the basis
provided in any underwriting arrangements approved, subject to the terms and
conditions hereof, by the Person or a majority of the Persons entitled to
approve such arrangements and (ii) completes and executes all agreements,
questionnaires, indemnities and other documents (other than powers of attorney)
reasonably required under the terms of such underwriting arrangements; provided
that no holder of Registrable Securities included in any underwritten
registration shall be required to make any representations or warranties to
Holdings or the underwriters other than representations and warranties regarding
such holder and such holder's intended method of distribution.
SECTION 3.5 Indemnification. (a) Holdings agrees to indemnify and
hold harmless each holder of Registrable Securities whose Registrable Securities
are covered by any registration statement, its directors and officers and each
other Person, if any, who controls such holder within the meaning of the
Securities Act, against any losses,
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claims, damages or liabilities, joint or several, to which any such indemnified
party may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such securities were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
Holdings will reimburse each such indemnified party for any reasonable legal or
any other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, liability, action or proceeding; provided
that Holdings shall not be liable in any such case to the extent that any such
loss, claim, damage, liability (or action or proceeding in respect thereof) or
expense arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
any such preliminary prospectus, final prospectus, summary prospectus, amendment
or supplement in reliance upon and in conformity with written information
furnished to Holdings by or on behalf of such holder specifically for use in the
preparation thereof. In addition, Holdings shall indemnify any underwriter of
such offering and each other Person, if any, who controls any such underwriter
within the meaning of the Securities Act in substantially the same manner and to
substantially the same extent as the indemnity herein provided to each
Indemnified Party. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such holder or any such
director, officer, underwriter or controlling person and shall survive the
transfer of such securities by such holder.
(b) Each prospective seller of Registrable Securities hereunder
shall indemnify and hold harmless (in the same manner and to the same extent as
set forth in subdivision (a) of this Section 3.5) Holdings, each director of
Holdings, each officer of Holdings and each other person, if any, who controls
Holdings within the meaning of the Securities Act, with respect to any statement
or alleged statement in or omission or alleged omission from such registration
statement, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereof, if such statement or
alleged statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to Holdings by or on behalf of
such seller
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specifically for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement. Any such indemnity shall remain in full force and effect, regardless
of any investigation made by or on behalf of Holdings or any such director,
officer or controlling person and shall survive the transfer of such securities
by such seller.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim referred to in the
preceding subdivisions of this Section 3.5, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action; provided that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under the preceding
subdivisions of this Section 3.5, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, the indemnifying party
shall be entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified, to the extent that the
indemnifying party may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
of any such action which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect to such claim or litigation. No indemnified party shall
consent to entry of any judgment or enter into any settlement of any such action
the defense of which has been assumed by an indemnifying party without the
consent of such indemnifying party.
(d) If the indemnification provided for in the preceding
subdivisions of this Section 3.5 is unavailable to an indemnified party in
respect of any expense, loss, claim, damage or liability referred to therein,
then each indemnifying party, in lieu of indemnifying such indemnified
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party, shall contribute to the amount paid or payable by such indemnified party
as a result of such expense, loss, claim, damage or liability (i) in such
proportion as is appropriate to reflect the relative benefits received by
Holdings on the one hand and the holder or underwriter, as the case may be, on
the other from the distribution of the Registrable Securities or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of Holdings on the
one hand and of the holder or underwriter, as the case may be, on the other in
connection with the statements or omissions which resulted in such expense,
loss, damage or liability, as well as any other relevant equitable
considerations. The relative benefits received by Holdings on the one hand and
the holder or underwriter, as the case may be, on the other in connection with
the distribution of the Registrable Securities shall be deemed to be in the same
proportion as the total net proceeds received by Holdings from the initial sale
of the Registrable Securities by Holdings to the purchaser bear to the gain
realized by the selling holder or the underwriting discounts and commissions
received by the underwriter, as the case may be. The relative fault of Holdings
on the one hand and of the holder or underwriter, as the case may be, on the
other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or omission to state a
material fact relates to information supplied by Holdings, by the holder or by
the underwriter and parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission; provided that
the foregoing contribution agreement shall not inure to the benefit of any
indemnified party if indemnification would be unavailable to such indemnified
party by reason of the proviso contained in the first sentence of subdivision
(a) of this Section 3.5, and in no event shall the obligation of any
indemnifying party to contribute under this subdivision (d) exceed the amount
that such indemnifying party would have been obligated to pay by way of
indemnification if the indemnification provided for under subdivisions (a) or
(b) of this Section 3.5 had been available under the circumstances.
Holdings and the holders of Registrable Securities agree that it
would not be just and equitable if contribution pursuant to this subdivision (d)
were determined by pro rata allocation (even if the holders and any underwriters
were treated as one entity for such purpose) or by any other method of
allocation that does not
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take account of the equitable considerations referred to in the immediately
preceding paragraph and subdivision (c) of this Section 3.5. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim.
Notwithstanding the provisions of this subdivision (d), no holder of
Registrable Securities or underwriter shall be required to contribute any amount
in excess of the amount by which (i) in the case of any such holder, the net
proceeds received by such holder from the sale of Registrable Securities or (ii)
in the case of an underwriter, the total price at which the Registrable
Securities purchased by it and distributed to the public were offered to the
public exceeds, in any such case, the amount of any damages that such holder or
underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
SECTION 3.6 Rule 144; Rule 144A. (a) If Holdings shall have filed a
registration statement pursuant to Section 12 of the Exchange Act or a
registration statement pursuant to the Securities Act, Holdings will file the
reports required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations adopted by the Commission thereunder and will take
such further action as any holder of Registrable Securities may reasonably
request, all to the extent required from time to time to enable such holder to
sell Registrable Securities without registration under the Securities Act within
the limitation of the exemptions provided by (a) Rule 144 under the Securities
Act, as such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the Commission. Upon the request of any holder
of Registrable Securities, Holdings will deliver to such holder a written
statement as to whether it has complied with such requirements.
(b) Holdings represents and warrants that as of the date hereof, the
Common Stock is not, and is not part of a class of securities that is, listed on
a national securities exchange registered under Section 6 of
27
<PAGE>
the Exchange Act or quoted in an automated inter-dealer quotation system. For so
long as any shares of Registrable Securities are restricted securities within
the meaning of Rule 144(a)(3) under the Securities Act, Holdings covenants and
agrees that it shall, during any period in which it is not subject to Section 13
or 15(d) of the Exchange Act, make available to any holder of Registrable
Securities in connection with the sale of such holder Registrable Securities and
any prospective purchaser of Registrable Securities from such, in each case upon
request, the information specified in, and meeting the requirements of, Rule
144A(d)(4) under the Securities Act.
SECTION 3.7. Other Agreements. (a) Other Registration Rights. Except
as provided in this Agreement and in the WGI Shareholder Agreement, Holdings
shall not grant to any Persons the right to request Holdings to register any
equity securities of Holdings, or any securities convertible or exchangeable
into or exercisable for such securities, without the prior written consent of
the holders of at least 66 2/3% of the Registrable Securities.
(b) No Inconsistent Agreements. Holdings shall not hereafter enter
into any agreement with respect to its securities which is inconsistent with or
violates the rights granted to the holders of Registrable Securities in this
Agreement.
(c) Adjustments Affecting Registrable Securities. Holdings shall not
take any action, or permit any change to occur, with respect to its securities
which would adversely affect the ability of the holders of Registrable
Securities to include such Registrable Securities in a registration undertaken
pursuant to this Agreement or which would adversely affect the marketability of
such Registrable Securities in any such registration (including, without
limitation, effecting a stock split or a combination of shares).
ARTICLE IV
MISCELLANEOUS
SECTION 4.1 Notices. All notices and other communications provided
for hereunder shall be dated and in writing and shall be deemed to have been
given (i) if given by telecopy, when such telecopy is transmitted to the
28
<PAGE>
telecopy number specified in this Section and telephonic confirmation of receipt
thereof is obtained or (ii) if given by mail, prepaid overnight courier or any
other means, when received at the address specified in this Section or when
delivery at such address is refused. Such notices shall be addressed to the
appropriate party to the attention of the person who executed this Agreement at
the address or telecopy number set forth under such party's signature below (or
to the attention of such other person or to such other address or telecopy
number as such party shall have furnished to each other party in accordance with
this Section 4.1).
SECTION 4.2 Binding Nature of Agreement. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto or their successors in interest, except as expressly otherwise provided
herein.
SECTION 4.3 Descriptive Headings. The descriptive headings of the
several sections and paragraphs of this Agreement are inserted for reference
only and shall not limit or otherwise affect the meaning hereof.
SECTION 4.4 Specific Performance. Without limiting the rights of
each party hereto to pursue all other legal and equitable rights available to
such party for the other parties' failure to perform their obligations under
this Agreement, the parties hereto acknowledge and agree that the remedy at law
for any failure to perform their obligations hereunder would be inadequate and
that each of them, respectively, shall be entitled to specific performance,
injunctive relief or other equitable remedies in the event of any such failure.
SECTION 4.5 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY,
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS
OF LAW. EACH OF THE PARTIES HERETO HEREBY SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY FOR PURPOSES
OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY. EACH OF THE PARTIES HERETO
29
<PAGE>
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
SUCH PARTY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE
PARTIES HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED
FOR NOTICES IN SECTION 4.1. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF
ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW.
SECTION 4.6 Counterparts. This Agreement may be executed
simultaneously in any number of counterparts, each of which shall be deemed an
original, but all such counterparts shall together constitute one and the same
instrument.
SECTION 4.7 Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any way
impaired thereby, it being intended that all of the rights and privileges of the
parties hereto shall be enforceable to the fullest extent permitted by law.
SECTION 4.8 Entire Agreement. This Agreement is intended by the
parties hereto as a final and complete expression of their agreement and
understanding in respect to the subject matter contained herein. This Agreement
supersedes all prior agreement and understandings, written or oral, between the
parties with respect to such subject matter.
SECTION 4.9 Amendment and Waiver. Any provision of this Agreement
may be amended if, but only if, such amendment is in writing and is signed by
Holdings and Stockholders and Warrantholders owning, or having Warrants
exercisable for, at least a majority of shares of Common Stock either then
outstanding or issuable upon the exercise of all outstanding Warrants, provided
that no such amendment may adversely affect the rights of any Warrant
Securityholder unless signed by such Warrant Securityholder. Any provision may
be waived if, but only if, such waiver is in writing and is signed by the party
or parties waiving such provision and for whose benefit such provision is
intended.
SECTION 4.10 No Third Party Beneficiaries. Nothing in this Agreement
shall convey any rights upon any person or entity which is not a party or an
assignee of a party to this Agreement.
30
<PAGE>
SECTION 4.11 ESOP. If Holdings shall establish an employee stock
ownership plan, in connection therewith and prior to allowing the trustee
thereof to obtain any cash or shares of Common Stock, Holdings shall use its
best efforts to cause such trustee to execute counterparts of this Agreement
under the heading "Stockholders" on the signature page of this Agreement and
deliver the same to the other parties hereto, whereupon the trustee shall be
deemed to be a "Stockholder" for all purposes of this Agreement.
31
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the date first above written.
WG, INC.
By /s/ John K. Ziegler
-------------------------------
Title:
200 Madison Avenue
New York, NY 10016
Telefax:
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the date first above written.
WG, INC.
By
-------------------------------
Title:
Address:
Telefax:
STOCKHOLDERS
/s/ Richard J. Mackey
----------------------------------
Name: Richard J. Mackey
Address: 104 Crescent Beach Drive
Huntington Bay, NY 11743
----------------------------------
Name: Jack Klasky
Address:
----------------------------------
Name: Maxwell Tripp
Address:
----------------------------------
Name: Frank Walsh
Address:
/s/ John K. Ziegler
----------------------------------
Name: John K. Ziegler
Address:
/s/ John K. Ziegler
----------------------------------
Name: John K. Ziegler, as
Trustee of the John
K. Ziegler Trust
Address:
31
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the date first above written.
WG, INC.
By
-------------------------------
Title:
Address:
Telefax:
STOCKHOLDERS
----------------------------------
Name: Richard J. Mackey
Address:
/s/ Jack Klasky
----------------------------------
Name: Jack Klasky
Address: 22335 Mayall St.
Chatsworth, CA 91311
----------------------------------
Name: Maxwell Tripp
Address:
----------------------------------
Name: Frank Walsh
Address:
----------------------------------
Name: John K. Ziegler
Address:
----------------------------------
Name: John K. Ziegler, as
Trustee of the John
K. Ziegler Trust
Address:
31
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the date first above written.
WG, INC.
By
-------------------------------
Title:
Address:
Telefax:
STOCKHOLDERS
----------------------------------
Name: Richard J. Mackey
Address: 104 Crescent Beach Drive
Huntington Bay, NY 11743
----------------------------------
Name: Jack Klasky
Address:
/s/ Maxwell Tripp
----------------------------------
Name: Maxwell Tripp
Address: 3935 Ashley Trace Court
Lilburn, GA 30247
----------------------------------
Name: Frank Walsh
Address:
----------------------------------
Name: John K. Ziegler
Address:
----------------------------------
Name: John K. Ziegler, as
Trustee of the John
K. Ziegler Trust
Address:
31
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the date first above written.
WG, INC.
By
-------------------------------
Title:
Address:
Telefax:
STOCKHOLDERS
----------------------------------
Name: Richard J. Mackey
Address:
----------------------------------
Name: Jack Klasky
Address:
----------------------------------
Name: Maxwell Tripp
Address:
/s/ Frank E. Walsh III
as Power of Attorney (attached)
----------------------------------
Name: Frank Walsh
Address: 330 South Street
Morristown, NJ 07962
----------------------------------
Name: John K. Ziegler
Address:
----------------------------------
Name: John K. Ziegler, as
Trustee of the John
K. Ziegler Trust
Address:
31
<PAGE>
WARRANTHOLDERS
NATIONS FINANCIAL CAPITAL
CORPORATION
By /s/ [illegible]
-------------------------------
Title:
One Canterbury Green
Stamford, CT 06912-0013
Telefax: 203-352-4171
CONTINENTAL BANK
By
-------------------------------
Title:
231 South LaSalle Street
Chicago, IL 60697
<PAGE>
WARRANTHOLDERS
NATIONS FINANCIAL CAPITAL
CORPORATION
By
-------------------------------
Title:
One Canterbury Green
Stamford, CT 06912-0013
Telefax: 203-352-4171
CONTINENTAL BANK
By /s/ M.E. Kelly
-------------------------------
Title: Vice President
231 South LaSalle Street
Chicago, IL 60697
<PAGE>
Exhibit 10.34
THIS WARRANT AND THE SHARES OF CLASS C COMMON STOCK PURCHASABLE HEREUNDER HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR
OFFERED FOR SALE UNLESS REGISTERED UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. THIS
WARRANT AND THE SHARES OF NON-VOTING COMMON STOCK PURCHASABLE HEREUNDER ARE
SUBJECT TO AND HAVE THE BENEFIT OF A WARRANTHOLDERS RIGHTS AGREEMENT DATED AS OF
JULY 13, 1994 AMONG WG, INC. AND THE STOCKHOLDERS AND WARRANTHOLDERS LISTED ON
THE SIGNATURE PAGES THEREOF, A COPY OF WHICH IS ON FILE WITH WILLCOX & GIBBS,
INC.
Dated: January 3, 1997
WARRANT
To Purchase 8,246.25 Shares of Class C Common Stock of
WILLCOX & GIBBS, INC.
Expiring July 13, 2004
THIS IS TO CERTIFY THAT, for value received, NATIONSCREDIT COMMERCIAL
CORPORATION (formerly known as Nations Financial Capital Corporation) or
registered assigns ("Holder") is entitled to purchase from Willcox & GIBBS, INC.
(formerly known as WG, INC.), a Delaware corporation ("Holdings"), at any time
or from time to time after 9:00 a.m., New York City time, on the date hereof and
prior to 5:00 p.m., New York City time, on the earlier of July 13, 2004 and the
Business Day preceding the date of redemption of this Warrant, at the place
where the Warrant Agency is located, at the Exercise Price, the number of shares
of Class C Common Stock, no par value per share (subject to adjustment as
provided in Article 4, the "Non-Voting Common Stock") of Holdings shown above,
all subject to adjustment and upon the terms and conditions hereinafter
provided, and is entitled also to exercise the other appurtenant rights, powers
and privileges hereinafter described.
This Warrant is one of one or more warrants (the "Warrants") of the same
form and having the same terms as this Warrant, entitling the holders initially
to purchase up to
<PAGE>
an aggregate of 8,246.25 shares of Non-Voting Common Stock. The Warrants were
originally issued pursuant to a Credit Agreement dated as of July 13, 1994 (as
amended from time to time, the "Credit Agreement") among WG Apparel, Inc. (the
"Company"), Holdings, the Lenders listed on the signature pages thereof and
NationsCredit Commercial Corporation ("NCCC"), as Agent, and the Holder is
entitled to certain benefits as set forth therein and to certain benefits
described in the Warrantholders Rights Agreement. Holdings shall keep a copy of
the Credit Agreement and the Warrantholders Rights Agreement, and any amendments
thereto, at the Warrant Agency and shall furnish, without charge, copies thereof
to the Holder upon request.
Certain terms used in this Warrant are defined in Article 4.
ARTICLE 1
EXERCISE OF WARRANTS
SECTION 1.1. Method of Exercise. To exercise this Warrant in whole or in
part, the Holder shall deliver on any Business Day to Holdings, at the Warrant
Agency, (a) this Warrant, (b) a written notice of such Holder's election to
exercise this Warrant, which notice shall specify the number of shares of
Non-Voting Common Stock to be purchased (which shall be a whole number of shares
if for less than all the shares then issuable hereunder), the denominations of
the share certificate or certificates desired and the name or names in which
such certificates are to be registered, and (c) payment of the Exercise Price
with respect to such shares. Such payment may be made, at the option of the
Holder, either (a) by cash, certified or bank cashier's check or wire transfer
in an amount equal to the product of (i) the Exercise Price times (ii) the
number of Warrant Shares as to which this Warrant is being exercised or (b) by
receiving from Holdings the number of Warrant Shares equal to (i) the number of
Warrant Shares as to which this Warrant is being exercised minus (ii) the number
of Warrant Shares having a value, based on the Fair Value Market per share on
the date of such exercise, equal to the product of (x) the Exercise Price times
(y) the number of Warrant Shares as to which this Warrant is being exercised.
Holdings shall, as promptly as practicable and in any event within seven
days after receipt of such notice and payment, execute and deliver or cause to
be executed and delivered, in accordance with such notice, a certificate or
certificates representing the aggregate number of shares of Non-Voting Common
Stock specified in said notice together with cash in lieu of any fractions of a
share as provided in Section 1.3. The share certificate or certificates so
delivered shall be in such denominations as may be specified in such notice, and
shall be issued in the name of the Holder or such other name or names as shall
be designated in such notice. This Warrant shall be deemed to have been
exercised
2
<PAGE>
and such certificate or certificates shall be deemed to have been issued, and
such Holder or any other Person so designated to be named therein shall be
deemed for all purposes to have become a holder of record of shares, as of the
date the aforementioned notice and payment is received by Holdings. If this
Warrant shall have been exercised only in part, Holdings shall, at the time of
delivery of such certificate or certificates, deliver to the Holder a new
Warrant evidencing the rights to purchase the remaining shares of Non-Voting
Common Stock called for by this Warrant, which new Warrant shall in all other
respects be identical with this Warrant, or, at the request of the Holder,
appropriate notation may be made on this Warrant which shall then be returned to
the Holder. Holdings shall pay all expenses, taxes and other charges payable in
connection with the preparation, issuance and delivery of share certificates and
new Warrants, except that, if share certificates or new Warrants shall be
registered in a name or names other than the name of the Holder, funds
sufficient to pay all transfer taxes payable as a result of such transfer shall
be paid by the Holder at the time of delivery of the aforementioned notice of
exercise or promptly upon receipt of a written request of Holdings for payment.
SECTION 1.2. Shares to Be Fully Paid and Nonassessable. All shares of
Non-Voting Common Stock issued upon the exercise of this Warrant and all shares
of Voting Common Stock issued upon the conversion of such Non-Voting Common
Stock shall be validly issued, fully paid and nonassessable and, if such class
of Common Stock is then listed on any national securities exchange (as defined
in the Exchange Act) or quoted on NASDAQ, shall be duly listed or quoted
thereon, as the case may be.
SECTION 1.3. No Fractional Shares Required to Be Issued. Holdings shall
not be required to issue fractions of shares of Non-Voting Common Stock upon
exercise of this Warrant. If any fraction of a share would, but for this
Section, be issuable upon final exercise of this Warrant, in lieu of such
fractional share Holdings shall pay to the Holder, in cash, an amount equal to
the same fraction of the Fair Market Value of Holdings per share of outstanding
Common Stock on the Business Day immediately prior to the date of such exercise.
SECTION 1.4. Share Legend. Each certificate for shares of Non-Voting
Common Stock issued upon exercise of this Warrant, unless at the time of
exercise such shares are registered under the Securities Act, shall bear the
following legend:
"This security has not been registered under the Securities
Act of 1933 and may not be sold or offered for sale unless
registered under said Act and any applicable state securities laws
or unless an exemption from such registration is available. This
security is also subject to and has the benefit of a Warrantholders
Rights Agreement dated as of July 13, 1994 among Willcox & Gibbs,
Inc. (formerly known as WG, Inc.) and the Stockholders and
Warrantholders listed on the signature pages thereof (as amended
3
<PAGE>
from time to time), copies of which are on file with Willcox &
Gibbs, Inc.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public offering pursuant to a registration statement under the Securities
Act) shall also bear such legend unless, in the opinion of counsel selected by
the holder of such certificate (who may be an employee of such holder) and
reasonably acceptable to Holdings, the securities represented thereby need no
longer be subject to restrictions on resale under the Securities Act.
SECTION 1.5. Reservation. Holdings has duly reserved and will keep
available for issuance upon exercise of the Warrants the total number of Warrant
Shares deliverable from time to time upon exercise of all Warrants from time to
time outstanding and the total number of shares of Voting Common Stock
deliverable upon conversion of such Warrant Shares to Voting Common Stock.
Holdings will not change the Non-Voting Common Stock from no par value per share
to any higher par value which exceeds the Exercise Price then in effect, and
will reduce the par value of the Non-Voting Common Stock upon any event
described in Article 4 that provides for an increase in the number of shares of
Non-Voting Common Stock subject to purchase upon exercise of this Warrant, in
inverse proportion to and effective at the same time as such number of shares is
increased, but only to the extent that such increase in the number of shares,
together with all other such increases after the date hereof, causes the
aggregate Exercise Price of all Warrants (without giving effect to any exercise
or redemption thereof) to be greater than $1,000.
ARTICLE 2
WARRANT AGENCY; TRANSFER, EXCHANGE AND REPLACEMENT OF WARRANTS
SECTION 2.1. Warrant Agency. As long as any of the Warrants remain
outstanding, Holdings shall perform the obligations of and be the warrant agency
with respect to the Warrants (the "Warrant Agency") at its offices at 900 Milik
Street, Carteret, New Jersey 07008 or at such other address as Holdings shall
specify by notice to all Warrantholders.
SECTION 2.2. Ownership of Warrant. Holdings may deem and treat the person
in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by any person
other than Holdings) for all purposes and shall not be affected by any notice to
the contrary, until due presentment of this Warrant for registration of transfer
as provided in this Article 2.
4
<PAGE>
SECTION 2.3. Transfer of Warrant. Holdings agrees to maintain at the
Warrant Agency books for the registration of transfers of the Warrants, and
transfer of this Warrant and all rights hereunder shall be registered, in whole
or in part, on such books, upon surrender of this Warrant at the Warrant Agency,
together with a written assignment of this Warrant duly executed by the Holder
or its duly authorized agent or attorney, with (if the Holder is a natural
person) signatures guaranteed by a bank or trust company or a broker or dealer
registered with the NASD, and funds sufficient to pay any transfer taxes payable
upon such transfer. Upon surrender and, if required, such payment, Holdings
shall execute and deliver a new Warrant or Warrants in the name of the assignee
or assignees and in the denominations specified in the instrument of assignment
(which shall be whole numbers of shares only) and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be canceled.
SECTION 2.4. Division or Combination of Warrants. This Warrant may be
divided or combined with other Warrants upon presentment hereof and of any
Warrant or Warrants with which this Warrant is to be combined at the Warrant
Agency, together with a written notice specifying the names and denominations
(which shall be whole numbers of shares only) in which the new Warrant or
Warrants are to be issued, signed by the holders hereof and thereof or their
respective duly authorized agents or attorneys. Subject to compliance with
Section 2.3 as to any transfer or assignment which may be involved in the
division or combination, Holdings shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
SECTION 2.5. Loss, Theft, Destruction of Warrant Certificates. Upon
receipt of evidence satisfactory to Holdings of the ownership of and the loss,
theft, destruction or mutilation of any Warrant and, in the case of any such
loss, theft or destruction, upon receipt of indemnity or security satisfactory
to Holdings (it being understood and agreed that if the holder of such Warrant
is NCCC, then a written agreement of indemnity given by NCCC alone shall be
satisfactory to Holdings and no further security shall be required) or, in the
case of any such mutilation, upon surrender and cancellation of such Warrant,
Holdings will make and deliver, in lieu of such lost, stolen, destroyed or
mutilated Warrant, a new Warrant of like tenor and representing the right to
purchase the same aggregate number of shares of Non-Voting Common Stock.
SECTION 2.6. Expenses of Delivery of Warrants. Holdings shall pay all
expenses, taxes (other than transfer taxes) and other charges payable in
connection with the preparation, issuance and delivery of Warrants hereunder.
5
<PAGE>
ARTICLE 3
CERTAIN RIGHTS
SECTION 3.1. Rights and Obligations under the Warrantholders Rights
Agreement. This Warrant is entitled to the benefits and subject to the terms of
the Warrantholders Rights Agreement dated as of July 13, 1994 among Holdings and
the Stockholders and Warrantholders listed on the signature pages thereof (as
amended from time to time, the "Warrantholders Rights Agreement"). Holdings
shall keep or cause to be kept a copy of the Warrantholders Rights Agreement,
and any amendments thereto, at the Warrant Agency and shall furnish, without
charge, copies thereof to the Holder upon request.
SECTION 3.2. Determination of Fair Market Value. Subject to Section 3.3
hereof, each determination of Fair Market Value hereunder shall be made in good
faith by Holdings. Upon each determination of Fair Market Value by Holdings
hereunder, Holdings shall promptly give notice thereof to all Warrantholders,
setting forth in reasonable detail the calculation of such Fair Market Value and
the method and basis of determination thereof (the "Holdings Determination").
SECTION 3.3. Contest and Appraisal Rights. (a) If the holders of Warrants
entitling such holders to purchase a majority of the Non-Voting Common Stock
subject to purchase upon exercise of Warrants at the time outstanding (exclusive
of Warrants then owned by Holdings or any Subsidiary or Affiliate thereof (the
"Required Interest") shall disagree with the Holdings Determination and shall by
notice to Holdings given within 30 days after Holdings' notice of the Holdings
Determination (an "Appraisal Notice") elect to dispute the Holdings
Determination, such dispute shall be resolved as set forth in subsection (b) of
this Section.
(b) Holdings shall within 30 days after an Appraisal Notice shall have
been given pursuant to subsection (a) of this Section engage an investment bank
or other qualified appraisal firm acceptable to the Required Interest (the
"Appraiser") to make an independent determination of Fair Market Value (the
"Appraiser Determination"). The Appraiser Determination shall be final and
binding on Holdings and all Warrantholders. If the Holdings Determination and
the Appraiser Determination differ by an amount of 15% or less of the Holdings
Determination, then the costs of conducting the appraisal shall be borne equally
by Holdings and the Warrantholders; if the Holdings Determination is greater
than the Appraiser Determination by more than 15% of the Holdings Determination,
then the costs of conducting the appraisal shall be borne entirely by the
Warrantholders; and if the Appraiser Determination is greater than the Holdings
Determination by more than 15% of the Holdings Determination, then the costs of
conducting the appraisal shall be borne entirely by Holdings; provided that in
each case
6
<PAGE>
costs separately incurred by Holdings and any Warrantholders shall be separately
borne by them.
SECTION 3.4. Board Meetings. Holdings shall give to the Warrantholders
notice of all meetings and actions by written consent of its board of directors
and each committee thereof and of the board of directors and each committee
thereof of the Company, at the same time and in the same manner as notice of any
meetings of such board or committees is required to be given to directors who do
not waive such notice (or, if such action requires no notice, then 10 days
written notice thereof describing the matters upon which action is to be taken).
All meetings of the board of directors of the Company or each committee thereof
shall be held on the same day and in the same location as the analogous meeting
of the board or directors of Holdings or relevant committee thereof, as the case
may be. Warrantholders shall have the right to send two representatives selected
by them to each such meeting, who shall be permitted to attend such meeting and
any adjournments thereof (other than any portion of such meeting devoted to
discussion of the Warrantholders solely in their respective capacities as
holders of the Warrants).
ARTICLE 4
ANTIDILUTION PROVISIONS
SECTION 4.1. Adjustments Generally. The Exercise Price and the number of
shares of Non-Voting Common Stock (or other securities or property) issuable
upon exercise of this Warrant shall be subject to adjustment from time to time
upon the occurrence of certain events as provided in this Article 4; provided
that notwithstanding anything to the contrary contained herein, the Exercise
Price shall not be less than the par value of the Non-Voting Common Stock, as
such par value is reduced from time to time in accordance with Section 1.5.
SECTION 4.2. Common Stock Reorganization. If Holdings shall subdivide its
outstanding shares of Common Stock (or any class thereof) into a greater number
of shares or consolidate its outstanding shares of Common Stock (or any class
thereof) into a smaller number of shares (any such event being called a "Common
Stock Reorganization"), then (a) the Exercise Price shall be adjusted, effective
immediately after the effective date of such Common Stock Reorganization, to a
price determined by multiplying the Exercise Price in effect immediately prior
to such effective date by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding on such effective date before giving
effect to such Common Stock Reorganization and the denominator of which shall be
the number of shares of Common Stock outstanding after giving effect to such
Common Stock Reorganization, and (b) the number of shares of Non-Voting Common
Stock subject to purchase upon exercise of this
7
<PAGE>
Warrant shall be adjusted, effective at such time, to a number determined by
multiplying the number of shares of Non-Voting Common Stock subject to purchase
immediately before such Common Stock Reorganization by a fraction, the numerator
of which shall be the number of shares of Common Stock outstanding after giving
effect to such Common Stock Reorganization and the denominator of which shall be
the number of shares of Common Stock outstanding immediately before such Common
Stock Reorganization.
SECTION 4.3. Common Stock Distribution. (a) If Holdings shall issue, sell
or otherwise distribute any shares of Common Stock, other than pursuant to a
Common Stock Reorganization (which is governed by Section 4.2 hereof) (any such
event, including any event described in paragraphs (b) and (c) below, being
herein called a "Common Stock Distribution"), for a consideration per share less
than the Exercise Price then in effect or less than the Fair Market Value of
Holdings per share of outstanding Common Stock on a Fully Diluted Basis on the
date of such Common Stock Distribution (before giving effect to such Common
Stock Distribution), then, effective upon such Common Stock Distribution, the
Exercise Price shall be reduced, if such consideration per share shall be less
then the Exercise Price then in effect but not less than such Fair Market Value
per share, to the lower of the prices (calculated to the nearest one-thousandth
of one cent) determined as provided in clauses (i) and (ii) below or, if such
consideration per share shall be less than such Fair Market Value per share, to
the lowest of the prices (calculated to the nearest one-thousandth of one cent)
determined as provided in clauses (i), (ii) and (iii) below:
(i) if Holdings shall receive any consideration for the Common Stock
issued, sold or distributed in such Common Stock Distribution, the
consideration per share of Common Stock received by Holdings upon such
issue, sale or distribution,
(ii) by dividing (A) an amount equal to the sum of (1) the number of
shares of Common Stock outstanding immediately prior to such Common Stock
Distribution multiplied by the then existing Exercise Price, plus (2) the
consideration, if any, received by Holdings upon such Common Stock
Distribution by (B) the total number of shares of Common Stock outstanding
immediately after such Common Stock Distribution; and
(iii) by multiplying the Exercise Price in effect immediately prior
to such Common Stock Distribution by a fraction, the numerator of which
shall be the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such Common Stock Distribution multiplied by such
Fair Market Value per share on the date of such Common Stock Distribution,
plus (B) the consideration, if any, received by Holdings upon such Common
Stock Distribution, and the denominator of which shall be the product of
(1) the total number of shares of Common Stock
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outstanding immediately after such Common Stock Distribution multiplied by
(2) such Fair Market Value per share on the date of such Common Stock
Distribution.
If any Common Stock Distribution shall require an adjustment to the
Exercise Price pursuant to the foregoing provisions of this paragraph (a),
including by operation of paragraph (b) or (c) below, then, effective at the
time such adjustment is made, the number of shares of Non-Voting Common Stock
subject to purchase upon exercise of this Warrant shall be increased to a number
determined by multiplying the number of shares of Non-Voting Common Stock
subject to purchase immediately before such Common Stock Distribution by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately after giving effect to such Common Stock Distribution
and the denominator of which shall be the sum of the number of shares
outstanding immediately before giving effect to such Common Stock Distribution
(both calculated on a Fully Diluted Basis) plus the number of shares of Common
Stock which the aggregate consideration received by Holdings with respect to
such Common Stock Distribution would purchase at the Fair Market Value of
Holdings per share of outstanding Common Stock on a Fully Diluted Basis on the
date of such Common Stock Distribution (before giving effect to such Common
Stock Distribution). In computing adjustments under this paragraph, fractional
interests in Common Stock shall be taken into account to the nearest
one-thousandth of a share.
The provisions of this paragraph (a), including by operation of paragraph
(b) or (c) below, shall not operate to increase the Exercise Price or reduce the
number of shares of Non-Voting Common Stock subject to purchase upon exercise of
this Warrant.
(b) If Holdings shall issue, sell, distribute or otherwise grant in any
manner (including by assumption) any rights to subscribe for or to purchase, or
any warrants or options for the purchase of Common Stock or any stock or
securities convertible into or exchangeable for Common Stock (such rights,
warrants or options being herein called "Options" and such convertible or
exchangeable stock or securities being herein called "Convertible Securities"),
whether or not such Options or the rights to convert or exchange any such
Convertible Securities in respect of such Options are immediately exercisable,
and the price per share for which Common Stock is issuable upon the exercise of
such Options or upon conversion or exchange of such Convertible Securities in
respect of such Options (determined by dividing (i) the aggregate amount, if
any, received or receivable by Holdings as consideration for the granting of
such Options, plus the minimum aggregate amount of additional consideration
payable to Holdings upon the exercise of all such Options, plus, in the case of
Options to acquire Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issuance or sale of such
Convertible Securities and upon the conversion or exchange thereof, by (ii) the
total maximum number of shares of Common Stock issuable upon the exercise of
such Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options) shall be less than the
Exercise Price
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then in effect or less than the Fair Market Value of Holdings per share of
outstanding Common Stock on a Fully Diluted Basis on the date of granting such
Options (before giving effect to such grant), then, for purposes of paragraph
(a) above, the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the total maximum
amount of such Convertible Securities issuable upon the exercise of such Options
shall be deemed to have been issued as of the date of granting of such Options
and thereafter shall be deemed to be outstanding and Holdings shall be deemed to
have received as consideration of such price per share, determined as provided
above, therefor. Except as otherwise provided in paragraph (d) below, no
additional adjustment of the Exercise Price shall be made upon the actual
exercise of such Options or upon conversion or exchange of such Convertible
Securities.
(c) If Holdings shall issue, sell or otherwise distribute (including by
assumption) any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per share for
which Common Stock is issuable upon such conversion or exchange (determined by
dividing (i) the aggregate amount received or receivable by Holdings as
consideration for the issuance, sale or distribution of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to Holdings upon the conversion or exchange thereof, by (ii) the
total maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities) shall be less than the Exercise
Price then in effect or less than the Fair Market Value of Holdings per share of
outstanding Common Stock on a Fully Diluted Basis on the date of such issuance,
sale or distribution (before giving effect to such issuance, sale or
distribution), then, for purposes of paragraph (a) above, the total maximum
number of shares of Common Stock issuable upon conversion or exchange of all
such Convertible Securities shall be deemed to have been issued as of the date
of the issuance, sale or distribution of such Convertible Securities and
thereafter shall be deemed to be outstanding and Holdings shall be deemed to
have received as consideration such price per share, determined as provided
above, therefor. Except as otherwise provided in paragraph (d) below, no
additional adjustment of the Exercise Price shall be made upon the actual
conversion or exchange of such Convertible Securities.
(d) If (i) the purchase price provided for in any Option referred to in
paragraph (b) above or the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities referred to in paragraph
(b) or (c) above or the rate at which any Convertible Securities referred to in
paragraph (b) or (c) above are convertible into or exchangeable for Common Stock
shall change at any time (other than under or by reason of provisions designed
to protect against dilution upon an event which results in a related adjustment
pursuant to this Article 4), or (ii) any of such Options or Convertible
Securities shall have terminated, lapsed or expired, the Exercise Price then in
effect shall forthwith be readjusted (effective only with respect to any
exercise of this Warrant after such readjustment) to the Exercise Price which
would then be in effect had the adjustment made upon the issuance, sale,
distribution or grant of such Options or Convertible Securities
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been made based upon such changed purchase price, additional consideration or
conversion rate, as the case may be (in the case of any event referred to in
clause (i) of this paragraph (d)) or had such adjustment not been made (in the
case of any event referred to in clause (ii) of this paragraph (d)).
(e) If Holdings shall pay a dividend or make any other distribution upon
any capital stock of Holdings payable in Common Stock, Options or Convertible
Securities, then, for purposes of paragraph (a) above, such Common Stock,
Options or Convertible Securities shall be deemed to have been issued or sold
without consideration.
(f) If any shares of Common Stock, Options or Convertible Securities shall
be issued, sold or distributed for cash, the consideration received therefor
shall be deemed to be the amount received by Holdings therefor, after deduction
therefrom of any expenses incurred in connection therewith. If any shares of
Common Stock, Options or Convertible Securities shall be issued sold or
distributed for a consideration other than cash, the amount of the consideration
other than cash received by Holdings shall be deemed to be the Fair Market Value
of such consideration, after deduction of any expenses incurred in connection
therewith. If any shares of Common Stock, Options or Convertible Securities
shall be issued in connection with any merger in which Holdings is the surviving
corporation, the amount of consideration therefor shall be deemed to be the Fair
Market Value of such portion of the assets and business of the non-surviving
corporation as shall be attributable to such Common Stock, Options or
Convertible Securities, as the case may be. If any Options shall be issued in
connection with the issuance and sale of other securities of Holdings, together
comprising one integral transaction in which no specific consideration is
allocated to such Options by the parties thereto, such Options shall be deemed
to have been issued without consideration.
SECTION 4.4. Special Dividends. If Holdings shall issue or distribute to
any holder or holders of shares of Common Stock evidences of indebtedness, any
other securities of Holdings or any cash, property or other assets (excluding a
Common Stock Reorganization or a Common Stock Distribution), whether or not
accompanied by a purchase, redemption or other acquisition of shares of Common
Stock (any such nonexcluded event being herein called a "Special Dividend"), (a)
the Exercise Price shall be decreased, effective immediately after the effective
date of such Special Dividend, to a price determined by multiplying the Exercise
Price then in effect by a fraction, the numerator of which shall be the Fair
Market Value of Holdings per share of outstanding Common Stock as of such
effective date less any cash and the then Fair Market Value of any evidences of
indebtedness, securities or property or other assets issued or distributed in
such Special Dividend with respect to one share of Common Stock, and the
denominator of which shall be such Fair Market Value per share and (b) the
number of shares of Non-Voting Common Stock subject to purchase upon exercise of
this Warrant shall be increased to a number determined by multiplying the number
of shares of Non-Voting Common Stock subject to purchase immediately before such
special Dividend by a
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fraction, the numerator of which shall be the Exercise Price in effect
immediately before such Special Dividend and the denominator of which shall be
the Exercise Price in effect immediately after such Special Dividend. A
reclassification of Common Stock (other than a change in par value, or from par
value to no par value or from no par value to par value) into shares of Common
Stock and shares of any other class of stock shall be deemed a distribution by
Holdings to the holders of such Common Stock of such shares of such other class
of stock and, if the outstanding shares of Common Stock shall be changed into a
larger or smaller number of shares of Common Stock as part of such
reclassification, a Common Stock Reorganization.
SECTION 4.5. Capital Reorganizations. If there shall be any consolidation
or merger to which Holdings is a party, other than a consolidation or a merger
of which Holdings is the continuing corporation and which does not result in any
reclassification of, or change (other than a Common Stock Reorganization) in,
outstanding shares of Common Stock, or any sale or conveyance of the property of
Holdings as an entirety or substantially as an entirety, or any recapitalization
of Holdings (any such event being called a "Capital Reorganization"), then,
effective upon the effective date of such Capital Reorganization, the Holder
shall no longer have the right to purchase Non-Voting Common Stock, but shall
have instead the right to purchase, upon exercise of this Warrant, the kind and
amount of shares of stock and other securities and property (including cash)
which the Holder would have owned or have been entitled to receive pursuant to
such Capital Reorganization if this Warrant had been exercised immediately prior
to the effective date of such Capital Reorganization. As a condition to
effecting any Capital Reorganization, Holdings or the successor or surviving
corporation, as the case may be, shall (a) execute and deliver to each
Warrantholder and to the Warrant Agency an agreement as to the Warrantholders'
rights in accordance with this Section 4.5, providing, to the extent of any
right to purchase equity securities hereunder, for subsequent adjustments as
nearly equivalent as may be practicable to the adjustments provided for in this
Article 4 and (b) provide each Regulation Y Holder with an opinion of counsel
reasonably satisfactory to such Regulation Y Holder and such other assurances as
any Regulation Y Holder may reasonably request to the effect that the ownership
and exercise by any Regulation Y Holder of this Warrant after giving effect to
such Capital Reorganization shall not be prohibited by the BHC Act or the
regulations thereunder. The provisions of this Section 4.5 shall similarly apply
to successive Capital Reorganizations.
SECTION 4.6. Adjustment Rules. Any adjustments pursuant to this Article 4
shall be made successively whenever an event referred to herein shall occur,
except that, notwithstanding any other provision of this Article 4, no
adjustment shall be made to the number of shares of Non-Voting Common Stock to
be delivered to each Holder (or to the Exercise Price) if such adjustment
represents less than 1% of the number of shares previously required to be so
delivered, but any lesser adjustment shall be carried forward and shall be made
at the time and together with the next subsequent adjustment which together with
any adjustments so carried forward shall amount to 1% or more of the
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number of shares to be so delivered. No adjustment shall be made pursuant to
this Article 4 in respect of the issuance from time to time of shares of Common
Stock upon the exercise of any of the Warrants. If Holdings shall take a record
of the holders of its Common Stock for any purpose referred to in this Article
4, then (i) such record date shall be deemed to be the date of the issuance,
sale, distribution or grant in question and (ii) if Holdings shall legally
abandon such action prior to effecting such action, no adjustment shall be made
pursuant to this Article 4 in respect of such action.
SECTION 4.7. Proceedings Prior to Any Action Requiring Adjustment. As a
condition precedent to the taking of any action which would require an
adjustment pursuant to this Article 4, Holdings shall take any action which may
be necessary, including obtaining regulatory approvals or exemptions, in order
that (a) Holdings may thereafter validly and legally issue as fully paid and
nonassessable all shares of Non-Voting Common Stock which the holders of
Warrants are entitled to receive upon exercise thereof and (b) the ownership and
exercise of any Warrant by any Regulation Y Holder shall not be prohibited by
the BHC Act or the regulations thereunder.
SECTION 4.8. Notice of Adjustment. Not less than 10 nor more than 30 days
prior to the record date or effective date, as the case may be, of any action
which requires or might require an adjustment or readjustment pursuant to this
Article 4, Holdings shall give notice to each Warrantholder of such event,
describing such event in reasonable detail and specifying the record date or
effective date, as the case may be, and, if determinable, the required
adjustment and the computation thereof. If the required adjustment is not
determinable at the time of such notice, Holdings shall give notice to each
Warrantholder of such adjustment and computation promptly after such adjustment
becomes determinable.
ARTICLE 5
PURCHASE, REDEMPTION AND CANCELLATION OF WARRANTS
SECTION 5.1. Purchase of Warrants by Holdings. Holdings shall have the
right or obligation to purchase or otherwise acquire Warrants at such times, in
such manner and for such consideration as set forth below.
SECTION 5.2. Mandatory Redemption of Warrants. (a) Determination of
Redemption Price. The Holder may at any time and from time to time, by notice to
Holdings demand a determination of the Redemption Price (a "Determination
Notice") for purposes of this Section 5.2. Within 30 days after the receipt of
any Determination Notice from the Holder, Holdings shall give to the Holder and
to each other registered holder of the Warrants notice of the Redemption Price,
including a reasonably detailed description
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of the method of calculation thereof, determined as of the day preceding such
notice of the Redemption Price (the "Determination Date") and shall state
whether or not a Redemption Limitation may apply, and if so, shall describe in
reasonable detail the nature of such Redemption Limitation.
A "Redemption Limitation" means any limitation imposed by the terms of any
indebtedness of Holdings or any of its Subsidiaries on the payment of dividends
in cash or the redemption of warrants or options to purchase common stock issued
by Holdings, generally (including, without limitation, any such limitation on
(i) Restricted Payments (as defined in the Indenture dated as of January 3, 1997
between Willcox & Gibbs, Inc., the subsidiaries of Willcox & Gibbs, Inc. named
therein as guarantors and IBJ Schroder Bank and Trust Company) or (ii) such
payments as set forth in the Financing and Security Agreement dated January 3,
1997 among Holdings, certain of its subsidiaries and NationsBank N.A.). Holdings
shall not, and shall not permit its Subsidiaries to agree to or become subject
to any restriction on the redemption of the Warrants that is more onerous or
strict than any restriction generally applicable to the payment of cash
dividends by Holdings or to the redemption of options or warrants issued by
Holdings to purchase equity securities issued by Holdings.
(b) Redemption for Cash. At any time within 30 days after receipt of
notice of the Redemption Price as of the Determination Date (the "Mandatory
Redemption Period"), the Holder and each other holder of the Warrants may demand
redemption of its Warrant, in whole or in part, at the applicable redemption
price by notice to Holdings, payable on the third Business Day after receipt of
notice of such demand (any such date, the "Redemption Due Date") in immediately
available funds to the Holder upon surrender of this Warrant at the Warrant
Agency or, if requested by the Holder, without surrender of this Warrant, by
wire transfer to any account in New York City specified by notice to Holdings;
provided, however, that Holdings shall not be obligated to redeem this Warrant,
and no amount shall be payable by Holdings pursuant to this Section 5.2(b) if,
when and to the extent not permitted by any applicable Redemption Limitation.
Any amount payable by Holdings hereunder that is not paid when due shall bear
interest, payable on demand, for each day until paid at a rate per annum equal
to 6.00% per annum plus the "Commercial Paper Rate" (as defined in the form of
Redemption Note attached as Annex 1 hereto) for such day.
The Holder's right to demand redemption of this Warrant pursuant to this
Section 5.2 shall be referred to hereinafter as the Holder's "Mandatory
Redemption Right".
SECTION 5.3. Optional Redemption. At any time and from time to time
Holdings shall have the right to redeem all, but not less than all, of the
outstanding Warrants at the Optional Redemption Price, determined as of the day
preceding the notice of redemption. Irrevocable notice of such right of
redemption shall be given by Holdings to all Warrantholders not more than 30
days nor less than 15 days prior to the date scheduled
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for redemption, stating the date and price, including a reasonably detailed
description of the method of calculation thereof, of redemption. Warrantholders
may exercise Warrants until 5:00 p.m., New York City time, on the Business Day
preceding the date of redemption set forth in a valid notice of redemption, at
which time the right to purchase shares of Non-Voting Common Stock theretofore
represented by this Warrant shall terminate, and this Warrant shall represent
the right of the Holder to receive the Optional Redemption Price from Holdings
in immediately available funds upon surrender of this Warrant at the Warrant
Agency. If the Optional Redemption Price shall be disputed pursuant to Section
3.3, Holdings shall pay to the affected Warrantholders on the redemption date
the Optional Redemption Price initially determined by it and shall thereafter
make supplemental payment of any increase (and the affected Warrantholder shall
remit to Holdings any decrease) in the Optional Redemption Price upon resolution
of such dispute.
SECTION 5.4. Cancellation of Warrants. All Warrants purchased, redeemed or
otherwise acquired by Holdings shall thereupon be canceled and retired. The
Warrant Agency shall cancel any Warrant surrendered for exercise or registration
of transfer or exchange and deliver such canceled Warrants to Holdings.
ARTICLE 6
DEFINITIONS
The following terms, as used in this Warrant, have the following meanings:
"Affiliate" means (i) any Person that directly, or indirectly through one
or more intermediaries, controls the Company (a "Controlling Person") or (ii)
any Person (other than the Company or any Company Subsidiary) which is
controlled by or is under common control with a Controlling Person. As used
herein, the term "control" of a Person means the possession, directly or
indirectly, of the power to vote 10% or more of any class of voting securities
of such Person or to direct or cause the direction of the management or policies
of a Person, whether through the ownership of voting securities, by contract or
otherwise.
"Appraisal Notice" has the meaning set forth in Section 3.3(a).
"Appraiser" has the meaning set forth in Section 3.3(b).
"Appraiser Determination" has the meaning set forth in Section 3.3(b).
"BHC Act" means the Bank Holding Company Act of 1956, as amended.
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"Business Day" means any day excluding Saturday, Sunday and any day on
which banking institutions located in New York are authorized by law or other
governmental action to be closed, unless there shall have been an offering of
Common Stock registered under the Securities Act, in which case "Business Day"
means (a) if Common Stock is listed or admitted to trading on a national
securities exchange, a day on which the principal national securities exchange
on which the Common Stock is listed or admitted to trading is open for business
or (b) if Common Stock is not so listed or admitted to trading, a day on which
the New York Stock Exchange is open for business.
"Capital Reorganization" has the meaning set forth in Section 4.5.
"Closing Price" on any day means (a) if Common Stock is listed or admitted
for trading on a national securities exchange, the reported last sales price
regular way or, if no such reported sale occurs on such day, the average of the
closing bid and asked prices regular way on such day, in each case on the
principal national securities exchange on which Common Stock is listed or
admitted to trading, or (b) if Common Stock is not listed or admitted to trading
on any national securities exchange, the average of the closing bid and asked
prices in the over-the-counter market on such day as reported by NASDAQ or any
comparable system or, if not so reported, as reported by any New York Stock
Exchange member firm selected by Holdings for such purpose.
"Common Stock" means any class of common stock of Holdings, or all such
classes, as the context may require.
"Common Stock Distribution" has the meaning set forth in Section 4.3(a).
"Common Stock Reorganization" has the meaning set forth in Section 4.2.
"Company" means WG Apparel, Inc., a Delaware corporation, and its
successors.
"Convertible Securities" has the meaning set forth in Section 4.3(b).
"Credit Agreement" has the meaning set forth in the second paragraph of
this Warrant.
"Determination Notice" has the meaning set forth in Section 5.2.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
any successor Federal statute, and the rules and regulations of the Securities
and Exchange Commission (or its successor) thereunder, all as the same shall be
in effect at the time.
"Exercise Price" means $.01 per share of the Non-Voting Common Stock,
subject to adjustment pursuant to Article 4.
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"Fair Market Value" as at any date of determination means the fair market
value of the business or property or services in question as of such date, as
determined in good faith by the Board of Directors of Holdings or otherwise in
accordance with Section 3.3 hereof. The Fair Market Value of Holdings as at any
date of determination shall be the greatest of (i) the fair market value at such
date of the Company and its Subsidiaries as a going concern, (ii) the
liquidation value at such date of the Company and its Subsidiaries, and (iii)
the consolidated net worth of the Company and its Subsidiaries as shown on its
latest available consolidated balance sheet of Holdings. Notwithstanding the
foregoing, if, at any date of determination of the Fair Market Value of
Holdings, the Common Stock shall then be publicly traded, the Fair Market Value
of Holdings on such date shall be the greater of (a) the amount determined in
accordance with the immediately preceding sentence and (b) the Market Price on
such date multiplied by the number of shares of Common Stock then outstanding.
Determination of the Fair Market Value of Holdings per share of Common Stock,
shall be made without giving effect to any discount for (i) minority interest,
(ii) any lack of liquidity of the Common Stock due to the fact that there may be
no public market for the Common Stock, or (iii) the voting status of the
Non-Voting Common Stock. In the case of the sale by Holdings of Common Stock to
the trustee of the Employee Stock Ownership Plan of Holdings in the ordinary
course of business of Holdings, Fair Market Value of Holdings per share of
Common stock shall be the fair market value thereof, as determined by an
"Independent Appraiser," as described in Section 401(a)(28) of the Internal
Revenue Code of 1986, as amended.
"Fully Diluted Basis" means at any time (i) as applied to any calculation
of the number of securities of Holdings, after giving effect to (x) all shares
of common stock of Holdings (including the Common Stock) outstanding at the time
of determination, (y) all shares of Holdings' common stock issuable upon the
exercise of any option, warrant (including the Warrants) or similar right
outstanding at the time of determination and (z) all shares of common stock of
Holdings issuable upon the exercise of any conversion or exchange right
contained in any security convertible into or exchangeable for shares of common
stock of Holdings; and (ii) as applied to any calculation of value, after giving
effect to the foregoing securities and the payment of any consideration payable
upon the exercise of any option, warrant or similar right referred to in clause
(y) above if such option, warrant or similar right were exercisable at such
time.
"Holder" has the meaning set forth in the first paragraph of this
Warrant.
"Holdings" has the meaning set forth in the first paragraph of this
Warrant.
"Holdings Determination" has the meaning set forth in Section 3.2(a).
"Mandatory Redemption Period" has the meaning set forth in Section 5.2.
"Mandatory Redemption Right" has the meaning set forth in Section 5.2.
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"Market Price" as at any date of determination means the average of the
daily Closing Prices of a share of Common Stock for the shorter of (i) the 20
consecutive Business Days ending on the most recent Business Day prior to the
Time of Determination and (ii) the period commencing on the date next succeeding
the first public announcement of the issuance, sale, distribution, grant or
exercise in question through such most recent Business Day prior to the Time of
Determination. "Time of Determination" means the time and date of the earliest
of (x) the determination of the stockholders entitled to receive such issuance,
sale, distribution or grant, (y) the determination of the Holders or Holdings to
exercise their respective rights set forth in Sections 5.2 or 5.3 hereof and (z)
the commencement of "ex-dividend" trading in respect thereof.
"NASD" means The National Association of Securities Dealers. Inc.
"NASDAQ" means The National Association of Securities Dealers, Inc.
Automated Quotation System.
"NCCC" has the meaning set forth in the second paragraph of this
Warrant.
"Non-Voting Common Stock" has the meaning set forth in the first
paragraph of this Warrant.
"Optional Redemption Price" means, as of any date of determination, a
price for each share of Non-Voting Common Stock issuable upon exercise of the
Warrants equal to 102% of the Redemption Price, determined as of such date.
"Options" has the meaning set forth in Section 4.3(b).
"Person" means any natural person, corporation, limited partnership,
general partnership, joint stock company, joint venture, association, company,
trust, bank, trust company, land trust, business trust or other organization,
whether or not a legal entity, and any government agency or political
subdivision thereof.
"Redemption Due Date" has the meaning set forth in Section 5.2 hereof.
"Redemption Limitation" has the meaning set forth in Section 5.2 hereof.
"Redemption Price" means, as of any date of determination, a price for
each share of Non-Voting Common Stock issuable upon exercise of the Warrants
equal to the excess of (a)(i) the Fair Market Value of Holdings plus the
aggregate Exercise Price of all Warrants either being redeemed or then
outstanding and not being redeemed divided by (ii) the number of shares of
Common Stock outstanding on a Fully Diluted Basis over (b) the Exercise Price
then in effect.
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"Regulation Y Holder" means the Holder or a holder of Warrant Shares, if
such Holder or holder of Warrant Shares is a bank holding company within the
meaning of the BHC Act or a subsidiary thereof subject to Regulation Y under the
BHC Act.
"Required Interest" has the meaning set forth in Section 3.3(a).
"Securities Act" means the Securities Act of 1933, as amended, and rules
and regulations of the Securities and Exchange Commission thereunder.
"Special Dividend" has the meaning set forth in Section 4.4.
"Subsidiary" of any Person means any corporation, partnership, joint
venture, association or other business entity of which more than 50(degrees)/0
of the total voting power of shares of stock or other interests therein entitled
to vote in the election of members of the board of directors, partnership
committee, board of managers or trustees or other managerial body thereof is at
the time owned or controlled, directly or indirectly, by such Person or one or
more of the other Subsidiaries of such Person or a combination thereof. Unless
otherwise specified, "Subsidiary" means a Subsidiary of the Company and
"Subsidiaries" means all Subsidiaries of the Company.
"Warrant Agency" has the meaning set forth in Section 2.1.
"Warrant Shares" means the shares of Non-Voting Common Stock issuable upon
the exercise of the Warrants.
"Warrantholder" means a holder of a Warrant.
"Warrantholders Rights Agreement" has the meaning set forth in Section
3.1.
"Warrants" has the meaning set forth in the second paragraph of this
Warrant.
All references herein to "days" shall mean calendar days unless otherwise
specified.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1. Notices. Notices and other communications provided for herein
shall be in writing and may be given by mail, courier, confirmed telex or
facsimile transmission and shall, unless otherwise expressly required, be deemed
given when received or, if mailed, four Business Days after being deposited in
the United States mail
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with postage prepaid and properly addressed. In the case of the Holder, such
notices and communications shall be addressed to its address as shown on the
books maintained by the Warrant Agency, unless the Holder shall notify the
Warrant Agency that notices and communications should be sent to a different
address (or telex or facsimile number), in which case such notices and
communications shall be sent to the address (or telex or facsimile number)
specified by the Holder.
SECTION 7.2. Waivers; Amendments. No failure or delay of the Holder in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No notice or demand on Holdings in any case shall entitle
Holdings to any other or future notice or demand in similar or other
circumstances. The rights and remedies of the Holder are cumulative and not
exclusive of any rights or remedies which it would otherwise have. The
provisions of this Warrant may be amended, modified or waived with (and only
with) the written consent of Holdings and the holders of Warrants entitling such
holders to purchase 66 2/3% of the Non-Voting Common Stock subject to purchase
upon exercise of such Warrants at the time outstanding (exclusive of Warrants
then owned by Holdings or any Company Subsidiary or Affiliate thereof);
provided, however, that no such amendment, modification or waiver shall, without
the written consent of the holders of all Warrants at the time outstanding, (a)
change the number of shares of Non-Voting Common Stock subject to purchase upon
exercise of this Warrant, the Exercise Price or provisions for payment thereof
or (b) amend, modify or waive the provisions of this Section or Article 3 or 4
or Section 1.5, 5.2 or 5.3. The provisions of the Credit Agreement and the
Warrantholders Rights Agreement may be amended, modified or waived only in
accordance with the respective provisions thereof.
Any such amendment, modification or waiver effected pursuant to and in
accordance with the provisions of this Section or the applicable provisions of
the Credit Agreement or the Warrantholders Rights Agreement shall be binding
upon the holders of all Warrants and Warrant Shares, upon each future holder
thereof and upon Holdings. In the event of any such amendment, modification or
waiver Holdings shall give prompt notice thereof all holders of Warrants and
Warrant Shares and, if appropriate, notation thereof shall be made on all
Warrants thereafter surrendered for registration of transfer or exchange.
SECTION 7.3. GOVERNING LAW. THIS WARRANT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW).
20
<PAGE>
SECTION 7.4. Transfer, Covenants to Bind Successor and Assigns. All
covenants, stipulations, promises and agreements in this Warrant contained by or
on behalf of Holdings or the Holder shall bind its successors and assigns,
whether so expressed or not. This Warrant shall be transferable and assignable
by the Holder hereof in whole or from time to time in part to any other Person
and the provisions of this Warrant shall be binding upon and inure to the
benefit of the Holder hereof and its successors and assigns.
SECTION 7.5. Severability. In case any one or more of the provisions
contained in this Warrant shall be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby. The
parties shall endeavor in good faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions the economic effect of
which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
SECTION 7.6. Section Headings. The section headings used herein are for
convenience of reference only, are not part of this Warrant and are not to
affect the construction of or be taken into consideration in interpreting this
Warrant.
SECTION 7.7. Tax Basis. Holdings and the Holder have previously agreed (as
set forth in Section 3.05 of the Credit Agreement) pursuant to Treasury
Regulation Section 1.273-2 on the aggregate purchase price for the Warrants for
Federal Income Tax Purposes and neither Holdings nor the Holder hereof shall
voluntarily take (nor shall Holdings permit the Company voluntarily to take) any
action inconsistent with the agreement set forth therein or in this Section 7.7.
21
<PAGE>
IN WITNESS WHEREOF, Holdings has caused this Warrant to be executed in its
corporate name by one of its officers thereunto duly authorized, and its
corporate seal to be hereunto affixed, attested by its Secretary or an Assistant
Secretary, all as of the day and year first above written.
WILLCOX & GIBBS, INC.
By: /s/ John K. Ziegler
-------------------------
Name: John K. Ziegler
Title: Chairman
[Corporate Seal]
Attest:
/s/ Mary Anne Kieran
- ------------------------------
Name: Mary-Anne Kieran
Title: Corporate Secretary
<PAGE>
EXHIBIT 10.35
FIRST AMENDMENT
TO
FINANCING AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO FINANCING AND SECURITY AGREEMENT (this "Agreement")
is made as of the 23rd day of April , 1997, by and among WG APPAREL, INC., a
Delaware corporation ("Apparel"), WILLCOX & GIBBS, INC., a Delaware corporation
("Holdings"), LEADTEC SYSTEMS INC., a Delaware corporation ("Leadtec"), CLINTON
MANAGEMENT CORP., a Florida corporation ("Clinton Management"), CLINTON
MACHINERY CORPORATION, a Delaware corporation ("Clinton Machinery"), MACPHERSON
MEISTERGRAM, INC., a North Carolina corporation ("Macpherson"), jointly and
severally (each of Apparel, Holdings, Leadtec, Clinton Management, Clinton
Machinery, and Macpherson, a "Borrower;" Apparel, Holdings, Leadtec, Clinton
Management, and Clinton Machinery, collectively, the "Borrowers"), and
NATIONSBANK, N.A., a national banking association (the "Lender").
RECITALS
A. The Borrowers and the Lender entered into a Financing and Security
Agreement dated December 17, 1996 (the same, as amended, modified, substituted,
extended, and renewed from time to time, the "Financing Agreement"). The
Financing Agreement provides for some of the agreements between the Borrowers
and the Lender with respect to the "Loans" (as defined in the Financing
Agreement), including a revolving credit facility with letter of credit and
foreign exchange subfacilities in an amount not to exceed $18,500,000.
B. The Borrowers have requested that the Lender agree to modify the
Borrowing Base provisions and the treatment of Receivables received in the
Lender's Lockbox.
C. The Lender is willing to agree to the Borrowers' requests on the
condition, among others, that this Agreement be executed.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, receipt of which is hereby acknowledged, the Borrowers
and the Lender agree as follows:
1. The Borrowers and the Lender agree that the Recitals above are a part
of this Agreement. Unless otherwise expressly defined in this Agreement, terms
defined in the Financing Agreement shall have the same meaning under this
Agreement.
2. The Borrowers and the Lender agree that on the date hereof the
aggregate outstanding principal balance under the Revolving Credit Note (subject
to change for returned items and
<PAGE>
other adjustments made in the ordinary course of business) is
$_____________________.
3. The Financing Agreement is hereby amended as follows:
(a) Subpart (viii) of the definition of "Eligible Receivable" and
"Eligible Receivables" in Section 1.1 of the Financing Agreement is hereby
amended and restated in its entirety as follows:
(viii) the Receivable is not outstanding more than one
hundred twenty (120) days from the date of the invoice therefore
(b) Sub-Section (a) of Section 2.1.3 (BORROWING BASE) is hereby amended
and restated in its entirety as follows:
(a) As used in this Agreement, the term "Borrowing Base"
means at any time, an amount equal to the aggregate of (a) eighty
five percent (85%) of the amount of Eligible Receivables of all
Borrowers.
(c) Subsection (d) of Section 2.1.8 (THE COLLATERAL ACCOUNT) is hereby
amended as restated in its entirety as follows:
(d) After a Default or Event Default, the Lender will apply
the whole or any part of the collected funds credited to the
Collateral Account against any of the Obligation, the order and
method of such application to be in the sole discretion of the
Lender. It is understood and agreed, however, that, absent a
Default or Event of Default, the Lender shall cause collected
funds in the Collateral Account to be transferred to the deposit
account with the Lender on a daily basis.
(d) Section 2.1.9 (REVOLVING LOAN ACCOUNT) of the Financing Agreement is
amended and Restated in its entirety as follows:
2.1.9 REVOLVING LOAN ACCOUNT. The Lender will establish and
maintain a loan account on its books (the "Revolving Loan
Account") to which the Lender will (a) DEBIT (i) the principal
amount of each Revolving Loan made by the Lender hereunder as of
the date made, (ii) the amount of any interest accrued on the
Revolving Loan as and when due, and (iii) any other amounts due
and payable by the Borrowers to the Lender from time to time
under the provisions of this Agreement in connection
2
<PAGE>
with the Revolving Loan, including, without limitation,
Enforcement Costs, Fees, late charges, and service, collection
and audit fees, as and when due and payable, and (b) credit all
payments made by the Borrowers to the Lender on account of the
Revolving Loan as of the date made including, without limitation,
funds (if any) credited to the Revolving Loan Account from the
Collateral Account. The Lender may debit the Revolving Loan
Account for the amount of any Item of Payment which is returned
to the Lender unpaid. All credit entries to the Revolving Loan
Account are conditional and shall be readjusted as of the date
made if final and indefeasible payment is not received by the
Lender in cash or solvent credits.
(e) Section 2.1.12 (REQUIRED AVAILABILITY UNDER THE REVOLVING CREDIT
FACILITY) is hereby deleted in its entirety.
(f) Section 2.2.1 (LETTERS OF CREDIT) of the Financing Agreement is hereby
amended and restated in its entirety as follows:
2.2.1 LETTERS OF CREDIT. Subject to and upon the
provisions of this Agreement, and as a part of the Revolving
Credit Commitment, the Borrowers may obtain documentary letters
of credit and related bankers acceptances or standby letters of
credit (as the same may from time to time be amended,
supplemented or otherwise modified, each a "Letter of Credit" and
collectively the "Letters of Credit") from the Lender from time
to time from the Closing Date until the Business Day preceding
the Revolving Credit Termination Date. The Borrowers will not be
entitled to obtain a Letter of Credit hereunder unless (a) after
giving effect to the request, the Borrowers would be in
compliance with Section 2.1.1 (a) and (b), and (b) the sum of the
aggregate face amount of the then outstanding Letters of Credit
plus the aggregate of all Foreign Exchange Reserves then
outstanding does not exceed Ten Million Dollars ($10,000,000).
(g) Section 2.3.1 (FOREIGN EXCHANGE AGREEMENTS) is hereby amended and
restated in its entirety as follows:
2.3.1 FOREIGN EXCHANGE AGREEMENTS.
3
<PAGE>
Subject to and upon the provisions of this Agreement, and as a
part of the Revolving Credit Commitment, to cover the risks of
currency fluctuations with respect to those Letters of Credit and
Existing Letters of Credit which are drawable in a currency other
than U.S. dollars, or to cover other risks of currency
fluctuations in the ordinary course of the Borrowers' business,
the Borrowers may, upon the prior approval of the Lender, enter
into Foreign Exchange Agreements from time to time from the
Closing Date until the Business Day preceding the Revolving
Credit Termination Date. The Borrowers will not be entitled to
obtain a Foreign Exchange Agreement hereunder unless (a) after
giving effect to the request, the Borrowers would be in
compliance with Section 2.1.1 9a) and (b), and (b) the sum of the
aggregate of all Foreign Exchange Reserves then outstanding does
not exceed Ten Million Dollars ($10,000,000). In addition, in no
event shall the outstanding Foreign Exchange Reserves exceed
$750,000. The Lender shall calculate the amount of Foreign
Exchange Reserves in its sole discretion based upon the Lender's
determination of the credit risk associated with each Foreign
Exchange Agreement.
(h) Subsection (c) of Section 2.4 (APPLICABLE INTEREST RATE) is hereby
amended and restated in its entirety as follows:
(c) The Applicable Margin for (1) LIBOR Loans shall be two and
one-half percent (2.50%) per annum, and (ii) Base Rate Loans shall be one
quarter of one percent (.25%) per annum.
(i) Section 2.5.4 (FIELD EXAMINATION FEES) is hereby amended and restated
in its entirety as follows:
2.5.4 FIELD EXAMINATION FEES. The Borrowers shall pay
to the Lender a field examination fee (collectively the "Field
Examination Fees" and individually a "Field Examination Fee"),
which Field Examination Fees shall be payable quarterly on the
first day of each April, July, October and January of each year
commencing on the first such date following the Closing Date, and
continuing until the last such date prior to which all
Obligations arising out of, or under, the
4
<PAGE>
Credit Facilities then outstanding have been paid in full. Each
Field Examination Fee shall be in the amount of $3,750.
4. The Borrowers hereby issue, ratify and confirm the representations,
warranties and covenants contained in the Financing Agreement, as amended
hereby. The Borrowers agree that this Agreement is not intended to and shall
not cause a novation with respect to any or all of the Obligations.
5. The Borrowers acknowledge and warrant that the Lender has acted in
good faith and has conducted in a commercially reasonable manner its
relationships with the Borrowers in connection with this Agreement and generally
in connection with the Financing Agreement and the Obligations, the Borrowers
hereby waiving and releasing any claims to the contrary.
6. The Borrowers shall pay at the time this Agreement is executed and
delivered all fees, commissions, costs, charges, taxes and other expenses
incurred by the Lender and its counsel in connection with this Agreement,
including, but not limited to, reasonable fees and expenses of the Lender's
counsel and all recording fees, taxes and charges.
7. This Agreement may be executed in any number of duplicate originals or
counterparts, each of such duplicate originals or counterparts shall be deemed
to be an original and all taken together shall constitute but one and the same
instrument. The Borrowers agree that the Lender may rely on a telecopy of any
signature of any Borrower. The Lender agrees that the Borrowers may rely on a
telecopy of this Agreement executed by the Lender.
IN WITNESS WHEREOF, the Borrowers and the Lender have executed this
Agreement under seal as of the date and year first written above.
WITNESS OR ATTEST: WG APPAREL, INC.
/s/ John K. Ziegler By: /s/ John K. Ziegler (Seal)
- ---------------------------- -----------------------------
John K. Ziegler, Jr. John K. Ziegler
Assistant Secretary Chairman and Chief Executive Officer
5
<PAGE>
WITNESS OR ATTEST: WILLCOX & GIBBS, INC.
/s/ John K. Ziegler By: /s/ John K. Ziegler (Seal)
- ---------------------------- -----------------------------
John K. Ziegler, Jr. John K. Ziegler
Assistant Secretary Chairman and Chief Executive Officer
WITNESS OR ATTEST: LEADTEC SYSTEMS INC.
/s/ John K. Ziegler By: /s/ John K. Ziegler (Seal)
- ---------------------------- -----------------------------
John K. Ziegler, Jr. John K. Ziegler
Assistant Secretary Vice President
WITNESS OR ATTEST: CLINTON MANAGEMENT CORP.
/s/ John K. Ziegler By: /s/ John K. Ziegler (Seal)
- ---------------------------- -----------------------------
John K. Ziegler, Jr. John K. Ziegler
Assistant Secretary Vice President
WITNESS OR ATTEST: CLINTON MACHINERY CORPORATION
/s/ John K. Ziegler By: /s/ John K. Ziegler (Seal)
- ---------------------------- -----------------------------
John K. Ziegler, Jr. John K. Ziegler
Assistant Secretary Vice President
WITNESS OR ATTEST: MACPHERSON MEISTERGRAM, INC.
/s/ Mary-Anne Kieran By: /s/ John K. Ziegler (Seal)
- ---------------------------- -----------------------------
Name: Mary-Anne Kieran John K. Ziegler
Title: Secretary Vice President
6
<PAGE>
WITNESS: NATIONSBANK, N.A.
[ILLEGIBLE] By: /s/ David B. Thayer (Seal)
- ---------------------------- -----------------------------
David B. Thayer
Vice President
7
<PAGE>
Exhibit 11.1
Statement re: Computation of Per Share Earnings
The following table sets forth the computation of earnings per share for the
three months ended March 31, 1997 and 1996. The computation of weighted average
common shares and common share equivalents on a fully diluted basis is the same
as on the primary basis since the average and ending market price used in the
computation is the same.
1997 1996
---- ----
Net income (loss) before extraordinary item $ (503,000) $ 316,000
Extraordinary item, net (1,557,000) -
------------ ----------
Net income (loss) $(2,060,000) $ 316,000
============ ==========
Weighted average outstanding
common shares (includes 100,000 and 66,667
shares subject to put option in 1997 and
1996, respectively) 953,674 838,859
Increase due to assumed issuance of
shares related to outstanding stock options
using the treasury stock method - 1,574
Increase due to assumed exercise of stock
warrants using the treasury stock method - 136,763
------------ ----------
Adjusted weighted average number of common
shares and common share equivalents 953,674 977,196
============ ==========
Earnings (loss) per common share and
common share equivalent:
Net income (loss) before
extraordinary item $ (0.53) $ 0.32
Extraordinary item, net (1.63) -
------------ ----------
Net income (loss) $ (2.16) $ 0.32
============ ==========
16
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
1. WG, Apparel, Inc.
2. Clinton Machinery Corporation
3. Clinton Management Corp.
4. Leadtec Systems, Inc.
5. W&G Daon, Inc.
6. J&E Sewing Supplies, Inc.
7. W&G Tennessee Imports, Inc.
8. Clinton Leasing Corp.
9. Clinton Equipment Incorporated
10. Paradise Color Incorporated
11. Willcox & Gibbs, Ltd.
12. Sunbrand S.A. de C.V.
13. Sunbrand Caribe S.A.
14. Allied Machine Parts Ltd.
15. M.E.C. (Sewing Machines Limited)
16. Unity Sewing Supply Company (UK) Limited
17. Allide Machine Parts Limited
18. Matyork Limited
19. Forest Needle Company Limited
20. Morris & Ingram (Textiles) Limited
21. Eildon Electronics Limited
22. Macpherson Meistergram, Inc.
23. Geoffrey E. Macpherson Canada, Inc.
24. Embroidery Leasing Corporation
25. Sunbrand de Colombia
26. Unity de Colombia
27. Clinton de Mexico
<PAGE>
EXHIBIT 23.2
AUDITORS' CONSENT AND REPORT ON SCHEDULE
The Board of Directors
Willcox & Gibbs, Inc.:
The audits referred to in our report dated February 26, 1997 included the
related financial statement schedule as of December 31, 1996 and 1995, and
for the years ended December 31, 1996 and 1995 and for the period from July
13, 1994 (date of formation) to December 31, 1994, included in the
registration statement. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement schedule based on our audits. In our
opinion, such financial statement schedule, when considered in relation to
the basis consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
We consent to the use of our reports included herein and to reference to our
firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Atlanta, Georgia
May 29, 1997
<PAGE>
AUDITORS' CONSENT
The Board of Directors
Clinton Management Corp. and Clinton Machinery Corp.:
We consent to the use of our reports included herein and to reference to our
firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Atlanta, Georgia
May 29, 1997
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
use of our report dated February 21, 1997 and to all
references to our Firm included in this Registration Statement.
ARTHUR ANDERSEN LLP
Greensboro, North Carolina,
May 30, 1997
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
Know All Men By These Presents, that the undersigned person hereby
constitutes and appoints John K. Ziegler, Sr., John K. Ziegler, Jr. and
Mary-Anne Kieran, and each of them, such person's true and lawful
attorneys-in-fact and agents, with full power of substitution and revocation,
for such person and in such person's name, place and stead, in any and all
capacities to sign the Registration Statement on Form S-4 and any and all
amendments (including post-effective amendments) and any other documents and
instruments incidental thereto, and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their or his substitutes,
may lawfully do or cause to be done by virtue hereof.
Date: May 19, 1997 MACPHEARSON MEISTRGRAM, INC.
By: /s/ Jerry D. Lee
--------------------------------------
Jerry D. Lee
President and Chief Operating Officer
<PAGE>
POWER OF ATTORNEY
Know All Men By These Presents, that the undersigned person hereby
constitutes and appoints John K. Ziegler, Sr., John K. Ziegler, Jr. and
Mary-Anne Kieran, and each of them, such person's true and lawful
attorneys-in-fact and agents, with full power of substitution and revocation,
for such person and in such person's name, place and stead, in any and all
capacities to sign the Registration Statement on Form S-4 and any and all
amendments (including post-effective amendments) and any other documents and
instruments incidental thereto, and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their or his substitutes,
may lawfully do or cause to be done by virtue hereof.
Date: May 19, 1997 CLINTON MANAGEMENT CORP.
By: /s/ Charles Nall
--------------------------------------
Charles Nall
Vice President
<PAGE>
POWER OF ATTORNEY
Know All Men By These Presents, that the undersigned person hereby
constitutes and appoints John K. Ziegler, Sr., John K. Ziegler, Jr. and
Mary-Anne Kieran, and each of them, such person's true and lawful
attorneys-in-fact and agents, with full power of substitution and revocation,
for such person and in such person's name, place and stead, in any and all
capacities to sign the Registration Statement on Form S-4 and any and all
amendments (including post-effective amendments) and any other documents and
instruments incidental thereto, and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their or his substitutes,
may lawfully do or cause to be done by virtue hereof.
Date: May 19, 1997 CLINTON MANAGEMENT CORP.
By: /s/ Frank Scannavino
--------------------------------------
Frank Scannavino
President
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WILLCOX &
GIBBS, INC. FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,667
<SECURITIES> 0
<RECEIVABLES> 32,416
<ALLOWANCES> 3,506
<INVENTORY> 49,229
<CURRENT-ASSETS> 89,939
<PP&E> 5,475
<DEPRECIATION> 261
<TOTAL-ASSETS> 132,639
<CURRENT-LIABILITIES> 33,987
<BONDS> 85,100
0
0
<COMMON> 8,872
<OTHER-SE> (1,427)
<TOTAL-LIABILITY-AND-EQUITY> 132,639
<SALES> 42,043
<TOTAL-REVENUES> 42,043
<CGS> 29,084
<TOTAL-COSTS> 29,084
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 238
<INTEREST-EXPENSE> 2,883
<INCOME-PRETAX> (859)
<INCOME-TAX> (356)
<INCOME-CONTINUING> (503)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,557)
<CHANGES> 0
<NET-INCOME> 2,060
<EPS-PRIMARY> (2.16)
<EPS-DILUTED> (2.16)
</TABLE>
<PAGE>
EXHIBIT 99.3
WILLCOX & GIBBS, INC.
Offer to Exchange Its
12 1/4% Series B Senior Notes Due 2003
Which Have Been Registered under
the Securities Act of 1933, as amended,
For Any and All of its Outstanding
121/4% Series A Senior Notes Due 2003
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON ____________ ________, 1997, UNLESS THE OFFER IS
EXTENDED.
May ___, 1997
To Brokers, Dealers, Commercial
Banks, Trust Companies and
Other Nominees:
We are enclosing the material listed below relating to the offer of
Willcox & Gibbs, Inc., a Delaware corporation (the "Company"), to exchange
$1,000 principal amount of its 121/4% Series B Senior Notes due 2003 (the "New
Notes"), which have been registered under the Securities Act of 1933, as
amended, pursuant to a registration statement, for each $1,000 principal amount
of its 121/4% Series A Senior Notes due 2003 (the "Old Notes"), of which
$85,000,000 aggregate principal amount is outstanding, upon the terms and
subject to the conditions set forth in the Prospectus, dated _____, 1997 (the
"Prospectus") and in the related Letter of Transmittal (which together
constitute the "Exchange Offer").
THE EXCHANGE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF OLD
NOTES BEING TENDERED. The Exchange Offer is, however, subject to other
conditions. See the section "The Exchange Offer -- Conditions" of the
Prospectus.
We are asking you to contact your clients for whom you hold Old Notes
registered in your name (or in the name of your nominee) or who hold Old Notes
registered in their own names. Please bring the Exchange Offer to their
attention as promptly as possible.
For your information and for forwarding to your clients, we are
enclosing the following documents:
1. The Prospectus, dated ___________, 1997;
2. The Letter of Transmittal for your use and for the information of
your clients;
3. The Notice of Guaranteed Delivery to be used to accept the
Exchange Offer if the Old Notes are not immediately available or if the Old
Notes and all other required documents cannot be delivered to the Exchange
Agent, IBJ Schroder Bank & Trust Company, by the Expiration Date (as
defined in the Prospectus) or if the procedure for book-entry transfer
cannot be completed on a timely basis; and
<PAGE>
4. A form of letter which may be sent to your clients for whose
account you hold Old Notes registered in your name or the name of your
nominee, with space provided for obtaining such clients' instructions with
regard to the Exchange Offer.
WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE
THAT THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON ________, 1997, UNLESS THE EXCHANGE OFFER IS EXTENDED BY THE COMPANY.
To participate in the Exchange Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
Exchange Agent and certificates representing the Old Notes should be delivered
to the Exchange Agent, all in accordance with the instructions set forth in the
Letter of Transmittal and the Prospectus.
If holders of Old Notes wish to tender, but it is impracticable for them to
forward their certificates for Old Notes prior to the expiration of the Exchange
Offer or to comply with the book-entry transfer procedures on a timely basis, a
tender may be effected by following the guaranteed delivery procedures described
in the Prospectus under "The Exchange Offer -- Guaranteed Delivery Procedures."
Any questions or requests for assistance or additional copies of the
enclosed materials may be directed to IBJ Schroder Bank & Trust Company, the
Exchange Agent, at the address and telephone number set forth below:
By registered or certified mail:
IBJ Schroder Bank & Trust Company
Bowling Green Station
P.O. Box 84
New York, New York 10274-0084
Attention: Reorganization Operations Department
By hand or overnight courier:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Securities Processing Window
Subcellar one, (SC-1)
By facsimile: (212) 858-2611
Attention: Customer Service
Confirm by telephone: (212) 858-2103
Very truly yours,
WILLCOX & GIBBS, INC.
<PAGE>
EXHIBIT 99.4
WILLCOX & GIBBS, INC.
Offer to Exchange Its
12 1/4% Series B Senior Notes Due 2003
Which Have Been Registered under
the Securities Act of 1933, as amended,
For Any and All of its Outstanding
121/4% Series A Senior Notes Due 2003
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON _________________, 1997, UNLESS THE OFFER IS
EXTENDED.
May___, 1997
To Our Clients:
Enclosed for your consideration are the Prospectus, dated
____________, 1997 (the "Prospectus"), and the related Letter of Transmittal
(which together constitute the "Exchange Offer") setting forth an offer by
Willcox & Gibbs, Inc., a Delaware corporation (the "Company"), to exchange
$1,000 principal amount of its 121/4% Series B Senior Notes due 2003 (the "New
Notes"), which have been registered under the Securities Act of 1933, as
amended, pursuant to a registration statement, for each $1,000 principal amount
of its 121/4% Series A Senior Notes due 2003 (the "Old Notes"), of which
$85,000,000 principal amount is outstanding, upon the terms and subject to the
conditions set forth in the Prospectus.
WE ARE THE HOLDER OF RECORD OF OLD NOTES FOR YOUR ACCOUNT. A TENDER OF
SUCH OLD NOTES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO
YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR
INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER OLD NOTES HELD BY US FOR
YOUR ACCOUNT.
We request instructions as to whether you wish us to tender any or all
of the Old Notes held by us for your account, upon the terms and subject to the
conditions set forth in the Prospectus and the Letter of Transmittal.
Your attention is directed to the following:
(1) The Exchange Offer is for any and all outstanding Old Notes.
(2) The Exchange Offer is not conditioned upon any minimum
number of Old Notes being tendered.
(3) The Exchange Offer is subject to certain conditions set
forth in the Prospectus in the section captioned "The Exchange Offer -
- - Conditions."
(4) The Exchange Offer and withdrawal rights will expire at 5:00
p.m., New York City time, on ________________, 1997, unless the
Exchange Offer is extended. Your instructions to us should be
forwarded to us in ample time to permit us to submit a tender on your
behalf.
<PAGE>
(5) Any transfer taxes applicable to the exchange of Old Notes
pursuant to the Exchange Offer will be paid by the Company, except as
otherwise provided in Instruction 7 of the Letter of Transmittal.
If you wish to have us tender any or all of your Old Notes held by us
for your account upon the terms and subject to the conditions set forth in the
Exchange Offer, please so instruct us by completing, executing, detaching and
returning to us the instruction form on the detachable part hereof.
2
<PAGE>
WILLCOX & GIBBS, INC.
INSTRUCTIONS
WITH RESPECT TO
OFFER TO EXCHANGE ITS
12 1/4% SERIES B SENIOR NOTES DUE 2003
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OF ITS OUTSTANDING
121/4% SERIES A SENIOR NOTES DUE 2003
The undersigned acknowledge(s) receipt of your letter and the enclosed
Prospectus, dated ________, 1997, and the related Letter of Transmittal (which
together constitute the "Exchange Offer") in connection with the offer by
Willcox & Gibbs, Inc., a Delaware corporation (the "Company"), to exchange
$1,000 principal amount of its 121/4% Series B Senior Notes due 2003 (the "New
Notes"), which have been registered under the Securities Act of 1933, as
amended, pursuant to a registration statement, for each $1,000 principal amount
of its 121/4% Series A Senior Notes due 2003 (the "Old Notes"), of which
$85,000,000 aggregate principal amount is outstanding, upon the terms and
subject to the conditions set forth in the Prospectus.
This will instruct you to tender the Old Notes indicated below held by you
for the account of the undersigned, pursuant to the terms and conditions set
forth in the Prospectus and the related Letter of Transmittal. (Check one).
Box 1 [ ] Please tender my Old Notes held by you for my account. If I do
not wish to tender all of the Old Notes held by you for my
account, I have identified on a signed schedule attached hereto
the number of Old Notes that I do not wish tendered.
Box 2 [ ] Please do not tender any Old Notes held by you for my account.
Date ____________________, 1997 _______________________________
Signature(s)
_______________________________
_______________________________
Please print name(s) here
_______________________________
Area Code and Telephone No.
Unless a specific contrary instruction is given in the space provided, your
signature(s) hereon shall constitute an instruction to us to tender all Old
Notes.
